Student Loan Debt in New Jersey
Complaint

NEWARK– Attorney General Gurbir S. Grewal and the Division of Consumer Affairs announced today that the State has filed a lawsuit against Navient Corp. and Navient Solutions LLC (“Navient”) alleging the student loan servicer engaged in unconscionable commercial practices, deceptive conduct, and misrepresentations when servicing thousands of New Jersey consumers’ student loans.

Filed today in Superior Court in Essex County, the State’s action accuses one of the nation’s largest student loan servicers of failing to meet its obligations to New Jersey’s student loan borrowers or provide them with services in a fair and honest manner, in violation of New Jersey consumer protection laws.

“Higher education should be a pathway to success, not a road to financial ruin,” said Attorney General Grewal. “Yet even before the financial fallout from the COVID-19 pandemic, too many New Jerseyans were struggling to pay off their student loans. And the financial situation of too many student loan borrowers was made worse because their loan servicers put corporate profits above the borrower’s best interests. With today’s lawsuit against Navient, we are taking action to hold one of the country’s largest student loan servicers accountable for abuses that made New Jersey borrowers worse off.”

Navient, formerly known as Sallie Mae, Inc., services the loans of more than 12 million borrowers nationwide, with more than $300 billion in federal and private student loans.As of June 2020, Navient was servicing the loans of 168,900 federal student loan borrowers in New Jersey, who collectively owed over $7 billion in federal student loans. In addition, Navient also originates and services private student loans, including for New Jersey student loan borrowers.

Following an investigation by the Division, the State’s complaint alleges that Navient’s deceptive and unconscionable tactics at various times over the last decade have included:

• Steering borrowers into forbearance instead of income-driven repayment plans better suited to their financial circumstances. As a student loan servicer, Navient is responsible for informing borrowers experiencing financial difficulty about available repayment options and loan-forgiveness programs, and for helping them select the program that best serves the borrowers’ interests based on their particular circumstances. Instead of taking the time (and incurring the operational expense) to assist borrowers experiencing long-term financial hardship choose the most appropriate loan repayment option for them, Navient’s call center representatives steered borrowers toward forbearance—usually a costlier option for such borrowers than income-driven repayment plans. Navient incentivized its call center representatives to adopt this approach because it allowed representatives to handle calls more quickly, at less cost to the company. As a result, borrowers steered into forbearance suffered consequences including the unnecessary accrual of interest, the addition of interest to the principal, and lost months of timely payments that would have otherwise counted toward loan forgiveness.
• Failing to inform borrowers of deadlines to recertify their eligibility for certain income-driven repayment plans. Borrowers in income-driven repayment plans typically must recertify their eligibility on an annual basis. Navient failed to clearly communicate to borrowers the deadline to recertify their eligibility and the consequences of non-renewal. As a result, many student loan borrowers’ repayment plans expired unnecessarily, resulting in immediate increases in their monthly payments and other financial harm.
• Enticing borrowers to take out private student loans with a cosigner, then making it exceedingly difficult to obtain a cosigner release. For loans originated by Navient, Navient deceptively encouraged borrowers to have family members or others guarantee their loans as cosigners, which increased Navient’s chances of being repaid if the student defaulted. Navient then set various hurdles to make it difficult for borrowers to meet the company’s requirements for releasing a cosigner from a loan, which benefited Navient by maintaining additional sources of payment if a borrower failed to pay.
• Misleading borrowers about the amount of their delinquency. For borrowers behind on their loans, Navient employees were trained to attempt to collect more than the past due amount by using language that misled borrowers about how much they owed.Specifically, Navient sought to collect not only the delinquent amount, but also the next month’s payment by misleadingly calling the amount sought the “Present Amount Due.” Navient’s practice of demanding the “Present Amount Due” resulted in borrowers paying hundreds of dollars before a borrower may have budgeted for the payment.

The State’s complaint includes two counts of New Jersey Consumer Fraud Act (“CFA”) violations—one for unconscionable commercial practices and deception, and one for misrepresentation.

The complaint seeks maximum statutory penalties under the CFA, restitution for affected consumers, injunctive relief aimed at preventing these unlawful practices in the future, and disgorgement of any ill-gotten gains.

The lawsuit against Navient reflects the Division’s ongoing efforts, under Attorney General Grewal’s leadership, to protect consumers of consumer financial products and services, including by addressing exploitative practices that disproportionately affect New Jersey’s lower-income and minority communities.

From 1989 to 2016, the average cost of obtaining a degree from a four-year college or university in the United States rose about eight times as fast as the average wage. Faced with the soaring cost of higher education, over 44 million people in the United States have taken out student loans. Total student loan debt is now around $1.7 trillion nationwide, and the average New Jersey borrower carries $36,500 in student debt, among the highest amounts in the country.

