WASHINGTON — The student lender Sallie Mae, which in recent weeks reorganized into separate corporations, agreed to pay almost $100 million in compensation and penalties for overcharging military members who took out education loans.
Under an agreement reached with the Department of Justice announced Tuesday, Navient Corp., which took over Sallie Mae’s student loan servicing business, agreed to pay $60 million in compensation and a $55,000 penalty for charging military members excessive student loan interest rates. A federal law, the Servicemembers Civil Relief Act, or SCRA, caps the rate at 6 percent.
Speaking to reporters at the Justice Department, Attorney General Eric Holder said Sallie Mae charged excessive interest to 93 percent of active duty servicemembers who took out loans with the corporation, and to about 60,000 servicemembers in all.
The $60 million settlement under the SCRA is the first of its kind, Holder said.
“By requiring Sallie Mae to compensate its victims, we are sending a clear message to all lenders and to all servicers who would deprive our servicemembers of the basic benefits and protections to which they are entitled,” Holder said. “This type of conduct is more than just inappropriate; it is inexcusable. And it will not be tolerated.”
Another successor company, Sallie Mae Bank — which company officials said is no longer involved with student loan servicing — reached an agreement with the Federal Deposit Insurance Corporation to pay back $30 million in late fees improperly charged to servicemembers, as well as a $3.3 million penalty.
In a news release, Navient president and CEO John (Jack) F. Remondi, apologized for operational errors and said the company had instituted new procedures and safeguards.
“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,” Remondi said. “Over the past several years, we have implemented changes in our procedures and training programs to prevent these mistakes from happening again.
Sallie Mae Bank on Tuesday also said it plans to do better by troops in the future.
“We regret any inconvenience or hardship that our customers may have experienced,” the company said in a news release. “Initiatives are under way to prevent such errors from reoccurring and apply the clear regulatory guidance these orders now provide.”
Holder said the problems came to light after troops complained to the Consumer Financial Protection Bureau.
Standing next to Holder at the Justice Department, U.S. Secretary of Education Arne Duncan on Tuesday promised his department would comb through all the student lenders it works with to make sure other companies weren’t imposing improper fees or interest rates on troops.