This student loan isn’t late — it’s deferred

By | July 17th, 2016

David Healey went back to school in 2008. He paid for it with a student loan from Sallie Mae, a corporation that once serviced most of the nation’s federal education loans before expanding into the private loan business. Then he deferred his loan.

At least that’s what he thought.

During that time, in 2014, an offshoot company called Navient took over the loan from Sallie Mae. Along with Healey’s loan, Navient took over the millions of accounts comprising Sallie Mae’s entire student loan portfolio.

When companies package and resell debt, things can go wrong, with sometimes lasting consequences. But whose fault is it? And what steps can borrowers take to undo the damage?

In June 2015, Navient told Healey his loan was past due. Healey was still a student, and understood the loan was still in deferment status. The representative tried to verify his information, but realized that the postal and email addresses on the account belonged to someone else, perhaps explaining why he never received any communication from the company about repayment.

At the end of school, some students enter into standard 10-year, fixed payment plans. But for some borrowers, that’s not affordable, and many opt into repayment plans that last 20 years, or longer. During the course of the loan, servicers can sell and resell student loan debt, and when that happens — as it did for Healey — the process is not always seamless.

The Navient representative told Healey she put the loan back into deferment status, and he would receive an updated statement in the mail. When a month passed and he received nothing, he called back. Healey couldn’t believe it when the phone representative revealed all his account information was still incorrect, including the deferment status of the loan. “Finally, she told me my loan was deferred until May 2016, and that I didn’t need to make a payment,” Healey recalls. “I told her, ‘That sounds perfect, actually.'”

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Well, it sounded perfect.

But in late September, Healey came home to a UPS letter from Navient, telling him he would be sued if he didn’t make a payment. He immediately called Navient and the phone representative told him he could pay $50 to defer the loan until November, when it would be due.

But that wasn’t all Navient told him. It assured him that making the $50 payment would remove any possible negative information that may have been reported to the credit bureaus, something Healey was legitimately concerned about. According to Healey, Navient acknowledged the account status was its own mistake and had been out of Healey’s control. Healey paid the $50 and thought the situation was fixed.

It wasn’t.

In December, Healey was turned down for a car loan. Perplexed by being unable to secure an auto loan, Healey ordered his credit report. He quickly realized his problem with Navient was bigger than he previously understood.

“I discovered Navient was reporting my loan as 60/90/120 days late,” Healey tells us. “Along with the late payments, the reports showed the two different incorrect addresses they read to me over the phone when we spoke.”

The problem Healey tried to solve by dealing directly with Navient has ballooned into something much bigger, and is now affecting his ability to get other types of loans. It seems Healey isn’t the only one questioning Navient’s operations, however. Navient has been the target of consumer activists who claim the company treats customers unfairly. Over the last year, Sen. Elizabeth Warren (D-Mass.) has been pushing for a full investigation into Navient’s practices, following investigations and enforcement proceedings against the company led by the Department of Justice, the Federal Deposit Insurance Corp. and the Consumer Financial Protection Bureau.

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And student loans are a big business — really big. In 2015, there was an estimated $1.3 trillion in outstanding student loan debt, and that number continues to grow with the increasing costs of higher education. According to a report by the Institute for College Access and Success, the average borrower owes more than $28,000 in student loan debt, with an average monthly payment of $292.

So what can borrowers do if their loan servicer reports erroneous information to the credit bureaus?

In Healey’s case, when he realized going back to Navient was a lost cause, he disputed the information with the three credit bureaus: Equifax, Experian and TransUnion. Information on how to dispute errors on your credit report can be found on the Federal Trade Commission website.

He also filed a complaint with the Consumer Financial Protection Bureau, which has a special department dedicated to helping borrowers work out problems with their student loan servicers. The CFPB gave Healey a tracking number and opened an investigation.

Within 15 days, Navient responded to his CFPB complaint, requesting an additional 60 days (as allowed under the law) to complete its investigation. Healey currently awaits the outcome of his dispute with the credit bureaus and his complaint to the CFPB. Our advocacy team could reach out to Navient executives if the CFPB can’t help, but it’s unclear what kind of response we would receive. In the meantime, Healey is making monthly payments on his loan account, doing everything within his power to improve his credit score, which was damaged through no fault of his own.

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Update: After complaining to the CFPB, Healey heard from Navient’s customer advocate. Navient took the necessary steps to remove the negative information from his credit report. The company insists Healey is still responsible for late fees.

Should the government do more to ensure student loan servicers are treating borrowers fairly?

