Aiming to Free Sallie Mae From Red Tape

Sallie Mae Chairman Albert L. Lord was tired of having his company's stock price knocked around by a bunch of politicians.

Every time a lawmaker complained -- unfairly, in Lord's view -- that student loan providers such as Sallie Mae were getting rich off student loans for needy kids, his shareholders took a hit.

He came to think of those setbacks as the inevitable product of the "winds of politics," which he predicted would blow harder.

So, Lord began a 17-month journey that culminated this week in the $25 billion sale of the Reston firm -- the nation's biggest student lender -- to a group of private investors that includes J.P. Morgan Chase and Bank of America. It is one of the largest such buyouts in history.

In an interview yesterday at his office in Tysons Corner, the silver-haired Lord, 61, recounted for the first time how that agreement was reached and defended it as the best way for the company to protect its shareholders from the whims of Congress, which holds dominion over the firm's student loan business by setting the loan rates.

"I feel this is mission accomplished," Lord said as he sat in shirt sleeves in his sprawling, wood-paneled office overlooking highways and green forests. "I didn't see our share price rebounding anytime soon and I said, 'This is silly.' "

Lord has been associated with Sallie Mae, one of the Washington area's biggest companies, for a quarter century, and was chief executive from 1997 to June 2005. He is considered by some to be pigheaded and combative. To others, he is a visionary. He is without doubt the architect of the modern Sallie Mae and will soon be one of its richest former leaders. When the buyout is completed within the next six months, Lord said he will leave the company with a payoff of $135 million.

Lord for years had been moving the company into businesses other than student loans, including loan collections in order to insulate it from cutbacks in federal student loan subsidies. Roughly half of the company's profit comes from student loans and in five years only a third or a quarter will, Lord said.

Yet Sallie Mae's stock price had suffered over talk about the outlook and conduct of the loan program. "There was nothing I could do to insulate our shareholders from volatility," Lord said. "And it looked like it would be long term."

Lord first considered selling the company to private investors, known as private-equity firms, in late 2005. He had seen the rise of that financing method in general and had also seen it close up when a software company whose board he served on, SS&C Technologies, was sold to the Carlyle Group, a Washington-based private-equity firm.

Never a fan of government and its bureaucracy -- an irony for a man who has made a fortune running a company that for years depended on government business -- Lord became enamored of the idea of freeing Sallie Mae's executives and shareholders from the grip of federal red tape by taking it private. "How delightful would that be?" he asked yesterday with a broad smile.

Lord first made tentative inquires about selling the firm to private investors in November 2005. But after talking to private-equity firms about what such a transaction might look like, "I got cold feet," he said.