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Slide 1: SLM Corporation Private Credit ABS Investor Presentation September 2008
Slide 2: Forward-Looking Statements 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 future events, are forward-looking statements. Forward-looking statements are subject to risks, uncertainties, assumptions and other factors that may cause actual results to be materially different from those reflected in such forward-looking statements. These factors include, among others, the occurrence of any event, change or other circumstances that could give rise to our ability to costeffectively refinance asset-backed financing facilities, due February 2009, which closed in the first quarter of 2008 (collectively, the “2008 Asset-Backed Financing Facilities”), including any potential foreclosure on the student loans under those facilities following their termination; increased financing costs; limited liquidity; any adverse outcomes in any significant litigation to which we are a party; our derivative counterparties terminating their positions with the Company if permitted by their contracts and the Company substantially incurring additional costs to replace any terminated positions; changes in the terms of student loans and the educational credit marketplace (including changes resulting from new laws and regulations and from the implementation of applicable laws and regulations) which, among other things, may reduce the volume, average term and yields on student loans under the Federal Family Education Loan Program (“FFELP”), may result in loans being originated or refinanced under non-FFELP programs, or may affect the terms upon which banks and others agree to sell FFELP loans to the Company. The Company could also be affected by: changes in the demand for educational financing or in financing preferences of lenders, educational institutions, students and their families; incorrect estimates or assumptions by management in connection with the preparation of our consolidated financial statements; changes in the composition of our Managed FFELP and Private Education Loan portfolios; changes in the general interest rate environment and in the securitization markets for education loans, which may increase the costs or limit the availability of financings necessary to initiate, purchase or carry education loans; changes in projections of losses from loan defaults; changes in general economic conditions; changes in prepayment rates and credit spreads; and changes in the demand for debt management services and new laws or changes in existing laws that govern debt management services. All forward-looking statements contained in the Presentation are qualified by these cautionary statements and are made only as of the date this Presentation is filed. The Company does not undertake any obligation to update or revise these forward-looking statements to conform the statement to actual results or changes in the Company’s expectations. September 2008 2
Slide 3: Disclosures Non-GAAP Financial Measures - The following presentation includes non-GAAP performance measures. A presentation of the most comparable GAAP financial measures and a reconciliation of the non-GAAP performance measures to the most directly comparable GAAP financial measures are included in our most recent quarterly earnings release, quarterly report on Form 10-Q, and annual report on Form 10-K, which are available on our website at (http://www.salliemae.com/about/investors/stockholderinfo/earningsinfo) and (http://www.salliemae.com/about/investors/stockholderinfo/secfilings) and on the SEC’s website (http://www.sec.gov). U.S. Government Guaranteed Student Loans – The following presentation contains references to U.S. Government guaranteed student loans. All such references are to loans made in compliance with the Federal Family Education Loan Program (“FFELP”), under Title IV of the Higher Education Act, to finance educational costs. As more fully described in our most recent quarterly earnings release, quarterly report on Form 10-Q, and annual report on Form 10-K, available on our website at (http://www.salliemae.com/about/investors/stockholderinfo/earningsinfo) and (http://www.salliemae.com/about/investors/stockholderinfo) and on the SEC’s website (http://www.sec.gov), the federal guarantee of FFELP loans is conditioned on loans being originated, disbursed and serviced in accordance with Department of Education regulations. In addition, unless a loan default results from the borrower’s death, disability or bankruptcy, the federal government guarantees only 97 percent of the principal balance (95 percent on loans disbursed after October 1, 2012) plus accrued interest and the holder of the loan generally must absorb the three percent (five percent after October 1, 2012) not guaranteed as a loss on the loan (“Risk Sharing”). Additional Information - The following presentation contains certain information about the Company that management believes is important to investors, but should be read in conjunction with other material information about the Company, including, but not limited to, the operational, market and interest rate, political and regulatory, liquidity, credit, and refinancing risks that the Company faces. For a discussion of the risks described above as well as additional information about the Company you should refer to our most recent quarterly earnings release, quarterly report on Form 10-Q, and annual report on Form 10-K, available on our website at (http://www.salliemae.com/about/investors/stockholderinfo/earningsinfo) and (http://www.salliemae.com/about/investors/stockholderinfo/secfilings) and on the SEC’s website (http://www.sec.gov). For a discussion of the specific characteristics of any specific security, you should refer to the pricing supplement, prospectus supplement and/or prospectus applicable to that security. September 2008 3
Slide 4: Contents Page I. II. III. IV. V VI. VII. Appendix A. B. C. D. SLM Private Credit Trust Characteristics SLM Private Credit Trust Analytics SLM Private Credit Managed Portfolio Performance SLM Corporation 40 42 51 60 Introduction and Overview SLM Private Credit Student Loan ABS SLM Private Credit ABS Relative Value SLM Private Credit Student Loan Program Cumulative Loss Expectations Performance Drivers Reason to Invest in SLM Private Credit ABS 5 10 15 21 28 33 37 September 2008 4
Slide 5: I. Introduction and Overview September 2008 5
