SLM Corporation Annual Report 2005
SLM CORPORATION ANNUAL REPORT 2005
Everyone should have the chance to grow into a dream.
To Our Shareholders:
2005 was a milestone year for Sallie Mae. It was our first year as a fully private-sector company and we achieved historic results in each of our business lines. Thanks to the commitment and drive of our 12,000 employees, we continue to fulfill our original mission -- to increase access to higher education. With the demand for a college education soaring, Sallie Mae is positioned like no other company to serve this market -- and to continue our record of strong earnings growth.
Education Lending
In 2005, our portfolio of managed federal education loans passed the $100 billion mark midway through the year, and our total portfolio under management was nearly $123 billion by year end.
Our preferred-channel originations increased 19 percent to $21 billion. Our internal lending brands (Academic Management Services, Nellie Mae, Sallie Mae Education Trust, Southwest Student Services, Student Loan Finance Association and Student Loan Funding) contributed 43 percent of this figure. Last year, we freed ourselves from the constraints of two major bank contractual obligations; we charted our own course and have prospered. Our strategic lending partners also continue to outpace the market.
With college costs rising and federal loan limits not keeping pace, private education loans are the fastest-growing segment of our loan business. In 2005, we originated more than $6 billion of private education loans. By comparison, in 1999, we originated less than $6 billion in federal loans. Sallie Mae's private education loan portfolio totals more than $16 billion and the portfolio is performing quite well as borrowers are reaping the benefits from their investment in education.
Industry estimates show that students and parents will pay more than $200 billion for higher education this year -- less than $70 billion will come from federal student loan programs; another $75 billion will be in the form of grants and other types of aid. The balance will come from other sources, including private education loans and other financing products. Often, families circumvent the financial aid process entirely. For this reason, we added a direct-to-consumer initiative, Tuition Answer, in 2005. We originated more than
THOMAS J. FITZPATRICK Chief Executive Officer
SLM CORPORATION ANNUAL REPORT 2005 1
We recognize that different higher education institutions have different needs and we are committed to responding to them with tailored support and expertise.
$850 million in direct-to-consumer education loans in 2005 -- well above even our own optimistic plans.
In 2005, the company also witnessed an unprecedented level of federal loan consolidation, which was driven by a 1.9 percentage point increase in interest rates on July 1. The increased amount of consolidation loans in our portfolio -- roughly 62 percent of our total managed guaranteed portfolio at December 31 -- has lengthened the average life of our assets to 8.3 years.
Our success in growing loan originations is due in large part to Sallie Mae's 400-member campus-based sales force. These seasoned professionals provide service to more than 6,000 colleges and universities. In 2005, we added our graduate and professional schools sales team, launched a community college initiative and expanded our services to Historically Black Colleges and Universities and Hispanic-serving institutions. We recognize that different higher education institutions have different needs and we are committed to responding to them with tailored support and expertise.
Fee-based Businesses
We have continued to grow our fee-based businesses handsomely. These businesses accounted for 32 percent of our core earnings revenues last year, compared to 9 percent in 1999.
Our debt-management operation (DMO) grew revenues 55 percent in 2005. Today, Sallie Mae's DMO is one of the leading default aversion and collections operations in America, serving a combination of federal, state, consumer and higher education clients across a variety of asset classes. We have more than 3,500 employees supporting our DMO clients.
We also provide services to a number of the nation's largest guarantors of student loans and the Department of
Education's direct loan program. We have consistently demonstrated top rankings by these agencies.
One of our 2005 DMO highlights was Indiana's tax amnesty program. Thanks to the teamwork and efforts of many parts of the organization, we helped the state collect more than $255 million in back taxes -- nearly four times the state's goal. We also were proud to learn recently that one of our subsidiaries, Pioneer Credit Recovery, was recently selected by the U.S. Department of Treasury to collect undisputed defaulted personal income tax on behalf of the Internal Revenue Service. We plan to begin work on the contract later this year.
Reauthorization
After more than two years of debate on Capitol Hill, the Title IV loan programs for America's students and families were reauthorized when President Bush signed the Deficit Reduction Act of 2005 on February 8, 2006. The legislation reduces the federal deficit by nearly $40 billion, with almost $12 billion coming from the federal student loan programs over the next five years.
Today, Sallie Mae's DMO is one of the leading default aversion and collections operations in America, serving a combination of federal, state, consumer and higher education clients across a variety of asset classes.
While the legislation makes significant cuts to the student loan program, many of the changes are consistent with Sallie Mae's initial recommendations to Congress, including increased federal loan limits for first- and second-year students, elimination of origination fees on Stafford loans and return of the loan consolidation program to its original debt management purpose.
Establishing clarity in the student loan program through 2012 is certainly good news for students, families and the higher education community.
2 SLM CORPORATION ANNUAL REPORT 2005
Giving back
Providing access to higher education for needy students -- and serving the communities where our employees live and work -- remains a focus for our company and our charitable organization, The Sallie Mae Fund. The Fund awarded more than $2.3 million in scholarships last year to help nearly 1,000 students attend college. The Fund also conducted the nation's largest financial aid workshop tour in the country, providing 231 free workshops in English and Spanish for some 30,000 attendees.
More than anything, the hurricanes of 2005 brought out the tenacity and commitment of the higher education community as its members overcame the challenges with offers of support and resources to affected students and schools. Once again, it reminded those of us at Sallie Mae why we are proud to be part of this profession.
We are well positioned for the future thanks to the passion and energy of our employees. I would like to thank all of our valuable employees, as well as our 10 million customers and 6,000 school clients for choosing Sallie Mae.
A college education is a remarkable investment that pays significant returns over a lifetime. And, for 34 years, we have supported students with the chance to grow into their dreams.
We also did our part to help our student and school customers who were affected by the devastating hurricanes on the Gulf Coast. We made $15 million in interest-free loans available to students in need of emergency financing for food, shelter and other assistance in the wake of the storms. Through Sallie Mae employees and The Fund, more than $757,000 was given to the American Red Cross, Scholarship America's Disaster Relief Fund for Post-Secondary Education and other organizations responding to the disaster. We also matched the contributions of financial aid professionals from across the country.
Outlook
Sallie Mae's outlook is very bright. By 2009, the nation will have its largest ever graduating
high school class. A college education is a remarkable investment that pays significant returns over a lifetime. And, for 34 years, we have supported students with the chance to grow into their dreams.
Many thanks to Al Lord, our Chairman of the Board. He set out nearly a decade ago to create a company that would flourish without government sponsorship and outperform the marketplace. He accomplished that mission in typical fashion -- ahead of schedule and above expectations. I would like to personally thank Al for his contributions. I look forward to his continued guidance and support.
In closing, thank you, Sallie Mae's shareholders, for your continued support. We have built a remarkable franchise. Our history is a proud one, yet our best days are ahead.
THOMAS J. FITZPATRICK Chief Executive Officer
SLM CORPORATION ANNUAL REPORT 2005 3
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