Obama Administration pressed on Sallie Mae Contract Renewal
This past Thursday March 27th, 2014 the Obama administration received a grilling by U.S lawmakers on the government’s decision to renew a contract with SLM Corp, the infamous student loan servicing company better known as Sallie Mae, which happens to be the subject of numerous government investigations.
Elizabeth Warren, Massachusetts Democratic Senator, said during the hearing, Senate Committee on Health, Education, Labor and Pensions, that Sallie Mae had violated consumer protection laws but was not held accountable.
“Sallie Mae has repeatedly broken the rules and violated its contracts with the government, and yet Sallie Mae continues to make millions on its federal contracts with the Department of Education,” Warren said of SLM,Corp.
A Sallie Mae employee emailed this response to an online news site: “Americans with federal loans serviced by Sallie Mae are 30 percent less likely to default than others. Sallie Mae-serviced customers enjoy a higher rate of repayment success due to the company’s top default prevention performance in the direct loan contract.”
It seems Sallie Mae representatives have a lot to say in writing, but not face to face. Sallie Mae did not have anyone present at the hearing. Apparently Committee Tom Harkin, an Iowa Democrat, said the company and other servicers had turned down invitations to testify.
SLM, Corp, is the largest U.S. student loan provider as of today, serviced 5.7 million student loan accounts on behalf of the U.S. Department of Education as of December 2013.
The Department of Education said it paid the company around $87.1 million in the fiscal year that ended September 30th.
Currently, Sallie Mae is facing probes by the Department of Justice, the Federal Deposit Insurance Corporation, the Consumer Financial Protection Bureau, and a number of states, including Utah and Illinois.
This servicing monster which services federal and private student loans, has been accused of violations that include improper marketing, unfair targeting of military veterans, high fees and improper account handling.
James Runcie, chief operating officer of the Education Department’s federal student aid program, said the department decided to renew Sallie Mae’s and other servicers’ contracts in order to avoid the displacement of over 24 million student accounts.
“In terms of extending the contract for Sallie Mae, it was part of extending the contracts for all of the TIVAs (student loan servicers),” Runcie told lawmakers.
In October last year, the Department of Education notified the four primary student loan servicers, Nelnet Inc, Great Lakes, Pennsylvania Higher Education Assistance Agency (PHEAA) and Sallie Mae, that it planned to renew their contracts for five years when current agreements expired in June.
The department strictly monitors its servicers and would act if it saw evidence of any wrongdoing, Runcie said.
In regulatory filings, Sallie Mae said it had set aside $70 million to cover costs arising from any enforcement actions.
Last year, the CFPB mentioned that SLM Corp was the subject of nearly half of the 3,800 student lending complaints filed to the agency for the 12-month period starting October 2012. The CFPB ranked Sallie Mae as the worst in borrower, school, and federal personnel satisfaction in a report rating student loan servicers.
Senator Warren, who is now well known for her aggressive stance against big educational lenders, said the Education Department was not doing enough to hold Sallie Mae accountable and to prevent it from repeating the violations it has been accused of.
“I’m very concerned about reupping a contract with Sallie Mae, when Sallie Mae has demonstrated time and time again that it hasn’t followed the rules,” she said.
It’s just a matter of waiting and seeing now.