Economic Woes Hit Sallie Mae, Nelnet

Tightening credit markets and the slowing economy appear to be spreading into the student loan industry, as two major lenders announced recently that they will be cutting jobs and shying away from riskier loans. Last Friday, Virginia-based Sallie Mae said it would be trimming 350 jobs across the country, roughly 3 percent of its workforce. Nelnet, located in Nebraska, announced it would cut 300 jobs, about 10 percent of its workforce — its second round of major layoffs since September. Both companies also announced changes to the loan services they would be offering. Sallie Mae said it would be more selective about offering private loans to students with low credit scores and those enrolled at schools with low graduation rates. Nelnet, meanwhile, announced it would stop offering loan consolidation services and would be more selective with the loans it offered.

The job and loan cuts were among a slew of negative Sallie Mae stories this week. The loan provider also reported that increased borrowing costs and loan defaults caused the company to lose $1.6 billion in the fourth quarter of 2007. In addition, Sallie Mae revealed that the Securities and Exchange Commission has been asking questions about public disclosures by high-level executives around when they sold shares of Sallie Mae stock — a likely outgrowth of the probe into allegations of insider trading by current CEO Al Lord.  Somewhere, former Sallie Mae CEO, Larry Hough, is smiling. 

Cuomo Extends Study Abroad Probe with 15 Subpoenas 

New York Attorney General Andrew Cuomo’s investigation of study abroad companies reappeared this week with the announcement that his office had sent subpoenas to 15 colleges and universities. The investigation originally began back in August as an outgrowth of Cuomo’s student loan investigation, which uncovered numerous improper dealings between colleges and student aid providers. Cuomo initially sent subpoenas in August and September to five study abroad providers, uncovering a series of deals in which the programs would pay colleges a portion of their fees in exchange for signing up students. Despite this, the investigation lay largely dormant until Cuomo reportedly sent subpoenas out to more than a dozen colleges this week, including prestigious institutions such as Harvard, Brown, and Columbia. According to the New York Times, these subpoenas ask colleges about their process for selecting approved study abroad programs and whether they have received any inducements to sponsor a specific program.

Three More Colleges Announce Aid Expansions 

Dartmouth, Bowdoin, and Colby colleges all announced substantial changes to their financial aid packages this week, following the recent lead of Harvard and Yale. Dartmouth’s expansion is the most impressive of the three, eliminating tuition contributions for students from families making under $75,000 annually, replacing all loans with scholarships, and considering all international applications need-blind. Dartmouth’s announcement differs from plans recently unveiled by Harvard and Yale, which cut costs significantly for upper-income families but still kept some form of contribution for all families making more than $60,000 a year. Meanwhile, Colby and Bowdoin announced this week that they would eliminate all loans from current and future student aid packages and replace them with grants, an impressive move given that both have endowments well under $1 billion (subscription required).

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