Sallie Mae Reports Third-Quarter Financial Results

Sallie Mae Reports Third-Quarter Financial Results

Loan Originations Up 29 Percent Compared to Year-Ago Quarter

Sallie Mae (NYSE: SLM) today released third-quarter 2011 financial results highlighting increased student loan originations, lower delinquency rates and charge-offs, and declining operating expenses, as compared to third-quarter 2010.

“I am pleased by the strong growth in assets,” said Albert L. Lord, vice chairman and CEO, Sallie Mae. “Loan portfolio quality continues to improve, though the economic slump and long-term unemployment have reduced default recoveries, keeping us at conservative reserve levels.”

A $371 million “mark-to-market” unrealized loss on certain derivative contracts resulted in a $47 million GAAP third-quarter 2011 net loss ($.10 per diluted share), compared with a net loss of $495 million ($1.06 per diluted share) for the year-ago quarter. Last year’s third-quarter GAAP loss included mark-to-market losses of $269 million and a $660 million impairment of goodwill and intangibles. These mark-to-market losses and goodwill and intangible impairments are recognized in GAAP but not in core earnings results.

Core earnings for the quarter were $188 million ($.36 per diluted share), compared with $202 million ($.37 per diluted share) in the year-ago period. The company also reports results on a core earnings basis because management utilizes this information in making key business decisions.

Both GAAP and core earnings third-quarter 2011 results included the following: an additional $124 million ($.15 per diluted share) of provision for private education loan losses attributable to the adoption of recent accounting guidance for troubled debt restructurings (TDRs); and a $35 million ($.04 per diluted share) gain on the sale of the company’s discontinued purchased paper business.

Consumer Lending

In the consumer lending segment, Sallie Mae originates, finances and services private education loans.

The $124 million cumulative effect due to TDR accounting resulted in a core loss for the quarter of $27 million, compared with a core loss of $3 million in the third-quarter 2010.

Loan delinquency and charge-off rates improved 12 percent and 31 percent, respectively, from the year-ago quarter, the fifth consecutive quarter of such improvements. Excluding the cumulative effect of adopting TDR accounting guidance, the provision for private education loan losses declined significantly year-over-year.

Highlights vs. third-quarter 2010 included:

• Loan originations increased to $1.1 billion, up 29 percent from $835 million.
• The portfolio, net of loan loss allowance, totaled $36.2 billion at Sept. 30, 2011, compared with $35.5 billion at Sept. 30, 2010.
• Net interest margin, before loan loss provision, improved to 4.0 percent, up from 3.9 percent.
• TDR adoption increased the provision for loan losses to $384 million, from $330 million a year ago.
• Delinquencies of 90 days or more (as a percentage of loans in repayment) improved to 5.0 percent, vs. 5.7 percent.
• The annual charge-off rate (as a percentage of loans in repayment) improved to 3.7 percent, vs. 5.4 percent.

Business Services

Sallie Mae’s business services segment includes fees from servicing, collections and college savings businesses.

Core earnings were $139 million in third-quarter 2011, compared with $131 million in the year-ago quarter. The improvement was driven by substantial FFELP loan acquisitions last year that have increased FFELP loan servicing revenue.

The company’s allocation of new customer loans awarded for servicing under its contract with the U.S. Department of Education recently increased from 22 percent to 26 percent for the current contract year ending Aug. 15, 2012. The increase was driven primarily by the company’s top ranking for default prevention performance results. Sallie Mae now provides service to 3.4 million loan customers on behalf of the Department of Education.

During the quarter, the company announced the launch of Sallie Mae Insurance Services, a new portfolio of insurance products designed to help families protect their investment in higher education. The new tuition, renters and student health insurance safeguards are offered both to families and to higher education institutions.

Federally Guaranteed Loans (FFELP)

This segment represents earnings from Sallie Mae’s amortizing portfolio of FFELP loans.

Core earnings were $107 million in third-quarter 2011, compared with $108 million in the year-ago quarter.

Operating Expenses

Third-quarter operating expenses, were $285 million in 2011, compared with $302 million in the year-ago quarter and $268 million in second-quarter 2011.

Operating expenses in third-quarter 2011 included $15 million related to the pending termination of the company’s defined benefit retirement plan and $8 million of servicing costs related to the $25 billion student loan portfolio acquisition at the end of last year. The company completed conversion of the acquired portfolio to its loan servicing system in October 2011 and expects servicing costs to continue to decline as a result.

Funding and Liquidity

On Oct. 5, 2011, Sallie Mae closed on a $3.4 billion asset-backed commercial paper facility which matures in January 2014. This facility will provide, subject to certain conditions, the financing to call the 2009-B and 2009-C private student loan trust securities at a reduced cost of funds. The securities are first callable in November 2011 and January 2012, respectively.

Dividend and Common Share Repurchase Program

In third-quarter 2011, Sallie Mae paid a common stock dividend of $.10 per share and repurchased 9.5 million common shares for $144 million. With this action, the company has fully utilized its previously announced $300 million share repurchase authorization acquiring a total of 19.1 million shares.

Guidance

The company expects 2011 results to be as follows:

• Full year 2011 private education loan originations of $2.7 billion.

• Quarterly operating expense of $250 million in fourth-quarter 2011.

• Fully diluted 2011 core earnings per share of $1.80.

Sallie Mae reports financial results on a GAAP basis and also presents certain core earnings performance measures. The primary differences between the company’s pre-tax core earnings and GAAP results for the periods presented were the unrealized, mark-to-market losses on certain derivative contracts and the treatment of goodwill and acquired intangible asset amortization and impairment. 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. See “Core Earnings — Definition and Limitations” for a further discussion and a complete reconciliation between GAAP net income and core earnings. Given the significant variability of valuations of derivative instruments on expected GAAP net income, the company does not provide a GAAP equivalent for its core earnings per share guidance.

Definitions for capitalized terms in this document can be found in the company’s Annual Report on Form 10-K for the year ended Dec. 31, 2010 (filed with the SEC on Feb. 28, 2011). Certain reclassifications have been made to the balances as of and for the three and nine months ended Sept. 30, 2010, to be consistent with classifications adopted for 2011, and had no effect on net income, total assets, or total liabilities.

Presentation slides for the conference call discussed below, as well as additional information about the company’s loan portfolios, operating segments, and other details, may be accessed at www.SallieMae.com/investors under the webcasts tab.

The company will host an earnings conference call tomorrow, Oct. 20, at 8 a.m. EDT. 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 in the call should dial (877) 356-5689 (USA and Canada) or dial (706) 679-0623 (international) and use access code 13091568 starting at 7:45 a.m. EDT. A live audio webcast of the conference call may be accessed at www.SallieMae.com/investors. Investors may access a replay of the conference call via the company’s website within one hour after the call’s conclusion. A telephone replay may be accessed two hours after the call’s conclusion through Nov. 3, by dialing (855) 859-2056 (USA and Canada) or (404) 537-3406 (international) with access code 13091568.

This press release contains “forward-looking statements” and information based on management’s current expectations as of the date of this release. Statements that are not historical facts, including statements about the company’s beliefs or expectations and statements that assume or are dependent upon future events, are forward-looking statements. Forward-looking statements are subject to risks, uncertainties, assumptions and other factors that may cause actual results to be materially different from those reflected in such forward-looking statements. These factors include, among others, the risks and uncertainties set forth in Item 1A “Risk Factors” and elsewhere in the company’s Annual Report on Form 10-K for the year ended Dec. 31, 2010, the company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, and subsequent filings with the SEC; increases in financing costs; limits on liquidity; increases in costs associated with compliance with laws and regulations; changes in accounting standards and the impact of related changes in significant accounting estimates; any adverse outcomes in any significant litigation to which the company is a party; credit risk associated with the company’s exposure to third parties, including counterparties to the company’s derivative transactions; and changes in the terms of student loans and the educational credit marketplace (including changes resulting from new laws and the implementation of existing laws). The company could also be affected by, among other things: changes in its funding costs and availability; reductions to its credit ratings or the credit ratings of the United States of America; failures of its operating systems or infrastructure, including those of third-party vendors; damage to its reputation; failures to successfully implement cost-cutting and restructuring initiatives and adverse effects of such initiatives on its business; changes in the demand for educational financing or in financing preferences of lenders, educational institutions, students and their families; changes in law and regulations with respect to the student lending business and financial institutions generally; increased competition from banks and other consumer lenders; the creditworthiness of its customers; changes in the general interest rate environment, including the rate relationships among relevant money-market instruments and those of its earning assets vs. its funding arrangements; changes in general economic conditions; and changes in the demand for debt management services. The preparation of the company’s consolidated financial statements also requires management to make certain estimates and assumptions including estimates and assumptions about future events. These estimates or assumptions may prove to be incorrect. All forward-looking statements contained in this release are qualified by these cautionary statements and are made only as of the date of this release. 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 its expectations.

Sallie Mae (NYSE: SLM) is the nation’s No. 1 financial services company specializing in education. Serving 25 million customers, Sallie Mae offers innovative savings tools, tuition payment plans and education loans that promote responsible financial habits and reward success. Through its subsidiaries, the company manages or services $238 billion in education loans and administers $35 billion in 529 college savings plans. Members of its Upromise college savings rewards program have earned $625 million to help pay for college. Sallie Mae is also one of the leading financial service providers for universities and governments at all levels, including supporting $8 billion in ecommerce transactions annually at nearly 1,000 campuses. More information is available at www.SallieMae.com. SLM Corporation and its subsidiaries, commonly known as Sallie Mae, are not sponsored by or agencies of the United States of America.

Selected Financial Information and Ratios
		Quarters Ended												Nine Months Ended
(Dollars and shares in millions, except per share data)		September 30, 2011				June 30, 2011				September 30, 2010				September 30, 2011				September 30, 2010
GAAP Basis
Net income (loss)		$	(47	)		$	(6	)		$	(495	)		$	122			$	83
Diluted earnings (loss) per common share		$	(.10	)		$	(.02	)		$	(1.06	)		$	.21			$	.06
Weighted average shares used to compute diluted earnings (loss) per share			511				524				485				526				486
Return on assets			(.10	)%			(.01	)%			(1.00	)%			.09	%			.06	%
“Core Earnings” Basis(1)
“Core Earnings” net income		$	188			$	260			$	202			$	708			$	627
“Core Earnings” diluted earnings per common share(2)		$	.36			$	.48			$	.37			$	1.32			$	1.17
Weighted average shares used to compute diluted earnings per share			517				530				528				526				527
“Core Earnings” return on assets			.39	%			.54	%			.41	%			.49	%			.43	%
Other Operating Statistics
Ending FFELP Loans, net		$	140,659			$	142,635			$	146,593			$	140,659			$	146,593
Ending Private Education Loans, net			36,157				35,753				35,542				36,157				35,542
Ending total student loans, net		$	176,816			$	178,388			$	182,135			$	176,816			$	182,135
Average student loans		$	178,620			$	180,783			$	184,139			$	181,242			$	183,424

(1)		“Core Earnings” are non-GAAP financial measures and do not represent a comprehensive basis of accounting. For a greater explanation of “Core Earnings,” see the section titled “‘Core Earnings’ — Definition and Limitations” and subsequent sections.
(2)		Preferred dividends of $15 million and $44 million, applicable to our convertible Series C Preferred Stock, were added back to the numerator in the three and nine months ended September 30, 2010, respectively, in computing diluted earnings per share, as the Series C Preferred Stock was dilutive on a “Core Earnings” basis. The Series C Preferred Stock was fully converted to common shares on December 15, 2010.

Results of Operations

We present the results of operations below on a consolidated basis in accordance with GAAP. The presentation of our results on a segment basis is not in accordance with GAAP. We have four business segments: FFELP Loans, Consumer Lending, Business Services and Other. Since these segments operate in distinct business environments and we manage and evaluate the financial performance of these segments using non-GAAP financial measures, these segments are presented on a “Core Earnings” basis (see “‘Core Earnings — Definitions and Limitations”).