Slide 6: Introduction and Overview SLM Corporation • • • • • • • • • Leading originator, servicer and collector of student loans, with a 35% market share of all FFELP and private education loan servicing (1) More than 10 million customers, relationships with over 6,000 schools Profitable despite current credit environment Among largest issuers of ABS globally SLM Private Credit Strong, consistent loan performance Unprofitable programs eliminated and new loans repriced Credit underwriting and collection efforts intensified 12 SLM Private Credit ABS issues since 2002, totaling $18.6 billion, all performing well Attractive relative value to comparable ABS asset types (1) Based on Student Loan Servicing Alliance Servicing Survey for academic year 2007. September 2008 6
Slide 7: Student Loan Market Trends • Enrollment Growth + Rising Tuitions + Education Value = Increasing Loan Demand Higher Education Enrollment (millions) Higher Education Enrollment (millions) 20.2 20.4 19.7 19.9 Annual Cost of Education ($ thousands) Annual Cost of Education ($ thousands) Public CAGR: 6.8% Private CAGR: 5.1% Public Private $30.4 $32.3 16.9 17.7 17.3 17.4 18.0 18.3 19.1 19.4 18.6 18.8 $21.5 $8.1 $8.4 $22.2 $23.9 $9.0 $24.9 $26.1 $27.5 $28.7 $9.7 $10.6 $11.4 $12.1 $12.8 $13.6 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: National Center for Education Statistics Note: Total enrollment in all degree-granting institutions; middle alternative projections for 2006 onward 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: College Board Note: Academic years, average published tuition, fees, room and board charges at four-year institutions; enrollment-weighted Cost of College vs. FFELP Loan Limits - Academic Years 97 vs. 07 Cost of College vs. FFELP Loan Limits - Academic Years 97 vs. 07 $141,496 Growth in Non-Federal Student Loan Originations Growth in Non-Federal Student Loan Originations $20 $18 $17.0 $13.8 $18.5 AY2007 AY1997 $73,428 FFELP Loan Shortfall $75,198 $bn $16 $14 $12 $10 $8 $7.6 $5.6 $4.5 $10.1 $28,568 $6 $4 $2 FFELP Limit(1) Private College Public College Private College Public College $0 2001 2002 2003 2004 2005 2006 2007 Source: College Board, Trends in Higher Education Series (2007). Source: College Board. Cost of college includes tuition, fees, room and board, transportation and other expenses for four year degree granting institutions for academic years ended June 30, 1997 and 2007. (1) FFELP loan limit for 4 consecutive yrs of college. Limits increased in July 2008 from $19,000 to $27,000 for dependent students. September 2008 7
Slide 8: Traditional vs Non-Traditional • • • • • SLM’s Managed private education loan portfolio is segmented into two categories: Traditional and Non-Traditional Non-Traditional loans are loans primarily made to borrowers attending schools with unacceptably high default rates, or as exceptions to FICO-based underwriting criteria In 1Q 2008, SLM ceased originating new Non-Traditional loans Traditional loans are made to borrowers at schools with acceptable default rates, where either the borrower or co-borrower meets minimum FICO criteria As of August 31, 2008, 94% of pool collateral across all SLM Private Credit Trusts consisted of Traditional loans September 2008 8
Slide 9: SLM Traditional Loan Net Charge-off Rates vs Credit Cards • • SLM Traditional private credit loan net charge-off rates are well below those of top tier credit card originators SLM’s private credit loans have continued to outperform credit cards as consumer credit has weakened 6.7% 5.8% 5.3% 4.3% 5.7% 5.2% 4.5% 5.0% 4.4% 3.6% 2.9% 2.0% 1.6% 1.7% 6.5% SLM Traditional* American Express** Bank of America*** Q2'07 Q1'08 Citibank JPMorgan Q2'08 * Net charge-offs as a percentage of average Managed private education loans in repayment, annualized. ** U.S. Card Services, excluding write-offs of accrued interest and fees. Includes off-balance sheet securitized card member loans. *** US Consumer & Business Card. September 2008 9
Slide 10: II. SLM Private Credit Student Loan ABS September 2008 10
Slide 11: SLM Private Credit ABS Issue Characteristics Typical SLM Private Credit ABS Transaction Features Typical SLM Private Credit ABS Transaction Features Characteristics of Private Credit ABS Characteristics of Private Credit ABS • • • • Historical issue size of $1.0B to $2.5(+)B US$ denominated Student loan collateral not guaranteed by the U.S. Government Typical capital structure and credit enhancement Class A B C Principal Rating Initial Credit Target Credit Balance % (M/S/F) Enhancement Enhancement 8.50% 15.00% 92.25% Aaa/AAA/AAA Aa2/AA/AA 5.25% 10.125% 3.25% A2/A/A 0.75% 3.00% 4.50% • • • • • • • Collateralized by loans made to students and parents to fund undergraduate and graduate tuition, room and board Underwritten using FICO scores and risk-based pricing Historically, approximately 50% of loans had a co-borrower, typically a parent Certain issues recently upgraded by Moody’s, S&P and Fitch Private credit collateral outperforming other consumer asset classes Private credit student loans are generally nondischargeable in bankruptcy Short (1-3 yrs), intermediate (3-7 yrs) and long (7-10+ yrs) term tranches available • • • Floating rate tied to 3 mo. LIBOR Typically amortizing tranches, with 1 to 15 year average lives Serviced by Sallie Mae, Inc. September 2008 11
Slide 12: Potential SLM Private Credit ABS Structural Changes • • • Collateralized entirely by Traditional private credit loans More credit and liquidity enhancement to reflect higher coupon on securities No other major structural changes to SLM Private Credit Student Loan Trusts planned SLM Private Credit Student Loan Trust 2007-A Initial Credit Enhancement (AAA) Target Enhancement (AAA) Target Overcollateralization Reserve Account Cash Capitalization Account Realized Loss Test Trust Structure 8.5% 15% 2% 0.25% 11.1% 15% year 1, 18% year 2, 20% year 3 Discrete pool of assets and bonds Potential SLM Private Credit Transaction vs. SLM 2007-A Higher Higher Higher Equivalent or higher Higher Equivalent or tighter Discrete pool of assets and bonds September 2008 12
Slide 13: SLM Private Credit ABS Transactions Modeled on Intex • • • SLM Private Credit ABS transactions are now modeled on Intex Forbearance and deferment status projections are expected to be available in the December release of their cash flow engine Transaction cash flows and statistics are also updated on Bloomberg Intex Screenshot September 2008 13
