One of the nation’s largest student loan servicers has screwed young borrowers in New Jersey, state authorities charged Tuesday in a blockbuster lawsuit against Navient.
This includes deliberately fooling some of them into paying back more money than was due at the time by lying about the amounts, they said.
“Higher education should be a pathway to success, not a road to financial ruin,” Attorney General Gurbir S. Grewal said in announcing the suit's filing.
“Even before the financial fallout from the COVID-19 pandemic, too many New Jerseyans were struggling to pay off their student loans,” Grewal said. “And the financial situation of too many student loan borrowers was made worse because their loan servicers put corporate profits above the borrower’s best interests.”
Filed Tuesday in Superior Court in Essex County, the suit accuses Navient Corp. and Navient Solutions LLC of “failing to meet its obligations to New Jersey’s student loan borrowers or provide them with services in a fair and honest manner,” in violation of New Jersey consumer protection laws, the attorney general said.
A spokesman for Navient, in turn, accused the state of "recycled baseless allegations."
Federal student loan borrowers in New Jersey who are serviced by Navient default 26% less than borrowers who are serviced by others, according to Department of Education data, said the spokesman, Paul Hartwick.
Since January 2019, he added, more than 34,000 New Jersey borrowers serviced by Navient have fully repaid their loans.
In 2019, the New Jersey AG’s office forwarded three complaints to Navient -- all from the same borrower," Hartwick said. No complaints were forwarded this year, he said.
"Navient has consistently delivered excellent service to student loan borrowers, helping millions of people realize the benefits of higher education and successfully pay off their loans," Hartwick said.
"As a servicer for the federal government, we have led enrollment in affordable payment plans and driven down default rates," he added. "In fact, over half of the loan portfolio we service is enrolled in income-driven repayment."
From 1989 to 2016, the average cost of obtaining a degree from a four-year college or university in the United States rose about eight times as fast as the average wage, he noted.
“Faced with the soaring cost of higher education, over 44 million people in the United States have taken out student loans,” the attorney general said Tuesday. “Total student loan debt is now around $1.7 trillion nationwide."
Some 168,900 or so young borrowers in New Jersey collectively owe more than $7 billion, he said.
Each carries, on average, $36,500 in student debt, among the highest amounts in the nation.
“The tragedy is that the long-term financial consequences of Navient’s conduct are likely to have the greatest impact on borrowers who can least afford them,” said New Jersey Division of Consumer Affairs Acting Director Paul R. Rodríguez.
Last year, for instance, the New York Federal Reserve found that borrowers in black-majority zip codes were more likely to borrow to fund their education. They also have higher average loan balances and default at almost double the rate of white-majority zip code borrowers, the study found.
Among the other findings:
- borrowers who received Pell Grants -- most of whom have family incomes below $40,000 -- were five times as likely to default within 12 years;
- borrowers whose parents did not attend college were more than twice as likely to default than borrowers whose parents did attend college;
- borrowers who began their education at for-profit colleges defaulted at seven times the rate of those who attended public colleges.
Formerly known as Sallie Mae, Navient services the loans of more than 12 million borrowers nationwide, with more than $300 billion in federal and private student loans, state authorities said.
An investigation by the New Jersey Division of Consumer Affairs found what Grewal called “deceptive and unconscionable tactics at various times over the last decade” by the company.
This included training Navient employees to “collect more than the past due amount by using language that misled borrowers about how much they owed,” the attorney general said.
“Specifically, Navient sought to collect not only the delinquent amount,” he said, “but also the next month’s payment by misleadingly calling the amount sought the ‘Present Amount Due.’
The result: Borrowers were forced into paying hundreds of dollars more than they’d budgeted for individual payments, Grewal said.
The state suit also accuses Navient of:
- Steering borrowers having financial trouble into forbearance instead of repayment options and loan-forgiveness programs, causing unnecessary accrual of interest, the addition of interest to the principal and lost months of timely payments that would have otherwise counted toward loan forgiveness;
- Failing to inform borrowers of deadlines to recertify their eligibility for certain income-driven repayment plans – the consequences of which included boosting their monthly payments and causing other financial damages when their plans unnecessarily expired;
- Enticing borrowers to take out private student loans with a family member or someone else as cosigner, then making it exceedingly difficult to have the cosigner released from any obligations.
The state’s complaint includes two counts of New Jersey Consumer Fraud Act (“CFA”) violations – one for “unconscionable commercial practices and deception,” the other for misrepresentation.
“Navient had a responsibility to help financially struggling borrowers select a loan payment solution that offered them a fair chance to pay back their debt,” Rodríguez said. “Instead, the company incentivized its employees to put company profit above their legal obligations, with little or no regard for the student borrowers who fell deeper into debt as a result.”
The suit doesn’t put a dollar figure on the amount of damages sought.
Rather, it seeks “maximum statutory penalties under the CFA, restitution for affected consumers, injunctive relief aimed at preventing these unlawful practices in the future and disgorgement of any ill-gotten gains.”
Handing the suit for the state: Deputy Attorneys General Cathleen O’Donnell, Ana Atta-Alla, Chris Kozik, Isabella Pitt, Christina Garfield, Deepta Janardhan, Alex Schmidt, and Peter Van Brunt; Section Chief Patricia Schiripo of the Consumer Fraud Prosecution Section; and Assistant Attorneys General Brian McDonough and Janine Matton of the Division of Law’s Affirmative Civil Enforcement Practice Group.
They’re being assisted by attorney Andrew Esoldi, Grewal said.
Investigators Michelle Davis, Walter Kaminski, and Jared O’Cone of the Office of Consumer Protection are handling the investigation for the Division of Consumer Affairs, he said.
Borrowers who are having issues with their student loans that they are unable to resolve with their student loan servicers can file a complaint by calling 1-800-446-7467 or online by completing a banking formal complaint form by clicking “Consumer Assistance - Inquiries/Complaints” here: https://www.state.nj.us/dobi/consumer.htm
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