***** The Chronicle of Higher Education October 13, 2000 SECTION: GOVERNMENT & POLITICS; Pg. A42 HEADLINE: Rate of Student-Loan Defaults Drops for 8th Consecutive Year BYLINE: STEPHEN BURD
...Since President Clinton took office, in 1993, the Education Department has removed 1,350 postsecondary institutions from the loan programs, 850 because of high default rates, and 500 due to their loss of accreditation or other violations of federal financial-aid rules. Most of those removed have been for-profit trade schools.
This year, only 11 institutions had 1998 default rates that have put them in danger of becoming or remaining barred from participating in federal student-loan programs. Institutions with default rates of more than 40 percent in one year, or 25 percent or more for three consecutive years, can lose their eligibility to remain in the student-aid programs.
...The default rate at commercial trade schools, which remains higher than those for the other sectors of higher education, fell by the largest amount. As a group, the institutions averaged 11.4 percent, down from 15.4 percent in 1997.
The average rates for nonprofit institutions were 5.7 percent for public four-year colleges, down from 6.9 percent in 1997; 10.7 percent for public two-year colleges, down from 12.7 percent; and 4.5 percent for private four-year colleges, down from 5.8 percent.... *****
***** The Chronicle of Higher Education September 17, 1999 SECTION: MONEY & MANAGEMENT; Pg. A51 HEADLINE: Sallie Mae Widens Marketing Horizons, Building on Its Student-Loan Expertise BYLINE: GOLDIE BLUMENSTYK
Two years into its new life as a private company, Sallie Mae is moving to become a player in the arena of running colleges' business operations....
Long a behemoth in the world of student loans, Sallie Mae announced in late August that it was creating a division that would handle the processing and clerical duties of college financial-aid offices. The division, called Sallie Mae Solutions, also would operate other back-office functions for colleges that decide to outsource such activities as student billing and collections, registration, and record-keeping aspects of admissions....
Creating Sallie Mae Solutions is the latest of several recent steps designed to reinforce the company's position in student lending. The company already manages a portfolio of student loans, amounting to $ 49-billion, held by five million borrowers.
This year, it began offering loans aimed at students enrolled in for-profit universities, trade schools, distance-learning courses, and continuing-education programs at traditional universities. Many of those students attend college less than half time and so don't qualify for federally subsidized loans.
Like other so-called private loans made by Sallie Mae and many other financial institutions, the new "career education" loans are not subsidized by the federal government. Because there are limits to the amount that can be borrowed under the government-subsidized loan programs, students typically use private loans to help cover the gap if their college costs exceed that amount.
But only a few companies, including Sallie Mae, have begun to market private loans specifically to students in non-traditional programs -- students taking a single distance-education course, for example. The "career education" loans are in use by students at more than 1,000 institutions and companies that offer training, Sallie Mae says. About $ 185-million in such loans has been approved since January, with an average loan at $ 6,800.
The loans have proved helpful to several for-profit companies, including Corinthian Colleges. Operating at 37 locations in 16 states, Corinthian used to finance student loans itself, but found doing so too costly and distracting. "We've been able to replace a good chunk of that with Sallie Mae," says Nolan Miura, the company's treasurer.
The career-education loans are costlier to students than government-subsidized loans are: At most of the institutions where Sallie Mae is offering them, interest rates begin at prime-plus-1-per-cent and rise to as high as prime-plus-8-per-cent, depending on an applicant's credit-worthiness. The prime rate is 8.25 per cent; government-subsidized loans are available at rates as low as 6.32 per cent.
But because the loans are easy to apply for and are generally acted on within 24 hours, they are popular with some students, especially those who don't qualify for federal loans....
Such a strategy is relatively new for Sallie Mae, which was created in 1973 by Congress as the Student Loan Marketing Association. For years its charter restricted it to the business of buying and servicing loans made by banks and other financial institutions, rather than originating them -- although it did work with partner banks that agreed to sell the loans to Sallie Mae.
But its business changed under a 1997 privatization plan -- initiated by the company and approved by Congress -- that give it the ability to originate loans and to pursue other business ventures as well.
Since July 1, Sallie Mae has also originated government-subsidized loans. To help jump-start that business, this summer it acquired Nellie Mae, one of the largest originators of student loans (The Chronicle, June 4).
Although Mr. Carey emphasizes that the outsourcing work done by Sallie Mae Solutions will be expected to make money itself -- rather than to serve as a loss leader for attracting loan business -- several observers speculate that the company also hopes that the new venture will help it capture more of the government-subsidized loan business....
Sallie Mae Solutions also hopes to build some outsourcing business from a relationship it forged in 1996 with PeopleSoft, the software company. In 1996, Sallie Mae invested several million dollars in PeopleSoft to help finance the development of administrative software to manage student information. In return, Sallie Mae received exclusive rights to operate that software for colleges on an outsourcing basis....
More than 200 institutions have licensed PeopleSoft's student-information system, but the new product has been the source of complaints about unreliability on many of the campuses.
With interest in outsourcing on the rise at many institutions, some college business officers predict that Sallie Mae could be getting a jump on the market with its new venture....
"Sallie Mae has lots of money. They should have. They've gotten it off the backs of our students for years," says Edmond Vignoul, director of financial aid at the University of Oregon. Still, he says, "one could question whether this is an appropriate use of what amounted to government subsidies Sallie Mae has been receiving all these years."... *****
Yoshie