cloudy
Tuesday December 11th, 2018 1:46AM

AP Exclusive: Gov't questions unfair student loan practices

By The Associated Press
Related Articles
  Contact Editor

NEW YORK (AP) — One of the nation's largest student loan servicing companies may have driven tens of thousands of borrowers struggling with their debts into higher-cost repayment plans.

That's the finding of a Department of Education audit of practices at Navient Corp., the nation's third-largest student loan servicing company.

The conclusions of the 2017 audit, which until now have been kept from the public and were obtained by The Associated Press, appear to support federal and state lawsuits that accuse Navient of boosting its profits by steering some borrowers into the high-cost plans without discussing options that would have been less costly in the long run.

The education department has not shared the audit's findings with the plaintiffs in the lawsuits. In fact, even while knowing of its conclusions, the department repeatedly argued that state and other federal authorities do not have jurisdiction over Navient's business practices.

"The existence of this audit makes the Department of Education's position all the more disturbing," said Aaron Ament, president of the National Student Legal Defense Network, who worked for the Department of Education under President Barack Obama.

The AP received a copy of the audit and other documents from the office of Sen. Elizabeth Warren, D-Massachusetts, who has been a vocal critic of Navient and has publicly supported the lawsuits against the company as well as questioning the policies of the Department of Education, currently run by President Trump's Secretary of Education, Betsy DeVos. Warren is considered a potential presidential candidate in 2020.

Navient disputed the audit's conclusions in its response to the Department of Education and has denied the allegations in the lawsuits. One point the company makes in its defense is that its contract with the education department doesn't require its customer service representatives to mention all options available to the borrower.

"This (audit), when viewed as a whole, as well as dozens of other audits and reviews, show that Navient overwhelmingly performs in accordance with program rules while consistently helping borrowers choose the right options for their circumstances," said Paul Hartwick, a company spokesman.

However, the five states suing Navient — Illinois, Pennsylvania, Washington, California and Mississippi — say the behavior breaks their laws regarding consumer protection. The Consumer Financial Protection Bureau says in its own lawsuit the practices are unfair, deceptive and abusive and break federal consumer protection laws.

Of the five states that filed lawsuits against Navient, Washington, Illinois and Pennsylvania said they were aware that an audit existed, but did not receive copies from the Department of Education. The Consumer Financial Protection Bureau declined to comment on whether it had a copy of the report.

The Department of Education said withholding the report was intentional, repeating the argument it has made in court and in public that only it has jurisdiction over student loan servicing issues, through its Federal Student Aid division, or FSA, which oversees student loans.

"FSA performed the review as part of its own contract oversight, not for the benefit of other agencies," said Liz Hill, a Department of Education spokeswoman.

When student borrowers run into difficulties making payments, they can be offered forbearance, which allows them to delay payments for a set period of time. But under a forbearance plan, in most instances, the loan continues to accumulate interest and becomes a more expensive option in the long run.

The Consumer Financial Protection Bureau alleges in its lawsuit against Navient that between 2010 and 2015 Navient's behavior added nearly $4 billion in interest to student borrowers' loans through the overuse of forbearance. It is a figure that Navient disputes.

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.

"This finding is both tragic and infuriating, and the findings appear to validate the allegations that Navient boosted its profits by unfairly steering student borrowers into forbearance when that was often the worst financial option for them," Warren said in a letter to Navient last week.

As part of their inquiry, DoE auditors listened in on about 2,400 randomly selected calls to borrowers from 2014 to 2017 out of a batch of 219,000. On nearly one out of 10 of the calls examined, the Navient representative did not mention other options, including one type of plan that estimates the size of a monthly payment the borrower can afford based on their income. Auditors wrote that many customer service representatives failed to ask questions to determine if such a plan, known as an income-driven repayment plan, might be more beneficial to the borrower.

There is no public record of how many struggling borrowers serviced by Navient may have been impacted by these practices. In its most recent annual report, Navient says it services 6 million student loan borrowers, of which 12.7 percent are more than 30 days past due. That would be roughly 762,000 customers who are struggling in some fashion to pay their student loans.

If one out of every 10 of those customers were pushed into forbearance instead of an income-driven repayment plan, as the department's audit found, that would be 76,200 of Navient's borrowers.

The DoE report contains recommendations for how Navient could fix its practices but makes no mention of firm requirements or sanctions.

