Govind Tekale
Navient, a student loan provider, could end up paying $100 million in compensation along with $20 million in penalty. A proposed order was filed by the Consumer Financial Protection Bureau (CFPB) against Navient for failures and lawbreaking in past years. If the court approves the order, this could lead to a permanent ban on Navient from facilitating loan services under the Federal Family Education Loan Program. The order also demands $100 million in compensation for the borrowers who suffered due to the company’s malpractices and $20 million in penalty from the company.
In 2017, CFPB filed a complaint against Navient in the district court of Pennsylvania for failing borrowers at every stage of repayment. CFPB alleged that Navient directed its borrowers into forbearance, who may have qualified for income-driven repayment plans. By misguiding the borrowers into forbearance, it helped the company to accumulate more interest on the loans and capitalise on it, leading borrowers to pay additional interest on it.
Navient was found violating a number of regulations, including the Consumer Financial Protection Act, the Fair Credit Reporting Act, and the Fair Debt Collection Practices Act. The company was also found engaging in other illegal activities as well; like misleading the borrowers enrolled in income-driven repayment plans by not notifying them about the requirement to annually recertify their enrolment, misallocating payments made by borrowers with multiple student loans which led to late fees, interest accrual, and negative credit reporting, damaging the credit of disabled borrowers who were discharged from their federal student loans due to disability (including severely injured veterans), misguiding about requirements for cosigner release and misguidance about improving credit scores and the results of federal student loan rehabilitation.
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CFPB received a total of 40,601 complaints about Navient in the period between the year 2011 to 2024. Out of these, 33,309 were regarding the student loans and 3,228 regarding the credit reporting. The investigation conducted by CFPB has led to more than $50 billion in debt relief for more than 1 million borrowers who were wrongfully guided into forbearance, along with those who had payments miscounted. Navient will now be required to provide $100 million according to the proposed order in redress for affected consumers, while it will pay $20 million into the CFPB’s victims relief fund as a penalty.
Navient, however, denied these allegations and issued an official statement saying that “While we do not agree with the CFPB’s allegations, this resolution is consistent with our go-forward activities and is an important positive milestone in our transformation of the company.” Navient also said in its statement that they are no longer a servicer or purchaser of federal student loans and that they have transferred this responsibility to a third party. They will now oversee their third-party servicing provider to meet all operational terms of the agreement.
Navient is a repeat offender with a history of violating regulations. In 2014, it paid almost $100 million for illegally overcharging nearly 78,000 servicemembers; In 2021, it returned more than $22 million in overcharges; In 2022, a $1.85 billion settlement was announced by 39 state attorneys general for originating predatory student loans and forbearance steering practices.
This is not the first time CFPB has taken action against such malpractices. Since 2013, the department has been supervising the student loan market. Identification of the shoddy student loan servicing was a part of this supervising task, which troubled the borrowers from making progress toward loan cancellation under existing federal programs, including income-driven repayment. This helped the Department of Education to implement fixes to solve the failures of servicers and to help borrowers receive or progress towards loan cancellation in 2022.
CFPB Director Rohit Chopra said that “For years, Navient’s top executives profited handsomely by exploiting students and taxpayers. By banning the notorious student loan giant from federal student loan servicing and ensuring the winddown of these operations, the CFPB will finally put an end to the years of abuse.” U.S. Under Secretary of Education James Kvaal applauded the efforts of CFPB and said that “Today’s action builds on the Biden-Harris Administration’s work to hold loan servicers accountable and protect borrowers, including more than 1 million borrowers who have received debt relief by fixing past failures to properly track progress toward forgiveness, such as correcting harms from forbearance steering.”
The outlook for student loan services appears optimistic due to increased regulatory oversight by federal agencies like the CFPB. However, the increased regulations might lead to complex loan systems for borrowers so government agencies might keep an eye out for keeping the system as simple as possible.
