Higher Ed Roundup: Week of June 2 – June 6

Risky Lending a ‘Mistake’, says Sallie Mae’s Al Lord

Education Department Report Reveals Differences in Borrowing, Graduation Rates

Risky Lending a ‘Mistake’, says Sallie Mae’s Al Lord

In an interview with The Wall Street Journal on Thursday, Al Lord, Sallie Mae’s chief executive officer, acknowledged that the company had made “a mistake” in pushing high-cost private loans on subprime borrowers attending poor-performing trade schools. “It was obviously a mistake and I’m not going to step away from responsibility because I was either chairman or CEO when those loans were made,” he said. “We got a little too confident in our own view that credit scores are of limited meaning for undergraduates.”

As Higher Ed Watch has reported, financial analysts have long raised red flags about Sallie Mae’s private lending practices. During earnings calls and at shareholder meetings and investment conferences over the last five years or so, analysts regularly peppered Sallie Mae officials with questions about whether the company, which is used to having government backing on the Federal Family Education Loans (FFEL) it makes, had the expertise needed to assess the risks associated with lending unsecured, private loan debt to financially-needy students. In the interview with the Journal, Lord acknowledged that the company had lacked that expertise. “The culture of the company has been a FFELP culture for 35 years,” he said. “That meant you made every loan to every student. I guess with 35 years of experience of saying yes, we were just not very good at saying no.” Unsurprisingly, Lord did not offer to provide any relief to the borrowers who have fallen victim to the company’s predatory loan practices.

Education Department Report Reveals Differences in Borrowing, Graduation Rates

Students attending for-profit trade schools are the most likely to borrow student loans to finance their education, according to a report released Tuesday by the U.S. Department of Education’s National Center for Education Statistics. According to “Enrollment in Postsecondary Institutions, Fall 2006; Graduation Rates, 2000 and 2003 Cohorts; and Financial Statistics, Fiscal Year 2006,” 73 percent of students at two-year for-profit institutions, and 67 percent at four-year for-profit institutions took out federal student loans during the 2005-06 academic year, compared to 60 percent of students at private non-profit schools and 44 percent of students at public colleges. The report also shed light on institutional differences in graduation rates. Department researchers found that 26 percent of students at for-profit schools earned their bachelor’s degree in 4 years, compared to 50 percent at private non-profit colleges and 29 percent at public institutions.