Sallie Mae officials on Thursday refused to participate in a Clinton administration plan to shore up the government's embattled guaranteed student lending program.
In a letter to Education Secretary Richard W. Riley, Sallie Mae chief executive officer Albert L. Lord said his company is required to provide only a small portion of the $1 billion in emergency lending requested by the administration in the event private lenders drop out of the program.
Sallie Mae, which makes a secondary market in student loans, must provide only $200 million under its existing lender-of-last resort commitment, Mr. Lord wrote.
Sallie Mae and bankers are at loggerheads with the administration over plans to cut rates on government guaranteed student loans. Despite industry warnings that private lenders will flee the program, the administration is committed to preserving an 80-basis-point cut in interest rates that is scheduled to take effect July 1. Bankers say the cut would make the loans unprofitable.
"As a publicly owned company, we have a fiduciary responsibility to our investors to protect their capital. As a government-sponsored entity, we have a responsibility to ensure the financial safety and soundness of the company," Mr. Lord said. "To compel us to make loans under the proposed conditions would compromise those responsibilities and would, in our opinion, be unconstitutional."
An Education Department spokeswoman said Mr. Riley was reviewing Sallie Mae's letter Thursday afternoon and was not prepared to comment.
The administration has also refused to go along with a congressional compromise that would allow students to pay the lower rate, but partially reimburse lenders for the lost revenue with more than $2 billion in government supplements over five years.
Private lenders currently provide 70% of the $34 billion in guaranteed loans to students.
Mr. Riley has dismissed private lenders' threats to abandon the program, but has acknowledged that banks may eliminate small, less-profitable loans to students attending two-year colleges and trade schools. The Education Department has estimated that there could be a $5 billion lending shortfall, which would prevent two million students from receiving loans in the coming school year.
Mr. Riley has proposed that the government provide $4 billion in new direct lending, with the rest of the gap filled by Sallie Mae.
