"College Cost Reduction Act of 2007" will bring some interesting volatility to SLM

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Last Friday, the US Senate passed the "College Cost Reduction Act of 2007" with a vote of 78-18. You can read the text of the bill, sponsored by Representative Miller of Georgia, here. A variation of the same bill was also passed by the House of Representatives on July 11th witha vote of 273-149.

Speaker Pelosi's blog had this to say about the bill:

The bill will provide the single largest increase in college aid since the GI bill in 1944. The legislation invests about $18 billion dollars over the next five years in reducing college costs, helping millions of students and families. It comes at no new cost to taxpayers, and is funded by cutting excess subsidies paid by the federal government to lenders in the student loan industry.

Basically, this is in response to the student loan scandal. Congress decided to punish the big lenders by taking away subsidies. It appears that some of these subsidies will go towards lowering student loan interest rates, increasing pell grants to $4,900 in 2008 and $5,200 by 2011.

SLM Corporation (SLM) aka Sallie Mae is particularly interesting because they are in the middle of a $25 billion private equity buyout by Friedman Fleischer & Lowe, J.C. Flowers, Bank of America and J.P. Morgan Chase.

Apparently, J.C. Flowers believes this massive reductions in subsidies will reduce the value of Sallie Mae significantly. This article from last Friday's Wall Street Journal said:

The buyout group, an investment group led by private-equity firm J.C. Flowers & Co., has said that the bills "could result in a failure of the conditions to the closing of the merger to be satisfied."

As the bill makes it's way through committee and to the President's desk (where I suppose it could be vetoed), it will be very interesting to watch the ups and downs in SLM stock. I strongly suspect you could make some money betting in either direction as the stock swings wildly up and down based on congressional rhetoric and private equity jockeying for position.