Sallie Mae sees stock price rise 2000%

Op-ed originally written and reposted in full(with permission) by Alan Collinge,
founder of StudentLoanJustice.Org, a grassroots organization devoted to
promoting oversight and fairness with the student loan industry.

Since 1994, the cost of attending college has skyrocketed, to where the average
student can expect to graduate with over $18,000 in debt for a four year
degree.

Sallie Mae, the largest provider of student loans, and former Government
Sponsored Entity has seen its stock price rise by nearly 2000% during the same
period.  Its executives have paid themselves billions in stock bonuses.  Its
Chairman recently attempted to purchase a major league baseball team.  Its CEO
again topped the list of highest paid CEO's in Washington D.C.

Many don't realize that Sallie Mae lobbied for- and got-  draconian legislation
passed during the same time period.  This legislation took away bankruptcy
protection for all student loans- federally guaranteed or not.  This
legislation made it illegal for most borrowers to refinance their consolidated
debt, even with lenders willing to accept less profit.  This legislation gave
the lenders collection powers that would  "make a mobster envious", to quote
Harvard professor Elizabeth Warren.  These powers include termination of
public employment, income tax seizure, wage garnishment, suspension of
professional licenses and certificates, and seizure of social security, and
disability payments.  This legislation has actually made it more profitable
for lenders when students default, as opposed to remaining in good stead with
their loans.

This legislation has created the perfect mousetrap for a most vulnerable segment
of our population:  lower and middle class citizens aspiring to achieve the
American Dream through higher education.

Those who do everything right, and pay their loans on time are shocked at the
sticker price of their education, and many put off marriage and children
because of their debt.  Less fortunate citizens who weren't able to capitalize
on their education for health, employment, or other reasons are faced with the
choice of paying double, triple, or even more than they originally borrowed, or
being forced to live "off the grid" and living in fear of their government.
 Some are fleeing the country.  Some are even taking their own lives.
 Sallie Mae attributes its record profits to fees and penalties extracted from
these borrowers.

So where's the corruption in this?  Consider that the Chairmen of both the
House and Senate education committees (Buck McKeon, and Michael Enzi) have
taken millions of dollars from the student loan industry, and funneled some of
this money to family members through campaign committees or PACS.  Not to
mention the chartered flights for golf in Boca Raton , ski trips to Big Bear,
 fishing trips in Wyoming , and other  extraordinary excesses that this money
paid for.  John Boehner, who has received the most from student loan companies
and is former chairman of the House education committee, secured a job for his
daughter with a student loan company (since acquired by Sallie Mae) over a game
of golf.

Consider further the corruption inside the Department of Education, which
actually makes money from the business of defaulted loans, receiving $1.20 for
every dollar paid out.  The head of the Federal Student Aid program, Theresa
Shaw, was brought into the Department of Education from Sallie Mae, and brought
many of her Sallie Mae cronies with her.  One has to wonder aloud whether this
group was attracted to these lower paying government jobs out of an altruistic
nature, or whether they or their family members have a residual interest in the
success of Sallie Mae.

A recent OIG report warned Ms. Shaw that her oversight program for student loans
was highly vulnerable to conflicts of interest, and that the Department relied
too heavily on "partnerships" with student loan companies, rather than real
oversight.  Again, one has to wonder if that happened by chance, or by design.
Senator Durbin recently called for an investigation of the student loan industry
with respect to inducements, and "preferred lender arrangements" between lenders
and schools.

One would hope that the new Congress, as it "drains the swamp", will pay
particular attention to the cesspool where Sallie Mae and its ringers within
the Department of Education are holed up.

Sallie Mae to be bought for $25 billion
Deal between giant student loan company, private-investment funds, JPMorgan Chase and Bank of America comes amid intense scrutiny into student-lending industry.

April 16, 2007
NEW YORK (Reuters) -- Sallie Mae, the largest U.S. student loan company, has agreed to be bought by two private-investment funds along with JPMorgan Chase and Bank of America for $25 billion, it said Monday.

The move comes on the heels of a settlement between Sallie Mae and New York Attorney General Andrew Cuomo for $2 million in which Sallie Mae promised to change its lending practices.

JC Flowers & Co. and Friedman Fleischer & Lowe plan to take a 50.2 percent stake in Sallie Mae, while JPMorgan (Charts) and Bank of America (Charts) each would take 24.9 percent stakes.

The group plans to pay $60 per share for the student lender, also known as SLM (up $6.01 to $46.76, Charts).
Shares of student lenders have been under pressure since November, when Democrats won enough seats in Congress to control both the House of Representatives and the Senate.

Investors are concerned that Democrats will find ways to reduce the role of private lenders in the student loan market.

None of the companies or investment firms were immediately available for comment.

Sallie Mae shares closed on Friday at $46.76, up $6.01, or nearly 15 percent after the New York Times first reported that talks were underway. The offer price is almost a 50 percent premium to the $40.75 that the stock closed at on Thursday.

At $60 per share, the investors are paying more than 18 times anticipated 2007 earnings of $3.67 per share, according to Reuters Estimates.
The purchase will be funded with $16.5 billion in debt and $8.5 billion in equity.

Student-loan practices scrutinized
Attorneys General from states including New York, California, and Connecticut are meanwhile looking into the extent to which student loan companies are offering kickbacks to universities and their financial aid employees for steering business.

Sallie Mae agreed last week to change business practices including paying financial aid officers for appearing on advisory boards.

Senator Edward Kennedy, a Democrat, has introduced legislation that would threaten lenders including Sallie Mae by rewarding colleges for steering students into loans made directly by the government.

Sallie Mae was created in 1972 as a quasi-governmental company known as a "government sponsored entity." The company began cutting its direct government ties in 1997, a process completed in 2004.