Sallie Mae’s Incompetence

The Daily Texan, the student newspaper at the University of Texas published an article which highlights the current loan bill being floated around Washington. The bill which met great success in the house this week would cut Subsidized Federal Loan interest rates to 3.4% by 2011. Unfortunately the article states that President Bush does not support the decrease in interest rates and instead favors increasing Pell Grants. The beneficial decision would be to pass both!

The article contains information on the amount of interest that Sallie Mae and other lenders are guaranteed by the government.

Currently the government guarantees lenders a 7.72-percent rate of return. If the bill becomes law, that rate will drop to 7.62, which will be a relatively modest blow to the lending industry’s already excessive profits. But that hasn’t stopped them from crying bloody murder.

I wish the article contained the information to support these numbers and explained the rates better, however the way I am interpreting this is that even if you lock in a 5% interest rate with Sallie Mae the government will kick in another 2.72% in interest. Why the government is paying a subsidy to a company that manages 142 Billion dollars in loans and turned a profit of 342 Million in the 4th quarter of 2006 (A profit which is 96% lower than last 4th quarter) is beyond me.

Sallie Mae had the following comment on the interest rate reduction

Tom Joyce, a spokesman for Sallie Mae, the student loan organization, said such cuts could impact the services and benefits students receive. (Student Loan Info for Parents)

I realize I may be all across the board here but It is ludicrous for companies such as Sallie Mae to receive government subsidies while making copious amounts of money and providing poor customer service and high interest rates to its consumers.

What are your thoughts on the interest rate reduction, student loan companies and government subsidies for profit bearing companies?

The Daily Texan: Student Loan Interest Rate Bill Info