UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-K
(Mark One)
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2014
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from                  to                 
Commission file numbers 001-13251
 
SLM Corporation
(Exact Name of Registrant as Specified in Its Charter)  
Delaware
52-2013874
(State of 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) 451-0200
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act
Common Stock, par value $.20 per share.
Name of Exchange on which Listed:
The NASDAQ Global Select Market
6.97% Cumulative Redeemable Preferred Stock, Series A, par value $.20 per share
Floating Rate Non-Cumulative Preferred Stock, Series B, par value $.20 per share
Name of Exchange on which Listed:
The NASDAQ Global Select Market
Name of Exchange on which Listed:
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None.
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   þ         No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes   ¨        No   þ  
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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ¨
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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨         No   þ
The aggregate market value of voting common stock held by non-affiliates of the registrant as of June 30, 2014 was $3.5 billion (based on closing sale price of $8.31 per share as reported for the NASDAQ Global Select Market).
As of January 31, 2015, there were 423,476,360 shares of common stock outstanding.
 
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement relating to the Registrant’s 2015 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on
Form 10-K.
 
 





SLM CORPORATION
TABLE OF CONTENTS
 
 
 
Page Number
 
 
 
 
Forward-Looking and Cautionary Statements; Available Information
1
PART I
 
 
Item 1.
Business
2
Item 1A.
Risk Factors
16
Item 1B.
Unresolved Staff Comments
27
Item 2.
Properties
28
Item 3.
Legal Proceedings
29
Item 4.
Mine Safety Disclosures
29
PART II
 
 
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
30
Item 6.
Selected Financial Data
33
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
34
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
71
Item 8.
Financial Statements and Supplementary Data
73
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
73
Item 9A.
Controls and Procedures
73
Item 9B.
Other Information
74
PART III.
 
 
Item 10.
Directors, Executive Officers and Corporate Governance
75
Item 11.
Executive Compensation
75
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
75
Item 13.
Certain Relationships and Related Transactions, and Director Independence
75
Item 14.
Principal Accounting Fees and Services
75
PART IV
 
 
Item 15.
Exhibits, Financial Statement Schedules
76




    
    

FORWARD-LOOKING AND CAUTIONARY STATEMENTS

 
This Annual Report on Form 10-K contains "forward-looking" statements and information based on management’s current expectations as of the date of this report. Statements that are not historical facts, including statements about our beliefs, opinions 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 risks and uncertainties set forth in Item 1A “Risk Factors” and elsewhere in this Annual Report on Form 10-K and subsequent filings with the Securities and Exchange Commission (“SEC”); increases in financing costs; limits on liquidity; increases in costs associated with compliance with laws and regulations; changes in accounting standards and the impact of related changes in significant accounting estimates; any adverse outcomes in any significant litigation to which we are a party; credit risk associated with our exposure to third parties, including counterparties to our derivative transactions; and changes in the terms of education loans and the educational credit marketplace (including changes resulting from new laws and the implementation of existing laws). We could also be affected by, among other things: changes in our funding costs and availability; reductions to our credit ratings; failures or breaches of our operating systems or infrastructure, including those of third-party vendors; damage to our reputation; failures or breaches to successfully implement cost-cutting and restructuring initiatives and adverse effects of such initiatives on our business; risks associated with restructuring initiatives; changes in the demand for educational financing or in financing preferences of lenders, educational institutions, students and their families; changes in law and regulations with respect to the student lending business and financial institutions generally; increased competition from banks and other consumer lenders; the creditworthiness of our customers; changes in the general interest rate environment, including the rate relationships among relevant money-market instruments and those of our earning assets versus our funding arrangements; rates of prepayment on the loans that we make; changes in general economic conditions and our ability to successfully effectuate any acquisitions; and other strategic initiatives. The preparation of our consolidated financial statements also requires management to make certain estimates and assumptions, including estimates and assumptions about future events. These estimates or assumptions may prove to be incorrect. All forward-looking statements contained in this Annual Report on Form 10-K are qualified by these cautionary statements and are made only as of the date of this report. We do not undertake any obligation to update or revise these forward-looking statements to conform such statements to actual results or changes in our expectations.

References in this Annual Report on Form 10-K to “we,” “us,” “our” “Sallie Mae” and the “Company,” refer to SLM Corporation and its subsidiaries, except as otherwise indicated or unless the context otherwise requires.

The financial information contained herein and in the accompanying consolidated balance sheets, statements of income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2014, present information on our business as configured after the Spin-Off, as hereafter defined. For more information regarding the basis of presentation of these statements, see notes to the consolidated financial statements, Note 2, “Significant Accounting Policies - Basis of Presentation.”

AVAILABLE INFORMATION

Our website address is www.salliemae.com. Copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as any amendments to those reports, and any significant investor presentations, are available free of charge through our website as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. In addition, copies of our Board Governance Guidelines, Code of Business Conduct (which includes the code of ethics applicable to our Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) and the governing charters for each committee of our Board of Directors are available free of charge on our website, as well as in print to any stockholder upon request. We intend to disclose any amendments to or waivers from our Code of Business Conduct (to the extent applicable to our Principal Executive Officer or Principal Financial Officer) by posting such information on our website. Information contained or referenced on our website is not incorporated by reference into and does not form a part of this Annual Report on Form 10-K.




1

PART I.

Item 1. Business

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

2

The core of our marketing strategy is to promote our products on campuses through the financial aid offices and through direct marketing to students and their families. Our on-campus efforts are driven by over 40 sales professionals who work with 2,400 higher education institutions. This sales force is the largest in the industry and has become a trusted resource for campus-based financial aid advisers.
Our loans are of high credit quality and the overwhelming majority of our borrowers are managing their payments with great success. At December 31, 2014, 2.0 percent of loans in repayment were delinquent, and loans in forbearance were 2.6 percent of loans in repayment and forbearance. Our annualized charge-off rate was 0.72 percent at the end of the fourth quarter 2014. Prior to the Spin-Off, Sallie Mae Bank sold, at fair value, substantially all of the Private Education Loans we originated that became delinquent or were granted forbearance to one or more of our then affiliates. Post-Spin-Off, these practices have largely ceased. As a result, Sallie Mae Bank historically had very little forbearance activity and very few loans over 90 days delinquent.
Sallie Mae Bank
Since the beginning of 2006, virtually all of our Private Education Loans have been originated and funded by Sallie Mae Bank (the “Bank”), our Utah industrial bank subsidiary, which is regulated by the Utah Department of Financial Institutions (“UDFI”), the Federal Deposit Insurance Corporation (“FDIC”), and the Consumer Financial Protection Bureau (“CFPB”). At December 31, 2014, the Bank had total assets of $12.8 billion, including $8.3 billion in Private Education Loans and $1.3 billion of FFELP Loans. As of the same date, the Bank had total deposits of $11.3 billion.
Our ability to obtain deposit funding and offer competitive interest rates on deposits will be necessary to sustain the growth of our Private Education Loan originations. Our ability to obtain such funding is also dependent in part on the capital level of the Bank and its compliance with other applicable regulatory requirements. At the time of this filing, there are no restrictions on our ability to obtain deposit funding or the interest rates we charge other than those restrictions generally applicable to all similarly situated banks. We plan to supplement our deposit base by raising term funding in the long-term asset backed securities (“ABS”) market in 2015, collateralized by pools of Private Education Loans. We currently estimate that in three years ABS transactions will provide approximately a third of our total funding. This will diversify our funding sources and reduce our reliance on deposits to fund our growth. Our intention is to complete our first ABS transaction within the first half of 2015.
The Bank is currently limited by the FDIC to total balance sheet growth of 20 percent per year. As a result, we also intend to sell Private Education Loans as may be necessary to keep the Bank's balance sheet growth at or below the 20 percent level. Private Education Loan sales most likely will be completed through an open auction process or the sale of residuals in connection with our ABS transactions.
We expect the Bank to retain servicing of all Private Education Loans it originates, regardless of whether held, sold or securitized. Loan sales and securitization volumes will be driven by growth in our loan originations, our asset values, and capital and liquidity needs.
See the subsection under “Supervision and Regulation” titled “Regulation of Sallie Mae Bank” for additional details about Sallie Mae Bank.
Operational Infrastructure
In April 2014, we began to independently perform collection activity on our portfolio of Private Education Loans.
In October 2014, we launched our stand-alone servicing platform and began servicing our portfolio of Private Education Loans. Going forward, we will provide servicing and loan collection services for all Private Education loans we originated.
Our servicing operation includes resources dedicated to assist customers with specialized needs and escalated inquiries. We also have a group of customer service representatives dedicated to assisting military personnel with available military benefits. In addition, our Office of Consumer Advocate (“OCA”) works with customers to resolve escalated concerns, and more recently, to address customer inquiries received via the student loan complaint portal the CFPB established in 2012. In 2014, OCA received 151 inquiries from our customers through the CFPB portal. As of December 31, 2014, 100 percent of those inquiries were successfully reviewed and closed within prescribed timeframes.
We expect to complete the build-out of our operational infrastructure to independently originate Private Education Loans in the first half of 2015. This will include finalizing the development, testing and implementation of a new loan originations platform.

3

Upromise by Sallie Mae
The Upromise by Sallie Mae save-for-college rewards program is a consumer service committed to helping Americans save for higher education. Membership is free and each year approximately 700,000 consumers enroll to use the service. Members earn money for college by receiving cash back when shopping at participating on-line or brick-and-mortar retailers, booking travel or dining out at participating merchants or by using their Upromise MasterCard. As of December 31, 2014, more than 1,000 merchants participated by providing discounts that are returned to the consumer. Since inception, Upromise members have saved approximately $900 million for college, and more than 340,000 members actively use the Upromise credit card for everyday purchases.
Our Approach to Advising Students and Families How to Pay for College
Our annual research on How America Pays for College 1 confirms students and their families cover the cost of college using multiple sources, including savings, current income, grants, scholarships, federal education loans and Private Education Loans.
According to this research, just 41 percent of families have a plan to pay for college. Sallie Mae has created online financial literacy resources, including interactive tools, calculators and content, at SallieMae.com/PlanforCollege to help families create a comprehensive financial plan to save and pay for college. Plan for College features the College Planning Calculator, an interactive tool families may use to set college savings goals, project the full cost of a college degree and estimate future student loan payments and the annual starting salary level needed to keep payments manageable. In addition, Sallie Mae launched a free mobile app, College Ahead, a tool to help high school juniors and seniors prepare for college.
To encourage responsible borrowing, Sallie Mae advises students and their families to follow this three-step process to pay for college:
Step 1: Use scholarships, grants, savings and income.
We provide free access to an extensive online database of scholarships which includes information about more than 3 million scholarships with an aggregate value in excess of $18 billion.
Through the Bank, we offer traditional savings products, like High-Yield Savings Accounts, Money Market Accounts and CDs.
In addition, our Upromise by Sallie Mae save-for-college rewards program helps families jumpstart their save-for-college plans by providing financial rewards on everyday purchases made at participating merchants.
Step 2: Pursue federal government loan options.
We encourage students to explore federal government loan options, including Perkins loans, Direct loans and PLUS loans. Students apply for federal student aid, including federal student loans, by completing the Free Application for Federal Student Aid ("FAFSA"). For additional information, we encourage consumers to contact their schools’ financial aid office or the Department of Education.
Step 3: Consider affordable Private Education Loans to fill the gap.
We offer Private Education Loan products to bridge the gap between family resources, federal loans, grants, student aid and scholarships, and the cost of a college education. To ensure applicants borrow only what they need to cover their school’s cost of attendance, we actively engage with schools and require school certification before we disburse a Private Education Loan. To help applicants understand their loan and its terms, we provide multiple, customized disclosures explaining the applicant’s starting interest rate, the interest rate during the life of the loan and their loan’s total cost under the available repayment options. Our Smart Option Student Loan features no origination fees and no prepayment penalties, provides rewards for paying on time, and offers a choice of repayment options, and either variable or fixed interest rates.





_________________________
1 Sallie Mae’s How America Pays for College 2014 , conducted by Ipsos, www.salliemae.com/howamericapays.

4


Our Approach to Assisting Students and Families Repaying Private Education Loans
One of the hallmarks of our responsible borrowing philosophy is to encourage payments, even small ones, instead of no payment while in school. Most of our Smart Option Student Loan repayment options promote in-school repayment. By making in-school payments, customers stay informed on loans, learn to establish good repayment patterns, and graduate with less debt. When done while the student is in school, even when not required, nominal payments help minimize the accumulation of total indebtedness. We send monthly communications to customers while they are in school to highlight this fact and to encourage them to reduce the amount they will owe when they leave school.
Our experience has taught us the transition from school to full repayment requires making and carrying out a financial plan. As customers approach repayment, Sallie Mae communicates what to expect as they transition from in-school to principal and interest repayment. In addition, an informational section of SallieMae.com, Managing Your Loans, provides information to help customers organize their loans, set up a monthly budget and understand their repayment options. Examples are provided that help explain how payments are applied and allocated, and calculators help visitors estimate payments and see how accrued interest could affect a loan balance. The site also explains special benefits for servicemen and women under the Servicemembers Civil Relief Act.
Most customers tell us they want to repay their loans as quickly as they can, thus minimizing their borrowing costs. We provide incentives and programs to reward and encourage repayment, such as reduced interest charges for elections such as signing up for automatic debit payments.
Some customers transitioning from school to the work force, however, require more time before making full payments of principal and interest. As a result, Sallie Mae created a Graduated Repayment Plan to assist new graduates with additional payment flexibility. Smart Option Student Loans disbursed on or after July 1, 2013, offer customers a Graduated Repayment Plan that allows 12 interest-only payments instead of full principal and interest payments, after their six-month grace period.
After graduation, a customer may apply for their cosigner to be released from the loan. This option is available once there have been 12 consecutive, on-time principal and interest payments and the student borrower adequately meets our credit requirements. In the event of a cosigner’s death, the student borrower automatically continues as the sole individual on the loan with the same terms.
We recognize that, during periods of repayment, customers may struggle to meet their financial obligations. Our experience shows customers who request additional payment flexibility are most frequently in the early years of repayment. If a customer’s account becomes delinquent, we will work with the customer and/or the cosigner to understand their ability to make ongoing payments. If the customer is in financial hardship, we work with the customer and/or the cosigner to understand their financial circumstances and identify alternative repayment arrangements, including reduced monthly payment programs such as extended repayment schedules and temporary interest rate reductions and, if appropriate, short-term forbearance are scaled to their individual circumstances and ability to make payments. These loan modification programs, which were first implemented in 2009, have the potential to increase the overall costs of education financing to customers. Consequently, when used, we counsel our customers on the impact delaying repayment has on total borrowing costs.
We recognize that, in some cases, loan modifications and other efforts may be insufficient. That is why Sallie Mae continues to support bankruptcy reform that (i) would permit the discharge of education loans, both private and federal, after a required period of good faith attempts to repay and (ii) is prospective in application, so as not to rewrite existing contracts. Any reform should recognize education loans have unique characteristics and benefits as compared to other consumer loan classes.


5

Key Drivers of Private Education Loan Market Growth
The size of the Private Education Loan market is based on three primary factors: college enrollment levels, the costs of attending college and the availability of funds from the federal government to pay for a college education. The amounts that students and their families can contribute toward a college education and the availability of scholarships and institutional grants are also important. If the cost of education continues to increase at a pace exceeding the sum of family income, savings, federal subsidies, and scholarships, more students and families can be expected to borrow privately. If enrollment levels or college costs decline or the availability of federal education loans, grants or subsidies and scholarships significantly increases, Private Education Loan originations could decrease. Our competitors 1 in the Private Education Loan market include large banks such as Wells Fargo Bank NA, Discover Bank, RBS Citizens, and PNC Bank NA, as well as a number of smaller specialty finance companies.
Our primary lending focus is on public and private not-for-profit four-year degree granting institutions. We do limited business with two-year and for-profit schools. Due to the low cost of two-year programs, federal grant and loan programs are typically sufficient for the financing needs of these students. The for-profit industry has been the subject of increased scrutiny and regulation over the last several years. Since 2007, we have significantly reduced the number of for-profit institutions we do business with. The institutions we continue to do business with are focused on career training and are subject to regular performance review. We expect students attending for-profit schools to be able to support the same repayment performance as students attending public and private not-for-profit four-year degree granting institutions.

•
Undergraduate and graduate enrollments at public and private not-for-profit four-year institutions increased by approximately 11 percent from Academic Years (“AYs”) 2003-2004 to 2007-2008. Post-secondary enrollment increased considerably during the recession of 2007-2009, especially in areas most affected by high unemployment. Enrollment has been stable post-recession. According to ED’s projections released in February 2014, the high school graduate population is projected to remain relatively flat from 2013 to 2022. 2 Based on these projections and recent trends, we expect modest enrollment growth in the next several years.
 
________
1  
Source: MeasureOne CBA Report, December 2014. www.measureone.com.

2  
Source: U.S. Department of Education, National Center for Education Statistics, Projections of Education Statistics to 2022 (NCES, February 2014), Enrollment in Postsecondary Institutions (NCES, December 2013) and Enrollment in Postsecondary Institutions (NCES, October 2014).

 

6




•
Average published tuition and fees (exclusive of room and board) at four-year public and private not-for-profit institutions increased at compound annual growth rates of 6.0 percent and 4.5 percent, respectively, between AYs 2004-2005 through 2014-2015. Growth rates have been more modest the last two academic years, with these average published tuition and fees at public and private four-year not-for-profit institutions increasing 2.8 percent and 3.9 percent, respectively, between AYs 2012-2013 and 2013-2014 and 2.9 percent and 3.7 percent, respectively, between AYs 2013-2014 and 2014-2015. 3 Tuition and fees are likely to continue to grow at the more modest rates of recent years.
_______
3 Source: The College Board-Trends in College Pricing 2014. © 2014 The College Board. www.collegeboard.org.



•
Borrowing from federal education loan programs increased at a compound annual growth rate of 10 percent between AY 2003-2004 and 2011-2012. Federal borrowing increased considerably during the recession with borrowing increasing 26 percent between AYs 2007-2008 and 2008-2009 alone. A major driver of this activity was that in AY 2007-2008, the Higher Education Reconciliation Act of 2005 increased annual Stafford loan limits for the first time since 1992 and introduced the Graduate PLUS loan. In response to the financial crisis in AY 2008-2009, The Ensuring Continued Access to Student Loans Act of 2008 increased the unsubsidized Stafford loan limits for undergraduate students again by $2,000. Federal education loan program borrowing continued to increase through AY 2011-2012 but declined by 4 percent in AY 2012-2013 and by another 7 percent in AY 2013-2014. We believe these declines are principally driven by enrollment declines in the for-profit schools sector. 4 Between AYs 2003-2004 and 2013-2014, federal grants increased 186 percent to $48.9 billion. As household balance sheets continue to improve, families will be better able to meet expected increases in tuition costs. 5  
















_________________________
4 Source: The College Board-Trends in Student Aid 2014. © 2014 The College Board. www.collegeboard.org. The College Board states that full-time equivalent enrollment (FTE) in the for-profit sector has dropped 23 percent from AY 2010-2011 to AY 2013-2014.


7






•
This increase in federal subsidies had a significant impact on the market for Private Education Loans. Annual originations peaked at $21.1 billion in AY 2007-2008 and declined to $6.0 billion in AY 2010-2011. Contributing to the decline in the market for Private Education Loans was a significant tightening of underwriting standards by Private Education Loan providers, including Sallie Mae. Private Education Loan originations increased to an estimated $8.4 billion in AY 2013-2014, up 6.0 percent over the previous year. 6,7  

5 Source: The College Board-How Students and Parents Pay for College. © 2013 The College Board. www.collegeboard.org. From AY 2008-09 through AY 2012-2013 at four-year public institutions the per student rate of increase in family contributions has exceeded the per student rate of total family borrowings. We expect this trend may continue.

6 Source: The College Board-Trends in Student Aid 2014. © 2014 The College Board. www.collegeboard.org. Funding sources in current dollars and includes Federal Grants, Federal Loans, Education Tax Benefits, Work Study, State, Institutional and Private Grants and Non-Federal Loans.

7  
Source: FinAid, History of Student Financial Aid and Historical Loan Limits. © 2014 by FinAid .  www.FinAid.org.

                        

8


•
Using data from the College Board, Measure One 8 and the federal government, we estimate that total spending on higher education was $397 billion in the AY 2013-2014, up from $310 billion in the AY 2008-2009. Private Education Loans represent just 2 percent of total spending on higher education. Modest growth in total spending can lead to meaningful increases in Private Education Loans in the absence of growth in other sources of funding. 9  

8  Source: MearureOne CBA Report, December 2014. MeasureOne is a third party aggregator of Private Education Loan data. The six largest Private Education Loan providers submit originations data each month to MeasureOne. MeasureOne aggregates this data and provides blind monthly reporting back to the providers. www.measureone.com
9  Source: Total post-secondary education spend is estimated by Sallie Mae determining the full-time equivalents for both graduates and undergraduates and multiplying by the estimated total per person cost of attendance for each school type. In doing so, we utilize information from the US Department of Education, National Center for Education Statistics, Projections of Education Statistics to 2022 (NCES 2014-, February 2014), The Integrated Postsecondary Education Data System, College Board -Trends in Student Aid 2014. © 2014 The College Board. www.collegeboard.org, College Board -Trends in Student Pricing 2014. © 2014 The College Board. www.collegeboard.org, MeasureOne Private Student Loan quarterly dataset, National Student Clearinghouse - Term Enrollment Estimates and Company Analysis. Other sources for these data points also exist publicly and may vary from our computed estimates. College Board restates their data annually, which may cause previously reported results to vary.


9


Supervision and Regulation

Overview
We are subject to extensive regulation, examination and supervision by various federal, state and local authorities. The more significant aspects of the laws and regulations that apply to us and our subsidiaries are described below. These descriptions are qualified in their entirety by reference to the full text of the applicable statutes, legislation, regulations and policies, as they may be amended, and as interpreted and applied, by federal, state and local agencies. Such statutes, regulations and policies are continually under review and are subject to change at any time, particularly in the current economic and regulatory environment.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) was adopted to reform and strengthen regulation and supervision of the U.S. financial services industry. It contains comprehensive provisions to govern the practices and oversight of financial institutions and other participants in the financial markets. It mandates significant regulations, additional requirements and oversight on almost every aspect of the U.S. financial services industry, including increased capital and liquidity requirements, limits on leverage and enhanced supervisory authority. It requires the issuance of many implementing regulations which will take effect over several years, making it difficult to anticipate the overall impact to us, our affiliates, including the Bank, as well as our customers and the financial industry more generally.

Consumer Protection Laws and Regulations
Our origination, servicing and first-party collection activities related to our Private Education Loans subject us to federal and state consumer protection, privacy and related laws and regulations. Some of the more significant laws and regulations that are applicable to our business include:
•
various laws governing unfair, deceptive or abusive acts or practices;
•
the federal Truth-In-Lending Act and Regulation Z issued by the CFPB, which governs disclosures of credit terms to consumer borrowers;
•
the Fair Credit Reporting Act and Regulation V issued by the CFPB, which governs the use and provision of information to consumer reporting agencies;
•
the Equal Credit Opportunity Act (“ECOA”) and Regulation B issued by the CFPB, which prohibits discrimination on the basis of race, creed or other prohibited factors in extending credit;
•
the Servicemembers Civil Relief Act (“SCRA”), which applies to all debts incurred prior to commencement of active military service (including education loans) and limits the amount of interest, including service and renewal charges and any other fees or charges (other than bona fide insurance) that are related to the obligation or liability;
•
the Fair Debt Collection Act, which governs the manner in which consumer debts may be collected by collection agencies;
•
the Truth in Savings Act and Regulation DD issued by the CFPB, which requires disclosure of deposit terms to consumers;
•
Regulation CC issued by the Federal Reserve Bank (“FRB”), which relates to the availability of deposit funds to consumers;
•
the Right to Financial Privacy Act, which imposes a duty to maintain the confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;
•
the Electronic Funds Transfer Act and Regulation E issued by the CFPB, which governs automatic deposits to and withdrawals from deposit accounts and customers’ rights
 
•
the Telephone Consumer Protection Act, which governs communication methods that may be used to contact customers; and
•
the Gramm-Leach-Bliley Act, which governs the ability of financial institutions to disclose nonpublic information about consumers to non-affiliated third parties.



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Consumer Financial Protection Bureau
The Consumer Financial Protection Act, a part of the Dodd-Frank Act, established the CFPB, which has broad authority to write regulations under federal consumer financial protection laws and to directly or indirectly enforce those laws, including regulatory oversight of the Private Education Loan industry, and to examine financial institutions for compliance. It is authorized to collect fines and provide consumer restitution in the event of violations, engage in consumer financial education, track consumer complaints, request data and promote the availability of financial services to underserved consumers and communities. It has authority to prevent unfair, deceptive or abusive acts and practices by issuing regulations that define the same or by using its enforcement authority without first issuing regulations. The CFPB has been active in its supervision, examination and enforcement of financial services companies, most notably bringing enforcement actions, imposing fines and mandating large refunds to customers of several large banking institutions. As of January 1, 2015, the CFPB has become the Bank’s primary consumer compliance supervisor with compliance examination authority and primary consumer protection enforcement authority. The UDFI and FDIC remain the prudential regulatory authorities with respect to the Bank’s financial strength.
The Dodd-Frank Act created the Private Education Loan Ombudsman within the CFPB to receive and attempt to informally resolve inquiries about Private Education Loans. The Private Education Loan Ombudsman reports to Congress annually on the trends and issues identified through this process. The CFPB continues to take an active interest in the student loan industry, undertaking a number of initiatives related to the Private Education Loan market and student loan servicing. On October 16, 2014, the Private Education Loan Ombudsman within the CFPB submitted its third report based on Private Education Loan inquiries received by the CFPB from October 1, 2013 through September 30, 2014.

Regulation of Sallie Mae Bank
The Bank was chartered in 2005 and is a Utah industrial bank regulated by the FDIC, the UDFI and the CFPB. We are currently not a bank holding company and therefore are not subject to the federal regulations applicable to bank holding companies. However, we and our non-bank subsidiaries are subject to regulation and oversight as institution-affiliated parties. The following discussion sets forth some of the elements of the bank regulatory framework applicable to us, the Bank and our other non-bank subsidiaries.
General
The Bank is currently subject to prudential regulation and examination by the FDIC and the UDFI, and consumer compliance regulation and examination by the CFPB. Numerous other federal and state laws as well as regulations promulgated by the FDIC and the state banking regulator govern almost all aspects of the operations of the Bank and, to some degree, our operations and those of our non-bank subsidiaries as institution-affiliated parties.
 
Actions by Federal and State Regulators
Like all depository institutions, the Bank is regulated extensively under federal and state law. Under federal and state laws and regulations pertaining to the safety and soundness of insured depository institutions, the UDFI and separately the FDIC as the insurer of bank deposits have the authority to compel or restrict certain actions on the Bank’s part if they determine it has insufficient capital or other resources, or is otherwise operating in a manner that may be deemed to be inconsistent with safe and sound banking practices. Under this authority, the Bank’s regulators can require it to enter into informal or formal supervisory agreements, including board resolutions, memoranda of understanding, written agreements and consent or cease and desist orders, pursuant to which the Bank would be required to take identified corrective actions to address cited concerns and to refrain from taking certain actions.
Enforcement Powers
We and our nonbank subsidiaries are “institution-affiliated parties” of the Bank, including our management, employees, agents, independent contractors and consultants, and are generally subject to potential civil and criminal penalties for violations of law, regulations or written orders of a government agency. Violations can include failure to timely file required reports, filing false or misleading information or submitting inaccurate reports. Civil penalties may be as high as $1,000,000 a day for such violations and criminal penalties for some financial institution crimes may include imprisonment for 20 years. Regulators have flexibility to commence enforcement actions against institutions and institution-affiliated parties, and the FDIC has the authority to terminate deposit insurance. When issued by a banking agency, cease and desist and similar orders may, among other things, require affirmative action to correct any harm resulting from a violation or practice, including restitution, reimbursement, indemnifications or guarantees against loss. A financial institution may also be ordered to restrict its growth, dispose of certain assets, rescind agreements or contracts, or take other actions determined to be appropriate by the ordering

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agency. The federal banking regulators also may remove a director or officer from an insured depository institution (or bar them from the industry) if a violation is willful or reckless.
On May 13, 2014, the Bank reached settlements with the FDIC and the Department of Justice regarding disclosures and assessments of certain late fees, as well as compliance with the SCRA.  Under the FDIC Order, the Bank agreed to pay $3.3 million in fines and oversee the refund of up to $30 million in late fees assessed on loans owned or originated by the Bank since its inception in November 2005. Under the terms of the Separation and Distribution Agreement, Navient is responsible for funding all liabilities under the regulatory orders, other than fines directly levied against the Bank in connection with these matters. Under the Department of Justice Order, Navient is solely responsible for reimbursing SCRA benefits and related compensation on behalf of both its subsidiary, Navient Solutions, Inc., and the Bank. At the time of this filing, the Bank is continuing to implement both the FDIC Order and the Department of Justice Order.
As required by the 2014 FDIC Order and the Department of Justice order, the Bank is implementing new SCRA policies, procedures and training, has updated billing statement disclosures, and is taking additional steps to ensure its third-party service providers are also fully compliant in these regards. The 2014 FDIC Order also requires the Bank to have its current compliance with consumer protection regulations audited by independent qualified audit personnel. The Bank is focused on achieving timely and comprehensive remediation of each item contained in the orders and on further enhancing its policies and practices to promote responsible financial practices, customer experience and compliance.
In May 2014, the Bank, in its capacity as a former affiliate of Navient, received a Civil Investigative Demand from the CFPB as part of the CFPB’s separate investigation relating to fees and policies of pre-Spin-Off SLM during the period prior to the Spin-Off of Navient. We have been cooperating fully with the CFPB but are not in a position at this time to predict the duration or outcome of the investigation. Given the timeframe covered by this demand, Navient is responsible for all costs, expenses, losses or remediation that may arise from this investigation.
Standards for Safety and Soundness
The Federal Deposit Insurance Act (the “FDIA”) requires the federal bank regulatory agencies such as the FDIC to prescribe, by regulation or guidance, operational and managerial standards for all insured depository institutions, such as the Bank, relating to internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, and asset quality. The agencies also must prescribe standards for asset quality, earnings, and stock valuation, as well as standards for compensation, fees and benefits. The federal banking regulators have adopted regulations and interagency guidance prescribing standards for safety and soundness to implement these required standards. These guidelines set forth the safety and soundness standards used to identify and address problems at insured depository institutions before capital becomes impaired. Under the regulations, if a regulator determines a bank fails to meet any prescribed standards, the regulator may require the bank to submit an acceptable plan to achieve compliance, consistent with deadlines for the submission and review of such safety and soundness compliance plans.
Dividends
The Federal Deposit Insurance Corporation Improvement Act and Utah’s industrial bank laws generally prohibit a depository institution from making any capital distribution, including payment of a dividend, or paying any management fee to its holding company if the institution would thereafter be undercapitalized. In addition, federal banking regulations applicable to the Bank require minimum levels of capital that may limit the amounts available for payment of dividends. In addition, many regulators have a policy, but not a requirement, that a dividend payment should not exceed net income to date in the current year. Finally, the ability of the Bank to pay dividends, and the contents of its respective dividend policy, could be impacted by a range of regulatory changes made pursuant to the Dodd-Frank Act, many of which will require final implementing rules to become effective. The Bank paid no dividends for the year ended December 31, 2014. Total dividends paid by the Bank were $120 million and $420 million in the years ended December 31, 2013 and 2012, respectively.
Capital Requirements
The Bank is subject to various regulatory capital requirements administered by the FDIC and the UDFI. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material adverse effect on our business, results of operations and financial position. Under the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of our assets, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.

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We must comply with the FDIC’s final rule implementing the Basel III capital framework related to regulatory capital measurement and reporting. The rule strengthens both the quantity and quality of risk-based capital for all banks, placing greater emphasis on Tier 1 common equity capital. Under the new rule, well-capitalized institutions will be required to maintain a minimum Tier 1 Leverage ratio of 5 percent, a minimum Tier 1 common equity risk-based capital ratio of 6.5 percent, a minimum Tier 1 risk-based capital of 8 percent and minimum total risk-based capital of 10 percent. In addition, a capital conservation buffer will be phased in over four years beginning on January 1, 2016, as follows: the maximum buffer will be 0.625 percent of risk weighted assets for 2016, 1.25 percent for 2017, 1.875 percent for 2018 and 2.5 percent for 2019 and beyond, resulting in the following minimum ratios beginning in 2019: a Tier 1 common equity risk-based capital ratio of a minimum 7.0 percent, a Tier 1 capital ratio of a minimum 8.5 percent and a total risk-based capital ratio of a minimum 10.5 percent.
Stress Testing Requirements
The Dodd-Frank Act imposes stress testing requirements on banking organizations with total consolidated assets, averaged over the four most recent consecutive quarters, of more than $10 billion. As of September 30, 2014, the Bank has met this asset threshold. Under the FDIC’s implementing regulations, the Bank is required to conduct annual company-run stress tests utilizing scenarios provided by the FDIC and publish a summary of those results. The Bank must conduct its first annual stress test under the rules in the January 1, 2016 stress testing cycle and submit the results of that stress test to the FDIC by July 31, 2016.
Deposit Insurance and Assessments
Deposits at the Bank are insured by the Deposit Insurance Fund (the “DIF”), as administered by the FDIC, up to the applicable limits established by law. The Dodd-Frank Act amended the statutory regime governing the DIF. Among other things, the Dodd-Frank Act established a minimum designated reserve ratio (“DRR”) of 1.35 percent of estimated insured deposits, required that the fund reserve ratio reach 1.35 percent by September 30, 2020, and directed the FDIC to amend its regulations to redefine the assessment base used for calculating deposit insurance assessments. Specifically, the Dodd-Frank Act requires the assessment base to be an amount equal to the average consolidated total assets of the insured depository institution during the assessment period, minus the sum of the average tangible equity of the insured depository institution during the assessment period and an amount the FDIC determines is necessary to establish assessments consistent with the risk-based assessment system found in the FDIA.
In December of 2010, the FDIC adopted a final rule setting the DRR at 2.0 percent. Furthermore, on February 7, 2011, the FDIC issued a final rule changing its assessment system from one based on domestic deposits to one based on the average consolidated total assets of a bank minus its average tangible equity during each quarter. The February 7, 2011 final rule modifies two adjustments added to the risk-based pricing system in 2009 (an unsecured debt adjustment and a brokered deposit adjustment), discontinues a third adjustment added in 2009 (the secured liability adjustment), and adds an adjustment for long-term debt held by an insured depository institution where the debt is issued by another insured depository institution. Under the February 7, 2011 final rule, the total base assessment rates will vary depending on the DIF reserve ratio.
With respect to brokered deposits, an insured depository institution must be well-capitalized in order to accept, renew or roll over such deposits without FDIC clearance. An adequately capitalized insured depository institution must obtain a waiver from the FDIC to accept, renew or roll over brokered deposits. Undercapitalized insured depository institutions generally may not accept, renew or roll over brokered deposits. For more information on the Bank’s deposits, see Item 7. “Management's Discussion and Analysis of Financial Condition and Results of Operations - Key Financial Measures — Funding Sources”.
Regulatory Examinations
The Bank currently undergoes regular on-site examinations by the Bank’s regulators, which examine for adherence to a range of legal and regulatory compliance responsibilities. A regulator conducting an examination has complete access to the books and records of the examined institution. The results of the examination are confidential. The cost of examinations may be assessed against the examined institution as the agency deems necessary or appropriate.

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Source of Strength
Under the Dodd-Frank Act, we are required to serve as a source of financial strength to the Bank and to commit resources to support the Bank in circumstances when we might not do so absent the statutory requirement. Any loan by us to the Bank would be subordinate in right of payment to depositors and to certain other indebtedness of the Bank.
Community Reinvestment Act
The Community Reinvestment Act requires the FDIC to evaluate the record of the Bank in meeting the credit needs of its local community, including low- and moderate-income neighborhoods. These evaluations are considered in evaluating mergers, acquisitions and applications to open a branch or facility. Failure to adequately meet these criteria could result in additional requirements and limitations on the Bank.
Privacy Laws
The federal banking regulators, as required by the Gramm-Leach-Bliley Act, have adopted regulations that limit the ability of banks and other financial institutions to disclose nonpublic information about consumers to nonaffiliated third parties. Financial institutions are required to disclose to consumers their policies for collecting and protecting confidential customer information. Customers generally may prevent financial institutions from sharing nonpublic personal financial information with nonaffiliated third parties, with some exceptions, such as the processing of transactions requested by the consumer. Financial institutions generally may not disclose certain consumer or account information to any nonaffiliated third party for use in telemarketing, direct mail marketing or other marketing. The privacy regulations also restrict information sharing among affiliates for marketing purposes and govern the use and provision of information to consumer reporting agencies. Federal and state banking agencies have prescribed standards for maintaining the security and confidentiality of consumer information, and Sallie Mae Bank is subject to such standards, as well as certain federal and state laws or standards for notifying consumers in the event of a security breach.

Other Sources of Regulation
Many aspects of our businesses are subject to regulation by federal and state regulation and administrative oversight. Some of the most significant of these are described below.
Oversight of Derivatives
Title VII of the Dodd-Frank Act requires all standardized derivatives, including most interest rate swaps, to be submitted for clearing to central counterparties to reduce counterparty risk. As of December 31, 2014, $4.0 billion notional of our derivative contracts were cleared on the Chicago Mercantile Exchange and the London Clearing House. All derivative contracts cleared through an exchange require collateral to be exchanged based on the fair value of the derivative. Our exposure is limited to the value of the derivative contracts in a gain position net of any collateral we are holding. We have liquidity exposure related to collateral movements between us and our derivative counterparties. Movements in the value of the derivatives, which are primarily affected by changes in interest rate and foreign exchange rates, may require us to return cash collateral held or may require us to access primary liquidity to post collateral to counterparties.
Credit Risk Retention
In October 2014, the Department of the Treasury, the Federal Reserve, the Office of the Comptroller of the Currency (“OCC”), the FDIC, the Securities Exchange Commission (“SEC”), the Federal Housing Finance Agency and the Department of Housing and Urban Development issued final rules to implement the credit risk retention requirements of Section 941 of the Dodd-Frank Act for asset-backed securitizations (“ABS”), including those backed by residential and commercial mortgages and automobile, commercial, credit card, and student loans, except for certain transactions with limited connections to the United States and U.S. investors. The regulations generally require securitizers of asset-backed securities, such as Sallie Mae, to retain at least five percent of the credit risk of the assets being securitized. The final rules provide reduced risk retention requirements for securitization transactions collateralized solely (excluding servicing assets) by FFELP loans. The regulations will take effect in December 2015 for securitization transactions backed by residential mortgages and in December 2016 for any other securitization transaction.

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Anti-Money Laundering, the USA PATRIOT Act, and U.S. Economic Sanctions
The USA PATRIOT Act of 2001 (the “USA Patriot Act”), which amended the Bank Secrecy Act, substantially broadened the scope of United States anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States. The U.S. Treasury Department has issued and, in some cases proposed, a number of regulations that apply various requirements of the USA Patriot Act to financial institutions such as the Bank. These regulations impose obligations on financial institutions to maintain appropriate internal policies, procedures and controls to detect, prevent and report money laundering and terrorist financing and to verify the identity of their customers. In addition, U.S. law generally prohibits or substantially restricts U.S. persons from doing business with countries designated by the U.S. Department of State as state sponsors of terrorism, which currently are Cuba, Iran, Sudan and Syria. Under U.S. law, there are similar prohibitions or restrictions with countries subject to other U.S. economic sanctions administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control or other agencies. We maintain policies and procedures designed to ensure compliance with relevant U.S. laws and regulations applicable to U.S. persons.
Volcker Rule
In December 2013, the U.S. banking agencies, SEC and U.S. Commodity Futures Trading Commission (“CFTC”) issued final rules to implement the “Volcker Rule” provisions of Dodd-Frank. The rules prohibit insured depository institutions and their affiliates (collectively, “banking entities”) from engaging in proprietary trading and from investing in, sponsoring, or having certain financial relationships with certain private funds.  These prohibitions are subject to a number of important exclusions and exemptions that, for example, permit banking entities to trade for risk mitigating hedging and liquidity management, subject to certain conditions and restrictions. A conformance period is currently scheduled to end on July 21, 2015, subject to extension at the discretion of the Federal Reserve Board. We do not currently expect the Volcker Rule to have a meaningful effect on our operations or those of our subsidiaries, as we do not materially engage in the businesses prohibited by the Volcker Rule. We may incur costs in connection with implementing the compliance program required by the Volcker Rule, but any such costs are not expected to be material.

Employees
At December 31, 2014, we had approximately 1,000 employees, none of whom are covered by collective bargaining agreements.


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Item 1A. Risk Factors
Economic Environment
Economic conditions could have a material adverse effect on our business, results of operations, financial condition and liquidity.
Our business is significantly influenced by economic conditions. Economic growth in the United States remains slow and uneven. High unemployment rates and the failure of our in-school borrowers to graduate are two of the most significant macroeconomic factors that could increase loan delinquencies, defaults and forbearance, or otherwise negatively affect performance of our existing education loan portfolios. Since 2009, the unemployment rate of 20-24 year old college graduates has been higher than historical norms. It reached a high of 13.3 percent in 2011 and declined to 6.6 percent in December 2014. Likewise, high unemployment and decreased savings rates may impede Private Education Loan originations growth as loan applicants and their co-borrowers that experience trouble repaying credit obligations may not meet our credit standards. Current borrowers may experience more trouble in repaying credit obligations, which could increase loan delinquencies, defaults and forbearance. Forbearance programs may have the further effect of delaying default emergence, and alternative payment plans may reduce the utilization of basic forbearance. In addition, some consumers may find that higher education is an unnecessary investment during turbulent economic times and defer enrollment in educational institutions until the economy improves or turn to less costly forms of secondary education, thus decreasing education loan application and funding volumes. Higher credit-related losses and weaker credit quality negatively affect our business, financial condition and results of operations and limit funding options, which could also adversely impact our liquidity position.
Competition
We operate in a competitive environment. Our product offerings are primarily concentrated in loan and savings products for higher education.
We compete in the Private Education Loan market with banks and other consumer lending institutions, many with strong consumer brand name recognition and greater financial resources. We compete based on our products, origination capability and customer service. To the extent our competitors compete aggressively or more effectively, we could lose market share to them or subject our existing loans to refinancing risk. Our product offerings may not prove to be profitable and may result in higher than expected losses.
In addition to competition with banks and other consumer lending institutions, the federal government, through the Direct Student Loan Program (“DSLP”), poses significant competition to our Private Education Loan products. The availability and terms of loans the government originates or guarantees affects the demand for Private Education Loans because students and their families often rely on Private Education Loans to bridge a gap between available funds, including family savings, scholarships, grants and federal and state loans, and the costs of post-secondary education. The federal government currently places both annual and aggregate limitations on the amount of federal loans any student can receive and determines the criteria for student eligibility. These guidelines are generally adjusted in connection with funding authorizations from the U.S. Congress for programs under the Higher Education Act of 1965. Recent federal legislation expanded federal grant and loan assistance, which could weaken the demand for Private Education Loans. The reinstatement of FFELP, or similar federal or state programs which make additional government loan funds available, could decrease the demand for Private Education Loans.
We are a leading provider of saving- and paying-for-college products and programs. This concentration gives us a competitive advantage in the marketplace. This concentration also creates risks in our business, particularly in light of our concentrations as a Private Education Loan lender. If population demographics result in a decrease in college-age individuals, if demand for higher education decreases, if the cost of attendance of higher education decreases, if public resistance to higher education costs increases, or if the demand for higher education loans decreases, our ability to grow Private Education Loan originations could be negatively affected. This concentration in our business also subjects us to risks associated with changes in repayment and prepayment rates on Private Education Loans. Most of our Smart Option Education Loan products promote accelerated repayment. Increases in employment levels, wages, family income or alternative sources financing may also contribute to higher prepayment rates.
Access to alternative means of financing the costs of education may reduce demand for Private Education Loans.
The demand for Private Education Loans could weaken if families and student borrowers use other vehicles to bridge the gap between available funds and costs of post-secondary education. These vehicles include, among others:
•
Home equity loans or other borrowings available to families to finance their education costs;
•
Pre-paid tuition plans, which allow students to pay tuition at today’s rates to cover tuition costs in the future;

16

•
Section 529 plans, which include both prepaid tuition plans and college savings plans that allow a family to save funds on a tax-advantaged basis;
•
Education IRAs, now known as Coverdell Education Savings Accounts, under which a holder can make annual contributions for education savings;
•
Government education loan programs such as the DSLP; and
•
Direct loans from colleges and universities.
 
 
 
If demand for Private Education Loans weakens, we would experience reduced demand for our products and services, which could have a material adverse effect on our business, financial condition and results of operations.
We are dependent on key personnel and the loss of one or more of those key personnel could harm our business.
Our future success depends significantly on the continued services and performance of our management team. We believe our management team’s depth and breadth of experience in our industry is integral to executing our business plan. We also will need to continue to attract, motivate and retain other key personnel. The loss of the services of members of our management team or other key personnel to our competitors or the inability to attract additional qualified personnel as needed could have a material adverse effect on our business, financial position, results of operations and cash flows.
Regulatory
Failure to comply with consumer protection laws could subject us to civil and criminal penalties or litigation, including class actions, and have a material adverse effect on our business.
We are subject to a broad range of federal and state consumer protection laws applicable to our Private Education Loan lending and retail banking activities, including laws governing fair lending, unfair, deceptive and abusive acts and practices, service member protections, interest rates and loan fees, disclosures of loan terms, marketing, servicing and collections.
Violations or changes in federal or state consumer protection laws or related regulations, or in the prevailing interpretations thereof, may expose us to litigation, result in greater compliance costs, constrain the marketing of Private Education Loans, adversely affect the collection of balances due on the loan assets held by us or by securitization trusts or otherwise adversely affect our business. We could incur substantial additional expense complying with these requirements and may be required to create new processes and information systems. Moreover, changes in federal or state consumer protection laws and related regulations, or in the prevailing interpretations thereof, could invalidate or call into question the legality of certain of our services and business practices.
For example, the Bank is currently subject to a Consent Order, Order to Pay Restitution and Order to Pay Civil Money Penalty issued by the FDIC and a Consent Order entered into with the Department of Justice.  Specifically, on May 13, 2014, the Bank reached settlements with the FDIC and the Department of Justice regarding disclosures and assessments of certain late fees, as well as compliance with the SCRA.
Violations of the laws or regulations governing our operations could result in the imposition of civil or criminal penalties or our exclusion from participating in education loan programs. These penalties or exclusions, were they to occur, would impair our business reputation and ability to operate our business. In some cases, such violations may render the loan assets unenforceable.
We operate in a highly regulated environment and the laws and regulations that govern our operations, or changes in them, or our failure to comply with them, may adversely affect us.
In addition to consumer protection laws, we are also subject to extensive regulation and supervision that govern almost all aspects of our operations. Intended to protect clients, depositors, the DIF, and the overall financial system, these laws and regulations, among other matters, prescribe minimum capital requirements, impose limitations on the business activities in which we can engage, limit the dividend or distributions the Bank can pay to us, restrict the ability of institutions to guarantee our debt, limit proprietary trading and investments in certain private funds, impose certain specific accounting requirements on us that may be more restrictive and may result in greater or earlier charges to earnings or reductions in our capital than generally accepted accounting principles, among other things. Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations, as well as increased intensity in supervision, often impose additional compliance costs. We, like the rest of the banking sector, are facing increased regulation and supervision of our industry by the federal bank regulatory agencies and expect that there will be additional and changing requirements and conditions imposed on us. Effective January 1, 2015, the CFPB became the Bank’s primary consumer compliance supervisor, with consumer compliance examination authority and primary consumer compliance enforcement authority. CFPB jurisdiction could result in additional

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regulation and supervision, which could increase our costs and limit our ability to pursue business opportunities. Consent orders, decrees or settlements entered into with governmental agencies may also increase our compliance costs or restrict certain of our activities. Further, our failure to comply with these laws and regulations, even if the failure is inadvertent or reflects a difference in interpretation, could subject us to restrictions on our business activities, fines and other penalties, any of which could adversely affect our results of operations, capital base and the price of our securities. Finally, we operate in an environment of heightened political and regulatory scrutiny of student loan lending, servicing and originations, which could lead to further laws and regulations limiting our business.
Regulatory agencies have increased their expectations with respect to how regulated institutions oversee their relationships with service providers.
The CFPB and the FDIC have issued guidance to supervised banks with respect to increased responsibilities to vet and supervise the activities of service providers to ensure compliance with federal consumer protection laws. The FDIC Consent Order of May 13, 2014, among other things, imposes strict requirements on the Bank with respect to oversight of third-party agreements and services. The issuance of regulatory guidance, the FDIC Consent Order, and the enforcement of the enhanced vendor management standards via examination and investigation of us or any third party with whom we do business, may increase our costs, require increased management attention and adversely impact our operations. In the event we should fail to meet the heightened standards for management of service providers, we could in the future be subject to further supervisory orders to cease and desist, civil monetary penalties or other actions due to claimed noncompliance, which could have an adverse effect on our business, financial condition and operating results.
Capital and Liquidity
For at least the next several years, our ability to grow our business to its fullest potential will be heavily reliant on our ability to obtain deposits and sell some of the loans we originate.
If we are unable to obtain funding or generate sufficient proceeds from loan sales to fund new Private Education Loan originations, our business, financial condition, results of operations and cash flows could be materially adversely affected.
We fund Private Education Loan originations through term and liquid brokered and retail deposits raised by the Bank. Assets funded in this manner result in refinancing risk because the average term of the deposits is shorter than the expected term of the Private Education Loan assets we create. Also, our ability to maintain our current level of deposits or grow our deposit base could be affected by regulatory restrictions, including the possible imposition of prior approval requirements or restrictions on deposit growth through brokered deposits. As a supervisory matter, reliance on brokered deposits as a significant source of funding is discouraged. As a result, in order to grow our deposit base, we will need to expand our non-brokered channels for deposit generation, including through new marketing and advertising efforts, which may require significant time, capital, and effort to implement. Further, the significant competition for deposits from other banking organizations that are also seeking stable deposits to support their funding needs may affect deposit renewal rates, costs or availability. If we are unable to develop new channels for deposit generation on favorable terms, it could have a material adverse effect on our business, results in operations, and financial position. In addition, our ability to maintain existing or obtain additional deposits may be affected by factors, including those beyond our control, such as perceptions about our financial strength, quality of deposit servicing or online banking generally, with could reduce the number of consumers choosing to make deposits with us.
Until such time as our asset base becomes significantly larger, we cannot increase the rate of growth on Private Education Loan originations and remain within FDIC-stipulated annual growth rates on the Bank unless we can sell significant amounts of our loan production in secondary capital markets transactions. There is no assurance that third party sales of our Private Education Loans will be achievable at sufficient levels to make the origination of new Private Education Loans possible or profitable.
A number of factors, some of which are beyond our control, may adversely affect our loan portfolio funding and disposition activities and thereby adversely affect our business, financial position, results of operations and cash flows.
Our success may depend on our ability to sell significant numbers of our Private Education Loans, structure securitizations containing those loans or execute other secured funding transactions. Several factors may have a material adverse effect on both our ability and the time it takes us to structure and execute these transactions, including the following:
•
Persistent and prolonged disruption or volatility in the capital markets or in the education loan ABS sector specifically;
•
Our inability to generate sufficient Private Education Loan volume;

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•
Degradation of the credit quality or performance of the Private Education Loans we sell to third-parties or to securitization trusts, or adverse rating agency assumptions, ratings or conclusions with respect to those trusts;
•
Material breach of our obligations to purchasers of our Private Education Loans, including securitization trusts;
•
The timing and size of education loan asset-backed securitizations that other parties issue, or the adverse performance of, or other problems with, such securitizations;
•
Challenges to the enforceability of Private Education Loans based on violations of, or subsequent changes to, federal or state consumer protection or licensing laws and related regulations, or imposition of penalties or liabilities on assignees of Private Education Loans for violation of such laws and regulations; or
•
Our inability to structure and gain market acceptance for new products or services to meet new demands of ABS investors, rating agencies, or credit facility providers.
In structuring and facilitating securitizations of Private Education Loans, administering securitization trusts or providing portfolio management, we may incur liabilities to transaction parties.
Under applicable state and federal securities laws, if investors incur losses as a result of purchasing ABS that our securitization trusts issue, we could be deemed responsible and could be liable to investors for damages. We could also be liable to investors or other parties for certain updated information that we may provide subsequent to the original ABS issuances by the trusts. If we fail to cause the securitization trusts or other transaction parties to disclose adequately all material information regarding an investment in any securities, if we or the trusts make statements that are misleading in any material respect in information delivered to investors in any securities or if we breach any other duties as the administrator or servicer of the securitization trusts, it is possible we could be sued and ultimately held liable by an investor or other transaction party. This risk includes failure to properly administer or oversee servicing or collections and may increase if the performance of the securitization trusts’ loan portfolios degrades. In addition, under various agreements, we may be contractually bound to indemnify transaction parties if an investor is successful in seeking to recover any loss from those parties and the securitization trusts are found to have made a materially misleading statement or to have omitted material information.
If we are liable to an investor or other transaction party for a loss incurred in any securitization we facilitate or structured and any insurance that we may have does not cover this liability or proves to be insufficient, our business, financial position, results of operations and cash flows could be materially adversely affected.
The interest rate characteristics of our earning assets do not always match the interest rate characteristics of our funding arrangements, which may increase the price of, or decrease our ability to obtain, necessary liquidity.
Net interest income is the primary source of cash flow generated by our portfolios of Private Education Loans and FFELP Loans. Interest earned on Private Education Loans and FFELP Loans is primarily indexed to one-month LIBOR rates, but our cost of funds is primarily related to deposit rates. Certain of our Private Education Loans bear fixed interest rates. These loans are not specifically match funded with fixed-rate deposits. Likewise, the average term of our deposits is shorter than the expected term of our Private Education Loans.
The different interest rate and maturity characteristics of our loan portfolio and the liabilities funding that portfolio result in interest rate risk, basis risk and re-pricing risk. In certain interest rate environments, this mismatch may compress our net interest margin. It is not possible to hedge all of our exposure to such risks. While the assets, liabilities and related hedging derivative contract repricing indices are typically highly correlated, there can be no assurance that the historically high correlation will not be disrupted by capital market dislocations or other factors not within our control. In these circumstances, our earnings could be materially adversely affected.

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Adverse market conditions or an inability to effectively manage our liquidity risk could negatively impact our ability to meet our liquidity and funding needs, which could materially and adversely impact our business operations and our overall financial condition.
We must effectively manage the liquidity risk to which we are exposed. We require liquidity to meet cash requirements such as day-to-day operating expenses, extensions of credit on our Private Education Loans, meet demand for deposit withdrawals and payment of required dividends on our preferred stock. Our primary sources of liquidity and funding are from customer deposits, payments made on Private Education Loans and FFELP Loans that we hold, and proceeds from loan sales and securitization transactions we undertake. We may maintain too much liquidity, which can be costly, or we may be too illiquid, which could result in financial distress during times of financial stress or capital market disruptions.
Unexpected and sharp changes in the overall economic environment may negatively impact the performance of our loan and credit portfolios and cause increases in our provision for loan losses and charge-offs.
Unexpected changes in the overall economic environment, including unemployment, may result in the credit performance of our loan portfolio being materially different from what we expect. Our earnings are dependent on the expected future creditworthiness of our education loan customers, especially with respect to our Private Education Loan portfolio. We maintain an allowance for Private Education Loan losses based on expected future charge-offs expected over primarily the next year, which considers many factors, including levels of past due loans and forbearances and expected economic conditions. However, management’s determination of the appropriate allowance level may under- or over-estimate future losses. If the credit quality of our customer base materially decreases, if a market risk changes significantly, or if our reserves for credit losses are not adequate, our business, financial position, results of operations and cash flows could be adversely affected.
Our use of derivatives to manage interest rate sensitivity exposes us to credit and market risk that could have a material adverse effect on our earnings.
We maintain an overall interest rate strategy that uses derivatives to minimize the economic effect of interest rate changes. Developing an effective hedging strategy for dealing with movements in interest rates is complex, and no strategy can completely avoid the risks associated with these fluctuations. For example, our education loan portfolio remains subject to prepayment risk that could cause it to be under- or over-hedged, which could result in material losses. In addition, our interest rate risk management activities expose us to mark-to-market losses if interest rates move in a materially different way than was expected when we entered into the related derivative contracts. As a result, there can be no assurance hedging activities using derivatives will effectively manage our interest rate sensitivity, have the desired beneficial impact on our results of operations or financial condition or not adversely impact our liquidity and earnings.
Our use of derivatives also exposes us to market risk and credit risk. Market risk is the chance of financial loss resulting from changes in interest rates and market liquidity. Some of the swaps we use to economically hedge interest rate risk between our assets and liabilities do not qualify for hedge accounting treatment. Therefore, the change in fair value, called the “mark-to-market,” of these derivative instruments is included in our statement of income. A decline in the fair value of these derivatives could have a material adverse effect on our reported earnings.
We are also subject to the creditworthiness of other third parties, including counterparties to derivative transactions. For example, we have exposure to the financial conditions of various lending, investment and derivative counterparties. If a counterparty fails to perform its obligations, we could, depending on the type of counterparty arrangement, experience a loss of liquidity or an economic loss. In addition, we might not be able to cost effectively replace the derivative position depending on the type of derivative and the current economic environment, and thus be exposed to a greater level of interest rate which could lead to additional losses. Our counterparty exposure is more fully discussed in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Counterparty Exposure.” If our counterparties are unable to perform their obligations, our business, financial condition and results of operations could suffer.
  
Defaults on education loans, particularly Private Education Loans, could adversely affect our business, financial position, results of operations and cash flows.
We bear the full credit exposure on Private Education Loans. Delinquencies are an important indicator of the potential future credit performance for Private Education Loans. Our delinquencies, as a percentage of Private Education Loans in repayment, were 2.0 percent at December 31, 2014.
In connection with the Spin-Off, we conformed our policy with that of the Bank to charge off loans after 120 days of delinquency. We also changed our loss confirmation period — the expected time between a loss event and management's estimates of the uncollectability of debt — from two years to one year to reflect both the shorter charge-off policy and its related servicing practices. Prior to the Spin-Off, the Bank sold all loans past 90 days delinquent to an entity that is now a subsidiary of Navient. Post-Spin-Off, sales of delinquent loans to Navient will be significantly curtailed. Similarly, pre-Spin-Off SLM’s Private Education Loan default aversion strategies were focused on the final stages of delinquency, from 150 days to

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212 days. As a result of changing our corporate charge-off policy to charging off at 120 days delinquent and greatly reducing the number of potentially delinquent loans we sell to Navient, our default aversion strategies must now focus more on loans 30 to 120 days delinquent. We have little experience in executing our default aversion strategies on such compressed collection timeframes.  If we are unable to maintain or improve on our existing default aversion levels during these shortened collection timeframes default rates on our Private Education Loans could increase.
Our allowance for loan losses may not be adequate to cover actual losses, and we may be required to materially increase our allowance, which may adversely affect our capital, financial condition, and results of operations.
The evaluation of our allowance for loan losses is inherently subjective, as it requires material estimates that may be subject to significant changes. As of December 31, 2014, our allowance for Private Education Loan losses was approximately $79 million. During the year ended December 31, 2014, we recognized provisions for Private Education Loan losses of $84 million. The provision for loan losses reflects the activity for the applicable period and provides an allowance at a level that management believes is appropriate to cover probable losses inherent in the loan portfolio. However, future defaults can be higher than anticipated due to a variety of factors outside of our control, such as downturns in the economy, regulatory or operational changes and other unforeseen future trends. Losses on Private Education Loans are also determined by risk characteristics such as school type, loan status (in-school, grace, forbearance, repayment and delinquency), loan seasoning (number of months in active repayment), underwriting criteria (e.g., credit scores), presence of a cosigner and the current economic environment. General economic and employment conditions, including employment rates for recent college graduates during the recent recession, led to higher rates of education loan defaults. If actual loan performance is worse than currently estimated, it could materially affect our estimate of the allowance for loan losses and the related provision for loan losses in our statements of income and, as a result, adversely affect our financial condition and results of operations.
The Bank is subject to various regulatory capital requirements administered by the FDIC and the UDFI. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material adverse effect on our business, results of operations and financial position.
Under the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of our assets, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.
Beginning January 1, 2015, the Bank must comply with the FDIC’s final rule implementing the Basel III capital framework related to regulatory capital measurement and reporting. The rule strengthens both the quantity and quality of risk-based capital for all banks, placing greater emphasis on Tier 1 common equity capital. Under the new rule, well-capitalized institutions will be required to maintain a minimum Tier 1 Leverage ratio of 5 percent, a minimum Tier 1 common equity risk-based capital ratio of 6.5 percent, a minimum Tier 1 risk-based capital of 8 percent and minimum total risk-based capital of 10 percent. In addition, a capital conservation buffer will be phased in over four years beginning on January 1, 2016, as follows: the maximum buffer will be 0.625 percent of risk weighted assets for 2016, 1.25 percent for 2017, 1.875 percent for 2018 and 2.5 percent for 2019 and beyond, resulting in the following minimum ratios beginning in 2019: a Tier 1 common equity risk-based capital ratio of a minimum 7.0 percent, a Tier 1 capital ratio of a minimum 8.5 percent and a total risk-based capital ratio of a minimum 10.5 percent. As of December 31, 2014, the Bank had a Tier 1 leverage ratio of 11.5 percent, a Tier 1 risk-based capital ratio of 15.0 percent and total risk-based capital ratio of 15.9 percent.  If the FDIC’s final rule were effective on December 31, 2014, the ratios would be Tier 1 leverage ratio of 11.5 percent, Tier 1 risk-based capital ratio of 14.6 percent and total risk-based capital ratio of 15.5 percent.
Institutions that do not maintain the capital conservation buffer could face restrictions on dividend payments, share repurchases and the payment of discretionary bonuses. If the Bank fails to satisfy regulatory capital or leverage capital requirements, it may be subject to serious regulatory sanctions which could also have an impact on us. If any of these sanctions were to occur, they could prevent us from successfully executing our business plan and may have a material adverse effect on our business, results of operations and financial position.
Unfavorable results from ongoing stress tests conducted by us may adversely affect our capital position.
The Dodd-Frank Act imposes stress test requirements on banking organizations with total consolidated assets, averaged over the four most recent consecutive quarters, of more than $10 billion. As of December 31, 2014, the Bank has met this asset threshold. Under the FDIC’s implementing regulations, the Bank is required to conduct annual stress tests utilizing scenarios provided by the FDIC and publish a summary of those results. The Bank must conduct its first annual stress test under the rules in the January 1, 2016 stress testing cycle and submit the results of that stress test to the FDIC by July 31, 2016. Published summary results will be required to include certain measures that evaluate the Bank’s ability to absorb losses in severely adverse economic and financial conditions. Our regulators may require the Bank to raise additional capital or take other actions,

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or may impose restrictions on our business, based on the results of the stress tests. We may not be able to raise additional capital if required to do so, or may not be able to do so on terms which are advantageous to us or our current shareholders. Any such capital raises, if required, may also be dilutive to our existing stockholders.
Operations
A failure of our operating systems or infrastructure could disrupt our business, cause significant losses, result in regulatory action or damage our reputation.
On October 13, 2014, we completed the operational separation of our servicing platforms and personnel from Navient and launched our new customer service operation. One major project remains to be completed before full operational separation from Navient can be achieved: establishing the Bank’s own loan originations platform which we currently expect to achieve sometime in the first half of 2015.
Our business is dependent on our ability to process and monitor large numbers of daily transactions in compliance with legal and regulatory standards and our product specifications, which change to reflect our business needs and new or revised regulatory requirements. As processing demands change and our Private Education Loan portfolio grows in both volume and differing terms and conditions, developing and maintaining our operating systems and infrastructure becomes increasingly challenging. There is no assurance we can adequately or efficiently develop, maintain or acquire access to such systems and infrastructure.
Our loan originations and conversions of the servicing, financial, accounting, data processing or other operating systems and facilities that support them may fail to operate properly or become disabled as a result of events beyond our control, adversely affecting our ability to process these transactions. Any such failure could adversely affect our ability to service our clients, result in financial loss or liability to our clients, disrupt our business, result in regulatory action or cause reputational damage. Despite the plans and facilities we have in place, our ability to conduct business may be adversely affected by a disruption in the infrastructure that supports our businesses. This may include a disruption involving electrical, communications, Internet, transportation or other services used by us or third parties with which we conduct business. Notwithstanding our efforts to maintain business continuity, a disruptive event impacting our processing locations could adversely affect our business, financial condition and results of operations.
Our business processes are becoming increasingly dependent upon technological advancement, and we could lose market share if we are not able to keep pace with rapid changes in technology.
Our future success depends, in part, on our ability to process loan applications and payments in an automated manner with high-quality service standards. The volume of loan originations we are able to process is based, in large part, on the systems and processes we have implemented and developed. These systems and processes are becoming increasingly dependent upon technological advancement, such as the ability to process loans and payments over the Internet, accept electronic signatures and provide initial decisions instantly. Our future success also depends, in part, on our ability to develop and implement technology solutions that anticipate and keep pace with continuing changes in technology, industry standards and client preferences. We may not be successful in anticipating or responding to these developments on a timely basis. We have made, and need to continue to make, investments in our technology platform to provide competitive products and services. If competitors introduce products, services, systems and processes that are better than ours or that gain greater market acceptance, those we offer or use may become obsolete or noncompetitive. Any one of these circumstances could have a material adverse effect on our business reputation and ability to obtain and retain clients.
We may be required to expend significant funds to develop or acquire new technologies. If we cannot offer new technologies as quickly as our competitors, we could lose market share. We also could lose market share if our competitors develop more cost effective technologies than those we offer or develop.
We depend on secure information technology, and a breach of those systems or those of third party vendors could result in significant losses, disclosure of confidential customer information and reputational damage, which would adversely affect our business.
Our operations rely on the secure processing, storage and transmission of personal, confidential and other information in our computer systems and networks. Although we take protective measures, our computer systems, software and networks, as well as those of third party vendors we utilize, may be vulnerable to unauthorized access, computer viruses, malicious attacks and other events that could have a security impact beyond our control. Our technologies, systems, networks and those of third parties we utilize may become the target of cyber-attacks, malicious code, computer viruses, denial of service attacks, social engineering and physical attacks that could result in information security breaches, the unauthorized release, gathering, monitoring, misuse, loss or destruction of our or our customers’ confidential, proprietary and other information, or otherwise disrupt our or our customers’ or other third parties’ business operations. Moreover, information security risks for large financial

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institutions have generally increased in recent years in part because of the proliferation of new technologies, the use of the Internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists, activists, and other external parties.
If one or more of such events occur, personal, confidential and other information processed and stored in, and transmitted through our computer systems and networks, or those of third party vendors, could be jeopardized or could cause interruptions or malfunctions in our operations that could result in significant losses or reputational damage. We also routinely transmit and receive personal, confidential and proprietary information, some through third parties. We have put in place secure transmission capability, and work to ensure third parties follow similar procedures. An interception, misuse or mishandling of personal, confidential or proprietary information being sent to or received from a customer or third party could result in legal liability, regulatory action and reputational harm. In the event personal, confidential or other information is jeopardized, intercepted, misused or mishandled, we may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to fines, penalties, litigation costs and settlements and financial losses that are either not insured against or not fully covered through any insurance maintained by us. If one or more of such events occur, our business, financial condition or results of operations could be significantly and adversely affected.
We increasingly depend on third parties for a wide array of services, systems and information technology applications, and a breach of service levels, or violation of law by one of these third parties could disrupt our business or provide our competitors with an opportunity to enhance their position at our expense.
We increasingly depend on third parties for a wide array of services, systems and information technology applications. Third-party vendors are significantly involved in aspects of our software and systems development, the timely and secure transmission of information across our data communication network, and for other telecommunications, processing, remittance and technology-related services in connection with our business. If a service provider fails to provide the services we require or expect, or fails to meet applicable contractual or regulatory requirements, such as service levels or compliance with applicable laws, the failure could negatively impact our business by adversely affecting our ability to process customers’ transactions in a timely and accurate manner, otherwise hampering our ability to serve our customers, or subjecting us to litigation and regulatory risk for matters as diverse as poor vendor oversight or improper release or protection of personal information. Such a failure could adversely affect the perception of the reliability of our networks and services, and the quality of our brands, and could materially adversely affect our revenues and/or our results of operations.
We may face risks related to litigation that could result in significant legal expenses and settlement or damage awards.
Navient has agreed to be responsible, and indemnify us, for all claims, actions, damages, losses or expenses that may arise from the conduct of all activities of pre-Spin-Off SLM occurring prior to the Spin-Off other than those specifically excluded in the Separation and Distribution Agreement, including the settlement or damage awards and legal expenses associated with any litigation arising from most of our pre-Spin-Off activities. Consequently, due to Navient’s indemnification and the smaller, relatively younger vintages of our Private Education Loans, over the near term our litigation-related expenses may be lower than might otherwise be expected. As our business grows, we will likely be subject to claims and litigation, which could seriously harm our business and require us to incur significant costs. We are also generally obligated, to the extent permitted by law, to indemnify our current and former officers and directors who are named as defendants in these lawsuits. Defending against litigation may require significant attention and resources of management and, regardless of the outcome, such litigation could result in significant legal expenses. If we are a party to material litigation and if the defenses we assert are ultimately unsuccessful, or if we are unable to achieve a favorable settlement, we could be liable for large damages and that could have a material adverse effect on our business, results of operations and financial position. Likewise, similar material adverse effects could occur if Navient is unwilling or unable to honor its indemnification obligations under the Separation and Distribution Agreement.
Incorrect estimates and assumptions by management in connection with the preparation of our consolidated financial statements could adversely affect the reported assets, liabilities, income and expenses.
The preparation of our consolidated financial statements requires management to make critical accounting estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses during the reporting periods. Incorrect estimates and assumptions by management in connection with the preparation of our consolidated financial statements could adversely affect the reported amounts of assets and liabilities and the reported amounts of income and expenses. A description of our critical accounting estimates and assumptions may be found in Part I, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” and in Note 2, “Significant Accounting Policies” to the consolidated financial statements included in this Form 10-K. If we make incorrect assumptions or estimates, we may under- or overstate reported financial results, which could materially and adversely affect our business, financial condition and results of operations.

