Sallie Mae NOT!

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Written by Catherine Tumber, Boston Phoenix

Many borrowers report having no difficulty -- as far as they know -- working with Sallie Mae. But even these borrowers often say they felt coerced into doing business with the student-loan giant, and aren't quite sure how their business ended up with the company. If you're interested in exploring alternatives, here are a few suggestions:

• If your school participates in the federal direct-student-loan program, that is by far the most convenient and cheapest way to pay for school. It also tailors repayment plans to accommodate borrowers' income levels. For more information, click here.
• Schools can participate in either the direct-loan program or the federally guaranteed student-loan program (Federal Family Education Loan Program, or FFELP), but not both. If your school participates in FFELP, however, there is one way you can get involved with the direct-loan program: through the US Department of Education's loan-consolidation program. Unlike mortgages or other forms of consumer credit, student loans can be consolidated only once. If Sallie Mae is your sole lender, which is increasingly likely as it purchases more and more loans and gets preferred status on more campuses, you will be unable to consolidate with anyone else -- unless you exercise this one-time option offered by the Department of Education. For more information, go to their web site.
• Sallie Mae is able to buy up so many student loans originally made by other companies because all banks are free to sell. However, some -- called "make and hold" lenders -- have a track record of hanging on to their loans. If you take out a student loan with a "make and hold" lender, you could have greater control over it in the years ahead, including more loan-consolidation choices, and you won't even pay more in fees and interest. Not surprisingly, Sallie Mae is one of the biggest "make and hold" lenders; the other two are Citibank and Wells Fargo, but there are lots of smaller banks that tend to keep their own loans, too.
• Many schools work with a "preferred lender" to whom they try to steer students in need of education loans. You are not required to work with the school's preferred lender, however, and if you are told you must, your financial-aid officer is breaking the law.

Much of what Sallie Mae does may be legal. That's why regulatory reform of the student-loan industry is necessary. Congress and consumer advocates are currently considering several types of legislation that, if you're concerned about this issue, need your support.

• Higher Education Act of 2004: approximately twice a decade, the HEA is reauthorized by Congress, and this time around a large number of organizations are pushing for reform of its student-lending regulations. Of those seeking to preserve both the federally guaranteed and the direct student-loan programs, the American Association of State Colleges and Universities recommendations are among the most comprehensive, although they are still under development. See this site.
• Student-loan late-fee initiative: the State PIRGs' Higher Education Project is currently looking into pushing for tighter regulations on late fees in the HEA-reauthorization process. If you have had a troubling personal experience with this matter, the project wants to hear about it: contact Kate Rube at This email address is being protected from spambots. You need JavaScript enabled to view it.. And see the State PIRGs' HEA-reauthorization recommendations.
• Student-loan-consolidation legislation: the House Committee on Education and the Workforce is considering two types of legislation to give student borrowers more options to reconsolidate under the HEA. HR 2505, among other versions, urges amending the HEA to change the rule that permits student borrowers to consolidate their loans only once. HR 942 would do away with the HEA's single-lender rule, which today forces so many borrowers to consolidate only with Sallie Mae.
• Reform of state laws governing mandatory arbitration, based on the model provided by the National Consumer Law Center. See this site.

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