Rising tuition and demand for college education has been a boon for the student lenders, which have seen profits soar in recent years and have become some of the most profitable companies in America.
America's largest student loan provider, Sallie Mae, has seen profits jump from $384 million in 2001 to $1.3 billion last year. In 2003, the company reported its Chief Executive Officer Albert Lord earned $67 million in stock options alone, and an additional $8.5 million in cash compensation.
First Marblehead, the company behind the University's preferred private loan, saw revenue in 2004 increase 118 percent to $200 million, the Wall Street Journal reported.
"There is a perfect storm in higher education with enrollment up, state funding down," Sallie Mae spokesperson Martha Holler said about the dramatic increase in lending volume.
Not all of these profits come from students' interest payments. Much of the profits in student lending come from the margins that securities issuers make when they purchase the loans from the banks that underwrite them, from federal government subsidies and guarantees, and servicing fees.
Such profits have earned the firms critics who feel that the excess profits come at the expense of borrowers and taxpayers.
"FFELP [Federal Family Education Loan Program] provides lenders with massive excess profits, which is evident when you look at executive salaries," said Robert Shireman, director of The Institute for College Access and Success and Student Loan Watch. "Sallie Mae is one of the most profitable companies in the country and world, yet assumes no risk," Shireman said.
The industry is heavily regulated and some suspect there are opportunities for lenders to exploit government subsidies.
Only this past January was the U.S. Department of Education's Federal Student Aid office finally removed from the list of government programs at high risk for fraud, waste, abuse and mismanagement, the Department announced in a press release.
The Department of Education's public relations office did not return several calls seeking comment.
In recent years, as schools such as the University have moved out of the Federal Direct Lending and begun working with private loan providers, there have been additional opportunities to make profits in the industry by lending at market rates.
Yet while the rise of a private loan infrastructure has meant increased profits for loan providers, it also has proved much more efficient for the University, Director of Student Financial Services Yvonne Hubbard said.
"If you didn't have the competition, the government would be less efficient," Hubbard said. "FELP was totally inefficient and not service oriented at all until private competition turned them around."
Those in the private student loan industry say that lending to students with no credit history is a risky proposition.
"Sallie Mae is proud of the fact that we offer credit to people with little or no credit history," Holler said. "A student loan is the most consumer-friendly loan a person can get."
Others also credit good corporate management for the rise in profits, citing increasing efficiencies being wrung out of a market that has grown a lot in recent years and attracted a lot of new capital.
"Sallie Mae is a very profitable company, but they are also a terrific company," said Paul Sheldon, Managing Director of the Education Finance Group for Citigroup, the firm's investment banking arm. "They are a marvel of consumer finance because they figured out how to make small loans effectively and in a consumer friendly way."
Regardless of how people feel about lenders' ballooning profits, the companies fill a void unmet by the government and schools.
"As tuitions have been shooting up, it's been clear that there is a greater need than can be supplied under federal programs," Curry School Dean David W. Breneman said.
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