Sallie Mae (SLM) Splits Off Student Loan Segment into Navient (NAVI)

Joel Anderson  |

Shares in student loan company SLM Corp (SLM) , better known as Sallie Mae, plunged during Thursday’s trading after the company completed the spin-off of its loan servicing enterprises into a separate company, Navient ($NAVI). The separation involved issuing a new share of Navient for each existing Sallie Mae share, and separates the company’s consumer banking arm to remain as SLM Corp and its student loan arm as Navient.

The seeds of this separation were sewn in 2010 when the government opted to shift its policy. Where before, the federal government would pay lenders to make student loans while also backing the companies against defaults. However, beginning in 2010, the Department of Education began making student loans directly, cutting lenders like Sallie Mae out of the equation.

The end result was two separate business segments that seemed increasingly difficult to keep under one roof, the higher-risk/higher-yield student loans and consumer banking and lower-risk FFELP loans. In response, Sallie Mae opted to spin off the student loan servicing into Navient, leaving Sallie Mae’s core consumer banking business as a stand-alone entity.

"With a 40-year foundation of experience, today Sallie Mae begins anew as a bank that emphasizes responsible consumer financial practices to benefit our customers," said CEO Raymond Quinlan. "The new Sallie Mae is squarely oriented toward meeting our customers' needs and building long-term relationships. Our leadership includes a mix of tenured education lending and banking talent who share my vision for growing the franchise."

The new valuation for Sallie Mae, which started its life as the government-sponsored Student Loan Marketing Association in 1972 before going private in 1997, may take some time for the markets to sort out.

Navient takes with it the student loan book from the Department of Education, including 5.7 million accounts worth some $300 billion; Sallie Mae CEO Jack Remondi as its new President; a little more than 20 percent of Sallie Mae’s assets net loans; $2 billion in annual revenue; and 6,000 of Sallie Mae’s 7,200 employees.

However, despite all this, the day’s 65 percent sell-off may be too much according to a few of those analysts positing their opinion. Both Citibank, Credit Suisse, and Compass Point analysts all initiated coverage in the new SLM Corp with an $11 price target.

"We anticipate this rapid growth period will last for at least the next five years given that the bank has about $7.5B of loans today with only 15% of loans in repayment and originations growing from an estimated $4.1B in 2014 to $4.9B in 2016," wrote Credit Suisse’s Mosche Orenbuch.

Citigroup’s analysis was equally bullish, saying “Sallie Mae Bank is a fast growing, highly profitable, mid-cap bank specializing in making student loans to undergraduate and graduate students.”



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