College Endowments Investing in Sallie Mae as Student Debt Grows

Friday, 10 May 2013 02:18 PM

By Lisa Barron

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Sallie Mae, the former government entity that now provides private student loans, is reaping huge benefits from investments by university endowments and teacher pension funds.

The investments were revealed by the Huffington Post after a review of the company’s financial documents. Sallie Mae was fully privatized in 2004 and is now a publicly traded corporation known as SLM Corp.

The company, which is the largest student lender and loan servicer in the country, profits by charging high interest rates and then refusing to refinance loans after students graduate. The schools the loans are paid to also profit as their endowments and pensions invested in Sallie Mae also grow.

"It’s a conflict of interest," Barmak Nassirian, former associate executive director of the American Association of Collegiate Registrars & Admissions Officers, told the Post.

He added, "There is something inherently problematic about benefitting from the financing of the tuition you charge through investments in any lender."

In its latest pitch to investors, Sallie Mae reportedly cites College Board figures showing that the annual cost of education at public schools has jumped almost 57 percent since 2005 to nearly $18,000, while students at private schools are paying more than $39,000, up 44 percent from 2005.

It also states that the gap between what a college degree will cost incoming students and the amount of government loan money available has soared by 59 percent over the past 10 years for private schools and 90 percent for public colleges. That represents about $152,000 for a private college student and $69,000 for a student at a public school.

The company, which manages more than $180.4 billion in debt for more than 10 million borrowers, generated a 21 percent return on equity last year.

News of the lender's profits comes as some in Congress search for ways to tackle student debt burdens amidst increasing evidence that the debt is impeding economic recovery.






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