Sallie Mae Chief Warns Of Train Wreck In Student Loan Market
Thursday, 17. April 2008, 22:42:24
I ... Kevin Drawbaugh of Reuterswrites that Sallie Mae (SLM), the largest U.S. student loan company, on Thursday April 17, 2008 affirmed its 2008 profit forecast, but warned of a "train wreck" in the $85 billion school education financing market without urgent government intervention.
Federalization of stuent loans called for: the legislation pending in Congress would let the Department of Education buy federally guaranteed student loans from lenders unable to sell them on the secondary market, where investors have retreated from securitized debt.
The bill would also let the department funnel capital to colleges through state guaranty agencies and call on federal financial institutions, including the Federal Financing Bank, to pump liquidity into the student loan market.
Loan demand at Sallie was running at $3 billion a month, while the company has only been able to access funding of about $1 billion a month -- at record-setting costs.
Sallie Mae Chief Financial Officer Jack Remondi said on the call: "Although we are awaiting a potential resolution of this issue from Washington, I want to be perfectly clear. We will not do business that jeopardizes the company's liquidity position or franchise value."
SLM's competitors include FMD, and the much financially stronger NNI and STU. Other financial companies include mortgage guarantors, FGIC, MBIA, PMI; and auto lender ACF and commercial lender CIT.
II ... March Gordon writesThe entire student loan industry has been under pressure in recent months. Rising delinquencies last year applied the initial strain. The global credit crunch triggered by the collapse of high-risk mortgages aggravated the situation. And student-loan legislation that took effect in October cut about $20 billion in federal subsidies to lenders.
The latest squeeze on student lending is tied to trouble in the $330 billion market for auction-rate securities, about $80 billion of which is made up of bundles of student loans. Since some of these investments are backed by troubled bond insurers, investors have been particularly reluctant to buy these securities, straining the student lenders that sell them to raise cash.
"The potential for crisis occurs when the well-capitalized lenders and the banks cannot absorb all that (loan) volume," said Ben Kiser, a spokesman for Lincoln, Neb.-based Nelnet.
As the distress in the auction-securities market deepened last week, Michigan said it was temporarily suspending one of its college loan programs, and Montana's student-loan agency tried unsuccessfully to sell $300 million in bonds.
As the market for college loans soared to $85 billion annually, so did the number of specialized lending companies wanting a piece of it. Faced with new, unwelcome dynamics, these specialized lenders are scaling back.
College Loan said recently it will depart the federal student-loan business, falling back on its private-loan operations. Nelnet stopped making consolidation loans, which student borrowers use to combine their federal loans to secure a fixed interest rate and lower monthly payments.
III ... Alan Zibel April 18 of the Assoicted Press writes that "Sallie Mae says it cannot write money-losing student loans indefinitely. Top executives are holding 'daily deliberations' about just how long the nation's largest student lender can afford to sacrifice its bottom line for the sake of college-bound Americans, Sallie Mae CEO Albert J. Lord said... Experts said that, unless the government intervenes or market conditions rapidly improve, Sallie Mae could have no choice but to stop writing new federally backed loans... Even though the majority of student loans are highly rated and carry a federal guarantee, investor demand for securities backed by these assets has plummeted -- a sign of just how nervous investors are about securities backed by mortgages, student loans and other debt."
Federalization of stuent loans called for: the legislation pending in Congress would let the Department of Education buy federally guaranteed student loans from lenders unable to sell them on the secondary market, where investors have retreated from securitized debt.
The bill would also let the department funnel capital to colleges through state guaranty agencies and call on federal financial institutions, including the Federal Financing Bank, to pump liquidity into the student loan market.
Loan demand at Sallie was running at $3 billion a month, while the company has only been able to access funding of about $1 billion a month -- at record-setting costs.
Sallie Mae Chief Financial Officer Jack Remondi said on the call: "Although we are awaiting a potential resolution of this issue from Washington, I want to be perfectly clear. We will not do business that jeopardizes the company's liquidity position or franchise value."
SLM's competitors include FMD, and the much financially stronger NNI and STU. Other financial companies include mortgage guarantors, FGIC, MBIA, PMI; and auto lender ACF and commercial lender CIT.
II ... March Gordon writesThe entire student loan industry has been under pressure in recent months. Rising delinquencies last year applied the initial strain. The global credit crunch triggered by the collapse of high-risk mortgages aggravated the situation. And student-loan legislation that took effect in October cut about $20 billion in federal subsidies to lenders.
The latest squeeze on student lending is tied to trouble in the $330 billion market for auction-rate securities, about $80 billion of which is made up of bundles of student loans. Since some of these investments are backed by troubled bond insurers, investors have been particularly reluctant to buy these securities, straining the student lenders that sell them to raise cash.
"The potential for crisis occurs when the well-capitalized lenders and the banks cannot absorb all that (loan) volume," said Ben Kiser, a spokesman for Lincoln, Neb.-based Nelnet.
As the distress in the auction-securities market deepened last week, Michigan said it was temporarily suspending one of its college loan programs, and Montana's student-loan agency tried unsuccessfully to sell $300 million in bonds.
As the market for college loans soared to $85 billion annually, so did the number of specialized lending companies wanting a piece of it. Faced with new, unwelcome dynamics, these specialized lenders are scaling back.
College Loan said recently it will depart the federal student-loan business, falling back on its private-loan operations. Nelnet stopped making consolidation loans, which student borrowers use to combine their federal loans to secure a fixed interest rate and lower monthly payments.
III ... Alan Zibel April 18 of the Assoicted Press writes that "Sallie Mae says it cannot write money-losing student loans indefinitely. Top executives are holding 'daily deliberations' about just how long the nation's largest student lender can afford to sacrifice its bottom line for the sake of college-bound Americans, Sallie Mae CEO Albert J. Lord said... Experts said that, unless the government intervenes or market conditions rapidly improve, Sallie Mae could have no choice but to stop writing new federally backed loans... Even though the majority of student loans are highly rated and carry a federal guarantee, investor demand for securities backed by these assets has plummeted -- a sign of just how nervous investors are about securities backed by mortgages, student loans and other debt."
