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e8vk

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

Current Report Pursuant to Section 13 or 15(d)
of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 17, 2007

SLM CORPORATION

(Exact name of registrant as specified in its charter)


DELAWARE	File No. 001-13251	52-2013874
(State or other jurisdiction	(Commission File Number)	(IRS Employer
of incorporation)		Identification No.)

12061 Bluemont Way, Reston, Virginia 20190
(Address if principal executive offices)(zip code)

Registrant’s telephone number, including area code: (703) 810-3000

Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:


o		Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)


o		Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)


o		Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))


o		Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition

On July 17, 2007, SLM Corporation issued a press release with respect to its earnings for the fiscal quarter ended June 30, 2007, which is furnished as Exhibit 99.1 to this Current Report on Form 8-K. Additional information for the quarter, which is available on the Registrant’s website at http://www.salliemae.com/about/investors/stockholderinfo/earningsinfo/, is furnished as Exhibit 99.2.

SIGNATURES

Pursuant to the requirements 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.


SLM CORPORATION
By:	/s/ SANDRA L. MASINO
	Name:	Sandra L. Masino
	Title:	Senior Vice President Accounting, Credit, & Loan Portfolio Analysis
		(Principal Accounting Officer)

Dated: July 17, 2007

SLM CORPORATION
Form 8-K
CURRENT REPORT
EXHIBIT INDEX


Exhibit
No.		Description
99.1		Press Release dated July 17, 2007
99.2		Additional Information Available on the Registrant’s Website

exv99w1

Exhibit 99.1


		N E W S R E L E A S E


FOR IMMEDIATE RELEASE	Media Contacts:	Investor Contacts:
	Tom Joyce	Steve McGarry
	703/984-5610	703/984-6746
	Martha Holler	Joe Fisher
	703/984-5178	703/984-5755

SALLIE MAE’S MANAGED LOAN PORTFOLIO GROWS 18 PERCENT FROM PRIOR
YEAR TO $153 BILLION IN SECOND-QUARTER 2007

Originations Through Company’s Lending Brands Grow 39 Percent

RESTON, Va., July 17, 2007 — SLM Corporation (NYSE: SLM), commonly known as Sallie Mae, today reported second-quarter 2007 earnings and performance results that include an 18-percent increase in managed student loans from the year-ago quarter, with the company’s portfolio topping $153 billion. Second-quarter 2007 preferred-channel loan originations were $3.6 billion, and loans originated through the company’s internal brands, a segment of total preferred-channel loan originations, grew 39 percent from the year-ago period to $2.4 billion.

Preferred-channel loan originations include loans originated by the company’s internal lending brands and external lending partners. Preferred-channel originations in the first half of 2007 were $11.6 billion, and internal brands originated $7.2 billion, or 62 percent, of the total.

“Our loan portfolio continues to register strong growth, and our internal brands are outpacing the market,” said C.E. Andrews, chief executive officer. “We are delivering best-in-class products and services to schools, students and families to help them access higher education.”

The company purchased $20.9 billion in education loans in the first half of 2007, a 27-percent increase from the same period last year. In the second-quarter 2007, loan purchases were $8.4 billion.

Sallie Mae reports financial results on a GAAP basis and also presents certain “core earnings” performance measures. The company’s management, equity investors, credit rating agencies and debt capital providers use these “core earnings” measures to monitor the company’s business performance.

Sallie Mae reported second-quarter 2007 GAAP net income of $966 million, or $1.03 per diluted share, compared to $724 million, or $1.52 per diluted share, in the year-ago period. Included in these GAAP results are pre-tax gains on derivative and hedging activities of $822 million in the second-quarter 2007, compared to $123 million in the year-ago quarter, and a decrease of $671 million in gains on student loan securitizations. Second-quarter 2007 GAAP diluted earnings per share were reduced by $1.21 due to the reversal of unrealized gains on dilutive outstanding equity-forward contracts as required by the GAAP diluted earnings per share calculation.

Sallie Mae

•

12061 Bluemont Way

•

Reston, Va 20190

•

www.salliemae.com

“Core earnings” net income for the second-quarter 2007 was $189 million, or $.43 per diluted share, down from $320 million, or $.72 per diluted share, in the year-ago quarter. These second-quarter 2007 results include a provision for losses of $247 million and $51 million in expenses related to the company’s previously announced acquisition. Annualized net charge-offs as a percentage of average private education loans in repayment were 3.5 percent in the second-quarter 2007, compared to 3.4 percent in the prior quarter. For the first half of 2007, “core earnings” net income was $440 million, compared to $607 million in the first half of 2006.

“Core earnings” net interest income was $635 million for the 2007 second quarter, up from the year-ago quarter’s $602 million. “Core earnings” other income, which consists primarily of fees earned from guarantor servicing and collection activity, was $296 million in the second—quarter 2007 and $583 million year-to-date, up 11 percent and 14 percent, respectively, from the year-ago periods. “Core earnings” operating expenses were $382 million in the second-quarter 2007, and $715 million for the first half of 2007.

Both a description of the “core earnings” treatment and a full reconciliation to the GAAP income statement can be found at: http://www.salliemae.com/about/investors/stockholderinfo/earningsinfo/, click on the Second Quarter 2007 Supplemental Earnings Disclosure.

Total equity for the company at June 30, 2007, was $5.3 billion, up from $4.4 billion a year ago. The company’s tangible capital at June 30, 2007, was 2.28 percent of managed assets, compared to 2.19 percent at the same time last year. The “core earnings” student loan spread was 1.79 percent in the second-quarter 2007, excluding financing fees related to the acquisition transaction.

***

This press release contains “forward-looking statements” including expectations as to future market share, the success of preferred channel originations and future results. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Because such statements inherently involve risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks include, among others, changes in the terms of student loans and the educational credit marketplace arising from the implementation of applicable laws and regulations, and from changes in such laws and regulations, changes in the demand for educational financing or in financing preferences of educational institutions, students and their families, and changes in the general interest rate environment. For more information, see the company’s filings with the Securities and Exchange Commission, including the forward-looking statements contained in the company’s Supplemental Financial Information Second Quarter 2007.

***

SLM Corporation (NYSE: SLM), commonly known as Sallie Mae, is the nation’s leading provider of saving- and paying-for-college programs. The company manages $153 billion in education loans and serves nearly 10 million student and parent customers. Through its Upromise affiliates, the company also manages $18 billion in 529 college-savings plans, and 8 million members have joined Upromise to help save for college with rewards on purchases at nearly 70,000 places. Sallie Mae and its subsidiaries offer debt management services as well as business and technical products to a range of business clients, including higher education institutions, student loan guarantors and state and federal agencies. More information is available at www.salliemae.com. SLM Corporation and its subsidiaries are not sponsored by or agencies of the United States of America.

###

Sallie Mae

•

12061 Bluemont Way

•

Reston, Va 20190

•

www.salliemae.com

SLM CORPORATION

Supplemental Earnings Disclosure

June 30, 2007

(Dollars in millions, except earnings per share)


	Quarters ended									Six months ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2007			2007			2006			2007			2006
	(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)

SELECTED FINANCIAL INFORMATION AND RATIOS
GAAP Basis
Net income	$	966		$	116		$	724		$	1,082		$	875
Diluted earnings per common share⁽¹⁾	$	1.03		$	.26		$	1.52		$	1.82		$	1.96
Return on assets		3.23	%		.43	%		3.20	%		1.89	%		1.94	%
“Core Earnings” Basis⁽²⁾
“Core Earnings” net income	$	189		$	251		$	320		$	440		$	607
“Core Earnings” diluted earnings per common share⁽¹⁾	$	.43		$	.57		$	.72		$	.99		$	1.37
“Core Earnings” return on assets		.45	%		.64	%		.90	%		.54	%		.88	%
OTHER OPERATING STATISTICS
Average on-balance sheet student loans	$	108,865		$	101,499		$	80,724		$	105,203		$	81,781
Average off-balance sheet student loans		43,432			44,663			47,716			44,044			44,909

Average Managed student loans	$	152,297		$	146,162		$	128,440		$	149,247		$	126,690

Ending on-balance sheet student loans, net	$	110,626		$	104,581		$	82,279
Ending off-balance sheet student loans, net		42,577			45,380			47,865

Ending Managed student loans, net	$	153,203		$	149,961		$	130,144

Ending Managed FFELP Stafford and Other Student Loans, net	$	42,865		$	41,832		$	41,926
Ending Managed FFELP Consolidation Loans, net		85,276			83,928			69,195
Ending Managed Private Education Loans, net		25,062			24,201			19,023

Ending Managed student loans, net	$	153,203		$	149,961		$	130,144


⁽¹⁾		In December 2004, the Company adopted the Emerging Issues Task Force (“EITF”) Issue No. 04-8, “The Effect of Contingently Convertible Debt on Diluted Earnings per Share,” as it relates to the Company’s $2 billion in contingently convertible debt instruments (“Co-Cos”) issued in May 2003. EITF No. 04-8 requires the shares underlying Co-Cos to be included in diluted earnings per common share computations regardless of whether the market price trigger or the conversion price has been met, using the “if-converted” method. The impact of Co-Cos to diluted earnings per common share is as follows:


	Quarters ended									Six months ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2007			2007			2006			2007			2006
	(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)

Impact of Co-Cos on GAAP diluted earnings per common share	$	(.03	)	$	—	^(A)	$	(.08	)	$	(.05	)	$	(.07	)
Impact of Co-Cos on “Core Earnings” diluted earnings per common share	$	—	^(A)	$	—		$	(.01	)	$	—	^(A)	$	(.02	)


^(A)		There is no impact on diluted earnings per common share because the effect of the assumed conversion is antidilutive.

On June 25, 2007, holders of these securities were notified that the Co-Cos would be called at par on July 25, 2007, as allowed by the terms of the indenture governing the Co-Cos.


⁽²⁾		See explanation of “Core Earnings” performance measures under “Reconciliation of ‘Core Earnings’ Net Income to GAAP Net Income.”

SLM CORPORATION

Consolidated Balance Sheets

(In thousands, except per share amounts)


	June 30,		March 31,		June 30,
	2007		2007		2006
	(unaudited)		(unaudited)		(unaudited)

Assets
FFELP Stafford and Other Student Loans (net of allowance for losses of $11,337; $10,192; and $6,890, respectively)	$	31,503,088	$	28,561,670	$	21,390,845
FFELP Consolidation Loans (net of allowance for losses of $12,746; $12,087; and $10,090 respectively)		68,109,269		66,170,098		54,054,932
Private Education Loans (net of allowance for losses of $427,904; $369,072; and $251,582, respectively)		11,013,668		9,849,481		6,832,843
Other loans (net of allowance for losses of $19,989; $19,803; and $15,190, respectively)		1,178,052		1,350,416		1,050,632
Cash and investments		4,565,606		6,116,168		6,204,462
Restricted cash and investments		4,300,826		3,719,020		3,489,542
Retained Interest in off-balance sheet securitized loans		3,448,045		3,643,322		3,151,855
Goodwill and acquired intangible assets, net		1,356,620		1,364,016		1,080,703
Other assets		7,327,108		6,102,275		4,650,851

Total assets	$	132,802,282	$	126,876,466	$	101,906,665


Liabilities
Short-term borrowings	$	9,758,465	$	4,428,980	$	3,801,266
Long-term borrowings		114,365,577		114,070,797		90,506,785
Other liabilities		3,320,098		3,990,878		3,229,477

Total liabilities		127,444,140		122,490,655		97,537,528

Commitments and contingencies
Minority interest in subsidiaries		10,081		9,029		9,369
Stockholders’ equity
Preferred stock, par value $.20 per share, 20,000 shares authorized; Series A: 3,300; 3,300; and 3,300 shares, respectively, issued at stated value of $50 per share; Series B: 4,000; 4,000; and 4,000 shares, respectively, issued at stated value of $100 per share		565,000		565,000		565,000
Common stock, par value $.20 per share, 1,125,000 shares authorized: 436,095; 434,587; and 430,753 shares, respectively, issued		87,219		86,918		86,151
Additional paid-in capital		2,721,554		2,638,334		2,440,565
Accumulated other comprehensive income, net of tax		265,388		300,884		370,204
Retained earnings		2,790,674		1,833,359		1,775,948

Stockholders’ equity before treasury stock		6,429,835		5,424,495		5,237,868
Common stock held in treasury: 23,477; 22,650; and 19,078 shares, respectively		1,081,774		1,047,713		878,100

Total stockholders’ equity		5,348,061		4,376,782		4,359,768

Total liabilities and stockholders’ equity	$	132,802,282	$	126,876,466	$	101,906,665

SLM CORPORATION

Consolidated Statements of Income

(In thousands, except per share amounts)


	Quarters ended									Six months ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2007			2007			2006			2007			2006
	(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)

Interest income:
FFELP Stafford and Other Student Loans	$	511,300		$	450,762		$	337,090		$	962,062		$	635,590
FFELP Consolidation Loans		1,087,254			1,014,846			841,591			2,102,100			1,662,926
Private Education Loans		329,351			338,421			233,696			667,772			475,049
Other loans		26,453			27,973			23,541			54,426			46,848
Cash and investments		141,524			113,904			124,954			255,428			220,764

Total interest income		2,095,882			1,945,906			1,560,872			4,041,788			3,041,177
Total interest expense		1,697,229			1,532,090			1,204,067			3,229,319			2,296,851

Net interest income		398,653			413,816			356,805			812,469			744,326
Less: provisions for losses		148,200			150,330			67,396			298,530			127,715

Net interest income after provisions for losses		250,453			263,486			289,409			513,939			616,611

Other income:
Gains on student loan securitizations		—			367,300			671,262			367,300			701,285
Servicing and securitization revenue		132,987			251,938			82,842			384,925			181,773
Losses on securities, net		(10,921	)		(30,967	)		(8,524	)		(41,888	)		(11,472	)
Gains (losses) on derivative and hedging activities, net		821,566			(356,969	)		122,719			464,597			35,980
Guarantor servicing fees		30,273			39,241			33,256			69,514			60,163
Debt management fees		80,237			87,322			90,161			167,559			181,773
Collections revenue		77,092			65,562			67,357			142,654			124,038
Other		89,004			96,433			75,081			185,437			146,457

Total other income		1,220,238			519,860			1,134,154			1,740,098			1,419,997
Operating expenses		398,800			356,174			316,602			754,974			639,911

Income before income taxes and minority interest in net earnings of subsidiaries		1,071,891			427,172			1,106,961			1,499,063			1,396,697
Income taxes		104,724			310,014			381,828			414,738			518,873

Income before minority interest in net earnings of subsidiaries		967,167			117,158			725,133			1,084,325			877,824
Minority interest in net earnings of subsidiaries		696			1,005			1,355			1,701			2,445

Net income		966,471			116,153			723,778			1,082,624			875,379
Preferred stock dividends		9,156			9,093			8,787			18,249			17,088

Net income attributable to common stock	$	957,315		$	107,060		$	714,991		$	1,064,375		$	858,291

Basic earnings per common share	$	2.32		$	.26		$	1.74		$	2.59		$	2.08

Average common shares outstanding		411,870			411,040			410,957			411,457			411,811

Diluted earnings per common share	$	1.03		$	.26		$	1.52		$	1.82		$	1.96

Average common and common equivalent shares outstanding		452,406			418,449			454,314			454,139			453,803

Dividends per common share	$	—		$	.25		$	.25		$	.25		$	.47

SLM CORPORATION

Segment and “Core Earnings”

Consolidated Statements of Income

(In thousands)


	Quarter ended June 30, 2007
						Corporate			Total “Core					Total
	Lending		DMO			and Other			Earnings”		Adjustments			GAAP
	(unaudited)

Interest income:
FFELP Stafford and Other Student Loans	$	718,624	$	—		$	—		$	718,624	$	(207,324	)	$	511,300
FFELP Consolidation Loans		1,391,015		—			—			1,391,015		(303,761	)		1,087,254
Private Education Loans		692,499		—			—			692,499		(363,148	)		329,351
Other loans		26,453		—			—			26,453		—			26,453
Cash and investments		182,644		—			7,197			189,841		(48,317	)		141,524

Total interest income		3,011,235		—			7,197			3,018,432		(922,550	)		2,095,882
Total interest expense		2,371,441		6,612			5,425			2,383,478		(686,249	)		1,697,229

Net interest income (loss)		639,794		(6,612	)		1,772			634,954		(236,301	)		398,653
Less: provisions for losses		246,981		—			—			246,981		(98,781	)		148,200

Net interest income (loss) after provisions for losses		392,813		(6,612	)		1,772			387,973		(137,520	)		250,453
Fee income		—		80,233			30,273			110,506		4			110,510
Collections revenue		—		77,412			—			77,412		(320	)		77,092
Other income		59,458		—			48,141			107,599		925,037			1,032,636

Total other income		59,458		157,645			78,414			295,517		924,721			1,220,238
Operating expenses⁽¹⁾		181,650		96,307			104,432			382,389		16,411			398,800

Income (loss) before income taxes and minority interest in net earnings of subsidiaries		270,621		54,726			(24,246	)		301,101		770,790			1,071,891
Income tax expense (benefit)⁽²⁾		100,130		20,248			(8,971	)		111,407		(6,683	)		104,724
Minority interest in net earnings of subsidiaries		—		696			—			696		—			696

Net income (loss)	$	170,491	$	33,782		$	(15,275	)	$	188,998	$	777,473		$	966,471


⁽¹⁾		Operating expenses for the Lending, DMO, and Corporate and Other business segments include $13 million, $4 million, and $6 million, respectively, of stock option compensation expense.

⁽²⁾		Income taxes are based on a percentage of net income before tax for the individual reportable segment.


	Quarter ended March 31, 2007
						Corporate			Total “Core					Total
	Lending		DMO			and Other			Earnings”		Adjustments			GAAP
	(unaudited)

Interest income:
FFELP Stafford and Other Student Loans	$	695,353	$	—		$	—		$	695,353	$	(244,591	)	$	450,762
FFELP Consolidation Loans		1,331,235		—			—			1,331,235		(316,389	)		1,014,846
Private Education Loans		657,584		—			—			657,584		(319,163	)		338,421
Other loans		27,973		—			—			27,973		—			27,973
Cash and investments		161,677		—			2,135			163,812		(49,908	)		113,904

Total interest income		2,873,822		—			2,135			2,875,957		(930,051	)		1,945,906
Total interest expense		2,220,136		6,687			5,568			2,232,391		(700,301	)		1,532,090

Net interest income (loss)		653,686		(6,687	)		(3,433	)		643,566		(229,750	)		413,816
Less: provisions for losses		197,930		—			606			198,536		(48,206	)		150,330

Net interest income (loss) after provisions for losses		455,756		(6,687	)		(4,039	)		445,030		(181,544	)		263,486
Fee income		—		87,326			39,241			126,567		(4	)		126,563
Collections revenue		—		65,322			—			65,322		240			65,562
Other income		44,418		—			51,317			95,735		232,000			327,735

Total other income		44,418		152,648			90,558			287,624		232,236			519,860
Operating expenses⁽¹⁾		171,563		93,248			67,505			332,316		23,858			356,174

Income before income taxes and minority interest in net earnings of subsidiaries		328,611		52,713			19,014			400,338		26,834			427,172
Income tax expense⁽²⁾		121,586		19,504			7,035			148,125		161,889			310,014
Minority interest in net earnings of subsidiaries		—		1,005			—			1,005		—			1,005

Net income	$	207,025	$	32,204		$	11,979		$	251,208	$	(135,055	)	$	116,153


⁽¹⁾		Operating expenses for the Lending, DMO, and Corporate and Other business segments include $9 million, $3 million, and $4 million, respectively, of stock option compensation expense.

⁽²⁾		Income taxes are based on a percentage of net income before tax for the individual reportable segment.


	Quarter ended June 30, 2006
						Corporate			Total “Core					Total
	Lending		DMO			and Other			Earnings”		Adjustments			GAAP
	(unaudited)

Interest income:
FFELP Stafford and Other Student Loans	$	718,909	$	—		$	—		$	718,909	$	(381,819	)	$	337,090
FFELP Consolidation Loans		1,114,355		—			—			1,114,355		(272,764	)		841,591
Private Education Loans		485,429		—			—			485,429		(251,733	)		233,696
Other loans		23,541		—			—			23,541		—			23,541
Cash and investments		169,877		—			659			170,536		(45,582	)		124,954

Total interest income		2,512,111		—			659			2,512,770		(951,898	)		1,560,872
Total interest expense		1,903,523		5,466			1,345			1,910,334		(706,267	)		1,204,067

Net interest income (loss)		608,588		(5,466	)		(686	)		602,436		(245,631	)		356,805
Less: provisions for losses		60,009		—			(32	)		59,977		7,419			67,396

Net interest income (loss) after provisions for losses		548,579		(5,466	)		(654	)		542,459		(253,050	)		289,409
Fee income		—		90,161			33,256			123,417		—			123,417
Collections revenue		—		67,213			—			67,213		144			67,357
Other income		50,771		—			24,338			75,109		868,271			943,380

Total other income		50,771		157,374			57,594			265,739		868,415			1,134,154
Operating expenses⁽¹⁾		163,162		85,110			50,235			298,507		18,095			316,602

Income before income taxes and minority interest in net earnings of subsidiaries		436,188		66,798			6,705			509,691		597,270			1,106,961
Income tax expense⁽²⁾		161,391		24,715			2,480			188,586		193,242			381,828
Minority interest in net earnings of subsidiaries		—		1,355			—			1,355		—			1,355

Net income	$	274,797	$	40,728		$	4,225		$	319,750	$	404,028		$	723,778


⁽¹⁾		Operating expenses for the Lending, DMO, and Corporate and Other business segments include $8 million, $2 million, and $4 million, respectively, of stock option compensation expense.

⁽²⁾		Income taxes are based on a percentage of net income before tax for the individual reportable segment.


	Six months ended June 30, 2007
						Corporate			Total “Core					Total
	Lending		DMO			and Other			Earnings”		Adjustments			GAAP
	(unaudited)

Interest income:
FFELP Stafford and Other Student Loans	$	1,413,977	$	—		$	—		$	1,413,977	$	(451,915	)	$	962,062
FFELP Consolidation Loans		2,722,250		—			—			2,722,250		(620,150	)		2,102,100
Private Education Loans		1,350,083		—			—			1,350,083		(682,311	)		667,772
Other loans		54,426		—			—			54,426		—			54,426
Cash and investments		344,321		—			9,332			353,653		(98,225	)		255,428

Total interest income		5,885,057		—			9,332			5,894,389		(1,852,601	)		4,041,788
Total interest expense		4,591,577		13,299			10,993			4,615,869		(1,386,550	)		3,229,319

Net interest income (loss)		1,293,480		(13,299	)		(1,661	)		1,278,520		(466,051	)		812,469
Less: provisions for losses		444,911		—			606			445,517		(146,987	)		298,530

Net interest income (loss) after provisions for losses		848,569		(13,299	)		(2,267	)		833,003		(319,064	)		513,939
Fee income		—		167,559			69,514			237,073		—			237,073
Collections revenue		—		142,734			—			142,734		(80	)		142,654
Other income		103,876		—			99,458			203,334		1,157,037			1,360,371

Total other income		103,876		310,293			168,972			583,141		1,156,957			1,740,098
Operating expenses⁽¹⁾		353,213		189,555			171,937			714,705		40,269			754,974

Income (loss) before income taxes and minority interest in net earnings of subsidiaries		599,232		107,439			(5,232	)		701,439		797,624			1,499,063
Income tax expense (benefit)⁽²⁾		221,716		39,752			(1,936	)		259,532		155,206			414,738
Minority interest in net earnings of subsidiaries		—		1,701			—			1,701		—			1,701

Net income (loss)	$	377,516	$	65,986		$	(3,296	)	$	440,206	$	642,418		$	1,082,624


⁽¹⁾		Operating expenses for the Lending, DMO, and Corporate and Other business segments include $22 million, $7 million, and $10 million, respectively, of stock option compensation expense.

⁽²⁾		Income taxes are based on a percentage of net income before tax for the individual reportable segment.


