Sallie Mae Student Loans – The Heart of the Crisis


While members of both political parties are patting themselves on the back after lowering the student loan rates, they still haven’t addressed the heart of the problem. The largest provider of those loans, Sallie Mae, still has extremely close ties to the federal government and absolutely no interest in helping students keep their loans on track and out of default.

This isn’t a problem that just appeared in the last four years. It’s been 35 years since the Federal government first started interfering with the student loan programs and bankruptcy laws that now has students and their families crushed under a loan debt that topped $1.2 Trillion this year. That is now larger than even the credit debt of the U.S. and is squarely on the shoulders of the people we depend on to expand the economy.

When Student Loan Borrowers Lost Their Rights

backruptcy actIn 1978, the Bankruptcy Reform Act was passed to prevent students from filing bankruptcy for five years after graduation. The law was passed after a handful of doctors and lawyers fraudulently filed to avoid repayment of their student loans. Instead of applying the existing bankruptcy laws to a handful of people trying to scam the student loan system (less than one percent of all loan holders), the Bankruptcy Reform Act took a hammer to them and set a precedent that eventually turned student loans into a protected financial product; protected for the benefit of Sallie Mae. In 1990, this non-discharge period was extended to seven years.

For those of you who don’t know the origin of it, the Student Loan Marketing Association (Sallie Mae) was created in 1972. It began as a Government Sponsored Enterprise (GSE) designed to manage the federal loan programs created by the Higher Education Act of 1965. It continued in this function until 1997, when then CEO, Albert Lord led the charge to privatize all operations. This was completed in 2004 and all official ties to the U.S. government were supposedly severed.

Post Privatization of Sallie Mae & Further Loss of Rights for Borrowers

Right after privatization began Congress passed, and President Clinton signed into law in 1998, legislation that completely eliminated the ability to discharge Sallie Mae student loan debt in bankruptcy proceedings. This makes student loans the only type of loan that has this restriction. Student debt holders now are in the same situation as people who commit murder and are then sued by the family of their victims.

Then, in 2005, further amendments to the Bankruptcy Code provided this same protection to private student loan providers. The same legislation also removed five consumer protection regulations for student loan holders. These protections were:

  1. Adherence to State Usury Laws
  2. The Fair Debt Collection Practices Act
  3. Right to Refinance
  4. Statute of Limitations on Debt Collection
  5. The Truth in Lending Act

Thanks to these changes, the harshest debt collection methods can be used on people who miss just a few payments. These same methods were previously reserved for ex-spouses who try to dodge child support payments and people found guilty in civil court such as O.J. Simpson. They include garnishing wages without a court order, garnishing social security and disability income, suspension of state professional licenses to include practicing medicine and withholding IRS Tax Refunds.

60 Minutes Investigates Sallie Mae

salle mae investigation

In a very short time, the negative attention Sallie Mae earned its self went public. In 2006, the now supposedly private organization came under the scrutiny of no less than “60 minutes”. Leslie Stahl made a main point of her piece that despite being separated from the government for only two years, then company chairman Albert Lord had already been so well compensated that he was constructing his own private golf course.

Sallie Mae’s response did not help their case or serve to convince anyone of their good intentions. First, they refused to be recorded in an interview and only provided answers on paper. Prior to the story being aired, Sallie Mae also sent out a memo to colleges nationwide with the answers they provided as well as their opinion on the story itself.

“With nine million borrowers, it is disappointing that ’60 Minutes’ chose to spotlight three of our former customers who have not repaid their taxpayer funded loans. It certainly does not reflect the experiences of the vast majority of our customers, who have had the opportunity to attend your schools and fulfill their dreams of obtaining a college education,” said the letter from Sallie Mae to its clients.

Sallie Mae’s statement added that, “60 Minutes appear to accept without question that the government can administer and manager the student loan program more efficiently and less expensively than private lenders. This is not the case and, in fact, we believe that the competition and choice that schools have enjoyed … have expanded and improved college access and fueled vast improvements in the delivery of student loans.”

