At Student Loan Giant Navient, Troubled Past was a prologue

Deception. Cheating. Shortcuts.

These are the dire allegations filed against Navient, the US student loan servicing giant, by the Consumer Financial Protection Bureau on Wednesday. In a lengthy complaint, the bureau said Navient, which oversees $300 billion in student loans for 12.5 million borrowers, has failed its clients “at every stage of repayment.”

In other words, it’s not enough that students have to struggle with onerous debt after college. Navient added to the burden, the office said, by making those loans harder to repay.

Navient did not accurately enforce borrower repayments, the bureau said, and the company did not specify what its customers needed to do to keep their payments low. Worst of all, however, he accused Navient of hurting disabled military veterans, who may apply for loan forgiveness under a federal program. Navient, according to the lawsuit, falsely told credit reporting companies that veterans taking advantage of this program had defaulted.

Sounds familiar. Remember how the mortgage foreclosure machine chewed up and spat out troubled borrowers, adding unwanted fees and unnecessary service costs to the amounts they owed? Banks have even seized borrowers when they had no right to do so.

Navient rejected the bureau’s findings and said it would vigorously defend itself against what it called “false allegations.” He also said the bureau’s complaint was politically motivated because it was filed just before the presumably friendlier Trump administration took over in Washington.

Navient chief executive Jack Remondi attacked the agency’s findings. “Navient leads the industry in income-driven repayment plans and has the lowest number of seriously delinquent borrowers and the lowest default rates,” he said in an interview. “If we did all these bad things, we wouldn’t be leading the industry.”

Navient is the nation’s largest education loan portfolio management, servicing and collection company. Navient acts under contract for the Ministry of Education, for which it manages six million loans, as well as for private lenders.

Navient was established as a separate loan servicing company by the SLM Corporation in 2014. SLM, widely known as Sallie Mae, was founded as a government-sponsored company in 1972 and privatized in 2004.

Armed with the troubling report from the Financial Protection Office, I asked the Department of Education if they were reconsidering their contract with Navient. Dodging the question, a spokeswoman issued a statement saying the ministry would continue to administer its contracts “to ensure the interests of government and student borrowers are protected.”

The complaint against Navient casts doubt on the implementation of sufficient protections. The same goes for conversations with clients like Thomas Gokey, who has an undergraduate degree in visual arts and a master’s degree and is working on his doctorate.

Mr Gokey has been at the forefront of a ‘debt resistance’ movement born out of the Occupy Wall Street protests, including a plan to buy and write off debt. Navient manages some of its own student debt of $37,000. He said he had been dealing with the company and its predecessor since 1999.

He called his experiences with the company a “nightmare”. When he changed banks, for example, the company struggled to manage his automatic payments, leading to late fees and a higher interest rate. Although Navient fixed the problem, it took numerous phone calls over several days to fix it, Gokey said.

Navient also failed to follow Mr. Gokey’s instructions to allocate payments to loans with the highest interest rates first. “It almost seems like they’re trying to make it more likely that I’ll miss a payment,” he said, “so they can charge late fees and raise the interest rate.”

Robin Wilde is a military veteran who had a series of trials with Navient. They started in 2000 when she entered active duty and attempted to have her loan delayed as permitted by law. She said she repeatedly sent Navient the right information, but it never got to the right person.

“They put my loan in default for the whole of my basic training and it ruined my credit,” Ms Wilde said.

There have been more recent troubles. After Ms Wilde earned a master’s degree in 2011, she struggled financially. She says she sent the information Navient needed to temporarily suspend the loan and called to make sure it had been received. “I didn’t find out they hadn’t processed my paperwork until they put me 90 days behind on 19 loans,” she recalls. “My credit score went from 730 to 520 in one month.”

Ms Wilde said it was a happy day when she consolidated her $60,000 in loans and transferred them to another managing agent.

Of course, a few distressed Navient customers out of 12.5 million are by no means a scientific sample. But the complaint from financial protection office Navient is also not Navient’s first rodeo with a regulator.

In 2014, the company paid $60 million to settle an investigation by the Department of Justice and the Federal Deposit Insurance Corporation alleging that the company had illegally overcharged military families as early as 2005. The complaint described Navient’s conduct as “intentional, willful, and taken in disregard of military rights. According to the FDIC, service members were misinformed that they had to be deployed to obtain certain loan benefits.

Patricia Nash Christel, a spokeswoman for Navient, said the $60 million settlement “was based on conflicting federal guidance,” adding, “Since the voluntary settlement, there have been six independent reviews confirming that Navient is following federal regulations”.

Then there was a Department of Education investigation in 2009 which determined that Navient’s predecessor, Sallie Mae, overcharged the government by $22.3 million by abusing a small lender scheme. Ms Christel said Navient has appealed the decision and is awaiting a decision on the matter.

In 2008, the FDIC and the Utah Department of Financial Institutions issued a cease and desist order against Sallie Mae Bank, a subsidiary. Regulators said the bank violated laws prohibiting unfair and deceptive practices as well as those protecting borrowers from discrimination.

And a year earlier, Sallie Mae reached a settlement with then-New York Attorney General Andrew M. Cuomo over conflicts of interest in company practices. Among them was Sallie Mae’s practice of paying the entertainment and travel expenses of school officials with whom she did business.

To settle the case, Sallie Mae paid $2 million into an education fund.

The Financial Protection Bureau may be a blight on Navient, but it has been a boon for consumers, Gokey said. For example, it was only after filing a complaint with the bureau that the company resolved the refund allocation issue, he said. And he did it in a week. “I am very worried about what will happen to student borrowers if the CFPB is gutted under the new administration,” he said.

Navient shareholders seem to expect such an outcome. Immediately after the election, the company’s shares soared to nearly $18 from around $13 on speculation that the office would be castrated under President Trump.

The shares retreated a little, to around $16. But investors still seem to believe that education finance companies like Navient might have a less aggressive regulator to worry about under the new administration.

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