Student Loan Servicer Steered Some Borrowers To Higher-Cost Plans, Government Says

One of the companies that handles federal student loans has been steering some borrowers toward repayment plans that cost them more money over time.

That's the finding of a report that the Department of Education's Office of Federal Student Aid did on Navient, one of its loan servicers. But while FSA offered suggestions for improving some of Navient's practices, it says the company didn't necessarily do anything wrong.

The report had not been released publicly. So Sen. Elizabeth Warren of Massachusetts did, providing it to The Associated Press and posting it online Tuesday.

The report is dated May 2017. A team from Federal Student Aid listened to 2,388 calls shorter than 5 minutes between student loan borrowers and Navient, a publicly traded company. It found that in nearly 10 percent of calls, Navient's customer service representatives offered borrowers only the option of "forbearance," which allows them to put off making any payments for a certain period of time.

But during forbearance, interest keeps growing — adding significant expense for the borrower. As The Associated Press reports: "A 2017 study by the Government Accountability Office estimates that a typical borrower of a $30,000 student loan who places their loan into forbearance for three years — the maximum allowed for economic-hardship forbearance — would pay an additional $6,742 in interest on that loan."

Some borrowers were offered forbearance even when they said they could make a payment within a time frame that wouldn't incur an additional cost. In other cases, the customer service reps didn't mention the option of switching to an available income-driven replacement plan.

The Consumer Financial Protection Bureau sued Navient last year, partly for these reasons. Five states — Illinois, Pennsylvania, Washington, California and Mississippi – also are suing Navient. Three of those states had heard there was an audit but none of them had seen it, according to the AP.

"Navient told the public that there was no merit to the CFPB's lawsuit even after it received an Education Department audit that bolstered the allegations and found the company was not adequately servicing student borrowers," Warren said in a statement. "Navient needs to explain the appalling findings of this audit and why the company denied that it existed."

The Democratic senator also released a letter she sent last week to Navient CEO Jack Remondi in which she asks him to explain the audit's findings.

The government uses companies like Navient to manage the federal student loans because, as NPR's Cory Turner has explained:

"Today, the U.S. Department of Education is, essentially, a trillion-dollar bank, serving more than 40 million student borrowers. While the government writes these student loans, it simply cannot run the call centers or handle the paperwork for so many borrowers. It needs help. So it pays companies — the department has contracts with nine of them — to handle customer service. These servicers, as they're known, are glorified record-keepers and debt collectors. But they're also powerful gatekeepers."

In the report, the government offers some guidance to Navient on how it could be more helpful to borrowers, including:

• "FSA recommends that Navient ask questions so the borrower is able to determine which option (like promise to pay) would be most beneficial to resolve the delinquency. If the borrower is willing and able to make a payment to resolve the delinquency on the account, and can continue to make payments, FSA does not believe a borrower should use unnecessary forbearance time that will result in interest capitalization."
• "FSA recommends that Navient provide borrowers with all options available so that the borrower may make an informed decision based on their current situation. The use of forbearance in lieu of any other options can cause more undue hardship to the borrower in the long term."

Navient says in the report that it believes its representatives acted appropriately in most cases. "Nor are we aware of any requirement that borrowers receive all of their repayment options — [income-driven repayment], deferment and forbearance — on each and every call," the company said.

In a statement to NPR, the Department of Education spokesperson Liz Hill said the report was not an audit, and that it was done in order to give FSA leaders more information about Navient's practices, given the CFPB's lawsuit against the company.

The report, she said, "documented that FSA reviewed well over 2,000 borrower calls and that, in approximately 9% of those calls, it was not clear whether Navient had sufficiently discussed options with the borrower. In response to FSA's preliminary conclusions, Navient provided detailed information about each of the calls at issue. Based on FSA's review of Navient's responses and FSA's independent review of Navient's overall performance, FSA has concluded that Navient is substantially in compliance with its obligations."

"Program data indicated that Navient's overall use of forbearance was consistent with that of other servicers, while the duration of forbearances for Navient borrowers was actually among the lowest of the Department's nine servicers," Hill said.

She noted that servicers receive $2.85 per month for borrowers who are current on their loans, but only $1.05 per month for a borrower in forbearance.

"We believe this alone provides a significant incentive for servicers to counsel borrowers appropriately regarding the use of forbearance," Hill said.

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