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Our framework for managing risks may not be effective in mitigating our risk of loss.
Our risk management framework seeks to mitigate risk and appropriately balance risk and return. We have established processes and procedures intended to identify, measure, monitor, control and report the types of risk to which we are subject. We seek to monitor and control our risk exposure through a framework of policies, procedures, limits and reporting requirements. Management of risks in some cases depends upon the use of analytical and/or forecasting models. If the models that we use to mitigate these risks are inadequate, we may incur increased losses. In addition, there may be risks that exist, or that develop in the future, that we have not appropriately anticipated, identified or mitigated. If our risk management framework does not effectively identify or mitigate our risks, we could suffer unexpected losses and our financial condition and results of operations could be materially adversely affected.
Risks Related to the Spin-Off
The actions required to implement the complete separation of our pre-Spin-Off businesses into two, distinct, publicly traded entities have and will continue to take significant management time and attention and could disrupt operations. Our success is highly dependent on hiring, training and retaining new employees in numbers sufficient to sustain the growth of our business.
The complete separation of the pre-Spin-Off organization into two publicly traded companies will continue to require significant ongoing execution and administration at all levels of the internal organization. A team of employees is charged with implementing the Spin-Off, reporting frequently to management on status and progress of the project. High-level employees and management continue to dedicate a significant amount of time to the implementation of the Spin-Off to ensure it is carried out timely and appropriately. We must also hire and train significant numbers of new employees to build out and operate our stand alone operations which could impinge on the time spent on managing our business. Our inability to hire, train, and retain new employees sufficient to support our stand alone operations could disrupt or impair current and future operations.
We will incur significant costs in connection with being a stand-alone company and lose the advantage of our larger size and purchasing power that existed prior to the Spin-Off.
We will incur significant costs in connection with the transition to being a stand-alone public company and implementing the Spin-Off, including costs to separate information systems, accounting, tax, legal and other professional services costs and recruiting and relocation costs associated with hiring key senior management personnel new to us. In addition, the businesses we operate have historically taken advantage of our larger size and purchasing power prior to the Spin-Off in procuring goods and services. After the Spin-Off, we are no longer able to rely on this purchasing power and, as a result, we may not be able to obtain goods and services from third-party service providers and vendors at prices or on terms as favorable as those we obtained prior to the Spin-Off. Furthermore, prior to the Spin-Off, our businesses have obtained services from, or engaged in transactions with, our affiliates under intercompany agreements. Navient and its affiliates will provide services to us and our affiliates following the Spin-Off under a transition services agreement for a transition period and potentially thereafter. The fees charged by Navient and its affiliates for the provision of these services to us and our affiliates may be higher than those charged prior to the Spin-Off. All of these factors will result in costs that are higher than the amounts reflected in historical financial statements which could cause our profitability to decrease.
We continue to have significant exposures to risks related to Navient’s loan servicing operations and its creditworthiness. If we are unable to obtain services, complete the transition of our origination operations as planned, or obtain indemnification payments from Navient, we could experience higher than expected costs and operating expenses and our results of operations and financial condition could be materially and adversely affected.
At the time of this filing, our loan origination capabilities continue to be provided by Navient pursuant to a transition services agreement. Pursuant to the Separation and Distribution Agreement and transition services agreement, Navient will also continue to bear significant responsibility for its activities undertaken for the Bank during this transition period. We are continuing to work with Navient to complete an orderly and staged transition to our own separate, stand-alone loan origination platform. Any unexpected delays or additional costs or expenses to complete this transition or to provide the origination activities conducted by Navient on our behalf, whether or not due to Navient’s actions, could significantly affect our operating expenses and earnings.
Navient has also agreed to be responsible, and indemnify us, for all claims, actions, damages, losses or expenses that may arise from the conduct of all activities of pre-Spin-Off SLM occurring prior to the Spin-Off other than those specifically excluded in the Separation and Distribution Agreement. Some significant examples of the types of indemnification obligations Navient has include:
•
Pursuant to a tax sharing agreement, Navient has agreed to indemnify us for $283 million in deferred taxes that the Company will be legally responsible for but that relate to gains recognized by the Company’s predecessor on debt

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repurchases made prior to the Spin-Off. The remaining amount of this indemnification receivable at December 31, 2014 is $240 million.
•
Navient has responsibility to assume new or ongoing litigation matters relating to the conduct of most pre-Spin-Off SLM businesses operated or conducted prior to the Spin-Off.
•
Under the terms of the Separation and Distribution Agreement, Navient is responsible for funding all liabilities under the recently agreed upon regulatory orders with the FDIC and the Department of Justice, other than fines directly levied against the Bank in connection with these matters. Under the Department of Justice order, Navient is solely responsible for reimbursing SCRA benefits and related compensation on behalf of both its subsidiary, Navient Solutions, Inc., and the Bank.
The Separation and Distribution Agreement provides specific processes and procedures pursuant to which we may submit claims for indemnification to Navient and, to date, Navient has acknowledged and accepted all claims. Nonetheless, if for any reason Navient is unable or unwilling to pay claims made against it, our costs, operating expenses and financial condition could be materially and adversely affected over time.
We may not achieve some or all of the expected benefits of the Spin-Off, and the Spin-Off may adversely affect our business.
We may not be able to achieve the full strategic and financial benefits expected to result from the Spin-Off, or such benefits may be delayed or not occur at all. The Spin-Off is expected to provide the following benefits, among others: (i) a distinct investment identity allowing investors to evaluate the merits, performance, and future prospects of the Company separately from Navient; (ii) separation of responsibility for most pre-Spin-Off activities of Old SLM from the Company (iii) cash flows significantly in excess of preferred stock dividend and debt service obligations; (iv) more efficient allocation of capital for the Company and Navient; (v) reducing the likelihood the Company is designated a systemically important financial institution; and (vi) a separate equity structure that allows direct access by the Company to the capital markets and the use of our equity for acquisitions and equity compensation. If we fail to achieve some or all of the benefits expected to result from the Spin-Off, or if such benefits are delayed, the business, financial condition and results of our operations could be adversely affected and the value of our stock could be impacted.
Sallie Mae and Navient will each be subject to restrictions under a tax sharing agreement between them, and a violation of the tax sharing agreement may result in tax liability to Sallie Mae and to its stockholders.
In connection with the Spin-Off, we entered into a tax sharing agreement with Navient to preserve the tax-free treatment of the separation and distribution of Navient. Under this tax sharing agreement, both we and Navient will be restricted from engaging in certain transactions that could prevent the Spin-Off from being tax-free to us and our stockholders at the time of the Spin-Off for U.S. federal income tax purposes. Compliance with the tax sharing agreement and the restrictions therein may limit our near-term ability to pursue certain strategic transactions or engage in activities that might be beneficial from a business perspective, including M&A transactions. This may result in missed opportunities or the pursuit of business strategies that may not be as beneficial for us and which may negatively affect our anticipated profitability. If Navient fails to comply with the restrictions in the tax sharing agreement and as a result the Spin-Off was determined to be taxable for U.S. federal income tax purposes, we and our stockholders at the time of the Spin-Off that are subject to U.S. federal income tax could incur significant U.S. federal income tax liabilities. Although the tax sharing agreement provides that Navient is required to indemnify us for taxes incurred that may arise were Navient to fail to comply with its obligations under the tax sharing agreement, there is no assurance that Navient will have the funds to satisfy that liability. Also, Navient will not be required to indemnify our stockholders for any tax liabilities they may incur for its violation of the tax sharing agreement.
Risks Related to Our Securities
Our common and preferred stock prices may fluctuate significantly.
The market price of shares of our common stock may fluctuate significantly due to a number of factors, some of which may be beyond our control, including:
•
Actual or anticipated fluctuations in our operating results;
•
Our smaller market capitalization as compared to pre-Spin-Off SLM;
•
Changes in earnings estimated by securities analysts or our ability to meet those estimates;
•
Our policy of paying no common stock dividends;
•
The operating and stock price performance of comparable companies;
•
news reports relating to trends, concerns and other issues in the financial services industry, including regulatory actions against other financial institutions;

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•
perceptions in the marketplace regarding us and/or our competitors;
•
new technology used, or services offered, by competitors;
•
significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors;
•
Changes to the regulatory and legal environment under which we and our subsidiaries operate; and
•
Domestic and worldwide economic conditions.
The market price of shares of our preferred stock may fluctuate significantly due to a number of factors, some of which may be beyond our control, including:
•
Significant sales of our preferred stock, or the expectation of these sales or expectations of same;
•
Lack of credit agency ratings or FDIC insurance;
•
Movements in interest rates and spreads that negatively affect return; and
•
Call and redemption features.
In addition, when the market price of a company’s common stock drops significantly, stockholders often institute securities class action lawsuits against the company. A securities class action lawsuit against the Company could cause it to incur substantial costs and could divert the time and attention of its management and other resources, which could materially adversely affect our business, financing condition and results of operations.
An investment in our securities is not an insured deposit.
Our common stock, preferred stock and indebtedness are not bank deposits and, therefore, are not insured against loss by the FDIC, any other deposit insurance fund or by any other public or private entity. Investment in our common stock is inherently risky for the reasons described in this “Risk Factors” section and elsewhere in this report and is subject to the same market forces that affect the price of securities of any company. As a result, if you acquire our common stock, preferred stock or indebtedness, you may lose some or all of your investment.
The holders of our preferred stock have rights that are senior to those of our common shareholders.
At December 31, 2014, we had issued and outstanding 3.3 million shares of our 6.97 percent Cumulative Redeemable Preferred Stock, Series A and 4 million shares of our Floating-Rate Non-Cumulative Preferred Stock, Series B.
Our preferred stock is senior to our shares of common stock in right of payment of dividends and other distributions. We must be current on dividends payable to holders of preferred stock before any dividends can be paid on our common stock. In the event of our bankruptcy, dissolution or liquidation, the holders of our preferred stock must be satisfied before any distributions can be made to our common shareholders.
We do not intend pay dividends on our common stock.
We have not paid dividends on our common stock since the Spin-Off and we do not expect to do so for the foreseeable future. We are dependent on funds obtained from the Bank to fund our obligations. Regulatory and other legal restrictions may limit our ability to transfer funds freely, either to or from our subsidiaries. In particular, the Bank is subject to laws and regulations that authorize regulatory bodies to block or reduce the flow of funds to us, or that prohibit such transfers altogether in certain circumstances. These laws, regulations and rules may hinder our ability to access funds that we may need to make payments on our obligations. The FDIC has the authority to prohibit or to limit the payment of dividends by the banking organizations they supervise, including us and our bank subsidiaries.
Restrictions on Ownership
The ability of a third party to acquire us is limited under applicable U.S. and state banking laws and regulations.
Under the Change in Bank Control Act of 1978, as amended, (“CIBC Act”), the FDIC’s regulations thereunder, and similar Utah banking laws, any person, either individually or acting through or in concert with one or more other persons, must provide notice to, and effectively receive prior approval from, the FDIC and UDFI before acquiring “control” of us.  In practice, the process for obtaining such approval is complicated and time-consuming, often taking longer than six months, and a proposed acquisition may be disapproved for a variety of factors, including, but not limited to: antitrust concerns, financial condition and managerial competence of the applicant, and failure of the applicant to furnish all required information. Under the FDIC’s CIBC Act regulations, control is rebuttably presumed to exist, and notice is required, where a person owns, controls

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or holds with the power to vote 10 percent or more of any class of our voting shares and no other person owns, controls or holds with the power to vote a greater percentage of that class of voting shares.
Item 1B. Unresolved Staff Comments
None.


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Item 2. Properties

The following table lists the principal facilities owned by us as of December 31, 2014:
 
Location
 
Function
 
Related Business Area(s)
 
Approximate
Square Feet
Newark, DE
 
Headquarters
 
Consumer Lending; Business Services; FFELP Loans; Other
 
160,000
Indianapolis, IN
 
Loan Servicing Center
 
Business Services
 
50,000
 
The following table lists the principal facilities leased by us as of December 31, 2014:
 
Location
 
Function
 
Related Business Area(s)
 
Approximate
Square Feet
Reston, VA
 
Administrative Offices
 
Consumer Lending; Business Services; FFELP Loans; Other
 
18,000
Newton, MA
 
Administrative Offices
 
Business Services and Upromise by Sallie Mae
 
18,000
Salt Lake City, UT
 
Sallie Mae Bank
 
Consumer Lending
 
11,400
None of the facilities that we own is encumbered by a mortgage. We believe that our headquarters, loan servicing centers, data center, back-up facility and data management and collection centers are generally adequate to meet our long-term lending and business goals. Our headquarters are currently located in owned space at 300 Continental Drive, Newark, Delaware, 19713.



28

Item 3.
Legal Proceedings
We and our subsidiaries and affiliates are subject to various claims, lawsuits and other actions that arise in the normal course of business. We believe that these claims, lawsuits and other actions will not, individually or in the aggregate, have a material adverse effect on our business, financial condition or results of operations. In the ordinary course of business, it is common for the Company, our subsidiaries and affiliates to receive information and document requests and investigative demands from state attorneys general, legislative committees and administrative agencies. These requests may be for informational or regulatory purposes and may relate to our business practices, the industries in which we operate, or other companies with whom we conduct business. Our practice has been and continues to be to cooperate with these bodies and be responsive to any such requests.
Pursuant to the terms of the Spin-Off and applicable law, Navient assumed responsibility for all liabilities (whether accrued, contingent or otherwise and whether known or unknown) arising out of or resulting from the conduct of pre-Spin-Off SLM and its subsidiaries’ businesses prior to the Spin-Off, other than certain specifically identified liabilities relating to the conduct of our consumer banking business. Nonetheless, given the prior usage of the Sallie Mae and SLM names by entities now owned by Navient, we and our subsidiaries may from time to time be improperly named as defendants in legal proceedings where the allegations at issue are the legal responsibility of Navient. Most of these legal proceedings involve matters that arose in the ordinary course of business of pre-Spin-Off SLM and we will not be providing information on these proceedings unless there are material issues of fact or disagreement with Navient as to the bases of the proceedings or responsibility therefor that we believe could have a material, adverse impact on our business, assets, financial condition, liquidity or outlook if not resolved in our favor.
Regulatory Update
At the time of this filing, the Bank remains subject to the consent order (the “2014 FDIC Order”) relating to the settlement of previously disclosed regulatory matters with the FDIC. Specifically, on May 13, 2014, the Bank reached settlements with the FDIC and the Department of Justice (the “DOJ”) regarding disclosures and assessments of certain late fees, as well as compliance with the SCRA.  The DOJ Order was approved by the U.S. District Court for the District of Delaware on September 29, 2014. Under the 2014 FDIC Order, the Bank agreed to pay $3.3 million in fines and oversee the refund of up to $30 million in late fees assessed on loans owned or originated by the Bank since its inception in November 2005.
Under the terms of the Separation and Distribution Agreement, Navient is responsible for funding all liabilities under the regulatory orders, other than fines directly levied against the Bank in connection with these matters. Under the DOJ Order, Navient is solely responsible for reimbursing SCRA benefits and related compensation on behalf of both its subsidiary, Navient Solutions, Inc., and the Bank.
As required by the 2014 FDIC Order and the DOJ Order, the Bank is implementing new SCRA policies, procedures and training, has updated billing statement disclosures, and is taking additional steps to ensure its third-party service providers are also fully compliant in these regards. The 2014 FDIC Order also requires the Bank to have its current compliance with consumer protection regulations audited by independent qualified audit personnel. The Bank is focused on achieving timely and comprehensive remediation of each item contained in the orders and on further enhancing its policies and practices to promote responsible financial practices, customer experience and compliance.
In May 2014, the Bank received a Civil Investigative Demand from the CFPB in the Bank’s capacity as a former affiliate of Navient as part of the CFPB’s separate investigation relating to fees and policies of pre-Spin-Off SLM during the period prior to the Spin-Off of Navient. We are cooperating fully with the CFPB but are not in a position at this time to predict the duration or outcome of the investigation. Given the timeframe covered by this demand, Navient would be responsible for all costs, expenses, losses or remediation likely to arise from this investigation.

Item 4.
Mine Safety Disclosures
N/A



29

PART II.
Item  5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is listed and traded on the NASDAQ under the symbol SLM since December 12, 2011. Previously, our common stock was listed and traded on the New York Stock Exchange. As of January 31, 2015, there were 423,476,360 shares of our common stock outstanding and 397 holders of record. The following table sets forth the high and low sales prices for our common stock for each full quarterly period within the two most recent fiscal years. The prices on and before April 30, 2013 include the value of Navient, which was spun off on that date. The prices after that date reflect only the business of SLM Corporation, after the Spin-Off.
Common Stock Prices
 
(Post-Spin-Off Prices)
 
 
 
 
 
 
 
 
 
 
2nd Quarter (May 1, 2014 to June 30, 2014)
 
3rd Quarter
 
4th Quarter
 
 
2014
 
High

$9.09

 

$9.14

 

$10.34

 
 
 
 
Low
8.26

 
8.23

 
8.47

 
 
 
 
 
 
 
 
 
 
 
 
(Pre-Spin-Off Prices)
 
 
 
 
 
 
 
 
 
 
1st Quarter
 
2nd Quarter (April 1, 2014 to April 30, 2014)
 
 
 
 
2014
 
High

$27.24

 

$25.93

 
 
 
 
 
 
Low
21.91

 
24.22

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1st Quarter
 
2nd Quarter
 
3rd Quarter
 
4th Quarter
2013
 
High

$20.50

 

$26.17

 

$25.49

 

$26.81

 
 
Low
16.57

 
19.32

 
22.69

 
23.93


We paid quarterly cash dividends on our common stock of $0.150 per share for the four quarters of 2013 and the first quarter of 2014. Following completion of the Spin-Off, we have not paid dividends on our common stock nor do we currently anticipate paying dividends on our common stock.


30

Issuer Purchases of Equity Securities

The following table provides information relating to our purchase of shares of our common stock in the three months ended December 31, 2014.
We do not intend to initiate share repurchase programs as a means to return capital to shareholders. We only expect to repurchase common stock acquired in connection with taxes withheld in connection with award exercises and vesting under our employee stock based compensation plans.  
(In thousands, except per share data)
Total Number
of Shares
Purchased (1)
 
Average Price
Paid per
Share  
 
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs   
 
Approximate Dollar
Value
of Shares That
May Yet Be
Purchased  Under
Publicly Announced
Plans or
Programs
Period:
 
 
 
 
 
 
 
October 1 - October 31, 2014
492

 
$
8.94

 
—

 
—

November 1 - November 30, 2014
47

 
$
9.88

 
—

 
—

December 1 - December 31, 2014
111

 
$
10.05

 
—

 
—

 
 

 
 

 
 

 
 
Total fourth-quarter 2014
650

 
$
9.20

 
—

 
 
 
 
 
 
 
 
 
 
     _
(1)  
All shares purchased are pursuant to the shares of our common stock tendered to us to satisfy the exercise price in connection with cashless exercise of stock options, and tax withholding obligations in connection with exercise of stock options and vesting of restricted stock and restricted stock units.


The closing price of our common stock on the NASDAQ Global Select Market on December 31, 2014 was $10.19.

31


Stock Performance

The following graph compares the five-year cumulative total returns of SLM Corporation, the S&P Midcap 400 Index and the KBW Bank Index.
This graph assumes $100 was invested in the stock or the relevant index on December 31, 2009, and also assumes the reinvestment of dividends through December 31, 2014, including the Company’s distribution to its shareholders of one share of Navient Corporation common stock for every share of SLM Corporation on April 30, 2014. For the purpose of this graph, the Navient Corporation distribution is treated as a non-taxable cash dividend of $16.56 that would have been reinvested in SLM Corporation common stock at the close of business April 30, 2014.

Five Year Cumulative Total Stockholder Return




Company/Index
12/31/09
12/31/10
12/31/11
12/31/12
12/31/13
12/31/14
SLM Corporation

$100.0


$112.1


$121.9


$160.7


$253.0


$279.8

S&P Midcap 400 Index*
100.0

126.4

124.2

146.2

194.9

213.7

KBW Bank Index*
100.0

123.3

94.9

125.8

172.9

188.9

_________
Source: Bloomberg Total Return Analysis


*Prior to the Spin-Off, we compared our stock performance with the S&P 500 Financials Index and the S&P Index. Due to the relatively smaller size of our post-Spin-Off balance sheet and business, we believe comparisons against the S&P Midcap 400 Index and KBW Bank Index are now more appropriate.


32


Item 6.
Selected Financial Data.
Selected Financial Data 2010-2014
(Dollars in millions, except per share amounts)
The following table sets forth our selected financial and other operating information prepared in accordance with GAAP. The selected financial data in the table is derived from our consolidated financial statements. The data should be read in conjunction with the consolidated financial statements, related notes, and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 
 
2014
 
2013
 
2012
 
2011
 
2010
Operating Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
 
$
578

 
$
462

 
$
408

 
$
367

 
$
261

Net income (loss) attributable to SLM Corporation
 
$
194

 
$
259

 
$
218

 
$
54

 
$
(94
)
Basic earnings (loss) per common share attributable to SLM Corporation
 
$
0.43

 
$
0.59

 
$
0.46

 
$
0.10

 
$
(0.19
)
Diluted earnings (loss) per common share attributable to SLM Corporation
 
$
0.42

 
$
0.58

 
$
0.45

 
$
0.10

 
$
(0.18
)
Dividends per common share attributable to SLM Corporation common shareholders (1)
 
$
—

 
$
0.60

 
$
0.50

 
$
0.30

 
$
—

Return on common stockholders’ equity
 
15
%
 
22
%
 
18
%
 
4
%
 
(0.7
)%
Net interest margin
 
5.26

 
5.06

 
5.54

 
5.22

 
3.56

Return on assets
 
1.77

 
2.83

 
2.95

 
0.77

 
(1.29
)
Average equity/average assets
 
13.92

 
12.50

 
15.49

 
16.79

 
18.30

Balance Sheet Data:
 
 
 
 
 
 
 
 
 
 
Student loans, net
 
$
9,510

 
$
7,931

 
$
6,487

 
$
5,302

 
$
4,659

Total assets
 
12,972

 
10,707

 
9,084

 
7,670

 
7,665

Total deposits
 
10,541

 
9,002

 
7,497

 
6,018

 
6,108

Total SLM Corporation stockholders’ equity
 
1,830

 
1,161

 
1,089

 
1,244

 
1,116

Book value per common share
 
2.99

 
2.71

 
2.41

 
2.44

 
2.12

_________
(1)     Following completion of the Spin-Off, SLM has not paid dividends on its common stock nor does it anticipate paying dividends on its common stock in 2015.


33


Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion and analysis also contains forward-looking statements and should also be read in conjunction with the disclosures and information contained in “Forward-Looking and Cautionary Statements” and Item 1A. “Risk Factors” in this Annual Report on Form 10-K.
Through this discussion and analysis, we intend to provide the reader with some narrative context for how our management views our consolidated financial statements, additional context within which to assess our operating results, and information on the quality and variability of our earnings, liquidity and cash flows.

Overview
The following discussion and analysis presents a review of our business and operations as of and for the year ended December 31, 2014.
On April 30, 2014, we completed our plan to legally separate into two distinct publicly traded entities - an education loan management, servicing and asset recovery business, Navient Corporation (“Navient”), and a consumer banking business, SLM Corporation. The separation of Navient from SLM Corporation (the “Spin-Off”) was preceded by an internal corporate reorganization, which was the first step to separate the education loan management, servicing and asset recovery business from the consumer banking business.
The financial information contained herein and in the accompanying consolidated balance sheets, statements of income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2014, present information on our business as configured after the Spin-Off, as hereafter defined. For more information regarding the basis of presentation of these statements, see notes to the consolidated financial statements, Note 2, “Significant Accounting Policies — Basis of Presentation.”
On October 13, 2014, we completed the operational separation of our servicing platforms and related personnel from Navient and launched our new customer service operation.  As a result of the launch of our servicing platforms, we now have responsibility for servicing the vast majority of the 840,000 loans contained within our existing Private Education Loan portfolio and maintaining customer relationships with the 1 million borrowers and related cosigners to whom these loans have been made. One major project remains to be completed before full operational separation from Navient can be achieved: establishing our own loan originations platform which we currently expect to achieve in the first half of 2015. For a more detailed description of ongoing arrangements among the Company and Navient, see notes to consolidated financial statements contained in this Form 10-K, Note 16, “Arrangements with Navient Corporation.”

Recent Development
Asset-Backed Commercial Paper Facility
On December 19, 2014, we closed a new $750 million private asset backed commercial paper (“ABCP”) education loan funding facility. The new facility had not been drawn upon as of December 31, 2014 and the facility’s scheduled maturity date is December 18, 2015. For additional details regarding this facility see “Item 7. — Management's Discussion and Analysis iof Financial Condition and Results of Operations — Liquidity and Capital Resources ” and Note 9 to the consolidated financial statements contained in this Form 10-K, “Asset-Backed Commercial Paper Funding Facility.”
Key Financial Measures
Set forth below are brief summaries of our key financial measures. Our operating results are primarily driven by net interest income from our Private Education Loan portfolio (which include financing costs), provision for loan losses, gains and losses on loan sales and operating expenses. The growth of our business and the strength of our financial condition are primarily driven by our ability to achieve our annual Private Education Loan origination goals while sustaining credit quality and maintaining diversified, cost-efficient funding sources to support our originations.

34

Net Interest Income
The most significant portion of our earnings is generated by the spread between the interest income we receive on assets in our education loan portfolios and the interest expense we pay on funds we use to originate these loans. We report these earnings as net interest income.
Net interest income is predominantly determined by the balance of Private Education Loans. As of December 31, 2014, we held $8.3 billion and $1.3 billion of Private Education and FFELP Loans, respectively. For Private Education Loans and FFELP Loans, net interest margin is determined by the interest on our interest earning assets less our cost of funds. The majority of our interest income comes from our Private Education Loan portfolio which earns variable rate interest and is funded primarily with deposits. Our cost of funds is primarily influenced by competition in the deposit market and by the overall level of interest rates.
FFELP Loans carry lower risk and have a much lower net interest margin as a result of the federal government guarantee supporting these loans. We do not expect to acquire any more FFELP Loans and the balance of our FFELP portfolio is expected to decline due to normal amortization.
Gains on Sale of Loans, Net
To prudently manage the growth of our balance sheet, capital and liquidity needs and to generate non-interest income we intend to periodically sell Private Education Loans to third parties through an auction process. We intend to retain servicing of these Private Education Loans subsequent to their sale at prevailing market rates for such services. We will execute this strategy through the sale of whole loans or securitizing a loan portfolio and selling the senior bonds as well as the residual interest in the securitization trust. Both strategies effectively deconsolidate the loans from our balance sheet and generate cash income for the company. Prior to the Spin-Off the Bank sold loans to an affiliate (now Navient) when the loans became 90 days delinquent and to facilitate securitization transactions. Subsequent to the Spin-Off, we sold $1.2 billion of loans during 2014, through whole loan sales to Navient and a securitization transaction with a third party. We recorded gains of $85 million on those sales. See notes to consolidated financial statements, Note 16, “Arrangements with Navient Corporation,” for further discussion regarding loan purchase agreements.
Allowance for Loan Losses
Management estimates and maintains an allowance for loan losses for Private Education Loans at a level sufficient to cover charge-offs expected over the next year, plus an additional allowance to cover life-of-loan expected losses for loans classified as a troubled debt restructuring (“TDR”). The allowance for loan losses is increased when we record provision expense and for recoveries and is reduced by charge-offs. Generally, the provision for loan losses and the allowance for loan losses rise when charge-offs are expected to increase and fall when charge-offs are expected to decline. We bear the full credit exposure on our Private Education Loans. Losses on our Private Education Loans are determined by risk characteristics such as loan status (in-school, grace, forbearance, repayment and delinquency), loan seasoning (number of months in active repayment), underwriting criteria (e.g., credit scores), presence of a cosigner and the current economic environment. Losses typically emerge once a borrower completes school and enters full principal and interest repayment after their grace period ends. Our experience indicates that approximately 50 percent of expected losses on loans can occur in the first two years after a loan enters full principal and interest repayment. Therefore, changes in our allowance for loan losses will be driven by the amount and age of our loans in full principal and interest repayment. At December 31, 2014, 28 percent of our portfolio of Private Education Loans have entered full principal and interest repayment status after any applicable grace periods.
Our provision for loan losses on our Private Education Loans was $84 million for the year ended December 31, 2014 compared with $65 million in 2013. Our allowance for loan losses was $79 million at December 31, 2014 compared to $62 million at the prior year-end. In connection with the Spin-Off, we changed our policy of charging off Private Education Loans when they are delinquent for 212 days to charging off loans after they are 120 days delinquent. In addition, we changed our loss confirmation period for Private Education Loans from two years to one year to reflect the shorter charge-off period and recent changes in our servicing practices. A loss confirmation period represents the expected period between a loss event and when management considers the debt to be uncollectible, taking into consideration account management practices that affect the timing of a loss, such as the usage of forbearance.
Our loss exposure and resulting provision for losses is small for FFELP Loans because we generally bear a maximum of three percent loss exposure on them. We maintain an allowance for loan losses for our FFELP Loans at a level sufficient to cover charge-offs expected over the the next two years. Our provision for losses in our FFELP Loans portfolio was $2 million for the year ended December 31, 2014 compared with $4 million in 2013.

35

Charge-Offs and Delinquencies
Delinquencies are a very important indicator of potential future credit performance. When a Private Education Loan reaches 120 days delinquent it is charged against the allowance for loan losses. Charge-off data provides relevant information with respect to the performance of our loan portfolios. Management focuses on delinquencies as well as the progression of loans from early to late stage delinquency. Prior to the Spin-Off, the Bank would sell delinquent loans to an entity that is now a subsidiary of Navient when the loans became 90 days delinquent. As a result, there were no charge-offs recorded in our financial statements prior to April 1, 2014. In addition, because loans were sold earlier in their delinquency status, the historical delinquency statistics are not necessarily indicative of expected future performance.
Private Education Loan delinquencies as a percentage of Private Education Loans in repayment increased from 1.0 percent at December 31, 2013 to 2.0 percent at December 31, 2014. Private Education Loans in forbearance as a percentage of Private Education Loans in repayment and forbearance increased from 0.4 percent at December 31, 2013 to 2.6 percent at December 31, 2014.
Operating Expenses
The operating expenses reported are those that are directly attributable to the Company, the costs of Transition Services Agreements with Navient, and restructuring costs associated with the build-out of our servicing platform and the remaining costs of the Spin-Off. We separately disclose “restructuring and other reorganization expenses”, which represent costs we believe are directly attributable to completing the Spin-Off. Restructuring and other reorganization expenses were $38 million for the year ended December 31, 2014 compared with $1 million in 2013. Our efficiency ratio is calculated as operating expense, excluding restructuring and other reorganization expenses, divided by net interest income after provision for loan losses and other income. For the year ended December 31, 2014 this ratio was 43 percent compared to 40 percent from the year-ago period. Our long-term objective is to achieve steady declines in this ratio over the next several years as the balance sheet and revenue grows to a level commensurate our loan origination platform and we control the growth of our expense base.
Core Earnings
We prepare financial statements in accordance with GAAP. However, we also produce and report our after-tax earnings on a separate basis which we refer to as “Core Earnings.” While pre-Spin-Off SLM also reported a metric by that name, what we now report and what we describe below is significantly different and should not be compared to any Core Earnings reported by pre-Spin-Off SLM.
“Core Earnings” recognizes the difference in accounting treatment based upon whether the derivative qualifies for hedge accounting treatment and eliminates the earnings impact associated with hedge ineffectiveness and derivatives we use as an economic hedge but do not qualify for hedge accounting treatment. We enter into derivatives instruments to economically hedge interest rate and cash flow risk associated with our portfolio. We believe that our derivatives are effective economic hedges, and as such, are a critical element of our interest rate risk management strategy. Those derivative instruments that qualify for hedge accounting treatment have their related cash flows recorded in interest income or interest expense along with the hedged item. Hedge ineffectiveness related to these derivatives is recorded in "Gains (losses) on derivatives and hedging activities, net." Some of our derivatives do not qualify for hedge accounting treatment and the stand-alone derivative must be marked-to-fair value in the income statement with no consideration for the corresponding change in fair value of the hedged item. These gains and losses, recorded in “Gains (losses) on derivative and hedging activities, net”, are primarily caused by interest rate volatility and changing credit spreads during the period as well as the volume and term of derivatives not receiving hedge accounting treatment. Cash flows on derivative instruments that do not qualify for hedge accounting are not recorded in interest income and interest expense; they are recorded in non-interest income: “gains (losses) on derivative and hedging activities, net.”
The adjustments required to reconcile from our “Core Earnings” results to our GAAP results of operations, net of tax, relate to differing treatments for our use of derivative instruments to hedge our economic risks that do not qualify for hedge accounting treatment or do qualify for hedge accounting treatment but result in ineffectiveness, net of tax. The amount recorded in “Gains (losses) on derivative and hedging activities, net” includes the accrual of the current payment on the interest rate swaps that do not qualify for hedge accounting treatment as well as the change in fair values related to future expected cash flows for derivatives and accounting hedges. For purposes of “Core Earnings” we are including in GAAP earnings the current period accrual amounts (interest reclassification) on the swaps and exclude the remaining ineffectiveness. “Core Earnings” is meant to represent what earnings would have been had these derivatives qualified for hedge accounting and there was no ineffectiveness.
“Core Earnings” are not a substitute for reported results under GAAP. We provide “Core Earnings” basis of presentation because (i) earnings per share computed on a “Core Earnings” basis is one of several measures we utilize in establishing

36

management incentive compensation and (ii) we believe it better reflects the financial results for derivatives that are economic hedges of interest rate risk but do not qualify for hedge accounting treatment.
GAAP provides a uniform, comprehensive basis of accounting. Our “Core Earnings” basis of presentation differs from GAAP in the way it treats ineffective hedges as described above.

The following table shows the amount in “Gains (losses) on derivative and hedging activities, net” that relates to the interest reclassification on the derivative contracts.
 
 
Years Ended December 31,
(Dollars in thousands)
 
2014
 
2013
 
2012
 
 
 
 
 
 
 
Hedge ineffectiveness losses
 
$
(1,746
)
 
$
(645
)
 
$
(5,548
)
Interest reclassification
 
(2,250
)
 
1,285

 
87

(Losses) gains on derivatives and hedging activities, net
 
$
(3,996
)
 
$
640

 
$
(5,461
)

The following table reflects adjustments associated with our derivative activities.
 
 
 
Years Ended December 31,
(Dollars in thousands, except per share amounts)
 
2014
 
2013
 
2012
 
 
 
 
 
 
 
“ Core Earnings ” adjustments to GAAP:
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP net income attributable to SLM Corporation
 
$
194,219

 
$
258,945

 
$
217,620

Preferred stock dividends
 
12,933

 
—

 
—

GAAP net income attributable to SLM Corporation common stock
 
$
181,286

 
$
258,945

 
$
217,620

 
 
 
 
 
 
 
GAAP net income attributable to SLM Corporation
 
$
194,219

 
$
258,945

 
$
217,620

 
 
 
 
 
 
 
Adjustments:
 
 
 
 
 
 
Net impact of derivative accounting (1)
 
1,746

 
645

 
5,548

Net tax effect (2)
 
659

 
246

 
2,047

Total “Core Earnings” adjustments to GAAP
 
1,087

 
399

 
3,501

 
 
 
 
 
 
 
“Core Earnings”
 
$
195,306

 
$
259,344

 
$
221,121

 
 
 
 
 
 
 
GAAP diluted earnings per common share
 
$
0.42

 
$
0.58

 
$
0.45

Derivative adjustments, net of tax
 
—

 
—

 
0.01

“Core Earnings” diluted earnings per common share
 
$
0.42

 
$
0.58

 
$
0.46

______
(1) Derivative Accounting: “Core Earnings” exclude periodic unrealized gains and losses caused by the mark-to-market valuations on derivatives that do not qualify for hedge accounting treatment under GAAP, as well as the periodic unrealized gains and losses that are a result of ineffectiveness recognized related to effective hedges under GAAP. Under GAAP, for our derivatives held to maturity, the cumulative net unrealized gain or loss over the life of the contract will equal $0.

(2) “Core Earnings” tax rate is based on the effective tax rate at the Bank where the derivative instruments are held.

37


Private Education Loan Originations
Private Education Loans are the principal asset on our balance sheet and the main driver of our future earnings and asset growth. The size of the Private Education Loan market and, hence, our ability to grow is determined by several primary factors: college enrollment levels, the costs of attending college, the availability of grants and loans from the federal government and the ability of families to contribute to the cost of education from income and savings. If the cost of education increases at a pace that exceeds income and savings growth, and the availability of federal funds does not significantly increase, we can expect more students and families to borrow privately. If the costs of attending college remain constant or decrease and/or the availability of federal funds increases, our ability to sustain Private Education Loan origination growth will be challenged. For the year ended December 31, 2014, we originated $4.1 billion of Private Education Loans, up 7 percent, from the last year.
Funding Sources
Deposits
We utilize both brokered and retail deposits to meet funding needs and enhance our liquidity position. These deposits can be term or liquid deposits. Term brokered deposits are issued across tenors, and have original terms as long as seven years. Most are swapped into one-month LIBOR. This structure has the effect of increasing the average life of our liabilities and matching the index our assets reset on, minimizing our exposure to interest rate risk. Retail deposits are sourced through a direct banking platform and serve as an important source of diversified funding. Brokered deposits are sourced through a small network of brokers and provide a stable source of funding. As of December 31, 2014, the Bank had $11.3 billion of customer deposits, representing 95 percent of interest earning assets, composed of $3.0 billion of retail deposits, $6.7 billion of brokered deposits and $1.6 billion of other deposits.
Loan Sales and Securitizations
We intend to diversify our funding by issuing term asset backed securities. Term asset backed securities provide long-term funding for our Private Education Loan portfolio at attractive interest rates and at terms that effectively match the average life of the asset. These funding securitizations will remain on our balance sheet if we retain the residual interest in these trusts. In addition, to prudently manage the growth of our balance sheet, capital and liquidity needs, we intend to periodically sell whole loans and residual interests in securitizations of Private Education Loans to third parties through an auction process. When we sell Private Education Loans or residual interests in ABS trusts, the principal of these loans is removed from our balance sheet. We will retain servicing of these Private Education Loans subsequent to such future sales.
2014 Management Objectives
Post Spin-Off, we set out five major goals for the remainder of the year to create shareholder value. They were: (1) prudently grow Private Education Loan assets and revenues; (2) maintain our strong capital position; (3) complete necessary steps to permit the Bank to independently originate and service Private Education Loans; (4) continue to expand the Bank's capabilities and enhance risk oversight and internal controls; and (5) manage operating expenses while improving efficiency and customer experience.
The following describes our performance relative to each of these goals.
Prudently Grow Private Education Loan Assets and Revenues
We continued to pursue managed growth in our Private Education Loan portfolio in 2014 by leveraging our Sallie Mae and Upromise brands and our relationships with more than two thousand colleges and universities while sustaining the credit quality of, and percentage of cosigners for, new originations. We originated $4.1 billion in new loans in 2014, compared with $3.8 billion in 2013. We also continued to help our customers manage their borrowings and succeed in their repayment, which we expect will result in lower charge-offs and provision for loan losses.
Maintain Our Strong Capital Position
The Bank’s goal is to remain well-capitalized at all times. The Bank is required by its regulators, the UDFI and the FDIC, to comply with mandated capital ratios. The Company is a source of strength for the Bank. The Board of Directors and management evaluated the change in the Bank’s ownership structure, the quality of assets, the stability of earnings, and the adequacy of the allowance for loan losses and believe that current and projected capital levels are appropriate at December 31,

38

2014. As of December 31, 2014, the Bank had a Tier 1 leverage ratio of 11.5 percent, a Tier 1 risk-based capital ratio of 15.0 percent and total risk-based capital ratio of 15.9 percent, exceeding the current regulatory guidelines for well capitalized institutions by a significant amount.
  Complete Necessary Steps to Permit the Bank to Independently Originate and Service Private Education Loans
On April 30, 2014, we completed our plan to legally separate into two distinct publicly traded entities - an education loan management, servicing and asset recovery business, Navient, and a consumer banking business, SLM Corporation. On October 13, 2014, we completed the operational separation of our servicing platforms and related personnel from Navient and launched our new customer service operation. At the time of this filing, the Bank continues to rely on Navient for loan origination capabilities provided under a transition services agreement entered into with Navient in connection with the Spin-Off. The key project remaining to complete the Bank’s full separation from Navient is the separation of these origination functions. We are currently in the process of completing and testing a new loan originations platform. Our objectives are to implement, complete and begin use of the new loan originations platform in the first half of 2015. While the Bank is not at risk of losing access to Navient's originations platform for 2015 and beyond, completing the full separation of the Bank’s operations from Navient resources is one of our top goals for 2015.
Continue to Expand the Bank’s Capabilities and Enhance Risk Oversight and Internal Controls
Since the beginning of the year we have added approximately 720 employees to the Bank, primarily through transfers of the Company’s or its subsidiaries’ existing employees, complemented by external hires. We have also undertaken significant work to establish that all functions, policies and procedures transferred to the Bank in the Spin-Off are sufficient to meet currently applicable bank regulatory standards. We continue to prepare for our expected growth and designation of the Bank as a “large bank,” which will result in enhanced regulatory scrutiny. For 2014, the following key initiatives have been completed.
Creation of Board-level Risk and Compliance Committees. In connection with the Spin-Off, we have created additional Board-level committees at the Company and Sallie Mae Bank to provide more focused resources and oversight with respect to the continuing development of our enterprise risk management functions and framework, as well as our consumer protection regulatory compliance management system.
Significant Additions to Management Team and Risk Functions. We hired a new Chief Executive Officer, Chief Audit Officer and Chief Risk Officer, all with extensive experience in the banking and financial services industries. In 2014, we have doubled our Internal Audit staff through experienced external hires. In addition, our new Chief Risk Officer is in the process of enhancing the talent and capabilities of the Enterprise Risk Management organization.
Continuing Development of our Internal Controls Environment. During 2014, our management and Board of Directors reviewed and approved the Enterprise Risk Management Framework and Policy, the Risk Appetite Statement and related metrics, thresholds and limits. Our Chief Risk Officer is responsible for maintaining the Enterprise Risk Management Framework and its components across the organization to identify, remediate, control and monitor significant risks. Additionally, the internal risk oversight committee structure has been revised to achieve greater clarity and to consolidate decision making. Prior management committees have been incorporated into the Enterprise Risk Committee and its sub-committees.
Enhanced Compliance with Consumer Protection Laws. As part of our compliance with the terms of the 2014 FDIC Order discussed elsewhere, we made significant changes and enhancements to our compliance management systems and program in 2014. This work will be ongoing through 2015.
Enhanced Vendor Management Function. As part of the transition and development of the Bank’s capabilities in connection with the Spin-Off, we undertook a full review and redesign of our vendor management function. While Navient will, over time, cease to be the Bank’s dominant, third-party vendor, the number of third-party vendors on whom we rely and the volume of work we obtain from them has increased significantly.
Manage Operating Expenses While Improving Efficiency and Customer Experience
In 2014 we incurred the costs of the Spin-Off and related operational separation as well as expenses associated with having to add additional employees to fully staff up as a stand-alone company. Throughout this process we remained disciplined in our expenditures while making sure we are making the necessary investments to improve our customer experience. We will measure our effectiveness by our efficiency ratio. Our efficiency ratio is calculated as operating expense, excluding restructuring and other reorganization expenses, divided by net interest income after provision for loan losses and other income. For the year ended December 31, 2014 this ratio was 43 percent compared with 40 percent from the year-ago

39

period. Our long-term objective is to achieve steady declines in this ratio over the next several years as the balance sheet and revenue grows to a level commensurate with our loan origination platform and we control the growth of our expense base.

2015 Outlook    

Having now completed the majority of post-Spin-Off separation activities from Navient, in 2015 we intend to complete the remainder of these activities and be able to invest significantly more time and resources into growing our business and improving the experience of our customers. Slow but steady economic improvement, low interest rates and relatively stable, liquid capital markets are increasing secondary demand from purchasers and investors interested in acquiring or financing our Private Education Loans. While overall rates of college enrollment may be moderating somewhat, growth at four-year public and private institutions that represent the core of our business is likely to remain strong.
Congressional efforts to achieve reauthorization of The Higher Education Act ( the “HEA”) in 2015, as well as the run up to the 2016 Presidential election, will continue to keep the debate over the funding of the costs of higher education, and the role of Private Education Loans in that regard, in the public eye. While most of the HEA’s provisions relate to the levels and types of Federal funding of education loans, various aspects of the disclosures, servicing, and rehabilitation of Private Education Loans could directly affect our business and decisions regarding the form, loan limits and budget scoring of federal education loan programs could indirectly affect our business. As of January 1, 2015, the CFPB became the primary consumer protection regulator for Sallie Mae Bank; however, the FDIC will also continue its oversight of these important matters. We believe our significant and ongoing efforts to improve our consumer protection compliance infrastructure are equally suited to support our efforts to work cooperatively with both the CFPB and FDIC.

2015 Management Objectives

For 2015 we have again set out five major goals to create shareholder value. They are: (1) prudently grow our Private Education Loan assets and revenues; (2) maintain our strong capital position; (3) complete the necessary steps to permit the Bank to independently originate Private Education Loans; (4) continue to expand the Bank's capabilities and enhance risk oversight and internal controls; and (5) manage operating expenses while improving efficiency and customer experience. Here is how we plan to achieve these objectives:
Prudently Grow Private Education Loan Assets and Revenues
We will continue to pursue managed growth in our Private Education Loan portfolio in 2015 by leveraging our Sallie Mae and Upromise brands and our relationship with more than two thousand colleges and universities. We recently expanded our campus-focused sales force to provide deeper support for universities in all regions of the United States and, as a result, we expect to be able to demonstrate increased 2015 originations through this effort. We are determined to maintain the average FICO scores and cosigner rates on our originations at levels similar to those at which we ended 2014. We will also increase our efforts to help our customers manage their borrowings and succeed in making their payments, which we expect will result in lower charge-offs and provision for loan losses.
Maintain Our Strong Capital Position

The Bank is required by its regulators, the UDFI and the FDIC, to comply with mandated capital ratios. We intend to maintain levels of capital at the Bank that significantly exceed those necessary to be considered “well capitalized” by the FDIC. The Company is a source of strength for the Bank and will provide additional capital as, and if, necessary to the Bank. Our Board of Directors and management evaluate the anticipated change in the Bank’s ownership structure, the quality of assets, stability of earnings, adequacy of our Allowance for Loan Losses and we continue to believe our existing capital levels are sufficient to support the Bank’s plan for significant growth over the next several years and remain “well capitalized”. As our balance sheet grows in 2015, these ratios will decline but will remain significantly in excess of the capital levels required to be considered “well capitalized” by our regulators. We do not plan to pay a common stock dividend or repurchase shares in 2015.
We expect to be active in the capital markets in 2015. We plan to sell Private Education Loans in whole or through securitization transactions, as well as partially finance the cash needed for the funding of new originations through ABS transactions. We expect the market for loan sales and financing sources to continue to be strong in 2015. We will be opportunistic and sell additional loans if the market is significantly stronger than our expectations. It is likely, regardless of the structures utilized, we will realize gains on sales of whole Private Education Loans.

40

We also expect to use the ABS market to complement our deposit funding to raise term funding for our loan portfolio. Private Education Loans financed through these transactions will remain on our balance sheet as we will retain the residual interest in these trusts.
Complete Necessary Steps to Permit the Bank to Independently Originate Private Education Loans

At the time of this filing, the Bank continues to be reliant on Navient for its loan origination capabilities provided under a transition services agreement entered into with Navient in connection with the Spin-Off. While the Bank is not at risk of losing access to Navient originations applications for 2015 and beyond, completing the full separation of the Bank’s operations from Navient resources is one of our top goals. The key project remaining to complete the Bank’s full separation from Navient is the separation of these origination functions. We are currently in the process of completing and testing a new loan origination platform. Our objectives are to implement, complete and begin use of the new loan originations platform in the first half of 2015.
Continue to Expand the Bank’s Capabilities and Enhance Risk Oversight and Internal Controls

In preparation for and subsequent to the Spin-Off we have undertaken significant work to establish that all functions, policies and procedures transferred to the Bank in the Spin-Off are sufficient to meet currently applicable bank regulatory standards. We must continue to prepare for our expected growth and designation of the Bank as a “large bank,” which will entail enhanced regulatory scrutiny. For 2015, the following key initiatives remain to be completed or are underway.

•
Complete the build-out of our Enterprise Risk Management team under the Chief Risk Officer and conduct our initial internal stress testing exercises in preparation for our initial 2016 regulatory required stress testing and report.

•
Continue to make significant changes and enhancements to our compliance management system and program and related consumer protection processes and procedures. Our redesigned SCRA processing processes and procedures have now received the approval of the DOJ. In 2014, we engaged a third-party firm to conduct independent audits of certain key consumer protection processes and procedures, including our compliance management system, receiving no high risk findings. In 2015, the third-party firm will conduct additional independent audits over the remainder of those processes and procedures.

•
In 2015 we will further enhance our internal controls over financial reporting through adoption of the COSO 2013 framework.
Manage Operating Expenses While Improving Efficiency and Customer Experience
We will continue to measure our effectiveness in managing operating expenses by monitoring our efficiency ratio, excluding restructuring costs associated with the Spin-Off. Our efficiency ratio is calculated as operating expense, excluding restructuring and reorganization expenses, divided by total interest income and other income. For fiscal year 2014 this ratio was 43 percent. We expect this ratio to decline steadily over the next several years as the number of loans we service grows to a level commensurate with our loan origination platform and we control the growth of our expense base. We intend for the Bank to retain servicing of all Private Education Loans we originate, regardless of whether we hold them in our portfolio or sell all or portions of these Private Education Loans via loan sales and ABS transactions.
In 2015, the Company will focus on further enhancing a culture that values customer satisfaction and the efficient delivery of its products and services. We understand the challenges of simplifying and carefully considering our customers’ requests, personal circumstances and requirements. In 2015 we will onshore our loan sales call center to provide more tailored service for our customers. We will also invest in technology that we expect to improve our mobile application and loan management capabilities to deliver to our customers the access they expect from their financial service providers. We expect these investments will result in increased customer satisfaction, higher loan originations and a more efficient operation.



41

Results of Operations
We present the results of operations below first on a consolidated basis in accordance with GAAP.
  GAAP Statements of Income
 
 
 
 
 
 
 
 
 
Increase (Decrease)
 
 
Years Ended December 31,
 
2014 vs. 2013
 
2013 vs. 2012
(Dollars in millions, except per share data)
 
2014
 
2013
 
2012
 
$
 
%
 
$
 
%
Interest income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans
 
$
661

 
$
527

 
$
463

 
$
134

 
25
 %
 
$
64

 
14
 %
Investments
 
9

 
20

 
26

 
(11
)
 
(55
)
 
(6
)
 
(23
)
Cash and cash equivalents
 
4

 
4

 
2

 
—

 
—

 
2

 
100

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total interest income
 
674

 
551

 
491

 
123

 
22

 
60

 
12

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total interest expense
 
96

 
89

 
83

 
7

 
8

 
6

 
7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
 
578

 
462

 
408

 
116

 
25

 
54

 
13

Less: provisions for loan losses
 
85

 
69

 
66

 
16

 
23

 
3

 
5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income after provisions for loan losses
 
493

 
393

 
342

 
100

 
25

 
51

 
15

Noninterest income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gains on sales of loans, net
 
121

 
197

 
235

 
(76
)
 
(39
)
 
(38
)
 
(16
)
Gains on sales of securities
 
—

 
64

 
—

 
(64
)
 
(100
)
 
64

 
—

Gains (losses) on derivatives and hedging activities, net
 
(4
)
 
1

 
(5
)
 
(5
)
 
(500
)
 
6

 
(120
)
Other income
 
40

 
36

 
37

 
4

 
11

 
(1
)
 
(3
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total noninterest income
 
157

 
298

 
267

 
(141
)
 
(47
)
 
31

 
12

Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
 
275

 
270

 
254

 
5

 
2

 
16

 
6

Acquired intangible asset impairment and amortization expense
 
3

 
3

 
13

 
—

 
—

 
(10
)
 
(77
)
Restructuring and other reorganization expenses
 
38

 
1

 
—

 
37

 
3,700

 
1

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total expenses
 
316

 
274

 
267

 
42

 
15

 
7

 
3

 
 
 
 
 
 
 
 
 
 
 
 

 

Income before income tax expense
 
334

 
417

 
342

 
(83
)
 
(20
)
 
75

 
22

Income tax expense
 
140

 
159

 
126

 
(19
)
 
(12
)
 
33

 
26

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
194

 
258

 
216

 
(64
)
 
(25
)
 
42

 
19

Less: net loss attributable to noncontrolling interest
 
—

 
(1
)
 
(2
)
 
1

 
(100
)
 
1

 
(50
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to SLM Corporation
 
194

 
259

 
218

 
(65
)
 
(25
)
 
41

 
19

Preferred stock dividends
 
13

 
—

 
—

 
13

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to SLM Corporation common stock
 
$
181

 
$
259

 
$
218

 
$
(78
)
 
(30
)%
 
$
41

 
19
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic earnings per common share attributable to SLM Corporation
 
$
0.43

 
$
0.59

 
$
0.46

 
$
(0.16
)
 
(27
)%
 
$
0.13

 
28
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per common share attributable to SLM Corporation
 
$
0.42

 
$
0.58

 
$
0.45

 
$
(0.16
)
 
(28
)%
 
$
0.13

 
29
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



42

  GAAP Consolidated Earnings Summary

Year Ended December 31, 2014 Compared with Year Ended December 31, 2013
For the year ended December 31, 2014, net income was $194 million, or $.42 diluted earnings per common share, compared with net income of $259 million, or $.58 diluted earnings per common share for the year ended December 31, 2013. The decrease in net income was primarily due to a $76 million decrease in net gains on sales of loans, a $64 million decrease in gains on sales of securities, a $16 million increase in provisions for loan losses and a $42 million increase in total expenses which were partially offset by a $116 million increase in net interest income.
The primary contributors to each of the identified drivers of changes in net income for the current year period compared with the year-ago period are as follows:
•
Net interest income increased by $116 million primarily due to a $1.6 billion increase in average Private Education Loans outstanding and a 20 basis point increase in net interest margin. Net interest margin increased 20 basis points primarily as a result of an increase in the proportion of higher yielding Private Education Loans in our loan portfolio.
•
Provisions for loan losses increased $16 million compared with the year-ago period primarily as a result of a $13 million increase in charge-offs during 2014, an increase in the amount of troubled debt restructurings entered into during 2014 for which we provide for life of loan losses, an increase in the percentage of loans in full principal and interest repayment and the effect of fewer loan sales. These amounts were partially offset by a $14 million benefit from the net effect of a change in our loss emergence period from two years to one year and a change in our charge-off policy that was recorded in the second quarter of 2014.
•
Gains on sales of loans, net, decreased $76 million. In 2014, we sold $1.9 billion of loans through Private Education Loan sales and a securitization transaction with third parties. As a result, we recorded gains of $121 million. In 2013, we recorded $197 million in gains from the sale of $2.4 billion of loans to an entity that is now a subsidiary of Navient. Gains on sales of loans, net, were higher in the year-ago period as a result of a larger volume of loans sold and those loans were sold to and entity that is now a subsidiary of Navient at a higher price.
•
Gains on sales of securities, net decreased $64 million in 2014 compared with 2013 because there were no sales in 2014 and a $585 million sale of securities in 2013.  The securities sold in 2013 were ABS backed by FFELP Loans and were originally contributed by the Company to the Bank in 2008. 
•
Gains (losses) on derivatives and hedging activities, net, resulted in a net loss of $4 million in 2014 compared with a gain of $1 million in the year-ago period. The primary factors affecting the change were interest rates and whether the derivative qualified for hedge accounting treatment. In 2014, we had more derivatives used to economically hedge risk that did not qualify for hedge accounting treatment than we did in the year-ago period.
•
Operating expenses were $275 million compared with $270 million in the year-ago period. Operating expenses increased in 2014 due to increased servicing and marketing costs as well as increased personnel and other costs related to being a stand-alone company. In addition, in 2013 we recorded an $11 million reserve for estimated remediation costs relating to the 2014 FDIC order.  In 2014, we reversed approximately $8 million of that reserve based upon the final determination of the Bank’s liability.
•
Restructuring and other reorganization expenses were $38 million compared with $1 million in the year-ago period. The increase is primarily the result of costs related to the Spin-Off.
•
The increase in 2014's effective tax rate to 41.9 percent from 38.2 percent in the year-ago period was primarily the result of additional reserves related to uncertain tax positions and additional state tax expense as a result of the Spin-Off.

43

  Year Ended December 31, 2013 Compared with Year Ended December 31, 2012
For the year ended December 31, 2013, net income was $259 million, or $.58 diluted earnings per common share, compared with net income of $218 million, or $.45 diluted earnings per common share for the year ended December 31, 2012. The increase in net income was primarily due to a $54 million increase in net interest income and a $64 million increase in gains on sales of securities, offset by a $39 million decrease in net gains on sales of loans.
The primary contributors to each of the identified drivers of changes in net income for the 2013 compared with the 2012 are as follows:
•
Net interest income increased by $54 million primarily due to a $0.6 billion increase in average Private Education Loans outstanding and an increase of $0.6 billion in average FFELP loans outstanding. This was offset by a 48 basis point decline in the net interest margin. The decline in the net interest margin was primarily a result of an increase the proportion of lower yielding FFELP loans in our loan portfolio and an increase in the average amount of cash held, which has a negative effect on our net interest margin.
•
Gains on sales of loans, net, decreased $39 million. For the year ended December 31, 2013, we sold $2.4 billion of loans to an entity that is now a subsidiary of Navient. As a result, we recorded gains of $197 million. In the year ended December 31, 2012, we recorded $235 million in gains from the sale of $2.6 billion of loans to Navient.
•
Gains on sales of securities, net, increased $64 million as a result of a $585 million sale of securities in 2013. There were no security sales in 2012.
•
Operating expenses were $270 million in 2013 compared with $254 million in 2012. Operating expenses increased in 2013 due to increased servicing and marketing costs as well as an $11 million reserve for estimated remediation costs relating to the 2014 FDIC order. In 2012 we recorded a $9 million write-down of intangible assets.
•
The increase in 2013 of the effective tax rate to 38.2 percent from 36.9 percent in the prior year period was primarily the result of additional state tax expense.



 

44

Financial Condition
Average Balance Sheets - GAAP
The following table reflects the rates earned on interest-earning assets and paid on interest-bearing liabilities and reflects our net interest margin on a consolidated basis.  
 
 
Years Ended December 31,
 
 
2014
 
2013
 
2012
(Dollars in thousands)
 
Balance  
 
 
Rate  
 
 
Balance  
 
 
Rate  
 
 
Balance  
 
 
Rate  
 
Average Assets
 
 
 
 
 
 
 
 
 
 
 
 
Private Education Loans
 
$
7,563,356

 
8.16
%
 
$
5,996,651

 
8.16
%
 
$
5,347,239

 
8.34
%
FFELP Loans
 
1,353,497

 
3.24

 
1,142,979

 
3.32

 
527,935

 
2.85

Taxable securities
 
331,479

 
2.68

 
523,883

 
3.75

 
569,018

 
4.50

Cash and other short-term investments
 
1,746,839

 
0.26

 
1,473,392

 
0.3

 
929,284

 
0.48

Total interest-earning assets
 
10,995,171

 
6.13
%
 
9,136,905

 
6.03
%
 
7,373,476

 
6.66
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-interest-earning assets
 
549,237

 
 
 
463,584

 
 
 
298,317

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
11,544,408

 
 
 
$
9,600,489

 
 
 
$
7,671,793

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average Liabilities and Equity
 
 
 
 
 
 
 
 
 
 
 
 
Brokered deposits
 
$
5,588,569

 
1.12
%
 
$
5,015,201

 
1.24
%
 
$
4,009,807

 
1.61
%
Retail and other deposits
 
3,593,817

 
0.92

 
2,675,879

 
0.96

 
1,741,304

 
1.02

Other interest-bearing liabilities
 
26,794

 
0.91

 
120,546

 
0.92

 
253,512

 
0.29

Total interest-bearing liabilities
 
9,209,180

 
1.04
%
 
7,811,626

 
1.14
%
 
6,004,623

 
1.38
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-interest-bearing liabilities
 
727,806

 
 
 
588,586

 
 
 
478,856

 
 
Equity
 
1,607,422

 
 
 
1,200,277

 
 
 
1,188,314

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total liabilities and equity
 
$
11,544,408

 
 
 
$
9,600,489

 
 
 
$
7,671,793

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest margin
 
 
 
5.26
%
 
 
 
5.06
%
 
 
 
5.54
%
 

45


Rate/Volume Analysis - GAAP

The following rate/volume analysis shows the relative contribution of changes in interest rates and asset volumes.
 
(Dollars in thousands)
 
Increase
(Decrease)
 
Change Due To (1)
 
Rate  
 
Volume
2014 vs. 2013
 
 
 
 
 
 
Interest income
 
$
123,094

 
$
9,270

 
$
113,824

Interest expense
 
6,730

 
(8,468
)
 
15,198

Net interest income
 
$
116,364

 
$
17,738

 
$
98,978

 
 
 
 
 
 
 
2013 vs. 2012
 
 
 
 
 
 
Interest income
 
$
59,919

 
$
(49,610
)
 
$
109,529

Interest expense
 
6,173

 
(15,560
)
 
22,170

Net interest income
 
$
53,746

 
$
(34,050
)
 
$
87,390

 
(1)  
Changes in income and expense due to both rate and volume have been allocated in proportion to the relationship of the absolute dollar amounts of the change in each. The changes in income and expense are calculated independently for each line in the table. The totals for the rate and volume columns are not the sum of the individual lines.
Summary of Our Education Loan Portfolio
Ending Education Loan Balances, net
 
 
 
December 31, 2014
 
December 31, 2013
(Dollars in thousands)
 
Private
Education
Loans  
 
FFELP
Loans
 
Total
Portfolio
 
Private
Education
Loans
 
FFELP
Loans
 
Total
Portfolio
Total education loan portfolio:
 
 
 
 
 
 
 
 
 
 
 
 
In-school (1)
 
$
2,548,721

 
$
1,185

 
$
2,549,906

 
$
2,191,445

 
$
2,477

 
$
2,193,922

Grace, repayment and other (2)
 
5,762,655

 
1,263,622

 
7,026,277

 
4,371,897

 
1,424,495

 
5,796,392

Total, gross
 
8,311,376

 
1,264,807

 
9,576,183

 
6,563,342

 
1,426,972

 
7,990,314

Deferred origination costs and unamortized premium
 
13,845

 
3,600

 
17,445

 
5,063

 
4,081

 
9,144

Allowance for loan losses
 
(78,574
)
 
(5,268
)
 
(83,842
)
 
(61,763
)
 
(6,318
)
 
(68,081
)
Total education loan portfolio
 
$
8,246,647

 
$
1,263,139

 
$
9,509,786

 
$
6,506,642

 
$
1,424,735

 
$
7,931,377

 
 
 
 
 
 
 
 
 
 
 
 
 
% of total
 
87
%
 
13
%
 
100
%
 
82
%
 
18
%
 
100
%
_________  
(1)        Loans for customers still attending school and are not yet required to make payments on the loan.
(2)        Includes loans in deferment or forbearance.
 

46



 
 
December 31, 2012
 
December 31, 2011
(Dollars in thousands)
 
Private
Education
Loans
 
FFELP
Loans
 
Total
Portfolio
 
Private
Education
Loans
 
FFELP
Loans
 
Total
Portfolio
Total education loan portfolio
 
$
5,447,699

 
$
1,039,755

 
$
6,487,454

 
$
5,062,788

 
$
239,452

 
$
5,302,240

 
 
 
 
 
 
 
 
 
 
 
 
 
% of total
 
84
%
 
16
%
 
100
%
 
95
%
 
5
%
 
100
%

 
 
December 31, 2010
 
(Dollars in thousands)
 
Private
Education
Loans
 
FFELP
Loans
 
Total Portfolio
 
Total education loan portfolio
 
$
4,457,244

 
$
202,226

 
$
4,659,470

 
 
 
 
 
 
 
 
 
% of total
 
96
%
 
4
%
 
100
%
 



Average Education Loan Balances (net of unamortized premium/discount)

 
 
 
Years Ended December 31,
(Dollars in thousands)
 
2014
 
2013
 
2012
Private Education Loans
 
$
7,563,356

 
85
%
 
$
5,996,651

 
84
%
 
$
5,347,239

 
91
%
FFELP Loans
 
1,353,497

 
15

 
1,142,979

 
16

 
527,935

 
9

Total portfolio
 
$
8,916,853

 
100
%
 
$
7,139,630

 
100
%
 
$
5,875,174

 
100
%


Education Loan Activity
 
 
 
Year Ended December 31, 2014  
 
(Dollars in thousands)
 
 Private
Education
Loans
 
FFELP
Loans
 
Total
Portfolio
Beginning balance
 
$
6,506,642

 
$
1,424,735

 
$
7,931,377

Acquisitions and originations
 
4,087,320

 
7,470

 
4,094,790

Capitalized interest and deferred origination cost premium amortization
 
170,306

 
46,093

 
216,399

Sales
 
(1,873,414
)
 
(7,654
)
 
(1,881,068
)
Loan consolidation to third parties
 
(14,811
)
 
(41,760
)
 
(56,571
)
Repayments and other
 
(629,396
)
 
(165,745
)
 
(795,141
)
Ending balance
 
$
8,246,647

 
$
1,263,139

 
$
9,509,786

 
 
 
 
 
 
 

47


 
 
Year Ended December 31, 2013
 
(Dollars in thousands)
 
 Private
Education
Loans
 
FFELP
Loans
 
Total
Portfolio
Beginning balance
 
$
5,447,699

 
$
1,039,755

 
$
6,487,454

Acquisitions and originations
 
3,803,262

 
478,384

 
4,281,646

Capitalized interest and deferred origination cost premium amortization
 
112,122

 
49,313

 
161,435

Sales
 
(2,347,521
)
 
(1,182
)
 
(2,348,703
)
Loan consolidation to third parties
 
(13,445
)
 
(23,456
)
 
(36,901
)
Repayments and other
 
(495,475
)
 
(118,079
)
 
(613,554
)
Ending balance
 
$
6,506,642

 
$
1,424,735

 
$
7,931,377

 
 
 
 
 
 
 

 
 
Year Ended December 31, 2012  
 
(Dollars in thousands)
 
 Private
Education
Loans
 
FFELP
Loans
 
Total
Portfolio
Beginning balance
 
$
5,062,788

 
$
239,452

 
$
5,302,240

Acquisitions and originations
 
3,344,732

 
817,305

 
4,162,037

Capitalized interest and deferred origination cost premium amortization
 
74,619

 
23,814

 
98,433

Sales
 
(2,535,304
)
 
(460
)
 
(2,535,764
)
Loan consolidation to third parties
 
(15,283
)
 
(17,716
)
 
(32,999
)
Repayments and other
 
(483,853
)
 
(22,640
)
 
(506,493
)
Ending balance
 
$
5,447,699

 
$
1,039,755

 
$
6,487,454

 
 
 
 
 
 
 

Private Education Loan Originations
The following table summarizes our Private Education Loan originations.
 
 
 
Years Ended December 31,
(Dollars in thousands)
 
2014
 
%
 
2013
 
%
 
2012
 
%
Smart Option - interest only (1)
 
$
998,612

 
25
%
 
$
942,568

 
25
%
 
$
945,903

 
28
%
Smart Option - fixed pay (1)
 
1,256,978

 
31

 
1,184,073

 
31

 
1,001,189

 
30

Smart Option - deferred (1)
 
1,817,011

 
44

 
1,666,547

 
44

 
1,394,553

 
42

Smart Option - principal and interest
 
3,347

 
—

 
1,347

 
—

 
589

 
—

Total Private Education Loan originations
 
$
4,075,948

 
100
%
 
$
3,794,535

 
100
%
 
$
3,342,234

 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
         ________
(1)  
Interest only, fixed pay and deferred describe the payment option while in school or in grace period. See “Private Education Loan Repayment Options” for further discussion.

48


Allowance for Loan Losses

Education Loan Allowance for Loan Losses Activity
 
 
 
 
Years Ended December 31,
 
 
2014
 
2013
 
2012
(Dollars in thousands)
 
Private
Education
Loans
 
FFELP
Loans
 
Total
Portfolio
 
Private
Education
Loans
 
FFELP
Loans
 
Total
Portfolio
 
Private
Education
Loans
 
FFELP
Loans
 
Total
Portfolio
Beginning balance
 
$
61,763

 
$
6,318

 
$
68,081

 
$
65,218

 
$
3,971

 
$
69,189

 
$
69,090

 
$
402

 
$
69,492

Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Charge-offs
 
(14,442
)
 
(2,996
)
 
(17,438
)
 
—

 
(2,037
)
 
(2,037
)
 
—

 
(100
)
 
(100
)
Student loan sales
 
(53,485
)
 
—

 
(53,485
)
 
(68,410
)
 
—

 
(68,410
)
 
(66,319
)
 
—

 
(66,319
)
Plus:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recoveries
 
1,155

 
—

 
1,155

 
—

 
—

 
—

 
—

 
—

 
—

Provision for loan losses
 
83,583

 
1,946

 
85,529

 
64,955

 
4,384

 
69,339

 
62,447

 
3,669

 
66,116

Ending balance
 
$
78,574

 
$
5,268

 
$
83,842

 
$
61,763

 
$
6,318

 
$
68,081

 
$
65,218

 
$
3,971

 
$
69,189

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Troubled debt restructuring (1)
 
$
60,278

 
$
—

 
$
60,278

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—



 
 
Years Ended December 31,
 
 
2011
 
2010
(Dollars in thousands)
 
Private
Education
Loans
 
FFELP
Loans
 
Total
Portfolio
 
Private
Education
Loans
 
FFELP
Loans
 
Total
Portfolio
Beginning balance
 
$
49,738

 
$
201

 
$
49,939

 
$
38,504

 
$
206

 
$
38,710

Less:
 
 
 
 
 
 
 
 
 
 
 
 
Charge-offs
 
—

 
(98
)
 
(98
)
 
—

 
(142
)
 
(142
)
Student loan sales
 
(65,685
)
 
—

 
(65,685
)
 
(46,482
)
 
—

 
(46,482
)
Plus:
 
 
 
 
 
 
 
 
 
 
 
 
Recoveries
 
—

 
—

 
—

 
—

 
—

 
—

Provision for loan losses
 
85,037

 
299

 
85,336

 
57,716

 
137

 
57,853

Ending balance
 
$
69,090

 
$
402

 
$
69,492

 
$
49,738

 
$
201

 
$
49,939

 
 
 
 
 
 
 
 
 
 
 
 
 
Troubled debt restructuring (1)
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

_________
(1)  
Represents the recorded investment of loans classified as troubled debt restructuring.



49

Private Education Loan Allowance for Loan Losses
In establishing the allowance for Private Education Loan losses as of December 31, 2014, we considered several factors with respect to our Private Education Loan portfolio, in particular, credit quality and delinquency, forbearance and charge-off trends in connection with the portfolio.
Private Education Loan provision for loan losses increased $18.6 million compared with the year-ago period. The increase was primarily the result of an increase in charge-offs, an increase in our troubled debt restructurings (for which we hold a life-of-loan allowance), an increase in the percentage of loans in full principal and interest repayment and fewer loan sales. Prior period amounts also included the effect of our past policy of a two-year loss emergence period and the change in our charge-off policy. In addition, in the prior periods we did not have troubled debt restructurings, loans in forbearance or a significant amount of loans that were more than 90 days past due because we typically sold loans to an affiliate prior to any restructuring and when they became 90 days delinquent. As a result of this past practice, there were no recoveries of defaulted loans prior to 2014.
When loans are sold at a gain we reverse the allowance for loan losses related to these loans by recording a negative provision. When we sell loans at a loss due to credit deterioration, we write down the loan to fair value with the additional write-down recorded as provision expense. In 2014 we had a decrease in loans sold for gains and loans sold for losses compared with the year-ago period. The net effect of these sales in 2014 was to reduce the allowance for loan losses by $53.5 million compared with a reduction in 2013 of $68.4 million.
Total loans delinquent (as a percentage of loans in repayment) have increased to 2.0 percent from 1.0 percent in the year-ago period.  Loans in forbearance (as a percentage of loans in repayment and forbearance) have increased to 2.6 percent from 0.4 percent in the year-ago period. The increase in the loans in forbearance was because in the prior year the Bank typically sold loans to an entity that is now a subsidiary of Navient in the same month a forbearance was offered to a borrower. Post-Spin-Off, the Bank now retains loans that have gone into forbearance.
For a more detailed discussion of our policy for determining the collectability of Private Education Loans and maintaining our allowance for Private Education Loan losses, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates - Allowance for Loan Losses.”
Our default aversion strategies are focused on the final stages of delinquency. Pre-Spin-Off these final stages were from 150 days to 212 days delinquent. As a result of changing our corporate charge-off policy and greatly reducing the number of potentially delinquent loans we sell to Navient, the final stages of delinquency and our default aversion strategies now focus more on loans 30 to 120 days delinquent. This change has the effect of accelerating the recognition of losses due to the shorter charge-off period. In addition, we changed our loss confirmation period from two years to one year to reflect the shorter charge-off policy and our revised servicing practices. A loss confirmation period represents the expected period between a loss event and when management considers the debt to be uncollectible, taking into consideration account management practices that affect the timing of a loss, such as the usage of forbearance. These two changes resulted in a $14 million net reduction in our allowance for loan losses in 2014 because we are now only reserving for one year of expected losses as compared with two years under the prior policy, which more than offset the impact of the shorter charge-off period.
In connection with the Spin-Off, the agreement under which the Bank previously made loan sales was amended so the Bank now only has the right to require Navient to purchase loans (at fair value) where (a) the borrower has a lending relationship with both the Bank and Navient (“Split Loans”) and (b) the Split Loans are either (1) more than 90 days past due; (2) have been restructured; (3) have been granted a hardship forbearance or more than six months of administrative forbearance; or (4) have a borrower or cosigner who has filed for bankruptcy. At December 31, 2014, we held approximately $117 million of Split Loans.
For the reasons described above, many of our historical credit indicators and period-over-period trends are not indicative of future performance. The following results have not been adjusted to reflect what the delinquencies, charge-offs and recoveries would have been had we not sold these loans. Because we now retain more delinquent loans, we believe it could take up to two years before our credit performance indicators provide meaningful period-over-period comparisons.

50

The table below presents our Private Education Loan delinquency trends. Loans in repayment includes in-school loans making interest only and fixed payments as well as loans that have entered full principal and interest repayment status after any applicable grace period.
 
