Sallie Mae 2007 Annual Report Download - page 219

Upon rehabilitation, a borrower is again eligible for all the benefits under the HEA for which he or she is not
eligible as a default, such as new federal aid, and the negative credit record is expunged. No student loan may
be rehabilitated more than once.
Guarantor Funding
In addition to providing the primary guarantee on FFELP loans, guarantee agencies are charged with
responsibility for maintaining records on all loans on which they have issued a guarantee (“account
maintenance”), assisting lenders to prevent default by delinquent borrowers (“default aversion”), post-default
loan administration and collections and program awareness and oversight. These activities are funded by
revenues from the following statutorily prescribed sources plus earnings on investments.
Source Basis
Insurance Premium ..........................
(Changed to Federal Default Fee July 1, 2006)
Up to 1% of the principal amount guaranteed,
withheld from the proceeds of each loan
disbursement.
Loan Processing and Issuance Fee ............... .4%oftheprincipal amount guaranteed in each fiscal
year, paid by ED
Account Maintenance Fee ..................... .10% (reduced to .06% on October 1, 2007) of the
original principal amount of loans outstanding, paid
by ED.
Default Aversion Fee ......................... 1%oftheoutstanding amount of loans submitted by
a lender for default aversion assistance, minus 1% of
the unpaid principal and interest paid on default
claims, which is, paid once per loan by transfers out
of the Student Loan Reserve Fund.
Collection Retention ......................... 23%(reduced to 16% on October 1, 2007) of the
amount collected on loans on which reinsurance has
been paid (18.5% collected for a defaulted loan that
is purchased by a lender for rehabilitation or
consolidation), withheld from gross receipts.
Guarantor retention of collection fees on defaulted
FFELP Consolidation Loans is reduced from 18.5%
to 10% (effective October 1, 2006), and reduced to
zero beginning October 1, 2009 on default
consolidations that exceed 45 percent of an agency’s
total collections on defaulted loans.
The Act requires guaranty agencies to establish two funds: a Student Loan Reserve Fund and an Agency
Operating Fund. The Student Loan Reserve Fund contains the reinsurance payments received from ED,
Insurance Premiums and the complement of the reinsurance on recoveries. The fund is federal property and its
assets may only be used to pay insurance claims and to pay Default Aversion Fees. Recoveries on defaulted
loans are deposited into the Agency Operating Fund. The Agency Operating Fund is the guarantor’s property
and is not subject to as strict limitations on its use.
If ED determines that a guarantor is unable to meet its insurance obligations, the holders of loans
guaranteed by that guarantor may submit claims directly to ED and ED is required to pay the full guarantee
payments due, in accordance with guarantee claim processing standards no more stringent than those applied
by the terminated guarantor. However, ED’s obligation to pay guarantee claims directly in this fashion is
contingent upon its making the determination referred to above.
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