Navient’s Student Loan Scandal: A Student Lending Reform Wake-Up Call

The U.S. student loan system is vital to providing access to higher education, yet it has been plagued by exploitation and mismanagement. A prime example is the recent action taken by the Consumer Financial Protection Bureau (CFPB) against Navient, one of the largest student loan servicers in the country. Navient, formerly Sallie Mae, has long faced scrutiny for its predatory practices that have harmed millions of borrowers.

The CFPB looks to permanently ban Navient from servicing federal student loans and require the company to pay $120 million in penalties and restitution for widespread legal violations. This highlights a disturbing reality: student borrowers were not simply misled and their accounts mismanaged—they were systematically exploited for profit on a grand scale. It also highlights the ongoing need for student loan reform. 

Navient’s Legacy of Harm

Navient, once the largest servicer of federal student loans in the United States, played a central role in the administration and management of over $300 billion in loans for more than 12 million borrowers. For many years, Navient engaged in a range of practices that not only violated the law but also caused long-term financial harm to the very borrowers it was supposed to assist.

One of the most egregious practices involved systematically steering borrowers, especially those who were struggling to make their payments, into forbearance rather than exploring more beneficial and sustainable options, such as income-driven repayment (IDR) plans. Forbearance temporarily pauses payments but allows interest to accrue, which means that the total amount owed by borrowers continues to grow during this period. In contrast, IDR plans cap monthly payments at an affordable percentage of the borrower’s income and, in some cases, can even lead to loan forgiveness after a certain number of years. However, instead of recommending these more affordable plans, Navient pushed borrowers into forbearance—likely because it was simpler and more profitable for the company—leading to ballooning loan balances over time as interest compounded.

The financial consequences of these actions were devastating for many borrowers. For those who were placed in forbearance, their loan balances increased significantly, making repayment even more difficult. This cycle often trapped borrowers in a situation where they were constantly trying to catch up, but the growing interest made it nearly impossible to make meaningful progress in reducing their debt. The longer borrowers remained in forbearance, the more the interest accumulated, turning what could have been a manageable debt into an overwhelming financial burden.

Furthermore, Navient’s misleading practices extended beyond forbearance. Many borrowers were misinformed about the repayment plans available to them, leaving them unaware of options that could have lowered their payments or led to eventual forgiveness. In some cases, borrowers were provided with incorrect information about how much they owed or which payments were required, resulting in defaults that could have been avoided. The mishandling of payments also caused confusion, as borrowers who believed they were making payments on time were penalized with late fees or even marked as delinquent on their loans.

The harm caused by Navient’s actions went beyond just financial stress. Many borrowers saw their credit scores damaged as a result of these mismanagement issues, making it harder for them to access credit, buy homes, or even secure employment in some cases. The damage to their credit was particularly frustrating for borrowers who had followed Navient’s guidance, only to find themselves in worse financial standing due to the company’s negligence.

Perhaps the most troubling aspect of Navient’s misconduct was its treatment of disabled borrowers, including severely injured veterans. Under federal law, borrowers with permanent disabilities, including veterans who were injured in combat, are eligible for loan discharge—meaning their federal loans can be forgiven. However, Navient mishandled these cases, leading to unnecessary credit damage for these individuals. Even after their loans had been legally discharged, Navient’s failure to correctly process and report the discharges to credit bureaus resulted in disabled borrowers facing unfair credit penalties. This added an extra layer of hardship for veterans and disabled individuals who were already dealing with significant life challenges.

Breaking the Law—and Borrowers’ Trust

Navient’s actions violated multiple consumer protection laws, including the Consumer Financial Protection Act, the Fair Credit Reporting Act, and the Fair Debt Collection Practices Act. Despite knowing the impact of its behavior, Navient continued these practices for years, prioritizing its bottom line over the well-being of its borrowers. As CFPB Director Rohit Chopra stated, “For years, Navient’s top executives profited handsomely by exploiting students and taxpayers.”

This kind of predatory behavior is particularly concerning in the context of student loans, where many borrowers are already struggling under significant financial burdens. Student loans are meant to provide opportunities for education and future economic mobility, not to trap borrowers in a cycle of debt. Yet, Navient’s actions have done precisely that, with some borrowers paying far more than they should have due to the company’s unethical practices.

A Step Toward Accountability

The CFPB sued Navient in 2017 which was not the only action taken by the government against Navient. The company was penalized by the Department of Education in 2021 for its practice of overcharging borrowers and ordered to disgorge $22 million. Further, in 2022, Navient reached a $1.85 billion settlement with 39 state attorneys general.

The CFPB’s order, agreed to by Navient and proposed to the court in an effort to end the litigation started seven years ago, is a much-needed step toward holding loan servicers accountable for their treatment of borrowers. Navient would be permanently banned from servicing federal Direct Loans and from acquiring most loans under the Federal Family Education Loan Program (FFELP). This ban essentially would remove the company from the federal student loan servicing space, limiting its ability to harm borrowers at scale.

In addition, Navient will be required to pay $100 million in redress to borrowers and a $20 million penalty to the CFPB’s victims relief fund. These measures aim to provide some financial relief to those harmed by Navient’s illegal practices, though no amount of money can truly compensate for the stress and financial strain that many borrowers have experienced.

The Broader Implications for Student Lending

This case should be a wake-up call for policymakers and regulators to take a closer look at the student loan industry as a whole. While Navient is a particularly egregious example, it is not the only service that has engaged in harmful practices. The student loan system, as it stands, is riddled with complex rules, opaque processes, and organizational hierarchies that can easily confuse borrowers and lead them into financial pitfalls without any corresponding servicer accountability.

Given the importance of education in the United States, it is critical that student lending be handled with the utmost care and transparency. Predatory behavior such as that engaged in by Navient over the course of decades must be rooted out wherever it exists, and strong protections need to be in place to ensure that borrowers are not exploited.

A Call for Reform

The CFPB’s enforcement action against Navient marks an important moment in the fight for student loan reform, but it is not the end. Policymakers must build on this momentum to create a student loan system that works for borrowers, not against them. This includes strengthening oversight of loan servicers, simplifying repayment options, and ensuring that borrowers receive the information and support they need to manage their loans sensibly and effectively.

Navient’s downfall should serve as a stark reminder of what happens when profit takes precedence over the public good. Moving forward, the U.S. must ensure that student lending is driven by the principles of fairness, transparency, and accountability. Only then can we truly begin to address the student debt crisis and help borrowers achieve the financial freedom they deserve.

In the end, Navient’s actions were not just a failure of corporate ethics—they were a failure of responsibility to millions of students who relied on its entrenched system to achieve their educational and financial goals. By prioritizing its profits over the well-being of borrowers, the company deepened the financial difficulties faced by millions of Americans. Such failures must be prevented from happening again. The future of student lending—and the future of millions of students—depends on it.