Slide 1: Debt Investor Presentation Second Quarter 2009
Debt Investor Presentation Second Quarter 2009 SLM Corporation
Slide 2: Forward-looking statements
2 This Presentation contains forward-looking statements and information based on management's current expectations as of the date of this presentation. Statements that are not historical facts, including statements about our beliefs or expectations and statements that assume or are dependent upon fu
Slide 3: SLM Corporation Overview
SLM Corporation Overview 3 Dream. Invest, Succeed
Slide 4: SLM Corporation
4 SLM Corporation #1 originator of student loans in the U.S. education lending market #1 servicer and collector of student loans in the U.S. currently servicing $185 billion in assets including $8 billion for third parties Fully independent private sector company with scale and a broad franchise, tr
Slide 5: Life-stage Customer Strategy
Life-stage Customer Strategy Life-stage Customer Strategy Life-stage Customer Strategy Early awareness and saving School selection, understanding ways to pay with Education Investment Planner Complete 1-2-3 financing solutions for schools and families Life-of-loan guidance and products to encourage
Slide 6: SLM Corporation Update
6 SLM Corporation Update Managed student loans outstanding increased to $188 billion in Q2 Originated $3.7 billion in federal student loans, a 53% increase over prior year period Launched new private education loan product and originated $387 million private education loans in Q2 "Core Earnings" net
Slide 7: A Brief Corporate History
7 A Brief Corporate History (1) Currently known as the Federal Family Education Loan Program (FFELP). (1) Currently known as the Federal Family Education Loan Program (FFELP). Congress establishes, as a GSE, the Student Loan Marketing Association or "Sallie Mae" 1996 GSE dissolved... SLM Corporation
Slide 8: What Makes SLM Corporation Unique
8 What Makes SLM Corporation Unique What Makes SLM Corporation Unique .. * Through 6/30/09
Slide 9: Q209 "Core Earnings" Summary
9 Q209 "Core Earnings" Summary
Slide 10: Q209 "Core Earnings" Summary
10 Q209 "Core Earnings" Summary
Slide 11: CP-LIBOR - still volatile but reverting to long-term mean
11 CP Yield - 3M LIBOR CP Yield - 3M LIBOR CP-LIBOR - still volatile but reverting to long-term mean Note: As of July 31, 2009
Slide 12: Floor Income offsets CP-LIBOR dislocation
In low interest rate environments Floor Income earned, but excluded from "Core Earnings", is a natural offset to CP-LIBOR dislocation earnings drag During second quarter, economic floor income was earned on $10.4 billion of annual reset rate loans and $23.6 billion of fixed rate loans * 12 CP - LIBO
Slide 13: Fee Income & Other Income
13 Fee Income & Other Income Contingency Inventory of $10.3 Billion Collecting on behalf of the Dept of Education for close to ten years Upromise - largest private source of 529 plans Guarantor Servicing for student loans APG is re-focused on student loan contingency and collections 2009 1H $831 Mil
Slide 14: Lending Segment Earnings Detail
14 "Core Earnings" basis before 2008 Asset-Backed Financing Facilities Fees Before re-organization-related asset impairments Lending Segment Earnings Detail
Slide 15: Dept. of Education / Government Programs
Dept. of Education / Government Programs Kennedy-Miller Legislation - Signed by President 05/07/08 ECASLA - Broad authority to purchase loans from 10/01/03 - 07/01/09 ECASLA Extension - Signed by President 10/07/08 Extended purchase authority for 2009 - 2010 Academic Year Loan Purchase Commitment Pr
Slide 16: Federal Student Loan Policy Alternatives
Federal Student Loan Policy Alternatives President's Budget Proposal Convert all federal student loans to federal funding by July 2010 Use savings to substantially increase Pell Grants Use private sector firms to service Industry/Community Proposed Modifications = President's Proposal "Plus" Convert
Slide 17: Federal Student Loan Market Outstanding
Federal Student Loan Market Outstanding Government Student Loan Market Distribution 2/28/09 Market Distribution 2/28/09 Market Distribution 2/28/09 Top 10 Holders of FFELP Loans FFYE 9/30/08 FFYE 9/30/08 FFYE 9/30/08 Source: US Department of Education 17
Slide 18: Office of the Chief Executive Officer
Office of the Chief Executive Officer 18 Al Lord, Chief Executive Officer Jack Hewes, Sr. EVP & Chief Lending Officer Jim Truitt, SVP & Chief Compliance Officer David West, SVP & Chief Credit Officer Jack Remondi, Vice Chair & Chief Financial Officer Joe DePaulo, EVP & Chief Marketing Officer Kara W
