State and federal regulators should step up their oversight of Sallie Mae and other student-loan servicers, and better coordinate their enforcement efforts, according to a new report by the National Consumer Law Center.
The report, “The Sallie Mae Saga: A Government-Created, Student-Debt-Fueled Profit Machine,” offers a case study of Sallie Mae, charting the company’s rise from government-sponsored entity to student-loan behemoth, with a role in lending, servicing, and debt collection. It details recent scrutiny of the company, which is being investigated by a trio of federal agencies, and describes the difficulties some of its subprime borrowers face in repaying their debt.
The consumer-law center is a nonprofit advocacy organization that seeks to protect the financial interests of disadvantaged people. The report’s author, Deanne Loonin, a lawyer with the center, argues that the growing number of investigations and complaints against Sallie Mae show that government supervision of lenders and servicers has been “lax at best,” and point to the need for “significant changes in the treatment of student-loan borrowers.”
Ms. Loonin calls on the Department of Education to work with the federal Consumer Financial Protection Bureau and state attorneys general “to ensure that servicers are doing their jobs properly,” and urges the department to change how it evaluates servicers and debt collectors.
She also recommends that the Department of Education recover more than $20-million in allegedly improper payments to Sallie Mae, and offers five “guiding principles” for providing debt relief to private-loan borrowers.
Sallie Mae is the largest provider of private student loans and one of four companies that service a majority of federal student loans. The company is under investigation by the Consumer Financial Protection Bureau, the Department of Justice, and the Federal Deposit Insurance Corporation, which is poised to penalize the company.
Last fall U.S. Sen. Elizabeth A. Warren, Democrat of Massachusetts, wrote to the Departments of Education and of the Treasury, and accused those agencies of “rewarding” the company with lucrative servicing contracts “despite its repeated failings.”
In a response, sent in December, the Education Department said the company’s past “compliance issues” did not warrant financial penalties and had been resolved through “corrective action.”
Patricia Christel, a spokeswoman for Sallie Mae, called the consumer-law center’s report “an unfortunate, inaccurate picture of the good work our 7,500 employees do to help customers.”
“Plain and simple, we only succeed when our customers succeed,” she said.
Ms. Christel noted that the company’s charge-off rate for private loans has improved since the recession, and is now less than 3 percent.
She also pointed out that federal loans serviced by the company default at a rate 30 percent lower than the national average.
