For years, the student loan powerhouse Sallie Mae and its successor firm, Navient, were the subject of a barrage of complaints.
Some borrowers claimed they had been harassed by aggressive Navient bill collectors even though they weren’t in arrears on their loans.
Others said the company balked at signing them up for money-saving income-based repayment plans. Still others claimed the company deceived them about programs that relieve co-signers – often parents – of their obligation to guarantee private student loans.
This week, in the twilight hours of the Obama administration, federal regulators took action.
In a lawsuit filed Wednesday in U.S. District Court in Harrisburg, Pennsylvania, the Consumer Financial Protection Bureau accused Navient of a long list of improprieties and deceptive practices in collecting and servicing some $300 billion in student loans.
Simultaneously, state attorneys general in Washington and Illinois also sued Navient, charging that the company had marketed pricey, high-risk subprime private student loans, mainly to students at for-profit colleges. The loans were “designed to fail,” and in fact many of the borrowers defaulted, the state lawsuits claim.
Ironically, many of the abuses alleged in the lawsuits occurred as Navient personnel were servicing federal student loans under terms of a contract with the US Department of Education.
In a statement, Navient denied wrongdoing and charged that its accusers were playing politics with a “midnight action filed on the eve of a new administration.”
The company said it has a “superior track record of helping student loan borrowers” and had fully complied with Department of Education regulations.
Republican lawmakers have criticized the financial protection bureau, saying that it overregulates business. Some have called on incoming President Donald Trump to fire its director, Richard Cordray, although it is not clear that would be legally permissible.
Sallie Mae was a quasi-government agency founded in 1972 to increase the amount of money available for federal student loans. In 1996, the agency was privatized by the U.S. Congress.
As Reveal from The Center for Investigative Reporting has reported, under privatization the student loan industry became dominated by private equity companies, Wall Street banks and other for-profit concerns. Sallie Mae itself grew into a multibillion-dollar public company.
Meanwhile, the nation’s student debt has exploded. Today, 42 million Americans owe more than $1.3 trillion on their college loans.
In 2014, Sallie Mae spun most of its student loan business into a new company, Navient.
By then, federal and state investigators already had launched a probe of alleged abuses in the company’s collection operations, records show. The lawsuit accuses Navient of improprieties in several areas.
- Many low- and moderate-income student debtors are eligible for income-based repayment programs, which can dramatically reduce monthly payments. But the lawsuit says Navient loan servicers don’t tell borrowers about the programs and instead steer them into forbearance programs, which offer temporary postponement of loan payments but carry bigger costs long term.
- The lawsuit also accused Navient of deflecting applicants away from a program that can release co-signers from their obligations to guarantee private student loans if the borrowers have been faithful in making repayments.
- In addition, the suit says that Navient frequently mishandles or misapplies loan payments. As a result, borrowers who haven’t missed payments are subjected to high-pressure collection tactics, the lawsuit says.
The federal suit asks a judge to order Navient to stop its alleged abusive practices. The government also wants Navient to pay restitution to borrowers who have been mistreated.
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