Sallie Mae Rejects Loan Fund Proposal

Sallie Mae, the nation’s largest education financier, rejected a proposal that the company provide as much as $1 billion of emergency college loans if lenders aren’t able to meet students’ demand. It’s the latest action in a months-long battle over whether the federal government should cut the interest rates that students pay on federally guaranteed college loans. Lenders threaten that if their ability to make profits on them is crimped, they’ll stop making some types of student loans. If that happened, there could be a shortage of about $5 billion, leaving 2 million people without funds for college, said Albert Lord, chief executive of Sallie Mae’s parent, SLM Holding Corp., in a letter to Education Secretary Richard Riley. The Education Department proposed that Sallie Mae provide up to $1 billion in loans in the event of a shortage, but Sallie Mae said it would provide no more than the $200 million it is required to by law. “Sallie Mae would incur a substantial loss on every lender-of-last-resort loan it would make,” Lord said. SLM shares closed at $46.13, down 50 cents, on the NYSE.