Sallie Mae 2012 Annual Report Download - page 12

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 2012, we generated servicing revenue from over
1,000 campuses.
FFELP Loans Segment
Our FFELP Loans segment consists of our FFELP Loan portfolio and the underlying debt 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. 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 Loans segment.
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 we choose to retain with respect to the segment is modest. In addition to the net interest margin, we earn
fee income largely from late fees on the loans. For more discussion of the FFELP and related credit support
mechanisms, see “Appendix A — Federal Family Education Loan Program.”
Our FFELP Loan portfolio will amortize over approximately 20 years. Our goal is to maximize the cash
flow generated by the portfolio. We will seek to acquire other third-party FFELP Loan portfolios to add net
interest income and servicing revenue.
The Higher Education Act (the “HEA”) continues to regulate every aspect of the FFELP, including ongoing
communications with borrowers and default aversion requirements. Failure to service a FFELP Loan properly
could jeopardize the insurance and guarantees and federal support on these loans. The insurance and guarantees
on our existing loans were not affected by the July 2010 termination of the FFELP program.
Other Segment
The Other segment consists primarily of the financial results related to activities of our holding company,
including the repurchase of debt, the corporate liquidity portfolio and all overhead. We also include results from
smaller wind-down and discontinued operations within this segment. Overhead expenses include costs related to
executive management, the board of directors, accounting, finance, legal, human resources, stock-based
compensation expense and certain information technology costs related to infrastructure and operations.
Supervision and Regulation
The Dodd–Frank Act
The Dodd-Frank Act was adopted to reform and strengthen regulation and supervision of the U.S. financial
services industry. The Dodd-Frank Act contains comprehensive provisions to govern the practices and oversight
of financial institutions (including large non-bank financial institutions) and other participants in the financial
markets. It imposes significant regulations, additional requirements and oversight on almost every aspect of the
U.S. financial services industry, including increased capital and liquidity requirements, limits on leverage and
enhanced supervisory authority. Some of these provisions are applicable to us and to our various businesses.
Most of the Dodd-Frank Act’s provisions have become effective but many remain subject to formal
implementation by regulatory agencies through final rulemaking, leaving considerable uncertainty as to their
ultimate scope and effect. Nonetheless, we believe our operational expenses will increase as we address new or
additional compliance requirements arising from the implementation of various provisions of the Dodd-Frank
Act.
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