Inside the government's student loan problem
Source: Yaho Finance
Come January, dozens of private companies will bid to win lucrative government contracts to manage a chunk of the nation’s outstanding $1.3 trillion in federal student loan debt. At the forefront of that group will be Navient (NAVI), one of the four largest companies currently contracted by the government to service student loan debt for millions of borrowers. Navient, which already services more than $300 billion worth of student loan debt, was spun off from consumer banking giant Sallie Mae (SLM) a little over a year ago. It’s been plagued by legal troubles ever since, spurring consumer advocates and lawmakers to pressure the government to cancel the company’s contract. But so far the government hasn’t cut Navient. In fact, it renewed the company’s contract earlier this year. To understand why, Yahoo Finance took a deeper look inside the student loan servicing business.
Big bark, little bite
In June, $60 million worth of settlement checks were mailed out to active service members who federal officials claimed Navient had cheated out of interest-rate benefits. The payments were part of the $97 million settlement Navient reached with the Department of Justice a year ago. It’s also been at the center of a multistate probe led by attorneys general in Illinois and Washington. And another watchdog is now threatening to go after the company. In a filing with the Securities and Exchange Commission in August, Navient acknowledged that the Consumer Financial Protection Bureau is considering suing the company in the wake of an investigation into how Navient has administered late fees and “other matters.”
A CFPB spokesperson declined to comment on pending litigation, but the agency began seeking public comments on the student loan servicing business in May. In the past, inquiries like these have led to legal actions against mortgage servicers and credit card companies. Navient would be the first federal student loan servicer the agency has targeted. Whether or not the CFPB acts, Navient has already been soundly punished by Wall Street, with its shares sinking 42.4% this year. A Navient spokesperson says the company remains committed to focusing on its customers and believes its practices “meet or exceed standards” set by regulators.
Despite legal troubles, however, Navient continues to benefit from its work with the government. The Department of Education renewed its contract with the company just a month after Navient settled the DOJ’s lawsuit, in which Navient CEO John Remondi admitted no wrongdoing but apologized for some "processing errors." The DOE consented to perform an internal review of student loan servicers’ management of active-duty service members. But when the results were released in May, finding that servicers violated federal law in only 1% of cases, consumer advocates and lawmakers cried foul. Sen. Elizabeth Warren lobbied the Office of the Inspector General for the Department of Education to conduct its own review of the report, calling it “deeply flawed,” considering the DOJ’s claim that Navient charged 75,000 active duty service members excessive interest on their private and federal education loans. A spokesperson for the OIG confirmed they are “presently looking at the issue” but could not comment further.
Read more: http://finance.yahoo.com/news/inside-the-government-s-student-loan-problem-130130712.html
When will the corrupt or inept private corporations running government programs or projects be held accountable? They are virtually robbing taxpayers blind.
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