Slide 14: Rating Actions on SLM Private Credit Student Loan ABS • There have been a number of upgrades and no downgrades to Sallie Mae’s Private Credit ABS since the program’s inception in 2002 Moody’s(1) - March 2007 Deal 2002-A 2002-A 2003-A 2003-A 2003-B 2003-B 2004-A 2004-A 2004-B 2004-B Tranche B C B C B C B C B C Previous Rating A1 Baa1 A1 Baa1 A1 Baa1 A1 Baa1 A1 Baa1 Current Rating Aa3 A3 Aa3 A3 Aa3 A3 Aa3 A3 Aa3 A3 Fitch - September 2007 Deal 2002-A 2002-A 2003-A 2003-A 2003-B 2003-B 2003-C 2003-C 2004-A 2004-A 2004-B 2004-B Tranche B C B C B C B C B C B C Previous Rating A BBB A+ BBB+ A+ BBB+ A+ BBB+ A+ BBB+ A+ BBB+ Current Rating AA+ A+ AA A AA A AA A AA A AA A Deal 2002-A 2002-A S&P - July 2008 Tranche B C Previous Rating A BBB Current Rating AA A (1) On September 17, 2008, as a result of Lehman's bankruptcy and rating downgrade, Moody's placed all of the tranches from the SLM Student Loan Trust 2004-1 transaction on review for possible downgrade. Lehman Brothers Special Financing Inc. acted as interest rate swap provider for the class A-6 reset rate notes. The Lehman interest rate swap expires in January 2009 and is fully cash collateralized. September 2008 14
Slide 15: III. SLM Private Credit ABS Relative Value September 2008 15
Slide 16: Bonds Well Protected Against Expected Defaults • SLM Private Student Loan Trust ABS are rated to withstand extremely high default rates on the underlying collateral Default Breakeven Analysis SLM 2007-A Cumulative Default Breakeven (1) Multiple of Current xxExpected Losses (2) Rating SLM 2007-A AAA A 46% 31% 4.6x 3.1x Source: Deutsche Bank Securities Inc. and Sallie Mae. (1) (2) Cumulative default breakeven before dollar of principal loss. Modeled to maturity and based on information as of the close. Assumptions: 3 year default curve of 70/20/10, 75% loss severity, 360 day recovery lag, 20% for 24 months of deferment, 10% for 24 months of forbearance and 10% delinquencies. Estimated by Sallie Mae based on August 31, 2008 data. September 2008 16
Slide 17: Bonds Well Protected Against Extension Risk • • Cash Capitalization Account protects SLM Private Credit ABS against significant average life extension Even with a doubling of deferment and forbearance, bonds in a representative SLM Private Credit ABS issue extend by less than one year 2007-A Extension Analysis Based on Different Prepayment, Deferment and Forbearance Scenarios(1) 0% CPR Expected 2x Expected Avg Life (yrs) (yrs) 3% CPR Expected 2x Expected Avg Life (yrs) (yrs) 6% CPR Expected 2x Expected Avg Life (yrs) (yrs) 9% CPR Expected 2x Expected Avg Life (yrs) (yrs) Class A B C 12.4 15.0 14.3 13.5 15.8 15.1 10.8 13.5 12.5 11.8 14.3 13.4 9.6 12.0 10.9 10.5 12.9 11.8 8.6 10.7 9.5 9.4 11.5 10.4 (1) Modeled to call. Assumes no defaults and an expected case of 20% deferments for 24 months, 10% forbearance for 24 months and 10% delinquencies. September 2008 17
Slide 18: Recessions Historically Have Had Less Impact on College Graduates • • • Income and employment are strongly correlated to educational attainment Recessions have less impact on employment level of college grads Unemployment rate for those with college degrees was at 2.3% in June 2008, compared with 5.5% for the US as a whole Correlation of Earnings and Unemployment to Higher Education $100 $90 $80 $70 $60 $000 8% 6% $50 $40 $30 $20 $10 $0 l ge S. 's er 's ho o lo r so cia H. lle ra es sio ch e Sc as t an Co ct o na l te te 4% 2% 0% M As m e Ba Do th h Le ss Hi g So Earnings Unemployment Rate Source: U.S. Census Bureau, Current Population Survey, 2007 Annual Social and Economic Supplement. Represents median earnings for a full time, year-round worker over age 25. Unemployment data as of 2007. Represents unemployment for civilian non-institutional population over age 25. September 2008 18 Pr of
Slide 19: SLM Traditional Loan 90+ Day Delinquencies vs Credit Cards • 90+ day delinquencies on Traditional Loans continue to run lower than 90+ day delinquencies on prime credit card loans 3.0% 3.0% 2.7% 2.0% 2.0% 1.8% 1.8% 1.5% 1.4% 1.3% 1.5% 1.4% SLM Traditional* Bank of America** Q2'07 Q1'08 Citibank Q2'08 JPMorgan * Delinquencies greater than 90 days as a percentage of managed private education loans in repayment. ** US Consumer & Business Card. American Express 90+ day delinquencies not reported. September 2008 19
Slide 20: SLM Private Credit ABS Pricing vs. Credit Card ABS • Prior to the ABS market disruption, spreads on SLM Private Credit ABS were trading in line with credit card ABS Historical 3 Year AAA Rated ABS Indicative Spread Historical 3 Year AAA Rated ABS Indicative Spread Historical 7 Year AAA Rated ABS Indicative Spread Historical 7 Year AAA Rated ABS Indicative Spread 30 25 60 Private Credit Cards 55 50 45 Private Credit Cards 20 Spread (bps) 40 Spread (bps) 35 30 25 20 15 10 15 10 5 0 (5) Jan-03 Jul-03 Feb-04 Sep-04 Apr-05 Nov-05 Jun-06 Dec-06 Jul-07 5 0 (5) Jan-03 Jul-03 Feb-04 Sep-04 Apr-05 Nov-05 Jun-06 Dec-06 Jul-07 Source: JPMorgan Research September 2008 20
Slide 21: IV. SLM Private Credit Student Loan Program September 2008 21
Slide 22: Sallie Mae’s Private Credit Student Loan Characteristics (1) • • • • • • • Made to undergraduate and graduate students Floating rate, indexed to either LIBOR or Prime, with risk-based pricing Repayment term varies from 15 to 20(+) years, depending on loan balance Payments typically deferred until six months after graduation Underwritten primarily based on FICO, school type and specific school of attendance > 70% of new loans are now being originated with a co-borrower(1), typically a parent, representing a second household for SLM to rely on to support repayment Generally non-dischargeable in bankruptcy (1) Figure for new loans originated in July and August 2008. September 2008 22
Slide 23: Private Credit Loan Products Securitized • School Channel Undergraduate and Graduate Loans – Loans made to students and parents through college financial aid offices to fund 2-year and 4-year college tuition, room and board Direct-To-Consumer Loans – Similar to school channel undergraduate and graduate loans, but originated outside the school channel, using direct marketing channels Private Education Consolidation Loans – Used by qualified students and parents to consolidate outstanding private education loans, with interest and principal due sixty days following disbursement; borrower must have graduated to qualify • • September 2008 23
