Managing Information Technology

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CASE STUDY IV-2

FastTrack IT Integration for the

Sallie Mae Merger

This transaction combines our capital strength and

sales capabilities with USA Group’s premier service

quality.... It would be difficult to overstate the

significance of this deal to our three principal

constituencies: students, schools, and shareholders.^1

—Albert L. Lord, Vice Chairman and Chief

Executive Officer, Sallie Mae

In June 2000, the two largest players in the education
finance industry announced their intent to merge: Sallie
Mae of Reston, Virginia, would acquire USA Group of
Indianapolis, Indiana. The merger announcement in The
Wall Street Journalhighlighted the strategic role that USA
Group’s software applications would play in the new com-
bined company: USA Group’s loan-guarantee-processing
business and its campusloan origination and loan-process-
ing products were expected to make the combined company
more competitive.^2

Although Sallie Mae held a teleconference for all

employees on the day of the merger announcement,

new tensions about the future set in quickly. People

were stunned. USA Group was our largest competi-

tor, and there was a lot of uncertainty about how this

could impact employment for all of us. There was so

much anxiety on both sides. People had built their

careers at these companies.

—Cindy Gunn, Vice President of Computer

Operations for Sallie Mae

Sallie Mae planned to cut its work force by 1,700

employees, or 25 percent, by the end of 2001, as it inte-

grated its operations with USA Group. Most of these

reductions (1,400) would be in its information-technology

and customer-service areas; the remainder (300) would be

administration and headquarters jobs.^3

The busy season for the education-financing industry

is in the summer: about 60 percent of loan processing occurs

during the summer months in preparation for the fall semes-

ter, with June as the peak month. When the government’s

Direct Lending program had undergone a major software

change about 1 year earlier, there had been a number of pub-

licized bottlenecks and processing errors with student loans

during the busy season. Sallie Mae’s management team did-

n’t want to make the same mistakes; to ensure that its own

customers would not go to a competitor, customer-facing

operations would need to be completed before the coming

summer season, with no perceived loss of service.

Some were afraid the merger might meet share-

holder objectives but would hurt the customer. The

customer concerns were that service would suffer,

agility would be low, and we would create a large

bureaucracy. We were combining the volume of

two company’s loans on one system with a new

management team and brand-new architecture. And

we were doing it just before peak season.

—Hamed Omar, Senior Vice President,

Technology Group

Company Histories

Sallie Mae was founded in 1972 as a government-

sponsored enterprise (GSE) in Reston, Virginia, to pro-

vide a secondary market for banks and other lenders to

sell their student loans. Prior to the merger, Sallie Mae

Copyright © 2002 by Carol V. Brown. This case was prepared
for class discussion by Professor Carol V. Brown in collaboration with
Rebecca Scholer. The authors are indebted to Greg Clancy, Hamed
Omar, Paula Lohss, and all of the other Sallie Mae managers who
shared their insights and experiences with the authors via in-person
interviews.

(^1) PR Newswire (SLM Holding Corporation), June 15, 2000,
“Sallie Mae and USA Group Reach Agreement to Combine.”
(^2) TheWall Street Journal, June 16, 2000, “Sallie Mae Is Set to
Buy Assets of USA Group in Cash-Stock Deal.”
(^3) TheWall Street Journal,Sept 1, 2000, “Sallie Mae Will Cut
Jobs After Acquiring USA Group.”