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.
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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laurie 05/03/2009 1:43:24 PM
THE COPY I SENT TO CONGRESS AND THE PRESIDENT May 2, 2009 My Story My name is Laurie and I am taking classes at Capella University, hoping to earn a Masters Degree in Professional Counseling. Originally, I began graduate school in 1984 through 1987, in the field of Clinical Psychology. I earned 56 credits but did not complete the program. At the time, I was 24 and abusing drugs and alcohol. I took out 3 student loans, $5000.00 a piece, minus administrative and processing fees. After withdrawing from school in 1987, I was very irresponsible and defaulted on my student loans. They were accruing interest while I was making poor choices. When I got sober, I learned it was imperative for me to make restitution. Two loans went from Citibank to The California Student Aid Commission, eventually landing with The U.S. Department of Education. One loan was awarded by The Sally Mae Foundation, which is now PAID IN FULL. Although earlier payments were made sporatically, I began making consistent payments in 1999 towards Sallie Mae and in the year 2000, towards The U.S. Department of Education. All loans were at fixed at an 8% interest rate, while two were eventually consolidated. Although Sallie Mae’s principal began at $5000.00, I eventually paid approximately, $8300.00 on that loan. When I began making restitution on the consolidated loan, the principal balance was totaled at $21, 035.37. Fortunately, this loan was reduced to 7.75%, by having the money removed electronically from my checking account. To date, I have made approximately 82 payments, totaling $12,569.54. My principal balance is totaled at $22, 137.224, an amount greater than when I began making restitution. I am requesting that my student loan be FORGIVEN, as I have consistently made payments above and beyond the original $5000.00 loans. Currently, I am a Licensed Social Worker and a Licensed Chemical Dependency Counselor. I have been working at Neighboring, a non profit organization treating the mentally ill and chemically dependent population. I am struggling to pay for my required coursework at Capella University, an accredited online program for Professional Counselors. The predicament I put myself in is frustrating and endless. I cannot increase my salary without a Masters Degree, and cannot afford to complete my education with an outsdtanding balance of $22, 137.244. I have tried refinancing our home but was told our DEBT RATIO IS TOO HIGH. One of my areas of interest includes working with victims suffering from Post Traumatic Stress Disorder. This population may consist of men serving our country or victims of physical and sexual abuse. As you are aware, PTSD has become a national crisis, with the suicide rate among War Veterans increasing each year. I want to make a difference in someone’s life by working in a nonprofit organization. The catch 22: I cannot afford graduate classes because my salary is below average. I cannot secure a higher paying position because I do not have a Masters Degree. I cannot refinance my home because my student loan debt is too high. I cannot cash in my IRA’s because the penalties are too high and the value has decreased. Thus far, I have taken 5 classes towards a Masters Degree as a Licenced Professional Counselor. Capella University allows 6 years to complete. I have a 4.0 grade point average. Although I am 100% responsible for defaulting on my student loans and accruing interest, I need this loan to be FORGIVEN in order to achieve my goal of becoming a Masters Level Therapist, specializing in treatment for PTSD. According to the US Depatment of Education Payment Estimator, I will ultimately pay $68,586 on two $5000.00 student loans. Currently, my loans are 22+ years old. I have enclosed detailed documentation regarding these loans, as well as my past graduate transcripts from John F. Kennedy University. In addition, I filed for bancrupcy in the early 1990’s and was able to discharge all debts except the student loans. My first loan in 1984 is 25 years old. Sincerely, Laurie Truhan, LSW, LCDC III