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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): October 11, 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 October 11, 2007, SLM Corporation issued a press release with respect to its earnings for the fiscal quarter ended September 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: October 11, 2007

SLM CORPORATION
Form 8-K
CURRENT REPORT
EXHIBIT INDEX


Exhibit
No.		Description
99.1		Press Release dated October 11, 2007
99.2		Additional Information Available on the Registrant’s Website

exv99w1

Exhibit 99.1

SALLIE MAE STUDENT LOAN ORIGINATIONS INCREASE 13-PERCENT
FROM YEAR-AGO QUARTER

Managed Student Loan Portfolio Reaches $160 Billion

RESTON, Va., Oct. 11, 2007 — SLM Corporation (NYSE: SLM), commonly known as Sallie Mae, today reported third-quarter 2007 earnings and performance results that include a 13-percent rise in its student loan originations to $8.9 billion, from the 2006 third quarter’s $7.8 billion. Year-to-date 2007, student loan originations were $20.5 billion, compared to $18.6 billion in the same period last year. The company’s managed student loan portfolio totaled $160 billion at the end of the third-quarter 2007.

“Thanks to our industry-leading brand, our scale and efficiencies, and our focus on students and families, we successfully faced a number of challenges this quarter,” said C.E. Andrews, chief executive officer. “We have a solid track record of growing our ‘core earnings’ through various political, interest rate and economic environments, and the fundamentals of our business point to a bright future for our company.”

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 a third-quarter 2007 GAAP net loss of $344 million, or $.85 diluted loss per share, compared to net income of $263 million, or $.60 per diluted share, in the year-ago period. Included in these GAAP results are pre-tax losses on derivative and hedging activities of $487 million in the third-quarter 2007, principally related to the decline in share price during the quarter on the company’s equity forward positions.

Third-quarter 2007 “core earnings” net income was $305 million, or $.70 per diluted share, before $46 million, or $.11 per diluted share, in after-tax reductions to net income from the following non-recurring items: $28 million related to the recent legislative changes in the FFELP risk-sharing percentage and $18 million related to the company’s previously announced merger agreement. Including these non-recurring items, reported “core earnings” net income was $259 million, or $.59 per diluted share.

Sallie Mae

•

12061 Bluemont Way

•

Reston, Va 20190

•

www.salliemae.com

For the first nine months of 2007, “core earnings” net income was $699 million, compared to $927 million in the same period last year.

“Core earnings” net interest income was $664 million for the 2007 third quarter, up 10 percent from the year-ago quarter’s $601 million. “Core earnings” other income, which consists primarily of fees earned from guarantor servicing and collection activity, was $283 million in the third-quarter 2007, compared to $306 million in the year-ago period. “Core earnings” operating expenses were $337 million in the third-quarter 2007, compared to $317 million in the third-quarter 2006.

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 Third Quarter 2007 Supplemental Earnings Disclosure.

***

The company will host a quarterly earnings conference call and shareholder conference today at noon. Sallie Mae executives will be on hand to discuss various highlights of the quarter and to answer questions related to the company’s performance. Individuals interested in participating should call the following number today, Oct. 11, 2007, starting at 11:45 a.m. EDT: (877) 356-5689 (USA and Canada) or (706) 679-0623 (International). The conference call will be replayed continuously beginning Thursday, Oct. 11, at 3:00 p.m. EDT and concluding at midnight, Oct. 25, 2007. To access the replay, dial (800) 642-1687 (USA and Canada) or dial (706) 645-9291 (International) and use access code 5437761. In addition, there will be a live audio Web cast of the conference, which may be accessed at www.SallieMae.com. A replay will be available immediately following the conference until midnight, Oct. 25, 2007.

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, adverse results in legal disputes, 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 Third Quarter 2007. All information in this release is as of Oct. 11, 2007. The Company does not undertake any obligation to update or revise these forward looking statements to conform the statement to actual results or changes in the Company’s expectations.

***

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 $160 billion in education loans and serves nearly 10 million student and parent customers. Through its Upromise affiliates, the company also manages $19 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

September 30, 2007

(Dollars in millions, except earnings per share)


	Quarters ended									Nine months ended
	September 30,			June 30,			September 30,			September 30,			September 30,
	2007			2007			2006			2007			2006
	(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)

SELECTED FINANCIAL INFORMATION AND RATIOS
GAAP Basis
Net income (loss)	$	(344	)	$	966		$	263		$	739		$	1,139
Diluted earnings (loss) per common share⁽¹⁾	$	(.85	)	$	1.03		$	.60		$	1.69		$	2.56
Return on assets		(1.05	)%		3.23	%		1.10	%		.82	%		1.65	%
“Core Earnings” Basis⁽²⁾
“Core Earnings” net income	$	259		$	189		$	321		$	699		$	927
“Core Earnings” diluted earnings per common share⁽¹⁾	$	.59		$	.43		$	.73		$	1.58		$	2.09
“Core Earnings” return on assets		.59	%		.45	%		.86	%		.56	%		.87	%
OTHER OPERATING STATISTICS
Average on-balance sheet student loans	$	114,571		$	108,865		$	84,241		$	108,360		$	82,610
Average off-balance sheet student loans		41,526			43,432			48,226			43,195			46,027

Average Managed student loans	$	156,097		$	152,297		$	132,467		$	151,555		$	128,637

Ending on-balance sheet student loans, net	$	119,155		$	110,626		$	88,038
Ending off-balance sheet student loans, net		40,604			42,577			48,897

Ending Managed student loans, net	$	159,759		$	153,203		$	136,935

Ending Managed FFELP Stafford and Other Student Loans, net	$	44,270		$	42,865		$	39,787
Ending Managed FFELP Consolidation Loans, net		88,070			85,276			75,947
Ending Managed Private Education Loans, net		27,419			25,062			21,201

Ending Managed student loans, net	$	159,759		$	153,203		$	136,935


⁽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									Nine months ended
	September 30,			June 30,			September 30,			September 30,			September 30,
	2007			2007			2006			2007			2006
	(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)

Impact of Co-Cos on GAAP diluted earnings per common share	$	—	^(A)	$	(.03	)	$	—	^(A)	$	—	^(A)	$	(.07	)
Impact of Co-Cos on “Core Earnings” diluted earnings per common share	$	—		$	—	^(A)	$	(.01	)	$	—	^(A)	$	(.04	)


^(A)		There is no impact on diluted earnings per common share because the effect of the assumed conversion is antidilutive. On July 25, 2007, the Co-Cos were called at par.

⁽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)


	September 30,		June 30,		September 30,
	2007		2007		2006
	(unaudited)		(unaudited)		(unaudited)

Assets
FFELP Stafford and Other Student Loans (net of allowance for losses of $30,655; $11,337; and $7,649, respectively)	$	34,108,560	$	31,503,088	$	22,613,604
FFELP Consolidation Loans (net of allowance for losses of $26,809; $12,746; and $10,720 respectively)		71,370,681		68,109,269		57,201,754
Private Education Loans (net of allowance for losses of $454,100; $427,904; and $274,974, respectively)		13,675,571		11,013,668		8,222,400
Other loans (net of allowance for losses of $21,738; $19,989; and $18,327, respectively)		1,193,405		1,178,052		1,257,252
Cash and investments		12,040,001		4,565,606		4,248,639
Restricted cash and investments		4,999,369		4,300,826		3,957,535
Retained Interest in off-balance sheet securitized loans		3,238,637		3,448,045		3,613,376
Goodwill and acquired intangible assets, net		1,354,141		1,356,620		1,333,123
Other assets		8,835,025		7,327,108		4,605,014

Total assets	$	150,815,390	$	132,802,282	$	107,052,697


Liabilities
Short-term borrowings	$	33,008,374	$	9,758,465	$	3,669,842
Long-term borrowings		108,860,988		114,365,577		94,816,563
Other liabilities		3,934,267		3,320,098		4,053,931

Total liabilities		145,803,629		127,444,140		102,540,336

Commitments and contingencies
Minority interest in subsidiaries		10,054		10,081		9,338
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: 439,660; 436,095; and 431,590 shares, respectively, issued		87,932		87,219		86,318
Additional paid-in capital		2,847,748		2,721,554		2,490,851
Accumulated other comprehensive income, net of tax		245,352		265,388		460,527
Retained earnings		2,437,639		2,790,674		1,928,204

Stockholders’ equity before treasury stock		6,183,671		6,429,835		5,530,900
Common stock held in treasury: 25,544; 23,477; and 22,229 shares, respectively		1,181,964		1,081,774		1,027,877

Total stockholders’ equity		5,001,707		5,348,061		4,503,023

Total liabilities and stockholders’ equity	$	150,815,390	$	132,802,282	$	107,052,697

SLM CORPORATION

Consolidated Statements of Income

(In thousands, except per share amounts)


	Quarters ended									Nine months ended
	September 30,			June 30,			September 30,			September 30,			September 30,
	2007			2007			2006			2007			2006
	(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)

