When someone uses the phrase “total catastrophe,” they’re probably not too happy.
Former President Donald Trump used those very words during the debate with Vice President Kamala Harris on Sept. 10 when referring to the Biden administration’s efforts to cancel student loan debt.
Related: Navient Agrees to Cancel $1.7 billion in Student Loans
Trump had started off by saying Harris would not be able to make good on a promise to sign a law that would protect abortion rights.
“She won’t even come close to it,” Trump said. “You know what it reminds me of? When they said they’re going to get student loans terminated and it ended up being a total catastrophe.”
He added that “all these students got taunted with this whole thing.”
Last year, the U.S. Supreme Court ruled that the administration’s first attempt to cancel up to $400 billion in student debt without prior authorization from Congress was unconstitutional.
And on Sept. 5 U.S. District Judge Randal Hall in Augusta, Ga., issued a temporary restraining order against President Joe Biden’s second effort to cancel student debt for millions of Americans.
Navient agrees to settle a government lawsuit.
Feds: Navient ‘repeat offender’
Attorneys general from seven Republican-led states had charged the U.S. Department of Education’s new debt=cancellation effort, like its previous attempts, was illegal.
They claimed the education agency was trying to secretly implement the plan before that rule was issued in October.
Related: Navient faces probe from feds over ‘flawed’ loan forgiveness
A senior Biden administration official told CNBC that the Department of Education had instructed loan servicers only to get ready for the debt cancellation.
Student loan borrowers in the U.S. owe roughly $1.74 trillion in federal and private student loan debt, according to the Federal Reserve.
One of those private companies is Navient (NAVI) , a Herdon, Va., loan servicer that was formed in 2014 by the split of Sallie Mae.
The company said in a Sept. 12 filing with the Securities and Exchange Commission that it had entered into a stipulated final judgment and order to resolve litigation with the Consumer Financial Protection Bureau.
Navient agreed to pay a $20 million penalty plus an additional $100 million to a group of borrowers who will be determined by the CFPB.
In addition, the company also agreed not to reenter servicing of federal student loans and not to acquire any additional ownership interest in Federal Family Education Loan Program loans.
Navient said in a statement that the agreement “puts these decade-old issues behind us.”
“While we do not agree with the CFPB’s allegations, this resolution is consistent with our go-forward activities and is an important positive milestone in our transformation of the company,” the company said. “Navient is no longer a servicer or purchaser of federal student loans.”
The company said it transferred its contract to service government student loans to a third party in 2021. Earlier this year, Navient reached an agreement to outsource student loan servicing of its legacy FFELP student loan portfolios, which began on July 1.
Navient said it would oversee its third-party provider to meet all operational terms of the agreement.
Federal regulators said they had filed the complaint against Navient “for its years of failures and lawbreaking” and described the company as “a repeat offender with a long history of regulatory violations.”
“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.”
The investigation of Navient kicked off a series of efforts by state and federal agencies to examine forbearance steering and other breakdowns in the income-driven repayment program, the agency said.
Those efforts have resulted in more than $50 billion in debt relief for more than one million borrowers who were wrongly steered into forbearance. This allows borrowers to temporarily postpone or reduce their federal student loan payments, the bureau said. This group includes those borrowers who had payments miscounted, the agency said.
Navient CEO: ‘We’re making progress’
At the time of the CFPB’s lawsuit in 2017, Navient was the largest student loan servicer in the U.S., servicing student loans for more than 12 million borrowers, including more than six million accounts under its contract with the Education Department.
“This practice was cheaper and simpler for Navient, but detrimental to borrowers,” the CFPB said. “By steering struggling borrowers into forbearance – where interest continues to accrue and capitalize – Navient’s illegal actions led numerous borrowers to pay additional interest charges.”
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In July, Navient missed Wall Street’s second-quarter earnings and revenue forecasts.
During the earnings call with analysts President and CEO David Yowan described “a new organizational structure” with a management that was “flatter, with [fewer layers] and a smaller executive team.”
“I’m pleased that we’ve completed several key steps in our journey to becoming more focused, flexible and efficient,” Yowan said. “Further, we’re aggressively and deliberately making meaningful progress on future milestones.”
In August, U.S. Sens. Elizabeth Warren (D-Massachusetts), Bernie Sanders (I-Vermont) and other lawmakers wrote a letter to Yowan claiming that they had elevated concerns that Navient’s process for canceling loans for borrowers who were defrauded by schools “is flawed, convoluted, and opaque.”
The letter was a follow-up to an April missive where the lawmakers urged Navient to cancel “decades-old, predatory student loans” after it coordinated with “fraudulent for-profit schools” to push loans onto borrowers that were “likely to default.”
Navient said that it would comply through an “enhanced process.”
In January, Navient said it would cancel $1.7 billion in student loans to settle litigation filed by a number of state attorneys general. Those actions accused the company of “widespread unfair, deceptive, and abusive student loan servicing practices and abuses in originating predatory student loans.”
The settlement, coordinated by a coalition of 39 attorneys general, resolved claims dating back to 2009 and will result in $1.7 billion in debt cancellation and $95 million in restitution.
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