The Department of Education chose Sallie Mae, a leader in student loan lending, along with three other companies to service the outstanding federal student loans and future loans owned by the government totaling $550 billion. By servicing these loans, Sallie Mae would take on the administrative work, like mailing statements, receiving payments and managing delinquent accounts. The five-year contract, scheduled to begin in August 2009, awarded to Sallie Mae is only for the management of these loans, not loan origination.
Sallie Mae has long been synonymous with student loans, as it is the largest student lender in the U.S.
President Obama‘s plan is for the government to stop subsidizing government-guaranteed student loans, the majority of Sallie Mae’s portfolio, allowing the government to offset its income loss.
“Winning one of these four spots was certainly a make-or-break decision,” FBR Capital Markets analyst Matthew Snowling said. Calling this contract deal a “big win” for Sallie Mae, the company will now be able to move its business model away from lending and become a loan servicer, if Obama’s plan is realized.