Pennsylvania’s attorney general has won a key interim legal victory in a long-running lawsuit against Navient, which alleges that the giant student-loan servicer routinely misled students about ways to repay college loans.
The Third Circuit Court of Appeals ruled Monday that states and individual borrowers can sue Navient and other such loan servicers, rejecting Navient’s claim that federal law barred such so-called parallel claims. A federal consumer protection agency previously brought a suit against Navient.
“The ruling is a total win on two grounds,” Attorney General Josh Shapiro said in an interview.
“It rejects all those claims that a state AG or actor has no right to bring suit. Two, it allows our case to go forward against a massive wrongdoing to the tune of billions of dollars taken out of the pockets of students by Navient.”
The ruling hinged on a technical phrase — that Navient had committed “affirmative misrepresentations,” misleading students by, for instance, steering them into “forbearance” programs where their payments are paused, but interest continues to accumulate.
Shapiro’s suit maintains that Navient kept students in the dark about better options, such as cutting monthly payments based on income.
“The commonwealth cannot fault Navient for failing to provide consumers with more information about [loan payment options], but it can fault Navient for providing misinformation,” wrote Judge Thomas Ambro, the author of the 3-0 opinion.
“These were very costly vehicles. The state has a legal right to hold Navient accountable” for an estimated $4 billion in interest and over-payments, Shapiro said. The company is accused of deceptive lending practices and steering borrowers into more expensive repayment plans.
The ruling permits Pennsylvania to continue legal claims against Navient under the state’s Consumer Financial Protection Act. Shapiro filed his suit after a federal action by the Consumer Financial Protection Bureau.
The federal Education Act also doesn’t prevent Pennsylvania’s claims, the ruling said.
Seth Frotman, executive director of the Student Borrower Protection Center in Washington, praised the opinion and criticized the Trump administration regarding student loans.
“This ruling is a big win for borrowers seeking to protect their rights against predatory student loan servicing companies and an administration that puts the needs of corporations over consumers,” he said.
Pennsylvania claimed Navient, headquartered in Delaware, but with a call center in Wilkes-Barre, deceptively originated risky student loans, and then pushed borrowers into forbearance plans.
Shapiro said that “the ball is in Navient’s court now.”
The federal government does not directly administer student loan servicing programs. Rather, the Department of Education hired firms such as Navient, FedLoan, NelNet and others to administer and service loans and imposes rules that govern what servicers may do.
Navient issued a statement following the Third Circuit ruling, saying it properly informed students of their options. The firm said it had “consistently met and surpassed its requirements” regarding disclosure.
Navient may ask that the case be remanded to a lower court, a spokesman said. It is possible that on remand, the spokesman said, “if Navient again moves for dismissal, the District Court may need to conduct a closer, allegation-by-allegation assessment of which claims in the commonwealth’s complaint are based on affirmative misrepresentations and which are possibly based on failures of disclosure.”