The U.S. Department of Education will not fine student loan giant Sallie Mae, despite allegations that the company has harmed borrowers and fallen short in the servicing department. The department detailed the allegations in a Dec. 9 letter to Sen. Elizabeth Warren (D-Mass.), providing a look into problems dogging the $1 trillion federal student loan portfolio. Education Secretary Arne Duncan is facing accusations that his department tolerates wrongdoing by the firms paid to service federal student loans.
Sallie Mae, the nation’s largest handler of federal student debt, is under investigation by at least three federal agencies for allegedly violating borrowers’ rights. One -- the Federal Deposit Insurance Corporation -- has said that it intends to publicly accuse Sallie Mae of harming borrowers. Despite pending investigations and possible enforcement action, the Education Department notified Sallie Mae in October that it intends to renew its contract to service federal student loans and told Warren that it was “not aware” of any issues that require fines or termination of its existing contract. The Education Department and its inspector general over the last 10 years have concluded that Sallie Mae incorrectly billed the department for its services, did not report certain fees, failed to pay fees to other parties, filed untimely claims when borrowers defaulted, and reported incorrect repayment terms. The letter also said that it found “general management and reporting deficiencies” as well as “due diligence errors.” The department added that, as part of its reviews of Sallie Mae, it “ensures that appropriate corrective action has been taken by Sallie Mae, including any necessary restitution of funds to the department.”