Interest income:
FFELP Stafford and Other Student Loans	$	545,618		$	511,300		$	364,621		$	1,507,680		$	1,000,211
FFELP Consolidation Loans		1,145,473			1,087,254			916,091			3,247,573			2,579,017
Private Education Loans		392,737			329,351			254,747			1,060,509			729,796
Other loans		25,990			26,453			24,550			80,416			71,398
Cash and investments		211,303			141,524			141,083			466,731			361,847

Total interest income		2,321,121			2,095,882			1,701,092			6,362,909			4,742,269
Total interest expense		1,879,811			1,697,229			1,363,271			5,109,130			3,660,122

Net interest income		441,310			398,653			337,821			1,253,779			1,082,147
Less: provisions for loan losses		142,600			148,200			67,242			441,130			194,957

Net interest income after provisions for loan losses		298,710			250,453			270,579			812,649			887,190

Other income (loss):
Gains on student loan securitizations		—			—			201,132			367,300			902,417
Servicing and securitization revenue		28,883			132,987			187,082			413,808			368,855
Losses on loans and securities, net		(25,163	)		(10,921	)		(13,427	)		(67,051	)		(24,899	)
Gains (losses) on derivative and hedging activities, net		(487,478	)		821,566			(130,855	)		(22,881	)		(94,875	)
Guarantor servicing fees		45,935			30,273			38,848			115,449			99,011
Debt management fees		76,306			80,237			122,556			243,865			304,329
Collections revenue		52,788			77,092			57,913			195,442			181,951
Other		106,684			89,004			87,923			292,121			234,380

Total other income (loss)		(202,045	)		1,220,238			551,172			1,538,053			1,971,169
Operating expenses		355,899			398,800			353,494			1,110,873			993,405

Income (loss) before income taxes and minority interest in net earnings of subsidiaries		(259,234	)		1,071,891			468,257			1,239,829			1,864,954
Income taxes		84,449			104,724			203,686			499,187			722,559

Income (loss) before minority interest in net earnings of subsidiaries		(343,683	)		967,167			264,571			740,642			1,142,395
Minority interest in net earnings of subsidiaries		77			696			1,099			1,778			3,544

Net income (loss)		(343,760	)		966,471			263,472			738,864			1,138,851
Preferred stock dividends		9,274			9,156			9,221			27,523			26,309

Net income (loss) attributable to common stock	$	(353,034	)	$	957,315		$	254,251		$	711,341		$	1,112,542

Basic earnings (loss) per common share	$	(.85	)	$	2.32		$	.62		$	1.73		$	2.71

Average common shares outstanding		412,944			411,870			410,034			411,958			411,212

Diluted earnings (loss) per common share	$	(.85	)	$	1.03		$	.60		$	1.69		$	2.56

Average common and common equivalent shares outstanding		412,944			452,406			449,841			420,305			452,012

Dividends per common share	$	—		$	—		$	.25		$	.25		$	.72

SLM CORPORATION

Segment and “Core Earnings”

Consolidated Statements of Income

(In thousands)


	Quarter ended September 30, 2007
						Corporate		Total ‘‘Core					Total
	Lending		APG			and Other		Earnings”		Adjustments			GAAP
	(unaudited)

Interest income:
FFELP Stafford and Other Student Loans	$	729,255	$	—		$	—	$	729,255	$	(183,637	)	$	545,618
FFELP Consolidation Loans		1,445,108		—			—		1,445,108		(299,635	)		1,145,473
Private Education Loans		753,295		—			—		753,295		(360,558	)		392,737
Other loans		25,990		—			—		25,990		—			25,990
Cash and investments		250,463		—			6,039		256,502		(45,199	)		211,303

Total interest income		3,204,111		—			6,039		3,210,150		(889,029	)		2,321,121
Total interest expense		2,533,909		6,632			5,282		2,545,823		(666,012	)		1,879,811

Net interest income (loss)		670,202		(6,632	)		757		664,327		(223,017	)		441,310
Less: provisions for loan losses		199,591		—			—		199,591		(56,991	)		142,600

Net interest income (loss) after provisions for loan losses		470,611		(6,632	)		757		464,736		(166,026	)		298,710
Fee income		—		76,306			45,935		122,241		—			122,241
Collections revenue		—		52,534			—		52,534		254			52,788
Other income		45,745		—			62,843		108,588		(485,662	)		(377,074	)

Total other income (loss)		45,745		128,840			108,778		283,363		(485,408	)		(202,045	)
Operating expenses⁽¹⁾		163,855		94,625			78,882		337,362		18,537			355,899

Income (loss) before income taxes and minority interest in net earnings of subsidiaries		352,501		27,583			30,653		410,737		(669,971	)		(259,234	)
Income tax expense (benefit)⁽²⁾		130,425		10,206			11,342		151,973		(67,524	)		84,449
Minority interest in net earnings of subsidiaries		—		77			—		77		—			77

Net income (loss)	$	222,076	$	17,300		$	19,311	$	258,687	$	(602,447	)	$	(343,760	)


⁽¹⁾		Operating expenses for the Lending, APG, and Corporate and Other business segments include $4 million, $2 million, and $2 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, 2007
						Corporate			Total “Core					Total
	Lending		APG			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 loan losses		246,981		—			—			246,981		(98,781	)		148,200

Net interest income (loss) after provisions for loan 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, APG, 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 September 30, 2006
						Corporate			Total “Core					Total
	Lending		APG			and Other			Earnings”		Adjustments			GAAP
	(unaudited)

Interest income:
FFELP Stafford and Other Student Loans	$	701,615	$	—		$	—		$	701,615	$	(336,994	)	$	364,621
FFELP Consolidation Loans		1,241,999		—			—			1,241,999		(325,908	)		916,091
Private Education Loans		557,787		—			—			557,787		(303,040	)		254,747
Other loans		24,550		—			—			24,550		—			24,550
Cash and investments		206,837		—			2,782			209,619		(68,536	)		141,083

Total interest income		2,732,788		—			2,782			2,735,570		(1,034,478	)		1,701,092
Total interest expense		2,124,587		6,088			3,515			2,134,190		(770,919	)		1,363,271

Net interest income (loss)		608,201		(6,088	)		(733	)		601,380		(263,559	)		337,821
Less: provisions for loan losses		79,774		—			(3	)		79,771		(12,529	)		67,242

Net interest income (loss) after provisions for loan losses		528,427		(6,088	)		(730	)		521,609		(251,030	)		270,579
Fee income		—		122,556			38,848			161,404		—			161,404
Collections revenue		—		57,744			—			57,744		169			57,913
Other income		46,074		—			40,988			87,062		244,793			331,855

Total other income		46,074		180,300			79,836			306,210		244,962			551,172
Operating expenses⁽¹⁾		156,168		91,341			69,644			317,153		36,341			353,494

Income before income taxes and minority interest in net earnings of subsidiaries		418,333		82,871			9,462			510,666		(42,409	)		468,257
Income tax expense⁽²⁾		154,783		30,662			3,502			188,947		14,739			203,686
Minority interest in net earnings of subsidiaries		—		1,099			—			1,099		—			1,099

Net income	$	263,550	$	51,110		$	5,960		$	320,620	$	(57,148	)	$	263,472


⁽¹⁾		Operating expenses for the Lending, APG, and Corporate and Other business segments include $8 million, $4 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.


	Nine months ended September 30, 2007
						Corporate			Total “Core					Total
	Lending		APG			and Other			Earnings”		Adjustments			GAAP
						(unaudited)

Interest income:
FFELP Stafford and Other Student Loans	$	2,143,232	$	—		$	—		$	2,143,232	$	(635,552	)	$	1,507,680
FFELP Consolidation Loans		4,167,358		—			—			4,167,358		(919,785	)		3,247,573
Private Education Loans		2,103,378		—			—			2,103,378		(1,042,869	)		1,060,509
Other loans		80,416		—			—			80,416		—			80,416
Cash and investments		594,784		—			15,371			610,155		(143,424	)		466,731

Total interest income		9,089,168		—			15,371			9,104,539		(2,741,630	)		6,362,909
Total interest expense		7,125,486		19,931			16,275			7,161,692		(2,052,562	)		5,109,130

Net interest income (loss)		1,963,682		(19,931	)		(904	)		1,942,847		(689,068	)		1,253,779
Less: provisions for loan losses		644,502		—			606			645,108		(203,978	)		441,130

Net interest income (loss) after provisions for loan losses		1,319,180		(19,931	)		(1,510	)		1,297,739		(485,090	)		812,649
Fee income		—		243,865			115,449			359,314		—			359,314
Collections revenue		—		195,268			—			195,268		174			195,442
Other income		149,621		—			162,301			311,922		671,375			983,297

Total other income		149,621		439,133			277,750			866,504		671,549			1,538,053
Operating expenses⁽¹⁾		517,068		284,180			250,819			1,052,067		58,806			1,110,873

Income before income taxes and minority interest in net earnings of subsidiaries		951,733		135,022			25,421			1,112,176		127,653			1,239,829
Income tax expense⁽²⁾		352,141		49,958			9,406			411,505		87,682			499,187
Minority interest in net earnings of subsidiaries		—		1,778			—			1,778		—			1,778

Net income	$	599,592	$	83,286		$	16,015		$	698,893	$	39,971		$	738,864


⁽¹⁾		Operating expenses for the Lending, APG, and Corporate and Other business segments include $26 million, $9 million, and $12 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.


