The nation’s largest servicer of both federal and private student loans allegedly failed borrowers “systematically and illegally,” according to a lawsuit filed by the U.S. Consumer Financial Protection Bureau.
Navient, formerly part of Sallie Mae, created obstacles for tens of thousands of student borrowers who sought to repay their debt by providing incorrect payment information, processing payments incorrectly and failing to act when borrowers complained, according to the federal lawsuit filed Wednesday in the middle district of Pennsylvania.
Navient allegedly used “shortcuts and deception” to “illegally cheat” many struggling borrowers out of their rights to have their payments lowered, the CFPB said in a statement. The borrowers ended up paying much more than they had to for their loans.
The Bureau says it seeks to recover “significant relief” for the harmed borrowers.
“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.”
Navient strongly denied all the allegations in the lawsuit, calling them politically motivated, in a statement.
“The allegations…are unfounded, and the timing of these lawsuits — midnight action filed on the eve of a new administration— reflects their political motivations,” Navient said.
Navient’s statement continues: “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 suits improperly seek 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.”
Formerly part of Sallie Mae, Navient is the largest student loan servicer, overseeing more than 12 million borrowers, including more than 6 million accounts under its contract with the U.S. Department of Education. Altogether, it services more than $300 billion in federal and private student loans.
When borrowers are unable to repay 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 says that Navient steered 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,” the CFPB said. “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, Navient 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,” the U.S. agency said.