Edgar Filing: SLM CORP

Form 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-13251

SLM Corporation

(Exact name of registrant as specified in its charter)


Delaware		52-2013874
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

300 Continental Drive, Newark, Delaware		19713
(Address of principal executive offices)		(Zip Code)

(302) 283-8000

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer þ	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨
	(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:


Class		Outstanding at October 31, 2011
Voting common stock, $.20 par value		508,736,576 shares

SLM CORPORATION

FORM 10-Q

INDEX

September 30, 2011


Part I. Financial Information
Item 1.	Financial Statements	2
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	46
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	90
Item 4.	Controls and Procedures	96
PART II. Other Information
Item 1.	Legal Proceedings	97
Item 1A.	Risk Factors	97
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	98
Item 3.	Defaults Upon Senior Securities	98
Item 4.	(Removed and Reserved)	98
Item 5.	Other Information	98
Item 6.	Exhibits	98
Signatures		99
Glossary⁽¹⁾		100

⁽¹⁾	Definitions for capitalized terms used in this document can be found in the “Glossary” at the end of this document.

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

SLM CORPORATION

CONSOLIDATED BALANCE SHEETS

(Dollars and shares in millions, except per share amounts)

(Unaudited)


	September 30, 2011			December 31, 2010
Assets
FFELP Loans (net of allowance for losses of $189 and $189, respectively)	$	140,659		$	148,649
Private Education Loans (net of allowance for losses of $2,167 and $2,022, respectively)		36,157			35,656
Investments
Available-for-sale		76			83
Other		1,351			873

Total investments		1,427			956
Cash and cash equivalents		3,523			4,343
Restricted cash and investments		5,847			6,255
Goodwill and acquired intangible assets, net		484			478
Other assets		9,447			8,970

Total assets	$	197,544		$	205,307

Liabilities
Short-term borrowings	$	31,745		$	33,616
Long-term borrowings		156,810			163,543
Other liabilities		4,207			3,136

Total liabilities		192,762			200,295

Commitments and contingencies
Equity
Preferred stock, par value $.20 per share, 20 million shares authorized:
Series A: 3.3 million and 3.3 million shares, respectively, issued at stated value of $50 per share		165			165
Series B: 4 million and 4 million shares, respectively, issued at stated value of $100 per share		400			400
Common stock, par value $.20 per share, 1.125 billion shares authorized: 529 million and 595 million shares issued, respectively		106			119
Additional paid-in capital		4,127			5,940
Accumulated other comprehensive loss (net of tax benefit of $12 and $26, respectively)		(20	)		(45	)
Retained earnings		315			309

Total SLM Corporation stockholders’ equity before treasury stock		5,093			6,888
Common stock held in treasury at cost: 20 million and 68 million shares, respectively		319			1,876

Total SLM Corporation stockholders’ equity		4,774			5,012
Noncontrolling interest		8			—

Total equity		4,782			5,012

Total liabilities and equity	$	197,544		$	205,307

Supplemental information — assets and liabilities of consolidated variable interest entities:


	September 30, 2011		December 31, 2010
FFELP Loans, net	$	138,230	$	145,750
Private Education Loans, net		24,793		24,355
Restricted cash and investments		5,638		5,983
Other assets		3,112		3,706
Short-term borrowings		22,224		24,484
Long-term borrowings		136,831		142,244

Net assets of consolidated variable interest entities	$	12,718	$	13,066

See accompanying notes to consolidated financial statements.

SLM CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Dollars and shares in millions, except per share amounts)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Interest income:
FFELP Loans	$	858		$	885		$	2,584		$	2,568
Private Education Loans		609			611			1,813			1,751
Other loans		5			7			17			23
Cash and investments		4			8			14			19

Total interest income		1,476			1,511			4,428			4,361
Total interest expense		591			639			1,777			1,739

Net interest income		885			872			2,651			2,622
Less: provisions for loan losses		409			358			1,003			1,099

Net interest income after provisions for loan losses		476			514			1,648			1,523

Other income (loss):
Gains on sales of loans and securities, net		—			1			—			7
Gains (losses) on derivative and hedging activities, net		(480	)		(344	)		(1,231	)		(331	)
Servicing revenue		95			93			286			314
Contingency revenue		84			84			248			252
Gains on debt repurchases		—			18			38			199
Other		1			(4	)		25			7

Total other income (loss)		(300	)		(152	)		(634	)		448

Expenses:
Salaries and benefits		138			138			398			426
Other operating expenses		147			164			459			473

Total operating expenses		285			302			857			899
Goodwill and acquired intangible assets impairment and amortization expense		6			670			18			689
Restructuring expenses		1			10			6			53

Total expenses		292			982			881			1,641

Income (loss) from continuing operations, before income tax expense (benefit)		(116	)		(620	)		133			330
Income tax expense (benefit)		(46	)		(126	)		44			232

Net income (loss) from continuing operations		(70	)		(494	)		89			98
Income (loss) from discontinued operations, net of tax expense (benefit)		23			(1	)		33			(15	)

Net income (loss)		(47	)		(495	)		122			83
Preferred stock dividends		5			19			13			56

Net income (loss) attributable to common stock	$	(52	)	$	(514	)	$	109		$	27

Basic earnings (loss) per common share:
Continuing operations	$	(.14	)	$	(1.06	)	$	.15		$	.09
Discontinued operations		.04			—			.06			(.03	)

Total	$	(.10	)	$	(1.06	)	$	.21		$	.06

Average common shares outstanding		511			485			520			485

Diluted earnings (loss) per common share:
Continuing operations	$	(.14	)	$	(1.06	)	$	.15		$	.09
Discontinued operations		.04			—			.06			(.03	)

Total	$	(.10	)	$	(1.06	)	$	.21		$	.06

Average common and common equivalent shares outstanding		511			485			526			486

Dividends per common share	$	.10		$	—		$	.20		$	—

See accompanying notes to consolidated financial statements.

SLM CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in millions, except share and per share amounts)

(Unaudited)


	Preferred Stock Shares		Common Stock Shares								Preferred Stock		Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Total Stockholders’ Equity			Noncontrolling Interest		Total Equity
	Preferred Stock Shares		Issued		Treasury			Outstanding			Preferred Stock		Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Total Stockholders’ Equity			Noncontrolling Interest		Total Equity
Balance at June 30, 2010		8,110,370		553,571,384		(67,774,802	)		485,796,582		$	1,375	$	111	$	5,123		$	(43	)	$	391		$	(1,870	)	$	5,087		$	—	$	5,087
Comprehensive income:
Net income (loss)																						(495	)					(495	)				(495	)
Other comprehensive income, net of tax:
Change in unrealized gains (losses) on derivatives, net of tax																			(1	)								(1	)				(1	)

Comprehensive income																												(496	)				(496	)
Cash dividends:
Preferred stock, series A ($.87 per share)																						(3	)					(3	)				(3	)
Preferred stock, series B ($.32 per share)																						(1	)					(1	)				(1	)
Preferred stock, series C ($18.13 per share)																						(15	)					(15	)				(15	)
Issuance of common shares				215,962					215,962							3												3					3
Tax benefit related to employee stock-based compensation plans																(3	)											(3	)				(3	)
Stock-based compensation expense																5												5					5
Shares repurchased related to employee stock-based compensation plans						(236,005	)		(236,005	)															(3	)		(3	)				(3	)

