Navient Student Loan Repayment System ‘Designed to Maximize a Borrower’s Indebtedness,’ Class Action Says

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A proposed class action lawsuit alleges Navient Corporation has utilized a student loan repayment system designed to keep borrowers in debt for as long as possible and ensure they have difficulty paying off their principal while maximizing the company’s interest-driven profit stream.

Alleging violations of New Jersey, Delaware, Florida and New York consumer protection laws, the 66-page lawsuit claims the nation’s largest student loan servicer and co-defendant SLM Corporation have harmed borrowers and the U.S. economy by routinely misallocating payments toward interest, thereby fortifying “the bulk of their revenue stream.”

The case claims Navient, formerly known as Sallie Mae, has been largely successful at diverting student loan payments toward interest and away from principal thanks to a “complicated array of arbitrarily fluctuating monthly billing amounts, hidden repayment terms, vague billing statements, labyrinth-like websites with inaccurate information, and calculated, non-responsive and misleading answers” to borrowers’ questions. Further, Navient has systematically made a practice of allocating monthly payments to loans with lower interest rates as opposed to those with higher interest rates, allowing the company to ensure the latter get paid off much slower than the former, according to the suit.

“This structure is designed to leave Defendants swimming in billions of profits, while student loan borrowers drown in debt,” the nine plaintiffs allege, calling Navient’s repayment scheme and years of alleged systemic predatory conduct “deliberate and unconscionable.” 

Roughly 45 million people owe more than $1.67 trillion in student loan debt, and around a quarter of borrowers are either in default or struggling to make monthly payments, the complaint says. Per the suit, the massive weight of student loan debt nationwide “drags heavily” on the U.S. economy, with many who are able to repay student loans often doing so at the expense of their own financial futures. Navient services student loans for more than 12 million borrowers, the case relays, including more than six million accounts via a U.S. Department of Education contract. 

Navient’s responsibilities as a servicer include managing borrowers’ accounts, processing monthly payments, helping borrowers learn of and enroll in alternative repayment plans, and directly communicating with borrowers regarding their loan repayment, the suit explains. The case stresses that the structured repayment of debt is “not a guessing game” as monthly payments are “formulaic and predictable.”

In light of the defendants’ loan repayment system—for which student loans accrue interest based on the amount of principal of the outstanding loan—monthly payments toward principal should mean a borrower accrues less interest as they inch closer to paying off the loan, the complaint says. That is, when payments are applied correctly, the principal amount of a loan shrinks, accruing less interest and allowing the borrower to spend less time in debt, the suit states. Under this structure, however, a servicer with a business model like Navient’s—one for which profit relies heavily on interest payments—stands to lose money as a borrower crawls their way out from under student loan debt by chipping away at principal, per the complaint. 

The lawsuit claims that while proposed class members have worked diligently toward reducing their student loan principal, Navient has “worked tirelessly” to ensure they remain in debt by employing a scheme meant to thwart the repayment of principal. Navient and SLM Corporation’s conduct has “severely damaged” millions of borrowers, some of whom have been making student loan payments over the course of decades and have been barely able to make a dent in their amounts owed, the plaintiffs charge. 

“This has caused these millions of borrowers to spend millions, if not billions, of dollars toward their student loans, which should have reduced their loan debt, but did not,” the complaint says, highlighting a quagmire of litigation in the last decade centered on allegations of “rampant widespread misconduct” in Navient’s handling of student loan repayment.

According to the suit, Navient faces lawsuits in federal courts in 48 states and the District of Columbia and more than 1,000 cases in state courts, a gamut that includes suits filed by the Consumer Financial Protection Bureau and numerous state attorneys general, over its allegedly “improper and fraudulent” servicing of student loans. 

Though the suit describes a years-long pattern of conduct that appears to evidence Navient’s ability to “defraud their borrowers from every conceivable angle,” the plaintiffs assert that their lawsuit is “by no means a copycat case.”

“Instead, Plaintiffs’ allegations are cast against the backdrop of Defendants’ overarching scheme to systematically defraud its student loan borrowers to their detriment and to Defendants’ benefit,” the suit reads, reiterating the charge that Navient is “a particularly bad actor in the student loan servicing space.” 

The lawsuit looks to cover anyone in the United States and its territories who’s ever had any private and/or federal loans with or serviced by Navient, SLM Corporation, Navient Solutions or Sallie Mae, Inc. The suit additionally proposes coverage for subclasses of Navient borrowers in Delaware, Florida, New Jersey and New York. 

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