GAAP Statements of Income (Unaudited)
														September 30, 2011 vs.							September 30, 2011 vs.
														June 30, 2011							September 30, 2010
														Increase							Increase
		Quarters Ended												(Decrease)							(Decrease)
		September 30,				June 30,				September 30,
(Dollars in millions, except per share data)			2011				2011				2010				$			%				$			%
Interest income:
FFELP Loans		$	858			$	850			$	885			$	8			1	%		$	(27	)		(3	)%
Private Education Loans			609				600				611				9			2				(2	)		—
Other loans			5				5				7				—			—				(2	)		(29	)
Cash and investments			4				5				8				(1	)		(20	)			(4	)		(50	)
Total interest income			1,476				1,460				1,511				16			1				(35	)		(2	)
Total interest expense			591				592				639				(1	)		—				(48	)		(8	)
Net interest income			885				868				872				17			2				13			1
Less: provisions for loan losses			409				291				358				118			41				51			14
Net interest income after provisions for loan losses			476				577				514				(101	)		(18	)			(38	)		(7	)
Other income (loss):
Gains on sales of loans and securities, net			—				—				1				—			—				(1	)		(100	)
Losses on derivative and hedging activities, net			(480	)			(510	)			(344	)			30			(6	)			(136	)		40
Servicing revenue			95				93				93				2			2				2			2
Contingency revenue			84				86				84				(2	)		(2	)			—			—
Gains on debt repurchases			—				—				18				—			—				(18	)		(100	)
Other income (loss)			1				3				(4	)			(2	)		(67	)			5			125
Total other income (loss)			(300	)			(328	)			(152	)			28			(9	)			(148	)		97
Expenses:
Operating expenses			285				268				302				17			6				(17	)		(6	)
Goodwill and acquired intangible assets impairment and amortization expense			6				6				670				—			—				(664	)		(99	)
Restructuring expenses			1				2				10				(1	)		(50	)			(9	)		(90	)
Total expenses			292				276				982				16			6				(690	)		(70	)
Loss from continuing operations before income tax benefit			(116	)			(27	)			(620	)			(89	)		330				504			(81	)
Income tax benefit			(46	)			(10	)			(126	)			(36	)		360				80			(63	)
Net loss from continuing operations			(70	)			(17	)			(494	)			(53	)		312				424			(86	)
Income (loss) from discontinued operations, net of tax expense (benefit)			23				11				(1	)			12			109				24			2,400
Net income (loss)			(47	)			(6	)			(495	)			(41	)		683				448			(91	)
Preferred stock dividends			5				4				19				1			25				(14	)		(74	)
Net loss attributable to common stock		$	(52	)		$	(10	)		$	(514	)		$	(42	)		420	%		$	462			(90	)%
Basic earnings (loss) per common share:
Continuing operations		$	(.14	)		$	(.04	)		$	(1.06	)		$	(.10	)		250			$	.92			(87	)
Discontinued operations			.04				.02				—				.02			100				.04			100
Total		$	(.10	)		$	(.02	)		$	(1.06	)		$	(.08	)		400	%		$	.96			(91	)%
Diluted earnings (loss) per common share:
Continuing operations		$	(.14	)		$	(.04	)		$	(1.06	)		$	(.10	)		250	%		$	.92			(87	)%
Discontinued operations			.04				.02				—				.02			100				.04			100
Total		$	(.10	)		$	(.02	)		$	(1.06	)		$	(.08	)		400	%		$	.96			(91	)%
Dividends per common share		$	.10			$	.10			$	—			$	—			—	%		$	.10			100	%

GAAP Statements of Income (Unaudited)
		Nine Months
		Ended								Increase
		September 30,								(Decrease)
(Dollars in millions, except per share data)			2011				2010				$			%
Interest income:
FFELP Loans		$	2,584			$	2,568			$	16			1	%
Private Education Loans			1,813				1,751				62			4
Other loans			17				23				(6	)		(26	)
Cash and investments			14				19				(5	)		(26	)
Total interest income			4,428				4,361				67			2
Total interest expense			1,777				1,739				38			2
Net interest income			2,651				2,622				29			1
Less: provisions for loan losses			1,003				1,099				(96	)		(9	)
Net interest income after provisions for loan losses			1,648				1,523				125			8
Other income (loss):
Gains on sales of loans and securities, net			—				7				(7	)		(100	)
Losses on derivative and hedging activities, net			(1,231	)			(331	)			(900	)		272
Servicing revenue			286				314				(28	)		(9	)
Contingency revenue			248				252				(4	)		(2	)
Gains on debt repurchases			38				199				(161	)		(81	)
Other income			25				7				18			257
Total other income (loss)			(634	)			448				(1,082	)		(242	)
Expenses:
Operating expenses			857				899				(42	)		(5	)
Goodwill and acquired intangible assets impairment and amortization expense			18				689				(671	)		(97	)
Restructuring expenses			6				53				(47	)		(89	)
Total expenses			881				1,641				(760	)		(46	)
Income from continuing operations before income tax expense			133				330				(197	)		(60	)
Income tax expense			44				232				(188	)		(81	)
Net income from continuing operations			89				98				(9	)		(9	)
Income (loss) from discontinued operations, net of tax expense (benefit)			33				(15	)			48			320
Net income			122				83				39			47
Preferred stock dividends			13				56				(43	)		(77	)
Net income attributable to common stock		$	109			$	27			$	82			304	%
Basic earnings (loss) per common share:
Continuing operations		$	.15			$	.09			$	.06			67	%
Discontinued operations			.06				(.03	)			.09			300
Total		$	.21			$	.06			$	.15			250	%
Diluted earnings (loss) per common share:
Continuing operations		$	.15			$	.09			$	.06			67	%
Discontinued operations			.06				(.03	)			.09			300
Total		$	.21			$	.06			$	.15			250	%
Dividends per common share		$	.20			$	—			$	.20			100	%

GAAP Balance Sheet (Unaudited)
(Dollars in millions, except per share data)		September 30, 2011				June 30, 2011				September 30, 2010
Assets
FFELP Loans (net of allowance for losses of $189; $189 and $189, respectively)		$	140,659			$	142,635			$	125,938
FFELP Stafford Loans Held-For-Sale			—				—				20,655
Private Education Loans (net of allowance for losses of $2,167; $2,043 and $2,035, respectively)			36,157				35,753				35,542
Cash and investments			4,950				5,284				6,993
Restricted cash and investments			5,847				6,075				5,838
Goodwill and acquired intangible assets, net			484				480				488
Other assets			9,447				10,130				10,653
Total assets		$	197,544			$	200,357			$	206,107
Liabilities
Short-term borrowings		$	31,745			$	30,766			$	45,389
Long-term borrowings			156,810				160,765				153,004
Other liabilities			4,207				3,815				3,140
Total liabilities			192,762				195,346				201,533
Commitments and contingencies
Equity
Preferred stock, par value $.20 per share, 20 million shares authorized:
Series A: 3.3 million; 3.3 million; and 3.3 million shares, respectively, issued at stated value of $50 per share			165				165				165
Series B: 4 million; 4 million; and 4 million shares, respectively, issued at stated value of $100 per share			400				400				400
Series C: 7.25% mandatory convertible preferred stock: 0; 0; and 810 thousand shares, respectively, issued at liquidation preference of $1,000 per share			—				—				810
Common stock, par value $.20 per share, 1.125 billion shares authorized:
529 million; 529 million; and 554 million shares, respectively, issued			106				106				111
Additional paid-in capital			4,127				4,114				5,128
Accumulated other comprehensive loss, net of tax benefit			(20	)			(30	)			(44	)
Retained earnings (loss)			315				418				(123	)
Total SLM Corporation stockholders’ equity before treasury stock			5,093				5,173				6,447
Common stock held in treasury: 20 million; 10 million and 68 million shares, respectively			319				170				1,873
Total SLM Corporation stockholders’ equity			4,774				5,003				4,574
Noncontrolling interest			8				8				—
Total equity			4,782				5,011				4,574
Total liabilities and equity		$	197,544			$	200,357			$	206,107

Consolidated Earnings Summary — GAAP-basis

Three Months Ended September 30, 2011 Compared with Three Months Ended September 30, 2010

For the three months ended September 30, 2011 and 2010, net loss was $47 million, or $.10 diluted loss per common share, and $495 million, or $1.06 diluted loss per common share, respectively. The decrease in net loss was primarily due to $660 million of goodwill and intangible asset impairment charges, which were partially non-tax deductible, recorded in the third quarter of 2010. This was partially offset by a $136 million increase in net losses on derivative and hedging activities and $124 million of additional provision for loan losses in connection with adopting new accounting guidance in the third quarter of 2011 related to troubled debt restructurings (“TDRs”).

The primary contributors to each of the identified drivers of changes in net income for the current quarter compared with the year-ago quarter are as follows:

• Net interest income increased by $13 million primarily as a result of incremental net interest income from the acquisition of $25 billion of securitized loans on December 31, 2010, which was partially offset by higher funding costs.
• Provisions for loan losses increased by $51 million as a result of $124 million of additional provision related to the implementation of new accounting guidance for TDRs (see “Consumer Lending Segment – Private Education Loans Provision for Loan Losses and Charge-offs” for a further discussion). Excluding the impact of this new accounting guidance, provision for loan losses would have decreased by $73 million as a result of overall improvements in credit quality and delinquency and charge-off trends.
• Net losses on derivatives and hedging activities increased by $136 million. The primary factors affecting the change in losses were interest rate and foreign currency fluctuations, which primarily affected the valuations of our Floor Income Contracts, basis swaps and foreign currency hedges during the period. Valuations of derivative instruments vary based upon many factors including changes in interest rates, credit risk, foreign currency fluctuations and other market factors. As a result, net gains and losses on derivatives and hedging activities may vary significantly in future periods.
• Gains on debt repurchases decreased $18 million year-over-year as we repurchased less debt in the current period. Debt repurchase activity will fluctuate based on market fundamentals and our liability management strategy.
• Operating expenses decreased $17 million primarily due to our ongoing cost savings initiative. The third quarter of 2011, which is typically our seasonal peak, included $8 million of third-party servicing expenses related to the $25 billion loan portfolio acquisition on December 31, 2010 and $15 million of expense related to the pending termination of our defined benefit pension plan. The third quarter of 2010 included $7 million of litigation contingency expense.
• Restructuring expenses decreased $9 million primarily as a result of the substantial completion of our plan for restructuring we initiated during 2010 in response to legislation ending FFELP. Restructuring our operations in response to the elimination of FFELP required us to significantly reduce our operations and related operating costs associated with the origination of FFELP Loans. Restructuring expenses associated with continuing operations under this plan were $1 million in the third quarter of 2011 and $10 million in the third quarter of 2010. We currently expect to incur an estimated $5 million of additional restructuring costs through 2012. The majority of these expenses will be severance costs.
• The effective tax rates for the third quarters of 2011 and 2010 were 40 percent and 20 percent, respectively. The change in the effective tax rate in the third quarter of 2011 compared with the third quarter of 2010 was primarily driven by non-tax deductible goodwill impairments recorded in the third quarter of 2010.
• Net income from discontinued operations, in the three months ended September 30, 2011 increased $24 million primarily due to the sale of our Purchased Paper — Non-Mortgage portfolio resulting in a $35 million gain in the third quarter. Our Purchased Paper businesses are presented as discontinued operations for the current and prior periods.

Nine Months Ended September 30, 2011 Compared with Nine Months Ended September 30, 2010

For the nine months ended September 30, 2011 and 2010, net income was $122 million, or $.21 diluted earnings per common share, and $83 million, or $.06 diluted earnings per common share, respectively. The increase in net income for the nine months ended September 30, 2011 as compared with the prior year period was primarily due to $660 million of goodwill and intangible asset impairment charges, which were partially non-tax deductible, recorded in the year-ago period and a $96 million decrease in the provisions for loan losses. This was partially offset by a $900 million increase in net losses on derivative and hedging activities and a $161 million decrease in gains on debt repurchases.

The primary contributors to each of the identified drivers of changes in net income for the current nine-month period compared with the year-ago nine-month period are as follows:

• Net interest income increased by $29 million primarily the result of incremental net interest income from the acquisition of $25 billion of securitized student loans on December 31, 2010, which was partially offset by higher funding costs.
• Provisions for loan losses decreased by $96 million. Excluding the effect of the $124 million of additional provision related to the implementation of new accounting guidance for TDRs (see “Consumer Lending Segment – Private Education Loans Provision for Loan Losses and Charge-offs” for further discussion), the provision for loan losses would have decreased by $220 million as a result of overall improvements in credit quality and delinquency and charge-off trends.
• Net losses on derivatives and hedging activities increased by $900 million primarily due to interest rate and foreign currency fluctuations, which primarily affected the valuations of our Floor Income Contracts, basis swaps and foreign currency hedges during the period. Valuations of derivative instruments vary based upon many factors including changes in interest rates, credit risk, foreign currency fluctuations and other market factors. As a result, net gains and losses on derivatives and hedging activities may vary significantly in future periods.
• Servicing revenue decreased by $28 million primarily due to 2010 legislation that eliminated the origination of new FFELP Loans, thereby eliminating Guarantor issuance fees on new FFELP Loans. Outstanding FFELP Loans on which we earn additional fees also declined.
• Gains on debt repurchases decreased $161 million as we repurchased less debt in the current period. Debt repurchase activity will fluctuate based on market fundamentals and our liability management strategy.
• Other income increased by $18 million primarily due to an increase in foreign currency translation gains. The foreign currency translation gains relate to a portion of our foreign currency denominated debt that does not receive hedge accounting treatment. These gains were partially offset by the “losses on derivative and hedging activities, net” line item on the income statement related to the derivatives used to economically hedge these debt instruments.
• Operating expenses decreased $42 million primarily as a result of our cost saving initiative. The first nine months of 2011 included $33 million of third-party servicing expenses related to the $25 billion loan portfolio acquisition on December 31, 2010, $12 million of litigation contingency expenses, $11 million from the acceleration of stock compensation and $15 million of expense related to the pending termination of our defined benefit pension plan. The first nine months of 2010 included $9 million of restructuring related impairments and $30 million of litigation contingency expenses.
• Restructuring expenses decreased $47 million primarily the result of the substantial completion of our plan for restructuring the Company initiated during 2010 in response to legislation ending FFELP.
• The effective tax rates for the nine months ended September 30, 2011 and 2010 were 33 percent and 70 percent, respectively. The change in the effective tax rate in the first nine months of 2011 compared with the year-ago period was primarily driven by the impact of non-tax deductible goodwill impairments recorded in the first nine months of 2010.
• Net income from discontinued operations for the nine months ended September 30, 2011 was $33 million compared with a net loss from discontinued operations of $15 million for the nine months ended September 30, 2010. The change was primarily driven by a $35 million gain realized from the sale of our Purchased Paper — Non-Mortgage portfolio in the third quarter of 2011 and higher than expected collections during the first nine months of 2011.

