Reason Foundation released a new policy brief today, looking at the crony capitalism of Sallie Mae. This is the second in a series about crony capitalism, the first being a brief examining the Community Development Block Grant program.
In the brief, co-authored by Scott Piazza and Victor Nava, we show that Sallie Mae has used its political influence to build and maintain its profitability in spite of the financial crisis and throughout numerous attempts to reform the industry. It has used this influence recently to secure massive servicing contracts from the expanded Direct Loan Program, acquire a multi-billion dollar bailout of the student loan industry, and to procure the removal of significant debtor protections from privately issued student loans, of which the company is the largest originator.
The resulting situation is unfair to students and taxpayers alike: students end up paying higher college tuition fees and are saddled with more debt; taxpayers are left sitting on a ticking time bomb of accumulated government-backed debt. When the student loan bubble bursts and Uncle Sam is called upon to bail out Sallie Mae, the cost could run into the billions.
For more, read the policy brief "Sallie Mae and Uncle Sam: Cronyism in Higher Education Finance"
Also see our first crony capitalism policy brief: "Crony Capitalism and Community Development Subsidies"