	Six months ended June 30, 2006
						Corporate			Total “Core					Total
	Lending		DMO			and Other			Earnings”		Adjustments			GAAP
	(unaudited)

Interest income:
FFELP Stafford and Other Student Loans	$	1,368,660	$	—		$	—		$	1,368,660	$	(733,070	)	$	635,590
FFELP Consolidation Loans		2,142,317		—			—			2,142,317		(479,391	)		1,662,926
Private Education Loans		914,189		—			—			914,189		(439,140	)		475,049
Other loans		46,848		—			—			46,848		—			46,848
Cash and investments		300,338		—			1,982			302,320		(81,556	)		220,764

Total interest income		4,772,352		—			1,982			4,774,334		(1,733,157	)		3,041,177
Total interest expense		3,562,895		10,622			2,623			3,576,140		(1,279,289	)		2,296,851

Net interest income (loss)		1,209,457		(10,622	)		(641	)		1,198,194		(453,868	)		744,326
Less: provisions for losses		134,829		—			(13	)		134,816		(7,101	)		127,715

Net interest income (loss) after provisions for losses		1,074,628		(10,622	)		(628	)		1,063,378		(446,767	)		616,611
Fee income		—		181,773			60,163			241,936		—			241,936
Collections revenue		—		123,753			—			123,753		285			124,038
Other income		91,343		—			54,347			145,690		908,333			1,054,023

Total other income		91,343		305,526			114,510			511,379		908,618			1,419,997
Operating expenses⁽¹⁾		324,600		174,623			108,747			607,970		31,941			639,911

Income before income taxes and minority interest in net earnings of subsidiaries		841,371		120,281			5,135			966,787		429,910			1,396,697
Income tax expense⁽²⁾		311,308		44,504			1,899			357,711		161,162			518,873
Minority interest in net earnings of subsidiaries		—		2,445			—			2,445		—			2,445

Net income	$	530,063	$	73,332		$	3,236		$	606,631	$	268,748		$	875,379


⁽¹⁾		Operating expenses for the Lending, DMO, and Corporate and Other business segments include $18 million, $5 million, and $9 million, respectively, of stock option compensation expense.

⁽²⁾		Income taxes are based on a percentage of net income before tax for the individual reportable segment.

SLM CORPORATION

Reconciliation of “Core Earnings” Net Income to GAAP Net Income

(In thousands, except per share amounts)


	Quarters ended									Six months ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2007			2007			2006			2007			2006
	(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)

“Core Earnings” net income^(A)	$	188,998		$	251,208		$	319,750		$	440,206		$	606,631
“Core Earnings” adjustments:
Net impact of securitization accounting		(15,071	)		421,485			503,083			406,414			441,022
Net impact of derivative accounting		841,564			(331,724	)		164,678			509,840			125,861
Net impact of Floor Income		(39,246	)		(39,021	)		(52,333	)		(78,267	)		(104,902	)
Net impact of acquired intangibles^(B)		(16,457	)		(23,906	)		(18,158	)		(40,363	)		(32,071	)

Total “Core Earnings” adjustments before income taxes and minority interest in net earnings of subsidiaries		770,790			26,834			597,270			797,624			429,910
Net tax effect^(C)		6,683			(161,889	)		(193,242	)		(155,206	)		(161,162	)

Total “Core Earnings” adjustments		777,473			(135,055	)		404,028			642,418			268,748

GAAP net income	$	966,471		$	116,153		$	723,778		$	1,082,624		$	875,379

GAAP diluted earnings per common share	$	1.03		$	.26		$	1.52		$	1.82		$	1.96



^(A) “Core Earnings” diluted earnings per common share	$	.43		$	.57		$	.72		$	.99		$	1.37


^(B)		Represents goodwill and intangible impairment and the amortization of acquired intangibles.

^(C)		Such tax effect is based upon the Company’s “Core Earnings” effective tax rate for the year. The net tax effect results primarily from the exclusion of the permanent income tax impact of the equity forward contracts.

“Core Earnings”

In accordance with the Rules and Regulations of the Securities and Exchange Commission (“SEC”), we prepare financial statements in accordance with generally accepted accounting principles in the United States of America (“GAAP”). In addition to evaluating the Company’s GAAP-based financial information, management evaluates the Company’s business segments on a basis that, as allowed under SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” differs from GAAP. We refer to management’s basis of evaluating our segment results as “Core Earnings” presentations for each business segment and we refer to this information in our presentations with credit rating agencies and lenders. While “Core Earnings” are not a substitute for reported results under GAAP, we rely on “Core Earnings” to manage each operating segment because we believe these measures provide additional information regarding the operational and performance indicators that are most closely assessed by management.

Our “Core Earnings” are not defined terms within GAAP and may not be comparable to similarly titled measures reported by other companies. “Core Earnings” net income reflects only current period adjustments to GAAP net income as described below. Unlike financial accounting, there is no comprehensive, authoritative guidance for management reporting and as a result, our management reporting is not necessarily comparable with similar information for any other financial institution. Our operating segments are defined by the products and services they offer or the types of customers they serve, and they reflect the manner in which financial information is currently evaluated by management. Intersegment revenues and expenses are netted within the appropriate financial statement line items consistent with the income statement presentation provided to

management. Changes in management structure or allocation methodologies and procedures may result in changes in reported segment financial information. A more detailed discussion of the differences between GAAP and “Core Earnings” follows.

Limitations of “Core Earnings”

While GAAP provides a uniform, comprehensive basis of accounting, for the reasons described above, management believes that “Core Earnings” are an important additional tool for providing a more complete understanding of the Company’s results of operations. Nevertheless, “Core Earnings” are subject to certain general and specific limitations that investors should carefully consider. For example, as stated above, unlike financial accounting, there is no comprehensive, authoritative guidance for management reporting. Our “Core Earnings” are not defined terms within GAAP and may not be comparable to similarly titled measures reported by other companies. Unlike GAAP, “Core Earnings” reflect only current period adjustments to GAAP. Accordingly, the Company’s “Core Earnings” presentation does not represent a comprehensive basis of accounting. Investors, therefore, may not compare our Company’s performance with that of other financial services companies based upon “Core Earnings.” “Core Earnings” results are only meant to supplement GAAP results by providing additional information regarding the operational and performance indicators that are most closely used by management, the Company’s board of directors, rating agencies and lenders to assess performance.

Other limitations arise from the specific adjustments that management makes to GAAP results to derive “Core Earnings” results. For example, in reversing the unrealized gains and losses that result from SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” on derivatives that do not qualify for “hedge treatment,” as well as on derivatives that do qualify but are in part ineffective because they are not perfect hedges, we focus on the long-term economic effectiveness of those instruments relative to the underlying hedged item and isolate the effects of interest rate volatility, changing credit spreads and changes in our stock price on the fair value of such instruments during the period. Under GAAP, the effects of these factors on the fair value of the derivative instruments (but not on the underlying hedged item) tend to show more volatility in the short term. While our presentation of our results on a “Core Earnings” basis provides important information regarding the performance of our Managed portfolio, a limitation of this presentation is that we are presenting the ongoing spread income on loans that have been sold to a trust managed by us. While we believe that our “Core Earnings” presentation presents the economic substance of our Managed loan portfolio, it understates earnings volatility from securitization gains. Our “Core Earnings” results exclude certain Floor Income, which is real cash income, from our reported results and therefore may understate earnings in certain periods. Management’s financial planning and valuation of operating results, however, does not take into account Floor Income because of its inherent uncertainty, except when it is economically hedged through Floor Income Contracts.

Pre-Tax Differences between “Core Earnings” and GAAP

Our “Core Earnings” are the primary financial performance measures used by management to evaluate performance and to allocate resources. Accordingly, financial information is reported to management on a “Core Earnings” basis by reportable segment, as these are the measures used regularly by our chief operating decision maker. Our “Core Earnings” are used in developing our financial plans and tracking results, and also in establishing corporate performance targets and determining incentive compensation. Management believes this information provides additional insight into the financial performance of the Company’s core business activities. “Core Earnings” net income reflects only current period adjustments to GAAP net income, as described in the more detailed discussion of the differences between “Core Earnings” and GAAP that follows, which includes further detail on each specific adjustment required to reconcile our “Core Earnings” segment presentation to our GAAP earnings.


	1)	Securitization Accounting: Under GAAP, certain securitization transactions in our Lending operating segment are accounted for as sales of assets. Under “Core Earnings” for the Lending operating segment, we present all securitization transactions on a “Core Earnings” basis as long-term non-recourse financings. The upfront “gains” on sale from securitization transactions as well as ongoing


		“servicing and securitization revenue” presented in accordance with GAAP are excluded from “Core Earnings” and are replaced by the interest income, provisions for loan losses, and interest expense as they are earned or incurred on the securitization loans. We also exclude transactions with our off-balance sheet trusts from “Core Earnings” as they are considered intercompany transactions on a “Core Earnings” basis.


	2)	Derivative Accounting: “Core Earnings” exclude periodic unrealized gains and losses arising primarily in our Lending operating segment, and to a lesser degree in our Corporate and Other reportable segment, that are caused primarily by the one-sided mark-to-market derivative valuations prescribed by SFAS No. 133 on derivatives that do not qualify for “hedge treatment” under GAAP. In our “Core Earnings” presentation, we recognize the economic effect of these hedges, which generally results in any cash paid or received being recognized ratably as an expense or revenue over the hedged item’s life. “Core Earnings” also exclude the gain or loss on equity forward contracts that under SFAS No. 133, are required to be accounted for as derivatives and are marked-to-market through earnings.

	3)	Floor Income: The timing and amount (if any) of Floor Income earned in our Lending operating segment is uncertain and in excess of expected spreads. Therefore, we exclude such income from “Core Earnings” when it is not economically hedged. We employ derivatives, primarily Floor Income Contracts and futures, to economically hedge Floor Income. As discussed above in “Derivative Accounting,” these derivatives do not qualify as effective accounting hedges, and therefore, under GAAP, they are marked-to-market through the “gains (losses) on derivative and hedging activities, net” line on the income statement with no offsetting gain or loss recorded for the economically hedged items. For “Core Earnings,” we reverse the fair value adjustments on the Floor Income Contracts and futures economically hedging Floor Income and include the amortization of net premiums received in income.

	4)	Acquired Intangibles: Our “Core Earnings” exclude goodwill and intangible impairment and the amortization of acquired intangibles.

exv99w2

Exhibit 99.2

SLM CORPORATION

SUPPLEMENTAL FINANCIAL INFORMATION

SECOND QUARTER 2007

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

The following supplemental information should be read in connection with SLM Corporation’s (the “Company’s”) press release of second quarter 2007 earnings, dated July 17, 2007.

This Supplemental Financial Information release contains forward-looking statements and information that are based on management’s current expectations as of the date of this document. When used in this report, the words “anticipate,” “believe,” “estimate,” “intend” and “expect” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to risks, uncertainties, assumptions and other factors that may cause the actual results to be materially different from those reflected in such forward-looking statements. These factors include, among others, the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement (see “RECENT DEVELOPMENTS” that describes the definitive agreement (“Merger Agreement”) for an investor group (“Investor Group”) led by J.C. Flowers & Co. (“J.C. Flowers”) to acquire the Company (“the Merger”)); the outcome of any legal proceedings that may be instituted against us and others relating to the Merger Agreement; the inability to complete the Merger due to the failure to obtain shareholder approval or the failure to satisfy other conditions to completion of the Merger; the failure to obtain the necessary debt financing arrangements set forth in commitment letters received in connection with the Merger; the effect of the announcement of the Merger on our customer relationships, operating results and business generally; the amount of the costs, fees, expenses and charges related to the Merger and the actual terms of certain financings that will be obtained for the Merger; the impact of the substantial indebtedness incurred to finance the consummation of the Merger; changes in the terms of student loans and the educational credit marketplace arising from the implementation of applicable laws and regulations and from changes in these laws and regulations, which may reduce the volume, average term and yields on student loans under the Federal Family Education Loan Program (“FFELP”) or result in loans being originated or refinanced under non-FFELP programs or may affect the terms upon which banks and others agree to sell FFELP loans to SLM Corporation, more commonly known as Sallie Mae, and its subsidiaries (collectively, “the Company”). In addition, a larger than expected increase in third party consolidations of our FFELP loans could materially adversely affect our results of operations. The Company could also be affected by changes in the demand for educational financing or in financing preferences of lenders, educational institutions, students and their families; incorrect estimates or assumptions by management in connection with the preparation of our consolidated financial statements; changes in the composition of our Managed FFELP and Private Education Loan portfolios; a significant decrease in our common stock price, which may result in counterparties terminating equity forward positions with us, which, in turn, could have a materially dilutive effect on our common stock; changes in the general interest rate environment and in the securitization markets for education loans, which may increase the costs or limit the availability of financings necessary to initiate, purchase or carry education loans; losses from loan defaults; changes in prepayment rates and credit spreads; and changes in the demand for debt management services and new laws or changes in existing laws that govern debt management services.

Definitions for capitalized terms in this document can be found in the Company’s 2006 Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 1, 2007.

Certain reclassifications have been made to the balances as of and for the quarter and six months ended June 30, 2006, to be consistent with classifications adopted for the quarter ended June 30, 2007.

Comments on Second Quarter “Core Earnings” Results:

Our “Core Earnings” diluted earnings per common share of $.43 for the second quarter fell short of our goals. Expenses related to the sale of the Company reduced diluted earnings per common share by approximately $.08 per share. The remainder of the shortfall was driven almost entirely by loan losses in our Private Education Loan portfolio. Net charge-offs totaled $108 million or 3.5 percent of our loans in repayment on an annual basis. As a result, the Company booked a provision for Private Education Loan losses of $234 million, nearly $150 million of which will build our reserve to cover an expected run rate in our net charge-offs of 2.5 percent to 3.0 percent over the next several years. Our reserve currently stands at $611 million — an amount equivalent to approximately 5 percent of our loans in repayment, which we expect to be sufficient for expected future charge-offs.

For the last several years, we have experienced historic low levels of charge-offs that were below 2 percent. During the latter half of 2006, we disclosed to our shareholders that we believed that, as our portfolio seasoned, our charge-offs would rise toward 2.5 percent, a level consistent with our underwriting models. However, our actual charge-offs have been above this rate due in part to operational challenges including moving our primary pre-default collection facility from Nevada to Indiana in late 2006. We have aggressively addressed these issues in the last six months and believe that we are resolving them. We have witnessed improvement in delinquencies for the last two quarters. We therefore expect charge-offs to decline and ultimately settle below 3 percent.

These issues overshadowed our strong loan origination performance, the key to future earnings growth. Our Preferred Channel Originations grew a solid 13 percent in the quarter compared to the year-ago quarter. Our internal brands grew nearly 40 percent compared to the year-ago quarter and accounted for more than two-thirds of our loan originations. Our direct-to-consumer private loans grew 83 percent in the quarter. Private Education Loan originations in the important undergraduate segment of traditional colleges and universities grew a strong 10 percent. Growth in Grad PLUS loans more than offset the decline we witnessed in our graduate Private Education Loan business. This strong performance was instrumental in driving our Managed asset growth of 18 percent year-over-year.

Our second quarter performance played out against the backdrop of political debates in Washington about the federal student loan program. Sallie Mae supports efforts underway in Congress that would increase college access for needy students, such as increased Pell Grant funding. However, we do not support the size of the subsidy cuts to the student loan program contained in various legislative proposals, including HR 2669 which passed the U.S. House of Representatives on July 11. Rather than help low and middle-income students reach college, we believe cuts of this magnitude will raise costs for middle class students and families, reduce services available to them, and limit their choice of lenders.

Despite the sensational headlines surrounding the student loan industry this year, we continue to increase our support for students and families on campuses across the nation for the academic year that just began. Stafford loan limit increases for freshmen and sophomores went into effect just three weeks ago and will support our Managed asset growth for the remainder of the year.

As we have stated earlier, growth in our student loan collection business will be pressured this year by legislation passed in 2006. However, the inventory of third-party defaulted student loans that our contingent collection centers are working on is up over 20 percent from a year-ago, which bodes very well for future revenue growth.

We have been through a challenging time for our industry. We are proud that Sallie Mae’s business practices held up very well under intense scrutiny.

RESULTS OF OPERATIONS

The following table presents the statements of income for the quarters ended June 30, 2007, March 31, 2007, and June 30, 2006, and for the six months ended June 30, 2007 and 2006.

Statements of Income


	Quarters ended									Six Months ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2007			2007			2006			2007			2006
	(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)

Interest income:
FFELP Stafford and Other Student Loans	$	511		$	451		$	337		$	962		$	635
FFELP Consolidation Loans		1,087			1,015			841			2,102			1,663
Private Education Loans		329			338			234			668			475
Other loans		27			28			24			54			47
Cash and investments		142			114			125			256			221

Total interest income		2,096			1,946			1,561			4,042			3,041
Total interest expense		1,697			1,532			1,204			3,229			2,296

Net interest income		399			414			357			813			745
Less: provisions for losses		148			150			68			299			128

Net interest income after provisions for losses		251			264			289			514			617

Other income:
Gains on student loan securitizations		—			367			671			367			701
Servicing and securitization revenue		133			252			83			385			182
Losses on securities, net		(11	)		(31	)		(8	)		(42	)		(12	)
Gains (losses) on derivative and hedging activities, net		822			(357	)		123			465			36
Guarantor servicing fees		30			39			33			70			60
Debt management fees		80			87			90			166			182
Collections revenue		77			66			67			143			124
Other		89			96			75			186			147

Total other income		1,220			519			1,134			1,740			1,420
Operating expenses		399			356			316			755			640

Income before income taxes and minority interest in net earnings of subsidiaries		1,072			427			1,107			1,499			1,397
Income taxes⁽¹⁾		105			310			382			415			519

Income before minority interest in net earnings of subsidiaries		967			117			725			1,084			878
Minority interest in net earnings of subsidiaries		1			1			1			2			3

Net income		966			116			724			1,082			875

Preferred stock dividends		9			9			9			18			17

Net income attributable to common stock	$	957		$	107		$	715		$	1,064		$	858

Diluted earnings per common share⁽²⁾	$	1.03		$	.26		$	1.52		$	1.82		$	1.96

⁽¹⁾ Income tax expense includes the permanent tax impact of excluding gains and losses from equity forward contracts from taxable income.


⁽²⁾ Impact of Co-Cos on diluted earnings per common share	$	(.03	)	$	—	^(A)	$	(.08	)	$	(.05	)	$	(.07	)

^(A) There is no impact on diluted earnings per common share because the effect of the assumed conversion is antidilutive.

DISCUSSION OF RESULTS OF OPERATIONS

Consolidated Earnings Summary

Three Months Ended June 30, 2007 Compared to Three Months Ended March 31, 2007

For the three months ended June 30, 2007, net income was $966 million ($1.03 diluted earnings per share), an increase of $850 million from the $116 million in net income ($.26 diluted earnings per share) for the three months ended March 31, 2007. On a pre-tax basis, second quarter 2007 net income of $1.1 billion was a $645 million increase over the $427 million in pre-tax income earned in the first quarter of 2007. The larger percentage increase in quarter-over-quarter, after-tax net income versus pre-tax net income is driven by the permanent tax impact of excluding non-taxable gains and losses on equity forward contracts in the Company’s stock from taxable income. Under the Financial Accounting Standards Board’s (“FASB’s”) Statement of Financial Accounting Standards (“SFAS”) No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” we are required to mark the equity forward contracts to market each quarter and recognize the change in their value in income. Conversely, these gains and losses are not recognized on a tax basis. In the second quarter of 2007, an increase in the Company’s stock price resulted in an unrealized gain on our outstanding equity forward contracts of $796 million, versus an unrealized loss of $412 million in the first quarter of 2007. Excluding these gains and losses from taxable income reduced the effective tax rate from 73 percent in the first quarter of 2007 to 10 percent in the second quarter of 2007. In addition, these unrealized gains on our dilutive equity forward contracts are reversed in the calculation of GAAP diluted earnings per share, resulting in a $1.21 reduction in the second quarter of 2007 diluted earnings per share.

The increase in the pre-tax results of the second quarter of 2007 versus the first quarter of 2007 is primarily due to a $1.2 billion increase in the net gains (losses) on derivative and hedging activities. The increase in net gains and losses on derivative and hedging activities is primarily due to the second quarter 2007 unrealized gain on equity forward contracts, as discussed above.

These gains were partially offset by a decrease in securitization gains of $367 million in the second quarter of 2007, as we had no off-balance sheet securitizations during the period, versus one Private Education Loan securitization in the first quarter of 2007, which had a pre-tax securitization gain of $367 million. Also, in the second quarter of 2007, our servicing and securitization revenue decreased by $119 million from $252 million in the first quarter of 2007 to $133 million for the second quarter of 2007. This is primarily due to a second quarter decrease of $22 million versus a first quarter increase of $79 million in the unrealized fair value adjustment to our Residual Interests that we account for under SFAS No. 155 “Accounting for Certain Hybrid Financial Instruments” (adopted in the first quarter of 2007) whereby we carry the Residual Interest at fair value and record changes to fair value through earnings. Also contributing to the decrease was a $24 million increase in impairment losses to our Retained Interests.

Net interest income after provisions for loan losses decreased by $13 million versus the first quarter. The decrease is primarily due to the $15 million decrease in net interest income, offset by a $2 million decrease in the provisions for losses. The decrease in net interest income is primarily due to $14 million in interim financing costs (commitment and liquidity fees) associated with the Merger (see “RECENT DEVELOPMENTS — Merger-Related Developments — Financing Considerations Related to the Transaction”) and to a decrease in the student loan spread (see “NET INTEREST INCOME — Student Loan Spread”). Offsetting these decreases was an increase of $9.2 billion in the average balance of on-balance sheet interest earning assets.

Operating expenses for the second quarter of 2007 include $37 million in other Merger-related costs.

In the second quarter of 2007, our Managed student loan portfolio grew by $3.2 billion or 2 percent over the first quarter and totaled $153.2 billion at June 30, 2007. During the second quarter, we acquired $8.4 billion in student loans, including $1.7 billion in Private Education Loans. In the first quarter of 2007, we acquired $12.5 billion in student loans, including $2.4 billion in Private Education Loans. In the second quarter of 2007, we originated $3.6 billion of student loans through our Preferred Channel compared to $8.0 billion originated in the first quarter of 2007. Within our second quarter Preferred Channel Originations, $2.4 billion

or 68 percent were originated under Sallie Mae owned brands, compared to 60 percent in the prior quarter. The quarter-over-quarter decrease in acquisitions and Preferred Channel Originations was due to the seasonality of student lending.

Three Months Ended June 30, 2007 Compared to Three Months Ended June 30, 2006

For the three months ended June 30, 2007, net income of $966 million ($1.03 diluted earnings per share) was an increase of $242 million from net income of $724 million ($1.52 diluted earnings per share) for the three months ended June 30, 2006. Second quarter 2007 pre-tax income was $1.1 billion versus $1.1 billion earned in the second quarter of 2006. The increase in current quarter over year-ago quarter, after-tax net income versus no change in the pre-tax net income is driven by fluctuations in the unrealized gains and losses on equity forward contracts as described above. Excluding the unrealized gain on equity forward contracts of $796 million in the second quarter of 2007 and $39 million in the second quarter of 2006, taxable income reduced the effective tax rate from 35 percent in the second quarter of 2006 to 10 percent in the second quarter of 2007.

The year-over-year increase of $699 million in net gains on derivative and hedging activities is primarily due to the $757 million increase in the unrealized gains on equity forward contracts as discussed above, partially offset by negative impact from basis swaps which fluctuated from an unrealized gain of $14 million in the second quarter of 2006 to an unrealized loss of $38 million in the second quarter of 2007.

Offsetting the gains discussed above, was a decrease in securitization gains of $671 million in the second quarter of 2007 versus the year-ago quarter. In the second quarter of 2007, we did not complete an off-balance sheet securitization and as a result we did not recognize any securitization gains. In the year-ago quarter, we recognized pre-tax securitization gains of $671 million, which were primarily caused by a pre-tax gain of $648 million from two Private Education Loan securitizations.

In the second quarter of 2007, servicing and securitization income was $133 million, a $50 million increase over the year-ago quarter. This increase can primarily be attributed to $56 million decrease in impairments to our Retained Interests.

Net interest income after provisions for loan losses decreased by $38 million versus the second quarter of 2006. The decrease is due to the year-over-year increase in the provision for Private Education Loan losses of $80 million, which offset the year-over-year $42 million increase in net interest income. The increase in the provision predominantly reflects a further seasoning and mix of the portfolio and an increase in delinquencies and charge-offs related in part to operational challenges encountered from a call center move. These same factors affecting the provision, also have a direct impact on the student loan spread due to the related increase in our estimate of uncollectible accrued interest income. The increase in net interest income is due to a $29 billion increase in the average balance of on-balance sheet interest earning assets, which was partially offset by a 25 basis point decrease in the net interest margin. The year-over-year decrease in the net interest margin is primarily due to incurring $14 million in interim financing costs (commitment and liquidity fees) related to the Merger and a decrease in the student loan spread.