“Core Earnings” — Definition and Limitations

We prepare financial statements in accordance with GAAP. However, we also evaluate our business segments on a basis that differs from GAAP. We refer to this different basis of presentation as “Core Earnings.” We provide this “Core Earnings” basis of presentation on a consolidated basis for each business segment because this is what we internally review when making management decisions regarding our performance and how we allocate resources. We also refer to this information in our presentations with credit rating agencies, lenders and investors. Because our “Core Earnings” basis of presentation corresponds to our segment financial presentations, we are required by GAAP to provide “Core Earnings” disclosure in the notes to our consolidated financial statements for our business segments.

“Core Earnings” are not a substitute for reported results under GAAP. We use “Core Earnings” to manage each business segment because “Core Earnings” reflect adjustments to GAAP financial results for two items, discussed below, that create significant volatility mostly due to timing factors generally beyond the control of management. Accordingly, we believe that “Core Earnings” provide management with a useful basis from which to better evaluate results from ongoing operations against the business plan or against results from prior periods. Consequently, we disclose this information as we believe it provides investors with additional information regarding the operational and performance indicators that are most closely assessed by management. The two items adjusted for in our “Core Earnings” presentations are: (1) our use of derivatives instruments to hedge our economic risks that do not qualify for hedge accounting treatment or do qualify for hedge accounting treatment but result in ineffectiveness and (2) the accounting for goodwill and acquired intangible assets.

While GAAP provides a uniform, comprehensive basis of accounting, for the reasons described above, our “Core Earnings” basis of presentation does not. “Core Earnings” are subject to certain general and specific limitations that investors should carefully consider. For example, 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. Accordingly, our “Core Earnings” presentation does not represent a comprehensive basis of accounting. Investors, therefore, may not be able to compare our 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, our board of directors, rating agencies, lenders and investors to assess performance.

Specific adjustments that management makes to GAAP results to derive our “Core Earnings” basis of presentation are described in detail in the section entitled “‘Core Earnings’ — Definition and Limitations — Differences between ‘Core Earnings’ and GAAP” below.

The following tables show “Core Earnings” for each business segment and our business as a whole along with the adjustments made to the income/expense items to reconcile the amounts to our reported GAAP results as required by GAAP.

		Quarter Ended September 30, 2011
(Dollars in millions)		FFELP Loans			Consumer Lending				Business Services			Other				Eliminations(1)				Total “Core Earnings”			Adjustments(2)				Total GAAP
Interest income:
Student loans		$	711		$	609			$	—		$	—			$	—			$	1,320		$	147			$	1,467
Other loans			—			—				—			5				—				5			—				5
Cash and investments			1			2				3			1				(3	)			4			—				4
Total interest income			712			611				3			6				(3	)			1,329			147				1,476
Total interest expense			354			204				—			16				(3	)			571			20				591
Net interest income (loss)			358			407				3			(10	)			—				758			127				885
Less: provisions for loan losses			21			384				—			4				—				409			—				409
Net interest income (loss) after provisions for loan losses			337			23				3			(14	)			—				349			127				476
Servicing revenue			20			16				242			—				(183	)			95			—				95
Contingency revenue			—			—				84			—				—				84			—				84
Gains on debt repurchases			—			—				—			—				—				—			—				—
Other income (loss)			—			—				11			8				—				19			(498	)			(479	)
Total other income (loss)			20			16				337			8				(183	)			198			(498	)			(300	)
Expenses:
Direct operating expenses			188			82				119			2				(183	)			208			—				208
Overhead expenses			—			—				—			77				—				77			—				77
Operating expenses			188			82				119			79				(183	)			285			—				285
Goodwill and acquired intangible assets impairment and amortization expense			—			—				—			—				—				—			6				6
Restructuring expenses			—			—				1			—				—				1			—				1
Total expenses			188			82				120			79				(183	)			286			6				292
Income (loss) from continuing operations, before income tax expense (benefit)			169			(43	)			220			(85	)			—				261			(377	)			(116	)
Income tax expense (benefit)(3)			62			(16	)			81			(31	)			—				96			(142	)			(46	)
Net income (loss) from continuing operations			107			(27	)			139			(54	)			—				165			(235	)			(70	)
Income from discontinued operations, net of taxes			—			—				—			23				—				23			—				23
Net income (loss)		$	107		$	(27	)		$	139		$	(31	)		$	—			$	188		$	(235	)		$	(47	)

(1)		The eliminations in servicing revenue and direct operating expense represent the elimination of intercompany servicing revenue where the Business Services segment performs the loan servicing function for the FFELP Loans segment.
(2)		“Core Earnings” adjustments to GAAP:

		Quarter Ended September 30, 2011
(Dollars in millions)		Net Impact of Derivative Accounting				Net Impact of Goodwill and Acquired Intangibles				Total
Net interest income after provisions for loan losses		$	127			$	—			$	127
Total other loss			(498	)			—				(498	)
Goodwill and acquired intangible assets impairment and amortization			—				6				6
Total “Core Earnings” adjustments to GAAP		$	(371	)		$	(6	)			(377	)
Income tax benefit											(142	)
Net loss										$	(235	)

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

		Quarter Ended June 30, 2011
(Dollars in millions)		FFELP Loans			Consumer Lending			Business Services			Other				Eliminations(1)				Total “Core Earnings”			Adjustments(2)				Total GAAP
Interest income:
Student loans		$	721		$	600		$	—		$	—			$	—			$	1,321		$	129			$	1,450
Other loans			—			—			—			5				—				5			—				5
Cash and investments			1			2			2			2				(2	)			5			—				5
Total interest income			722			602			2			7				(2	)			1,331			129				1,460
Total interest expense			357			201			—			14				(2	)			570			22				592
Net interest income (loss)			365			401			2			(7	)			—				761			107				868
Less: provisions for loan losses			23			265			—			3				—				291			—				291
Net interest income (loss) after provisions for loan losses			342			136			2			(10	)			—				470			107				577
Servicing revenue			21			15			244			—				(187	)			93			—				93
Contingency revenue			—			—			86			—				—				86			—				86
Gains on debt repurchases			—			—			—			—				—				—			—				—
Other income (loss)			—			—			11			3				—				14			(521	)			(507	)
Total other income (loss)			21			15			341			3				(187	)			193			(521	)			(328	)
Expenses:
Direct operating expenses			192			73			121			—				(187	)			199			—				199
Overhead expenses			—			—			—			69				—				69			—				69
Operating expenses			192			73			121			69				(187	)			268			—				268
Goodwill and acquired intangible assets impairment and amortization expense			—			—			—			—				—				—			6				6
Restructuring expenses			—			1			—			1				—				2			—				2
Total expenses			192			74			121			70				(187	)			270			6				276
Income (loss) from continuing operations, before income tax expense (benefit)			171			77			222			(77	)			—				393			(420	)			(27	)
Income tax expense (benefit)(3)			63			28			82			(29	)			—				144			(154	)			(10	)
Net income (loss) from continuing operations			108			49			140			(48	)			—				249			(266	)			(17	)
Income from discontinued operations, net of taxes			—			—			—			11				—				11			—				11
Net income (loss)		$	108		$	49		$	140		$	(37	)		$	—			$	260		$	(266	)		$	(6	)

(1)		The eliminations in servicing revenue and direct operating expense represent the elimination of intercompany servicing revenue where the Business Services segment performs the loan servicing function for the FFELP Loans segment.
(2)		“Core Earnings” adjustments to GAAP:

		Quarter Ended June 30, 2011
(Dollars in millions)		Net Impact of Derivative Accounting				Net Impact of Goodwill and Acquired Intangibles				Total
Net interest income after provisions for loan losses		$	107			$	—			$	107
Total other loss			(521	)			—				(521	)
Goodwill and acquired intangible assets impairment and amortization			—				6				6
Total “Core Earnings” adjustments to GAAP		$	(414	)		$	(6	)			(420	)
Income tax benefit											(154	)
Net loss										$	(266	)

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

		Quarter Ended September 30, 2010
(Dollars in millions)		FFELP Loans			Consumer Lending				Business Services			Other				Eliminations(1)				Total “Core Earnings”				Adjustments(2)				Total GAAP
Interest income:
Student loans		$	748		$	611			$	—		$	—			$	—			$	1,359			$	137			$	1,496
Other loans			—			—				—			7				—				7				—				7
Cash and investments			3			4				4			1				(4	)			8				—				8
Total interest income			751			615				4			8				(4	)			1,374				137				1,511
Total interest expense			386			206				—			11				(4	)			599				40				639
Net interest income (loss)			365			409				4			(3	)			—				775				97				872
Less: provisions for loan losses			25			330				—			3				—				358				—				358
Net interest income (loss) after provisions for loan losses			340			79				4			(6	)			—				417				97				514
Servicing revenue			17			17				223			—				(164	)			93				—				93
Contingency revenue			—			—				84			—				—				84				—				84
Gains on debt repurchases			—			—				—			18				—				18				—				18
Other income (loss)			1			—				13			5				—				19				(366	)			(347	)
Total other income (loss)			18			17				320			23				(164	)			214				(366	)			(152	)
Expenses:
Direct operating expenses			182			99				121			2				(164	)			240				—				240
Overhead expenses			—			—				—			62				—				62				—				62
Operating expenses			182			99				121			64				(164	)			302				—				302
Goodwill and acquired intangible assets impairment and amortization expense			—			—				—			—				—				—				670				670
Restructuring expenses			8			2				—			—				—				10				—				10
Total expenses			190			101				121			64				(164	)			312				670				982
Income (loss) from continuing operations, before income tax expense (benefit)			168			(5	)			203			(47	)			—				319				(939	)			(620	)
Income tax expense (benefit)(3)			60			(2	)			72			(14	)			—				116				(242	)			(126	)
Net income (loss) from continuing operations			108			(3	)			131			(33	)			—				203				(697	)			(494	)
Loss from discontinued operations, net of taxes			—			—				—			(1	)			—				(1	)			—				(1	)
Net income (loss)		$	108		$	(3	)		$	131		$	(34	)		$	—			$	202			$	(697	)		$	(495	)

(1)		The eliminations in servicing revenue and direct operating expense represent the elimination of intercompany servicing revenue where the Business Services segment performs the loan servicing function for the FFELP Loans segment.
(2)		“Core Earnings” adjustments to GAAP:

		Quarter Ended September 30, 2010
(Dollars in millions)		Net Impact of Derivative Accounting				Net Impact of Goodwill and Acquired Intangibles				Total
Net interest income after provisions for loan losses		$	97			$	—			$	97
Total other loss			(366	)			—				(366	)
Goodwill and acquired intangible assets impairment and amortization			—				670				670
Total “Core Earnings” adjustments to GAAP		$	(269	)		$	(670	)			(939	)
Income tax benefit											(242	)
Net loss										$	(697	)

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

		Nine Months Ended September 30, 2011
(Dollars in millions)		FFELP Loans			Consumer Lending			Business Services			Other				Eliminations(1)				Total “Core Earnings”			Adjustments(2)				Total GAAP
Interest income:
Student loans		$	2,168		$	1,813		$	—		$	—			$	—			$	3,981		$	416			$	4,397
Other loans			—			—			—			17				—				17			—				17
Cash and investments			3			7			8			4				(8	)			14			—				14
Total interest income			2,171			1,820			8			21				(8	)			4,012			416				4,428
Total interest expense			1,080			603			—			46				(8	)			1,721			56				1,777
Net interest income (loss)			1,091			1,217			8			(25	)			—				2,291			360				2,651
Less: provisions for loan losses			67			924			—			12				—				1,003			—				1,003
Net interest income (loss) after provisions for loan losses			1,024			293			8			(37	)			—				1,288			360				1,648
Servicing revenue			66			48			731			—				(559	)			286			—				286
Contingency revenue			—			—			248			—				—				248			—				248
Gains on debt repurchases			—			—			—			64				—				64			(26	)			38
Other income (loss)			—			—			31			14				—				45			(1,251	)			(1,206	)
Total other income (loss)			66			48			1,010			78				(559	)			643			(1,277	)			(634	)
Expenses:
Direct operating expenses			575			237			368			10				(559	)			631			—				631
Overhead expenses			—			—			—			226				—				226			—				226
Operating expenses			575			237			368			236				(559	)			857			—				857
Goodwill and acquired intangible assets impairment and amortization expense			—			—			—			—				—				—			18				18
Restructuring expenses			1			2			2			1				—				6			—				6
Total expenses			576			239			370			237				(559	)			863			18				881
Income (loss) from continuing operations, before income tax expense (benefit)			514			102			648			(196	)			—				1,068			(935	)			133
Income tax expense (benefit)(3)			189			37			238			(71	)			—				393			(349	)			44
Net income (loss) from continuing operations			325			65			410			(125	)			—				675			(586	)			89
Income from discontinued operations, net of taxes			—			—			—			33				—				33			—				33
Net income (loss)		$	325		$	65		$	410		$	(92	)		$	—			$	708		$	(586	)		$	122

(1)		The eliminations in servicing revenue and direct operating expense represent the elimination of intercompany servicing revenue where the Business Services segment performs the loan servicing function for the FFELP Loans segment.
(2)		“Core Earnings” adjustments to GAAP:

		Nine Months Ended September 30, 2011
(Dollars in millions)		Net Impact of Derivative Accounting				Net Impact of Goodwill and Acquired Intangibles				Total
Net interest income after provisions for loan losses		$	360			$	—			$	360
Total other income (loss)			(1,277	)			—				(1,277	)
Goodwill and acquired intangible assets impairment and amortization			—				18				18
Total “Core Earnings” adjustments to GAAP		$	(917	)		$	(18	)			(935	)
Income tax benefit											(349	)
Net loss										$	(586	)

