Speaking Of Sallie Mae... (And I Knew You Were...)

[WillyT]

Making Money The Sallie Mae Way
By: masaccio - FireDogLake
Sunday February 28, 2010 5:00 pm

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Sallie Mae, the nation’s largest student loan company, is fighting to defeat President Obama’s plan to cut subsidies to private lenders of student loans. Currently, private lenders get all kinds of government subsidies, and Sallie Mae wants them all, even if it means less money for Pell Grants for our kids. To help us understand what’s at stake, I’ve been reading their SEC filings.

Sallie Mae (ticker symbol SLM) is a giant finance company. It borrows money from banks and investors, and gets more from its wholly-owned bank, and lends it to students at public and private schools at fixed interest rates. Much of its borrowing bears interest at floating rates, and some of the money it borrows is from overseas, in Euros, for example. It hedges the risk of floating rates and currency fluctuations with derivatives, primarily interest rate swaps and currency swaps.

SLM makes money in two ways: a) it profits if the total interest it pays to borrow money is less than the total interest it gets from the loans it makes to students; and b) it earns servicing fees on loans it has made and for servicing loans other companies make. In its most recent 10-K covering the year 2008, Sallie Mae says it is the nation’s largest servicer of student loans. P.6.

This .pdf document shows on lines 4-24 the income statement for the full year 2009 from SLM’s Earnings Release. SLM doesn’t report its earnings for its servicing business separately from its loan business. Making it even harder to understand, it classifies a remarkably large amount of revenue as “Other” (line 23 on the .pdf), which includes income that is attributable to the loan portfolio and to servicing income (10-K, Note 14, P. F-73). I have allocated “Other”, in part by annualizing the results on the 9/30/09 10-Q, showing my work on the .pdf.

Surprisingly, servicing income for 2009 is about $266 million greater than income from the loan portfolio. One big reason is losses from derivatives and hedging of its borrowings, $604.5 million in 2009 (line 19). That loss exceeds its net interest income after provision for loan losses of $603.8 million (line 15). Unimpressive.

It is easy to see the nature of the loan business in the financial statements. SLM borrows from a number of sources, including banks, the federal government, foreign lenders, and the shadow banking system. 10-K, P. F-44. A large part of its loans have been transferred to securitized asset trusts. SLM consolidates a number of these trusts on its own financial statements, despite the sale. The rest probably will be consolidated going forward. 10-Q, Note 1, P. 7-8.

The goal of the loan business is to lend at a higher rate than the rate it pays to borrow. That proved to be a serious problem, beginning in 2008. Its sources of borrowing were drying up, and SLM was in trouble. It was saved by the federal government, which created several programs to help student loan companies, as part of the TARP bailout and under a separate law, the Ensuring Continued Access to Student Loans Act. 10-Q P. 113 et seq.

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More: http://firedoglake.com/2010/02/28/making-money-the-sallie-mae-way/

Man I wish I was smart enough to understand all this shit. I got the first two paragraphs, and started to lose it after that.

Except... I do know this. Apparently, modern Capitalism cannot function without bribes, kickbacks, special advantages, and just basic cheating and outright stealing.

Color me unimpressed from now on.

:evilfrown:


:shrug:

[Captain Hilts]

1. WHY has the educational loan business been permitted to become a racket? nt

[WillyT]

2. Two Words... "For Profit"

And another two words... Government Secured.

The banks get the profit when the loan gets paid back. The bank gets the profit if the loan doesn't get paid back.

:shrug:

[CoffeeCat]

3. Yes, and in my opinion...

...there was some shady nonsense that went on when I was in college
in the late 80's and early 90's. SallieMae defaulted me on several loans,
when I was still a full-time college student. The head of financial aid
at my university told me that there was "an ongoing problem" with this
happening. She even told me that she was testifying at a national meeting
and she was trying to get something done.

SallieMae was defaulting students. Possibly they were defaulting students
that they deemed high risk. I'm not sure. I went to college, took some
time off and had my loans in deferrment. Then, I returned to college full
time and my loans were supposed to be deffered. I sent them proof of
enrollment papers at least ten times. All defaulted. I had tens of thousands
in penalties and interest by the time I graduated...about $100,000. I've
got the debt down to $45,000 by paying off $1,200 per month. It's hell.

I'm living proof that loans like this should not be corporatized. There's
too much room for abuse. Plus, students should be getting loans at rock-bottom
interest rates from the governmnent. Loans from companies like this are given
at inflated interest rates, so these companies can make profits.

I'm sure there are many others, like me, who are victims of these predators.

I wish someone would do something.

[juajen]

4. Yeah, me too. We have several people in my family attempting to pay

back student loans. The interest is ridiculous, and paying it back is just impossible. I believe I read that Obama is talking about getting legislation passed to limit pay back on student loans to 20 years, and also something about lowered interest rates? Anybody remember that?