WASHINGTON - Student lender Sallie Mae has agreed to pay $60 million to resolve allegations that it charged military service members excessive interest rates on their student loans, the federal government announced Tuesday.
The deal settles a government lawsuit which asserted that the student loan giant violated the rights of service members by imposing interest rates above the 6 percent permitted by federal law and by improperly seeking default judgments against them.
The lawsuit was the Justice Department's first against owners of student loans.
"We are sending a clear message to all lenders and servicers who would deprive our service members of the basic benefits and protections to which they are entitled: this type of conduct is more than just inappropriate; it is inexcusable," Attorney General Eric Holder said at a news conference. "And it will not be tolerated."
Federal officials estimate that roughly 60,000 service members will be eligible for compensation as part of the settlement. An independent administrator will be assigned to distribute the reimbursements.
The settlement has been filed in federal court in Delaware and is awaiting a judge's approval.
As part of the deal, Sallie Mae would also be required to ask the three major credit bureaus to delete negative credit histories resulting from the overcharges. Education Secretary Arne Duncan said students who have taken out loans "should have the peace of mind" that borrowers will treat them fairly.
Holly Petraeus, assistant director of the Consumer Financial Protection Bureau, praised the settlement, saying that Sallie Mae had illegally denied servicemembers loans at the mandated interest rate.
"The men and women serving this country should receive quality customer service and the legal protections afforded to them," she said in a statement. "Instead, Sallie Mae gave servicemembers the runaround and denied them the interest-rate reduction required by law. This behavior is unacceptable. And it's particularly troubling from a company that benefits so generously from federal contracts."