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.

Lawyers for Plaintiff in Sallie Mae Case Withdraw

I’ve just learned that the lawyers for Michael Zahara, the ex-Sally Mae employee who has filed a Federal False Claims Act against the company alleging “a pattern and practice of fraudulent conduct” in connection with the Federal Family Education Loan Program (FFELP) have withdrawn from the case. 

The lawyers, Larry Zoglin of Phillips & Cohen, LLP and Kathleen Sweeney of Schembs Sweeney Law, argued that there was “an irremediable breakdown in the trust necessary to sustain the attorney client relationship” with Zahara in their motion to United States Magistrate Judge Jane Magnus-Stinson.  The motion was granted on October 29, 2008, and it’s not yet clear what the implications will be for Zahara’s case.

Here’s the official Entry on the Motion to Withdraw

 

 

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