Sallie Mae Bows Out of Parent Loan Auction

March 12, 2009

The Education Department's plan to carry out state-by-state auctions among lenders for the right to originate federal student loans for parents got a little dicier Thursday, as the country's biggest lender announced that it would not participate in the auctions. Sallie Mae sent a letter to its customers informing them that the company would not bid in any of the auctions because it believes the existing setup for setting interest rates and determining who should originate so-called PLUS loans is far preferable to the system Congress enacted in 2007. Despite significant opposition from financial aid officials and lenders, especially in light of the much broader changes the Obama administration is proposing in the federal student loan programs, the Education Department announced this month that it was proceeding with the auction. Sallie Mae's decision poses a threat, though, because under the regulations, if there are not enough "qualified bids" in a particular state's auction, the existing system of Parent PLUS loans stays in effect, as the lender noted in its letter.

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