NEW YORK (MainStreet) — The SLM Corp., also known as Sallie Mae, the nation's largest lender of private student loans, took another step toward splitting itself into two companies this week when it announced the rollout of Navient, its loan servicing company. The news comes about ten months after this process began. When the dust settles, Sallie Mae's bank and student loan servicer will be in business under different brands this fall. The consumer banking business will continue to be called the Sallie Mae bank, originating and servicing new private loans while offering CDs, savings accounts and other services. While no one has suggested that this amounts to a good-bank, bad-bank approach, Navient will service existing loans that could be riskier than those serviced by Sallie Mae bank. Jack Remondi, the president and CEO of the current Sallie Mae, will become president of Navient.
Navient's biggest task will be to service student loans from the Department of Education (ED). Navient will be the largest servicer of federal loans—to the tune of about 5.7 million separate accounts worth $300 billion.
Sallie Mae has often been a target of borrower criticism because of what many say are its hardball debt collection tactics. In a guidance released on Tuesday, ED seemed eager to allay its customers' fears, describing the switch to Navient as a "name change" rather than the creation of a new company—one that's getting a huge amount of the ED's business.
"Sallie Mae will provide a series of communications to federal student loan borrowers and school customers over the next several months before completing the name change to Navient in fall 2014," the ED said in its guidance. "In its communications, Sallie Mae will explain the minimal impact this change will have on customers."
"Federal borrowers whose accounts are currently managed by Sallie Mae will be able to contact Navient at the same phone numbers and mailing address, but they will need to log on to their accounts at a new Website," the ED stated. "In addition, borrowers will have to write checks using the new name and change any online bill paying services." No action will be needed from borrowers who have set up automatic debiting of their payments from a bank account.
Sallie Mae said in a statement that during the spring and summer, those borrowers would receive "personalized information about their account and any changes needed to ensure a smooth transition."
The Navient roll-out is coming at a time when Sallie Mae's student loan servicing practices have come under scrutiny from consumer advocates, members of Congress, federal regulators and state attorneys general. There are multiple inquiries concerning how Sallie Mae applied the loan payments of military service members, who are entitled to special borrower benefits many say they didn't receive.
In an 8-K filing with the Securities and Exchange Commission last month, Sallie Mae disclosed to investors that it set aside $70 million by the end of 2013 to cover the "expected compliance remediation efforts relating to pending regulatory inquiries."
--Written by John Sandman for MainStreet