Sallie Mae (SLM.N) posted a quarterly profit trumping analysts’ expectations, but the largest U.S. student loan provider said it will cut 2,500 jobs as the company was forced to restructure its operations. Congress recently approved a bill to end the 45-year-old Federal Family Education Loan Program (FFELP), which has supported private student lending with federal subsidies.
As a result, the company lost a key business, and had to realign its business model completely, making massive job cuts inevitable.
"Ironically, one quarter before the government takes over loan originations, Sallie Mae broke its own FFELP origination record," Chief Executive Albert Lord said in a statement.
The FFELP consisted of private lender student loans and was guaranteed by the federal government.
Sallie Mae originated $7.7 billion in federal student loans for the first quarter, an increase of 16 percent from a year ago.
For the first quarter, the company earned $221.5 million, or 46 cents a share, compared with a loss of $47.8 million, or 10 cents a share, a year earlier.
The company, which trades under the formal name of SLM Corp, earned 39 cents a share, excluding items.
Analysts were looking for a profit of 29 cents a share, according to Thomson Reuters I/B/E/S.
The student loan industry was in disarray for a couple of years, as secured and unsecured markets have at various times been closed to non-bank lenders.
Sallie Mae suffered last year because its assets generate interest based on commercial paper rates, while its liabilities are linked to the London Interbank Offered Rate, or Libor. The shrinking gap between those rates trimmed its net interest margins.
Shares of the Virginia-based company were up 4 percent at $13.70 after the bell. The stock closed at $13.12 Wednesday on the New York Stock Exchange.
Reporting by Anurag Kotoky in Bangalore; Editing by Anil D’Silva, Unnikrishnan Nair