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Financial Services Law Insights and Observations

States reach $1.85 billion settlement with student loan servicer

State Issues State Attorney General Enforcement Settlement Student Lending Student Loan Servicer

State Issues

On January 13, a coalition of attorneys general from 38 states and the District of Columbia reached a $1.85 billion settlement with one of the nation’s largest student loan servicers, resolving allegations that it engaged in misconduct when servicing student loans. The settlement, subject to court approval, brings to an end multistate litigation and investigations into the allegations that the servicer steered borrowers into costly forbearances and expensive repayment plans rather than helping borrowers find affordable income-driven repayment (IDR) plans. The servicer denies violating any consumer financial laws or causing borrower harm, as stated in a separate press release, but has agreed to maintain servicing practices to support borrower success.

Under the terms of the settlement, the servicer has agreed to cancel more than $1.7 billion in private student loan balances owed by roughly 66,000 borrowers. An additional $95 million in restitution payments of about $260 each will also be sent to approximately 357,000 federal student loan borrowers, and the servicer will also pay approximately $142.5 million to the signatory AGs. The settlement also requires the servicer to make several reforms, including explaining the benefits of IDR plans and offering estimated income-driven payment options to borrowers prior to placing them into deferment or discretionary forbearance. The servicer is also required to notify borrowers about the Department of Education’s Public Service Loan Forgiveness limited waiver opportunity (covered by InfoBytes here), implement changes to its payment-processing procedures to limit certain fees for late payments or entering forbearance status, and improve communications informing borrowers of their rights and obligations.

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