Is Sallie Mae a Predatory Lender?

• Sallie Mae loans can be considered predatory due to practices like misleading borrowers about terms, pushing unnecessary forbearance, and aggressive marketing tactics.

• If you believe you’ve been a victim of predatory lending by Sallie Mae, you may be eligible for loan forgiveness or other forms of relief, depending on your specific situation.

• Your course of action depends on whether your loans are still with Sallie Mae or were transferred to Navient.

If you’re dealing with Sallie Mae or Navient student loans, you might be wondering if you’ve fallen victim to predatory lending practices. Let’s cut through the confusion and get straight to what you need to know.

First off, yes, it’s possible to get your Sallie Mae or Navient loans forgiven. Navient offers a private student loan forgiveness program for borrowers who were misled by their schools. It’s similar to the federal Borrower Defense program, but specifically for Navient private student loans.

To apply for this forgiveness, you’ll need to contact Navient and request a school misconduct discharge application. Don’t worry if that sounds daunting — we’ll explain how to do this later in the article. At a high level, you’ll need to explain how your school misled you and provide supporting evidence, but we’ll help you understand what that looks like.

A bit of background: Sallie Mae used to be a loan giant. Congress created it in 1972 to and Navient used to be one company. In 2014, they split — Sallie Mae now focuses on private student loans, while Navient services both federal and private student loans. (And even that’s changing soon as Navient moves servicing of its loan portfolio to MOHELA) Many of the loans Navient now services were originally made by Sallie Mae.

One of the biggest players in the private student loan space was Sallie Mae. Congress created Sallie Mae in 1972 to increase the supply of funds under the federally guaranteed student loan program. The company grew over time, ultimately abandoning its government-sponsored status and becoming a fully private company in 2004. By 2007, Sallie Mae had a presence in nearly every aspect of government and private student lending and related businesses.

At the peak of private student lending in the late 2000s, Sallie Mae loans accounted for about 1/3 of all private student loan originations.

In 2014, Sallie Mae (SLM Corp.) split into two companies: Navient and Sallie Mae. After the split, and to date, Navient and its subsidiaries are the owners and servicers of existing private loans, while also continuing to own and service federal student loans. To this day, Navient owns billions of dollars of debt from these predatory for-profit schools.

Now, you might be wondering what exactly makes these loans “predatory.” It’s not just about high interest rates. Predatory practices can include:

1. Giving misleading information about loan terms

2. Pushing borrowers into unnecessary forbearance instead of more beneficial repayment plans

3. Making loans to students at schools with low graduation rates

4. Failing to properly inform borrowers about income-driven repayment options

5. Aggressive or deceptive marketing practices

Both Sallie Mae and Navient have faced legal action for such practices. These tactics can trap borrowers in cycles of debt, making it difficult to pay off loans even years after leaving school.

There have been some recent developments you should know about. In 2022, Navient settled with 39 state attorneys general, agreeing to cancel $1.7 billion in private student loan debt for about 66,000 borrowers. This settlement is separate from the ongoing private loan forgiveness program we’ll discuss in this article.

Background on Abusive and Illegal Student Loan Servicing by Navient

Navient’s nearly decade-long experience as a servicer on behalf of the Department of Education has been marked by failure, scandal, and unparalleled borrower harm. Nevertheless, during this time Navient has made its owners and executives rich, paying more than $4.9 billion to shareholders through dividends and stock buybacks and lavishing more than $47 million on its CEO, Jack Remondi.

The attorneys general of Illinois, Washington, Pennsylvania, California, Mississippi, and New Jersey all sued Navient for violating borrowers’ rights. State-level allegations against Navient include that it improperly reported permanently disabled borrowers as being in default on loans that should have been forgiven, and that it trapped thousands of older people in debts they were entitled to escape under the terms of their loan contract by deceiving borrowers about their rights.

The company’s abuses are far-reaching and the financial consequences for borrowers are ongoing. Since 2011, tens of thousands of borrowers have filed complaints with Navient, the CFPB, and other government agencies about the obstacles they faced in repaying student loans that Navient services. Navient’s track record of harm includes the following:

• Navient illegally overcharged nearly 78,000 service members. In 2014, Navient and its predecessor Sallie Mae paid almost $100 million in restitution and fines after the FDIC and DOJ found that the two companies ignored the 6 percent interest cap for servicemembers, unfairly conditioned receipt of SCRA benefits on made-up and difficult-to-attain qualifications, and deceptively allocated borrowers’ payments across loans in a way intended to maximize late fees. As law enforcement highlighted at the time, this happened even after Navient had “been put on notice of these borrowers’ active duty status.”

• Navient forced borrowers to pay more than they had to on their loans, adding up to $4 billion in avoidable interest charges. In 2017, the Consumer Financial Protection Bureau (CFPB) sued Navient for failing borrowers at every stage of repayment. The CFPB’s findings included that Navient had inappropriately and abusively placed struggling borrowers into high-cost repayment plans instead of more appropriate income-driven repayment plans that they are legally entitled to, costing borrowers as much as $4 billion in unnecessary interest charges and fees.

