Sallie Mae, a student lender and a wholly owned subsidiary of the reorganized SLM Corp (NASDAQ:SLM), has reached a settlement agreement with the Department of Justice (DOJ) to resolve the lawsuit filed against it for allegedly violating the rights of the military by charging them more than the 6% interest cap on their student loans.
Sallie Mae settlement details
According to a statement from the DOJ, Sallie Mae agreed to pay $60 million to compensate members of the military for violating their rights for benefits and protections under the Service Members Civil Relief Act (SCRA). The agency estimated that around 60,000 service members will be compensated under the settlement.
The proposed settlement covers all of the student loans serviced by, or on behalf of Sallie Mae, including private student loans, direct Department of Education loans and student loans originated under the Federal Education Loan Program.
In addition, the settlement also requires Sallie Mae to request that the three major credit bureaus delete the negative credit history entries caused by the interest rate overcharges and improper default judgments.
Furthermore, Sallie Mae is required to streamline the process for service members on how to notify the company regarding their eligibility for benefits under the SCRA. The revised process should include an online intake form for service members, and the availability of customer representatives specially trained on the rights of the military.
Moreover, Sallie Mae is also required to pay the United States government a civil penalty of $55 million.
Clear message to all lenders
In a statement, U.S. Attorney General Eric Holder emphasized, “By requiring Sallie Mae to compensate its victims, we are sending a clear message to all lenders and servicers who would deprive our service members of the basic benefits and protections to which they are entitled: this type of conduct is more than just inappropriate; it is inexcusable. And it will not be tolerated.”
Echoing Holder’s sentiments, Education Secretary Arne Duncan said, “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. “What’s more, every student who has taken out a federal student loan should have the peace of mind that the department’s servicers are following the law and treating all borrowers fairly.”