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Largest Student Loan Servicer Accused of Cheating Borrowers

Consumer Financial Protection Bureau




Navient corp. formerly part of Sallie Mae has been sued the Consumer Financial Protection Bureau a federal consumer agency.  The CFPB is alleging that Navient has deceived and cheated Americans struggling to pay back their private and federal student loans.

The CFPB is alleging that student borrowers were provided with inaccurate information, processed payments incorrectly and directed student borrowers to higher-cost repayment options.

Filed in U.S. District Court in Pennsylvania, the lawsuit alleges violations of the Fair Credit Reporting Act, the Fair Debt Collections Practices Act and the Dodd-Frank reform act.

Navient denies the allegations and calls the lawsuit politically motivated as it was filed in the final days of the Obama administration.

The most serious charges set out in the CFPB complaint is the allegation that Navient provided incentives for employees to encourage borrowers to delay payments through forbearance.  This option will give some relief to borrows and also results in interest continuing to accrue when the borrower could enroll in an income-driven repayment plan. 

Navient is alleged to have amassed $4 billion in interest charges to the principal balances of borrowers who took multiple forbearances from January 2010 to March 2015. 

Separate lawsuits against Navient were filed January 18th by Illinois Attorney General Lisa Madigan and Washington Attorney General Bob Ferguson.  In addition to the accusations made by the CFBP, Illinois and Washington allege subprime private student loans with high-interest rates were being pushed by Navient for students enrolled in for-profit colleges.

For-profit colleges have been subject to increased scrutiny and a number have failed.  ITT Education Services, Inc. (ITT) had 137 campuses spread across 39 states before filing for Chapter 7 bankruptcy in September 2016.  The closing and subsequent bankruptcy followed the U.S. Department of Education’s decision in August 2016, to prohibit ITT from enrolling new students who rely on federal financial aid funds.

ITT was the subject of investigations by the CFPB, the SEC and over a dozen states for its marketing, recruiting and job placement numbers prior to its closure.  The Department of Education’s prohibition followed determinations made by the school’s accreditor, the Accrediting Council for Independent Colleges and Schools (ACICS) that ITT “is not in compliance, and is unlikely to become in compliance with [ACICS] Accreditation Criteria.”

Both the CFPB and the state attorney generals are asking for financial relief for student loan borrowers harmed by the practices of Navient.

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Posted January 23, 2017