Bank Giants Gobble Sallie Mae and With It, the Secondary Market for Student Loans

RESTON, Va. – Banking giants JP Morgan Chase and Bank of America will be providing Sallie Mae with a $30 billion line of credit to fund its securitizations, the prime engine of the secondary loan market, under a proposed $25 billion buyout of the student loan giant. By dint of its shear size–Sallie Mae controls a $142 billion student loan portfolio–the company sets pricing and loan standards, thus controlling the secondary market for student loans. JP Morgan and BofA, already among the biggest players in the $85 billion-a-year market, have offered to acquire Sallie Mae, the biggest single player in the market, along with private equity funds J.C. Flowers & Co., and Friedman Fleischer & Lowe, for $60 a share in one of the biggest corporate deals ever. The two bank giants pledged to support the secondary market activities of Sallie Mae with an interim credit facility, which will be finalized after the huge deal is consummated. After the deal, J.C. Flowers and Friedman Fleischer & Lowe will own 50.2% of Sallie Mae and each of the banking giants will own 24.9%. Sallie Mae began life in 1972 as a government sponsored enterprise aimed at facilitating a secondary market for the nascent student loan industry. Between 19997 and 2005 the company was privatized in stages during which Sallie Mae was evolved to the major provider of student loans, in direct competition with the hundreds of credit unions and banks it was chartered to serve.