Reason Foundation

http://www.reason.org
http://www.reason.org/news/show/sallie-mae-and-uncle-sam

Reason Foundation

Crony Capitalism and Sallie Mae

Sallie Mae and Uncle Sam: Cronyism in Higher Education Finance

Scott Piazza, Anthony Randazzo and Victor Nava
July 10, 2013

In the last decade total student loan debt has grown nearly fourfold. Much of the focus on this growing problem has concentrated on the increasing cost of higher education. This brief looks at another side of the student loan bubble: the crony capitalism of SLM Corporation – more commonly known as Sallie Mae – and the way in which it has come to dominate student loan markets.

The brief shows 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.

What is the solution? Ideally, the federal government should exit higher education finance altogether. This would not only stop the cronyism in the system, it would also lay the ground work for a more robust private sector student loan industry.


Anthony Randazzo is Director of Economic Research

Victor Nava is Research Assistant

This Study's Materials


Print This