Tucked away in the 2,000-page health care bill is legislation that moves 100% of all U.S. student loans through the federal government as the point of origin. On the surface, that would appear to knock Sallie Mae (Stock Quote: SLM), the nation’s largest lender (it services student loans for 10 million students and manages $188 billion in student loans), for a loop. But early evidence shows the exact opposite.
Here’s the new landscape for college loans, and why Sallie Mae might not be in as much trouble as the experts think. The final piece of the health care reform puzzle, approved in late March, was legislation called the Healthcare and Education Reconciliation Bill. Under the bill, the federal government is the sole U.S. dispenser of student loans and grants, via the U.S. Department of Education.
That cuts private lenders, lime banks and quasi-private corporations (like Sallie Mae) out of the student loan direct lending market. Previously, Uncle Sam had subsidized student loan aid to private institutions through the Federal Family Educational Loan Program (FFELP).
According to the White House Web site, the new student loan bill also:
- Invests more than $40 billion in Pell Grants, more than doubling the funding available a year ago. By the 2020-2021 academic school year, more than 820,000 additional Pell Grants will be made. There are currently nearly 8 million.
- Expands the existing income-based student-loan repayment program. New borrowers who assume loans after July 1, 2014, will be able to cap their student-loan repayments at 10% of their discretionary income and, if they keep up with their payments over time, will have the balance forgiven after 20 years. Public-service workers — such as teachers, nurses and those in military service — will see any remaining debt forgiven after just 10 years.
- Includes $2 billion over four years for community colleges.
- Provides $2.55 billion in mandatory funding for Minority Serving Institutions, such as historically black colleges.
So where does that leave Sallie Mae? Initial reports from the lending giant weren’t exactly positive. Right off the bat, Sallie Mae had announced plans to slash one-third of its workforce of 8,500. Company execs also announced plans for a company “restructuring” in coming months.