Balance at September 30, 2010		8,110,370		553,787,346		(68,010,807	)		485,776,539		$	1,375	$	111	$	5,128		$	(44	)	$	(123	)	$	(1,873	)	$	4,574		$	—	$	4,574

Balance at June 30, 2011		7,300,000		528,623,163		(10,474,334	)		518,148,829		$	565	$	106	$	4,114		$	(30	)	$	418		$	(170	)	$	5,003		$	8	$	5,011
Comprehensive income:
Net income (loss)																						(47	)					(47	)				(47	)
Other comprehensive income, net of tax:
Change in unrealized gains (losses) on investments, net of tax																			1									1					1
Change in unrealized gains (losses) on derivatives, net of tax																			9									9					9

Comprehensive income																												(37	)				(37	)
Cash dividends:
Common stock ($.10 per share)																						(51	)					(51	)				(51	)
Preferred stock, series A ($.87 per share)																						(3	)					(3	)				(3	)
Preferred stock, series B ($.50 per share)																						(2	)					(2	)				(2	)
Issuance of common shares				288,291					288,291							3												3					3
Tax benefit related to employee stock-based compensation plans																(1	)											(1	)				(1	)
Stock-based compensation expense																11												11					11
Common stock repurchased						(9,460,512	)		(9,460,512	)															(145	)		(145	)				(145	)
Shares repurchased related to employee stock-based compensation plans						(244,758	)		(244,758	)															(4	)		(4	)				(4	)

Balance at September 30, 2011		7,300,000		528,911,454		(20,179,604	)		508,731,850		$	565	$	106	$	4,127		$	(20	)	$	315		$	(319	)	$	4,774		$	8	$	4,782

See accompanying notes to consolidated financial statements.

SLM CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in millions, except share and per share amounts)

(Unaudited)


	Preferred Stock Shares		Common Stock Shares									Preferred Stock		Common Stock			Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Total Stockholders’ Equity			Noncontrolling Interest		Total Equity
	Preferred Stock Shares		Issued			Treasury			Outstanding			Preferred Stock		Common Stock			Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Total Stockholders’ Equity			Noncontrolling Interest		Total Equity
Balance at December 31, 2009		8,110,370		552,219,576			(67,221,942	)		484,997,634		$	1,375	$	111		$	5,092		$	(41	)	$	604		$	(1,862	)	$	5,279		$	—	$	5,279
Comprehensive income:
Net income (loss)																								83						83					83
Other comprehensive income, net of tax:
Change in unrealized gains (losses) on investments, net of tax																					2									2					2
Change in unrealized gains (losses) on derivatives, net of tax																					(5	)								(5	)				(5	)

Comprehensive income																														80					80
Cash dividends:
Preferred stock, series A ($2.61 per share)																								(9	)					(9	)				(9	)
Preferred stock, series B ($.80 per share)																								(3	)					(3	)				(3	)
Preferred stock, series C ($54.38 per share)																								(44	)					(44	)				(44	)
Issuance of common shares				1,567,770						1,567,770								13												13					13
Tax benefit related to employee stock-based compensation plans																		(8	)											(8	)				(8	)
Stock-based compensation expense																		31												31					31
Cumulative effect of accounting change																								(754	)					(754	)				(754	)
Shares repurchased related to employee stock-based compensation plans							(788,865	)		(788,865	)																(11	)		(11	)				(11	)

Balance at September 30, 2010		8,110,370		553,787,346			(68,010,807	)		485,776,539		$	1,375	$	111		$	5,128		$	(44	)	$	(123	)	$	(1,873	)	$	4,574		$	—	$	4,574

Balance at December 31, 2010		7,300,000		595,263,474			(68,319,589	)		526,943,885		$	565	$	119		$	5,940		$	(45	)	$	309		$	(1,876	)	$	5,012		$	—	$	5,012
Comprehensive income:
Net income (loss)																								122						122					122
Other comprehensive income, net of tax:
Change in unrealized gains (losses) on investments, net of tax																					2									2					2
Change in unrealized gains (losses) on derivatives, net of tax																					23									23					23

Comprehensive income																														147					147
Cash dividends:
Common stock ($.20 per share)																								(103	)					(103	)				(103	)
Preferred stock, series A ($2.61 per share)																								(9	)					(9	)				(9	)
Preferred stock, series B ($1.07 per share)																								(4	)					(4	)				(4	)
Issuance of common shares				3,722,349						3,722,349					1			38												39					39
Retirement of common stock in treasury				(70,074,369	)		70,074,369			—					(14	)		(1,890	)								1,904			—					—
Tax benefit related to employee stock-based compensation plans																		(9	)											(9	)				(9	)
Stock-based compensation expense																		48												48					48
Common stock repurchased							(19,054,115	)		(19,054,115	)																(300	)		(300	)				(300	)
Shares repurchased related to employee stock-based compensation plans							(2,880,269	)		(2,880,269	)																(47	)		(47	)				(47	)
Acquisition of noncontrolling interest																														—			8		8

Balance at September 30, 2011		7,300,000		528,911,454			(20,179,604	)		508,731,850		$	565	$	106		$	4,127		$	(20	)	$	315		$	(319	)	$	4,774		$	8	$	4,782

See accompanying notes to consolidated financial statements.

SLM CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

(Unaudited)


	Nine Months Ended September 30,
	2011			2010
Operating activities
Net income	$	122		$	83
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
(Income) loss from discontinued operations, net of tax		(33	)		15
Gains on sale of loans and securities, net		—			(7	)
Gains on debt repurchases		(38	)		(199	)
Goodwill and acquired intangible assets impairment and amortization expense		18			689
Stock-based compensation expense		48			31
Unrealized (gains)/losses on derivative and hedging activities		647			(306	)
Provisions for loan losses		1,003			1,099
Student loans originated for sale, net		—			(10,959	)
Decrease in restricted cash — other		43			48
Decrease (increase) in accrued interest receivable		136			(328	)
Increase in accrued interest payable		82			17
Decrease in other assets		165			1,239
(Decrease) in other liabilities		(119	)		(75	)

Total adjustments		1,952			(8,736	)

Total net cash provided by (used in) operating activities		2,074			(8,653	)

Investing activities
Student loans acquired and originated		(3,166	)		(3,888	)
Reduction of student loans:
Installment payments, claims and other		9,672			7,612
Proceeds from sales of student loans		568			360
Other loans — repaid		43			118
Other investing activities, net		(526	)		(260	)
Purchases of available-for-sale securities		(125	)		(31,802	)
Proceeds from maturities of available-for-sale securities		163			32,834
Purchases of other securities		(198	)		(101	)
Proceeds from maturities of other securities		195			111
Decrease in restricted cash		435			148

Cash provided by investing activities — continuing operations		7,061			5,132

Cash provided by investing activities — discontinued operations		109			88

Total net cash provided by investing activities		7,170			5,220

Financing activities
Borrowings collateralized by loans in trust — issued		3,034			5,918
Borrowings collateralized by loans in trust — repaid		(8,506	)		(8,245	)
Asset-backed commercial paper conduits, net		(515	)		(2,309	)
ED Participation Program, net		—			11,220
ED Conduit Program Facility, net		(2,517	)		1,113
Other short-term borrowings repaid		—			(177	)
Other long-term borrowings issued		1,967			1,463
Other long-term borrowings repaid		(4,294	)		(7,227	)
Other financing activities, net		1,182			1,538
Excess tax benefit from the exercise of stock-based awards		1			—
Common stock issued		—			—
Common stock repurchased		(300	)		—
Common dividends paid		(103	)		—
Preferred dividends paid		(13	)		(56	)

