Sallie Mae Exploring Break Up

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RESTON, Va. – Student loan giant Sallie Mae, which began life as a government sponsored enterprise then transitioned into the biggest provider of student loans in the country, has hired Goldman Sachs to consider a possible break up of the company, which has been devastated by recent student loan legislation.

The company is exploring the sale or spin off its student-loan servicing business. It is also looking at doing the same thing for its $145 billion government-subsidized loan portfolio. Sallie Mae is mulling the option of possibly transforming into a traditional deposit-taking bank.

The move comes as Sallie Mae is undergoing a major transformation in the face of student loan reforms, cutting as many as 2,500 jobs and moving its corporate headquarters to Delaware.

The company, which manages a portfolio of more than $200 billion in student loans, has been the hardest hit lender from 2007 legislation cutting subsidies and guarantees and this year’s legislation to phase out the federally subsidized student loan program altogether.

Sallie Mae was chartered in 1972 as a government sponsored enterprise to buy and sell loans from credit union and bank originators, as its GSE brethren Fannie Mae and Freddie Mac do for mortgages. But as part of a 2004 privatization, the company shed its government charter and positioned itself as a direct competitor to its credit union and bank customers in originating student loans, growing to dominate the market. The company, while growing to become the biggest originator of student loans, continues to be a major partner for hundreds of credit unions it buys loans from and repackages for sale on the secondary market.

While the company flew high for a few years, the collapse of the financial markets scorched Sallie Mae. The 2007 legislation caused the termination of a proposed acquisition of the company, prompting a plunge in its stock prize from a high of $45 to around $22 earlier this year. More recently, the stock has continued to plummet to as low as $9. Sallie Mae shares rose almost 3% yesterday to close at $11.53 after news of the Goldman Sachs review broke.


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