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

		Nine Months Ended September 30, 2010
(Dollars in millions)		FFELP Loans			Consumer Lending				Business Services			Other				Eliminations(1)				Total “Core Earnings”				Adjustments(2)				Total GAAP
Interest income:
Student loans		$	2,135		$	1,751			$	—		$	—			$	—			$	3,886			$	433			$	4,319
Other loans			—			—				—			23				—				23				—				23
Cash and investments			6			11				13			2				(13	)			19				—				19
Total interest income			2,141			1,762				13			25				(13	)			3,928				433				4,361
Total interest expense			1,104			562				—			33				(13	)			1,686				53				1,739
Net interest income (loss)			1,037			1,200				13			(8	)			—				2,242				380				2,622
Less: provisions for loan losses			76			1,004				—			19				—				1,099				—				1,099
Net interest income (loss) after provisions for loan losses			961			196				13			(27	)			—				1,143				380				1,523
Servicing revenue			53			57				696			1				(493	)			314				—				314
Contingency revenue			—			—				252			—				—				252				—				252
Gains on debt repurchases			—			—				—			199				—				199				—				199
Other income (loss)			1			—				37			16				—				54				(371	)			(317	)
Total other income (loss)			54			57				985			216				(493	)			819				(371	)			448
Expenses:
Direct operating expenses			557			265				373			7				(493	)			709				—				709
Overhead expenses			—			—				—			190				—				190				—				190
Operating expenses			557			265				373			197				(493	)			899				—				899
Goodwill and acquired intangible assets impairment and amortization expense			—			—				—			—				—				—				689				689
Restructuring expenses			42			5				5			1				—				53				—				53
Total expenses			599			270				378			198				(493	)			952				689				1,641
Income (loss) from continuing operations, before income tax expense (benefit)			416			(17	)			620			(9	)			—				1,010				(680	)			330
Income tax expense (benefit)(3)			148			(6	)			222			4				—				368				(136	)			232
Net income (loss) from continuing operations			268			(11	)			398			(13	)			—				642				(544	)			98
Loss from discontinued operations, net of taxes			—			—				—			(15	)			—				(15	)			—				(15	)
Net income (loss)		$	268		$	(11	)		$	398		$	(28	)		$	—			$	627			$	(544	)		$	83

(1)		The eliminations in servicing revenue and direct operating expense represent the elimination of intercompany servicing revenue where the Business Services segment performs the loan servicing function for the FFELP Loans segment.
(2)		“Core Earnings” adjustments to GAAP:

		Nine Months Ended September 30, 2010
(Dollars in millions)		Net Impact of Derivative Accounting				Net Impact of Goodwill and Acquired Intangibles				Total
Net interest income after provisions for loan losses		$	380			$	—			$	380
Total other income (loss)			(371	)			—				(371	)
Goodwill and acquired intangible assets impairment and amortization			—				689				689
Total “Core Earnings” adjustments to GAAP		$	9			$	(689	)			(680	)
Income tax benefit											(136	)
Net loss										$	(544	)

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

Differences between “Core Earnings” and GAAP

The following discussion summarizes the differences between “Core Earnings” and GAAP net income (loss), and details each specific adjustment required to reconcile our “Core Earnings” segment presentation to our GAAP earnings.

		Quarters Ended												Nine Months Ended
		September 30,				June 30,				September 30,				September 30,				September 30,
(Dollars in millions)		2011				2011				2010				2011				2010
“Core Earnings”		$	188			$	260			$	202			$	708			$	627
“Core Earnings” adjustments:
Net impact of derivative accounting			(371	)			(414	)			(269	)			(917	)			9
Net impact of goodwill and acquired intangibles			(6	)			(6	)			(670	)			(18	)			(689	)
Total “Core Earnings” adjustments before income tax effect			(377	)			(420	)			(939	)			(935	)			(680	)
Net income tax effect			142				154				242				349				136
Total “Core Earnings” adjustments			(235	)			(266	)			(697	)			(586	)			(544	)
GAAP net income (loss)		$	(47	)		$	(6	)		$	(495	)		$	122			$	83

1)		Derivative Accounting: “Core Earnings” exclude periodic unrealized gains and losses that are caused primarily by the mark-to-market valuations on derivatives that do not qualify for hedge accounting treatment under GAAP. To a lesser extent, these periodic unrealized gains and losses are also a result of ineffectiveness recognized related to effective hedges. These unrealized gains and losses occur in our FFELP Loans, Consumer Lending and Other business segments. Under GAAP, for our derivatives that are held to maturity, the cumulative net unrealized gain or loss over the life of the contract will equal $0 except for Floor Income Contracts where the cumulative unrealized gain will equal the amount for which we sold the contract. In our “Core Earnings” presentation, we recognize the economic effect of these hedges, which generally results in any net settlement cash paid or received being recognized ratably as an interest expense or revenue over the hedged item’s life.
		The table below quantifies the adjustments for derivative accounting on our net income for the quarters ended September 30, 2011, June 30, 2011 and September 30, 2010 and for the nine months ended September 30, 2011 and 2010, when compared with the accounting principles employed in all years prior to the adoption of ASC 815 related to accounting for derivative financial instruments.

		Quarters Ended												Nine Months Ended
		September 30,				June 30,				September 30,				September 30,				September 30,
(Dollars in millions)		2011				2011				2010				2011				2010
“Core Earnings” derivative adjustments:
Gains (losses) on derivative and hedging activities, net, included in other income(1)		$	(480	)		$	(510	)		$	(344	)		$	(1,231	)		$	(331	)
Plus: Realized losses on derivative and hedging activities, net(1)			228				185				182				598				613
Unrealized gains (losses) on derivative and hedging activities, net			(252	)			(325	)			(162	)			(633	)			282
Amortization of net premiums on Floor Income contracts in net interest income			(99	)			(74	)			(86	)			(257	)			(230	)
Other derivative accounting adjustments to reflect economic impact			(20	)			(15	)			(21	)			(27	)			(43	)
Total net impact derivative accounting(2)		$	(371	)		$	(414	)		$	(269	)		$	(917	)		$	9

(1)		See “Reclassification of Realized Gains (Losses) on Derivative and Hedging Activities” below for a detailed breakdown of the components of realized losses on derivative and hedging activities.
(2)		Negative amounts are subtracted from “Core Earnings” net income to arrive at GAAP net income and positive amounts are added to “Core Earnings” net income to arrive at GAAP net income.

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

The derivative accounting requires net settlement income/expense on derivatives and realized gains/losses related to derivative dispositions (collectively referred to as “realized gains (losses) on derivative and hedging activities”) that do not qualify as hedges to be recorded in a separate income statement line item below net interest income. The table below summarizes the realized losses on derivative and hedging activities and the associated reclassification on a “Core Earnings” basis for the quarters ended September 30, 2011, June 30, 2011 and September 30, 2010 and for the nine months ended September 30, 2011 and 2010.

		Quarters Ended												Nine Months Ended
		September 30,				June 30,				September 30,				September 30,				September 30,
(Dollars in millions)		2011				2011				2010				2011				2010
Reclassification of realized gains (losses) on derivative and hedging activities:
Net settlement expense on Floor Income Contracts reclassified to net interest income		$	(246	)		$	(202	)		$	(223	)		$	(674	)		$	(656	)
Net settlement income on interest rate swaps reclassified to net interest income			17				17				39				51				41
Foreign exchange derivatives losses reclassified to other income			1				—				—				—				1
Net realized gains (losses) on terminated derivative contracts reclassified to other income			—				—				2				25				1
Total reclassifications of realized losses on derivative and hedging activities			(228	)			(185	)			(182	)			(598	)			(613	)
Add: Unrealized gains (losses) on derivative and hedging activities, net(1)			(252	)			(325	)			(162	)			(633	)			282
Losses on derivative and hedging activities, net		$	(480	)		$	(510	)		$	(344	)		$	(1,231	)		$	(331	)

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

		Quarters Ended												Nine Months Ended
		September 30,				June 30,				September 30,				September 30,				September 30,
(Dollars in millions)		2011				2011				2010				2011				2010
Floor Income Contracts		$	(356	)		$	(277	)		$	(88	)		$	(482	)		$	(111	)
Basis swaps			57				25				38				76				364
Foreign currency hedges			43				(110	)			(136	)			(261	)			(28	)
Other			4				37				24				34				57
Total unrealized gains (losses) on derivative and hedging activities, net		$	(252	)		$	(325	)		$	(162	)		$	(633	)		$	282

2)		Goodwill and Acquired Intangibles: Our “Core Earnings” exclude goodwill and intangible impairment and the amortization of acquired intangibles. The following table summarizes the acquired intangible adjustments for the quarters ended September 30, 2011, June 30, 2011 and September 30, 2010 and for the nine months ended September 30, 2011 and 2010.

		Quarters Ended												Nine Months Ended
		September 30,				June 30,				September 30,				September 30,				September 30,
(Dollars in millions)		2011				2011				2010				2011				2010
“Core Earnings” goodwill and acquired intangibles adjustments(1):
Goodwill and acquired intangibles impairment		$	—			$	—			$	(660	)		$	—			$	(660	)
Amortization of acquired intangibles			(6	)			(6	)			(10	)			(18	)			(29	)
Total “Core Earnings” goodwill and acquired intangibles adjustments		$	(6	)		$	(6	)		$	(670	)		$	(18	)		$	(689	)

(1)		Negative amounts are subtracted from “Core Earnings” net income to arrive at GAAP net income and positive amounts are added to “Core Earnings” net income to arrive at GAAP net income.

Business Segment Earnings Summary — “Core Earnings” Basis

FFELP Loans Segment

The following table includes “Core Earnings” results for our FFELP Loans segment.

																		% Increase
		Quarters Ended						% Increase (Decrease)						Nine Months Ended				(Decrease)
								Sept. 30, 2011			Sept 30, 2011							Sept. 30, 2011
		Sept. 30,		June 30,		Sept. 30,		vs.			vs.			Sept. 30,		Sept. 30,		vs.
(Dollars in millions)		2011		2011		2010		June 30, 2011			Sept. 30, 2010			2011		2010		Sept. 30, 2010
“Core Earnings” interest income:
FFELP Loans		$ 711		$ 721		$ 748		(1	)%		(5	)%		$ 2,168		$ 2,135		2	%
Cash and investments		1		1		3		—			(67	)		3		6		(50	)
Total “Core Earnings” interest income		712		722		751		(1	)		(5	)		2,171		2,141		1
Total “Core Earnings” interest expense		354		357		386		(1	)		(8	)		1,080		1,104		(2	)
Net “Core Earnings” interest income		358		365		365		(2	)		(2	)		1,091		1,037		5
Less: provisions for loan losses		21		23		25		(9	)		(16	)		67		76		(12	)
Net “Core Earnings” interest income after provisions for loan losses		337		342		340		(1	)		(1	)		1,024		961		7
Servicing revenue		20		21		17		(5	)		18			66		53		25
Other income		—		—		1		—			(100	)		—		1		(100	)
Total other income		20		21		18		(5	)		11			66		54		22
Direct operating expenses		188		192		182		(2	)		3			575		557		3
Restructuring expenses		—		—		8		—			(100	)		1		42		(98	)
Total expenses		188		192		190		(2	)		(1	)		576		599		(4	)
Income from continuing operations, before income tax expense		169		171		168		(1	)		1			514		416		24
Income tax expense		62		63		60		(2	)		3			189		148		28
“Core Earnings”		$ 107		$ 108		$ 108		(1	)%		(1	)%		$ 325		$ 268		21	%

FFELP Loans Net Interest Margin

The following table shows the FFELP Loans “Core Earnings” basis net interest margin along with reconciliation to the GAAP-basis FFELP Loans net interest margin.

		Quarters Ended									Nine Months Ended
		Sept. 30,			June 30,			Sept. 30,			Sept. 30,			Sept. 30,
		2011			2011			2010			2011			2010
“Core Earnings” basis FFELP student loan yield		2.55	%		2.57	%		2.53	%		2.57	%		2.54	%
Hedged Floor Income		.27			.20			.23			.24			.22
Unhedged Floor Income		.09			.19			.05			.12			.02
Consolidation Loan Rebate Fees		(.65	)		(.66	)		(.56	)		(.66	)		(.57	)
Repayment Borrower Benefits		(.13	)		(.12	)		(.08	)		(.11	)		(.09	)
Premium amortization		(.14	)		(.17	)		(.16	)		(.15	)		(.18	)
“Core Earnings” basis FFELP student loan net yield		1.99			2.01			2.01			2.01			1.94
“Core Earnings” basis FFELP student loan cost of funds		(.96	)		(.96	)		(.97	)		(.96	)		(.94	)
“Core Earnings” basis FFELP student loan spread		1.03			1.05			1.04			1.05			1.00
“Core Earnings” basis FFELP other asset spread impact		(.06	)		(.07	)		(.10	)		(.07	)		(.09	)
“Core Earnings” basis FFELP Loans net interest margin(1)		.97	%		.98	%		.94	%		.98	%		.91	%
“Core Earnings” basis FFELP Loans net interest margin(1)		.97	%		.98	%		.94	%		.98	%		.91	%
Adjustment for GAAP accounting treatment		.38			.32			.25			.35			.33
GAAP-basis FFELP Loans net interest margin(1)		1.35	%		1.30	%		1.19	%		1.33	%		1.24	%

(1)		The average balances of our FFELP interest-earning assets for the respective periods are:

(Dollars in millions)
FFELP Loans		$	141,848		$	143,999		$	147,822		$	144,389		$	146,937
Other interest-earning assets			4,784			4,982			5,522			4,927			5,610
Total FFELP “Core Earnings” basis interest-earning assets		$	146,632		$	148,981		$	153,344		$	149,316		$	152,547

The increase in the “Core Earnings” basis FFELP Loans net interest margin of 7 basis points for the nine months ended September 30, 2011 compared with the nine months ended September 30, 2010 was primarily the result of an increase in Floor Income due to lower interest rates.

