RESTON, Va. – Sallie Mae, the nation's largest student lender, narrowed its loss in the first quarter to $21 million, down from a $104 million first quarter loss last year, despite government efforts to stabilize short-term debt markets that Sallie Mae says hurt its results.
Sallie Mae said it was hurt by government efforts to stabilize the commercial paper market, a major source of short-term borrowing for corporations to meet such needs as paying vendors and making payroll. Financial turmoil last fall sharply reduced commercial paper borrowing, as companies faced higher interest rates to raise short-term cash.
The government moved to prop up the commercial paper market. But the resulting lower borrowing rates have hurt Sallie Mae, since the bulk of its federal student loan portfolio earns interest based on commercial paper borrowing rates.
As a result, Sallie Mae said its net interest income fell by $179 million, in the first quarter. Net interest income is the difference between how much it costs a lender to borrow money and how much it receives from lending money. The U.S. Department of Education made an adjustment in the fourth quarter to try to offset dislocation in the commercial paper market, but did not make a similar first-quarter adjustment, Sallie Mae said.
"Ironically, positive action taken by the federal government to stabilize the commercial paper markets is adversely impacting student loans and student-loan backed securities," said Albert Lord, vice chairman and chief executive of Sallie Mae.
"We do not believe this result was intended, and are working with members of Congress to resolve the issue," Lord said.
In the first quarter the company set aside $297 million for managed private education loan losses amid mounting delinquencies, or late payments. Sallie Mae also charged off $202 million of private managed education loans, up from $159 million in the fourth quarter.
Private education loan originations fell to $1.5 billion from $2.5 billion in the year-ago quarter as lenders tightened underwriting standards. Private student loans are not backed by the government and carry higher interest rates.
