Sallie Mae 2007 Annual Report Download - page 20

method when appropriate, in certain circumstances. A major success factor in the purchased receivables
business is the ability to effectively price the portfolios. We conduct both quantitative and qualitative analysis
to appropriately price each portfolio to yield a return consistent with our APG financial targets.
Competition
The private sector collections industry is highly fragmented with few large companies and a large number
of small scale companies. The APG businesses that provide third-party collections services for ED, FFELP
guarantors and other federal holders of defaulted debt are highly competitive. In addition to competing with
other collection enterprises, we also compete with credit grantors who each have unique mixes of internal
collections, outsourced collections, and debt sales. Although the scale, diversification, and performance of our
APG business has been a competitive advantage, the trend in the collections industry is for credit grantors to
sell portfolios rather than to manage contingency collections.
In the purchased paper business, the marketplace is trending more toward open market competitive
bidding rather than solicitation by sellers to a select group of potential buyers. Price inflation and the
availability of capital in the sector contribute to this trend. Unlike many of our competitors, our APG business
does not rely solely on purchased portfolio revenue. This enables us to maintain pricing discipline and
purchase only those portfolios that are expected to meet our profitability and strategic goals. Portfolios are
purchased individually on a spot basis or through contractual relationships with sellers to periodically purchase
portfolios at set prices. We compete primarily on price, and additionally on the basis of our reputation and
industry experience.
CORPORATE AND OTHER BUSINESS SEGMENT
The Company’s Corporate and Other business segment includes the aggregate activity of its smaller
operating segments, primarily its Guarantor Servicing, Loan Servicing, and Upromise operating segments.
Corporate and Other also includes several smaller products and services, including comprehensive financing
and loan delivery solutions to college financial aid offices and students to streamline the financial aid process.
Guarantor Services
We earn fees for providing a full complement of administrative services to FFELP guarantors. FFELP
student loans are guaranteed by these agencies, with ED providing reinsurance to the guarantor. The guarantors
are non-profit institutions or state agencies that, in addition to providing the primary guarantee on FFELP
loans, are responsible for other activities, including:
• guarantee issuance — the initial approval of loan terms and guarantee eligibility;
• account maintenance — the maintaining, updating and reporting on records of guaranteed loans;
• default aversion services — these services are designed to prevent a default once a borrower’s loan has
been placed in delinquency status (we perform these activities within our APG segment);
• guarantee fulfillment — the review and processing of guarantee claims;
• post claim assistance — assisting borrowers in determining the best way to pay off a defaulted loan; and
• systems development and maintenance — the development of automated systems to maintain compli-
ance and accountability with ED regulations.
Currently, we provide a variety of these services to nine guarantors and, in AY 2006-2007, we processed
$17.9 billion in new FFELP loan guarantees, of which $14.2 billion was for USA Funds, the nation’s largest
guarantor. We processed guarantees for approximately 32 percent of the FFELP loan market in AY 2006-2007.
Guarantor servicing fee revenue, which includes guarantee issuance and account maintenance fees, was
$156 million for the year ended December 31, 2007, 86 percent of which we earned from services performed
on behalf of USA Funds. Under some of our guarantee services agreements, including our agreement with
USA Funds, we receive certain scheduled fees for the services that we provide under such agreements. The
19