Tough Times for Sallie Mae

The once safe and lucrative student lending business has turned risky and ugly for Sallie Mae—at least for the next year or two.

Politicians have slashed away at the profits of student lenders and launched investigations into allegations of cozy connections between lenders and their federal regulators, including charges that a government insider tipped off Sallie Mae CEO Albert Lord in January 2007 so that he could sell his company stock days before the Bush administration released its plan to cut lenders' subsidies.

Wall Street's credit crunch, on top of the Washington travails, has wiped out Sallie Mae's profits, pushed its stock down 60 percent, and frightened away a potential buyer.

Observers say that these troubles are unlikely to sink Sallie Mae permanently, though. The company bolstered its finances by selling $3 billion worth of stock at the end of 2007. And thanks to its size, Sallie Mae can most likely withstand the profit cuts and credit turmoil better than smaller competitors. The troubles are "painful for Sallie Mae," says Matt Snowling, an analyst for Friedman, Billings, Ramsey, "but terminal for its competitors."