Student Loan Sallie Mae Professional Debt Negotiators - DOC - DOC

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Student Loan Sallie Mae Professional Debt Negotiators - DOC - DOC Powered By Docstoc
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The Bully in the School Yard:
  Why Sallie Mae must be

                         January 1, 2006
Executive Summary
Sallie Mae has hijacked federal law. Through their massive lobbying effort since the mid 90’s,
Sallie Mae executives took what was supposed to be fair and just legislation regarding student
loans, and shamelessly turned it into a massive revenue flood for their own personal benefit-
large enough for Sallie Mae’s Chairman to purchase a major league baseball team, and to build
his own, personal, luxury golf course. This legislation has cost hundreds of thousands of
decent citizens their livelihoods, and created a swath of economic destruction across the nation.

                                      The Problem
Under intense lobbying from student loan providers since the mid 1990's (most notably Sallie Mae),
defaulted federally guaranteed student loans have become among the most lucrative, easiest to collect,
and oppressive type of debt. This is due to amendments to the Higher Education Act of 1965. As result
of these amendments, student-loan debt collectors have powers that would make a mobster envious 1.

This legislation allows for huge penalties and fees to be attached to defaulted student loan debt, takes
away bankruptcy protection for student borrowers, and also provides for draconian measures to be
taken against student borrowers, including wage garnishment, tax garnishment, withholding of
professional certifications, termination from employment , social security garnishment, and others.
Moreover, legislation since the mid 90’s has allowed Sallie Mae to engage in a monopolistic, vertical,
and horizontal acquisitional crusade that has clearly stifled free and fair competition in this industry.

This legislation has reaped massive fortunes for well connected executives in the private sector. This is
particularly true for the Sallie Mae Corporation, whose executive off icers invested personal fortunes in
lobbying activities in support of the legislation. According to opening comments made in their 2004
Annual report, CEO Albert Lord (who with his wife personally contributed over $250,000 to senators and
Congressmen in support of education legislation in just the last election cycle) boasts that the company's
29% core cash earnings-per-share growth could be attributed largely to “fees collected from defaulted
loans, as well as loan origination growth” 2.

This legislation has also paid great dividends for the Department of Education, who will retrieve every
dollar of principal, plus almost 20% in fees and overdue interest for defaulted student loans.

Importantly: this legislation has given rise to an extensive network of non-profit, tax exempt corporations,
and also for profit companies dedicated to collecting defaulted student loans- corporations who's
executive staffmembers (who typically controlled the board) also have funneled vast sums of money into
lobbying members of Congress in support of education legislation, and also funneled vast sums into
their own pockets. Many of these have been gobbled up by Sallie Mae as well, in their efforts to
vertically control this market. In fact, Sallie Mae has acquired at least 3 of the largest student loan
collection companies in the nation since 1997 in order to cash in on the massive penalties and fees
associated with defaulted debt.

Meanwhile, the borrowers suffer. Defaulted student loan debtors quickly find themselves unable to
function in society, and are faced with a decision to either continue the paralysis and live in fear, or

  John Hechinger, U.S. Is Cracking Down On Federal-Loan Defaults, Wall Street Journal, January 6,
  Co mments by Albert Lord, 2003 Annual Report
begin making payments on a massively inflated amount. Also, recent legislation raises impenetrable
barriers to other lenders into the market, which could significantly lighten the burden on students, and
prevent default.

According to reports submitted to, one citizen who originally borrowed $6,000
now owes $31,000, Another who borrowed $26,000 and repaid about $17,000 cannot settle with the
collection agency in charge of his student loan for less than $57,000. Yet another, who originally
borrowed $38,000. and paid back $5,000 prior to default begged to be allowed to repay principle plus
jnterest, and was refused. He now faces well over $100,000 in student loan bills. One man borrowed
$39,000, has paid back over $88,000, and still owes over $100,000.

These are not extreme examples. These are typical cases. A collection of testimonials from ordinary
borrowers can be found at .

