"What do you call it?" Stahl asks.
"Frankly, it's a socialist-like system," he says. "It's not as if this private entity is assuming any risks. No, no, no. The law makes sure that this so-called private entity has virtually no risk."
On top of that, Sallie Mae also owns some of the biggest collection agencies in the country. Once a student borrower goes into default, the government pays Sallie Mae all the principle and compounded interest that have accrued.
The loan then passes into the collection phase. If Sallie Mae is the collector, it gets to keep up to 25 percent of whatever is recovered. In 2005, nearly a fifth of its revenue came from its collection business.
"Sallie Mae makes money if you pay back on time. And Sallie Mae makes money if you don't pay back on time," says Elizabeth Warren, a professor of bankruptcy law at Harvard Law School.
Warren says it's a mistake to allow Sallie Mae to be both a lender and a collector.
"It shouldn't be the case that Sallie Mae gets to play every hand at the poker table while the government is the one that keeps anteing up the money," Warren tells Stahl. "But let's be clear. That by itself isn't enough. We have to decide collectively as a country: do we want to encourage the young people who are trying to get college diplomas? And if the answer to that is yes, the way to encourage them is not to double and triple the amount that they owe when they get into financial troubles."
By law, private lenders must offer payment options, but that usually means the loans just balloon. So even though 95 percent do pay up over time, many are burdened with heavy debt. In a statement, Sallie Mae told 60 Minutes it makes far more money from those who pay on time, than from those who default, like Alan Collinge.
"If you can't afford the payments why don't you go out and just get a better-paying job? You have the education. You have the wherewithal," Stahl asks Collinge.
"I'm seeking a better-paying job. Believe me, I would love nothing more than to make enough money to be able to pay this debt. I would like nothing more," he replies.
Sallie Mae says Collinge could have tried a lot harder to pay. He works at a non-profit and recently got a second job as a technical writer.
"Are you depressed? Has that kind of stymied you from being more aggressive?" Stahl asks.
"Yeah, I mean, it really does affect — it does affect your self-esteem," says Collinge. "I mean, there's a certain shame involved. And when you have to dance around the question about creditworthiness, you know, everywhere you go, it really takes its toll,"
In a horrible Catch-22, he says his credit troubles with Sallie Mae mean he can't get a job as an aerospace engineer.
"It would be very tough for me to get anything but the lowest level of security clearance with my credit record destroyed, as it is," Collinge says.