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Your student loan servicer may not have your best interest at heart. And that means you need to be vigilant.
The Pennsylvania Attorney General's office on Thursday filed a lawsuit against Navient, now the largest student loan servicer in the U.S. and formerly part of Sallie Mae. The suit alleges the company "harmed countless student loan borrowers" by "peddling risky and expensive subprime loans that they knew or should have known were likely to default."
"The allegations are completely unfounded and the case was filed without any review of Pennsylvania residents' customer accounts," Navient said in a statement.
National student loan debt has climbed to $1.4 trillion as of 2017, according to the Student Loan Report, which tracks student loans. The average debt per student borrower is now $27,857, and the student loan default rate is 10.7 percent.
For existing borrowers, there likely isn't any immediate action needed, said Mark Kantrowitz, publisher and vice president of strategy at Cappex.com, a provider of data on colleges, admissions and scholarships. "If you haven't experienced any problems with them, then there isn't any reason to switch," he said.
Kantrowitz recommends that any borrower who encounters problems with their servicer to reach out to the Consumer Financial Protection Bureau.
"The lenders tend to be really responsive to complaints received on the CFPB," Kantrowitz said. "It's not always going to be in your favor, but they will respond."
The Navient lawsuit highlights the need for borrowers to carefully assess their decisions.
Borrowers who are experiencing problems with their lender may not qualify to move their loan to another lender, Kantrowitz said. That is because problems often arise after borrowers have missed payments, and changing lenders generally requires a borrower to have excellent credit.
If a move to a different lender will not work, student loan borrowers could also consider other strategies. For example, a borrower's parents can take out a home equity loan, Kantrowitz said. The student could then use that money to pay off their student loan and pay back his or her parents' loan.
"The cons are now you put your parents' home at risk," Kantrowitz said. "If you default on a student loan, you can't lose your education."
Borrowers who plan to stay with their current servicing company should also take steps to protect themselves.
First, know what your options are, said Betsy Mayotte, director of consumer outreach and compliance at American Student Assistance, a nonprofit that helps students understand the college financing process.
Forbearance, or getting a temporary repayment delay on your loan, for example, should be a last resort, because interest continues to accrue and often ends up augmenting the loan balance unless a borrower continues to make payments on the interest.
"Go into that phone call informed in the first place and make sure that person is as informed as they can be so they can pick the best option for you," Mayotte said. That includes reading your promissory note, familiarizing yourself with your loan holder's website and checking U.S. Department of Education website StudentLoans.gov.
Doug Boneparth, a financial advisor and president at Bone Fide Wealth, also recommends that borrowers request an amortization schedule from their lender, which will show when the loan will be paid off according to the current repayment schedule.
Students should also think carefully before taking out a loan in the first place, Mayotte said.
"You don't want to take a loan if they have an insanely high interest rate or terms that aren't favorable," she said. "If you can't find a loan with favorable terms, it's okay to go to another school."