Sallie Mae Misrepresenting Status of Student Loans

May 14, 2008

Instead of helping people achieve their dreams of using education to better their lives, Sallie Mae, America’s largest college student loan corporation, is apparently doing what it can to destroy those dreams through misrepresentation and manipulation.

We are getting more and more complaints about recent adverse and improper actions being taken by Sallie Mae against people making legitimate payments on their student loan accounts. Victims are telling us that when they recently renegotiated the terms of their student loan repayments with Sallie Mae, they began making their payments in full accord with the new arrangements. Despite this mutual agreement, Sallie Mae has been advising credit reporting agencies (e.g., Experian, Equifax, TransUnion) that these accounts are in “partial payment” mode, thereby triggering warning flags on their credit reports and impaired credit ratings. Yet the students are still repaying their loans in full compliance with their agreements and should not suffer such dire consequences.

One victim reported a 50 point drop in her FICO score, and discovered that Sallie Mae had advised the credit reporting agency that the student loan account should be flagged as being “past due” and that arrangements had to be made for “partial payment.” This in spite of the fact that the student had not missed a single payment and had merely renegotiated her payment schedule with Sallie Mae.

Another victim told us that she has been paying her loans on time, but recently negotiated a new reduced payment plan in order to assure continued compliance with her repayment obligations. After doing so, she received an alert on her credit report that her credit rating had dramatically dropped, and found out that Sallie Mae had categorized her renegotiated payment plan as “partial payments.” They weren’t, of course,”partial payments,” but rather full payments based on a new agreement with Sallie Mae. When she called Sallie Mae to complain, she was told by a representative that Sallie Mae had just initiated this new reporting procedure in order to increase its posting of losses. She was told, however, that if she would increase her monthly payment amount by $31 Sallie Mae would contact the credit agency and withdraw the “partial payment” flag, thus using the threat of destroying her credit in order to help out with some internal bookkeeping.

When a student loan account is reported as delinquent or in partial payment to a credit agency, the effect on the credit status of the student can be devastating, making it more difficult, if not impossible, to obtain mortgages and other loans, and subjecting the student to higher interest payments, increased premiums on automobile or home owners insurance, and even affecting the student’s ability to obtain a job.

Why would Sallie Mae do this to former students? Isn’t it the business of Sallie Mae to help them start a new life based on their desire for education? Arbitrarily flagging such renegotiations as “partial payments,” when they are instead “full payments” based on a renegotiated agreement, and using this sledgehammer as a way to pressure students into making higher monthly payments, is wrong. How is this consistent with its stated goal, “helping millions of Americans achieve their dream of a higher education,” when instead it seems dead set on crushing those dreams for the sake of increasing its “posting of losses”?

Does Congress know about this? Senator Kennedy, Chairman of the U.S Senate Health, Education, Labor and Pensions Committee, has called Sallie Mae to task for some of its predatory practices, and should be told about this new effort of Sallie Mae to thwart the goals of the student loan program. If you find reprehensible Sallie Mae’s new effort to trash the credit ratings of people in full compliance with their repayment obligations, write to Senator Kennedy and tell him about it.

Anyone who has ever tried to have false negative information removed from a credit report knows how difficult this can be. The FTC has instructions on how to go about doing this, but Sallie Mae should be the one who has to spend time correcting what it caused. Does anybody out there care, other than the victims subjected to this predatory practice?