	Nine months ended September 30, 2006
						Corporate			Total “Core					Total
	Lending		APG			and Other			Earnings”		Adjustments			GAAP
	(unaudited)

Interest income:
FFELP Stafford and Other Student Loans	$	2,070,275	$	—		$	—		$	2,070,275	$	(1,070,064	)	$	1,000,211
FFELP Consolidation Loans		3,384,316		—			—			3,384,316		(805,299	)		2,579,017
Private Education Loans		1,471,976		—			—			1,471,976		(742,180	)		729,796
Other loans		71,398		—			—			71,398		—			71,398
Cash and investments		507,175		—			4,764			511,939		(150,092	)		361,847

Total interest income		7,505,140		—			4,764			7,509,904		(2,767,635	)		4,742,269
Total interest expense		5,687,482		16,710			6,138			5,710,330		(2,050,208	)		3,660,122

Net interest income (loss)		1,817,658		(16,710	)		(1,374	)		1,799,574		(717,427	)		1,082,147
Less: provisions for loan losses		214,603		—			(16	)		214,587		(19,630	)		194,957

Net interest income (loss) after provisions for loan losses		1,603,055		(16,710	)		(1,358	)		1,584,987		(697,797	)		887,190
Fee income		—		304,329			99,011			403,340		—			403,340
Collections revenue		—		181,497			—			181,497		454			181,951
Other income		137,417		—			95,335			232,752		1,153,126			1,385,878

Total other income		137,417		485,826			194,346			817,589		1,153,580			1,971,169
Operating expenses⁽¹⁾		480,768		265,964			178,391			925,123		68,282			993,405

Income before income taxes and minority interest in net earnings of subsidiaries		1,259,704		203,152			14,597			1,477,453		387,501			1,864,954
Income tax expense⁽²⁾		466,091		75,166			5,401			546,658		175,901			722,559
Minority interest in net earnings of subsidiaries		—		3,544			—			3,544		—			3,544

Net income	$	793,613	$	124,442		$	9,196		$	927,251	$	211,600		$	1,138,851


⁽¹⁾		Operating expenses for the Lending, APG, and Corporate and Other business segments include $26 million, $9 million, and $13 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									Nine months ended
	September 30,			June 30,			September 30,			September 30,			September 30,
	2007			2007			2006			2007			2006
	(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)

“Core Earnings” net income^(A)	$	258,687		$	188,998		$	320,620		$	698,893		$	927,251
“Core Earnings” adjustments:
Net impact of securitization accounting		(157,050	)		(15,071	)		159,468			249,364			600,490
Net impact of derivative accounting		(453,949	)		841,564			(112,699	)		55,891			13,162
Net impact of Floor Income		(40,390	)		(39,246	)		(52,781	)		(118,657	)		(157,683	)
Net impact of acquired intangibles		(18,582	)		(16,457	)		(36,397	)		(58,945	)		(68,468	)

Total “Core Earnings” adjustments before income taxes and minority interest in net earnings of subsidiaries		(669,971	)		770,790			(42,409	)		127,653			387,501
Net tax effect^(B)		67,524			6,683			(14,739	)		(87,682	)		(175,901	)

Total “Core Earnings” adjustments		(602,447	)		777,473			(57,148	)		39,971			211,600

GAAP net income (loss)	$	(343,760	)	$	966,471		$	263,472		$	738,864		$	1,138,851

GAAP diluted earnings (loss) per common share	$	(.85	)	$	1.03		$	.60		$	1.69		$	2.56



^(A) “Core Earnings” diluted earnings per common share	$	.59		$	.43		$	.73		$	1.58		$	2.09


^(B)		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
THIRD QUARTER 2007
(Dollars in millions, except per share amounts, unless otherwise stated)

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 (the “Merger Agreement”) for the buyer group (the “Buyer Group”) led by J.C. Flowers & Co. (“J.C. Flowers”), Bank of America (NYSE:BAC) and JPMorgan Chase (NYSE:JPM) to acquire (the “Merger”) SLM Corporation, more commonly known as Sallie Mae, and its subsidiaries (collectively, “the Company”); the outcome of any legal proceedings that may be instituted by us or 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; increased costs, fees, expenses or other charges related to the interim asset-backed commercial paper facilities extended by Bank of America and JPMorgan Chase for use during the period between executing the Merger Agreement and the closing of the Merger, including any potential foreclosure on the student loans under those facilities following their termination; if the Merger Agreement is terminated, increased financing costs and more limited liquidity; 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 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; changes in projections of 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. The Company does not undertake any obligation to update or revise these forward-looking statements to conform the statement to actual results or changes in the Company’s expectations.

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 nine months ended September 30, 2006, to be consistent with classifications adopted for the quarter ended September 30, 2007.

DISCUSSION OF CONSOLIDATED RESULTS OF OPERATIONS

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

For the three months ended September 30, 2007, our net loss was $344 million, or $.85 diluted loss per share, compared to net income of $966 million, or $1.03 diluted earnings per share for the three months ended June 30, 2007. The effective tax rate for those periods was (33) percent and 10 percent, respectively. The movement in the effective tax rate was primarily driven by the permanent tax impact of excluding non-taxable gains and losses on the equity forward contracts which are marked to market through earnings under the Financial Accounting Standards Board’s (“FASB’s”) Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities.” Pre-tax income decreased by $1.3 billion versus the prior quarter primarily due to a $1.3 billion increase in net losses on derivative and hedging activities, which was mostly comprised of unrealized losses on our equity forward contracts. Gains (losses) on derivative and hedging activities were ($487) million in the third quarter of 2007 compared to $822 million in the prior quarter.

There were no gains on student loan securitizations in either period because we did not complete any off-balance sheet securitizations. In the third quarter of 2007, our servicing and securitization revenue decreased by $104 million from $133 million in the second quarter of 2007 to $29 million in the third quarter of 2007. This decrease was primarily due to a $55 million increase in impairment losses and to a $40 million increase in the unrealized fair value loss adjustment related to a portion of our Retained Interests that we account for under SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments,” whereby we carry the Retained Interest at fair value and record changes to fair value through earnings. Both of these changes were primarily a result of FFELP Stafford consolidation activity, Private Education Loan consolidation activity and the timing of expected default activity.

Net interest income after provisions for loan losses increased by $48 million in the third quarter versus the second quarter. This increase was due to a $42 million increase in net interest income, as well as a $6 million decrease in provisions for loan losses. The increase in net interest income was primarily due to an increase of $10 billion in the average balance of on-balance sheet interest earning assets and to an increase in the student loan spread, including the impact of Wholesale Consolidation Loans (see “NET INTEREST INCOME — Student Loan Spread Analysis — On-Balance Sheet”). The third quarter 2007 FFELP provision for loan losses included an additional non-recurring amount of $30 million that reflected the repeal of the Exceptional Performer program due to the passage of the College Cost Reduction and Access Act of 2007 on September 27, 2007, which resulted in a higher Risk Sharing percentage for the Company (see “RECENT DEVELOPMENTS — Other Developments — Exceptional Performer”). Offsetting the increase in our FFELP provision for loan losses was a decrease in the provision expense associated with our Private Education Loan portfolio (see “LENDING SEGMENT — Allowance for Private Education Loan Losses”).

In the third quarter of 2007, fee and other income and collections revenue totaled $282 million, a slight increase from $277 million in the prior quarter. Operating expenses decreased by $43 million from $399 million in the second quarter of 2007 to $356 million in the third quarter of 2007. This decrease in operating expenses was primarily due to a $33 million reduction in Merger-related expenses from $37 million in the second quarter to $4 million in the third quarter.

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

For the three months ended September 30, 2007, our net loss was $344 million, or $.85 diluted loss per share, compared to net income of $263 million, or $.60 diluted earnings per share, for the three months ended September 30, 2006. The effective tax rate in those periods was (33) percent and 43 percent, respectively. The movement in the effective tax rate was primarily driven by the permanent tax impact of excluding non-taxable gains and losses on our equity forward contracts as discussed above. Pre-tax income decreased by $727 million versus the year-ago quarter, primarily due to a $356 million increase in net losses on derivative and hedging activities, which was comprised primarily of unrealized losses on our equity forward contracts. Gains (losses) on derivative and hedging activities were ($487) million in the third quarter of 2007 compared to ($131) million in the year-ago quarter.

