Sallie Mae 2010 Annual Report Download - page 119

2. Significant Accounting Policies (Continued)
Education Loan Residual Interests, as that rate takes into account the credit and liquidity risks inherent in
loans being repurchased. Interest income recognized was recorded as part of student loan interest income.
Upon the adoption of new consolidation accounting guidance on January 1, 2010, this buyback treatment no
longer exists.
Allowance for FFELP Loan Losses
FFELP Loans are guaranteed as to their principal and accrued interest in the event of default subject to a
Risk Sharing level based on the date of loan disbursement. For loans disbursed after October 1, 1993, and
before July 1, 2006, we receive 98 percent reimbursement on all qualifying default claims. For loans disbursed
on or after July 1, 2006, we receive 97 percent reimbursement. For loans disbursed prior to October 1, 1993,
we receive 100 percent reimbursement.
Similar to the allowance for Private Education Loan losses, the allowance for FFELP Loan losses uses
historical experience of borrower default behavior and a two year loss confirmation period to estimate the
credit losses incurred in the loan portfolio at the reporting date. We apply the default rate projections, net of
applicable Risk Sharing, to each category for the current period to perform our quantitative calculation. Once
the quantitative calculation is performed, we review the adequacy of the allowance for loan losses and
determine if qualitative adjustments need to be considered.
Cash and Cash Equivalents
Cash and cash equivalents includes term federal funds, Eurodollar deposits, money market funds and
bank deposits with original terms to maturity of less than three months.
Restricted Cash and Investments
Restricted cash primarily includes amounts held in on-balance sheet student loan securitization trusts and
other secured borrowings. This cash must be used to make payments related to trust obligations. Amounts on
deposit in these accounts are primarily the result of timing differences between when principal and interest is
collected on the trust assets and when principal and interest is paid on trust liabilities.
In connection with our tuition payment plan product, we receive cash from students and parents that in
turn is owed to schools. This cash, a majority of which has been deposited at Sallie Mae Bank (“the Bank”),
our Utah industrial bank subsidiary, is held in escrow for the beneficial owners. In addition, the cash rebates
that Upromise members earn from qualifying purchases from Upromise’s participating companies are held in
trust for the benefit of the members. This cash is held pursuant to a trust document until distributed in
accordance with the Upromise member’s request and/or the terms of the Upromise service. Upromise, which
acts as the trustee for the trust, has deposited a majority of the cash with the Bank pursuant to a money
market deposit account agreement between the Bank and Upromise as trustee of the trust. Subject to capital
requirements and other laws, regulations and restrictions applicable to Utah industrial banks, the cash that is
deposited with the Bank in connection with the tuition payment plan and the Upromise rebates described
above is not restricted and, accordingly, is not included in restricted cash and investments in our consolidated
financial statements, as there is no restriction surrounding our use of the funds.
Securities pledged as collateral related to our derivative portfolio, where the counterparty has rights of
rehypothecation, are classified as restricted. When the counterparty does not have these rights, the security is
recorded in investments and disclosed as pledged collateral in the notes. Additionally, certain counterparties
require cash collateral pledged to us to be segregated and held in restricted cash accounts. Cash balances that
our indentured trusts deposit in guaranteed investment contracts that are held in trust for the related note
F-16
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts, unless otherwise stated)