The Consumer Financial Protection Bureau (CFPB), a U.S. federal government agency, is suing student loan servicer Navient for “failing borrowers at every stage of repayment.”
The CFPB filed the lawsuit Wednesday, alleging that Navient cheated borrowers out of repayment rights.
“At every stage of repayment, Navient chose to shortcut and deceive consumers to save on operating costs,” said CFPB Director Richard Cordray in a statement. “Too many borrowers paid more for their loans because Navient illegally cheated them and today’s action seeks to hold them accountable.”
In addition to the CFPB suit, the Washington State Attorney General and Illinois State Attorney General are also suing Navient and Sallie Mae (which formerly owned Navient) for unfair student loan practices.
8 major claims against Navient student loans and Sallie Mae
Navient is currently the largest servicer in the U.S. for federal and private student loans.
It services 12 million student loan accounts totaling more than $300 billion. And they haven about an equal mix of private and federal student loans, reports CNN. Navient includes two subsidiaries, Navient Solutions, and Pioneer Credit Recovery.
Here’s what you need to know about the allegations and claims made in these government lawsuits.
1. Incorrectly allocated student loan repayments
The CFPB claims that Navient incorrectly applied payments to student loans. It allegedly does so often and in violation of the borrower’s express instructions.
The Washington State Office of the Attorney General claims this can sometimes increase the student loan interest charged and lead to payment confusion or even collections.
Additionally, Navient often fails to identify and correct these mistakes. In turn, borrowers have to spend time contacting the servicer to resolve these issues.
2. Directed customers to forbearance rather than income-driven repayment
Borrowers struggling to keep up with federal student loans are led into forbearance by Navient, the CFPB states. Navient also fails to properly inform them of alternative options like income-based repayment plans.
Forbearance is simpler and cheaper for Navient to process. But for borrowers, it increases the student loan interest they owe and extends their repayment period. This practice added up to $4 billion in interest charges for borrowers with multiple forbearances, reports the CFPB.
3. Failed to outline requirements to maintain income-driven repayments
The federal government requires enrollees of income-based repayment plans to renew them annually.
However, Navient did not properly notify its borrowers of this obligation re-register, claims the CFPB. Therefore, many borrowers did not know about important deadlines, failed to re-enroll, and lost their affordable payments.
4. Deceived borrowers on process to release student loan cosigner
“Navient put up arbitrary barriers and failed to disclose that very few borrowers ever achieve co-signer release,” according to the Washington State Office of the Attorney General.
To request a cosigner release from Navient, borrowers must make a certain number of consecutive, on-time payments.
Yet, when borrowers prepaid their student loans by a month or more, Navient told them they owed $0 for months that were prepaid. However, if a borrower skipped a month after prepaying, Navient would reset the count of consecutive payments the borrower made.
5. Gave “subprime, predatory loans” to students from for-profit schools
Both the Illinois and Washington attorneys general claim in their suits that under Sallie Mae, the servicer targeted students at for-profit universities with expensive student loans.
For example, Sallie Mae approved students at schools with completion rates below 50 percent, alleges Washington Attorney General Bob Ferguson. Thus, these borrowers were put into debt by Sallie Mae and Navient student loans, despite the likelihood that many would be unable to pay them back and default.
6. Misreported discharged student debts as defaults
Permanently disabled borrowers can seek to discharge student loans through the federal Total and Permanent Disability (TPD) Discharge program.
However, Navient misreported some student debts discharged due to disability as defaulted, the CFPB claims. As a result, these reporting errors often damage account holders’ credit histories.
7. Misled borrowers about student loan rehabilitation credit effects
Pioneer Credit Recovery is a Navient subsidiary that handles defaulted student loans. According to the CFPB, Pioneer misrepresents the federal loan rehabilitation process available to defaulted borrowers.
What’s more, Pioneer also falsely implies that rehabilitating student loans would clear student loan defaults from credit reports, alleges the CFPB. Pioneer was also unclear on collection fees for rehabilitated loans.
8. Attempted to over-collect on delinquent accounts
Navient falsely overstates amounts needed to settle delinquent loans, alleges the Washington State Office of the Attorney General.
Essentially, Navient tells borrowers with delinquent accounts they needed to pay more than the outstanding amount owed by adding in next month’s payment and calling it “present amount due.”
Navient responds to lawsuits’ “unfounded” claims
Navient student loans servicer released a statement Wednesday calling the CFPB’s allegations “unfounded” and politically-motivated. It counters that it has a “well-established, superior track-record of helping student loan borrowers succeed in repayment.”
Navient states that 49 percent of federal student loan balances it services are enrolled in income-based repayment plans. It should be noted this claims balances, not borrowers.
This figure could also be skewed by a smaller portion of borrowers with higher student loan balances, for whom income-based plans would be most beneficial.
Navient also adds that borrowers are 31 percent less likely to default on student loans. And its private loan delinquencies and defaults “are at among historic lows.”
Ultimately, Navient says it will “vigorously defend against these false allegations” both publicly and in court.
“We cannot and will not accept agenda-driven ultimatums designed to get headlines rather than help for student borrowers,” according to Navient’s statement.
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