Warren to DeVos: Drop Navient's Contract

Massachusetts Democrat puts loan-servicing giant in the crosshairs. But removing Navient from federal student loan program would be difficult, observers say.

October 17, 2019
 
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Senator Elizabeth Warren

In a sign of growing scrutiny of student loan companies, Senator Elizabeth Warren is urging the Trump administration to end its contract with Navient, one of the biggest contractors that collects payments on federal student loans.

Navient has a “more-than-decade-long history” of allegations of abusive consumer practices, wrote the candidate for the Democratic presidential nomination in an October 11 letter to Education Secretary Betsy DeVos. Signing the letter with Warren was Senator Richard Blumenthal, the Connecticut Democrat.

The two lawmakers also addressed the letter to Mark A. Brown, the chief operating officer of the Office of Federal Student Aid.

The company’s portfolio includes nearly 20 percent of all outstanding federal student loan debt. Its contract to manage those loans expires in December.

“As you consider these extensions, we urge you not to reward Navient’s blatant disregard for borrowers, taxpayers and the law,” Warren and Blumenthal wrote.

However, dropping the company from the loan program wouldn’t be likely or straightforward, experts said, in no small part because of the challenge of reassigning those loan accounts to other contractors.

Company officials said the Democrats’ letter gets Navient's track record wrong.

“Navient supports the investment students make in college by helping them navigate an overly complex federal program created by Congress. And despite a maze of obstacles for borrowers, we have led the way with increased enrollment in affordable payment plans and helped millions of Americans pay off their loans,” said Nikki Lavoie, a spokeswoman for the company. “Ignoring these facts, this letter repeats misinformation and unfounded allegations.”

For some elected officials and consumer advocates, Navient has become a poster child for what they see as failings by loan servicers. That’s in part because of a 2017 lawsuit filed by the Consumer Financial Protection Bureau, which alleged the loan servicer had systematically steered borrowers into forbearance rather than providing more time-consuming advice on options to enroll in income-driven repayment plans. A judge’s decision in another recent case brought against four borrowers over alleged mishandling of Public Service Loan Forgiveness applications largely went in Navient’s favor.

The CFPB lawsuit provides evidence, Warren and Blumenthal wrote, of the "company’s incorrigible behavior and leaves the department with no excuse for continuing to contract with Navient to serve millions of student loan borrowers."

Warren in particular has had no qualms about pursuing inquiries into corporate behavior, including the business dealings of colleges, their marketing partners and for-profit education operators. And she’s repeatedly questioned Navient’s practices when it comes to options like forbearance for student borrowers.

Persis Yu, a staff attorney at the National Consumer Law Center, said the Democrats made a compelling case against keeping Navient as a federal contractor.

“For too long, the Department of Education has failed to hold servicers accountable,” she said.

Even worse, Yu said, the Trump administration has argued that loan servicers aren’t accountable to state regulators or federal agencies like the CFPB.

Jason Delisle, a resident fellow at the American Enterprise Institute, said the CFPB lawsuit has yet to be decided. And he argued the Warren letter amounts to political interference in federal contracting.

“Wouldn't it be fair to let the judicial process play out here?” he said. “The nature of the request seems to violate a lot of principles of fairness and good government.”

Delisle has argued that criticism of individual loan servicers often misses larger problems with the student loan system. The case being made against Navient could be assembled against a number of contractors who manage federal student loan accounts, he said.

A March report from the Department of Education’s inspector general found Navient had the best performance of servicers on handling of borrower calls. PHEAA, which handles most borrowers seeking Public Service Loan Forgiveness benefits, had the highest rate of call failures monitored by the inspector general.

Colleen Campbell, director of postsecondary education at the Center for American Progress, said the share of new borrower accounts assigned to large servicers like Navient and PHEAA has declined in recent years because of scores on new performance metrics.

But the company hasn’t lost servicer accounts, she said. And it’s not clear that other contractors have the capacity to take on the roughly 6.5 million borrowers managed by Navient, Campbell said.

“Where are you going to put those 6.5 million people?” she said. “It doesn’t really make sense to take Navient’s portfolio and dump it all on another servicer.”

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