More Student Debt Upheaval: Navient to Stop Servicing Federal Student Loans

Another major student loan servicer is getting out of its contract with the U.S. Department of Education, adding to the impending upheaval borrowers are facing.

Navient announced Tuesday that it had reached a deal, which the Education Department must still approve, to transfer its accounts to another servicing company, Maximus. As one of the largest loan servicers, Navient currently manages the repayment of roughly 6 million borrowers, handling more than $237 billion in student loans.

The transfer of accounts would be a major shakeup within the federal student loan space, which is already dealing with the exit later this year of the Pennsylvania Higher Education Assistance Agency (a.k.a. FedLoan Servicing) and Granite State Management & Resources, plus a years-long process to overhaul the way federal loans are serviced in a project called NextGen. On top of those changes, the department and its contracted servicers have the next four months to prepare more than 40 million borrowers for the return of monthly student loan payments after a two-year break offered as a pandemic relief measure.

Richard Cordray, chief operating officer of Federal Student Aid, said in a statement that the department had been monitoring the negotiations between Navient and Maximus "for some time" and that it would now consider a formal proposal for Maximus to assume Navient’s contract. Maximus already has a contract with the Education Department, through which it manages the accounts of borrowers who've defaulted on their loans.

"We remain committed to making sure that our federal student loan servicing agreements provide more accountability, meaningful performance measures, and better service for borrowers," Cordray said.

What borrowers with student loans at Navient should do now

Navient's announcement says the process, called a contract "novation," is expected to be completed before the end of this year. If the department approves it, there's little borrowers whose loans are serviced by Navient can do; they'll simply be transferred to Maximus.

But if your loans are being serviced by Navient now, you should download and save your complete history of payments and keep track of any information you receive about the transition. While servicer transfers aren't uncommon, large-scale ones have caused problems in the past, like lost payments, surprise late fees and missing account records, according to a 2015 report from the Consumer Financial Protection Bureau (CFPB).

Unlike other transfers, though, Navient is planning to hand its loan servicing portfolio off to a company that will use the same servicing system, and Navient will be transferring some of its employees who worked on loan servicing to Maximus. Both moves will offer borrowers continuity, Navient's CEO Jack Remondi said. (The roughly 9 million borrowers with accounts serviced by FedLoan are still waiting to be told what will happen with their loans.)

Borrowers should also be on high alert for debt relief scammers, who will likely try to take advantage of the servicer transitions, says Michele Streeter, associate director of policy and advocacy at The Institute for College Access and Success. If you're unsure whether a message you've received is legitimate, she recommends reaching out to an agency like the Federal Student Aid Ombudsman, the CFPB, your state attorney general’s office or a nonprofit consumer group such as the National Consumer Law Center (NCLC) or The Institute of Student Loan Advisors.

Navient was created in 2014 after being spun off from private student loan company Sallie Mae. In the years since, it's faced significant criticism from consumer advocates who've accused the company of misleading borrowers.

State attorneys general in six states, including California and Pennsylvania, have sued the company for allegedly violating borrowers' rights. There's also a pending lawsuit against the company from the CFPB, which has been slowly making its way through the courts since 2017. Navient is defending itself against the allegations.

"Navient’s conduct has left millions of borrowers confused and paying more for longer, and has stopped them from obtaining the relief they are entitled to," Persis Yu, an attorney with the NCLC, said in a statement. "While today’s announcement will ensure that those borrowers can no longer be harmed by Navient’s practices, it also demonstrates how irrevocably broken our student loan system is."

The NCLC and the Student Borrower Protection Center, while applauding the fact that Navient will no longer work with federal borrowers, have raised concerns about Navient's chosen successor. Maximus is also facing a lawsuit, and is being accused of continuing debt collection activities, such as wage garnishment, for borrowers who had applied for loan forgiveness through a program for students who were defrauded by their colleges.

This story has been updated to include Navient's response the lawsuits it is facing.

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