Navient's Student Loans: Officials Press Lawsuits Over 'Predatory' Practices

As American student debt reaches a cumulative $1.4 trillion, outpacing both credit card and automobile debt, more older Americans find themselves burdened with student loans than ever before. Navient, which holds the greatest share of student loans in the country, faces multiple government lawsuits for deceptive and predatory lending practices that have led to an increasingly debt-burdened society. Officials say the loans in question baited unsuspecting borrowers into taking on debt that many could never pay back.

In an in-depth report published Sunday about the lives of people wrapped up in costly student loan debt, the New York Times detailed the extreme financial struggles of those at the center of this crisis. Navient, which was spun off from the lender Sallie Mae and now holds about a quarter of all student loans, is being sued by the Consumer Financial Protection Bureau for its debt collection practices. Illinois Attorney General Lisa Madigan and Washington Attorney General Bob Ferguson have also filed lawsuits against Navient. (For more information on this and other political stories, subscribe to the White House Patch for daily newsletters and breaking news alerts.)

The lawsuits allege that the loans, initially issued by Sallie Mae but now owned by Navient, were permitted even though Sallie Mae knew the vast majority of them could not be repaid. Many students took out loans while attending for-profit colleges with graduation rates below 50 percent, which means the students would likely be saddled with debt even though they never earned a degree.

These are exactly the loans lenders know are extremely risky, and responsible lenders don't allow borrowers to put themselves in this position. According to the Times, some loans were issued even though as many as 92 percent of recipients were expected to default. As a result, these borrowers can spend much of their live in dire financial straits, struggling to cope with never-ending payments and disastrous credit scores.

The Times' article tells the story of Ashley Hardin, who went to the Brooks Institute of Photography and paid $150,000 in tuition financed through Sallie Mae's loans. A career as a photographer is highly unlikely to earn an individual enough money to justify such a great expense, but she said she didn't realize how risky her loan was.

But, according to government officials, Sallie Mae was well aware of the tremendous financial risks its borrowers were taking on. “These loans were designed to fail,” Shannon Smith, the from Washington State attorney general’s office, told the Times.

And while these loans were deceptively issued, officials say, borrowers face even more unfair treatment as they're required to repay under Navient.

"For years, Navient failed consumers who counted on the company to help give them a fair chance to pay back their student loans," said CFPB Director Richard Cordray when the bureau filed a lawsuit against the company. "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."

According to the bureau, Navient intentionally misleads borrowers about ways to lower their costs and steers them toward expensive options when they have trouble repaying their loans. One example is "forbearance," an option that lets borrowers delay payments for a spell even while interest continues to accrue on their debt.

The CFPB filed the lawsuit in the final days of President Obama's term after investigating this issue for years. Republicans have long been critical of the bureau, which was the brainchild of liberal firebrand Sen. Elizabeth Warren. Some worry the bureau, which is operated with partial independence of the administration, may face pressure or funding cuts in the GOP-controlled federal government. This could threaten the success of the lawsuit.

A White House has said that the president is committed to tackling the student loan crisis, but it offered no specific proposals. Navient's spokeswoman also provided no comment on this story. Sallie Mae has said in a statement that Navient "has accepted responsibility for all costs, expenses, losses and remediation arising from this matter.”

Those struggling with student debt can visit the CFPB's website for tips and advice on repayment. You can also submit a complaint if you feel you've been victimized by unfair lending practices. You can also call the Department of Education’s Loan Consolidation Information Call Center at 1-800-557-7392.

Photo credit: JBrazito via Flickr