The student loan saga continued Monday when shares of the nation’s largest provider of loans dropped the most in 14 years.
According to Bloomberg, SLM Corp’s stock fell 8.8 percent on the New York Stock exchange, “the biggest one-day percentage decline since February 1993.”
The drop in SLM, or Sallie Mae, shares occurred in response to the Bush administration’s announcement that his 2008 budget plan would include federal cuts to subsidies paid to student loan companies.
Sallie Mae currently provides loans to over 10 million students.
Student loans have recently become one of the most talked about issues in Washington.
On Jan. 17 the House of Representatives passed the College Student Relief Act, a bill which would slash interest rates for subsidized student loans in half by 2011. The act’s passage was the first in a flurry of activity regarding college loans.
The White House denounced the Act, saying that “reducing student loan interest rates would direct Federal subsidies to college graduates, not to students and their families who are struggling to meet current and future educational expenses.”
While the bill would lower monthly repayment rates for millions of students, it would have no effect on any loans dispersed before July 2007 and wouldn’t take effect under a typical student-lending plan until after graduation.
Rep. George Miller, D-Calif., who introduced the bill, called it a starting point. Miller, who chairs the House education committee, also expressed hope that Congress would take up further legislation affecting the affordability of college, including bills dealing with tax credits and Pell grants.
House Minority Whip Roy Blunt, R-Mo., opposed the bill, claiming the cut in interest rates “does not impact a student’s ability to pay college tuition.”
Also on the student loan front, the U.S Department of Education settled with Nelnet, a $22.9 billion student-loan company, effectively closing the door on the company’s use of a loophole which had allowed it to charge a high interest rate on loans.
The settlement came on the heels of a September audit by the U.S. Inspector General’s office that accused Nelnet of improperly receiving $278 million in government money and charging the government $882 million more.
Under the settlement, Nelnet gets to keep the $278 million it already received but will not receive any more money.
Under Secretary of Education Sara Martinez Tucker defended the Department of Education saying the monies were “not made from eligible sources of funds.”
Nelnet officials disagreed with the Inspector General’s audit, but were content with settling and thusly avoiding “costly litigation.”
Miller, as a committee chairman, vowed to investigate the matter further. “We will ensure that taxpayer dollars are used properly,” he said in a statement.
Andrew M. Cuomo, the recently elected attorney general in New York, has also been investigating the student loan industry.
Cuomo’s office last Thursday announced that it is seeking records from various lenders and universities to determine whether conflicts of interest have come in to play when universities assemble “preferred lender” lists.
“My office is seeking to ensure that students are being steered toward lenders offering the most competitive rates, not those who offer the best perks to schools or financial aid administrators,” said Cuomo in a statement released by his office.
Cuomo’s requests follow those initiated by current New York Gov. Eliot Spitzer in November, when Spitzer was still attorney general. Spitzer’s office requested information from six lenders, including Nelnet, Educap and Sallie Mae.
The New York Times reported in October that Educap invited-and covered expenses for-several university officials to a conference in the Caribbean. Once the story broke, however, Educap canceled the conference.
Cuomo’s request included schools in 18 states, including 10 in California, nine in Pennsylvania and seven in New York. Cuomo’s office, however, did not release the names of the individual schools.