Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

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 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.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.