Sallie Mae (SLM Corporation)

THE SCOOP

Paying for college

You may not recognize SLM Corporation, but you’re almost certainly familiar with the company’s nickname, Sallie Mae, especially if you’re still paying off student loans.  The largest U.S. student loan provider manages $188 billion in student loans for 10 million borrowers.  Through its Upromise affiliates, Sallie Mae also handles more than $19 billion in Section 529 college-savings plans.

Founded in 1972 as a government-sponsored enterprise to address problems that arose from the federal Guaranteed Student Loan program of 1965, Sallie Mae initially focused on convincing banks to grant student loans considered at the time to be poor risks.  For the next two decades, the company remained partially subsidized by the government.  But in 1994, President Clinton proposed direct government loans to students, implying the elimination of Sallie Mae.  In 1995, Congress granted the company the chance to become private instead of being phased out.  This led to a fierce proxy battle which came to a head in August 1997 with shareholders firing the company’s management, putting current chief executive officer Albert Lord and his team in charge and green lighting his privatization plan.  The privatization process closed in December 2004.  In May 2005, Thomas J. Fitzpatrick took on the role of chief executive officer.  Sallie Mae fired its CFO in July 2005 for inflating revenue to receive a higher bonus and named Arthur Andersen vet C.E. Andrews to the post.

Sallie Mae has grown rapidly since its early days.  Over the past few years, the firm has moved to adopt other financial practices such as repackaging student loans as securities and making a number of strategic acquisitions.  Since 2004, the company has acquired Southwest Student Services Corp., a financial aid firm; Student Loan Finance Association, a student loan originator and secondary market; GRP Financial Services which buys and sells distressed mortgages; and college savings program Upromise.

Buyout falls through

In April 2007, Sallie Mae agreed to a buyout to the tune of $25 billion or $60 a share.  JC Flowers & Co. led the way (along with private equity firm Friedman Fleischer & Lowe LLC) with a plan to put in $4.4 billion and take a 50.2-percent ownership in the education lender while Bank of America and J.P. Morgan Chase & Co. planned to put up $2.2 billion each in exchange for 24.9 percent of the company for each bank.  The buyout received approval by Sallie Mae’s independent board members and shareholders.  The deal began to fall apart, however, in August 2007 when a new law cut billions in subsidies to private student loan lenders and lowered the prices of government-backed student loans.  In early October 2007, the buyers reduced their offer to $50 per share.  Sallie Mae responded by filing a lawsuit against the buyers in an attempt to force them to either complete the deal or pay a break-up fee of $900 million.  Negotiations continued for months.  In December 2007, the companies announced that the Flowers-led group no longer wanted to purchase Sallie Mae.  The following month, in January 2008, Sallie Mae dropped the lawsuit which would have gone before a judge in July.  By agreeing not to seek penalty from Flowers and the other buyers, Sallie Mae secured $31 billion in financing.

Funding the future

The Sallie Mae Fund rewards high-risk students and students from low-income households with scholarships.  In addition, the fund supplies financial support for volunteer programs in its employees’ communities.  The firm gave away $2.5 million in scholarships to more than 1,000 students in 2007 and has given $12 million in scholarships to about 5,000 students since 2001.  In 2007 and well into 2008, the firm saw a few setbacks on the financial front.  Revenue in 2007 came in at $9.17 billion, up from $8.7 billion in 2006, but net income for the year took a nosedive as the firm booked a net loss of $896.39 million compared with net income of $1.16 billion in 2006.  For 2008, a net loss of $ 213 million was recorded.

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Sallie Mae (SLM Corporation)


12061 Bluemont Way
Reston, VA 20190
Phone: (703) 810-3000
www.salliemae.com

STATS


  • Employer Type: Public
  • Stock Symbol: SLM
  • Stock Exchange: NYSE
  • Vice-Chairman & CEO: Albert L. Lord
  • 2008 Employees: 8,000

Major Office Locations

  • San Francisco, CA
  • Chicago, IL
  • Waltham, MA
  • Purchase, NY
  • Reston, VA
  • Spokane, WA
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Key Financials

  • 2008 Income: $-213 million
  • 2008 Revenue: $1,365 million

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