Wall Street Journal reporter Josh Mitchell has a new book coming out called The Debt Trap. In it, he talks to the former CEO of Sallie Mae, Al Lord. At one point, Lord had a personal net worth of $300 million, substantially all of which came from being the architect of the student lending bubble. He now openly admits that his generation of lenders schemed to drive up the cost of college, and they viewed their primary customers as the institutions who could charge exorbitant amounts for school.
From the article:
A former CEO of the student loan lender Sallie Mae says the cost of tuition at U.S. universities is “criminal,” but acknowledges that he played a role in their rising, according to a forthcoming book.
In an adaption of Wall Street Journal reporter Josh Mitchell’s “The Debt Trap,” set to be published on Aug. 3, Al Lord, who joined Sallie Mae in 1981, said that he first felt the impact of tuition costs when he started paying those of one of his grandchildren.
Lord said he paid $175 a semester during the 1960s when he attended Pennsylvania State University, a stark difference to the tuition he paid for his grandson, who enrolled at the University of Miami several years ago. The college currently charges $75,230 for an undergraduate on campus, which includes tuition, fees, housing and meals, transportation and other expenses.
“It’s criminal,” Lord reportedly said.
He has reportedly also paid the tuition of several other grandchildren, at close to $200,000 a person.
“Boy, am I sure glad we saved for my grandkids. If the average income is $40,000 or $50,000 or $60,000, I just don’t know how you do it,” Lord said.
He reportedly acknowledges in the book that he understands he played a role in encouraging colleges to increase their rates.
According to “The Debt Trap,” after Lord started his first run as CEO for Sallie Mae in 1997, he started a series of incentives to allow students to take out more loans so that colleges could charge more. Sallie Mae started bundling packages of student loans that were then sold to investors.
Additionally, Lord persuaded schools to have students borrow money from either the banks, where Sallie Mae bought its student loans, or the student lender itself, according to the book. Promises from Sallie Mae that additional money from private investors would be available for students to tap into led its stocks to subsequently soar.
In 2007, when Lord took the helm again as CEO, Sallie Mae’s valuation dropped after profits that were guaranteed under its program were slashed by Congress, according to the book.
“Our customer was almost every bit as much the college as it was the student,” Lord reportedly said. “It didn’t behoove me to lose 100% of the business for something that might make an iota of a difference. No one was looking to me for that kind of information.”