Sallie Mae 2007 Annual Report Download - page 146

2. Significant Accounting Policies (Continued)
Noncontrolling Interests in Consolidated Financial Statements — an amendment of Accounting Research
Bulletin No. 51
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements-an amendment of Accounting Research Bulletin No. 51”. SFAS No. 160 requires reporting entities
to present noncontrolling (minority) interests as equity (as opposed to its current presentation as a liability or
mezzanine equity) and provides guidance on the accounting for transactions between an entity and non-
controlling interests. SFAS No. 160 applies prospectively for reporting periods beginning on or after
December 15, 2008, which for the Company is January 1, 2009, except for the presentation and disclosure
requirements which will be applied retrospectively for all periods presented. Adoption of this standard will not
be material to the Company.
3. Student Loans
The FFELP is subject to comprehensive reauthorization every five years and to frequent statutory and
regulatory changes. The most recent reauthorization of the student loan programs was the Higher Education
Reconciliation Act of 2005 (the “Reconciliation Legislation”).
There are three principal categories of FFELP loans: Stafford, PLUS, and FFELP Consolidation Loans.
Generally, Stafford and PLUS loans have repayment periods of between five and ten years. FFELP
Consolidation Loans have repayment periods of twelve to thirty years. FFELP loans do not require repayment,
or have modified repayment plans, while the borrower is in-school and during the grace period immediately
upon leaving school. The borrower may also be granted a deferment or forbearance for a period of time based
on need, during which time the borrower is not considered to be in repayment. Interest continues to accrue on
loans in the in-school, deferment and forbearance period. FFELP loans obligate the borrower to pay interest at
a stated fixed rate or a variable rate reset annually (subject to a cap) on July 1 of each year depending on
when the loan was originated and the loan type. The Company earns interest at the greater of the borrower’s
rate or a floating rate based on the SAP formula, with the interest earned on the floating rate that exceeds the
interest earned from the borrower being paid directly by ED. In low or certain declining interest rate
environments when student loans are earning at the fixed borrower rate, and the interest on the funding for the
loans is variable and declining, the Company can earn additional spread income that it refers to as Floor
Income. For loans disbursed after April 1, 2006, FFELP loans effectively only earn at the SAP rate, as the
excess interest earned when the borrower rate exceeds the SAP rate (Floor Income) must be refunded to ED.
FFELP loans are guaranteed as to their principal and accrued interest in the event of default subject to a
Risk Sharing level based on the date of loan disbursement. For loans disbursed after October 1, 1993 and
before July 1, 2006, the Company receives 98 percent reimbursement on all qualifying default claims. For
loans disbursed on or after July 1, 2006, the Company receives 97 percent reimbursement. In October of 2005,
the Company’s loan servicing division, Sallie Mae Servicing, was designated as an Exceptional Performer
(“EP”) by ED which enabled the Company to receive 100 percent reimbursement on default claims filed from
the date of designation through June 30, 2006 for loans that were serviced by Sallie Mae Servicing for a
period of at least 270 days before the date of default. Legislation passed in early 2006 decreased the rate of
reimbursement under the EP program from 100 percent to 99 percent for claims filed on or after July 1, 2006.
As a result of this amended reimbursement level, the Company established an allowance at December 31,
2005 for loans that were subject to the one-percent Risk Sharing. On September 27, 2007, the College Cost
Reduction and Access Act of 2007 (“CCRAA”) was enacted which resulted in the repeal of the EP program
and returned loans to their previous disbursement date-based guarantee rates of 98 percent or 97 percent. As a
result, the Company increased its provision for FFELP loans to cumulatively increase the allowance for loan
losses to cover these higher Risk Sharing levels.
F-25
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts, unless otherwise stated)