Pennsylvania Attorney General Goes After Navient’s Deceptive Student Loan Practices
Pennsylvania Attorney General Josh Shapiro filed a lawsuit on October 5th in the Middle District of Pennsylvania against Navient Corporation claiming the organization is to blame for deceptive student loan origination and servicing. The filing specifically alleged that Navient is in violation of the state’s Unfair Trade Practices and Consumer Protection Law and the Consumer Financial Protection Law in “peddling risky and expensive subprime loans that they knew or should have known were likely to default” and “while servicing student loans, failing to perform core servicing duties, thereby causing harm to borrowers and cosigners.”
According to Shapiro, Navient issued student loans with interest rates as high as 15.75 percent and an additional origination fee of 9 percent. The business lowered their credit standards to lend deceptive high dollar loans to those who simply could not afford it. Navient essentially created four tiers in which students could qualify for its loans, adding the fourth after 2001 so those who were not previously eligible could borrow funds. It also lent money to those attending institutions with graduation rates less than 50% while protecting itself from defaults by including provisions explicitly designed to force schools into taking on some of the risk.
Navient persuaded borrowers with long-term financial debt to enroll in forbearance instead of income-driven repayment (IDR) programs, which are meant for those undergoing short-term financial difficulty. By doing so, interest was able to be tacked onto any payments not being made in a timely manner. Records showed many more borrowers were enrolled in forbearance than the IDR programs. Between January 1, 2010, and March 31, 2015, 1.5 million borrowers were enrolled in these types of programs with payment schedules exceeding one year.
Shapiro is seeking full restitution to all borrowers affected, disgorgement by Navient of unlawfully gained profits, and civil penalties. Shapiro is also asking that all contracts or loan agreements between Navient and Pennsylvania customers to be rescinded or reformed while the business is forced to stop collecting on all illegal loans.
“Navient’s deceptive practices and predatory conduct harmed student borrowers and put their own profits ahead of the interests of millions of families across our country who are struggling to repay student loans,” Shapiro said. “They crossed the line in pursuit of profit, and we’re here to change their behavior and help the people who’ve been harmed.”
Navient responded to the Attorney General’s statement in a press release, “The allegations are completely unfounded, and the case was filed without any review of Pennsylvania residents’ customer accounts.”
“This third lawsuit against Navient from a state attorney general is an indication that states are ready to step in to defend consumers,” said Adam Minsky, a student loan attorney. “As the Department of Education rolls back consumer protections, we will probably see more states try to protect their citizens against the predatory practices.” He added that since three of the five major student loan service providers are based in Pennsylvania, “If Pennsylvania is successful, lenders would have to change their behavior in ways that could benefit borrowers all over the country.”