Roundup: News You Need to Know, Fri., Dec. 8th

Sallie Mae Stock in Decline

The Wall Street Journal reports today on the decline in Sallie Mae stock after the Democratic takeover of Congress, with prices hitting a 52-week low of $45.20 last week and down nearly 12% for the year. Investors are concerned about several Democratic proposals that could hurt Sallie Mae, including cutting student loan interest rates, expanding the Direct Loan program, and investigating lenders business arrangements with colleges. A political analyst stated that the health of Sallie Mae stock depends on whether the Democrats plan is "a one-off event or a precursor to [a] jihad on student-loan rates." The article points out that the student loan business is profitable "largely because the government sets interest rates in a way that effectively guarantees a profit." One prime example: in 2001, Congress altered the government guaranteed return rate for lenders to equal the interest rate for commercial paper plus 2.34 percentage points. In turn, Sallie Maes profit tripled between 2001 and 2005.

New Bill in Missouri: Require MOHELA to Put Assets into Increased Financial Aid

Two Democratic state representatives in Missouri announced they will introduce legislation that would require the Missouri Higher Education Loan Authority (MOHELA) to use its assets to increase student financial aid. The Missouri Democrats plan would require MOHELA to use any excess assets to lower student interest rates and expand its loan forgiveness program. Republican Governor Matt Blunt supports a competing plan. Blunts plan would sell MOHELAs assets and direct the money to college construction projects. The Democrats contend that enough state money is already financing new buildings on college campuses, and that the state needs to address the more pressing issue of college affordability. A spokesman for Blunt said he would veto the Democrats plan if it reaches him.

State Appropriations for Higher Education Continue to Rebound

State spending on higher education rose substantially in the 2006-2007 fiscal year, according to an annual study by the Center for the Study of Education Policy. Total state appropriations increased by 7%. Fourteen states had double-digit increases in spending. Alabama experienced the largest growth at 18.7%, while only two states, Montana and New Jersey, cut higher education appropriations. The Southeast had the strongest regional growth in spending, in comparison to smaller increases in the Plains, the Great Lakes, and New England. State appropriations had been in decline from 2002 to 2005 as a result of the economic downturn and state budget crises. In seven states, higher education appropriations have not yet rebounded to their 2001-2002 levels. For community colleges, appropriations rose at lower rates than overall state spending on higher education. The community colleges that benefited the most were those more dependent on state funding than local sources, which have remained more stable in the past five years. Higher Ed Watch believes the overall increase in state funding for higher education will result in a corresponding decline in public college tuition increases.