Navient cut ties with the Education Department because of money. Navient wasn’t making enough profit to justify the headaches it was getting from servicing the accounts. The federal student loan servicing contract was a small part of Navient’s business,* but it was likely its loudest problem area.
Since being spun off from Sallie Mae in 2014, Navient has been dogged by allegations that it mistreated federal student loan borrowers. Tens of thousands of borrowers have lodged complaints with the Consumer Financial Protection Bureau about their dealings with Navient. The company also faced related lawsuits from state attorney generals and federal authorities and unyielding pressurefrom lawmakers like Elizabeth Warren, senator from Massachusetts.
Navient announced that it was ending its contract after chatter increased that the federal government would reform its student loan servicing business. On an earnings call in July 2020, Navient chief executive Jack Remondi said the Education Department sought to transfer “too much risk to the servicer, and at rates and terms that…are effectively below cost for everybody.”
Moving marginally profitable, troublesome accounts to a new company was an easy fix. It was also one that Navient knew well. Sallie Mae did the same thing when it ended its contract with the Education Department and shifted its federal and predatory private loans off its books to Navient.
Learn More: Sallie Mae Student Loan Forgiveness
*The company makes most of its money from private loans, contracts to support states processing unemployment benefits, contact tracing, and vaccine administration services.