Sallie Mae is the primary student loan company in the US with over 10 million borrowers holding a total debt of over $126.9 billion. The company has attracted extensive criticism from borrowers across the world, with accusations of predatory lending practices.
Andrew Wilbur, an American PhD Candidate in the Department of Geographical and Earth Sciences, graduated from Glasgow University in 2005 with total balance of $29,048.52 on his Sallie Mae student loan.
Since then he has made over $5,000 dollars in payments but his current balance stands at $33,227.90.
The variable interest rate on Wilbur’s loan has been as high as 14%. He has since decided to stop making payments, even though this means he cannot return to the US.
He explained: “I took the loan and have tried to pay it back in good faith, though I now feel like it was sold to me in bad faith, with the conditions so difficult that I'll never get on top of it. For that reason, I can't return to America to work or buy a house. My credit rating will be ruined and any income I make will be swallowed up by loan repayments. It's just not worth putting up with that – paying Sallie Mae to make my life a misery.”
The U.S. Department of Education recently reported a rise in the student loan default rate from 5.2% to 6.9% in the past year. Wilbur went on to criticise Sallie Mae’s practice of running its own debt collection agency.
He said: “The fact that Sallie Mae actually owns its own debt collection agencies who profit when you default on your loan shows how exploitative the system is.”
Patricia Nash Christel, a spokesperson for Sallie Mae, pointed out that the company was able to be flexible on repayments when borrowers were in difficulty.
She said: “Individuals need individual loan repayment solutions, and in this environment, we want to work with students to make sure they can successfully manage their loans. We do everything we can to offer counselling and individual flexibility to help students avoid default.”
The burden of student debt is often carried over generations. Sculpture and environmental art student Kira Thomas told Guardian that her grandparents had to act as cosignatories for her Sallie Mae loan as her mother was still paying off her own student loan.
Provided she makes every payment on her private loan, which constitutes 80% of her total borrowing, she will eventually pay back more than twice the $43,000 she borrowed.
“I am worried that if my grandparents get to old to cosign and I am unable to borrow more I will have to drop out of art school.” she said.
Caleb Churchill, a photography student at Glasgow School of Art, originally took out loans totaling $85,031 in 2005. Since then, in spite of making regular payments of over $500 per month on the accrued interest, he now owes Sallie Mae over $94,000.
However, he took a different view on his situation, as he explained:
“This is the way it goes, the way the system is structured. I don’t understand why students borrow from Sallie Mae then bitch about it; they should know the conditions before they sign up.”
American student loans are divided into federal and private loans; federal loans are limited but have a lower interest rate as they are guarunteed by the government; private loans have higher interest rates and no state subsidy.
Speaking for Sallie Mae, Christel claimed that their private loans had a higher risk for the lender: “Sallie Mae offers private loans, which are different from federally guaranteed loans in that all risk is assumed by the lender and there is no government guarantee.”
However in the case of federal loans, companies such as Sallie Mae are able to take payments from a debtor’s social security fund or pay check if they default on a federal loan, giving the lender total security.
Alan M. Collinge, spokesperson for the resistance group StudentLoanJustice.org, was more critical of the American loan system than Sallie Mae itself, citing the gradual reduction of borrowers protections as the reason for the exploitation of student loans.
He said: “Student Loans are the only type of loan in modern US history to be specifically stripped of bankruptcy protections, statues of limitations, refinancing rights, and other fundamental consumer protections.
“The root cause of most of these problems lies in the fact that Congress removed these fundamental protections. This has made it more lucrative for the system when students fall behind, and has caused predatory behavior to occur. This predatory lending system also has contributed greatly to the astonishing rise in tuition costs – much like in the subprime home mortgage industry.”
Christel defended the practicality of their student loans:
“When compared to other types of consumer debt, for example credit cards or car loans, student loans offer a variety of options.”
Collinge called for a solution to the problem, he said: “The answer is simple: Congress must, at a minimum, return the standard consumer protections to student loans that it took away. This is at a minimum.”
In accordance President Obama has already expressed a desire to expand the availability of Direct Loans from the Board of Education, thus bypassing the private loan companies. This move is being resisted by lobby group America's Student Loan Providers.