Student loan issuer Sallie Mae has released a statement letting its borrows know that as of October 13, an offshoot company will be taking over.
The new company, Navient, will operate in essentially the same way as Sallie Mae, with no changes being made to loan terms or conditions.
The decision was made shortly after the company settled a number of federal lawsuits against it, while it handled other public relations troubles.
Legislation was created in 2010 that would make it illegal for a private bank to act as an intermediary for federal student loans. From that time, Sallie Mae spent more than $3 million lobbying to stop those changes from occurring.
After Navient takes over, Sallie Mae will act as a private bank specializing in private student loans, insurance and other services like credit cards for college students and their families. Navient will handle all the federal student loans.
Sallie Mae projects $4 billion in loans this year, while Navient will handle $300 billion.
“We’ve worked to make this transition as smooth as possible for you,” Thursday’s email says, adding that all addresses, phone numbers and contact information would remain the same. So will the loan conditions and terms such as interest rates and repayment plans, the company said in a February press release.
Sallie Mae made the change after facing a hard year.
In May, Navient had been accused of over-charging active duty troops for student loans by the Federal Deposit Insurance Corporation, claiming that the company had falsely told students they were being deployed so they would receive entitled benefits, violating the Servicemembers Civil Relief Act. At the time Navient was Sallie Mae’s loan unit.
The FDIC also stated the company had violated federal law by “misrepresenting and inadequately disclosing in its billing statements how borrowers could avoid late fees.”
Sallie Mae settled the lawsuit for $139 million in refunds to over 60,000 service members.
Since that time, the Education Department announced that it will offer the company newly overhauled student lending contracts, angering many of its critics who believe the government is too relaxed with the company’s failings.
“Let me get this straight: You break the law. You don’t follow the rules. You treat the borrowers badly,” Senator Elizabeth Warren said, according to the HP. “And you all just renegotiated the contracts to make sure that across the portfolio [loan servicers] are going to make a little more money if nothing changes?”
According to Warren, the act of doing business with the company after knowing it was involved in such actions is in direct opposition to the Obama Administration’s pledge to make college more affordable and accessible for middle-income families.
“While the government has been quite tolerant of Sallie Mae’s failings and helped Sallie Mae maintain its profitability, it is not nearly as generous when it comes to student borrowers,” Warren said. “Where is that kind of accountability for Sallie Mae?”
The Education Department responded by stating that the company has improved its customer service since the lawsuit. Of the four major student loan providers, Navient had the highest percentage of students regularly paying on their loans. The company also has the second highest share of their borrowers on income-based repayment plans.