Federal investigations into Sallie Mae's student lending practices focus on whether the company wrongly applied payments for consumers with several loans, leading to higher-than-necessary interest fees.
The allocation of payments across loans with different rates can affect how much a borrower pays toward principal, interest and fees. Most would prefer to allot more money to a loan with a higher interest rate, helping them pay it off faster.
The Consumer Financial Protection Bureau, the Federal Deposit Insurance Corp. and the U.S. Department of Justice are separately investigating the nation's largest student lender.
The FDIC is reviewing alleged issues with payment allocation along with violations of laws capping interest rates and fees for active duty military and preventing discrimination in lending. The DOJ also is involved in the investigation involving military members.
The probes ultimately could force Sallie Mae to pay fines or restitution.
We remain intensely focused on full compliance, customer success and working with these agencies, Sallie Mae spokeswoman Patricia Christel Nash said in a statement.
On a conference call with investors this month, Sallie Mae CEO John F. Jack Remondi called the process of how it applies payments "fair" and said the lender keeps borrowers informed of the process. He said any payment in excess of interest is applied to the loan principal.