In the second quarter of 2007, fee and other income and collections revenue totaled $276 million, an increase of 4 percent over the year-ago quarter. This increase was primarily driven by revenue from Upromise, acquired in August 2006.

Our Managed student loan portfolio grew by $23.1 billion (or 18 percent), from $130.1 billion at June 30, 2006 to $153.2 billion at June 30, 2007. In the second quarter of 2007, we acquired $8.4 billion of student loans, a 6 percent increase over the $7.9 billion acquired in the year-ago period. The second quarter 2007 acquisitions included $1.7 billion in Private Education Loans, unchanged from the year-ago period. In the quarter ended June 30, 2007, we originated $3.6 billion of student loans through our Preferred Channel, an increase of 13 percent over the $3.2 billion originated in the year-ago quarter.

Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006

For the six months ended June 30, 2007, our net income increased by 24 percent to $1.1 billion ($1.82 diluted earnings per share) from net income of $875 million ($1.96 diluted earnings per share) in 2006. Pre-tax income for the six months ended June 30, 2007 increased by 7 percent to $1.5 billion versus $1.4 billion in the first six months of 2006. The larger percentage increase in year-over-year after-tax net income versus pre-tax income is driven by the permanent tax impact of excluding $384 million in unrealized equity forward gains in the six months ended June 30, 2007, versus excluding $83 million in unrealized equity forward losses in the six months ended June 30, 2006. The net effect from excluding non-taxable gains and losses on equity forward contracts from taxable income was a decrease in the effective tax rate from 37 percent in the six months ended June 30, 2006 to 28 percent in the six months ended June 30, 2007.

The $429 million increase in the gain on derivative and hedging activities primarily relates to unrealized and realized gains and losses on derivatives that do not receive hedge accounting treatment. This increase is primarily due to the increase in unrealized gains of $467 million on our equity forward contracts as discussed above.

In the first half of 2007, servicing and securitization income was $385 million, a $203 million increase over the six months ended June 30, 2006. This increase can primarily be attributed to a year-over-year decrease of $97 million in impairments to our Retained Interests. The remaining increase in securitization revenue is due to the increase of higher yielding Private Education Loan Residual Interests, and the adoption of SFAS No. 155 in the first quarter of 2007. Under SFAS No. 155, the Company has elected to recognize the unrealized fair value adjustment to our Residual Interests in earnings, related to securitizations that settled in 2007.

Securitization gains decreased by $334 million in the six months ended June 30, 2007. The securitization gains in the first half of 2007 were the result of one Private Education Loan securitization, which had a pre-tax gain of $367 million or 18.4 percent of the amount securitized. In the year-ago period, there were two Private Education Loan securitizations that had a pre-tax gain of $648 million or 16.2 percent of the amount securitized.

Net interest income after provisions for loan losses decreased by $103 million versus the six months ended June 30, 2006. The decrease is due to the year-over-year increase in the provision for Private Education Loan losses of $171 million, which offset the year-over-year $68 million increase in net interest income. The increase in the provision predominantly reflects a further seasoning and mix of the portfolio and an increase in delinquencies and charge-offs related in part to operational challenges encountered from a call center move. These same factors affecting the provision, also have a direct impact on the student loan spread due to the related increase in our estimate of uncollectible accrued interest income. The increase in net interest income is due to a $25 billion increase in the average balance of on-balance sheet interest earning assets, which was partially offset by a 23 basis point decrease in the net interest margin. The year-over-year decrease in the net interest margin is primarily due to incurring $14 million in interim financing costs (commitment and liquidity fees) related to the Merger and a decrease in the student loan spread.

Our Managed student loan portfolio grew by $23.1 billion, from $130.1 billion at June 30, 2006 to $153.2 billion at June 30, 2007. This growth was fueled by the acquisition of $20.9 billion of student loans, including $4.1 billion in Private Education Loans, in the six months ended June 30, 2007, a 27 percent increase over the $16.5 billion acquired in the year-ago period, of which $3.6 billion were Private Education Loans. In the six months ended June 30, 2007, we originated $11.6 billion of student loans through our Preferred Channel, an increase of 7 percent over the $10.8 billion originated in the year-ago period.

NET INTEREST INCOME

Average Balance Sheets

The following table reflects the rates earned on interest earning assets and paid on interest bearing liabilities for the quarters ended June 30, 2007, March 31, 2007, and June 30, 2006 and for the six months ended June 30, 2007 and 2006.


	Quarters ended
	June 30,					March 31,					June 30,
	2007					2007					2006
	Balance		Rate			Balance		Rate			Balance		Rate

Average Assets
FFELP Stafford and Other Student Loans	$	30,794		6.66	%	$	26,885		6.80	%	$	20,562		6.58	%
FFELP Consolidation Loans		67,154		6.49			63,260		6.51			52,201		6.47
Private Education Loans		10,917		12.10			11,354		12.09			7,961		11.77
Other loans		1,259		8.43			1,365		8.31			1,090		8.72
Cash and investments		9,930		5.72			7,958		5.81			8,867		5.67

Total interest earning assets		120,054		7.00	%		110,822		7.12	%		90,681		6.91	%

Non-interest earning assets		9,804					9,095					8,648

Total assets	$	129,858				$	119,917				$	99,329

Average Liabilities and Stockholders’ Equity
Short-term borrowings	$	5,215		6.75	%	$	3,220		5.89	%	$	4,393		5.07	%
Long-term borrowings		115,388		5.59			107,950		5.58			87,364		5.27

Total interest bearing liabilities		120,603		5.64	%		111,170		5.59	%		91,757		5.26	%

Non-interest bearing liabilities		4,105					4,483					3,501
Stockholders’ equity		5,150					4,264					4,071

Total liabilities and stockholders’ equity	$	129,858				$	119,917				$	99,329

Net interest margin				1.33	%				1.51	%				1.58	%


	Six months ended
	June 30,					June 30,
	2007					2006
	Balance		Rate			Balance		Rate

Average Assets
FFELP Stafford and Other Student Loans	$	28,851		6.72	%	$	20,045		6.39	%
FFELP Consolidation Loans		65,218		6.50			53,251		6.30
Private Education Loans		11,134		12.09			8,485		11.29
Other loans		1,312		8.37			1,131		8.42
Cash and investments		8,949		5.76			7,959		5.61

Total interest earning assets		115,464		7.06	%		90,871		6.75	%

Non-interest earning assets		9,451					8,307

Total assets	$	124,915				$	99,178

Average Liabilities and Stockholders’ Equity
Short-term borrowings	$	4,223		6.42	%	$	4,284		4.93	%
Long-term borrowings		111,689		5.59			87,346		5.06

Total interest bearing liabilities		115,912		5.62	%		91,630		5.05	%

Non-interest bearing liabilities		4,294					3,600
Stockholders’ equity		4,709					3,948

Total liabilities and stockholders’ equity	$	124,915				$	99,178

Net interest margin				1.42	%				1.65	%

The decrease in the net interest margin for the three months ended June 30, 2007 versus both the year-ago quarter and the preceding quarter, was primarily due to fluctuations in the student loan spread as discussed under “Student Loans — Student Loan Spread — Student Loan Spread Analysis — On-Balance Sheet.”

Student Loans

For both federally insured and Private Education Loans, we account for premiums paid, discounts received and certain origination costs incurred on the origination and acquisition of student loans in accordance with SFAS No. 91, “Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases.” The unamortized and unaccreted portion of the premiums and discounts, respectively, is included in the carrying value of the student loan on the consolidated balance sheet. We recognize income on our student loan portfolio based on the expected yield of the student loan after giving effect to the amortization of purchase premiums and the accretion of student loan discounts, as well as interest rate reductions and rebates expected to be earned through Borrower Benefits programs. Discounts on Private Education Loans are deferred and accreted to income over the lives of the student loans. In the table below, this accretion of discounts is netted with the amortization of the premiums.

Student Loan Spread

An important performance measure closely monitored by management is the student loan spread. The student loan spread is the difference between the income earned on the student loan assets and the interest paid on the debt funding those assets. A number of factors can affect the overall student loan spread such as:


	•	the mix of student loans in the portfolio, with FFELP Consolidation Loans having the lowest spread and Private Education Loans having the highest spread;

	•	the premiums paid, borrower fees charged and capitalized costs incurred to acquire student loans which impact the spread through subsequent amortization;


	•	the type and level of Borrower Benefits programs for which the student loans are eligible;

	•	the level of Floor Income and, when considering the “Core Earnings” spread, the amount of Floor Income-eligible loans that have been hedged through Floor Income Contracts; and

	•	funding and hedging costs.

The student loan spread is highly susceptible to liquidity, funding and interest rate risk. These risks are discussed separately in our 2006 Annual Report on Form 10-K at “LIQUIDITY AND CAPITAL RESOURCES” and in the “RISK FACTORS” discussion.

Effects of Floor Income and Derivative Accounting

In low interest rate environments, one of the primary drivers of fluctuations in our on-balance sheet student loan spread is the level of gross Floor Income (Floor Income earned before payments on Floor Income Contracts) earned in the period. Short-term interest rates have increased to a level that significantly reduced the level of gross Floor Income earned in the periods presented. We believe that we have economically hedged most of the Floor Income through the sale of Floor Income Contracts, under which we receive an upfront fee and agree to pay the counterparty the Floor Income earned on a notional amount of student loans. These contracts do not qualify for hedge accounting treatment and as a result the payments on the Floor Income Contracts are included on the income statement with “gains (losses) on derivative and hedging activities, net” rather than in student loan interest income.

In addition to Floor Income Contracts, we also extensively use basis swaps to manage our basis risk associated with interest rate sensitive assets and liabilities. These swaps generally do not qualify as accounting hedges and likewise, net settlements are required to be accounted for in the “gains (losses) on derivative and hedging activities, net” line on the income statement. As a result, they are not considered in the calculation of the cost of funds in the table below.

Wholesale Consolidation Loans

In the second half of 2006, we implemented a loan acquisition strategy under which we began purchasing FFELP Consolidation Loans outside of our normal origination channels, primarily via the spot market. We refer to this new loan acquisition strategy as our Wholesale Consolidation Channel. FFELP Consolidation Loans acquired through this channel are considered incremental volume to our core acquisition channels, which are focused on the retail marketplace with an emphasis on our internal brand strategy. Wholesale Consolidation Loans generally command significantly higher premiums than our originated FFELP Consolidation Loans, and as a result, Wholesale Consolidation Loans have lower spreads. Since Wholesale Consolidation Loans are acquired outside of our core loan acquisition channels and have different yields and return expectations than the rest of our FFELP Consolidation Loan portfolio, we have excluded the impact of the Wholesale Consolidation Loan volume from the student loan spread analysis to provide more meaningful period-over-period comparisons on the performance of our student loan portfolio.

Student Loan Spread Analysis — On-Balance Sheet

The following table analyzes the reported earnings from student loans on-balance sheet. For an analysis of our student loan spread for the entire portfolio of Managed student loans on a similar basis to the on-balance sheet analysis, see “LENDING BUSINESS SEGMENT — Student Loan Spread Analysis — ‘Core Earnings’ Basis.”


	Quarters ended									Six months ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2007			2007			2006			2007			2006

On-Balance Sheet
Student loan yield, before Floor Income		8.08	%		8.17	%		7.92	%		8.12	%		7.71	%
Gross Floor Income		.02			.02			.04			.02			.05
Consolidation Loan Rebate Fees		(.61	)		(.63	)		(.67	)		(.62	)		(.67	)
Borrower Benefits		(.13	)		(.13	)		(.11	)		(.13	)		(.11	)
Premium and discount amortization		(.17	)		(.15	)		(.16	)		(.16	)		(.14	)

Student loan net yield		7.19			7.28			7.02			7.23			6.84
Student loan cost of funds		(5.58	)		(5.57	)		(5.27	)		(5.57	)		(5.05	)

Student loan spread, before Interim ABCP Facility Fees⁽¹⁾⁽²⁾		1.61			1.71			1.75			1.66			1.79
Interim ABCP Facility fees⁽²⁾		(.05	)		—			—			(.03	)		—

Student loan spread⁽¹⁾		1.56	%		1.71	%		1.75	%		1.63	%		1.79	%

Average Balances
On-balance sheet student loans⁽¹⁾	$	101,871		$	96,866		$	80,724		$	99,382		$	81,781


⁽¹⁾		Excludes the impact of the Wholesale Consolidation Loan portfolio on the student loan spread and average balances for the quarters ended June 30, 2007 and March 31, 2007 and for the six months ended June 30, 2007.

⁽²⁾		The Interim ABCP Facility fees are the commitment and liquidity fees that related to a new financing facility in connection with the Merger. See “RECENT DEVELOPMENTS — Merger-Related Developments — Financing Considerations Related to the Transaction.”

Discussion of Student Loan Spread — Other Quarter-over-Quarter Fluctuations

The reduction in the student loan spread (before the impact of the interim ABCP facility fees) from the first quarter of 2007 to the second quarter of 2007 was primarily driven by the mix of loans in our on-balance sheet portfolio. At the end of the first quarter, we completed an off-balance sheet securitization which removed $2 billion of higher yielding Private Education Loans from the balance sheet entering the second quarter.

We estimate the amount of Private Education Loan accrued interest in a period that is not reasonably expected to be collected in the future using a methodology consistent with the status-based migration analysis used for the allowance for Private Education Loans. We use this estimate to offset accrued interest in the current period through a charge to student loan interest income. As our provisions for loan losses increased significantly in the first and second quarters of 2007, we had a similar rise in the estimate of uncollectible accrued interest receivable which reduced the student loan spread by approximately 9 basis points in the second quarter of 2007 as compared to 8 basis points in the first quarter of 2007 and 3 basis points the second quarter of 2006.

The second quarter of 2006 spread includes $10 million or 5 basis points of income associated with non-recurring SAP that we accrued on PLUS loans as a result of program changes required by the Higher Education Reconciliation Act of 2005 (“Reconciliation Legislation”).

The student loan spread analysis above also excludes the impact of our Wholesale Consolidation Loan portfolio whose average balances were $7.0 billion and $4.6 billion for the second and first quarters of 2007, respectively. Had the impact of the Wholesale Consolidation Loan volume been included in the student loan spread analysis, it would have reduced the spread by approximately 10 basis points and 7 basis points for the second and first quarters of 2007, respectively. As of June 30, 2007 and March 31, 2007, Wholesale Consolidation Loans totaled $7.5 billion, or 11 percent and $6.7 billion, or 10 percent, respectively, of our total on-balance sheet FFELP Consolidation Loan portfolio.

SECURITIZATION PROGRAM

Securitization Activity

The following table summarizes our securitization activity for the quarters ended June 30, 2007, March 31, 2007 and June 30, 2006 and for the six months ended June 30, 2007 and 2006.


	Quarters ended
	June 30, 2007									March 31, 2007									June 30, 2006
	No. of		Amount		Pre-Tax		Gain			No. of		Amount		Pre-Tax		Gain			No. of		Amount		Pre-Tax		Gain
(Dollars in millions)	Transactions		Securitized		Gain		%			Transactions		Securitized		Gain		%			Transactions		Securitized		Gain		%

Securitizations sales:
FFELP Stafford/PLUS Loans		—	$	—	$	—		—	%		—	$	—	$	—		—	%		—	$	—	$	—		—	%
FFELP Consolidation Loans		—		—		—		—			—		—		—		—			1		2,500		23		.9
Private Education Loans		—		—		—		—			1		2,000		367		18.4			2		4,000		648		16.2

Total securitizations sales		—		—	$	—		—	%		1		2,000	$	367		18.4	%		3		6,500	$	671		10.3	%

Securitizations financings:
FFELP Stafford/PLUS Loans⁽¹⁾		—		—							2		7,004							—		—
FFELP Consolidation Loans⁽¹⁾		1		4,985							1		4,002							1		3,001
		—

Total securitizations financings		1		4,985							3		11,006							1		3,001
		—

Total securitizations		1	$	4,985							4	$	13,006							4	$	9,501


⁽¹⁾		In certain securitizations there are terms within the deal structure that result in such securitizations not qualifying for sale treatment and accordingly, they are accounted for on-balance sheet as variable interest entities (“VIEs”). Terms that prevent sale treatment include: (1) allowing us to hold certain rights that can affect the remarketing of certain bonds, (2) allowing the trust to enter into interest rate cap agreements after the initial settlement of the securitization, which do not relate to the reissuance of third party beneficial interests or (3) allowing us to hold an unconditional call option related to a certain percentage of the securitized assets.


	Six months ended June 30,
	2007									2006
			Loan									Loan
	No. of		Amount		Pre-Tax		Gain			No. of		Amount		Pre-Tax		Gain
(Dollars in millions)	Transactions		Securitized		Gain		%			Transactions		Securitized		Gain		%

Securitization sales:
FFELP Stafford/PLUS Loans		—	$	—	$	—		—	%		2	$	5,004	$	17		.3	%
FFELP Consolidation Loans		—		—		—		—			2		5,502		36		.7
Private Education Loans		1		2,000		367		18.4			2		4,000		648		16.2

Total securitizations sales		1		2,000	$	367		18.4	%		6		14,506	$	701		4.8	%

Securitization financings:
FFELP Stafford/PLUS Loans⁽¹⁾		2		7,004							—		—
FFELP Consolidation Loans⁽¹⁾		2		8,987							1		3,001

Total securitizations financings		4		15,991							1		3,001

Total securitizations		5	$	17,991							7	$	17,507


⁽¹⁾		In certain securitizations there are terms within the deal structure that result in such securitizations not qualifying for sale treatment and accordingly, they are accounted for on-balance sheet as variable interest entities (“VIEs”). Terms that prevent sale treatment include: (1) allowing us to hold certain rights that can affect the remarketing of certain bonds, (2) allowing the trust to enter into interest rate cap agreements after the initial settlement of the securitization, which do not relate to the reissuance of third party beneficial interests or (3) allowing us to hold an unconditional call option related to a certain percentage of the securitized assets.

Key economic assumptions used in estimating the fair value of Residual Interests at the date of securitization resulting from the student loan securitization sale transactions completed during the quarters ended June 30, 2007, March 31, 2007 and June 30, 2006, and for the six months ended June 30, 2007 and 2006 were as follows:


	Quarters ended
	June 30, 2007						March 31, 2007							June 30, 2006
			FFELP		Private				FFELP		Private					FFELP			Private
	FFELP		Consolidation		Education		FFELP		Consolidation		Education			FFELP		Consolidation			Education
	Stafford⁽¹⁾		Loans⁽¹⁾		Loans⁽¹⁾		Stafford⁽¹⁾		Loans⁽¹⁾		Loans			Stafford⁽¹⁾		Loans			Loans

Prepayment speed (annual rate)⁽²⁾		—		—		—		—		—		—			—		6	%		4	%
Interim status		—		—		—		—		—		0	%		—		—			—
Repayment status		—		—		—		—		—		4-7	%		—		—			—
Life of loan repayment status		—		—		—		—		—		6	%		—		—			—
Weighted average life		—		—		—		—		—		9.4 yrs.			—		8.5 yrs.			9.4 yrs.
Expected credit losses (% of principal securitized)		—		—		—		—		—		4.69	%		—		.27	%		4.79	%
Residual cash flows discounted at (weighted average)		—		—		—		—		—		12.5	%		—		10.8	%		13.0	%


	Six months ended June 30,
	2007							2006
			FFELP		Private						FFELP			Private
	FFELP		Consolidation		Education			FFELP			Consolidation			Education
	Stafford⁽¹⁾		Loans⁽¹⁾		Loans			Stafford			Loans			Loans

Prepayment speed (annual rate)⁽²⁾		—		—		—			*			6	%		4	%
Interim status		—		—		0	%		—			—			—
Repayment status		—		—		4-7	%		—			—			—
Life of loan repayment status		—		—		6	%		—			—			—
Weighted average life		—		—		9.4 yrs.			3.7 yrs.			8.3 yrs.			9.4 yrs.
Expected credit losses (% of principal securitized)		—		—		4.69	%		.15	%		.27	%		4.79	%
Residual cash flows discounted at (weighted average)		—		—		12.5	%		12.4	%		10.6	%		13.0	%


⁽¹⁾		No securitizations qualified for sale treatment in the period.

⁽²⁾		Effective December 31, 2006, we implemented Constant Prepayment Rates (“CPR”) curves for Residual Interest valuations that are based on the number of months since entering repayment that better reflect the CPR as the loan seasons. Under this methodology, a different CPR is applied to each year of a loan’s seasoning. Previously, we applied a CPR that was based on a static life of loan assumption, irrespective of seasoning, or, in the case of FFELP Stafford and PLUS loans, we used a vector approach in applying the CPR. The repayment status CPR depends on the number of months since first entering repayment or as the loans seasons through the portfolio. Life of loan CPR is related to repayment status only and does not include the impact of the loan while in interim status. The CPR assumption used for all periods includes the impact of projected defaults.

*		CPR of 20 percent in 2006, 15 percent for 2007 and 10 percent thereafter.

Retained Interest in Securitized Receivables

The following tables summarize the fair value of the Company’s Residual Interests, included in the Company’s Retained Interest (and the assumptions used to value such Residual Interests), along with the underlying off-balance sheet student loans that relate to those securitizations in transactions that were treated as sales as of June 30, 2007, March 31, 2007, and June 30, 2006.


	As of June 30, 2007
				FFELP
	FFELP			Consolidation			Private
	Stafford and			Loan			Education
	PLUS			Trusts⁽¹⁾			Loan Trusts			Total

Fair value of Residual Interests⁽²⁾	$	550		$	616		$	2,282		$	3,448
Underlying securitized loan balance⁽³⁾		11,176			16,683			14,573			42,432
Weighted average life		2.9 yrs.			7.2 yrs.			7.3 yrs.
Prepayment speed (annual rate)⁽⁴⁾
Interim status		0	%		N/A			0	%
Repayment status		0-43	%		3-9	%		4-7	%
Life of loan repayment status		24	%		6	%		6	%
Expected credit losses (% of student loan principal)⁽⁵⁾		.05	%		.07	%		4.04	%
Residual cash flows discount rate		12.8	%		11.0	%		13.0	%


	As of March 31, 2007
				FFELP
	FFELP			Consolidation			Private
	Stafford and			Loan			Education
	PLUS			Trusts⁽¹⁾			Loan Trusts			Total

Fair value of Residual Interests⁽²⁾	$	637		$	671		$	2,336		$	3,644
Underlying securitized loan balance⁽³⁾		13,058			17,268			14,807			45,133
Weighted average life		2.8 yrs.			7.2 yrs.			7.4 yrs.
Prepayment speed (annual rate)⁽⁴⁾
Interim status		0	%		N/A			0	%
Repayment status		0-43	%		3-9	%		4-7	%
Life of loan repayment status		24	%		6	%		6	%
Expected credit losses (% of student loan principal)		.07	%		.06	%		4.39	%
Residual cash flows discount rate		12.4	%		10.5	%		12.5	%


	As of June 30, 2006
				FFELP
	FFELP			Consolidation			Private
	Stafford and			Loan			Education
	PLUS			Trusts⁽¹⁾			Loan Trusts			Total

Fair value of Residual Interests⁽²⁾	$	773		$	524		$	1,855		$	3,152
Underlying securitized loan balance⁽³⁾		20,224			14,746			12,556			47,526
Weighted average life		2.5 yrs.			8.1 yrs.			8.4 yrs.
Prepayment speed (annual rate)⁽⁴⁾		10%-40	%⁽⁶⁾		6	%		4	%
Expected credit losses (% of student loan principal)		.07	%		.07	%		4.73	%
Residual cash flows discount rate		13.0	%		11.1	%		13.1	%


⁽¹⁾		Includes $94 million, $147 million and $115 million related to the fair value of the Embedded Floor Income as of June 30, 2007, March 31, 2007, and June 30, 2006, respectively. Changes in the fair value of the Embedded Floor Income are primarily due to changes in the interest rates and the paydown of the underlying loans.

⁽²⁾		At June 30, 2007, March 31, 2007, and June 30, 2006, we had unrealized gains (pre-tax) in accumulated other comprehensive income of $286 million, $332 million and $401 million, respectively, that related to the Retained Interests.

