California Attorney General charges one of the nation’s largest student loan servicers for violating state laws

AP Photo/Rich Pedroncelli

California Attorney General Xavier Becerra, center, speaks during a news conference in Sacramento.

AP Photo/Rich Pedroncelli

California Attorney General Xavier Becerra, center, speaks during a news conference in Sacramento.

Solomon Moore

June 29, 2018

4 Comments

California Attorney General Xavier Becerra filed a lawsuit on Friday against Navient Corporation, one of the nation’s largest student loan companies, for alleged misconduct in servicing loans for California borrowers, including false advertising and multiple other practices.

Navient, formerly known as Sallie Mae, services more than $300 billion in federally backed and private student loans for more than 12 million borrowers nationwide, including an estimated 1.5 million students in California.

“Navient’s practices aren’t just wrong, they are against the law, specifically California’s unfair competition and false advertising laws,” said Becerra, speaking at a press conference at the Los Angeles Trade Technical College. “And Navient is contributing to our student loan crisis.”

American borrowers owe approximately $1.5 trillion in outstanding student loans, including California borrowers who owe a total of $123 billion. Such massive debt has saddled former students with years, and sometimes decades, of financial difficulties.

He said that Navient, which contracts with the U.S. Department of Education to service federal student loans, engaged in numerous practices in violation of California laws regulating unfair competition and false advertising. These include steering vulnerable student borrowers toward unnecessarily expensive repayment plans, and failing to adequately disclose how they could recertify their loans to be based on their incomes.

Becerra and other state attorneys general have taken an increasingly aggressive stance toward the student loan industry, as well as for-profit colleges and universities that rely on federal student loans for as much as 90 percent of their revenues.

“We’re picking up the ball because the federal government has dropped it,” said Sarah Lovenheim, a spokeswoman for the California Department of Justice. “We think the U.S. Department of Education’s standards for student loan servicers are too low.”

Navient is facing similar lawsuits from other states, including Washington, Pennsylvania and Illinois. In 2017 Navient was also sued on similar grounds by the federal Consumer Financial Protection Bureau in the closing days of the Obama Administration. But consumer advocates say the bureau has lost momentum in its regulatory efforts due to the Trump administration’s efforts to limit its powers, including a decision by U.S. Education Secretary Betsy DeVos to terminate an information-sharing memorandum of understanding with her department.

In a statement released after Becerra’s announcement, Navient’s president and CEO Jack Remondi said that “the allegations are unfounded, and the lawsuit is another attempt to blame a single servicer for the failures of the higher education system and the federal student loan program to deliver desired outcomes.”

Remondi went on to say that “the need to blame someone has driven these lawsuits.”

Earlier this month, Becerra announced a settlement with another student loan servicer, Balboa Student Loan Trust, stopping all debt collections from 34,971 former California students and forgiving remaining balances worth $67 million. Balboa serviced loans for students attending Corinthian Colleges Inc., a defunct for-profit company which, at its peak, ran 100 campuses nationally, including 23 in California. It collected $1.7 billion in revenue, nearly all in the form of federally subsidized student loans.

Last August, Becerra reached a $51 million settlement with Aequitas Capital Management, a private equity firm that provided private loans to Corinthian students, in addition to federal loans they received. The deal provided debt relief to approximately 13,000 California students who attended Corinthian campuses.

“The action we intend to take is not the first we have taken on behalf of California students, nor will be the last,” Becerra said.

The publicly traded company has been mired in a series of controversies since 2009, when a Department of Education inspector general’s report determined that Navient should repay the agency for overcharging the federal government $22.3 million for servicing federal loans under the Federal Family Education Loan program, which offered subsidies and guarantees to lenders who made loans to students. That was the dominant loan program until it was replaced by the Federal Direct Student Loan program in 2009.

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