Now you’re thinking “OK, this all happened under George Bush or the Presidents before him, right? The student loan program was streamlined earlier this year and the loan rates are back where they belong.” That is true, but the only item that helps students is the lower rates.

Obamas Attempt to Help Backfiring

obamaStudents and their families still do not have the consumer protections returned to them taken away in 2005. What President Obama’s streamlining did reduce interest rates that had risen on federal student loans, and implemented the pay as you go plan. Sallie Mae still has zero risk on a defaulted federal loan as its backed by the government. Sallie Mae is going to turn a higher profit when student loans go into default and fees begin to accrue.

When a student defaults on his or her loan, Sallie Mae loses nothing. The federal government fully guarantees the complete loan amount. It even pays the interest that would have been paid to Sallie Mae over the lifetime of the loan.

Sallie Mae Interest In Collections Agencies & Defaulted Loans

Next, the government sends the loan to a collection agency. In the late 90s, just after Sallie Mae started severing its government ties, the company also began buying up collection agencies. It now owns two of the U.S.’s largest collection agencies, General Revenue Corporation (GRC) and USA Funds. These agencies and others are allowed to add a 25 percent collection fee to the loans they recover as well as receive a commission of up to 28 percent of the loan. It is the student loan holder who has to pay the fee and commission.

In case you haven’t been counting, that means Sallie Mae only gets paid once for every loan that stays in good standing. They get paid three times on every loan in default. It is impossible for Sallie Mae to lose money on any loan, no matter how small. The only losers in this situation are the students who are unable to keep their original, scheduled payments and the taxpayers who have to provide more every year to Sallie Mae because the government still guarantees every loan just as when Sallie Mae was a GSE.

Universities Interest In The Swindle

The nation’s universities and colleges are also in on the act. Since defaulted loans result in no penalties to anyone except the students and co-signers; the government, Sallie Mae and their collection agencies have no interest to actually lower the cost of tuition. In fact, lower tuition will cut into their profits when it comes to interest, collection fees and commission rates. Higher tuition means higher pay for professors, bigger buildings and course curriculums that “lead to nowhere”. How else could college tuition rise at twice the rate of inflation and four times the rate of wages over the last twenty years?

Defaults are at an all time high so the money is flowing. The last studies showed that one in four students who had attended four year universities were defaulting on their loans. For students attending two year programs, the rate of default is 40 percent; almost half.

It’s these numbers that are beginning to frighten a lot of people. When the sub-prime mortgage rate crisis turned into a housing collapse, defaulted loans were at these numbers. However, it’s not the banks handling the loans now. It’s Sallie Mae and the government is not going to bailout what is, for them, a no loss situation.

Time for Change

Since Sallie Mae is the largest lender of student loans in the U.S., they certainly bear the largest share of responsibility in fixing this situation. With the current bankruptcy laws benefiting them and the government underwriting their bottom-line, they have no need to do so. No matter what their customers do, Sallie Mae WILL turn a profit. The only way to end this is for you to have your Representatives and Senators stop financing Sallie Mae’s operations, put back the basic consumer protections into student loans that everyone enjoys for every other type of loan and to stop treating citizens who are having trouble meeting their responsibilities like criminals.


  1. Sue says

    I love this article! It has opened up my eyes to Sallie Mae and explains a lot! I have been going round and round with SM for some time now trying to keep my son out of default now I understand why they don’t really want to work with us BECAUSE THEY WILL GET THEIR MONEY ANYWAY! It’s so sad that things are this way in a country you can’t pay your bills and with the way the economy is going (part time jobs thanks OBAMA CARE), how do they expect people to pay. I think they don’t really want you too!

    Thanks for the story it has helped so much!

