The nation's largest provider of student loans, may have given up its $1 billion bid to buy the Pennsylvania Higher Education Assistance Agency, but the mud-slinging has not stopped.
PHEAA is the state agency that guarantees and services the majority of Penn students' loans. As one of the largest state student-aid organizations in the country, it serves more than four million borrowers and manages more than $56.5 billion in assets.
Sallie Mae's offer expired Aug. 31, eight months after it was first offered. PHEAA spokesman Keith New said that the offer never generated significant interest from the Pennsylvania legislators who serve on PHEAA's board of directors. He called Sallie Mae's offer "disingenuous" and said that Sallie Mae used smear tactics to garner public support.
"They claimed to have offered $1 billion, but in essence it was a $100 million offer," New said, adding that the remaining $900 million would be paid with PHEAA's own money. He said that if Sallie Mae acquired PHEAA, reduced competition would increase loan prices.
Sallie Mae spokesman Tom Joyce said, however, that the offer was serious and would in fact have reduced the cost of loans. He added that shortly after the offer was made, PHEAA launched a public-relations campaign "to denigrate our company" and justify turning down the $1 billion.
Penn Associate Vice President for Finance Frank Claus said that the truth lies somewhere in the middle.
"I don't think there would have been any change in cost of loans or discounts or profits," Claus said, adding that Penn had a good working relationship with PHEAA and that competition does little to affect cost, since Congress sets the interest rates for student loans.
One of the only variable areas is in "back-end benefits," which reward students by decreasing interest rates after several consecutive months of on-time payments.
Still, Joyce said that what Sallie Mae alleges to be PHEAA's monopoly on student loans in the state affects costs.
New disputed this charge, saying that PNC Bank is the largest provider of student loans, followed by PHEAA and Sallie Mae.
Even if PHEAA were a monopoly, Claus said it would not be able to act like one due to federal restrictions on student-loan interest rates. He added that students may obtain their loans from any lender and that the cost of the loans currently offered in Pennsylvania by PHEAA and Sallie Mae are similar.
Still, Claus said he was pleased PHEAA rejected the offer because, as a non-profit state agency, its earnings return to students, whereas Sallie Mae is a for-profit enterprise, and "somewhere along the lines the profits have to go to stockholders."
New cited this as one of the reasons PHEAA was uninterested in Sallie Mae's offer, coining it a matter of "business philosophy versus public-service philosophy."
Joyce said that Sallie Mae had long planned on withdrawing its offer at the end of August, but "a number of things have happened since" December to reinforce its decision. Chief among those is that Congress is working toward closing a loophole that has provided billions of dollars of subsidies to lenders -- a move that could significantly decrease the value of PHEAA.
State legislators have ordered an independent study of the agency to evaluate its assets and their use. But regardless of its impact on PHEAA's overall value, Claus said that the closing of the loophole will not impact the cost of student loans.
Separately, Sallie Mae has charged that PHEAA directly or indirectly pressures universities into a business relationship, since it issues grants to these institutions.
"It's at best an inherent conflict of interest," Joyce said.
New denied this claim, saying that no school has complained. Claus similarly dismissed the notion that PHEAA blackmails schools.
With the Aug. 31 deadline passed, all seems quiet for now. But Joyce said Sallie Mae is still interested in a partnership with PHEAA, so it could well be that the mud will start flying again soon.
Student loans - Interest rates restricted by federal government - Sallie Mae's $1 billion offer to purchase the Pennsylvania Higher Education Assistance Agency expired Aug. 31 - Effect of purchase on student loan cost disputable
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