SLM Corp – ‘POS AM’ on 6/18/97

As of:  Wednesday, 6/18/97   ·   Accession #:  950133-97-2257   ·   File #:  333-21217

in

this entire Filing. an “Entity” Search.

Show

Documents searched

and

each “hit”. the 1st “hit”.

↓↑Hints

Post-Effective Amendment
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: POS AM      P.E. Amend # 2 to Form S-4                           196   1.07M 
 2: EX-3.1B     Crv Form of Amend & Restated Cert of Inc of Reg        4     21K 
 3: EX-3.2B     Crv Form of By-Laws                                   12     68K 
 4: EX-23.1     Consent of Ernst & Young LLP                           1      6K 
 5: EX-23.2B    Consents of Add Person Serv as Dir of Holding Comp    13     22K 
 6: EX-27       Financial Data Statement                               2±     7K 
 7: EX-99.4     Proxy Statement Supplement of the Crv                 52    264K 

POS AM   —   P.E. Amend # 2 to Form S-4
Document Table of Contents

POS AM
1st Page of 196
TOC
↑Top
Previous
Next
↓Bottom
Just 1st
 

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1997 

                                                      REGISTRATION NO. 333-21217
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------

POST-EFFECTIVE AMENDMENT NO. 2

TO

FORM S-4
REGISTRATION STATEMENT
UNDER 
THE SECURITIES ACT OF 1933
------------------

SLM HOLDING CORPORATION 
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE
(STATE OR OTHER JURISDICTION OF 
INCORPORATION OR ORGANIZATION)

6199
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER) 

52-2013874
(I.R.S. EMPLOYER
IDENTIFICATION NO.) 

1050 THOMAS JEFFERSON STREET, N.W.
WASHINGTON, D.C. 20007
(202) 298-3152
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

TIMOTHY G. GREENE 
GENERAL COUNSEL 
SLM HOLDING CORPORATION 
1050 THOMAS JEFFERSON STREET, N.W.
WASHINGTON, D.C. 20007
(202) 298-3150
Copies to:

STEPHEN HAMILTON
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
1440 NEW YORK AVENUE, N.W.
WASHINGTON, D.C. 20005
RONALD O. MUELLER 
GIBSON, DUNN & CRUTCHER LLP 
1050 CONNECTICUT AVENUE, N.W. 
WASHINGTON, D.C. 20036

(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE) 

    APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: UPON CONSUMMATION OF THE REORGANIZATION DESCRIBED HEREIN.               

If the securities being registered on this Form are being offered in  
connection with the formation of a holding company and there is compliance with 
General Instruction G, check the following box. [ ]                             

================================================================================

POS AM
2nd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 2nd

CROSS REFERENCE SHEET 
PURSUANT TO ITEM 501 (B) OF REGULATION S-K

                                                        [Enlarge/Download Table]

ITEM NO.                   DESCRIPTION                           CAPTION IN PROSPECTUS        
--------  ---------------------------------------------  -------------------------------------
                                                                                              
Item 1    Forepart of Registration Statement and                                              
            Outside Front Cover Page of Prospectus.....  Cover of Registration Statement;     
                                                         Outside Front Cover Page of          
                                                           Prospectus; Cross Reference Sheet  
Item 2    Inside Front and Outside Back Cover Pages of                                        
            Prospectus.................................  Available Information; Table of      
                                                         Contents                             
Item 3    Risk Factors, Ratio of Earnings to Fixed                                            
            Charges and Other Information..............  Summary; Risk Factors                
Item 4    Terms of the Transaction.....................  Summary; The Reorganization Proposal;
                                                           Terms of the Reorganization        
                                                           Agreement; Comparison of           
                                                           Stockholder Rights; Appendix A:    
                                                           Agreement and Plan of              
                                                           Reorganization; Appendix B: Student
                                                           Loan Marketing Association         
                                                           Reorganization Act of 1996         
Item 5    Pro Forma Financial Information..............  Summary; Capitalization              
Item 6    Material Contacts With the Company Being                                            
            Acquired...................................  Summary; The Reorganization Proposal;
                                                           Terms of the Reorganization        
                                                           Agreement; Appendix A: Agreement   
                                                           and Plan of Reorganization         
Item 7    Additional Information required for                                                 
            Reoffering by Persons and Parties Deemed to                                       
            be Underwriters............................  *                                    
Item 8    Interests of Named Experts and Counsel.......  Legal Matters; Experts               
Item 9    Disclosure of Commission Position on                                                
            Indemnification for Securities Act                                                
            Liabilities................................  *                                    
Item 10   Information With Respect to S-3                                                     
            Registrants................................  *                                    
Item 11   Incorporation of Certain Information by                                             
            Reference..................................  *                                    
Item 12   Information With Respect to S-2 or S-3                                              
            Registrants................................  *                                    
Item 13   Incorporation of Certain Information by                                             
            Reference..................................  *                                    
Item 14   Information With Respect to Registrants Other                                       
            Than S-2 or S-3 Registrants................  Summary; The Reorganization Proposal;
                                                           Terms of the Reorganization        
                                                           Agreement; Business; Regulation;   
                                                           Proxy Statement Supplement of the  
                                                           Majority Directors; Proxy Statement
                                                           Supplement of the CRV              
Item 15   Information With Respect to S-3 Companies....  *                                    
Item 16   Information With Respect to S-2 or S-3                                              
            Companies..................................  *                                    

POS AM
3rd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 3rd

                                                        [Enlarge/Download Table]

ITEM NO.                   DESCRIPTION                           CAPTION IN PROSPECTUS        
--------  ---------------------------------------------  -------------------------------------
                                                                                              
Item 17   Information With Respect to Companies Other                                         
            Than S-3 or S-2 Companies..................  Summary; The Reorganization Proposal;
                                                           Terms of the Reorganization        
                                                           Agreement; Selected Financial Data;
                                                           Financial Statements; Management's 
                                                           Discussion and Analysis of         
                                                           Financial Condition and Results of 
                                                           Operation; Business; Regulation;   
                                                           Management; Proxy Statement        
                                                           Supplement of the Majority         
                                                           Directors; Proxy Statement         
                                                           Supplement of the CRV              
Item 18   Information if Proxies, Consents or                                                 
            Authorizations are to be Solicited.........  Front Cover Page of Prospectus;      
                                                           Summary; Information Regarding     
                                                           the Special Meeting; The           
                                                           Reorganization Proposal; -- Reasons
                                                           for the Reorganization;            
                                                           Recommendation of Sallie Mae and   
                                                           the CRV                            
Item 19   Information if Proxies, Consents or                                                 
            Authorizations are not to be Solicited or                                         
            in an Exchange Offer.......................  *                                    

---------------                                                                 
* Omitted because inapplicable or answer is negative.                           

POS AM
4th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 4th

(LOGO)                                                                          
STUDENT LOAN MARKETING ASSOCIATION                                              
1050 Thomas Jefferson Street, N.W.                                              
Washington, D.C. 20007-3871                                                     
(202) 298-2500                                                                  

WILLIAM ARCENEAUX                                                               
Chairman of the Board                                                     , 1997

Dear Sallie Mae Shareholder:                                                    

 The Board of Directors of the Student Loan Marketing Association ("Sallie
Mae") invites you to attend a Special Meeting of Shareholders (the "Special     
Meeting") to be held on Thursday,            , 1997, at 11:00 a.m., local time, 
at the [         ], Washington, DC [         ]. The Special Meeting is being    
called pursuant to an agreement (the "Letter Agreement") between Sallie Mae and 
The Committee to Restore Value at Sallie Mae (the "CRV"), which is a shareholder
group that includes eight current Sallie Mae directors. At the Special Meeting, 
Sallie Mae shareholders will be asked to consider and vote upon the following   
matters:                                                                        

(1) The approval and adoption of an Agreement and Plan of Reorganization
      (the "Reorganization Agreement") providing for the reorganization (the
  "Reorganization") of Sallie Mae into a subsidiary of a new holding
     company named SLM Holding Corporation (the "Holding Company" and such
proposal, the "Reorganization Proposal"); and                   

(2) If the Reorganization Proposal is approved by shareholders, the     
       selection of a slate of up to 15 nominees that will be appointed as the
 initial Holding Company Board of Directors in connection with the
        Reorganization (such proposal, the "Board Slate Proposal"). In the Board
  Slate Proposal, shareholders may vote either for a 10-person slate
nominated by a majority of the current Sallie Mae directors (the
      "Majority Directors" and such slate, the "Majority Director Slate") or
for a 15-person slate nominated by the CRV (the "CRV Slate").   

    If the Reorganization Proposal is approved by shareholders, each outstanding
share of common stock, par value $.20 per share, of Sallie Mae shall be         
converted into one share of common stock, par value $.20 per share, of the      
Holding Company. The Reorganization is described in the attached Proxy          
Statement/Prospectus, including the reasons why the Sallie Mae Board unanimously
voted to approve the Reorganization. If the Reorganization Proposal is approved 
by shareholders, then as soon as possible after such shareholder approval Sallie
Mae shall appoint as directors of the Holding Company the slate of nominees     
receiving the highest plurality of the votes cast in person or by proxy at the  
Special Meeting. The Proxy Statement Supplements of the Majority Directors and  
the CRV contain additional information regarding this process. Because the Board
Slate Proposal does not constitute an actual election, shareholders may not     
withhold votes as to individual nominees. Shareholders must use the Majority    
Directors' BLUE proxy card to vote for the Majority Director Slate or use the   
CRV's GREEN proxy card to vote for the CRV Slate.                               

Federal legislation described herein authorized the Sallie Mae Board to 
develop a plan for reorganizing Sallie Mae as a subsidiary of a new holding     
company. The Reorganization Agreement is the plan unanimously approved and      
recommended by the Sallie Mae Board. The Reorganization would effectively       
"privatize" Sallie Mae by phasing out its federal sponsorship. This is a unique 
and important opportunity for Sallie Mae and its shareholders.                  

  THE MAJORITY DIRECTORS AND THE CRV ARE EACH PROVIDING SHAREHOLDERS A PROXY
STATEMENT SUPPLEMENT THAT COMPRISES AN INTEGRAL PART OF THIS PROXY              
STATEMENT/PROSPECTUS AND SETS FORTH ADDITIONAL INFORMATION REGARDING THEIR      
RESPECTIVE SLATES OF HOLDING COMPANY DIRECTOR NOMINEES TOGETHER WITH A PROXY    
CARD FOR VOTING ON THE REORGANIZATION PROPOSAL AND THEIR SLATE. NO MATTER HOW   
MANY SHARES YOU HOLD, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN AT YOUR  
EARLIEST CONVENIENCE EITHER THE BLUE PROXY CARD, THAT IS BEING MAILED TO YOU BY 
THE MAJORITY DIRECTORS, TOGETHER WITH THE MAJORITY DIRECTORS' PROXY STATEMENT   
SUPPLEMENT, OR THE GREEN PROXY CARD, THAT IS BEING MAILED TO YOU BY THE CRV     
TOGETHER WITH THE CRV'S PROXY STATEMENT SUPPLEMENT. Returning either the BLUE   
proxy card or the GREEN proxy card will help to establish a quorum and avoid the
cost of further solicitation. We hope that you will be able to attend the       
meeting and encourage you to read the enclosed materials describing the meeting 
agenda, the Reorganization and Sallie Mae in detail.                            

We look forward to seeing you on              , 1997.                   

        Sincerely,

               William Arceneaux
                   Chairman of the Board

POS AM
5th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 5th

STUDENT LOAN MARKETING ASSOCIATION

------------------------

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS 
TO BE HELD ON             , 1997

------------------------

Consistent with the By-Laws of the Student Loan Marketing Association 
("Sallie Mae"), notice is hereby given on behalf of the Board of Directors that 
a Special Meeting of Shareholders of Sallie Mae (the "Special Meeting") will be 
held on Thursday,   , 1997, at 11:00 a.m., local time at the [          ],      
Washington, DC [          ]. The Special Meeting is being called pursuant to an 
agreement (the "Letter Agreement") between Sallie Mae and The Committee to      
Restore Value at Sallie Mae (the "CRV"), which is a shareholder group that      
includes eight current Sallie Mae directors.                                    

The purpose of the meeting is to consider and vote upon the following 
matters:                                                                        

        (1) The approval and adoption of an Agreement and Plan of Reorganization
         (the "Reorganization Agreement") providing for the reorganization
       (the "Reorganization") of Sallie Mae into a subsidiary of a new
            holding company named SLM Holding Corporation (the "Holding Company"
and such proposal, the "Reorganization Proposal"); and  

   (2) If the Reorganization Proposal is approved by shareholders, the
           selection of a slate of up to 15 nominees that will be appointed as
         the initial Holding Company Board of Directors in connection with
          the Reorganization (such proposal, the "Board Slate Proposal"). In
    the Board Slate Proposal, shareholders may vote either for a
           -person slate nominated by a majority of the current Sallie Mae
         directors (the "Majority Directors" and such slate, the "Majority
           Director Slate") or for a   -person slate nominated by the CRV (the
"CRV Slate").                                           

If the Reorganization Proposal is approved by shareholders, each      
outstanding share of common stock, par value $.20 per share, of Sallie Mae shall
be converted into one share of common stock, par value $.20 per share, of the   
Holding Company and Sallie Mae shall appoint as directors of the Holding Company
the slate of nominees receiving the highest plurality of the votes cast in      
person or by proxy at the Special Meeting. The Proxy Statement Supplements of   
the Majority Directors and the CRV contain additional information regarding this
process.                                                                        

  Holders of record of Sallie Mae Common Stock at the close of business on
June 6, 1997 will be entitled to vote at the Special Meeting or any adjournments
or postponements thereof. Accompanying this Notice of Special Meeting is the    
Proxy Statement/Prospectus and a separate Supplemental Proxy Statement          
describing in detail the business to come before the Special Meeting.           

    THE MAJORITY DIRECTORS AND THE CRV ARE EACH PROVIDING SHAREHOLDERS A PROXY
STATEMENT SUPPLEMENT THAT COMPRISES AN INTEGRAL PART OF THIS PROXY              
STATEMENT/PROSPECTUS AND SETS FORTH ADDITIONAL INFORMATION REGARDING THEIR      
RESPECTIVE SLATES OF HOLDING COMPANY DIRECTOR NOMINEES TOGETHER WITH A PROXY    
CARD FOR VOTING ON THE REORGANIZATION PROPOSAL AND THEIR SLATE OF NOMINEES. YOU 
ARE ASKED TO COMPLETE, SIGN, DATE AND RETURN EITHER THE BLUE OR THE GREEN PROXY 
CARD AT YOUR EARLIEST CONVENIENCE IN ORDER TO BE SURE YOUR VOTE IS RECEIVED AND 
COUNTED. RETURNING EITHER THE BLUE OR THE GREEN PROXY CARD WILL HELP AVOID THE  
COSTS OF FURTHER SOLICITATION.                                                  

YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU HOLD.   

                                By Order of the Board of Directors

               Ann Marie Plubell
                                       Vice President, Associate General Counsel
 and
       Secretary

, 1997                                                      
Washington, D.C.                                                                

  YOU ARE URGED TO MARK, SIGN AND DATE EITHER THE MAJORITY DIRECTORS' BLUE
PROXY CARD OR THE CRV'S GREEN PROXY CARD AND RETURN SUCH PROXY AS SOON AS       
POSSIBLE. ANY SUCH PROXY IS REVOCABLE AT ANY TIME PRIOR TO ITS USE. THE         
AFFIRMATIVE VOTE OF HOLDERS OF AT LEAST A MAJORITY OF THE OUTSTANDING SHARES OF 
COMMON STOCK OF SALLIE MAE IS REQUIRED FOR APPROVAL OF THE REORGANIZATION.      

POS AM
6th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 6th

SUBJECT TO COMPLETION, DATED JUNE 18, 1997

PROXY STATEMENT OF
STUDENT LOAN MARKETING ASSOCIATION AND THE
COMMITTEE TO RESTORE VALUE AT SALLIE MAE
------------------------

PROSPECTUS OF SLM HOLDING CORPORATION 
------------------------

    This Proxy Statement/Prospectus is being furnished to holders of record on
June 6, 1997 (the "Record Date") of the common stock, par value $.20 per share  
(the "Sallie Mae Common Stock"), of the Student Loan Marketing Association, a   
federally-chartered government-sponsored enterprise ("Sallie Mae"), in          
connection with the solicitation of proxies by the majority of the current      
Sallie Mae Board of Directors (the "Majority Directors") and by the Committee to
Restore Value at Sallie Mae, a shareholder group that includes eight of the 21  
current Sallie Mae directors (the "CRV"), for use at the Special Meeting of     
Sallie Mae shareholders (the "Special Meeting") to be held on Thursday,         
         , 1997 at 11:00 a.m. at the [          ], Washington, DC [          ]
and at any adjournments or postponements thereof. The Special Meeting is being  
called pursuant to an agreement (the "Letter Agreement") between Sallie Mae and 
the CRV.                                                                        

   At the Special Meeting, Sallie Mae shareholders will be asked to consider
and vote upon the following matters:                                            

        (1) The approval and adoption of an Agreement and Plan of Reorganization
         (the "Reorganization Agreement") providing for the reorganization
           (the "Reorganization") of Sallie Mae into a wholly-owned subsidiary
            of a new holding company named SLM Holding Corporation (the "Holding
       Company" and such proposal, the "Reorganization Proposal"); and

   (2) If the Reorganization Proposal is approved by shareholders, the
           selection of a slate of up to 15 nominees that will be appointed as
         the initial Holding Company Board of Directors in connection with
           the Reorganization (the "Board Slate Proposal"). In the Board Slate
    Proposal, shareholders may vote either for a 10-person slate
           nominated by the Majority Directors (the "Majority Director Slate")
        or for a 15-person slate nominated by the CRV (the "CRV Slate").

If the Reorganization Proposal is approved by shareholders, each      
outstanding share of Sallie Mae Common Stock shall be converted into one share  
of common stock, par value $.20 per share, of the Holding Company ("Holding     
Company Common Stock") and Sallie Mae shall appoint as directors of the Holding 
Company the slate of nominees receiving the highest plurality of the votes cast 
in person or by proxy at the Special Meeting. The Proxy Statement Supplements of
the Majority Directors and the CRV contain additional information regarding this
process. SEE "RISK FACTORS" COMMENCING ON PAGE 11 FOR A DESCRIPTION OF CERTAIN  
MATTERS THAT SHOULD BE CONSIDERED BY SHAREHOLDERS OF SALLIE MAE PRIOR TO VOTING.

    The Sallie Mae Board has unanimously approved the Reorganization Agreement
and the Sallie Mae Board and the CRV each recommend that holders of outstanding 
shares of Sallie Mae Common Stock vote to approve the Reorganization Proposal.  

This Proxy Statement/Prospectus also serves as a supplement to the    
prospectus included as part of a Registration Statement on Form S-4, as amended,
that has been filed with the Securities and Exchange Commission (the "SEC")     
covering the 54,600,000 shares of Holding Company Common Stock issuable in the  
Reorganization. This Proxy Statement/Prospectus is first being mailed to the    
holders of Sallie Mae Common Stock together with Proxy Statement Supplements and
related proxy cards on or about June   , 1997.                                  

The following legend is required by the Privatization Act (as defined 
herein) in connection with the offering of securities by the Holding Company,   
including the Holding Company Common Stock:                                     

OBLIGATIONS OF THE HOLDING COMPANY AND ANY SUBSIDIARY OF THE HOLDING COMPANY ARE
NOT GUARANTEED BY THE FULL FAITH AND CREDIT OF THE UNITED STATES AND NEITHER THE
HOLDING COMPANY NOR ANY SUBSIDIARY OF THE HOLDING COMPANY IS A                  
GOVERNMENT-SPONSORED ENTERPRISE (OTHER THAN SALLIE MAE) OR AN INSTRUMENTALITY OF
THE UNITED STATES.                                                              

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/ PROSPECTUS. ANY REPRESENTATION TO 
THE CONTRARY IS A CRIMINAL OFFENSE. 

------------------------

THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS JUNE   , 1997. 

POS AM
7th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 7th

AVAILABLE INFORMATION 

    A Registration Statement on Form S-4 has been filed with the SEC under the
Securities Act of 1933, as amended (the "1933 Act"), with respect to the shares 
of Holding Company Common Stock issuable in exchange for Sallie Mae Common Stock
in the Reorganization as described herein (the "Registration Statement"). For   
further information pertaining to the Holding Company Common Stock offered      
hereby, reference is made to such Registration Statement and to the exhibits    
thereto, which may be inspected and copied at prescribed rates at the public    
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,           
Washington, D.C. 20549. Copies of such material can also be obtained from the   
SEC at prescribed rates by writing to the Public Reference Section of the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549.                                 

    Sallie Mae is exempt from the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Holding Company was  
formed to effectuate the transactions described under "THE REORGANIZATION." The 
Holding Company has not previously been subject to the requirements of the      
Exchange Act, and there currently is no public market for its stock. However, if
the Reorganization described herein is approved and consummated, the Holding    
Company will become subject to the information, reporting and proxy statement   
requirements of the Exchange Act, and such information may be obtained from the 
SEC at prescribed rates by addressing written requests for such copies to the   
public reference facilities of the SEC at the above-stated address and should be
available at the SEC's regional offices located at Northwestern Atrium Center,  
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and at Seven World 
Trade Center, 13th Floor, New York, New York 10048. The SEC also maintains a    
site on the World Wide Web at http://www.sec.gov that contains reports, proxy   
and information statements and other information regarding registrants that file
electronically with the SEC. Sallie Mae Common Stock is presently listed on the 
New York Stock Exchange (the "NYSE") under the symbol "SLM" and Sallie Mae files
quarterly Information Statements and annual reports to shareholders with the    
NYSE. In addition, Sallie Mae and the Holding Company have applied to have the  
Holding Company Common Stock listed on the NYSE as of the effective date of the 
Reorganization described herein. If the Reorganization is approved, Exchange Act
reports, proxy statements and other information concerning the Holding Company  
will be available for inspection and copying at the offices of the NYSE at 20   
Broad Street, New York, New York 10005.                                         

No person is authorized to give any information or to make any        
representation not contained in this Proxy Statement/Prospectus in connection   
with the solicitation made hereby, and if given or made, such information or    
representation must not be relied upon as having been authorized by Sallie Mae  
or the Holding Company. This Proxy Statement/Prospectus does not constitute an  
offer to sell, or a solicitation of an offer to purchase, any securities, or    
solicitation of a proxy, to any person in any jurisdiction to whom it is        
unlawful to make such offer or solicitation in such jurisdiction. Neither the   
delivery of this Proxy Statement/Prospectus nor any distribution of the         
securities to which this Proxy Statement/Prospectus relates shall, under any    
circumstances, create any inference that there has been no change in the affairs
of either Sallie Mae or the Holding Company since the date of this Proxy        
Statement/Prospectus. Statements contained in this Proxy Statement/Prospectus as
to the contents of any contract or other document referred to herein are not    
necessarily complete, and in each instance, reference is made to the copy of    
such contract or other document filed as an exhibit to the Registration         
Statement, each such statement being qualified in all respects by such          
reference.                                                                      

ii

POS AM
8th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 8th

FORWARD-LOOKING INFORMATION 

     This Proxy Statement/Prospectus contains certain forward-looking statements
and information relating to Sallie Mae and the Holding Company that are based on
the beliefs of Sallie Mae management as well as assumptions made by and         
information currently available to Sallie Mae and Holding Company. When used in 
this document, the words "anticipate," "believe," "estimate" and "expect" and   
similar expressions, as they relate to Sallie Mae management, are intended to   
identify forward-looking statements. Such statements reflect the current views  
of Sallie Mae management with respect to future events and are subject to       
certain risks, uncertainties and assumptions, described in this Proxy           
Statement/Prospectus. Should one or more of these risks or uncertainties        
materialize, or should underlying assumptions prove incorrect, actual results   
may vary materially from those described herein as anticipated, believed,       
estimated or expected. Sallie Mae and the Holding Company do not intend to      
update these forward-looking statements.                                        

 iii

POS AM
9th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 9th

TABLE OF CONTENTS 

                                                        [Enlarge/Download Table]

                                                                                       PAGE
                                                                                       ----
                                                                                           
SUMMARY...............................................................................    1
     Sallie Mae and the Holding Company...............................................    1
     The Special Meeting..............................................................    1
     The Reorganization Proposal......................................................    2
     The Privatization Act............................................................    5
     Other Provisions of the Reorganization...........................................    7
     Certain Federal Income Tax Consequences..........................................    7
     Regulation.......................................................................    7
     Comparison of Stockholder Rights.................................................    8
     Holding Company Board of Directors...............................................    8
     Risk Factors.....................................................................    8
     Summary Selected Financial Data..................................................    9
     Market Data......................................................................   10
RISK FACTORS..........................................................................   11
     No Historical Operations.........................................................   11
     New Board of Directors...........................................................   11
     Political Risks..................................................................   11
INFORMATION REGARDING THE SPECIAL MEETING.............................................   12
     Purpose..........................................................................   12
     Place, Time and Date of Meeting..................................................   13
     Record Date; Shares Entitled to Vote.............................................   13
     Quorum; Votes Required...........................................................   13
     Common Stock Information.........................................................   13
     Voting and Revocation of Proxies.................................................   13
     Solicitation of Proxies..........................................................   14
     No Dissenters' Appraisal Rights..................................................   14
THE REORGANIZATION PROPOSAL...........................................................   15
     Background.......................................................................   15
     Reasons for the Reorganization; Recommendation of Sallie Mae and the CRV.........   19
     Corporate Structure Before and After the Reorganization..........................   20
     Diagrams of Current and Proposed Corporate Structures............................   22
     Exchange of Stock Certificates...................................................   23
     Treatment of Preferred Stock.....................................................   23
     Effect on Stock Options and Employee Benefits....................................   23
     Dividend Policy..................................................................   23
     Stock Exchange Listing...........................................................   24
     Certain Consequences of Shareholder Vote.........................................   24
TERMS OF THE REORGANIZATION AGREEMENT.................................................   25
THE PRIVATIZATION ACT.................................................................   26
     Reorganization...................................................................   26
     Oversight Authority..............................................................   27
     Restrictions on Intercompany Relations...........................................   27
     Limitations on Holding Company Activities........................................   27
     GSE Dissolution After Reorganization.............................................   28
     Charter Sunset If Reorganization Does Not Occur..................................   29
CERTAIN FEDERAL INCOME TAX CONSEQUENCES...............................................   30
     Reporting Requirement............................................................   31
THE BOARD SLATE PROPOSAL..............................................................   32

iv

POS AM
10th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 10th

                                                        [Enlarge/Download Table]

                                                                                       PAGE
                                                                                       ----
                                                                                           
BUSINESS..............................................................................   33
     General..........................................................................   33
     Industry Overview................................................................   34
     Products and Services............................................................   34
          Loan Purchases..............................................................   34
          Borrower Benefits and Program Technology Support............................   35
          Joint Venture with The Chase Manhattan Bank.................................   36
     Servicing........................................................................   36
     Specialized Financial Services...................................................   36
          Warehousing Advances........................................................   36
          Academic Facilities Financings and Student Loan Revenue Bonds...............   37
          Letters of Credit...........................................................   37
          Private Student Loan Insurance..............................................   37
     Financing/Securitization.........................................................   37
     Economic Impact of the Privatization Act on the Company's Business...............   38
          Funding Costs and Leverage..................................................   38
          Preferred Stock Redemption..................................................   38
          State Taxes.................................................................   38
          Impact on Other Activities..................................................   38
          Consideration...............................................................   38
     Operations Following the Reorganization..........................................   39
     Competition......................................................................   39
     College Construction Loan Insurance Association..................................   40
     Properties.......................................................................   40
     Employees........................................................................   41
     Legal Proceedings................................................................   41
REGULATION............................................................................   42
     Current Regulation...............................................................   42
          GSE Regulation..............................................................   42
          Other Regulation............................................................   43
     Regulation Following Reorganization..............................................   43
     Non-Discrimination and Limitations on Affiliation with Depository Institutions...   43
CAPITALIZATION........................................................................   44
SELECTED FINANCIAL DATA...............................................................   45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF                 
  OPERATIONS..........................................................................   46
     Overview.........................................................................   46
     Three Months ended March 31, 1997 and 1996.......................................   47
          Selected Financial Data.....................................................   47
          Results of Operations.......................................................   47
          Student Loan Spread Analysis................................................   49
          Net Interest Income.........................................................   51
          Average Balance Sheets......................................................   52
          Funding Costs...............................................................   53
          Rate/Volume Analysis........................................................   53
          Operating Expenses..........................................................   53
          Privatization...............................................................   54
          Federal and State Taxes.....................................................   55
          Liquidity and Capital Resources.............................................   55
          Preferred Stock.............................................................   58

 v

POS AM
11th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 11th

                                                        [Enlarge/Download Table]

                                                                                       PAGE
                                                                                       ----
                                                                                           
          Other Related Events and Information........................................   58
     Years ended December 31, 1994-1996...............................................   61
          Selected Financial Data.....................................................   61
          Results of Operations.......................................................   61
          Student Loan Spread Analysis................................................   63
          Net Interest Income.........................................................   65
          Average Balance Sheets......................................................   66
          Funding Costs...............................................................   67
          Rate/Volume Analysis........................................................   67
          Operating Expenses..........................................................   68
          Federal and State Taxes.....................................................   69
          Liquidity and Capital Resources.............................................   69
          Preferred Stock.............................................................   73
          Other Related Events and Information........................................   73

DESCRIPTION OF HOLDING COMPANY CAPITAL STOCK..........................................   78
     General..........................................................................   78
     Common Stock.....................................................................   78
     Preferred Stock..................................................................   78
     Warrants.........................................................................   79
COMPARISON OF STOCKHOLDER RIGHTS......................................................   80

MANAGEMENT............................................................................   81
     Holding Company Board of Directors...............................................   81
     Sallie Mae Board of Directors....................................................   81
          Statutory Requirements......................................................   81
     Meetings of the Board............................................................   86
          Audit Committee.............................................................   86
          Compensation and Personnel Committee........................................   86
          Nominations and Board Affairs Committee.....................................   87
     Transactions with Affiliated Institutions........................................   87
DIRECTOR COMPENSATION.................................................................   88

EXECUTIVE OFFICERS OF THE COMPANY.....................................................   89
     Names and Titles.................................................................   89
     Previous Experience..............................................................   89

EXECUTIVE COMPENSATION................................................................   89
     Report of the Compensation and Personnel Committee...............................   90
          Policy......................................................................   90
          Compensation Related to Achievement of Annual and Long-Term Goals...........   90
          Base Salary.................................................................   90
          Annual Bonus................................................................   91
          Incentive Performance Plan..................................................   91
          Stock Option Plan...........................................................   91
     Compensation Tables..............................................................   93
     Description of Benefit Plans.....................................................   95
          Thrift and Savings Plans....................................................   95
          Stock Purchase Plan.........................................................   96
          Deferred Compensation Plan for Key Employees................................   96
          Stock Option Plan...........................................................   96
          Stock Compensation Plan.....................................................   96
          Performance Graph...........................................................   97

vi

POS AM
12th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 12th

                                                        [Enlarge/Download Table]

                                                                                       PAGE
                                                                                       ----
                                                                                           
OWNERSHIP OF SALLIE MAE STOCK.........................................................   98
     Board and Management Ownership of the Company....................................   98
     Principal Holders................................................................   99
LEGAL MATTERS.........................................................................   99
EXPERTS...............................................................................   99
SALLIE MAE ANNUAL MEETING SHAREHOLDER PROPOSALS.......................................  100
FINANCIAL STATEMENTS..................................................................  F-1
APPENDIX A -- AGREEMENT AND PLAN OF REORGANIZATION....................................  A-1
APPENDIX B -- STUDENT LOAN MARKETING ASSOCIATION REORGANIZATION ACT OF 1996...........  B-1
APPENDIX C -- THE FEDERAL FAMILY EDUCATION LOAN PROGRAM...............................  C-1
APPENDIX D -- INTENTIONALLY OMITTED...................................................  D-1
APPENDIX E -- DISSENT TO THE REPORT OF THE COMPENSATION AND PERSONNEL COMMITTEE.......  E-1
APPENDIX F -- PROXY STATEMENT SUPPLEMENT OF THE MAJORITY DIRECTORS....................    *
APPENDIX G -- PROXY STATEMENT SUPPLEMENT OF THE CRV...................................   **

---------------                                                                 
* Not attached hereto; to be provided separately by the Majority Directors.   
** Not attached hereto; to be provided separately by the CRV.                   

 vii

POS AM
13th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 13th

SUMMARY 

The following is a summary of certain important aspects of the        
Reorganization (as defined below) and related information discussed elsewhere in
this Proxy Statement/Prospectus. This Summary does not purport to be complete   
and is qualified in its entirety by, and should be read in conjunction with, the
more detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Proxy Statement/Prospectus, including the Proxy     
Statement Supplements of the majority of the current Sallie Mae Board of        
Directors (the "Majority Directors") and of the Committee to Restore Value at   
Sallie Mae, a shareholder group that includes eight of the 21 current Sallie Mae
directors (the "CRV"). Shareholders of the Student Loan Marketing Association   
are urged to carefully read this Proxy Statement/Prospectus, including the Proxy
Statement Supplements of the Majority Directors and of the CRV, in its entirety.
Capitalized terms used but not otherwise defined in this Summary have the       
meanings ascribed to them elsewhere in this Proxy Statement/Prospectus.         

