Sallie Mae 2009 Annual Report Download - page 65

Floor Income — Managed Basis
The following table analyzes the ability of the FFELP loans in our Managed portfolio to earn Floor
Income after December 31, 2009 and 2008, based on interest rates as of those dates.
(Dollars in billions)
Fixed
Borrower
Rate
Variable
Borrower
Rate Total
Fixed
Borrower
Rate
Variable
Borrower
Rate Total
December 31, 2009 December 31, 2008
Student loans eligible to earn Floor Income:
On-balance sheet student loans ................ $103.3 $14.9 $118.2 $104.9 $16.1 $121.0
Off-balance sheet student loans ............... 14.3 5.4 19.7 15.0 7.0 22.0
Managed student loans eligible to earn Floor
Income ................................. 117.6 20.3 137.9 119.9 23.1 143.0
Less: post-March 31, 2006 disbursed loans required
to rebate Floor Income .................... (64.9) (1.2) (66.1) (64.3) (1.3) (65.6)
Less: economically hedged Floor Income
Contracts .............................. (39.6) — (39.6) (28.6) — (28.6)
Net Managed student loans eligible to earn Floor
Income ................................. $ 13.1 $19.1 $ 32.2 $ 27.0 $21.8 $ 48.8
Net Managed student loans earning Floor Income as
of December 31, .......................... $ 13.1 $ 3.0 $ 16.1 $ 4.3 $ 4.8 $ 9.1
We have sold Floor Income contracts to hedge the potential Floor Income from specifically identified
pools of FFELP Consolidation Loans that are eligible to earn Floor Income.
The following table presents a projection of the average Managed balance of FFELP Consolidation Loans
for which Fixed Rate Floor Income has already been economically hedged through Floor Income Contracts for
the period January 1, 2010 to September 30, 2013. These loans are both on-and off-balance sheet and the
related hedges do not qualify under ASC 815 accounting as effective hedges.
(Dollars in billions) 2010 2011 2012 2013
Years Ended December 31,
Average balance of FFELP Consolidation Loans whose Floor
Income is economically hedged (Managed Basis)............. $37 $25 $16 $5
Private Education Loan Losses
On-Balance Sheet versus Managed Basis Presentation
All Private Education Loans are initially acquired on-balance sheet. The securitization of Private
Education Loans prior to 2009 has been accounted for off-balance sheet. For our Managed Basis presentation
in the table below, when loans are securitized, we reduce the on-balance sheet allowance for loan losses for
amounts previously provided and then increase the allowance for loan losses for these loans off-balance sheet,
with the total of both on-balance sheet and off-balance sheet being the Managed Basis allowance for loan
losses.
When Private Education Loans in our securitized trusts settling before September 30, 2005 became
180 days delinquent, we previously exercised our contingent call option to repurchase these loans at par value
out of the trust and recorded a loss for the difference in the par value paid and the fair market value of the
loan at the time of purchase. Revenue is recognized over the anticipated remaining life of the loan based upon
the amount and timing of anticipated cash flows. Beginning in October 2008, the Company decided to no
longer exercise its contingent call option. On a Managed Basis, the losses recorded under GAAP for loans
repurchased at day 180 were reversed and the full amount is charged-off at day 212 of delinquency. We do not
hold the contingent call option for any trusts settled after September 30, 2005.
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