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.
February 26, 2009; 1:26 PM ET
Categories: The Ticker | Tags: Obama, Sallie Mae, budget
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