Sallie Mae 2013 Annual Report Download - page 221

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. Concentrations of Risk (Continued)
particularly in light of our concentrations as a Private Education Loan lender and as a servicer for the FFELP and
DSLP. If population demographics result in a decrease in college-age individuals, if demand for higher education
decreases, if the cost of attendance of higher education decreases, if public resistance to higher education costs
increases, or if the demand for higher education loans decreases, our consumer lending business could be
negatively affected. In addition, the federal government, through the DSLP, poses significant competition to our
private credit loan products. If loan limits under the DSLP increase, DSLP loans could be more widely available
to students and their families and DSLP loans could increase, resulting in further decreases in the size of the
Private Education Loan market and demand for our Private Education Loan products.
Concentration Risk in the Revenues Associated with FFELP Loans
On July 1, 2010, the HCERA legislation eliminated FFELP Loan originations, a major source of our net
income. All federal loans to students are now made through the DSLP. The terms and conditions of existing
FFELP Loans were not affected by this legislation. Despite the end of FFELP, Congress, ED and the
Administration still exercise significant authority over the servicing and administration of existing FFELP Loans.
Because of the ongoing uncertainty around efforts to reduce the federal budget deficit, the timing, method and
manner of implementation of various education lending initiatives has become less predictable.
The net interest margin we earn on our FFELP Loan portfolio, which totaled $1.5 billion in 2013, will
decline over time as the portfolio amortizes.
We also earn maintenance fees for the life of the loan for servicing the Guarantor’s portfolio of loans. The
portfolio that generates the maintenance fee is now in runoff, and the maintenance fees we earn will decline
ratably with the portfolio. We earned maintenance fees of $38 million in 2013.
Our student loan contingent collection business is also affected by HCERA. We currently have 15
Guarantors as clients. We earn revenue from Guarantors for collecting defaulted loans as well as for managing
their portfolios of defaulted loans. In 2013, collection revenue from Guarantor clients totaled $303 million. We
anticipate that revenue from Guarantors will begin to steadily decline as the portfolio of defaulted loans we
manage is resolved and amortizes.
Concentration Risk in the Servicing of Direct Loans
The DSLP is serviced by four private sector institutions, including Sallie Mae. Defaulted Direct Loans are
collected by 22 private sector companies, including Sallie Mae. Because of the concentration of our business in
servicing and collecting on Direct Loans, we are exposed to risks associated with ED reducing the amount of new
loan servicing and collections allocated to us or the termination of our servicing or collection contracts.
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