California Attorney General Xavier Becerra announced Thursday that the state will file a lawsuit against Navient, one of the largest student loan servicers in the U.S., accusing it of unlawful business practices, including causing borrowers to overpay on federal student loans.
The move makes California the fourth state to sue Navient, which services student loans for more than 12 million borrowers. The company also faces action from the Consumer Financial Protection Bureau (CFPB).
What is Navient accused of?
Navient, which services both federal and private student loans, is one of eight companies entrusted by the U.S. Department of Education to collect payments on government-issued student loans.
California’s lawsuit echoes serious issues raised in a January 2017 suit by the CFPB, a federal agency created to fight financial abuses, as well as complaints made by Illinois, Pennsylvania, and Washington.
These states and the CFPB allege that Navient:
- Inappropriately advised borrowers to put loans into forbearance (pausing payments but not interest), which resulted in total loan balances increasing, since interest continues to accrue
- Improperly steered borrowers away from income-driven repayment plans (which can cut their monthly payments based on how much money they make), even when many of the borrowers would have qualified to pay nothing
- Failed to properly alert borrowers in income-based repayment plans that they needed to re-enroll after 12 months so that payments didn’t go up
- Improperly processed payments by ignoring borrower instructions to apply their money toward specific loans, instead of distributing payments among all outstanding loans
- Created obstacles to cosigner release (in which a cosigner’s name is taken off the loan), including making it more difficult to meet requirements that borrowers make 12 consecutive repayments
- Misled borrowers about what happens when those in default take steps to rehabilitate their loans
- Improperly reported that disabled borrowers had defaulted on their loans instead of having loans discharged
Illinois, Washington, and Pennsylvania also claimed that Navient gave private student loans to borrowers who weren’t qualified and who were likely to default. Illinois Attorney General Lisa Madigan described the loans as “designed to fail.”
Borrowers filed a class action suit in federal court in Florida alleging Navient misled them about qualifying for Public Service Loan Forgiveness (PSLF), which would result in student debt being forgiven for eligible borrowers after 120 on-time payments.
California and the three other states, along with CFPB, are seeking remedies that include loan forgiveness, reimbursement of overpayments, and other debt relief for borrowers. Navient has tried to get these cases dismissed, but the judges who’ve ruled on the issue so far have rejected the company’s requests.
Navient said it would fight the allegations made by California, calling them “unfounded,” according to The New York Times.
What should borrowers do?
Student loan borrowers who have loans serviced by Navient must continue to make their payments while the lawsuits play out in court.
However, here are some steps you should take to protect yourself.
- Keep careful records of all payments made and of all your correspondence with Navient.
- File complaints against Navient with the attorney general’s office in your state if you believe you were treated improperly. Each state has its own forms to submit, including California’s consumer complaint form. You also can submit a claim with the CFPB and the Department of Education.
- Research your repayment options and the requirements to qualify for PSLF — do this independently instead of relying on Navient’s advice. Our guides to income-driven repayment and PSLF programs can help.
- Check your credit report if you were disabled and had Navient loans discharged. You should make sure none of those loans show up on the report as past due.
- Refinance or consolidate your student loans to switch servicers. You shouldn’t switch loan servicers just to avoid Navient, but you can research these options to see if they’re right for you.
It also is a good idea to monitor how these lawsuits unfold, as you may become qualified for remedies through a settlement or court verdict against Navient.
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