⁽³⁾		In addition to student loans in off-balance sheet trusts, we had $61.4 billion, $58.2 billion and $41.3 billion of securitized student loans outstanding (face amount) as of June 30, 2007, March 31, 2007, and June 30, 2006, respectively, in on-balance sheet FFELP Loan securitization trusts.

⁽⁴⁾		Effective December 31, 2006, we implemented CPR curves for Residual Interest valuations that are based on seasoning (the number of months since entering repayment). Under this methodology, a different CPR is applied to each year of a loan’s seasoning. Previously, we applied a CPR that was based on a static life of loan assumption, and, in the case of FFELP Stafford and PLUS loans, we applied a vector approach, irrespective of seasoning. Repayment status CPR used is based on the number of months since first entering repayment (seasoning). Life of loan CPR is related to repayment status only and does not include the impact of the loan while in interim status. The CPR assumption used for all periods includes the impact of projected defaults.

⁽⁵⁾		The Company increased its recovery rate assumption on defaulted Private Education Loans from 22 percent to 27 percent as of June 30, 2007.

⁽⁶⁾		CPR of 40 percent for the third quarter of 2006, 30 percent for the fourth quarter of 2006, 15 percent for 2007 and 10 percent thereafter.

Servicing and Securitization Revenue

Servicing and securitization revenue, the ongoing revenue from securitized loan pools accounted for off-balance sheet as qualifying special purpose entities (“QSPEs”), includes the interest earned on the Residual Interest and the revenue we receive for servicing the loans in the securitization trusts. Interest income recognized on the Residual Interest is based on our anticipated yield determined by estimating future cash flows each quarter.

The following table summarizes the components of servicing and securitization revenue for the quarters ended June 30, 2007, March 31, 2007, and June 30, 2006 and for the six months ended June 30, 2007 and 2006.


	Quarters ended									Six months ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2007			2007			2006			2007			2006

Servicing revenue	$	74		$	77		$	88		$	151		$	168
Securitization revenue, before Net Embedded Floor Income, impairment		115			106			84			221			153

Servicing and securitization revenue, before Net Embedded Floor Income, impairment and unrealized fair value adjustment		189			183			172			372			321
Embedded Floor Income		2			2			4			4			10
Less: Floor Income previously recognized in gain calculation		(1	)		(1	)		(2	)		(2	)		(6	)

Net Embedded Floor Income		1			1			2			2			4

Servicing and securitization revenue, before impairment and unrealized fair value adjustment		190			184			174			374			325
Unrealized fair value adjustment⁽¹⁾		(22	)		79			—			57			—
Retained Interest impairment		(35	)		(11	)		(91	)		(46	)		(143	)

Total servicing and securitization revenue	$	133		$	252		$	83		$	385		$	182

Average off-balance sheet student loans	$	43,432		$	44,663		$	47,716		$	44,044		$	44,909

Average balance of Retained Interest	$	3,552		$	3,442		$	3,004		$	3,498		$	2,754

Servicing and securitization revenue as a percentage of the average balance of off-balance sheet student loans (annualized)		1.23	%		2.29	%		.70	%		1.76	%		.82	%


⁽¹⁾		The Company adopted SFAS No. 155 on January 1, 2007. SFAS No. 155 requires the Company to identify and bifurcate embedded derivatives from the Residual Interest. However, SFAS No. 155 does allow the Company to elect to carry the entire Residual Interest at fair value through earnings rather than bifurcate such embedded derivatives. For the off-balance sheet securitizations that settled in the first half of 2007, the Company elected to carry the entire Residual Interest recorded at fair value through earnings. As a result of this election, all changes in the fair value of the Residual Interests for those securitizations are recorded through earnings. Management anticipates electing to carry future Residual Interests at fair value through earnings. For securitizations settling prior to January 1, 2007, changes in the fair value of Residual Interests will continue to be recorded in other comprehensive income.

Servicing and securitization revenue is primarily driven by the average balance of off-balance sheet student loans, the amount of and the difference in the timing of Embedded Floor Income recognition on off-balance sheet student loans, Retained Interest impairments, and the fair value adjustment related to those Residual Interests where the Company has elected to carry such Residual Interests at fair value through earnings under SFAS No. 155 as discussed in the above table. The increase in securitization revenue, before net Embedded Floor Income and impairment, from 2006 to 2007, is primarily due to the continued increase in the amount of Private Education Loan Residual Interests as a percentage of the total Residual Interests.

Servicing and securitization revenue can be negatively impacted by impairments of the value of our Retained Interest, caused primarily by the effect of higher than expected consolidation activity on FFELP

Stafford/PLUS student loan securitizations and the effect of market interest rates on the Embedded Floor Income included in the Retained Interest. The majority of the consolidations bring the loans back on-balance sheet, so for those loans, we retain the value of the asset on-balance sheet versus in the trust. For the quarters ended June 30, 2007, March 31, 2007, and June 30, 2006, we recorded impairments to the Retained Interests of $35 million, $11 million and $91 million, respectively, and for the six months ended June 30, 2007 and 2006, we recorded impairments of $46 million and $143 million, respectively. The impairment charges were the result of FFELP loans prepaying faster than projected through loan consolidations ($11 million, $11 million and $68 million for the quarters ended June 30, 2007, March 31, 2007, and June 30, 2006, respectively, and $22 million and $92 million for the six months ended June 30, 2007 and 2006, respectively) as well as impairment to the Floor Income component of the Company’s Retained Interest due to increases in interest rates during the period ($24 million and $23 million for the quarters ended June 30, 2007 and 2006, respectively and $24 million and $51 million for the six months ended June 30, 2007 and 2006, respectively). The unrealized fair value adjustment recorded relates to the difference between recording the Residual Interest at its allocated cost basis as part of the gain on sale calculation and the Residual Interest’s fair value. The unrealized fair value adjustment for the quarter ended June 30, 2007 is the recurring quarterly fair value adjustment, which is affected primarily by actual results of the underlying trust.

BUSINESS SEGMENTS

The results of operations of the Company’s Lending and Debt Management Operations (“DMO”) operating segments are presented below. These defined business segments operate in distinct business environments and are considered reportable segments under SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” based on quantitative thresholds applied to the Company’s financial statements. In addition, we provide other complementary products and services, including guarantor and student loan servicing, through smaller operating segments that do not meet such thresholds and are aggregated in the Corporate and Other reportable segment for financial reporting purposes.

The management reporting process measures the performance of the Company’s operating segments based on the management structure of the Company as well as the methodology used by management to evaluate performance and allocate resources. In accordance with the Rules and Regulations of the SEC, we prepare financial statements in accordance with GAAP. In addition to evaluating the Company’s GAAP-based financial information, management, including the Company’s chief operating decision maker, evaluates the performance of the Company’s operating segments based on their profitability on a basis that, as allowed under SFAS No. 131, differs from GAAP. We refer to management’s basis of evaluating our segment results as “Core Earnings” presentations for each business segment and we refer to these performance measures in our presentations with credit rating agencies and lenders. Accordingly, information regarding the Company’s reportable segments is provided herein based on “Core Earnings,” which are discussed in detail below.

Our “Core Earnings” are not defined terms within GAAP and may not be comparable to similarly titled measures reported by other companies. “Core Earnings” net income reflects only current period adjustments to GAAP net income as described below. Unlike financial accounting, there is no comprehensive, authoritative guidance for management reporting and as a result, our management reporting is not necessarily comparable with similar information for any other financial institution. The Company’s operating segments are defined by the products and services they offer or the types of customers they serve, and they reflect the manner in which financial information is currently evaluated by management. Intersegment revenues and expenses are netted within the appropriate financial statement line items consistent with the income statement presentation provided to management. Changes in management structure or allocation methodologies and procedures may result in changes in reported segment financial information.

“Core Earnings” are the primary financial performance measures used by management to develop the Company’s financial plans, track results, and establish corporate performance targets and incentive compensation. While “Core Earnings” are not a substitute for reported results under GAAP, the Company relies on “Core Earnings” in operating its business because “Core Earnings” permit management to make meaningful period-to-period comparisons of the operational and performance indicators that are most closely assessed by management. Management believes this information provides additional insight into the financial performance

of the core business activities of our operating segments. Accordingly, the tables presented below reflect “Core Earnings,” which is reviewed and utilized by management to manage the business for each of the Company’s reportable segments. A further discussion regarding “Core Earnings” is included under “Limitations of ’Core Earnings”’ and “Pre-tax Differences between ’Core Earnings’ and GAAP.”

The Lending operating segment section includes all discussion of income and related expenses associated with the net interest margin, the student loan spread and its components, the provisions for loan losses, and other fees earned on our Managed portfolio of student loans. The DMO operating segment reflects the fees earned and expenses incurred in providing accounts receivable management and collection services. Our Corporate and Other reportable segment includes our remaining fee businesses and other corporate expenses that do not pertain directly to the primary segments identified above.


	Quarter ended June 30, 2007
						Corporate			Total “Core					Total
	Lending		DMO			and Other			Earnings”		Adjustments⁽³⁾			GAAP

Interest income:
FFELP Stafford and Other Student Loans	$	719	$	—		$	—		$	719	$	(208	)	$	511
FFELP Consolidation Loans		1,391		—			—			1,391		(304	)		1,087
Private Education Loans		692		—			—			692		(363	)		329
Other loans		27		—			—			27		—			27
Cash and investments		182		—			7			189		(47	)		142

Total interest income		3,011		—			7			3,018		(922	)		2,096
Total interest expense		2,371		7			5			2,383		(686	)		1,697

Net interest income (loss)		640		(7	)		2			635		(236	)		399
Less: provisions for losses		247		—			—			247		(99	)		148

Net interest income (loss) after provisions for losses		393		(7	)		2			388		(137	)		251
Fee income		—		80			30			110		—			110
Collections revenue		—		77			—			77		—			77
Other income		59		—			49			108		925			1,033

Total other income		59		157			79			295		925			1,220
Operating expenses⁽¹⁾		182		96			104			382		17			399

Income (loss) before income taxes and minority interest in net earnings of subsidiaries		270		54			(23	)		301		771			1,072
Income tax expense (benefit)⁽²⁾		100		20			(9	)		111		(6	)		105
Minority interest in net earnings of subsidiaries		—		1			—			1		—			1

Net income (loss)	$	170	$	33		$	(14	)	$	189	$	777		$	966


⁽¹⁾		Operating expenses for the Lending, DMO, and Corporate and Other business segments include $13 million, $4 million, and $6 million, respectively, of stock option compensation expense.

⁽²⁾		Income taxes are based on a percentage of net income before tax for the individual reportable segment.

⁽³⁾		“Core Earnings” adjustments to GAAP:


	Quarter ended June 30, 2007
	Net impact of			Net impact of					Net impact
	securitization			derivative		Net impact of			of acquired
	accounting			accounting		Floor Income			intangibles			Total

Net interest income	$	(217	)	$	20	$	(39	)	$	—		$	(236	)
Less: provisions for losses		(99	)		—		—			—			(99	)

Net interest income after provisions for losses		(118	)		20		(39	)		—			(137	)
Fee income		—			—		—			—			—
Collections revenue		—			—		—			—			—
Other income		103			822		—			—			925

Total other income		103			822		—			—			925
Operating expenses		—			—		—			17			17

Total pre-tax “Core Earnings” adjustments to GAAP	$	(15	)	$	842	$	(39	)	$	(17	)		771

Income tax expense (benefit)													(6	)
Minority interest in net earnings of subsidiaries													—

Total “Core Earnings” adjustments to GAAP												$	777


	Quarter ended March 31, 2007
						Corporate			Total “Core					Total
	Lending		DMO			and Other			Earnings”		Adjustments⁽³⁾			GAAP

Interest income:
FFELP Stafford and Other Student Loans	$	695	$	—		$	—		$	695	$	(244	)	$	451
FFELP Consolidation Loans		1,331		—			—			1,331		(316	)		1,015
Private Education Loans		658		—			—			658		(320	)		338
Other loans		28		—			—			28		—			28
Cash and investments		162		—			2			164		(50	)		114

Total interest income		2,874		—			2			2,876		(930	)		1,946
Total interest expense		2,220		7			5			2,232		(700	)		1,532

Net interest income (loss)		654		(7	)		(3	)		644		(230	)		414
Less: provisions for losses		198		—			1			199		(49	)		150

Net interest income (loss) after provisions for losses		456		(7	)		(4	)		445		(181	)		264
Fee income		—		87			39			126		—			126
Collections revenue		—		65			—			65		1			66
Other income		44		—			52			96		231			327

Total other income		44		152			91			287		232			519
Operating expenses⁽¹⁾		171		93			68			332		24			356

Income before income taxes and minority interest in net earnings of subsidiaries		329		52			19			400		27			427
Income tax expense⁽²⁾		122		19			7			148		162			310
Minority interest in net earnings of subsidiaries		—		1			—			1		—			1

Net income	$	207	$	32		$	12		$	251	$	(135	)	$	116


⁽¹⁾		Operating expenses for the Lending, DMO, and Corporate and Other business segments include $9 million, $3 million, and $4 million, respectively, of stock option compensation expense.

⁽²⁾		Income taxes are based on a percentage of net income before tax for the individual reportable segment.

⁽³⁾		“Core Earnings” adjustments to GAAP:


	Quarter ended March 31, 2007
	Net impact of			Net impact of						Net impact
	securitization			derivative			Net impact of			of acquired
	accounting			accounting			Floor Income			intangibles			Total

Net interest income	$	(216	)	$	25		$	(39	)	$	—		$	(230	)
Less: provisions for losses		(49	)		—			—			—			(49	)

Net interest income after provisions for losses		(167	)		25			(39	)		—			(181	)
Fee income		—			—			—			—			—
Collections revenue		1			—			—			—			1
Other income		588			(357	)		—			—			231

Total other income		589			(357	)		—			—			232
Operating expenses		—			—			—			24			24

Total pre-tax “Core Earnings” adjustments to GAAP	$	422		$	(332	)	$	(39	)	$	(24	)		27

Income tax expense														162
Minority interest in net earnings of subsidiaries														—

Total “Core Earnings” adjustments to GAAP													$	(135	)


	Quarter ended June 30, 2006
						Corporate		Total “Core					Total
	Lending		DMO			and Other		Earnings”		Adjustments⁽³⁾			GAAP

Interest income:
FFELP Stafford and Other Student Loans	$	719	$	—		$	—	$	719	$	(382	)	$	337
FFELP Consolidation Loans		1,114		—			—		1,114		(273	)		841
Private Education Loans		485		—			—		485		(251	)		234
Other loans		24		—			—		24		—			24
Cash and investments		170		—			1		171		(46	)		125

Total interest income		2,512		—			1		2,513		(952	)		1,561
Total interest expense		1,904		5			1		1,910		(706	)		1,204

Net interest income (loss)		608		(5	)		—		603		(246	)		357
Less: provisions for losses		60		—			—		60		8			68

Net interest income (loss) after provisions for losses		548		(5	)		—		543		(254	)		289
Fee income		—		90			33		123		—			123
Collections revenue		—		67			—		67		—			67
Other income		51		—			24		75		869			944

Total other income		51		157			57		265		869			1,134
Operating expenses⁽¹⁾		163		85			50		298		18			316

Income before income taxes and minority interest in net earnings of subsidiaries		436		67			7		510		597			1,107
Income tax expense⁽²⁾		161		26			2		189		193			382
Minority interest in net earnings of subsidiaries		—		1			—		1		—			1

Net income	$	275	$	40		$	5	$	320	$	404		$	724


⁽¹⁾		Operating expenses for the Lending, DMO, and Corporate and Other business segments include $8 million, $2 million, and $4 million, respectively, of stock option compensation expense.

⁽²⁾		Income taxes are based on a percentage of net income before tax for the individual reportable segment.

⁽³⁾		“Core Earnings” adjustments to GAAP:


	Quarter ended June 30, 2006
	Net impact of			Net impact of					Net impact
	securitization			derivative		Net impact of			of acquired
	accounting			accounting		Floor Income			intangibles			Total

Net interest income	$	(236	)	$	42	$	(52	)	$	—		$	(246	)
Less: provisions for losses		8			—		—			—			8

Net interest income after provisions for losses		(244	)		42		(52	)		—			(254	)
Fee income		—			—		—			—			—
Collections revenue		—			—		—			—			—
Other income		746			123		—			—			869

Total other income		746			123		—			—			869
Operating expenses		—			—		—			18			18

Total pre-tax “Core Earnings” adjustments to GAAP	$	502		$	165	$	(52	)	$	(18	)		597

Income tax expense													193
Minority interest in net earnings of subsidiaries													—

Total “Core Earnings” adjustments to GAAP												$	404


	Six months ended June 30, 2007
						Corporate			Total “Core					Total
	Lending		DMO			and Other			Earnings”		Adjustments⁽³⁾			GAAP

Interest income:
FFELP Stafford and Other Student Loans	$	1,414	$	—		$	—		$	1,414	$	(452	)	$	962
FFELP Consolidation Loans		2,722		—			—			2,722		(620	)		2,102
Private Education Loans		1,350		—			—			1,350		(682	)		668
Other loans		54		—			—			54		—			54
Cash and investments		345		—			9			354		(98	)		256

Total interest income		5,885		—			9			5,894		(1,852	)		4,042
Total interest expense		4,592		13			11			4,616		(1,387	)		3,229

Net interest income (loss)		1,293		(13	)		(2	)		1,278		(465	)		813
Less: provisions for losses		444		—			1			445		(146	)		299

Net interest income (loss) after provisions for losses		849		(13	)		(3	)		833		(319	)		514
Fee income		—		166			70			236		—			236
Collections revenue		—		143			—			143		—			143
Other income		104		—			100			204		1,157			1,361

Total other income		104		309			170			583		1,157			1,740
Operating expenses⁽¹⁾		353		190			172			715		40			755

Income (loss) before income taxes and minority interest in net earnings of subsidiaries		600		106			(5	)		701		798			1,499
Income tax expense (benefit)⁽²⁾		222		39			(2	)		259		156			415
Minority interest in net earnings of subsidiaries		—		2			—			2		—			2

Net income (loss)	$	378	$	65		$	(3	)	$	440	$	642		$	1,082


⁽¹⁾		Operating expenses for the Lending, DMO, and Corporate and Other business segments include $22 million, $7 million, and $10 million, respectively, of stock option compensation expense.

⁽²⁾		Income taxes are based on a percentage of net income before tax for the individual reportable segment.

⁽³⁾		“Core Earnings” adjustments to GAAP:


	Six months ended June 30, 2007
	Net impact of			Net impact of					Net impact
	securitization			derivative		Net impact of			of acquired
	accounting			accounting		Floor Income			intangibles			Total

Net interest income	$	(432	)	$	45	$	(78	)	$	—		$	(465	)
Less: provisions for losses		(146	)		—		—			—			(146	)

Net interest income after provisions for losses		(286	)		45		(78	)		—			(319	)
Fee income		—			—		—			—			—
Collections revenue					—		—			—			—
Other income		692			465		—			—			1,157

Total other income		692			465		—			—			1,157
Operating expenses		—			—		—			40			40

Total pre-tax “Core Earnings” adjustments to GAAP	$	406		$	510	$	(78	)	$	(40	)		798

Income tax expense													156
Minority interest in net earnings of subsidiaries													—

Total “Core Earnings” adjustments to GAAP												$	642


	Six months ended June 30, 2006
						Corporate			Total “Core					Total
	Lending		DMO			and Other			Earnings”		Adjustments⁽³⁾			GAAP

Interest income:
FFELP Stafford and Other Student Loans	$	1,369	$	—		$	—		$	1,369	$	(734	)	$	635
FFELP Consolidation Loans		2,142		—			—			2,142		(479	)		1,663
Private Education Loans		914		—			—			914		(439	)		475
Other loans		47		—			—			47		—			47
Cash and investments		300		—			2			302		(81	)		221

Total interest income		4,772		—			2			4,774		(1,733	)		3,041
Total interest expense		3,562		11			3			3,576		(1,280	)		2,296

Net interest income (loss)		1,210		(11	)		(1	)		1,198		(453	)		745
Less: provisions for losses		135		—			—			135		(7	)		128

Net interest income (loss) after provisions for losses		1,075		(11	)		(1	)		1,063		(446	)		617
Fee income		—		182			60			242		—			242
Collections revenue		—		124			—			124		—			124
Other income		92		—			55			147		907			1,054

Total other income		92		306			115			513		907			1,420
Operating expenses⁽¹⁾		324		175			109			608		32			640

Income before income taxes and minority interest in net earnings of subsidiaries		843		120			5			968		429			1,397
Income tax expense⁽²⁾		312		44			2			358		161			519
Minority interest in net earnings of subsidiaries		—		3			—			3		—			3

Net income	$	531	$	73		$	3		$	607	$	268		$	875


⁽¹⁾		Operating expenses for the Lending, DMO, and Corporate and Other business segments include $18 million, $5 million, and $9 million, respectively, of stock option compensation expense.

⁽²⁾		Income taxes are based on a percentage of net income before tax for the individual reportable segment.

⁽³⁾		“Core Earnings” adjustments to GAAP:


	Six months ended June 30, 2006
	Net impact of			Net impact of					Net impact
	securitization			derivative		Net impact of			of acquired
	accounting			accounting		Floor Income			intangibles			Total

Net interest income	$	(438	)	$	90	$	(105	)	$	—		$	(453	)
Less: provisions for losses		(7	)		—		—			—			(7	)

Net interest income after provisions for losses		(431	)		90		(105	)		—			(446	)
Fee income		—			—		—			—			—
Collections revenue		—			—		—			—			—
Other income		871			36		—			—			907

Total other income		871			36		—			—			907
Operating expenses		—			—		—			32			32

Total pre-tax “Core Earnings” adjustments to GAAP	$	440		$	126	$	(105	)	$	(32	)		429

Income tax expense													161
Minority interest in net earnings of subsidiaries													—

Total “Core Earnings” adjustments to GAAP												$	268

Reconciliation of “Core Earnings” Net Income to GAAP Net Income


	Quarters ended									Six months ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2007			2007			2006			2007			2006

“Core Earnings” net income⁽¹⁾	$	189		$	251		$	320		$	440		$	607
“Core Earnings” adjustments:
Net impact of securitization accounting		(15	)		422			502			406			440
Net impact of derivative accounting		842			(332	)		165			510			126
Net impact of Floor Income		(39	)		(39	)		(52	)		(78	)		(105	)
Net impact of acquired intangibles⁽²⁾		(17	)		(24	)		(18	)		(40	)		(32	)

Total “Core Earnings” adjustments before income taxes		771			27			597			798			429
Net tax effect⁽³⁾		6			(162	)		(193	)		(156	)		(161	)

Total “Core Earnings” adjustments		777			(135	)		404			642			268

GAAP net income	$	966		$	116		$	724		$	1,082		$	875

GAAP diluted earnings per common share	$	1.03		$	.26		$	1.52		$	1.82		$	1.96


⁽¹⁾ “Core Earnings” diluted earnings per common share	$	.43		$	.57		$	.72		$	.99		$	1.37


⁽²⁾		Represents goodwill and intangible impairment and the amortization of acquired intangibles.


⁽³⁾		Such tax effect is based upon the Company’s “Core Earnings” effective tax rate for the year. The net tax effect results primarily from the exclusion of the permanent income tax impact of the equity forward contracts.

Limitations of “Core Earnings”

earnings in certain periods. Management’s financial planning and valuation of operating results, however, does not take into account Floor Income because of its inherent uncertainty, except when it is economically hedged through Floor Income Contracts.

Pre-tax Differences between “Core Earnings” and GAAP

1) Securitization: Under GAAP, certain securitization transactions in our Lending operating segment are accounted for as sales of assets. Under our “Core Earnings” presentation for the Lending operating segment, we present all securitization transactions on a “Core Earnings” basis as long-term non-recourse financings. The upfront “gains” on sale from securitization transactions as well as ongoing “servicing and securitization revenue” presented in accordance with GAAP are excluded from “Core Earnings” net income and replaced by the interest income, provisions for loan losses, and interest expense as they are earned or incurred on the securitization loans. We also exclude transactions with our off-balance sheet trusts from “Core Earnings” net income as they are considered intercompany transactions on a “Core Earnings” basis.

The following table summarizes the securitization adjustments in our Lending business segment for the quarters ended June 30, 2007, March 31, 2007 and June 30, 2006, and for the six months ended June 30, 2007 and 2006.


