Sallie Mae Threatens Student Loan Borrowers

sallie maeWhile many struggle to make their monthly student loan payments for fear of the consequences of default, it turns out that even some who regularly make payments on time aren’t immune from the bullying ways of collectors. Seven borrowers are now coming forward to report the harassment of debt collections despite having never missed a single payment.

Co-signed Complications

The recent reports that Sallie Mae has hired debt collectors to collect on debts from borrowers in good standing has many concerned and confused. The common thread among these seven borrowers is a co-signed loan. All of those reporting problems with unfounded debt collection actions have loans that were co-signed by a family  member, who has since passed away. The Consumer Financial Protection Bureau has coined the term “auto defaults” to describe this practice of immediately declaring a private student loan debt defaulted after a death or bankruptcy of the co-signer.

Much debate is circling this issue as some view it as predatory lending. None of the seven reporting problems with auto default have ever missed a payment, yet  all were contacted and told to repay thousands of dollars immediately or risk asset seizure. Sallie Mae defends its position saying these borrowers should have expected these demands as it is outlined in the conditions of their loan agreement. Financial industry executives are concerned about the practice of auto default and its blemishing effect on the industry as a whole. The silver lining is that policies have been changed as of this month and the auto default condition more or less removed from loan contracts. A Sallie Mae collection affiliate have said, “We believe these changes will help our customers successfully pay back their student loans, which is our ultimate goal as a company.”

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