The largest servicer of federal student loans is fighting a lawsuit — by claiming that its customers are really lenders, not millions of borrowers whose loans it is paid by the Department of Education to service.
"It's shocking. It's absolutely shocking for Navient to tell its customers one thing and argue in court the exact opposite," said Pauline Abernathy, executive vice president at The Institute for College Access & Success.
"I think Navient essentially confessed that they put their own profits before the best interest of borrowers," said Rohit Chopra, senior fellow at the Consumer Federation of America and former student loan ombudsman for the Consumer Financial Protection Bureau.
Formerly part of Sallie Mae, Navient services student loans of more than 12 million borrowers, roughly half of which are through Department of Education contracts. In January, the Consumer Financial Protection Bureau sued Navient, saying it cost borrowers billions by withholding information about income-based repayment programs that would lower their payments. Instead, the agency said, Navient pushed borrowers into forbearance, which suspended payments but not the accrual of compounding interest.
The CFPB's suit came in conjunction with similar suits filed by the Attorneys General of Illinois and Washington states.
"After an extensive investigation, what we learned was it was simply easier and faster and less expensive for Navient to put somebody into a forbearance as opposed to actually provide them with the individual counseling that would put them in the best repayment option for them," Attorney General Lisa Madigan told NBC News in January.
According to its most recent court filing, though, Navient argued that wasn't really its job in the first place.
"The servicer acts in the lender's interest… and there is no expectation that the servicer will 'act in the interest of the consumer,'" said the company's motion to dismiss. "Although the federal government itself hired Navient to service a substantial portion of the federal loans at issue in the Complaint, nowhere did it require Navient to provide the type of financial counseling the CFPB seeks."
But one involved party did affirm that Navient would be on borrowers' side: Navient itself.
"As your loan servicer, it's our goal to help you stay on the path to successfully paying your student loans," its website says. "We're here to answer your questions, provide you with solutions, and process your payments."
In the motion, though, Navient argued for dismissal on the grounds that "publicly disseminated statements reaching millions of borrowers cannot create a fiduciary-type relationship or obligation… general pronouncements by a lender or servicer to borrowers that "'we can work with you' or 'help' do not create a fiduciary relationship.
Consumer advocates say conflating a servicer's role in shepherding borrowers through the repayment process with the fiduciary obligation of a financial advisor creates a false equivalency. "It's clear that they are telling borrowers that borrowers can rely on them, and then in court they're arguing that customers shouldn't be reasonably relying on them," Abernathy said. "Both cannot be true."
"Navient's statements in court are astounding," Illinois Attorney General Madigan said in a statement. "Navient is not committed to helping struggling student loan borrowers and their public comments to the contrary are nothing more than well-crafted public relations."
"Servicers talk a big game about how they're there to help borrowers avoid default, but their number one priority is sending profits to their executives and their shareholders," Chopra said. "It's much easier for a servicer to throw someone in forbearance rather than taking the time to explain to them their options to avoid default."
Reached for comment, a Navient spokesperson told NBC News, "Our job as a student loan servicer is to help borrowers understand the options available to them...Statements that Navient does not inform borrowers of their array of repayment options are patently false."
In a 2013 Sallie Mae conference call, CEO John Remondi told investors it was "expensive" to place a borrower in a program like an income-based repayment plan.
Elizabeth Warren also laid into the loan servicer. "After years of pretending like they care about struggling borrowers, they've finally admitted the truth," the Massachusetts senator said in a Facebook post this week, calling the legal argument "appalling."
Even some within the college financial aid industry were left scratching their heads at this legal strategy. "It may win the legal battle, but it loses the PR battle," said Mark Kantrowitz, publisher and vice president of strategy at Cappex.com, a college financial aid website.
In a quarterly earnings call last October, Navient's Remondi said, "That is the key to default prevention… being able to get a customer on the phone and explain their options to them and work with them to find a solution that fits their budgets."
By contrast, the filing to dismiss the CFPB's lawsuit claimed that, "Borrowers could not reasonably rely on Navient to counsel them into alternative payment plans… Navient's relationship with borrowers is that of an arm's-length loan servicer, not a fiduciary counselor."
"If it's not their job, then what are taxpayers paying them hundreds of millions of dollars for?" Chopra said.