Big Money On Campus
In the multibillion-dollar world of student loans, big lenders are finding new ways to drain Uncle Sam's coffers
The company also has close ties to New Hampshire's Sen. Judd Gregg, a Republican who heads the committee that oversees education issues. Two years ago, President Bush appointed Gregg's wife, Kathleen MacLellan Gregg, to the board of directors of the Student Loan Marketing Association, the branch of Sallie Mae that remains government sponsored. She receives about $20,000 a year for being a director, according to a congressional aide. Another board member, J. Bonnie Newman, once served as Gregg's chief of staff.
Equally important, Sallie Mae has friends inside the Bush administration (box, above). As CEO of the Education Finance Council, an industry trade group, William Hansen denounced the direct-loan program in testimony before Congress. Bush later made Hansen the No. 2 official at the Education Department. All told, the White House installed four officials from the lending industry--including Hansen--to run the direct-loan program. Hansen left the department this summer.
From the beginning, the direct-loan program has been unpopular among Republican conservatives, who argue that private industry should handle the job. Soon after taking office in January 2001, the Bush team began to undermine direct loans. First, officials stopped marketing the program and competing for new schools. Then, last year, the Bush administration proposed selling the government's direct-loan portfolio to a private company. Critics called this a veiled effort to kill the program. Education Department officials deny this. "This is money we could have invested back in the student loan program," explains Sally Stroup, a senior department official. For now, the idea has been shelved.
Bush insiders also challenged a central pillar of the direct-loan program: the notion that it saves taxpayers money. In early 2002, Hansen argued inside the Education Department that when administrative expenses were included, the cost of direct loans was much higher than official figures indicated. As a matter of fact, he said, taxpayers saved no money. However, government figures don't support his claims. They show that the FFEL plan costs the treasury far more than direct loans, even after deducting administrative costs. In an interview, Hansen denies attempting to kill direct loans and says he was only trying to strengthen the overall loan program.
The Education Department's actions, however, caused some colleges to second-guess the direct-loan program. Richard Shipman, the financial aid director at Michigan State, says that's one reason he decided to quit it. "I don't want to be a part of a program," he says, "that is no longer supported by the folks that made it."
Romancing The Schools
Private lenders certainly know how to entice schools. Each year, the big players in the industry mix with several thousand college officials at the annual conference of financial aid administrators. One year it was Las Vegas and its rollicking casinos, another year New Orleans and Bourbon Street.
This July, the conference was held in a more sedate setting, Salt Lake City, but the wine still flowed freely, and partying was the name of the game. Key Bank, a lender based in Cleveland, hired an ersatz Elvis, who urged school officials to attend the bank's party at the Hard Rock Cafe. Exclusive guests of the Access Group, a Delaware-based nonprofit lender, were treated to a show by the U.S. ski team at the site of the 2002 Olympic Games. Sallie Mae transformed a hotel ballroom into a lights-and-mirrors 1970s disco. In all, including direct conference expenses, lenders spent hundreds of thousands of dollars to outdo one another in the eyes of the college reps.