We urge you to read our new report: The Sallie Mae Saga: A Government-Created, Student Debt Fueled Profit Machine. Please also share your experiences if you have had problems with Sallie Mae.
Report: How Sallie Mae Became the Largest Student Loan Industry Player at Borrower and Taxpayer Expense
There are nearly 39 million borrowers in the U.S. carrying over $1 trillion in federal student loan debt. About $120 billion of federal student loan debt was delinquent in 2012—a 30.5% increase from fiscal year 2011. This burden on borrowers has also created business opportunities for servicers, collectors, and other private companies. A new report from the National Consumer Law Center (NCLC) provides insight into the dangers of the federal government relying on a for-profit publicly traded company to protect borrowers and taxpayers and offers recommendations for reform. The Sallie Mae Saga: A Government-Created, Student Debt Fueled Profit Machine reviews the biggest player of all, with connections to every aspect of the student loan industry.
In 1972, President Nixon created the Student Loan Marketing Association, or “Sallie Mae” — a government-sponsored enterprise (GSE) empowered by the government to use U.S. Treasury money to buy government-backed student loans from banks. Sallie Mae benefited for more than 30 years from its close government connections and became a fully private company in 2004, growing into the dominant force in the student loan world. The business has been extraordinarily profitable. Given a for-profit company’s imperative to do what is best for its investors, it is especially critical that the government conduct rigorous oversight of its private contractors. Unfortunately, the growing number of government investigations and consumer complaints show that government supervision has been lax.
“We need the U.S. government to prioritize borrower success rather than ensuring that companies like Sallie Mae continue to profit,” said Deanne Loonin, director of the National Consumer Law Center’s Student Loan Borrower Assistance Project and author of the report.
NCLC’s analysis provides insight into the dangers of relying on a for-profit publicly traded company to protect borrowers and taxpayers and offers the following recommendations.
- Federal and state agencies must Coordinate and Engage in Rigorous Oversight and Enforcement
- Improve Evaluation of Servicers and Collectors. On the servicing side, we recommend, at a minimum, measuring “default prevention” not just on the numbers of borrowers avoiding default, but also on the ways in which they avoided default. Also recommended: sending a sampling of anonymous servicer files to neutral analysts to evaluate on a range of criteria, including whether the borrower achieved an effective long-term solution, if available.
- Hold Servicers and Collectors Accountable for Poor Performance and Legal Violations. The government should not reward servicers and collectors with poor track records by continually renewing contracts, and also act immediately to recover overpayments and penalties already assessed. For example, the U.S. Department of Education has not yet recovered over $20 million in allegedly improper payments to Sallie Mae despite a 2009 recommendation to do so from the Inspector General.
- Provide Relief for Financially Distressed Private Student Loan Borrowers.