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Sallie Mae is the commonly known name for the SLM Corporation which is the leading source of servicing support and funds for educational loans in the United States. On average it handles $72 billion in student loans. It was founded in 1972 as a government sponsored enterprise (GSE), to act as a secondary market for student loans. GSE's are created by the federal government but owned by private investors. In 1997 Sallie Mae began a process of privatization, and plans to be fully privatized by 2006.

President Clinton criticized Sallie Mae because of the huge increases in its profits saying "It should not be a big profit-making operation." This led him to institute a policy of direct lending by the Department of Education in 1994. Under this new program the government offers loans directly to students whereas Sallie Mae acts as a secondary market by purchasing student loans made by banks. This new program bypasses the banks who act as Sallie Mae's clients. This show of governmental distrust caused a dramatic drop in Sallie Mae's stock and prompted its move towards privatization. As part of this movement SLM Corporation has expanded the scope of its operations and entered into other related fields. These changes have helped Sallie Mae to maintain its place as the market leader. They have also led to criticisms and claims of unfair competitive advantages.

Recently many GSE's including Sallie Mae have become a point of controversy. Many of these disagreements stem from the fact that they often compete with private organizations, but have many advantages bestowed by their quasi-governmental status. These advantages include implied government guarantees, and no state or local taxes except for property. Moreover, Sallie Mae's ties to the government allow them to borrow money from the Federal Financing Bank at lower rates then competing loan companies can get. In addition, there have been claims that Sallie Mae has offered illegal inducements to colleges in an attempt to increase its loan volume and gain an advantage over the direct lending program of the government.

Despite these concerns Sallie Mae continues to be the leader in student loans and appears to be a healthy business. On the other hand, the true test of the viability will come in 2006 when it will become fully privatized and lose all of the implicit advantages it derives from its quasi governmental status.

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Copyright, Justin Garrard, 2003.