Sallie Mae to stop offering consolidation loans to students

Sallie Mae, the nation’s largest student loan provider, said Friday that it would stop offering lower-cost consolidation loans to college graduates because the federally backed business had become unprofitable.

In a letter sent to colleges, Sallie Mae, formally known as SLM Corp., said it would concentrate instead on making new loans to students entering college. The suspension of the company’s participation in the federal consolidation loan program took effect Friday.

The consolidation loans accounted for nearly 70% of Sallie Mae’s portfolio of government-backed student loans last year.

The Reston, Va., lender has suffered since last year from financial losses, a failed buyout and a management reshuffling.

In January, it said it was cutting back on its core business of making student loans, becoming more selective and stressing the importance of graduation as a predictor of a person’s likelihood to repay loans.

As a result of the credit crisis, 46 other student lenders -- accounting for 12% of the federally backed student-loan market -- recently stopped making government-guaranteed loans.