WASHINGTON (Reuters) - U.S. regulators sued Navient Corp on Wednesday, accusing the largest U.S. student loan servicer of "systematically and illegally failing borrowers at every stage of repayment."
The Consumer Financial Protection Bureau said Navient, which was formerly part of Sallie Mae, provided its student borrowers with bad information, processed payments incorrectly and failed to fix the problems after people complained.
A Navient representative did not immediately respond to a request for comment.
Shares of Navient, which services 12 million borrowers, fell sharply in a volume spike when news of the announcement was reported, but they recovered quickly to trade up 0.8 percent at $15.90 in the early afternoon.
Some of the allegations at the heart of the bureau's complaint involved income-repayment programs, which help struggling borrowers to afford their loan payments.
Qualifying borrowers in some cases are entitled, for instance, to have the federal government pay part of their interest. Some can have their debt forgiven after 20 or 25 years of monthly payments.
The bureau said Navient often failed to allocate payments to borrowers' accounts, steered people who had trouble paying into forbearance and also obscured information that would have helped them maintain lower monthly payments.
The complaint also named two of the company's subsidiaries, Navient Solutions and Pioneer Credit Recovery, and the regulator said it planned to recover "significant relief" for wronged student loan borrowers.
Reporting by Sarah N. Lynch and Susan Heavey; Editing by Jeffrey Benkoe and Lisa Von Ahn