Bank of America Among Investors to Purchase Sallie Mae for $25 Billion

The potential shift of Sallie Mae from restrictive federal loans into the mega billion private loan business could cost consumers mega dollars. Combined with possible cuts from federal government subsidies, having student loans administered by private companies could double the costs of interest rates and fees charged to students. The entire effect means fewer lenders, higher prices, and less choices for students seeking college tuition assistance. Sallie Mae, currently the nation's largest loan company, announced that it will be bought for $25 billion by J.P. Morgan Chase, Bank of America, J.C. Flowers & Co., and Friedman Fleischer & Lowe. Almost two-thirds of the purchase price would be borrowed, which may trigger a downgrade in its investment ratings in financial markets. This deal is being planned despite investigations of conflict-of-interest among top officials of government, universities, and student loan companies. (see: Report by Aly Adair)

J.P. Morgan Chase and Bank of America, along with Sallie Mae would control up to 40% of the student loan market, according to some analysts. Officials from Sallie Mae plan on the buyers continuing to compete with Sallie Mae, and the purchase would not affect the company's 10 million student loan customers whose loan balances total $142 billion. Layoffs are not expected for the 12,000 employees of Sally Mae, including 700 in the Washington D.C. area. Sallie Mae has become one of the most financially successful company's in the Washington D.C. area by issuing loans that carry federal subsidies and government guarantees, reducing the risk if borrowers default. The 35-year old company began as a congressionally chartered, quasi-governmental entity. The sale could triple the value of the CEO's stock options to more than $120 million.