New Sallie Mae owners in responsible lending vow
NEW YORK, May 21 (Reuters) - The new owners of the largest U.S. student loan company SLM Corp. (SLM.N), commonly known as Sallie Mae, on Monday announced a series of initiatives they said would encourage responsible student lending.
Last month, Sallie Mae reached a settlement with New York's attorney general amid a widening scandal in the $85 billion-a-year student loan business.
Private equity firm J.C. Flowers & Co. and its partners in the acquisition of Sallie Mae said the plans would be implemented to enhance accountability and transparency when their transaction is completed in late 2007.
"As the nation's largest student lender, Sallie Mae will lead the industry to ensure responsible student lending," said Chris Flowers, managing director of J.C. Flowers, in a statement.
Sallie Mae agreed last month to a $25 billion leveraged buyout by private equity firms J.C. Flowers & Co. and Friedman Fleischer & Lowe, as well as JPMorgan Chase & Co. (JPM.N) and Bank of America Corp. (BAC.N).
To improve transparency, the new owners said Sallie Mae will have a new eight-person board, comprising four representatives of J.C. Flowers and two each from Bank of America and JPMorgan Chase.
Further, the new board will appoint an independent special committee to conduct a 180-day review of best business and marketing practices.
The committee will report findings to the board, issue a set of recommended business standards, and oversee their implementation.
Sallie Mae said it will enhance its efforts to ensure that students understand lower-cost options before taking out private loans and require new procedures for students or parents who choose private loans over cheaper options.
COMPLIANCE
The new owners said that despite being a private company, Sallie Mae will have transparency practices including disclosure of the company's top five earners and continued compliance with the Student Lending Code of Conduct and Sarbanes-Oxley requirements.
"As Congress considers proposals to reform student lending practices and make college more affordable, students will be best served if government, the lending community and higher education institutions work together," Flowers said.
In its April settlement, Sallie Mae agreed to pay $2 million and to end some of its practices, which New York attorney general Andrew Cuomo said were deceptive and unlawful. The $2 million will be paid into a fund to educate students about financial aid.
In the settlement, Sallie Mae denied having broken the law.
Sallie Mae did not take part in widespread "revenue sharing" arrangements, which Cuomo called kickbacks, according to the settlement. These are payments to schools based on the number of students who apply for loans. Continued...
