Some student loan borrowers can soon expect a check in the mail, more than a year after the Consumer Financial Protection Bureau reached a $120 million settlement with former federal servicer Navient.
The CFPB said Navient steered student loan borrowers away from affordable repayment plans and into expensive forbearances, causing many to pay steep interest charges.
“People suffered real consequences — delaying children, not buying homes or returning to school when they wanted to, and more,” said consumer advocate Julia Barnard, who was the top student loan official at the CFPB when the settlement was announced.
“These checks are necessary and will help make debtors whole after the harm they faced due to Navient’s misconduct.”
A Navient spokesperson, at the time of the settlement, said it disagreed with the CFPB’s allegations.
At one point, Navient was the largest student loan servicer in the U.S., managing the accounts of more than 12 million people. As part of the settlement, the CFPB banned the company from handling federal education loans, although it continues to play a role in the private student loan market.
More than 42 million Americans hold student loans, and the outstanding debt exceeds $1.6 trillion, according to the Congressional Research Service.
Here’s what borrowers should know about the settlement compensation.
Qualifying borrowers are those put in forbearance
If you had federal student loans with Navient and your account was placed in a forbearance in 2017 or earlier, you may qualify to receive a check, said higher education expert Mark Kantrowitz.
Over the years, the U.S. Department of Education has transferred many borrowers between student loan servicers, once or even multiple times. You should be able to pull up a record of the companies that have managed your debt at Studentaid.gov. Navient’s federal student loan accounts were originally transferred to Mohela, and may have subsequently been switched to Aidvantage, Nelnet or EdFinancial.
Asked this week about the settlement payments, Cate Fitzgerald, a spokesperson for Navient, said, “the CFPB is responsible for administering the funds and, under our agreement, identifying the borrowers who will receive them.”
The CFPB did not respond to a request for comment. On its website, the bureau directs consumers with questions about settlement compensation to call the third-party payments administrator, Rust Consulting, at 1-800-711-8418 or email [email protected].
At least 100,000 borrowers may get a check
The CFPB has not shared the number of borrowers who will be compensated under the settlement. However, Kantrowitz estimates that at least 100,000 people could get a check, based on his analysis of historical data of Navient borrowers in forbearance.
The typical payment will likely be several hundred dollars, Kantrowitz said.
Borrowers on Reddit have so far reported settlement payments of up to $2,000.
“I’m happy to see that debtors are already receiving these checks that they’re entitled to,” Barnard said.
Financial consequences of forbearances
When a borrower enters forbearance, they are not required to make payments, but interest typically continues to accrue on their loans.
As the Navient settlement showed, forbearances can be costly for borrowers. While it can be tempting to put your loan payments on hold, your balance can grow much larger and, therefore, be harder to repay when the relief period ends.
In March 2017, the average loan amount in forbearance by Navient was around $43,000, Kantrowitz found. That means a borrower’s balance would spike by nearly $3,000 each year their bill was paused, assuming a 6.8% interest rate, he estimated.
Borrowers are better off finding a repayment plan they can afford, consumer advocates say.