Shares of Student Loan Firms Plunge

President Clinton’s plan to phase in direct government lending to students sent the shares of companies active in the business into a virtual free fall Thursday.

Investors feared that the plan--called a “national service loan” by Clinton in his speech Wednesday night--would ravage the business of the Student Loan Marketing Assn. as well as Student Loan Corp.

Sallie Mae dropped $9.375, or 17%, to $47.25 and was the most actively traded issue on the New York Stock Exchange, with more than 3.6 million shares changing hands. Student Loan Corp. fell $3.25 to $15.50.

Sallie Mae, a federally chartered company based in Washington, does not originate loans, but it buys and services about a third of all student loans that are made by banks. Rochester-based Student Loan, which went public late last year, is the second-largest holder at 6.5% to 7% of the market.

The companies had already been under pressure for weeks on speculation that the Clinton Administration would propose a radical reform of the current guaranteed student loan program.

Comments by Treasury Secretary Lloyd Bentsen that “valuable dollars” could be saved from the fees now being paid to commercial banks to operate the program weighed on the companies even further, analysts said.

“He said nothing that was different from the program (proposed), but he said it in a tone and language that was pretty negative toward the banks,” said David Hilder, an analyst at First Boston Corp.

Student Loan officials were not available for comment, but Sallie Mae issued a statement defending the current program. Sallie Mae said its existing programs based on private capital can meet the Clinton Administration’s budget proposal for student loan programs. And it took issue with Bentsen’s comments on cost savings.

“Direct lending will not produce any real savings for taxpayers, schools or students in the actual delivery of loans,” Sallie Mae stated. “Neither will it enhance service to those constituents.”

Under the proposed changes, student loans would be changed to 50% direct lending beginning in 1997, with the total shift taking place the following year. The phase-in was an attempt to cushion the effect on the agencies.