Student Loan Reform Leads Sallie Mae to Cut 2,500 Jobs
Apr 26th, 2010 @ 10:14 AM by Debbie Dragon
Sallie Mae, the nation’s largest student loan lender, has announced that it will be cutting a total of 2500 jobs–1200 of which will be before year’s end. Sallie Mae’s Killeen, Texas service center and Sallie Mae’s Panama City, Florida service center will both be shutting their doors. The remainder of the cuts are yet to be determined but are scheduled to take place sometime during 2011.
According to Sallie Mae the cuts are part of the company’s forced restructuring due to new student loan reforms. Just recently congress ended the FFELP program (Federal Family Education Loan Program) which had been in place for 45 years. The program supported Sallie Mae and other student loan lenders by allowing them to issue student loans which were guaranteed by funding from the FFELP program. The federal government, after June of this year, will take over issuing federally-backed student loans. This change is expected to save the government a total of $60 billion.
Sallie Mae spent $1.9 million in the first quarter of this year lobbying to try to stop student loan regulations from passing. During the same time period they broke their own record writing $7.7 billion in federally-backed student loans.
“Ironically, one quarter before the government takes over loan originations, Sallie Mae broke its own (federal student loan) origination record,” Sallie Mae Chairman and CEO Albert L. Lord said in the company’s earnings announcement.
The law is “not good for the company and it’s certainly not good for the employees,” the CEO added during a conference call to discuss the results. Losing federal student loans will result in a “draconian drop” in income from loan originations, Lord said.
Sallie Mae and other student loan lenders will continue to fund private student loans. They are quick to point out, however, that private student loans have seen a pretty hefty drop. During the first quarter of this year Sallie Mae loaned just $840 million where at the same time last year their private student loan lending totaled $1.5 billion. Sallie Mae claims the drop is due to tighter underwriting standards.
The federal Department of Education has disputed the fact that Sallie Mae’s job losses are all due to the new regulations. While Sallie Mae will no longer be writing the loans, they are still being contracted to service the loans. During the transition period, the education department has funds available totaling $50 million to help companies affected, including Sallie Mae.
Debbie Dragon is a full time freelance writer and the co-owner of ReliableWriters.com.