Settlement Resolves the Department’s First Lawsuit against Student Loan Owners and Servicers for Violating the Rights of Servicemembers

WASHINGTON – The Department of Justice today announced the federal government’s first lawsuit filed against owners and servicers of student loans for violating the rights of servicemembers eligible for benefits and protections under the Servicemembers Civil Relief Act (SCRA). The United States’ complaint alleges that three defendants, collectively known as Sallie Mae, engaged in a nationwide pattern or practice, dating as far back as 2005, of violating the SCRA by failing to provide members of the military the six percent interest rate cap to which they were entitled. The three defendants are Sallie Mae Inc. (now known as Navient Solutions Inc.), SLM DE Corporation (now known as Navient DE Corporation), and Sallie Mae Bank. The complaint further alleges that defendants Sallie Mae Inc. and SLM DE Corporation also violated the SCRA by improperly obtaining default judgments against servicemembers.

In addition to the complaint, the department filed a proposed settlement of the lawsuit which will require Sallie Mae to pay $60 million to compensate servicemembers for the alleged SCRA violations. The department estimates that about 60,000 servicemembers will receive compensation under the settlement. The settlement and complaint have been filed in the U.S. District Court for the District of Delaware and the settlement is pending approval in that court.

“Federal law protects our servicemembers from having to repay loans under terms that are unaffordable or unfair,” said Attorney General Eric Holder. “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. By requiring Sallie Mae to compensate its victims, we are sending a clear message to all lenders and servicers who would deprive our servicemembers of the basic benefits and protections to which they are entitled: this type of conduct is more than just inappropriate; it is inexcusable. And it will not be tolerated.”

“Our men and women in uniform who are called to active duty should not be subjected to additional red tape to receive the benefits they’re entitled to for serving their country,” said U.S. Education Secretary Arne Duncan. “What’s more, every student who has taken out a federal student loan should have the peace of mind that the department’s servicers are following the law and treating all borrowers fairly. Federal student loans are a critical part of helping every American find the clearest path to the middle class through a higher education, so we must do everything we can to ensure quality customer service for every borrower.”

“Our brave men and women in the military should not have to worry about receiving the benefits the SCRA provides,” said Jocelyn Samuels, Acting Assistant Attorney General for the Civil Rights Division. “The Justice Department continues to enforce vigorously the laws that protect service members while they do their difficult and necessary work.”

“I applaud the work of the Department of Justice and all the agencies whose joint cooperation made this settlement possible,” said U.S. Attorney Charles M. Oberly III for the District of Delaware. “The least we can do for our brave men and women who sacrifice so much to preserve our freedom is to see that they are afforded the benefits they are lawfully entitled to.”

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