2nd UPDATE: Sallie Mae To Create 2,000 US Jobs Over 18 Months
April 06 2009 - 11:50AM
Dow Jones News
SLM Corp. (SLM) said Monday it plans to create 2,000 jobs by
bringing its overseas operations to the U.S.
Commonly known as Sallie Mae, the company said the move would
cost it about $35 million. Its shares recently traded at $5.70, up
35 cents or 6.54%.
"This is the right thing to do," Chief Executive Albert Lord
said during a conference call.
The announcement comes at a time when the largest U.S.
student-loan company has been grappling with an inability to access
traditional funding sources because of tight credit markets. It is
also dealing with a budget proposal by the Obama administration
that would diminish the role of private lenders in federal student
loans.
Sallie Mae said it will hire call-center, information-technology
and operations-support workers across the company over the next 18
months. The company currently employs over 8,000 people in the U.S.
Asked in an interview on CNBC if this move meant that Sallie Mae
would no longer outsource jobs, Lord said, "It would be foolhardy
for me to tell you that I won't ever do anything again."
Sallie Mae, which makes private and federal student loans, gets
nearly one-third of its income from the federal student loans it
makes on behalf of the government.
It earns another third of its income from the interest it
charges on private student loans. The remaining one-third of
Sallie's profit comes from a number of smaller businesses,
including fees from college savings plans and collecting defaulted
student debt.
Private student loans, which aren't guaranteed by the
government, are riskier - and more profitable - than federal loans.
But private loan volume has declined because of the freeze in the
credit markets where lenders like Sallie would fund these
loans.
"I don't see private capital financing student loans any time
soon," said Lord during the conference call.
Sallie Mae said last month it was replacing its private loan
with a shorter-term one that requires borrowers to make monthly
interest payments while they are in school. The new loan, which is
already available, will help borrowers reduce the total amount of
interest they pay, although the additional requirements could make
it even harder for some borrowers to get a loan.
The interest-only requirement is likely to push private loans
out of reach for more borrowers. But the new structure could make
it easier for Sallie Mae to package the loans to sell to investors,
which could, in turn, make more loans available for borrowers.
Sallie Mae had $34 billion in private loans at the end of the
fourth quarter and $146 billion in federal student loans. It
originated $4.8 billion in student loans in the fourth quarter. Of
these, new federal student loans totaled $3.9 billion, a 25%
increase from a year earlier.
It's no wonder, then, that the Obama administration's proposal
to eliminate the income that Sallie gets on federal student loans
has investors worried. One silver lining: The Obama budget proposal
requires the participation of private lenders for the servicing of
the federal student loans.
The stock has lost about 36% of its value so far this year as of
Friday's close.
-By Aparajita Saha-Bubna, Dow Jones Newswires; 617-654-6729;
aparajita.saha-bubna@dowjones.com
-By Kerry E. Grace, Dow Jones Newswires; 201-938-5089;
kerry.grace@dowjones.com