Students pay; Sallie Mae pays off big
As a new class of college freshmen undertake what could be the biggest financial investment of their lives, directors of the biggest student-lending company are about to reap big profits. The deal is more evidence that Sallie Mae – with Congress’ blessing – has served its corporate leaders better than the students it was created to serve.
On Wednesday, Sallie Mae officials will consider a $25 billion buyout by a group of investors led by J.C. Flowers & Co. If they proceed, the Sallie Mae officials will collect $370 million in profit. A Sallie Mae spokesman defends the deal as typical among corporate buyouts. But it highlights the lucrative environment of the student-loan industry, which has been under investigation by New York Attorney General Anthony Cuomo for its troubling ties with universities and their financial-aid officers.
The Student Loan Marketing Association (commonly known as Sallie Mae) was established by Congress in 1972 out of concerns that the banking industry would not have the resources to meet student-loan demands. Sallie Mae used U.S. Treasury funds to buy government-backed loans from banks, in turn providing banks with the money to make more loans.
With the federal government’s backing, the quasi-governmental agency prospered. Its assets multiplied through the 1990s, when its top officials began earning seven-figure salaries and prompting complaints that they were prospering at the expense of students and taxpayers. In 1996, Congress voted to privatize Sallie Mae, and it became SLM Corp. It now holds almost $100 billion in student debt – 40 percent of student loan assets. At Indiana University, Sallie Mae handles 98 percent of the loan business.
Not only was it a powerhouse lender thanks to its government boost, but SLM was a first-rate political operator. It made $1.4 million in contributions to congressional candidates in the 2004 election cycle. Indiana Sens. Richard Lugar and Evan Bayh both have traveled on Sallie Mae planes.
“Sallie Mae was built to serve a public purpose, of providing student loans,” Robert Shireman, executive director of the Project on Student Debt told InsideHigherEd.com. “This level of profiteering off the corporation suggests that ultimately the deal that was struck may well have under-compensated taxpayers.”
Among the Sallie Mae directors on the profitable end of the deal is Earl A. Goode, Gov. Mitch Daniels’ chief of staff. Last year, the Indianapolis Business Journal reported the Department of Administration had awarded a $15 million no-bid contract to a Sallie Mae subsidiary. As DOA commissioner at the time, Goode excused himself from negotiations in the deal and reportedly asked the state’s ethics commission to review the potential conflict, but the commission’s ruling was never publicized.
In light of Cuomo’s probe, Congress is considering cuts in subsidies to student lenders – a measure that will come after the Sallie Mae sale and its handsome payoff. That’s too late for student borrowers, who will continue to pay for the excess Congress permitted.
•A woman has been charged with running “escort services” out of a Canterbury Green apartment. •People who have been charged with running a poker game out of Three Rivers Apartments are moving through the courts.