The Consumer Financial Protection Bureau announced on Thursday a $120 million settlement with Navient, one of the largest student loan servicers, after years of allegations involving illegal practices.
Navient was accused of misleading borrowers about income-driven repayment plans, damaging borrowers' credit reports and miscalculating payments. Under the terms of the settlement, Navient is permanently banned from servicing federal student loans.
"For years, Navient's top executives profited handsomely by exploiting students and taxpayers," CFPB Director Rohit Chopra said in a statement. "By banning the notorious student loan giant from federal student loan servicing and ensuring the winddown of these operations, the CFPB will finally put an end to the years of abuse."
Navient has denied the allegations brought forward by the CFPB, but as part of the agreement, $100 million will be used to compensate affected borrowers. An additional $20 million will be allocated to the CFPB's civil penalty fund. This settlement could lead to compensation for hundreds of thousands of borrowers who experienced issues under Navient's management.
While the CFPB has not provided specific details about who will qualify for these payments, individuals affected by the settlement could include those who were charged late fees and accrued interest following botched payment processing, or were not properly informed of repayment options. It could also affect veterans and disabled individuals whose credit scores were damaged despite receiving a discharge on their federal student loans.
Borrowers do not need to apply for this relief, as eligible recipients are expected to be identified automatically. The CFPB has warned consumers to be cautious of scams, emphasizing that it will never request payment or additional information before issuing redress checks.