Slide 19: The U.S. Student Loan Market
19 The U.S. Student Loan Market
Slide 20: Favorable Student Loan Market Trends
20 Source: College Board Note: Academic years, average published tuition, fees, room and board charges at four-year institutions; enrollment-weighted Enrollment Growth + Rising Tuitions + Education Value = Increasing Loan Demand Favorable Student Loan Market Trends (CHART) Higher Education Enrollmen
Slide 21: College Grads Experience Lower Unemployment
College Grads Experience Lower Levels of Unemployment 21 (CHART) Source: U.S. Department of Labor, Bureau of Labor Statistics
Slide 22: The Federal Family Education Loan Program (FFELP)
22 The Federal Family Education Loan Program or "FFELP" Provides lenders an explicit U.S. government guarantee of at least 97% and a fixed yield on student loans made pursuant to the FFELP program Loan pricing, terms and maximum borrowing limits set by Congress Available to undergraduate students, g
Slide 23: Growth in Federal Student Loan Originations
23 Growth in Federal Student Loan Originations In 2008, more borrowers took out more FFELP loans with higher loan balances than ever before Total federal student loan originations, including both FFELP and FDLP loans, increased by 9% in 2008, following a 15% increase in 2007 (1) The U.S. Department
Slide 24: FFELP Student Loan Market Share
24 FFELP Student Loan Market Share *Notes: Sallie Mae includes all Preferred Channel volume Wells Fargo includes Wachovia volumes Bank of America includes Fleet and LaSalle Bank volumes JP Morgan Chase includes Bank One volumes PNC Bank includes National City Bank volumes Source: http://www.fp.ed.go
Slide 25: FFELP Loan Originations - Academic Year
25 FFELP Loan Originations - Academic Year FFELP Loan Originations - Academic Year Originated Nearly $20 Billion of loans in the 08/09 Academic Year Estimated Federal Origination Market Share of 24% Originated $2.7 Billion of loans for third-party servicing clients in the quarter Expect to put all l
Slide 26: Private Loan Originations - Academic Year
26 Private Loan Originations - Academic Year Private Loan Originations - Academic Year Originated Nearly $5 Billion of loans in the 08/09 Academic Year Applications from higher credit borrowers up 5% SMART Option Loans introduced for disbursement beginning July 1
Slide 27: The Private Education Loan Market
27 The Private Education Loan Market Consumer loans made to students and parents specifically to fund the cost of undergraduate, graduate and other forms of post-secondary education Typically used to bridge the funding gap between grants, aid and FFELP loans, and the increasing cost of higher educat
Slide 28: SLM's Private Education Loan Portfolio
28 28 SLM's Private Education Loan Portfolio $34.5 billion of managed outstandings at Q2 2009 18% of SLM's managed student loan portfolio Risk-based pricing Approximately 55% of portfolio has a cosigner, typically a parent Higher education loans typically non-dischargeable in bankruptcy Integrated u
Slide 29: SLM's New Private Education Loan Product
29 29 SLM's New Private Education Loan Product Launched 3/23/09 Eliminates negative amortization during the school and grace period while reducing the average life from 9.5 years to 5.5 years Strategies to achieve a 90% cosigned rate have been deployed Repayment term is driven by cumulative amount b
Slide 30: Private Education Loan Market Demand
30 Private Education Loan Market Demand Private education loans help bridge the gap between funding available through government- sponsored programs and the rapidly increasing cost of education Cost of College AY 2008-2009 Based on a Four-Year Term (CHART) FFELP Limit $31,000 Cost of attendance gap
Slide 31: Private Credit Originations
31 Private Credit Originations (CHART) Source: College Board, Trends in Higher Education Series (2007), 2008 industry data estimated by SLM, 2009 industry data not yet available
Slide 32: Credit Quality
Credit Quality 32 Dream. Invest Succeed
Slide 33: Loan Losses
33 (CHART) 33 Loan Losses Loan Losses + = Private Education Loans 18% U.S. Government Guaranteed Loans 82% Charge-Offs (1) = 0.07% Charge-Offs (1) = 3.13% Total Charge-Offs (1) = 0.66% (1) All data as of June 30, 2009. Managed FFELP charge-offs as a percentage of average managed FFELP assets. Manage
Slide 34: FFELP Education Loan Portfolio
FFELP Education Loan Portfolio FFELP Education Loan Portfolio 34 (1) "Core Earnings" FFELP Loan spread, before provision. Annualized charge-offs as a percentage of average Managed FFELP Loans .
