More than a year after the Consumer Financial Protection Bureau reached a $120 million settlement with a former federal debt collector, some student loan borrowers can expect to see their checks soon. Navient.
The CFPB said Navient steered student loan borrowers away from affordable repayment plans and into high-cost deferrals, leaving many borrowers paying high interest rates.
“People suffered real-world consequences, including their children’s development delays, their inability to buy a home, and their inability to go back to school if they wanted to,” said consumer advocate Julia Barnard, who was the CFPB’s head of student loans when the settlement was announced.
“These checks are necessary and will help debtors recover damages faced by Navient’s fraudulent conduct.”
A Navient spokesperson said at the time of the settlement that it disagreed with the CFPB’s claims.
At one time, Navient was the largest student loan servicer in the United States, managing accounts for more than 12 million people. As part of the settlement, the CFPB prohibited the company from handling federal education loans, but the company continues to play a role in the private student loan market.
According to the Congressional Research Service, more than 42 million Americans have student loans, totaling more than $1.6 trillion in debt.
Here’s what borrowers need to know about settlement funds.
Eligible borrowers are those who have been forgiven
If you have federal student loans with Navient and your account was in forbearance before 2017, you may be eligible to receive a check, higher education expert Mark Kantrowitz said.
Over the years, the U.S. Department of Education has transferred many borrowers between student loan servicers at one time or another. You should be able to search for records of the company that managed your debt on Studentaid.gov. Navient’s federal student loan accounts may have initially been transferred to Mohela and then switched to Aidvantage, Nelnet, or EdFinancial.
Asked about the settlement this week, Navient spokeswoman Kate Fitzgerald said: “The CFPB is responsible for managing the funds and identifying the borrowers who will receive the funds under our agreements.”
The CFPB did not respond to requests for comment. On its website, the agency directs consumers with questions about settlement benefits to call the third-party payment administrator, Rust Consulting, at 1-800-711-8418 or email navient_info@rustcfpbconsumerprotection.org.
At least 100,000 borrowers could receive checks
The CFPB has not disclosed how many borrowers will be compensated under the settlement. But Kantrowitz estimates that at least 100,000 people could receive a check, based on an analysis of Navient’s historical data on borrowers in forbearance.
Kantrowitz said typical payments are likely to be in the hundreds of dollars.
Borrowers on Reddit have reported settlement payments of up to $2,000 so far.
“We are pleased that debtors have already received the checks they are entitled to,” Bernard said.
Economic impact of forbearance
When a borrower enters the forbearance period, they do not have to make any payments, but interest typically continues to accrue on the loan.
As the Navient settlement showed, forbearance can be costly for borrowers. Although it may be tempting to put your loan payments on hold, the balance can increase significantly, making it difficult to repay it once the relief period ends.
As of March 2017, the average loan size in Navient’s forbearance was about $43,000, Kantrowitz said. He calculated that, assuming an interest rate of 6.8%, a borrower’s balance would jump by nearly $3,000 for each billing pause.
Consumer advocates say borrowers are better off finding repayment plans they can afford.
