Justice@studentloanjustice.org

The Problem

In 1997, under intense lobbying from student loan companies, The Higher Education Act (HEA) was amended, and defaulted student loans became among the most lucrative, and easiest to collect type of debt. These amendments allow for huge penalties and fees to be attached to defaulted student loan debt, take away bankruptcy protection for student borrowers, dissallow refinancing of the debt, and also provide for draconian collection and punitive measures to be taken against student borrowers, including wage garnishment, tax garnishment, withholding of professional certifications, termination from employment , social security garnishment, and others. According to Harvard Professor Elizabeth Warren in a Wall Street Journal piece by John Hechinger , "Student-loan debt collectors have power that would make a mobster envious."

This legislation has reaped massive fortunes for well connected executives in the private sector. This is particularly true for the Sallie Mae Corporation, whose executive officers invested personal fortunes in lobbying activities in support of the legislation. According to opening comments made in their 2003 Annual report, Former CEO (Now Chairman) Albert Lord (who with his wife personally contributed over $250,000 to senators and Congressmen in support of education legislation in just the last election cycle) boasts that the company's 29% core cash earnings-per-share growth could be attributed largely to fees collected from defaulted loans, as well as loan origination growth.

Lord recently attempted to PURCHASE A MAJOR LEAGUE BASEBALL TEAM with wealth he has extracted from defaulted borrowers (his compensation since 1999 was $225 million, not including appreciation of his stock). Collectively, Albert Lord and current CEO Tim Fitzpatrick have taken about $367 million from the company since 1999. Since 1997, Sallie Mae has registered $3.6 Billion in stock for offering to employees. Sallie Mae CEO's regularly top the list of highest paid executives in Washington D.C.

Sallie Mae Stock Performance Since 1997

Sallie Mae staff have also given themselves extraordinary, staggering, obscene amounts of money in the form of stock bonuses. Since 1999, Albert Lord and Tim Fitzpatrick together, have extracted about $367 million in Stock options from the company. In Total, Sallie Mae has set aside $3.6 billion in stock for offering to employees since 1997. This legislation has also paid great dividends for the Department of Education. According to the article mentioned above, the Department projects that it will retrieve every dollar of principal, plus almost 20% in fees and overdue interest for defaulted student loans. Whats worse, this legislation has given rise to an extensive network of non-profit, tax exempt corporations, and also for profit companies dedicated to collecting defaulted student loans- corporations who's executive staffs (both non-profit and for-profit) also have funneled vast sums of money into lobbying members of Congress in support of education legislation, and also funneled vast sums into their own pockets! The earnings, and executive pay of both Sallie Mae, and these non-profits have escalated wildly since 1998.

Sallie Mae stock registered to be offered to employees since 1997 (According to S-8 filings)

Meanwhile, the borrowers suffer. Defaulted student loan debtors quickly find themselves unable to function in society, and are faced with a decision to either continue the paralysis and live in fear, or begin making payments on a massively inflated amount- often double, triple, quadruple, or more than what they originally borrowed. StudentLoanJustice.Org has received thousands of stories from citizens who's lives have been shattered by their student loans. These stories are from decent citizens who have been forced to live "off the grid", had their livelihoods taken away from them, are being forced to postpone marriage and children, and are even fleeing the country and committing suicide.

People who default on student loans are typically decent citizens, who for one reason or another, were not able to capitalize on their education. Most agree that they are responsible to pay back what they borrowed, but most cannot afford to pay back the wildly increased amounts that the Federal Law has allowed to be imposed upon them. Defaulted borrowers are among those in society least able to pay back their debt. Yet, they are being forced to pay far, far more than their fair share--and largely to private corporations who don't actually earn this wealth!

The Student Loan system in America has been hijacked by Albert Lord and his friends. Let there be no mistake: These are not creative geniuses who invented a new product or service. These are not captains of industry who built markets, and competed their way to the top. Rather, these are nothing more than well connected executives who took an existing market, and used their unfair weight in Congress to profit from a vulnerable segment of American Society, and erect insurmountable barriers to competition for their own personal benefit. This CANNOT be what Congress intended when the Higher Education Act of 1965 was created.