Magazine article American Banker

Sallie Mae Gets into Business of Buying Bad Debts

Magazine article American Banker

Sallie Mae Gets into Business of Buying Bad Debts

Article excerpt

SLM Corp., the parent company of the Student Loan Marketing Association, has offered colleges debt-collection services for several years for Perkins loans as well as unpaid tuition, bookstore, and library bills.

And with an acquisition announced Friday, the Reston, Va., company made it clear that it intends to also acquire distressed debt -- from schools and from other creditors.

SLM, which is also known as Sallie Mae, has purchased a majority interest in Arrow Financial Services LLC, a company that purchases portfolios of charged-off consumer debt and collects and manages receivables for others.

Sallie did not say how much it paid for the stake. The acquisition, which closed Friday, gives it the option to purchase the remaining interest in Arrow over three years.

Jeff Whorley, Sallie's executive vice president of debt management, said it would use Arrow's debt modeling systems to rapidly expand its campus collection business and to offer services to other types of lenders.

"We were already on campus with Sallie Mae loans," he said in an interview Friday. "This deal lets us go onto those campuses" and offer to buy defaulted college debt. "We would never able to present that full array of options to our campus customers" before buying the Arrow stake.

Sallie has 600 to 800 campus debt collection clients, or about 15% of the market, and is by far the biggest company engaged in the business, Mr. Whorley said. Most of its competitors are local companies that work with only a few campuses, and few participants in the industry buy charged-off campus debt, he said.

Arrow, of Niles, Ill., will contribute an unspecified amount to this year's earnings and 5 to 7 cents a share to next year's, Sallie said.

The $76 billion-asset company already owns three collection agencies. It purchased Education Debt Services Inc. in 2000 and General Revenue Corp. …

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