People who default on student loans are typically decent citizens, who for one reason or another, were
not able to capitalize on their education. Most agree that they are responsible to pay back what they
borrowed, but most cannot afford to pay back the wildly increased amounts that the Federal Law has
allowed to be imposed upon them. Defaulted borrowers are among those in society least able to pay
back their debt. Yet, they are being forced to pay far, far more than their fair share--and largely to
private corporations like Sallie Mae, who don't actually earn this wealth.

                  Where is the Money Going?
Many individuals and organizations made fortunes from the amendments to the HEA, and the newfound
flood of wealth that was (and still is) extracted from defaulted student borrowers. These include Sallie
Mae executives, executives of various Non-Profit collection agencies, lobbyists, and politicians. The
following provides a partial glimpse of who took this money.

1. Sallie Mae (Student Loan Marketing Corporation), and Al Lord
Sallie Mae and its executives are clearly the chief architects, and chief beneficiaries of the changes in
the HEA. In 10 years, Sallie Mae's Stock Price has risen by more than 1900% According to opening
comments made in their 2004 Annual report, CEO Albert Lord boasts that the company's 29% core cash
earnings-per-share growth could be attributed largely to fees collected from defaulted loans. The figure
below shows how Sallie Mae Stock Prices soared during the last recession due to fines and penalties
collected from defaulted borrowers. While most all other stocks took a nose dive, Sally Mae’s shot
through the roof!

Chairman and former CEO Albert Lord, who personally invested hundreds of thousands of dollars (on
the books) to politicians and PACs involved with education legislation is probably the largest individual
beneficiary. According to Fortune Magazine, Lord has made in excess of $225 million in salary and
bonuses since 1999. Current CEO Tim Fitzpatrick has made an estimated $142 million in the same time
period. Sallie Mae staff have set aside a staggering $3.6 billion in stock for employee offerings since
1997 (this does not reflect the present value of this stock). It is instructive to note that Lord recently put a
bid in to purchase a major league baseball team, The Washington Nationals, and also announced plans
to build his own, personal, 18-hole, luxury golf course.
                                                                                                    SEC data for Sallie
                                                                                                    Mae showing stock set
                                                                                                    aside for employees
                                                                                                    (above), and
                                                                                                    Comparison Stock
                                                                                                    Chart for Sallie Mae,
                                                                                                    Microsoft, Nasdaq, and
                                                                                                    Dow Jones since 1996

                        “…Our [record] 29 percent core cash EPS growth (net of non-recurring
                        revenue) was produced by record loan originations and strong fee income
                        growth, largely from debt management operations (collections of defaulted
                        student loans).”

                                      -Albert Lord, Sallie Mae CEO, 2003 Annual Report

2. James Lintzenich and his Executive Staff at USA Group
James Lintzenich was "part time" CEO of USA Group Loan Services, Inc. from 1996-2000. This non-
profit, tax exempt organization's mission was to "provide data processing, collection, and other loan
servicing for students and their parents, in compliance with the regulations as established by Congress
under the Higher Education Act of 1965, as amended". The board, and executive staff of this nonprofit
comprised largely the same people.

Like Sallie Mae, This organization spent millions lobbying congress through the “Friends of Higher
Education” PAC prior to being purchased by Sallie Mae, and its "part time" executives donated large
amounts to Politicians and PACS. And the payoff was huge. Below is a table of executive compensation
for this organization. Note: Sallie Mae set aside $50 million in stock to give to “Key Employees” of the
USA Group in 2001. Lintzenich received $21 million in stock, a $4.5 million salary, a $500,000/year
retirement package, and also received a $5 million “early departure” payment that he conveniently
negotiated into his contract with Sallie Mae. Lintzenich retired from Sallie Mae within 9 months of
3. Other Student Loan Companies.
Higher education legislation since 1997 has spawned a new industry of non-profit and for profit
originators, guarantors, and collection companies for student loans, most all of whom have experienc ed
a dramatic rise in executive salaries since the 1965 Higher Education Act was amended. Below is a
typical educational non-profit called Edfund.

