Transcripts

Sallie Mae Needs Financial Aid From The Treasury Department

SUSIE GHARIB: The credit crunch has hit the market for student loans hard. Analysts say the cost to lenders to make those loans has soared since last summer and some lenders say they're even losing money making federally guaranteed loans. As Stephanie Dhue reports, Sallie Mae, the largest student lender, is lobbying the U.S. Treasury for help.

STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Many student loans already are guaranteed by the Federal government, but in this credit crunch the market for securities backed by student loans is under stress. So lenders that securitize student loans, like market leader Sallie Mae, want the Treasury Department to step in now and buy those securities. Specialty finance analyst Sameer Gokhale says Treasury could quickly thaw the market for Federally backed, or FFELP student loans.

SAMEER GOKHALE, SPECIALTY FINANCE ANALYST, KEEFE BRUYETTE & WOODS: By doing so Sallie Mae and other FFEL lenders like Nelnet and there are a whole host of other lenders that have recently either exited the market or have said they were going to cease originations in the near term. I think this is going to help all of those lenders and ultimately result in a smoother flow of capital back into the student loan system.

DHUE: But not everyone is convinced the move is needed. Experts say there are still plenty of loans available for students now. Higher education advocate Luke Swarthout doubts lenders need more Federal subsidies.

LUKE SWARTHOUT, HIGHER EDUCATION ADVOCATE, U.S. PUBLIC INTEREST RESEARCH GROUP: The question with a regulated market like this or any marketplace is, you know, what's an appropriate level of loss for a company in the short term or in the medium term in an overall profitable business and how do you balance that with the concerns of students?

DHUE: Sallie Mae was created as a government sponsored entity or GSE in the 1970s to make a market for student loan securities. It became a fully independent company in 2005. Student loan expert Tom Stanton says the firm shouldn't need the government's help now.

TOM STANTON, ATTORNEY: In its last year as a government sponsored enterprise, Sallie Mae made something like 73 percent return on equity, a very generous return. There's no need at this point to go back to the government and get support.

DHUE: Lawmakers are considering other ways to ease the credit crunch in student loans. Last week, the House passed legislation to let the Department of Education purchase loans and act as the lender of last resort. But that would take longer to set up than an immediate cash infusion from the U.S. Treasury. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.