The Sallie Mae loan servicing practices have gotten consumer backlash after they put countless student borrowers into expensive subprime loans. After reviewing hundreds of complaints and thousands of phone calls, the Illinois AG, Lisa Madigan, filed a series of state lawsuits. The state lawsuits aim to obtain debt relief for borrowers and to recover monies from the company that was harmed by its practices. In addition, the CFPB is pursuing civil penalties against Navient, the company that serves Sallie Mae loans.
Navient
The Navient vs Sallie Mae lawsuit is the culmination of a long investigation involving the Washington Attorney General’s Office and the federal Consumer Financial Protection Bureau. The investigation consists of interviews and depositions with executives at Navient and thousands of pages of company documents. The lawsuit was filed in combination with a similar suit filed by the Illinois Attorney General’s Office. While the investigation was conducted on behalf of borrowers, the lawsuit has broader implications.
As a result of this lawsuit, many of the loans were canceled. Thousands of borrowers had their loan balances canceled. The company maintains that the claims are unfounded. Ultimately, Navient decided to settle the lawsuit rather than incur further costs. The settlement requires Navient to pay $145 million to 39 states and reimburse the states’ court costs. The remaining funds will be dispersed to former borrowers.
Sallie Mae
A federal lawsuit has been filed against Sallie Mae for violations of the Servicemembers Civil Relief Act (SCRA). The suit claims that Sallie Mae, a company that makes student loans, failed to properly notify borrowers of their annual income certification requirements, failed to follow their instructions for making excess payments, and misrepresented its policies. As a result, borrowers are suing to recoup the monies they owe as early as possible. The proposed settlement covers all student loans, private and departmental, and the Federal Family Education Loan Program.
In 2013, Sallie Mae announced that it would separate its consumer banking and education loan management businesses. The spin-off was completed on April 30, 2014. Navient CEO, Jack Remondi, has talked about improvements to the student loan program. However, there have been allegations that Navient is violating Federal consumer financial laws. In 2016, the FDIC filed suit against Navient for violating the Federal Trade Commission’s regulations and the Truth in Lending Act.
Navient’s predatory lending practices
The Sallie Mae lawsuit against Navient’S predatory lending practices is a result of the financial institution’s alleged predatory lending practices. Navient originated subprime private loans to for-profit colleges and universities, knowingly deceiving students into thinking they could repay the loan. These practices resembled the subprime mortgage crisis that led to foreclosures and the 2008 financial collapse.
The company evaded financial responsibility by charging borrowers higher interest rates and offering more subsidized loans than they can afford. The lawsuit alleges that Navient took $22 million from taxpayers to fund their operations. The U.S. Department of Education cut ties with Navient last year after the federal government filed suit. Navient will transfer its five million borrowers’ accounts to a competing government loan servicing company, Maximus. Federal student loan borrowers will resume making their payments to Maximus in May 2022.
The settlement with attorney generals
The settlement with Sallie Mae includes $60 million in compensation for wrongful practices. Additionally, the company must make necessary changes to improve servicemembers’ protections. For example, it must remove negative entries from servicemembers’ credit history, simplify the process for servicemembers to notify Sallie Mae they qualify for SCRA benefits and provide customer service representatives specifically trained in military rights. The settlement also requires the company to pay $55,000 in civil penalties.
The settlement also includes attorneys general of other states, including Florida, Delaware, and the District of Columbia. While the agreement is not binding, it is significant and represents a step forward for servicemembers. The FDIC is working hard to protect our country’s military and veteran communities and has already obtained court approval for the settlement. By allowing servicemembers to continue pursuing their education without the fear of bankruptcy, the federal government is preventing a potential nationwide crisis.
Loans covered by the agreement
The settlement announced today by the FDIC covers all of Sallie Mae’s student loans. These loans include those made directly from the Department of Education and private loans. The settlement also provides compensation for violations of the Student Correspondent Reconciliation Act (SCRA).
In 2015, Navient Corp., a company that competed with Sallie Mae, agreed to forgive $1.7 billion in private student debt. The settlement is a huge victory for students, as the company has been accused of deceiving many borrowers into costly forbearance plans that cost college students more than they borrowed. This settlement resolves multiple state investigations of the company’s practices and will cancel $1.7 billion in private student loans.
