The U.S. Consumer Financial Protection Bureau is suing Navient Corp., the nation's largest student loan servicer, accusing it of "systematically and illegally failing borrowers at every stage of repayment," according to a press release from January 18. The CFPB is asking Navient to compensate the borrowers the agency says were harmed.
Among other things, the CFPB alleges that since at least January 2010, Navient misallocated payments, steered struggling borrowers toward multiple forbearances instead of income-driven repayment plans, and provided unclear information about how to re-enroll in income-driven repayment plans and how to qualify for a co-signer release.
Navient denied the CFPB's allegations in a statement the same day the suit was announced, saying they are false and politically motivated. The student loan giant, which broke off from Sallie Mae Bank, one of the largest lenders of private student loans, in 2014, currently services more than $300 billion in federal and private student loans for more than 12 million borrowers.
The Illinois and Washington attorneys general also filed suits against Navient on January 18. Navient said in subsequent statements the same day that allegations by the Illinois and Washington attorneys general were also politically driven and "unfounded."
"Time will tell" what impact these lawsuits have on borrowers, says Betsy Mayotte, director of consumer outreach and compliance at American Student Assistance, a nonprofit that helps students pay for college. But regardless of outcomes, borrowers should regularly check their student loan accounts to make sure their loans are being serviced correctly, she says.
How to check if Navient is your loan servicer
The Department of Education is the lender for all federal student loans, but it contracts with private, third-party companies, including Navient, to handle loan servicing. Log on to the Federal Student Aid website to find your federal loan servicer. In addition to Navient, other major federal loan servicers include FedLoan Servicing, Great Lakes Higher Education Corporation & Affiliates and Nelnet.
What to do if you're frustrated with your student loan servicer
It is possible to switch student loan servicers through federal consolidation or student loan refinancing. But you shouldn't consolidate or refinance solely to switch servicers because there are potential risks associated with each, says Adam Minsky, a Boston-based lawyer specializing in student loans. Also, there's no guarantee you'll be better off with a different servicer.
"The other servicers aren't exactly rainbows and sunshine," Minsky says.
File complaints
Check your credit report for errors
Get up to speed on your repayment options
- Income-driven repayment plans can lower your monthly federal student loan payments by capping your payment at a percentage of your income. They also offer loan forgiveness after you make on-time payments for 20 or 25 years, depending on the plan.
- Student loan forgiveness programs, such as Public Service Loan Forgiveness, can relieve your federal student loan debt if you work for a certain type of employer and make on-time payments for a certain period of time.
- Federal consolidation doesn't lower your monthly payments or save you money, but it's sometimes necessary to do in order to qualify for income-driven repayment or a forgiveness program. Consolidating is frequently confused with student loan refinancing, which is a way to save money on interest by getting a lower rate.
Watch out for companies that charge fees for help
If your servicer isn't answering your student loan questions, reach out to the Department of Education or your state's attorney general's office for help.
Teddy Nykiel is a staff writer at NerdWallet, a personal finance website. Email: teddy@nerdwallet.com. Twitter: @teddynykiel.
The article "Feds Sue Student Loan Giant Navient: What Borrowers Need to Know" was originally published on NerdWallet.