Sallie Mae 2005 Annual Report Download - page 202

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•has been accepted for enrollment or is enrolled and maintaining satisfactory academic progress at a
participating educational institution; and
•is carrying at least one-half of the normal full-time academic workload for the course of study the
student is pursuing.
A student qualifies for a subsidized Stafford loan if his family meets the financial need requirements
for the particular loan program. Only PLUS loan borrowers have to meet credit standards.
Eligible schools include institutions of higher education, including proprietary institutions, meeting
the standards provided in the Higher Education Act. For a school to participate in the program, the
Department of Education must approve its eligibility under standards established by regulation.
Financial Need Analysis
Subject to program limits and conditions, student loans generally are made in amounts sufficient to
cover the student’s estimated costs of attending school, including tuition and fees, books, supplies, room
and board, transportation and miscellaneous personal expenses as determined by the institution.
Generally, each loan applicant (and parents in the case of a dependent child) must undergo a financial
need analysis. This requires the applicant (and parents in the case of a dependent child) to submit financial
data to a federal processor. The federal processor evaluates the parents’ and student’s financial condition
under federal guidelines and calculates the amount that the student and the family are expected to
contribute towards the student’s cost of education. After receiving information on the family contribution,
the institution then subtracts the family contribution from the student’s estimated costs of attending to
determine the student’s need for financial aid. Some of this need may be met by grants, scholarships,
institutional loans and work assistance. A student’s “unmet need” is further reduced by the amount of
loans for which the borrower is eligible.
Special Allowance Payments
The Higher Education Act provides for quarterly special allowance payments to be made by the
Department of Education to holders of student loans to the extent necessary to ensure that they receive at
least specified market interest rates of return. The rates for special allowance payments depend on
formulas that vary according to the type of loan, the date the loan was made and the type of funds, tax-
exempt or taxable, used to finance the loan. The Department makes a special allowance payment for each
calendar quarter.
The special allowance payment equals the average unpaid principal balance, including interest which
has been capitalized, of all eligible loans held by a holder during the quarterly period multiplied by the
special allowance percentage.
For student loans disbursed before January 1, 2000, the special allowance percentage is computed by:
(1) determining the average of the bond equivalent rates of 91-day Treasury bills auctioned for that
quarter;
(2) subtracting the applicable borrower interest rate;
(3) adding the applicable special allowance margin described in the table below; and
(4) dividing the resultant percentage by 4.