Sallie Mae Reports Narrower 1st-Quarter Loss

Sallie Mae, the nation’s largest student lender, reported a first-quarter loss of $21.1 million yesterday as it continued to struggle through the credit crunch and a deep recession.

Sallie, formally known as SLM Corp., makes both private student loans and those that are backed by the federal government. The Reston company then pools the loans into securities and sells them to investors — a model that has been thrown into disarray as lending sources have dried up and fewer investors are willing to buy.

The Obama administration also recently proposed sweeping changes to the decades-old approach of providing federal subsidies to private loan companies such as Sallie.

Sallie Mae’s first-quarter loss of $21.1 million (10 cents a share) compared with a loss of $103.9 million (28 cents) in the first quarter of 2008.

Most of the company’s federal student loan portfolio earns interest at rates set by the Education Department that closely follow the rates for the commercial paper market. The government has tried to stabilize that market in recent months, driving those rates lower. Those moves cost Sallie $179 million in interest income, the company said.

"Ironically, positive action taken by the federal government to stabilize the commercial paper markets is adversely impacting student loans and student-loan backed securities," Albert L. Lord, chief executive of the company, said in a statement.

The administration’s proposal would effectively eliminate the Federal Family Education Loan program, which subsidizes lenders such as Sallie, and would expand another program that involves the Education Department lending directly to students. The administration estimates that the changes could save $94 billion, which it would then use for grants to needy students. Sallie has proposed a hybrid approach.

"The big elephant in the room here is, ultimately, what will the new administration do?" said Matthew J. Snowling, an analyst with FBR Capital Markets. "Will it be successful in basically putting an end to the FFEL program?"


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