Today the Consumer Financial Protection Bureau (CFPB) is suing the nation’s largest servicer of both federal and private student loans for systematically and illegally failing borrowers at every stage of repayment. For years, Navient, formerly part of Sallie Mae, created obstacles to repayment by providing bad information, processing payments incorrectly, and failing to act when borrowers complained. Through shortcuts and deception, the company also illegally cheated many struggling borrowers out of their rights to lower repayments, which caused them to pay much more than they had to for their loans. The Bureau seeks to recover significant relief for the borrowers harmed by these illegal servicing failures.
“For years, Navient failed consumers who counted on the company to help give them a fair chance to pay back their student loans,” said CFPB Director Richard Cordray. “At every stage of repayment, Navient chose to shortcut and deceive consumers to save on operating costs. Too many borrowers paid more for their loans because Navient illegally cheated them and today’s action seeks to hold them accountable.”
Formerly part of Sallie Mae, Inc., Navient is the largest student loan servicer in the United States. It services the loans of more than 12 million borrowers, including more than 6 million accounts under its contract with the Department of Education. Altogether, it services more than $300 billion in federal and private student loans. Named in today’s lawsuit are Navient Corporation and two of its subsidiaries: Navient Solutions is a division responsible for loan servicing operations; Pioneer Credit Recovery specializes in the collection of defaulted student loans.
Servicers are a critical link between borrowers and lenders. They manage borrowers’ accounts, process monthly payments, and communicate directly with borrowers. When facing unemployment or other financial hardship, borrowers rely on their student loan servicer to help them enroll in alternative repayment plans or request a modification of loan terms. A servicer is often different from the lender, and borrowers typically have no control over which company is assigned to service their loans.
Starting in 2009, the vast majority of federal student loan borrowers gained a right to make payments based on how much money they earn by enrolling in repayment arrangements known as income-driven repayment plans. These plans are part of the federal government’s effort to make student loans more affordable. For borrowers who meet certain income and family-size criteria, these plans can offer monthly payments as low as zero dollars. Another important benefit of income-driven repayment plans is that for the first three years after enrollment, many consumers are entitled to have the federal government pay part of the interest charges if they can’t keep up. All federal student loan borrowers enrolled in these plans may be eligible for loan forgiveness after 20 or 25 years of monthly payments.
In today’s action, the Bureau alleges that Navient has failed to provide the most basic functions of adequate student loan servicing at every stage of repayment for both private and federal loans. Navient provided bad information in writing and over the phone, processed payments incorrectly, and failed to act when borrowers complained about problems. Critically, it systematically made it harder for borrowers to obtain the important right to pay according to what they can afford. These illegal practices made paying back student loans more difficult and costly for certain borrowers. Specifically, among the allegations in today’s lawsuit, the Bureau charges that Navient:
- Fails to correctly apply or allocate borrower payments to their accounts: As soon as a borrower begins to pay back their loans, student loan servicers are supposed to take a borrower’s payment and follow instructions from the borrower about how to apply it across their multiple loans. Navient repeatedly misapplies or misallocates payments — often making the same error multiple times over many months. The company all too often fails to correct its errors unless a consumer discovers the problem and contacts the company.
- Steers struggling borrowers toward paying more than they have to on loans: When borrowers run into trouble repaying their federal student loans, they have a right under federal law to apply for repayment plans that allow for a lower monthly payment. But the Bureau believes that Navient steers many borrowers into forbearance, an option designed to let borrowers take a short break from making payments. But interest continues to add up during forbearance. Certain consumers with subsidized loans end up paying a heavy price because they could have potentially avoided those interest charges. 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 Bureau believes that a large portion of these charges could have been avoided had Navient followed the law.
- Obscured information consumers needed to maintain their lower payments: Borrowers who successfully enroll in an income-driven repayment plan need to recertify their income and family size annually. But Navient’s emails and annual renewal notice sent to borrowers failed to adequately inform them of critical deadlines or the consequences if they failed to act. Navient also obscured its renewal notices in emails sent to borrowers that did not adequately alert them about the need to renew. Many borrowers did not renew their enrollment on time and they lost their affordable monthly payments, which could have caused their monthly payments to jump by hundreds or even thousands of dollars. When that happens, accrued interest is added to the borrower’s principal balance, and these borrowers may have lost other protections, including interest subsidies and progress toward loan forgiveness.
