Center for Responsible Lending
The financial futures of more than 12 million federal and private student loan borrowers who collectively owe approximately $300 billion is at the crux of a lawsuit filed by the Consumer Financial Protection Bureau. CFPB is suing Navient Corporation and two of its subsidiaries for using shortcuts and deception to illegally cheat borrowers out of their rights to lower loan repayments. Illegal loan servicing failures caused more than 1 in 4 borrowers to pay more than they should have.
A CFPB investigation of Navient, the nation’s largest student loan servicer of both private and federal student loans, found that borrowers were not accessing a federal student loan repayment option that has been in effect since 2009. For eligible borrowers, income-based repayment can lower monthly borrower payments by taking into account income and family size. Depending upon individual borrower circumstances, payments could be reduced to even zero, and loan forgiveness could apply after 20 or 25 years of regular monthly payments.
“At every stage of repayment, Navient chose to shortcut and deceive consumers to save on operating costs,” said CFPB Director Richard Cordray. “Too many borrowers paid more for their loans because Navient illegally cheated them. … The Bureau seeks to recover significant relief for the borrowers harmed by these illegal servicing failures.”
From January 2010 to March 2015, CFPB estimates that Navient’s practices cost borrowers up to $4 billion in extra interest by repeatedly enrolling borrowers in forbearance. CFPB also found that many federal student loan borrowers were unaware that the government could pay part of the interest charges on their loans when personal circumstances prevent borrowers from keeping up.
The lawsuit names Navient and two of its subsidiaries: Navient Solutions, the corporate division responsible for loan servicing operations, and another subsidiary, Pioneer Credit Recovery, that collects on defaulted student loans with the parent corporation. All three entities are charged with systematically making it harder for borrowers by incorrectly processing payments or failing to effectively act when borrowers complained. Instead of assisting borrowers with available options for repayment, CFPB charges that borrowers were steered into forbearance, a temporary and high cost solution that suspends payments but allows interest rates to continue accruing.
“With forbearance, borrowers can temporarily suspend making monthly payments, but their debt continues to grow as the unpaid interest is added to the loan”, Cordray said. “It is typically not suitable for borrowers who are facing long-term financial hardship. And the longer a borrower is in forbearance, the more their loan balance increases.”
Many of the borrowers incurring excessive charges, according to CFPB, included military veterans who became disabled during their service to the country. Federal law provides that military veterans whose disabilities were incurred during service to the country are entitled to loan forgiveness.
Other CFPB charges include:
• Failure to correctly apply or allocate borrower payments to their accounts;
• Deceiving private student loan borrowers about requirements to release co-signers from loans; and
• Harming the credit of disabled borrowers, including severely-injured veterans.
“Servicers are supposed to follow instructions from the borrower about how to allocate payments across what often are multiple student loans,” Director Cordray said. “We believe that Navient repeatedly creates obstacles to repayment by misallocating or misapplying payments. The company all too often fails to correct its errors unless a consumer stays vigilant, discovers the problem, and contacts the company to insist that it be fixed.”
Illinois Attorney General Lisa Madigan supports the CFPB lawsuit, adding, “Navient’s actions have led to student borrowers needlessly carrying billions of dollars in debt and the company must be held accountable.”
Many consumer advocates agree.
“Too many Americans are struggling to make their student loan payments every month,” said Whitney Barkley-Denney, a policy counsel specializing in student lending with the Center for Responsible Lending. “While the Department of Education has created programs to help make monthly payments more affordable, those programs only work if servicers are actually helping eligible borrowers access them. Servicers aren’t merely debt collectors – they can be a borrower’s lifeline to financial stability.”
To file a complaint with CFPB, download an online form, fax to 855-237-2392 or mail complaints to:
PO Box 4503
Iowa City, IA 52244
CFPB staff are available weekdays from 8 a.m. until 8 p.m. Eastern time, toll-free, at 855-411-CFPB or 855-411-2372.
Charlene Crowell is the Center for Responsible Lending’s communications deputy director.