Net cash (used in) provided by financing activities		(10,064	)		3,238

Net (decrease) in cash and cash equivalents		(820	)		(195	)
Cash and cash equivalents at beginning of period		4,343			6,070

Cash and cash equivalents at end of period	$	3,523		$	5,875

Cash disbursements made (refunds received) for:
Interest	$	1,814		$	1,763

Income taxes paid	$	496		$	115

Income taxes (received)	$	(26	)	$	(566	)

Noncash activity:
Investing activity — Student loans and other assets acquired	$	783		$	—

Financing activity — Borrowings assumed in acquisition of student loans and other assets	$	802		$	—

See accompanying notes to consolidated financial statements.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2011 and for the three and nine months ended

September 30, 2011 and 2010 is unaudited)

(Dollars in millions, except per share amounts, unless otherwise noted)

1.	Significant Accounting Policies

Basis of Presentation

The accompanying unaudited, consolidated financial statements of SLM Corporation (“we,” “us,” “our,” or the “Company”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. The consolidated financial statements include the accounts of SLM Corporation and its majority-owned and controlled subsidiaries and those Variable Interest Entities (“VIEs”) for which we are the primary beneficiary, after eliminating the effects of intercompany accounts and transactions. In the opinion of management, all adjustments considered necessary for a fair statement of the results for the interim periods have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three and nine months ended September 30, 2011 are not necessarily indicative of the results for the year ending December 31, 2011 or for any other period. These unaudited financial statements should be read in conjunction with the audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2010 (the “2010 Form 10-K”).

Reclassifications

Certain reclassifications have been made to the balances as of and for the three and nine months ended September 30, 2010 to be consistent with classifications adopted for 2011, and had no effect on net income, total assets, or total liabilities.

Recently Adopted Accounting Standards

Troubled Debt Restructuring

On July 1, 2011, we adopted Accounting Standards Update No. 2011-02, Receivables (Topic 310), “A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” This new guidance clarifies when a loan restructuring constitutes a troubled debt restructuring (“TDR”). In applying the new guidance we have determined that certain Private Education Loans for which we have granted forbearance of greater than three months are classified as troubled debt restructurings. If a loan meets the criteria for troubled debt accounting then an allowance for loan loss is established which represents the present value of the expected losses discounted at the loan’s previous effective interest rate. This accounting results in a higher allowance for loan losses than our previously established allowance for these loans as our previous allowance for these loans represented an estimate of charge-offs expected to occur over the next two years (two years being our loss confirmation period). The new accounting guidance was effective as of July 1, 2011 but was required to be applied retrospectively to January 1, 2011. This resulted in $124 million of additional provision for loan losses in the third quarter of 2011 from approximately $3.8 billion of student loans being classified as troubled debt restructurings. This new accounting guidance is only applied to certain borrowers who use their fourth or greater month of forbearance during the time period this new guidance is effective. This new accounting guidance has the effect of accelerating the recognition of expected losses related to our Private Education Loan portfolio. The increase in the provision for losses as a result of this new accounting guidance does not reflect a decrease in credit expectations of the portfolio or an increase in the expected life of loan losses related to this portfolio. We believe forbearance is an accepted and effective collections and risk management tool for private student loans. We plan to continue to use forbearance and as a result, we expect to have additional loans classified as troubled debt restructurings in the future (see Note 2, “Allowance for Loan Losses,” for a further discussion).

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at September 30, 2011 and for the three and nine months ended

September 30, 2011 and 2010 is unaudited)

(Dollars in millions, except per share amounts, unless otherwise noted)

1.	Significant Accounting Policies (Continued)

Recently Issued Accounting Standards

Testing Goodwill for Impairment

In September 2011, the FASB issued ASU No. 2011-08, Intangibles — Goodwill and Other (Topic 350), “Testing Goodwill for Impairment.” The objective of this new guidance is to simplify how we test goodwill for impairment. It does not change the amount of impairment recognized if goodwill is impaired. This new guidance permits us to first assess qualitative factors to determine whether it is “more-likely-than-not” that the fair value of a reporting unit, which is the same as or one level below a business segment, is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. The “more-likely-than-not” threshold is defined as having a likelihood of more than 50 percent. If this “more-likely-than-not” threshold is met, then we will complete a quantitative goodwill impairment analysis which consists of a comparison of the fair value of the reporting unit to our carrying value, including goodwill. If the carrying value of the reporting unit exceeds the fair value, a goodwill impairment analysis will be performed to measure the amount of impairment loss, if any.

This new guidance is effective for fiscal years beginning after December 15, 2011. Early adoption is permitted. We perform our annual test in the fourth quarter and intend to adopt the new guidance in the fourth quarter 2011. This new guidance will not to have a material impact on our results of operations.

Presentation of Comprehensive Income

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220), “Presentation of Comprehensive Income.” The objective of this new guidance is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. The new guidance requires all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The new guidance will be applied retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2011. As such, this new guidance will be effective for us in the first quarter 2012. The new guidance will not have an impact on our results of operations.

Fair Value Measurement and Disclosure Requirements

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820), “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” These amendments (1) clarify the FASB’s intent about the application of existing fair value measurement and disclosure requirements; and (2) change particular principles or requirements for measuring fair value or for disclosing information about fair value measurements. This new guidance is effective prospectively for interim and annual periods beginning after December 15, 2011 and is not expected to have a material impact on our fair value measurements.

2.	Allowance for Loan Losses

Our provisions for loan losses represent the periodic expense of maintaining an allowance sufficient to absorb incurred losses, net of expected recoveries, in the held-for-investment loan portfolios. The evaluation of the provisions for student loan losses is inherently subjective as it requires material estimates that may be

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at September 30, 2011 and for the three and nine months ended

September 30, 2011 and 2010 is unaudited)

(Dollars in millions, except per share amounts, unless otherwise noted)

2.	Allowance for Loan Losses (Continued)

susceptible to significant changes. We believe that the allowance for student loan losses is appropriate to cover probable losses incurred in the loan portfolios. We segregate our Private Education Loan portfolio into two classes of loans — traditional and non-traditional. Non-traditional loans are loans to (i) borrowers attending for-profit schools with an original Fair Isaac and Company (“FICO”) score of less than 670 and (ii) borrowers 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 borrower or co-borrower FICO score at origination. Traditional loans are defined as all other Private Education Loans that are not classified as non-traditional.

