SLM CORP - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

ý	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended March 31, 2003 or
o	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to .

(Amended by Exch Act Rel No. 312905. eff 4/26/93.)
Commission File Number: 001-13251

SLM CORPORATION
(formerly USA Education, Inc.)
(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		52-2013874 (I.R.S. Employer Identification No.)
11600 Sallie Mae Drive, Reston, Virginia (Address of principal executive offices)		20193 (Zip Code)

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ý No o

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

Class		Outstanding at April 30, 2003
Common Stock, $.20 par value		150,738,883 shares

GLOSSARY

Listed below are definitions of key terms that are used throughout this document.

Consolidation Loans—Under the Federal Family Education Loan Program ("FFELP"), borrowers with eligible student loans may consolidate them into one note with one lender and lock in the current variable interest rate for the life of their loan. The new note is considered a Consolidation Loan. Typically a borrower can consolidate their student loan only once unless the borrower has another eligible loan with which to consolidate with the existing Consolidation Loan. The borrower rate on a Consolidation Loan is fixed for the term of the loan and is set by the weighted-average rate of the loans being consolidated, rounded up to the nearest 1/8^th of a percent, not to exceed 8.25 percent.

Consolidation Loan Rebate Fee—All holders of Consolidation Loans are required to pay to the U.S. Department of Education ("DOE") an annual 105 basis point Consolidation Loan Rebate Fee on all outstanding principal and accrued interest balances of Consolidation Loans purchased or originated after October 1, 1993, except for loans for which consolidation applications were received between October 1, 1998 and January 31, 1999, when the Consolidation Loan Rebate Fee was 62 basis points.

Embedded Floor Income—Embedded Floor Income is Floor Income that is earned on off-balance sheet student loans that are owned by the securitization trusts that we sponsor. At the time of the securitization, the present value of Fixed Rate Embedded Floor Income is included in the initial calculation of the Residual Interest and the gain or loss on sale of the student loans. Embedded Floor Income is also included in the quarterly fair value adjustments of the Residual Interest.

Fixed Rate Floor Income—We refer to Floor Income associated with student loans whose borrower rate is fixed to term (primarily Consolidation Loans) as Fixed Rate Floor Income.

Floor Income—Our portfolio of FFELP student loans generally earns interest at the higher of a floating rate based on the Special Allowance Payment ("SAP") formula set by the DOE and the borrower rate, which is fixed over a period of time. We generally finance our student loan portfolio with floating rate debt over all interest rate levels. In low interest rate environments, when our student loans are earning at the fixed borrower rate and the interest on our floating rate debt is continuing to decline, we earn additional spread income and refer to it as Floor Income. Depending on the type of the student loan and when it was originated, the borrower rate is either fixed to term or is reset to a market rate each July 1. As a result, for loans where the borrower rate is fixed to term, we may earn Floor Income for an extended period of time, and for those loans where the borrower interest rate is reset annually on July 1, we may earn Floor Income to the next reset date.

Floor Income Contracts—We enter into contracts with counterparties under which, in exchange for an upfront fee representing the present value of the Floor Income that we expect to earn on a notional amount of student loans being hedged, we will pay the counterparties the Floor Income earned on that notional amount of student loans over the life of the Floor Contract. Specifically, we agree to pay the counterparty the difference between the fixed borrower rate less the SAP spread and the average of the applicable interest rate index on that notional amount of student loans for a portion of the estimated life of the student loan. This contract effectively locks in the amount of Floor Income we will earn over the period of the contract. Floor Income Contracts are not considered effective hedges under Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," and we must periodically record the change in fair value of these contracts through income.

GSE—The Student Loan Marketing Association is a federally chartered government sponsored enterprise ("GSE") and wholly-owned subsidiary of SLM Corporation. Under the Student Loan Marketing Association Reorganization Act of 1996, the GSE must dissolve by September 30, 2008. Management expects to effect the dissolution by September 30, 2006 (the "Wind-Down Period" or "Wind-Down" is the period during which we effect the dissolution).

Managed Basis—We generally analyze the performance of our student loan portfolio on a Managed Basis, under which we view both on-balance sheet student loans and off-balance sheet student loans owned by the securitization trusts as a single portfolio and the related on-balance sheet financings are combined with off-balance sheet debt. When the term Managed is capitalized in this document, it is referring to Managed Basis.

Offset Fee—The Company is required to pay to the DOE an annual 30 basis point Offset Fee on the outstanding balance of Stafford and PLUS student loans purchased and held by the GSE after August 10, 1993. The fee does not apply to student loans sold to securitized trusts or to loans held outside of the GSE.

Preferred Channel Originations—Preferred Channel Originations are student loans that are originated or serviced on our proprietary platforms or through an affiliated brand, and are committed to us such that we either own them from inception or we acquire them soon after origination.

Preferred Lender List—To streamline the student loan process, most higher education institutions select a small number of lenders to recommend to their students and parents. This recommended list is referred to as the Preferred Lender List.

Residual Interest—When we securitize student loans, we retain the right to receive cash flows from the student loans sold in excess of amounts needed to pay servicing and other fees and the principal and interest on the bonds backed by the student loans. The Residual Interest is the present value of this excess cash flow, which includes the present value of Fixed Rate Embedded Floor Income described above. We value the Residual Interest at the time of sale and each subsequent quarter.

Retained Interest—In our securitizations the Retained Interest includes the Residual Interest plus reserve and other cash accounts that serve as credit enhancements to asset-backed securities issued in our securitizations.

Risk Sharing—When a FFELP loan defaults, the federal government guarantees only 98 percent of the balance plus accrued interest and the holder of the loan must absorb the two percent not guaranteed as a Risk Sharing loss on the loan. All FFELP student loans acquired after October 1, 1993 are subject to Risk Sharing on loan default claim payments unless the default results from death, disability or bankruptcy.

Special Allowance Payment ("SAP")—FFELP student loans generally earn interest at the greater of the borrower rate or a floating rate determined by reference to the average of the applicable floating rates (91-day Treasury bill rate or commercial paper) in a calendar quarter, plus a fixed spread ("the SAP Spread") that is dependent upon when the loan was originated and the loan's repayment status. If the resulting floating rate exceeds the borrower rate, the DOE pays the difference directly to the Company. This payment is referred to as the Special Allowance Payment or SAP and the formula used to determine the floating rate is the SAP formula. We refer to the fixed spread to the underlying index as the Special Allowance margin.

Variable Rate Floor Income—For student loans whose borrower interest rate resets annually on July 1, we may earn Floor Income or Embedded Floor Income based on a calculation of the difference between the borrower rate and the then current interest rate. We refer to this as Variable Rate Floor Income because we may only earn Floor Income through the next reset date.

SLM CORPORATION
FORM 10-Q
INDEX
March 31, 2003

Part I. Financial Information
	Item 1.	Financial Statements	5
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	47
	Item 4.	Controls and Procedures	49
Part II. Other Information
	Item 1.	Legal Proceedings	50
	Item 2.	Changes in Securities	50
	Item 3.	Defaults Upon Senior Securities	50
	Item 4.	Submission of Matters to a Vote of Security Holders	50
	Item 5.	Other Information	50
	Item 6.	Exhibits and Reports on Form 8-K	50
Signatures			52
Certifications			53
Appendix A—Student Loan Marketing Association Consolidated Financial Statements			A-1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SLM CORPORATION

CONSOLIDATED BALANCE SHEETS

(Dollars and shares in thousands, except per share amounts)

		March 31, 2003		December 31, 2002
		(Unaudited)
Assets
Federally insured student loans (net of allowance for losses of $58,404 and $49,751, respectively)		$	38,340,112	$	37,168,276
Private credit student loans (net of allowance for losses of $174,177 and $180,933, respectively)			4,941,225		5,171,399
Academic facilities financings and other loans			1,139,617		1,202,045
Investments
	Trading		174		175
	Available-for-sale		3,470,259		3,537,117
	Held-to-maturity		17,717		18,651
	Other		693,359		675,558

Total investments			4,181,509		4,231,501
Cash and cash equivalents			658,142		758,302
Retained Interest in securitized receivables			2,481,318		2,145,523
Goodwill and acquired intangible assets			579,365		586,127
Other assets			2,012,488		1,911,832

Total assets		$	54,333,776	$	53,175,005

Liabilities
Short-term borrowings		$	23,825,598	$	25,618,955
Long-term notes			25,240,729		22,242,115
Other liabilities			3,023,193		3,315,985

Total liabilities			52,089,520		51,177,055

Commitments and contingencies
Stockholders' equity
Preferred stock, Series A, par value $.20 per share, 20,000 shares authorized: 3,300 and 3,300 shares issued, respectively, at stated value of $50 per share			165,000		165,000
Common stock, par value $.20 per share, 375,000 shares authorized: 210,094 and 208,184 shares issued, respectively			42,019		41,637
Additional paid-in capital			1,316,511		1,185,847
Accumulated other comprehensive income (net of tax of $321,296 and $319,178, respectively)			596,693		592,760
Retained earnings			3,094,050		2,718,226

Stockholders' equity before treasury stock			5,214,273		4,703,470
Common stock held in treasury at cost: 58,560 and 55,604 shares, respectively			2,970,017		2,705,520

Total stockholders' equity			2,244,256		1,997,950

Total liabilities and stockholders' equity		$	54,333,776	$	53,175,005

See accompanying notes to consolidated financial statements.

SLM CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Dollars and shares in thousands, except per share amounts)

		Three months ended March 31,
		2003			2002
		(Unaudited)			(Unaudited)
Interest income:
	Student loans	$	436,250		$	534,251
	Academic facilities financings and other loans		20,206			26,316
	Investments		28,261			37,410

Total interest income			484,717			597,977
Interest expense:
	Short-term debt		94,857			177,049
	Long-term debt		149,232			139,551

Total interest expense			244,089			316,600

Net interest income			240,628			281,377
Less: provision for losses			42,545			20,237

Net interest income after provision for losses			198,083			261,140

Other income:
	Gains on student loan securitizations		305,803			44,260
	Servicing and securitization revenue		137,479			194,682
	Losses on sales of securities, net		(81,560	)		(89,107	)
	Derivative market value adjustment		114,366			288,351
	Guarantor servicing and debt management fees		99,805			78,372
	Other		48,630			43,614

Total other income			624,523			560,172

Operating expenses:
	Salaries and benefits		95,819			94,103
	Other		83,546			72,698

Total operating expenses			179,365			166,801

Income before income taxes			643,241			654,511
Income taxes			226,692			232,167

Net income			416,549			422,344
Preferred stock dividends			2,875			2,875

Net income attributable to common stock		$	413,674		$	419,469

Basic earnings per common share		$	2.72		$	2.70

Average common shares outstanding			152,194			155,629

Diluted earnings per common share		$	2.64		$	2.63

Average common and common equivalent shares outstanding			156,565			159,683

See accompanying notes to consolidated financial statements.

SLM CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Dollars in thousands, except share and per share amounts)

(Unaudited)

				Common Stock Shares												Accumulated Other Comprehensive Income (Loss)
			Preferred Stock Shares	Common Stock Shares					Preferred Stock		Common Stock		Additional Paid-In Capital						Retained Earnings			Treasury Stock			Total Stockholders' Equity
			Preferred Stock Shares	Issued	Treasury		Outstanding		Preferred Stock		Common Stock		Additional Paid-In Capital						Retained Earnings			Treasury Stock			Total Stockholders' Equity
Balance at December 31, 2001			3,300,000	202,736,386	(47,240,838	)	155,495,548		$	165,000	$	40,547	$	805,804		$	670,199		$	2,068,490		$	(2,077,578	)	$	1,672,462
Comprehensive income:
	Net income																			422,344						422,344
	Other comprehensive income, net of tax:
		Change in unrealized gains (losses) on investments, net of tax															(138,380	)								(138,380	)
		Change in unrealized gains (losses) on derivatives, net of tax															28,329									28,329

Comprehensive income																										312,293
Cash dividends:
	Common stock ($.20 per share)																			(31,248	)					(31,248	)
	Preferred stock ($.87 per share)																			(2,875	)					(2,875	)
Issuance of common shares				1,620,637	229,602		1,850,239					324		89,392									19,301			109,017
Tax benefit related to employee stock option and purchase plans														20,870												20,870
Premiums on equity forward contracts														(11,120	)											(11,120	)
Repurchase of common shares:
	Equity forward repurchases				(1,500,000	)	(1,500,000	)															(69,416	)		(69,416	)
	Benefit plans				(511,011	)	(511,011	)															(45,897	)		(45,897	)

Balance at March 31, 2002			3,300,000	204,357,023	(49,022,247	)	155,334,776		$	165,000	$	40,871	$	904,946		$	560,148		$	2,456,711		$	(2,173,590	)	$	1,954,086

Balance at December 31, 2002			3,300,000	208,183,836	(55,604,240	)	152,579,596		$	165,000	$	41,637	$	1,185,847		$	592,760		$	2,718,226		$	(2,705,520	)	$	1,997,950
Comprehensive income:
	Net income																			416,549						416,549
	Other comprehensive income, net of tax:
		Change in unrealized gains (losses) on investments, net of tax															1,774									1,774
		Change in unrealized gains (losses) on derivatives, net of tax															3,087									3,087
		Minimum pension liability adjustment															(928	)								(928	)

Comprehensive income																										420,482
Cash dividends:
	Common stock ($.25 per share)																			(37,850	)					(37,850	)
	Preferred stock ($.87 per share)																			(2,875	)					(2,875	)
Issuance of common shares				1,910,548	25,758		1,936,306					382		133,640									2,725			136,747
Tax benefit related to employee stock option and purchase plans														3,389												3,389
Premiums on equity forward contracts														(6,365	)											(6,365	)
Repurchase of common shares:
	Open market repurchases				(1,138,430	)	(1,138,430	)															(122,786	)		(122,786	)
	Equity forward repurchases				(1,520,000	)	(1,520,000	)															(109,987	)		(109,987	)
	Benefit plans				(322,926	)	(322,926	)															(34,449	)		(34,449	)

Balance at March 31, 2003			3,300,000	210,094,384	(58,559,838	)	151,534,546		$	165,000	$	42,019	$	1,316,511		$	596,693		$	3,094,050		$	(2,970,017	)	$	2,244,256

See accompanying notes to consolidated financial statements.

SLM CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

		Three months ended March 31,
		2003			2002
		(Unaudited)			(Unaudited)
Operating activities
Net income		$	416,549		$	422,344
Adjustments to reconcile net income to net cash provided by operating activities:
	Gains on student loan securitizations		(305,803	)		(44,260	)
	Losses on sales of securities, net		81,560			89,107
	Derivative market value adjustment		(114,366	)		(288,351	)
	Provision for losses		42,545			20,237
	Decrease (increase) in accrued interest receivable		76,278			(62,417	)
	Increase in accrued interest payable		36,206			10,993
	Decrease (increase) in Retained Interest in securitized receivables, net		76,526			(19,576	)
	(Increase) in other assets, goodwill and acquired intangible assets		(301,773	)		(22,030	)
	Increase (decrease) in other liabilities		47,359			(208,748	)

Total adjustments			(361,468	)		(525,045	)

Net cash provided by (used in) operating activities			55,081			(102,701	)

Investing activities
Student loans acquired			(5,179,019	)		(4,326,164	)
Loans acquired through trust consolidation			(1,332,504	)		(589,636	)
Reduction of student loans:
	Installment payments		1,080,080			1,185,311
	Claims and resales		174,641			182,201
	Proceeds from securitization of student loans		4,237,815			3,585,713
	Proceeds from sales of student loans		—			29,065
Academic facilities financings and other loans made			(99,687	)		(272,879	)
Academic facilities financings and other loans repayments			158,887			363,314
Purchases of available-for-sale securities			(13,737,419	)		(8,034,884	)
Proceeds from sales and maturities of available-for-sale securities			13,802,047			8,137,146
Purchases of held-to-maturity and other securities			(109,792	)		(93,034	)
Proceeds from maturities of held-to-maturity securities and sales and maturities of other securities			92,925			89,172
Purchase of subsidiaries, net of cash acquired			—			(46,392	)

Net cash (used in) provided by investing activities			(912,026	)		208,933

Financing activities
Short-term borrowings issued			173,060,575			118,102,346
Short-term borrowings repaid			(173,771,906	)		(114,706,957	)
Long-term notes issued			5,181,684			4,642,827
Long-term notes repaid			(5,576,723	)		(8,234,241	)
Long-term notes issued by Variable Interest Entity			2,037,331			—
Common stock issued			140,136			129,887
Premiums on equity forward contracts			(6,365	)		(11,120	)
Common stock repurchased			(267,222	)		(115,313	)
Common dividends paid			(37,850	)		(31,248	)
Preferred dividends paid			(2,875	)		(2,875	)

Net cash provided by (used in) financing activities			756,785			(226,694	)

Net (decrease) in cash and cash equivalents			(100,160	)		(120,462	)
Cash and cash equivalents at beginning of period			758,302			715,001

Cash and cash equivalents at end of period		$	658,142		$	594,539

Cash disbursements made for:
	Interest	$	281,348		$	474,560

	Income taxes	$	215,764		$	231,092

See accompanying notes to consolidated financial statements.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2003 and for the three months ended

March 31, 2003 and 2002 is unaudited)

(Dollars and shares in thousands, except per share amounts, unless otherwise stated)

1. Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements of SLM Corporation (the "Company") have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair statement of the results for the interim periods have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three months ended March 31, 2003 are not necessarily indicative of the results for the year ending December 31, 2003. These unaudited financial statements should be read in conjunction with the audited financial statements and related notes included in the Company's 2002 Annual Report on Form 10-K.

