Sallie Mae,Nelnet soar on big US student loan pact
* Government awards loan-servicing contract
* Analyst says contract can provide "meaningful" growth
* Sallie Mae up 9 percent, Nelnet up 20 percent
NEW YORK, June 18 (Reuters) - Sallie Mae (SLM.N) and Nelnet Inc (NNI.N) shares soared on Thursday after the U.S. Department of Education awarded them and two other companies a contract to service $550 billion of student loans.
The contract was also awarded to two private companies, American Education Services/PHEAA and Great Lakes Education Loan Services Inc. The five-year contract is expected to begin in August and may be renewed for another five years.
In morning trading, Sallie Mae shares were up 71 cents, or 9.2 percent, at $8.40, while Nelnet was up $1.66, or 20.4 percent, at $9.80, both on the New York Stock Exchange.
Eligibility for the program became crucial for student loan providers after President Barack Obama in February proposed to shift most of the country's $90 billion of student lending into a direct loan program and shut down the Federal Family Education Loan Program (FFELP) by July 2010. He estimated the changes could save taxpayers more than $4 billion a year.
Education Secretary Arne Duncan said the contract will help ensure that "all eligible students" will have access to loans to help them pay for college.
His department did not say how much business and fees each company will get, but said it plans to acquire a "large volume" of federally guaranteed loans in the coming months.
"This will prove to be a meaningful source of growth for both Sallie Mae and Nelnet over the years to come," wrote Matt Snowling, an analyst at FBR Capital Markets who rates both companies "outperform."
Snowling said Sallie Mae services nearly $150 billion of FFELP loans, four times as much as Nelnet, AES/PHEAA and Great Lakes combined. This "scale advantage should favor Sallie Mae," but Nelnet could enjoy a "significant win," he said.
Sallie Mae is based in Reston, Virginia; Nelnet in Lincoln, Nebraska; AES/PHEAA in Harrisburg, Pennsylvania; and Great Lakes in Madison, Wisconsin.
(Reporting by Jonathan Stempel; editing by John Wallace)
((jon.stempel@thomsonreuters.com +1 646 223 6317; Reuters Messaging: jon.stempel.reuters.com@reuters.net)) Keywords: SALLIEMAE NELNET/STUDENTLOANS
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