In determining the allowance for loan losses, we estimate the principal amount of loans that will default over the next two years (two years being the expected period between a loss event and default) and how much we will recover over time related to the defaulted amount. In the first quarter of 2011, we implemented a new model to estimate the Private Education Loan default amount. Both the prior model and new model are considered “migration models”. Our prior allowance model (in place through December 31, 2010) segmented the portfolio into categories of similar risk characteristics based on loan program type, school type, loan status, seasoning, underwriting criteria (credit scores) and the existence or absence of a cosigner using school type, credit scores, cosigner status, loan status and seasoning as the primary risk characteristics. Our new model uses these same primary risk characteristics but also further segments the portfolio by the number of months the loan is in its repayment period (seasoning). While our previous allowance process incorporated the impact of seasoning, the new model more directly incorporates this feature. Another change in the new allowance model relates to the historical period of experience that we use as a starting point for projecting future defaults. Our new model is based upon a seasonal average, adjusted to the most recent three to six months of actual collection experience as the starting point and applies expected macroeconomic changes and collection procedure changes to estimate expected losses caused by loss events incurred as of the balance sheet date. Our previous model primarily used a one year historical default experience period and did not include the ability to directly model an economic expectation or collection procedure change. In addition, the previous allowance process included qualitative adjustments for these factors. Our current model places a greater emphasis on the more recent default experience rather than the default experience for older historical periods, as we believe the recent default experience is more indicative of the probable losses incurred in the loan portfolio today. While the model we use as a part of the allowance for loan losses process changed in the first quarter, the overall process for calculating the appropriate amount of allowance for Private Education Loan loss as disclosed in the 2010 Form 10-K has not changed. We believe that the current model more accurately reflects recent borrower behavior, loan performance, and collection performance, as well as expectations about economic factors. There was no adjustment to our allowance for loan loss upon implementing this new default projection model in the first quarter of 2011.

In the third quarter of 2011, we recorded an additional $124 million of provision for Private Education Loan losses to reflect the cumulative, year-to-date effect of adopting new accounting rules related to troubled debt restructurings (“TDRs”). For a complete discussion of the effect of these new rules on our provision for Private Education Loan losses see Note 1, “Significant Accounting Policies — Recently Adopted Accounting Standards — Troubled Debt Restructurings”.

In establishing the allowance for Private Education Loan losses for the third-quarter 2011, we considered several additional emerging environmental factors with respect to our Private Education Loan portfolio. In particular, we continue to see improving credit quality and continuing positive delinquency and charge-off trends in connection with this portfolio. Improving credit quality is seen in higher FICO scores and cosigner rates as well as a more seasoned portfolio compared to the year-ago quarter. The overall delinquency rate has declined to

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at September 30, 2011 and for the three and nine months ended

September 30, 2011 and 2010 is unaudited)

(Dollars in millions, except per share amounts, unless otherwise noted)

2.	Allowance for Loan Losses (Continued)

10.3 percent from 11.1 percent and the charge-off rate has declined to 3.7 percent from 5.4 percent compared to the year-ago quarter.

In contrast to these overall improvements in credit quality, delinquency and charge-off trends, Private Education Loans which defaulted between 2008 and 2011 for which we have previously charged off estimated losses have, to varying degrees, not met our recovery expectations to date and may continue not to do so. According to our policy, we have been charging off these periodic shortfalls in expected recoveries against our allowance for Private Education Loan losses and the related receivable for partially charged-off Private Education Loans and we will continue to do so. Differences in actual future recoveries on these defaulted loans could affect our receivable for partially charged-off Private Education Loans. We have increased our provision for Private Education Loan losses for the third quarter of 2011 in the amount of $143 million to reflect these uncertainties. Continuing historically high unemployment rates may negatively affect future Private Education Loan default and recovery expectations over our estimated two-year loss confirmation period. Consequently, in accordance with our policy, we have also given consideration to these factors in projecting charge-offs for this period and establishing our allowance for Private Education Loan losses. We will continue to monitor defaults and recoveries in light of the continuing weak economy and high unemployment rates. For a more detailed discussion of our policy for determining the collectability of Private Education Loan and maintaining our allowance for Private Education Loan losses see Note 2, “Significant Accounting Policies” to our Consolidated Financial Statements contained in our Form 10-K for the fiscal year ended December 31, 2010.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at September 30, 2011 and for the three and nine months ended

September 30, 2011 and 2010 is unaudited)

(Dollars in millions, except per share amounts, unless otherwise noted)

2.	Allowance for Loan Losses (Continued)

Allowance for Loan Losses Metrics


	Allowance for Loan Losses Three Months Ended September 30, 2011
(Dollars in millions)	FFELP Loans			Private Education Loans			Other Loans			Total
Allowance for Loan Losses
Beginning balance	$	189		$	2,043		$	63		$	2,295
Total provision		21			384			4			409
Charge-offs		(18	)		(272	)		(11	)		(301	)
Loan sales		(3	)		—			—			(3	)
Reclassification of interest reserve⁽¹⁾		—			12			—			12

Ending Balance	$	189		$	2,167		$	56		$	2,412

Allowance:
Ending balance: individually evaluated for impairment	$	—		$	618		$	46		$	664
Ending balance: collectively evaluated for impairment	$	189		$	1,549		$	10		$	1,748
Ending balance: loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—
Loans:
Ending balance: individually evaluated for impairment	$	—		$	4,485		$	89		$	4,574
Ending balance: collectively evaluated for impairment	$	139,130		$	34,682		$	180		$	173,992
Ending balance: loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—

Charge-offs as a percentage of average loans in repayment and forbearance (annualized)		.06	%		3.6	%		16.9	%
Charge-offs as a percentage of average loans in repayment (annualized)		.07	%		3.7	%		16.9	%
Allowance as a percentage of the ending total loan balance		.14	%		5.5	%		20.8	%
Allowance as a percentage of the ending loans in repayment		.20	%		7.5	%		20.8	%
Allowance coverage of charge-offs (annualized)		2.7			2.0			1.2
Ending total loans⁽²⁾	$	139,130		$	39,167		$	269
Average loans in repayment	$	93,961		$	28,819		$	276
Ending loans in repayment	$	93,552		$	28,922		$	269

⁽¹⁾

Represents the additional allowance related to the amount of uncollectible interest reserved within interest income that is transferred in the period to the allowance for loan losses when interest is capitalized to a loan’s principal balance.

⁽²⁾

Ending total loans for Private Education Loans includes the receivable for partially charged-off loans.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at September 30, 2011 and for the three and nine months ended

September 30, 2011 and 2010 is unaudited)

(Dollars in millions, except per share amounts, unless otherwise noted)

2.	Allowance for Loan Losses (Continued)


	Allowance for Loan Losses Three Months Ended September 30, 2010
(Dollars in millions)	FFELP Loans			Private Education Loans			Other Loans			Total
Allowance for Loan Losses
Beginning balance	$	189		$	2,042		$	77		$	2,308
Total provision		24			330			4			358
Charge-offs		(21	)		(348	)		(4	)		(373	)
Loan sales		(3	)		—			—			(3	)
Reclassification of interest reserve⁽¹⁾		—			11			—			11

Ending Balance	$	189		$	2,035		$	77		$	2,301

Allowance:
Ending balance: individually evaluated for impairment	$	—		$	100		$	62		$	162
Ending balance: collectively evaluated for impairment	$	189		$	1,935		$	15		$	2,139
Ending balance: loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—
Loans:
Ending balance: individually evaluated for impairment	$	—		$	379		$	122		$	501
Ending balance: collectively evaluated for impairment	$	144,090		$	38,071		$	243		$	182,404
Ending balance: loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—

Charge-offs as a percentage of average loans in repayment and forbearance (annualized)		.08	%		5.1	%		4.0	%
Charge-offs as a percentage of average loans in repayment (annualized)		.10	%		5.4	%		4.0	%
Allowance as a percentage of the ending total loan balance		.13	%		5.3	%		21.1	%
Allowance as a percentage of the ending loans in repayment		.23	%		7.9	%		21.1	%
Allowance coverage of charge-offs (annualized)		2.2			1.5			6.5
Ending total loans⁽²⁾	$	144,090		$	38,450		$	365
Average loans in repayment	$	82,203		$	25,616		$	295
Ending loans in repayment	$	81,788		$	25,784		$	365

