Sallie Mae 2015 Annual Report Download - page 6

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Private Education Loans bear the full credit risk of the customers. We manage this risk by underwriting and pricing based
on customized credit scoring criteria and the addition of qualified cosigners. For the year ended December 31, 2015, our
average FICO scores were 748 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.
The core of our marketing strategy is to promote our products on campuses through financial aid offices as well as
through online and direct marketing to students and their families. Our on-campus efforts with 2,400 higher education
institutions are led by our sales force, the largest in the industry, which has become a trusted resource for financial aid offices.
Our loans are high credit quality and the overwhelming majority of our borrowers manage their payments with great
success. At December 31, 2015, 2.2 percent of loans in repayment were delinquent, and loans in forbearance were 3.4 percent
of loans in repayment and forbearance. In 2015, 0.82 percent of total loans in repayment charged off. Loans in repayment
include loans on which borrowers are making interest only and fixed payments, as well as loans that have entered full principal
and interest repayment status.
Sallie Mae Bank
Since 2006, virtually all of the Private Education Loans we currently own or service have been originated and funded by
Sallie Mae Bank (the “Bank”), our Utah industrial bank subsidiary, which is regulated by the Utah Department of Financial
Institutions (“UDFI”), the Federal Deposit Insurance Corporation (“FDIC”), and the Consumer Financial Protection Bureau
(“CFPB”). At December 31, 2015, the Bank had total assets of $15.0 billion, including $10.5 billion in Private Education Loans
and $1.1 billion of FFELP Loans, and total deposits of $12.0 billion.
Our ability to obtain deposit funding and offer competitive interest rates on deposits will be necessary to sustain the
growth of our Private Education Loan originations. Our ability to obtain such funding is dependent, in part, on the capital level
of the Bank and its compliance with other applicable regulatory requirements. At the time of this filing, there are no restrictions
on our ability to obtain deposit funding or the interest rates we charge other than those restrictions generally applicable to all
FDIC-insured banks of similar size. We diversify our funding base by raising term funding in the long-term asset-backed
securities (“ABS”) market collateralized by pools of Private Education Loans. We plan to continue to do so, market conditions
permitting. This helps us reduce our reliance on deposits to fund our growth, and match-fund our assets.
We expect the Bank to retain servicing of all Private Education Loans it originates, regardless of whether the loans are
held, sold or securitized. If Private Education Loans are sold and servicing is retained, the Bank receives ongoing servicing
revenue for those loans in addition to the gain on sale recognized on the sale of those assets.
See the subsection titled “Regulation of Sallie Mae Bank” under “Supervision and Regulation” for additional details
about Sallie Mae Bank.
Operational Infrastructure
In April 2014, we began to perform collection activity on our portfolio of Private Education Loans. In October 2014, we
launched our stand-alone servicing platform and began servicing our portfolio of Private Education Loans. Since early 2015, all
servicing and collections activities have been conducted in the United States.
Our servicing operation includes resources dedicated to assist customers with specialized needs and escalated inquiries.
We also have a group of customer service representatives dedicated to assisting military personnel with available military
benefits.
In 2015, we completed the build-out of our operational infrastructure to independently originate Private Education Loans.
This included the implementation of a new loan originations platform.