As of September 30, 2011, our FFELP Loan portfolio totaled approximately $140.7 billion, comprised of $51.7 billion of FFELP Stafford and $89.0 billion of FFELP Consolidation Loans. The weighted-average life of these portfolios is 5.0 years and 9.2 years, respectively, assuming a Constant Prepayment Rate (“CPR”) of 5 percent and 3 percent, respectively.

FFELP Provisions for Loan Losses and Loan Charge-Offs

The following tables summarize the FFELP Loan provisions for loan losses and FFELP Loan charge-offs for the quarters ended September 30, 2011, June 30, 2011 and September 30, 2010 and for the nine months ended September 30, 2011 and 2010.

		Quarters Ended									Nine Months Ended
		Sept. 30,			June 30,			Sept. 30,			Sept. 30,			Sept. 30,
(Dollars in millions)		2011			2011			2010			2011			2010
FFELP Loan provisions for loan losses		$	21		$	23		$	25		$	67		$	76
FFELP Loan charge-offs			18			21			21			59			67

Operating Expenses — FFELP Loans Segment

Operating expenses for our FFELP Loans segment primarily include the contractual rates we pay to service loans in term asset-backed securitization trusts or a similar rate if a loan is not in a term financing facility (which is presented as an intercompany charge from the Business Services segment who services the loans), the fees we pay for third-party loan servicing and costs incurred to acquire loans. The increases in operating expenses in the three and nine months ended September 30, 2011 compared with the three and nine months ended September 30, 2010 were primarily the result of the increase in servicing costs related to the $25 billion loan portfolio acquisition on December 31, 2010. Operating expenses, excluding restructuring-related asset impairments, were 52 basis points and 49 basis points of average FFELP Loans in the quarters ended September 30, 2011 and 2010, respectively, and 53 basis points and 50 basis points for the nine months ended September 30, 2011 and 2010, respectively.

Consumer Lending Segment

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

		Quarters Ended											% Increase (Decrease)						Nine Months Ended							% Increase (Decrease)
		Sept. 30,				June 30,			Sept. 30,				Sept. 30, 2011 vs.			Sept. 30, 2011 vs.			Sept. 30,			Sept. 30,				Sept. 30, 2011 vs.
(Dollars in millions)			2011			2011				2010			June 30, 2011			Sept. 30, 2010			2011				2010			Sept. 30, 2010
“Core Earnings” interest income:
Private Education Loans		$	609			$	600		$	611			2	%		—	%		$	1,813		$	1,751			4	%
Cash and investments			2				2			4			—			(50	)			7			11			(36	)
Total “Core Earnings” interest income			611				602			615			1			(1	)			1,820			1,762			3
Total “Core Earnings” interest expense			204				201			206			1			(1	)			603			562			7
Net “Core Earnings” interest income			407				401			409			1			—				1,217			1,200			1
Less: provisions for loan losses			384				265			330			45			16				924			1,004			(8	)
Net “Core Earnings” interest income after provisions for loan losses			23				136			79			(83	)		(71	)			293			196			49
Servicing revenue			16				15			17			7			(6	)			48			57			(16	)
Direct operating expenses			82				73			99			12			(17	)			237			265			(11	)
Restructuring expenses			—				1			2			(100	)		(100	)			2			5			(60	)
Total expenses			82				74			101			11			(19	)			239			270			(11	)
Income (loss) from continuing operations, before income tax expense (benefit)			(43	)			77			(5	)		(156	)		760				102			(17	)		700
Income tax expense (benefit)			(16	)			28			(2	)		(157	)		700				37			(6	)		717
“Core Earnings” (loss)		$	(27	)		$	49		$	(3	)		(155	)%		800	%		$	65		$	(11	)		691	%

Consumer Lending Net Interest Margin

The following table shows the Consumer Lending “Core Earnings” net interest margin along with reconciliation to the GAAP-basis Consumer Lending net interest margin before provisions for loan losses.

		Quarters Ended									Nine Months Ended
		September 30,			June 30,			September 30,			September 30,			September 30,
		2011			2011			2010			2011			2010
“Core Earnings” basis Private Education Student Loan yield		6.39	%		6.29	%		6.27	%		6.34	%		6.10	%
Discount amortization		.18			.26			.40			.24			.32
“Core Earnings” basis Private Education Loan net yield		6.57			6.55			6.67			6.58			6.42
“Core Earnings” basis Private Education Loan cost of funds		(2.00	)		(2.02	)		(1.94	)		(2.00	)		(1.78	)
“Core Earnings” basis Private Education Loan spread		4.57			4.53			4.73			4.58			4.64
“Core Earnings” basis other asset spread impact		(.54	)		(.48	)		(.86	)		(.52	)		(.81	)
“Core Earnings” basis Consumer Lending net interest margin(1)		4.03	%		4.05	%		3.87	%		4.06	%		3.83	%
“Core Earnings” basis Consumer Lending net interest margin(1)		4.03	%		4.05	%		3.87	%		4.06	%		3.83	%
Adjustment for GAAP accounting treatment		(.09	)		(.05	)		.01			(.06	)		.02
GAAP-basis Consumer Lending net interest margin(1)		3.94	%		4.00	%		3.88	%		4.00	%		3.85	%

(1)		The average balances of our Consumer Lending interest-earning assets for the respective periods are:

(Dollars in millions)
Private Education Loans		$	36,772		$	36,784		$	36,317		$	36,853		$	36,487
Other interest-earning assets			3,280			2,910			5,541			3,183			5,375
Total Consumer Lending “Core Earnings” basis interest-earning assets		$	40,052		$	39,694		$	41,858		$	40,036		$	41,862

The increase in the “Core Earnings” basis Consumer Lending net interest margin over both the year-ago quarter and nine month period was primarily the result of a benefit from the decline in the average balance of our Other asset portfolio, which more than offset the effect of the lower discount amortization due to lower prepayment speeds. The size of the Other asset portfolio, which is primarily securitization trust restricted cash and cash held at Sallie Mae Bank (the “Bank”), has decreased significantly. This Other asset portfolio earns a negative yield and as a result, when its relative weighting decreases compared to the Private Education Loan portfolio, the overall net interest margin increases.

Private Education Loans Provision for Loan Losses and Charge-Offs

The following tables summarize the total Private Education Loans provision for loan losses and charge-offs for the quarters ended September 30, 2011, June 30, 2011 and September 30, 2010 and for the nine months ended September 30, 2011 and 2010:

		Quarters Ended									Nine Months Ended
		September 30,			June 30,			September 30,			September 30,			September 30,
(Dollars in millions)		2011			2011			2010			2011			2010
Provision for Private Education Loan losses:
Provision for losses, excluding the impact of new TDR accounting guidance implemented in third-quarter 2011		$	260		$	265		$	330		$	800		$	1,004
Provision for losses related to new TDR accounting guidance implemented in third-quarter 2011			124			—			—			124			—
Total provision for Private Education Loan losses		$	384		$	265		$	330		$	924		$	1,004
Private Education Loan Charge-offs		$	272		$	263		$	348		$	809		$	968

We recorded an additional $124 million of provision for Private Education Loan losses for the quarter to reflect the cumulative, year-to-date effect of adopting new accounting rules related to troubled debt restructurings (“TDRs”). For a complete discussion of the effect of these new rules on our provision for Private Education Loan losses, see “Recently Adopted Accounting Standards – Troubled Debt Restructurings”.

In establishing the allowance for Private Education Loan losses for the quarter, we considered several additional emerging environmental factors with respect to our Private Education Loan portfolio. In particular, we continue to see improving credit quality and continuing positive delinquency and charge-off trends in connection with this portfolio. Improving credit quality is seen in higher FICO scores and cosigner rates as well as a more seasoned portfolio compared to the year-ago quarter. The overall delinquency rate has declined to 10.3 percent from 11.1 percent and the charge-off rate has declined to 3.7 percent from 5.4 percent compared to the year-ago quarter.

Apart from these overall improvements in credit quality, delinquency and charge-off trends, Private Education Loans which defaulted between 2008 and 2011 for which we have previously charged off estimated losses have, to varying degrees, not met our recovery expectations to date and may continue not to do so. According to our policy, we have been charging off these periodic shortfalls in expected recoveries against our allowance for Private Education Loan losses and the related receivable for partially charged-off Private Education Loans and we will continue to do so. Differences in actual future recoveries on these defaulted loans could affect our receivable for partially charged-off Private Education Loans. We have increased our provision for Private Education Loan losses for the quarter in the amount of $143 million to reflect these uncertainties. Continuing historically high unemployment rates may negatively affect future Private Education Loan default and recovery expectations over our estimated two-year loss confirmation period. Consequently, in accordance with our policy, we have also given consideration to these factors in projecting charge-offs for this period and establishing our allowance for Private Education Loan losses. We will continue to monitor defaults and recoveries in light of the continuing weak economy and high unemployment rates. For a more detailed discussion of our policy for determining the collectability of Private Education Loan and maintaining our allowance for Private Education Loan losses, see Note 2, “Significant Accounting Policies” to our Consolidated Financial Statements contained in our Form 10-K for the fiscal year ended December 31, 2010.

Operating Expenses — Consumer Lending Segment

Operating expenses for our Consumer Lending segment include costs incurred to originate Private Education Loans and to service and collect on our Private Education Loan portfolio. The decreases in operating expenses in the three and nine months ended September 30, 2011 compared with the three and nine months ended September 30, 2010 were primarily the result of our cost cutting initiatives. Operating expenses, excluding restructuring-related asset impairments, were 88 basis points and 108 basis points of average Private Education Loans in the quarters ended September 30, 2011 and 2010, respectively, and 86 basis points and 97 basis points of average Private Education Loans in the nine months ended September 30, 2011 and 2010, respectively.

Business Services Segment

The following tables include “Core Earnings” results for our Business Services segment.

		Quarters Ended									% Increase (Decrease)						Nine Months Ended						% Increase (Decrease)
		Sept. 30,			June 30,			Sept. 30,			Sept. 30, 2011 vs.			Sept. 30, 2011 vs.			Sept. 30,			Sept. 30,			Sept. 30, 2011 vs.
(Dollars in millions)		2011			2011			2010			June 30, 2011			Sept. 30, 2010			2011			2010			Sept. 30, 2010
Net interest income after provision		$	3		$	2		$	4		50	%		(25	)%		$	8		$	13		(38	)%
Servicing revenue:
Intercompany loan servicing			183			187			164		(2	)		12				559			493		13
Third-party loan servicing			20			20			20		—			—				60			56		7
Guarantor servicing			15			15			16		—			(6	)			40			77		(48	)
Other servicing			24			22			23		9			4				72			70		3
Total servicing revenue			242			244			223		(1	)		9				731			696		5
Contingency revenue			84			86			84		(2	)		—				248			252		(2	)
Other Business Services revenue			11			11			13		—			(15	)			31			37		(16	)
Total other income			337			341			320		(1	)		5				1,010			985		3
Direct operating expenses			119			121			121		(2	)		(2	)			368			373		(1	)
Restructuring expenses			1			—			—		100			100				2			5		(60	)
Total expenses			120			121			121		(1	)		(1	)			370			378		(2	)
Income from continuing operations, before income tax expense			220			222			203		(1	)		8				648			620		5
Income tax expense			81			82			72		(1	)		13				238			222		7
“Core Earnings”		$	139		$	140		$	131		(1	)%		6	%		$	410		$	398		3	%

Our Business Services segment earns intercompany loan servicing fees from servicing the FFELP Loans in our FFELP Loans segment. The average balance of this portfolio was $140 billion and $133 billion for the quarters ended September 30, 2011 and 2010 and $142 billion and $133 billion for the nine months ended September 30, 2011 and 2010, respectively. The increase in intercompany loan servicing revenue from the year-ago periods is primarily the result of the acquisition of the $25 billion FFELP Loan portfolio on December 31, 2010 which was partially offset by the amortization of the underlying portfolio as well as the FFELP Loans sold to ED as part of the Participation Program in 2010.

We are servicing approximately 3.4 million accounts under the ED Servicing Contract as of September 30, 2011. Third-party loan servicing fees in the third quarter of 2011 and the third quarter of 2010 included $16 million and $10 million, respectively, of servicing revenue related to the ED Servicing Contract. Our allocation of loans awarded for servicing under the ED contract increased from 22 percent to 26 percent for the contract year ending August 2012. The increase was driven primarily by our top ranking for default prevention performance results.

The decrease in Guarantor servicing revenue compared with the year-ago quarter and nine-month period was primarily due to 2010 legislation that eliminated the origination of new FFELP Loans, thereby eliminating Guarantor issuance fees on new FFELP Loans. Outstanding FFELP Loans on which we earn additional fees also declined.

