“Maybe it’s because those who know won’t and those who don’t can’t.”

Such was my response to a colleague who, after reading a recent article in the Huffington Post on yet another legal action taken against a student loan servicing company for alleged unfair and abusive practices, asked why there’s little, if any, talk about the real reasons loan servicers continue to engage in these contentious activities.

In this instance, Navient Corporation — the nation’s largest student loan servicing company and a prior investigatory target of federal regulators and the Department of Justice — now finds itself under scrutiny from 29 state attorneys general.

Specifically, this coalition of law enforcement officers’ investigation alleges that instead of moving relief-seeking borrowers into one of the federal government’s many income-based repayment plans, Navient’s call-center employees often gave them the runaround, or worse, funneled them into financially detrimental deferment arrangements. Detrimental because the interest that goes unpaid when payments are deferred is then added to principal, after which interest is charged on the higher total amount (a phenomenon known as negative amortization).

Investigators believe that the company’s call-center employees operated this way for two reasons: because they stood to earn financial incentives for successfully concluding increasingly high volumes of calls (generally speaking, temporary deferments are easier, quicker and less costly to arrange) and because many didn’t understand how the government-sponsored relief programs worked in the first place.

If these allegations are true, it’s difficult to comprehend how such an obviously unsustainable scheme can be viewed as a longer-term value-added proposition for Navient. Certainly not after taking into account what it costs to defend its practices and pay the multimillion-dollar fines it’s sustained in the past and could continue to incur, let alone the impact of all that on the company’s standing in the financial markets. (Shares of NAV are currently selling for less than half their value at the time of the firm’s 2014 spinoff from Sallie Mae.)

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Mitchell D. Weiss
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