Financial Winners and Losers: Sallie Mae

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Student lender Sallie Mae (SLM Quote) helped lift financial stocks on Thursday after the federal government selected it to service student loans.

Sallie shares shot up over 9% in early trading but closed up 5.5% to $8.11, after the company was chosen to service existing loans and future loans. The five-year contract covers $550 billion in outstanding loans, but does not include loan origination. However, it will be a steady source of income as the standard compensation for servicing these loans can be up to 0.5% of the loan interest payments. Sallie Mae was one of three companies chosen by the Department of Education.

Treasury Secretary Tim Geithner's testimony about new regulatory reform proposals to the Senate Banking Committee and encouraging signs in economic data combined to boost financial stocks. The NYSE Financial Sector Index was rose 1.7% to 3,859.39 and the KBW Bank Index climbed 2.9% to 36.57.

Discover Financial Services (DFS Quote) squeaked out a profitable quarter thanks to a $295 million payment related to its lawsuit with Visa (V Quote) and Mastercard (MA Quote). Discover's earnings actually slipped and would have reported an operating loss, without the payment. Default rates are at the highest levels in the company's history, but investors ignored that and sent the shares up 4% to $9.27.

Regions Financial (RF Quote) shares climbed 1% after announcing the tepid results of a previous offer to exchange common stock for preferred securities. Only 28.9% of the stock was tendered for the preferred deal, but the market still pushed the stock up four cents to $4.03.