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  • ctporter

    A very informative piece was done recently on this issue on NPR. I was amazed and dismayed. It can be found here:

  • AJPeabody

    Want to be that Navient has mo original papers proving the OP signed for a loan?

  • llandyw

    Mine got transferred to Navient as well. I was already in repayment though, so my payments have stayed the same during the transition. It appears that the main problems are while loans were deferred. I’m wondering if that information was never provided to Navient by Sallie-Mae.

    Either way, the financial aid offices at every college/university are supposed to verify to the loan holders the in-school status of each student every term. I think some of this is lack of communication between all 4 parties (school, previous loan holder, current loan holder and the student), although in this case looks like the communication with the student meant nothing to the loan holder.

  • Harvey-6-3.5

    three words – class action lawsuit

  • deemery

    Not a new problem, really. I remember getting a letter like that 35 years ago about my wife’s student loans, which were deferred. I told them, “You have no collectable debt” and eventually they figured that out. (I don’t remember who the company/collection agency was, this is long before student loans were the huge business they are now.)

  • deemery

    The problem is that mostly lawyers get rich from class-action lawsuits, both the plaintiff and defendant’s lawyers make a killing, and the class members get whatever crumbs are left.

  • Charles Owen

    It would have taken one Google search and a few minutes to get the facts right. Navient did not ‘buy’ loans from Sallie Mae. In 2014 Sallie Mae split into two companies: Sallie Mae and Navient. Navient retained the federal loan portfolio, while Sallie Mae handles private student loans and other businesses such as banking. There was no ‘buying’ here. The people and systems handing the loans did not change. The phone numbers did not change. The addresses did not change. Only the name changed. The problems in this case are inherent in Sallie Mae/Navient, not due to some new company buying your debt.

    The main reason for the split is that federal student loans are a dying business. Since the federal government now handles them directly, Navient is simple servicing the remaining portfolio until they are all gone. A perpetually shrinking business model does not look good on balance sheets.

  • Bill

    This month’s issue of Consumer Reports also has a piece on student loan issues and the fact that there is no longer any government oversight and these students are being harassed and treated unfairly with little to no recourse. Once upon a time, federally-backed student loans were well managed with great customer service … privatization screws everyone yet again.

  • AAGK

    Late fees?? Navient has no shame. Meanwhile it also extorted this man for $50 to remove it’s inaccurate reports which should never have been there. Even once removed, there is still potentially irreversible damage, for ex a credit card that raised his interest rate or lowered his credit line bc of the score decrease, unnecessary credit inquiries, etc. The best way a consumer can avoid this is not to assume no news is good news but I’m not sure if that would even have helped here. I imagine paperless billing contributes.

  • AAGK

    It does seem that his issue was a casualty of the reorganization, though.

  • Harvey-6-3.5


    You are absolutely right normally, because in the ordinary case, the class members have minimal damages and wouldn’t get much anyway. Here, where the damages might easily be in the thousands for someone who received a reduced interest rate on a loan, the class members ought to be able to show much higher damages and get a reasonable payout (like VW owners should get due to the faulty emissions).

  • Chris Johnson

    Not just obnoxious and frustrating, it’s downright abusive. Student loan rates are low compared to traditional loans – I grant them that – but there is no excuse for this kind of practice for someone who has been trying to do the right thing all along. I had my issues with Sallie Mae too, although none as bad as this and I was current the whole time. Thank God they are out of my life forever now.

  • joycexyz

    Healey took out the loan through a government agency and followed all the rules. The agency then sold the loan to a PRIVATE company–and consequently the screw-up. When the primary goal is profit, therein lies the tale. And yes, I’m expecting blowback from those who want to privatize everything. We disagree.

  • AAGK

    You would think once Navient acknowledged the error, this guy wouldn’t have to do anything else.

  • Mel65

    Ugh. My student loans moved from Sallie Mae to Navient, too. I pay $200 a month on top of my required payment and I’ve called and asked repeatedly that the additional amount be applied to principle and NOT applied to the next month’s payment, and it never is. The convoluted payment applications and algorithms they use to compound interest on interest and accrue more interest and apply payments based on the location of Venus in Aquarius or something just makes my head hurt. It feels like they’ll never be paid off! I’ve had basically the same balance for years it seems!

  • James

    For the DRAM class action suite those crumbs were a four figure check for me.

  • James

    Odds are there is a binding arbitration clause in there.

  • deemery

    That’s a lot of memory :-)

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