Sallie Mae, the largest secondary student loan packager accepted a $25 billion deal led by J.C. Flowers & Co., which will take the company private.
J.C. Flowers, Friedman Fleischer & Lowe LLC, JPMorgan Chase & Co., and Bank of America Corp. offered $60 a share for Sallie Mae.
It is estimated that students borrow $85 billion a year to finance university expenses, while demand for private education loans has risen 27% each of the last six years.
The deal is sweet for companies like Bank of America and Chase, but could be detrimental for First Marblehead, the third-largest company securitizing student loans, which gets roughly 41% of their loans from the two high-flying banks.
Sallie Mae has nearly 10 million customers, with $142 billion in loans, originating $23.4 million is 2006 alone.
Bank of America and Chase jumped on the deal because of the recent growth in student loans, the relative safety of such loans, and the potential to sell products such as credit cards to their new customer base.
Student loans have the lowest default rate of any type of loan, at a mere 5.1%, and offer government protection and/or bankruptcy laws which prevent students from walking away from the loans.
The move may be strategic as mortgage-backed securities continue to lose their luster, and present more of a liability for banks and mortgage lenders.
Shares of Sallie Mae opened at $55.30 from a previous close of $46.76, while First Marblehead shares tanked nearly 20%, hovering over $18 a share.