The Day After...Changes Coming After The Student Loan Reform Bill

The bill hasn't passed the Senate yet...but here is what companies who participate in the federal student loan program are saying:

• Sallie Mae provided these details to Washington Business Journal:

"Sallie Mae (NYSE: SLM) estimated that ending FFELP would force it to cut 2,500 jobs and operate in as few as five to seven locations, compared to its current 25 locations.  Sallie Mae currently has 8,600 employees."

• Given that Newark, Delaware is their most recent new office location, I would surmise that many of their smaller locations will be consolidated into their new credit and collection center there.  In November of 2008, Sallie Mae estimated that they would have 1,100 jobs there by the end of 2011.  

• Kentucky Higher Education Student Loan Corp. (from The Courier-Journal):  

"I don’t see any circumstances where we would completely shut," said James Ackinson, executive vice president of the Kentucky Higher Education Assistance Authority, the loan corporation's sister agency that acts as the guarantor for its loans. There is, however, a potential for layoffs, he said.

In recent years, the agencies have decreased their employees from 535 to 340, the result of the economic downturn, and the loss of a service contract.

"We’ll have to see what comes out of the federal regulations," Ackinson said.

He said the agency will continue to administer state scholarship programs, most notably the Kentucky Educational Excellence Scholarship, or KEES. It also expects it will be able to service at least 100,000 direct federal loans, which is half of the current level, and continue its outreach efforts, which are largely funded through federal grants."

• KHESLC is the tenth largest servicer of federal student loans, based on data from this SLA Blog post. 

• Meanwhile in Vermont, VSAC's president Don Vickers had this to say about the impact of the bill (Vermont Public Radio): 

"Today we raise the capital we originate, the loans and we service the loans. With the passage of the legislation the loans will all be made by the federal government. But it provides for organizations like VSAC to service the loans that will be made by the federal government in Vermont."

(Kinzel) VSAC employs roughly 350 people. Vickers says he hopes to avoid any job layoffs when these changes are implemented:

(Vickers) "However the level of service that's required is much different under the contract with the Department of Education. It's less people intensive and more technology intensive."

• Among state agencies and non-profits, VSAC originated the highest percentage of in-state loans

• South Carolina Student Loan Corp.'s CEO had this to say about the impact of the reform (from The State): 

"Now, with the U.S. Senate poised to pass the health care changes and the student loan legislation in one package, the S.C. Student Loan Corp. and private lenders across the country are bracing for a gigantic hit in a prime area of their business.

"It's tremendous," Chuck Sanders, president of the S.C. Student Loan Corp., said of the potential impact of the student loan changes.  Sanders said the corporation's 200 employees, already down about 40 from a couple of years ago, will shrink further, though he said he did not know by how many.  "Obviously, we're going to have a lower staff," he said.

In North Dakota, Senator Kent Conrad noted that the Bank of North Dakota would see little impact from the new bill (from The Forum of Fargo-Moorhead):

"Sen. Kent Conrad, D-N.D., said Monday he talked to Bank of North Dakota officials about how the legislation would affect the bank’s profits.

“As they have indicated, they have a very big book of business that will continue because other provisions in the bill provide them to continue servicing,” Conrad said. “It apparently won’t have much impact on the profit side of the bank.”

Conrad asked to have a provision exempting the Bank of North Dakota removed from the bill to protect the bank’s reputation from being damaged “in an overly heated partisan environment.”

• In South Dakota, Senator John Thune has voiced his opposition to the bill (from Trading Markets): 

"South Dakota has the highest proportion of students graduating from college with debt of any state in the nation," said Thune. "Rather than using this money to reduce the cost of borrowing for South Dakota students, they are using $9 billion to pay for new government spending."

The health care reconciliation bill is expected to end the popular Federal Family Education Loan program, which would put 35,000 private student lending jobs at risk nationwide, including an estimated 1,200 in South Dakota."

• Citibank's CEO, Vikram Pandit, had this to say in November of last year about their student loan servicing business (Citi owns 80% of Student Loan Corporation and has over 900 servicing jobs in the Sioux Falls area): 

"The student loans are essentially going to be provided by the government going forward. That's where we are. So the student loan business has two parts to it. One was providing the loans and the other was processing the loans and the payments. Now the good news for South Dakota is that it is the latter part that's here, which is the processing part of that. Whether or not the government makes the loan, somebody needs to process them, and we're doing that right now. So that part continues to be - it's a different business, but it's an important function that we continue to serve."

Meanwhile, the stock market seemed to take the impending changes in stride, unlike the earlier announcement last February when the Obama Administration first proposed the elimination of private lenders from the federal loan program, which led to sharp declines in the share prices of companies involved in the federal loan program (from Wall Street Journal):

"Shares of student lenders turned mostly positive Monday, with giant SLM Corp. (SLM) gaining slightly, after the U.S. House of Representatives finally voted for a bill first proposed more than a year ago that may spell the end of federal funding for originating student loans but had largely been expected."

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Here are some recent videos with commentary on the student loan reform proposal:

•  From PBS NewsHour:  "A new measure allowing college students to bypass banks and receive college aid directly from the government could pass alongside the health reform bill. Jeffrey Brown talks to Jason DeLisle of the New America Foundation and Renee Mang of Sallie Mae."
• From Fox Business:  Video: Sallie Mae CFO on Student Loan Legislation

Comments

[Joan FB]

It's about time that we have had some Senators hear the plight of the educated middle class. Unfortunately, it isn't enough to provide much relief for those who have old student loans. The lenders will still have a good time keeping us as indentured servants. The student loan activist groups have helped the younger students with caps on payments and fairer lending practices, but there is still a long way to go. Corruption is still entrenched in our society and it is only the beginning of ending this practice in all areas of lending practices. Be aware America -- and don't take out loans. Work a year, pay a year, and as Dave Ramsey says, pay cash.

[BrokeJD]

I have a private loan that is in default with Key Bank. I was able to take a Sallie Mae loan I had that was in default and convert it to the Direct Loan program. Does anyone know if the new law will allow us to do that with the private loans? The things I am seeing in the press seems to suggest not, but most news report do not seem to have a clue about the scandal that is the student loan industry.

[Joan FB]

Dear BrokeJD, there are many groups of students out there that have a united webb site you can access for empirical information and answers to most of your questions. Go to Robert Applebaums studentloanforgiveness webb site. Plug it in google and you will find it. Sign up and become a member of the Team. There is power in numbers.