April 16, 2007

It’s Official – Sallie Mae is bought out!

Posted in Student Loan News at 9:43 AM by Joe From Boston


Take a look at this article from thew New York Times:

[Edit – This deal eventually fell through, and Sallie Mae remains independent 9/30/2008]

Sallie Mae Agrees to Be Sold for $25 Billion: Report

NEW YORK/PHILADELPHIA (Reuters) – Sallie Mae said on Monday it had accepted a $25 billion takeover bid from two private-investment funds along with JPMorgan Chase & Co. (JPM.N) and Bank of America Corp. (BAC.N) in one of the largest ever buyouts of a financial company.

The deal comes at a difficult time for the largest U.S. student loan company, which last week settled a regulatory investigation into some of its lending practices. It also could suffer if proposed legislation successfully reduces demand for privately underwritten student loans.

The deal values Sallie Mae at $60 a share, a 28 percent premium to the company’s closing stock price on Friday. The shares were up $8.49, or 18.2 percent, at $55.25 in early New York Stock Exchange trade.

Sallie Mae, whose formal name is SLM Corp. (SLM.N, said the two funds, J.C. Flowers & Co. and Friedman Fleischer & Lowe, would invest $4.4 billion and own 50.2 percent. Bank of America and JPMorgan will each invest $2.2 billion and own 24.9 percent.

The deal is unusual because leveraged buyouts usually entail boosting debt at a company to increase the return on equity, but financial companies usually have high debt levels to begin with.

But Sallie Mae could raise its corporate debt levels and just rely on other forms of debt, particularly asset-backed securities, according to asset-backed bankers and CreditSights analysts.

Last week, Sallie Mae settled with New York Attorney General Andrew Cuomo for $2 million. The company did not admit wrongdoing, but did promise to change such lending practices as paying university financial aid officers for appearing on advisory boards.

STUDENT LENDING UNDER FIRE

Attorneys general from New York, California, Connecticut and other states are looking into the extent to which student loan companies offer kickbacks to universities and their financial aid employees for steering business to the lenders. Student lenders made about $85 billion of loans last year.

U.S. Sen. Edward Kennedy, a Democrat, has introduced legislation that would threaten lenders, including Sallie Mae, by rewarding colleges for steering students into loans made directly by the government.

Sallie Mae was created in 1972 as a quasi-governmental company known as a “government-sponsored entity.” It began cutting its direct government ties in 1997, a process completed in 2004.

After the takeover, Sallie Mae’s current management will continue to lead the company, which will continue to originate student loans under its internal brands. It will remain headquartered in Reston, Virginia.

Bank of America and Chase will continue to operate their independent student lending businesses.

The transaction, which requires the approval of regulators and Sallie Mae’s stockholders, is scheduled to close in late 2007. Sallie Mae will not pay any dividends before completing the deal.

The company will still have publicly traded debt. Bank of America and JPMorgan have committed to provide debt financing for the transaction and to provide additional liquidity to Sallie Mae before the deal closes.

UBS Investment Bank was the lead financial adviser to Sallie Mae and its transaction committee, which was also advised by Sandler O’Neill + Partners L.P. and Greenhill & Co. JPMorgan and Banc of America advised the investor group.

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18 Comments »

  1. Boston Student Loan Deferment Form Sallie Mae | General said,

    […] It’s Official – Sallie Mae is bought out! | Student … – Apr 16, 2007 · Take a look at this article from thew New York Times: [Edit – This deal eventually fell through, and Sallie Mae remains independent 9/30/2008] Sallie Mae …… […]

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  3. Biz said,

    To Sharon:
    First of ease off the caps lock sister!
    Secondly I don’t see why any parent would sue their child. Sounds like you want this…

    However she sounds like a flake and should have some consideration for you and her father.

    Now for the constructive part:
    You may have to bite the bullet and deal with them, as others have stated above, the act of co-signing for any loan is a promise to pay should the borrow default on the loan.
    It sucks I know.
    If she never attended school then the funds should not have been dispersed and would have been given back to the lending agency.
    If she signed up for classes and did not attend – there may have been some charges.

    I would contact them and ask them to send you detailed statements of funds that were dispersed, as well as when and where they were dispersed to.

