(Adds details of settlements, comment from Navient)
WASHINGTON May 13 Student loan giant Sallie Mae
and student loan servicer Navient Corp will pay
a refund totaling about $60 million to members of the military
whose interest rates it failed to cap at 6 percent, in violation
of federal law, the U.S. Justice Department said on Tuesday.
Separately, the Federal Deposit Insurance Corp (FDIC)
announced a settlement with the two companies that will pay back
$30 million to borrowers affected by late fee practices, which
the regulator said were deceptive.
Sallie Mae allocated payments in a way that maximized late
fees and did not adequately disclose how borrowers could avoid
them, the agency said.
On May 1, Sallie Mae split into two separate companies:
Sallie Mae Bank, which will focus on making private student
loans, and Navient, which services loans on behalf of the
Department of Education and the Federal Family Education Loan
The majority of Tuesday's settlement will be borne by
In addition to the government-directed payments, the student
loan servicer said it would refund another $42 million to
borrowers who are not technically eligible under the FDIC
settlement but who were overcharged due to the late fee issues.
In a statement, Navient said most of the service member
refunds will be distributed to customers that the company did
not believe qualified for the benefit based on prior regulatory
guidance. But Navient said it was entering into the settlement
anyway, to put the matter behind it.
The company told shareholders last week that it had set
aside $173 million to settle the two investigations.
The settlement with the Justice Department will compensate
an estimated 60,000 service members who were charged more than
the legally mandated 6 percent interest rate, which was put in
place to keep education affordable for military personnel.
(Reporting by Aruna Viswanatha in Washington and Peter
Rudegeair in New York; Editing by Chizu Nomiyama and Tom Brown)