How the lawsuits against student loan servicer Navient could affect you
If you have a student loan, there are some lawsuits you need to watch.
Navient, the country’s largest student loan servicer, is facing several lawsuits by attorneys general accusing the company of, among other things, steering borrowers to payment options that cost them more money.
Last week, California Attorney General Xavier Becerra filed a lawsuitagainst Navient and two of its subsidiaries, Pioneer and General Revenue Corp., alleging misconduct that included misrepresenting the order in which the company would apply extra loan payments and failing to properly discharge federal student debt for borrowers with a total and permanent disability.
Becerra said Navient services about $300 billion in federal and private student loans for 12 million borrowers, of whom about 1.5 million live in California.
At issue is an alleged practice to encourage “borrowers to postpone payments through forbearance, an option in which interest continues to accrue, rather than enroll in an income-driven repayment plan that would avoid fees,” reported The Washington Post’s Danielle Douglas-Gabriel. “Consumer advocates say loan servicers steer borrowers toward forbearance because it requires substantially less paperwork than enrolling them in low-cost plans that peg monthly payments to a percentage of income. Navient has long countered that it has one of the highest rates of enrollment in income-driven plans, denying there is a nefarious plan afoot to deny borrowers the option.”
The lawsuit also includes claims from Becerra that Navient’s subsidiaries violated California law by, among other things, providing false information about collection fees on loans people were trying to get out of default and inaccurately telling borrowers that disability loan forgiveness required a permanent inability to work, although no such requirement exists.
“Our students can’t afford to be cheated out of any more money than they legally owe simply because Navient knew how to game the system,” Becerra said in a release about the lawsuit.
The California action is the latest lawsuit to be filed over Navient’s practices. As Douglas-Gabriel reported, Navient is facing similar suits in Illinois, Washington and Pennsylvania, as well as a lawsuit filed by the Consumer Financial Protection Bureau.
Navient punched back over the California lawsuit.
“The allegations are unfounded, and the lawsuit is another attempt to blame a single servicer for the failures of the higher education system and the federal student loan program to deliver desired outcomes,” Jack Remondi, president and CEO of Navient, said in a statement.
Read more: Student loans not always wise
Not withstanding the merits of the lawsuits, as a loan servicer for the Education Department, Navient isn’t wrong in pointing out the following in its response to the latest legal action against it:
— It doesn’t set the tuition prices that result in students having to borrow so much.
— The company isn’t responsible for the complex repayment options and enrollment requirements for borrowers (although it is supposed to fairly inform students of their repayment options).
— It’s not the first point of contact for providing advice to students and families about how much it will cost to earn a degree and how student loans might end up being a burden in the future. “All of these decisions are made prior to the servicer entering the picture,” the company said. “If the parties were truly interested in addressing the real issues in higher education and student debt, they would direct their focus to . . . improve financial literacy of students and families and provide better information about the full cost of earning their degree and the cost of any debt incurred to finance that degree — before they enroll in college.”
Navient has said allegations in the various lawsuits are unfounded.
Read more: Defaulted on student loans? Here’s a new chance to make things right.
In the past, Navient, which was formerly part of Sallie Mae, has had to settle with the government for overcharging military service members.
In 2014, the Justice Department settled with Navient, which paid nearly 78,000 service members $60 million in compensation for having charged excess interest on their student loans. That lawsuit alleged a nationwide practice of failing to provide members of the military the 6 percent interest rate cap to which they were entitled for loans incurred before their military service began, according to a Justice Department statement at the time. The average check was about $771.
Neither Navient nor Sallie Mae admitted or denied wrongdoing. Remondi said the overcharges were due to “processing errors.”
Becerra’s office said Californians who believe that Navient may have victimized them should file a complaint at www.oag.ca.gov/report, call 800-952-5225 or send a letter to: California Department of Justice, Public Inquiry Unit, P.O. Box 944255, Sacramento, Calif. 94244-2550.
From NerdWallet: Navient Lawsuit: What Student Loan Borrowers Need to Know
Just in case you think a student loan is good debt, read the following columns:
— Yes, all debt is bad — even mortgages and student loans
— Debt: Smack it or hug it? My debate with Michelle Singletary.
Total student loan debt is more than $1.5 trillion. Whatever happens with the Navient lawsuits, it’s a valid argument on the company’s part that we should be talking more about the amount of loans that students and their families are taking out to fund a college education.