- Deceived private student loan borrowers about requirements to release their co-signer from the loan: Navient told borrowers that they could apply for co-signer release if they made a certain number of consecutive, on-time payments. Even though it permits borrowers to prepay monthly installments in advance and tells customers who do prepay that they can skip upcoming payments, when borrowers did so, Navient reset the counter on the number of consecutive payments they made to zero. So borrowers who tried to get ahead of their loans and prepay would have been denied co-signer release and had to start over.
- Harmed the credit of disabled borrowers, including severely injured veterans: Student loan payments are reported to credit reporting companies. Severely and permanently disabled borrowers with federal student loans, including veterans whose disability is connected to their military service, have a right to seek loan forgiveness under the federal Total and Permanent Disability discharge program. Navient misreported to the credit reporting companies that borrowers who had their loans discharged under this program had defaulted on their loans when they had not. This potentially caused damage to their credit reports.
The Bureau also alleges that Navient, through its subsidiary Pioneer, made illegal misrepresentations relating to the federal loan rehabilitation program available to defaulted borrowers. Pioneer misrepresented the effect of completing the federal loan rehabilitation program by falsely stating or implying that doing so would remove all adverse information about the defaulted loan from the borrower’s credit report. Pioneer also misrepresented the collection fees that would be forgiven upon completion of the program.
Today’s lawsuit alleges that Navient has been in violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Fair Credit Reporting Act, and the Fair Debt Collections Practices Act. The suit seeks redress for consumers harmed by Navient’s illegal practices. The CFPB is also seeking to keep Navient from continuing the illegal conduct described in the complaint, and to prevent new borrowers from being harmed.
The complaint against Navient Corporation, Navient Solutions, and Pioneer Credit Recovery is available at: here.
This action comes as the Bureau takes steps to ensure that all student loan borrowers have access to adequate student loan servicing. In 2015, the Bureau released a report outlining widespread servicing failures reported by both federal and private student loan borrowers and also published a framework for student loan servicing reforms. As part of this work, the Bureau has continually raised concerns around illegal student loan servicing practices. The Bureau has called for market-wide reforms and prioritized taking action against companies that engage in illegal servicing practices.
Student loans make up the nation’s second largest consumer debt market. Today there are more than 44 million federal and private student loan borrowers and collectively these consumers owe roughly $1.4 trillion. In a study last year, the CFPB found that more than 8 million borrowers are in default on more than $130 billion in student loans, a problem that may be driven by breakdowns in student loan servicing. Students and their families can find help on how to tackle their student debt on the CFPB’s website. Student loan borrowers experiencing problems related to repaying student loans or debt collection can also submit a complaint to the CFPB.
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Navient responds to suit:
“WILMINGTON, Del., Jan. 18, 2017 (GLOBE NEWSWIRE) — Navient, the nation’s leading loan management, servicing and asset recovery company, today issued the following statement on legal action filed against it today:
The allegations of the Consumer Financial Protection Bureau are unfounded, and the timing of this lawsuit—midnight action filed on the eve of a new administration—reflects their political motivations. Navient welcomes clear and well-designed guidelines that all parties can follow, and we had hoped our extensive engagement with the regulators would achieve this objective. Instead, the suit improperly seeks to impose penalties on Navient based on new servicing standards applied retroactively and applied only against one servicer. The regulator-asserted standards are inconsistent with Department of Education regulations, and will harm student loan borrowers, including through higher defaults.
Navient has a well-established, superior track-record of helping student loan borrowers succeed in repayment.
49 percent of loan balances serviced by Navient for the federal government are enrolled in income-driven repayment plans. Assertions that we do not educate borrowers about IDR plans ignore the facts.
Navient is a leader in advancing policy recommendations to streamline enrollment and reenrollment in income-driven plans—reforms which we believe would make a meaningful difference for millions of Americans with student loans.
Federal borrowers serviced by Navient are 31 percent less likely to default than their peers at other servicers. Private loan delinquencies and defaults are at among historic lows.
In 2009, Navient pioneered the first private education loan modification program. The program was designed to help customers stay current on their loans and, unlike federal program solutions, make progress on repaying their principal balance. Today, more than $2 billion in loan balances are enrolled in these programs.
Navient has a responsibility to its customers, shareholders, and employees to defend itself—publicly and in court—against this unsubstantiated, unjustified and politically driven action. We cannot and will not accept agenda-driven ultimatums designed to get headlines rather than help for student borrowers. We will vigorously defend against these false allegations and continue to help our customers achieve financial success.”
This is a great article. In 2014, I had some student loans forgiven under the Disabled Veteran Total and Permanent discharge program. Most of the lenders were pretty cooperative. However, NAVIENT reported negative information to my credit reports:
“120 days late” (not true); “Paid, was a collection account, insurance claim or government claim or was terminated for default.”
