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Press Release

Justice Department Reaches $60 Million Settlement with Sallie Mae to Resolve Allegations of Charging Military Servicemembers Excessive Rates on Student Loans

For Immediate Release
Office of Public Affairs
Settlement Resolves the Department’s First Lawsuit Against Student Loan Owners and Servicers for Violating the Rights of Servicemembers

The Department of Justice today announced the federal government’s first lawsuit filed against owners and servicers of student loans for violating the rights of servicemembers eligible for benefits and protections under the Servicemembers Civil Relief Act (SCRA).  The United States’ complaint alleges that three defendants, collectively known as Sallie Mae, engaged in a nationwide pattern or practice, dating as far back as 2005, of violating the SCRA by failing to provide members of the military the six percent interest rate cap to which they were entitled.  The three defendants are Sallie Mae Inc. (now known as Navient Solutions Inc.), SLM DE Corporation (now known as Navient DE Corporation), and Sallie Mae Bank.  The complaint further alleges that defendants Sallie Mae Inc. and SLM DE Corporation also violated the SCRA by improperly obtaining default judgments against servicemembers. 

In addition to the complaint, the department filed a proposed settlement of the lawsuit which will require Sallie Mae to pay $60 million to compensate servicemembers for the alleged SCRA violations.  The department estimates that about 60,000 servicemembers will receive compensation under the settlement.  The settlement and complaint have been filed in the U.S. District Court for the District of Delaware and the settlement is pending approval in that court.


The proposed settlement covers the entire portfolio of student loans serviced by, or on behalf of, Sallie Mae.  This includes private student loans, direct Department of Education loans and student loans that originated under the Federal Family Education Loan Program.  The proposed settlement is far-reaching, with certain sevicemembers to be compensated for violations of the SCRA that occurred almost a decade ago.


In addition to the $60 million in compensation, the proposed settlement contains several other key provisions to ensure that servicemembers are protected going forward.  Sallie Mae must request that all three major credit bureaus delete negative credit history entries caused by the interest rate overcharges and improper default judgments.  Going forward, Sallie Mae is required to streamline the process by which servicemembers may notify Sallie Mae of their eligibility for SCRA benefits.  The revised process will include an SCRA online intake form for servicemembers, and the availability of customer service representatives specially trained on the rights of those in military service.  It also requires Sallie Mae to pay the United States a civil penalty of $55,000. 


“Federal law protects our servicemembers from having to repay loans under terms that are unaffordable or unfair,” said Attorney General Eric Holder.  “That is the least we owe our brave servicemembers who make such great sacrifices for us.  But as alleged, the student lender Sallie Mae sidestepped this requirement by charging excessive rates to borrowers who filed documents proving they were members of the U.S. military.  By requiring Sallie Mae to compensate its victims, we are sending a clear message to all lenders and servicers who would deprive our servicemembers of the basic benefits and protections to which they are entitled: this type of conduct is more than just inappropriate; it is inexcusable.  And it will not be tolerated.”


“Our men and women in uniform who are called to active duty should not be subjected to additional red tape to receive the benefits they’re entitled to for serving their country,” said U.S. Education Secretary Arne Duncan.  “What's more, every student who has taken out a federal student loan should have the peace of mind that the department's servicers are following the law and treating all borrowers fairly.  Federal student loans are a critical part of helping every American find the clearest path to the middle class through a higher education, so we must do everything we can to ensure quality customer service for every borrower.”


“Our brave men and women in the military should not have to worry about receiving the benefits the SCRA provides,” said Jocelyn Samuels, Acting Assistant Attorney General for the Civil Rights Division.  “The Justice Department continues to enforce vigorously the laws that protect service members while they do their difficult and necessary work.”


“I applaud the work of the Department of Justice and all the agencies whose joint cooperation made this settlement possible,” said U.S. Attorney Charles M. Oberly III for the District of Delaware.  “The least we can do for our brave men and women who sacrifice so much to preserve our freedom is to see that they are afforded the benefits they are lawfully entitled to.”


 The department’s settlement is the result of a joint effort with the Department of Education, the Federal Deposit Insurance Corporation (FDIC), and the Consumer Financial Protection Bureau (CFPB).  The department’s investigation of Sallie Mae was the result of a referral of servicemember complaints from the CFPB’s Office of Servicemember Affairs, headed by Holly Petraeus.  The Department of Justice worked closely with the Department of Education during the investigation to ensure that aggrieved servicemembers with federally owned and federally guaranteed student loans would be fully compensated, and be able to receive the SCRA benefit of a reduced six percent interest rate through a streamlined process going forward.  In addition, the FDIC today announced its own important settlement with Sallie Mae in an effort to ensure protections for those who protect this country.


The settlement provides for an independent administrator to locate victims and distribute payments of compensation at no cost to borrowers whom the department identifies as victims.  The department will make a public announcement and post information on its website once more details about the compensation process become available.  Borrowers who are eligible for compensation from the settlement will be contacted by the administrator, and do not need to contact the department at this time. 


The department’s recent SCRA enforcement actions include negotiated agreements with the nation’s five largest home mortgage loan servicers as part of the National Mortgage Settlement, a historic agreement between the United States, 49 state attorneys general, the District of Columbia and the five servicers.  The department has also obtained major settlements against other lenders and servicers for conducting improper mortgage foreclosures and auto repossessions and for failing to grant the six percent interest rate benefit to SCRA-protected servicemembers.


The Civil Rights Division is the component within the Department of Justice authorized to enforce the SCRA.  This federal law provides protections for active duty servicemembers in areas such as evictions, rental agreements, security deposits, prepaid rent, civil judicial proceedings, installment contracts, credit card interest rates, mortgage interest rates, mortgage foreclosures, automobile leases, life insurance, health insurance and income tax payments.  For more information about SCRA enforcement by the Justice Department, please visit or call 1-800-896-7743.

Updated August 7, 2015

Servicemembers Initiative
Press Release Number: 14-502