US student loan firm being bought

Nearly 10 million students have loans with Sallie Mae

Sallie Mae, the largest provider of student loans in the US, has confirmed it is being bought by a takeover consortium for $25bn (£12.5bn).

Private equity groups JC Flowers & Co and Friedman Fleischer & Lowe will take a 50.2% joint stake in the company.

They are joined by banks JPMorgan Chase and Bank of America, who are buying a combined 24.9%.

The deal comes amid growing scrutiny into unethical practices in the US student loan industry.

kickbacks

Last week, Sallie Mae, formally known as SLM Corp, agreed to adopt a code of conduct under a $2m settlement with New York Attorney General Andrew Cuomo.

Mr Cuomo and attorney generals from other states, including California and Connecticut, have been investigating possible kickbacks to universities and their financial aid officers for steering student borrowers toward certain commercial lenders.

Enquiries are also focused on financial aid officials buying shares in the lenders they advise on.

Mr Cuomo is scheduled to testify on 25 April to the House of Representatives Education and Labour Committee on "unethical practices and conflicts of interest that have recently been revealed within the student loan industry".

Muddied

The sector could be further muddied by the recommended takeover of Sallie Mae, which still needs to be approved by its shareholders and the regulators, as most student loans are federally subsidised.

A private equity buyout raises concerns about the future transparency of the Virginia-based loan provider's actions.

"This is an exciting, new chapter in Sallie Mae's history," said Sallie Mae chief executive officer Tim Fitzpatrick, who will continue in that role if the deal goes through.

Shares in Sallie Mae soared 17.5% to $54.97 on the news.