Chronicle of Higher Education Misrepresents USA Funds-Sallie Mae Relationship

I write to advise you that the Chronicle of Higher Education has published articles featuring allegations by long-time critics of the Federal Family Education Loan Program that the contractual relationships between USA Funds^® and its guarantor-servicer, Sallie Mae, create potential conflicts of interest. We have advised the Chronicle of Higher Education that these articles misrepresent our relationship with Sallie Mae.

In fact, USA Funds’ contractual relationship with Sallie Mae has resulted in best-in-class services to colleges and universities, students, parents and taxpayers. Our contracts with Sallie Mae include checks and balances to avoid the conflicts cited by the publication, as well as performance-based financial incentives that promote strong performance by Sallie Mae to the benefit of USA Funds’ customers. The activities performed by Sallie Mae on USA Funds’ behalf are overseen on a daily basis by USA Funds’ staff and are subject to multiple audits, both by internal staff and by external third parties, including the U.S. Department of Education and its Inspector General.

The Department of Education reviewed the Sallie Mae-USA Funds contractual relationship before it took effect, and the Department subsequently has revisited aspects of the relationship. In 2004, the Department affirmed that USA Funds’ contract with a Sallie Mae subsidiary company for default-prevention services did not represent a conflict of interest. According to a spokeswoman for the Department, several offices of the Department were involved in reviewing and approving that decision.

As you know, USA Funds invests millions of dollars in technology, personnel and other resources to help student-loan borrowers avoid late payments and to assist them in resolving payment problems before they default on their loans. These efforts include debt-management-consultation services, online loan-counseling tools, financial-literacy materials and borrower-communications services that promote successful loan repayment.

USA Funds has joined with the nation’s other student-loan guarantors in supporting a legislative proposal that would reduce the revenue guarantors retain from collection of defaulted loans in return for a powerful new financial incentive for preventing loan payments from going 60 days or more past due. We are strongly urging Congress to adopt this proposal as part of reauthorization.

The USA Funds-Sallie Mae relationship has produced significant benefits for schools, students, parents and taxpayers. Notably, USA Funds’ annual default rate has been cut by more than half since Sallie Mae became our servicer.

Together, USA Funds’ staff and the Sallie Mae staff who work on behalf of USA Funds annually help more than 3-million students and parents plan and pay for college. For example, by preventing student-loan defaults, we saved borrowers an estimated $5.2 billion last year in additional costs that borrowers incur when their loans default. Last year, we awarded $8.9 million in scholarships to help more than 5,900 students pay college expenses. We provided grants totaling nearly $5.1 million to other nonprofits to help thousands of low-income and minority students prepare and pay for college.

You can be assured that USA Funds will continue to be there for you and your students, delivering the finest services available in the FFELP. If you have additional questions about these reports, please contact me.

Denise Feser
Senior Vice President
Customer Relations