Sallie Mae Cheated Soldiers on Federal Student Loans, Government Investigators Find

April 17, 2014
Huffington Post 
student loan news
New evidence suggests that Sallie Mae cheated active-duty soldiers on government student loans.

If the findings are made public as part of a lawsuit or settlement, Sallie Mae's contract with the Department of Education to collect payments on federal student loans could be compromised. Under that agreement, loan servicers must comply with all U.S. laws when handling federal student loans. The Education Department, already under criticism for a lack of oversight of student loan companies that allegedly violated federal rules, in October announced its intent to renew Sallie Mae's servicing contract. "If the Education Department fails to enforce that clause of the contract, they are letting down borrowers, soldiers and taxpayers," according to Chris Hicks, who heads the Debt-Free Future campaign for the nonprofit Jobs With Justice.

Investigators led by the Consumer Financial Protection Bureau (CFPB), Federal Deposit Insurance Corp., and Department of Justice found cases in which Sallie Mae denied military borrowers with federal student loans their rights under the Servicemembers Civil Relief Act. Authorities also are looking into whether it violated laws against unfair or deceptive practices and discriminatory lending. In February, a group of state attorneys general announced that they also are investigating the servicer.

Under the servicemembers law, loan servicers must reduce borrowers’ interest rates to no more than 6 percent upon request by soldiers entering active duty. The CFPB says there appears to be widespread denial of military members’ rights under the law. Servicemembers have complained that loan companies would not lower interest rates unless the loans were in forbearance or deferment, and others complained of unnecessary bureaucratic hurdles.

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