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Bill Knight - February 16

Bill Knight

More than 100,000 people in all 50 states already have signed an online petition as part of a grassroots campaign on that demands Sallie Mae stop charging unemployed college graduates or other student borrowers a $50 fee for forbearance on their student loans.

Borrowers who can’t pay the extra $50 fee are put into default.

First, you may ask, what’s “forbearance”? Then, you may wonder, who’s Sallie Mae?

Forbearance, simplified, is sort of a timeout that permits borrowers and lenders to try to change terms of a loan to let borrowers pay at a rate and schedule they can without going into default or, in the case of homebuyers, see their past-due mortgage push them into foreclosure.

Forbearance should also let lenders get the money due them without the added expense of foreclosure proceedings and likely loss of capital. Loan terms can be modified; borrowers can make up missing payments; lenders can realize their profit. But student loans, which cannot be “foreclosed” nor discharged in bankruptcy proceedings, can be a cash cow. Milking that cow has gone beyond collecting payments and now includes adding fees to people already financially strapped.

Sallie Mae is another name for the Student Loan Marketing Association, a publicly traded corporation that makes student loans and collects loan payments. It’s the nation’s largest originator of federally insured student loans. Sallie Mae started 40 years ago as a government-sponsored effort mainly offering federally guaranteed student loans, but it started privatizing in the 1990s. Now, it manages more than $180 billion in loans for more than 10 million people, but it loans private funds, too. 

The new controversy stems from a woman named Stef Gray, a recent graduate of a public college who took out private student loans through Sallie Mae. After getting hit with the $50 fee when she asked for a forbearance, she launched the campaign on, a web site that enables regular people to pressure powerful interests with the influence of thousands of consumers. helped recent successful grassroots efforts to get Bank of America to drop its unexpected $5/month banking fee, and to lobby Verizon to drop its plan for a $2 online-payment fee.

Gray said, “What Sallie Mae is doing is wrong. My loan already grows by more than $1,000 in interest every three months when it’s in forbearance, and I pay almost 10 percent in interest because my parents weren’t alive to cosign my loans. For Sallie Mae to tack on these extra fees just to pad their profits is to kick people like me when we’re already down. Charging a forbearance fee is wrong, and [thousands of]  people who agree are standing with me.”

News of the online petition campaign’s success is likely to increase pressure on Sallie Mae, which is actively trying to build its private student loan business. Gray plans to organize more actions against Sallie Mae, including a social media campaign.

However, Sallie Mae and its 16 subsidiaries have weathered other controversies. It’s been sued for granting forbearance in a way that increases debt in a case that’s now on hold while legal counsel is changing.

Law professor and U.S. Senate candidate Elizabeth Warren criticized Sallie Mae for acting as both lender and collector. New York Attorney General and current Gov. Andrew Cuomo investigated the company’s “deceptive lending practices” and got the corporation to change its lending standards and to donate $2 million to a program better informing students about loan options. And a former federal researcher sued it, accusing the company of overcharging the U.S. government.

But Sallie Mae keeps loaning money to needy students, keeps aggressively collecting, and keeps making substantial profits.

However, Gray’s campaign adds a significant wrinkle - a popular front. The campaign is gaining momentum with many student borrowers realizing that they could see the interest rates on their loans go up significantly unless Congress extends a rate reduction first passed in 2007 - a reduction scheduled to expire this summer. Currently, the typical interest rate, under the 2007 reduction, is 3.4 percent, but the rate could double to 6.8 percent in July. senior organizer William Winters said, “What Stef has accomplished in just a few weeks is remarkable. She’s obviously tapped into an issue that a lot of people feel strongly about, especially with student debt rising steadily amid high unemployment among college grads. It’s been incredible watching Stef’s campaign take off.”

Bill Knight is a freelance writer who teaches at Western Illinois University. The opinions expressed are not necessarily those of WIU or Tri States Public Radio.


Rich is TSPR's News Director.