Sallie Mae 2009 Annual Report Download - page 180

7. Borrowings (Continued)
The Department of Education (“ED”) Funding Programs
In August 2008, ED implemented the Purchase Program and the Loan Purchase Participation Program
(the “Participation Program”) pursuant to ECASLA. Under the Purchase Program, ED purchases eligible
FFELP loans at a price equal to the sum of (i) par value, (ii) accrued interest, (iii) the one-percent origination
fee paid to ED, and (iv) a fixed amount of $75 per loan. Under the Participation Program, ED provides short-
term liquidity to FFELP lenders by purchasing participation interests in pools of FFELP loans. FFELP lenders
are charged a rate equal to the preceding quarter commercial paper rate plus 0.50 percent on the principal
amount of participation interests outstanding. Under the terms of the Participation Program, on September 30,
2010, AY 2009-2010 loans funded under the Participation Program must be either repurchased by the
Company or sold to ED pursuant to the Participation Program, which has identical economics to the Purchase
Program. Given the state of the credit markets, the Company currently expect to sell all of the loans it funds
under the Participation Program to ED. Loans eligible for the Participation or Purchase Programs are limited
to FFELP Stafford or PLUS Loans, first disbursed on or after May 1, 2008 but no later than July 1, 2010,
with no ongoing borrower benefits other than permitted rate reductions of 0.25 percent for automatic payment
processing.
As of December 31, 2009, the Company had $9.0 billion of advances outstanding under the Participation
Program. Through December 31, 2009, the Company has sold to ED approximately $18.5 billion face amount
of loans as part of the Purchase Program. Outstanding debt of $18.5 billion was paid down related to the
Participation Program in connection with these loan sales. These loan sales resulted in a $284 million gain.
The settlement of the fourth quarter sale of loans out of the Participation Program included repaying the debt
by delivering the related loans to ED in a non-cash transaction and receipt of cash from ED for $484 million,
representing the reimbursement of a of one-percent payment made to ED plus a $75 fee per loan.
Also pursuant to ECASLA, on January 15, 2009, ED published summary terms under which it will
purchase eligible FFELP Stafford and PLUS Loans from a conduit vehicle established to provide funding for
eligible student lenders (the “ED Conduit Program”). Loans eligible for the ED Conduit Program must be first
disbursed on or after October 1, 2003, but not later than July 1, 2009, and fully disbursed before September 30,
2009, and meet certain other requirements, including those relating to borrower benefits. The ED Conduit
Program was launched on May 11, 2009 and will accept eligible loans through July 1, 2010. The ED Conduit
Program has a term of five years and will expire on January 19, 2014. Funding for the ED Conduit Program is
provided by the capital markets at a cost based on market rates, with the Company being advanced 97 percent
of the student loan face amount. If the conduit does not have sufficient funds to make the required payments
on the notes issued by the conduit, then the notes will be repaid with funds from the Federal Financing Bank
(“FFB”). The FFB will hold the notes for a short period of time and if at the end of that time the notes still
cannot be paid off, the underlying FFELP loans that serve as collateral to the ED Conduit will be sold to ED
through the Put Agreement at a price of 97 percent of the face amount of the loans. As of December 31,
2009, approximately $14.6 billion face amount of the Company’s Stafford and PLUS Loans were funded
through the ED Conduit Program. For 2009, the average interest rate paid on this facility was approximately
0.75 percent. As of December 31, 2009, there are approximately $820 million face amount of additional
FFELP Stafford and PLUS Loans (excluding loans currently in the Participation Program) that can be funded
through the ED Conduit Program.
Securitizations
In 2009, the Company completed four FFELP long-term ABS transactions totaling $5.9 billion. The
FFELP transactions were composed primarily of FFELP Consolidation Loans which were not eligible for the
ED Conduit Program or the Term Asset-Backed Securities Loan Facility (“TALF”) discussed below.
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SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts, unless otherwise stated)