The Department of Justice and the Federal Deposit Insurance Corp. accused the loan giant of intentionally violating the Service Members Civil Relief Act (SCRA) by overcharging loan fees to active duty soldiers beginning in 2005, while many troops were still in Iraq and Afghanistan.
The FDIC said Sallie Mae and Nanvient processed loan payments in a way that would maximize late fees. They also failed to lower service members' loan rates to the 6 percent cap required by the SCRA. The Justice Department's investigation revealed that only 7 percent of service members in their system were paying the 6 percent rate. The remaining 93 percent were severely overcharged. Nearly half paid an additional $166 and around a quarter paid an additional $500.
"Defendants' conduct was intentional, willful, and taken in disregard for the rights of service members," said the Justice Department.
Sallie Mae agreed to create a $60 million fund to refund the 60,000 affected soldiers and $55,000 as a civil penalty. They will also pay $72 million to the soldiers who were overcharged and $6.6 million to the FDIC for a second penalty.
"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," said John Remondi, Navient chief executive.
Sallie Mae added, "We regret any inconvenience or hardship that our customers may have experienced."
Navient did not take all the blame. They partially faulted the federal government for enforcing what they considered to be new standards. At one point, Nanvient told Education Department officials that a service members' rates couldn't be lowered unless they specifically requested to 6 percent cap.
"The Education Department has done nothing to regulate the company when evidence that Sallie Mae mishandled its loans continues to mount," said Chris Hicks, an organizer for the Debt-Free Future campaign for Jobs With Justice. "They have turned a blind eye to their servicers' practices at the expense of borrowers, and this is already beginning to have a ripple effect on our entire economy."
The Department of Education has yet to decide if they will cease federal contracts with Sallie Mae. Education Secretary Arne Duncan said department officials are to immediately review "what appropriate actions, if any," should be taken against the company.