Sallie Mae 2007 Annual Report Download - page 132

2. Significant Accounting Policies (Continued)
the Company does not securitize all loans and not all securitizations qualify as sales. It is only when the
Company has selected the loans to securitize and that securitization transaction qualifies as a sale under
SFAS No. 140 has the Company made the decision to sell such loans. At that time, the loans selected are
transferred into the held-for-sale classification and carried at the lower of cost or fair value. If the Company
anticipates recognizing a gain related to the impending securitization, then the fair value of the loans is higher
than their respective cost basis and no valuation allowance is needed.
Private Education Loans which are not guaranteed by the federal government are charged off against the
allowance for loan loss at 212 days past due and any subsequent recoveries are recorded directly to the
allowance. FFELP loans are guaranteed (subject to legislative risk sharing requirements) as to both principal
and interest, and therefore continue to accrue interest until such time that they are paid by the guarantor.
Loans in forbearance or deferment status are not considered past due.
Student Loan Income
The Company recognizes student loan interest income as earned, adjusted for the amortization of
premiums and capitalized direct origination costs, accretion of discounts, and after giving effect to borrower
utilization of incentives for timely payment (“Repayment Borrower Benefits”). These adjustments are made in
accordance with SFAS No. 91, “Accounting for Non-Refundable Fees and Costs Associated with Originating
or Acquiring Loans and Initial Direct Costs of Leases,” which requires income to be recognized based upon
the expected yield of the loan over its life after giving effect to prepayments and extensions, and to estimates
related to Repayment Borrower Benefits. Premiums, discounts, and capitalized direct origination costs are
amortized over the estimated life of the loan, which includes an estimate of prepayment speeds. The estimate
of the prepayment speed must consider the effect of consolidations, voluntary prepayments and student loan
defaults, all of which shorten the life of loan. Prepayment speed estimates must also consider the utilization of
deferment and forbearance, which lengthen the life of loan, coupled with management’s expectation of future
activity. For Repayment Borrower Benefits, the estimates of their effect on student loan yield are based on
analyses of historical payment behavior of borrowers who are eligible for the incentives and its effect on the
ultimate qualification rate for these incentives. The Company periodically evaluates the assumptions used to
estimate its loan life and the qualification rates used for Repayment Borrower Benefits. In instances where
there are modifications to the assumptions, amortization is adjusted on a cumulative basis to reflect the change
since the acquisition of the loan. The Company pays an annual 105 basis point Consolidation Loan Rebate Fee
on FFELP Consolidation Loans which is netted against student loan income. Additionally, interest earned on
student loans reflects potential non-payment adjustments in accordance with the Company’s non-accrual policy
as discussed further in “Allowance for Student Loan Losses” below.
The Company recognizes certain fee income (primarily late fees and forbearance fees) on student loans
according to the contractual provisions of the promissory notes, as well as the Company’s expectation of
collectability. Student loan fee income is recorded when earned in “other income” in the consolidated
statements of income.
Allowance for Student Loan Losses
The Company has established an allowance for student loan losses that is an estimate of probable losses
incurred in the FFELP and Private Education Loan portfolios at the balance sheet date. The Company presents
student loans net of the allowance on the balance sheet. Estimated probable losses are expensed through the
provision for loan losses in the period that the loss event occurs. Estimated probable losses contemplate
expected recoveries. When a charge-off event occurs, the carrying value of the loan is charged to the
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SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts, unless otherwise stated)