  2. Robyn Traywick says

    Over the last 6 months I have repeatedly gone round with Sallie Mae over my loans. They routinely apply the monies I send in to my federal loan and do not apply it to my private loans. So my federal loan is paid months in advance, meanwhile my private loans are overdue. I call and ask for it to be applied correctly. I have changed the routining number the payment address etc as per Sallie Mae instructions. This month even thought I have paid more than the amount due for all my loans, my private loans have still not been paid and are listed as overdue.I called Sallie Mae and asked to have the funds applied correctly, and was told it was taken care of. Then I started getting collection calls from a place in Indiana. These callers will not give me their names, employee ID numbers or transfer me to a supervisor without me giving them my DOB and SSN, even though they are the ones calling me. I have called back to the main Sallie Mae number and asked for the collections call to cease. They told me it would take 10-14 days for the funds to be reallotted and for my accounts to be corrected, and that they had changed it so I would not get the calls. 24 hours later the calls started again. Again I have called back and asked for the calls to stop. I am so fed up with this company.

    • Michelle says

      In response to Robyn Traywick’s comment, I recently had a similar issue with Sallie Mae but was able to resolve it.

      I recommend you call The Office of the Customer Advocate, this is the executive customer service department at sallie mae, at (888) 545-4199 or send an e-mail You’ll deal with one point of contact who will provide his/her full name and direct telephone number.

      Good luck to you!!!

    • Kristen Hicks says

      I’m probably way too late to the game for you to see this, but they did the exact same thing with me for the first 9 months I was paying off my loans.

      The way I finally got them to correct the issue was filing a complaint with the BBB. Give it a try?

  3. C. Smith says

    There are several stories circulating about the public service forgiveness program and how so many in the US are not taking advantage of it. The catch that seems to escape the articles is that without 120 qualifying (read standard payments) payments borrowers do not qualify for the program. The catch: If you make standard payments then there is nothing left to forgive so why would you even bother with the paperwork. The program is set up to look good on paper until you actually look at the details.

    My husband and I both work in public service positions but make just enough to NEVER qualify for any of the programs which would help us become financially stable and able to finally save towards a house and retirement. It is frustrating to see people who scam the system receive help time and again but others who worked their way through under-grad and graduate school, pay their bills on time and have middle income jobs always get stuck with little discretionary income at the end of the month to save for down payments or anything else. It will be another 20 years before our student loans are paid off (all federal) and we have already been paying for 10 years, where is the relief for the average, responsible citizen?

    • says

      Its not only standard payments that qualify, but also income based, income contingent, and pay as you earn. The catch with the standard payments is that its only if you are in the Standard 10 year repayment which would be paid off regardless at the end of ten years. The only benefit there would be if for some of those years you lose your job, you could move over into an IBR payment and continue working to the 120 months even if you aren’t making a payments anymore.

  4. Becca says

    My husband and i have not been able to have children by choice. This is because we already have one, and her name is Sallie Mae. We fork out $700 a month of interest only payments, of which our income is only about 2200 a month. We are not able to save, invest, buy a new vehicle, or even prepare ourselves for a family. He has been paying his sallie mae since 2007. The original loan amount was about 38,000.00, but with a deferrment interest rate for a year, fees, etc, the loan is now at 69,000.00. We are looking at never paying this off, with the current income we have, nor does it look like our income may ever increase much. I have exhausted almost every avenue of options, only to find that there really is no option for private student loan borrowers. We have luckily never defaulted, and we choose only to keep paying because his gracious aunt and uncle are cosigners on the loan. It is not that we want to just discharge what we owe, we take full responsibility for what we borrowed, but the interest and fees seem to be unlawful and definitely ethically and economically terrible for this country. I want to see a forseeable end, but that just doesn’t seem possible making interest only payments. How is our government not addressing this issue? I have read articles and feeds on sallie mae, and people have talked depression and suicide! We have been addressing so many other issues in the government, i don’t understand why this is not being addressed or even put at the forefront of our media? This looks to me like history repeating itself in a terrible way… does anyone remember the housing market crash? Ignoring this issue sounds like insanity to me.

