Bush Budget Bashes Student Lenders

WASHINGTON – The dwindling number of credit unions still offering guaranteed student loans are poised for yet another hit after President Bush proposed as part of his budget yesterday to slash federal subsidies for the loan program by billions of dollars. Sallie Mae, which dominates the market, saw its share price plunge almost 9% after yesterday’s announcement, while shares in Nelnet, another major lender, slumped almost 10%, and Student Loan Corp. by 6%. The White House proposal would cost lenders–including credit unions–billions of dollars by slashing loan subsidy rates by 50 basis points and raising the lender origination fees on new consolidation loans to 1%, from 0.5%. The plan would also reduce the amount of each loan that is insured against default from 97% to 95%. The Bush proposal comes as Democrats are also seeking to cut student loan subsidies to lenders in order to pay for a halving of the interest rates on many of the loans. Sallie Mae, which has carved out a share greater than 50% of the student loan market, slammed the President’s proposal and predicted it would drive lenders out of the market. “Students and families will have less choice and more expensive loans, and taxpayers will carry the burden and cost of higher student loan defaults,” said a prepared statement from the company, which has grown from a government sponsored provider of a secondary market for credit unions and banks, to the dominant originator of student loans with a $145 billion portfolio.