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Approval of college-aid overhaul to shake Sallie Mae

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Congress on Sunday night approved a vast rewrite of college aid for needy students—a measure that might lead to big job losses at Sallie Mae, one of Indiana’s biggest employers.

The legislation, piggybacked to the health care reform measure, would end a four-decades-old program and its reliance on private lenders. It would authorize the government to originate all assistance loans and would use the savings to increase Pell Grants to students.

The overhaul is almost sure to bring big changes for Virginia-based Sallie Mae, the giant of the student loan industry. The company employs about 2,500 people in Indiana, including 1,700 in Fishers.

While Sallie Mae still could service loans, it would no longer be able to originate them. The result could push the company to reduce its 8,100-person work force by as much as one-third, it has estimated. It’s uncertain whether all three of the company’s Indiana offices—in Indianapolis, Fishers and Muncie—would survive.

But it’s also possible the region could gain jobs. In response to the pending legislation, Sallie Mae last year threatened to hack its network of 26 offices down to just five. The local offices have capacity to add 750 workers. And site selection consultants say the state’s labor quality, real estate costs and overall business costs make it an attractive locale for consolidation.

As the biggest piece of education legislation since No Child Left Behind nine years ago, the bill would direct more than $40 billion over 10 years into higher education, with $36 billion going toward the popular but financially strapped Pell Grant program. Historically black colleges and community colleges also would receive a share of the money.

The Senate could take up the bill this week under the same expedited rules used for health care legislation. That means the Senate could pass the education measure by a simple majority, virtually guaranteeing its success despite qualms from some Democrats and opposition from Republicans.

House lawmakers passed the bill last year, but it failed to get action in the Senate, where it did not have 60 votes to overcome a near-certain filibuster. By riding shotgun on the fast-track health care bill, the legislation now can avoid that obstacle.

Sallie Mae and other private lenders have conducted an all-out lobbying effort against the bill, arguing it would cost thousands of jobs and unnecessarily put the program in the hands of the government. Under the college aid program, financial institutions provide college loans at low interest rates, the government guarantees the loans in the event of default and subsidizes private lenders when necessary to keep rates low.

Sallie Mae shares were trading late Monday morning at $11.46, down just 14 cents on the day. Investors in the company and its competitors initially panicked after the Obama administration proposed the plan in early 2009. They still view it as a negative, but not disastrous. Sallie Mae shares now trade at more than three times their March 2009 low.

By directing the government to originate loans, the legislation would see savings totaling $61 billion between now and 2019, according to the nonpartisan Congressional Budget Office.

That money would be used to finance a continuation of the Pell Grants and other higher-education assistance in the bill. But about $19 billion would be used for deficit reduction and to offset expenses in the health care legislation.

The legislation is not as generous as the bill the House passed last year. The government anticipates smaller savings than initially foreseen and the Pell Grant now faces a $19 billion shortfall. The bill provides $13.5 billion to fill that budget hole.

Congressional Democrats had to trim their original student loan plans, reduce spending for community colleges and eliminate about $8 billion in early childhood education money from their initial bill.

The bill proposes no increases in Pell Grants over the next two years and a modest increase over the five years that follow. The maximum Pell Grant, which a House-passed bill last year would have raised to $6,900 over 10 years, will now only increase to $5,900. The current maximum grant for the coming school year is $5,500.

Following Republican criticism, Democrats dropped a provision in the new bill that would have allowed the state-owned Bank of North Dakota to continue making federally financed student loans to students.

"That's out, end of the story," said Rep. Earl Pomeroy, D-N.D.

 

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    A Coverdell Education Savings Account, or Coverdell ESA, is an investment account designed to cover any future education expenses. Many people neglect to consider the costs of primary and secondary education and tend to focus merely on the astronomical expenses imposed by universities.

