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Navient's predecessor, Sallie Mae, begins as a "government-sponsored enterprise" designed to support the guaranteed student loan program created by the Higher Education Act of 1965. Sallie Mae becomes the nation's largest handler of student loans.
Changes to the Bankruptcy Code prohibit the erasure, or "discharge," of nearly all federal student loans in bankruptcy during the first five years of repayment. Later amendments to the Code enlarged the scope of section 523(a)(8) until, as of 1994, it restricted discharge of all federal loans and conditional educational grants for a period of seven years unless the debtor could demonstrate undue hardship.
Sallie Mae, a government-created, government-backed entity that dominates the student loan market, announces that it will privatize within 14 years. Its privatization is complete by 2004.
One year after announcing it would become a private corporation, Sallie Mae begins a new practice of packaging student loans for sale to investors on the stock market. Its first securitization transaction is valued at $1 billion.
In order to be non-dischargeable, private loans must be "qualified education loans" used for "cost of attendance" at "eligible educational institutions."
In spite of a massive lobbying effort by Sallie Mae and commercial banks, the federal government passes legislation prohibiting fees to corporations that handle federal student loans.
"Once Sallie Mae borrows the money, initially paying .23% interest, it makes fixed-rate student loans at 25-40 times higher than that," writes Senator Elizabeth Warren in a letter to the head of the Federal Housing Finance Agency. "It was able to borrow at less than one-quarter of one percent interest because the govemment's sponsorship of the Federal Home Loan Banks allows them extraordinarily cheap access to capital. That government sponsorship, however, was intended to bolster the banks' support for the housing market—not to be a backdoor way to subsidize highly-profitable private student lenders."
The new company, Navient, services Sallie Mae's $300 billion worth of federal student loans, as well as a large portfolio of private student loans. Sallie Mae continues to function basically as a bank for college students and their families, offering private loans and other financial products.
Although Navient tells student borrowers that "student loans are generally not dischargeable in bankruptcy," the company warns its investors—who, if not warned, could sue the company for securities violations—that certain loans are in fact "generally dischargeable" in bankruptcy, and so could put investors at risk of a loss.
"We continue to receive reports from borrowers discovering that they are in default, when their co-signer, often a parent or grandparent, dies," reports the Consumer Finance Protection Agency. "Consumers describe their confusion when they receive notices to pay in full since they believed their loan to be in good standing and current. Consumers also submitted complaints describing how debt collectors threaten to place liens on property or other assets if the decedent’s family members or estate administrators do not immediately pay the loan in full. But, private student loan borrowers have submitted complaints describing debt collectors’ attempts to collect from a co-signer’s estate even after the estate has been closed and settled."
The US Department of Justice orders Navient and Sallie Mae to pay about $97 million in fines for using “unfair and deceptive practices” to charge active-duty service members unlawfully high interest rates.
The student lender "illegally overcharged the federal government for subsidies on government-guaranteed federal student loans," writes US Senator Elizabeth Warren in her letter, citing a 2009 report by the Office of the Inspector General of the Department of Education. "But these funds have still not been repaid."
Two years after it is publicly revealed that Navient borrows from a govt-sponsored bank at 0.28% and lends to students at rates 25-40 times higher, the company loses most of its line of credit from the Federal Home Loan Bank of Des Moines. Navient "was able to borrow at less than one-quarter of one percent interest because the govemment's sponsorship of the Federal Home Loan Banks allows them extraordinarily cheap access to capital," writes Senator Elizabeth Warren in a 2013 letter. "That government sponsorship, however, was intended to bolster the banks' support for the housing market, not to be a backdoor way to subsidize highly-profitable private student lenders." In a subsequent 2015 SEC filing, Navient states that its credit line from the bank had been "reduced from approximately $10.7 billion to...approximately $3.9 billion." Navient states that it "believes this change was made due to an internal policy change" at the bank.
Navient "systematically and illegally failed borrowers at every stage of repayment" and "illegally steer[ed] vulnerable borrowers toward options that may cost more," according to a statement by the Consumer Financial Protection Bureau. The CFPB suit also alleges that Navient harmed thousands of borrowers who were “totally and permanently disabled”—including veterans disabled during military service—“by making it appear as if those borrowers had defaulted on their student loans when they had not.”
Claiming that its role is to act “in the lender’s interest," Navient argues that "lenders do not owe borrowers any specific fiduciary duties." The company emphasizes that "there is no expectation that the servicer will ‘act in the interest of the consumer.’” This response seems to contradict Navient's PR claims about being "committed to providing expert guidance to our clients and customers on their journey to financial success."
“Navient’s actions have led to student borrowers needlessly carrying billions of dollars in debt and the company must be held accountable," said Illinois Attorney General Lisa Madigan, in a press statement.
"Navient made subprime loans as part of 'preferred lending' programs with schools in order to gain access to highly profitable federally-guaranteed loan volume and 'prime' private student loan borrowers," said Washington Attorney General Bob Ferguson, in a press release.
The sale includes about $3.7 billion in federal student loans and about $3.2 billion in private student loans, according to a Navient press release. $1.6 billion of the federal student loans are securitized.
US Dept of Education terminates the contract of Pioneer, a Navient subsidiary, for "giving inaccurate information at unacceptably high rates" about its loan rehabilitation program and about "the waiver of certain collection fees."
Navient has "engaged in a massive effort to defraud student debtors and subvert the orderly working of the bankruptcy courts," according to the complaint. Plaintiffs allege that Navient purposely misleads student borrowers into believing they cannot legally erase, or "discharge," any of their student debt in bankruptcy, even when they can. Thus, the suit alleges, all across the country, thousands of student debtors who have already declared bankruptcy are paying back student loans that they might have erased in court, if Navient had not misled them about the law.
Navient has phoned many borrowers "hundreds, and—in some cases—thousands of times...Calls are being made to the borrower’s relatives, neighbors, and even complete strangers—all of whom never provided consent," states a letter from the National Consumer Law Center, Public Citizen, the Consumer Federation of America, Higher Ed Not Debt, Public Knowledge, and The Center for Responsible Learning to the Federal Communications Commission. In their letter, the groups claim that Navient has made "a deliberate decision to flout the TCPA" (Telephone Consumer Protection Act), and call for the FCC to enforce the law.
In proceedings in Crocker et al. v. Navient, the company agrees to stop calling borrowers with certain student loans who filed for bankruptcy after October 2005. Instead, the company agrees simply to send these borrowers monthly statements.
Lawsuit exposes Navient documents discussing "subprime" loans as a "baited hook" to lure student borrowers, get "preferred lender" status at schools.
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