Sallie Mae 2007 Annual Report Download - page 80

The increase in net charge-offs on FFELP Stafford and Other student loans for the year ended
December 31, 2007 versus the year ended December 31, 2006 was primarily the result of legislatives changes
occurring in 2006 and again in 2007, which have ultimately lowered the federal guaranty on claims filed to
either 97 percent or 98 percent (depending on date of disbursement). See “Managed Basis Private Education
Loan Loss Allowance Discussion” for a discussion of net charge-offs related to our Private Education Loans.
Student Loan Premiums as a Percentage of Principal
The following table presents student loan premiums paid as a percentage of the principal balance of
student loans acquired for the respective periods.
Volume Rate Volume Rate Volume Rate
2007 2006 2005
Years Ended December 31,
Student loan premiums paid:
Sallie Mae brands ................... $15,737 1.45% $12,271 .94% $ 8,430 .38%
Lender partners ..................... 9,728 2.92 11,738 1.97 12,463 1.77
Total Preferred Channel ............... 25,465 2.01 24,009 1.44 20,893 1.21
Other purchases
(1)
................... 8,473 4.16 6,228 4.39 2,479 3.68
Subtotal base purchases ............... 33,938 2.54 30,237 2.05 23,372 1.47
Consolidation originations ............. 2,441 2.72 4,188 2.54 4,672 2.32
Total ............................. $36,379 2.56% $34,425 2.11% $28,044 1.61%
(1)
Primarily includes spot purchases (including Wholesale Consolidation Loans), other commitment clients, and subsidiary
acquisitions.
The increase in premiums paid as a percentage of principal balance for Sallie Mae brands is primarily
due to the increase in loans where we pay the origination fee and/or federal default fee on behalf of borrowers,
a practice we call zero-fee lending. Premiums paid on lender partners were similarly impacted by zero-fee
lending. The borrower origination fee will be gradually phased out by the Reconciliation Legislation from
2007 to 2010.
The “other purchases” category includes the acquisition of Wholesale Consolidation Loans which totaled
$7.0 billion at an average premium percentage of 4.5 percent for the year ended December 31, 2007.
Wholesale Consolidation Loans are discussed in more detail at “Student Loan Spread — Wholesale Consolida-
tion Loans.”
Included in “Consolidation originations” is the .5 percent FFELP Consolidation Loan origination fee paid
on the total balance of new FFELP Consolidation Loans made prior to October 1, 2007 (and 1.0 percent for
FFELP Consolidation Loans made after October 1, 2007), including internally consolidated loans from our
existing portfolio. The “consolidation originations” premium paid percentage is calculated on only consolida-
tion volume that is incremental to our portfolio. This percentage is largely driven by the mix of internal
consolidations.
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