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Obama's Budget Kills Sallie Mae Stocks

Shares of student lending giant Sallie Mae plunged today after the White House proposed ending federal subsidies for student lenders, The Post's Alejandro Lazo reports.

Shares for Reston-based Sallie Mae, formally known as SLM Corp., tumbled as much as 42 percent in afternoon trading on the news.

President Obama, in his preliminary budget delivered to Congress today, said that instead of paying private lenders such as Sallie Mae fees to originate loans -- an approach that “needlessly cost taxpayers billions of dollars, but has also subjected students to uncertainty because of turmoil in the financial markets,” he said -- the government would make the loans through its direct ending program.

The White House said that this approach could save the government more than $4 billion in a year.

Sallie Mae issued a statement that tried to put the best face on the situation.

"We also note that the budget proposal looks to obtain 'high-quality services for students by using competitive, private providers to service loans,' ” the company's release reads. "Sallie Mae is the largest and lowest-cost provider of student loan services, and we deliver the highest quality for students, schools and families."

“We are proud that in this economic crisis, we provided more loans to more students than ever before, and we did it using lower-cost federal funding similar to what is being proposed today,” Sallie Mae chief executive Al Lord said in the statement.

Analysts said that the proposal, if passed by Congress, could potentially end the business model of private lenders such as Sallie Mae, who since the start of the crisis have depended heavily on government assistance to make loans and on the fees it receives for making those loans.

“This could be a death blow to the industry. It’s a budget proposal and it remains to be seen whether Congress would pass it, but there are strong proponents for direct lending in the House and the Senate,” said Mark Kantrowitz, the publisher of the Web site FinAid.org.

-- Frank Ahrens
The Ticker is Twittering!

By Frank Ahrens  |  February 26, 2009; 1:26 PM ET
Categories:  The Ticker  | Tags: Obama, Sallie Mae, budget  
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Comments

I can only imagine the wheeling and dealing student lenders have made off the backs of graduates over the years. They traded our loans like kids with marbles. Must be lots of money in the margins. Time to help a generation get control of debt and cutting middle men like seems fair. I have private loans and public backed loans with Sallie Mae. I just want to take those and the ones with other lenders and have one payment at a decent interest rate. The sooner we feel that our education debt is workable than we can think about buying a car or purchase a home. That is a stimulus for the middle class!

Posted by: cpwebb | February 26, 2009 2:12 PM | Report abuse

The G.I. Bill of the World War II era sparked economic growth and expansion for a whole generation of Americans (Jim Webb, Apr08). It's true, the world was in ruin, and America sent its returning troops to school. It didn’t barter over the cost – but got them to do what was needed to better them – which then bettered America. The result was American technological and economic domination for generations. The true capital of America is the talent of our people. How can this people better themselves when the Nation conspires to hold them down with overpriced education loans. To dig ourselves out of this self generating spirl, the most important step we can take is to remove the barriers for education - let our talent blossom and they will take charge to tomorrow.

Posted by: tbroton | February 26, 2009 4:08 PM | Report abuse

this is absolutley the best thing Obama could do. he will finally put these frauds out of business. Now he has to go after First Marblehead a securitization player in student loans.

I am sure in the months ahead more will come to light about these so called not for profit ( really for profit) scams.

good for Obama. His stock went up today in my book.

Posted by: JohnAdams1 | February 26, 2009 5:24 PM | Report abuse

I'm glad Student Loans are being scrutinized.
I write about this in my Student Trucker Story because I saw so many displaced people who were basically used because they could qualify for loans, workforce vouchers, tax credits & qualify the Big Trucking companies for training subsidies.
Many of these people are misled about what they will endure as Truckers & go home disgusted, with a useless CDL & loan payments.
Recruiters & Lenders, & Government Programs have created a system where Big Trucking takes optimal advantage of these walking dollar signs to move freight.
There is a huge disparity of who gets the loan & who actually becomes a successful Truck Driver because this loan system & Workforce system has created a way for everyone involved to make commissions without regard to the Students Ultimate Success.
Therefore, it has created an illusionary "Driver Shortage" which in turn brings in more students.
Sadly, many serious Students are set up for failure because of this.
That is what I write about on Twitter & my personal Student Trucker Story on "Ask the Trucker"
Now, when there are so many displaced people & returning Veterans I know the CDL Mills have $$ signs in their eyes.
These are qualifying people, thats all they care about.
Not helping them have long-term success.
More investigation into this is needed & you will see an ugly picture of "Indentured Servitude" emerge.

Posted by: TruckerDesiree | February 27, 2009 12:26 PM | Report abuse

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