Who Benefits from Privatization: The Case of Sallie Mae

The Student Loan Marketing Association commonly referred to as Sallie Mae got its start in 1972 as a government sponsored enterprise. It began privatizing in 1997 and completed the process in 2004 when Congress terminated its federal Charter. Republicans held a majority in our nation’s legislature this whole time. President Bush appointed 6 members to the Board when he took office in 2001.

News reports indicate a number of private equity firms are interested in purchasing Sallie Mae. The stock is up over $8 today to $55 per share. Should the deal go through Board members stand to make out like bandits. The board beneficially owns some 17.7 million shares. Board members alone stand to gross nearly $1 billion from the deal.

Assuming the $973 million to be capital gains, how much does the Sallie Mae board save in taxes under the President's lesser taxing of investment profits? The super rich get to pocket nearly $50 million more than they did when they paid 20% capital gains tax.

Does this make you excited about government sloughing off key programs to the private sector for them to be turned around in 3 years and sold to someone else at a huge profit? Oh, and those student loan guarantees given to private lenders by the U.S. government? They don’t go away!

Does it bother you that board members will walk away with millions (in addition to their already substantial annual compensation)? The smallest number of beneficially held shares is 141,000 worth $7.7 million. The largest is over 8 million shares grossing that board member over $440 million.

Sallie Mae along with Citibank just agreed to pay a $2 million fine for corrupt student lending practices. CIT owner of Education Lending Group remains under investigation for its illegal practices while Education Finance Partners just settled for a $2.5 million fine. Seven student loan companies have been under the New York Attorney General’s microscope.

Private equity firms don’t have the same public accountability in reporting investment information to the Securities and Exchange Commission. Does it bother anyone else that a recently fined company will soon enter the shadows of the private equity world?

Yes, another case of Republican privatization where the costs are higher than competing government programs and business goes to politically connected friends who donate huge amounts to election campaigns. The American public should be concerned as education is well on its way, health care is in the Bush administration’s sights and public infrastructure isn’t far behind.