June 11, 2008

Weeks After Threat to Quit, Sallie Mae Pledges Allegiance to Federal Loans

Washington — Just three weeks after Sallie Mae executives were threatening to leave the federally subsidized student-loan program altogether, the nation’s largest student lender now says it will serve “every” eligible student who applies.

Sallie Mae, in a written statement, said it would “fund every eligible federal student-loan application received from every student at every school for the upcoming academic year.”

After weeks of complaining by lenders that they could not afford to issue loans under the government-subsidized program, the Education Department announced an industry rescue plan on May 21. Under the plan, in effect for the coming year, the government will offer loan companies both low-interest lines of credit and the ability to sell their loans to the government at a rate exceeding their face value.

Sallie Mae’s chief executive, Albert L. Lord, said at the time of the announcement that the administration’s terms, while “barely OK,” were “sufficient to keep us lending all the way through the 08-09 season.” In more recent days, however, Sallie Mae spokesmen have suggested the company was always committed to the program, in which the federal government both subsidizes the student-loan interest rate and covers nearly the entire cost of the loan if the borrower defaults.

The company has “demonstrated an unwavering commitment to students by funding every federal loan application from every student at every school,” a Sallie Mae spokesman, Conwey Casillas, said last Thursday. The company’s new statement extends that commitment at least for the next academic year, until the Education Department’s financial-rescue plan expires. —Paul Basken

Comments

1. That the company’s new-found unwavering commitment to students comes on the heels of a taxpayer bailout is sheer coincidence, of course. I’d be happy to show the same level of commitment if I could successfully blackmail Congress into giving me low-cost public cash to make loans.

   It is bad enough that these folks are ripping off the taxpayers, but they also insult our intelligence by making these pious pronouncements as if we’re too stupid to know better.

   — Anonymous    Jun 11, 04:12 PM    #

2. Why hasn’t direct lending taken a greater share of the FFELP market space? If this were to happen, it would remove greedy, predatory lenders—like Sallie Mae—out of the equation.

   Over the last few years, Sallie Mae has made it apparent that they are more interested in providing private loans rather then federally backed loans. Why? Because lenders like Sallie Mae can run-up interest rates, charge all sorts of late fees and other penalties without having to be concerned about federal regulations. Some borrowers end up with debt over 100K with interest’s rates over 15%. Does that seem reasonable? What makes Sallie Mae even more rabid about private loans is that borrowers can NEVER get out of paying back these loans. Unlike credit card debt, which is essential what these loans are the equivalent of, there is no type of bankruptcy that can clear this debt, ever. The federal government needs to take a closer look at this type of lending and provide more and better regulations so students aren’t graduating into an endless cycle of debt.

   — Bogey    Jun 11, 05:11 PM    #

3. The postings of both Anonymous and Bogey seem to reflect disappointment that a major loan access problem didn’t develop. Some of the Direct Loan advocates clearly see the current student loan mess—created at least in part by Congress and the incompetent Bush administration by cutting the studnet loan program too far—as an opportunity to kill off FFEL once and for all. What a shame these people don’t think about students.

   Calling Sallie Mae greedy doesn’t get students through college. Suggesting that the liquidity assistance in the Ensuring Continued Acccess to Student Loans Act is a windfall for anyone suggests that the commenters either haven’t read the bill or are too stupid to understand it.

   — Anonymous #2    Jun 12, 08:01 AM    #

4. Of course all Sallie Mae is concerned about are students. Without them they would have no one to build a private, exclusive 18 hole golf course, provide lavish, private corporate jets, and of course create HUGE profits for shareholders and senior executives. Is that about getting students through college? Read what is on Sallie Mae’s Web site concerning FFELP: “FFELP is the private sector student loan program that makes higher education affordable and accessible for millions of students and their families.” Emphasis should be on affordable. My previous post addresses two points: 1) Direct lending and 2) Private loans. You tell me which type of loan is about getting students through school with a loan that is affordable, reasonable and can be paid back?

   — Bogey    Jun 12, 11:29 AM    #

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