	Quarters ended									Six months ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2007			2007			2006			2007			2006

“Core Earnings” securitization adjustments:
Net interest income on securitized loans, after provisions for losses	$	(118	)	$	(167	)	$	(242	)	$	(286	)	$	(430	)
Gains on student loan securitizations		—			367			671			367			701
Servicing and securitization revenue		133			252			83			385			182
Intercompany transactions with off-balance sheet trusts		(30	)		(30	)		(10	)		(60	)		(13	)

Total “Core Earnings” securitization adjustments	$	(15	)	$	422		$	502		$	406		$	440

2) Derivative Accounting: “Core Earnings” net income excludes periodic unrealized gains and losses arising primarily in our Lending operating segment, and to a lesser degree in our Corporate and Other reportable segment, that are caused primarily by the one-sided mark-to-market derivative valuations prescribed by SFAS No. 133 on derivatives that do not qualify for “hedge treatment” under GAAP. Under our “Core Earnings” presentation, we recognize the economic effect of these hedges, which generally results in any cash paid or received being recognized ratably as an expense or revenue over the hedged item’s life. “Core Earnings” also excludes the gain or loss on equity forward contracts that under SFAS No. 133, are required to be accounted for as derivatives and are marked-to-market through earnings.

SFAS No. 133 requires that changes in the fair value of derivative instruments be recognized currently in earnings unless specific hedge accounting criteria, as specified by SFAS No. 133, are met. We believe that our derivatives are effective economic hedges, and as such, are a critical element of our interest rate risk management strategy. However, some of our derivatives, primarily Floor Income Contracts, certain basis swaps and equity forward contracts (discussed in detail below), do not qualify for “hedge treatment” as defined by

SFAS No. 133, and the stand-alone derivative must be marked-to-market in the income statement with no consideration for the corresponding change in fair value of the hedged item. The gains and losses described in “gains (losses) on derivative and hedging activities, net” are primarily caused by interest rate and foreign currency rate volatility, changing credit spreads and changes in our stock price during the period as well as the volume and term of derivatives not receiving hedge treatment.

Our Floor Income Contracts are written options that must meet more stringent requirements than other hedging relationships to achieve hedge effectiveness under SFAS No. 133. Specifically, our Floor Income Contracts do not qualify for hedge accounting treatment because the paydown of principal of the student loans underlying the Floor Income embedded in those student loans does not exactly match the change in the notional amount of our written Floor Income Contracts. Under SFAS No. 133, the upfront payment is deemed a liability and changes in fair value are recorded through income throughout the life of the contract. The change in the value of Floor Income Contracts is primarily caused by changing interest rates that cause the amount of Floor Income earned on the underlying student loans and paid to the counterparties to vary. This is economically offset by the change in value of the student loan portfolio, including our Retained Interests, earning Floor Income but that offsetting change in value is not recognized under SFAS No. 133. We believe the Floor Income Contracts are economic hedges because they effectively fix the amount of Floor Income earned over the contract period, thus eliminating the timing and uncertainty that changes in interest rates can have on Floor Income for that period. Prior to SFAS No. 133, we accounted for Floor Income Contracts as hedges and amortized the upfront cash compensation ratably over the lives of the contracts.

Basis swaps are used to convert floating rate debt from one interest rate index to another to better match the interest rate characteristics of the assets financed by that debt. We primarily use basis swaps to change the index of our floating rate debt to better match the cash flows of our student loan assets that are primarily indexed to a commercial paper, Prime or Treasury bill index. In addition, we use basis swaps to convert debt indexed to the Consumer Price Index (“CPI”) to 3-month LIBOR debt. SFAS No. 133 requires that when using basis swaps, the change in the cash flows of the hedge effectively offset both the change in the cash flows of the asset and the change in the cash flows of the liability. Our basis swaps hedge variable interest rate risk, however they do not meet this effectiveness test because our FFELP student loans can earn at either a variable or a fixed interest rate depending on market interest rates. We also have basis swaps that do not meet the SFAS No. 133 effectiveness test that economically hedge off-balance sheet instruments. As a result, under GAAP these swaps are recorded at fair value with changes in fair value reflected currently in the income statement.

Under SFAS No. 150, equity forward contracts that allow a net settlement option either in cash or the Company’s stock are required to be accounted for as derivatives in accordance with SFAS No. 133. As a result, we account for our equity forward contracts as derivatives in accordance with SFAS No. 133 and mark them to market through earnings. These contracts do not qualify as effective SFAS No. 133 hedges, as a requirement to achieve hedge accounting is the hedged item must impact net income and the settlement of these contracts through the purchase of our own stock does not impact net income.

The table below quantifies the adjustments for derivative accounting under SFAS No. 133 on our net income for the quarters ended June 30, 2007, March 31, 2007 and June 30, 2006 and for the six months ended June 30, 2007 and 2006, when compared with the accounting principles employed in all years prior to the SFAS No. 133 implementation.


	Quarters ended							Six months ended
	June 30,		March 31,			June 30,		June 30,		June 30,
	2007		2007			2006		2007		2006

“Core Earnings” derivative adjustments:
Gains (losses) on derivative and hedging activities, net, included in other income⁽¹⁾	$	822	$	(357	)	$	123	$	465	$	36
Less: Realized losses on derivative and hedging activities, net⁽¹⁾		20		25			41		45		89

Unrealized gains (losses) on derivative and hedging activities, net		842		(332	)		164		510		125
Other pre-SFAS No. 133 accounting adjustments		—		—			1		—		1

Total net impact of SFAS No. 133 derivative accounting	$	842	$	(332	)	$	165	$	510	$	126


(1)		See “Reclassification of Realized Gains (Losses) on Derivative and Hedging Activities” below for a detailed breakdown of the components of realized losses on derivative and hedging activities.

Reclassification of Realized Gains (Losses) on Derivative and Hedging Activities

SFAS No. 133 requires net settlement income/expense on derivatives and realized gains/losses related to derivative dispositions (collectively referred to as “realized gains (losses) on derivative and hedging activities”) that do not qualify as hedges under SFAS No. 133 to be recorded in a separate income statement line item below net interest income. The table below summarizes the realized losses on derivative and hedging activities, and the associated reclassification on a “Core Earnings” basis for the quarters ended June 30, 2007, March 31, 2007, and June 30, 2006 and for the six months ended June 30, 2007 and 2006.


	Quarters ended									Six months ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2007			2007			2006			2007			2006

Reclassification of realized gains (losses) on derivative and hedging activities:
Net settlement expense on Floor Income Contracts reclassified to net interest income	$	(9	)	$	(7	)	$	(12	)	$	(16	)	$	(33	)
Net settlement expense on interest rate swaps reclassified to net interest income		(11	)		(18	)		(29	)		(29	)		(56	)
Net realized losses on closed Eurodollar futures contracts and terminated derivative contracts reclassified to other income		—			—			—			—			—

Total reclassifications of realized losses on derivative and hedging activities		(20	)		(25	)		(41	)		(45	)		(89	)
Add: Unrealized gains (losses) on derivative and hedging activities, net⁽¹⁾		842			(332	)		164			510			125

Gains (losses) on derivative and hedging activities, net	$	822		$	(357	)	$	123		$	465		$	36


⁽¹⁾		“Unrealized gains (losses) on derivative and hedging activities, net” is comprised of the following unrealized mark-to-market gains (losses):


	Quarters ended								Six months ended
	June 30,			March 31,			June 30,		June 30,		June 30,
	2007			2007			2006		2007		2006

Floor Income Contracts	$	81		$	5		$	88	$	86	$	232
Equity forward contracts		796			(412	)		39		384		(83	)
Basis swaps		(38	)		60			14		22		(68	)
Other		3			15			23		18		44

Total unrealized gains (losses) on derivative and hedging activities, net	$	842		$	(332	)	$	164	$	510	$	125

Unrealized gains and losses on Floor Income Contracts are primarily caused by changes in interest rates. In general, an increase in interest rates results in an unrealized gain and vice versa. Unrealized gains and losses on Equity Forward Contracts fluctuate with changes in the Company’s stock price. Unrealized gains and losses on basis swaps primarily result from changes in the spread between indices, primarily as it relates to Consumer Price Index (“CPI”) swaps economically hedging debt issuances indexed to CPI.

3) Floor Income: The timing and amount (if any) of Floor Income earned in our Lending operating segment is uncertain and in excess of expected spreads. Therefore, we exclude such income from “Core Earnings” net income when it is not economically hedged. We employ derivatives, primarily Floor Income Contracts and futures, to economically hedge Floor Income. As discussed above in “Derivative Accounting,” these derivatives do not qualify as effective accounting hedges, and therefore, under GAAP, they are marked-to-market through the “gains (losses) on derivative and hedging activities, net” line on the income statement with no offsetting gain or loss recorded for the economically hedged items. For “Core Earnings” net income, we reverse the fair value adjustments on the Floor Income Contracts and futures economically hedging Floor Income and include the amortization of net premiums received (net of Eurodollar futures contracts’ realized gains or losses) in income.

The following table summarizes the Floor Income adjustments in our Lending business segment for the quarters ended June 30, 2007, March 31, 2007, and June 30, 2006 and for the six months ended June 30, 2007 and 2006.


	Quarters ended									Six months ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2007			2007			2006			2007			2006

“Core Earnings” Floor Income adjustments:
Floor Income earned on Managed loans, net of payments on Floor Income Contracts	$	—		$	—		$	—		$	—		$	—
Amortization of net premiums on Floor Income Contracts and futures in net interest income		(39	)		(39	)		(52	)		(78	)		(105	)

Total “Core Earnings” Floor Income adjustments	$	(39	)	$	(39	)	$	(52	)	$	(78	)	$	(105	)

4) Acquired Intangibles: Our “Core Earnings” net income excludes goodwill and intangible impairment and the amortization of acquired intangibles. For the quarters ended June 30, 2007, March 31, 2007, and June 30, 2006, and for the six months ended June 30, 2007 and 2006, goodwill and intangible impairment and the amortization of acquired intangibles totaled $17 million, $24 million, $18 million, $40 million and $32 million, respectively. In the first quarter of 2007, we recognized an intangible impairment of $9 million due to changes in projected interest rates and to changes that restrict the loans on which the Company is entitled to earn a 9.5 percent yield (SAP loans).

LENDING BUSINESS SEGMENT

In our Lending business segment, we originate and acquire federally guaranteed student loans, which are administered by the U.S. Department of Education (“ED”), and Private Education Loans, which are not federally guaranteed. The majority of our Private Education Loans is made in conjunction with a FFELP Stafford loan and as a result is marketed through the same marketing channels as FFELP Stafford loans. While FFELP student loans and Private Education Loans have different overall risk profiles due to the federal guarantee of the FFELP student loans, they share many of the same characteristics such as similar repayment terms, the same marketing channel and sales force, and are originated and serviced on the same servicing platform. Finally, where possible, the borrower receives a single bill for both the federally guaranteed and privately underwritten loans.

The following table includes “Core Earnings” results for our Lending business segment.


	Quarters ended						Six months ended
	June 30,		March 31,		June 30,		June 30,		June 30,
	2007		2007		2006		2007		2006

“Core Earnings” interest income:
FFELP Stafford and Other Student Loans	$	719	$	695	$	719	$	1,414	$	1,369
FFELP Consolidation Loans		1,391		1,331		1,114		2,722		2,142
Private Education Loans		692		658		485		1,350		914
Other loans		27		28		24		54		47
Cash and investments		182		162		170		345		300

Total “Core Earnings” interest income		3,011		2,874		2,512		5,885		4,772
Total “Core Earnings” interest expense		2,371		2,220		1,904		4,592		3,562

Net “Core Earnings” interest income		640		654		608		1,293		1,210
Less: provisions for losses		247		198		60		444		135

Net “Core Earnings” interest income after provisions for losses		393		456		548		849		1,075
Other income		59		44		51		104		92
Operating expenses		182		171		163		353		324

Income before income taxes and minority interest in net earnings of subsidiaries		270		329		436		600		843
Income taxes		100		122		161		222		312

“Core Earnings” net income	$	170	$	207	$	275	$	378	$	531

Summary of our Managed Student Loan Portfolio

The following tables summarize the components of our Managed student loan portfolio and show the changing composition of our portfolio.

Ending Balances, net


	June 30, 2007
	FFELP			FFELP						Private
	Stafford and			Consolidation						Education
	Other⁽¹⁾			Loans			Total FFELP			Loans			Total

On-balance sheet:
In-school	$	12,173		$	—		$	12,173		$	4,463		$	16,636
Grace and repayment		18,547			66,891			85,438			7,366			92,804

Total on-balance sheet, gross		30,720			66,891			97,611			11,829			109,440
On-balance sheet unamortized premium/(discount)		794			1,231			2,025			(387	)		1,638
On-balance sheet allowance for losses		(11	)		(13	)		(24	)		(428	)		(452	)

Total on-balance sheet, net		31,503			68,109			99,612			11,014			110,626

Off-balance sheet:
In-school		1,328			—			1,328			3,694			5,022
Grace and repayment		9,849			16,682			26,531			10,879			37,410

Total off-balance sheet, gross		11,177			16,682			27,859			14,573			42,432
Off-balance sheet unamortized premium/(discount)		193			488			681			(342	)		339
Off-balance sheet allowance for losses		(8	)		(3	)		(11	)		(183	)		(194	)

Total off-balance sheet, net		11,362			17,167			28,529			14,048			42,577

Total Managed	$	42,865		$	85,276		$	128,141		$	25,062		$	153,203

% of on-balance sheet FFELP		32	%		68	%		100	%
% of Managed FFELP		33	%		67	%		100	%
% of total		28	%		56	%		84	%		16	%		100	%


⁽¹⁾		FFELP category is primarily Stafford loans and also includes federally insured PLUS and HEAL loans.

Ending Balances, net


	March 31, 2007
	FFELP			FFELP						Private
	Stafford and			Consolidation						Education
	Other⁽¹⁾			Loans			Total FFELP			Loans			Total

On-balance sheet:
In-school	$	11,682		$	—		$	11,682		$	4,379		$	16,061
Grace and repayment		16,201			64,994			81,195			6,202			87,397

Total on-balance sheet, gross		27,883			64,994			92,877			10,581			103,458
On-balance sheet unamortized premium/(discount)		689			1,188			1,877			(363	)		1,514
On-balance sheet allowance for losses		(10	)		(12	)		(22	)		(369	)		(391	)

Total on-balance sheet, net		28,562			66,170			94,732			9,849			104,581

Off-balance sheet:
In-school		1,824			—			1,824			4,978			6,802
Grace and repayment		11,233			17,269			28,502			9,829			38,331

Total off-balance sheet, gross		13,057			17,269			30,326			14,807			45,133
Off-balance sheet unamortized premium/(discount)		221			492			713			(339	)		374
Off-balance sheet allowance for losses		(8	)		(3	)		(11	)		(116	)		(127	)

Total off-balance sheet, net		13,270			17,758			31,028			14,352			45,380

Total Managed	$	41,832		$	83,928		$	125,760		$	24,201		$	149,961

% of on-balance sheet FFELP		30	%		70	%		100	%
% of Managed FFELP		33	%		67	%		100	%
% of total		28	%		56	%		84	%		16	%		100	%


⁽¹⁾		FFELP category is primarily Stafford loans and also includes federally insured PLUS and HEAL loans.

Ending Balances, net


	June 30, 2006
	FFELP			FFELP						Private
	Stafford and			Consolidation						Education
	Other⁽¹⁾			Loans			Total FFELP			Loans			Total

On-balance sheet:
In-school	$	7,469		$	—		$	7,469		$	2,487		$	9,956
Grace and repayment		13,512			53,264			66,776			4,894			71,670

Total on-balance sheet, gross		20,981			53,264			74,245			7,381			81,626
On-balance sheet unamortized premium/(discount)		417			801			1,218			(296	)		922
On-balance sheet allowance for losses		(7	)		(10	)		(17	)		(252	)		(269	)

Total on-balance sheet, net		21,391			54,055			75,446			6,833			82,279

Off-balance sheet:
In-school		2,812			—			2,812			3,954			6,766
Grace and repayment		17,412			14,746			32,158			8,602			40,760

Total off-balance sheet, gross		20,224			14,746			34,970			12,556			47,526
Off-balance sheet unamortized premium/(discount)		323			397			720			(274	)		446
Off-balance sheet allowance for losses		(12	)		(3	)		(15	)		(92	)		(107	)

Total off-balance sheet, net		20,535			15,140			35,675			12,190			47,865

Total Managed	$	41,926		$	69,195		$	111,121		$	19,023		$	130,144

% of on-balance sheet FFELP		28	%		72	%		100	%
% of Managed FFELP		38	%		62	%		100	%
% of total		32	%		53	%		85	%		15	%		100	%


⁽¹⁾		FFELP category is primarily Stafford loans and also includes federally insured PLUS and HEAL loans.

Average Balances:


	Quarter ended June 30, 2007
	FFELP			FFELP						Private
	Stafford and			Consolidation						Education
	Other⁽¹⁾			Loans			Total FFELP			Loans			Total

On-balance sheet	$	30,794		$	67,154		$	97,948		$	10,917		$	108,865
Off-balance sheet		11,852			17,356			29,208			14,224			43,432

Total Managed	$	42,646		$	84,510		$	127,156		$	25,141		$	152,297

% of on-balance sheet FFELP		31	%		69	%		100	%
% of Managed FFELP		34	%		66	%		100	%
% of Total		28	%		55	%		83	%		17	%		100	%


	Quarter ended March 31, 2007
	FFELP			FFELP						Private
	Stafford and			Consolidation						Education
	Other⁽¹⁾			Loans			Total FFELP			Loans			Total

On-balance sheet	$	26,885		$	63,260		$	90,145		$	11,354		$	101,499
Off-balance sheet		13,920			18,022			31,942			12,721			44,663

Total Managed	$	40,805		$	81,282		$	122,087		$	24,075		$	146,162

% of on-balance sheet FFELP		30	%		70	%		100	%
% of Managed FFELP		33	%		67	%		100	%
% of Total		28	%		56	%		84	%		16	%		100	%


	Quarter ended June 30, 2006
	FFELP			FFELP						Private
	Stafford and			Consolidation						Education
	Other⁽¹⁾			Loans			Total FFELP			Loans			Total

On-balance sheet	$	20,562		$	52,201		$	72,763		$	7,961		$	80,724
Off-balance sheet		22,065			14,881			36,946			10,770			47,716

Total Managed	$	42,627		$	67,082		$	109,709		$	18,731		$	128,440

% of on-balance sheet FFELP		28	%		72	%		100	%
% of Managed FFELP		39	%		61	%		100	%
% of Total		33	%		52	%		85	%		15	%		100	%


⁽¹⁾		FFELP category is primarily Stafford loans and also includes federally insured PLUS and HEAL loans.

Average Balances:


	Six months ended June 30, 2007
	FFELP			FFELP						Private
	Stafford and			Consolidation						Education
	Other⁽¹⁾			Loans			Total FFELP			Loans			Total

On-balance sheet	$	28,851		$	65,218		$	94,069		$	11,134		$	105,203
Off-balance sheet		12,880			17,687			30,567			13,477			44,044

Total Managed	$	41,731		$	82,905		$	124,636		$	24,611		$	149,247

% of on-balance sheet FFELP		31	%		69	%		100	%
% of Managed FFELP		33	%		67	%		100	%
% of Total		28	%		56	%		84	%		16	%		100	%


	Six months ended June 30, 2006
	FFELP			FFELP						Private
	Stafford and			Consolidation						Education
	Other⁽¹⁾			Loans			Total FFELP			Loans			Total

On-balance sheet	$	20,045		$	53,251		$	73,296		$	8,485		$	81,781
Off-balance sheet		21,926			13,267			35,193			9,716			44,909

Total Managed	$	41,971		$	66,518		$	108,489		$	18,201		$	126,690

% of on-balance sheet FFELP		27	%		73	%		100	%
% of Managed FFELP		39	%		61	%		100	%
% of Total		33	%		53	%		86	%		14	%		100	%


⁽¹⁾		FFELP category is primarily Stafford loans and also includes federally insured PLUS and HEAL loans.

Student Loan Spread Analysis — “Core Earnings” Basis

The following table analyzes the earnings from our portfolio of Managed student loans on a “Core Earnings” basis (see “BUSINESS SEGMENTS — Pre-tax Differences between ’Core Earnings’ and GAAP”). The “Core Earnings” Basis Student Loan Spread Analysis presentation and certain components used in the calculation differ from the On-Balance Sheet Student Loan Spread Analysis presentation. The “Core Earnings” basis presentation, when compared to our on-balance sheet presentation, is different in that it:


	•	includes the net interest margin related to our off-balance sheet student loan securitization trusts. This includes any related fees or costs such as the Consolidation Loan Rebate Fees, premium/discount amortization and Borrower Benefits yield adjustments;

	•	includes the reclassification of certain derivative net settlement amounts. The net settlements on certain derivatives that do not qualify as SFAS No. 133 hedges are recorded as part of the “gain (loss) on derivative and hedging activities, net” line item on the income statement and are therefore not recognized in the student loan spread. Under this presentation, these gains and losses are reclassified to the income statement line item of the economically hedged item. For our “Core Earnings” basis student loan spread, this would primarily include: (a) reclassifying the net settlement amounts related to our written Floor Income Contracts to student loan interest income and (b) reclassifying the net settlement amounts related to certain of our basis swaps to debt interest expense;

	•	excludes unhedged Floor Income earned on the Managed student loan portfolio; and

	•	includes the amortization of upfront payments on Floor Income Contracts in student loan income that we believe are economically hedging the Floor Income.

As discussed above, these differences result in the “Core Earnings” basis student loan spread not being a GAAP-basis presentation. Management relies on this measure to manage our Lending business segment. Specifically, management uses the “Core Earnings” basis student loan spread to evaluate the overall economic

effect that certain factors have on our student loans either on-balance sheet or off-balance sheet. These factors include the overall mix of student loans in our portfolio, acquisition costs, Borrower Benefits program costs, Floor Income and funding and hedging costs. Management believes that it is important to evaluate all of these factors on a Managed Basis to gain additional information about the economic effect of these factors on our student loans under management. Management believes that this additional information assists us in making strategic decisions about the Company’s business model for the Lending business segment, including among other factors, how we acquire or originate student loans, how we fund acquisitions and originations, what Borrower Benefits we offer and what type of loans we purchase or originate. While management believes that the “Core Earnings” basis student loan spread is an important tool for evaluating the Company’s performance for the reasons described above, it is subject to certain general and specific limitations that investors should carefully consider. See “BUSINESS SEGMENTS — Limitations of ‘Core Earnings.’ ” One specific limitation is that the “Core Earnings” basis student loan spread includes the spread on loans that we have sold to securitization trusts.


	Quarters ended									Six months ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2007			2007			2006			2007			2006

“Core Earnings” basis student loan yield		8.30	%		8.33	%		8.04	%		8.30	%		7.82	%
Consolidation Loan Rebate Fees		(.55	)		(.56	)		(.54	)		(.56	)		(.54	)
Borrower Benefits		(.12	)		(.11	)		(.07	)		(.11	)		(.07	)
Premium and discount amortization		(.17	)		(.16	)		(.19	)		(.16	)		(.17	)

“Core Earnings” basis student loan net yield		7.46			7.50			7.24			7.47			7.04
“Core Earnings” basis student loan cost of funds		(5.67	)		(5.68	)		(5.38	)		(5.67	)		(5.18	)

“Core Earnings” basis student loan spread, before Interim ABCP Facility Fees⁽¹⁾⁽²⁾		1.79			1.82			1.86			1.80			1.86
Interim ABCP Facility Fees⁽²⁾		(.04	)		—			—			(.02	)		—

“Core Earnings” basis student loan spread⁽¹⁾		1.75	%		1.82	%		1.86	%		1.78	%		1.86	%

Average Balances
On-balance sheet student loans⁽¹⁾	$	101,871		$	96,866		$	80,724		$	99,382		$	81,781
Off-balance sheet student loans		43,432			44,663			47,716			44,044			44,909

Managed student loans	$	145,303		$	141,529		$	128,440		$	143,426		$	126,690


⁽¹⁾		Excludes the impact of the Wholesale Consolidation Loan portfolio on the student loan spread and average balances for the quarters ended June 30, 2007 and March 31, 2007, and for the six months ended June 30, 2007.

⁽²⁾		The Interim ABCP Facility fees are the commitment and liquidity fees that related to a new financing facility in connection with the Merger. See “RECENT DEVELOPMENTS — Merger-Related Developments — Financing Considerations Related to the Transaction.”