I had to go through a complaint process (in 2014) just to get NAVIENT to simply report “Paid and closed” to my credit reports. I consider myself to be above-average when it comes to functional literacy. What makes me sad are all the other disabled veterans who might not know to (or how to) proactively pursue a complaint process if the lender does not do what they are supposed to. I can only imagine how many disabled veterans couldn’t get good jobs, pursue professional licenses or home loans because of little NAVIENT stains on their credit history.
Your experience and the experience of others is why I always cringe when well intentioned government agencies warn consumers they should not pay for expert help when all they have to do is contact their servicer. What happens when the servicer doesn’t know what to do? Navient and others have been frustrating and a nightmare at times to give consumer straight advice.
Hi Steve – Great article. I’m one of the many who has endured years of Navient abuse. Without getting into the weeds, I can confirm that most of the problems you’ve described, I’ve experienced first hand. My question – Is there any legal recourse for financial compensation from Navient or is a complaint to the CFPB the best we can do?
Mike, you ask some great questions that have no definitive answers. What makes the answer so tough today is we have yet to see what the Trump administration is going to do to the CFPB. The consensus is they would love to gut the agency and return power back to the financial industry. If the worst case scenario happens with the CFPB, this suit might actually be dropped or settled for some silly amount.
I think the most we can hope for is the suit continues long enough to generate some information from discovery that could aid people in making their own claims against the company. And who knows, maybe the CFPB won’t get gutted, the suit will continue, and it will result in some refunds to consumers.
However, keep your eyes on my site and newsletters. I’ve been working on a strategy to help consumers in your situation and I will be describing it soon.
Helluva thing. And yes, I’ll keep watch here on your site. I’ve heard the same rumblings surrounding the new administration as well but like you say, we’ll just have to wait and see. The latest challenge I’ve experienced with Navient concerns my re-consolidation of my FFEL loan to a Direct loan to get into the PAYE program in order to participate in the Public Service Loan Forgiveness Program (PSLF). Yea, its a little convoluted.
NOTE – I make some comments that I assume are correct. Steve, please correct me if I’m wrong.
I’ve owned a Federal Family Education Loan Program (FFEL) consolidation loan at 8.25% since March of 2001 and have been participating in the Income-Driven Repayment Plan since September 14, 2012. And, as you know, when you are in the IBR program you are required to submit proof of income on an annual basis to remain in the program. Since 2004 I’ve been employed in Washington State for a state agency that is considered a qualifying employer in the PSLF which was established in 2007. But, as my loans were FFEL loans, not Direct Loans, I did not qualify. Case closed according to Navient.
It was only by coincidence that I discovered I could re-consolidate my FFEL into a Direct Loan. Further, I discovered that although the IRB offers a generous payment schedule of 15% of your discretionary income, I could qualify for the PAYE Plan which offers an even better payment schedule of 10% of your discretionary income. I chose the PAYE program because it includes both undergraduate and graduate loans while REPAYE covers only undergraduate. That is currently where I’m at – waiting for the my PAYE application to be approved. Then, after 120 qualifying payments (another 10 years), I can submit an application for loan forgiveness through the PSLF.
This is assuming that the incoming administration doesn’t change things – which I suspect it will – and here is where I’m conflicted. I’ve let my frustration with Navient color my judgement as a tax paying American. The loans I took out are mine. They are my responsibility. Again, I’ll just have to see where it goes from here. However, it truly been a part-time job keeping an eye on Navient since they took over from Sallie Mae and we are still battling year after year, payment after payment, fee after fee. Usury at its very core.
But again, my efforts could be all for not and I’m unsure as to what the future holds. Thanks again Steve for your insights. One of the latest articles I’ve come across I’ve included below for you and your readers.
https://www.bloomberg.com/view/articles/2017-01-18/trump-faces-time-bomb-in-college-loan-program
I’ve been watching the PSLF program closely because this October will mark the first time consumers would be eligible for forgiveness. This recent article raises some alarming points. https://getoutofdebt.org//100645/lawsuit-american-bar-association-demonstrates-mess-come-public-service-loan-forgiveness-student-loans
The PSLF program is all or nothing. There is no forgiveness along the way. Bills in Congress to make that happen have gone nowhere. So what will happen to people when future administrations change the rules or employment certifications along the way? The answer to that question may turn out to be alarming.
Thanks Steve. Looks like things have the potential of going sideways on a myriad of fronts. Just have to fight the good fight and hope for the best and prepare for the worst.