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For more than a decade, when the company converted from a quasi-government organization to a publicly traded company, Sallie Mae has sailed through quarter after quarter with impressive stock returns and an ever increasing market share in the student loan industry. The company’s executives had even more to boast about—collecting huge salaries and, no doubt, hefty bonuses for the company’s success.
Through it all, lobbyists for Sallie Mae have been extremely successful in convincing Congress to make the student loan industry a very lucrative one. Critics of the student loan industry say legislators have historically backed Sallie Mae in its every request to chip away at consumer protections.
But all good things must come to an end, as the cliché goes, and for a while it appeared as though 2007 might usher in a wave of change for Sallie Mae, also known as SLM Corp.
The year began with a slew of media coverage regarding the Virginia-based company and its collection tactics against student borrowers in default. Critics railed against Sallie Mae for its outrageous interest penalties, late fees and lack of consumer protections.
In the spring, New York’s Attorney General announced that Sallie Mae, the nation’s largest lender of student loans, agreed to a settlement regarding questionable conflicts between the company and several colleges and universities. Conflicts that included steering students toward certain lenders and making payments to colleges in order to be placed on their preferred lender lists.
The company’s stock price suffered through all the bad publicity, particularly when the White House proposed cutting subsidies to federal student lenders.
Legislators even got involved. Senators Hillary Clinton of New York and Dick Durbin of Illinois both introduced legislation within the past few months that would establish protections and rights to students borrowers, much like the rights car and home borrowers rely on. While the legislations have failed to gather momentum, the fact that Capitol Hill was even willing to look awry at Sallie Mae seemed to break the company’s winning streak.
For a while, that is.
Just as Sallie Mae’s public relations’ bubble appeared ready to burst, the tide turned once again. On April 16 Sallie Mae accepted the leveraged buyout offer made by J.C Flowers, Bank of America, and JP Morgan/Chase. Sallie Mae shareholders agreed to the deal in August, and a press release issued by the corporation indicated the deal would be consummated in October.
Shareholders and the company’s executive board are no doubt delighted at the prospect of a private buyout. Should the deal go through the company’s stock will sell at $60 per share (recently, company stock was selling at just above $47 a share).
Sallie Mae shareholders obviously have a lot to gain should the buyout take place. But not everybody is happy about the possibility.
"This is not good for competition," says Alan Collinge, founder and executive director of Student Loan Justice, a grassroots organization of student borrowers working to reform the federal student loan system.
"This reeks of monopoly."
Collinge and other critics of the student lending system say the buyout is just the latest assault on student borrowers. Potentially, it could prove to be the most damaging, they say.
The concern is that Sallie Mae, which is already the biggest player in the student loan industry next to the federal government, will increase its dominance in the market once it merges with the other banking institutions, which also operate student loan divisions.
"If they’re controlling most of the market, it will be much tougher for other lenders to be able to compete," says Collinge. "Eventually, they’ll just say, ‘We’re getting out of this business altogether.’"
The scenario would leave many borrowers with fewer options and at the mercy of Sallie Mae.
Competition isn’t the only consideration for student borrowers. If Sallie Mae changes its status from a publicly traded company to a private one, it will no longer be as susceptible to scrutiny.
Publicly traded companies are required by the SEC (Securities and Exchange Commission) to report profits, salaries and other pertinent information. The information is available to the public as well as to legislators, and some of those legislators have been paying attention lately to student loan issues.
"What it means is they’ll be subject to one less potential source of accountability," says Thomas H. Stanton, a Washington D.C. lawyer who has written extensively on student loan issues. "And it would remove the company’s share price from fluctuations caused by political and reputational risk."
That would no doubt please Albert Lord, Sallie Mae’s former CEO and Chairman who was reported in the Washington Post as "tired of having his company’s stock price knocked around by a bunch of politicians."
The company’s public image would also be less of a concern should Sallie Mae privatize, says Bob M. Shireman, founder and president of The Institute for College Access and Success, located in Berkely, CA.
"I would be concerned that the company would be less focused on how its activities in the public policy arena and consumer arena would be perceived," says Shireman.
That probably wouldn’t bode well for student borrowers given the fact that Sallie Mae is not known as a leader in regards to consumer protections, and that’s while the company is on the public radar.
The deal between Sallie Mae and the consortium has yet to be finalized, and there is some uncertainty hovering over its completion. The investors’ group has indicated a displeasure with recent legislation passed this summer regarding a reduction in federal subsidies to student lenders as well as other protections that could affect Sallie Mae’s bottom line.
But at this point, it would be very costly for the consortium to back out of the deal, says Collinge.
Whatever happens, one thing’s for certain. Consumers will likely be the last to know.
Said Stanton, "Somehow consumers have been left out of this whole dialogue." • |
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