Discussion of “Core Earnings” Basis Student Loan Spread — Other Quarter-over-Quarter Fluctuations

The reduction in the student loan spread from the first quarter to the second quarter of 2007 was primarily driven by slight increases in borrower benefit and premium amortization expense in the period, as well as, an increase in the estimate of uncollectible accrued interest discussed below.

We estimate the amount of Private Education Loan accrued interest in a period that is not reasonably expected to be collected in the future using a methodology consistent with the status-based migration analysis used for the allowance for Private Education Loans. We use this estimate to offset accrued interest in the current period through a charge to student loan interest income. As our provisions for loan losses increased significantly in the first and second quarters of 2007, we had a similar rise in the estimate of uncollectible accrued interest receivable which reduced the student loan spread by approximately 7 basis points in the second quarter of 2007 as compared to 6 basis points in the first quarter of 2007 and 2 basis points the second quarter of 2006.

The second quarter 2006 spread includes $18 million or 6 basis points of income associated with non-recurring SAP that we accrued on PLUS loans in connection with the Higher Education Reconciliation Act of 2005.

As discussed under “Student Loans — Student Loan Spread — Wholesale Consolidation Loans,” the “Core Earnings” basis student loan spread analysis above also excludes the impact of our Wholesale Consolidation Loan portfolio whose average balances were $7.0 billion and $4.6 billion for the second and first quarters of 2007, respectively. Had the impact of the Wholesale Consolidation Loan volume been included in the “Core Earnings” basis student loan spread analysis, it would have reduced the spread by approximately 8 basis points and 5 basis points for the second and first quarters of 2007, respectively. As of June 30, 2007 and March 31, 2007, Wholesale Consolidation Loans totaled $7.5 billion, or 9 percent and $6.7 billion, or 8 percent, respectively, of our total Managed FFELP Consolidation Loan portfolio.

“Core Earnings” Basis Student Loan Spreads by Loan Type

The student loan spread continues to reflect the changing mix of loans in our portfolio, specifically the shift from FFELP Stafford loans to Consolidation Loans and the higher overall growth rate in Private Education Loans as a percentage of the total portfolio. (See “LENDING BUSINESS SEGMENT — Summary of our Managed Student Loan Portfolio — Average Balances.”)

The following table reflects the “Core Earnings” basis student loan spreads by product, excluding the effect of non-recurring items and the impact of the Interim ABCP Facility Fees on the second quarter of 2007. See “RECENT DEVELOPMENTS — Merger-Related Developments — Financing Considerations Related to the Transaction.” The table also excludes the effect of Wholesale Consolidation Loans as discussed above.


	Quarters ended									Six months ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2007			2007			2006			2007			2006

FFELP Loan Spreads (“Core Earnings” Basis), before Interim ABCP Facility Fees:
Stafford		1.12	%		1.24	%		1.31	%		1.18	%		1.36	%
Consolidation		1.04			1.04			1.19			1.04			1.22

FFELP Loan Spread (“Core Earnings” Basis), before Interim ABCP Facility Fees		1.06			1.11			1.24			1.09			1.28
Private Education Loan Spreads (“Core Earnings” Basis), before Interim ABCP Facility Fees:
Before provision		5.26	%		5.28	%		5.07	%		5.27	%		4.97	%
After provision		1.53			2.10			3.90			1.81			3.62

The FFELP loan spreads will continue to decline on a year-over-year basis as the mix of the portfolios of both Stafford and Consolidation Loans shift away from older loans with higher SAP spreads to newer loans with reduced SAP spreads. Stafford loan spreads have also declined as a result of increased amortization expense associated with the cost of absorbing the origination fees and guarantor fees on behalf of borrowers. Additionally, FFELP Consolidation Loan spreads were negatively impacted year-over-year from the lower amortization associated with the maturing of existing Floor Income Contracts.

The increase in Private Education Loan spreads before provision from the second quarter of 2006 to the second quarter of 2007 was driven by widening margins associated with our various product offerings partially offset by the increase in the estimate of uncollectible accrued interest. The decrease in the spread after provision was due to the increase in the provision associated with our allowance for Private Education Loan Losses as discussed below in “Private Education Loans — Allowance for Private Education Loan Losses.”

Private Education Loans

All Private Education Loans are initially acquired on-balance sheet. In securitizations of Private Education Loans that are treated as sales, the loans are no longer owned by us, and they are accounted for off-balance sheet. For our Managed Basis presentation in the table below, when Private Education Loans are sold to securitization trusts, we reduce the on-balance sheet allowance for loan losses for amounts previously provided

and then re-establish the allowance for these loans in the off-balance sheet section. The total allowance of both on-balance sheet and off-balance sheet loan losses results in the Managed Basis allowance for loan losses. The off-balance sheet allowance is lower than the on-balance sheet allowance when measured as a percentage of ending loans in repayment because of the different mix of loans on-balance sheet and off-balance sheet.

When Private Education Loans in our securitization trusts settling before September 30, 2005, become 180 days delinquent, we typically exercise our contingent call option to repurchase these loans at par value out of the trust and record a loss for the difference in the par value paid and the fair market value of the loan at the time of purchase. If these loans reach the 212-day delinquency, a charge-off for the remaining balance of the loan is triggered. On a Managed Basis, the losses recorded under GAAP for loans repurchased at day 180 are reversed and the full amount is charged off in the month in which the loan is 212 days delinquent. We do not hold the contingent call option for any trust formed after September 30, 2005.

Allowance for Private Education Loan Losses

The following tables summarize changes in the allowance for Private Education Loan losses for the quarters ended June 30, 2007, March 31, 2007, and June 30, 2006 and for the six months ended June 30, 2007 and 2006.


	Activity in Allowance for Private Education Loans
	On-Balance Sheet									Off-Balance Sheet									Managed Basis
	Quarters ended									Quarters ended									Quarters ended
	June 30,			March 31,			June 30,			June 30,			March 31,			June 30,			June 30,			March 31,			June 30,
	2007			2007			2006			2007			2007			2006			2007			2007			2006

Allowance at beginning of period	$	369		$	308		$	232		$	116		$	86		$	91		$	485		$	394		$	323
Provision for Private Education Loan losses		139			142			62			95			47			(7	)		234			189			55
Charge-offs		(88	)		(82	)		(36	)		(28	)		(23	)		(4	)		(116	)		(105	)		(40	)
Recoveries		8			7			6			—			—			—			8			7			6

Net charge-offs		(80	)		(75	)		(30	)		(28	)		(23	)		(4	)		(108	)		(98	)		(34	)

Balance before securitization of Private Education Loans		428			375			264			183			110			80			611			485			344
Reduction for securitization of Private Education Loans		—			(6	)		(12	)		—			6			12			—			—			—

Allowance at end of period	$	428		$	369		$	252		$	183		$	116		$	92		$	611		$	485		$	344

Net charge-offs as a percentage of average loans in repayment (annualized)		6.19	%		6.27	%		3.13	%		1.53	%		1.35	%		.32	%		3.50	%		3.40	%		1.52	%
Allowance as a percentage of the ending total loan balance		3.74	%		3.61	%		3.55	%		1.29	%		.80	%		.75	%		2.38	%		1.96	%		1.78	%
Allowance as a percentage of ending loans in repayment		7.79	%		7.58	%		6.66	%		2.50	%		1.70	%		1.61	%		4.76	%		4.14	%		3.62	%
Average coverage of net charge-offs (annualized)		1.33			1.21			2.09			1.69			1.25			5.63			1.42			1.22			2.52
Average total loans	$	10,917		$	11,354		$	7,961		$	14,224		$	12,721		$	10,770		$	25,141		$	24,075		$	18,731
Ending total loans	$	11,442		$	10,218		$	7,085		$	14,231		$	14,468		$	12,282		$	25,673		$	24,686		$	19,367
Average loans in repayment	$	5,182		$	4,859		$	3,838		$	7,091		$	6,815		$	5,163		$	12,273		$	11,674		$	9,001
Ending loans in repayment	$	5,496		$	4,867		$	3,777		$	7,344		$	6,839		$	5,731		$	12,840		$	11,706		$	9,508


	Activity in Allowance for Private Education Loan Losses
	On-Balance Sheet						Off-Balance Sheet						Managed Basis
	Six months ended						Six months ended						Six months ended
	June 30,			June 30,			June 30,			June 30,			June 30,			June 30,
	2007			2006			2007			2006			2007			2006

Allowance at beginning of period	$	308		$	204		$	86		$	78		$	394		$	282
Provision for Private Education Loan losses		281			116			141			6			422			122
Charge-offs		(170	)		(69	)		(50	)		(4	)		(220	)		(73	)
Recoveries		15			13			—			—			15			13

Net charge-offs		(155	)		(56	)		(50	)		(4	)		(205	)		(60	)

Balance before securitization of Private Education Loans		434			264			177			80			611			344
Reduction for securitization of Private Education Loans		(6	)		(12	)		6			12			—			—

Allowance at end of period	$	428		$	252		$	183		$	92		$	611		$	344

Net charge-offs as a percentage of average loans in repayment (annualized)		6.04	%		3.05	%		1.42	%		.16	%		3.37	%		1.37	%
Allowance as a percentage of the ending total loan balance		3.74	%		3.55	%		1.29	%		.75	%		2.38	%		1.78	%
Allowance as a percentage of ending loans in repayment		7.79	%		6.66	%		2.50	%		1.61	%		4.76	%		3.62	%
Average coverage of net charge-offs (annualized)		1.37			2.22			1.83			11.01			1.48			2.82
Average total loans	$	11,134		$	8,485		$	13,477		$	9,716		$	24,611		$	18,201
Ending total loans	$	11,442		$	7,085		$	14,231		$	12,282		$	25,673		$	19,367
Average loans in repayment	$	5,174		$	3,720		$	7,067		$	5,191		$	12,241		$	8,911
Ending loans in repayment	$	5,496		$	3,777		$	7,344		$	5,731		$	12,840		$	9,508

Toward the end of 2006 and through mid-2007, we experienced lower pre-default collections resulting in increased levels of charge-off activity in our Private Education Loan portfolio. As the portfolio seasons and due to shifts in its mix and certain economic factors, we expected and have seen charge-off rates increase from the historically low levels experienced in the prior years. However, the large increase in the first half of 2007 is significantly impacted by additional factors. In the third and fourth quarters of 2006, we encountered a number of operational challenges at our DMO in performing pre-default collections on our Private Education Loan portfolio. In August 2006, we announced that we intended to relocate responsibility for certain Private Education Loan collections from our Nevada call center to a new call center in Indiana. This transfer presented us with unexpected operational challenges that resulted in lower collections that have negatively impacted the Private Education Loan portfolio. In addition, in late 2006 the DMO also revised certain procedures, including its use of forbearance, to better optimize our long-term collection strategies.

Management has been aggressively remediating these issues beginning with actions in late 2006 and early 2007, such as transferring experienced collection personnel to the new call center and conducting extensive training and monitoring. Beginning late in the second quarter and into the early third quarter of 2007, DMO has also instituted more precise analytic collection strategies and new systematic enhancements to better manage the volume, seasoning and shift in the portfolio mix. Because charge-offs are generally reflective of the collection performance of six or seven months prior to the 212-day charge-off event, the effect of all of these actions will not be fully realized until 2008. These developments have resulted in increased later stage delinquency levels and associated higher charge-offs in the first half of 2007. Due to the remedial actions in place, we anticipate the negative trends caused by the operational-related issues will steadily improve over the remainder of 2007 and the first half of 2008.

The anticipated level of elevated delinquency and net charge-offs beyond June 30, 2007 discussed above is reflected in the higher level of provisioning for the quarter. Through our status-based allowance methodology, the provision is directly correlated to both the current level of delinquency in the portfolio and the expected rate of charge-off associated with each repayment status category. The gross charge-off rates are reduced by the expected life-of-loan recoveries anticipated on the charged-off portfolio to arrive at a net charge-off expectation. The provision for the quarter includes an update to our projected default rates reflecting an increased gross charge-off expectation somewhat offset by an increase in expected life-of-loan recoveries. For the quarter ended June 30, 2007, the net effect of these changes in estimates included in provision expense above is $146 million on a Managed Basis and $58 million for on-balance sheet.

Delinquencies

The tables below present our Private Education Loan delinquency trends as of June 30, 2007, March 31, 2007, and June 30, 2006. Delinquencies have the potential to adversely impact earnings through increased servicing and collection costs in the event the delinquent accounts charge off.


	On-Balance Sheet Private Education
	Loan Delinquencies
	June 30,						March 31,						June 30,
	2007						2007						2006
	Balance			%			Balance			%			Balance			%

Loans in-school/grace/deferment⁽¹⁾	$	5,789					$	5,220					$	3,305
Loans in forbearance⁽²⁾		544						494						299
Loans in repayment and percentage of each status:
Loans current		4,873			88.7	%		4,260			87.5	%		3,353			88.8	%
Loans delinquent 31-60 days⁽³⁾		243			4.4			184			3.8			176			4.7
Loans delinquent 61-90 days⁽³⁾		131			2.4			131			2.7			100			2.6
Loans delinquent greater than 90 days⁽³⁾		249			4.5			292			6.0			148			3.9

Total Private Education Loans in repayment		5,496			100	%		4,867			100	%		3,777			100	%

Total Private Education Loans, gross		11,829						10,581						7,381
Private Education Loan unamortized discount		(387	)					(363	)					(296	)

Total Private Education Loans		11,442						10,218						7,085
Private Education Loan allowance for losses		(428	)					(369	)					(252	)

Private Education Loans, net	$	11,014					$	9,849					$	6,833

Percentage of Private Education Loans in repayment		46.5	%					46.0	%					51.2	%

Delinquencies as a percentage of Private Education Loans in repayment		11.3	%					12.5	%					11.2	%


	Off-Balance Sheet Private Education
	Loan Delinquencies
	June 30,						March 31,						June 30,
	2007						2007						2006
	Balance			%			Balance			%			Balance			%

Loans in-school/grace/deferment⁽¹⁾	$	6,136					$	6,821					$	6,074
Loans in forbearance⁽²⁾		1,093						1,147						751
Loans in repayment and percentage of each status:
Loans current		7,002			95.3	%		6,475			94.7	%		5,483			95.7	%
Loans delinquent 31-60 days⁽³⁾		196			2.7			145			2.1			151			2.6
Loans delinquent 61-90 days⁽³⁾		66			.9			88			1.3			50			.9
Loans delinquent greater than 90 days⁽³⁾		80			1.1			131			1.9			47			.8

Total Private Education Loans in repayment		7,344			100	%		6,839			100	%		5,731			100	%

Total Private Education Loans, gross		14,573						14,807						12,556
Private Education Loan unamortized discount		(342	)					(339	)					(274	)

Total Private Education Loans		14,231						14,468						12,282
Private Education Loan allowance for losses		(183	)					(116	)					(92	)

Private Education Loans, net	$	14,048					$	14,352					$	12,190

Percentage of Private Education Loans in repayment		50.4	%					46.2	%					45.6	%

Delinquencies as a percentage of Private Education Loans in repayment		4.7	%					5.3	%					4.3	%


⁽¹⁾		Loans for borrowers who still may be attending school or engaging in other permitted educational activities and are not yet required to make payments on the loans, e.g., residency periods for medical students or a grace period for bar exam preparation.
⁽²⁾		Loans for borrowers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors, consistent with the 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.


	Managed Basis Private Education
	Loan Delinquencies
	June 30,						March 31,						June 30,
	2007						2007						2006
	Balance			%			Balance			%			Balance			%

Loans in-school/grace/deferment⁽¹⁾	$	11,925					$	12,041					$	9,379
Loans in forbearance⁽²⁾		1,637						1,641						1,050
Loans in repayment and percentage of each status:
Loans current		11,875			92.5	%		10,735			91.7	%		8,836			92.9	%
Loans delinquent 31-60 days⁽³⁾		439			3.4			329			2.8			327			3.4
Loans delinquent 61-90 days⁽³⁾		197			1.5			219			1.9			150			1.6
Loans delinquent greater than 90 days⁽³⁾		329			2.6			423			3.6			195			2.1

Total Private Education Loans in repayment		12,840			100	%		11,706			100	%		9,508			100	%

Total Private Education Loans, gross		26,402						25,388						19,937
Private Education Loan unamortized discount		(729	)					(702	)					(570	)

Total Private Education Loans		25,673						24,686						19,367
Private Education Loan allowance for losses		(611	)					(485	)					(344	)

Private Education Loans, net	$	25,062					$	24,201					$	19,023

Percentage of Private Education Loans in repayment		48.6	%					46.1	%					47.7	%

Delinquencies as a percentage of Private Education Loans in repayment		7.5	%					8.3	%					7.1	%


⁽¹⁾		Loans for borrowers who still may be attending school or engaging in other permitted educational activities and are not yet required to make payments on the loans, e.g., residency periods for medical students or a grace period for bar exam preparation.
⁽²⁾		Loans for borrowers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors, consistent with the 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.

Forbearance — Managed Basis Private Education Loans

Private Education Loans are made to parent and student borrowers in accordance with our underwriting policies. These loans generally supplement federally guaranteed student loans, which are subject to federal lending caps. Private Education Loans are not federally guaranteed nor insured against any loss of principal or interest. Traditional student borrowers use the proceeds of these loans to obtain higher education, which increases the likelihood of obtaining employment at higher income levels than would be available without the additional education. As a result, the borrowers’ repayment capability improves at the time they enter the post-education work force. We generally allow the loan repayment period on traditional higher education Private Education Loans to begin six months after the borrower leaves school (consistent with our federally regulated FFELP loans). This provides the borrower time after graduation to obtain a job to service the debt. For borrowers that need more time or experience other hardships, we permit additional delays in payment or partial payments (both referred to as forbearances) when we believe additional time will improve the borrower’s ability to repay the loan. Forbearance is also granted to borrowers who may experience temporary hardship after entering repayment when we believe that it will increase the likelihood of ultimate collection of the loan. Such forbearance is granted within established policies that include limits on the number of forbearance months granted consecutively and limits on the total number of forbearance months granted over the life of the loan. In some instances of forbearance, we require good-faith payments or continuing partial payments. Exceptions to forbearance policies are permitted in limited circumstances and only when such exceptions are judged to increase the likelihood of ultimate collection of the loan.

Forbearance does not grant any reduction in the total repayment obligation (principal or interest) but does allow for the temporary cessation of borrower payments (on a prospective and/or retroactive basis) or a reduction in monthly payments for an agreed period of time. The forbearance period extends the original term of the loan. While the loan is in forbearance, interest continues to accrue and is capitalized as principal upon

the loan re-entering repayment status. Loans exiting forbearance into repayment status are considered current regardless of their previous delinquency status.

Forbearance is used most heavily immediately after the loan enters repayment. As a result, forbearance levels are impacted by the timing of loans entering repayment and are generally at higher levels in the first quarter. As indicated in the tables below that show the composition and status of the Managed Private Education Loan portfolio by number of months aged from the first date of repayment, the percentage of loans in forbearance decreases the longer the loans have been in repayment. At June 30, 2007, loans in forbearance as a percentage of loans in repayment and forbearance are 14.0 percent for loans that have been in repayment one to twenty-four months. The percentage drops to 4.4 percent for loans that have been in repayment more than 48 months. Approximately 75 percent of our Managed Private Education Loans in forbearance have been in repayment less than 24 months. These borrowers are essentially extending their grace period as they transition to the workforce. Forbearance continues to be a positive collection tool for the Private Education Loans as we believe it can provide the borrower with sufficient time to obtain employment and income to support his or her obligation. We consider the potential impact of forbearance in the determination of the loan loss reserves.

The tables below show the composition and status of the Private Education Loan portfolio by number of months aged from the first date of repayment:


	Months since entering repayment
										After
	1 to 24			25 to 48			More than			June 30,
June 30, 2007	months			months			48 months			2007⁽¹⁾			Total

Loans in-school/grace/deferment	$	—		$	—		$	—		$	11,925		$	11,925
Loans in forbearance		1,229			305			103			—			1,637
Loans in repayment — current		7,002			2,813			2,060			—			11,875
Loans in repayment — delinquent 31-60 days		256			114			69			—			439
Loans in repayment — delinquent 61-90 days		121			49			27			—			197
Loans in repayment — delinquent greater than 90 days		166			105			58			—			329

Total	$	8,774		$	3,386		$	2,317		$	11,925		$	26,402

Unamortized discount														(729	)
Allowance for loan losses														(611	)

Total Managed Private Education Loans, net													$	25,062

Loans in forbearance as a percentage of loans in repayment and forbearance		14.0	%		9.0	%		4.4	%		—	%		11.3	%


⁽¹⁾		Includes all loans in-school/grace/deferment.


	Months since entering repayment
										After
	1 to 24			25 to 48			More than			Mar. 31,
March 31, 2007	months			months			48 months			2007⁽¹⁾			Total

Loans in-school/grace/deferment	$	—		$	—		$	—		$	12,041		$	12,041
Loans in forbearance		1,314			242			85			—			1,641
Loans in repayment — current		6,154			2,614			1,967			—			10,735
Loans in repayment — delinquent 31-60 days		193			81			55			—			329
Loans in repayment — delinquent 61-90 days		144			47			28			—			219
Loans in repayment — delinquent greater than 90 days		212			130			81			—			423

Total	$	8,017		$	3,114		$	2,216		$	12,041		$	25,388

Unamortized discount														(702	)
Allowance for loan losses														(485	)

Total Managed Private Education Loans, net													$	24,201

Loans in forbearance as a percentage of loans in repayment and forbearance		16.4	%		7.8	%		3.8	%		—	%		12.3	%


⁽¹⁾		Includes all loans in-school/grace/deferment.


	Months since entering repayment
										After
	1 to 24			25 to 48			More than			June 30,
June 30, 2006	months			months			48 months			2006⁽¹⁾			Total

Loans in-school/grace/deferment	$	—		$	—		$	—		$	9,379		$	9,379
Loans in forbearance		776			194			80			—			1,050
Loans in repayment — current		5,184			2,024			1,628			—			8,836
Loans in repayment — delinquent 31-60 days		180			87			60			—			327
Loans in repayment — delinquent 61-90 days		90			37			23			—			150
Loans in repayment — delinquent greater than 90 days		101			60			34			—			195

Total	$	6,331		$	2,402		$	1,825		$	9,379		$	19,937

Unamortized discount														(570	)
Allowance for loan losses														(344	)

Total Managed Private Education Loans, net													$	19,023

Loans in forbearance as a percentage of loans in repayment and forbearance		12.3	%		8.1	%		4.4	%		—	%		9.9	%


⁽¹⁾		Includes all loans in-school/grace/deferment.

The table below stratifies the portfolio of loans in forbearance by the cumulative number of months the borrower has used forbearance as of the dates indicated. As detailed in the table below, 4 percent of loans

currently in forbearance have deferred their loan repayment more than 24 months, which is 1 percent higher versus the prior quarter and 4 percent lower versus the year-ago quarter.


	June 30, 2007					March 31, 2007					June 30, 2006
	Forbearance		% of			Forbearance		% of			Forbearance		% of
	Balance		Total			Balance		Total			Balance		Total

Cumulative number of months borrower has used forbearance
Up to 12 months	$	1,176		72	%	$	1,219		74	%	$	753		72	%
13 to 24 months		395		24			374		23			214		20
25 to 36 months		51		3			37		2			57		5
More than 36 months		15		1			11		1			26		3

Total	$	1,637		100	%	$	1,641		100	%	$	1,050		100	%

Total Loan Net Charge-offs

The following tables summarize the total loan net charge-offs on both an on-balance sheet basis and a Managed Basis for the quarters ended June 30, 2007, March 31, 2007, and June 30, 2006 and for the six months ended June 30, 2007 and 2006.

Total on-balance sheet loan net charge-offs


	Quarters ended						Six months ended
	June 30,		March 31,		June 30,		June 30,		June 30,
	2007		2007		2006		2007		2006

Private Education Loans	$	80	$	75	$	30	$	155	$	56
FFELP Stafford and Other Student Loans		5		4		1		9		2
Mortgage and consumer loans		3		2		1		5		2

Total on-balance sheet loan net charge-offs	$	88	$	81	$	32	$	169	$	60

Total Managed loan net charge-offs


	Quarters ended						Six Months ended
	June 30,		March 31,		June 30,		June 30,		June 30,
	2007		2007		2006		2007		2006

Private Education Loans	$	108	$	98	$	34	$	205	$	60
FFELP Stafford and Other Student Loans		9		8		1		17		2
Mortgage and consumer loans		3		2		1		5		2

Total Managed loan net charge-offs	$	120	$	108	$	36	$	227	$	64

The increase in net charge-offs on FFELP Stafford and Other student loans from the year-ago quarter is the result of the legislative changes which lower the federal guaranty on claims filed after July 1, 2006 to 97 percent from 98 percent (or 99 percent from 100 percent for lenders and servicers with the Exceptional Performer designation). See “Private Education Loans — Allowance for Private Education Loan Losses” for a discussion of net charge-offs related to our Private Education Loans.

