Sallie Mae 2008 Annual Report Download - page 11

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 of 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 business 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 2007-2008, we processed
$21.3 billion in new FFELP loan guarantees, of which $17.2 billion was for USA Funds, the nation’s largest
guarantor. We processed guarantees for approximately 33 percent of the FFELP loan market in AY 2007-2008.
Guarantor servicing fee revenue, which includes guarantee issuance and account maintenance fees, was
$121 million for the year ended December 31, 2008, 85 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
payment for these services includes a contractually agreed-upon percentage of the account maintenance fees
that the guarantors receive from ED.
The Company’s guarantee services agreement with USA Funds has a five-year term that will be
automatically increased by an additional year on October 1 of each year unless prior notice is given by either
party.
Our primary non-profit competitors in guarantor servicing are state and non-profit guarantee agencies that
provide third-party outsourcing to other guarantors.
(See APPENDIX A, “FEDERAL FAMILY EDUCATION LOAN PROGRAM — Guarantor Funding” for
details of the fees paid to guarantors.)
Upromise
Upromise provides a number of programs that encourage consumers to save for college. Upromise has
established a consumer savings network which is designed to promote college savings by consumers who are
members of this program by encouraging them to purchase goods and services from the companies that
participate in the program (“Participating Companies”). Participating Companies generally pay Upromise
transaction fees based on member purchase volume, either online or in stores depending on the contractual
arrangement with the Participating Company. Typically, a percentage of the purchase price of the consumer
members’ eligible purchases with Participating Companies is set aside in an account maintained by Upromise
on behalf of its members.
Upromise, through its wholly owned subsidiaries, UII, a registered broker-dealer, and UIA, a registered
investment advisor, provides program management, transfer and servicing agent services, and administration
services for various 529 college-savings plans. UII and UIA manage more than $17.0 billion in 529 college-
savings plans.
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