SALLIE MAE AND THE HOLDING COMPANY                                              

The Student Loan Marketing Association ("Sallie Mae" or the "GSE") was
established in 1972 as a for-profit, stockholder-owned, government-sponsored    
enterprise to support the education credit needs of students by, among other    
things, promoting liquidity in the student loan marketplace through secondary   
market purchases. Sallie Mae is the largest source of financing and servicing   
for education loans in the United States. The student loan industry in the      
United States developed primarily to support federal student loan programs and, 
accordingly, is highly regulated. The principal government program, the Federal 
Family Education Loan Program (formerly the Guaranteed Student Loan Program)    
(the "FFELP"), was created to ensure low cost access by both needy and middle   
class families to post-secondary education. Sallie Mae's products and services  
include student loan purchases, commitments to purchase student loans and       
secured advances to originators of student loans. Sallie Mae also offers        
operational support to originators of student loans and to post-secondary       
education institutions. In addition, Sallie Mae provides other education-related
financial services. See "BUSINESS."                                             

  The Privatization Act (as defined below) authorized the restructuring of
the common stock ownership of Sallie Mae so that all of its outstanding common  
stock would be owned directly by a holding company. If the Reorganization is    
approved, SLM Holding Corporation, a recently formed Delaware corporation (the  
"Holding Company"), will become the holding company of Sallie Mae. See "THE     
REORGANIZATION PROPOSAL" and "THE PRIVATIZATION ACT." AS USED HEREIN, THE       
"COMPANY" REFERS TO SALLIE MAE PRIOR TO THE REORGANIZATION AND TO THE HOLDING   
COMPANY AS A CONSOLIDATED ENTITY FROM AND AFTER THE EFFECTIVE TIME (AS DEFINED  
BELOW) OF THE REORGANIZATION.                                                   

 On May 27, 1997, Sallie Mae and the CRV entered into a letter agreement
(the "Letter Agreement"), pursuant to which they agreed, among other things, (i)
to cooperate in the preparation and filing of this Proxy Statement/Prospectus   
(provided that Sallie Mae and the CRV were to provide the contents of the Proxy 
Statement Supplement of the Majority Directors and the Proxy Statement          
Supplement of the CRV, respectively, such Proxy Statement Supplements containing
such information as Sallie Mae and the CRV, respectively, in their sole         
discretion, deemed appropriate), (ii) to hold a special meeting of stockholders 
of Sallie Mae at which the stockholders will vote on (x) the Reorganization     
Proposal and (y) the Board Slate Proposal, including separate slates of         
directors to be nominated by Sallie Mae and the CRV, (iii) to cancel all special
meetings of stockholders of Sallie Mae called prior to May 27, 1997 in respect  
of the privatization and to void all proxies solicited prior to such date and   
(iv) to terminate the existing litigation between Sallie Mae and the CRV and to 
release each other from any claim or counterclaim that could have been brought  
against each other relating to such litigation.                                 

THE SPECIAL MEETING                                                             

     The Special Meeting of Sallie Mae shareholders (the "Special Meeting") will
be held on Thursday,                , 1997 at 11:00 a.m., at the                
[               ], Washington, DC [       ]. The Special Meeting                

 1

POS AM
14th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 14th

is being called pursuant to the Letter Agreement between Sallie Mae and the CRV.
At the Special Meeting, Sallie Mae shareholders will be asked to consider and   
vote upon the following matters:                                                

  (1) The approval and adoption of an Agreement and Plan of Reorganization
        (the "Reorganization Agreement") providing for the reorganization (the
       "Reorganization") of Sallie Mae into a wholly-owned subsidiary of the
         Holding Company pursuant to the merger (the "Merger") of a newly-formed
     subsidiary of the Holding Company ("MergerCo") with and into Sallie
       Mae, with Sallie Mae as the surviving corporation (such proposal, the
"Reorganization Proposal"); and                               

(2) If the Reorganization Proposal is approved by shareholders, the   
         selection of a slate of up to 15 nominees that will be appointed as the
   initial Holding Company Board of Directors in connection with the
    Reorganization (such proposal, the "Board Slate Proposal"). In the
    Board Slate Proposal, shareholders may vote either for a 10-person
   slate nominated by the Majority Directors (the "Majority Director
 Slate") or for a 15-person slate nominated by the CRV (the "CRV
Slate").                                                      

   If the Reorganization is approved by shareholders, each outstanding share
of common stock, par value $.20 per share, of Sallie Mae ("Sallie Mae Common    
Stock") shall be converted into one share of common stock, par value $.20 per   
share, of the Holding Company ("Holding Company Common Stock"). See "INFORMATION
REGARDING THE SPECIAL MEETING."                                                 

   Under the Privatization Act and Delaware law, the Reorganization requires
approval by the affirmative vote of the holders of a majority of the outstanding
shares of Sallie Mae Common Stock. Only holders of record of Sallie Mae Common  
Stock as of the close of business on June 6, 1997 will be entitled to notice of 
and to vote at the Special Meeting or any adjournments or postponements thereof.
Sallie Mae and the CRV have agreed not to adjourn the Special Meeting to a later
date except by mutual agreement.                                                

    Under the Board Slate Proposal, if the Reorganization Proposal is approved
by shareholders then as soon as possible after such shareholder approval Sallie 
Mae shall appoint as directors of the Holding Company the slate of nominees     
receiving the highest plurality of the votes cast in person or by proxy at the  
Special Meeting. The Proxy Statement Supplements of the Majority Directors and  
the CRV contain additional information regarding this process.                  

  As of the Record Date, 52,663,133 shares of Sallie Mae Common Stock were
outstanding and eligible to be voted, held by approximately 23,000 shareholders.
As of the Record Date, Sallie Mae's directors and named executive officers      
(excluding Robert D. Friedhoff who resigned from his positions with Sallie Mae, 
effective March 26, 1997, for personal reasons) beneficially owned 295,334      
shares of Sallie Mae Common Stock (excluding 374,620 shares underlying stock    
options), or less than 1 percent of the shares of Sallie Mae Common Stock       
outstanding as of such date.                                                    

  The vote on the Reorganization is being held at a Special Meeting rather
than an Annual Meeting because of the importance of the Reorganization to the   
Company's future and the determination that shareholders should have an         
opportunity to consider the Reorganization at a meeting dedicated to that       
purpose. If the Reorganization is consummated, the elected members of the Sallie
Mae Board would be appointed by the Holding Company. If the Reorganization is   
not approved by shareholders, an Annual Meeting of Sallie Mae shareholders will 
be held as soon as practicable to, among other things, elect Sallie Mae         
directors.                                                                      

THE REORGANIZATION PROPOSAL                                                     

BACKGROUND                                                                      

     For the last several years, Sallie Mae has advocated the "privatization" of
its business through a corporate restructuring that would permit a transition   
from government-sponsored enterprise status to a fully private, state-chartered 
corporation. Sallie Mae's federal charter restricts its business activities to  
specified education finance related activities and imposes special obligations  
on it as a government-sponsored enterprise. On September 30, 1996, Congress     
enacted the Student Loan Marketing Association Reorganization Act of 1996       

 2

POS AM
15th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 15th

(the "Privatization Act"), which authorized the creation of a holding company   
through which the Company could pursue new business opportunities beyond the    
limited scope of Sallie Mae's restrictive federal charter and effect an orderly 
wind-down of Sallie Mae following the transfer of ongoing business activities to
such a holding company. See "THE REORGANIZATION PROPOSAL."                      

REASONS FOR THE REORGANIZATION; RECOMMENDATIONS OF SALLIE MAE AND THE CRV       

The Board of Directors of Sallie Mae and the CRV each have unanimously
recommended that the holders of outstanding shares of Sallie Mae Common Stock   
vote for approval of the Reorganization Agreement under the Reorganization      
Proposal. The Reorganization Agreement is the plan approved by the Sallie Mae   
Board pursuant to the Privatization Act. For a discussion of the reasons for    
their recommendation, see "THE REORGANIZATION PROPOSAL -- Reasons for the       
Reorganization; Recommendation of Sallie Mae and the CRV."                      

With respect to the Board Slate Proposal, (i) the Majority Directors  
unanimously recommend that holders of outstanding shares of Sallie Mae Common   
Stock cast their votes in favor of the Majority Director Slate, and (ii) the CRV
unanimously recommends that holders of outstanding shares of Sallie Mae Common  
Stock cast their votes in favor of the CRV Slate. The Majority Directors have   
set forth their reasons for their recommendation of the Majority Director Slate,
including information on the nominees who comprise the slate and the corporate  
governance provisions and business plan for the Holding Company that the        
Majority Director Slate intends to implement and pursue, in the Proxy Statement 
Supplement of the Majority Directors of the Sallie Mae Board that comprises an  
integral part, and is being mailed to shareholders together with a copy, of this
Proxy Statement/Prospectus. The CRV has set forth its reasons for its           
recommendation of the CRV Slate, including information on the nominees who      
comprise the slate and the corporate governance provisions and business plan for
the Holding Company that the CRV Slate intends to implement and pursue, in the  
Proxy Statement Supplement of the CRV that comprises an integral part, and is   
being mailed to shareholders together with a copy, of this Proxy                
Statement/Prospectus.                                                           

CORPORATE STRUCTURE BEFORE AND AFTER THE REORGANIZATION                         

     Sallie Mae currently operates as a government-sponsored enterprise, subject
to the restrictions of its federal charter. Following the Reorganization, the   
GSE would be one of several subsidiaries of the Holding Company. The            
Privatization Act will impose certain restrictions on intercompany relations    
between the GSE and its affiliates during the period prior to the GSE's         
dissolution to ensure their separate operation. In particular, the GSE must not 
extend credit to, nor guarantee any debt obligations of, the Holding Company or 
the Holding Company's non-GSE subsidiaries. Although the GSE may not finance the
activities of its non-GSE affiliates, it may, subject to its minimum capital    
requirements, dividend retained earnings and surplus capital to the Holding     
Company, which in turn may use such amounts to support its non-GSE subsidiaries.
The Sallie Mae Charter (as defined below) effectively requires that it maintain 
a minimum capital ratio. The Privatization Act further directs that under no    
circumstances shall the assets of the GSE be available or used to pay claims or 
debts of or incurred by the Holding Company. See "THE REORGANIZATION            
PROPOSAL -- Corporate Structure Before and After the Reorganization."           

EFFECT OF THE REORGANIZATION ON OUTSTANDING SECURITIES OF SALLIE MAE            

Pursuant to the Reorganization Agreement, MergerCo, a newly-formed,   
wholly-owned subsidiary of the Holding Company, will be merged with and into the
GSE with the GSE surviving, each outstanding share of Sallie Mae Common Stock   
will be converted into one share of Holding Company Common Stock and the        
outstanding shares of the common stock of MergerCo will be converted into all of
the issued and outstanding shares of Sallie Mae Common Stock, all of which will 
then be owned by the Holding Company. If the Reorganization is approved, the    
Reorganization will become effective at the time the certificate of merger is   
filed with the Secretary of State of the State of Delaware (the "Effective      
Time"), which is expected to occur as soon as practicable following the Special 
Meeting. As a result of the Reorganization, Sallie Mae will become a subsidiary 
of the Holding Company and all of the Holding Company Common Stock outstanding  
immediately after the Reorganization will be owned by the holders of Sallie Mae 
Common Stock outstanding immediately prior to the Reorganization.               

 3

POS AM
16th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 16th

The Reorganization will not result in any change to Sallie Mae's      
outstanding class of preferred stock or to its outstanding debt obligations and 
all of the outstanding securities of Sallie Mae (other than the Sallie Mae      
Common Stock and common stock equivalents) will remain outstanding immediately  
after the Reorganization. The Privatization Act requires that the GSE's         
preferred stock be repurchased or redeemed upon the GSE's dissolution, no later 
than September 30, 2008. See "THE REORGANIZATION PROPOSAL -- Treatment of       
Preferred Stock." The Privatization Act provides that the Reorganization will   
not modify the attributes accorded to the debt obligations of Sallie Mae by the 
Sallie Mae Charter.                                                             

It will not be necessary for holders of Sallie Mae Common Stock to    
immediately exchange their existing stock certificates for stock certificates of
the Holding Company in connection with the Reorganization. Following the        
Reorganization, new certificates bearing the name of SLM Holding Corporation    
will be issued by Chase Mellon Shareholder Services as outstanding certificates 
are presented for transfer. In addition, new certificates of the Holding Company
will be issued in exchange for old certificates of the GSE upon the request of  
any shareholder. Certificates presented for transfer to a name other than that  
in which the surrendered certificate is registered must be properly endorsed,   
with the signature guaranteed, and accompanied by evidence of payment of any    
applicable stock transfer taxes. See "TERMS OF THE REORGANIZATION AGREEMENT."   

HOLDING COMPANY BOARD OF DIRECTORS                                              

  Assuming shareholder approval of the Reorganization Proposal, as soon as
possible after such approval and before the Reorganization is effected Sallie   
Mae (as sole shareholder of the Holding Company) shall appoint as directors of  
the Holding Company the slate of nominees receiving the highest plurality of the
votes cast in person or by proxy at the Special Meeting; provided that, if      
minority positions exist on the Holding Company Board because the slate of      
nominees that receives the greater number of votes consists of less than 15     
persons, and if any of the nominees of the other slate have consented to serve  
in such circumstances as minority directors, then that other slate can select   
from among its consenting nominees, if any, the persons who will be named to    
fill the minority positions on the Holding Company Board. If the number of      
nominees who have consented to fill any minority positions on the Holding       
Company Board is not sufficient to constitute a 15 member Holding Company Board 
of Directors, then the vacancies shall be either filled by the Holding Company  
Board of Directors or left vacant until the next election of directors, in      
either case pursuant to the process set forth in the Holding Company Certificate
of Incorporation and By-laws. See "THE BOARD SLATE PROPOSAL."                   

HOLDING COMPANY CERTIFICATE OF INCORPORATION AND BY-LAWS                        

   The terms of the corporate governance provisions set forth in the Holding
Company Certificate of Incorporation and By-laws following the effective date of
the Reorganization depend upon whether the Majority Director Slate or the CRV   
Slate receives the highest plurality of votes cast in person or by proxy in     
respect of the Board Slate Proposal. In the event that the Reorganization       
Proposal is approved and the Majority Director Slate receives the highest       
plurality of votes cast in respect of the Board Slate Proposal, then after      
Sallie Mae appoints the Majority Director Slate to the Holding Company Board of 
Directors and before the effectiveness of the Reorganization, the Holding       
Company Board of Directors and Sallie Mae (as sole shareholder of the Holding   
Company) will take or cause to be taken any and all actions they deem necessary 
or appropriate to amend the Holding Company's Certificate of Incorporation and  
By-laws so as to implement the provisions as described in the Proxy Statement   
Supplement of the Majority Directors. In the event that the Reorganization      
Proposal is approved and the CRV Slate receives the highest plurality of votes  
cast in respect of the Board Slate Proposal, then after Sallie Mae appoints the 
CRV Slate to the Holding Company Board of Directors and before the effectiveness
of the Reorganization, the Holding Company Board of Directors and Sallie Mae (as
sole shareholder of the Holding Company) will take or cause to be taken any and 
all actions they deem necessary or appropriate to amend the Holding Company's   
Certificate of Incorporation and By-laws so as to implement the provisions as   
described in the Proxy Statement Supplement of the CRV. See "COMPARISON OF      
STOCKHOLDER RIGHTS."                                                            

 4

POS AM
17th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 17th

BUSINESS ACTIVITIES AFTER THE REORGANIZATION                                    

The manner in which the Company operates its business after the       
Reorganization depends upon whether the Majority Director Slate or the CRV Slate
receive the highest plurality of votes cast in person or by proxy in respect of 
the Board Slate Proposal. In the event that the Reorganization Proposal is      
approved and the Majority Director Slate receives the highest plurality of votes
cast in respect of the Board Slate Proposal, the Holding Company directors who  
were nominated as members of the Majority Director Slate intend to pursue the   
business strategy described in the Proxy Statement Supplement of the Majority   
Directors. In the event that the Reorganization Proposal is approved and the CRV
Slate receives the highest plurality of votes cast in respect of the Board Slate
Proposal, the Holding Company directors who were nominated as members of the CRV
Slate intend to pursue the business strategy described in the Proxy Statement   
Supplement of the CRV.                                                          

THE PRIVATIZATION ACT                                                           

The Privatization Act provides the framework for Sallie Mae's         
reorganization into a wholly-owned subsidiary of a holding company and imposes  
certain restrictions on the operations of the Holding Company and its           
subsidiaries after the reorganization is consummated. See "THE PRIVATIZATION    
ACT" and "REGULATION." The Reorganization Agreement is the plan of              
reorganization approved by a majority of the Sallie Mae Board. The Privatization
Act requires the Company to pay $5 million to the District of Columbia Financial
Responsibility and Management Assistance Authority (the "D.C. Financial Control 
Board") for the restricted use of the "Sallie Mae" name and to issue to the D.C.
Financial Control Board warrants to purchase 555,015 shares of Holding Company  
Common Stock, exercisable at any time prior to September 30, 2008 at $72.43 per 
share.                                                                          

SUBSIDIARY STOCK AND ASSET TRANSFERS                                            

  The Privatization Act requires that at the Effective Time, or as soon as
practicable thereafter, the GSE shall transfer to the Holding Company or one or 
more of its non-GSE subsidiaries, certain assets, including all of the capital  
stock of which the GSE is the beneficial owner in certain subsidiaries (the     
"Transferred Subsidiaries"). It is anticipated that net asset transfers         
(including the transfer of the Transferred Subsidiaries) occurring in the first 
year after the Reorganization will aggregate approximately $100 million and that
certain fixed assets will be transferred within approximately three years of the
Reorganization. Based on preliminary discussions with commercial banking        
sources, the Company believes it will be able to secure financing at a          
reasonable cost through the Holding Company for such asset transfers. Although  
the foregoing asset transfers will likely result in some incremental financing  
costs and state taxes, such expenses are not expected to have any material      
impact on the Company's financial results. See "MANAGEMENT'S DISCUSSION AND     
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Years ended        
December 31, 1994-1996 -- Liquidity and Capital Resources."                     

EMPLOYEE AND BENEFIT TRANSFERS                                                  

     As required by the Privatization Act, all GSE employees will be transferred
from the GSE at the Effective Time. In connection with the Reorganization,      
employee benefit obligations and benefit plans of the GSE will be transferred to
the Holding Company or one of its non-GSE subsidiaries. After the               
Reorganization, Sallie Mae stock-based employee benefit plans will be amended to
provide for the delivery of Holding Company Common Stock instead of Sallie Mae  
Common Stock.                                                                   

WIND-DOWN PERIOD                                                                

Following the Reorganization, the GSE entity will be liquidated and   
dissolved on or before September 30, 2008. During this wind-down period, it is  
expected that the GSE's operations will be managed by its non-GSE affiliates.   
Also, during this period, the Holding Company will remain a passive entity which
supports the operations of the GSE and its other subsidiaries, and all business 
activities will be conducted through the GSE and by the other subsidiaries. The 
use of the "Sallie Mae" name by the Holding Company and its subsidiaries is     
restricted by the Privatization Act, as described herein.                       

     During the wind-down period, the GSE's new business activities are limited.
The GSE generally may continue to purchase student loans only through September 
30, 2007. The GSE's other lines of business, such                               

 5

POS AM
18th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 18th

as warehousing advances, letters of credit and standby bond purchase            
commitments, will be limited to takedowns on contractual financing and guarantee
commitments in place as of the Effective Time. In addition, the business        
activities of the Holding Company and its non-GSE subsidiaries are also subject 
to certain limitations, including a limitation against purchases of FFELP loans 
for so long as the GSE continues this type of activity. Subject to the          
foregoing, the Holding Company could elect at any time to commence FFELP student
loan purchases through its non-GSE subsidiaries. In addition, it is expected    
that during the wind-down period the GSE would provide financing and letter of  
credit support under existing contractual commitments which aggregate           
approximately $2.3 billion and $3.7 billion, respectively, as of March 31, 1997.
The GSE would also maintain an investment portfolio during the wind-down.       

     After the Reorganization, Sallie Mae will be able to continue to issue debt
in the government agency market to finance student loans and other permissible  
asset acquisitions, although the maturity date of such issuances generally may  
not extend beyond September 30, 2008, Sallie Mae's final dissolution date. If at
anytime during the wind-down period the GSE's capital ratio falls below certain 
required levels (2 percent of assets until January 1, 2000 and 2.25 percent of  
assets thereafter), the Holding Company is required to supplement the GSE's     
capital to achieve the required level. Upon dissolution of the GSE, any         
remaining GSE obligations will be transferred into a defeasance trust for the   
benefit of the holders of such obligations. If the GSE has insufficient assets  
to fully fund such defeasance trust, the Holding Company must transfer          
sufficient assets to such trust to account for this shortfall.                  

     A law enacted at the same time as the Privatization Act contains amendments
to the Federal Deposit Insurance Act that prohibit depository institutions from 
being affiliates of government-sponsored enterprises. This restriction          
effectively limits the ability of the Company and its affiliates to originate   
insured student loans through an affiliated depository institution as long as   
the GSE remains in existence.                                                   

CHARTER SUNSET IF REORGANIZATION DOES NOT OCCUR                                 

    If a reorganization pursuant to the Privatization Act does not occur on or
prior to March 31, 1998, the Privatization Act requires that it submit an       
alternative wind-down plan to Congress and the Treasury Department by 2007. As  
required by the Privatization Act, this plan would call for the dissolution of  
Sallie Mae by 2013. During this alternative wind-down period, Sallie Mae could  
not engage in new business activities beyond those contemplated by the Sallie   
Mae Charter but could transfer assets, except for the "Sallie Mae" name, at any 
time its statutory capital requirements were satisfied. As with the             
Reorganization, any remaining obligations, and assets sufficient to pay such    
obligations, would be transferred to a fully collateralized trust at the time of
dissolution. All other assets would be distributed to Sallie Mae shareholders.  
Under this alternative, Sallie Mae generally would have to cease its business   
activities after 2009 and could not issue debt obligations that mature after    
2013. The Secretary of the Treasury, who would monitor the wind-down, could     
require Sallie Mae to amend its plan of dissolution if deemed necessary to      
ensure full payment of its obligations.                                         

The Sallie Mae Board of Directors, which unanimously approved the     
Reorganization Agreement, believes that the Reorganization is in the best       
interests of the Company. For the reasons the Sallie Mae Board voted to approve 
the Reorganization, see "THE REORGANIZATION PROPOSAL -- Reasons for the         
Reorganization; Recommendation of Sallie Mae and the CRV." As a result of the   
belief of the Sallie Mae Board that the Reorganization Agreement is in the best 
interests of shareholders and the recommendation that shareholders approve the  
Reorganization Agreement, the Sallie Mae Board has not determined what action,  
if any, it may take with respect to privatization in the event the              
Reorganization Agreement is not approved. If the Reorganization Agreement is not
approved by shareholders, an Annual Meeting of Sallie Mae shareholders will be  
held as soon as practicable to, among other things, elect Sallie Mae directors. 
Under the Privatization Act, the effective date of a reorganization providing   
for the restructuring of common stock ownership of Sallie Mae so that all of its
outstanding common stock would be owned directly by a holding company must occur
on or prior to March 31, 1998. If the effective date has not occurred prior to  
such date, the charter sunset provisions would apply. If the Reorganization     
Agreement is not approved, it appears that there would be sufficient time for   
the Sallie Mae Board to adopt an alternate plan of reorganization and to seek   
shareholder approval for such a plan. However, there can be no assurance that   
the Sallie Mae Board will adopt an alternate plan of reorganization, and, if the
Sallie Mae Board adopted an alternate plan, there can be no                     

 6

POS AM
19th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 19th

assurance as to the terms of such a plan or as to whether it would be approved  
by holders of the requisite number of shares of Sallie Mae Common Stock in a    
timely manner.                                                                  

OTHER PROVISIONS OF THE REORGANIZATION                                          

NO DISSENTERS' APPRAISAL RIGHTS                                                 

     Sallie Mae shareholders have no statutory appraisal rights. See "COMPARISON
OF STOCKHOLDER RIGHTS."                                                         

DIVIDEND POLICY                                                                 

    It is anticipated that the Holding Company will initially pay dividends on
Holding Company Common Stock at the rate most recently paid, and on             
approximately the same schedule, as dividends have been paid on Sallie Mae      
Common Stock. No assurance, however, can be given as to the amount of future    
dividends, which will necessarily be dependent on future earnings and the       
financial requirements of the Holding Company and its subsidiaries, including   
the GSE, after the Reorganization. The Holding Company's principal source of    
funds is expected to be funds from dividends on the stock of its subsidiaries   
and proceeds from any issuances of the Holding Company's equity or debt         
securities. The ability of the GSE to pay dividends is generally subject to the 
capital requirements included in Sallie Mae's federal charter set forth in      
Section 439, Part B, Title VI of the Higher Education Act of 1965, as amended,  
codified at 20 U.S.C. sec.1087-2, (the "Sallie Mae Charter"), and to the        
priority of dividends on the preferred stock. See "THE REORGANIZATION           
PROPOSAL -- Dividend Policy."                                                   

STOCK EXCHANGE LISTING                                                          

   Sallie Mae has filed an application to list the shares of Holding Company
Common Stock to be issued in connection with the Reorganization on the New York 
Stock Exchange ("NYSE"), subject to approval of the Reorganization Agreement by 
the Sallie Mae shareholders and official notice of issuance. The shares of      
Sallie Mae Common Stock are traded, and the shares of Holding Company Common    
Stock are expected to be traded, on the NYSE under the symbol "SLM." If the     
Reorganization is consummated, shares of Sallie Mae Common Stock will be        
delisted at the same time the Holding Company shares are listed. See "THE       
REORGANIZATION PROPOSAL -- Stock Exchange Listing."                             

CERTAIN FEDERAL INCOME TAX CONSEQUENCES                                         

The obligation of Sallie Mae to consummate the Reorganization is      
conditioned upon the receipt by Sallie Mae of an opinion of counsel in form and 
substance reasonably satisfactory to Sallie Mae, dated as of the Effective Time,
substantially to the effect that, on the basis of facts, representations and    
assumptions set forth in such opinion and set forth in certificates of officers 
of the Holding Company, Sallie Mae and others, as well as representation letters
of certain holders of Sallie Mae Common Stock, all of which are consistent with 
the state of facts existing at the Effective Time, the Merger will be treated   
for U.S. federal income tax purposes as a nonrecognition transfer of shares of  
Sallie Mae Common Stock by the holders thereof to the Holding Company for shares
of Holding Company Common Stock. See "TERMS OF THE REORGANIZATION AGREEMENT" and
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES."                                      

REGULATION                                                                      

   The GSE will continue to be subject to the requirements of the Sallie Mae
Charter and to certain regulations irrespective of whether the Reorganization is
approved. The Privatization Act amends the Sallie Mae Charter to provide for    
increased oversight of GSE operations by, and the reimbursement of certain      
oversight costs to, the Secretary of the Treasury as well as the increase of    
Sallie Mae's required shareholders' equity ratio from the current level of 2    
percent of assets to 2.25 percent of assets beginning after January 1, 2000.    

    Following the Reorganization, the Company will be an eligible lender under
the Higher Education Act of 1965, as amended, for purposes only of purchasing   
and holding student loans made by other lenders. Like other participants in the 
insured student loan programs, the Company will be subject, from time to time,  
to review of its student lending operations by the U.S. Department of Education,
certain guarantee agencies and                                                  

 7

POS AM
20th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 20th

the General Accounting Office. In addition, Sallie Mae Servicing Corporation, a 
wholly-owned subsidiary of Sallie Mae, as a servicer of student loans, is       
subject to certain U.S. Department of Education regulations regarding financial 
responsibility and administrative capability that govern all third party        
servicers of insured student loans. See "REGULATION."                           

