The Consumer Financial Protection Bureau is taking a stand against the nation’s largest servicer of both federal and private student loans. The bureau is alleging that Navient systemically and illegally failed borrowers at every stage of repayment by creating obstacles to repayment, providing bad information, processing payments incorrectly, and failing to act when borrowers complained. According to the complaint, the company is also said to have “cheated” many borrowers out of their rights to lower repayments, causing them to pay much more than they had to for their loans. The CFPB is seeking to recover significant relief for the borrowers harmed by these illegal servicing failures.
Formerly part of Sallie Mae, Inc., Navient is the largest student loan servicer in the United States. It services the loans of more than 12 million borrowers, including more than 6 million accounts under its contract with the Department of Education. Altogether, it services more than $300 billion in federal and private student loans. The CFPB has named in its suit Navient Corporation and two of its subsidiaries: Navient Solutions, a division responsible for loan servicing operations; and Pioneer Credit Recovery, which specializes in the collection of defaulted student loans.
Allegations. Specifically, among the allegations in the CFPB’s complaint, the bureau charges that Navient:
- Fails to correctly apply or allocate borrower payments to their accounts: As soon as a borrower begins to pay back their loans, student loan servicers are supposed to take a borrower’s payment and follow instructions from the borrower about how to apply it across their multiple loans. Navient repeatedly misapplies or misallocates payments—often making the same error multiple times over many months.
- Steers struggling borrowers toward paying more than they have to on loans: When borrowers run into trouble repaying their federal student loans, they have a right under federal law to apply for repayment plans that allow for a lower monthly payment. However, the complaint alleges that Navient steers 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. Certain consumers with subsidized loans end up paying a heavy price because they could have potentially avoided those interest charges.
- Obscured information consumers needed to maintain their lower payments: Borrowers who successfully enroll in an income-driven repayment plan need to recertify their income and family size annually. But Navient’s annual renewal notice sent to borrowers failed to adequately inform them of critical deadlines or the consequences if they failed to act. Many borrowers did not renew their enrollment on time and they lost their affordable monthly payments, which could have caused their monthly payments to jump by hundreds or even thousands of dollars. When that happens, accrued interest is added to the borrower’s principal balance, and these borrowers may have lost other protections, including interest subsidies and progress toward loan forgiveness.
- Deceived private student loan borrowers about requirements to release their co-signer from the loan: Navient told borrowers that they could apply for co-signer release if they made a certain number of consecutive, on-time payments. Even though it permits borrowers to prepay monthly installments in advance and tells customers who do prepay that they can skip upcoming payments, when borrowers did so, Navient reset the counter on the number of consecutive payments they made to zero.
- Harmed the credit of disabled borrowers, including severely injured veterans: Student loan payments are reported to credit reporting companies. Severely and permanently disabled borrowers with federal student loans, including veterans whose disability is connected to their military service, have a right to seek loan forgiveness under the federal Total and Permanent Disability discharge program. Navient misreported to the credit reporting companies that borrowers who had their loans discharged under this program had defaulted on their loans when they had not.
The bureau also alleges that Navient, through its subsidiary Pioneer, made illegal misrepresentations relating to the federal loan rehabilitation program available to defaulted borrowers. Pioneer misrepresented the effect of completing the federal loan rehabilitation program by falsely stating or implying that doing so would remove all adverse information about the defaulted loan from the borrower’s credit report. Pioneer also misrepresented the collection fees that would be forgiven upon completion of the program, said the complaint.
Cordray’s remarks. In prepared remarks at a press call regarding the bureau’s most recent enforcement action, CFPB Director Richard Cordray highlighted the critical role that student loan servicers play in managing borrower’s loans. “They are the link between the borrower and the owner of the loan.” He continued saying, “They communicate directly with borrowers, collect and apply payments, and can help work out modifications to the loan terms.” This is especially important because consumers cannot easily take their business elsewhere. Instead, they are simply stuck with their student loan servicer, whether they are being treated well or poorly.
Cordray said the bureau’s investigation found that Navient has failed to follow the law and caused borrowers needless anxiety and aggravation. “Borrowers and the CFPB have reason to expect better from the nation’s largest student loan servicer,” concluded Cordray.
For more information about CFPB enforcement actions, subscribe to the Banking and Finance Law Daily.
Cordray’s remarks. In prepared remarks at a press call regarding the bureau’s most recent enforcement action, CFPB Director Richard Cordray highlighted the critical role that student loan servicers play in managing borrower’s loans. “They are the link between the borrower and the owner of the loan.” He continued saying, “They communicate directly with borrowers, collect and apply payments, and can help work out modifications to the loan terms.” This is especially important because consumers cannot easily take their business elsewhere. Instead, they are simply stuck with their student loan servicer, whether they are being treated well or poorly.
Cordray said the bureau’s investigation found that Navient has failed to follow the law and caused borrowers needless anxiety and aggravation. “Borrowers and the CFPB have reason to expect better from the nation’s largest student loan servicer,” concluded Cordray.
For more information about CFPB enforcement actions, subscribe to the Banking and Finance Law Daily.
