Sallie Mae just isn't as evil as Steve Burd believes it is. Is Sallie Mae really any less virtuous than ACS, the contractor that's had the exclusive, cost-plus deal to administer the Direct Loan program? This is the same company that reduced its bid to run the DL program by one billion dollars after Sallie protested the award of a sole source contract.

This is the same company that boasts about its foreign outsourcing. Read a Nov. 6, 2008, Computerworld article:

CS Joins Others in Sending 'More Complex' Jobs Offshore

Back in May, I wrote about a CareerBuilder.com/Wharton School study in which 28 percent of U.S. companies said they were offshoring an increasing number of high-wage, high-skills jobs.

ACS, one of the "Big Six" North American outsourcing specialists, is among those ranks, reports Computerworld. During a call discussing its most recent financial results, ACS said it planned this year to increase the number of employees working offshore by 4,200. That includes "more complex, higher paying jobs," said CEO Lynn Blodgett during the call.

Like other services providers, including Accenture and IBM, ACS has been moving more jobs offshore over the past few years. In its 2006 fiscal year, slightly less than 25 percent of the ACS workforce was based outside the U.S. But that number has grown to nearly 35 percent, according to Computerworld.

NAF, come on, there's no need to gloat now!  Your role as the blunt instrument in the political assassination of an entire industry is assured!  The polish is dry on your Presidential Medals of Freedom!  As much as I hate to take the jam out of your doughnut though NAF, I should remind you and your readers of a simple fact.  Confessions made when the accused is being coerced or is under duress have little to no value.  That's why for example; any reputable court of law will throw such confessions out.  With this in mind, perhaps one should question the veracity of Sallie's statement that FFEL in its current form is wasteful and inefficient.  I mean, let's not forget that Sallie is today struggling for its very survival here NAF--there's no greater duress than that!

But putting aside what should be obvious, what's really vexing here is that NAF's intellectual forebearers were the creators of Sallie Mae.  They too promised the American people that an affordable college education for all was just over the horizon when launching Sallie Mae.  Decades later and where are we at in terms of reaching that affordability goal NAF?  Oh yes, we've come full circle.  You have a "new" loan program that will make good the as yet unrealized promise of an affordable college education for all!  Did you know that the definition of insanity is doing the same thing over and over again and expecting a new result?  They must not teach this in think-tank land.        

Although we also do not like the Sallie Mae proposal, we question why NAF is apparently focused on it rather than the impact on student and parent borrowers of the President's proposal. Why not tell your readers that the "savings" under the administration's plan are primarily derived from charging borrowers more than necessary on their Direct Loans? NAF might also serve a public purpose if it undertook a hard analysis of the administration's proposals--things such as the apparent assumption that defaults on student loan won't increase despite the dismissal of the guaranty agencies, who perform default aversion services.

The administration's proposal taxes middle income students for the purported purpose of financing grants to low income students. It makes college less affordable to borrowers who could be charged less on Direct Loans if the estimates of the federal cost of funds assumed by the administration were correct.

We also wonder why NAF doesn't say to President Obama: "We think increased grant assistance for low income students is sufficiently important that we propose investing in this without an offset." The administration could have calculated what increasing the number of low income students graduating from college will mean to future national economic productivity. A case can be made that an investment in increasing Pell Grants will pay for itself in greater taxes paid by the college graduates that such an increase would help produce.

NY Times Article Editorial

The Battle Over Student Lending

Published: April 15, 2009

Private companies that reap undeserved profits from the federal student-loan program are gearing up to kill a White House plan that would get them off the dole and redirect the savings to federal scholarships for the needy. Instead of knuckling under to the powerful lending lobby, as it has so often done in the past, Congress needs to finally put the taxpayers’ interests first.

That means embracing President Obama’s plan. The proposal takes the long-overdue step of phasing out the portion of the student-loan program that relies on private lenders. At the same time, it expands the more efficient and less expensive portion of the program that allows students to borrow directly from the federal government through their colleges.

About three-quarters of this country’s college lending is carried out through the private program, known as the Federal Family Education Loan Program. Under this galling arrangement, lenders are paid handsome subsidies to make student loans that are virtually risk-free, since they are guaranteed by the government.

The subsidy was created at a time when lenders weren’t interested in the student business and was intended to keep loan money flowing through tough economic times. But that did not happen during the credit crunch, when the federal government had to inject liquidity into the system by buying outstanding loans.

