The Student Loan Marketing Association is gearing up for a major transformation from a government-sponsored enterprise to an independent company.

After shareholder approval, expected in May, Sallie Mae would be just one piece of SLM Corp. SLM is to be the holding company for a variety of subsidiaries serving the education community by financing the construction of university facilities, giving educators financial advice, marketing smart cards on campuses, and selling health care coverage to students.

"We'll be like an investment bank to higher education," said Denise McGlone, Sallie Mae's chief financial officer.

Sallie Mae's privatization, approved by Congress Sept. 30, will actually play out over the next decade. But officials at the government-sponsored enterprise are celebrating their freedom and laying plans for it.

"It wasn't popular to be a GSE making money and being profitable in an environment where (Congress is) looking for dollars," said Tim Green, Sallie Mae's general counsel.

"We were running against the tide," added Ms. McGlone. It was time to free the company from the charter that restricted it to the business of buying and servicing student loans originated by banks, she said.

Sallie Mae officials, she said, decided to pursue privatization three years ago.

When Sallie Mae was created in 1973, the burgeoning $1 billion student loan market had a real need for liquidity.

"Banks were saying there is a limit to how many loans we can make if we don't have anywhere to off-load them," Mr. Green said.

But 20 years later, student lending has grown to about $30 billion, attracting 42 other secondary market players to compete with Sallie Mae. In addition, securitization had become a popular means of providing liquidity.

On top of that, the Clinton administration in 1993 introduced its direct student loan program, which by 1998 could take as much as 60% of the market from banks that sell loans to Sallie Mae.

The final straw came when Congress imposed a 30-basis-point fee in 1993 on the company's loan purchases to reflect the price of implied federal backing. The fee essentially lopped off one-third of the enterprise's profits.

While it plans to stay focused on its core student loan business, the two executives said Sallie Mae would grow a host of related businesses in ways that aren't allowed under its current charter.

For example, the financing arm would be able to fund a wider variety of buildings and equipment on college campuses, Mr. Green said. "Now, you can do libraries," he said, "but you can't do cafeterias."

The company is planning to take advantage of the relationships it has developed with students and universities, Ms. McGlone said.

"We have experience in providing technology in a student loan environment and a 20-year history of being associated with education," she said. "We will be doing things at all levels of the school."

Sallie Mae already has a powerful tool it plans to turn into a moneymaker: a huge data base of student financial information.

"We know their credit histories inside and out; we have student relationships; and we hope to leverage those," Ms. McGlone said. "We have long believed that we can use that technology in other areas to gain fee revenue."

Sallie Mae plans to install central information systems that would let university officials gain access to student data from the registrar's and bursar's offices.

The company has also entered a joint venture with Huntington Bancshares and Battelle, a nonprofit technology developer, to offer smart cards to college students. The three companies recently tested the system at Ohio Dominican College, Columbus, with excellent results, Ms. McGlone said.

Sallie Mae also entered the consulting business through its recent acquisition of Kaludis Consulting Group, which supplies strategic advice to senior executives and directors of universities.

In addition, the company is expanding its student-related services by offering health insurance to graduates.

"We sell them health insurance that bridges them from the time they graduate to the time they can get it through a permanent employer," Ms. McGlone said.

One business that the liberated Sallie Mae does not intend to enter is student loan origination, Mr. Green said.

"We've had these relationships with our lender partners for over 20 years," he said, "and we're going to continue that."

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