2trap
1lookingforthegoodwar
Betty Friedan 360x1000
Margaret Fuller5 360x1000
George M Cohan and Lerarned Hand 360x1000
Richard Posner 360x1000
Office of Chief Counsel 360x1000
Margaret Fuller2 360x1000
4confidencegames
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2transadentilist
14albion
2jesusandjohnwayne
AlexRosenberg
2lafayette
3defense
Maria Popova 360x1000
12albion
Margaret Fuller3 360x1000
1trap
LillianFaderman
lifeinmiddlemarch1
Mary Ann Evans 360x1000
3theleastofus
7confidencegames
5albion
299
Tad Friend 360x1000
1albion
Learned Hand 360x1000
7albion
199
1gucci
2confidencegames
3paradise
Edmund Burke 360x1000
storyparadox3
Adam Gopnik 360x1000
5confidencegames
Margaret Fuller 360x1000
9albion
11632
Susie King Taylor2 360x1000
1confidencegames
Spottswood William Robinson 360x1000
Thomas Piketty3 360x1000
1lafayette
2lookingforthegoodwar
George F Wil...360x1000
storyparadox2
4albion
Margaret Fuller4 360x1000
2defense
11albion
2albion
Margaret Fuller 2 360x1000
2theleastofus
1jesusandjohnwayne
3albion
1lauber
2falsewitness
1transcendentalist
1paradide
Mark V Holmes 360x1000
1theleasofus
Thomas Piketty2 360x1000
2paradise
Susie King Taylor 360x1000
1falsewitness
lifeinmiddlemarch2
10abion
Ruth Bader Ginsburg 360x1000
2gucci
Thomas Piketty1 360x1000
6confidencegames
Lafayette and Jefferson 360x1000
Anthony McCann1 360x1000
Storyparadox1
8albion'
13albion
399
James Gould Cozzens 360x1000
1madoff
Margaret Fuller1 360x1000
3confidencegames
Samuel Johnson 360x1000
Stormy Daniels 360x1000
1empireofpain
Anthony McCann2 360x1000
6albion
1defense
Maurice B Foley 360x1000
499
Brendan Beehan 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.