⁽¹⁾

⁽²⁾

Ending total loans for Private Education Loans includes the receivable for partially charged-off loans.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at September 30, 2011 and for the three and nine months ended

September 30, 2011 and 2010 is unaudited)

(Dollars in millions, except per share amounts, unless otherwise noted)

2.	Allowance for Loan Losses (Continued)


	Allowance for Loan Losses Nine Months Ended September 30, 2011
(Dollars in millions)	FFELP Loans			Private Education Loans			Other Loans			Total
Allowance for Loan Losses
Beginning balance	$	189		$	2,022		$	72		$	2,283
Total provision		66			924			13			1,003
Charge-offs		(59	)		(809	)		(29	)		(897	)
Loan sales		(7	)		—			—			(7	)
Reclassification of interest reserve⁽¹⁾		—			30			—			30

Ending Balance	$	189		$	2,167		$	56		$	2,412

Allowance:
Ending balance: individually evaluated for impairment	$	—		$	618		$	46		$	664
Ending balance: collectively evaluated for impairment	$	189		$	1,549		$	10		$	1,748
Ending balance: loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—
Loans:
Ending balance: individually evaluated for impairment	$	—		$	4,485		$	89		$	4,574
Ending balance: collectively evaluated for impairment	$	139,130		$	34,682		$	180		$	173,992
Ending balance: loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—

Charge-offs as a percentage of average loans in repayment and forbearance (annualized)		.07	%		3.6	%		12.9	%
Charge-offs as a percentage of average loans in repayment (annualized)		.08	%		3.8	%		12.9	%
Allowance as a percentage of the ending total loan balance		.14	%		5.5	%		20.8	%
Allowance as a percentage of the ending loans in repayment		.20	%		7.5	%		20.8	%
Allowance coverage of charge-offs (annualized)		2.4			2.0			1.4
Ending total loans⁽²⁾	$	139,130		$	39,167		$	269
Average loans in repayment	$	94,589		$	28,481		$	304
Ending loans in repayment	$	93,552		$	28,922		$	269

⁽¹⁾

⁽²⁾

Ending total loans for Private Education Loans includes the receivable for partially charged-off loans.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at September 30, 2011 and for the three and nine months ended

September 30, 2011 and 2010 is unaudited)

(Dollars in millions, except per share amounts, unless otherwise noted)

2.	Allowance for Loan Losses (Continued)


	Allowance for Loan Losses Nine Months Ended September 30, 2010
(Dollars in millions)	FFELP Loans			Private Education Loans			Other Loans			Total
Allowance for Loan Losses
Beginning balance	$	161		$	1,443		$	76		$	1,680
Total provision		76			1,004			19			1,099
Charge-offs		(67	)		(968	)		(18	)		(1,053	)
Loan sales		(6	)		—			—			(6	)
Reclassification of interest reserve⁽¹⁾		—			32			—			32
Consolidation of securitization trusts⁽²⁾		25			524			—			549

Ending Balance	$	189		$	2,035		$	77		$	2,301

Allowance:
Ending balance: individually evaluated for impairment	$	—		$	100		$	62		$	162
Ending balance: collectively evaluated for impairment	$	189		$	1,935		$	15		$	2,139
Ending balance: loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—
Loans:
Ending balance: individually evaluated for impairment	$	—		$	379		$	122		$	501
Ending balance: collectively evaluated for impairment	$	144,090		$	38,071		$	243		$	182,404
Ending balance: loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—

Charge-offs as a percentage of average loans in repayment and forbearance (annualized)		.09	%		4.9	%		7.7	%
Charge-offs as a percentage of average loans in repayment (annualized)		.11	%		5.1	%		7.7	%
Allowance as a percentage of the ending total loan balance		.13	%		5.3	%		21.1	%
Allowance as a percentage of the ending loans in repayment		.23	%		7.9	%		21.1	%
Allowance coverage of charge-offs (annualized)		2.1			1.6			3.2
Ending total loans⁽³⁾	$	144,090		$	38,450		$	365
Average loans in repayment	$	82,362		$	25,151		$	318
Ending loans in repayment	$	81,788		$	25,784		$	365

⁽¹⁾	Represents the additional allowance related to the amount of uncollectible interest reserved within interest income that is transferred in the period to the allowance for loan losses when interest is capitalized to a loan’s principal balance.

⁽²⁾	Upon the adoption of the new consolidation accounting guidance on January 1, 2010, we consolidated all of our previously off-balance sheet securitization trusts.

⁽³⁾	Ending total loans for Private Education Loans includes the receivable for partially charged-off loans.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at September 30, 2011 and for the three and nine months ended

September 30, 2011 and 2010 is unaudited)

(Dollars in millions, except per share amounts, unless otherwise noted)

2.	Allowance for Loan Losses (Continued)

Key Credit Quality Indicators

FFELP Loans are substantially guaranteed as to their principal and accrued interest in the event of default; therefore, the key credit quality indicator for this portfolio is loan status. The impact of changes in loan status is incorporated quarterly into the allowance for loan losses calculation. For Private Education Loans, the key credit quality indicators are school type, FICO scores, the existence of a cosigner, the loan status and loan seasoning. The school type/FICO score are assessed at origination and maintained through the traditional/non-traditional loan designation. The other Private Education Loan key quality indicators can change and are incorporated quarterly into the allowance for loan losses calculation. The following table highlights the principal balance (excluding the receivable for partially charged-off loans) of our Private Education Loan portfolio stratified by the key credit quality indicators.


	Private Education Loans Credit Quality Indicators
	September 30, 2011					December 31, 2010
(Dollars in millions)	Balance⁽³⁾		% of Balance			Balance⁽³⁾		% of Balance
Credit Quality Indicators
School Type/FICO Scores:
Traditional	$	34,337		90	%	$	33,619		90	%
Non-Traditional⁽¹⁾		3,638		10			3,913		10

Total	$	37,975		100	%	$	37,532		100	%

Cosigners:
With cosigner	$	23,319		61	%	$	22,259		59	%
Without cosigner		14,656		39			15,273		41

Total	$	37,975		100	%	$	37,532		100	%

Seasoning⁽²⁾:
1-12 payments	$	9,961		27	%	$	10,932		29	%
13-24 payments		6,459		17			6,659		18
25-36 payments		5,001		13			4,457		12
37-48 payments		3,429		9			2,891		8
More than 48 payments		5,432		14			4,253		11
Not yet in repayment		7,693		20			8,340		22

Total	$	37,975		100	%	$	37,532		100	%

⁽¹⁾	Defined as loans to borrowers attending for-profit schools (with a FICO score of less than 670 at origination) and borrowers attending not-for-profit schools (with a FICO score of less than 640 at origination).

⁽²⁾	Number of months in active repayment for which a scheduled payment was due.

⁽³⁾	Balance represents gross Private Education Loans.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at September 30, 2011 and for the three and nine months ended

September 30, 2011 and 2010 is unaudited)

(Dollars in millions, except per share amounts, unless otherwise noted)

2.	Allowance for Loan Losses (Continued)

The following tables provide information regarding the loan status and aging of past due loans as of September 30, 2011 and December 31, 2010.


