Student Loan Giant Nears Settlement with Education Department

With the U.S. Department of Education nearing a deal with Navient Corp. over allegations the company cheated active-duty troops on federal student loans, the end could be near for a much delayed and heavily criticized investigation into whether laws protecting members of the military were broken.

Navient, the nation’s largest student loan specialist - formerly known as Sallie Mae - is a major government contractor. Thomas Skelly, the Education Department’s acting chief financial officer, told a Senate Appropriations subcommittee the department is finalizing an agreement with Navient that is expected to be completed by May 1.  

The Education Department’s investigation followed a May 2014 deal with the government that saw Navient settle federal accusations it had intentionally overcharged about 60,000 active-duty troops on federal and private student loans for nearly a decade. The company neither admitted nor denied wrongdoing but agreed to pay $60 million to troops as part of its settlement with the Federal Deposit Insurance Corp. and the U.S. Department of Justice.

Navient’s revenues from its loan-servicing contract have soared in the last year. In the last half of 2014, revenues increased nearly 10%, to $68 million, compared with the first six months of 2014, according to filings with the Securities and Exchange Commission.

Navient would lose an estimated $130 million in annual revenues if the Education Department terminated the company’s loan-servicing contract. Prominent groups, including the AFL-CIO, the nation’s largest labor federation, have urged Education Secretary Arne Duncan to dump Navient.

The Education Department has enjoyed a close relationship with Navient and predecessor company Sallie Mae. Some company executives formerly held prominent positions at the department. Navient collects payments on nearly $300 billion in student loans.

Education Department officials declined to comment on the settlement and Navient officials were not available for comment.

An Education Department spokesperson declined comment. Patricia Christel, a Navient spokeswoman, didn’t respond to messages seeking comment.

The settlement could anger Democrats and student advocates who have urged the Education Department to take a harder line against corporate wrongdoing.

Sen. Patty Murray, (D-Wash.), along with other Senate Democrats, has made student debt central to their political agenda.

"I continue to be deeply concerned about the allegations that a student loan servicer knowingly overcharged service members while they were on active duty," Murray said. "This is an issue I’m going to continue to be focused on to make sure our men and women in uniform are treated fairly [and] can continue their education without the fear of predatory practices."