Welcome to SLM Corporations second quarter 2008 earnings conference call. (Operator Instructions) I will now turn the call over to Steve McGarry, Senior Vice President of Investor Relations.

Good morning everybody and welcome to Sallie Mae’s 2008 second quarter earnings conference call. With me today are Al Lord, our CEO and Jack Remondi, our Chief Financial Officer. After they finish their prepared remarks, we will open up the call for questions. Please note that during the conference call, we may discuss predictions and expectations and may make other forward-looking statements. Actual results in the future may differ from those discussed here perhaps materially based on a variety of factors. Listeners should refer to the discussion of those factors on the company’s Form 10K and other filings with the SEC. During the course of this conference call we will refer to non-GAAP measures as well call our core earnings presentation. For the description of core earnings, full reconciliation of the core earnings presentation to GAAP measures and our GAAP result can be found in the second quarter 2008 supplemental earnings disclosure accompanying the earnings’ press release which was posted under the Investors page at our website SallieMae.com. Thank you and now I’ll turn the call over to Al.

I, particularly in these times, appreciate the opportunity to engage this broadly with our honors and others of you who are interested in our performance. I will present to you my brief thoughts on the second quarter and matters in general and then Jack Remondi will help you understand what actually happened in the second quarter. As you’re all well aware by now, our second quarter results were maybe, I’d call them mediocre, as our funding costs continue to squeeze our margins. I would say, and I’d like this to characterize the call, that I see an improvement in management’s level of optimism about where we’re going. We see each of the next three quarter’s results improving slightly principally, as a result of private loan growth and operating expense reductions. We believe that you will see marked improvement after the first quarter of 2009. I have to say that notwithstanding anything I say today my outlook is guarded. Given the environment that we’re in we think that’s probably the best approach. Things that are getting better are getting better in baby steps, but they are getting better and I’ll tell you that our optimism, certainly my optimism, moves up and down as credit spreads move up and down. It’s been an eventful quarter, it’s been an eventful six months, and it’s been an eventful year. It’s about exactly one year since our ABS funding for AAA student loans stopped being a monthly auto-pilot exercise. There is no longer anything like an auto-pilot exercise. Nonetheless, through July we’ve issued nearly $14 billion of ABS in 2008, not a bad record. It’s been expensive, I might say very expensive funding, but this is also the toughest market that I’ve ever seen. Second quarter story has what I’ll say are several chapters. As…

I’m going to take the next few moments to review our operating results for the quarter on both a GAAP and core earnings basis. In addition, we’ll review the performance of our private credit portfolio, our outlook for new loan originations, our funding activity and liquidity, including a status update on the Department of Education proposals and our progress for our cost reduction efforts. In addition, I’ll provide some more details on our asset purchase business. And finally, I’ll provide an update on our outlook for the remainder of the year and our prospects for 2009. For the quarter, core earnings including non-recurring items were $156 million or $0.27 per share, compared to $189 million or $0.43 per share in the year ago quarter. During the quarter, we incurred non-recurring charges of $53 million or $0.08 per share for restructuring expense and other reorganization related items and net loss of $26 million or $0.05 a share in our purchased paper businesses. Excluding these items, earnings were $0.40 per share. In addition, as Al mentioned, our second quarter results were lower due to higher funding costs, particularly from our asset backed commercial paper program where the fees alone totaled $109 million in the quarter or $0.15 per share, that’s up $0.11 per share from the first quarter. Net interest income was $587 million in the quarter versus $635 million in the prior year, with the net interest margin declining to 1.28% from 1.52% in the year ago quarter. The decrease is primarily the result of those $109 million worth of fees which reduced the net interest margin by 24 basis points in the quarter. Our loan loss provision was $192 million in the quarter versus $181 million in the first quarter. The results included a $6 million increase in the federal…

(Operator Instructions) Your first question comes from Sameer Gokhale – Keefe, Bruyette & Woods. Sameer Gokhale – Keefe, Bruyette & Woods: Jack, I just had a question on the comments you made about the pricing of the unsecured debt vis-à-vis the profits on new private student loan originations and you mentioned that you would expect to generate a mid teens ROE in that business. I was wondering if you could just provide some commentary on how the pricing on those loans would look because to get to a mid teens ROE it seems like you probably have to price those loans at LIBOR plus say 800 or so and I was wondering how that works relative to plus loans which maybe are at lower yields? So, could you just walk us through how you’re thinking about that from a pricing perspective?

