SLM Corp (SLM): Potential Split Could Create New Opportunities and Increase Shareholder Value

Could it Create New Value?

Then again, Congress appears to recognize the problem and has taken steps to produce a solution. Since pending legislation that ties student loan rates to Treasury bond rates over a 10-year period is likely to pass in some form, investors in the newly formed companies may not have to wait long for clarity on the issue. This clarity would provide shareholders with a clear choice between a stodgier company that services a predictable portfolio of existing loans at fixed rates and a more dynamic firm that could profit from steady, predictable rises in student loan interest rates over time.

Long-Term Outlook and Possible Plays

More broadly, the higher education industry faces structural and secular challenges that will not be easy to overcome. Although American students continue to finance their educational endeavors with ever-increasing amounts of debt, it is unclear whether this is sustainable over the long haul. Since this is a sensitive political issue with far-reaching ramifications, it is difficult to predict its eventual outcome. However, it is safe to say that SLM Corp (NASDAQ:SLM)’s future depends on a successful resolution that permits interest rate increases without creating a large-scale default crisis.

In sum, investors who believe in the fundamental health of the student loan industry would do well to look at this potential split. It seems obvious that this split will create two focused, nimble firms that will compete well in a dynamic financial sector. Nevertheless, investors who believe that the student loan industry’s challenges are insurmountable would do well to look elsewhere for value. As usual, this situation’s benefits are in the eye of the beholder.

The article Potential Split Could Create New Opportunities and Increase Shareholder Value originally appeared on Fool.com and is written by Mike Thiessen.

Mike Thiessen has no position in any stocks mentioned. The Motley Fool owns shares of Bank of America and KeyCorp. Mike is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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