Other servicing revenue includes account asset servicing revenue and Campus Solutions revenue. Account asset servicing revenue represents fees earned on program management, transfer and servicing agent services and administration services for our various 529 college-savings plans. Assets under administration in our 529 college savings plans totaled $34.5 billion as of September 30, 2011, a 28 percent increase from the year-ago quarter. Campus Solutions revenue is earned from our Campus Solutions business whose services include comprehensive financing and transaction processing solutions that we provide to college financial aid offices and students to streamline the financial aid process.

The following table presents the outstanding inventory of contingent collections receivables that our Business Services segment will collect on behalf of others.

		September 30,			June 30,			September 30,
(Dollars in millions)		2011			2011			2010
Student loans		$	10,839		$	10,475		$	9,781
Other			2,133			2,042			1,648
Total		$	12,972		$	12,517		$	11,429

Other Business Services revenue is primarily transaction fees that are earned in conjunction with our rewards program from participating companies based on member purchase activity, either online or in stores, depending on the contractual arrangement with the participating company. Typically, a percentage of the purchase price of the consumer members’ eligible purchases with participating companies is set aside in an account maintained by us on behalf of our members.

Revenues related to services performed on FFELP Loans accounted for 78 percent of total segment revenues for both of the quarters ended September 30, 2011 and 2010, respectively, and 78 percent and 79 percent for the nine months ended September 30, 2011 and 2010, respectively.

On September 1, 2011, we completed the acquisition of SC Services & Associates, Inc., a provider of collections services to local governments and courts for delinquent traffic citations, court fees and probation fines. This acquisition will enhance and complement our other contingency collection businesses.

Operating Expenses — Business Services Segment

Operating expenses for the three and nine months ended September 30, 2011 decreased from the three and nine months ended September 30, 2010, primarily as a result of our cost cutting initiatives. Included in operating expenses for the first nine months of 2011 is approximately $33 million in third-party servicing costs associated with our acquisition of $25 billion in loans at the end of 2010. During third-quarter 2011, we began transitioning these loans to our own servicing platform and completed the transfer in October 2011. With the portfolio fully transitioned, the future servicing costs associated with these loans will decline significantly.

Other Segment

The following table includes “Core Earnings” results of our Other segment.

		Quarters Ended												% Increase (Decrease)						Nine Months Ended								% Increase (Decrease)
(Dollars in millions)		September 30, 2011				June 30, 2011				September 30, 2010				Sept. 30, 2011 vs. June 30, 2011			Sept. 30, 2011 vs. Sept. 30, 2010			September 30, 2011				September 30, 2010				Sept. 30, 2011 vs. Sept. 30, 2010
Net interest loss after provision		$	(14	)		$	(10	)		$	(6	)		40	%		133	%		$	(37	)		$	(27	)		37	%
Gains on debt repurchases			—				—				18			—			(100	)			64				199			(68	)
Other			8				3				5			167			60				14				17			(18	)
Total income			8				3				23			167			(65	)			78				216			(64	)
Direct operating expenses			2				—				2			100			—				10				7			43
Overhead expenses:
Corporate overhead			47				38				28			24			68				134				94			43
Unallocated information technology costs			30				31				34			(3	)		(12	)			92				96			(4	)
Total overhead expenses			77				69				62			12			24				226				190			19
Operating expenses			79				69				64			14			23				236				197			20
Restructuring expenses			—				1				—			(100	)		—				1				1			—
Total expenses			79				70				64			13			23				237				198			20
Loss from continuing operations, before income tax expense (benefit)			(85	)			(77	)			(47	)		10			81				(196	)			(9	)		2,078
Income tax expense (benefit)			(31	)			(29	)			(14	)		7			121				(71	)			4			(1,875	)
Net loss from continuing operations			(54	)			(48	)			(33	)		13			64				(125	)			(13	)		862
Income (loss) from discontinued operations, net of taxes			23				11				(1	)		109			2,400				33				(15	)		320
“Core Earnings” (loss)		$	(31	)		$	(37	)		$	(34	)		(16	)%		(9	)%		$	(92	)		$	(28	)		229	%

Purchased Paper Business

Our Purchased Paper businesses are presented as discontinued operations for the current and prior periods (see “Consolidated Earnings Summary — GAAP-basis” for a further discussion). We sold our Purchased Paper — Non-Mortgage business, resulting in a $35 million gain in the third quarter of 2011.

Gains on Debt Repurchases

We began repurchasing our outstanding debt in the second quarter of 2008. We repurchased $9 million and $882 million face amount of our senior unsecured notes for the quarters ended September 30, 2011 and 2010, respectively, and $894 million and $3.6 billion for the nine months ended September 30, 2011 and 2010, respectively.

Overhead

Corporate overhead is comprised of costs related to executive management, the board of directors, accounting, finance, legal, human resources and stock option expense. Unallocated information technology costs are related to infrastructure and operations.

The increase in corporate overhead for the three-month period ended September 30, 2011 compared with the three-month period ended September 30, 2010 was primarily the result of $15 million of additional expense related to the anticipated termination of our defined benefit pension plan due to changes in estimates related to the employee termination benefits as well as changes in interest rates.

The increase in corporate overhead for the nine-month period ended September 30, 2011 compared with the nine-month period ended September 30, 2010, was primarily the result of a change in the terms of our stock compensation plans, additional expense related to the anticipated termination of our defined benefit pension plan, and restructuring-related consulting expenses incurred in the first half of 2011. In the first quarter of 2011, we changed our stock compensation plans so that retirement eligible employees would not forfeit unvested stock compensation upon their retirement. This change had the effect of accelerating the future stock compensation expenses associated with these unvested stock grants into the current period for those retirement-eligible employees.

Financial Condition

This section provides additional information regarding the changes related to our loan portfolio assets and related liabilities as well as credit performance indicators related to our Consumer Lending portfolio.

Subsequent to the adoption of the new consolidation accounting guidance on January 1, 2010, our GAAP and “Core Earnings” loan portfolios are identical, as all of our securitization trusts are treated as on-balance sheet for GAAP now. Hence, in referencing the total loan portfolio, ending and average loan balances, provisions for loan losses and charge-offs, we no longer distinguish between the two as they are the same, unless otherwise noted.

Summary of our Student Loan Portfolio
Ending Student Loan Balances, net
		September 30, 2011
(Dollars in millions)		FFELP Stafford and Other				FFELP Consolidation Loans				Total FFELP				Private Education Loans				Total
Total student loan portfolio:
In-school(1)		$	3,483			$	—			$	3,483			$	2,339			$	5,822
Grace and repayment			47,451				88,196				135,647				35,636				171,283
Total, gross			50,934				88,196				139,130				37,975				177,105
Unamortized premium/(discount)			868				850				1,718				(843	)			875
Receivable for partially charged-off loans			—				—				—				1,192				1,192
Allowance for losses			(120	)			(69	)			(189	)			(2,167	)			(2,356	)
Total student loan portfolio		$	51,682			$	88,977			$	140,659			$	36,157			$	176,816
% of total FFELP			37	%			63	%			100	%
% of total			29	%			51	%			80	%			20	%			100	%
		June 30, 2011
(Dollars in millions)		FFELP Stafford and Other				FFELP Consolidation Loans				Total FFELP				Private Education Loans				Total
Total student loan portfolio:
In-school(1)		$	4,109			$	—			$	4,109			$	2,341			$	6,450
Grace and repayment			47,933				89,006				136,939				35,176				172,115
Total, gross			52,042				89,006				141,048				37,517				178,565
Unamortized premium/(discount)			901				875				1,776				(861	)			915
Receivable for partially charged-off loans			—				—				—				1,140				1,140
Allowance for losses			(119	)			(70	)			(189	)			(2,043	)			(2,232	)
Total student loan portfolio		$	52,824			$	89,811			$	142,635			$	35,753			$	178,388
% of total FFELP			37	%			63	%			100	%
% of total			30	%			50	%			80	%			20	%			100	%

		September 30, 2010
(Dollars in millions)		FFELP Stafford and Other				FFELP Consolidation Loans				Total FFELP				Private Education Loans				Total
Total student loan portfolio:
In-school(1)		$	16,707			$	—			$	16,707			$	4,183			$	20,890
Grace and repayment			48,975				78,408				127,383				33,288				160,671
Total, gross			65,682				78,408				144,090				37,471				181,561
Unamortized premium/(discount)			1,119				1,573				2,692				(873	)			1,819
Receivable for partially charged-off loans			—				—				—				979				979
Allowance for losses			(120	)			(69	)			(189	)			(2,035	)			(2,224	)
Total student loan portfolio		$	66,681			$	79,912			$	146,593			$	35,542			$	182,135
% of total FFELP			45	%			55	%			100	%
% of total			36	%			44	%			80	%			20	%			100	%

(1)		Loans for borrowers still attending school and are not yet required to make payments on the loan.

Average Student Loan Balances (net of unamortized premium/discount)
		Quarter Ended September 30, 2011
(Dollars in millions)		FFELP Stafford and Other				FFELP Consolidation Loans				Total FFELP				Private Education Loans				Total
Total		$	52,399			$	89,449			$	141,848			$	36,772			$	178,620
% of FFELP			37	%			63	%			100	%
% of total			29	%			50	%			79	%			21	%			100	%
		Quarter Ended June 30, 2011
(Dollars in millions)		FFELP Stafford and Other				FFELP Consolidation Loans				Total FFELP				Private Education Loans				Total
Total		$	53,667			$	90,332			$	143,999			$	36,784			$	180,783
% of FFELP			37	%			63	%			100	%
% of total			30	%			50	%			80	%			20	%			100	%
		Quarter Ended September 30, 2010
(Dollars in millions)		FFELP Stafford and Other				FFELP Consolidation Loans				Total FFELP				Private Education Loans				Total
Total		$	67,265			$	80,557			$	147,822			$	36,317			$	184,139
% of FFELP			46	%			54	%			100	%
% of total			36	%			44	%			80	%			20	%			100	%
		Nine Months Ended September 30, 2011
(Dollars in millions)		FFELP Stafford and Other				FFELP Consolidation Loans				Total FFELP				Private Education Loans				Total
Total		$	53,856			$	90,533			$	144,389			$	36,853			$	181,242
% of FFELP			37	%			63	%			100	%
% of total			30	%			50	%			80	%			20	%			100	%
		Nine Months Ended September 30, 2010
(Dollars in millions)		FFELP Stafford and Other				FFELP Consolidation Loans				Total FFELP				Private Education Loans				Total
Total		$	65,326			$	81,611			$	146,937			$	36,487			$	183,424
% of FFELP			44	%			56	%			100	%
% of total			36	%			44	%			80	%			20	%			100	%

Student Loan Activity
		Quarter Ended September 30, 2011
(Dollars in millions)		FFELP Stafford and Other				FFELP Consolidation Loans				Total FFELP				Total Private Education Loans				Total Portfolio
Beginning balance		$	52,824			$	89,811			$	142,635			$	35,753			$	178,388
Acquisitions and originations			400				466				866				1,152				2,018
Capitalized interest and premium/discount amortization			316				416				732				226				958
Consolidations to third parties			(543	)			(250	)			(793	)			(16	)			(809	)
Sales			(187	)			—				(187	)			—				(187	)
Repayments/defaults/other			(1,128	)			(1,466	)			(2,594	)			(958	)			(3,552	)
Ending balance		$	51,682			$	88,977			$	140,659			$	36,157			$	176,816
		Quarter Ended June 30, 2011
(Dollars in millions)		FFELP Stafford and Other				FFELP Consolidation Loans				Total FFELP				Total Private Education Loans				Total Portfolio
Beginning balance		$	54,366			$	91,192			$	145,558			$	35,966			$	181,524
Acquisitions and originations			190				58				248				292				540
Capitalized interest and premium/discount amortization			360				370				730				330				1,060
Consolidations to third parties			(730	)			(280	)			(1,010	)			(15	)			(1,025	)
Sales			(192	)			—				(192	)			—				(192	)
Repayments/defaults/other			(1,170	)			(1,529	)			(2,699	)			(820	)			(3,519	)
Ending balance		$	52,824			$	89,811			$	142,635			$	35,753			$	178,388
		Quarter Ended September 30, 2010
(Dollars in millions)		FFELP Stafford and Other				FFELP Consolidation Loans				Total FFELP				Total Private Education Loans				Total Portfolio
Beginning balance		$	67,457			$	81,035			$	148,492			$	35,151			$	183,643
Acquisitions and originations			1,058				76				1,134				955				2,089
Capitalized interest and premium/discount amortization			287				362				649				267				916
Consolidations to third parties			(598	)			(217	)			(815	)			(11	)			(826	)
Sales			(217	)			(71	)			(288	)			—				(288	)
Repayments/defaults/other			(1,306	)			(1,273	)			(2,579	)			(820	)			(3,399	)
Ending balance		$	66,681			$	79,912			$	146,593			$	35,542			$	182,135

		Nine Months Ended September 30, 2011
(Dollars in millions)		FFELP Stafford and Other				FFELP Consolidation Loans				Total FFELP				Total Private Education Loans				Total Portfolio
Beginning balance		$	56,252			$	92,397			$	148,649			$	35,656			$	184,305
Acquisitions and originations			693				771				1,464				2,373				3,837
Capitalized interest and premium/discount amortization			998				1,157				2,155				850				3,005
Consolidations to third parties			(2,124	)			(808	)			(2,932	)			(48	)			(2,980	)
Sales			(568	)			—				(568	)			—				(568	)
Repayments/defaults/other			(3,569	)			(4,540	)			(8,109	)			(2,674	)			(10,783	)
Ending balance		$	51,682			$	88,977			$	140,659			$	36,157			$	176,816

		Nine Months Ended September 30, 2010
(Dollars in millions)		FFELP Stafford and Other				FFELP Consolidation Loans				Total FFELP				Total Private Education Loans				Total Portfolio
Beginning balance — GAAP-basis		$	52,675			$	68,379			$	121,054			$	22,753			$	143,807
Consolidation of off-balance sheet loans(1)			5,500				14,797				20,297				12,341				32,638
Beginning balance — total portfolio			58,175				83,176				141,351				35,094				176,445
Acquisitions and originations			14,190				76				14,266				2,017				16,283
Capitalized interest and premium/discount amortization			885				1,046				1,931				944				2,875
Consolidations to third parties			(1,545	)			(591	)			(2,136	)			(33	)			(2,169	)
Sales			(383	)			(71	)			(454	)			—				(454	)
Repayments/defaults/other			(4,641	)			(3,724	)			(8,365	)			(2,480	)			(10,845	)
Ending balance		$	66,681			$	79,912			$	146,593			$	35,542			$	182,135

(1)		On January 1, 2010, upon the adoption of the new consolidation accounting guidance, all off-balance sheet loans are included in the GAAP-basis.

