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Should You Get a Sallie Mae Student Loan?

We will not authorise the release of your loan until you are fully registered. Students have three modified repayment options that are valid through the six month grace period after graduation. On October 10,documents surfaced showing that Sallie Mae was attempting to use the Freedom of Information Act to force colleges to turn over students' personal information. Sallie Mae Online Newsroom. The cover story of the October 27 US News and World Report documents the deals federally guaranteed student-loan leaders are making in increasing numbers with colleges and universities to get them to market their loans exclusively, at the expense of federal direct-loan programs that are cheaper for students and taxpayers alike.

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Many of these schools, however, lacked proper state licensing, and therefore Sallie Mae should not have been in business with them. Schools that aren't properly licensed, after all, can go out of business overnight and leave students high and dry. Mark Powell, of Alexandria, Virginia, was one such student. An auto-parts clerk, Powell enrolled, on June 10, , in a school called Ameritrain, which ran seven computer-training facilities in five states. Upon completing classes, students were supposed to receive a certificate permitting them to take tests for certification in a variety of commercial software; the school was also supposed to provide job-placement services.

But on August 7, when he showed up for class with just four days left in his eight-week program, Powell found that the school had been closed up overnight. When Powell and several others contacted Sallie Mae's school-closings department, on August 8, to try to learn more, no one called back. It took a while, but a local consumer-advocacy group finally discovered that Ameritrain filed for bankruptcy on September So on December 4, the intrepid band of stiffed borrowers -- whose number had grown to nearly of the students at Powell's facility -- attended the mandatory creditors' meeting conducted by the US Justice Department in the event of bankruptcy.

It was here that they learned that Sallie Mae did not view itself as a "creditor. After hiring an attorney to organize a class-action suit, they learned that Ameritrain was not fully licensed to offer its educational services and that Sallie Mae had made loans to students enrolled in many other unlicensed computer schools. They also found that they could not file a class action because the promissory notes they'd signed on their loans prevented them from doing so; their only recourse was to go to "mandatory arbitration," with no right to a jury trial and no further means of appeal through the courts an increasingly common and "devastating" industry practice of which most people are unaware, according to an NCLC consumer alert.

Before long, in a bid to further deprive the borrowers of legal recourse, Sallie Mae sent out a "Request for Partial Loan Discharge" form to the students, which would make them responsible only for those classes they'd taken on condition that they give up all claims to recover their losses and win damages, as well as forfeit their right to an attorney.

Tom Domonoske and Dale Pittman, the attorneys representing Powell and nearly other clients in similar cases, are appalled by Sallie Mae's computer-school gambit. Under the FTC holder rule, they claim, student lenders are responsible for making sure the schools they cover are legit. It was one of those landmark changes well known to everyone in the field of consumer finance.

But now, just a decade later, Sallie Mae seems to have found a way to avoid its legal responsibility to deter educational fraud -- indeed, to profit from it -- this time through its private loan program and use of the mandatory-arbitration clause, which keeps disputes with the company out of the courts. With this protective tool in hand, allege Domonoske and Pittman, Sallie Mae may have intentionally made loans to shaky schools in order to drum up business. Company spokesperson Joyce concedes that Sallie Mae needs to do a better job of "tightening up" its scrutiny of school licensing.

But he also maintains that the company is offering fair terms in arbitration, such as "teach-outs" at other schools where students can complete their training.

It's hard to know whether student borrowers are themselves pleased with the terms, however, since the proceedings are by law shrouded in secrecy. Sallie Mae's business practices haven't alienated student borrowers alone.

The company has also angered another titan in the student-loan industry: In , CLC contracted with Sallie Mae, among others, to market student-loan-consolidation programs. The HEA's "single-lender rule" holds that if a student-loan company is the sole lender, borrowers can consolidate loans -- and thereby take advantage of today's plummeting interest rates -- only with them; other companies cannot compete for their business.

But CLC alleges that Sallie Mae, which buys up tons of loans without borrowers' knowledge, has violated its single-lender privileges through its private subsidiary businesses, by failing to process applications for consolidation properly and diverting applications to lenders with which it is affiliated. CLC further claims that Sallie Mae offers inducements such as free software to financial-aid offices to encourage students to sign on with lenders that then sell their loans to Sallie Mae allegations that the US News and World Report article details more thoroughly.

Besides, many borrowers report that when they've agreed to consolidate with Sallie Mae, their interest rates have gone up rather than down. See "Alternatives to Sallie Mae," this page. In July, Sallie Mae won the loan-consolidation lawsuit brought against it by the CLC, arguing successfully that only the Department of Education, and not the courts, can rule on disputes over the HEA's single-lender rule. CLC has just filed an appeal. Indeed, it's well worth stressing that in both the CLC and the Washkoviak rulings, Sallie Mae won on questions of statutory jurisdiction -- that is, on who has the authority to hold the company accountable.

