SLM Corp (SLM)

$12 price target

Mad Money - Cramer Pick

The Case for Sallie Mae

Over the past two years, Sallie Mae (aka SLM Corp) has fallen from nearly $50 a share to about $10 a share. The reasons for the decline are two-fold. First, the recent credit crisis called into question if the highly leveraged business model of borrowing money to make student loans and then selling those loans to institutional investors would remain viable. Second, many have wondered if the administration’s plans for student loan lending would put an end to Sallie.

With the credit ice jam finally beginning to thaw and break, the question of access to reasonable credit to fund the business model appears to have been answered. Thus the remaining question is how the administration’s policies might affect the business in the future.

I am optimistic about Sallie’s future. Sallie Mae has had close connections to Washington politics since it was first created in the 60’s. Though the original GSE was wound down nearly five years ago, Sallie’s influence in Washington remains strong such that I believe that though there may be tweaks to the model, Sallie will still come out with a profitable method to leverage federally sponsored student loan programs.

For those in doubt, consider this: Sallie Mae employs approximately 8,000 people, the majority of whom are concentrated in Virginia, Pennsylvania, New York, and Indiana. Of the eight senators representing those states, seven are democrats, including such influence wielding power brokers as Arlen Specter, Chuck Schumer, and George Allen. It seems unlikely to me that these lawmakers would issue a death sentence for a business so important to their states. Furthermore, the administration is quickly spending its political capital on higher profile issues such as healthcare reform, the war in Afghanistan, green policies, etc., such that the attention on student loan lending will be much subdued in the future. If republicans increase their numbers in congress in the next election cycle (which I think is quite likely), this will favor Sallie even more.

As far as the current business model, Sallie Mae could not be in a better position. People out of work are going back to school and funding their education (and living costs) through student loans. May I remind you that federally sponsored student loans are guaranteed by the government up to 98% of the loan value, so the question of if lending to unemployed students makes sense is a mute point. If a federal student loan goes bad, Sallie Mae sells it at nearly full price back to the federal government, and the federal government pays Sallie to continue servicing the loan! If the borrower begins to make payments on the loan and becomes profitable again, Sallie buys the loan back from the government.

In the end, I think Sallie will be around for a long while, and at $11/share, it still looks like a bargain to me.

Students graduating without jobs and their parents trying to recover from the financial hit of 2008. Fat chance collecting loan repayments.

The government will bail out student and their parents. After SLM folds, the government will take over writing student loans.

The government will bail out students by allowing them to declare bankruptcy and defaulting on their loans. The government will then take over new student loans and kill whatever is left of their business.

The tipping point has come. Normal consumer protections will be restored to student debt - including bankruptcy, refinancing, statutes of limitations, and fair debt collection practices.

As long as kids will keep going to school, Sallie Mae will be needed to give subsidized and unsubsidized loans. Also once these kids enter these loans, there is no way they are getting out. A market that is only going to expand in my opinion.

With the economy in shambles, SLM is poised to take center stage on providing student loans for the retraining of America.

Government will not be able to fully service student loans. SLM will change to fee for service and thrive. Uncertainty bringing stock to below market levels.

per cramer

Almost everyone I know has student loans that they have no means to pay back. The loans may escape bankruptcy filings but even so, that capital is gone FOREVER.

This stock has been crushed by the market. These prices are still a bargain.

analyst says Sallie Mae will continue receiving student loan-servicing business, even if the government takes over student loan lending.

good company

I see a fork in it already. They're done, son.

SLM has one of the most illiquid balance sheet. It is also loss making. Its customers, mostly students, are among the least solvent among the population.

Fed govt is taking over student loans.

SLM has the student loan market cornered - look for this company to take off coming out of a recession

Caught this one in a panic slide. Likely margin calls forcing hedge fund/insider liquidation. Obviously an uphill battle for any company relying on healthy credit markets. However, the demand side of the equation is not in jeopardy.