Personal Finance

Teachers union members bring lawsuit against Navient

Key Points
  • Members of the American Federation of Teachers have brought a lawsuit against Navient, one of the country's largest student loan servicers.
  • The plaintiffs claim the company steered them away from debt relief and provided them with false information.
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Members of the American Federation of Teachers, the second-largest teachers union in the United States, announced on Wednesday a lawsuit against student loan servicer Navient, alleging the company deceived borrowers and prevented them from accessing debt relief.

"Navient has purposely and systematically trapped teachers, nurses and other public service workers under a mountain of student debt instead of providing them with accurate information about their loan options," said Randi Weingarten, president of the American Federation of Teachers.

The lawsuit centers on Navient's handling of the public service loan forgiveness program, which allows certain not-for-profit and government employees to have their federal student loans canceled after 10 years of on-time payments. The nine plaintiffs are composed of teachers, professors and other public servants, and the lawsuit seeks to become a class action.

The union members allege that Navient, one of the largest administrators of federal student loans, failed to inform borrowers of public service loan forgiveness, misled people into believing they were on track for the forgiveness, and even steered potentially eligible borrowers away from the consumer protection. The suit was filed in U.S. District Court for the Southern District of New York.

Navient did not immediately respond to a request for comment.

Source: Navient

"Most teachers should qualify for public service loan forgiveness," said Mark Kantrowitz, founder of FinAid.

However it's not always in the financial interest of lenders such as Navient to help borrowers into the debt relief program, he said, because they then lose the business to FedLoan, the company that administers the public service loan forgiveness program for the government.

That the program is failing teachers is ironic, said Clare McCann, a federal policy expert at the New America Foundation.

"Teachers are one of the groups it was specifically designed to help," McCann said, adding that there are likely tens of thousands of educators who should be eligible for the program.

In a recent survey of American Federation of Teachers' members who are struggling financially, 80 percent of respondents said that their education debt was either "challenging" or "a major burden."

One of the plaintiffs in the lawsuit is Kathryn Hyland, a middle school literacy teacher and coach in New York. According to the suit, Hyland had been in contact with Navient since 2009 and was told by the servicer that she would be eligible for public service loan forgiveness in 2017.

In 2016, Hyland called to confirm she was on track. Only then did the servicer inform her that her federal loan type made her ineligible for the relief. (To qualify, borrowers need to hold direct federal loans, not the Federal Family Education Loan, which is what Hyland had.)

CNBC has interviewed teachers who've made the same complaint against Navient. Debbie Baker, a music teacher in Oklahoma's public schools, paid her student loans for 10 years, all the while believing she was on her way to debt forgiveness.

Debbie Baker
Source: Debbie Baker

"Year after year I would tell them, 'Now I'm going after public service loan forgiveness,' and they'd say, 'OK. Well, you can't apply until 2017,'" Baker said, about her conversations with Navient.

Toward the end of that decade of payments, Baker tried to certify her forgiveness. Again, that was the first time she learned that she didn't qualify because she had the wrong type of federal student loan — like Hyland, Baker also had a Federal Family Education Loan. Navient never told her that her loan didn't qualify for the program, or explained to her the simple process through which she could become eligible."

"I almost threw up," Baker said. "I've been teaching 18 years and I still don't make $40,000 — and now I have to start all over."

Five states (Illinois, Pennsylvania, Washington, California and Mississippi) and the Consumer Financial Protection Bureau have also sued the company for misleading borrowers. Navient disputes all accusations.

"Once you start to rack up numbers like that," McCann said about the mounting lawsuits, "it definitely seems worthy of concern."

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