California Attorney General Xavier Becerra recently announced his intention to sue student loan servicer Navient.
Navient has faced a difficult year of legal challenges; the student loan servicer is already dealing with multiple lawsuits alleging that the company misled and harmed borrowers. Now California becomes the newest state to take legal action against the company.
Last week, California Attorney General Xavier Becerra announced his plans to sue Navient for alleged harmful debt collection practices. Becerra claims the company encouraged its borrowers to put their loans into forbearance, which temporarily suspends their monthly loan payments, The Washington Post reported.
Navient CEO Jack Remondi said the accusations are “unfounded,” according to the Post. Remondi issued a statement saying that the lawsuit was another attempt to blame student loan servicers for the failings of the higher education system.
The problem with forbearance is that the interest continues to accrue and students’ loan balances will continue to get larger. There are better options available to borrowers, like income-driven repayment plans, which set the monthly payments at a percentage of a borrower’s monthly income.
Consumer advocates say that student loan companies push forbearance simply because it requires less paperwork than enrolling in an income-driven repayment plan. However, Navient maintains that it had a high rate of borrowers enrolled in income-driven repayment plans and that there is no scheme to push borrowers into forbearance.
Becerra also claims that Navient misled delinquent borrowers about their loan balances and failed to discharge disabled borrowers from their loans. He also claims that Pioneer Credit Recovery, Navient’s subsidiary, provided misleading information about federal loan rehabilitation programs that are available to defaulted borrowers. Navient refuted these claims, according to the Post.
Becerra said the company needs to be held accountable for their actions which “have compounded the misery of parents and students who sacrificed to pay for college,” the Post reported.
According to Navient, less than one percent of its customers filed complaints last year and only 23 of those complaints were related to student loan servicing. Rather, 98 percent of the complaints filed are related to loan terms or federal policy. “The need to blame someone has driven these lawsuits,” Remondi added, according to the Post.
Along with this recent lawsuit, there are similar lawsuits pending in Illinois, Washington, and Pennsylvania. The Consumer Financial Protection Bureau (CFPB) also filed a lawsuit toward the end of the Obama Administration. The Justice Department also fined the company millions of dollars for wrongfully charging borrowers high-interest rates and late fees.
Navient has tried to have these lawsuits dismissed but with little success. Politico reported that Remondi met with CFPB officials, asking them to reconsider this “politically driven” lawsuit. However, these lawsuits are pending and it will take years to reach any kind of resolution in the matter.