Who is Navient (aka Sallie Mae)
In 2014 Sallie Mae announced they would be splitting into two separate entities, one to manage their private student loan portfolio (Sallie Mae), and a new company Navient would service all their federally backed student loans, as well as perform “asset recovery” for those loans. We will talk about “asset recovery” and what it is a bit later, it’s important. They currently have the largest federal student loan portfolio of all the federal servicers in the $1.3 trillion dollar student loan debt debacle.
A Brief History Leading Up To Todays Student Loan Crisis
The student loan crisis we have today didn’t start recently, there has been a number of laws passed over the years which slowly ripped away student loan borrower rights and helped form the dark student loan cloud we have over our nation.
- 1978 Bankruptcy Reform Act is passed and prevents students from filing bankruptcy within the first 5 years of graduation. This helped turn student loans into a protected financial product where the lenders could provide money for student loans at a very mitigated risk level.
- 1990 The period in which borrowers couldn’t discharge their student loans through bankruptcy was extended from 5 years to 7.
- 1998 President Clinton signs into law the Higher Education Amendments of 1998 removing all provisions allowing for a student loan discharge through bankruptcy.
These laws were enacted to incentivize student loan lending, so everyone who wanted to go to college could do so by borrowing money. The reason for the legal changes was that student loans offered no collateral, so lenders needed to mitigate risk to continue lending or there might not be a market for student loans at all. This may have worked, but created an enormous student loan bubble. Lenders could now provide loans at very low risk. As the appetite for student loan lending grew, college tuition skyrocketed. Colleges and Universities knew that kids could borrow very easily, so why not hike up tuition rates that far surpass inflation?
Navients Involvement and Its “Asset Recovery” Business.
When a student loan goes into default, collection agencies are allowed to charge “reasonable fees” for collecting the debt. The fees range from 16%-25% depending on what type of federal loan it is. Navient, in all its wisdom, decided that it would be smart to own a few debt collection agencies to services its own defaulted student loans. Currently, they own Pioneer Credit Recovery & General Revenue Corporation. By owning both the debt and the collections agencies, Navient is guaranteed payment on the federal student loan. In fact, they benefit if the student loan goes into default, because not only is the loan government backed & guaranteed, but now they can add additional fees onto the loan when it goes to collections.
In 2016 Navient reported a net income of $681 million dollars. Currently, default rates on federal student loans are 11.5% which is up there with the highest it’s ever been. How is it that we have a system where student loan borrowers are unable to make payments, yet the private organizations contracted by our government are raking in the rewards on the backs of the suffering borrowers?
Lawsuits & Other Actions Against Navient
On October 5, 2017, the state attorney general of Pennsylvania files a lawsuit against Navient for deceptive, predatory and harmful practices. The state is claiming that Navient has repeatedly engaged in actions that harmed the borrowers by:
- Making predatory loans for For-Profit colleges where graduation rates were less than 50%, and with a very clear expectation that student would not, in fact, be able to repay the loans
- Increasing its sub-prime lending knowing that these loans were at a very high risk of default
- Steering borrowers the wrong way with their repayment options. Instead of assisting them with income-driven repayment plans which can offer a zero payment, they often put them wrongly into a forbearance which accumulated interest and didn’t shorten the term of their loan as an IDR play would. Its alleged that Navient added $4 BILLION in interest onto the principal balance of borrowers this way.
On January 18th, 2017 the Consumer Financial Protection Bureau(CFPB) filed a lawsuit against Navient for systematically failing borrowers at every stage of repayment. Including in the lawsuit was Pioneer Credit Recovery. The CFPB alleged that:
- Navient failed and repeatedly misapplied payments, often with the same accounts over numerous months and would continue until the consumer discovered the error and reported it to the company.
- Navient failed to educate and inform borrowers of their repayment options. Instead of steering them to the federal Income-Driven Repayment plans designed precisely to help struggling borrowers, they often suggested Forbearance which does not help the borrower and added over $4billion on the balances of their loans
- Navient obscured and failed to alert borrowers of renewal notices that borrowers must complete in order to maintain their income-driven repayment plan
- Navient failed to inform disabled and vets that that may qualify for a permanent disability discharge of their federal student loans, and thus harmed those who needed help the most and were unable to physical work to pay off their student loans.
On January 18th, 2017 state attorney general of Illinois Lisa Madigan, as well as the state attorney general of Washington State Bob Ferguson, filed lawsuits against Navient as well as its subsidiaries Pioneer Credit Recover & General Revenue Corporation for widespread abuses across all of its businesses. The suits allege that Navient put its profits before the interest of the people. The allegations the state of IL & WA put forth are very similar to the one CFPB found.
- Misplaced payments
- Failing to help borrowers with their best options for repayment plans
- Failing to inform borrowers of the annual re-certification required on IDR plans
- Misleading practices
- Deceptive collection practices
- Subprime lending when it was known the default rates on these loans were extraordinarily high.
Navient released this response to the lawsuits, and on March 24th in a motion to dismiss the lawsuits Navient stated that “There is no expectation that the servicer will act in the interest of the consumer”.
Changing Your Student Loan Servicer
Thankfully, you have options to change your loan servicer. The easiest way, which also makes your loans eligible for PSLF is to apply for the Direct Loan Consolidation program. It’s a federal program that will take all your student loans, and bundle them into one new loan with a weighted average interest rate. When applying for the consolidation you are able to select which servicer you would like your loans to be sent to between Nelnet, Fedloans, Navient or Great Lakes. You can apply on your own for a Direct Loan consolidation for free, or you can give us a call and we will connect you with a private organization who can offer assistance for a fee.
Another option is to apply for a private student loan consolidation. This would remove any federal student loan benefits you have and eligibility for income-driven repayment plans and forgiveness programs. If you are unable to take advantage of any of the forgiveness programs offered by federal student loans, then considering a private consolidation could be a smart move. Through a private consolidation, you may benefit from:
- Reduced interest rate
- More favorable repayment terms
- Better customer service
- In any event, it’s important to consider that there is no one size fits all solution. Each person needs to evaluate their own situation and decide accordingly after researching all their options.
Navient Ratings & Reviews
P.O. Box 9500
Wilkes-Barre, PA 18773