Edfund’s primary function is to collect defaulted debt on loans originating from Sallie Mae. Edfund’s
president, Beck Stilling (who recently joined Nelnet) saw her salary more than double over 3 years time.
The salaries of the other executive staff members are shown below.

                                Edfund Executive Salaries since 1999

                                    2003              2002              2001            2000            1999
         Becky Stilling             $263,523          $251,504          $214,506        211,144         127,815
         Rothman (vp finance)       246,233           226,795           179,036         157,964         99,876
         Wendie Doyle (Counsel)     225,717           215,937           163,854         36,532          -
         Dorene Hoops                                 174,954           54,146          -               -
         William Ramsey                               216,497           166,464         143,690         101,327
         Theresa Bickler                              204,760           184,692         170,653         114,456
         Callihan                                     211,127           193,811         175,813         119,062
         Damskey                                      147,183           99,991          -               -
         Ninemire                                     197,918           110,881         -               -

4. Elected Officials.
According to the Federal Elections Commission, Sallie Mae has paid for the influence of many, many members of
Congress. By way of comparison: Sallie Mae has spent vastly more money in political campaign contributions than
its much larger counterpart in the home mortgage industry, Fannie Mae (almost twice as much in the 2004 election
cycle)! Albert Lord, Sallie Mae CEO and his wife, Suzanne, gave OVER $250, 000 to candidates and PACs in
2004 alone! A majority of the contributions have gone to members of the House and Senat e Education
committees, but Sallie Mae and Lord have spread their ill-gotten wealth around much wider than just these
committees, including a $250,000 gift to pay for the 2005 presidential inaugural celebration.
It has been reported that at a December, 2005 meeting of the Consumer Bankers Association, Congressman John
Boehner assured Sallie Mae and other student loan execs, many of whom wrote $1000 checks to either Boehner
or his political action committee, that they should know that he was holding them in his trusted hands, and that he
had plenty of “rabbits up his sleeve”.

At least one rabbit came out recently, when it was found that language had been inserted into the budget
reconciliation bill which would effectively end the ability of students to refinance their student loan debt at a lower
rate. This legislation, if passed will not only harm students and likely lead to more defaults, but it will also raise
insurmountable barriers to entry for smaller student loan companies who offer lower rates to students.

                                               Politician               Reported $

                                   1. BOEHNER, JOHN A, and               $166,470
                                   The Freedom Project)
                                   2.   MCKEON, HOWARD "BUCK"             $44, 000
                                   3.   KANJORSKI, PAUL                   $33, 499
                                   4.   FROST, JONAS MARTIN               $29, 100
                                   5.   MORAN, JAMES P                    $27, 000
                                   6. OBEY, DAVID R                       $25, 000
                                   7. KILDEE, DALE E                      $25, 000
                                   8.DAVIS, THOMAS M                      $22, 500
                                   9. MILLER, GEORGE                      $22, 375
                                   10. WU, DAVID                          $19, 500
                                   11. EDWARDS, CHET                      $19, 000
                                   12. BOYD, F ALLEN JR                   $18, 500
                                   13. POMEROY, EARL R                    $16, 000
                                   14. NUSSLE, JIM                        $16, 000
                                   15. GEPHARDT, RICHARD A                $16, 000
                                   16.   BLUNT, ROY                       $16, 000
                                   17.   REYNOLDS, THOMAS M               $15, 500
                                   18.   TORRICELLI, ROBERT G             $15, 000
                                   19.   LOWEY, NITA M                    $15, 000
                                   20. DASCHLE, THOMAS A                  $15, 000
                                   21. BUSH, GEORGE W                     $15, 000
                                   22. MOORE, DENNIS                      $14, 500
                                   23. HOLT, RUSH                         $14, 000
                                   24. GRAHAM, LINDSEY O                  $13, 600
                                   25. MURRAY, PATTY                      $13, 000

Note: The list below shows the top 25 politicians in contributions from the Sallie Mae. Note these numbers reflect
only contributions from the Sallie Mae PA C, and do not include payments received from the Friends for Higher
Education PAC, or individual contributions from Sallie Mae or ot her Exec utives. These figures also do not take into
account jobs given to family members, or other non-reportable forms of support.
                   What Needs to be Done?
1. Legislation

Amnesty Amendment.

