Back to top

Analyst Blog

The corporate ratings of student lender SLM Corp. or Sallie Mae (SLM - Analyst Report) was downgraded by Fitch Ratings yesterday. The outlook assigned was negative. The ratings downgrade reflects the agency’s concern about the company’s business model. Fitch expects the company to continue to shift to a fee-for-service business model with its subsidiary Sallie Mae Bank originating higher-risk private education loans.
Fitch downgraded the long-term issuer default and senior debt ratings to "BBB-" from "BBB”, while preferred stock was downgraded to "BB" from "BB+". The short-term issuer default rating and short-term debt ratings were affirmed at "F3". About $34.4 billion of debt and preferred stock is affected by these actions.
To restore the $92 billion student loan market, the House Education committee approved a legislation, which closes the Federal Family Education Loan Program and shifts most of the student lending into the Education Department's Direct Loan program. 

The bill is expected to go the House for a vote this week. If enacted, Sallie Mae is expected to be a major participant in the Department of Education’s servicing contract under which it will service and collect government guaranteed loans. Though the bill would allow some of the private firms to remain in the market as loan servicers, this business line would however be much smaller compared to that of loan originations.
The servicing contracts are also subject to renewal in five years and the federal government has the discretion regarding the distribution of the contracts and the servicing volume. Hence, any improper distributions of the servicing contracts will weaken the company’s profitability.
Sallie Mae’s management expects credit losses to pile up in the third quarter as non-traditional loans and loans without a co-borrower account for a lower percentage of loans entering repayment. Also, near-term asset quality trends remain a matter of concern.
Besides Sallie Mae, the other companies whose businesses could be at risk under the new legislation are Student Loan Corp. , Nelnet Inc. , ITT Educational Services (ESI - Snapshot Report), SunTrust Banks (STI - Analyst Report) and Corinthian Colleges Inc. (COCO - Snapshot Report).

Please login to or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research


Are you a new Zacks Member or a visitor to

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
ERBA DIAGNO… ERB 3.80 +7.04%
BANCO DO BR… BDORY 14.74 +5.66%
AIR INDUSTR… AIRI 9.99 +4.15%
EQT MIDSTRE… EQM 98.14 +3.38%
WEATHERFORD… WFT 23.64 +3.10%