Sallie Mae, originally a public corporation Congress established to create a secondary market to buy up student loans from banks and other lenders. In 1997, Congress authorized the privatization of Sallie Mae, a process that was finished in 2004. As a private entity, Sallie Mae manages $123 billion in student loans with 10 thousand employees. Its stock price has risen 2,000% since 1995. One of the reasons Sallie Mae gets so much business is that it generously provides “incentives” to colleagues to push their student loans.
One of the reasons Sallie Mae and other private student loan lenders make out so well is that Congress guarantees the lenders 97% if a borrower defaults. Beyond the 97% of the principal, and the compound interest, it can also seek to collect the loan from the borrower as well- and if it is successful, it gets to keep up to ¼ of whatever it recovers.
Here's how it works: Let's say you borrow $12,000 from Sallie Mae for college, and then you default. Sallie Mae hits up Uncle Same for 97%of the $12,000 or $11,640, plus compound interest. Let's say that after years of dunning and lawsuits, Sallie Mae manages to force you to pay back the $12,000. Sallie Mae keeps $3000 of the money you paid back. So it gets $3000+$11640 + compound interest. Pretty neat for them- and an outrage for us.
Student borrowers should be able to consolidate their loans and refinance them at lower interest rates whenever they can, just as other borrowers do. Lenders should not be allowed to discriminate against student borrowers.
About two-thirds of four-year college students are in debt when they graduate.-Nudge by Thaler & Sunstein.
Many people give up on learning after they leave school because thirteen or twenty years of extrinsically motivated education is still a source of unpleasant memories. Their attention has been manipulated long enough from the outside by textbooks and teachers, and they have counted graduation as the first day of freedom. Ideally, the end of extrinsically applied education should be the start of an education that is motivated intrinsically.-Flow by Czikszentmihalyi.
The value of a school does not depend on its prestige, or its ability to train students to face up to the necessities of life, but rather on the degree of the enjoyment of lifelong learning it can transmit. A good factory is not necessarily the one that makes the most money, but the one that is most responsible for improving the quality of life for its workers and its customers. And the true function of politics is not to make people more affluent, safe, or powerful, but to let as many as possible enjoy an increasingly complex existence.-Flow by Czikszentmihalyi.