	FFELP Loan Delinquencies
	September 30, 2011						December 31, 2010
(Dollars in millions)	Balance			%			Balance			%
Loans in-school/grace/deferment⁽¹⁾	$	25,276					$	28,214
Loans in forbearance⁽²⁾		20,302						22,028
Loans in repayment and percentage of each status:
Loans current		77,923			83.3	%		80,026			82.8	%
Loans delinquent 31-60 days⁽³⁾		5,202			5.6			5,500			5.7
Loans delinquent 61-90 days⁽³⁾		2,526			2.7			3,178			3.3
Loans delinquent greater than 90 days⁽³⁾		7,901			8.4			7,992			8.2

Total FFELP Loans in repayment		93,552			100.0	%		96,696			100.0	%

Total FFELP Loans, gross		139,130						146,938
FFELP Loan unamortized premium		1,718						1,900

Total FFELP Loans		140,848						148,838
FFELP Loan allowance for losses		(189	)					(189	)

FFELP Loans, net	$	140,659					$	148,649

Percentage of FFELP Loans in repayment					67.2	%					65.8	%

Delinquencies as a percentage of FFELP Loans in repayment					16.7	%					17.2	%

FFELP Loans in forbearance as a percentage of loans in repayment and forbearance					17.8	%					18.6	%

⁽¹⁾

Loans for borrowers who may still be attending school or engaging in other permitted educational activities and are not yet required to make payments on the loans, e.g., residency periods for medical students or a grace period for bar exam preparation, as well as loans for borrowers who have requested extension of grace period during employment transition.

⁽²⁾	Loans for borrowers who have used their allowable deferment time or do not qualify for deferment, that need additional time to obtain employment or who have temporarily ceased making payments due to hardship or other factors.

⁽³⁾	The period of delinquency is based on the number of days scheduled payments are contractually past due.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at September 30, 2011 and for the three and nine months ended

September 30, 2011 and 2010 is unaudited)

(Dollars in millions, except per share amounts, unless otherwise noted)

2.	Allowance for Loan Losses (Continued)


	Private Education Traditional Loan Delinquencies
	September 30, 2011						December 31, 2010
(Dollars in millions)	Balance			%			Balance			%
Loans in-school/grace/deferment⁽¹⁾	$	6,930					$	7,419
Loans in forbearance⁽²⁾		1,166						1,156
Loans in repayment and percentage of each status:
Loans current		23,977			91.4	%		22,850			91.2	%
Loans delinquent 31-60 days⁽³⁾		827			3.1			794			3.2
Loans delinquent 61-90 days⁽³⁾		383			1.5			340			1.4
Loans delinquent greater than 90 days⁽³⁾		1,054			4.0			1,060			4.2

Total traditional loans in repayment		26,241			100	%		25,044			100	%

Total traditional loans, gross		34,337						33,619
Traditional loans unamortized discount		(762	)					(801	)

Total traditional loans		33,575						32,818
Traditional loans receivable for partially charged-off loans		668						558
Traditional loans allowance for losses		(1,487	)					(1,231	)

Traditional loans, net	$	32,756					$	32,145

Percentage of traditional loans in repayment					76.4	%					74.5	%

Delinquencies as a percentage of traditional loans in repayment					8.6	%					8.8	%

Loans in forbearance as a percentage of loans in repayment and forbearance					4.3	%					4.4	%

Loans in repayment greater than 12 months as a percentage of loans in repayment⁽⁴⁾					69.3	%					65.2	%

⁽¹⁾	Loans for borrowers who may still be attending school or engaging in other permitted educational activities and are not yet required to make payments on the loans, e.g., residency periods for medical students or a grace period for bar exam preparation.

⁽²⁾	Loans for borrowers who have requested extension of grace period generally during employment transition or who have temporarily ceased making payments due to hardship or other factors, consistent with established loan program servicing policies and procedures.

⁽³⁾	The period of delinquency is based on the number of days scheduled payments are contractually past due.

⁽⁴⁾	Based on number of months in an active repayment status for which a scheduled monthly payment was due.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at September 30, 2011 and for the three and nine months ended

September 30, 2011 and 2010 is unaudited)

(Dollars in millions, except per share amounts, unless otherwise noted)

2.	Allowance for Loan Losses (Continued)


	Private Education Non-Traditional Loan Delinquencies
	September 30, 2011						December 31, 2010
(Dollars in millions)	Balance			%			Balance			%
Loans in-school/grace/deferment⁽¹⁾	$	763					$	921
Loans in forbearance⁽²⁾		194						184
Loans in repayment and percentage of each status:
Loans current		1,968			73.4	%		2,038			72.6	%
Loans delinquent 31-60 days⁽³⁾		205			7.6			217			7.7
Loans delinquent 61-90 days⁽³⁾		126			4.7			131			4.7
Loans delinquent greater than 90 days⁽³⁾		382			14.3			422			15.0

Total non-traditional loans in repayment		2,681			100	%		2,808			100	%

Total non-traditional loans, gross		3,638						3,913
Non-traditional loans unamortized discount		(81	)					(93	)

Total non-traditional loans		3,557						3,820
Non-traditional loans receivable for partially charged-off loans		524						482
Non-traditional loans allowance for losses		(680	)					(791	)

Non-traditional loans, net	$	3,401					$	3,511

Percentage of non-traditional loans in repayment					73.7	%					71.8	%

Delinquencies as a percentage of non-traditional loans in repayment					26.6	%					27.4	%

Loans in forbearance as a percentage of loans in repayment and forbearance					6.7	%					6.1	%

Loans in repayment greater than 12 months as a percentage of loans in repayment⁽⁴⁾					62.3	%					55.9	%

⁽¹⁾	Loans for borrowers who may still be attending school or engaging in other permitted educational activities and are not yet required to make payments on the loans, e.g., residency periods for medical students or a grace period for bar exam preparation.

⁽²⁾	Loans for borrowers who have requested extension of grace period generally during employment transition or who have temporarily ceased making payments due to hardship or other factors, consistent with established loan program servicing policies and procedures.

⁽³⁾	The period of delinquency is based on the number of days scheduled payments are contractually past due.

⁽⁴⁾	Based on number of months in an active repayment status for which a scheduled monthly payment was due.

Troubled Debt Restructurings

We modify the terms of loans for certain borrowers when we believe such modifications may increase the ability and willingness of a borrower to make payment and thus increase the ultimate overall amount collected on a loan. These modifications generally take the form of a forbearance, a temporary interest rate reduction or an extended repayment plan. For borrowers experiencing financial difficulty, certain Private Education Loans for which we have granted either a forbearance of greater than three months, an interest rate reduction or an extended repayment plan are classified as troubled debt restructurings. Forbearance provides borrowers the ability to defer payments for a period of time, but does not result in the forgiveness of any

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at September 30, 2011 and for the three and nine months ended

September 30, 2011 and 2010 is unaudited)

(Dollars in millions, except per share amounts, unless otherwise noted)

2.	Allowance for Loan Losses (Continued)

principal or interest. While in forbearance status, interest continues to accrue and is capitalized to principal when the loan re-enters repayment status. The recorded investment of loans granted a forbearance that were classified as troubled debt restructurings was $3.8 billion at September 30, 2011. The recorded investment for troubled debt restructurings from loans granted interest rate reductions or extended repayment plans was $0.6 billion and $0.4 billion at September 30, 2011 and 2010, respectively.

At September 30, 2011 and December 31, 2010 all of our troubled debt restructurings loans had a related allowance recorded. The following table provides the recorded investment, unpaid principal balance and related allowance for our troubled debt restructuring loans for the periods ended September 30, 2011 and December 31, 2010.


