Sallie Mae “Off Point Excuses”

Sallie Mae (SLM), officially known as SLM Corporation, reported first quarter, “core earnings” net income was $188 million, or $.34 diluted earnings per share". It also reported that it made a record amount of student loans despite difficult economic conditions. Hey, that all sounds pretty good. Tough times and they still serve up a profit. Keep that one on the radar.

Then the company lets you know that they are making loans at a negative spread. The actual sentence used said “Under current conditions, however, loans can only be made at an economic loss.” Somehow Sallie wants to get onto the liquidity crisis bandwagon, or needs to get onto it.

Most people understand that lenders need to charge more for their loans than it costs to gather funding, admin and credit losses. That is fundamental and remains unchallenged. Sallie Mae has essentially allowed their origination machine to drive in business at uneconomic spreads.The fault lies with management for operating at such razor thin margins that they have no room to manoeuvre.

The liquidity crisis has been coming for some time and should have been foreseen in this context. On one hand, the company claims record volumes yet it is starting to engage in the practice of losing money. If management had been observing the road signs pointing to economic conditions it would not have been driving at record speeds to achieve losses.

Comments

[Conservativ...:]

Hmm. That sounds terrible in a prospective sense.
Now, looking back ... how many of these student loans have been granted to students who will never graduate and fail to make payments, or, having graduated, will not have the earnings power to pay back these loans?
Is this bad debt number buried, only to come out in the student loan liquidity crisis, after we get through with our mortgage debacle?
Hmm.

2008 Apr 18 09:30 AM

[Online Educ...:]

Today - these loans are not profitable due to costs of funds. When pricing normalizes, those loans will be profitable again. Should SLM focus on the more profitable schools, yes - they and others are doing so. Howev, in the long run, low cost providers of student loans like StudentLoanNetwork.com will continue to gain market share with the highest margins.

2008 Apr 20 10:01 PM

[Wow, just wow:]

First of all, they are spelled "maneuver" and "company".

Second, you are clearly uniformed on the federally guaranteed student loan program. The government sets maximum interest rates that can be charged (currently 6.8% on Stafford loans, goes to 6.0% on 7/1/08). As such, there is no "manoeuvring" to be done as you cannot charge more on the loans. Every lender in this program was feeling the squeeze, not just Sallie Mae. Sallie should be commended for continuing its mission and providing access to students while others were walking away from them.

You are yet another uninformed dolt with access to the Internet. Thousands have just become dumber by reading your article. Congratulations!

2008 May 06 02:47 PM