Fourth student loan servicer quits, Warren decries 'broken system'
Major student loan servicer Navient (NAVI) is quitting the federal servicing business, the company announced Tuesday, handing off its 5.5 million borrowers holding about $280 billion in federal student loans to Maximus, another servicer.
Advocates and progressive lawmakers led by Senator Elizabeth Warren (D-MA) heralded the move, in light of Navient's troubled relationship with the federal government's consumer protection bodies.
But the departure adds another challenge when the Education Department (ED) looks to end the student loan payment pause in January — especially after four other servicers quit in the past year.
"Even under the best of circumstances, this is a monumental task," Persis Yu, director of the National Consumer Law Center’s Student Loan Borrower Assistance Project, told Yahoo Finance. "It's a process that needs to be managed very slowly and deliberately, [and] I have a lot of concerns about whether or not that can actually be done in the timelines that we have."
'Need to have hand-holding to this entire process'
With Navient's announcement, roughly 16.3 million student loan borrowers will be getting a new loan servicer in 2022.
The Pennsylvania Higher Education Assistance Agency — which services around 8.5 million student loan borrowers — and Granite State — which services around 1.3 million borrowers — both called it quits in July. Utah Higher Education Assistance Authority, which pulled out in October 2020, serviced around 1 million student loan borrowers.
The departures come as the majority of the 43 million student loan borrowers across the U.S must start paying their loans again. The payments have been paused, without interest, since March 13, 2020, with the Biden administration recently extending the pause through January 31, 2022.
Advocates expressed deep concern about the transfer process, given the short timeline between October and February 2022. The U.S. government, which owns trillions of dollars in student loan debt, has already expressed that ending the payment pause needs to be carefully managed.
Navient’s departure aside, these transitions are going to be tricky, especially given uncertainty around whether the servicers "have the staff capacity to handle the influx of borrowers who are going to be confused and are going to need to have hand-holding to this entire process,” Yu said.
Richard Cordray, chief operating officer of Federal Student Aid, which handles the trillion-dollar student loan portfolio, said in a statement that his agency is still reviewing documents and information from both Navient and Maximus "to ensure that the proposal meets all legal requirements and properly protects borrowers and taxpayers."
'Behind the scenes company'
Maximus for its part has expressed its intention to provide high-quality service for student loan borrowers with the payment pause ending. Maximus spokesperson Eileen Cassidy Rivera said in a statement to Yahoo Finance that the company was "committed to ensuring a seamless transition for student loan borrowers" and to help borrowers manage the re-starting of repayment come 2022.
But Yu and other advocates also expressed concern that Maximus, despite being a government contractor over the years, had largely been out of the public eye and doesn’t provide the same services that Navient does.
Maximus has until now run debt collection and management for ED, according to a blog post by the Student Borrower Protection Center (SBPC). And not many borrowers are aware of the company's existence, said Yu.
"Maximus is a company that has not been subject to much public scrutiny. It is a servicer, but it doesn't do the functions that Navient, [the Pennsylvania Higher Education Assistance Agency], and the other ones do," Yu explained. "So we don't have a track record of how it helps borrowers navigate income-based repayment."
And being a very "behind the scenes company," she added, "it's concerning that Navient can just choose its replacement and choose someone who is not in the public eye, and who has no track record."
Navient has long been in the crosshairs of advocates and progressive lawmakers who believed the company was responsible for shoddy servicing, such as steering student loan borrowers into high-cost repayment plans or for deceptive practices from New Jersey to Washington.
Its departure was welcomed.
“Navient has spent decades misleading, cheating, and abusing student borrowers. The Federal student loan program will be far better off without them," Senator Elizabeth Warren (D-MA) said in a statement.
"Ultimately, the student loan system is broken,” she continued. “The only way to guarantee that borrowers do not face the same predatory behavior from Navient’s replacement is to cancel student debt, so that no borrower’s future is held hostage by corporations profiting off their financial distress.”
Aarthi is a reporter for Yahoo Finance. She can be reached at email@example.com. Follow her on Twitter @aarthiswami.
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