The Democrats’ government student loan takeover in 2010 is one of the great policy fiascoes of the age. But politicians can never admit it, so instead they’re kicking Navient, the student loan servicer.
Navient, formerly Sallie Mae, on Thursday agreed to settle 39 state Attorneys General lawsuits by cancelling $1.7 billion in defaulted debt. It will also make $260 payments to 350,000 federal student loan borrowers who were allegedly wrongly placed in long-term forbearance.
The State AGs accused Navient of “predatory lending” for making private loans to lower-income borrowers who attended for-profit schools, and for charging higher interest rates due to their higher credit risk. Heaven forbid a private lender, unlike the feds, try to avoid losing money.
Lower-income students couldn’t pay tuition with federal aid alone, so Navient filled the gap. For-profits also must derive at least 10% of their revenues from sources other than federal aid. So Navient indirectly helped those schools stay in business—and compete with community colleges. That’s another Navient political sin.
Navient stopped making loans to for-profit school students in 2010. But it has continued to service government loans. The AGs complained that it wasn’t doing enough to promote loan-forgiveness plans that allow borrowers to pay 10% of their income for 10 to 20 years and then discharge the balance.
The AGs accused Navient of wrongly placing borrowers in forbearance, which lets them defer payments while continuing to accrue interest. Borrowers enrolled in loan forgiveness plans also accrue interest because they often don’t pay enough to reduce their balance. This is a big reason the federal student loan balance sheet has doubled over the last decade to $1.6 trillion.
Navient denies wrongdoing and continues to fight similar legal charges filed by Obama Consumer Financial Protection Bureau Director
in early 2017. But it says settling the AG lawsuits was less expensive than continuing to fight. In September it also sought to end its government servicing contract because it was more hassle than it is worth.
But get this—Mr. Cordray, now chief operating officer of the Education Department’s Federal Student Aid office, requested that Navient renew the contract through 2023. Democrats need to keep around a punching bag as the government student loan debacle grows.
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Appeared in the January 15, 2022, print edition.