June 5, 2008

Sallie Mae Chief Acknowledges Mistake in Trying to Lend to All Students

Washington — After a difficult year, the nation’s largest student-loan company feels it needs to work even harder at withholding its services from certain students.

Albert L. Lord, the chief executive of Sallie Mae, said in an interview with The Wall Street Journal that his company’s future success depended on showing greater selectivity in issuing loans.

“I guess with 35 years of experience of saying ‘yes,’ we were just not very good at saying ‘no,’” Mr. Lord said in explaining the recent decline in Sallie Mae’s stock price.

Sallie Mae was created by the federal government in 1972 as an agency charged with ensuring that college students would have access to a steady flow of money to finance their educations. Mr. Lord led the effort to convert Sallie Mae into a private corporation in 2004. After delivering to Mr. Lord and his fellow executives hundreds of millions of dollars in salary and stock benefits, Sallie Mae has seen its share value drop by more than 60 percent over the past year.

Sallie Mae helped persuade Congress and the Bush administration last month to grant lenders new financial benefits for participating in the federally subsidized student-loan program. Yet Mr. Lord told the Journal that the federal program had not produced any profit growth for Sallie Mae for the past five years, and said it “is not our principal business anymore.”

Mr. Lord, in a May 21 conference call with college officials after the federal rescue plan was announced, said the terms were “barely” enough to keep Sallie Mae lending to “virtually” all students in the federal system, at least for one more year. He told the Journal in the interview published today that the fate of Sallie Mae’s investors “really is in the hands of our other products, principally private-student loans.”

Sallie Mae will keep writing loans outside of the government system, but will stop offering such private loans at colleges that tend to serve lower-performing students. “It was obviously a mistake” to have offered loans at such institutions, Mr. Lord told the Journal. —Paul Basken

Comments

1. “I guess with 35 years of experience of saying ‘yes,’ we were just not very good at saying ‘no,’” Mr. Lord said in explaining the recent decline in Sallie Mae’s stock price.

   Of course it’s hard to say “no” when you are a leech given permission to suck the life’s blood out of borrowers who have no consumer protection! Only an ETHICAL person would say “no” to such a deal.

   — kgotthardt    Jun 5, 03:53 PM    #

2. It is interesting to hear Mr. Lord say mistakes were made. Was it a mistake when Mr. Lord was building his private, personal 18 hole golf course in his backyard or was it a mistake when the corporation got greedy and decided that the LBO offer of $50 a share was not good enough? I find it extremely disingenuous of Mr. Lord to say that Sallie Mae was not good at saying “no.” Their business model and converting into a private corporation was all about profits and greed. Make no mistake about it, the Sallie Mae of today should not be viewed, treated or trusted the same way as the Sallie Mae of 1972.

   — bogey    Jun 5, 04:01 PM    #

3. Bogey, don’t worry, I don’t think anyone trusts Sallie Mae anymore. And to community colleges and proprietary schools who they haven’t cut off yet, I say don’t get too cozy with them. Not hard to read between the lines on this one and conclude that SM will soon join the ranks of lenders only interested in doing business with 4-year and grad schools to help students graduate $100K in debt. It’s time for Congress to act and outlaw redlining on all educational loan programs. Lenders, you want to make zillions in profits from government subsidies on a program designed to give low-cost access to needy students – not mega-profits to greedy capitalists who create no product – then show some social responsibility.

   — DS    Jun 5, 04:33 PM    #

4. We encourage the Chronicle’s readers to link directly to the Wall Street Journal interview to read the facts. In the midst of unprecedented market turbulence, Sallie Mae has demonstrated an unwavering commitment to students by funding every federal loan application from every student at every school. We are, and will continue, taking every step to ensure that the Federal Family Education Loan Program (FFELP) remains the uninterrupted source of financial aid that it has been for over 40 years. Contrary to the Chronicle’s baseless projections about our company’s future plans, we will continue to serve all eligible students who need a federal student loan no matter what school they attend – without exceptions.

   Conwey Casillas
   Managing Director, Public Affairs
   Sallie Mae

   — Conwey Casillas    Jun 5, 05:34 PM    #

5. Maybe if Sallie would get paid by preventing defaults instead of benefiting from defaults they would have seen their “mistakes” sooner.

