Sallie Mae 2010 Annual Report Download - page 181

15. Fair Value Measurements (Continued)
Residual Interests
Prior to the adoption the new consolidation accounting guidance on January 1, 2010 (see Note 2,
“Significant Accounting Policies — Consolidations), the Residual Interests were carried at fair value in the
financial statements. No active market exists for student loan Residual Interests; as such, the fair value was
calculated using discounted cash flow models and option models. Observable inputs from active markets were
used where available, including yield curves and volatilities. Significant unobservable inputs such as
prepayment speeds, default rates, certain bonds’ costs of funds and discount rates were used in determining
the fair value and required significant judgment. These unobservable inputs were internally determined based
upon analysis of historical data and expected industry trends. On a quarterly basis we back-tested our
prepayment speeds, default rates and costs of funds assumptions by comparing those assumptions to actual
results experienced. We used non-binding broker quotes and industry analyst reports which show changes in
the indicative prices of the asset-backed securities tranches immediately senior to the Residual Interest as an
indication of potential changes in the discount rate used to value the Residual Interests. Market transactions
were not available to validate the models’ results.
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SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts, unless otherwise stated)