SLM Corp. (SLM) Hits New 52-Week Low
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SLM Corp. (NYSE: SLM), also known as Sallie Mae, looks like it is starting to feel the same effects that dropped shares of First Marblehead Corp. (NYSE: FMD) almost 40% since the beginning of this month. Investors are beginning to speculate that the same credit crunch that hit the housing and financial markets is now spilling over into other parts of our economy, specifically the education lending industry.
Today, shares of SLM appear to reflecting this concern, down about 5% despite no recent news. SLM stock has already sunk to a new 52-week low at $33.00 today, a level the stock hasn't seen since 2002. Year-to-date, shares of Sallie Mae have declined about 30%, marking most of those losses since July, when SLM's stock price was at its 52-week high of $58.00.
The effects of the credit crisis on Sallie Mae become very apparent when considering the consumers that SLM provides to: students - and frequently their parents who are most likely also paying a mortgage on their homes. As these loans begin resetting at much higher rates, parents will be forced to focus on paying off the balances on their houses, deferring payments from less visible liabilities, such as student loans. Though this may not fit the description of all, or even the majority of the consumers Sallie Mae deals with, a quantitative effect can already be seen: the amount of student-loan defaults has risen over the last quarter.
To make matters worse, a new federal law has cut subsidies to student lenders. This has greatly impacted Sallie Mae as it is the U.S.'s largest lender of student loans. Before the law was enacted, Sallie Mae was on the verge of being acquired for about $25 billion by a private equity group. The private equity firm quickly backed out of the deal, saying the law would seriously damage the profits of Sallie. Sallie Mae is now expected to be tied up in court cases for some time in an attempt to complete the buyout.
Today, shares of SLM appear to reflecting this concern, down about 5% despite no recent news. SLM stock has already sunk to a new 52-week low at $33.00 today, a level the stock hasn't seen since 2002. Year-to-date, shares of Sallie Mae have declined about 30%, marking most of those losses since July, when SLM's stock price was at its 52-week high of $58.00.
The effects of the credit crisis on Sallie Mae become very apparent when considering the consumers that SLM provides to: students - and frequently their parents who are most likely also paying a mortgage on their homes. As these loans begin resetting at much higher rates, parents will be forced to focus on paying off the balances on their houses, deferring payments from less visible liabilities, such as student loans. Though this may not fit the description of all, or even the majority of the consumers Sallie Mae deals with, a quantitative effect can already be seen: the amount of student-loan defaults has risen over the last quarter.
To make matters worse, a new federal law has cut subsidies to student lenders. This has greatly impacted Sallie Mae as it is the U.S.'s largest lender of student loans. Before the law was enacted, Sallie Mae was on the verge of being acquired for about $25 billion by a private equity group. The private equity firm quickly backed out of the deal, saying the law would seriously damage the profits of Sallie. Sallie Mae is now expected to be tied up in court cases for some time in an attempt to complete the buyout.
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