    Then contact the school and ask for a billing statement.

    I am no expert but it sounds as if you are being ripped off.

    The funds I did not use were credited back to my account.

  4. Sharon – I have no experience in tracking someone down, but perhaps a private detective could help?

    This is a good warning to others – remember, as a co-signer you agree to pay the loan back if the primary borrower cannot.

  5. sharon martin said,

    MY HUSBAND NEEDS TO FIND OUT HOW TO SUE HIS DAUGHTER WHO DEFAULTED ON A LOAN CO-SIGNED BY HIM, AND HAS NOW ‘DISAPPEARED’ SO THAT SALLIE MAE CANNOT CONTACT HER, BUT ONLY CONTACT HIM! HE ALMOST LOST HIS HOME BECAUSE OF HER IRRESPONSIBILITY, AND SHE HAS NOT ONE BUT TWO JOBS AND LIVING OFF OF SOMEONE ELSE FOR FREE! SHE REFUSES TO GO BACK TO SCHOOL. THERE HAS TO BE SOME WAY TO GET THE COURT SYSTEM TO MAKE HER START PAYING ON THIS LOAN. HE CANNOT AFFORD TO PAY BACK A LOAN FOR HER, AND SHE NEVER EVEN WENT TO SCHOOL.

  6. Amanda said,

    Hi Monique,

    Thanx for the response. Yes, I have called each lender more than once to ask about alternate repayment plans, they seem unwilling to offer any. Sallie Mae is very difficult because their call center seems to be in India and I can never understand the person very well and I don’t think they quite know what they’re telling me either. At first the woman I spoke to told me I could pick a 25 yr repayment plan instead of 20 yr, but when I called back, the next lady told me I couldn’t do that, extremely frustrating! I’m trying my best to be pro-active, but I feel like I’ve gotten in over my head. I have sold some items and eliminated a couple recurring monthly payments, have cancelled the TV, etc. I’ve gotten things to the point where it’ll be stretched, but I can pay them all as is except the Wells Fargo one. That one alone is $505 a month. And the other privates gave me a 20 yr repayment plan but Wells Fargo will only give me a 15 yr one. I haven’t asked about deferment or forebearance yet, I’m worried since I do have a decent job that I won’t qualify. I know things are changing daily in the market right now, if anything new comes up, would you please be so kind as to post a comment to let me know? My loans are thru Sallie Mae, Chase, and Wells Fargo, so anything pertaining to those companies too. I saw the related articles on this site about Sallie Mae being investigated for possible illegal practices. Thnx

  7. Amanda,

    Have you asked your lender about deferment, forbearance or alternate repayment plans? Alternate repayment plans allows you and your lender to set up a repayment plan that you can afford ant that proves to you lender you are trying in good faith to make payments. Not all lenders will create these, but it’s worth asking.

    Deferment allows you to put off payments for a period of time to let you save up some money and get back on your feet. Interest generally does not accrue.

    With Forbearance, interest does accrue, so your later payment may be a little higher, due to the accumulated interest for the months you didn’t pay. Generally, a deferment is a better option for the borrower, but harder to qualify for.

    Both are possible for people experiencing economic hardship.

    Call your lender and see what your options are.

  8. Amanda said,

    I have 4 private and 3 federal student loans coming due. The federal’s are no problem, but the privates are so high I can’t afford them. I’m trying to consolidate but no one will approve me without a cosigner, which I don’t have. My Equifax score is a 643, not great I know, but higher than when I first got the loans. I really want to avoid wage garnishment or anything like that, any suggestions??

  9. Sarah Cason said,

    To Debbie Dickerson: If you have multiple loans, even if one is a consolidation loan and even if they are in default, I would suggest a William D. Ford Federal Direct consolidation loan. It would be better to make arrangements to make full voluntary payments for a while to rehabilitate these debts first, but if this is not possible please consider this “income contingient loan” option. Next July 2009, the “income-based” repayment option also becomes available. I’m assuming you “hid out” until your loans went into default. Once you’re out of default you may be eligible for deferments and forbearances and possibly more student aid. I know it’s tough, but keep working the problem. You may want to consider finishing your education; but if not, keep trying to get a job. Just because you didn’t finish, doesn’t mean you are unemployable, even is tough times. God bless!

