Controversies
On November 9, 2005, former Sallie Mae employee Michael Zahara filed a federal lawsuit against the company, alleging that it had a pattern and practice of granting forbearance in a purposeful effort to increase total student loan debt. On October 29, 2008, permission was granted to his legal counsel to withdraw from the case, citing "From counsel’s perspective, a breakdown in trust has resulted from the discovery that Relator has been arrested for extortion, the circumstances surrounding that arrest, and Relator’s failure to disclose the arrest to counsel." On March 12, 2009 the court ruled "dismissal without prejudice" because "the plaintiff has failed to obtain substitute counsel by the deadline." Zahara was seeking new counsel.
A 60 Minutes segment (originally aired May 7, 2006) examined Sallie Mae, including its business practices. A professor of law at Harvard Law School, Elizabeth Warren, who is also an expert on bankruptcy and an outspoken critic of consumer lenders, questioned Sallie Mae's dual role as both lender and collector.
In February 2007, New York Attorney General Andrew Cuomo launched an investigation into alleged deceptive lending practices by student loan providers, including The College Board, EduCap, Nelnet, Citibank, and Sallie Mae. On April 11, 2007, Cuomo ended his investigation of Sallie Mae and announced that Sallie Mae had voluntarily agreed to change its lending standards to satisfy a new code of conduct for student loan practices established by Cuomo, and to donate $2 million (USD) to a fund devoted to educating college-bound students about their loan options.
On October 10, 2007, documents surfaced showing that Sallie Mae was attempting to use the Freedom of Information Act to force colleges to turn over students' personal information. The university involved, the State University of New York system, is expected to decline the request and be forced to defend its position in court.
In December 2007, a class action lawsuit was brought against Sallie Mae, alleging that the company discriminated against African American and Hispanic private student loan applicants by charging them high interest rates and fees. The lawsuit also alleged that Sallie Mae failed to properly disclose private student loan terms to unsuspecting students. The lawsuit was pending in a Connecticut Federal Court. New York Attorney General, Andrew Cuomo, raised similar concerns about possible student loan redlining in June 2007.
A False Claims suit was filed against Sallie Mae by former U.S. Department of Education researcher, Dr. Oberg. The suit alleges that Sallie Mae and other lenders deliberately overcharged the U.S. government. The findings by Oberg were labeled among higher education policy analysts as the 9.5 scandal.
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