The Long Road Home

Deception. Cheating. Shortcuts. Such are the ugly allegations lodged against Navient, the nation’s student loan servicing behemoth, by the Consumer Financial Protection Bureau. In a lengthy complaint, the bureau said Navient, which oversees $300 billion in student loans for 12.5 million borrowers, failed customers “at every stage of repayment.”

It’s not enough, in other words, that students must struggle with onerous debt after college. Navient added to the burden, the bureau said, by making those loans harder to repay. Navient failed to apply borrower repayments accurately, the bureau said, and the company did not make clear what its customers needed to do to keep their payments low. Worst of all, though, it accused Navient of hurting disabled military veterans, who can seek loan forgiveness under a federal program. Navient, the lawsuit said, inaccurately told credit reporting companies that veterans taking advantage of this program had defaulted on their loans. Sounds familiar. Remember how the mortgage foreclosure machine chewed up and spit out troubled borrowers, adding junk fees and costs of unnecessary services to the amounts they owed? Banks even foreclosed on borrowers when they had no right to.

Navient rejected the bureau’s findings and said it would vigorously defend against what it characterized as “false allegations.” It also said the bureau’s complaint was politically motivated, since it was filed just before the presumably friendlier Trump administration took over in Washington. Navient’s chief executive, Jack Remondi, attacked the agency’s conclusions. “Navient leads the industry in income-driven repayment plans and has the lowest level of severely delinquent borrowers and the lowest default rates,” he said in an interview. “If we were doing all these bad things, we wouldn’t be leading the industry.” The nation’s largest company in education loan portfolio management, servicing and collection, Navient acts under contract for the Education Department — for which it services six million loans — as well as for private lenders.

Navient was spun off as a separate loan servicing company by the SLM Corporation in 2014. SLM, widely known as Sallie Mae, was founded as a government-sponsored enterprise in 1972 and privatized in 2004. The complaint against Navient casts doubt on whether sufficient protections are in place. So do conversations with customers like Thomas Gokey, who holds an undergraduate degree in visual arts and a master’s degree and is working on his Ph.D. Mr. Gokey has been at the forefront of a “debt resistance” movement born of the Occupy Wall Street protests, including a project to buy and forgive debt. Navient services a portion of his own $37,000 in student debt. He said he had been dealing with the company and its predecessor since 1999. He characterized his experiences with the company as “a nightmare.” When he changed banks, for instance, the company had trouble administering his automatic payments, resulting in late fees and a higher interest rate. Although Navient fixed the problem, it took numerous phone calls over many days to do so, Mr. Gokey said. Navient also failed to follow Mr. Gokey’s directions to allocate payments to loans with the highest interest rates first. “It almost seems like they are trying to make it more likely that I will miss a payment,” he said, “so they can slap on late fees and increase the interest rate.”

Robin Wilde is a military veteran who has had a series of trials with Navient. They began in 2000 when she went on active duty and tried to have her loan delayed as the law allows. She said she repeatedly sent Navient the proper information but it never got to the right person. “They put my loan in past due the whole time I was in basic training and it ruined my credit,” Ms. Wilde said. There have been more recent troubles. After Ms. Wilde earned a master’s degree in 2011, she was experiencing a financial hardship. She says she sent information Navient needed to put the loan into a temporary deferment and called to make sure it was received. “I didn’t find out they hadn’t processed my paperwork until they put me on 90 days past due on 19 loans,” she recalled. “My credit score went from like a 730 to a 520 in a month.”

Ms. Wilde said it was a happy day when she consolidated her $60,000 in loans and had them transferred to a different servicer. Of course, a couple of distressed Navient customers out of 12.5 million are by no means a scientific sample. But neither is the complaint by the financial protection bureau Navient’s first rodeo with a regulator. In 2014, the company paid $60 million to settle an investigation by the Justice Department and the Federal Deposit Insurance Corporation, alleging that the company had been illegally overcharging military families as far back as 2005. The complaint described Navient’s conduct as “intentional, willful, and taken in disregard for the rights of service members.” Per the F.D.I.C., service members were erroneously told they must be deployed to obtain certain loan benefits.

Patricia Nash Christel, a Navient spokeswoman, said the $60 million settlement “was grounded in conflicting federal guidance,” adding, “Since the voluntary settlement, there have been six independent reviews confirming that Navient was following federal regulations.”  Then there was a 2009 Education Department investigation that determined Navient predecessor Sallie Mae had overcharged the government by $22.3 million by abusing a program meant for smaller lenders. Ms. Christel said Navient appealed this finding and was awaiting a ruling on it.

In 2008, the F.D.I.C. and the Utah Department of Financial Institutions issued a cease-and-desist order against Sallie Mae Bank, a subsidiary. The regulators said the bank had violated laws banning unfair and deceptive practices as well as those protecting borrowers from discrimination. And one year earlier, Sallie Mae struck a settlement with Andrew M. Cuomo, then the New York attorney general, over conflicts of interest in the company’s practices. Among them were Sallie Mae’s practice of paying entertainment and travel expenses for officials of schools it did business with. To settle that matter, Sallie Mae paid $2 million into an education fund.

The financial protection bureau may be a bane to Navient but it has been a boon to consumers, Mr. Gokey said. For example, only after he filed a complaint with the bureau did the company fix the repayment allocation problem, he said. And it did so within a week. “I’m very worried about what will happen to student loan borrowers if the C.F.P.B. gets gutted under the new administration,” he said. Navient’s shareholders seem to expect such an outcome. Immediately after the election, the company’s stock rallied to almost $18 from around $13 on speculation that the bureau would be neutered under President Trump. The shares have retreated a bit, to around $16. But investors still appear to believe that education finance companies like Navient could have one less aggressive regulator to worry about under the new administration.