2. New Accounting Pronouncements

Accounting for Guarantees

In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN No. 45 identifies characteristics of certain guarantee contracts and requires that a liability be recognized at fair value at the inception of such guarantees for the obligations undertaken by the guarantor. Additional disclosures also are prescribed for certain guarantee contracts. The initial recognition and initial measurement provisions of FIN No. 45 are effective for these guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN No. 45 are effective for the Company for its first quarter ending March 31, 2003. The implementation of FIN No. 45 did not have a material impact on the Company's financial statements.

Consolidation of Variable Interest Entities

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities." FIN No. 46 clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties ("Variable Interest Entities"). Variable Interest Entities ("VIEs") are required to be consolidated by their primary beneficiaries if they do not effectively disperse risks among parties involved. The primary beneficiary of a VIE is the party that absorbs a majority of the entity's expected losses, receives a majority of its expected residual returns, or both, as a result of holding variable interests. FIN No. 46 also requires new disclosures about VIEs.

On February 1, 2003, the Company adopted FIN No. 46 for VIEs created in which the Company obtains an interest after January 31, 2003. The Company will adopt FIN No. 46 on October 1, 2003 for VIEs in which it holds a variable interest that it acquired before February 1, 2003. Transactions

associated with these entities include asset-backed securitizations and certain partnerships that are used for marketing the Company's co-branded student loan products. The Company currently consolidates entities in which it has a controlling financial interest in accordance with GAAP. For those entities deemed to be Qualifying Special Purpose Entities ("QSPEs") as defined in Statement of Financial Accounting Standards ("SFAS") No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities—a Replacement of SFAS No. 125," which includes the Company's securitization trusts, the Company does not consolidate those entities. The Company is currently evaluating the impact of the provisions of FIN No. 46 on its consolidated financial statements and is assessing its impact to ensure it is properly integrated into its existing policies, practices and systems. The Company does not believe, at this time, that FIN No. 46 will have a material effect on its consolidated financial statements for transactions completed before February 1, 2003.

3. Allowance for Student Loan Losses

The provision for loan losses represents the periodic expense of maintaining an allowance sufficient to absorb probable losses, net of recoveries, inherent in the portfolio of student loans. The Company separately evaluates the adequacy of the provision for losses on its federally insured portfolio of student loans and its private credit student loan portfolio.

The Company's private credit student loan portfolio has not matured sufficiently to rely on experience factors to predict loan loss patterns. Therefore, the Company relies on a combination of its own historic data, such as recent trends in delinquencies, the credit profile of the borrower and/or co-borrower, loan volume by program, and charge-offs and recoveries. The Company uses this data in internally developed statistical models to estimate the amount of probable net losses that are projected to be incurred.

In calculating the private credit loss allowance, the Company considers various factors such as co-borrowers, repayment, months of repayments, delinquency status and type of program. Defaults are estimated by cohort (loans grouped by the year in which they entered into repayment status) based on the borrower's credit profile, net of an estimate of collections by cohort for both new and previously defaulted loans. Private credit student loans are charged off against the allowance when they are 212 days delinquent. This policy is periodically reconsidered by management as trends develop. Private credit student loans accrue interest until charged off. Recoveries on loans charged off are recorded directly to the allowance.

The following table summarizes changes in the allowance for student loan losses for the three months ended March 31, 2003 and 2002:

		Three months ended March 31,
		2003			2002
Balance at beginning of period		$	230,684		$	251,689
Additions
	Provision for student loan losses		42,861			18,976
	Recoveries		3,443			1,384
Deductions
	Reductions for student loan sales and securitizations		(31,736	)		(2,466	)
	Charge-offs		(19,499	)		(13,588	)
Other			6,828			7,523

Balance at end of period		$	232,581		$	263,518

In addition to the provision for student loan losses are provisions for losses on other Company loans of $1.6 million, offset by the reversal of a servicing reserve of $1.9 million.

The table below shows the Company's private credit student loan delinquency trends for the three months ended March 31, 2003 and 2002. Delinquencies have the potential to adversely impact earnings if the account charges off and results in increased servicing and collection costs.

		Three months ended
(Dollars in millions)		Three months ended
(Dollars in millions)		March 31, 2003					March 31, 2002
Index		March 31, 2003					March 31, 2002
Index		Balance			%		Balance			%
Loans in-school/grace/deferment¹		$	2,204				$	1,834
Loans in forbearance²			280					311
Loans in repayment and percentage of each status:
	Loans current		2,366		90	%		2,468		91	%
	Loans delinquent 30-59 days³		123		5			113		4
	Loans delinquent 60-89 days		65		2			48		2
	Loans delinquent 90 days or greater		77		3			78		3

Total loans in repayment			2,631		100	%		2,707		100	%

Total private credit student loans			5,115					4,852
Private credit student loan allowance for losses			(174	)				(206	)

Private credit student loans, net		$	4,941					4,646

Percentage of private credit student loans in repayment			51.43	%				55.78	%

Delinquencies as a percentage of private credit student loans in repayment			10.06	%				8.84	%

¹: Loans for borrowers who still may be attending school or engaging in other permitted educational activities and are not yet required to make payments on the loans, e.g., residency periods for medical students or a grace period for bar exam preparation. These amounts include loans for borrowers with in-school forbearance that were previously included as loans in forbearance for hardship and other factors. The Company reclassified $68 million and $33 million, respectively, of in-school forbearances at March 31, 2003 and 2002.
²: Loans for borrowers who have temporarily ceased making full payments due to hardship or other factors, consistent with the established loan program servicing procedures and policies.
³: The period of delinquency is based on the number of days scheduled payments are contractually past due and relate to repayment loans, that is, receivables not charged off, and not in school, grace, deferment or forbearance.

The following table summarizes changes in the allowance for student loan losses for private credit student loans for the three months ended March 31, 2003 and 2002.

		Three months ended March 31,
(Dollars in millions)		Three months ended March 31,
(Dollars in millions)		2003			2002
Balance at beginning of period		$	181		$	193
Provision for private credit student loan losses			28			13
Other			7			11
Charge-offs			(17	)		(12	)
Recoveries			2			1

	Charge-offs, net of recoveries		(15	)		(11	)

Balance before sale of loans			201			206
Reduction for sale of student loans			(27	)		—

Balance at end of period		$	174		$	206

Net charge-offs as a percentage of average private credit student loans			1.07	%		..97	%
Private credit allowance as a percentage of average private credit student loans			3.13	%		4.52	%
Private credit allowance as a percentage of the ending balance of private credit student loans			3.40	%		4.25	%
Private credit allowance as a percentage of private credit student loans in repayment			6.62	%		7.62	%
Average balance of private credit student loans		$	5,564		$	4,564
Ending balance of private credit student loans		$	5,115		$	4,852

The principal and interest of federally insured loans are guaranteed by the federal government, which limits the Company's loss exposure to two percent of the outstanding balance. The Company has established an allowance for this exposure. The Company also maintains a loss allowance for rejected guarantor claims, caused mainly by servicing defects. At March 31, 2003 and 2002, the combined balance in the allowance for losses on federally insured student loans was $58 million and $57 million, respectively.

The Company defers origination fees and recognizes them over time as a component of interest income. The unamortized balance of deferred origination fee revenue at March 31, 2003 and 2002 was $99 million and $113 million, respectively. At March 31, 2002, the Company reflected the unamortized balance of $113 million as a component of the allowance for student loan losses, which was reclassified to a student loan discount in the second quarter of 2002.

4. Student Loan Securitization

When the Company sells receivables in a securitization of student loans, it retains a Residual Interest and, in some cases, a cash reserve account, all of which are Retained Interests in the securitized receivables. At March 31, 2003 and December 31, 2002, the balance of these assets was $2.5 billion and $2.1 billion, respectively. The gain or loss on the sale of the receivables is based upon the carrying amount of the financial assets involved in the transfer, allocated between the assets sold and the Retained Interests based on their relative fair values at the date of transfer. Quoted market prices are generally not available for the Company's Retained Interests so the Company estimates fair value, both initially and on a quarterly basis, based on the present value of future expected cash flows estimated using management's best estimates of the key assumptions—credit losses, prepayment speeds and discount rates commensurate with the risks involved.

	Three months ended March 31,
	2003				2002
	Amount Securitized		Gain %		Amount Securitized		Gain %
FFELP Stafford/PLUS loans	$	1,256,038	1.60	%	$	3,532,914	1.25	%
Consolidation Loans		2,005,060	10.86			—	—
Private credit student loans		1,005,180	6.75			—	—

Total securitization sales		4,266,278	7.17	%		3,532,914	1.25	%

On-balance sheet securitization of Consolidation Loans		2,055,372				—

Total loans securitized	$	6,321,650			$	3,532,914

During the first quarter of 2003, the Company completed four securitizations totaling $6.3 billion that continued to accelerate and diversify its asset-backed securitization program. The Company completed one securitization of FFELP Stafford/PLUS loans, one securitization of private credit student loans, and two securitizations of Consolidation Loans. One of the Consolidation Loan securitizations of $2.0 billion did not meet the criteria of being a QSPE and was accounted for on-balance sheet as a VIE. This resulted in the securitized loans remaining on the Company's balance sheet, with certificates sold reflected as debt. During the first quarter of 2002, the Company completed two securitizations, both of which received sale treatment.

The increase in the first quarter 2003 gains as a percentage of the portfolios securitized versus the first quarter of 2002 was due to significantly higher Embedded Floor Income on Consolidation Loan securitizations and higher gains on private credit student loan securitizations completed in the 2003 first quarter compared with securitizations of only FFELP Stafford/PLUS loans completed in the 2002 first quarter. Gains on Consolidation Loan securitizations are mainly driven by the estimate of Embedded Fixed Rate Floor Income from these loans. Gains on the private credit student loan securitizations are higher than gains on FFELP Stafford/PLUS securitizations because the private credit student loans securitized have wider spreads, longer average lives and are less expensive to service than similar sized FFELP Stafford/PLUS student loans, partially offset by higher projected default losses.

For each securitization completed in the three months ended March 31, 2003 and 2002, the Company receives annual servicing fees of 0.9 percent per annum of the outstanding balance of Stafford and PLUS student loans, 0.5 percent per annum of the outstanding balance of Consolidation Loans, and 0.7 percent per annum of the outstanding balance of the private credit student loans. The Company considers this adequate compensation, as defined in SFAS No. 140, and accordingly does not record a servicing right or obligation.

Key economic assumptions used in measuring the fair value of the Retained Interests at the date of securitization resulting from the student loan securitization sale transactions completed during the three months ended March 31, 2003 and 2002 (weighted based on principal amounts securitized) were as follows:

	Three Months Ended March 31, 2003						Three Months Ended March 31, 2002
	FFELP Stafford/PLUS Loans		Consolidation Loans		Private Credit Loans		FFELP Stafford/PLUS Loans		Consolidation Loans	Private Credit Loans
Prepayment speed	9	%	7	%	6	%	7	%	—	—
Weighted-average life (in years)	4.67		8.13		6.47		5.14		—	—
Expected credit losses (% of principal securitized)	.53	%	.72	%	3.92	%	.61	%	—	—
Residual cash flows discounted at	12	%	12	%	12	%	12	%	—	—

The estimate of the Constant Prepayment Rate ("CPR") affects the average life of the securitized trusts and therefore affects the valuation estimate of the Residual Interest. Prepayments shorten the average life of the trust, and if all other factors remain equal, will reduce the value of the Retained Interest asset and the securitization gain on sale on new securitizations. Student loan prepayments come from three principal sources: actual borrower prepayments, reimbursements of student loan defaults from the guarantor and consolidation of loans from the trust. The Company uses historical statistics on prepayments, borrower defaults, and trends in Consolidation Loans to estimate the amount of prepayments. When a loan is consolidated from the trust either by the Company or a third party, the loan is repurchased from the trust and is treated as a prepayment. In cases where the loan is consolidated by the Company, it will be recorded as an on-balance sheet asset. Due to the historically low interest rate environment, the Company has experienced an increase in Consolidation Loan activity for several quarters. Management believes that this trend will continue for the foreseeable future. As a result, in the second quarter of 2002, the Company increased the estimated CPR from 7 percent to 9 percent per annum for FFELP Stafford/PLUS loan transactions. The change in the CPR assumption reduced the gains on the loan portfolios securitized since the first quarter of 2002.

The following table summarizes the cash flows received from all securitization trusts entered into during the three months ended March 31, 2003 and 2002.

	Three months ended March 31,
(Dollars in millions)	Three months ended March 31,
(Dollars in millions)	2003		2002
Net proceeds from new securitizations	$	6,275	$	3,556
Servicing fees received		1		—

5. Common Stock

Basic earnings per common share ("Basic EPS") are calculated using the weighted average number of shares of common stock outstanding during each period. Diluted earnings per common share ("Diluted EPS") reflect the potential dilutive effect of additional common shares that are issuable upon exercise of outstanding stock options, warrants, deferred compensation and shares held in the Employee Stock Purchase Plan, determined by the treasury stock method, and equity forwards, determined by the reverse treasury stock method, as follows:

	Net Income Attributable to Common Stock		Average Shares	Earnings per Share
Three months ended March 31, 2003
Basic EPS	$	413,674	152,194	$	2.72
Dilutive effect of stock options, warrants, equity forwards, deferred compensation, ESPP shares and equity forwards		—	4,371		(.08	)

Diluted EPS	$	413,674	156,565	$	2.64

Three months ended March 31, 2002
Basic EPS	$	419,469	155,629	$	2.70
Dilutive effect of stock options, warrants, equity forwards, deferred compensation, ESPP shares and equity forwards		—	4,054		(.07	)

Diluted EPS	$	419,469	159,683	$	2.63

6. Stock-Based Compensation

SLM Corporation accounts for its stock option plans in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations which results in no compensation expense for stock options granted under the plans. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of the grant. The following table summarizes pro-forma disclosures for the three months ended March 31, 2003 and 2002, as if the Company had accounted for employee and Board of Directors stock options granted

subsequent to December 31, 1994 under the fair market value method as set forth in SFAS No. 123, "Accounting for Stock-Based Compensation."

	Three months ended March 31,
	2003			2002
Net income attributable to common stock	$	413,674		$	419,469
Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(26,201	)		(37,030	)

Pro-forma net income attributable to common stock	$	387,473		$	382,439

Basic earnings per common share	$	2.72		$	2.70

Pro-forma basic earnings per common share	$	2.55		$	2.46

Diluted earnings per common share	$	2.64		$	2.63

Pro-forma diluted earnings per common share	$	2.47		$	2.39

7. Derivative Financial Instruments

Summary of Derivative Financial Statement Impact

The following tables summarize the fair and notional values of all derivative instruments at March 31, 2003 and December 31, 2002, and their impact on other comprehensive income and earnings for the three months ended March 31, 2003 and 2002. At March 31, 2003 and December 31, 2002, $361 million and $368 million (amortized cost), respectively, of available-for-sale investment securities were pledged as collateral against these derivative instruments.

