May 13 (Bloomberg) -- Sallie Mae has reached a $60 million settlement to resolve allegations it overcharged members of the military for student loans, the Justice Department said today.
The U.S. accused the lender of failing to provide members of the military a 6 percent interest rate cap on student loans. The practice dated back to at least 2005 and an estimated 60,000 service members will be eligible to receive compensation under terms of the settlement, the Justice Department said.
“Federal law protects our service members from having to repay loans under terms that are unaffordable or unfair,” Attorney General Eric Holder said at a press conference in Washington. “That is the least we owe our brave servicemembers who make such great sacrifices for us. But as alleged, the student lender Sallie Mae sidestepped this requirement by charging excessive rates to borrowers who filed documents proving they were members of the U.S. military.”
The settlement was announced by Holder and Education Secretary Arne Duncan and is subject to approval by a federal judge in Delaware.
SLM Corp., commonly known as Sallie Mae, spun off its loan servicing operation on April 30 into Navient Corp., which owns about $140 billion in federal and private student loans. Sallie Mae owns about $6.5 billion in private education loans.
The Justice Department settlement came on the same day that Sallie Mae and Navient reached an agreement with the Federal Deposit Insurance Corp. to settle allegations of unfair lending practices. The FDIC said that the companies improperly maximized fees and violated laws intended to protect military service members. As part of the settlement, the lenders agreed to pay civil penalties totaling $6.6 million and to pay $30 million in restitution to the affected borrowers.
In a statement, Sallie Mae said, “We regret any inconvenience or hardship that our customers may have experienced. Initiatives are underway to prevent such errors from reoccurring and apply the clear regulatory guidance these orders now provide. Furthermore, we appreciate the service of the men and women who safeguard our freedom, and we are committed to meeting their needs in a manner that reflects their status and serves their best interests.”
Navient’s chief executive, John Remondi, said in a statement that “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. Over the past several years we have implemented changes in our procedures and training programs to prevent these mistakes from happening again.”
As part of the settlement with the Justice Department, Sallie Mae agreed to tell three credit bureaus to delete information from credit histories caused by overcharges. It will also be required to “streamline the process by which servicemembers may notify” Sallie Mae of their eligibility for benefits.
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