Sallie Mae announced that a new law cutting out private lenders in the federal student business and stricter underwriting rules for private student loans will cost the company 2500 jobs.
The law strips the middleman role in student lending away from banks. It's expected to save at least $60 billion in fees that went to banks to process government-backed student loans.
Sallie Mae, which wrote a record $7.7 billion in federal student loans in the first three months of the year, says it will also mean a drastic reshaping of the company.
"Ironically, one quarter before the government takes over loan originations, Sallie Mae broke its own (federal student loan) origination record," Sallie Mae Chairman and CEO Albert L. Lord said in the company's earnings announcement.
While the new student loan law may mean fewer profits for private banks it could mean less confusion for borrowers and definitely fewer costs for the American taxpayer. For years the American taxpayer has funded fees to banks for student loans that were backed by the guarantee of the U.S. government. What that meant was that even if a student defaulted on their student loan, the bank got paid because the loan was backed by the government. It is about time that this practice has ended. Now all we need is to give student loan borrowers more rights under the bankruptcy law. Currently it is nearly impossible to discharge student loans in bankruptcy. But many young people come to bankruptcy with tens of thousands of dollars in student loans, needing relief. A fair bankruptcy system would allow borrowers to discharge student loans just like other unsecured debt such as credit cards especially after so many years. For example, it is ridiculous that someone who has been attempting to repay student loans for 20 years should not be allowed to discharge them in bankruptcy if it is clear that their financial situation makes repaying those student loans impossible.