Sallie Mae 2011 Annual Report Download - page 9

purchasing products at hundreds of online retailers, booking travel, purchasing a home, dining out, buying gas
and groceries, using the Upromise World MasterCard, or completing other qualified transactions. We earn a fee
for the marketing and administrative services we provide to companies that participate in the Upromise savings
network. We compete for 529 college-savings plan business with a large array of banks, financial services and
other processing companies. We also compete with other loyalty shopping services and companies.
ED Servicing and Collection Contracts
In the second quarter of 2009, ED named Sallie Mae as one of four servicers awarded a servicing contract
(the “ED Servicing Contract”) to service all newly disbursed federal loans owned by ED. The contract spans five
years with one, five-year renewal at the option of ED. We compete for Direct Loan servicing volume from ED
with the three other servicing companies with whom we share the contract. Account allocations are awarded
annually based on each company’s performance on five different metrics: defaulted borrower count, defaulted
borrower dollar amount, a survey of borrowers, a survey of schools and a survey of ED personnel. Pursuant to
the contract terms related to annual volume allocation of new loans, the maximum any servicer could be awarded
is 40 percent of net new borrowers in that contract year. We are focused on our performance to increase our
allocation of new accounts under the ED Servicing Contract. Our share of new loans serviced for ED under the
ED Servicing Contract increased to 26 percent in 2012 from 22 percent in the prior contract year as a result of an
improvement of our performance on the ED scorecard.
Since 1997, we have provided collection services on defaulted student loans to ED customers. The current
contract runs through December 31, 2012, with two one-year renewal options by ED. There are 21 other
collection providers, of which we compete with 16 providers for account allocation based on quarterly
performance metrics. As a consistent top performer, our share of allocated accounts has ranged from six percent
to eight percent for this contract period.
Other
Our Campus 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 2011, we generated servicing revenue from over
1,100 schools.
FFELP Loans Segment
Our FFELP Loans segment consists of our FFELP Loan portfolio and the underlying debt, related
derivatives and capital funding the loans. FFELP Loans are insured or guaranteed by state or not-for-profit
agencies and are also protected by contractual rights to recovery from the United States pursuant to guaranty
agreements among ED and these agencies. These guarantees generally cover at least 97 percent of a FFELP
Loan’s principal and accrued interest for loans disbursed before and after July 1, 2006, respectively. In the case
of death, disability or bankruptcy of the borrower, these guarantees cover 100 percent of the loan’s principal and
accrued interest. See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of
Operations — Business Segment Earnings Summary — ‘Core Earnings’ Basis — FFELP Loans Segment” for a
full discussion of our FFELP business and related loan portfolio.
At December 31, 2011, we held $138 billion of FFELP Loans, of which 94 percent were funded with non-
recourse, long-term debt; 76 percent of our FFELP Loans being funded to term by securitization trusts,
15 percent funded through the ED Conduit Program which terminates on January 19, 2014, and 3 percent funded
through our multi-year asset-backed commercial paper (“ABCP”) facility. As a result of the long-term funding
used in the FFELP Loan portfolio and the insurance and guarantees provided on these loans, the net interest
margin recorded in the FFELP Loans segment is relatively stable and the capital requirements with respect to the
segment are
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