Help May Be Coming for Sallie Mae

Wonder of wonders: If you have children in college or heading there, as I do, you might soon get some financial backing from the U.S. Congress.

Student lending is one of a host of areas devastated by woes that have spread from subprime mortgage lending. On Thursday, Sallie Mae (NYSE: SLM), the biggest U.S. student loan company, predicted a "train wreck" without help from the government. That dire forecast came just hours before the House of Representatives voted overwhelmingly, in a rare bipartisan display, to slide a safety net under the $85 billion student loan market.

That was also the day Bank of America (NYSE: BAC) said it would end its participation in the private student loan business for the coming year. At the same time, the big Charlotte-based bank indicated that it expects an increase in federal loan volume. Private loans don't receive any sort of government guarantees.

Sallie Mae had told us Wednesday that its first-quarter core earnings -- sans derivative value changes and other one-time items that would push earnings into negative territory -- were $0.48 per share, or about a dime above expectations. Management has also reaffirmed that it's expecting those core earnings to amount to $1.70 to $1.80 a share this year.

But it seems that much of the company's fate is in the Feds' hands. The House bill would direct such federal financial institutions as the Federal Financing Bank, an arm of the Treasury Department, to ascertain that sufficient funding is available for student loans. It would also allow the Department of Education to purchase federal student loans from lenders and to direct capital to colleges through the states. A similar bill is wending its way through the Senate, and such backing already has received an endorsement from the White House.

So Sallie Mae's train may indeed avoid derailing. On that basis, the company, which has been experiencing about $3 billion a month in loan requests -- versus funding of only about $1 billion -- could benefit materially. In addition to the company and Bank of America, other beneficiaries would appear to include such other student-loan providers, such as JPMorgan Chase (NYSE: JPM) and Citigroup (NYSE: C), along with student-loan service provider First Marblehead (NYSE: FMD).

Nevertheless, Sallie Mae's shares are down more than 60% in just the past six months. They might worth a gander from Fools looking to dip a toe in the financial sector.

For related Foolishness:

• Sallie Mae Killed My Rich Uncle
• First Marblehead Shouldn't Be Jealous of Sallie
• Tuesday's Worst Stocks in the World