BOISE — One of the nation’s largest student loan servicing companies may have driven tens of thousands of borrowers struggling with their debts into higher-cost repayment plans.
That’s the finding of a Department of Education audit of practices at Navient Corp., the nation’s third-largest student loan servicing company.
The conclusions of the 2017 audit, which until now have been kept from the public and were obtained by The Associated Press, appear to support federal and state lawsuits that accuse Navient of boosting its profits by steering some borrowers into the high-cost plans without discussing options that would have been less costly in the long run.
“My monthly payment is way too high, and my interest rate keeps increasing. Navient will not work with me at all,” one Idaho student wrote in a complaint. “I will die before this loan is ever paid off.”
Idahoans have filed nearly 100 complaints against the company to the Consumer Financial Protection Bureau since 2014, the Idaho Statesman has found. They include reports of scenarios similar to those described in the audit.
“Navient has only ever given me one option of forbearance for my student loan,” one borrower from the Treasure Valley wrote in a CFPB complaint last year. “Since they have had the loan for almost two years, my balance has skyrocketed.”
Idaho borrowers reported their interest piling up to the size of their original loan or higher.
An Eastern Idaho borrower said that forbearance and deferments had blown up a $13,000 loan to $75,000. The borrower said they were never told that income-driven repayment was an option.
Who has oversight?
Even while knowing of the audit’s findings, the U.S. education department has repeatedly argued that state and other federal authorities do not have jurisdiction over Navient’s business practices.
“The existence of this audit makes the Department of Education’s position all the more disturbing,” said Aaron Ament, president of the National Student Legal Defense Network, who worked for the Department of Education under President Barack Obama.
The AP received a copy of the audit and other documents from the office of Sen. Elizabeth Warren, D-Massachusetts, who has been a vocal critic of Navient. Warren has publicly supported the lawsuits against the company as well as questioned the policies of the Department of Education, currently run by President Donald Trump’s Secretary of Education, Betsy DeVos. Warren is considered a potential presidential candidate in 2020.
Navient disputed the audit’s conclusions in its response to the Department of Education and has denied the allegations in the lawsuits.
One point the company makes in its defense is that its contract with the education department doesn’t require its customer service representatives to mention all options available to the borrower.
“This (audit), when viewed as a whole, as well as dozens of other audits and reviews, show that Navient overwhelmingly performs in accordance with program rules while consistently helping borrowers choose the right options for their circumstances,” said Paul Hartwick, a company spokesman.
However, the five states suing Navient — Illinois, Pennsylvania, Washington, California and Mississippi — say the behavior breaks their laws regarding consumer protection. The Consumer Financial Protection Bureau says in its own lawsuit the practices are unfair, deceptive and abusive and break federal consumer protection laws.
What forbearance for student loans actually costs
When student borrowers run into difficulties making payments, they can be offered forbearance, which allows them to delay payments for a set period of time. But under a forbearance plan, in most instances, the loan continues to accumulate interest and becomes a more expensive option in the long run.
“I was offered forbearance for several months. It sounded like a great offer at the time, so I took it, and I continued to take offer after offer to keep my loans in forbearance until recently,” one borrower from Ada County wrote in a complaint last year.
The Consumer Financial Protection Bureau alleges in its lawsuit against Navient that between 2010 and 2015 Navient’s behavior added nearly $4 billion in interest to student borrowers’ loans through the overuse of forbearance. It is a figure that Navient disputes.
A 2017 study by the Government Accountability Office estimates that a typical borrower of a $30,000 student loan who places their loan into forbearance for three years — the maximum allowed for economic-hardship forbearance — would pay an additional $6,742 in interest on that loan.
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“This finding is both tragic and infuriating, and the findings appear to validate the allegations that Navient boosted its profits by unfairly steering student borrowers into forbearance when that was often the worst financial option for them,” Warren said in a letter to Navient last week.
As part of their inquiry, Department of Education auditors listened in on about 2,400 randomly selected calls to borrowers from 2014 to 2017 out of a batch of 219,000. On nearly 1 out of 10 of the calls, the Navient representative did not mention other options, including one type of plan that estimates the size of a monthly payment the borrower can afford based on their income. Auditors wrote that many customer service representatives failed to ask questions to determine if such a plan, known as an income-driven repayment plan, might be more beneficial to the borrower.
‘I’m a slave to this debt’
There is no public record of how many of the 6 million borrowers serviced by Navient may have been impacted by these practices. In its most recent annual report, Navient says 12.7 percent of its customers — or roughly 762,000 people — are more than 30 days past due.
If 1 out of every 10 of those customers were pushed into forbearance instead of an income-driven repayment plan, as the department’s audit found, that would be 76,200 of Navient’s borrowers.
A college graduate in Ada County told the CFPB in 2015 that they started paying on a Navient-Sallie Mae loan almost a decade prior. Their interest rate was almost 9 percent.
“I’ve been doing everything in my power to pay down this enormous debt,” the person wrote in their complaint. “I pay over $2,000 a month and still owe around $200,000. Do I have any options, anything at all, that can help me pay more towards my principal or bring down my monthly payment? I’m not trying to skip out on paying what I borrowed, but the amount that was added on top of what I borrowed is insane. I feel that I’m a slave to this debt [and] will be for most of my life.”
A borrower from Southwest Idaho told the CFPB last year that they had an interest-only payment arrangement for their Navient loan. But when the payment increased by $200 a month, they could no longer afford it. The borrower called Navient to inquire about different payment plans, according to their complaint.
“When I called in an attempt to make some different arrangements, I was advised to not make the payment, causing it to go to collections, and then they said they would be able to make different payment arrangements after that,” the borrower wrote. “I don’t understand why they would want me to risk my credit by doing such a thing. ... They insisted that there was no other way to make a different arrangement without sending my account to collections.”
What comes next
The education department’s Federal Student Aid division decided to do a review of Navient’s forbearance practices after the Consumer Financial Protection Bureau filed its lawsuit against the company in January 2017, department spokeswoman Hill said.
She said department officials concluded that Navient was not improperly steering borrowers. “Nothing in the report indicates forbearances were applied inappropriately — the observations noted focused on suggested improvements regarding how to best counsel” a small minority of borrowers, she said.
In response to questions over the 2017 audit, Navient pointed to the fact that 9 out of every 10 borrowers on the calls were offered all their options and that this audit is just one piece of a broader story. The company noted that the number of its borrowers who are enrolled in income-driven repayment plans is in line with or above the track records of other student loan servicing companies.
In addition, it said the company is paid less by the Department of Education for putting students in forbearance.
Navient, which split off from Sallie Mae, is a publicly traded company.
In calls and presentations with investors, Navient has said a company priority is to lower its operational costs.
Having its customer-service agents talk with borrowers about whether they should be in an income-driven repayment plan takes longer and costs the company more, student loan industry experts say.
In fact, that is exactly what Navient said in its response to the Department of Education’s audit.
“We (are not) aware of any requirement that borrowers receive all of their repayment options ... on each and every call,” the company said, adding that if the Department of Education chose to require all servicers to discuss income-driven repayment plans with all borrowers, the department needs to redo its contract with Navient.
Seth Frotman — the highest-ranking government official in charge of student loans until he quit in August in protest of how the Trump-controlled Department of Education and CFBP were handling student loans — said Navient’s response was outrageous.
“In short, Navient, when confronted with evidence of its bad practices, is telling the government, ‘Pay us more money or take a hike.’ And it looks like the Department of Education took a hike,” Frotman said.