"Since the market started its downturn early this year, I have avoided all financial stocks and resisted the temptation of value plays," says Dave Dyer.

In his Dave Dyer's Newsletter, he explains, "Well, it is now time to violate both of those prohibitions at once." Here, he looks at a new buy for SLM Corporation (NYSE: SLM), commonly known as Sallie Mae, the nation's largest provider of college loans and savings programs."

"There must be some financial areas that have predictable, growing demand, willing customers who actually have low default rates, and securitization processes that do not involve the type of financial engineering that is only intended to hide risk.

"Well, there is such an area, and it even involves a product that it makes sense to finance since it will actually increase in value over time. I'm talking about student loans.

Reuters reports that Citigroup (NYSE: C) is poised to announce today the sale of $400 billion worth of assets -- that's 18% of the total. We'll need to wait to find out which assets it plans to sell and how much of a loss (or profit) Citi will take when it sells them. But the New York Times reports the company's deciding based on industry growth trends, market positions, geographic growth rates, business plans and financial results.

I worked for a global bank during a credit contraction and part of my job was to figure out which assets to sell. From that experience, I know that Citi's challenge is to find assets that don't fit with Citi but are worth more to another owner. That's because often the assets that make the most sense to sell strategically are the ones that nobody else wants to own. And the ones that make the most sense to keep are the ones that could generate the biggest profit, if sold. Citi's challenge is to sell the $400 billion worth of assets that make strategic sense to sell and will fetch an attractive price. In today's market, that is a challenge.

So what Citi assets could be on the block? Reuters notes that Citi's U.S. student loan business may make sense to sell, after recent legislative changes and turmoil in the securitization market have made it less profitable. Citi may sell Primerica, a consumer sales network for life insurance and investments. And Citi should sell assets on its trading books, which have contributed to much of the $45 billion write-downs that Citi has taken so far.

Shares of for-profit college provider Apollo Group, Inc. (NASDAQ: APOL) are off more than 25% today after the company reported dismal second quarter results, driven down by lower than expected enrollment and increased expenses.

Could investors have seen it coming? Maybe. Back in February the New York Times wrote about an ominous sign of trouble at the company, which I also blogged about: insiders were selling shares in the company like there was no tomorrow, and stock buybacks had ground to a halt.

I'm not suggesting that there was any impropriety here. Au contraire, we should at least commend them for stopping the buybacks, rather than using shareholder capital to inflate the price while insiders sold. But maybe there was something more sinister. Apollo doesn't exactly have the best corporate governance reputation on the planet, having recently been found liable in a $277 million class-action lawsuit.

SLM Corp. (NYSE: SLM), a manager of $160 billion in education loans that serves nearly 10 million student and parent customers, is recently trading down $2.04 to $20.83. SLM announced today that it has entered into a series of transactions with its equity forward contract counterparties at Citibank (NYSE: C). SLM call option volume of 39,244 contracts compares to put volume of 16,830 contracts. SLM January option implied volatility of 110 is above its 26-week average of 43 according to Track Data, suggesting larger price movements.

Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

There have been rumors and press reports for a couple of weeks that the J.C. Flowers deal to buy student loan company Sallie Mae (NYSE: SLM) might fall apart. Finding debt to close the purchase of the company was getting tough.

Yesterday, the rumors became news. Flowers backed out of its commitment. The Wall Street Journal writes that, "Mr. Flowers informed a group of UBS bankers that he wasn't prepared to pay the $60-a-share price he had agreed to in April." UBS is Sallie Mae's banker.

Flowers may simply be fishing for a price lower than his first offer. With its stock price at risk, the SLM board might be tempted to take a reduced price.

The buyout firm is arguing that legislation which could hurt the student loan market amounts to a "material adverse effect" to the deal, and that this gives Flowers the legal right to walk away.

The SLM board does not have any good choices. It could sue Flowers to complete the deal, and it probably should. But, as the legal fight drags on shares in the student loan company are likely to fall. That leaves the board between Scylla and Charybdis.

Douglas A. McIntyre is a partner at 24/7 Wall St.

In March of this year, the office of New York Attorney General Andrew M. Cuomo entered into investigation of questionable practices involving institutions of higher learning and possible manipulations of lists of student loan issuers. The claim is that several well known schools and others are allegedly taking "incentives" from lenders for providing them preferential treatment.

Ellen Frishberg, director of student financial services at Johns Hopkins University, indicated that in her opinion the investigations of lender listing practices are something akin to a witch hunt. She maintained that some schools might be unfairly targeted for investigation by virtue of having put the work into screening to create lists of quality lenders. Frishberg made clear that Hopkins has indeed received solicitations for preferred list placement, which reveals the truth of the problem, but said that Hopkins turns a deaf ear to enticements of this kind.

