Treasury Announces Successful Privatization of Sallie Mae
Treasury officials today completed the formal cutting of all ties of the Student Loan Marketing Association, commonly known as Sallie Mae or SLMA, with the federal government. Documents signed at the Treasury Department this afternoon effectively dissolved Sallie Mae, a government-sponsored enterprise subsidiary of SLM Corporation, completing a process that began in 1996. Today's action completed the transformation of Sallie Mae to a fully private corporation.
"The privatization of Sallie Mae was considered something of an experiment when proposed in 1996," said Treasury Assistant Secretary for Financial Institutions Wayne A. Abernathy, who signed the documents that made the transition final. "I am pleased that we have completed this transformation almost four years ahead of schedule. We applaud the transformation of Sallie Mae into a wholly private company, dynamically increasing its options to provide financing services to students. This is a mission well accomplished."
Congress originally established Sallie Mae in 1972 as a government-sponsored enterprise (GSE) to help students by facilitating a secondary market in federally guaranteed student loans. As a GSE, it had benefits such as exemptions from state and local taxes, but it was limited in the kinds of business it could enter.
In 1996, Congress enacted the SLMA Reorganization Act, which began the process of converting Sallie Mae into a private business while still meeting the needs of the borrowing student public. Sallie Mae's shareholders approved a reorganization that created SLM Corporation, a Delaware-chartered holding company, and the Sallie Mae GSE became its wholly-owned subsidiary. This process facilitated a smooth transition for the student loan market, culminating in the GSE's dissolution today. The Sallie Mae privatization included the establishment of a trust, satisfactory to Treasury, defeasing the remaining liabilities of the GSE. The dissolution of SLMA is well ahead of the September 30, 2008 deadline set by Congress.
The Treasury Department has exercised oversight responsibilities over Sallie Mae, including monitoring its privatization process. The document signed by Assistant Secretary Abernathy today is a formal recognition, required by the law, that the outstanding obligations of the now-dissolved GSE are sufficiently collateralized.
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