Sallie Mae tightens loan policies
Patrick Corey
Issue date: 2/6/08 Section: Higher Ed
Sallie Mae, the nation's largest student loan company, announced late last month that it would cut back loan programs to students at colleges with poor graduation rates. The company, which lost $1.6 billion last quarter, is also reviewing its underwriting criteria to keep loans out of the hands of students with poor credit.
In a letter sent to President Ruth Simmons and other college administrators across the country, new Sallie Mae Chief Financial Officer C.E. Andrews attributed the policy shift to "new legislation (that) has significantly reduced the margins of all lenders on federally guaranteed loans, and the tightening of world-wide credit markets," which is responsible for a "steep rise in borrowing costs for financial services companies."
Tom Joyce, Sallie Mae's vice president for corporate communications said no current borrowers would be affected by Sallie Mae's new policy.
"Going forward, we're just going to be more careful," he said.
Joyce said Sallie Mae's policy is still evolving, but non-standard private lending - part of Sallie Mae's private lending for lower-credit customers - will definitely cease. Andrews' letter said Sallie Mae has already informed certain schools that the company will no longer offer certain loan programs to the schools' students.
Sallie Mae singled out schools with low graduation rates because of the strong inverse correlation between graduation rates and loan defaults, Joyce said, adding that graduation rate is the "number one" indicator for whether a student will pay back his or her loan.
"Sixty-five percent of our defaulted loans came from dropouts or those students who reduced to less than half-time study," he said.
While all of Sallie Mae's federal loan programs will continue, Joyce said the private loan cutbacks could be good for low-income students at schools with poor graduation rates.
"The bottom line for us is that we want to lend money to people who are going to succeed," he said. "We want them to be in better shape rather than in worse shape - debt loads don't do a student any good."
In a letter sent to President Ruth Simmons and other college administrators across the country, new Sallie Mae Chief Financial Officer C.E. Andrews attributed the policy shift to "new legislation (that) has significantly reduced the margins of all lenders on federally guaranteed loans, and the tightening of world-wide credit markets," which is responsible for a "steep rise in borrowing costs for financial services companies."
Tom Joyce, Sallie Mae's vice president for corporate communications said no current borrowers would be affected by Sallie Mae's new policy.
"Going forward, we're just going to be more careful," he said.
Joyce said Sallie Mae's policy is still evolving, but non-standard private lending - part of Sallie Mae's private lending for lower-credit customers - will definitely cease. Andrews' letter said Sallie Mae has already informed certain schools that the company will no longer offer certain loan programs to the schools' students.
Sallie Mae singled out schools with low graduation rates because of the strong inverse correlation between graduation rates and loan defaults, Joyce said, adding that graduation rate is the "number one" indicator for whether a student will pay back his or her loan.
"Sixty-five percent of our defaulted loans came from dropouts or those students who reduced to less than half-time study," he said.
While all of Sallie Mae's federal loan programs will continue, Joyce said the private loan cutbacks could be good for low-income students at schools with poor graduation rates.
"The bottom line for us is that we want to lend money to people who are going to succeed," he said. "We want them to be in better shape rather than in worse shape - debt loads don't do a student any good."