One of the companies cited as a possible buyer of the student loans up for sale by the Missouri Higher Education Loan Authority has been the target of a national campaign against its predatory lending practices.
“Many students just want to get through the door and go to school. Meanwhile they don’t know Sallie Mae has just imprisoned them,” said Alan Collinge, a former Sallie Mae borrower who now runs studentloanjustice.org.
When Collinge signed for $45,000 to attend the University of Southern California, he said he never imagined he would someday owe $103,000.
“I was out of work for two years, and I asked for a deferment,” Collinge said about his troubles finding a job with his degrees in aeronautical engineering after Sept. 11. Collinge couldn’t understand why Sallie Mae, rather than grant the deferment, placed his loans in default where the penalties and rates more than doubled the original amount he borrowed.
“Then I started looking at Sallie Mae and (how) its predatory culture evolved,” Collinge said.
He started the campaign to educate others about the profits loan providers make off interest rates that can sometimes surge as high as 15 percent on private loans. Collinge collects testimonials from students across the nation whose loans went into default and then snowballed into amounts that surpass what they had ever expected to pay.
While Sallie Mae spokesman Tom Joyce verified that loan debt can more than double when borrowers don’t pay, he said former students can get help with options such as income-sensitive and graduated repayment plans. He points to the current national default rate of 4 percent as evidence that most students can afford their debt.
“I have empathy for Alan not being able to make his payments, but at the end of the day, he borrowed money, he got an undergraduate degree and a graduate degree from one of the finest institutions in this country,” Joyce said. “He has an obligation to pay.”
But Collinge said he is also concerned that the private loan industry’s sway with Congress has led to changes in the Higher Education Act that allow debt collectors to garnish wages and income taxes. Other legislation exempts student loan debt from federal bankruptcy.
“Through their massive lobbying effort since the mid ‘90s, Sallie Mae executives took what was supposed to be fair and just legislation regarding student loans and shamelessly turned it into a massive revenue flood for their own personal benefit,” Collinge wrote on behalf of his advocacy group.
Congress established the Student Loan Marketing Association, or Sallie Mae, in 1972 and then began privatizing the loan provider in 1997. Since then, the lender has aggressively bought out loan-provider and collection agencies throughout the nation.
But when Sallie Mae’s former chief executive officer, Albert Lord, approached Pennsylvania’s student loan agency, which services millions of students nationwide, the board of directors rejected the $1 billion offer.
Richard E. Willey, president of Pennsylvania’s loan agency, said in a letter he wrote to Gov. Matt Blunt on Jan. 24, “I am writing to express my grave concern over the potential sale of MOHELA or its assets to any for-profit corporation — but especially to an aggressive loan marketer such as Sallie Mae.”
Lord submitted a proposal to Willey right before Christmas in 2004, outlining his reasons for wanting to buy Pennsylvania’s student loan agency. In the proposal, Lord explained that such a sale could generate $500 million the first year and $100 million during subsequent years for the state’s Higher Education Department.
However, the proposal was publicized before the loan agency saw it. Overnight, the loan provider was deluged with letters expressing concerns about the sale from schools, student advocacy groups and loan providers throughout the nation.
Elinor Z. Taylor, chairman of the Board of Directors for the Pennsylvania Higher Education Assistance Agency, said about the rejection of Sallie Mae’s offer at the time, “We have an obligation to protect the long-term interests of Pennsylvania students and to be wise enough to see through a get-rich-quick scheme designed to enrich corporate shareholders, not the Commonwealth of Pennsylvania.”
Keith New, vice president of communications for Pennsylvania’s loan authority, said the situation in Missouri resembles what happened in his home state.
Joyce said no one from Sallie Mae has spoken to Missouri officials and company policy prohibits him from commenting on market rumors. However, New said the same banking and investment firm that first approached Blunt about selling MOHELA also initiated discussions with Pennsylvania’s governor about selling the student loan agency.
“It sounds very familiar to us,” New said.
New said he and others at the Pennsylvania loan agency would oppose the sale of MOHELA student loans to Sallie Mae because they don’t want to see more loan providers bought out by the lender, which already holds 26 percent of the student loan market.
“It’s about more than Missouri, it’s a national issue,” New said. “If they become too big, the nonprofits have no power.”