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Sallie Mae Wants a Handout Too?



April 17, 2008 – Comments (7)

Someone remind me again why we need these "private" businesses which tuck away profits in the good times but come crying for taxpayer capital as soon as things go bad?

Sallie Mae Chief Financial Officer Jack Remondi said on the call: “Although we are awaiting a potential resolution of this issue from Washington, I want to be perfectly clear. We will not do business that jeopardizes the company’s liquidity position or franchise value.”

Note: I'm not saying the government shouldn't be involved in student lending. I think there's a great argument to be made that it's a vital enterprise, and should maybe be entirely run by a theoretical government agency that could make good, non-partisan decisions. (OK, get off the floor and stretch your over-laughed guts...)

But seriously, I see no reason that taxpayers should continue to play backstop for private companies when they need to suffer through the inevitable lean years. Don't wanna play by the market rules? Then get out of the game, and no free or low-cost taxpayer money for you. Want free or low-cost taxpayer money? Fine, then pay dividends back to the taxpayers.


7 Comments – Post Your Own

#1) On April 17, 2008 at 3:06 PM, metoo105 (28.03) wrote:

Okay, fair point.

But what do you think will/should happen come next September when the schools try to continue on as normal, but there's no one there to issue the loans?

TERI's bankruptcy and the others that have closed their doors or are perhaps soon to follow (FMD?) obviously leave SLM with more than a full plate.  


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#2) On April 17, 2008 at 3:48 PM, ByrneShill (83.01) wrote:

Any "too-big-to-fail" institution crying for a bailout should be nationalized, just like UK did with northern rock.

You're gonna fail but it would hurt too much? Fine, the bank gets bailed out, but it now belongs to the taxpayer. It'll get privatized again when the smoke clears.

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#3) On April 17, 2008 at 4:12 PM, Gemini846 (34.60) wrote:

It should never have been privatized in the first place. All privatization did for it was raise the rates to students because of kickback packages to universities.

College is a waste for 90% of the people who go (esp the 50% who don't graduate). For the average guy who doesn't do something very technical (Law, Medicine et) the average increase in earnings doesn't equal the opportunity cost of college. If you spent your 5 years working and teaching yourself about money you'd be a hell of a lot better off than blowing 50k + opportunity cost of not working on a degree. The average college completer makes a touch over 10% more than people in the same field w/ no degree. I know that's mind blowing but it takes 42 years for the 10% to catch the cost + opportunity cost of college. It gets worse when you figure that the 50k sticker price was financed at 6% unlike public direct loans at 3.5% meaning the real cost of that degree is more like 85k.

If you were to live at home and put 20,000 in a crappy 5% yield account each year instead of going to college (Figure you make 25-30k) your 100k in the bank turns into 730k in that same period even adjusting for 30% tax that money still makes you $450k. How many people do you know who went to school at 60 and don't have that much in thier retirement.  

My wife's cousin just told me that she's graduating with one of those fancy "health care admin" degrees that are so hot right now. Because the schools have been pushing them the entry level position she expects to work for 2-3 years pays $8/hr. Damn I can make that at McD's and not even speak English.

Sorry about the rant, but maybe if we could learn something useful in high school we wouldn’t feel like college is such an entitlement or even worse necessity.

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#4) On April 17, 2008 at 6:34 PM, FleaBagger (27.47) wrote:

It's too bad that corporations aren't saintly like the government is - that ivory tower of purity and morality.

Changing the subject: one thing that I've noticed about things that are wildly overpriced (houses, tuition, and corn) is that we're pushed to ignore cost/benefit analysis of these things by the propaganda (think about how holy "homeownership," "education," and "renweable energy" are).

Well, good thing the government is so honest and good, and will save us from evil capitalism if we vote good enough.

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#5) On April 17, 2008 at 7:24 PM, abitare (30.20) wrote:

FYI - I got a petition on Fool blog to stop a Tax payer bail out of Wall Street, if you want to take 2 minutes and sign 8000+ so far.

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#6) On April 17, 2008 at 8:31 PM, TMFBent (99.33) wrote:

It's about time. Probably never happen here, though, because the very term "nationalize" is tainted. Although it would make MUCH more sense for the regulators to take these junkheaps over and pay back the taxpayers for their help during a reprivatization, somehow our bonehead lawmakers think just handing these outfits free or low-cost money is "capitalist" while taking the reins in return for offering that money isn't.

It's nuts.

Any "too-big-to-fail" institution crying for a bailout should be nationalized, just like UK did with northern rock.

You're gonna fail but it would hurt too much? Fine, the bank gets bailed out, but it now belongs to the taxpayer. It'll get privatized again when the smoke clears. 


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#7) On April 17, 2008 at 11:27 PM, dwot (29.28) wrote:

We're all talking about education today?

I just did a post on cost benefit. Gemini added in something I didn't consider... 

I am not sure that continuing to give students loans when the supply/demand is working against them is such a good idea.  Seriously, if I'd become a career waitress with my first job that I got when I was 15 I'd have done financially better than I did doing 6 years of university.  I didn't make more when I went to work in a bank and then housing went up $120k on a dump while I was getting an education (how long to pay $120k?).  So, lost wage opportunity, lost ability to get affordable housing, student loans, forced liquidation at 40c on the dollar of my mom's property and a crap job market when I get out...

Chances are that today's students will face skyrocketing interest rates on loans.  When I ask if we are helping students by giving them loans I'm not saying it because I've already got my degree, but because I've seen many in Vancouver absolutely struggle and not able to pay student loans back. 

It isn't across the board.  For example, a fellow teacher hadn't made any dent into his student loans 5 years out and still stuck on the on call list, whereas his wife did engineering and made 3.5x what he was making and paid hers back in 5 years.  So, his story is similar to mine except he got to add that he became dependent on his wife to start paying his student loans back.  And he mentioned that his younger sibling saw zero value to taking the "responsible" route.  His brother decided to live at Whistler and get a job with a season pass and just ski when not working.  He's looking at it wondering what he worked so hard for because he's not having any fun and his brother is enjoying life.

The economy hit me hard, but my husband was more fortunate like his wife.  

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