I think the pricing ranges that you are referring to are approximately right. It’s a function of the economics. If we can’t borrow at cost effective rates or if we have to borrow at – let me say it another way, if we’re borrowing at LIBOR plus 400 we have to pass some of those costs on to our customers. In many instances, students choose to borrow private credit loans for different reasons. In some instances it may not be the parent who is available to co-sign for the student on a private loan and so therefore they’re not eligible for PLUS or the student is an international student, or students in some cases the parents just choose not to take advantage of the PLUS program. In addition, the interest rate on PLUS loans is fixed and right now at 8.5% it is relatively high compared to short term funding rates and that also causes people to move in to private credit. But, those are the factors there and we would certainly hope that has credit spreads return to a more normalized environment that we would be able to make our private credit loans more price competitive in the marketplace. I will say however, that our pricing, we don’t believe our pricing is out of line with what any of our competitors are doing in the marketplace for private credit loans, if they’re making loans at all. Sameer Gokhale – Keefe, Bruyette & Woods: Can you remind us again what percentage of your private student loan originations are attached to FFELP loans? Is it roughly about 50% or so?

I don’t have that exact number. We’ll get that for you. The estimate in the past had been more in the 60% range but I don’t know where it is as of June 30.

Your next question comes from Matthew Snowling – Friedman, Billings, Ramsey & Co. Matthew Snowling – Friedman, Billings, Ramsey & Co.: The origination volume seemed a little light versus what we were expecting. Is this just mainly a function of waiting until the government funding facility is in place before you actually close those applications?

Well, when we talk about new loan originations in the quarter, those are loans that are actually dispersed and those activities are taking place principally for the academic year that begins prior to July 1. So, it’s always a light volume period for the quarter. In terms of application flows that we are seeing in to our centers today, historically July is one of our busiest months and it’s been much lighter than expected principally because of the increase in loan limits that took place in the schools needing to update their software and their financial aid management systems to accommodate that higher loan level increase so we’ve seen a number of schools who have been late in terms of processing applications. Everything here, everything we’re seeing, all the indications from schools are pointing towards a significant increase in demand for federal student loans this upcoming academic year. Its coming from higher loan limits both last fall as well as that were passed and effective July 1. It’s coming from the reduction in alternative sources like home equity lines and it’s just coming from the fact that people who previously paid with cash now need to borrow. So, all of those items combined we would expect to see a material increase which is where we get to our $20 billion worth of federal loan originations for this upcoming academic year. Matthew Snowling – Friedman, Billings, Ramsey & Co.: Jack, I think you mentioned earlier in your remarks, I think $338 million was the number you used of preferred volume moved to a servicing contract. Can you give us a little more detail about that?

As a result of the credit markets and the change in the spread that we could earn, we could no longer justify paying premiums to lenders to originate and sell loans to the company. Many of those lenders decided to exit the business as a result of that, some of them continue to sell us loans at par and a few others, the $338 million converted to servicing contracts and to some extent they may decide to just wait this out or are evaluating their decisions. Our expectations is that the majority of that volume would likely be put, given current market conditions in September as well. Matthew Snowling – Friedman, Billings, Ramsey & Co.: So you’re doing the upfront distribution servicing?

We’re doing the upfront origination and interim, or in school loan servicing for the clients until they dispose of the asset.

Your next question comes from [Seral Battini] – Credit Suisse. [Seral Battini] – Credit Suisse: I see that you have short term borrowing of $37 billion and the total primary and standby liquidity of $33.6 billion. My question is how do you plan to fill that liquidity gap?

Well, the lion’s share of that is related to our $34 billion asset backed commercial paper program and our goals here is that between now and year end that we will continue our pace of securitization activity to minimize the amount that we have borrowed under that facility and then renew that or roll that facility for a significantly smaller dollar amount than the $28 billion that’s allocated to federal loans. We expect the $6 billion piece that’s allocated to private to be about the same size. The remaining piece is short term or previously long term unsecured debt that is now short term in nature and we have been active buyers of that debt in the secondary market and we’ll be looking to redeem that over time. I also think it’s important to note that from a new funding perspective all new FFELP loans are financeable through this Department of Education facility so the demand for liquidity to fund our business is going to be limited to our private credit portfolios which we would expect to originate about $7 billion in total this year and to our debt maturities this year which were about $7 billion as well.

Your next question comes from Michael Taiano – Sandler O’Neil & Partners. Michael Taiano – Sandler O’Neil & Partners: I just want to make sure I understand the guidance, the $1.60. Does that include the $0.48 in the first quarter and $0.40 in the second quarter?

