Sallie Mae 2011 Annual Report Download - page 118

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Business
SLM Corporation (“we”, “us”, “our”, or the “Company”) is a holding company that operates through a number
of subsidiaries. We were formed in 1972 as the Student Loan Marketing Association, a federally chartered
government-sponsored enterprise (the “GSE”), with the goal of furthering access to higher education by acting as a
secondary market for federal student loans. In 2004, we completed our transformation to a private company through
our wind-down of the GSE. The GSE’s outstanding obligations were placed into a Master Defeasance
Trust Agreement as of December 29, 2004, which was fully collateralized by direct, noncallable obligations of the
United States.
We provide Private Education Loans that help students and their families bridge the gap between family
resources, federal loans, grants, student aid, scholarships and the cost of a college education. We also provide
savings products to help save for a college education. In addition we provide servicing and collection services on
federal loans. We also offer servicing, collection and transaction support directly to colleges and universities in
addition to the saving for college industry. Finally, we are the largest private owner of Federal Family Education
Loan Program (“FFELP”) Loans.
On March 30, 2010, President Obama signed into law H.R. 4872, the Health Care and Education
Reconciliation Act of 2010 (“HCERA”), which included the SAFRA Act. Effective July 1, 2010, legislation
eliminated the authority to originate new loans under FFELP and required that all new federal loans be made
through the Direct Student Loan Program (“DSLP”). Consequently, we no longer originate FFELP Loans. Net
interest income from our FFELP Loan portfolio and fees associated with servicing FFELP Loans and collecting
on delinquent and defaulted FFELP Loans on behalf of Guarantors has been our largest source of income. The
law does not alter or affect the terms and conditions of existing FFELP Loans.
2. Significant Accounting Policies
Use of Estimates
Our financial reporting and accounting policies conform to generally accepted accounting principles in the
United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates. Key
accounting policies that include significant judgments and estimates include the allowance for loan losses, the
effective interest rate method (amortization of student loan and debt premiums and discounts), fair value
measurements, goodwill and acquired intangible asset impairment assessments, and derivative accounting.
Consolidation
The consolidated financial statements include the accounts of SLM Corporation and its majority-owned and
controlled subsidiaries and those Variable Interest Entities (“VIEs”) for which we are the primary beneficiary,
after eliminating the effects of intercompany accounts and transactions.
On January 1, 2010, we adopted the new consolidation accounting guidance. Under the new consolidation
accounting guidance, if an entity has a variable interest in a VIE and that entity is determined to be the primary
beneficiary of the VIE then that entity will consolidate the VIE. The primary beneficiary is the entity which has
both: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic
performance and (2) the obligation to absorb losses or receive benefits of the entity that could potentially be
significant to the VIE. As it relates to our securitized assets, we are the servicer of the securitized assets and own
the Residual Interest of the securitization trusts. As a result, we are the primary beneficiary of our securitization
trusts and consolidated those trusts that were previously off-balance sheet at their historical cost basis on
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