Student loan provider Navient deceived borrowers to boost profits, the Pennsylvania Attorney General's Office charged in a lawsuit Thursday.

The suit alleges Navient peddled subprime loans "to many borrowers" who had a high probability of defaulting on their loans. The company purportedly approved loans to college students attending institutions with low graduation rates, expecting "that an extremely high percentage of students would not be able to repay them," the suit said.

"The scheme costs billions of dollars that's been taken out of the pockets of students," Attorney General Josh Shapiro told CNBC on "Power Lunch," detailing that one of the programs Navient ran "cost student loan holders $4 billion."

Shares of Navient plunged 12 percent Thursday after Philly.com first reported the story. The company is one of the largest student loan providers in the U.S., valued at more than $3.5 billion, according to FactSet.

Navient fired back in a statement, saying "the allegations are completely unfounded."

"The case was filed without any review of Pennsylvania residents' customer accounts," Navient said, before adding that the company complies with all Congress and Department of Education rules governing student loans.

The attorney general's office said it is seeking restitution those unfairly affected by Navient's actions.

The suit could "impact hundreds of thousands of Pennsylvanians," Shapiro said, and "includes anyone who received private student loans from Sallie Mae."