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