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The State Lawsuit That Could Set a Precedent for Nationwide Student-Loan Refunds

What is certain is that borrowers will continue to pay the price if student-loan companies aren’t held accountable.

Natalia Abrams and Senya Merchant

August 9, 2018

A student holds a sign during a protest at Indiana University, 2013. (Bloomington Herald-Times, Jeremy Hogan / AP Photo )

Anyone with a student loan knows what it’s like to be given the runaround by their loan-servicing company. It turns out that this may be more by design than you may have suspected. Lawsuits against one of the largest servicers of federal student loans, Navient, have garnered headlines in recent weeks. Following the Consumer Financial Protection Bureau’s groundbreaking lawsuit against the company in 2017, four additional states have followed suit, including California, in an effort to enforce state consumer laws and protect student-loan borrowers from unscrupulous business practices.

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Navient, a publicly traded company hired by the Department of Education to service over $100 billion in federal student loans, is the most criticized company in consumer finance. Now, one of the most consumer-friendly states in America is taking the company to court. Should California Attorney General Xavier Becerra prove successful, attorneys general around the country willing to take a stand against Education Secretary Betsy DeVos and her efforts to decimate state-level student-loan protections would be able to use this as a model to check abusive student-loan companies.

At a press conference last month, Attorney General Becerra detailed half a dozen allegations against Navient, including what is perhaps the most troubling breach of the company’s stated promise to aid borrowers in successful repayment. Instead of counseling for borrowers’ best financial interests, the lawsuit alleges, Navient systematically extracted money from struggling borrowers to maximize the company’s bottom line.

In other words, instead of giving financially distressed borrowers the option to enroll in income-driven repayment plans, for which the vast majority of federal student-loan borrowers are eligible, the company incentivized call representatives to push borrowers into repeated forbearances, thereby increasing the interest accrued and later capitalizing on borrowers’ loans.

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Navient is required by its contract with the Department of Education to inform borrowers of all the repayment options available to borrowers and to readily facilitate payment-plan changes. Documents referenced in California’s lawsuit indicate the company often seemed to place struggling borrowers into multiple consecutive forbearances, paving a direct path for many of these same borrowers to eventually default on their loans—an entirely avoidable outcome, had the company done the job it was hired to do.

In the aftermath of the California lawsuit against the company, Navient has launched an aggressive public-relations campaign denying the charges and painting itself as a victim of a bad student-loan system.

This is a sign that student-loan borrowers nationwide, facing setback after setback from the DeVos Department of Education, have reason to pay attention to this lawsuit in particular. While the company beefs up on lobbyists to defeat state bills giving consumer protections to borrowers, states like California are stepping in where the Department of Education has neglected its duty to protect students. There’s evidence to believe that this lawsuit and others like it could bring the kind of relief indebted borrowers around the country have been seeking for years.

Further, the timing of the litigation is important to 12 million Americans who have their loans serviced by Navient. In recent weeks, the CFPB submitted court filings claiming that Education Secretary Betsy DeVos is actively blocking the federal investigators from accessing Navient documents that would help the government pinpoint the identity and scope of those harmed.

At a time when wages are stagnant and the burden of student debt is increasing for every generation of Americans, loan servicers must be held accountable for predatory practices that are making repayment unnecessarily burdensome and expensive. We risk leaving whole generations behind if we don’t enforce laws on the books designed to keep bad actors in check, especially when it comes to financial products. What is certain is that borrowers will continue to pay the price if student-loan companies aren’t held accountable.

[Borrowers that are victims of Navient’s fraud and abuse should contact the California attorney general’s office to share their story and to find out if they are eligible for relief. Complaints can be filed at oag.ca.gov/report or (800) 952-5225.]

Correction: An earlier version of this article mistakenly said that Navient filed for a motion to dismiss the California case. In fact, Navient attempted to dismiss the CFPB federal suit, not the California case.

Natalia AbramsTwitterNatalia Abrams is the president and founder of Student Debt Crisis, where she advocates for student loan debt reform and the creation of lending solutions for all borrowers and students pursuing affordable and accessible higher education.


Senya MerchantSenya Merchant is a Program Manager at Higher Ed, Not Debt.


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