Sallie Mae Defends Itself

The Nov. 14th issue of The Chronicle of Higher Education includes a Letter to the Editor from Tom Joyce, a senior vice president at Sallie Mae.  In the letter, Joyce accuses the Chronicle of biased reporting for its October 23rd article about the Zahara lawsuit:

To prevent defaults, Sallie Mae always prioritizes the best interest of our customers. It is never in the financial interest of our customers or our company to allow loans to slip into default. In fact, we invest millions of dollars every year in staff and technology to prevent defaults.

In the rush to print baseless accusations of a former short-term, entry-level employee who was fired for misconduct in 2005, The Chronicle failed to note what all lenders and guaranty agencies clearly understand about the federal student-loan program: Forbearance is far less costly to the borrower than the cost of default.

Zahara has accused Sallie Mae of pushing forebearances on borrowers in an attempt to increase debt levels.

Lawsuit Against Sallie Mae Alleges Fraud

The Chronicle of Higher Education recently reported that a former Sallie Mae employee has filed a federal False Claims Act against the company alleging that Sallie Mae “had been using the practice of granting forbearances to systematically balloon student-loan debts.”  From the article:

In the system of government-guaranteed student loans, the tactic was part of a strategy to grow student debts as large as possible, increasing Sallie Mae’s profits, before taxpayers and debtors were stuck with the final bill, said the former Sallie Mae employee, Michael Zahara. 

For the legal geeks out there, I’ve attached a copy of the complaint.  Zahara v. SLM Corporation

Too Stupid For College?

Over at Salon.com (see Diploma with a Side of Fries), Amy Benfer rightly decries an article in the Chronicle of Higher Education, which argues that because of the high cost of 4-year colleges, parents whose children are in the bottom half of their high school classes should think twice about sending them off to get their BA or BS, since those students are more likely to drop out.

This shows exactly what’s wrong with our education/loan system.  College is so expensive that for many, the risks may outweigh the rewards.  The problem, of course, is that it’s very difficult to predict who will be “successful” and who won’t, and the Chronicle’s advice risks seriously limiting some students’ futures.  Should people really be judged for the rest of their lives based on their performance in high school?  I agree with Benfer’s assessment:

Let’s face it: The kids at the top of the class include the kids who follow the rules, the kids who go to college because, in their social class, that’s just what you do, a smattering of reckless geniuses and original thinkers, and a bunch of generally smart, motivated kids. In the bottom half, you’ll have the kids who don’t follow the rules, the kids who won’t go to college because in their class that’s just not what you do, a smattering of reckless geniuses and original thinkers who might find high school boring and bureaucratic, and a bunch of kids who genuinely would be much happier getting the hell away from academia and learning any number of trades. But to pretend one can discern those who “deserve” to go to college from those who do not by lopping a whole class of kids off at the center, to borrow a recent political metaphor, is like using a hatchet when what you really need is a scalpel.