Sallie Mae To Be Sold To JP Morgan Chase, Bank of America

According to the New York Times, Sallie Mae, the largest lender of student loans in the US has been sold to JP Morgan Chase, Bank of America and two private equity firms for $25 billion. From the NYT:

Sallie Mae is both a lender and a debt collector, making profits on both sides of its loans. Last year, the company earned $1.2 billion and generated a lot of cash that makes it attractive to private equity buyers. Even so, some Wall Street analysts believe that it is a poor candidate to be saddled with debt because its business relies on razor-thin interest margins and the use of derivatives to manage its exposure to interest-rate swings.
… Currently, the company is carrying $142 billion in private and guaranteed loans on its books, about 27 percent of American student loans in the United States.

While 85 percent of its business is currently federally guaranteed, the company could also shift into the higher-interest and faster-growing market for private loans, which unlike guaranteed loans, is not subsidized by the government.

The student lending industry has been under quite a bit of scrutiny for lending practices that included incentives for colleges and universities to leave the US Government Direct Lending program, as well as offering monetary and gift incentives to officials in charge of making decisions about student lending.

Sallie Mae itself recently settled a case with the New York Attorney General and will pay $2 million into a fund to educate students and parents about the financial aid industry. —MEGHANN MARCO

Sallie Mae to Be Sold for $25 Billion