Navient Corp. Investigated for Consumer Abuse

More than a dozen state attorney generals have attacked one of the biggest companies for student loans in the US, Navient Corporation, citing abusive, unfair practices and violation of state laws. It is alleged by the high-ranking law officials that the company paid its call center workers based on their ability to end conversations as fast as possible with borrowers who were finding it hard to make ends meet.

The allegations are a result of over two years of investigations launched in 2013 by different states across the US. The findings of the report continue to be confidential, with the investigation taking a look at over 4000 complaints by customers and a large number of phone conversations between Navient Corp. call workers and borrowers.

The 29 strong state body of a large number of law chiefs of different states was headed by Attorney General Lisa Madigan, who along with her team met with Navient Corp. officials on the 13th of April this year. While sharing the findings of the report, the team was quick to outline the terms over which they proposed an out of court settlement. According to a number of high ranking officials, some of which were involved in the meeting, Navient Corp has not given a definitive answer to this proposition just yet.

The officials also expressed their shock at these allegations and were quick to question the ability of the company to provide primary services to its huge foray of some 12 million Americans from government and private universities who had their student loans processed by the organization. Navient Corp’s previous identity was Sallie Mae and the investigators have made sure they look at dealings and practices conducted under both the identities.

The findings in the report hint at the possibility of reduced profitability and a decrease in costs for the company. The recent years haven’t been welcoming for the company, with it having to deal with state prosecutors, consumer regulators, banking officials and the US Department of Justice for their alleged involvement in mistreatment of a large number of borrowers of student loans.

The company has on the whole denied involvement in any kind of wrong doing. When asked for comment, the company spokeswoman Patricia Christel said that allegations, which all trace back to unknown sources are inaccurate. She went on to reiterate the company’s commitment to have healthy discussions with the state attorney generals, the Consumer Financial Protection Bureau and the Securities and Exchange Commission. However the spokeswoman stopped short of outlining what those discussions were for. She highlighted that despite public interest being generated into the matter, the record for the company is clear and it has always worked to successfully manage student loans and assist them with their problems regarding the loan.

The CEO of the company, John Redmondi, speaking to investors last month reiterated the desire to work with regulators to ensure they are able to understand the way their business is run and to allay any fears or apprehensions that they may have regarding the functioning of the company.

The investigation which has spanned over two years, found that the company, a leading loan contractor for the Department of Education (DOE), was able to inappropriately steer borrowers into misleading plans said officials. The plans deferred required payments temporarily, but allowed the balance of their loan to grow. As per the investigation, the company should have led the borrowers towards the White House promoted plans, called the “zero dollar payments”, regarding forgiveness of the debt for parties that found it extremely difficult to repay their debts back.

According to the allegations of the officials, this was done because the time need to enroll a borrower into temporary plans was less as compared to the one that is needed to enroll them into plans based on income.

It was only back in the year 2013 that the company went from Sallie Mae to Navient. According to Remondi, enrolling borrowers in plans based on income is very expensive. According to a study done in 2006 by the Department of Education, buyers who make use of forbearance or temporary deferments are most likely to default on their loans sanctioned by the federal agencies. In the year 2015, just under five percent of the borrowers having an income based plan were delinquent.

In a meeting with financial aid administrators, the Education Department explicitly told them to not keep forbearance and deferment as the primary choice offered to a struggling financial borrower.

The investigators also came across a surprising fact. Most of the employees at the company were not aware of the basics of the plans based on income introduced by the federal governments. The White House on the other hand confirmed that it is looking to step up its public relation efforts to extrapolate the average number of borrowers who are able to enroll in plans based on income. This comes after Obama had already paid companies like Navient Corp. $804 million to do just that, encourage struggling buyers to enroll in the plans based on income.

As part of the program, severely disabled citizens who had student loans from the federal government were eligible to have their debts extinguished, investigators however found that the company failed to do that, and its responses in this case were, as the officials put it “tough luck”. Similarly, employees of the company were accused of asking for payments from people who fulfilled the criteria to have their debts forgiven by way of school closure or being defrauded.

The practices of the company were not only restricted to government backed loans and it included private loans. Distressed borrowers were often giving a run around from one Navient worker to another without a remedy.

The developments in the investigation according to officials are a stark contrast to what the company has claimed multiple times. It has claimed on numerous occasions to have a program for loan modifications that is highly successful.

According to officials, the probe against Navient may be the starting point, with prosecutors looking to back at multiple student loans companies, in addition to this one, once this probe has been wrapped up.

The attorneys from different states want measures and steps to improve the way service is provided to the customers.  They want the company to ensure that their staff is competent and able to inform struggling buyers about all the income options available. They also called for efforts to make sure the employees were well versed in all the exemptions available in student loans and to dedicate some customer service employees to specially enrolling struggling borrowers to the income based plan.