Sallie Mae 2008 Annual Report Download - page 3

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. The Company was formed in 1972 as
the Student Loan Marketing Association, a federally chartered government sponsored enterprise (“GSE”), with
the goal of furthering access to higher education by providing liquidity to the student loan marketplace. On
December 29, 2004, we completed the privatization process that began in 1997 and resulted in the wind down
of the GSE.
Our primary business is to originate, service and collect 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 non-federally guaranteed Private Education Loan
programs.
We have used internal growth and strategic acquisitions to attain our leadership position in the education
finance market. Our sales force is the largest in the student loan industry. The core of our marketing strategy
is to generate student loan originations by promoting our brands on campus through the financial aid office.
These sales and marketing efforts are supported by the largest and most diversified servicing capabilities in the
industry.
In addition to the net interest income generated by our lending activities, we earn fees for a number of
services including student loan and guarantee servicing, loan default aversion and defaulted loan collections,
and for providing processing capabilities and information technology to educational institutions, as well as,
529 college savings plan program management, transfer and servicing agent services, and administrative
services through Upromise Investments, Inc. (“UII”) and Upromise Investment Advisors, LLC (“UIA”). We
also operate a consumer savings network through Upromise, Inc. (“Upromise”). References in this Annual
Report to “Upromise” refer to Upromise and its subsidiaries, UII and UIA.
At December 31, 2008, we had approximately 8,000 employees.
Recent Developments
Legislative developments, conditions in the capital markets and regulatory actions taken by the federal
government over the last eighteen months have had a significant and, in some cases, an unintended impact on
the student loan industry. This has caused the Company to make significant changes in the way it conducts its
business.
The College Cost Reduction and Access Act of 2007 (“CCRAA”) resulted in, among other things, a
reduction in the yield received by the Company on FFELP loans originated on or after October 1, 2007. A
description of the CCRAA can be found in APPENDIX A, “FEDERAL FAMILY EDUCATION LOAN
PROGRAM.”
In the summer of 2007, the global capital markets began to experience a severe dislocation that has
persisted to the 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
experienced in the past and a substantial increase in its cost of funding.
Historically, the Company relied on the term asset-backed securities (“ABS”) market for the majority of
its funding. In 2006, the Company issued FFELP ABS at an average cost of 14 basis points over LIBOR. In
2007, the average cost rose slightly to 19 basis points over LIBOR. By December 2007, however, we paid in
excess of 50 basis points over LIBOR for similar FFELP ABS. In 2008, the cost to issue FFELP ABS rose
steadily before access was eliminated for all issuers. In 2008, we issued $18.5 billion of FFELP ABS at an
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