Sallie Mae 2006 Annual Report Download - page 215

Guarantor Funding
In addition to providing the primary guarantee on FFELP loans, guarantee agencies are charged with
responsibility for maintaining records on all loans on which they have issued a guarantee (“account
maintenance”), assisting lenders to prevent default by delinquent borrowers (“default aversion”), post-default
loan administration and collections and program awareness and oversight. These activities are funded by
revenues from the following statutorily prescribed sources plus earnings on investments.
Source Basis
Insurance Premium ................ Upto1%oftheprincipal amount guaranteed, withheld
(Changes to Federal Default Fee July 1,
2006)
from the proceeds of each loan disbursement.
Loan Processing and Issuance Fee ..... .4%oftheprincipal amount guaranteed in each fiscal year, paid by
the Department of Education.
Account Maintenance Fee ........... .10% of the original principal amount of loans outstanding, paid by
the Department of Education.
Default Aversion Fee ............... 1%oftheoutstanding amount of loans submitted by a lender for
default aversion assistance, minus 1% of the unpaid principal and
interest paid on default claims, which is, paid once per loan by
transfers out of the Student Loan Reserve Fund.
Collection Retention ............... 23%oftheamount collected on loans on which reinsurance has
been paid (18.5% collected for a defaulted loan that is purchased
by a lender for rehabilitation or consolidation), withheld from gross
receipts. Guarantor retention of collection fees on defaulted FFELP
Consolidation Loans is reduced from 18.5% to 10% (effective
October 1, 2006), and reduced to zero beginning October 1, 2009
on default consolidations that exceed 45 percent of an agency’s
total collections on defaulted loans.
The Act requires guaranty agencies to establish two funds: a Student Loan Reserve Fund and an Agency
Operating Fund. The Student Loan Reserve Fund contains the reinsurance payments received from the
Department, Insurance Premiums and the complement of the reinsurance on recoveries. The fund is federal
property and its assets may only be used to pay insurance claims and to pay Default Aversion Fees. Recoveries
on defaulted loans are deposited into the Agency Operating Fund. The Agency Operating Fund is the
guarantor’s property and is not subject to as strict limitations on its use.
If the Department of Education determines that a guarantor is unable to meet its insurance obligations,
the holders of loans guaranteed by that guarantor may submit claims directly to the Department and the
Department is required to pay the full guarantee payments due, in accordance with guarantee claim processing
standards no more stringent than those applied by the terminated guarantor. However, the Department’s
obligation to pay guarantee claims directly in this fashion is contingent upon its making the determination
referred to above.
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