When Susan Heider of Zionsville looked at information about her student loans, she said she wanted to throw up: In less than 10 years, the $31,000 debt she accumulated in college has more than doubled.
Indebtedness has become a fact of life for American college students. The average indebted Ball State University student graduates with $17,500 in student debt, according to the Office of Scholarships and Financial Aid. Along the way, student lenders such as SLM Corp., commonly known as Sallie Mae, have made billions.
But not everybody thinks the success of Sallie Mae and other student lenders comes from playing fair.
"What Sallie Mae is doing to me and thousands upon thousands of other college students out there is unconscionable," Heider said.
Heider said her experience with Sallie Mae began in 1997, when she consolidated her student loans with the company at a fixed rate of 9 percent after deferring several times. Because of interest capitalization, the original $31,000 she borrowed through a credit union in Colorado Springs, Colo., has become more than $80,000.
"The only thing that could happen is that if I died then the student loans would go away," she said, because her husband didn't cosign the consolidation plan.
Sallie Mae spokesperson Erin Korsvall said the company's practices were entirely lawful. A spokesperson for the Department of Education who asked not to be named didn't disagree. Because Heider consolidated at a fixed rate, she can't take advantage of today's lower rates.
In an effort to crack down on delinquent borrowers, Congress amended the Higher Education Act in 1998, enabling lenders and collectors to attach large fees and penalties to defaulted student loans. Student lenders such as Sallie Mae and Citigroup engaged in extensive lobbying during that same year, according to a 2002 report by the State Public Interest Research Group's Higher Education Project. Sallie Mae alone spent more than $3 million on lobbying in 1998, according to the Senate Office of Public Records.
Sallie Mae began as a government-sponsored enterprise in 1973, but began privatizing in 1997 and by 2004, it broke off its ties to the government. Since then, it has become one of the most profitable companies in the country, making nearly $1.4 billion in 2005 and earning a place in the Fortune 500.
Today, it manages nearly $127 billion in student loans. Although it is the largest student lender in the country, it's part of a larger industry that includes other student lenders as well as banks, guarantors and also collection agencies, which collect on defaulted loans.
Borrowers who default face consequences including garnishment of wages and social security payments, withholding of tax returns, inability to obtain other forms of credit and, in some states, denial of certain professional certifications. Collection agencies alone cause enough problems for some borrowers, who allege they engage in questionable business practices sometimes.
Pastor Dan Lozer of Mayflower Congregational United Church of Christ in Sioux City, Iowa, borrowed $15,000 in loans while attending graduate school in Colorado from a Wyoming bank under the Wyoming Student Loan Corporation. He said his problems began when he defaulted.
Lozer said various collection agencies changed due dates for payments, misrepresented themselves as telemarketers and even threatened to defame him by telling his parish about his situation. But one incident prompted Lozer to take action.
"They called my wife and basically bullied [her]," he said. "You know, 'You get up off your fat ass and you help him pay it' and 'We know he's really there.'" So Lozer called a bankruptcy lawyer.
His problems did not stop there. Although the law now required the collection agencies to communicate only through the attorney, collectors continued calling his home, pretending they didn't know he had an attorney, Lozer said.
The education department spokesperson said this behavior was both uncommon and illegal, but Lozer had an idea of what the motives for it were.
"The money isn't really made in getting the loan settled," he said. "The money is being made in remarketing it."
The Department of Education pays collection agencies and guarantors 16-23 cents for every dollar they collect.
For Susan Heider, dealing with a for-profit company only makes life difficult. Although she is now attending graduate school and her loans are in deferment, she illustrated what it felt like when she had to make payments.
"You're trying to contribute to the household income and you've got this big, huge bill sitting, sucking over your head making this big sucking sound out of your wallet every month," she said.
When she begins making payments again, she said, they could be as high as $800 a month. She said in hindsight she never would have consolidated in the first place and instead would have explored other options.
She said students should only borrow if they absolutely must.
"It's too commonly accepted that debt is a way to finance college," Lozer said.
Robert Zellers, Ball State's director of scholarships and financial aid, had further advice.
"It's really important that students ... clearly understand the provisions [and] the conditions of that loan and that they follow those carefully," he said.
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