A Sad Saga of Sallie Mae’s Servicing Skills: One Family’s Story of Enduring Loss and Harassment

April 23, 2009

At a time when Sallie Mae, the nation’s largest private student loan provider, is trying to convince our government that it should be trusted with a new ten year $2.7 billion student loan servicing contract, it is very troubling to hear stories of some of its past efforts at servicing student loans. Just ask Mr. and Mrs. Hesse of Houston, Texas.

Back in 2004, their son Sam took out a $22,000 student loan from Sallie Mae to attend college in England so he could achieve his dream of being a film critic. His mother Gretchen assisted him by co-signing the loan. When he finished his education, he came back to Texas, worked hard, and began paying back his student loan.

Sadly, on April 29, 2007, he died suddenly from myocarditis, an infection in his heart. His friends put together a moving tribute to Sam Hesse.

Mrs. Hesse called Sallie Mae to find out what to do about Sam’s student loan. They told her to continue making his loan payments until a death certificate could be obtained. After receiving Sam’s death certificate, Gretchen Hesse talked again to Sallie Mae, and was assured everything would be taken care of.

She soon received a letter from Sallie Mae returning the recent payments made after his death, and she rightfully assumed that with his death the debt was satisfied. Or so she thought.

Eight months later, after hearing nothing further from Sallie Mae, she received a telephone call from a debt collector hired by Sallie Mae. Listen to her tell us what that debt collector told her:

That’s right! The debt collector told her: “your son would be rolling over in his grave if he knew you were turning him into a deadbeat.” Gretchen panicked, of course, and was understandably upset. She called Sallie Mae and talked to a customer service representative, who looked up the loan information. That representative told her that there was indeed no outstanding debt, so no one should have been collecting on it and not to worry about it.

Just days later, however, Mrs. Hesse received a letter from Sallie Mae itself, advising her “You are in danger of defaulting on your student loans.” Sallie Mae told her it had already reported her to the credit bureaus, and threatened her with lawsuits and seizure of her wages. Just a week later, she received a followup letter from Sallie Mae telling her that her failure to honor the terms of her loan agreement necessitated “more serious efforts” at collection of the alleged debt.

Sure enough, by the following month she she was getting billed for over $28,000 by a collection agency hired by Sallie Mae. When she disputed the bill, stating that the loan had been forgiven due to the death of her son, the matter was just turned over to another collection agency, which informed her in September, 2008 that according to Sallie Mae, she owed the entire principal and interest, plus over $5,600 in “fees.”

The new collection agency offered to settle for far less than the full amount of the alleged debt. Mrs. Hesse sent copies to Sallie Mae, which informed her that Sallie Mae would only be willing to accept an adjusted balance of $17,000, payable in monthly installments.

How was all of this affecting her emotionally? Listen to her describe it:

Even though Mrs. Hesse now has an attorney writing letters for her in an attempt to straighten out this mess of conflicting information, the matter is still not resolved. With the second anniversary of her son’s death coming up, she wonders when Sallie Mae and its hired collectors will let her grieve in peace.

Similar stories have been told across the nation. See how Sallie Mae treated the McVey’s of Boston, after their Marine son died shortly before shipping out to Iraq. Or the DiGregor’s of Crystal Lake, Illinois, after their son suddenly passed away.

And Sallie Mae wants taxpayers to reward it with a $2.7 billion servicing contract so it can service government loans as well?