one of the largest student loan companies in the country, plans to stop managing government-owned student loans, the the company said Tuesday.
Jack Remondi, Managing Director of the company, sworn a “smooth transition for borrowers and employees”.
But the announcement comes just months before student loan payments and collections resume in February and marks the fourth time a duty officer has announced they will be quitting their federal student loan contract in the past year. , complicating the arduous operational task before the Department of Education and student loan companies reactivate the entire system for the first time.
“The transition to repayment seemed impossible,” even before Navient’s announcement, said Persis Yu, director of the Student Loan Borrower Assistance Project at the National Consumer Law Center. “I don’t realistically know how the system is preparing for all of these changes that are going to happen simultaneously. ”
The announcement comes after years of scrutiny
Navient’s decision to stop handling government-owned student loans comes after years of criticism pointing to student loan services – and Navient in particular – as a source of the growing student loan problem in the country. While the challenges borrowers face in repaying their student loans have many causes, including rising tuition fees, consumer advocates and some lawmakers have said that services like Navient have exacerbated these challenges by obstructing loans. borrowers who receive the assistance to which they are entitled.
Navient has been the subject of lawsuits by the Consumer Financial Protection Bureau and several state attorneys general accusing the company of directing borrowers to unnecessarily expensive repayment programs, among other allegations. Navient a called these claims “False and obviously so”.
For Seth Frotman, who was the student loans ombudsman at CFPB when the bureau filed his complaint against Navient, the fact that fewer borrowers are exposed to Navient’s conduct through the company’s exit is a “good thing.” news”.
“It’s important to remember Navient’s dismal track record, which is just littered with accounts of borrower scammers,” said Frotman, who is now executive director of the Student Borrower Protection Center, an advocacy group.
Nonetheless, he said, the company must be held accountable, even if it terminates its contract.
There are indications that the Biden-era Education Department will take a tough approach on student loan companies. Richard Cordray, chief operating officer of the department’s Federal Student Aid Office, said in a speech Earlier this month, officials made it clear to service providers during recent contract negotiations that “performance and accountability measures are key goals” for the agency.
What Navient and other service providers, “watched this new reality in which laws are going to be enforced and borrowers are going to be protected, took their shot and went home shows you how bad it has been over the course of time. years and decades, ”Frotman mentioned.
Maintenance workers say contract economics made the business difficult
Closer scrutiny of student loan companies – including at the state level – combined with the tough economics of the student loan department may be a big part of why so many providers are breaking their contracts, said Scott Buchanan, director. Executive of Student Loan Servicing. Alliance, a commercial group.
He said the government “really needs to carefully consider” whether it “is paying enough to get the level of customer service these borrowers deserve.” That, combined with criticism of issues that he says relate more to the complicated laws surrounding the student loan program than to the conduct of service officers, creates “a really tough environment” for service officers.
Two-thirds of large companies that handle student loans have left the student loan market, and that “says a lot” about “how incredibly broken it is,” Yu said. But she noted that unlike loan providers. services, borrowers do not have the option of leaving it behind.
Concerns about the proposed replacement of Navient
Yu said she was also troubled that Navient was able to essentially pick her own replacement. The company has announced that it plans to transfer its service contract and much of the staff of the Department of Education’s service team from Navient to Maximus. Maximus is already working with the Ministry of Education to manage the service to defaulting borrowers.
The company is currently facing a trial Yu’s organization alleging that the company continued to seize the salaries and tax refunds of scammed students who had submitted requests to write off their federal debt. Maximus did not immediately respond to a request for comment on the costume.
Given the size of Navient’s portfolio – as of March 2021, it was handling billions of dollars in loans for 6 million borrowers – and the uproar in the student loan system, there are likely few options available. to take over the company’s contract.
“Our student loan system is too big to fail,” Yu said. “What option does the FSA have other than agreeing? “
The proposed agreement between Navient and Maximus is subject to the approval of the Federal Office for Student Aid. In a statement, Cordray said the bureau has been monitoring negotiations between Navient and Maximus for “some time.”
“The FSA is reviewing documents and other information from Navient and Maximus to ensure that the proposal meets all legal requirements and properly protects borrowers and taxpayers,” Cordray said in the statement. “We remain committed to ensuring that our federal student loan servicing agreements provide more accountability, meaningful performance measures and better service to borrowers. ”
For advocates like Yu, the exit from services and the precarious position of borrowers in these upheavals signal that it is time to make a fresh start for the student loan system.
“It really shows why we need to remove the student loan portfolio, we need blanket debt cancellation,” Yu said.