In order to counter regulatory upheavals, leading student
), popularly known as Sallie Mae, announced its board of
directors' decision to split the company's present business into
The separated units will operate as standalone publicly traded
companies. One of them will be in education loan management
business while the other will function as a consumer banking
business. Sallie Mae expects the division to be completed within
Both newly formed companies will be initially owned by Sallie
Mae's existing shareholders. Moreover, the current executives
managing the unit will be at the helm even after the split.
Following the necessary approvals, the split will be made through
a tax-free distribution of common shares to the company's
The education loan management business will consist of Sallie
Mae's federally guaranteed (FFELP) and private education loan
portfolios, as well as its servicing and collection activities.
Mr. Remondi will continue as the chief executive officer of this
The education loan management business' principal assets are
expected to constitute about $118.1 billion in FFELP Loans, $31.6
billion in private education loans and $7.9 billion of additional
Moreover, it will also constitute a leading education loan
servicing platform that services loans for approximately 10
million federal education loan customers, including 4.8 million
customer accounts serviced under the Sallie Mae's agreement with
the U.S. Department of Education. On an aggregate, this company
will own approximately 95% of Sallie Mae's current assets.
The other business shall comprise private education loan
origination and servicing operations - including Sallie Mae Bank
and the private education loans that the company presently holds
- which will operate separately under Sallie Mae. Joseph DePaulo,
the current executive vice-president, banking and finance, will
lead this business as chief executive officer.
The consumer banking business is expected to include
approximately $9.9 billion of total assets, including mainly
private education loans and related origination and servicing
platforms, cash and other investments as well as Sallie Mae
Upromise Rewards program.
The decision to separate Sallie Mae's operations comes after the
suspension of new federal student loan origination, in compliance
with the legislation passed by both the House and the Senate in
2012. This legislation effectively removed federal subsidy to the
Further, defaulting student loans, in the face of persistent
unemployment and a sluggish economy, worsened the situation. We
believe that Sallie Mae's decision to split the 2 businesses was
in order to separate its flourishing private student loan
business from its shrinking government-backed loan servicing
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The newly created companies will be able to navigate the
challenging operating environment because of Sallie Mae's leading
position in the student lending market, diversifying efforts and
steadily increasing private student loan originations. Moreover,
by creating a separate bank, the company can look forward to
finance new streams of loans.
Sallie Mae currently carries a Zacks Rank #3 (Hold). Better
performing stocks in the same sector include
Meta Financial Group, Inc.
WSFS Financial Corp.
Provident Financial Holdings, Inc.
), all of which carry a Zacks Rank #1 (Strong Buy).