Whether or not you believe the allegations, the jaw-dropping dossier of sins that the Consumer Financial Protection Bureau accuses the nation’s largest student loan servicer of committing is useful for two crucial reasons. First, it’s a reminder of just how much can go wrong when we force inexperienced young adults, especially, to navigate a complex financial services offering. We shouldn’t be surprised, but we should be ashamed: Elected representatives cut support for higher education; sticker prices rose; teenagers and others applied for admission, signed up for debt and, in many cases, finished their degrees. Then came the bombardment of confusing loan and repayment options. Second, the bureau’s complaint offers a road map of sorts. For every major infraction that it accuses Navient, the servicer in question, of committing, there is at least one defensive move that borrowers can make to sniff out problems or keep them from happening in the first place.

Know your loans. Staying out of trouble with a student loan servicer starts with two questions: How much do you owe, and to whom? Answering those questions is confusing to newcomers for a couple of reasons. First, the servicer of the loan — the entity that collects payments and takes requests for any adjustments — is often not the original lender. You can usually answer both questions at once for federal loans (those that come from the Education Department) through the National Student Loan Data System, where you’ll need to set up an online account. Sorting out your private loans (those that come from banks and other similar entities) can be harder. Check copies of your credit report from the three major credit bureaus via annualcreditreport.com if you think you may have lost track of a loan, as lenders will almost always report the existence of the loan to the bureaus.

Income-driven payments. If you’ve got federal loans, you may be eligible for a payment plan that allows you to submit information on your income and family size and then reduce monthly payments to amounts that are affordable. Sometimes you don’t have to make any payments at all. Not everyone knows that these programs exist. Savvy lawyers with big loans often do, but plenty of destitute people do not. And, the consumer bureau argues, Navient didn’t do a good enough job of explaining to borrowers that they might be eligible. So all borrowers ought to educate themselves on the topic, just in case. And parents may want to check in with their college seniors and recent graduates, too. The Education Department’s repayment estimator tool can tell you whether you’re eligible. Elsewhere on the department’s website is a list of all the income-driven plans and some frequently asked questions.

You’ll need your loan servicer’s cooperation to enroll in an income-driven plan, and you may have questions for that servicer before you start. Don’t call. Instead, send your questions through your servicer’s messaging system. This gives you a paper trail. Servicers often evaluate call center employees by how quickly they can get borrowers off the phone. When customers send messages, however, they often get standardized responses that are accurate because someone senior has vetted them.

Stay enrolled – signing up for an income-driven plan isn’t enough. You have to requalify each year with updated financial information, and the consumer bureau accused Navient of not properly informing borrowers of this fact or of the deadlines. As a result, many borrowers saw their payments jump, leading to budget chaos and a cascade of late payments and additional interest. Don’t count on your servicer to inform you in large capital letters that this deadline will come every year. And don’t count on yourself to remember, either. Put it on your calendar for the month before your deadline and the week before your deadline, and on your spouse’s calendar, too, if you’re married.

No forbearance. If you run into trouble repaying your loan and you call your servicer to beg for help, it may offer you something called forbearance, which allows you to reduce or eliminate payments for a period of time. The interest, however, keeps adding up. The consumer agency charged Navient with steering borrowers into forbearance when they may have had other, better options, including income-driven repayment plans. Why would it do that? Experts believe that it may have something to do with how lenders pay servicers and whether the right incentives are in place to give the very best advice. The bureau, which also nodded to that possibility in its complaint — and noted how much more time it can take to service borrowers who need hand-holding for income-driven repayment plans — believes that Navient may have cost consumers up to $4 billion in interest after putting people in multiple consecutive forbearances.

In a statement on its website, Navient said that it collects 60 percent less in compensation for borrowers it services who are in forbearance. It also disputed many other aspects of the bureau’s complaint. If you have a private loan, your servicer probably doesn’t have any income-driven plans. But there still may be other options short of forbearance, like extending the term of a loan to lower payments.

Dropping a co-signer. Perhaps you had an older, more creditworthy relative co-sign your loan to qualify for a lower interest rate. And maybe you’re earning more as you get older, so you want to release that person from the legal obligation of repaying the loan if you can’t do it yourself. Servicers will often allow this if you make on-time payments for a certain number of consecutive months. But, according to the consumer agency, Navient punished borrowers who had prepaid their loans and then skipped payments in subsequent months (with the company’s permission) by resetting the clock to zero on their consecutive monthly payment count.  College Access & Success.

This gets to a larger, pervasive challenge that exists across lending land: How can you be sure that a bank or a servicer is crediting your payments exactly as you intend? Experts suggest using the servicer’s own online interface, preferably with auto-debit if you’re sure you won’t bounce payments for lack of bank funds. That way, you can set things as you wish, check that it’s working for a few months and not have to write checks or push buttons in later months. You may get an interest rate discount for using auto-debit, too.

Don’t use your bank’s bill pay system since the servicer may ignore any instructions you write on the check or in an attached memo. And if you just send a check through the mail yourself with nothing else in the envelope, beware. He said that in some big processing facilities, envelopes end up on conveyors that weigh them. If they sense there is nothing inside but a check, the envelope may undergo automatic processing where your instructions will be, you guessed it, ignored.

Check your credit. You can get a free copy of your credit report each year from the three major credit bureaus. One way to check up on your servicer is to grab a report every four months and then look for any late payments or other signs that things are amiss. The consumer bureau also accused Navient of potentially tarnishing the credit of disabled veterans and others who had received legal discharges of their loans.