After Flood Of Complaints About High Rates, Penn. AG Sues Nation's Largest Student Loan Servicer

The nation’s largest student loan servicer systematically helped hike interest rates on borrowers and saddle them with crushing debts, according to a lawsuit filed by Pennsylvania Attorney General Josh Shapiro. The suit comes just as President Trump and Education Secretary Betsy DeVos have delayed new rules designed to protect student borrowers.

The case against Navient is a politically bold — and some might say risky — move for Shapiro, a first-term Democrat who has been considered a rising political star. The company is a corporate powerhouse that employs roughly 1,000 people in Pennsylvania. But in a podcast interview with International Business Times, Shapiro said he felt obligated to challenge the company in court after his office reviewed a flood of borrowers’ complaints to the Consumer Financial Protection Bureau.

Subscribers can click here to listen to the entire podcast interview.

“The allegations are completely unfounded and the case was filed without any review of Pennsylvania residents' customer accounts,” said Navient spokeswoman Patricia Christel in a statement emailed to IBT. “We comply with the rules that govern the student loan program as set by Congress and the U.S. Department of Education, and there are no allegations that we have violated these rules. Navient is a leader in helping student loan borrowers succeed; in fact, 49 percent of balances serviced by Navient for the government are enrolled in income-driven repayment plans and Navient-serviced borrowers are 37 percent less likely to default than those serviced by others. We will vigorously defend our record in court, and are confident we will prevail following an impartial review of the facts.”

During a wide-ranging discussion with IBT, Shapiro explained the details of his case against Navient, and argued that the company’s behavior harmed not only student borrowers, but the entire American economy. He also slammed the Trump administration for its attempts to neuter the CFPB, and he talked about how as a progressive Democrat he was able to win office in 2016 in Pennsylvania, the same year Trump won the state.

What follows is a lightly edited excerpt of the interview with Shapiro.

Your lawsuit is against one company, Navient — but that company is not just any company. It is the largest student loan servicer in the entire country. Why did you file this suit?

Navient had preferred status by many colleges. They were literally touching the lives of millions of college students and their families. In a nutshell, they did a number of things wrong…

Number one, they were charging people excessively high interest rates, and number two, these companies have a responsibility to work with the student, to work with their families, and put them in a proper repayment plan for them. By putting them in the wrong repayment plan, sometimes the effect is a student would have to pay off their loan for more years than they otherwise should have. Sometimes they were put into a repayment plan that spiked the interest rates. Sometimes they were put in a repayment plan that ended up costing them more in interest than principal.

There is one example, by putting folks who would have qualified for a different repayment plan, they put them into something that ultimately cost nearly $4 billion in interest charges to the principal balances of 1.5 million student borrowers who were in forbearance. That's $4 billion. Just to be clear, that doesn't mean that the students have paid the full $4 billion, but they were in the process of paying that. If they were forced to take these loans to the end, it would have totaled about $4 billion. That is absolutely abhorrent behavior, and it's behavior that we simply can't let stand. That's why we took this action of filing a lawsuit to try and hold Navient accountable.

You note in the complaint that Navient saw "extremely rapid growth in the riskiest category of subprime lending.” Do you think there is a parallel to what happened in the housing crisis with lending to subprime borrowers and offering high-interest mortgage rates?

I think that the parallel here is that both the housing crisis and what we're alleging Navient did wrong with their student loan business, it involved economics and ethics. Economics in that the company was trying to jack up the amount of money they could make, in this case on the back of students, and ethics, in that in both instances, ethical leadership would have steered them away from these kinds of predatory practices, steered them away from these kinds of widespread abuses.

I think the parallels also demonstrate that we need tougher regulations. Some of that we can do at the state level, here in Pennsylvania and other states. Some of that is going to have to come from Congress. What I have seen from this Congress and this president is that they seem to be walking away from regulation in this area, making it easier for these kinds of predatory practices to continue. That to me is very dangerous. It's dangerous for consumers, for students, for families. Before it was the housing crisis.

Now it's preying on student loan holders. Who knows what's next? We've got to get this right, and it's going to require more action in Washington, and action by attorneys general like me in the states.

Navient could argue that it has to charge less creditworthy borrowers a higher interest rate to make sure the lenders don’t lose money. What do you say to that?

[Navient] failed to put struggling borrowers into repayment plans that that borrower could afford. That is their requirement, Navient's, to put them in that proper repayment plan. When borrowers like you're describing have trouble repaying their student loans, they have a right to apply for income-driven repayment plans that would bring with it lower monthly premiums, lower monthly payments.

They're not allowed, because some student is struggling, and there's maybe more of a risk to Navient, to just jack up the interest rates, to extend the payment plans, to really take advantage of this person who is maybe lower income, has fallen on tough times, whatever the case may be. In fact, they have an ethical and legal responsibility to work with that student, to work with that family, to help them be in a position where they can in fact pay off their loan, but do it under terms that are responsible and reasonable.

These income-driven repayment plans spell that out. We believe Navient did not follow that. We believe Navient instead took advantage of this class of individuals.

You argue that Navient was moving struggling borrowers into forebearance, rather than income-driven repayment plans. Explain the difference between those two options.

In its basic terms, an income-driven repayment plan says, "You've fallen on tough times. Your income went down, whatever the case may be. We're going to proportionally adjust your repayment plan so that you can pay back your loan and also still be able to afford your mortgage, and food, and taking of your children, whatever the case may be."