Slide 24: Private Credit Loan Underwriting Criteria • Underwriting has recently been intensified and enhanced with school-based decision criteria December 2007 Xxxx FICO xxxx Undergraduate and Graduate > 640 Other Borrowing limits Undergraduate: $100,000 Graduate: $150,000 Exceptions for borderline and serial borrowers FICO Seven FICO tiers based on school type and Federal Loan default rates Absolute minimums Not-For-Profit Schools: FICO > 640 For-Profit Schools: FICO > 670 Current(1) Other Borrowing limits school specific Exceptions discontinued School not on excluded list Direct-To-Consumer > 640 Aggregate limit: $130,000 > 730 Aggregate limit: $130,000 Private Credit Consolidation > 640 Graduates only Aggregate limit: $275,000 Temporarily suspended, expected to resume when funding environment improves (1) As of September 2008. September 2008 24
Slide 25: Private Credit Loan Collections • • • • Sallie Mae services and collects the loans in its Private Credit ABS Trusts 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 managing collections operations for consumer loan assets Over the past eighteen months, private credit collections resources have been significantly increased and collections technology and practices enhanced • • Multi-variable analysis has enabled prioritization of collection efforts on higher risk borrowers Forbearance policy has been revamped, with eligibility and duration based on a riskbased decision tree model September 2008 25
Slide 26: 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 repayment Majority of loans are in forbearance for less than 12 months Granted for three month intervals, up to a maximum of 24 months Placing a loan in forbearance suspends payments, with interest capitalized to the loan balance September 2008 26
Slide 27: Performance of Loans Receiving Forbearance • Three years after loans in the Managed portfolio first entered repayment, 60% were current and 8.0% charged-off vs. 68% and 5.4% for loans never entering forbearance Performance of Loans Receiving Forbearance vs Loans Not Receiving Forbearance (1) Status distribution 36 months after entering forbearance for the first time In-School/Grace/Deferment Current 31-60 Days Delinquent 61-90 Days Delinquent 90+ Days Delinquent Forbearance Charged Off Paid 8.5% 60.5% 3.0% 1.5% 2.6% 8.1% 8.0% 7.8% 100.0% Status distribution 36 months after entering repayment for loans never entering forbearance 2.3% 67.6% 0.6% 0.2% 0.5% 0.0% 5.4% 23.4% 100.0% (1) Managed portfolio as of June 30, 2008. Tracked 36 months after first month-end forbearance, or 36 months after repayment begin date. Repayment cohorts since January 2001. Loans receiving first forbearances since January 2001. September 2008 27
Slide 28: V. Cumulative Loss Expectations September 2008 28
Slide 29: SLM Private Credit Default Emergence Profile • Defaults in SLM Private Credit ABS Trusts increase as loans first enter repayment, then diminish steadily over time Expected Loss Emergence Timing 100.0% 90.0% 80.0% Percent of Total Defaults 85% 78% 69% 55% 89% 92% 94% 96% 97% 98% 99% 100% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 1 2 3 4 2%2% 38% 24% 14% 12% 18% 14% 9% 7% 4% 8 3% 9 2% 10 2% 11 1% 12 1% 13 1% 14 1% 15 5 6 7 Years in Repayment Defaults Per Repayment Year Cumulative Default 29
Slide 30: SLM Private Credit Gross Defaults: Actual-To-Date vs. Current Lifetime Expectations Actual-to-Date Cumulative Gross Defaults and Current Lifetime Expectations, including Bankruptcy Information All Trust Loans 14.0% 11.7% 12.0% Percent of Original Pool Balance 10.0% 9.6% 8.3% 7.9% 8.4% 8.7% 10.0% 9.4% 8.0% 7.3% 6.0% 6.5% 7.5% 6.0% 4.81% 4.0% 4.12% 4.37% 3.69% 4.35% 3.67% 4.63% 3.94% 4.86% 3.02% 2.39% 3.96% 3.11% 2.49% 2.0% 1.81% 1.32% 1.27% 0.86% 2006-A 1.50% 1.02% 2006-B 1.67% 0.62% 1.16% 2006-C 0.28% 2007-A 0.0% 2002-A 2003-A 2003-B 2003-C 2004-A 2004-B 2005-A 2005-B Charge-off - 212+ days delinquent (1) Bankruptcy or death - now current or paid off (2) Bankruptcy or death - other (3) Current Lifetime Expected Loss (4) For SLM Private Credit Student Loan Trusts issued prior to 2005-B, the servicer has the option, but not the obligation, to repurchase loans that (i) become 180+ days delinquent and/or (ii) have a borrower who filed for bankruptcy or died . To date, the servicer has exercised this repurchase option and actual charge-offs in these trusts equals zero. For the purposes of comparison across all deals, this chart reflects trust charge-offs for SLM Private Credit Student Loan Trusts issued prior to 2005-B as if the servicer had not exercised its repurchase option. (1) (2) (3) (4) Charge-offs per the servicer’s portfolio definition which is generally 212+ days delinquent. Includes loans for which a borrower has filed bankruptcy which have subsequently become 212+ days delinquent. Loans that were transferred to a co-borrower’s account due to bankruptcy or death and subsequently charged off are not included. Charge-offs due to a borrower’s bankruptcy filing for which the loan is now current or paid off. Loans that were transferred to a co-borrower’s account due to bankruptcy or death and are now paid off or current are not included. For loans not transferred to a co-borrowers account, charge-offs due to a borrower’s bankruptcy filing or death for which the loan is not current or paid off but has not become 212+ days delinquent. These loans can be in various statuses including: bankruptcy stay, deferment, forbearance or delinquency. All loans that were transferred to a co-borrower’s account due to bankruptcy or death are included. Charge-offs per the servicer’s portfolio definition explained in footnote (1). 30
Slide 31: SLM Private Credit Gross Defaults: Actual To Date vs. Current Lifetime Expectations Actual-to-Date Cumulative Gross Defaults and Current Lifetime Expectations, including Bankruptcy Information Current Criteria Loans Only 14.0% 12.0% 9.6% 8.2% 8.2% 8.1% 8.4% Percent of Original Pool Balance 10.0% 7.5% 7.5% 7.9% 8.0% 5.7% 6.0% 7.2% 7.4% 7.0% 4.0% 3.70% 3.07% 4.02% 3.46% 3.38% 2.88% 3.40% 2.84% 3.25% 2.17% 2.51% 1.71% 2.0% 1.79% 1.37% 2005-A 1.53% 1.12% 2005-B 1.06% 0.74% 2006-A 1.03% 0.71% 2006-B 1.13% 0.39% 0.79% 2006-C 0.18% 2007-A 0.0% 2002-A Charge-off (1) 2003-A 2003-B 2003-C 2004-A 2004-B Bankruptcy or Death/Not Yet Discharged or 212 Days Delq (2) Cumulative Lifetime Expected Loss (3) For SLM Private Credit Student Loan Trusts issued prior to 2005-B, the servicer has the option, but not the obligation, to repurchase loans that (i) become 180+ days delinquent and/or (ii) have a borrower who filed for bankruptcy or died . To date, the servicer has exercised this repurchase option and actual charge-offs in these trusts equals zero. For the purposes of comparison across all deals, this chart reflects trust charge-offs for SLM Private Credit Student Loan Trusts issued prior to 2005-B as if the servicer had not exercised its repurchase