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The student lending market has grown to more than $1 trillion in outstanding debt. By using data and expert interviews, the Consumer Financial Protection Bureau gives context to consumers considering taking on student loans.
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The student lending market has grown to more than $1 trillion in outstanding debt. By using data and expert interviews, the Consumer Financial Protection Bureau gives context to consumers considering taking on student loans.
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Business

Ever struggled with student loan debt? This big, new lawsuit might interest you

By Lisa Gutierrez

lgutierrez@kcstar.com

October 05, 2017 04:51 PM

Navient took billions of dollars “out of the pockets of students,” says Pennsylvania Attorney General Josh Shapiro, who on Thursday sued the company for deceptive loan practices.

The company is one of the largest providers of student loans in the United States, and this lawsuit, according to Bloomberg, could reverberate far beyond Pennsylvania’s borders.

According to Bloomberg, as much as half of the nation’s $1.5 trillion student loan tab is serviced in Pennsylvania.

The lawsuit could not only impact hundreds of thousands of Pennsylvanians — including anyone who received private student loans from Sallie Mae — but anyone who has had federal or private student loans serviced by Navient and has run into problems with repayments.

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Shapiro contends that Navient’s loan servicing center in Wilkes-Barre, one of its three in the United States, is responsible for some of the practices.

“The evidence will likely show that (1) there has been a profound impact on the financial lives of borrowers who were sold risky subprime loans by the defendants, (2) many borrowers have had to delay starting a family, (3) many borrowers have been unable to save for the down payment on a home, and (4) others have not been able to start their own business,” the Pennsylvania lawsuit alleges.

The most notable offense Shapiro alleges is that Navient “willfully” and “knowingly” steered students facing financial hardship into payment plans that postponed their bills — while still accruing interest — instead of repayment plans tied to income, Bloomberg reported.

The difference? Income-based plans come with the possibility of having the debt forgiven after years of steady payments. Merely postponing bills brings higher payments in the future, Bloomberg reported.

The lawsuit also accuses Navient of pushing subprime loans at borrowers who had a high probability of defaulting on their loans. The company allegedly approved loans for students at institutions with low graduation rates, the lawsuit claims, with the expectation “that an extremely high percentage of students would not be able to repay them.”

“The scheme costs billions of dollars that’s been taken out of the pockets of students,” Shapiro told CNBC.

“Navient’s deceptive practices and predatory conduct harmed student borrowers and put their own profits ahead of the interests of millions of families across our country who are struggling to repay student loans,” Shapiro said in a separate statement.

Navient responded in its own statement, saying “the allegations are completely unfounded.”

“The case was filed without any review of Pennsylvania residents’ customer accounts,” Navient said, adding that it complies with all congressional and Department of Education rules governing student loans.

“Navient is a leader in helping student loan borrowers succeed,” Navient said. “In fact, 49 percent of balances serviced by Navient for the government are enrolled in income-driven repayment plans and Navient-serviced borrowers are 37 percent less likely to default than those serviced by others.

“We will vigorously defend our record in court and are confident we will prevail following an impartial review of the facts. In the meantime, we will continue to provide industry-leading service to our customers.”

Attorneys general in Illinois and Washington state also sued Navient in January after a multiyear investigation into the business practices of the company and its subsidiaries.