I last night appeared on WISH-TV (Channel 8), as the 11 o’clock news ran a segment on student loans, and a recent federal lawsuit. I was interviewed, and you can view that segment here: http://wishtv.com/2017/01/19/federal-government-files-lawsuit-against-student-loan-company-navient/. If you have student loans or your friends and relatives do, it is useful to review that segment.
Two days ago the federal government, through its Consumer Financial Protection Bureau (called hereafter “CFPB”) filed suit against Navient Corporation, a large local employer. This corporation is the former Sallie Mae/ USA Funds, which corporation has a significant presence just off of I-69 in Fishers.
The suit has significance to many student loan borrowers, because Navient is the largest student loan servicer in the United States. It services loans for more than 12 million student loan borrowers, including over 6 million customer accounts under a contract with the US Department of Education. It is responsible for administration of more than $300 billion in federal and private student loans.
It seems the government lawyers wanted to get the case on file before the change of administration today. The lawsuit, filed two days ago, alleges that Navient is not handling department of education accounts properly, and can be viewed here: http://files.consumerfinance.gov/f/documents/201701_cfpb_Navient-Pioneer-Credit-Recovery-complaint.pdf
Of course, most of us will not want to read all of that legalese. The pertinent details are quoted in this article, so that student loan borrowers can discern “what the heck is going on”. Please bear in mind that these quotes are allegations in a lawsuit, not proved facts which have resulted in a judgment in federal court.
Nevertheless, these statements are beyond mere suspicious fantasy, as they are based on Navient records of actual Navient transactions with student loan borrowers. For purposes of this post (and to avoid confusion) I have listed the allegations by complaint paragraph as listed in that legal document, and have used a different type face (italic) to distinguish my thoughts from those of the federal government.
As the suit explains, most federal student borrowers have a right under federal law to set their monthly student loan payment as a share of their income, but the CFPB alleges:
- Navient has failed to perform its core duties in the servicing of student loans, violating Federal consumer financial laws as well as the trust that borrowers placed in the company. Most federal student borrowers have a right under federal law to set their monthly student loan payment as a share of their income, an arrangement that can offer borrowers extended payment relief and other significant benefits. Navient systematically deterred numerous borrowers from obtaining access to some or all of the benefits and protections associated with these plans. Despite assuring borrowers that it would help them find the right repayment option for their circumstances, Navient steered these borrowers experiencing financial hardship that was not short-term or temporary into costly payment relief designed for borrowers experiencing short-term financial problems, before or instead of affordable long-term repayment options that were more beneficial to them in light of their financial situation.
- For borrowers who did enroll in long-term repayment plans, Navient failed to disclose the annual deadline to renew those plans, misrepresented the consequences of non-renewal, and obscured its renewal notice to borrowers who were due for renewal. As a result, the affordable payment amount expired for hundreds of thousands of borrowers, resulting in an immediate increase in their monthly payment and other financial harm.
- Taken together, these practices prevented some of the most financially vulnerable borrowers from securing some or all of the benefits of plans that were intended to ease the burden of unaffordable student debt.
- Navient’s servicing failures, however, were not just limited to enrolling and renewing borrowers in affordable repayment plans. Navient also misreported information to consumer reporting agencies about thousands of borrowers who were totally and permanently disabled, including veterans whose total and permanent disability was connected to their military service, by making it appear as if those borrowers had defaulted on their student loans when they had not, damaging their credit; misrepresented one of its requirements for borrowers to release their cosigner from their private student loan, thereby denying or delaying access to an important feature on many cosigned private loans that relieves a cosigner of responsibility for the loan once the borrower meets certain eligibility criteria; and repeated the same errors in processing federal and private student loan borrowers’ payments month after month, even after borrowers complained to Navient about those errors.
- Since at least July 2011, tens of thousands of borrowers and cosigners have filed complaints with Navient, the Bureau, other governmental and regulatory agencies, and other entities about the difficulties and obstacles they have faced in the repayment of their federal and private student loans serviced by Navient.
Wow, that is some pretty language! As to a subsidiary (Pioneer), the CFPB alleges:
- Much of Pioneer’s work relates to the federal loan rehabilitation program, which is a program that allows federal student loan borrowers who are in default to effectively “cure” one or more defaulted federal loans.
- In seeking to enroll consumers in the rehabilitation program, Pioneer systematically misled consumers about the effect of rehabilitation on the consumer’s credit report and overpromised the amount of collection fees that would be forgiven by enrolling in the program.
The CFPB further comments on Navient’s “steering” borrowers into high cost postponement of payment (forbearance) instead of enrollment into federally mandated income based repayment:
- Navient representatives sometimes initially responded to borrowers’ inability to make a payment by placing them in voluntary forbearance without adequately advising them about available income- driven repayment plans. This occurred even though it is likely that a large number of those borrowers would have qualified instead for a $0 payment in an income-driven repayment plan at that time. Indeed, over 50% of Navient borrowers who need payment relief, and meet the eligibility criteria for income-driven repayment plans, qualify for a $0 monthly payment.
