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By David King

Daily Bruin Contributor

The name might sound innocent enough, but critics of Sallie Mae – the nation’s largest financer of federal student loans – compare the company to an overbearing Goliath of the student loan industry.

Sallie Mae, the primary loan purchaser for UCLA students receiving Federal Family Education Loans, has come under attack for its growing dominance in college financial aid offices.

“I worry about (other loan agencies) surviving not for their sake, but for the sake of the consumer,” said Robert E. Andrews, D-NJ, to The Chronicle of Higher Education. “The best loan system maximizes competition, so that students have choices.”

Some critics fear lack of competition from other loan agencies will allow Sallie Mae to increase its interest rates and offer fewer student services.

But having a primary loan purchaser is beneficial for both loan offices and students, said Jonathon Beres, associate director of UCLA Student Loan Services. He said dealing with one primary purchaser frees up time for his office to address other student needs.

“It’s easier to deal with one entity,” he said. “If you’ve got multiple systems going on it’s going to be more difficult from a business standpoint.”

Students aren’t necessarily bothered if a company is monopolizing the loan industry either.

“I’m not complaining,” said Erwin Ong, a third-year economics student. “Although monopolies are bad because of a lack of competition, if it’s ultimately benefiting students, then it doesn’t really matter.”

Sallie Mae specializes in direct lending, which provides loans to students directly through their schools.

Created in 1993 by President Clinton, direct lending now accounts for one-third of the federal loan market and eliminates the role of banks and guarantee agencies.

Beres said his office receives electronic money transfers from Sallie Mae, which then distributes the money to students.

In June, Sallie Mae came under attack when it bought out USA Group – the most prominent student-loan guarantee agency in the nation – for $770 million.

As a guarantee agency, USA Group buys loans from banks, guarantees them to students and reimburses banks for default loans.

With the acquisition, Sallie Mae now controls the entire loan process – from making the loan to collecting payments – a problem for some bankers and lenders, critics say.

According to The Chronicle of Higher Education, several banks asked the U.S. Justice Department to block Sallie Mae from purchasing USA Group, but the request was denied.

Representatives of Sallie Mae maintained the merger helps students.

“We believe the transaction will eventually benefit schools and give better customer service through combined services,” said Erin Love, a Sallie Mae communications specialist. “It gives us functionality that we didn’t have before.”

The two companies are currently in an integration phase and will eventually become USA Education Inc., she said.

Beres said loan features promised to students won’t change even if purchasers change or merge since strict federal regulations prohibit banks and loan purchasers from taking advantage of students.

Despite criticisms that the company is monopolistic, Love maintained Sallie Mae still faces strong competition from the U.S. Department of Education, which originates about 30 percent of federal loans.

“(The acquisition) gives us a better opportunity to compete with them – it’s not really decreasing competition,” she said.

A BRIEF HISTORY OF SALLIE MAE 1972 Sallie Mae is created by Congress to pump more money into the fledgling federal student loan program, using U.S. Treasury funds to purchase government-backed loans from banks. early 1990s Sallie Mae's assets have multiplied eightfold due to increased student loan volume, and Wall Street investment. 1993 Congress approved legislation to gradually replace guaranteed-loan program with direct lending; Sallie Mae's livelihood is threatened. 1996 To protect itself, Sallie Mae gradually cuts ties to the federal government with Congressional approval. It will be completely independent by 2008. 1997 Under the new leadership of Chief Executive Officer Albert Lord, Sallie Mae forms relationships with several banks to help them make loans independently. 1998 Sallie Mae introduces Web site Laureate, which allows students to apply and gain approval for loans over the Internet. 1999 Sallie Mae purchases Nellie Mae, the 17th-largest lender to students, and forges an exclusive relationship with Chase Manhattan Bank, the third largest student lender, which originated $1.7 billion in student loans in 1999. June 2000 Now the largest financier of student loans, Sallie Mae purchases USA Group, the largest student loan guarantee agency, for $770 million. SOURCE: Chronicle of Higher Education, August 11, 2000 Original graphic by YU WANG/Daily Bruin Senior Staff Web adaptation by CHRISTINE TAN

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