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Bank of America Corp (BAC), Discover Financial Services (DFS), Wells Fargo & Co (WFC): Three Potential Suitors for a Sallie Mae Spinoff

Student loans are no sure thing
To be clear, buying all or part of Sallie Mae won’t guarantee success in the student loan market. A study released earlier this year by FICO Labs found that students today have on average 58% more debt than in 2005, with a 22% greater chance of defaulting.

But these headline numbers can be misleading because of the government’s role in the market. Sallie Mae reports that just 3.9% of its borrowers with average or better credit scores — “average” defined here as a FICO score between 640-670 — were more than 90 days past due as of year-end. This compares to 12.6% delinquency for borrowers below those thresholds in the Sallie Mae portfolio.

Because the government is the primary lender for borrowers with low credit scores, it is reasonable to expect that an independent — or acquired — Sallie Mae Bank would have very low delinquency rates thanks to its hand-selected borrowers’ high credit scores.

For an acquirer, the bottom line is growth
Student loans remain an attractive class of consumer debt. Since the Great Recession, households have been reducing consumer debt virtually across the board, with student loans being the one significant outlier.

As banks continue the search for growth, student loans are an attractive option. Acquiring Sallie Mae Bank could be a quick way to find that growth.

The article 3 Potential Suitors for a Sallie Mae Spinoff originally appeared on Fool.com and is written by Jay Jenkins.

Fool contributor Jay Jenkins has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Bank of America and Wells Fargo.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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