• Navient steered struggling borrowers to higher-cost repayment plans. In 2018, Senator Elizabeth Warren uncovered an audit of Navient conducted by the U.S. Department of Education, indicating that Navient boosted its profits by steering some borrowers into high-cost plans without discussing options that would have been less costly in the long run. In 2019, this finding was verified by the Education Department’s Inspector General, which reviewed documents prepared by Federal Student Aid showing that Navient representatives did not offer alternative or potentially beneficial options when attempting to assist borrowers with bringing their account current or managing repayment. Amid mounting litigation, three Congressional committees have launched inquiries into predatory loan servicing practices and efforts by Trump Administration officials to hide abuses by the student loan industry.

• Navient evaded financial accountability. In February, Navient was ordered to pay the Department of Education back more than $22 million it had illegally taken from taxpayers by gaming an interest rate subsidy program.

Under the weight of these abuses, the U.S. Department of Education cut ties with Navient last year. Once the largest servicer of student loans owned by the U.S. Department of Education, Navient no longer serves as one of the government’s student loan servicing contractors, transferring all student loans it once serviced to Maximus (a/k/a Aidvantage) in late 2021.

The CFPB lawsuit alleges that between July 2011 and December 2011, ITT pushed its students into repaying their Temporary Credit and funding their second-year tuition gaps through high-cost private student loan programs. Students were left in the dark about the fact that taking out these high-cost loans would be required to continue their studies. However, ITT’s CEO revealed in investor calls that converting the temporary loans to long-term loans was the company’s “plan all along.”

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to take action against institutions engaging in unfair, deceptive, or abusive practices. Specifically, in today’s lawsuit, the Bureau alleges the following conduct by ITT:

• Pressured into predatory loans: ITT used its financial aid staff to rush students through an automated application process without affording them a fair opportunity to understand the loan obligations involved. In some cases, students did not even know they had a private student loan until they started getting collection calls. The loans were high-cost. For borrowers with credit scores under 600, for example, the costs of the private student loans included 10 percent origination fees and interest rates as high as 16.25 percent.

• Credits not transferable: ITT was accredited by a national organization that accredits many for-profit schools, but the credits that students earned typically did not transfer to local community colleges or other nonprofit schools such as public or private colleges. ITT used the prospect of expulsion and the loss of the money already spent during the student’s first year to coerce students into taking out the private loans.

• Misleading future job prospects: The Bureau believes that ITT’s representations led students to think that when they graduated they were likely to land good jobs and enough salary to repay their private student loans. In this way, ITT exploited student expectations while it knew that a majority of students would default.

• Loans likely to fail: ITT knew that most of its students would ultimately default on their private student loans; it projected a default rate for its students of 64 percent. Defaulting on private student loans can have grave consequences for consumers. It can make it difficult to get any kind of loan for years and even affect a borrower’s job prospects. And, because private student loans are difficult to discharge in bankruptcy, the debt can be very difficult to recover from.

If you believe you’ve been a victim of predatory lending practices by Sallie Mae or Navient, there’s a potential path to relief. Navient now offers a forgiveness program for borrowers with private student loans who were misled by their schools or subjected to unfair lending practices. Here’s what to do:

1. Contact Navient at 888-545-4199 ext. 998214 or advocate@navient.com to request a school misconduct discharge application.

2. Detail how you were misled or subjected to predatory practices in your application.

3. Submit the application with any supporting evidence of unfair treatment.

Eligibility focuses on the lender’s and school’s actions, not your financial situation. If approved, you could see partial or full loan forgiveness.

Related: How Are Student Loans Predatory

Not everyone will have their forgiveness application approved. So what do you do then? Here are 5 ways you can potentially address your Sallie Mae or Navient loans if you don’t qualify for forgiveness or if your application is denied:

Refinancing

Refinancing can lower your interest rate, potentially saving you money over time. However, it doesn’t address predatory lending issues and may remove important borrower protections. Consider this option carefully, especially if you have federal loans.

Related: How to Refinance Student Loans

Settlement

In some cases, you may be able to negotiate a settlement with Navient for less than you owe. This can be a good option if you have a lump sum available but can’t afford to repay the full loan amount.

Related: How to Negotiate Student Loan Settlements With Navient

Bankruptcy

While challenging, discharging student loans through bankruptcy is possible in cases of undue hardship. Recent court rulings have made this option slightly more accessible for some borrowers.

Related: How to File Student Loan Bankruptcy

Legislative Efforts

Senators like Elizabeth Warren are pushing for broader relief. These efforts include:

• Urging Navient to cancel loans from fraudulent, for-profit colleges

• Proposing legislation to make student loans dischargeable in bankruptcy

• Calling for investigations into servicer misconduct

Legal Actions

Keep an eye on ongoing lawsuits and settlements against Navient. These legal actions may provide relief to affected borrowers, even if you don’t qualify for current programs.

Sallie Mae’s predatory lending practices have impacted countless borrowers, but you’re not without options. Relief may be available if your loans are still with Sallie Mae or have been transferred to Navient.

Don’t deal with these complex issues alone.

Our expert student loan lawyers can provide personalized advice tailored to your circumstances. Book a consultation today to explore your options, understand your rights, and develop a strategy to effectively address your Sallie Mae loans.