Sallie Mae's Success Too Costly?

Does The Lender's Success Come At Too Steep A Cost To Students And Taxpayers?

(CBS)  Collinge simply stopped paying and has now started a Web site, studentloanjustice.org, for people like Brit Napoli, who was wiped out in the California earthquake of 1994.

"I lost everything. I lost my dwelling, I lost my automobile," says Brit.

"You went immediately from solvency to default?" Stahl asks.

"I received some assistance from FEMA; I received some assistance from [the] Red Cross, but I did not receive any sympathy from Sallie Mae," he says.

"Nobody said, 'This is a special case because this poor man is destitute and homeless because of the earthquake?' " Stahl asks.

"No one," Napoli replies.

On loans of $38,000 from Sallie Mae, he says he now owes $71,000. While these borrowers are suffering, former Sallie Mae CEO Al Lord told an audience in 2003 that he, at least, was making a bundle.

"It would be very hard for me to tell you that what I make is not a lot of money," Lord said.

Said to be worth a quarter of a billion dollars, Al Lord is building his own private golf course and made a bid to buy a professional baseball team.

During the past 13 years taxpayers have spent $40 billion on guaranteed student loans. Sallie Mae would not tell 60 Minutes how much of that went to them.

It is true that Sallie Mae performs an important service: it has helped 21 million students pay for college.

But there is a less costly way to make student loans, called "the direct loan program," run by the Department of Education. Sallie Mae disputes this, but studies by three different government agencies say it costs taxpayers about five times less per student loan.

Still, most universities guide their students to private lenders like Sallie Mae. One reason is because they offer incentives to some of the schools, which Michael Dannenberg calls "kickbacks."

"Kickbacks?" Stahl asks.

"Payments, cash payments to colleges," Dannenberg replies.

Asked if that's legal, Dannenberg said: "Yeah. It's done through a loophole called the school-as-lender program. But it's legal."

School-as-lender is a program Congress sanctioned that allows private lenders like Sallie Mae to pay universities money to help administer the Sallie Mae loans; in turn universities steer their students to Sallie Mae.

"Are you saying the colleges are fronting in a way, then, for the Sallie Mae types?" Stahl asks Dannenberg.

"A number of them are through the school-as-lender program. And they make a pretty penny on it," he says.