Sallie Mae 2011 Annual Report Download - page 211

where the borrower is expected to graduate, a low expected income relative to the borrower’s cost of attendance.
Non-traditional loans are loans to borrowers attending for-profit schools with an original FICO score of less than
670 and borrowers attending not-for-profit schools with an original FICO score of less than 640. The FICO score
used in determining whether a loan is non-traditional is the greater of the borrower or co-borrower FICO score at
origination.
Repayment Borrower Benefits — Financial incentives offered to borrowers based on pre-determined
qualifying factors, which are generally tied directly to making on-time monthly payments. The impact of
Repayment Borrower Benefits is dependent on the estimate of the number of borrowers who will eventually
qualify for these benefits and the amount of the financial benefit offered to the borrower. We occasionally change
Repayment Borrower Benefits programs in both amount and qualification factors. These programmatic changes
must be reflected in the estimate of the Repayment Borrower Benefits discount when made.
Residual Interest — When we securitize student loans, we retain the right to receive cash flows from the
student loans sold to trusts that we sponsor in excess of amounts needed to pay servicing, derivative costs (if
any), other fees, and the principal and interest on the bonds backed by the student loans. The Residual Interest,
which may also include reserve and other cash accounts, is the present value of these future expected cash flows,
which includes the present value of any Embedded Fixed Rate Floor Income described above. We value the
Residual Interest at the time of sale of the student loans to the trust and as of the end of each subsequent quarter.
Retained Interest — The Retained Interest includes the Residual Interest and servicing rights (as we retain
the servicing responsibilities) for our securitization transactions accounted for as sales.
Risk Sharing — When a FFELP loan first disbursed on and after July 1, 2006 defaults, the federal
government guarantees 97 percent of the principal balance plus accrued interest (98 percent on loans disbursed
before July 1, 2006) and the holder of the loan is at risk for the remaining amount not guaranteed as a Risk Sharing
loss on the loan. FFELP Loans originated after October 1, 1993 are subject to Risk Sharing on loan default claim
payments unless the default results from the borrower’s death, disability or bankruptcy.
Special Allowance Payment (“SAP”) — FFELP Loans disbursed prior to April 1, 2006 (with the exception
of certain PLUS and SLS loans discussed below) generally earn interest at the greater of the borrower rate or a
floating rate determined by reference to the average of the applicable floating rates (91-day Treasury bill rate or
commercial paper) in a calendar quarter, plus a fixed spread that is dependent upon when the loan was originated
and the loan’s repayment status. If the resulting floating rate exceeds the borrower rate, ED pays the difference
directly to us. This payment is referred to as the Special Allowance Payment or SAP and the formula used to
determine the floating rate is the SAP formula. We refer to the fixed spread to the underlying index as the SAP
spread. For loans disbursed after April 1, 2006, FFELP Loans effectively only earn at the SAP rate, as the excess
interest earned when the borrower rate exceeds the SAP rate (Floor Income) must be refunded to ED.
Variable rate PLUS Loans and SLS Loans earn SAP only if the variable rate, which is reset annually,
exceeds the applicable maximum borrower rate. For PLUS loans disbursed on or after January 1, 2000, this
limitation on SAP was repealed effective April 1, 2006.
Variable Rate Floor Income — Variable Rate Floor Income is Floor Income that is earned only through
the next date at which the borrower interest rate is reset to a market rate. For FFELP Stafford loans whose
borrower interest rate resets annually on July 1, we may earn Floor Income or Embedded Floor Income based on
a calculation of the difference between the borrower rate and the then current interest rate.
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