Hostile Takeover Fight On Over Penn. Student Lender

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A dandy little hostile takeover battle is going on in this remote capital, starring the former government-sponsored enterprise-turned-loose, Sallie Mae.

The student loan giant offered in December to buy the state-run Pennsylvania Higher Education Assistance Agency for $1 billion, but that friendly offer was immediately turned down by the PHEAA board, which is appointed by the governor. Then the Sallie Mae bid turned hostile. Top executives of Sallie Mae traveled to the state capital last week to lobby state lawmakers and the governor, who wield ultimate control over the state-run loan agency, to override the board's decision.

Meantime, PHEAA has mobilized a powerful swath of academic and interested groups against what would be a rare hostile takeover of a state-run agency. Weighing in against the takeover have been the Pennsylvania Higher Education Assistance Association, a group of 83 state colleges; Big 33, one of the state's biggest scholarship foundations, and AFSCME, one of the most powerful unions.

Modeled after Fannie Mae and Freddie Mac, Sallie Mae was chartered by the government in 1972 to develop a secondary loan market for the growing number of guaranteed student loans. After disagreement with the Clinton Administration over the future course of the student loan market, Sallie Mae, then a quasi-government agency traded publicly, got government approval to shed its government charter and go public, which it did in the final days of 2004.

In the meantime, Sallie Mae has transformed itself into a full-service, $100-billion lender.

Sallie Mae says its proposal to run the $45 billion state agency would benefit students around the Keystone State because it would improve the efficiency of the program and expand products and services. The opponents of the takeover say Sallie Mae would replace the PHEAA's not-for-profit approach with a profit motive, inevitably increasing costs for students and families.

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