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Navient, the nation’s largest servicer of federal and private student loans, was charged by the Consumer Financial Protection Bureau with cheating borrowers out of billions of dollars by creating obstacles to paying back loans, resulting in higher interest rates and balances.
According to CFPB, Navient, the former unit of Sallie Mae, provided borrowers with faulty information about paying backing loans, processed payments incorrectly, and failed to act when borrowers complained.
The company was also charged with cheating borrowers out of lower student loan payments which caused them to pay more than necessary. The CFPB is seeking relief for Navient’s borrowers who were affected.
“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 said in a press release announcing the action. He continued, “At every stage of repayment, Navient chose to shortcut and deceive consumers to save on operating costs.”
The action against Navient isn’t the first time the CFBP has gone after the loan servicing industry. In September it released a scathing report in which it said it is common for Navient’s borrowers to have issues with the income-driven repayment plans – from the application through repayment. With these repayment plans, borrowers only have a pay 10% to 20% of their discretionary incomes.
Borrowers complained to the CFPB from October 2015 to May 2016 that Navient’s process for enrolling in one of these programs often took multiple weeks or months. During this time, borrowers were unable to take advantage of other protections offered by the government that could have lowered their monthly payments, saved money on interest, and sped up the repayment process.
Of all of the student loan servicers that the CFPB received complaints about, Navient was by far the worst with over 1,100 complaints. AES/PHEAA and Sallie Mae followed with 317 complaints and 161 complaints, respectively.
The action announced Wednesday also named Navient subsidiaries Navient Solutions and Pioneer Credit Recovery. There were 5 main charges.
First, Navient failed to correctly apply and allocate payments borrowers made to their accounts, stopping borrowers from strategically choosing where their money went.
Next, the CFPB said that Navient steered struggling borrowers into forbearance. Forbearance lets borrowers take a break from making payments, but interest still accrues, making Navient more money. Typically, struggling borrowers would enter an income-driven repayment plan instead.
Other complaints against the student loan giant include not informing borrowers of important income-driven repayment plan application deadlines, deceiving private student loan borrowers about the eligibility requirements to release a cosigner, and incorrectly reporting that disabled borrowers had defaulted on their loans when they were actually forgiven.
From January of 2010 to March of 2015, Navient added as much as $4 billion in interest charges to the loan balances of struggling borrowers.
Navient defended its practices, saying the allegations by the CFPB are “unfounded” and that the timing of the lawsuit, given the transfer to a new government, “reflects their political motivations.”
Author: Dave Rathmanner
As the VP of Content at LendEDU, Dave regularly plans and writes content to help consumers with their personal finances. Dave’s work has been featured in the Chicago Tribune, Bloomberg, CNBC, US News, Yahoo Finance, NPR, and more.