option. (1) (2) (3) Charge-offs per the servicer’s portfolio definition which is generally 212+ days delinquent. Includes loans for which a borrower has filed bankruptcy which have subsequently become 212+ days delinquent. Loans that were transferred to a co-borrower’s account due to bankruptcy or death and subsequently charged off are not included. Charge-offs due to a borrower’s bankruptcy filing for which the loan has not charged off per the definition in footnote (1). Loans can be in various statuses including: current, paid in full, bankruptcy stay, deferment, forbearance or delinquency. All loans that were transferred to a co-borrower’s account due to bankruptcy or death are included. Expected loss information includes charge-offs under the managed portfolio definition explained in (1). In general, Medloans are not included in the Current Criteria pool because they were not historically underwritten using FICO score. Medloans have low default rates and were included in higher proportions in the 2002 and 2003 deals. Exclusion of this segment of strong performing loans causes the default expectation to appear higher in the Current Criteria for 2003-A and 2003-B. 31
Slide 32: SLM Private Credit Gross Defaults: Current Lifetime Expectations vs. Constraining Rating Agency Stress Levels at Issuance Constraining Rating Agency Stress Levels at Issuance for 'AAA' and 'A' Ratings versus Current Lifetime Cumulative Gross Default Expectations All Trust Loans 45.0% 40.0% 35.0% Percent of Original Pool Balance 36.6% 33.8% 29.4% 27.7% 27.6% 25.6% 24.7% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 26.0% 25.4% 26.4% 27.2% 27.1% 27.7% 24.2% 21.7% 20.4% 19.2% 20.0% 19.9% 20.1% 21.6% 20.9% 22.0% 19.4% 11.7% 6.0% 2002-A 6.5% 7.3% 7.5% 8.3% 7.9% 9.6% 8.4% 8.7% 9.4% 10.0% 2003-A 2003-B 2003-C 2004-A 2004-B 2005-A 2005-B 2006-A 2006-B 2006-C 2007-A Current Lifetime Gross Current Loss Expectation (1) Single A (Constraining Level) AAA (Constraining Level) (1) Charge-offs per the servicer’s portfolio definition which is generally 212+ days delinquent. Includes loans for which a borrower has filed bankruptcy which have subsequently become 212+ days delinquent. Source: Sallie Mae 32
Slide 33: VI. Performance Drivers September 2008 33
Slide 34: SLM Private Credit Performance Drivers • Among the multiple variables that impact the performance of private credit loans, a combination of the following has the greatest impact – FICO score of Borrower or Co-Borrower(1) – Presence of a Co-Borrower – School attended: • Likelihood the borrower completes their education and graduates from school • Likelihood the borrower obtains employment • Likelihood the borrower earns a stable and sufficient income stream to service their loan (1) If there is a co-borrower, FICO score represents higher of borrower and co-borrower score. September 2008 34
Slide 35: Performance Data Segmentation • Unless otherwise noted, historical data provided in this section has been segmented into two categories reflecting SLM’s current underwriting and pool selection criteria Loans Meeting Current Selection Criteria Not-For-Profit Schools, FICO ≥ 640 For-Profit Schools, FICO ≥ 670 School Not Excluded List Loans Not Meeting Current Selection Criteria Not-For-Profit Schools, FICO < 640 For-Profit Schools, FICO < 670 Excluded Schools • Loans originated without a FICO score are not included in the data September 2008 35
Slide 36: SLM Private Credit Performance Drivers: Original FICO • Original FICO is among several factors historically proven to be highly correlated with actual losses in Sallie Mae’s Managed Private Credit Loan portfolio Impact of Original FICO Actual Cumulative Gross Defaults for Loans in Repayment Since 2002 SLM Managed Loans Meeting Current Selection Criteria(1) 15% Cumulative Gross Default Rate (% of repayment principal) 13% 10% 8% 5% 3% 0% 640-669 670-699 700-729 730-759 760-850 August 2008 Disbursements Wtd. Avg. Margin to LIBOR % of Total (1) Data as of June 30, 2008. 640-669 8.3% 6.3% 670-699 8.2% 15.3% 700-729 7.2% 17.6% 730-759 6.6% 23.0% 760-850 4.8% 37.8% September 2008 36
Slide 37: VII. Reasons to Invest in SLM Private Credit ABS September 2008 37
Slide 38: Reasons to Invest in SLM Private Credit ABS • • • • • • • SLM is the market leader in private education loans SLM originates, services and collects all of its private credit loans SLM Private Credit ABS are well-protected, with 2007-A able to withstand 46% cumulative losses, or 4.6x current expected losses at a triple-A level High quality portfolio, with high average FICO and strong historical performance Loans to college graduates perform better than loans made to non-college graduates with similar credit profiles Positive industry dynamics Extremely attractive relative value compared to other consumer asset types September 2008 38
Slide 39: Contact Information Ken Fischbach Senior Vice President, Corporate Finance Sallie Mae, Inc. 12061 Bluemont Way Reston, VA 20190 703-984-6310 kenneth.fischbach@slma.com Leo Subler Vice President, Corporate Finance Sallie Mae, Inc. 12061 Bluemont Way Reston, VA 20190 703-984-5564 leo.subler@salliemae.com September 2008 39
Slide 40: Appendix A: SLM Private Credit ABS Trust Characteristics September 2008 40
Slide 41: SLM Private Credit ABS Trust Characteristics Deal Size (mm) ABI W A FICO at Origination T-Bill Loan % Prime Loan % Fixed Loan % In School % Grace % Deferment % Forbearance % Repayment % W A T-Bill Margin W A Prime Margin % with Co-Borrower % without Co-Borrower W A Current Rate W A Seasoning (months) (2) (1) SLM Private Credit Student Loan Trust 2002-A 2003-A 2003-B 2003-C 2004-A 2004-B 2005-A 2005-B 2006-A 2006-B 2006-C $0.7 $1.1 $1.3 $1.3 $1.3 $1.5 $1.7 $1.7 $2.2 $2.2 $1.2 $14,220 $13,021 $12,068 $13,648 $11,944 $11,767 $11,394 $11,690 $12,121 $12,016 $10,999 718 13.9% 85.9% 0.2% 16.6% 44.1% 1.6% 2.7% 35.0% 2.87% 0.85% 39.3% 60.7% 5.52% 5 715 30.0% 69.2% 0.8% 47.4% 7.3% 0.1% 4.6% 40.6% 3.34% 0.86% 44.1% 55.9% 5.07% 40 719 20.4% 79.3% 0.3% 61.3% 7.3% * 2.4% 29.1% 3.28% 0.91% 50.0% 50.0% 5.05% 35 718 12.8% 87.1% 0.2% 51.4% 23.0% 0.1% 4.2% 21.3% 3.25% 0.91% 49.8% 50.2% 5.06% 26 716 19.9% 80.0% 0.1% 44.5% 13.5% 2.3% 9.1% 30.6% 3.18% 1.39% 44.2% 55.8% 5.15% 17 720 4.5% 95.4% * 85.4% 7.7% 1.0% 1.2% 4.7% 2.90% 1.24% 50.6% 49.4% 5.18% 21 71.4% 12.3% 1.3% 1.7% 13.3% 3.11% 1.85% 48.3% 51.7% 7.17% 9 717 2.9% 97.1% * 68.2% 19.8% 1.1% 1.7% 9.1% 3.11% 1.52% 51.2% 48.8% 7.90% 9 721 1.7% 98.3% * 77.6% 8.4% 1.0% 2.2% 10.8% 2.90% 1.96% 51.8% 48.2% 9.41% 6 719 1.3% 98.7% * 65.9% 13.6% 0.8% 3.2% 16.5% 2.89% 2.10% 57.9% 42.1% 9.54% 12 718 0.1% 99.9% * 61.4% 19.9% 1.3% 3.5% 13.9% 3.07% 2.30% 48.3% 51.7% 10.50% 10 714 1.2% 98.8% * 2007-A $2.2 $13,020 718 0.5% 99.5% * 71.1% 8.0% 1.1% 2.4% 17.4% 2.67% 2.56% 58.1% 41.9% 10.79% 4 (1) If there is a co-borrower, FICO score represents higher of borrower and co-borrower score (2) Seasoning only for loans in repayment * Represents a percentage greater than 0% but less than 0.05%. September 2008 41
