#05-34
Privatizing a Government Sponsored Enterprise: Lessons from the Sallie Mae Experience
Michael Lea
Abstract: The topic of Government Sponsored Enterprise (GSE) privatization is at least 2 decades
old.2 In the early 1980s, HUD studied the feasibility of privatizing Fannie Mae and
Freddie Mac. In 1986, Freddie Mac’s Advisory Committee (the pre-cursor to its Board of
Directors) discussed the subject. In the mid-1990s, privatization was re-visited when
HUD published a series of background papers on the topic.3
There are many challenges associated with privatizing large, complex and politically
powerful entities such as Fannie Mae and Freddie Mac (hereafter referred to as the
housing GSEs along with the Federal Home Loan Banks). Fortunately, a model for such
an action exists. The Student Loan Marketing Association (Sallie Mae) was privatized
through an Act of Congress in 1996.4 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 will describe 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 will be highlighted
with comments offered on the applicability to Housing GSEs today.
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