Washington state is suing the nation's largest student loan company, joining the federal government and the state of Illinois in alleging unfair and deceptive practices with lending and debt collection.
Attorney General Bob Ferguson says Navient Corp., which was spun off from lending giant Sallie Mae, made subprime, predatory loans to students who were attending for-profit colleges with low graduation rates and scant prospects of ever being able to pay them back.
The company is also accused of steering financially strapped borrowers into short-term forbearances, which allowed them to stop paying temporarily, but with their interest continuing to accumulate and adding to the principal they owed.
And Ferguson says many borrowers in good standing complain their payments are routinely processed incorrectly and then they’re harassed by Navient’s collectors.
“Loan servicers are the entities charged with processing and receiving monthly payments on student loans. We are not going to allow private entities to pad their bottom lines on the backs of struggling students,” Ferguson said.
The lawsuit was filed in King County Superior Court following a joint investigation with the state of Illinois and the federal Consumer Financial Protection Bureau. Those agencies have also filed lawsuits.
“The issue of student loans — and the crushing debt that students have and graduates have in our state — is significant,” Ferguson said, adding that the unscrupulous practices coincide with debt levels that are spiraling upward.
“And it is compounded by entities like Navient, who do not play by the rules and make life exceedingly difficult for those borrowers to do the simplest of tasks,” said Ferguson.
The AG’s office is encouraging student loan borrowers who believe they have been subject to unfair or deceptive lending practices by Navient or Sallie Mae to file a complaint.
In statements, Navient officials called the allegations unfounded and politically motivated. Washington is asking for restitution on behalf of borrowers, as well as fines and in some cases, loan forgiveness.
At the same time, Ferguson announced legislation his agency is backing to create a student loan bill of rights for the state, modeled after similar laws in California and Washington, D.C. It would provide more resources for student borrowers and establish standards for servicers like Navient.
And the AG’s office has released a new Student Loan Survival Guide for anyone with questions about student loan servicers.