Judy Berman

Jun 08 2012
The class action suit claimed that in 2006-2007, as it prepared itself for a lucrative purchase by a consortium of banks and private equity investors, Sallie Mae lowered its lending standards to bolster its portfolio of high-interest-earning “subprime” private student loans. But, when the economy started to crash and default rates spiked, Sallie Mae attempted to hide the damage by changing its loan forbearance policy to punt defaults into the future. In the proposed settlement, the two parties agreed to the creation of a $35 million pool to “resolve investor claims.”

That may be good news for the investors and sounds like a relatively cheap price for Sallie Mae to pay to avoid a trial. But the settlement offers nothing to the targets of Sallie Mae’s reckless attempt to pump up its profits: the students who were lured into taking out the loans to pay for their education. Private sector loans typically come with much higher interest rates than government-backed loans. It’s a toxic mix almost guaranteed to increase economic hardship: low-income students, high-interest loans and stratospheric default rates.
Andrew Leonard on a new, nauseating Sallie Mae settlement that’s screwing over low-income college students

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