By LISA KLEIN and CHARLY HIMMEL
CHICAGO (CN) – Student loan giant Navient illegally took advantage of customers struggling to repay their loans, collecting $4 billion in interest from some of them over a five-year period, three government lawsuits filed Wednesday claim.
The federal government, through the Consumer Financial Protection Bureau (CFPB), sued Navient in the Middle District of Pennsylvania on the same day that Lisa Madigan and Bob Ferguson, the Attorneys General of Illinois and Washington, filed suits in their respective state courts.
“Navient has failed to provide the most basic functions of adequate student loan servicing at every stage of repayment for both private and federal loans,” the CFPB said in a statement.
Instead of giving borrowers information on federally required repayment plans based on their current incomes, Navient steered them into costly forbearances, the CFPB and attorneys general claim.
Forbearance plans allow borrowers to take a break from making payments on their loans, but interest continues to accrue during that time.
“Certain consumers with subsidized loans end up paying a heavy price because they could have potentially avoided those interest charges,” said the CFPB, adding that borrowers with multiple, consecutive forbearances collectively accumulated $4 billion in interest from January 2011 to March 2015.
Madigan said in her 84-page complaint that Navient, which is supposed to help borrowers repay their loans, “failed to inform struggling borrowers at the critical time that the borrower needed to know about options – while the borrower was on the phone with Navient.”
“When speaking to these borrowers,” Madigan went on, “Navient incented its employees to get off calls quickly by offering the easiest fix to someone unable to pay their loans, a forbearance plan.”
The CFPB says for the customers who did sign up for income-driven repayment plans, Navient obscured notices to recertify their financial information, causing some to lose their enrollment and accrue yet more interest.
Other servicing issues listed in the lawsuits included misapplying or misallocating loan payments, deceiving borrowers on how to release co-signers and giving them false information about how repayment plans would affect their credit.
A former subsidiary of Sallie Mae, Navient services the loans of over 12 million borrowers, according to the CFPB, including more than $300 billion in federal and private student loans.
Madigan claims the problem started with Sallie Mae. “Beginning over 15 years ago, Sallie Mae began peddling risky and expensive subprime loans to student loan borrowers as loss leaders in order to dramatically boost its student loan portfolio,” she said in her complaint.
“At the same time, Sallie Mae (and later Navient) refused to provide many of those struggling borrowers with adequate repayment options,” she added. Students ended up saddled with “billions of debt they could not pay.”
“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 in a statement. “At every stage of repayment, Navient chose to shortcut and deceive consumers to save on operating costs. Too many borrowers paid more for their loans because Navient illegally cheated them and today’s action seeks to hold them accountable.”
Navient has vowed to fight back in court. “The allegations of the Consumer Financial Protection Bureau are unfounded, and the timing of this lawsuit—midnight action filed on the eve of a new administration—reflects their political motivations,” Navient said in a statement, adding that the lawsuits are based on new servicing standards that should not apply retroactively.
Navient argues that the suit overlooks many benefits of forbearance, which accrues lower service payments than average and is often required to obtain approval for income-driven repayment (IDR) plans. Navient also claims nearly half its borrowers are already enrolled in such plans.
“First, past-due borrowers cannot enroll in IDR unless they bring their account current. A borrower who has missed payments either needs to pay the total past due balance or, more typically, needs forbearance to cure the delinquency,” Navient said in a fact sheet posted to its website on Thursday.
“Second, borrowers may need forbearance to enroll in IDR to give them payment relief and time to complete the 12-page government-mandated application without becoming further past due,” Navient said.
Navient also claims to have established the first private education loan modification program in 2009, which currently accounts for more than $2 billion in loan balances. It accuses policymakers of rebuffing its efforts to streamline the process by giving borrowers a multi-year re-enrollment option.
“We cannot and will not accept agenda-driven ultimatums designed to get headlines rather than help for student borrowers,” Navient said. “We will vigorously defend against these false allegations and continue to help our customers achieve financial success.”