The financial futures of more than 12 million federal and private student loan borrowers who collectively owe approximately $300 billion is at the crux of a lawsuit filed by the Consumer Financial Protection Bureau. CFPB is suing Navient Corporation and two of its subsidiaries for using shortcuts and deception to illegally cheat borrowers out of their rights to lower loan repayments. Illegal loan servicing failures caused more than one-in-four borrowers to pay more than they should have.

A CFPB investigation of Navient, the nation’s largest student loan servicer of both private and federal student loans, found that borrowers were not accessing a federal student loan repayment option that has been in effect since 2009. For eligible borrowers, income-based repayment can lower monthly borrower payments by taking into account income and family size. Depending upon individual borrower circumstances, payments could be reduced to even zero, and loan forgiveness apply after 20 or 25 years of regular monthly payments.

“At every stage of repayment, Navient chose to shortcut and deceive consumers to save on operating costs,” said CFPB Director Richard Cordray. “Too many borrowers paid more for their loans because Navient illegally cheated them. The Bureau seeks to recover significant relief for the borrowers harmed by these illegal servicing failures.”

From January 2010 to March 2015, CFPB estimates that Navient’s practices cost borrowers up to $4 billion in extra interest by repeatedly enrolling borrowers in forbearance. CFPB also found that many federal student loan borrowers were unaware that the government could pay part of the interest charges on their loans when personal circumstances prevent borrowers from keeping up.

The lawsuit names Navient and two of its subsidiaries: Navient Solutions, the corporate division responsible for loan servicing operations, and another subsidiary, Pioneer Credit Recovery that collects on defaulted student loans with the parent corporation. All three entities are charged with systematically making it harder for borrowers by incorrectly processing payments or failing to effectively act when borrowers complained.  Instead of assisting borrowers with available options for repayment, CFPB charges that borrowers were steered into forbearance, a temporary and high cost solution that suspends payments but allows interest rates to continue accruing.

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