Sallie Mae -- Cronyism at its Finest
July 15, 2013
In the last decade total student loan debt has grown nearly fourfold. Much of the focus on this growing problem has concentrated on the increasing cost of higher education. Another side of the student loan bubble is the crony capitalism of SLM Corporation (more commonly known as Sallie Mae) and the way in which it has come to dominate student loan markets, say Anthony Randazzo, Victor Nava and Scott Piazza of the Reason Foundation.
Sallie Mae has used its political influence to build and maintain its profitability in spite of the financial crisis and throughout numerous attempts to reform the industry.
Sallie Mae has used its lobbying power to maneuver around numerous challenges that the company has faced. When the financial crisis struck, Sallie Mae was a primary beneficiary of the Ensuring Continued Access to Student Loans Act of 2008. This act, signed into law by President Bush in 2008, expanded funding for federal student loan programs in an attempt to provide additional liquidity to the student loan finance market.
- It has used this influence recently to secure massive servicing contracts from the expanded Direct Loan Program, acquire a multibillion dollar bailout of the student loan industry, and to procure the removal of significant debtor protections from privately issued student loans, of which the company is the largest originator.
- The resulting situation is unfair to students and taxpayers alike: students end up paying higher college tuition fees and are saddled with more debt.
- Taxpayers are left sitting on a ticking time bomb of accumulated government-backed debt.
- When the student loan bubble bursts and Uncle Sam is called upon to bail out Sallie Mae, the cost could run into the billions.
What is the solution? Ideally, the federal government should exit higher education finance altogether. This would not only stop the cronyism in the system, it would also lay the groundwork for a more robust private sector student loan industry.
Source: Anthony Randazzo, Victor Nava and Scott Piazza, "Sallie Mae and Uncle Sam: Cronyism in Higher Education Finance," Reason Foundation, July 2013.
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