Navient audit’s findings raise ire

Loan guidance focus of lawsuits

NEW YORK — One of the nation’s largest student loan servicing companies may have driven tens of thousands of borrowers struggling with their debts into higher-cost repayment plans, according to a Department of Education audit of practices at Navient Corp.

The conclusions of the 2017 audit, which until now have been kept from the public and were obtained by The Associated Press, appear to support federal and state lawsuits that accuse Navient, the nation’s third-largest student loan servicing company, of boosting its profits by steering some borrowers into the high-cost plans without discussing options that would have been less costly in the long run.

The Education Department has not shared the audit’s findings with the plaintiffs in the lawsuits. In fact, the department repeatedly argued that only it, not state and other federal authorities, has jurisdiction over Navient’s business practices.

“The existence of this audit makes the Depart-

ment of Education’s position all the more disturbing,” said Aaron Ament, president of the National Student Legal Defense Network, who worked for the Department of Education under President Barack Obama.

The AP received a copy of the audit and other documents from the office of Sen. Elizabeth Warren, D-Mass., who has been a vocal critic of Navient and has publicly supported the lawsuits against the company as well as questioning the policies of the Department of Education, currently run by Education Secretary Betsy DeVos.

Navient disputed the audit’s conclusions in its response to the Department of Education and has denied the allegations in the lawsuits. One point the company makes in its defense is that its contract with the Education Department doesn’t require its customer service representatives to mention all options available to the borrower.

However, the five states suing Navient — Illinois, Pennsylvania, Washington, California and Mississippi — say the behavior breaks their laws regarding consumer protection. The Consumer Financial Protection Bureau says in its own lawsuit that the practices are unfair, deceptive and abusive and break federal consumerprotection laws.

Of the five states that filed lawsuits against Navient, only Illinois and Pennsylvania were even aware of the audit, and they said they did not receive their copies from the Department of Education. The Consumer Financial Protection Bureau declined to comment on whether it had a copy of the report.

The Department of Education said withholding the report was intentional, repeating the argument it has made in court and in public that only it has jurisdiction over student loan servicing issues, through its Federal Student Aid division, or FSA, which oversees student loans.

“FSA performed the review as part of its own contract oversight, not for the benefit of other agencies,” said Liz Hill, a Department of Education spokesman.

When student borrowers run into difficulties making payments, they can be offered forbearance, which allows them to delay payments for a set period of time. But under a forbearance plan, in most instances, the loan continues to accumulate interest and becomes a more expensive option in the long run.

The Consumer Financial Protection Bureau alleges in its lawsuit against Navient that between 2010 and 2015, Navient’s behavior added nearly $4 billion in interest to student borrowers’ loans through the overuse of forbearance. Navient disputes the figure.

A 2017 study by the Government Accountability Office estimates that a typical borrower of a $30,000 student loan who puts their loan into forbearance for three years — the maximum allowed for economic-hardship forbearance — would pay an additional $6,742 in interest.

As part of their inquiry, Education Department auditors listened in on about 2,400 randomly selected calls to borrowers from 2014 to 2017 out of a batch of 219,000. On nearly one out of 10 of the calls examined, the Navient representative did not mention other options, including one type of plan that estimates the size of a monthly payment the borrower can afford based on his income. Auditors wrote that many customer service representatives failed to ask questions to determine if such a plan, known as an incomedriven repayment plan, might be more beneficial to the borrower.

There is no public record of how many struggling borrowers serviced by Navient were affected by these practices. In its most recent annual report, Navient says it services 6 million student loan borrowers, of which 12.7 percent are more than 30 days past due. That would be roughly 762,000 customers who are struggling in some fashion to pay their student loans.

If one out of every 10 of those customers was pushed into forbearance instead of an income-driven repayment plan, as the department’s audit found, that would be 76,200 of Navient’s borrowers.

The Federal Student Aid division decided to do a review of Navient’s forbearance practices after the Consumer Financial Protection Bureau filed its lawsuit against the company in January 2017, department spokesman Hill said, to see if there were any compliance issues.

She said department officials came to the conclusion that Navient was not improperly steering borrowers. “Nothing in the report indicates forbearances were applied inappropriately — the observations noted focused on suggested improvements regarding how to best counsel” a small minority of borrowers, she said.