Credit woes: Student lender to cut 350 jobs

Published 11:54 pm Friday, January 18, 2008

WASHINGTON — A $25 billion collapsed buyout offer and higher borrowing costs have prompted Sallie Mae, the nation’s largest student lender, to lay off about 3 percent of its work force nationwide.

The embattled SLM Corp. said Friday it will slash 350 jobs from an 11,000-worker staff to help cut costs 20 percent by 2010.

“The tightening credit markets have made our costs higher,” company spokesman Tom Joyce said.

The company lost $344 million in its latest reported quarterly results and said additional layoffs are likely.

Sallie recently lowered its 2008 profit forecast more than 13 percent, blaming a credit market crunch that has driven up costs for borrowing the billions of dollars needed to finance student loans it makes. The company also held a special sale of stock to raise $2.9 billion in cash.

That pressure and the impact of a landmark student-loan law that took effect last October, cutting billions of dollars in federal subsidies for student lenders, “have forced us to take the unpleasant step of laying off staff,” Joyce said.

The planned layoffs will affect workers at the company’s customer-service call centers in Fishers, Ind.; Wilkes-Barre, Pa.; and Killeen, Texas; as well as 14 of 697 employees at Sallie Mae’s headquarters in Reston, Va. The layoffs were reported Friday in The Washington Post.

Sallie Mae also said earlier this month that it plans to cut back its core multibillion- dollar business of making student loans, both those backed by the federal government and the higher-rate private loans.

Sallie Mae shares rose 47 cents, or 2.5 percent, to $19 in afternoon trading Friday. But they are a fraction of the $60-per-share buyout offer made last spring for the company by an investor group.

Sallie Mae failed late last year to revive interest from the investors, led by private-equity firm J.C. Flowers &Co. and including Bank of America Corp. and JPMorgan Chase &Co. Both sides have filed lawsuits regarding the failed deal in Delaware Chancery Court.

The investor group contends it shouldn’t have to pay a $900 million so-called walkaway fee because of significant changes in economic or regulatory conditions that affected the company’s value. Sallie Mae disagrees.