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 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 testify.
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 company
spokeswoman.
The Education Department said it paid the company $87.1 million in
the fiscal year that ended September 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.
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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 servicers.
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)
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