Sallie Mae 2005 Annual Report Download - page 25

15
Sallie Mae Timeline—Student Lending
1999 2000 2001 2002 2003 2004 2005 2006
07/99
Nellie Mae
07/00
USA Group-SLM
combination
10/04
Southwest
07/00
SLFR
12/04
SLFA
11/03
AMS
Financing
Since the completion of the GSE Wind-Down in December 2004, we have funded our operations
exclusively through the issuance of student loan asset-backed securities (securitizations) and unsecured
debt securities. We issue these securities in both the domestic and overseas capital markets using both
public offerings and private placements. The major objective when financing our business is to minimize
interest rate risk by matching the interest rate and reset characteristics of our Managed assets and
liabilities, generally on a pooled basis, to the extent practicable. As part of this process, we use derivative
financial instruments extensively to reduce our interest rate and foreign currency exposure. Interest rate
risk management helps us to achieve a stable student loan spread irrespective of the interest rate
environment and changes in asset mix. We continuously look for ways to minimize funding costs and to
provide liquidity for our student loan acquisitions. To that end, we are continually expanding and
diversifying our pool of investors by establishing debt programs in multiple markets that appeal to varied
investor bases and by educating potential investors about our business. Finally, we take appropriate steps
to ensure sufficient liquidity by financing in multiple markets, which include the institutional, retail,
floating-rate, fixed-rate, unsecured, asset-backed, domestic and international markets.
Securitization is and will continue to be our principal source of financing, and over time, we expect
more than 70 percent of our annual funding needs will be satisfied by securitizing our loan assets and
issuing asset-backed securities.
Sallie Mae Bank
On November 3, 2005, we announced that the Utah Department of Financial Institutions approved
our application for an industrial bank charter. Beginning in January 2006, Sallie Mae Bank began funding
and originating Private Education Loans and federally guaranteed Consolidation Loans made by Sallie
Mae to students and families nationwide. This allows us to capture the full economics of these loans from
origination. In addition, the industrial bank charter allows us to expand the products and services we can
offer to students and families and allows us to originate loans directly, without using a third party bank,
which will lower our cost of originations. In addition to using the bank to fund and originate Private
Education Loans, we expect to continue to originate a significant portion of our Private Education Loans
through our strategic lending partners.