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  • Watashi
    To answer the questions....
    I did make sure TechSkills was an accredited school and I simply believed all the BS they told me when I visited the school in person. I graduated from Butler University 15 years ago and yes... my parents and I checked out the college before my enrollment. TechSkills claimed to have direct job placement opportunities with local hospitals in Indianapolis and I was stupid enough to believe the stuff they said. Now I am trying to prevent others from repeating the same mistake I made. By the way... most of the students are getting various federal loans for TechSkills only to be jobless after "graduation". Who do you think is paying those loans to TechSkills... yes... YOU the tax payer. That makes us ALL fools with money huh ????
  • Summary
    I realized I forgot to add to my note:

    The question begging to be answered to this is:

    Do you want to federalize or privatize?

    If you want a mixture, then how do you objectively present which products/services fit within each program?
  • Regardless of the job the Prez is doing...

    ... it's a bad deal.

    I won't go into the "how many jobs will be lost" as 1) everyone else will drag it out; 2) it's a bad reason to keep a a business afloat. It might not be on the same scale, but it's no different than, "AIG is too big to let them crash". It's "make work" logic. You keep them in business, but they have no motivation to do anything but float. (This has no bearing upon staying in business to get bonuses. And we'll deal with that at a later time.)

    This includes industries which have thousands of employees employed. People look at large groups, but don't know the stats. I don't have a cite in front of me, but ~90%+ of the population works in operations (stores or franchises) of 20-50 people.

    Letting an auto factory seems catastrophic, but there no more than a handful of places which have a bloc [sic] of employees of that size.

    Back to point.

    Party affiliation aside (I don't like either of the big two, and the ability to allow 3+ parties would be better, even if only to get away from a zero-sum game - think oligopoly), it keeps other parties at bay because the logic is a bit more complex than the players would like it to be.)

    One end of the spectrum prefers to have as many services as possible within its control because there's some internal accountability. I think of it like a large umbrella. The bigger the umbrella, the greater the chances people will be protected, particularly if a hole tears, people can move around to a dryer position. This is what's in progress for businesses like Sallie Mae.

    On the other end of the spectrum, you have My Man Mitch. Sign a long, long-term contract and collect the money. There are two problems with this: 1) a parachute in case the company goes out of business; 2) there's no recourse if the service becomes unbearable to the people needing that service.

    For the "average citizen", consider something like toll roads. Look at getting from here to downtown Chicago. You'll average three tollbooths. Sometimes there are people there, just collecting the money and dropping it into the till, other times, there's a basket, although a booth which deals with those who don't have exact change. (There's also those who have prepaid "zoom" cards.

    If the baskets work, why are people doing the work? Getting rid of the baskets means more people are employed.

    What will happen with I-69?

    Everyone can guess, but until it happens...

    N.B. To the OP: Did you go to that school simply because you could find a loan? Did you research what the schools are like and how well others have done (or not) when they've attended that school?

    There's a reason why parents+kids make college visits. Granted, it's a "regular" school, but people still check it out. Do you think athletes don't visit before they sign on the dotted line?

    "A fool & his money..."
    • Sallie Mae Corruption
      Since Sallie Mae services loans to scam schools like TechSkills in Indianapolis... this is GREAT news. When enrolling in their medical coding program two years ago BEFORE the economy fallout... TechSkills promised a great job and I even paid the extra $4,000.00 for job placement after graduation. Guess what I got instead.... not even an interview. Now I have a monthly student loan to Sallie Mae for a scam they played with TechSkills. The Indiana Attorney General was useless since so many local jobs were involved and TechSkills pays millions in political dollars. Now students can be protected from such scams if the Federal Government overviews schools and bases the student loans on graduation rates and job placement. NO MORE EMPTY PROMISES and SCAMS !! I graduated with a 4.0 GPA, had excellent work records and passed the National Medical Coding exam with an 88% on my first attempt. But it takes two years actual job experience to get a decent medical coding job... certainly not what TechSkills promised when that Sallie Mae paperwork was in front of me to sign !!!! Students need protection against scams like TechSkills and now they have it.

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