Slide 35: Private Education Loan Portfolio
Private Education Loan Portfolio Private Education Loan Portfolio 35 (1) "Core Earnings" Private Education Loan spread, before provision. Annualized charge-offs as a percentage of average Managed Private Education Loans in repayment.
Slide 36: SLM Private Credit Default Emergence Profile - Payments Made
36 SLM Private Credit Default Emergence Profile - Payments Made (CHART)
Slide 37: Charge-offs driven by Non-Traditional loans
Charge-offs driven by Non-Traditional loans Non-Traditional loans represent less than 13% of the Private Education Loan portfolio Higher quality loans entering repayment in 2009 and 2010 Charge-off Trends - Mix of Traditional vs. Non-Traditional 37 (CHART) (CHART)
Slide 38: Private Education Loan Portfolio Performance
38 Private Education Loan Portfolio Performance (1) Charge-offs as a percentage of average loans in repayment annualized for the quarters presented
Slide 39: Private Education Loan Portfolio Performance
39 Private Education Loan Portfolio Performance (1) Charge-offs as a percentage of average loans in repayment annualized for the quarters presented
Slide 40: Improving Portfolio Quality
40 Improving Portfolio Quality
Slide 41: Portfolio Quality Improving
Portfolio Quality Improving Non-Traditional charge-off rate is 7x greater than Traditional Amount of non-traditional loans entering repayment is declining 76% of Q209 loan originations had cosigners, up from 62% in Q208. The aggregate portfolio is migrating to a higher cosigner percentage Non-cosign
Slide 42: Private Education Loan Portfolio Performance
Private Education Loan Portfolio Performance 42 Tightening of forbearance policies and the economic downturn have adversely impacted the performance of our managed private credit portfolio Early stage delinquency trends have recently shown signs of improvement, as the impact of forbearance tightenin
Slide 43: Servicing: A Competitive Advantage
43 Servicing: A Competitive Advantage
Slide 44: Servicing
44 Servicing Over 2 million serviced accounts after ECASLA loans put to ED in 2009 Contract expected to begin in the second half of August 2009 and span five years with one, five-year renewal option Servicing on new Direct Loans expected to begin in August 2010 Continue to service loans put under EC
Slide 45: SLM's Competitive Advantage
45 SLM's Competitive Advantage Best in Class Vertically Integrated Origination/ Servicing/Collections Strongest National Brand in Education with Consumers and Schools State-of-the-Art Loan Delivery Platform Largest & Most Experienced Sales Team Breadth of Products & Services $185B of Loans Serviced
Slide 46: Operations Locations
Operations Locations Operations Locations Killeen, TX Fishers & Muncie, IN Lynn Haven, FL Wilkes-Barre, PA Newark, DE 46 Reston, VA Corporate Headquarters
Slide 47: Funding Diversity and Liquidity
47 Funding Diversity and Liquidity
Slide 48: Capital Markets Developments
48 Capital Markets Developments Completed $5.1 billion FFELP ABS in April Non-DOE conduit eligible collateral Non-TALF eligible collateral Reduced and extended ABCP program Term Extension of 1 year for $22 billion FFELP facility Terminated and paid in full Private Credit facility Extended $1.5 billi
Slide 49: Recent ABS Transactions
49 Recent ABS Transactions Transaction: Private Credit May 2009-B July 2009-C August 2009-D Issuance Size: $2.593 B $1.027 B $1.680 B Registration Type: 144A Private Private Indicative Pricing: L + 600L + 366 to 30 mo call Prime + 125Prime-71 to 30 mo call Prime + 25Prime-55 to 48 mo call Note: Acti
Slide 50: Liquidity Position Update
50 Liquidity Position Update Includes cash held at Sallie Mae Bank Note: SLM has $3.5 B in available unsecured revolving credit facilities. The Company has never drawn on these facilities. $1.9 billion matures in October 2010 and $1.6 billion matures in October 2011
Slide 51: High Percentage of Student Loans Funded to Term
51 High Percentage of Student Loans Funded to Term High Percentage of Student Loans Funded to Term Employ conservative long-term funding model * Funded to Term includes 15% or $28.4 billion and 7% or $13.6 billion of advances outstanding under the ED Purchase and Participation Program and Straight A
Slide 52: Funding Distribution
Funding Distribution Funding Distribution 52 At June 30, 2009, total managed debt borrowings was $205 billion.
