Mailbag: Getting the Runaround from Sallie Mae

"Now this is obviously not a scientific survey"

That disclosure might have come at the beginning rather than as an afterthought. The examples you cited are indeed good examples, drummed up by Mr. Collinge, of students that were wronged. The context that you have intentionally left out is whether the 50 or so Mr. Collinge continually points to are exceptions or represent a large percentage of SLMA customers. The reason you don't include this pertinent information is that in actuality, they represent a statistically insignificant portion of Sallie Mae's customer base, which would undermine your allegations. With more than four million borrowers in active repayment, and another six million former borrowers, Mr. Collinge's 50, or 100 problem cases represent .00125% of SLMA customers. Statistically that is zero percent. Even against my old group's paltry portfolio of one million, those 100 would be a single percent. A different way to state this is that more than 3,999,000 Sallie Mae customers are moving through their loan repayment in a typical fashion, and without incident. Don’t get me wrong, I do not like Sallie Mae, they were an aggressive competitor that pushed the envelope many times to win business. But your crusade against the FFELP is built on selective, even faulty case data.

As far as the Direct Loan program goes, the schools using it appear content. When large numbers of new schools flood it with new business, we’ll see what the results are. My own wife’s consolidation loan in May took approximately nine weeks to complete. Hopefully front-end originations run more smoothly. And I assume that each and every wronged FDLP borrower’s story will appear on these pages, right?

I forgot to share that the FDLP is serviced by Affiliated Computer Services (ACS), a behemoth seven times the size of Sallie Mae, and that yes, uses off-shore calling centers for most of its goverment contracts. So in a time of record unemployment here at home, perhaps the Obama Administration might lean on the Dept of Education to require its contracters be 100% based in the United States.

I do not know who these comments are from (or who ex loan huckster is, for that matter). But to attempt to characterize these complaints as isolated and rare is pure deceit.

The fact is, we have compiled thousands of stories on our nearly invisible website that read largely the same. I could literally pick them at random and make the same points. We have about 2000 that are downloadable in Excel format in their unedited, unadulterated form, so that interested parties can make their own judgements about how isolated this phenomenon is.

http://www.studentloanjustice.org/our stories.xls

Given that upwards of 25% of all borrowers wind up in default (often through little or no fault of their own), and given that the same processes are in place for each and every one of these borrowers, the rational observer is compelled to agree that this is not an insignificant number of affected citizens. Rather, it is an extremely large segment of borrowers.

The fact that so few speak out is not surprising. Frankly, it is similar to the confidence schemes we hear about from time to time (i.e. old ladies bilked out of their life savings), where those who were taken advantage of are too proud, embarassed, or humiliated to speak publicly about it.

Alan - your rants are so broad and without supporting fact that they are often amusing. In fact, the reviewer that critiqued your book said exactly the same thing. I.e., you use isolated cases to indict entire industries. To answer a few comments above:

Ex-Loan Huckster is a laid off student loan operations manager that fortunately moved into a new industry entirely.

Even if your database contains 20,000 wronged individuals, that all got poorly treated by Sallie Mae alone, that is still less than one percentage point of their active and PIF'd (paid in full) student loan portfolio. Your list also includes borrowers of other FFELP lenders so they're not all angry with Sallie Mae. What it has in common are usually highly indebted borrowers without a proportionately high-caliber academic credential, and therefore they have had employment and income challenges. That is something that lenders, education officials and policy makers should all be addressing, but hardly can blame a single private company for playing in that arena.

As for default rates approaching 25%, again, you have bad data. Looking at the Department of Education web site, (http://www.ed.gov/offices/OSFAP/defaultmanagement/cdr.html) here are some actual sources of default data to consider:

(all examples use 3-yr, average cohort default rate, 2004-2006, the most current data available)

Boston University (FDLP school): 0.7% (of 13,500 students)
Boston College (FFELP school): 0.5% (of 8,000 students)

Here are a few career school examples:

Pierre's School of Cosmetology (FDLP): 3.57% (of 790 students)
Blaine Beauty Career Schools (FFELP): 13% (of 980 students)

I am not denying that default rate is not an issue, it most definitely is. But your 25% assertion is ludicrous, and the Direct Loan schools have the same trends in default rate as the FFELP schools, so those data really don't support your rants either.

Basically, Alan, no one is buying your argument outside of a select circle of partisan politicos.

That statement about loan servicing is altruistic. The loan servicers are looking out for the borrower and we can't trust the government to look out for the borrower, eh? Perhaps we can't trust either. But we do know that we can't let loan servicers who profit from bungling and otherwise poorly servicing loan payments be in charge of loan servicing. They don't want to give up the perverse incentive to screw up the loans and profit from the screw up because there is a boat load of money there. Unfortunately, this is the way toxic federal student loans get created. And the U.S. government doesn't enforce ANY of the regulations. It can't. There are too many loans now.

After many years of research on this subject, I'm beginning to suspect that it might now be far too late to do anything but accept that we have third world status because too much has fallen away because we can't get highly educated anymore and still be free.

I, too, experienced the fake private loan forbearance ineptness (and it wasn't Sallie Mae, it was one of the most trusted state agencies). And once that loan is screwed up in the beginning, the payment amount balloons exponentially. Unless student borrowers have the right to sue for failure to enforce the federal regulations that cover loan servicing and document retention and maintenance (and while private loans are not even subject to those federal regulations) only the federal government should service the loans -- through federal agencies, not private partners. But the federal government doesn't want to do that work because we've got 2/3 to 3/4 of the student population taking out loans (depending on the state) and that number will rise. Also, courts should no longer admit student loan computer records into evidence as proof of the debt. And, this area of governmental control needs complete transparency because it is corrosive and corrupt because the regulations aren't being enforced (except against the borrower).

