Alternative realities collide in the student loan business
America’s biggest problem may be that too many citizens embrace alternative realities, building safe, theoretical worlds where reality is what they want it to be and not what it really is.
Alternative realities also are common in litigation, where one side proposes a version of events that the opposing party asserts is, as they say, counterfactual.
Counterfactual worlds are colliding in the $1.4 trillion student loan industry.
The beleaguered — some would say emasculated, given the policies of new director Mick Mulvaney — Consumer Financial Protection Bureau sued Navient in January 2017. The agency alleged that the nation’s largest student loan company systematically punished borrowers by failing to credit them for payments, steering them to highercost services and obscuring information that would have enabled them to lower their payments.
“Too many borrowers paid more for their loans because Navient illegally cheated them and today’s action seeks to hold them accountable,” then-CFPB director Richard Cordray said.
Navient said the lawsuit, filed on the eve of President Donald Trump’s inauguration, reflected the agency’s “political motivations.”
The Wilmington, Del., company manages and services loans and has a subsidiary, Pioneer Credit Recovery, that collects from delinquent borrowers under a U.S. Department of Education contract. Navient has a $105 billion portfolio of student loans and services about 12 million student loan borrowers. The company posted profits of $292 million last year, down from $681 million in 2016.
Student loan borrowers filed 17,175 complaints with the CFPB last year, according to The Student Loan Report, a student loan news aggregator. Nearly two-thirds of the complaints targeted Navient, which was the No. 1 source of complaints in all 50 states and the District of Columbia.
Navient says there is far less to the complaints than meets the eye.
The company says that more than 98 percent deal with loan policies, loan terms and other issues that have nothing to do with its role as a servicer.
Navient has an important ally in its efforts to get the CFPB off its back: Department of Education Secretary Betsy DeVos. The secretary believes that if borrowers need protection, her department will do the protecting and the CFPB should stand down. Her department feels the same way about state attorneys general, who have sued Ms. DeVos for abandoning Obama administration rules designed to protect student loan borrowers from abusive practices.
“The department takes exception to the CFPB unilaterally expanding its oversight role to include the department’s contracted federal loan servicers,” two highranking Education Department officials wrote to then CFPB director Mr. Cordray in August.
A month later, Pennsylvania Attorney General Josh Shapiro derided what he termed Ms. DeVos’ coddling of the loan servicing industry, vowing, “If Secretary DeVos won’t protect students from
these kinds of scams, we will.” To make his point, Mr. Shapiro sued Navient a few days later, accusing the company of a host of offenses including racking up as much as $4 billion in interest charges by steering borrowers into costly short-term forbearance programs.
Incourt papers filed in the CFPBlawsuit, the agency accusedNavient of refusing to provide communications withborrowers that would helpthe agency prove its case.
The company responded in a March 6 letter, accusing the agency of making “a number of factual allegations that defendants believe to be counterfactual and inconsistent with information produced during the investigation.”
Courts are often the final adjudicators of reality.
As long, costly and messy as the process can be, courts are a better forum for sorting fact from fiction than relying on those whose determination of reality — whether regarding student loans, climate change or any other issue — is shaped by self-interest, a visceral compulsion, or an ingrained habit of believing what they want to believe.
Student loan borrowers eagerly await a decision on whether the CFPB or Navient has a greater grasp on reality. Unfortunately, as is the case with so many issues these days, there undoubtedly will still be those who believe what they want to believe, regardless of the facts.