Friday, July 31, 2009

Sallie Mae and their Lobbying Showdown

This piece by Danielle Knight, "Lobbying Showdown Over the Future of Student Loans," deserves attention.

Knight provides some telling statistics on the amount of money that Sallie Mae shelled out to the biggest and brightest on K Street to beef up their lobbying efforts and defend the student lending industry (in the first half of this year, they've already spent $2 million). Sallie Mae is clearly nervous about the Obama administration's plans to restructure the student loan industry. There have already been several pieces in the last few months where Obama discusses the need to essentially cut out this "middle man" in the student lending process. Financial aid might be given back to the Department of Education entirely. It's presently run in part by privatized companies like Sallie Mae. As a result of sky-rocketing tuition costs, Sallie Mae enjoyed hefty profits in the 1990s, around the time it went private. Then the Great Recession hit them too.

Now Sallie Mae and other lenders (like Nelnet) are fighting two different battles: a political one and a financial one. It's no surprise that they're focused on the political fight. When companies feel threatened and smell change in the air that will affect their profits as a result of D.C. - those "meddling" lawmakers - they spend LOTS of money to campaign for their survival. That's the way business works. Plus, they have some amount of control when it comes to the political battles.

However, when it comes to the financial fight there are two problems out of their control:

1) Growing delinquencies in non-subsidized student loans (those are the ones that aren't backed by the U.S. government) are on the rise, and as a result, as Knight explains, "the company reported a loss of $122 million for the most recent quarter, compared with a profit of $265 million a year earlier."

2) There is a growing movement of students who understand that they are being charged unfairly and punished by companies like Sallie Mae - there is strong evidence that suggests that these companies are unwilling to work with lenders because they have profited from charging high interest rates and so forth. As a result of this growing frustration, in late January, an attorney, Robert Applebaum, started a Facebook Group called Forgive Student Loan Debt. The number of people who currently belong to this group is well over 200,000, and it continues to grow every day.

Sallie Mae might be able to cover the costs for lobbying, line the pockets of those on the Hill, and therefore win the political battle. But what are they going to do about the financial one?

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