The education department's Federal Student Aid division decided to do a review of Navient's forbearance practices after the Consumer Financial Protection Bureau filed its lawsuit against the company in January 2017, department spokeswoman Hill said, to see if there were any compliance issues.

She said DoE officials came to the conclusion that Navient was not improperly steering borrowers. "Nothing in the report indicates forbearances were applied inappropriately — the observations noted focused on suggested improvements regarding how to best counsel" a small minority of borrowers, she said.

In response to questions over the 2017 audit, Navient pointed to the fact that nine out of every 10 borrowers on the calls were offered all their options and that this audit is just one piece of a broader story. The company noted that the number of its borrowers who are enrolled in income-driven repayment plans is in line with or above the track records of other student loan servicing companies. In addition, it said the company is paid less by the Department of Education for putting students in forbearance.

Navient, which split off from Sallie Mae, is a publicly traded company. Shares of Navient fell sharply after the AP published its report, closing down $1.26, or 10.5 percent, to $10.74.

In calls and presentations with investors, Navient has said a company priority is to lower its operational costs.

As a student loan servicing company, Navient has one primary operating cost: its employees, including the hundreds of customer-service agents who man Navient's telephones every day. The fewer customer-service agents Navient employs, the more money Navient puts in its pocket. Doing calls to determine whether a borrower should be in an income-driven repayment plan takes longer, student loan industry experts say.

In fact, that is exactly what Navient said in its response to the Department of Education's audit.

"We (are not) aware of any requirement that borrowers receive all of their repayment options ... on each and every call," the company said, adding that if the Department of Education chose to require all servicers to discuss income-driven repayment plans with all borrowers, the Department of Education needs to redo its contract with Navient.

Seth Frotman, who was the highest-ranking government official in charge of student loans until he quit in August in protest over how the Trump-controlled Department of Education and Consumer Financial Protection Bureau were handling the issue of student loans, said Navient's response was outrageous.

"In short, Navient, when confronted with evidence of its bad practices, is telling the government, 'Pay us more money or take a hike.' And It looks like the Department of Education took a hike," Frotman said.

___

Ken Sweet covers banks and consumer financial issues for The Associated Press. Follow him on Twitter at @kensweet.

