Crackdown on Sallie Mae and Student Loan Servicers

Maybe it’s because graduation season is here, who knows? But it’s welcome news that serious attention is being paid to some aspects of the student debt crisis. We can all be encouraged by the crackdown on Sallie Mae and the serious examination of the way student loan servicers do business.

Sallie Mae agreed to settle a lawsuit with the U.S. Justice Department that will require the banking giant to pay out $60 million to about 60,000 service members.  The  Justice Department alleged that since 2005 Sallie Mae charged service members more than the allowed 6 percent interest on student loans.

The excessive interest rates had damaging ripple effects.  When many couldn’t pay their loans, Sallie Mae sought default judgments and hurt the credit reputation of borrowers.

Consequently, the settlement also requires Sallie Mae to notify credit bureaus and ask for the default judgements to be removed from service members’ credit reports.

Attorney  General Eric Holder said, “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.”


The National Consumer Law Center (NCLC) asked the Education Department to take a look at the way loan servicers treat all student loan borrowers.

These are the NCLC’s key concerns:

  • Servicers frequently push borrowers to accept solutions that may not be right for them. They suggest putting off loan payments through forbearance rather than working out a long-term solution like repayment tied to an individual’s income.
  •  Aggressive collection agencies apparently violate consumer protection laws and there is little oversight.
  • Department of Education collection agencies apparently do not have clear repayment plans.
  • Borrowers who face default need access to better information about their accounts.



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Barbara Nevins Taylor

As the winner of 22 Emmy Awards and a slew of journalism honors and awards, I created to give you the straight story about complicated stuff. Tell us what you want to know and we'll get you the answers.