Statistics show that certain groups of borrowers are particularly at risk.

In 2019, the New York Federal Reserve found that borrowers in Black-majority zip codes are more likely to borrow to fund their education, have higher average loan balances, and default at almost double the rate of white-majority zip code borrowers. Moreover, the findings show that borrowers who received Pell Grants—most of whom have family incomes below $40,000—were five times as likely to default within 12 years; borrowers whose parents did not attend college were more than twice as likely to default than borrowers whose parents did attend college; and borrowers who began their education at for-profit colleges defaulted at seven times the rate of those who attended public colleges.

“The tragedy is that the long-term financial consequences of Navient’s conduct are likely to have the greatest impact on borrowers who can least afford them,” said Paul R. Rodríguez, Acting Director of the Division of Consumer Affairs. “Navient had a responsibility to help financially struggling borrowers select a loan payment solution that offered them a fair chance to pay back their debt. Instead, the company incentivized its employees to put company profit above their legal obligations, with little or no regard for the student borrowers who fell deeper into debt as a result. Our efforts to hold predatory businesses accountable won’t end here. We will continue to enforce the law and are determined to put a stop to the practices of companies that deceive, cheat, and abuse the consumers who rely on them.” 

The State’s lawsuit against Navient follows other actions by Attorney General Grewal and the Administration of Governor Philip D. Murphy to address the burden of student loan debt on New Jersey residents and allegations of misconduct by student loan servicers:

• In April 2020, Governor Murphy and the New Jersey Department of Banking and Insurance (“DOBI”) announced that New Jersey had secured relief options with private student loan servicers to expand on the protections the federal government granted to federal student loan borrowers amidst the COVID-19 pandemic. These new options stand to benefit an estimated 200,000 New Jerseyans with privately held student loans.
• In August 2019, Attorney General Grewal filed an amicus brief urging the U.S. Court of Appeals for the Third Circuit to preserve states’ authority to enforce their consumer protection laws against student loan servicers. The court later ruled in favor of New Jersey’s position.
• In July 2019, Acting Governor Sheila Oliver signed legislation to create strong new protections for student loan borrowers by requiring student loan servicing companies to be licensed by DOBI, cracking down on deceptive practices, and creating a New Jersey Student Loan Ombudsman within DOBI to help borrowers with complaints or unanswered questions about student loans and to monitor and review complaints about student loan servicers operating in our state.
• In September 2018, Attorney General Grewal filed an amicus brief arguing that federal law does not preempt state laws requiring student loan servicers to be licensed by the state.
• In March 2018, Attorney General Grewal joined a bipartisan coalition of 28 State Attorneys General in urging Congress to reject proposed amendments to the Higher Education Act that would have immunized student loan originators, servicers, and debt collectors from state oversight.

Deputy Attorneys General Cathleen O’Donnell, Ana Atta-Alla, Chris Kozik, Isabella Pitt, Christina Garfield, Deepta Janardhan, Alex Schmidt, and Peter Van Brunt; Section Chief Patricia Schiripo of the Consumer Fraud Prosecution Section; and Assistant Attorneys General Brian McDonough and Janine Matton of the Division of Law’s Affirmative Civil Enforcement Practice Group are handling the Navient matter for the State, with assistance from attorney Andrew Esoldi. Investigators Michelle Davis, Walter Kaminski, and Jared O’Cone of the Office of Consumer Protection are handling the investigation for the Division of Consumer Affairs.

Student loan borrowers who are having issues with their student loans that they are unable to resolve with their student loan servicers, can file a complaint with DOBI by calling 1-800-446-7467 or online by going to the DOBI website and clicking on Consumer Assistance – Inquiries/Complaints, at: https://www.state.nj.us/dobi/consumer.htm and completing the Banking Formal Complaint form. Additional information may be found on the DOBI website at: https://www.state.nj.us/dobi/division_consumers/finance/studentloan/index.html.

In addition to seeking assistance through DOBI, consumers who believe they have been cheated or scammed by a business, or suspect any other form of consumer abuse, whether or not related to student loans, can file an online complaint with the State Division of Consumer Affairs by visiting its website or calling 1-800-242-5846 to receive a complaint form by mail.

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The mission of the Division of Consumer Affairs, within the Department of Law and Public Safety, is to protect the public from fraud, deceit, misrepresentation and professional misconduct in the sale of goods and services in New Jersey through education, advocacy, regulation and enforcement. The Division pursues its mission through its 51 professional and occupational boards that oversee 720,000 licensees in the state, its Regulated Business section that oversees 60,000 NJ registered businesses, as well as through its Office of Consumer Protection, Bureau of Securities, Charities Registration section, Office of Weights and Measures, and Legalized Games of Chance section.

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