Sallie Mae’s loan servicing operations will soon be housed in a separate business entity called Navient, the company announced Tuesday.
As it first disclosed last year, Sallie Mae--formally known as SLM Corp.-- is in the process of splitting up into two distinct companies: Navient and Sallie Mae.
Navient, starting this fall, will service most of Sallie Mae’ existing private student loan portfolio and also assume responsibility for Sallie Mae’s contract with the U.S. Department of Education to manage the payments of federal student loan borrowers.
The company’s consumer banking business will continue under the name Sallie Mae and will originate new private student loans and service those loans.
Sallie Mae is the largest servicer of the federal government’s portfolio of direct student loans, with some 5.7 million accounts.
The Education Department also issued guidance Tuesday about the changes, which will begin to affect borrowers this fall. The department described the impact on federal student loan borrowers as “minimal.”
Federal borrowers whose accounts are currently managed by Sallie Mae will be able to contact Navient at the same phone numbers and mailing address, but they will need to log on to their accounts at a new website. In addition, borrowers will have to write checks using the new name and change any online bill paying services. A borrower who has set up automatic debiting from a bank, however, no action will be required, the department said.
Sallie Mae said in a statement that those borrowers would receive this spring and summer “personalized information about their account and any changes needed to ensure a smooth transition.”
The company’s split comes as its student loan servicing practices have come under scrutiny from federal regulators, several members of Congress and consumer advocates. Sallie Mae is facing multiple inquiries over how it applied the loan payments of military servicemembers, who are entitled to special borrower benefits.
Sallie Mae has disclosed to investors that it set aside $70 million, as of the end of 2013, to cover the “expected compliance remediation” relating to those inquiries.
Consumer advocates, Senator Elizabeth Warren of Massachusetts, a Democrat, have also complained that the Education Department is too lax in its oversight of how Sallie Mae services federal loans.
A group of state attorneys general, led by Illinois Attorney General Lisa Madigan, are also probing the company’s debt collection, loan servicing and other practices.
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