 
 
December 31,
 
 
2014
 
2013
 
2012
(Dollars in thousands)
 
Balance
 
%
 
Balance
 
%
 
Balance
 
%
Loans in-school/grace/deferment (1)
 
$
3,027,143

 
 
 
$
2,574,711

 
 
 
$
1,748,757

 
 
Loans in forbearance (2)
 
135,018

 
 
 
16,314

 
 
 
8,928

 
 
Loans in repayment and percentage of each status:
 
 
 
 
 
 
 
 
 
 
 
 
Loans current
 
5,045,600

 
98.0
%
 
3,933,143

 
99.0
%
 
3,705,634

 
98.8
%
Loans delinquent 31-60 days (3)
 
63,873

 
1.2

 
28,854

 
0.7

 
33,412

 
0.9

Loans delinquent 61-90 days (3)
 
29,041

 
0.6

 
10,280

 
0.3

 
10,483

 
0.3

Loans delinquent greater than 90 days (3)
 
10,701

 
0.2

 
40

 
—

 
694

 
—

Total Private Education Loans in repayment
 
5,149,215

 
100.0
%
 
3,972,317

 
100.0
%
 
3,750,223

 
100.0
%
Total Private Education Loans, gross
 
8,311,376

 
 
 
6,563,342

 
 
 
5,507,908

 
 
Private Education Loan deferred origination costs
 
13,845

 
 
 
5,063

 
 
 
5,009

 
 
Total Private Education Loans
 
8,325,221

 
 
 
6,568,405

 
 
 
5,512,917

 
 
Private Education Loan allowance for losses
 
(78,574
)
 
 
 
(61,763
)
 
 
 
(65,218
)
 
 
Private Education Loans, net
 
$
8,246,647

 
 
 
$
6,506,642

 
 
 
$
5,447,699

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage of Private Education Loans in repayment
 
 
 
62.0
%
 
 
 
60.5
%
 
 
 
68.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Delinquencies as a percentage of Private Education Loans in repayment
 
 
 
2.0
%
 
 
 
1.0
%
 
 
 
1.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans in forbearance as a percentage of loans in repayment and forbearance
 
 
 
2.6
%
 
 
 
0.4
%
 
 
 
0.2
%
     _________
(1)  
Deferment includes customers who have returned to school or are engaged in other permitted educational activities and are not yet required to make payments on their loans, e.g., residency periods for medical students or a grace period for bar exam preparation.
(2)  
Loans for customers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full 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.

 

51

Allowance for Private Education Loan Losses
The following table summarizes changes in the allowance for Private Education Loan losses.
 
 
 
Years Ended December 31,
(Dollars in thousands)
 
2014
 
2013
 
2012
 
2011
 
2010
Allowance at beginning of period
 
$
61,763

 
$
65,218

 
$
69,090

 
$
49,738

 
$
38,504

Provision for Private Education Loan losses
 
83,583

 
64,955

 
62,447

 
85,037

 
57,716

 
 
 
 
 
 
 
 
 
 
 
   Charge-offs (1)
 
(14,442
)
 
—

 
—

 
—

 
—

   Recoveries
 
1,155

 
—

 
—

 
—

 
—

Net charge-offs
 
(13,287
)
 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
Student loan sales (2)
 
(53,485
)
 
(68,410
)
 
(66,319
)
 
(65,685
)
 
(46,482
)
Allowance at end of period
 
$
78,574

 
$
61,763

 
$
65,218

 
$
69,090

 
$
49,738

 
 
 
 
 
 
 
 
 
 
 
Allowance as a percentage of ending total loans
 
0.95
%
 
0.94
%
 
1.18
%
 
1.34
%
 
1.09
%
Allowance as a percentage of ending loans in repayment
 
1.53
%
 
1.55
%
 
1.74
%
 
1.63
%
 
1.56
%
Delinquencies as a percentage of loans in repayment
 
2.01
%
 
0.99
%
 
1.19
%
 
1.70
%
 
1.47
%
Loans in forbearances as a percentage of loans in repayment and forbearance
 
2.56
%
 
0.41
%
 
0.24
%
 
0.10
%
 
0.10
%
Percentage of loans with a cosigner
 
89.82
%
 
89.87
%
 
89.81
%
 
88.84
%
 
82.55
%
Average FICO at origination
 
749

 
745

 
746

 
748

 
739

Ending total loans (3)
 
$
8,311,376

 
$
6,563,342

 
$
5,507,908

 
$
5,172,369

 
$
4,555,125

Average loans in repayment
 
$
4,495,709

 
$
3,509,502

 
$
3,928,692

 
$
3,832,531

 
$
2,162,131

Ending loans in repayment
 
$
5,149,215

 
$
3,972,317

 
$
3,750,223

 
$
4,249,703

 
$
3,181,039

_______
(1)  
Prior to the Spin-Off, Private Education Loans were sold to an entity that is now a subsidiary of Navient, prior to being charged off. Therefore, many of our historical credit indicators and period-over-period trends are not indicative of future performance. Because we now retain more delinquent loans, we believe it could take up to two years from now before our credit performance indicators provide meaningful period-over-period comparisons.
(2)  
Represents fair value write-downs on loans sold.
(3)  
Ending total loans represents gross Private Education Loans.

      As part of concluding on the adequacy of the allowance for loan losses, we review key allowance and loan metrics. The most significant of these metrics considered are the allowance coverage of charge-offs ratio; the allowance as a percentage of total loans and of loans in repayment; and delinquency and forbearance percentages. The allowance as a percentage of ending total loans and ending loans in repayment was relatively unchanged at December 31, 2014 compared with December 31, 2013 because of an increase in the relative size of the loan portfolio, an increase in our troubled debt restructurings (for which we hold a life-of-loan allowance) and an increase in the percentage of loans in full principal and interest repayment. These largely offset the effect of the reduction in the allowance for loan losses as a result of the change in our loss emergence period from two years to one year.
The allowance as a percentage of ending total loans and ending loans in repayment were lower at December 31, 2013 compared with December 31, 2012 due primarily to improved credit performance of the portfolio.
Use of Forbearance as a Private Education Loan Collection Tool
Forbearance involves granting the customer a temporary cessation of payments (or temporary acceptance of smaller than scheduled payments) for a specified period of time. Using forbearance extends the original term of the loan. Forbearance does not grant any reduction in the total repayment obligation (principal or interest). While in forbearance status, interest continues to accrue and is capitalized to principal when the loan re-enters repayment status. Our forbearance policies include limits on the number of forbearance months granted consecutively and the total number of forbearance months granted over the life of the loan. In some instances, we require good-faith payments before granting forbearance. Exceptions to forbearance policies are permitted when such exceptions are judged to increase the likelihood of collection of the loan. Forbearance as a collection tool is used most effectively when applied based on a customer’s unique situation, including historical information and judgments.

52

We leverage updated customer information and other decision support tools to best determine who will be granted forbearance based on our expectations as to a customer’s ability and willingness to repay their obligation. This strategy is aimed at mitigating the overall risk of the portfolio as well as encouraging cash resolution of delinquent loans.
Forbearance may be granted to customers who are exiting their grace period to provide additional time to obtain employment and income to support their obligations, or to current customers who are faced with a hardship and request forbearance time to provide temporary payment relief. In these circumstances, a customer’s loan is placed into a forbearance status in limited monthly increments and is reflected in the forbearance status at month-end during this time. At the end of their granted forbearance period, the customer will enter repayment status as current and is expected to begin making their scheduled monthly payments on a go-forward basis.
Forbearance may also be granted to customers who are delinquent in their payments. In these circumstances, the forbearance cures the delinquency and the customer is returned to a current repayment status. In more limited instances, delinquent customers will also be granted additional forbearance time.
Prior to the Spin-Off, the Bank sold Private Education Loans that were delinquent more than 90 days or were granted a hardship forbearance to an entity that is now a subsidiary of Navient. As such, the Bank did not hold many loans in forbearance. Because of this past business practice, we do not yet have meaningful comparative historic forbearance data with respect to our Private Education Loan portfolio. However, subsequent to the Spin-Off, we began using forbearance as part of our loss mitigation efforts. Nonetheless, the historic default experience on loans put into forbearance that Navient (pre-Spin-Off SLM) experienced prior to the Spin-Off is still considered in the determination of our allowance for loan losses.
The tables below show the composition and status of the Private Education Loan portfolio aged by number of months in active repayment status (months for which a scheduled monthly payment was due). Active repayment status includes in-school loans making interest only and fixed payments as well as loans that have entered full principal and interest repayment status after any applicable grace period. Our experience shows that the percentage of loans in forbearance status decreases the longer the loans have been in active repayment status. At December 31, 2014, loans in forbearance status as a percentage of loans in repayment and forbearance were 2.7 percent for loans that have been in active repayment status for less than 25 months. Approximately 78 percent of our Private Education Loans in forbearance status have been in active repayment status less than 25 months.
 
(Dollars in millions)

December 31, 2014
 
Monthly Scheduled Payments Due
 
Not Yet in
Repayment
 
Total
 
0 to 12
 
13 to 24
 
25 to 36
 
37 to 48
 
More than 48
 
Loans in-school/grace/deferment
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
3,027

 
$
3,027

Loans in forbearance
 
82

 
23

 
16

 
11

 
3

 
—

 
135

Loans in repayment - current
 
2,242

 
1,484

 
725

 
391

 
204

 
—

 
5,046

Loans in repayment - delinquent 31-60 days
 
30

 
16

 
9

 
6

 
3

 
—

 
64

Loans in repayment - delinquent 61-90 days
 
14

 
7

 
4

 
2

 
2

 
—

 
29

Loans in repayment - delinquent greater than 90 days
 
7

 
2

 
1

 
1

 
—

 
—

 
11

Total
 
$
2,375

 
$
1,532

 
$
755

 
$
411

 
$
212

 
$
3,027

 
8,312

Unamortized discount
 
 
 
 
 
 
 
 
 
 
 
 
 
14

Allowance for loan losses
 
 
 
 
 
 
 
 
 
 
 
 
 
(79
)
Total Private Education Loans, net
 
 
 
 
 
 
 
 
 
 
 
 
 
$
8,247

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans in forbearance as a percentage of loans in repayment and forbearance
 
3.45
%
 
1.50
%
 
2.12
%
 
2.68
%
 
1.42
%
 
—
%
 
2.55
%
 

53

(Dollars in millions)

December 31, 2013
 
Monthly Scheduled Payments Due
 
Not Yet in
Repayment
 
Total
 
0 to 12
 
13 to 24
 
25 to 36
 
37 to 48
 
More than 48
 
Loans in-school/grace/deferment
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
2,575

 
$
2,575

Loans in forbearance
 
10

 
3

 
2

 
1

 
—

 
—

 
16

Loans in repayment - current
 
1,862

 
1,073

 
640

 
332

 
26

 
—

 
3,933

Loans in repayment - delinquent 31-60 days
 
12

 
7

 
6

 
4

 
—

 
—

 
29

Loans in repayment - delinquent 61-90 days
 
4

 
3

 
2

 
1

 
—

 
—

 
10

Loans in repayment - delinquent greater than 90 days
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total
 
$
1,888

 
$
1,086

 
$
650

 
$
338

 
$
26

 
$
2,575

 
6,563

Unamortized discount
 
 
 
 
 
 
 
 
 
 
 
 
 
5

Allowance for loan losses
 
 
 
 
 
 
 
 
 
 
 
 
 
(62
)
Total Private Education Loans, net
 
 
 
 
 
 
 
 
 
 
 
 
 
$
6,506

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans in forbearance as a percentage of loans in repayment and forbearance
 
0.53
%
 
0.28
%
 
0.31
%
 
0.30
%
 
—
%
 
—
%
 
0.40
%


(Dollars in millions)

December 31, 2012
 
Monthly Scheduled Payments Due
 
Not Yet in
Repayment
 
Total
 
0 to 12
 
13 to 24
 
25 to 36
 
37 to 48
 
More than 48
 
Loans in-school/grace/deferment
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
1,749

 
$
1,749

Loans in forbearance
 
5

 
3

 
1

 
—

 
—

 
—

 
9

Loans in repayment - current
 
1,654

 
1,482

 
530

 
32

 
7

 
—

 
3,705

Loans in repayment - delinquent 31-60 days
 
14

 
12

 
7

 
1

 
—

 
—

 
34

Loans in repayment - delinquent 61-90 days
 
4

 
4

 
3

 
—

 
—

 
—

 
11

Loans in repayment - delinquent greater than 90 days
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total
 
$
1,677

 
$
1,501

 
$
541

 
$
33

 
$
7

 
$
1,749

 
5,508

Unamortized discount
 
 
 
 
 
 
 
 
 
 
 
 
 
5

Allowance for loan losses
 
 
 
 
 
 
 
 
 
 
 
 
 
(65
)
Total Private Education Loans, net
 
 
 
 
 
 
 
 
 
 
 
 
 
$
5,448

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans in forbearance as a percentage of loans in repayment and forbearance
 
0.30
%
 
0.20
%
 
0.18
%
 
—
%
 
—
%
 
—
%
 
0.24
%


54

Private Education Loan Repayment Options
Certain loan programs allow customers to select from a variety of repayment options depending on their loan type and their enrollment/loan status, which include the ability to extend their repayment term or change their monthly payment.
 
(Dollars in thousands
 
Signature and
Other
 
Smart Option
 
Career
Training
 
Total
$ in repayment
 
$
124,774

 
$
5,007,318

 
$
17,132

 
$
5,149,224

$ in total
 
$
275,205

 
$
8,018,751

 
$
17,420

 
$
8,311,376

 
 
Accrued Interest Receivable
The following table provides information regarding accrued interest receivable on our Private Education Loans. 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.
 
 
 
Private Education Loan
 
 
Accrued Interest Receivable  
(Dollars in thousands)
 
Total Interest Receivable
 
Greater Than
90 Days
Past Due
 
Allowance for
Uncollectible
Interest
December 31, 2014
 
$
445,710

 
$
443

 
$
3,517

December 31, 2013
 
$
333,857

 
$
1

 
$
4,076

December 31, 2012
 
$
215,752

 
$
33

 
$
3,608

December 31, 2011
 
$
154,204

 
$
56

 
$
3,695

December 31, 2010
 
$
194,010

 
$
62

 
$
2,866

 
 


55

Liquidity and Capital Resources
Funding and Liquidity Risk Management
Our four primary liquidity needs include our ongoing ability to fund our businesses throughout market cycles (including during periods of financial stress), our ongoing ability to fund originations of Private Education Loans, servicing our bank deposits, and payment of required dividends on our preferred stock. To achieve these objectives we analyze and monitor our liquidity needs, maintain excess liquidity and access diverse funding sources, such as deposits at the Bank, issuance of secured debt primarily through asset-backed securitizations and other financing facilities and through whole loan sales. It is our policy to manage operations so liquidity needs are fully satisfied through normal operations to avoid unplanned asset sales under emergency conditions. Our liquidity management is governed by policies approved by our Board of Directors. Oversight of these policies is performed in the Asset and Liability Committee (“ALCO”), a management-level committee.
These policies take into account the volatility of cash flow forecasts, expected maturities, anticipated loan demand and a variety of other factors to establish minimum liquidity guidelines.
Key risks associated with our liquidity relate to our ability to access the capital markets and the markets for bank deposits at reasonable rates. This ability may be affected by our performance and the macroeconomic environment and the impact they have on the availability of funding sources in the marketplace.
Sources of Liquidity and Available Capacity
Ending Balances
 
(Dollars in thousands)
 
December 31, 2014
 
December 31, 2013
Sources of primary liquidity:
 
 
 
 
Unrestricted cash and liquid investments:
 
 
 
 
Holding Company and other non-bank subsidiaries
 
$
7,677

 
$
1,052

Sallie Mae Bank (1)
 
2,352,103

 
2,181,813

Available-for-sale investments
 
168,934

 
102,105

Total unrestricted cash and liquid investments
 
$
2,528,714

 
$
2,284,970

_______
(1) This amount will be used primarily to originate Private Education Loans at the Bank.

Average Balances
 
 
 
Years Ended December 31,
(Dollars in thousands)
 
2014
 
2013  
 
2012
Sources of primary liquidity:
 
 
 
 
 
 
Unrestricted cash and liquid investments:
 
 
 
 
 
 
Holding Company and other non-bank subsidiaries
 
$
4,364

 
$
1,176

 
$
2,458

Sallie Mae Bank (1)
 
1,755,517

 
1,509,026

 
913,350

Available-for-sale investments
 
140,622

 
537,458

 
569,344

Total unrestricted cash and liquid investments
 
$
1,900,503

 
$
2,047,660

 
$
1,485,152

          ________        
(1)
This amount will be used primarily to originate Private Education Loans at the Bank.
 
 


56

Deposits

The following table summarizes total deposits at December 31, 2014 and 2013.
 
 
December 31,
 
December 31,
 
(Dollars in thousands)
 
2014
 
2013
 
Deposits - interest bearing
 
$
10,539,953

 
$
8,946,514

 
Deposits - non-interest bearing
 
602

 
55,036

 
Total deposits
 
$
10,540,555

 
$
9,001,550

 

Interest Bearing
Interest bearing deposits as of December 31, 2014 and 2013 consisted of non-maturity savings and money market deposits, brokered and retail certificates of deposit, as discussed further below, and brokered money market deposits. These deposit products are serviced by third party providers. Early withdrawal of Brokered CD’s is prohibited (except in the case of death or legal incapacity). Placement fees associated with the brokered certificates of deposit are amortized into interest expense using the effective interest rate method. We recognized placement fee expense of $10.3 million, $9.8 million, and $8.4 million in the years ended December 31, 2014, 2013 and 2012, respectively. Fees paid to third party brokers related to these certificates of deposit were $15.2 million, $12.1 million, and $16.5 million during the years ended December 31, 2014, 2013 and 2012, respectively.
In the past, we offered debit cards associated with interest bearing consumer deposit (“NOW”) accounts to facilitate the distribution of financial aid refunds and other payables to students. These debit cards were serviced by third party providers. As of April 30, 2014, we no longer offer these debit cards.
Interest bearing deposits at December 31, 2014 and 2013 are summarized as follows:
 
 
 
December 31, 2014
 
December 31, 2013
 
(Dollars in thousands)
 
Amount
 
Year-End Weighted Average Stated Rate
 
Amount
 
Year-End Weighted Average Stated Rate
 
 
 
 
 
 
 
 
 
 
 
Money market
 
$
4,527,448

 
1.15
%
 
$
3,212,889

 
0.65
%
 
Savings
 
703,687

 
0.81

 
743,742

 
0.81

 
NOW
 
—

 
—

 
18,214

 
0.12

 
Certificates of deposit
 
5,308,818

 
1.00

 
4,971,669

 
1.39

 
Deposits - interest bearing
 
$
10,539,953

 
 
 
$
8,946,514

 


 

  As of December 31, 2014 and 2013, there were $254 million and $160 million of deposits exceeding FDIC insurance limits. Accrued interest on deposits was $16.1 million and $13.1 million at December 31, 2014 and 2013, respectively.

Non Interest Bearing

Non interest bearing deposits were $ 0.6 million and $ 55 million as of December 31, 2014 and 2013, respectively. For both periods these were comprised of money market accounts. The December 31, 2014 balance is related to our Employee Stock Purchase Plan account. See Note 14, “Stock Based Compensation Plans and Arrangements” for additional details regarding this plan.


57

Counterparty Exposure
Counterparty exposure related to financial instruments arises from the risk that a lending, investment or derivative counterparty will not be able to meet its obligations to us.
Excess cash is generally invested with the Federal Reserve on an overnight basis or in the Federal Reserve’s Term Deposit Facility, minimizing counterparty exposure on cash balances.
Our investment portfolio includes a small portfolio of mortgage-backed securities issued by government agencies and government-sponsored enterprises that are purchased to meet Community Reinvestment Act targets. Additionally, our investing activity is governed by Board-approved limits on the amount that is allowed to be invested with any one issuer based on the credit rating of the issuer, further minimizing our counterparty exposure. Counterparty credit risk is considered when valuing investments and considering impairment.
Related to derivative transactions, protection against counterparty risk is generally provided by International Swaps and Derivatives Association, Inc. (“ISDA”) Credit Support Annexes (“CSAs”), or clearinghouses for Over the Counter (“OTC”) derivatives. CSAs require a counterparty to post collateral if a potential default would expose the other party to a loss. All derivative contracts entered into by the Bank are covered under such agreements and require collateral to be exchanged based on the net fair value of derivatives with each counterparty. Our exposure is limited to the value of the derivative contracts in a gain position less any collateral held or in addition to collateral posted.
Title VII of the Dodd-Frank Act requires all standardized derivatives, including most interest rate swaps, to be submitted for clearing to central counterparties to reduce counterparty risk. As of December 31 2014, $4.0 billion notional of our derivative contracts were cleared on the Chicago Mercantile Exchange and the London Clearing House. All derivative contracts cleared through an exchange require collateral to be exchanged based on the fair value of the derivative. Our exposure is limited to the value of the derivative contracts in a gain position net of any collateral we are holding.
We have liquidity exposure related to collateral movements between us and our derivative counterparties. Movements in the value of the derivatives, which are primarily affected by changes in interest rates, may require us to return cash collateral held or may require us to access primary liquidity to post collateral to counterparties.
The table below highlights exposure related to our derivative counterparties as of December 31, 2014.
(Dollars in thousands)
 
SLM Corporation
and Sallie Mae Bank
Contracts
Exposure, net of collateral
 
$
60,784

Percent of exposure to counterparties with credit ratings below S&P AA- or Moody’s Aa3
 
38.73
%
Percent of exposure to counterparties with credit ratings below S&P A- or Moody’s Baa
 
0.01
%

 

58

Regulatory Capital
The Bank is subject to various regulatory capital requirements administered by federal banking authorities. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material adverse effect on our financial statements. Under the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.
“Well capitalized” regulatory requirements are the quantitative measures established by regulation to ensure capital adequacy. The Bank is required to maintain minimum amounts and ratios (set forth in the table below) of Total and Tier I Capital to risk-weighted assets and of Tier I Capital to average assets, as defined by the regulation. The following amounts and ratios are based upon the Bank's assets.
 
 
 
Actual
 
Well Capitalized Regulatory Requirements
(Dollars in thousands)
 
Amount
Ratio
 
Amount
 
Ratio
As of December 31, 2014:
 
 
 
 
 
 
 
Tier I Capital (to Average Assets)
 
$
1,413,988

11.5
%
 
$
614,709

>
5.0
%
Tier I Capital (to Risk Weighted Assets)
 
$
1,413,988

15.0
%
 
$
565,148

>
6.0
%
Total Capital (to Risk Weighted Assets)
 
$
1,497,830

15.9
%
 
$
941,913

>
10.0
%
 
 
 
 
 
 
 
 
As of December 31, 2013:
 
 
 
 
 
 
 
Tier I Capital (to Average Assets)
 
$
1,221,416

11.7
%
 
$
521,973

>
5.0
%
Tier I Capital (to Risk Weighted Assets)
 
$
1,221,416

16.4
%
 
$
446,860

>
6.0
%
Total Capital (to Risk Weighted Assets)
 
$
1,289,497

17.3
%
 
$
745,374

>
10.0
%
    
  Capital Management
The Bank seeks to remain well-capitalized at all times with sufficient capital to support asset growth, operating needs, unexpected credit risks and to protect the interests of depositors and the FDIC deposit insurance fund. The Bank is required by its regulators, the UDFI and the FDIC, to comply with mandated capital ratios. We intend to maintain levels of capital at the Bank that significantly exceed the levels of capital necessary to be considered “well capitalized” by the FDIC. The Company is a source of strength for the Bank and will provide additional capital if necessary. The Board of Directors and management periodically evaluate the anticipated change in the Bank’s ownership structure, the quality of assets, the stability of earnings, and the adequacy of the allowance for loan losses. We currently believe that current and projected capital levels are appropriate for the remainder of 2015. As our balance sheet grows in 2015, these ratios will decline but will remain significantly in excess of the capital levels required to be considered “well capitalized” by our regulators. We expect significant asset growth subsequent to the Spin-Off. We do not plan to pay dividends on our common stock. We do not intend to initiate share repurchase programs as a means to return capital to shareholders. We only expect to repurchase common stock acquired in connection with taxes withheld in connection with award exercises and vesting under our employee stock based compensation plans. Our Board of Directors will periodically reconsider these matters.
On July 9, 2013, the FDIC Board of Directors approved an interim final rule that adopts new guidelines related to regulatory capital measurement and reporting. The interim final rule became effective January 2015. It strengthens both the quantity and quality of risk-based capital for all banks, placing greater emphasis on Tier 1 common equity capital. The Bank’s Capital Policy requires management monitor the new capital standards. Under the new guidelines, well-capitalized institutions must maintain a minimum Tier 1 Leverage ratio of 5 percent, a minimum Tier 1 common equity risk-based capital ratio of 6.5 percent, a minimum Tier 1 risk-based capital of 8 percent and minimum total risk-based capital of 10 percent. In addition, a capital conservation buffer will be phased in over four years beginning on January 1, 2016, as follows: the maximum buffer will be 0.625 percent of risk weighted assets for 2016, 1.25 percent for 2017, 1.875 percent for 2018 and 2.5 percent for 2019 and beyond, resulting in the following minimum ratios beginning in 2019: a Tier 1 common equity risk-based capital ratio of a minimum 7.0 percent, a Tier 1 capital ratio of a minimum 8.5 percent and a total risk-based capital ratio of a minimum 10.5 percent. Institutions that do not maintain the capital conservation buffer could face restrictions on dividend payments, share repurchases and the payment of discretionary bonuses.

59

As of December 31, 2014, the Bank had a Tier 1 leverage ratio of 11.5 percent, a Tier 1 risk-based capital ratio of 15.0 percent and total risk-based capital ratio of 15.9 percent, exceeding the current guidelines by a significant factor. Our ratios would also exceed the future guidelines if we calculated them today based on the new definitions of capital and risk-weighted assets.
Dividends
The Bank is chartered under the laws of the State of Utah and its deposits are insured by the FDIC. The Bank’s ability to pay dividends is subject to the laws of Utah and the regulations of the FDIC. Generally, under Utah’s industrial bank laws and regulations as well as FDIC regulations, the Bank may pay dividends to the Company from its net profits without regulatory approval if, following the payment of the dividend, the Bank’s capital and surplus would not be impaired. The Bank paid no dividends for the year ended December 31, 2014. For the years ended December 31, 2013 and 2012, the Bank paid dividends of $120 million and $420 million, respectively, to an entity that is now a subsidiary of Navient. For the foreseeable future, we expect the Bank to only pay dividends to the Company as may be necessary to provide for regularly scheduled dividends payable on the Company’s Series A and Series B Preferred Stock.
Borrowed Funds
The Bank maintains discretionary uncommitted Federal Funds lines of credit with various correspondent banks, which totaled $100 million at December 31, 2014. The interest rate charged to the Bank on these lines of credit is priced at the Fed Funds rate plus a spread at the time of borrowing, and is payable daily. The Bank did not utilize these lines of credit in the years ended December 31, 2014 and 2013.
The Bank established an account at the FRB to meet eligibility requirements for access to the Primary Credit borrowing facility at the FRB’s Discount Window (“Window”). The Primary Credit borrowing facility is a lending program available to depository institutions that are in generally sound financial condition. All borrowings at the Window must be fully collateralized. We can pledge asset-backed and mortgage-backed securities, as well as FFELP Loans and Private Education Loans, to the FRB as collateral for borrowings at the Window. Generally, collateral value is assigned based on the estimated fair value of the pledged assets. At December 31, 2014 and 2013, the lendable value of our collateral at the FRB totaled $1.4 billion and $900 million, respectively. The interest rate charged to us is the discount rate set by the FRB. We did not utilize this facility in the years ended December 31, 2014 and 2013.

On December 19, 2014, we closed a new $750 million private asset backed commercial paper (“ABCP”) education loan funding facility.  Under FDIC guidelines, we are required to retain a 5 percent or $37.5 million ownership interest in the facility resulting in $712.5 million of funds being available for Private Education Loan originations.  The new facility had not been drawn on as of December 31, 2014 and the facility’s scheduled maturity date is December 18, 2015.
  Contractual Cash Obligations
The following table provides a summary of our contractual principal obligations associated with long-term Bank deposits at December 31, 2014.
 
 
December 31,
(Dollars in thousands)
 
2014
One year or less
 
$
1,717,541

One to 3 years
 
1,992,349

3 to 5 years
 
1,422,631

Over 5 years
 
178,856

Total contractual cash obligations
 
$
5,311,377




60

Critical Accounting Policies and Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses our consolidated financial statements, which have been prepared in accordance with GAAP. Note 2, “Significant Accounting Policies” includes a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of income and expenses during the reporting periods. Actual results may differ from these estimates under varying assumptions or conditions. On a quarterly basis, management evaluates its estimates, particularly those that include the most difficult, subjective or complex judgments and are often about matters that are inherently uncertain. The most significant judgments, estimates and assumptions relate to the following critical accounting policies that are discussed in more detail below.
Allowance for Loan Losses

In determining the allowance for loan losses on our Private Education Loan non-TDR portfolio, we estimate the principal amount of loans that will default over the next year (one year being the expected period between a loss event and default) and how much we expect to recover over the same one year period related to the defaulted amount. The expected defaults less our expected recoveries adjusted for any qualitative factors (discussed below) equal the allowance related to this portfolio. Our historical experience indicates that, on average, the time between the date that a customer experiences a default causing event (i.e., the loss trigger event) and the date that we charge off the unrecoverable portion of that loan is one year.

In estimating both the non-TDR and TDR allowance amounts, we start with historical experience of customer delinquency and default behavior. We make judgments about which historical period to start with and then make further judgments about whether that historical experience is representative of future expectations and whether additional adjustments may be needed to those historical default rates. We may also take certain other qualitative factors into consideration when calculating the allowance for loan losses. These qualitative factors include, but are not limited to, changes in the economic environment, changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off and recovery practices not already included in the analysis, and the effect of other external factors such as legal and regulatory requirements on the level of estimated credit losses.

Our non-TDR allowance for loan losses is estimated using an analysis of delinquent and current accounts. Our model is used to estimate the likelihood that a loan receivable may progress through the various delinquency stages and ultimately charge off (“migration analysis”). Once a charge-off forecast is estimated, a recovery assumption is layered on top.

In connection with the Spin-Off, we changed our charge-off policy for Private Education Loans to charging off loans when the loans reach 120 days delinquent. Pre-Spin-Off SLM default aversion strategies were focused on the final stages of delinquency, from 150 days to 212 days. Our default aversion strategies are now focused on loans that are 30 to 120 days delinquent. It is uncertain if our existing default aversion strategies will be as successful in this compressed collection timeframe. We implemented our 120 day collection strategy in April 2014. For the quarter ended December 31, 2014, we experienced some level of volatility in the rate at which we are able to cure delinquencies with borrowers as a result of temporary transitional issues related to the Bank servicing platform in October 2014.

The migration analysis model is based upon sixteen months of actual collection experience which includes seven months of collection experience using the 212 day charge off default aversion strategies and nine months of experience using the 120 day charge-off default aversion strategies. We only used collection data from the first four collection buckets for all sixteen months. This resulted in our inclusion of older periods when the accounts were not being aggressively collected in the 30 to 120 days delinquent buckets. We believe this is appropriate as we have very limited data since the change in collection practices to be confident that the positive trends will continue. Once the quantitative calculation is performed, we review the adequacy of the allowance for loan losses and determine if qualitative adjustments need to be considered.

Separately, for our TDR portfolio, we estimate an allowance amount sufficient to cover life-of-loan expected losses through an impairment calculation based on the difference between the loan’s basis and the present value of expected future cash flows (which would include life-of-loan default and recovery assumptions) discounted at the loan’s original effective interest rate. Our TDR portfolio is comprised mostly of loans with interest rate reductions and forbearance usage greater than three months.

The separate allowance estimates for our TDR and non-TDR portfolios are combined into our total allowance for Private Education Loan losses. The evaluation of the allowance for loan losses is inherently subjective, as it requires material estimates and assumptions that may be susceptible to significant changes. If actual future performance in delinquency, charge-offs or

61

recoveries are significantly different than estimated, this could materially affect our estimate of the allowance for loan losses and the related provision for loan losses on our income statement.

As part of concluding on the adequacy of the allowance for loan loss, we review key allowance and loan metrics. The most relevant of these metrics are the allowance coverage of charge-offs ratio; the allowance as a percentage of total loans and of loans in repayment; and delinquency and forbearance percentages.

We consider a loan to be delinquent 31 days after the last payment was contractually due. We use a model to estimate the amount of uncollectible accrued interest on Private Education Loans and reserve for that amount against current period interest income.

FFELP Loans are insured as to their principal and accrued interest in the event of default subject to a Risk Sharing level based on the date of loan disbursement. These insurance obligations are supported by contractual rights against the United States. For loans disbursed after October 1, 1993, and before July 1, 2006, we receive 98 percent reimbursement on all qualifying default claims. For loans disbursed on or after July 1, 2006, we receive 97 percent reimbursement. For loans disbursed prior to October 1, 1993, we receive 100 percent reimbursement.

The allowance for FFELP Loan losses uses historical experience of customer default behavior and a two-year loss confirmation period to estimate the credit losses incurred in the loan portfolio at the reporting date. We apply the default rate projections, net of applicable Risk Sharing, to each category for the current period to perform our quantitative calculation. Once the quantitative calculation is performed, we review the adequacy of the allowance for loan losses and determine if qualitative adjustments need to be considered.

 
Fair Value Measurement
The most significant assumptions used in fair value measurements, including those related to credit and liquidity risk, are as follows:
1.
Derivatives  - When determining the fair value of derivatives, we take into account counterparty credit risk for positions where we are exposed to the counterparty on a net basis by assessing exposure net of collateral held. The net exposure for each counterparty is adjusted based on market information available for that specific counterparty, including spreads from credit default swaps. Additionally, when the counterparty has exposure to us related to our derivatives, we fully collateralize the exposure, minimizing the adjustment necessary to the derivative valuations for our own credit risk. A major indicator of market inactivity is the widening of the bid/ask spread in these markets. In general, the widening of counterparty credit spreads and reduced liquidity for derivative instruments as indicated by wider bid/ask spreads will reduce the fair value of derivatives.
2.
Education Loans - Our Private Education Loans and FFELP Loans are accounted for at cost or at the lower of cost or fair value if the loan is held-for-sale. The fair values of our student loans are disclosed in Note 15, “Fair Value Measurements.” For both Private Education Loans and FFELP Loans accounted for at cost, fair value is determined by modeling loan level cash flows using stated terms of the assets and internally developed assumptions to determine aggregate portfolio yield, net present value and average life. The significant assumptions used to project cash flows are prepayment speeds, default rates, cost of funds, the amount funded by deposits versus equity, and required return on equity. Significant inputs into the models are not generally market-observable. They are either derived internally through a combination of historical experience and management’s expectation of future performance (in the case of prepayment speeds, default rates, and capital assumptions) or are obtained through external broker quotes (as in the case of cost of funds). When possible, market transactions are used to validate the model and, when appropriate, the model is calibrated to these market transactions.
For further information regarding the effect of our use of fair values on our results of operations, see Note 15, “Fair Value Measurements.”

62

Derivative Accounting
The most significant judgments related to derivative accounting are: (1) concluding the derivative is an effective hedge and qualifies for hedge accounting and (2) determining the fair value of certain derivatives and hedged items. To qualify for hedge accounting, a derivative must be concluded to be a highly effective hedge upon designation and on an ongoing basis. There are no “bright line” tests on what is considered a highly effective hedge. We use a historical regression analysis to prove ongoing and prospective hedge effectiveness. See the previous discussion in the section titled “Critical Accounting Policies and Estimates - Fair Value Measurement” for significant judgments related to the valuation of derivatives. Although some of our valuations are more judgmental than others, we compare the fair values of our derivatives that we calculate to those provided by our counterparties on a monthly basis. We view this as a critical control which helps validate these judgments. Any significant differences with our counterparties are identified and resolved appropriately.
 
Transfers of Financial Assets and the Variable Interest Entity (“VIE”) Consolidation Model
We account for loan sales in accordance with the applicable accounting guidance. If a transfer of loans qualifies as a sale, we derecognize the loan and recognize a gain or loss as the difference between the carry basis of the loan sold and liabilities retained and the compensation received. We recognize the results of a transfer of loans based upon the settlement date of the transaction.
If we have a variable interest in a Variable Interest Entity (“VIE”) and we have determined that we are the primary beneficiary, then we will consolidate the VIE. We are considered the primary beneficiary if we have both: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses or receive benefits of the entity that could potentially be significant to the VIE. There can be considerable judgment as it relates to determining the primary beneficiary of the VIEs. There are no “bright line” tests. Rather, the assessment of who has the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance and who has the obligation to absorb losses or receive benefits of the entity that could potentially be significant to the VIE can be very qualitative and judgmental in nature. In the third quarter 2014, we entered into our first securitization transaction. Based on our current relationship with this securitization trust, which is considered a VIE, we believe the assessment is more straightforward. As it relates to this transaction, our only continuing involvement is as the master servicer and administrator. An unrelated third party is responsible for the servicing of these assets (which means that the third party “has the power” to direct the activities of the trust) and another third party owns the Residual Interest (which means that the third party “has the obligation to absorb losses or receive benefits that could potentially be significant to the VIE”) of the securitization trust. As a result, we have determined that we are not the primary beneficiary of this trust.

Risk Management
Our Approach
Risk is inherent in our business activities and the specialized lending industry we serve. The ability of management to identify and remediate risk in a timely manner is critical to our continued success. Our risk management activities are designed to identify, remediate, control and monitor these risks and escalate as required to the Board of Directors or its committees.
Risk Oversight
Our Board of Directors and its standing committees oversee our overall strategic direction, including establishing our enterprise risk management (“ERM”) framework. The Board also has oversight of the procedures used for assessing the risks our businesses face as well as the risk management practices developed and utilized by the management team. We have established a robust framework to escalate to the Board any significant departures from the risk appetite statement in addition to any new and emerging risks.
The Board of Directors, with senior management, took significant steps to continue the development of the enterprise risk management function during 2014. Selected actions included the following:

•
The on-boarding of a Chief Risk Officer (“CRO”) to lead the enterprise risk management function. The CRO has accountability to the Risk Committee of the Board and is responsible for the effective administration and continued development of the function;
•
The adoption by the Board of Directors of a formal Enterprise Risk Management Policy to support compliance with the ERM framework;

63

•
The continued evolution of the internal risk oversight framework to achieve greater clarity and strengthen decision making; and
•
Continued investment in the ERM function to ensure it is fit for purpose for the challenges facing the business and the Industry.
The Governance Framework
Our overall objective pertaining to risk and control is to ensure all significant risks inherent in our business can be identified, remediated, controlled and monitored. To this end, we have adopted the “three lines of defense” governance framework. Specifically, the business units form the “first line of defense” and are the “owners” of risks present in our business activities. As the owners of risk, the first line of defense is accountable for the day-to-day execution of risk and control policy and procedures. The “second line of defense” (e.g. Enterprise Risk Management and Compliance) provides oversight of the execution by the first line of defense. Rather than focused on execution, the second line of defense is accountable for the related policy and standards executed upon by the first line of defense. Finally, the Internal Audit function comprises the “third line of defense.” The Internal Audit function provides opinions to the Board on the effectiveness of the first and second lines of defense. The lines of defense distinction determines accountabilities; the ERM framework contains the processes and infrastructure necessary to deliver on those accountabilities.
 
Key Roles and Responsibilities
Individual accountabilities for risk management are held at multiple levels of our organization, including the Board of Directors and its committees. These accountabilities are clearly articulated in terms of policies, committee charters and the ERM framework and its components. Each business or functional area within our organization is responsible for managing its specific risks utilizing agreed upon processes and procedures developed in collaboration with the risk management and control teams.
Board of Directors. The Board of Directors, directly and through its standing committees, is responsible for overseeing our overall strategic and business planning activities and, through the activities of its Risk Committee, providing oversight to our the risk and control activities. Specifically, the Board reviews and approves the ERM framework, its policy and governance components, annually. The Board requires management to provide periodic updates on compliance with the enterprise risk management framework as well as emerging or horizon risks.

Standing committees of our Board of Directors include Risk, Audit, Nominations, Governance & Compensation; Preferred Stock Committees, and a Compliance Committee of the Bank Board of Directors. Charters for each committee providing their specific responsibilities and areas of risk oversight are published at www.salliemae.com under “Investors-Corporate Governance.” Additional information regarding their activities and responsibilities will be contained in the “Corporate Governance” section of our proxy statement to be filed on Schedule 14A relating to our 2015 Annual Meeting of Stockholders (the “2015 Proxy Statement”) and is incorporated herein by reference.

Chief Executive Officer . The Chief Executive Officer is ultimately responsible for ensuring proper oversight, management and reporting to the Board of Directors regarding our risk management practices and the timely escalation of any significant issues. The Chief Executive Officer is responsible for setting the tone across the Company pertaining to risk management and overseeing business compliance with the ERM framework, the risk appetite statement and the annual business plan.

Chief Risk Officer. The Chief Risk Officer is responsible for the effectiveness of the ERM framework, the risk appetite statement and related governance components. Additionally, the CRO is responsible for establishing processes relating to risk reporting, issues management, escalation to the ERC and, as required, independent reporting to the Board.

Enterprise Risk Management Policy and Framework
The ERM Policy and framework are designed to provide a holistic perspective of risk and control performance across the Company. The Policy, which is approved annually by the Board of Directors, outlines the framework used to ensure that risk and control issues across the enterprise are identified, remediated, controlled and escalated. The Bank’s overall governance structure is organized to support the effective execution of the ERM framework and compliance with this Policy.
The risk appetite statement is a central component of the ERM framework. The risk appetite statement establishes the level of risk we are willing to accept within each risk category, described below, in pursuit of our business objectives. Our risk appetite is captured in a set of performance metrics specific to our business activities, both quantitative and qualitative. These metrics have corresponding thresholds and limits and are adopted as operating standards. Compliance with our risk appetite is monitored by our management-level Enterprise Risk Committee with escalation to the Risk Committee of the Board or the

64

Board of Directors, as appropriate. Our Board of Directors approves the risk appetite statement annually and requires that management provide periodic updates on compliance to the Risk Committee of our Board.

Board of Directors Committee Structure
We have a robust committee structure that facilitates oversight, effective challenge and escalation of risk and control issues. The structure was enhanced during 2014 to provide greater clarity to the governance process and strengthen decision making.
Risk Committee. The Risk Committee of the Board was established to assist the Board in fulfilling its oversight responsibilities of risk and controls. The Risk Committee recommends the ERM framework, Policies and governance structure to the Board of Directors for approval. The Risk Committee receives periodic updates on compliance with the ERM framework as well as emerging or horizon risks from the Enterprise Risk Committee.
Audit Committee. The Audit Committee is responsible for oversight of the Internal Audit function. In this capacity, the Audit Committee oversees the quality and integrity of our financial reporting process and financial statements; the qualifications, hiring, performance and independence of our independent registered accounting firm; the performance of the our Internal Audit function; our system of internal controls; and, our compliance with its Code of Business Conduct.
Nominations, Governance and Compensation Committee. In addition to other responsibilities as described in the 2014 Proxy Statement, the NGC Committee is to: 1) periodically review our compliance and performance against the risk measures and limits as contained in our Board approved risk appetite framework relating to our personnel, including compensation policies and practices, attrition and succession planning, and aspects of shareholder confidence relating to compensation policies, and assess whether any such risks are reasonably likely to have a materially adverse effect on us; and 2) periodically review our compliance and performance against the risk measures as contained in our Board approved risk appetite framework relating to political risk, reputational risk and governance risks as related to compliance with NASDAQ listing standards and applicable rules and regulations relating to Board of Directors and management composition, governance, and independence.
Preferred Stock Committee. The Preferred Stock Committee monitors and evaluates proposed actions that may impact the rights of holders of preferred stock.
Compliance Committee. The purpose of the Compliance Committee of the Board of the Bank is to assist the Board in: 1) overseeing the continuing maintenance and enhancement of a strong and sustainable compliance culture; 2) providing oversight of the compliance management system; 3) approving sound policies and objectives and effectively supervising all compliance - related activities; 4) ensuring that the Bank has a qualified Chief Compliance Officer with sufficient authority, independence and resources to administer an effective compliance management system; and 5) exercising and performing all other duties and responsibilities delegated to the Committee.

Management-Level Committee Structure
Enterprise Risk Committee. The Enterprise Risk Committee is authorized by the Board of Directors to provide management oversight of the ERM framework. The ERC is the conduit from management to the Board Risk Committee and provides for escalation in the instances of non-compliance with the framework. Additionally, the ERC is authorized to create sub - committees to assist in the fulfillment of its oversight activities. During 2014, we consolidated our management level risk oversight committees into three sub-committees of the ERC: Credit committee, Operational Risk committee and Asset and Liability Committee ("ALCO"). Each of these three standing sub-committees is comprised of subject matter experts from the senior management team and is accountable to the ERC. Moreover, these sub-committees may be supported by one or more working groups. These working groups include the Allowance for Loan Loss, Critical Accounting Assumptions and New Product and Services working groups.
Human Resources/ Incentive Compensation Plan Committee . Our Human Resources/ Incentive Compensation Plan ("ICP") Committee is comprised of a cross-functional team of senior officers from human resources, compliance, finance, customer service, legal, marketing, and risk who oversee our incentive compensation plans. The committee’s responsibilities include ensuring our incentive compensation plans do not incentivize our employees to take inappropriate risks which could impact our financial position and controls, reputation and operations; reviewing the annual risk assessment of our incentive compensation plans conducted by our Chief Compliance Officer, Chief Risk Officer, and audited by our Chief Audit Officer; and developing policies and procedures for the development and approval of new incentive compensation plans in line with our business goals and within acceptable risk parameters. The committee periodically reports to the Nominations, Governance, and Compensation Committee of our Board of Directors on our controls and reviews of our incentive compensation plans.

Disclosure Committee . Our Disclosure Committee reviews and approves content of periodic SEC reporting documents, earnings releases, investor materials and related disclosure policies and procedures.

65


Compliance Committee . Our Bank Compliance Committee oversees regulatory compliance risk management activities for the Company and its affiliates.

Internal Audit Risk Assessment
Internal Audit regularly monitors our various risk management and compliance efforts, identifies areas that may require increased focus and resources, and reports significant control issues and recommendations to executive management and the Audit Committee of the Board of Directors. Annually, Internal Audit performs an independent risk assessment to evaluate the risk of all significant components of the Company and uses the results to develop their annual Internal Audit plan. Additionally, Internal Audit performs selected reviews of both risk management and compliance functions, including key controls, processes and systems, in order to assess the effectiveness of the overall risk management framework.
Risk Categories

Our ERM framework is designed to address the following risk categories.

Credit Risk . Credit risk is the risk to earnings or capital resulting from an obligor’s failure to meet the terms of any contract with us or otherwise fail to perform as agreed. Credit risk is found in all activities where success depends on counterparty, issuer or borrower performance.

We have credit or counterparty risk exposure with borrowers and cosigners with whom we have made Private Education Loans, the various counterparties with whom we have entered into derivative contracts and the various issuers with whom we make investments. Credit and counterparty risks are overseen by our Chief Risk Officer, his staff and the management-level Credit Committee he chairs. Our Chief Risk Officer reports regularly to the Board’s Risk Committee as well as the Board of Directors.

The credit risk related to Private Education Loans is managed within a credit risk infrastructure which includes: (i) a well-defined underwriting, asset quality and collection policy framework; (ii) an ongoing monitoring and review process of portfolio concentration and trends; (iii) assignment and management of credit authorities and responsibilities; and (iv) establishment of an allowance for loan losses that covers estimated future losses based upon an analysis of portfolio metrics and economic factors.

Credit risk related to derivative contracts is managed by reviewing counterparties for credit strength on an ongoing basis and through our credit policies, which place limits on the amount of exposure we may take with any one counterparty and, in most cases, require collateral to secure the position. The credit and counterparty risk associated with derivatives is measured based on the replacement cost should the counterparty with contracts in a gain position to the Company fail to perform under the terms of the contract.

Operational Risk . Operational risk is the risk to earnings resulting from inadequate or failed internal processes, people and systems or from external events. Operational risk is pervasive in that it exists in all business lines, functional units, legal entities and geographic locations, and it includes information technology risk, physical security risk on tangible assets, as well as regulatory, legal and governance risk.

Operational risk exposures are managed through a combination of business line management and enterprise-wide oversight. The management-level, Operational Risk Committee is the oversight body for operational risks and supports the ERC in its oversight duties. The subcommittee is responsible for escalation to the ERC, as appropriate. Additionally, operational risk metrics, thresholds and limits are included in the periodic reporting to the Risk Committee of our Board of Directors in the context of the ERM framework.

Regulatory, Legal and Governance Risk. Regulatory risk is the current and prospective risk to earnings or capital arising from violations of, or non-conformance with, laws, rules, regulations, prescribed practices, internal policies and procedures, or ethical standards. Legal risk is the risk to earnings, capital or reputation manifested by claims made through the legal system and may arise from a product, a transaction, a business relationship, property (real, personal or intellectual), conduct of an employee or a change in law or regulation. Governance risk is the risk of not establishing and maintaining a control environment that aligns with stakeholder and regulatory expectations, including “tone at the top” and Board performance. These risks are inherent in all of our businesses. Regulatory, legal and governance risk are sub-sets of operational risk but have taken

66

on greater significance in the current environment. We can be exposed to these risks in key areas such as our private education lending, servicing and collections if compliance with legal and regulatory requirements is not properly implemented, documented or tested, as well as when an oversight program does not include appropriate audit and control features.

Primary ownership and responsibility for legal and regulatory risk is placed with the business segments to manage their specific legal and regulatory risks. Our Compliance group supports these activities by providing extensive training, monitoring and testing of the processes, policies and procedures utilized by our business segments, maintaining consumer lending regulatory and information security policies and procedures, and working in close coordination with our Legal group. Our Operational Risk Committee has oversight over the establishment of standards related to our monitoring and control of legal and regulatory risks, and the Chief Risk Officer reports regularly to the Risk Committee of our Board of Directors.

Our Code of Business Conduct and the on-going training our employees receive in many compliance areas provide a framework for our employees to conduct themselves with the highest integrity. We instill a risk-conscious culture through communications, training, policies and procedures. We have strengthened the linkage between the management performance process and individual compensation to encourage employees to work toward corporate-wide compliance goals.

Market Risk . Market risk is the risk to earnings or capital resulting from changes in market conditions, such as interest rates, credit spreads, commodity prices or other volatilities. We are exposed to various types of market risk, in particular the risk of loss resulting from interest rate risk, basis risk and other risks that arise through the management of our investment, debt and education loan portfolios. Market risk exposures are managed primarily through the management-level, Asset and Liability Committee ("ALCO") chaired by the Chief Financial Officer. The responsibilities of this committee include: maintaining oversight and responsibility for risks associated with managing our assets and liabilities, and recommending limits to be included in our risk appetite and investment structure. These activities are closely tied to those related to the management of our funding and liquidity risks. The Risk Committee of our Board of Directors periodically reviews and approves the investment and asset and liability management policies and contingency funding plan developed and administered by ALCO. The Risk Committee of our Board of Directors as well as our Chief Financial Officer report to the full Board of Directors on matters of market risk management.

Funding and Liquidity Risk . Funding and liquidity risk is the risk to earnings, capital or the conduct of our business arising from the inability to meet our obligations when they become due without incurring unacceptable losses, such as the ability to fund liability maturities and deposit withdrawals, or invest in future asset growth and business operations at reasonable market rates, as well as the inability to fund Private Education Loan originations. Our three primary liquidity needs include our ongoing ability to meet our funding needs for our businesses throughout market cycles, including during periods of financial stress and to minimize any mismatch between the maturity of assets and liabilities; our ongoing ability to fund originations of Private Education Loans; and servicing our indebtedness and bank deposits. Key objectives associated with our funding liquidity needs relate to our ability to access the capital markets at reasonable rates and to continue to maintain retail deposits and other funding sources through Sallie Mae Bank.

Our funding and liquidity risk management activities are centralized within our Corporate Finance department, which is responsible for planning and executing our funding activities and strategies. We analyze and monitor our liquidity risk, maintain excess liquidity and access diverse funding sources depending on current market conditions. Funding and liquidity risks are overseen and recommendations approved primarily through ALCO. The Risk Committee of our Board of Directors is responsible for periodically reviewing and approving the funding and liquidity positions and contingency funding plan developed and administered by ALCO. The Risk Committee of our Board of Directors also receives regular reports on our performance against funding and liquidity plans at each of its meetings.

Reputational and Political Risk . Reputational risk is the risk to shareholder value and growth from a negative perception, whether true or not, of an organization by its key stakeholders, the changing expectations of its stakeholders and/or inadequate internal coordination of business decisions. This could expose us to litigation, financial loss or other damage to our business or brand. Political risk addresses political changes that may affect the probability of achieving our business objectives.

Management proactively assesses and manages political and reputational risk. Post-spin, we are in the process of standing up our government relations function to manage our review of and response to all formal inquiries from members of Congress, state legislators, and their staff, as well as providing targeted messaging that reinforces our public policy goals. We review and consider political and reputational risks on an integrated basis in connection with the risk management oversight activities conducted in the various aspects of our business on matters as diverse as the launch of new products and services, our credit underwriting activities and how we fund operations. Our public relations, marketing and media teams constantly monitor print, electronic and social media to understand how we are perceived; actively provide assistance and support to our customers and

67

other constituencies; and maintain and promote the value of our considerable corporate brand. Significant political and reputational risks are reported to and monitored by the management-level Enterprise Risk Committee and the Risk Committee of our Board of Directors. Our Legal, Government Relations and Compliance groups regularly meet and collaborate with our Media and Investor Relations teams to provide more coordinated monitoring and management of our political and reputational risks.

Strategic Risk . Strategic risk is the risk to shareholder value and growth trajectory from adverse business decisions and/or improper implementation of business strategies. Management must be able to develop and implement business strategies that leverage the organization’s core competencies, are structured appropriately and are achievable. Oversight for this strategic planning process is provided by the Executive Committee of the Board of Directors. Our performance, relative to our annual business plan, is regularly reviewed by management, the Board of Directors and its various committees.

Common Stock
Our shareholders have authorized the issuance of 1.125 billion shares of common stock (par value of $.20). At December 31, 2014, 423  million shares were issued and outstanding and 60  million shares were unissued but encumbered for outstanding stock options, restricted stock units and dividend equivalent units for employee compensation and remaining authority for stock-based compensation plans. See Note 12, “Stockholders' Equity” to the consolidated financial statements contained in this Form 10-K, for additional details.

Arrangements with Navient Corporation

In connection with the Spin-Off, the Company entered into a separation and distribution agreement with Navient (the “Separation and Distribution Agreement”). In connection therewith, the Company also entered into various other ancillary agreements with Navient to effect the Spin-Off and provide a framework for its relationship with Navient thereafter, such as a transition services agreement, a tax sharing agreement, an employee matters agreement, a loan servicing and administration agreement, a joint marketing agreement, a key services agreement, a data sharing agreement and a master sublease agreement. The majority of these agreements are transitional in nature with most having terms of two years or less from the date of the Spin-Off.

We continue to have significant exposures to risks related to Navient’s loan originations and its creditworthiness. If we are unable to obtain services, complete the transition of our origination operations as planned, or obtain indemnification payments from Navient, we could experience higher than expected costs and operating expenses and our results of operations and financial condition could be materially and adversely affected.

We briefly summarize below some of the most significant agreements and relationships we continue to have with Navient. For additional information regarding the Separation and Distribution Agreement and the other ancillary agreements, see our Current Report on Form 8-K filed on May 2, 2014.

Separation and Distribution Agreement

The Separation and Distribution Agreement addresses, among other things, the following ongoing activities:

•
the obligation of each party to indemnify the other against liabilities retained or assumed by that party pursuant to the Separation and the Distribution Agreement and in connection with claims of third parties;

•
the allocation among the parties of rights and obligations under insurance policies;

•
the agreement of the Company and Navient (i) not to engage in certain competitive business activities for a period of five years , (ii) as to the effect of the non-competition provisions on post-spin merger and acquisition activities of the parties and (iii) regarding “first look” opportunities; and

•
the creation of a governance structure, including a separation oversight committee of representatives from the Company and Navient, by which matters related to the separation and other transactions contemplated by the separation and distribution agreement will be monitored and managed.

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Transition Services

During a transition period, Navient and its affiliates provided the Bank with significant servicing capabilities with respect to Private Education Loans held by the Company and its subsidiaries. On October 13, 2014, we transitioned the Private Education Loan servicing to our own platform. The last remaining significant operational transition left to be completed is the transition of the loan origination function. We anticipate the completion of this transition to occur in the first half of 2015. Beyond this transition period, it is currently anticipated that Navient will continue to service Private Education Loans owned by the Company or its subsidiaries with respect to individual borrowers who also have Private Education Loans which are owned by Navient, in order to optimize the customer’s experience. In addition, Navient will continue to service and collect the Bank’s portfolio of FFELP Loans indefinitely.

Indemnification Obligations

Navient has also agreed to be responsible, and indemnify us, for all claims, actions, damages, losses or expenses that may arise from the conduct of all activities of pre-Spin-Off SLM occurring prior to the Spin-Off other than those specifically excluded in the Separation and Distribution Agreement. Some significant examples of the types of indemnification obligations Navient has under the Separation and Distribution Agreement and related ancillary agreements include:

•
Pursuant to a tax sharing agreement, Navient has agreed to indemnify us for $283 million in deferred taxes that the Company will be legally responsible for but that relate to gains recognized by the Company’s predecessor on debt repurchases made prior to the Spin-Off. The remaining amount of this indemnification at December 31, 2014 is $224 million . In addition, Navient has agreed to indemnify us for tax assessments incurred related to identified uncertain tax positions taken prior to the date of the Spin-Off. At December 31, 2014, we have recorded a receivable of $16 million related to this indemnification.

•
Navient has responsibility to assume new or ongoing litigation matters relating to the conduct of most pre-Spin-Off SLM businesses operated or conducted prior to the Spin-Off.

•
At the time of this filing, the Bank remains subject to a Consent Order, Order to Pay Restitution and Order to Pay Civil Money Penalty dated May 13, 2014 issued by the 2014 FDIC Order. The 2014 FDIC Order replaces a prior cease and desist order jointly issued in August 2008 by the FDIC and the UDFI which was terminated on July 15, 2014. Specifically, on May 13, 2014, the Bank reached settlements with the FDIC and the DOJ regarding disclosures and assessments of certain late fees, as well as compliance with the SCRA. The DOJ Order was approved by the U.S. District Court for the District of Delaware on September 29, 2014. Under the FDIC’s 2014 Order, the Bank agreed to pay $3.3 million in fines and oversee the refund of up to $30 million in late fees assessed on loans owned or originated by the Bank since its inception in November 2005. Navient is responsible for funding all liabilities, restitution and compensation under orders such as these, other than fines directly levied against the Bank.

Long-Term Arrangements

The Loan Servicing and Administration Agreement governs the terms by which Navient provides servicing, administration and collection services for the Bank’s portfolio of FFELP Loans and Private Education Loans, as well as servicing history information with respect to Private Education Loans previously serviced by Navient and access to certain promissory notes in Navient’s possession. The loan servicing and administration agreement has a fixed term with a renewal option in favor of the Bank.

The Data Sharing Agreement states the Bank will continue to have the right to obtain from Navient certain post-Spin-Off performance data relating to Private Education Loans owned or serviced by Navient to support and facilitate ongoing underwriting, originations, forecasting, performance and reserve analyses.

The Tax Sharing Agreement governs the respective rights, responsibilities and obligations of the Company and Navient after the Spin-Off relating to taxes, including with respect to the payment of taxes, the preparation and filing of tax returns and the conduct of tax contests. Under this agreement, each party is generally liable for taxes attributable to its business. The agreement also addresses the allocation of tax liabilities that are incurred as a result of the Spin-Off and related transactions. Additionally, the agreement restricts the parties from taking certain actions that could prevent the Spin-Off from qualifying for the anticipated tax treatment.

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Amended Loan Participation and Purchase Agreement

Prior to the Spin-Off, the Bank sold substantially all of its Private Education Loans to several former affiliates, now subsidiaries of Navient (collectively, the “Purchasers”), pursuant to this agreement. This agreement predates the Spin-Off but has been significantly amended and reduced in scope in connection with the Spin-Off. Post-Spin-Off, the Bank retains only the right to require the Purchasers to purchase loans (at fair value) for which the borrower also has a separate lending relationship with Navient (“Split Loans”) when the Split Loans either (1) are more than 90 days past due; (2) have been restructured; (3) have been granted a hardship forbearance or more than 6 months of administrative forbearance; or (4) have a borrower or cosigner who has filed for bankruptcy. At December 31, 2014, we held approximately $117 million of Split Loans.

During the year ended December 31, 2014, the Bank separately sold loans to the Purchasers in the amount of $804,733 in principal and $5,683 in accrued interest income. During the years ended December 31, 2013 and 2012, the Bank sold loans to the Purchasers in the amount of $2,415,846 and $2,640,245 , respectively, in principal and $67,018 and $77,685 , respectively, in accrued interest income.

The gain resulting from loans sold was $35,848 , $196,593 and $235,202 in the years ended December 31, 2014, 2013 and 2012, respectively. Total write-downs to fair value for loans sold with a fair value lower than par totaled $53,484 , $68,410 and $28,694 in the years ended December 31, 2014, 2013 and 2012, respectively. Navient is the servicer for all of these loans.





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Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Sensitivity Analysis
Our interest rate risk management program seeks to manage and control interest rate risk, thereby reducing our exposure to fluctuations in interest rates and achieving consistent and acceptable levels of profit in any rate environment, and sustainable growth in net interest income over the long term. We evaluate and monitor interest rate risk through two primary methods:
• Earnings at Risk (“EAR”), which measures the impact of hypothetical changes in interest rates on net interest income; and
• Economic Value of Equity (“EVE”), which measures the sensitivity or change in the economic value of equity to changes in interest rates.
A number of potential interest rate scenarios are simulated using our asset liability management system. The Bank is the primary source of interest rate risk within the Company. The majority of the Bank’s assets are priced off of 1-month LIBOR. Therefore, 1-month LIBOR is considered the core rate in our interest rate risk analysis with other interest rate changes correlated to this rate through a detailed statistical analysis. In addition, each rate is modeled with a floor which indicates how low each specific rate is likely to move in practice. Rates are adjusted up or down via a set of scenarios that includes both shocks and ramps. Shocks represent an immediate and sustained change in 1-month LIBOR plus the resulting changes in other indexes correlated accordingly. Ramps represent a linear increase in 1-month LIBOR over the course of 12 months plus the resulting changes in other indexes correlated accordingly.
The following tables summarize the potential effect on earnings over the next 24 months and the potential effect on fair values of balance sheet assets and liabilities at December 31, 2014 and 2013, based upon a sensitivity analysis performed by management assuming a hypothetical increase in market interest rates of 100 basis points and 300 basis points while funding spreads remain constant. The EVE sensitivity is applied only to financial assets and liabilities, including hedging instruments that existed at the balance sheet date, and does not take into account new assets, liabilities or hedging instruments that may arise in 2015.

 
December 31,
 
2014
 
2013
 
+300 Basis
Points
 
+100 Basis
Points
 
+300 Basis
Points
 
+100 Basis
Points
 
 
 
 
 
 
 
 
 
 
 
 
EAR - Shock
+7.6
%
 
+2.4
%
 
+12.9
%
 
+4.2
%
EAR - Ramp
+5.9
%
 
+1.8
%
 
+10.0
%
 
+3.0
%
EVE
-2.7
%
 
-1.5
%
 
-0.4
%
 
+0.1
%

A primary objective in our funding is to minimize our sensitivity to changing interest rates by generally funding our assets with liabilities of similar interest rate repricing characteristics. This funding objective is frequently obtained through the use of derivatives. Uncertainty in loan repayment cash flows and the pricing behavior of our non-maturity retail deposits pose challenges in achieving our interest rate risk objectives. In addition to these considerations, we can have a mismatch in the index (including the frequency of reset) of floating rate debt versus floating rate assets.
As part of its suite of financial products, the Bank offers fixed-rate Private Student Loans. As with other Private Student Loans, the term to maturity is lengthy, and the customer has the option to repay the loan faster than the promissory note requires. A portion of the fixed-rate loans have been hedged with derivatives, which have been used to convert a portion of variable rate funding to fixed-rate to match the anticipated cash flows of these loans. Any unhedged position arising from the fixed-rate loan portfolio is monitored and modeled to ensure that the interest rate risk does not cause the organization to exceed its policy limits for earnings at risk or for the value of equity at risk.
In the preceding tables the interest rate sensitivity analysis reflects the heavy balance sheet mix of fully variable LIBOR-based loans which exceeds the mix of fully variable funding, which includes brokered CDs which have been converted to

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LIBOR through derivative transactions. The analysis does not anticipate that retail MMDA or retail savings balances, while relatively sensitive to interest rate changes, will reprice to the full extent of interest rate shocks or ramps. Partially offsetting this asset sensitive position, is (i) the impact of FFELP loans which receive Floor Income in low interest rate environments, and will therefore not reprice fully with interest rate shocks and (ii) the impact of a portion of our fixed-rate loans which have not been fully match-funded through derivative transactions. The overall asset-sensitive position will generally cause net interest income to increase when interest rates rise.    
Although we believe that these measurements provide an estimate of our interest rate sensitivity, they do not account for potential changes in credit quality and size of our balance sheet. They also do not account for other business developments that could affect net income, or for management actions that could affect net income or that could be taken to change our risk profile. Accordingly, we can give no assurance that actual results would not differ materially from the estimated outcomes of our simulations. Further, such simulations do not represent our current view of expected future interest rate movements.
Asset and Liability Funding Gap
The tables below present our assets and liabilities (funding) arranged by underlying indices as of December 31, 2014. In the following GAAP presentation, the funding gap only includes derivatives that qualify as effective hedges (those derivatives which are reflected in net interest margin, as opposed to those reflected in the “gains (losses) on derivatives and hedging activities, net” line on the consolidated statements of income). The difference between the asset and the funding is the funding gap for the specified index. This represents our exposure to interest rate risk in the form of basis risk and repricing risk, which is the risk that the different indices may reset at different frequencies or may not move in the same direction or at the same magnitude. (Note that all fixed-rate assets and liabilities are aggregated into one line item, which does not capture the differences in time due to maturity.)
   
(Dollars in billions)
Index
 
Frequency of
Variable
Resets
 
Assets
 
Funding  (1)
 
Funding
Gap
3-month Treasury bill
 
weekly
 
$
0.2

 
 
$
—

 
 
$
0.2

 
3-month LIBOR
 
quarterly
 
—
 
 
 
0.4
 
 
 
(0.4
)
 
1-month LIBOR
 
monthly
 
6.9
 
 
 
3.8
 
 
 
3.1
 
 
1-month LIBOR
 
weekly
 
—
 
 
 
0.6
 
 
 
(0.6
)
 
1-month LIBOR
 
daily
 
1.1
 
 
 
—
 
 
 
1.1
 
 
Non-Discrete reset (2)
 
daily/weekly
 
2.4
 
 
 
2.8
 
 
 
(0.4
)
 
Fixed-Rate (3)
 
 
 
2.4
 
 
 
5.4
 
 
 
(3.0
)
 
Total
 
 
 
$
13.0

 
 
$
13.0

 
 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)  
Funding (by index) includes all derivatives that qualify as hedges.
(2)  
Assets include restricted and unrestricted cash equivalents and other overnight type instruments. Funding includes
liquid retail deposits and the obligation to return cash collateral held related to derivatives exposures.
(3)  
Assets include receivables and other assets (including premiums and reserves). Funding includes unswapped time deposits, liquid MMDA's swapped to fixed-rates and stockholders' equity.
The “Funding Gap” in the above table shows primarily mismatches in the 1-month LIBOR assets with fixed-rate and Non-Discrete funding. We consider the risk to be moderate since the funding in the Non-Discrete bucket is our liquid retail portfolio which we have significant flexibility to reprice at any time, and the funding in the fixed bucket includes $1.4 billion of equity and $0.6 billion of non interest bearing liabilities.
We use interest rate swaps and other derivatives to achieve our risk management objectives. Our asset liability management strategy is to match assets with debt (in combination with derivatives) that have the same underlying index and reset frequency or have interest rate characteristics that we believe are highly correlated. The use of funding with index types and reset frequencies that are different from our assets exposes us to interest rate risk in the form of basis and repricing risk. This could result in our cost of funds not moving in the same direction or with the same magnitude as the yield on our assets. While we believe this risk is low, as all of these indices, are short-term with rate movements that are highly correlated over a

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long period of time, market disruptions (which have occurred in recent years) can lead to a temporary divergence between indices resulting in a negative impact to our earnings.
Weighted Average Life
The following table reflects the weighted average life of our earning assets and liabilities at December 31, 2014.

 
Weighted
 
Average
(Averages in Years)
Life
Earning assets
 
 
Student loans
6.2

 
Cash and investments
0.4

 
Total earning assets
5.0

 
 
 
 
Deposits
 
 
Short-term deposits
0.1

 
Long-term deposits
3.3

 
Total deposits
1.2

 

Item 8. Financial Statements and Supplementary Data

Reference is made to the financial statements listed under the heading “(a) 1.A. Financial Statements” of Item 15 hereof, which financial statements are incorporated by reference in response to this Item 8.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Nothing to report.

Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2014. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of December 31, 2014, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (b) accumulated and communicated to our management, including our principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we assessed the effectiveness of our internal control over financial reporting as of December 31, 2014. In making this assessment, our management used the criteria established in Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our assessment and those criteria, management concluded that, as of December 31, 2014, our internal control over financial reporting is effective.
KPMG LLP, an independent registered public accounting firm, audited the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014, as stated in their report, which appears below.

73

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control over Financial Reporting
Before the Spin-Off, the Company relied on the controls and resources of pre-Spin-Off SLM for internal control over financial reporting. In conjunction with the Spin-Off, several areas of internal control over financial reporting have changed. We have implemented our own financial, information technology, administrative, and other support systems as well as new corporate oversight functions, primarily through the retention of pre-Spin-Off SLM personnel, policies and procedures within the Company and giving consideration to the significantly smaller size of the Company post-Spin-Off.
Other than those noted above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended December 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Adoption of COSO 2013
On May 14, 2013, COSO released its revisions and updates to the 1992 document Internal Control - Integrated Framework. COSO’s goal in updating the framework was to increase its relevance in the increasingly complex and global business environment so that organizations can better design, implement, and assess internal control.
Given the significant amount of effort required in 2014 to accomplish the Spin-Off, we decided to delay the implementation of COSO 2013 until 2015. We believe this decision was prudent given the level of effort required to implement the new framework during a period of significant change at the Company.
    
Item 9B. Other Information
Nothing to report.


74




PART III.
Item 10. Directors, Executive Officers and Corporate Governance

The information contained in the 2015 Proxy Statement, including information appearing in the sections titled “Proposal 1 — Election of Directors,” “Executive Officers,” “Other Matters — Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance” in the 2015 Proxy Statement, is incorporated herein by reference.

Item 11. Executive Compensation

The information contained in the 2015 Proxy Statement, including information appearing in the sections titled “Executive Compensation” and “Director Compensation” in the 2015 Proxy Statement, is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information contained in the 2015 Proxy Statement, including information appearing in the sections titled “Equity Compensation Plan Information,” “Ownership of Common Stock” and “Ownership of Common Stock by Directors and Executive Officers” in the 2015 Proxy Statement, is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information contained in the 2015 Proxy Statement, including information appearing under “Other Matters — Certain Relationships and Transactions” and “Corporate Governance” in the 2015 Proxy Statement, is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services

The information contained in the 2015 Proxy Statement, including information appearing under “Independent Registered Public Accounting Firm” in the 2015 Proxy Statement, is incorporated herein by reference.


75


PART IV.
Item 15. Exhibits, Financial Statement Schedules

(a) 1. Financial Statements
A. The following consolidated financial statements of SLM Corporation and the Report of the Independent Registered Public Accounting Firm thereon are included in Item 8 above:
 
 
 
Report of Independent Registered Public Accounting Firm
 
F-2
Report of Independent Registered Public Accounting Firm
 
F-3
Consolidated Balance Sheets as of December 31, 2014 and 2013
 
F-4
Consolidated Statements of Income for the years ended December 31, 2014, 2013 and 2012
 
F-5
Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2013
and 2012
 
F-6
Consolidated Statements of Changes in Equity for the years ended December 31, 2014, 2013 and 2012
 
F-7
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012
 
F-9
Notes to Consolidated Financial Statements
 
F-11


2. Financial Statement Schedules
All schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.

3. Exhibits
The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Annual Report on Form 10-K.
We will furnish at cost a copy of any exhibit filed with or incorporated by reference into this Annual Report on Form 10-K. Oral or written requests for copies of any exhibits should be directed to the Corporate Secretary.

