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Navient and Sallie Mae Targeted for Subprime Loans

Michael Agruss

Written and Reviewed by Michael Agruss

  • Managing Partner and Personal Injury Lawyer at Mike Agruss Law.
  • Over 20 years of experience in Personal Injury.
  • Over 8000+ consumer rights cases settled.
  • Graduated from the University of Illinois Chicago School of Law: Juris Doctor, 2004.

The attorneys general in 29 states, led by those of Illinois and Washington, are seeking to have private loans forgiven for borrowers who have been victimized by Navient and/or its parent company, Sallie Mae.“These loans were designed to fail,” says Shannon Smith, who oversees the consumer protection division of the Washington (state) attorney general’s office, about private subprime loans which Sallie Mae had expected to default at rates as high as 92% but issued to borrowers anyway. The Illinois lawsuit claims that these risky loans served as “baited hooks,” according to Sallie Mae itself, for the company to obtain more federally guaranteed loans, all while anticipating that borrowers of subprime loans would be unable to repay and become trapped in their debt. Sallie Mae began as a government-sponsored loan servicer more than 30 years ago and became a for-profit and publicly traded company by the mid-2000s while still profiting primarily from originating federal student loans. Navient officially separated from Sallie Mae in April 2014 and took many of its parent company’s bad loans with it. Sallie Mae granted subprime loans to students who wouldn’t otherwise qualify, such as those with poor credit who were to attend schools with significant dropout rates. These subprime loans were used as “bargaining chips” for Sallie Mae to build better relationships with colleges and be permitted to grant more federal loans, which were the main prize because the government would reimburse the company for losses on defaults. Thus, the losses from private loans were outweighed by the gains from more-lucrative federal loans; an internal company note described the process as using subprime loans to “win school deals and secure FFELP and standard private volume.”The default rate for one set of Sallie Mae’s subprime loans was between 50% and 92% every year between 2000 and 2007, and from 2000 to 2006, the number of Sallie Mae borrowers with at least one “troubled” loan skyrocketed from 165 to over 43,000. If you are struggling with student loan debt or have been a victim of the unlawful business practices of Navient or Sallie Mae, contact an experienced attorney today for a free consultation.

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