Now that a short-term liquidity solution has been found, will lenders return to the type of borrower benefits they offered in the past?

The ability to offer specific borrower benefits is based upon the economics of federal student loans. Lenders across the country were forced to reduce benefits because of the combined influences of recent legislation that cut $20 billion from FFELP and turbulence in the credit markets that has caused the cost of funds to skyrocket for lenders.

These combined factors created a situation where Sallie Mae, for some time, was making FFELP loans at a significant loss while other lenders were forced to suspend lending. We commend Congress, the Administration, and the Department for moving quickly to pass and implement the Ensuring Continued Access to Student Loans Act of 2008 to avert a potential disruption for students for the 2008–09 FFELP processing season.

Sallie Mae remains focused on dedicating all of our resources and operational capacity to ensuring universal and uninterrupted access at all schools. It is important to realize that the funding solution announced in the May 21 Dear Colleague Letter, while a positive step, only provides short-term funding at terms that make the economics barely acceptable, without the inclusion of borrower benefits.

While these measures go a long way in preventing loan access problems for students and parents this fall, they do not allow for full benefit reinstatement. The solution was crafted by the Secretary of Education to result in no net cost to taxpayers, as required by law. Consequently, it results in an economic return that is even less for lenders than what Congress anticipated under last year's College Cost Reduction and Access Act.

Furthermore, to participate in the FFELP funding solution, Sallie Mae and other lenders must standardize borrower benefits for all schools and borrowers to match the Direct Loan program's borrower benefit (0.25% interest rate reduction for automatic debit).

Should schools be concerned that Sallie Mae will suddenly exit the federally guaranteed student loan marketplace?

Sallie Mae's commitment to student lending is steadfast. Although other FFELP lenders have left the business or have become school-selective, we have funded every FFELP application we have received, including those from schools that have already announced that they will transition to the Direct Lending program.

While the funding solution currently in play is a short-term one, we believe market conditions will improve over the next 12 months. In the meantime, we will continue to work with the higher education community and those in Washington to ensure FFELP remains strong and works as it was intended when enacted as part of President's Johnson's Great Society in 1965. At the same time, we will continue to make federal loans to any student, at any school through academic year 2008–09 (i.e., through June 30, 2009).

Will the short-term funding solution allow Sallie Mae to re-enter the federal loan consolidation marketplace?

In short: Not in the near future. The Department of Education did not address the topic of the federal consolidation loan program in its funding solution.

Sallie Mae is committed to directing our resources to maximize college access for students and families. In keeping with this philosophy, we announced on April 11, 2008 that we would suspend participation in the federal consolidation loan program in order to direct more of our resources to students entering school. Recent legislative cuts to FFELP created a situation where federal loan consolidation is no longer economically viable for any FFELP lender. This is because there is an annual fee required to be paid by lenders to the government on each outstanding consolidation loan that is not required for Stafford and PLUS loans.

Sallie Mae's decision to suspend making federal consolidation loans remains in effect, as those loans remain uneconomic. We currently make our student loan customers aware of their repayment options, including Federal Direct Loan consolidation.

Legislative changes effective July 1, 2006 created fixed interest rates for Federal Stafford and PLUS loans (6.8% and 8.5%, respectively), eliminating the need to consolidate federal student loans as a way to lock in interest rates on those loans. In addition, Sallie Mae offers the following flexible repayment plans to customers seeking repayment relief:

• Graduated repayment: Available to both federal student loan and private Signature Student Loan customers, this plan allows customers to make reduced payments that may be as low as "interest only" for up to four years, followed by standard payments of principal and interest for the remaining repayment term.
• Extended repayment: Customers with more than $30,000 in eligible federal student loans may be eligible under federal law to extend their repayment term from the standard 10-year term to a 25-year repayment term.
• Income-sensitive repayment: With this plan, federal student loan customers may choose a monthly payment amount that is between 4% and 25% of their monthly gross income.

Can you assure us that the recent solution brokered by the Department of Education will allow companies like Sallie Mae to continue serving proprietary institutions?

Yes. As we have for our entire 35 year history, Sallie Mae will continue to make federal loans to all students, at all schools. The Department's funding solution pertains to every type of federal loan — subsidized Stafford, unsubsidized Stafford, Graduate PLUS, and Parent PLUS — no matter what type of school a student attends. While some lenders have concluded that the funding solution is not sufficient to serving all schools, Sallie Mae's primary goal is to ensure that students at all schools have continued access to federal student loans this fall.