(Adds comment by Sallie Mae spokeswoman)
By Elvina Nawaguna
WASHINGTON, March 27 U.S. lawmakers on Thursday
grilled an Obama administration official on the government's
decision to renew a contract with student loan servicing company
SLM Corp, the subject of numerous government
Massachusetts Democratic Senator Elizabeth Warren said
during the hearing, before the Senate Committee on Health,
Education, Labor and Pensions, that the company had violated
consumer protection laws but not held accountable.
"Sallie Mae has repeatedly broken the rules and violated its
contracts with the government, and yet Sallie Mae continues to
make millions on its federal contracts with the Department of
Education," Warren said of SLM, popularly known as Sallie Mae.
A spokeswoman for Sallie Mae, Patricia Christel, commented
in an email to Reuters: "Americans with federal loans serviced
by Sallie Mae are 30 percent less likely to default than others.
Sallie Mae-serviced customers enjoy a higher rate of repayment
success due to the company's top default prevention performance
in the direct loan contract."
The company did not have any representatives at the hearing.
Committee Chairman Tom Harkin, an Iowa Democrat, said the
company and other servicers had turned down invitations to
Sallie Mae, the largest U.S. student loan provider, serviced
5.7 million student loan accounts on behalf of the U.S.
Department of Education as of December 2013, according to a
The Education Department said it paid the company $87.1
million in the fiscal year that ended Sept. 30.
Sallie Mae is facing probes by the Department of Justice,
the Federal Deposit Insurance Corporation, the Consumer
Financial Protection Bureau, and a number of states, including
Utah and Illinois.
The company6, which services federal and private student
loans, has been accused of violations that include improper
marketing, unfair targeting of military veterans, high fees and
improper account handling.
James Runcie, chief operating officer of the Education
Department's federal student aid program, said the department
decided to renew Sallie Mae's and other servicers' contracts to
avoid displacing more than 24 million student accounts.
"In terms of extending the contract for Sallie Mae, it was
part of extending the contracts for all of the TIVAs (student
loan servicers)," Runcie told lawmakers.
The Department of Education in October notified its four
primary student loan servicers, Nelnet Inc, Great Lakes,
Pennsylvania Higher Education Assistance Agency (PHEAA) and
Sallie Mae, that it planned to renew their contracts for five
years when current agreements expire in June.
The department strictly monitors its servicers and would act
if it saw evidence of malfeasance, Runcie said.
In regulatory filings, Sallie Mae said it had set aside $70
million to cover costs arising from any enforcement actions.
Last year, the CFPB said that Sallie Mae was the subject of
nearly half of the 3,800 student lending complaints made to the
agency for the 12-month period starting October 2012. The CFPB
ranked the company worst in borrower, school, and federal
personnel satisfaction in a report rating student loan
Warren, who has taken an aggressive stance against big
educational lenders, said the Education Department was not doing
enough to hold Sallie Mae accountable and to prevent it from
repeating the violations it has been accused of.
"I'm very concerned about reupping a contract with Sallie
Mae, when Sallie Mae has demonstrated time and time again that
it hasn't followed the rules," she said.
(Reporting by Elvina Nawaguna; Editing by Steve Orlofsky)