STEVE INSKEEP, HOST:
A student loan servicing company has agreed to erase $1.7 billion in private student loan debt. The company is called Navient. And its move is part of a settlement the company reached yesterday with 39 state attorneys general. Here's NPR's Cory Turner.
CORY TURNER, BYLINE: For several years, states have alleged that Navient was doing two things that were hurting borrowers. First, that its call center workers were steering borrowers into costly forbearance without telling them about flexible, income-based repayment plans because those plans require paperwork, says Persis Yu at the Student Borrower Protection Center.
PERSIS YU: There is evidence that the call center workers were incentivized to get through these calls as quickly as they possibly could. And that meant getting people into quick, easy options, not necessarily the best option for the borrower.
TURNER: For these borrowers, Navient agreed to pay $95 million. The other allegation addressed by the settlement was that the company's predecessor, Sallie Mae, had issued high-interest private loans to thousands of borrowers it knew were likely to default. State AGs argued Sallie Mae was trying to win the business of some pretty sketchy schools that would then also tap the company to manage students' federal loans. Eileen Connor directs the Project on Predatory Student Lending and says writing these risky private loans ended up being lucrative.
EILEEN CONNOR: In exchange, even if they maybe did take a little bit of a loss, it was worth it to them because it allowed them to be the preferred lenders on the federal loans for these schools.
TURNER: Connor says with the federal government backing those loans and some schools even promising to compensate Sallie Mae for any private loan defaults, it was a win-win for the company.
CONNOR: So it's like they were covered either way. The people who were really screwed were the students.
TURNER: For those students, Navient agreed to cancel $1.7 billion in debts. In a statement, the company's chief legal officer insisted the claims were unfounded and that the company was settling to avoid the additional burden, expense, time and distraction to prevail in court. Cory Turner, NPR News.
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