), also known as Sallie Mae, declared the closure of a $6.8
billion credit facility, which used to aid term securitization of
its federally guaranteed (FFELP) loans. The credit facility was
over-subscribed by a group of 8 international financial
The facility is secured entirely by FFELP loans and amortization
will take place over a one-year period. Sallie Mae intends to end
participation in the Straight A federally sponsored financing
program before Jan 2014 limit, as the amount outstanding in the
credit facility exceeds the residual balance in Straight A
During the financial crisis, Straight A actively granted the
public access to federal student loans. Notably, from Dec
2010 till Mar 31, 2013, Sallie Mae's assets in the Straight A
facility have recorded a steep fall - from a maximum of $24.1
billion to a low of $6.9 billion.
The company's suspension of the credit facility reflects its
efforts to boost its revenues by focusing on its consumer segment
comprising retail products and services that directly help
students and families plan and to reduce costs of higher
In Mar 2012, the U.S. Senate passed a bill to overhaul the
student loan program, ending the Federal Family Education Loan
Program (FFELP) that provided federal subsidies to private
Subsequent to this, federally guaranteed student loans will
originate under the Direct Loan Program run by the U.S.
Department of Education and the role of private lenders will be
eliminated. Hence, in compliance to the above legislation, Sallie
Mae stopped originating new federally guaranteed student loans
after Jun 30, 2012.
Despite challenges, we believe that its leading position in the
student lending market, diversifying efforts and increasing
private student loan originations will help the company navigate
the current cycle.
Notably, in an effort to align with the regulatory changes,
Sallie Mae announced a plan to split its present business into 2
parts in May. One will be an education loan management business
while the other will function as a consumer banking business. The
company expects the division to be completed within a year.
Sallie Mae currently carries a Zacks Rank #3 (Hold). Better
performing financial stocks in the same sector includes
Central Pacific Financial Corp.
), all of which carry a Zacks Rank #1 (Strong Buy).
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PREFERRED BANK (PFBC): Free Stock Analysis
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