On Wednesday, the Consumer Financial Protection Bureau (CFPB) and two attorneys general filed lawsuits against the nation’s largest student loan servicer, Navient, claiming it misled its borrowers in order to maximize its profits.
To reduce logistical costs and increase revenue, the education loan servicer diverted borrowers from repayment plans that would have been more suitable for them, the lawsuit said. The case, based on three years of investigation, resonates with the experience of many student loan borrowers and underscores the need for greater regulatory oversight, observers say.
“I would say that the issues that have been highlighted in this lawsuit reflect the experiences of the borrowers I work with and the stories I hear from advocates on the ground,” Persis Yu, director of the Student Loan Borrower Assistance Project at the National Consumer Law Center told the Christian Science Monitor. “We have… pushed the services and the Ministry of Education to deal with the fact that people have been abstaining for years.”
Citing Navient’s allegedly illegal practices and its alleged violations of “borrowers’ trust in the company,” the lawsuit accuses the company of various wrongdoings, including misrepresentations in co-signatures and failing to enroll borrowers in affordable repayment plans.
“For years, Navient has failed consumers who have relied on the company to help give them a fair chance to repay their student loans,” CFPB Director Richard Cordray said in a statement. “At every stage of repayment, Navient has chosen to shorten and deceive consumers to save on operating costs. Too many borrowers have paid more for their loans because Navient illegally deceived them and today’s action today is about holding them accountable.”
In one example, the agency accused Navient of mishandling student loans for those with “total and permanent disabilities,” including veterans who are unemployable due to injuries from military service. According to the Department of Education, their federal loans should be repaid without affecting their credit report.
Yet Navient allegedly failed to follow instructions and, according to the lawsuit, mistakenly flagged thousands of disabled borrowers’ loan write-offs as defaults, tainting their credit reports, which could prevent them from obtaining mortgages and other loans.
Navient denies any wrongdoing, calling them “agenda-driven ultimatums.”
“The Consumer Financial Protection Bureau’s allegations are unfounded, and the timing of this lawsuit — filed at midnight on the eve of a new administration — reflects their political motivations,” the company said in a statement. .
Navient, a collection agent for federal and private student loans, provides services ranging from processing monthly payments to helping borrowers enroll in repayment plans. While not a lender itself, the company has more than 12 million customers, more than six million of which come from its federal contract with the U.S. Department of Education, and manages more than $300 billion. of loans.
The company, which split in 2013 from Sallie Mae, paid $90 million in settlement in 2014 for charging military interest rates above 6%. Navient directed 66% of its political donations to Republican candidates in the 2015-2016 election year, according to a Federal Election Commission report.
The CFPB, for its part, had a structure that was ruled “unconstitutional” by a federal appeals court in October, and it has long been the target of criticism from Republican lawmakers, who want to constrain the agency and who have called the president-elect to replace Mr. Cordray, reports The Christian Science Monitor.
Student loan debt in the United States hit record highs in 2016, averaging $30,100 per borrower, according to a report by the Institute for College Access & Success. Record borrowing and debt levels have become a major issue in the presidential race, with all major candidates proposing reform plans.
Navient’s alleged oversight failures, such as forcing borrowers in long-term financial difficulty to forbear – which temporarily suspends or reduces payment but charges interest, are not uncommon in all domains, according to Ms. Yu.
Some of these issues simply stem from structural failures in the industry, Yu says.
Although the income-driven repayment plan can significantly help many low-income people by lowering the monthly payment to as little as $0, it is “administratively difficult” to manage, Yu says. it takes into account the income of the person and the size of the family, it requires a lot more paperwork.
“We think there’s kind of a pervasive problem of just heading into forbearances because frankly that’s the easiest thing to do,” Yu says. if they could get an affordable repayment plan instead.”
Additionally, there is an incentive for debt collectors who work for the Department that tends to hurt borrowers. The higher profits service agents receive from enrolling borrowers in rehabilitation motivates them to refer borrowers this way, Yu says, rather than directing them to other programs that will produce the same results, such as consolidation. , a slightly faster process for the borrower.
Although some believe there will be similar lawsuits on the ground, Yu says Navient’s case underscores the importance of having a proactive national regulatory watchdog, and she hopes the case will lead to greater compliance. with the law.
The case “highlights the need for the office and its role as an active, independent watchdog,” she says. “It’s not just an incredibly difficult situation for the individual borrower. There needs to be an entity like the CFPB that watches over all of these different issues that may arise, especially when they arise at a systemic level.
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