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Chris Lindstrom

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In The Public Interest: Sallie Mae, That's Just Not Right!

Posted: 03/10/10 11:13 AM ET

It has a friendly and inviting name -- Sallie Mae -- and its website proclaims: "We've made finding the right student loan easy."

But Sallie Mae, the nation's largest student lender, is anything but friendly or inviting. The mega-student-lender handles over 35 percent of all federal student loan volume in the country, for a total of $14.1 billion.

And these days, Sallie Mae doesn't seem to be focusing much on making finding "the right student loan easy."

Instead, the company is campaigning heavily against the Student Aid and Fiscal Responsibility Act (SAFRA), which passed the U.S. House in September.

SAFRA would invest $87 billion in critical college access programs, including an historic investment in the Pell Grant program, the nation's need-based aid program. If Sallie were all about helping people "find the right student loan," you would think it would be all over SAFRA, which would reduce student loan debt.

But SAFRA would also end the sweetheart deal that Sallie and other private lenders have been getting. For decades, Sallie has been happily conducting business with U.S. taxpayer dollars and getting its percentage. Along with other student lenders, Sallie Mae receives roughly $9 billion in taxpayer funds yearly for handling federal student loans.

SAFRA would end all of that.

The bill, which grew from an historic proposal from President Obama last year, would make huge investments to higher education, including more funding for grants - without costing the taxpayer a dime. Increased funding for grant programs like the Pell Grant program would be paid for by cutting the subsidies that currently go to banks and lenders like Sallie Mae.

The Pell Grant is the nation's largest aid program, providing need-based scholarship money to more than 7 million students of modest means. But its value has eroded drastically since it started three decades ago.

When the Pell Grant program was created in 1976, it covered 72 percent of the average cost of attending a public four-year college. In 2008, it covered only 32 percent. The House bill strengthens Pell Grants by investing $40 billion over the next ten years to annually increase the maximum grant award.

A Pell Grant is even better than the "right student loan." And that is exactly why Sallie Mae is fighting the SAFRA and an increase in student aid.

The company has mounted an intense lobbying campaign, spending $3.48 million last year. It has whipped its employees at its local subsidiaries in Fishers, IN, Wilkes-Barre, PA, and Lynn Haven, FL, into a frenzy, deceitfully claiming that the lack of subsidies will translate into massive job losses. And it's engaged in a public relations effort both inside and outside the beltway to convince students, their families, and the general public that the President's plan is the wrong way to go.

Such an anti-student stance is hardly surprising. Just last year, Sallie Mae received federal bailout money to make high-cost, risky private student loans to students. Private student loans are more similar to credit cards, carrying variable interest rates up to 18 percent and weighty penalty fees.

And Sallie Mae is fighting against consumer protections for borrowers. Private student loans are the only form of consumer debt that cannot be discharged in bankruptcy, as a result of Sallie Mae advocacy. The interest rate on a Sallie Mae private loan is at least 5 percent higher than that of the federally subsidized student loan.

Sallie Mae is even known for refusing to re-negotiate the terms of its private loans when borrowers encounter impassable financial obstacles.

Finally, Sallie Mae executives and directors clearly make excessive profits off of federal student loans. A private company originally started by the federal government to provide federal loans, today Sallie is worth many billions of dollars, and its directors and staff are handsomely compensated. Al Lord, Sallie Mae's CEO, recently built his own private 244-acre golf course just outside of DC and even made a bid for the Washington Nationals baseball team.

Meanwhile, almost 70 percent of all public college graduates carry debt upon graduation, averaging over $23,000 dollars each (PDF).

In short, while Sallie Mae claims it is making finding the right student loan "easy," it seems like what is really important to the giant lender is making what appears to be a nice, "easy" profit off of student debt and excessive subsidies.

Sallie Mae, that's just not right.

 

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