© David Shankbone/Wikipedia
The Consumer Financial Protection Bureau is taking Navient, the nation's largest student loan servicer, to court for cheating borrowers by making them pay more for their loans than was necessary.
The Consumer Financial Protection Bureau (CFPB) filed a lawsuit Wednesday against Navient, formerly a part of Sallie Mae, for "systematically and illegally failing borrowers at every stage of repayment," according to a
statement from the agency.
The CFPB claims Navient steered borrowers into payment options that made more money for Navient, and made borrowers pay more for their loans than was necessary.
Specifically, the CFPB claims that Navient purposefully incentivised their customer service representatives to push numerous borrowers into forbearance, without mentioning other payment plans that would be better for their income.The CFPB website states between January 2010 to March 2015, Navient "added up to
$4 billion in interest charges to the principal balances of borrowers who were enrolled in multiple, consecutive forbearances. The Bureau believes that a large portion of these charges could have been avoided had Navient followed the law."
Navient services 12 million student loan borrowers and over $300 billion in federal and private student loans. Student loan servicers manage a borrower's accounts and help them enroll in alternative repayment plans or request modifications based on their current income
Since 2009, the vast majority of federal loan borrowers have had the right to change their loan payments based on their income. With income-driven repayment plans, borrowers who meet certain criteria could be eligible for monthly payments as low as zero dollars.
The
lawsuit claims that Navient compensated their customer service personnel "based on average call time. As a result, engaging in lengthy and detailed conversations with borrowers about their particular financial situation and trying to determine the income-driven repayment plan that is most appropriate for each borrower would have been financially detrimental for those employees."
Pushing borrowers into forbearance is financially beneficial for student loan servicers, which doesn't need to have as many customer service employees talk to borrowers about their loan options. Navient also stands to gain more from the additional interest that loans in forbearance racks up over time.On their
website, Navient states that forbearance is appropriate for borrowers who "have a problem making on-time payments due to a temporary financial difficulty." The website adds that "forbearance is intended to help you out in times of temporary need."
In a
statement issued Wednesday, Navient defended the claims in the lawsuit, which they say are "
designed to get headlines rather than help for student borrowers."
Student loans currently make up the second largest consumer debt market in the US, with over 44.2 million federal and private student loan borrowers owing nearly $1.3 trillion.
Student loans are a massive market. When my wife was in school we were inundated with credit card applications, and constantly sent checks. But you know what? We had brains, so they all were tossed into the garbage. Even so, we still ended up with about $50k of debt after seven years of university. At first it seems like a huge impediment to starting our lives, but my wife didn't get a useless degree in environmental studies, or photography, or some other pointless degree. She got a degree in law. Twenty years later she's making major bank, and that $50k loan is long gone, and seems like a pittance now.
This company should be nailed to the wall for deceptive practices, but College students are not children, and if they weren't getting pointless degrees, they'd be paying off these loans in a timely manner...scam or not.