Student loan firm to shed 500 jobs

First Marblehead hopes action saves it $200m

First Marblehead Corp. said it plans to lay off 500 people, more than half its workforce, in a bid to save $200 million in annual expenses and reposition itself to survive the turmoil in the student loan business.

The job cuts will come at company offices in Boston and Medford, said a spokeswoman, and will include upper-level executives. Though First Marblehead has been trying to diversify its business lines and tighten lending since last fall, it has been hard hit by the credit crunch. In March, business partner The Education Resources Institute, which provides guarantees for the student loans First Marblehead packages into securities, filed for bankruptcy protection. TERI's filing now makes it harder for First Marblehead to sell those securities.

And in April First Marblehead lost another source of revenue when partner Bank of America said it would leave the private student loan business. First Marblehead had 920 employees as of February.

In a statement issued yesterday, First Marblehead chief executive Jack Kopnisky said, "This has been an extraordinarily challenging business environment for our company. The market and credit conditions have not improved, and TERI's bankruptcy filing has forced our business situation to change quickly."

Kopnisky declined to be interviewed, citing the company's earnings due Thursday.

Shares in First Marblehead rose 18 cents to $4.04 yesterday.

For First Marblehead, "A significant workforce reduction should not have been unexpected given the significant changes in the capital markets," said TERI chief executive Willis J. Hulings III in an interview yesterday. He acknowledged his company's unexpected bankruptcy filing likely contributed to First Marblehead's problems.

The problems at both companies have contributed to the difficulties parents and students are having getting college loans from private lenders, which many use to supplement loans they get directly from the government. Private student loans are becoming more expensive as many providers charge higher rates to be able to resell them to investors, or are harder to get as others choose to leave the business altogether.

Kopnisky said in a further statement these conditions could help First Marblehead going forward. "We see a strong demand for private student loans and limited supply as some lenders leave the market," he said. "We believe we have the depth of experience to weather the current climate. . . . The changes we are making today, although difficult, will support our evolution into a diversified education finance products and services company."

Ross Kerber can be reached at kerber@globe.com.