And at this point, it appears, the answer is no one, while student borrowers are left holding the bag. Since then, the number of affected borrowers has risen to 1. It remains an open question. In a letter dated June 19, , Sallie Mae informed her that she had two options: Except that signing a forbearance form would allow Sallie Mae to capitalize interest -- meaning that it could add the interest to the principal balance -- so the borrower ends up paying interest on the interest.

So far, the Department of Education, which is staffed with Bush appointees eager to advance the interests of private lenders and, as Nassirian says, to "gut" Clinton's direct-student-loan program, has been ineffectual in exercising its oversight responsibilities with regard to the computer-glitch issue.

In correspondence made available to the Phoenix, last summer Representative Miller asked education secretary Rod Paige to look into how the alleged technical failure occurred and what remedies were in place to ensure that students wouldn't end up spending more -- in interest -- to pay back their loans. In one letter dated July 16, Paige provided Miller with a number of statistics and chronologies, none of which committed the DOE to requiring Sallie Mae not to charge borrowers extra interest, adding: The Department has not independently verified this information.

At this point, it's the understanding of Miller's office, according to an aide, that the company is working with the DOE ombudsman's office to develop special arrangements for 10, borrowers of the , who have complained to date who have claimed that financial hardship prevents them from making higher monthly payments. Will those arrangements involve paying Sallie Mae extra interest?

The DOE Office of Federal Student Aid, returning a call placed to Ombudsman Deborah Wiley, issued the following general statement, when asked to comment on Miller's specific concerns about interest and verification of the computer problem: On November 14, in a bipartisan effort, Senator Edward Kennedy, joined by Representative Miller and two Republican congressmen, called on the Department of Education to "conduct a thorough investigation" of Sallie Mae's "serious billing error.

Joyce, for his part, says that Sallie Mae will waive additional interest incurred as a result of entering into another payment plan, such as a reduced payment forbearance, though he could not produce a form stating those terms or any other written evidence that the company had instituted a waiver policy for students affected by its error.

When Kaiden asked for an extra-interest waiver, she was told flatly, "No. Sallie Mae borrowers are also subject to what Cristina's husband, attorney Robert Kaiden, calls "particularly cutthroat collection practices.

That's because, where ordinary debt collectors must go through a judge to, say, garnish wages -- which gives debtors some mechanism for appeal -- Sallie Mae's federal protection permits it to impose nonnegotiable administrative garnishment, not only of wages, but also of Social Security payments to elderly parents who have acted as co-signers.

Sallie Mae -- as a holder of federally guaranteed loans -- is even able to suspend bank credit cards, regardless of how exemplary one's credit has been. Sallie Mae may throw its weight around more confidently than most because it has cultivated friends in high places. A subplot in the presidential-election crisis of that went largely unnoticed, according to Salon's Joe Conason, involved the use of corporate jets by the Bush-Cheney campaign to fly back and forth from Florida and who knows where else.

Among those offering aviation services to the high cause? Enron, Halliburton, and, yes, Sallie Mae -- a federally sponsored program. In fact, according to the report, Sallie Mae's lobbying expenses "outpace even notorious special interest corporations"; the company spent more on lobbying in the and election cycles than RJ Reynolds Tobacco. Overall, the report concludes, "the student loan industry is making it a priority to increase its involvement in the political process," a trend that is "likely to continue as the That promises to be something of a battle this time around.

As Nassirian says, the student-loan industry "shouldn't be regulated by a bunch of education majors, but under the Department of Treasury, where they better understand banking regulations.

It's ironic that President Clinton's direct-loan program, intended to introduce competition into the student-loan industry, has resulted in the rise of this "behemoth," as consumer advocates routinely refer to Sallie Mae. But for young adults facing what Manning calls the "triple-witch hour of higher ed" -- high student-loan and credit-card debt, and a lousy job market -- putting a check on this emerging monopoly is rapidly becoming a necessity. Catherine Tumber can be reached at This email address is being protected from spambots.

You need JavaScript enabled to view it. Need more money for school? Exhausted scholarships and federal loans? The application process is simple.

It only takes about 15 minutes to apply online and get a credit result. Either a student or a cosigner can initiate a new loan application; applicants will be shown repayment options, interest rate types, and estimated monthly payment amounts after credit approval. Sallie Mae encourages students and families to start with savings, grants, scholarships, and federal student loans to pay for college.

This is Sallie Mae's Additionally, students and families should evaluate all anticipated monthly loan payments, and how much the student expects to earn in the future, before considering a private student loan. The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.

This information is for borrowers attending degree-granting institutions only. You must be attending or have attended a participating school located in the U. You must be a U. All documentation must be unexpired at the time of the application, government-issued, and include a photograph. Current credit and other eligibility criteria apply. Variable rates may increase over the life of the loan. Borrower or cosigner must enroll in auto debit through Sallie Mae.

The rate reduction benefit applies only during active repayment for as long as the Current Amount Due or Designated Amount is successfully withdrawn from the authorized bank account each month, and may therefore be suspended during a forbearance or deferment period.

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