Advocates Welcome the Fall of the Former Student Loan Giant, Demand Justice for Borrowers Cheated by Navient’s Abuses
February 1, 2024 | WASHINGTON, D.C. — Navient Corporation, the one-time student loan market leader, notified its shareholders yesterday that it plans to exit the student loan servicing market and intends to transfer millions of student loan borrower accounts to its one-time rival, the Missouri Higher Education Loan Authority (MOHELA).
In response, SBPC Executive Director Mike Piece released the following statement:
“During its decade-long reign as the nation’s dominant student loan firm, Navient and its executives engaged in historic levels of abuse and fraud, causing widespread financial hardship for working people with student debt. Yesterday’s announcement shows that Navient’s executives once again put the demands of Wall Street over borrowers’ rights. In selecting MOHELA, Navient found its corporate soul mate—a firm that is fundamentally incapable of delivering high-quality service to its customers. Navient’s exit from the student loan servicing market is welcome news, but it is not a substitute for justice. As long as student loan borrowers are still forced to pay the price for Navient’s abuses, the firm, its leaders, and its shareholders must be held to account. Borrowers deserve debt relief, not another shady financial firm collecting these illegitimate debts.”
SBPC Deputy Executive Director and Managing Counsel Persis Yu said the following:
“With yesterday’s announcement, MOHELA has become one of the largest finance companies in the country—handling millions of loan accounts for public companies, private investors, and the federal government. Wall Street may be happy to see Navient dump the servicing of its toxic loans onto this private firm, but borrowers are once again being played for fools. Regulators and lawmakers must take the risks posed by this giant firm seriously and immediately supervise the transfer of these accounts from Navient—ensuring that MOHELA’s disastrous, hours-long call wait times, sloppy billing practices, and paperwork backlogs do not lead to the collapse of the student loan system.”
In 2014, Navient was the largest student loan company in the world, handling accounts for more than 12 million student loan borrowers. Over the past decade, Navient has faced consumer protection lawsuits from state and federal regulators and law enforcement officials and continues to defend against allegations that it systematically cheated millions of its customers out of their rights to affordable loan payments. Navient was also a key player in the largest predatory private student lending scheme in history, collecting on billions of dollars in subprime private loans made by its predecessor Sallie Mae to students at failing for-profit colleges including Corinthian and ITT Tech.
Background
Created in 2014 after being spun off from the student loan company Sallie Mae, Navient operates in various markets including student loan servicing, debt collection, and consumer lending. Though Navient recently exited its role as a servicer on behalf of the U.S. Department of Education, the company continues to collect on roughly $40 billion in government-guaranteed loans originated under the older, bank-based federal student loan program and $17 billion in other private education loans, making it the largest single private-sector creditor in the student loan market.
Navient and its predecessor, Sallie Mae, have been at the forefront of many of the most abusive practices that have pervaded both the federal and private student loan markets. For example, during a “boom” in private lending to students that lasted from the mid-2000s until 2010, many financial services companies and banks pushed billions of dollars of high-rate loans onto vulnerable borrowers, particularly those borrowers attending for-profit schools. They did this, in part, as a marketing ploy to make more lucrative federal student loans to the same students through a guaranteed lending scheme ended by Congress in 2010.
Sallie Mae led the way in the midst of this mania, with its then-CEO Thomas Fitzpatrick telling an internal meeting of executives in 2007 the following:
“If the borrower can create condensation on a mirror, they need to get a loan this year.”
Lawsuits later revealed that one set of these predatory Sallie Mae private student loans had default rates ranging “between 50 and 92 percent every year from 2000 to 2007,” and that Sallie Mae’s own expectations were that these loans would default at rates as high as 92 percent. A 2007 internal memo from Sallie Mae explained that the company was using these doomed loans as a tool to build relationships with colleges, who would be paid the proceeds of the loan regardless of whether the borrower ultimately defaulted, and who could then direct valuable federal student lending business to Sallie Mae. Proceeds from this federal student loan business would more than cover losses on Sallie Mae’s private student loan portfolio—even while wreaking havoc on borrowers’ financial lives.
Background on Abusive and Illegal Student Loan Servicing by Navient
Navient’s nearly decade-long experience as a servicer on behalf of the Department of Education has been marked by failure, scandal, and unparalleled borrower harm. Nevertheless, during this time Navient has made its owners and executives rich, paying more than $4.9 billion to shareholders through dividends and stock buybacks and lavishing more than $47 million on its CEO, Jack Remondi.
The attorneys general of Illinois, Washington, Pennsylvania, California, Mississippi, and New Jersey have all sued Navient for violating borrowers’ rights. State-level allegations against Navient include that it improperly reported permanently disabled borrowers as being in default on loans that should have been relieved, and that it trapped thousands of older people in debts they were entitled to escape under the terms of their loan contract by deceiving borrowers about their rights.
The company’s abuses are far-reaching and the financial consequences for borrowers are ongoing. Since 2011, tens of thousands of borrowers have filed complaints with Navient, the CFPB, and other government agencies about the obstacles they faced in repaying student loans that Navient services. Navient’s track record of harm includes the following:
- Navient illegally overcharged nearly 78,000 servicemembers. In 2014, Navient and its predecessor Sallie Mae paid almost $100 million in restitution and fines after the FDIC and DOJ found that the two companies ignored the 6 percent interest cap for servicemembers, unfairly conditioned receipt of SCRA benefits on made-up and difficult-to-attain qualifications, and deceptively allocated borrowers’ payments across loans in a way intended to maximize late fees. As law enforcement highlighted at the time, this happened even after Navient had “been put on notice of these borrowers’ active duty status.”
- Navient forced borrowers to pay more than they had to on their loans, adding up to $4 billion in avoidable interest charges. In 2017, the Consumer Financial Protection Bureau (CFPB) sued Navient for failing borrowers at every stage of repayment. The CFPB’s findings included that Navient had inappropriately and abusively placed struggling borrowers into high-cost repayment plans instead of more appropriate income-driven repayment plans that they are legally entitled to, costing borrowers as much as $4 billion in unnecessary interest charges and fees.
- Navient steered struggling borrowers to higher-cost repayment plans. In 2018, Senator Elizabeth Warren uncovered an audit of Navient conducted by the U.S. Department of Education, indicating that Navient boosted its profits by steering some borrowers into high-cost plans without discussing options that would have been less costly in the long run. In 2019, this finding was verified by the Education Department’s Inspector General, who reviewed documents prepared by Federal Student Aid showing that Navient representatives did not offer alternative or potentially beneficial options when attempting to assist borrowers with bringing their account current or managing repayment. Amid mounting litigation, three Congressional committees have launched inquiries into predatory loan servicing practices and efforts by Trump Administration officials to hide abuses by the student loan industry.
- Navient evaded financial accountability. In February, Navient was ordered to pay the Department of Education back more than $22 million it had illegally taken from taxpayers by gaming an interest rate subsidy program.
Under the weight of these abuses, the U.S. Department of Education cut ties with Navient. Once the largest servicer of student loans owned by the U.S. Department of Education, Navient no longer serves as one of the government’s student loan servicing contractors, transferring all student loans it once serviced to Maximus (also known as Aidvantage) in late 2021.
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About Student Borrower Protection Center
Student Borrower Protection Center (SBPC) is a nonprofit organization focused on eliminating the burden of student debt for millions of Americans. We engage in advocacy, policymaking, and litigation strategy to rein in industry abuses, protect borrowers’ rights, and advance racial and economic justice.
Learn more at protectborrowers.org or follow SBPC on Twitter @theSBPC.