Navient Corp., a major U.S. Department of Education student loan contractor, is “misleading” borrowers and “doing some really terrible things,” Democratic presidential candidate Hillary Clinton said Saturday.
Numerous government agencies have been investigating the nation's largest student loan specialist over several years for allegedly overcharging borrowers and mistreating them in violation of the law.
The Consumer Financial Protection Bureau in August told Navient, which collects borrowers' monthly payments and counsels them on their repayment options, that it had amassed enough evidence to indicate the company violated consumer protection laws, and it might sue the company in court.
New York state’s banking regulator and a group of state attorneys general are among the authorities probing Navient's interactions with borrowers, such as its practice of threatening to seize assets from borrowers in good standing simply because a co-signer of their loan had died.
The Justice Department in 2014 accused Navient of intentionally cheating tens of thousands of active-duty military members out of $60 million in a nearly decade-long scheme to deny them their right to lower monthly payments under the Servicemembers Civil Relief Act. Navient's alleged actions, which it later settled by agreeing to refund aggrieved troops, occurred while service members were fighting wars in Iraq and Afghanistan.
Navient in 2014 also agreed to pay tens of millions of dollars to settle federal allegations that it processed payments in a way designed to maximize late fees while at the same time it misled borrowers about how they could avoid late fees.
Navient’s "behavior is outrageous," Clinton said, according to news reports. She added that she was "totally appalled" by the company.
Clinton's comments suggest she'd target misbehaving student loan companies if elected president, adding to industry executives' worries that they'll have to spend more on customer service as a result of likely new federal rules and expected enforcement actions against companies that abuse borrowers.
Her comments come as student loan borrowers struggle to repay their debt and government policymakers worry that borrowers' increasing debt loads and shoddy practices by companies such as Navient risk holding back the economy.
They also come amid widespread criticism of the Education Department and its cozy relationship with its loan contractors, which it pays roughly $800 million annually to handle borrowers' payments and help them avoid the debilitating consequences of default.
Americans are more likely to be late on their student loan payments than on any other type of household debt, Federal Reserve Bank of New York data show.
Total student debt has doubled under the Obama administration to more than $1.3 trillion, according to the Federal Reserve. About 42 million Americans, or 1 in 8, have student debt.
Last year, the Government Accountability Office, Congress's watchdog, said that millions of student loan borrowers are more likely to default on their federal debt because the Education Department refuses to tell them they’re eligible to make lower monthly payments under repayment plans touted by the White House.
Though more than 90 percent of all student loans are either owned or guaranteed by the Education Department, rising debt burdens and levels of distress have led regulators at the federal consumer bureau to consider new rules governing student loans and basic minimum standards for how companies can treat borrowers.
Meanwhile, the department in 2014 renewed Navient's lucrative contract to collect payments on federal student loans -- and gave the company a raise -- just months after the Justice Department said it had evidence the company illegally overcharged troops on Education Department-owned loans.
A troubled Education Department review subsequently cleared Navient of wrongdoing, prompting Senate Democrats such as Elizabeth Warren of Massachusetts to demand an investigation by department Inspector General Kathleen Tighe.
Last month, Warren said the Education Department's handling of Navient in the aftermath of the Justice Department's accusations was among several recent examples where "federal regulators regularly let big corporations and their highly paid executives off the hook when they break the law."
Education Secretary John King Jr. is expected to make an enforcement-related announcement on Monday.
Jesse Ferguson, a spokesman for Clinton's campaign, didn't respond to requests for comment. Patricia Christel, a Navient spokeswoman, also didn't respond to a request for comment, though she reportedly invited Clinton to tour one of the company's facilities.
Navient executives generally have denied wrongdoing, but in 2014 the company's chief executive, Jack Remondi, apologized for how Navient treated troops. Last year, the company said in a securities filing that it "continues to believe that its acts and practices relating to student loans are lawful and meet industry standards."
Clinton's critical comments of companies have sometimes hurt their stock prices. Navient shares have plummeted more than 55 percent over the past year. Investors now value the company below what it would fetch if it were liquidated, suggesting that they either don't trust the reported value of the company's assets or reckon the company is understating its liabilities.