The nation’s largest student loan servicer, Navient Corp., is being sued — again. This time, by the state of California.
The lawsuit was filed Friday in San Francisco, making it the latest in a series of lawsuits against the student loan debt collector. California Attorney General Xavier Becerra accused Navient of mismanaging the loans of as many as several hundred thousand borrowers.
The state accused Navient of steering borrowers who needed long-term help through income-based repayment plans into short-term forbearance.
Forbearance reduces or eliminates student loan payments for up to one year. However, interest continues to accumulate while a borrower is in forbearance, and when the period ends, the interest is added onto the principal. Over time, this could lead to more expensive monthly payments for borrowers and owing more over the lifetime of the loan.
According to the lawsuit, Navient’s training materials instructed its employees to use forbearance as a last resort to help those who needed temporary assistance. Instead, the lawsuit says, it was used as the first step for borrowers who needed the long-term help of an income-based repayment plan.
“In other words, Navient affirmatively ‘steered’ borrowers into harmful and inappropriate forbearances, reducing Navient’s operational costs while causing serious financial harm to borrowers,” the lawsuit reads.
Nationwide, Navient services the loans of about 12 million people.
The states of Illinois, Washington and Pennsylvania, along with the Consumer Financial Protection Bureau — the government office tasked with making sure customers are treated fairly by financial institutions — also have ongoing lawsuits against Navient.
“Navient exploited every family’s dream of witnessing our children graduate from college,” Becerra said in a statement before the suit was filed. “Navient’s loan servicing abuses have compounded the misery of parents and students who sacrificed to pay for college. Our students can’t afford to be cheated out of any more money than they legally owe simply because Navient knew how to game the system. We are ready to hold Navient accountable.”
While other state lawsuits accuse Navient of mismanaging both private and federal loans, the California filing focuses solely on federal borrowers.
The state also accused Navient of failing to discharge loans of borrowers with permanent disabilities who qualified for loan forgiveness, and misleading borrowers into thinking that any payment above the minimum due each month would go toward reducing the principal on the loan. The additional payments actually covered fees and interest first.
In a written statement, Jack Remondi, president and CEO of Navient, said the accusations were “unfounded.”
He instead said the problems California and the other state and federal lawsuits recognized were symptoms of “the failures of the higher education system and the federal student loan program to deliver desired outcomes.”
Remondi added that Navient has the lowest default rate in the industry. He said the focus should instead be on educating prospective students and their parents on the full cost of paying for a college education with a loan before the student enrolls in college.
Desiree Stennett (@desi_stennett) is a senior writer at The Penny Hoarder. She writes about how government and court actions impact your wallet.
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