Student Loan Premiums Paid as a Percentage of Principal

The following table presents student loan premiums paid as a percentage of the principal balance of student loans acquired for the respective periods.


	Quarters ended															Six months ended
	June 30,					March 31,					June 30,					June 30,					June 30,
	2007					2007					2006					2007					2006
	Volume		Rate			Volume		Rate			Volume		Rate			Volume		Rate			Volume		Rate

Student loan premiums paid:
Sallie Mae brands	$	2,298		1.47	%	$	4,598		1.41	%	$	1,671		.77	%	$	6,896		1.43	%	$	4,975		.59	%
Lender partners		3,383		2.96			2,377		2.89			4,225		1.64			5,760		2.93			7,817		1.80

Total Preferred Channel		5,681		2.35			6,975		1.92			5,896		1.39			12,656		2.11			12,792		1.33
Other purchases⁽¹⁾		1,312		5.01			3,874		5.46			493		4.23			5,186		5.35			668		3.64

Subtotal base purchases		6,993		2.85			10,849		3.18			6,389		1.61			17,842		3.05			13,460		1.45
Consolidations originations		485		3.09			702		2.28			853		3.37			1,187		2.61			1,750		2.66

Total	$	7,478		2.87	%	$	11,551		3.13	%	$	7,242		1.82	%	$	19,029		3.03	%	$	15,210		1.58	%


⁽¹⁾		Primarily includes spot purchases (including Wholesale Consolidation Loans), other commitment clients, and subsidiary acquisitions.

The increase in premiums paid as a percentage of principal balance for “Sallie Mae brands” over the prior year is primarily due to the increase in loans where we pay the origination fee and/or federal guaranty fee on behalf of borrowers, a practice we call zero-fee lending. Premiums paid on “Lender partners” volume were similarly impacted by zero-fee lending. The borrower origination fee will be gradually phased out by the Reconciliation Legislation from 2007 to 2010.

The “Other purchases” category includes the acquisition of Wholesale Consolidation Loans which totaled $911 million at a rate of 5.67 percent and $3.1 billion at a rate of 6.28 percent for the quarters ended June 30, 2007 and March 31, 2007, respectively. At June 30, 2007, and March 31, 2007, Wholesale Consolidation Loans totaled $7.5 billion and $6.7 billion, respectively.

We include in “Consolidation originations” premiums the 50 basis point consolidation origination fee paid on each FFELP Stafford loan that we consolidate, including loans that are already in our portfolio. The consolidation originations premium paid percentage is calculated on only consolidation volume that is incremental to our portfolio. This percentage is largely driven by the mix of FFELP Stafford loans consolidated in this quarter.

Preferred Channel Originations

We originated $3.6 billion in student loan volume through our Preferred Channel in the quarter ended June 30, 2007 versus $8.0 billion in the quarter ended March 31, 2007 and $3.2 billion in the quarter ended June 30, 2006.

For the quarter ended June 30, 2007, our internal lending brands grew 39 percent over the year-ago quarter, and comprised 68 percent of our Preferred Channel Originations, up from 55 percent in the year-ago quarter. Our internal lending brands combined with our other lender partners comprised 92 percent of our Preferred Channel Originations for the current quarter, versus 83 percent for the year-ago quarter; together these two segments of our Preferred Channel grew 27 percent over the year-ago quarter.

Our Managed loan acquisitions for the current quarter totaled $8.4 billion, an increase of 6 percent over the year-ago quarter. The following tables further break down our Preferred Channel Originations by type of loan and source.


	Quarters ended						Six months ended
	June 30,		March 31,		June 30,		June 30,		June 30,
	2007		2007		2006		2007		2006

Preferred Channel Originations — Type of Loan
Stafford	$	2,125	$	4,601	$	1,877	$	6,725	$	6,303
PLUS		204		920		229		1,124		1,231
GradPLUS		89		128		—		217		—

Total FFELP		2,418		5,649		2,106		8,066		7,534
Private Education Loans		1,175		2,362		1,070		3,538		3,255

Total	$	3,593	$	8,011	$	3,176	$	11,604	$	10,789


	Quarters ended
	June 30,						March 31,						June 30,
	2007						2007						2006
	FFELP		Private		Total		FFELP		Private		Total		FFELP		Private		Total

Preferred Channel Originations — Source
Internal lending brands	$	1,317	$	1,126	$	2,443	$	2,719	$	2,082	$	4,801	$	900	$	857	$	1,757
Other lender partners		840		35		875		2,050		208		2,258		700		164		864

Total before JPMorgan Chase		2,157		1,161		3,318		4,769		2,290		7,059		1,600		1,021		2,621
JPMorgan Chase		261		14		275		880		72		952		506		49		555

Total	$	2,418	$	1,175	$	3,593	$	5,649	$	2,362	$	8,011	$	2,106	$	1,070	$	3,176


	Six months ended
	June 30,						June 30,
	2007						2006
	FFELP		Private		Total		FFELP		Private		Total

Preferred Channel Originations — Source
Internal lending brands	$	4,036	$	3,208	$	7,244	$	2,855	$	2,457	$	5,312
Other lender partners		2,889		244		3,133		2,724		502		3,226

Total before JPMorgan Chase		6,925		3,452		10,377		5,579		2,959		8,538
JPMorgan Chase		1,141		86		1,227		1,955		296		2,251

Total	$	8,066	$	3,538	$	11,604	$	7,534	$	3,255	$	10,789

Student Loan Activity

The following tables summarize the activity in our on-balance sheet, off-balance sheet and Managed portfolios of FFELP student loans and Private Education Loans and highlight the effects of Consolidation Loan activity on our FFELP portfolios.


	On-Balance Sheet
	Quarter ended June 30, 2007
	FFELP			FFELP						Total Private			Total On-
	Stafford and			Consolidation			Total			Education			Balance Sheet
	Other⁽¹⁾			Loans			FFELP			Loans			Portfolio

Beginning balance	$	28,562		$	66,170		$	94,732		$	9,849		$	104,581
Net consolidations:
Incremental consolidations from third parties		—			430			430			55			485
Consolidations to third parties		(673	)		(212	)		(885	)		(8	)		(893	)

Net consolidations		(673	)		218			(455	)		47			(408	)
Acquisitions		4,976			1,202			6,178			1,435			7,613

Net acquisitions		4,303			1,420			5,723			1,482			7,205

Internal consolidations		(1,166	)		1,755			589			120			709
Off-balance sheet securitizations		—			—			—			—			—
Repayments/claims/resales/other		(196	)		(1,236	)		(1,432	)		(437	)		(1,869	)

Ending balance	$	31,503		$	68,109		$	99,612		$	11,014		$	110,626


	Off-Balance Sheet
	Quarter ended June 30, 2007
	FFELP			FFELP						Total Private			Total Off-
	Stafford and			Consolidation			Total			Education			Balance Sheet
	Other⁽¹⁾			Loans			FFELP			Loans			Portfolio

Beginning balance	$	13,270		$	17,758		$	31,028		$	14,352		$	45,380
Net consolidations:
Incremental consolidations from third parties		—			—			—			—			—
Consolidations to third parties		(247	)		(56	)		(303	)		(17	)		(320	)

Net consolidations		(247	)		(56	)		(303	)		(17	)		(320	)
Acquisitions		79			49			128			173			301

Net acquisitions		(168	)		(7	)		(175	)		156			(19	)

Internal consolidations⁽²⁾		(405	)		(184	)		(589	)		(120	)		(709	)
Off-balance sheet securitizations		—			—			—			—			—
Repayments/claims/resales/other		(1,335	)		(400	)		(1,735	)		(340	)		(2,075	)

Ending balance	$	11,362		$	17,167		$	28,529		$	14,048		$	42,577


	Managed Portfolio
	Quarter ended June 30, 2007
													Total
	FFELP			FFELP						Total Private			Managed
	Stafford and			Consolidation			Total			Education			Basis
	Other⁽¹⁾			Loans			FFELP			Loans			Portfolio

Beginning balance	$	41,832		$	83,928		$	125,760		$	24,201		$	149,961
Net consolidations:
Incremental consolidations from third parties		—			430			430			55			485
Consolidations to third parties		(920	)		(268	)		(1,188	)		(25	)		(1,213	)

Net consolidations		(920	)		162			(758	)		30			(728	)
Acquisitions		5,055			1,251			6,306			1,608			7,914

Net acquisitions		4,135			1,413			5,548			1,638			7,186

Internal consolidations⁽²⁾		(1,571	)		1,571			—			—			—
Off-balance sheet securitizations		—			—			—			—			—
Repayments/claims/resales/other		(1,531	)		(1,636	)		(3,167	)		(777	)		(3,944	)

Ending balance	$	42,865		$	85,276		$	128,141		$	25,062		$	153,203

Total Managed Acquisitions⁽³⁾	$	5,055		$	1,681		$	6,736		$	1,663		$	8,399


⁽¹⁾		FFELP category is primarily Stafford loans and also includes PLUS and HEAL loans.

⁽²⁾		Represents loans that we either own on-balance sheet or in our off-balance sheet securitization trusts that we consolidate.

⁽³⁾		The Total Managed Acquisitions line includes incremental consolidations from third parties and acquisitions.


	On-Balance Sheet
	Quarter ended March 31, 2007
	FFELP			FFELP						Total Private			Total On-
	Stafford and			Consolidation			Total			Education			Balance Sheet
	Other⁽¹⁾			Loans			FFELP			Loans			Portfolio

Beginning balance	$	24,841		$	61,324		$	86,165		$	9,755		$	95,920
Net consolidations:
Incremental consolidations from third parties		—			649			649			53			702
Consolidations to third parties		(607	)		(233	)		(840	)		(9	)		(849	)

Net consolidations		(607	)		416			(191	)		44			(147	)
Acquisitions		5,783			3,494			9,277			2,262			11,539

Net acquisitions		5,176			3,910			9,086			2,306			11,392

Internal consolidations		(975	)		1,755			780			149			929
Off-balance sheet securitizations		—			—			—			(1,871	)		(1,871	)
Repayments/claims/resales/other		(480	)		(819	)		(1,299	)		(490	)		(1,789	)

Ending balance	$	28,562		$	66,170		$	94,732		$	9,849		$	104,581


	Off-Balance Sheet
	Quarter ended March 31, 2007
	FFELP			FFELP						Total Private			Total Off-
	Stafford and			Consolidation			Total			Education			Balance Sheet
	Other⁽¹⁾			Loans			FFELP			Loans			Portfolio

Beginning balance	$	15,028		$	18,311		$	33,339		$	12,833		$	46,172
Net consolidations:
Incremental consolidations from third parties		—			—			—			—			—
Consolidations to third parties		(373	)		(71	)		(444	)		(19	)		(463	)

Net consolidations		(373	)		(71	)		(444	)		(19	)		(463	)
Acquisitions		95			58			153			125			278

Net acquisitions		(278	)		(13	)		(291	)		106			(185	)

Internal consolidations⁽²⁾		(466	)		(314	)		(780	)		(149	)		(929	)
Off-balance sheet securitizations		—			—			—			1,871			1,871
Repayments/claims/resales/other		(1,014	)		(226	)		(1,240	)		(309	)		(1,549	)

Ending balance	$	13,270		$	17,758		$	31,028		$	14,352		$	45,380


	Managed Portfolio
	Quarter ended March 31, 2007
													Total
	FFELP			FFELP						Total Private			Managed
	Stafford and			Consolidation			Total			Education			Basis
	Other⁽¹⁾			Loans			FFELP			Loans			Portfolio

Beginning balance	$	39,869		$	79,635		$	119,504		$	22,588		$	142,092
Net consolidations:
Incremental consolidations from third parties		—			649			649			53			702
Consolidations to third parties		(980	)		(304	)		(1,284	)		(28	)		(1,312	)

Net consolidations		(980	)		345			(635	)		25			(610	)
Acquisitions		5,878			3,552			9,430			2,387			11,817

Net acquisitions		4,898			3,897			8,795			2,412			11,207

Internal consolidations⁽²⁾		(1,441	)		1,441			—			—			—
Off-balance sheet securitizations		—			—			—			—			—
Repayments/claims/resales/other		(1,494	)		(1,045	)		(2,539	)		(799	)		(3,338	)

Ending balance	$	41,832		$	83,928		$	125,760		$	24,201		$	149,961

Total Managed Acquisitions⁽³⁾	$	5,878		$	4,201		$	10,079		$	2,440		$	12,519


⁽¹⁾		FFELP category is primarily Stafford loans and also includes PLUS and HEAL loans.

⁽²⁾		Represents loans that we either own on-balance sheet or in our off-balance sheet securitization trusts that we consolidate.

⁽³⁾		The Total Managed Acquisitions line includes incremental consolidations from third parties and acquisitions.


	On-Balance Sheet
	Quarter ended June 30, 2006
	FFELP			FFELP						Total Private			Total On-
	Stafford and			Consolidation			Total			Education			Balance Sheet
	Other⁽¹⁾			Loans			FFELP			Loans			Portfolio

Beginning balance	$	18,883		$	53,451		$	72,334		$	9,311		$	81,645
Net consolidations:
Incremental consolidations from third parties		—			845			845			8			853
Consolidations to third parties		(386	)		(835	)		(1,221	)		(4	)		(1,225	)

Net consolidations		(386	)		10			(376	)		4			(372	)
Acquisitions		4,821			426			5,247			1,547			6,794

Net acquisitions		4,435			436			4,871			1,551			6,422

Internal consolidations		(1,588	)		3,474			1,886			20			1,906
Off-balance sheet securitizations		—			(2,532	)		(2,532	)		(3,729	)		(6,261	)
Repayments/claims/resales/other		(339	)		(774	)		(1,113	)		(320	)		(1,433	)

Ending balance	$	21,391		$	54,055		$	75,446		$	6,833		$	82,279


	Off-Balance Sheet
	Quarter ended June 30, 2006
	FFELP			FFELP						Total Private			Total Off-
	Stafford and			Consolidation			Total			Education			Balance Sheet
	Other⁽¹⁾			Loans			FFELP			Loans			Portfolio

Beginning balance	$	23,457		$	13,211		$	36,668		$	8,557		$	45,225
Net consolidations:
Incremental consolidations from third parties		—			—			—			—			—
Consolidations to third parties		(436	)		(278	)		(714	)		(5	)		(719	)

Net consolidations		(436	)		(278	)		(714	)		(5	)		(719	)
Acquisitions		120			60			180			107			287

Net acquisitions		(316	)		(218	)		(534	)		102			(432	)

Internal consolidations⁽²⁾		(1,711	)		(175	)		(1,886	)		(20	)		(1,906	)
Off-balance sheet securitizations		—			2,532			2,532			3,729			6,261
Repayments/claims/resales/other		(895	)		(210	)		(1,105	)		(178	)		(1,283	)

Ending balance	$	20,535		$	15,140		$	35,675		$	12,190		$	47,865


	Managed Portfolio
	Quarter ended June 30, 2006
													Total
	FFELP			FFELP						Total Private			Managed
	Stafford and			Consolidation			Total			Education			Basis
	Other⁽¹⁾			Loans			FFELP			Loans			Portfolio

Beginning balance	$	42,340		$	66,662		$	109,002		$	17,868		$	126,870
Net consolidations:
Incremental consolidations from third parties		—			845			845			8			853
Consolidations to third parties		(822	)		(1,113	)		(1,935	)		(9	)		(1,944	)

Net consolidations		(822	)		(268	)		(1,090	)		(1	)		(1,091	)
Acquisitions		4,941			486			5,427			1,654			7,081

Net acquisitions		4,119			218			4,337			1,653			5,990

Internal consolidations⁽²⁾		(3,299	)		3,299			—			—			—
Off-balance sheet securitizations		—			—			—			—			—
Repayments/claims/resales/other		(1,234	)		(984	)		(2,218	)		(498	)		(2,716	)

Ending balance	$	41,926		$	69,195		$	111,121		$	19,023		$	130,144

Total Managed Acquisitions⁽³⁾	$	4,941		$	1,331		$	6,272		$	1,662		$	7,934


⁽¹⁾		FFELP category is primarily Stafford loans and also includes PLUS and HEAL loans.

⁽²⁾		Represents loans that we either own on-balance sheet or in our off-balance sheet securitization trusts that we consolidate.

⁽³⁾		The Total Managed Acquisitions line includes incremental consolidations from third parties and acquisitions.


	On-Balance Sheet
	Six months ended June 30, 2007
	FFELP			FFELP						Total Private			Total On-
	Stafford and			Consolidation			Total			Education			Balance Sheet
	Other⁽¹⁾			Loans			FFELP			Loans			Portfolio

Beginning balance	$	24,841		$	61,324		$	86,165		$	9,755		$	95,920
Net consolidations:
Incremental consolidations from third parties		—			1,079			1,079			108			1,187
Consolidations to third parties		(1,280	)		(445	)		(1,725	)		(17	)		(1,742	)

Net consolidations		(1,280	)		634			(646	)		91			(555	)
Acquisitions		10,759			4,696			15,455			3,697			19,152

Net acquisitions		9,479			5,330			14,809			3,788			18,597

Internal consolidations		(2,141	)		3,510			1,369			269			1,638
Off-balance sheet securitizations		—			—			—			(1,871	)		(1,871	)
Repayments/claims/resales/other		(676	)		(2,055	)		(2,731	)		(927	)		(3,658	)

Ending balance	$	31,503		$	68,109		$	99,612		$	11,014		$	110,626


	Off-Balance Sheet
	Six months ended June 30, 2007
	FFELP			FFELP						Total Private			Total Off-
	Stafford and			Consolidation			Total			Education			Balance Sheet
	Other⁽¹⁾			Loans			FFELP			Loans			Portfolio

Beginning balance	$	15,028		$	18,311		$	33,339		$	12,833		$	46,172
Net consolidations:
Incremental consolidations from third parties		—			—			—			—			—
Consolidations to third parties		(620	)		(127	)		(747	)		(36	)		(783	)

Net consolidations		(620	)		(127	)		(747	)		(36	)		(783	)
Acquisitions		174			107			281			298			579

Net acquisitions		(446	)		(20	)		(466	)		262			(204	)

Internal consolidations⁽²⁾		(871	)		(498	)		(1,369	)		(269	)		(1,638	)
Off-balance sheet securitizations		—			—			—			1,871			1,871
Repayments/claims/resales/other		(2,349	)		(626	)		(2,975	)		(649	)		(3,624	)

Ending balance	$	11,362		$	17,167		$	28,529		$	14,048		$	42,577


	Managed Portfolio
	Six months ended June 30, 2007
													Total
	FFELP			FFELP						Total Private			Managed
	Stafford and			Consolidation			Total			Education			Basis
	Other⁽¹⁾			Loans			FFELP			Loans			Portfolio

Beginning balance	$	39,869		$	79,635		$	119,504		$	22,588		$	142,092
Net consolidations:
Incremental consolidations from third parties		—			1,079			1,079			108			1,187
Consolidations to third parties		(1,900	)		(572	)		(2,472	)		(53	)		(2,525	)

Net consolidations		(1,900	)		507			(1,393	)		55			(1,338	)
Acquisitions		10,933			4,803			15,736			3,995			19,731

Net acquisitions		9,033			5,310			14,343			4,050			18,393

Internal consolidations⁽²⁾		(3,012	)		3,012			—			—			—
Off-balance sheet securitizations		—			—			—			—			—
Repayments/claims/resales/other		(3,025	)		(2,681	)		(5,706	)		(1,576	)		(7,282	)

Ending balance	$	42,865		$	85,276		$	128,141		$	25,062		$	153,203

Total Managed Acquisitions⁽³⁾	$	10,933		$	5,882		$	16,815		$	4,103		$	20,918


⁽¹⁾		FFELP category is primarily Stafford loans and also includes PLUS and HEAL loans.

⁽²⁾		Represents loans that we either own on-balance sheet or in our off-balance sheet securitization trusts that we consolidate.

⁽³⁾		The Total Managed Acquisitions line includes incremental consolidations from third parties and acquisitions.


	On-Balance Sheet
	Six months ended June 30, 2006
	FFELP			FFELP						Total Private			Total On-
	Stafford and			Consolidation			Total			Education			Balance Sheet
	Other⁽¹⁾			Loans			FFELP			Loans			Portfolio

Beginning balance	$	19,988		$	54,859		$	74,847		$	7,757		$	82,604
Net consolidations:
Incremental consolidations from third parties		—			1,741			1,741			9			1,750
Consolidations to third parties		(693	)		(1,407	)		(2,100	)		(8	)		(2,108	)

Net consolidations		(693	)		334			(359	)		1			(358	)
Acquisitions		10,095			701			10,796			3,439			14,235

Net acquisitions		9,402			1,035			10,437			3,440			13,877

Internal consolidations		(2,372	)		5,097			2,725			20			2,745
Off-balance sheet securitizations		(5,034	)		(5,571	)		(10,605	)		(3,729	)		(14,334	)
Repayments/claims/resales/other		(593	)		(1,365	)		(1,958	)		(655	)		(2,613	)

Ending balance	$	21,391		$	54,055		$	75,446		$	6,833		$	82,279


	Off-Balance Sheet
	Six months ended June 30, 2006
	FFELP			FFELP						Total Private			Total Off-
	Stafford and			Consolidation			Total			Education			Balance Sheet
	Other⁽¹⁾			Loans			FFELP			Loans			Portfolio

Beginning balance	$	20,670		$	10,575		$	31,245		$	8,680		$	39,925
Net consolidations:
Incremental consolidations from third parties		—			—			—			—			—
Consolidations to third parties		(864	)		(456	)		(1,320	)		(10	)		(1,330	)

Net consolidations		(864	)		(456	)		(1,320	)		(10	)		(1,330	)
Acquisitions		208			118			326			174			500

Net acquisitions		(656	)		(338	)		(994	)		164			(830	)

Internal consolidations⁽²⁾		(2,452	)		(273	)		(2,725	)		(20	)		(2,745	)
Off-balance sheet securitizations		5,034			5,571			10,605			3,729			14,334
Repayments/claims/resales/other		(2,061	)		(395	)		(2,456	)		(363	)		(2,819	)

Ending balance	$	20,535		$	15,140		$	35,675		$	12,190		$	47,865


	Managed Portfolio
	Six months ended June 30, 2006
													Total
	FFELP			FFELP						Total Private			Managed
	Stafford and			Consolidation			Total			Education			Basis
	Other⁽¹⁾			Loans			FFELP			Loans			Portfolio

Beginning balance	$	40,658		$	65,434		$	106,092		$	16,437		$	122,529
Net consolidations:
Incremental consolidations from third parties		—			1,741			1,741			9			1,750
Consolidations to third parties		(1,557	)		(1,863	)		(3,420	)		(18	)		(3,438	)

Net consolidations		(1,557	)		(122	)		(1,679	)		(9	)		(1,688	)
Acquisitions		10,303			819			11,122			3,613			14,735

Net acquisitions		8,746			697			9,443			3,604			13,047

Internal consolidations⁽²⁾		(4,824	)		4,824			—			—			—
Off-balance sheet securitizations		—			—			—			—			—
Repayments/claims/resales/other		(2,654	)		(1,760	)		(4,414	)		(1,018	)		(5,432	)

Ending balance	$	41,926		$	69,195		$	111,121		$	19,023		$	130,144

Total Managed Acquisitions⁽³⁾	$	10,303		$	2,560		$	12,863		$	3,622		$	16,485


⁽¹⁾		FFELP category is primarily Stafford loans and also includes PLUS and HEAL loans.

⁽²⁾		Represents loans that we either own on-balance sheet or in our off-balance sheet securitization trusts that we consolidate.

⁽³⁾		The Total Managed Acquisitions line includes incremental consolidations from third parties and acquisitions.

The increase in consolidations to third parties in 2006 reflects FFELP lenders reconsolidating FFELP Consolidation Loans using the Direct Loan program as a pass-through entity, a practice which was restricted by The Higher Education Reconciliation Act of 2005, as of July 1, 2006. The increase also reflects the effect of the repeal of the single-holder rule, which was effective for applications received on or after June 15, 2006. The single-holder rule had previously required that when a lender held all of the FFELP Stafford loans of a particular borrower whose loans were held by a single lender, in most cases that borrower could only obtain a FFELP Consolidation Loan from that lender.

