The government banned Navient from servicing federal student loans. What borrowers should know

Navient, once among the largest student loan servicers in the U.S., is permanently banned from servicing federal student loans, according to a settlement reached by the company and the Consumer Financial Protection Bureau (CFPB).

In prepared remarks issued after Thursday’s announcement, CFPB Director Rohit Chopra said, “Today, we are closing the book on Navient — one of the worst offenders in the student loan servicing industry, a company that has harmed millions of borrowers across the country.”

The proposed order also bars the company from acquiring or servicing additional loans under the Federal Family Education Loan Program (FFELP).

In addition, Navient must pay $120 million in restitution and penalties, with $100 million paid to affected borrowers and $20 million paid to the CFPB’s victim relief fund.

It’s important to note that Navient is already on its way out of the servicing business. Leading student loan expert Mark Kantrowitz points out that Navient left the Direct Loan program in October 2021, transferring those loans to Maximus. Earlier this year, Navient also announced plans to outsource the servicing of its FFELP portfolio to MOHELA.

“Today’s action doesn’t just hold Navient accountable for past misconduct — it ensures that the company can never creep its way back into a federal contract and take advantage of students and taxpayers,” said Chopra.

Navient’s history of loan mismanagement

The settlement comes almost eight years after the CFPB initially filed a complaint in January 2017. In it, the bureau alleged Navient:

• Engaged in abusive, unfair and deceptive acts that steered borrowers facing financial hardship into costlier forbearance plans instead of income-driven repayment plans. 
• Failed to inform borrowers of the requirements of their repayment plans.
• Made numerous processing errors.
• Misled private student loan borrowers about the requirements of releasing co-signers.

This isn’t the first time the servicer has reached a settlement that impacted borrowers. The CFPB investigation prompted 39 state attorneys general to take action. In 2022, Navient reached a $1.85 billion settlement to resolve claims of forbearance steering practices and originating predatory subprime private student loans. As a result, Navient canceled $1.7 billion of debt held by subprime private student loan borrowers and paid $95 million in restitution to roughly 350,000 federal student loan borrowers.

The new settlement appears to conclude the Navient saga and prevent the writing of a new one.

What this means for borrowers

Eligible borrowers will receive checks from the CFPB in the mail. Payment will be automatic, so consumers don’t need to do anything. However, borrowers should be aware of scammers who may take advantage of this situation. The bureau will never ask for additional information or payment for you to receive a check. The CFPB encourages borrowers to visit its website to learn more about redress checks and avoiding scams.

Unless directed otherwise, borrowers in repayment should maintain their monthly payments. 

The CFPB encourages anyone experiencing similar servicing issues to report them to the Consumer Complaint Database.

Understand your student loan terms and options

Those currently paying off their student loans can use this as a cautionary tale that shows the importance of knowing the terms of your repayment and what to do during financial hardship. 

Those facing financial hardship should know their options to avoid forbearance. These may include income-driven repayment or deferment. The latter allows you to pause payment on federal subsidized loans without accruing interest.

“Borrowers with hardship can apply to have their income-driven payment amount adjusted to their current income, which could lower their payments to $0 if they don’t have much income,” says Robert Farrington, founder and CEO of The College Investor.”This is ‘better’ than deferment because $0-per-month payments under IDR plans count toward future loan forgiveness. Deferment and forbearance do not.”

Along with knowing terms and options, borrowers should closely monitor their accounts to ensure their payments are being applied correctly. Take any questions you have or issues you spot to your servicer immediately.

Such issues may include:

• Missing payment history.
• An unknown charge.
• Balance higher than it should be.
• Transaction not showing in bank account.
• Loan payoff not showing on credit report.

While there have been some bad actors in the space, lenders and loan servicers are still the best resources for borrowers to find answers and assistance specific to their accounts. 

“The general rule of thumb is to always reach out to your loan servicer with questions,” says Farrington. “For federal loans, the rules are set by the government, and your loan servicer is simply doing what they are allowed to.”

Kantrowitz also recommends borrowers look for information on the Federal Student Aid website. There, visitors can find guidance on applying for and paying back federal student loans and applying for loan forgiveness.  

Trouble on horizon for MOHELA

Starting October 21, some borrowers will be switching student loan servicers as MOHELA takes over Navient’s remaining federal and private student loan portfolio. However, MOHELA has recently faced scrutiny over its own practices.

In 2023, MOHELA failed to send billing statements in time, resulting in hundreds of thousands of delinquencies. Now, in an ongoing suit reported by Bankrate this summer, the American Federation of Teachers (AFT) has accused the federal student loan servicer of illegal lending practices, misleading borrowers and failing to track Public Service Loan Forgiveness progress properly.

Just one day before the CFPB announced the Navient settlement, Senator Elizabeth Warren took to X, formerly known as Twitter, to share that she and over 50 lawmakers were requesting that Secretary of Education Miguel Cardona end the department’s contract with MOHELA.

The bottom line

Resolving the Navient case took years, and what will happen with MOHELA remains to be seen. What both cases share is the presence of multiple advocates working toward fairer treatment for student loan borrowers.

“Today’s order marks a significant step in protecting student loan borrowers and enforcing consumer protection laws,” said Chopra. “Our goal is clear: to provide relief for those harmed and prevent future borrowers from facing similar exploitation. Together, we can make higher education a path to opportunity, not financial distress.”