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In consistence with its plans to focus on core business, SLM Corporation (SLM - Analyst Report) has received the board of directors’ approval for spinning off its education loan management unit. It was in May 2013 that the company (also known as Sallie Mae) announced the tentative strategic spilt, which was awaiting the board’s approval since then.

The split will result in 2 distinct publicly traded companies. While the loan management business including servicing and asset recovery will be managed by the newly formed entity called “Navient”, the consumer banking business will remain under Sallie Mae’s brand name.

Further, the board of directors also approved a Navient common stock dividend. The shareholders of Sallie Mae will receive one Navient common stock for each Sallie Mae share that they hold. The stock dividend will be paid on Apr 30 to shareholders of record on Apr 22, 2014.

However, the aforementioned stock distribution is subject to certain conditions. Sallie Mae has filed a registration statement on Form 10 related to the disbursement and it needs approval by the Securities and Exchange Commission. Further, the Navient common stock should be listed on the Nasdaq for the stock offering to be realized. Finally, the common stock distribution is yet to be declared tax-free by the Internal Revenue Service.

Nevertheless, Sallie Mae expects that all the necessary conditions to be fulfilled by the stipulated date of disbursement. Further, Navient will be listed in Nasdaq on May 1.

Once the spin-off is complete, Sallie Mae will stop disbursing regular dividend. However, Navient will continue with the parent company’s dividend payout policy. Navient will expectedly distribute a regular dividend of 15 cents per share for second-quarter 2014.

Sallie Mae, a leader in the U.S. student lending market, specialized in Federally Guaranteed Student Loans (FFELP). FFELP loans were subsidized by the government and this resulted in solid revenues for Salle Mae over the years.

However, the scenario changed following the suspension of new FFELP loan origination, as per the legislation passed by both the Houses and the Senate in 2012. The profit-yielding segment turned into a loss-making entity. In 2013, FFELP loan segment recorded interest income (on a GAAP basis) of $2.8 billion, down 13.1% from 2012.

Therefore, for Sallie Mae, the decision to split seems justified as it allows the company to separate its comparatively profitable business from an unprofitable one. Specialized managerial control will also help revive the shrinking government-backed loan servicing counterpart.

Notably, The Goldman Sachs Group, Inc. (GS - Analyst Report) and JPMorgan Chase & Co. (JPM - Analyst Report) are serving as financial advisors for the deal.

Currently, Sallie Mae carries a Zacks Rank #4 (Sell). Investors interested in the same sector could consider Capital One Financial Corporation (COF - Analyst Report), which has a Zacks Rank #2 (Buy).

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