Sallie Mae Will Make Fewer Student Loans In 2008

Student loan lender Sallie Mae said today it plans on making fewer loans in the future “in the wake of federal legislation last year to reduce subsidies for student lenders,” reports Reuters.

It said the College Cost Reduction and Access Act of 2007 “could possibly eliminate the profitability of new FFELP (Federal Family Education Loan Program) loan originations, while increasing our risk sharing from our FFELP loan portfolio.”

News Long Island writes that things aren’t looking good for the company in the coming months—although we’d wager the news is bad for students seeking financial aid, too.

The year 2008 looks much bleaker for Sallie May after its earnings forecast was lowered by more than 13 percent. That is a huge cut in earnings and the blame goes to a new law in effect which requires subsidies of the federal government to have more cash on hand to counterbalance defaulted loans.

Stock prices had already been falling since last July, so the cut in the forecasted earnings did nothing to help this student loan company. The falling prices initially began when a buyout of $25 million worth of stock fell through last July.

“U.S. student lender Sallie Mae plans loan cuts” [Reuters]
“Sallie May Financial Future: Uncertain” [News Long Island]
(Photo: Getty)

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  1. krunk4ever says:

    not sure if the typo was intentional, but it seems that the article used Sallie May instead of Sallie Mae.

  2. femmesavante says:

    Ditto

  3. Chris Walters says:

    @krunk4ever and @femmesavante: Sadly, my typos are never intentional…

  4. SlappyFrog says:

    So does anyone else see a problem with a company’s business model when they can only provide services when there is a government subsidy?

  5. timmus says:

    Of course a sizable chunk of Sallie Mae’s earnings have been diverted into executive compensation packages… a former CEO cashed in his holdings for $224.9 million last month, and his successor took away well over $60 million in earnings during his reign.

  6. HaloZero says:

    If your a company that relies on subsidies, and your not researching something, your probably not a good company.

  7. krunk4ever says:

    @HaloZero: Tell that to the corn and other farming businesses. ;p

  8. poodlepoodle says:

    I see this as a good thing. I think one of the reasons for the run up in college costs has been the ready availability of these loans.

  9. chrisgeleven says:

    I cannot stand Sallie Mae. One of my loans is with them and it is an adjustable rate student loan. Right now the interest is at 7.25% and was as high as 8.50% before the recent interest rate drops.

    Safe to say I will work hard to pay off this loan quickly.

  10. deb35802 says:

    To ChrisGeleven: Do a search on student loan horror stories and you will find just how bad they are.

  11. barty says:

    @poodlepoodle: Same here. I wouldn’t be surprised if many administrators in their back room meetings say, “oh, we can raise this fee or tuition, students always can take out more loans!!” Sad part about it was, the couple of times my school raised tuition on us while I was in college, their constant reasoning was that the pay levels for the higher end administration wasn’t high enough to attract “world class” administrators. Sorry, its not the administrators that are teaching the courses. Besides, they could probably get all the money they wanted to off of the obscene markups on books at the bookstore.

    @chrisgeleven: Nobody put a gun to your head to take out the loan, now did they? The student finance office is convenient, but there are other entities out there that will write student loans. FYI, almost ALL student loans at inception are adjustable rate. You have to “consolidate” them to a fixed rate usually.

  12. Scuba Steve says:

    We really need to figure out an alternative to providing subsidies for companies who are only getting them so they won’t screw the country over with bad behavior.

  13. Lucas1971 says:

    One reason Sallie Mae can consider issuing fewer government-subsidized FFELP loans (a low-margin, low-risk business that favors large companies that can squeeze out a profit from the volume of loans), is that they can focus on marketing more lucrative private student loans.

    And talk about unintended consequences: As the FFELP market becomes less profitable, it’ll drive out smaller lenders, leaving large lenders like Sallie Mae to survive and sweep up the share of the subsidized loan market.

    In the end, college students facing rising college costs take on high-interest private loans to make the difference that cheaper FFELP loans don’t cover. It’s a horrible catch-22, especially as students are responsible for paying back those loans regardless of whether they graduate or get a good job.

  14. nuton2wheels says:

    Hate to say it from experience, but a college “education” isn’t much of an investment these days, thanks to the faltering economy and lackluster job market.

  15. mac-phisto says:

    @Lucas1971: oh, i don’t know that i’d call it “unintended”.

    a sallie mae backroom, somewhere in america:

    Look at them, Smithers. Goldbrickers…. Layabouts…. Slug-a-beds! Little do they realise their days of suckling at my teat are numbered.

  16. Lawk Salih says:

    As of investing in the youth was a bad investment strategy. What’s happening to America? Should we start applying for schools overseas, perhaps India or China?

  17. smh says:

    You can get a Masters degree at Beijing University for about $10K. There’s a number of courses taught in English. It’s a great investment at one of the best schools in Asia. You’ll also be fairly proficient in Mandarin by the time you’re done with your studies. A degree from there in addition to language skills will be VERY marketable.

    Or you can just take free classes online from MIT:
    [ocw.mit.edu]

  18. barty says:

    @nuton2wheels: It still gets you more call backs and interviews than NOT having a degree. Assuming of course that you have a degree in a useful field. A liberal arts degree isn’t likely to get you anywhere these days, except maybe a teaching job at the same university.