Sallie Mae: A 1972 Federal Charter, a Failed $25B Buyout and Navient

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The Student Loan Marketing Association was created by the U.S. government in 1972 as a government-sponsored enterprise that bought student loans from local banks so they could keep lending. Albert Lord joined in 1981, became CEO in 1995 and led the push out of the federal charter, a process that began in 1997 and ended when Congress terminated the charter at the end of 2004. Along the way SLM Corporation bought Nellie Mae, a Massachusetts-created secondary market lender, for $320 million in 1999, gave the maximum $250,000 to President George W. Bush's second inauguration in 2005, and acquired the Upromise college rebate program in 2006.

In April 2007 an investor group led by J.C. Flowers, including Bank of America and JPMorgan Chase, agreed to buy the company for about $25 billion, then backed out by September as credit markets tightened. Sallie Mae sued, then dropped the suit in January 2008 after securing $31 billion in financing, part of it from Bank of America. The federal government bought back loans later in 2008, and 2010 legislation moved federal student lending to direct government loans. Sallie Mae cut 2,500 jobs, moved its headquarters from Reston, Virginia, to Newark, Delaware, and in 2014 split off Navient to handle federal loan servicing while SLM kept private loans and banking.

• A 2009 false claims suit by former Education Department researcher Dr. Oberg alleged overbilling the government through a 9.5% guaranteed return loophole.
• In 2006 Elizabeth Warren questioned on 60 Minutes whether one company should both originate student debt and collect it.
• A 2007 investigation by New York Attorney General Andrew Cuomo into lending practices ended in a $2 million settlement.
• A Connecticut class action alleging higher rates for Black and Hispanic borrowers settled in 2011 with a $500,000 donation to the United Negro College Fund.
• A former employee's suit claiming borrowers were pushed into forbearance was dismissed after he was arrested for extortion in an unrelated matter.