	Troubled Debt Restructuring Loans
(Dollars in millions)	Recorded Investment⁽¹⁾		Unpaid Principal Balance		Related Allowance
September 30, 2011
Private Education Loans — Traditional	$	3,507	$	3,552	$	435
Private Education Loans — Non-Traditional		925		933		183

Total	$	4,432	$	4,485	$	618

December 31, 2010
Private Education Loans — Traditional	$	264	$	268	$	66
Private Education Loans — Non-Traditional		175		177		48

Total	$	439	$	445	$	114

⁽¹⁾

The recorded investment is equal to the unpaid principal balance and accrued interest receivable net of unamortized deferred fees and costs.

The following table provides the average recorded investment and interest income recognized for our troubled debt restructuring loans for the three and nine month periods ended September 30, 2011 and 2010.


	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2011				2010				2011				2010
(Dollars in millions)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Private Education Loans — Traditional	$	3,234	$	51	$	226	$	1	$	1,286	$	58	$	195	$	4
Private Education Loans — Non-Traditional		863		19		163		2		413		25		150		4

Total	$	4,097	$	70	$	389	$	3	$	1,699	$	83	$	345	$	8

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at September 30, 2011 and for the three and nine months ended

September 30, 2011 and 2010 is unaudited)

(Dollars in millions, except per share amounts, unless otherwise noted)

2.	Allowance for Loan Losses (Continued)

The following table provides the amount of modified loans that resulted in a troubled debt restructuring, as well as, charge-offs occurring in the troubled debt restructuring portfolio for the three and nine month periods ended September 30, 2011 and September 30, 2010. The majority of our loans that are considered troubled debt restructurings involve a temporary forbearance of payments and do not change the contractual interest rate of the loan.


	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2011				2010				2011				2010
(Dollars in millions)	Modified Loans⁽¹⁾		Charge- offs⁽²⁾		Modified Loans⁽¹⁾		Charge- offs⁽²⁾		Modified Loans⁽¹⁾		Charge- offs⁽²⁾		Modified Loans⁽¹⁾		Charge- offs⁽²⁾
Private Education Loans — Traditional	$	874	$	19	$	38	$	5	$	3,317	$	32	$	132	$	10
Private Education Loans — Non-Traditional		199		12		19		9		784		26		86		18

Total	$	1,073	$	31	$	57	$	14	$	4,101	$	58	$	218	$	28

⁽¹⁾	Represents period ending balance of loans that have been modified during the period.

⁽²⁾	Represents loans that charge off at 212 days delinquent during the period that are classified as troubled debt restructurings.

Accrued Interest Receivable

The following table provides information regarding accrued interest receivable on our Private Education Loans at September 30, 2011 and December 31, 2010. The table also discloses the amount of accrued interest on loans greater than 90 days past due as compared to our allowance for uncollectible interest. The allowance for uncollectible interest exceeds the amount of accrued interest on our 90 days past due portfolio for all periods presented.


	Accrued Interest Receivable
(Dollars in millions)	Total		Greater than 90 days Past Due		Allowance for Uncollectible Interest
September 30, 2011
Private Education Loans — Traditional	$	1,009	$	35	$	45
Private Education Loans — Non-Traditional		169		18		30

Total	$	1,178	$	53	$	75

December 31, 2010
Private Education Loans — Traditional	$	1,062	$	35	$	57
Private Education Loans — Non-Traditional		209		20		37

Total	$	1,271	$	55	$	94

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at September 30, 2011 and for the three and nine months ended

September 30, 2011 and 2010 is unaudited)

(Dollars in millions, except per share amounts, unless otherwise noted)

3.	Borrowings

The following table summarizes our borrowings as of September 30, 2011 and December 31, 2010.


	September 30, 2011						December 31, 2010
(Dollars in millions)	Short Term		Long Term		Total		Short Term		Long Term		Total
Unsecured borrowings:
Senior unsecured debt	$	3,553	$	15,543	$	19,096	$	4,361	$	15,742	$	20,103
Brokered deposits		1,552		1,652		3,204		1,387		3,160		4,547
Retail and other deposits		1,959		—		1,959		1,370		—		1,370
Other⁽¹⁾		1,286		—		1,286		887		—		887

Total unsecured borrowings		8,350		17,195		25,545		8,005		18,902		26,907

Secured borrowings:
FFELP Loans securitizations		—		108,081		108,081		—		112,425		112,425
Private Education Loans securitizations		—		21,362		21,362		—		21,409		21,409
ED Conduit Program Facility		21,967		—		21,967		24,484		—		24,484
ABCP borrowings		257		4,987		5,244		—		5,853		5,853
Acquisition financing⁽²⁾		—		964		964		—		1,064		1,064
FHLB-DM Facility		1,000		—		1,000		900		—		900
Indentured trusts		—		1,089		1,089		—		1,246		1,246

Total secured borrowings		23,224		136,483		159,707		25,384		141,997		167,381

Total before hedge accounting adjustments		31,574		153,678		185,252		33,389		160,899		194,288
Hedge accounting adjustments		171		3,132		3,303		227		2,644		2,871

Total	$	31,745	$	156,810	$	188,555	$	33,616	$	163,543	$	197,159

⁽¹⁾	“Other” primarily consists of the obligation to return cash collateral held related to derivative exposures.

⁽²⁾	Relates to the acquisition of $25 billion of student loans at the end of 2010.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at September 30, 2011 and for the three and nine months ended

September 30, 2011 and 2010 is unaudited)

(Dollars in millions, except per share amounts, unless otherwise noted)

3.	Borrowings (Continued)

Secured Borrowings

We currently consolidate all of our financing entities that are variable interest entities (“VIEs”) as we are the primary beneficiary. As a result, these financing VIEs are accounted for as secured borrowings. We consolidated the following financing VIEs as of September 30, 2011 and December 31, 2010:


	September 30, 2011
	Debt Outstanding						Carrying Amount of Assets Securing Debt Outstanding
(Dollars in millions)	Short Term		Long Term		Total		Loans		Cash		Other Assets		Total
Secured Borrowings — VIEs:
ED Conduit Program Facility	$	21,967	$	—	$	21,967	$	22,052	$	571	$	568	$	23,191
ABCP borrowings		257		4,987		5,244		5,732		81		65		5,878
Securitizations — FFELP Loans		—		108,081		108,081		109,037		3,727		767		113,531
Securitizations — Private Education Loans		—		21,362		21,362		24,793		1,161		507		26,461
Indentured trusts		—		1,089		1,089		1,409		98		13		1,520

Total before hedge accounting adjustments		22,224		135,519		157,743		163,023		5,638		1,920		170,581
Hedge accounting adjustments		—		1,312		1,312		—		—		1,192		1,192

Total	$	22,224	$	136,831	$	159,055	$	163,023	$	5,638	$	3,112	$	171,773


	December 31, 2010
	Debt Outstanding						Carrying Amount of Assets Securing Debt Outstanding
(Dollars in millions)	Short Term		Long Term		Total		Loans		Cash		Other Assets		Total
Secured Borrowings — VIEs:
ED Conduit Program Facility	$	24,484	$	—	$	24,484	$	24,511	$	819	$	634	$	25,964
ABCP borrowings		—		5,853		5,853		6,290		94		53		6,437
Securitizations — FFELP Loans		—		112,425		112,425		113,400		3,728		966		118,094
Securitizations — Private Education Loans		—		21,409		21,409		24,355		1,213		690		26,258
Indentured trusts		—		1,246		1,246		1,549		129		15		1,693

