Government

Sallie Mae Predicted to Gain Market Share From Student-Loan Crunch

May 06, 2008

Student-loan crises may come and go, but apparently the profitability of Sallie Mae, the nation’s largest student-loan company, remains.

Less than a week after Congress approved legislation designed to ensure that student-loan companies continue to issue federally subsidized student loans, a Wall Street research firm, Lehman Brothers, has issued a report analyzing the bill’s effects on Sallie Mae.

Lehman’s conclusion: The bill, which awaits President Bush’s signature, appears to guarantee that Sallie Mae and some other student-loan companies will not only remain profitable but “potentially gain considerable market share,” given that some competitors have withdrawn from the marketplace.

Congress overwhelmingly approved the legislation last week, strengthening lenders by letting Education Secretary Margaret Spellings pay cash for their loan portfolios, after some loan companies said they could not afford to participate in the government-backed student-loan program.

The bailout legislation was written by the chairmen of the House and Senate education committees, Rep. George E. Miller of California and Sen. Edward M. Kennedy of Massachusetts. After Democrats won control of Congress, in November 2006, Senator Kennedy railed against profit levels at Sallie Mae, promising to “take the money-changers out of the temple in terms of student loans,” The Washington Post reported at the time.

But Lehman, in its report today, says the Miller-Kennedy bill should let Sallie Mae “sell loans to the government at a premium” while maintaining its loan-servicing relationships. It also predicts that Sallie Mae could pick up “as much as 7 to 8 percentage points of market share,” giving the company roughly 38 percent of all loan originations in the government-subsidized program. —Paul Basken