In 2012, a Consumer Financial Protection Bureau report found that members of the U.S. military had an unusually high level of difficulty paying off student loan debt. The results of the report led to an investigation of a number of companies, including the SLM Corporation. SLM was originally the Student Loan Marketing Association, commonly referred to as “Sallie Mae.” SLM and numerous other companies were found guilty of widespread overcharging of interest on service members’ student loans.
Under federal law, student loan interest rates for active-duty military service members are discounted, capped at a maximum of 6%. The investigation found that Sallie Mae was not only charging service members interest rates exceeding 6%, but the corporation was also creating obstacles for service members to get their discounted rates. Members of the SLM Corporation allegedly required service members to prove their eligibility for the lower rate, and made service members jump through hoops to prove their eligibility, when the law requires that the burden of collecting the proof of eligibility was on Sallie Mae.
“This type of conduct isn’t just inappropriate, it’s inexcusable and will not be tolerated,” said U.S. Attorney General Eric Holder.
The SLM Corporation and companies that were formerly affiliated with Sallie Mae agreed to pay a total of $97 million in settlements for their misconduct, which dates back as far as 2005. There will be $60 million slated to be split among the estimated 60,000 service members who were overcharged.
The other $37 million is part of a separate settlement between Sallie Mae, Navient Solutions Inc. and the Federal Deposit Insurance Corp. (FDIC). The FDIC slapped penalties on the two formerly connected lenders for violations of the Service Members Civil Relief Act and deceptive lending practices.
Despite the investigation’s findings, the Education Department is expected to renew its contract with Sallie Mae this spring. But the department says that it will be reviewing whether student loan issuers are following the law.
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