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September 16, 2005

Student loan company consolidation can happen among lenders

Student loan consolidation can take a bit different shape. What I mean is the corporate merger when one company buys another. For those of you who doubt it could happen, consider the proposed takeover of Pennsylvania Higher Education Assistance Agency (PHEAA) by Sallie Mae. Sallie Mae offered 1 billion dollars for the company that services about four million student loans with total assets close to $57 billions. This bid expired on the 31st of August, because PHEAA thought that the deal was low and poorly structured.

There were also usual claims from PHEAA that such student loan company takeover would lead to less competition, more bureaucracy and higher rates and fees.
Sallie Mae claimed that to the contrary, it is PHEAA state monopoly that keeps costs high, and the proposed buyout would eventually help students.

If I were a student with a loan, what would such a consolidation mean for me? I don't know how PHEAA runs its business, but after something like Sallie Mae would take over, it is hard to imagine that my student loan would become any cheaper.

Sallie Mae will likely try another time and things may be working to its advantage. That is because Congress is working toward closing a loophole that has provided billions of dollars of subsidies to student loan companies. Without these subsidies, the PHEAA value will likely decrease.

 
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