Shares of SLM Corp. and other student lenders plunged Thursday after President Barack Obama proposed cutting the role of private industry from the federal government's college loan program.
There are currently two parallel systems for college loans - students can borrow directly from the government, or take out loans from banks and other private lenders that are subsidized by the government. In his budget proposal for 2010, Obama asks Congress to shift the entire system to direct government loans and eliminate subsidies to banks. The move would save more than $4 billion a year, according to the Obama administration.
The current system has "needlessly cost taxpayers billions of dollars" and has subjected students to "uncertainty because of turmoil in the financial markets," the proposal said.
Shares of SLM Corp.
Student Loan Corp.
In a statement issued Thursday, SLM noted it worked closely with the federal government last year to ensure students access to federal loans with no increase in cost to taxpayers.
"As more details emerge in the weeks and months ahead, we will continue to work with the administration and Congress to implement the best solution for students, schools and taxpayers," the Reston, Va.-based company said in the statement.
Even if Obama's proposal doesn't become law, it suggests Sallie Mae and other student lenders will face continuous threats under the administration, FBR Capital Market analyst Matt Snowling wrote in a note to clients.
Snowling lowered his price target on SLM shares to $13, down from $20, to reflect the possibility that Sallie Mae could turn into a servicer and debt collector for the government. He kept an "Outperform" rating on the stock, which indicates he thinks it will perform better than shares of its peers in the next 12 to 18 months and that investors should buy the shares at its current price.
About $60 billion - nearly half of all public and private student aid money - comes via the federal student loan program.
Last year, Congress made substantial cuts to student lender subsidies, but did not eliminate them.
The debate already has shifted in some ways. Experts point out that during the recent credit crisis, the government stepped in to prop up the subsidized lending program, so in practice the two programs already are merging.
Obama's first federal budget totals $3.6 trillion and lays out a far-reaching agenda. The proposal is already drawing fierce political opposition, but Democrats control both the House and Senate.
In addition to the changes in the college loan program, the budget includes ambitious initiatives concerning energy, health care and climate change.
No comments:
Post a Comment