Sallie Mae 2011 Annual Report Download - page 56

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During the fourth-quarter 2011, the Administration announced a Special Direct Consolidation Loan
Initiative. The initiative provides an incentive to borrowers who have at least one student loan owned by the
Department of Education and at least one held by a FFELP lender to consolidate the FFELP lender’s loans into
the Direct Loan program by providing a 0.25 percentage point interest rate reduction on the FFELP loans that are
eligible for consolidation. The program is available from January 17, 2012 through June 30, 2012. We currently
do not foresee the initiative having a significant impact on our FFELP segment.
On December 31, 2010, we closed on our agreement to purchase an interest in $26.1 billion of securitized
federal student loans and related assets from the Student Loan Corporation (“SLC”), a subsidiary of Citibank,
N.A. The purchase price was approximately $1.1 billion and included the residual interest in 13 of SLC’s 14
FFELP loan securitizations and its interest in SLC Funding Note Issuer. We service these assets and administer
the securitization trusts. Because we have determined that we are the primary beneficiary of these trusts we have
consolidated these trusts onto our balance sheet.
Floor Income
The following table analyzes the ability of the FFELP Loans in our portfolio to earn Floor Income after
December 31, 2011 and 2010, based on interest rates as of those dates.
December 31, 2011 December 31, 2010
(Dollars in billions)
Fixed
Borrower
Rate
Variable
Borrower
Rate Total
Fixed
Borrower
Rate
Variable
Borrower
Rate Total
Student loans eligible to earn Floor Income ...... $118.3 $17.7 $136.0 $124.5 $21.0 $145.5
Less: post-March 31, 2006 disbursed loans
required to rebate Floor Income .............. (62.7) (1.2) (63.9) (66.1) (1.3) (67.4)
Less: economically hedged Floor Income
Contracts ............................... (41.5) — (41.5) (39.2) — (39.2)
Student loans eligible to earn Floor Income ...... $ 14.1 $16.5 $ 30.6 $ 19.2 $19.7 $ 38.9
Student loans earning Floor Income ............ $ 14.1 $ 2.3 $ 16.4 $ 19.2 $ 1.3 $ 20.5
We have sold the above referenced Floor Income contracts to economically hedge the potential Floor
Income from specifically identified pools of FFELP Consolidation Loans that are eligible to earn Floor Income.
The following table presents a projection of the average balance of FFELP Consolidation Loans for which
Fixed Rate Floor Income has been economically hedged through the sale of Floor Income Contracts for the
period January 1, 2012 to June 30, 2016. The Floor Income Contracts related to these loans do not qualify as
effective hedges under GAAP accounting.
Years Ended December 31,
(Dollars in billions) 2012 2013 2014 2015 2016
Average balance of FFELP Consolidation Loans whose Floor Income is
economically hedged ....................................... $38.3 $32.6 $28.3 $27.2 $10.4
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