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Jun 10, 2014 11:23 AM EDT

U.S. Education Department Considering Navient for Federal Student Loan Contract, Why Critics Are Upset


The U.S. Education Department has narrowed its list of finalists for managing its student loans to four and one company stands accused of cheating active duty military members.

According to the Huffington Post, the Education Department (ED) named Navient Corp., the nation's largest student loan company, to a list of finalists for a contract that could last a decade and be valued at more than a billion dollars. The company granted the contract would be responsible for drawing up new federal student loans and grants while managing existing ones.

The ED made the move May 30 and it is bound to irk some of the department's biggest critics. Navient and its partner Sallie Mae were under a Department of Justice and Federal Deposit Insurance Corp. (FDIC) investigation as recently as last month, though both sides reached a settlement May 13.

In the investigation, the Justice Department and FDIC accused Navient of overcharging active duty servicemembers on purpose. The student loan company is also accused of lying and telling military members they needed to be deployed to reap their benefits. Both would be a violation of the Servicemembers Civil Relief Act and investigators estimated some 60,000 people in the military were affected.

Navient and Sallie Mae recently split into two companies, while the latter was in the midst of its own trouble. Sallie Mae, now a bank, stood accused of borrower's rights violations while the ED took heat for favoring the company despite knowing of the allegations. Now Navient handles Sallie Mae's student loans.

Neither one admitted wrongdoing in the case of the Servicemembers Civil Relief Act investigation, but Navient CEO John Remondi issued a formal apology for "processing errors."

Navient is vying to replace Accenture LLP, the company that currently holds a contract with the ED for $880 million when last valued May 19. Neither Navient nor the ED responded to the HP for comment, but student loan borrower's rights advocate Chris Hicks made his opinion known. Hicks works for Jobs With Justice, a nonprofit in Washington D.C., by operating the Debt-Free Future campaign.

"The Department of Education's actions show how tone deaf they are to what is going on around them," Hicks told the HP. "As tens of thousands servicemembers wait to be refunded money they were allegedly overcharged by Sallie Mae, the Education Department has been talking about rewarding Sallie Mae with an even larger contract that requires them to work with millions of more students."

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