Why Sallie Mae Is Splitting in Two

Sallie Mae, the largest private student lender, is turning itself in two companies: a large legacy business and a small-but-growing new enterprise. The move is a response to the changing legal landscape that in recent years has rocked the student loan business.

Sallie Mae hasn’t yet given a name to the company that will house its old loans and services. For years, the government paid private companies such as Sallie Mae to lend to students, and it also guaranteed the loans to protect the lenders from losses. It was generally a good business to be in: From 2000 to 2009, the volume of these loans, known as the Federal Family Education Loan (FFEL) program, quadrupled from about $149 billion to about $630 billion, according (PDF) to the Congressional Budget Office. The new company will own $118.1 billion of these older FFEL loans; its bread and butter will be collecting payment on those debts from millions of students and graduates.