Sallie Mae 2006 Annual Report Download - page 207

Eligible schools include institutions of higher education, including proprietary institutions, meeting the
standards provided in the Higher Education Act. For a school to participate in the program, the Department of
Education must approve its eligibility under standards established by regulation.
Financial Need Analysis
Subject to program limits and conditions, student loans generally are made in amounts sufficient to cover
the student’s estimated costs of attending school, including tuition and fees, books, supplies, room and board,
transportation and miscellaneous personal expenses as determined by the institution. Generally, each loan
applicant (and parents in the case of a dependent child) must undergo a financial need analysis. This requires
the applicant (and parents in the case of a dependent child) to submit financial data to a federal processor. The
federal processor evaluates the parents’ and student’s financial condition under federal guidelines and
calculates the amount that the student and the family are expected to contribute towards the student’s cost of
education. After receiving information on the family contribution, the institution then subtracts the family
contribution from the student’s estimated costs of attending to determine the student’s need for financial aid.
Some of this need may be met by grants, scholarships, institutional loans and work assistance. A student’s
“unmet need” is further reduced by the amount of loans for which the borrower is eligible.
Special Allowance Payments
The Higher Education Act provides for quarterly special allowance payments to be made by the
Department of Education to holders of student loans to the extent necessary to ensure that they receive at least
specified market interest rates of return. The rates for special allowance payments depend on formulas that
vary according to the type of loan, the date the loan was made and the type of funds, tax-exempt or taxable,
used to finance the loan. The Department makes a special allowance payment for each calendar quarter.
The special allowance payment equals the average unpaid principal balance, including interest which has
been capitalized, of all eligible loans held by a holder during the quarterly period multiplied by the special
allowance percentage.
For student loans disbursed before January 1, 2000, the special allowance percentage is computed by:
(1) determining the average of the bond equivalent rates of 91-day Treasury bills auctioned for that
quarter;
(2) subtracting the applicable borrower interest rate;
(3) adding the applicable special allowance margin described in the table below; and
(4) dividing the resultant percentage by 4.
If the result is negative, the special allowance payment is zero.
Date of First Disbursement Special Allowance Margin
Before 10/17/86 ................ 3.50%
From 10/17/86 through 09/30/92 .... 3.25%
From 10/01/92 through 06/30/95 .... 3.10%
From 07/01/95 through 06/30/98 .... 2.50% for Stafford Loans that are in In-School, Grace or Deferment
3.10% for Stafford Loans that are in Repayment and all other loans
From 07/01/98 through 12/31/99 .... 2.20% for Stafford Loans that are in In-School, Grace or Deferment
2.80% for Stafford Loans that are in Repayment 3.10% for PLUS,
SLS and FFELP Consolidation Loans
For student loans disbursed on or after January 1, 2000, the special allowance percentage is computed by:
(1) determining the average of the bond equivalent rates of 3-month commercial paper (financial)
rates quoted for that quarter;
(2) subtracting the applicable borrower interest rate;
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