Sallie Mae is in danger of losing lucrative loan servicing contracts with the U.S. Department of Education and some of its high-level employees may face criminal penalties pending the outcome of a probe involving evidence that the student-loan behemoth has cheated active-duty soldiers who have taken out federal student loans.
The investigation into how Sallie Mae treats soldiers was initially revealed by the company in August, according to The Huffington Post. However, at that time the inquiry was focused on private loans, not the federal student loans that are guaranteed and subsidized by American taxpayers.
On Wednesday, a Sallie Mae news release about quarterly earnings addressed the probe.
The federal legislation at issue is the Servicemembers Civil Relief Act, a 2003 law that protects military members from the financial stress of debt collection while they are on active duty. The kind of debt which falls under the law is wide-ranging. In addition to student-loan debt, it includes credit card debt, mortgage payments and certain liens and taxes.
With regard to student loans, the servicemembers relief law compels all loan servicing organizations to reduce interest rates to a maximum of 6 percent at the request of any soldier who is on or entering active duty.
Education Department data shows that over half of all federal student loans carried interest rates exceeding 6 percent as recently as 2012.
The Consumer Financial Protection Bureau (CFPB), a watchdog government agency, has underscored mass and blatant noncompliance by Sallie Mae and other loan companies in violation of the Servicemembers Civil Relief Act.
U.S. soldiers have protested that the debt collectors have asserted a nonexistent right not to lower interest rates to 6 percent for loans which are not in deferment or forbearance. Other soldiers have complained that the loan collectors have illegally required additional forms and red tape in order to reduce interest rates.
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