Judge Says Navient Misled Student Loan Borrowers—What This Means For Your Student Loans

t, the nation’s largest student loan servicer, just got some bad news.

Here’s what you need to know — and what it means for your student loans.

Student Loans

According to a Washington state judge, Navient — which manages $300 billion of private and federal student loans for 12 million student loan borrowers — deceived borrowers and their cosigners who sought to be released from their student loans. According to Washington Attorney General Bob Ferguson, the judge’s order issued yesterday says that:

  1. Deceptive Practices: Navient engaged in deceptive practices regarding its cosigner release policy;
  2. Consumer Protection: Navient violated the Consumer Protection Act;
  3. Cosigners: Navient promoted co-signer release for private student loans, but misrepresented the way Navient implemented the program; and
  4. Cosigner Release: Navient didn’t disclose that it’s difficult to get a cosigner release.

This is the first time that a judge ruled that Navient violated a consumer protection law since a state attorney general or consumer protection agency sued Navient. For context, a cosigner is a family member, spouse or other individual who assumes equal financial responsibility for your student loans when you have a limited credit history or bad credit. Often, the cosigner has strong credit and income, which can not only help you get approved for student loans, but also can help you get a lower interest rate. The goal of a cosigner release is for you to demonstrate enough financial responsibility through student loan repayment that your student loan servicer will release your cosigner from any further financial responsibility. Once you make multiple, on-time, consecutive student loan payments (typically for 12 to 48 months), your student loan servicer can release your cosigner. However, Ferguson says this didn’t necessarily happen, particularly for student loan borrowers who paid their student loans in advance. For example, Ferguson alleges that:

  • Even if you made on-time, consecutive student loan payments with Navient, you may not have gotten a cosigner release.
  • Let’s assume your monthly student loan payment is $100.
  • If you make a one-time, lump-sum payment of $500, the next four months would show a $0 student loan bill.
  • Let’s then assume you didn’t make any student loan payments during the next four months.
  • Even though you didn’t owe any student loan payments during months two through five, Navient didn’t count that lump-sum payment from month one as five monthly payments of $100.
  • As a result, even though your student loan account was current and paid in advance, Navient said your failure to pay each month (even with a $0 balance) would not count as consecutive monthly payments toward a cosigner release.

Ferguson’s point is that Navient didn’t disclose to student loan borrowers that failing to make a payment every month — even if you paid student loans in advance — would disqualify you from meeting the requirement to make consecutive payments and you would have to start over before you could be eligible for a cosigner release. Navient, which spun off from Sallie Mae, has since changed this policy and now counts a lump-sum student loan payment as sufficient for multiple student loan payments.

The lawsuit against Navient, which dates to 2017, isn’t over. Ferguson also alleges that Navient engaged in deceptive practices in servicing and collecting student loans as well originating risky subprime student loans to borrowers who attended for-profit colleges. Ferguson alleges that Navient misapplied student loan payments and improperly directed distressed student loan borrowers into student loan forbearance instead of income-driven repayment plans, the latter of which would have been more favorable to borrowers.

“We believe our disclosure was clear and fairly applied under Washington state law,” Paul Hartwick, a Navient spokesman, told Marketwatch. “Navient’s focus has been, and continues to be, assisting student loan borrowers to successfully repay their loans.”

What This Means For Your Student Loans

Washington State’s lawsuit against Navient is scheduled for trial in April 2022. While this order grants partial summary judgment, there are no monetary judgments at this juncture. This lawsuit should be a good reminder to check your student loans, understand your student loan payment options, and double check that your student loan payments have been applied correctly. If you have questions about your student loans, your student loan servicer typically is a good resource. In addition to managing your student loan payments, your student loan servicer can answer questions about various student loan repayment options. This includes question about income-driven repayment, student loan forbearance and cosigner release. However, you should conduct independent research to make sure you’re fully informed about all your options. Why? Your student loan servicer may not have all the answers, or they may not have the optimal solution for your unique goals and circumstances. Multiple state attorneys general, as well as the Consumer Financial Protection Bureau (CFPB), have sued Navient based on similar allegations. If you have an issue with your student loan servicer, you can contact the CFPB — Office of Student Loan Ombudsman, the U.S. Department of Education / Federal Student Aid, the Federal Trade Commission (FTC), your state attorney general, or your state’s department of education.

As you navigate student loan repayment, here are some potential options to consider:

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