Examples:

• • Michelle requested IDR but Navient put her in forbearance, giving a $28,000 bill that could have been much less with proper guidance.
  • Navient told disabled Iraq vet John his $98,000 loan was in default when it had actually been discharged due to his injuries.
  • Despite making 8 straight $300 payments, Amy’s balance stayed the same as Navient improperly allocated them across multiple loans.
  • Navient falsely said Tina would get credit for all 12 rehab payments when fees would still be owed after 9 payments.
  • Luis made consistent 12 on-time payments to release his cosigner per Navient’s policy, but was denied for paying ahead early.

The Allegations’ Significance

• • As the largest U.S. student loan servicer, Navient’s alleged misconduct impacted millions of borrowers struggling with debt.
  • Putting profits over borrowers, Navient cut corners to minimize costs, deceive consumers and deny access to payment relief.
  • Improper credit reporting and certification failures worsened financial distress and undermined key loan forgiveness programs.
  • The scope of harm underscores the high stakes for borrowers and the need for strong oversight of loan servicers.
  • Navient’s alleged deception and unfairness represent some of the most serious allegations brought under federal consumer protection laws.

Key Laws At Issue:

• • Consumer Financial Protection Act (CFPA): Prohibits unfair, deceptive or abusive acts and practices by student loan servicers.
  • Fair Credit Reporting Act (FCRA): Requires accurate credit reporting and prompt correction of errors by information providers.
  • Fair Debt Collection Practices Act (FDCPA): Bans false, deceptive or misleading representations in collecting student debts.
  • Reg V: Obliges servicers to maintain reasonable procedures to provide accurate info when furnishing to credit bureaus.
  • State UDAP Laws: Many states also sued Navient under their own unfair and deceptive practices statutes.

Examples:

• • In 2014, the FDIC and DOJ reached a $97 million settlement with Navient. $60 million was designated for restitution to approximately 60,000 military members who were illegally overcharged on their student loans. The remaining $37 million settled claims of deceptive lending practices.
  • The Dept of Education found Navient returned $22M in 2021 for wrongfully seizing borrowers’ tax refunds and wages.
  • 39 states reached a $1.85B settlement with Navient in 2022 for originating predatory subprime private loans.
  • From 2017-2019, the CFPB received 10,057 federal student loan complaints against Navient, 3x more than any other servicer.
  • Navient call center reps had to hit a 7 minute average call time target to get bonuses, rushed borrower conversations.

Systemic Deficiencies

• • Navient’s conduct reflects structural problems in the student loan servicing market putting profits ahead of borrowers.
  • Misaligned incentives, weak oversight and lack of competition fostered an environment ripe for consumer abuse.
  • Federal student loan programs’ complexity enabled servicers to exploit borrower confusion rather than counsel and assist.
  • The repeat nature of Navient’s violations across multiple aspects of servicing shows its failures were systemic, not one-offs.
  • Leadership focused more on earnings targets than keeping servicer practices and personnel focused on proper repayment guidance.

Servicing Market Dynamics:

• • Borrowers Can’t Choose Servicers: Students have no control over which company handles their loans, limiting market discipline.
  • No Price Competition: Borrowers don’t pay servicers directly so there’s little financial incentive to provide quality service.
  • Lack of Switching: There’s no easy way for dissatisfied borrowers to take their business elsewhere if service is poor.
  • Mismatched Interests: Servicer fees come from the govt, not borrowers, so loyalties lie with the govt contracts not customers.
  • Regulatory Gaps: Servicers fall in a grey area between banking, debt collection and education regulations, enabling substandard practices.

Examples:

• • Karen will receive a check for $1,250 as compensation for Navient falsely telling her forbearance was her only hardship option.
  • Dave, disabled after a car crash, gets $875 for Navient misreporting his discharged loan as in default.
  • Borrowers who’d prepaid but had those payments misallocated by Navient will be sent settlement checks ranging from $250-$500.
  • The deal requires Navient to tell borrowers about all repayment options and properly process payments to comply with servicing laws.
  • CFPB auditors will review Navient’s call scripts, training, systems and complaint data to verify adherence to the agreement.

Accessing Relief

• • Impacted borrowers don’t need to take action – the CFPB will use Navient’s records to identify those owed restitution.
  • Settlement checks will be mailed to eligible recipients at their last known address so no claim forms are required.
  • If borrowers have moved, they should update their address with Navient and the USPS to ensure they receive their checks.
  • The settlement website will have a feature to look up payment eligibility for those unsure if they’re covered.
  • Borrowers should be wary of scammers claiming they need to pay a fee or provide sensitive info to get their settlement money.

