Sallie Mae Warns of Job Cuts

Provisions tucked inside the sweeping health care reform legislation that end federal funding for student loan companies could force SLM Corp. to cut a third of its workforce and close the majority of its locations, Reston-based Sallie Mae said.

The student financial aid lender faces the loss of fees paid by the federal government for originating student loans under the U.S. House of Representatives-passed health care bill, which would eliminate the Federal Family Education Loan Program.

That portion of the bill still requires passage by the U.S. Senate.

“The student loan provisions buried in the health care legislation intentionally eliminate private sector jobs at a time when our country can least afford to lose them,” said Sallie Mae spokeswoman Martha Holler in a statement. “We are profoundly disappointed that thousands of student loan originators will soon lose their jobs to less-experienced Washington, D.C., bureaucrats, although the Senate has the power to change this.”

Sallie Mae (NYSE: SLM) estimated that ending FFELP would force it to cut 2,500 jobs and operate in as few as five to seven locations, compared to its current 25 locations.

Sallie Mae currently has 8,600 employees.

The Congressional Budget Office has estimated $83 billion could be saved by taking over direct student lending.

Sallie Mae has said similar savings could be accomplished without the elimination of private sector jobs through reform that requires the private sector to absorb lending risks. It also argues the private sector can do a better job than the government at preventing delinquencies and defaults on student loans.

Even with the elimination of FFELP, Sallie Mae would continue to service government-backed student loans, and last year was selected as one of four servicers to participate in the U.S. Department of Education’s servicing contract.

It was servicing $19 billion in loans under that contract as of this past December.

Fitch Ratings Ltd. in February upgraded its outlook on Sallie Mae to “stable” from “negative,” even with the expectation that FFELP would go away, citing Sallie Mae’s market-leading position as a loan servicer.

WASHINGTON BUSINESS JOURNAL