76

(b)  Exhibits

 
 
    3.1*
Restated Certificate of Incorporation of the Company, dated February 25, 2015.
 
 
    3.2
Amended and Restated By-Laws of the Company effective September 27, 2014 (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed on October 22, 2014).
 
 
 
 
  10.14†
Retainer Agreement between Anthony P. Terracciano and the Company, dated January 7, 2008 (incorporated by reference to Exhibit 10.30 of the Company’s Quarterly Report on Form 10-Q filed on May 9, 2008).
 
 
  10.2†
Amendment to Retainer Agreement Anthony Terracciano and the Company, dated December 24, 2009 (incorporated by reference to Exhibit 10.37 of the Company’s Annual Report on Form 10-K filed on February 26, 2010).
 
 
  10.3†
Second Amendment to Retainer Agreement between Anthony P. Terracciano and the Company, dated September 23, 2010 (incorporated by reference to Exhibit 10.44 of the Company’s Annual Report on Form 10-K filed on February 28, 2011).
 
 
  10.4†
Employment Agreement between John F. Remondi and the Company (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on August 7, 2008).
 
 
  10.5†
Employment Agreement between Joseph DePaulo and the Company (incorporated by reference to Exhibit 10.6 of the Company’s Quarterly Report on Form 10-Q filed on May 6, 2010).
 
 
  10.6†
Form of SLM Corporation Executive Severance Plan for Senior Officers (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on November 4, 2011).
 
 
  10.7†
Form of SLM Corporation Change in Control Severance Plan for Senior Officers (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q filed on November 4, 2011).
 
 
  10.8†
Form of Director’s Indemnification Agreement (incorporated by reference to Exhibit 10.24 of the Company’s Annual Report on Form 10-K filed on February 27, 2012).
 
 
  10.9†
Sallie Mae Supplemental 401(k) Savings Plan (incorporated by reference to Exhibit 10.26 of the Company’s Annual Report on Form 10-K filed on March 2, 2009).
 
 
  10.10†
Sallie Mae Deferred Compensation Plan for Key Employees Restatement Effective January 1, 2009 (incorporated by reference to Exhibit 10.25 of the Company’s Annual Report on Form 10-K filed on March 2, 2009).
 
 
  10.11†
SLM Corporation Deferred Compensation Plan for Directors (incorporated by reference to Exhibit 10.30 of the Company’s Annual Report on Form 10-K filed on February 27, 2012).
 
 
  10.12†
Amended and Restated SLM Corporation Incentive Plan (incorporated by reference to Exhibit 10.24 of the Company’s Current Report on Form 8-K (file no. 001-13251) filed on May 25, 2005).
 
 
  10.13†
Director’s Stock Plan (incorporated by reference to Exhibit 10.25 of the Company’s Current Report on Form 8-K (file no. 001-13251) filed on May 25, 2005).
 
 
  10.14†
Form of SLM Corporation Incentive Stock Plan Stock Option Agreement, Net-Settled, Performance Vested Options, 2009 (incorporated by reference to Exhibit 10.32 of the Company’s Annual Report on Form 10-K filed on March 2, 2009).
 
 
  10.15†
SLM Corporation Directors Equity Plan (incorporated by reference to Exhibit 10.1 of the Company’s Registration Statement on Form S-8 (File No. 333-159447) filed on May 22, 2009).
 
 
  10.16†
SLM Corporation 2009-2012 Incentive Plan (incorporated by reference to Exhibit 10.2 of the Company’s Registration Statement on Form S-8 (File No. 333-159447) filed on May 22, 2009).
 
 
  10.17†
Form of SLM Corporation Directors Equity Plan Non-Employee Director Stock Option Agreement - 2009 (incorporated by reference to Exhibit 10.6 of the Company’s Quarterly Report on Form 10-Q filed on November 5, 2009).
 
 
  10.18†
Form of SLM Corporation 2009-2012 Incentive Plan Stock Option Agreement, Net Settled, Time Vested Options - 2010 (incorporated by reference to Exhibit 10. 7 of the Company’s Quarterly Report on Form 10-Q filed on May 6, 2010).
 
 
  10.19†
Form of SLM Corporation 2009-2012 Incentive Plan Performance Stock Award Term Sheet, Time Vested - 2010 (incorporated by reference to Exhibit 10.8 of the Company’s Quarterly Report on Form 10-Q filed on May 6, 2010).
 
 
  10.20†
Amendment to Stock Option and Restricted/Performance Stock Terms (incorporated by reference to Exhibit 10.49 of the Company’s Annual Report on Form 10-K filed on February 28, 2011).
 
 

77

  10.21†
Form of SLM Corporation 2009-2012 Incentive Plan Stock Option Agreement, Net Settled, Time Vested Options - 2011 (incorporated by reference to Exhibit 10.50 of the Company’s Annual Report on Form 10-K filed on February 28, 2011).
 
 
  10.22†
Form of SLM Corporation 2009-2012 Incentive Plan Restricted Stock and Restricted Stock Unit Term Sheet, Time Vested - 2011 (incorporated by reference to Exhibit 10.51 of the Company’s Annual Report on Form 10-K filed on February 28, 2011).
 
 
  10.23†
Form of SLM Corporation 2009-2012 Incentive Plan, Performance Stock Unit Term Sheet - 2012 (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on May 4, 2012).
 
 
  10.24†
Form of SLM Corporation 2009-2012 Incentive Plan, Bonus Restricted Stock Unit Term Sheet - 2012 (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q filed on May 4, 2012).
 
 
  10.25†
Form of SLM Corporation 2009-2012 Incentive Plan, Stock Option Agreement, Net Settled Options - 2012 (incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed on May 4, 2012).
 
 
  10.26†
SLM Corporation 2012 Omnibus Incentive Plan (incorporated by reference to Appendix A of the Company’s Definitive Proxy Statement for the 2012 Annual Meeting of Shareholders filed on April 13, 2012).
 
 
  10.27†
Amended and Restated Sallie Mae Employee Stock Purchase Plan (incorporated by reference to Appendix B of the Company’s Definitive Proxy Statement for the 2012 Annual Meeting of Shareholders filed on April 13, 2012).
 
 
  10.28†
Form of SLM Corporation 2012 Omnibus Incentive Plan, Performance Stock Unit Term Sheet - 2013 (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on May 3, 2013).
 
 
  10.29†
Form of SLM Corporation 2012 Omnibus Incentive Plan, Bonus Restricted Stock Unit Term Sheet - 2013 (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q filed on May 3, 2013).
 
 
  10.30†
Form of SLM Corporation 2012 Omnibus Incentive Plan, Stock Option Agreement, Net Settled Options-2013 (incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed on May 3, 2013).
 
 
  10.31†
Form of SLM Corporation 2012 Omnibus Incentive Plan, Independent Director Restricted Stock Agreement - 2013 (incorporated by reference to Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q filed on May 3, 2013).
 
 
  10.32†
Form of SLM Corporation 2012 Omnibus Incentive Plan, Independent Director Stock Option Agreement - 2013 (incorporated by reference to Exhibit 10.5 of the Company’s Quarterly Report on Form 10-Q filed on May 3, 2013).
 
 
  10.33†
Form of SLM Corporation 2012 Omnibus Incentive Plan, Restricted Stock Unit Term Sheet - 2013 (incorporated by reference to Exhibit 10.36 of the Company’s Annual Report on Form 10-K filed on February 19, 2014).
 
 
  10.34†
Letter Agreement, dated January 15, 2014 with Raymond J. Quinlan (incorporated by reference to Exhibit 10.38 of the Company’s Annual Report on Form 10-K filed on February 19, 2014).
 
 
  10.35†
SLM Corporation 2012 Omnibus Incentive Plan, Restricted Stock Unit Term Sheet - Raymond J. Quinlan Signing Award (incorporated by reference to Exhibit 10.39 of the Company’s Annual Report on Form 10-K filed on February 19, 2014).
 
 
  10.36†
Form of SLM Corporation 2012 Omnibus Incentive Plan, Bonus Restricted Stock Unit Term Sheet - 2014 (incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed on May 12, 2014).
 
 
  10.37†
Form of SLM Corporation 2012 Omnibus Incentive Plan, Restricted Stock Unit Term Sheet - 2014 (incorporated by reference to Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q filed on May 12, 2014).
 
 
  10.38†
Employment Agreement, dated April 21, 2014 between Laurent C. Lutz and the Company (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on July 24, 2014).
 
 
  10.39†
Sallie Mae Employee Stock Purchase Plan, Amended and Restated as of June 25, 2014 (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q filed on July 24, 2014).
 
 
  10.40†
Form of SLM Corporation 2012 Omnibus Incentive Plan, Independent Director Restricted Stock Agreement (incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed on July 24, 2014).
 
 
  10.41†*
Letter Agreement, dated April 24, 2014, with Jeffrey Dale.
 
 
  10.42†*
SLM Corporation Deferred Compensation Plan for Key Employees (as Established Effective May 1, 2014).
 
 
  10.43†*
SLM Corporation Deferred Compensation Plan for Directors (as Established Effective May, 2014).
 
 
  10.44†*
Sallie Mae 401(k) Savings Plan (Effective as of April 30, 2014).
 
 
  10.45†*
Amendment to the Sallie Mae 401(k) Savings Plan, dated December 21, 2014.
 
 
  10.46†*
Sallie Mae Supplemental 401(k) Savings Plan, Amended and Restated as of May 1, 2014.
 
 

78

  12.1*
Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.
 
 
  21.1*
List of Subsidiaries.
 
 
  23.1*
Consent of KPMG LLP
 
 
  31.1*
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2003.
 
 
  31.2*
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2003.
 
 
  32.1*
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2003.
 
 
  32.2*
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2003.
 
 
101.INS
XBRL Instance Document.
 
 
101.SCH
XBRL Taxonomy Extension Schema Document.
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
 
 
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
 
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.

†  
Management Contract or Compensatory Plan or Arrangement
*  
Filed herewith
 



79


SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: February 26, 2015
SLM CORPORATION
 
 
By:
/ S / RAYMOND J. QUINLAN
 
Raymond J. Quinlan
Executive Chairman and Chief Executive Officer

80

Pursuant to the requirement of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
 
 
 
/S/ RAYMOND J. QUINLAN
 
 
Raymond J. Quinlan
Executive Chairman and Chief Executive Officer (Principal Executive Officer)
February 26, 2015
 
 
 
/S/ STEVEN J. MCGARRY
 
 
Steven J. McGarry
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
February 26, 2015
 
 
 
/S/ JONATHAN R. BOYLES
 
 
Jonathan R. Boyles
Senior Vice President and Controller (Principal Accounting Officer)
February 26, 2015
/S/ PAUL G. CHILD
 
 
Paul G. Child
Director
February 26, 2015
 
 
 
/S/ MARY CARTER WARREN FRANKE
 
 
Mary Carter Warren Franke
Director
February 26, 2015
 
 
 
/S/ EARL A. GOODE
 
 
Earl A. Goode
Director
February 26, 2015
 
 
 
/S/ RONALD F. HUNT
 
 
Ronald F. Hunt
Director
February 26, 2015
 
 
 
/S/ MARIANNE M. KELER
 
 

Marianne M. Keler
Director
February 26, 2015
 
 
 
/S/ JED H. PITCHER
 
 
Jed H. Pitcher
Director
February 26, 2015
 
 
 
/S/ FRANK C. PULEO
 
 
Frank C. Puleo
Director
February 26, 2015
 
 
 
/S/ WILLIAM N. SHIEBLER
 
 
William N. Shiebler
Director
February 26, 2015
 
 
 
/S/ ROBERT S. STRONG
 
 
Robert S. Strong
Director
February 26, 2015


81




CONSOLIDATED FINANCIAL STATEMENTS
INDEX
 
 
Page
F-2
Report of Independent Registered Public Accounting Firm
F-3
F-4
F-5
F-6
F-7
F-9
F-11


F-1


Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
SLM Corporation:
We have audited SLM Corporation’s (the Company) internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the SLM Corporation and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2014, and our report dated February 26, 2015 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP
McLean, Virginia
February 26, 2015

F-2


Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
SLM Corporation:
We have audited the accompanying consolidated balance sheets of SLM Corporation and subsidiaries (the Company) as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the years in the three‑year period ended December 31, 2014. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2014 and 2013, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), SLM Corporation’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 26, 2015 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.





/s/ KPMG LLP
McLean, Virginia
February 26, 2015





F-3


SLM CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
 
 
 
December 31,
 
 
2014
 
2013
Assets
 
 
 
 
Cash and cash equivalents
 
$
2,359,780

 
$
2,182,865

Available-for-sale investments at fair value (cost of $167,740 and $106,977, respectively)
 
168,934

 
102,105

Loans held for investment (net of allowance for losses of $83,842 and $68,081, respectively)
 
9,509,786

 
7,931,377

Other interest-earning assets
 
77,283

 
4,355

Accrued interest receivable
 
469,697

 
356,283

Premises and equipment, net
 
78,470

 
74,188

Acquired intangible assets, net
 
3,225

 
6,515

Tax indemnification receivable
 
240,311

 
—

Other assets
 
64,757

 
48,976

Total assets
 
$
12,972,243

 
$
10,706,664

 
 
 
 
 
Liabilities
 
 
 
 
Deposits
 
$
10,540,555

 
$
9,001,550

Income taxes payable, net
 
191,499

 
162,205

Upromise related liabilities
 
293,004

 
307,518

Other liabilities
 
117,227

 
69,248

Total liabilities
 
11,142,285

 
9,540,521

Commitments and contingencies
 

 

Equity
 
 
 
 
Preferred stock, par value $0.20 per share, 20 million shares authorized
 
 
 
 
Series A: 3.3 million and 0 shares issued, respectively, at stated value of $50 per share
 
165,000

 
—

Series B: 4 million and 0 shares issued, respectively, at stated value of $100 per share
 
400,000

 
—

Common stock, par value $0.20 per share, 1.125 billion shares authorized: 425 million and 0 shares, issued, respectively
 
84,961

 
—

Additional paid-in capital
 
1,090,511

 
—

Navient's subsidiary investment
 
—

 
1,164,495

Accumulated other comprehensive loss (net of tax benefit $(7,186) and $(1,849), respectively)
 
(11,393
)
 
(3,024
)
Retained earnings
 
113,066

 
—

Total SLM Corporation's stockholders' equity before treasury stock
 
1,842,145

 
1,161,471

Less: Common stock held in treasury at cost: 1 million and 0 shares, respectively
 
(12,187
)
 
—

Total SLM Corporation stockholders' equity
 
1,829,958

 
1,161,471

Noncontrolling interest
 
—

 
4,672

Total equity
 
1,829,958

 
1,166,143

Total liabilities and equity
 
$
12,972,243

 
$
10,706,664


See accompanying notes to consolidated financial statements.

F-4


SLM CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
 
 
 
Years Ended December 31,
 
 
2014
 
2013
 
2012
Interest income:
 
 
 
 
 
 
Loans
 
$
660,792

 
$
527,257

 
$
462,642

Investments
 
8,913

 
20,090

 
26,340

Cash and cash equivalents
 
4,589

 
3,853

 
2,299

Total interest income
 
674,294

 
551,200

 
491,281

Interest expense:
 
 
 
 
 
 
Deposits
 
95,774

 
88,019

 
82,173

Other interest expense
 
41

 
1,066

 
739

Total interest expense
 
95,815

 
89,085

 
82,912

Net interest income
 
578,479

 
462,115

 
408,369

Less: provisions for loan losses
 
85,529

 
69,339

 
66,116

Net interest income after provisions for loan losses
 
492,950

 
392,776

 
342,253

Noninterest income:
 
 
 
 
 
 
Gains on sales of loans, net
 
121,359

 
196,593

 
235,202

Gains on sales of securities
 
—

 
63,813

 
129

(Losses) gains on derivatives and hedging activities, net
 
(3,996
)
 
640

 
(5,461
)
Other
 
39,921

 
37,222

 
36,641

Total noninterest income
 
157,284

 
298,268

 
266,511

Expenses:
 
 
 
 
 
 
Compensation and benefits
 
129,709

 
106,799

 
109,575

Other operating expenses
 
145,172

 
163,675

 
144,195

Total operating expenses
 
274,881

 
270,474

 
253,770

Acquired intangible asset impairment and amortization expense
 
3,290

 
3,317

 
13,125

Restructuring and other reorganization expenses
 
38,311

 
726

 
—

Total expenses
 
316,482

 
274,517

 
266,895

Income before income tax expense
 
333,752

 
416,527

 
341,869

Income tax expense
 
139,967

 
158,934

 
126,143

Net income
 
193,785

 
257,593

 
215,726

Less: net loss attributable to noncontrolling interest
 
(434
)
 
(1,352
)
 
(1,894
)
Net income attributable to SLM Corporation
 
194,219

 
258,945

 
217,620

Preferred stock dividends
 
12,933

 
—

 
—

Net income attributable to SLM Corporation common stock
 
$
181,286

 
$
258,945

 
$
217,620

Basic earnings per common share attributable to SLM Corporation
 
$
0.43

 
$
0.59

 
$
0.46

Average common shares outstanding
 
423,970

 
440,108

 
476,118

Diluted earnings per common share attributable to SLM Corporation
 
$
0.42

 
$
0.58

 
$
0.45

Average common and common equivalent shares outstanding
 
432,269

 
448,549

 
482,892

See accompanying notes to consolidated financial statements.

F-5


SLM CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
 
 
 
Years Ended December 31,  
 
 
2014
 
2013
 
2012
Net income
 
$
193,785

 
$
257,593

 
$
215,726

Other comprehensive income (loss):
 
 
 
 
 
 
Unrealized gains (losses) on investments:
 
 
 
 
 
 
Unrealized gain on investments
 
6,066

 
35,802

 
22,264

Reclassification adjustments for (gain) on sale of available-for-sale securities included in other income
 
—

 
(63,813
)
 
(129
)
Total unrealized gains (losses) on investments
 
6,066

 
(28,011
)
 
22,135

Unrealized losses on cash flow hedges
 
(19,772
)
 
—

 
—

Total unrealized gains (losses)
 
(13,706
)
 
(28,011
)
 
22,135

Income tax benefit (expense)
 
5,337

 
10,639

 
(8,409
)
Other comprehensive income (loss), net of tax benefit (expense)
 
(8,369
)
 
(17,372
)
 
13,726

Comprehensive income
 
185,416

 
240,221

 
229,452

Less: comprehensive loss attributable to noncontrolling interest
 
(434
)
 
(1,352
)
 
(1,894
)
Total comprehensive income attributable to SLM Corporation
 
$
185,850

 
$
241,573

 
$
231,346


















See accompanying notes to consolidated financial statements.

F-6


SLM CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands)


 
 
Navient's Subsidiary Investment
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total SLM Corporation Equity
 
Non-controlling Interest
 
Total Equity
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2011
 
$
1,235,318

 
$
622

 
$
1,235,940

 
$
7,918

 
$
1,243,858

Net income (loss)
 
217,620

 
—

 
217,620

 
(1,894
)
 
215,726

Other comprehensive income, net of tax
 
—

 
13,726

 
13,726

 
—

 
13,726

Total comprehensive income (loss)
 

 

 
231,346

 
(1,894
)
 
229,452

 
 
 
 
 
 
 
 
 
 
 
Net transfers to affiliate
 
(384,010
)
 
—

 
(384,010
)
 
—

 
(384,010
)
Balance at December 31, 2012
 
$
1,068,928

 
$
14,348

 
$
1,083,276

 
$
6,024

 
$
1,089,300

 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2012
 
$
1,068,928

 
$
14,348

 
$
1,083,276

 
$
6,024

 
$
1,089,300

Net income (loss)
 
258,945

 
—

 
258,945

 
(1,352
)
 
257,593

Other comprehensive loss, net of tax
 
—

 
(17,372
)
 
(17,372
)
 
—

 
(17,372
)
Total comprehensive income (loss)
 

 

 
241,573

 
(1,352
)
 
240,221

 
 
 
 
 
 
 
 
 
 
 
Net transfers to affiliate
 
(163,378
)
 
—

 
(163,378
)
 
—

 
(163,378
)
Balance at December 31, 2013
 
$
1,164,495

 
$
(3,024
)
 
$
1,161,471

 
$
4,672

 
$
1,166,143


 
 









See accompanying notes to consolidated financial statements.

F-7


SLM CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share and per share amounts)  
 
 
 
 
Common Stock Shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock Shares
 
Issued
 
Treasury
 
Outstanding
 
Preferred Stock
 
Common Stock
 
Additional Paid-In Capital
 
Navient's Subsidiary Investment
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained Earnings
 
Treasury Stock
 
Total SLM Corporation Equity
 
Non-controlling interest
 
Total Equity
Balance at December 31, 2013
 
—

 
—

 
—

 
—

 
$
—

 
$
—

 
$
—

 
$
1,164,495

 
$
(3,024
)
 
$
—

 
$
—

 
$
1,161,471

 
$
4,672

 
$
1,166,143

Net income (loss)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
68,173

 
—

 
126,046

 
—

 
194,219

 
(434
)
 
193,785

Other comprehensive loss, net of tax
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(8,369
)
 
—

 
—

 
(8,369
)
 
—

 
(8,369
)
Total comprehensive income (loss)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
185,850

 
(434
)
 
185,416

Net transfers from affiliate
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
479,409

 
—

 
—

 
—

 
479,409

 
—

 
479,409

Separation adjustments related to Spin-Off of Navient Corporation
 
7,300,000

 
422,790,320

 
—

 
422,790,320

 
565,000

 
84,558

 
1,062,519

 
(1,712,077
)
 
—

 
—

 
—

 
—

 
—

 
—

Sale of non-controlling interest
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(4,238
)
 
(4,238
)
Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock, series A ($2.61 per share)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(7,667
)
 
—

 
(7,667
)
 
—

 
(7,667
)
Preferred Stock, series B  ($1.47 per share)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(5,266
)
 
—

 
(5,266
)
 
—

 
(5,266
)
Dividend equivalent units related to employee stock-based compensation plans
 
—

 
—

 
—

 
—

 
—

 
—

 
47

 
—

 
—

 
(47
)
 
 
 
—

 
—

 
—

Issuance of common shares
 
—

 
2,013,805

 
—

 
2,013,805

 
—

 
403

 
8,280

 
—

 
—

 
—

 
—

 
8,683

 
—

 
8,683

Tax benefit related to employee stock-based compensation
 
—

 
—

 
—

 
—

 
—

 
—

 
3,271

 
—

 
—

 
—

 
—

 
3,271

 
—

 
3,271

Stock-based compensation expense
 
—

 
—

 
—

 
—

 
—

 
—

 
16,394

 
—

 
—

 
—

 
—

 
16,394

 
—

 
16,394

Shares repurchased related to employee stock-based compensation plans
 
—

 
—

 
(1,365,277
)
 
(1,365,277
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(12,187
)
 
(12,187
)
 
—

 
(12,187
)
Balance at December 31, 2014
 
7,300,000

 
424,804,125

 
(1,365,277
)
 
423,438,848

 
$
565,000

 
$
84,961

 
$
1,090,511

 
$
—

 
$
(11,393
)
 
$
113,066

 
$
(12,187
)
 
$
1,829,958

 
$
—

 
$
1,829,958



See accompanying notes to consolidated financial statements.

F-8


SLM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

 
 
Years Ended December 31,
 
 
2014
 
2013
 
2012
Operating activities
 
 
 
 
 
 
Net income
 
$
193,785

 
$
257,593

 
$
215,726

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
 
 
 
 
 
 
Provisions for loan losses
 
85,529

 
69,339

 
66,116

Valuation allowance on loans held for sale
 
—

 
—

 
275

Deferred tax (benefit) provision
 
(40,888
)
 
14,567

 
(11,015
)
Amortization of FDIC fees
 
—

 
1,046

 
3,897

Amortization of brokered deposit placement fee
 
10,164

 
9,754

 
8,416

Amortization of deferred loan origination costs and fees, net
 
1,995

 
2,199

 
5,337

Net accretion of discount on investments
 
633

 
(7,187
)
 
(10,058
)
Depreciation of premises and equipment
 
6,099

 
5,059

 
6,837

Amortization and impairment of acquired intangibles
 
3,290

 
3,317

 
13,125

Stock-based compensation expense
 
24,971

 
15,681

 
19,102

Interest rate swap
 
1,214

 
(324
)
 
5,411

Gains on sales of loans held for sale
 
—

 
—

 
(167
)
Gains on sale of securities
 
—

 
(63,813
)
 
(129
)
Gains on sale of loans, net
 
(121,359
)
 
(196,593
)
 
(235,202
)
Changes in operating assets and liabilities:
 
 
 
 
 
 
Net decrease in loans held for sale
 
6,519

 
3,628

 
61,275

Origination of loans held for sale
 
(6,519
)
 
(3,628
)
 
(61,275
)
Increase in accrued interest receivable
 
(331,014
)
 
(281,856
)
 
(168,146
)
(Increase) decrease in other interest-earning assets
 
(72,928
)
 
97

 
158

Decrease in tax indemnification receivable
 
38,820

 
—

 
—

Increase in other assets
 
(24,959
)
 
(2,357
)
 
(7,008
)
(Decrease) increase in income tax payable
 
(221,222
)
 
56,784

 
88,803

Increase in accrued interest payable
 
2,985

 
239

 
2,095

Increase in payable due to entity that is a subsidiary of Navient
 
8,764

 
147,379

 
96,591

(Decrease) increase in other liabilities
 
(2,652
)
 
39,096

 
(614
)
Total adjustments
 
(630,558
)
 
(187,573
)
 
(116,176
)
Total net cash (used in) provided by operating activities
 
(436,773
)
 
70,020

 
99,550

Investing activities
 
 
 
 
 
 
Student loans acquired and originated
 
(4,094,790
)
 
(4,387,093
)
 
(4,251,595
)
Net proceeds from sales of student loans held for investment
 
2,001,625

 
2,546,940

 
2,789,822

Proceeds from claim payments
 
127,869

 
82,615

 
4,219

Net decrease in loans held for investment
 
638,321

 
490,791

 
460,216

Purchases of available-for-sale securities
 
(72,049
)
 
(62,097
)
 
(33,053
)
Proceeds from sales and maturities of available-for-sale securities
 
10,653

 
597,728

 
27,017

Total net cash used in investing activities
 
(1,388,371
)
 
(731,116
)
 
(1,003,374
)
Financing activities
 
 
 
 
 
 
Brokered deposit placement fee
 
(15,098
)
 
(12,114
)
 
(16,484
)
Net increase in certificates of deposit
 
340,225

 
535,456

 
395,304

Net increase in other deposits
 
1,207,487

 
1,126,673

 
1,109,886

Net decrease in deposits with entity that is a subsidiary of Navient
 
(5,633
)
 
(126,923
)
 
(12,166
)
Special cash contribution from Navient
 
472,718

 
—

 
—

Net capital contributions from entity that is a subsidiary of Navient
 
12,022

 
(164,471
)
 
(20,419
)
Excess tax benefit from the exercise of stock-based awards
 
3,271

 
6,258

 
891

Preferred stock dividends paid
 
(12,933
)
 
—

 
—


F-9


Dividend paid to entity that is a subsidiary of Navient
 
—

 
(120,000
)
 
(420,000
)
Net cash provided by financing activities
 
2,002,059

 
1,244,879

 
1,037,012

Net increase in cash and cash equivalents
 
176,915

 
583,783

 
133,188

Cash and cash equivalents at beginning of year
 
2,182,865

 
1,599,082

 
1,465,894

Cash and cash equivalents at end of year
 
$
2,359,780

 
$
2,182,865

 
$
1,599,082

Cash disbursements made for:
 
 
 
 
 
 
Interest
 
$
90,329

 
$
76,901

 
$
75,250

Income taxes paid
 
$
401,834

 
$
81,194

 
$
47,378

Income taxes received
 
$
(3,015
)
 
$
—

 
$
—
























See accompanying notes to consolidated financial statements.

F-10


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, unless otherwise noted)
 
 
 


1.
Organization and Business

SLM Corporation (“Sallie Mae,” “SLM,” the “Company,” “we” or “us”) is a holding company that operates through a number of subsidiaries. Its predecessor was formed in 1972 as the Student Loan Marketing Association, a federally chartered government-sponsored enterprise (the “GSE”), with the goal of furthering access to higher education by providing liquidity to the education loan marketplace. On December 29, 2004, we terminated the federal charter, incorporated SLM Corporation as a Delaware corporation, and subsequently dissolved the GSE.

Our primary business is to originate, service and collect loans we make to students and their families to finance the cost of their education. Since July 2010, we have originated only Private Education Loans. We use “Private Education Loans” to mean education loans to students or their families that are non-federal loans and loans not insured or guaranteed under the previously existing Federal Family Education Loan Program (“FFELP”). The core of our marketing strategy is to generate Private Education Loan originations by promoting our products on campus through the financial aid office and through direct marketing to students and their families. Since the beginning of 2006, virtually all of our Private Education Loans have been originated and funded by Sallie Mae Bank (the “Bank”), a Utah industrial bank subsidiary, which is regulated by the Utah Department of Financial Institutions (“UDFI”) and the Federal Deposit Insurance Corporation (“FDIC”). We also operate Upromise, Inc. (“Upromise”), a consumer savings network that provides financial rewards on everyday purchases to help families save for college.

On April 30, 2014, we completed our plan to separate into two distinct publicly traded entities—an education loan management, servicing and asset recovery business, Navient Corporation (“Navient”), and a consumer banking business, SLM Corporation. The separation of Navient from SLM Corporation (the “Spin-Off”) was preceded by an internal corporate reorganization, which was the first step to separate the education loan management, servicing and asset recovery business from the consumer banking business.  As a result of a holding company merger under Section 251(g) of the Delaware General Corporation Law (“DGCL”), which is referred to herein as the “SLM Merger,” all of the shares of then existing SLM Corporation’s common stock were converted, on a 1 -to-1 basis, into shares of common stock of New BLC Corporation, a newly formed company that was a subsidiary of pre-Spin-Off SLM Corporation (“pre-Spin-Off SLM”), and, pursuant to the SLM Merger, New BLC Corporation replaced then existing SLM Corporation as the publicly traded registrant and changed its name to SLM Corporation. As part of the internal corporate reorganization, the assets and liabilities associated with the education loan management, servicing and asset recovery business were transferred to Navient, and those assets and liabilities associated with the consumer banking business remained with or were transferred to the newly constituted SLM Corporation. The separation and distribution were accounted for on a substantially tax-free basis.
    


F-11


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)


2. Significant Accounting Policies

Basis of Presentation
The financial reporting and accounting policies of SLM Corporation conform to generally accepted accounting principles in the United States of America (“GAAP”). In conjunction with the Spin-Off, our consolidated financial statements are comprised of financial information relating to the Bank and Upromise. We use “Private Education Loans” to mean education loans to students or their families that are non-federal loans and loans not insured or guaranteed under the previously existing Federal Family Education Loan Program (“FFELP”). Also included in our financial statements, for periods before the Spin-Off, are certain general corporate overhead expenses allocated to the Company.
The timing and steps necessary to complete the Spin-Off and comply with the Securities and Exchange Commission (“SEC”) reporting requirements, including the replacement of pre-Spin-Off SLM Corporation with our current publicly traded registrant, have resulted in our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on February 19, 2014, and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed with the SEC on May 12, 2014, providing business results and financial information for the periods reported therein on the basis of the consolidated businesses of pre-Spin-Off SLM. While information contained in those prior reports may provide meaningful historical context for our business, the Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 was our first periodic report made on the basis of the post-Spin-Off business.
At the time of the Spin-Off, we had a targeted starting equity balance of $1,710 million . To achieve the targeted equity balance we retained $565 million of preferred stock and approximately $473 million of cash to offset the obligations attributable to the principal of Series A Preferred Stock and the Series B Preferred Stock, which are substantially similar in all respects to pre-Spin-Off SLM's respective series of preferred stock.
For periods before the Spin-Off, these financial statements are presented on a basis of accounting that reflects a change in reporting entity and have been adjusted for the effects of the Spin-Off. These carve-out financial statements and selected financial information represent only those operations, assets, liabilities and equity that form Sallie Mae on a stand-alone basis. Because the Spin-Off occurred on April 30, 2014, these financial statements include the carved out financial results for the first four months of 2014. All prior period amounts represent comparably determined carved-out amounts.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Key accounting policies that include significant judgments and estimates include the valuation of allowance for loan losses, fair value measurements and derivative accounting.
Consolidation
The consolidated financial statements include the accounts of SLM Corporation and its majority-owned and controlled subsidiaries after eliminating the effects of intercompany accounts and transactions.
 Cash and Cash Equivalents
Cash and cash equivalents include cash held in the Federal Reserve Bank of San Francisco (“FRB”) and commercial bank accounts, and other short-term liquid instruments with original maturities of three months or less. Fees associated with investing cash and cash equivalents are amortized into interest income using the effective interest rate method.

F-12


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
2.
Significant Accounting Policies (Continued)
 


Investments
Investments include mortgage-backed securities in 2014, and asset-backed securities and mortgage-backed securities in 2013 and 2012. We record our investment purchases and sales on a trade date basis. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts, which are amortized using the effective interest rate method. We classify all of our investments with readily determinable fair values as trading, available-for-sale or held-to-maturity.
Investments that are not categorized as trading or held-to-maturity are classified as available-for-sale and reported at fair value. Unrealized gains or losses on available-for-sale investments are recorded in equity and are reported as a component of other comprehensive income/(loss), net of applicable income taxes, unless a decline in the investment’s value is considered to be other-than-temporary, in which case the loss is recorded directly to earnings.
Management reviews all investments at least quarterly to determine whether any impairment is other-than-temporary. Impairment is evaluated by considering several factors including the length of time and extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability to retain the investment to allow for an anticipated recovery in fair value. If, based on the analysis, it is determined that the impairment is other-than-temporary, the investment is written down to fair value and a loss is recognized through earnings.
Loans Held for Investment
Loans, consisting of Private Education Loans and FFELP loans, that we have the ability and intent to hold for the foreseeable future are classified as held for investment, and are carried at amortized cost. Amortized cost includes the unamortized premiums, discounts, and capitalized origination costs and fees, all of which are amortized to interest income as discussed under “Loan Interest Income.” Loans which are held for investment are reported net of an allowance for loan losses.
Prior to the Spin-Off, we participated in FFELP rehabilitation loan auctions whereby we bid on portfolios of rehabilitated FFELP loans offered for sale by guarantors. For a loan to be eligible for rehabilitation, the guaranty agency must have received reasonable and affordable payments for 9 out of 10 months, at which time the borrower may request that the loan be rehabilitated. Because monthly payments are usually greater after rehabilitation, not all borrowers request rehabilitation. Upon rehabilitation, a borrower is again eligible for all of the benefits under the Higher Education Act that he or she was not eligible as a borrower on a defaulted loan, such as new federal aid, and the default on the borrower’s credit record is expunged. No student loan may be rehabilitated more than once. We purchased $7,464 and $474,293 of these loans in 2014 and 2013, respectively, at 101.67 percent to 95 percent of par value. These loans are subject to our Allowance for Loan Loss reserve methodology. We no longer intend to purchase any FFELP loans.
Allowance for Loan Losses
We consider a loan to be impaired when, based on current information, a loss has been incurred and it is probable that we will not receive all contractual amounts due. When making our assessment as to whether a loan is impaired, we also take into account more than insignificant delays in payment. We generally evaluate impaired loans on an aggregate basis by grouping similar loans. We maintain an allowance for loan losses at an amount sufficient to absorb probable losses incurred in our portfolios at the reporting date based on a projection of estimated probable credit losses incurred in the portfolio.
We analyze our portfolios to determine the effects that the various stages of delinquency and forbearance have on borrower default behavior and ultimate charge off. We estimate the allowance for loan losses for our loan portfolios using migration analysis of delinquent and current accounts. A migration analyses is a technique used to estimate the likelihood that a loan receivable may progress through the various delinquency stages and ultimately charge off. We also take into account the current and future economic environment and certain other qualitative factors when calculating the allowance for loan losses.
The evaluation of the allowance for loan losses is inherently subjective, as it requires material estimates that may be susceptible to significant changes. Our default estimates are based on a loss confirmation period of one year for Private Education Loans and two years for FFELP Loans. A loss confirmation period represents the expected period between a loss

F-13


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
2.
Significant Accounting Policies (Continued)
 

event and when management considers the debt to be uncollectible, taking into consideration account management practices that affect the timing of a loss, such as the usage of forbearance. The loss confirmation period underlying the allowance for loan losses is subject to a number of assumptions. If actual future performance in delinquency, charge-offs and recoveries are significantly different than estimated, or account management assumptions or practices were to change, this could materially affect the estimate of the allowance for loan losses, the timing of when losses are recognized, and the related provision for loan losses on our consolidated statements of income.
Below we describe in further detail our policies and procedures for the allowance for loan losses as they relate to our Private Education Loan and FFELP Loan portfolios.
Allowance for Private Education Loan Losses
We maintain an allowance for loan losses at an amount sufficient to absorb probable losses incurred in our portfolios at the reporting date based on a projection of estimated probable credit losses incurred in the portfolio.
In determining the allowance for loan losses on our Private Education Loan non-troubled debt restructuring (“TDR”) portfolio, we estimate the principal amount of loans that will default over the next year ( one year being the expected period between a loss event and default) and how much we expect to recover over the same one year period related to the defaulted amount. The expected defaults less our expected recoveries adjusted for any qualitative factors (discussed below) equal the allowance related to this portfolio. Our historical experience indicates that, on average, the time between the date that a customer experiences a default causing event (i.e., the loss trigger event) and the date that we charge off the unrecoverable portion of that loan is one year.
In estimating both the non-TDR and TDR allowance amounts, we start with historical experience of customer delinquency and default behavior. We make judgments about which historical period to start with and then make further judgments about whether that historical experience is representative of future expectations and whether additional adjustments may be needed to those historical default rates. We may also take certain other qualitative factors into consideration when calculating the allowance for loan losses. These qualitative factors include, but are not limited to, changes in the economic environment, changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off and recovery practices not already included in the analysis, and the effect of other external factors such as legal and regulatory requirements on the level of estimated credit losses.
Our non-TDR allowance for loan losses is estimated using an analysis of delinquent and current accounts. Our model is used to estimate the likelihood that a loan receivable may progress through the various delinquency stages and ultimately charge off (“migration analysis”). Once a charge-off forecast is estimated, a recovery assumption is layered on top. In estimating recoveries, we use both estimates of what we would receive from the sale of delinquent loans as well as historical borrower payment behavior to estimate the timing and amount of future recoveries on charged-off loans.
The migration analysis model is based upon sixteen months of actual collection experience, which includes seven months of collection experience using the 212 day charge-off default aversion strategies and nine months of experience using the 120 day charge-off default aversion strategies. We only used collection data from the first four collection buckets for all sixteen months . This resulted in our inclusion of older periods when the accounts were not being aggressively collected in the 30 to 120 days delinquent buckets. We believe this is appropriate as we have very limited data since the change in collection practices to be confident that the positive trends will continue. Once the quantitative calculation is performed, we review the adequacy of the allowance for loan losses and determine if qualitative adjustments need to be considered.
Prior to the Spin-Off, the Bank exercised its right and sold substantially all of the Private Education Loans it originated that became delinquent or were granted forbearance to an entity that is now a subsidiary of Navient at its fair value. Because of this arrangement, the Bank did not hold many loans in forbearance. As a result, the Bank had very little historical forbearance activity and very few delinquencies.
In connection with the Spin-Off, the agreement under which the Bank previously made these sales was amended so that the Bank now only has the right to require Navient to purchase (at fair value) loans only where (a) the borrower has a lending relationship with both the Bank and Navient (“Split Loans”) and (b) the Split Loans either (1) are more than 90 days past due; (2) have been restructured; (3) have been granted a hardship forbearance or more than six months of administrative

F-14


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
2.
Significant Accounting Policies (Continued)
 

forbearance; or (4) have a borrower or cosigner who has filed for bankruptcy. At December 31, 2014, we held approximately $117 million of Split Loans.
Pre-Spin-Off SLM charged off loans when they were 212 days delinquent. As such, default aversion strategies were focused on the final stages of delinquency, from 150 days to 212 days . In connection with the Spin-Off, we changed our charge-off policy for Private Education Loans to charging off loans when they reach 120 days delinquent. As a result of changing our corporate charge-off policy and greatly reducing the number of potentially delinquent loans we sell to Navient, our default aversion strategies must now focus on loans 30 to 120 days delinquent. This change has the effect of accelerating the recognition of losses due to the shorter charge-off period ( 120 days ). In addition, at the time of the Spin-Off, we changed our loss confirmation period from two years to one year to reflect the shorter charge-off policy and our revised servicing practices. These two changes resulted in recognizing a $14 million net reduction in our allowance for loan losses in second quarter 2014 because we are now only reserving for one year of losses as compared with two years under the prior policy, which more than offset the impact of the shorter charge-off period.
Troubled Debt Restructurings (“TDRs”)
Separately, for our TDR portfolio, we estimate an allowance amount sufficient to cover life-of-loan expected losses through an impairment calculation based on the difference between the loan’s basis and the present value of expected future cash flows (which would include life-of-loan default and recovery assumptions) discounted at the loan’s original effective interest rate. Our TDR portfolio is comprised mostly of loans with interest rate reductions and forbearance usage greater than three months.
Key Credit Quality Indicators
We determine the collectability of our Private Education Loan portfolio by evaluating certain risk characteristics. We consider credit score, existence of a cosigner, loan status and loan seasoning as the key credit quality indicators because they have the most significant effect on the determination of the adequacy of our allowance for loan losses. Credit scores are an indicator of the creditworthiness of a borrower and the higher the credit score the more likely it is the borrower will be able to make all of their contractual payments. Loan status affects the credit risk because a past due loan is more likely to result in a credit loss than an up-to-date loan. Additionally, loans in the deferred payment status have different credit risk profiles compared with those in current pay status. Loan seasoning affects credit risk because a loan with a history of making payments generally has a lower incidence of default than a loan with a history of making infrequent or no payments. The existence of a cosigner lowers the likelihood of default. We monitor and update these credit quality indicators in the analysis of the adequacy of our allowance for loan losses on a quarterly basis.
Certain Private Education Loans do not require borrowers to begin repayment until six months after they have graduated or otherwise left school. Consequently, the loss estimates for these programs is generally low while the borrower is in school. At December 31, 2014 and 2013, 36 percent and 39 percent , respectively, of the principal balance in the Private Education Loan portfolio was related to borrowers who are in an in-school (fully deferred), grace, or deferment status and not required to make payments. As this population of borrowers leaves school, they will be required to begin payments on their loans, and the allowance for losses may change accordingly.
Similar to the rules governing FFELP payment requirements, our collection policies allow for periods of nonpayment for borrowers requesting additional payment grace periods upon leaving school or experiencing temporary difficulty meeting payment obligations. This is referred to as forbearance status and is considered separately in the allowance for loan losses. The loss confirmation period is in alignment with the typical collection cycle and takes into account these periods of nonpayment.
As part of concluding on the adequacy of the allowance for loan loss, we review key allowance and loan metrics. The most relevant of these metrics considered are the allowance coverage of charge-offs ratio; the allowance as a percentage of total loans and of loans in repayment; and delinquency and forbearance percentages.
We consider a loan to be delinquent 31 days after the last payment was contractually due. We use a model to estimate the amount of uncollectible accrued interest on Private Education Loans and reserve for that amount against current period interest income.

F-15


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
2.
Significant Accounting Policies (Continued)
 


Allowance for FFELP Loan Losses
FFELP Loans are insured as to their principal and accrued interest in the event of default subject to a Risk Sharing level based on the date of loan disbursement. These insurance obligations are supported by contractual rights against the United States. For loans disbursed on or after July 1, 2006, we receive 97 percent reimbursement. For loans disbursed after October 1, 1993, and before July 1, 2006, we receive 98 percent reimbursement on all qualifying default claims. For loans disbursed prior to October 1, 1993, we receive 100 percent reimbursement.
Similar to the allowance for Private Education Loan losses, the allowance for FFELP Loan losses uses historical experience of customer default behavior and a two-year loss confirmation period to estimate the credit losses incurred in the loan portfolio at the reporting date. We apply the default rate projections, net of applicable Risk Sharing, to each category for the current period to perform our quantitative calculation. Once the quantitative calculation is performed, we review the adequacy of the allowance for loan losses and determine if qualitative adjustments need to be considered.
Deposits
Our deposit accounts are principally certificates of deposit (“CD”), money market deposit accounts (“MMDA”) and high yield savings (“HYS”) accounts. CDs are accounts that have a stipulated maturity and interest rate. Early withdrawal of Brokered CD’s is prohibited (except in the case of death or legal incapacity). Retail CD’s may be withdrawn early but a penalty is assessed. MMDA and HYS accounts are both interest and non-interest bearing accounts that have no maturity or expiration date. The depositor is not required by the deposit contract, but may at any time be required by the Company, to give written notice of any intended withdrawal not less than seven days before the withdrawal is made.
Upromise related liabilities
Upromise related liabilities represent amounts owed to Upromise rewards members for rebates they have earned from qualifying purchases from Upromise’s participating companies. These amounts are held in trust for the benefit of the members until distributed in accordance with the Upromise member’s request and/or the terms of the Upromise service agreement. Upromise, which acts as the trustee for the trust, has deposited a majority of the cash with the Bank pursuant to a money market deposit account agreement between the Bank and Upromise as trustee of the trust.
Fair Value Measurement

We use estimates of fair value in applying various accounting standards for our financial statements. Fair value measurements are used in one of five ways:

•
In the consolidated balance sheet with changes in fair value recorded in the consolidated statement of income;
•
In the consolidated balance sheet with changes in fair value recorded in the accumulated other comprehensive income section of the consolidated statement of changes in equity;
•
In the consolidated balance sheet for instruments carried at lower of cost or fair value with impairment charges recorded in the consolidated statement of income;
•
In the notes to the consolidated financial statements; and
•
In the measurement of related party transactions.
Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. In general, our policy in estimating fair value is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads (including for our liabilities), relying first on observable data from active markets. Depending on current market conditions, additional adjustments to fair value may be based on factors such as liquidity, credit, and bid/offer spreads. Transaction costs are not included in the determination of fair value. When possible, we seek to validate the model’s output to market transactions.

F-16


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
2.
Significant Accounting Policies (Continued)
 

Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable.
We categorize our fair value estimates based on a hierarchical framework associated with three levels of price transparency utilized in measuring financial instruments at fair value. Classification is based on the lowest level of input that is significant to the fair value of the instrument. The three levels are as follows:
•
Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access at the measurement date. The types of financial instruments included in level 1 are highly liquid instruments with quoted prices.
•
Level 2 — Inputs from active markets, other than quoted prices for identical instruments, are used to determine fair value. Significant inputs are directly observable from active markets for substantially the full term of the asset or liability being valued.
•
Level 3 — Pricing inputs significant to the valuation are unobservable. Inputs are developed based on the best information available. However, significant judgment is required by us in developing the inputs.

 
Loan Interest Income
For loans classified as held for investment, we recognize interest income as earned, adjusted for the amortization of deferred direct origination costs. This adjustment is recognized based upon the expected yield of the loan over its life after giving effect to prepayments and extensions. The estimate of the prepayment speed includes the effect of voluntary prepayments, student loan defaults, and consolidation (if the loan is consolidated to a third party), all of which shorten the life-of-loan. Prepayment speed estimates also consider the utilization of deferment, forbearance, and extended repayment plans, which lengthen the life-of-loan. We regularly evaluate the assumptions used to estimate the prepayment speeds. In instances where there are changes to the assumptions, amortization is adjusted on a cumulative basis to reflect the change since the origination of the loan. We also pay to the U.S. Department of Education (“ED”) an annual 105 basis point Consolidation Loan Rebate Fee on FFELP Consolidation Loans which is netted against loan interest income. Additionally, interest earned on education loans reflects potential non-payment adjustments in accordance with our uncollectible interest recognition policy as discussed further in “Allowance for Loan Losses” of this Note 2. We do not amortize any adjustments to the basis of education loans when they are classified as held-for-sale.
We recognize certain fee income (primarily late fees) on education loans when earned according to the contractual provisions of the promissory notes, as well as our expectation of collectability. Fee income is recorded when earned in “other non-interest income” in the accompanying consolidated statements of income.
Interest Expense
Interest expense is based upon contractual interest rates adjusted for the amortization of issuance costs. We incur interest expense on interest bearing deposits comprised of non-maturity savings deposits, brokered and retail certificates of deposit and brokered money market deposits.  Interest expense is recognized when amounts are contractually due to deposit holders.  Refer to Note 8, “Deposits,” for further details of interest bearing deposits.
Gains on Sale of Loans, Net

We participate and sell loans to third parties and affiliates (including entities that were related parties prior to the Spin-Off). These sales may be through whole loan sales or securitization transactions that qualify for sales treatment. These loans were initially recorded as held for investment, and were transferred to held-for-sale immediately prior to sale or securitization. Beginning in April 2012, loans were sold at fair value. Details of these transactions are further discussed in Note 16, “Arrangements with Navient Corporation.”

Prior to the Spin-Off the Bank sold loans to an entity that is now a subsidiary of Navient when loans became 90 days delinquent and to facilitate securitization transactions. Prior to the Spin-Off, the Bank sold $ 805 million, $ 2.4 billion and $ 2.6 billion of loans resulting in a net gain on sale of loans of $ 36 million, $ 197 million and $ 235 million, for the years ended

F-17


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
2.
Significant Accounting Policies (Continued)
 

December 31, 2014, 2013 and 2012, respectively. Subsequent to the Spin-Off, we sold loans through loan sales and a securitization transaction with third parties (including Navient) resulting in a net gain on sale of loans of $ 85 million for the year ended December 31, 2014. See notes to consolidated financial statements, Note 16, “Arrangements with Navient Corporation,” for further discussion regarding loan purchase agreements. While there may be near-term Private Education Loan sales to Navient to facilitate an orderly transition after the Spin-Off, neither the Company nor Navient has any ongoing obligation to buy or sell Private Education Loans to or from the other.
Other Income
Our Upromise subsidiary has a number of programs that encourage consumers to save for the cost of college education. We have established a consumer savings network which is designed to promote college savings by consumers who are members of this program by encouraging them to purchase goods and services from the companies that participate in the program. Participating companies generally pay Upromise fees based on member purchase volume, either online or in stores depending on the contractual arrangement with the company. We recognize revenue as marketing and administrative services are rendered based upon contractually determined rates and member purchase volumes.
Securitization Accounting

In the third quarter 2014, we entered into our first securitization transaction. We accounted for this as a sale of loans and we did not consolidate the securitization trust. This securitization used a two-step structure with a special purpose entity that legally isolated the transferred assets from us, even in the event of bankruptcy. The transaction was also structured to ensure the holders of the beneficial interests issued are not constrained from pledging or exchanging their interests, and we do not maintain effective control over the transferred assets. If these criteria had not been met, then the transaction would be accounted for as an on-balance sheet secured borrowing. Our securitization transaction was legally structured to be a sale of assets that isolated the transferred assets from us. If a securitization qualifies as a sale, we then assess whether we are the primary beneficiary of the securitization trust and are required to consolidate such trust. If we are the primary beneficiary then no gain or loss is recognized.

The investors in the securitization trust have no recourse to our assets should there be a failure of the trust to pay when due. Generally, the only recourse the trust has to us is in the event we breach a seller representation or warranty or our duties as master servicer, in which event we agree to repurchase the related loans from the trust. As master servicer, our primary responsibility will be to monitor the performance of the subservicer and find a substitute subservicer in the event the subservicer of the trust defaults. 

We did not record a servicing asset or servicing liability related to the securitization transaction we entered into in third quarter 2014 because we determined the master servicing fee we receive is at market rate.
Derivative Accounting
We account for our derivatives, consisting of interest rate swaps, at fair value on the consolidated balance sheets as either an asset or liability. Derivative positions are recorded as net positions by counterparty based on master netting arrangements (see Note 11, “Derivative Financial Instruments”) exclusive of accrued interest and cash collateral held or pledged. We determine the fair value for our derivative contracts primarily using pricing models that consider current market conditions and the contractual terms of the derivative contract. These factors include interest rates, time value, forward interest rate curves, and volatility factors. Inputs are generally from active financial markets.
The majority of our derivatives qualify as effective hedges. For these derivatives, the relationship between the hedging instrument and the hedged items (including the hedged risk and method for assessing effectiveness), as well as the risk management objective and strategy for undertaking various hedge transactions at the inception of the hedging relationship, is documented.
Each derivative is designated to a specific (or pool of) liability(ies) on the consolidated balance sheets, and is designated as either a “fair value” hedge or a “cash flow” hedge. Fair value hedges are designed to hedge our exposure to changes in fair value of a fixed-rate liability. For effective fair value hedges, both the hedge and the hedged item (for the risk being hedged) are

F-18


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
2.
Significant Accounting Policies (Continued)
 

recorded at fair value with any difference reflecting ineffectiveness which is recorded immediately in the consolidated statements of income. Cash flow hedges are designed to hedge our exposure to variability in cash flows related to variable rate deposits. The assessment of the hedge’s effectiveness is performed at inception and on an ongoing basis, generally using regression testing. For hedges of a pool of liabilities, tests are performed to demonstrate the similarity of individual instruments of the pool. When it is determined that a derivative is not currently an effective hedge, ineffectiveness is recognized for the full change in fair value of the derivative with no offsetting amount from the hedged item since the last time it was effective. If it is also determined the hedge will not be effective in the future, we discontinue the hedge accounting prospectively and begin amortization of any basis adjustments that exist related to the hedged item.
Stock-Based Compensation
We recognize stock-based compensation cost in our consolidated statements of income using the fair value method. Under this method we determine the fair value of the stock-based compensation at the time of the grant and recognize the resulting compensation expense over the vesting period of the stock-based grant.
Income Taxes
We account for income taxes under the asset and liability approach, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and tax basis of our assets and liabilities. To the extent tax laws change, deferred tax assets and liabilities are adjusted in the period that the tax change is enacted.
“Income tax expense/(benefit)” includes (i) deferred tax expense/(benefit), which represents the net change in the deferred tax asset or liability balance during the year when applicable, and (ii) current tax expense/(benefit), which represents the amount of tax currently payable to or receivable from a tax authority plus amounts accrued for unrecognized tax benefits. Income tax expense/(benefit) excludes the tax effects related to adjustments recorded in equity.
An uncertain tax position is recognized only if it is more likely than not to be sustained upon examination based on the technical merits of the position. The amount of tax benefit recognized in the financial statements is the largest amount of benefit that is more than fifty percent likely of being sustained upon ultimate settlement of the uncertain tax position. We recognize interest related to unrecognized tax benefits in income tax expense/(benefit), and penalties, if any, in operating expenses.
In connection with the Spin-Off, we have become the taxpayer legally responsible for $ 283 million of deferred taxes payable (installment payments due quarterly through 2018) in connection with gains recognized by pre-Spin-Off SLM on debt repurchases in prior years. As part of the tax sharing agreement between us and Navient, Navient has agreed to fully pay us for these deferred taxes due. An indemnification receivable of $ 291 million was recorded, which represents the fair value of the future payments under the agreement based on a discounted cash flow model. We will accrue interest income on the indemnification receivable using the interest method.
We also recorded a liability related to uncertain tax positions of $ 27 million for which we are indemnified by Navient. If there is an adjustment to the indemnified uncertain tax liability, an offsetting adjustment to the indemnification receivable will be recorded as pre-tax adjustment to the income statement.
As of the date of the Spin-Off on April 30, 2014, we recorded a liability of $ 310 million ($ 283 million related to deferred taxes and $ 27 million related to uncertain tax positions) and an indemnification receivable of $ 291 million ($ 310 million less the $ 19 million discount). As of December 31, 2014, the liability balance is $ 268 million ($ 252 million related to deferred taxes and $ 16 million related to uncertain tax positions) and the indemnification receivable balance is $ 240 million ($ 224 million related to deferred taxes and $ 16 million related to uncertain tax positions).
Reclassifications
Certain reclassifications have been made to the balances as of and for the years ended December 31, 2013 and 2012, to be consistent with classifications adopted for 2014, which had no effect on net income, total assets or total liabilities.
Recently Issued Accounting Pronouncements

F-19


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
2.
Significant Accounting Policies (Continued)
 

On May 28, 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance when it becomes effective. The new standard is effective on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We have determined that this new guidance will have an immaterial impact on the financial results of the Company.

3. Cash and Cash Equivalents
As of December 31, 2014, cash and cash equivalents include cash due from the FRB of $2,344,901 and cash due from depository institutions of $14,879 . As of December 31, 2013, cash and cash equivalents include cash due from the FRB of $2,181,463 , and cash due from depository institutions of $ 1,402 . As of December 31, 2014 and 2013, we had no outstanding cash equivalents.
In 2010, the FRB introduced the Term Deposit Facility to facilitate the conduct of monetary policy by providing a tool that may be used to manage the aggregate quantity of reserve balances held by depository institutions. Under this program the FRB accepts deposits for a stated maturity at a rate of interest determined via auction. The funds are removed from the accounts of participating institutions for the life of the term deposit. We participated in these auctions in 2014 and 2013, resulting in interest income of $1,248 and $813 , respectively. As of December 31, 2014 and 2013, no funds were on deposit with the FRB under this program.
We are required to maintain average reserve balances with the FRB based on a percentage of deposits. The average amounts of those reserves for the years ended December 31, 2014 and 2013 were $324 and $1,548 , respectively.

4. Investments

The amortized cost and fair value of securities available for sale are as follows:
 
 
 
As of December 31, 2014
 
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
Available for sale:
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
$
167,740

 
$
2,686

 
$
(1,492
)
 
$
168,934

 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2013
 
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
Available for sale:
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
$
106,977

 
$
706

 
$
(5,578
)
 
$
102,105

 
    

F-20

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
4.
Investments (Continued)
 

The following table summarizes the amount of gross unrealized losses for our mortgage-backed securities and the estimated fair value by length of time the securities have been in an unrealized loss position:

 
 
Less than 12 months
 
12 months or more
 
Total
 
 
Gross unrealized losses
 
Estimated fair value
 
Gross unrealized losses
 
Estimated fair value
 
Gross unrealized losses
 
Estimated fair value
As of December 31, 2014:
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
$
(27
)
 
$
12,147

 
$
(1,465
)
 
$
41,462

 
$
(1,492
)
 
$
53,609

 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2013:
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
$
(3,633
)
 
$
69,809

 
$
(1,945
)
 
$
16,176

 
$
(5,578
)
 
$
85,985


Our investment portfolio is comprised of mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac with amortized costs of $ 86,329 , $ 65,850 , and $ 15,561 , respectively, at December 31, 2014. We own these securities to meet our requirements under the Community Reinvestment Act. As of December 31, 2014, there were 10 of 13 separate mortgage-backed securities with unrealized losses in our investment portfolio. Nine of the 13 securities in a net loss position were issued under Ginnie Mae programs that carry a full faith and credit guarantee from the U.S. Government. The remaining securities in a net loss position carry a principal and interest guarantee by Fannie Mae. As of December 31, 2013, there were 20 of 33 separate mortgage-backed securities with unrealized losses in our investment portfolio. Ten of the 20 securities in a net loss position were issued by Ginnie Mae. We have the ability and the intent to hold these securities for a period of time sufficient for the market price to recover to at least the adjusted amortized cost of the security.
As of December 31, 2014, the amortized cost and fair value of securities, by contractual maturities, are summarized below. Contractual maturities versus actual maturities may differ due to the effect of prepayments.
Year of Maturity
 
Amortized Cost
 
Estimated Fair Value
2038
 
$
604

 
$
647

2039
 
11,298

 
12,145

2042
 
27,721

 
26,617

2043
 
73,534

 
74,505

2044
 
54,583

 
55,020

Total
 
$
167,740

 
$
168,934


In October 2013, we sold our asset-backed security portfolio for a gain of $63,813 . We no longer hold asset-backed securities in our investment portfolio.

The mortgage-backed securities have been pledged to the FRB as collateral against any advances and accrued interest under the Primary Credit program or any other program sponsored by the FRB. We had $160,949 and $ 103,049 par value of mortgage-backed securities pledged to this borrowing facility at December 31, 2014 and 2013, respectively, as discussed further in Note 10, “Borrowed Funds.”

F-21


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)


5. Loans Held for Investment

Loans Held for Investment consist of Private Education Loans and FFELP Loans.
Our Private Education Loans are made largely to bridge the gap between the cost of higher education and the amount funded through financial aid, government loans or customers’ resources. Private Education Loans bear the full credit risk of the customer. We manage this risk through risk-performance underwriting strategies and qualified cosigners. Private Education Loans generally carry a variable rate indexed to LIBOR. As of December 31, 2014, 83 percent of all Private Education Loans were indexed to LIBOR. We provide incentives for customers to include a cosigner on the loan, and the vast majority of loans in our portfolio are cosigned. We also encourage customers to make payments while in school.
FFELP Loans are insured as to their principal and accrued interest in the event of default subject to a Risk Sharing level based on the date of loan disbursement. These insurance obligations are supported by contractual rights against the United States. For loans disbursed on or after July 1, 2006, we receive 97 percent reimbursement. For loans disbursed after October 1, 1993, and before July 1, 2006, we receive 98 percent reimbursement on all qualifying claims. For loans disbursed prior to October 1, 1993, we receive 100 percent reimbursement.

Loans held for investment are summarized as follows:
 
 
December 31,
 
 
2014
 
2013
Private Education Loans
 
$
8,311,376

 
$
6,563,342

Deferred origination costs
 
13,845

 
5,063

Allowance for loan losses
 
(78,574
)
 
(61,763
)
Total Private Education Loans, net
 
8,246,647

 
6,506,642

 
 
 
 
 
FFELP Loans
 
1,264,807

 
1,426,972

Unamortized acquisition costs, net
 
3,600

 
4,081

Allowance for loan losses
 
(5,268
)
 
(6,318
)
Total FFELP Loans, net
 
1,263,139

 
1,424,735

 
 
 
 
 
Loans held for investment, net
 
$
9,509,786

 
$
7,931,377


 
The estimated weighted average life of student loans in our portfolio was approximately 6.2 years and 7.0 years at December 31, 2014 and 2013, respectively.

F-22

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
5.
Loans Held for Investment (Continued)
 


The average balance and the respective weighted average interest rates are summarized as follows:

 
 
Years Ended December 31,
 
 
2014
 
2013
 
2012
 
 
Average Balance
 
Weighted Average Interest Rate
 
Average Balance
 
Weighted Average Interest Rate
 
Average Balance
 
Weighted Average Interest Rate
Private Education Loans
 
$
7,563,356

 
8.16
%
 
$
5,996,651

 
8.16
%
 
$
5,347,239

 
8.34
%
FFELP Loans
 
1,353,497

 
3.24

 
1,142,979

 
3.32

 
527,935

 
2.85

Total portfolio
 
$
8,916,853

 
 
 
$
7,139,630

 
 
 
$
5,875,174

 
 


Certain Collection Tools — Private Education Loans
Forbearance involves granting the customer a temporary cessation of payments (or temporary acceptance of smaller than scheduled payments) for a specified period of time. Using forbearance extends the original term of the loan. Forbearance does not grant any reduction in the total repayment obligation (principal or interest). While in forbearance status, interest continues to accrue and is capitalized to principal when the loan re-enters repayment status. Our forbearance policies include limits on the number of forbearance months granted consecutively and the total number of forbearance months granted over the life of the loan. In some instances, we require good-faith payments before granting forbearance. Exceptions to forbearance policies are permitted when such exceptions are judged to increase the likelihood of collection of the loan. Forbearance as a collection tool is used most effectively when applied based on a customer’s unique situation, including historical information and judgments. We leverage updated customer information and other decision support tools to best determine who will be granted forbearance based on our expectations as to a customer’s ability and willingness to repay their obligation. This strategy is aimed at mitigating the overall risk of the portfolio as well as encouraging cash resolution of delinquent loans.
Forbearance may be granted to customers who are exiting their grace period to provide additional time to obtain employment and income to support their obligations, or to current customers who are faced with a hardship and request forbearance time to provide temporary payment relief. In these circumstances, a customer’s loan is placed into a forbearance status in limited monthly increments and is reflected in the forbearance status at month-end during this time. At the end of the granted forbearance period, the customer will enter repayment status as current and is expected to begin making scheduled monthly payments on a go-forward basis.
Forbearance may also be granted to customers who are delinquent in their payments. In these circumstances, the forbearance cures the delinquency and the customer is returned to a current repayment status. In more limited instances, delinquent customers will also be granted additional forbearance time.
We also have an interest rate reduction program to assist customers in repaying their Private Education Loans through reduced payments, while continuing to reduce their outstanding principal balance. This program is offered in situations where the potential for principal recovery, through a modification of the monthly payment amount, is better than other alternatives currently available. Along with demonstrating the ability and willingness to pay, the customer must make three consecutive monthly payments at the reduced rate to qualify for the program. Once the customer has made the initial three payments, the loan’s status is returned to current and the interest rate is reduced for the successive twelve month period.
During the first four months of 2014, and all of 2013 and 2012, we did not utilize these collection tools because we sold loans that would otherwise be managed using one or more of these collection tools to an entity that is now a subsidiary of Navient. See Note 16, “Arrangements with Navient Corporation.”

F-23

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
5.
Loans Held for Investment (Continued)
 


The period of delinquency for loans is based on the number of days scheduled payments are contractually past due. As of December 31, 2014 and 2013, we had $201,703 and $220,413 , respectively, of FFELP loans and $10,701 and $2,667 , respectively, of Private Education Loans held for investment which are 90 or more days delinquent that continue to accrue interest. At December 31, 2014 and 2013, we had no loans in nonaccrual status.
Borrower-in-Custody Arrangements
We maintain Borrower-in-Custody arrangements with the FRB. Under these arrangements, we can pledge FFELP consolidation or Private Education Loans to the FRB to secure any advances and accrued interest generated under the Primary Credit program at the FRB. As of December 31, 2014 and 2013, we had $0 and $95,555 , respectively, of FFELP consolidation loans and $1,408,745 and $870,736 , respectively, of Private Education Loans pledged to this borrowing facility, as discussed further in Note 10, “Borrowed Funds.”
Loans Held for Investment by Region
At December 31, 2014, 38.8 percent of loans were concentrated in the following states:
 
 
2014
California
 
10.1
%
New York
 
9.5

Pennsylvania
 
7.7

New Jersey
 
6.3

Illinois
 
5.2

 
 
38.8
%
    
    
At December 31, 2013, 37.8 percent of loans were concentrated in the following states:

 
 
2013
California
 
9.7
%
New York
 
9.3

Pennsylvania
 
7.5

New Jersey
 
6.2

Illinois
 
5.1

 
 
37.8
%

No other state had a concentration of loans in excess of 5 percent of the aggregate outstanding loans held for investment.



F-24


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)


6. Allowance for Loan Losses
Our provision for Private Education Loan losses represents the periodic expense of maintaining an allowance sufficient to absorb incurred probable losses in the held-for-investment loan portfolios. The evaluation of the allowance for loan losses is inherently subjective, as it requires material estimates that may be susceptible to significant changes. We believe the allowance for loan losses is appropriate to cover probable losses incurred in the loan portfolios. See Note 2, “Significant Accounting Policies — Allowance for Private Education Loan Losses” for a more detailed discussion.

Allowance for Loan Losses Metrics
 
 
 
Allowance for Loan Losses
 
 
Year Ended December 31, 2014
 
 
FFELP Loans
 
Private Education
Loans
 
Total
Allowance for Loan Losses
 
 
 
 
 
 
Beginning balance
 
$
6,318

 
$
61,763

 
$
68,081

Total provision
 
1,946

 
83,583

 
85,529

   Charge-offs (1)
 
(2,996
)
 
(14,442
)
 
(17,438
)
   Recoveries
 
—

 
1,155

 
1,155

Net charge-offs
 
(2,996
)
 
(13,287
)
 
(16,283
)
Student loan sales (2)
 
—

 
(53,485
)
 
(53,485
)
Ending Balance
 
$
5,268

 
$
78,574

 
$
83,842

Allowance:
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$
—

 
$
9,815

 
$
9,815

Ending balance: collectively evaluated for impairment
 
$
5,268

 
$
68,759

 
$
74,027

Loans:
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$
—

 
$
59,402

 
$
59,402

Ending balance: collectively evaluated for impairment
 
$
1,264,807

 
$
8,251,974

 
$
9,516,781

Net charge-offs as a percentage of average loans in repayment
 
0.31
%
 
0.30
%
 
 
Allowance as a percentage of the ending total loan balance
 
0.42
%
 
0.95
%
 
 
Allowance as a percentage of the ending loans in repayment
 
0.57
%
 
1.53
%
 
 
Allowance coverage of net charge-offs
 
1.76

 
5.91

 
 
Ending total loans
 
$
1,264,807

 
$
8,311,376

 
 
Average loans in repayment
 
$
972,390

 
$
4,495,709

 
 
Ending loans in repayment
 
$
926,891

 
$
5,149,215

 
 
_________
(1)  
Prior to the Spin-Off, Private Education Loans were sold to an entity that is now a subsidiary of Navient, prior to being charged off.
(2)  
Represents fair value write-downs on loans sold.


F-25

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
6.
Allowance for Loan Losses (Continued)
 

 
 
Allowance for Loan Losses
 
 
Year Ended December 31, 2013
 
 
FFELP Loans
 
Private Education
Loans
 
Total
Allowance for Loan Losses
 
 
 
 
 
 
Beginning balance
 
$
3,971

 
$
65,218

 
$
69,189

Total provision
 
4,384

 
64,955

 
69,339

Charge-offs (1)
 
(2,037
)
 
—

 
(2,037
)
Student loan sales (2)
 
—

 
(68,410
)
 
(68,410
)
Ending Balance
 
$
6,318

 
$
61,763

 
$
68,081

Allowance:
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$
—

 
$
—

 
$
—

Ending balance: collectively evaluated for impairment
 
$
6,318

 
$
61,763

 
$
68,081

Loans:
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$
—

 
$
—

 
$
—

Ending balance: collectively evaluated for impairment
 
$
1,426,972

 
$
6,563,342

 
$
7,990,314

Charge-offs as a percentage of average loans in repayment
 
0.23
%
 
—
%
 
 
Allowance as a percentage of the ending total loan balance
 
0.44
%
 
0.94
%
 
 
Allowance as a percentage of the ending loans in repayment
 
0.62
%
 
1.55
%
 
 
Allowance coverage of charge-offs
 
3.10

 
—

 
 
Ending total loans
 
$
1,426,972

 
$
6,563,342

 
 
Average loans in repayment
 
$
870,460

 
$
3,509,502

 
 
Ending loans in repayment
 
$
1,023,471

 
$
3,972,317

 
 
(1)  
Prior to the Spin-Off, Private Education Loans were sold to an entity that is now a subsidiary of Navient prior to being charged off.
(2)  
Represents fair value write-downs on loans sold.


 

F-26

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
6.
Allowance for Loan Losses (Continued)
 

 
 
Allowance for Loan Losses
 
 
Year Ended December 31, 2012
 
 
FFELP Loans
 
Private Education
Loans
 
Total
Allowance for Loan Losses
 
 
 
 
 
 
Beginning balance
 
$
402

 
$
69,090

 
$
69,492

Total provision
 
3,669

 
62,447

 
66,116

Charge-offs (1)
 
(100
)
 
—

 
(100
)
Student loan sales (2)
 
—

 
(66,319
)
 
(66,319
)
Ending Balance
 
$
3,971

 
$
65,218

 
$
69,189

Allowance:
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$
—

 
$
—

 
$
—

Ending balance: collectively evaluated for impairment
 
$
3,971

 
$
65,218

 
$
69,189

Loans:
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$
—

 
$
—

 
$
—

Ending balance: collectively evaluated for impairment
 
$
1,043,521

 
$
5,507,908

 
$
6,551,429

Charge-offs as a percentage of average loans in repayment
 
0.03
%
 
—
%
 
 
Allowance as a percentage of the ending total loan balance
 
0.38
%
 
1.18
%
 
 
Allowance as a percentage of the ending loans in repayment
 
0.52
%
 
1.74
%
 
 
Allowance coverage of charge-offs
 
39.77

 
—

 
 
Ending total loans
 
$
1,043,521

 
$
5,507,908

 
 
Average loans in repayment
 
$
367,789

 
$
3,928,692

 
 
Ending loans in repayment
 
$
770,772

 
$
3,750,223

 
 
(1)  
Prior to the Spin-Off, Private Education Loans were sold to an entity that is now a subsidiary of Navient prior to being charged off.
(2)  
Represents fair value write-downs on loans sold.


