Managing Information Technology

1)The student application originates either with a lending institution, a school financial aid office, or online through a student loan

originator such as Sallie Mae.

2)After the application is submitted, a loan guarantor processes the loan; a loan approval comes with a federal government

guarantee that the lender will be paid back. Guarantors are either state agencies or not-for-profit entities that provide loan

insurance to lenders or holders of Federal Family Education Loan Program (FFELP) loans.

3)The loan is serviced throughout its life, which at Sallie Mae is an average of 10 years. Most students begin repayment after gradua-

tion. Default prevention and collection services work together to ensure that the highest possible percentage of loans are repaid.

Stock options were issued to all USA Group
employees when the merger was finalized. Since USA
Group was founded as a not-for-profit company, this was a
new financial opportunity for many of its managers.

We were really excited about getting stock options. We

could exercise half of them in June 2001 and half of

them in June 2002. A lot of people took advantage of

the options since the stock price more than doubled.

—Paula Lohss, Manager, Application Development

Support Services

Another major change for USA Group employees
was adjusting to a results-driven, for-profit culture in
which risk-taking was viewed as positive as long as the
risks were well managed.

One of the biggest differences between USA Group

and Sallie Mae is the increased adherence to plan and

budget. We now have shareholders. Many of our

employees have always worked in a not-for-profit

environment and the change was somewhat of a shock.

—Larry Morgan, Senior Vice President, Application

System Development

Within one calendar year from the June announce-
ment of the merger, the IT group of the new company
would integrate its most critical system applications and IT
operations. To realize the publicized cost savings, a single
IT headquarters location would be selected, the data cen-
ters would be consolidated, and 500 technologies within
the two companies would need to be rationalized, transi-
tioned, or retired. One of the most contentious decisions
would be which of the two homegrown loan-servicing sys-
tems to eliminate.

Many mergers and acquisitions fail; more fail than

succeed. So it’s very important to do the right things

when you’re trying to bring two corporations together.

You also have to do this with very good execution—

do it right—or you will go out of business, or will

definitely flounder.

—Hamed Omar, Senior Vice President,

Technology Group

The IT Organizations

The Sallie Mae IT organization had undergone a great deal

of change in the years prior to the merger. CIO turnover

had been high, making it difficult for the company to main-

tain a coherent IT architecture. Plans for integrating the IT

operations for two recent acquisitions (Nellie Mae of

Braintree, Massachusetts, and Student Loan Funding

Resources of Cincinnati) had not yet been completed.

Several strategic applications had been totally outsourced,

and the IT work force had been cut back to less than 500

just prior to the merger announcement.

In contrast, the IT organization at USA Group had a

fairly stable history and had grown to 600 personnel:

approximately 400 developers and 200 operations staff.

CIO Greg Clancy had a 20-year tenure with the company,

and his IT management team of the past 6 to 7 years was

well-oiled, with a proven track record for developing

complex systems and keeping operational costs low.

Within the 5 years prior to the merger, more than

$100 million had been invested by USA Group in two

internally developed service applications: (1) the Eagle II

guarantee agency system, which tracked all federal loan

origination and guarantee activities administered on behalf

of guarantors, and (2) the Unity loan-servicing system.

A new call-center routing application, which routes

incoming customer calls based on loan-record characteris-

tics and the skill base of available call-center representa-

tives, had won a Smithsonian innovation award in 1999

and led to a recognition for outstanding customer service

inCIO MagazineTop 100 in 2000.^6

EXHIBIT 1 Three Basic Steps of the Student Loan Business

(^6) CIO Magazine, Aug. 15, 2000, “IDG’s CIO Magazine Honors
Top 1000 Companies,” “CIO-100 Winners Recognized for Outstanding
Customer Service”.
Case Study IV-2 • FastTrack IT Integration for the Sallie Mae Merger 613