Sallie Mae 2007 Annual Report Download - page 13

FFELP student loans are guaranteed by state agencies or non-profit companies called guarantors, with ED
providing reinsurance to the guarantor. Guarantors are responsible for performing certain functions necessary
to ensure the program’s soundness and accountability. These functions include reviewing loan application data
to detect and prevent fraud and abuse and to assist lenders in preventing default by providing counseling to
borrowers. Generally, the guarantor is responsible for ensuring that loans are being serviced in compliance
with the requirements of the HEA. When a borrower defaults on a FFELP loan, we submit a claim to the
guarantor who reimburses us for principal and accrued interest subject to the Risk Sharing (See APPENDIX A,
“FEDERAL FAMILY EDUCATION LOAN PROGRAM,” to this document for a more complete description
of the role of guarantors.)
Private Education Loan Products
In addition to federal loan programs, which have statutory limits on annual and total borrowing, we
sponsor a variety of Private Education Loan programs and purchase loans made under such programs to bridge
the gap between the cost of education and a student’s resources. The majority of our higher education Private
Education Loans are made in conjunction with a FFELP Stafford loan, and are marketed to schools through
the same marketing channels — and by the same sales force — as FFELP loans. In 2004, we expanded our
direct-to-consumer loan marketing channel with our Tuition Answer
SM
loan program under which we originate
and purchase loans outside of the traditional financial aid process. We also originate and purchase Private
Education Loans marketed by our SLM Financial subsidiary to career training, technical and trade schools,
tutorial and learning centers, and private kindergarten through secondary education schools. These loans are
primarily made at schools not eligible for Title IV loans. Private Education Loans are discussed in more detail
below.
Drivers of Growth in the Student Loan Industry
The growth in our Managed student loan portfolio is driven by the growth in the overall student loan
marketplace, as well as by our own market share gains. Rising enrollment and college costs have resulted in
the size of the federally insured student loan market more than doubling over the last 10 years. Federally
insured student loan originations grew from $29.0 billion in FFY 1997 to $64.3 billion in FFY 2007.
According to the College Board, tuition and fees at four-year public institutions and four-year private
institutions have increased 54 percent and 33 percent, respectively, in constant, inflation-adjusted dollars, since
AY 1997-1998. Under the FFELP, there are limits to the amount students can borrow each academic year. The
first loan limit increases since 1992 were implemented July 1, 2007 when freshman and sophomore limits
were increased to $3,500 and $4,500 from $2,625 and $3,500, respectively. The fact that guaranteed student
loan limits have not kept pace with tuition increases has driven more students and parents to Private Education
Loans to meet an increasing portion of their education financing needs. Loans — both federal and private — as
a percentage of total student aid were 53 percent of total student aid in AY 1996-1997 and 52 percent in AY
2006-2007. Private Education Loans accounted for 24 percent of total student loans — both federally
guaranteed and Private Education Loans — in AY 2006-2007, compared to 7 percent in AY 1997-1998.
The National Center for Education Statistics predicts that the college-age population will increase
approximately 14 percent from 2007 to 2016. Demand for education credit will also increase due to the rise in
students not attending college directly from high school and adult education.
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