Washington — The nation’s largest student-loan company, Sallie Mae, said today it had lost $159-million in the most recent quarter, as lenders and their borrowers continued to struggle with the higher costs of credit amid tougher economic conditions.
The problems facing Sallie Mae include the acceleration of delinquencies on private student loans, which are issued without any government subsidy. In response, Sallie Mae officials said they had raised the amount they set aside to cover those costs, to $263-million from $102-million a year ago.
At the same time, Sallie Mae is taking steps to resolve “higher-risk accounts,” including a more aggressive use of collections efforts, said Sallie Mae’s chief financial officer, John F. Remondi, during a conference call today with analysts.
“It is a combination of efforts,” Mr. Remondi said. “On the forbearance side, for example, we are applying far more analysis to requests that we receive to make sure that borrowers are both, one, committed to serving their debt, and two, have the actual ability to benefit from a forbearance.”
A former Sallie Mae employee, in a False Claims Act lawsuit against the loan company that was recently unsealed in federal court in Indiana, alleges that Sallie Mae had been using the practice of granting forbearances to systematically balloon student-loan debts. In the system of government-guaranteed student loans, the tactic was part of a strategy to grow student debts as large as possible, increasing Sallie Mae’s profits, before taxpayers and debtors were stuck with the final bill, said the former Sallie Mae employee, Michael Zahara. —Paul Basken