Sallie Mae 2007 Annual Report Download - page 167

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9. Student Loan Securitization (Continued)
$104 million and $256 million for the years ended December 31, 2007, 2006 and 2005, respectively),
impairment to the Floor Income component of the Company’s Retained Interest due to increases in interest
rates during the period ($24 million, $53 million and $4 million for the years ended December 31, 2007, 2006
and 2005, respectively), and increases in prepayments, defaults and the discount rate related to Private
Education Loans ($120 million for the year ended December 31, 2007).
The Company assessed the appropriateness of the current risk premium, which is added to the risk free
rate, for the purpose of arriving at a discount rate in light of the current economic and credit uncertainty that
exists in the market as of December 31, 2007. This discount rate is applied to the projected cash flows to
arrive at a fair value representative of the current economic conditions. The Company increased the risk
premium by 100 basis points (to LIBOR plus 850 basis points) to better take into account the current level of
cash flow uncertainty and lack of liquidity that exists with the Private Education Residual Interests. During
2007, the Company increased its loan loss allowance related to the non-traditional or higher-risk loans within
the Company’s Private Education Loan portfolio that the Company does not generally securitize. As a result,
the Company does not expect the default rates used for the Residual Interest valuations to correspond with the
expected default rates contemplated by the provision expense related to the non-traditional Private Education
Loans recorded in 2007.
F-46
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts, unless otherwise stated)