WASHINGTON -- Bankers remain skeptical of the Student Loan Marketing Association's contention that they need not fear unfair competition if the agency goes private.
Sallie Mae president and chief executive Lawrence A. Hough, speaking at the Consumer Bankers Association's Student Loan Conference this week, maintained that his corporation does not plan to compete with student lenders in making loans.
"Our strength in the marketplace comes from our relationships with financial institutions," Mr. Hough said. "To preserve our position we have to have an approach to the business that will represent partnerships, not efforts to in a sense take over a business that's already in the hands of one of our partners -- lending would fit that kind of characterization in my mind."
However, Mr. Hough's assurances fell short of convincing banking industry representatives.
"Sallie Mae is anticipated to be very competitive in the market," said John Dean, special counsel to the Consumer Bankers Association. "The industry has been skeptical of Sallie Mae in the past, and we are now."
The Clinton Administration announced in August its plans to unleash Sallie Mae, a government sponsored enterprise, from its federal charter. This raised concerns in the banking industry of unfair competition, since student lenders see a privatized Sallie Mae as possessing very competitive capital generation and loan origination capabilities.
Nevertheless, Mr. Dean said that Mr. Hough's speech represented "unprecedented cooperation" between the industry and Sallie Mae.
Mr. Hough said that his corporation has been involved in "substantial investigation" into the use of an independently run nationwide computer network "open to all guarantors, all lenders, and all servicers." In order to compete with the direct loan program, participants in the Federal Family Education Loan Program need to provide schools with a more uniform method of accessing borrower eligibility information and electronic loan funds transfers, Mr. Hough said.
"We are now well aware that the federal government has designed direct lending to be free of difficult steps which are inherent in [loan program] process," Mr. Hough said.
"This is a standard we can match if we can agree on a universal processing convention that adopts truly open architecture with access to all."
"The ability to say to a financial aid officer at a college, 'Here's a menu, go ahead and pick,' is a good thing for FFELP," said David R. Kelly, senior product manager for the First National Bank of Boston.
In an interview in August, Mr. Hough said that Sallie Mae shareholders' valuation of the corporation had dropped dramatically in anticipation of the federal direct lending program. The family loan program is Sallie Mae's traditional source of loans.
"The nuts and bolts of his message are very on-target. You've got to simplify and streamline and make the loan process more user-friendly," said Joe Belew, president of the consumer bankers group. "It is critical to the survival of FFELP."