After two years of wrangling, the federal government is poised to cut its ties to Sallie Mae, the big student loan concern.

The House unanimously approved a privatization measure on Tuesday, and the Senate is expected to follow suit by the end of this week. The legislation, which President Clinton is expected to sign, has undergone a remarkable revival. It had been pronounced dead several times in the past two years.

Observers said privatization will help banks in the student loan market by reducing competition from Sallie Mae, formally the Student Loan Marketing Association. At the same time, experts said, the move would allow Sallie Mae to move into other businesses and could pave the way for a privatization of Fannie Mae and Freddie Mac, the mortgage titans.

"This is a win-win proposition for everyone - Sallie Mae, its owners, customers, and taxpayers," said Ross Kleinman, director of corporate communications at Sallie Mae.

Although the privatization measure could conceivably fall through cracks as lawmakers rush to adjourn this weekend, industry lobbyists maintained that passage was all but assured.

"The only question is, 'Will someone forget it?' and I don't see how they can, because so many people are working on it," one lobbyist said.

Under the plan, stockholders of Sallie Mae would have 18 months to accept a privatization plan. If they do not, Sallie Mae would continue to operate as a government-sponsored enterprise until 2013, when it would be dissolved.

The bill received support from industry officials, who said bankers would have an easier time competing against a Sallie Mae without government supports.

Sallie Mae has an advantage over banks that hold student loans in their portfolios, as Citibank and Norwest do. That's because, like other GSEs, Sallie Mae's implicit government guarantee allows it to borrow money for less than commercial banks must pay.

High servicing costs make lending to students a low-yield businesses. With access to cheap money, Sallie Mae has been able to pay institutions originating the loans better prices than banks.

"They will be less of the 800-pound gorilla in the future," said John E. Dean, special counsel to the Consumer Bankers Association. "It is healthier for the marketplace and everyone in it not to be so dominated by one institution as it has been historically."

The vote also played well on Wall Street. Michael Millman, an analyst at Lehman Brothers, said privatization makes Sallie Mae's stock more appealing.

"The company will have greater freedom to enter different, but related business," he said. "It also will help distance the company from changes in laws and regulations which have affected the company in the past."

Sallie Mae owns or manages about one-third of the $93 billion in outstanding student loans, dwarfing its competitors. But federal law prevents the company from originating loans or expanding into related business. The legislation would drop those restrictions, and Sallie Mae is expected to offer construction financing, computer services, and credit cards to colleges and universities.

The final action on the measure comes at a time when the government's support of Fannie Mae and Freddie Mac - the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp. - is under increased scrutiny.

Some recent government reports have criticized those agencies for not providing enough value to taxpayers. The final action on the Sallie Mae plan could serve as guide to the government in handling the mortgage agencies, some experts said.

Sallie Mae, if stockholders approve privatization, would create a holding company, which would operate several subsidiaries. One of those units would be the existing Sallie Mae, which would continue to operate as a government-sponsored enterprise until 2007. The company would continue paying the government a 30 basis point fee on all GSE loans. Other subsidiaries would enter new markets.

To allow the government to share in Sallie Mae's profitability if privatization is successful, the holding company would issue stock warrants to the government equal to 1% of the company's outstanding shares as of the date it went private. The government could cash in these shares through 2008.

The bill also would privatize Connie Lee, which insures municipal bonds used to finance hospital and university construction projects.

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