- For example, between January 1, 2010 and March 31, 2015, nearly 25% of borrowers who ultimately enrolled in IBR with a $0 payment were enrolled in voluntary forbearance within the twelve-month period immediately preceding their enrollment in IBR. Similarly, during that same time period, nearly 16% of borrowers who ultimately enrolled in PAYE with a $0 payment were enrolled in voluntary forbearance within the twelve- month period immediately preceding their enrollment in PAYE. The majority of these borrowers were enrolled in voluntary forbearance more than three months prior to their enrollment in the income-driven repayment plan, which suggests that forbearance was not merely offered to these borrowers while their application in an income-driven repayment plan was pending. Because they were placed into forbearance before ultimately enrolling in an income-driven repayment plan with a $0 payment, these borrowers had delayed access to the benefits of the income- driven repayment plan. They were also subject to the negative consequences of forbearance, including the addition of interest to the principal balance of the loan, which they potentially could have avoided had they been enrolled in the income-driven repayment plan from the start.
- Navient also enrolled an immense number of borrowers in multiple consecutive forbearances, even though they had clearly demonstrated a long-term inability to repay their loans. For example, between January 1, 2010 and March 31, 2015, Navient enrolled over 1.5 million borrowers in two or more consecutive forbearances totaling twelve months or longer. More than 470,000 of these borrowers were enrolled in three consecutive forbearances, and more than 520,000 of them were enrolled in four or more consecutive forbearances. For borrowers enrolled in three or more consecutive forbearances, each forbearance period lasted, on average, six months. Therefore, hundreds of thousands of consumers were continuously enrolled in forbearance for a period of two or three years, or more. Regardless of why these borrowers did not enroll in an income-driven repayment plan from the start, their long-term inability to repay was increasingly clear as each forbearance period expired. Yet Navient representatives continued to enroll them in forbearance again and again, rather than an income-driven repayment plan that would have been beneficial for many of them.
- Enrollment in multiple consecutive forbearances imposed a staggering financial cost on this group of borrowers. At the conclusion of those forbearances, Navient had added nearly four billion dollars of unpaid interest to the principal balance of their loans. For many of these borrowers, had they been enrolled in an income-driven repayment plan, they would have avoided much or all of their additional charges because the government would have paid the unpaid interest on their subsidized loans in full during the first three years of consecutive enrollment.
The CFPB also showed concern about Navient’s practices in failing to counsel income based repayment (IBR) customers concerning how they could continue in the IBR process:
- A federal student loan borrower who is enrolled in an income- driven repayment plan must certify his/her income and family size to qualify for an affordable payment amount that is based on that income and family size. This affordable payment amount applies for a period of twelve months. At the end of this twelve-month period, the affordable payment amount will expire unless the borrower renews his/her enrollment in the plan before the expiration date….
- If the twelve-month period expires because the borrower has not timely recertified income and family size, several negative consequences are likely to occur. First, the borrower’s monthly payment amount may immediately increase from a low affordable amount to one that is typically in the hundreds or even thousands of dollars.
- Other significant consequences that will occur when the twelve- month period expires without a timely recertification include (1) the addition of any unpaid, accrued interest to the principal balance of the loan; (2) for subsidized loans in the first three years of enrollment in an income-driven repayment plan, the loss of an interest subsidy from the federal government for each month until the borrower renews his/her enrollment; and (3) for some borrowers who enroll in forbearance when the twelve-month period expires, delayed progress towards loan forgiveness because the borrower is no longer making qualifying payments that count towards loan forgiveness. These consequences are all irreversible.
The “failure to counsel” seems to be born out by the statistics Navient has maintained::
- Between at least July 2011 and March 2015, the percentage of borrowers who did not timely renew their enrollment in income-driven repayment plans regularly exceeded 60%. Those borrowers who did not timely renew experienced the significant consequences of nonrenewal, including a payment jump and the addition of any accrued, unpaid interest to the principal balance of the loan.
Later in the court filing, the CFPB concludes that consumer payments were not processed correctly::
- As described above, in numerous instances, Navient made errors, sometimes month after month, in misallocating and misapplying payments made by consumers. Moreover, Navient failed to implement adequate processes and procedures to prevent the same errors from recurring, or to prevent the same errors from impacting other consumers.
Abuses regarding releases of cosigners and false credit reporting payment are also alleged The complaint hyperlink above can be perused for details.
This lawsuit is quite troubling, as we attempt to safeguard the integrity of our educational system and the financing of it. Certainly an objective and close examination of any problems is warranted. If you have questions, I can be reached at firstname.lastname@example.org.