Yes. Michael Taiano – Sandler O’Neil & Partners: Jack, could you maybe just walk me through the utilization on the ABCP conduit? It looks like it went up about $1.5 billion this quarter versus last quarter and I would have thought it would have went down given the $7 billion in securitizations and I think you only added about $6 billion to the balance sheet. Could you maybe clarify how that increased? Then, maybe talk about plans for securitization in the back half of the year, is $7 billion a good run rate and do you have a set amount for where you’d like that ABCP conduit to be down to by the end of the year?

The reason the asset backed CP facility didn’t decrease at quarter end is more due to the timing of closing of some of the financing transactions and the moving of loans in and out of the conduit facility. We would expect that balance to decrease, or that balance did decrease in July and we would expect it to continue to decrease, particularly on the FFELP side over the balance of the year. Where we would like it to be, I’d like it to be zero. I’d like it to be a liquidity facility not a funding facility and how we get there or how close we get to that number is going to be dependent on what we can do in the term ABS market between now and year-end. We were optimistic in early July in terms of where our funding spreads were going. Unfortunately, they did back up significantly, some due to credit market conditions in general, others due to there was a student loan issuer that was trying to get a deal done that was just not working and that caused the spreads to back up. We would expect them to improve over where they looked like they were last week. On the private credit side, it’s really a function of getting back out in to the marketplace and demonstrating to investors that this asset is performing exceptionally well in this marketplace. Far better than other types of consumer assets are performing. We have the data, we’re seeing the performance of what’s going on and you also have six years of trust performance data out there that people can see and there again, the credit performance has been exceptional. Michael Taiano – Sandler O’Neil & Partners: I know you have had conversations with the Department of Education about what could the longer term solution be for the FFELP industry. Could you maybe share what some of your thoughts are in terms of what’s the longer term answer here?

At this stage in the game the balance here is do you pay enough of a margin on the FFELP loans to be able to accommodate market disruption periods that exist like today or even just normalized levels. Our view at this stage in the game is first, the tax payers already assume the risk on a federal student loan, and they’re already guaranteeing the performance of that loan through guarantee agencies and the directory insurance by the Department of Education. So, coming up with some form of structure that creates a greater awareness or confidence or valuation of that guarantee by investors in student loan asset backed securities would probably be the best thing that could happen. There you would have no incremental costs to tax payers because they’re already taking this risk and yet you benefit from the investors perception of the value of that guarantee, something that we’re not getting full credit for today. If you look at federal student loan asset backed securities, our securities trade pretty comparable to credit card asset backed securities despite the fact that one asset has a government guaranty and the other doesn’t. We need to get a little bit to improve that recognition and that valuation of that guaranty and I think that is where the long term solution lies.

Your next question comes from Bruce W. Harting – Lehman Brothers. Bruce W. Harting – Lehman Brothers: Jack, can you give a little more disclosure on how you determine the impairment of $51 million? Just any guidance for future quarters understanding that you’re saying that’s not a core part of the business but just to get a sense of second half. Then, if I may, when you’re looking out to 09 and the earnings growth, is that assuming that the put is used? Any clarification on assumptions used to get to growth next year? And, are you benchmarking off the operating of $0.40 or $0.27 for this quarter?

On the impairment charge, each quarter we take a look at the underlying collateral value of the market value of the properties in the distressed mortgage business. Then, our impairment, if any is an adjustment to book value from that to keep the differential to be a discount of market value of 23%. So, if you look back in the supplemental you’ll see that we’ve historically carried, our book value has been consistently marked to about 77% of the current market value of the underlying assets. So, that’s where the impairment is coming from. Now, the goals in this business is we typically buy distressed paper, first of all we’re buying it at a discount to the unpaid principal balance of the loan and normally those loans we get resolved in some form of work out with the customer or a short sales or something along those lines. More recently, more of it has been pushed in to foreclosure and becomes REO and then we’re in the real estate business of managing properties and disposing of them. We’ve become much more active in this space and pushing through and increasing the pace of turnover of those properties and that’s a pace that’s actually been accelerating and was extremely high in June. It was about 25% of all of our resolutions in this mortgage portfolio took place in the month of June for the first six months of the year and we’re hoping that pace will continue to accelerate as we move forward. If that happens, the average life of this portfolio is around about two years in timeframe. In terms of 09 earnings, it does assume that we put these loans through the Department of Education. At this stage in the game, the current market conditions would say that you couldn’t take $20 billion worth of loans and refinance it in the term securitization market cost effectively relative to the value of the put and so those loans would be put. We would certainly hope and we’d even expect that we’ll get some attempt at addressing this issue between now and September of 2009. The government I don’t think wants us to put the loans and we wouldn’t want to put them either if we have a viable alternative. What was our last question Bruce? Bruce W. Harting – Lehman Brothers: Is there any discussion with the government on longer term [inaudible] spread adjustments of [inaudible] plan? Maybe a little bit of a read through on the loans through the next year. I know you talked about it a little already.