F-27

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
6.
Allowance for Loan Losses (Continued)
 


Troubled Debt Restructurings
All of our loans are collectively assessed for impairment except for loans classified as TDRs. Prior to the Spin-Off, we did not have TDR loans because the loans were generally sold in the same month that the terms were restructured. Subsequent to May 1, 2014, we have individually assessed $59.4 million of Private Education Loans as TDRs. When these loans are determined to be impaired, we provide for an allowance for losses sufficient to cover life-of-loan expected losses through an impairment calculation based on the difference between the loan's basis and the present value of expected future cash flows discounted at the loan's original effective interest rate.
Within the Private Education Loan portfolio, loans greater than 90 days past due are considered to be nonperforming. FFELP Loans are at least 97 percent guaranteed as to their principal and accrued interest by the federal government in the event of default and therefore we do not deem FFELP Loans as nonperforming from a credit risk standpoint at any point in their life cycle prior to claim payment, and continue to accrue interest through the date of claim.
At December 31, 2014, all of our TDR loans had a related allowance recorded. The following table provides the recorded investment, unpaid principal balance and related allowance for our TDR loans.
 
Recorded Investment
 
Unpaid Principal Balance
 
Allowance
 
 
 
 
 
 
December 31, 2014
 
 
 
 
 
TDR Loans
$
60,278

 
$
59,402

 
$
9,815


The following table provides the average recorded investment and interest income recognized for our TDR loans.
 
Year Ended December 31, 2014
 
Average Recorded Investment
 
Interest Income Recognized
 
 
 
 
TDR Loans
$
23,290

 
$
1,105


    

F-28

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
6.
Allowance for Loan Losses (Continued)
 

The following table provides information regarding the loan status and aging of TDR loans that are past due.

 
 
December 31,
 
 
2014
 
 
Balance
 
%
Loans in in-school/grace/deferment (1)
 
$
2,915

 
 
Loans in forbearance (2)
 
18,620

 
 
Loans in repayment and percentage of each status:
 
 
 
 
Loans current
 
34,554

 
91.2
%
Loans delinquent 31-60 days (3)
 
1,953

 
5.2

Loans delinquent 61-90 days (3)
 
983

 
2.6

Loans delinquent greater than 90 days (3)
 
377

 
1.0

Total TDR loans in repayment
 
37,867

 
100.0
%
Total TDR loans, gross
 
$
59,402

 
 
_____
(1)  
Deferment includes customers who have returned to school or are engaged 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 customers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full 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.


    
The following table provides the amount of modified loans that resulted in a TDR in the periods presented. Additionally, the table summarizes charge-offs occurring in the TDR portfolio, as well as TDRs for which a payment default occurred in the current period within 12 months of the loan first being designated as a TDR. We define payment default as 60 days past due for this disclosure. The majority of our loans that are considered TDRs involve a temporary forbearance of payments and do not change the contractual interest rate of the loan.

 
Year Ended December 31, 2014
 
Modified Loans
 
Charge-offs
 
Payment-Default
 
 
 
 
 
 
TDR Loans
$
59,402

 
$
948

 
$
325




F-29

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
6.
Allowance for Loan Losses (Continued)
 

Key Credit Quality Indicators
FFELP Loans are at least 97 percent insured and guaranteed as to their principal and accrued interest in the event of default; therefore, there are no key credit quality indicators associated with FFELP Loans. Included within our FFELP portfolio as of December 31, 2014 are $785 million of FFELP rehabilitation loans. These loans have previously defaulted but have subsequently been brought current according to a loan rehabilitation agreement. The credit performance on rehabilitation loans is worse than the remainder of our FFELP portfolio. At December 31, 2014 and 2013, 62.1 percent and 62.9 percent of our FFELP portfolio consisted of rehabilitation loans.
For Private Education Loans, the key credit quality indicators are FICO scores, the existence of a cosigner, the loan status and loan seasoning. The FICO scores are assessed at origination and maintained through the loan's term. The following table highlights the gross principal balance of our Private Education Loan portfolio stratified by key credit quality indicators.

 
 
December 31, 2014
 
December 31, 2013
Credit Quality Indicators:
 
Balance (1)
 
% of Balance
 
Balance (1)
 
% of Balance
 
 
 
 
 
 
 
 
 
Cosigners:
 
 
 
 
 
 
 
 
With cosigner
 
$
7,465,339

 
90
%
 
$
5,898,751

 
90
%
Without cosigner
 
846,037

 
10

 
664,591

 
10

Total
 
$
8,311,376

 
100
%
 
$
6,563,342

 
100
%
 
 
 
 
 
 
 
 
 
FICO at Origination:
 
 
 
 
 
 
 
 
Less than 670
 
$
558,801

 
7
%
 
$
461,412

 
7
%
670-699
 
1,227,860

 
15

 
1,364,286

 
21

700-749
 
2,626,238

 
32

 
1,649,192

 
25

Greater than or equal to 750
 
3,898,477

 
46

 
3,088,452

 
47

Total
 
$
8,311,376

 
100
%
 
$
6,563,342

 
100
%
 
 
 
 
 
 
 
 
 
Seasoning (2) :
 
 
 
 
 
 
 
 
1-12 payments
 
$
2,373,117

 
29
%
 
$
1,840,538

 
28
%
13-24 payments
 
1,532,042

 
18

 
1,085,393

 
17

25-36 payments
 
755,143

 
9

 
669,685

 
10

37-48 payments
 
411,493

 
5

 
362,124

 
6

More than 48 payments
 
212,438

 
3

 
30,891

 
—

Not yet in repayment
 
3,027,143

 
36

 
2,574,711

 
39

Total
 
$
8,311,376

 
100
%
 
$
6,563,342

 
100
%
___________      
(1)  
Balance represents gross Private Education Loans.
(2)  
Number of months in active repayment for which a scheduled payment was due.

F-30

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
6.
Allowance for Loan Losses (Continued)
 


  The following tables provide information regarding the loan status and aging of past due loans. Loans in repayment includes in-school loans making interest only and fixed payments as well as loans that have entered full principal and interest repayment status after any applicable grace period.

 
 
Private Education Loan Delinquencies
 
 
December 31,
 
 
2014
 
2013
 
2012
 
 
Balance
 
%
 
Balance
 
%
 
Balance
 
%
Loans in-school/grace/deferment (1)
 
$
3,027,143

 
 
 
$
2,574,711

 
 
 
$
1,748,757

 
 
Loans in forbearance (2)
 
135,018

 
 
 
16,314

 
 
 
8,928

 
 
Loans in repayment and percentage of each status:
 
 
 
 
 
 
 
 
 
 
 
 
Loans current
 
5,045,600

 
98.0
%
 
3,933,143

 
99.0
%
 
3,705,634

 
98.8
%
Loans delinquent 31-60 days (3)
 
63,873

 
1.2

 
28,854

 
0.7

 
33,412

 
0.9

Loans delinquent 61-90 days (3)
 
29,041

 
0.6

 
10,280

 
0.3

 
10,483

 
0.3

Loans delinquent greater than 90 days (3)
 
10,701

 
0.2

 
40

 
—

 
694

 
—

Total Private Education Loans in repayment
 
5,149,215

 
100.0
%
 
3,972,317

 
100.0
%
 
3,750,223

 
100.0
%
Total Private Education Loans, gross
 
8,311,376

 
 
 
6,563,342

 
 
 
5,507,908

 
 
Private Education Loans deferred origination costs
 
13,845

 
 
 
5,063

 
 
 
5,009

 
 
Total Private Education Loans
 
8,325,221

 
 
 
6,568,405

 
 
 
5,512,917

 
 
Private Education Loans allowance for losses
 
(78,574
)
 
 
 
(61,763
)
 
 
 
(65,218
)
 
 
Private Education Loans, net
 
$
8,246,647

 
 
 
$
6,506,642

 
 
 
$
5,447,699

 
 
Percentage of Private Education Loans in repayment
 
 
 
62.0
%
 
 
 
60.5
%
 
 
 
68.1
%
Delinquencies as a percentage of Private Education Loans in repayment
 
 
 
2.0
%
 
 
 
1.0
%
 
 
 
1.2
%
Loans in forbearance as a percentage of loans in repayment and forbearance
 
 
 
2.6
%
 
 
 
0.4
%
 
 
 
0.2
%
(1)
Deferment includes customers who have returned to school or are engaged 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 customers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full 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.
 



F-31

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
6.
Allowance for Loan Losses (Continued)
 



Accrued Interest Receivable
The following table provides information regarding accrued interest receivable on our Private Education Loans. 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.
 
 
Private Education Loan
 
 
Accrued Interest Receivable
 
 
Total Interest
Receivable
 
Greater Than
90 Days
Past Due
 
Allowance for Uncollectible Interest
 
 
 
 
 
 
 
December 31, 2014
 
$
445,710

 
$
443

 
$
3,517

December 31, 2013
 
$
333,857

 
$
1

 
$
4,076



F-32


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)


7. Premises and equipment, net

The following is a summary of our premises and equipment.

 
 
December 31,
 
 
2014
 
2013
Land and land improvements
 
$
10,927

 
$
10,345

Buildings and leasehold improvements
 
56,772

 
52,435

Furniture, fixtures and equipment
 
10,898

 
25,633

Software
 
31,988

 
32,534

Premises and equipment, gross
 
110,585

 
120,947

Accumulated depreciation
 
(32,115
)
 
(46,759
)
Premises and equipment, net
 
$
78,470

 
$
74,188



Depreciation expense for premises and equipment was $6,099 , $5,059 and $6,837 for the years ended December 31, 2014, 2013 and 2012, respectively.



8. Deposits

The following table summarizes total deposits at December 31, 2014 and 2013.
 
 
December 31,
 
December 31,
 
 
 
2014
 
2013
 
Deposits - interest bearing
 
$
10,539,953

 
$
8,946,514

 
Deposits - non-interest bearing
 
602

 
55,036

 
Total deposits
 
$
10,540,555

 
$
9,001,550

 
Interest Bearing
Interest bearing deposits as of December 31, 2014 and 2013 consisted of non-maturity savings deposits, brokered and retail certificates of deposit, as discussed further below, and brokered money market deposits. These deposit products are serviced by third party providers. Placement fees associated with the brokered certificates of deposit are amortized into interest expense using the effective interest rate method. We recognized placement fee expense of $10,264 , $9,754 , and $8,416 in the years ended December 31, 2014, 2013 and 2012, respectively. Fees paid to third party brokers related to these certificates of deposit were $15,198 , $12,114 , and $16,484 during the years ended December 31, 2014, 2013 and 2012, respectively.
In the past, we offered debit cards associated with interest bearing consumer deposit (“NOW”) accounts to facilitate the distribution of financial aid refunds and other payables to students. These debit cards were serviced by third party providers. As of April 30, 2014, we no longer offer these debit cards.

F-33

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
8.
Deposits (Continued)
 

Interest bearing deposits at December 31, 2014 and 2013 are summarized as follows:
 
 
 
December 31, 2014
 
December 31, 2013
 
 
 
Amount
 
Year-End Weighted Average Stated Rate
 
Amount
 
Year-End Weighted Average Stated Rate
 
 
 
 
 
 
 
 
 
 
 
Money market
 
$
4,527,448

 
1.15
%
 
$
3,212,889

 
0.65
%
 
Savings
 
703,687

 
0.81
%
 
743,742

 
0.81
%
 
NOW
 
—

 
—
%
 
18,214

 
0.12
%
 
Certificates of deposit
 
5,308,818

 
1.00
%
 
4,971,669

 
1.39
%
 
Deposits - interest bearing
 
$
10,539,953

 


 
$
8,946,514

 
 
 

Certificates of deposit maturities are summarized as follows:
 
 
December 31,
 
 
2014
 
2013
One year or less
 
$
1,717,891

 
$
2,030,190

After one year to two years
 
1,038,778

 
1,303,106

After two years to three years
 
948,490

 
675,405

After three years to four years
 
846,976

 
538,117

After four years to five years
 
577,827

 
424,851

After five years
 
178,856

 
—

Total
 
$
5,308,818

 
$
4,971,669


  As of December 31, 2014 and 2013, there were $253,953 and $159,637 of deposits exceeding Federal Deposit Insurance Corporation (“FDIC”) insurance limits. Accrued interest on deposits was $16,082 and $13,097 at December 31, 2014 and 2013, respectively.

Non Interest Bearing

Non interest bearing deposits were $ 602 and $ 55,036 as of December 31, 2014 and 2013, respectively. For both periods these were comprised of money market accounts. The December 31, 2014 balance is related to our Employee Stock Purchase Plan account. See Note 14, “Stock Based Compensation Plans and Arrangements” for additional details regarding this plan.


9. Asset-Backed Commercial Paper Funding Facility

On December 19, 2014, we closed a new $750 million private asset backed commercial paper (“ABCP”) education loan funding facility.  Under FDIC guidelines, we are required to retain a 5 percent or $37.5 million ownership interest in the facility resulting in $712.5 million of funds being available for Private Education Loan originations.  The new facility had not been drawn on as of December 31, 2014 and the facility’s scheduled maturity date is December 18, 2015.



F-34


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)


10. Borrowed Funds

We maintain discretionary uncommitted Federal Funds lines of credit with various correspondent banks, which totaled $100,000 at December 31, 2014. The interest rate charged to the Company on these lines of credit is priced at Fed Funds plus a spread at the time of borrowing, and is payable daily. We did not utilize these lines of credit in 2014, 2013 and 2012.
We established an account at the FRB to meet eligibility requirements for access to the Primary Credit borrowing facility at the FRB’s Discount Window (“Window”). All borrowings at the Window must be fully collateralized. We pledged asset-backed and mortgage-backed securities, as well as FFELP Loans and Private Education Loans to the FRB as collateral for borrowings at the Window. Generally, collateral value is assigned based on the estimated fair value of the pledged assets. At December 31, 2014 and 2013, the lendable value of our collateral at the FRB totaled $1,398,286 and $900,217 , respectively. The interest rate charged to us is the discount rate set by the FRB. We did not utilize this facility in 2014 and 2013.


11. Derivative Financial Instruments

Risk Management Strategy
We maintain an overall interest rate risk management strategy that incorporates the use of derivative instruments to minimize the economic effect of interest rate changes. Our goal is to manage interest rate sensitivity by modifying the repricing frequency and underlying index characteristics of certain balance sheet liabilities so the net interest margin is not, on a material basis, adversely affected by movements in interest rates. As a result of interest rate fluctuations, hedged liabilities will appreciate or depreciate in market value or create variability in cash flows. Income or loss on the derivative instruments that are linked to the hedged item will generally offset the effect of this unrealized appreciation or depreciation or volatility in cash flows for the period the item is being hedged. We view this strategy as a prudent management of interest rate risk.
Although we use derivatives to offset (or minimize) the risk of interest rate changes, the use of derivatives does expose us to both market and credit risk. Market risk is the chance of financial loss resulting from changes in interest rates and market liquidity. Credit risk is the risk that a counterparty will not perform its obligations under a contract and it is limited to the loss of the fair value gain in a derivative that the counterparty owes us less collateral held or plus collateral posted. When the fair value of a derivative contract less collateral held or plus collateral posted is negative, we owe the counterparty and, therefore, we have no credit risk exposure to the counterparty; however, the counterparty has exposure to us. We minimize the credit risk in derivative instruments by entering into transactions with highly rated counterparties that are reviewed regularly by our Credit Department. We also maintain a policy of requiring that all derivative contracts be governed by an International Swaps and Derivative Association Master Agreement. Depending on the nature of the derivative transaction, bilateral collateral arrangements generally are required as well. When we have more than one outstanding derivative transaction with the counterparty, and there exists legally enforceable netting provisions with the counterparty (i.e., a legal right to offset receivable and payable derivative contracts), the “net” mark-to-market exposure, less collateral held or plus collateral posted, represents exposure with the counterparty. When there is a net negative exposure, we consider our exposure to the counterparty to be zero. At December 31, 2014 and 2013, we had a net positive exposure (derivative gain positions to us less collateral which has been posted by counterparties to us) related to derivatives of $60,784 and $3,517 , respectively.

Accounting for Derivative Instruments
Derivative instruments that are used as part of our interest rate risk management strategy are interest rate swaps. The accounting for derivative instruments requires that every derivative instrument, including certain derivative instruments embedded in other contracts, be recorded on the balance sheet as either an asset or liability measured at fair value. Our derivative instruments are classified and accounted for by us as fair value hedges and cash flow hedges.

Fair Value Hedges
Fair value hedges are generally used by us to hedge the exposure to changes in fair value of a recognized fixed-rate liability. We enter into interest rate swaps to economically convert fixed-rate debt into variable rate debt. For fair value hedges, we generally consider all components of the derivative’s gain and/or loss when assessing hedge effectiveness and generally hedge changes in fair values due to interest rates.

F-35

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
11.
Derivative Financial Instruments (Continued)
 


Cash Flow Hedges
We use cash flow hedges to hedge the exposure to variability in cash flows of floating rate deposits. This strategy is used primarily to minimize the exposure to volatility in cash flows from future changes in interest rates. Gains and losses on the effective portion of a qualifying hedge are recorded in accumulated other comprehensive income and ineffectiveness is recorded immediately to earnings. In assessing hedge effectiveness, generally all components of each derivative’s gains or losses are included in the assessment. We hedge exposure to changes in cash flows due to changes in interest rates or total changes in cash flow.
Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on our variable rate deposits. During the next twelve months, we estimate that $ 19.8  million will be reclassified as an increase to interest expense.


Trading Activities
When derivative instruments do not qualify for hedge accounting treatment, they are accounted for at fair value with all changes in fair value recorded through earnings. All our derivative instruments entered into after December 31, 2013, with a maturity of less than 3 years, are economically hedging risk but do not receive hedge accounting treatment. Trading derivatives also include any hedges that originally received hedge accounting treatment, but lost hedge accounting treatment due to failed effectiveness testing, as well as the activity of certain derivatives  prior to them receiving hedge accounting treatment.

Summary of Derivative Financial Statement Impact
The following tables summarize the fair values and notional amounts of all derivative instruments at December 31, 2014 and 2013, and their impact on other comprehensive income and earnings for the years ended December 31, 2014, 2013 and 2012.

F-36

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
11.
Derivative Financial Instruments (Continued)
 



Impact of Derivatives on the Consolidated Balance Sheet
 
 
 
Cash Flow Hedges
 
Fair Value Hedges
 
Trading
 
Total
 
 
 
 
December 31,
 
December 31,
 
December 31,
 
December 31,
 
December 31,
 
December 31,
 
December 31,
 
December 31,
 
 
 
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
 
Fair Values (1)
Hedged Risk Exposure
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative Assets: (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
Interest rate
 
$
—

 
$
—

 
$
5,012

 
$
6,335

 
$
226

 
$
426

 
$
5,238

 
$
6,761

 
Derivative Liabilities: (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
Interest rate
 
(21,435
)
 
—

 
(5,883
)
 
(6,149
)
 
(1,370
)
 
—

 
(28,688
)
 
(6,149
)
 
Total net derivatives
 
 
$
(21,435
)
 
$
—

 
$
(871
)
 
$
186

 
$
(1,144
)
 
$
426

 
$
(23,450
)
 
$
612

 
 
(1)
Fair values reported are exclusive of collateral held and pledged and accrued interest. Assets and liabilities are presented without consideration of master netting agreements. Derivatives are carried on the balance sheet based on net position by counterparty under master netting agreements, and classified in other assets or other liabilities depending on whether in a net positive or negative position.

(2)
The following table reconciles gross positions with the impact of master netting agreements to the balance sheet classification:
    
 
 
Other Assets
 
Other Liabilities
 
 
December 31,
 
December 31,
 
December 31,
 
December 31,
 
 
2014
 
2013
 
2014
 
2013
Gross position
 
$
5,238

 
$
6,761

 
$
(28,688
)
 
$
(6,149
)
Impact of master netting agreement
 
(4,045
)
 
(4,981
)
 
4,045

 
4,981

Derivative values with impact of master netting agreements (as carried on balance sheet)
 
1,193

 
1,780

 
(24,643
)
 
(1,168
)
Cash collateral (held) pledged (1)
 
(900
)
 
(5,190
)
 
72,478

 
40

Net position
 
$
293

 
$
(3,410
)
 
$
47,835

 
$
(1,128
)

(1)
Cash collateral amount calculations include outstanding accrued interest payable/receivable.

F-37

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
11.
Derivative Financial Instruments (Continued)
 



 
 
 
Cash Flow
 
Fair Value
 
Trading
 
Total
 
 
 
December 31,
 
December 31,
 
December 31,
 
December 31,
 
December 31,
 
December 31,
 
December 31,
 
December 31,
 
 
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
Notional Values
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
 
$
1,106,920

 
$
—

 
$
3,044,492

 
$
2,089,624

 
$
973,539

 
$
575,131

 
$
5,124,951

 
$
2,664,755



Impact of Derivatives on the Consolidated Statements of Income

 
 
Years Ended December 31,
 
 
2014
 
2013
 
2012
 
 
 
 
 
 
 
Fair Value Hedges
 
 
 
 
 
 
Interest rate swaps:
Hedge ineffectiveness gains (losses) recorded in earnings
 
$
1,718

 
$
(558
)
 
$
(6,061
)
Realized gains recorded in interest expense
 
20,958

 
28,668

 
35,988

Total
 
$
22,676

 
$
28,110

 
$
29,927

 
 
 
 
 
 
 
Cash Flow Hedges
 
 
 
 
 
 
Interest rate swaps:
 
 
 
 
 
 
Hedge ineffectiveness losses recorded in earnings
 
$
(520
)
 
$
—

 
$
—

Realized losses recorded in interest expense
 
(9,070
)
 
—

 
—

Total
 
$
(9,590
)
 
$
—

 
$
—

 
 
 
 
 
 
 
Trading
 
 
 
 
 
 
Interest rate swaps:
 
 
 
 
 
 
Interest reclassification
 
$
(2,250
)
 
$
1,285

 
$
87

Change in fair value of future interest payments recorded in earnings
 
(2,944
)
 
(87
)
 
513

Total (1)  
 
(5,194
)
 
1,198

 
600

Total
 
$
7,892

 
$
29,308

 
$
30,527

    
(1)
Amounts included in "gains (losses) on derivatives and hedging activities, net."


F-38

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
11.
Derivative Financial Instruments (Continued)
 


Impact of Derivatives on the Statements of Changes in Stockholders' Equity
 
 
Years Ended December 31,
 
 
2014
 
2013
 
2012
Amount of loss recognized in other comprehensive income
 
$
(28,842
)
 
$
—

 
$
—

Amount of loss reclassified in interest expense (1)
 
(9,070
)
 
—

 
—

Total change in other comprehensive income for unrealized losses on derivatives
 
$
(19,772
)
 
$
—

 
$
—



(1)
Amounts included in “realized gains (losses) recorded in interest expense” in the “Impact of Derivatives on the Consolidated Statements of Income” table.

Cash Collateral
Cash collateral held related to derivative exposure between the Company and its derivatives counterparties was $900 and $5,190 at December 31, 2014 and 2013, respectively. Collateral held is recorded in “Other Liabilities.” Cash collateral pledged related to derivative exposure between the Company and its derivatives counterparties was $72,478 and $40 at December 31, 2014 and 2013, respectively. Collateral pledged is recorded in "Other interest-earning assets" on the consolidated balance sheets.


F-39


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)


12. Stockholders' Equity
Preferred Stock
At December 31, 2014, we had outstanding 3.3  million shares of 6.97 percent Cumulative Redeemable Preferred Stock, Series A (the “Series A Preferred Stock”) and 4.0  million shares of Floating-Rate Non-Cumulative Preferred Stock, Series B (the “Series B Preferred Stock”). In connection with the Spin-Off, the Company, by reason of a statutory merger, succeeded pre-Spin-Off SLM and issued Series A Preferred Stock and Series B Preferred Stock, on terms substantially similar to those of pre-Spin-Off SLM's respective series of preferred stock. Neither series has a maturity date but can be redeemed at our option. Redemption would include any accrued and unpaid dividends up to the redemption date. The shares have no preemptive or conversion rights and are not exchangeable for any of our other securities or property. Dividends on both series are not mandatory and are paid quarterly, when, as, and if declared by the Board of Directors. Holders of Series A Preferred Stock are entitled to receive cumulative, quarterly cash dividends at the annual rate of $ 3.485 per share. Holders of Series B Preferred Stock are entitled to receive quarterly dividends based on 3-month LIBOR plus 170 basis points per annum in arrears. Upon liquidation or dissolution of the Company, holders of the Series A and Series B Preferred Stock are entitled to receive $ 50 and $ 100 per share, respectively, plus an amount equal to accrued and unpaid dividends for the then current quarterly dividend period, if any, pro rata, and before any distribution of assets are made to holders of our common stock.
 
Common Stock
Our shareholders have authorized the issuance of 1.125 billion shares of common stock (par value of $ .20 ). At December 31, 2014, 423  million shares were issued and outstanding and 60  million shares were unissued but encumbered for outstanding stock options, restricted stock units and dividend equivalent units for employee compensation and remaining authority for stock-based compensation plans.
Because of the carve-out accounting treatment, there were no common stock dividends recognized in these financial statements for the years ended December 31, 2014, 2013 and 2012. For additional information, see Note 2, “Significant Accounting Policies — Basis of Presentation.”
We currently do not intend to initiate a publicly announced share repurchase program. We only expect to repurchase common stock acquired in connection with taxes withheld in connection with award exercises and vesting under our employee stock-based compensation plans. The following table summarizes our common share repurchases and issuances associated with these programs.

 
 
Years Ended December 31,
(Shares and per share amounts in actuals)
 
2014  
 
2013
 
2012
Shares repurchased related to employee stock-based compensation plans (1)
 
1,365,277

 
6,365,002

 
4,547,785

Average purchase price per share
 
$
8.93

 
$
21.76

 
$
15.86

Common shares issued (2)
 
2,013,805

 
9,702,976

 
6,432,643

 
(1)  
Comprises shares withheld from stock option exercises and vesting of restricted stock for employees’ tax withholding obligations and shares tendered by employees to satisfy option exercise costs.
(2)  
Common shares issued under our various compensation and benefit plans.
 
The closing price of our common stock on December 31, 2014 was $ 10.19 .


F-40

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
12.
Stockholders' Equity (Continued)
 


Investment With Entities That Are Now Subsidiaries of Navient

Prior to the Spin-Off, there were transactions between us and affiliates of pre-Spin-Off SLM that are now subsidiaries of Navient. As part of the carve-out, these expenses were included in our results even though the actual payments for the expenses were paid by the aforementioned affiliates. As such, amounts equal to these payments have been treated as equity contributions in the table below. Certain payments made by us to these affiliates prior to the Spin-Off were treated as dividends.

Net transfers (to)/from the entity that is now a subsidiary of Navient are included within Navient's subsidiary investment on the consolidated statements of changes in equity. The components of the net transfers (to)/from the entity that is now a subsidiary of Navient are summarized below:
 
 
Years Ended December 31,
 
 
2014
 
2013
 
2012
Capital contributions:
 
 
 
 
 
 
Loan origination activities
 
$
32,452

 
$
124,722

 
$
119,094

Loan sales
 
45

 
35

 
13,502

Corporate overhead activities
 
21,216

 
62,031

 
69,830

Special cash contribution
 
472,718

 
—

 
—

Other
 
19,650

 
2,004

 
5,429

Total capital contributions
 
546,081

 
188,792

 
207,855

Dividend
 
—

 
(120,000
)
 
(420,000
)
Corporate push-down
 
4,977

 
3,093

 
1,241

Net change in income tax accounts
 
15,659

 
(134,219
)
 
(78,842
)
Net change in receivable/payable
 
(87,277
)
 
(101,044
)
 
(94,264
)
Other
 
(31
)
 
—

 
—

Total net transfers (to)/from the entity that is now a subsidiary of Navient
 
$
479,409

 
$
(163,378
)
 
$
(384,010
)

Capital Contributions

During the years ended December 31, 2014, 2013 and 2012, pre-Spin-Off SLM contributed capital to the Bank by funding loan origination activities, purchases of loans in excess of the loans’ fair values, providing corporate overhead functions and other activities.
    
Capital contributed for loan origination activities reflects the fact that the loan origination function was conducted by a subsidiary of pre-Spin-Off SLM (now a subsidiary of Navient). The Bank did not pay for the costs incurred by pre-Spin-Off SLM in connection with these functions. The costs eligible to be capitalized are recorded on the respective balance sheets and the costs not eligible for capitalization have been recognized as expenses in the respective statements of income.
    
Certain general corporate overhead expenses of the Bank were incurred and paid for by pre-Spin-Off SLM.

Corporate Push-Down

The consolidated balance sheets include certain assets and liabilities that have historically been held at pre-Spin-Off SLM but which are specifically identifiable or otherwise allocable to the Company. The cash and cash equivalents held by pre-Spin-Off SLM at the corporate level were not allocated to the Bank for any of the periods presented.

F-41

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
12.
Stockholders' Equity (Continued)
 



Receivable/Payable with Affiliate
    
All significant intercompany payable/receivable balances between the Bank and pre-Spin-Off SLM are considered to be effectively settled for cash in the combined financial statements at the time the transaction is recorded.


13. Earnings per Common Share

Basic earnings per common share (“EPS”) are calculated using the weighted average number of shares of common stock outstanding during each period. The determination of the weighted-average shares and diluted potential common shares for pre-Spin-Off periods are based on the activity at pre-Spin-Off SLM. A reconciliation of the numerators and denominators of the basic and diluted EPS calculations follows.
 
 
Years Ended December 31,
(In thousands, except per share data)
 
2014
 
2013
 
2012
Numerator:
 
 
 
 
 
 
Net income attributable to SLM Corporation
 
$
194,219

 
$
258,945

 
$
217,620

Preferred stock dividends
 
12,933

 
—

 
—

Net income attributable to SLM Corporation common stock
 
$
181,286

 
$
258,945

 
$
217,620

Denominator:
 
 
 
 
 
 
Weighted average shares used to compute basic EPS
 
423,970

 
440,108

 
476,118

Effect of dilutive securities:
 
 
 
 
 
 
Dilutive effect of stock options, restricted stock, restricted stock units and Employee Stock Purchase Plan ("ESPP") (1)(2)
 
8,299

 
8,441

 
6,774

Weighted average shares used to compute diluted EPS
 
432,269

 
448,549

 
482,892

 
 
 
 
 
 
 
Basic earnings per common share attributable to SLM Corporation
 
$
0.43

 
$
0.59

 
$
0.46

 
 
 
 
 
 
 
Diluted earnings per common share attributable to SLM Corporation
 
$
0.42

 
$
0.58

 
$
0.45


__________

(1)  
Includes the potential dilutive effect of additional common shares that are issuable upon exercise of outstanding stock options, restricted stock, restricted stock units, and the outstanding commitment to issue shares under the ESPP, determined by the treasury stock method.
 
(2)  
For the years ended December 31, 2014, 2013 and 2012, securities covering approximately 3 million, 3 million and 12 million shares, respectively, were outstanding but not included in the computation of diluted earnings per share because they were anti-dilutive.
 




F-42


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)



14. Stock-Based Compensation Plans and Arrangements
Plan Summaries
As of December 31, 2014, we had one active stock-based compensation plan that provides for grants of equity awards to our employees and non-employee directors. We also maintained an Employee Stock Purchase Plan (“ESPP”). Shares issued under these stock-based compensation plans may be either shares reacquired by us or shares that are authorized but unissued.
The SLM Corporation 2012 Omnibus Incentive Plan was approved by shareholders on May 24, 2012. At December 31, 2014, 32 million shares, as adjusted to reflect the effects of the Spin-Off, were authorized to be issued from this plan.
An amendment to our ESPP was approved by our shareholders on May 24, 2012 that authorized the issuance of 6 million shares under the plan and kept the terms of the plan substantially the same. The number of shares authorized under the plan was subsequently adjusted to 15 million shares on June 25, 2014, to reflect the effects of the Spin-Off.
 
Effect of Spin-Off on Equity Awards

In connection with the Spin-Off of Navient, we made certain adjustments to the exercise price and number of our stock-based compensation awards with the intention of preserving the intrinsic value of the outstanding awards held by Sallie Mae officers and employees prior to the Spin-Off. In general, holders of awards granted prior to 2014 received both Sallie Mae and Navient equity awards, and holders of awards granted in 2014 received solely equity awards of their post-Spin-Off employer. Stock options, restricted stock, restricted stock units, performance stock units and dividend equivalent units were adjusted into equity in the new companies by a specific conversion ratio per company, which was based upon the volume weighted average prices for each company at the time of the Spin-Off, in an effort to keep the value of the equity awards constant. Our performance stock units with vesting contingent upon performance were replaced with time-vesting restricted stock units. These adjustments were accounted for as modifications to the original awards. In general, the Sallie Mae and Navient awards will be subject to substantially the same terms and conditions as the original pre-Spin-Off SLM awards. A comparison of the fair value of the modified awards with the fair value of the original awards immediately before the modification resulted in approximately $ 64 of incremental expense related to fully-vested stock option awards and was expensed immediately and $ 630 of incremental compensation expense related to unvested restricted stock and restricted stock units which will be recorded over the remaining vesting period of the equity awards. The Spin-Off Adjustments are reflected in the tables below.
Stock-Based Compensation

The total stock-based compensation cost recognized in the consolidated statements of income for the years ended December 31, 2014, 2013 and 2012 was $24,971 , $15,681 and $19,102 , respectively. As of December 31, 2014, there was $ 15,174 of total unrecognized compensation expense related to unvested stock awards net of estimated forfeitures, which is expected to be recognized over a weighted average period of 2.2 years . We amortize compensation expense on a straight-line basis over the related vesting periods of each tranche of each award.
Stock Options
Stock options granted prior to 2012 expire 10 years after the grant date, and those granted since 2012 expire in 5 years. The exercise price must be equal to or greater than the market price of our common stock on the grant date. We have granted time-vested, price-vested and performance-vested options to our employees and non-employee directors. Time-vested options granted to management and non-management employees generally vest over three years . Price-vested options granted to management employees vest upon our common stock reaching a targeted closing price for a set number of days. Performance-vested options granted to management employees vest one-third per year for three years based on corporate earnings-related performance targets. Options granted to non-employee directors vest upon the director’s election to the Board.

F-43

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
14.
Stock-Based Compensation Plans and Arrangements (Continued)
 


The fair values of the options granted in the years ended December 31, 2014, 2013 and 2012 were estimated as of the grant date using a Black-Scholes option pricing model with the following weighted average assumptions:

 
Years Ended December 31,
(Dollars per share)
2014
 
2013
 
2012
Risk-free interest rate
0.76
%
 
0.65
%
 
0.60
%
Expected volatility
26
%
 
31
%
 
44
%
Expected dividend rate
2.48
%
 
3.35
%
 
3.13
%
Expected life of the option
2.9 years

 
2.8 years

 
2.8 years

Weighted average fair value of options granted
$
3.48

 
$
3.11

 
$
4.12

The expected life of the options is based on observed historical exercise patterns. Groups of employees (and non-employee directors) that have received similar option grant terms are considered separately for valuation purposes. The expected volatility is based on implied volatility from publicly traded options on our stock at the grant date and historical volatility of our stock consistent with the expected life of the option. The risk-free interest rate is based on the U.S. Treasury spot rate at the grant date consistent with the expected life of the option. The dividend yield is based on the projected annual dividend payment per share based on the dividend amount at the grant date, divided by the stock price at the grant date.
 
The following table summarizes stock option activity for the year ended December 31, 2014.
 
(Dollars in thousands, except per share data)
Number of
Options
 
Weighted
Average
Exercise
Price per
Share
 
Weighted
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value (1)
Outstanding at December 31, 2013
3,851,120

 
$
14.60

 
 
 
 
Granted
16,132

 
24.24

 
 
 
 
Exercised (2)(3)
(2,196,575
)
 
6.19

 
 
 
 
Canceled
(148,159
)
 
21.86

 
 
 
 
Spin-Off adjustment (4)
14,632,601

 
8.22

 
 
 
 
Outstanding at December 31, 2014 (5)(6)
16,155,119

 
$
9.91

 
3.2 years
 
$
62,144

Exercisable at December 31, 2014
12,985,828

 
$
8.32

 
3.2 years
 
$
50,154

(1)  
The aggregate intrinsic value represents the total intrinsic value (the aggregate difference between our closing stock price on December 31, 2014 and the exercise price of in-the-money options) that would have been received by the option holders if all in-the-money options had been exercised on December 31, 2014.
(2)  
The total intrinsic value of options exercised was $11,430 , $8,467 and $5,410 for the years ended December 31, 2014, 2013 and 2012, respectively.
(3)  
Cash of Fifty-three thousand was received from option exercises for the year ended December 31, 2014. The actual tax benefit realized for the tax deductions from option exercises totaled $4,853 for the year ended December 31, 2014.
(4)  
Represents the adjustment to preserve the intrinsic value of the outstanding equity awards held by SLM and Navient employees.
(5)  
As of December 31, 2014, there was $362 of unrecognized compensation cost related to stock options net of estimated forfeitures, which is expected to be recognized over a weighted average period of 1.0 year .
(6)  
For net-settled options, gross number is reflected.
    

F-44

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
14.
Stock-Based Compensation Plans and Arrangements (Continued)
 



Restricted Stock
Restricted stock awards generally vest over three years and in some cases based on corporate earnings-related performance targets. Outstanding restricted stock is entitled to dividend equivalent units that vest subject to the same vesting requirements or lapse of transfer restrictions, as applicable, as the underlying restricted stock award. The fair value of restricted stock awards is based on our stock price at the grant date.
 
The following table summarizes restricted stock activity for the year ended December 31, 2014.
 
(Amounts in thousands, except per share data)
Number of
Shares
 
Weighted
Average Grant
Date
Fair Value
Non-vested at December 31, 2013
33,333

 
$
12.81

Granted
49,123

 
9.46

Vested (1)
(33,333
)
 
12.81

Canceled
(684
)
 
21.91

Spin-Off adjustment (2)
6,529

 
7.89

Non-vested at December 31, 2014 (3)
54,968

 
$
9.12

(1)  
The total fair value of shares that vested during the years ended December 31, 2014, 2013 and 2012 was $427 , $592 and $1,189 , respectively.
(2)  
Represents the adjustment to preserve the intrinsic value of the outstanding equity awards held by SLM and Navient employees.
(3)  
As of December 31, 2014, there was $188 of unrecognized compensation cost related to restricted stock net of estimated forfeitures, which is expected to be recognized over a weighted average period of 0.5 years .
Restricted Stock Units and Performance Stock Units
Restricted stock units (“RSUs”) and performance stock units (“PSUs”) are equity awards granted to employees that entitle the holder to shares of our common stock when the award vests. RSUs may be time-vested over three years or vested at grant but subject to transfer restrictions, while PSUs vest based on corporate earnings-related performance targets over a three -year period. In April 2014, our PSUs with vesting contingent upon performance were replaced with time-vesting RSUs. This conversion was made prior to the Spin-Off and was assessed to yield no incremental expense.
Outstanding RSUs are entitled to dividend equivalent units that vest subject to the same vesting requirements or lapse of transfer restrictions, as applicable, as the underlying award. The fair value of RSUs is based on our stock price at the grant date.

F-45

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
14.
Stock-Based Compensation Plans and Arrangements (Continued)
 


The following table summarizes RSU and PSU activity for the year ended December 31, 2014.
 
(Amounts in thousands, except per share data)
Number of
RSUs/
PSUs
 
Weighted
Average Grant
Date
Fair Value
Outstanding at December 31, 2013
1,421,007

 
$
16.82

Granted
1,904,169

 
18.30

Vested and converted to common stock (1)
(750,707
)
 
16.83

Canceled
(367,684
)
 
17.70

Spin-Off adjustment (2)
4,072,958

 
7.16

Outstanding at December 31, 2014 (3)
6,279,743

 
$
10.95

(1)  
The total fair value of RSUs/PSUs that vested and converted to common stock during the years ended December 31, 2014, 2013 and 2012 was $12,636 , $6,415 and $2,656 , respectively.
(2)  
This represents the adjustment to preserve the intrinsic value of the outstanding equity awards held by SLM and Navient employees.
(3)  
As of December 31, 2014, there was $14,506 of unrecognized compensation cost related to RSUs net of estimated forfeitures, which is expected to be recognized over a weighted average period of 2.3 years .
Employee Stock Purchase Plan
In the third quarter of 2014, we resumed offering the opportunity for employees to enroll in our ESPP. Employees may purchase shares of our common stock at the end of a 12 -month offering period at a price equal to the share price at the beginning of the 12-month period, less 15 percent , up to a maximum purchase price of $7,500 (whole dollars). The purchase price for each offering is determined at the beginning of the offering period on August 1, 2014.
 
The fair values of the stock purchase rights of the ESPP offerings were calculated using a Black-Scholes option pricing model with the following weighted average assumptions.
 
 
Years Ended December 31,
(Dollars per share)
2014
 
2013
 
2012
Risk-free interest rate
0.13
%
 
0.15
%
 
0.13
%
Expected volatility
25
%
 
29
%
 
29
%
Expected dividend rate
—
%
 
3.51
%
 
3.27
%
Expected life of the option
1 year

 
1 year

 
1 year

Weighted average fair value of stock purchase rights
$
1.66

 
$
2.95

 
$
3.01

The expected volatility is based on implied volatility from publicly traded options on our stock at the grant date and historical volatility of our stock consistent with the expected life. The risk-free interest rate is based on the U.S. Treasury spot rate at the grant date consistent with the expected life. The dividend yield is based on the projected annual dividend payment per share based on the current dividend amount at the grant date divided by the stock price at the grant date.
The fair values were amortized to compensation cost on a straight-line basis over a one-year vesting period. As of December 31, 2014, there was $118 of unrecognized compensation cost related to the ESPP net of estimated forfeitures, which is expected to be recognized by July 2015.
As our ESPP resumed in late 2014, no shares were purchased for the year ended December 31, 2014. During the years ended December 31, 2013 and 2012, plan participants purchased 47,176 shares and 34,729 shares, respectively, of our common stock.

F-46


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)



15. Fair Value Measurements

We use estimates of fair value in applying various accounting standards for our financial statements.

We categorize our fair value estimates based on a hierarchal framework associated with three levels of price transparency utilized in measuring financial instruments at fair value. For additional information regarding our policies for determining fair value and the hierarchical framework, see Note 2, “Significant Accounting Policies — Fair Value Measurement.”

The following table summarizes the valuation of our financial instruments that are marked-to-fair value on a recurring basis.
 
 
Fair Value Measurements on a Recurring Basis
 
December 31, 2014
 
December 31, 2013
 
Level 1 
 
Level 2 
 
Level 3 
 
Total 
 
Level 1 
 
Level 2 
 
Level 3 
 
Total 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
$
—

 
$
168,934

 
$
—

 
$
168,934

 
$
—

 
$
102,105

 
$
—

 
$
102,105

Derivative instruments
—

 
5,238

 
—

 
5,238

 
—

 
6,761

 
—

 
6,761

Total
$
—

 
$
174,172

 
$
—

 
$
174,172

 
$
—

 
$
108,866

 
$
—

 
$
108,866

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments
$
—

 
$
(28,688
)
 
$
—

 
$
(28,688
)
 
$
—

 
$
(6,149
)
 
$
—

 
$
(6,149
)
Total
$
—

 
$
(28,688
)
 
$
—

 
$
(28,688
)
 
$
—

 
$
(6,149
)
 
$
—

 
$
(6,149
)


The following table summarizes the change in balance sheet carrying value associated with level 3 financial instruments carried at fair value on a recurring basis.
 
 
 
Asset-Backed Securities
 
 
Years Ended December 31,
 
 
2014
 
2013
 
2012
Balance, beginning of period
 
$
—

 
$
532,155

 
$
498,657

Total gains/(losses) (realized and unrealized):
 
 
 
 
 
 
Included in earnings
 
—

 
(21,490
)
 
23,149

Included in other comprehensive income
 
—

 
63,813

 
—

Included in earnings - accretion of discount
 
—

 
7,596

 
10,349

Proceeds from sale
 
—

 
(582,074
)
 
—

Transfers in and/or out of level 3
 
—

 
—

 
—

Balance, end of period
 
$
—

 
$
—

 
$
532,155

Change in unrealized gains/(losses) relating to instruments still held at the reporting date
 
$
—

 
$
—

 
$
23,149

 
 


F-47

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
15.
Fair Value Measurements (Continued)
 



The following table summarizes the fair values of our financial assets and liabilities, including derivative financial instruments.

 
 
December 31, 2014
 
December 31, 2013
 
 
Fair
Value
 
Carrying
Value
 
Difference
 
Fair
Value
 
Carrying
Value
 
Difference
Earning assets
 
 
 
 
 
 
 
 
 
 
 
 
Loans held for investment, net
 
$
10,228,399

 
$
9,509,786

 
$
718,613

 
$
8,541,919

 
$
7,931,377

 
$
610,542

Cash and cash equivalents
 
2,359,780

 
2,359,780

 
—

 
2,182,865

 
2,182,865

 
—

Available for sale investments
 
168,934

 
168,934

 
—

 
102,105

 
102,105

 
—

Accrued interest receivable
 
469,697

 
469,697

 
—

 
356,283

 
356,283

 
—

Tax indemnification receivable
 
240,311

 
240,311

 
—

 
—

 
—

 
—

Derivative instruments
 
5,238

 
5,238

 
—

 
6,761

 
6,761

 
—

Total earning assets
 
$
13,472,359

 
$
12,753,746

 
$
718,613

 
$
11,189,933

 
$
10,579,391

 
$
610,542

Interest-bearing liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Money-market, savings and NOW accounts
 
$
5,231,736

 
$
5,231,736

 
$
—

 
$
4,029,881

 
$
4,029,881

 
$
—

Certificates of deposit
 
5,313,645

 
5,308,818

 
(4,827
)
 
4,984,114

 
4,971,669

 
(12,445
)
Accrued interest payable
 
16,082

 
16,082

 
—

 
13,097

 
13,097

 
—

Derivative instruments
 
28,688

 
28,688

 
—

 
6,149

 
6,149

 
—

Total interest-bearing liabilities
 
$
10,590,151

 
$
10,585,324

 
(4,827
)
 
$
9,033,241

 
$
9,020,796

 
$
(12,445
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Excess of net asset fair value over carrying value
 
 
 
 
 
$
713,786

 
 
 
 
 
$
598,097


The methods and assumptions used to estimate the fair value of each class of financial instruments are as follows:
Cash and Cash Equivalents
Cash and cash equivalents are carried at cost. Carrying value approximated fair value for disclosure purposes. These are level 1 valuations.
Investments
Investments are classified as available-for-sale and are carried at fair value in the financial statements. Investments in mortgage-backed securities are valued using observable market prices of similar assets. As such, these are level 2 valuations.
Loans Held For Investment
Our Private Education Loans and FFELP Loans are accounted for at cost or at the lower of cost or market if the loan is held-for-sale. For both Private Education Loans and FFELP Loans, fair value was determined by modeling expected loan level cash flows using stated terms of the assets and internally developed assumptions to determine aggregate portfolio yield, net present value and average life. The significant assumptions used to determine fair value are prepayment speeds, default rates, cost of funds and required return on equity. We regularly calibrate these models to take into account relevant transactions in the marketplace. Significant inputs into the model are not observable. However, we do calibrate the model based on market transactions when appropriate. As such, these are level 3 valuations.

F-48

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
15.
Fair Value Measurements (Continued)
 



Accrued Interest Receivable
Accrued interest receivable is carried at cost. The carrying value approximates fair value due to its short-term nature. This is a level 1 valuation.
Tax Indemnification Receivable
Tax indemnification receivable is carried at cost. The carrying value approximates fair value. This is a level 1 valuation.
Money Market, Savings Accounts and NOW Accounts
The fair value of money market, savings, and NOW accounts equal the amounts payable on demand at the balance sheet date and are reported at their carrying value. These are level 1 valuations.
Certificates of Deposit
The fair value of certificates of deposit are estimated using discounted cash flows based on rates currently offered for deposits of similar remaining maturities. These are level 2 valuations.
Accrued Interest Payable
Accrued interest payable is carried at cost. The carrying value approximates fair value due to its short-term nature. This is a level 1 valuation.
Derivatives
All derivatives are accounted for at fair value in the financial statements. The fair value of derivative financial instruments was determined by a standard derivative pricing and option model using the stated terms of the contracts and observable market inputs. It is our policy to compare the derivative fair values to those received from our counterparties in order to evaluate the model’s outputs.
When determining the fair value of derivatives, we take into account counterparty credit risk for positions where we are exposed to the counterparty on a net basis by assessing exposure net of collateral held. When the counterparty has exposure to us under derivative contracts with the Company, we fully collateralize the exposure (subject to certain thresholds).
Interest rate swaps are valued using a standard derivative cash flow model with a LIBOR swap yield curve which is an observable input from an active market. These derivatives are level 2 fair value estimates in the hierarchy.
The carrying value of borrowings designated as the hedged item in a fair value hedge is adjusted for changes in fair value due to changes in the benchmark interest rate (one-month LIBOR). These valuations are determined through standard pricing models using the stated terms of the borrowings and observable yield curves.
 

F-49


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)



16. Arrangements with Navient Corporation

In connection with the Spin-Off, the Company entered into a separation and distribution agreement with Navient (the “Separation and Distribution Agreement”). In connection therewith, the Company also entered into various other ancillary agreements with Navient to effect the Spin-Off and provide a framework for its relationship with Navient thereafter, such as a transition services agreement, a tax sharing agreement, an employee matters agreement, a loan servicing and administration agreement, a joint marketing agreement, a key services agreement, a data sharing agreement and a master sublease agreement. The majority of these agreements are transitional in nature with most having terms of two years or less from the date of the Spin-Off.

We continue to have significant exposures to risks related to Navient’s loan originations and its creditworthiness. If we are unable to obtain services, complete the transition of our origination operations as planned, or obtain indemnification payments from Navient, we could experience higher than expected costs and operating expenses and our results of operations and financial condition could be materially and adversely affected.

We briefly summarize below some of the most significant agreements and relationships we continue to have with Navient. For additional information regarding the Separation and Distribution Agreement and the other ancillary agreements, see our Current Report on Form 8-K filed on May 2, 2014.

Separation and Distribution Agreement

The Separation and Distribution Agreement addresses, among other things, the following ongoing activities:

•
the obligation of each party to indemnify the other against liabilities retained or assumed by that party pursuant to the Separation and the Distribution Agreement and in connection with claims of third parties;

•
the allocation among the parties of rights and obligations under insurance policies;

•
the agreement of the Company and Navient (i) not to engage in certain competitive business activities for a period of five years , (ii) as to the effect of the non-competition provisions on post-spin merger and acquisition activities of the parties and (iii) regarding “first look” opportunities; and

•
the creation of a governance structure, including a separation oversight committee of representatives from the Company and Navient, by which matters related to the separation and other transactions contemplated by the separation and distribution agreement will be monitored and managed.

Transition Services

During a transition period, Navient and its affiliates provided the Bank with significant servicing capabilities with respect to Private Education Loans held by the Company and its subsidiaries. On October 13, 2014, we transitioned the Private Education Loan servicing to our own platform. The last remaining significant operational transition left to be completed is the transition of the loan origination function. We anticipate the completion of this transition to occur in the first half of 2015. Beyond this transition period, it is currently anticipated that Navient will continue to service Private Education Loans owned by the Company or its subsidiaries with respect to individual borrowers who also have Private Education Loans which are owned by Navient, in order to optimize the customer’s experience. In addition, Navient will continue to service and collect the Bank’s portfolio of FFELP Loans indefinitely.

Indemnification Obligations

Navient has also agreed to be responsible, and indemnify us, for all claims, actions, damages, losses or expenses that may arise from the conduct of all activities of pre-Spin-Off SLM occurring prior to the Spin-Off other than those specifically excluded in the Separation and Distribution Agreement. Some significant examples of the types of indemnification obligations Navient has under the Separation and Distribution Agreement and related ancillary agreements include:

F-50

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
16.
Arrangements with Navient Corporation (Continued)
 


•
Pursuant to a tax sharing agreement, Navient has agreed to indemnify us for $283 million in deferred taxes that the Company will be legally responsible for but that relate to gains recognized by the Company’s predecessor on debt repurchases made prior to the Spin-Off. The remaining amount of this indemnification at December 31, 2014 is $224 million . In addition, Navient has agreed to indemnify us for tax assessments incurred related to identified uncertain tax positions taken prior to the date of the Spin-Off. At December 31, 2014, we have recorded a receivable of $16 million related to this indemnification.

•
Navient has responsibility to assume new or ongoing litigation matters relating to the conduct of most pre-Spin-Off SLM businesses operated or conducted prior to the Spin-Off.

•
At the time of this filing, the Bank remains subject to a Consent Order, Order to Pay Restitution and Order to Pay Civil Money Penalty dated May 13, 2014 issued by the FDIC (the “2014 FDIC Order”). The 2014 FDIC Order replaces a prior cease and desist order jointly issued in August 2008 by the FDIC and the Utah Department of Financial Institutions (“UDFI”) which was terminated on July 15, 2014. Specifically, on May 13, 2014, the Bank reached settlements with the FDIC and the Department of Justice (the “DOJ”) regarding disclosures and assessments of certain late fees, as well as compliance with the Servicemembers Civil Relief Act (“SCRA”). The DOJ Order was approved by the U.S. District Court for the District of Delaware on September 29, 2014. Under the FDIC’s 2014 Order, the Bank agreed to pay $3.3 million in fines and oversee the refund of up to $30 million in late fees assessed on loans owned or originated by the Bank since its inception in November 2005. Navient is responsible for funding all liabilities, restitution and compensation under orders such as these, other than fines directly levied against the Bank.

Long-Term Arrangements

The Loan Servicing and Administration Agreement governs the terms by which Navient provides servicing, administration and collection services for the Bank’s portfolio of FFELP Loans and Private Education Loans, as well as servicing history information with respect to Private Education Loans previously serviced by Navient and access to certain promissory notes in Navient’s possession. The loan servicing and administration agreement has a fixed term with a renewal option in favor of the Bank.

The Data Sharing Agreement states the Bank will continue to have the right to obtain from Navient certain post-Spin-Off performance data relating to Private Education Loans owned or serviced by Navient to support and facilitate ongoing underwriting, originations, forecasting, performance and reserve analyses.

The Tax Sharing Agreement governs the respective rights, responsibilities and obligations of the Company and Navient after the Spin-Off relating to taxes, including with respect to the payment of taxes, the preparation and filing of tax returns and the conduct of tax contests. Under this agreement, each party is generally liable for taxes attributable to its business. The agreement also addresses the allocation of tax liabilities that are incurred as a result of the Spin-Off and related transactions. Additionally, the agreement restricts the parties from taking certain actions that could prevent the Spin-Off from qualifying for the anticipated tax treatment.

Amended Loan Participation and Purchase Agreement

Prior to the Spin-Off, the Bank sold substantially all of its Private Education Loans to several former affiliates, now subsidiaries of Navient (collectively, the “Purchasers”), pursuant to this agreement. This agreement predates the Spin-Off but has been significantly amended and reduced in scope in connection with the Spin-Off. Post-Spin-Off, the Bank retains only the right to require the Purchasers to purchase loans (at fair value) for which the borrower also has a separate lending relationship with Navient (“Split Loans”) when the Split Loans either (1) are more than 90 days past due; (2) have been restructured; (3) have been granted a hardship forbearance or more than 6 months of administrative forbearance; or (4) have a borrower or cosigner who has filed for bankruptcy. At December 31, 2014, we held approximately $117 million of Split Loans.

During the year ended December 31, 2014, the Bank separately sold loans to the Purchasers in the amount of $804,733 in principal and $5,683 in accrued interest income. During the years ended December 31, 2013 and 2012, the Bank sold loans to

F-51

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
16.
Arrangements with Navient Corporation (Continued)
 

the Purchasers in the amount of $2,415,846 and $2,640,245 , respectively, in principal and $67,018 and $77,685 , respectively, in accrued interest income.

The gain resulting from loans sold was $35,848 , $196,593 and $235,202 in the years ended December 31, 2014, 2013 and 2012, respectively. Total write-downs to fair value for loans sold with a fair value lower than par totaled $53,484 , $68,410 and $28,694 in the years ended December 31, 2014, 2013 and 2012, respectively. Navient is the servicer for all of these loans.


17. Regulatory Capital
    
The Bank is subject to various regulatory capital requirements administered by federal banking authorities. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material adverse effect on our financial condition. Under the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.
    
“Well capitalized” regulatory requirements are the quantitative measures established by regulation to ensure capital adequacy. The Bank is required to maintain minimum amounts and ratios (set forth in the table below) of Total and Tier I Capital to risk-weighted assets and of Tier I Capital to average assets, as defined by the regulation. The following amounts and ratios are based upon the Bank's assets.


 
 
Actual
 
Well Capitalized Regulatory Requirements
 
 
Amount
Ratio
 
Amount
 
Ratio
As of December 31, 2014:
 
 
 
 
 
 
 
Tier I Capital (to Average Assets)
 
$
1,413,988

11.5
%
 
$
614,709

>
5.0
%
Tier I Capital (to Risk Weighted Assets)
 
$
1,413,988

15.0
%
 
$
565,148

>
6.0
%
Total Capital (to Risk Weighted Assets)
 
$
1,497,830

15.9
%
 
$
941,913

>
10.0
%
 
 
 
 
 
 
 
 
As of December 31, 2013:
 
 
 
 
 
 
 
Tier I Capital (to Average Assets)
 
$
1,221,416

11.7
%
 
$
521,973

>
5.0
%
Tier I Capital (to Risk Weighted Assets)
 
$
1,221,416

16.4
%
 
$
446,860

>
6.0
%
Total Capital (to Risk Weighted Assets)
 
$
1,289,497

17.3
%
 
$
745,374

>
10.0
%
 
Bank Dividends

The Bank is chartered under the laws of the State of Utah and its deposits are insured by the FDIC. The Bank’s ability to pay dividends is subject to the laws of Utah and the regulations of the FDIC. Generally, under Utah’s industrial bank laws and regulations as well as FDIC regulations, the Bank may pay dividends from its net profits without regulatory approval if, following the payment of the dividend, the Bank’s capital and surplus would not be impaired. The Bank paid no dividends for the year ended December 31, 2014. Total dividends paid by the Bank were $120,000 and $420,000 in the years ended December 2013 and 2012, respectively. For the foreseeable future, we expect the Bank to only pay dividends to the Company as may be necessary to provide for regularly scheduled dividends payable on the Company’s Series A and Series B Preferred Stock.


F-52


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)



18. Defined Contribution Plans

We participate in a defined contribution plan which is intended to qualify under section 401(k) of the Internal Revenue Code. The Sallie Mae 401(k) Savings Plan covers substantially all employees. After six months of service, effective January 2013, and after one year of service prior to that time, up to 3 percent of contributions are matched 100 percent with the next 2 percent matched at 50 percent for eligible employees. After one month of service, eligible employees receive a 1 percent core employer contribution.  For the years ended December 31, 2014, 2013 and 2012, we contributed $ 3,084 , $2,779 and $2,317 , respectively, to this plan.

19. Commitments, Contingencies and Guarantees

Regulatory Matters
At the time of this filing, the Bank remains subject to the 2014 FDIC Order. Specifically, on May 13, 2014, the Bank reached settlements with the FDIC and the DOJ regarding disclosures and assessments of certain late fees, as well as compliance with the SCRA. The DOJ Order was approved by the U.S. District Court for the District of Delaware on September 29, 2014. Under the FDIC’s 2014 Order, the Bank agreed to pay $3.3 million in fines and oversee the refund of up to $30 million in late fees assessed on loans owned or originated by the Bank since its inception in November 2005.
Under the terms of the Separation and Distribution Agreement between the Company and Navient, Navient is responsible for funding all liabilities under the regulatory orders, other than fines directly levied against the Bank in connection with these matters. Under the DOJ Order, Navient is solely responsible for reimbursing SCRA benefits and related compensation on behalf of both its subsidiary, Navient Solutions, Inc., and the Bank.
In May 2014, the Bank received a Civil Investigative Demand from the CFPB in the Bank’s capacity as a former affiliate of Navient as part of the CFPB’s separate investigation relating to fees and policies of pre-Spin-Off SLM during the period prior to the Spin-Off of Navient. We are cooperating fully with the CFPB but are not in a position at this time to predict the duration or outcome of the investigation. Given the timeframe covered by this demand, Navient would be responsible for all costs, expenses, losses or remediation likely to arise from this investigation.

Contingencies
In the ordinary course of business, we and our subsidiaries are routinely defendants in or parties to pending and threatened legal actions and proceedings, including actions brought on behalf of various classes of claimants. These actions and proceedings may be based on alleged violations of consumer protection, securities, employment and other laws. In certain of these actions and proceedings, claims for substantial monetary damage may be asserted against us and our subsidiaries.
We and our subsidiaries and affiliates are subject to various claims, lawsuits and other actions that arise in the ordinary course of business. In addition, it is common for the Company, our subsidiaries and affiliates to receive information and document requests and investigative demands from state attorneys general, legislative committees, and administrative agencies. These requests may be for informational or regulatory purposes and may relate to our business practices, the industries in which we operate, or other companies with whom we conduct business. Our practice has been and continues to be to cooperate with these bodies and be responsive to any such requests.
In view of the inherent difficulty of predicting the outcome of litigation, regulatory and investigative actions, we cannot predict what the eventual outcome of the pending matters will be, what the timing or the ultimate resolution of these matters will be, or what the eventual loss, fines or penalties, if any, related to each pending matter may be.
We are required to establish reserves for litigation and regulatory matters where those matters present loss contingencies that are both probable and estimable. When loss contingencies are not both probable and estimable, we do not establish reserves.

F-53

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
19.
Commitments, Contingencies and Guarantees (Continued)
 

Based on current knowledge, management does not believe there are loss contingencies, if any, arising from pending investigations, litigation or regulatory matters that could have a material adverse effect on our consolidated financial position, liquidity, results of operations or cash flows.


20. Income Taxes
Reconciliations of the statutory U.S. federal income tax rates to our effective tax rate for continuing operations follow:
 
 
 
Years Ended December 31,
 
 
2014
 
2013
 
2012
Statutory rate
 
35.0
 %
 
35.0
%
 
35.0
 %
State tax, net of federal benefit
 
2.9

 
2.6

 
—

Effect of state rate change on net deferred tax liabilities, net of federal benefit
 
4.4

 
—

 
(0.1
)
State, release valuation allowance on net operating losses
 
(4.0
)
 
—

 
—

Unrecognized tax benefits, U.S. federal and state, net of federal benefit
 
4.8

 
—

 
—

Other, net
 
(1.2
)
 
0.6

 
2.0

Effective tax rate
 
41.9
 %
 
38.2
%
 
36.9
 %

The effective tax rate varies from the statutory U.S. federal rate of 35 percent primarily due to the impact of unrecognized tax benefits, net of federal benefit, for the year ended December 31, 2014. The effective tax rate varies from the statutory U.S. federal rate of 35 percent primarily due to the impact of state taxes, net of federal benefit, for the years ended December 31 2013, and 2012. The increase in the impact of state rate change is due to an increase in the net state deferred liabilities as a result of an increase in the overall blended state tax rate and by the impact of state law changes recorded in 2014. In addition, in 2014 the Company recorded a partial valuation allowance release related to state net operating losses.

Income tax expense consists of:
 
 
 
December 31,
 
 
2014
 
2013
 
2012
Current provision:
 
 
 
 
 
 
Federal
 
$
137,573

 
$
130,854

 
$
126,484

State
 
43,282

 
13,513

 
10,674

Total current provision
 
180,855

 
144,367

 
137,158

Deferred (benefit)/provision:
 
 
 
 
 
 
Federal
 
(40,370
)
 
13,240

 
(9,747
)
State
 
(518
)
 
1,327

 
(1,268
)
Total deferred (benefit)/provision
 
(40,888
)
 
14,567

 
(11,015
)
Provision for income tax expense
 
$
139,967

 
$
158,934

 
$
126,143


 

F-54

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
20.
Income Taxes (Continued)
 

    
The tax effect of temporary differences that give rise to deferred tax assets and liabilities include the following:
 
 
 
December 31,
 
 
2014
 
2013
Deferred tax assets:
 
 
 
 
Loan reserves
 
$
33,570

 
$
26,853

Stock-based compensation plans
 
16,342

 
28,211

Deferred revenue
 
418

 
607

Operating loss and credit carryovers
 
14,324

 
1,273

Unrealized losses
 
7,185

 
1,849

Accrued expenses not currently deductible
 
10,606

 
2,853

Unrecorded tax benefits
 
19,798

 
2,331

Other
 
8,918

 
334

Total deferred tax assets
 
111,161

 
64,311

Deferred tax liabilities:
 
 
 
 
Gains on repurchased debt
 
251,671

 
—

Fixed assets
 
5,849

 
3,181

Acquired intangible assets
 
6,151

 
616

Student loan premiums and discounts, net
 
3,050

 
(87
)
Other
 
2,656

 
3

Total deferred tax liabilities
 
269,377

 
3,713

Net deferred tax (liabilities) assets
 
$
(158,216
)
 
$
60,598

Included in operating loss carryovers is a valuation allowance of $ 69.9 million as of December 31, 2014, against a portion of our state net operating loss carryovers that management believes is more likely than not will expire prior to being realized. As of December 31, 2014, we have apportioned state net operating loss carryforwards of $22 million which begin to expire in 2029.
Accounting for Uncertainty in Income Taxes
The following table summarizes changes in unrecognized tax benefits:  
 
 
December 31,
 
 
2014
 
2013
 
2012
Unrecognized tax benefits at beginning of year
 
$
7,343.5

 
$
3,951.1

 
$
2,467.3

Increases resulting from tax positions taken during a prior period
 
45,184.2

 
573.9

 
503.1

Increases resulting from tax positions taken during the current period
 
7,712.5

 
2,818.5

 
980.7

Decreases related to settlements with taxing authorities
 
(235.7
)
 
—

 
—

Reductions related to the lapse of statute of limitations
 
(599.6
)
 
—

 
—

Unrecognized tax benefits at end of year
 
$
59,404.9

 
$
7,343.5

 
$
3,951.1



As of December 31, 2014, the gross unrecognized tax benefits are $59.4 million. Included in the $59.4 million are $33.1 million of unrecognized tax benefits that, if recognized, would favorably impact the effective tax rate. As a part of the Spin-Off, the Company recorded a liability related to uncertain tax positions for which it is indemnified by Navient. See Note 2, “Significant Accounting Policies - Income Taxes,” for additional details.

F-55

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
20.
Income Taxes (Continued)
 


Tax related interest expense is reported as a component of income tax expense. As of December 31, 2014 and 2013, the total amount of income tax-related accrued interest, net of related benefit, recognized in the consolidated balance sheets was $ 5.9 million and $ 0.4 million, respectively.

For the years ended December 31, 2014, 2013 and 2012, the total amount of income tax-related accrued interest, net of related tax benefit, recognized in the consolidated statements of income was $ 2.3 million, $ 0.1 million and $ 0 , respectively.

The Company believes that it is reasonably possible that a decrease of up to $ 4.5 million in unrecognized tax benefits related to state taxes may be necessary within the coming year.
The Company or one of its subsidiaries files income tax returns at the U.S. federal level and in most U.S. states. U.S. federal income tax returns filed for years 2010 and prior have either been audited or surveyed and are now resolved. Various combinations of subsidiaries, tax years, and jurisdictions remain open for review, subject to statute of limitations periods (typically 3 to 4 prior years). We do not expect the resolution of open audits to have a material impact on our unrecognized tax benefits.
 

F-56


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)


21. Concentrations of Risk
Our business is primarily focused in providing and/or servicing to help students and their families save, plan and pay for college. We primarily originate, service and/or collect loans made to students and their families to finance the cost of their education. We provide funding, delivery and servicing support for education loans in the United States through our Private Education Loan programs. Because of this concentration in one industry, we are exposed to credit, legislative, operational, regulatory, and liquidity risks associated with the student loan industry.
Concentration Risk in the Revenues Associated with Private Education Loans
We compete in the Private Education Loan market with banks and other consumer lending institutions, some with strong consumer brand name recognition and greater financial resources. We compete based on our products, origination capability and customer service. To the extent our competitors compete aggressively or more effectively, we could lose market share to them or subject our existing loans to refinancing risk. Our product offerings may not prove to be profitable and may result in higher than expected losses.
We are a leading provider of saving- and paying-for-college products and programs. This concentration gives us a competitive advantage in the marketplace. This concentration also creates risks in our business, particularly in light of our concentrations as a Private Education Loan lender. If population demographics result in a decrease in college-age individuals, if demand for higher education decreases, if the cost of attendance of higher education decreases, if public resistance to higher education costs increases, or if the demand for higher education loans decreases, our consumer lending business could be negatively affected. In addition, the federal government, through the DSLP, poses significant competition to our private credit loan products. If loan limits under the DSLP increase, DSLP loans could be more widely available to students and their families and DSLP loans could increase, resulting in further decreases in the size of the Private Education Loan market and demand for our Private Education Loan products.
 
Concentration Risk in the Revenues Associated with FFELP Loans
On July 1, 2010, the HCERA legislation eliminated FFELP Loan originations, a major source of our net income. All federal loans to students are now made through the DSLP. The terms and conditions of existing FFELP Loans were not affected by this legislation. Despite the end of FFELP, Congress, ED and the Administration still exercise significant authority over the servicing and administration of existing FFELP Loans. Because of the ongoing uncertainty around efforts to reduce the federal budget deficit, the timing, method and manner of implementation of various education lending initiatives has become less predictable. The interest income we earn on our FFELP Loans portfolio, which totaled $43,831 in 2014, will decline over time as the portfolio amortizes.
 

F-57


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)



22. Parent Only Statements

The following parent company-only financial information should be read in conjunction with the other notes to the consolidated financial statements. The accounting policies for the parent company-only financial statements are the same as those used in the presentation of the consolidated financial statements other than the parent company-only financial statements account for the parent company's investments in its subsidiaries under the equity method.

