Consumer agency sues student loan servicer Navient

Consumer bureau sues nation's biggest student loan company

The Consumer Financial Protection Bureau is flexing its muscle while it still can: the agency, which faces potential restrictions in its power after President Barack Obama leaves office, filed a lawsuit on Wednesday against, the largest student loan servicer in the country.

Attorneys general in IL and Washington State also announced lawsuits against Navient and Sallie Mae alongside the CFPB's, alleging the companies had operated an illegal subprime lending scheme and debt collection violations.

The U.S. Consumer Financial Protection Bureau filed a separate lawsuit Wednesday, alleging Navient made it harder to repay loans by giving bad information, processing payments incorrectly and failing to address complaints. Meanwhile, these borrowers racked up additional unpaid interest.

Navient contracts with the Department of Education to manage federal student loans.

"When student loan borrowers make a mistake, companies hold them accountable with immediate penalties and negative credit reporting", said Rohit Chopra, a senior fellow at the Consumer Federation of America, who has worked with the CFPB and the Department of Education.

According to the report, this increased loan burden has contributed to a rise in financial distress for the older borrower leading to financial insecurity, fewer retirement savings, and offset social security payments. That includes predatory loans targeting students attending for-profit colleges that have low graduation rates, steering students toward short-term forbearances and engaging in aggressive and misleading collection tactics.

Disclosure: the author of this post has a student loan that is serviced by Navient. The servicing companies are often different from the lender. "We hope you continue to lead the charge against companies that take advantage of hardworking Americans". Today, more than $2 billion in loan balances are enrolled in these programs.

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MCEVERS: Can people get the payments lowered? The representation was that once the borrower has demonstrated an ability to pay, the co-signer may apply to be released. The income-based repayment plans set monthly payments at a percentage of the borrower's discretionary income. And what do we know about where these loans came from?

However, stretched-out repayment and income-sensitive repayment plans are likely to be the better option for graduates on a tight budget. If you let your enrollment lapse, you could derail your eligibility for future loan forgiveness.

And in what could eventually be a much bigger case, directly affecting students, the CFPB separately sued Navient, the massive student loan servicer and Sallie Mae spinoff, for "failing" students at every step of the repayment process. Navient absorbed Sallie Mae's liabilities and 95 percent of its assets, including servicing rights to $300 billion in student loans. Instead, it encouraged borrowers to go for forbearance, which saved Navient time and paperwork but resulted to more money being paid in interest by the consumers. Also, if your loans are ultimately forgiven, you may owe federal tax on that forgiven amount.

But you can also simply switch to an income-based repayment plan that would set your payments at zero. We could easily route student loan payments right to Uncle Sam. One month, you realize you have an extra $200 to put toward those loans.

One problem the House group says it found is Cordray's "failure to heed" CFPB attorneys who advised him to publish a list of institutions the bureau believed would be subject to the proposed rule and to re-open the public comment period after it had closed.

Madigan says students are not the only ones being penalized. Even so, play it safe and double-check your loan statements to be sure your payments are being applied according to your wishes.

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