COMPARISON OF STOCKHOLDER RIGHTS                                                

There are certain differences between the present rights of holders of
Sallie Mae Common Stock and the rights of holders of Holding Company Common     
Stock after the Reorganization. These differences depend upon whether the       
Majority Director Slate or the CRV Slate receives the highest plurality of the  
votes cast in person or by proxy in respect of the Board Slate Proposal. In the 
event that the Reorganization Proposal is approved and the Majority Director    
Slate receives the highest plurality of votes cast in respect of the Board Slate
Proposal, the nominees included in the Majority Director Slate, once elected to 
the Holding Company Board, will implement the Holding Company Charter and By-Law
provisions described in the Proxy Statement Supplement of the Majority          
Directors. In the event that the Reorganization Proposal is approved and the CRV
Slate receives the highest plurality of votes cast in respect of the Board Slate
Proposal, the nominees included in the CRV Slate, once elected to the Holding   
Company Board, will implement the Holding Company Charter and By-Law provisions 
described in the Proxy Statement Supplement of the CRV. For a comprehensive     
comparison of the relative rights of holders of Sallie Mae Common Stock and     
holders of Holding Company Common Stock under the provisions to be implemented  
under the Majority Director Slate, see the Proxy Statement Supplement of the    
Majority Directors which is being mailed by the Majority Directors to           
shareholders together with a copy of this Proxy Statement/Prospectus. For a     
comprehensive comparison of the relative rights of holders of Sallie Mae Common 
Stock and holders of Holding Company Common Stock under the provisions to be    
implemented under the CRV Slate, see the Proxy Statement Supplement of the CRV  
which is being mailed by the CRV to shareholders together with a copy of this   
Proxy Statement/Prospectus.                                                     

HOLDING COMPANY BOARD OF DIRECTORS                                              

 Sallie Mae, as the sole stockholder of the Holding Company prior to the
Reorganization, will appoint the members of the Holding Company Board to serve  
until their successors are duly elected. After the Effective Time, the Company  
stockholders will elect all of the members of the Holding Company Board at each 
annual meeting beginning with the 1998 Annual Meeting of the Company, which     
meeting is expected to take place in April of 1998. If the Reorganization       
Proposal is approved by shareholders, then as soon as possible after such       
approval Sallie Mae shall appoint as directors of the Holding Company the slate 
of nominees receiving the highest plurality of the votes cast in person or by   
proxy at the Special Meeting in respect of the Board Slate Proposal; provided   
that, if the Majority Director Slate receives the greater number of votes, and  
if any of the nominees of the CRV Slate have consented to serve in such         
circumstances as minority directors, then the CRV Slate can select from among   
its consenting nominees, if any, the persons who will be named to fill the      
minority positions on the Holding Company Board. If the number of nominees who  
have consented to fill any minority positions on the Holding Company Board is   
not sufficient to constitute a 15 member Holding Company Board of Directors,    
then the vacancies shall be either filled by the Holding Company Board of       
Directors or left vacant until the next election of directors, in either case   
pursuant to the process set forth in the Holding Company Certificate of         
Incorporation and By-laws. See "THE BOARD SLATE PROPOSAL." For a discussion of  
the Majority Director Slate, see the Proxy Statement Supplement of the Majority 
Directors that comprises an integral part, and is being mailed to shareholders  
together with a copy, of this Proxy Statement/Prospectus. For a discussion of   
the CRV Slate, see the Proxy Statement Supplement of the CRV that comprises an  
integral part, and is being mailed to shareholders together with a copy, of this
Proxy Statement/Prospectus.                                                     

RISK FACTORS                                                                    

In considering whether to approve the Reorganization Agreement,       
shareholders of Sallie Mae should consider the lack of history of the Holding   
Company's operations, that the Holding Company will have a new board of         
directors, that Sallie Mae currently has a divided board of directors and the   
political risks associated with the Company's business. See "RISK FACTORS."     

 8

POS AM
21st Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 21st

SUMMARY SELECTED FINANCIAL DATA 

The following table sets forth selected financial and other operating 
information of Sallie Mae. The selected financial data in the table are derived 
from the consolidated financial statements of Sallie Mae. The data should be    
read in conjunction with the consolidated financial statements, related notes,  
and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 
OPERATIONS" included elsewhere herein.                                          

                                                        [Enlarge/Download Table]

                                   THREE MONTHS ENDED                                                           
                                       MARCH 31,                       YEARS ENDED DECEMBER 31,                 
                                   ------------------   ------------------------------------------------------- 
                                                                                                                
                                    1997       1996      1996       1995(1)     1994(1)     1993(1)     1992(1) 
                                   -------    -------   -------     -------     -------     -------     ------- 


(DOLLARS IN MILLIONS, EXCEPT PER                                                                                
SHARE AMOUNTS)                                                                                                  
                                                                                                                
OPERATING DATA:                                                                                                 
Net interest income............... $   199    $   233   $   866     $   901     $   982     $ 1,169     $   987 
Net income........................     119        103       419         366         420         443         402 
Earnings per common share.........    2.17       1.74      7.32        5.27        5.13        4.98        4.30 
Dividends per common share........     .44        .40      1.64        1.51        1.42        1.25        1.05 
Return on common stockholders'                                                                                  
  equity..........................   57.64%     47.84%    50.13%(3)   29.17%(3)   27.85%(3)   37.68%      37.26%
Net interest margin...............    1.75       1.99      1.90        1.84        2.14        2.74        2.32 
Return on assets..................    1.00        .85       .88         .71         .87         .99         .89 
Dividend payout ratio.............   20.32      22.94     22.40       28.64       27.66       25.10       24.41 
Average equity/average assets.....    2.05       2.10      2.09        2.68        3.39        2.97        2.73 
BALANCE SHEET DATA:                                                                                             
Student loans purchased........... $31,043    $33,881   $32,308     $34,336     $30,571     $26,978     $24,326 
Student loan participations.......   1,805          -     1,446           -           -           -           - 
Warehousing advances..............   2,533      3,338     2,789       3,865       7,032       7,034       8,085 
Academic facilities financings....   1,405      1,371     1,473       1,312       1,548       1,359       1,189 
Total assets......................  46,330     48,174    47,630      50,002      53,161      46,682      46,775 
Long-term notes...................  20,102     27,731    22,606      30,083      34,319      30,925      30,724 
Total borrowings..................  43,105     45,723    44,763      47,530      50,335      44,544      44,440 
Stockholders' equity..............   1,010      1,025     1,048(3)    1,081(3)    1,601(3)    1,393       1,321 
Book value per common share.......   15.08      14.34     15.53       15.03       18.87       14.03       12.39 
OTHER DATA:                                                                                                     
Securitized student loans                                                                                       
  outstanding..................... $ 7,968    $ 2,397   $ 6,263     $   954     $     -     $     -     $     - 
Core earnings(2)..................     115         93       391         361         356         398         402 
Premiums on debt extinguished.....       -          7         7           8          14         211         141 

---------------                                                                 
(1) Previously reported results for the years ended December 31, 1995, 1994,    
    1993 and 1992 have been restated to retroactively reflect the recognition of
student loan income as earned (see Note 2 to the Consolidated Financial 
   Statements). This restatement resulted in the elimination of the previously
  reported 1995 cumulative effect of the change in accounting method of $130
   million ($1.93 per common share) and an increase to previously reported net
   income of $17 million ($.22 per common share), $13 million ($.15 per common
  share) and $8 million ($.09 per common share) for the years ended December
31, 1994, 1993 and 1992, respectively.                                  

(2) Core earnings is defined as Sallie Mae's net income less the after-tax      
effect of floor revenues and other one-time charges. Management believes
that these measures, which are not measures under generally accepted    
    accounting principles (GAAP), are important because they depict Sallie Mae's
   earnings before the effects of one time events such as floor revenues which
  are largely outside of Sallie Mae's control. Management believes that core
    earnings as defined, while not necessarily comparable to other companies use
   of similar terminology, provide for meaningful period to period comparisons
as a basis for analyzing trends in Sallie Mae's student loan operations.

(3) At March 31, 1997 and 1996 and at December 31, 1996, 1995 and 1994,         
  stockholders' equity reflects the addition to stockholders' equity of $331
million, $343 million, $349 million, $371 million and $300 million,     
respectively, net of tax, of unrealized gains on certain investments    
  recognized pursuant to FAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities."                                            

 9

POS AM
22nd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 22nd

MARKET DATA 

Because the Holding Company is a newly-formed corporation and there is
currently no established trading market for its securities, no information can  
be provided as to historical market prices for the Holding Company Common Stock.
Historical market prices for Sallie Mae Common Stock, however, may provide      
relevant historical market information for determining the market value of the  
Holding Company. Sallie Mae and the Holding Company will take all actions       
necessary or advisable to ensure that the Holding Company Common Stock will be  
approved for listing on the NYSE upon consummation of the Reorganization. The   
Sallie Mae Common Stock trades on the NYSE under the symbol "SLM." The following
table sets forth, for the periods indicated, the high and low sales prices per  
share of Sallie Mae Common Stock as reported on the NYSE Composite Tape, and the
quarterly cash dividends per share declared with respect thereto.               

                                                                [Download Table]

                                                  HIGH      LOW       DIVIDEND
                                                  ----      ---       --------
                                                                              
1994                                                                          
First Quarter..................................   $ 49 7/8  $42 7/8     $.35  
Second Quarter.................................     44 1/8   35 3/4      .35  
Third Quarter..................................     39 1/8   32          .35  
Fourth Quarter.................................     35       31 1/4      .37  

1995                                                                          
First Quarter..................................     39       32 7/8      .37  
Second Quarter.................................     48 3/8   34 1/2      .37  
Third Quarter..................................     55 3/4   47          .37  
Fourth Quarter.................................     70 7/8   54          .40  

1996                                                                          
First Quarter..................................     86 1/8   63 1/4      .40  
Second Quarter.................................     83 1/2   66          .40  
Third Quarter..................................     77       69 1/4      .40  
Fourth Quarter.................................     98 1/4   77 1/4      .44  

1997                                                                          
First Quarter..................................    114 1/4   89          .44  
Second Quarter (through June 12, 1997).........    135       94 5/8      .44  

    On January 23, 1997, the last trading day before the announcement that the
Sallie Mae Board had approved the Reorganization, the last sales price of Sallie
Mae Common Stock was $108.00 per share, as reported on the NYSE Composite Tape. 

    On        , 1997, the last trading day prior to the printing of this Proxy
Statement/Prospectus, the last sales price of Sallie Mae Common Stock was       
$     per share, as reported on the NYSE Composite Tape.                        

  At June 6, 1997, the Record Date, 52,663,133 shares of Sallie Mae Common
Stock were outstanding and eligible to be voted, held by approximately 23,000   
shareholders.                                                                   

10

POS AM
23rd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 23rd

RISK FACTORS

In considering whether to approve the Reorganization Agreement,       
shareholders of Sallie Mae should consider the following matters.               

NO HISTORICAL OPERATIONS.  The Holding Company, which was created in  
accordance with the terms of the Privatization Act, does not have an operating  
history, although it will own Sallie Mae and the Transferred Subsidiaries. The  
operations of the Company following the Reorganization may not reflect Sallie   
Mae's historical operations. In addition, as a general purpose corporation, the 
Holding Company will have authority to engage in new lines of business (through 
non-GSE subsidiaries) which are not authorized under the limited purpose Sallie 
Mae Charter. There can be no assurance that any new lines of business in which  
the Company may engage following the Reorganization would be successful. See    
"THE PRIVATIZATION ACT -- Limitations on Holding Company Activities" and        
"BUSINESS."                                                                     

  NEW BOARD OF DIRECTORS.  Under either the Majority Director Slate or the
CRV Slate, the Holding Company Board will include certain individuals who are   
not current members of the 21 member Sallie Mae Board. Depending on the         
composition of the nominees to the Holding Company Board contained in each of   
the Majority Director Slate and the CRV Slate and the outcome of the Board Slate
Proposal, it is possible that the Holding Company Board will be composed of a   
number of members associated with a majority of the Sallie Mae Board and a      
number of members associated with the CRV, potentially resulting in continued   
dissent among directors of the Company. In addition, the nature of the business 
plan the Holding Company Board will implement for the Company following the     
Reorganization depends on whether a majority of the nominees from the Majority  
Director Slate or the CRV Slate receive the highest plurality of the votes cast 
in person or by proxy in respect of the Board Slate Proposal and institutes its 
respective business plan. For a further discussion of the nominees comprising   
the Majority Director Slate and their respective business plans and corporate   
governance provisions, see the Proxy Statement Supplement of the Majority       
Directors which is being mailed by the Majority Directors to shareholders       
together with a copy of this Proxy Statement/ Prospectus. For a further         
discussion of the nominees comprising the CRV Slate and their respective        
business plans and corporate governance provisions, see the Proxy Statement     
Supplement of the CRV, which is being mailed by the CRV to shareholders together
with a copy of this Proxy Statement/Prospectus.                                 

   The Majority Directors and the eight current Sallie Mae directors who are
members of the CRV advocate different business strategies and different         
corporate governance provisions for the Company and in the past have disagreed  
as to the means of implementing privatization. See "THE REORGANIZATION          
PROPOSAL -- Background." The efforts of the Majority Directors and the CRV to   
date have, and in the future may, result in debates among shareholders, the     
Company and its directors.                                                      

   POLITICAL RISKS.  Although the Holding Company would be a state-chartered
corporation, after the Reorganization Sallie Mae will continue to be subject to 
the political risks attendant to its status as a government-sponsored           
enterprise. In addition, the student loan business is dependent to a significant
degree upon government programs and is highly regulated, and therefore remains  
subject to political risks. See "THE REORGANIZATION PROPOSAL -- Background,"    
"BUSINESS" and "REGULATION."                                                    

11

POS AM
24th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 24th

INFORMATION REGARDING THE SPECIAL MEETING 

PURPOSE                                                                         

   The Special Meeting is being called pursuant to an agreement (the "Letter
Agreement") between Sallie Mae and The Committee to Restore Value at Sallie Mae 
(the "CRV"), which is a shareholder group that includes eight current Sallie Mae
directors. At the Special Meeting of Shareholders (the "Special Meeting") of the
Student Loan Marketing Association ("Sallie Mae" or the "GSE"), the shareholders
of Sallie Mae will be asked to consider and vote upon the following matters:    

  (1) The approval and adoption of an Agreement and Plan of Reorganization
(the "Reorganization Agreement") among Sallie Mae, SLM Holding
   Corporation, a newly-formed Delaware corporation and wholly-owned
         subsidiary of Sallie Mae (the "Holding Company"), and Sallie Mae Merger
Company, a newly-formed Delaware corporation and wholly-owned 
      subsidiary of the Holding Company ("MergerCo" and such proposal, the
"Reorganization Proposal"); and                               

(2) If the Reorganization Proposal is approved by shareholders, the   
         selection of a slate of up to 15 nominees that will be appointed as the
   initial Holding Company Board of Directors in connection with the
    Reorganization (such proposal, the "Board Slate Proposal"). In the
    Board Slate Proposal, shareholders may vote either for a 10-person
        slate nominated by a majority of the current Sallie Mae directors (the
      "Majority Director Slate") or for a 15-person slate nominated by the
CRV (the "CRV Slate").                                        

The Reorganization Agreement provides for the reorganization (the     
"Reorganization") of Sallie Mae into a wholly-owned subsidiary of the Holding   
Company pursuant to the merger (the "Merger") of MergerCo with and into Sallie  
Mae, with Sallie Mae as the surviving corporation. If the Reorganization        
Agreement is approved and the Merger is consummated, (i) each outstanding share 
of common stock, par value $.20 per share, of Sallie Mae ("Sallie Mae Common    
Stock") would be converted into one share of common stock, par value $.20 per   
share of the Holding Company ("Holding Company Common Stock") and (ii) all of   
the outstanding shares of MergerCo would be converted into all of the issued and
outstanding shares of Sallie Mae Common Stock, all of which will then be owned  
by the Holding Company.                                                         

The Letter Agreement provides that, if shareholders approve the       
Reorganization Proposal, as soon as possible after such approval and before the 
Reorganization is effected Sallie Mae (as sole shareholder of the Holding       
Company) shall appoint as directors of the Holding Company the 15 nominees      
receiving the highest plurality of the votes cast in person or by proxy at the  
Special Meeting; provided that, if minority positions will exist on the Holding 
Company Board because the slate of nominees that receives the greater number of 
votes consists of less than 15 persons, and if any of the nominees of the other 
slate have consented to serve in such circumstances as minority directors, then 
that other slate can select from among its consenting nominees, if any, the     
persons who will be named to fill the minority positions on the Holding Company 
Board. If the number of nominees who have consented to fill any minority        
positions on the Holding Company Board is not sufficient to constitute a 15     
member Holding Company Board of Directors, then the vacancies shall be either   
filled by the Holding Company Board of Directors or left vacant until the next  
election of directors, in each case pursuant to the process set forth in the    
Holding Company Certificate of Incorporation and By-laws. See "THE BOARD SLATE  
PROPOSAL." This Proxy Statement/Prospectus is also furnished to Sallie Mae      
shareholders to supplement the prospectus of the Holding Company relating to the
shares of Holding Company Common Stock issuable in connection with the          
Reorganization. The vote on the Reorganization is being held at a Special       
Meeting rather than an Annual Meeting because of the importance of the          
Reorganization to the Company's future and the determination that shareholders  
should have an opportunity to consider the Reorganization at a meeting dedicated
to that purpose. If the Reorganization is consummated, the Sallie Mae Board     
would be appointed by the Holding Company. If the Reorganization is not approved
by shareholders, an Annual Meeting of Sallie Mae shareholders will be held as   
soon as practicable prior to August 30, 1997 to, among other things, elect      
Sallie Mae directors.                                                           

12

POS AM
25th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 25th

PLACE, TIME AND DATE OF MEETING                                                 

 The Special Meeting will be held on Thursday,             , 1997 at the
[          ], Washington, DC [          ], beginning at 11:00 a.m., local time, 
and at any adjournments or postponements thereof. The Letter Agreement provides 
that the Special Meeting shall not be adjourned to a later date except by mutual
agreement of Sallie Mae and the CRV.                                            

RECORD DATE; SHARES ENTITLED TO VOTE                                            

  Only holders of record (each, a "Record Holder") of shares of Sallie Mae
Common Stock at the close of business on June 6, 1997, the record date for the  
Special Meeting (the "Record Date"), are entitled to notice of, and to vote at, 
the Special Meeting and any adjournments or postponements thereof.              

QUORUM; VOTES REQUIRED                                                          

  The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Sallie Mae Common Stock entitled to vote at the Special   
Meeting will be necessary to constitute a quorum for the transaction of         
business. If such a quorum is not present, a majority of shares so represented  
may adjourn the Special Meeting to a future date. Abstentions and broker        
non-votes are counted when determining the presence of a quorum for the         
transaction of business.                                                        

    Approval of the Reorganization requires the affirmative vote of holders of
at least a majority of the outstanding shares of Sallie Mae Common Stock.       
Abstentions and broker non-votes on the Reorganization Proposal have the same   
effect as a vote against the Reorganization.                                    

     Under the Board Slate Proposal, the slate of nominees receiving the highest
plurality of the votes cast in person or by proxy at the Special Meeting shall  
be appointed as directors of the Holding Company Board. Abstentions and broker  
non-votes on the Board Slate Proposal will not be counted as votes cast for     
either slate of nominees.                                                       

COMMON STOCK INFORMATION                                                        

  As of the Record Date, 52,663,133 shares of Sallie Mae Common Stock were
outstanding and eligible to be voted, held by approximately 23,000 shareholders.
As of the Record Date, Sallie Mae's directors, named executive officers         
(excluding Robert D. Friedhoff who resigned from his positions with Sallie Mae  
effective March 26, 1997, for personal reasons) beneficially owned 295,334      
shares of Sallie Mae Common Stock (excluding 374,620 shares underlying stock    
options), or less than 1 percent of the shares of Sallie Mae Common Stock       
outstanding as of such date. The Sallie Mae Common Stock is listed on the New   
York Stock Exchange ("NYSE") under the symbol "SLM."                            

VOTING AND REVOCATION OF PROXIES                                                

Shares of Sallie Mae Common Stock that are entitled to vote and are   
represented at the Special Meeting by properly executed proxies received and not
properly revoked will be voted at the Special Meeting in the manner directed on 
such proxies. Shares may be voted in person or by proxy. Any proxy given by a   
Record Holder may be revoked by the person giving such proxy at any time before 
the closing of the polls by executing a new proxy or voting in person his or her
shares at the Special Meeting. Only those proxies received and not properly     
revoked or votes cast prior to the closing of the polls shall be valid. Sallie  
Mae and the CRV have agreed not to adjourn the Special Meeting to a later date, 
except by mutual agreement.                                                     

    Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before the shares represented by such proxy are voted at  
the Special Meeting by (i) filing with the Secretary of Sallie Mae a written    
notice of such revocation bearing a later date than the proxy, (ii) duly        
executing a proxy relating to the same shares bearing a later date and          
delivering it to the party soliciting such later dated proxy before the taking  
of the vote at the Special Meeting, or (iii) voting in person at the Special    
Meeting. Attendance at the Special Meeting will not in and of itself constitute 
a revocation of a proxy. All written notices of revocation of proxies should be 
addressed as follows: Student Loan Marketing Association,                       

13

POS AM
26th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 26th

1050 Thomas Jefferson Street, N.W., Washington, D.C. 20007, Attention: Ann Marie
Plubell, Secretary, and must be received before the taking of the vote at the   
Special Meeting.                                                                

If the Reorganization is not approved, Sallie Mae will hold the Annual
Meeting of Shareholders of the Student Loan Marketing Association as soon as    
practicable after the Special Meeting votes are tabulated. Pursuant to the      
Letter Agreement, the Sallie Mae Board amended the Sallie Mae By-laws to provide
that the Annual Meeting shall be held not later than August 30, 1997.           

SOLICITATION OF PROXIES                                                         

 Sallie Mae will bear all expenses of these solicitations, including the
cost of preparing and mailing this Proxy Statement/Prospectus, the cost of      
preparing and mailing the Proxy Statement Supplement of the Majority Directors, 
which is being mailed together with an accompanying BLUE proxy card and a copy  
of this Proxy Statement/Prospectus by Sallie Mae to shareholders, and the cost  
of preparing and mailing the Proxy Statement Supplement of the CRV which is     
being mailed together with an accompanying GREEN proxy card and a copy of this  
Proxy Statement/Prospectus by the CRV to shareholders. In addition to           
solicitation by mail, directors, officers, regular employees or other agents of 
Sallie Mae, who will not be specifically compensated for such services but may  
be reimbursed for reasonable out-of-pocket expenses in connection with such     
solicitation, may solicit proxies from Sallie Mae shareholders personally or by 
telephone, telecopy, telegram or other means of communication. Sallie Mae will  
also arrange with custodians, nominees and fiduciaries for the forwarding of    
proxy solicitation materials to the beneficial owners of shares held of record  
by such persons. Sallie Mae may reimburse such custodians, nominees and         
fiduciaries reasonable out-of-pocket expenses incurred in connection therewith. 
Sallie Mae has retained D.F. King & Co., Inc. to solicit proxies on its behalf  
in connection with the Special Meeting. D.F. King will be paid a fee, estimated 
not to exceed $250,000 and will be reimbursed its reasonable out-of-pocket      
expenses in connection with such Special Meeting solicitation services. The CRV 
has retained MacKenzie Partners, Inc. to solicit proxies on its behalf in       
connection with the Special Meeting. MacKenzie Partners, Inc. will be paid a    
fee, estimated not to exceed $250,000 and will be reimbursed its reasonable     
out-of-pocket expenses in connection with such Special Meeting solicitation     
services.                                                                       

NO DISSENTERS' APPRAISAL RIGHTS                                                 

  Sallie Mae shareholders have no statutory appraisal rights in connection
with the matters to be considered at the Special Meeting. See "COMPARISON OF    
STOCKHOLDER RIGHTS."                                                            

 SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH ANY PROXY CARD
RETURNED IN RESPECT OF THE SPECIAL MEETING.                                     

14

POS AM
27th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 27th

THE REORGANIZATION PROPOSAL 

BACKGROUND                                                                      

The Student Loan Marketing Association Reorganization Act of 1996 (the
"Privatization Act") was the result of a multi-year effort on the part of Sallie
Mae to win executive branch and Congressional support for privatization. As a   
government-sponsored enterprise Sallie Mae has access to the "government agency"
debt market, exemptions from state taxes and certain securities laws, and lower 
capital requirements. However, Sallie Mae's business activities are subject to  
restrictions and burdens contained in Sallie Mae's federal charter, which is set
forth at Section 439, Part B, Title IV of the Higher Education Act of 1965, as  
amended, codified at 20 U.S.C. sec. 1087-2 (the "Sallie Mae Charter"). The      
Sallie Mae Charter may be changed by Congress, subject only to constitutional   
limitations, without approval from Sallie Mae directors or shareholders. Sallie 
Mae sought privatization to protect the value of its franchise from the         
political risks of its government-sponsored enterprise status and the new       
Federal Direct Student Loan Program (the "FDSLP"). As a government-sponsored    
enterprise, Sallie Mae is exposed to the ongoing risk of targeted legislation.  
Over recent years, a number of legislative actions have adversely and uniquely  
impacted Sallie Mae including: (i) the imposition of a 30 basis point per annum 
offset fee applicable solely to Sallie Mae, (ii) charter restrictions on the    
scope of its business and (iii) unfunded mandates requiring certain actions by  
Sallie Mae (e.g., acting as lender of last resort for the postsecondary         
education credit program). Moreover, the 1993 expansion of the FDSLP, which     
originally was intended to ultimately replace the FFELP, demonstrated Sallie    
Mae's vulnerability to shifts in federal policy. Privatization will reduce the  
risk of targeted legislation and shifts in federal policy and will allow the    
Company to invest in new products and services designed to improve its          
competitive position vis a vis FFELP participants and the FDSLP. In addition,   
Sallie Mae recognized that changes in the student loan market, including the    
advent of student loan securitization, had reduced the comparative advantages of
government-sponsored enterprise funding and capital levels. After passage of the
1993 Omnibus Budget Reconciliation Act ("OBRA"), which imposed the 30 basis     
point offset fee referenced above and expanded the FDSLP, Sallie Mae worked with
the executive branch to study the "future of Sallie Mae" and put forward a      
specific legislative framework to effect privatization through a transitional   
holding company arrangement. During 1995 and 1996, Sallie Mae negotiated with   
Congress and the executive branch to arrive at legislation intended to provide a
fair outcome for the government, Sallie Mae noteholders and Sallie Mae          
shareholders. The Privatization Act, which was enacted on September 30, 1996,   
will allow Sallie Mae to transition from a limited purpose government-sponsored 
enterprise to a general purpose corporation that will independently determine   
which new business opportunities to pursue.                                     

 The Privatization Act authorized the Sallie Mae Board of Directors (the
"Sallie Mae Board") to adopt a plan of reorganization pursuant to which Sallie  
Mae would become a wholly-owned subsidiary of a holding company. The            
Reorganization Agreement is the plan approved by the Sallie Mae Board pursuant  
to the Privatization Act. Set forth below is a summary of the deliberations of  
the Sallie Mae Board and committees thereof.                                    

 At a Sallie Mae Board meeting held on November 22, 1996, the Sallie Mae
Board charged (i) the Nominations and Board Affairs Committee with consideration
of the corporate governance structure for the Holding Company, the composition  
and selection of the Holding Company Board of Directors and the structure of the
proposal for presentation to shareholders and (ii) the Finance Committee with   
consideration of various financial and operational aspects of the plan of       
reorganization and related asset transfers. Each of these Committees was        
instructed to formulate recommendations for action by the full Sallie Mae Board 
at the regular meeting held January 24, 1997.                                   

     Consistent with its charge, the Nominations and Board Affairs Committee met
on December 17, 1996, January 16, 1997, January 23, 1997 and January 24, 1997.  

    At its meeting on December 17, 1996, the Committee considered the relative
merits of a broad range of corporate governance provisions and determined to    
solicit the further views of the members of the Committee concerning a variety  
of governance issues. In addition, the Committee determined to solicit the      
members of                                                                      

15

POS AM
28th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 28th

the Sallie Mae Board and the President and Chief Executive Officer for the names
and qualifications of potential nominees to the Holding Company Board of        
Directors.                                                                      

At the meetings of December 17, 1996 and January 16 and 23, 1997, the 
Committee also discussed guidelines for the qualifications of Holding Company   
Directors, as individuals and as members of a cohesive body. The Nominations and
Board Affairs Committee unanimously approved guidelines aimed at bringing to the
Holding Company Board persons of the highest individual character with diverse  
resources and background. The guidelines adopted by the Committee provide       
generally that the Holding Company Board must (i) be able to engage in          
effective, cohesive conduct that is respectful of divergent views, (ii) be      
composed of leaders of sufficient professional stature to attract other         
well-qualified candidates, (iii) be able to attract the support of, and retain  
the highest quality, managers on behalf of the shareholders and (iv) reflect    
diverse points of view together with a balance of freshness of views and        
continuity. According to such guidelines, individuals to be elected to the      
Holding Company Board should be recognized for having added value within their  
organizations, be qualified to timely deal with complex business and policy     
issues and have significant experience of current application to the Company's  
present business and new, potentially beneficial initiatives. In addition, such 
guidelines provide that such persons must be able to commit the time required to
provide the energy and focus necessary to perform productively as a member of   
the Holding Company Board, be able to function within the context of a governing
body and understand their duties to all shareholders, be capable of independence
in their deliberations and decision making and be committed to quality products 
and services, ethical behavior and excellence.                                  

     At the meetings of January 16 and January 23, 1997, Mr. Brandon, moved that
the 14 members of the Sallie Mae Board who were elected by shareholders in 1996 
be nominated as a body to constitute the entire Holding Company Board. The      
motion was defeated, with Messrs. Jacobsen, Durmer, Spiegel and Thayer voting   
against because the action would have given effective control of the Holding    
Company to a minority of the present Sallie Mae Board who were initially elected
in 1995 representing the CRV. The materials used to solicit proxies for their   
election in 1995 stated that such directors were not seeking control of the     
Sallie Mae Board and that their election would not result in their obtaining    
control of the Sallie Mae Board. In addition, the majority believed such a slate
would not provide the breadth and depth desired for the Holding Company Board.  
Specifically, unlike Sallie Mae, there is no requirement that directors of the  
Holding Company be affiliated with financial or educational institutions. The   
majority of the Nominations Committee believed that the Holding Company Board   
should have representation from persons with a broader range of experience,     
particularly since the seven directors appointed by the President could not     
serve on the Holding Company Board. In addition, Mr. Brandon's proposal would   
not have resulted in a diversity of background, providing for only one minority 
member and no women on the Holding Company Board.                               

At the meeting of January 16, 1997, Mr. Brandon moved that the Company
separate the vote on the initial election of the Holding Company Board members  
from the vote on the plan of reorganization. The motion was defeated, with      
Messrs. Jacobsen, Durmer, Spiegel and Thayer voting against. The majority of the
Committee believed that the identity of the members of the Board of Directors   
was an essential component of the plan of reorganization, since such individuals
would have critical leadership responsibility going forward.                    

     At its January 23, 1997 meeting, the Committee determined, by a vote of 4-1
(with Mr. Brandon voting against and Mr. Lambert absent) to recommend that the  
full Sallie Mae Board adopt the charter and by-laws substantially in the form   
proposed at such meeting. The charter and by-laws recommended, as revised at the
March Board Meeting (as defined below), are as described in this Proxy          
Statement/Prospectus.                                                           

  At the January 23, 1997 meeting, Mr. Jacobsen also noted that on January
21, 1997 the names and qualifications of 26 individuals were provided to the    
Committee members for their comment and review. He then moved that Messrs.      
Arceneaux, Daberko, Hough, Jacobsen, Ricciardi, Rohr, Sant, Sarni, Shaw, Simms, 
Spiegel, Ueberroth and Vitale and Mmes. Cross, Gaunt and Reese, as well as      
Messrs. Lord and Hunt be recommended for election to the initial Holding Company
Board of Directors. After discussion, the Committee voted 4-1 (with Mr. Brandon 
voting against and Mr. Lambert absent) to recommend to the full                 

16

POS AM
29th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 29th

Sallie Mae Board that these individuals be nominated for election by Sallie Mae 
as the members of the Holding Company Board.                                    