Other Impacts:

• • Credit Reporting Corrections: Navient will update the credit reports of disabled borrowers it wrongly marked in default.
  • Tax Implications: Settlement checks likely won’t be taxable as income but may be if loans were used for ineligible expenses.
  • Underlying Loans Unaffected: The deal provides cash payments but doesn’t directly alter borrowers’ outstanding loan balances or terms.
  • Combo with Loan Forgiveness: Borrowers may still be eligible for recently-announced federal student debt cancellation along with these funds.
  • Increased Oversight: The CFPB will closely monitor Navient and other servicers to identify and stop new consumer harm.

Examples:

• • Rather than accept Navient’s steer into forbearance, Jay asked about IDR and now pays $75/mo instead of $350 with REPAYE.
  • Amber consulted the Dept of Ed’s Loan Simulator tool to compare options, not just relying on her servicer’s phone rep.
  • Jamal saved emails advising him to file an IDR renewal app by 8/15 to protect against the servicer later claiming no notice.
  • Liz kept meticulous notes of her servicer calls, noting the rep’s name, date and details discussed in case issues emerged.
  • When his servicer wrongly said his loans weren’t eligible for PSLF, Tom filed CFPB and state AG complaints, prompting a correction.

Reform Initiatives

• • The Dept of Ed is revamping loan servicer contracts and performance standards to prioritize borrower success metrics.
  • Policymakers propose replacing servicers with a single repayment portal to standardize processes and advice.
  • State laws to fill federal regulatory gaps, like requiring servicer licenses and minimum operating standards, are rising.
  • Increased oversight like regular CFPB exams and audits aims to quickly identify compliance violations and risks to borrowers.
  • DoE is automating data-sharing with servicers to facilitate enrollment in IDR plans and catching payment misapplications.

Policy Debates:

• • Servicer Accountability: What’s the right balance of standards, oversight and penalties to ensure servicers act lawfully?
  • Borrower Responsibility: Do distressed borrowers have any duty to seek out info on options or is servicer guidance enough?
  • Federal Loan Complexity: Has the growth of repayment and forgiveness plans contributed to servicer difficulty providing good guidance?
  • Servicing Capacity: With PSLF, IDR and other programs rising, do servicers have the staffing and systems to administer them?
  • Loan Forgiveness: Will broad federal debt cancellation reduce harm from subpar servicing or create new implementation issues?

Examples:

• • The DoE said Navient’s steer of 1.2M borrowers into forbearance who enrolled in IDR within 12 months underscored need for redress.
  • CFPB Director Chopra pledged to work with DoE and states to end “illegal servicing schemes” and return money to harmed borrowers.
  • One borrower said “I feel seen” by the deal validating years of stress with Navient rejecting her IDR and PSLF paperwork.
  • The CFPB’s related settled suits with servicers Discover Bank and EdFinancial show a broader crackdown beyond just Navient.
  • Navient competitors are rapidly reviewing policies on IDR, forbearances, payment processing and specialist training to avoid scrutiny.

Looking Ahead

• • The settlement’s long-term impact depends on sustaining the oversight and reforms it kickstarted beyond this one case.
  • With 45M borrowers and $1.6T in loans, the student debt market needs a modernized, borrower-centric servicing system at scale.
  • Structural reforms should align servicer incentives with borrower success so violations aren’t profitable in the first place.
  • Borrowers need accessible, actionable information to make informed decisions, not just disclosures of unclear repayment options.
  • Robust enforcement must combine public and private actions, as consumer complaints and state AGs also drove progress here.

The Big Picture:

• • Loan Servicing: The Navient case exposed deep-rooted flaws in student loan servicing, an often overlooked but critical function.
  • Borrower Burdens: Holding servicers accountable is key as borrowers bear the costs of a complex lending and repayment system.
  • Consumer Protection: Active oversight of loan servicers is an important part of the CFPB’s mission to protect families’ financial futures.
  • Shared Responsibility: The student loan crisis needs a combination of servicer reforms, college cost controls and balanced borrower relief.
  • Systemic Risk: Absent change, servicing failures could impair borrowers’ financial health and expose them to long-term consequences.

Disclaimer

This article is for general informational purposes only and is not intended as legal advice regarding any individual’s specific student loans or Navient accounts. Borrowers should consult the CFPB, Dept of Education and a qualified attorney about their rights and options under the settlement and servicing laws.

While the information is presented in good faith and believed to be accurate, it may include errors or inaccuracies. Borrowers are responsible for doing their own verification and analysis before making financial decisions. The author expressly disclaims any liability arising from use of this material.

As ongoing developments emerge in the Navient settlement, student loan servicing reform and borrower relief efforts, certain information may change or require updating. However, the core advice for borrowers to know their rights, stay informed and take action to address servicing issues remains evergreen.