In February 2017, the Consumer Financial Protection Bureau (CFPB) sued Navient Corporation and two of its subsidiaries for allegedly using shortcuts and deception to illegally cheat 12 million borrowers out of their rights to lower loan repayments. These practices, according to CFPB, led to an additional $4 billion in borrower costs.
Forbearance is only one option available to borrowers repaying their student loans. While other options less costly to borrowers like income-based repayment were available, Navient’s widespread use of forbearance boosted corporate profits by minimizing time spent advising distressed borrowers.
Navient’s profit-enhancing measures came at a great expense to borrowers. For example, three-years of deferment on $30,000 in student loans would cost a borrower an additional $6,742.
A few weeks later and in response to CFPB’s lawsuit, the Education’ Department’s Federal Student Aid (FSA) division audited Navient from March 20-24, 2017, and later produced a report of its findings on May 18, 2017.
But the audit remained secret until late November this year when the investigative expertise of Associated Press, aided by U.S. Senator Elizabeth Warren (MA), finally led to public disclosure of its devastating findings. Rather than incur the wrath of consumers nationwide, and/or appear to support the CFPB or any of the multiple state attorneys general who also sued Navient, the Education Department never made the critical audit public.
As journalists would say, this story has legs: A Cabinet secretary allowed a federal contractor to act as if a key public agency worked for a private company. Additionally, audit findings hidden for a year from the public today impact 44 million student loan borrowers.
The one encouraging development in this still-unfolding scenario is that a U.S. Senator is still waging an effort to protect consumers. In a November 13th letter this year from Sen. Warren to Navient’s President and CEO, the Massachusetts Senator was justifiably direct.
“This report bolsters allegations that Navient illegally cheated struggling student borrowers out of their rights to lower repayments…This finding is both tragic and infuriating, and the findings appear to validate the allegations that Navient boosted its profits by unfairly steering student borrowers into forbearance when that was often the worst financial option for them.”
My own review of the report’s hidden findings by the audit’s six-member on-site review team uncovered how Navient not only failed to advise student loan borrowers of all available options to repay their loans but believed that its servicing contract with the Department of Education did not require the firm to do so.
A section of the report entitled, ‘Servicer Response’ states in part: “We disagree with 168 of the 228 servicing opportunity determinations (call review and servicing history review)….Nor are we aware of any requirement that borrowers receive all of their repayment options – IDR, deferment and forbearance – on each and every call…If FSA chooses to require all servicers to discuss IDR to all borrowers on all calls or to require all service representatives follow a common call flow, specific requirements should be provided in an approved Change Request.”
That’s a lot of corporate nerve.
Navient is supposed to work for the Department of Education, and by extension, the American people. Further, if Secretary DeVos allows this major contractor to shape what will or will not happen on her watch, what kind of public steward of taxpayer dollars is she?
The FSA findings give even more credence to the earlier CFPB investigation undertaken before filing its Navient lawsuit. CFPB learned that many of the borrowers that incurred excessive charges included military veterans who became disabled during their service to the country. Federal law provides that military veterans whose disabilities were incurred during service to the country are entitled to loan forgiveness.
Navient also holds title to a related and dubious distinction: More consumers filed complaints about Navient than any other student loan servicer. Complainants identified dealing with the servicer or lender as the key issue, compared to nearly half at 34 percent whose problems were based on an inability to pay their loans.
“At every stage of repayment, Navient chose to shortcut and deceive consumers to save on operating costs,” said then-CFPB Director Richard Cordray at the time the lawsuit was filed. “Too many borrowers paid more for their loans because Navient illegally cheated them.”
“Too many Americans are struggling to make their student loan payments every month,” said Whitney Barkley-Denney, a policy counsel specializing in student lending with the Center for Responsible Lending. “While the Department of Education has created programs to help make monthly payments more affordable, those programs only work if servicers are actually helping eligible borrowers access them. Servicers aren’t merely debt collectors – they can be a borrower’s lifeline to financial stability.”
Navient still has a chance to set its record straight. Sen. Warren’s letter requests a written reply to the litany of concerns by December 4.
Stay tuned.
Charlene Crowell is the Communications Deputy Director with the Center for Responsible Lending. She can be reached at Charlene.crowell@responsiblelending.org.
With 44 million consumers owing student debt that now reaches $1.5 trillion and still climbing, a lot of people want to better understand how and why this unsustainable debt trajectory can be better managed. For Black consumers who typically have less family wealth than other races and ethnicities, borrowing is more frequent, and as a result, often leads to five figure debts for undergraduate programs and well beyond $100,000 for graduate or professional degrees.
Besides deep debt incurred to gain a college education, another sphere of concern presents yet another financial hurdle: student loan defaults.
New research by Judith Scott-Clayton of the Brookings Institution, focuses on explaining these defaults and what happens once they occur. Her research shows that a large racial gap exists in default rates between Black student loan borrowers and their White counterparts. This gap can only be partially explained by controlling for multiple socio-economic and educational attainment factors.