You’re a little tough there to hear but I think you’re saying is there a follow up for a long term solution with the Department? Bruce W. Harting – Lehman Brothers: Yes.

There is discussion on that issue. Unfortunately, I think some of the other issues going on that the government has been working on the last couple of weeks have distracted them particularly those more in the treasury side but we continue to have those discussions both with the Department of Education, Treasury and members of the hill. Bruce W. Harting – Lehman Brothers: I don’t know if people have queued but just one last one, can you just give any read through on what conversations are like on campuses right now in terms of your ability to generate new business with the large number of companies that have exited the business versus the federal direct?

I think in terms of, if you look at volume on campuses a couple of things have been happening. First of all, the legislation last fall required that schools put multiple lenders on lists so on a number of campuses where we were more or less the exclusive lender, there was more competition introduced in to that space. In addition, about $1.7 billion of our volume that we originated last year has left FFELP for direct lending. Now, the two pieces of positives on volume forecasts are higher demand from higher loan limits and the other factors I mentioned earlier and then reduced lenders in the space. A number of lenders have exited the business completely. The 160 I mentioned, and then there have been those that have remained, the largest of those have stated publically and announced to schools their intent to significantly reduce the amount of lending they will do in those campuses. We on the other hand, have said and as Al mentioned earlier, we’re going to lend to all students at all schools this academic year. As a result, I think we’ve earned a good market reputation as a result of that and also would expect to see significantly higher volume.

Your next question comes from Analyst Shane Wilson – QVT Financial. Analyst for Shane Wilson – QVT Financial: The impaired mortgage assets, I think you’ve stated that you carry them at a 77% of our current estimate of fair market value. But, can you give us a little bit of color as to how that current fair market value compares to outstanding principal amount and/or purchase price just for us to get a sense of how big our fair value discount is already?

The market value of the property is of course going to be lower than unpaid principal amount of the note. As property values have declined, that has gone with it. Right now, the unpaid principal balance to us is just not a particularly meaningful number because we’re not going to get paid based on the note value we’re going to get paid based on the property value. We have historically, like I said, carried at these discounts. The resolutions, when we resolve these things, we are making a profit at those kinds of prices and so the volume that we resolved in June was a profitable book of business. It had about a 12% margin for us. Stuff is moving and getting done. The valuation that we’re using is a broker estimate. So, brokers are giving us information on the specific properties as to what they think a market trade would occur at and so it’s not an appraisal so it’s not inflated by all the other issues that impacted the real estate market in the past.

Your next question comes from Moshe Orenbuch – Credit Suisse First Boston. Moshe Orenbuch – Credit Suisse First Boston: The 30% to 40% earnings growth, what base actually is that based upon for the first half?

$1.60. Moshe Orenbuch – Credit Suisse First Boston: The question really has to do with the securitization markets both FFELP and private as you see it right now. You made a lot of comments about the performance both on the government guaranteed side and the private student lending being better than other asset classes but, if you actually look at things like credit card securitization, what issuers are doing is they’re doing shorter dated securitizations on a revolving asset you have that flexibility. Can you talk a little bit about the length of time, the life of those securitizations and how important a factor that is you think in terms of liquidity in that market?

It’s a good question and it is probably the issue on our FFELP transactions is the long average life of the majority of the dollars that are financed here and it’s particularly meaningful for private credit as well. The back tranches on the private credit deals typically have average lives of about 14 years and there’s no question that that’s a challenge and we need to look at better ways to manage that process. Examples would be where we have co-borrowers, getting co-borrowers during the in school periods to keep the interest from compounding and lengthening the duration. On the FFELP side of the equation, the issue is really more profound on consolidation loans than it is on Stafford but to date we continue to be able to securitize them, it’s just at a higher cost. But, when I said that we were comparable to credit cards I was going more of an apples-to-apples of similar duration tranches.

Your next question comes from Brad Ball – Citigroup. Brad Ball – Citigroup: With respect to the business that you’re getting out of, the collection of the purchase paper business, what capital free up should we expect? Do you hold 8% against the assets there or do you hold the higher amount of capital against that business right now?

