Sallie Mae 2007 Annual Report Download - page 19

In recent years we have diversified our APG contingency revenue stream into the purchase of distressed
and defaulted receivables to complement our student loan business. We now have the expertise to acquire and
manage portfolios of sub-performing and non-performing mortgage loans, substantially all of which are
secured by one-to-four family residential real estate. We also have a servicing platform and a disciplined
portfolio pricing approach to several consumer debt asset classes.
APG Segment Timeline
January
2002
PCR
August
2005
GRP
July 2000
USA Group
January
2002
GRC
September
2004
AFS
1999 2000 2001 2002 2003 2004 2005 20072006
In 2007, our APG business segment had revenues totaling $605 million and net income of $116 million.
Our largest customer, USA Funds, accounted for 28 percent of our revenue in 2007.
Products and Services
Student Loan Default Aversion Services
We provide default aversion services for five guarantors, including the nation’s largest, USA Funds. These
services are designed to prevent a default once a borrower’s loan has been placed in delinquency status.
Defaulted Student Loan Portfolio Management Services
Our APG business segment manages the defaulted student loan portfolios for six guarantors under long-
term contracts. APG’s largest customer, USA Funds, represents approximately 17 percent of defaulted student
loan portfolios in the market. Our portfolio management services include selecting collection agencies and
determining account placements to those agencies, processing loan consolidations and loan rehabilitations, and
managing federal and state offset programs.
Contingency Collection Services
Our APG business segment is also engaged in the collection of defaulted student loans and other debt on
behalf of various clients including guarantors, federal agencies, schools, credit card issuers, utilities, and other
retail clients. We earn fees that are contingent on the amounts collected. We provide collection services for
ED and now have approximately 11 percent of the total market for such services. We have relationships with
more than 900 colleges and universities to provide collection services for delinquent student loans and other
receivables from various campus-based programs.
Collection of Purchased Receivables
In our APG business, we also purchase delinquent and defaulted receivables from credit originators and
other holders of receivables at a significant discount from the face value of the debt instruments. In addition,
we purchase sub-performing and non-performing mortgage receivables at a discount usually calculated as a
percentage of the underlying collateral. We use a combination of internal collectors and outside collection
agencies to collect on these portfolios, seeking to attain the highest cost/benefit for our overall collection
strategy. We recognize revenue primarily using the effective yield method, though we use the cost recovery
18