After accounting for variations in family wealth and income, differences in degree attainment, college grade point average and even post-college income and employment, a stubborn and statistically significant 11 percentage point gap remains between Black and White student loan borrowers. Before adjusting for these factors, the gap is 28 percent, with Black borrowers defaulting at a rate of more than double that of Whites—49 percent compared to 21 percent over 12 years.
The research also finds a strong disadvantage to attending for-profit colleges, in which Black students disproportionately enroll. More than a decade after leaving school, and accounting for the same background and attainment factors listed above, loan defaults of for-profit college borrowers exceed those of two–year public sector peers by 11 percent.
The author points to the need to understand what influences the “stark” remaining divide.
“The better we can understand what drives these patterns,” wrote Scott-Clayton, “the better policymakers can target their efforts to improve student loan outcomes.”
Among these influences are the widening racial wealth gap. As Black student debt is typically heavier and often takes longer to repay, the ability to build wealth becomes a heightened challenge. Years that might have been opportunities to become homeowners or begin other investments can have lengthy deferrals, due to large student loan debts.
Similarly, a new report by the Consumer Financial Protection Bureau (CFPB) that focused largely on student loan repayment reached a similar conclusion. Authored by Thomas Conkling, the new CFPB research examining borrowers who were unable to fully repay their student loans early, “suggests that their required monthly student loan payments constrained their ability to pay down other debts.” CFPB also found that the typical student loan repayment lasts a full decade with equal monthly payments.
Further, borrowers repaying on schedule are not more likely to become first-time homeowners.
A portion of the Brookings report provides useful information that could help those at risk or in default.
Loan “default is a status, not a permanent characteristic.” Four ways to get out of default are cited: rehabilitation, consolidation, paying in full, or have a loan discharged.
For my money, paying in full is seldom a practical option unless someone’s lottery numbers hit a jackpot. But the other three options offered could begin to chart a path in important ways.
Rehabilitation of student loan defaults can only be used one time. It also requires, according to Brookings, successfully making nine payments over 10 months.
A second option, consolidating defaulted loans, can end default more quickly and is used by more than half of Blacks who have defaulted.
In recent years, loan discharge has been frequently pursued, especially by former students of now-defunct for-profit institutions. Others choosing public service careers may be eligible for loan forgiveness depending upon the type of loan, servicer assistance and employment.
Any loan default will worsen credit scores and will be a part of a consumer’s credit record for up to seven years. During this time, the cost of credit for other goods and services will be higher. It will also cost many job applicants to lose out on employment opportunities. For several years, credit score screening has become a part of the job application process for many employers.
“The numbers show that our current system is not working, and that higher education is not providing the pathway to financial stability that it once accomplished,” Policy Counsel and Special Assistant to the President of the Center for Responsible Lending, Ashley Harrington said. “We need federal and state policymakers to take concrete steps to effectively address this crisis, such as better regulation of for-profit colleges.
“As for loan servicers, it is time to hold them accountable for their errors,” continued Harrington.
“Standardizing income-based repayment plans, and when appropriate, refinancing of student loans, should be offered as alternative options before allowing borrowers to default.”
Charlene Crowell is the Communications Deputy Director with the Center for Responsible Lending. She can be reached at charlene.crowell@responsiblelending.org.
By Charlene Crowell, (Communications Deputy Director, Center for Responsible Lending)
AMSTERDAM NEWS — Mounting student debt is a nagging problem for most families these days. As the cost of higher education rises, borrowing to cover those costs often becomes a family concern across multiple generations including the student, parents, and even grandparents or other relatives.
Today’s 21st Century jobs usually demand higher education and specialized skills to earn one’s way into the middle class. In households where educational loans are inevitable, it becomes an important family decision to determine which institutions are actually worth the debt incurred. Equally important is the institution’s likelihood of its students graduating.
Higher education institutions that do not provide its students and graduates with requisite skills and knowledge become money pits that lead to deeper debt and likely loan defaults.
New research by the Center for Responsible Lending (CRL) analyzed student debt on a state-by-state basis. An interactive map of CRL’s findings reveal on a state basis each of the 50 states’ total undergraduate population, for-profit enrollment, and the top for-profit schools by enrollment for both four-year and two-year institutions.
Entitled “The State of For-Profit Colleges,” the report concludes that investing in a for-profit education is almost always a risky proposition. Undergraduate borrowing by state showed that the percentage of students that borrow from the federal government generally ranged between 40 to 60 percent for public colleges, compared to 50 to 80 percent at for-profit institutions.
Additionally, both public and private, not-for-profit institutions, on average, lead to better results at a lower cost of debt, better earnings following graduation, and the fewest loan defaults.
“In many cases, for-profit students are nontraditional students, making sacrifices and struggling to manage family and work obligations to make better lives for their families,” noted Robin Howarth, a CRL senior researcher. “For-profit colleges target them with aggressive marketing, persuading them to invest heavily in futures that will never come to pass.”
CRL also found that women and Blacks suffer disparate impacts, particularly at for-profit institutions, where they are disproportionately enrolled in most states.
For example, enrollment at Mississippi’s for-profit colleges was 78 percent female and nearly 66 percent Black. Other states with high Black enrollment at for-profits included Georgia (57 percent), Louisiana (55 percent), Maryland (58 percent) and North Carolina (54 percent).
