Pennsylvania Attorney General Josh Shapiro. (Matt Rourke/AP)

Pennsylvania Attorney General Josh Shapiro on Thursday filed a lawsuit against Navient, one of the largest student loan management companies in the country, for allegedly steering borrowers into costly repayment plans and peddling predatory loans.

“Navient repeatedly engaged in misleading practices meant to boost their profits at the expense of Pennsylvania students,” Shapiro said in a statement. “They crossed the line in pursuit of profit, and we’re here to change their behavior and help the people who’ve been harmed.”

He said Pennsylvania residents, who collectively owe about $61.8 billion in private and federal student loans, have filed more than 1,000 complaints against Navient with the Consumer Financial Protection Bureau. Shapiro is seeking restitution for borrowers and an undetermined amount in civil penalties.

In a statement, Navient called the lawsuit “completely unfounded” and said “the case was filed without any review of Pennsylvania residents’ customer accounts.”

The charges in the complaint span from 2004 to 2014, a period of tremendous growth in the student loan origination and servicing business. Navient spent a majority of that time as a subsidiary of education financier Sallie Mae. Shapiro says the two made “risky and expensive” private student loans that carried interest rates as high as nearly 16 percent and fees equal to 9 percent of the loan. Those loans were provided to students with poor credit, attending colleges where barely 50 percent of people graduated, an indicator that borrowers were at risk of not completing their degrees and being unable to repay the debt, the complaint said.

Sallie Mae used those private subprime loans to develop relationships with colleges and universities. In the lead-up to the 2008 recession, colleges had what’s known as preferred lender lists, made up of companies that offered a full suite of federal and private loans. Although Sallie Mae expected its subprime loans to default en masse, prosecutors say having the loans as an option in the company’s package was critical to persuade schools to include them on the lender list.

Navient absorbed Sallie Mae’s liabilities and 95 percent of its assets, including servicing rights to $300 billion in student loans, when the companies split in 2014. That means Navient is responsible for any expenses, losses and remediation arising from the lawsuit.

While the lion’s share of the charges leveled in the lawsuit are directed at Sallie Mae’s lending practices, prosecutors also take aim at the ways in which Navient services student loans. Authorities claim the company steered too many people into short-term forbearance that postponed their loan payments but accrued more interest on their debt. Placing someone in forbearance requires less paperwork than enrolling that person in an income-driven repayment plan, which can lower the monthly bill and eventually offer loan forgiveness.

Navient insists that “we comply with the rules that govern the student loan program as set by Congress and the Department of Education, and there are no allegations that we have violated these rules,” Navient stated. “We will provide the facts in court as we continue to provide industry-leading service to our customers.”

Pennsylvania’s lawsuit mirrors cases filed against Navient by Illinois Attorney General Lisa Madigan and Washington Attorney General Bob Ferguson in January. In those cases, the state attorneys general teamed with the Consumer Financial Protection Bureau in a multiyear investigation into the business practices of Navient and its subsidiaries, finding widespread breakdowns in servicing. Illinois and Washington filed their lawsuits on the same day as the CFPB announced its case against Navient.

Among the most serious charges in the CFPB complaint is an allegation that Navient incentivized employees to encourage borrowers to postpone payments through forbearance. As a result, the CFPB says Navient customers who were enrolled in multiple, consecutive forbearances from January 2010 to March 2015 amassed more than $4 billion in interest charges. Navient denies all wrongdoing in that case, which the company said was politically motivated.

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