For a mere nuisance, Albert L. Lord certainly has some powerful allies.

Management at the Student Loan Marketing Association, or Sallie Mae, has been dismissive of Mr. Lord's proxy challenge since he formed an alternative directors' slate to be voted on at the company's May 25 shareholders' meeting.

But as the meeting approaches, shareholder support is swelling behind Mr. Lord's bid to block Sallie Mae's privatization strategy, in the first proxy fight ever waged against a government-sponsored enterprise.

On Friday, with such institutional investors as Capital Group Cos., which holds 11.47% of Sallie Mae, reportedly on his side, a confident Mr. Lord expanded his slate from four to eight directors. If successful, he would control the majority of the 14 elective board seats. Seven members of the 21-person board are appointed by the President.

Mr. Lord's main opponent is chief executive Lawrence A. Hough, who plans to privatize the company and diversify into servicing health care and insurance claims as well as student loans.

With the Clinton administration moving to implement direct lending to colleges and students, and assessing fees against Sallie Mae, the company must move beyond the reach of government, Mr. Hough has argued.

Mr. Lord counters that the Republican sweep of Congress, and its antigovernment message, changed the politics. Instead of privatizing, he said, the company needs to drastically reduce its balance sheet from $50 billion to $10 billion through asset sales and securitization.

"Shareholders would be better served and students would be unaffected by the liquidation of those assets and the use of those proceeds to buy stock," he said.

Management initially dismissed Mr. Lord's efforts as those of a disgruntled ex-employee and disparaged his group for holding only 50,000 shares. What Sallie Mae did not explain was that this holding exceeded any individual director's or executive's stake except for Mr. Hough's.

Mr. Lord, who joined the company in 1983, left last year to form a consulting service, LCL Ltd., owns 40,000 shares and 15,000 options, which he bought in the past few months.

Now, he appears to be gaining momentum.

Indeed, one investor, who holds more than one million of the 72.9 million shares, told American Banker that management is beginning to change its tune in the face of "a wellspring of support" for Mr. Lord.

This investor said that at an investors' meeting sponsored by Oppenheimer & Co. Mr. Hough told a small group of Sallie Mae stockholders, "Al Lord's numbers work. We could buy 16 million shares in 12 to 18 months."

But even if there is agreement on the wisdom of a share repurchase, Mr. Hough said Monday that he disapproves of Mr. Lord's efforts to change course on privatization.

"It is an ill-timed, very disruptive attempt to pull the company off the track it is on, and moreover one that has the potential of being highly disruptive to our base of support on the Hill," said Mr. Hough, who will testify on privatization before a joint House-Senate Committee on Wednesday.

The company blames its stock woes on the Clinton administration's plan to lend directly to colleges and its efforts to limit Sallie Mae's profit margins. Last month the agency announced a lawsuit against the government for imposing a tax on loans the company buys.

Mr. Lord's group acknowledges the drop from $75 per share to $50 per share in 1993 can be attributed to political causes. But it blames the free fall since then on management inertia.

There were no discouraging events in 1994, Mr. Lord argued, so why did the stock fall 34% to $32 a share?

"A stock I think is worth $50 a share shouldn't be trading at $32," Mr. Lord said before launching his proxy fight. "I went to see the chairman of the company (on March 20), and I brought with me sufficient evidence to convince him that life wasn't quite as rosy as he and his board members might think, that there was a fair amount of discontent among shareholders."

Jonathan Gray, an analyst with Sanford C. Bernstein & Co., said Mr. Lord's skepticism about the need to privatize is well founded.

"The company acts as if the game is over," he said. But, in reality, direct lending is imperiled by the Republican takeover and could die if a Republican wins the White House next year, he said.

"The company is actively building a political base and putting all its eggs in one basket," he added. "But that is a questionable basket: namely privatization."

In another sign that Mr. Lord has some support, Sallie Mae's stock has started to recover since he began to organize. Shares were at $40.125 on Monday.

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