A solution for struggling student loan borrowers: fire their servicer

“Persistence pays off,” Warren said in an interview with Business Insider. “We've been on Navient's trail for years. Director Chopra's efforts at the CFPB have finally helped millions of people get the relief they deserve and a guarantee that Navient will never operate as a federal student loan servicer. This proves we can hold these folks accountable.”

Navient said in a statement following the settlement: “While we disagree with the CFPB's allegations, this resolution is consistent with our future operations and is an important positive milestone in the transformation of our company.”

Warren agreed that the settlement was positive for the industry — and she said it was a sign of more to come for borrowers. Since federal student loan payments resumed last October after a three-year-plus hiatus, the Education Department has reported a number of errors it found in processing, including late or inaccurate billing statements and difficulties with customer service. While all four major servicers faced fines for incorrectly processing payments, Warren said terminating contracts with servicers who failed to meet their obligations would be an effective next step.

“If the government is not willing to fire the people who are cheating our students, then those people will continue to cheat,” Warren said. “Firing the bad service providers would change the whole system enormously.”

“Their days are numbered”

Following the CFPB's settlement with Navient, Chopra said in an interview with BI that more needs to be done in the student loan industry: “There are still so many people struggling with student loan servicers. So we need to keep pushing and keep cleaning up this market.”

One way a group of Democratic lawmakers is further cleaning up the market is by going after MOHELA, another large federal student loan company that serves about 8 million borrowers. In early September, Warren and Rep. Jim Clyburn, along with more than 50 of their Democratic colleagues, sent a letter to Education Secretary Miguel Cardona expressing concern that MOHELA is not living up to its contract to help borrowers.

“We request that ED promptly conduct an assessment of MOHELA's performance of its contractual obligations as a service provider, share key data with our offices as well as with federal and state regulators, and take swift corrective action – including potentially terminating MOHELA's federal contract if such action is warranted,” the lawmakers said.

The Department of Education did not respond to a request from BI about whether it would consider terminating contracts with service providers if they fail to meet their contractual obligations. However, it released an accountability framework in December that outlined enforcement actions it would take if service providers harmed borrowers, including fines and transferring borrowers to service providers with better performance.

Last October, for example, MOHELA became the first loan servicer to be fined $7 million for failing to send timely invoices to its more than two million borrowers.

Still, the push to defund the loan servicers is gaining momentum: In May, advocates joined Democratic lawmakers in calling for MOHELA to be defunded. Representative Ayanna Pressley said at the time, “Enough is enough. Cancel the contract with MOHELA and defund the loan servicers: We will not tolerate your negligence and exploitation; we will not allow you to profit at the expense of vulnerable student borrowers.”

In response to calls in May to terminate the contract, MOHELA told BI that “borrowers are not better off when outside groups spread false and misleading information about our work as a federal contractor for the FSA. We remain committed to providing the highest quality of customer service to the borrowers we serve.”

However, Warren said service providers should view the agreement with Navient as a sign that they must fulfill their contractual obligations or face the consequences.

“We've organized, we've held hearings, we've done everything we can to hold these student loan servicers accountable for their misconduct,” Warren said. “And that's starting to hurt. And for some of them to bite so hard, it means a complete system overhaul. It means that those who have cheated and haven't come clean yet know their days are numbered.”