The direct-loan program suffered no such disruption. In addition to being more reliable, direct lending is also less expensive. Equally important, according to the Congressional Budget Office, the country would save $94 billion over the next decade by switching completely to direct lending.

This would not in fact “grow government,” as conservatives in Congress have already begun to charge. The loans would be handled through colleges, just the way Pell Grants are now. The loans would then be serviced and collected by private companies that are already competing for this lucrative business.

Forcing service companies to compete permits the government to get the best possible deal for the taxpayers. The service contracts would be periodically re-evaluated, based on how well the companies treated their customers and how successful they were at preventing borrowers from defaulting.

The new program would, of course, trim the bottom lines of some corporations, but it would not create enormous job losses, as some critics are suggesting. The work force needed to service, say, $100 billion in student loans must surely be comparable in size to the work force needed to lend the same amount. Beyond that, government rules forbidding foreign nationals from handling federal assets would ensure that the servicing jobs were not shipped abroad.

The direct-lending proposal is clearly in the country’s best interest. But it will have a tough time in a Congress that has been historically more interested in pleasing the lending lobby than in looking out for families struggling to educate their children.

The President's budget provides a plan to increase Pell Grants for needy students and as Stephen said, "to end this budgeting nightmare by removing it from the annual appropriations process." Since I have been a financial aid administrator for 20+ years, I can tell you from first hand experience that our needy students need the Pell Grant to increase and to be a stable source of funding. Currently I am a Director at a Direct Loan school but I have supervised the FFEL program at other schools. The DL program is by far the most efficient and stable source of loan funding for students and for schools that are servicing the students. It is time to stop trying to create different versions of the same FFEL system that pays lenders instead of students. It is time to eliminate the subsidies to the lenders and spend the savings on helping students by increasing the Pell Grants.

Steve, thank you so much for bringing light to what this proposal really is.....yet another way for the loan giants to profit from taxpayers and risk-free investments! When one applies simple logic to this situation the truth is actually quite clear. It is common sense that a process (Direct Lending) which involves just two entities - the Department of Education and schools, would be less expensive (i.e. more Pell Savings) than the same process with a middleman taking profits. It is insulting to me as an aid administrator to watch Sallie Mae try to convince me that they are proposing an alternative to President Obama's plan for the good of students. The only reason for them to propose anything is to protect, and it seems in this case expand, their own profits.

Sallie Mae is a money making profiting company who does not care about students. You can't get a reasonable monthly payment, you can't have teacher forgiveness,income sensitivity, or hardship help. However, Sallie Mae will gladly increase your debt to hundreds of thousands of dollars and call your home starting at 8:00am including Sundays. We as students need a bailout! I'm sure lots of students are heading for default and losing their homes because of student loan debt. Student repayment should not consist of more than 5% of your monthly income and everyone should have a commone 3% interest rate. All teachers who work in poverty level schools should be forgiven of their student loan debt. I read on the internet that one young man is considering suicide. His debt went from 50,000.00 to over 110,000.00 acrued interest (another rip off and the monster which keeps us at bay). Only God and the govenment can get us out of this mess! I SAY DOWN WITH SALLIE MAE!!! Enough of the greed. This they expect out kids to go into debt. Keeping all of us into an everlating circle of no return. Pay unto death! Plese bail us out, President Obama!

I paid off my SallieMae student loans...it wasn't easy, it took a long time, but they are paid, and I don't blame SallieMae (although a better rate would have been more helpful).
Tuition at some schools is entirely too much. How can you have an affordable tuition when you are paying some professors hundreds of thousands of dollars. I saw a W2 for a department head at small university paid $430k in 2008. Most schools need to downsize their staff & make tuition more affordable. What is a $5500 PEL grant going to do when you go to NYU at $37k/yr? It helps, but falls very short. Some art schools charge $30k/year-then you graduate with a degree in animation??? how can you pay your student loans when you owe $60k & have a degree in recording arts, fine arts, or any other non-business related degree?
What about the students that take extra money for living expenses? that's the lender's fault too? i saw 1 story where the student took out $35k for tuition, $20k for living expenses--the $20k ran out half way thru so he borrowed an additional $30k. I question SallieMae for lending him the money, but people have to think how they are going to repay these loans before they take them out.
the point here is it's not all SallieMae's fault...the universities share the fault, along with uniformed students.