Sallie Mae 2005 Annual Report Download - page 132

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts, unless otherwise stated)
F-10
1. Organization and Business
SLM Corporation (“the Company”) is a holding company that operates through a number of
subsidiaries. The Company was formed 33 years ago as the Student Loan Marketing Association, a
federally chartered government-sponsored enterprise (the “GSE”), with the goal of furthering access to
higher education by acting as a secondary market for student loans. In 2004, the Company completed the
privatization process that began in 1997 and resulted in the Wind-Down of the GSE. Specifically, the GSE,
SLM Corporation and the Federal Reserve Bank of New York, both in its capacity as trustee and as fiscal
agent for the GSE’s remaining obligations, entered into a Master Defeasance Trust Agreement as of
December 29, 2004 that established a special and irrevocable trust, which was fully collateralized by direct,
noncallable obligations of the United States. On December 29, 2004, the United States Department of the
Treasury determined that such obligations are sufficient, without consideration of any reinvestment of
interest, to pay the principal of and the interest on the GSE’s remaining obligations. The Wind-Down was
completed upon the issuance of that determination and the GSE’s separate existence terminated.
The Company provides funding, delivery and servicing support for education loans in the United
States primarily through its participation in the Federal Family Education Loan Program (“FFELP”). The
Company provides a wide range of financial services, processing capabilities and information technology to
meet the needs of educational institutions, lenders, students and their families, guarantee agencies and the
U.S. Department of Education (“ED”). The Company’s primary business is to originate and hold student
loans. The Company also provides fee-based related products and services and earns fees for student loan
and guarantee servicing, and student loan default management and loan collections.
The Company originates student and consumer loans for both its own behalf and Preferred Lender
List clients on the Company’s proprietary origination platform. The Company has also broadened its fee-
based businesses, which include its debt management services, student loan origination, and student loan
and guarantee servicing.
2. Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of SLM Corporation and its subsidiaries,
after eliminating intercompany accounts and transactions.
Financial Interpretation (“FIN”) No. 46(R), “Consolidation of Variable Interest Entities,” requires
Variable Interest Entities (“VIEs”) to be consolidated by their primary beneficiaries if they do not
effectively disperse risks among parties involved. A VIE exists when either the total equity investment at
risk is not sufficient to permit the entity to finance its activities by itself, or the equity investors lack one of
three characteristics associated with owning a controlling financial interest. Those characteristics are the
direct or indirect ability to make decisions about an entity’s activities that have a significant impact on the
success of the entity, the obligation to absorb the expected losses of an entity, and the rights to receive the
expected residual returns of the entity.
As further discussed in Note 9, “Student Loan Securitization,” the Company does not consolidate any
qualifying special purpose entities (“QSPEs”) created for securitization purposes in accordance with the
Financial Accounting Standard Board’s (“FASB”) Statement of Financial Accounting Standards (“SFAS”)