Student lender Sallie Mae has agreed to pay more than $97 million in settlements to resolve allegations that it charged members of the military “excessive rates” on student loans.
The settlements came from a joint effort between the Department of Justice, the Federal Deposit Insurance Corporation, the Consumer Financial Protection Bureau, and the Department of Education. The departments alleged that Sallie Mae violated the Servicemembers Civil Relief Act by improperly obtaining default judgements and by imposing interest rates that exceeded the 6 percent allowed by federal law.
“By requiring Sallie Mae to compensate its victims, we are sending a clear message to all lenders and servicers who would deprive our servicemembers of the basic benefits and protections to which they are entitled,” Attorney General Eric Holder said Tuesday. “This type of conduct is more than just inappropriate. It is inexcusable. And it will not be tolerated.”
Sallie Mae — which split into two companies, Sallie Mae Bank and Navient Solutions, just last month — will pay $60 million in a settlement with the Justice Department and $37 million in a settlement with the FDIC. The settlements also requires the companies to pay a $55,000 civil penalty, and to request that all three major credit bureaus delete negative credit history caused by the misconduct.
About 60,000 servicemembers are expected to receive compensation from the settlement.
“Our men and women in uniform who are called to active duty should not be subjected to additional red tape to receive the benefits they’re entitled to for serving their country,” said U.S. Education Secretary Arne Duncan. “What’s more, every student who has taken out a federal student loan should have the peace of mind that the department’s servicers are following the law and treating all borrowers fairly.”
During a recent Budget Committee hearing, Duncan came under fire from Sen. Patty Murray (D-Wa.) for the Department of Education’s plan to renew Sallie Mae’s contract amid the allegations. Murray is one of several Democrats, including Sen. Elizabeth Warren (D-Mass.), who have asked that the Education Department suspend the contract.
“The Department of Education spends millions to contract with Sallie Mae,” Murray said to Duncan last week. “The Department has not yet levied any fines against the company, and last fall indicated that it will renew Sallie Mae’s contract this year, despite these allegations. Is that still the plan?”
Duncan replied that there was an investigation underway, but said he could not provide any more details at the time. When asked if Sallie Mae’s contract would be pulled if the company did in fact violate the law, Duncan said the Education Department would “look at every avenue.”
Tuesday’s announcement did not mention ending Sallie Mae’s contract.
The Consumer Financial Protection Bureau has expressed similar concerns about Sallie Mae’s relationship with the federal government. It was the CFPB that first brought servicemember complaints to the other departments’ attention. In recent months, the CFPB has become an increasingly prominent watchdog of improper student lending practices, suing the for-profit college ITT Tech in February.
“The men and women serving this country should receive quality customer service and the legal protections afforded to them,” Holly Petraeus, the assistant director of the CFPB’s Office of Servicemember Affairs, said. “Instead, Sallie Mae gave servicemembers the runaround and denied them the interest-rate reduction required by law. This behavior is unacceptable. And it’s particularly troubling from a company that benefits so generously from federal contracts.”
Navient said in a statement that the violation was the result of “processing errors,” and the company apologized to the servicemembers who were affected. In its own statement, Sallie Mae stressed its separation from Navient.
Navient appears to be responsible for paying the majority of the fees and liabilities, as the financial statements of Sallie Mae prior to the split are now Navient’s, according to an SEC filing from last week. In that same filing, Sallie Mae hinted that the total cost of the settlements may be even higher than what was announced Tuesday, stating that it was setting aside $103 million for the costs of regulatory matters.
“We regret any inconvenience or hardship that our customers may have experienced,” the company stated Tuesday. “Furthermore, we appreciate the service of the men and women who safeguard our freedom, and we are committed to meeting their needs in a manner that reflects their status and serves their best interests.”