In an article from The Baltimore Sun she stated, "We have ethics here." Since the time Ms. Frishberg issued that statement, she has resigned from her position with the university after investigation concluded she received some $67,000 in assorted grants and payments from companies she had coincidentally chosen to endorse. So much for ethics.

New York Attorney General Andrew Cuomo's quest for the Governor's seat is exposing a deep flaw in the relationship between student loan companies and universities.

According to the New York Times [registration required], Cuomo's investigations led to the dismissal of Columbia University's financial aid director yesterday after the release of documents showing he promoted a student loan company -- Student Loan Xpress -- in which he had a stake, sending letters to parents and alumni on three occasions praising the lender.

Columbia joins other schools including Johns Hopkins and the University of Texas, Austin that have been caught up so far in this scandal. The fundamental problem is that schools don't pay much money to their employees even as they keep raising tuition. As with the rest of the U.S. economy, the gap is covered by debt -- in this case student loans.

When watching scandals being uncovered by regulators and the media, I'm often stunned and find myself asking this question: "How could it not have occurred to people that this was a conflict of interest that would lead to unethical conduct?"

At Enron, it was CFO Andy Fastow managing funds doing business with Enron. At investment banks, it was analysts being compensated based on their ability to generate banking business for the firm. Now in the student lending industry, we're seeing all kinds of similar conflicts:

• Colleges hiring student lending companies to answer the phones for the school's financial aid office -- without the callers knowing
• Financial aid officials receiving stock in a student lender through a private placement
• And now, according to the Wall Street Journal, "Lenders play aid officials at schools with free stuff" including expensive dinners, video iPods, and concert tickets.

With all of these conflicts, can there be any doubt that students received bad advice about where to get loans?

The scandals in the student lending industry continue. On April 1st, I wrote about student loan companies taking phone calls for college financial aid offices. Apparently, an Education Department official and financial aid directors at several collges received stock in a student loan company's private placement. This has has "Pay to play" written all over it. The President of the student lending company, Student Loan Xpress, characterized the stock transfers as "gifts" while several of the recipients claim to have paid for them. Either way, this raises two questions:

• Assuming they did pay for the stock: Is it appropriate for financial aid directors to have such a close relationship with an executive at a student loan company that they are purchasing stock in a private placement?
• If it was merely a gift, why was their relationship so close that he decided to give them a gift. Or was it a quid pro quo? "I give you stock in my company, you steer students towards us for their lending needs."

It's hard to imagine any way that there isn't some foul play involved here. The colleges involved, Columbia, University of Southern California, and the University of Texas at Austin have placed the individuals involved on leave. With college costs careening out of control, students need to be able to count on receiving unbiased advise from the financial aid offices at the colleges they are attending. Senator Ted Kennedy of Massachusetts is conducting an inquiry into student lending practices. This may be just the tip of the iceberg in what could break into a full-fledged scandal. Hopefully this will get the media attention it deserves.

I'm going to be really disappointed if there isn't a massive amount of outrage in response to this. According to a piece in Thursday's New York Times, students calling the financial aid office at some colleges may, unbeknownst to them, actually end up speaking with a representative from a student lending corporation. Their calls are automatically routed and answered as though they had reached the college's office. But they haven't. This is how a representative from Texas Tech, which engages in this practice, responded to questions:

Becky Wilson, director of financial aid at Texas Tech, defended the practice of routing student financial aid questions to Nelnet and said that the university was "trying to make the aid process as seamless as possible for students" so they do not have to deal with multiple people. She said that if call center workers identified themselves as Nelnet employees it would cause confusion ...

Great. And I suppose that disgraced Merrill Lynch analyst Henry Blodget's practice of giving stock recommendations based on the encouragement (read: bonuses) provided by the company's investment banking arm made the process "seamless."

But New York Attorney General Andrew Cuomo sees through this. He said the call centers pose "an inherent conflict of interest" because "a self-interested lender is providing what is purported to be unbiased advice."

That's exactly the point. I'm certainly not saying that there is anything bad going on. I would never accuse banks or other companies in the financial services industry of not acting in their customers' best interests (although James Scurlock certainly would, and does, in his amazing book Maxed Out). But just as the not-necessarily corrupt relationship between investment banks and research analysts provides ample opportunity for unscrupulous conduct, it seems likely that this system of colleges forwarding calls to loan providers does as well.