Sallie Mae snafu causes credit scores to sink
A coding error by the nation's largest student lender made some student loan repayments appear delinquent overnight.
NEW YORK (CNNMoney.com) -- As many as 1 million borrowers from Sallie Mae, the nation's largest student lender, may have seen their credit score plunge overnight after a coding error made some student loan repayments appear delinquent.
The error occurred in a routine transfer of account information to the credit bureaus, and was discovered on Friday, but by the time Sallie Mae notified the agencies, Equifax had already posted the information.
As a result, the accounts of some student loan borrowers with graduated loan repayment schedules were shown to be behind on their payments, causing the borrower's credit score to plunge immediately.
According to Tom Joyce, a spokesman for Sallie Mae, less than 10 percent, or 1 million, of Sallie Mae's borrowers were impacted.
Of those people, Joyce said it was unclear how many had been delinquent already.
The credit ratings have now been restored, according to Joyce, and there will be no negative repercussions on borrowers going forward.
"We certainly and fully understand the importance of one's credit rating and we worked with urgency to resolve this situation," Joyce said.
Calls to Equifax were not immediately returned.
Those who think they may be affected are encouraged to call 1-888-2-sallie. For those in the process of trying to get loans, Sallie Mae has offered to supply credit references on request.
Sallie Mae snafu causes credit scores to sink
by CNN
Thursday, June 19, 2008
Sallie Mae snafu causes credit scores to sink
Federal intervention boosts Sallie Mae
WASHINGTON (AP) -- Shares of industry leader Sallie Mae jumped Wednesday after it became known that the Bush administration is preparing to help struggling lenders in the student lending market by buying up their loans.
Because of the government's decision to step in, the nation's largest student lender will continue to make federally backed loans, Sallie Mae's chief executive, Albert Lord, said in a conference call with officials from colleges and universities.
"We have reached a conclusion that we will stay in the program," Lord said, noting that the steps being taken by the government will be sufficient to keep the company lending through the 2008-09 academic year. "Our commitment is virtually unbounded under this current [government] proposal," he said.
Shares of Sallie Mae, formally known as SLM Corp. (SLM, Fortune 500), rose $1.22, or nearly 6%, to close at $22.
The gain came in a market gutted by economic gloom and concern over record-high oil prices, with the Dow Jones industrial average marking a 2-day slide of more than 425 points.
Corporate fallout: Reston, Va.-based Sallie Mae has suffered since last year from financial losses, a failed buyout and reshuffling of top management. In January, the company announced it was cutting back on its core business of making student loans, becoming more selective and stressing the importance of graduation as a predictor of a person's higher earnings potential and likelihood to repay loans.
And, as it pushed aggressively for federal help in recent weeks, Sallie warned that it could not lose money indefinitely on federally guaranteed student loans.
During these weeks, the distress call over student loan access has been sounded by lenders, Wall Street investors and college administrators. They have gotten a sympathetic hearing - and helpful legislation - on Capitol Hill.
Distress in the $330 billion market for auction-rate securities in recent months - itself an offshoot of the subprime mortgage crisis - has caused more than 60 student lenders, including some state agencies, to stop making federally guaranteed student loans either temporarily or permanently.
Access to capital: On Tuesday, Bush administration officials told lenders that the government would buy up their student loans to ensure the companies have access to capital. Congress recently gave the Education Department the authority to do so.
The administration also has agreed to have the government invest in securities made of student loans bundled together, traditionally the exclusive province of private investing companies in a market that has become stressed. The move is expected to make capital available to student lenders at cheaper rates than what they can get by issuing student loan securities on the market. Borrowing costs for lenders rose dramatically as a result of the disruption in the credit markets.
"It changes the economics of new [federal student] loans in the near term," said David J. Long, an analyst at William Blair & Co. in Chicago.
Lingering concerns: Still, Sallie Mae was unhappy with an aspect of the government plan. It doesn't ensure that student loans are serviced by the same company that originally made them, a situation that could make it harder for students to keep track of their loans and possibly lead to more defaults, company President C.E. Andrews said during the call.
Fees associated with the servicing of student loans can be a lucrative business stream.
Education Secretary Margaret Spellings told the lenders in a letter Wednesday that the government will purchase some of the loans.
"Many lenders today do not have access to funds at a cost that justifies originating new loans," Spellings wrote. "Our plan is designed to provide viability in the marketplace for lenders who step up and make loans in this difficult environment."
