Sallie Mae 2008 Annual Report Download - page 232

FFELP Consolidation Loans bear interest at a fixed rate equal to the greater of the weighted average of
the interest rates on the unpaid principal balances of the consolidated loans and 9 percent for loans originated
before July 1, 1994. For FFELP Consolidation Loans made on or after July 1, 1994 and for which applications
were received before November 13, 1997, the weighted average interest rate is rounded up to the nearest
whole percent. FFELP Consolidation Loans made on or after July 1, 1994 for which applications were
received on or after November 13, 1997 through September 30, 1998 bear interest at the annual variable rate
applicable to Stafford Loans subject to a cap of 8.25 percent. FFELP Consolidation Loans for which the
application is received on or after October 1, 1998 bear interest at a fixed rate equal to the weighted average
interest rate of the loans being consolidated rounded up to the nearest one-eighth of one percent, subject to a
cap of 8.25 percent.
Interest on FFELP Consolidation Loans accrues and, for applications received before January 1, 1993, is
paid without interest subsidy by ED. For FFELP Consolidation Loans for which applications were received
between January 1 and August 10, 1993, all interest of the borrower is paid during deferral periods. FFELP
Consolidation Loans for which applications were received on or after August 10, 1993 are only subsidized if
all of the underlying loans being consolidated were Subsidized Stafford Loans. In the case of FFELP
Consolidation Loans made on or after November 13, 1997, the portion of a Consolidation Loan that is
comprised of Subsidized FFELP Loans and Subsidized FDLP Loans retains subsidy benefits during deferral
periods.
No insurance premium is charged to a borrower or a lender in connection with a Consolidation Loan.
However, lenders must pay a monthly rebate fee to ED at an annualized rate of 1.05 percent on principal and
interest on FFELP Consolidation Loans for loans disbursed on or after October 1, 1993, and at an annualized
rate of 0.62 percent for Consolidation Loan applications received between October 1, 1998 and January 31,
1999. The rate for special allowance payments for FFELP Consolidation Loans is determined in the same
manner as for other FFELP loans.
A borrower must begin to repay his Consolidation Loan within 60 days after his consolidated loans have
been discharged. For applications received on or after January 1, 1993, repayment schedule options include
standard, graduated, income-sensitive, extended (for new borrowers on or after October 7, 1998), and income-
based (effective July 1, 2009) repayment plans, and loans are repaid over periods determined by the sum of
the Consolidation Loan and the amount of the borrower’s other eligible student loans outstanding. The
maximum maturity schedule is 30 years for indebtedness of $60,000 or more.
Guarantee Agencies under the FFELP
Under the FFELP, guarantee agencies guarantee (or insure) loans made by eligible lending institutions.
Student loans are guaranteed as to 100 percent of principal and accrued interest against death or discharge.
Guarantee agencies also guarantee lenders against default. For loans that were made before October 1, 1993,
lenders are insured for 100 percent of the principal and unpaid accrued interest. From October 1, 1993 to
June 30, 2006, lenders are insured for 98 percent of principal and all unpaid accrued interest or 100 percent of
principal and all unpaid accrued interest if it receives an Exceptional Performance designation by ED.
Insurance for loans made on or after July 1, 2006 was reduced from 98 percent to 97 percent, and insurance
for claim requests on or after July 1, 2006 under an Exceptional Performance designation was reduced from
100 percent to 99 percent. The Exceptional Performance designation was eliminated (and the monetary benefit
associated with it) effective October 1, 2007. Default insurance will be reduced to 95 percent of the unpaid
principal and accrued interest for loans first disbursed on or after October 1, 2012.
ED reinsures guarantors for amounts paid to lenders on loans that are discharged or defaulted. The
reimbursement on discharged loans is for 100 percent of the amount paid to the holder. The reimbursement
rate for defaulted loans decreases as a guarantor’s default rate increases. The first trigger for a lower
reinsurance rate is when the amount of defaulted loan reimbursements exceeds 5 percent of the amount of all
loans guaranteed by the agency in repayment status at the beginning of the federal fiscal year. The second
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