    • Gwen G. says

      I am in the same boat…. my heart is with you and your husband!! I’m going through the same thing… It’s terrifying when you reach this point to where you are bankrupted. And even if you claim bankruptcy, Sallie Mae will never go away. And Banks don’t want to lend you a loan to pay it off because your credit is so bad…. Another reason debt in this nation, greedy companies.

    • lmb says

      It is commendable that you are making the payments as promised.
      I have a similar situation, but can not say the same as far as keeping up on my payments. I admit, I have gotten frustrated at certain points and put my head in the sand. My original loan amount of $16k is now up to 30k.
      The last time I had paid the approx. $400 a month payment to get it back on track, I got to the end of a year only to realize I owed an additional $5k on top of my original loan amount and had not touched the principal. (anger led to head back in sand)
      I do accept responsibility for the debt, I borrowed the money, I have to pay it back. It just seems crazy that a “non-profit” government agency is able to shuffle a debt around and add such large fees and percentages.
      Now at Standard payments I will have it paid off in about 20 years if I can support my family and keep it together.

      Keep doing what you are doing, it only gets worse if you let it go!
      We would be better of borrowing from the mob, it would certainly be cheaper!

  5. Gwen G. says

    I CANNOT stand Saillie Mae!!! They told me when i first received my loans i could consolidate, that is the other reason i accepted. And I was able, to pay for a while. Then i got behind due to health issues and change of jobs…. And well to say the least SALLIE MAE WANTS ME TO PAY THEM TO DEFER MY LOANS…. HOW ABSURD IS THAT!?!?! If I am asking for a deferment due to health issues etc… where on gods green earth do they get the impression I can afford to pay them 150 a month. If anyone is going to pay for a deferment wouldn’t you think they would just pay the student loan???
    Makes no sense to me!!! I can argue with them until I’m hoarse… nothing ever changes. So i’m in default, as the entire ordeal create a very bad spiral effect. and my credit score is horrible…. I’ve been complaint and writing to the government… Sallie Mae is a seriously over monopolized company that NEEDS TO BE LOOKED INTO!!! It’s hurting the Americans they say they are trying to help… NO ONE should have to pay 4 different interest rates because the company doesnot want to help….
    Good bye dreams for a house, good bye dreams for getting out of this whole. Seriously there feels like there is no way out unless I win the lottery. :-( I always tell people NOT TO USE SALLIE MAE…

  6. Gracie says

    My mother co-signed a loan through Sallie Mae for my brother who is now in prison. Could they garnish or could she lose her social security check to Sallie Mae for repayment?

  7. James says

    I have nothing but issues with Sallie Mae. After switching banks and assuming I had made the change to auto-debit. Nowhere on the website did they state I had to cancel. They over-drafted $175 from my account and I have yet to be compensated for those funds. I have faxed in the proper forms and after being on the phone for 45 minutes yesterday trying to fix the situation, as it was my planning period as a teacher, I had to leave. For the most part Sallie Mae’s website is very user friendly but my rates with my federal loans are $700 a month. I live on my own. As a teacher making a whopping 34K. It is a struggle every month. Do not use Sallie Mae if you can avoid it, 10% loans are horrific.

  8. bethany says

    i don’t even know how much i owe. all i know is i set up a payment for one loan and it means nothing because i have 4 other loans with them. they call my phone 10 times, a day 7 days a week, as well as my fathers cell, my mothers cell, and my parents home phone because they cosigned. I will never be able to pay back my loans. its so depressing and stressful. all i can think is that i will never be able to have a family because sallie mae will be raping my bank account forever. i will never have a house or be able to go on vacation or work less then 3 jobs. i feel like this is my life forever. ugh we should make a “victoms of sallie mae support group”

    • lmb says

      Hey there, I know how you feel!
      Look at me as a glimpse into your future!
      It can and WILL get worse if you do not deal with it.
      I only wish I could turn back the clock.
      My loan amounts have literally DOUBLED in a matter of 2 1/2 years. You can only rehab your loan once.

