"Over the first five years we grew to be a $500 million corporation, which is relatively small. During that time we were profitable, but by no means really profitable," Fox explains. While Sallie Mae busily built a fairly sophisticated marketing network and financial system, the company also was operating under fairly rigid conservative banking practice.

Burgeoning

During the late 1970s and into the 80s the demand for student loans exploded largely because of the rising cost of higher education and a 1978 government decision onto make GSLs available to any student on very generous terms.

Sallie Mae was already positioned for this new demand for student credit and in the five years from 1977 to 1982 blossomed from being a $500 million company to a $5 billion one an incredible growth for any business.

But the balance sheet had become debt heavy Fox says that by 1983, Sallie Mae's capital base had grown to about $100 million while the debt of the corporation was nearing $7.5 billion. "We had a corporation that had 75 units of debt for each unit of capital, which is about four times what most commercial banks have," Fox says.

Needing a drastic increase in funds to back the huge debt, Sallie Mae went public in September 1983, with a 6 million share stock offering Demand for out stripped that 6 million level, so the sale was increased first to 8 million and finally to 10 million shares.

Concurrent with the public offering of non voting shares, Sallie Mae went into a 35 for stock split of its voting shares those which were bought in 1974 by universities and banks Institutions with voting shares got to convert about one third of their new post split shares into non voting shares and sell them and altogether an additional 1.5 million shares entered the market. So what was planned as an offer of 6 million shares at $17 a share ended up as a sale of 11.5 million shares at $20 a share.

Harvard however did not convert any of its 840,000 shares into non voting stock to sell much to officials later regret. The voting stock because of its qualifications on ownership voting shareholders have to be participants in the Guaranteed Student Loan Program has traditionally been worth less than non voting shares.

Poor Foresight

"We never expected the split between voting and non voting shares," says Harvard Financial Vice President Thomas O Brien one of 21 board members of Sallie Mae Voting stock traded at $16 at the time of the public offering while non voting started at $22 and later jumped to $28 a share. "If we knew what the split in values was going to be we definitely would have sold," he adds.

But O'Brien says that Harvard will certainly convert and sell as much of its voting stocks as it can when the conversion will next be permitted this summer. "Looking at the spread you have to sell," he explains.

Sallie Mae's success says Longenecher has fostered a highly competitive environment for student loans. "There are very few pockets of unmet need for secondary markets today and so you will find Sallie Mae marketing more aggressively. I'd say that now, we almost have the opposite problem almost too competitive and environment. A lot of people are trying to make the faster profits that Sallie Mae did."

Fox says that Sallie Mae recently received an 'AAA' rating for credit worthiness making it one of only three financial institutions in the country with the highest possible rating. This means the company can borrow at lower interest rates and increase its profits handsomely.

Future

Sallie Mae's future depends largely on federal legislation, Fox adds. The OPTIONS program formed in 1980 allowed students with several different loans to consolidate those debts and sell the sum to Sallie Mae a program that became very popular with Harvard graduate students. Sallie Mae bought about $400 million worth of these loans before the program was out in 1982, but Fox says that many congressmen are interested in bringing the OPTIONS program back which would revive an important market for Sallie Mae.

Moreover, Fox says that higher education is almost a $100 billion industry nation wide and that current trends will make it bigger demanding better financing.

"Because of the interest in increasing faculty salaries and attracting better teachers the cost of going to school is actually going up. And in the institutions of today we see very much a replay of what happened 25 years ago you know. "The Russians are coming the Russians are coming. Suddenly everyone wants to make a political issue out of better education," Fox explains.