October 23, 2008

Sallie Mae Reports $159-Million Loss and More Delinquencies by Borrowers

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

Comments

1. A federal investigation of Sallie Mae is long overdo. it would be of no surprise to learn that the flim-flamming that has been going on in this student “loan” operation makes the deceptive and unethical practices being uncovered in Feddie and Fannie Mae look like child’s play.

   — F Capobianco    Oct 23, 04:44 PM    #

2. Sallie Mae has increased my student loan to almost double the amount borrowed from compounded interest and interest on the interest. Quite a racket — Queen Elizabeth I would have had them arrested for usury.

   — tenstring    Oct 24, 07:19 AM    #

3. A story is only as good as its source. So let’s take a look at the prominent source for Mr. Basken’s article.

   According to the Las Vegas Review Journal, Michael Zahara was arrested this year on one count of felony extortion of a former Assembly candidate in Nevada. Here’s the Las Vegas Review Journal article that further details the character and overall nefarious actions of Mr. Zahara:

   http://www.lvrj.com/news/25845924.html?imw=Y

   It’s clear that serious news has been replaced by sensationalism at the Chronicle. If the Chronicle wants to be a tabloid that’s fine. Just do everyone a favor and stop pretending.

   — interesting    Oct 24, 08:19 AM    #

4. #2 I guess you did not read your loan application, as all that information is printed on it.

   As far as the interest goes and how it is capitalized, talk to you congress member for that because SLMA has no control as it is a government run program. Financial Aid loans are good debt, because you are supposed to make more then you borrowed and you should actually see a value out it.

   The problem is we have students going to expensive schools for programs that could have got at a cheaper state school. Then they went out a bought huge house with sub-prime loans and can’t pay back either because they felt entitle.

   I think higher education is not a right and should be semi-expensive as it makes you work for it harder. Not everyone needs to go to college to make a good living, look at Joe the Plumber although now he may loose it all with a huge tax bill. So you went to college and now have a student loan debt, deal with it, pay it and have a good life.

   — Remember the Alamo    Oct 24, 08:31 AM    #

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