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Sallie Mae Tumbles as Student-Loan Originations Drop

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July 21 (Bloomberg) -- SLM Corp., the largest U.S. student lender, fell the most in six months after the company said loan originations declined and uncollectible debts increased for the second quarter.

SLM, known as Sallie Mae, fell $1.32, or 11 percent, to $10.34 at 4 p.m. in New York Stock Exchange composite trading, the largest one-day decline since Jan. 22. The company’s $1.5 billion of 8 percent notes due in 2020 fell 2.5 cents to 87 cents on the dollar as of 1:23 p.m. in New York, according to Trace, the bond-price reporting service of the Financial Industry Regulatory Authority.

The company extended $219 million in private loans in the second quarter, compared with $387 million during the year-ago period, Chief Financial Officer John Remondi said in a conference call with investors today. Private education loan charge-offs rose to $336 million from $284 million during the prior three months.

“Loan originations were weaker than we thought,” said Michael Taiano, an analyst with Sandler O’Neill & Partners LP. “It’s important to see that business isn’t going to continue to shrink.”

Private loan originations are “not knocking our socks off,” Chief Executive Officer Albert Lord said during the call. Applications for new loans are weak as U.S. households reduce borrowing and turn to cheap education loans from the government, he said.

Falling Shares

Sallie Mae stock dropped 7.8 percent this year through June 30 when legislation took effect that put a halt to lending through the Federal Family Education loan program. That eliminated part of SLM’s origination business and increased its reliance on private loans, or those that don’t carry a government guarantee. Students will now obtain federally backed loans directly from the government. The stock has declined 8.25 percent this year.

Charge-offs, or accounts deemed uncollectible, had been falling and the increase may have surprised investors, Taiano said. Investors are also reacting to a lack of visibility over how Sallie Mae intends to restructure itself in the wake of losing government-guaranteed lending, he said.

The loan-loss provision for private student loan debt was $349 million, compared with $325 million in the first quarter, the company said yesterday.

Some of the credit trends on private loans were “disappointing,” Taiano said.

To contact the reporter on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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