Navient, a student loan lender that split off from Sallie Mae in 2014, retained nearly all of the company’s loan portfolio. In recent months, Navient has come under fire for aggressive and sloppy loan collection practices, leading the government to file multiple lawsuits against the student loan giant in January.
However, those accusations have overshadowed broader claims made against the lender. Two separate states, Illinois and Washington, have filed lawsuits against Sallie Mae claiming that it engaged in predatory lending, extending billions of dollars in private loans to students.
“These loans were designed to fail,” said Shannon Smith, chief of the consumer protection division at the Washington State attorney general’s office.
New details emerged last month in the lawsuits against Navient that shed light on how Sallie Mae used private subprime loans, some of which it expected to default at rates as high as 92 percent, as a tool to build its business relationships with colleges and universities across the company.
The risky loans were detrimental for students, however; they were beneficial for Sallie Mae. The private loans were a “baited hook” as Sallie Mae described it. The lender used the private loans to reel in more federally guaranteed loans, according to the lawsuit.
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