The Capital Markets and Government Sponsored Enterprises Subcommittee of House FinServ has announced an April 24 hearing on the title called Sallie Mae’s “successful” privatization. We didn’t remember it that way, perhaps because our clients back then in the student-loan business were forced to bid a hasty retreat once Sallie Mae was simultaneously loosed from its rules and retained GSE-funding advantages during a critical transition period. And, given Sallie’s dominance now in student finance, we weren’t sure the saga was the hoped-for precedent in which thousands of privately-capitalized flowers bloom when a GSE rolls off the field. A review of Sallie’s history and resulting market developments shows that a user fee did spark privatization – perhaps the major point contemplated by Congress. But if the privatization is not carefully constructed, all sorts of unintended consequences ensue.

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