In the third quarter of 2007, we did not complete an off-balance sheet securitization and as a result we did not recognize any securitization gains compared to a $201 million pre-tax securitization gain recognized in the year-ago quarter. In the third quarter of 2007, servicing and securitization income was $29 million, a $158 million decrease over the year-ago quarter. This decrease was primarily due to an $86 million increase in impairment losses and to a $62 million increase in the unrealized fair value loss adjustment related to a portion of our Retained Interests, as discussed above. Both of these changes were primarily a result of FFELP Stafford consolidation activity, Private Education Loan consolidation activity and the timing of expected default activity.

Net interest income after provisions for loan losses increased by $28 million versus the third quarter of 2006. The increase was due to the $103 million increase in net interest income, offset by a $76 million increase in the provisions for loan losses. The increase in net interest income was primarily due to an increase of $35 billion in the average balance of on-balance sheet interest earning assets, offset by a decrease in the student loan spread, including the impact of Wholesale Consolidation Loans (see “NET INTEREST INCOME — Student Loan Spread Analysis — On-Balance Sheet”). The provisions for Private Education Loan losses and FFELP loan losses increased by $42 million and $34 million, respectively, versus the year-ago quarter. The increase in the provision for Private Education Loan losses was primarily due to 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 (see “LENDING SEGMENT — Allowance for Private Education Loan Losses”). The increase in the provision for FFELP loan losses was primarily due to the repeal of the Exceptional Performer program as discussed above (see “RECENT DEVELOPMENTS — Other Developments — Exceptional Performer”).

Fee and other income and collections revenue decreased $26 million from $307 million in the third quarter of 2006 to $281 million in the third quarter of 2007. This decrease was primarily due to legislative changes in the federal regulations governing the rehabilitated FFELP loan policy in the third quarter of 2006 that resulted in a one-time acceleration of revenue recognized in the third quarter of 2006. Operating expenses of $356 million for the third quarter of 2007 remained relatively consistent compared to $354 million for the third quarter of 2006.

Nine Months Ended September 30, 2007 Compared to Nine Months Ended September 30, 2006

For the nine months ended September 30, 2007, our net income decreased by 35 percent to $739 million ($1.69 diluted earnings per share) from net income of $1.1 billion ($2.56 diluted earnings per share) in the year-ago period. The effective tax rate in those periods was 40 percent and 39 percent, respectively. Pre-tax income decreased by $625 million versus the nine months ended September 30, 2006, primarily due to a $535 million decrease in gains on student loan securitizations. The securitization gains in the first nine months of 2007 were the result of one Private Education Loan securitization that had a pre-tax gain of $367 million or 18.4 percent of the amount securitized. In the year-ago period, there were three Private Education Loan securitizations that had total pre-tax gains of $830 million or 16.3 percent of the amount securitized.

In the first nine months of 2007, servicing and securitization income was $414 million, a $45 million increase over the nine months ended September 30, 2006. This increase can primarily be attributed to the increase of higher yielding Private Education Loan Residual Interests as a percentage of the total Residual Interest.

For the nine months ended September 30, 2007, net losses on derivative and hedging activities were $23 million, a decrease of $72 million from the net losses of $95 million in the year-ago period. The change in net losses was not caused by any significant changes of specific derivative and hedging relationships, but was generally due to changes in the fair value of derivatives that were non-qualifying hedges.

Net interest income after provisions for loan losses decreased by $74 million versus the nine months ended September 30, 2006. The decrease was due to the year-over-year increase in the provision for loan losses of $246 million, which offset the year-over-year $172 million increase in net interest income. The increase in net interest income was primarily due to an increase of $28 billion in the average balance of on-balance sheet interest earning assets offset by a decrease in the student loan spread, including the impact of

Wholesale Consolidation Loans (see “NET INTEREST INCOME — Student Loan Spread Analysis — On-Balance Sheet”). The provisions for Private Education Loan losses and FFELP loan losses increased by $205 million and $40 million, respectively. The increase in the provision for Private Education Loan losses was primarily due to 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 (see “LENDING SEGMENT — Allowance for Private Education Loan Losses”). The increase in the provision for FFELP loan losses was primarily due to the repeal of the Exceptional Performer program as discussed above (see “RECENT DEVELOPMENTS — Other Developments — Exceptional Performer”).

Fee and other income and collections revenue increased $27 million from $820 million for the nine months ended September 30, 2006 to $847 million for the nine months ended September 30, 2007. Operating expenses increased by $117 million year-over-year. This increase in operating expenses was primarily due to $42 million in Merger-related expenses incurred in 2007 and Upromise costs of $65 million in 2007 versus $8 million in 2006 due to the Upromise acquisition occurring in August 2006.

EARNINGS RELEASE SUMMARY

The following table summarizes GAAP income statement items related to the pending Merger and recent legislation (see “RECENT DEVELOPMENTS”) that are disclosed separately in the Company’s press releases of earnings for the quarters ended September 30, 2007 and June 30, 2007, and for the nine months ended September 30, 2007.


							Nine months
	Quarters ended						ended
	September 30,			June 30,			September 30,
(in thousands)	2007			2007			2007

Reported net income (loss)	$	(343,760	)	$	966,471		$	738,864
Preferred stock dividends		(9,274	)		(9,156	)		(27,523	)

Reported net income (loss) attributable to common stock		(353,034	)		957,315			711,341
Expense items disclosed separately (tax effected):
Impact to FFELP provision for loan losses due to legislative changes		18,748			—			18,748
Merger-related financing fees⁽¹⁾		10,791			8,839			19,630
Merger-related professional fees and other costs		2,580			23,275			26,170

Total expense items disclosed separately (tax effected)		32,119			32,114			64,548

Net income (loss) attributable to common stock excluding the impact of items disclosed separately		(320,915	)		989,429			775,889
Adjusted for debt expense of Co-Cos, net of tax⁽²⁾		—			17,679			—
Adjusted for non-taxable unrealized gains on equity forwards⁽³⁾		—			(507,072	)		—

Net income (loss) attributable to common stock, adjusted	$	(320,915	)	$	500,036		$	775,889

Average common and common equivalent shares outstanding⁽²⁾⁽³⁾		412,944			452,406			420,305


⁽¹⁾		Merger-related financing fees or “Interim ABCP Facility fees” are the commitment and liquidity fees related to a new financing facility in connection with the pending Merger.

⁽²⁾		There is no impact on diluted earnings per common share for the three and nine months ended September 30, 2007 because the effect of assumed conversion was anti-dilutive; the Co-Cos were called at par on July 25, 2007.

⁽³⁾		The difference in common stock equivalent shares outstanding between GAAP and “Core Earnings” is caused by the effect of unrealized gains and losses on equity forward contracts on the GAAP calculation. These unrealized gains and losses are excluded from “Core Earnings.”

The following table summarizes “Core Earnings” income statement items related to the pending Merger and recent legislation (see “RECENT DEVELOPMENTS”) that are disclosed separately in the Company’s press releases of earnings or the Company’s quarterly earnings conference calls for the quarters ended September, 30, 2007 and June 30, 2007, and for the nine months ended September 30, 2007.


							Nine months
	Quarters ended						ended
	September 30,			June 30,			September 30,
(in thousands)	2007			2007			2007

“Core Earnings” net income	$	258,687		$	188,998		$	698,893
Preferred stock dividends		(9,274	)		(9,156	)		(27,523	)

“Core Earnings” net income attributable to common stock		249,413			179,842			671,370
Expense items disclosed separately (tax effected):
Impact to FFELP provision for loan losses due to legislative changes		27,726			—			27,726
Merger-related financing fees⁽¹⁾		10,791			8,839			19,630
Merger-related professional fees and other costs		2,580			23,275			26,170

Total expense items disclosed separately (tax effected)		41,097			32,114			73,526

“Core Earnings” net income attributable to common stock excluding the impact of items disclosed separately		290,510			211,956			744,896
Adjusted for debt expense of Co-Cos, net of tax⁽²⁾		4,662			—			—

“Core Earnings” net income attributable to common stock, adjusted	$	295,172		$	211,956		$	744,896

Average common and common equivalent shares outstanding⁽²⁾⁽³⁾		431,750			422,094			424,771


⁽¹⁾		Merger-related financing fees or “Interim ABCP Facility fees” are the commitment and liquidity fees related to a new financing facility in connection with the pending Merger.

⁽²⁾		There is no impact on diluted earnings per common share for the second quarter of 2007 and the nine months ended September 30, 2007, because the effect of assumed conversion was anti-dilutive; the Co-Cos were called at par on July 25, 2007

⁽³⁾		The difference in common stock equivalent shares outstanding between GAAP and “Core Earnings” is caused by the effect of unrealized gains and losses on equity forward contracts on the GAAP calculation. These unrealized gains and losses are excluded from “Core Earnings.”

BUSINESS SEGMENTS

The results of operations of the Company’s Lending, Asset Performance Group (“APG”), formerly known as Debt Management Operations (“DMO”), and Corporate and Other business segments are presented below.

