For millions of student loan borrowers, Sallie Mae is synonymous with educational finance. Now there’s a new name in town – Navient.
Founded in 1973, Sallie Mae (the nickname of The Student Loan Marketing Association) operated as a Government-Sponsored Enterprise (GSE) – a private financial institution set up by the U.S. Congress – until 1994 when it became a private corporation. Originally created to support the guaranteed student loan program created by the Higher Education Act of 1965, the company eventually expanded to handle all manner of private as well as federal student loans.
Most people who owed money for student loans saw Sallie Mae as the public face of educational finance, sending out bills and collecting payments. If you needed a forbearance, you’d call Sallie Mae. And when you fell behind, it was Sallie Mae’s people who would call you to ask when the money would be sent out.
More Than Just Federal Student Loans
But federal student loan servicing would make the company only so much money. Looking to the deep pockets of Wall Street, in 1995 Sallie Mae became a major player in packaging student-backed loans. The world of student loan securitization was born, with Sallie Mae in the lead.
1997 saw the company restructure as a private entity to combat the growing number of people who were going directly to the government for federal student aid.
Over the years the company purchased Upromise, a company that helped parents save for college. Sallie Mae continued to not only service federally guaranteed student loans under a contract with the U.S. Department of Education, it also made loans through its own Smart Option Student Loan program.
Once the U.S. government stopped allowing private lenders to made federally guaranteed student loans Sallie Mae started getting into high-yield savings accounts, CDs, and checking accounts through Sallie Mae Bank, credit cards, and insurance products. All the while, the company continued to service federal as well as private student loans.
Even if you weren’t paying your student loans on time, Sallie Mae still made money through wholly-owned debt collectors Pioneer Credit Recovery, Inc. and General Revenue Corporation.
What Is Navient?
Navient is a new company that split off from Sallie Mae in 2014 to take over Sallie’s federal loan servicing business. Now it is Navient that handles the billing and other services on millions of federal student loans.
If Sallie Mae was the loan servicer for your William D. Ford Federal Direct Loan (Direct Loan) Program or Federal Family Education Loan (FFEL) Program loans owned by the U.S. Department of Education (ED), Navient now manages your loans.
In addition to handling federal student loan servicing, Navient also services a large portfolio of private student loans. These are loans that have nothing to do with the government, and don’t provide for any of the repayment options and programs that we know exist for the federal loans.
Navient is also the owner of Pioneer Credit Recovery and General Revenue Corporation.
Navient Buys and Securitizes Private Student Loans
Navient purchases loans written under the U.S. Department of Education’s now-unwinding Federal Family Education Loan Program, and has been making a strong push to buy loans from other private student loan lenders.
As a way to pay for those loans, Navient relies heavily on securitization as a primary funding source. The company took on $1.6 billion of private loans from Sallie Mae Bank in its first few months of operation in 2014, while issuing $1.1 billion of securities backed by those accounts.
So What Does Sallie Mae Do Now?
Since the split from Navient, Sallie Mae offers private student loans (including the Sallie Mae Smart Option Student Loan). It then securitizes those loans, turning them into financial products that are broken up and sold to investors.
The company offers Money Market Accounts, High Yield Savings Accounts, and CDs through a banking unit. It also continues to operate Upromise, and also sells auto, tuition, life, health, travel, and renters insurance.
And, like Navient, Sallie Mae Sallie Mae has begun to securitize private student loans that it originates, owns and services. The first such trust, SMB Private Education Loan Trust 2015-A, was announced in April 2015 to hold $753 million worth of the company’s Smart Option Student Loans.
To give you a sense of just how much money is to be made, the single April 2015 transaction allowed the company to remove the principal balance of loans backing the Trust from its balance sheet and realize a pre-tax gain on sale of approximately $78 million after estimated closing adjustments and transaction costs, a 10.5-percent premium over the loans’ book value.
Two Different Companies, One Singular Purpose
Now that Sallie Mae and Navient have split, the difference is fairly clear – Navient takes care of the student loan servicing and Sallie Mae looks more like a bank.
To the outside eye, the companies are completely different. But look below the surface and you’ll see that both operate in a similar way.
Both companies work towards financing education through student loans. And both actively work to profit off those loans before the first payment is even made by a borrower.