Your Late Fees, Their Millions

Can't pay your student loan on time? The fat cats at Sallie Mae are so glad to hear it.

Albert Lord, the chairman and past CEO of student loan leviathan Sallie Mae, is riding high these days. He holds a million shares of company stock, valued at $57.25 per share in the second week of January; he exercised options on another $15 million in the past two years. He leads a group bidding on the Washington Nationals baseball team, a power contest as much as a money one, with George Soros and Colin Powell also among the contenders. It was reported in early January that he's building his own private 18-hole golf course in suburban Maryland.

Meanwhile, Alan Collinge, a 35-year-old former aerospace engineer in Washington State, is feeling a little low. He originally borrowed $38,000 in student loans from Sallie Mae to complete three degrees at the University of Southern California. In 2001, after making about $7,000 in on-time payments, he left his gig at Caltech on the promise of a government job that evaporated after 9-11. He was underemployed for two years, making ends meet as a short-order cook in Alaska; his student loans went into default. "When I got back from Alaska, I got a bill for $85,000 and it pretty much blew me away. That's when I realized that somebody is making a lot of money around this deal." Today, Collinge owes $105,000 to the Department of Education.

Collinge believes Lord got to the top by trampling student borrowers like him. Sallie Mae has transformed over the past 10 years from a government-sponsored enterprise—or GSE—with the limited function of providing a secondary market for student loans, into a vertically integrated private corporation dominating all aspects of the student loan business, all while never losing its grip on billions in government subsidies or the federal guarantee on much of its risk. Since 1997, the volume of loans the company manages has grown from $43.7 to $107.4 billion. It owns four times as many federal student loans as the next competitor. The practices that have made fortunes for the company's executives, and fueled a 1,900 percent growth in its stock price since 1995, include increasingly cutthroat treatment of the millions of students who depend on the company to finance their education. And Collinge, as an activist with the website studentloanjustice.org, is starting to get the ear of politicians and the media.

Sofia Echegaray
photo: Heather Green
Sofia Echegaray

Collinge started studentloanjustice.org in the spring of 2005. "I lose hours of sleep because of my personal situation," he says. "So I spend my time on this." He pores over SEC filings to find out how much student loan execs earn, and he reads sites like fundrace.org and opensecrets.org to find out how much they give to politicians.

For example, Sallie Mae has set aside $3.6 billion in stock options for employees since 1997. Albert Lord and Tim Fitzpatrick, the current CEO, together have received $367 million in total compensation since 1999. John Boehner, the representative from Ohio currently running for House majority leader to replace Tom DeLay, is Sallie Mae's favorite member of Congress; he has received $122,470 from the Sallie Mae PAC in the 1989–2006 election cycles.

Collinge has also raised the question of antitrust violations. As a GSE, Sallie Mae was all but immune to allegations of monopoly, since its market advantages were conferred by federal law. Today, its status has changed. "They're becoming more and more a direct competitor to the banks and others," says Robert Shireman, a student loan expert and director of the Project on Student Debt, an adviser to President Clinton during the creation of the direct-loan program. "There are certainly concerns over whether we are nearing an oligopoly situation. They are by far a dominant player."


In 1999, Sallie Mae bought the nonprofit USA Group, the largest guarantee agency in the country. USA Group CEO Jim Lintzenich got $4.1 million in salary and stock options valued at $21 million, plus an "early departure" clause of $5 million if he left Sallie Mae within the year (he left within nine months). After the acquisition of USA Group, some banks called for an antitrust investigation. Members of Congress leaped to Sallie Mae's defense. "The student-loan business is very big, and while Sallie Mae is big, there are a lot of other major lenders and guarantors out there," said Senator Howard "Buck" McKeon, as reported in The Chronicle of Higher Education. The Chronicle also noted that McKeon had accepted $19,250 in contributions from both Sallie Mae and the USA Group in the 1999–2000 election cycle. At the same time, Rose DiNapoli, at the time Sallie Mae's VP in charge of lobbying, was married to Michael Sitcov, a directing attorney at the Justice Department.

Sallie Mae went on to purchase several other nonprofit and for-profit student lenders. The Pennsylvania Higher Education Assistance Agency, known nationally as American Education Services and the nation's largest nonprofit guaranty agency and loan servicer—with a $56.5 billion portfolio—spent the last year fending off its unsolicited takeover bid in the amount of $1 billion. "PHEAA is not now and never will be for sale, especially to a profit-driven corporation with a track record of overcharging borrowers, laying off workers, and gobbling-up any organization that stands between students and a quest for bigger profits," said Elinor Z. Taylor, chairman of PHEAA's board of directors, in rejecting the bid. As a protest measure, Pennsylvania representative Tim Holden, a conservative Democrat, introduced a bill at the end of the most recent congressional session that would require Sallie Mae to pay $300 million in annual fees to compensate for the 32 years of tax advantages it enjoyed as a GSE.

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