November 01, 2017

Senator Warren Raises Concerns About Navient Acquisition of Earnest, Possible Conflicts of Interest

Recent Deal Could Allow Navient to Cross-Sell Private Student Loans to Borrowers with Federal Student Loans Serviced by the Company

Text of the letter (PDF)

Washington, DC - United States Senator Elizabeth Warren (D-Mass.) raised concerns today about Navient's recent acquisition of Earnest, an education finance company and private loan lender, and the deal's potential impact on federal student loan borrowers serviced by Navient.
Navient, the nation's largest student loan servicer, announced an agreement on October 4th to purchase Earnest for $155 million. Earnest offers private student loan refinancing among its products, and is projected to originate nearly $1 billion in private student loans this year by refinancing federal student loan borrowers into private student loans with fewer consumer protections. 
"I am deeply concerned that this acquisition presents Navient with an opportunity to abuse its unfettered access to, and relationship with, federal student loans borrowers in order to cross-sell Earnest refinancing products, shift borrowers from its federal servicing portfolio to its private loan origination portfolio, and boost company profits while reducing its contractual responsibilities, "wrote Senator Warren, in a letter to Navient's President and CEO, Mr. Jack Remondi.
Senator Warren noted that the acquisition of Earnest could lead Navient to a serious conflict of interest, "The company could be collecting monthly payments from federal student loan borrowers with one hand, and trying to get some of those same borrowers to trade in their federal loans for Navient/Earnest's private refinanced loans with the other hand. When those borrowers do so, they lose out on their federal protections, and free Navient from contractual servicing obligations and Higher Education Act oversight," wrote the senator. "Navient could also use the payment records to target the most profitable federal student loan borrowers, and then use contact information provided by the federal government to market directly to those borrowers."  
In raising these concerns, Senator Warren also cited Navient's troubling history of misconduct and mistreatment of student loan borrowers, including a pending lawsuit filed by the Consumer Financial Protection Bureau in January 2017.  
Senator Warren requested additional details about the contractor's acquisition of Earnest, as well as how Navient plans to utilize the company in a manner consistent with its obligations as federal student loan servicer. The senator asked if Navient plans to end its contractual relationship with the U.S. Department of Education after the acquisition to prevent conflicts of interest, and if not, how it plans to create a "firewall" between its own student loan portfolio and Earnest private loan products.