Sallie Mae 2005 Annual Report Download - page 13

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Consolidation Loan Rebate Fee—All holders of Consolidation Loans are required to pay to the U.S.
Department of Education (“ED”) an annual 105 basis point Consolidation Loan Rebate Fee on all
outstanding principal and accrued interest balances of Consolidation Loans purchased or originated after
October 1, 1993, except for loans for which consolidation applications were received between October 1,
1998 and January 31, 1999, where the Consolidation Loan Rebate Fee is 62 basis points.
Constant Prepayment Rate (“CPR”)—A variable in life of loan estimates that measures the rate at
which loans in the portfolio pay before their stated maturity. The CPR is directly correlated to the average
life of the portfolio. CPR equals the percentage of loans that prepay annually as a percentage of the
beginning of period balance.
Direct Loans—Student loans originated directly by ED under the FDLP.
ED—The U.S. Department of Education.
Embedded Fixed Rate/Variable Rate Floor Income—Embedded Floor Income is Floor Income (see
definition below) that is earned on off-balance sheet student loans that are in securitization trusts
sponsored by us. At the time of the securitization, the option value of Embedded Fixed Rate Floor Income
is included in the initial valuation of the Residual Interest (see definition below) and the gain or loss on
sale of the student loans. Embedded Floor Income is also included in the quarterly fair value adjustments
of the Residual Interest.
Exceptional Performer (“EP”) Designation—The EP designation is determined by ED in recognition
of a servicer meeting certain performance standards set by ED in servicing FFELP loans. Upon receiving
the EP designation, the EP servicer receives 100 percent reimbursement on default claims (99 percent
reimbursement on default claims filed after July 1, 2006) on federally guaranteed student loans for all
loans serviced for a period of at least 270 days before the date of default and will no longer be subject to
the two percent Risk Sharing (see definition below) on these loans. The EP servicer is entitled to receive
this benefit as long as it remains in compliance with the required servicing standards, which are assessed on
an annual and quarterly basis through compliance audits and other criteria. The annual assessment is in
part based upon subjective factors which alone may form the basis for an ED determination to withdraw
the designation. If the designation is withdrawn, the two percent Risk Sharing may be applied retroactively
to the date of the occurrence that resulted in noncompliance.
FDLP—The William D. Ford Federal Direct Student Loan Program.
FFELP—The Federal Family Education Loan Program, formerly the Guaranteed Student Loan
Program.
FFELP Stafford and Other Student Loans—Education loans to students or parents of students that
are guaranteed or reinsured under the FFELP. The loans are primarily Stafford loans but also include
PLUS and HEAL loans.
Fixed Rate Floor Income—We refer to Floor Income (see definition below) associated with student
loans whose borrower rate is fixed to term (primarily Consolidation Loans) as Fixed Rate Floor Income.
Floor Income—FFELP student loans originated prior to July 1, 2006 earn interest at the higher of a
floating rate based on the Special Allowance Payment or SAP formula (see definition below) set by ED
and the borrower rate, which is fixed over a period of time. We generally finance our student loan portfolio
with floating rate debt over all interest rate levels. In low and/or declining interest rate environments, when
the fixed borrower rate is higher than the rate produced by the SAP formula, our student loans earn at a
fixed rate while the interest on our floating rate debt continues to decline. In these interest rate
environments, we earn additional spread income that we refer to as Floor Income. Depending on the type
of the student loan and when it was originated, the borrower rate is either fixed to term or is reset to a
market rate each July 1. As a result, for loans where the borrower rate is fixed to term, we may earn Floor