Money

The Obama Administration Is Suing a Big Student Loan Provider

January 18th 2017

By:
Leigh Cuen

The Consumer Financial Protection Bureau is suing the nation’s largest student loan company for cheating customers and violating the legal rights afforded students repaying loans. The CFPB, which announced the lawsuit on Wednesday, estimates Navient (formerly Sallie Mae) services $300 billion in loans taken out by more than 12 million people across the United States.

debt

The lawsuit claims the company pushed customers to embrace more costly repayment options that prolonged their indebtedness, making it especially hard for low-income students to ever pay back their loans — but helping the company make even more money.

Navient stands accused of deterring customers from income-based repayment plans, to which they were legally entitled, in favor of forbearance options that prolong consumer debt and compile lucrative interest. “From January 2010 to March 2015, the company added up to $4 billion in interest charges to the principal balances of borrowers who were enrolled in multiple, consecutive forbearances,” the CFPB press release states. “The Bureau believes that a large portion of these charges could have been avoided had Navient followed the law.”

Forbearance is typically designed for borrowers facing a brief period of financial hardship, not those who are in long-term financial distress.

In response, Navient published a press release claiming the lawsuit was “politically motivated.”  

“The timing of these lawsuits — midnight action filed on the eve of a new administration — reflects their political motivations,” the statement said. Alabama Sen. Jeff Sessions, notorious for his lenient stance towards corporate interests and votes against debt relief for student borrowers, is set to take office as President-elect Donald Trump’s Attorney General.

Judging by how it spends its money, Navient much prefers having someone like Sessions in power. According to OpenSecrets.org, a nonprofit that tracks money’s influence on politics, the majority of Navient’s political donations in 2016 went to Republicans who have been particularly outspoken about their intention to curb or even dismantle the CFPB.

On Twitter, at least, news of the lawsuit has been welcomed by indebted students. We'll have to wait and see how the Trump administration responds.