Sallie Mae throws the banks under the bus
The Washington Post has a fascinating tale today of student-loan behemoth Sallie Mae throwing in the towel—and abandoning its long-time frenemies in the banking industry—by more or less endorsing the Obama administration's plan to put student lending in the hands of government. Sallie Mae's tweak to the administration plan involves keeping the originating and servicing of the loans in the private sector—giving Sallie Mae a continued reason to exist. It may succeed, if only because having Sallie Mae on board will make the legislation much less of a fight.
My favorite passage in the article:
Other lending companies have been infuriated by Sallie's proposal. John Dean, special counsel to the Consumer Bankers Association, a powerful student loan lobbying group, said the company's plan, which he called "pornography," would drive most banks out of the industry and strengthen Sallie Mae's market share.
"Sallie Mae threw in the towel on the opportunity to defeat the Obama proposal," Dean wrote in an e-mail to association members. "Since then it has dedicated its efforts to doing what it does best: Watching out for itself. When that entails throwing industry colleagues under a bus, Sallie Mae's leadership does not hesitate."
This occasions a couple of thoughts:
1) Divide-and-conquer is going to be the key to financial reform over the next few years. When the entire financial industry is against something—as it was with mortgage cramdowns—that something isn't going to happen. But proposals that split the financial sector will have legs.
2) Over the past two decades, student lending became a textbook case of a privately run, government-subsidized program that delivered a worse, more-expensive result than a government-run program probably would have. (As is so often the case, Bethany McLean has the definitive account.) So now it looks like we'll put the government completely in charge of student lending. Our entire financial system currently amounts to a privately run, government-subsidized program. I don't think that means we should put the government in charge of all lending. I'm just sayin' ...
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1
Throw all the student loan companies under the bus. I mean seriously, all of them. And the "advisors" colleges have. When I went back to school for my MBA three years ago, I was shocked at how corrupted the student loan industry/school advisors had become. 18 year old kids routinely funneled away from FAFSA programs into private lenders with exorbitant interest rates and kickbacks to the school or to the "advisors" working at the school.
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It's just a sick, sick scam intended to put people into debt for life. I know one guy who's currently got $50k of student loan debt in a package that will total $250k by the time he pays it all off if he goes according to the schedule.
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Oh, and thanks to the structure of the loans, he can't consolidate his debt into a lower interest loan either. It's fraud perpetrated on an entire generation by people who are supposed to be looking out for them. Nothing more. -
2
"Over the past two decades, student lending became a textbook case of a privately run, government-subsidized program that delivered a worse, more-expensive result than a government-run program probably would have."
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Arguably, most of that applies to our health care system as well. Are we beginning to see a pattern here? -
3
I fail to find any sympathy for a newtork of parasites lamenting the defection of a fellow parasite who choses to help the host rather than continue to suck the life from it. The term 'honor among thieves' comes to mind. Given the fact these are all blood-sucking parasites, I don't see why others in the industry are at all shocked by this behavior. Perhaps what we're seeing here is an economical evolution of a harmful parasite into a more beneficial symbiont. It is to be hoped. Maybe college will become more affordable to students now.
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4
It will be really fun to watch all those pinko-professors screaming once Obama will start regulating their pay and workload.
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Not speaking about fun times when the dominant group of pinkos will start shipping their friends to recently enacted reeducation camps. -
5
@Sean Decoursey - couldn't agree with you more. There needs to be a much deeper look at this relationship between universities and the student loan industry. I'm not excusing students from making bad decisions - hell, I made some pretty terrible ones myself, when a calculator, a pencil, and five minutes soft thought would have saved me a few (tens) of thousands of dollars.
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But the financial aid department at my college actively pushed students into private credit before maxing out their Stafford and FFELP options, ect. Which is just stupid advice - and not really 'financial aid' in any sense of the word. Other than to Citibank, of course.
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It's not a very representative sample - I'm sure there are many honest and clever financial aid departments out there - but if we seriously want to encourage social mobility in an increasingly stratified country, preventing student loan rates from rising to 20% might be a good start.
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