Sallie Mae 2013 Annual Report Download - page 12

FFELP 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. After completion of the
Spin-Off, we anticipate that SLM BankCo will retain only Sallie Mae Bank’s FFELP Loan portfolio
(approximately $1.4 billion as of December 31, 2013), and NewCo will retain the remainder of our FFELP Loan
portfolio (approximately $103.2 billion as of December 31, 2013).
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. For more discussion of the FFELP and related
credit support mechanisms, see Appendix A “Description of Federal Family Education Loan Program.”
In 2013, we sold Residual Interests in FFELP Loan securitization trusts to third parties. We continue to
service the student loans in the trusts under existing agreements, and after completion of the Spin-Off, NewCo
and its affiliates will continue to service and collect the student loans owned by such trusts. As a result of the sale
of the Residual Interests in FFELP securitizations, we removed securitization trust assets of $12.5 billion and the
related liabilities of $12.1 billion from our balance sheet and recorded a $312 million gain as part of “gains
(losses) on sales of loans and investments” for the year ended December 31, 2013.
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, and this FFELP Loan acquisition strategy will be maintained by NewCo
after the completion of the Spin-Off.
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
certain, 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
Overview
The following discussion addresses the significant areas of supervision and regulation applicable to our
current business and operations.
We are subject to extensive regulation, examination and supervision by various federal, state and local
authorities. Significant aspects of the laws and regulations that apply to us and our subsidiaries are described
below. These descriptions are qualified in their entirety by reference to the full text of the applicable statutes,
legislation, regulations and policies, as they may be amended, and as interpreted and applied, by federal, state
and local agencies. Such statutes, regulations and policies are continually under review and are subject to change
at any time, particularly in the current economic and regulatory environment.
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