Sallie Mae to turn on $10B private tap for student loans

by Tucker Echols

Sallie Mae is rushing into a market many are deserting by setting a goal of making $10 billion worth of student loans that are not backed by the federal government. Reston, Va.-based SLM, known as Sallie Mae, plans to make those loans within the next 16 months.

CEO Albert Lord, addressing a Lehman Brothers conference on Wednesday, said such private loans would let Sallie Mae set the interest rate and provide for more profit. Lord noted that Sallie Mae expects to make $20 billion in government backed loans next year. Sallie Mae originated a total of $25.5 billion in loans in 2007.

Lord said his management team is pleased that many competitors have stopped making private loans to students for fear that their credit is weakening. Lord said a lack of credit history should not be confused with poor history, and that students offer long-term credit potential.

Sallie Mae is also increasing the use of co-borrowers on its private loans. He expects the current 50 percent co-borrower rate to increase to 80 percent. SLM profit fell 72 percent in the second quarter to $266 million. SLM stock (NYSE: SLM) has lost almost two-thirds of its value in the last 12 months.

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