- The Washington Times - Tuesday, May 13, 2014

Student loan giant Sallie Mae reached a $60 million settlement with the federal government Tuesday after the company charged members of the military excessively high interest rates for college and other educational loans.

One of the largest student loan companies in the U.S., Sallie Mae provided financial support to members of the military but didn’t follow laws that allow troops to get discounted repayment rates — causing service members to shell out more than they should have, according to documents from the Justice Department.


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“Federal law protects our servicemembers from having to repay loans under terms that are unaffordable or unfair,” Attorney General Eric H. Holder Jr. said in a statement. “That is the least we owe our brave servicemembers who make such great sacrifices for us.”

The Servicemembers Civil Relief Act (SCRA) — a law with roots dating back to the Civil War — sets a number of protections and benefits for military personnel. Among its current provisions: a cap of 6 percent interest on student loans.


But the Justice Department said that since 2005, that cap was never applied, and servicemembers paid excessively for their education. Now the $60 million settlement is going to reimburse roughly 60,000 military personnel who may have been affected.

The DOJ has also ordered Sallie Mae to work with credit companies to strike any bad credit history the troops might have incurred from the overcharging.
“This type of conduct is more than just inappropriate; it is inexcusable. And it will not be tolerated,” Mr. Holder said.


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It’s the first time the government has filed a lawsuit against providers of student loans for military personnel, an effort that involved the Justice and Education departments, the FDIC and the Consumer Financial Protection Bureau. The settlement is pending approval from the U.S. District Court for Delaware, but is expected to be accepted.

“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 Secretary of Education Arne Duncan. “Federal student loans are a critical part of helping every American find the clearest path to the middle class through a higher education, so we must do everything we can to ensure quality customer service for every borrower.”

As of May 1, the Sallie Mae company has actually split into two separate divisions: Sallie Mae Bank, a consumer bank with an eye toward helping families save for college; and Navient, which will continue the student loan programs.

While the bank said it will update its SCRA compliance, the repayment portion of the settlement is largely falling into the lap of the student loan company — Navient.

Navient said it believes the DOJ’s current interpretation of the law “is inconsistent with prior regulatory requirements and guidance,” but said it has “agreed to enter into the settlement and provide such compensation in order to put the matter behind” the business.

“We offer our sincere apologies to the servicemen and servicewomen who were affected by our processing errors and thus did not receive the full benefits they deserve,” said John Remondi, the company’s president and CEO. “Over the past several years we have implemented changes in our procedures and training programs to prevent these mistakes from happening again.”

Sallie Mae Bank, meanwhile, said it is fixing the mistakes that allowed the overpayments to happen in the first place.

“We regret any inconvenience or hardship that our customers may have experienced,” Sallie Mae Bank said in a statement after the settlement was announced. “Initiatives are underway to prevent such errors from reoccurring and apply the clear regulatory guidance these orders now provide.”

“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,” the company said.

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