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Fair Game

At Student Loan Giant Navient, Troubled Past Was Prologue

Deception. Cheating. Shortcuts.

Such are the ugly allegations lodged against Navient, the nation’s student loan servicing behemoth, by the Consumer Financial Protection Bureau on Wednesday. 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.

Armed with the financial protection bureau’s troubling report, I asked the Education Department if it was reconsidering its contract with Navient. Avoiding the question, a spokeswoman provided a statement saying the department would continue to administer its contracts “to ensure the interests of the government and of student borrowers are protected.”

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.” According to 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.

A correction was made on 
Jan. 29, 2017

The Fair Game column last Sunday, about the student loan servicing giant Navient, misstated part of the name of the agency that lodged a complaint against the company. It is the Consumer Financial Protection Bureau (not Finance).

How we handle corrections

Twitter: @gmorgenson

A version of this article appears in print on  , Section BU, Page 1 of the New York edition with the headline: Troubled Past as Prologue on Lending. Order Reprints | Today’s Paper | Subscribe

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