   — BV    Jun 5, 06:31 PM    #

6. Conwey Casillas, are Sallie Mae’s private loans “financial aid” or are they just private credit like a credit card?

   — Just Asking    Jun 5, 06:41 PM    #

7. “Sallie Mae has demonstrated an unwavering commitment to students by funding every federal loan application from every student at every school.”

   Did anyone actually QUALIFY those students? I find it illogical that every application would be worthy of getting a loan.

   — Al    Jun 5, 07:03 PM    #

8. Yes, Al-every student must qualify and be certified for a federal student loan. This is done by the college financial aid office.

   — fin aid person    Jun 5, 07:53 PM    #

9. Allow me to clarify, since I am both a financial aid administrator and — gasp! — a former Sallie Mae employee. When you sort out what Mr. Lord is communicating, here is what the current stance is: “We were foolish to make federal and private loans to everybody, like we used to. It made me a multi-millionaire, and our stockholders loved it, particularly in the era when we quickly packaged and moved these securities, and they became someone else’s potential problem. Now that the shell game is over, we will CONTINUE to offer federally guaranteed student loans to eligibile college students, since our risk is minimal and this allows us to continue feeding at the public trough. If you can’t make money on a government guaranteed loan, you can’t make money anywhere. BUT, we will be more selective regarding to whom we will now offer our private loans. It is no longer good business to keep making these to the truly needy and desperate, because even with our high market interest rates we charge to these students and parents, there is some actual risk here, and let’s face it — our stock has tanked, I blew the buy-out option when it still was available to me, and I need to present all of this as if the only real problem with our business model was that — gosh darn it! — we just can’t say “no” to anybody.

   — fin aid guy    Jun 6, 08:14 AM    #

10. The political class has a lot of ‘splainin’ to do with what it allowed to happen with both SALLIE MAE, and FANNIE MAE. Both of these companies were created out of thin air to make billions for their creators on the backs of millions of students and home owners. Neither of them added anything to the process except another very heavy layer of overhead cost for no purpose whatesoever except the enhancement of the personal wealth of the major stock holders like Al Lord at SALLIE MAE and Franklin Raines at FANNIE MAE.

    — Feudi Pandola    Jun 6, 08:59 AM    #

11. Although I mostly agree with many of the posts above about SallieMae’s greediness, I have to look deep inside myself and be honest. Without SallieMae, i would’ve never been able to afford college and earn the M.Ed that I did. Is SallieMae greedy? Yes. But if it wasn’t them lending loans, it would’ve been somebody else. Besides, being a Financial Aid administrator for 10 years now, I can certainly say this, and it coincides with the real estate problems we are facing. WAKE UP AMERICA! You can’t always have your cake and eat it too. Too many times I see students take out big private loans in addition to their other aid, because they want the quick fix. They want the money for other “non-education” related activities, just like the greedy homeowners who make $35,000 /yr and expect to be abel to afford a $500,000 home. Maybe if they had gone to college funded on a SallieMae loan, they would’ve gotten an education where they could understand the math. 50% of the blame belongs on the consumer. If you can’t afford it, DON’T DO IT!!

    — Mr. O    Jun 6, 11:22 AM    #

12. What’s with this “Mr. Lord” business? This is neither the New York Times nor the year 1880.

    — Who Did It?    Jun 6, 11:51 AM    #

13. Wow, that’s some interesting spin doctoring. “Unwavering commitment to students?” This is the company that only a few weeks ago was holding its breath until its face turned blue, threatening to stop making loans altogether if they didn’t get more taxpayer funded benefits. And let’s not forget the Consolidation Loan strike they sprung on students a few years back. Sallie Mae’s primary commitment is to its wealthy executives and stockholders, the students and taxpayers who bear the real burden are awfully far down the priority list.

    — DS    Jun 6, 12:26 PM    #

14. According to Conwey Casillas, Managing Director, Public Affairs at Sallie Mae,“Sallie Mae has demonstrated an unwavering commitment to students.” Are we to understand that this unwavering commitment was demonstrated when Mr. Lord and his fellow executives were given hundreds of millions of dollars in salary and stock benefits? This is disgusting.

    — TL    Jun 6, 04:00 PM    #

15. was this the same unwavering commitment that caused people to commit suicide when the fees (not agreed to in the original loan documents) were 3x as much as the principle? Studentloanjustice.org. Fight Sallie Mae’s greed, and establish consumer protections for student loans!

    — a person    Jun 9, 03:17 AM    #

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