100K US Student Loan Borrowers Could Receive Checks Upto $2K From Federal Loan Servicer After CFPB Settlement

US student borrowers who were steered into costly forbearances from affordable repayment plans by former federal loan servicer Navient could soon receive a check in the mail more than a year after the Consumer Financial Protection Bureau (CFPB) reached a $120 million settlement with the lender.

Although the CFPB has yet to share the number of borrowers who will receive checks under the settlement, higher education expert Mark Kantrowitz analysed historical data to estimate that at least 100,000 people could get one, with each payment likely to be several hundred dollars.

According to the CFPB, payments began on 13th February, and the payments, administered by Rust Consulting, are ongoing. Some people have received checks of up to $2,000, and payments ranged from $100 to $2,000.

The CFPB alleged that Navient steered borrowers towards expensive forbearances, which compelled many to pay high 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. 'These checks are necessary and will help make debtors whole after the harm they faced due to Navient's misconduct.'

According to the lawsuit, the CFPB claimed that Navient created 'obstacles to repayment by providing bad information, processing payments incorrectly, and failing to act when borrowers complained,' adding that the company 'illegally cheated many struggling borrowers out of their rights to lower repayments,' causing them to pay more than they had to for their loans.

Downfall of The Largest Student Debt Servicer

Navient used to be the largest student loan servicer in the US, managing over 12 million accounts at one point. However, the settlement terms with the CFPB ban the company from handling federal education loans. Note that Navient still plays a role in the private student loan market.

Regarding the checks, a Navient spokesperson said the CFPB is responsible for administering the funds and identifying the borrowers who will receive them.

In recent years, the US Department of Education has transferred many borrowers between student loan servicers. Navient's federal student loan accounts were initially transferred to Mohela and could have subsequently been switched to Aidvantage, Nelnet, or EdFinancial. However, you can find a record of the companies that have managed your debt at Studentaid.gov.

The settlement payments began more than a year after US President Donald Trump effectively put the CFPB on ice, triggering concerns that hundreds of millions in payments stemming from enforcement actions started under the Biden administration were at risk. Former CFPB official Mike Pierce stated that the administration's actions had delayed payouts, while giving the industry a 'free pass' despite mounting student debt delinquencies.

Forbearences Cost You Significant Money

If you enter forbearance, you don't have to make loan repayments. However, interest continues to accrue on your outstanding debt, which can prove costly over the long term.

In March 2017, Navient's average loan amount in forbearance was $43,000, which means a borrower's balance would increase by around $3,000 each year of forbearance, assuming a 6.8% interest rate. Some consumer advocates believe that borrowers are better off choosing a repayment plan they can afford.