Sallie Mae Posts Profit As Credit Market Improves

MARK JEWELL

BOSTON (AP) — The student lender best known as Sallie Mae posted a third-quarter profit that beat Wall Street expectations as credit markets improved and student loan activity increased.

SLM Corp. said Tuesday it expects improving credit quality to continue to boost earnings, and its shares jumped nearly 8 percent in after-hours trading.

Sallie Mae said it has benefited from stabilized credit markets, including commercial paper, a major source of short-term borrowing for corporations to meet needs such as making payroll and paying vendors.

Government efforts to unfreeze the commercial paper market last fall sharply reduced rates to spur more lending, but eroded the interest that Sallie Mae earned. That's because the bulk of its federal student loan portfolio earns interest based on commercial paper rates, which were artificially lowered to levels that created a wide gap with the higher London Interbank Offered Rate, or LIBOR, the rate at which banks lend to one another.

Recent easing of the gap boosted Sallie Mae's results in the latest quarter, said Albert Lord, CEO and vice chairman.