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Sallie Mae Student Loan Horror Stories Bring a Slap on the Wrist

BOSTON (TheAvenue) — One in 10 debtors defaulted on their federal student loans within the first two years after commencement, with one in seven defaulting within the first three years, the Department of Education reported final week. These defaults usually result in debt-collection strategies together with late charges and penalties and the garnishing of wages, federal tax refunds and even Social Security and incapacity funds.

But even whereas many appear to get the shaft by being caught in a cycle of ever-increasing student loan debt, lender Sallie Mae has been making document earnings — even because it has been discovered violating legal guidelines and its personal contractual obligations to the federal authorities, in response to a report launched in January by the National Consumer Law Center.

Sallie Mae made a $2 million settlement to New York to resolve claims about improper advertising and marketing of student loans, violating a contract on restoration and disclosure in 2008 by way of its debt-collection arm Pioneer Recovery and neglecting to report complaints by student loan debtors as decided by the Department of Education’s inspector normal, the report says.

The lender can also be below investigation by the Department of Justice and Consumer Financial Protection Bureau, and an Education Inspector General Audit Report discovered it improperly obtained $22.3 million in extra student loan subsidies from the federal government between 2003-06.

Similar examples of Sallie Mae’s unhealthy conduct have been famous in a September letter to the secretaries of the Department of Education and the Department of Treasury by U.S. Sen. Elizabeth Warren, a Massachusetts Democrat. Warren mentioned how Sallie Mae violated the Servicemembers Civil Relief Act and the Equal Credit Opportunity Act by charging army personnel extreme curiosity on their student loans.

Despite this laundry checklist of transgressions, Sallie Mae reaped $321 million in earnings in 2010 and had a web earnings of $1.4 billion final yr. It continues to borrow from the federal authorities in addition to banks and different companies at extraordinarily low charges of curiosity usually lower than 1%. Meanwhile, a lot of its debtors have paid as excessive as 12.8% in curiosity (though a 2011 coverage change caps its rates of interest at round 9.8%).

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“While the federal government has helped Sallie Mae keep its profitability, it’s not practically as beneficiant in relation to student debtors,” Warren said in her letter, while calling the government sanctions imposed on Sallie Mae for rule-breaking a “slap on the wrist.”

Sallie Mae started out as a federal program 1972 but has been a private company since 1993 — although its loans are still federally insured and it services more than $550 billion in federal loans.

“Given their function in creating the crash, it’s affordable to anticipate lenders to do every part doable to assist debtors with unaffordable loans. Distressingly, this has not occurred,” says the Law Center report, referring to the Great Recession that began in 2008. It offers several stories from Sallie Mae borrowers, with a recurring theme being harassment, the tacking on of egregious fees and an unwillingness to work out an affordable payment plan.

When I put out my own call for stories from Sallie Mae borrowers about its collection practices, my inbox flooded instantly with angst-ridden messages. Many of the messages spoke of being called several times a day at all hours, every day of the week whether at home or work. More than one person said they set up a separate phone number just for Sallie Mae, and several said they filed Chapter 7 bankruptcy just to stop the calls. (Filing can stop the calls, but does not usually discharge the debt.)

“My interest-only funds [from Sallie Mae] have been going to be about $1,200 a month. If I have been to pay that quantity I might have needed to both be homeless, not pay any of my credit card payments and never purchase meals,” said Greg, a 37-year-old media specialist from Virginia. “The individuals I talked to on the cellphone … handled me like I used to be some form of delinquent as a result of I attempted to ask for some sort of help on my large cost. They even threatened to sue me and garnish my wages.”

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Another borrower messaged me that she had her tax refund garnished for several years by Sallie Mae, but those garnishments weren’t applied to her debt.

“I’ve a receipt from the IRS displaying [my refund] went to Sallie Mae. Yet Sallie Mae has no document of the 1000’s garnished from my tax refunds,” said Carole, whose original debt of $38,000 has ballooned to nearly $90,000, mostly due to interest and fees.

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Carole was not the one one that reported funds or garnishments later discounted or misplaced by Sallie Mae, and others despatched tales about being misinformed about paperwork or deadlines over the cellphone and later slapped with late charges and penalties that drove up their stability — regardless of following carefully the directions provided by Sallie Mae representatives.

Sallie Mae sees it otherwise.

“Sallie Mae provides financial literacy tools, proactive outreach and guidance to help customers experience success. For those who need additional assistance, we work with them to identify a payment plan scaled to their financial circumstances,” says Patricia Nash Christel, vp of company communications at Sallie Mae. “Helping customers successfully repay their loans is our top priority. “

Christel additionally stated that on the finish of 2013, practically 85% of shoppers in reimbursement have been updated with their funds and that federal loan debtors serviced by Sallie Mae had a default price beneath 30% of the nationwide common.

But the entire responses I obtained from Sallie Mae debtors expressed not solely frustration, however an underlying desperation, with many arguing that they felt they’d no recourse.

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“There are few options for private loan borrowers because there are no comprehensive laws requiring private student lenders to offer any type of relief,” stated Deanne Loonin, an lawyer with the NCLC and writer of the Sallie Mae report. “As for bankruptcy, [the NCLC] supports restoring full rights in bankruptcy for both federal and private loan borrowers, but it’s no secret that this is a difficult time to get protections and relief for consumers passed through Congress.”

Besides extending chapter to incorporate student loan debt, the NCLC coverage suggestions embrace elevated authorized and federal oversight and accountability of economic lenders similar to Sallie Mae, versus the bailouts and incentives which have principally been lavished on them up so far.

For these former students who really feel they endure from harassment or misleading practices by Sallie Mae, Loonin suggests they go to the NCLC’s Student Loan Borrow Assistance Project or seek the advice of with a lawyer to seek out out extra about their rights and different sources obtainable to them.

For many, although, there may be one other reply.

“Sallie Mae needs to go out of business,” stated borrower Andie, 46, of Scottsdale, Ariz. “They are feeding off of a national crisis in the economy and made a choice to not work with people. Their treatment is absurd, inhumane, unethical, greedy and frankly blatantly illegal.”

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