Sallie Mae 2008 Annual Report Download - page 62

212 days, we have charged off 100 percent of the loan balance, even though we had provisioned for the
estimated loss of the defaulted loan balance, comprised of the full loan balance less the expected recovery.
The Company is changing its methodology to charge off the estimated loss of the defaulted loan balance
to be consistent with the amount included in the provision. Actual recoveries are applied against the remaining
loan balance that was not charged off. If actual periodic recoveries are less than originally expected, the
difference results in immediate additional provision expense and charge off of such amount.
This revised methodology results in a charge-off equal to the amount provided for through the allowance
for loan loss. As a result, the Company believes that this methodology better reflects the actual events
occurring. Although there is diversity in practice on how charge-offs are presented, this method is more
comparable to other financial institutions in how charge-offs and the related charge-off and allowance ratios
are presented. The Company emphasizes that although the presentation improves the various charge-off and
allowance ratios, the change does not reflect an improvement in the collectability of the Company’s loan
portfolio.
As a result of this change, a $314 million receivable on a Managed basis ($222 million for GAAP) as of
December 31, 2008, is being reclassified from the allowance for loan loss to the Private Education Loan
balance. This amount represents the expected future recoveries related to previously defaulted loans (i.e., the
amount not charged off when a loan defaults that has not yet been collected). As of December 31, 2008, the
Company assumes it will collect, on average, 27 percent of a defaulted loan’s balance over an extended period
of time. This recovery assumption is based on historic recovery rates achieved and is updated, as appropriate,
on a quarterly basis.
The Company believes this change to be an immaterial correction of previous disclosures. Following are
tables depicting the “Allowance for Private Education Loan Losses” as previously presented and as corrected
for this change.
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