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.
Beginning with a controversial nomination that ended in a tie-breaking Senate confirmation vote and continuing throughout her tenure as Education Secretary, Betsy DeVos has faced unceasing criticism. While Administration officials would be inclined to give her the benefit of the doubt, many across the country would argue that she is not serving the public’s interests.
A recent interview on CBS’ 60 Minutes provided an opportunity to address the nonstop criticism before a national audience. Instead, it prompted a new wave of critiques from viewers and news outlets alike.
More important than these recent headlines, however, is the Department’s attempt to stop states from holding student loan servicers and collectors accountable. Claiming that state consumer protection laws “undermine” federal regulator requirements, a non-binding memo is yet another assault on the 44 million Americans who together struggle with a still-growing $1.5 trillion in student debt.
It was about this time last year that Secretary DeVos withdrew three memos that would have required loan servicers, in their renegotiated contracts, to provide more intensive “high touch” servicing for borrowers threatened with default. Then late in the summer of 2017, she withdrew inter-agency working agreements between the Department and the Consumer Financial Protection Bureau (CFPB) commonly known as Memorandums of Understanding (MOUs). Prior to her joining the Education Department, these same MOUs led to a series of major enforcement actions against for-profit colleges like Corinthian and ITT Tech, as well as the nation’s largest student loan servicer, Navient.
With rollbacks in oversight and enforcement, the Education Secretary must think the department is doing a great job serving student loan borrowers that states should just butt out. A new departmental memo claims as much.
In response, Massachusetts Attorney General Martha Healey, who filed a lawsuit earlier this month that alleged overcharges to students by the Pennsylvania Higher Education Assistance Agency was just as direct as she was quick to speak up.
“Secretary DeVos can write as many love letters to the loan servicing industry as she wants, I won’t be shutting down my investigations or stand by while these companies rip off students and families,” Healey said in a statement to The Intercept. “The last thing we need is to give this industry a free pass while a million students a year are defaulting on federal loans.”
Thank goodness for state AGs like Healey. Federal enforcement of consumer protection is currently at a real low.
When Mick Mulvaney was named Acting CFPB Director, a change of direction from consumer enforcement to education and information was promptly announced with a series of more changes. In Mulvaney’s view, CFPB would no longer use aggressive enforcement to hold financial service providers accountable. On his watch, consumers have basically been told not to expect much from CFPB, while businesses have been catered to and even asked to advise Mulvaney and company of what appropriate regulation looks like.
So, if the Department of Education is not going to work with CFPB to resolve complaints and CFPB is not interested in consumer enforcement, why try to tie the hands of states who only seek to protect their own residents?
Whitney Barkley-Denney, a policy counsel with the Center for Responsible Lending, addressed the impacts to consumers of color. “Due to racial disparities in income and wealth, the consumers hardest hit by these debts are consumers of color. While the federal government continues to find ways to placate these companies, states are ready and willing to serve the best interests of borrowers and taxpayers.”
The National Governors Association (NGA) agrees with Barkley-Denney.
In a related statement, the NGA said, “Last week’s declaration on student loan servicing from the U.S. Department of Education seeks to preempt bipartisan state laws, regulations and ‘borrower bills of rights’ currently in place and under consideration in more than 15 states…. States have stepped up to fill the void left, we believe, by the absence of federal protections for student loan borrowers, from potential abusive practices by companies servicing student loans.”
Randi Weingarten, President of the American Federation of Teachers was even more candid.
“With this move, she [Secretary DeVos] has castrated any state legislators and attorneys general from providing meaningful oversight of student loan services, yet she continues to fail to do so herself,” said Weingarten.
In 2017, a CFPB report showed that during the past five years, more than 50,000 student loan complaints were filed. Additionally, more than 10,000 other related debt collection complaints were filed on both private and federal student loans.
Where these complaints originate is equally eye-opening. In just one year, from 2016 to 2017, the growth in the number of student loan complaints exceeded 100 percent in 11 states: Georgia, Indiana, Louisiana, Mississippi, Montana, North Carolina, South Carolina, Pennsylvania, Texas, Washington State and West Virginia.
It’s enough to make one wonder, ‘Who is our federal government actually serving?’
