Morris titles the section on college lending "Class Warfare" because of the correlation between education and economic opportunity. Sallie Mae, originally a government entity for offering student loans, became SLM Corp. and was privatized in 2004, a year in which it made a 37% profit.
Why are its profits so high? Because it is the beneficiary of extraordinary privileges. For one thing, 90 percent of the loans it makes are guaranteed by the taxpayer... Student lenders are exempted from all state usury laws; if a student defaults, fees, penalty interest, and collection charges skyrocket. Loan servicing by the student lenders is reputed to be very poor, and there are widespread reports of defaults occurring because student lenders make little or no effort to contact debtors when repayment periods start. Collection of student loans and credit card and other debts is now a separate SLM business line, and it racked up about $800 million in debt management fees in 2005.Morris goes on to argue that there are smarter ways to finance higher education which offer more social benefit by taking it away from the profit-taking private sector. The direct federal loan program offers the same service for half the price, but the program has been contracted in recent years. He argues: "If all loans were financed through the direct loan program, the savings could finance full tuition grants for another million students." He also cites the historical precedents which show our traditional commitment to higher education, including Lincoln's land-grant college system and the GI Bill after World War II.