20 Mar The power and reach of the student loan industry stacks the odds against borrowers
He pays for all of our utilities, all of our bills. Because at the end of the day, I don’t have anything else to give him, she said. The shadow of her debt hangs over every discussion about their wedding, mortgage payments, and becoming parents.
Navient doesn’t just service federal loans, it has a hand in nearly every aspect of the student loan system. It has bought up private student loans, both servicing them and earning interest off of them. The company also owns controversial subsidiary companies such as Pioneer Credit Recovery that stand to profit from collecting the debt of loans that go into default.
And just as banks have done with mortgages, Navient packages many of the private and pre-2010 federal loans and sells them on Wall Street as asset-backed securities. Meanwhile, it’s in the running to oversee the Department of Education’s entire student debt web portal, which would open even more avenues for the company to profit from and expand its influence over Americans’ access to higher education.
The federal government is the biggest lender of American student loans, meaning that taxpayers are currently on the hook for more than $1tn. Then in 2010, Congress cut out the middlemen and their lending fees, and Sallie Mae spun off its servicing arm into the publicly traded company Navient.
Led by former Sallie Mae executives, Navient describes itself as a leading provider of asset management and business processing solutions for education, healthcare, and government clients. But it is best known for being among a handful of companies that have won coveted federal contracts to make sure students repay their loans. And critics say that in pursuit of getting that money back, the Department of Education has allowed these companies to all but run free at the expense of borrowers.
For years, much of this money was managed by private banks and loan companies like Sallie Mae
The problem is that these servicers are too big to fail, said Persis Yu, director of the National Consumer Law Center’s Student Loan Borrower Assistance Project. We have no place to put the millions of borrowers whom they are servicing, even if they are not doing the servicing job that we want them to do.
And it has purchased billions of dollars worth of the older taxpayer-backed loans, again earning interest, as well as servicing that debt
In its last years, the Obama administration tried to rein in the student loan industry and promoted more options for reduced repayment plans for federal loans. Since then, Donald Trump’s education secretary, Betsy DeVos, has reversed or put on hold changes the former education secretary John B King’s office proposed and appears bent on further loosening the reins on the student loan industry, leaving individual students little recourse amid bad service.
In late August, DeVos’s office announced that it would stop sharing information about student loan servicer oversight with the federal consumer watchdog agency known as the Consumer Financial Protection Bureau, or CFPB.
Earlier this year, as complaints grew, the CFPB sued Navient for allegedly misleading borrowers about the repayment options it is legally obligated to provide.
A central allegation is that Navient, rather than offering income-based repayment plans, pushed some people into a temporary payment freeze called forbearance. Getting placed into forbearance is a good Band-Aid but can be a terrible longer-term plan. When an account gets placed in forbearance, its interest keeps accumulating, and that interest can be added to the principal, meaning the loans only grow.
Lynn Sabulski, who worked in Navient’s Wilkes-Barre, Pennsylvania, call center for five months starting in 2012, said she experienced first-hand the pressure to drive borrowers into forbearance.
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