It looks like students who have been complaining about deceptive lending practice and outrageously high student loan debt were right all along.
Lawsuits filed on Wednesday against the nation’s largest student loan lender Navient, and it’s lending predecessor Sallie Mae, included sweeping charges accusing the company of repeatedly cheating and misleading borrowers, bungling payments, and taking shortcuts to increase their bottom line. According to Washington Attorney General Bob Ferguson, “Anyone who borrowed a private loan from Sallie Mae prior to 2010 or currently has their loan serviced by Navient could be impacted.”
The lawsuits, filed by Illinois Attorney General Lisa Madigan, and the Consumer Financial Protection Bureau, seek financial relief for the millions adversely affected by the allegedly dishonest lending behavior. Both the state and federal lawsuits agree that the student loan company engaged in aggressive, widespread, subprime lending practices.
According to Attorney General Madigan, while the student loan company made billions of dollars loaning money to hopeful students, many of the loans that were given out carried extremely high interest rates, hidden fees, and were often distributed to students attending poorly-accredited, for-profit schools.
“One of the most egregious offenses we found is that Navient saddled students with expensive and risky subprime loans that they designed to fail. Navient entered into agreement with schools to pay the company for some of those defaults, so that Navient did not have to shoulder all of the losses. Meanwhile, borrowers were left with a lifetime of debt that they were unable to pay.”
Regarding the federal lawsuit, Richard Cordray, the director of the Consumer Financial Protection Bureau, explained the case against the student loan lender.
“At every stage of repayment, Navient chose to shortcut and deceive consumers to save on operating costs.”
RT reported that the federal lawsuit also alleged that Navient pushed students into payment options that only served to increase Navient’s profits at the borrower’s expense. However, according to NBC, Navient officials denied any wrongdoing, somewhat nonsensically claiming that the allegations are merely politically motivated.
The growing problem of student loan debt, which needless to say, negatively affects both Democratic and Republican voters, has traditionally been seen as an issue that mostly targets young people. Recently however, it’s also begun to worry a greater percentage of the older generation. According to Madigan, “A growing number of loans require cosigners so you’ve seen parents and grandparents that are now on the hook for some very difficult loans.”
Unlike any other type of debt, student loans are not dischargeable in bankruptcy. In fact, the entire system appears to be set up to fail for the majority of the population. Insisting that students, and increasingly their families, go into massive amounts of debt in order to obtain the education that is needed to participate in today’s economy seems absurd, at best.
It’s also worth mentioning that in many cases, thousands of dollars in student loans are issued to 18-year-olds with no credit history, who most likely wouldn’t even be approved for their own cell phone plan. Yet student loan companies are somehow allowed to prey on these financially-illiterate teenagers, locking them into a lifetime of indentured servitude, with high student loan payments that destroy their chances of becoming successful contributors to the economy before they even have an opportunity to try.
Furthermore, even those without any student loan debt bear the economic consequences of this type of predatory lending behavior. In a society where the disposable income of the average young person is nearly nonexistent due to crippling student loan payments, the economy suffers, making successful small businesses, risk-taking, and innovation increasingly rare. Take, for example, the attempts of local, small businesses to compete with monoliths like Walmart by offering quality, made-in-America products. In these cases, a large part of the success for small business owners depends on having customers who aren’t just scraping by, and who can afford to purchase the well-made items or the innovative products that they wish to offer.
However, as more people become saddled with student loan debt, these types of customers become ever rarer, creating a vicious cycle that suppresses healthy competition and local economies. This system viciously shutters small businesses while rewarding giant, multinational corporations, favoring those who can reach rock-bottom prices through the exploitation of overseas labor and natural resources, and ultimately furthers both monopolization and economic inequality.
Understanding the connection between skyrocketing student loan debt and a failing economy is a key part of addressing the issue of inequality in the U.S. These lawsuits against America’s biggest education profiteers are an encouraging first step in leveling the playing field, and creating an economy that works for all of us, not just those at the top.
[Featured Image by Mark Lennihan/AP Images]