Why the Fed ran for largest student loan lender

Why the Fed ran for largest student loan lender

On the front page of its website, Navient, the largest servicer of federal and private student loans, states, "Loan customers: We are here to help you succeed in your payment study. "

On another page, Navient states that its philosophy is to" use our deep expertise to help our customers succeed " with its" commitment to the highest standards of loan servicing, asset recovery and customer service. "

A lawsuit filed in January by the Consumer Financial Protection Bureau alleges Navient provided poor information to borrowers, improperly processed payments and failed to respond to borrower complaints.

Navient was spun off from Sallie Mae in 2014 as a separate company. It services more than $300 billion in federal and private loans from 12 million borrowers, more than 6 million of which are under contract with the U.S. Department of Education. Loan servicers collect and process payments and communicate with borrowers. A loan servicer is not necessarily the same company that loaned the money, and borrowers have no choice about their loan servicer. (See: Can Sallie Mae Loans Be Made?)

The CFPB gave Navient the opportunity to settle, but Navient declined, saying it would not "agree to false claims and practices that would harm consumers. "Navient further argues that the CFPB's allegations are without merit and that the bureau intends to impose sanctions against Navient based on new servicing standards that will be applied retroactively and applied against only one servicer. "

Why the CFPB Sued Navient

The bureau alleges that Navient has caused many borrowers to pay more than necessary on their student loans by steering offending borrowers into repayment repayment plans instead of income-driven plans, which would be cheaper and more helpful. To borrowers in the long term. Income-driven repayment plans reflect the borrower's current economic situation and offer loan forgiveness after 20 or 25 years. In contrast, forbearance temporarily stops loan payments while interest continues to accrue, and forbearance does not change the borrower's long-term payment relative to income. (Learn more in Student Loan Debt: Is Consolidation the Answer? and Student Debt: Is bankruptcy the answer?)

In prepared remarks at a press briefing on 18. Made January, CFPB Director Richard Cordray explained that it was easier and cheaper for borrowers to enroll borrowers in forbearance than in income-driven repayment plans.

"From January 2010 to March 2015, the company added up to $4 billion – that is, with a" B "- to special interest rates on principal balances of loans repeatedly borrowed in Forbearance," he explained."During this time, many affected borrowers contacted Navient multiple times for help, and Navient responded by extending the length of its forbearance. At any point in the process, Navient would have helped eligible borrowers begin an income-driven repayment plan instead, but Navient did not do so. "

The CFPB also alleges that Navient made it difficult for borrowers who were on income-driven repayment plans to meet annual renewal requirements, significantly and unnecessarily increasing their monthly payments.

"Taken together," the court said, "these practices prevented some of the most financially vulnerable borrowers from securing some or all of the benefits of plans designed to ease the burden of unpayable student debt. "

The CFPB is seeking relief for affected borrowers and a change in Navient's practices to protect current and future borrowers. The bureau is concerned that part of the reason for the high student loan default rate may be related to student loan servicing problems.

In addition, the CFPB is suing a subsidiary of Pioneer Credit Recovery for allegedly defaming borrowers who entered into a loan rehabilitation program and declined reimbursement for collection fees. The program.

The lawsuit appears to have arisen from accumulated consumer complaints. In its 2016 Consumer Response Annual Report, the CFPB stated that 67% of consumer complaints about student loans involved dealing with the lender or servicer regarding processing payments, obtaining a documented history of a loan account, and an incorrect account status. Credit reporting agencies and poor customer service experiences when asking about repayment options or trying to enroll in or switch between income-driven repayment plans.

Navient's response

On 24. March, Navient filed a motion to dismiss the CFPB's lawsuit. Navient's response to the lawsuit on its website reads, "Our view is that the indictment unlawfully seeks to impose sanctions against Navient based on new servicing standards applied retroactively and only one servicer. We also believe the standards being asserted are inconsistent with U.S. Department of Education regulations and could even harm student loan borrowers, including through higher default rates. "

In its defense, Navient states that" the allegations in these lawsuits are false and we will vigorously challenge them in court. "Navient says its customers" are far less likely to default on their federal student loans than borrowers serviced by other companies "and that 49% of loan balances for the federal government are placed in income-driven repayment plans.

Regarding its practice of placing loans in forbearance, Navient says nearly 70% of borrowers who want to enroll in an income-driven repayment plan must first place the account in forbearance.The reasons: It gives them time to collect the necessary documents and complete the federal income-driven repayment request without their account becoming past due, or their account already past due and forbearance is the only way to cure delinquency and allow the borrower to enroll in income-driven repayment where the borrower must be current on payments.

Navient says it is untrue that servicers have an incentive to put borrowers in forbearance rather than an income-driven repayment plan because servicers earn up to 60% less for those borrowers. Navient also says its use of forbearance is consistent with that of other servicers and that some borrowers choose forbearance even when offered income-driven repayment plans. Forbearance can help borrowers by preventing them from falling behind on payments, which hurts credit. (Learn more in Student Loans: What to Do If You Can't Pay Them Back and The Worst Things That Can Happen If You Don't Pay Your Student Loans Back.)

In response to charges of improper payment methods, Navient stated that most borrowers who filed complaints in this matter had not provided Navient with instructions about how they wanted the assigned payment or had sent their payments to the wrong address. Navient helped affected customers, Resolve issues by reapplying for payments upon request.

As for its loan servicing practices, Navient states on its website: "To help our customers successfully pay their education loans and build their credit, our financial services institution provides financial tools and comprehensive customer service. "It says its collection services, including Pioneer's," are "one of the largest, most responsible, compliant, and highest-performing collection operations in the country. We have recovered billions on behalf of taxpayers through various contracts with different government agencies and educational institutions. "In a January press release, Navient also stated that borrowers on the loans it offers are 31% less likely to default than their counterparts at other servicers. " (For more on this, see Student Loan Forgiveness: How Does It Work??)

In addition, Navient in its motion to dismiss the case:" There is no expectation that the servicer in the interest of The consumer "

The Bottom Line

A decision has yet to be made in court on whether Navient was guilty of the alleged practices. All we need to do now is what each side has said about these things. If Navient is found guilty, another question to answer will be whether it systematically engaged in these practices to increase its profits, whether its personnel were incompetent, or both. Being blameless would be good news for Navient, but it could still find a way to resolve the concerns the lawsuit raised to avoid similar charges in the future.

Moreover, this lawsuit illustrates the importance of borrowers educating themselves about their credit rights and repayment options, rather than relying on what a customer service representative tells them.The main customer of the loan servicer is the creditor for whom he collects payments on behalf of the borrower, not the borrower.