Sallie Mae Wins Government Pact To Service Federal Student Loans
June 17 2009 - 6:06PM
Dow Jones News
SLM Corp. (SLM) won Wednesday a crucial contract from the U.S.
Department of Education to service federal student loans.
The decision on the contract has been anxiously awaited by
investors in the largest U.S. student-loan company, commonly known
as Sallie Mae; it will provide income that would offset the loss in
revenue stemming from the Obama administration's plans to rein in
subsidies paid to student lenders.
"We are very pleased to be awarded the opportunity to apply our
experience and expertise for the benefit of students and the
American taxpayer," said Chief Executive Albert Lord, in an email
to Dow Jones Newswires sent by a press official at the company. "We
look forward to being a partner with the Department in this
important effort."
The stock of the Reston, Va.-based company was at $8.60, up
11.83% after the close of the regular trading day in the U.S.
market. Still, the shares are way off their 52-week high of $25.05,
reached in June last year.
Sallie Mae, which makes private and federal student loans, gets
nearly one-third of its income from the federal student loans it
makes on behalf of the government. It earns another third of its
income from the interest it charges on private student loans; the
remaining one-third comes from a number of smaller businesses,
including fees from college savings plans and collecting defaulted
student debt.
Investors have been concerned about the Obama administration's
proposal to eliminate the income that Sallie Mae gets from federal
student loans. But they hoped that this loss in income would be
offset by the plan's requirement for the participation of private
lenders, such as Sallie Mae, for the servicing of federal student
loans.
Aside from Sallie Mae, three other companies were also awarded
the loan servicing contract, including Nelnet Inc. (NNI).
The contract comes on top of improvements in the company's
funding position in the last month that helped dispel investors'
concerns about its liquidity. Making use of a federal program aimed
at reinvigorating the market for asset-backed securities, Sallie
Mae sold $2.6 billion of bonds made up of pools of student loans in
May.
The student lender also garnered a one-year extension on a
crucial $21.8 billion asset-backed commercial paper facility, which
was set to expire in April. In addition, it scored an asset-backed
commercial paper facility from the Department of Education that
allows Sallie Mae to fund as much as $16 billion of federal student
loans.
-By Aparajita Saha-Bubna, Dow Jones Newswires; 617-654-6729;
aparajita.saha-bubna@dowjones.com