Slide 53: SLM Corporate Debt and ABS Issuance
53 SLM has issued $140 billion of long-term, corporate debt and asset-backed securities since 2005, across a broad range of maturities securities since 2005, across a broad range of maturities securities since 2005, across a broad range of maturities (1) Excludes short-term issuance under SLM's asse
Slide 54: SLM ABS Issuance Volume
54 SLM ABS Issuance Volume SLM ABS Issuance Volume SLM ABS Term Issuance Volume ($ billions) (1) (1) Excludes outstandings under SLM's asset-backed commercial paper program. Totals may not add due to rounding.
Slide 55: SLM Corporate Debt Issuance Volume
55 SLM Corporate Debt Issuance Volume SLM Corporate Debt Issuance Volume SLM Corporate Term Debt Issuance Volume ($ billions) US$ equivalent at the time of issuance. Q2 2009 Debt Repurchase Overview Repurchased $1.1 billion face value of debt generating $325 million in accounting gains
Slide 56: Unsecured Debt Maturities
56 Unsecured Debt Maturities Unsecured Debt Maturities Note: Does not include SLM Bank or Subsidiary funding Repurchased $1.1 billion of debt in Q209 Remaining unsecured debt maturities in 2009 total $2.6 billion
Slide 57: Unencumbered Assets / Unsecured Debt Ratio
57 Unencumbered Assets / Unsecured Debt Ratio YE08 Q109 Q209 Tangible Unencumbered Assets/Unsecured Debt 94% 88% 95%
Slide 58: Free Cash Flow
Free Cash Flow 58 Net New Financing activity includes 2009-C and 2009-D ABS transactions executed in July & Aug respectively and anticipated improved advance rate on assets to be funded in Straight A conduit. Sallie Mae Bank Cash is deducted in this analysis as it is generally not available to servi
Slide 59: Sallie Mae Bank
59 Sallie Mae Bank Bank charter Utah based ILC regulated by FDIC and Utah Department of Financial Institutions (UDFI) Charter granted October 2005 Current bank activity Originates Sallie Mae's private education loans Funded through affiliate and brokered deposits 26.9% Total Risk-based Capital at Ju
Slide 60: Sallie Mae Bank Brokered Deposits
Sallie Mae Bank Brokered Deposits 60 (CHART) *Average remaining life includes the brokered CDs only.
Slide 61: Sallie Mae Bank - Deposits
61 Sallie Mae Bank - Deposits Sallie Mae Bank - Deposits Sallie Mae Bank - Deposits Sallie Mae Bank - Deposits Sallie Mae Bank - Deposits *primarily affiliate demand deposit accounts with no stated maturities
Slide 62: Sallie Mae Bank - Capital
62 Sallie Mae Bank - Capital Sallie Mae Bank - Capital Sallie Mae Bank - Capital
Slide 63: Risk-Adjusted Capitalization
63 Risk-Adjusted Capitalization
Slide 64: Capitalization
64 Capitalization Capitalization SLM Corp GAAP tangible stockholders' equity as a percentage of total managed assets. Average GAAP tangible equity including preferred stock to charge-offs. SLM charge-offs based on total managed loans, annualized.
