Sallie Mae continues to weather the widening financial havoc that began by throttling the financial sector and now spreads to manufacturing, retail and even university sectors. SLM Corporation, its formal name, is a private corporation that in 2004 shed its government sponsored roots that dated to 1972. It provides student loans for education that are financed, in turn, by extensive use of asset-backed securitizations. In its quarterly report issued last week, Sallie Mae reported significant losses ($158 million) but far less than in the same quarter the previous year ($343 million). Institutional investors have been seen increasing their stake in Sallie Mae’s equity. Its stock closed in New York today at $8.26 per share (compared to a 52-week trading range of $4.19 to $42.00).
If Sallie Mae is a bright spot in an otherwise dismal economy, it may be vital to provide hope for a timely economic recovery from the brewing recession. Many universities, including Brown, Cornell and Harvard, faced with shrinking endowments, are reporting hiring freezes and budget cuts. Conventionally, these and other universities could count on economic recessions to increase demand measured by rising applications, especially for graduate programs in business and law. In general, applications to those programs rise as employment opportunities for college graduates shrink. When the economy expands, employment opportunities rise and applications flatten out.
Recently, unemployment rates are rising sharply and are expected to continue rising. Law school applications are predictably up. Past patterns, however, are likely to recur only if students are both able to secure requisite funding and ultimately land jobs that facilitate loan repayment. So far, Sallie Mae’s relatively respectable performance bodes well, as it has avoided the fate ensnaring its former cousins, Freddie Mac and Fannie Mae. And also so far, despite some contrary rumors, there does not appear to be any student loan crisis.