Sallie Mae 2007 Annual Report Download - page 9

PART I.
Item 1. Business
INTRODUCTION TO SLM CORPORATION
SLM Corporation, more commonly known as Sallie Mae, is the market leader in education finance. SLM
Corporation is a holding company that operates through a number of subsidiaries. (References in this Annual
Report to the “Company” refer to SLM Corporation and its subsidiaries).
Our primary business is to originate and hold student loans. We provide funding, delivery and servicing
support for education loans in the United States through our participation in the Federal Family Education
Loan Program (“FFELP”) and through our own non-federally guaranteed Private Education Loan programs.
We primarily market our FFELP Stafford loans and Private Education Loans through on-campus financial aid
offices. We have also expanded into direct-to-consumer marketing, primarily for Private Education Loans, to
reach those students and families that choose not to consult with the financial aid office.
We have used both internal growth and strategic acquisitions to attain our leadership position in the
education finance marketplace. Our sales force, which delivers our products on campuses across the country, is
the largest in the student loan industry. The core of our marketing strategy is to promote our on-campus
brands, which generate student loan originations through our Preferred Channel. Loans generated through our
Preferred Channel are more profitable than loans acquired through other acquisition channels because we own
them earlier in the student loan’s life and generally incur lower costs to acquire such loans. We have built
brand leadership through the Sallie Mae name, the brands of our subsidiaries and those of our lender partners.
These sales and marketing efforts are supported by the largest and most diversified servicing capabilities in the
industry.
We have expanded into a number of fee-based businesses, most notably, our Asset Performance Group
(“APG”) business (formerly, Debt Management Operations (“DMO”)). We also earn fees for a number of
services including student loan and guarantee servicing, 529 college-savings plan administration services, and
for providing processing capabilities and information technology to educational institutions. We also operate
an affinity marketing program through Upromise, Inc. (“Upromise”). References in this Annual Report to
“Upromise” refer to Upromise and its subsidiaries.
At December 31, 2007, we had approximately 11,000 employees.
CURRENT BUSINESS STRATEGY
On September 27, 2007, the College Cost Reduction and Access Act of 2007 (“CCRAA”) was signed
into law by the President, resulting in, among other things, a reduction in the yield received by the Company
on FFELP loans originated on or after October 1, 2007. In the summer of 2007, the global capital markets
began to experience a severe dislocation that has persisted to present. This dislocation, along with a reduction
in the Company’s unsecured debt ratings caused by the proposed Merger, resulted in more limited access to
the capital markets than the Company has enjoyed in the past and a substantial increase in its cost of newly
obtained funding.
Our management team is evaluating certain aspects of our business in light of the impact of the CCRAA
and the current challenges in the capital markets. The CCRAA has a number of important implications for the
profitability of our FFELP loan business, including a reduction in Special Allowance Payments, the elimination
of the Exceptional Performer designation and the corresponding reduction in default payments to 97 percent
through 2012 and 95 percent thereafter, an increase in the lender paid origination fees for certain loan types
and a reduction in default collection retention fees and account maintenance fees related to guaranty agency
activities. As a result, we expect that the CCRAA will significantly reduce and, combined with higher
financing costs, could possibly eliminate the profitability of new FFELP loan originations, while also
increasing our Risk Sharing in connection with our FFELP loan portfolio.
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