A possible five-year contract proposal Sallie Mae has offered to the Pennsylvania Higher Education Assistance Agency (PHEAA) will increase the amount students will end up paying for their student loans, according to a PHEAA spokesman.

Keith New, a PHEAA spokesman, said any money PHEAA makes from student loans would go directly to Sallie Mae's shareholders if the contract is approved.

"We're successful because we prioritize students over shareholders. They'll have a problem doing that," New said.

Sallie Mae's officials maintain that they will give students the lowest cost loans around.

Sallie Mae CEO Albert Lord has indicated to state legislators that the company is looking to enter into the contract to create competition.

A proposal presented to legislators on Tuesday said PHEAA is a monopoly on the student loan market because it controls 80 percent of Pennsylvania's market.

"We work with about 250 colleges who are 120 percent supportive of PHEAA and we save them money each year. It would have cost the students more money if they went with Sallie Mae," New said.

According to the proposal, PHEAA allegedly made it difficult for the company to do business in the state, even "threatening" Pennsylvania colleges with a loss of state grants and/or audits.

Chatham College, a private women's college outside of Pittsburgh, received a letter last summer from PHEAA after the school's financial aid administrator considered looking at Sallie Mae for their student loans, New said. He added that the letter was sent as a precaution -- not a threat.

A Chatham College representative could not be reached for comment by press time yesterday.

The proposal also said Sallie Mae was concerned with the extent PHEAA had expanded its business into other states, which might divert funds from loans and grants.

"We do have offices in other states, but they do different things," New said, adding that PHEAA has offices in Delaware, West Virginia, Ohio, Maryland and California. These satellite offices brought in $120 million dollars for the state last fiscal year.

"The more money we can make around the country is more money that we can bring back to Pennsylvania," he said.

Sallie Mae said it would control PHEAA's loan portfolio along with the 9.5 percent tax-exempt loans that account for most of PHEAA's assets.

In exchange, Sallie Mae would pay a $500 million cash payment to the state up front, in addition to another five $100 million payments each year the contract is renewed. The contract could last up to ten years.

Lord is scheduled to present the proposal to House Appropriations Committee Chairman Brett Feese, R-Lycoming, and the executive director of appropriations next week, Feese's spokesman, Al Bowman, said.

"At this point, we're relatively neutral. We're going to go through it with a fine-toothed comb and look at PHEAA's services and impact on Pennsylvania," he said.

Bowman said PHEAA has value "above and beyond just loan provision."

Kate Philips, a spokeswoman for Gov. Ed Rendell, said she did not know if the governor reviewed the same proposal that was presented to state legislators.

"He hasn't discussed it and is still reviewing it," she said.