SLM Corp (NASDAQ:SLM), better known as Sallie Mae reported earnings on Wednesday, which beat expectations but were not great. The student loans broker reported first quarter profit fell to $112 million or $0.21 share. The good news is that core earnings were up to $283 million or $0.55 a share. The company released this statement about its earnings release, “The improvement in core earnings was primarily the result of a $50 million decline in loan loss provision and a $40 million decrease in expenses offset by a $40 million net interest income reduction and a $27 million decline in debt repurchase gains”.
SLM Corp (NASDAQ:SLM) could be seeing some changes in the next year or so as student loans become more and more a threat to our economy. Student loans are now being dubbed as the next bubble and doomsday scenario. Much like the debt crisis in Europe and around the world, the US now faces a new form of debt that can be just as deadly.
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Skyrocketing tuition has caused students to take out more student loans to cover the costs. Unfortunately, some students will have to default on their debt obligations as there are no jobs once they do come out of college. Not to mention some students do not fully understand the consequences of a large debt burden.
As Becky Yerak from the Chicago Tribune put it, Sallie Mae has said they support reform for federal and private loans. The firm went on to say that they also would support the loans to be discharged during bankruptcy for applicants that attempted to repay their loans over a five to seven year period.
However, it is important to note that only 3.5% of Sallie Mae’s private loans are in default and this number has continued to decline over the past six quarters. That is a good sign at least because that means as of right now students are repaying their loans with the default rate in a downtrend. Pundits expect this number to change though over the next few years.
The bottom line here is that Sallie Mae reported bad earnings while the threat of student loans lingers and progresses to what could be a disaster. The US government needs to take this as a serious threat not like how they handled mortgage debt.
The entire world needs to get its act together when it comes to debt. The West especially has been living way beyond their means since the end of World War 2, you could argue. Remember, “Those who do not learn from history are doomed to repeat it”.