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Bush budget trips up student lenders

Published February 6, 2007


WASHINGTON - Shares of student lending firms fell 6 percent or more Monday after President Bush's budget request included a proposal to cut lender subsidies by 0.5 percentage points - an amount one company said would increase the burden on taxpayers.

Stock in two of the firms dropped to 52-week lows.

SLM Corp., also known as Sallie Mae, whose stock fell nearly 9 percent in Monday trading, called the proposal "harmful" and said it would lead to reduced competition because private-sector lenders serve about 80 percent of all student borrowers.

"Students and families will have less choice and more expensive loans, and taxpayers will carry the burden and cost of higher student loan defaults," according to a statement from Reston, Va.-based SLM.

Shares of SLM dropped $4.09, or 8.8 percent, to close at $42.37 on the New York Stock Exchange after earlier hitting a 52-week low of $41.57.

Stamford, Conn.-based Student Loan Corp. and Lincoln, Neb.-based Nelnet Inc. also saw their stock prices drop. Representatives from those companies did not immediately return calls seeking comment.

Investors' worries may be justified, Prudential Equity Group analyst Charles A. Gabriel said.

"We fear that the 'lame duck' Bush administration - now hunkered down over Iraq, committed to a balanced budget, and facing a newly Democratic Congress in its last two years - may be doing the equivalent of 'throwing the student loan industry under the bus,' " Gabriel said in a research note.

The Consumer Bankers Association, whose members include bank holding companies, also denounced the proposal included in the White House's fiscal 2008 Education Department budget request, warning that the reductions may cause many lenders to reconsider participating in the Federal Family Education Loans program.

"Student lenders cannot sustain cuts of this magnitude which would cut margins by about 20 percent," association president Joe Belew said in a release.

"Driving away banks from this program will leave students with either a government monopoly or an oligopoly of loan providers."

The White House said reducing the subsidy would save an estimated $12.4-billion over five years that would be redirected to Pell Grants, which go to poor college students.

[Last modified February 6, 2007, 00:49:49]

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