Student loan schemes to rip off our military members? Really?
While perhaps not literal loan sharks, well-known student loan company Sallie Mae, now known as Navient, was allegedly swimming in similar waters.
The USA Today reports that a $60 million proposed settlement was announced Tuesday by federal authorities who alleged in a lawsuit that several thousand members of the U.S. military were charged unfair and exorbitant interest rates on their student loans. An additional $30 million is required by the FDIC in the proposal, along with $6.6 million in penalties for $98.6 million.
Government officials also claimed that victims were exploited by being hit with late fees on their loans, and then the company making it difficult for them to know how to avoid the fees, reports the Wall Street Journal.
While the student loan industry has long been under pressure from government regulators, particularly in the “for profit” education industry, this lawsuit marks the first time a student loan company has been charged with violating the Servicemembers Civil Relief Act, which includes capping interest rates on things like student loans, at 6 percent.
Meanwhile, the suit charges that approximately 60,000 servicemembers were given student loan rates over the 6 percent limit.
The payout of the settlement still needs to be approved by a federal judge in Delaware, according to Attorney General Eric Holder and Education Secretary Arne Duncan. But Holder also said the lenders have fully cooperated with the inquiry into their student loan practices and agreed to the settlement proposal.
“We offer our sincere apologies to the servicemen and servicewomen who were affected by our processing errors and thus did not receive the full benefits they deserve,” said Navient President, John Remondi. “Over the past several years, we have implemented changes in our procedures and training programs to prevent these mistakes from happening again.”
“We regret any inconvenience or hardship that our customers may have experienced,” wrote Sallie Mae Bank in a statement, adding to the apology. “Initiatives are underway to prevent such errors from recurring and apply the clear regulatory guidance these orders now provide.”
Despite the assurances and apologies for their taking advantage of military members and their needs for student loans, anger and disgust at their ongoing predatory student loan practices was still palpable.
According to Holder, the student loan lenders haven’t given the military members the 6 percent rate for almost a decade, which was “a nationwide practice.”
“This alleged overcharging appears to have been the rule, rather than the exception,” said Holder. “According to an audit, excessive rates were charged to 93% of active-duty servicemembers who had loans owned or serviced by Sallie Mae… This type of conduct is more than just inappropriate, it is inexcusable, and it will not be tolerated.”
The proposal also includes a request to credit agencies that any interest overcharges and/or default judgements against the student loan victims, be scratched from their credit history.