	Cash Flow						Fair Value				Trading
	March 31, 2003			December 31, 2002			March 31, 2003		December 31, 2002		March 31, 2003			December 31, 2002
(Dollars in millions)
*Fair Values*
Interest rate swaps	$	—		$	—		$	19	$	84	$	(111	)	$	(155	)
Floor/Cap contracts		—			—			—		—		(1,277	)		(1,362	)
Futures		(68	)		(75	)		—		—		(45	)		(34	)
(Dollars in billions)
*Notional Values*
Interest rate swaps	$	—		$	—		$	13.9	$	17.3	$	62.6		$	54.8
Floor/Cap contracts		—			—			—		—		24.9			26.7
Futures		8.9			10.9			—		—		22.8			17.2

	Three months ended March 31,
	Cash Flow						Fair Value						Trading
	2003			2002			2003			2002			2003			2002
(Dollars in millions)
*Changes to other comprehensive income, net of tax*
Other comprehensive income, net	$	3		$	27		$	—		$	—		$	—		$	1	⁵

*Earnings Summary*
Recognition of closed futures contracts' gains/losses into interest expense¹	$	(6	)	$	(3	)	$	—		$	—		$	—		$	—
Recognition of closed futures contracts' gains/losses into gains/losses on sales of securities, net²		(7	)		(35	)		—			—			(1	)		(53	)
Recognition of written floor contract losses into gains/losses on sales of securities, net		—			—			—			—			(69	)		—
Amortization of transition adjustment³		—			—			—			—			—			(1	)
Derivative market value adjustment		1	⁴		—			3	⁴		4	⁴		110			284

Total earnings impact	$	(12	)	$	(38	)	$	3		$	4		$	40		$	230

¹: For hedges where the stated transaction occurs.
²: For discontinued hedges and closed futures contracts accounted for as "trading."
³: Reported as a component of other operating income in the consolidated statements of income.
⁴: The change in fair value of fair value and cash flow hedges represent amounts related to ineffectiveness.
⁵: Represents transition adjustment amortization out of other comprehensive income, net.

The following table shows the components of the change in accumulated other comprehensive income, net of tax, for derivatives.

	Three months ended March 31,
	2003			2002
(Dollars in millions)
*Accumulated Other Comprehensive Income, Net*
Balance at beginning of period	$	(90	)	$	(50	)
Change in unrealized gains (losses) on derivatives, net:
Change in fair value of cash flow hedges		(4	)		3
Hedge ineffectiveness reclassed to earnings		(1	)		—
Amortizations¹		3			3
Discontinued hedges		5			22

Total change in unrealized gains (losses) on derivatives, net		3			28

Balance at end of period	$	(87	)	$	(22	)

¹: The Company expects to amortize $15 million of after-tax net losses from accumulated other comprehensive income to earnings during the next 12 months related to futures contracts closed as of March 31, 2003. In addition, the Company expects to amortize into earnings portions of the accumulated deferred net losses related to open futures contracts during the next 12 months based on the anticipated issuance of debt.

8. Contingencies

The Company and various affiliates are defendants in a lawsuit brought by College Loan Corporation ("CLC") in the United States District Court for the Eastern District of Virginia. The complaint alleges various breach of contract and common law tort claims in connection with CLC's consolidation loan activities as well as various antitrust claims, including a claim that the Company entered into or attempted to enter into a combination with three credit reporting agencies to boycott CLC by not providing lists of student loan borrowers.

The Complaint seeks compensatory damages of at least $60,000,000.

The breach of contract and common law tort claims were significantly narrowed by the Court's ruling on December 10, 2002, partially granting the Company's motion to dismiss. The Court held that claims based on the Company's interpretation of the single holder rule were barred by the Higher Education Act.

On April 4, 2003, CLC dismissed with prejudice all of the antitrust claims and the Court subsequently entered orders approving dismissal of these claims.

The Company has filed a motion for summary judgment, which will be heard on June 6, 2003. Trial is scheduled to begin June 16, 2003 for all claims not resolved by the summary judgment motion.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three months ended March 31, 2003 and 2002
(Dollars in millions, except per share amounts, unless otherwise stated)

OVERVIEW

The Company is the largest private source of funding, delivery and servicing support for education loans in the United States primarily through its participation in the Federal Family Education Loan Program ("FFELP"). The Company provides a wide range of financial services, processing capabilities and information technology to meet the needs of educational institutions, lenders, students and their families, and guarantee agencies. The Company's primary business is to originate and hold student loans, but the Company also provides fee-based student loan related products and services and earns servicing fees for student loan servicing and guarantee processing, and student loan default management and loan collections. SLM Corporation is a holding company that operates through a number of subsidiaries including the Student Loan Marketing Association, a federally chartered government-sponsored enterprise (the "GSE"). References herein to the "Company" refer to SLM Corporation and its subsidiaries.

Our results can be materially affected by changes in:

•: applicable laws and regulations, which may change the volume, average term and effective yields of student loans under the FFELP or result in loans being originated or refinanced under non-FFELP programs or may affect the terms upon which banks and others agree to sell FFELP loans to the Company;
•: demand for education financing;
•: competition for education financing;
•: financing preferences of students and their families;
•: general interest rate environment and credit spreads;
•: funding spreads on our non-GSE financing activities;
•: prepayment rates on student loans, including prepayments through loan consolidation;
•: securitization market for fixed income securities backed by education loans, either by increasing the costs or limiting the availability of financing; and
•: borrower default rates.

We have provided the discussion of the GSE within the context of this "Management's Discussion and Analysis of Financial Condition and Results of Operations" ("MD&A") because a substantial portion of the Company's operations is conducted through the GSE. MD&A disclosures applicable solely to the GSE are included at the end of this MD&A in the section titled "Student Loan Marketing Association." The discussion that follows regarding our interest income and expenses from on-balance sheet assets and liabilities is applicable to both the Company and the GSE. Likewise, because all of our FFELP securitizations to date have originated from the GSE, the discussion of the securitization gains and securitization revenue from securitizations of FFELP student loans is applicable to both the Company and the GSE. Discussions of private credit student loan securitizations are applicable to the Company only. The discussions of our off-balance sheet loans, our fee-based businesses, and our operations on a Managed Basis, as well as the discussions set forth below under the headings, "Selected Financial Data," "Other Income," "Federal and State Taxes" and "Alternative Performance Measures" do not address the GSE and relate to the Company on a consolidated basis.

The majority of our student loan purchases and on-balance sheet financing of student loans occurs in the GSE and we finance such purchases through the issuance of GSE debt obligations and through

student loan securitizations. When the GSE securitizes FFELP student loans, student loans are sold by the GSE to a trust that issues bonds backed by the student loans as part of the transaction. Once securitized, the GSE no longer owns the student loans and the bonds issued by the trust are not obligations of the GSE. The GSE retains an interest in the loans securitized which is recognized on the balance sheet as Retained Interest in securitized receivables. All student loans that the Company directly originates are owned by non-GSE subsidiaries from inception. The GSE has no employees, so the management of its operations is provided by a non-GSE subsidiary of the Company under a management services agreement. We also service the majority of the GSE's student loans under a servicing agreement between the GSE and Sallie Mae Servicing, L.P.

During the first quarter of 2003, the GSE transferred $772 million in private credit student loans, including accrued interest receivable, and a $300 million variable interest entity ("VIE") consisting of securitized Consolidation Loans to a non-GSE subsidiary of the Company and recognized gains of $278 million. The GSE also transferred $346 million of insurance and benefit related investments through a non-cash dividend. We will continue to transfer the GSE's assets throughout the Wind-Down Period. All intercompany transactions between the GSE and the Company and its non-GSE subsidiaries have been eliminated in the Company's consolidated financial statements.

As of March 31, 2003, 79 percent of the Company's consolidated on-balance sheet assets were held by the GSE, and 82 percent of the Company's interest income was derived from assets held by and financed by the GSE. In addition, 51 percent of our private credit student loans were held by non-GSE affiliates. For the first quarter ended March 31, 2003, 62 percent of our fee income was generated by non-GSE fee-based businesses.

Financial Highlights for the First Quarter of 2003

Listed below are some of the additional performance measures that management uses to assess the business.

	Three months ended March 31,
	2003			2002
Diluted earnings per share	$	2.64		$	2.63
Student loan spread		2.26	%		2.58	%
Net interest margin		2.00	%		2.34	%
Servicing and securitization revenue	$	138		$	195
Gains on student loan securitizations		306			44
Derivative market value adjustment		114			288
Fee and other income		148			122
Losses on sales of securities, net		(81	)		(89	)
Operating expenses		179			167
Managed student loan acquisitions		5,348			4,519
Preferred Channel originations		4,922			4,030
Loans securitized		6,322			3,533
Ending on-balance sheet student loans		43,281			40,962
Ending off-balance sheet student loans		37,438			32,494
Managed student loans		80,719			73,456
Managed student loan spread, exclusive of Floor Income		1.93	%		1.87	%

The main drivers of our earnings are:

•: growth in the Managed portfolio of student loans;
•: student loan spread including the effect of Floor Income;
•: number, size and mix of student loans in securitizations, which influence the level of securitization gains;
•: cost effective financing;
•: servicing and securitization revenue;
•: derivative market value adjustment;
•: guarantor servicing fees, default management operations and collections services and other fee income; and
•: loan servicing, acquisition, and operating expenses.

For the three months ended March 31, 2003, our net income was $417 million ($2.64 diluted earnings per share), versus net income of $422 million ($2.63 diluted earnings per share) for the three months ended March 31, 2002.

The growth in our Managed student loans benefits net income through the spread earned by student loans on-balance sheet, by gains on securitizing such loans, and by the residual cash flows earned as servicing and securitization revenue from the securitized student loans. The growth in our Managed student loan portfolio is therefore an important driver of future earnings. Our Managed student loan portfolio grew by $7.2 billion from $73.5 billion at March 31, 2002 to $80.7 billion at March 31, 2003. In the first quarter of 2003, the amount of Managed student loans acquired increased by 18 percent from the first quarter of 2002. Also, in the first quarter of 2003, our Preferred Channel originations increased 22 percent over the first quarter of 2002.

During the first quarter of 2003, our Managed student loan spread, exclusive of Floor Income, was 1.93 percent versus 1.87 percent in the year-ago quarter. The increase in our Managed student loan spread was primarily due to the growth in higher yielding private credit student loans and lower premium amortization as a result of a higher percentage of Consolidation Loans, partially offset by higher consolidation lender fees.

On a Managed Basis, in the first quarter of 2003, we earned $73 million of Floor Income, net of payments under Floor Income Contracts, a decrease of $109 million or 60 percent from the first quarter of 2002. This decrease was largely driven by floor interest rates on variable rate loans that reset each July declining less over the nine month period ended March 31, 2003 than the corresponding year-ago period.

The $57 million decrease in servicing and securitization revenue for the first quarter of 2003 versus the first quarter of 2002 was mainly due to lower Embedded Floor Income, partially offset by the increase in the average balance of securitized loans.

Under Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" some of our derivatives, primarily Floor Income Contracts and basis swaps, are not considered effective hedges because they do not extend to the full term of the hedged item and are therefore required to be valued at fair value while the hedged item is not. The gains from the derivative market value adjustment in the first quarter of 2003 were mainly due to the reclassification of certain expired Floor Income Contracts that had $69 million of unrealized losses that were previously recognized in the derivative market value adjustment. These realized losses were recognized in losses on sales of securities in the first quarter of 2003. The gains in the derivative market value adjustment in the first quarter of 2002 were due to increasing interest rates since the preceding quarter, that caused the market value of the Floor Income Contracts to increase.

We continue to expand our fee-based businesses, primarily guarantor servicing and debt management services. In the first quarter of 2003, the guarantor servicing and debt management

businesses generated revenue of $100 million, an increase of 27 percent over the year-ago quarter. This increase was mainly due to the growth in debt management services and origination processing fees that were deferred from the third quarter to the subsequent two quarters.

Operating expenses were $179 million in the first quarter of 2003 versus $167 million in the year-ago quarter. The increase in operating expenses can mainly be attributed to a $9 million charge for a servicing adjustment for an under-billing error.

In the first quarter of 2003, we repurchased 2.7 million common shares in connection with our common stock repurchase program. This was accomplished through equity forward contract settlements and through open market purchases. The share repurchases netted against the 1.6 million common share issuances related to benefit plans reduced common stock outstanding by 1.1 million shares. In recent years, the pace of our share repurchases has decelerated as we build capital in connection with the GSE Wind-Down.

SELECTED FINANCIAL DATA

Condensed Statements of Income

	Three months ended March 31,						Increase (decrease)
	2003			2002			$			%
Net interest income	$	241		$	281		$	(40	)	(14	)%
Less: provision for losses		43			20			23		110

Net interest income after provision for losses		198			261			(63	)	(24	)
Gains on student loan securitizations		306			44			262		591
Servicing and securitization revenue		138			195			(57	)	(29	)
Losses on sales of securities, net		(81	)		(89	)		8		8
Derivative market value adjustment		114			288			(174	)	(60	)
Guarantor servicing and debt management fees		100			78			22		27
Other income		48			44			4		12
Operating expenses		179			167			12		8
Income taxes		227			232			(5	)	(2	)

Net income		417			422			(5	)	(1	)
Preferred stock dividends		3			3			—		—

Net income attributable to common stock	$	414		$	419		$	(5	)	(1	)%

Basic earnings per common share	$	2.72		$	2.70		$	..02		1	%

Diluted earnings per common share	$	2.64		$	2.63		$	.01		1	%

Dividends per common share	$	.25		$	.20		$	.05		25	%

Condensed Balance Sheets

						Increase (decrease)
		March 31, 2003		December 31, 2002		Increase (decrease)
		March 31, 2003		December 31, 2002		$			%
Assets
Federally insured student loans, net		$	38,340	$	37,168	$	1,172		3	%
Private credit student loans, net			4,941		5,171		(230	)	(4	)
Academic facilities financings and other loans			1,140		1,202		(62	)	(5	)
Cash and investments			4,840		4,990		(150	)	(3	)
Retained Interest in securitized receivables			2,481		2,146		335		16
Goodwill and acquired intangible assets			579		586		(7	)	(1	)
Other assets			2,013		1,912		101		5

	Total assets	$	54,334	$	53,175	$	1,159		2	%

Liabilities and Stockholders' Equity
Short-term borrowings		$	23,826	$	25,619	$	(1,793	)	(7	)%
Long-term notes			25,241		22,242		2,999		13
Other liabilities			3,023		3,316		(293	)	(9	)

	Total liabilities		52,090		51,177		913		2

Stockholders' equity before treasury stock			5,214		4,703		511		11
Common stock held in treasury at cost			2,970		2,705		265		10

	Total stockholders' equity		2,244		1,998		246		12

	Total liabilities and stockholders' equity	$	54,334	$	53,175	$	1,159		2	%

RESULTS OF OPERATIONS

NET INTEREST INCOME

Net interest income is derived largely from the Company's portfolio of student loans that remain on-balance sheet. The "Taxable Equivalent Net Interest Income" analysis set forth below is designed to facilitate a comparison of non-taxable asset yields to taxable yields on a similar basis. Taxable equivalent net interest income for the three months ended March 31, 2003 versus the three months ended March 31, 2002 decreased by $41 million while the net interest margin decreased by 34 basis points. The decrease in taxable equivalent net interest income for the first quarter of 2003 was principally due to the decrease in Floor Income versus the year-ago quarter, partially offset by the increase in the average balance of student loans as a percentage of total average earning assets. The decrease in the net interest margin for the first quarter of 2003 versus the first quarter of 2002 was reflective of the decrease in Floor Income and other fluctuations in the student loan spread discussed below.

Taxable Equivalent Net Interest Income

The amounts in this table are adjusted for the impact of certain tax-exempt and tax-advantaged investments based on the marginal federal corporate tax rate of 35 percent.

		Three months ended March 31,				Increase (decrease)
		2003		2002		$			%
Interest income
	Student loans	$	436	$	534	$	(98	)	(18	)%
	Academic facilities financings and other loans		20		26		(6	)	(23	)
	Investments		28		38		(10	)	(24	)
	Taxable equivalent adjustment		4		4		—		—

	Total taxable equivalent interest income		488		602		(114	)	(19	)
Interest expense			244		317		(73	)	(23	)

Taxable equivalent net interest income		$	244	$	285	$	(41	)	(14	)%

Average Balance Sheets

The following table reflects the taxable equivalent rates earned on earning assets and paid on liabilities for the three months ended March 31, 2003 and 2002.

