Illinois AG alleges fraud at Navient, country's largest student loan company

CHICAGO (WLS) -- Illinois Attorney General Lisa Madigan is alleging the country's largest student lender of "widespread abuses" and "loans designed to fail." The attorney general's office is alleging Navient and Sallie Mae had no business handing out risky, high interest loans to students who didn't have the means to pay them back

"Navient and Sallie Mae engaged in aggressive sub-prime lending," Madigan said. "It's clear that Sallie Mae and Navient have failed millions of our country's student borrowers."

Madigan announced the lawsuit Wednesday against the nation's largest loan company Navient, Sallie May, its predecessor and two subsidiaries for abuses in its student lending, loan servicing and debt collection businesses. Madigan said tens of thousands of Illinois students were negatively affected and now are on the hook for those questionable loans.

READ: Full Navient lawsuit

"We have an unprecedented level of student loan debt in our country which has negatively impacted the economy. In spite of encouraging borrowers to call Navient for help when they were struggling to pay their student loans, Navient repeatedly failed to tell those borrowers about affordable repayment plan that were available to them," Madigan said.

MORE: Student loan help hotline 1-800-455-2456

Madigan said Navient and Sallie Mae Bank failed to perform their core duties. When students defaulted on their loans, Madigan alleges Navient and its companies engaged in deceptive collection practices.

The lawsuit alleges Sallie Mae worked hand-in-hand with many for-profit schools to get those loans. The ABC 7 I-Team first uncovered allegations of for-profit college students being misled in 2015.

"Navient saddled students with expensive and risky subprime loans that they designed to fail. Sallie Mae's unfair and deceptive sub-prime loans carried very high interest rates and fees and not surprisingly were given to students at the worst schools, poorly accredited for-profits," Madigan said.

Navient said in a statement about the AG's lawsuit and a similar federal lawsuit filed by the Consumer Financial Protection Bureau: "The allegations ...are unfounded, and the timing of these lawsuits-midnight action filed on the eve of a new administration-reflects their political motivations. ...We will vigorously defend against these false allegations and continue to help our customers achieve financial success."

The lawsuit seeks restitution to all Illinois Navient borrowers affected by the company's alleged practices. The lawsuit wants the company to cancel or change contracts.

The Illinois attorney general has set up a student loan help hotline at 1-800-455-2456.

FULL STATEMENT FROM NAVIENT

The allegations of the Illinois Attorney General and Consumer Financial Protection Bureau are unfounded, and the timing of these lawsuits-midnight action filed on the eve of a new administration-reflects their political motivations. Navient welcomes clear and well-designed guidelines that all parties can follow, and we had hoped our extensive engagement with the regulators would achieve this objective. Instead, the suits improperly seek to impose penalties on Navient based on new servicing standards applied retroactively and applied only against one servicer. The regulator-asserted standards are inconsistent with Department of Education regulations, and will harm student loan borrowers, including through higher defaults.

Navient has a well-established, superior track-record of helping student loan borrowers succeed in repayment.

49 percent of loan balances serviced by Navient for the federal government are enrolled in income-driven repayment plans. Assertions that we do not educate borrowers about IDR plans ignore the facts.

Navient is a leader in advancing policy recommendations to streamline enrollment and reenrollment in income-driven plans-reforms which we believe would make a meaningful difference for millions of Americans with student loans.

Federal borrowers serviced by Navient are 31 percent less likely to default than their peers at other servicers. Private loan delinquencies and defaults are at among historic lows.

In 2009, Navient pioneered the first private education loan modification program. The program was designed to help customers stay current on their loans and, unlike federal program solutions, make progress on repaying their principal balance. Today, more than $2 billion in loan balances are enrolled in these programs.

Navient has a responsibility to its customers, shareholders, and employees to defend itself-publicly and in court-against this unsubstantiated, unjustified and politically driven action. We cannot and will not accept agenda-driven ultimatums designed to get headlines rather than help for student borrowers. We will vigorously defend against these false allegations and continue to help our customers achieve financial success.

Navient has posted additional information at navient.com/facts.

FULL STATEMENT FROM SALLIE MAE

Today the Consumer Financial Protection Bureau filed a complaint in federal court in Pennsylvania against Navient Corporation, along with its subsidiaries, Navient Solutions, Inc., and Pioneer Credit Recovery, Inc. The complaint alleges these Navient entities, among other things, engaged in deceptive practices with respect to its historic servicing and debt collection practices. Neither SLM Corporation,

Sallie Mae Bank, nor any of their current subsidiaries are named in, or otherwise a party to, the lawsuit and are not alleged to have engaged in any wrongdoing.

Additionally, a press release issued today by Illinois Attorney General Lisa Madigan announced the filing of a separate lawsuit against Navient Corporation - its subsidiaries Navient Solutions, Inc., Pioneer Credit Recovery, Inc., and General Revenue Corporation - and Sallie Mae Bank arising out of a multi-state investigation of various lending, servicing, and collection practices. As SLM Corporation has consistently disclosed in its periodic reports, Navient has accepted responsibility for all costs, expenses, losses and remediation arising from this matter.

On April 30, 2014, SLM Corporation and Navient Corporation separated into two, independent companies. Since that time, SLM Corporation's business consists of providing high-quality private education loans and saving products.