Wednesday, June 6, 2007

Sallie Mae

Sallie Mae is worthy of our utmost scorn, for many reasons. The multi-billion-dollar student loan servicer/provider engages in a lot of questionable accounting, billing and lending practices, and preying on some of the most financially unstable individuals in society--recent college grads. A class action suit against them calls to the table lots of shady dealings with hundreds of thousands of Sallie Mae's customers. A few things Sallie Mae has done that will make you hate her:

First, Sallie Mae offers independently-funded student loans, that are subject to intense interest rate spikes. (Mine is currently at 9.25% and rising.)

Second, Sallie Mae has clauses in their contracts that state they reserve the right to hold onto your loans, and not allow them to be bought out by other lenders. (Which they did to me). Because of student loan laws, it's also not possible to get a line of credit to pay for these loans, so you're pretty much stuck with Sallie if you have her.

Third, their accounting practices. If you miss a payment, or are late, they will show you a line item for "Late Fee" but with a dollar amount of "0.00." That seems nice, right? Wrong. The bloated lender will actually add a $20 late fee into your principal, which means you not only pay the $20, you also pay capitalized interest on it, often at an exorbitant rate. What's more, good old Sallie made a huge accounting error resulting in undercharging 800,000 of its customers for a year. Rather than take the responsibility for the clerical error, they instead billed their customers for the entire amount, and I think even charged them back interest on their "missed payments" as they should have known the proper amount.

Fourth, they're "in bed" with a lot of Financial Aid offices and politicians. They have friends in high places to ensure that Sallie Mae is the lender of choice, and to ensure that they can continue to engage in questionable practices. They basically have undercut all smaller lenders creating a monopoly.

Fifth, they have many ways to double their money at your expense. If you ever become late in making your payments, and your account goes to collection, the agency they use is actually owned by Sallie Mae. They often will still have their collection agency collect all its fees even once disputes are resolved.

Sixth, they have iron-clad contracts that lock you into a lot of fine print (like not being able to sell your loan, and also a clause that prevents you from suing them unless you first take up the matter with an arbitrator.)

Seventh, if you're ever in any hardship, they actually charge you a hefty fee (that you have to pay in CASH) to defer your loans, or obtain a forbearance. If you can't pay it, your loans will default. Oh, and during that time, you'll be accruing not just interest, but CAPITALIZED interest, in which you pay thousands more for the same amount.

Kick Sallie Mae to the curb.

1 comment:

  1. I had a distant uncle who happened to be the Accounting prof at Taylor, and he recommended Sallie Mae, but with those cautions. So I found a loan through them that could be bought out by other lenders (although I eventually chose to consolidate with Sallie Mae).

    When I consolidated after college, I grabbed a fixed-rate loan for that reason - who knows what interest rates are gonna be YEARS from now. I had to do a shorter term (and thus, slightly higher monthly payments), but you save in the long run.

    Technically, their interest rises with the Federal Interest rate, and if the Fed drops, Sallie Mae's should improve, too.

    I'm also ruining their day by paying off my loan a decade earlier than scheduled.