Dubious student loan practices face scrutiny
Investigation finds lending firm pushed borrowers into more costly payment plans
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.
That’s the finding of a Department of Education audit of practices at Navient, the nation’s third-largest student loan servicing company.
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 of boosting its profits by steering some borrowers into the highcost 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, even while knowing of its conclusions, the department repeatedly argued that state and other federal authorities do not have jurisdiction over Navient’s business practices.
“The existence of this audit makes the Department 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, DMassachusetts, 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 President Trump’s Secretary of Education, Betsy DeVos. Warren is considered a potential presidential candidate in 2020.
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 the practices are unfair, deceptive and abusive and break federal consumer protection 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 spokeswoman.
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. It is a figure that Navient disputes.
A 2017 study by the Government Accountability Office estimates that a typical borrower of a $30,000 student loan who places their loan into forbearance for three years — the maximum allowed for economic-hardship forbearance — would pay an additional $6,742 in interest on that loan.