Lobbying Showdown Over The Future Of Student Loans - Sallie's Lifeline

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Published on Wednesday, 29 July 2009

Written by Danielle Knight, Huffington Post

Sallie's Lifeline

But even if Sallie Mae's lobbyists fall short and the company's alternative fades, it isn't likely to face massive layoffs or cutbacks. Instead, Sallie Mae has a pretty good backup plan in place -thanks, ironically, to the government-run Direct Lending Program that it has fought for so long.

When the credit crisis disrupted the availability of education loans last summer, Congress authorized the government to buy tens of billions of dollars in existing loans to keep the money flowing to students. Then, just last month, the Education Department picked Sallie Mae to be one of four companies that will, under a renewable five-year contract, service those loans in exchange for fees.

Tucked in the Education Department's press release about the deal was this highly important sentence: "The selected contractors will also service loans originated by and sold to the Department in the future."

Sallie Mae already services more than 35 percent of all student loans. A new huge stream of servicing business under its contract with the Education Department could offset losses under the Obama plan.

"We're very confident that even in a servicing mode, that we have the earnings power to generate a substantially higher stock price," Lord told Wall Street analysts this spring.

Danielle Knight is a former investigative reporter for U.S. News & World Report. The Huffington Post Investigative Fund is an independent nonprofit journalism venture based in Washington, D.C.

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