39 State Attorneys General Reach $1.85 Billion Settlement With Student Loan Servicer

On January 13, thirty-nine state Attorneys General announced that they had reached a settlement with a national student loan servicer.  The settlement resolves allegations that, since 2009, the servicer had been steering borrowers into higher-cost, longer-term forbearance arrangements.  The Attorneys General alleged the practices increased borrower loan balances and violated various provisions of each state’s laws.  Additionally, the Attorneys General alleged the servicer also originated subprime loans targeting students from for-profit schools with low graduation rates.

Under the terms of the agreement, the servicer agreed to cancel approximately $1.7 billion in subprime student loan balances.  The servicer also agreed to pay $95 million in restitution payments to individual borrowers.  In addition to the financial terms of the settlement, the servicer agreed to explain income-driven repayment options to borrowers and enhance borrower counseling on alternative payment options.