   The Finance Committee met on December 19, 1996 and considered a number of
financial and operational issues related to the plan of reorganization. These   
included the structure of the transaction to effect the new entity, the         
structure of the new entity after reorganization, the transfer of employees and 
assets and the capital structure of the new entity. On January 23, 1997, the    
Operations and Finance Committees held a joint meeting to review the strategic  
considerations relating to privatization, to summarize the economic and business
rationale for privatization and to review the mechanics of the Reorganization.  
For a further discussion of such considerations, see "-- Reasons for the        
Reorganization; Recommendation of Sallie Mae and the CRV." The Company's outside
legal and financial advisors were available to answer questions at both the     
January 23, 1997 Committee meeting and the January 24, 1997 Board meeting       
discussed below. Members of management made presentations concerning terms and  
financial aspects of the proposal at each of the Committee's meetings.          

On January 24, 1997, the Sallie Mae Board met to consider, among other
business, the proposed plan of reorganization. Mr. Jacobsen, Chairman of the    
Nominations and Board Affairs Committee, reviewed the activity of the Committee 
in detail, including a description of the recommended corporate governance      
provisions and the proposed slate of the Holding Company Directors and moved    
adoption of the recommendations.                                                

As part of the Board's discussion, Mr. Hunt indicated that, while he  
favored privatization, he opposed the plan of reorganization because he does not
view the plan as friendly to shareholders in its governance structure and       
believes it should provide for a separate vote on the Holding Company Board of  
Directors. Mr. Lord indicated that he had similar objections.                   

    A majority of the Sallie Mae Board expressed the view that having nominees
on the Holding Company Board who were actively opposed to the plan of           
reorganization would be confusing and not be in the best interests of           
shareholders. As a result of this concern the Sallie Mae Board voted to provide 
that Messrs. Hunt and Lord would have until close of business on January 31,    
1997 to confirm that they had no objection to the plan of reorganization other  
than as summarized in this Proxy Statement/Prospectus, and that neither Mr. Hunt
nor Mr. Lord would organize or participate in opposition to the plan of         
reorganization and the slate of nominees contained therein. The motion was      
approved with Messrs. Arceneaux, Berger, Daberko, Durmer, Jacobsen, Moore, Rohr,
Spiegel, Thayer, Vitale and Mmes. Gilleland, Montoya and Natividad voting for   
and Messrs. Brandon, Daley, Hunt, Lambert, Lord, Porter, Shapiro and Waterfield 
voting against such motion.                                                     

The Sallie Mae Board then voted to approve the recommendations of the 
Nominations and Board Affairs Committee as set out above. The recommendations   
were approved with Messrs. Arceneaux, Berger, Daberko, Durmer, Jacobsen, Moore, 
Rohr, Spiegel, Thayer, Vitale and Mmes. Gilleland, Montoya and Natividad voting 
for and Messrs. Brandon, Daley, Hunt, Lambert, Lord, Porter, Shapiro and        
Waterfield voting against such recommendations.                                 

     Mr. Vitale, Chairman of the Finance Committee, reviewed the activity of the
Finance Committee in detail, including a description of the finance provisions  
relating to the plan of reorganization and moved that the Sallie Mae Board      
approve the provisions as described. The Sallie Mae Board voted unanimously to  
approve the finance provisions relating to the proposed plan of reorganization. 
The Sallie Mae Board, however, voted 13-8 to approve the recommendations of the 
Nominations and Board Affairs Committee, including the corporate governance     
provisions, and 13-8 to approve the proposed plan of reorganization, as a whole.
No plan of reorganization or business plan other than the plan of reorganization
contained in these documents was presented for consideration.                   

    On January 31, 1997, Mr. Hunt advised the Chairman of the Sallie Mae Board
that, after evaluating his fiduciary duties, he was unable at that date to      
provide the Sallie Mae Board with the confirmation it sought. On the same date, 
Mr. Lord advised the Sallie Mae Board that his position on the plan of          
reorganization and the opposition to the persons named to serve on the Holding  
Company Board had not changed. Prior to any action in this regard by the Sallie 
Mae Board, by letters dated March 3, 1997 and March 4, 1997, respectively,      

17

POS AM
30th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 30th

Messrs. Lord and Hunt withdrew their consent to serve as members of the Holding 
Company Board. On February 5, 1997, a written statement was delivered to the    
Company on behalf of the Sallie Mae directors who are members of the CRV stating
their reasons for their votes, including certain of the reasons noted above.    
Such directors include eight of the 14 members of the Sallie Mae Board elected  
by shareholders and none of the seven members appointed by the President of the 
United States.                                                                  

   On March 10, 1997, Sallie Mae received a copy of a solicitation statement
(the "CRV Solicitation Statement") soliciting agent designations from Sallie Mae
shareholders to appoint certain individuals as shareholders' agents in order to 
call and convene a special meeting of the shareholders of Sallie Mae on behalf  
of the CRV, a group including the Dissenting Directors. Under the Sallie Mae    
By-Laws, a special meeting must be called by the Chairman upon the written      
request of holders of at least one-third of the shares of Sallie Mae having     
voting power. According to the CRV Solicitation Statement, the purposes of the  
CRV's proposed special meeting were to consider and vote upon (i) a             
reorganization plan proposed by the CRV, (ii) the individuals who would be named
by Sallie Mae to the Holding Company Board under the CRV reorganization plan and
(iii) a proposal to amend the Sallie Mae By-Laws to provide for the             
reimbursement of reasonable expenses incurred by Sallie Mae shareholders in     
calling a special meeting of shareholders. Although the CRV Solicitation        
Materials indicated that a vote at such a special meeting could be binding,     
Sallie Mae believes that any vote held at such a meeting would be precatory. On 
March 18, 1997, Sallie Mae mailed certain materials (the "Revocation Materials")
to Sallie Mae shareholders in opposition to the CRV's solicitation and          
soliciting agent revocations. The Revocation Materials asked shareholders not to
give agent designations to the CRV and provided instructions to revoke any agent
designations that shareholders may have given already to the CRV.               

    At the regular meeting of the Sallie Mae Board held on March 21, 1997 (the
"March Board Meeting"), at the recommendation of management, the Sallie Mae     
Board approved certain modifications to the corporate governance structure of   
the Reorganization. The modifications included elimination of a classified board
and a related requirement for a supermajority vote of stockholders to amend     
certain provisions of the Holding Company Charter.                              

   On April 3, 1997, representatives of the CRV delivered a letter to Sallie
Mae stating that holders of the requisite number of shares of Sallie Mae Common 
Stock had returned agent designations to authorize the CRV to request the       
calling of an additional special meeting of the shareholders and requesting that
such meeting be called for May 9, 1997. Under the Sallie Mae By-Laws, the       
Chairman must call a special meeting of shareholders upon the request of holders
of at least one-third of the outstanding shares of Sallie Mae Common Stock..    

On April 9, 1997, the Company mailed its original proxy               
statement/prospectus soliciting votes for a special shareholders meeting to be  
held on May 15, 1997 at 10:00 a.m.                                              

 On April 14, 1997, the Company's Chairman called the additional special
meeting requested by the CRV for May 15, 1997 at 2:00 p.m. On April 15, 1997,   
the CRV distributed proxy materials relating to such additional special meeting,
indicating that the additional special meeting would be held at 11:00 a.m. on   
May 9, 1997 and the CRV's belief that a favorable vote by the shareholders on   
the CRV's proposals considered at such additional special meeting would be      
binding on the Company for purposes of the Privatization Act.                   

On April 18, 1997, in the matter entitled Student Loan Marketing      
Association v. Albert L. Lord, et al., 1:97CV00784 (HHG) (D.D.C.), the Company  
filed an action against two current directors and three other individuals who   
are members of the CRV in the United States District Court for the District of  
Columbia (the "Action"), seeking both declaratory and injunctive relief.        
Specifically, the Company sought a temporary restraining order (the "TRO")      
enjoining the CRV's solicitation of shareholder proxies on the grounds that such
activities violated the federal securities laws. The Action also sought         
preliminary and declaratory relief asserting that the additional special meeting
would be precatory only.                                                        

 On April 22, 1997, United States District Judge Harold H. Greene, heard
argument on the Company's motion for the TRO. The Court denied the Company's    
motion for the TRO. Accordingly, the Court allowed                              

18

POS AM
31st Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 31st

the additional special meeting to proceed, but declined to consider the merits  
of the Company's claims, including the claim that any vote at the additional    
special meeting would be precatory only, until a time after May 9, 1997.        

     On May 9, 1997, the CRV convened the meeting scheduled for such date by the
CRV. After opening the polls to votes on the CRV proposals, the CRV then moved  
to adjourn the meeting until May 29, 1997, with the polls remaining open during 
such time.                                                                      

On May 15, 1997, Sallie Mae convened the 10:00 a.m. special meeting   
scheduled for such date and time by the Chairman to consider and vote upon the  
Reorganization. After opening the polls to vote on the Reorganization, the      
Chairman then adjourned the meeting until June 5, 1997, with the polls remaining
open during such time.                                                          

 On May 27, 1997, Sallie Mae and the CRV entered into a letter agreement
(the "Letter Agreement"), pursuant to which they agreed, among other things, (i)
to cooperate in the preparation and filing of this Proxy Statement/Prospectus   
(provided that Sallie Mae and the CRV were to provide the contents of their     
respective Proxy Statement Supplements, containing such information as Sallie   
Mae and the CRV, respectively, in their sole discretion, deemed appropriate),   
(ii) to hold a special meeting of stockholders of Sallie Mae at which the       
stockholders will vote on (x) the Reorganization Proposal and (y) the Board     
Slate Proposal, including separate slates of directors to be nominated by Sallie
Mae and the CRV, (iii) to cancel all special meetings of stockholders of Sallie 
Mae called prior to May 27, 1997 in respect of the privatization and to void all
proxies solicited prior to such date, and (iv) that Sallie Mae would dismiss    
with prejudice the pending litigation that it had brought against the CRV and   
that Sallie Mae and the CRV would release each other from any claim or          
counterclaim that could have been brought against each other relating to such   
litigation.                                                                     

Following execution of the Letter Agreement, Sallie Mae issued the    
following press release:                                                        

WASHINGTON, D.C., May 27, 1997 -- Sallie Mae (NYSE: SLM) and the
     Committee to Restore Value (CRV) at Sallie Mae Tuesday announced that
they have agreed to jointly hold a new special meeting at which 
shareholders will vote on a single plan of privatization and    
      reorganization. At the special meeting, shareholders also will vote to
  elect a 15-member holding company board of directors from separate
  slates nominated by Sallie Mae and the CRV. Sallie Mae and the CRV
    believe that this approach will ensure approval of privatization for
Sallie Mae.                                                     

    Sallie Mae and the CRV will jointly file an amended S-4 registration
      statement with the Securities & Exchange Commission, and will hold the
     new special meeting approximately 20 days following completion of SEC
       review and mailing of revised materials to shareholders. The Sallie Mae
     board has established June 6, 1997 as the record date for determining
        shareholders entitled to vote at the special meeting. As a result of the
      agreement, the adjourned May 9 and May 15 special shareholder meetings
      will not be reconvened and the polls for those meetings are closed. In
    addition, Sallie Mae will reimburse the CRV for all reasonable proxy
related expenses and drop outstanding litigation.               

    Sallie Mae, a stockholder-owned corporation, is the nation's leading
     provider of financial services for postsecondary education needs. The
   corporation is the nation's largest source of funding and servicing
support for education loans for students and their parents.     

        The Committee to Restore Value at Sallie Mae is a shareholder group that
includes eight current Sallie Mae directors.                    

REASONS FOR THE REORGANIZATION; RECOMMENDATION OF SALLIE MAE AND THE CRV        

  The Sallie Mae Board has unanimously determined that the Reorganization,
upon the terms and conditions set forth in the Privatization Act and the        
Reorganization Agreement, is in the best interests of the shareholders of Sallie
Mae and the Sallie Mae Board and the CRV recommend that shareholders approve the
Reorganization Agreement. The Reorganization Agreement is the plan approved by  
the Sallie Mae Board pursuant to the Privatization Act.                         

19

POS AM
32nd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 32nd

   In reaching their determination to adopt the Reorganization Agreement and
recommend that the Sallie Mae shareholders approve the Reorganization, the      
Sallie Mae Board considered a number of factors, including the following        
material factors:                                                               

   a. The expectation that, based upon their own evaluation of the
post-Reorganization business strategies that they advocate the Company
pursue, the Reorganization will enhance Sallie Mae's core business by 
 enabling the Holding Company to more effectively respond to intensified
competition in the student loan marketplace among the Federal Family  
    Education Loan Program ("FFELP") participants, and with the Federal Direct
Student Loan Program ("FDSLP") by extending Sallie Mae's schoolbased  
strategy.                                                             

   b. The expectation that, based upon their own evaluation of the
post-Reorganization business strategies that they advocate the Company
  pursue, the Reorganization will provide a mechanism for expansion of the
Company's business.                                                   

 c. The belief, based on its experience through 1996 with five
  successful securitization transactions, that, with the advent of student
   loan securitizations, Sallie Mae's government-sponsored enterprise status
   is no longer necessary to ensure its ability to obtain large volume, long
term funding on advantageous terms.                                   

       d. The fact that the current structure for the Special Meeting will
   permit shareholders to vote separately on the Reorganization Proposal and
    the Board Slate Proposal so that shareholders can determine which nominees
  to the Holding Company Board, related Holding Company Charter and By-Law
provisions and related business plan will be selected for the Holding 
Company.                                                              

       e. The expectation that the Reorganization will reduce the level of
  political risk to which Sallie Mae is subject because of its status as a
government-sponsored enterprise.                                      

   f. The belief that the terms, conditions, costs and assessments
   imposed under the Privatization Act are generally favorable to Sallie Mae
   compared to those that at various times had been proposed or advocated by
     some in government. In particular, management presented its view that under
    the terms of the Privatization Act the value of Sallie Mae is greater as a
  going concern, with the opportunity to pursue future revenue streams, as
   compared to the terminal value of a business to be liquidated pursuant to
   "charter sunset" provisions of the Privatization Act. Given the length of
   time before liquidation would occur under the "charter sunset" provisions
     and other uncertainties related to any eventual liquidation, management did
     not present numerical values. See "THE PRIVATIZATION ACT" and "TERMS OF THE
REORGANIZATION AGREEMENT."                                            

     g. The fact that the Reorganization will provide shareholders the
  ability to amend the Company's certificate of incorporation and to elect
all members of the Board of Directors.                                

       h. The expectation that the Merger will be treated for U.S. federal
  income tax purposes as a nonrecognition transfer of shares of Sallie Mae
  Common Stock by the holders thereof to the Holding Company for shares of
Holding Company Common Stock. See "CERTAIN FEDERAL INCOME TAX         
CONSEQUENCES."                                                        

  In view of the wide variety of factors considered in connection with its
evaluation of the terms of the Reorganization, the Sallie Mae Board did not find
it practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching their determinations. In 
addition, individual members of the Sallie Mae Board may have given different   
weights to different factors.                                                   

  EACH OF SALLIE MAE AND THE CRV RECOMMEND THAT THE HOLDERS OF OUTSTANDING
SHARES OF SALLIE MAE COMMON STOCK VOTE FOR APPROVAL OF THE REORGANIZATION       
PROPOSAL.                                                                       

CORPORATE STRUCTURE BEFORE AND AFTER THE REORGANIZATION                         

Sallie Mae was created in 1972 as a federally-chartered,              
government-sponsored enterprise. The Sallie Mae Charter defines and limits its  
corporate authority to education finance related activities, while imposing     

20

POS AM
33rd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 33rd

certain fees and obligations on Sallie Mae. The Privatization Act authorizes the
reorganization of Sallie Mae into a subsidiary of a state-chartered corporation 
and provides that Sallie Mae will be gradually liquidated and dissolved on or   
before September 30, 2008. Under the Privatization Act, consummation of the     
Reorganization is conditioned on approval by the requisite vote of Sallie Mae   
shareholders on or prior to March 31, 1998. If shareholder approval is not      
obtained within this time frame, the Privatization Act's "charter sunset"       
provisions would require Sallie Mae to restrict operations in the future and to 
ultimately dissolve by July 1, 2013. See "THE PRIVATIZATION ACT -- Charter      
Sunset If Reorganization Does Not Occur."                                       

    To carry out the Reorganization, Sallie Mae has formed the Holding Company
as a new Delaware corporation. All of the outstanding stock of the Holding      
Company is owned by Sallie Mae. Two other new Delaware corporations, Sallie Mae 
Merger Company ("MergerCo") and Sallie Mae, Inc. (the "Management Company") have
been organized. Prior to the Reorganization, none of the Holding Company,       
MergerCo or the Management Company has any business, properties or liabilities  
of its own except that all of the outstanding stock of MergerCo is owned by the 
Holding Company.                                                                

The Reorganization would be effected pursuant to the Reorganization   
Agreement by merging MergerCo with and into Sallie Mae, with Sallie Mae as the  
surviving corporation, resulting in Sallie Mae becoming a wholly-owned          
subsidiary of the Holding Company. In addition, as soon as practicable after    
consummation of the Reorganization, the stock of certain of the GSE's           
subsidiaries, including Sallie Mae Servicing Corporation (collectively, the     
"Transferred Subsidiaries") would be transferred to the Holding Company or one  
of its non-GSE subsidiaries. See "BUSINESS -- Operation Following the           
Reorganization."                                                                

    Sallie Mae's outstanding class of preferred stock and debt securities will
remain outstanding as securities of Sallie Mae immediately after the            
Reorganization. See "-- Treatment of Preferred Stock." Pursuant to the          
Privatization Act, the Holding Company will issue to the District of Columbia   
Financial Responsibility and Management Assistance Authority (the "D.C.         
Financial Control Board") warrants to purchase 555,015 shares of Holding Company
Common Stock, exercisable at any time prior to September 30, 2008, at $72.43 per
share. These provisions of the Privatization Act were part of the terms         
negotiated with the Administration and Congress as consideration for the GSE's  
privatization.                                                                  

21

POS AM
34th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 34th

DIAGRAMS OF CURRENT AND PROPOSED CORPORATE STRUCTURES                           

    The following diagrams show the current corporate structure of the Company
and the proposed structure of the Company following the Reorganization.         

[CURRENT CORPORATE STRUCTURE DIAGRAM]   

[PROPOSED STRUCTURE DIAGRAM]  

22

POS AM
35th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 35th

EXCHANGE OF STOCK CERTIFICATES                                                  

   Because the Reorganization Agreement provides that, at the Effective Time
(as defined below), each outstanding share of Sallie Mae Common Stock shall be  
converted automatically into one share of Holding Company Common Stock, it will 
not be necessary for holders of Sallie Mae Common Stock to exchange their       
existing stock certificates for certificates of Holding Company Common Stock.   

  Following the Reorganization, as outstanding certificates for Sallie Mae
Common Stock are presented to Chase Mellon Shareholder Services for transfer,   
new certificates bearing the name of the Holding Company will be issued in their
place. In addition, upon the request of any shareholder, new certificates for   
Holding Company Common Stock will be issued in exchange for old certificates of 
Sallie Mae Common Stock. Certificates presented for transfer to a name other    
than that in which the surrendered certificate is registered must be properly   
endorsed, with the signature guaranteed, and accompanied by evidence of payment 
of any applicable stock transfer taxes.                                         

SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH ANY PROXY CARD RETURNED
IN RESPECT OF THE SPECIAL MEETING.                                              

TREATMENT OF PREFERRED STOCK                                                    

   The proposed Reorganization will not result in any change in Sallie Mae's
outstanding class of preferred stock. The Privatization Act requires that upon  
the dissolution date of September 30, 2008, Sallie Mae shall repurchase or      
redeem, or make proper provisions for repurchase or redemption of any           
outstanding shares of Sallie Mae preferred stock. Management does not believe   
that such redemption will have a material impact on the financial condition or  
results of operations of the Holding Company. Sallie Mae has the option of      
effecting an earlier dissolution if certain conditions are met. Sallie Mae's    
preferred stock will continue to rank senior to Sallie Mae Common Stock (all of 
which, after the Reorganization, will be held by the Holding Company) as to     
dividends and as to the distribution of assets of Sallie Mae in the event of the
liquidation of Sallie Mae. The preferred stock is carried at its liquidation    
value of $50 per share for a total of $214 million and pays a variable dividend 
that has been at its minimum rate of 5 percent per annum for the last several   
years. See "FINANCIAL STATEMENTS -- Footnote 13."                               

EFFECT ON STOCK OPTIONS AND EMPLOYEE BENEFITS                                   

    After the Reorganization, all stock-based Sallie Mae director, officer and
employee benefit plans, including the Sallie Mae Employees' Stock Purchase Plan,
Employee's Thrift and Savings Plan, Supplemental Employees' Thrift and Savings  
Plan, Deferred Compensation Plan for Key Employees, key employee stock option   
plans, Stock Compensation Plan, Incentive Performance Plan, Board of Director's 
Stock Option Plan, Board of Directors' Deferred Compensation Plan and Board of  
Directors' Restricted Stock Plan (collectively, the "Plans") will be amended to 
provide for the delivery of Holding Company Common Stock instead of Sallie Mae  
Common Stock thereunder. Each right to acquire shares of Sallie Mae Common      
Stock, including, without limitation, rights (including stock options) to       
acquire Sallie Mae Common Stock pursuant to any of the Plans, granted and       
outstanding immediately prior to the Effective Time shall, by virtue of the     
Reorganization and without any action on the part of the holder thereof, be     
converted into and become a right to acquire the same number of shares of       
Holding Company Common Stock at the same price per share, and upon the same     
terms and subject to the same conditions as were applicable immediately prior to
the Reorganization under the relevant right.                                    

DIVIDEND POLICY                                                                 

    It is anticipated that the Holding Company will initially pay dividends on
Holding Company Common Stock at the rate most recently paid, and on             
approximately the same schedule, as dividends have been paid on Sallie Mae      
Common Stock. No assurance, however, can be given as to the amount of future    
dividends, which will necessarily be dependent on future earnings and financial 
requirements of the Holding Company and its subsidiaries, including Sallie Mae  
after the Reorganization.                                                       

23

POS AM
36th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 36th

The Holding Company's principal sources of funds are expected to be   
dividends on the stock of its subsidiaries and proceeds from any issuances of   
the Holding Company's equity or debt securities.                                

The ability of Sallie Mae to pay dividends on its capital stock is    
generally subject to the capital requirements set forth in the Sallie Mae       
Charter, see "REGULATION -- Current Regulation," and to the priority of         
dividends on outstanding Sallie Mae preferred stock. See "-- Treatment of       
Preferred Stock."                                                               

Holders of Holding Company Common Stock will be entitled to receive   
dividends when, as and if declared by the Board of Directors of the Holding     
Company out of funds legally available therefor. The timing and amount of future
dividends will be within the discretion of the Board of Directors of the Holding
Company and will depend on the consolidated earnings, financial condition,      
liquidity and capital requirements of the Holding Company and its subsidiaries, 
applicable governmental regulations and policies, and other factors deemed      
relevant by the Board of Directors.                                             

Subject to the earnings and financial condition of the GSE after the  
Reorganization, dividends on the GSE's preferred stock will continue to be paid 
at the prescribed times and rates. See "-- Treatment of Preferred Stock." If the
Holding Company issues preferred stock subsequent to the Reorganization, the    
payment of dividends on Holding Company Common Stock may be restricted to the   
extent that dividends on such preferred stock of the Holding Company have not   
been paid in accordance with the terms of such stock established by the Board of
Directors upon its issuance.                                                    

STOCK EXCHANGE LISTING                                                          

   Sallie Mae has filed an application to list the shares of Holding Company
Common Stock to be issued in connection with the Reorganization on the NYSE,    
subject to approval of the Reorganization Agreement by the Sallie Mae           
shareholders and official notice of issuance. The shares of Sallie Mae Common   
Stock are traded, and the shares of Holding Company Common Stock are expected to
be traded, on the NYSE under the symbol "SLM." If the Reorganization is         
consummated, shares of Sallie Mae Common Stock will be delisted in conjunction  
with the listing of the shares of Holding Company Common Stock.                 

CERTAIN CONSEQUENCES OF SHAREHOLDER VOTE                                        

Under the Privatization Act, the effective date of a reorganization   
providing for the restructuring of common stock ownership of Sallie Mae so that 
all of its outstanding common stock would be owned directly by a holding company
must occur on or prior to March 31, 1998. If the effective date has not occurred
prior to such date, the charter sunset provisions would apply. The Sallie Mae   
Board believes that Sallie Mae shareholders will support their judgment and     
expect them to approve the Reorganization Agreement. As a result, the Sallie Mae
Board has not determined what action, if any, it may take with respect to       
privatization in the event the Reorganization is not approved. If the           
Reorganization is not approved by shareholders, an Annual Meeting of Sallie Mae 
shareholders will be held as soon as practicable to, among other things, elect  
Sallie Mae directors. If the Reorganization Agreement is not approved, the      
Privatization Act would permit Sallie Mae to privatize pursuant to another plan 
of reorganization. However, to be effective under the Privatization Act, such a 
plan would have to be adopted by the Sallie Mae Board and approved by the       
holders of a majority of the outstanding shares of Sallie Mae Common Stock. If  
the Reorganization Agreement is not approved, it appears that there would be    
sufficient time to propose an alternate plan and to seek shareholder approval   
for such a plan. However, there can be no assurance that the Sallie Mae Board   
would adopt an alternate plan of reorganization, and if the Sallie Mae Board    
adopted an alternate plan, there can be no assurance as to the terms of such a  
plan or as to whether it would be approved by holders of the requisite number of
shares of Sallie Mae Common Stock in a timely manner. See "THE PRIVATIZATION    
ACT -- Charter Sunset If Reorganization Does Not Occur."                        

24

POS AM
37th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 37th

TERMS OF THE REORGANIZATION AGREEMENT 

    The following discussion of the terms and conditions of the Reorganization
Agreement is qualified in its entirety by reference to the provisions of the    
Reorganization Agreement, which are attached to this Proxy Statement/Prospectus 
as Appendix A and incorporated herein by reference.                             

    Pursuant to the Reorganization Agreement, MergerCo will be merged with and
into Sallie Mae, each outstanding share of Sallie Mae Common Stock will be      
converted into one share of Holding Company Common Stock, and the outstanding   
shares of the common stock of MergerCo will be converted into all of the issued 
and outstanding shares of Sallie Mae Common Stock, all of which will then be    
owned by the Holding Company. If the Reorganization is approved, it will become 
effective at the time the certificate of merger is filed with the Secretary of  
State of the State of Delaware (the "Effective Time"), which is expected to     
occur as soon as practicable following the Special Meeting. As a result of the  
Reorganization, Sallie Mae will become a subsidiary of the Holding Company and  
all of the Holding Company Common Stock outstanding immediately after the       
Reorganization will be owned by the holders of Sallie Mae Common Stock          
outstanding immediately prior to the Reorganization. Shares of Holding Company  
Common Stock held by Sallie Mae and the Sallie Mae Common Stock held in treasury
will be canceled and retired. Shares of the outstanding class of preferred stock
of Sallie Mae will not be affected by the Reorganization, and will remain       
outstanding, with the same voting powers, designations, preferences, rights,    
qualifications, limitations and restrictions. See "The REORGANIZATION           
PROPOSAL -- Treatment of Preferred Stock."                                      

 Consummation of the Reorganization is subject to the fulfillment of the
following conditions: (i) the approval of the Reorganization Agreement by the   
affirmative vote of the holders of a majority of the issued and outstanding     
shares of Sallie Mae Common Stock, (ii) receipt of an opinion of counsel with   
respect to the federal income tax consequences of the Merger and (iii) approval 
by the NYSE of Holding Company Common Stock for listing upon official notice of 
issuance. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES."                        

25

POS AM
38th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 38th

THE PRIVATIZATION ACT 

The Privatization Act establishes the basic framework for Sallie Mae's
reorganization into a wholly-owned subsidiary of a holding company and imposes  
certain restrictions on the operations of the Holding Company and its           
subsidiaries after the reorganization is consummated and prior to the ultimate  
dissolution of Sallie Mae. The Reorganization Agreement is the plan of          
reorganization approved by a majority of the Sallie Mae Board. The Privatization
Act amends the Higher Education Act of 1965, as amended, to permit Sallie Mae,  
which is now a federally-chartered, government-sponsored enterprise, to be      
reorganized as a wholly-owned subsidiary of a state-chartered holding company   
owning all of Sallie Mae's outstanding common stock. See "THE REORGANIZATION    
PROPOSAL." The Privatization Act also amends the Sallie Mae Charter (i) to      
require certain enhanced regulatory oversight of Sallie Mae to ensure its       
financial safety and soundness, see "REGULATION -- Current Regulation," and (ii)
to provide for the dissolution of Sallie Mae by July 1, 2013 if Sallie Mae does 
not reorganize pursuant to the Privatization Act on or before March 31, 1998,   
see "Charter Sunset If Reorganization Does Not Occur."                          

REORGANIZATION                                                                  

The Privatization Act requires the Sallie Mae Board to propose to     
shareholders a restructuring plan under which their share ownership in the GSE  
will be automatically converted to an equivalent share ownership in a           
state-chartered holding company that will own all of the common stock of the    
GSE. Following the Reorganization, the remaining GSE entity will be liquidated  
on or before September 30, 2008, and its federal charter will be rescinded.     
During this wind-down period, the Holding Company will remain a passive entity  
that supports the operations of the GSE and its other non-GSE subsidiaries, and 
any new business activities would be conducted through such subsidiaries. See   
"REGULATION." The legislation provides a maximum eighteen month period for the  
Sallie Mae Board to obtain shareholder approval for privatization on the terms  
contained in the Privatization Act.                                             

The Privatization Act requires all personnel and certain assets to be 
transferred in connection with the Reorganization, including the transfer of the
GSE's interest in the Transferred Subsidiaries. The GSE's student loans and     
related contracts, warehousing advances and other program-related or financial  
assets (such as portfolio investments, letters of credit, swap agreements and   
forward purchase commitments) and any non-material assets that the Sallie Mae   
Board determines to be necessary for or appropriate to continued GSE operations,
may be retained by the GSE. It is anticipated that net asset transfers occurring
in the first year after the Reorganization will aggregate approximately $100    
million and that certain fixed assets will be transferred within approximately  
three years of the Reorganization. It is anticipated that employees of the GSE  
will be transferred to the Management Company at the Effective Time. Employees  
of non-GSE subsidiaries of the GSE will continue to be employed by such         
subsidiaries.                                                                   

    During the wind-down period, following the Reorganization and prior to the
GSE's dissolution, the GSE will be restricted in the new business activities it 
may undertake. The GSE may continue to purchase student loans only through      
September 30, 2007, and warehousing advance, letter of credit and standby bond  
purchase activity by the GSE will be limited to takedowns on contractual        
financing and guarantee commitments in place at the Effective Time. In addition,
the GSE must discontinue its FFELP loan purchase activity once the Holding      
Company, or its non-GSE subsidiaries, commence such activity.                   

