Student Loan Servicer Accused Of Pushing Some Students Into More Costly Repayment Plans

Holly Chavez

Student loan debt has tripled in the United States over the last ten years, and it is now over 1.5 trillion. That sobering statistic means that it is a greater burden to borrowers than credit card or auto debt. What's more, the payments are proving to be unmanageable, and it's predicted by 2023 that about 40 percent of borrowers will default on their education loans, according to a press release by the Federal Reserve Bank of New York.

Enter Navient, a publicly-traded company that specializes in student loans. Navient is one of the Department of Education's Federal Student Aid (FSA) loan servicers, and the Office of Federal Student Aid recently found out that Navient, in particular, is making matters worse for student loan borrowers. That's because they've reportedly been pedaling repayment plans to borrowers that are more costly over time, reports NPR.

The repayment plan at the root of the controversy is forbearance, and Navient frequently steered borrowers into the costly option, according to the FSA. The practice was discovered by the agency, per NPR, after "a team from Federal Student aid listened to 2,388 calls shorter than 5 minutes between student loan borrowers and Navient, a publicly traded company."

The FSA team discovered that in almost 10 percent of calls, Navient customer service personnel only offered callers the forbearance option. Forbearance allows borrowers the option to put student loan payments on hold for certain periods of time.

However, there's one important caveat with forbearance -- interest continues to accrue. Once you figure all that in, there is a significant amount of expense piled on the borrower over time.

The FSA put their findings in a report titled Navient Use of Forebarance Site Report. The report, dated May 2017, also brought to light that Navient frequently didn't tell borrowers about all the options of repayment that were available to them.

According to the report, forbearance was pushed on some borrowers by the student loan servicer, "even when they said they could make a payment within a time frame that wouldn't incur an additional cost." Navient customer service additionally didn't tell borrowers about income-driven repayment options, either, the agency reports.

The Department of Education's Office of Federal Student Aid offered suggestions for improving Navient practices in the 2017 report but concluded that they didn't find that the company that services and collects students loans did anything wrong.

The report wasn't made available to the public until Senator Elizabeth Warren made sure that it was. After Senator Warren reviewed the report, she gave it to the Associated Press, who then published the report Tuesday.

The Associated Press ran with the information in an exclusive titled, "Gov't Questions Unfair Student Loan Practices." An excerpt from the exclusive that illustrates the downside of forbearance reads,

A 2017 study by the Government Accountability Office estimates that a typical borrower of a $30,000 student loan who places their loan into forbearance for three years — the maximum allowed for economic-hardship forbearance — would pay an additional $6,742 in interest on that loan.

Senator Warren issued the following statement about the legal matter.

Navient told the public that there was no merit to the CFPB's lawsuit even after it received an Education Department audit that bolstered the allegations and found the company was not adequately servicing student borrowers", Warren stated. "Navient needs to explain the appalling findings of this audit and why the company denied that it existed.