All In | May 09, 2013
>>> the cost of student loans and giving them the same interest for schools as the government gives to banks. out by the huffing post details how sallie mae is making a fortune off college private loan s and pensions are making money off sallie mae . a private lender that's been generating enormous profits thanks to soaring student debt and the climbing cost of education. the previously unreported investments means educational professionals profit twice off the same student first by hiking the cost of tuition and then by dividends and higher valuations in sallie mae , the largest student learned and loan servicer in the country. the person who broke this story, ryan from huffing post and ja jahim, huffing post correspondent. great work. what led you to dig into this?
>> we first got a tip from a tax guy going through sec filings . what bothered him the most was these endowments don't actually pay taxes on the profits that come from this. for a tax person, that really chafes them, when they see someone making compare profits and not paying taxes. when i saw it, i thought, well, that's -- okay. that sucks. wow, this is also a pretty intere interesting -- so universities and teachers' pension funds , the people making some of the most profit off of soaring tuition and soaring student debt. it adds up to this conflict of interest where the higher than they can raise student debt levels the more their investments become worth.
>> one of the things that emerges in the piece so interest interesting is just the role sallie mae is playing now, the fact i didn't quite understand the degree to which it has this now monopoly. there's government loans but they're capped at a certain amount. anything over and above that, sallie mae is basically the only game in town for folks looking to get student loans ?
>> that's right. for those students who basically need -- they need more funding than the government will provide, there are only a few players left. sallie mae is by far the largest lender of private loans. they charge rates anywhere from a few percentage points to 14, 15% interest. it's perfect ly legal. that's how they make their money, for the most part. thanks to that and thanks to uncle sam , basically.
>> here's the weird part. sallie mae , when you hear that name, sounds like fannie mae or freddie mac , is that part of the government or not? it's occupying some weird space. what is sallie mae status? they're private but have a government guarantee?
>> sallie mae started off as a government sponsored enterprise like fannie mae and freddie mac and spun off in 2004 and now a publicly traded company. most their assets are federally guaranteed loans the vast majority of their balance sheet. even though they're a public company , most students, most borrowers, most families when they take out sallie mae loans, they assume it's somehow guaranteed or blessed by the government and it's not. that source of confusion is leading a lot of families down the wrong path.
>> people talk about the student loan bubble all the time. what is driving the fact that sallie mae is recording record profits and sallie mae said in your article we're cutting rates down, we're providing a great service and great for people to take out loans at the rates we're offering because returns on education is so high. why is sallie mae so profitable in this period? what is going on in that market.
>> it's basically a lack of composition. it's kind of -- lack of competition, as simple as that. if you need the money and want to go to school, you have a choice, you can basically go to sallie mae and take whatever rate they'll give you and go to school or not go to school. we place such a premium, emphasis on college, as we should, in this country, people will take the offer. it's an offer you can't refuse more-or-less. when that's the case, then the lender is going to get as much as they can conceivably get out of it.
>> and the tuition, there's an interesting relationship that's happening right now. you guys hit on this in the article, that there is a relationship between tuition going up and the availability of student credit and student debt, which is that the availability of lines of credit and the expansion of student debt that makes it possible for places to raise their tu innings the first place, those two things have a strange symbiotic relationship and seems like we're caught right now in american higher education in a vicious cycle, higher tuition, more debt.
>> right. that's exactly it. if there wasn't financing available, colleges wouldn't be able to raise the cost of tuition, particularly private colleges. because there is financing available and such an emphasis placed an attending school, colleges can raise tuition as much as they want and far out-paces inflation and always a lender who is willing to charge them an exorbitant rate. once these kids graduate and get good paying jobs they are unable to refinance that high debt into something more sustainable and you have this negative feedback loop that permeates through the economy.
>> we just showed that chart. there are two stories happening here. sometimes in the new york washington access people just think about private education , right, public education is going up a lot. a lot of that is being driven by cuts at the state level. state austerity has taken an absolute hammer to the budgets of these institutions and they are raising tuition. from " huffington post ," thank you so much. great reporting.
>>> that is all in for this evening. the ra ch "the rachel maddow show" starts now. good evening, rachel.