AP Exclusive: Government challenges unfair practices in student loans

NEW YORK (AP) – One of the largest student loan management companies in the country may have pushed tens of thousands of debt-laden borrowers into more expensive repayment plans.

This is the conclusion of an audit of the Ministry of Education on the practices of Navient Corp., the country's third largest student loan service company.

The audit findings of 2017, which so far have been concealed from the public and have been obtained by the Associated Press, appear to support lawsuits filed by the federal government and states that accuse Navient of "no". increase profits by directing some borrowers to high-cost plans without discussing options that would have been cheaper in the long run.

The education department did not share the findings of the audit with the plaintiffs in the lawsuits. In fact, even though he was aware of his findings, the department repeatedly reiterated that state authorities and other federal authorities did not have jurisdiction over Navient's business practices. .

"The existence of this audit makes the position of the Department of Education all the more troubling," said Aaron Ament, president of the National Student Legal Defense Network, who was working for the Ministry of Education. 39 Education with President Barack Obama.

The AP received a copy of the audit and other documents from the office of Senator Elizabeth Warren, D-Massachusetts, who strongly criticized Navient and publicly supported the lawsuits against the company. company as well as questioned the policies of the department. of Education, currently led by President Trump's Education Secretary Betsy DeVos. Warren is considered a potential presidential candidate in 2020.

Navient challenged the findings of the audit in his response to the Ministry of Education and denied the allegations in the lawsuits. One of the arguments put forward by the company to defend itself is that its contract with the education department does not require its customer service representatives that they mention all the options available for l & # 39; borrower.

However, the five states that sue Navient – Illinois, Pennsylvania, Washington, California and Mississippi – claim that this behavior violates their consumer protection laws. The Office of Consumer Financial Protection has stated in its own trial that these practices were unfair, misleading and abusive and contravened federal consumer protection laws.

Of the five states that filed suit against Navient, only Illinois and Pennsylvania were even aware of the audit and said they had not received their copy of the Ministry of Education. The Office of Consumer Financial Protection refused to say whether it had a copy of the report.

The Ministry of Education stated that the retention of the report was intentional and resumed the argument that he had argued in court and in public, namely that he was solely competent in matters Student Loans Management, through its Federal Student Aid Division, or FSA, which oversees student loans.

"The FSA has conducted the review as part of its own monitoring of contracts, and not for the benefit of other agencies," said Liz Hill, spokesman for the Ministry of Education.

When student borrowers face difficulties in making payments, they may be offered forbearance, which allows them to postpone their payments for a period of time. But as part of a forbearance plan, in most cases the loan continues to accumulate interest and becomes a more expensive option in the long run.

In his lawsuit against Navient, the Consumer Financial Protection Bureau asserted that between 2010 and 2015, Navient's behavior had added nearly $ 4 billion in interest to borrowing student borrowers because of the excessive reliance on l & # 39; abstention. This is a figure that Navient contests.

According to a study conducted in 2017 by the Government Accountability Office, the typical borrower of a $ 30,000 student loan who puts his loan to forbearance for a period of three years (maximum allowed for a abstention from economic hardship) would pay $ 6,742 in additional interest on this loan.

"This discovery is both tragic and infuriating, and the findings seem to validate allegations that Navient would have increased his profits by unfairly guiding student borrowers in forbearance when it was often the worst financial option for them, "said Warren in a letter to Navient last week. .

As part of their investigation, DoE auditors listened to approximately 2,400 randomly selected calls from borrowers from 2014 to 2017 on a batch of 219,000. On nearly one out of 10 appeals reviewed, the Navient's representative did not mention any other options, including a type of plan that estimates the size of a monthly payment that the borrower can afford depending on his income. The auditors wrote that many customer service representatives had not asked questions to determine if such a plan, called income-based repayment plan, could be more beneficial to the borrower.

There is no public account of the number of distressed borrowers served by Navient who may have been affected by these practices. In its latest annual report, Navient says it serves 6 million borrowers, 12.7 percent of whom have been in default for more than 30 days. That would represent about 762,000 customers who are struggling to pay their student loans.

As revealed by the departmental audit, if one in 10 clients were pushed to abstention instead of an income-based repayment plan, it would be 76,200 borrowers from Navient.

The DoE report contains recommendations on how Navient could correct its practices, but makes no mention of firm requirements or sanctions.

The Federal Student Aid Division of the Department of Education decided to conduct a review of Navient's forbearance practices after the Consumer Financial Protection Bureau filed a lawsuit against the company in January. 2017, said Hill's department spokeswoman, to determine if there were any compliance issues.

She said DoE officials had concluded that Navient was not running borrowers improperly. "Nothing in the report indicates that the abstentions were applied inappropriately – the comments noted focused on the suggested improvements as to how best to advise" a small minority of borrowers, she declared.

In response to questions regarding the 2017 audit, Navient pointed out that nine out of ten borrowers who responded to the calls were offered all their options and that this audit was only one element of the audit. A larger story.

"This (audit) as a whole, along with dozens of other audits and reviews, shows that Navient is operating globally in accordance with the program's rules while systematically helping borrowers to choose the right options based on their circumstances." said Paul Hartwick, a spokesman for the company.

Navient, who has separated from Sallie Mae, is a publicly traded company. In appeals and presentations with investors, Navient said that one of the company's top priorities was to reduce its operational costs.

As a student loan service company, Navient has a primary operating cost: its employees, including the hundreds of customer service agents who use Navient phones on a daily basis. The fewer customer service agents there are, the more money he puts in his pocket. Making appeals to determine whether a borrower should be enrolled in an income-based repayment plan takes longer, according to experts from the student loan industry.

In fact, it is exactly what Navient said in his response to the audit of the Ministry of Education.

"We (are not) aware of any requirement that requires borrowers to have access to all their repayment options … with every call," the company said, adding that if the Ministry of Finance has not been able Education chose to require all administrators to deal with income-related reimbursement. plans with all borrowers, the Ministry of Education must redo its contract with Navient.

Seth Frotman, who was the highest government official in charge of student loans until his departure in August, to protest the way the Ministry of Education and the Office of Consumer Financial Protection, Trump, who dealt with the issue of student loans, said that Navient's answer was scandalous. .

"In short, when Navient is confronted with evidence of his bad practices, he says to the government," Pay us more money or go on a hike. "And it looks like the Department of Education has been hiking," said Frotman.

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Ken Sweet covers the financial problems of banks and consumers for Associated Press. Follow him on Twitter @kensweet.