Sallie Mae 2006 Annual Report Download - page 132

2. Significant Accounting Policies (Continued)
allow for periods of nonpayment for borrowers experiencing temporary difficulty meeting payment obligations
which are referred to as forbearance.
The Company uses a similar methodology applying the same factors when estimating losses for the Risk
Sharing on FFELP loans.
The Company’s non-accrual policy for Private Education Loans relies on the same migration methodology
to reduce the amount of interest income recognized in the current period that the Company does not expect to
collect in subsequent periods.
Cash and Cash Equivalents
Cash and cash equivalents includes term federal funds, Eurodollar deposits, money market funds and bank
deposits with original terms to maturity of less than three months.
Restricted Cash and Investments
Restricted cash primarily includes amounts for on-balance sheet student loan securitizations and other
secured borrowings. This cash must be used to make payments related to trust obligations. Amounts on deposit
in these accounts are primarily the result of timing differences between when principal and interest is collected
on the trust assets and when principal and interest is paid on trust liabilities.
In connection with the Company’s tuition payment plan product, the Company receives cash from students
and parents that in turn is owed to schools. This cash, a majority of which has been deposited at Sallie Mae
Bank (the “Bank”), is held in escrow for the beneficial owners. In addition, the cash rebates that Upromise
members earn from qualifying purchases from Upromise’s participating companies are held in trust for the
benefit of the members. This cash is restricted to certain investments until distributed in accordance with the
Upromise member’s request and the terms of the Upromise service. Upromise, which acts as the trustee for the
trust, has deposited a majority of the cash with the Bank pursuant to a money market deposit account agreement
between the Bank and the trust. Subject to capital requirements and other laws, regulations and restrictions
applicable to Utah industrial banks, the cash that is deposited with the Bank in connection with the tuition
payment plan and the Upromise rebates described above is not restricted and, accordingly, is not included in
restricted cash and investments in the Company’s consolidated financial statements, as there is no restriction
surrounding the use of funds by the Company.
Restricted investments include securities pledged as collateral related to the Company’s derivative
portfolio for which the counterparty has rights of rehypothecation. Other securities pledged as collateral and
not classified as restricted are disclosed as such. Additionally, the Company’s indentured trusts deposit cash
balances in guaranteed investment contracts that are held in trust for the related note holders and are classified
as restricted investments. Finally, cash received from lending institutions that is invested pending disbursement
for student loans is restricted and cannot be disbursed for any other purpose.
Investments
Investments are held to provide liquidity and to serve as a source of income. The majority of the
Company’s investments are classified as available-for-sale and such securities are carried at market value, with
the temporary changes in market value carried as a separate component of stockholders’ equity. Changes in
the market value for available-for-sale securities that have been designated as the hedged item in a
SFAS No. 133 fair value hedge (as it relates to the hedged risks) are recorded in the “gains (losses) on
derivative and hedging activities, net” line of the income statement offsetting changes in fair value of the
F-13
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts, unless otherwise stated)