Tuesday, March 28, 2006

Sallie Mae: "March Toward Monopoly"

Excellent story in the Chronicle on consolidation in the lending industry. Explains the background of what's happening now.

Congress created the Student Loan Marketing Association as a government-sponsored enterprise in 1972 because policy makers at the time feared that banks alone would not have enough money to meet student demand for loans. Sallie Mae, as the entity soon became known, was directed to use U.S. Treasury funds to purchase government-backed loans from banks, providing the banks with money to make more loans.
By the 1980s, Sallie Mae was doing so well that it no longer needed direct federal financing to purchase loans; instead it turned to Wall Street. Because of its implicit backing from the government — lowering the risk of defaults because the government would cover nearly any losses — it was able to raise enormous amounts of capital at low interest rates to buy and service student loans. In the process, it racked up tremendous profits.
Sallie Mae's assets multiplied eightfold during the early 1980s and early 90s, as federal student-loan volume soared.

But the financial success also attracted more scrutiny. Reports that the top officers of the Congressionally chartered corporation were pulling in seven-figure salaries led to charges in Congress that Sallie Mae and other loan providers were getting fat off the loan program, at the expense of students and the government.

The Clinton administration and Democrats in Congress pushed to remove banks and other lenders from the federal loan program altogether. Congress approved legislation in 1993 to gradually replace the guaranteed-loan program with direct lending, in which the Education Department provides loans directly to students through their colleges.
Sallie Mae's livelihood was suddenly threatened, and the company's leaders knew that its future depended on cutting ties with the government, so that it could diversify the products it offered. In 1996 the Clinton administration and Congress granted Sallie Mae its wish, allowing it to gradually become completely private.

Some of those who were involved in the Clinton administration's deliberations, however, believe that the government seriously misplayed its hand.
Thomas R. Wolanin, a longtime Democratic aide in Congress who served on a government committee that examined the possible sale, says he felt throughout the discussions that the administration was "giving the store away."
"My basic feeling," he says, "was that we were allowing Sallie Mae to privatize with very little financial return to taxpayers for the benefits they had received as a government entity, and without harnessing them to some public purpose."

Now they're preying on nonprofit loan agencies in a series of hostile takeovers.


Snyds said...

How does this play towards todays college students ? I have a Nephew entering college this coming fall. He will be taking out student loans through Stafford and Perkins, should his parent take out through the PLUS loan or is there some better place or way to help handle the out of pocket cost ? Is it worth spending all this money on a private college?

Anonymous said...

I believe SALLIE MAE preys on the young and naive and steals dreams and opportunities. If I had known a bachelor's degree would only allow me to make more money that will go directly into the pocket of SALLIE MAE, I'm pretty sure I would have given up that dream a long time ago. THOSE OF US WHO FEEL THE EFFECT OF SALLIE MAE MUST UNITE. Please contribute your SALLIE MAE horror story or advice here or send an e-mail to "fcuk_salliemae@yahoo.com". I am in the process of gathering as much information and personal stories as possible (I will not use nor release your name or any personal info gathered; also please don’t give out, post or send me specific personal info other than name). If the response is large enough, I will purchase a web site for the sole purpose of helping people cope with SALLIE MAE and hopefully help future borrowers stay out of the lasting grips of SALLIE MAE. OUR VOICE WILL BE HEARD!

Home base is currently "http://www.geocities.com/fcuk_salliemae/" -content will be added soon

Anonymous said...

I find you blog very interesting. Although, the company has a good profile, some of its clients are still dissatisfied either with the conditions offered by the company or the level of services. The representatives of the company also tend to come to people’s homes and demand the payment of the debt. Sometimes, they may even send police. On the www.pissedconsumer.com you may find even more customer feedbacks about the company.

Anonymous said...

I went to school in order to become a productive part of society and to be able to find work that paid more than 8$ hourly so my son and I could survive. I am so naive in that I never expected that getting an education would keep me in debt and harrassed for the rest of my life. The amount I owe changes sporadically, when I cant make a huge payment that has suddenly leaped, I, my employers, my family and even my friends get harrassing phone calls. Calls that are rude, insulting, threatening and repeated every 15 minutes or so. And yes, it comes from the same two women, not different departments. My $30,000 loan has ballooned into 80 grand. I am working two jobs and still cannot make a dent on the principal.
How many entry level jobs for new grads with no experience can sustain a loan of such proportions?
If we do not make education affordable we will become among a nation of poor and ignorant. Isnt it in the best interest of the country for people to be qualified to do jobs that require education?

mariocastro said...

Hello All!

Many of my friends from college and myself have also been victim to Sallie Mae's tactics. If you would like, you can watch a posting I've uploaded regarding this issue:

It is the first of many, and I encourage all of you to do the same. Good luck to everyone!