Sallie Mae 2012 Annual Report Download - page 122

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.
Our primary business is to originate, service and collect loans we make to students and their families to
finance the cost of their education. Since July 2010 we have originated only Private Education Loans. We use
“Private Education Loans” to mean education loans to students or their families that are non-federal loans and
loans not insured or guaranteed under the previously existing Federal Family Education loan Program
(“FFELP”). The core of our marketing strategy is to generate student loan originations by promoting our products
on campus through the financial aid office and through direct marketing to students and their families. Since the
beginning of 2006, virtually all of our Private Education Loans have been originated and funded by Sallie Mae
Bank, a Utah industrial bank subsidiary (the “Bank”), regulated by the Utah Department of Financial Institutions
(“UDFI”) and the Federal Deposit Insurance Corporation (“FDIC”). We also provide servicing, loan default
aversion and defaulted loan collection services for loans owned by other institutions, including the U.S.
Department of Education (“ED”), as well as processing capabilities to educational institutions and 529 college
savings plan programs. We also operate a consumer savings network that provides financial rewards on everyday
purchases to help families save for college.
In addition, we are the largest holder, servicer and collector of loans made under the previously existing
FFELP. The majority of our income continues to be derived, directly or indirectly, from our portfolio of FFELP
Loans and servicing we provide for FFELP Loans. On July 1, 2010, the Health Care and Education
Reconciliation Act of 2010 (“HCERA”), eliminated FFELP Loan originations, a major source of our income. All
federal loans to students are now made through the Direct Student Loan Program (“DSLP”). The terms and
conditions of existing FFELP Loans were not affected by this legislation. Our FFELP Loan portfolio will
amortize over approximately 20 years. The fee income we earn from providing servicing and contingent
collections services on such loans will similarly decline over time.
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.
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