During 2006, Private Education Loan consolidations were introduced as a separate product line. In the first half of 2007, we added $55 million of net incremental volume on a Managed Basis through this new product line. This new incremental volume is of higher credit quality than the volume that consolidated away from us. We expect this product line to continue to grow in the future and we will aggressively employ this and other tools to protect our portfolio against third-party consolidation of our Private Education Loans.

Other Income — Lending Business Segment

The following table summarizes the components of other income for our Lending business segment for the quarters ended June 30, 2007, March 31, 2007, and June 30, 2006, and for the six months ended June 30, 2007 and 2006.


	Quarters ended						Six months ended
	June 30,		March 31,		June 30,		June 30,		June 30,
	2007		2007		2006		2007		2006

Late fees	$	32	$	35	$	26	$	67	$	51
Gains on sales of mortgages and other loan fees		4		3		4		7		7
Gains on sales of student loans		19		—		2		19		2
Other		4		6		19		11		32

Total other income	$	59	$	44	$	51	$	104	$	92

In the second quarter of 2007, we sold $770 million of FFELP Stafford and Consolidation student loans, the majority of which were serviced by third parties. The decrease in the “Other” category versus the prior year is due to the shift of origination volume to Sallie Mae Bank. Previously, we earned servicing fees for originated loans on behalf of originating with third party lenders prior to their eventual sale to us. This revenue stream has been more than offset by capturing the earnings spread on the loans earlier.

Operating Expenses — Lending Business Segment

Operating expenses for our Lending business segment include costs incurred to service our Managed student loan portfolio and acquire student loans, as well as other general and administrative expenses. For the quarters ended June 30, 2007, March 31, 2007, and June 30, 2006, operating expenses for the Lending business segment also include $13 million, $9 million, and $8 million, respectively, of stock option compensation expense and for the six months ended June 30, 2007 and 2006 include $22 million and $18 million, respectively, of stock option compensation expense.

DEBT MANAGEMENT OPERATIONS (“DMO”) BUSINESS SEGMENT

The following table includes “Core Earnings” results for our DMO business segment.


	Quarters ended						Six months ended
	June 30,		March 31,		June 30,		June 30,		June 30,
	2007		2007		2006		2007		2006

Fee income	$	80	$	87	$	90	$	166	$	182
Collections revenue		77		65		67		143		124

Total other income		157		152		157		309		306
Operating expenses		96		93		85		190		175
Net interest expense		7		7		5		13		11

Income before income taxes and minority interest in net earnings of subsidiaries		54		52		67		106		120
Income taxes		20		19		26		39		44

Income before minority interest in net earnings of subsidiaries		34		33		41		67		76
Minority interest in net earnings of subsidiaries		1		1		1		2		3

“Core Earnings” net income	$	33	$	32	$	40	$	65	$	73

DMO Revenue by Product


	Quarters ended									Six months ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2007			2007			2006			2007			2006

Purchased paper collections revenue	$	77		$	65		$	67		$	143		$	124
Contingency:
Student loans		62			68			69			130			139
Other		6			6			9			11			19

Total contingency		68			74			78			141			158
Other		12			13			12			25			24

Total	$	157		$	152		$	157		$	309		$	306

USA Funds⁽¹⁾	$	39		$	44		$	46		$	83		$	92

% of total DMO revenue		25	%		29	%		29	%		27	%		30	%


⁽¹⁾		United Student Aid Funds, Inc. (“USA Funds”)

The decrease in contingency fees versus the prior quarter and the year-ago quarter is primarily due to the shift in collection strategy from loan consolidation to rehabilitating student loans. This shift was in response to a legislative change that reduced the rate earned from consolidating loans. To qualify for a rehabilitation, borrowers must make nine consecutive payments. The second quarter of 2007 was also negatively impacted by lower performance in default prevention, which lowered the portfolio management fee. The increase in purchased paper collections revenue primarily reflects the increase in portfolio purchases over the last four quarters.

Purchased Paper — Non-Mortgage


	Quarters ended									Six months ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2007			2007			2006			2007			2006

Face value of purchases for the period	$	1,064		$	1,076		$	461		$	2,140		$	992
Purchase price for the period		121			102			41			223			75
% of face value purchased		11.4	%		9.5	%		8.9	%		10.4	%		7.6	%
Gross Cash Collections (“GCC”)	$	124		$	115		$	93		$	239		$	182
Collections revenue		59			56			54			115			103
% of GCC		48	%		48	%		58	%		48	%		56	%
Carrying value of purchases	$	376		$	316		$	152		$	376		$	152

The amount of face value of purchases in any quarter is a function of a combination of factors including the amount of receivables available for purchase in the marketplace, average age of each portfolio, the asset class of the receivables, and competition in the marketplace. As a result, the percentage of face value purchased will vary from quarter to quarter. The decrease in collections revenue as a percentage of GCC versus the prior year can primarily be attributed to the increase in new portfolio purchases in the second quarter of 2007. Typically, revenue recognition based on a portfolio’s effective interest rate is a lower percentage of cash collections in the early stages of servicing a portfolio.

Purchased Paper — Mortgage/Properties


	Quarters ended									Six months ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2007			2007			2006			2007			2006

Face value of purchases for the period	$	485		$	239		$	191		$	725		$	323
Collections revenue		18			10			13			28			21
Collateral value of purchases		442			248			212			690			362
Purchase price for the period		329			196			160			524			273
% of collateral value		74	%		79	%		76	%		76	%		76	%
Carrying value of purchases	$	930		$	649		$	453		$	930		$	453

The purchase price for sub-performing and non-performing mortgage loans is generally determined as a percentage of the underlying collateral, but we also consider a number of factors in pricing mortgage loan portfolios to attain a targeted yield. Therefore, the purchase price as a percentage of collateral value can fluctuate depending on the mix of sub-performing versus non-performing mortgages in the portfolio, the projected timeline to resolution of loans in the portfolio and the level of private mortgage insurance associated with particular assets. The increase in the collateral value of purchases and the carrying value of purchases reflects the increase in the amount of loans purchased in the quarter.

Contingency Inventory

The following table presents the outstanding inventory of receivables that are currently being serviced through our DMO business.


	June 30,		March 31,		June 30,
	2007		2007		2006

Contingency:
Student loans	$	8,739	$	8,083	$	7,174
Other		1,590		1,529		2,594

Total	$	10,329	$	9,612	$	9,768

CORPORATE AND OTHER BUSINESS SEGMENT

The following table includes “Core Earnings” results for our Corporate and Other business segment.


	Quarters ended								Six months ended
	June 30,			March 31,			June 30,		June 30,			June 30,
	2007			2007			2006		2007			2006

Total interest income	$	7		$	2		$	1	$	9		$	2
Total interest expense		5			5			1		11			3

Net interest income (loss)		2			(3	)		—		(2	)		(1	)
Less: provisions for losses		—			1			—		1			—

Net interest income (loss) after provisions for losses		2			(4	)		—		(3	)		(1	)
Fee income		30			39			33		70			60
Other income		49			52			24		100			55

Total other income		79			91			57		170			115
Operating expenses		104			68			50		172			109

Income (loss) before income taxes		(23	)		19			7		(5	)		5
Income tax expense (benefit)		(9	)		7			2		(2	)		2

“Core Earnings” net income (loss)	$	(14	)	$	12		$	5	$	(3	)	$	3

Fee and Other Income — Corporate and Other Business Segment

The following table summarizes the components of fee and other income for our Corporate and Other business segment for the quarters ended June 30, 2007, March 31, 2007, and June 30, 2006 and for the six months ended June 30, 2007 and 2006.


	Quarters ended						Six months ended
	June 30,		March 31,		June 30,		June 30,		June 30,
	2007		2007		2006		2007		2006

Guarantor servicing fees	$	30	$	39	$	33	$	70	$	60
Loan servicing fees		5		7		7		12		15
Upromise		26		25		—		51		—
Other		18		20		17		37		40

Total fee and other income	$	79	$	91	$	57	$	170	$	115

The decrease in guarantor servicing fees versus the prior quarter is primarily due to seasonality. The decrease in guarantor servicing fees versus the prior year is due to the cap on the payment of account maintenance fees imposed by ED in the fourth quarter of 2005. We negotiated a settlement with USA Funds in the second quarter of 2006 such that USA Funds was able to cover the previous shortfall caused by the cap on payments from ED to guarantors. This cap was removed by legislation reauthorizing the student loan programs of the Higher Education Act on October 1, 2006.

USA Funds, the nation’s largest guarantee agency, accounted for 86 percent, 87 percent and 85 percent, respectively, of guarantor servicing fees and 17 percent, 16 percent and 37 percent, respectively, of revenues associated with other products and services for the quarters ended June 30, 2007, March 31, 2007, and June 30, 2006.

Operating Expenses — Corporate and Other Business Segment

Operating expenses for our Corporate and Other business segment include direct costs incurred to service loans for unrelated third parties and to perform guarantor servicing on behalf of guarantor agencies, as well as

information technology expenses related to these functions. Operating expenses in this segment for the quarters ended June 30, 2007 and March 31, 2007, also include $21 million and $21 million, respectively, of expenses related to Upromise, which was acquired in the third quarter of 2006. Also included in the operating expenses for the quarters ended June 30, 2007, March 31, 2007 and June 30, 2006, was $6 million, $4 million and $4 million, respectively, of stock option compensation expense, and for the six months ended June 30, 2007 and 2006, included $10 million and $9 million, respectively of stock option compensation expense.

RECENT DEVELOPMENTS

SLM Corporation Board of Directors Chooses New Chief Executive Officer, Tim Fitzpatrick Steps Down as CEO

On May 22, 2007, the Company announced that Thomas J. Fitzpatrick, Chief Executive Officer and Vice Chairman, was leaving the Company effective May 22, 2007. Mr. Fitzpatrick also tendered his resignation from the board of directors, which was accepted effective as of May 22, 2007. On May 22, 2007, the Company also announced that C.E. Andrews, Executive Vice President and Chief Financial Officer, was appointed Chief Executive Officer of the Company effective immediately. The departure of Mr. Fitzpatrick and appointment of Mr. Andrews was reported by the Company in its Current Report on Form 8-K filed on May 22, 2007.

In accordance with the terms of the Merger Agreement, filed with the SEC on the Company’s Current Report on Form 8-K, dated April 18, 2007, the Investor Group provided their written consent to the Company with respect to the termination of Mr. Fitzpatrick and the appointment of Mr. Andrews as Chief Executive Officer and have agreed that such termination and appointment will not be taken into account for purposes of determining whether a Material Adverse Effect (as defined in the Merger Agreement) has occurred.

Merger-Related Developments

On April 16, 2007, the Company announced that the Investor Group signed the Merger Agreement to acquire the Company for approximately $25.3 billion or $60.00 per share of common stock. When the transaction is complete, J.C. Flowers and certain other private equity investors, including Friedman Fleischer & Lowe, will invest approximately $4.4 billion and own 50.2 percent, and Bank of America (NYSE: BAC) and JPMorgan Chase (NYSE: JPM) each will invest approximately $2.2 billion and each will own 24.9 percent. The remainder of the purchase price is anticipated to be funded by debt. The Company’s independent board members unanimously approved the agreement and recommended that its shareholders approve the agreement. (See also “Merger Agreement” filed with the SEC on the Company’s Current Report on Form 8-K, dated April 18, 2007.) Pursuant to the Merger Agreement, the Company will not pay dividends on its common stock prior to the consummation of the proposed transaction.

The Investor Group has stated that it is committed to supporting the Company’s focus on transparency among lenders, schools and students and on corporate responsibility. The Company will be subject to oversight by Congress and ED, and will continue to be subject to all applicable federal and state laws, including the Higher Education Act.

The consummation of the transaction is subject to the termination of the waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which was granted on June 18, 2007. On May 31, 2007, the Investor Group filed with the Federal Deposit Insurance Corporation its Interagency Notice of Change in Control with respect to the Sallie Mae Bank.

As announced by the Company on July 11, 2007, the Investor Group informed the Company that it believes that current legislative proposals pending before the U.S. House of Representatives and U.S. Senate could result in a failure of the conditions to the closing of the Merger to be satisfied. The Company strongly disagrees with this position, intends to proceed towards the closing of the merger transaction as rapidly as possible and will take all steps to protect shareholders’ interests.

In connection with the transaction, the Company filed a revised preliminary proxy statement with the SEC on July 11, 2007.

Financing Considerations Related to the Transaction

Following the closing, the Company will continue to have publicly traded debt securities and as a result will continue comprehensive financial reporting about its business, financial condition and results of operations. Bank of America and JPMorgan Chase are committed to provide debt financing for the transaction and to provide additional liquidity to the Company prior to and after the closing date, subject to customary terms and conditions.

A portion of the Company’s existing unsecured debt will remain outstanding, and such outstanding debt will not be equally and ratably secured with the new acquisition-related debt. The acquisition financing will be structured with the intent to accommodate the repayment of any outstanding debt as it matures. The Company expects this transaction to have no material impact on its outstanding asset-backed debt and to remain an active participant in the asset-backed securities market.

On April 16, 2007, after the Company announced the transaction, Moody’s Investor Services, Standard & Poor’s and Fitch Ratings placed the long and short-term ratings on the Company’s senior unsecured debt under review for possible downgrade, and secondary market credit spreads on the Company’s outstanding senior unsecured bonds widened significantly. These factors limited the Company’s access to new sources of senior unsecured funds at borrowing costs comparable to those available before the announcement. On June 1, 2007, Standard & Poor’s downgraded the Company’s senior unsecured debt rating to “BBB+” from “A.” On July 2, 2007, Fitch Ratings downgraded the Company’s long-term issuer default rating (“IDR”) and senior unsecured debt rating to “BBB” from “A+.” In its rating release, Fitch stated that it expects to downgrade our IDR to “BB+” and our senior unsecured debt rating to “BB” as the proposed Merger transaction nears completion. On July 11, 2007, Moody’s stated that it is likely to downgrade the Company’s Corporate family rating to Ba3 and senior unsecured debt rating to “B1” from “A2” upon completion of the transaction.

On April 30, 2007, Bank of America and JPMorgan Chase provided the Company with new aggregate $30 billion asset-backed commercial paper conduit facilities (“Interim ABCP Facility”). Interest expense for the second quarter of 2007 includes $14 million in upfront commitment and ongoing liquidity fees as a result of the Interim ABCP Facility. These facilities terminate the earliest of (1) the Merger closing, (2) the 90-day anniversary of the date of termination of the Merger Agreement or (3) February 15, 2008. This additional liquidity, combined with the Company’s existing liquidity, is anticipated to be sufficient to meet the Company’s cash needs beyond the expected closing date of the announced transaction, even if no additional securities are issued by the Company during that time. The Company anticipates closing a new issuance of the Company’s traditional asset-backed securities on July 19, 2007. Thereafter, the Company anticipates future issuances on a periodic basis.

Accounting Considerations Related to the Transaction

Upon closing, the transaction will be accounted for under purchase accounting, which will be pushed down to the Company. Under purchase accounting, the total cost of the acquisition will be allocated to the Company’s identifiable assets and liabilities based on their respective fair values. Thus, all the assets and liabilities will have a new basis of accounting and therefore previous unamortized premiums, discounts and reserves related to those assets and liabilities will be written-off once the transaction closes. The excess of the purchase price over the estimated fair value of the identifiable assets and liabilities will be recognized as goodwill. Since the Company is the acquired enterprise, expenses incurred in connection with the transaction will be expensed. Transaction fees that are contingent upon the closing will be recognized when the transaction closes. Transaction fees that are not contingent on the closing will be expensed as incurred, and included in operating expense. These expenses totaled $16 million for the second quarter of 2007. Vesting accelerates on

all stock-based compensation awards, and as a result, all deferred compensation related to those awards will be expensed upon closing of the transaction.

At June 30, 2007, the Company had $2 billion Contingently Convertible Debentures (“Co-Cos”) outstanding. On June 25, 2007, holders of these securities were notified that the Co-Cos would be called at par on July 25, 2007, as allowed by the terms of the indenture governing the Co-Cos. As a result, the Company classified its $2 billion outstanding Co-Cos as a short-term obligation at June 30, 2007. For the quarter ended June 30, 2007, the impact of the Co-Cos on GAAP diluted earnings per common share was $(.03); there was no impact to the “Core Earnings” diluted earnings per common share.

State Attorney General Investigations

On April 11, 2007, the Company entered into a settlement agreement with the Office of the Attorney General of the State of New York under which we agreed to adopt the New York Attorney General’s Code of Conduct governing student lending and donate $2 million to a national fund devoted to educating college bound students about their loan options. Under the agreement, the Company did not admit, and expressly denied, that our conduct constituted any violation of law. The Code of Conduct, among other things, precludes the Company from providing anything more than nominal value to any employees of an institution of higher education and requires additional disclosures to borrowers and schools under certain circumstances. We cannot predict the effect that adopting the Code of Conduct will have on our future business prospects. Under the settlement agreement, we are required to certify implementation of its terms by August 15, 2007.

Separate from the settlement agreement with the Office of the Attorney General of the State of New York, the attorneys general of the States of Arizona, California, Connecticut, Illinois, Indiana, Louisiana, Missouri, New Jersey, Ohio and Tennessee and the Commonwealth of Massachusetts have served civil investigative demands or requests for documents on the Company seeking information concerning our relationships with schools.

New York State SLATE Act

On May 30, 2007, New York Governor Eliot Spitzer signed the Student Lending Accountability, Transparency and Enforcement Act, which codified the Code of Conduct that we agreed to adopt as part of the settlement agreement with the New York Attorney General described above. The new law prohibits lenders from making gifts to “covered institutions” in New York in exchange for any advantage or consideration related to the lenders’ education loan activities. With very limited exceptions, the new law also prohibits lenders from making any gifts to employees of New York schools. In addition, the law prohibits revenue sharing arrangements between lenders and New York schools and establishes standards for schools using preferred lender lists.

SEC, House and Senate

The SEC is conducting an investigation into trading of SLM stock prior to the public release of the President’s budget on February 5, 2007. We are cooperating with the SEC and have provided the requested information and documents. Before the SEC investigation commenced, U.S. Senator Edward Kennedy, chairman of the Senate Committee on Health, Education, Labor and Pensions, and U.S. Representatives George Miller and Barney Frank, chairmen of the House of Representatives Committee on Education and Labor and Committee on Financial Services, respectively, separately submitted requests for information regarding certain SLM stock sales by SLM’s Chairman of the Board of Directors Albert L. Lord. We have cooperated with the Senate and House Committee counsel to provide the requested information.

The U.S. House of Representatives’ Committee on Education and Labor submitted a request to the Company dated March 28, 2007 seeking information regarding our marketing practices in the student loan business. We are cooperating with committee counsel in order to provide the requested information.

The U.S. Senate Committee on Health, Education, Labor and Pensions submitted requests to the Company dated March 16, March 21, and April 26, 2007, seeking information regarding our marketing

practices in the student loan business and our collections practices on delinquent and defaulted FFELP student loans. We are cooperating with committee counsel in order to provide the requested information.

On June 7, 2007, the U.S. House of Representatives Committee on Education and Labor requested information from the Company about the qualifying factors and criteria borrowers and schools must meet to obtain the best loan rates and other borrower benefits. In addition, in a letter to the Company dated June 13, 2007, Senator Christopher J. Dodd, Chairman of the United States Senate Committee on Banking, Housing, and Urban Affairs, requested documents that reflect the Company’s recent private education loan underwriting criteria, including the factors and relative weights assigned to those factors that the Company considers in its underwriting.

Concurrent Resolution on the Budget for 2008

On March 29, 2007, the House of Representatives passed H.Con.Res. 99, its plan for the Fiscal 2008 budget. The House-passed budget resolution included a single reconciliation instruction to the House Education and Labor Committee which would require it to report legislation that would cut entitlement spending in its jurisdiction by $75 million. Although the savings amount is minimal, it was widely reported that the language was included to facilitate passage of student loan reform legislation.

H.R. 2669, the College Cost Reduction Act of 2007

On July 11, 2007, the House of Representatives passed H.R. 2669, the College Cost Reduction Act of 2007. Certain provisions would:


	•	Reduce special allowance payments for Stafford and consolidation loans by 0.55 percentage points;

	•	Reduce special allowance payments for PLUS loans by 0.85 percentage points;

	•	Double lender origination fees on all loan types, from 0.5 percent to 1.0 percent, exempting non-profit and state entities from paying any lender origination fees;

	•	Reduce default insurance to 95 percent;

	•	Eliminate exceptional performer designation (and the monetary benefit associated with it);

	•	Reduce default collections retention by guaranty agencies to 16 percent (from 23 percent); and

	•	Restructure the guaranty agency account maintenance fee to base some of the fee on non-delinquent loans.

Senate Reconciliation Bill, the Higher Education Access Act of 2007

The Senate Health, Education, Labor and Pensions Committee reported its reconciliation bill from committee on June 20, 2007. Certain provisions would:


	•	Reduce special allowance payments for Stafford and consolidation loans by 0.50 percentage points on for-profit lenders, 0.35 percentage points for non-profit and state lenders;

	•	Reduce special allowance payments for PLUS loans by 0.80 percentage points, 0.50 percentage points for non-profit and state lenders;


	•	Double lender origination fees on all loan types, from 0.5 percent to 1.0 percent;

	•	Maintain default insurance at 97 percent, but eliminating exceptional performer designation;

	•	Reduce default collections retention by guaranty agencies to 16 percent (from 23 percent);

	•	Change to payment of the guaranty agency account maintenance fee to a unit basis, from the current original principal balance formula; and

	•	Require the Department of Education to develop and then implement an auction for participation in the FFELP PLUS loan program, by state.

Higher Education Reauthorization

On July 3, 2007, the President signed into law P.L. 110-44, which provided for another temporary extension of the Higher Education Act until July 31, 2007. Another extension may be required at the end of the month to allow the House and Senate to complete action on HEA reauthorization. On June 20, 2007, the Senate Health, Education, Labor, and Pensions committee reported its version of reauthorization. The House committee has yet to report its version of the bill.

The Senate bill includes provisions that would affect the student loan programs. The Senate bill includes provisions that would regulate gifts, travel, entertainment, and services provided to institutions of higher education by guarantors and lenders. It includes new disclosure requirements on lenders and would prohibit schools from designating preferred lender lists. The Senate bill would allow schools to keep standard lists of lenders but would be required to include any lender on the list that requested inclusion. The bill would also eliminate school-as-lender, effective June 30, 2011.

Student Loan Sunshine Act

On Wednesday, May 9, 2007, the House of Representatives passed H.R. 890, a bipartisan version of the “Student Loan Sunshine Act.” The bill would establish greater disclosure requirements on schools and lenders for both FFELP loans and Private Education Loans. The legislation would require higher education institutions to establish “codes of conduct” that would include prohibition on many areas that have been cited as creating conflicts of interest. Areas specified by the legislation include gifts, consulting or other fees paid by lenders to financial aid officers and other school officials, fees or other material benefits, including profit or revenue sharing to institutions or their staff, staffing assistance, opportunity loans, and advisory councils. The legislation would require that schools include at least three unaffiliated lenders on any Preferred Lender List and disclose the rationale for recommending such lenders.

Department of Education — Notice of Proposed Rulemaking

On June 12, 2007, ED published in the Federal Register a Notice of Proposed Rulemaking. The proposed rules set forth in the Federal Register are subject to a 60-day comment period that ends on August 13, 2007. Among the provisions of the proposed rules are the following:


	•	Prohibited Inducements — incorporates with certain modifications and expansions the existing regulations and guidance on prohibited inducements and activities for lenders and guarantors, and strengthens ED’s authority to enforce the rules.


	•	Preferred Lender Lists — if a school maintains a preferred lender list, the regulations would require the school to have at least 3 unaffiliated lenders on that list. Lenders are considered affiliated if (i) they are under the ownership or control of the same entity; (ii) they are wholly or partly owned subsidiaries of the same parent; (iii) the directors of one of the lenders constitute a majority of the persons holding similar positions with the other lender; or (iv) one of the lenders if making loans on its own behalf and is also holding loans as a trustee lender for another entity.

	•	Eligible Lender Trustees — amends the “lender” definition to prohibit a lender from entering into a new eligible lender trustee relationship with a school or a school-affiliated organization after September 30, 2006.