Sallie Mae 2006 Annual Report Download - page 204

APPENDIX A
FEDERAL FAMILY EDUCATION LOAN PROGRAM
General
The Federal Family Education Loan Program, known as FFELP, under Title IV of the Higher Education
Act, provides for loans to students who are enrolled in eligible institutions, or to parents of dependent students,
to finance their educational costs. As further described below, payment of principal and interest on the student
loans is guaranteed by a state or not-for-profit guarantee agency against:
• default of the borrower;
• the death, bankruptcy or permanent, total disability of the borrower;
• closing of the borrower’s school prior to the end of the academic period;
• false certification by the borrower’s school of his eligibility for the loan; and
• an unpaid school refund.
Subject to conditions, a program of federal reinsurance under the Higher Education Act entitles guarantee
agencies to reimbursement from the Department of Education for between 75 percent and 100 percent of the
amount of each guarantee payment. In addition to the guarantee, the holder of student loans is entitled to
receive interest subsidy payments and special allowance payments from the U.S. Department of Education on
eligible student loans. Special allowance payments raise the yield to student loan lenders when the statutory
borrower interest rate is below an indexed market value.
Four types of FFELP student loans are currently authorized under the Higher Education Act:
• Subsidized Federal Stafford Loans to students who demonstrate requisite financial need;
• Unsubsidized Federal Stafford Loans to students who either do not demonstrate financial need or
require additional loans to supplement their Subsidized Stafford Loans;
• Federal PLUS Loans to graduate or professional students (effective July 1, 2006) or parents of
dependent students whose estimated costs of attending school exceed other available financial aid; and
• FFELP Consolidation Loans, which consolidate into a single loan a borrower’s obligations under
various federally authorized student loan programs.
Before July 1, 1994, the Higher Education Act also authorized loans called “Supplemental Loans to
Students” or “SLS Loans” to independent students and, under some circumstances, dependent undergraduate
students, to supplement their Subsidized Stafford Loans. The SLS program was replaced by the Unsubsidized
Stafford Loan program.
This appendix describes or summarizes the material provisions of Title IV of the Higher Education Act,
the FFELP and related statutes and regulations. It, however, is not complete and is qualified in its entirety by
reference to each actual statute and regulation. Both the Higher Education Act and the related regulations have
been the subject of extensive amendments over the years. The Company cannot predict whether future
amendments or modifications might materially change any of the programs described in this appendix or the
statutes and regulations that implement them.
Legislative Matters
The FFELP is subject to comprehensive reauthorization at least every 5 years and to frequent statutory
and regulatory changes. The most recent reauthorization was the Higher Education Reconciliation Act of 2005
(HERA 2005), which was signed into law February 8, 2006 as part of the Deficit Reduction Act, Public
Law 109-171. Other recent amendments since the program was previously reauthorized by the Higher
Education Amendments of 1998, include the Ticket to Work and Work Incentives Improvement Act of 1999,
by Public Law 106-554 (December 21, 2000), the Consolidated Appropriations Act of 2001, by Public
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