State Of California Suing Navient Over Loan Servicing Practices

California’s attorney general is suing Navient Corp., the nation’s largest student loan processor, over the company’s failure to properly service customer’s debts. According to the state, the company deliberately put obstacles in the way of borrowers successfully repaying their loans. Xavier Becerra, California’s attorney general, said in a statement, “Navient’s loan servicing abuses have compounded the misery of parents and students who sacrificed to pay for college.”

Navient is being accused of several violations of California law. The company allegedly steered borrowers towards forbearance instead of an income-driven repayment plan, which would have been the better option for the borrowers. The company is also accused of applying overpayments to interest and fees instead of to the loan principal, despite telling borrowers they would apply the excess payment to principal.

Additional accusations include claims that Navient didn’t discharge the loans of borrowers who were eligible to have the debt wiped away due to a total and permanent disability. The company also misrepresented the amount borrowers had to pay to become current on their loans. Two of Navient’s subsidiaries, Pioneer and General Revenue Corporation, have also been sued. Both subsidiaries worked as debt collectors on behalf of the federal government.

In a statement, Navient’s chief executive Jack Remondi called the allegations “unfounded,” and said that the company plans to “vigorously defend itself.” He said, “The lawsuit is another attempt to blame a single servicer for the failures of the higher education system and the federal student loan program to deliver desired outcomes.”

Many states and consumer advocates are locked in a battle with Betsy DeVos’s Department of Education over holding for-profit colleges accountable for misleading borrowers. A handful of states have recently enacted laws requiring student-loan servicers to follow certain consumer protection rules in their states. The Consumer Financial Protection Bureau as well as the states of Illinois, Washington and Pennsylvania have all sued Navient over its business practices.