Federal intervention boosts Sallie Mae
By CNN
Sallie Mae: A hot stock, a tough lender
NEW YORK (FORTUNE) - For millions of Americans, the first big financial decision in life is whether to take on a student loan. Student loans are debt, of course, but they represent something different than credit card debt or a car loan: They are part of a quest for a better future.
And they can have lifelong consequences, both good and bad, because for the unwise or the plain unlucky, a student loan can become an inescapable burden. It can almost never be expunged in bankruptcy, and the Supreme Court just ruled that even Social Security income can be garnisheed to pay for defaulted student debt.
The giant of the student loan industry is the Student Loan Marketing Association, better known by its friendly-sounding nickname, Sallie Mae. Many people think that Sallie Mae, like Fannie Mae and Freddie Mac, is sponsored by the U.S. government. And until recently it was. But at the end of 2004, Sallie became an independent, publicly traded company, completing a process begun in 1996.
It is now radically different than it was even five years ago -- an aggressive, highly profitable lender and a stock market superstar. Since 1995 its stock has returned over 1,900 percent, trouncing the S&P 500's 228 percent gain. Today Sallie's stock sells for 22 times earnings and almost ten times tangible book value, "an almost unheard-of valuation for a financial institution," as a Criterion Research report noted.
Sallie's dividend has risen at an average annual clip of 18 percent over the past ten years. And thanks to hefty helpings of stock options, Sallie's top executives have earned fortunes. From 1999 to 2004, just-retired CEO Al Lord -- now the lead investor in a group trying to purchase the Washington Nationals -- received total compensation of $225 million. New CEO Thomas "Tim" Fitzpatrick made $145 million over the same period.
To produce those sorts of numbers, a company usually has to be obsessed with the bottom line, and Sallie is certainly that (a big chunk of its executives' bonuses is based on Sallie's profits). As good as that may be for shareholders, a growing number of critics contend that those profits are coming at the expense of Sallie's other constituents: students and taxpayers.
"Sallie advocates policies we believe are frequently contrary to the interest of students," says Luke Swarthout, a higher-education advisor to the U.S. Public Interest Research Groups. He charges that Sallie used its political clout to shape new legislation that will increase the cost of student loans.
Ira Rheingold, executive director of the National Association of Consumer Advocates, decries Sallie's growing presence in the ugly business of collecting on defaulted debt. Pennsylvania state representative Doug Reichley alleges that Sallie is engaging in "predatory lending."
Indeed, Sallie uses high interest rates and fees to charge students as much as 28 percent annual interest on loans. As a result, some have seen their school-loan debt balloon into six-figure delinquencies that they can't hope to pay when the collection agency (which nowadays may be owned by Sallie) comes calling.
"Sallie Mae's practices are in the best interests of students, schools, and taxpayers," a spokesman says. "We were created 34 years ago to provide access to higher education for Americans, and that's still the business we're in. No one wins if a student borrower is unable to repay his or her loans."
You could also argue that student loans are simply a business, like computers or laundry detergent -- or maybe health care -- and that Sallie's sole responsibility is to deliver results for its shareholders. But lately there are even some doubts about Sallie's ability to do that, given the increased risks it is taking to sustain its high profits.
Two Wall Street analysts actually rate Sallie's stock underperform. Many investors buy the stock because they still see it as a safe, government-backed company. They may be in for a surprise.
Sallie Mae: A hot stock, a tough lender
form CNN
Friday, June 13, 2008
Sallie Mae appoints senior vice presidents
Tim Hynes joins Sallie Mae as senior vice president, credit. In this newly created role, Hynes will head the credit department and build the company’s infrastructure, controls and analytics for sound credit risk management and quality asset growth. Previously Hynes served in a variety of consumer finance lending and credit management roles at MBNA America, both in the U.S. and abroad. Most recently, he had profit and loss responsibility for new and existing credit card account marketing for Bank of America. Hynes received a Bachelor of Science degree in business administration from the University of Richmond.
John Kane joins Sallie Mae as senior vice president, collections. In this role, Kane will oversee the company’s contingency and private credit collection activities. Previously, Kane served in a variety of roles within consumer credit operations at MBNA America, including credit acquisition, fraud, collections and delinquency management. Most recently, he directed enterprise fraud strategies for Bank of America’s global consumer group. Kane received a Bachelor of Arts degree in economics from the University of Delaware.
“We are excited to welcome both Tim and John to this great company,” said Jack Hewes, executive vice president and chief credit officer. “Their experience and credit discipline will bring significant value to our growing business.”
Sallie Mae appoints senior vice presidents
source: salliemae.com