Parent Only Condensed Balance Sheets
 
 
December 31,
 
 
2014
 
2013
Assets
 
 
 
 
Cash and cash equivalents
 
$
434,245

 
$
—

Total investments in subsidiaries (primarily Sallie Mae Bank)
 
1,389,995

 
1,161,471

Tax indemnification receivable
 
240,311

 
—

Due from subsidiaries, net
 
32,408

 
—

Other assets
 
1,943

 
—

Total assets
 
$
2,098,902

 
$
1,161,471

 
 
 
 
 
Liabilities and Equity
 
 
 
 
Liabilities
 
 
 
 
Income taxes payable, net
 
$
245,782

 
$
—

Payable due to Navient
 
8,764

 
—

Other liabilities
 
14,398

 
—

Total liabilities
 
$
268,944

 
—

 
 
 
 
 
Equity
 
 
 
 
Preferred stock, par value $0.20 per share, 20 million shares authorized:
 
 
 
 
Series A: 3.3 million and 0 shares issued, respectively, at stated value of $50
 
165,000

 
—

Series B: 4 million and 0 shares issued, respectively, at stated value of $100 per share
 
400,000

 
—

Common stock, par value $0.20 per share, 1.125 billion shares authorized: 425 million and 0 shares issued, respectively
 
84,961

 
—

Additional paid-in capital
 
1,090,511

 
—

Navient's subsidiary investment
 
—

 
1,164,495

Accumulated other comprehensive loss (net of tax (benefit) of ($7,186) and ($1,849), respectively
 
(11,393
)
 
(3,024
)
Retained earnings
 
113,066

 
—

Total SLM Corporation stockholders' equity before treasury stock
 
1,842,145

 
1,161,471

Less: common stock held in treasury at cost: 1 million and 0 shares, respectively
 
(12,187
)
 
—

Total equity
 
1,829,958

 
1,161,471

Total liabilities and equity
 
$
2,098,902

 
$
1,161,471



F-58

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)

22.
Parent Only Statements (Continued)
 


Parent Only Condensed Statements of Income

 
 
 
Years Ended December 31,
 
 
2014
 
2013
 
2012
 
 
 
 
 
 
 
Interest income
 
$
4,980

 
$
—

 
$
—

Interest expense
 
—

 
—

 
—

Net interest income
 
4,980

 
—

 
—

 
 
 
 
 
 
 
Other income
 
1,097

 
—

 
—

 
 
 
 
 
 
 
Operating expenses
 
36,967

 
3,556

 
4,871

 
 
 
 
 
 
 
Loss before income tax expense and equity in net income from subsidiaries
 
(30,890
)
 
(3,556
)
 
(4,871
)
Income tax (benefit) expense
 
(13,196
)
 
133,121

 
102,842

Equity in net income from subsidiaries (primarily Sallie Mae Bank)
 
211,479

 
394,270

 
323,439

Net income
 
193,785

 
257,593

 
215,726

Preferred stock dividends
 
12,933

 
—

 
—

Net income attributable to common stock
 
$
180,852

 
$
257,593

 
$
215,726


F-59

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)

22.
Parent Only Statements (Continued)
 


Parent Only Condensed Statements of Cash Flows
 
 
Years Ended December 31,
 
 
2014
 
2013
 
2012
 
 
 
 
 
 
 
Cash flows from operating activities:
 
 
 
 
 
 
Net income
 
$
193,785

 
$
257,593

 
$
215,726

Adjustments to reconcile net income to net cash used in operating activities:
 

 

 

Undistributed earnings of subsidiaries
 
(211,479
)
 
(394,270
)
 
(323,439
)
(Increase) decrease in investment in subsidiaries, net
 
278,365

 
136,677

 
107,713

Decrease in tax indemnification receivable
 
38,820

 
—

 
—

Increase in due from subsidiaries, net
 
(32,408
)
 
—

 
—

Increase in other assets
 
(5,447
)
 
—

 
—

Decrease in income taxes payable, net
 
(312,770
)
 
—

 
—

Increase in payable due to entity that is a subsidiary of Navient
 
8,764

 
—

 
—

Increase in other liabilities
 
14,398

 
—

 
—

Total adjustments
 
(221,757
)
 
(257,593
)
 
(215,726
)
Net cash used in operating activities
 
(27,972
)
 
—

 
—

 
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
Net cash provided by (used in) investing activities
 
—

 
—

 
—

 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
Special cash contribution from Navient
 
472,718

 
—

 
—

Excess tax benefit from exercise of stock-based awards
 
2,432

 
—

 
—

Preferred stock dividends paid
 
(12,933
)
 
—

 
—

Net cash provided by financing activities
 
462,217

 
—

 
—

Net increase in cash and cash equivalents
 
434,245

 
—

 
—

Cash and cash equivalents at beginning of year
 
—

 
—

 
—

Cash and cash equivalents at end of year
 
$
434,245

 
$
—

 
$
—





F-60


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)


23. Selected Quarterly Financial Information (unaudited)


 
 
2014
 
 
First
 
Second
 
Third
 
Fourth
(Dollars in thousands, except per share data)
 
Quarter
 
Quarter
 
Quarter
 
Quarter
Net interest income
 
$
139,238

 
$
144,539

 
$
144,026

 
$
150,676

Less: provisions for loan losses
 
39,159

 
1,014

 
14,898

 
30,458

Net interest income after provisions for loan losses
 
100,079

 
143,525

 
129,128

 
120,218

Gains on sales of loans, net
 
33,888

 
1,928

 
85,147

 
396

(Losses) gains on derivative and hedging activities, net
 
(764
)
 
(9,458
)
 
5,401

 
825

Other income
 
8,136

 
15,229

 
5,461

 
11,095

Operating expenses
 
63,671

 
61,127

 
72,721

 
77,362

Acquired intangible asset impairment and amortization expense
 
1,767

 
508

 
508

 
507

Restructuring and other reorganization expenses
 
229

 
13,520

 
14,079

 
10,483

Income tax expense
 
28,658

 
31,941

 
54,903

 
24,465

Net income
 
47,014

 
44,128

 
82,926

 
19,717

Less: net loss attributable to noncontrolling interest
 
(434
)
 
—

 
—

 
—

Net income attributable to SLM Corporation
 
47,448

 
44,128

 
82,926

 
19,717

Preferred stock dividends
 
—

 
3,228

 
4,850

 
4,855

Net income attributable to SLM Corporation common stock
 
$
47,448

 
$
40,900

 
$
78,076

 
$
14,862

Basic earnings per common share attributable to SLM Corporation
 
$
0.11

 
$
0.10

 
$
0.18

 
$
0.04

Diluted earnings per common share attributable to SLM Corporation
 
$
0.11

 
$
0.09

 
$
0.18

 
$
0.03
























F-61

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)

23.
Selected Quarterly Financial Information (unaudited) (Continued)




 
 
2013
 
 
First
 
Second
 
Third
 
Fourth
(Dollars in thousands, except per share data)
 
Quarter
 
Quarter
 
Quarter
 
Quarter
Net interest income
 
$
115,702

 
$
107,417

 
$
116,783

 
$
122,213

Less: provisions for loan losses
 
20,692

 
(1,015
)
 
20,404

 
29,258

Net interest income after provisions for loan losses
 
95,010

 
108,432

 
96,379

 
92,955

Gains on sales of loans, net
 
75,222

 
73,441

 
43,434

 
4,496

Gains (losses) on derivative and hedging activities, net
 
610

 
(52
)
 
297

 
(215
)
Other income
 
7,799

 
8,665

 
9,416

 
75,155

Operating expenses
 
60,771

 
66,771

 
68,717

 
74,215

Acquired intangible asset impairment and amortization expense
 
537

 
536

 
1,480

 
764

Restructuring and other reorganization expenses
 
23

 
84

 
—

 
619

Income tax expense
 
44,765

 
46,973

 
30,272

 
36,923

Net income
 
72,545

 
76,122

 
49,057

 
59,870

Less: net loss attributable to noncontrolling interest
 
(340
)
 
(347
)
 
(333
)
 
(332
)
Net income attributable to SLM Corporation
 
72,885

 
76,469

 
49,390

 
60,202

Preferred stock dividends
 
—

 
—

 
—

 
—

Net income attributable to SLM Corporation common stock
 
$
72,885

 
$
76,469

 
$
49,390

 
$
60,202

Basic earnings per common share attributable to SLM Corporation
 
$
0.16

 
$
0.17

 
$
0.11

 
$
0.14

Diluted earnings per common share attributable to SLM Corporation
 
$
0.16

 
$
0.17

 
$
0.11

 
$
0.14




F-62



Exhibit 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
SLM CORPORATION
SLM Corporation, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows:
(1)      The name of the Corporation is SLM Corporation. The Corporation was originally incorporated under the name of JDB Corporation by the filing of its original Certificate of Incorporation with the Secretary of State of the State of Delaware (the “Secretary of State”) on December 2, 2013, which name was changed on December 4, 2013 to New BLC Corporation by filing a Certificate of Amendment with the Secretary of State, which name was changed on April 28, 2014 to SLM Corporation by filing a Certificate of Amendment with the Secretary of State. The Corporation is the holding company resulting from the merger of the corporation then known as SLM Corporation with and into Navient, LLC effected pursuant to Section 251(g) of the General Corporation Law of the State of Delaware and Section 18-209 of the Delaware Limited Liability Company Act on April 28, 2014.
(2)      This Restated Certificate of Incorporation of the Corporation only restates and integrates and does not further amend the provisions of the Corporation's Amended and Restated Certificate of Incorporation as theretofore amended or supplemented and there is no discrepancy between the provisions of the Amended and Restated Certificate of Incorporation as theretofore amended and supplemented and the provisions of this Restated Certificate of Incorporation. This Restated Certificate of Incorporation was duly adopted in accordance with the provisions of Section 245 of the General Corporation Law of the State of Delaware.
(3)      The Amended and Restated Certificate of Incorporation as theretofore amended and supplemented is hereby integrated and restated in its entirety to read as follows:





RESTATED
CERTIFICATE OF INCORPORATION
OF
SLM CORPORATION
FIRST : The name of the corporation is SLM Corporation (hereinafter the "Corporation").
SECOND : The address of the registered office of the Corporation in the State of Delaware is 2711 Centerville Road, Suite 400, City of Wilmington 19808, County of New Castle. The name of its registered agent at that address is Corporation Service Company.
THIRD : The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware as set forth in Title 8 of the Delaware Code (the "GCL").
FOURTH : The total number of shares of stock which the Corporation shall have authority to issue is 1,145,000,000 shares of capital stock, consisting of (i) 1,125,000,000 shares of common stock, par value $.20 per share (the "Common Stock"), and (ii) 20,000,000 shares of preferred stock, par value $.20 per share (the "Preferred Stock").
a. Common Stock . The powers, preferences and rights, and the qualifications, limitations and restrictions, of the Common Stock are as follows:
(1) Voting . Except as otherwise expressly required by law or provided in this Certificate of Incorporation, and subject to any voting rights provided to holders of Preferred Stock at any time outstanding, at each annual or special meeting of stockholders, each holder of record of shares of Common Stock on the relevant record date shall be entitled to cast one vote in person or by proxy for each share of the Common Stock standing in such holder’s name on the stock transfer records of the Corporation.
(2) Dividends . Subject to the rights of the holders of Preferred Stock, and subject to any other provisions of this Certificate of Incorporation, as it may be amended from time to time, holders of shares of Common Stock shall be entitled to receive such dividends and other distributions in cash, stock or property of the Corporation when, as and if declared thereon by the Board of Directors from time to time out of assets or funds of the Corporation legally available therefor.
(3) Liquidation, Dissolution, etc . In the event of any liquidation, dissolution or winding up (either voluntary or involuntary) of the Corporation, the holders of shares of Common Stock shall be entitled to receive the assets and funds of the Corporation available for distribution after payments to creditors and to the holders of any Preferred Stock of the Corporation that may at the time be outstanding, in proportion to the number of shares held by them.
(4) No Preemptive or Subscription Rights . No holder of shares of Common Stock shall be entitled to preemptive or subscription rights.




b. Preferred Stock . The Board of Directors is hereby expressly authorized to provide for the issuance of all or any shares of the Preferred Stock in one or more classes or series, and to fix for each such class or series such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issuance of such class or series, including, without limitation, the authority to provide that any such class or series may be (i) subject to redemption at such time or times and at such price or prices; (ii) entitled to receive dividends (which may be cumulative or non-cumulative) at such rates, on such conditions, and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes or any other series; (iii) entitled to such rights upon the dissolution of, or upon any distribution of the assets of, the Corporation; or (iv) convertible into, or exchangeable for, shares of any other class or classes of stock, or of any other series of the same or any other class or classes of stock, of the Corporation at such price or prices or at such rates of exchange and with such adjustments; all as may be stated in such resolution or resolutions.
c. Power to Sell and Purchase Shares . Subject to the requirements of applicable law, the Corporation shall have the power to issue and sell all or any part of any shares of any class of stock herein or hereafter authorized to such persons, and for such consideration, as the Board of Directors shall from time to time, in its discretion, determine, whether or not greater consideration could be received upon the issue or sale of the same number of shares of another class, and as otherwise permitted by law. Unless approved by the affirmative vote of not less than a majority of the voting power of the shares of capital stock of the Corporation then entitled to vote at an election of directors, the Corporation shall not take any action that would result in the acquisition by the Corporation, directly or indirectly, from any person or "group" (as defined in Section 13(d) of the Securities Exchange Act of 1934) of five percent or more of the shares of Common Stock issued and outstanding, at a price in excess of the prevailing market price of such Common Stock, other than pursuant to a tender offer made to all stockholders or to all stockholders owning less than 100 shares of Common Stock.
d. Limitation on Stockholder Rights Plan. Notwithstanding any other powers set forth in this Certificate of Incorporation, the Board of Directors shall not adopt a stockholders "rights plan" (which for this purpose shall mean any arrangement pursuant to which, directly or indirectly, Common Stock or Preferred Stock purchase rights may be distributed to stockholders that provide all stockholders, other than persons who meet certain criteria specified in the arrangement, the right to purchase the Common Stock or Preferred Stock at less than the prevailing market price of the Common Stock or Preferred Stock), unless (i) such rights plan is ratified by the affirmative vote of a majority of the voting power of the shares of capital stock of the Corporation then entitled to vote at an election of directors at the next meeting (annual or special) of stockholders; (ii) by its terms, such rights plan expires within thirty-seven (37) months from the date of its adoption, unless extended by the affirmative vote of a majority of the voting power of the shares of capital stock of the Corporation then entitled to vote at an election of directors; and (iii) at any time the rights issued thereunder will be redeemed by the Corporation upon the affirmative vote of a majority of the voting power of the shares of capital stock of the Corporation then entitled to vote at an election of directors.
e. Designated Preferred Stock. Pursuant to the authority conferred by this Article Fourth upon the Board of Directors of the Corporation, the Board of Directors (i) created 3,450,000 shares of Preferred Stock designated as 6.97% Cumulative Redeemable Preferred Stock, Series A by




filing a Certificate of Designation of the Corporation with the Secretary of State of the State of Delaware (the "Secretary of State") on April 28, 2014, and the voting powers, full or limited, or no voting powers, and such designation, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, of the Corporation’s 6.97% Cumulative Redeemable Preferred Stock, Series A are set forth in Exhibit A hereto and are incorporated herein by reference and (ii) created 4,000,000 shares of Preferred Stock designated as Floating-Rate Non-Cumulative Preferred Stock, Series B by filing a Certificate of Designation of the Corporation with the Secretary of State on April 28, 2014, and the voting powers, full or limited, or no voting powers, and such designation, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, of the Corporation’s Floating-Rate Non-Cumulative Preferred Stock, Series B are set forth in Exhibit B hereto and are incorporated herein by reference.
FIFTH : Reserved.
SIXTH : The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders:
a. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.
b. The directors shall have concurrent power with the stockholders to make, alter, amend, change, add to or repeal the By-Laws of the Corporation.
c.
(1)      (i) The number of directors of the Corporation shall be not less than eleven (11) and no more than sixteen (16).
(ii) Directors may be removed with or without cause by a vote of the holders of shares entitled to vote at an election of directors at a duly called meeting of such holders, provided that no director shall be removed for cause except by the affirmative vote of not less than a majority of the voting power of the shares then entitled to vote at an election of directors, and provided further that if less than the entire board of directors is to be removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire board of directors.
(iii) Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of this Certificate of Incorporation applicable thereto.
(2) A director shall hold office until the succeeding annual meeting (or special meeting in lieu thereof) and until his or her successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office.





(3)      Any vacancy on the Board of Directors, regardless of whether resulting from death, resignation, retirement, disqualification, removal from office, increase in the size of the Board or otherwise, may be filled by the affirmative vote of a majority of directors then in office, but any vacancy filled in such manner shall be filled only until the next annual meeting of stockholders.
d. No director shall be personally liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the GCL or (iv) for any transaction from which the director derived an improper personal benefit. Any repeal or modification of this Article SIXTH by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification.
e. In addition to the powers and authority hereinbefore or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of the GCL, this Certificate of Incorporation, and any By-Laws adopted by the stockholders; provided, however, that no such action by the Board of Directors, unless approved by a majority of the voting shares of capital stock of the Corporation then entitled to vote at an election of directors, shall amend, alter, change or repeal the right of stockholders as provided for in the By-Laws to call a special meeting of stockholders; and provided further that no By-Laws hereafter adopted by the stockholders shall invalidate any prior act of the directors which would have been valid if such By-Laws had not been adopted.
SEVENTH : Meetings of stockholders may be held within or without the State of Delaware, as the By-Laws may provide. The books of the Corporation may be kept (subject to any provision contained in the GCL) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the By-Laws of the Corporation.
EIGHTH : Any action required to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice, and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation delivery to its registered office, its principal place of business or an officer or director of the Corporation having custody of the book in which proceedings of meetings of members are recorded.
NINTH : Pursuant to § 203(b)(1) of the GCL, the Corporation hereby expressly opts not to be governed by GCL § 203.
TENTH : Any action by the Board of Directors to make, alter, amend, change, add to or repeal this Certificate of Incorporation shall be approved by the affirmative vote of not less than a majority of the voting power of the shares of capital stock of the Corporation then entitled to vote at an election of directors. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.




IN WITNESS WHEREOF , the Corporation has caused this Restated Certificate of Incorporation to be executed on its behalf this _____ day of ____________, 2015.
SLM CORPORATION

By:                     
Name:
Title:







Exhibit A
SLM CORPORATION
CERTIFICATE OF DESIGNATION, POWERS,
PREFERENCES, RIGHTS, PRIVILEGES, QUALIFICATIONS,
LIMITATIONS, RESTRICTIONS, TERMS AND CONDITIONS
of
6.97% CUMULATIVE REDEEMABLE
PREFERRED STOCK, SERIES A

I, Laurent C. Lutz, Corporate Secretary of SLM Corporation, a Delaware corporation (the "Corporation"), do hereby certify that, pursuant to Section 151 of the Delaware General Corporation Law and Article Fourth of the Corporation's Amended and Restated Certificate of Incorporation, the board of directors of the Corporation (the "Board of Directors") adopted the resolutions shown immediately below, which resolutions of the Board of Directors are now, and at all times since their respective dates of adoption have been, in full force and effect:

RESOLVED, that the Board of Directors does hereby create, authorize and provide for the issuance of the 6.97% Cumulative Redeemable Preferred Stock, Series A, par value $0.20 per share, with the following designation, powers, preferences, rights, privileges, qualifications, limitations, restrictions, terms and conditions:
1.      Designation, Par Value, Number of Shares and Seniority
The series of preferred stock of the Corporation created hereby (the "Series A Preferred Stock") shall be designated "6.97% Cumulative Redeemable Preferred Stock, Series A," shall have a par value of $0.20 per share and shall consist of 3,450,000 shares. Subject to the requirements of applicable law and the terms and conditions of the Corporation's Amended and Restated Certificate of Incorporation, the Board of Directors shall be permitted to increase the authorized number of shares of such series at any time. The Series A Preferred Stock shall rank, both as to dividends and upon liquidation, prior to the common stock of the Corporation (the "Common Stock") to the extent provided in this Certificate and the Corporation's Amended and Restated Certificate of Incorporation and shall rank, both as to dividends and upon liquidation, on a parity with any other class or series of preferred stock the Corporation may from time to time issue (the "Parity Preferred Stock").
2.      Dividends
(a)      The holders of outstanding shares of Series A Preferred Stock shall be entitled to receive, ratably, when, as and if declared by the Board of Directors, in its sole discretion, out of funds legally available therefor, cumulative, cash dividends at the annual rate of 6.97%, or $3.485, per share of Series A Preferred Stock. Dividends on the Series A Preferred Stock shall accrue from but not including November 16, 1999 and are payable when, as and if declared by the Board of Directors quarterly in arrears on January 31, April 30, July 30 and October 31 of each year (each, a "Dividend Payment Date") commencing on January 31, 2000. If a Dividend Payment Date is not a "Business Day," the related




dividend shall be paid on the next Business Day with the same force and effect as though paid on the Dividend Payment Date, without any increase to account for the period from such Dividend Payment Date through the date of actual payment. For these purposes, "Business Day" means a day other than (i) a Saturday or Sunday, (ii) a day on which New York City banks are closed or (iii) a day on which the offices of the Corporation are closed.
The "Dividend Period" relating to a Dividend Payment Date shall be the period from but not including the preceding Dividend Payment Date (or from but not including November 16, 1999, in the case of the first Dividend Payment Date) through and including the related Dividend Payment Date. If declared, the dividend payable in respect of the first Dividend Period will be $0.7357 per share. The amount of dividends payable in respect of any quarterly Dividend Period other than the first Dividend Period shall be computed at a rate equal to 6.97% divided by 4; the amount of dividends payable in respect of any shorter period shall be computed on the basis of twelve 30-day months and a 360-day year. Each such dividend shall be paid to the holders of record of outstanding shares of the Series A Preferred Stock as they appear in the books and records of the Corporation on such record date as shall be fixed in advance by the Board of Directors, not to be earlier than 45 days nor later than 10 days preceding the applicable Dividend Payment Date.
No dividends shall be declared or paid or set apart for payment on the Common Stock or any other class or series of stock ranking junior to or (except as hereinafter provided) on a parity with the Series A Preferred Stock with respect to the payment of dividends unless all accrued and unpaid dividends have been declared and paid or set apart for payment on the outstanding Series A Preferred Stock in respect of all prior Dividend Periods. In the event that the Corporation shall not pay any one or more dividends or any part thereof on the Series A Preferred Stock, the holders of that Series A Preferred Stock shall not have any cause of action against the Corporation in respect of such non-payment so long as no dividend is paid on any junior or parity stock in violation of the next preceding sentence.
No Common Stock or any other stock of the Corporation ranking junior to or on a parity with the Series A Preferred Stock as to dividends may be redeemed, purchased or otherwise acquired for any consideration (or any payment be made to or available for a sinking fund for the redemption of any shares of such stock) unless all accrued and unpaid dividends have been declared and paid or set apart for payment on the outstanding Series A Preferred Stock in respect of all prior Dividend Periods; provided, however, that any moneys theretofore deposited in any sinking fund with respect to any such stock in compliance with the provision of such sinking fund may thereafter be applied to the purchase or redemption of such stock in accordance with the terms of such sinking fund, regardless of whether at the time of such application full cumulative dividends upon the Series A Preferred Stock outstanding to the most recent Dividend Payment Date shall have been paid or declared and set apart for payment by the Corporation; provided that, if and when authorized by the Board of Directors, any such junior or parity stock or Common Stock may be converted into or exchanged for stock of the Corporation ranking junior to the Series A Preferred Stock as to dividends.
(b)      If, prior to May 16, 2001, one or more amendments to the Internal Revenue Code of 1986, as amended (the "Code"), are enacted that reduce the percentage of the dividends-received deduction (70% as of November 10, 1999) as specified in section 243(a)(1) of the Code or any successor provision (the "Dividends-Received Percentage"), certain adjustments may be made in respect of the dividends payable by the Corporation, and Post Declaration Date Dividends and Retroactive Dividends (as such terms are defined below) may become payable, as described below. Notwithstanding anything to the contrary herein, the Corporation will make no adjustment for any amendments to the Code on or after May 16, 2001 that reduce the Dividends-Received Percentage.




The amount of each dividend payable (if declared) per share of Series A Preferred Stock for dividend payments made on or after the effective date of such change in the Code will be adjusted by multiplying the amount of the dividend payable pursuant to clause (a) of this Section 2 (before adjustment) by a factor, which shall be the number determined in accordance with the following formula (the "DRD Formula"), and rounding the result to the nearest cent (with one-half cent rounded up):
1 - .35 (1 - .70)
1 - .35 (1 - DRP)
For the purposes of the DRD Formula, "DRP" means the Dividends-Received Percentage (expressed as a decimal) applicable to the dividend in question; provided, however, that if the Dividends-Received Percentage applicable to the dividend in question is less than 50%, then the DRP will equal .50. No amendment to the Code, other than a change in the percentage of the dividends-received deduction set forth in section 243(a)(1) of the Code or any successor provision, or a change in the percentage of the dividends-received deduction for certain categories of stock, which change is applicable to the Series A Preferred Stock, will give rise to an adjustment.
Notwithstanding the foregoing provisions, if, with respect to any such amendment, the Corporation receives an unqualified opinion of nationally recognized independent tax counsel selected by the Corporation or a private letter ruling or similar form of assurance from the Internal Revenue Service (the "IRS") to the effect that such an amendment does not apply to a dividend payable on the Series A Preferred Stock, then such amendment shall not result in the adjustment provided for pursuant to the DRD Formula with respect to such dividend. The opinion referenced in the previous sentence shall be based upon the legislation amending or establishing the DRP or upon a published pronouncement of the IRS addressing such legislation. Unless the context otherwise requires, references to dividends herein shall mean dividends as adjusted by the DRD Formula. The Corporation's calculation of the dividends payable as so adjusted shall be final and not subject to review absent manifest error.
Notwithstanding the foregoing, if any such amendment to the Code is enacted after the dividend payable on a Dividend Payment Date has been declared but before such dividend is paid, the amount of the dividend payable on such Dividend Payment Date shall not be increased. Instead, additional dividends (the "Post Declaration Date Dividends"), equal to the excess, if any, of (x) the product of the dividend paid by the Corporation on such Dividend Payment Date and the DRD Formula (where the DRP used in the DRD Formula would be equal to the greater of the Dividends-Received Percentage applicable to the dividend in question and .50) over (y) the dividend paid by the Corporation on such Dividend Payment Date, shall be payable (if declared) to holders of Series A Preferred Stock on the record date applicable to the next succeeding Dividend Payment Date, or, if the Series A Preferred Stock is called for redemption prior to such record date, to holders of Series A Preferred Stock on the applicable redemption date, as the case may be, in addition to any other amounts payable on such date. Notwithstanding the foregoing provisions, if, with respect to any such amendment, the Corporation receives either an unqualified opinion of nationally recognized independent tax counsel selected by the Corporation or a private letter ruling or similar form of assurance from the IRS to the effect that such amendment does not apply to a divided so payable on the Preferred Stock, then such amendment will not result in the payment of Post Declaration Date Dividends. The opinion referenced in the previous sentence must be based upon the legislation amending or establishing the DRP or upon a published pronouncement of the IRS addressing such legislation.
If any such amendment to the Code is enacted and the reduction in the Dividends-Received Percentage retroactively applies to a Dividend Payment Date as to which the Corporation previously paid dividends on the Series A Preferred Stock (each, an "Affected Dividend Payment Date"), the Corporation




shall pay (if declared) additional dividends (the "Retroactive Dividends") to holders of the Series A Preferred Stock on the record date applicable to the next succeeding Dividend Payment Date (or, if such amendment is enacted after the dividend payable on such Dividend Payment Date has been declared, to holders on the record date applicable to the second succeeding Dividend Payment Date following the date of enactment) in an amount equal to the excess of (x) the product of the dividend paid by the Corporation on each Affected Dividend Payment Date and the DRD Formula (where the DRP used in the DRD Formula would be equal to the greater of the Dividends-Received Percentage and .50 applied to each Affected Dividend Payment Date) over (y) the sum of the dividend paid by the Corporation on each Affected Dividend Payment Date. The Corporation will make only one payment of Retroactive Dividends for any such amendment. Notwithstanding the foregoing provisions, if, with respect to any such amendment, the Corporation receives either an unqualified opinion of nationally recognized independent tax counsel selected by the Corporation or a private letter ruling or similar form of assurance from the IRS to the effect that such amendment does not apply to a dividend payable on an Affected Dividend Payment Date for the Series A Preferred Stock, then such amendment will not result in the payment of Retroactive Dividends with respect to such Affected Dividend Payment Date. The opinion referenced in the previous sentence must be based upon the legislation amending or establishing the DRP or upon a published pronouncement of the IRS addressing such legislation.
In the event that the amount of dividends payable per share of the Series A Preferred Stock is adjusted pursuant to the DRD Formula and/or Post Declaration Date Dividends or Retroactive Dividends are to be paid, the Corporation will give notice of each such adjustment and, if applicable, any Post Declaration Date Dividends and Retroactive Dividends to be paid as soon as practicable to the holders of Series A Preferred Stock.
(c)      Notwithstanding any other provision of this Certificate, the Board of Directors, in its discretion, may choose to pay dividends on the Series A Preferred Stock without the payment of any dividends on the Common Stock or any other class or series of stock from time to time outstanding ranking junior to the Series A Preferred Stock with respect to the payment of dividends.
(d)      No dividend shall be declared or paid or set apart for payment on any shares of the Series A Preferred Stock if at the same time any arrears or default exists in the payment of dividends on any outstanding class or series of stock of the Corporation ranking prior to or (except as provided herein) on a parity with the Series A Preferred Stock with respect to the payment of dividends.
(e)      Holders of shares of the Series A Preferred Stock shall not be entitled to any dividends, in cash or in property, other than as herein provided and shall not be entitled to interest, or any sum in lieu of interest, on or in respect of any dividend payment.
3.      Optional Redemption
(a)      The Series A Preferred Stock shall not be redeemable prior to November 16, 2009. Subject to this limitation and to any further limitations imposed by law, the Corporation may redeem the Series A Preferred Stock, in whole or in part, at any time or from time to time, out of funds legally available therefor, at the redemption price of $50.00 per share plus an amount, determined in accordance with Section 2 above, equal to the amount of the dividend accrued and unpaid for all prior Dividend Periods and for the then-current Dividend Period to but not including the date of such redemption. If less than all of the outstanding shares of the Series A Preferred Stock are to be redeemed, the Corporation shall select shares to be redeemed from the outstanding shares not previously called for redemption by lot or pro rata (as nearly as possible) or by any other method which the Corporation in its sole discretion deems equitable.




(b)      In the event the Corporation shall redeem any or all of the Series A Preferred Stock as aforesaid, notice of such redemption shall be given by the Corporation by first class mail, postage prepaid, mailed not less than 30 and not more than 60 days prior to the redemption date, to each holder of record of the shares of the Series A Preferred Stock being redeemed, at such holder's address as the same appears in the books and records of the Corporation. Each such notice shall state the number of shares being redeemed, the redemption price, the redemption date and the place at which such holder's certificate(s) representing shares of the Series A Preferred Stock must be presented for cancellation or exchanges, as the case may be, upon such redemption. Any notice that is so mailed shall be conclusively presumed to have been duly given, whether or not the stockholder received such notice. Failure to duly give notice, or any defect in the notice or in the mailing thereof, to any holder of the Series A Preferred Stock shall not affect the validity of the proceedings for the redemption of any other shares of Series A Preferred Stock being redeemed.
(c)      If any redemption date is not a Business Day, then payment of the redemption price may be made on the next Business Day with the same force and effect as if made on the redemption date, and no interest, additional dividends or other sums will accrue on the amount payable from the redemption date to the next Business Day.
(d)      Notice having been mailed as aforesaid, from and after the redemption date specified therein and upon payment of the consideration set forth in Section 3(a) above, said shares of the Series A Preferred Stock shall no longer be deemed to be outstanding, and all rights of the holders thereof as holders of the Series A Preferred Stock shall cease, with respect to shares so redeemed.
(e)      Subject to applicable law, any shares of the Series A Preferred Stock which shall have been redeemed shall, after such redemption, no longer have the status of authorized, issued or outstanding shares.
(f)      The shares of Series A Preferred Stock shall not be subject to any sinking fund or to any mandatory redemption.
4.
Preferred Stock Board Committee; Limited Rights to Vote and Elect Board Observers
At the first regularly scheduled meeting of the Board of Directors after the issuance of the Series A Preferred Stock, the Board of Directors shall form a committee (the "Preferred Stock Committee") of the Board of Directors whose purpose shall be to monitor and evaluate proposed actions of the Corporation that may impact the rights of holders of Series A Preferred Stock, including the payment of dividends on the Series A Preferred Stock, and to report to the Board of Directors thereon. The Board of Directors shall designate from among its "independent directors" (as such term is defined (i) by the Corporation's Bylaws as then in effect or (ii) by New York Stock Exchange rules) at least three directors to serve on the Preferred Stock Committee. In designating the independent directors to serve on the Preferred Stock Committee, the Board of Directors may, in its sole discretion, apply either of the foregoing definitions. The Preferred Stock Committee shall meet at least once a year.
Except as set forth in this Section 4 and in Section 9(h) below, the shares of the Series A Preferred Stock shall not have any voting powers, either general or special. Whenever dividends on any shares of Series A Preferred Stock are in arrears for four or more quarterly Dividend Periods, whether or not consecutive:




(a)      The holders of the Series A Preferred Stock, voting together as single class with all other classes or series of capital stock of the Corporation upon which like voting rights have been conferred and are exercisable and which are entitled to vote as a class with the Series A Preferred Stock in the election of two observers to the board of directors, will be entitled to vote for the election of a total of two board observers at a special meeting called by an officer of the Corporation at the request of holders of record of at least 10% of the outstanding Series A Preferred Stock or by the holders of any such other class or series of capital stock of the Corporation and at each subsequent annual meeting of stockholders, until all dividends accumulated on the Series A Preferred Stock for all prior Dividend Periods and the then current Dividend Period have been fully paid.
(b)      If and when full cumulative dividends on the Series A Preferred Stock for all prior Dividend Periods and the then current Dividend Period have been paid in full or declared and a sum sufficient for the payment thereof set aside for payment in full, the right of holders of Series A Preferred Stock to elect those two board observers will cease and, unless there are other classes and series of capital stock of the Corporation upon which like voting rights have been conferred and are exercisable, all rights of each of the two board observers will immediately and automatically terminate.
(c)      The Corporation shall provide to the board observers notice, and a detailed agenda (to the extent prepared for any member of the Board of Directors), of all meetings of the Board of Directors and any committee of the Board of Directors which has been delegated responsibility for matters relating to the payment or nonpayment of dividends, including the Preferred Stock Committee. The Corporation shall also provide to the board observers copies of all materials that may in any way be related to the payment or nonpayment of dividends that are provided to the Board of Directors and to the members of any such committees. The board observers shall be subject to the same confidentiality obligations with respect to such materials as bind the Board of Directors. The board observers may attend any meeting of the Board of Directors or any committee thereof which has been delegated responsibility for matters relating to the payment or nonpayment of dividends, including the Preferred Stock Committee; the board observers may participate in any such meeting, include statements in the minutes of such meetings, and present information and make recommendations to, and ask questions of, the Board of Directors or the Preferred Stock Committee with respect to all matters.
If a special meeting of the holders of the Series A Preferred Stock for the election of the board observers is not called by an officer of the Corporation within 30 days after request, then the holders of record of at least 10% of the outstanding shares of Series A Preferred Stock may designate a holder of Series A Preferred Stock to call that meeting at the Corporation's expense. The Corporation will pay all costs and expenses of calling and holding any meeting and of electing board observers as described above.
The foregoing voting provisions will not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required will be effected, all outstanding shares of Series A Preferred Stock have been redeemed or called for redemption and sufficient funds have been deposited in trust to effect such redemption.
In any matter in which the Series A Preferred Stock is entitled to vote, including any action by written consent, each share of the Series A Preferred Stock shall be entitled to one vote, except that when shares of any other class or series of capital stock of the Corporation have the right to vote with the Series A Preferred Stock as a single class on any matter, the Series A Preferred Stock and the shares of each such other class or series will have one vote for each $50.00 of liquidation preference (excluding accrued dividends).




5.      No Conversion or Exchange Rights
The holders of shares of the Series A Preferred Stock shall not have any right to convert such shares into or exchange such shares for any other class or series of stock or obligations of the Corporation.
6.      No Preemptive Rights
No holder of the Series A Preferred Stock shall as such holder have any preemptive right to purchase or subscribe for any other shares, rights, options or other securities of any class of the Corporation which at any time may be sold or offered for sale by the Corporation.
7.      Liquidation Rights and Preference
(a)      Except as otherwise set forth herein, upon the voluntary or involuntary dissolution, liquidation or winding up of the Corporation, after payment of or provision for the liabilities of the Corporation and the expenses of such dissolution, liquidation or winding up, the holders of the outstanding shares of the Series A Preferred Stock shall be entitled to receive out of the assets of the Corporation available for distribution to stockholders, before any payment or distribution shall be made on the Common Stock or any other class or series of stock of the Corporation ranking junior to the Series A Preferred Stock upon liquidation, the amount of $50.00 per share plus an amount, determined in accordance with Section 2 above, equal to all accrued and unpaid dividends for all prior Dividend Periods and for the then-current Dividend Period through and including the date of payment in respect of such dissolution, liquidation or winding up, and the holders of the outstanding shares of any class or series of stock of the Corporation ranking on a parity with the Series A Preferred Stock upon liquidation shall be entitled to receive out of the assets of the Corporation available for distribution to stockholders, before any such payment or distribution shall be made on the Common Stock or any other class or series of stock of the Corporation ranking junior to the Series A Preferred Stock and to such parity stock upon liquidation, any corresponding preferential amount to which the holders of such parity stock may, by the terms thereof, be entitled; provided, however, that if the assets of the Corporation available for distribution to stockholders shall be insufficient for the payment of the full amounts to which the holders of the outstanding shares of the Series A Preferred Stock and the holders of the outstanding shares of such parity stock shall be entitled to receive upon such dissolution, liquidation or winding up of the Corporation as aforesaid, then all of the assets of the Corporation available for distribution to stockholders shall be distributed to the holders of outstanding shares of the Series A Preferred Stock and to the holders of outstanding shares of such parity stock pro rata, so that the amounts so distributed to holders of the Series A Preferred Stock and to holders of such classes or series of such parity stock, respectively, shall bear to each other the same ratio that the respective distributive amounts to which they are so entitled (including any adjustment due to changes in the Dividends-Received Percentage) bear to each other. After the payment of the aforesaid amounts to which they are entitled, the holders of outstanding shares of the Series A Preferred Stock and the holders of outstanding shares of any such parity stock shall not be entitled to any further participation in any distribution of assets of the Corporation.
(b)      Neither the sale of all or substantially all of the property or business of the Corporation, nor the merger, consolidation or combination of the Corporation into or with any other corporation or entity, shall be deemed to be a dissolution, liquidation or winding up for the purpose of this Section 7.
8.      Additional Classes or Series of Stock
The Board of Directors shall have the right at any time in the future to authorize, create and issue, by resolution or resolutions, one or more additional classes or series of stock of the Corporation, and to




determine and fix the distinguishing characteristics and the relative rights, preferences, privileges and other terms of the shares thereof. Any such class or series of stock may rank on a parity with or junior to the Series A Preferred Stock as to dividends or upon liquidation or otherwise. No such class or series of stock of the Corporation may rank prior to the Series A Preferred Stock as to dividends or upon liquidation or otherwise.
9.      Miscellaneous
(a)      Any stock of any class or series of the Corporation shall be deemed to rank:
(i)      on a parity with shares of the Series A Preferred Stock, either as to dividends or upon liquidation, whether or not the dividend rates or amounts, dividend payment dates or redemption of liquidation prices per share, if any, be different from those of the Series A Preferred Stock, if the holders of such class or series shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in proportion to their respective dividend rates or amounts or liquidation prices, without preference or priority, one over the other, as between the holders of such class or series and the holders of shares of the Series A Preferred Stock; and
(ii)      junior to shares of the Series A Preferred Stock, either as to dividends or upon liquidation, if such class or series shall be Common Stock, or if the holders of shares of the Series A Preferred Stock shall be entitled to receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in preference or priority to the holders of shares of such class or series.
(b)      The Corporation and any agent of the Corporation may deem and treat the holder of a share or shares of Series A Preferred Stock, as shown in the Corporation's books and records, as the absolute owner of such share or shares of Series A Preferred Stock for the purpose of receiving payment of dividends in respect of such share or shares of Series A Preferred Stock and for all other purposes whatsoever, and neither the Corporation nor any agent or the Corporation shall be affected by any notice to the contrary. All payments made to or upon the order of any such persons shall be valid and, to the extent of the sum or sums so paid, effectual to satisfy and discharge liabilities for moneys payable by the Corporation on or with respect to any such share or shares of Series A Preferred Stock.
(c)      The shares of the Series A Preferred Stock, when duly issued, shall be fully paid and non-assessable.
(d)      For purposes of this Certificate, the term "the Corporation" means SLM Holding Corporation and any successor thereto by operation of law or by reason of a merger, consolidation or combination.
(e)      Any notice, demand or other communication which by any provision of this Certificate is required or permitted to be given or served to or upon the Corporation shall be given or served in writing addressed (unless and until another address shall be published by the Corporation) to SLM Holding Corporation, 11600 Sallie Mae Drive, Reston, Virginia 20193, Attn: General Counsel's Office. Such notice, demand or other communication to or upon the Corporation shall be deemed to have been sufficiently given or made only upon actual receipt of a writing by the Corporation. Any notice, demand or other communication which by any provision of this Certificate is required or permitted to be given or served by the Corporation hereunder may be given or served by being deposited first class, postage prepaid, in the United States mail addressed (i) to the holder as such holder's name and address may




appear at such time in the books and records of the Corporation or (ii) to a person or entity other than a holder of record of the Series A Preferred Stock, to such person or entity at such address as appears to the Corporation to be appropriate at such time. Such notice, demand or other communication shall be deemed to have been sufficiently given or made, for all purposes, upon mailing.
(h)      The Corporation, by or under the authority of the Board of Directors, may amend, alter, supplement or repeal any provision of this Certificate pursuant to applicable law and the following terms and conditions:
(i)      The consent of the holders of at least 66 2/3% of all of the shares of the Series A Preferred Stock at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of the Series A Preferred Stock shall vote together as a class, shall be necessary for authorizing, effecting or validating the amendment, alteration, supplementation or repeal of the provisions of this Certificate if such amendment, alteration, supplementation or repeal would materially and adversely affect the powers, preferences, rights, privileges, qualifications, limitations, restrictions, terms or conditions of the Series A Preferred Stock. The creation and issuance of any other class or series of stock, or the issuance of additional shares of any existing class or series of stock of the Corporation (including the Series A Preferred Stock), whether ranking on parity with or junior to the Series A Preferred Stock, shall not be deemed to constitute such an amendment, alteration, supplementation or repeal.
(ii)      Holders of the Series A Preferred Stock shall be entitled to one vote per share on matters on which their consent is required pursuant to subparagraph (i) of this paragraph (h). In connection with any meeting of such holders, the Board of Directors shall fix a record date, neither earlier than 60 days nor later than 10 days prior to the date of such meeting, and holders of record of shares of the Series A Preferred Stock on such record date shall be entitled to notice of and to vote at any such meeting and any adjournment. The Board of Directors, or such person or persons as it may designate, may establish reasonable rules and procedures as to the solicitation of the consent of holders of the Series A Preferred Stock at any such meeting or otherwise, which rules and procedures shall conform to the requirements of any national securities exchange on which the Series A Preferred Stock maybe listed at such time.
(i)      RECEIPT AND ACCEPTANCE OF A SHARE OR SHARES OF THE SERIES A Preferred Stock BY OR ON BEHALF OF A HOLDER SHALL CONSTITUTE THE UNCONDITIONAL ACCEPTANCE BY THE HOLDER (AND ALL OTHERS HAVING BENEFICIAL OWNERSHIP OF SUCH SHARE OR SHARES) OF ALL OF THE TERMS AND PROVISIONS OF THIS CERTIFICATE. NO SIGNATURE OR OTHER FURTHER MANIFESTATION OF ASSENT TO THE TERMS AND PROVISIONS OF THIS CERTIFICATE SHALL BE NECESSARY FOR ITS OPERATION OR EFFECT AS BETWEEN THE CORPORATION AND THE HOLDER (AND ALL SUCH OTHERS).






Exhibit B

SLM CORPORATION
CERTIFICATE OF DESIGNATION, POWERS,
PREFERENCES, RIGHTS, PRIVILEGES, QUALIFICATIONS,
LIMITATIONS, RESTRICTIONS, TERMS AND CONDITIONS
of
FLOATING-RATE NON-CUMULATIVE
PREFERRED STOCK, SERIES B
I, Laurent C. Lutz, Corporate Secretary of SLM Corporation, a Delaware corporation (the “Corporation”), do hereby certify that, pursuant to Section 151 of the Delaware General Corporation Law and Article Fourth of the Corporation’s Amended and Restated Certificate of Incorporation, the board of directors of the Corporation (the “Board of Directors”) adopted the resolutions shown immediately below, which resolutions of the Board of Directors are now, and at all times since their respective dates of adoption have been, in full force and effect:

RESOLVED, that the Board of Directors does hereby create, authorize and provide for the issuance of the Floating-Rate Non-Cumulative Preferred Stock, Series B, par value $0.20 per share, with the following designation, powers, preferences, rights, privileges, qualifications, limitations, restrictions, terms and conditions:

1.
Designation, Par Value, Number or Shares and Seniority
The series of preferred stock of the Corporation created hereby (the "Series B Preferred Stock") shall be designated "Floating-Rate Non-Cumulative Preferred Stock, Series B," shall have a par value of $0.20 per share and shall consist of 4,000,000 shares. Subject to the requirements of applicable law and the terms and conditions of the Cor-poration's Amended and Restated Certificate of Incorporation, the Board of Directors shall be permitted to increase the authorized number of shares of such series at any time. The Series B Preferred Stock shall rank, both as to dividends and upon liquidation, dissolution or winding up, prior to the common stock of the Corporation (the "Common Stock") to the extent provided in this Certificate and the Corporation's Amended and Restated Certificate of Incorporation and shall rank, both as to the payment of dividends when due and upon liquidation, dissolution or winding up, on a parity with any other class or series of preferred stock the Corporation may from time to time issue (the "Parity Preferred Stock"), including the Corporation's 6.97% Cumulative Redeemable Preferred Stock, Series A (the "Series A Preferred Stock").
2.
Dividends
(a)      The holders of outstanding shares of Series B Preferred Stock shall be entitled to receive, ratably, when, as and if declared by the Board of Directors, in its sole discretion, out of funds legally available therefor, cash dividends at a rate equal to (i) a floating rate of three-month LIBOR (as defined below) plus 0.70% per annum for periods ending on and prior to June 15, 2011 and (ii) a floating rate of three-month LIBOR plus 1.70% per annum for periods after June 15, 2011, per share of Series B




Preferred Stock. Dividends on the Series B Preferred Stock shall accrue from but not including June 8, 2005 in the case of an initial declared dividend or the preceding Dividend Payment Date (as defined below), as applicable, and are payable when, as and if declared by the Board of Directors quarterly in arrears on March 15, June 15, September 15 and December 15 of each year unless such day is not a Business Day, in which case, the related dividend will be paid on the next succeeding Business Day (each, a "Dividend Payment Date") commencing on September 15, 2005. For these purposes, "Business Day" means a day other than (i) a Saturday or Sunday, (ii) a day on which New York City banks are closed or (iii) a day on which the offices of the Corporation are closed.
The "Dividend Period" relating to a Dividend Payment Date shall be the period from but not including the preceding Dividend Payment Date (or from but not including June 8, 2005, in the case of the first Dividend Payment Date) through and including the related Dividend Payment Date. The amount of dividends payable in respect of any quarterly Dividend Period, including dividends payable for partial Dividend Periods, shall be computed on the basis of the actual number of days for which dividends are payable in the relevant Dividend Period, divided by 360. Each such dividend shall be paid to the holders of record of outstanding shares of the Series B Preferred Stock as they appear in the books and records of the Corporation on such record date as shall be fixed in advance by the Board of Directors, not to be earlier than 45 days nor later than 10 days preceding the applicable Dividend Payment Date.
For any Dividend Period, LIBOR shall be determined by the Calculation Agent (as defined below) on the second London and New York Business Day (as defined below) immediately preceding the first day of such Dividend Period in the following manner:
•
LIBOR will be the offered rate per annum for three-month deposits in U.S. dollars, beginning on the first day of such period, as that rate appears on Moneyline Telerate Page (as defined below) 3750 as of 11:00 A.M., London time, on the second London and New York Business Day immediately preceding the first day of such Dividend Period.
•
If the rate described above does not appear on Moneyline Telerate Page 3750, LIBOR will be determined on the basis of the rates, at approximately 11:00 A.M., London time, on the second London and New York Business Day immediately preceding the first day of such Dividend Period, at which deposits of the following kind are offered to prime banks in the London interbank market by four major banks in that market selected by the Calculation Agent: three-month deposits in U.S. dollars, beginning on the first day of such Dividend Period, and in a Representative Amount (as defined below). The Calculation Agent will request the principal London office of each of these banks to provide a quotation of its rate. If at least two quotations are provided, LIBOR for the second London and New York Business Day immediately preceding the first day of such Dividend Period will be the arithmetic mean of the quotations.
•
If fewer than two quotations are provided as described above, LIBOR for the second London and New York Business Day immediately preceding the first day of such Dividend Period will be the arithmetic mean of the rates for loans of the following kind to leading European banks quoted, at approximately 11:00 A.M., New York City time, on the second London and New York Business Day immediately preceding the first day of such Dividend Period, by three major banks in New York City selected by the Calculation Agent: three-month loans of U.S. dollars, beginning on the first day of such Dividend Period, and in a Representative Amount.
•
If fewer than three banks selected by the Calculation Agent are quoting as described above, LIBOR for the new Dividend Period will be LIBOR in effect for the prior Dividend Period.




The Calculation Agent's determination of any dividend rate, and its calculation of the amount of dividends for any Dividend Period, will be on file at the principal offices of the Corporation, will be made available to any holder of Series B Preferred Stock upon request and will be final and binding in the absence of manifest error. The term "Calculation agent" means any person appointed by the Corporation to act as Calculation Agent hereunder. The Corporation shall be the initial Calculation Agent.
The term "Representative Amount'' means an amount that, in the Calculation Agent's judgment, is representative of a single transaction in the relevant market at the relevant time.
The term "Moneyline Telerate Page'' means the display on Moneyline Telerate, Inc., or any successor service, on the page or pages specified in this certificate or any replacement page or pages on that service.
The term "London and New York Business Day'' means a day that is a Monday, Tuesday, Wednesday, Thursday or Friday and is a day on which dealings in U.S. dollars are transacted in the London interbank market and on which banking institutions in New York City generally are not authorized or obligated by law or executive order to close.
No dividends shall be declared or paid or set apart for payment on the Common Stock or any other class or series of stock ranking junior to or on a parity with the Series B Preferred Stock with respect to the payment of dividends when due unless all accrued and unpaid dividends have been declared and paid or set apart for payment on the outstanding Series B Preferred Stock in respect of the then-current Dividend Period. In the event that the Corporation shall declare but not pay any one or more dividends or any part thereof on the Series B Preferred Stock, the holders of that Series B Preferred Stock shall not have any cause of action against the Corporation in respect of such non-payment so long as no dividend is paid on any junior or parity stock in violation of the preceding sentence.
No Common Stock or any other stock of the Corporation ranking junior to or on a parity with the Series B Preferred Stock as to the payment of dividends when due may be redeemed, purchased or otherwise acquired for any consideration (or any payment be made to or available for a sinking fund for the redemption of any shares of such stock) unless all accrued and unpaid dividends have been declared and paid or set apart for payment on the outstanding Series B Preferred Stock in respect of the then-current Dividend Period; provided, however, that any moneys theretofore deposited in any sinking fund with respect to any junior or parity stock or Common Stock in compliance with the provision of such sinking fund may thereafter be applied to the purchase or redemption of such stock in accordance with the terms of such sinking fund, regardless of whether at the time of such application full dividends upon the Series B Preferred Stock accrued and unpaid to the most recent Dividend Payment Date shall have been declared and paid or set apart for payment by the Corporation; provided that, if and when authorized by the Board of Directors, any such junior or parity stock or Common Stock may be converted into or exchanged for stock of the Corporation ranking junior to the Series B Preferred Stock as to payment of dividends when due.
3.
Optional Redemption
(a)      The Series B Preferred Stock shall not be redeemable prior to June 15, 2010. On any Dividend Payment Date on or after June 15, 2010, and subject to this limitation, the terms of Parity Preferred Stock and to any further limitations imposed by law, the Corporation may redeem the Series B Preferred Stock, in whole or in part, out of funds legally available therefor, at the redemption price of $100.00 per share plus an amount, determined in accordance with Section 2 above, equal to the amount of the dividend accrued and unpaid for the then-current Dividend Period to but not including the date of such




redemption, if any. If fewer than all of the outstanding shares of the Series B Preferred Stock are to be redeemed, the Corporation shall select shares to be redeemed from the outstanding shares not previously called for redemption by lot or pro rata (as nearly as possible) or by any other method which the Corporation in its sole discretion deems equitable.
(b)      In the event the Corporation shall redeem any or all of the Series B Preferred Stock as aforesaid, notice of such redemption shall be given by the Corporation by first class mail, postage prepaid, mailed not less than 30 and not more than 60 days prior to the redemption date, to each holder of record of the shares of the Series B Preferred Stock being redeemed, at such holder's address as the same appears in the books and records of the Corporation. Each such notice shall state the number of shares being redeemed, the redemption price, the redemption date and the place at which such holder's certificate(s) representing shares of the Series B Preferred Stock must be presented for cancellation or exchanges, as the case may be, upon such redemption. Any notice that is so mailed shall be conclusively presumed to have been duly given, whether or not the stockholder received such notice. Failure to duly give notice, or any defect in the notice or in the mailing thereof, to any holder of the Series B Preferred Stock shall not affect the validity of the proceedings for the redemption of any other shares of Series B Preferred Stock being redeemed.
(c)      If any redemption date is not a Business Day, then payment of the redemption price may be made on the next Business Day with the same force and effect as if made on the redemption date, and no interest, additional dividends or other sums will accrue on the amount payable from the redemption date to the next Business Day.
(d)      Notice having been mailed as aforesaid, from and after the redemption date specified therein and upon payment of the consideration set forth in Section 3(a) above, said shares of the Series B Preferred Stock shall no longer be deemed to be outstanding, and all rights of the holders thereof as holders of the Series B Preferred Stock shall cease, with respect to shares so redeemed.
(e)      Subject to applicable law, any shares of the Series B Preferred Stock which shall have been redeemed shall, after such redemption, no longer have the status of authorized, issued or outstanding shares.
(f)      The shares of Series B Preferred Stock shall not be subject to any sinking fund or to any mandatory redemption.
4.
Preferred Stock Board Committee; Limited Rights to Vote and Elect Board Observers
The Board of Directors maintains a committee (the "Preferred Stock Committee") of the Board of Directors whose purpose is to monitor and evaluate proposed actions of the Corporation that may impact the rights of holders of the outstanding preferred stock of Corporation, including the payment of dividends on the Series B Preferred Stock, and to report to the Board of Directors thereon. The Board of Directors shall designate from among its "independent directors" (as such term is defined (i) by the Corporation's Bylaws as then in effect or (ii) by the rules of the New York Stock Exchange) at least three directors to serve on the Preferred Stock Committee. In designating the independent directors to serve on the Preferred Stock Committee, the Board of Directors may, in its sole discretion, apply either of the foregoing definitions. The Preferred Stock Committee shall meet at least once a year.
Except as set forth in this Section 4 and in Section 9(f) below, the shares of the Series B Preferred Stock shall not have any voting powers, either general or special. Whenever dividends on any shares of




Series B Preferred Stock have not been declared by the Board of Directors or paid for an aggregate of four or more quarterly Dividend Periods, whether or not consecutive:
(a)      The holders of the Series B Preferred Stock, voting together as a single class with all other classes or series of capital stock of the Corporation upon which like voting rights have been conferred and are exercisable and which are entitled to vote as a class with the Series B Preferred Stock in the election of two observers to the board of directors, will be entitled to vote for the election of a total of two board observers at a special meeting called by an officer of the Corporation at the request of holders of record of at least 10% of (i) the outstanding Series B Preferred Stock or (ii) any such other class or series of capital stock of the Corporation entitled to vote for such committee and reelected at each subsequent annual meeting of stockholders, until all declared and unpaid dividends on the Series B Preferred Stock have been fully paid and the Corporation has resumed the payment of dividends in full on the Series B Preferred Stock for four consecutive Dividend Periods.
(b)      If and when all accrued and unpaid dividends on the Series B Preferred Stock have been paid in full or declared and a sum sufficient for the payment thereof set apart for payment in full and the Corporation has resumed the payment in of dividends in full on the Series B Preferred Stock for four consecutive Dividend Periods, the right of holders of Series B Preferred Stock to elect those two board observers will cease and, unless there are other classes and series of capital stock of the Corporation upon which like voting rights have been conferred and are exercisable, all rights of each of the two board observers will immediately and automatically terminate.
(c)      The Corporation shall provide to the board observers notice, and a detailed agenda (to the extent prepared for any member of the Board of Directors), of all meetings of the Board of Directors and any committee of the Board of Directors which has been delegated responsibility for matters relating to the payment or nonpayment of dividends, including the Preferred Stock Committee. The Corporation shall also provide to the board observers copies of all materials that may in any way be related to the payment or nonpayment of dividends that are provided to the Board of Directors and to the members of any such committees. The board observers shall be subject to the same confidentiality obligations with respect to such materials as bind the Board of Directors. The board observers may attend any meeting of the Board of Directors or any committee thereof which has been delegated responsibility for matters relating to the payment or nonpayment of dividends, including the Preferred Stock Committee; the board observers may participate in any such meeting, include statements in the minutes of such meetings, and present information and make recommendations to, and ask questions of, the Board of Directors or the Preferred Stock Committee with respect to all matters.
If a special meeting of the holders of the Series B Preferred Stock for the election of the board observers is not called by an officer of the Corporation within 30 days after a request by holders of record of at least 10% of the outstanding shares of Series B Preferred Stock, then such requesting holders may designate a holder of Series B Preferred Stock to call that meeting at the Corporation's expense. The Corporation will pay all costs and expenses of calling and holding any meeting and of electing board observers as described above.
The foregoing voting rights will not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required will be effected, all outstanding shares of Series B Preferred Stock have been redeemed or called for redemption and sufficient funds have been deposited in trust to effect such redemption.
In any matter in which the Series B Preferred Stock is entitled to vote, including any action by written consent, each share of the Series B Preferred Stock shall be entitled to one vote, except that when




shares of any other class or series of capital stock of the Corporation have the right to vote with the Series B Preferred Stock as a single class on any matter, the Series B Preferred Stock and the shares of each such other class or series will have one vote for each $50.00 of liquidation preference (excluding accrued dividends, if any).
5.
No Conversion or Exchange Rights
The holders of shares of the Series B Preferred Stock shall not have any right to convert such shares into or exchange such shares for any other class or series of stock, obligations or property of the Corporation.
6.
No Preemptive Rights
No holder of the Series B Preferred Stock shall as such holder have any pre-emptive right to purchase or subscribe for any other shares, rights, options or other securities of any class of the Corporation which at any time may be sold or offered for sale by the Corporation.
7.
Liquidation Rights and Preference
(a)      Except as otherwise set forth herein, upon the voluntary or involuntary dissolution, liquidation or winding up of the Corporation, after payment of or provision for the liabilities of the Corporation and the expenses of such dissolution, liquidation or winding up, the holders of the outstanding shares of the Series B Preferred Stock shall be entitled to receive out of the assets of the Corporation available for distribution to stockholders pari passu with liquidation payments or distributions to holders of Series A Preferred Stock and any other class or series of stock ranking on a parity as to liquidation with the Series B Preferred Stock and before any payment or distribution shall be made on the Common Stock or any other class or series of stock of the Corporation ranking junior to the Series B Preferred Stock upon liquidation, the amount of $100.00 per share plus an amount, determined in accordance with Section 2 above, equal to all accrued and unpaid dividends for the then-current Dividend Period through and including the date of payment in respect of such dissolution, liquidation or winding up, if any, and the holders of the outstanding shares of any class or series of stock of the Corporation ranking on a parity with the Series B Preferred Stock upon liquidation shall be entitled to receive out of the assets of the Corporation available for distribution to stockholders, before any such payment or distribution shall be made on the Common Stock or any other class or series of stock of the Corporation ranking junior to the Series B Preferred Stock and to such parity stock upon liquidation, any corresponding preferential amount to which the holders of such parity stock may, by the terms thereof, be entitled; provided, however, that if the assets of the Corporation available for distribution to stockholders shall be insufficient for the payment of the full amounts to which the holders of the outstanding shares of the Series B Preferred Stock and the holders of the outstanding shares of such parity stock shall be entitled to receive upon such dissolution, liquidation or winding up of the Corporation as aforesaid, then all of the assets of the Corporation available for distribution to stockholders shall be distributed to the holders of outstanding shares of the Series B Preferred Stock and to the holders of outstanding shares of such parity stock pro rata, so that the amounts so distributed to holders of the Series B Preferred Stock and to holders of such classes or series of such parity stock, respectively, shall bear to each other the same ratio that the respective distributive amounts to which they are so entitled bear to each other. After the payment of the aforesaid amounts to which they are entitled, the holders of outstanding shares of the Series B Preferred Stock and the holders of outstanding shares of any such parity stock shall not be entitled to any further participation in any distribution of assets of the Corporation.




(b)      Neither the sale of all or substantially all of the property or business of the Corporation, nor the merger, consolidation or combination of the Corporation into or with any other corporation or entity, shall be deemed to be a dissolution, liquidation or winding up for the purpose of this Section 7.
8.
Additional Classes or Series of Stock
The Board of Directors shall have the right at any time in the future to authorize, create and issue, by resolution or resolutions, one or more additional classes or series of stock of the Corporation, and to determine and fix the distinguishing characteristics and the relative rights, preferences, privileges and other terms of the shares thereof. Any such class or series of stock may rank on a parity with or junior to the Series B Preferred Stock as to payment of dividends when due or upon liquidation or otherwise. No such class or series of stock of the Corporation may rank prior to the Series B Preferred Stock as to payment of dividends when due or upon liquidation or otherwise.
9.
Miscellaneous
(a)      Any stock of any class or series of the Corporation shall be deemed to rank:
(i)      on a parity with shares of the Series B Preferred Stock, either as to the payment of dividends when due or upon liquidation, whether or not the dividend rates or amounts, dividend payment dates or redemption of liquidation prices per share, if any, be different from those of the Series B Preferred Stock, if the holders of such class or series shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in proportion to their respective dividend rates or amounts or liquidation prices, without preference or priority, one over the other, as between the holders of such class or series and the holders of shares of the Series B Preferred Stock; and
(ii)      junior to shares of the Series B Preferred Stock, either as to the payment of dividends when due or upon liquidation, if such class or series shall be Common Stock, or if the holders of shares of the Series B Preferred Stock shall be entitled to receipt of dividends when due or of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in preference or priority to the holders of shares of such class or series.
(b)      The Corporation and any agent of the Corporation may deem and treat the holder of a share or shares of Series B Preferred Stock, as shown in the Cor-poration's books and records, as the absolute owner of such share or shares of Series B Preferred Stock for the purpose of receiving payment of dividends when due in respect of such share or shares of Series B Preferred Stock and for all other purposes whatsoever, and neither the Corporation nor any agent of the Corporation shall be affected by any notice to the contrary. All payments made to or upon the order of any such persons shall be valid and, to the extent of the sum or sums so paid, effectual to satisfy and discharge liabilities for moneys payable by the Corporation on or with respect to any such share or shares of Series B Preferred Stock.
(c)      The shares of the Series B Preferred Stock, when duly issued, shall be fully paid and non-assessable.
(d)      For purposes of this Certificate, the term "the Corporation" means SLM Corporation and any successor thereto by operation of law or by reason of a merger, consolidation or combination.




(e)      Any notice, demand or other communication which by any provision of this Certificate is required or permitted to be given or served to or upon the Corporation shall be given or served in writing addressed (unless and until another address shall be published by the Corporation) to SLM Corporation, 12061 Bluemont Way, Reston, Virginia 20190, Attn: General Counsel's Office. Such notice, demand or other communication to or upon the Corporation shall be deemed to have been sufficiently given or made only upon actual receipt of a writing by the Corporation. Any notice, demand or other communication which by any provision of this Certificate is required or permitted to be given or served by the Corporation hereunder may be given or served by being deposited first class, postage prepaid, in the United States mail addressed (i) to the holder as such holder's name and address may appear at such time in the books and records of the Corporation or (ii) to a person or entity other than a holder of record of the Series B Preferred Stock, to such person or entity at such address as appears to the Corporation to be appropriate at such time. Such notice, demand or other communication shall be deemed to have been sufficiently given or made, for all purposes, upon mailing.
(f)      The Corporation, by or under the authority of the Board of Directors, may amend, alter, supplement or repeal any provision of this Certificate pursuant to applicable law and the following terms and conditions:
(i)      Without the consent of the holders of the Series B Preferred Stock, the Corporation may amend, alter, supplement or repeal any provision of this Certificate to cure any ambiguity, to correct or supplement any term that may be defective or inconsistent with any other terms, or to make any other provisions so long as such action does not materially and adversely affect the rights, preferences, privileges or voting power of the holders of the Series B Preferred Stock.
(ii)      With the consent of the holders of at least 66-2/3% of all of the shares of the Series B Preferred Stock at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of the Series B Preferred Stock shall vote together as a class, shall be necessary for authorizing, effecting or validating the amendment, alteration, supplementation or repeal of the provisions of this Certificate if such amendment, alteration, supplementation or repeal would materially and adversely affect the powers, preferences, rights, privileges, qualifications, limitations, restrictions, terms or conditions of the Series B Preferred Stock. The creation and issuance of any other class or series of stock, or the issuance of additional shares of any existing class or series of stock of the Corporation (including the Series B Preferred Stock), whether ranking on parity with or junior to the Series B Preferred Stock, shall not be deemed to constitute such an amendment, alteration, supplementation or repeal.
(iii)      Holders of the Series A Preferred Stock shall be entitled to one vote per share on matters on which their consent is required pursuant to subparagraph (i) of this paragraph (f). In connection with any meeting of such holders, the Board of Directors shall fix a record date, neither earlier than 60 days nor later than 10 days prior to the date of such meeting, and holders of record of shares of the Series B Preferred Stock on such record date shall be entitled to notice of and to vote at any such meeting and any adjournment. The Board of Directors, or such person or persons as it may designate, may establish reasonable rules and procedures as to the solicitation of the consent of holders of the Series B Preferred Stock at any such meeting or otherwise, which rules and procedures shall conform to the requirements of any national securities exchange on which the Series B Preferred Stock may be listed at such time.




(g)      RECEIPT AND ACCEPTANCE OF A SHARE OR SHARES OF THE SERIES B PREFERRED STOCK BY OR ON BEHALF OF A HOLDER SHALL CONSTITUTE THE UNCONDITIONAL ACCEPTANCE BY THE HOLDER (AND ALL OTHERS HAVING BENEFICIAL OWNERSHIP OF SUCH SHARE OR SHARES) OF ALL OF THE TERMS AND PROVISIONS OF THIS CERTIFICATE. NO SIGNATURE OR OTHER FURTHER MANIFESTATION OF ASSENT TO THE TERMS AND PROVISIONS OF THIS CERTIFICATE SHALL BE NECESSARY FOR ITS OPERATION OR EFFECT AS BETWEEN THE CORPORATION AND THE HOLDER (AND ALL SUCH OTHERS).






Exhibit 10.41


300 Continental Drive
Newark, DE 19713

Bonnie Beasley
Vice President, Human Resources


April 24, 2014

Mr. Jeff Dale
Apartment #2501
247 W. 46 th Street
New York, NY 10036

Dear Jeff:

On behalf of Sallie Mae, I am pleased to offer you employment in the position of Chief Risk Officer of New BLC Corporation (the “Company”), which will be the public company successor of SLM Corporation following the separation of SLM’s education loan management business and consumer banking business. You will report into the Chief Executive Officer of the Company, and your principal place of employment will be Newark, Delaware. Your effective date of employment will be mutually agreed to by you and the Company As soon as practicable after expiration of garden leave with current employer, and no later than July 7, 2014. by May 5, 2014.

You initial annual salary of $400,000 will be paid bi-weekly, and you will be eligible to participate in the 2014 SLM Corporation Management Incentive Plan (MIP) or its successor plan with a target bonus of 100% of base salary in the amount of $400,000, and a guaranteed minimum bonus of $350,000 for 2014; provided that you are employed by the Company on the bonus payment date. More information on the terms and conditions of the MIP will be provided following the start of your employment.

When you begin your employment with the Company, you will receive a deferred cash award (the “Signing Cash Award”), with a value of $200,000, which will vest and pay out in equal tranches during the first quarter of each of 2015 and 2016; provided that you are employed by the Company on such payment date. However, if not previously vested, the Signing Cash Award will continue to vest and pay out at the times set forth above in the event that your employment is terminated by the Company for any reason other than for misconduct.

You will also receive a sign-on equity grant with a grant value of $200,000 as soon as practicable after you begin your employment with the Company. The award will be granted using the closing market price of the Company on the grant date and will be subject to vesting over the three years following your start date with the Company. You will also be eligible to participate in the Company’s annual equity grant program beginning in 2015, with a target equity grant value of $300,000 per year. Agreements detailing your awards and vesting terms will be provided at the time of grant.

You will participate in the benefits provided to officers of the Company at the Executive Officer level, including the SLM Relocation Services policy at the Executive Level, or its successor policy, and the SLM Corporation Executive Severance Plan for Senior Officers and the Change in Control Severance Plan for Senior Officers or their respective successor plans. Other benefits include the Executive Physical Program and the Supplemental 401(k) Savings Plan, in addition to our regular package of employee benefits.

 

____________________________
1 As soon as practicable after expiration of garden leave with current employer, and no later than July 7, 2014.





You represent that you have not taken, and agree that you will not take in connection with your employment with the Company, an action that would violate any contractual or other restriction or obligation that is binding on you or any continuing duty you may owe to others. You acknowledge that in the event of a conflict with any other agreement (whether written or oral) or understanding that you have with SLM or the Company, the terms of this letter agreement control and that this letter agreement supersedes any prior discussions regarding your employment with the Company.

This offer is contingent on SLM’s standard employment practices, which means that your acceptance of this offer serves as an agreement to participate in company-requested background checks, which include drug screening and fingerprinting. We retain the right to rescind our offer depending on the outcome of these steps. As you may know, employment at SLM and the Company is at-will and nothing in this offer changes this status. SLM’s obligations and rights under this letter agreement, and any other to which you are subject with SLM, will automatically become those of the Company in connection with the separation of SLM’s business. The Company will withhold all taxes and charges that they are required by law to withhold.

Please indicate your acceptance of our offer as set forth herein by signing and returning this letter by May 5, 2014, as well as the enclosed Employment Application, Background Check Authorization and Agreement Regarding Confidentiality, Intellectual Property and Non-Solicitation.

Jeff, we are delighted to have you join Sallie Mae and look forward to working with you. Please contact me at 302-283-8119 with any questions you may have or if I can be of further assistance in your upcoming transition.


