Mega Monster Student Loan Provider To Cut 2500 Jobs Rather Than Reduce Bank’s Profit Margin
Powerhouse student loan provider Sallie Mae says layoffs are imminent as a result of President Obama’s new student loan overhaul.
“This legislation will force Sallie Mae to reduce our 8,600-person workforce by 2,500,” Conwey Casillas, Vice President of Sallie Mae Public Affairs, said in a statement to Fox News.
Obama was at Northern Virginia Community College in Alexandria on Tuesday to sign the student loan changes into law. The new bill includes a provision for the government to begin directly lending to students, bypassing financial institutions like Sallie May that traditionally have provided the loans. Obama said that such institutions have soaked up billions in subsidies.
“Now, it probably won’t surprise you to learn that the big banks and financial institutions hired a army of lobbyists to protect the status quo,” Obama said. “In fact, Sallie Mae, America’s biggest student lender, spent more than $3 million on lobbying last year alone.”
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Sallie Mae Blames 2,500 Layoffs on Obama’s Student Loan Overhaul
“Rather Than Reduce Bank’s Profit Margin”
80% of Sallie Mae’s business *was* student loans. They just lost 80% of their business. There’s no reduction of profit margin that will cover for that.
Does nobody mention that Sallie Mae was originally a government-entitled private bank set up specifically to manage education loans?
“soaked up billions in subsidies”
They were FFELP providers. Federally Funded Education Loan Progam. Loans like the Subsidized Stafford loans. SUBSIDIZED Stafford loan. The whole existence of the FFELP was to guarantee and SUBSIDIZE student loans.
Amazing how the government and press can make an institution sound “evil” for doing precisely what it was chartered for in the first place… and chartered by the government at that.
Watch for failures next at: Student Loan Corporation.
Watch for awful decline at: BoA, JPMorgan. Both have several billion in FFELP assets that just went *poof*.
And in the grand scheme of things, Sallie Mae spent $3mil to lobby and try to protect more than $65 BILLION in assets… that are now simply going away.
“The new bill includes a provision for the government to begin directly lending to students, bypassing financial institutions like Sallie May that traditionally have provided the loans.”
That’s… *sigh*. As much as I hate to use the term, but those are weasel words. I read the reconciliation bill. The inclusion was very simply written and very plain. Eliminate FFELP, expand FDSLP (federal direct student loan program). Sallie Mae providing FFELP loans wasn’t “tradition” it was it’s original purpose.
Any institution that held student loans as an asset in an amount larger than the largest survivable amount of loss is quite simply about to fail, fall over flat, dead as a doornail, all employees out on the street goodbye. What’s going to happen to the economy when the aftereffects take hold? Tens or possibly hundreds of thousands of newly unemployed drawing from unemployment and not contributing taxes, the flood on the market of their mortgages and debts as they start to default, the loss of tax income from the banks themselves, the redistribution and ‘fire sale’ of other held assets from the institutions…
You don’t just yank a multi-hundred-billion dollar carpet out from underneath an industry and expect to get away clean.
It is an institution whose CEO’s compensation for 2008 ALONE would have paid the wages of somewhere in the neighborhood of 350 of those employees.
Sallie Mae should never have been allowed to become what it has… given what it was originally set in place for.
And yes, those loans are currently about 80% of the lender’s business. I have a hard time, however, seeing that the organization won’t find a way to move their business into other markets. A lending agency the size of Sallie May is not just going to go away.
It almost went away once already in 2007, but the deal for absorption fell through when the economy crapped out. The question is going to be if they can successfully shift over to servicing FDLPs and survive.
Another question is if the existing FFELPs are still guaranteed. I haven’t been able to determine that… but converting a couple billion of secured loans to unsecured isn’t going to help a bank’s credit rating. Banks have to transfer/borrow in money to refill their reserve after they’ve loaned to a third party, that credit rating is incredibly important.
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