That old adage that “things are never as they seem” aptly describes the current situation with student loan servicers. As reported by the New York Post, servicers like Navient—the largest student-loan servicer in the U.S.— are only making the student debt crises even worse.
Here’s how the process goes for many borrowers:
- Get an undergraduate and/or professional degree with the aid of student loans;
- Get a job (but fail to make the salary you had hoped);
- Realize that repaying those loans may prove difficult; and
- Apply for a repayment program that lessens your monthly obligation.
The problem? Your student-loan servicer may not be looking out for you. Servicers know they are set to make far more money with certain types of income-driven repayment programs, which cost the borrower far more in the long term.
Lawsuit Against Navient
Last month, the Consumer Financial Protection Bureau (CFPB) filed a lawsuit against Navient alleging that the company failed to process incoming student loan payments correctly and encouraged borrowers to sign up for expensive repayment plans. Navient Chief Executive Jack Remondi denies those allegations, stating that the lawsuit “ignores the fact that we follow the servicing rules and regulations issued by the Department of Education, the owner of the majority of the loans we service.”
Some experts are comparing the student-loan crisis to that of the mortgage crisis in 2008, where incentives given to mortgage servicers only made matters worse. If that argument gains traction, we could see calls for legislation increasing borrower protection. As Rohit Chopra, a former CFPB assistant director put it, “we need to put the service back in student-loan servicing.”
For now, only one thing is for certain: borrowers should beware of repayment plans. Further, borrowers who find themselves in a less than ideal situation should do their due diligence and make sure any repayment program benefits them in both the short and long term.