Illinois sues major student loan providers, alleges consumer fraud

Feb 2, 2017

Illinois Attorney General Lisa Madigan is suing student loan company Sallie Mae and its spin-off Navient for consumer fraud, alleging the companies misled borrowers for profit.

Madigan's office began investigating after receiving numerous complaints.

“We uncovered rampant student loan abuses and (found) that Sallie Mae and Navient had defrauded students, really at each step of the way: originating, servicing and collecting on loans,” Madigan said.

The lawsuit alleges that Navient and Sallie Mae offered student borrowers risky subprime loans, inadequate repayment options and engaged in deceptive debt collection practices. Navient spun off from Sallie Mae in 2014 and now operates as an independent federal student loan provider.

Washington state and the federal Consumer Financial Protection Bureau filed similar suits against Navient on the same day as Madigan, Jan. 18. But Illinois’ suit goes further than the federal suit, naming Sallie Mae as a defendant, too, and accusing both companies of knowingly offering risky loans to students who would have a difficult time paying them back.

Madigan said she filed the additional claims because those students should never have been offered subprime loans.

“While the company may have written that off, that borrower is still dealing with the impacts of that debt on their credit and therefore on their ability to participate in our economy throughout the rest of their life,” Madigan said, adding that subprime borrowers shouldn’t have to pay their debt.

She also wants Navient to return money to people who may have been misled into more expensive repayment methods and for the companies to change their practices.

Navient representatives reached for comment directed St. Louis Public Radio to the company’s statement on the state and federal lawsuits. That statement said the allegations are unfounded and politically motivated, and noted that they were filed days before President Donald Trump took office.

More than 12 million Americans have student loans through Navient, borrowing a total of more than $300 billion.

Follow Camille on Twitter: @cmpcamille.

An earlier version of this story said Sallie Mae was a plaintiff in the suit. The company is a defendant.