The student loan industry is ripe with greed, arrogance, and corruption.

And it just seems to never end. In May of 2009, “District attorney’s investigators raided City College of San Francisco on Wednesday, seeking evidence that college officials had illegally spent public money on donations to education-related political campaigns. A copy of a search warrant served on the college shows that investigators are scrutinizing the actions of former Chancellor Philip Day, who left the college last year to work for an education lobbying firm in Washington, D.C.” (from San Francisco Chronicle) Mr. Day happens to be CEO of the NASFAA, the organization that represents financial aid directors.
http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/05/07/MNJQ17FTEQ.DTL

The Sallie Mae CEO has taken nearly a half billion dollars personally as a middleman. He now owns three mansioned estates (annapolis, MD / Harwood, MD / Naples, FL), one with a private 18 hole golf course – although an old photo and the golf course is still under construction, you can see where taxpayer subsidy dollars go via Google Maps at coordinates 38°51’38.52″N, 76°40’4.47″W

Sallie Mae owns two private jets – they used to own three. The jets are tail numbered N50FD and N188AK.

You can see these jets at the following links:
http://www.airliners.net/photo/Israel-IAI-1125A-Astra/0523432/L/
http://www.airliners.net/photo/Israel-IAI-1124-Westwind/0841982/M/

That is where the taxpayer subsidies are going, private golf courses and private jets.

When a FFELP loan defaults, the taxpayer pays nearly twice the amount of the loan. Sallie Mae is allowed to attach fees, penalties, and crank the interest rate up to above credit card rates. After a period, they capitalize those fees, penalties, and interests and put the loan to the taxpayer for payoff. So, a 20k loan becomes more than 40k cost to the taxpayer. In the direct program, the 40k might still be the receivable, but it does not effect cash flow as we see with the middlemen involved. Why are we funding this madness?

Let’s not forget the corruption that the subsidies fund. The following student aid administrators got into more than a little hot water for taking kickbacks and other inducements from the student loan industry – most lost their jobs:
Ellen Frishberg – Johns Hopkins
Catherine Thomas – USC
David Charlow – Columbia
Lawrence Burt – University of Texas
Walter Cathie – Widener University
Tim Lehmann – Capella University
Daniel Pinch – Emerson College

In the investigations of 2007, many Universities were fined for revenue sharing schemes. Specifically, University of Pennsylvania, New York University, Syracuse University, Fordham University, Long Island University and St. John’s University have agreed to reimburse students a total of $3.27 million for inflated loan prices caused by revenue sharing agreements.

CHOICE? Choice is a myth or a lie depending on how you look at it. In 2008, more than 100 Universities were under investigation for more than 90% of their FFELP loans going to one provider. The notion that there is competition in this “market” is ridiculous – the student loan companies pay or induce schools for preferred lender status resulting in nearly all loans at any one school going to one provider. In the above instances, those inducements were to the administrators themselves. From “School as Lender” to call centers to printing – the inducements to schools are great and the payoffs for the middlemen even greater.

Of course, some in congress receive so much cash from the student loan industry, they will try to derail this improvement. Particularly, Buck McKeon and John Boehner receive the most from the student loan industry. Buck and Boehner have been the champions of the industry for years and are responsible for much of the elimination of competition and stripping of consumer protections for student loans – all to the benefit of the middlemen lenders. There are no student loan companies in Buck or Boehner’s districts and no meaningful employment by student lenders in those districts. Now, Lamar Alexander is joining in with them. This is pure pay for play.

First, eliminating FFELP, which serves 75% of schools and students, would produce very little, if any, savings. The only way eliminating FFELP would save money is if the government Direct Loan program could pick up FFELP’s loan volume and administer it more cheaply. Right now, FFELP is less costly, meaning eliminating it would cost money. (Eliminating FFELP would also require 4,000 schools to spend the time and resources to switch programs.)

Second, the author is incorrect when she states that because “the FFEL Program is privately funded,” its interest rates are higher. By law FFELP rates can be no higher than the Direct Loan program’s. In fact, for years, interest rates and upfront fees offered by FFELP loan providers have been lower. Why? They compete with each other for borrowers’ business. As a result, borrowers have saved millions of dollars.