The Lending business 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 APG 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.

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 loans and Private Education Loans have different overall risk profiles due to the federal guarantee of the FFELP 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						Nine months ended
	September 30,		June 30,		September 30,		September 30,		September 30,
	2007		2007		2006		2007		2006

“Core Earnings” interest income:
FFELP Stafford and Other Student Loans	$	729	$	719	$	702	$	2,143	$	2,070
FFELP Consolidation Loans		1,445		1,391		1,242		4,167		3,385
Private Education Loans		753		692		558		2,104		1,472
Other loans		26		27		24		80		71
Cash and investments		251		182		207		595		507

Total “Core Earnings” interest income		3,204		3,011		2,733		9,089		7,505
Total “Core Earnings” interest expense		2,534		2,371		2,124		7,125		5,687

Net “Core Earnings” interest income		670		640		609		1,964		1,818
Less: provisions for losses		200		247		80		644		215

Net “Core Earnings” interest income after provisions for losses		470		393		529		1,320		1,603
Other income		46		59		46		150		138
Operating expenses		164		182		156		517		481

Income before income taxes and minority interest in net earnings of subsidiaries		352		270		419		953		1,260
Income tax expense		130		100		155		352		466

“Core Earnings” net income	$	222	$	170	$	264	$	601	$	794

Net Interest Income

The changes in net interest income are primarily due to fluctuations in the student loan spread discussed below, as well as the growth of our student loan portfolio and the level of cash and investments we may hold on our balance sheet for liquidity purposes. In connection with the Merger Agreement, we increased our liquidity portfolio to higher than historical levels. The liquidity portfolio has a negative net interest margin, so the increase in this portfolio reduced net interest income by $8 million for the third quarter of 2007.

Student Loan Spread Analysis — On-Balance Sheet

The following table analyzes the reported earnings from student loans on-balance sheet, before provision and before the effect of Wholesale Consolidation Loans.


	Quarters ended									Nine months ended
	September 30,			June 30,			September 30,			September 30,			September 30,
	2007			2007			2006			2007			2006

Student loan spread, before Interim ABCP Facility Fees		1.69	%		1.61	%		1.60	%		1.67	%		1.72	%
Interim ABCP Facility Fees		(.06	)		(.05	)		—			(.04	)		—

Student loan spread⁽¹⁾		1.63	%		1.56	%		1.60	%		1.63	%		1.72	%


⁽¹⁾ Student loan spread after the impact of Wholesale Consolidation Loans		1.53	%		1.47	%		1.59	%		1.54	%		1.72	%

Student Loan Spread Analysis — “Core Earnings” Basis

The following table reflects the “Core Earnings” basis student loan spreads by product, before provision and before the effect of Wholesale Consolidation Loans.


	Quarters ended									Nine months ended
	September 30,			June 30,			September 30,			September 30,			September 30,
	2007			2007			2006			2007			2006

FFELP Loan Spread, before Interim ABCP Facility Fees		1.02	%		1.06	%		1.17	%		1.06	%		1.28	%
Private Education Loan Spread, before Interim ABCP Facility Fees⁽¹⁾		5.43			5.26			5.25			5.33			5.08

“Core Earnings” basis student loan spread, before Interim ABCP Facility Fees		1.81			1.79			1.80			1.81			1.84
Interim ABCP Facility Fees		(.04	)		(.04	)		—			(.03	)		—

“Core Earnings” basis student loan spread⁽²⁾		1.77	%		1.75	%		1.80	%		1.78	%		1.84	%


⁽¹⁾ Private Education Loan Spread, before Interim ABCP Facility Fees and after provision for losses		3.29	%		1.53	%		3.83	%		2.33	%		3.70	%

⁽²⁾ “Core Earnings” basis student loan spread after the impact of Wholesale Consolidation Loans		1.69	%		1.68	%		1.79	%		1.71	%		1.84	%

The Company’s “Core Earnings” basis student loan spread before Interim ABCP Facility Fees and the impact of Wholesale Consolidation Loans remained relatively consistent over all periods presented above. The primary drivers of changes in the spread are changes in portfolio composition, Borrower Benefits, premium amortization, and cost of funds. The FFELP loan spread declined over all periods presented above as the mix of the FFELP portfolio shifted toward the lower yielding Consolidation Loan product. The Private Education Loan spreads before provision continued to increase due primarily to a change in the mix of the portfolio to more direct-to-consumer loans (Tuition Answer^sm loans). The changes in the Private Education Loan spreads after provision for all periods was primarily due to the timing and amount of provision associated with our allowance for Private Education Loan Losses as discussed below in “Private Education Loans — Allowance for Private Education Loan Losses.”

Allowance for Private Education Loan Losses

The following tables summarize changes in the allowance for Private Education Loan losses for the quarters ended September 30, 2007, June 30, 2007, and September 30, 2006 and for the nine months ended September 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
	September 30,			June 30,			September 30,			September 30,			June 30,			September 30,			September 30,			June 30,			September 30,
	2007			2007			2006			2007			2007			2006			2007			2007			2006

Allowance at beginning of period	$	428		$	369		$	252		$	183		$	116		$	92		$	611		$	485		$	344
Provision for Private Education Loan losses		100			139			58			44			95			14			144			234			72
Charge-offs		(82	)		(88	)		(37	)		(28	)		(28	)		(10	)		(110	)		(116	)		(47	)
Recoveries		8			8			6			—			—			—			8			8			6

Net charge-offs		(74	)		(80	)		(31	)		(28	)		(28	)		(10	)		(102	)		(108	)		(41	)

Balance before securitization of Private Education Loans		454			428			279			199			183			96			653			611			375
Reduction for securitization of Private Education Loans		—			—			(4	)		—			—			4			—			—			—

Allowance at end of period	$	454		$	428		$	275		$	199		$	183		$	100		$	653		$	611		$	375

Net charge-offs as a percentage of average loans in repayment (annualized)		5.12	%		6.19	%		3.19	%		1.60	%		1.53	%		.68	%		3.16	%		3.50	%		1.70	%
Allowance as a percentage of the ending total loan balance		3.21	%		3.74	%		3.24	%		1.43	%		1.29	%		.77	%		2.33	%		2.38	%		1.74	%
Allowance as a percentage of ending loans in repayment		7.70	%		7.79	%		6.91	%		2.88	%		2.50	%		1.79	%		5.10	%		4.76	%		3.92	%
Average coverage of net charge-offs (annualized)		1.56			1.33			2.22			1.74			1.69			2.62			1.61			1.42			2.32
Average total loans	$	12,706		$	10,917		$	8,079		$	13,978		$	14,224		$	12,130		$	26,684		$	25,141		$	20,209
Ending total loans	$	14,130		$	11,442		$	8,497		$	13,942		$	14,231		$	13,079		$	28,072		$	25,673		$	21,576
Average loans in repayment	$	5,696		$	5,182		$	3,879		$	7,124		$	7,091		$	5,667		$	12,820		$	12,273		$	9,546
Ending loans in repayment	$	5,896		$	5,496		$	3,980		$	6,903		$	7,344		$	5,603		$	12,799		$	12,840		$	9,583


	Activity in allowance for private education loan losses
	On-balance sheet						Off-balance sheet						Managed basis
	Nine months ended						Nine months ended						Nine months ended
	September 30,			September 30,			September 30,			September 30,			September 30,			September 30,
	2007			2006			2007			2006			2007			2006

Allowance at beginning of period	$	308		$	204		$	86		$	78		$	394		$	282
Provision for Private Education Loan losses		380			175			186			19			566			194
Charge-offs		(251	)		(105	)		(79	)		(14	)		(330	)		(119	)
Recoveries		23			18			—			—			23			18

Net charge-offs		(228	)		(87	)		(79	)		(14	)		(307	)		(101	)

Balance before securitization of Private Education Loans		460			292			193			83			653			375
Reduction for securitization of Private Education Loans		(6	)		(17	)		6			17			—			—

Allowance at end of period	$	454		$	275		$	199		$	100		$	653		$	375

Net charge-offs as a percentage of average loans in repayment (annualized)		5.69	%		3.06	%		1.53	%		.36	%		3.36	%		1.51	%
Allowance as a percentage of the ending total loan balance		3.21	%		3.24	%		1.43	%		.77	%		2.33	%		1.74	%
Allowance as a percentage of ending loans in repayment		7.70	%		6.91	%		2.88	%		1.79	%		5.10	%		3.92	%
Average coverage of net charge-offs (annualized)		1.49			2.35			1.89			5.44			1.59			2.77
Average total loans	$	11,664		$	8,348		$	13,646		$	10,530		$	25,310		$	18,878
Ending total loans	$	14,130		$	8,497		$	13,942		$	13,079		$	28,072		$	21,576
Average loans in repayment	$	5,373		$	3,821		$	6,847		$	5,127		$	12,221		$	8,948
Ending loans in repayment	$	5,896		$	3,980		$	6,903		$	5,603		$	12,799		$	9,583

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 this 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. Additionally, the increase was significantly impacted by other factors. In the second half of 2006, we relocated 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, APG also revised certain procedures, including its use of forbearance, to better optimize our long-term collection strategies. These developments have resulted in increased later stage delinquency levels and associated higher charge-offs.

