Sallie Mae 2013 Annual Report Download - page 232

In the context of our Private Education Loan business, we use the term “non-traditional loans” to describe
education loans made to certain customers that have or are expected to have a high default rate as a result of a
number of factors, including having a lower tier credit rating, low program completion and graduation rates or,
where the customer is expected to graduate, a low expected income relative to the customer’s cost of attendance.
Non-traditional loans are loans to customers attending for-profit schools with an original FICO score of less than
670 and customers attending not-for-profit schools with an original FICO score of less than 640. The FICO score
used in determining whether a loan is non-traditional is the greater of the customer or cosigner FICO score at
origination.
Repayment Borrower Benefits — Financial incentives offered to borrowers based on pre-determined
qualifying factors, which are generally tied directly to making on-time monthly payments. The impact of
Repayment Borrower Benefits is dependent on the estimate of the number of borrowers who will eventually
qualify for these benefits and the amount of the financial benefit offered to the borrower.
Residual Interest — When we securitize student loans, we retain the right to receive cash flows from the
student loans sold to trusts that we sponsor in excess of amounts needed to pay derivative costs (if any), other
fees, and the principal and interest on the bonds backed by the student loans.
Risk Sharing — When a FFELP Loan first disbursed on and after July 1, 2006 defaults, the federal
government guarantees 97 percent of the principal balance plus accrued interest (98 percent on loans disbursed
before July 1, 2006) and the holder of the loan is at risk for the remaining amount not guaranteed as a Risk
Sharing loss on the loan. FFELP Loans originated after October 1, 1993 are subject to Risk Sharing on loan
default claim payments unless the default results from the borrower’s death, disability or bankruptcy.
SDCL — Special Direct Consolidation Loan initiative. The initiative provided an incentive to borrowers
who have at least one student loan owned by ED and at least one held by a FFELP lender to consolidate the
FFELP lender’s loans into the Direct Loan Program by providing a 0.25 percentage point interest rate reduction
on the FFELP Loans eligible for consolidation. The program was available from January 17, 2012 through
June 30, 2012.
Special Allowance Payment (“SAP”) — FFELP Loans disbursed prior to April 1, 2006 (with the exception
of certain PLUS and Supplemental Loans to Students (“SLS”) loans discussed below) generally earn interest at
the greater of the borrower rate or a floating rate determined by reference to the average of the applicable floating
rates (LIBOR, 91-day Treasury bill rate or commercial paper) in a calendar quarter, plus a fixed spread that is
dependent upon when the loan was originated and the loan’s repayment status. If the resulting floating rate
exceeds the borrower rate, ED pays the difference directly to us. This payment is referred to as the Special
Allowance Payment or SAP and the formula used to determine the floating rate is the SAP formula. We refer to
the fixed spread to the underlying index as the SAP spread. 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) must be refunded to ED.
Variable rate PLUS Loans and SLS Loans earn SAP only if the variable rate, which is reset annually,
exceeds the applicable maximum borrower rate. For PLUS Loans disbursed on or after January 1, 2000, this
limitation on SAP was repealed effective April 1, 2006.
TDR — Troubled Debt Restructuring. The accounting and reporting standards for loan modifications and
TDR’s are primarily found in FASB’s ASC 310-40, “Troubled Debt Restructurings by Creditors.”
Variable Rate Floor Income — Variable Rate Floor Income is Floor Income that is earned only through
the next date at which the borrower interest rate is reset to a market rate. For FFELP Stafford Loans whose
borrower interest rate resets annually on July 1, we may earn Floor Income based on a calculation of the
difference between the borrower rate and the then current interest rate.
G-4