Private Education Loan Originations

Total Private Education Loan originations increased 29 percent from the year-ago quarter to $1.1 billion in the quarter ended September 30, 2011 and 20 percent in the first nine months of 2011 compared with the year-ago period.

The following table summarizes our Private Education Loan originations.

		Quarters Ended									Nine Months Ended
(Dollars in millions)		September 30, 2011			June 30, 2011			September 30, 2010			September 30, 2011			September 30, 2010
Private Education Loan originations		$	1,077		$	264		$	835		$	2,281		$	1,894

Consumer Lending Portfolio Performance
Private Education Loan Delinquencies and Forbearance
		Private Education Loan Delinquencies
		September 30, 2011							June 30, 2011							September 30, 2010
(Dollars in millions)		Balance				%			Balance				%			Balance				%
Loans in-school/grace/deferment(1)		$	7,693						$	7,216						$	10,517
Loans in forbearance(2)			1,360							1,430							1,170
Loans in repayment and percentage of each status:
Loans current			25,945			89.7	%			25,994			90.0	%			22,926			88.9	%
Loans delinquent 31-60 days(3)			1,032			3.6				963			3.4				907			3.5
Loans delinquent 61-90 days(3)			509			1.7				575			2.0				489			1.9
Loans delinquent greater than 90 days(3)			1,436			5.0				1,339			4.6				1,462			5.7
Total Private Education Loans in repayment			28,922			100.0	%			28,871			100.0	%			25,784			100.0	%
Total Private Education Loans, gross			37,975							37,517							37,471
Private Education Loan unamortized discount			(843	)						(861	)						(873	)
Total Private Education Loans			37,132							36,656							36,598
Private Education Loan receivable for partially charged-off loans			1,192							1,140							979
Private Education Loan allowance for losses			(2,167	)						(2,043	)						(2,035	)
Private Education Loans, net		$	36,157						$	35,753						$	35,542
Percentage of Private Education Loans in repayment						76.2	%						77.0	%						68.8	%
Delinquencies as a percentage of Private Education Loans in repayment						10.3	%						10.0	%						11.1	%
Loans in forbearance as a percentage of loans in repayment and forbearance						4.5	%						4.7	%						4.3	%
Loans in repayment greater than 12 months as a percentage of loans in repayment(4)						68.7	%						66.0	%						62.2	%

(1)		Loans for borrowers who may still 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 payments due to hardship or other factors, consistent with established loan program servicing policies and procedures.
(3)		The period of delinquency is based on the number of days scheduled payments are contractually past due.
(4)		Based on number of months in an active repayment status for which a scheduled monthly payment was due.

Allowance for Private Education Loan Losses

The following table summarizes changes in the allowance for Private Education Loan losses for the quarters ended September 30, 2011, June 30, 2011 and September 30, 2010 and for the nine months ended September 30, 2011 and 2010.

		Quarters Ended												Nine Months Ended
(Dollars in millions)		September 30, 2011				June 30, 2011				September 30, 2010				September 30, 2011				September 30, 2010
Allowance at beginning of period — GAAP-basis		$	2,043			$	2,034			$	2,042			$	2,022			$	1,443
Consolidation of off-balance sheet loans(1)			—				—				—				—				524
Allowance at beginning of period — total portfolio			2,043				2,034				2,042				2,022				1,967
Provisions for Private Education Loan losses(2)			384				265				330				924				1,004
Charge-offs			(272	)			(263	)			(348	)			(809	)			(968	)
Reclassification of interest reserve			12				7				11				30				32
Allowance at end of period		$	2,167			$	2,043			$	2,035			$	2,167			$	2,035
Charge-offs as a percentage of average loans in repayment (annualized)			3.7	%			3.7	%			5.4	%			3.8	%			5.1	%
Charge-offs as a percentage of average loans in repayment and forbearance (annualized)			3.6	%			3.5	%			5.1	%			3.6	%			4.9	%
Allowance as a percentage of the ending total loan balance			5.5	%			5.3	%			5.3	%			5.5	%			5.3	%
Allowance as a percentage of ending loans in repayment			7.5	%			7.1	%			7.9	%			7.5	%			7.9	%
Average coverage of charge-offs (annualized)			2.0				1.9				1.5				2.0				1.6
Ending total loans(3)		$	39,167			$	38,657			$	38,450			$	39,167			$	38,450
Average loans in repayment		$	28,819			$	28,489			$	25,616			$	28,481			$	25,151
Ending loans in repayment		$	28,922			$	28,871			$	25,784			$	28,922			$	25,784

(1)		On January 1, 2010, upon the adoption of the new consolidation accounting guidance, all off-balance sheet loans are included in the GAAP-basis.
(2)		See “Recently Adopted Accounting Standards – Troubled Debt Restructurings” for a discussion regarding the impact of adopting new accounting guidance related to TDRs in the third quarter of 2011, which increased provisions for loan losses by $124 million.
(3)		Ending total loans represents gross Private Education Loans, plus the receivable for partially charged-off loans.

The following table provides detail for the traditional and non-traditional Private Education Loans at September 30, 2011, June 30, 2011 and September 30, 2010.

		September 30, 2011												June 30, 2011												September 30, 2010
(Dollars in millions)		Traditional				Non- Traditional				Total				Traditional				Non- Traditional				Total				Traditional				Non- Traditional				Total
Ending total loans(1)		$	35,005			$	4,162			$	39,167			$	34,419			$	4,238			$	38,657			$	33,990			$	4,460			$	38,450
Ending loans in repayment			26,240				2,682				28,922				26,134				2,737				28,871				23,063				2,721				25,784
Private Education Loan allowance for losses			1,487				680				2,167				1,363				680				2,043				1,180				855				2,035
Charge-offs as a percentage of average loans in repayment (annualized)			2.9	%			11.5	%			3.7	%			2.8	%			12.5	%			3.7	%			3.9	%			17.6	%			5.4	%
Allowance as a percentage of total ending loan balance			4.2	%			16.3	%			5.5	%			4.0	%			16.0	%			5.3	%			3.5	%			19.2	%			5.3	%
Allowance as a percentage of ending loans in repayment			5.7	%			25.4	%			7.5	%			5.2	%			24.8	%			7.1	%			5.1	%			31.4	%			7.9	%
Average coverage of charge-offs (annualized)			1.9				2.2				2.0				1.9				2.0				1.9				1.3				1.8				1.5
Delinquencies as a percentage of Private Education Loans in repayment			8.6	%			26.6	%			10.3	%			8.3	%			25.9	%			10.0	%			9.1	%			28.1	%			11.1	%
Delinquencies greater than 90 days as a percentage of Private Education Loans in repayment			4.0	%			14.3	%			5.0	%			3.7	%			13.2	%			4.6	%			4.5	%			16.0	%			5.7	%
Loans in forbearance as a percentage of loans in repayment and forbearance			4.3	%			6.7	%			4.5	%			4.5	%			7.0	%			4.7	%			4.1	%			6.1	%			4.3	%
Loans that entered repayment during the period(2)		$	843			$	46			$	889			$	1,010			$	103			$	1,113			$	1,071			$	83			$	1,154
Percentage of Private Education Loans with a cosigner			65	%			29	%			61	%			64	%			29	%			60	%			63	%			28	%			59	%
Average FICO at origination			726				624				717				725				624				716				725				623				715

(1)		Ending total loans represents gross Private Education Loans, plus the receivable for partially charged-off loans.
(2)		Includes loans that are required to make a payment for the first time.

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

The tables below show the composition and status of the Private Education Loan portfolio aged by number of months in active repayment status (months for which a scheduled monthly payment was due). As indicated in the tables, the percentage of loans in forbearance status decreases the longer the loans have been in active repayment status. At September 30, 2011, loans in forbearance status as a percentage of loans in repayment and forbearance were 6.6 percent for loans that have been in active repayment status for less than 25 months. The percentage drops to 1.4 percent for loans that have been in active repayment status for more than 48 months. Approximately 80 percent of our Private Education Loans in forbearance status has been in active repayment status less than 25 months.

(Dollars in millions)		Monthly Scheduled Payments Due																				Not Yet in
September 30, 2011		1 to 12				13 to 24				25 to 36				37 to 48				More than 48				Repayment				Total
Loans in-school/grace/deferment		$	—			$	—			$	—			$	—			$	—			$	7,693			$	7,693
Loans in forbearance			897				194				127				66				76				—				1,360
Loans in repayment — current			7,561				5,657				4,480				3,163				5,084				—				25,945
Loans in repayment — delinquent 31-60 days			491				208				146				79				108				—				1,032
Loans in repayment — delinquent 61-90 days			270				93				65				33				48				—				509
Loans in repayment — delinquent greater than 90 days			742				307				183				88				116				—				1,436
Total		$	9,961			$	6,459			$	5,001			$	3,429			$	5,432			$	7,693				37,975
Unamortized discount																											(843	)
Receivable for partially charged-off loans																											1,192
Allowance for loan losses																											(2,167	)
Total Private Education Loans, net																										$	36,157
Loans in forbearance as a percentage of loans in repayment and forbearance			9.0	%			3.0	%			2.5	%			1.9	%			1.4	%			—	%			4.5	%

(Dollars in millions)		Monthly Scheduled Payments Due																				Not Yet in
June 30, 2011		1 to 12				13 to 24				25 to 36				37 to 48				More than 48				Repayment				Total
Loans in-school/grace/deferment		$	—			$	—			$	—			$	—			$	—			$	7,216			$	7,216
Loans in forbearance			990				200				118				57				65				—				1,430
Loans in repayment — current			8,254				5,844				4,131				3,040				4,725				—				25,994
Loans in repayment — delinquent 31-60 days			487				192				127				65				92				—				963
Loans in repayment — delinquent 61-90 days			327				108				66				32				42				—				575
Loans in repayment — delinquent greater than 90 days			735				281				150				73				100				—				1,339
Total		$	10,793			$	6,625			$	4,592			$	3,267			$	5,024			$	7,216				37,517
Unamortized discount																											(861	)
Receivable for partially charged-off loans																											1,140
Allowance for loan losses																											(2,043	)
Total Private Education Loans, net																										$	35,753
Loans in forbearance as a percentage of loans in repayment and forbearance			9.2	%			3.0	%			2.6	%			1.8	%			1.3	%			—	%			4.7	%

(Dollars in millions)		Monthly Scheduled Payments Due																				Not Yet in
September 30, 2010		1 to 12				13 to 24				25 to 36				37 to 48				More than 48				Repayment				Total
Loans in-school/grace/deferment		$	—			$	—			$	—			$	—			$	—			$	10,517			$	10,517
Loans in forbearance			821				161				92				45				51				—				1,170
Loans in repayment — current			8,087				5,160				3,662				2,480				3,537				—				22,926
Loans in repayment — delinquent 31-60 days			499				182				101				52				73				—				907
Loans in repayment — delinquent 61-90 days			301				85				45				25				33				—				489
Loans in repayment — delinquent greater than 90 days			857				315				137				66				87				—				1,462
Total		$	10,565			$	5,903			$	4,037			$	2,668			$	3,781			$	10,517				37,471
Unamortized discount																											(873	)
Receivable for partially charged-off loans																											979
Allowance for loan losses																											(2,035	)
Total Private Education Loans, net																										$	35,542
Loans in forbearance as a percentage of loans in repayment and forbearance			7.8	%			2.7	%			2.3	%			1.7	%			1.4	%			—	%			4.3	%

In 2009, we reduced the amount of time a loan will spend in forbearance, thereby increasing our ongoing contact with the borrower to encourage consistent repayment behavior once the loan is returned to a current repayment status. As a result, the balance of loans in a forbearance status as of month-end has decreased since 2008. The monthly average number of loans granted forbearance as a percentage of loans in repayment and forbearance increased to 5.3 percent in the third quarter of 2011 compared with the year-ago quarter of 5.1 percent. As of September 30, 2011, 3.0 percent of loans in current status were delinquent as of the end of the prior month, but were granted a forbearance that made them current as of September 30, 2011 (borrowers made payments on approximately 21 percent of these loans immediately prior to being granted forbearance).

