Tuesday, August 25, 2015

Government Might Sue Student Loan Collector Navient

Navient Corp. building

Student loan giant Navient Corp. told the Securities and Exchange Commission (SEC) yesterday that the Consumer Financial Protection Bureau (CFPB) sent it a letter claiming it has the legal grounds for a lawsuit.

Navient is accused of overcharging borrowers and violating their rights.

The CFPB has been working with the Department of Justice, the New York Department of Financial Services, and state attorneys general to investigate the shadier aspects of higher education.

For a company that depends on the government for profit, Navient acts like an urban street vendor. They already were in trouble with the FDIC for conning borrowers into paying late fees and had to pay out $78 million to settle the issue.

Yet they continued to engage in shady practices designed to collect more money from struggling borrowers. With $1.2 trillion in outstanding student debt they can collect, you could admire the initiative to make more money.

The Department of Education (DOE) has promised to better oversee Navient.

"We continue to work closely with CFPB and other federal agencies to protect student loan borrowers," said Dorie Nolt, a DOE spokeswoman. "We’ve made a variety of changes to improve loan servicing, and we’re constantly monitoring our servicers. We won’t hesitate to take action against a servicer that isn’t following the law."

What’s Navient?

While banks do loan money to students, the DOE is the best place to go for a good interest rate. But you don’t pay them back. You pay back Navient.

Sallie Mae, an organization the government created to handle student loans, was privatized, like the venerable Fannie Mae and Freddie Mac. To make more money, Sallie Mae spun off its student loan arm and called it Navient, which isn’t BBB accredited.


How did the student loan situation get so bad?

When the only way to get a good job short of breaking bad is to go to college, the price went up astronomically from the days when working as a bartender in the summer could pay it.

The Great Recession exacerbated the problem. Since many states can’t legally run a deficit to boost their economies, they cut higher education, causing tuition to soar. Thus, many student took out loans to make up the difference.


Picture of graduation cap on money
One of the most expensive yet least 
fashionable hats

What’s being done about student loans and Navient?

Many agree it’s terrible to saddle Millennials with thousands of dollars of debt at the beginning of their lives. It prevents them from buying houses and starting families.

President Obama has tried to address the issue. In fact, part of the Obamacare bill was language that helped student borrowers.

Student debt is hard to fight politically since there’s no student borrower union or student bar where people are commiserating and can be galvanized into protest. Since they’re struggling for money they can’t really donate to lobby politicians or hire a lobbyist. You also have the free rider problem where people can point to a few groups, say they’re working on it, and go back to their lives.

Thus, borrowers trying to make ends meet suck it up, pay what they can, and keep going. That’s what the oppressed do. When the world looks dark, they focus on their own path and try to make the best of it.

With the CFPB is working on the issue, there’s hope for improvement.