Sallie Mae, the largest private funding source for student loans, is under fire both from the recession and political reforms in student lending heralded by the Obama administration.
The Reston, Va.-based firm has reported a second-quarter loss of $122.7 million after writing off $355 million in private education loans, an increase from $202 million in such write offs in the first quarter.
The losses were reported just after the firm suffered another blow. A new law that would substantially change how student loans are handled was passed by the House Committee on Education & Labor last week, setting it up for a vote by the full House in coming weeks. The bill is bitterly opposed by Sallie Mae and other private lenders but supported by President Barack Obama.
The law would turn current student lending on its head, eliminating some income that Sallie Mae would get from federal student loans, which represent about one third of the $1.8 billion company’s revenue. The impact would be moderated somewhat since Sallie Mae is one of four firms chosen last month by the U.S. Department of Education to service federal loans for the next five years.
“We have put together a proposal that saves as much money,” Company CEO Albert Lord said in a conference call with analysts. The firm is also putting together new products that make lending easier, cheaper and simpler, says Lord, claiming that the company’s plan is supported by “1,700 college aid officials.”
“We are the leading the loan industry in redesigning loans,” he says. “We think that when students and parents do the math, people will understand that this is a better product.”
Lord and CFO Jack Remondi see recessionary gloom easing. Sixty day delinquencies in paying back loans have eased from 3.2 percent in the first quarter to 2.9 percent in the second quarter, they said. “Early delinquency buckets are showing improvements,” Lord said.
Yet the company faces a big problem with the Student Aid and Fiscal Responsibility Act that is being shepherded by Democratic Congressman George Miller of California, chairman of the Committee on Education & Labor. To fight it, Sallie Mae has hired top Washington lobbyist Tony Podesta to fend off the changes.