Slide 65: Capital Allocation
65 Capital Allocation 0.50% 8.00% SLM allocates capital internally based on the risk of the assets it supports SLM Corp Assets Capital Allocation As of June 30, 2009 0% - 25% Cash, Investments, Other Assets & Intangibles 13% of Total Managed Assets Private Education Loans 16% of Total Managed Assets
Slide 66: FFELP Appendix
FFELP Appendix Dream. Invest. Succeed
Slide 67: SLM FFELP ABS Issue Characteristics
67 SLM FFELP ABS Issue Characteristics Historical issue size of $1.0B to $5.0(+)B Tranches denominated in US$ or Euros 'Aaa/AAA/AAA' rated senior tranches make up 97% of issue structure Floating rate tied to 3 mo. LIBOR, with occasional fixed rate issuance Amortizing tranches, with 1 to 15(+) year a
Slide 68: SLM Stafford/PLUS ABS Trusts Prepayment Analysis
68 SLM Stafford/PLUS ABS Trusts Prepayment Analysis Historical SLM Stafford/PLUS ABS CPRs Annualized CPRs for SLM Stafford/PLUS ABS Trusts have decreased significantly as incentives for borrowers to consolidate have declined borrowers to consolidate have declined borrowers to consolidate have declin
Slide 69: SLM Consolidation ABS Trusts Prepayment Analysis
69 SLM Consolidation ABS Trusts Prepayment Analysis Historical Consolidation ABS CPRs CPRs for SLM Consolidation ABS Trusts have declined significantly following legislation that prevented in-school and re-consolidation of borrowers' loans in-school and re-consolidation of borrowers' loans in-school
Slide 70: SLM Corporation Private Credit Appendix
SLM Corporation Private Credit Appendix
Slide 71: Managed Private Loan Performance Traditional vs. Non-Traditional
71 Managed Private Loan Performance Traditional vs. Non-Traditional Reserve coverage of annualized charge-offs totaled 1.4x for both Traditional and Non- Traditional loans for Q2 2009 Non-traditional loans represent only 13% of the Private Education loan portfolio but account for 50% of charge-offs
Slide 72: Private Credit Loan Collections
72 Private Credit Loan Collections Sallie Mae services and collects the loans in its managed private loan portfolio Private credit collections are conducted by a stand-alone consumer credit collections unit, not the company's FFELP collections operations Managed by individuals with prior experience
Slide 73: Forbearance
73 Forbearance A collections tool used to provide borrowers time to improve their ability to repay Between graduation and start of first job Economic hardship Provides borrower with time to obtain employment and income to support their obligations Applied most frequently in the first two years of re
Slide 74: Private Credit Trust Delinquency and Forbearance Seasoning Trends
74 Private Credit Trust Delinquency and Forbearance Seasoning Trends Delinquency and forbearance are highest when loans enter repayment, and diminish as loans season As the trust loans season, delinquency and forbearance are expected to decline Note: Based on historical data through June 30, 2009. D
Slide 75: Private Credit Trust Default Emergence By Years in Repayment
75 75 Private Credit Trust Default Emergence By Years in Repayment Defaults in SLM Private Credit ABS Trusts increase as loans first enter repayment, then diminish steadily over time Based on assumptions in effect as of June 30, 2009
Slide 76: Private Credit Trust Default Emergence By Payments Made
76 76 Private Credit Trust Default Emergence By Payments Made The probability of default substantially diminishes as the number of payments made increases Based on assumptions in effect as of June 30, 2009 Excludes months in forbearance. Includes months of delinquency prior to chargeoff
Slide 77: SLM Private Education Loan Gross Defaults
