Sallie Mae 2007 Annual Report Download - page 4

Embedded Fixed Rate/Variable Rate Floor Income — Embedded Floor Income is Floor Income (see
definition below) that is earned on off-balance sheet student loans that are in securitization trusts sponsored by
us. At the time of the securitization, the value of Embedded Fixed Rate Floor Income is included in the initial
valuation of the Residual Interest (see definition below) and the gain or loss on sale of the student loans.
Embedded Floor Income is also included in the quarterly fair value adjustments of the Residual Interest.
Exceptional Performer (“EP”) Designation — The EP designation is determined by ED in recognition
of a servicer meeting certain performance standards set by ED in servicing FFELP Loans. Upon receiving the
EP designation, the EP servicer receives reimbursement on default claims higher than the legislated Risk
Sharing (see definition below) levels on federally guaranteed student loans for all loans serviced for a period
of at least 270 days before the date of default. The EP servicer is entitled to receive this benefit as long as it
remains in compliance with the required servicing standards, which are assessed on an annual and quarterly
basis through compliance audits and other criteria. The annual assessment is in part based upon subjective
factors which alone may form the basis for an ED determination to withdraw the designation. If the
designation is withdrawn, Risk Sharing may be applied retroactively to the date of the occurrence that resulted
in noncompliance. The College Cost Reduction Act of 2007 eliminated the EP designation effective October 1,
2007. See also Appendix A, “FEDERAL FAMILY EDUCATION LOAN PROGRAM.”
FDLP — The William D. Ford Federal Direct Student Loan Program.
FFELP — The Federal Family Education Loan Program, formerly the Guaranteed Student Loan
Program.
FFELP Consolidation Loans — Under the Federal Family Education Loan Program (“FFELP”), borrow-
ers with multiple eligible student loans may consolidate them into a single student loan with one lender at a
fixed rate for the life of the loan. The new note is considered a FFELP Consolidation Loan. Typically a
borrower may consolidate his student loans only once unless the borrower has another eligible loan to
consolidate with the existing FFELP Consolidation Loan. The borrower rate on a FFELP Consolidation Loan
is fixed for the term of the loan and is set by the weighted average interest rate of the loans being
consolidated, rounded up to the nearest 1/8th of a percent, not to exceed 8.25 percent. In low interest rate
environments, FFELP Consolidation Loans provide an attractive refinancing opportunity to certain borrowers
because they allow borrowers to consolidate variable rate loans into a long-term fixed rate loan. Holders of
FFELP Consolidation Loans are eligible to earn interest under the Special Allowance Payment (“SAP”)
formula (see definition below).
FFELP Stafford and Other Student Loans — Education loans to students or parents of students that
are guaranteed or reinsured under the FFELP. The loans are primarily Stafford loans but also include PLUS
and HEAL loans.
Fixed Rate Floor Income — We refer to Floor Income (see definition below) associated with student
loans whose borrower rate is fixed to term (primarily FFELP Consolidation Loans and Stafford Loans
originated on or after July 1, 2006) as Fixed Rate Floor Income.
Floor Income — FFELP student loans generally earn interest at the higher of a floating rate based on the
Special Allowance Payment or SAP formula (see definition below) set by ED and the borrower rate, which is
fixed over a period of time. We generally finance our student loan portfolio with floating rate debt over all
interest rate levels. In low and/or declining interest rate environments, when the fixed borrower rate is higher
than the rate produced by the SAP formula, our student loans earn at a fixed rate while the interest on our
floating rate debt continues to decline. In these interest rate environments, we earn additional spread income
that we refer to as Floor Income. Depending on the type of the student loan and when it was originated, the
borrower rate is either fixed to term or is reset to a market rate each July 1. As a result, for loans where the
borrower rate is fixed to term, we may earn Floor Income for an extended period of time, and for those loans
where the borrower interest rate is reset annually on July 1, we may earn Floor Income to the next reset date.
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