Upromise Members Have Earned $400 Million, But…

January 17, 2008 · 0 comments

On Tuesday, Upromise announced that their members have earned $400 million through the use of their program. They calculate this to be the equivalent of full tuition including housing for 7,000 students. Their press release goes on to say that they’ve added some new retailers to their online shopping portal, bringing the total to over 575, and that new offline partners include H&R Block and Budget Truck Rental.
So, that’s the good news. But, they’re leaving out a few other unpleasant details.
Upromise is owned by Sallie Mae, the huge college loan company. An investor group that wanted to buy Sallie Mae last April, bailed on the deal due to bad economic conditions, but Sallie Mae’s trying to make the investors pay $900 million for walking out on the deal, something the two sides are battling out in court. SLM lost $344 million in the third quarter of 2007 (the fourth quarter earnings will be announced next week). They downgraded their earnings estimates for 2008 by about 20%. The last week of December, Sallie Mae was hit with TWO racial discrimination lawsuits alleging SLM steers African-American students to loans with higher interest rates. SLM stock recently hit a 52-week low, when they announced they were tightening requirements for new student loans. Last week they hired a new Chairman and a new Chief Financial Officer, obviously in a scramble to get things under control. Update, 1/18: Sallie Mae announced it’s laying off 350 people and won’t comment on whether more job cuts are coming.
All of this turmoil is starting to freak out the colleges. The American Association of State Colleges and Universities sent out a letter on January 7th to the presidents and chancellors of state-run colleges urging them to stay calm because Sallie Mae’s troubles wouldn’t cause student loans to become unavailable. Association president Constantine Curris said that “federally guaranteed student-loan program lending banks and agencies have adequate access to capital without needing to have transactions with Sallie Mae.”
Obviously this “Upromise Members Have Earned $400 Million” press release was intended to spin some good PR, but if their owner, Sallie Mae, isn’t stable…well, we can connect the dots.

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