We have been aggressively remediating these issues, including transferring experienced collection personnel to the new call center and conducting extensive training and monitoring. Beginning in mid-2007, APG also instituted more precise analytic collection strategies and new systematic enhancements to better manage the challenges posed by the volume, seasoning and shift in the portfolio mix. Due to the remedial actions in place, we anticipate the negative trends caused by the operational difficulties will improve over the remainder of 2007 and 2008.

The anticipated level of delinquency and net charge-offs into 2008 is reflected in higher loss provision for the nine months ended September 30, 2007. The higher provisioning occurred predominantly in the first and second quarters of 2007 using increased projected default rates which stabilized in the third quarter of 2007.

Through our status-based allowance methodology, the provision is 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.

Private Education Loan Delinquencies

The tables below present our Private Education Loan delinquency trends as of September 30, 2007, June 30, 2007, and September 30, 2006.


	On-balance sheet private education
	loan delinquencies
	September 30,						June 30,						September 30,
	2007						2007						2006
	Balance			%			Balance			%			Balance			%

Loans in-school/grace/deferment⁽¹⁾	$	7,966					$	5,789					$	4,497
Loans in forbearance⁽²⁾		701						544						341
Loans in repayment and percentage of each status:
Loans current		5,186			88.0	%		4,873			88.7	%		3,462			87.0	%
Loans delinquent 31-60 days⁽³⁾		275			4.7			243			4.4			209			5.3
Loans delinquent 61-90 days⁽³⁾		156			2.6			131			2.4			121			3.0
Loans delinquent greater than 90 days⁽³⁾		279			4.7			249			4.5			188			4.7

Total Private Education Loans in repayment		5,896			100	%		5,496			100	%		3,980			100	%

Total Private Education Loans, gross		14,563						11,829						8,818
Private Education Loan unamortized discount		(433	)					(387	)					(321	)

Total Private Education Loans		14,130						11,442						8,497
Private Education Loan allowance for losses		(454	)					(428	)					(275	)

Private Education Loans, net	$	13,676					$	11,014					$	8,222

Percentage of Private Education Loans in repayment		40.5	%					46.5	%					45.1	%

Delinquencies as a percentage of Private Education Loans in repayment		12.0	%					11.3	%					13.0	%

Loans in forbearance as a percentage of loans in repayment and forbearance		10.6	%					9.0	%					7.9	%


⁽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.


	Off-balance sheet private education
	Loan delinquencies
	September 30,						June 30,						September 30,
	2007						2007						2006
	Balance			%			Balance			%			Balance			%

Loans in-school/grace/deferment⁽¹⁾	$	6,126					$	6,136					$	6,861
Loans in forbearance⁽²⁾		1,251						1,093						901
Loans in repayment and percentage of each status:
Loans current		6,524			94.5	%		7,002			95.3	%		5,281			94.3	%
Loans delinquent 31-60 days⁽³⁾		192			2.8			196			2.7			164			2.9
Loans delinquent 61-90 days⁽³⁾		71			1.0			66			.9			68			1.2
Loans delinquent greater than 90 days⁽³⁾		116			1.7			80			1.1			90			1.6

Total Private Education Loans in repayment		6,903			100	%		7,344			100	%		5,603			100	%

Total Private Education Loans, gross		14,280						14,573						13,365
Private Education Loan unamortized discount		(338	)					(342	)					(286	)

Total Private Education Loans		13,942						14,231						13,079
Private Education Loan allowance for losses		(199	)					(183	)					(100	)

Private Education Loans, net	$	13,743					$	14,048					$	12,979

Percentage of Private Education Loans in repayment		48.3	%					50.4	%					41.9	%

Delinquencies as a percentage of Private Education Loans in repayment		5.5	%					4.7	%					5.7	%

Loans in forbearance as a percentage of loans in repayment and forbearance		15.3	%					13.0	%					13.9	%


⁽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
	September 30,						June 30,						September 30,
	2007						2007						2006
	Balance			%			Balance			%			Balance			%

Loans in-school/grace/deferment⁽¹⁾	$	14,092					$	11,925					$	11,358
Loans in forbearance⁽²⁾		1,952						1,637						1,242
Loans in repayment and percentage of each status:
Loans current		11,710			91.5	%		11,875			92.5	%		8,743			91.2	%
Loans delinquent 31-60 days⁽³⁾		467			3.6			439			3.4			373			3.9
Loans delinquent 61-90 days⁽³⁾		227			1.8			197			1.5			189			2.0
Loans delinquent greater than 90 days⁽³⁾		395			3.1			329			2.6			278			2.9

Total Private Education Loans in repayment		12,799			100	%		12,840			100	%		9,583			100	%

Total Private Education Loans, gross		28,843						26,402						22,183
Private Education Loan unamortized discount		(771	)					(729	)					(607	)

Total Private Education Loans		28,072						25,673						21,576
Private Education Loan allowance for losses		(653	)					(611	)					(375	)

Private Education Loans, net	$	27,419					$	25,062					$	21,201

Percentage of Private Education Loans in repayment		44.4	%					48.6	%					43.2	%

Delinquencies as a percentage of Private Education Loans in repayment		8.5	%					7.5	%					8.8	%

Loans in forbearance as a percentage of loans in repayment and forbearance		13.2	%					11.3	%					11.5	%


⁽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 policies were tightened in late 2006 and no additional policy changes have taken place to date. The increase in use of forbearance is attributed to improved borrower contact procedures and current economic conditions. Forbearance continues to be a positive collection tool for 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. Loans in forbearance are reserved commensurate with the default expectation of this specific loan status.

Total Provisions for Loan Losses

The following tables summarize the total loan provisions on both an on-balance sheet basis and a Managed Basis for the quarters ended September 30, 2007, June 30, 2007, and September 30, 2006 and for the nine months ended September 30, 2007 and 2006.

Total on-balance sheet loan provisions


	Quarters ended						Nine months ended
	September 30,		June 30,		September 30,		September 30,		September 30,
	2007		2007		2006		2007		2006

Private Education Loans	$	100	$	139	$	58	$	380	$	175
FFELP Stafford and Other Student Loans		38		6		3		49		9
Mortgage and consumer loans		5		3		6		12		11

Total on-balance sheet provisions for loan losses	$	143	$	148	$	67	$	441	$	195

Total Managed Basis loan provisions


	Quarters ended						Nine months ended
	September 30,		June 30,		September 30,		September 30,		September 30,
	2007		2007		2006		2007		2006

Private Education Loans	$	144	$	234	$	72	$	566	$	194
FFELP Stafford and Other Student Loans		51		10		2		69		12
Mortgage and consumer loans		5		3		6		9		9

Total Managed Basis provisions for loan losses	$	200	$	247	$	80	$	644	$	215

The third quarter 2007 FFELP provision included $30 million and $44 million for on-balance sheet and Managed student loans, respectively, related to the repeal of the Exceptional Performer program (and the resulting increase in our Risk Sharing percentage) due to the passage of the College Cost Reduction and Access Act of 2007 on September 27, 2007 (see “RECENT DEVELOPMENTS — Other Developments — Exceptional Performer”). These amounts are additional, non-recurring provision expenses required to cumulatively increase the allowance for loan losses for the increase in the Company’s Risk Sharing percentage related to the Company’s loans as of September 30, 2007.

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 September 30, 2007, June 30, 2007, and September 30, 2006 and for the nine months ended September 30, 2007 and 2006.

Total on-balance sheet loan net charge-offs


	Quarters ended						Nine months ended
	September 30,		June 30,		September 30,		September 30,		September 30,
	2007		2007		2006		2007		2006

Private Education Loans	$	74	$	80	$	31	$	228	$	87
FFELP Stafford and Other Student Loans		4		5		1		13		3
Mortgage and consumer loans		3		3		1		7		4

Total on-balance sheet loan net charge-offs	$	81	$	88	$	33	$	248	$	94

Total Managed loan net charge-offs


	Quarters ended						Nine months ended
	September 30,		June 30,		September 30,		September 30,		September 30,
	2007		2007		2006		2007		2006

Private Education Loans	$	102	$	108	$	41	$	307	$	101
FFELP Stafford and Other Student Loans		7		9		1		24		3
Mortgage and consumer loans		3		3		1		7		4

Total Managed loan net charge-offs	$	112	$	120	$	43	$	338	$	108

The increase in net charge-offs on FFELP Stafford and Other student loans for the nine months ended September 30, 2007 versus the nine months ended September 30, 2006 was the result of a legislative change in 2006 which lowered the federal guaranty on claims filed to 99 percent from 100 percent. See “LENDING BUSINESS SEGMENT — Allowance for Private Education Loan Losses” for a discussion of net charge-offs related to 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 September 30, 2007, June 30, 2007, and September 30, 2006, and for the nine months ended September 30, 2007 and 2006.