		Three months ended March 31,
		2003				2002
		Balance		Rate		Balance		Rate
Average Assets
Student loans		$	44,159	4.01	%	$	42,357	5.12	%
Academic facilities financings and other loans			1,164	7.59			1,946	6.01
Investments			4,227	2.88			5,142	3.04

Total interest earning assets			49,550	3.99	%		49,445	4.94	%

Non-interest earning assets			5,215				4,916

	Total assets	$	54,765			$	54,361

Average Liabilities and Stockholders' Equity
Six month floating rate notes		$	2,887	1.27	%	$	3,084	1.94	%
Other short-term borrowings			22,881	1.52			29,635	2.22
Long-term notes			24,081	2.51			17,294	3.27

Total interest bearing liabilities			49,849	1.99	%		50,013	2.57	%

Non-interest bearing liabilities			2,832				2,543
Stockholders' equity			2,084				1,805

	Total liabilities and stockholders' equity	$	54,765			$	54,361

Net interest margin				2.00	%			2.34	%

Rate/Volume Analysis

The Rate/Volume Analysis below shows the relative contribution of changes in interest rates and asset volumes. The amounts in this table are adjusted for the impact of certain tax-exempt and tax-advantaged investments based on the marginal federal corporate tax rate of 35 percent.

				Increase (decrease) attributable to change in
	Taxable equivalent increase (decrease)			Increase (decrease) attributable to change in
	Taxable equivalent increase (decrease)			Rate			Volume
Three months ended March 31, 2003 vs. three months ended March 31, 2002
Taxable equivalent interest income	$	(114	)	$	(118	)	$	4
Interest expense		(73	)		(90	)		17

Taxable equivalent net interest income	$	(41	)	$	(28	)	$	(13	)

Student Loans

Student Loan Spread Analysis

The following table analyzes the reported earnings from student loans both on-balance sheet and those off-balance sheet in securitization trusts. For student loans off-balance sheet, the Company will continue to earn securitization and servicing fee revenues over the life of the securitized student loan

portfolios. The off-balance sheet information presented in "Securitization Program—Servicing and Securitization Revenue" analyzes the on-going servicing revenue and Residual Interest earned on the securitized portfolios of student loans. For an analysis of the Company's student loan spread for the entire portfolio of Managed student loans on a similar basis to the on-balance sheet analysis, see "Student Loan Spread Analysis—Managed Basis."

	Three months ended March 31,
	2003			2002
On-Balance Sheet
Student loan yields, before Floor Income		4.47	%		5.17	%
Floor Income		.29			.73
Consolidation Loan Rebate Fees		(.50	)		(.35	)
Offset Fees		(.07	)		(.11	)
Borrower benefits		(.08	)		(.07	)
Premium and origination fee amortization		(.10	)		(.25	)

Student loan net yield		4.01			5.12
Student loan cost of funds		(1.75	)		(2.54	)

Student loan spread		2.26	%		2.58	%

Off-Balance Sheet
Servicing and securitization revenue, before Floor Income		1.35	%		1.25	%
Floor Income on securitized loans		.23			1.35

Servicing and securitization revenue		1.58	%		2.60	%

Average Balances
On-balance sheet student loans	$	44,159		$	42,357
Securitized student loans		35,228			30,391

Managed student loans	$	79,387		$	72,748

The decrease in the student loan spread in the first quarter of 2003 versus the first quarter of 2002 was mainly due to the fluctuations in the amount of Floor Income discussed below. The increase in the student loan spread, exclusive of Floor Income, is due primarily to lower student loan premium amortization and to the increase in the percentage of private credit student loans in the on-balance sheet student loan portfolio, partially offset by higher Consolidation Loan Rebate Fees. The lower premium amortization is driven by the higher percentage of Consolidation Loans, which have a significantly longer average life and from the amortization of the loan discount in private credit student loans. The first quarter 2003 spread also benefited from the increase in on-balance sheet private credit student loans of 5 percent over the first quarter of 2002. These loans are subject to much higher credit risk than federally guaranteed student loans and therefore earn higher spreads, which in the first quarter of 2003 was 4.96 percent.

Floor Income and Student Loan Floor Income Contracts

Due to lower average interest rates, in the first quarter of 2003, we earned $32 million of Floor Income from on-balance sheet student loans, net of payments under Floor Income Contracts, of which $19 million was Fixed Rate Floor Income and $13 million was Variable Rate Floor Income. In comparison, in the first quarter of 2002, we earned $76 million of Floor Income from on-balance sheet student loans, net of payments under Floor Income Contracts, of which $22 million was Fixed Rate Floor Income and $54 million was Variable Rate Floor Income. At March 31, 2003, the notional

amount of student loan Floor Income Contracts totaled $23.4 billion of which $7.7 billion are contracts that commence in 2004.

The following table analyzes the ability of the FFELP student loans in the Company's Managed student loan portfolio to earn Floor Income at March 31, 2003 and 2002, based on the last Treasury bill auctions applicable to those periods (1.12 percent and 1.85 percent, respectively). Commercial paper rate loans are based on the last commercial paper rate applicable to those periods (1.23 percent and 1.83 percent, respectively).

		March 31, 2003								March 31, 2002
(Dollars in billions)		Fixed Borrower Rate			Annually Reset Borrower Rate		Total			Fixed Borrower Rate			Annually Reset Borrower Rate			Total
Student loans eligible to earn Floor Income
	On-balance sheet student loans	$	21.0		$	11.1	$	32.1		$	16.3		$	13.0		$	29.3
	Off-balance sheet student loans		6.4			26.4		32.8			3.0			26.4			29.4

Managed student loans eligible to earn Floor Income			27.4			37.5		64.9			19.3			39.4			58.7
Less notional amount of Floor Income Contracts			(15.2	)		—		(15.2	)		(13.2	)		(5.0	)		(18.2	)

Net Managed student loans eligible to earn Floor Income		$	12.2		$	37.5	$	49.7		$	6.1		$	34.4		$	40.5

Net Managed student loans earning Floor Income		$	11.1		$	37.5	$	48.6		$	6.1		$	34.4		$	40.5

Activity in the Allowance for Student Loan Losses

The provision for loan losses represents the periodic expense of maintaining an allowance sufficient to absorb losses, net of recoveries, inherent in the portfolio of student loans.

An analysis of our allowance for only the private credit student loans losses is presented in the following table for the quarters ended March 31, 2003 and 2002.

		Three months ended March 31,
		2003			2002
Balance at beginning of period		$	181		$	193
Provision for private credit student loan losses			28			13
Other			7			11
Charge-offs			(17	)		(12	)
Recoveries			2			1

	Charge-offs, net of recoveries		(15	)		(11	)

Balance before sale of loans			201			206
Reduction for sale of loans			(27	)		—

Balance at end of period		$	174		$	206

Net charge-offs as a percentage of average private credit student loans			1.07%			..97%
Private credit allowance as a percentage of average private credit student loans			3.13%			4.52%
Private credit allowance as a percentage of the ending balance of private credit student loans			3.40%			4.25%
Private credit allowance as a percentage of private credit student loans in repayment			6.62%			7.62%
Average balance of private credit student loans		$	5,564		$	4,564
Ending balance of private credit student loans		$	5,115		$	4,852

For the quarter ended March 31, 2003, the provision for private credit student loans increased by $15 million or 115 percent versus the year-ago quarter. The increase in the provision is due to the 37 percent increase in the private credit student loan acquisitions, the aging of the private credit student loan portfolio and the change in presentation for student loan discounts instituted in the second quarter of 2002. For the three months ended March 31, 2003, private credit student loan charge-offs increased by $5 million over the year-ago period, which is due primarily to the growth and aging of the private credit student loan portfolio.

We defer origination fees and recognize them over time as a component of interest income. The unamortized balance of deferred origination fee revenue at March 31, 2003 and 2002 was $99 million and $113 million, respectively. At March 31, 2002, the Company reflected the unamortized balance of $113 million as a component of the allowance for student loan losses, which was reclassified to a student loan discount in the second quarter of 2002.

Delinquencies

The table below shows our private credit student loan delinquency trends for the quarters ended March 31, 2003 and 2002. Delinquencies have the potential to adversely impact earnings if the account charges off and results in increased servicing and collection costs.

		Three months ended
		March 31, 2003					March 31, 2002
Index		March 31, 2003					March 31, 2002
Index		Balance			%		Balance			%
Loans in-school/grace/deferment¹		$	2,204				$	1,834
Loans in forbearance²			280					311
Loans in repayment and percentage of each status:
	Loans current		2,366		90	%		2,468		91	%
	Loans delinquent 30-59 days³		123		5			113		4
	Loans delinquent 60-89 days		65		2			48		2
	Loans delinquent 90 days or greater		77		3			78		3

Total loans in repayment			2,631		100	%		2,707		100	%

Total private credit student loans			5,115					4,852
Private credit student loan allowance for losses			(174	)				(206	)

Private credit student loans, net		$	4,941					4,646

Percentage of private credit student loans in repayment			51.43	%				55.78	%

Delinquencies as a percentage of private credit student loans in repayment			10.06	%				8.84	%

¹: Loans for borrowers who still may be attending school or engaging in other permitted educational activities and are not yet required to make payments on the loans, e.g., residency periods for medical students or a grace period for bar exam preparation. These amounts include loans for borrowers with in-school forbearance that were previously included as loans in forbearance for hardship and other factors. We reclassified $68 million and $33 million, respectively, of in-school forbearances at March 31, 2003 and 2002.
²: Loans for borrowers who have temporarily ceased making full payments due to hardship or other factors, consistent with the established loan program servicing procedures and policies.
³: The period of delinquency is based on the number of days scheduled payments are contractually past due and relate to repayment loans, that is, receivables not charged-off, and not in school, grace, deferment or forbearance.

The principal and interest on federally insured loans is guaranteed by the federal government, which limits our loss exposure to two percent of the outstanding balance, and we have established an allowance for this exposure. We also maintain a loss allowance for rejected guarantor claims, caused mainly by servicing defects. At March 31, 2003 and 2002, the combined balance in the allowance for losses on federally insured student loans was $58 million and $57 million, respectively.

On-Balance Sheet Funding Costs

Our borrowings are generally variable-rate indexed principally to the 91-day Treasury or the commercial paper rate. The following table summarizes the average balance of on-balance sheet debt (by index, after giving effect to the impact of interest rate swaps) for the three months ended March 31, 2003 and 2002.

	Three months ended March 31,
	2003				2002
Index	Average Balance		Average Rate		Average Balance		Average Rate
Treasury bill, principally 91-day	$	17,599	1.64	%	$	26,507	2.22	%
Commercial paper		12,483	1.24			6,667	1.76
LIBOR		5,137	1.58			1,620	2.26
Discount notes		6,398	1.39			6,648	2.06
Fixed		6,316	4.96			6,746	5.07
Auction rate securities		828	1.57			1,101	1.90
Zero coupon		229	11.14			205	11.14
Other		859	2.28			519	1.47

Total	$	49,849	1.99	%	$	50,013	2.57	%

The shift in financing from Treasury bill indexed debt to commercial paper indexed debt since the first quarter 2002 reflects the increase in commercial paper indexed FFELP student loans as all new FFELP student loans originated since January 1, 2000 have interest rates indexed to the commercial paper rate.

OTHER INCOME

Securitization Program

During the first quarter of 2003, we completed four securitizations totaling $6.3 billion that continued to accelerate and diversify our asset-backed securitization program. We completed one securitization of FFELP Stafford/PLUS loans, one securitization of private credit student loans, and two securitizations of Consolidation Loans. One of the Consolidation Loan securitizations totaling $2.0 billion did not meet the criteria of being a Qualifying Special Purpose Entity ("QSPE") and was accounted for on-balance sheet as a Variable Interest Entity ("VIE"). As a result, no gain or loss was recorded on this transaction. During the first quarter of 2002, we completed two securitizations, both of which received sale treatment. The following table summarizes securitization activity for the quarters ended March 31, 2003 and 2002.

	Three months ended March 31,
	2003				2002
	Amount Securitized		Gain %		Amount Securitized		Gain %
FFELP Stafford/PLUS loans	$	1,256	1.60	%	$	3,533	1.25	%
Consolidation Loans		2,005	10.86			—	—
Private credit student loans		1,005	6.75			—	—

Total securitization sales		4,266	7.17	%		3,533	1.25	%

On-balance sheet securitization of Consolidation Loans		2,056				—

Total loans securitized	$	6,322			$	3,533

Embedded Floor Income

Included in the gain on student loan securitizations is an estimate of the Fixed Rate Embedded Floor Income from the loans securitized. Depending on interest rate levels, the ongoing estimate of Fixed Rate Embedded Floor Income can cause volatility in the fair value of the Retained Interest asset.

The fair value of the Fixed Rate Embedded Floor Income included in the Retained Interest asset as of March 31, 2003 and December 31, 2002 was $849 million and $629 million, respectively. The fair value of the Variable Rate Embedded Floor Income included in the Retained Interest asset as of March 31, 2003 and December 31, 2002 was $41 million and $75 million, respectively.

Servicing and Securitization Revenue

Servicing and securitization revenue, the ongoing revenue from securitized loan pools, includes the interest earned on the Residual Interest asset, the revenue we receive for servicing the loans in the securitization trusts, and Embedded Floor Income on securitized student loans not captured in the gain on sale calculation.

The following table summarizes the components of servicing and securitization revenue:

	Three months ended March 31,
	2003		2002
Servicing revenue	$	75	$	66
Securitization revenue, before Embedded Floor Income		43		28

Servicing and securitization revenue, before Embedded Floor Income		118		94
Embedded Floor Income		20		101

Total servicing and securitization revenue	$	138	$	195

Average off-balance sheet student loans	$	35,228	$	30,391

Servicing and securitization revenue totaled $138 million or 1.58 percent of the average balance of securitized loans in the first quarter of 2003 versus $195 million or 2.60 percent in the corresponding year-ago quarter. The increase in servicing and securitization revenue before Embedded Floor Income is due to the increase in the average balance of off-balance sheet student loans.

Losses on Sales of Securities, Net

For the three months ended March 31, 2003 and 2002, we recognized losses on sales of securities of $82 million and $89 million, respectively. These losses included losses on terminated or expired Eurodollar future contracts of $1 million and $53 million for the three months ended March 31, 2003 and 2002, respectively, that were economically hedging Floor Income, but did not meet the hedge

effectiveness tests under SFAS No. 133. Unrealized gains and losses on these contracts that were previously recorded through the derivative market value adjustment were reversed. In addition, we terminated a written Floor Income Contract resulting in a loss of $69 million during the three months ended March 31, 2003. There were no similar transactions in the three months ended March 31, 2002.

Also in the three months ended March 31, 2003 and 2002, we refinanced certain debt obligations with longer term debt obligations that had lower interest rates. In connection with these refinancings, we closed out certain derivatives that were matched with the extinguished debt instruments prior to their maturity and recognized losses on sales of securities of $12 million and $36 million, respectively.

Guarantor Servicing Fees, Debt Management Fees and Other Income

The following table summarizes the components of guarantor servicing fees, debt management fees and other income for the quarters ended March 31, 2003 and 2002.

		Three months ended March 31,
		2003		2002
Guarantor servicing and debt management fees:
	Guarantor servicing fees	$	41	$	30
	Debt management fees		59		48

	Total guarantor servicing and debt management fees	$	100	$	78

Other income:
	Late fees	$	16	$	15
	Third party servicing fees		14		15
	Other		18		14

	Total other income	$	48	$	44

The $22 million increase in guarantor servicing and debt management fees in the first quarter of 2003 versus the year-ago quarter is due to the growth in the debt management services business.

EFFECTS OF SFAS NO. 133—DERIVATIVE ACCOUNTING

SFAS No. 133 requires that changes in the fair value of derivative instruments be recognized currently in earnings unless specific hedge accounting criteria as specified by SFAS No. 133 are met. We believe that our derivatives are effective economic hedges and they are a critical element of our interest rate risk management strategy. However, under SFAS No. 133, some of our derivatives, primarily basis swaps, Eurodollar futures contracts and Floor Income Contracts, are considered ineffective hedges because they hedge only a portion of the term of the underlying risk or are hedging an off-balance sheet financial instrument. In these instances the derivatives are classified as "trading" securities and the change in their fair value is recorded through the derivative market value adjustment. No consideration is made in the consolidated statements of income for the price fluctuation of the student loans or the Retained Interest that these derivatives are hedging.

