Continuing Legal Education ... Anytime

America’s Biggest Student Loan Debt Servicer Sued

The Consumer Finance Protection Bureau (“CFPB, Bureau or Plaintiff”) filed a lawsuit against Navient Corporation, Navient Solutions, Inc. (“Navient”) and Pioneer Credit Recovery, Inc. (“Pioneer”) (collectively “Defendants”). Navient Solutions, Inc. and Pioneer are subsidiaries of Navient Corporation, which is the largest servicer of both federal and private student loans in the United States of America.

This is a substantial, significant and serious legal action with respect to Student Loan Debt law.

This article contains legal information and is geared toward legal professionals who deal with Student Loan Debt repayment plans, negotiations, and representation of lenders, investors, borrowers and debtors in State Court and United States Bankruptcy Court actions. (There are two accredited CLE courses available online at www.AnytimeCLE.com)

Another “consumer/borrower” article is available for debtor clients and borrowers at numerous news outlets and at AnytimeCLE.com/articles.

The Bureau claims to have conducted an extensive investigation and found that Navient (Defendants) systematically and illegally failed borrowers at every stage of repayment.

Pertinent Points in the Bureau’s Lawsuit against Navient

The Plaintiff filed a 66 page Complaint for Permanent Injunction and Other Relief In The United States District Court for the Middle District of Pennsylvania wherein it charges the following against Defendants:

  • Failed to correctly process, apply or allocate borrower payments to their accounts; and
  • Steered struggling borrowers experiencing long term financial hardship into Forbearance; and
  • Obscured information consumers needed for renewal of enrollment in Income-Driven Repayment Plans; and
  • Deceived private student loan borrowers about requirements to release their cosigner from the loan; and
  • Harmed the credit of disabled borrowers, including severely injured veterans by misreporting of information to Consumer Reporting Agencies; and
  • Misrepresented that rehabilitation would remove all adverse credit report information; and
  • Falsely promised collection fee forgiveness.

The complaint is available at:

http://files.consumerfinance.gov/f/documents/201701_cfpb_Navient-Pioneer-Credit-Recovery-complaint.pdf

The lawsuit names Navient Corporation and two of its subsidiaries: The wholly owned subsidiary, Navient Solutions, Inc., which is responsible for loan servicing operations; and Pioneer Credit Recovery, Inc., which is a unit of Navient that specializes in the collection of defaulted student loans

The laws alleged to have been violated are the: Dodd-Frank Wall Street Reform and Consumer Protection Act, Fair Credit Reporting Act, and Fair Debt Collections Practices Act.

It appears that the Bureau seeks to:

  • Permanently enjoin Defendants from committing future violations, which would keep Navient and its subsidiaries from continuing illegal conduct and prevent new borrowers from being harmed; and
  • Payment of appropriate restitution to consumers harmed; and
  • Disgorgement of ill-gotten revenue; and
  • Imposition of civil money penalties; and
  • Rescission or reformation of contracts to redress injury to consumers; and
  • Payment of the Bureau’s costs.

Navient, formerly known as Sallie Mae, Inc. currently services the student loan accounts of more than 12 million borrowers. More than half of these accounts, 6 million accounts are under Navient’s contract with the Department of Education. The Defendants’ service more than $300 Billion in federal and private student loans. This amounts to more than one-in-four borrowers in this country.

General information – Student Loan Debt

Student loans make up the nation’s second largest consumer debt market. There are more than 44 million federal and private student loan borrowers. Consumers owe about $1.4 Trillion; and more than 8 millions borrowers are in default on more than $130 billion.

Servicers

As we know, servicers are very important and have much more responsibility than a mere collector. Student loan servicers play a critical role for student loan borrowers. They bear the burden and responsibility for managing the loans; and are the connection or link between the borrower and owner of the loan. In some cases the servicer may actually own the loan themselves.

Servicers manage borrowers’ accounts; communicate directly with borrowers; collect, process and apply payments; assist borrowers to learn about, enroll in, and remain in alternative repayment plans; and have the ability to work out modifications to the terms of the loan.

Typically, borrowers have no control over which company is assigned to service their loans. Yet, when borrowers are facing unemployment or other financial hardship they rely on their student loan servicer to help them enroll in alternative repayment plans or request a modification of loan terms.

Student Loan Borrower Examples

The following are two examples of real life borrower/client situations:

Struggling borrower: If a borrower loses a job or runs into substantial financial distress it is possible to apply for a repayment plan based on the student’s amount of income – an Income-driven Repayment Plan. This plan allows the student to make payments based on income. There is much paperwork including tax returns, family size, financial forms and data that is required every year according to specific deadlines set forth by law. While the student is making monthly payments according to this Income-driven Repayment Plan the interest charges are not added to the debt. And, the student is not delinquent or in default; events that carry sizable interest, including the costs and fees penalties garnered by the collector/servicer.

According to the Bureau’s Complaint, not only did Navient steer consumers away from applying for an Income-driven plan, they pointed borrowers to “forbearance” plans that allow a student to take a short break from making payments. But, the interest continues! In approximately five (5) years, the Defendants added about $4 billion in interest charges. This additional interest is added to the principal of the debt, “capitalization”. The student borrowers were not told about their options or that their debt could increase exponentially.

Disabled veteran borrower: A disabled person has the right to seek loan forgiveness under the federal Total and Permanent Disability discharge program. Navient’s subsidiary Pioneer Credit Recovery, Inc. misrepresented information to the credit reporting agencies indicating that the disabled person had defaulted, which wrecked the borrower’s credit. In addition Pioneer advised the borrower that the adverse information about the defaulted loan would be erased, but this was also a misrepresentation.

Student loan borrowers can get information and submit a complaint to http://www.consumerfinance.gov/students

Leave a Reply

Your email address will not be published. Required fields are marked *