	Quarters ended						Nine months ended
	September 30,		June 30,		September 30,		September 30,		September 30,
	2007		2007		2006		2007		2006

Late fees	$	34	$	32	$	29	$	101	$	86
Gains on sales of mortgages and other loan fees		2		4		5		10		12
Gains on sales of student loans		2		19		—		21		—
Other		8		4		12		18		40

Total other income	$	46	$	59	$	46	$	150	$	138

The Company periodically sells student loans. The timing and amount of loan sales impacts the amount of recognized gains on sales of student loans. 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. Prior to this shift, we earned servicing fees for originated Private Education Loans on behalf of third party lenders prior to our acquisition of those loans. This revenue stream has been more than offset by capturing the net interest income earned by acquiring these 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 September 30, 2007, June 30, 2007, and September 30, 2006, operating expenses for the Lending business segment also included $4 million, $13 million, and $8 million, respectively, of stock option compensation expense and for each of the nine months ended September 30, 2007 and 2006, included $26 million of stock option compensation expense.

Preferred Channel Originations

We originated $8.9 billion in student loan volume through our Preferred Channel in the quarter ended September 30, 2007 versus $3.6 billion in the quarter ended June 30, 2007 and $7.8 billion in the quarter ended September 30, 2006.

For the quarter ended September 30, 2007, our internal lending brands grew 25 percent over the year-ago quarter, and comprised 65 percent of our Preferred Channel Originations, up from 59 percent in the year-ago quarter. Our internal lending brands combined with our other lender partners comprised 93 percent of our Preferred Channel Originations for the current quarter, versus 87 percent for the year-ago quarter; together these two segments of our Preferred Channel grew 20 percent over the year-ago quarter.

The following tables further break down our Preferred Channel Originations by type of loan and source.


	Quarters ended						Nine months ended
	September 30,		June 30,		September 30,		September 30,		September 30,
	2007		2007		2006		2007		2006

Preferred Channel Originations — Type of Loan
Stafford	$	4,977	$	2,125	$	4,257	$	11,703	$	10,559
PLUS		820		204		856		1,944		2,087
GradPLUS		262		89		144		479		144

Total FFELP		6,059		2,418		5,257		14,126		12,790
Private Education Loans		2,793		1,175		2,574		6,331		5,829

Total	$	8,852	$	3,593	$	7,831	$	20,457	$	18,619


	Quarters ended
	September 30,						June 30,						September 30,
	2007						2007						2006
	FFELP		Private		Total		FFELP		Private		Total		FFELP		Private		Total

Preferred Channel Originations — Source
Internal lending brands	$	3,201	$	2,560	$	5,761	$	1,317	$	1,126	$	2,443	$	2,402	$	2,223	$	4,625
Other lender partners		2,255		190		2,445		840		35		875		1,962		262		2,224

Total before JPMorgan Chase		5,456		2,750		8,206		2,157		1,161		3,318		4,364		2,485		6,849
JPMorgan Chase		603		43		646		261		14		275		893		89		982

Total	$	6,059	$	2,793	$	8,852	$	2,418	$	1,175	$	3,593	$	5,257	$	2,574	$	7,831


	Nine months ended
	September 30,						September 30,
	2007						2006
	FFELP		Private		Total		FFELP		Private		Total

Preferred Channel Originations — Source
Internal lending brands	$	7,236	$	5,769	$	13,005	$	5,257	$	4,680	$	9,937
Other lender partners		5,146		433		5,579		4,685		763		5,448

Total before JPMorgan Chase		12,382		6,202		18,584		9,942		5,443		15,385
JPMorgan Chase		1,744		129		1,873		2,848		386		3,234

Total	$	14,126	$	6,331	$	20,457	$	12,790	$	5,829	$	18,619

ASSET PERFORMANCE GROUP (“APG”) BUSINESS SEGMENT

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


	Quarters ended						Nine months ended
	September 30,		June 30,		September 30,		September 30,		September 30,
	2007		2007		2006		2007		2006

Fee income	$	76	$	80	$	122	$	244	$	304
Collections revenue		53		77		58		196		182

Total other income		129		157		180		440		486
Operating expenses		94		96		91		284		266
Net interest expense		7		7		6		20		17

Income before income taxes and minority interest in net earnings of subsidiaries		28		54		83		136		203
Income tax expense		11		20		31		51		75

Income before minority interest in net earnings of subsidiaries		17		34		52		85		128
Minority interest in net earnings of subsidiaries		—		1		1		2		4

“Core Earnings” net income	$	17	$	33	$	51	$	83	$	124

The decrease in fee income for the third quarter of 2007 versus the year-ago quarter was primarily due to a legislative change in July 2006 governing the rehabilitated loan policy which reduced the number of consecutive payments to qualify for a loan rehabilitation from twelve months to nine months. This accelerated process added approximately $30 million of incremental revenue in the third quarter of 2006. To a lesser

extent, the third quarter of 2007 was negatively impacted by a lower rate earned on consolidating defaulted loans due to legislative changes in 2006 as well as lower performance in default prevention.

The decrease in collections revenue for the third quarter of 2007 versus the prior and year-ago quarter was primarily due to the seasonality of collections (compared to the prior quarter only) and the write-downs of certain purchased paper portfolios. Declines in real estate values and the general economic uncertainty as well as lengthening the assumed lifetime collection period have resulted in write-downs related to the mortgage purchased paper portfolio. Specifically, the mortgage purchased paper portfolio had impairments of $11 million (which equals approximately 1 percent of the carry value of these portfolios) in the third quarter of 2007 compared to impairments of $2 million in the second quarter of 2007. General economic uncertainty has also resulted in lengthening the assumed lifetime collection period related to the non-mortgage portfolio.

Operating Expenses — APG Business Segment

For the quarters ended September 30, 2007, June 30, 2007, and September 30, 2006, operating expenses for the APG business segment totaled $94 million, $96 million, and $91 million, respectively, and included $2 million, $4 million, and $4 million, respectively, of stock option compensation expense. For the nine months ended September 30, 2007 and September 30, 2006, operating expenses for this segment totaled $284 million and $266 million, respectively, and included $9 million of stock option compensation expense for both periods.

CORPORATE AND OTHER BUSINESS SEGMENT

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


	Quarters ended								Nine months ended
	September 30,		June 30,			September 30,			September 30,			September 30,
	2007		2007			2006			2007			2006

Net interest income (loss) after provisions for losses	$	1	$	2		$	(1	)	$	(2	)	$	(1	)

Guarantor servicing fees		46		30			39			115			99
Loan servicing fees		6		5			8			17			23
Upromise		28		26			8			78			8
Other		29		18			25			67			64

Total fee and other income		109		79			80			277			194
Operating expenses		79		104			70			251			178

Income (loss) before income taxes		31		(23	)		9			24			15
Income tax expense (benefit)		11		(9	)		3			9			6

“Core Earnings” net income (loss)	$	20	$	(14	)	$	6		$	15		$	9

The increase in guarantor servicing fees versus the prior quarter is primarily due to seasonality. The increase in income from Upromise for the three and nine months ended September 30, 2007 from the year ago periods is due to the acquisition of Upromise in August 2006. The $9 million increase in other income for the third quarter of 2007 over the prior quarter is primarily due to a pre-tax gain on the sale of a subsidiary.

USA Funds, the nation’s largest guarantee agency, accounted for 83 percent, 86 percent and 81 percent, respectively, of guarantor servicing fees and 16 percent, 17 percent and 24 percent, respectively, of revenues associated with other products and services for the quarters ended September 30, 2007, June 30, 2007, and September 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. The $25 million decrease in operating expenses versus the prior quarter was primarily due to a reduction in Merger-related fees. For the quarters ended September 30, 2007, June 30, 2007, and September 30, 2006, operating expenses for this segment also included $24 million, $21 million, and $8 million, respectively, of expenses related to Upromise, which was acquired in August 2006. Stock option compensation expense included in operating expenses for this segment totaled $2 million, $6 million and $4 million, respectively, for the quarters ended September 30, 2007, June 30, 2007, and September 30, 2006, and totaled $12 million and $13 million, respectively, for the nine months ended September 30, 2007 and 2006.

