Suit against Navient underscores need to keep the CFPB undisturbed with Richard Cordray as director.
The Consumer Financial Protection Bureau (CFPB) announced it is suing Navient, formerly part of Sallie Mae and the nation’s largest servicer of both federal and private student loans, over allegations that it routinely cheated borrowers out of their right to lower loan repayments based on their income.
Navient also failed to properly apply payments, steered borrowers toward costlier repayment plans, and buried information that could have both lowered payments and let borrowers release their co-signers, the suit asserts. And the servicer made false reports to credit agencies, including reporting that veterans had defaulted on their loans when those loans had actually been discharged.
Attorneys General from Illinois and Washington State joined the CFPB in filing their own lawsuits against the student loan servicer.
Whitney Barkley-Denney, a policy counsel with the Center for Responsible Lending (CRL), made the following statement:
We applaud the CFPB for holding Navient accountable for the substantial harm it has caused student borrowers—especially to servicemembers and working families. Navient holds more than 12 million student loans, and instead of placing qualified borrowers into affordable, income based repayment plans, the company instead overzealously placed those borrowers into forbearance--which racked up $4 billion in interest charges on top of principal balances. These deliberate practices have put incredible financial burdens on student borrowers, often forcing them into default, which has lifetime consequences.
Students of color borrow more for college than white students. They are also more likely to attend for-profit colleges, which means they will have higher debt loads and higher default rates after leaving the schools. Thus, student loan debt servicing issues exacerbate the racial wealth gap and contribute to a legacy of economic disparity for people of color.
This action highlights how important CFPB Director Richard Cordray and his staff are in protecting consumers from rampant financial abuses. States can also address this cheating and deception by licensing student servicers within their states. As regulators of student loan servicers, states can prohibit misrepresentations, payment misapplications, and false credit reports. They can prevent servicers from putting borrowers in default before guiding them to income-sensitive repayment plans, thus protecting many student borrowers from default and the resulting consequences.
For more information, or to arrange an interview with a CRL spokesperson on this issue, please contact Ricardo Quinto at email@example.com.