Focus group interviews further substantiated these figures, and recounted poignant, real life experiences.
Brianna, a 31-year-old Black female completed a Medical Assistant (MA) certificate at the now-defunct Everest University. Once she completed her MA certificate and passed the certification test, she found she could only find a job in her field of study that paid $12 per hour, much less than the $35,000-$45,000 salary that Everest told her would be her starting salary as a medical assistant.
She was also left with $21,000 in student debt. As a result, she has struggled since matriculation with low credit scores and cramped housing conditions for herself and three children. For her, public schools, according to Brianna, are “better in the long run” due to their lower cost despite having more requirements for attendance.
No one ever said that higher education wouldn’t cost money. Across the country, tuition is steadily rising and students are taking longer to pay off their student loans.
Today, 44 million consumers share $1.4 trillion in borrowed student debt – more than double what it was in 2008. On average, graduating seniors with a bachelor’s degree begin their careers with about $30,000 in student loans, while graduate students are almost assured of incurring six-figure student debt.
All of these financial burdens have been acquired against a backdrop of an increasingly competitive global economy. The 21st Century marketplace is also dependent upon a highly-skilled workforce. Gone are the days when manufacturing could provide a steady and comfortable living. From steel to textiles and more, global competition requires America to work smarter and harder.
So why would the Trump Administration propose a $9.2 billion cut in education?
Over the next decade, the White House wants to ‘save’ $143 billion from college loan programs, including an end to $26.8 billion in subsidized loans. Currently, Pell Grants, designed to assist low-income students, are capped at less than $6,000 per scholastic year despite the average cost of tuition at a public college for its own state students approaching $10,000 per year.
Here’s one White House explanation on how less access to higher education going to help the nation’s ability to remain economically competitive.
“We’re no longer going to measure compassion by the number of programs or the number of people on those programs, but by the number of people we help get off of those programs,” said White House Budget Director Mick Mulvaney during a May 23 press briefing.
It seems like the White House is really averse to more Americans receiving a higher education at a time when college costs and its resulting debt are on an upward trajectory. Certainly, education budget cuts will not ‘make America great again’.
Two days later and on the floor of the U.S. Senate, a diverging view was spoken, “Let’s give struggling students a fair chance,” said Illinois’ Senator Richard Durbin.
“We are seeing an increase in the wealth gap between college graduates with student debt and those without student debt”, Durbin continued. “The burdens of student debt are threatening the notion that being college-educated is enough to get ahead.”
Sen. Durbin went on to share the story of a Chicago constituent, the first in her family to attend college, who appealed to his office for help. The majority of the former student’s debts totaling $120,000 were private loans with high interest rates and monthly payments that were just as costly. The student also felt she had no chance of financial improvement due to an ill-conceived enactment of a bill that prevented such debts being discharged in bankruptcy.
Since 2005, student loan debt, unlike other types of unsecured debt cannot be a part of a bankruptcy filing. In other words, it’s the kind of debt that could potentially follow borrowers to the grave.
The Fairness for Struggling Students Act of 2017 (S. 1262), introduced by Sen. Durbin and co-sponsored by 11 other Senators would allow financially struggling borrows to discharge private student loans in bankruptcy. The law is anticipated to relieve high-cost private loans that seldom come with many of the flexible repayment terms offered by federal ones. Some private student loans come with variable interest rates, high origination fees and scant – if any – repayment options.
Already the bill has attracted the support of a large coalition of educational, student, civil rights and consumer organizations that include: the United Negro College Fund (UNCF), NAACP, the American Federation of Teachers, the Empire Justice Center, National Association of Student Financial Aid Administrators, and the Center for Responsible Lending (CRL).
According to the Consumer Financial Protection Bureau (CFPB), in 2012, at least 850,000 private loan borrowers were in default in the amount of $8 billion. Two years later in 2014, CFPB analyzed more than 5,300 private student loan complaints filed between October 2013 and September 2014. That analysis found that the lack of affordable repayment plans, not a disregard for the debt, drove many borrowers to default.
Defaulting on a private student loan has the potential to bring even more financial calamity to borrowers. In some cases, the entire loan balance may become due in full, immediately. Loan defaults can also lower consumers’ credit profiles, preventing some borrowers from passing a background check for a job, obtaining housing, or accessing low interest forms of credit.
Additional CRL research has found that:
Four years after graduation, Black students with a bachelor’s degree owe almost double the debt their white classmates owe; and
While for-profit college enrollment represents 9.1 percent of all college students, these schools generate over 35 percent of all students who default on their loans; and
“Quality education is an investment – not a cost – to our nation’s future, noted Whitney Barkley-Denney, a CRL policy counsel. “Its policies and practices must assure student success while minimizing costly debt errors that become unnecessary burdens,”
“When students fall off a financial cliff, they should be able to discharge their private student loan debt in bankruptcy – just like people can with other kinds of debt,” said Senator Elizabeth Warren. “Banks fought hard more than a decade ago to exempt student loan debt from bankruptcy protections, and now we’ve seen the consequences: too many students are crushed by debt with no chance for a new start.”
Charlene Crowell, Published: 06 July 2017