Sallie Mae 2014 Annual Report Download - page 4

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PART I.
Item 1. Business
Company History
SLM Corporation, more commonly known as Sallie Mae, is the nation’s leading saving, planning and paying for
education company. For 40 years, we have made a difference in students’ and families’ lives, helping more than 31 million
Americans pay for college. We recognize there is no single way to achieve this task, so we provide a range of products to help
families whether college is a long way off or right around the corner. We promote responsible financial habits that help our
customers dream, invest and succeed.
Our primary business is to originate and service Private Education Loans we make to students and their families. We use
“Private Education Loans” to mean education loans to students or their families that are not issued, insured or guaranteed by
any state or federal government. We also operate a consumer savings network that provides financial rewards on everyday
purchases to help families save for college.
We were formed in 1972 as the Student Loan Marketing Association, a federally chartered government sponsored
enterprise (“GSE”), with the goal of furthering access to higher education by providing liquidity to the education loan
marketplace. On December 29, 2004, we terminated the federal charter, incorporated SLM Corporation as a Delaware
corporation, and subsequently dissolved the GSE.
On April 30, 2014, we completed our plan to legally separate (“the Spin-Off”) into two distinct publicly traded entities -
an education loan management, servicing and asset recovery business: Navient Corporation (“Navient”), and a consumer
banking business: SLM Corporation.
Our principal executive offices are located at 300 Continental Drive, Newark, Delaware 19713, and our telephone
number is (302) 451-0200.
Our Business
Growing our Private Education Loan portfolio is our primary business. In 2014, we originated $4.1 billion of Private
Education Loans, an increase of 7 percent from the year ended December 31, 2013. As of December 31, 2014, we had $8.3
billion of Private Education Loans outstanding.
Private Education Loans
The Private Education Loans we make are primarily to bridge the gap between the cost of higher education and the
amount funded through financial aid, federal loans or customers’ resources. We continue to offer Private Education Loans to
students and families where we believe our prices are competitive with similar federal education loan products. We earn interest
income on our Private Education Loan portfolio, net of provisions for loan losses. Operating expenses associated with interest
income include costs incurred to acquire and to service our loans.
In 2009, we introduced the Smart Option Student Loan, our Private Education Loan product emphasizing in-school
payment features to minimize customers’ total finance charges. The Smart Option product features three primary repayment
types. The first two, Interest Only and Fixed Payment options, require monthly payments while the student is in school and
accounted for approximately 56 percent of the Private Education Loans the Bank originated during 2014. The third repayment
option is the more traditional deferred Private Education Loan product where customers do not begin making payments until
after graduation. Lower interest rates on the Interest Only and Fixed Payment options incentivize customers to elect those
options.
We regularly review and update the terms of our Private Education Loan products. Our Private Education Loans include
important protections for the family, including tuition insurance, and loan forgiveness in case of death or permanent disability
of the student borrower. In 2014, we added a new, free, quarterly FICO Score benefit to students with a Smart Option Student
Loan disbursed in academic year 2014-2015. We are the first Private Education Loan lender to offer this important benefit.
Private Education Loans bear the full credit risk of the customer and cosigner. We manage this risk by underwriting and
pricing based upon customized credit scoring criteria and the addition of qualified cosigners. At December 31, 2014, our
average FICO scores were 745 at the time of origination and approximately 90 percent of our loans were cosigned. In addition,
we voluntarily require school certification of both the need for, and the amount of, every Private Education Loan we originate,
and we disburse the loans directly to the higher education institution.
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