Sallie Mae remains in federal student loan program

May 21, 2008 @ Financial Aid Podcast Daily Free Internet Radio On Demand from financialaidpodcast@gmail.com (Christopher S. Penn )

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After some debate over the last few days, Sallie Mae (ticker: SLM) will remain in the federal student loan program and will continue to offer federal student loans. CEO Al Lord calls the economics of the current legislation “barely okay” and President C.E. Andrews asked on the call for borrowers to petition Congress to let Sallie Mae keep their servicing business intact by allowing originating lenders to service loans sold to the Department of Education, as servicing is still a profitable business.

Sallie Mae announced on their call that they will remain in federal student lending until June 30, 2009, at which time they’ll re-evaluate.

As a quick review, the Department of Education announced they would purchase loans from federal student loan lenders for 1% of the balance referral fee, par value, and a $75 servicing fee per loan. Once sold, the Department of Education takes over the loan and services it.

What does this mean for you? Believe it or not, we’re actually cheering for our competitor, because they represent such a large percentage of the student loan business that their withdrawal would have caused substantial harm to the industry as a whole. We certainly are eager to help as many students as possible, but there’s no way a company like the Student Loan Network could fully pick up all the slack from a megalith like Sallie Mae departing the industry.

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