Slide 42: Appendix B: SLM Private Credit ABS Trust Analytics September 2008 42
Slide 43: Performance Data Segmentation • Unless otherwise noted, historical data provided in this section has been segmented into two categories reflecting SLM’s current underwriting and pool selection criteria Loans Meeting Current Selection Criteria Not-For-Profit Schools, FICO ≥ 640 For-Profit Schools, FICO ≥ 670 School Not Excluded List Loans Not Meeting Current Selection Criteria Not-For-Profit Schools, FICO < 640 For-Profit Schools, FICO < 670 Excluded Schools • Loans originated without a FICO score are not included in the data September 2008 43
Slide 44: SLM Private Credit ABS Collateral Characteristics: Performance Drivers SLM Private Credit Student Loan Trust, Loans Meeting Current Selection Criteria At Origination % with Co-Borrower % without Co-Borrower FICO(1) 760-850 730-760 700-729 670-699 640-669 % Meeting Current Selection Criteria 2002-A 47% 53% 2003-A 57% 43% 2003-B 60% 40% 2003-C 54% 46% 2004-A 54% 46% 2004-B 55% 45% 2005-A 51% 49% 2005-B 53% 47% 2006-A 53% 47% 2006-B 59% 41% 2006-C 51% 49% 2007-A 60% 40% 25% 20% 21% 18% 15% 93% 23% 19% 21% 20% 17% 95% 26% 18% 21% 19% 16% 95% 26% 19% 21% 18% 16% 94% 24% 19% 21% 20% 16% 91% 25% 20% 21% 18% 16% 94% 23% 20% 22% 19% 16% 88% 25% 20% 21% 19% 15% 97% 27% 18% 20% 20% 15% 96% 26% 17% 22% 21% 14% 91% 24% 18% 21% 22% 15% 87% 27% 17% 19% 21% 16% 88% (1) If there is a co-borrower, FICO score represents higher of borrower and co-borrower score. September 2008 44
Slide 45: SLM Private Credit 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 90+ Day Delinquencies, % of Loans in Repayment SLM Private Credit Trusts 50.0% 45.0% 40.0% Percent Seasoned 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 0-12 13-24 25-36 37-48 49-60 61-72 Paym ents Made Forbearance, % of Loans in Repayment and Forbearance SLM Private Credit Trusts 30.0% 25.0% Percent Seasoned 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 0-12 13-24 25-36 37-48 49-60 61-72 Time in Repayment 4.5% 4.0% 3.5% >90 dpd % 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 20.0% 15.0% 10.0% 5.0% 0.0% Current Seasoning Current Delinquency Current Seasoning Current Forbearance 45 Forbearance %
Slide 46: SLM Private Credit ABS Trusts: 90+ Day Delinquencies • • Overall, loans meeting current criteria exhibit relatively stable performance Upward trend in delinquencies for newer trusts is driven by a higher percentage of loans first entering repayment, when borrowers are most likely to become delinquent 90+ Day Delinquencies as a Percent of Loans in Repayment Loans Meeting Current Selection Criteria in SLM Trusts by Year of Issuance Percent of Rpmt Balance 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Fe b07 M ay -0 7 Au g07 No v07 Fe b03 M ay -0 3 Au g03 No v03 Fe b04 M ay -0 4 Au g04 No v04 Fe b06 M ay -0 6 Au g06 No v06 Fe b05 M ay -0 5 Au g05 No v05 No v02 Fe b08 M ay -0 8 Au g08 Percent of Rpmt Balance 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 5 1 2 3 4 6 7 8 9 11 10 12 13 22 14 21 23 15 16 17 Quarters Since Inception 2002 2003 2004 2005 2006 2007 September 2008 46 18 19 20 24
Slide 47: SLM Private Credit ABS Trusts: Forbearance • • Use of forbearance as a collection tool peaked in early 2008, and has generally declined since Forbearance usage is typically highest when loans enter repayment, and declines as loans season Loans in Forbearance as a Percent of Loans in Repayment and Forbearance Loans Meeting Current Selection Criteria in SLM Trusts by Year of Issuance 30.0% Percent of Rpmt+Forb 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Fe b08 M ay -0 8 Au g08 Fe b07 M ay -0 7 Au g07 No v07 Fe b06 M ay -0 6 Au g06 No v06 Fe b05 M ay -0 5 Au g05 No v05 Fe b04 M ay -0 4 Au g04 No v04 Fe b03 M ay -0 3 Au g03 No v03 No v02 Percent of Rpmt+Forb 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 2 6 1 3 5 7 4 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Quarters Since Inception 2002 2003 2004 2005 2006 2007 September 2008 47 24
Slide 48: SLM Private Credit ABS Trusts: Annualized Gross Charge-offs • • Charge-off levels increased in 2007, but have since generally stabilized As per expectations, more recent Trusts with a greater percentage of borrowers first entering repayment, show a higher levels of charge-offs Annualized Gross Charge-Offs as a Percent of Loans in Repayment Loans Meeting Current Selection Criteria in SLM Trusts by Year of Issuance 5.0% Percent of Rpmt 4.0% 3.0% 2.0% 1.0% 0.0% No v02 Fe b05 M ay -0 5 Au g05 No v05 Fe b04 M ay -0 4 Au g04 No v04 Fe b03 M ay -0 3 Au g03 No v03 Fe b07 M ay -0 7 Au g07 No v07 Fe b06 M ay -0 6 Au g06 No v06 Fe b08 M ay -0 8 Au g08 5.0% Percent of Rpmt 4.0% 3.0% 2.0% 1.0% 0.0% 1 2 3 4 5 6 7 8 9 14 10 Quarters Since Inception 2002 2003 2004 11 12 2005 13 2006 15 16 2007 (1) For SLM Private Credit Student Loan Trusts issued prior to 2005-B, the servicer has the option, but not the obligation, to repurchase loans that (i) become 180+ days delinquent and/or (ii) have a borrower who filed for bankruptcy or died . To date, the servicer has exercised this repurchase option and actual charge-offs in these trusts equals zero. For the purposes of comparison across all deals, this chart reflects trust charge-offs for SLM Private Credit Student Loan Trusts issued prior to 2005-B as if the servicer had not exercised its repurchase option. September 2008 48 17 18 19 20 21 22 23 24
Slide 49: SLM Private Credit ABS Trusts: Historical Cumulative Gross Charge-Offs(1) Cumulative Gross Charge-Offs as a Percent of Original Pool Balance Loans Meeting Current Selection Criteria in SLM Trusts by Year of Issuance Percent of Original Pool Balance 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% N ov -0 2 Fe b03 M ay -0 3 Au g03 N ov -0 3 Fe b04 M ay -0 4 Au g04 N ov -0 4 Fe b05 M ay -0 5 Au g05 N ov -0 5 Fe b06 M ay -0 6 Au g06 N ov -0 6 Fe b07 M ay -0 7 Au g07 N ov -0 7 Fe b08 M ay -0 8 Au g08 Percent of Original Pool Balance 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 6 1 2 3 4 5 7 8 9 13 12 18 11 10 Quarters Since Inception 2002 2003 2004 2005 14 15 2006 16 (1) For SLM Private Credit Student Loan Trusts issued prior to 2005-B, the servicer has the option, but not the obligation, to repurchase loans that (i) become 180+ days delinquent and/or (ii) have a borrower who filed for bankruptcy or died . To date, the servicer has exercised this repurchase option and actual charge-offs in these trusts equals zero. For the purposes of comparison across all deals, this chart reflects trust charge-offs for SLM Private Credit Student Loan Trusts issued prior to 2005-B as if the servicer had not exercised its repurchase option. September 2008 49 17 2007 19 20 21 22 23
