SLM Corp. (SLM) will keep its portfolio of federal student loans on its own books as it seeks cash to repay upcoming debt maturities and find other ways to unlock value for shareholders.

The student lender, commonly known as Sallie Mae, made the announcement on a conference call with analysts Wednesday, concluding months of speculation that it could sell--or keep--the $147 billion Federal Family Education Loan Program portfolio.

In June, Vice Chairman and Chief Executive Albert Lord said the company would bring "significant structural changes" before year-end. Last month, Lord said the company had ruled out a spin off of the portfolio, but selling it or keeping the status quo remained on the table.

Now, the nation's largest student lender will focus on bringing its assets and liabilities into balance. The company said it would like to extend the maturity dates of its unsecured liabilities. It will continue to earn income from the loans as it faces $13.7 billion in debt maturities between 2011 and 2014.

"You're not going to see any dramatic balance sheet actions from the company, at least any time soon," Lord said Wednesday.

Sallie Mae lost a major revenue source on July 1 when the government brought originations of federal loans in-house. It was one of four recipients of a federal loan servicing contract, expected to help cushion some of that blow, but is still grappling with a new marketplace. The company expects to cut operating expenses by nearly 25% by the end of 2011, reaching a run rate of $1 billion.

Sallie Mae had flirted with converting into a bank holding company, but the portfolio could have created a capital deficiency under certain bank holding guidelines. The company also feared its balance sheet structure could cause trouble in the face of a proposal that would levy fees on certain financial institutions, as Sallie Mae doesn't have the deposit base that other banks have. However, Lord said those regulatory and tax matters "seem less likely now."

Though Lord said at an investor conference in June he would like to hold on to the portfolio, "It's really yesterday's business and we need to move on," he said at the time.

Lord said Wednesday he sees the company's intrinsic value 50% to 70% above current market value, but said even selling the portfolio may not release that value because Sallie Mae would still have a relationship with them via servicing contracts.

Sandler O'Neill analyst Michael Taiano said investors likely won't be content just watching the portfolio mature over a number of years and would rather see the company institute a dividend or share repurchase program, though it's unclear whether Sallie Mae can restructure its debt enough to do that. The company said on the conference call it was "uncertain" whether such a move would be possible in 2011.

Sallie Mae has been actively growing its FFELP portfolio in recent months, buying up the portfolios of competitors who aren't interested in holding federal loans without originating new ones. Last month, the company bought $28 billion in securitized federal loans from the nation's second largest federal lender, Student Loan Corp. (STU). Sallie Mae expects to book a 13 cent per-share gain in 2011 on that deal.

-By Melissa Korn, Dow Jones Newswires; 212-416-2271; melissa.korn@dowjones.com
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