Sallie Mae said Wednesday that it expects losses in its private student loan portfolio to rise next year, but affirmed that it has enough cash to cover outstanding debt and fund new student loans. The Reston, Va.-based company expects net charge offs, or loans written off as unpaid, in its private student loan portfolio to increase to about $1 billion next year from an estimated $600 million in 2008.
Despite the expected increase in charge offs, Sallie Mae said the private student loan portfolio has performed within its expectations. Private student loans are not backed by the government and carry higher interest rates.The company also said that the impact of the economic downturn should be partially offset by improved credit quality going forward.
Sallie Mae, formally known as SLM Corp., said it is expanding its deposit base in an effort to provide funding for new private loan originations. The lender has increased its deposit base by $1 billion since Sept. 30, according to a company presentation at the Goldman Sachs U.S. Financial Services Conference in New York Wednesday.
Sallie Mae, the biggest player in the $85 billion-per-year student-loan market, also said it expects to originate $20 billion in FFELP loans in the 2008-2009 academic year. The FFELP, or Federal Family Education Loan Program, allows private sector companies -- such as Sallie Mae -- to market and lend federally guaranteed loans.
Sallie Mae assured profitability on FFELP loans through 2010, noting that a Department of Education facility will provide for unlimited funding of new FFELP originations through the next academic year. As strains in the credit markets pushed the lender's funding costs higher, Sallie Mae received $3.6 billion in funds from the Education Department in the third quarter under the government's program to provide liquidity for new federally guaranteed student loans.
Sallie Mae also said it expects to fund a portion of its existing portfolio through TALF, or the term asset-backed securities loan facility administered by the Federal Reserve. The Fed will make up to $200 billion of loans under TALF. Sallie Mae posted a loss of $159 million in the third quarter due in part to higher funding costs. Shares jumped 59 cents, or 6.8 percent, to $9.29 in afternoon trading. Shares have lost 54 percent this year.
Source: www.businessweek.com
