A 2006 report by Leslie Stahl of 60 minutes investigates Sallie Mae, the program set up by Congress in 1972 that was later privatized, becoming an extremely profitable, publicly traded company. Sallie Mae is the anthropomorphic name for SLM Corporation, who are in the business of providing private and federally subsidized loans to student borrowers. In 1997, SLM began the process of ending its federal charter, which was concluded in 2004. During this process, SLM acquired a host of other businesses, including collections agencies, while maintaining strong ties to the federal government and strengthening ties to higher education. As of 2009, SLM manages more student loans than any other company.

For its lending and collection businesses, SLM Corporation enjoys unprecedented legal advantages that are not shared by any other class of financing, including many unique techniques for retrieving repayment from students who have defaulted. As a result, the repayment rate for student loans is currently 95%, which is significantly higher than in the past, and is higher than other industries. Stahl interviews several experts to figure out how SLM Corporation came to be, and uncovers a fascinating story of amazing profits and questionable expenses.

RTFA: http://www.cbsnews.com/stories/2006/05/05/60minute…

“It may be called ‘private’ by the people in the system. But it’s not private at all,” says Michael Dannenberg, who analyzes student loan policy at the New America Foundation, a non-partisan think tank.

“What do you call it?” Stahl asks.

“Frankly, it’s a socialist-like system,” he says. “It’s not as if this private entity is assuming any risks. No, no, no. The law makes sure that this so-called private entity has virtually no risk.”

On top of that, Sallie Mae also owns some of the biggest collection agencies in the country. Once a student borrower goes into default, the government pays Sallie Mae all the principle and compounded interest that have accrued.

The loan then passes into the collection phase. If Sallie Mae is the collector, it gets to keep up to 25 percent of whatever is recovered. In 2005, nearly a fifth of its revenue came from its collection business.

“Sallie Mae makes money if you pay back on time. And Sallie Mae makes money if you don’t pay back on time,” says Elizabeth Warren, a professor of bankruptcy law at Harvard Law School.

Warren says it’s a mistake to allow Sallie Mae to be both a lender and a collector.

“It shouldn’t be the case that Sallie Mae gets to play every hand at the poker table while the government is the one that keeps anteing up the money,” Warren tells Stahl. “But let’s be clear. That by itself isn’t enough. We have to decide collectively as a country: do we want to encourage the young people who are trying to get college diplomas? And if the answer to that is yes, the way to encourage them is not to double and triple the amount that they owe when they get into financial troubles.”

By law, private lenders must offer payment options, but that usually means the loans just balloon. So even though 95 percent do pay up over time, many are burdened with heavy debt. In a statement, Sallie Mae told 60 Minutes it makes far more money from those who pay on time, than from those who default