    The GSE will continue to serve as a lender of last resort and will provide
secondary market support for the FFELP upon the request of the Secretary of     
Education. If and to the extent the GSE performs such functions, however, it    
will not be required to pay the offset fee on such loans. The GSE will be able  
to transfer assets and to declare dividends, from time to time, provided it     
maintains the minimum capital ratio of at least 2 percent until the year 2000.  
After that time, charter amendments effected by the Privatization Act require   
that the GSE maintain a minimum capital ratio of at least 2.25 percent. In the  
event that the GSE does not maintain the required minimum capital ratio, the    
Holding Company is required to recapitalize the GSE in an amount necessary to   
achieve such minimum capital ratio.                                             

The GSE's debt obligations that are outstanding at the time of        
Reorganization will continue to be outstanding obligations of the GSE           
immediately after the Reorganization and will not be transferred to any         

26

POS AM
39th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 39th

other entity (except in connection with the defeasance trust described below).  
See "-- GSE Dissolution After Reorganization." The Privatization Act provides   
that the Reorganization will not modify the attributes accorded to the debt     
obligations of Sallie Mae by the Sallie Mae Charter. After the Reorganization,  
the GSE will be able to continue to issue debt in the government agency market  
to finance student loans and other permissible asset acquisitions. The maturity 
date of such issuances, however, may not extend beyond September 30, 2008, the  
GSE's final dissolution date. This restriction will not apply to debt issued to 
finance any lender of last resort or secondary market purchase activity         
requested by the Secretary of Education. The Privatization Act makes it clear   
that the Reorganization (and the subsequent transfer of any remaining GSE debt  
to the defeasance trust described below) will not modify the legal status of any
GSE debt obligations, whether such obligations exist at the time of             
Reorganization or are subsequently issued.                                      

OVERSIGHT AUTHORITY                                                             

During the wind-down period, the Secretary of the Treasury is granted 
extended oversight authority to monitor the activities of the Holding Company   
and its non-GSE subsidiaries, to the extent that the activities of such entities
are reasonably likely to have a material impact on the financial condition of   
the GSE. During this period, the Secretary of the Treasury may require that     
Sallie Mae submit periodic reports regarding any potentially material financial 
risk of its associated persons and its procedures for monitoring and controlling
such risk. The Holding Company is expressly prohibited from transferring        
ownership of Sallie Mae or causing Sallie Mae to file bankruptcy without the    
approval of the Secretary of the Treasury and the Secretary of Education. Each  
of the Secretary of Education and the Secretary of the Treasury has express     
authority to request that the Attorney General bring an action, or may bring an 
action under the direction and control of the Attorney General, in the United   
States District Court for the District of Columbia, for the enforcement of any  
provision of Sallie Mae's safety and soundness requirements or the requirements 
of the Privatization Act in general.                                            

RESTRICTIONS ON INTERCOMPANY RELATIONS                                          

   During the wind-down period, Sallie Mae operations will be managed by its
affiliates or independent third parties. The Privatization Act also provides    
certain restrictions on intercompany relations between Sallie Mae and its       
affiliates during the wind-down period. Specified corporate formalities must be 
followed to ensure that the separate corporate identities of Sallie Mae and its 
affiliates are maintained. Specifically, the Privatization Act provides that    
Sallie Mae must not extend credit to, nor guarantee any debt obligations of, the
Holding Company or its subsidiaries. In addition, the Privatization Act also    
provides that (i) the funds and assets of Sallie Mae must at all times be       
maintained separately from the funds and assets of the Holding Company and its  
subsidiaries, (ii) Sallie Mae must maintain books and records that clearly      
reflect the assets and liabilities of Sallie Mae, separate from the assets and  
liabilities of the Holding Company or its subsidiaries, (iii) Sallie Mae must   
maintain a corporate office that is physically separate from any office of the  
Holding Company and its subsidiaries, (iv) no director of Sallie Mae who is     
appointed by the President may serve as a director of the Holding Company and   
(v) at least one officer of Sallie Mae must be an officer solely of Sallie Mae. 

Furthermore, the Privatization Act mandates that transactions between 
Sallie Mae and the Holding Company, including any loan servicing arrangements,  
shall be on terms no less favorable to Sallie Mae than Sallie Mae could obtain  
from an unrelated third party, and any amounts collected on behalf of Sallie Mae
by the Holding Company pursuant to a servicing contract or other arrangement    
between Sallie Mae and the Holding Company shall be immediately deposited by the
Holding Company to an account under the sole control of Sallie Mae.             

LIMITATIONS ON HOLDING COMPANY ACTIVITIES                                       

  The Holding Company must remain a passive entity that holds the stock of
its subsidiaries and provides funding and management support to such            
subsidiaries. It is prohibited from directly engaging in any business activities
until the GSE is dissolved. After the Effective Time and prior to the           
dissolution of the GSE, all business activities of the Holding Company must be  
conducted through its subsidiaries. The Privatization Act                       

27

POS AM
40th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 40th

extends to the Holding Company and its subsidiaries the GSE's "eligible lender" 
status for loan consolidation and secondary market purchases. See "BUSINESS."   

 The Holding Company generally may begin to purchase FFELP student loans
only after the GSE discontinues such activity. Subject to the foregoing, the    
Holding Company could elect, at any time, to transfer new student loan purchase 
activity from the GSE to one of its non-GSE subsidiaries. Under OBRA, loans     
acquired after August 10, 1993 and held by the GSE are subject to a 30 basis    
point per annum "offset fee." The GSE has challenged the offset fee's           
constitutionality and the Secretary of Education's statutory authority to apply 
the fee on loans securitized by the GSE. See "BUSINESS -- Legal Proceedings."   
The offset fee does not apply to loans held or securitized by the Holding       
Company or non-GSE subsidiaries of the Holding Company.                         

Although the GSE may not finance the activities of the non-GSE        
subsidiaries, it may, subject to its minimum capital requirements, dividend     
retained earnings and surplus capital to the Holding Company, which in turn may 
use such amounts to support its non-GSE subsidiaries. The Sallie Mae Charter    
requires that the GSE maintain a minimum capital ratio of at least 2 percent    
until 2000, and charter amendments effected by the Privatization Act require    
that the GSE maintain a minimum capital ratio of at least 2.25 percent          
thereafter (whether or not the Reorganization occurs). In the event that the    
GSE's capital falls below the applicable required level, the Holding Company is 
required to supplement the GSE's capital to achieve such required level. The    
Privatization Act further directs that under no circumstances shall the assets  
of the GSE be available or used to pay claims or debts of or incurred by the    
Holding Company.                                                                

 In exchange for the payment of $5 million to the D.C. Financial Control
Board, the Holding Company and its other subsidiaries may continue to use the   
"Sallie Mae" name, but not the name "Student Loan Marketing Association," as    
part of their legal names or as a trademark or service mark. Interim disclosure 
requirements in connection with securities offerings and promotional materials  
are required to avoid marketplace confusion regarding the separateness of the   
GSE from its affiliated entities. During the GSE wind-down and until one year   
following repayment of all outstanding GSE debt, the "Sallie Mae" name may not  
be used by any Holding Company unit that issues debt obligations or other       
securities to any person or entity other than the Holding Company or its        
subsidiaries. In addition, the Holding Company must issue to the D.C. Financial 
Control Board warrants to purchase 555,015 shares of Holding Company Common     
Stock. These warrants, which are transferable, are exercisable at any time prior
to September 30, 2008 at $72.43 per share. These provisions of the Privatization
Act were part of the terms negotiated with the Administration and Congress as   
consideration for the GSE's privatization.                                      

GSE DISSOLUTION AFTER REORGANIZATION                                            

     If shareholders of Sallie Mae approve the Reorganization, the Privatization
Act provides that the wind-down period will terminate and Sallie Mae will       
liquidate and dissolve on September 30, 2008, unless an earlier dissolution is  
requested by Sallie Mae and the Secretary of Education makes no finding that    
Sallie Mae continues to be needed as a lender of last resort under the Sallie   
Mae Charter or to purchase loans under certain agreements with the Secretary of 
Education. In connection with such dissolution, the GSE must transfer any       
remaining GSE obligations into a defeasance trust for the benefit of the holders
of such obligations with cash or full faith and credit obligations of the United
States, or an agency thereof, in amounts sufficient, as determined by the       
Secretary of the Treasury, to pay the principal and interest on the deposited   
obligations. At March 31, 1997, Sallie Mae had $376 million in current carrying 
value of debt obligations outstanding with maturities after September 30, 2008. 
If the GSE has insufficient assets to fully fund such GSE debt obligations      
outstanding at the time of dissolution, the Holding Company must transfer       
sufficient assets to the trust to account for this shortfall. The Privatization 
Act also requires that on the dissolution date, the GSE shall repurchase or     
redeem, or make proper provisions for the repurchase or redemption of any       
outstanding shares of Sallie Mae preferred stock. The preferred stock is carried
at its liquidation value of $50 per share for a total of $214 million and pays a
variable dividend that has been at its minimum rate of 5 percent per annum for  
the last several years. See "FINANCIAL STATEMENTS -- Footnote 13." Upon         
dissolution, the Sallie Mae Charter will terminate, and any assets that Sallie  
Mae continues to hold after establishment of the trust or which remain in the   
trust after full payment of the remaining obligations of Sallie                 

28

POS AM
41st Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 41st

Mae assumed by the trust, will be transferred to the Holding Company or its     
affiliates, as determined by the Holding Company Board of Directors.            

CHARTER SUNSET IF REORGANIZATION DOES NOT OCCUR                                 

    If a reorganization pursuant to the Privatization Act does not occur on or
prior to March 31, 1998, certain "charter sunset" provisions will apply. These  
provisions will result in the dissolution of Sallie Mae by July 1, 2013, after  
the discharge of all outstanding debt obligations and liquidations (the "Sunset 
Dissolution Date"). Notwithstanding these charter sunset provisions, Sallie Mae 
may dissolve prior to the Sunset Dissolution Date unless the Secretary of       
Education finds that Sallie Mae continues to be needed as a lender of last      
resort under the Sallie Mae Charter or to purchase loans under certain          
agreements with the Secretary of Education.                                     

  Prior to July 1, 2007, Sallie Mae would be required to submit a detailed
plan for the orderly winding -up of its business activities to the Secretary of 
the Treasury and to the Chairman and Ranking Member of the Committee on Labor   
and Human Resources of the Senate and the Chairman and Ranking Member of the    
Committee on Economic and Educational Opportunities of the House of             
Representatives. Upon implementation, this dissolution plan would (i) ensure    
that Sallie Mae will have adequate assets to transfer to the trust to ensure    
full payment of its remaining obligations; (ii) provide that all assets not used
to pay liabilities will be distributed to shareholders; and (iii) ensure that   
the operations of Sallie Mae remain separate and distinct from those of any     
entity to which such assets are transferred. While the Privatization Act would  
allow Sallie Mae to amend the dissolution plan to reflect changed circumstances,
no amendments could extend the date for full implementation of the plan beyond  
the Sunset Dissolution Date. The Privatization Act also allows the Secretary of 
the Treasury to require that Sallie Mae amend the dissolution plan, if the      
Secretary of the Treasury deems such amendments necessary to ensure full payment
of all obligations of Sallie Mae.                                               

 If the charter sunset provisions apply, the GSE could not engage in new
business activities beyond its GSE charter, but could generally transfer assets 
at any time that its statutory capital requirements were satisfied. In addition,
the GSE would have to cease its business activities other than certain specified
permitted activities at the request of the Secretary of Education and with the  
approval of the Secretary of the Treasury. In addition, except in connection    
with such permitted activities, the GSE will be prohibited from issuing debt    
obligations that mature later than July 1, 2013. The charter sunset provisions  
also prohibit the GSE from transferring or permitting the use of the names      
"Student Loan Marketing Association," "Sallie Mae," or any variations thereof,  
to or by any entity other than a subsidiary of the GSE.                         

   If the Reorganization does not occur, the final liquidation of Sallie Mae
would occur on the Sunset Dissolution Date. At that time, Sallie Mae would be   
required to take actions similar to those required at the time of a dissolution 
after reorganization. See "-- GSE Dissolution After Reorganization." Remaining  
obligations would be transferred to a defeasance trust and proper provision     
would need to be made for the repurchase or redemption of any preferred stock of
Sallie Mae then outstanding. Finally, any assets remaining after establishment  
of the trust or any assets remaining in the trust after full pay-off of Sallie  
Mae debt would be transferred to holders of Sallie Mae Common Stock.            

29

POS AM
42nd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 42nd

CERTAIN FEDERAL INCOME TAX CONSEQUENCES 

    The following summary, which is based upon current law, is a discussion of
the material United States federal income tax consequences of the Merger to     
Holding Company, Sallie Mae, MergerCo and holders of shares of Sallie Mae Common
Stock. The summary is based upon the Internal Revenue Code of 1986, as amended  
(the "Code"), Treasury regulations, judicial decisions, administrative          
pronouncements and current administrative rulings, all of which are subject to  
change, possibly with retroactive effect. Any such change could affect the      
continuing validity of this summary. The summary does not purport to be a       
comprehensive description of all of the tax consequences applicable to a        
particular taxpayer. In particular, the summary does not address any aspect of  
state, local or foreign taxation or the tax treatment to holders subject to     
special tax rules, such as insurance companies, foreign persons, tax-exempt     
organizations, dealers in securities, banks and other financial institutions,   
holders who acquired their shares of Sallie Mae Common Stock pursuant to the    
exercise of options or otherwise as compensation or through a tax-qualified     
retirement plan. In addition, the summary only applies to holders who hold      
shares of Sallie Mae Common Stock as capital assets. No rulings have been or    
will be requested from the Internal Revenue Service (the "IRS") with respect to 
any of the matters discussed herein. There can be no assurance that future      
legislation, regulations, court decisions or administrative pronouncements or   
rulings would not alter the tax consequences set forth below. Opinions of       
counsel are not binding on the IRS. HOLDERS OF SALLIE MAE COMMON STOCK SHOULD   
CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE   
MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS.                                                             

The obligation of Sallie Mae to consummate the Reorganization is      
conditioned upon the receipt by Sallie Mae of an opinion of counsel in form and 
substance reasonably satisfactory to Sallie Mae, dated as of the Effective Time,
substantially to the effect that, on the basis of facts, representations and    
assumptions set forth in such opinion and set forth in certificates of officers 
of the Holding Company, Sallie Mae and others, as well as representation letters
of certain holders of Sallie Mae Common Stock, all of which must be consistent  
with the state of facts existing at the Effective Time, the Merger will be      
treated for U.S. federal income tax purposes as a nonrecognition transfer of    
shares of Sallie Mae Common Stock by the holders thereof to the Holding Company 
for shares of Holding Company Common Stock.                                     

Assuming that the representations and certificates referred to in the 
preceding paragraph are obtained, which are in form and substance satisfactory  
to Skadden, Arps, Slate, Meagher & Flom LLP, the Merger is consummated in       
accordance with the Reorganization Agreement, and applicable law does not       
change, in the opinion of Skadden, Arps, Slate, Meagher & Flom LLP the Merger   
will be treated as a nonrecognition transfer of shares of Sallie Mae Common     
Stock by the holders thereof to the Holding Company for shares of Holding       
Company Common Stock. Accordingly, (i) no gain or loss will be recognized by    
Holding Company, Sallie Mae or MergerCo as a result of the Merger and (ii) a    
holder of Sallie Mae Common Stock whose shares of Sallie Mae Common Stock are   
converted in the Merger into Holding Company Common Stock will not recognize    
gain or loss upon such conversion. The aggregate tax basis of the Holding       
Company Common Stock received by such holder will be equal to the aggregate tax 
basis of the Sallie Mae Common Stock so converted, and the holding period of the
Holding Company Common Stock will include the holding period of the Sallie Mae  
Common Stock so converted.                                                      

House Ways and Means Committee Chairman Bill Archer, Senate Finance   
Committee Chairman William V. Roth, Jr., and ranking Senate Finance Committee   
minority member Daniel Patrick Moynihan proposed legislation which was included 
in Chairman Bill Archer's June 9, 1997, Mark of the Revenue Reconciliation Act  
of 1997 for consideration by the House Ways and Means Committee (the "Proposed  
Legislation") and which would prevent Section 355 of the Internal Revenue Code  
from applying, except as provided in Treasury Department regulations, to any    
distribution of stock made by one member of an affiliated group of corporations 
filing a consolidated return to another member. Subject to various transition   
rules, the Proposed Legislation is proposed to be effective for intragroup      
distributions occurring after April 16, 1997. It is not possible to determine at
this time whether and in what form the Proposed Legislation may be enacted into 
law, nor is it possible to determine the ultimate effective dates of any such   
legislation. If the Proposed Legislation were enacted in its current form with  
applicable effective dates, however, any ability that the                       

30

POS AM
43rd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 43rd

Holding Company might have to effect a tax-free distribution of the stock of any
subsidiaries transferred to the Holding Company as part of the privatization    
could be eliminated. The Holding Company has no current plans to make any such  
distributions.                                                                  

REPORTING REQUIREMENT                                                           

    Each holder of Sallie Mae Common Stock that receives Holding Company Stock
in the Merger will be required to retain records and file with such holder's    
federal income tax return a statement setting forth certain facts relating to   
the Merger.                                                                     

    THE DISCUSSION OF FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE IS BASED
ON EXISTING LAW AS OF THE DATE OF THIS PROXY STATEMENT/PROSPECTUS. SHAREHOLDERS 
OF SALLIE MAE ARE URGED TO CONSULT THEIR TAX ADVISORS TO DETERMINE THE          
PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER (INCLUDING THE APPLICABILITY  
AND EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS).               

31

POS AM
44th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 44th

THE BOARD SLATE PROPOSAL

  Pursuant to the Letter Agreement, Sallie Mae has agreed that, as soon as
possible after shareholder approval of the Reorganization Proposal and before   
the Reorganization is effected, Sallie Mae (as sole shareholder of the Holding  
Company) shall appoint as directors of the Holding Company the slate of nominees
receiving the highest plurality of the votes cast in person or by proxy at the  
Special Meeting; provided that, if minority positions will exist on the Holding 
Company Board because the slate of nominees that receives the greater number of 
votes consists of less than 15 persons, and if any of the nominees of the other 
slate have consented to serve in such circumstances as minority directors, then 
that other slate can select from among its consenting nominees, if any, the     
persons who will be named to fill the minority positions on the Holding Company 
Board. If the number of nominees who have consented to fill any minority        
positions on the Holding Company Board is not sufficient to constitute a 15     
member Holding Company Board of Directors, then the vacancies shall be either   
filled by the Holding Company Board of Directors or left vacant until the next  
election of directors, in either case pursuant to the process set forth in the  
Holding Company Certificate of Incorporation and By-laws.                       

 The Board Slate Proposal provides the means for shareholders to vote to
determine who Sallie Mae names to constitute the Holding Company Board before   
the Reorganization is consummated. Shareholders may vote either for the slate of
nominees nominated by the majority of Sallie Mae's directors as the Majority    
Director Slate or for the slate of nominees nominated by the CRV as the CRV     
Slate. Because the Board Slate Proposal does not constitute an actual election, 
shareholders may not withhold votes as to individual nominees. Shareholders must
use the Majority Directors' BLUE proxy card to vote for or abstain on the       
Majority Director Slate or use the CRV's GREEN proxy card to vote for or abstain
on the CRV Slate.                                                               

   For information on the nominees who comprise the Majority Director Slate,
including the corporate governance provisions and business plan for the Holding 
Company that the Majority Director Slate intends to implement and pursue, see   
the Proxy Statement Supplement of the Majority Directors that comprises an      
integral part, and is being mailed to shareholders together with a copy, of this
Proxy Statement/Prospectus. For information on the nominees who comprise the CRV
Slate, including the corporate governance provisions and business plan for the  
Holding Company that the CRV Slate intends to implement and pursue, see the     
Proxy Statement Supplement of the CRV that comprises an integral part, and is   
being mailed to shareholders together with a copy, of this Proxy                
Statement/Prospectus.                                                           

    WITH RESPECT TO THE BOARD SLATE PROPOSAL, THE MAJORITY DIRECTORS RECOMMEND
THAT HOLDERS OF OUTSTANDING SHARES OF SALLIE MAE COMMON STOCK CAST THEIR VOTES  
IN FAVOR OF THE MAJORITY DIRECTOR SLATE AND THE CRV RECOMMENDS THAT HOLDERS OF  
OUTSTANDING SHARES OF SALLIE MAE COMMON STOCK CAST THEIR VOTES IN FAVOR OF THE  
CRV SLATE.                                                                      

32

POS AM
45th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 45th

BUSINESS

As used herein, the "Company" refers to Sallie Mae prior to the       
Reorganization and to the Holding Company, on a consolidated basis, from and    
after the Effective Time of the Reorganization.                                 

Industry data on the FFELP and the FDSLP contained in this Proxy      
Statement/Prospectus is based on sources that the Company believes to be        
reliable and to represent the best available information for these purposes,    
including published and unpublished Department of Education data and industry   
publications.                                                                   

The manner in which the Company operates its business after the       
Reorganization depends upon whether the Majority Director Slate or the CRV Slate
receives the highest plurality of votes cast in person or by proxy in respect of
the Board Slate Proposal. In the event that the Reorganization Proposal is      
approved and the Majority Director Slate receives the highest plurality of votes
cast in respect of the Board Slate Proposal, the Holding Company directors who  
were nominated as members of the Majority Director Slate intend to pursue the   
business strategy described in the Proxy Statement Supplement of the Majority   
Directors. In the event that the Reorganization Proposal is approved and the CRV
Slate receives the highest plurality of votes cast in respect of the Board Slate
Proposal, the Holding Company directors who were nominated as members of the CRV
Slate intend to pursue the business strategy described in the Proxy Statement   
Supplement of the CRV.                                                          

GENERAL                                                                         

The Company provides a wide range of financial services, processing   
capabilities and information technology to meet the needs of educational        
institutions, lenders and students. Founded in 1972 as a government sponsored   
enterprise, Sallie Mae's stated mission was to enhance access to post-secondary 
education by providing a national secondary market and financing for guaranteed 
student loans. As of March 31, 1997, the Company's managed portfolio of student 
loans totaled approximately $41 billion (including loans owned, loans           
securitized and loan participations). The Company also had commitments to       
purchase an additional $20.1 billion of student loans or participations therein.
While the Company continues to be the leading purchaser of student loans, its   
business has expanded over its first quarter of a century, reflecting changes in
both the education sector and the financial markets.                            

   Primarily a wholesale provider of credit and a servicer of student loans,
the Company has as clients over 900 financial and education institutions and    
state agencies. Through its six regional loan servicing centers, the Company    
processes student loans for more than 4 million borrowers and is recognized as  
the nation's pre-eminent servicer of student loans. The Company is also a       
provider and arranger of infrastructure finance for colleges and universities.  
See "-- Specialized Financial Services -- Academic Facilities Financings and    
Student Loan Revenue Bonds."                                                    

The Company has successfully fulfilled its original                   
government-sponsored-enterprise mandate by fostering a thriving, competitive    
market in student loans and has maintained its leadership position in the       
education finance industry due to its focus on customer relationships,          
value-added products and services, superior loan servicing capabilities and     
sound financial management strategy. In recognition of the increasingly         
important role that college and university administrators play in the loan      
process, the Company adopted a school-based focus. The Company's core marketing 
strategy is to provide schools and their students with simple, flexible and     
cost-effective products and services so that schools will elect to work with the
Company. This strategy, combined with superior servicing and technology         
capabilities, has also enabled the Company to build valuable partnerships with  
lenders, guarantee agencies and others.                                         

   In 1993, the Company launched a three year effort to obtain Congressional
approval to recharter as a fully private, state-chartered corporation.          
Legislation to privatize the Company was approved by Congress and signed by     
President Clinton in September 1996. Immediately following the Reorganization,  
the principal business of the Company will continue to be the acquisition,      
financing and servicing of student loans, as presently conducted by the GSE.    

33

POS AM
46th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 46th

INDUSTRY OVERVIEW                                                               

 The student loan industry provides affordable financing to students and
their families to fund post-secondary education. Banks and other eligible       
lenders are able to make student loans at below market rates due to subsidies   
and guarantees provided under programs sponsored principally by the federal     
government. The largest student loan program, originally called the Guaranteed  
Student Loan Program and now known as the FFELP, was created in 1965 to ensure  
low cost access by families to a full range of post-secondary education         
institutions. In 1972, to encourage further bank participation in the program,  
Congress established the Company as a for-profit, stockholder-owned national    
secondary market for student loans. The FFELP industry currently includes a     
network of approximately 5,300 originators and 6,300 educational institutions.  
Also, 39 state-sponsored or non-profit guarantee agencies collectively guarantee
and administer the FFELP under contract with the Department of Education. In    
addition to the Company, a number of non-profit entities, banks and other       
financial intermediaries operate as secondary markets. The Company believes that
lender participation in the program is relatively concentrated, with an         
estimated 90 percent of outstanding loans held by the top 100 participants,     
including approximately one-third owned by the Company as of September 30, 1994.
The FFELP is reauthorized by the Congress about every five years. The next      
reauthorization is required in 1998. The provisions of the FFELP are also       
subject to revision from time to time by the Congress. For an overview of the   
FFELP and other federally sponsored student loan programs, see Appendix C "The  
Federal Family Education Loan Program."                                         

    The demand for student loans has risen substantially over the last several
years. Higher education tuition cost and fee increases continue to exceed the   
inflation rate. Over half of all full-time college students today depend on some
form of borrowing, compared to just over 35 percent in 1985. Federal legislation
enacted in late 1992 expanded loan limits and borrower eligibility that, in     
part, resulted in an increase of over 50 percent in annual loan volume of       
federally-guaranteed student loans ($21 billion in 1994 from $13.3 billion in   
1992). Estimated future increases in tuition costs and college enrollments are  
expected to prompt further growth in the student loan market.                   

    In 1993, Congress expanded a previously established pilot program into the
FDSLP administered by the U.S. Department of Education. Established as an       
alternative to the private sector-based FFELP, the FDSLP accounted for          
approximately one-third of all new federally-sponsored student loans issued in  
academic year 1995-6. The federal government contracts out loan administration  
and collections services while financing its lending activity through U.S.      
Treasury borrowing. The FDSLP had a legislated market share goal of up to 50    
percent for academic year 1996-7, but, based on current Department of Education 
projections, management expects direct loan volume to reach between 35-40       
percent of total student loan volume for such academic year. See                
"-- Competition".                                                               

PRODUCTS AND SERVICES                                                           

     LOAN PURCHASES.  The Company's purchases of student loans primarily involve
two federally sponsored programs. The Company principally purchases Stafford    
loans, PLUS loans, and SLS loans originated under the FFELP, all of which are   
insured by state-related or non-profit guarantee agencies and are reinsured by  
the U.S. Department of Education. The FFELP is more fully described in Appendix 
C. The Company also purchases student loans originated under the Health         
Education Assistance Loan Program ("HEAL"), which are insured directly by the   
United States Department of Health and Human Services. HEAL loans are made to   
health professions graduate students under the Public Health Services Act. As of
March 31, 1997, the Company's managed portfolio of student loans totaled $41    
billion, including $37.0 billion (including loans owned, loans securitized and  
loan participations) of FFELP loans and $2.7 billion of HEAL loans.             

In order to further meet the educational credit needs of students, the
Company in 1996 sponsored the creation of the private Signature Education       
Loan(sm) program, with numerous lenders participating nationwide. Under this    
program, the Company performs certain origination services on behalf of the     
participating lenders. Upon sale of the loans to the Company, the Company       
intends to insure the loans through its HEMAR Insurance Corporation of America  
("HICA") subsidiary (if not already insured by HICA prior to sale). Most of the 
HICA insured loans acquired by the Company are part of "bundled" loan programs  
that include                                                                    

34

POS AM
47th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 47th

FFELP loans. The Company also purchases loans originated under various other    
HICA-insured loan programs. As of March 31, 1997, the Company owned             
approximately $1.1 billion of such private education loans, including HICA      
insured Signature Education Loans(sm).                                          

 The Company purchases student loans primarily from commercial banks. In
addition, the Company purchases student loans from other eligible FFELP lenders,
including savings and loan associations, mutual savings banks, credit unions,   
certain pension funds and insurance companies, education institutions, and state
and private nonprofit loan originating and secondary market agencies.           

   Most lenders using the secondary market hold loans while borrowers are in
school and sell loans shortly before their conversion to repayment status, when 
servicing costs increase significantly. Traditionally, the Company has purchased
most loans just prior to their conversion to repayment status, although the     
Company also buys "in-school" loans and those in repayment. The Company         
purchases loans primarily through commitment contracts but also makes "spot"    
purchases. Approximately two-thirds of the Company's new loan purchases were    
effected pursuant to purchase commitments in 1996 and 1995. The Company enters  
into commitment contracts with lenders to purchase loans up to a specified      
aggregate principal amount over the term of the contract. Under the commitment  
contracts, lenders have the right, and in most cases the obligation, to sell to 
the Company the loans they own over a specified period of time, usually two to  
three years, at a purchase price that is based on certain loan characteristics. 

   In conjunction with commitment contracts, the Company frequently provides
the selling institutions with operational support in the form of PortSS(R), an  
automated loan administration system for the lender to use at its own offices   
prior to loan sale, or in the form of loan origination and interim servicing    
provided through one of the Company's loan servicing centers (ExportSS(R)). In  
1995 and 1996, more than 80 percent of purchase commitment volume came from     
users of PortSS(R) and ExportSS(R). The Company also offers commitment clients  
the ability to originate loans and then transfer them to the Company for        
servicing (TransportSS(sm)). PortSS(R), TransportSS(sm), and ExportSS(R) provide
the Company and the lender with the assurance that the loans will be efficiently
administered by the Company and that the borrowers will have access to the      
Company's repayment options and benefits.                                       

In a spot purchase, the Company competes with other secondary market  
participants to purchase a portfolio of eligible loans from a selling holder    
when such holder decides to offer its loans for sale. The Company made          
approximately one-third of its purchases of educational loans through spot      
purchases in 1995 and 1996. In general, spot purchase volume is more            
competitively priced than volume purchased under commitment contracts. The      
growth in volume generated by PortSS(R), ExportSS(R) and TransportSS(sm)        
demonstrates the importance of the Company's investment in these systems in past
years.                                                                          

    The Company also offers eligible borrowers a program for the consolidation
of eligible insured loans into a single new insured loan with terms of from 10  
to 30 years. The Higher Education Act of 1965, as amended provides that         
borrowers may consolidate with one of their loan holders or may consolidate with
a separate lender if they cannot obtain a consolidation loan with an income     
sensitive repayment plan. As of March 31, 1997, the Company owned approximately 
$8.0 billion of such consolidation loans, known as SMART(sm) Loan Accounts.     

