Sallie Mae splits into two this week

SLM Corp., the student-loan giant based in Newark, Del., will split into a loan servicer and a consumer bank this week, in a bid to gain a clearer profile for investors.

The separation, in the works for almost a year, will happen Wednesday, when shareholders will receive a new share in a loan-servicing company called Navient Corp. for every SLM share they own.

Navient, which announced this month that its headquarters would be in Wilmington, will take over the servicing of federal government-backed student loans with balances of $103.2 billion and $31 billion of private loans.

"We've got a large portfolio of high-quality assets that are going to generate a substantial and very predictable stream of earnings over a long period of time, and the opportunity is for us to add to that by buying portfolios at attractive yield, both in the [federal] segment as well as the private segment," John F. Remondi, Navient's chief executive, told investors this month.

Among the sellers of those loans will likely be the company Navient is leaving behind, which is commonly known as Sallie Mae, a name dating to its days as a federal government-sponsored enterprise (akin to Fannie Mae and Freddie Mac in housing) created in 1972 to make more money available for student loans.

Sallie Mae will keep its headquarters in Newark, highly visible to southbound traffic on I-95, while diversifying into areas such as personal loans for recent graduates with professional degrees and secured loans for health-care professionals.

Sallie Mae has told investors it expects to be the largest private student lender. It made $3.76 billion in education loans last year and has set a target of more than $4 billion in education loans annually.

Executives from both companies met with investors last week to prepare them for the split.

The current SLM employs more than 7,200 nationally, including 1,200 in Delaware. Most of the jobs, more than 6,300, will go with Navient, a spokeswoman said. Navient will have a debt-collection office in Moorestown.

The Federal Reserve Bank of New York reported in February that credit reports showed $1.08 trillion in student loans outstanding Dec. 31. More than 11 percent of them were at least 90 days delinquent or in default.

SLM's split was prompted, at least in part, by a major structural change in the federal student-loan market in 2010. Before then, SLM and its competitors had a sweet deal. The federal government paid them to make loans to students and backed the loans against losses.

Then in 2010, Congress cut Sallie Mae and others out of the equation, in favor of having the Department of Education make loans directly to students and their families.

However, Sallie Mae - the part that will become Navient - did not lose out entirely in the new lending system. It services 5.7 million direct-loan accounts under a Department of Education contract that brought in $109 million in revenue last year, but has not contributed meaningfully to profits.