      It’s hard, but take care of it now, communicate with them (I had them in my phone as “pain in the a**” because they literally called 4-6 times a day if I was late.
      When they stop calling, you are in trouble. They will win. :’(

      Sadly, rather than doing a vocational school (I wanted to be a nurse) I let a salesperson from AIU talk me into online school, so I am dealing with this for NOTHING. For a worthless “education” that gave me ZERO benefit in life and funds that were not dispersed entirely and not returned to the school.

      excuse me, I need to go put my head in the sand!

    • jspencer says

      i totally know how you feel i am going through the same thing. i am currenetly trying to work out a settlement with Sallie Mae. I have someone very special to me willing to let me borrow the money to pay off my federal student loans but Sallie Mae seems to not want to budge on the payoff amount. All i want is for them to do what is fair seeings how all of my monthly payments which i have paid on time every month for the last 4 years have gone to late fees and interest that i was unaware of untill recently. Sallie Mae is has taken over my life, to the point of cant eat, sleep or think. No more will i be there victim, i am going to get a handle on this somehow. I will let you know how it goes but dont give up you are not alone

  9. Jessica says

    This is so frustrating. I pay 2000.00 per month in taxes. I would love goto be able to wooly some if that to my loans. Any ideas about a tax break for someone making large payments on their loans each month? I feel like I could pay 1300 or more each month if there was some type of leeway with the taxes for those in our situation.

  10. jim says

    i took a Sallie Mae student loan out about 6 years ago, while in school i became totally and permanently disabled, according to the Sallie Mae web site if this happens i can fill out there forms and not have to pay back the loan, the Stafford federal loan forgave my debt but Sallie Mae said this isn’t a federal loan so i still have to pay it back, so i filed bankruptcy, seeing i became disabled and didn’t have any money and the bankruptcy judge said i cant file on student loans…..ive tried seeking a lawyer and suing Sallie Mae for this but no one will touch it,,,guess in 10 years it will fall off my credit report and they cant garnish my social security disability but definatley isn’t fair that’s for sure

    • Les says

      Jim I have some sad news for you I got loans back in ’89 payed and paid, then they would stop taking payments and clam my loan had been sold to some one else. Next thing I knew it was in default . Still I paid the amount they wanted. In 2004 I became disabled, in 2006 I started drawing a social security disability check, so they garnished it. Ever since if I get a raise on my check, they raise the amount they hold out. I got in touch with them last year and wanted to know what they had did with all the money they had already took from me cause I knew it was more than I owed. They claimed it was all used for interest now the amount was doubled what it was to start with. I have decided the only way you get away from this debt is die!!!

  11. Stephen says

    Leave the country! Stop letting them control your lives and leave the country! Force them to face the problem they have created, that is unmanageable debt! Go to Mexico or Canada! Go anywhere and leave it all behind.

  12. cassandra says

    I have a salliemae private loan with an interest rate of 11.75 they charge me 300 in interest rates every month making it impossible to pay the loan down. my loan amount is 32,000 but will be 86,000 after the life of the loan. The only bank that consolidates private loans is Wells fargo and I have to have a co-signer which I can not find. I have been everywhere looking for another place to consolidate this private loan without having to have my school listed. Do you know any organization that may consolidate private loans?

  13. says

    Sallie Mae and those who benefit from its unconscionable rewards from student defaults on loans should be ashamed for taking advantage of students who were relying on honest financial assistance during their young lives. In my opinion, consumer rights organizations, Congress and the Senate, should take Sallie Mae to task for their exploitation of young students who trusted them. It has taken a toll on students who made education a priority so they could better themselves and their families both financially and economically via purchasing power.

