Sallie Mae 2012 Annual Report Download - page 136

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Student Loans (Continued)
borrower’s rate or a floating rate based on the SAP formula, with the interest earned on the floating rate that
exceeds the interest earned from the customer being paid directly by ED. In low or certain declining interest rate
environments when student loans are earning at the fixed borrower rate, and the interest on the funding for the
loans is variable and declining, we can earn additional spread income that we refer to as Floor Income. 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) is required to be rebated to ED.
FFELP Loans are insured as to their principal and accrued interest in the event of default subject to a Risk
Sharing level based on the date of loan disbursement. These insurance obligations are supported by contractual
rights against the United States. For loans disbursed after October 1, 1993 and before July 1, 2006, we receive 98
percent reimbursement on all qualifying default claims. For loans disbursed on or after July 1, 2006, we receive
97 percent reimbursement.
On December 23, 2011, the President signed the Consolidated Appropriations Act of 2012 into law. This
law includes changes that permit FFELP lenders or beneficial holders to change the index on which the Special
Allowance Payments (“SAP”) are calculated for FFELP Loans first disbursed on or after January 1, 2000. The
law allows holders to elect to move the index from the Commercial Paper (“CP”) Rate to the one-month LIBOR
rate. We elected to use the one-month LIBOR rate rather than the CP rate commencing on April 1, 2012 in
connection with our entire $128 billion of CP indexed loans. This change will help us to better match loan yields
with our financing costs. This election did not materially affect our results for the year ended December 31,
2012.
We offer a variety of Private Education Loans. The Private Education Loans we make are largely to bridge
the gap between the cost of higher education and the amount funded through financial aid, federal loans or
customers’ resources. Private Education Loans bear the full credit risk of the customer. We manage this
additional risk through historical risk-performance underwriting strategies and the addition of qualified
cosigners. Private Education Loans generally carry a variable rate indexed to LIBOR or Prime indices. We
encourage customers to include a cosigner on the loan, and the majority of loans in our portfolio are cosigned.
Similar to FFELP loans, Private Education Loans are generally non-dischargeable in bankruptcy. Most loans
have repayment terms of 15 years or more, and payments are typically deferred until after graduation; however,
in June 2009 we began to offer interest-only or fixed payment options while the customer is enrolled in school.
Similar to FFELP loans, we offer payment deferment to qualifying customers during in-school periods, and offer
periods of forbearance subject to maximum terms of 24 months. Forbearance may be granted to customers who
are exiting their grace period to provide additional time to obtain employment and income to support their
obligations, or to current customers who are faced with a hardship and request forbearance time to provide
temporary payment relief. Interest continues to accrue on loans in any deferred or forbearance period.
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