Slide 50: SLM Private Credit ABS Trusts Prepayment Analysis • 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 Historical SLM Private Credit ABS CPRs 15.0% 14.0% 13.0% 12.0% Constant Prepayment Rate (CPR) ght 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Nov-02 Feb-03 May-03 Aug-03 Nov-03 Feb-04 May-04 Aug-04 Nov-04 Feb-05 May-05 Aug-05 Nov-05 Feb-06 May-06 Aug-06 Nov-06 Feb-07 May-07 Aug-07 Nov-07 Feb-08 May-08 2002-A 2003-A 2003-B 2003-C 2004-A 2004-B 2005-A 2005-B 2006-A 2006-B 2006-C 2007-A September 2008 50
Slide 51: Appendix C: SLM Private Credit Managed Portfolio Performance September 2008 51
Slide 52: SLM Private Credit Performance Data Methodology Loans Meeting Current Selection Criteria Methodology – • • • • • Performance metrics are expressed relative to the balance of loans entering repayment (including capitalized interest from the school period) Performance is captured at the end of each quarter or year shown in the data; intramonth delinquencies and retroactive forbearances are not reflected Repayment cohorts are based on calendar years Timing of delinquency, forbearance, and default is based on the elapsed calendar time between the beginning of repayment and the period shown For the last period shown in each cohort, not all the underlying monthly cohorts have completed that full twelve month interval since they entered repayment. Partial periods are shown to provide the maximum amount of current information 52
Slide 53: SLM Private Credit Portfolio Performance Cohort Cumulative Defaults: Loans Meeting Current Selection Criteria 6.0% 5.0% 2002 2003 3.0% 2004 2005 2006 2007 Default Percent 4.0% 2.0% 1.0% 0.0% 0 1 2 3 Years Since Repayment Begin 4 5 6 Repayment Year 2002 2003 2004 2005 2006 2007 0 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 1 0.2% 0.3% 0.3% 0.1% 0.2% 0.2% 0.2% Cumulative Defaults Years in Repayment 2 3 0.4% 1.4% 0.7% 1.5% 0.6% 2.0% 0.5% 2.0% 1.2% 0.8% 2.1% 4 2.4% 2.9% 3.1% 5 4.0% 3.9% 6 5.0% 3.3% 4.5% 5.5% 53
Slide 54: SLM Private Credit Managed Portfolio Performance Cohort Cumulative Defaults: Loans Meeting Current Selection Criteria – 760+ FICO 2.5% 2.0% 2002 1.5% 2003 2004 2005 1.0% 2006 2007 0.5% Default Percent 0.0% 0 1 2 3 Years Since Repayment Begin 4 5 6 Repayment Year 2002 2003 2004 2005 2006 2007 0 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 1 0.3% 0.1% 0.1% 0.0% 0.1% 0.1% 0.1% Cumulative Defaults Years in Repayment 2 3 0.3% 0.7% 0.3% 0.6% 0.2% 0.7% 0.2% 0.7% 0.3% 0.3% 0.7% 4 0.9% 1.0% 1.1% 5 1.6% 1.4% 6 2.0% 1.1% 1.6% 2.0% 54
Slide 55: SLM Private Credit Managed Portfolio Performance Cohort Cumulative Defaults: Loans Meeting Current Selection Criteria – 730-759 FICO 3.0% 2.5% 2002 2003 1.5% 2004 2005 2006 2007 Default Percent 2.0% 1.0% 0.5% 0.0% 0 1 2 3 Years Since Repayment Begin 4 5 6 Repayment Year 2002 2003 2004 2005 2006 2007 0 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 1 0.1% 0.2% 0.2% 0.0% 0.1% 0.1% 0.1% Cumulative Defaults Years in Repayment 2 3 0.2% 0.9% 0.3% 0.7% 0.3% 1.1% 0.2% 1.1% 0.6% 0.4% 1.1% 4 1.4% 1.3% 1.7% 5 2.1% 2.0% 6 2.7% 1.7% 2.4% 3.0% 55
Slide 56: SLM Private Credit Managed Portfolio Performance Cohort Cumulative Defaults: Loans Meeting Current Selection Criteria – 700-729 FICO 5.0% 4.5% 4.0% 3.5% Default Percent 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 0 1 2 3 Years Since Repayment Begin 4 5 6 2002 2003 2004 2005 2006 2007 Repayment Year 2002 2003 2004 2005 2006 2007 0 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 1 0.1% 0.4% 0.3% 0.1% 0.2% 0.2% 0.2% Cumulative Defaults Years in Repayment 2 3 0.3% 1.1% 0.8% 1.6% 0.6% 1.9% 0.5% 1.9% 1.1% 0.7% 2.0% 4 2.1% 2.8% 2.9% 5 3.6% 3.9% 6 4.5% 3.0% 4.3% 5.1% 56
Slide 57: SLM Private Credit Managed Portfolio Performance Cohort Cumulative Defaults: Loans Meeting Current Selection Criteria – 670-699 FICO 8.0% 7.0% 6.0% Default Percent 2002 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 0 1 2 3 Years Since Repayment Begin 4 5 6 2003 2004 2005 2006 2007 Repayment Year 2002 2003 2004 2005 2006 2007 0 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 1 0.2% 0.2% 0.4% 0.1% 0.3% 0.3% 0.3% Cumulative Defaults Years in Repayment 2 3 0.7% 2.1% 0.8% 2.0% 0.8% 3.0% 0.7% 3.0% 1.9% 1.2% 3.2% 4 3.6% 4.1% 4.8% 5 5.6% 5.5% 6 7.3% 5.0% 6.7% 8.3% 57
Slide 58: SLM Private Credit Managed Portfolio Performance Cohort Cumulative Defaults: Loans Meeting Current Selection Criteria – 640-669 FICO 12.0% 10.0% 2002 2003 6.0% 2004 2005 2006 2007 Default Percent 8.0% 4.0% 2.0% 0.0% 0 1 2 3 Years Since Repayment Begin 4 5 6 Repayment Year 2002 2003 2004 2005 2006 2007 0 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 1 0.2% 0.5% 0.5% 0.2% 0.6% 0.5% 0.4% Cumulative Defaults Years in Repayment 2 3 0.7% 2.8% 1.4% 3.1% 1.0% 4.0% 1.0% 3.9% 2.8% 1.7% 4.4% 4 5.0% 6.1% 6.3% 5 8.2% 8.0% 6 10.2% 6.9% 9.2% 11.2% 58
Slide 59: SLM Private Credit Managed Portfolio Performance (All Loans) Cumulative Cohort Recovery Rates • • Recovery data is based substantially on experience under HICA, a captive insurance subsidiary of SLM that collected and recovered defaulted loans until 2004, when HICA was dissolved and SLM began managing recoveries in-house Current expectations are that recovery efforts conducted by SLM will ultimately collect more than HICA, and that the timing of collections will be more front-loaded RECOVERIES MADE THROUGH DECEMBER 31, 2006 PAYMENT RECOVERIES ONLY YEAR PAID 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 1 0.4% 0.5% 0.3% 1.3% 1.7% 2.5% 1.2% 0.5% 1.4% 1.6% 1.6% 1.7% 1.9% 1.0% 1.6% 1.3% 1.1% 2 2.1% 3.8% 2.7% 5.5% 5.0% 4.6% 4.2% 2.4% 3.3% 3.7% 3.7% 4.1% 5.4% 2.7% 3.2% 4.1% 2.8% 3 4.5% 9.9% 5.0% 9.7% 6.9% 6.6% 6.5% 4.3% 4.9% 5.7% 5.8% 6.0% 7.6% 5.1% 5.4% 5.9% 3.8% 4 10.8% 11.0% 8.2% 12.7% 8.9% 9.4% 8.9% 6.1% 6.3% 7.3% 8.4% 8.3% 10.8% 7.4% 7.1% 7.2% 4.0% 5 18.1% 15.0% 11.2% 15.5% 10.4% 11.1% 11.3% 7.7% 8.0% 9.0% 10.6% 12.0% 13.7% 10.0% 8.2% 7.2% RECOVERIES MADE BY YEAR AFTER CLAIM PAID 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20.3% 23.5% 23.5% 23.5% 23.5% 23.5% 23.5% 23.5% 23.5% 23.5% 23.5% 23.5% 23.5% 23.5% 16.3% 16.7% 16.8% 17.0% 17.1% 17.1% 17.1% 17.1% 17.3% 17.5% 18.0% 18.3% 18.3% 18.3% 13.9% 16.7% 19.5% 22.0% 23.8% 27.5% 31.2% 33.1% 33.8% 35.6% 36.0% 36.9% 17.2% 18.2% 20.5% 21.4% 22.2% 23.2% 25.2% 26.5% 28.4% 29.5% 29.8% 29.8% 12.0% 13.7% 14.9% 16.8% 18.2% 20.2% 21.7% 23.0% 23.6% 23.7% 23.7% 12.9% 14.7% 16.8% 18.5% 20.6% 23.3% 25.1% 26.3% 26.8% 26.8% 13.1% 15.7% 17.3% 19.2% 21.1% 23.3% 25.0% 25.3% 25.3% 9.6% 11.2% 12.6% 14.7% 16.9% 18.9% 19.4% 19.5% 10.1% 12.8% 15.1% 18.8% 21.1% 22.5% 22.5% 11.5% 14.5% 16.6% 18.3% 19.4% 19.5% 12.8% 14.6% 17.0% 17.8% 17.8% ASSET PERFORMANCE GROUP 14.6% 17.9% 18.7% 18.7% P&I Recoveries through 6/30/2008 15.4% 16.8% 17.0% Chargeoff $ 1 2 3 10.8% 10.9% 2005 $ 93,241,266 3.2% 7.9% 12.5% 8.2% 2006 $ 101,542,402 4.0% 7.4% 2007 $ 303,165,171 2.4% September 2008 59