Floor Income Contracts are not considered effective hedges because the terms of the Floor Income Contracts are shorter than the average life of the student loans and/or the Floor Income Contracts are hedging off-balance sheet securitized student loans. We believe that the Floor Income Contracts effectively fix the amount of Floor Income the Company will earn over the contract period, thus eliminating the timing and uncertainty associated with Floor Income for that period.

Basis swaps are used to convert the floating rate debt from one interest rate index to another to match the interest rate characteristics of the assets. We primarily use basis swaps to change the index of

our LIBOR-based debt, to better match the cash flows of our student loan assets. SFAS No. 133 requires that the change in the cash flows of the hedge effectively offset both the change in the cash flows of the asset and the change in the cash flows of the liability. Because student loans can earn at either a variable or a fixed interest rate depending on market interest rates or if the basis swap is economically hedging off-balance sheet instruments, the SFAS No. 133 effectiveness test cannot be met. As a result, these swaps are recorded at fair value with subsequent changes in fair value recorded through the derivative market value adjustment in the income statement.

The table below quantifies the impact of SFAS No. 133 derivative accounting on our net income for the three months ended March 31, 2003 and 2002 when compared with the accounting principles employed in all years prior to the SFAS No. 133 implementation. Gains and losses on certain closed derivative positions that previously qualified as hedges were capitalized and amortized over the term of the hedged item. Under SFAS No. 133, these amounts are recorded immediately. Similarly, we previously accounted for Floor Income Contracts as hedges and amortized the upfront cash compensation ratably over the lives of the contracts. Under SFAS No. 133, the upfront payment is deemed a liability and changes in fair value are recorded through income throughout the life of the contract.

	Three months ended March 31,
	2003			2002
Net Impact of Derivative Accounting:
Derivative market value adjustment in other income	$	114		$	288
Amortization of derivative items included in other comprehensive income at transition		—			(1	)
Amortization of premiums on Floor Income Contracts and cap hedges in net interest income		(41	)		(32	)
Amortization of Floor Income Contracts de-designated as effective hedges on December 31, 2000 in net interest income		(1	)		(3	)
Impact of Eurodollar futures contracts in net interest income		4			9
Impact of Eurodollar futures contracts in loss on sales of securities		(9	)		(2	)

Total net impact of derivative accounting	$	67		$	259

The derivative market value adjustment is principally caused by interest rate volatility and changing spreads between indices during the period and the notional volume and term of derivatives not receiving hedge accounting treatment. The reduction in the derivative market value loss in the first quarter of 2003 was mainly due to the termination of certain Floor Income Contracts whereby $69 million of unrealized losses that were previously recognized in the derivative market value adjustment were reclassified to losses on sales of securities in the first quarter of 2003. The reduction in the derivative market value loss in the first quarter of 2002 was due to increasing interest rates since the preceding quarter, that caused the market value of the Floor Income Contracts, which is carried as a liability, to decrease. The decrease in the market value of the Floor Income Contracts is economically offset by the decrease in value of the student loan portfolio earning Floor Income, but that offsetting change in value is not recognized under SFAS No. 133.

OPERATING EXPENSES

The following table summarizes the components of operating expenses:

	Three months ended March 31,
	2003		2002
Servicing and acquisition expenses	$	120	$	104
General and administrative expenses		59		63

Total operating expenses	$	179	$	167

In the first quarter of 2003, operating expenses were $179 million versus $167 million in the year-ago quarter. The increase in operating expenses in the first quarter of 2003 versus the year-ago quarter is primarily due to a $9 million charge for servicing adjustments for an under-billing error. Exclusive of this charge, servicing expenses increased by $7 million consistent with the growth in the number of accounts serviced.

STUDENT LOAN ACQUISITIONS

The following tables summarize the components of our student loan acquisition activity for the quarters ended March 31, 2003 and 2002.

	Three months ended March 31, 2003
	FFELP			Private		Total
Preferred Channel	$	3,315		$	842	$	4,157
Other commitment clients		56			—		56
Spot purchases		53			—		53
Consolidations from third parties		631			—		631
Consolidations from securitized trusts		1,333			—		1,333
Capitalized interest and other		264			18		282

Total on-balance sheet student loan acquisitions		5,652			860		6,512
Consolidations to SLM Corporation from securitized trusts		(1,333	)		—		(1,333	)
Capitalized interest and other		159			10		169

Total Managed student loan acquisitions	$	4,478		$	870	$	5,348

	Three months ended March 31, 2002
	FFELP			Private		Total
Preferred Channel	$	2,805		$	604	$	3,409
Other commitment clients		53			—		53
Spot purchases		155			4		159
Consolidations from third parties		417			—		417
Consolidations from securitized trusts		590			—		590
Capitalized interest and other		262			26		288

Total on-balance sheet student loan acquisitions		4,282			634		4,916
Consolidations to SLM Corporation from securitized trusts		(590	)		—		(590	)
Capitalized interest and other		193			—		193

Total Managed student loan acquisitions	$	3,885		$	634	$	4,519

In the first quarter of 2003, our Preferred Channel originations totaled $4.9 billion versus $4.0 billion in the year-ago quarter. The pipeline of loans currently serviced and committed for purchase by us was $6.2 billion at March 31, 2003 versus $5.6 billion at March 31, 2002.

LEVERAGED LEASES

At March 31, 2003, we had investments in leveraged leases, net of impairments, totaling $198 million that are general obligations of three commercial airlines and Federal Express Corporation. The aircraft financing business continues to be adversely affected by the slowdown in the commercial aircraft industry that began in early 2001 and was exacerbated by the terrorist attacks of September 11, 2001 and most recently, the war in Iraq. The continuing reduction in aircraft passenger volume has resulted in the grounding of a significant number of aircraft. In 2002, we recognized after-tax impairment charges of $57 million, or $.36 per share to reflect the impairment of certain aircraft leased to United Airlines, which declared bankruptcy in December 2002. We had no such impairments in the first quarter of 2003, but we are constantly monitoring these investments given the continued uncertainty surrounding the airline industry. Based on an analysis of the expected losses on certain leveraged leases plus the increase in incremental tax obligations related to forgiveness of debt obligations and/or the taxable gain on the sale of the aircraft, our remaining exposure to the airline industry is $125 million, after-tax.

FEDERAL AND STATE TAXES

The Company is subject to federal and state taxes, while the GSE is exempt from all state, local and District of Columbia income, franchise, sales and use, personal property and other taxes, except for real property taxes. Our effective tax rate for the three months ended March 31, 2003 and 2002 was 35 percent and 35 percent, respectively.

ALTERNATIVE PERFORMANCE MEASURES

In addition to evaluating our GAAP-based data, management, credit rating agencies, lenders and analysts also evaluate us on certain non-GAAP-based performance measures, which we refer to as "core cash" measures. Under these non-GAAP-based performance measures, management analyzes the student loan portfolio on a Managed Basis and treats securitization transactions as financings versus sales. As such, the securitization gain on sale and subsequent servicing and securitization revenue is eliminated from income, and net interest income from securitized loans is recognized. These non-GAAP-based performance measures also eliminate the benefit of Floor Income and use pre-SFAS No. 133 accounting for our derivative transactions, treating all of them as effective hedges. We also exclude certain transactions that management does not consider part of our core business, such as gains or losses on certain sales of securities and derivative contracts and the amortization of acquired intangible assets.

For the three months ended March 31, 2003 and 2002, the effect of these non-GAAP performance measures on pre-tax GAAP earnings are as follows:

	Three months ended March 31,
	2003			2002
Non-GAAP Performance Measures:
Treatment of securitizations as financings versus sales	$	267		$	39
Floor Income on Managed loans		73			182
Net impact of derivative accounting		67			259
Losses on sales of securities		(72	)		(86	)
Amortization of acquired intangibles		(7	)		(6	)

Total non-GAAP performance measures	$	328		$	388

Management believes this information provides additional insight into the financial performance of the Company's core business activities.

Student Loan Spread Analysis—Managed Basis

The following table analyzes the reported earnings from our portfolio of Managed student loans, which includes loans both on-balance sheet and off-balance sheet in securitization trusts and excludes Floor Income.

	Three months ended March 31,
	2003			2002
Managed Basis student loan yields		4.44	%		5.19	%
Consolidation Loan Rebate Fees		(.34	)		(.24	)
Offset Fees		(.04	)		(.07	)
Borrower benefits		(.11	)		(.12	)
Premium and origination fee amortization		(.16	)		(.27	)

Managed Basis student loan net yield		3.79			4.49
Managed Basis student loan cost of funds		(1.86	)		(2.62	)

Managed Basis student loan spread		1.93	%		1.87	%

Average Balances
Managed student loans	$	79,387		$	72,748

The increase in the Managed Basis student loan spread in the first quarter of 2003 versus the first quarter of 2002 was due primarily to lower student loan premium amortization and to the increase in the percentage of private credit student loans in the Managed student loan portfolio, partially offset by higher Consolidation Loan Rebate Fees. The lower premium amortization is driven by the higher percentage of Consolidation Loans, which have a significantly longer average life, and from the amortization of the loan discount in private credit student loans. The first quarter Managed Basis student loan spread also benefited from the increase in private credit student loans of 38 percent over the first quarter of 2002. These loans are subject to much higher credit risk than federally guaranteed student loans and therefore earn higher spreads, which in the first quarter of 2003 was 4.96 percent. The first quarter Managed Basis student loan spread also benefited from higher amortization of upfront payments under Floor Income Contracts.

Allowance for Private Credit Student Loan Losses—Managed Basis

An analysis of our Managed allowance for loan losses for private credit student loans for the quarters ended March 31, 2003 and 2002 is presented in the following table.

		Three months ended March 31,
		2003			2002
Balance at beginning of period		$	194		$	193
Provision for Managed private credit student loan losses			32			13
Other			7			11
Charge-offs			(17	)		(12	)
Recoveries			2			1

	Charge-offs, net of recoveries		(15	)		(11	)

Balance at end of period		$	218		$	206

Net charge-offs as a percentage of average Managed private credit student loans			..93	%		..97	%
Private credit allowance as a percentage of average Managed private credit student loans			3.38	%		4.52	%
Private credit allowance as a percentage of the ending balance of Managed private credit student loans			3.24	%		4.25	%
Private credit allowance as a percentage of Managed private credit student loans in repayment			6.39	%		7.62	%
Average balance of Managed private credit student loans		$	6,433		$	4,564
Ending balance of Managed private credit student loans		$	6,716		$	4,852

For the quarter ended March 31, 2003, the provision for Managed private credit student loans increased by $19 million versus the year-ago quarter. The 146 percent increase in the first quarter 2003 provision reflects a 37 percent increase in the private credit student loan acquisitions versus the first quarter of 2002 and the aging of the private credit student loan portfolio.

We defer origination fees and recognize them over time as a component of interest income. The unamortized balance of deferred origination fee revenue at March 31, 2003 and 2002 was $120 million and $113 million, respectively. At March 31, 2002, the Company reflected the unamortized balance of $113 million as a component of the allowance for student loan losses, which was reclassified to a student loan discount in the second quarter of 2002.

Delinquencies—Managed Basis

The table below shows our private credit student loan delinquency trends for the quarters ended March 31, 2003 and 2002 on a Managed Basis. Delinquencies have the potential to adversely impact earnings if the account charges off and results in increased servicing and collection costs.

		Three months ended March 31,
		2003					2002
Index		2003					2002
Index		Balance			%		Balance			%
Loans in-school/grace/deferment¹		$	2,893				$	1,834
Loans in forbearance²			413					311
Loans in repayment and percentage of each status:
	Loans current		3,118		91	%		2,468		91	%
	Loans delinquent 30-59 days³		136		4			113		4
	Loans delinquent 60-89 days		72		2			48		2
	Loans delinquent 90 days or greater		84		3			78		3

Total Managed loans in repayment			3,410		100	%		2,707		100	%

Total Managed private credit student loans			6,716					4,852
Managed private credit student loan allowance for losses			(218	)				(206	)

Managed private credit student loans, net		$	6,498				$	4,646

Percentage of Managed private credit student loans in repayment			50.77	%				55.78	%

Delinquencies as a percentage of private credit student loans in repayment			8.56	%				8.84	%

¹: Loans for borrowers who still may be attending school or engaging in other permitted educational activities and are not yet required to make payments on the loans, e.g., residency periods for medical students or a grace period for bar exam preparation. These amounts include loans for borrowers with in-school forbearance that were previously included as loans in forbearance for hardship and other factors. We reclassified $107 million and $33 million, respectively, of in-school forbearances at March 31, 2003 and 2002.
²: Loans for borrowers who have temporarily ceased making full payments due to hardship or other factors, consistent with the established loan program servicing procedures and policies.
³: The period of delinquency is based on the number of days scheduled payments are contractually past due and relate to repayment loans, that is, receivables not charged-off, and not in school, grace, deferment or forbearance.

LIQUIDITY AND CAPITAL RESOURCES

A primary funding objective is to maintain our student loan spread by continuing to match the interest rate characteristics of our assets and liabilities. To accomplish this we must broaden our already diverse funding sources to ensure that we have sufficient liquidity to refinance the GSE debt to meet our September 2006 target date for the GSE Wind-Down. Currently our primary sources of liquidity are through debt issuances by the GSE, off-balance sheet financings through securitizations, borrowings under our commercial paper and medium term note programs, other senior note issuances, and cash generated by our subsidiaries and distributed through dividends to the Company. Our Managed borrowings along with the average interest rate for the three months ended March 31, 2003 and 2002 are broken down as follows:

	Three months ended March 31,
	2003				2002
	Average Balance		Average Rate		Average Balance		Average Rate
GSE	$	42,155	1.87	%	$	47,091	2.59	%
Non-GSE		7,691	2.56			2,922	2.27
Securitizations (off-balance sheet)		35,785	2.00			30,258	2.95

Total	$	85,631	1.99	%	$	80,271	2.71	%

GSE Financing Activities

The GSE secures financing to fund its on-balance sheet portfolio of student loans, along with its other operations, by issuing debt securities in the domestic and overseas capital markets, through public offerings and private placements of U.S. dollar-denominated and foreign currency-denominated debt of varying maturities and interest rate characteristics. The GSE's debt securities are currently rated at the highest credit rating level by both Moody's and S&P. Historically, the agencies' ratings of the GSE have been largely a factor of its status as a government-sponsored enterprise. Since the Privatization Act did not modify the attributes of debt issued by the GSE, management anticipates that the GSE will retain its current credit ratings.

The GSE's unsecured financing requirements are driven by the following factors: refinancing of existing liabilities as they mature; financing of the net growth in the student loan portfolio; the level of securitization activity; and the transfer and refinancing of GSE assets by non-GSE entities of the Company.

Securitization Activities

Since the establishment of our program in 1995, securitization of student loans has been the principal source of non-GSE long-term funding for our Managed portfolio of student loans. In the first quarter of 2003, the Company completed four securitization transactions totaling $6.3 billion, one of which did not achieve sale accounting under the requirements of SFAS No. 140, versus two transactions totaling $3.5 billion in student loans in the first quarter of 2002. At March 31, 2003, $37.4 billion or 46 percent of our Managed student loans outstanding were in off-balance sheet securitized trusts.

In first quarter of 2003, we continued to accelerate the volume, and diversify our securitization program as we completed two Consolidation Loan securitizations and one Private Loan securitization. These transactions continued to build market acceptance for these two asset classes that were first securitized in the fourth quarter of 2002. We expect to accelerate and diversify our securitization activity as we refinance long-term GSE debt in anticipation of the GSE Wind-Down.

Our asset-backed securities generally have a higher net cost to fund our student loans than our GSE on-balance sheet financing because the asset-backed securities are term match-funded to the assets securitized and do not benefit from the federal government's implicit guarantee of GSE debt. The GSE's funding advantage over our securitizations is somewhat mitigated by the absence of Offset Fees on securitized loans. Our securitizations to date have been structured to achieve a triple "A" credit rating on over 96 percent of the asset-backed securities sold. Securities issued in our typical FFELP student loan securitizations are indexed to LIBOR while the index on our securitized loans are either indexed to the 91-day or 52-week Treasury bill, commercial paper or the Prime rate. We manage this off-balance sheet basis risk through on-balance sheet financing activities, principally through basis swaps.

Non-GSE Unsecured On-Balance Sheet Financing Activities

While the securitization market is the core of our long-term financing strategy, it is supplemented by commercial paper, bank lines of credit, underwritten long-term debt, and global and medium-term note programs. The following table shows the senior unsecured credit ratings on our non-GSE debt from the major rating agencies.

