Madigan Sues Sallie Mae, Navient for Alleged ‘Student Loan Abuses'

Illinois Attorney General Lisa Madigan on Wednesday filed a lawsuit against the nation's largest student loan company over allegations that the company “repeatedly” cheated borrowers, sending students into billions of dollars in debt.

The lawsuit, which alleges “rampant student loan abuses,” names Navient Corporation, its subsidiaries Navient Solutions Inc., Pioneer Credit Recovery Inc. and General Revenue Corporation, along with its lending predecessor Sallie Mae Bank.

“My investigation found Sallie Mae put student borrowers into expensive subprime loans that it knew were going to fail,” Madigan said in a statement. “Navient’s actions have led to student borrowers needlessly carrying billions of dollars in debt and the company must be held accountable.”

Sallie Mae separated Navient -- its loan management, servicing and asset recovery business -- from its consumer banking business in 2014, making Navient an independent company.

Madigan claims that over decades, Navient grew its student loan company into one of the country’s largest by “engaging in practices that repeatedly harmed borrowers.”

The lawsuit alleges Sallie Mae peddled “risky and expensive designed to fail subprime loans to student loan borrowers across the country,” with high interest rates and fees “mostly given to students at the worst schools.” It claims Sallie Mae increased such lending while disregarding evidence the loans would default at “extraordinarily high rates.”

“Sallie Mae’s conduct was similar to what Madigan saw years ago when she investigated our country's largest subprime mortgage lenders for their role in the mortgage crisis,” the Attorney General’s office said in a statement.

The suit says struggling borrowers in Illinois and across the country reported Navient failed to assist them when they called for help, ultimately increasing the overall cost of their loan instead of informing them of federal income-based repayment options.

Once loans were in default, Madigan alleges Navient and its subsidiary debt collection companies “misled” borrowers about their options to get their federal loans current through the federal student loan rehabilitation program and also misrepresented the eligibility requirements for borrowers to have their debt forgiven entirely.

Navient called the lawsuit "politically driven" and said its claims were "unfounded."

"Navient welcomes clear and well-designed guidelines that all parties can follow, and we had hoped our extensive engagement with the regulators would achieve this objective," the company said in a statement. "Instead, the suits improperly seek to impose penalties on Navient based on new servicing standards applied retroactively and applied only against one servicer. The regulator-asserted standards are inconsistent with Department of Education regulations, and will harm student loan borrowers, including through higher defaults."

The suit is asking a court to “provide restitution to all borrowers affected by Navient’s unlawful practices, disgorge unlawfully gained profits, impose civil penalties, and rescind or reform all contracts or loan agreements between Navient and any Illinois consumers affected by the company’s unlawful practices.”

"Navient has a responsibility to its customers, shareholders, and employees to defend itself—publicly and in court—against this unsubstantiated, unjustified and politically driven action," Navient's statement read. "We cannot and will not accept agenda-driven ultimatums designed to get headlines rather than help for student borrowers. We will vigorously defend against these false allegations and continue to help our customers achieve financial success."

Sallie Mae said in a statement that Navient "has accepted responsibility for all costs, expenses, losses and remediation arising from this matter."

The U.S. Consumer Financial Protection Bureau filed a separate lawsuit Wednesday, alleging Navient made it harder to repay loans by giving bad information, processing payments incorrectly and failing to address complaints.

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