77 SLM Private Education Loan Gross Defaults Actual-To-Date 2002-A 2003-A 2003-B 2003-C 2004-A 2004-B 2005-A 2005-B 2006-A 2006-B 2006-C 2007-A 2009-A 2009-B Charge-off - 212+ days delinquent (1) 0.0527 0.0524 0.0527 0.0554 0.0598 0.0421 0.0488 0.0291 0.0221 0.0263 0.0295 0.0124 0 0 Bankruptcy or de
Slide 78: SLM Private Credit Gross Defaults vs. Rating Agency Stress Levels
78 SLM Private Credit Gross Defaults Current Lifetime Expectations vs. Constraining Rating Agency Stress Levels at Issuance Current Lifetime Expectations vs. Constraining Rating Agency Stress Levels at Issuance Current Lifetime Expectations vs. Constraining Rating Agency Stress Levels at Issuance As
Slide 79: Private Credit ABS Trusts Forbearance
79 Private Credit ABS Trusts Forbearance 11/30/2002 2/28/2003 5/31/2003 8/31/2003 11/30/2003 2/29/2004 5/31/2004 8/31/2004 11/30/2004 2/28/2005 5/31/2005 8/31/2005 11/30/2005 2/28/2006 5/31/2006 8/31/2006 11/30/2006 2/28/2007 5/31/2007 8/31/2007 11/30/2007 2/29/2008 5/31/2008 8/31/2008 11/30/2008 2/
Slide 80: Private Credit ABS Trusts 31-60 Day Delinquencies
80 Private Credit ABS Trusts 31-60 Day Delinquencies Early delinquencies increased as forbearance policies tightened and have recently declined 11/30/2002 2/28/2003 5/31/2003 8/31/2003 11/30/2003 2/29/2004 5/31/2004 8/31/2004 11/30/2004 2/28/2005 5/31/2005 8/31/2005 11/30/2005 2/28/2006 5/31/2006 8/
Slide 81: Private Credit ABS Trusts 61-90 Day Delinquencies
81 Private Credit ABS Trusts 61-90 Day Delinquencies 11/30/2002 2/28/2003 5/31/2003 8/31/2003 11/30/2003 2/29/2004 5/31/2004 8/31/2004 11/30/2004 2/28/2005 5/31/2005 8/31/2005 11/30/2005 2/28/2006 5/31/2006 8/31/2006 11/30/2006 2/28/2007 5/31/2007 8/31/2007 11/30/2007 2/29/2008 5/31/2008 8/31/2008 1
Slide 82: Private Credit ABS Trusts 90+ Day Delinquencies
82 Private Credit ABS Trusts 90+ Day Delinquencies As expected, later stage delinquency has increased due to tightening of Forbearance and the current economic environment 11/30/2002 2/28/2003 5/31/2003 8/31/2003 11/30/2003 2/29/2004 5/31/2004 8/31/2004 11/30/2004 2/28/2005 5/31/2005 8/31/2005 11/30
Slide 83: Private Credit ABS Trusts Annualized Gross Charge-offs
83 Private Credit ABS Trusts Annualized Gross Charge-offs 11/30/2002 2/28/2003 5/31/2003 8/31/2003 11/30/2003 2/29/2004 5/31/2004 8/31/2004 11/30/2004 2/28/2005 5/31/2005 8/31/2005 11/30/2005 2/28/2006 5/31/2006 8/31/2006 11/30/2006 2/28/2007 5/31/2007 8/31/2007 11/30/2007 2/29/2008 5/31/2008 8/31/2
Slide 84: Private Credit ABS Trusts Historical Cumulative Gross Charge-Offs
84 Private Credit ABS Trusts Historical Cumulative Gross Charge-Offs(1) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 2002 0 0.0002 0.0006 0.0009 0.0012 0.0014 0.0026 0.0034 0.0049 0.0075 0.0089 0.0123 0.0159 0.0178 0.0192 0.0213 0.0233 0.0279 0.0323 0.0361 0.0389 0.0422 0.
Slide 85: SLM Private Credit ABS Trusts Prepayment Analysis
85 SLM Private Credit ABS Trusts Prepayment Analysis Historical SLM Private Credit ABS CPRs Constant prepayment rates increased in 2007 due to the introduction of Private Credit Consolidation loans, but then declined accordingly following SLM's decision to suspend its consolidation loan program 11/3
Slide 86: Appendix
Appendix 86 Dream. Invest, Succeed
Slide 87: GAAP to "Core Earnings" Reconciliation
87 GAAP to "Core Earnings" Reconciliation
Slide 88: Additional Information Available at www.salliemae.com
88 Additional Information Available at www.salliemae.com
Slide 89: Debt Investor Relations Contact Information
89 Debt Investor Relations Contact Information Debt Investor Relations Contact Information Debt Investor Relations Contact Information