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Dec 12, 2013 02:24 PM EST

Education Department Will Not Punish Sallie Mae Even After Finding Several Lending Violations


Despite allegations of intentionally harming borrowers, Sallie Mae will not face any fines or punishments from the U.S. Education Department (ED) after already renewing the contract between the two.

In letter obtained by the Huffington Post, Sen. Elizabeth Warren (D-Mass.) alleged Sallie Mae defrauded its borrowers, incorrectly billed the ED and committed other violations. Despite these accusations, the ED renewed its lucrative contract with Sallie Mae in Oct. and now will not levy an penalties against their leading student loan servicer.

The letter and subsequent actions by Education Secretary Arne Duncan's agency back up Warren's accusations that the ED is too soft on Sallie Mae. The ED was one of numerous agencies investigating Sallie Mae's alleged violations and the Federal Deposit Insurance Crop. (FDIC) has stated it plans to publicly accuse the company of wronging its borrowers.

Sallie Mae is one of several servicers that collect federal student loan debt and interacts with borrowers on the ED's behalf. Some policymakers believe poor servicing from providers has compounded the estimated $1.2 trillion student loan debt, which also hampers future economic growth.

Sallie Mae's violations are widespread, according to Warren, and they include failing to report certain fees to the ED as well as various incorrect figures and untimely reports. The ED detailed these violations and missteps in a letter to Warren and reported the "general management and reporting deficiencies" as well as "due diligence errors" have been ongoing for some ten years.

Deanne Loonin, director of the National Consumer Law Center's Student Loan Borrower Assistance Project, was not surprised by these revelations. In its letter to Warren, the ED indicated it did not know how many borrowers have been harmed as a result of their errors.

"These are all serious issues that make a huge difference for borrowers," Loonin, an advocate for borrowers, said of the ED's findings. "I'm not surprised because I've seen a lot of this."

She said a main concern for borrowers is when they try to restructure their payments, based on factors like income. The government has programs to help those in need of lower payments due to difficulty finding a job or for those with a low income.

"From the borrower's point of view, what happens is they'll often get a denial when applying for Income-Based Repayment, but there's no clear process to appeal or challenge," said Loonin. "This makes all the difference in the world for borrowers."

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