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3confidencegames
3defense
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3paradise
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499
1paradide
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11albion
6confidencegames
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Edmund Burke 360x1000
1empireofpain
4albion
storyparadox3
Richard Posner 360x1000
Learned Hand 360x1000
2paradise
5confidencegames
8albion'
7albion
2gucci
Margaret Fuller5 360x1000
Maurice B Foley 360x1000
12albion
LillianFaderman
Tad Friend 360x1000
Susie King Taylor 360x1000
2defense
11632
7confidencegames
199
2theleastofus
1theleasofus
Margaret Fuller4 360x1000
299
2confidencegames
1lookingforthegoodwar
Maria Popova 360x1000
George M Cohan and Lerarned Hand 360x1000
1madoff
Lafayette and Jefferson 360x1000
2transadentilist
1jesusandjohnwayne
Margaret Fuller2 360x1000
13albion
5albion
2falsewitness
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10abion
14albion
6albion
Thomas Piketty2 360x1000
1trap
1lauber
2albion
Margaret Fuller 360x1000
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1albion
Stormy Daniels 360x1000
9albion
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3albion
Office of Chief Counsel 360x1000
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399
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Betty Friedan 360x1000
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Ruth Bader Ginsburg 360x1000
Originally published on forbes.com on May 2, 2012
Before I met with John Remondi, President and COO of Sallie Mae, I combed through Sallie’s 10-K to see what they were worried about. One thing they say they are worried about is that the cost of college will go down. That would be bad for their business. When I asked Mr. Remondi about that he kind of smiled and said that was the type of thing they had to mention to their shareholders, but he didn’t really think it was all that likely. Then there is this other thing they are worried about:
For instance, during the fourth-quarter 2011, the Administration announced a Special Direct Consolidation Loan Initiative that provides a temporary incentive to borrowers who have at least one student loan owned by ED and at least one held by a FFELP lender to consolidate the FFELP lender’s loans into the DSLP program by providing a 0.25 percentage point interest rate reduction on the FFELP loans that are eligible for consolidation. We currently do not foresee the initiative having a significant impact on our FFELP Loans segment. However, the initiative is an example of how the Administration and Congress could detrimentally affect future estimated cash flows and profitability from our FFELP Loan portfolios through their actions.
The FFELP program was one of those public-private partnerships. The federal government guaranteed most of the interest and principal, but it was financial institutions making the loans. President Obama thought that the piece going to the financial institutions was really a waste of money, since they were not taking any risk. There are no new FFELP loans being made, but the existing loans will be around for a long time. Sallie Mae is transitioning to making non-guaranteed loans, but they expect to be making money off the FFELP loans for the next 20 years.
They are even buying more of them from other institutions.  It does not require a lot of capital for them to do that.  The federal guaranty makes the portfolios gilt-edged.  Sallie can securitize the loans with institutional investors getting something like LIBOR +1, while Salle gets LIBOR +2.  Doesn’t seem like that much of a spread but it can add up.
As I noted, the consolidation program outlined above worries them a little.  Well, here is what I am thinking.  Maybe we the taxpayers need to encourage our President and his likely opponent to propose a program that would worry Sallie a lot.  It is our guaranty that makes the debts of those kids (and many of them are not kids anymore) a valuable financial asset, that the capital markets can play with for the next 20 years.  Why don’t we just offer to refinance the whole lot at a reasonable rate?  That includes the loans that are not performing that well.  We are already stuck with the downside on them because of the guaranty.  If we want to be nice guys, we could do things like put in bankruptcy protection for the really desperate.  But even, if we want to be hardnosed about, it is the taxpayers who are at risk that should be making the profits on the loans for the next twenty years.
It is too bad that we don’t have a Presidential candidate that can think like a venture capitalist and make that kind of move on behalf of the American people.