A Questionable Arrangement

Robert Shireman, the founder and president of The Institute, has been guest-blogging for Higher Ed Watch, a higher education news and policy initiative from the New America Foundation. Here’s an excerpt from “A Questionable Arrangement”:

An internal strategy document from Sallie Mae says a whole lot about how the company makes its money from taxpayers, from students, and then again from taxpayers. On Tuesday, Higher Ed Watch described the subsidies on federal loans that remain Sallie Mae’s priority #1 to keep, while yesterday’s item explained why the company is intent on maintaining the special status that private student loans have in bankruptcy (priority #2).

Next on Sallie Mae’s list is to protect its debt management operations, “especially Guarantor Services.” In two recent articles (here and here), Paul Basken of The Chronicle of Higher Education revealed how Sallie Mae employees in one division of the company effectively run a student-loan guarantee agency that is in charge of monitoring the activities of other divisions of the company, while both sides aim to maximize profits.

That questionable arrangement came into existence in 2000 when federal and state regulators turned a blind eye to Sallie Mae’s purchase of virtually all the assets of a non-profit guarantor known as USA Funds. The deal left in place a non-profit shell that contracts with Sallie Mae, whose employees now do the federal oversight work for which USA Funds is responsible. Last year, federal money passing through USA Funds accounted for 32 percent of the revenue in Sallie Mae’s debt management operations division.