Sallie Mae 2005 Annual Report Download - page 80

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Forbearance—Managed Basis Private Education Loans
Private Education Loans are made to parent and student borrowers by our lender partners in
accordance with our underwriting policies. These loans generally supplement federally guaranteed student
loans, which are subject to federal lending caps. Private Education Loans are not guaranteed or insured
against any loss of principal or interest. Traditional student borrowers use the proceeds of these loans to
obtain higher education, which increases the likelihood of obtaining employment at higher income levels
than would be available without the additional education. As a result, the borrowers’ repayment capability
improves between the time the loan is made and the time they enter the post-education work force. We
generally allow the loan repayment period on traditional Private Education Loans, except those generated
by our SLM Financial subsidiary, to begin six to nine months after the student leaves school. This provides
the borrower time to obtain a job to service his or her debt. For borrowers that need more time or
experience other hardships, we permit additional delays in payment or partial payments (both referred to
as forbearances) when we believe additional time will improve the borrower’s ability to repay the loan.
Forbearance is also granted to borrowers who may experience temporary hardship after entering
repayment, when we believe that it will increase the likelihood of ultimate collection of the loan. Such
forbearance is only granted within established guidelines and is closely monitored for compliance. Our
policy does not grant any reduction in the repayment obligation (principal or interest) but does allow the
borrower to stop or reduce monthly payments for an agreed period of time. When a loan that was
delinquent prior to receiving forbearance, ends forbearance and re-enters repayment, that loan is
considered current.
Forbearance is used most heavily immediately after the loan enters repayment. As indicated in the
tables below showing the composition and status of the Managed Private Education Loan portfolio by
number of months aged from the first date of repayment, the percentage of loans in forbearance decreases
the longer the loans have been in repayment. At December 31, 2005, loans in forbearance as a percentage
of loans in repayment and forbearance is 12.2 percent for loans that have been in repayment one to twenty-
four months. The percentage drops to 4.7 percent for loans that have been in repayment more than
48 months. Approximately 73 percent of our Managed Private Education Loans in forbearance have been
in repayment less than 24 months. These borrowers are essentially extending their grace period as they
transition to the workforce. Forbearance continues to be a positive collection tool for the Private
Education Loans as we believe it can provide the borrower with sufficient time to obtain employment and
income to support his or her obligation. We consider the potential impact of forbearance in the
determination of the loan loss reserves.