Legislation should be passed at once that gives borrowers who have been in default for an
extended period of time a fair and reasonable resolution. An amnesty amendment is in order.
Such an amendment should allow debtors to satisfy their obligation by paying back 100% of
what they borrowed, but should only be allowed for borrowers who have been in default for an
extended period of time (perhaps 5 years).

This solution is fair. It allows the borrower to repay their debt (regardless of whether or not they
benefited from their education). It also takes into account the massive hardship that being in
default for an extended period of time causes on the borrower. This will also force student loan
companies like Sallie Mae to be reasonable negotiators, so that the debt usually will be settled
before the 5 year period elapses.

This amendment would preserve the basic aim of the Amendments of 1997, in that borrowers
will still not be allowed to bankrupt out of the debt in most cases, and their lives will be severely
disrupted for an extended period of time should they default on their loans. This amendment
provides a much needed control on the student lenders who have abused existing law to the
detriment of the country, (and to the discredit of the House and Senate Committees who drafted
the law).

Open up the marketplace.

Sallie Mae must be forced to compete. They have blatantly abused their market position and
their influence on The Hill in order to stifle competition, and enlarge their predation of students.
Specifically, students should be allowed to consolidate their loans with the lender of their
choice, and be allowed to refinance this debt if lenders who are willing to accept less profit

2. An Antitrust Investigation

Some very suspicious, and potentially illegal activities have been found to exist within the
student loan industry which cry out for investigation. First of all, the shear volume of wealth that
the Sallie Mae PAC, and Sallie Mae executives funnel into Congress every election cycle
should raise significant questions. Second, the rate at which Sallie Mae is acquiring smaller
student loan originators, guarantors, and collection companies should warrant serious and
thorough inspection.

Specifically, the issue of Sallie Mae’s purchase of the USA Group is very compelling. Prior to
the amendments to the HEA of 1965, two PACs were primarily responsible for the lobbying
effort behind the amendments. These were the Sallie Mae PAC, and the Friends for Higher
Education PAC, whose contributors consisted of executives of the USA Group.
With the acquisition of the USA Group, USA Group executives (who also sat on the board),
gave themselves massive raises in salary. Further, Sallie Mae paid these executives $50
million in stock bonuses. Repeated calls were reported to have been made for an antitrust
investigation, but for reasons unknown, the Justice Department never followed up. Why an
investigation was never undertaken is an interesting question, especially given that Sallie Mae’s
vice president in charge of Governmental Relations, Rose Dinapoli, is married to Michael
Sitcov, who was a Directing Attorney at Justice. The American People deserve to know if 1;
Mr. Sitcov influenced and Justice Department decisions regarding this, or other issues involving
Sallie Mae, or its subsidiaries, or 2; Whether Mr. Sitcov had access to, and/or passed along any
information to his wife regarding Justice Department activities relating to Sallie Mae.

                           The Bigger Picture
This injustice orchestrated against the public by Student Lenders is important in and of itself,
especially given that over 5% of all students wind up in default. However, this problem is much
more important given the recent changes in Bankruptcy legislation. It is likely a harbinger of
much bigger things to come.

Like the student loan laws, bankruptcy legislation severely limits the ability of the borrower to
file for bankruptcy. Furthermore, penalties and fees associated with delinquent Credit Card
Debt are already extremely high. We have already seen what this type of legislation has done
to the student loan industry: Lenders are no longer willing to forgive exorbitant fees over and
above the original debt, and much less willing to negotiate any kind of fair or reasonable

If Student loan legislation is any indication, removing the threat of bankruptcy from the
negotiation process will cause the creditors to take unfair advantage, and extort much higher
sums of wealth from the American consumer.

                 The time to act is now. As a member of
                 Congress, it is your duty to serve the
                 American People- not serve them up on
                 a platter to Sallie Mae.

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