Last Friday Citigroup email-blasted borrowers of its student loans entreating them to write Congress and sign online petitions saying they opposed Barack Obama’s plan to do away with the private student loan business in the name of “consumer choice.”
We thought the email was funny because, sort of like AIG’s bailout-funded legal battle to reclaim $329 million penalties it paid the IRS, it was a case of a company transparently working to undermine the agenda of its parent company the U.S. Treasury. But it gets better!
As it turns out, Citigroup’s biggest competitor in private student loans, Sallie Mae, sold out the rest of the industry last month by agreeing to go along with the Obama Administration’s plan. Two weeks ago the company told analysts that while it did not intend to be a “Thanksgiving turkey for the government” it was content shifting its strategy from the lucrative government-subsidized lending business that made its CEO Al Lord a centimillionaire many times over to being a fee-for-service government contractor. It circulated some suggested changes to the Obama proposal and left its smaller competitors, like Citigroup’s Student Loan Corporation and First Marblehead Corporation to fend for themselves.
In a conference call with analysts last month, Lord said his reasoning for the change of heart was simple: student loans were not as profitable as they once had been, following a string of conflict-of-interest scandals in 2006 and 2007 that galvanized support around a series of cuts in the federal subsidies bankers received for extending such loans — so charging the government to service the loans was a better business to be in. “I don’t think there’s anyone in this building…that’s not a capitalist,” Lord told an analyst. The trade group representing Citi and other private lenders, however, the Consumer Bankers Association, had some harsh words for this rationale in a Washington Post story this morning.
John Dean, special counsel to the Consumer Bankers Association, a powerful student loan lobbying group, said the company’s plan, which he called “pornography,” would drive most banks out of the industry and strengthen Sallie Mae’s market share.Hmmmm…that mentality sounds as much like “capitalism” as “pornography” to us, but we suppose you know it when you see it.
“Sallie Mae threw in the towel on the opportunity to defeat the Obama proposal,” Dean wrote in an e-mail to association members. “Since then it has dedicated its efforts to doing what it does best: Watching out for itself. When that entails throwing industry colleagues under a bus, Sallie Mae’s leadership does not hesitate.”
A spokesman for the trade group called to explain further that many of Sallie Mae’s competitors were incensed because, unlike the industry giant, they did not provide loan servicing services and would be more easily shut out of the action altogether.