Sallie Mae 2005 Annual Report Download - page 133

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts, unless otherwise stated)
F-11
2. Significant Accounting Policies (Continued)
No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities—
a Replacement of SFAS No. 125.” All of the Company’s off-balance sheet securitizations meet the
definition of a QSPE and are not consolidated. The Company’s accounting treatment for its on-balance
sheet Consolidation Loan securitizations, which are not QSPEs, are governed by FIN No. 46(R) and are
consolidated in the accompanying financial statements as the Company is the primary beneficiary.
Use of Estimates
The Company’s financial reporting and accounting policies conform to generally accepted accounting
principles in the United States (“GAAP”). The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. Key accounting policies that include significant judgments and estimates
include valuation and income recognition related to securitization activities (gain on sale and the related
retained interest), loan effective interest method (student loan premiums, discounts and Borrower
Benefits), provisions for loan losses, and derivative accounting.
The combination of aggressive marketing in the student loan industry and low interest rates has led to
record levels of Consolidation Loan volume, which, in turn, has had a significant effect on a number of
accounting estimates in recent years. The Company expects the Consolidation Loan program to continue
to be an attractive option for borrowers. Accordingly, during the Company’s regular analysis of its critical
accounting estimates, the Company has continually updated the estimates used to develop the cash flows
and effective yield calculations as they relate to the amortization of student loan premiums and discounts,
Borrower Benefits and the valuation and income recognition of the Residual Interest.
Loans
Loans, consisting of federally insured student loans, Private Education Loans, student loan
participations, lines of credit, academic facilities financings, and other private consumer and mortgage
loans, are generally carried at amortized cost, which includes unamortized premiums, unearned discounts
and capitalized origination costs and fees. If the Company has the ability and intent to hold loans for the
foreseeable future, such loans are held for investment and therefore carried at amortized cost. Any loans
held for sale are carried at the lower of cost or fair value.
Private Education Loans which are not guaranteed by the federal government are charged off against
the allowance for loan loss at 212 days past due and any subsequent recoveries are recorded directly to the
allowance. When the loan charges off, any accrued interest is charged off against interest income. FFELP
loans are guaranteed (subject to legislative risk sharing requirements) as to both principal and interest, and
therefore continue to accrue interest until such time that they are paid by the guarantor.
Student Loan Income
The Company recognizes student loan income as earned, net of amortization of premiums, capitalized
direct origination costs, and the accretion of discounts. Additionally, income is recognized based upon the
expected yield of the loan after giving effect to prepayments, extensions and to estimates for borrower