(Long Island, N.Y.) A college education is encouraged in order to ensure young adults a more certain future. However, what happens when the college loan provider’s future they used is not so certain?
Sallie May, a popular student loan company, is currently planning a stock sale somewhere in the neighborhood of $3 billion. That is a lot of stock, but even that sale does not prove to Wall Street that Sallie May’s future as a student loan lender is a good bet.
Where Sallie May, formally known as SLM Corp., stands is really uncertain at the moment. There are some analysts who believe that the problems the loan company are experiencing are just short term and will work themselves out. Then, there are others who believe the number of loan defaults will only continue to rise, causing even more problems for the Reston, Va. based company. A cut in its credit ratings could be the stick that broke the camel’s back, so to speak, should it occur.
The year 2008 looks much bleaker for Sallie May after its earnings forecast was lowered by more than 13 percent. That is a huge cut in earnings and the blame goes to a new law in effect which requires subsidies of the federal government to have more cash on hand to counterbalance defaulted loans.
Stock prices had already been falling since last July, so the cut in the forecasted earnings did nothing to help this student loan company. The falling prices initially began when a buyout of $25 million worth of stock fell through last July.
The last half of 2007 was rough for Sallie May and 2008 looks even grimmer to say the least. Stock prices have not been this low since 2001, but executives at Sallie May say they have a plan for turning itself around and the company is taking steps to unwind agreements that allowed it to profit through stock buybacks when shares were rising. Still, investors are uneasy, but for the moment Sallie May still has a fighting chance to get out of trouble.