In January 2017, the CFPB took aim at Navient, the nation’s largest servicer of student loans, when it filed a complaint alleging it created obstacles to repayment by providing bad information, processed payments incorrectly, and failed to act when borrowers complained. Further, the CFPB contended that through shortcuts and deception, Navient also illegally cheated many struggling borrowers out of their rights to lower repayments causing them to pay much more than they might have. At the same time, the Attorney General of Illinois made similar allegations in the student loan servicing sphere.
These actions raise issues that resonate with me as they are very similar to the issues we find in retail debt collection.
Navient has taken issue with the CFPB’s contention the student loan servicers are the reason for the borrowers’ defaults. In a recent Washington Post article, Navient’s CEO stated when you have customers who have student loans they’ve taken out for schools where they did not receive a quality education, did not have the job or salary they expected as a result of the degree or have failed to graduate, they are dissatisfied customers. As a result, and not surprisingly, under those circumstances, the borrower is not looking for ways to pay for something from which they did not extract value. Further, he said when you have that kind of lack of engagement, it is very difficult to get borrowers into solutions that work.
On this point, I am fully in agreement with Navient, as in my experience, it is very difficult to find solutions with a dissatisfied consumer. For those of us with retail auto loans in their portfolio, this is a very similar scenario to the situation where an automobile is repossessed and the consumer does not want to pay the deficiency balance. All of us understand this issue: Who wants to pay for a car they are not driving! Hence, as much as we may want the consumer to call us and resolve the account, they do not feel the need to engage with us. Many times, these consumers express their displeasure by going to the CFPB complaint portal. People have a personal connection to their car; its loss affects all aspects of their life – getting to work, picking up the kids, traveling to the grocery store. Likewise, the educational loans have, perhaps, an even deeper emotional connection. In many cases, these are disappointed dreams, whether the dream career or the excitement of making your family proud. When you combine disappointed hope with the harsh realities of life, the desire to repay these loans decreases.
What is the solution to this dilemma? Are the lawsuits by the CFPB and state regulatory agencies providing a solution or are they a way just to seek fines and damages that arguably don’t help the consumer? Some contend that the solution would involve clearer rules and regulations for everyone to follow; however, that really begs the question as to the root cause of issues with student loans. Is our higher education funding model fundamentally broken? Who is examining higher education costs to determine if there is a better way?
With three children in their 20s, all of whom have gone to college, I am well versed in the costs of attending a University. Of course, each of my kids chose an out-of-state school (and yes, I know it’s my own fault). In an era of belt-tightening, it appears that other than death and taxes, the third thing you can rely upon is that the cost of attending college continues to skyrocket.
These escalating expenses make less sense and create the strong impression that the old model of going to and paying for college simply does not work today. For example, I have noticed that the large out-of -state tuition bill I was paying included the same level of fees for “on-line” courses. Why am I paying top dollar for on-line teaching? Think about the library at your college or university. This was a place where many of us actually went to study or find a date to the next dance. Why does it need to be so large a building and have so many employees today when the majority of the information a student needs to access can be found on their phone, tablet or computer. Is anyone considering these type of costs? If changes are not made, it may become a vicious cycle where if you want to go to college, you simply can’t pay for it without a loan which ensures the 22 year old, new graduates are going to begin life with a small mortgage-sized debt before they’ve even found a job. We all recall the FTC indicating the debt collection business was “broken” a few years ago. Obviously, the system in which we educate our children is in need of a major overhaul.
While the student loan servicers are getting sued, they are not the root cause of the problems. Until the system that makes college more and more expensive is changed, the students who take out loans will suffer.
Fred N. Blitt, Esq., is a partner with Blitt and Gaines, PC in Illinois and Couch, Conville and Blitt in Louisiana. He is past president of NARCA.