Thousands of troops soon to get checks from loan servicer settlement

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In this file photo from Oct. 4, 2012, sailors from the amphibious dock landing ship USS Tortuga read and take notes before beginning a Navy College Program for Afloat College Education course. (Chelsea Mandello/U.S. Navy)
In this file photo from Oct. 4, 2012, sailors from the amphibious dock landing ship USS Tortuga read and take notes before beginning a Navy College Program for Afloat College Education course. (Chelsea Mandello/U.S. Navy)

Thousands of troops soon to get checks from loan servicer settlement

by: Danielle Douglas-Gabriel | .
The Washington Post | .
published: May 30, 2015

WASHINGTON — Thousands of troops who were charged excess interest on their student loans by Navient Solutions will start getting checks in the mail next month for up to $100,000, the Justice Department said Thursday.

It has been a year since federal prosecutors hit Navient with a $60 million fine for allegedly charging members of the military more than the 6 percent interest permitted by law. Prosecutors said the company violated the the Servicemembers Civil Relief Act (SCRA), a federal law that extends legal and financial protections to military personnel.

Now Navient, which collects and applies student loan payments to borrower debt, has to pay out $60 million to 77,795 members of the military to satisfy the terms of the settlement. The agreement covers the entire portfolio of student loans serviced by the company, including ones originated by the federal government and private lenders such as banks.

The checks, which are scheduled to be mailed June 12, will range from $10 to $100,000, with an average of about $771. Check amounts will depend on how long the interest rate exceeded 6 percent, by how much and on the types of documentation the servicemember provided the government's independent administrator last year.

Besides compensating victims, Navient must request that all three major credit bureaus delete black marks caused by the interest rate overcharges and improper default judgments. The company also had to simplify the process for servicemembers to prove their eligibility under the SCRA statute. Instead of having military personnel submit reams of documents to establish their eligibility for better loan rates, companies can make the determination through the Defense Department database.

Any member of the military with questions about eligibility for compensation under the settlement can call a Justice Department hotline at 855-382-6421 beginning June 12.

Justice learned of problems at Navient from the Consumer Financial Protection Bureau's Office of Servicemember Affairs, which received complaints from members of the military about their student loans.

According to prosecutors, Navient denied some borrowers' benefit requests and stuck others with more than $500 in excess interest. And when soldiers fell behind on payments, the company took legal action against them without documenting their military service, in violation of the law, prosecutors said.

Navient has admitted no wrongdoing. In fact, chief executive Jack Remondi said this week that a recent Education Department review of Navient's files is evidence that the company has been in compliance with the law.

On Tuesday, the Education Department said it found little evidence of its four largest loan servicers, including Navient, unlawfully charging active-duty troops high interest rates on federal student loans (it did not look at loans made by private lenders). The department said less than 1 percent of the troops' files it reviewed from 2009 to 2014 contained violations of the Servicemembers Civil Relief Act.

Education Secretary Arne Duncan said last year the department would comb through the records of all of its loan servicers to make sure the violations were not widespread. The department outsources the management of about $818 billion in federal student loans to 11 private debt servicers, with American Education Service overseeing the largest portion of the portfolio.

A group of Senate Democrats, including Elizabeth Warren of Massachusetts, Sherrod Brown of Ohio and Dick Durbin of Illinois, sent a letter to Duncan last week questioning the delay and why the department continues to use Navient as a contractor. During the 2014 news conference announcing the Navient fine, Duncan said the department would consider ending the company's contract over the servicemember violations. Not only did the government later extend Navient's contract, it also gave the company more accounts.