BORROWER BENEFITS AND PROGRAM TECHNOLOGY SUPPORT.  To create customer 
preferences and compete more effectively in the student loan marketplace, the   
Company developed a comprehensive set of loan programs and services for         
borrowers, including numerous loan restructuring and repayment options and      
programs that encourage and reward good repayment habits. The Company also      
provides counseling and information programs (including a world wide web site)  
that not only help borrowers, but also help reinforce relationships with college
and university customers and lender partners.                                   

     Under the Company's "Great Rewards(R)" program, certain FFELP borrowers who
make their first 48 monthly payments on-time receive a two-percentage-point     
interest rate reduction for the remaining term of the loan. Other programs pay  
students an amount equal to part of the loan origination fees and modestly      
reduce interest costs for use of automatic debit accounts. The Company also     
provides financial aid administrators at colleges and universities with         
innovative products and services that simplify the lending                      

35

POS AM
48th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 48th

process, including electronic funds transfer services and loan information and  
management software that enables college application data to be transferred     
electronically between program participants.                                    

     JOINT VENTURE WITH THE CHASE MANHATTAN BANK.  In the third quarter of 1996,
the Company restructured its business relationship with The Chase Manhattan Bank
("Chase"), the largest originator of student loans under the FFELP with an      
estimated market share of 8.0 percent. Historically, Chase has also been the    
Company's largest client, representing 11 percent of 1995 purchases. The Company
and TCB Education First Corporation, a wholly-owned subsidiary of Chase, are    
equal owners of Education First Finance LLC and Education First Marketing LLC   
(collectively, the "Chase Joint Venture"). Education First Marketing LLC is     
responsible for marketing education loans to be made by Chase and its affiliates
to schools and borrowers. Shortly after such loans are made by Chase and its    
affiliates, the loans are purchased on behalf of Education First Finance LLC by 
the Chase/Sallie Mae Education Loan Trust (the "Trust"), which presently        
finances these purchases through the sale of loan participations to the Company 
and Chase. As of March 31, 1997, the Trust owns approximately $3.6 billion in   
federally-insured education loans. Substantially all loans owned by the Trust   
are serviced on behalf of the Trust by Sallie Mae Servicing Corporation on a    
fee-for-service basis.                                                          

SERVICING                                                                       

    In 1980, the Company began servicing its own portfolios in order to better
control costs and manage risks. In late 1995, in connection with the            
commencement of its securitization program, the Company transferred its         
servicing operations to a wholly-owned subsidiary, Sallie Mae Servicing         
Corporation ("SMSC"). The Company is now the largest FFELP loan servicer and    
management believes that the Company is recognized as the premier service       
quality and technology provider in its field. The Company believes that its     
processing capability and service excellence is integral to its school-based    
growth strategy. As of March 31, 1997, the Company serviced approximately $40   
billion of loans, including approximately $24.4 billion of loans owned by Sallie
Mae and $8 billion owned by six securitization trusts sponsored by Sallie Mae,  
$4 billion of loans currently owned by ExportSS(R) customers and $3.6 billion   
owned by the Chase Joint Venture Trust.                                         

  The Company currently has six loan servicing centers located in Florida,
Kansas, Massachusetts, Pennsylvania, Texas and Washington. This geographical    
coverage, together with total systems integration among centers, facilitates    
operations and customer service.                                                

The U.S. Department of Education and the various guarantee agencies   
prescribe rules and regulations that govern the servicing of federally insured  
student loans. The Company's originations and servicing systems, internal       
procedures and highly trained staff support compliance with these regulations,  
ensure asset integrity and provide superior service to borrowers. The Company   
has recently introduced imaging technology to further increase servicing        
productivity and capacity.                                                      

SPECIALIZED FINANCIAL SERVICES                                                  

     The Company has engaged in a number of specialty financial services related
to higher education credit, including collateralized financing of FFELP and     
other education loan portfolios (warehousing advances), credit support for      
student loan revenue bonds, portfolio investments of student loan revenue and   
facilities bonds, underwritings of academic facilities bonds and surety bond    
support for non-federally insured student loans.                                

    WAREHOUSING ADVANCES.  Warehousing advances are secured loans to financial
and educational institutions to fund FFELP and HEAL loans and other forms of    
education-related credit. As of March 31, 1997, the Company held approximately  
$2.5 billion of warehouse loans with an average term of 1.5 years. These loans  
will remain assets of the GSE. The GSE will be able to extend new warehousing   
advances during its wind-down only pursuant to financing commitments in place as
of the Effective Time. As of March 31, 1997, the GSE held approximately $2.3    
billion of such commitments. The non-GSE affiliates are not expected to continue
this line of business.                                                          

36

POS AM
49th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 49th

     ACADEMIC FACILITIES FINANCINGS AND STUDENT LOAN REVENUE BONDS.  Since 1987,
the GSE has provided facilities financing and commitments for future facilities 
financing to approximately 250 educational institutions. Certain of these       
financings are secured either by a mortgage on the underlying facility or by    
other collateral. The GSE also invests in student loan revenue obligations. In  
late 1995, the GSE established a broker-dealer subsidiary, Education Securities,
Inc. ("ESI"), which manages the GSE's municipal bond portfolio and is developing
an array of specialized underwriting and financial advisory services for the    
education sector. It is expected that following the Reorganization, the Company 
will reduce its investment activity in the academic facilities and student loan 
revenue bond products. As of March 31, 1997, this portfolio totaled $1.4        
billion.                                                                        

     LETTERS OF CREDIT.  In the past, the GSE has also offered letters of credit
to guarantee issues of state and nonprofit agency student loan revenue bonds.   
Currently outstanding letters of credit have original terms of up to 17 years.  
As of March 31, 1997, the GSE held approximately $3.7 billion of such           
commitments outstanding. After the Reorganization is consummated, letter of     
credit activity by the GSE will be limited to guarantee commitments in place at 
the Effective Time.                                                             

  PRIVATE STUDENT LOAN INSURANCE.  In 1995, the GSE acquired HICA, a South
Dakota stock insurance company exclusively engaged in insuring lenders against  
credit loss on their education-related, non-federally insured loans to students 
attending post-secondary educational institutions. A significant portion of     
HICA's insured loan portfolio is made up of loans owned by the GSE. See         
"-- Products and Services -- Loan Purchases."                                   

FINANCING/SECURITIZATION                                                        

     The Company obtains funds for its operations primarily from the sale of GSE
debt securities in the domestic and overseas capital markets, through public    
offerings and private placements of U.S. dollar and foreign currency denominated
debt of varying maturities and interest rate characteristics. See "MANAGEMENT'S 
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."      
Sallie Mae debt securities are currently rated at the highest credit rating     
level by Moody's Investors Service and Standard & Poor's, in part due to the    
GSE's current status as a government-sponsored-enterprise. The GSE is expected  
to retain its credit ratings after the Reorganization. Although the Company has 
not begun specific discussions with the ratings agencies as of the date of this 
Proxy Statement/Prospectus, it is expected that the credit rating on debt       
securities of the Holding Company would be lower than debt securities of the    
GSE.                                                                            

     The GSE uses interest rate and currency exchange agreements (collateralized
where appropriate), U.S. Treasury securities, interest rate futures contracts   
and other hedging techniques to reduce the exposure to interest rate and        
currency fluctuations arising out of its financing activities and to match the  
characteristics of its assets and liabilities. The GSE has also issued preferred
stock to obtain funds. The Reorganization provides for access by the GSE to the 
government-sponsored-enterprise debt market to fund student loans and other     
permitted asset acquisitions with maturity dates through September 30, 2008. In 
connection with such dissolution, the GSE must transfer any remaining GSE       
obligations into a defeasance trust for the benefit of the holders of such      
obligations with cash or full faith and credit obligations of the United States,
or an agency thereof, in amounts sufficient, as determined by the Secretary of  
the Treasury, to pay the principal and interest on the deposited obligations. If
the GSE has insufficient assets to fully fund such GSE debt, the Holding Company
must transfer sufficient assets to the trust to account for this shortfall. The 
Privatization Act requires that upon the dissolution of the GSE on or before    
September 30, 2008, the GSE shall repurchase or redeem, or make proper          
provisions for repurchase or redemption of any outstanding preferred stock.     

In addition, since late 1995, the Company has further diversified its 
funding sources independent of its GSE borrower status by securitizing a portion
of its student loan assets. Securitization is an off-balance sheet funding      
mechanism that the Company effects through the sale of portfolios of student    
loans by the GSE to SLM Funding Corporation, a bankruptcy-remote, special       
purpose wholly-owned subsidiary of the GSE, that, in turn, sells the student    
loans to an independent owner trust that issues securities to fund the purchase 
of the student loans. The securitization trusts typically issue several classes 
of debt securities rated at the highest                                         

37

POS AM
50th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 50th

investment grade level. The GSE has not guaranteed such debt securities and has 
no obligation to ensure their repayment. Because the securities issued by the   
trusts through its securitization program are not GSE securities, the Company   
has been and in the future expects to be able to fund its student loans to term 
through such program, even for those assets whose final maturities extend beyond
2008. The Company has taken the position that the 30 basis point per annum      
offset fee does not apply to securitized loans. See "-- Legal Proceedings." It  
is anticipated that securitization will remain a primary student loan funding   
mechanism for the Company once it conducts student loan purchase activity       
through a non-GSE subsidiary.                                                   

ECONOMIC IMPACT OF THE PRIVATIZATION ACT ON THE COMPANY'S BUSINESS              

The economics of Sallie Mae's contemplated privatization reflect a    
trade-off between government-sponsored-enterprise benefits, which have been     
significantly eroded in recent years, and the opportunity for an expanded       
franchise. It is difficult to precisely quantify either the changing value of   
government-sponsored-enterprise status or the potential value of new business   
opportunities. However, management believes that Sallie Mae's competitive       
posture is now primarily a function of strategic marketplace issues rather than 
its government-sponsored-enterprise status. Moreover, in management's view the  
costs and risks of privatization, within the framework of the Privatization Act 
and with the advent of securitization, are manageable and are expected to have a
relatively modest impact on the core student loan business. The additional      
economic advantage of privatization is that it mitigates the potential for      
further erosion of net returns based on political actions targeted at Sallie    
Mae.                                                                            

     FUNDING COSTS AND LEVERAGE.  The Reorganization would eventually remove the
GSE's ability to issue GSE debt on relatively attractive terms based on the     
perception of implicit federal support. In addition, as described under         
"Financing/Securitization", the Company will be obligated to repay or defease   
GSE debt obligations remaining on the dissolution date. See "MANAGEMENT'S       
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF                   
OPERATIONS -- Years ended December 31, 1994-1996 -- Liquidity and Capital       
Resources -- Securitization."                                                   

PREFERRED STOCK REDEMPTION.  As described above, the Privatization Act
requires that upon the dissolution date, Sallie Mae shall repurchase or redeem, 
or make proper provisions for repurchase or redemption of any outstanding shares
of Sallie Mae preferred stock. The preferred stock is carried at its liquidation
value of $50 per share for a total of $214 million and pays a variable dividend 
that has been at its minimum rate of 5 percent per annum for the last several   
years.                                                                          

  STATE TAXES.  As a government-sponsored-enterprise, Sallie Mae is exempt
from certain state and local taxes. The Company's non-GSE's units will not be   
exempt from such taxes. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL  
CONDITION AND RESULTS OF OPERATIONS -- Years ended December 31,                 
1994-1996 -- Federal and State Taxes."                                          

IMPACT ON OTHER ACTIVITIES.  It is anticipated that following the     
Reorganization, the GSE will maintain an investment portfolio consistent with   
liquidity needs, the availability of attractive credit spreads and prudent      
capital management. As the level of the GSE's investment portfolio (including   
tax-exempt securities) gradually declines, the Company will forego certain      
earnings opportunities. It is expected that swaps and other derivatives will    
continue to be utilized by the GSE to manage interest rate risk and match asset 
and liability characteristics.                                                  

    Privatization will limit Sallie Mae's warehousing advance activity, letter
of credit business and academic facilities portfolio lending, all areas of      
decreasing business opportunity. While contractual commitments in place at the  
Effective Time will be honored by the GSE, it is expected that the Holding      
Company will not pursue these business lines. Instead, the Company will seek to 
maintain client relationships in these areas by refocusing its product lines    
primarily through its broker-dealer subsidiary, ESI.                            

CONSIDERATION.  Under the Privatization Act, the Company must pay $5  
million to the D.C. Financial Control Board for use of the "Sallie Mae" name    
within 60 days after the Effective Time. In addition, if the Reorganization is  
consummated, the Holding Company must issue to the D.C. Financial Control Board 
warrants to purchase 555,015 shares of Holding Company Common Stock. These      
warrants, which are                                                             

38

POS AM
51st Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 51st

transferable, are exercisable at any time prior to September 30, 2008 at $72.43 
per share. These provisions of the Privatization Act were part of the terms     
negotiated with the Administration and Congress as consideration for the GSE's  
privatization.                                                                  

OPERATIONS FOLLOWING THE REORGANIZATION                                         

   Privatization will enable the Company to commence new business activities
without regard to the GSE's charter restrictions immediately after the Effective
Time. Specifically, after the consummation of the Reorganization, the stock of  
certain GSE subsidiaries, including Sallie Mae Servicing Corporation, HICA and  
ESI, would be transferred to the Holding Company. See "THE REORGANIZATION       
PROPOSAL -- Corporate Structure Before and After the Reorganization," such that 
the business activities of such subsidiaries would no longer be subject to      
restrictions contained in the Sallie Mae Charter. In addition, the GSE's        
employees will be transferred to the Management Company at the Effective Time.  

   The Privatization Act also provides for a wind-down of the GSE's business
operations by September 30, 2007. At the time of the Reorganization or as soon  
as practicable thereafter, the GSE will transfer personnel and certain assets to
the Holding Company or other non-GSE affiliates. Student loans, warehousing     
advances and other program-related or financial assets (such as portfolio       
investments, letters of credit, swap agreements and forward purchase            
commitments) are generally not expected to be transferred. During the wind-down 
period following the Reorganization, the GSE generally will be prohibited from  
conducting new business except in connection with student loan purchases through
September 30, 2007 or with other outstanding contractual commitments and from   
issuing new debt obligations which mature beyond September 30, 2008. Neither the
Holding Company nor any of its non-GSE affiliates may purchase FFELP loans for  
so long as the GSE remains an active purchaser in this secondary market. See    
"THE PRIVATIZATION ACT -- Limitations on Holding Company Activities." During the
wind-down period, GSE operations will be managed pursuant to arms-length service
agreements between the GSE and one or more of its non-GSE affiliates. The       
Privatization Act also provides certain restrictions on intercompany relations  
between the GSE and its affiliates during the wind-down period. See "THE        
PRIVATIZATION ACT -- Restrictions on Intercompany Relations."                   

The non-GSE subsidiaries of the Holding Company would provide loan    
servicing support for the loans owned and securitized by the GSE and are        
expected to develop new business opportunities in the higher education finance  
arena and beyond, as described above. These opportunities are intended to       
complement the Company's underlying strategy of acquiring student loan assets,  
as well as help maintain its student loan servicing leadership role and assist  
its new product offerings.                                                      

COMPETITION                                                                     

The Company is the major financial intermediary for higher education  
credit, but it is subject to competition on a national basis from several large 
commercial banks and nonprofit secondary market agencies as well as on a state  
or local basis by smaller banks and state-based secondary markets. While        
Congress establishes loan limits and interest rates on student loans, market    
share in the FFELP industry is increasingly becoming a function of school and   
student desire for borrower benefits and superior customer service. FFELP       
providers have been aggressively competing on the basis of enhanced products and
services in recent years, particularly to offset legislated reductions in       
profitability and the impact of the FDSLP.                                      

Because the Company's historic statutory role is confined to secondary
market activity, it currently depends mainly on its network of lender partners  
and its school-based strategy for new loan volume. The Company also plans to    
heighten its visibility with consumers to favorably position itself for future  
new product offerings. In addition, the availability of securitization for      
student loan assets has created new competitive pressures for traditional       
secondary market purchasers. Based on the most recent information from the U.S. 
Department of Education, at the end of fiscal year 1995, Sallie Mae's share (in 
dollars) of outstanding FFELP loans was 33 percent, banks and other financial   
institutions held 47 percent and state secondary market participants held 20    
percent.                                                                        

39

POS AM
52nd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 52nd

The Company also faces competition from the FDSLP, both for new and   
existing loan volume. Based upon current Department of Education projections,   
the Company estimates that total student loan origination for the academic years
1994-95, 1995-96 and 1996-97 were $22.3 billion, $24.3 billion and $26.0        
billion, respectively, of which FDSLP originations represented approximately 7  
percent, 31 percent and 36 percent, respectively. The Department of Education   
projects that FDSLP originations will represent 38 percent of total student loan
originations in the 1997-98 academic year. Loans made under the direct loan     
program are not currently available for purchase by the Company. The Department 
of Education has also begun to offer FFELP borrowers the opportunity to         
refinance or consolidate FFELP loans into FDSLP loans upon certification that   
the holder of their FFELP loans does not offer a satisfactory income-sensitive  
payment plan. Approximately $333 million of the GSE's FFELP loans have been     
consolidated into the FDSLP. In early 1995, Sallie Mae began offering an        
income-sensitive plan to compete with FDSLP refinancing. However, the FDSLP also
provides an income contingent option not available under the FFELP program      
pursuant to which the government will ultimately forgive student loan debt after
25 years. At this time it is not certain what action, if any, the Congress will 
take with regard to the FDSLP in connection with the anticipated 1998           
reauthorization of the Higher Education Act. However, management believes, based
upon public statements by members of Congress and the Administration, that the  
FFELP and the FDSLP will continue to coexist as competing programs for the      
foreseeable future.                                                             

COLLEGE CONSTRUCTION LOAN INSURANCE ASSOCIATION                                 

In 1987, Sallie Mae assisted in creating the College Construction Loan
Insurance Association ("Connie Lee"), a for-profit, stockholder-owned           
corporation, authorized by Congress to insure and reinsure educational          
facilities obligations. The carrying value of Sallie Mae's investment in Connie 
Lee was approximately $44 million and at March 31, 1997, Sallie Mae effectively 
controlled 42 percent of Connie Lee's outstanding voting stock through its      
ownership of preferred and common stock and through agreements with other       
shareholders. In February 1997, Connie Lee privatized pursuant to statutory     
provisions enacted at the same time as the Privatization Act, that required     
Connie Lee to repurchase shares of its stock owned by the U.S. government at a  
purchase price determined by an independent appraisal. On February 28, 1997,    
Sallie Mae loaned Connie Lee $18 million to repurchase the shares. On May 27,   
1997 the term of this loan was extended to June 29, 1997.                       

PROPERTIES                                                                      

  The Company's principal office is located at leased space at 1050 Thomas
Jefferson Street, N.W., Washington, D.C. 20007.                                 

  The following table lists the principal facilities owned by the Company:

                                                        [Enlarge/Download Table]

                                                                          APPROXIMATE
             LOCATION                             FUNCTION                SQUARE FEET
-----------------------------------  -----------------------------------  -----------
                                                                                     
Reston, VA                           Operations/Headquarters                375,000  
Wilkes Barre, PA                     Loan Servicing Center                  135,000  
Killeen, TX                          Loan Servicing Center                  133,000  
Lynn Haven, FL                       Loan Servicing Center                  133,000  
Lawrence, KS                         Loan Servicing Center                   52,000  

     The Company leases approximately 35,000 square feet of office space for its
loan servicing center in Waltham, Massachusetts, 37,800 square feet of office   
space for its loan servicing center in Spokane, Washington and 47,000 square    
feet and 33,000 square feet of additional space for its loan servicing centers  
in Lawrence, Kansas and Killeen, Texas, respectively.                           

   With the exception of the Pennsylvania loan servicing center, none of the
Company's facilities is encumbered by a mortgage.                               

40

POS AM
53rd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 53rd

   The Company believes that its headquarters and loan servicing centers are
generally adequate to meet its long-term student loan and new business goals.   
Sallie Mae's Washington, D.C. headquarters lease expires in 2001.               

EMPLOYEES                                                                       

As of March 31, 1997, the Company employed 4,733 employees nationwide.

LEGAL PROCEEDINGS                                                               

   OBRA included a provision which applied a 30 basis point per annum fee to
student loans held by Sallie Mae. The Secretary of Education interpreted the    
provisions of OBRA in such a manner as to apply that fee not only to loans held 
by Sallie Mae but also to loans sold by Sallie Mae to securitization trusts. In 
April 1995, the Company filed suit in the U.S. District Court for the District  
of Columbia to challenge the constitutionality of the 30 basis point fee and the
application of the fee to loans securitized by the Company. On November 16,     
1995, the District Court ruled that the fee is constitutional, but that,        
contrary to the Secretary of Education's interpretation, the fee does not apply 
to securitized loans. Both Sallie Mae and the United States appealed. On January
10, 1997, the U.S. Court of Appeals for the District of Columbia Circuit struck 
down the Secretary of Education's interpretation that the 30 basis point offset 
fee (contained in the Omnibus Budget Reconciliation Act of 1993) applies to any 
loan in which Sallie Mae holds a direct or indirect interest, including         
securitized student loans. The Court of Appeals ruled that the fee applies only 
to loans that Sallie Mae owns and remanded the case to the District Court with  
instructions to remand the matter to the Secretary of Education. In addition,   
the Court of Appeals upheld the constitutionality of the offset fee, which      
applies annually with respect to the principal amount of student loans that     
Sallie Mae holds and that were acquired on or after August 10, 1993.            

  On April 29, 1997, U.S. District Court Judge Stanley Sporkin ordered the
U.S. Department of Education to decide, by July 31, 1997, on its final position 
with respect to the application of the offset fee to loans which Sallie Mae has 
securitized. If the final outcome following the remand is that the offset fee is
not applicable to loans securitized by Sallie Mae, the gains resulting from     
prior securitizations would be increased. As of March 31, 1997, the gains       
resulting from such securitizations would have been increased by approximately  
$75 million, pre-tax. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL    
CONDITION AND RESULTS OF OPERATIONS -- Three Months ended March 31, 1997 and    
1996 -- Liquidity and Capital Resources -- Securitization."                     

   On June 11, 1996, Orange County, California filed a complaint against the
Company in the U.S. Bankruptcy Court for the Central District of California. The
case is currently pending in the U.S. District Court for the Central District of
California. The complaint alleges that the Company made fraudulent              
representations and omitted material facts in offering circulars on various bond
offerings purchased by Orange County, which contributed to Orange County's      
market losses and subsequent bankruptcy. The complaint seeks to hold Sallie Mae 
responsible for losses resulting from Orange County's bankruptcy, but does not  
specify the amount of damages claimed. The complaint against the Company is one 
of numerous cases that have been coordinated for discovery purposes. Other      
defendants include Merrill Lynch, Morgan Stanley, KPMG Peat Marwick, Standard & 
Poor's and Fannie Mae. The complaint includes a claim of fraud under Section    
10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5        
promulgated thereunder. In addition, the complaint includes counts under the    
California Corporations Code, as well as a count for common law fraud. The      
Company believes that the complaint is without merit and intends to defend the  
case vigorously. At this time, management believes the impact of the lawsuit    
will not be material to the Company.                                            

   In September 1996, Sallie Mae obtained a declaratory judgment against the
Secretary of Education in the U.S. District Court for the District of Columbia. 
The Court found that the Secretary acted erroneously in refusing to allow Sallie
Mae to claim adjustments to special allowance payments on certain FFELP loans   
which were required to be converted retrospectively from a fixed rate to a      
variable rate. The Secretary has filed a notice of appeal of the District       
Court's decision.                                                               

41

POS AM
54th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 54th

REGULATION

  As a government-sponsored-enterprise, the GSE is organized under federal
law and its operations are restricted by its government charter. While the      
Reorganization will permit an expansion of the Holding Company's private        
activities through unregulated subsidiaries, such activities will be restricted 
in certain ways until the GSE is dissolved, and the GSE's operations will       
continue to be subject to broad federal regulation.                             

CURRENT REGULATION                                                              

GSE REGULATION.  Sallie Mae's structure and the scope of its business 
activities are set forth in the Sallie Mae Charter. The Sallie Mae Charter,     
which is subject to review and change by Congress, sets forth certain           
restrictions on Sallie Mae's business and financing activities and charges the  
federal government with certain oversight responsibilities with respect to these
activities. The Sallie Mae Charter grants it certain exemptions from federal and
state laws. The Sallie Mae Charter's primary regulatory restrictions and        
exemptions, including certain provisions added by the Privatization Act, may be 
summarized as follows:                                                          

          1. One-third of Sallie Mae's 21 member Board of Directors is appointed
    by the President of the United States. The other 14 members are elected by
the holders of Sallie Mae Common Stock. The Chairman of the Board is  
     designated by the President of the United States from among the 21 members.

  2. Debt obligations issued by Sallie Mae are exempt from state
     taxation to the same extent as United States government obligations. Sallie
Mae is exempt from all taxation by any state or by any county,        
municipality, or local taxing authority except with respect to real   
property taxes. Sallie Mae is not exempt from the payment of federal  
corporate income taxes.                                               

    3. All stock and other securities of Sallie Mae are deemed to be
exempt securities under the laws administered by the Securities and   
     Exchange Commission to the same extent as obligations of the United States.

4. Sallie Mae may conduct its business without regard to any
qualification or similar statute in any state of the United States,   
  including the District of Columbia, the Commonwealth of Puerto Rico, and
     the territories and possessions of the United States (although the scope of
Sallie Mae's business is generally limited by its federal charter).   

        5. The issuance of Sallie Mae's debt obligations must be approved by
the Secretary of the Treasury.                                        

       6. Sallie Mae is required to have its financial statements examined
     annually by independent certified public accountants and to submit a report
   of the audit to the Secretary of the Treasury. The Treasury Department is
  also authorized to conduct audits of Sallie Mae and to otherwise monitor
   Sallie Mae's financial condition. Sallie Mae is required to submit annual
 reports of its operations and activities to the President of the United
     States and the Congress. Sallie Mae must pay up to $800,000 per year to the
Department of the Treasury to cover the costs of its oversight.       

          7. Sallie Mae is subject to certain "safety and soundness" regulations
   including the requirement that Sallie Mae maintain a 2.00 percent capital
   adequacy ratio (increasing to 2.25 percent after January 1, 2000). Sallie
Mae may pay dividends only upon certification that, at the time of a  
dividend declaration and after giving effect to the payment of such   
dividend, the capital adequacy ratio is satisfied.                    

        8. The Secretary of Education and the Secretary of the Treasury have
certain enforcement powers under the Sallie Mae Charter.              

   9. A 30 basis point annual "offset fee" unique to Sallie Mae is
   payable to the Secretary of Education on student loans purchased and held
  by Sallie Mae on or after August 10, 1993. Sallie Mae has challenged the
    constitutionality of the 30 basis point fee and the application of the fee
  to loans securitized by Sallie Mae. See "BUSINESS -- Legal Proceedings."

42

POS AM
55th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 55th

   10. At the request of the Secretary of Education, Sallie Mae is
   required to act as a lender of last resort to make FFELP loans when other
 private lenders are not available. Such loans are not subject to the 30
basis point fee on loans held by Sallie Mae.                          

OTHER REGULATION.  Under the Higher Education Act of 1965, as amended,
Sallie Mae is and, following the Reorganization the Company will be, an         
"eligible lender" for purposes only of purchasing and holding loans made by     
other lenders. Like other participants in the insured student loan programs,    
Sallie Mae is and, the Company will be subject, from time to time, to review of 
its student loan operations by the General Accounting Office, the Department of 
Education and certain guarantee agencies. In addition, Sallie Mae Servicing     
Corporation, a wholly-owned subsidiary of Sallie Mae, as a servicer of student  
loans, is subject to certain U.S. Department of Education regulations regarding 
financial responsibility and administrative capability that govern all third    
party servicers of insured student loans. ESI, a wholly-owned subsidiary of     
Sallie Mae, is a broker-dealer registered with the Securities and Exchange      
Commission and the National Association of Securities Dealers (the "NASD") and  
is licensed to do business in 50 states. ESI is subject to regulation by the SEC
and the NASD as a municipal security broker-dealer. HICA, a South Dakota stock  
insurance company and indirect subsidiary of Sallie Mae, is subject to the      
ongoing regulatory authority of the South Dakota Division of Insurance and that 
of comparable governmental agencies in six other states.                        

REGULATION FOLLOWING REORGANIZATION                                             

  The Privatization Act modifies the Sallie Mae Charter and sets forth the
basic framework for Sallie Mae's reorganization into a wholly-owned subsidiary  
of a holding company and the ultimate dissolution of the GSE. Although the      
Privatization Act generally imposes no constraints on the types of permissible  
activities of the privatized business, it does impose certain restrictions on   
transactions between the GSE and the Holding Company and its non-GSE            
subsidiaries after the reorganization is consummated and prior to the           
dissolution of the GSE. See "THE PRIVATIZATION ACT -- Reorganization;           
-- Oversight Authority; -- Restrictions on Intercompany Relations;              
-- Limitations on Holding Company Activities." In addition, the Company will    
also be subject to the regulations described above under "-- Current            
Regulation -- Other Regulation." The Reorganization Agreement is the plan of    
reorganization approved by a majority of the Sallie Mae Board.                  

NON-DISCRIMINATION AND LIMITATIONS ON AFFILIATION WITH DEPOSITORY INSTITUTIONS  

     The Privatization Act also amended the Higher Education Act to provide that
Sallie Mae and, if the Reorganization occurs, any successor entity (including   
the Holding Company) functioning as a secondary market for federally insured    
student loans, may not engage, directly or indirectly, in any pattern or        
practice that results in a denial of a borrower's access to insured loans       
because of the borrower's race, sex, color, religion, national origin, age,     
disability status, income, attendance at a particular institution, length of a  
borrower's educational program or the borrower's academic year at an eligible   
institution.                                                                    

Pub. L. No. 104-208, the federal budget legislation of which the      
Privatization Act was a part, contains amendments to the Federal Deposit        
Insurance Act and the Federal Credit Union Act which prohibit all               
government-sponsored enterprises from directly or indirectly sponsoring or      
providing non-routine financial support to certain credit unions and depository 
institutions. Depository institutions are also prohibited from being affiliates 
of government-sponsored enterprises. Thus, neither the Holding Company nor any  
of its subsidiaries could be affiliated with a depository institution until     
Sallie Mae is dissolved. These restrictions effectively limit the ability of the
Holding Company and its affiliates to originate insured student loans through an
affiliated depository institution as long as the GSE remains in existence. Most 
originators of insured student loans are depository institutions that qualify as
"eligible lenders" under the Higher Education Act, as amended.                  

