News Scoop: Sallie Mae Chairman Al Lord Being Investigated by House

Just when things were starting to look bad for the student loan industry, Sallie Mae Chairman Al Lord made them even worse.

Congressional leaders announced today they are investigating whether Mr. Lord received an inside tip from Bush administration officials before he made a call to his broker to sell 400,000 shares of the company's stock. Congress is demanding records from the Education Department, the White House, which includes the entire Executive Office of the President (e.g. the Office of Management and Budget), and from Mr. Lord himself about any communications the parties may have had in the months leading to the stock sale.

The timing of the sale-- which netted Lord $18.3-million -- is suspicious because it came only days before President Bush released his budget, which slashed federal subsidies to student loan providers to pay for a significant increase in the maximum Pell Grant. Bush's budget announcement on Monday, Feb. 6 sent Sallie Mae's stock into a tail spin. According to the Washington Post, Lord saved himself $1.4 million by selling his shares the previous Thursday and Friday.

Sallie Mae's public relations flaks say that the timing was purely coincidental. Lord, they say, had been planning the irregular sale for weeks to pay for some personal business projects.

But senior Democrats in the House of Representatives are not buying it. "Given the timing between the stock sale and the public announcement of lender cuts, we seek additional information about these events," Reps. George Miller (D-CA), the Chairman of the House Education and Labor Committee, and Barney Frank, the Chairman of the House Financial Services Committee, wrote in the letter to Mr. Lord.

Among the documents that the lawmakers have requested are "copies of written correspondence, e-mails, meeting minutes, notes, etc. memorializing communications" between federal officials and Sallie Mae officers, starting on Nov. 1, 2006. They are also asking the Education Department and the White House for "telephone and meeting logs detailing the names, dates, locations, and context" of all communications with Sallie Mae during this time period. They ask the parties to send the requested information to the chief investigative counsels of the two House committees.

Higher Ed Watch is of the view that questions surrounding Mr. Lord's sale are symptomatic of a system in which politicians write into law specific subsidy levels for student loan providers. As long as there is a specific rate of profit for student loan providers being determined by politicians, there is a specific danger of corruption.

To guard against the type of corruption suggested by Mr. Lord's fortuitous stock sale, lawmakers should no longer write into statute student loan bank subsidy levels. Let the market decide instead. Higher Ed Watch supports heightened competition within the Federal Family Education Loan (FFEL) program, as the editor of this blog suggested in a recent Washington Post op-ed. We support heightened competition between the FFEL program and the Direct Loan program, as this bipartisan group of federal lawmakers is about to propose anew today. And we believe there needs to be heightened competition among private student loan providers as well.

Lord only knows who could be against free and fair competition.