To ensure the EMU community is updated on issues regarding Sallie Mae, a student lender and service provider, and Eastern Michigan University, the Division of Enrollment Management is sharing the following information.

What is the issue surrounding Sallie Mae and EMU?

Eastern Michigan contracted with Sallie Mae in 2001, at a cost of $150,000 per year, to answer incoming calls about student bills and financial aid awards. That vendor service remains in effect today and will end next year under Sallie Mae’s agreement with New York’s Attorney General Andrew Cuomo. 

Attorney General Cuomo has gone on record saying such call centers pose “an inherent conflict of interest” because “a self-interested lender is providing what is purported to be unbiased advice.” Universities and colleges around the country, including Eastern Michigan University, disagree.

What is the role of Sallie Mae at EMU?

Sallie Mae representatives answer more than 100,000 calls annually from our students and parents. More than 90 percent of those calls are about the financial aid application and awards process, not student loans. A list of preferred lenders is available on our web site (www.emich.edu/finaid/loans/0708_lender%20_list.pdf) and students may select from any lender on the list, or choose another lender.

Do Sallie Mae representatives promote their services when answering calls?

Phone representatives only use an informational script approved by EMU. Secret shopper calls are made to the phone center to ensure unbiased and accurate information is provided to callers. In the rare instance when Sallie Mae representatives cannot answer a question, the call is referred to EMU’s financial aid staff. This has been a valuable service for EMU.

Why didn’t Sallie Mae representatives initially identify themselves to callers?

When the initial contract was signed, the decision was made to not have the call center staff answer as Sallie Mae, in order to make the calls as simple as possible.  When this arose as an issue in the New York investigations, EMU added Sallie Mae’s name to the script.  Now, Sallie Mae’s greeting to callers is “Thank you for calling. This is Sallie Mae answering your call on behalf of Eastern Michigan University Office of Financial Aid.”

Is it true that Sallie Mae is the largest student lender?

Students with loans are likely to initially work with Sallie Mae or work with them during repayment. Sallie Mae originates almost twice as many loans as its nearest competitor, Citibank Student Loan Corporation (http://www.finaid.org/loans/biglenders.phtml)

Many banks also sell their loans to Sallie Mae before it is time for the loans to be repaid. As such, Sallie Mae services more than 1/3 of all loans in the United States. They also offer student incentives to lower repayments after students leave school.

What is the role of Sallie Mae’s foundation?

Sallie Mae has a separate foundation, which provides funds for student scholarships and grants to colleges and universities. Eastern Michigan applied for this funding and received more than $300,000 for our Presidential Scholarship program for academic excellence, and for students with high financial need. These donations were made a year after our initial contract with Sallie Mae and did not influence our selection of Sallie Mae as a lender.

Why did EMU return scholarship donations from the foundation?

When the New York attorney general started to question loan practices, we examined our own loan practices to assure that we were meeting the highest standards for compliance.  EMU had to make a decision whether to keep $165,000 in unused funds, even though there was no relationship between the funds, our call center or our student loan process.  We decided to return the funds to the foundation and voluntarily disclosed this to the Michigan attorney general.

What else has changed as a result of the investigations?

Other rules have also changed as a result of the investigations.  University personnel serving on lender advisory boards, where they advocated for students, are now being questioned. While EMU personnel have occasionally served on these boards, no one does today.

Why can’t students receive scholarships instead of loans?

If it were possible to do so, we would award grants and scholarships to students, not loans. Loans are an option of last resort. However, borrowing student loans is also a reality of attending any college or university today, as neither students, families nor institutions have enough funding to pay for college, save a very few wealthy institutions.  In 1980, loans comprised only 25 percent of all financial aid in the United States.  Today, they make up nearly 80 percent of all financial aid awarded to students and their parents.

What is the difference between government and private lender loans?

It is important to note that the federal government regulates Stafford loans.  Interest rates are the same for these loans, regardless of the lender, and these rates include two levels: the rate while in school and the rate during repayment, after leaving school or dropping below half-time status. 

At Eastern Michigan University, the vast majority of students who borrow money take a federal Stafford loan, given its fixed rates and flexible repayment options.  These loans are offered to students who apply for financial aid at EMU, after we award grants, scholarships and federal work-study funds for which the student is qualified.

There is a growing industry of private loans that are not guaranteed by the federal government.  These loans concern us, as they are credit-based and interest rates are not fixed.  As more and more students are unable to meet their educational expenses through grants, work-study and Stafford loans, they have turned to these private loans as a way to meet the gap.

Early on, we worked with Sallie Mae to define terms for such loans for EMU students, so that those students who felt they needed alternative loans would have a trustworthy resource for borrowing.  Interest rates are set within limits (although still based on credit) and repayment options are similar to Stafford loans. 

While we do not encourage these loans or initially offer them to students who apply for aid, we know it is important to offer students and their parents alternatives that we can trust, rather than cast them into the larger and aggressive world of private loans.  Students and parents, of course, can make their own choices, and there is a wide variety of lenders in this now $10-billion industry.

The growth in private loans is one of the reasons that many in the financial aid community lobbied Congress to raise the borrowing limits on Federal Stafford Loans.  We were pleased to see this occur recently and hope that it will decrease students’ reliance on private loans.

Who can I contact if I have questions?

It is important that accurate and complete facts are available to the university community. We promise to keep the campus community updated on this important issue.

If there are questions, please e-mail Tom Green, vice president, enrollment management, at Tom.Green@emich.edu.