On Wednesday, the U.S. Education Department outlined a two-part plan to carry out a congressional order to buy up federally-backed student loans at no net taxpayer cost.
(Reuters) - SLM Corp <SLM.N>, the student lender better known as Sallie Mae, plans to continue to make federally guaranteed student loans, ending fears the company might join the recent exodus from a market that has been rocked by the credit crisis, the Wall Street Journal said on Thursday.
On Wednesday, the U.S. Education Department outlined a two-part plan to carry out a congressional order to buy up federally-backed student loans at no net taxpayer cost.
The department said it will buy into temporary trusts that will be capitalized with federally guaranteed loans to provide more short-term liquidity for student lenders.
In a teleconference with college administrators on Wednesday, Albert Lord, Sallie Mae's chief executive, called the administration's plan "practical, workable and, maybe most of all, quite hopeful," the newspaper said.
!ADVERTISEMENT!He added that the financial terms outlined in the plan are only "barely okay," but sufficient to allow the largest U.S. student loan provider to continue making federally guaranteed loans throughout the 2008-2009 school year, the newspaper said.
Lord said that, because of the administration's plan, Sallie Mae's commitment to the government's Federal Family Education Loan Program is "virtually unbounded."
Under FFELP, government-subsidized banks make loans to students that are 97-percent guaranteed by the government.
Dozens of lenders have recently withdrawn from FFELP because they could no longer sell loans in the secondary market.
"These federal consolidation loans are the least profitable loans, which is why a number of lenders (including Sallie Mae) backed away from this business," Amy Junker, an analyst with Robert W. Baird & Co said.
In January, Sallie Mae said it plans to be more selective in making government-backed and private loans, and that the College Cost Reduction and Access Act of 2007 could possibly eliminate the profitability of new FFELP loan originations, while increasing its risk sharing from the FFELP loan portfolio.
Sallie Mae had said earlier this month that it was looking at other sources of financing amid tight market conditions, and that it may issue corporate bonds to meet its funding needs.
Many students borrow money to meet the high costs of attending college. Most loans come from banks and other lenders with federal backing. Some loans come straight from the Education Department, while banks also make private loans.
Shares of Reston, Virginia-based Sallie Mae closed Wednesday up 5.87 percent at $22 on the New York Stock Exchange.
(Reporting by Neha Singh; Editing by Louise Ireland)
