Sallie Mae Cuts 1,000 Jobs; Posts Quarterly Loss

By David Hilzenrath

Sallie Mae, the nation's largest student loan company, has eliminated about 1,000 jobs over the past six months representing about 9 percent of its workforce, the company said yesterday.

The layoffs are part of Sallie Mae's continuing effort to cope with cuts in federal subsidies, the collapse of a planned sale of the company, and an upheaval in the financial markets that has made it costlier for lenders to fund their business.

"Under current conditions ..... loans can only be made at an economic loss," the company said in a news release announcing its financial results for the first three months of 2008.

The Reston-based lender said in January that it was laying off 350 employees as it embarked on an effort to cut operating expenses by 20 percent. In yesterday's report, Sallie Mae said it was "still in the preliminary phase of assessing all potential restructuring activities."

SLM Corp., as it is formally known, said it lost $103.8 million (28 cents per share) during the first quarter, compared with a profit of $116.2 million (26 cents) during the first quarter of 2007. The quarterly loss was driven largely by $363 million of unrealized losses on derivatives, which are financial contracts used to hedge against risk.

As a bellwether of how well consumers are managing their debt, Sallie Mae's quarterly report contained mixed signs.

By various measures, delinquency rates improved on those Sallie Mae loans that are not federally subsidized. As a percentage of its private loans that borrowers are supposed be repaying, delinquencies fell to 7.4 percent as of March 31 from 8.3 percent at the end of last year, Sallie Mae reported.

However, the percentage of private loans in a status called "forbearance" rose to 16.4 percent as of March 31 from 13.9 percent as of Dec. 31. When borrowers put their loans in forbearance, they temporarily suspend making payments but must pay more over the long run.

The company put aside $137.3 million during the first quarter to cover actual and expected losses on outstanding loans, which was less severe than the $574.2 million of loan losses the company identified during the fourth quarter of last year and the $150.3 million it set aside during the first quarter of last year.

Historically, Sallie Mae and other student loan companies have raised money by packaging loans into securities and selling them to investors. But investors have grown wary of such securities, much as they have lost their appetite for those backed by mortgages.

Last week, Sallie Mae announced it was no longer offering refinancings that borrowers use to consolidate multiple student loans at a single interest rate. Yesterday, Student Loan Corp., a subsidiary of Citibank, said it too was getting out of the business of consolidating federally backed student loans, joining a wave of other lenders.

In a report issued yesterday before Sallie Mae's earnings announcement, Morgan Stanley analysts Kenneth A. Posner and Andy Bernard warned that a recession could lead to higher loan losses. Meanwhile, leading Democrats have long favored having the government issue student loans directly rather than subsidizing private lenders such as Sallie Mae, the analysts wrote.

By Dan Beyers  |  April 16, 2008; 7:30 PM ET  | Category:  Sallie Mae
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I hope every one of those call center drones loses their home. They can go sleep on the grass at SLM Corp. CEO Albert L. Lord's $30 million, private golf course, Anne Arundel Manor. While there, they might run into members of Congress like Boehner, Enzi, Rick Keller, and Tom Reynolds -- all of whom benefit tremendously by their associations with the student debt industry.

The only way, other than a national initiative for expanding outright grants to college students, is the Direct Loan program, which even THE BUSH WHITE HOUSE BUDGET OFFICE admits is several times more efficient than the needless 3rd party middlemen like SLM Corp, Nelnet, etc.

Posted by: JP Paskowitz | April 16, 2008 8:41 PM

Are they bitter?

Posted by: grunk | April 16, 2008 8:57 PM

Did Sallie Mae begin the 1000 job cuts AT THE TOP???

Posted by: Chris | April 16, 2008 9:32 PM

I really hope that the "Call Center Drones" don't lose their homes. How is this their fault? I am sure that you work in an industry that perhaps Sallie Mae helped you achieve by loaning you your much needed tuition and or "acceptable college related expenses". The drones you speak of go to work and listen and assist borrowers, parents, financial aid officers, and student achieve their dreams. I know that sounds cheesy, but these drones are doing their job, supporting their families. Without the drones, would students all over the world be able to go to school and achieve whatever their dreams may be. I am sorry that you are bitter, maybe you chose the wrong career.. Have no fear, call a call center drone, we may just be able to provide you with a college loan to fund whatever career or degree you choose. Ever thought of diplomatic relations?

Posted by: Call Center Drone | April 16, 2008 9:48 PM

I owe around 170,000 and I will most likely die before they get it all back, so I am leaving this country,,lmao

Posted by: notme | April 16, 2008 10:38 PM

Well I guess the loss of all my up front benefits and now the back end benefits is not enough.

Now I have to find a new lender and make multiple payments too. This whole mess was for the student and in the end the politics have hurt more students then the pell grant increases are helping. You forget the majority of middle income students do not quailfy for much pell if any. Tell me Bitter man how has the College Cost Reducation Act helped me and my family pay for my education? And yes the interest rate reductions only apply to the small group of low income people who quailfy for a subsidized loan. I still get the higher unsub rate.

Thanks for nothing.

Posted by: Borrower | April 17, 2008 9:08 AM

Is it just me, or is the cost of attending a college for one semester seem at bit, well.. more of like a raping. $17,000 per semester is a little much- especially when the school your child is attending has no interest in post-graduate job placement. So, what happens to the student who is doing well, both parents work, living paycheck to paycheck. Where is the relief for the student who does go to class, eat ramen noodles, and generally knows that without a viable degree, his future may not be what he would like it to be. How can we blame Sallie Mae for the shortfalls of the colleges and universities blinded by the almighty dollar? It's like buying a car- You want this car really bad.. you apply for a loan, you get the loan, get the car and then you don't like the car or can't afford the gas. Do you go after the lender for bad business practices, or simply blame yourself. Sallie Mae provides a service to the millions of students that everyday apply for loans.

Posted by: Job Placement | April 17, 2008 11:48 PM

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