Sallie Mae ARM Revenue Flat in Q2; Debt Purchasing Exploding

Sallie Mae, the largest student loan lender in the U.S., reported earnings for the second quarter of 2007, including flat revenues from its debt purchasing and collection activities, but a huge jump in amount of debt purchased.

Reston, Va.-based Sallie Mae (NYSE: SLM) said early Tuesday that it brought in $157 million in revenue from its debt management operations unit from April to the end of June, an increase of 3.3 percent over the first quarter’s numbers and the same amount as in the second quarter of 2006.  The debt management unit includes revenues from debt purchasing and contingency collection operations.

Sallie Mae’s debt management operations include major ARM firms that the student loan giant has acquired over the past several years.  In 2002, Sallie Mae purchased Pioneer Credit Recovery [link acquisition], one of the two companies currently collecting on the IRS private debt collection contract.  Sallie Mae also acquired General Revenue Corporation, the largest university-focused collection agency in the U.S., in 2002.  In 2004, Sallie acquired a majority stake in major debt purchasing player Arrow Financial Services.

In a Supplemental Financial Information document released in conjunction with the earnings statement, Sallie Mae said that collection revenue from its debt purchasing operation increased 14.5 percent from Q2 2006 to $77 million in Q2 2007.  Also in the quarter, the debt purchasing arm bought more than $1 billion in face value, non-mortgage debt.  While this total was flat from the first quarter of this year, it represents a 130 percent increase over the amount purchased in the second quarter of 2006.

Sallie Mae said in the supplemental document that it has been very active in the debt purchasing sector over the past year.  “The increase in purchased paper collections revenue primarily reflects the increase in portfolio purchases over the last four quarters,” the company said in the document.

On the contingency side, Sallie Mae reported revenues from contingency student loan collections of $62 million, down 8.8 percent from the first quarter.  Contingency collection revenue from other debt types was $6 million in the second quarter, the same amount as in the first quarter.  Sallie Mae said, “The decrease in contingency fees versus the prior quarter and the year-ago quarter is primarily due to the shift in collection strategy from loan consolidation to rehabilitating student loans. This shift was in response to a legislative change that reduced the rate earned from consolidating loans.”