Sincerely,
    


Bonnie Beasley




Agreed and Signed by Jeff Dale:


__________________________________________________________        Date: ______________
Name: Jeff Dale




Agreed and Signed by New BLC Corporation:


__________________________________________________________        Date: ______________
Name: Ray Quinlan
Title: Chief Executive Officer


Exhibit 10.42

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Exhibit 10.43

 

 

 

 

 

 

 

 

 

 
DM_US 14702698-2J064500.0013 SALLIE MAE 401(k) SAVINGS PLAN -- Plan Document -- Effective as of April30, 2014 Exhibit 10.44

 
ARTICLE 1 1.01 1.02 ARTICLE2 2.01 2.02 2.03 2.04 2.05 2.06 2.07 2.08 2.09 2.10 2.11 2. 12 2.13 2.14 2.15 2.16 2.17 2.18 2.19 2.20 2.21 2.22 2.23 2.24 2.25 2.26 2.27 2.28 2.29 2.30 2.3 I 2.32 2.33 2.34 2.35 2.36 TABLE OF CONTENTS Page NAME AND EFFECTIVE DATE .............. ...... .......... ... ....... .......... ... ............. I Name of Plan ......... .. .............. .. ... ...... ... ... .... .. ...... ... ... .... ....... ... .. .... ... .... ............ 1 Effective Date ...... .............. ................ ................................. ....... ..... ............ .. ... 1 DEFINITIONS ................................................................................................. 3 Affiliated Employer .... ......... ...... ... ......... ... ... ..... .. .. ... .. .. ... ........ .. ... .... ........... .. ... 3 Aggregation Group ......... ..................... ................ ..... ....... ............ ....... ..... ........ 3 Authorized Leave of Absence ......... ..... .. ...... .. ........ ... ........ .. ................. .... ........ 3 Beneficiary ........ ... .. ...... ... ..... ....... .. ........ .... .. ..... ...... ........... ...... ....... ..... .. ... ....... . 3 Board of Directors ............................... ...................... ..... ................................. 4 Code ....... ...... .. ... ... ,. ........ .... .. ... ... ...... ... .. .. ... ... ... .. ...... .. .. .. ... ...... ... ....... ...... ..... ... .. ... ...... ... .......... . ... .. ..... ...... 4 Committee ..... .... .... ... ... .. ................. ...... ... .. .... ......... .. ... .. .. ..... ............. .... ........ ... 4 Compensation ..... .................. ........ ...................... .... ..... ........... .. .... ........ ....... ... . 4 Corporation .... .. .... .. .. ...... .... ... .... ... .... ..... .. ... ..... .. ... ..... ... .. .............. ......... ... .. ...... 5 Determination Date ................ .................. ........... ......... .................................... 5 Direct Rollover ... .. ..... ..... ... ..... ... .... ..... ...... .. ... ..... ......... .. ........ .. .. .. .... .. .... ..... .. .... 5 Disabirity .. .. .......... .. .... .. .... ... .. .. .. ..... .. .. .. ... .... .............. .. .... ...... .. .. ........ ... ... ....... .. 5 Effective Date .... ............. ......................... ......... ........... ............ .. ... .. ............... .. 5 Eligible Retirement Plan .................................................................. ............ .... 5 Eligible Rollover Distribution ... ... ........... ................. ..................................... .. 6 Emp1oyee ................ ............. ........ ............ ........ ...... ...... .. ...... .. ......... .......... ..... .. 6 Employee Account .. ..... .. ......... ... ...... ... ..... .. .. .... ........ ... .... ..... ... ........ .... ...... ....... 7 Employee Contribution ......... .................................... .................... ................... 8 Employer .. ... .. ...... ... .............. ....... .. ... ........ ..... ............... ....... .. .. ............ ..... ..... .. .. 8 Employer Core Contribution .. .... .... ....... ... .. ... ....... .. .. .......... ............ ...... ....... .... 8 Employer Discretionary Profit-Sharing Contribution ................ ...... ....... ......... 8 Employer Matching Contribution .. .... ... .. .... .... ....... .. .. ........ .. .. ...... .. .... .. ... ..... .... 8 Employment Commencement Date ....... ..... ......... ............................................ 8 ERISA ... ........ ....... .. ..... .. .. ....... ....... ...... ............. .... .... ....... ............ ... ....... ...... ..... 9 Five Percenr Owner ... ........... ....... .... .. ...... ...... .. ........ .. .... .. ..... ... .. .. ...... ........... ... 9 Fund · ··~~· · ·· ~r ....... .... . ~ ... ....... ... .... ......................... ........................ ........... ..................... .................... 9 Highly Compensated Employee .. ........ .. ... ... ....... .. ...... ... .... .. .... .. ....... ........... .. .. . 9 Hour of Service ......... ................. ...... ........................ ............... ....... ................ 10 Key Employee ....... ... .. ........ ............... ... ...... .. .. ...... ..... ......... ...... ...... .. ... ..... ... .. . 10 Leased Employee .. .. ... ... .... ........... ............... .... ..... ....... ... ... .... ......... .... ....... ... .. f 1 Named Fiduciary.... ........... ............... .... ............... ......... ................. ................ . ll Navient. .. ... ...... ............. .... ......... ................ .. .. .. .. .. ........ ......... .. .. ...... ...... .. .. ..... · 1 l Navlent Common Stock .... .... ... .................... ..... .... .. .... ....................... .... ...... .. II Navient Stock Fund ............................. .............. ......... .. ..... ..... ...... ................. l l Navien€ Plan ... ........... ... ... ... .......... ..... .. ............ ..... ....... .......................... ... ...... I I Non-deferred Co1npensation ........... ............. ..................... .... ................. ........ l 1 DM_US 14702698-H.064SOO.Ocm

 
2.37 2.38 2.39 2.40 2.41 2.42 2.43 2.44 2.45 2.46 2.47 2.48 2.49 2.50 2.51 2.52 2.53 2.54 2.55 2.56 2.57 2.58 2.59 2.60 2.61 2.62 2.63 2.64 ARTlCLE3 3.01 3.02 3.03 3.04 3.05 3.06 ARTICLE4 4.01 TABLE OF CONTENTS (continued) Page Non-K,ey Employee .. .. .. ........ .......................... ............... .. .................. ............ . 13 Normal Retirement Age ............... ................... ........... .... ....... ............. ............ 1 3 One Percent Owner .... .. .... ... ....... .... ........... ... ...... .. ..... ... .... ....... ........ .... ..... ... .. . 13 Participant .. .. ....... ....... ............... .. ....... ... ............. ....... ..... .... .. ........... .............. . 13 Pension Plan...... .. ............ ............ ........... .. ........... .. ... ............ ........... ....... ....... . 14 Period of Service ... ...... ... ... ... ... .. .. ... ... ... .. ..... .... .. .. ... ..... .. .... ... ...... ..... ..... .. .. .... .. 14 Period of Severance ... .... ........... .......... ......... ....................... ............ ..... .......... 14 Permissive Aggregation Group ........ ... ....... ....... ...... .. ... ...... ..... ............. .. ........ 14 Plan .. ... .. ........ ... .. ....... .. ... ...... .................. ........ .......... .. ... ..... .... .. .. ......... .. .. .. ..... 14 Plan Administrator ....... ... ..... .... ................ ............ ............. ..... ........... .. ........... 14 Plan Year .......... ............. .. .... ........................ ............ .... ........ .... ..... ....... .. .. .... ... 14 Qualified Beneficiary .. .. .. ...... .... .... ...... ... ... .. ... ..... .. ........ ...... ... .. .. .... ........ .. ...... 14 Qualified Non-Elective Contribution .................... ......................................... 15 Reempfoyment Commencement Date ... ... ......... .......... ...... ...... .. ............. .. ... .. 15 Required Aggregation Group .... ........ ........ ......... ... ..... ....... ......... .... .... ... .. ....... 15 Rollover Contribution .................. ........... ............................................... ........ 15 Service Contract Act Contribution .. .. .................... ......... ... .. ....... .... .... .......... . 15 Severance from Service Date......... ........ ... ......... .. ... .. ............ ........... ..... ......... 15 SLI\11 Common Stock ..................................................................................... 15 SLM Stock Fund ....... ...... .... ..... .... ...... ............. .............. .. ................... ...... ...... 16 Top Heavy Group .................. ..... .. ....... .... .... .. ..... ............. ....... ........... .. .... .. .... 16 Top Heavy PJafl .... ....................... ...... ...................................... ................ ....... 16 Trust Agreement ..... ........... ..... ......... .. ... ...... ........ .. .. .... ....... ... ... ..... ... .. ........... . 16 Trustee .. .... ........ .. .......... .. .. ........... ............ .... ........... ............ ........................... 16 Valuation Date .... .............................. .......... ........... ................................ ........ l7 Vested Benefit. .............. ....... ... .... ... ... ... .. ..... ..... .. .... ... .. ..... .. .... ... ... .. .. ............. . 17 Year of Participation ...... ... .................................. ................. ... ....... ............. ... 17 Year of Vesting Service ........ ........... ........... ................ .......... ..... .................... 17 ELIGffiiLITY & PARTICIPATION ........................................... .................. 18 Eligibility ...... .. ............ ......... ......... ...... .. .... ....... ......... ....... ....... .. ...... .... ..... .. .. .. 18 Participation ..... .... ......... ... .... ...... ...................... ... ... ............... ............. ...... ..... . 18 Re-employment of Former Parricipant or Former Employee and Change in Employment Status ............. ..... .... ... ... .. ......... ..... ... ... .... ..... ......... ... 19 Transfer of Participant to Another Employer ........ ................ ............ ..... ....... 20 Transfer of Participant to an Affitiated Employer ..................................... .... 20 Transfer of Participant from Affiliated Employer ... ..... ..... ... .. ..... .. .. .. .......... .. 20 CONTRffiUTIONS .. .. ............. ................ ..... ........ ............ ................ ............. 21 Employer Contributions .. ....... .. ............... .. ........ ............................................. 21 DM_US 1 4?02698 ·1~ .064500.00 1 3 -j j.

 
4.02 4.03 4.04 4.05 4.06 4.07 ARTICLES 5.01 5.02 5.03 5.04 5.05 5.06 5.07 ARTICLE6 6.01 6.02 6.03 6.04 6.05 ARTICLE 7 7.0J 7.02 ARTICLE 8 8.01 8.02 8.03 8.04 8.05 TABLE OF CONTENTS (cominued) Page Rollover Contributions .... ... ... ...... ...... ..... .... .. ..................... ... ..... ...... ........ ...... 22 Distribution of Employee Contributions that Exceed tile Statutory Limitation ..... ........ ... .. ........ ........ .... .... ....... ... ... ... ... ........... .... ..... .. .. ..... .. ..... ...... 23 Change of Contribution Rate and Suspension of Contributions ...... .............. 23 Paymenl to the Trustee ...................... .................. ............ .. ............... ............. . 24 Safe Harbor Requirements .. .. ................... ..... .. ... ............. .... ......... .. .. ......... ... .. 24 Maximum Benefit and Contribution Limitations .......................................... 24 INVESTMENT ELECTIONS AND ACCOUNTS OF PARTICIPANTS ........... ........................................ ........................................ 27 Panicipant Investment Elections ...... .... ... ......... .. ........... .. ... ...... ..... .... .. .... ..... . 27 Investment Alternatives ........... .......... .................. ..................................... ..... 27 S.LM Stock Fund ...................................... ........................................ .. ............ 27 Allocation to Accounts ............ .. ... ....... ... ... ......... .. .... ......... .. ... ........... .... ........ 27 Determination of Account Balances Binding ............ ............................ ...... .. 28 Panicipation of Additional Employers ... ..... ... .......... ..... ...... ..... .. .............. ..... 28 Voting Rights of SLM Common Stock ... ... ......... ... ... ...... .... .. ..... ...... ... .. ..... .. . 28 lN...SERVICE WITHDRAWALS AND LOANS .......... ...... ..... ........... .. .. .. .... 29 Withdrawals from Voluntary Contribution and Participant Contribution Sub~ Accounts .......... ......... ...... .... ....... ................................. ...... 29 Withdrawals from Rollover Contribudon Sub-Accounts .... .. .. ..... ...... ..... ...... 29 Withdrawal from Employer Matching Contribution Sub-Accounts. Employer Discretionary Profit-Sharjng Contribution Sub-Accounts. Employer Core Contribution Sub-Accounts. and Servic~ Contract Act Contribution Sub-Accounts ......... ......... .... ........................ ... ...... .......... ........ .. 30 Hardship Withdrawals from Employee Contribution Sub-Accounts ............ 30 Loans .... ....... ..... .. .. ..... .. ... ...... ........ ..... ..... .. .. ....... .... .... .. .. ......... ...... .. .. .... .. ...... .. 32 VESTING ...... ....... .... ..... .. ................... ........... ....... ...... .. ... .... .. .......... .......... .... 33 Vesting ...... .... ..... .......... .. .......... ............ .................... ...................................... 33 Re-employment of Former Participants ......... ............................ ........ ........... . 33 DISTRIBUTIONS .. ............ .. .... ....... .................. ............ ..... ........... ................ 34 Earliest Time for and Method of Distribution of Benefits .. ...... . .. ..... ..... ... ..... 34 Time of Payment ................................ .................................................. ... ....... 34 Distribution of SrnaU Benefits ........ .... .... .. ............... .. ......... ................... .. ...... 34 Larest Time for Distribution .. ... ........... .. .. ....... .. ...... .. ... ....... ... .. .... .. ...... .. .... .... 35 Missing Participant or Beneficiary ... ............ .......... .......... ..... ......... ...... ......... 36 DM US 14702b98-!Hl64~00.00t> -iii -

 
8.06 8.07 ARTICLE9 9.01 9.02 9.03 ARTICLE 10 10.01 ARTICLE 11 11.01 11.02 ARTICLE 12 12.01 12.02 12.03 12.04 ARTICLE 13 13.01 13.02 13.03 ARTICLE 14 14.01 14.02 14.03 14.04 14.05 14.06 14.07 !4.08 14.09 14.10 I 4.1 1 TABLE OF CONTENTS (continued) Page Election of Direct RoHover of a Vested Benefit.. .. .. .. .......................... ... .... .. . 36 Death of a Participant During QuaJified Military Service .. ................ .. .. ....... 37 PLAN ADMINISTRATION .................................. ... .... ............. ... ............ .. .. . 38 Committee ............................ ......... ........... ............ .......................................... 38 Powers and Duties of the Committee ................... ..... ....... .. ......................... .. 38 Delegation of ResponsibiJides ..... .... ...... .. .... ................... .. .............. ....... ..... ... 38 CONTROL AND MANAGEME T OF ASSETS .................................. ...... 39 In General. ...................................................................... ......... ...... ....... .. .. ...... 39 FIDUCIARY LIABILITY INSURANCE AND INDEMNIFICATION ........ 40 Fiduciary Liability Insurance ....... ..... .......... ... ...... ..................... .. ......... .... .. .. .. 40 Indemnity ..... .................... ...................................... ...................................... .. 40 AMENDMENTS TO OR TERMINATION OF THE PLAN ........................ 41 Right of Corporation to Amend or Terminate the Plan ....... ............. .. ... ........ 41 Termination of Plan ................ .. ......... ..................................... ... ..... ............... 41 Withdrawal of an Employer ...................... ..................................... ....... ......... 41 Plan-to-Plan Transfer ...... .... ....... ... .. .. .. ................. .... ........ ....... .......... ... .... ...... 42 TOP HEAVY PROVISIONS ................. .. ........... ............. .................... .. .... ... 43 Top Heavy Plan Requirements ....... ................................ ............................ ... 43 Top Heavy Minimum Contribution Requirement .................................. ... .. .. 43 Top-H.eavy Provisions ........... ... ..................... ......... .... ... .......... .................. .... 43 MISCELLANEOUS .... ... ..... ...... ... .. ......... ..... .. .... ................................ .... ..... .. 44 Rights of Emptoyees ......... .............. ........ .............. ............. .. ..... .................... . 44 Notice of Address .......... .. ......... .... ....... .... .. ....... ... .......... .. ...... .. .. ...... ........... ... 44 Data4 .. ......... 4 .. .......... ..... .. ..... ..... ... ................. ..... .................. .. . . ............ .. .... .... .. . .. ..... ....... . ..... .. .... .. .. . .. . . ..... .. 44 Merger ....... ... ... .. ......... ... ... ...... .......... ..... .. ........ ........... ....... ... ............ ....... ............................ 44 Fund to be for the Exclusive Benefit of Panicipants ... ..... ..... ..... ............. ...... 44 Facility of Payment .... ............................................................... .................... . 45 Restrictions on Alienation .. .... ...... .. ........ ....... ... ......... ....... ........ .... ...... ... .. .. .... 45 Headings ....... ....... .... .. .......... ........ .......... .............. ............ ...... ........................ 45 Construcljon ..... .. ....... .. ..... ...... ... ... ...... ............ .. ......... ... .......... .... ........ ............ 45 Exclusion and Severability ... .... ...... ... .... ..... .. .. ... ......... ...... .... .. ........ .... ........... 45 Special Rule Relating to Military Service .... ............ ......................... ............ 46 OM_US I4702693·21.064SOO.OOU - IV•

 
14.12 14. t3 ARTICLE 15 15.01 15.02 15.03 ARTICLE !6 APPENDIX A APPENDIX B TABLE OF CONTENTS (continued) Page Application of Forfejtures .... ....... ... .. .... .. .. .. .. .... ... ......... .. ... .. .. .. .... ..... .. .. .... ..... . 46 Contractual Limitation Period ...... .............. .......... .............. ........................... 46 SPECIAL PROVISIO S APPLICABLE TO CORPORATE TRANSACTIONS ...... .. ........ .. ...... ......... ........ ...... .. ..... ........... .. ....... ..... .... ... ... 47 Special Vesting Provisions ......... ............ ........... .. .......... ................................ 47 USA Group Special Provisions ....... .. ..... ... .... ... .......... ... ....... .. ... ... .. .. .... ...... .. . 48 Southwest Smdent Services Corporation Special Provisions .............. .......... 48 SIGN.ATURE ...... .... .... .. ... ... ......... .... ... .... ... .............. ........ ... ............... ..... ....... 49 SALLIE MAE 40l (K) SAVINGS PLAN PARTICIPATING EMPLOYERS ................... ..................... ............... .. ........... ............ ....... .... ..... 50 ADDITIONAL PROVISIONS RELATED TO REQUIRED MINIMUM DISTRIBUTIONS .... .. .. .. .... .. ......... .. .. .. ....... .. .. ... .... ... .... ...... ..... .. . 51 DM_US 14702698-23.064500.0013 -v~

 
ARTICLE 1 NAME AND EFFECTIVE DATE 1.01 Name of Plan. Effective November 1, 1997, this Plan shall be known as the Sallie Mae 401 (k) Savings Plan. Prior to November l, 1997, the Plan was known as the Student Loan Marketing Association Employees' Thrift and Savings Plan. This Plan is a profit-sharing plan. This Plan is intended to qualify as a participant directed account plan under section 404( c) of ERISA. 1.02 Effective Date. The Effective Date of the Plan is April l, 1974. The Plan was amended and restated to reflect statutory changes that are generally effective January 1, 1997, (except to the extent an amendment required by a statutory enactment is effective on a later date, as stated herein), and to reflect administrative changes to the Plan. The Plan was restated as of February 28, 1999, to reflect amendments made to the Plan after January 1, 1997 and effective on February 28, 1999 unless otherwise stated herein. The Plan was further restated as of December 31 , 1999 to reflect amendments through December 31 , 1999, and the Plan was further restated as of December 31, 2001 to reflect amendments through December 31, 2001 . The Plan was further amended by the First Amendment to the Sallie Mae 401(k) Savings Plan to comply with the Economic Growth and Tax Relief Reconciliation Act of 2001, and to incorporate certain other plan design changes. The Plan was further amended by the Second Amendment to the Sallie Mae 401(k) Savings Plan, effective as of January 1, 2003 or as otherwise provided, to incorporate certain plan design changes. The Plan was thereafter amended as of January 1, 2006 to incorporate changes to the optional forms of benefit and for purposes of further defining eligibility and vesting service for new participants added to the plan as a result of acquisition. In addition, the Plan was amended by the First Amendment to the Sallie Mae 401(k) Savings Plan (as most recently restated as of January 1, 2010), effective January 1, 2007 (or such later effective date provided therein), to incorporate certain changes required by the Heroes Earnings Assistance and Relief Tax Act of 2008. The Plan was further restated as of September 1, 2006, to reflect amendments through January 1, 2006. The Plan (as most recently restated as of September 1, 2006, to reflect amendments through January l, 2006) was then amended as follows: ( 1) by the First Amendment, effective as of January 1, 2006, or as otherwise provided, to incorporate certain changes required by the final regulations issued under section 401 (k) of the Code; (2) by the Second Amendment, effective as of August 1, 2007, to incorporate changes related to a freeze in eligibility and participation under the Plan; (3) by the Third Amendment, effective as of October I , 2008, to make changes to the definition of Compensation and the amount of Employer Core Contributions and Employer Matching Contributions; (4) by the Fourth and Fifth Amendments, effective as of January 1, 2008, to clarify the administrative provisions of the Plan and to comply with the final regulations issued under section 415 of the Code; (5) by the Sixth Amendment, effective as of September l, 2009, to reflect a special employer discretionary contribution (a "Service Contract Act Contribution") exclusively for employees designated by the Corporation as government contract employees; (6) by the Seventh Amendment, effective January 1, 2007 and OM US 14702698·23.064500 .0013 -1-

 
January l, 2008, to incorporate certain changes required by the Pension Protection Act of 2006; (7) by the Eighth Amendment, effective for distributions on and after January 1, 2003, to comply with the final regulations issued under section 40l(a)(9) of the Code; and (8) by the Ninth Amendment, effective January l, 2009, to clarify how the Plan has been administered. The Plan was further amended and restated, effective as of January 1, 20 I 0, to reflect the merger of the Sallie Mae 401 (k) Retirement Savings Plan into the Plan, to restore the eligibility and participation provisions, and to reflect amendments through January I, 2010. The Plan is hereby further amended and restated, effective at 4:00pm EDT on April 30, 2014, for the spinoff of Navient from the Corporation. In connection with and pursuant to the spin-off of Navient from the Corporation, the following portions of Employee Accounts shall be spun-off from the Plan and transferred to, and received by, the Navient Plan: (a) Participants employed by an Employer at 4:00pm EDT on April 30, 2014 shall have the Navient Plan receive all Navient Common Stock distributed on April 30, 2014 with respect to SLM Common Stock held in the SLM Stock Fund on April 30, 2014; and (b) individuals employed by Navient or an affiliated employer of Navient at 4:00pm EDT on April 30, 2014 shall have (i) the Navient Plan receive all Navient Common Stock distributed on April 30, 2014 with respect to SLM Common Stock held in the SLM Stock Fund on April 30, 2014 and (ii) all accounts under the Plan (other than the portion of any accounts invested in the SLM Stock Fund on April 30, 2014) transferred to the Navient Plan as soon as practicable after April 30, 2014; and (c) individuals who, as of 4 :00pm EDT on April 30, 2014, were treated as terminated vested Participants under the Plan shall have (i) the Navient Plan receive all Navient Common Stock distributed on April 30, 2014 with respect to SLM Common Stock held in the SLM Stock Fund on April 30, 2014 and (ii) all accounts under the Plan (other than the portion of any accounts invested in the SLM Stock Fund on the April 30, 2014) transferred to the Navient Plan as soon as practicable after April 30, 2014. Except as may otherwise be provided by ERISA or other law or the terms of this Plan, the benefit of a former Participant who terminated his employment with an Employer before the effective date of an amendment shall be governed by the provisions of the Plan as in effect on the date of such termination. OM_US 14702698-23.064500.0013 -2-

 
ARTICLE2 DEFINITIONS The following words and phrases shall have the following meanings unless a different meaning is plainly required by the context: 2.01 Affiliated Employer. "Affiliated Employer" means: (a) any corporation which is in the same "controlled group of corporations", as defined in section 414(b) of the Code, as an Employer, but which is not an Employer; (b) any trade or business which is under common control, as defined in section 414(c) of the Code, with an Employer, but which is not an Employer; (c) any employer that is a member of an affiliated service group, as defined in section 414(m) of the Code, that includes an Employer, but which is not an Employer; or (d) any other entity that is required to be aggregated with an Employer pursuant to regulations under section 4 I 4( o) of the Code, but which is not an Employer. A corporation, a trade or business, an employer or an entity is an Affiliated Employer for all purposes under the Plan only during the period or periods when the corporation is a member of the same controlled group of corporations as an Employer, when the trade or business is under common control with an Employer, when the employer is a member of an affiliated service group that includes an Employer, or when the entity is required to be aggregated with an Employer. For purposes of Section 4.07, the definitions prescribed by sections 414(b) and 414(c) of the Code shall be modified as provided by section 415(h) of the Code. 2.02 Aggregation Group. "Aggregation Group" means either a Required Aggregation Group or a Permissive Aggregation Group. 2.03 Authorized Leave of Absence. "Authorized Leave of Absence" means: (a) a leave of absence of an employee approved by an Employer or Affiliated Employer in accordance with rules that apply on a uniform basis to all similarly situated employees; or (b) a leave of absence of an employee as required by the Veteran Re- employment Rights Act or other applicable law. 2.04 Beneficiary. "Beneficiary" means the person, persons or entity, including one or more trusts, last designated, on a form supplied by the Committee, by a Participant as a beneficiary, co-beneficiary or contingent beneficiary to receive benefits payable under the Plan in the event of the death of the Participant; provided, however, that in the case of a married DM_US 14702698-23.064500.0013 -3-

 
Participant, the Beneficiary shall be the Participant's survtvmg spouse, unless the surviving spouse consents, on a form supplied by the Committee, to the designation of another Beneficiary or Beneficiaries. The spouse' s consent must acknowledge the effect of such designation, must be witnessed by a Plan representative or a notary public, and, unless the spouse executes a general consent, must acknowledge the specific non-spouse Beneficiary, if any, including any class of Beneficiaries or any contingent Beneficiaries. A general consent to permit the Participant to change his Beneficiary without any requirement of further consent by his spouse is valid only if the spouse acknowledges that the spouse has a right to limit consent to a specific Beneficiary and the spouse voluntarily relinquishes that right. Notwithstanding the above, if it is established to the satisfaction of a Plan representative that such consent may not be obtained because there is no spouse or because the spouse cannot be located, no consent will be required. Spousal consent is also not required if the Participant is legally separated or the Participant has been abandoned, within the meaning of local law, and the Participant has a court order to such effect. If the spouse is legally incompetent to give consent, the spouse's legal guardian, even if the guardian is the Participant, may give consent. If no designation of a Beneficiary is in effect at the time of death of the Participant, or if no person, persons or entity so designated shall survive the Participant, the Beneficiary shall be the Participant's surviving spouse, if any, or if there shall be no such surviving spouse, the Beneficiary shall be the estate of the Participant. 2.05 Board of Directors. "Board of Directors" or "Board" means the Board of Directors of the Corporation. 2.06 Code. "Code" means the Internal Revenue Code of 1986, as amended. 2.07 Committee. "Committee" means the committee appointed to administer the Plan as provided in Article 9 . 2.08 Compensation. "Compensation" means, for the portion of a Plan Year during which an Employee is a Participant, the gross amount of base salary, overtime, shift differential, bonus and commissions paid by the Employer to an Employee for services rendered as an Employee to or on behalf of the Employer, including payments for sick leave, vacation, holidays, jury duty, bereavement and other paid leaves of absence, recruiting/job referral bonuses, plus any amount that is deferred or reduced pursuant to a salary reduction agreement in respect of which the Employer makes contributions to this Plan or to a cafeteria plan within the meaning of section 125 of the Code, except that Compensation shall not include severance, hiring bonuses, long-term disability payments, any amount deferred or paid under a nonqualified deferred compensation plan maintained by the Employer; amounts paid on account of the Corporation's Vacation Sell Program; or amounts paid on account of the exercise of stock options or on account of the award or vesting of restricted stock or other stock-based compensation. The annual Compensation of each Participant taken into account under the Plan shall not exceed $260,000 (for 2014), adjusted as of January I of each calendar year pursuant to sections 40l(a)( 17) and 415(d) of the Code. DM_US 14702698-23.064500.001 3 -4-

 
2.09 Corporation. "Corporation" means SLM Corporation or any other person, firm or corporation which may succeed to the business of SLM Corporation by merger, consolidation or otherwise and which, by appropriate action, shall adopt the Plan, except that prior to May 17, 2002, "Corporation" means USA Education, Inc. , prior to July 31 , 2000, "Corporation" means SLM Holding Corporation, and prior to August 7, 1997, "Corporation" means Student Loan Marketing Association. 2.10 Determination Date. "Determination Date" means, with respect to any Plan Year, (a) the last day of the immediately preceding Plan Year, or (b) in the case of the first Plan Year of the Plan, the last day of such Plan Year. 2.11 Direct Rollover. "Direct Rollover" means a payment by the Plan of an Eligible Rollover Distribution to the Eligible Retirement Plan specified by the Participant or a Qualified Beneficiary. 2.12 Disability. "Disability" means a mental or physical condition for which an individual receives disability benefits for total and permanent disability under either (a) the Federal Social Security Act or (b) any welfare plan maintained by the Employer that provides long-term disability benefits. 2.13 Effective Date. "Effective Date" means April 1, 1974, the date when this Plan first became effective. 2.14 Eligible Retirement Plan. "Eligible Retirement Plan" means an individual retirement account described in section 408(a) of the Code, an individual retirement annuity described in section 408(b) of the Code, an annuity plan described in section 403(a) of the Code, a qualified trust described in section 40l(a) of the Code, an eligible deferred compensation plan described in section 457(b) of the Code that is maintained by an eligible employer described in section 457(e)(l)(A) of the Code and that agrees to separately account for amounts rolled into such plan from this Plan, an annuity contract described in section 403(b) of the Code, or a Roth IRA if the rollover requirements of sections 402(c) and 408A of the Code (as applicable) are met, that accepts the Participant's or Qualified Beneficiary's Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to a surviving spouse who is not an alternate payee under a qualified domestic relations order, as defined in section 414(p) of the Code, an Eligible Retirement Plan is an individual retirement account described in section 408(a) of the Code or an individual retirement annuity described in section 408(b) of the Code. In the case of an Eligible Rollover Distribution to a Qualified Beneficiary who is the Participant's or former Participant's surviving spouse, or spouse or former spouse who is an alternate payee under a qualified domestic relations order (as defined in section 414(p) of the Code), an Eligible Retirement Plan shall be defined in the same manner as if such Qualified Beneficiary were the Employee. However, in the case of an Eligible Rollover Distribution to any other Qualified Beneficiary, an "Eligible Retirement Plan" shall include only an individual retirement account described in section 408(a) of the Code, an individual retirement annuity DM_US 14702698-23.064500.0013 -5-

 
described in section 408(b) of the Code, or a Roth IRA, if the rollover requirements of sections 402(c) and 408A of the Code (as applicable) are met. 2.15 Eligible Rollover Distribution. "Eligible Rollover Distribution" means any distribution of all or any portion of a Participant's Vested Benefit, except that an Eligible Rollover Distribution does not include: any distribution that is one of a series of substantially equal periodic payments, made not less frequently than annually, for the life, or life expectancy, of the Participant or the Participant's designated beneficiary or the joint lives (or joint life expectancies) of the Participant and the Participant's designated beneficiary, or for a specified period of ten years or more~ any distribution, to the extent such distribution is required under section 40 l ( a)(9) of the Code; the portion of any distribution that is not includible in gross income, determined without regard to the exclusion for net unrealized appreciation with respect to employer stock; and any amount distributed on account of hardship. Notwithstanding any provision of the Plan to the contrary, a portion of a distribution shall not fail to be an Eligible Rollover Distribution merely because the portion consists of voluntary employee contributions that are not includible in gross income~ provided, however, such portion may be transferred only to an individual retirement account or annuity described in sections 408(a) or (b) of the Code, a qualified retirement plan (either a defined contribution plan or a defined benefit plan) described in section 40l(a) or 403(a) of the Code, or an annuity contract described in section 403(b) of the Code that agrees to separately account for amounts so transferred and earnings thereon, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible. 2.16 Employee. "Employee" means any person who is employed by an Employer. Notwithstanding the prior provision, the following classifications of employees are excluded: (a) any such person who is a member of a unit of employees covered by a collective bargaining agreement where retirement benefits have been the subject of good faith collective bargaining between the collective bargaining agent and an Employer, unless such collective bargaining agreement expressly provides for the inclusion of such persons as Participants in the Plan~ (b) any such person who is a Leased Employee; (c) any such person who is treated by an Employer as a Leased Employee, independent contractor, or employee of a third party other than the Employer or Affiliated Employer, even if such person is later determined to have been a common law employee of the Employer~ DM_US 14702698-23.064500.001' -6-

 
(d) any Employee who is hired in order to participate in a training program established for the purpose of training and recruiting future full-time Employees, such as intern, co-op, mentor or any other similar program that may be implemented by the Employer; and (e) any Employee employed on a temporary or periodic basis, by the Corporation or by any Affiliated Employer, where such Employee from time to time accepts, at his or her discretion, job assignments having a fixed and limited duration, such as (but not limited to) special project(s) to cover illness, vacation or other temporary vacancies or unusual or cyclical employment needs, at potentially varying rates of compensation commensurate with each job assignment and who is classified in the Employer's records as a "temporary employee." When used in the Plan without an initial capital letter, the term "employee" means any person who is employed by an Employer or Affiliated Employer under the common-law standard. 2.17 Employee Account. "Employee Account" means a separate account maintained for each Participant which is composed of the following sub-accounts (to the extent amounts are credited to any such sub-account): (a) an Employee Contribution sub-account, which consists of the Employee Contributions contributed to the Plan pursuant to Section 4 .0l(a); (b) an Employer Matching Contribution sub-account, which consists of the Employer Matching Contributions contributed to the Plan pursuant to Section 4.0 l (b); (c) an Employer Discretionary Profit-Sharing Contribution sub-account, which consists of the Employer Discretionary Profit-Sharing Contributions contributed to the Plan pursuant to Section 4 .0 1 (c); (d) an Employer Core Contribution sub-account, which consists of the Employer Core Contributions contributed to the Plan pursuant to Section 4.0l(d); (e) a Rollover Contribution sub-account, which consists of a Participant's Rollover Contributions contributed to the Plan pursuant to Section 4.02; (f) a participant contribution sub-account, which consists of the participant contributions contributed to the Plan prior to January 1, 1982; (g) a voluntary contribution sub-account, which consists of the voluntary contributions contributed to the Plan prior to January 1, 1987; (h) a Qualified Non-Elective Contribution sub-account, which consists of any Qualified Non-Elective Contributions that were previously contributed to the Plan as necessary to pass the nondiscrimination tests described in section 40 I (k)(3), 401 (k)(l2), 40 I (m)(2), or 401 (m)( 11) of the Code; and DM_US 14702698-23.064500.0013 -7-

 
(i) a Service Contract Act Contribution sub-account, which consists of the Service Contract Act Contributions contributed to the Plan pursuant to Section 4.0 I (g). Each sub-account shall be adjusted as of each Valuation Date to reflect investment earnings or losses thereon and any other applicable adjustments thereto, including such allocations described in Section 5.04. From time to time, additional sub-accounts may be established and maintained for recordkeeping purposes to protect optional forms of benefits, rights and features as may be required upon plan asset transfers arising from mergers and acquisitions. 2.18 Employee Contribution. "Employee Contribution" means a contribution made to the Plan by an Employer pursuant to an Employee's salary deferral election. 2.19 Employer. "Employer" means the Corporation or any wholly- or majority-owned subsidiary of the Corporation or any organization affiliated with or associated with the Corporation which adopts the Plan and becomes a party to it with the written approval of the Committee or otherwise becomes a party to it as of 4:00pm EDT on April 30, 2014. A list of the Employers as of the date of this restatement is attached hereto as Appendix A. 2.20 Employer Core Contribution. "Employer Core Contribution" means a contribution to the Plan by the Employer in accordance with Section 4.0l(d). 2.21 Employer Discretionary Profit-Sharing Contribution. "Employer Discretionary Profit-Sharing Contribution" means a contribution to the Plan by the Employer in accordance with Section 4.0l(c). 2.22 Emplover Matching Contribution. "Employer Matching Contribution" means a contribution to the Plan by the Employer in accordance with Section 4.01 (b), which matches in whole or in part an Employee Contribution made to the Plan on behalf of an Employee. 2.23 Employment Commencement Date. "Employment Commencement Date" means the date an employee first performs an Hour of Service for an Employer or Affiliated Employer. 2.24 ERISA. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. 2.25 Five Percent Owner. "Five Percent Owner" means any person who owns (or is considered as owning within the meaning of section 318 of the Code, as modified by substituting "5 percent" for "50 percent" in section 318(a)(2)(C) of the Code) more than five percent (5%) of the outstanding stock of an Employer or any Affiliated Employer or stock possessing more than five percent (5%) of the total combined voting power of all stock of an Employer or any Affiliated Employer, or any person who owns more than five percent (5%) of the capital or profits interest in any Affiliated Employer that is not a corporation. DM_ US 14702698-23.064500.0013 -8-

 
2.26 Fund. "Fund" means the trust fund established under the Trust Agreement and funded by Employer and Employee contributions and from which benefits are to be paid. 2.27 Highly Compensated Employee. "Highly Compensated Employee" means an employee who is a highly compensated active employee or highly compensated former employee, within the meaning of section 414( q) of the Code and the regulations thereunder. A Highly Compensated Employee includes any active employee who: (a) was a Five Percent Owner at any time during the current Plan Year or the preceding Plan Year, or (b) for the preceding Plan Year, received Non-deferred Compensation from the Employer in excess of $115,000 (for 2014), as adjusted pursuant to sections 414(q) and 415(d) of the Code, and was in the top-paid group of employees for such preceding Plan Year. The top-paid group of employees is the group consisting of the top twenty percent (20%) of employees when ranked on the basis of Non-deferred Compensation paid during such preceding Plan Year, excluding the following employees: (i) (ii) ( l7Yz) hours per week; employees who have not completed six (6) months of service; employees who normally work less than seventeen and one-half (iii) employees who normally work during not more than six (6) months during any Plan Year; (iv) employees who have not attained age 21; and (v) except to the extent provided in regulations, employees who are included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and the Employer. A former employee shall be a Highly Compensated Employee if (A) such employee was a Highly Compensated Employee when such employee separated from service, or (B) such employee was a Highly Compensated Employee at any time after attaining age fifty-five (55). Whether or not a former employee is a Highly Compensated Employee shall be determined in accordance with applicable regulations as in effect for that determination year. 2.28 Hour of Service. "Hour of Service" means: (a) Each hour for which an employee is directly or indirectly paid, or entitled to payment, by an Employer or Affiliated Employer for the performance of duties; DM_US 14702698-23.064500.0013 -9-

 
(b) Each hour for which no duties were performed but for which back pay, irrespective of mitigation of damages, has either been awarded or agreed to by an Employer or Affiliated Employer, which hours shall be credited for the Plan Year to which the award or agreement pertains; and (c) Each hour for which an employee is directly or indirectly paid, or entitled to payment, by an Employer or Affiliated Employer for a period during which no duties are performed, irrespective of whether the employment relationship has terminated, due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence, which hours shall be credited for the Plan Year in which payment is made or due. An hour for which an employee is directly or indirectly paid, or entitled to payment, on account of a period during which no duties are performed shall not be credited to the employee if such payment is made or due under a plan maintained solely for the purpose of complying with applicable workers' compensation, unemployment compensation, or disability insurance laws; and Hours of Service shall not be credited for a payment which solely reimburses an employee for medical or medically related expenses incurred by the employee. The same Hours of Service shall not be credited under (a) or (c) above, as the case may be, and under (b) above. Nothing herein shall be construed as denying an employee credit for an Hour of Service if credit is required by ERISA or other Federal law. Notwithstanding anything in this Section 2.28 to the contrary, Hours of Service shall be calculated and credited pursuant to section 2530.200b-2 of the Department of Labor regulations which are incorporated herein by reference. 2.29 Key Employee. "Key Employee" means, for any Plan Year, any employee or former employee of an Employer or an Affiliated Employer or beneficiary of such employee who, at any time during such Plan Year is: (a) an officer of an Employer or an Affiliated Employer having annual Non-deferred Compensation greater than $170,000 (for 2014), as adjusted annually by the Commissioner of Internal Revenue; provided that no more than fifty (50) employees shall be treated as officers for such purpose; (b) a Five Percent Owner within the meaning of sections 416(i)( I )(A)(ii) and (B)(i) of the Code and the regulations thereunder; or (c) a One Percent Owner having aggregate annual Non-deferred Compensation of more than $150,000, within the meaning of sections 416(i)(l)(A)(iii) and (B)(ii) of the Code and the regulations thereunder. 2.30 Leased Employee. "Leased Employee" means any person, other than an employee of an Employer or Affiliated Employer, who pursuant to an agreement between an Employer or Affiliated Employer and any other person ("leasing organization") has performed DM_US 14702698·23.064500.0013 -10-

 
services for an Employer or Affiliated Employer on a substantially full-time basis for a period of at least one year and such services are performed under the primary direction or control of the Employer or Affiliated Employer. A Leased Employee shall be considered an employee of an Employer or an Affiliated Employer to the extent required by ERISA and/or the Code. 2.31 Named Fiduciary. "Named Fiduciary" means the Committee and the Trustee, but only with respect to the specific responsibilities of each for the administration of the Plan and Fund. The fiduciary responsibility of the Committee shall be as set forth in Articles 9 and 10. The fiduciary responsibility of the Trustee shall be as set forth in the Trust Agreement. 2.32 Navient. "Navient" means Navient Corporation. 2.33 Navient Common Stock. "Navient Common Stock" means common stock of Navient. 2.34 Navient Stock Fund. "Navient Stock Fund" means the portion of the Navient Plan fund invested in Navient Common Stock. 2.35 Navient Plan. "Navient Plan" means the Navient 40 I (k) Savings Plan as in effect on April 30, 2014. 2.36 Non-deferred Compensation. "Non-deferred Compensation" includes all of the following: (a) The employee's wages, salaries, fees for professional services, and other amounts received (without regard to whether or not an amount is paid in cash) for personal services actually rendered in the course of employment with the Employer to the extent that the amounts are includible in gross income (including, but not limited to, commissions paid to salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or other expense allowances under a non-accountable plan (as described in section 1.62-2(c) of the Treasury Regulations). (b) In the case of an employee who is an employee within the meaning of section 401(c)(l) of the Code and the regulations thereunder, the employee's earned income (as defined in section 40l(c)(2) of the Code and the regulations thereunder) . (c) Amounts described in sections 104(a)(3), 105(a), and 105(h) of the Code, but only to the extent that these amounts are includible in the gross income of the employee. (d) Amounts paid or reimbursed by the Employer for moving expenses incurred by an employee, but only to the extent that, at the time of the payment, it is reasonable to believe that these amounts are not deductible by the Employer under section 217 of the Code. DM. US 14702698·23.064500.0013 -11-

 
(e) The value of a non-qualified stock option granted to an employee by the Employer, but only to the extent that the value of the option is includible in the gross income of the employee for the taxable year in which granted. (f) The amount includible in the gross income of an employee upon making the election described in section 83(b) of the Code. (g) The amount of any elective deferral (as defined in section 402(g)(3) of the Code), and any amount which is contributed or deferred by the Employer at the election of the employee and which is not includible in the gross income of the employee by reason of section 125, l32(f)(4), or 457 of the Code. (h) Amounts that are includible in the gross income of an employee under the rules of section 409A or 457(f)( I )(A) of the Code or because the amounts are constructively received by the employee. (i) Any differential wage payment (as defined in section 340l(h)(2) of the Code) made by the Employer. The following items are not included in the definition of compensation: (i) Except to the extent required to be included in the definition of compensation by section 415(c)(3)(0) of the Code, contributions made by the Employer to a plan of deferred compensation (including a simplified employee pension described in section 408(k) of the Code or a simple retirement account described in section 408(p) of the Code, and whether or not qualified) to the extent that, before the application of the section 415 limitations to that plan, the contributions are not includible in the gross income of the employee for the taxable year in which contributed. Additionally, any distributions from a plan of deferred compensation (whether or not qualified) are not considered as compensation for purposes of section 415 of the Code, regardless of whether such amounts are includible in the gross income of the employee when distributed. However, any amounts received by an employee pursuant to an unfunded non qualified plan are permitted to be considered as compensation for section 415 purposes in the year the amounts are actually received, but only to the extent such amounts are includible in the gross income of the employee. (ii) Amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or other property) held by an employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture (see section 83 of the Code and the regulations thereunder). (iii) Amounts realized from the sale, exchange or other disposition of stock acquired under a statutory stock option (as defined in section 1.421-l(b) of the Treasury Regulations). DM_US 14702698-23.064500.0013 -12-

 
(iv) Except to the extent required to be included in the definition of compensation by section 415(c)(3)(D) of the Code, other amounts which receive special tax benefits, such as premiums for group-term life insurance (but only to the extent that the premiums are not includible in the gross income of the employee and are not salary reduction amounts that are described in section I 25 of the Code), or other items of remuneration that are similar to any of the items listed in paragraphs (i) through this (iv). 2.37 Non-Key Employee. "Non-Key Employee" means any employee or former employee of an Employer or an Affiliated Employer or beneficiary of such employee who is not a Key Employee, within the meaning of section 416(i)(2) of the Code and the regulations thereunder. 2.38 Normal Retirement Age. "Normal Retirement Age" means age sixty-five (65). 2.39 One Percent Owner. "One Percent Owner" means any person who would be a Five Percent Owner if "one percent (l%)" were substituted for "five percent (5%)" each place it appears. 2.40 Participant. "Participant" means any Employee who has satisfied the eligibility requirements for the Plan as provided under Article 3 and who (a) has elected to participate in the Plan by enrolling in the Plan as described in Section 3.02(a), and/or {b) who has received an allocation of Employer Discretionary Profit-Sharing Contributions, Employer Core Contributions, or Service Contract Act Contributions, as applicable. In addition, each individual described in Section 1.02(b) or 1.02(c) shall be treated as a Participant who had a severance of employment or termination of employment with a deferred vested Employee Account. Notwithstanding the foregoing, an individual described in Section 1.02(b) or 1.02(c) who becomes an Employee after April 30, 2014 shall cease to be treated as having a severance of employment and termination of employment for purposes of taking a distribution of his Employee Account under the Plan. 2.41 Pension Plan. "Pension Plan" means any defined benefit plan or any defined contribution plan established by an Employer or an Affiliated Employer and qualified under section 401 of the Code. 2.42 Period of Service. "Period of Service" means the period that begins on an employee' s Employment Commencement Date, or Reemployment Commencement Date, with an Employer or Affiliated Employer and ends on his Severance from Service Date, and includes the employee's total number of years and months of service, crediting each completed and partial month as a full month. In the event an employee has a Severance from Service Date followed by a Reemployment Commencement Date within twelve ( 12) months of such Severance from Service Date, the Period of Severance shall be treated as a Period of Service. In addition, if an employee is on an Authorized Leave of Absence and subsequently experiences a Severance from Service Date, but later has a Reemployment Commencement Date within twelve ( 12) months of the day he was first absent from employment because of the Authorized Leave of Absence, then DM_US 14702698·23.064500.0013 -13-

 
the period from the Severance from Service Date until the Reemployment Commencement Date shall be treated as a Period of Service. 2.43 Period of Severance. "Period of Severance" shall be the period beginning on the Severance from Service Date and ending on the employee's next Reemployment Commencement Date. 2.44 Permissive Aggregation Group. "Permissive Aggregation Group" means a Required Aggregation Group that also includes a Pension Plan of an Employer or an Affiliated Employer which, although not required to be included in the Required Aggregation Group, is treated by an Employer or an Affiliated Employer as being part of such Required Aggregation Group, provided that such Required Aggregation Group would continue to meet the requirements of sections 40l(a)(4) and 4IO(b) of the Code with such Pension Plan being taken into account. 2.45 Plan. "Plan" means this Sallie Mae 40 I (k) Savings Plan and all authorized amendments, except that, prior to November 1, 1997, Plan shall mean the Student Loan Marketing Association Employees' Thrift and Savings Plan and all authorized amendments. 2.46 Plan Administrator. "Plan Administrator" means the Committee. 2.47 Plan Year. "Plan Year" means the twelve (12) month period beginning on January 1 and ending on December 31. 2.48 Qualified Beneficiary. "Qualified Beneficiary" means a Participant's or former Participant's surviving spouse, or former spouse who is the alternate payee under a qualified domestic relations order, as defined in section 414(p) of the Code, or, effective January 1, 2010, non-spouse designated beneficiary (as defined in section 401(a)(9)(E) of the Code). 2.49 Qualified Non-Elective Contribution. "Qualified Non-Elective Contribution" means a previous contribution by an Employer that was made to enable the Plan to meet the nondiscrimination tests described in sections 40l(k)(3) , 40l(k)(l2), 40l(m)(2), or 40l(m)(ll) of the Code. 2.50 Reemployment Commencement Date. "Reemployment Commencement Date" means the date an employee first performs an Hour of Service for an Employer or Affiliated Employer following a Period of Severance. 2.51 Required Aggregation Group. "Required Aggregation Group" means (a) each Pension Plan of an Employer or an Affiliated Employer in which a Key Employee is a Participant, and (b) each other Pension Plan of an Employer or an Affiliated Employer which enables any Pension Plan described in the immediately preceding clause (a) to meet the requirements of section 40 I (a)( 4) or 41 O(b) of the Code. 2.52 Rollover Contribution. "Rollover Contribution" means any rollover account or rollover contribution as defined in section 402(c)(4), 403(a)(4) or 408(d)(3) of the Code. DM_US 14702698-23.064500.0013 -14-

 
2.53 Service Contract Act Contribution. "Service Contract Act Contribution" means a contribution to the Plan by the Employer in accordance with Section 4.0I(g). Effective April 30, 2014, no Employer shall make a Service Contract Act Contribution to the Plan. 2.54 Severance from Service Date. "Severance from Service Date" means: (a) the date on which an employee's employment is terminated for any reason, other than an Authorized Leave of Absence; or (b) in the case of an Authorized Leave of Absence, the earlier of (i) the first anniversary of the first date of an Authorized Leave of Absence, or (ii) in the event an employee fails to return to employment with an Employer or Affiliated Employer on or before the expiration of an Authorized Leave of Absence, the date following the date on which an Authorized Leave of Absence expires; or (c) in the case of an absence from work which is due to the pregnancy of the employee, the birth of a child of the employee, the adoption of a child by the employee, or the caring for a child by the employee for a period beginning immediately following the birth or adoption of the child, and which extends beyond the first anniversary of the first day of such absence from work, the second anniversary of the first date on which the employee commenced such absence from work. 2.55 SLM Common Stock. "SLM Common Stock" means common stock of the Corporation. 2.56 SLM Stock Fund. "SLM Stock Fund" means the portion of the Fund invested in SLM Common Stock as described in Section 5.03. 2.57 Top Heavy Group. "Top Heavy Group" means, with respect to any Plan Year, an Aggregation Group if, as of the Determination Date with respect to such Plan Year, (a) the sum of (i) the present value of the cumulative accrued benefits under all Pension Plans included in such Aggregation Group, determined in accordance with section 416(g) of the Code and the regulations thereunder, and (ii) the aggregate of the accounts of Key Employees under all defined contribution plans included in such Aggregation Group, as determined in accordance with section 416(g) of the Code and the regulations thereunder, exceeds (b) sixty percent (60%) of a similar sum determined for Key Employees and Non-Key Employees; provided, however, that if any employee is a Non-Key Employee with respect to any Pension Plan for any Plan Year, but such employee was a Key Employee with respect to such Pension Plan for any prior Plan Year, any accrued benefit for such employee and any account of such employee shall not be taken into account for purposes of the foregoing determination; and provided further, that if any employee has not performed any service for any Employer or Affiliated Employer maintaining the Pension Plan at any time during the one (I )-year period ending on the Determination Date, any accrued benefit for such employees and any account of such employees shall not be taken into account. For purposes of determining the present value of the cumulative accrued benefit for any DM_US 14702698-23.064500.0013 -15-

 
employee, or the amount of the account of any employee, such present value or amount shall be increased by the aggregate distributions made with respect to such employee under the Pension Plan during the one (I)-year period (or, in the event such distribution is made for a reason other than severance from employment, death, or disabi1ity, during the five (5)-year period) ending on the Determination Date. The preceding sentence shall also apply to distributions under a terminated Pension Plan which if it had not been terminated would have been required to be included in the Aggregation Group. 2.58 Top Heavy Plan. "Top Heavy Plan" means a plan included in a Top Heavy Group, except that (a) a simple retirement account as described in section 408(p) of the Code is not a Top Heavy Plan, and (b) a plan that consists solely of a cash or deferred arrangement which meets the requirements of section 401(k)(l2) or 401(k)(l3) of the Code and matching contributions with respect to which the requirements of section 40 I (m)(l1) or 401 (m)(l2) are met is not a Top Heavy Plan, except that if such plan described in this paragraph (b) would be treated as a Top Heavy Plan because it is a member of an Aggregation Group that is a Top Heavy Group, contributions under the plan may be taken into account in determining whether any other plan in the Aggregation Group meets the requirements of section 416(c)(2) of the Code. 2.59 Trust Agreement. "Trust Agreement" means the agreement, including all authorized amendments, entered into by the Trustee and the Corporation pursuant to which the Fund is established and maintained. 2.60 Trustee. "Trustee" means the individual or entity designated as Trustee under the terms of the Trust Agreement, or any successor Trustee which is a party to the Trust Agreement. 2.61 Valuation Date. "Valuation Date" means any date that the New York Stock Exchange is open for trading. 2.62 Vested Benefit. "Vested Benefit" means the portion of a Participant's Employee Account that is non-forfeitable. 2.63 Year of Participation. "Year of Participation" means a twelve (12)-month period beginning on the date an employee first becomes a Participant in the Plan. If a Participant has a Severance from Service Date and does not receive a distribution of his Plan benefit, he shall continue to be credited with Years of Participation as long as his Plan benefit remains in the Plan. In the event a Participant has a Severance from Service Date, receives a distribution of his Plan benefit, and subsequently has a Reemployment Commencement Date, his Years of Participation upon his reemployment shall be calculated from his Reemployment Commencement Date and shall not include Years of Participation credited before his Reemployment Commencement Date. 2.64 Year of Vesting Service. "Year of Vesting Service" means a twelve (12) month Period of Service, aggregating all Periods of Service, and crediting each completed and partial DM_US 14702698-23.064500.0013 -16-

 
month as a full month of service. Years of Vesting Service shall also include any years of vesting service from a prior employer recognized by the Plan in effect prior to January I, 20 I 0. . If an employee has a Period of Severance that exceeds twelve ( 12) months, his prior Years of Vesting Service shall be used to determine his vesting percentage as of his Reemployment Commencement Date only if (a) he was vested in any portion of his Employee Account derived from Employer contributions, as of his Severance from Service Date, or (b) his latest Period of Severance as of his Reemployment Commencement Date is either (i) less than five (5) years, or (ii) a shorter period of time than his Period of Service, immediately before the date such Period of Severance began. With respect to employees re-employed on or after September 1, 2000, an employee' s prior Years of Vesting Service shall be used to determine his Years of Vesting Service as of his date of re-employment; provided that such prior Years of Vesting Service shall not include any Years of Vesting Service previously disregarded by reason of a prior Period of Severance. Wherever used in this instrument, a masculine pronoun shall be deemed to include the masculine and feminine gender, a singular word shall be deemed to include the singular and plural and a plural word shall be deemed to include the singular and plural in all cases where the context requires. DM_US 14702698·23.064500.0013 -!7-

 
3.01 Eligibility. ARTICLE3 ELIGIBILITY & PARTICIPATION (a) Emolovee Contributions. An Employee shall be eligible to elect to have Employee Contributions made on his behalf beginning on any date coincident with or next following the date the Employee is credited with a one ( l) month Period of Service with an Employer; provided that such Employee is an Employee on such date and satisfies the requirements of Section 3.02. (b) Employer Matching Contributions. A Participant shall be eligible to receive Employer Matching Contributions beginning with the first pay period coincident with or next following the date the Participant completes a six (6) month Period of Service with an Employer, provided that the Participant is an Employee on such date. (c) Employer Core Contributions. An Employee shall be eligible to receive Employer Core Contributions equal to one percent (1 %) of the Participant's Compensation on a pay period basis once the Employee has completed a one ( 1) month Period of Service. . (d) Service Contract Act Contributions. Effective September 1, 2009, any Employee (i) who is eligible to elect to have Employee Contributions made on his behalf in accordance with Section 3.01(a), and (ii) who is designated by the Corporation to be a government contract employee, shall be eligible to receive Service Contract Act Contributions in an amount necessary to meet the requirements of the Federal Service Contract Act. Effective after April 30, 2014, no Participant shall be eligible to receive Service Contract Act Contributions under the Plan. 3.02 Participation. (a) General. To become a Participant, an Employee must enroll in the Plan pursuant to procedures promulgated by the Committee, including making a salary reduction election whereby the Employee elects to reduce his Compensation by an amount permitted under Section 4.01 (a) and the Employer agrees to contribute such amount to the Plan on behalf of the Employee. An Employee who is eligible to become a Participant in the Plan, in accordance with Section 3.0 l, will become a Participant as soon as administratively feasible after the date he completes the enrollment procedures described above. (b) Employer Discretionary Profit-Sharing Contributions and Employer Core Contributions. An Employee who is eligible to become a Participant in the Plan, in accordance with Section 3.01, will become a Participant without completing the enrollment procedures described in Section 3.02(a) upon receiving an allocation of Employer Discretionary Profit- DM_US 14702698-23.064500.0011 - 18-

 
Sharing Contributions in accordance with Section 4.0l(c) hereof or an Employer Core Contribution in accordance with Section 4.0l(d) hereof. (c) Service Contract Act Contributions. An Employee who is eligible to become a Participant in the Plan, in accordance with Section 3.0 I , will become a Participant without completing the enrollment procedures described above upon receiving an allocation of Service Contract Act Contributions in accordance with Section 4.01 (g) hereof. 3.03 Re-employment of Former Participant or Former Employee and Change in Employment Status. (a) Change in Employment Status: Eligibility for Employee Contributions. Effective January 1, 2010, if an employee or a former employee who has completed a one (I)-month Period of Service, but who was not an Employee on the date coinciding with or next following the date on which the employee completed such service requirement, becomes or again becomes an Employee on or after January 1, 2010, then such Employee shall be eligible to become a Participant and have Employee Contributions made on his behalf as of the first day he becomes or again becomes an Employee; provided that he completes the enrollment process to become a Participant in the Plan, in the manner described in Section 3.02. In the case of such a Participant, his Employer will commence making Employee Contributions on his behalf as soon as administratively feasible following receipt of the Participant' s salary reduction authorization. (b) Change in Employment Status: Eligibility for Employer Matching Contributions. Effective January 1, 2010, if an employee or a former employee who has completed a twelve (12)-month Period of Service (and, effective January I, 2013, a six (6)-month Period of Service), but who was not an Employee on the date coinciding with or next following the date on which the employee completed such service requirement, becomes or again becomes an Employee on or after January 1, 20 10, then such Employee shall be eligible to receive Employer Matching Contributions as of the first day he becomes or again becomes an Employee; provided that he completes the enrollment process to become a Participant in the Plan, in the manner described in Section 3.02. (c) Re-employment of Former Participant: Eligibility for Employee Contributions. Effective January 1, 2010, if a former Participant who terminated employment again becomes an Employee on or after January I , 2010, then such Employee shall be eligible to become a Participant and have Employee Contributions made on his behalf as of the first day he again becomes an Employee; provided that he completes the enrollment process to become a Participant in Plan, in the manner described in Section 3.02. In the case of such a Participant, the Employer will commence making Employee Contributions on his behalf as soon as administratively feasible following receipt of the Participant's salary reduction authorization. DM_US 14702698·23.064500.0013 ~ J9-

 
(d) Re-employment of Former Participant: Eligibility for Matching Contributions. Effective January I, 2010, if a former Participant who terminated employment and had completed a twelve (12)-month Period of Service (or, effective January l, 2013, a six (6)-month Period of Service) again becomes an Employee on or after January 1, 2010, then such Employee shall be eligible to receive Employer Matching Contributions as of the first day he again becomes an Employee~ provided that he completes the enrollment process to become a Participant in the Plan, in the manner described in Section 3.02. (e) Effective January I, 2010, with respect to Employees re-employed on or after January I, 20 10, an Employee 's prior Period of Service shall be used to determine his Period of Service as of his date of re-employment; provided that such Period of Service shalJ not include any Period of Service previously disregarded by reason of a prior Period of Severance. (f) A former Participant or former Employee who has a Period of Severance, and whose prior Period of Service is not reinstated as described above, must meet the eligibility requirements of Section 3.0 I before becoming a Participant in the Plan. Notwithstanding the foregoing provisions of this Section 3.03, the terms of the Plan in effect prior to January I , 2010 shall determine an individual's eligibility for benefits under the Plan prior to January 1, 2010. 3.04 Transfer of Participant to Another Employer. A Participant who transfers from one Employer to another Employer will continue to be a Participant in the Plan. 3.05 Transfer of Participant to an Affiliated Employer. A Participant who transfers from an Employer to Upromise, Inc. or Asset Performance Group, LLC on or after July I , 2007 shaH remain a Participant in the Plan upon such transfer, and shall continue to be a Participant in the Plan until such Participant terminates employment or is reclassified to an ineligible classification set forth in Sections 2.15(a)-(e). 3.06 Transfer of Participant from Affiliated Employer. A Participant who transfers to an Employer from an Affiliated Employer shall receive credit under the Plan for service with such Affiliated Employer as if the Participant' s service was for the Employer. DM_US 14702698-23.064500.0013 -20-

 
ARTICLE 4 CONTRIBUTIONS 4.01 Employer Contributions. (a) Employee Contributions. For each Plan Year, the Employer shall contribute to the Plan on behalf of each Participant an amount equal to a whole percentage up to seventy-five percent (75%) of a Participant's Compensation, pursuant to the salary reduction authorization of the Participant; provided, however, that the aggregate amount of Employee Contributions contributed to the Plan and to all other plans, contracts and arrangements maintained by the Employer on behalf of any Participant for any calendar year shall not exceed the dollar limit contained in sections 402(g)(5) and 415(d) of the Code in effect for such calendar year, except to the extent permitted under section 414(v) of the Code. The Employer will begin contributing Employee Contributions to the Plan commencing as soon as administratively feasible following receipt of the Participant's salary reduction authorization. All Employee Contributions will be credited to the Participant's Employee Contribution sub-account. The Participant will at all times be fully vested in his Employee Contribution sub-account. (b) Employer Matching Contributions. The Employer wiH contribute to the Plan for each Participant e1igible to receive Employer Matching Contributions (on a pay period basis) an amount equal to one hundred percent (100%) of the Participant's Employee Contributions that do not exceed three percent (3%) of Compensation, plus fifty percent (50%) of the Participant's Employee Contributions that exceed three percent (3%) of Compensation but that do not exceed five percent (5%) of Compensation. Employer Matching Contributions are intended to satisfy the safe harbor nondiscrimination requirements of section 401 (k)( 12) of the Code and shall be one hundred percent ( 100%) vested when made. In compliance therewith, the Employer shaH provide each eligible Employee with notice of the Employee's rights and obligations under the Plan (which notice may be provided through electronic media), within a reasonable period of time before the beginning of each Plan Year (or, in the Plan Year an Employee first becomes eJigible, within a reasonable period before becoming eligible), in accordance with the requirements of section 40l(k)(l2) of the Code (and the regulations and other guidance issued thereunder). Notwithstanding anything in the Plan to the contrary, effective January 1, 2009, no true-up Employer Matching Contributions may be made to a Participant who is eligible to receive Employer Matching Contribulions in accordance with this Section 4.0l(b). (c) Employer Discretionary Profit-Sharing Contributions. From time to time, the Employer may make an Employer Discretionary Profit-Sharing Contribution to the Fund. All allocations of Employer Discretionary Profit-Sharing Contributions determined above shall be credited to the Employee's Employer Discretionary Profit-Sharing Contribution sub-account, which sub-account shall at all times be fully vested. (d) Employer Core Contributions. The Employer shall make Employer Core Contributions in accordance with and on behalf of each eligible Employee described in Section DM_US 14702698-23.064500.0013 -21-

 
3.0l(c) hereof, which Employer Core Contributions shall become one hundred percent (100%) vested upon a Participant' s completion of one (I) Year of Vesting Service. (e) Other Employer Contributions. The Employer may also make additional contributions to the Plan to correct any errors; provided that such additional contributions are in the best interest of the Participants. (f) Employee Catch-Up Contributions. Effective January I, 2002, all Participants who are eligible to make Employee Contributions under this Plan and who have attained age fifty (50) before the close of the calendar year shall be eligible to make catch-up contributions in accordance with, and subject to the limitations of, section 414(v) of the Code. Such catch-up contributions shall not be taken into account for purposes of the Plan implementing the required limitations of sections 402(g) and 415 of the Code. The Plan shall not be treated as failing to satisfy the provisions of the Plan implementing the requirements of section 401(k)(3), 40l(k)(ll), 401(k)(l2), 410(b), or 416 of the Code, as applicable, by reason of the making of such catch-up contributions. Employer Matching Contributions shall be made with respect to amounts contributed as catch-up contributions. (g) Service Contract Act Contributions. Effective September 1, 2009, the Employer may make a Service Contract Act Contribution to the Plan on behalf of each eligible Employee described in Section 3.0l(d). All allocations of Service Contract Act Contributions shall be credited to an Employee's Service Contract Act Contribution sub-account, which sub account shall at all times be fully vested. Effective after April 30, 2014, no Employer shall make a Service Contact Act Contribution to the Plan. 4.02 Rollover Contributions. An Employee may file an application with the Plan's third party administrator to have the Trustee accept his Rollover Contribution, even if he has not satisfied the eligibility requirements to become a Participant. Any such request shall state the amount of the Rollover Contribution and include a statement that such contribution qualifies as a Rollover Contribution. In addition, the Committee may require the Employee to submit such other evidence and documentation as the Committee and the Trustee determine is necessary to insure that the contribution qualifies as a Rollover Contribution. If the Committee and the Trustee accept the Rollover Contribution, the Employee's Rollover Contribution shall be credited to the Employee's Rollover Contribution sub-account. The Employee shall elect to direct the investment of his Rollover Contribution among the investment alternatives as are then currently available. The Employee shall at all times be fully vested in his Rollover Contribution sub-account. In addition to distributions from a qualified plan described in section 40l(a) or 403(a) of the Code that are otherwise includible in gross income or a "conduit IRA" containing those assets , the Plan will accept Rollover Contributions (including direct Rollover Contributions in accordance with section 40l(a)(31) of the Code), subject to the Committee' s determination that such amounts meet the requirements for Rollover Contributions, of (1) distributions from an DM_US 14702698-23.064500.0013 -22-

 
annuity contract described in section 403(b) of the Code that are otherwise includible in gross income, (2) distributions from an eligible plan under section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state, that are otherwise includible in gross income and (3) distributions from an individual retirement account or annuity described in section 408(a) or (b) of the Code that are otherwise includible in gross income. The Plan will not accept as Rollover Contributions amounts consisting of after-tax employee contributions. 4.03 Distribution of Employee Contributions that Exceed the Statutory Limitation. If any amount constituting "excess deferrals", within the meaning of section 402(g) of the Code, is required to be included in the gross income of a Participant under section 402(g)( 1) of the Code for any taxable year of the Participant, the Participant shall notify the Committee of such excess deferrals by March 1 following the close of the taxable year with respect to which the excess deferrals were made, and the Committee shall direct the Trustee to distribute, in accordance with section 402(g)(2) of the Code and the regulations thereunder, to the Participant, not later than the next following April 15, the amount of excess deferrals allocated to the Plan for such taxable year, including any income allocable thereto for the taxable year. No Employer Matching Contributions shall be made with respect to such excess deferrals; or if Employer Matching Contributions have been made with respect to such excess deferrals, they shall be forfeited. In all events, the income attributable to excess deferrals will be determined in accordance with section 402(g) of the Code and the regulations issued thereunder. 4.04 Change of Contribution Rate and Suspension of Contributions. A Participant may elect to change the percentage rate of salary reduction specified in his salary reduction authorization or to suspend his Employee Contributions in the manner prescribed by the Committee. Any such change will become effective as soon as administratively feasible. A Participant may elect to suspend all of his Employee Contributions, which results in the cancellation of the salary reduction authorization between the Participant and the Employer, in accordance with procedures promulgated by the Committee. Any such suspension will become effective as soon as administratively feasible. A Participant whose Employee Contributions have been suspended as provided in this paragraph may reinstate such contributions in accordance with procedures promulgated by the Committee, which shall be effective as soon as administratively feasible. See Section 6.04 for a discussion of the mandatory suspension of contributions following a hardship withdrawal. DM_US 14702698-23.064500.0013 -23·

 
4.05 Payment to the Trustee. Employee Contributions shall be transmitted to the Trustee as soon as administratively feasible, but in no event later than the fifteenth (15th) business day of the month fol1owing the month in which the Employee Contributions would otherwise have been payable to the Participant in cash. Employer Matching Contributions shal1 be transmitted to the Trustee no later than the date prescribed by law for the filing of the Corporation's Federal tax return for the year for which the contribution is made, including extensions of such time granted by the Internal Revenue Service. Employer Discretionary Profit-Sharing Contributions and Service Contract Act Contributions, if made for a particular year, shall be transmitted to the Trustee no later than December 31 of the year after the year for which the contribution is made. Notwithstanding the foregoing, in no event shall Employee Contributions or Employer Matching Contributions be contributed to the Fund (i) before the Participant has made a salary reduction election pursuant to Sections 3.02 and 4.0 I (a), or (ii) before the earlier of (A) the Participant's performance of services that relate to the Compensation that, but for the Participant's salary reduction election, would have been paid to the Participant or (B) the date the Compensation is made currently available to the Participant. 4.06 Safe Harbor Requirements. The Plan is intended to satisfy the safe harbor requirements in accordance with section 401(k)(l2) of the Code, and as such is not subject to the nondiscrimination testing under section 401 (k)(3) of the Code. 4.07 Maximum Benefit and Contribution Limitations. (a) In accordance with the requirements of section 415 of the Code and the final regulations issued on April 5, 2007 thereunder (which are hereby incorporated by reference), in no event shall the contributions made to a Participant's Employee Account for any Plan Year exceed the amount permitted under section 415 of the Code. As of January 1 of each calendar year, the dollar limitation under section 415(c)(l)(A) of the Code, as adjusted pursuant to section 415(d) of the Code, shall become effective under the Plan. (b) For the purposes of section 415 of the Code and this Section 4.07, compensation means wages as reported in Box I on Form W-2, or in such other box or on such other form as may be designated for purposes of withholding tax by the Federal government. Compensation shall also include elective deferrals, as defined in section 402(g) of the Code, and amounts that are excluded from compensation under section 125 or 457 of the Code. Effective January 1, 2008, the definition of compensation for purposes of applying the limitations under section 415 of the Code shall comply with section l.415(c)-2(d)(4) of the Treasury Regulations and shall be subject to the following: (i) Compensation for a limitation year shall also include the following amounts if paid by the later of two and one-half (2Yz) months after the Participant's severance from employment or the end of the limitation year that includes the date of the Participant's severance from employment: payments of regular compensation for services during the Participant's regular working hours, or compensation for services outside the Participant's regular working hours (such as overtime or shift deferential), commissions, bonuses, or other DM_ US 14 702698-23.064500.0013 -24-

 
similar payments; provided that, absent a severance from employment, the payments would have been made to the Participant while the Participant continued employment with the Corporation or an Affiliated Employer. (ii) Any payment not described in Section 4.07(b)(i) above will not be included in compensation if paid after the Participant's severance from employment, even if paid by the later of two and one-half (2Y2) months after the date of severance from employment or the end of the limitation year that includes the date of the severance from employment; provided, however, that compensation shall include amounts paid by the Corporation or an Affiliated Employer to an individual who does not currently perform services for the Corporation or an Affiliated Employer by reason of qualified military service (within the meaning of section 414(u)(5) of the Code) to the extent such amounts do not exceed the amounts the individual would have received if the individual had continued to perform services for the Corporation or Affiliated Employer rather than entering qualified military service. (iii) Compensation shall not include amounts in excess of the applicable dollar limit under section 401(a)(l7) of the Code, as adjusted by the Internal Revenue Service for increases in the cost of living determined in accordance with section 40 I (a)(l7)(B) of the Code and the regulations and other guidance issued thereunder. (iv) Compensation shall include any differential wage payment (as defined in section 3401(h)(2) of the Code) made by the Employer. (c) The limitation year, as defined in section 415 of the Code, for the Plan shall be the Plan Year. If for any Plan Year the limitation of this Section 4.07 shall be exceeded, then the Plan shall correct such excess in accordance with the Employee Plans Compliance Resolution System ("EPCRS") as set forth in Revenue Procedure 2013-12 or any superseding guidance. (d) If a Participant also partiCipates in another tax-qualified defined contribution plan maintained by the Corporation or an Affiliated Employer (as modified by application of section 415(h) of the Code), the various plans shall be considered a single defined contribution plan and the otherwise applicable limitation on the contributions made to a Participant's Employee Account for any Plan Year under this Plan shall be adjusted as follows: (i) If the Participant previously participated in another tax-qualified defined contribution plan maintained by the Corporation or an Affiliated Employer (as modified by the application of section 415(h) of the Code) within the same limitation year prior to becoming a Participant in the Plan, the otherwise applicable limitation on the contributions made to a Participant's Employee Account for any Plan Year under this Plan for that limitation year shall be reduced by the amount of annual additions (within the meaning of section 415(c)(2) of the Code) allocated under any such other defined contribution plan for that limitation year; and DM_US 14702698-23.064500.0013 -25-

 
(ii) If, at any point during a limitation year, a Participant ceases being a Participant in the Plan and becomes a participant in another tax-qualified defined contribution plan maintained by the Corporation or an Affiliated Employer (as modified by the application of section 415(h) of the Code) within the same limitation year, the otherwise applicable limitation on annual additions (within the meaning of section 415(c)(2) of the Code) under any such other defined contribution plan for that limitation year shall be reduced by the amount of the contributions made to a Participant's Employee Account for any Plan Year allocated under the Plan for that limitation year. DM_US 14702698-23.064500.0013 -26-

 
ARTICLES INVESTMENT ELECTIONS AND ACCOUNTS OF PARTICIPANTS 5.01 Participant Investment Elections. Subject to Section 5.03, at such time and in such manner as designated by the Committee, a Participant may elect to direct the investment of his Employee Account balance among the investment alternatives provided for in accordance with Section 5.02. In the event no investment election is received, a Participant's Employee Account shall be invested in an investment fund as available from time to time, which has been designated as a default investment fund by the Committee, and may constitute a qualified default investment alternative within the meaning of section 404(c)(5) of ERISA. 5.02 Investment Alternatives. The Committee will direct the Trustee as to the specific investment alternatives which may be available from time to time. Notwithstanding the foregoing, and subject to Section 5.03, SLM Common Stock shall be one of the investment alternatives. Each Participant shall inform the Trustee of his investment election and the Trustee shall allocate his Employee Account accordingly. 5.03 SLM Stock Fund. All investments in SLM Common Stock shall be maintained in the SLM Stock Fund. Each Employee described in Section l .02(a) may allocate contributions, if any, to the SLM Stock Fund. Each individual described in Section l.02(b) and each individual described in Section 1.02( c) shall be prohibited from increasing their holdings in the SLM Stock Fund and may elect to liquidate their holdings in the SLM Stock Fund and invest the proceeds in any other investment alternative offered under the Plan. 5.04 Allocation to Accounts. As of each Valuation Date, the Trustee shall determine the fair market value of the Fund, as well as the fair market value of the Employee Account of each Participant. The value of the Employee Account of each Participant as of a Valuation Date, shall be equal to the value of such Account as of the last Valuation Date, plus or minus all applicable adjustments, including the following: (a) Allocation of Investment Earnings and Expenses. The Participant's Employee Account shall be credited with the amount of investment income, any realized or unrealized capital gains or losses and any expenses since the last Valuation Date, in accordance with a policy promulgated by the Committee. (b) Allocation of Employer Contributions. The Employee Contribution sub-account, Employer Matching Contribution sub-account, Employer Discretionary Profit-Sharing Contribution sub-account, Employer Core Contribution sub-account, and Service Contract Act Contribution sub-account, if any, of each Participant shall be credited with any Employee Contributions, Employer Matching Contributions, Employer Discretionary Profit-Sharing Contributions, Employer Core Contributions, and Service Contract Act Contributions respectively, which have been contributed thereto in accordance with Section 4.01 and allocated to the Participant's Employee Account. Employee Contributions, any Employer Matching Contributions which are based on the Employee Contributions, Employer DM_US 14702698·23 064500.0013 -27-