Receivable for Partially Charged-Off Private Education Loans

At the end of each month, for loans that are 212 days past due, we charge off the estimated loss of a defaulted loan balance. Actual recoveries are applied against the remaining loan balance that was not charged off. We refer to this remaining loan balance as the “receivable for partially charged-off loans.” If actual periodic recoveries are less than expected, the difference is immediately charged off through the allowance for loan losses with an offsetting reduction in the receivable for partially charged-off Private Education Loans. If actual periodic recoveries are greater than expected, they will be reflected as a recovery through the allowance for Private Education Loan losses once the cumulative recovery amount exceeds the cumulative amount originally expected to be recovered. There was $143 million in provision for Private Education Loan losses recorded in the quarter to reflect possible additional future charge-offs related to the receivable for partially charged-off Private Education Loans (see “Consumer Lending Segment – Private Education Loans Provision for Loan Losses and Charge-Offs” for a further discussion).

The following table summarizes the activity in the receivable for partially charged-off Private Education Loans for the quarters ended September 30, 2011, June 30, 2011 and September 30, 2010 and the nine months ended September 30, 2011 and 2010.

		Quarters Ended												Nine Months Ended
		September 30,				June 30,				September 30,				September 30,				September 30,
(Dollars in millions)		2011				2011				2010				2011				2010
Receivable at beginning of period — GAAP-basis		$	1,140			$	1,090			$	888			$	1,039			$	499
Consolidation of off-balance sheet trusts(1)			—				—				—				—				229
Receivable at beginning of period			1,140				1,090				888				1,039				728
Expected future recoveries of current period defaults(2)			100				94				126				292				348
Recoveries(3)			(39	)			(37	)			(29	)			(115	)			(78	)
Charge-offs(4)			(9	)			(7	)			(6	)			(24	)			(19	)
Receivable at end of period		$	1,192			$	1,140			$	979			$	1,192			$	979

(1)		Upon the adoption of the new consolidation accounting guidance on January 1, 2010, we consolidated all of our off-balance sheet securitization trusts.
(2)		Remaining loan balance expected to be collected from contractual loan balances partially charged-off during the period. This is the difference between the defaulted loan balance and the amount of the defaulted loan balance that was charged off.
(3)		Current period cash collections of amounts originally expected to be recovered.
(4)		Represents the current period recovery shortfall – the difference between what was expected to be collected and what was actually collected.

Liquidity and Capital Resources

Recent market volatility has elevated the potential cost of capital markets issuance. Regardless, we continue to expect to fund our ongoing liquidity needs, including the origination of new Private Education Loans and the repayment of $3.6 billion of senior unsecured notes to mature in the next twelve months, primarily through our current cash and investment position and the collection of additional bank deposits, the very predictable operating cash flows provided by earnings and repayment of principal on unencumbered student loan assets, distributions from our securitization trusts (including servicing fees which are priority payments within the trusts). We may also draw down on FFELP ABCP Facilities and the facility with the Federal Home Loan Bank in Des Moines (the “FHLB-DM Facility”); and we may also issue term ABS and unsecured debt.

Currently, new Private Education Loan originations are initially funded through deposits and subsequently securitized to term on a programmatic basis. We have $1.1 billion of cash at the Bank as of September 30, 2011 available to fund future originations.

Sources of Liquidity and Available Capacity

The following tables detail our main sources of primary liquidity and our main sources of secondary liquidity (unused secured credit facilities contingent upon obtaining eligible collateral) outstanding at September 30, 2011, June 30, 2011 and December 31, 2010 and the average balances for the three months ended September 30, 2011, June 30, 2011 and September 30, 2010 and for the nine months ended September 30, 2011 and 2010.

		As of
(Dollars in millions)		September 30, 2011			June 30, 2011			December 31, 2010
Sources of primary liquidity:
Unrestricted cash and liquid investments:
Cash and cash equivalents		$	3,523		$	4,145		$	4,342
Investments			76			83			85
Total unrestricted cash and liquid investments(1)		$	3,599		$	4,228		$	4,427
Unencumbered FFELP Loans		$	1,005		$	855		$	1,441
Sources of secondary liquidity contingent on obtaining eligible collateral:
Unused secured credit facilities: FFELP ABCP Facilities and FHLB-DM Facility(2)		$	10,972		$	10,728		$	12,601

(1)		At September 30, 2011, June 30, 2011 and December 31, 2010, ending balances include $1.1 billion, $1.4 billion and $2.0 billion, respectively, of cash and liquid investments at the Bank. This cash will be used primarily to originate or acquire student loans.
(2)		Current borrowing capacity under the FFELP ABCP Facilities and FHLB-DM Facility is determined based on qualifying collateral from the unencumbered FFELP Loans reported in primary liquidity above. Additional borrowing capacity would primarily be used to fund FFELP Loan portfolio acquisitions and to refinance FFELP Loans used as collateral in the ED Conduit Program Facility. The total amount we can borrow is contingent upon obtaining eligible collateral. If we use our unencumbered FFELP Loans as collateral to borrow against these facilities, the remaining amount we could borrow is reduced accordingly.

		Average Balances									Average Balances
		Quarters Ended									Nine Months Ended
		September 30,			June 30,			September 30,			September 30,
(Dollars in millions)		2011			2011			2010			2011			2010
Sources of primary liquidity:
Unrestricted cash and liquid investments:
Cash and cash equivalents		$	4,025		$	3,404		$	6,127		$	3,886		$	6,150
Investments			130			101			85			103			96
Total unrestricted cash and liquid investments(1)		$	4,155		$	3,505		$	6,212		$	3,989		$	6,246
Unused bank lines of credit		$	—		$	—		$	1,590		$	—		$	2,451
Unencumbered FFELP Loans		$	873		$	1,673		$	1,753		$	1,571		$	1,978
Sources of secondary liquidity contingent on obtaining eligible collateral:
Unused secured credit facilities: FFELP ABCP Facilities and FHLB-DM Facility(2)		$	10,867		$	11,408		$	13,953		$	11,436		$	12,647

(1)		For the three months ended September 30, 2011, June 30, 2011 and September 30, 2010, average balances include $1.4 billion, $1.0 billion and $2.7 billion, respectively, of cash and liquid investments at the Bank. For the nine months ended September 30, 2011 and 2010, average balances include $1.3 billion and $2.5 billion, respectively, of cash and liquid investments at the Bank.
(2)		Current borrowing capacity under the FFELP ABCP Facilities and FHLB-DM Facility is determined based on qualifying collateral from the unencumbered FFELP Loans reported in primary liquidity above. Additional borrowing capacity would primarily be used to fund FFELP Loan portfolio acquisitions and to refinance FFELP Loans used as collateral in the ED Conduit Program Facility. The total amount we can borrow is contingent upon obtaining eligible collateral. If we use our unencumbered FFELP Loans as collateral to borrow against these facilities, the remaining amount we could borrow is reduced accordingly.

In addition to the assets listed in the table above, we hold a number of other unencumbered assets, consisting primarily of Private Education Loans and other assets. At September 30, 2011, we had a total of $21.7 billion of unencumbered assets (which includes the assets that comprise our primary liquidity and are available to serve as collateral for our secondary liquidity), excluding goodwill and acquired intangibles. Total student loans, net, comprised $12.0 billion of our unencumbered assets of which $11.0 billion and $1.0 billion related to Private Education Loans, net and FFELP Loans, net, respectively.

The following table reconciles encumbered and unencumbered assets and their net impact on total tangible equity.

		September 30,				June 30,				September 30,
(Dollars in billions)		2011				2011				2010
Net assets of consolidated variable interest entities (encumbered assets)		$	12.7			$	12.4			$	13.1
Tangible unencumbered assets(1)			21.7				21.4				24.4
Unsecured debt			(25.6	)			(24.9	)			(30.2	)
Mark-to-market on unsecured hedged debt(2)			(2.0	)			(1.6	)			(2.4	)
Other liabilities, net			(2.5	)			(2.8	)			(.8	)
Total tangible equity		$	4.3			$	4.5			$	4.1

(1)		Excludes goodwill and acquired intangible assets.
(2)		At September 30, 2011, June 30, 2011 and September 30, 2010, there were $1.7 billion, $1.4 billion and $2.1 billion, respectively, of net gains on derivatives hedging this debt in unencumbered assets, which partially offset these losses.

“Core Earnings” Basis Borrowings

The following table presents the ending balances of our “Core Earnings” basis borrowings at September 30, 2011, June 30, 2011, and September 30, 2010.

		September 30, 2011									June 30, 2011									September 30, 2010
								Total									Total									Total
								“Core									“Core									“Core
		Short			Long			Earnings”			Short			Long			Earnings”			Short			Long			Earnings”
(Dollars in millions)		Term			Term			Basis			Term			Term			Basis			Term			Term			Basis
Unsecured borrowings:
Senior unsecured debt		$	3,553		$	15,543		$	19,096		$	2,464		$	16,787		$	19,251		$	3,422		$	19,177		$	22,599
Brokered deposits			1,552			1,652			3,204			1,550			1,654			3,204			1,618			3,263			4,881
Retail and other deposits			1,959			—			1,959			1,487			—			1,487			1,079			—			1,079
Other(1)			1,286			—			1,286			1,004			—			1,004			1,666			—			1,666
Total unsecured borrowings			8,350			17,195			25,545			6,505			18,441			24,946			7,785			22,440			30,225
Secured borrowings:
FFELP Loans securitizations			—			108,081			108,081			—			109,524			109,524			—			98,803			98,803
Private Education Loans securitizations			—			21,362			21,362			—			21,815			21,815			—			21,917			21,917
ED Conduit Program facility			21,967			—			21,967			22,756			—			22,756			15,426			—			15,426
ED Participation Program facility			—			—			—			—			—			—			20,226			—			20,226
ABCP borrowings			257			4,987			5,244			314			5,000			5,314			1,152			4,827			5,979
Acquisition financing(2)			—			964			964			—			1,010			1,010			—			—			—
FHLB-DM facility			1,000			—			1,000			1,000			—			1,000			525			—			525
Indentured trusts			—			1,089			1,089			—			1,125			1,125			2			1,330			1,332
Total secured borrowings			23,224			136,483			159,707			24,070			138,474			162,544			37,331			126,877			164,208
Total		$	31,574		$	153,678		$	185,252		$	30,575		$	156,915		$	187,490		$	45,116		$	149,317		$	194,433

(1)		“Other” primarily consists of cash collateral held related to derivative exposures that are recorded as a short-term debt obligation.
(2)		Relates to the acquisition of $25 billion of student loans at the end of 2010.

Transactions during the Third-Quarter 2011

We repurchase our outstanding unsecured debt in both open-market repurchases and public tender offers. Repurchasing debt helps us to better manage our short-term and long-term funding needs by utilizing current excess liquidity to reduce future obligations related to our unsecured borrowings at favorable pricing. In the third quarter of 2011, we repurchased $9 million face amount of our senior unsecured notes in the aggregate, with maturity dates from 2011.

In the third-quarter 2011, we paid $144 million to repurchase 9.5 million common shares on the open market as part of our previously announced $300 million share repurchase program authorization. We have fully utilized the entire amount of this authorization, acquiring a total amount of 19.1 million shares for $300 million. We declared and paid a $.10 per share dividend during the third quarter of 2011.

Recent Fourth-Quarter 2011 Transactions

On October 5, 2011, the Company closed on a $3.4 billion asset-backed commercial paper facility which matures in January 2014. This facility will provide, subject to certain conditions, the financing to call the 2009-B and 2009-C Private Education Loan trust securities. The securities are first callable in November 2011 and January 2012, respectively. The cost of borrowing under the facility is expected to be commercial paper issuance cost plus 1.10 percent, excluding up-front commitment and unused fees.

Recently Adopted Accounting Standard – Troubled Debt Restructurings

On July 1, 2011, we adopted Accounting Standards Update No. 2011-02, Receivables (Topic 310), “A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” This new guidance clarifies when a loan restructuring constitutes a troubled debt restructuring. In applying the new guidance we have determined that certain Private Education Loans for which we have granted forbearance of greater than three months are troubled debt restructurings. If a loan meets the criteria for troubled debt accounting then an allowance for loan loss is established which represents the present value of the losses that are expected to occur over the remaining life of the loan. This accounting results in a higher allowance for loan losses than our previously established allowance for these loans as our previous allowance for these loans represented an estimate of charge-offs expected to occur over the next two years (two years being our loss confirmation period). The new accounting guidance was effective as of July 1, 2011 but was required to be applied retrospectively to January 1, 2011. This resulted in $124 million of additional provision for loan losses in the third quarter of 2011 from approximately $3.8 billion of student loans being classified as troubled debt restructurings. This new accounting guidance is only applied to certain borrowers who use their fourth or greater month of forbearance during the time period this new guidance is effective. This new accounting guidance has the effect of accelerating the recognition of expected losses related to our Private Education Loan portfolio. The increase in the provision for losses as a result of this new accounting guidance does not reflect a decrease in credit expectations of the portfolio or an increase in the expected life of loan losses related to this portfolio. We believe forbearance is an accepted and effective collections and risk management tool for private student loans (see “Financial Condition — Consumer Lending Portfolio Performance — Allowance for Private Education Loan Losses” for a further discussion). As a result, we expect to have additional loans treated as troubled debt restructurings in the future.

Sallie Mae
Media:
Patricia Nash Christel, 302-283-4076
patricia.christel@SallieMae.com
or
Martha Holler, 302-283-4036
martha.holler@SallieMae.com
or
Investors:
Steve McGarry, 302-283-4074
steven.mcgarry@SallieMae.com
or
Joe Fisher, 302-283-4075
joe.fisher@SallieMae.com