Student Loan Lawsuits: 10 Things You Need to Know

Ever feel like student loans are ripping you off? Well, you might be right. Several lawsuits filed against Navient, one of the biggest student loan servicers in the country, allege that borrowers have been mislead and mistreated by the people who handle their debt. The lawsuits will probably take some time to resolve, so it’s not clear what effect — if any — they’ll have on how borrowers interact with the companies that manage their loans. But as we wait for the lawsuits to wind their way through court, we’ve put together this guide, which explains 10 key things every student loan borrower needs to know about the cases.

4/18/2017: This article has been updated with additional information from Navient. 

1. The lawsuits target the nation’s biggest student loan servicer

protesters with a sign that says "you can't foreclose my brain"

A woman holds a sign during a 2012 Occupy Wall Street rally in New York against the high cost of college tuition and student loans. | Don Emmert/AFP/GettyImages

The Consumer Financial Protection Bureau and two states, Illinois and Washington, are suing Navient. Navient is the biggest student loan servicer in the United States and used to be part of Sallie Mae. Navient services loans for more than 12 million borrowers with more than $300 billion in debt. The company has a contract with the U.S. Department of Education to service federal student loans for 6 million borrowers.

The problem, according to the lawsuits, is Navient has done a pretty crummy job of working with people to pay off the money they owe.

Next: The serious charges against Navient and billions of dollars in damages.

2. The charges are pretty serious

alma mater statue

People walk past the Alma Mater statue on the Columbia University campus in New York City. | Mario Tama/Getty Images

The Consumer Financial Protection Bureau and the two states have leveled some pretty serious charges against Navient. They claim the company gave borrowers bad information about their loan repayment options, failed to correctly process payments, and ignored customers when they complained about the service they received.

“For years, Navient failed consumers who counted on the company to help give them a fair chance to pay back their student loans,” Consumer Financial Protection Bureau Director Richard Cordray said in January, when the lawsuit was announced. “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.”

Next: Borrowers might have been suckered into paying an extra $4 billion.

3. Navient borrowers might have been stuck with $4 billion in extra interest payments

student loan borrower with sticker that says, "hello, my name is $58,307"

A borrower wears a sticker showing his college debt during an Occupy Wall Street rally in 2012. | Don Emmert/AFP/GettyImages

Borrowers might have ended up paying more than $4 billion in extra interest on their loans because Navient didn’t let them know about different repayment options, the Consumer Financial Protection Bureau alleged. Rather than pointing struggling borrowers to choices, such as income-based repayment, it instead steered them toward forbearance, the Consumer Financial Protection Bureau claimed. That allowed borrowers to temporarily stop paying their debt. However, interest continues to pile up while loans are in forbearance, making this a potentially costly choice.

According to the lawsuits, Navient was reluctant to point borrowers to more flexible repayment plans because setting up those payments required more paperwork than simply requesting a forbearance. Navient says the CFPB’s allegations simply aren’t true, and that it does a good job of explaining options to borrowers and enrolling them in appropriate repayment plans (which can sometimes include forbearance, such as when a borrower needs to bring an account current). Company executives have also pointed out that navigating the various income-driven repayment options is “complex” and “cumbersome,” and that simplifying the process would be beneficial to both borrowers and loan servicers.

Next: Navient says it did nothing wrong.

4. Navient says it did nothing wrong

Jonah Hill in The Wolf of Wall Street

Stacks of money surround Jonah Hill in The Wolf of Wall Street. | Paramount Pictures

Unsurprisingly, Navient is fighting the lawsuits and says it “will vigorously defend against these false allegations and continue to help our customers achieve financial success.” According to the company, nearly half of the borrowers it serves are enrolled in income-driven plans and federal student borrowers whose loans are serviced by Navient are 31% less likely to default than those who have loans serviced by other organizations. But in court filings, it has another reason why cases should be tossed out — it’s not actually in the business of helping borrowers.

“There is no expectation that the servicer will act in the interest of the consumer,” Navient said in a motion to dismiss the case the U.S. Consumer Financial Protection Bureau filed. Rather, its goal is to get borrowers to pay the money they owe its biggest client, the U.S. Department of Education, Bloomberg reported. Navient argues that though it is not a fiduciary agent for its customers, it provides “exceptional customer support” and that “statements that Navient does not inform borrowers of their array of repayment options are patently false.”

Consumer advocates say Navient’s cavalier attitude reminds them of the behavior of some other notorious financial institutions.