		S&P		Moody's		Fitch
Short-term unsecured debt		A-1		P-1		F-1+
Long-term unsecured debt		A		A-2		A+

The table below presents our non-GSE unsecured on-balance sheet funding by funding source for the three months ended March 31, 2003 and 2002:

	Debt Issued for the Quarters Ended March 31,				Outstanding at March 31,
(Dollars in millions)	Debt Issued for the Quarters Ended March 31,				Outstanding at March 31,
(Dollars in millions)	2003		2002		2003		2002
Commercial paper	$	7,494	$	11,436	$	44	$	247
EdNotes		78		—		78		—
Global notes		2,246		—		3,948		—
Medium term notes		—		765		4,142		2,882

We maintain $2 billion in revolving credit facilities to provide liquidity support for our commercial paper program that were renewed and expanded in 2002. They include a $1 billion 364-day revolving credit facility maturing October 2003 and a $1 billion 5-year revolving credit facility maturing October 2007. We have never drawn on these facilities. Interest on these facilities is based on LIBOR plus a spread that is determined by the amount of the facility utilized and the Company's credit rating.

Cash Flows

During the first quarter of 2003, the Company used the proceeds from student loan securitizations of $4.3 billion, and repayments and claim payments on student loans of $1.3 billion to acquire student loans either through purchase or origination ($5.2 billion) or through consolidating loans ($1.3 billion) from our securitized trusts and to repurchase $267 million of the Company's common stock.

Operating activities provided net cash inflows of $55 million in the first quarter of 2003, an increase of $158 million from the net cash outflows of $103 million in the first quarter 2002. Operating cash flow is driven by net income adjusted for various non-cash items such as gains and losses on sales of student loans and securities, the derivative market value adjustment and the provision for loan losses. Operating cash flow is also affected by the timing of the receipt or payment of cash for other assets and liabilities and by the amount of Floor Income earned in the quarter.

During the first quarter of 2003, the Company issued $7.2 billion of long-term notes, of which $4.9 billion was issued by the GSE and $2.3 billion was issued by SLM Corporation, to refund maturing debt obligations and finance the acquisition of student loans. At March 31, 2003, the Company had $25.2 billion of long-term debt, of which $15.2 billion is an obligation of the GSE and $10.0 billion is an obligation of SLM Corporation, including bonds in the VIE totaling $2.0 billion. $3.6 billion of the GSE's long-term debt had stated maturities that could be accelerated through call provisions and $43 million of SLM Corporation's long-term debt had stated maturities that could be accelerated through call provisions.

At March 31, 2003, the GSE was in compliance with its regulatory capital requirements, and had a statutory capital adequacy ratio of 5.49 percent versus a minimum requirement of 2.25 percent.

Interest Rate Risk Management

Interest Rate Gap Analysis

We manage our interest rate risk on a Managed Basis and as a result we use on-balance sheet derivatives to hedge the basis risk in our securitization trusts as the trusts typically issue asset-backed securities indexed to LIBOR to fund student loans indexed to either the 91-day Treasury bill, commercial paper or in the case of private credit loans, the Prime rate. At March 31, 2003, there were approximately $30.0 billion of asset-backed securities issued by our securitization trusts that were indexed to LIBOR, $8.8 billion of securities indexed to the 91-day Treasury bill, $500 million of securities indexed to commercial paper, $1.1 billion of securities indexed to EURIBOR that were converted to LIBOR through a basis swap in the trust and $1.2 billion of auction rate securities. There were also $3.2 billion of PLUS student loans in the trusts that are funded by asset-backed securities indexed to LIBOR or the 91-day Treasury bill. We hedge our off-balance sheet basis risk through on-balance sheet derivatives, the effect of which is included in the gap analysis table below as the impact of securitized student loans.

In the table below, the Company's variable rate assets and liabilities are categorized by reset date of the underlying index. Fixed rate assets and liabilities are categorized based on their maturity dates. An interest rate gap is the difference between volumes of assets and volumes of liabilities maturing or

repricing during specific future time intervals. The following gap analysis reflects rate-sensitive positions at March 31, 2003 and is not necessarily reflective of positions that existed throughout the period.

		Interest Rate Sensitivity Period
		3 months or less			3 months to 6 months			6 months to 1 year			1 to 2 years			2 to 5 years			Over 5 years
Assets
Student loans		$	40,399		$	2,433		$	449		$	—		$	—		$	—
Academic facilities financings and other loans			352			100			197			76			97			318
Cash and investments			3,302			2			5			21			712			798
Other assets			1,242			46			92			287			618			2,788

	Total assets		45,295			2,581			743			384			1,427			3,904

Liabilities and Stockholders' Equity
Short-term borrowings			19,219			1,702			2,905			—			—			—
Long-term notes			9,642			—			—			8,857			4,189			2,553
Other liabilities			1,682			—			—			—			—			1,341
Stockholders' equity			—			—			—			—			—			2,244

	Total liabilities and stockholders' equity		30,543			1,702			2,905			8,857			4,189			6,138

Period gap before adjustments			14,752			879			(2,162	)		(8,473	)		(2,762	)		(2,234	)
Adjustments for Derivatives and Other Financial Instruments
Interest rate derivatives			(9,378	)		(465	)		2,355			6,297			66			1,125
Impact of securitized loans			(3,199	)		3,199			—			—			—			—

	Total derivatives and other financial instruments		(12,577	)		2,734			2,355			6,297			66			1,125

Period gap		$	2,175		$	3,613		$	193		$	(2,176	)	$	(2,696	)	$	(1,109	)

Cumulative gap		$	2,175		$	5,788		$	5,981		$	3,805		$	1,109		$	—

Ratio of interest-sensitive assets to interest-sensitive liabilities			152.6%			148.9%			22.4%			1.1%			19.3%			43.7%

Ratio of cumulative gap to total assets			4.0%			10.7%			11.0%			7.0%			2.0%			—%

Average Terms to Maturity

The following table reflects the average terms to maturity for the Company's Managed earning assets and liabilities at March 31, 2003 (in years):

	On-Balance Sheet	Off-Balance Sheet	Managed
Earning assets
Student loans	7.4	6.6	7.0
Academic facilities financings and other loans	6.8	—	6.8
Cash and investments	3.7	—	3.7

Total earning assets	7.1	6.6	6.9

Borrowings
Short-term borrowings	.3	—	.3
Long-term borrowings	4.6	6.6	5.9

Total borrowings	2.3	6.6	4.2

In the above table, Treasury receipts and variable rate asset-backed securities, although generally liquid in nature, extend the weighted average remaining term to maturity of cash and investments to 3.7 years. As student loans are securitized, the need for long-term on-balance sheet financing will decrease.

Common Stock

The Company repurchased 2.7 million shares during the first quarter of 2003 through open market purchases and equity forward settlements and issued a net 1.6 million shares as a result of benefit plans. At March 31, 2003, the total common shares that could potentially be acquired over the next three years under outstanding equity forward contracts was 10.4 million shares at an average price of $91.93 per share. The Company has remaining authority to enter into additional share repurchases and equity forward contracts for 13.2 million shares.

The following table summarizes the Company's common share repurchase and equity forward activity for the three months ended March 31, 2003 and 2002. (Common shares in millions.)

		Three months ended March 31,
		2003			2002
Common shares repurchased:
	Open market		1.2			—
	Equity forwards		1.5			1.5

Total shares repurchased			2.7			1.5

Average purchase price per share		$	87.56		$	46.28

Equity forward contracts:
Outstanding at beginning of first quarter			9.5			11.2
New contracts			2.4			—
Exercises			(1.5	)		(1.5	)

Outstanding at end of period			10.4			9.7

Remaining repurchase authority at end of period			13.2			12.3

As of March 31, 2003, the expiration dates and range of purchase prices for outstanding equity forward contracts are as follows (common shares in millions):

(Contracts in millions)
Year of Maturity	Outstanding Contracts	Range of Market Prices
2004	4.5	$ 74.38 - $103.30
2005	2.5	82.40 - 91.77
2006	3.4	101.47 - 111.36

	10.4

The FASB has tentatively reached a conclusion on new rules governing the accounting for equity forward contracts. Under the proposed rules, for those contracts that allow a net settlement option either in cash or the Company's stock, we would account for the equity forward contract under SFAS No. 133 and periodically record the change in fair value of these contracts through income. For those contracts that require physical settlement only, we would recognize a liability and contra equity. Our contracts typically allow net settlement, so if the rules were effective, based on a closing share price at March 31, 2003, we would have recognized an asset of $197 million from recognizing the equity forward contracts at fair value.

STUDENT LOAN MARKETING ASSOCIATION

Privatization Act—GSE Wind-Down

Under the Privatization Act, the GSE must wind down its operations and dissolve on or before September 30, 2008, and until the GSE is dissolved, the Privatization Act places a number of limitations on the GSE. Management, however, plans to accelerate the Wind-Down of the GSE to no later than September 2006. This plan was approved by the GSE's board of directors in January 2002. Any GSE debt obligations outstanding at the date of such dissolution are required to be defeased through creation of a fully collateralized trust, consisting of cash or financial instruments backed by the full faith and credit of the U.S. government with cash flows that match the interest and principal obligations of the defeased debt. The Privatization Act requires that on the dissolution date, the GSE shall repurchase or redeem, or make proper provisions for repurchase or redemption of any outstanding preferred stock. The GSE redeemed its Series A, Adjustable Rate Cumulative Preferred Stock, its only outstanding preferred stock, in the fourth quarter of 2001. Also upon the GSE's dissolution, all of its remaining assets will transfer to the Company.

The Privatization Act effectively requires that the GSE maintain a minimum statutory capital adequacy ratio (the ratio of the GSE's stockholders' equity to total assets plus 50 percent of the credit equivalent amount of certain off-balance sheet items) of at least 2.25 percent or be subject to certain "safety and soundness" requirements designed to restore such statutory ratio. While the GSE may not finance or guarantee the activities of its non-GSE affiliates, it may, subject to its minimum capital requirements, dividend retained earnings and surplus capital to SLM Corporation, which in turn may contribute such amounts to its non-GSE subsidiaries. At March 31, 2003, the GSE's statutory capital adequacy ratio was 5.49 percent.

The GSE has also received guidance from the U.S. Department of the Treasury's Office of Sallie Mae Oversight regarding safety and soundness considerations affecting its Wind-Down. As a result, in connection with any dividend declarations, the GSE will supplement the statutory minimum capital ratio requirement with a risk-based capital measurement formula. Management does not expect the capital levels of our consolidated balance sheet to change as a result of this supplemental formula.

The Privatization Act imposes certain restrictions on intercompany relations between the GSE and its affiliates during the Wind-Down Period. The GSE may, however, continue to issue new debt

obligations maturing on or before September 30, 2008 although, because of the accelerated Wind-Down described above, the Company does not intend to issue any new GSE debt with maturities beyond September 30, 2006. The legislation further provides that the legal status and attributes of the GSE's debt obligations, including the exemptions from Securities and Exchange Commission registration and state taxes, will be fully preserved until their respective maturities. Such debt obligations will remain GSE debt obligations, whether such obligations were outstanding at the time of, or issued subsequent to, the reorganization of the GSE into the current holding company structure.

In connection with the Wind-Down of the GSE, we must either securitize, sell, transfer or defease the GSE's assets by the Wind-Down date and retire or defease the GSE's debt obligations. The following table summarizes the GSE's asset sales (including accrued interest) and transfers for the three months ended March 31, 2003 and 2002:

	Three months ended March 31,
(Dollars in millions)	Three months ended March 31,
(Dollars in millions)	2003		2002
FFELP student loan securitizations	$	3,330	$	3,585
Sale of on-balance sheet Variable Interest Entity consisting of Consolidation Loans securitized, net¹		300		—
Private credit student loan sales²		772		—
Non-cash dividend of insurance and benefit plan related investments³		346		—

¹: The GSE recognized a gain of $245 million on this sale.
²: The private credit student loans were sold by the GSE to a subsidiary of the Company at fair market value and the GSE recognized gains on these sales of $33 million.
³: In the first quarter of 2003, the GSE transferred $346 million of insurance and benefit plan related investments through a non-cash dividend to SLM Corporation.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Sensitivity Analysis

The effect of short-term movements in interest rates on our results of operations and financial position has been limited through our interest rate risk management. The following tables summarize the effect on earnings for the three months ended March 31, 2003 and 2002 and the effect on fair values at March 31, 2003 and December 31, 2002, based upon a sensitivity analysis performed by us assuming a hypothetical increase in market interest rates of 100 basis points and 300 basis points while funding spreads remain constant. We have chosen to show the effects of a hypothetical increase to interest rates, as an increase gives rise to a larger absolute value change to the financial statements. The effect on earnings was performed on our variable rate assets, liabilities and hedging instruments while the effect on fair values was performed on our fixed rate assets, liabilities and hedging instruments.

	Three months ended March 31, 2003										Three months ended March 31, 2002
	Interest Rates:										Interest Rates:
	Change from increase of 100 basis points					Change from increase of 300 basis points					Change from increase of 100 basis points					Change from increase of 300 basis points
(Dollars in millions, except per share amounts)	Change from increase of 100 basis points					Change from increase of 300 basis points					Change from increase of 100 basis points					Change from increase of 300 basis points
(Dollars in millions, except per share amounts)	$			%		$			%		$			%		$		%
Effect on Earnings
Increase/(decrease) in pre-tax net income before SFAS No. 133	$	(57	)	(11	)%	$	(66	)	(12	)%	$	(30	)	(8	)%	$	28	8	%
SFAS No. 133 change in fair value		345		301			825		721			336		117			787	273

Increase in net income before taxes	$	288		45	%	$	759		118	%	$	306		47	%	$	815	124	%

Increase in diluted earnings per share	$	1.19		45	%	$	3.15		119	%	$	1.25		47	%	$	3.32	126	%

		At March 31, 2003
				Interest Rates:
				Change from increase of 100 basis points					Change from increase of 300 basis points
(Dollars in millions)				Change from increase of 100 basis points					Change from increase of 300 basis points
(Dollars in millions)		Fair Value		$			%		$			%
Effect on Fair Values
Assets
	Student loans	$	45,494	$	(560	)	(1	)%	$	(1,230	)	(3	)%
	Other earning assets		6,034		(97	)	(2	)		(251	)	(4	)
	Other assets		5,073		(421	)	(8	)		(806	)	(16	)

	Total assets	$	56,601	$	(1,078	)	(2	)%	$	(2,287	)	(4	)%

Liabilities
	Interest bearing liabilities	$	49,614	$	(173	)	—	%	$	(500	)	(1	)%
	Other liabilities		3,023		(531	)	(18	)		(1,189	)	(39	)

	Total liabilities	$	52,637	$	(704	)	(1	)%	$	(1,689	)	(3	)%

		At December 31, 2002
				Interest Rates:
				Change from increase of 100 basis points					Change from increase of 300 basis points
(Dollars in millions)				Change from increase of 100 basis points					Change from increase of 300 basis points
(Dollars in millions)		Fair Value		$			%		$			%
Effect on Fair Values
Assets
	Student loans	$	44,718	$	(497	)	(1	)%	$	(1,100	)	(2	)%
	Other earning assets		6,248		(104	)	(2	)		(279	)	(4	)
	Other assets		4,643		(391	)	(8	)		(693	)	(15	)

	Total assets	$	55,609	$	(992	)	(2	)%	$	(2,072	)	(4	)%

Liabilities
	Interest bearing liabilities	$	48,721	$	(186	)	—	%	$	(539	)	(1	)%
	Other liabilities		3,316		(558	)	(17	)		(1,270	)	(38	)

	Total liabilities	$	52,037	$	(744	)	(1	)%	$	(1,809	)	(3	)%

The Company follows a policy to minimize its sensitivity to changing interest rates by generally funding its floating rate student loan portfolio with floating rate debt. However, as discussed under "Student Loans-Floor Income," in the current low interest rate environment, the FFELP student loan portfolio is earning Floor Income from the reduction in the variable rate liabilities funding student loans at the fixed borrower rate. Therefore, absent other hedges, in a low interest rate environment the hypothetical rise in interest rates in the above table has a greater adverse effect on earnings and fair values due to the reduction in potential Floor Income than in higher interest rate environments where the interest rate formula rises above the borrower rate and the student loans become a floating rate asset that is matched with floating rate debt.

