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Privatizing a Government Sponsored Enterprise: Lessons from the Sallie Mae Experience

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  • Michael J. Lea

Abstract

Government Sponsored Enterprises (GSEs) are government-chartered, special purpose corporations. They have been created to advance foster funding in a number of areas including housing, education and agriculture. Over the past 2 decades, the privatization has been proposed. There are many challenges associated with privatizing large, complex and politically powerful entities. Fortunately, a model for such an action exists. The Student Loan Marketing Association (Sallie Mae) was privatized through an Act of Congress in 1996. Sallie Mae re-organized under a holding company charter with a GSE and non-GSE subsidiaries. The GSE activities were limited and terminated on December 29, 2004 almost 4 years ahead of schedule. This paper describes the rationale for privatization, the constraints to the process, the reorganization structure and the effect of privatization on Sallie Mae and the student loan market. The key elements of the privatization process and structure are highlighted with reference to the applicability to Housing GSEs today.

Suggested Citation

  • Michael J. Lea, 2006. "Privatizing a Government Sponsored Enterprise: Lessons from the Sallie Mae Experience," NFI Policy Briefs 2006-PB-09, Indiana State University, Scott College of Business, Networks Financial Institute.
    • Handle: RePEc:nfi:nfipbs:2006-pb-09
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    File URL: http://www.indstate.edu/business/sites/business.indstate.edu/files/Docs/2006-PB-09_Lea.pdf
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    1. William Haraf, 1988. "Restructuring Banking & Financial Services in America," Books, American Enterprise Institute, number 917739, September.
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