Sallie Mae 2005 Annual Report Download - page 211
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A-13
The Act requires guaranty agencies to establish two funds: a Student Loan Reserve Fund and an
Agency Operating Fund. The Student Loan Reserve Fund contains the reinsurance payments received
from the Department, Insurance Premiums and the complement of the reinsurance on recoveries. The
fund is federal property and its assets may only be used to pay insurance claims and to pay Default
Aversion Fees. Recoveries on defaulted loans are deposited into the Agency Operating Fund. The Agency
Operating Fund is the guarantor’s property and is not subject to as strict limitations on its use.
If the Department of Education determines that a guarantor is unable to meet its insurance
obligations, the holders of loans guaranteed by that guarantor may submit claims directly to the
Department and the Department is required to pay the full guarantee payments due, in accordance with
guarantee claim processing standards no more stringent than those applied by the terminated guarantor.
However, the Department’s obligation to pay guarantee claims directly in this fashion is contingent upon
its making the determination referred to above.