US awards big student loan servicing contracts
* Sallie Mae, Nelnet win loan servicing contracts
* Obama plans to shut down FFELP, emphasize direct loans
* Shares soar more than 11 percent after-hours
NEW YORK, June 17 (Reuters) - The U.S. Department of Education said it awarded contracts to SLM Corp (SLM.N: Quote, Profile, Research, Stock Buzz) and three other companies to service its $550 billion student loan portfolio, as the government prepares to shift much of the nation's student lending into a direct loan program.
The government said it also awarded servicing business to Nelnet Inc (NNI.N: Quote, Profile, Research, Stock Buzz), American Education Services/PHEAA and Great Lakes Education Loan Services Inc. It said the contracts run for five years, and can be extended for five more.
Eligibility for the servicing program became more important to student loan companies after President Barack Obama in February submitted a fiscal 2010 budget calling for the end of the Federal Family Education Loan Program by July 2010.
The president proposed to shift most of the nation's $90 billion of student lending into a direct loan program, possibly saving taxpayers more than $4 billion a year.
Education Secretary Arne Duncan on Wednesday said the servicing contracts will help ensure that "all eligible students" will have access to federal student loans.
The department did not say how it plans initially to allocate the servicing business.
SLM, which better known as Sallie Mae, said it has the scale to add more than $100 billion of new volume under its servicing platform. Smaller rival Nelnet said it expects its participation to add to earnings, excluding start-up costs.
Sallie Mae is based in Reston, Virginia; Nelnet in Lincoln, Nebraska; AES/PHEAA in Harrisburg, Pennsylvania; and Great Lakes in Madison, Wisconsin.
Following the government's announcement, shares of Sallie Mae rose 86 cents, or 11.1 percent, to $8.55 after-hours, while Nelnet shares rose 92 cents, or 11.2 percent, to $9.06. (Reporting by Jonathan Stempel; Editing Bernard Orr)