So, now the U.S. has massive toxic defaulted student loan debt on the books. Yet the toxic debt is going to have to be more massive to get attention before something is done that makes sense because the level of national debt makes such a massive amount seems small in comparison. But, it won't be long before there's nothing that can be done because there are already too many loans for the federal government to keep track of. And in 5 years, 75% of the student population will have heavy loan burdens because U.S. citizens are going to get educated because instinct tells us we have to. And job prospects will not have improved enough in 5 years for enough people.

Loan servicers should not be allowed to sue the borrowers. They sue without following the regulations before the government has an opportunity to enforce the regulations against their negligent servicing efforts that led to toxic loans. So they bring faulty, defective, and false documents to court and get away with it.

The U.S. government can't afford to sue all the defaulters. Nor should the U.S. sue defaulters because they are victims of a failed higher education system which led to them being unable to pay high tuition rates. And corporations have stopped trying to compensate for these rising rates with competitive salaries. The U.S. government doesn't even try to compete with its own federal employee salaries.

The U.S. government can't collect enough to even pay its lawyers back if the U.S. government or the loan servicers sue defaulters. The U.S. government certainly won't be able to amortize the debt from the borrowers' salaries if they sue. So even the Direct Loan program is bound to fail. Garnishment before or after trial won't pay the interest because the salary isn't high enough. That's why the borrower gives up--no way to amortize. The salary isn't high enough because the higher education system screwed up the payscale system.

Before you get angry at the debtor, don't forget that student borrowers performed their civic duty to their country: learn what the elders know so you can provide that information to future generations. They had to do so in a financially dangeorus higher education environment. They didn't start the fire. But they will again do their civic duty and pass on the information, regardless of whether we are third world. If we can't hand off the baton, we will toss it to the future.

Every remedy so far has made the problem worse because the remedies have all been focused on helping the lenders and servicers: no lawsuit to collect, just garnish without a hearing before a judge or jury who could force the government to make sense and do better work.

Absolute power was given to the federal government and the loan servicers to collect and yet we are still building massive amounts of toxic student loan debt. It is long past time to release the victims/prisoners who borrowed because the government is still bleeding money it will never be able to get back from the victims. Restore consumer protections and loan servicing will get better immediately. Restore consumer protections and borrowers get a sense of pride in payment which will reduce depressive thoughts about the future which will lead to creativity and clear thinking. We need help and ideas from our educated. Restore consumer protections and the cost of tuition levels off and then goes down.

Len Nichols, the NAF fellow who is a highly regarded health policy expert, this week discussed on this web site his proposal for competing private and public sector health plans ("Policy Paper: A Modest Proposal for a Competing Public Health Plan," Len Nichols, New America Foundation).

In order for Len Nichols to make such a suggestion, he has to possess at least three beliefs:

One, the private sector has something of value to bring to the table. That its particpation is a net plus for consumers.

Two, whatever mischief private actors engage in, public regulators and the market together can effectively police it. He believes that government can be a force for good.

Three, the men and women who work for private firms can carry out their jobs in an ethical and honorable manner to the betterment of the people they serve and their nation.

The higher ed watch folks believe none of these things. They do not believe that the private sector can be a model for creating consumer welfare (via innovation, efficiency, competition, etc.). They have given up on the private sector.

They also do not believe in the capacity of the government to regulate. Yet, oddly enough, they believe the government is fully capable of running a half-trillion loan program.

Finally, they think the private sector is all about greed and profit. That all they want to do is screw borrowers. They have given up on two-thirds of the work force.

Shame on them.

While I disagree wholeheartedly with almost everything NAF puts out re: education, I have to say they are consistent and do not try to disguise their agenda. They are admittedly leftist organization and they espouse socialist, if not communist viewpoints regularly. My problem is when people like Alan Collinge rant and rave, they 1.) pretend to represnt large masses of the populace, 2.) make wild allegations that cannot be proven, and 3.) they play fast and loose with the facts, if any facts are even presented. It has been proven in numerous forums that Alan Collinge voluntarily left a decent paying job and ceased paying on his student loan obligations, and for eight years since he has been trying to paint himself in the majority of Americans. Just. not. true.

Sallie Mae is one of the worst companies I have ever dealt with. The student loan system seems like it is a rigged game to begin with but with Sallie Mae being an X government sponsored enterprise they leave a distinct and foul taste with any contact I have had with them. I thought the point was if Sallie Mae was a good company... A quick search on Google would give you some stories that may change your mind if you think they are.

It's a good sign that Sallie Mae is now regularly,systematically sending forth its minions (Ex-Loan Huckster, Alex Hamilton and others) to disparage Alan Collinge's character and dilute his message, and call New America Foundation's Higher Ed Watch all kinds of unsavory names. As Gandhi said, "First they ignore you, then they laugh at you, then they fight you, then you win." Keep up the good work, NAF and Mr. Collinge.

Sallie Mae is the worst company in the world. Their service reps are so rude and very inconsiderate. They do not help the borrower at all. When they want their money, they want it now, regardless of whether the person has it or not. They will call you twice within 30mins.