Another big federal student loan servicer is getting out of the business.
Navient Inc., of Wilmington, has negotiated to transfer more than five million federal student loan borrowers to the Reston, Va., firm Maximus, which administers state and federal health and human services programs.
Navient — the source of thousands of complaints at the Consumer Financial Protection Bureau over its federal student loan-servicing operations — said it expects the U.S. Education Department to approve the deal by Jan. 1.
Federal student loan borrowers are expected to resume payments in February 2022 after a hiatus because of the pandemic. When they do, borrowers who once paid Navient will instead have payments processed by Maximus.
Navient stock fell sharply Wednesday, falling $3.11 or nearly 14% to close at $19.24. The company disclosed that it would exit the federal loan servicing business after the stock market closed on Tuesday.
Navient’s action comes as the Biden administration seeks to reform the student loan servicing business. Critics say that the organizations profit off young and older borrowers who struggle with college debt. Richard Cordray, the first director of the Consumer Financial Protection Bureau, the agency created after the subprime mortgage crisis, was appointed earlier this year as the chief operating officer of Federal Student Aid at the Education Department, which oversees servicers.
FedLoan, part of the Pennsylvania Higher Education Assistance Agency (PHEAA) in Harrisburg, announced this past summer that it also would relinquish its federal student loan servicing business after U.S. Sen. Elizabeth Warren (D., Mass.) targeted PHEAA CEO James Steeley for allegedly misleading her committee in an April public hearing. In July, FedLoan said it wouldn’t renew its federal loan servicing contract when it expires this December.
FedLoan and Navient service roughly 15 million student loan borrowers nationwide who owe $648 billion, federal data show. They operate administration offices or call centers in Delaware, Pennsylvania, and Indiana.
“Several hundred employees work on federal student loan servicing and we anticipate those employees will move to Maximus,” a Navient spokesman said Tuesday.
FedLoan has said it was inevitable that there would be job cuts, but the Harrisburg agency also says it expects to pare staff through attrition. A FedLoan spokesman did not immediately respond to a question on the transition of the federal student loan contract to a new organization.
“Navient is pleased to work with the Department of Education and Maximus to provide a smooth transition to borrowers and Navient employees as we continue our focus on areas outside of government student loan servicing,” Jack Remondi, Navient’s president and CEO, said in a statement. “Maximus will be a terrific partner to ensure that borrowers and the government are well-served, and we look forward to receiving [Education Department] approval.”
Navient says the federal student loan servicing contract is a small part of its Wilmington corporate empire. The company reported $34 million in revenue for the federal student loan servicing contract through the Education Department for the quarter ended June 30. Its other businesses include private college loans and contracts to support states processing unemployment benefits, contact tracing, and vaccine administration services.
Teresa Weipert, the general manager for Maximus’ federal services business, said “this contract enables Maximus to apply our deep understanding of the needs of student borrowers and our industry leading customer service to assist [the Education Department] in successfully serving millions of student loan borrowers.”
Seth Frotman, executive director of the nonprofit Student Borrower Protection Center and the former top student loan industry watchdog at the Consumer Financial Protection Bureau, said that Navient should still be held accountable for past abuses.
Navient has paid more than $4.4 billion to shareholders through dividends and stock buybacks, according to filings with securities regulators.
Since 2011, tens of thousands of borrowers have filed complaints with Navient, the Consumer Financial Protection Bureau, and other government agencies about obstacles they faced in repaying student loans serviced by Navient.