Sallie Mae 2008 Annual Report Download - page 139

2. Significant Accounting Policies (Continued)
indicating the carrying amount of a finite-lived asset or asset group may not be recoverable. An impairment
loss would be recognized if the carrying amount of the asset (or asset group) exceeds the estimated
undiscounted cash flows used to determine the fair value of the asset or asset group. The impairment loss
recognized would be the difference between the carrying amount and fair value. Indefinite-life acquired
intangible assets are not amortized. They are tested for impairment annually as of September 30 or at interim
periods if an event occurs or circumstances change that would indicate the carrying value of these assets may
be impaired. The annual or interim impairment test of indefinite-lived acquired intangible assets is based
primarily on a discounted cash flow analysis.
Guarantor Servicing Fees
The Company provides a full complement of administrative services to FFELP guarantors including
guarantee issuance, process, account maintenance, and guarantee fulfillment services for guarantor agencies,
the U.S. Department of Education (“ED”), educational institutions and financial institutions. The fees
associated with these services are recognized as earned based on contractually determined rates. The Company
is party to a guarantor servicing contract with United Student Aid Funds, Inc. (“USA Funds”), which
accounted for 85 percent, 86 percent and 83 percent of guarantor servicing fees for the years ended
December 31, 2008, 2007, and 2006, respectively.
Contingency Fee Revenue
The Company receives fees for collections of delinquent debt on behalf of clients performed on a
contingency basis. Revenue is earned and recognized upon receipt of the borrower funds.
The Company also receives fees from guarantor agencies for performing default aversion services on
delinquent loans prior to default. The fee is received when the loan is initially placed with the Company and
the Company is obligated to provide such services for the remaining life of the loan for no additional fee. In
the event that the loan defaults, the Company is obligated to rebate a portion of the fee to the guarantor
agency in proportion to the principal and interest outstanding when the loan defaults. The Company recognizes
fees received, net of actual rebates for defaults, over the service period which is estimated to be the life of the
loan.
Collections Revenue
The Company has purchased delinquent and charged off receivables on various types of consumer debt
with a primary emphasis on charged off credit card receivables, and sub-performing and non-performing
mortgage loans. The Company accounts for its investments in charged off receivables and sub-performing and
non-performing mortgage loans in accordance with AICPA’s SOP 03-3, “Accounting for Certain Loans or
Debt Securities Acquired in a Transfer.” Under SOP 03-3, the Company establishes static pools of each
quarter’s purchases and aggregates them based on common risk characteristics. The pools when formed are
initially recorded at fair value, based on each pool’s estimated future cash flows and internal rate of return.
The Company recognizes income each month based on each static pool’s effective interest rate. The static
pools are tested quarterly for impairment by re-estimating the future cash flows to be received from the pools.
If the new estimated cash flows result in a pool’s effective interest rate increasing, then this new yield is used
prospectively over the remaining life of the static pool. If the new estimated cash flows result in a pool’s
effective interest rate decreasing, the pool is impaired and written down through a valuation allowance to
maintain the effective interest rate. Net interest income earned, less any impairments recognized, on the
purchased portfolios is recorded as collection revenue in the consolidated statements of income. When
mortgage loans default and the Company forecloses and owns the underlying real estate, the Company carries
F-19
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts, unless otherwise stated)