State of N.J. files lawsuit against largest server of education loans alleging deceptive conduct (updated)

The state has filed a lawsuit against Navient Corp. and Navient Solutions, the largest servicer of education loans, alleging that the company made misrepresentations and engaged in unconscionable commercial practices and deceptive conduct when servicing thousands of student loans for New Jersey borrowers.     

According to the lawsuit filed in Superior Court in Essex County on Tuesday, the New Jersey Attorney General is accusing Navient of failing to meet its obligations to student loan borrowers or providing them with services in a fair and honest manner, in violation of the state’s consumer protection laws.

“Higher education should be a pathway to success, not a road to financial ruin,” said New Jersey Attorney General Gurbir Grewal. “Yet even before the financial fallout from the COVID-19 pandemic, too many New Jerseyans were struggling to pay off their student loans. And the financial situation of too many student loan borrowers was made worse because their loan servicers put corporate profits above the borrower’s best interests. With today’s lawsuit against Navient, we are taking action to hold one of the country’s largest student loan servicers accountable for abuses that made New Jersey borrowers worse off.”  

A spokesperson for Navient said Tuesday afternoon that the allegations are baseless.

“Not only are these recycled baseless allegations, Navient has consistently delivered excellent service to student loan borrowers, helping millions of people realize the benefits of higher education and successfully pay off their loans,” reads a written statement from the spokesperson for Navient.

Formerly known as Sallie Mae, Navient services the loans of more than 12 million borrowers nationwide, with more than $300 billion in federal and private student loans. As of June, Navient was servicing the loans of 168,900 federal student loan borrowers in New Jersey who collectively owed over $7 billion in federal student loans. Navient also services private student loans, including for New Jersey student loan borrowers.   

According to an investigation by the state’s Division of Consumer Affairs detailed in the lawsuit, Navient’s tactics at various times over the last decade have included:  

Steering borrowers into forbearance instead of income-driven repayment plans better suited to their financial circumstances. As a student loan servicer, Navient is responsible for informing borrowers experiencing financial difficulty about available repayment options and loan-forgiveness programs, and for helping them select the program that best serves the borrowers’ interests based on their particular circumstances, according to the lawsuit. Instead of taking the time and incurring the operational expense to assist borrowers experiencing long-term financial hardship choose the most appropriate loan repayment option for them, Navient’s call center representatives allegedly steered borrowers toward forbearance — usually a costlier option for such borrowers than income-driven repayment plans. Navient allegedly incentivized its call center representatives to adopt this approach because it allowed representatives to handle calls more quickly and at less cost to the company. As a result, borrowers steered into forbearance suffered consequences including the unnecessary accrual of interest, the addition of interest to the principal, and lost months of timely payments that would have otherwise counted toward loan forgiveness, according to the lawsuit.

Failing to inform borrowers of deadlines to recertify their eligibility for certain income-driven repayment plans. Borrowers in income-driven repayment plans typically must recertify their eligibility on an annual basis. Navient allegedly failed to clearly communicate to borrowers the deadline to recertify their eligibility and the consequences of non-renewal. As a result, many student loan borrowers’ repayment plans expired unnecessarily, resulting in immediate increases in their monthly payments and other financial harm, according to the lawsuit.  

Enticing borrowers to take out private student loans with a cosigner, then making it exceedingly difficult to obtain a cosigner release. For loans originated by Navient, Navient allegedly deceptively encouraged borrowers to have family members or others guarantee their loans as cosigners, which increased Navient’s chances of being repaid if the student defaulted. Navient then set various hurdles to make it difficult for borrowers to meet the company’s requirements for releasing a cosigner from a loan, which benefited Navient by maintaining additional sources of payment if a borrower failed to pay, accotding to the lawsuit.  

Misleading borrowers about the amount of their delinquency. For borrowers behind on their loans, Navient employees allegedly were trained to attempt to collect more than the past due amount by using language that misled borrowers about how much they owed. Navient allegedly sought to collect not only the delinquent amount but also the next month’s payment by misleadingly calling the amount sought the “present amount due.” Navient’s practice of demanding the “present amount due” allegedly resulted in borrowers paying hundreds of dollars before a borrower may have budgeted for the payment. The state’s lawsuit includes two counts of allegations of New Jersey Consumer Fraud Act violations—one for unconscionable commercial practices and deception, and one for misrepresentation. The lawsuit seeks the maximum statutory penalties under the Consumer Fraud Act, restitution for affected consumers, injunctive relief aimed at preventing these unlawful practices in the future, and disgorgement of any ill-gotten gains.     

According to state officials, the lawsuit against Navient reflects the New Jersey Division of Consumer Affairs’ ongoing efforts to protect consumers of consumer financial products and services. The efforts include addressing exploitative practices that disproportionately affect New Jersey’s lower-income and minority communities, officials said.

From 1989 to 2016, the average cost of obtaining a degree from a four-year college or university in the United States rose about eight times as fast as the average wage. Faced with the soaring cost of higher education, more than 44 million people in the United States have taken out student loans. Total student loan debt is now around $1.7 trillion nationwide, and the average New Jersey borrower carries $36,500 in student debt, among the highest amounts in the country. Statistics show that certain groups of borrowers are particularly at risk. In 2019, the New York Federal Reserve found that borrowers in Black-majority zip codes are more likely to borrow to fund their education, have higher average loan balances, and default at almost double the rate of white-majority zip code borrowers. The findings show that borrowers who received Pell Grants — most of whom have family incomes below $40,000 — were five times as likely to default within 12 years. Borrowers whose parents did not attend college were more than twice as likely to default than borrowers whose parents did attend college, and borrowers who began their education at for-profit colleges defaulted at seven times the rate of those who attended public colleges.  

“The tragedy is that the long-term financial consequences of Navient’s conduct are likely to have the greatest impact on borrowers who can least afford them,” said Paul Rodríguez, acting director of the Division of Consumer Affairs. “Navient had a responsibility to help financially struggling borrowers select a loan payment solution that offered them a fair chance to pay back their debt. Instead, the company incentivized its employees to put company profit above their legal obligations, with little or no regard for the student borrowers who fell deeper into debt as a result.”

Navient counters that:

-Federal student loan borrowers in New Jersey who are serviced by Navient default 26% less than borrowers who are serviced by others, according to Department of Education data.

-Since January 2019, more than 34,000 New Jersey borrowers serviced by Navient have fully repaid their loans.

-In 2019, the New Jersey Attorney General’s office forwarded three complaints to Navient and that all of the complaints were from the same borrower. According to Navient, in 2020 the office has not forwarded any complaints to the company.

“As a servicer for the federal government, we have led enrollment in affordable payment plans and driven down default rates. In fact, over half of the loan portfolio we service is enrolled in income-driven repayment,” the spokesperson for Navient said in a written statement.