Student Loans

In Navient lawsuits, unsettling echoes of past lending crisis

Jessica Silver-Greenberg and Stacy Cowley
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A man in Boston rolled several student loans into one, and his balance doubled overnight, with no explanation.

Near Chicago, a 39-year-old former graduate student who had a financial windfall sent in a $10,000 check to pay off his loans — and the payment was promptly lost.

The same thing happened to a woman in Maryland, who uncovered the problem three years later, after her loan had grown by $11,000.

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And in New York City, a 41-year-old homeless man, who should qualify for reduced monthly payments, has been pleading for a break on his loan payments but says that no one is listening.

Sound familiar?

State and federal lawsuits filed this week accused Navient, the largest collector of student loan payments in the nation, of the kind of sloppiness and misleading tactics that emerged in the mortgage market in the years after the financial crisis.

The company, which is fighting the lawsuits, has denied wrongdoing.

"Navient has a well-established, superior track record of helping student loan borrowers succeed in repayment," Patricia Nash Christel, a company spokeswoman, said in a written statement. "We will vigorously defend against these false allegations."

The accusations against Navient, by the nation's consumer watchdog agency and attorneys general in two states, are aggravating a student loan crisis that has swept the United States. Student loan debt has surged to $1.4 trillion, eclipsing the totals for auto loans and credit cards, and burdening a generation with a mountain of debt just as its members try to find their financial footing.

In recent years, the Obama administration has significantly expanded programs that allow people with federal student loans to cap their monthly payments at a fixed portion of their income. More than 80 percent of America's outstanding student debt is in the form of federal loans, and most of the borrowers carrying that debt are eligible for such income-based payment plans, but enrolling in the programs can be complicated.

Navient, which services the loans of roughly 12 million current and former students across the country, is responsible for keeping track of monthly payments on more than $300 billion in loans. It also has tremendous power — and leeway — in shepherding struggling borrowers through the process of either capping their monthly payments based on income or finding other ways of reducing those payments.

Guiding these borrowers takes time and training. Navient, the lawsuits say, steered clients toward options that were simpler for the company.

Anna Nepomuceno, 40, who lives in Tacoma, Wash., has been trying for years to get help from Navient. Around a decade ago, her partner, Andrew Brittell, 46, took out multiple loans totaling tens of thousands of dollars to attend DeVry, afor-profit school. Mr. Brittell now works in the billing department of a telecommunications company and takes home around $3,000 a month after taxes, barely covering the basic living expenses for their family of five.

Mr. Brittell's federal loans would probably qualify him for an income-based repayment plan, and he has repeatedly applied to Navient to participate in such a program. The company has repeatedly lost his paperwork, Ms. Nepomuceno said — and each time, Navient suggested that Mr. Brittell instead apply for yet another loan forbearance, a program that suspends payments while interest continues to accrue.

Several of Mr. Brittell's loans have been in forbearance for more than five years, Ms. Nepomuceno said. He has made no payments on them, and the balance due has ballooned to more than $90,000.

Mr. Brittel "will put in the paperwork, and then they'll tell us that it never went through, or that they lost it, and we should go on forbearance," she said, adding: "This has happened over and over again. It's like a vicious cycle."

Navient declined to comment on individual customers' cases. But Mr. Brittell's story is not unique, according to the suits filed this week, including one by the Consumer Financial Protection Bureau, a government agency created under the 2010 financial reform laws that increased regulation of the financial industry.

Lina Vitakauskas, who lives in the Chicago area, thought that income-based repayment was something that only younger students could take advantage of. It's not; most federal borrowers are eligible for a plan, but navigating the thicket of different options that are available, each with their own eligibility requirements, can be daunting.

It took more than six years, Ms. Vitakauskas, 43, said, to get her monthly payments lowered.

In the meantime, her loan balance — money she took out to earn a graduate degree in English — grew to more than $100,000, nearly double what she originally borrowed.

"I just felt like I was treading water," she said.

Half of Navient's borrowers who were struggling and met the criteria for income-based repayment plans would qualify for a $0 monthly payment, the consumer bureau found in its analysis.

But since 2010, Navient has enrolled some 1.5 million borrowers in at least two consecutive forbearances lasting 12 months or longer. Many of those borrowers would have been better off with an income-based plan, the bureau said.

Adam S. Minsky, a lawyer in Boston, has worked with hundreds of clients trying to resolve problems with Navient.

"They're not providing blatant misinformation, but they're not providing the borrower with the full spectrum of what their rights and options are," Mr. Minsky said. "That in itself is a form of misrepresentation."

More than half of Navient's customers who did manage to enroll in income-based plans fell out of them because they did not complete the annual renewal paperwork — a key step that Navient failed to prominently alert borrowers to, the lawsuits say.

Navient also routinely lost or misapplied its customers' payments, according to the suits.

In December 2012, Rahat Khan of Rockville, Md., tried to make a dent in the loans she had taken out to finance her daughter's education, going online to pay $38,000 she had borrowed against her house. Relieved, Ms. Khan, 62, thought she was done.

But in 2015, she started to get collection calls on the student loan that she thought had been paid. "What loan, I remember asking," she said. Swollen with interest and late fees, the loan had grown by $11,419.

"I went through circles and circles," said Ms. Khan, whose credit was tarnished because of the loan. It took Kathleen Hyland, a lawyer in Baltimore, to straighten it out.

Scott Kenemore, 39, who lives in Evanston Ill., had no such help.

Mr. Kenemore, a writer, sent Navient a check in August 2015 to pay off a balance of around $10,000 remaining on his graduate school student loans. Navient lost it, so he made a payment by phone instead. Then Navient apparently found the check — and tried to deposit it. Repeatedly.

"I had to close my bank account over it, because Navient would just not stop and their customer service was absolutely useless," Mr. Kenemore said.

The roots of suits filed against Navient this week stretch back years. From October 2012 to March 2013, the consumer bureau logged more than 600 complaints about Sallie Mae, from which Navient split off in 2014, accounting for nearly half of all the complaints about student lenders during that period. That number grew rapidly: The agency's database now holds more than 11,000 complaints against Sallie Mae and Navient.

"Complaints reported to C.F.P.B. represent fewer than one-tenth of 1 percent of Navient customers and have been consistent with or below the market share of the loans we service," said Ms. Christel, of Navient.

Unless Navient agrees to settle, the lawsuits are likely to take years. The consumer bureau, and the attorneys general, said they were seeking restitution and a change in the company's practices.

"Every single one of the borrowers who is having their loan serviced by Navient or one of Navient's companies is a borrower that's impacted," said Lisa Madigan, the Illinois attorney general, who filed one of the state cases. "If you're looking to put a price tag on that, it's billions of dollars."