 
Discretionary Profit-Sharing Contributions, Employer Core Contributions, and any Service Contract Act Contributions shall be allocated to the Employee Account as of the Trustee's receipt of such contributions. The Qualified Non-Elective Contribution sub-account contains any Qualified Non-Elective Contributions that were previously contributed and allocated to the Participant' s Employee Account. (c) Allocation of Loan Repayments. The appropriate sub-accounts of the Employee Account of each Participant shall be credited with all loan repayments, such repayments being credited towards both principal and interest. (d) Allocation of Withdrawals and Distributions. The appropriate sub-accounts of the Employee Account of each Participant shall be charged with any withdrawals or loans made pursuant to Article 6 and with any distributions made pursuant to Article 8 since the last Valuation Date. 5.05 Determination of Account Balances Binding. In determining the value of the Fund and Employee Accounts, the Trustee and the Committee shall exercise their best judgment, and all such determinations of value in the absence of bad faith shall be binding upon all Participants and their Beneficiaries. 5.06 Participation of Additional Employers. Subject to Section 14.12, in the event that affiliated or subsidiary organizations become signatory hereto, the Trustee may invest all funds without segregating assets between or among signatory Employers. 5.07 Voting Rights of SLM Common Stock. Each Participant and former Participant who terminated employment or, in the event of his death, his Beneficiary shall have the right to direct the Trustee as to the manner in which whole shares of SLM Common Stock allocated to his Employee Account as of the record date are to be voted on each matter brought before an annual or special shareholders' meeting. Before each such meeting of shareholders, the Trustee shall cause to be furnished to each Participant, former Participant who terminated employment and Beneficiary a copy of the proxy solicitation material, together with a form requesting directions on how such shares of SLM Common Stock allocated to such Participant's account shall be voted on each such matter. Upon timely receipt of such directions, the Trustee shall on each such matter vote, as directed, the number of shares of SLM Common Stock allocated to such Participant's Employee Account, and the Trustee shall have no discretion in such matter. The Trustee shall establish procedures as are necessary to maintain the confidentiality from the Employer of the directions of individuals. The Trustee shall vote allocated shares for which it has not received direction and unallocated shares of SLM Common Stock in the same proportion as directed shares are voted, and shall have no discretion in such matter. DM_US 14702698·23.064500.0013 -28-

 
ARTICLE 6 IN-SERVICE WITHDRAWALS AND LOANS 6.01 Withdrawals from Voluntary Contribution and Participant Contribution Sub-Accounts. A Participant is entitled to make up to two (2) withdrawals each Plan Year, on any business date, from his voluntary contribution sub-account and up to two (2) withdrawals each Plan Year, on any business date, from his participant contribution sub-account; provided, however, that after the withdrawal, his Vested Benefit equals or exceeds the amount of the security for his loans, if any, under Section 6.05. The amount credited to his voluntary contribution sub-account and participant contribution sub-account shall be determined on the date of the withdrawal. Any amount withdrawn by a Participant under this Section 6.0 I shall be deemed to have been first withdrawn from his voluntary contributions, then from his participant contributions, then from the investment earnings on his voluntary contributions, and finally from the investment earnings on his participant contributions. Withdrawals from the voluntary contribution sub-account and the participant contribution sub-account may be in cash or in SLM Common Stock. Withdrawals shall be made from the investment funds in which the sub-account is invested in accordance with a policy promulgated by the Committee, except that a Participant may not receive a distribution from the SLM Common Stock Fund, if he is restricted from trading in the SLM Common Stock Fund at the time of the distribution. The Committee may establish a minimum amount that may be withdrawn under this Section 6.01 , or under this Section 6.01 and any other Section of Article 6, in the aggregate. 6.02 Withdrawals from Rollover Contribution Sub-Accounts. A Participant is entitled to make up to two (2) withdrawals each Plan Year, on any business day, from his Rollover Contribution sub-account; provided, however, that after the withdrawal his Vested Benefit equals or exceeds the amount of the security for his loans, if any, under Section 6.05. The number of withdrawals permitted under this Section 6.02 shall be decreased by the number of any withdrawal from a Participant's voluntary contribution or participant contribution sub accounts pursuant to Section 6.01, unless the withdrawal pursuant to this Section 6.02 is made on the same date as the withdrawal pursuant to Section 6.0 1. The amount credited to his Rollover Contribution sub-account shall be determined on the date of the withdrawal. Withdrawals from the Rollover Contribution sub-account may be made only in cash. The Participant may make a withdrawal from his Rollover Contribution sub-account provided that the Participant elects to withdraw, or has already withdtawn, one hundred percent (100%) of the amounts credited to his voluntary contribution and participant contribution sub-accounts. Withdrawals shall be made from each investment fund in accordance with a policy promulgated by the Committee, except that a Participant may not receive a distribution from the SLM Common Stock Fund if he is restricted from trading in SLM Common Stock on the date of the distribution. The Committee may establish a minimum amount that may be withdrawn under this Section 6.02, or under this Section 6.02 and any other Section of Article 6 in the aggregate. DM_us 14702698-23.0645oo.oon -29-

 
6.03 Withdrawals from Employer Matching Contribution Sub-Accounts, Employer Discretionary Profit-Sharing Contribution Sub-Accounts, Employer Core Contribution Sub-Accounts, and Service Contract Act Contribution Sub-Accounts. A Participant who has completed five (5) Years of Participation in the Plan as of the date of a withdrawal and who has elected to withdraw, or has already withdrawn, one hundred percent ( 100%) of the amounts credited to his voluntary contribution, participant contribution, and Rollover Contribution sub-accounts is entitled to make up to two (2) withdrawals (per sub account type) each Plan Year, on any business day, of any part or all of the amount credited to each of the following sub-accounts: his Employer Matching Contribution sub-account (with respect to Employer Matching Contributions made prior to January 1, 2003 only) (referred to as "Pre-2003 Employer Matching Contributions"), his Employer Discretionary Profit-Sharing Contribution sub-account, his Employer Core Contribution sub-account and his Service Contract Act Contribution sub-account, if applicable~ provided, however, that after the withdrawal his Vested Benefit equals or exceeds the amount of the security for his loans, if any, under Section 6.05. The amount credited to his Pre-2003 Employer Matching Contribution sub-account, his Employer Discretionary Profit-Sharing Contribution sub-account, his Employer Core Contribution sub-account, and his Service Contract Act Contribution sub-account shall be determined on the date of withdrawal. Withdrawals from the Pre-2003 Employer Matching Contribution sub-account, the Employer Discretionary Profit-Sharing Contribution sub-account, the Employer Core Contribution sub-account and the Service Contract Act Contribution sub-account may be made only in cash. Withdrawals shall be made from the investment funds in accordance with a policy promulgated by the Committee, except that a Participant may not receive a distribution from the SLM Common Stock Fund, if he is restricted from trading in SLM Common Stock on the date of distribution. 6.04 Hardship Withdrawals from Employee Contribution Sub-Accounts. In the event of financial hardship, a Participant may apply to the Plan's third party administrator for the distribution of part or all of the value of the vested portion of his Employee Account (excluding amounts credited to his Employer Matching Contribution sub-account and earnings thereon as well as earnings attributable to amounts credited to his Employee Contribution sub-account on or after January 1, 1989) determined as of the date of his hardship withdrawal; provided, however, that the Participant elects to withdraw, or has already withdrawn, one hundred percent (100%) of the amount he is able to withdraw from his voluntary contribution, participant contribution, Rollover Contribution, Pre-2003 Employer Matching Contribution, Employer Discretionary Profit-Sharing Contribution, Employer Core Contribution, and Service Contract Act Contribution sub-accounts, and provided that after the withdrawal his Vested Benefit equals or exceeds the amount of the security for his loans, if any, under Section 6.05. In addition, a hardship withdrawal will only be permitted if the Participant has applied for or received the maximum amount of loans available pursuant to the terms of the Plan. In accordance with procedures established by the Plan's third party administrator, a Participant's hardship withdrawal date is the business day coincident with or immediately following the date the Plan's third party administrator approves his application for the hardship withdrawal. Hardship withdrawals may be made only in cash. Hardship withdrawals shall be made from the investment funds in DM US 14702698-23.064500.001 3 -30-

 
accordance with a policy promulgated by the Committee, except that no hardship distribution may be made from the SLM Common Stock Fund if the Participant is restricted from trading in SLM Common Stock at the time he requests the distribution. A distribution will be on account of financial hardship if the distribution is made both on account of an immediate and heavy financial need of the Participant and is necessary to satisfy such financial need. A distribution from the Plan under this Section 6.04 may be made only for the following types of financial hardships: (a) expenses for (or necessary to obtain) medical care described in section 2l3(d) of the Code previously incurred by the Participant, his spouse or his dependents (as defined in section 152 of the Code and without regard to sections 152(b)(l), 152(b)(2), and 152(d)(l)(B) of the Code), which expenses are not covered by insurance; (b) costs directly related to the purchase of a principal residence for the Participant, excluding mortgage payments; (c) payment of tuition, related educational fees, and room and board expenses for up to the next twelve months of post-secondary education for the Participant, his spouse, children, or dependents (as defined in section 152 of the Code and without regard to sections 152(b )(I), 152(b)(2), and 152(d)(l )(B) of the Code); (d) payments necessary to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage on that residence; or (e) funeral or burial expenses for the Participant's deceased parent, spouse, children or dependents (as defined in section 152 of the Code and without regard to section 152(d)(l)(B) of the Code); (f) expenses for the repair of damage to the Participant's principal residence that would qualify for the casualty deduction under section 165 of the Code (determined without regard to whether the loss exceeds ten percent (10%) of adjusted gross income); or (g) other events that qualify as a financial hardship distribution as provided for in revenue rulings, notices or other documents of general applicability published by the Internal Revenue Service under section 401 (k) of the Code. A distribution from the Plan for a financial hardship will not exceed the amount required to relieve the financial hardship, taking into account the extent such hardship may be satisfied from other resources that are reasonably available to the Participant. The amount of an immediate and heavy financial need may include any amounts necessary to pay any Federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution. Unless the Plan's third party administrator has actual knowledge to the contrary, a distribution will be treated as necessary to satisfy a financial need if the Participant represents in DM_US 14702698-23.064500.001 3 -31-

 
writing or such other form as may be required by the Plan's third party administrator that his financial hardship cannot reasonably be relieved: (i) through reimbursement or compensation by insurance or otherwise; (ii) by liquidation of the Participant's assets; (iii) by cessation of Employee Contributions; (iv) by other distributions or nontaxable loans from plans maintained by his Employer or by any other employer, or by borrowing from commercial sources on reasonable commercial terms in an amount sufficient to satisfy the need; or (v) by cash dividends, if any, paid on the shares of SLM Common Stock in the Participant's Employee Account and available for distribution. A need cannot reasonably be relieved by one of the actions listed immediately above if the effect would be to increase the amount of the need. The Employee Contributions of a Participant who makes a hardship withdrawal wiJI be suspended for the six (6) calendar-month period immediately following the date of his hardship withdrawal. Upon the termination of the six (6) calendar-month period of suspension, a Participant shall be eligible to re-elect to have Employee Contributions made on his behalf in accordance with Section 3.0l(a). 6.05 Loans. The Committee will make loans available to all Participants who are parties in interest, as defined in section 3(14) of ERISA, on a reasonably equivalent basis. Such loans will be adequately secured, bear a reasonable rate of interest and be made in accordance with the rules in the Plan Loan Program Procedures, which is incorporated herein by reference. DM US 14702698-23.064500.0013 -32-

 
ARTICLE7 VESTING 7.01 Vesting. The amounts, if any, credited to a Participant's voluntary contribution, participant contribution, Employee Contribution, Employer Matching Contribution, Employer Discretionary Profit-Sharing Contribution, Service Contract Act Contribution, Qualified Non-Elective Contribution, and Rollover Contribution sub-accounts are nonforfeitable. A Participant shall become one hundred percent (100%) vested in any amounts credited to his Employer Core Contribution sub-account upon the Participant's completion of one (I) Year of Vesting Service. Notwithstanding the foregoing, a Participant shall become one hundred percent ( 100%) vested in all amounts in the Participant's Employee Account upon the earlier of the Participant reaching Normal Retirement Age or upon the Participant's Severance from Service Date, when such severance is due to the Participant' s death or Disability. In addition, if a Participant dies on or after January I, 2007 while performing qualified military service (as defined in section 414(u)(5) of the Code), the Participant shall become one hundred percent ( 100%) vested in all amounts in the Participant's Employee Account. 7.02 Re-employment of Former Participants. If a former Participant who terminated employment chooses not to receive a distribution of his Vested Benefit following his Severance from Service Date and who was not one hundred percent (I 00%) vested in his Employer Matching Contribution sub-account is reemployed by an Employer and again becomes an Employee, any amount forfeited at the date of prior termination shall be contributed to his Employer Matching Contribution sub-account, effective as of the date of reemployment. DM_US 14702698-23.064500.0013 -33-

 
ARTICLES DISTRIBUTIONS 8.01 Earliest Time for and Method of Distribution of Benefits. (a) Except in the case of distributions under Article 6, a Participant' s Vested Benefit may be distributed from the Plan no earlier than the Participant's termination of employment, death, Disability, or upon his attainment of age fifty-nine and one-half (59Y2). (b) A Participant's entire Plan vested account balance shall be distributable on account of the Participant' s severance from employment, regardless of when the severance from employment occurred. However, such a distribution shall be subject to the other provisions of the Plan regarding distributions, other than any provisions that required a separation from service before such amounts may be distributed. Distributions shall be made in a lump sum, reduced by the outstanding balance of any loan. The Participant or his Beneficiary may elect to have the Participant's Vested Benefit paid (i) all in cash, (ii) all in SLM Common Stock or (iii) in a combination of cash and SLM Common Stock. If the Participant or Beneficiary elects to receive SLM Common Stock, fractional shares of SLM Common Stock will be paid in cash to the Participant or his Beneficiary. 8.02 Time of Payment. Upon a Participant's termination of employment, Disability, or death, the Participant (or his Beneficiary in the case of death) may request a distribution of benefits and such distribution shall be made as soon as administratively feasible after the Trustee receives such request for distribution; except as provided in Section 8.03, a distribution shall not be made to a former Participant who terminated employment, without his consent, before he attains his Normal Retirement Age, unless the distribution is made after the Plan terminates and the Employer and/or Affiliated Employer do not maintain another defined contribution plan, as defined in section 414(i) of the Code, other than an employee stock ownership plan, as defined in section 4975(e)(7) of the Code. The amount of the distribution will be the Participant's Vested Benefit as of the date of distribution. If a Participant does not request to receive his Vested Benefit at his Severance from Service Date, then the Participant's Employee Account will continue to be subject to adjustments in accordance with Section 5.03. 8.03 Distribution of Small Benefits. Notwithstanding anything in Section 8.02 to the contrary, if the Participant's vested Employee Account balance does not exceed $1 ,000, his Employee Account balance shall be distributed to him after his Severance from Service Date without his request. If the Participant's vested Employee Account balance exceeds $1 ,000, then any mandatory distribution of his Employee Account balance before his Normal Retirement Age, to the extent such mandatory distribution is an Eligible Rollover Distribution subject to section 40l(a)(31) of the Code, shall be automatically rolled over to an individual retirement account. DM_US 14702698-23.064500.001J -34-

 
Effective for distributions made after December 31 , 2001 (except for purposes of an automatic rollover to an individual retirement account, as described in the preceding paragraph), the net value of the vested portion of a Participant's account balance shall be determined without regard to that portion of the account that is attributable to rollover contributions (and earnings allocable thereto) within the meaning of sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii) , and 457(e)(l6) of the Code. 8.04 Latest Time for Distribution. In no event may a distribution under this Article to a Participant begin later than the sixtieth (60th) day after the latest of the close of the Plan Year in which: (a) occurs the date on which the Participant attains his Normal Retirement Age; (b) occurs the fifth (5th) anniversary of the date on which the Participant commenced participation in the Plan; or (c) the Participant terminates his service with an Employer or Affiliated Employer and is not then reemployed by another Employer or Affiliated Employer. Notwithstanding the foregoing or any other provision in the Plan, in accordance with section 401 (a)(9) of the Code and regulations thereunder, including the minimum distribution incidental benefit requirement of section 40l(a)(9)(G) of the Code and sections 1.40l(a)(9)-l through l.40l(a)(9)-9 of the Treasury Regulations, benefit payments shall be made or commenced not later than April 1 of the calendar year following the later of (i) the calendar year in which a Participant attains age seventy and one-half (?OY2 ), or (ii) the calendar year in which the Participant retires; provided, however, that benefit payments to a Five Percent Owner shall be made or commence to be made no later than April 1 of the calendar year following the calendar year in which the Participant attains age seventy and one-half (?OY2). Plan benefits made in accordance with this provision shaH be distributed over the life expectancy of the Participant. The Participant' s life expectancy will be recalculated annually in accordance with section 40l(a)(9)(D) of the Code. If minimum distributions have begun to a Participant pursuant to this paragraph, upon his subsequent termination of employment, his Vested Benefit will be paid to him under the rules in Sections 8.0 I and 8.02, but not less rapidly than is required by section 40l(a)(9) of the Code. In the case of a Participant's death, the Participant's entire Vested Benefit will be paid to his Beneficiary within five (5) years of the Participant's date of death. Notwithstanding the preceding paragraph, if the amount of the payment required to commence on the date determined under the above paragraph cannot be ascertained by such date, a payment retroactive to such date shall be made no later than sixty (60) days after the earliest date on which the amount of such payment can be ascertained. DM_ US 14702698-23.064500.0013 -35-

 
With respect to minimum required distributions under the Plan made on or after January 1, 2003 for calendar years beginning on or after January 1, 2003, the Plan will apply the minimum distribution requirements of section 40l(a)(9) of the Code in accordance with Appendix B to the Plan and the requirements of section 40l(a)(9) of the Code and sections 1.40 l(a)(9)-l through 1.401 (a)(9)-9 of the Treasury Regulations. Notwithstanding the foregoing provisions of Section 8.04, a Participant or Beneficiary who would have been required to receive required minimum distributions for 2009 but for the enactment of section 40l(a)(9)(H) of the Code ("2009 RMDs"), and who would have satisfied that requirement by receiving distributions that are (l) equal to the 2009 RMDs or (2) one or more payments in a series of substantially equal distributions (that include the 2009 RMDs) made at least annually and expected to last for the life (or life expectancy) of the Participant, the joint lives (or joint life expectancy) of the Participant and the Participant's designated Beneficiary, or for a period of at least 10 years ("Extended 2009 RMDs"), will not receive those distributions for 2009, unless the Participant or Beneficiary chooses to receive such distributions. Participants and Beneficiaries described in the preceding sentence wiU be given the opportunity to elect to receive the distributions described in the preceding sentence. In addition, solely for purposes of applying the direct rollover provisions of the Plan, including but not limited to Section 2.14, 2009 RMDs and Extended 2009 RMDs (both as defined above) will be treated as Eligible Rollover Distributions. 8.05 Missing Participant or Beneficiary. Unclaimed benefits shall be canceled and applied to reduce Employer contributions if the Committee has not been able to locate the payee after making reasonable efforts to do so, in accordance with a procedure adopted by the Committee. Upon the cancellation of unclaimed benefits, the Plan shall have no further liability to pay the benefit. However, if the payee later submits a claim for his benefit, the canceled benefit shall be reinstated, without any adjustment for interest or earnings, and the Employer shall make an additional contribution to the Plan to fund the reinstated benefit. Notwithstanding anything in this Section 8.05 to the contrary, in the event any portion of such an Employee Account has been paid to the State pursuant to the State's escheat laws, to the extent permitted under Federal law, the Employee Account will not be reinstated upon the payee's filing of a claim, and the payee must look to the State for payment. 8.06 Election of Direct Rollover of a Vested Benefit. Notwithstanding any provision of the Plan to the contrary, a Participant or Qualified Beneficiary may elect, at the time and in the manner prescribed by the Committee, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Participant or Qualified Beneficiary in a Direct Rollover. 8.07 Death of a Participant During Qualified Military Service. If a Participant dies while performing qualified military service (as defined in section 414(u)(5) of the Code) on or after January l, 2007, the Participant's Beneficiaries shall be entitled to any additional benefits (other than benefit accruals) under the Plan as if the Participant had died during service with the Employer. DM_US 14702698-23.064500.0013 -36-

 
ARTICLE9 PLAN ADMINISTRATION 9.01 Committee. The Plan shall be administered by the SLM Corporation Retirement Committee, or such other committee as may be, appointed by, and serving at the pleasure of, the Board of Directors from time to time. 9.02 Powers and Duties of the Committee. The Committee shall have the discretion to determine all matters relating to eligibility and benefits under the Plan and shall have the discretion to determine all matters relating to the interpretation and operation of the Plan. Decisions of the Committee shall be binding unless arbitrary or capricious. In addition, the Committee shall have the responsibilities and duties described in the Charter of the Committee, as amended from time to time. 9.03 Delegation of Responsibilities. In accordance with the Charter of the Committee, as amended from time to time, the Committee may delegate certain Plan responsibilities to management of the Corporation. DM_US 14702698-23.064500.0013 -37-

 
ARTICLE 10 CONTROL AND MANAGEMENT OF ASSETS 10.01 In General. (a) Trustee. All assets of the Plan shall be held by the Trustee pursuant to the terms of the Trust Agreement not inconsistent herewith. The Trustee shall follow the policies and guidelines of the Committee with respect to the choice of investment alternatives. Each Participant or Beneficiary shall have the right to direct the Trustee with respect to the investment of his Employee Account and the Trustee shall follow the investment directions of the Participant or Beneficiary in accordance with section 404(c) of ERISA. In the event the Participant or Beneficiary fails to provide an investment direction, the Trustee shall invest the Employee Account in the default investment fund selected by the Committee, which may constitute a qualified default investment alternative fund within the meaning of section 404( c )(5) of ERISA. (b) Named Fiduciary for Investment. The Committee shall serve as the Named Fiduciary and shall develop the overall policies and guidelines for the investment of Plan assets, including the selection of the investment alternatives which are to be made available to Participants. DM_US 14702698-23.064500.0011 -38-

 
ARTICLE 11 FIDUCIARY LIABILITY INSURANCE AND INDEMNIFICATION 11.01 Fiduciary Liability Insurance. The Plan may purchase insurance for its fiduciaries or for itself to cover liability or losses occurring by reason of the act or omission of a fiduciary, if such insurance permits recourse by the insurer against such a fiduciary who has committed a breach of fiduciary duties. A fiduciary may purchase insurance to cover his own liability for any act or omission. Each Employer may purchase insurance to cover potential liability of one or more persons who serve in a fiduciary capacity with respect to the Plan. Nothing in this Section 11.01 shall be construed as requiring the purchase of any insurance. 11.02 Indemnity. The Employers may, consistent with applicable law, indemnify the members of the Board of Directors, and the members of the Committee from any liability, loss or other financial consequence with respect to any act or omission relating to the Plan by means other than the provision of fiduciary liability insurance; except that to the extent any such liability, loss or consequence results from a person's gross negligence or willful misconduct, such person shall not be so indemnified. The provisions of Section ll.Ol shall apply, to the extent applicable, prior to the provisions of this Section 11.02. DM_US 14702698·23.064500.0011 -39-

 
ARTICLE 12 AMENDMENTS TO OR TERMINATION OF THE PLAN 12.01 Right of Corporation to Amend or Terminate the Plan. While it is the intention of the Corporation to continue the Plan indefinitely, the Corporation reserves the right to terminate its contributions or terminate the Plan in whole or in part at any time by an instrument in writing pursuant to authority of a vote of the Board of Directors. The Corporation reserves the right to amend the Plan pursuant to authority granted to the Corporation and may delegate such authority. However, the Plan shall not be amended in such manner as would cause or permit any part of the Fund to be diverted to purposes other than for the exclusive benefit of Participants of the Plan and their Beneficiaries, nor in such manner as would cause or permit any portion of such corpus to revert to, or become the property of, any Employer prior to the satisfaction of all liabilities under the Plan with respect to such Participants or to increase the duties or liabilities of the Trustee without its written consent. Unless otherwise required or permitted by law, no amendment to the Plan shall decrease a Participant's account balance or eliminate an optional form of distribution notwithstanding the preceding sentence. Furthermore, no amendment to the Plan shall have the effect of decreasing a Participant's vested interest determined without regard to such amendment as of the later of the date such amendment is adopted, or the date it becomes effective. Notwithstanding any provision of the Plan to the contrary, effective on or after August 9, 2006, no amendment shall decrease a Participant's or former Participant's accrued benefit under the Plan as of the applicable amendment date, or otherwise place greater restrictions or conditions on a Participant's or former Participant's right to protected benefits under section 4ll(d)(6) of the Code, even if the amendment merely adds a restriction or condition that is otherwise permitted under the vesting rules in sections 411 (a)(3) through ( 11) of the Code. 12.02 Termination of Plan. In the event that the Plan is terminated or partially terminated or in the event of a complete discontinuance of contributions, the right of all Participants, or those Participants so affected in the case of a partial termination, to benefits accrued under the Plan as of the date of such termination, partial termination or discontinuance of contributions, shall be non-forfeitable; and after providing for the expenses of the Plan, the remaining assets of the Plan shall be allocated by the Committee. Upon complete termination of the Plan, the Committee shall liquidate the entire Fund as soon as administratively practical if the Employers and Affiliated Employers do not maintain another defined contribution plan, as defined in section 414(i) of the Code, other than an employee stock ownership plan, as defined in section 4975(e)(7) of the Code. 12.03 Withdrawal of an Employer. Each Employer which adopts the Plan shall have the right at any time to terminate the Plan as to its employees or to withdraw its share of assets from the Fund while the Plan continues in effect for the employees of each other Employer. In the event of such withdrawal or termination, such Employer shall deliver to the Corporation and the Committee, at least thirty (30) days prior to the effective date of such termination or withdrawal, a certified copy of the vote of its governing body authorizing such termination or withdrawal. The Committee will advise the Trustee to segregate a portion of the Fund DM_US 14702698-23.064500.001 3 -40-

 
representing the interest of the Employees of such Employer in the Fund. The Trustee, as directed by the Committee, shall transfer such assets to a fund exempt under section 501 of the Code for purposes of providing benefits for such Employees under another plan, or if no such fund exists, distribute such assets currently to the Employees of the withdrawing Employer. 12.04 Plan-to-Plan Transfer. Upon the sale of substantially all of the assets and liabilities of an Employer, the Committee may, upon the written request of the purchaser of such assets and liabilities, instruct the Trustee to segregate a portion of the Fund representing the interest in the Fund of Employees who continue employment with such purchaser and to transfer such portion of the Fund to the plan of such purchaser; provided, however, that such purchaser represents to the Committee that the plan is qualified under section 40l(a) of the Code and that the benefit of each Employee immediately after the transfer shaH be at least equal to the benefit the Employee was entitled to immediately before the transfer. DM_US 14702698-23.064500.0011 -4 1-

 
ARTICLE 13 TOP HEAVY PROVISIONS 13.01 Top Heavy Plan Requirements. Notwithstanding any other provision of the Plan, if for any Plan Year the Plan is determined to be a Top Heavy Plan, then the top heavy minimum benefit requirement of section 416(c) of the Code, as set forth in Section 13.02, shall apply. 13.02 Top Heavy Minimum Contribution Requirement. For any Plan Year with respect to which the Plan is determined to be a Top Heavy Plan, with respect to each Employee who is a Non-Key Employee for such Plan Year, the Top Heavy requirements shall be met by providing, under the defined benefit plan sponsored by the Corporation and qualified under section 40l(a) of the Code, the minimum accrued benefit derived from employer contributions necessary to satisfy the benefit requirement of section 416( c) of the Code. 13.03 Top~Heavy Provisions. (a) This Section 13.03 shall apply for purposes of determining whether the plan is a Top-Heavy Plan under section 416(g) of the Code and whether the Plan satisfies the minimum benefits requirements of section 416(c) of the Code. (b) Minimum Benefits/Matching Contributions. Employer matching contributions shall be taken into account for purposes of satisfying the minimum contribution requirements of section 416(c)(2) of the Code, and the Plan. The preceding sentence shall apply with respect to matching contributions under the Plan or, if the Plan provides that the minimum contribution requirement shall be met in another plan, such other plan. Employer matching contributions that are used to satisfy the minimum contribution requirements shall be treated as matching contributions for purposes of the actual contribution percentage test and other requirements of section 401 (m) of the Code. DM_US 14702698-23.064500.0013 -42-

 
ARTICLE 14 MISCELLANEOUS 14.01 Rights of Employees. Nothing herein contained shall be deemed to give any employee the right to be retained in the employ of the Employer or to interfere with the right of the Employer to discharge such employee at any time, nor shall it be deemed to give the Employer the right to require the employee to remain in its employ, nor shall it interfere with the employee' s right to terminate his employment at any time. 14.02 Notice of Address. Each person entitled to benefits under the Plan must inform the Committee, in accordance with a procedure adopted by the Committee, of his post office address and each change of post office address. Any communication, statement or notice addressed to such person at such address shall be deemed sufficient for all purposes of the Plan, and there shall be no obligation on the part of the Employer, the Committee or Trustee to search for or to ascertain the location of such person. 14.03 Data. Each person entitled to benefits under the Plan must furnish to the Committee such documents, evidence, or other information as the Committee considers necessary or desirable for the purposes of administering the Plan or to protect the Plan. The Committee shall be entitled to rely on representations made by employees, Participants and Beneficiaries with respect to age, marital status and other personal facts, unless it knows said representations are false. 14.04 Merger. This Plan shall not be merged into, or consolidated with, nor shall any assets or liabilities be transferred to, any plan under circumstances resulting in a transfer of assets or liabilities from this Plan to another plan, unless immediately after any such merger, consolidation or transfer, each Participant would, if the Plan had then terminated, receive a benefit immediately after the merger, consolidation or transfer which would be equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation or transfer, if the Plan had then terminated. 14.05 Fund to be for the Exclusive Benefit of Participants. The contributions of the Employers to the Fund shall be for the exclusive purpose of providing benefits to the Participants and their Beneficiaries and no part of the Fund shall revert to the Employers, except as follows: (a) if a contribution is made to the Fund by an Employer under mistake of fact, such contribution shall be returned within one ( 1) year after its payment; or (b) if any part or alJ of a contribution is disallowed as a deduction under section 404 of the Code with respect to an Employer, then to the extent of such disallowance it may be returned to the Employer within one (I) year after the disallowance. Employer contributions made to the Plan are conditioned on deductibility under section 404 of the Code. Notwithstanding the prior sentence, at the election of the Employer, contributions that are not deductible under section 404 of the Code solely because of section 404(a)(7) of the Code may be DM_US 14702698-23.064500.0013 -43-

 
maintained in the Plan, provided such contributions do not exceed the greater of (i) the amount of contributions not in excess of six percent (6%) of compensation (within the meaning of section 404(a) of the Code and including any differential wage payment (as defined in section 340l(h)(2) of the Code) made by the Employer) paid or accrued (during the taxable year for which the contributions were made) to beneficiaries under the Plan, or (ii) the sum of Employer Matching Contributions plus the amount of contributions described in section 402(g)(3)(A) of the Code. 14.06 Facility of Payment. If it shall be found that (a) a person entitled to receive any payment under the Plan is physically or mentally incompetent to receive such payment and to give a valid release thereof, and (b) another person or an institution is then maintaining or has custody of such person, and no guardian, committee or other representative of the estate of such person has been duly appointed by a court of competent jurisdiction, the payment may be made to such other person or institution referred to in (b) above, and the release of such other person or institution shall be a valid and complete discharge for the payment. 14.07 Restrictions on Alienation. Except with respect to the (a) creation, assignment, or recognition of a right to a benefit payable with respect to a Participant pursuant to a qualified domestic relations order (as defined in section 414(p) of the Code) and, (b) the creation, assignment, or recognition of a right to a benefit payable to the Plan pursuant to section 40l(a)(l3)(C) of the Code, no benefit payable under the Plan to any person shall be subject to any manner of anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the same shall be void; and no such benefit shall in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements, or torts of any person nor shall it be subject to attachment or legal process for, or against, any person, and the same shall not be recognized under the Plan. Distributions may be made to an alternate payee pursuant to a qualified domestic relations order (as defined in section 414(p) of the Code) before the Participant attains the earliest retirement date, as defined in section 414(p)(4)(B) of the Code, under the Plan. 14.08 Headings. The headings of the Plan are inserted for convenience and reference only and shall have no effect upon the meaning of the provisions hereof. 14.09 Construction. The Plan shall be construed, regulated and administered under the laws of the state of Delaware, except that if any such laws are superseded by any applicable Federal law or statute, such Federal law or statute shall apply. 14.10 Exclusion and Severability. Each provision hereof shall be independent of each other provision hereof and if any provision of the Plan proves to be, or is held by any court, or tribunal, board or authority of competent jurisdiction to be void or invalid as to any Participant or group of Participants, such provision shall be disregarded and shall be deemed to be null and void and not part of the Plan. However, such invalidation of any provision shall not otherwise impair or affect the Plan or any of the other provisions or terms hereof. DM_ US 14 702698-23.064500.0013

 
14.11 Special Rule Relating to Military Service. Notwithstanding any provision in this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with section 414(u) of the Code and the mandatory provisions of the Heroes Earnings Assistance and Relief Tax Act of 2008. 14.12 Application of Forfeitures. Forfeitures arising under the Plan with respect to an Employer's Participants shall be applied, at the discretion of that Employer, either to reduce that Employer's contributions in such proportions as that Employer may direct or to pay administrative expenses of the Plan. Non-vested amounts shall be forfeited from a Participant's Employee Account upon the earlier of (a) the date the entire vested portion of the Participant' s Employee Account is distributed and (b) the date the Participant incurs a five (5)-year Period of Severance; provided that in the event such forfeiture occurs as of the date the entire vested portion of the Participant's Employee Account is distributed, such previously forfeited amount (without any adjustment for earnings) shall be reinstated on behalf of the Participant only if such Participant becomes re-employed before he incurs a five (5)-year Period of Severance, and the Participant repays back to the Plan the entire amount of the previous distribution before the earlier of (i) five (5) years after the first date on which the Participant is subsequently reemployed by the Employer, or (ii) the close of the first five (5)-year Period of Severance commencing after the date of distribution. 14.13 Contractual Limitation Period. No action at Jaw or in equity shall be brought to recover benefits under the Plan until the mandatory appeal rights described in the Plan have been exercised and the Plan benefits requested in such appeal have been denied in whole or in part. If any judicial proceeding is undertaken to appeal the denial of a claim, challenge the amount of any benefit under the Plan or bring any other action under ERISA other than a breach of fiduciary duty claim, any such judicial proceeding must be filed within the earlier date of the following: (a) ninety (90) days after the final decision on any administrative claim for benefits submitted to the Committee; or (b) within three (3) years after the date when the Participant or Beneficiary submits their authorization to commence payment of the Plan benefits at issue in the judicial proceeding. The evidence presented in such a judicial proceeding will be strictly limited to the evidence timely presented to the Committee (or its designee). DM_US 14702698·23.064500.0013 -45-

 
ARTICLE 15 SPECIAL PROVISIONS APPLICABLE TO CORPORATE TRANSACTIONS 15.01 Special Vesting Provisions. The following provisions shall apply in determining a Participant's Vested Benefit. (a) Former Employees of EFCI, Inc. Any Employee who becomes an employee of Education First Marketing L.L.C., effective January l, 1997, shall be one hundred percent ( 100%) vested in his Employee Account at all times, provided his immediately preceding employer was EFCI, Inc. Notwithstanding the foregoing, amounts in any such Employee's Employer Core Contribution sub-account shall become one hundred percent (100%) vested upon the Employee's completion of one ( l) Year of Vesting Service. (b) Employees of Kaludis Consulting Group. Inc. Any Employee of Kaludis Consulting Group, Inc. whose Employment Commencement Date is prior to January 1, 1998, shall be one hundred percent ( 100%) vested in his Employee Account at all times. However, if an Employee described in the prior sentence incurs a Severance from Service Date and is subsequently reemployed by the Employer, any benefit accrued on or after the Reemployment Commencement Date shall not be subject to this special vesting provision, but shall be subject to the general vesting provisions described in Article 7. Notwithstanding the foregoing, amounts in any such Employee's Employer Core Contribution sub-account shall become one hundred percent ( 100%) vested upon the Employee's completion of one ( l) Year of Vesting Service. (c) Former Employees of USA Group. Individuals who were employed by USA Group on July 31, 2000, and who became eligible to be Participants in the Plan on August l, 2000 shall be one hundred percent ( 100%) vested in any Employer Matching Contributions at all times. (d) An individual described in Section 1.02(b) or 1.02( c) shall be one hundred percent ( l 00%) vested in the portion of his Employer Matching Contribution and Employer Core Contribution sub-accounts invested in the SLM Stock Fund as of April 30, 2014. (e) Matching contributions made to the Sallie Mae Retirement Savings Plan on behalf of a Participant prior to July I, 2004 and transferred to the Participant' s Employee Account under this Plan on or as soon as practicable after January 1, 2010 shall become vested in accordance with the following schedule: Years of Vesting Service Less than one I year 2 years 3 years DM_US 14702698-23.064500.0013 -46- Percent Vested 0% 0% 50% 100%

 
(f) Matching contributions made to the Pioneer Credit Recovery 40l(k) Savings Plan that were transferred to the Sallie Mae Retirement Savings Plan on January I, 2005 and again transferred to the Participant's Employee Account under this Plan on or as soon as practicable after January 1, 2010 shal1 become vested in accordance with the following schedule: Years of Vesting Service Less than one 1 year 2 years 3 years 4 years 5 years 15.02 USA Group Special Provisions. Percent Vested 0% 20% 40% 60% 80% IOO% (a) EIP Account Provisions. The following provlSlons shaH apply to individuals who were employed by USA Group on July 31, 2000, who were eligible to and became Participants in the Plan on August 1, 2000, and who had "EIP Accounts" under the USA Group Plan (as described in Supplement C to the USA Group Plan ("Supplement C")) (hereinafter referred to as "USA Group/EIP Participants"). (i) Vesting. USA Group/EIP Participants shall be one hundred percent (I 00%) vested in their EIP Accounts as of August 1, 2000. (ii) In-Service Withdrawals. USA Group!EIP Participants shall be permitted to take in-service withdrawals of the amounts credited to their EIP Accounts at any time in the form of a single lump sum representing all or a portion of the amount credited to the EIP Account in accordance with procedures established by the Committee. (iii) Distributions. USA Group/EIP Participants shall be permitted to take distributions of amounts credited to their EIP Accounts only in the form of a single lump sum representing the entire amount credited to the EIP Account following their termination of employment and in accordance with procedures established by the Committee. 15.03 Southwest Student Services Corporation Special Provisions. With respect to any individual who is employed by Southwest Student Services Corporation on March 31 , 2005, and who becomes a Participant in the Plan on April 1, 2005, such individual shall be one hundred percent (I 00%) vested in his Southwest plan account transferred to the Plan. DM_US 14702698·23.064500.001 ~

 
ARTICLE 16 SIGNATURE The Plan as herein amended and restated has hereby been approved and is adopted effective as of the dates set forth herein this 30th day of April, 2014. easley Senior Vice President and Chief Human Resources Officer Dated: Apri~ 2014 DM_US 14702698-23.064500.0013 -48-

 
APPENDIX A SALLIE MAE 401(K) SAVINGS PLAN PARTICIPATING EMPLOYERS As of the date of this Plan restatement the following Employers participate in the Sallie Mae 401 (k) Savings Plan: • Upromise, Inc. • Sallie Mae Bank • SMB Servicing Company, Inc. DM_US 14702698·23.064500.0013 -49-

 
APPENDIXB ADDITIONAL PROVISIONS RELATED TO REQUIRED MINIMUM DISTRIBUTIONS Effective for calendar years on and after January 1, 2003, the minimum required distributions made to Participants pursuant to Section 8.04 shall be made in accordance with the following provisions: B.l The Vested Benefit of each Participant who is a five percent (5%) owner (as defined in section 416(i) of the Code, but without regard to the top-heavy status of the Plan) shall be distributed or shall commence to be distributed, in accordance with section 40 l (a)(9) of the Code and the regulations issued thereunder, no later than the April 1 following the close of the calendar year in which the Participant attains age ?Olf2, regardless of whether his employment is terminated as of such date. The Vested Benefit of each Participant who is not a five percent (5%) owner shall be distributed or shall commence to be distributed, in accordance with section 40l(a)(9) of the Code and the regulations issued thereunder, no later than the Aprill following the later of: (a) the calendar year in which the Participant attains age seventy and one-half (?Olf2), or (b) the calendar year in which the Participant terminates employment. All distributions under this Plan shall comply with the incidental death benefit requirements of section 401 (a)(9)(G) of the Code and the regulations (including section l.40l(a)(9)-2 of the Treasury Regulations) and other guidance issued thereunder. B.2 The provisions of this Section 8.2 will apply for purposes of determining required minimum distributions for calendar years beginning with the 2003 calendar year. The requirements of this Section B.2 will take precedence over any inconsistent provisions of the Plan. All distributions required under this Section will be determined and made in accordance with the Treasury Regulations under section 40l(a)(9) of the Code. (a) Time and Manner of Distribution. The Participant's entire interest will be distributed, or begin to be distributed, to the Participant no later than the Participant's Required Beginning Date. If the Participant dies before distributions begin, the Participant's entire interest will be distributed, or begin to be distributed, no later than as follows: (1) If the Participant's surviving spouse is the Participant's sole Designated Beneficiary, then distribution of the Participant's Vested Benefit shall be made to the surviving spouse pursuant to Section 8.04. (2) If the Participant's surviving spouse is not the Participant's sole Designated Beneficiary, then distribution of the Participant's Vested Benefit shall be made to the Designated Beneficiary pursuant to Section 8.04. (3) If there is no Designated Beneficiary as of the date of the Participant' s death, the Participant's Vested Benefit will be distributed pursuant to Sections 2.04, 8.04 and 8.05. DM_US 14702698-23.064500.0013 -50-

 
(4) If the Participant's surv1vmg spouse is the Participant' s sole Designated Beneficiary and the surviving spouse dies after the Participant but before distributions to the surviving spouse begin, this Section B.2(a), other than Section B.2(a)( l ), will apply as if the surviving spouse were the Participant. For purposes of this Section B.2(a) and Section B.2(d), unless Section B.2(a)(4) applies, distributions are considered to begin on the Participant's Required Beginning Date. If Section B.2(a)(4) applies, distributions are considered to begin on the date distributions are required to begin to the surviving spouse under Section B.2(a)( 1). (b) Forms of Distribution. Unless the Participant's interest is distributed in a single sum on or before the Required Beginning Date, as of the first Distribution Calendar Year distributions will be made in accordance with Sections B.2(c) and B.2(d). (c) Required Minimum Distributions During Participant's Lifetime. During the Participant's lifetime, the minimum amount that will be distributed for each Distribution Calendar Year is the lesser of: (1) the quotient obtained by dividing the Participant's 40 l (a)(9) Account Balance by the distribution period in the Uniform Lifetime Table set forth in section 1.40l(a)(9)-9 of the Treasury Regulations, using the Participant's age as of the Participant's birthday in the Distribution Calendar Year~ or (2) if the Participant's sole Designated Beneficiary for the Distribution Calendar Year is the Participant's spouse, the quotient obtained by dividing the Participant's 40l(a)(9) Account Balance by the number in the Joint and Last Survivor Table set forth in section 1.40l(a)(9)-9 of the Treasury Regulations, using the Participant's and spouse's attained ages as of the Participant's and spouse's birthdays in the Distribution Calendar Year. Required minimum distributions will be determined under this Section B.2(c) beginning with the first Distribution Calendar Year and up to and including the Distribution Calendar Year that includes the Participant's date of death. (d) If the Participant dies on or after the date distributions begin, the Participant's entire remaining interest under the Plan will be distributed in accordance with Section B.2(a). (e) For purposes of this Section B.2, the following terms shall have the meanings as set forth below unless the context requires otherwise: (1) Designated Beneficiary. The individual who is the Beneficiary and is the Designated Beneficiary under section 40l(a)(9) of the Code and section 1.40l(a)(9)-l, Q&A-4, of the Treasury Regulations. DM_US 14702698-2J.064500.0013 -51-

 
(2) Distribution Calendar Year. A calendar year for which a minimum distribution is required. For distributions beginning before the Participant' s death, the first Distribution Calendar Year is the calendar year immediately preceding the calendar year which contains the Participant's Required Beginning Date. For distributions beginning after the Participant's death, the first Distribution Calendar Year is the calendar year in which distributions are required to begin under Section B.2(a). The required minimum distribution for the Participant's first Distribution Calendar Year will be made on or before the Participant's Required Beginning Date. The required minimum distribution for other Distribution Calendar Years, including the required minimum distribution for the Distribution Calendar Year in which the Participant' s Required Beginning Date occurs, will be made on or before December 31 of that Distribution Calendar Year. (3) Participant's 40l(a)(9) Account Balance. The Vested Benefit balance as of the last valuation date in the calendar year immediately preceding the Distribution Calendar Year (valuation calendar year) increased by the amount of any contributions made and allocated or forfeitures allocated to the Vested Benefit balance as of dates in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date. The Vested Benefit balance for the valuation calendar year includes any amounts rolled over or transferred to the Plan either in the valuation calendar year or in the Distribution Calendar Year if distributed or transferred in the valuation calendar year. (4) Required Beginning Date. The date specified in Section 8.04, as applicable. DM_US 14702698-23.064500.0013

 



Exhibit 10.45


AMENDMENT
TO THE
SALLIE MAE 401(k) SAVINGS PLAN

This Amendment to the Sallie Mae 401(k) Savings Plan as most recently restated effective as of April 30, 2014 is effective as of the dates set forth below by SLM Corporation (the “Company”).

W I T N E S S E T H :

WHEREAS , the Company maintains the Sallie Mae 401(k) Savings Plan, originally effective as of April 1, 1974 (the “Plan”);

WHEREAS , the Company reserves the right to amend the Plan, by action of its Board of Directors or its designee, pursuant to Section 12.01 of the Plan;

WHEREAS , the Company has delegated the authority to amend the Plan to the management of the Company;

WHEREAS , the Company has determined that the Plan shall be amended, effective as of June 26, 2013, to comply with the Internal Revenue Service guidance implementing the U.S. Supreme Court’s decision in United States v. Windsor ; and

WHEREAS , the Company has determined that the Plan shall be amended to clarify certain Plan terms.

NOW, THEREFORE BE IT RESOLVED , that the Plan is amended in the following particulars, effective as of the dates provided below:

1.
Effective as of April 30, 2014, Section 2.08 of the Plan is amended by inserting “short‑term and” after “hiring bonuses,”.


2.
Effective as of June 26, 2013, the Plan shall be amended by adding a new Section 2.57 to the Plan immediately following Section 2.56 of the Plan, and the remaining Sections of Article 2 of the Plan are renumbered accordingly, to read as follows:

“ 2.57      Spouse . Spouse means the person who is legally married to an Employee. Effective June 26, 2013, a person of the same sex as the Participant can be a spouse for purposes of the Plan, provided the couple was legally married in a jurisdiction that authorizes same-sex marriage (even if the couple lives in a jurisdiction that does not recognize same-sex marriage).”

3.
Effective as of June 26, 2013, the Plan is amended by striking “spouse” and replacing it with “Spouse” each time it appears in Sections 2.04, 2.14, 2.48 and 6.04 of the Plan and Section B.2 of Appendix B of the Plan.



1


4.
Effective as of January 1, 2014, Section 2.65 of the Plan is amended by striking “and partial” from the first sentence thereof.


5.
Effective as of April 30, 2014, the penultimate sentence of Section 5.02 of the Plan is struck from the Plan.


6.
Effective as of January 1, 2014, the final paragraph of Section 8.03 of the Plan is amended to read as follows:

“The net value of the vested portion of a Participant's account balance shall be determined by including that portion of the account that is attributable to rollover contributions (and earnings allocable thereto) within the meaning of sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(l6) of the Code.”


FURTHER RESOLVED , that the proper officers of the Company are authorized and directed to take all such actions, execute all such documents, and undertake any other actions that are necessary or desirable, in their discretion, to effectuate the foregoing resolutions, including the making of amendments (including amendments required by the Internal Revenue Service) to the above described Plan, in connection with the implementation of the above described actions, and filing the Plan with the Internal Revenue Service for a determination letter with respect to the qualification of the Plan under Section 401(a) of the Internal Revenue Code of 1986, as amended.

IN WITNESS WHEREOF , the Company has caused this Amendment to be executed on December _____, 2014.

SLM CORPORATION


By: ______________________________



2


Exhibit 10.46


SALLIE MAE SUPPLEMENTAL 401(K) SAVINGS PLAN
Amended and Restated as of May 1, 2014
1.
PURPOSE

The Sallie Mae Supplemental 401(k) Savings Plan (the “Supplemental Savings Plan”) provides retirement benefits to certain officers and key employees of the Corporation (defined below) who are eligible to participate in a tax-qualified 401(k) savings plan sponsored by SLM Corporation or any of its subsidiaries (a “Qualified 401(k) Plan”). The Supplemental Savings Plan is maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of Title I of the Employee Retirement Income Security Act of 1974, as amended. The Supplemental Savings Plan will remain at all times an unfunded plan.
With respect to amounts deferred hereunder that are subject to Section 409A of the Code, as amended, and any regulations and other official guidance, applicable provisions of the Supplemental Savings Plan document shall be interpreted to permit the deferral of compensation in accordance with Code Section 409A, and any provision that would conflict with such requirements shall not be valid or enforceable.
2.     DEFINITIONS

2.1    “Corporation” means SLM Corporation and its subsidiaries or any other person, firm or corporation that may succeed to the business of SLM Corporation by merger, consolidation or otherwise, and which, by appropriate action, adopts the Supplemental Savings Plan.

2.2    “Eligible Pay” means an Eligible Employee’s (as defined in Section 4.1) base salary earned (and not deferred under a non-qualified deferred compensation program) during a calendar year in excess of the limit set forth in section 401(a)(17) of the Internal Revenue Code (the “Code”), currently $260,000, except that beginning with the first payroll period in which an Eligible Employee’s contributions to a Qualified 401(k) Plan are limited by Section 401(a)(17) of the Code. Eligible Pay means base salary, certain bonus and commissions earned (and not deferred under a non­qualified deferred compensation program) and certain other compensation as determined by the Administrator during a calendar year in excess of the limit set forth in Section 401(a)(17) of the Code, up to $500,000 over the limit set forth in section 401(a)(17) of the Code.

2.3    “Employee” means any employee of the Corporation or a subsidiary of the Corporation who participates in a Qualified 401(k) Plan in which he or she is eligible to participate.

2.4    “Participant” means an employee who has a Supplemental Savings Plan Account, as defined in Section 4.2.
    
2.5    “Termination of Employment’’ or “Terminates Employment” means a Participant’s termination of employment with the Corporation or other separation from service as described in Code Section 409A and the regulations thereunder.


1


3.     EFFECTIVE DATE

The original effective date of the Supplemental Savings Plan, originally named the Supplemental SLMA Employees’ Thrift & Savings Plan, was January 1, 1983. The Supplemental Savings Plan was renamed the Supplemental 401(k) Savings Plan and amended February 28, 1999. The Plan was again amended July 1, 2004, amended and restated January 1, 2009, and amended most recently January 1, 2010. This amended and restated Plan is effective May 1, 2014 (the “Effective Date”).
4.     ELIGIBILITY AND PARTICIPATION

4.1    Employees who are participants in a Qualified 401(k) Plan and whose contributions, or contributions on their behalf, to such Qualified 401(k) Plan are limited as a result of the limitations imposed by Code Section 401(a)(17) and further, who are designated by the CEO or senior human resources officer of the Corporation, will be eligible to participate in the Supplemental Savings Plan (“Eligible Employees”).

4.2    Eligible Employees will be so advised and an account will be established in their names on the books of the Corporation (a “Supplemental Savings Plan Account”).

5.     PLAN BENEFITS

Benefits provided under this Supplemental Savings Plan are hypothetical bookkeeping entries or credits allocated to an Eligible Employee’s Supplemental Savings Plan Account. Three types of credits may be allocated to a Supplemental Savings Plan Account: a Deferred Pay Credit, an Employer Matching Contribution Credit, and an Investment Credit. The amount and source of each type of credit is described below. Each of the types of credits will be allocated to a Supplemental Savings Plan Account beginning no sooner than with the payroll period during or after the payroll period in which the Eligible Employee’s Eligible Pay exceeds the Code Section 401(a)(17) limit.
5.1    Deferred Pay Credit: If so elected by the Eligible Employee, a Deferred Pay Credit will be credited by the Corporation in an amount equal to an Eligible Employee’s Eligible Pay times five (5) percent.
5.2    Employer Matching Contribution Credit: A Participant shall be eligible to receive an Employer Matching Contribution Credit beginning with the first pay period coincident with the date the Participant completes a twelve month period of service. The Employer Matching Contribution Credit will be credited by the Corporation in an amount equal to each dollar of a Deferred Pay Credit credited to a Supplemental Savings Plan Account.
5.3    Investment Credits: At the same times as allowed under the Qualified 401(k) Plan, and subject to the same rules, a Participant may request that his Supplemental Savings Plan Account be deemed to be credited for these purposes to the core investment funds then offered under the Qualified 401(k) Plan in accordance with the Participant’s specific direction. In such event, the Participant’s directions for the “investment” of his Supplemental Savings Plan Account will be subject to restrictions similar to those on investment and reinvestment that apply under the Qualified 401(k) Plan. The Corporation may refuse to follow a Participant’s “investment” direction on a prospective basis or refuse to continue to make the Investment Credits based on the investment performance of the Qualified 401(k) Plan Account. In no event will amounts credited to the Participant’s Supplemental Savings Plan Account be eligible for loans. Investment Credits will be made until the Supplemental Savings Plan Account is fully distributed to the Participant. A Participant’s Supplemental Savings Plan Account will initially be automatically deemed to

2


be credited with Investment Credits based on the performance of the core investment selected by the Participant.
Effective as of the Distribution, as defined in the Separation and Distribution Agreement, dated as of April 28, 2014, by and among SLM Corporation, New BLC Corporation, a Delaware corporation (“SLM BankCo”), and Navient Corporation, each Supplemental Savings Plan Account with amounts deemed invested in SLM Corporation common stock will be credited with one share of Navient Corporation common stock and one share of SLM BankCo common stock for each share of SLM Corporation common stock credited to such account. Following the Distribution, any additional deferrals deemed to be invested in Company stock will be deemed invested in SLM BankCo common stock, and no additional deferrals will be deemed invested in Navient common stock.
6.     VESTING
A Participant will at all times be fully vested in Deferred Pay Credits and Employer Matching Contributions Credits. A Participant will be vested in Investment Credits at the same time and in the same manner that corresponds to his vesting percentage under each of the Credits described in this section.
7.     DISTRIBUTIONS
7.1    Distribution of the vested amounts in a Participant’s Supplemental Savings Plan Account will be made as follows. In the first year in which a Participant becomes eligible to participate in the Supplemental Savings Plan, the Participant must make an election with respect to the form and timing of payment of his benefit under the Supplemental Savings Plan, provided the election is made within 30 days after the date the Participant becomes a Participant in the Supplemental Savings Plan and in a manner acceptable to the Corporation. In the case of all other Participants, including any new Participant who fails to make an election within the 30-day period described above, the Participant shall make an election in a manner acceptable to the Corporation designating the specific time and manner of distribution of his Supplemental Savings Plan Account by filing the form with the Corporation by a date established by the Corporation. In the event a Participant fails to make a distribution election, he shall receive his benefit in a single lump sum payment as soon as practicable following the first day of the seventh month following the Participant’s Termination of Employment. Notwithstanding the foregoing, in no event will payment be made or commence any earlier than the date of as which a Participant Terminates Employment. An election to change the time and manner of payment of amounts credited to a Participant’s Supplemental Savings Plan Account and earnings credited to such amounts: 1) must delay distribution of such amounts for at least 5 years beyond the original distribution date; 2) must be made at least 12 months before the original distribution date; and 3) will not be effective until 12 months after the new election. In addition, the Administrator may, in its sole discretion, allow a Participant for whom no credits have been allocated to the Participant’s Supplemental Savings Plan Account, to make a different election with respect to the form and timing of payment of the Participant’s benefit under the Supplemental Savings Plan that relates to compensation otherwise payable in any calendar year beginning after the date of such election, which election will be in the form and subject to such limitations as the Administrator may describe in its sole discretion.
If a Participant Terminates Employment and is reemployed by the Corporation in the same calendar year, and before a distribution of the Participant’s Supplemental Savings Plan Account has been made, the Participant’s election as to the time and manner of payment of his Supplemental Savings Plan Account in effect on his date of Termination of Employment will be in effect as of the date he commences reemployment with the Corporation, and can only be modified as provided herein, provided that in no event will payment be made or commence any earlier than the date as of which the Participant Terminates Employment with the Corporation.

3


Notwithstanding the foregoing, any distribution made to a Participant as a result of the Participant’s Termination of Employment may not be made earlier than the first day of the seventh month following the Participant’s date of Termination of Employment.
7.2    Distributions will be in the form of cash and can be paid in one (1) lump sum payment or spread out over a maximum of ten (10) annual installments.
    
7.3    Distribution of a Participant’s Supplemental Savings Plan Account balance will not be accelerated upon the occurrence of a Change in Control. For purposes of this Section 7.3, a Change in Control means a change in the ownership or effective control of the Corporation or in the ownership of a substantial portion of the assets of the Corporation, as determined in accordance with the requirements of Code Section 409A.
7.4    In the event of a substantial, unforeseen financial hardship, a Participant, or if applicable, a beneficiary who succeeds to the Participant’s interest in the vested Supplemental Savings Plan Account following the Participant’s death, may submit to the Administrator a request for an early distribution. Such request will be in writing and will advise the Administrator of the circumstances of the hardship. Should the Administrator agree, such an early distribution will be made as soon as practicable after the Supplemental Savings Plan Account valuation date immediately following the date on which the Administrator agreed to the early distribution. For these purposes, the value of the vested portion of the Participant’s Supplemental Savings Plan Account will be determined as of the valuation date specified above. Any part of the Participant’s Supplemental Savings Plan Account that is vested and that is not distributed under this early distribution provision will be distributed in accordance with the general distribution rule in this Plan.
For purposes of this Section 7.4, a substantial unforeseen financial hardship means a severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participant’s spouse, the Participant’s beneficiary, or of a Participant’s dependent (as defined in Code Section 152, without regard to Code Section 152(b)(1), (b)(2), and (d)(1)(B)); loss of the Participant’s property due to casualty (including the need to rebuild a home following damage to a home not otherwise covered by insurance, for example, not as a result of a natural disaster); or similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. Examples of events that may constitute a substantial unforeseen financial hardship include the imminent foreclosure of or eviction from the Participant’s primary residence; the need to pay for medical expenses, including non-refundable deductibles, as well as for the costs of prescription drug medication; and the need to pay for the funeral expenses of the Participant’s spouse, the Participant’s beneficiary, or the Participant’s dependent (as defined in Code Section 152, without regard to Code Sections 152(b)(1), (b)(2), and (d)(1)(B)). Whether a Participant is faced with a substantial unforeseen financial hardship will be determined based on the relevant facts and circumstances of each case, but, in any case, a distribution on account of a substantial unforeseen financial hardship may not be made to the extent that such emergency is or may be relieved: (i) through reimbursement or compensation by available insurance or otherwise, (ii) by liquidation of the Participant’s assets, to the extent the liquidation of such assets would not itself cause severe financial hardship or (iii) by cessation of deferrals under the Plan.
The amount available for distribution of amounts deferred under the Plan on account of a substantial unforeseen financial hardship shall be limited to the amount reasonably necessary to satisfy the emergency need (which may include amounts necessary to pay any Federal, state, local, or foreign income taxes or penalties reasonably anticipated to result from the distribution), and shall be determined in accordance with Code Section 409A and the regulations thereunder. In all events, distributions due to a substantial unforeseen financial hardship shall be made solely in accordance with the provisions of Code Section 409A and related official guidance.

4


7.5    Payment will be made to the Participant, or in the event of his death, his beneficiary. In no event may the Participant or, if applicable, the beneficiary, elect to defer receipt of payment under this Supplemental Savings Plan once such payment is due. Additionally, except as provided in Section 7.4 above, no amounts credited to a Supplemental Savings Plan Account will be subject to withdrawal while the Participant is employed by the Corporation. Amounts payable under the Supplemental Savings Plan will be reduced by all amounts required to be withheld under appropriate State or Federal law.
7.6    For purposes of this Supplemental Savings Plan, the Participant’s beneficiary will be deemed to be the same person(s) as designated by the Participant under the Qualified 401(k) Plan unless the Participant elects otherwise by designating a different person or persons on such form and in such manner as the Administrator may specify.
7.7    Unless expressly provided, no amounts payable under the Supplemental Savings Plan will be deemed to be compensation for purposes of computing benefits payable under any other plan of compensation or benefit by the Corporation.

8.     SOURCE OF PAYMENT

All benefits under the Supplemental Savings Plan will be paid from the general assets of the Corporation, and no special or separate fund will be established or other segregation of assets made to assure such payments. Nothing contained in the Supplemental Savings Plan will create a trust of any kind. In the event that any Participant or other person acquires a right to receive payments from the Corporation under the Supplemental Savings Plan, such right will be no greater than the right of any unsecured general creditor of the Corporation.
9.     PLAN ADMINISTRATION

The Supplemental Savings Plan will be administered by the senior human resources officer of the Corporation (the “Administrator’’), who will have full power, discretion and authority to interpret, construe and administer the Supplemental Savings Plan and any part thereof, and the Administrator’s interpretation and construction hereof, and actions thereunder, will be binding on all persons for all purposes. The Administrator may employ legal counsel, consultants, actuaries and agents as it may deem desirable in the administration of the Supplemental Savings Plan and may rely on the opinion of such counsel or the computations of such consultants. Except as otherwise provided by law, the Administrator will not incur any liability whatsoever on account of any matter connected with or related to the Supplemental Savings Plan or the administration of the Supplemental Savings Plan, unless the Administrator has acted in bad faith, or has willfully neglected his duties, in respect of the Supplemental Savings Plan.
10.     INTERESTS NOT TRANSFERABLE

The interest of any Participant, the Participant’s spouse or the Participant’s beneficiary or beneficiaries under the Supplemental Savings Plan is not subject to the claims of creditors and may not be voluntarily or involuntarily sold, transferred, assigned, alienated or encumbered.
11.     AMENDMENT AND TERMINATION

The Supplemental Savings Plan may at any time be amended, suspended or terminated, in whole or in part, by the Corporation. No such action will adversely affect the contractual promise of the Corporation to pay to a Participant amounts credited under the Supplemental Savings Plan as of the date of such action, as determined by the Administrator. Notwithstanding the foregoing, the Supplemental Savings Plan may at any time be amended in such a way as is necessary to ensure that the requirements of the Internal Revenue

5


Code are satisfied so that the qualified status of the Qualified 401(k) Plan is preserved. Further, in no event shall any amendment, modification or termination be made in a manner that is inconsistent with the requirements under Code Section 409A.
12.     LIMITATION OF RESPONSIBILITY
    
12.1    Neither the establishment of the Supplemental Savings Plan, any modifications thereof, nor the payment of any amounts under the Supplemental Savings Plan will be construed as giving to any employee or other person any legal or equitable right against the Corporation, the Board of Directors of the Corporation, the Administrator, or any officer or employee thereof, except as herein provided.
    
12.2    Nothing in the Supplemental Savings Plan will confer upon any employee of the Corporation any right to continued employment, or interfere with the right of the Corporation to terminate his or her employment at any time, for any reason.

13.     CLAIMS FOR BENEFITS UNDER THIS PLAN

13.1    In general, distributions under the Supplemental Savings Plan are automatic and no claim for benefits need be filed. However, a Participant may submit a claim for benefits under this Supplemental Savings Plan in writing to the Administrator. If such claim for benefits is wholly or partially denied, the Administrator will, within a reasonable period of time, but no later than 90 days after receipt of the written claim, notify the Participant of the denial of the claim. Such notice of denial: (1) will be in writing, (2) will be written in a manner calculated to be understood by the Participant, and (3) will contain (a) the specific reason or reasons for denial of the claim; (b) a specific reference to the pertinent Supplemental Savings Plan provisions upon which the denial is based; (c) a description of any additional material or information necessary for the Participant to perfect the claim; and (d) an explanation of the Supplemental Savings Plan’s claims review procedure. This 90-day period may be extended if circumstances require additional time, but in no event will the extension period be more than 90 days. The Participant will be notified of the extension before the end of the initial 90-day period.

13.2    Within 60 days of the Participant’s receipt of the written notice of denial of the claim, or such later time as will be deemed reasonable under the circumstances, or if the claim has not been granted within a reasonable period of time, the Participant may file a written request with the Administrator asking that it conduct a full and fair review of the denial of the Participant’s claim for benefits. Such review may include the holding of a hearing if deemed necessary by the reviewing party. In connection with the Participant’s appeal of the denial of his benefit, the Participant may review pertinent documents and may submit issues and comments in writing.

13.3    The Administrator will deliver to the Participant a written decision on the claim promptly, but not later than 60 days after the receipt of the Participants request for review, except that if there are special circumstances (such as the need to hold a hearing) which require an extension of time for processing, the 60-day period will be extended to 120 days. Such decision will: (1) be written in a manner calculated to be understood by the Participant, (2) include specific reasons for the decision, and (3) contain specific references to the pertinent Plan provisions upon which the decision is based.

14.     MISCELLANEOUS

14.1     Facility of Payment. If it will be found that (a) a person entitled to receive any payment under the Plan is physically or mentally incompetent to receive such payment and to give a valid release therefore,

6


and (b) another person or an institution is then maintaining or has custody of such person, and no guardian, administrator, or other representative of the estate of such person has been duly appointed by a court of competent jurisdiction, the payment may be made to such other person or institution referred to in (b) above, and the release of such other person or institution will be a valid and complete discharge for the payment.

14.2     Notice of Address. Each person entitled to benefits under the Plan must file with the Administrator, in writing, his mailing address and each change of mailing address. Any communication, statement, or notice addressed to such person at such address will be deemed sufficient for all purposes of the Plan, and there will be no obligation on the part of the Corporation or the Administrator to search for or to ascertain the location of such person.

14.3     Data. Each person entitled to benefits under the Plan must furnish to the Administrator such documents, evidence, or other information as the Administrator considers necessary or desirable for the purposes of administering the Plan or to protect the Plan. The Administrator will be entitled to rely on representations made by Participants, spouses and beneficiaries with respect to age, marital status and other personal facts, unless it knows said representations are false.

14.4     Tax Determinations . Notwithstanding any other provision to the contrary herein, in the event of a determination, as defined in section 1313(a) of the Internal Revenue Code, that any Participant is subject to Federal income taxation on amounts deferred under this Plan, the amounts that are includable in the Participant’s federal gross income will be distributed to such Participant upon the receipt by the Corporation of notice of such determination. Subject to the requirements of Code Section 409A and any guidance issued thereunder, the Corporation may make such provisions and take such action as it may deem necessary or appropriate for the withholding of any taxes which the Corporation is required by any law or regulation of any governmental authority, whether Federal, state or local, to withhold in connection with any benefits under the Supplemental Savings Plan, including, but not limited to, the withholding of appropriate sums from any amount otherwise payable to the Participant (or his beneficiary). Each Participant, however, shall be responsible for the payment of all individual tax liabilities relating to any such benefits.

IN WITNESS WHEREOF , SLM Corporation has caused this Plan to be duly executed in its name and on its behalf as of the ____ day of April, 2014.
SLM Corporation



By: ____________________________________

Name:      Bonnie Beasley

Title: Senior Vice President
and Chief Human Resources Officer





7



Exhibit 12.1
SLM CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands)
 
 
 
Years Ended December 31,
 
 
2010
 
2011
 
2012
 
2013
 
2014
Income (loss) before income tax expense (benefit)
 
$
(122,669
)
 
$
87,848

 
$
341,869

 
$
416,527

 
$
333,752

Add: Fixed charges
 
146,256

 
107,896

 
84,708

 
91,182

 
98,404

 
 
 
 
 
 
 
 
 
 
 
Total earnings
 
$
23,587

 
$
195,744

 
$
426,577

 
$
507,709

 
$
432,156

 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
$
143,927

 
$
105,385

 
$
82,912

 
$
89,085

 
$
95,815

Rental expense, net of income
 
2,329

 
2,511

 
1,797

 
2,097

 
2,589

 
 
 
 
 
 
 
 
 
 
 
Total fixed charges
 
146,256

 
107,896

 
84,709

 
91,182

 
98,404

Preferred stock dividends
 
—

 
—

 
—

 
—

 
12,933

Net income attributable to SLM Corporation common stock
 
$
146,256

 
$
107,896

 
$
84,709

 
$
91,182

 
$
111,337

 
 
 
 
 
 
 
 
 
 
 
Ratio of earnings to fixed charges (1) (2)
 
—

 
1.81

 
5.04

 
5.57

 
5.57

Ratio of earnings to fixed charges and preferred stock dividends (1)(2)
 
—

 
1.81

 
5.04

 
5.57

 
3.88

(1) For purposes of computing these ratios, earnings represent income (loss) before income tax expense plus fixed charges. Fixed charges represent interest expensed and capitalized plus one-third (the proportion deemed representative of the interest factor) of rents, net of income from subleases.
(2) Due to a pre-tax loss from operations of $122,669 for the year ended December 31, 2010, the ratio coverage was less than 1:1. We would have needed to generate $122,669 million of additional earnings in the year ended December 31, 2010 for the ratio coverage to equal 1:1.












Exhibit 21.1
SUBSIDIARIES OF
SLM CORPORATION
 
Incorporation
 
Jurisdiction of Name    
Sallie Mae Bank
 
Utah
 
* Pursuant to Item 601(b)(21)(ii) of Regulation S-K, the names of other subsidiaries of SLM Corporation are omitted because, considered in the aggregate, they would not constitute a significant subsidiary as of the end of the year covered by this report.








Exhibit 23.1
Consent of Independent Registered Public Accounting Firm


The Board of Directors
SLM Corporation:

We consent to the incorporation by reference in the registration statements of SLM Corporation (the Company):
Form
Registration Number
S-8
333-140285
S-8
333-125317
S-8
333-33575
S-8
333-33577
S-8
333-44425
S-8
333-53631
S-8
333-68634
S-8
333-80921
S-8
333-92132
S-8
333-109315
S-8
333-109319
S-8
333-159447
S-8
333-116136
S-8
333-181646

of our reports dated February 26, 2015 with respect to the consolidated balance sheets of SLM Corporation and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2014, and the effectiveness of internal control over financial reporting as of December 31, 2014, which reports appear in the December 31, 2014 annual report on Form 10‑K of the Company.

/s/ KPMG LLP
McLean, Virginia
February 26, 2015





Exhibit 31.1

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Raymond J. Quinlan, certify that:

1.
I have reviewed this annual report on Form 10-K of SLM Corporation;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

    
                                    
/s/ RAYMOND J. QUINLAN
Raymond J. Quinlan
Executive Chairman and Chief Executive Officer
(Principal Executive Officer)
February 26, 2015






Exhibit 31.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Steven J. McGarry, certify that:

1.
I have reviewed this annual report on Form 10-K of SLM Corporation;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


                                                                                
/s/ STEVEN J. MCGARRY
Steven J. McGarry
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
February 26, 2015







    
    
Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of SLM Corporation (the “Company”) on Form 10-K for the year ended December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Raymond J. Quinlan, Executive Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.



                                                                    
/s/ RAYMOND J. QUINLAN
Raymond J. Quinlan
Executive Chairman and Chief Executive Officer
(Principal Executive Officer)
February 26, 2015







    
    
Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of SLM Corporation (the “Company”) on Form 10-K for the year ended December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven J. McGarry, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

                                                                    
/s/ STEVEN J. MCGARRY
Steven J. McGarry
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
February 26, 2015