Scenario #1 Student Loans

Sallie Mae is a publicly traded U.S. corporation that lends billions of dollars in student loans. Twenty-five percent of all student borrowers hold Sallie Mae loans. There are two types of student borrowers: (1) students who qualify for federally guaranteed loansthe students are responsible for the loan, and, if they default, the lender is guaranteed reimbursement; (2) students who do not qualify for federally guaranteed loans because they are high riskthe students are responsible for the loan, and, if they default, the lender loses the loan amount. Lenders such as Sallie Mae greatly prefer to issue federally guaranteed loans because it does not put them at financial risk. One Sallie Mae marketing strategy is to provide some loans to students who don't qualify for federally guaranteed loans as a way to build better relationships with schools. The rationale is that these schools are then more likely to direct students who do qualify for federally guaranteed loans to Sallie Mae. Even though Sallie Mae loses money on these "designed to fail" student loans, the financial losses are minimal compared with the large profits generated by the additional applications from students who do qualify for federally guaranteed loans.

Critical Thinking Questions

1.If you were a Sallie Mae loan officer, what would you do if you were directed by your boss to issue a high-risk loan to a student who, according to your calculations, has a 92 percent likelihood of default?

a.Issue the loan without highlighting the risks

b.Emphasize the negative consequences of defaulting and let the student decide

c.Refuse to issue the loan 2.Why is this the right option to choose?

3.What are the ethics underlying your decision?

Scenario #2 Executives Avoiding Arrest

Volkswagen employees created and installed emission-cheating software on about 600,000 diesel engine automobiles sold in the United States that would turn on pollution controls, required by U.S. law, only when the car was being tested for emissions. After the emission-cheating was detected, VW incurred $20 billion in fines and other cheating-related costs (as of January 2017). In addition, U.S. federal prosecutors charged six VW executives with defrauding customers and violating the Clean Air Act. One VW executive charged was arrested in Florida. The other five executives charged were in Germany. According to German law, the German government is not required to extradite its citizens to the United States.

Critical Thinking Questions

1.If you were one of the five VW executives not yet arrested, what would you do?

a.Never leave Germany so the U.S. government couldn't arrest you

b.Surrender yourself to American authorities

c.Something else (if so, what?)

2.Why is this the right option to choose?

3.What are the ethics underlying your decision?