Last month, we discussed a significant federal lawsuit against Navient, a prominent student loan company. Yet the student lender is facing more than just a federal lawsuit. According to a press release from the Office of the Attorney General of Illinois, Lisa Madigan has also sued Navient and Sallie Mae for what the office describes as “rampant student loan abuses.” Why is Madigan’s lawsuit important for consumers in Oak Park and throughout the Chicago area? In short, as the press release explains, Madigan has sought restitution for “all borrowers affected by Navient’s unlawful practices” and has requested in her lawsuit that the lender “rescind or reform all contracts or loan agreements between Navient and any Illinois consumers affected by the company’s unlawful practices.”
Madigan’s complaint emphasizes the importance of consumer protection in Illinois, and it also highlights that many Chicago-area residents are not being treated fairly when it comes to student loan repayment.
Background of Madigan’s Complaint
Madigan’s lawsuit names Navient Corporation and its subsidiaries of Navient Solutions Inc., Pioneer Credit Recovery Inc., General Revenue Corporation, and Sallie Mae Bank as defendants. The complaint highlights how Navient began as Sallie Mae, and that for years, according to Madigan’s lawsuit, the company has been engaged in deceptive lending practices that have harmed student borrowers in Illinois (and across the country).
Specifically, Madigan stated: “My investigation found Sallie Mae put student borrowers into expensive subprime loans that it knew were going to fail.” Madigan went on to explain how “Navient’s actions have led to student borrowers needlessly carrying billions of dollars in debt,” and she underscored that “the company must be held accountable.” The attorney general also noted that the lender has been in business for decades, and has played a role in every stage of the lending process. Madigan alleged that the company’s size as a lender, and its continued growth over the years, has been due in part to the harmful lending practices in which it engaged.
Problems in Loan Origination
In Madigan’s complaint, the attorney general alleges that the deceptive lending practices at Navient begin at the point where student loans begin—in loan origination. The lawsuit argues that both Navient and its predecessor, Sallie Mae, “began peddling risky and expensive ‘designed to fail’ subprime loans to student loan borrowers across the country.”
What is a subprime loan? In short, as the Consumer Financial Protection Bureau (CFPB) explains, a subprime loan—which can be anything from a student loan to a mortgage—is one that has a very high interest rate, which makes the situation such that the borrower likely will not be able to repay the loan. The Navient and Sallie Mae loans also came with high fees that added onto overall costs. Moreover, these loans often were offered to students at for-profit colleges, where the students were unlikely to obtain jobs that would allow them to repay what they owed.
The attorney general analogized the subprime lending of Sallie Mae and Navient to mortgage services who played a role in the foreclosure crisis: “Sallie Mae’s conduct was similar to what Madigan saw years ago when she investigated our country’s largest subprime mortgage lenders for their role in the mortgage crisis.” The complaint alleges that harmful lending practices went beyond origination issues, however. The deceptive lending practices, Madigan argues, extended into Sallie Mae’s and Navient’s servicing of the loans, as well as how they handled defaults.
Contact a Consumer Protection Lawyer in Oak Park
If you have questions about how Madigan’s lawsuit may impact you, or if you believe your student loan company has engaged in harmful lending practices, you should speak with an Oak Park consumer protection lawyer. Contact the Emerson Law Firm today.
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