Members of Pennsylvania's House Appropriations Committee questioned Sallie Mae's vice president yesterday about the company's $1 billion proposal to control the Pennsylvania Higher Education Assistance Agency's (PHEAA) loan portfolio.

State representatives expressed concerns if competition would exist between loan lenders in Pennsylvania if the two organizations merge. There was also concern if Sallie Mae could guarantee job preservation for PHEAA's employees.

June McCormack, executive vice president for Sallie Mae, said merging PHEAA with Sallie Mae would create a market for other lenders in the state, such as Citibank.

Rep. Stanley Saylor, R-York, said he did not understand why Sallie Mae could not enter the market on its own.

McCormack added that she was told stories of PHEAA auditing Pennsylvania schools that did not use PHEAA as a primary loan lender. Rep. Thomas Tangretti, D-Westmoreland, asked McCormack if she had concrete proof.

"You can't come before this committee and people of Pennsylvania and make this charge without documentation," he said.

McCormack said if Sallie Mae's proposal is accepted, about 2,000 PHEAA employees would transfer to Sallie Mae. "We would control most of PHEAA's operations," she said.

Rep. Don Walko, D-Allegheny, said when Sallie Mae merged with USA Group, another loan lender, 300 jobs were lost. McCormack said this was due to the contract with USA Group, which did not state that jobs would not be eliminated. But Sallie Mae's proposal with PHEAA would keep PHEAA's employment at its current or a higher rate, McCormack said.

Even though McCormack emphasized that PHEAA could decide to opt out of the five-year proposal at any time, Saylor said he questioned the long-term effect the proposal could have on PHEAA. "What are we supposed to do, if after five years, 90 percent of PHEAA's employees are gone and there's no PHEAA left?" he said.

Majority Secretary Douglas Reichley, R-Berks and Lehigh, said Sallie Mae's proposal has stimulated PHEAA to provide more options in loans and grants for students.

Walko said the only reason the sale is being considered is because the proposal is for $1 billion.

Rep. Steve Barrar, R-Delaware and Chester, said he did not understand how Sallie Mae could invest a $1 billion in PHEAA without cutting jobs and reducing benefits.

"In the future, they'll have to outsource and cut jobs. Their shareholders will demand a sizeable payment from them," he said.

Myers said McCormack's testimony did not sway his position against the sale of PHEAA.

"It will take much more money than $1 billion to sell PHEAA. It's like offering a man $100,000 for his $15 billion house," he said.

However, Sallie Mae representatives said they were happy with the results of the meeting.