Sallie Mae 2007 Annual Report Download - page 139

2. Significant Accounting Policies (Continued)
Securities Acquired in a Transfer.” Under SOP 03-3, the Company establishes static pools of each quarter’s
purchases and aggregates them based on common risk characteristics. The pools when formed are initially
recorded at fair value, based on each pool’s estimated future cash flows and internal rate of return. The
Company recognizes income each month based on each static pool’s effective interest rate. The static pools
are tested quarterly for impairment by re-estimating the future cash flows to be received from the pools. If the
new estimated cash flows result in a pool’s effective interest rate increasing, then this new yield is used
prospectively over the remaining life of the static pool. If the new estimated cash flows result in a pool’s
effective interest rate decreasing, the pool is impaired and written down through a valuation allowance, to
maintain the effective interest rate. Net interest income earned, less any impairments recognized, on the
purchased portfolios is recorded as collection revenue on the accompanying income statement.
Recognition of Severance Costs
The Company sponsors the SLM Corporation Employee Severance Plan, which provides severance
benefits in the event of termination of the Company’s and its subsidiaries’ full-time employees (with the
exception of certain specified levels of management and employees of the Company’s APG subsidiaries) and
part-time employees who work at least 24 hours per week. The Company also sponsors the DMO Employee
Severance Plan, which provides severance benefits to certain specified levels of full-time management and
full-time employees in the Company’s APG subsidiaries. The Employee Severance Plan and the DMO
Employee Severance Plan (collectively, the “Severance Plan”) establishes specified benefits based on employee
base salary, job level immediately preceding termination and years of service for individuals whose employ-
ment is terminated due to an Involuntary Termination or a Job Abolishment, as defined in the Severance Plan.
The benefits payable under the Severance Plan relate to past service and they accumulate and vest.
Accordingly, the Company recognizes severance costs to be paid pursuant to the Severance Plan in accordance
with SFAS No. 112, “Employer’s Accounting for Post Employment Benefits,” when payment of such benefits
is probable and reasonably estimable. Such benefits include severance pay calculated based on the Severance
Plan, medical and dental benefits, outplacement services and continuation pay.
F-18
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts, unless otherwise stated)