Students, Union to Urge Sallie Mae Courters to Reform Lending and Collection Practices

Coming just as Congress passed a new bill to cut nearly $19 billion from lender subsidies to pay for increased aid to college students, a new campaign will kick off Monday to bring the voices and stories of middle class and low-income families hard hit by soaring education costs and high interest rates to Congress and the private equity suitors of Sallie Mae (NYSE: SLM) , J.C. Flowers, Bank of America, and J.P. Morgan Chase.

On Thursday, July 19, students will lead a delegation to J.C. Flowers’ headquarters in New York City to ask the firm to commit to implementing reform at Sallie Mae to redress past problems with transparency about loan rates and terms, unfair debt collection policies, and to commit to cap interest rates on private loans, not to engage in overly aggressive collections practices, and to set aside a portion of the fees generated from this deal to loan forgiveness for students who work in the nonprofit sector after graduation.

The average cost of attending college is up an astonishing 35 percent since 2000. The cap on federally guaranteed student loans has remained stagnant, forcing many middle class and low-income students to make up the short fall by securing loans from private lenders. As a consequence, college students borrowed $17.3 billion in private loans in 2005, an increase of 913 percent from a decade ago, and the proportion of degrees earned by students from lower-middle income families is dropping. In many cases, campus-based programs to aid lower-income students are being downsized, leaving poorer students even more likely to depend on loans to finance their educations.

"It is in the best interest of America as a whole to support a student loan industry that is more fair and more affordable. Yesterday, the House sent a message that if the industry must develop a model that generates profits and does what the student loan program was designed to do — make it easier for students to afford to go to college," said Stephen Lerner, director of SEIU’s Private Equity Project.

The United States Student Association (USSA), the country’s oldest and largest national student organization and the 1.9 million-member Service Employees International Union (SEIU), have formed a partnership to raise awareness about the private equity takeover, which could exacerbate existing practices by student lenders that place profits ahead of making education accessible and affordable for young Americans.

On Monday, 1000 Voices in 1000 Hours, a new campaign to bring the voices of students to the Capitol and to the board rooms of the buyout industry, will launch nationwide. 1000 Voices in 1000 Hours will include town hall meetings, an online petition, and outreach on social networking sites such as Facebook and MySpace to provide students and their families with information on the Web at: http://www.1000voicesin1000hours.org/

SEIU has already launched a blog about the deal — http://www.salliemaerevealed.blogspot.com/ — that has called for reform and raised questions about the buyout’s impact on middle class and lower-income lenders.

As Congress struggles to reform the industry so that it better serves student lenders, Sallie Mae, the nation’s largest student loan provider, will be bought out by a private equity consortium that includes J.C. Flowers & Co., Friedman Fleischer & Lowe, Bank of America, and J.P. Morgan Chase. The deal, valued at $25 billion, illustrates how private equity buyouts are reaching into every sector of the economy, buying up larger and more complex companies for larger and larger sums of money.