Meet 5 Big Lenders Profiting From the $1 Trillion Student Debt Bubble (Hint: You Know Some of Them Already)
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Sallie Mae has spent millions lobbying against student loan reform, including lobbying the nonpartisan Congressional Budget Office, which made recommendations on the cost savings of the government's switch to direct lending. Over the last three campaign cycles (2012, 2010, and 2008) Sallie Mae's PAC has spent $1,583,557, favoring Democrats in '08 and '10 but so far this year favoring the GOP.
In 2010, when Citigroup decided to get out of the student loan business, Sallie Mae paid $1.2 billion for the rights to collect payments and service $28 billion in federally backed loans.
2. Wells Fargo
Wachovia and Wells Fargo were the third and fourth largest originators of federally-subsidized private loans under FFELP in 2009, with $5.54 billion and $5.14 billion respectively. After their merger, the resultant behemoth is the country's second-largest private student lender.
As we reported recently at AlterNet, Wells Fargo reported profits of $12.36 billion in 2010, and is number 23 on the Fortune 500, just above Procter & Gamble. Headquartered in California, the bank has $1.26 trillion in assets and $93 billion in revenues. And, of course, it got $25 billion in TARP funds from the government and borrowed another $300 billion through the Federal Reserve during the financial crisis, which it helped create—Wells Fargo is the country's largest consumer lender and is the only one of the nation's big banks that offers payday advance loans, which it calls “Direct Deposit Advance” and has direct financial connections to six of the top seven payday lenders.
The company has faced allegations of racial bias in its mortgage lending processes, though there's no information about similar allegations of its student lending. Salon reported:
“Wells Fargo has a history of targeting vulnerable communities for risky financial products. At the height of the subprime lending mania in 2006, the bank was more likely to loan subprime mortgages to Latinos and African-Americans than whites, according to a September 2009 report by the Center for American Progress, a process known as “reverse red-lining.” For financially stable borrowers, the targeting was even starker: Middle-class blacks were four times more likely than middle-class whites to get a dangerous mortgage. Middle-class Latinos were nearly three times more likely.”
Wells Fargo is now offering a new fixed-rate private student loan, which would allow borrowers to lock in one rate for the life of their loan; however, the rates can be high— up to 14 percent for those attending community colleges or trade schools, or in other words, for lower-income borrowers.
In Minnesota recently, a group of Occupy-affiliated activists “mic-checked” Wells Fargo CEO John Stumpf, calling him out for his bank's foreclosure and student debt policies.
After buying the remains of Citi's Student Loan Corporation, Discover Financial Services became the third-largest provider of private student loans. Best known for the Discover Card, of course, the company's website proclaims:
“The company operates the Discover card, America's cash rewards pioneer, and offers personal and student loans, online savings products, certificates of deposit and money market accounts through its Discover Bank subsidiary.”
According to Canadian Business magazine, of Discover's $52.51 billion in total loans (as of May 31, 2011) $4.57 billion was student loans, up from $820 million the previous year—which reflects the buyout of Citi's loans.
Harit Talwar, the company's Vice President for US Cards, said of student lending at a conference in May, "We really like this business. In the U.S., as you know, education costs are increasing much faster than income. And therefore, students need funding for tuition fees."