US student loan collector cheated millions, suit says
NAVIENT, the nation’s largest servicer of student loans, has for years misled borrowers and made serious mistakes at nearly every step of the collections process, illegally driving up loan repayment costs for millions of borrowers, according to lawsuits filed on Wednesday by a federal regulator and two state attorneys general.
Navient handles $300 billion in private and federal loans for some 12 million people – touching about one in four student loan borrowers. Every customer may have been affected by Navient’s misdeeds, said Lisa Madigan, the attorney-general of Illinois, announcing her own lawsuit with the one filed by the Consumer Financial Protection Bureau.
Navient does not make the loans, but it holds lucrative contracts to collect payments each month on behalf of banks, government and other lenders.
The damages sought could reach billions of dollars, said Madigan, who sued Navient and Sallie Mae – which split into the two companies in 2014. Washington state Attorney-General Bob Ferguson filed a similar lawsuit against both companies.
The lawsuits describe routine mistakes and lapses in oversight that over time added up to systematic failures, eerily similar to the mortgage servicing industry’s bungling of borrower accounts and property foreclosures during the 2008 recession. Financial companies eventually paid more than $100 billion to settle mortgagerelated lawsuits.
Navient mishandled loan payments, buried critical information in fine print and set obstacles for borrowers trying to release co-signers from their loans, among other failings, according to the consumer bureau’s legal filing.
The move was one of a series of late-hour actions by the Obama administration just days before the inauguration of Donald Trump. It is also a politically perilous time for the con- sumer bureau, which has long been the target of criticism by Republican lawmakers. Several have called for the president-elect to fire its director, Richard Cordray – a move that would likely set off a legal challenge over the president’s authority to do so.
Navient, which plans to fight the lawsuits, denied all wrongdoing.
“The allegations of the Consumer Financial Protection Bureau are unfounded, and the timing of this lawsuit – midnight action filed on the eve of a new administration – reflects their political motivations,” Patricia Nash Christel, a company spokeswoman, said in a written statement. “We will vigorously defend against these false allegations.”
Regulators and consumer groups have long complained about widespread abuses in the student loan market, but Wednesday’s coordinated state and federal action, which stems from investigations that began about three years ago, is a legal attack that is likely to resonate throughout the industry.
Navient is accused of deliberately steering borrowers away from income-based repayment plans that could have lowered their loan costs in order to maximise its own profits. Enrolling customers in such plans can be time-consuming and complex, and Navient’s compensation system for its customer service representatives encouraged them to push struggling customers toward other options, according to the bureau’s complaint.
Derek Smith said he is one such borrower. In 2011, when his loan payments kicked in, he was living in a homeless shelter in Boston. He had no job and three children.
Smith was exactly the kind of former student who should have had his payments reduced, according to Persis Yu, director of the Student Loan Borrower Assistance Project at the National Consumer Law Center. But that never happened, she said. After struggling for two years to make a dent on his loans, Smith defaulted and his wages from a new job were garnished. Collection calls poured in.
“I was just at a standstill,” said Smith, whose debt has ballooned to more than $13,000.
Navient declined to comment on Smith’s case, but said it was “a leader in enrolling eligible borrowers into income-driven repayment programs”.
Sallie Mae, which was not named in the consumer bureau’s lawsuit, said in a statement that Navient had “accepted responsibility for all costs, expenses, losses and remediation” stemming from investigations into the company’s past lending practices.
This is not the first time in the spotlight for Navient or its subsidiaries. Consumer groups have long been raising alarms about the company and its practices.
“The allegations in the complaint mirror the experiences of the dozens of borrowers that we have worked with,” said Yu at the National Consumer Law Center.
The bureau’s lawsuit focuses on possible wrongdoing from 2010 onward. The state lawsuits stretch back further, as early as 2000, Madigan said.