Sallie Mae's contract with the U.S. Education Department to collect payments on federal student loans could be at risk as a result of a probe reviewing whether the lender cheated active-duty soldiers of their student loan rights under the Servicemembers Civil Relief Act (SCRA), a law intended to ease legal and financial pressures on military borrowers.
The Consumer Financial Protection Bureau, Department of Justice and Federal Deposit Insurance Corp. have led an investigation that already has uncovered cases in which Sallie Mae denied military borrowers federal student loans. Any legal violations, if made public as part of a lawsuit or settlement, likely would threaten Sallie Mae's contract.
The Education Department requires that loan servicers comply with all federal laws when handling federal student loans.
The SCRA allows members of the armed services to receive an interest-rate reduction on loans taken out before active-duty service and offers them deferrals, principal reductions and, in some cases, forgiveness, in some cases.
Several state attorneys general also are looking into Sallie Mae. Consumer advocate groups such as the Debt-Free Future campaign for Jobs With Justice have called for the Education Department to end its agreement with the lender.
"If the Education Department fails to enforce that clause of the contract, they are letting down borrowers, soldiers and taxpayers," said Chris Hicks, of the Debt-Free Future campaign. "The department needs to take this seriously, because Sallie Mae's actions are obscene. They've betrayed our trust."
The Justice Department is responsible for enforcing the SCRA. The FDIC previously stated plans to pursue legal action against Sallie Mae.
The probe into how Sallie Mae has treated members of the military, disclosed by the company last August, previously had concentrated on Sallie Maes handling of their private student loans, or those debts not guaranteed by taxpayers. A spokesman for the Education Department said then that Sallie Mae notified the department that the investigation did not impact any federal student loan borrowers whose loans were serviced by the company.
Sallie Mae previously told shareholders that federal regulators were expected to penalize the company for SCRA violations and that is already is negotiating settlements.