Sallie Mae, Navient To Pay $97M To Settle Servicemember Student Loan Violations

Taking advantage of members of the military isn’t looked upon lightly by federal regulators. This idea was driven home today by the Depts. of Education and Justice, and the Federal Deposit Insurance Corp., who jointly announced a sizable settlement against student loan servicers Sallie Mae and Navient for overcharging and imposing excessive fees to military members.

Sallie Mae and Navient agreed to pay a combined $97 million to settle charges that they violated the Servicemembers Civil Relief Act [PDF] which caps loan interest rates at 6% for active duty military members, the Wall Street Journal reports.

The companies will pay $60 million in refunds to approximately 60,000 servicemembers and a $55,000 civil penalty to settle the Justice and Education department’s portion of charges. The FDIC is requiring a payment of $30 million in refunds and $6.6 million in civil penalties.

Earlier this year Sallie Mae, the country’s largest originator and servicer of student loans, spun off its loan servicing, loan management, and collections to a new company, Navient.

In a news release about the settlement, Attorney General Eric Holder says that conduct like Sallie Mae’s “is more than just inappropriate; it is inexcusable. And it will not be tolerated.”

While the Consumer Financial Protection Bureau was not involved in Tuesday’s settlements, it has been conducting its own investigation into the deceptive actions of Sallie Mae and Navient.

“Today’s action should serve as warning not just to the student loan servicing industry, but to all institutions that provide or service loans to the military,” Holly Petraeus, assistant director for the CFPB, says in a statement. “Federal agencies will be vigilant about holding all financial institutions accountable for providing the protections that our servicemembers have earned through their selfless service to our nation.”

Scrutiny against loan servicers’ allegedly deceptive practices picked up following a 2012 report by the CFPB that found service members faced hurdles in assessing their student loan benefits.

According to the report [PDF], servicers, such as Sallie Mae, were not providing military members with clear and accurate information about their repayment options. The CFPB reported that military borrowers were denied interest-rate protections because they failed to resubmit unnecessary paperwork while completing active duty.

“Sallie Mae gave servicemembers the runaround and denied them the interest-rate reduction required by law,” Petraus said in a statement Tuesday. “This behavior is unacceptable. And it’s particularly troubling from a company that benefits so generously from federal contracts.”

For its part, Sallie Mae said in a written statement that it is making the appropriate adjustments to be in compliance with military lending laws.

“We regret any inconvenience or hardship that our customers may have experienced,” the statement says.

While a written statement from officials at Navient offers apologies to the servicemembers who were affected by the issues, the company disputes the Justice Department’s interpretation of the military lending law calling it inconsistent with prior requirements.

In addition to the monetary settlement, Sallie Mae must abide by several provisions to ensure servicemembers are protected in the future.

  • The company must request that all three major credit bureaus delete negative credit history entries caused by the interest rate overcharges and improper default judgments;
  • The company is required to streamline the process by which servicemembers may notify Sallie Mae of their eligibility for SCRA benefits;
  • The company must provide a revised process that includes an SCRA online intake form for servicemembers;
  • The company must make available customer service representatives specially trained on the rights of those in military service.

Justice Department Reaches $60 Million Settlement with Sallie Mae to Resolve Allegations of Charging Military Servicemembers Excessive Rates on Student Loans [Department of Justice]

Sallie Mae, Navient Reach Student-Loan Settlement With U.S. Government [Wall Street Journal]

Statement by Consumer Financial Protection Bureau’s Holly Petraeus on DOJ, FDIC Enforcement Actions Against Sallie Mae [Consumer Financial Protection Bureau]

Read Comments6

Edit Your Comment

  1. CommonC3nts says:

    I dont see how it is even fair that active military get a 6% cap on student loans. Why not everyone??

    “the CFPB reported that military borrowers were denied interest-rate protections because they failed to resubmit unnecessary paperwork while completing active duty.”

    I would like to see a statement from someone who was successfully able to submit their paperwork and be capped at 6% to see how easy it was.
    I have a feeling that many people were lazy and just did not want to take the time to submit their paperwork.

    • C0Y0TY says:

      It’s fair because they are promised compensations such as the loan caps in exchange for their commitment to serving their country. This service includes rigorous training and very hard work. It’s a contract, and the loan servers are obligated to fulfill it just as the military borrowers have.

      • CommonC3nts says:

        Joining the military and being 100% taken care of is one of the easiest things one can do.
        Getting loans, getting a degree, and trying to make it on your own in the real world is a challenge. Those that take the hard way should get a better benefit then those that take the military easy way.

      • Lenne says:

        I tend to agree with CommonC3nts, but very cautiously. I have seen plenty of people join the military because they can’t figure out what else to do with their lives. These are people with absolutely no future aspirations, and the requiters that I have seen swarm around high schools like buzzards make the situation worse. This is difficult to put into words without pissing anyone off, but I will do my best. It pains me to see some of these soldiers given high regard for taking an easy route, and here I am busting my arse eight years in college to receive a double major, and I get no perks. My mother told me one thing before she passed away and I took it to heart. She told me to stay in school because the military is for the gullible. I would make a terrible soldier, because I would question every single order I received.

  2. MissPurdy says:

    I wouldn’t say being in the military is the easiest job to have once you’re an active service member. Signing up may be the easiest path to take as compared to choosing a college education but I sure wouldn’t want to trade places with someone patrolling the desert in Afghanistan.

    The student loan industry needs total reform with Sallie Mae being at the top of the list of worst offenders. I cannot wait until I have that loan paid off, trying to navigate their website for existing loan information is terrible. I challenge anyone to try and get a loan repayment schedule from those thieves.