In July, Sallie Mae won the loan-consolidation lawsuit brought against it by the CLC, arguing successfully that only the Department of Education, and not the courts, can rule on disputes over the HEA's single-lender rule. (CLC has just filed an appeal.) Indeed, it's well worth stressing that in both the CLC and the Washkoviak rulings, Sallie Mae won on questions of statutory jurisdiction — that is, on who has the authority to hold the company accountable. And at this point, it appears, the answer is no one, while student borrowers are left holding the bag.
Is it any wonder, then, that when Sallie Mae sent letters to more than 800,000 borrowers this spring, claiming that a computer "installation error" had miscalculated their monthly payments by anywhere from below $40 to more than $100, consumer advocates were skeptical? (Since then, the number of affected borrowers has risen to 1.127 million.) "In light of Sallie Mae's questionable business practices," says Kate Rube, the State Public Research Interest Groups' Higher Education Project associate, "we're watching closely to see how they're going to be accountable to their borrowers on this."
It remains an open question. Consider the correspondence received by Cristina Kaiden, whose monthly payment rose as a result of the computer error from $366.16 to $460.79, a $94.63 increase. In a letter dated June 19, 2003, Sallie Mae informed her that she had two options: she could either pay off the difference in a lump sum of $6521.06, or she could engage in "a variety of repayment options, including reduced payment forbearance." Sounds reasonable, right? Except that signing a forbearance form would allow Sallie Mae to capitalize interest — meaning that it could add the interest to the principal balance — so the borrower ends up paying interest on the interest. If Kaiden entered into such an agreement in order to keep her monthly payments the same, she'd end up paying $674.71 in extra interest in the first year alone.
So far, the Department of Education, which is staffed with Bush appointees eager to advance the interests of private lenders and, as Nassirian says, to "gut" Clinton's direct-student-loan program, has been ineffectual in exercising its oversight responsibilities with regard to the computer-glitch issue. In correspondence made available to the Phoenix, last summer Representative Miller asked education secretary Rod Paige to look into how the alleged technical failure occurred and what remedies were in place to ensure that students wouldn't end up spending more — in interest — to pay back their loans. In one letter dated July 16, Paige provided Miller with a number of statistics and chronologies, none of which committed the DOE to requiring Sallie Mae not to charge borrowers extra interest, adding: "Answers to questions relating to Sallie Mae's activities were obtained directly from Sallie Mae. The Department has not independently verified this information."