Total before hedge accounting adjustments		24,484		140,933		165,417		170,105		5,983		2,358		178,446
Hedge accounting adjustments		—		1,311		1,311		—		—		1,348		1,348

Total	$	24,484	$	142,244	$	166,728	$	170,105	$	5,983	$	3,706	$	179,794

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at September 30, 2011 and for the three and nine months ended

September 30, 2011 and 2010 is unaudited)

(Dollars in millions, except per share amounts, unless otherwise noted)

3.	Borrowings (Continued)

We have $5.1 billion in Private Education Loan securitization bonds outstanding at September 30, 2011, where we have the ability to call the bonds at a discount to par between the fourth quarter of 2011 and 2014. We have concluded that it is probable we will call these bonds at the call date at their respective discount to par. We consider it probable because we believe that these bonds can be refinanced at the call date at or lower than a breakeven cost of funds based on the call discount. As a result, we are accreting this call discount as a reduction to interest expense through the call date. If it becomes less than probable that we will call these bonds at a future date, it will result in our reversing this prior accretion as a cumulative catch-up adjustment. The $3.4 billion asset-backed commercial paper facility completed in the fourth quarter of 2011 and discussed below will provide financing to call the outstanding bonds issued by SLM Private Education Loan Trust 2009-B ($2.6 billion principal) and SLM Private Education Loan Trust 2009-C ($1.0 billion principal) at their respective call prices of 93 percent and 94 percent of par. These bonds are callable in the fourth quarter of 2011 and the first quarter of 2012, respectively. We have accreted approximately $258 million, cumulatively, and $30 million and $86 million in the three and nine months ended September 30, 2011 as a reduction of interest expense.

Transactions During the Nine Months Ended September 30, 2011

On June 30, 2011, we completed an $825 million Private Education Loan ABS transaction at an all-in LIBOR equivalent cost of one-month LIBOR plus 1.89 percent. This issue has a weighted average life of 4.0 years and an initial overcollateralization on the AAA bonds of approximately 18 percent.

On May 26, 2011, we completed an $821 million FFELP ABS transaction at an all-in LIBOR equivalent cost of one-month LIBOR plus 1.15 percent. This issue has a weighted average life of 5.8 years and an initial overcollateralization of approximately 3 percent.

On April 26, 2011, we completed a $562 million Private Education Loan ABS transaction at an all-in LIBOR equivalent cost of one-month LIBOR plus 1.99 percent. This issue has a weighted average life of 3.8 years and an initial overcollateralization on the AAA bonds of approximately 21 percent.

On March 3, 2011, we issued an $812 million FFELP ABS transaction at an all-in LIBOR equivalent cost of one-month LIBOR plus 1.14 percent. This issue has a weighted average life of 5.8 years and initial overcollateralization of approximately 3 percent.

On January 14, 2011, we issued a $2 billion five-year 6.25 percent fixed rate unsecured bond. The bond was issued to yield 6.50 percent before underwriting fees. The rate on the bond was swapped from a fixed rate to a floating rate equal to an all-in cost of one-month LIBOR plus 4.46 percent. The proceeds of this bond were designated for general corporate purposes.

We also repurchase our outstanding unsecured debt in both open-market repurchases and public tender offers. Repurchasing debt helps us to better manage our short-term and long-term funding needs by utilizing current excess liquidity to reduce future obligations related to our unsecured borrowings at favorable pricing. During the first nine months of 2011, we repurchased $894 million of debt and realized gains of $38 million for the nine months ended September 30, 2011, compared with $3.6 billion and $199 million for the nine months ended September 30, 2010.

Recent Fourth-Quarter 2011 Transactions

On October 5, 2011, the Company closed on a $3.4 billion asset-backed commercial paper facility which matures in January 2014. This facility will provide, subject to certain conditions, the financing to call the 2009-B

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at September 30, 2011 and for the three and nine months ended

September 30, 2011 and 2010 is unaudited)

(Dollars in millions, except per share amounts, unless otherwise noted)

3.	Borrowings (Continued)

and 2009-C Private Education Loan trust securities referenced above. The securities are first callable in November 2011 and January 2012, respectively. The cost of borrowing under the facility is expected to be commercial paper issuance cost plus 1.10 percent, excluding up-front commitment and unused fees.

The following table summarizes our securitization activity for the three and nine months ended September 30, 2011 and 2010. The securitizations in the periods presented below were accounted for as financings.


	Three Months Ended September 30,								Nine Months Ended September 30,
	2011				2010				2011				2010
(Dollars in millions)	No. of Transactions		Loan Amount Securitized		No. of Transactions		Loan Amount Securitized		No. of Transactions		Loan Amount Securitized		No. of Transactions		Loan Amount Securitized
Securitizations:
FFELP Stafford/PLUS Loans		—	$	—		1	$	754		—	$	—		2	$	1,965
FFELP Consolidation Loans		—		—		—		—		2		1,546		—		—
Private Education Loans		—		—		2		4,257		2		1,699		3		6,186

Total securitizations		—	$	—		3	$	5,011		4	$	3,245		5	$	8,151

4.	Derivative Financial Instruments

Our risk management strategy and use and accounting of derivatives have not materially changed from that discussed in our 2010 Form 10-K. Please refer to Note 9, “Derivative Financial Instruments” in our 2010 Form 10-K for a full discussion.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Information at September 30, 2011 and for the three and nine months ended

September 30, 2011 and 2010 is unaudited)

(Dollars in millions, except per share amounts, unless otherwise noted)

4.	Derivative Financial Instruments (Continued)

Summary of Derivative Financial Statement Impact

The following tables summarize the fair values and notional amounts of our derivative instruments at September 30, 2011 and December 31, 2010, and their impact on other comprehensive income and earnings for the three and nine months ended September 30, 2011 and 2010.

Impact of Derivatives on Consolidated Balance Sheet


		Cash Flow						Fair Value						Trading						Total
(Dollars in millions)	Hedged Risk Exposure	Sept. 30, 2011			Dec. 31, 2010			Sept. 30, 2011			Dec. 31, 2010			Sept. 30, 2011			Dec. 31, 2010			Sept. 30, 2011			Dec. 31, 2010
Fair Values⁽¹⁾
Derivative Assets
Interest rate swaps	Interest rate	$	—		$	—		$	1,510		$	967		$	210		$	200		$	1,720		$	1,167
Cross currency interest rate swaps	Foreign currency and interest rate		—			—			1,522			1,925			126			101			1,648			2,026
Other⁽²⁾	Interest rate		—			—			—			—			—			26			—			26

Total derivative assets⁽³⁾			—			—			3,032			2,892			336			327			3,368			3,219
Derivative Liabilities
Interest rate swaps	Interest rate		(35	)		(75	)		—			—			(241	)		(348	)		(276	)		(423	)
Floor Income Contracts	Interest rate		—			—			—			—			(2,752	)		(1,315	)		(2,752	)		(1,315	)
Cross currency interest rate swaps	Foreign currency and interest rate		—			—			(252	)		(215	)		—			—			(252	)		(215	)
Other⁽²⁾	Interest rate		—			—			—			—			—			(1	)		—			(1	)

Total derivative liabilities⁽³⁾