During the three months ended March 31, 2003, certain FFELP student loans were earning Floor Income and we locked-in a portion of that Floor Income through the use of futures and swap contracts. The result of these hedging transactions was to convert a portion of floating rate debt into fixed rate debt, matching the fixed rate nature of the student loans and fixing the relative spread between the student loan asset rate and the converted fixed rate liability.

In low interest rate environments when certain student loans are earning Floor Income, under the scenario where interest rates increase 100 basis points, the decrease in pre-tax net income before SFAS No. 133 reflects lower Floor Income on the unhedged portion of our student loan portfolio. Under the scenario where interest rates increase 300 basis points, the change in pre-tax net income before SFAS No. 133 is not proportional to the change under the scenario where interest rates increase 100 basis points because of the additional spread earned on loans hedged with futures and swaps mentioned above and the greater proportion of loans earning at a floating rate under a 300 basis point increase in rates.

Item 4. Controls and Procedures

Within 90 days prior to the filing date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer, Executive Vice President, Finance and Executive Vice President, Accounting and Risk Management, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Securities Exchange Act of 1934 (the "Exchange Act") Rule 13a-14.

Disclosure controls and procedures include internal controls and other procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this Annual Report, is properly recorded, processed, summarized and reported within the time periods required by the Securities and Exchange Commission's (the "SEC") rules and forms. Management does not expect that its disclosure controls and procedures will prevent all errors and fraud. A control system, irrespective of how well it is designed and operated, can only provide reasonable assurance—and cannot guarantee—that it will succeed in its stated objectives.

We monitor our disclosure controls and procedures and our internal controls and make modifications as necessary. By monitoring our control systems, we intend that they be maintained as dynamic systems that change as conditions warrant. The evaluation of our disclosure controls and procedures is performed on a quarterly basis so that the conclusions of management (including the Chief Executive Officer, Executive Vice President, Finance and Executive Vice President, Accounting and Risk Management) concerning controls effectiveness can be reported in our Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K. In addition, our disclosure controls and procedures are evaluated on an ongoing basis by our internal auditors and by our Corporate Finance and Corporate Accounting Departments. As a result of such ongoing evaluations, we periodically make changes to our disclosure controls and procedures to improve the quality of our financial statements and related disclosures, including corrective actions to respond to identified reportable conditions.

Based upon their evaluation, the Chief Executive Officer, Executive Vice President, Finance and Executive Vice President, Accounting and Risk Management, concluded that our disclosure controls and procedures are effective in timely alerting them to material information and in providing reasonable assurance that our financial statements are fairly presented in conformity with generally accepted accounting principles. In addition, there were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Complaint seeks compensatory damages of at least $60,000,000.

On April 4, 2003, CLC dismissed with prejudice all of the antitrust claims and the Court subsequently entered orders approving dismissal of these claims.

The Company has filed a motion for summary judgment, which will be heard on June 6, 2003. Trial is scheduled to begin June 16, 2003 for all claims not resolved by the summary judgment motion.

Item 2. Changes in Securities

Nothing to report.

Item 3. Defaults Upon Senior Securities

Nothing to report.

Item 4. Submission of Matters to a Vote of Security Holders

Nothing to report.

Item 5. Other Information

Nothing to report.

Item 6. Exhibits and Reports on Form 8-K

(a): Exhibits

		10.1		Employment Agreement between the Registrant and C.E. Andrews, Executive Vice President, Accounting and Risk Management, dated as of February 24, 2003.
		99.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
		99.2		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
		99.3		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b): Reports on Form 8-K

The Company furnished one Current Report on Form 8-K with the Commission during the quarter ended March 31, 2003 or thereafter. It was furnished on April 17, 2003 in connection with the Company's press release announcing its earnings for the first quarter ended March 31, 2003 and its supplemental financial information for the same period.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

		SLM CORPORATION (Registrant)
		By:	/s/ C.E. ANDREWS C.E. Andrews Executive Vice President, Accounting and Risk Management (Principal Accounting Officer and Duly Authorized Officer)

Date: May 13, 2003

CERTIFICATIONS

I, Albert L. Lord, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of SLM Corporation;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a): designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b): evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c): presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a): all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b): any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

/s/ ALBERT L. LORD

Albert L. Lord
Vice Chairman and Chief Executive Officer
May 13, 2003

I, John F. Remondi, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of SLM Corporation;

2.

3.

4.

a): designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b): evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c): presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

a): all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b): any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

/s/ JOHN F. REMONDI

John F. Remondi
Executive Vice President, Finance
May 13, 2003

I, C.E. Andrews, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of SLM Corporation;

2.

3.

4.

a): designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b): evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c): presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

a): all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b): any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

/s/ C.E. ANDREWS

C.E. Andrews
Executive Vice President, Accounting and Risk Management
May 13, 2003

APPENDIX A

STUDENT LOAN MARKETING ASSOCIATION
CONSOLIDATED FINANCIAL STATEMENTS

INDEX

		Page
Consolidated Balance Sheets		A-2
Consolidated Statements of Income		A-3
Consolidated Statements of Changes in Stockholders' Equity		A-4
Consolidated Statements of Cash Flows		A-5
Notes to Consolidated Financial Statements		A-6

A-1

STUDENT LOAN MARKETING ASSOCIATION
CONSOLIDATED BALANCE SHEETS
(Dollars and shares in thousands, except per share amounts)

		March 31, 2003		December 31, 2002
		(Unaudited)
Assets
Federally insured student loans (net of allowance for losses of $48,493 and $45,133, respectively)		$	32,672,596	$	34,185,418
Private credit student loans (net of allowance for losses of $51,374 and $64,011, respectively)			2,568,896		2,633,466
Academic facilities financings and other loans			828,892		895,582
Investments
	Trading		174		175
	Available-for-sale		3,104,453		3,331,670
	Other		130,750		452,095

Total investments			3,235,377		3,783,940
Cash and cash equivalents			367,751		410,503
Retained Interest in securitized receivables			2,313,286		2,068,076
Other assets			1,023,268		1,688,803

Total assets		$	43,010,066	$	45,665,788

Liabilities
Short-term borrowings		$	23,639,497	$	24,404,636
Long-term notes			15,188,890		16,446,818
Other liabilities			1,732,096		2,528,563

Total liabilities			40,560,483		43,380,017

Commitments and contingencies
Stockholders' equity
Common stock, par value $.20 per share, 250,000 shares authorized: 6,001 shares issued and outstanding			1,200		1,200
Additional paid-in capital			298,788		298,788
Accumulated other comprehensive income (net of tax of $352,640 and $355,949, respectively)			654,903		661,049
Retained earnings			1,494,692		1,324,734

Total stockholders' equity			2,449,583		2,285,771

Total liabilities and stockholders' equity		$	43,010,066	$	45,665,788

See accompanying notes to consolidated financial statements.

A-2

STUDENT LOAN MARKETING ASSOCIATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share amounts)
(Unaudited)

		Three months ended March 31,
		2003			2002
Interest income:
	Student loans	$	357,202		$	508,257
	Academic facilities financings and other loans		11,549			18,915
	Investments		26,347			38,068

Total interest income			395,098			565,240
Interest expense:
	Short-term debt		89,797			169,456
	Long-term debt		105,033			131,048

Total interest expense			194,830			300,504

Net interest income			200,268			264,736
Less: provision for losses			13,260			18,036

Net interest income after provision for losses			187,008			246,700

Other income:
	Gains on student loan securitizations		236,637			44,260
	Securitization revenue		62,171			129,773
	Gains on sales of student loans to SLM Corporation		278,434			—
	Losses on sales of securities, net		(69,017	)		(89,100	)
	Derivative market value adjustment		140,626			288,351
	Other		18,378			30,954

Total other income			667,229			404,238

Operating expenses:
	Related party agreements		66,082			42,401
	Other		616			11,679

Total operating expenses			66,698			54,080

Income before income taxes			787,539			596,858
Income taxes			271,318			208,714

Net income attributable to common stock		$	516,221		$	388,144

Basic and diluted earnings per common share		$	86		$	65

Average common shares outstanding and common equivalent shares outstanding			6,001,000			6,001,000

See accompanying notes to consolidated financial statements.

A-3

STUDENT LOAN MARKETING ASSOCIATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Dollars in thousands)

(Unaudited)

										Accumulated Other Comprehensive Income (Loss)
			Common Stock Shares
			Common Stock Shares		Common Stock		Additional Paid-In Capital						Retained Earnings			Total Stockholders' Equity
			Issued	Outstanding	Common Stock		Additional Paid-In Capital						Retained Earnings			Total Stockholders' Equity
Balance at December 31, 2001			6,001,000	6,001,000	$	1,200	$	298,800		$	670,416		$	545,037		$	1,515,453
Comprehensive income:
	Net income													388,144			388,144
	Other comprehensive income, net of tax:
		Change in unrealized gains (losses) on investments, net of tax									(138,437	)					(138,437	)
		Change in unrealized gains (losses) on derivatives, net of tax									28,652						28,652

Comprehensive income																	278,359
Redemption of preferred stock								(12	)								(12	)

Balance at March 31, 2002			6,001,000	6,001,000	$	1,200	$	298,788		$	560,631		$	933,181		$	1,793,800

Balance at December 31, 2002			6,001,000	6,001,000	$	1,200	$	298,788		$	661,049		$	1,324,734		$	2,285,771
Comprehensive income:
	Net income													516,221			516,221
	Other comprehensive income, net of tax:
		Change in unrealized gains (losses) on investments, net of tax									(7,385	)					(7,385	)
		Change in unrealized gains (losses) on derivatives, net of tax									1,239						1,239

Comprehensive income																	510,075
Dividend:
	Common stock													(346,263	)		(346,263	)

Balance at March 31, 2003			6,001,000	6,001,000	$	1,200	$	298,788		$	654,903		$	1,494,692		$	2,449,583

See accompanying notes to consolidated financial statements.

A-4

STUDENT LOAN MARKETING ASSOCIATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)

			Three months ended March 31,
			2003			2002
Operating activities
Net income			$	516,221		$	388,144
Adjustments to reconcile net income to net cash provided by operating activities:
	Gains on student loan securitizations			(236,637	)		(44,260	)
	Gains on sales of student loans to SLM Corporation			(278,434	)		—
	Losses on sales of securities, net			69,017			89,100
	Derivative market value adjustment			(140,626	)		(288,351	)
	Provision for losses			13,260			18,036
	Decrease (increase) in accrued interest receivable			94,668			(58,580	)
	Increase in accrued interest payable			6,826			8,603
	Decrease (increase) in Retained Interest in securitized receivables			68,330			(21,488	)
	Decrease (increase) in other assets			415,105			(52,719	)
	(Decrease) in other liabilities			(445,937	)		(33,254	)

		Total adjustments		(434,428	)		(382,913	)

Net cash provided by operating activities				81,793			5,231

Investing activities
Student loans acquired				(4,197,972	)		(3,826,309	)
Loans acquired through trust consolidation				(1,332,504	)		(589,636	)
Reduction of student loans:
	Installment payments			860,479			1,102,918
	Claims and resales			165,331			178,873
	Proceeds from securitization of student loans			3,248,255			3,585,713
	Proceeds from sales of student loans			—			29,065
	Proceeds from sales of student loans to SLM Corporation			793,727			—
Academic facilities financings and other loans made				(95,425	)		(272,057	)
Academic facilities financings and other loans repayments				158,887			357,457
Purchases of available-for-sale securities				(954,562	)		(979,893	)
Proceeds from sales and maturities of available-for-sale securities				1,174,508			1,104,453
Purchases of other securities				(116,396	)		(91,487	)
Proceeds from sales and maturities of other securities				91,477			72,396

Net cash (used in) provided by investing activities				(204,195	)		671,493

Financing activities
Short-term borrowings issued				165,555,718			106,626,324
Short-term borrowings repaid				(166,053,750	)		(103,068,208	)
Long-term notes issued				2,864,839			3,917,520
Long-term notes repaid				(4,611,723	)		(8,234,241	)
Long-term notes issued by Variable Interest Entity				2,037,331			—
Sale of Trust to SLM Corporation, net of cash				287,235			—
Redemption of preferred stock				—			(12	)

Net cash provided by (used in) financing activities				79,650			(758,617	)

Net (decrease) in cash and cash equivalents				(42,752	)		(81,893	)
Cash and cash equivalents at beginning of period				410,503			434,366

Cash and cash equivalents at end of period			$	367,751		$	352,473

Cash disbursements made for:
	Interest		$	256,207		$	463,056

	Income taxes		$	215,000		$	230,000

See accompanying notes to consolidated financial statements.

A-5

STUDENT LOAN MARKETING ASSOCIATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2003 and for the three months ended
March 31, 2003 and 2002 is unaudited)
(Dollars in thousands, unless otherwise stated)

1. Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Student Loan Marketing Association ("SLMA" or the "GSE") have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP in the United States of America for complete consolidated financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair statement have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three months ended March 31, 2003 may not necessarily be indicative of the results for the year ending December 31, 2003. These unaudited financial statements should be read in conjunction with the audited financial statements and related notes included in the Company's 2002 Annual Report on Form 10-K.

2. New Accounting Pronouncements

Accounting for Guarantees

In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN No. 45 identifies characteristics of certain guarantee contracts and requires that a liability be recognized at fair value at the inception of such guarantees for the obligations undertaken by the guarantor. Additional disclosures also are prescribed for certain guarantee contracts. The initial recognition and initial measurement provisions of FIN No. 45 are effective for these guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN No. 45 are effective for SLMA for its first quarter ending March 31, 2003. The implementation of FIN No. 45 did not have a material impact on SLMA's financial statements.

Consolidation of Variable Interest Entities

On February 1, 2003, SLMA adopted FIN No. 46 for VIEs created in which SLMA obtains an interest after January 31, 2003. SLMA will adopt FIN No. 46 on October 1, 2003 for VIEs in which it holds a variable interest that it acquired before February 1, 2003. Transactions associated with these entities include asset-backed securitizations and certain partnerships that are used for marketing

A-6

SLMA's co-branded student loan products. SLMA currently consolidates entities in which it has a controlling financial interest in accordance with GAAP. For those entities deemed to be Qualifying Special Purpose Entities ("QSPEs") as defined in Statement of Financial Accounting Standards ("SFAS") No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities—a Replacement of SFAS No. 125," which includes SLMA's securitization trusts, SLMA does not consolidate those entities. SLMA is currently evaluating the impact of the provisions of FIN No. 46 on its consolidated financial statements and is assessing its impact to ensure it is properly integrated into its existing policies, practices and systems. SLMA does not believe, at this time, that FIN No. 46 will have a material effect on its consolidated financial statements for transactions completed before February 1, 2003.

3. Student Loans

SLMA purchases student loans from originating lenders. SLMA's portfolio consists principally of loans originated under two federally sponsored programs—the Federal Family Education Loan Program ("FFELP") and the Health Education Assistance Loan Program ("HEAL"). SLMA also purchases private credit student loans.

The following table reflects the distribution of SLMA's student loan portfolio by program as of March 31, 2003 and 2002:

	March 31,
(Dollars in millions)	March 31,
(Dollars in millions)	2003			2002
FFELP—Stafford	$	10,824		$	15,713
FFELP—PLUS/SLS		1,463			1,672
FFELP—Consolidation loans		19,065			15,239
HEAL		1,369			1,690
Private credit		2,620			4,852

Subtotal		35,341			39,166
Allowance for loan losses		(100	)		(190	)

Total student loans, net	$	35,241		$	38,976

At March 31, 2003 and 2002, 7 percent and 12 percent, respectively, of SLMA's total student loan portfolio was private credit.

4. Allowance for Student Loan Losses

The provision for loan losses represents the periodic expense of maintaining an allowance sufficient to absorb probable losses, net of recoveries, inherent in the portfolio of student loans. SLMA separately evaluates the adequacy of the provision for losses on its federally insured portfolio of student loans and its private credit portfolio.

SLMA's private credit student loan portfolio has not matured sufficiently to rely on experience factors to predict loan loss patterns. Therefore, SLMA relies on a combination of its own historic data,

A-7

such as recent trends in delinquencies, the credit profile of the borrower and/or co-borrower, loan volume by program, and charge-offs and recoveries. SLMA uses this data in internally developed statistical models to estimate the amount of probable net losses that are projected to be incurred.

