Sallie Mae, the largest student loan company in the United States, is cutting 2,500 jobs over the next two years in response to new legislation that ends taxpayer subsidies to private lenders for the origination of federal student loans.
Sallie Mae has informed 1,200 employees at offices in Killeen, Texas, and Panama City, Fla., that they will lose their jobs by the end of the year, according to reports from The Associated Press. An additional 1,300 jobs are expected to be phased out in 2011 (“Sallie Mae Cuts 2,500 Jobs Citing Student Loan Law,” USA Today, April 23, 2010).
The job cuts come in response to the Student Aid and Fiscal Responsibility Act, which was passed in March as part of the Obama administration’s larger health care reconciliation bill (H.R. 4872).
SAFRA, which goes into effect June 1, ends the Federal Family Education Loan Program (FFELP) and its decades-old practice of federally subsidizing bank middlemen to originate federal student loans that are guaranteed by the U.S. government, thereby pushing Sallie Mae and other private student loan companies out of the federal student loan business.
The legislation instead expands the government’s Federal Direct Student Loan Program, which issues federal college loans directly to borrowers rather than through third-party private companies like Sallie Mae, so that the U.S. Department of Education will originate all federal student loans going forward.
“We’ve been warning about the impact of this legislation, and [cutting jobs] is a direct result of that,” said Sallie Mae spokesman Conwey Casillas (“Sallie Mae Closing; Boyd Holds Out Hope,” Panama City News Herald, April 21, 2010).
Supporters of SAFRA maintain that the overhaul of the federal student loan system and the end of government-subsidized third-party lending will save taxpayers billions of dollars and shift what had previously been bank subsidies into other education-based programs, including federal Pell grants for low-income students. At the same time, the elimination of the FFEL program means nearly a third of Sallie Mae’s 8,600 employees will have to find new jobs in a struggling economy in which unemployment continues to hover near 10 percent.
The student loan reform is “not good for the company, and it’s certainly not good for the employees,” said Sallie Mae Chairman and CEO Albert Lord.
The Department of Education, however, disputes Sallie Mae’s claim that the job cuts are all due to the move from FFELP to Direct Lending.
Sallie Mae Transitions From Originating to Servicing Federal Student Loans
Sallie Mae’s restructuring efforts will begin in about 60 days. In Killeen, all 500 jobs will be phased out during the remainder of 2010 and possibly the first quarter of 2011 before the facility there is closed. The company will take the same approach in eliminating all 700 jobs from its facility in Panama City.
Sallie Mae said it will offer employees a minimum of four months’ severance and also provide assistance in helping them find new jobs or transfer to other positions within the company (“News That Local Call Center Is Closing Stuns Workers,” KWTX TV, April 22, 2010).
As it transitions away from being an originator of federal student loans, Sallie Mae will need to reorient staff away from issuing federal student loans toward federal student loan servicing — handling borrower payments, repayment plans, and collections.
Sallie Mae is one of four student loan companies — Nelnet, Great Lakes Educational Loan Services, and the Pennsylvania Higher Education Assistance Agency (PHEAA) are the others — that won contracts with the Department of Education to service $550 billion in current outstanding federal student loans as well as future federal student loans originated under the Federal Direct Loan program.
Sallie Mae will also continue to originate and service its own private student loans, which are not backed by the federal government and which are intended to supplement a student’s federal college loans when federal student aid and other financial aid isn’t enough to cover the student’s college expenses.
To help employees at FFELP-based student loan companies like Sallie Mae, the Education Department has created a $50 million fund to aid in transitioning workers from loan origination to loan servicing.
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