Sallie Mae, Nelnet soar on big U.S. student loan pact

By Jonathan Stempel

NEW YORK (Reuters) - Sallie Mae (SLM.N) and Nelnet Inc (NNI.N) shares soared on Thursday after the U.S. Department of Education awarded them and two other companies a contract to service $550 billion of federal student loans.

The contract, announced on Wednesday, should help the lenders offset potential revenue losses if the government adopts President Barack Obama's proposal to stop subsidizing private lenders, and instead make the loans directly to students.

It was not immediately clear how much business and fees each company will get, but the Education Department said it plans to acquire a "large volume" of federally guaranteed loans in the coming months. The five-year contract is expected to begin in August and may be renewed for another five years.

"This will prove to be a meaningful source of growth for both Sallie Mae and Nelnet over the years to come," wrote Matt Snowling, an analyst at FBR Capital Markets who rates both companies "outperform."

Shares of Sallie Mae, whose formal name is SLM Corp, closed Thursday up 42 cents, or 5.5 percent, at $8.11, while Nelnet surged $2.62, or 32.2 percent, to $10.76.

The Education Department said it also awarded the contract to two private companies, American Education Services/PHEAA and Great Lakes Education Loan Services Inc.

Secretary Arne Duncan said the contract would help ensure that "all eligible students" have access to loans to help them pay for college.

Some analysts expressed surprise that Affiliated Computer Services Inc (ACS.N), a large servicer for the government's Direct Student Loan program, was not chosen for the contract. ACS shares closed down $1.68, or 3.7 percent, at $44.01.