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February 17, 2010 10:00 AM Fingers in Every Pie

By Daniel Luzer

As College Guide readers surely know by now, student loan servicers are lobbying hard to lobbying hard to water down a bill that would change policy such that colleges would loan directly to students.

Sallie Mae, the nation’s largest private student-loan provider, is one loan company particularly implicated in these lobbying efforts. Well apparently Sallie Mae has more than just its loan operations to worry about. As the blog Student Lending Analytics pointed out, Sallie Mae is also a collections agency. In the words of the company:

The collections side of the business is a great business for Sallie Mae. One of the things where we really stand out. We help collect for guarantors or the Dept. of Education on previously defaulted federal student loans. We are #1 collector in terms of size in this space and in terms of performance.

This sort of situation is troublesome because it undermines the incentive system behind federal loans. Lenders make money when people pay their debts on time. Collections agencies, in contrast, make money when people don’t. Somehow Sallie Mae makes money either way.

Ben Miller at Education Sector looks at the situation here. Law professor Elizabeth Warren first pointed out Sallie Mae’s conflict of interest on 60 Minutes back in 2006.

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer