Sallie Mae's Deal Looks Pretty Sweet

Sallie Mae's deal with the federal government, which allows the company to provide subsidized student loans with better margins, has big implications for the student-loan market.

What does it mean for you, the student or parent? Not a whole lot, at least in the short term.

Sallie Mae, officially known as SLM Corp.(SLM Quote - Cramer on SLM - Stock Picks), is the largest student lender in the country by dollar amount. Though much of its loan origination is tied to the Federal Family Education Loan Program (FFELP), it had threatened to stop providing such subsidized loans, following the lead of dozens of other private lenders.

The mass exit ensued as the tight credit markets pushed the cost of lending so high that subsidized loans were no longer profitable, since lenders could not push off those costs to consumers.

Under new regulations, the government not only insures the loans and sets the subsidy rate, but also offers lenders the opportunity to re-sell the loans to the government to raise capital or use the loans as collateral for a below-market line of credit. All of those moves make it less expensive to borrow and lend, pushing profits into positive territory.

There were plenty of fears that students wouldn't get access to billions of dollars worth of subsidized loans for the fall semester, says Brett Lief, president of the National Council of Higher Education Loan Programs.

"Parents and students had that concern - they were anxious," says Lief. "They're starting to get their tuition bills right now and ... reading in the newspaper that the availability of student loans has diminished."

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