Student-Loan Servicer Navient Sued by CFPB
The nation’s largest student-loan servicer has been accused of misleading borrowers, according to a federal lawsuit filed by the Consumer Financial Protection Bureau.
If you are one of the more than 12 million people who use Navient, a Delaware-based company (formerly known as Sallie Mae) that services more than $300 billion of government and private student loans, you might want to pay attention. The CFPB, which filed the lawsuit last week in the U.S. District Court for the Middle District of Pennsylvania, accused the company of creating “obstacles to repayment by providing bad information, processing payments incorrectly and failing to act when borrowers complained.”
According to a press release from the CFPB, Navient is accused of:
- Failing to correctly apply or allocate borrower payments to their accounts.
- Steering struggling borrowers toward paying more than they have to on loans.
- Obscuring information consumers needed to maintain their lower payments.
- Deceiving private student loan borrowers about requirements to release their co-signer from the loan.
- Harming the credit of disabled borrowers, including severely injured veterans.
“For years, Navient failed consumers who counted on the company to help give them a fair chance to pay back their student loans,” CFPB director Richard Cordray in a statement. “At every stage of repayment, Navient chose to shortcut and deceive consumers to save on operating costs.”
The CFPB alleges that Navient incentivized employees to encourage borrowers to pursue “forbearance” agreements, an option designed for those experiencing short-term financial issues. Forbearance plans allow borrowers to take breaks from making payments – but they also allow interest to continue to add up.
More than half of the company’s borrowers who sought payment relief would have qualified for a $0 monthly payment through income-driven repayment plans, according to the lawsuit. The CFPB claims that Navient steered borrowers away from income-based plans, which help borrowers avoid the excessive interest charges and defaults that are sometimes more likely to occur with forbearance plans.
“From January 2010 to March 2015, the company added up to $4 billion in interest charges to the principal balances of borrowers who were enrolled in multiple, consecutive forbearances,” the CFPB claims. “The Bureau believes that a large portion of these charges could have been avoided had Navient followed the law.”
Navient called the allegations “unfounded” in a statement released last week and said that the “timing of this lawsuit – midnight action filed on the eve of a new administration – reflects their political motivations.” CEO Jack Remondi defended the company in a recent interview with the Washington Post, during which he accused the CFPB of being “far more interested in solutions through enforcement actions and legal suits than they are through the rule-making process they’re supposed to follow.”
The lawsuit also names two of Navient’s subsidiaries: Navient Solutions and Pioneer Credit Recovery. According to the Inquirer, tens of thousands of borrowers and co-signers have filed complaints with Navient since July 2011. To file a complaint, visit CFPB’s website.
Follow @ClaireSasko on Twitter.