  10. Sandy – Try contacting your Senators or Representatives in Congress for help. They might be able to help you track down records for the school you attended that closed, or help you track down cancellation papers for you loan.

  11. Sandy said,

    I took out a student loan in 1979 and then withdrew from the school and cancelled the student loan prior to the classes starting signed all documents I believe Sallie Mae owns the loan,I have repeatedly wrote and called Depart of Ed that I do not owe this loan they now have Pioneer Credit Recovery garnessing my SSI check which leaves me with a grand total of $750.00 to live on for the month.I didn’t default on a student loan,I cancelled a student loan in 1979 Sallie Mae is still doing what they always have done,LIE STEAL AND CHEAT.I don’t believe for one second that this so called loan they say I owe them will be discharged because Iam disabled,and Iam not sending a collection agency any or all of my medical records.This company needs to be stopped and stopped now. Oh by the way any and all records pertaining to this school I supposedly went to have been destroyed ,and the school is not even the one I signed up for in 1979 that one closed down in the very early 1980’s and the the school they say I attended closed down in 1994.Great scam they have going,could you please tell what I can do to stop this?I have been trying to get to the bottom of this since 1997 When I was sent a letter that I owed this loan.

  12. Hi Albright.

    It sounds like you defaulted on your loans. A default usually will affect your credit for about 10 years.

    Look at it this way – from another creditor’s point of view, you stopped paying back a lender. Hence you are now considered a high-risk borrower and other lenders are less likely to lend to you. Or if they do, you will pay a much higher interest rate to offset your risk.

    To my other readers – NEVER default on a loan! It’s somewhere you don’t want to be. It will affect you ability to buy a car, a house, etc., for years to come.

  13. Albright said,

    I was paying regularly on my Sallie Mae loan for about 3 years until I lost my job. I am still unemployed and they sent my debt to the Department of The Treasury – Financial Management Services. They are taking a percentage out of my Survivor Benefits check each month until the loan is paid. It was $16,000 in 1998, but as of 2000 it has accumulated interest. It is now $24,000. Will this debt stay on my credit report until it is paid?

  14. Boondock –

    If Sallie Mae has had to garnish Debbie’s income tax, than it’s most likely that she’s in default on her loans. Garnishing is a tool of last resort. If she was in default, Citibank won’t touch her.

    She might be able to get the Department of Education’s Direct Loan program to consolidate, if she’s been in repayment long enough to repair her credit.

    Of course there’s always the possibility that neither of us considered- the loan she has might be a consolidation loan. If so, then she cannot re-consolidate it with anyone, even the government.

  15. Boondock Saint said,

    Hi Debbie and Monique,

    Again, I don’t want to be the bearer of bad tidings, but when the government plummeted interest rates to two percent, the consolidation option was eradicated. There is nothing you can do with Sallie Mae. They will not work with you nor will they consolidate…personal or federal loans…they both are gone. My advice is to contact CitiBank (www.studentloan.com). I am currently in the works to consolidate my personal loans through them. They give a generous 30 year pay-off plan at a decent rate. It will cut my payments more than 75%. I was fortunate to make the federal consolidation time frame, but it ended in early July this year. Good luck and God bless!

  16. Hi Debbie,

    Unfortunately the law is not on your side here. When you signed the Master Promissory Notes for your loans, you agreed to pay the money back and Sallie Mae is legally allowed to garnish your wages to recoup its money.

    It sounds like you have multiple loans. One thing that may help is consolidation. Since you went into default on your loans you may not be eligible currently, but once you’ve been in repayment for several months, you may become eligible again.

    With consolidation, you spread out the loan repayments over a longer period of time. You pay more in the long run, but less each month which allows you to afford the payments more easily. Give Sallie Mae a call and ask about consolidating your loans once they’re out of default. It might help.

  17. Debbieldickerson said,

    I have loans though sallie mae now and they took my income tax and they want 547dollars a month for three years. I didn’t finish school, and I am a welfare recipent. I need help to fight them once and for all.

  18. As a footnote – the deal eventually fell through. Salli Mae is an independent company still as of May 2008


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