    Sallie Mae at one point was part of a Government entity to help provide students with funding for education. They then became a “for profit” organization and throughout the years have led in legislation to prevent students from filing for bankruptcy, having their wages, social security and pensions garnished, and treated like criminals. Sallie Mae officials need to ask for forgiveness because they are wrong and need to pay a penalty.

  14. TrulyScrewed says

    I called SallieMae and spoke with the supervisor and asked if SallieMae ever received a bailout and he immediately replied that he was ending the call. He then transferred me to a representative.

    I thought I worked my ass off at college so hopefully someday I could afford a house, a car, and a family. I can barely afford food! All my money goes to covering my student loan. Did I mention I finished school in 3 years with 2 degrees and borrowed as little as possible? I have been making interest-only and more than that amount when possible for the past 5 years and in those 5 years my loan principal has doubled to $80,000. Now I know why the site exists…

  15. Crystal says

    I took out a loan with US Department of Education for a $800 class. I paid them off in 2007 but, 2 years later, they started hasseling me for a $2000 and a $3000 loan! I called their bluff when they said they would take my tax refund, I had proof on my credit report that I did not owe them any money. But just today, I recieved a notice saying that my tax refund was siezed to cover this debt! I don’t get it!? How could this have happened? I am not a wealthy woman.. the money they took from me is peanuts to them, but to me… It’s heart-wrenching. What’s worse than losing this money was the fact that I didnt owe them this money in the first place. I need advice.. Can anyone tell me where to take the first step to correcting this mess?

  16. Jeremy B says

    I had open heart surgery in 12/2012, requiring 5 grafts or bypasses. Since I’ve missed week or several months in work every year due to acute chronic bronchitis, COPD. I also have Coronary Heart Disease and degenerative Spinal Disease. I went on a FMLA medical leave from work in 2012. My last day of work was 12/31/12 and I won’t ever be able to return to work, not even part time sitting at a desk for half a day. I have a parents loan through Student Assistance Corp, guaranteed by Sallie Mae and over the past couple of years, I’ve sent more emails and letters explaining my circumstances than I can count. They don’t do the written response…..leaves a paper trail. They want only phone calls. I have exhausted all the deferments and reduced payments that are available. I hadn’t planned on becoming disabled but now draw just over $1000/month and have no property or other income. I was just notified that the loan is going into default. Typically, Sallie Mae can garnish 15% of your income, take your state/fed tax refund, put leans against property and go to extremes to destroy your credit. I have been on Social Security Disability, finding myself applying for food stamps and Section 8 housing just because of my health, which the outcome will be death. After reading all the horror stories about how they deal and my history dealing with them over the past years makes me think there is but one escape…….one I wish not to consider but then again, I don’t know how much time I have left with my diseases. America has become Amerika and the freedoms and rights we once had are gone…’s wake up time folks! If anyone has a clue about this, my only income is the SSD for $1090/month….my rent alone is $632/mth. If they take anything, I’m on the street and that is the end……..

    • says

      Jeremy give us a call we can assist you. There are options available to you. Try to do some research on the Income Based Payment. If you want assistance, give us a call we can help you get into a zero payment, and apply for the loans to be discharged.

  17. Jason says

    Although a lot of us Americans may dislike our State Rep s, your best bet, to all that have problems with Sallie Mae, is to contact them. I never in my wildest dreams thought that my State Rep, after receiving my email, would actually step in. He did!! Thanks John Micca!!

  18. Lynda says

    I am a co-signer for my daughter student loan, I don’t know how much I paid out of pocket however I am aware that the debt is mine, what I don’t understand is the “charge off” If Sallie Mae has been paid through their insurance company, why would they still snatch my federal tax and continue taking my money somewhere along the line me or the insurance company is being defrauded…can someone please explain to me how this works, I seriously plan to look into this matter until it is resolved…like Sallie Mae I am not going anywhere.


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