- [Narrator] As tens of millions of Americans prepare
to resume payments of their federal student loans in May,
a small group of borrowers
will soon see their debt canceled.
Student loan servicing giant Navient said
it would cancel $1.7 billion in private student debt
for about 66,000 borrowers.
- So this is a very big deal.
It's one of the biggest sums of forgiveness
if not the biggest sum of forgiveness of this kind
in the student loan space in years.
- [Narrator] Navient reached a settlement
with 39 state attorney generals
to resolve claims that it engaged
in deceptive and predatory lending practices.
So which student borrowers will be impacted
by this settlement?
And could it lead to future opportunities
for loan forgiveness?
Navient was once a part
of the student loan giant Sallie Mae.
Nearly all the canceled loans involved in the settlement
originated at Sallie Mae from 2002 to 2010
at a time when student debt soared,
on its way to becoming the second highest form
of household credit after mortgages.
- Credit was very loose
and anyone who wanted to get a loan,
whether it was from the federal program
or they private program
really didn't have trouble doing that.
- [Narrator] The loans involved in the settlement
primarily went to borrowers with poor credit
and who attended schools with shaky records.
This included many for-profit schools.
- But what Navient is accused of doing back
when it was part of Sallie Mae
is steering students into loans
that were too high relative
to what they could expect to earn
once they left school
because the schools themselves
just were not high quality schools.
- Through our investigation,
we learned that Navient specifically targeted students
who they believed would struggle
to pay those loans back.
- [Narrator] States also accused Navient
of pushing struggling borrowers further into debt
by steering them into forbearance programs,
rather than enrolling them
into low-cost repayment plans tied to their income.
Forbearance programs allow borrowers
to postpone payments that add more interest
to the overall loan balance over time.
As part of the settlement,
Navient will pay $95 million
to about 350,000 federal loan borrowers placed
into certain forbearance programs
or about $260 each.
- What Navient is accused of doing
is basically saying look, just go into forbearance
and everything will be okay.
And so essentially, the loan turns into a form of quicksand
where you're already having trouble making the loan,
interest accrues and now it's becoming even harder
and harder to pay off a loan.
- [Narrator] All of the loans forgiven
as part of the settlement were in default
and under the terms of the agreement,
Navient did not admit to any liability or misconduct.
Navient's chief legal officer said,
"The company's decision to resolve these matters,
which were based on unfounded claims,
allows us to avoid the additional burden,
expense, time and distraction to prevail in court."
- Navient is not admitting wrongdoing
and yet they are still agreeing
to pay this amount of money to students
who took out loans.
They said look, we are going to pay this
but we're only doing it because we don't want
to go into an expensive court case.
- [Narrator] Sallie Mae was not a defendant in the case.
A spokesperson for the company said,
"It has been a separate and independent company
from Navient for nearly a decade,
and they are not a party to the settlement."
He added that Sallie Mae provides
responsibly underwritten private student loans
and the vast majority of borrowers
are effectively managing their payments.
According to the settlement administrator's website,
private borrowers who qualify for debt cancellation
will be notified by July
and federal loan borrowers eligible for restitution
should see payment by the middle of the year.
The deal canceled student debt for neatly 66,000 people,
which accounts for a fraction
of the country's student loan borrowers.
According to Education Department data,
around 43 million Americans still owe $1.6 trillion
in federal student loan debt.
The settlement covers loans that are strictly private.
They were not a part of the federal loan program.
However, many of the borrowers affected
by the settlement have both federal
and private student loans.
- If you're looking at the big picture
of who has student debt,
there's still a lot of student debt out there
and a lot of people who before the pandemic
were defaulting on their loans.
- [Narrator] Still, the Navient settlement
raises bigger questions
about the federal student loan system as a whole.
- If states are saying look, Navient,
you engaged in predatory lending
by giving students these loans
to go to these schools that were bad schools,
then why wouldn't the same standard be held
to the federal government?
So what does that say about the Education Department
federal student loan program?
At some point is the federal government going
to confront a lot of these loans are unrepayable
and if it does, what is it going to do about that?
- [Narrator] Meanwhile, President Biden
is facing increasing political pressure
to fulfill his campaign promise
of canceling $10,000 of debt per student borrower.
Some lawmakers are even pushing him
to cancel up to $50,000 per borrower,
a move Biden says he opposes.
Instead, the Biden administration has opted
for a more targeted approach to student loan forgiveness
by canceling debt for specific groups of borrowers,
such as students who were defrauded by now defunct schools.
- So while the Biden administration hasn't tried
to aggressively cancel student debt wholesale
the way a lot of progressives want the administration to,
it is looking at these different options.
(dramatic music)