"Now on PBS"-Sallie Mae Student Loans
Thursday, June 18, 2009SUSIE GHARIB: In this season of college graduations, tomorrow night, the primetime program "Now on PBS" delves into the topic of student loans. Specifically, it looks at the lending practices of Sallie Mae, the nation's largest underwriter of Federally guaranteed student loans. There are concerns Sallie Mae's debt collection agents use dubious tactics and that it tries to force students into what's called forbearance. That's when loans are put on hold but interest continues to accrue and is added to the loan amount. With an excerpt from "Now on PBS", here's David Brancaccio.
DAVID BRANCACCIO: Most Sallie Mae employees are bound by confidentiality agreements and don't talk to the media, but we found one man willing to break ranks. Mike Zahara, a former Sallie Mae debt collector, was so angered by what he saw happen at his branch in 2005 that he spoke out and it cost him his job.
MICHAEL ZAHARA, FORMER SALLIE MAE DEBT COLLECTOR: I heard people say, well, why -- don't pay your rent this month. Why don't you pay your student loan instead?
BRANCACCIO: You heard debt collectors for Sallie Mae tell people who owed money that they should pay the student loan first, instead of the rent?
ZAHARA: Instead of the rent, instead of the car payment. First things first, according to them.
BRANCACCIO: First things first? Listen, we all owe what we owe. And we all have an obligation to pay things back. But clearly if you don't pay your student loan, this is bad personal finance. If you don't pay your rent, you could be homeless.
ZAHARA: Well, exactly. And that was all because these kids who were making these calls were all -- had a bonus to chase. They didn't really care about the borrower. They cared about their end of the month numbers, is what they cared about.
BRANCACCIO: The practice that troubled him the most was what happened when borrowers put their loans officially on hold, putting them into forbearance is the lingo. As he saw it, the borrowers didn't understand what they were getting into.
ZAHARA: So, I could go on the phone and say, well, you can't pay your bill right now. Let me offer you some verbal forbearance. What that's going to do is bring your loan current. And it's going to take everything that you owe us, and put it on the back of the loan. And then we had a little spiel to read to them. But they didn't quite understand that they were paying interest on their interest by that.
BRANCACCIO: Zahara argues that Sallie Mae had an incentive to let loans balloon that way because if the borrower couldn't pay back, the taxpayer would cover the bill and since Sallie Mae allows FELP loans to stay suspended for years, he says he's seen some loans double in size.
ZAHARA: Sallie Mae never loses. They, they win if the borrower pays. They win if the borrower doesn't pay. They win if the borrower defaults. They win any possible way that you look at it.
BRANCACCIO: Zahara claims that Sallie Mae sometimes even put loans into forbearance without borrower permission. When he complained to the government about the practice, it cost him his job. But why should anyone believe a debt collector fired by Sallie Mae? His allegations are supported both by a lawsuit filed last year by Sallie Mae's own shareholders and in documents from a lawsuit Zahara once filed against the company. We requested an interview with Sallie Mae and the company responded with an email denying Mike Zahara's allegations. Sallie Mae also emphasized that, forbearance is used as an option of last resort.
GHARIB: Sallie Mae also says it actually loses money on loans put into forbearance that eventually default. The agency also says it does not tell employees to encourage borrowers to pay their student loans before their rent. Sallie says it encourages borrowers to pay back loans when they can, because it's in their best financial interest. For more about Sallie and the student lending industry, watch tomorrow night's episode of "Now on PBS." Check your local listings.
