Navient student loan borrowers have been getting the tougher treatment from the Department of Education under the Obama administration, and it’s about to get worse.
On Thursday, the Department announced it would reclassify Navient loans under the Higher Education Act as predatory loans, a designation that would make them ineligible for loan forgiveness.
The reclassification would come into effect on January 31, 2019, the date Navient’s parent company, Navient, plans to shut down.
Navient is a provider of student loans for thousands of institutions, including more than 60,000 colleges and universities.
The Department’s action came just a week after Navient and other lenders made headlines for raising tuition at some institutions, as well as charging borrowers more for their loans.
But Navient isn’t the only student loan company struggling under the new treatment.
More than half of all student loan debt is owed by low-income students, according to the National Student Loan Data System, which counts about $18 billion in outstanding loans and other loans.
In 2014, the Bureau of Labor Statistics estimated that about 7.3 million borrowers had outstanding student loan balances of more than $1 million, a number that has more than doubled since the recession.
This makes up a substantial portion of the total debt burden of low- and moderate-income Americans.
The problem for Navient borrowers is that their loan balances are often much smaller than their income.
For example, a single borrower with $40,000 in income can borrow as much as $15,000 with $10,000 coming from a savings account.
If that borrower had $30,000 of income, she could borrow as little as $7,000, but her loan balance would be $7.
The average debt of students with at least $1,000 outstanding on their loans was $2,872 in 2015, according the BLS.
Navient has been making strides in getting the loan servicing issues right, and the Department’s move could help make things even better.
But the Department is not the only agency looking to reclassifying Navients.
In January, the Federal Trade Commission announced it was reviewing Navient loan products.
The FTC is examining the company’s loan products to determine whether they are adequately servicing borrowers and whether they offer reasonable alternatives for student loan customers.
If the FTC decides to reevaluate Navient products, it would likely have to rework loan programs, according Toi Lee, an attorney with the National Consumer Law Center.
The new requirements could require lenders to offer more flexible repayment plans, including a deferment option for borrowers with low incomes.
It could also lead to higher interest rates on loans that Navient customers take out, Lee said.
“It would make a huge difference to consumers who are trying to get their money back,” Lee said, pointing out that it would also affect the student loans borrowers take out.
“These loans aren’t going to go away anytime soon.”
The new rules could also affect Navient lenders, who are already facing the prospect of being shut down by the government, said Jason Blanton, an analyst with the American Bankers Association.
Blanton pointed to the recent closure of Navient Loan Advisors, a company that provided student loan services.
According to the Department, the company failed to adequately assess borrowers’ financial needs.
It also failed to offer students access to loan programs such as an alternative repayment plan, and to ensure that borrowers with outstanding loans had access to other options for repayment, such as income-driven repayment plans or a traditional student loan repayment plan.
Navients CEO and president, Jason Kresser, said in a statement that the company has “worked diligently with the Federal Government” to ensure all students are adequately supported.
He said the company will “continue to work closely with the government on a sustainable path forward.”