Sallie Mae Gets in a Fight

Don't expect Aunt Sallie to go down without a fight.

The new Obama budget calls for an increase in the Perkins loan program, which provides government-sponsored student loans.

The gist was that the government decided it was tired of subsidizing private lenders like Sallie Mae(SLM), which owns 34% of the student loan market.

Barclays Capital downgraded Sallie from overweight to equal weight on Friday and slashed the price target from $13 to $7. Credit Suisse cut its price target from $12 to $10. Analysts around the Street are measuring up the pieces of the business, even as they wonder whether the Obama administration will be able to stand firm against a possible Aunt Sallie lobbying effort.

In a press release on Thursday, Sallie CEO Al Lord said, "We are proud that in this economic crisis, we provided more loans to more students than ever before, and we did it using lower-cost federal funding similar to what is being proposed today."

This is fairly accurate, as student loans are the only loans whose rates are set by Congress. Perhaps if this were abolished, an open market would result in lowered rates for students.

In 2006, President Bush and the Congress increased the interest rates on student loans from 4.5% to 6.8%. But one year later, the College Cost Reduction Act was passed and is set to phase in a lower interest rate, but only for undergraduate students. Graduate students still have to pay 6.8%.

The 6.8% level is up there, considering that the government is lobbying to bring mortgage rates down to 4.5%. BankingMyWay.com lists the national average for a 30-year fixed mortgage at 5.32%.