Sallie Mae 2010 Annual Report Download - page 8

education finance products to colleges. As a result of recent changes in the student loan marketplace, we have
broadened our marketing activities to include Direct to Consumer initiatives and referral lending relationships.
We also intend to create loan volume through our “Planning, Paying and Saving” for college activities.
We face competition for Private Education Loans from a group of the nation’s larger banks and specialty
finance companies. However, in recent years this sector has seen a significant departure of market participants
as a result of the nation’s financial challenges as well as the recent significant changes in the FFELP.
Business Services Segment
The Business Services segment generates its revenue from servicing our FFELP Loan portfolio as well as
servicing FFELP and other loans for other financial institutions, Guarantors and ED. The segment also
performs default aversion work and contingency collections on behalf of Guarantors and ED, Campus Payment
Solutions, account asset servicing and transaction processing activities. We are the largest servicer of student
loans, the largest collector of defaulted student loans, the largest administrator of 529 college-savings plans
and saving for college loyalty programs, and we have a growing Campus Payment Solutions platform.
The segment generates revenue from servicing FFELP Loans owned and managed by us. These revenues
are intercompany charges to the FFELP Loans segment and are primarily charged at rates paid by the trusts
where the loans reside. The fees are contractually designated as the first payment from the trust cash flows.
These fees are high quality in terms of both their priority and predictability and exceed the actual cost of
servicing the loans. Revenue is also generated by servicing third-party loans for other financial institutions
and ED.
We generate revenue by servicing FFELP Loans for Guarantors. We earn an account maintenance fee on
a portfolio of $99 billion of FFELP Loans for nine Guarantors. We provide a full complement of default
aversion and default collection services on a contingency or pay for performance basis to 13 Guarantors,
campus-based programs and ED. We have performed default collections work for over ten years and have
consistently been a top performer.
Through Upromise we generate revenue by providing program management services for 529 college-savings
plans with assets of $34.5 billion in 32 college-savings plans in 16 states. We also generate revenue in the form of
transaction fees generated by our consumer savings network, through which members have earned $600 million in
rewards by purchasing products at hundreds of online retailers, booking travel, purchasing a home, dining out,
buying gas and groceries, using the Upromise World Master Card and completing qualified transactions. We earn a
fee for the marketing and administrative services we provide to companies that participate in Upromise savings
network.
Finally, our Campus Payment Solutions business offers a suite of solutions designed to help campus
business offices increase their services to students and families. The product suite includes electronic billing,
collection, payment and refund services plus full tuition payment plan administration. In 2010, we generated
servicing revenue from over 1,100 schools.
Operating expenses for this segment include the cost incurred to perform the services described above.
We expect that FFELP-related servicing and Guarantor servicing and contingency revenue will decline
over time as the FFELP Loan portfolios amortize. We expect that revenues under the ED collections contract
will increase as the Direct Lending program expands. Between 2004 and 2008, less than 25 percent of student
loans were originated under the Direct Lending program. Effective July 1, 2010, all government guaranteed
student loans are originated through the Direct Lending program. This growth will create revenue opportunity
under the ED collections contract as the volume of defaults of Direct Loans surges in the coming years. We
expect revenue to increase under our ED Direct Loan servicing contract, as discussed below, as that program
grows. We also expect growth in our 529 college-savings plan programs and Campus Payment Solutions
businesses.
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