Slide 60: Appendix D: SLM Corporation Update September 2008 60
Slide 61: Sallie Mae Update • • • • • • • DOE funding authority – extended through academic year 09/10 – assures profitability on new Stafford/PLUS loans, and eliminates funding need for this asset Term FFELP ABS market continues to provide funding, with $5.1B raised in August and $18.5B YTD ABCP program reduced by $6.3B, with outstandings to be reduced further by year end Access to unsecured debt markets re-established in June with a $2.5B issue Earnings, liquidity and portfolio performance remain strong in the current environment Private loan portfolio continues to perform well, with further enhancements to product design, underwriting and collections practices underway Access to deposit growth through Sallie Mae Bank begins November 2008 September 2008 61
Slide 62: Traditional vs. Non-Traditional Private Loan Performance 6/30/2008 Traditional Loans Outstanding Loans in Repay % with a Co-Borrower 90 Days Delinq as a % of Repay & Forb Forb as a % of Repay & Forb Annualized Net C/O's as a % of Repay $28,349 $14,433 57.7% 1.4% 12.0% 2.0% 6/30/2008 Non-Traditional Loans Outstanding Loans in Repay % with a Co-Borrower 90 Days Delinq as a % of Repay & Forb Forb as a % of Repay & Forb Annualized Net C/O's as a % of Repay $4,873 $2,451 26.3% 8.0% 18.5% 15.0% 3/31/2008 $27,502 $12,683 57.6% 1.5% 15.5% 1.7% 3/31/2008 $4,811 $2,187 25.7% 8.4% 21.4% 12.9% 12/31/2007 $25,791 $12,711 57.1% 1.5% 12.8% 1.5% 12/31/2007 $4,580 $2,155 25.4% 8.9% 19.4% 10.6% 9/30/2007 $24,474 $10,784 56.8% 1.5% 12.6% 1.6% 9/30/2007 $4,368 $2,015 25.0% 8.5% 16.4% 11.7% 6/30/2007 $22,283 $10,871 56.4% 1.2% 10.6% 1.6% 6/30/2007 $4,119 $1,969 24.4% 7.9% 15.0% 13.5% • Reserve coverage of annualized net charge-offs totaled 2.0x and 2.6x for Traditional and Non-Traditional loans respectively for the first half of 2008 September 2008 62
Slide 63: 1H 2008, 2007 and Full Year 2007, 2006 Earnings Summary 1H 2008 $344 $8.4 $3.4 $140.8 $31.1 $171.9 18% 1.56% $374 3.6% $514 $678 $5,535 2.1% 1H 2007 $440 $8.1 $3.5 $128.1 $25.1 $153.2 16% 1.72% $445 3.4% $583 $715 $5,348 2.3% Full Year 2007 $560 $17.3 $7.9 $135.3 $28.3 $163.6 17% 1.67% $1,395 3.07% $1,173 $1,417 $5,224 2.0% Full Year 2006 $1,253 $16.0 $7.4 $119.5 $22.6 $142.1 16% 1.84% $303 1.62% $1,100 $1,253 $4,360 1.8% ($ millions) “Core Earnings” Net Income (1) Stafford/PLUS Originations ($B) Private Education Loan Originations ($B) Managed FFELP Loans Outstanding ($B) Managed Pvt Ed Loans Outstanding ($B) Managed Student Loan Portfolio ($B) Mgd Pvt Ed Loan % of Total Mgd Student Loans “Core Earnings” Net Student Loan Spread (2) “Core Earnings” Loan Loss Provision “Core Earnings” Private Loan NCOs as a % of Repay “Core Earnings” Fee and Other Income “Core Earnings” Operating Expenses GAAP Stockholders’ Equity Tangible Capital Ratio (1) GAAP Net Income for 1H 2008 was $162 million compared to GAAP Net Income of $1,082 million in 1H 2007. GAAP Net Loss for 2007 was $896 million compared to GAAP Net Income of $1,157 million in 2006. (2) “Core Earnings” Net Student Loan Spread for 1H 2008 is before the impact of 2008 Asset-Backed Financing Facilities fees. September 2008 63
Slide 64: “Core Earnings” Presentation “Core Earnings” Performance Measures – • • • Used by SLM’s management in developing financial plans, tracking results, establishing corporate performance targets Used by securities analysts, credit rating agencies and debt capital providers to measure the company’s business performance Treat securitizations as long-term financings and recognize the economic effect of hedges; specifically exclude (i) gains on sales from securitizations and subsequent Retained Interest revenue (ii) derivative unrealized mark-to-market adjustments, (iii) unhedged floor income, and (iv) goodwill and intangible impairment and the amortization of acquired intangibles Reflect only current period adjustments to GAAP earnings and are not a substitute for reported results under GAAP May not be comparable to similarly titled measures reported by other companies • • Note: Both a description of SLM’s "Core Earnings" treatment and a full reconciliation to the GAAP income statement is contained in the supplemental earnings disclosure to the company’s quarterly earnings releases and most recent Forms 10-Q and 10-K. September 2008 64
Slide 65: GAAP to “Core Earnings” EPS Reconciliation ($ in thousands, except per share am ounts) June 30, 2008 Dollars Diluted EPS GAAP net incom e (loss) Adjustm ent from GAAP to "Core Earnings" Net im pact of securitization accounting Net im pact of derivative accounting Net im pact of Floor Incom e Net im pact of acquired intangibles Total "Core Earnings" Adjustm ents before incom e taxes and m inority interest in net earnings of subsidiaries Net tax effect Total "Core Earnings" Adjustm ents "Core Earnings" net incom e (169,952) 59,858 (110,094) 155,642 0.27 463,420 (171,302) 292,118 188,314 0.34 (770,790) (6,683) (777,473) 188,998 0.43 246,506 (450,609) 18,809 15,342 79,146 363,368 5,577 15,329 15,071 (841,564) 39,246 16,457 $ 265,736 $ 0.50 $ Quarters Ended March 31, 2008 Dollars Diluted EPS (103,804) $ (0.28) June 30, 2007 Dollars Diluted EPS $ 966,471 $ 1.03 "Core Earning" net incom e adjusted for non-recurring item s Merger-related financing fees Merger-related professional fees and other costs Restructuring Expenses Other reorganization-related asset im pairm ents Acceleration of prem ium am ortization expense on loans Total after tax non-recurring item s "Core Earnings" net incom e $ 29,446 3,779 33,225 188,867 $ 0.08 0.35 $ 13,110 52,106 65,216 253,530 $ 0.14 0.48 8,839 23,275 32,114 $ 221,112 $ 0.07 0.50 September 2008 65