Today the Pennsylvania Attorney General Josh Shapiro filed suit against Navient. The suit claims Navient engaged in:
- Making predatory loans to students attending for-profit or non-profit colleges with graduation rates lower than 50 percent, despite clear expectations that an extremely high percentage of students would not be able to repay them.
- Increasing its misleading subprime lending, while disregarding evidence that these loans would likely default at extraordinarily high rates. Navient used these subprime loans as the “baited hook” to become a “preferred” lender at schools, which increased its volume of more profitable loans: federal loans and prime private loans. [See this story for more on this.]
- Beginning in 2009, Navient committed unfair and deceptive acts by steering student borrowers into short-term loan forbearances that instead continued for the long term – accruing interest and adding to the loans’ principal that students were required to repay. Navient should have been helping the borrowers apply for income-driven repayment plans during this time. From 2010 to 2015, Navient added up to $4 billion in interest charges in this way to the principal balances of borrowers. – Source
The suit filed may also provide some benefit to those with Navient private student loans as well. Attorney General Shapiro is fighting for Pennsylvania residents and asks the court to order:
- Full restitution to all borrowers affected by Navient’s unlawful practices
- Disgorgement by Navient of unlawfully gained profits
- Civil penalties to be determined
- Rescission or reformation of all contracts or loan agreements between Navient and Pennsylvania consumers affected by the company’s unlawful practices
- Navient to cease collecting on – and delete any negative credit information it has furnished to consumer reporting agencies – the illegal loans at issue in the lawsuit.
Navient has of course called the lawsuit “completely unfounded” but it also is an advancement on this suit previously filed against Navient where they seemingly admit they don’t provide best advice to student loan debtors.
Navient also engaged in lending for a number of schools and courses that were not protected in bankruptcy and could be discharged.
The lawsuit filed also claims Navient was deficient in cosigner releases, payment processing errors, and steering debtors into the wrong solutions for their financial difficulties.
You have to love this nugget in the suit, “In the years after 2007, Defendants were sued in various capacities for certain practices, including a lack of appropriate underwriting. One such lawsuit filed in 2009 in the Southern District of New York, In Re SLM Litigation, alleged that the then CEO, Thomas Fitzpatrick, in a 2007 internal executive meeting summarized Defendants’ private education loan underwriting standards by stating, “If the borrower can create condensation on a mirror, they need to get a loan this year”
I don’t know if this new case against Navient is going to be the tipping point but at some point will we ever be able to hold Navient accountable at all for passing out loans that were clearly going to be unaffordable, poor performing, or to schools that were not accredited? Do lenders have any responsibility for the student loan crisis or is it just always going to be the fault of the consumer for believing the lender and the schools marketing hype?
Here is what I know for almost absolutely certain, Navient is going to fight back hard on this suit. They always do.