Managerial Economics - Agency Conflict within Sallie Mae/Freddie Mac - Essay Example

Various schools and universities have financing aid officials that assist students in finding the right financing plan, that is, objective financial aid advice for their cases. This depends on the terms and the amount of money they are going to borrow. Some of these financial aid officials of various universities are sitting on Sallie Mae’s advisory board. These frequently close and hidden relationships between the schools and universities financial aid officials and Sallie Mae, or other lenders, of course create a tendency for these people to further the lenders’ and their own interests instead of the interest of the students.

Thus, the agency conflict arises. This sort of agency conflict arises in the student loan industry when financial aid officials receive stock ownership and other gifts from a lender. Holding an interest in the company that gives loans to students, there is a tendency for these officials of schools and universities to put these companies into the ‘preferred lender’ lists in their schools. This act serves their interests and the lenders in which they own a part. As for the students, their right for an objective information regarding financing aid advice is compromised, their interests not served as they sometimes end up getting loans from lenders that do not meet their needs and requirements as regards the terms of payments and the level of interest rates.

Aside from financial aid officials holding interests in Sallie Mae, the student loan company operates a call center for the use of certain universities, where the company employees serve as some school staff to answer the inquiries of students. As Sallie Mae employees serve as school staff to answer the inquiries of students regarding financing aid, there is a greater tendency for them to present the information to the advantage of Sallie Mae, thus objective information on the part of the students are not presented.

With Sallie Mae providing services to schools