  • Associated Categories: Associated Press (AP), AP National News, AP Online National News, Top U.S. News short headlines, Top General short headlines, AP Business, AP Business - Consumer News, AP Business - Corporate News
© Copyright 2018 AccessWDUN.com
All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without permission.
Mistrial declared in case of slain NYC runner Karina Vetrano
The trial of a man accused of killing a New York City woman who was sexually attacked while running near her family's home has ended in a hung jury
11:13PM ( 12 minutes ago )
The Latest: California wildfire missing list rises to 870
A California sheriff says the list of names of those unaccounted for after a deadly wildfire has increased to 870
11:13PM ( 12 minutes ago )
Renault keeps Ghosn as CEO despite arrest in Japan
France's Renault keeps CEO Carlos Ghosn on despite his arrest in Japan on allegations that he misused assets of partner Nissan Motor Co. and misreported his income
11:04PM ( 21 minutes ago )
Associated Press (AP)
US senator apologizes to anyone offended by 'hanging' remark
A white Republican U.S. senator from Mississippi said during a debate with her African-American Democratic opponent that she apologizes for saying she would attend a "public hanging" if a supporter invited her
10:20PM ( 1 hour ago )
'We need hundreds': Fire victims' families urged to give DNA
Authorities are using a rapid DNA test that produces results in just two hours to help identify the scores of people killed in the Northern California wildfire
10:01PM ( 1 hour ago )
Thanksgiving air-travel rush gets off to a good start
Fair skies over much of the country are helping get the Thanksgiving air-travel rush off to a good start
9:59PM ( 1 hour ago )
AP National News
US judge stalls enforcement of Trump asylum restrictions
A federal judge has temporarily barred the Trump administration from refusing asylum to immigrants who cross the southern border illegally
7:34PM ( 3 hours ago )
Trump arrives at his comfort zone at 'winter White House'
President Donald Trump has returned to the 'winter White House,' kicking off the Palm Beach social season at Mar-a-Lago
7:16PM ( 4 hours ago )
Caravan migrants weigh options after court blocks Trump ban
Officials in the Mexican border city of Tijuana say they've arrested 34 members of the caravan of Central American migrants for minor offenses and turned them over for deportation
7:11PM ( 4 hours ago )
AP Online National News
Woman claims Avenatti dragged her by arm across floor
A woman who says she had a relationship with Michael Avenatti alleges he dragged her by the arm across the floor of his Los Angeles apartment after an argument
6:57PM ( 4 hours ago )
The Latest: Fire victims' families urged to give DNA
Authorities are using a rapid DNA test that produces results in just two hours to help identify the scores of people killed in the Northern California wildfire
3:52PM ( 7 hours ago )
People in US, Canada warned to not eat romaine lettuce
Health officials are warning people to avoid romaine lettuce
3:46PM ( 7 hours ago )
Top U.S. News short headlines
Renault board: Ghosn to remain CEO while detained in Japan
Carlos Ghosn will remain chairman and CEO of Renault even though he is detained in Japan on allegations he misused assets of partner Nissan Motor Co. and under-reported millions of dollars in income
6:40PM ( 4 hours ago )
Caravan migrants weight options after court blocks Trump ban
Officials in the Mexican border city of Tijuana say they've arrested 34 members of the caravan of Central American migrants for minor offenses and turned them over for deportation
5:53PM ( 5 hours ago )
The Latest: Graham disagrees with Trump on Saudi Arabia
South Carolina's Graham takes issue with Trump on decision not to further punish Saudis over death of Washington Post columnist
5:33PM ( 5 hours ago )
Top General short headlines
Democrats flip Utah House seat as McAdams tops Rep. Mia Love
Democrat Ben McAdams has defeated Republican U.S. Rep. Mia Love to flip a U.S. House seat in deep-red Utah
8:40PM ( 2 hours ago )
Monsanto appeals $78M verdict in California weed killer suit
Agribusiness giant Monsanto is appealing a $78 million verdict in favor of a dying California man who said the company's widely used Roundup weed killer was a major factor in his cancer
8:20PM ( 3 hours ago )
Turkey seeks extradition of exiled cleric from US
Turkey's top diplomat has presented top Trump administration officials with a series of big requests, including extradition of scores of people linked to an exiled Turkish cleric
7:21PM ( 4 hours ago )
AP Business
The "worst toys" for the holidays, according to safety group
A Black Panther "slash claw" and a plastic Power Rangers sword are among the toys topping a consumer safety group's annual list of worst toys for the holiday season
6:17PM ( 1 week ago )
Banks could face tighter scrutiny under Rep. Maxine Waters
With Democrats taking control of the House of Representatives, Rep. Maxine Waters, who has called for more regulation of banks, is expected to become chairwoman of the powerful House Financial Services Committee
6:26PM ( 1 week ago )
Campaigning intensifies in close race for Ohio governor
Campaigning in the neck-and-neck Ohio governor's race is intensifying in the run-up to Tuesday's election
4:49PM ( 2 weeks ago )
AP Business - Consumer News
Israel steps up boycott fight after Airbnb settlement ban
Israel is threatening vacation rental company Airbnb with high taxes and legal repercussions over its decision to remove listings from Jewish West Bank settlements
2:27PM ( 9 hours ago )
Renault board meets after arrest of CEO Ghosn in Japan
The board of directors of Renault was meeting Tuesday evening to consider next steps, and a possible change in leadership,
2:09PM ( 9 hours ago )
Arrest of Nissan's Ghosn in financial probe stuns Japan
Arrest of Nissan's Ghosn in financial probe stuns Japan; Renault board to meet
9:01AM ( 14 hours ago )
AP Business - Corporate News
Mistrial declared in case of slain NYC runner Karina Vetrano
The trial of a man accused of killing a New York City woman who was sexually attacked while running near her family's home has ended in a hung jury
11:07PM ( 20 minutes ago )
Renault keeps Ghosn as CEO despite arrest in Japan
France's Renault keeps CEO Carlos Ghosn on despite his arrest in Japan on allegations that he misused assets of partner Nissan Motor Co. and misreported his income
11:04PM ( 23 minutes ago )
Suicide bomber targets clerics in Afghan capital, 50 killed
A suicide bomber targeted a gathering of Islamic scholars in the Afghan capital, killing at least 50 people as Muslims marked the birthday of the Prophet Muhammad
10:44PM ( 43 minutes ago )
Asian shares fall on sign of escalating US-China tensions
Asian shares fall on sign of escalating tensions ahead of Trump-Xi meeting
10:35PM ( 52 minutes ago )
Report: Trump wanted to prosecute Comey, Hillary Clinton
Report: Trump wanted to prosecute Comey, Clinton
10:31PM ( 56 minutes ago )