Teachers union sues student loan servicer

The American Federation of Teachers filed a lawsuit Wednesday against Navient, one of the country’s largest student loan servicing companies, alleging that it failed to guide eligible borrowers through a critical student loan forgiveness program.

At the center of the lawsuit, brought by nine teachers financially backed by the country’s biggest teachers union, is the Public Service Loan Forgiveness program. Signed into law in 2007, the program allows borrowers who work 10 years in an eligible public service job and make 120 on-time loan payments to have their remaining loan balances forgiven.

The program is complex and has been plagued with problems as the first borrowers became eligible last year. A Department of Education report last week found only 96 applications were approved out of 29,000, with most applicants being denied for having the wrong loan type, or missing or incomplete information.

The lawsuit alleges that for-profit Navient, previously known as Sallie Mae, contributed to the lack of approvals by steering its borrowers into repayment programs or types of forbearance that do not qualify for the loan forgiveness program.

The Education Department has authorized only one entity to handle public service loans: the Pennsylvania Higher Education Assistance Authority, known as FedLoan. Because Navient and other student loan servicing companies are paid per loan , it would have lost revenue by transferring accounts to the nonprofit FedLoan.

“Brazen, inexcusable servicing breakdowns left (teachers) still under a mound of debt, unable to put anything aside for their children or their family, but now with no end in sight,” said Seth Frotman, former student loan ombudsman for the Consumer Financial Protection Bureau. Frotman, once the top government official for student loans, left the bureau in August out of frustration in how the agency has been handling student loan issues.

Navient is also being sued by several states and the CFPB for failing to service student loans correctly. The company has vigorously denied the allegations in those lawsuits and also declined to comment on the teachers union lawsuit.