The Sallie Mae Fund – Serving Charity or Promoting Business?

February 20, 2009

By Jim Ross:

At a time when student loan defaults are at an all-time high, and the benefits of higher education are consistently exaggerated, Sallie Mae, the country’s largest student lender, is using its own “charitable foundation” to promote itself, urge teenagers to attend college and, until recently, help them fill out the financial aid paperwork needed for government loans. Last year, Sallie Mae earned $2.5 billion in income from federal loans.

For five years, The Sallie Mae Fund, Inc. – a non-profit arm of lender Sallie Mae’s corporate family – rolled into towns across America in an eye-catching, high-tech bus packed with motivational speakers who urged low-income and minority students to go to college.

After presentations of up to 90 minutes, teenagers were invited to board the bus where they could  “begin the federal financial aid application process at one of four, Web-enabled workstations.” As one speaker captured in a 2006 bus tour video explained it: teenagers must fill out an application or the college’s financial aid office wouldn’t know they exist.

At separate workshops, “volunteers” from Sallie Mae (the lender, not the charitable company) helped youngsters and their parents fill out financial aid applications, the first step in obtaining the government loans.

The bus and the free handouts were stamped with the Fund’s trademarked four-word logo, which features an oversized version of the student lender’s familiar brand name, Sallie Mae.

But according to the Sallie Mae Fund, the programs aren’t designed to drive business to Sallie Mae, nor to promote brand awareness for the lender. So said Erin Korsvall, who serves both as a vice president of the non-profit Fund and as director of community outreach at for-profit Sallie Mae Inc.

The Fund encourages young people to set their sights on college and shows them how to reach their goal, she said. It uses its name to identify events it sponsors and publications it produces, she added. “Every foundation uses its name,” Korsvall said. “It’s common practice.”

Volunteers from the student lender, she added, simply were helping young people and their parents fill out financial aid forms at workshops promoted by the non-profit charity. Other volunteers also helped, she said, including present and former college student aid advisors.

“They are very, very carefully trained to not mention Sallie Mae and not to talk about specific loan products,” Korsvall said. “It is completely objective and non-biased.”

These programs are paid for with millions of dollars in charitable donations that provide the for-profit lending company with tax breaks of up to 50 percent.  Public tax filings paint a sketchy picture of Sallie Mae’s charitable donations and expenditures. For more details, read “MAKING CHARITY PAY“.

The arrangements provide a glimpse into the secretive world of charitable giving and spending directed by donors and subsidized by taxpayers through loosely regulated donor-advised charitable funds like the one created and used by the Sallie Mae corporate family.

Last month, the IRS concluded some donor-advised funds “appear to be established for the purpose of generating questionable charitable deductions, and providing impermissible economic benefits to donors and their families … and management fees for promoters.” For more details, read “BIGGER TAX BREAKS, FEWER STRINGS, MORE ABUSE.”

“It’s all a mystery with the current regulations or the lack thereof,” said Niki Jagpal, the research director of the National Committee for Responsive Philanthropy, a watchdog group. “The bottom line is who’s benefiting.  This shouldn’t be a mystery. It should be transparent. What is the public good?”

Korsvall said Sallie Mae’s arrangements are simply the most cost efficient way to meet the philanthropic need. The program, she said, is designed to provide college awareness, not drive borrowers to Sallie Mae or bolster its brand.  

The amount actually contributed by the Sallie Mae corporate family and how it is spent can’t be accurately determined because the loose federal regulations don’t require the donor or the charities themselves to make detailed public disclosure.

The Fund’s public filings disclose about $14 million in contributions and spending. But it claims in press releases that it spent $125 million on grants, scholarships and college access programs since 2001. Korsvall said the donor-advised fund — called the Sallie Mae Fund — pays for the scholarships, grants and other programs directed by the private foundation, The Sallie Mae Fund, Inc.

When asked by the Consumer Warning Network for a detailed listing of donations, contributions and spending recommendations, Korsvall responded: “We don’t typically publish the list.” She referred further questions to the donor-advised fund that she says her private foundation directs. Korsvall said she would consider producing a detailed listing, but none was forthcoming.

Like Korsvall, many of the staff directing the Fund’s non-profit activities also work for either Sallie Mae Inc.,  or Sallie Mae’s corporate parent SLM Corporation. Over the years, the private foundation’s directors have included top officers of SLM Corporation as well as executives of Sallie Mae Inc., the for-profit management and marketing arm. For more details, read “SALLIE MAE FUND/SLM CONNECTIONS.”

The stated mission of The Sallie Mae Fund is to increase access to higher education for low-income and minority students.  At workshops across the country, it tells parents and their children how to pay and plan for college. From 2002 through 2007, it spent $3.4 million on these coast-to-coast bus tours where it awarded individual scholarships of up to $1,000 at each stop, $2.9 million more on “paying for college” workshops, and $1.6 million on educational materials, which include brochures and directors of scholarships.

The Fund gets the word out with the help of advertising agencies, including at least one that lists Sallie Mae as a client and paid colleges to provide speakers.

Another ad agency paid by the Fund also represents “2Futuro,” a  bilingual college-financing and outreach program for post-secondary education set up by Sallie Mae and its frequent contractor USA Funds. 2Futuro boasts that it is the only national program for borrowers to apply for loans online in Spanish or English.

Major scholarship programs are administered by its non-profit partners, which select recipients. Some of its other programs are offered in conjunction with the government and the media. The Fund doesn’t accept unsolicited grant applications.

Although its partners administer the scholarship programs, Korsvall said the private foundation, the Sallie Mae Fund Inc., determines the criteria used to “shape” and award them. The private foundation then “recommends” that the donor-advised fund, the Sallie Mae Fund, pay for the program, she said.

Korsvall said the recommendations were followed without exception. It is, she emphasized, a cost effective way to manage community giving.

“They aren’t necessarily breaking the law. The question is who is benefiting,” said Jagpal, the research director of the watchdog group. “What is the purpose? Is the public interest being met? If that’s all it’s doing I think there are serious questions. “