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Here's another way student loans are screwing you over, consumer advocates say

James Leggate

A nonprofit group is accusing a company that processes student loans of cheating borrowers with what it called “unnecessary interest charges,” while the business is accusing the group and federal officials of mischaracterizing an outdated document.

An internal memo was recently unsealed as evidence in an ongoing court case between the Consumer Financial Protection Bureau and Navient, which describes itself as “a leader in education loan management.”

According to the Student Borrower Protection Center, a consumer advocacy group, the memo shows that Navient “orchestrated a predatory scheme to place borrowers in high-cost repayment options to boost corporate profits.”

The memo⁠ ⁠— written in 2010 by an employee of Navient’s then-owner  Sallie Mae — emphasizes the company’s strategy relying on forbearance, which postpones loan payments for a time while interest continues to accrue.

“Our battle cry remains ‘forbear them, forbear them, make them relinquish the ball.’” the memo states. “Said another way, we are very liberal with the use of forbearance once it is determined that a borrower cannot pay cash or utilize other entitlement programs.”

Many borrowers would be better off being placed on income-driven repayment plans that would prove to be cheaper in the long run, according to the Student Borrower Protection Center.

Seth Frotman, the center’s executive director and a former official with the Consumer Financial Protection Bureau, said the practice added billions of dollars of debt for struggling borrowers.

“This follows a decade-long pattern of Navient ripping off service members, disabled veterans, teachers and American taxpayers,” he said.

The CFPB has made similar accusations, which Navient has denied. Officials alleged the company added nearly $4 billion in interest between 2010 and 2015 with predatory servicing practices and the overuse of forbearance. The bureau and the company have been locked in a legal battle since 2017, and the memo was unsealed in a filing related to that case.

Paul Hartwick, a company spokesperson said the memo was written in June of 2010, before any direct federal loan cases had been referred to Navient. He called the way the memo has been characterized in the CFPB’s lawsuit “unfair and misleading.”

The unsealed memo goes on to state that seven out of 10 of its education borrowers will forbear.

“That mix is likely to change over time as we improve our ability to communicate the benefits of and fulfill other programs such as ‘Income-Based Repayment,’” it reads.

The Student Borrower Protection Center said Navient’s CEO was repeatedly told that customers had been placed into high-cost repayment options instead of the income-driven repayment, but the company's leadership didn't act in the best interest of consumers.

“The time has come for policymakers to admit this company’s practices are predatory and corrupt,” Frotman said. “It should not be given a single additional taxpayer dollar.”

Navient says on its website that it “is a leader in enrolling eligible borrowers into income-driven repayment programs” and that it services more student loan balances for the government that are enrolled in such programs than any comparable company.

Mark Heleen, Navient’s general counsel, said documents show Navient educates its borrowers about their options.

“Navient supports the investments students make in their higher education by assisting them in successfully repaying their student loans, and we have helped increase enrollment in affordable payment plans to record highs and curb the default rate to a six-year record low,” he said.

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