January 18, 2017; New York Times, “DealBook”

In lawsuits filed Wednesday, the largest servicer of student loans in the U.S., Navient, has been charged with misleading borrowers. The attorneys general of the states of Illinois and Washington joined with a federal regulator, the Consumer Financial Protection Bureau (CFPB), in the last moments of the Obama administration to sue the company that holds one in four of the country’s student loans. The timing of the lawsuit was a nod to an insecure time for the Bureau, as a new administration takes office. The bureau’s wide-ranging authority and lack of Congressional accountability have made it a target for Republicans. A federal appeals court ruled in October that it is unconstitutional for the CFPB’s director to be independent of the president.

The lawsuits state that Navient hid significant facts in fine print and made it difficult for cosigners to be released from the loans. They are also charged with mishandling payments and leading borrowers away from cheaper income-based repayment plans. customer service representatives were compensated and rewarded for leading customers to more expensive payment plans through a complicated enrollment program, the complaint reports.

Navient does not originate the student loans. Instead, it administers them through contracts that permit the organization to collect payments for other lenders. The consumer has no say in this process; generally, a letter shows up informing the borrower that there is a new name and address for payments as contracts move from one administrator to another. The lawsuits state that Navient increased the repayment costs, possibly affecting every one of their 12 million customers.

The roadblocks that Navient is charged with placing on cosigners have repercussions. An NPR interview with CFPB’s Seth Frotman observed that a growing number of older Americans are paying back student loans, either for themselves or as cosigners for younger students. The number of student loans for those over 60 has quadrupled since 2005. For those 2.8 million Americans who have outstanding student loan debt, Social Security benefits can be garnished if they are in default. Individuals over 60 are more likely to be in nonpayment than any other age group.

Frotman added:

One of the challenges that the bureau sees across the student loan market is despite the availability of federal consumer protections that allow student loan borrowers to pay an amount that is in line with what they can afford, what we see is the most vulnerable borrowers—and that definitely includes older borrowers who are struggling under the weight of student loan debt—reaching out to their student loan company and continuously getting bad information, no information despite the fact that they should be able to get into these affordable repayment plans.

Another charge in the lawsuit accuses Navient of ruining the credit reports of disabled veterans. Federal student loans can be discharged for those that receive a “total and permanent” disability. The organization listed some of those loans as “defaulted” rather than “discharged.” Disabled soldiers were among those left with damaged credit reports that could have an effect on future loans or mortgages.—Marian Conway