What Is Sallie Mae? And Why Should We Be Worried About It?

Democratic Senator Elizabeth Warren has been making headlines in recent days as she has publicly chastised Sallie Mae, one of the country’s largest student loan holders, for “finding unique ways to profit from government programs” while slapping student borrowers with high interest rates which "are far in excess of the low cost of funds" that these tax payer sponsored programs were originally created in order to support. Warren's comments occur amidst an intensifying partisan battle over the future of federal financial assistance for higher education, an initiative which many Republicans wish to end and many Democrats hope to first reform and then extend at least partially through a bill sponsored by Warren herself.

Despite these partisan motivations, however, Warren’s comments draw important attention to the strikingly dysfunctional present day status of many government-sponsored organizations, like Sallie Mae, that were originally created in order to extend equality of opportunity to all American citizens.

Sallie Mae is just one of these organizations with similar names, like Freddie Mac, Ginnie Mae, and Fannie Mae, that were chartered as apart of the larger apparatus meant to ensure positive rights to all American citizens. These positive rights, in contrast to traditional rights enshrined the American constitution, did not primarily ensure freedom from specific types of persecution or abuse of government power, but instead attempted to remedy the extreme inequality of the industrial era and the Great Depression by ensuring access to common set of services that would allow all Americans to achieve a certain quality of life. While Freddie Mac and Fannie Mae added to this project by enhancing access to home ownership through the availability of low-interest mortgages, Sallie Mae was chartered in 1970s in order to adopt this same concept to higher education by providing low interest student loans that would usher in a new generation of highly educated Americans.

These organizations functioned adequately for many years. However, in the last decade especially, they have had far more troubled legacies. Freddie Mac and Fannie Mae, for example, engaged in the reckless backing of questionable mortgage borrowers that helped inflate the massive housing bubble, and its accompanying trillions of dollars in debt obligations, that brought the U.S. economy crashing down in 2008. Sallie Mae, on the other hand, has come under increasing criticism in recent years for saddling young Americans with high-interest student loans — many of which are backed by government guarantee for the very purposes of ensuring that they would be offered at low interest rates — and then engaging in aggravating collection policies. These policies include denying borrowers the chance to refinance their loans for lower interest-rates as they grow older and cultivate more reliable debt profiles, extracting collections directly from checking accounts without borrowers’ knowledge, and marking accounts with partial payments as defaulted in order to more quickly collect federal loan guarantees (to name just a few).

At the same time, Congress has dropped the ball on its own duty to both oversea these lending practices and guarantee the above mentioned positive rights.

Congress wiped its hands of Sallie Mae in 2004 by revoking its public charter (effectively privatizing the institution) and, just last night, allowed Stafford student loan rates to double on account of its own inaction, leaving roughly 7 million college-aged Americans who had planned on taking advantage of these loan opportunities for years in limbo as they attempt to finance fall tuition by other means.

Taken together, Congress’s repeatedly demonstrated inability to legislate in a timely and responsible fashion as well as the recent missteps by institutions like Sallie Mae, Freddie Mac, and Fannie Mae that rely on federally subsidized loaning practices demonstrate a sad reality that these increasingly antiquated institutions are crumbling under the pressures of 

present day politics.”

As a result, if Americans still believe in ensuring positive rights of the sort mentioned above, perhaps they should begin looking to non-governmental organizations that might prove to be more accountable and reliable in their operations rather than the increasingly inept Congress and the lending institutions that rely on its policy.