Forbearance, where they were steering a lot of people toward, they say, "We're going to forgive your payment for now," but in exchange for that, what they really don't tell you but they are doing, they're jacking up the interest rates, and essentially extending the loan on the back end and dramatically increasing the cost of the loan for the student, for the individual. While at first glance, at first blush it might sound like, "Boy, we're doing them a favor by putting them into forbearance," you're actually just increasing the cost at the end of the day.

We believe Navient engaged in a scheme where they ultimately pushed people into this forbearance so that they could increase the ultimate payments and the money back in their pockets. We think that's wrong. That's why we sued them, not just on behalf of students and families in Pennsylvania but because they have a significant operation in my home state of Pennsylvania, in Wilkes-Barre, and these practices touched on students, families across the country, we believe we have an opportunity to recover for all Americans affected by this. That's something we take very seriously.

Do you believe Navient’s behavior affects more than just student borrowers?

For those people listening right now who say, "Boy, I don't have a loan, so it doesn't really apply to me. This doesn't affect me," the truth is, Navient's conduct affected all Pennsylvanians, affected all Americans, because what you've done is you've taken millions of people across our country, and made it harder for them to buy a home, made it harder for them to invest in their startup business, made it harder for them to go to the grocery store, go to the mall, and purchase goods and services and things in their area that they need.

That affects the economy for all of us. It affects communities for all of us. It stopped that really bright college graduate from starting a company in Denver, Colorado, and developing a new widget, or providing a new service. These are things that ultimately harmed all of us as Americans, held all of us back, because of the corporate malfeasance that we witnessed here from Navient.

Your office reviewed hundreds of complaints about these loans that were filed with the Consumer Financial Protection Bureau — an agency that Republican lawmakers have tried to defang. How much harder would it be to do your job if there was no CFPB?

The CFPB is a critical partner for us in protecting consumers around the country. I think if you ask any attorney general that, they would agree. Some of them may have more of a partisan bent, and so they might be a little bit less forthcoming with you, but make no mistake, every attorney general office around the country works with and depends on the data and assistance that comes from the CFPB. They are valued partners with us…

I've engaged with my colleagues, other attorneys general around the country, in trying to urge Congress to keep the CFPB in place and make sure that they have teeth…While we're lobbying to keep the CFPB in place because they're valuable partners, we're also taking more of this on our own shoulders in Pennsylvania so that we can protect our consumers, protect seniors, protect student loan holders, and others who are consistently impacted by these kinds of abuses and scams.

What I don't get, I'll just say this final point, what I don't get is, this president, the coalition that helped elect him, these are people who day in and day out are getting scammed, and getting screwed. They need government to look out for them, not look out for the special interests. Why they try and do away with the CFPB and make it easier for the special interests, and make it harder for average Pennsylvanians, is something to me that is absolutely unconscionable and just doesn't make sense.

Navient is a company that employs roughly 1,000 people in your own state. What's the company saying? Have you felt any political pushback from what you're doing?

My job is to apply the law without fear and without favor. My job is to hold people accountable who violate the interests and rights of Pennsylvanians or violate the law. My job is not to distinguish between who's doing that, whether they're connected or not, whether they're from my home state or not. My job is to protect the people of Pennsylvania, and I am the one constitutional officer in my state that has the ability and the responsibility to do that...

In terms of their response, yeah, I find it curious that their response in letters to the editor and stuff like that has been to attack me personally. That tells me a lot about an opponent, if you will, that if they start attacking you personally, it means they don't have the law on their side and they don't have the facts on their side. I'm a big boy. I can take that. I recognize that's part of the job. At the end of the day, I'll be judged based upon my ability to stand up for the people of Pennsylvania and deliver real results.

When it comes to this Navient lawsuit, my goal is really threefold. Number one, to get restitution, and debt forgiveness, and other things for people who have been impacted. Number two, monetary payments to deter future violations like this from Navient or others. Number three, most importantly, to change corporate behavior, to make sure that a big corporation like this can't continue to prey on students and their families in the way that they have.

You and President Trump have very different political views, but you both won Pennsylvania in the same election year. What do you think that means?

It's interesting. I got over three million votes. I was the highest vote-getter in Pennsylvania. Donald Trump, I think, was second to me. We figured this out. There were probably about 250,000 people that voted for him and voted for me. The question is, why?

I think what we've been able to deduce from this is there's anger out there. There's real frustration. They want people in government who are going to go to battle for them, to fight for them, who are going to stand up to the interests that have stopped progress. These are individuals who I find to be less ideologically centered and just more focused on trying to improve their communities, trying to improve their opportunities in life.

For as diverse and different as our state is, the truth is people basically want the same thing. They want safe communities, good schools, and economic opportunity for them and others. In this case, I think what I was able to do was go out and explain that. "I'm going to make your community safer by dealing with the heroin epidemic. I'm going to stand up to those people who are scamming you. I'm going to make sure that your kids have safe schools to go to." These are the things we talked about day in and day out. We took it from a hopeful, positive perspective.

Candidate Trump, on the other hand, tapped into that anger. He didn't do it in a hopeful, optimistic way, but what he did, and he did this unfortunately very successfully, he divided people and made folks in Pennsylvania and other states feel as though there were others to blame for their anger, for their frustration, by the way, very real anger and very real frustration. I'm not criticizing people that felt that way. By tapping into it in that angry way, he was able to get that message through.

Fast forward a year later, and you realize that all of these things he said and these commitments he made were really empty...he was able to manipulate the system through anger, through negativity, to be able to gather in three states 80,000 more votes than Hillary Clinton, but what he's done governing-wise has done nothing to help these individuals that he claims to want to help. These are people I see every day. These are people I work with every day who are desperate for help from Washington, and it's just simply not coming.