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Sallie Mae Settles with DOJ for $60 Million over Student Loans to Servicemen
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The federal government’s first lawsuit under the Servicemembers Civil Relief Act (SCRA) was settled as soon as it was filed and a milestone in justice over student loans established within a few hours and without much ado. First, the DOJ made a press release about the first lawsuit being filed on Tuesday, and then on the very same date, we had another press release gleefully announcing the settlement with Sallie Mae.

Attorney General Eric Holder said while announcing the lawsuit and settlement, “Federal law protects our servicemembers from having to repay loans under terms that are unaffordable or unfair … 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 lawsuit had alleged that Sallie Mae had failed to provide members of the military the six percent interest rate cap to which they were entitled. The complaint further alleged that Sallie Mae Inc. and SLM DE Corporation also violated the law by improperly obtaining default judgments against servicemembers.

The proposal for settlement of the lawsuit had been filed along with it, requiring Sallie Mae to pay $60 million in compensation to servicemembers for the alleged violations of the law. According to department estimates, about 60,000 servicemembers will receive compensation under the settlement. While the settlement is pending approval in the U.S. District Court for the District of Delaware, there is little doubt that it will work out to the satisfaction of all concerned, the way such high legal drama usually plays out.

The settlement (proposed) includes the entire portfolio of student loans serviced by or on behalf of Sallie Mae including private student loans, direct Department of Education loans and student loans that originated under the Federal Family Education Loan program. The far-reaching settlement also includes certain servicemembers whose rights had been violated almost a decade ago.

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More than the money, some other steps included in the proposed settlement show that at least certain people who were behind the scenes had their sympathies and brains where they matter.

To begin with, the settlement demands that Sallie Mae must request all three major credit bureaus delete negative credit history entries caused by the improper default judgments and overcharging of interest rates. Sallie Mae is also required to pay the United States a civil penalty of $55,000.

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