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Students watch from a balcony during a demonstration calling for lower tuition at Hunter College in New York
Federal regulators have sued Navient, accusing the biggest U.S. student loan company of making it harder for borrowers to repay loans by giving them bad information, processing payments incorrectly and failing to act on complaints.
The Consumer Financial Protection Bureau filed the federal lawsuit against Navient Corp. and two subsidiaries on Wednesday, seeking restitution for affected borrowers and money penalties.
The agency said the company also cheated struggling borrowers out of their rights to lower their payments "through shortcuts and deception."
The company's illegal practices made it harder and more costly for some borrowers to repay their student loans, the agency said.
"For years, Navient failed consumers who counted on the company to help give them a fair chance to pay back their student loans," Cordray said in a statement. "At every stage of repayment, Navient chose to shortcut and deceive consumers to save on operating costs."
Among the allegations: that Navient failed to correctly apply borrowers' payments to their accounts; steered struggling borrowers into paying more than they had to; and hurt the credit of disabled borrowers, including injured veterans, by misreporting to the credit-reporting agencies the status of their loans.
In May 2015, the Justice Department announced that nearly 78,000 members of the U.S. military would be reimbursed under a $60 million consent decree with Navient, because they had been charged excess interest on student loans.
The CFPB said that since July 2011, when it began operations, tens of thousands of borrowers have filed complaints with Navient, the agency and other government agencies about the obstacles they faced in repaying federal and private student loans serviced by Navient.
Navient disputed the allegations, calling the suit a politically motivated "midnight action" two days before the Trump administration takes office.
"We will vigorously defend against these false allegations," the company said in a statement.
Navient, formerly part of Sallie Mae, manages and collects payments on more than $300 billion in federal and private-market student loans, according to the CFPB. The company services loans held by more than 12 million borrowers, including over 6 million loan accounts under its contract with the Education Department.
The New York Times pointed out that Navient does not make the loans.
Republicans have opposed the CFPB, which was created by the financial overhaul law enacted following the 2008 crisis. Some Republican lawmakers want President-elect Donald Trump to fire the agency's director, Richard Cordray, after he assumes office.
The consumer watchdog agency has been enmeshed in partisan politics since its creation in 2010. And in October, a federal appeals court ruled that its structure is unconstitutional because it gives too much power to a single agency director.
The court ruled that the way the CFPB is organized violates the Constitution's separation of powers by limiting the president's ability to remove the director.
Washington state and Illinois filed their own suits against Navient on Wednesday, lodging accusations of unfair and deceptive practices. The company also disputed the state actions.
Student loan debt became a leading issue in the presidential election campaign. Regulators across the government have been scrutinizing Navient and other major companies in the $1.2 trillion student debt market, such as Great Lakes, PHEAA and Nelnet.
Navient, based in Wilmington, Delaware, said the CFPB's suit "improperly seeks to impose penalties on Navient based on new (loan) servicing standards applied retroactively and applied only against one servicer."
Navient said the standards being applied by the CFPB don't track with the Education Department's regulations and that they will harm student loan borrowers and increase defaults.
The Associated Press contributed to this report