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Sallie Mae's job cuts spare Indiana, at least for now

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Sallie Mae says a new law that cuts banks out of the federal student-loan business is costing 2,500 workers their jobs, but the job eliminations will spare workers in Indiana—at least for the rest of the year.

The nation's largest student lender has told 1,200 staffers in service centers in Killeen, Texas, and Panama City, Fla., they will lose their jobs by the year's end.

The remaining cuts will follow in 2011, resulting in nearly a third of the company's total work force of 8,000 losing their jobs. The company did not specify where the job cuts will be made in 2011.

Sallie Mae, which is based in Reston, Va., employs about 2,500 people in Indiana, including 1,700 in Fishers.

The company has dramatically reduced its private loan originations as a result of tighter underwriting standards. It did not specify how much that factored into the job cuts.

Sallie Mae says the cuts result from changes made to the federal student loan program as part of the health care reform signed by President Barack Obama last month.

The law strips the middleman role in student lending away from banks. Lawmakers expect to save at least $60 billion in fees that went to banks to process government-backed student loans.

Sallie Mae, which wrote a record $7.7 billion in federal student loans in the first three months of the year, says it will also mean a drastic reshaping of the company.

"Ironically, one quarter before the government takes over loan originations, Sallie Mae broke its own (federal student loan) origination record," Sallie Mae Chairman and CEO Albert L. Lord said in the company's earnings announcement.

The law is "not good for the company and it's certainly not good for the employees," the CEO added during a conference call to discuss the results last week. Losing federal student loans will result in a "draconian drop" in income from loan originations, Lord said.

Sallie Mae intensified its lobbying in the months before the law was passed. The company spent $1.9 million in this year's first quarter working to present its views to lawmakers on the student loan bill and other consumer finance laws.

Like other private lenders, Sallie Mae will still will make student loans that are not backed by the government. It wrote private education loans totaling $840 million during the first quarter, down from $1.5 billion a year ago. The company said the reduction was due to tighter underwriting standards and increases in federal education programs.

Sallie Mae Chief Financial Officer John F. Remondi said during the conference call that there's an "enormous increase" in federal lending and grants this year—he estimated the pool of funding available to students jumped $17 billion for the first half of the year alone.

"We strongly advocate that students take advantage of grants first, free money first, and federal loans second," Remondi said. "And they are doing that appropriately, and as a result, private credit demand is down."

The federal Department of Education disputed Sallie Mae's claim that the job cuts are all due to the change in the law.

The department said it has a $50 million fund available to help workers at companies like Sallie Mae transition from writing loans to servicing them—or handling payments and collections.

"Loan servicing is a growth business and we hope lenders like Sallie Mae can help play an important role," the agency said in an e-mailed statement.

Sallie Mae is one of four companies that won contracts with the Education Department for servicing some $550 billion in outstanding federally backed loans. The department said these companies will also service future loans.

The contracts are performance-based, and Remondi said during the conference call Sallie Mae is the largest collector. "As we continue to demonstrate our performance in that space, we will continue to see increased market share," he said.

The Education Department said Sallie Mae was paid about $18.9 million for servicing work since September.

Sallie Mae is also keeping an eye on legislation now being discussed by Congress that would allow private student loans to be discharged, or wiped clean, through bankruptcy.

The company said 85 percent of the private loans it wrote in the first quarter and 55 percent of the private loans in its portfolio were co-signed, meaning parents or others share responsibility for paying them back with students. Such loans would be protected if the new bankruptcy rules pass, except for unlikely situations where both parents and students declare bankruptcy, Remondi said.

However, any legislation making it possible to get out of school and not repay student lending would serve to make lending standards even tighter, he maintained. "It will very much constrict the supply of credit to students."

Sallie Mae last week reported a first-quarter profit of $240.1 million, or 45 cents per share, after paying preferred dividends. That compared with a loss of $21.4 million, or 10 cents per share, in the 2009 first quarter.

The results included restructuring charges of $19 million related to the job cuts.

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  1. These liberals are out of control. They want to drive our economy into the ground and double and triple our electric bills. Sierra Club, stay out of Indy!

  2. These activist liberal judges have gotten out of control. Thankfully we have a sensible supreme court that overturns their absurd rulings!

  3. Maybe they shouldn't be throwing money at the IRL or whatever they call it now. Probably should save that money for actual operations.

  4. For you central Indiana folks that don't know what a good pizza is, Aurelio's will take care of that. There are some good pizza places in central Indiana but nothing like this!!!

  5. I am troubled with this whole string of comments as I am not sure anyone pointed out that many of the "high paying" positions have been eliminated identified by asterisks as of fiscal year 2012. That indicates to me that the hospitals are making responsible yet difficult decisions and eliminating heavy paying positions. To make this more problematic, we have created a society of "entitlement" where individuals believe they should receive free services at no cost to them. I have yet to get a house repair done at no cost nor have I taken my car that is out of warranty for repair for free repair expecting the government to pay for it even though it is the second largest investment one makes in their life besides purchasing a home. Yet, we continue to hear verbal and aggressive abuse from the consumer who expects free services and have to reward them as a result of HCAHPS surveys which we have no influence over as it is 3rd party required by CMS. Peel the onion and get to the root of the problem...you will find that society has created the problem and our current political landscape and not the people who were fortunate to lead healthcare in the right direction before becoming distorted. As a side note, I had a friend sit in an ED in Canada for nearly two days prior to being evaluated and then finally...3 months later got a CT of the head. You pay for what you get...

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