Student lender SLM Corporation (SLM), which is commonly known as Sallie Mae, has agreed to sell Customer Service Center in Killeen, Texas to Aegis Ltd, which is a part of Essar Group, the Indian conglomerate.
As a part of this deal, 350 customer service representatives and staff members of Sallie Mae will be transferred to Aegis. The other terms of the deal were not disclosed. This agreement is effective June 4, 2010.
The deal was struck as a restructuring effort following the recent legislative changes. Effective from July, Sallie Mae would not be able to originate federal student loans as a result of the signing of the student loan reform legislation by the President in March, which forbids private sector companies from making new federal student loans after June 30, 2010.
Along with Sallie Mae, the new legislation would eliminate the role of other private lenders such as Nelnet Inc. (NNI) in originating federal student loans under the Federal Family Education Loan Program effective July 1, 2010.
Sallie Mae is currently undergoing a significant restructuring of its operations to better align its cost structure with future revenue projections. The company’s first quarter results were reduced by $19 million or 4 cents per share attributable to after-tax restructuring and asset impairment costs related to the legislation. The company said that it would also reduce its workforce by 2,500 people.
The recent legislation remains a serious concern for the company as the traditional role would change and its loan portfolio would become heavily weighted toward higher-risk private student loans.
However, we expect Sallie Mae to be beneficiary as a participant in the Department of Education’s servicing contract, under which it would service and collect government guaranteed loans. We believe that Sallie Mae’s leading position in the student lending market and its sturdy cost structure would provide it with an edge over its peers.
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