When the Consumer Financial Protection Bureau (CFPB) announced a gigantic Navient lawsuit suing them for breach of basically everything, I was not surprised at all. I’ve spoken with them many times on conference calls with clients, so I know how bad they are. However, to be fair, Navient is only the poster child for pathetic levels of service by student loan servicers. They’re all awful, and the government incentives provided in their contracts make sure of it.
What I’ve Seen in Client Consults
One time I wanted a client to check with Navient about what their payment plan was, so the client wrote them an email. I needed to see if they were on REPAYE or PAYE. The reason is that REPAYE offers an interest subsidy that covers half of all interest not covered by payments.
The client wanted to keep their loans on an income driven repayment option for a couple years before he expected a huge increase in income. Clearly, I wanted to keep the balance under control with an interest subsidy so that he could slay the debt when he got the big raise.
The customer response team got back to my client with the answer we were looking for: he was on REPAYE. I thought, “ok great we’ll just discuss how to look for private refinancing partners because everything seems to be under control!”
Basically I was giving suggestions to a client based on the information that Navient gave us.
There was only one problem, the information was totally wrong. I looked at the client’s interest growth over the previous year and it didn’t add up. There was no evidence of an interest subsidy, so I asked the client to contact Navient again. The email response team once again confirmed they were on REPAYE.
Then I Started Getting Confused
After that second confirmation, I started doubting myself. Did I calculate something wrong? Did I make an error somehow? I’ve learned in the several months I’ve been dealing with loan servicers that whenever you think you’re wrong, you’re probably not.
So we did a conference call with Navient. I asked them point blank if the client was on REPAYE once I got permission to speak on the account from the client. The rep said yes. I said that was impossible because there was no interest subsidy showing up.
Then the rep went on a pause and came back to me. She said that yes in fact the client was on PAY AS YOU EARN! Not REPAYE at all! I asked how they repeatedly confirmed incorrect information to my client over email and of course the rep couldn’t answer.
I’ve been on calls with most all the major and minor loan servicers with clients in my student loan consulting business. They all give misinformation. One rep told us wrong information about Pay As You Earn.
Another rep didn’t understand the basics of the interest subsidy for REPAYE. Another company had not calculated the monthly payment correctly. Still another told a client that the Standard repayment plan was the only option when they actually qualified for an income driven repayment plan.
In my opinion, it’s not that the Navient lawsuit doesn’t have merit, it’s that all loan servicers are awful, with Navient having the distinction of being the largest. Hence, why they were targeted.
Why the Loan Servicers Aren’t a Good Source of Information and Will Never Be
The federal government puts out a contract bidding process for servicing federal student loans. A bunch of private companies bid, and of course the best combination of price and service is supposed to win. How does the government define service though?
Essentially, the only thing the government rewards is having a low percent of borrowers who default. The ones that do default, the government wants to see evidence of the servicers setting them up with repayment options.
So the service category is almost entirely default prevention. The easiest thing to do to prevent that is just put someone struggling to make a payment on a deferment or forbearance. That way there’s less paperwork, they don’t have to pay anything at all, and you get them off the phone quick. I’d bet the reps at Navient are being measured on the length of their calls. Such an incentive system rewards reps that move customers off the phones quickly. Not explaining options besides forbearance or deferment is a good way to do that. Of course, the Navient lawsuit highlights these complaints.
The other part of why the servicers suck is the price incentive. To win a contract, you bid low. That means putting the lowest cost reps you can in the seat to get higher profit margins but more importantly to win the job at all. Clearly, the talent level you can hire for this type of job is going to be constrained by what you can pay. These loan servicers are not willing to pay very much, so the good reps move on to other jobs.
None of the Loan Servicers Are Set Up to Provide Quality Guidance on Repayment Options for Six Figure Debt
The reason my business exists in a lot of ways is due to the failures listed in the Navient lawsuit. The loan servicing companies are not set up to give quality guidance on debt loads above $100,000.
They exist to service the debt and collect your monthly payments. They are supposed to produce statements showing balances and have someone available to discuss your options if you are having trouble repaying your balance.
That’s why I started specializing in borrowers with graduate degrees who owe more than $100,000. The servicers can’t handle giving good guidance for folks with this debt load in most cases. So for borrowers who need help modeling their balances and evaluating repayment options, I’m here to help.
The servicers are supposed to be highly trained in helping a borrower with $30,000 in student debt who just lost his job come up with a way to stay current on the loans while reducing his monthly payment.
However, consider that an entire genre of scam student loan companies exists that helps with this basic function. All you have to do is google student loan forgiveness and tons of these websites pop up due to their search engine optimization and the fact that Google hasn’t lowered their rank yet.
We’ll probably see the Navient lawsuit either modified or dropped because of the new administration. Navient is already making a calculated play and calling the lawsuit political grandstanding. They’re hoping the Trump administration likes their name calling of the CFPB and instinctively drops the Navient lawsuit accordingly.
For borrowers, it probably doesn’t mean that much. The servicers will go on being awful and any fines from a settlement will probably go into some unrelated fund somewhere to reimburse the government for some of its expenses under their contract.
I Can Help If You’re Tired of Getting the Run Around from Navient
If you have a six figure student loan burden, contact me to see what I can do for you. I help graduate professionals conquer huge student loan balances with flat fee consultations.
I perform a holistic loan analysis with my proprietary simulation tool to see what your best available repayment options are (government, private refinancing, etc). If you want to get in touch just click the button below and I’ll respond right away.