43

POS AM
56th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 56th

CAPITALIZATION

  The following table sets forth the capitalization of Sallie Mae at March
31, 1997 and the capitalization of the Holding Company "as adjusted" for the    
Reorganization as of that date. No other pro forma information of the Holding   
Company related to the Reorganization is included herein, since such pro forma  
information would reflect no material change from the financial statements of   
Sallie Mae at the time of such effectiveness. The information set forth in the  
table below should be read in conjunction with the audited financial statements 
and notes thereto and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL        
CONDITION AND RESULTS OF OPERATIONS OF SALLIE MAE" included elsewhere herein.   

                                                        [Enlarge/Download Table]

        (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)               MARCH 31, 1997         
                                                                 --------------------------   
                                                                                    AS        
                                                                   ACTUAL        ADJUSTED     
                                                                 -----------    -----------   
                                                                 (UNAUDITED)    (UNAUDITED)   
                                                                                              
Borrowed funds:                                                                               
  Short-term borrowings......................................... $23,003,597    $23,003,597   
  Long-term notes...............................................  20,101,768     20,101,768   
                                                                 -----------    -----------   
     Total borrowed funds.......................................  43,105,365     43,105,365   
                                                                 -----------    -----------   
Minority interest in wholly-owned subsidiary....................           -        213,883(a)
Stockholders' equity:                                                                         
  Preferred stock, par value $50.00 per share, 5,000,000 shares                               
     authorized and issued, 4,277,650 shares outstanding........     213,883              -   
  Common stock, par value $.20 per share, 250,000,000 shares                                  
     authorized, 66,067,940 shares issued (52,780,124 shares                                  
     issued, as adjusted).......................................      13,213         10,555   
  Additional paid-in capital....................................      22,953              -(b)
  Unrealized gains on investment, net of tax....................     331,023        331,023   
  Retained earnings.............................................   1,101,450        469,465   
                                                                 -----------    -----------   
  Stockholders' equity before treasury stock....................   1,682,522        811,043   
  Common stock held in treasury at cost, 13,287,816 shares                                    
     (none, as adjusted)........................................     672,765              -(c)
                                                                 -----------    -----------   
  Total stockholders' equity....................................   1,009,757        811,043   
                                                                 -----------    -----------   
Total capitalization............................................ $44,115,122    $44,130,291   
                                                                  ==========     ==========   

---------------                                                                 

(a) After the Reorganization, the preferred stock of Sallie Mae will not become 
  Holding Company stock. Accordingly, the preferred stock of Sallie Mae will
be reflected as minority interest in a wholly-owned subsidiary in the   
  consolidated financial statements of the Company. Preferred dividends paid
by the GSE will be reflected as an expense of the Company affecting net 
    income; however, such payments will have no effect on earnings available for
common shareholders.                                                    

(b) Pursuant to the terms of the Privatization Act, the Holding Company will    
issue to the D.C. Financial Control Board warrants to purchase 555,015  
  shares of Holding Company Common Stock at a price of $72.43 per share. The
    fair value of the warrants will be capitalized as an organization asset with
a resulting increase in stockholders' equity at the time of the         
    Reorganization. The fair value of the warrants was established at $27.33 per
share, using an option pricing model, for a total of $15.2 million.     

(c) Concurrent with the consummation of the Reorganization, all existing        
   treasury shares of Sallie Mae's Common Stock will be retired and cancelled.

44

POS AM
57th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 57th

SELECTED FINANCIAL DATA 

The following table sets forth selected financial and other operating 
information of Sallie Mae. The selected financial data in the table are derived 
from the consolidated financial statements of Sallie Mae. The data should be    
read in conjunction with the consolidated financial statements, related notes,  
and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 
OPERATIONS" included elsewhere herein.                                          

                                                        [Enlarge/Download Table]

                                   THREE MONTHS ENDED                                                           
                                       MARCH 31,                       YEARS ENDED DECEMBER 31,                 
                                   ------------------   ------------------------------------------------------- 
                                    1997       1996      1996       1995(1)     1994(1)     1993(1)     1992(1) 
                                   -------    -------   -------     -------     -------     -------     ------- 
(DOLLARS IN MILLIONS, EXCEPT PER                                                                                
SHARE AMOUNTS)                                                                                                  
                                                                                                                
OPERATING DATA:                                                                                                 
Net interest income............... $   199    $   233   $   866     $   901     $   982     $ 1,169     $   987 
Net income........................     119        103       419         366         420         443         402 
Earnings per common share.........    2.17       1.74      7.32        5.27        5.13        4.98        4.30 
Dividends per common share........     .44        .40      1.64        1.51        1.42        1.25        1.05 
Return on common stockholders'                                                                                  
  equity..........................   57.64%     47.84%    50.13%(3)   29.17%(3)   27.85%(3)   37.68%      37.26%
Net interest margin...............    1.75       1.99      1.90        1.84        2.14        2.74        2.32 
Return on assets..................    1.00        .85       .88         .71         .87         .99         .89 
Dividend payout ratio.............   20.32      22.94     22.40       28.64       27.66       25.10       24.41 
Average equity/average assets.....    2.05       2.10      2.09        2.68        3.39        2.97        2.73 
BALANCE SHEET DATA:                                                                                             
Student loans purchased........... $31,043    $33,881   $32,308     $34,336     $30,571     $26,978     $24,326 
Student loan participations.......   1,805          -     1,446           -           -           -           - 
Warehousing advances..............   2,533      3,338     2,789       3,865       7,032       7,034       8,085 
Academic facilities financings....   1,405      1,371     1,473       1,312       1,548       1,359       1,189 
Total assets......................  46,330     48,174    47,630      50,002      53,161      46,682      46,775 
Long-term notes...................  20,102     27,731    22,606      30,083      34,319      30,925      30,724 
Total borrowings..................  43,105     45,723    44,763      47,530      50,335      44,544      44,440 
Stockholders' equity..............   1,010      1,025     1,048(3)    1,081(3)    1,601(3)    1,393       1,321 
Book value per common share.......   15.08      14.34     15.53       15.03       18.87       14.03       12.39 
OTHER DATA:                                                                                                     
Securitized student loans                                                                                       
  outstanding..................... $ 7,968    $ 2,397   $ 6,263     $   954     $     -     $     -     $     - 
Core earnings(2)..................     115         93       391         361         356         398         402 
Premiums on debt extinguished.....       -          7         7           8          14         211         141 

---------------                                                                 

(1) Previously reported results for the years ended December 31, 1995, 1994,    
    1993 and 1992 have been restated to retroactively reflect the recognition of
student loan income as earned (see Note 2 to the Consolidated Financial 
   Statements). This restatement resulted in the elimination of the previously
  reported 1995 cumulative effect of the change in accounting method of $130
   million ($1.93 per common share) and an increase to previously reported net
   income of $17 million ($.22 per common share), $13 million ($.15 per common
  share) and $8 million ($.09 per common share) for the years ended December
31, 1994, 1993 and 1992, respectively.                                  

(2) Core earnings is defined as Sallie Mae's net income less the after-tax      
effect of floor revenues and other one-time charges. Management believes
that these measures, which are not measures under generally accepted    
    accounting principles (GAAP), are important because they depict Sallie Mae's
   earnings before the effects of one time events such as floor revenues which
  are largely outside of Sallie Mae's control. Management believes that core
    earnings as defined, while not necessarily comparable to other companies use
   of similar terminology, provide for meaningful period to period comparisons
as a basis for analyzing trends in Sallie Mae's student loan operations.

(3) At March 31, 1997 and 1996 and at December 31, 1996, 1995 and 1994,         
  stockholders' equity reflects the addition to stockholders' equity of $331
million, $343 million, $349 million, $371 million and $300 million,     
respectively, net of tax, of unrealized gains on certain investments    
  recognized pursuant to FAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities."                                            

45

POS AM
58th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 58th

MANAGEMENT'S DISCUSSION AND ANALYSIS OF 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

OVERVIEW                                                                        

  Set forth below is the Management's Discussion and Analysis of Financial
Conditions and Results of Operations for the three months ended March 31, 1997  
and 1996 and for the years ended December 31, 1994-1996. These discussions      
include complementary information and are intended to be read together.         

THE CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,
1996, 1995 AND 1994 AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 ARE PRESENTED 
IN A NEW FORMAT FROM PRIOR PRESENTATIONS OF THE PUBLICLY AVAILABLE FINANCIAL    
STATEMENTS OF THE STUDENT LOAN MARKETING ASSOCIATION ("SALLIE MAE" OR THE "GSE")
TO BETTER PORTRAY THE CHANGING NATURE OF SALLIE MAE'S REVENUE STREAMS. WHILE THE
PRINCIPAL SOURCE OF EARNINGS CONTINUES TO BE FROM STUDENT LOANS, THE NATURE OF  
THOSE EARNINGS IS CHANGING AS A RESULT OF SECURITIZATION. THE MAJOR DIFFERENCES 
BETWEEN THE OLD AND NEW FORMAT ARE THAT THE SECURITIZATION RELATED INCOME, FEE  
INCOME AND GAINS AND LOSSES ON SALES OF AVAILABLE FOR SALE SECURITIES WERE      
RECLASSIFIED FROM THE INTEREST INCOME SECTION TO THE OTHER INCOME SECTION AND   
SERVICING AND ACQUISITION COSTS WERE COMBINED WITH GENERAL AND ADMINISTRATIVE   
EXPENSES AND PRESENTED AS OPERATING EXPENSES IN THE CONSOLIDATED STATEMENTS OF  
INCOME. ALL DOLLAR AMOUNTS ARE IN MILLIONS, EXCEPT PER SHARE AMOUNTS.           

     THE CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1995
AND 1994 WERE RESTATED TO RETROACTIVELY REFLECT THE RECOGNITION OF STUDENT LOAN 
INCOME AS EARNED. SEE NOTE 2 TO THE SALLIE MAE CONSOLIDATED FINANCIAL           
STATEMENTS.                                                                     

Sallie Mae was established in 1972 as a for-profit, stockholder-owned,
government-sponsored enterprise to support the education credit needs of        
students by, among other things, promoting liquidity in the student loan        
marketplace through secondary market purchases. Sallie Mae is the largest source
of financing and servicing for education loans in the United States. The student
loan industry in the United States developed primarily to support federal       
student loan programs and, accordingly, is highly regulated. The principal      
government program, the Federal Family Education Loan Program (formerly the     
Guaranteed Student Loan Program) (the "FFELP"), was created to ensure low cost  
access by both needy and middle class families to post-secondary education.     
Sallie Mae's products and services include student loan purchases, commitments  
to purchase student loans and secured advances to originators of student loans. 
Sallie Mae also offers operational support to originators of student loans and  
to post-secondary education institutions. In addition, Sallie Mae provides other
education-related financial services.                                           

     Sallie Mae purchases student loans from originating lenders, typically just
before the student leaves school and is required to begin repayment of the loan.
Sallie Mae's portfolio consists principally of loans originated under two       
federally sponsored programs -- the FFELP and the Health Education Assistance   
Loan Program ("HEAL"). Sallie Mae also purchases privately insured loans from   
time to time, principally those insured by a wholly-owned subsidiary. There are 
four principal categories of FFELP loans: Stafford loans, PLUS loans, SLS loans 
and consolidation loans. Generally, these loans have repayment periods of       
between five and ten years, with the exception of consolidation loans, and      
obligate the borrower to pay interest at a stated fixed rate or an annually     
reset variable rate that has a cap. However, the yield to holders is subsidized 
on the borrowers' behalf by the federal government to provide a market rate of  
return. The subsidy is referred to as the Special Allowance Payment ("SAP"). The
federal government pays SAP to holders of FFELP loans whenever the average of   
all of the 91-day Treasury bill auctions in a calendar quarter, plus a spread of
between 2.50 and 3.50 percentage points depending on the loan status and when it
was originated, exceeds the rate of interest which the borrower is obligated to 
pay. In low interest rate environments, the rate which the borrower is obligated
to pay may exceed the rate determined by the special allowance formula. In those
instances, no SAP is paid and the interest rate paid on the loan by the borrower
becomes, in effect, a floor on an otherwise variable rate asset. When this      
happens, the difference between the interest rate paid by the borrower and the  
rate determined by the SAP formula is referred to as student loan floor revenue 
or floor revenue.                                                               

46

POS AM
59th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 59th

THREE MONTHS ENDED MARCH 31, 1997 AND 1996                                      

SELECTED FINANCIAL DATA                                                         
CONDENSED STATEMENTS OF INCOME                                                  

                                                        [Enlarge/Download Table]

                                                                    THREE MONTHS                  
                                                                       ENDED          INCREASE    
                                                                     MARCH 31,       (DECREASE)   
                                                                   --------------   ------------  
                                                                   1997     1996     $       %    
                                                                   -----    -----   ----    ----  
                                                                                                  
Net interest income............................................... $ 199    $ 233   $(34)    (14)%
Other operating income............................................    76       22     54     249  
Operating expenses................................................   102       99      3       3  
Federal income taxes..............................................    54       48      6      14  
                                                                   -----    -----   ----    ----  
Income before premiums on debt extinguished.......................   119      108     11      10  
Premiums on debt extinguished, net of tax.........................     -       (5)     5     100  
                                                                   -----    -----   ----    ----  
NET INCOME........................................................   119      103     16      15  
Preferred stock dividend..........................................     3        3      -       -  
                                                                   -----    -----   ----    ----  
Net income attributable to common stock........................... $ 116    $ 100   $ 16      16% 
                                                                   =====    =====   ====     ===  
EARNINGS PER COMMON SHARE......................................... $2.17    $1.74   $.43      24% 
                                                                   =====    =====   ====     ===  
Dividends per common share........................................ $ .44    $ .40   $.04      10% 
                                                                   =====    =====   ====     ===  
CORE EARNINGS..................................................... $ 115    $  93   $ 22      24% 
                                                                   =====    =====   ====     ===  

CONDENSED BALANCE SHEETS                                                        

                                                        [Enlarge/Download Table]

                                                                                            INCREASE            
                                                                                           (DECREASE)           
                                                         MARCH 31,  DECEMBER 31,  ----------------------------  
                                                           1997         1996           $               %        
                                                         ---------  ------------  ------------        ---       
                                                                                                                
ASSETS                                                                                                          
Student loans...........................................  $32,847     $ 33,754      $     (907)             (3)%
Warehousing advances....................................    2,533        2,790            (257)             (9) 
Academic facilities financings..........................    1,405        1,473             (68)             (5) 
Cash and investments....................................    7,738        7,706              32               -  
Other assets............................................    1,807        1,907            (100)             (5) 
                                                         ---------  ------------  ------------             ---  
Total assets............................................  $46,330     $ 47,630      $   (1,300)             (3)%
                                                          =======   ==========         =======             ===  
LIABILITIES AND STOCKHOLDERS' EQUITY                                                                            
Short-term borrowings...................................  $23,003     $ 22,157      $      846               4% 
Long-term notes.........................................   20,102       22,606          (2,504)            (11) 
Other liabilities.......................................    2,215        1,819             396              22  
                                                         ---------  ------------  ------------             ---  
Total liabilities.......................................   45,320       46,582          (1,262)             (3) 
                                                         ---------  ------------  ------------             ---  
Stockholders' equity before treasury stock..............    1,683        1,585              98               6  
Common stock held in treasury at cost...................      673          537             136              25  
                                                         ---------  ------------  ------------             ---  
Total stockholders' equity..............................    1,010        1,048             (38)             (4) 
                                                         ---------  ------------  ------------             ---  
Total liabilities and stockholders' equity..............  $46,330     $ 47,630      $   (1,300)             (3)%
                                                          =======   ==========         =======             ===  

RESULTS OF OPERATIONS                                                           

   Sallie Mae's net income was $119 million ($2.17 per common share) for the
first three months of 1997 compared to $103 million ($1.74 per common share) in 
the first three months of 1996.                                                 

47

POS AM
60th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 60th

The net income increase of $16 million (15 percent) in the first three
months of 1997 was primarily a result of, on an after-tax basis, an increase in 
student loan securitization gains of $16 million, the growth in managed student 
loan assets resulting in increased revenue of $15 million, and increased revenue
from amortization of student loan floor contracts of $5 million. These positive 
factors were somewhat offset by the increase in loans subject to Omnibus Budget 
Reconciliation Act ("OBRA") fees as discussed below, a decrease in student loan 
floor revenues of $6 million, increased operating expenses and a decrease in    
interest earned on student loans as loans were securitized. Earnings per common 
share were further enhanced by repurchases of 1.3 million shares (2 percent of  
shares outstanding) in the first three months of 1997.                          

OBRA imposed legislative fees and risk-sharing on Sallie Mae and other
participants in the Federal Family Education Loan Program ("FFELP") including an
offset fee applicable only to Sallie Mae, consolidation loan rebate fees, and   
risk-sharing on defaulted loans applicable to all FFELP participants. The impact
of these fees and reserves for risk-sharing on Sallie Mae's on-balance sheet    
portfolio of student loans reduced net income by $18 million and $15 million in 
the first three months of 1997 and 1996, respectively. In addition to these     
fees, OBRA also imposed other yield reductions on all FFELP participants,       
principally loan origination fees paid to the federal government and reduced SAP
during the period when a borrower is not in an active repayment status. Sallie  
Mae effectively shares the impact of these costs through the pricing of loan    
portfolios it purchases in the secondary market. Management believes the spreads
earned on Sallie Mae's portfolio of student loans will continue to be adversely 
affected as a result of these changes to the FFELP program for the next several 
years as older loans in its portfolio, which were not affected by OBRA, amortize
and are replaced by more recently originated loans which are affected by OBRA.  

Core Earnings and Core Student Loan Spread                                  

    Important measures of Sallie Mae's operating performance are core earnings
and the core student loan spread. Core earnings is defined as Sallie Mae's net  
income less the after-tax effect of floor revenues and other one-time charges.  
Management believes that these measures, which are not measures under generally 
accepted accounting principles (GAAP), are important because they depict Sallie 
Mae's earnings before the effects of one time events such as floor revenues     
which are largely outside of Sallie Mae's control. Management believes that core
earnings as defined, while not necessarily comparable to other companies' use of
similar terminology, provide for meaningful period to period comparisons as a   
basis for analyzing trends in Sallie Mae's core student loan operations.        

   The following table analyzes the earning spreads on student loans for the
three months ended March 31, 1997 and 1996. The line captioned "Adjusted Student
Loan Yields", reflects contractual yields adjusted for premiums paid to purchase
loan portfolios and the estimated costs of borrower benefits. Sallie Mae, as the
servicer of student loans that it securitizes, will continue to earn fee        
revenues over the life of the securitized student loan portfolios. The          
off-balance sheet information presented in the Student Loan Spread Analysis that
follows analyzes the on-going fee revenues associated with the securitized      
portfolios of student loans.                                                    

48

POS AM
61st Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 61st

STUDENT LOAN SPREAD ANALYSIS                                                    

                                                        [Enlarge/Download Table]

                                                                       THREE MONTHS ENDED  
                                                                            MARCH 31,      
                                                                       ------------------- 
                                                                        1997        1996   
                                                                       -------     ------- 
                                                                                           
ON-BALANCE SHEET                                                                           
Adjusted student loan yields..........................................    7.83%       7.94%
Amortization of floor contracts.......................................     .12         .02 
Floor income..........................................................     .07         .18 
Direct OBRA costs.....................................................    (.34)       (.27)
                                                                       -------     ------- 
Student loan income...................................................    7.68        7.87 
Cost of funds.........................................................   (5.51)      (5.44)
                                                                       -------     ------- 
Student loan spread...................................................    2.17%       2.43%
                                                                       =======     ======= 
Core student loan spread..............................................    2.10%       2.25%
                                                                       =======     ======= 
OFF-BALANCE SHEET                                                                          
Servicing and securitization revenue..................................    1.65%       1.34%
                                                                       =======     ======= 
AVERAGE BALANCES (IN MILLIONS OF DOLLARS)                                                  
Student loans, including participations............................... $33,803     $34,352 
Securitized loans.....................................................   6,378       1,363 
                                                                       -------     ------- 
Managed student loans................................................. $40,181     $35,715 
                                                                       =======     ======= 

   The decrease in the core student loan spread in the first three months of
1997 was due principally to higher OBRA fees and the effect of student loan     
participations which contractually yield a lower rate than the underlying       
student loans (discussed below), offset by the revenues from the amortization of
upfront payments received from student loan floor contracts.                    

In the third quarter of 1996, Sallie Mae restructured its business    
relationship with Chase Manhattan Bank ("Chase") whereby Sallie Mae and Chase   
formed a joint venture ("the Chase Joint Venture") that market education loans  
made by Chase and sold to a trust which holds the loans on behalf of the Joint  
Venture. The Chase Joint Venture finances the loan purchases through sales of   
student loan participations to Sallie Mae and Chase. The contractual interest   
rate paid on student loan participations is a variable rate determined based on 
the yield of the underlying student loans less amounts to cover servicing and   
other operating expenses of the Chase Joint Venture. Sallie Mae's investment in 
the Chase Joint Venture is accounted for using the equity method. At March 31,  
1997, the Chase Joint Venture owned $3.6 billion of federally insured education 
loans, 50 percent of which were financed by participations sold to Sallie Mae.  
Substantially all of the loans owned by the Chase Joint Venture are serviced by 
Sallie Mae's servicing subsidiary.                                              

Student Loan Floor Revenues                                                 

    The yield to holders of FFELP loans is subsidized on the borrower's behalf
by the federal government to provide a market rate of return through the payment
of Special Allowance Percentage ("SAP"). Depending on the loan's status and     
origination date, the SAP increases the yield on loans to a variable 91-day     
Treasury bill-based rate plus 2.50 percent, 3.10 percent, 3.25 percent or 3.50  
percent, if that yield exceeds the borrower's interest rate. The interest rate  
paid by the borrower is either at a fixed rate or a rate that resets annually.  
Thus, the yield to holders of student loans varies with the 91-day Treasury bill
rate. In low interest rate environments, when the interest rate which the       
borrower is obligated to pay exceeds the variable rate determined by the SAP    
formula, the borrower's interest rate which is the minimum interest rate earned 
on FFELP loans becomes, in effect, a floor rate. The floor enables Sallie Mae to
earn wider spreads on these student loans since Sallie Mae's variable cost of   
funds, which are indexed to the Treasury bill rate, reflects lower market rates.
The floor generally becomes a factor when the Treasury bill rate is less than   
5.90 percent. For loans which have fixed borrower interest rates, the floor     
remains a factor until Treasury bill rates rise to a level at which the yield   
determined by the SAP formula exceeds the borrower's interest rate. For loans   
with                                                                            

49

POS AM
62nd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 62nd

annually reset borrower rates, the floor is a factor until either Treasury bill 
rates rise similarly or the borrower's interest rate is reset, which occurs on  
July 1 of each year. Under the FFELP program, the majority of loans disbursed   
after July 1992 have variable borrower interest rates that reset annually.      

 As of March 31, 1997, approximately $32 billion of Sallie Mae's managed
student loans were eligible to earn floors ($15 billion with fixed borrower     
interest rates and $17 billion with variable borrower interest rates that reset 
annually). During 1996, Sallie Mae "monetized" the value of the floors related  
to $13 billion of such loans by entering into contracts with third parties under
which it agreed to pay the future floor revenues received, in exchange for      
upfront payments. These upfront payments are being amortized over the remaining 
lives of these contracts, which is approximately 2 years. The amortization of   
these payments, which are not dependent on future interest rate levels, is      
included in core earnings. In the first three months of 1997 and 1996, the      
amortization contributed $10 million and $2 million, respectively, pre-tax to   
core earnings. In addition, Sallie Mae earned floor revenues of $6 million (net 
of $5 million in payments under the floor revenue contracts) and $15 million    
(net of $1 million in payments under the floor revenue contracts) in the three  
months ended March 31, 1997 and 1996, respectively, as the average bond         
equivalent 91-day Treasury bill rate was 5.20 percent in the first three months 
of 1997 versus 5.08 percent in the first three months of 1996. Of the remaining 
$17 billion of such loans at March 31, 1997, $3 billion were earning floor      
revenues based upon current interest rates.                                     

Securitization                                                              

  In each of the first three months of 1997 and 1996, Sallie Mae completed
one securitization transaction in which a total of $2.0 billion and $1.5        
billion, respectively, of student loans were sold to a special purpose finance  
subsidiary and by the subsidiary to trusts that issued asset-backed securities  
to fund the student loans to term. When loans are securitized a gain on sale is 
recorded that is equal to the present value of the expected net cash flows from 
the trust taking into account principal, interest and SAP on the student loans  
less principal and interest payments on the notes and certificates financing the
student loans, the cost of servicing the student loans, the estimated cost of   
Sallie Mae's borrower benefit programs, losses from defaulted loans (which      
include risk-sharing, claim interest penalties, and reject costs), transaction  
costs and the current carrying value of the loans including any premiums paid.  
Accordingly, such gain effectively accelerates recognition of earnings versus   
the earnings that would have been recorded had the loans remained on the balance
sheet. The gains on sales to date have been further reduced by the present value
effect of the payment of future offset fees on loans securitized. (See below for
discussion of the offset fee litigation.) The pre-tax securitization gains on   
the transactions recorded totaled $34 million and $10 million in the first three
months of 1997 and 1996, respectively. The increase in the gain in the first    
three months of 1997 was mainly due to the increase in the size of the          
portfolio, the higher average borrower indebtedness and the longer average life 
of the portfolio of loans securitized. Gains on future securitizations will     
continue to vary depending on the characteristics of the loan portfolios        
securitized as well as the outcome of the offset fee litigation described below.

In November 1995, the U.S. District Court for the District of Columbia
ruled, contrary to the Secretary of Education's statutory interpretation, that  
student loans owned by the securitization trusts are not subject to the 30 basis
point annual offset fee which Sallie Mae is required to pay on student loans    
which it owns. The Department of Education appealed this decision and in January
1997, the U.S. Court of Appeals for the District of Columbia issued a decision  
affirming the District Court's ruling. However the Court of Appeals remanded the
case to the District Court with instructions for remand to the Secretary of     
Education and on April 29, 1997, the District Court Judge ordered the Department
of Education to decide by July 31, 1997, on its final position with respect to  
whether the fee applies to securitized loans. It is therefore uncertain what the
final outcome of this litigation will be. If the final outcome following the    
remand is that the offset fee is not applicable to loans securitized by Sallie  
Mae, the gains from prior securitizations would be increased. As of March 31,   
1997, such increases would amount to approximately $75 million, pre-tax.        
Management considers this increase in gains as a contingent asset which will be 
recognized upon a favorable final ruling in this matter. Offset fees relating to
securitizations have not been paid pending the final resolution of the case.    

50

POS AM
63rd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 63rd

In addition to the initial gain on sale, Sallie Mae is entitled to the
residual cash flows from the trust and servicing fees for continuing to service 
the loans after they are sold to the trusts. The residual amounts and the       
servicing fees are reflected as servicing and securitization revenues in the    
Consolidated Statements of Income.                                              

  To compare nontaxable asset yields to taxable yields on a similar basis,
the amounts in the following table are adjusted for the impact of certain       
tax-exempt and tax-advantaged investments based on the marginal corporate tax   
rate of 35 percent.                                                             

NET INTEREST INCOME                                                             

                                                        [Enlarge/Download Table]

                                                                  THREE MONTHS                
                                                                     ENDED        INCREASE    
                                                                   MARCH 31,     (DECREASE)   
                                                                  ------------  ------------  
                                                                  1997    1996   $       %    
                                                                  ----    ----  ----    ----  
                                                                                              
Interest income                                                                               
  Student loans.................................................. $640    $672  $(32)     (5)%
  Warehousing advances...........................................   41      58   (17)    (29) 
  Academic facilities financings.................................   24      23     1       3  
  Investments....................................................  141     134     7       5  
  Taxable equivalent adjustment..................................    8       8     -       6  
                                                                  ----    ----  ----    ----  
Total taxable equivalent interest income.........................  854     895   (41)     (5) 
Interest expense.................................................  647     655    (8)     (1) 
                                                                  ----    ----  ----    ----  
Taxable equivalent net interest income........................... $207    $240  $(33)    (14)%
                                                                  ====    ====  ====     ===  

  Taxable equivalent net interest income in the first three months of 1997
declined by $33 million from the first three months of 1996. This decline was   
due to the increase in loans subject to OBRA fees, which reduced taxable        
equivalent net income and net interest margin by $28 million and .24 percent,   
respectively, for the first three months of 1997 as compared to $23 million and 
.19 percent, receptively, for the first three months of 1996. Other factors   
contributing to the decline were lower student loan floor revenues, decreased   
spreads on student loans, one less day in the period and a decrease in average  
student loan assets as loans were securitized. The decreases were partially     
offset by increased revenue of $8 million from the amortization of upfront      
payments received from student loan floor contracts. As discussed above under   
"Securitization", when loans are securitized a gain or loss is recorded, and    
such gain or loss, along with ongoing securitization and servicing revenues from
the trusts, are reflected in "Other Income" on the Consolidated Statements of   
Income. The decrease in interest income from warehousing advances is due to a   
decline in the overall level of interest rates as well as to the decrease in the
average balance of those assets as Sallie Mae continued to reduce these assets  
and utilize the capital supporting them to purchase shares of its common stock. 
The decrease in interest expense is due to the decrease in borrowings caused by 
the reduction in net interest earning assets. See "-- Rate/Volume Analysis."    

Allowance for Student Loans                                                 

The provision for student loan losses is the periodic expense of      
maintaining an adequate allowance at the amount estimated to be sufficient to   
absorb possible future losses, net of recoveries inherent in the existing on-   
balance sheet loan portfolio. In evaluating the adequacy of the allowance for   
loan losses, the Company takes into consideration several factors including     
trends in claims rejected for payment by guarantors, default rate trends on     
privately-insured loans, and the amount of FFELP loans subject to 2 percent     
risk-sharing. To recognize these potential losses on student loans, Sallie Mae  
maintained a reserve of $87 million and $62 million at March 31, 1997 and 1996, 
respectively. In the first three months of 1997 and 1996, Sallie Mae increased  
this reserve by $6 million and $4 million, respectively, due mainly to increased
loans subject to risk-sharing. Once a student loan is charged off as a result of
an unpaid claim, it is the Company's policy to continue to pursue the recovery  
of principal and interest.                                                      

51

POS AM
64th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 64th

     Management believes that the allowance for loan losses is adequate to cover
anticipated losses in the on-balance sheet student loan portfolio. However, this
evaluation is inherently subjective as it requires material estimates that may  
be susceptible to significant changes.                                          

     The following table reflects the rates earned on earning assets and paid on
liabilities for the three months ended March 31, 1997 and 1996. Managed net     
interest margin includes net interest income plus gains on securitization sales 
and servicing and securitization income divided by average managed assets.      

