Amid heightened regulatory scrutiny in the U.S. student loan industry, Navient Corporation (NAVI) has been hit with a lawsuit by the Consumer Financial Protection Bureau (CFPB).
According to the release by the CFPB, Navient – the nation’s largest servicer of both federal and private student loans – has been accused of “systematically and illegally failing borrowers at every stage of repayment. â€The CPFB stated that the company had created hindrances in repayment by providing misleading information, processing payments inaccurately and failing to act on borrowers’ complaints.
CFPB Director Richard Cordray mentioned, “At every stage of repayment, Navient chose to shortcut and deceive consumers to save on operating costs. Too many borrowers paid more for their loans because Navient illegally cheated them and today’s action seeks to hold them accountable.â€
Acting as an important medium between borrowers and lenders, servicers are engaged in key functions of managing borrowers’ accounts, processing monthly payments and directly communicating with borrowers. Very often, the servicer is different than the lender and a borrower typically has no control over which company services a loan.
Navient – which was spun off from Sallie Mae in Apr 2014 – currently services student loans for over 12 million customers. This includes 6.2 million customers on behalf of the U.S. Department of Education.
The CFPB highlighted that in stressed conditions, borrowers are entitled to opt for repayment plans that facilitate a lower monthly payment. However, it believes that Navient pushes many borrowers into forbearance – an option, which although allows borrowers to refrain from making payments for a short period, interest continues to add up during such period.
In fact, from Jan 2010 to Mar 2015, Navient added up to $4 billion in interest charges to the principal balances of borrowers who were under several, consecutive forbearances. CFPB believes that had Navient abided by law, a large part of these charges could have been avoided.
