The Biden administration is considering approving a deal under which Navient, the student loan company reviled by many progressives, would no longer collect monthly loan payments on behalf of the Education Department and transfer the accounts of nearly six million federal borrowers to another company.
Navient announced on Tuesday that it has reached an agreement to transfer its federal loan servicing accounts to Maximus, a large government contractor that has for years managed the Education Department’s portfolio of defaulted student loans.
The deal, if green-lighted by Education Department officials, would represent one of the most dramatic shakeups of how the federal government collects student loans in recent years.
It comes as the Biden administration prepares to resume collecting federal student loan payments that have been frozen since the beginning of the pandemic while also figuring out how to respond to pressure from progressives to cancel large swaths of the $1.6 trillion of outstanding federal student debt.
Richard Cordray, the head of Federal Student Aid, said in a statement to POLITICO that his office had been monitoring the negotiations between the two companies and is now in the process of considering the deal.
Federal Student Aid officials are “reviewing documents and other information from Navient and Maximus to ensure that the proposal meets all legal requirements and properly protects borrowers and taxpayers,” Cordray said.
“Navient is pleased to work with the Department of Education and Maximus to provide a smooth transition to borrowers and Navient employees as we continue our focus on areas outside of government student loan servicing,” Jack Remondi, Navient’s president and CEO said in a statement.
The financial terms of the deal between Navient and Maximus were not disclosed. The two companies said that they expect to finalize the transaction in the fourth quarter of this year.
Navient, which spun off from Sallie Mae in 2014, has long been the most controversial of the cadre of companies hired by the Education Department. It has been repeatedly targeted by progressives over allegations that it mistreated student loan borrowers.
In 2017, the Consumer Financial Protection Bureau, then led by Cordray, sued the company, accusing it of misleading and deceiving borrowers. Navient sought to settle the CFPB lawsuit during the Trump administration, but an agreement was never reached and the company is still fighting the case in court.
Six other Democratic state attorneys general have since followed with their own lawsuits that make similar allegations that the company misled or mistreated student loan borrowers. Federal judges in each of the cases have ruled that the lawsuits may proceed, though the company has denied the allegations and continues to defend itself.
Sen. Elizabeth Warren (D-Mass.) has been the chief critic on Capitol Hill of the Education Department’s relationship with Navient, including when the Obama administration extended Navient’s contract in 2014. Earlier this year she called on the Biden administration to fire the company.
Navient manages the federal student loan accounts of 5.6 million borrowers who collectively owe approximately $283 billion, according to the company’s most recent financial statement.
But Navient’s work for the Education Department accounts for a relatively small share of its business, about 6 percent of its revenue, according to the company. Navient also has a private student lending business and a portfolio of older, federally-guaranteed student loans.
Monthly payments and interest on most federal student loans have been paused since March 2020 under pandemic relief approved by Congress and subsequently extended through executive actions by both then-President Donald Trump and President Joe Biden.
The Biden administration most recently extended the payment freeze and zero-percent interest benefit, which apply to roughly 40 million Americans, until January 2022. Education Department officials have said that was the final extension of relief and are preparing to resume collecting student loan payments in February.
The Navient deal further complicates that process because it is just the latest federal student loan servicer to seek to drop out of the program. Roughly 16.5 million student loan borrowers will now have a new company managing their loans in the coming months.
Besides Navient, two other loan servicers — the Pennsylvania Higher Education Assistance Agency and Granite State — have announced that they want to exit the loan servicing program.
Meanwhile, Education Department officials last week extended for another two years the contracts of two other companies that collect federal student loans, Nelnet and its subsidiary, Great Lakes. The contract extensions include new requirements that the companies follow state consumer protection laws and more extensively report data to the Education Department.