Sallie dodged one threat when President Bush was reelected. His opponent, Sen. John F. Kerry (D-Mass.), suggested radical changes in the program, including a plan that would have required lenders to compete in auctions for the lowest interest rates at which they would offer student loans.
Congress is scheduled next year to renew the Higher Education Act, which sets subsidy rates for the student loan program. And in the past, members of Congress looking for money for other programs have taken bites from the fees the loan industry collects.
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One-Stop Lending Shop SLM Corp., parent company of Sallie Mae, has branched out from its origins as a government-sponsored enterprise that bought and sold student loans. Now, Sallie Mae lends money directly to borrowers, collects bad debts and engages in a variety of related businesses.
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Metro Business: Coverage of Washington area businesses and the local economy.
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Sallie Mae and its banking allies may still have to defend the guaranteed student loan program against charges that it is more expensive for taxpayers than the government's own Federal Direct Student Loan Program.
Critics have long argued that the guaranteed program is more expensive and is attractive to Congress only because loan guarantees don't show up as costs right away, while a loan made directly by the government does.
The Bush administration's budget for fiscal 2005 agrees that direct loans are cheaper. While it requests slightly more than $7 billion for the guaranteed loan program, the budget shows the cost of the direct loan program as a negative $492 million. In other words, by the administration's calculations, the direct loan program produces net income for the government.
Robert M. Shireman, director of the Institute for College Access and Success, which follows the loan programs, said those numbers make sense, and, further, that by insulating lenders from both default and interest-rate risk, the guaranteed program makes lending under it "essentially an arbitrage operation" of borrowing at a lower rate and lending at a higher one.
In the guaranteed program, the government assumes the default and interest risks, but instead of getting the interest earnings in return, it allows them to flow to the lenders, Shireman said.
Sallie Mae disputes those calculations, saying they don't take proper account of interest rate differences on money that funds the program and what the students pay.
Sallie Mae is well equipped to make sure its voice is heard. Its political action committee donated more than $800,000 in the 2003-2004 election cycle.
If Congress seeks additional revenue, as it has in the past, by nipping at loan subsidies, Sallie Mae might be hurt in the short run but helped over time, analysts said. That's because the company is so large in its field that it wouldn't be hurt as much as rivals with smaller margins.
Student lending still "is a very good deal," because loans are 98 to 100 percent guaranteed by the government, and various subsidies insulate lenders against changes in interest rates, said Matthew J. Snowling, an analyst with Arlington investment firm Friedman, Billings, Ramsey & Co.
"But you have to remember it's such a low-margin business" that in the past the number of banks in the market has shrunk when subsidies were cut.
"Whether you like Sallie Mae or not," Snowling said, buying its stock "is a natural hedge against college tuition."
