Attorney General Eric Holder, above, and Education Secretary Arne Duncan announced May 13 that lender Sallie Mae has reached a $60 million settlement to resolve allegations it charged military service members excessive interest rates on their student loans. (Orlin Wagner / AP)
The country’s largest student loan providers will pay out $60 million to U.S. troops and veterans for unfair lending practices under a proposed settlement announced by the Justice and Education departments Tuesday.
Along with the average $1,000 payout, eligible troops would be able to erase negative credit histories related to overdue loan payments, potentially repairing their ruined financial records. And the loan providers would pay another $36 million in penalties and fines to the Federal Deposit Insurance Corporation as punishment for the illegal actions.
The deal affects roughly 60,000 troops who took out loans through Sallie Mae and its former loan servicing unit, now known as Navient DE Corp., dating back as far as 2005. Attorney General Eric Holder hailed the announcement as a victory for troops and the country.
“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,” he said. “This type of conduct is more than just inappropriate, it is inexcusable. And it will not be tolerated.”
A federal court must approve the settlement before it can be finalized. Officials from Sallie Mae and Navient did not acknowledge any wrongdoing in the proposed deal, but have agreed to the terms laid out by the departments.
At issue are protections under the Servicemembers’ Civil Relief Act, a law that entitles troops to a 6 percent interest rate cap on certain types of consumer loans, including those for college tuition.
Acting Assistant Attorney General for Civil Rights Jocelyn Samuels said the loan servicers routinely denied troops’ request for the rate caps, instead putting higher rates on their outstanding balances.
In some cases, it was a matter of ignorance or carelessness, Samuels said. In others, loan officers willfully ignored properly documented requests for the lower interest rates.
Education Secretary Arne Duncan called the results “both gratifying and troubling.”
The settlement also mandates an independent administrator to locate potential victims and distribute the overpayment refunds. Justice Department officials said they will post information on how victims can get additional information on www.justice.gov, but that victims need not contact the department to be eligible for the refunds.