LIQUIDITY AND CAPITAL RESOURCES

Our primary funding objective is to maintain cost-effective liquidity to fund the growth in our Managed portfolio of student loans. Upon the announcement of the Merger on April 16, 2007, credit spreads on our unsecured debt widened considerably, significantly increasing our cost of accessing the unsecured debt markets. As a result, in the near term, student loan securitizations are expected to be our primary source of cost-effective financing. We have built a highly liquid and deep market for our securitizations. We securitized $20.5 billion in student loans in six transactions in the nine months ended September 30, 2007, compared to $25.6 billion in eleven transactions in the year-ago period. Secured borrowings, including securitizations, ABCP borrowings and indentured trusts, comprised 75 percent of our Managed debt outstanding at September 30, 2007, versus 70 percent at September 30, 2006. On April 30, 2007, in connection with the Merger, we entered into an interim $30 billion asset-backed commercial paper facility, which provided us with significant additional liquidity. The interim ABCP facility matures on the earliest of the Merger closing, the 90-day anniversary of the date of termination of the Merger Agreement or February 15, 2008. We are in substantive discussions with various financing sources concerning the replacement of this facility, should it be necessary. In the third quarter, as with similarly sized financial services companies, adverse conditions in the financial markets increased the Company’s cost of issuance in the term asset-backed securities market, and increased spreads on our existing asset-backed commercial paper financings. Because of this increase in the cost of issuance, the Company has chosen not to issue in the asset-backed market since July 2007. We expect to resume issuance of term asset-backed securities during the fourth quarter of 2007.

The following table details our primary sources of liquidity and the available capacity at September 30, 2007, and December 31, 2006.


	September 30, 2007		December 31, 2006
	Available Capacity		Available Capacity

Sources of primary liquidity:
Unrestricted cash and liquid investments⁽¹⁾⁽²⁾	$	11,936	$	4,720
Unused commercial paper and bank lines of credit		6,500		6,500
ABCP borrowing capacity		5,758		1,047
Interim ABCP Facility borrowing capacity		4,897		—

Total sources of primary liquidity		29,091		12,267

Sources of stand-by liquidity:
Unencumbered FFELP loans⁽²⁾		16,340		28,070

Total sources of primary and stand-by liquidity	$	45,431	$	40,337


⁽¹⁾		Excludes $11 million and $365 million of investments pledged as collateral related to certain derivative positions and $93 million and $99 million of other non-liquid investments classified at September 30, 2007 and December 31, 2006, respectively, as cash and investments on our balance sheet in accordance with GAAP.

⁽²⁾		Under the terms of the Merger Agreement, certain asset sales require the approval of the Buyer Group prior to the Merger.

We believe our currently unencumbered FFELP loan portfolio provides an excellent source of potential or stand-by liquidity because of the well-developed market for securitizations and whole loan sales of government guaranteed student loans. In addition to the assets listed in the table above, we hold on-balance sheet a number of other unencumbered assets, consisting primarily of Private Education Loans, Retained Interests and other assets. At September 30, 2007, we had a total of $48.3 billion of unencumbered assets, including goodwill and acquired intangibles. On October 2, 2007, the Company received approximately $3.0 billion of cash in exchange for a similar amount of FFELP loans encumbered on September 30, 2007. Upon receipt of this cash, total unencumbered assets was $51.3 billion with no change in overall liquidity in the table above.

The following tables present the ending balances of our Managed borrowings at September 30, 2007, December 31, 2006 and September 30, 2006.


	September 30, 2007						December 31, 2006						September 30, 2006
					Total						Total						Total
	Short		Long		Managed		Short		Long		Managed		Short		Long		Managed
	Term		Term		Basis		Term		Term		Basis		Term		Term		Basis

Unsecured borrowings	$	7,410	$	37,973	$	45,383	$	3,187	$	45,501	$	48,688	$	3,595	$	41,549	$	45,144
Indentured trusts (on-balance sheet)		149		2,513		2,662		93		2,852		2,945		75		3,109		3,184
ABCP borrowings (on-balance sheet)		25,103		242		25,345		—		4,953		4,953		—		4,966		4,966
Securitizations (on-balance sheet)		—		65,105		65,105		—		50,147		50,147		—		44,840		44,840
Securitizations (off-balance sheet)		—		43,887		43,887		—		49,865		49,865		—		54,153		54,153
Other		359		—		359		248		—		248		—		—		—

Total	$	33,021	$	149,720	$	182,741	$	3,528	$	153,318	$	156,846	$	3,670	$	148,617	$	152,287

The following table presents the senior unsecured credit ratings assigned by major rating agencies as of September 30, 2007. Each of the Company’s debt ratings are under review with negative implications due to the pending Merger.


	S&P	Moody’s	Fitch

Short-term unsecured debt	A-2	P-2	F3
Long-term senior unsecured debt	BBB+	Baa1	BBB

RECENT DEVELOPMENTS

Legislative Developments

On September 27, 2007, the President signed into law the College Cost Reduction and Access Act of 2007 (“the Act”), legislation that cuts funding for the FFELP program by $20 billion over the next five years as estimated by the Congressional Budget Office and will impact our business. The Act:


	•	Reduces special allowance payments to for-profit lenders and not-for-profit lenders for both Stafford and Consolidation Loans disbursed after October 2, 2007 by 0.55 percentage points and .40 percentage points, respectively;

	•	Reduces special allowance payments to for-profit lenders and not-for-profit lenders for PLUS loans by 0.85 percentage points and 0.70 percentage points, respectively;

	•	Doubles lender origination fees on all loan types, from 0.5 percent to 1.0 percent;

	•	For loans first disbursed after October 1, 2012, reduces default insurance to 95 percent of the unpaid principal of such loans;

	•	Eliminates Exceptional Performer designation (and the monetary benefit associated with it) effective October 1, 2007;

	•	Reduces default collections retention by guaranty agencies from 23 percent to 16 percent;

	•	Reduces the guaranty agency account maintenance fee from 0.10 percent to 0.06 percent,

	•	Requires ED to develop and then implement a pilot auction for participation in the FFELP Parent PLUS loan program, by state, effective July 1, 2009; and

	•	Effective October 1, 2007, provides loan forgiveness for all FDLP borrowers, including consolidation borrowers, in certain public service jobs who make 120 monthly payments.

Although the direct effect of the provisions of the Act will be to reduce our margins on FFELP loans, the net effect of the Act could be significantly mitigated by the market share and other opportunities it creates and the steps the Company might take to capitalize on those opportunities.

On October 10, 2007, The House of Representatives passed HR 3056, the Tax Collection Responsibility Act of 2007, by vote of 232 to 173. If enacted, this legislation would repeal the authority of the Internal Revenue Service (the “IRS”) to contract with private collection agencies for certain federal tax collections. The Company’s subsidiary, Pioneer Credit Recovery, is one of two agencies participating in the IRS pilot, testing the use of private collectors in improving federal tax collections.

Merger-Related Developments

On September 26, 2007, J.C. Flowers, on behalf of itself and the Buyer Group, asserted that the Buyer Group believed that the conditions to closing under the Merger Agreement, if the closing were to occur on that day, would not be satisfied as a result of changes in the legislative and economic environment. On October 2, 2007, the Buyer Group again asserted that it believed that, if the conditions to the closing of the Merger were required to be measured on that day, the conditions to the Buyer Group’s obligation to close would not be satisfied, asserted that a “Material Adverse Effect” (as defined in the Merger Agreement) has occurred and made a proposal to acquire the Company at a significantly lower price and upon substantially different terms instead of honoring its obligations under the Merger Agreement. The Company firmly believes that the Buyer Group has no contractual basis to repudiate its obligations under the Merger Agreement and intends to pursue all remedies available to the Company to the fullest extent permitted by law.

On October 8, 2007, the Company filed a lawsuit in Delaware Chancery Court against the Buyer Group, which includes J.C. Flowers & Co., JPMorgan Chase, and Bank of America. The lawsuit seeks a declaration that the Buyer Group has repudiated the Merger Agreement, that no Material Adverse Effect has occurred and that the Company may terminate the agreement and collect the $900 million termination fee.

Other Developments — Exceptional Performer

By a letter dated September 28, 2007, ED informed us that Sallie Mae, Inc. is designated as an Exceptional Performer for the period beginning October 19, 2006. As stated above, the Act eliminates EP designation effective October 1, 2007.

Other Developments — Chae, et al. v. SLM Corporation, et al.

On April 6, 2007, the Company was served with a putative class action suit by several borrowers in federal court in California. The complaint, which was amended on April 12, 2007, alleges violations of California Business & Professions Code 17200, breach of contract, breach of covenant of good faith and fair dealing, violation of consumer legal remedies act and unjust enrichment. The complaint challenges the Company’s FFELP billing practices as they relate to use of the simple daily interest method for calculating interest.

On June 19, 2007, the Company filed a Motion to Dismiss the amended complaint. On September 14, 2007, the court entered an order denying Sallie Mae’s Motion to Dismiss. The court did not comment on the merits of the allegations or the plaintiffs’ case but instead merely determined that the allegations stated a claim sufficient under the Federal Rules of Civil Procedure. On September 17, 2007, the court entered a scheduling order that set July 8, 2008, as the start date for the trial. Discovery has commenced and is scheduled to continue through May 30, 2008. The Company believes these allegations lack merit and will continue to vigorously defend itself in this case. The Company filed an answer on September 28, 2007.