5. There are some unsettling similarities to the subprime mortgage crisis

foreclosed home with sign that says "bank owned"

A foreclosed home | Joe Raedle/Getty Images

Navient critics say the company’s actions aren’t unlike the lapses that happened in the mortgage servicing industry during 2008, the New York Times reported. Specifically, the state lawsuits allege Navient and its previous owner, Sallie Mae, deliberately steered students into risky loans with a high risk of default.

“My investigation found Sallie Mae put student borrowers into expensive subprime loans that it knew were going to fail,” Illinois Attorney General Lisa Madigan said. Students attending for-profit schools with dismal performance records got loans with high interest rates and fees. The thoughtless lending was similar to what happened during the subprime mortgage crisis, Madigan said.

The Consumer Financial Protection Bureau lawsuit started during the Obama administration. So, what’s President Donald Trump going to do to help student loan borrowers?

6. The Trump administration is backing student loan servicers

Betsy DeVos

Education Secretary Betsy DeVos | Olivier Douliery-Pool/Getty Images

At the same time the Consumer Financial Protection Bureau is going after Navient, the Trump administration is rolling back rules President Barack Obama put in place to protect borrowers. Education Secretary Betsy DeVos has withdrawn memos issued by the Obama administration that would have required loan servicers to do more to help borrowers manage their debt.

The new guidelines would have also made it harder for companies that mistreat borrowers to win future government contracts. Cutting down on how much the government pays to collect student loan debt was one reason the Department of Education decided to change course, Bloomberg reported. Critics say not requiring servicers to do a better job of working with borrowers is only going to increase defaults.

What should someone with student loan debt do now? Read on for some advice.

7. Borrowers should check to see whether Navient is their servicer

Student loan repayments on a form

Student loan repayment form | iStock.com/ShaunWilkinson

Navient works with 12 million borrowers, including 6 million who have federal student loans. (About 44 million Americans have federal student loans.) So, if you have college debt, there’s a fair chance Navient is your loan servicer. If that’s the case, you’ll probably want to keep a close eye on the progress of the lawsuits.

Your loan servicer is the company you make loan payments to every month. If you have an account with Navient and are receiving statements and bills from it, it’s your loan servicer. (Other servicers include Great Lakes, Mohela, and Nelnet.) If you’re not sure what company services your loans, log in at My Federal Student Aid website to find out.

8. You can file a complaint if you’ve had problems

complaint form

A complaint form | iStock.com

Unfortunately, switching student loan servicers because you’re unhappy with the service isn’t really an option, NerdWallet explained. But if you feel you’ve gotten the runaround about switching repayment plans, haven’t had your payment properly credited to your account, or have had other problems, you can file a complaint. (Just don’t stop making your student loan payments, no matter how frustrated you are with the process.)

In addition to working with Navient (or whatever other company is servicing your loan) directly to solve problems, you can file complaints about your student loan servicer with the Consumer Financial Protection Bureau or share feedback via the office Federal Student Aid’s feedback system. You can also file a dispute with the Federal Student Aid Ombudsman Group. Finally, you can share your concerns with state and local consumer protection agencies.

9. Checking your credit report is probably a good idea

credit report

A copy of a person’s credit report | iStock.com

Certain borrowers who have Navient as their servicer should pull their credit report and give it a once-over. Among the Consumer Financial Protection Bureau’s complaints is Navient “harmed the credit of disabled borrowers, including severely injured veterans.”

People who are have severe and permanent disabilities might be eligible to have their loans discharged. But the Consumer Financial Protection Bureau says Navient mistakenly told credit reporting agencies borrowers who’d had their loans forgiven under this program had actually defaulted. Those “defaults” would have led to black marks on borrowers’ credit histories and lower credit scores. And they could have made it difficult for them to get a mortgage, open credit cards, and access other financial services.

If you had your loans forgiven because of a disability, check your free credit history to make sure there’s not a false report of a default.

10. Everyone with student loans should know about repayment options

woman carrying a big box labeled "debt" next to a pile of books

A woman carries her student loans. | iStock.com

One of the core issues in the Navient lawsuits has to do with whether the company was doing a good job of letting borrowers know about different repayment options and helping them switch repayment plans when they chose to do so. Because it seems you might not be able to count on your loan servicer to steer you in the right direction, borrowers should take the time to educate themselves about how to manage their student loans.

Federal student aid has information about repayment plans and how to figure out which one is right for you. Some people might qualify for loan forgiveness depending on their job or personal situation. The National Foundation for Credit Counseling can also connect you with a certified counselor who will help review your entire financial situations — including your student loans — and help you develop a plan for paying off what you owe. You will have to pay a small fee for the service.

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