A second company that services student loan debt has asked the United States federal government to be relieved of its contracts.
Navient, based in Wilmington, Delaware, announced Tuesday it had signed an agreement to transfer the loan servicing to Maximus. The deal is subject to the approval of the U.S. Department of Education's office of Federal Student Aid.
"Navient and Maximus are committed to working together and believe this plan gives the government a reliable approach to support borrower success and advance its vision for next-generation servicing," stated Navient in a press release. The companies stated that they expected the deal to be finalized in the fiscal quarter starting Friday.
The deal comes just before student loan repayment resumes in January 2022. The federal government put student loans on hold last year amid the COVID-19 pandemic. Navient services 6 million borrowers.
In July, the Pennsylvania Higher Education Assistance Agency, known as FedLoan to its 8.5 million borrowers, notified the Federal Student Aid office that it would not accept an extension of its 12-year-old federal student loan servicing contract "beyond what is needed to ensure a smooth transition for borrowers," it said in a press release.
Allegations of corruption
U.S. Senator Elizabeth Warren, a Democrat from Massachusetts, has labeled Navient's management of student loan debt as corrupt and predatory.
In April, at Warren's first hearing as chair of the Senate Committee on Banking, Housing and Urban Affairs' Subcommittee on Economic Policy, Navient CEO Jack Remondi denied his company was guilty of those practices.
Student loans have been a political flashpoint among lawmakers and politicians as progressives such as Warren and Vermont Senator Bernie Sanders — both presidential candidates in the 2020 race for the nation's top leadership position — recommend student debt forgiveness. Proponents of student debt forgiveness say it would free student debtors to spend money on other items, such as housing, which would contribute to the economy and improve their quality of life.
Warren introduced a resolution in February that would provide $50,000 in loan forgiveness to individual borrowers and asked President Joe Biden to use executive action to implement it. So far, he has not.
Critics of loan forgiveness, such as borrowers who have paid their loans, argue that student loan debtors should repay the money and fulfill their financial obligations.
Average student loan debt at graduation for the class of 2021 was estimated at $36,140 and carried an average 2.75% interest rate, according to EducationData.org. By comparison, the class of 2010 graduated with an average $29,880 in debt at a 6% interest rate. Collectively, student debt has reached nearly $1.7 trillion nationally.
For further comparison, the average car loan debt for a new vehicle is $34,635, according to Lending Tree, at a 9.46% interest rate. Collectively, auto loan debt has reached nearly $1.4 trillion nationally.