Sallie Mae 2006 Annual Report Download - page 109

FFELP loans made or acquired with funds derived from tax-exempt obligations are eligible for 9.5 percent
SAP. The letter’s restatement is consistent with claims asserted by the ED’s Office of Inspector General
(“OIG”) in their Final Audit Report on “Special Allowance Payments to Nelnet for Loans Funded by Tax-
Exempt Obligations” issued on September 29, 2006. On January 24, 2007, ED sent a letter to the Company
which sets forth the same restatement and also imposes audit and certification requirements for any 9.5 percent
SAP billings after September 30, 2006. On February 15, 2007, the Company delivered a letter to ED, which,
subject to certain conditions, including no successful challenge by an industry participant of ED’s restated
eligibility requirements for 9.5 percent SAP, stated that the Company would make no further claims for
9.5 percent SAP retroactive to October 1, 2006, and for those loans affected, would bill at the standard SAP
rate. In the fourth quarter of 2006, the Company accrued $2.4 million in interest income in excess of income
based upon the standard special allowance rate on its portfolio of loans that is entitled to receive 9.5 percent
SAP. After adjusting for the fourth quarter accrual, we earned a total of $13.1 million in interest income in
excess of standard special allowance payments during 2006. Regardless of the issuance of the “Dear Colleague
Letter,” the Company’s portfolio of 9.5 percent loans and associated SAP billings have been in a constant state
of decline. As a result, our voluntary forgoing of future claims of 9.5 percent SAP will not have a material
impact on future earnings. In addition, we will record an impairment of $9 million related to the intangible
asset associated with the 9.5 percent loans acquired in business combinations.
Extension of the Higher Education Act
On September 30, 2006, the President signed into law P.L. 109-292, the Third Extension of the Higher
Education Act (“HEA”), temporarily authorizing the rest of HEA until June 30, 2007. Included in the
extension were several modifications to provisions passed in the Deficit Reduction Act of 2005. The first
provision further limited the ability of schools to act as lenders in the FFELP, requiring that the statutory
restrictions on “school as lender” apply to schools using “eligible lender trusts.” Another provision clarified
the rate for the Account Maintenance Fee paid to guaranty agencies.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
See Note 2 to the consolidated financial statements, “Significant Accounting Policies — Recently Issued
Accounting Pronouncements.”
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