We do hold a higher level of capital against that business. But, I think in terms of what capital free up, that’s going to have to be based on how we deal with these businesses going forward and that’s not clear at this point in time. Obviously, if we were to sell the businesses, that would happen quickly. If we were to wind them down, it will happen slowly. Brad Ball – Citigroup: So you’re still at the stage of considering your options to either sell or wind down?

Correct. Brad Ball – Citigroup: But sale is an option that you think is feasible in the next couple of quarters?

It’s always an option, yes. Brad Ball – Citigroup: With respect to your guidance for next year, 30% to 40% upside, that implies like $2.10 to $2.25 or $2.30 EPS for next year. You addressed the question about how you plan to fund the FFELP originations but what does that assume for the replacement cost of the private loan securitizations or private loan funding? And, what does it assume with respect to unsecured issuance? You did an unsecured deal at L plus 400 would you be doing deals at that level going forward?

We are assuming at this stage current market spreads for those forecasts. So, L plus 400 is a good number for private credit funding. Brad Ball – Citigroup: You’ve mentioned a couple of times that the credit performance has been better than your expectations. It’s not entirely clear to me what your expectations have been. If you could just clarify what the outlook has been? It sounds like you’re still pretty cautious on credit for the balance of this year and maybe in to 09 so what’s the assumption there?

Well, obviously remember in the fourth quarter we took a very big provision, $750 million and that $750 million of provision eventually have to roll through the charge off lines if we’re right. So, charge offs are going to be increasing just as that bubble works its way through particularly on the non-traditional side of the equation. Year-to-date through the first six months when we say charge offs are below our expectations, they were about $50 million below our expectations and the trend lines, it’s very difficult to be optimistic in this marketplace just given everything that’s going on external to the company in terms of the economic environment. But, where we stand in terms of delinquencies, forbearances and other early indicators of problems that students might be having or borrowers might be having on the private credit side, we’re pretty good and when you look at it compared to what has been released this quarter on credit card portfolios or auto, it’s really good. Brad Ball – Citigroup: So would the provision this quarter be a good run rate to work with as we model provisioning going forward?

I don’t think we should be. We provided guidance earlier in the year as to what provisions would be and we have not changed that at this stage. Brad Ball – Citigroup: Is it still your expectation that private loan net charge offs over those in collection would be in the 3% range?

We would break it out between traditional and non-traditional and like I said charge offs here, at $750 million of provision in the quarter eventually has to flow through and in the non-traditional side as the portfolio enters repayments, we would expect those numbers to remain elevated in terms of charge offs through 2009. Brad Ball – Citigroup: That’s what’s elevating that ratio, the private loan charge offs in repayment?

Yes. Brad Ball – Citigroup: I think its $392 this last quarter.

Your next question comes from Sameer Gokhale – Keefe, Bruyette & Woods. Sameer Gokhale – Keefe, Bruyette & Woods: I know you said you’re going to exit the debt recovery business but the question I had was on the non-mortgage side, I understand it’s not a core part of your overall operation which is why you’re exiting but if you look at that business as a standalone fundamental business, it seems like pricing has come down for purchases of say credit card receivables. But, I was curious if you were seeing any other structural issues with that business or that industry overall going forward that’s also playing in to your decision to exit that business?

I think as Al said, first of all we think these businesses are attractive businesses, the challenges are that they have very lumpy returns, right. And you in certain marketplaces you want to be out of the market like 2007 in terms of buying stuff and in 2008 you want to be in the market base. The lumpiness of the return, the very high capital levels associated with that and frankly there’s just not – we didn’t see that the transfer of benefit from our contingency business over to our purchase portfolio business or vice versa and so the mutual strategic fit we thought existed in these entities just isn’t there.

Your next question comes from Michael Cohen – SuNOVA Capital. Michael Cohen – SuNOVA Capital: Would you anticipate taking any charge to wind down the mortgage purchase paper business?

Let me try that. Under the current account rules, those businesses are valued at what the accountants thing they’re worth on a going concern basis. We are looking at the relative economic return of selling the businesses or running them and I think that by the end of the third quarter we’ll have pretty well sorted out what we think the returns on this business are going to be from now until the time that they’re either sold or wound down and that the third quarter will reflect whatever one-time effect there might be with respect to that. That’s a long winded way of saying that yes, it’s possible that there will be a one-time charge for either or both of those businesses.

There are no further questions at this time.

I’d just like to close by saying thank you everybody for joining our second quarter earnings conference call.