In calculating the private credit loss allowance, SLMA considers various factors such as co-borrowers, repayment, months of repayments, delinquency status and type of program. Defaults are estimated by cohort (loans grouped by the year in which they entered into repayment status) based on the borrower's credit profile, net of an estimate of collections by cohort for both new and previously defaulted loans. Private credit student loans are charged off against the allowance when they are 212 days delinquent. This policy is periodically reconsidered by management as trends develop. Private credit student loans accrue interest until charged off. Recoveries on loans charged off are booked directly to the allowance.

The following table summarizes changes in the allowance for student loan losses for the three months ended March 31, 2003 and 2002:

		Three months ended March 31,
		2003			2002
Balance at beginning of period		$	109,144		$	175,959
Additions
	Provision for student loan losses		13,260			18,036
	Recoveries		1,407			813
Deductions
	Reductions for student loan sales and securitizations		(20,297	)		(2,466	)
	Charge-offs		(3,647	)		(9,939	)
Other			—			7,210

Balance at end of period		$	99,867		$	189,613

SLMA defers origination fees and recognizes them over time as a component of interest income. The unamortized balance of deferred origination fee revenue at March 31, 2003 and 2002 was $46 million and $113 million, respectively. At March 31, 2002, SLMA reflected the unamortized balance of $113 million as a component of the allowance for student loan losses, which was reclassified to a student loan discount in the second quarter of 2002.

A-8

The table below shows SLMA's private credit student loan delinquency trends for the three months ended March 31, 2003 and 2002. Delinquencies have the potential to adversely impact earnings if the account charges off and results in increased servicing and collection costs.

		Three months ended March 31,
(Dollars in millions)
(Dollars in millions)		2003					2002
Index		2003					2002
Index		Balance			%		Balance			%
Loans in-school/grace/deferment¹		$	1,625				$	1,834
Loans in forbearance²			199					311
Loans in repayment and percentage of each status:
	Loans current		685		86	%		2,468		91	%
	Loans delinquent 30-59 days³		38		5			113		4
	Loans delinquent 60-89 days		29		4			48		2
	Loans delinquent 90 days or greater		44		5			78		3

Total loans in repayment			796		100	%		2,707		100	%

Total private credit student loans			2,620					4,852
Private credit student loan allowance for losses			(51	)				(136	)

Private credit student loans, net		$	2,569					4,716

Percentage of private credit student loans in repayment			30.39	%				55.78	%

Delinquencies as a percentage of private credit student loans in repayment			13.97	%				8.84	%

¹: Loans for borrowers who still may be attending school or engaging in other permitted educational activities and are not yet required to make payments on the loans, e.g., residency periods for medical students or a grace period for bar exam preparation. These amounts include loans for borrowers with in-school forbearance that were previously included as loans in forbearance for hardship and other factors. SLMA reclassified $64 million and $33 million, respectively, of in-school forbearances at March 31, 2003 and 2002.
²: Loans for borrowers who have temporarily ceased making full payments due to hardship or other factors, consistent with the established loan program servicing procedures and policies.
³: The period of delinquency is based on the number of days scheduled payments are contractually past due and relate to repayment loans, that is, receivables not charged off, and not in school, grace, deferment or forbearance.

5. Student Loan Securitization

When SLMA sells receivables in a securitization of student loans, it retains a Residual Interest and, in some cases, a cash reserve account, all of which are Retained Interests in the securitized receivables. At March 31, 2003 and December 31, 2002, the balance of these assets was $2.3 billion and

A-9

$2.1 billion, respectively. The gain or loss on the sale of the receivables is based upon the carrying amount of the financial assets involved in the transfer, allocated between the assets sold and the Retained Interests based on their relative fair values at the date of transfer. Quoted market prices are generally not available for SLMA's Retained Interests so SLMA estimates fair value, both initially and on a quarterly basis, based on the present value of future expected cash flows estimated using management's best estimates of the key assumptions—credit losses, prepayment speeds and discount rates commensurate with the risks involved.

	Three months ended March 31,
	2003				2002
(Dollars in millions)	Amount Securitized		Gain %		Amount Securitized		Gain %
FFELP Stafford/PLUS loans	$	1,256	1.60	%	$	3,533	1.25	%
Consolidation Loans		2,005	10.86			—	—

Total securitization sales		3,261	7.30	%		3,533	1.25	%

On-balance sheet securitization of Consolidation Loans		2,056				—

Total loans securitized	$	5,317			$	3,533

During the first quarter of 2003, SLMA completed three securitizations totaling $5.3 billion that continued to accelerate and diversify its asset-backed securitization program. SLMA completed one securitization of FFELP Stafford/PLUS loans and two securitizations of Consolidation Loans. One of the Consolidation Loan securitizations did not meet the criteria of being a QSPE and was accounted for on-balance sheet as a VIE. The on-balance sheet VIE was subsequently sold by the GSE to a non-GSE subsidiary of SLM Corporation, and the GSE recorded a gain on sales of student loans of $245 million. During the first quarter of 2002, SLMA completed two securitizations, both of which received sale treatment.

Sallie Mae Servicing L.P., an affiliate, enters into a servicing agreement with each securitization trust and earns annual servicing fees from the trusts of 0.9 percent per annum of the outstanding balance of Stafford and PLUS student loans and 0.5 percent per annum of the outstanding balance of Consolidation Loans in the securitization trusts.

Key economic assumptions used in measuring the fair value of the retained interests at the date of securitization resulting from the student loan securitization sale transactions completed during the three

A-10

months ended March 31, 2003 and 2002 (weighted based on principal amounts securitized) were as follows:

	Three months ended March 31,
	2003				2002
	FFELP Stafford/PLUS Loans		Consolidation Loans		FFELP Stafford/PLUS Loans		Consolidation Loans
Prepayment speed	9	%	7	%	7	%	—
Weighted-average life (in years)	4.67		8.13		5.14		—
Expected credit losses (% of principal securitized)	.53	%	.72	%	.61	%	—
Residual cash flows discounted at	12	%	12	%	12	%	—

The estimate of the Constant Prepayment Rate ("CPR") affects the average life of the securitized trusts and therefore affects the valuation estimate of the Residual Interest. Prepayments shorten the average life of the trust, and if all other factors remain equal, will reduce the value of the Retained Interest asset and the securitization gain on sale. Student loan prepayments come from three principal sources: actual borrower prepayments, reimbursements of student loan defaults from the guarantor and consolidation of loans from the trust. SLMA uses historical statistics on prepayments, borrower defaults, and trends in Consolidation Loans to estimate the amount of prepayments. When a loan is consolidated from the trust either by SLMA or a third party, the loan is repurchased from the trust and is treated as a prepayment. In cases where the loan is consolidated by SLMA, it will be recorded as an on-balance sheet asset. Due to the historically low interest rate environment, SLMA has experienced an increase in Consolidation Loan activity for several quarters. Management believes that this trend will continue for the foreseeable future. As a result, in the second quarter of 2002, SLMA increased the estimated CPR from 7 percent to 9 percent per annum for FFELP Stafford/PLUS loan transactions. The change in the CPR assumption reduced the gains on the loan portfolios securitized since the first quarter of 2002.

The following table summarizes the cash flows received from all securitization trusts entered into during the three months ended March 31, 2003 and 2002.

	Three months ended March 31,
(Dollars in millions)	Three months ended March 31,
(Dollars in millions)	2003		2002
Net proceeds from new securitizations	$	5,286	$	3,556
Servicing fees received		1		—

A-11

6. Derivative Financial Instruments

Summary of Derivative Financial Statement Impact

The following tables summarize the fair and notional values of all derivative instruments at March 31, 2003 and December 31, 2002, and their impact on other comprehensive income and earnings for the three months ended March 31, 2003 and 2002. At March 31, 2003 and December 31, 2002, $354 million and $338 million (amortized cost), respectively, of available-for-sale investment securities were pledged as collateral against these derivative instruments.

	Cash Flow						Fair Value					Trading
	March 31, 2003			December 31, 2002			March 31, 2003			December 31, 2002		March 31, 2003			December 31, 2002
(Dollars in millions)
*Fair Values*
Interest rate swaps	$	—		$	—		$	(43	)	$	30	$	(95	)	$	(147	)
Floor/Cap contracts		—			—			—			—		(929	)		(1,082	)
Futures		(3	)		(6	)		—			—		(45	)		(34	)
(Dollars in billions)
*Notional Values*
Interest rate swaps	$	—		$	—		$	11.7		$	15.6	$	47.0		$	48.1
Floor/Cap contracts		—			—			—			—		17.8			19.5
Futures		.9			1.0			—			—		22.0			16.9

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	Three months ended March 31,
	Cash Flow						Fair Value						Trading
	2003			2002			2003			2002			2003			2002
(Dollars in millions)
*Changes to other comprehensive income, net of tax*
Other comprehensive income, net	$	1		$	27		$	—		$	—		$	—		$	1	⁵

*Earnings Summary*
Recognition of closed futures contracts' gains/losses into interest expense¹	$	(3	)	$	(3	)	$	—		$	—		$	—		$	—
Recognition of closed futures contracts' gains/losses into gains/losses on sales of securities, net²		—			(35	)		—			—			(1	)		(53	)
Recognition of written floor contract losses into gains/losses on sales of securities		—			—			—			—			(69	)		—
Amortization of transition adjustment³		—			—			—			—			—			(1	)
Derivative market value adjustment		1	⁴		—			3	⁴		4	⁴		137			284

Total earnings impact	$	(2	)	$	(38	)	$	3		$	4		$	67		$	230

¹: For hedges where the stated transaction occurs.
²: For discontinued hedges and closed futures contracts accounted for as "trading."
³: Reported as a component of other income in the consolidated statements of income.
⁴: The change in fair value of fair value and cash flow hedges represent amounts related to ineffectiveness.
⁵: Represents transition adjustment amortization out of other comprehensive income, net.

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The following table shows the components of the change in accumulated other comprehensive income, net of tax, for derivatives.

		Three months ended March 31,
(Dollars in millions)		Three months ended March 31,
(Dollars in millions)		2003			2002
*Accumulated Other Comprehensive Income, Net*
Balance at beginning of period		$	(18	)	$	(50	)
Change in unrealized gains (losses) on derivatives, net:
	Change in fair value of cash flow hedges		—			3
	Amortizations¹		1			3
	Discontinued hedges		—			22

Total change in unrealized gains (losses) on derivatives, net			1			28

Balance at end of period		$	(17	)	$	(22	)

¹: SLMA expects to amortize $8 million of after-tax net losses from accumulated other comprehensive income to earnings during the next 12 months related to futures contracts closed as of March 31, 2003. In addition, SLMA expects to amortize into earnings portions of the accumulated deferred net losses related to open futures contracts during the next 12 months based on the anticipated issuance of debt.

7. Related Parties

SLMA is a member of a group of affiliated companies and has significant transactions with members of the group. Accordingly, the terms of such transactions may not necessarily be indicative of transactions amongst wholly unrelated companies.

In connection with the transfer of employees from SLMA to SLM Corporation and its non-GSE subsidiaries, SLMA and SLM Corporation and various of its non-GSE subsidiaries entered into Management Services Agreements ("MSAs") whereby all management and administrative support would be provided to SLMA for a monthly fee. Intercompany expenses under the MSAs for the three months ended March 31, 2003 and 2002 totaled $21 million and $10 million, respectively. Effective January 1, 2003, only third party loan acquisition costs are being booked directly to SLMA and are included in other operating expenses.

Intercompany expenses under the servicing contract between SLMA and Sallie Mae Servicing, L.P., a wholly owned subsidiary of SLM Corporation, for the three months ended March 31, 2003 and 2002 totaled $45 million and $32 million, respectively.

At March 31, 2003 and December 31, 2002, SLMA had net intercompany liabilities of $59 million and $54 million, respectively, due to SLM Corporation and various of its non-GSE subsidiaries, incurred in the normal course of business. At March 31, 2002, SLMA had a $37 million investment in a non-GSE subsidiary of SLM Corporation which was accounted for using the equity method. During the

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second quarter of 2002, SLMA transferred this investment for $37 million in cash to SLM Education Loan Corporation, another wholly-owned subsidiary of SLM Corporation.

SLMA purchases insurance for its private credit student loan portfolio from HICA. SLMA pays HICA insurance premiums in return for HICA's guarantee of payment of principal and interest on private credit student loans. In connection with this arrangement, HICA invests its insurance reserves related to the GSE's HICA insured loans in a Master Promissory Note of the GSE to HICA. At March 31, 2003 and December 31, 2002, the GSE owed HICA $69 million under this note, which is included in the net intercompany liabilities discussed above.

In connection with the Wind-Down of the GSE, SLM Corporation must either securitize, sell, transfer or defease the GSE's assets by the Wind-Down date and retire or defease the GSE's debt obligations. The following table summarizes the GSE's asset sales (including accrued interest) and transfers for the three months ended March 31, 2003 and 2002:

	Three months ended March 31,
(Dollars in millions)	Three months ended March 31,
(Dollars in millions)	2003		2002
FFELP student loan securitization	$	3,330	$	3,585
Sale of on-balance sheet Variable Interest Entity consisting of Consolidation Loans securitized, net¹		300		—
Private credit student loan sales²		772		—
Non-cash dividend of insurance and benefit plan related investments³		346		—

¹: The GSE recognized a gain of $245 million on this sale.
²: The private credit student loans were sold by the GSE to a subsidiary of SLM Corporation at fair market value and the GSE recognized gains on these sales of $33 million.
³: SLMA transferred $346 million of insurance and benefit plan related investments through a non-cash dividend to SLM Corporation.

8. Contingencies

SLMA and various affiliates are defendants in a lawsuit brought by College Loan Corporation ("CLC") in the United States District Court for the Eastern District of Virginia. The complaint alleges various breach of contract and common law tort claims in connection with CLC's consolidation loan activities as well as various antitrust claims, including a claim that SLMA entered into or attempted to enter into a combination with three credit reporting agencies to boycott CLC by not providing lists of student loan borrowers.

The Complaint seeks compensatory damages of at least $60,000,000.

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The breach of contract and common law tort claims were significantly narrowed by the Court's ruling on December 10, 2002, partially granting SLMA's motion to dismiss. The Court held that claims based on SLMA's interpretation of the single holder rule were barred by the Higher Education Act.

On April 4, 2003, CLC dismissed with prejudice all of the antitrust claims and the Court subsequently entered orders approving dismissal of these claims.

SLMA has filed a motion for summary judgment, which will be heard on June 6, 2003. Trial is scheduled to begin June 16, 2003 for all claims not resolved by the summary judgment motion.

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QuickLinks

SLM CORPORATION FORM 10-Q INDEX March 31, 2003
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SLM CORPORATION CONSOLIDATED BALANCE SHEETS (Dollars and shares in thousands, except per share amounts)
SLM CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Dollars and shares in thousands, except per share amounts)
SLM CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Dollars in thousands, except share and per share amounts) (Unaudited)
SLM CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information at March 31, 2003 and for the three months ended March 31, 2003 and 2002 is unaudited) (Dollars and shares in thousands, except per share amounts, unless otherwise stated)
SLM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information at March 31, 2003 and for the three months ended March 31, 2003 and 2002 is unaudited) (Dollars and shares in thousands, except per share amounts, unless otherwise stated)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three months ended March 31, 2003 and 2002 (Dollars in millions, except per share amounts, unless otherwise stated)

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Item 4. Controls and Procedures

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 2. Changes in Securities

Item 3. Defaults Upon Senior Securities

Item 4. Submission of Matters to a Vote of Security Holders

Item 5. Other Information

Item 6. Exhibits and Reports on Form 8-K

SIGNATURES
CERTIFICATIONS
APPENDIX A STUDENT LOAN MARKETING ASSOCIATION CONSOLIDATED FINANCIAL STATEMENTS INDEX
STUDENT LOAN MARKETING ASSOCIATION CONSOLIDATED BALANCE SHEETS (Dollars and shares in thousands, except per share amounts)
STUDENT LOAN MARKETING ASSOCIATION CONSOLIDATED STATEMENTS OF INCOME (In thousands, except share and per share amounts) (Unaudited)
STUDENT LOAN MARKETING ASSOCIATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Dollars in thousands) (Unaudited)
STUDENT LOAN MARKETING ASSOCIATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)
STUDENT LOAN MARKETING ASSOCIATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information at March 31, 2003 and for the three months ended March 31, 2003 and 2002 is unaudited) (Dollars in thousands, unless otherwise stated)