- The Washington Times - Monday, June 5, 2006

Sallie Mae’s acquisition last week of Upromise Inc., the nation’s largest college-savings plan administrator, is a big step in the company’s plan to broaden its higher-education financing services.

“We’re the No. 1 paying-for-college company in the country,” said Tom Joyce, Sallie Mae spokesman. “Upromise is the No. 1 saving-for-college company in the country. The combination of the two makes sense.”

Needham, Mass.-based Upromise, founded in 2001, administers nearly 1 million college-savings accounts and more than $10 billion in assets.

Sallie Mae, officially called SLM Corp., manages nearly $127 billion in student loans for 10 million borrowers. It issues most of its loans through federal government programs and gives private loans to students who need more money than the borrowing limits established under government programs.

Sallie Mae and its stock analysts say the company has tapped into a market for college education that never will go away and shows signs of growing in the near future.

“The demographic trends and the demand trends are very, very strong for higher education,” Mr. Joyce said. “In 2008 and 2009, you’re going to see the largest high school graduating classes in the history of the United States.”

However, as the potential market grows, so do the number of competitors.

Major competitors are large banks, such as Bank of America, JP Morgan Chase, Wachovia, Citibank and Wells Fargo. In addition, state-sponsored nonprofit organizations that provide students loans have been growing.

Sallie Mae also has been struck by scandal.

Last summer, Sallie Mae fired one top executive, demoted a second and reprimanded others after a Securities and Exchange Commission (SEC) investigation of irregularities in its 2003 accounting procedures. The SEC found three incidents in which senior managers at a Sallie Mae subsidiary recorded revenue from one month in a previous month to meet performance goals and earn bonuses.

Nevertheless, stock analysts say Sallie Mae represents an attractive investment.

“Given the relatively low risk inherent in this model, the lack of capital required to operate this business, the near-term growth opportunities … we believe Sallie Mae provides attractive upside potential for investors,” said Matt J. Snowling, research analyst for financial firm Friedman, Billings, Ramsey & Co.

Kenneth Posner, a research analyst for financial firm Morgan Stanley, said rising tuition rates mean more students need money to cover education costs.

“SLM is doing better than we expected in the private loan space, which we believe is a business with good growth prospects and reasonable returns,” Mr. Posner wrote in a report to investors.

Congress organized Sallie Mae in 1973 as a government-sponsored entity but spun it off as a private corporation in 2004. Through its subsidiaries and divisions, Sallie Mae also provides debt-management services to business clients, including colleges, universities and loan guarantors.

Its recent products have included a Global Health Education Loan Program for graduate health-profession students to study abroad. The loan, which was announced last month, can cover education and relocation expenses.

The company’s net income of $152 million, or 34 cents per diluted share, in the first quarter of the year was a 32 percent decrease from net income of $223 million, or 49 cents per diluted share, for the three months ended March 31, 2005. Total revenue was up 37 percent to $1.77 billion, compared with revenue of $1.28 billion in the same period one year earlier.

Sallie Mae said the drop in net income resulted from a loss it reported under SEC accounting requirements but core earnings from interest income and fees remained strong.

The company operates with 12,000 employees, about 900 of them in the Washington area.

Its stock, SLM on the New York Stock Exchange, closed at $53.22 per share yesterday, down 99 cents, or nearly 2 percent, from Friday’s close.

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