Sallie Mae Student Loan Horror Stories Bring a Slap on the Wrist
BOSTON (TheStreet) -- One in 10 borrowers defaulted on their federal student loans in the first two years after graduation, with one in seven defaulting in the first three years, the Department of Education reported last week. These defaults often lead to debt-collection methods including late fees and penalties and the garnishing of wages, federal tax refunds and even Social Security and disability payments.
But even while many seem to get the shaft by being stuck in a cycle of ever-increasing student loan debt, lender Sallie Mae has been making record profits -- even as it has been found violating laws and its own contractual obligations to the federal government, according to a report released in January by the National Consumer Law Center.
Sallie Mae made a $2 million settlement to New York to resolve claims about improper marketing of student loans, violating a contract on recovery and disclosure in 2008 via its debt-collection arm Pioneer Recovery and neglecting to report complaints by student loan borrowers as determined by the Department of Education's inspector general, the report says.
The lender is also under investigation by the Department of Justice and Consumer Financial Protection Bureau, and an Education Inspector General Audit Report found it improperly got $22.3 million in excess student loan subsidies from the government between 2003-06.Similar examples of Sallie Mae's bad behavior were noted in a September letter to the secretaries of the Department of Education and the Department of Treasury by U.S. Sen. Elizabeth Warren, a Massachusetts Democrat. Warren discussed how Sallie Mae violated the Servicemembers Civil Relief Act and the Equal Credit Opportunity Act by charging military personnel excessive interest on their student loans. Despite this laundry list of transgressions, Sallie Mae reaped $321 million in profits in 2010 and had a net income of $1.4 billion last year. It continues to borrow from the federal government as well as banks and other businesses at extremely low rates of interest often less than 1%. Meanwhile, many of its borrowers have paid as high as 12.8% in interest (although a 2011 policy change caps its interest rates at around 9.8%).
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