- The CFPB settled with student-loan company Navient, resolving claims Navient mishandled borrowers' payments.
- Elizabeth Warren told BI it sends a signal to the student-loan industry that they'll face consequences for bad behavior.
- She said that terminating servicers' contracts for failing obligations is an effective solution.
For nearly a decade, Massachusetts Sen. Elizabeth Warren has been working to enforce oversight over Navient, a major student-loan company.
Warren and some of her Democratic colleagues were concerned that the company was not properly managing student-loan borrowers' payment options, causing them to accumulate unaffordable student debt.
The Consumer Financial Protection Bureau caught on: in 2017, it filed a lawsuit against Navient, accusing the company of misleading borrowers about their debt relief and repayment options, causing them to lose out on more affordable payments. On September 12, the litigation finally concluded with CFPB Director Rohit Chopra announcing a $120 million settlement, $100 million of which was going back to impacted borrowers — along with a permanent ban on Navient ever reentering the federal student-loan servicing industry.
"Persistence pays," Warren told Business Insider in an interview. "We've stayed after Navient for years. Director Chopra's efforts at CFPB have finally helped millions of people get the relief they deserve and a guarantee that Navient will never work as a federal student loan servicer. That proves we can hold these guys accountable."
Navient said in a statement following that settlement that "while we do not agree with the CFPB's allegations, this resolution is consistent with our go-forward activities and is an important positive milestone in our transformation of the company."
Warren concurred that the settlement was positive for the industry — and she said it's a signal of more to come for borrowers. Since federal student-loan payments resumed last October after an over three-year pause, the Education Department has reported a range of errors it detected with servicing, including late or inaccurate billing statements and difficulties with customer service. While all four major servicers have faced financial penalties for mishandling payments, Warren said terminating servicers' contracts for failing their obligations would be an effective next step.
"If the government is not willing to fire the people who cheat our students, then those people are going to keep right on cheating," Warren said. "Getting rid of the bad servicers makes a huge difference in the whole system."
'Their days are numbered'
Following the CFPB's settlement with Navient, Chopra told BI in an interview that there's still more to be done in the student-loan industry: "There are still so many people who are struggling with student loan servicers. And so we're going to have to keep pushing and keep cleaning up this market."
One way a group of Democratic lawmakers wants to continue cleaning up the market is by setting their sights on MOHELA, another major federal student-loan company servicing around 8 million borrowers. Earlier in September, Warren and Rep. Jim Clyburn led over 50 of their Democratic colleagues in sending a letter to Education Sec. Miguel Cardona and expressed concern that MOHELA was not delivering on its contract to help borrowers.
"We request that ED immediately conduct an evaluation of MOHELA's fulfillment of its contractual obligations as a servicer, share key data with our offices and federal and state regulators, and act quickly to apply corrective measures—including the potential termination of MOHELA's federal contract if such action is justified," the lawmakers said.
The Education Department did not respond to a request for comment from BI on whether it would consider terminating servicers' contracts for failing their contractual obligations. However, it released an accountability framework in December that outlined enforcement actions it would take should servicers harm borrowers, including fining servicers and transferring borrowers to better-performing servicers.
For example, MOHELA was the first servicer to be hit with a $7 million fine last October for failing to send on-time billing statements to over 2 million borrowers.
Still, the push to fire servicers is gaining momentum: in May, advocates joined Democratic lawmakers in calling for MOHELA to be fired, with Rep. Ayanna Pressley saying at the time that "enough is enough. Terminate MOHELA's contract and put loan services on notice: we will not tolerate your negligence and exploitation; we will not let you profiteer off vulnerable student borrowers."
Responding to the May calls to end its contract, MOHELA told BI that "borrowers are not better off when outside groups spread false and misleading information about our work as a federal contractor for FSA. We remain committed to continuing to provide the highest quality of customer service to the borrowers that we serve."
But Warren said servicers should take the Navient settlement as a sign that they must ensure they're fulfilling their contractual obligations or suffer the consequences.
'We've organized, we've held hearings, we've done everything possible to hold these student loan servicers accountable for their misconduct," Warren said. "And it's beginning to bite. And for some of them to bite big time, that's a whole shift in the system. It means that those who've cheated and haven't yet come clean know that their days are numbered."
