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Teachers union sues Navient over public service student loan forgiveness

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Navient is back in the hot seat.

The Consumer Financial Protection Bureau’s lawsuit may be languishing, but nine members of the Teachers Federation of America sued the student loan servicing giant Wednesday alleging that it misled borrowers in public service professions from accessing a loan forgiveness program to boost its own profits.

The complaint, which was filed in the U.S. District Court for the Southern District of New York, seeks millions in damages and classwide injunctive relief.

A spokesman for Navient declined to comment.

The TFA, the second-largest teachers union, is backing the lawsuit, and so is Seth Frotman, the CFPB’s former student loan ombudsman. Frotman quit in August, writing in his resignation letter that the agency had abandoned consumers under President Trump. He has no formal role in the lawsuit but participated on a conference call Wednesday.

The Public Service Loan Forgiveness program was introduced in 2007 under the second Bush administration to encourage students to pursue public-service careers. The first borrowers became eligible for forgiveness in 2017 after working for a decade in public-service jobs and making regular payments.

However, only a small number of people have had their debt discharged under the program, according to a report published last month by the Government Accountability Office. The GAO said nearly 1.2 million borrowers had asked for their jobs and loan repayments to be certified as eligible under the program as of April, and nearly 900,000 of those requests were certified.

But of the nearly 20,000 who asked for the balance of their loans to be wiped out, only 55 had been granted loan forgiveness as of April.

The GAO report concludes that although the Education Department has made efforts to inform borrowers, the large number of requests that are denied suggests many borrowers do not understand or are not aware of the requirements.

Explaining the requirements of loan forgiveness programs generally falls to servicers. The teachers’ complaint filed Wednesday alleges a spate of systematic misrepresentations, untruths and misdirection by Navient, the nation’s largest student loan servicer, to stop borrowers from enrolling in PSLF. It alleges that Navient did this in order to prevent borrowers from moving to FedLoan, which administers the program.

Navient staff are financially incentivized to keep calls with borrowers short—under seven minutes—not nearly long enough to properly assess their eligibility for PSLF, the lawsuit alleges. It also details how Navient steered PSLF-eligible candidates into nonqualifying plans and wrongly told borrowers in those plans they were on track for PSLF.

In addition to the TFA lawsuit, Navient faces allegations of consumer abuses by the CFPB and the states of Pennsylvania, Illinois, California and Washington.

However, the CFPB’s lawsuit was filed in January 2017, when Richard Cordray was still at the helm. The bureau alleged that Navient added $4 billion in interest charges to the principal balances of borrowers who were enrolled in multiple, consecutive forbearances, and that a large portion of the charges could have been avoided if the company had followed the law. Navient has contested the allegations vigorously.

Over the summer, the bureau asked the judge in the case to grant an extension to the discovery process, arguing that the agency has not received documents it needs to identify harmed borrowers and quantify damages. It said that the Department of Education is refusing to authorize Navient to turn over certain documents that the consumer bureau wants to see.

Expectations that Navient would get a more sympathetic hearing from Trump administration officials may have emboldened the student loan servicer’s CEO, Jack Remondi, to call on the CFPB to dismiss the lawsuit. During a July conference call with analysts, Remondi complained that nearly five years had passed since the CFPB first demanded documents from Navient. “It’s time to move on,” he said.

Frotman’s subsequent resignation in August turned the heat back up on Navient. In mid-September, 15 members of the Senate Democratic Caucus reportedly sent a letter to Mick Mulvaney, the CFPB’s acting director, seeking to evaluate the bureau’s independence and effectiveness.

And on Monday, Rep. Maxine Waters, D-Calif., ranking member of the House Financial Services Committee, and 12 members of Congress sent a letter to Rep. Jeb Hensarling, R-Texas, the panel's chairman, urging him to conduct a formal investigation into Frotman’s allegations.

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