Can Reform Solve Federal Student Loan Conflicts of Interest?
Media coverage of pending legislation to eliminate subsidies for bank-based federal student loans and redirect savings into the Pell Grant Program has recently focused on the fierce lobbying effort made by Sallie Mae and other lenders to get the U.S. Senate to accept their own reform proposal–an alternative that saves less money while also keeping much of the flawed policy structure that makes the current bank-based program inefficient and open to waste, fraud, and abuse.
While lenders do represent a massive portion of the bank-based program, they are not the only actors who stand to gain a good bit from prolonging the existing operation. There are a host of other actors, including guaranty agencies—which administer the insurance on these loans, help prevent default, and take over the title of defaulted—and collection agencies that also take in substantial federal subsidies for their involvement. But while many of the subsidy recipients are distinct companies, some are also the same group of familiar faces. In that regard, this quote that Tim Ranzetta from Student Lending Analytics picked up from Sallie Mae’s recent investor credit meeting is pretty enlightening:
The collections side of the business is a great business for Sallie Mae. One of the things where we really stand out. We help collect for