AVERAGE BALANCE SHEETS                                                          

                                                        [Enlarge/Download Table]

                                                               THREE MONTHS ENDED MARCH 31,     
                                                            ----------------------------------- 
                                                                 1997                1996       
                                                            ---------------     --------------- 
                                                            BALANCE    RATE     BALANCE    RATE 
                                                            -------    ----     -------    ---- 
                                                                                                
AVERAGE ASSETS                                                                                  
  Student loans............................................ $33,803    7.68%    $34,352    7.87%
  Warehousing advances.....................................   2,794    5.95       3,748    6.22 
  Academic facilities financings...........................   1,470    8.44       1,366    8.52 
  Investments..............................................  10,069    5.75       9,174    5.98 
                                                            -------    ----     -------    ---- 
Total interest earning assets..............................  48,136    7.20%     48,640    7.40%
                                                                       ====                ==== 
Non-interest earning assets................................   2,043               1,773         
                                                            -------             -------         
Total assets............................................... $50,179             $50,413         
                                                            =======             =======         
AVERAGE LIABILITIES AND STOCKHOLDERS' EQUITY                                                    
  Six month floating rate notes............................ $ 2,986    5.46%    $ 2,611    5.39%
  Other short-term borrowings..............................  23,366    5.45      16,272    5.39 
  Long-term notes..........................................  21,328    5.57      29,203    5.53 
                                                            -------    ----     -------    ---- 
Total interest bearing liabilities.........................  47,680    5.50%     48,086    5.48%
                                                                       ====                ==== 
Non-interest bearing liabilities...........................   1,468               1,270         
Stockholders' equity.......................................   1,031               1,057         
                                                            -------             -------         
Total liabilities and stockholders' equity................. $50,179             $50,413         
                                                            =======             =======         
Net interest margin........................................            1.75%               1.99%
                                                                       ====                ==== 
Managed net interest margin................................            1.99%               2.05%
                                                                       ====                ==== 

  The decrease in net interest margin for the three months ended March 31,
1997 from the three months ended March 31, 1996 is mainly due to increased OBRA 
fees and lower floor revenues, offset by the increased revenues from the        
amortization of upfront payments received from student loan floor contracts. See
"-- Rate/Volume Analysis." The decrease in the managed net interest margin for  
the three months ended March 31, 1997 from the three months ended March 31, 1996
is due to the factors mentioned above for the net interest margin offset by an  
increase in the gain from securitization of $24 million and the increase in     
servicing and securitization income of $21 million.                             

52

POS AM
65th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 65th

FUNDING COSTS                                                                   

    Sallie Mae's borrowings are generally variable rate indexed principally to
the 91-day Treasury bill rate. The following table summarizes the average       
balance of debt (by index after giving effect to the impact of interest rate    
swaps) for the three months ended March 31, 1997 and 1996 (dollars in millions).

                                                        [Enlarge/Download Table]

                                                                 THREE MONTHS ENDED MARCH 31,      
                                                           ----------------------------------------
                                                                  1997                  1996       
                                                           ------------------    ------------------
                                                           AVERAGE    AVERAGE    AVERAGE    AVERAGE
                          INDEX                            BALANCE     RATE      BALANCE     RATE  
---------------------------------------------------------  -------    -------    -------    -------
                                                                                                   
Treasury bill, principally 91-day........................  $34,307      5.50%    $36,576      5.43%
LIBOR....................................................    6,429      5.34       9,141      5.48 
Discount notes...........................................    5,810      5.32       1,262      5.32 
Fixed....................................................      675      7.08         765      6.71 
Zero coupon..............................................      130     11.12         123     11.09 
Other....................................................      329      5.27         219      5.51 
                                                           -------     -----     -------    -------
Total....................................................  $47,680      5.50%    $48,086      5.48%
                                                           =======     =====     =======    ====== 

 In the above table, for the three months ended March 31, 1997 and 1996,
spreads for Treasury bill indexed borrowings averaged .24 percent and .26       
percent, respectively, over the weighted average Treasury bill rates for those  
years and spreads for London Interbank Offered Rate ("LIBOR") indexed borrowings
averaged .27 percent and .29 percent, respectively, under the weighted average  
LIBOR rates.                                                                    

   The Rate/Volume Analysis below shows the relative contribution of changes
in interest rates and asset volumes.                                            

RATE/VOLUME ANALYSIS                                                            

                                                        [Enlarge/Download Table]

                                                                                   INCREASE   
                                                                                  (DECREASE)  
                                                                     TAXABLE     ATTRIBUTABLE 
                                                                    EQUIVALENT   TO CHANGE IN 
                                                                     INCREASE   --------------
                                                                    (DECREASE)  RATE    VOLUME
                                                                    ----------  ----    ------
                                                                                              
FIRST THREE MONTHS OF 1997 VS. FIRST THREE MONTHS OF 1996                                     
Taxable equivalent interest income.................................    $(41)    $(24)    $(17)
Interest expense...................................................      (8)       5      (13)
                                                                    -------     ----    ------
Taxable equivalent net interest income.............................    $(33)    $(29)    $ (4)
                                                                    =======     ====    ======

The $29 million decrease in taxable equivalent net interest income    
attributable to the change in rates in the first three months of 1997 was       
principally due to the decrease of $9 million in floor revenues (net of payments
under the floor contracts) in the first three months of 1997 versus 1996, the   
impact of student loan participations on the student loan spread, increased OBRA
costs of $5 million, and lower earning spreads on investments of $5 million.    
Offsetting the decreases in taxable equivalent net interest income were $8      
million of increased revenues from the amortization of the upfront payments     
received from student loan floor contracts and a higher percentage of student   
loans relative to average earning assets.                                       

OPERATING EXPENSES                                                              

     Operating expenses include general and administrative costs, costs incurred
to service Sallie Mae's managed student loan portfolio and operational costs    
incurred in the process of acquiring student loan portfolios. Total operating   
expenses as a percentage of average managed student loans were 103 basis points 

53

POS AM
66th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 66th

and 111 basis points for the three months ended March 31, 1997 and 1996,        
respectively. Operating expenses are summarized in the following tables:        

                                                        [Enlarge/Download Table]

                                                             THREE MONTHS ENDED MARCH 31,                   
                                          ------------------------------------------------------------------
                                                       1997                               1996              
                                          -------------------------------    -------------------------------
                                                       SERVICING                          SERVICING         
                                                          AND                                AND            
                                          CORPORATE   ACQUISITION   TOTAL    CORPORATE   ACQUISITION   TOTAL
                                          ---------   -----------   -----    ---------   -----------   -----
                                                                                                            
Salaries and employee benefits...........   $  16        $  36      $  52      $  17        $  35      $  52
Occupancy and equipment..................       4           15         19          7           15         22
Professional fees........................       4            3          7          2            2          4
Advertising and promotion................       2            -          2          1            -          1
Office operations........................       1            7          8          1            8          9
Other....................................       4            2          6          2            -          2
                                          ---------   -----------   -----   -----        -----      -----   
Total internal operating expenses........      31           63         94      30           60         90   
Third party servicing costs..............       -            8          8       -            9          9   
                                          ---------   -----------   -----   -----        -----      -----   
Total operating expenses.................   $  31        $  71      $ 102   $  30        $  69      $  99   
                                          =======     ========      =====   =====        =====      =====   
Employees at end of the period...........     662        4,071      4,733     776        3,961      4,737   
                                          =======     ========      =====   =====        =====      =====   

                                                        [Enlarge/Download Table]

                                                            THREE MONTHS ENDED    INCREASE/   
                                                                MARCH 31,         (DECREASE)  
                                                           --------------------  ------------ 
                                                             1997        1996     $        %  
                                                           --------    --------  ---      --- 
                                                                                              
Servicing costs...........................................   $ 57        $ 51    $ 6       11%
Acquisition costs.........................................     14          18     (4)     (21)
                                                              ---         ---    ---      --- 
Total servicing and acquisition costs.....................   $ 71        $ 69    $ 2       3% 
                                                             ====        ====    ===      === 

 The increase of $1 million in corporate operating expenses in the first
three months of 1997 versus the first three months of 1996 was mainly due to the
increase in professional fees related to the privatization effort and to SEC    
registration fees, offset in part by a decrease in occupancy costs and a        
decrease in salaries caused principally by the closing of Sallie Mae's EFCI     
subsidiary in the fourth quarter of 1996.                                       

Servicing costs include all operations and systems costs incurred to  
service Sallie Mae's portfolio of managed student loans, including fees paid to 
third party servicers. The 1992 legislated expansion of student eligibility and 
increases in loan limits resulted in higher average student loan balances which 
generally command a higher price in the secondary market and contribute to lower
servicing costs as a percentage of the average balance of managed student loans.
When expressed as a percentage of the managed student loan portfolio, servicing 
costs averaged 57 basis points and 58 basis points for the three months ended   
March 31, 1997 and 1996, respectively. This decrease was due principally to     
increased average student loan balances.                                        

Loan acquisition costs are principally costs incurred under the       
ExportSS(R)("ExportSS") loan origination and administration service, the costs  
of converting newly acquired portfolios onto Sallie Mae's servicing platform or 
those of third party servicers and costs of loan consolidation activities. The  
ExportSS service provides back-office support to clients by performing loan     
origination and servicing prior to the sale of portfolios to Sallie Mae. Student
loans added to the ExportSS pipeline, which represents loan volume serviced by  
and committed for sale to Sallie Mae, totaled $1.3 billion during the first     
three months of 1997, compared to $1.4 billion in the first three months of     
1996. The decrease occurred as a result of the growth in direct lending by the  
federal government. The outstanding portfolio of loans serviced for ExportSS    
lenders totaled $4.0 billion at March 31, 1997, down 10 percent from $4.4       
billion at March 31, 1996. This trend is expected to continue commensurately    
with the growth in direct lending.                                              

PRIVATIZATION                                                                   

On September 30, 1996, the Student Loan Marketing Association         
Reorganization Act of 1996 ("the Privatization Act") was enacted. The           
Privatization Act authorized the creation of a state-chartered holding          

54

POS AM
67th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 67th

company (the "Holding Company") that can pursue new business opportunities      
beyond the limited scope of the GSE's restrictive federal charter. The Holding  
Company would become the parent of the GSE pursuant to a reorganization which   
must be approved by a majority vote of the GSE's shareholders, such vote to take
place on or before March 31, 1998.                                              

On May 15, 1997, Sallie Mae convened a special shareholders meeting   
pursuant to a combined Proxy Statement/Prospectus registered with the Securities
and Exchange Commission to approve a privatization plan and a slate of directors
for the new Holding Company. The solicitation was opposed by eight members of   
Sallie Mae's Board of Directors who are members of the Committee to Restore     
Value ("CRV") and who obtained shareholder support for a separate shareholders' 
meeting that was held on May 9, 1997. Neither Sallie Mae management nor the CRV 
were successful in obtaining the necessary majority approval for adoption of    
their respective privatization plans. On May 27, 1997, the Company and the CRV  
announced that they had agreed to jointly hold a new special meeting at which   
shareholders will vote on a single plan of privatization and reorganization. At 
the special meeting, shareholders also will select for election to the holding  
company board of directors either a slate of nominees proposed by a majority of 
the Sallie Mae Board or a slate of nominees proposed by the CRV. The new special
meeting will be held approximately 20 days following the mailing of proxy       
materials to shareholders. See "-- Years Ended December 31, 1994-1996 --        
Privatization;  -- Liquidity and Capital Resources."                            

FEDERAL AND STATE TAXES                                                         

  Sallie Mae maintains a portfolio of tax-advantaged assets principally to
support education-related financing activities. That portfolio was primarily    
responsible for the decrease in the effective federal income tax rate from the  
statutory rate of 35 percent to 31 percent in the first three months of 1997 and
1996. Sallie Mae 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. However, this tax exemption is effective at the GSE level  
and does not apply to its operating subsidiaries. Under the Privatization Act,  
after the Holding Company's formation, the Company's GSE and non-GSE activities 
would be separated, with non-GSE activities being subject to taxation at the    
state and local level. State taxes are expected to be immaterial in 1997 as the 
majority of the Company's business activities will relate to the GSE. As        
increasing business activities occur outside of the GSE, the effects of state   
and local taxes are expected to increase accordingly.                           

 As a government-sponsored enterprise, Sallie Mae is exempt from certain
state and local taxes. Earnings of non-GSE units would not be exempt from such  
taxes. As the proportion of the Company's earnings generated by the non-GSE     
units increases over time, the expense associated with such taxes will increase.
When fully phased in, management estimates that the Company's effective tax rate
will be increased by approximately 5 percentage points. In addition, state and  
local sales and property taxes ultimately are expected to increase operating    
expenses by approximately 2 to 3 percent. Management believes the gradual       
imposition of such taxes represents the single most significant cost of         
privatization.                                                                  

LIQUIDITY AND CAPITAL RESOURCES                                                 

In the first three months of 1997, student loan purchases totaled $2.1
billion, down 8 percent from $2.3 billion in the first three months of 1996.    
Included in the $2.1 billion of student loan purchases was approximately $400   
million of student loan participations from the Chase Joint Venture.            
Approximately two-thirds of non-joint venture purchase volume in the first three
months of 1997 was derived from Sallie Mae's base of commitment clients,        
particularly those who used the ExportSS loan origination service. Sallie Mae   
secures financing to fund the purchase of insured 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 and     
foreign currency denominated debt of varying maturities and interest rate       
characteristics. Sallie Mae's debt securities are currently rated at the highest
credit rating level by Moody's Investors Service and Standard & Poor's.         
Historically, the rating agencies' ratings of Sallie Mae have been largely a    
factor of its status as a GSE.                                                  

55

POS AM
68th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 68th

The Privatization Act effectively requires that Sallie Mae maintain a 
minimum statutory capital adequacy ratio (the ratio of stockholders' equity to  
total assets plus 50 percent of the credit equivalent amount of certain         
off-balance sheet items) of at least 2 percent until January 1, 2000 and 2.25   
percent thereafter or be subject to certain "safety and soundness" requirements 
designed to restore such statutory ratio. Management anticipates being able to  
fund the increase in required capital from Sallie Mae's current and retained    
earnings. At March 31, 1997, Sallie Mae's statutory capital adequacy ratio was  
2.08 percent. Additionally, the Privatization Act now requires management, prior
to the payment of dividends by Sallie Mae, to certify to the Secretary of the   
Treasury, that after giving effect to the payment of dividends, the statutory   
capital ratio test would have been met at the time the dividend was declared.   
See "-- Years ended December 31, 1994-1996 -- Liquidity and Capital Resources." 

  Sallie Mae uses interest rate and foreign currency swaps (collateralized
where appropriate), purchases of U.S. Treasury securities and other hedging     
techniques to reduce the exposure to interest rate and currency fluctuations    
that arise from its financing activities and to match the characteristics of its
variable interest rate earning assets. See "-- Interest Rate Risk Management".  
During the first three months of 1997, Sallie Mae issued $1.3 billion of        
long-term notes to refund maturing and repurchased obligations. At March 31,    
1997, Sallie Mae had $13.7 billion of outstanding long-term debt issues with    
stated maturities that could be accelerated through call provisions. Sallie Mae 
also funds its student loan assets through securitizations. Sallie Mae has      
issued adjustable rate cumulative preferred stock, common stock, common stock   
warrants and puts, and subordinated debentures convertible to common stock, to  
diversify its funding sources.                                                  

   During the first three months of 1997, Sallie Mae repurchased 1.3 million
shares of its common stock, leaving 52.8 million shares outstanding at March 31,
1997. For the past few years the company has operated near the statutory minimum
capital ratio of 2.00 percent of risk adjusted assets required under its GSE    
charter. Capital in excess of such amounts has been used to repurchase common   
shares. During 1997, management anticipates using current earnings to repurchase
7 to 9 percent of the shares outstanding at the beginning of the year. See      
"-- Years ended December 31, 1994-1996 -- Liquidity and Capital Resources."     

Cash Flows                                                                  

   In the first three months of 1997, operating activities provided net cash
inflows of $626 million, an increase of $446 million from the first three months
of 1996. This increase was due mainly to the increase in other liabilities of   
$264 million and to the increase in net income of $16 million. Investing        
activities provided $975 million in cash in the first three months of 1997, a   
decrease of $824 million from the cash provided in the first three months of    
1996 as Sallie Mae reduced investments by $874 million and warehousing advances 
by $527 million in the three months ended March 31, 1996 versus an increase of  
$245 million in investments and a decrease of $256 million in warehousing       
advances in 1997. In addition, Sallie Mae had purchases, net of repayment,      
claims and resales of student loans and student loan participations of $1.1     
billion in 1997 versus $1.0 billion in 1996 and securitized $2.0 billion of     
student loans in 1997 versus $1.5 billion in 1996. Financing activities used    
$1.8 billion in cash in the first three months of 1997 as Sallie Mae repaid a   
net $3.6 billion in long-term notes and saw an increase in net short-term       
borrowings of $2.0 billion. As student loans are securitized the need for       
long-term financing of these assets on balance sheet will decrease.             

Interest Rate Risk Management                                               

Sallie Mae's principal objective in financing its loan assets is to   
minimize its sensitivity to changing interest rates by matching the interest    
rate characteristics of borrowings to specific assets in order to lock in       
spreads. Sallie Mae funds its floating rate loan assets (most of which have     
weekly rate resets) with variable rate debt and fixed rate debt converted to    
variable rates with interest rate swaps. To achieve a more precise match of     
interest rate characteristics between loan assets and their related liabilities,
Sallie Mae has effectively converted some of its variable rate debt to a        
different variable rate index with interest rate swaps. At March 31, 1997, $18.4
billion of fixed rate debt and $3.8 billion of variable rate debt were matched  
with interest rate swaps and foreign currency agreements. Fixed rate debt at    
March 31, 1997 also funded fixed rate warehousing advances and academic         
facilities financings. Investments were funded on a "pooled" approach,          

56

POS AM
69th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 69th

i.e., the pool of liabilities that funds the investment portfolio has an average
rate and maturity or reset date that corresponds to the average rate and        
maturity or reset date of the investments which they fund.                      

In both its match funding activities for its loan assets and its pool 
funding activities for its investments, Sallie Mae enters into various financial
instrument contracts in the normal course of business to reduce interest rate   
risk and foreign currency exposure on certain of its borrowings. These financial
instrument contracts include interest rate swaps, interest rate cap and collar  
agreements, foreign currency swaps, forward currency exchange agreements,       
options on currency exchange agreements, options on securities, and financial   
futures contracts.                                                              

  In the table below Sallie Mae'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. Nonperforming loans are     
included in the analysis based on their underlying interest rate                
characteristics. The following gap analysis reflects rate-sensitive positions at
March 31, 1997 and is not necessarily reflective of positions that existed      
throughout the period.                                                          

                                                        [Enlarge/Download Table]

                                                         INTEREST RATE SENSITIVITY PERIOD                
                                          -------------------------------------------------------------- 
                                                      3 MONTHS    6 MONTHS                               
                                          3 MONTHS       TO          TO       1 TO 2    2 TO 5    OVER 5 
                                          OR LESS     6 MONTHS     1 YEAR     YEARS     YEARS     YEARS  
                                          --------    --------    --------    ------    ------    ------ 
                                                                                                         
ASSETS                                                                                                   
Student loans............................ $ 29,614    $  3,233     $    -     $    -    $    -    $    - 
Warehousing advances.....................    2,496          18          2          1         -        16 
Academic facilities financings...........      161          10         18         35       230       951 
Cash and investments.....................    5,706          18         12         26       202     1,774 
Other assets.............................        -           -          -          -         -     1,807 
                                          --------    --------    --------    ------    ------    ------ 
     Total assets........................   37,977       3,279         32         62       432     4,548 
                                          --------    --------    --------    ------    ------    ------ 
LIABILITIES AND STOCKHOLDERS' EQUITY                                                                     
Short-term borrowings....................   14,193       4,609      4,201          -         -         - 
Long-term notes..........................    6,864          57          -      3,056     9,364       761 
Other liabilities........................        -           -          -          -         -     2,215 
Stockholders' equity.....................        -           -          -          -         -     1,010 
                                          --------    --------    --------    ------    ------    ------ 
     Total liabilities and stockholders'                                                                 
       equity............................   21,057       4,666      4,201      3,056     9,364     3,986 
                                          --------    --------    --------    ------    ------    ------ 
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS                                                                  
Interest rate swaps......................   15,504         302     (4,200)    (3,014)   (9,250)      658 
                                          --------    --------    --------    ------    ------    ------ 
Period gap............................... $  1,416    $ (1,689)    $   31     $   20    $  318    $  (96)
                                           =======     =======    =======     ======    ======     ===== 
Cumulative gap........................... $  1,416    $   (273)    $ (242)    $ (222)   $   96    $    - 
                                           =======     =======    =======     ======    ======     ===== 
Ratio of interest-sensitive assets to                                                                    
  interest-sensitive liabilities.........    180.4%       70.3%        .8%       2.0%      4.6%    360.2%
                                           =======     =======    =======     ======    ======     ===== 
Ratio of cumulative gap to total                                                                         
  assets.................................      3.1%         .6%        .5%        .5%       .2%        -%
                                           =======     =======    =======     ======    ======     ===== 

  In low interest rate environments, floor revenues on student loans cause
the margins on these loans to widen beyond the locked-in spreads. See           
"-- Results of Operations -- Student Loan Floor Revenues." Such loans continue  
to be classified in the three months or less category in the table above,       
reflecting the fact that as interest rates rise these assets will resume their  
weekly rate reset.                                                              

57

POS AM
70th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 70th

  The weighted average remaining terms to maturity of Sallie Mae's earning
assets and borrowings at March 31, 1997 were 5.5 years and 2.0 years,           
respectively. The following table reflects the average terms to maturity for    
Sallie Mae's earning assets and liabilities at March 31, 1997:                  

AVERAGE TERMS TO MATURITY 
(IN YEARS)

                                                                [Download Table]
                                                                                   
EARNING ASSETS                                                                     
Student loans.................................................................. 6.0
Warehousing advances........................................................... 1.5
Academic facilities financings................................................. 8.0
Cash and investments........................................................... 5.0
                                                                                ---
Total earning assets........................................................... 5.5
                                                                                ---
BORROWINGS                                                                         
Short-term borrowings..........................................................  .5
Long-term borrowings........................................................... 3.5
                                                                                ---
Total borrowings............................................................... 2.0
                                                                                ---

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 5.0 years. As loans are   
securitized, the need for long-term on-balance sheet financing will decrease.   

PREFERRED STOCK                                                                 

Preferred stock dividends are cumulative and payable quarterly at 4.50
percentage points below the highest yield of certain long-term and short-term   
United States Treasury obligations. The dividend rate for any dividend period   
will not be less than 5 percent per annum nor greater than 14 percent per annum.
For the three months ended March 31, 1997 and 1996, the preferred stock dividend
rate was 5.00 percent and reduced net income attributable to common stock by    
$2.7 million, respectively. The Privatization Act requires that on the          
dissolution date of September 30, 2008, the GSE shall repurchase or redeem, or  
make proper provisions for repurchase or redemption of any outstanding preferred
stock. Sallie Mae has the option of effecting an earlier dissolution if certain 
conditions are met.                                                             

OTHER RELATED EVENTS AND INFORMATION                                            

Status of Direct Lending                                                    

  As of March 31, 1997, approximately 1,525 colleges and universities were
participating in the Federal Direct Student Loan Program ("FDSLP") for the      
1996-97 academic year. Based on Department of Education reports, management     
estimates that direct loan volume did not achieve its target market share of 40 
percent of total student loan originations. Management estimates that Direct    
Loans accounted for approximately 31 percent of total student loan volume in the
1995-96 academic year, up from approximately 7 percent in the 1994-95 academic  
year. The FDLSP has a legislated market share goal of 50 percent for the        
1996-1997 academic year.                                                        

   In recent years as the FDSLP has grown, the volume of loans originated by
banks and other participants under the FFELP has been adversely impacted.       
Historically, Sallie Mae has purchased the majority of its student loans as they
near the repayment phase which commences after a borrower leaves school. On     
average there is a two to three year lag between the date a loan is originated  
and the date it enters repayment. This lag has delayed the adverse affect of    
FDSLP originations on Sallie Mae's purchases of student loans. As the volume of 
FDSLP loans reaching the repayment phase increases, Sallie Mae's percentage     
share of the overall student loan market will decline. In 1994, the Department  
of Education began to offer existing FFELP borrowers the opportunity to         
refinance FFELP loans into FDSLP loans. As of March 31, 1997, approximately $463
million of FFELP loans owned by Sallie Mae have been accepted for refinancing   
into FDSLP loans.                                                               

58

POS AM
71st Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 71st

Approximately $333 million have been refinanced into FDSLP loans with the       
remainder awaiting disbursement by the federal government.                      

     OBRA provides that the special allowance for student loans made on or after
July 1, 1998 will be based on the U.S. Treasury security with comparable        
maturity plus 1.0 percent for Stafford, Unsubsidized Stafford, and PLUS loans.  
See Appendix C. The Secretary of Education has not adopted regulations          
specifying the U.S. Treasury security on which these interest rates will be     
based or how often the special allowance rate will reset. Borrower rates are    
reset annually. Sallie Mae management believes that the comparable maturity     
security will be the 10-year Treasury Note. Depending on the specifics of the   
regulations, these changes could adversely impact the FFELP market and Sallie   
Mae's business, because of the uncertain availability and costs of funding to   
support this new type of instrument. Representatives of the student loan        
industry are currently engaged in discussions with congressional staff          
concerning possible legislative modification of this OBRA provision.            

 OBRA also requires Sallie Mae to act as a lender of last resort to make
FFELP loans when other private lenders are not available. Such loans receive a  
100 percent guarantee and are not subject to the 30 basis point offset fee on   
loans held by Sallie Mae. If the Secretary of Education determines that Sallie  
Mae is not adequately implementing this provision, the offset fee paid by Sallie
Mae could be increased from 30 basis points to 100 basis points.                

     Legislated expansion of student eligibility as well as increases in student
and parent loan limits have increased the volume of national loan originations. 
FFELP originations rose nearly 30 percent year-to-year to about $23 billion for 
the 1994 federal fiscal year ended September 30, 1994. During the 1995 federal  
fiscal year, FFELP originations declined to $21 billion due to FDSLP            
originations totaling $5 billion. Management expects FFELP originations to have 
declined a similar amount in the 1996 federal fiscal year and to be flat in     
1997. In the meantime, however, the competition for FFELP loans has intensified 
at both the originating and secondary market levels due mainly to the reduced   
volume and to securitization of student loans, which has developed into a       
significant funding alternative for FFELP lenders.                              

Recently Issued Accounting Pronouncements                                   

     In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("FAS") No. 128, "Earnings Per Share", which  
is required to be adopted on December 15, 1997. At that time, the Company will  
be required to change the method used to compute earnings per share and to      
restate all prior periods. Under the new requirements for calculating primary   
earnings per share, the dilutive effect of stock options will be excluded. The  
adoption is expected to have no material impact on Sallie Mae's reported        
earnings per share.                                                             

Other Related Events                                                        

On February 6, 1997, President Clinton submitted his Fiscal Year 1998 
budget proposal to Congress. In an effort to achieve a balanced federal budget  
by 2002, the President has proposed a number of budget savings affecting the    
FFELP. Included in these savings are proposals to reduce the yield on student   
loans during the in-school, grace and deferment periods, to decrease loan       
insurance from 98 percent of claim amount to 95 percent, to require lenders     
rather than the government to compensate guarantors for their assistance in     
default prevention, and to extend the Sallie Mae offset fee to loans sold by    
Sallie Mae as part of securitized transactions. In addition, the President has  
proposed a significant restructuring of guaranty agency finances and operations.
None of the proposals affecting lenders and secondary markets was included in   
the agreement on the budget which the President subsequently reached with the   
Congressional leadership or in the budget resolution passed by the Congress     
based upon that agreement. The agreement does call for the return of $1 billion 
in guarantee agency reserves in fiscal year 2002, although such provisions would
not adversely affect the Company. Legislation implementing the budget resolution
is now under consideration by both houses of the Congress.                      

59

POS AM
72nd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 72nd

 On April 17, 1997, House Ways and Means Committee Chairman Bill Archer,
Senate Finance Committee Chairman William V. Roth, Jr., and ranking Senate      
Finance Committee minority member Daniel Patrick Moynihan proposed legislation  
(the "Proposed Legislation") which would prevent Section 355 of the Internal    
Revenue Code from applying, except as provided in Treasury Department           
regulations, to any distribution of stock made by one member of an affiliated   
group of corporations filing a consolidated return to another member. Subject to
various transition rules, the Proposed Legislation is proposed to be effective  
for intragroup distributions occurring after April 16, 1997. It is not possible 
to determine at this time whether and in what form the Proposed Legislation may 
be enacted into law, nor is it possible to determine the ultimate effective     
dates of any such legislation. If the Proposed Legislation were enacted in its  
current form with applicable effective dates, however, any ability that the     
Holding Company might have to effect a tax-free distribution of the stock of any
subsidiaries transferred to the Holding Company as part of the privatization    
could be eliminated. The Holding Company has no current plans to make any such  
distributions.                                                                  

60

POS AM
73rd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 73rd

YEARS ENDED DECEMBER 31, 1994-1996                                              

SELECTED FINANCIAL DATA                                                         
CONDENSED STATEMENTS OF INCOME                                                  

                                                        [Enlarge/Download Table]

                                                                          INCREASE (DECREASE)       
                                                                      ----------------------------  
                                             YEARS ENDED DECEMBER       1996 VS.        1995 VS.    
                                                      31,                 1995            1994      
                                            -----------------------   ------------     -----------  
                                            1996     1995     1994      $       %       $       %   
                                            -----    -----    -----   -----    ---     ----    ---  
                                                                                                    
Net interest income........................ $ 866    $ 901    $ 981   $ (35)    (4)%   $(80)    (8)%
Other operating income.....................   147       50       14      97    191       36    265  
Operating expenses.........................   406      439      390     (33)    (8)      49     13  
Federal income taxes.......................   183      141      176      42     30      (35)   (20) 
                                            -----    -----    -----   -----    ---     ----    ---  
Income before premiums on debt                                                                      
  extinguished.............................   424      371      429      53     14      (58)   (14) 
Premiums on debt extinguished, net of                                                               
  tax......................................    (5)      (5)      (9)      -      2        4     47  
                                            -----    -----    -----   -----    ---     ----    ---  
NET INCOME.................................   419      366      420      53     15      (54)   (13) 
Preferred stock dividend...................    11       11       11       -      -        -      -  
                                            -----    -----    -----   -----    ---     ----    ---  
Net income attributable to common stock.... $ 408    $ 355    $ 409   $  53     15%    $(54)   (13)%
                                            =====    =====    =====   =====    ===     ====    ===  
EARNINGS PER COMMON SHARE.................. $7.32    $5.27    $5.13   $2.05     39%    $.14      3% 
                                            =====    =====    =====   =====    ===     ====    ===  
Dividends per common share................. $1.64    $1.51    $1.42   $ .13      9%    $.09      6% 
                                            =====    =====    =====   =====    ===     ====    ===  
CORE EARNINGS.............................. $ 391    $ 361    $ 356   $  30      8%    $  5      1% 
                                            =====    =====    =====   =====    ===     ====    ===  

CONDENSED BALANCE SHEETS                                                        

                                                        [Enlarge/Download Table]

                                                                      INCREASE (DECREASE)         
                                                               ---------------------------------  
                                              DECEMBER 31,     1996 VS. 1995      1995 VS. 1994   
                                           ------------------  --------------     --------------  
                                            1996       1995       $        %         $        %   
                                           -------    -------  -------    ---     -------    ---  
                                                                                                  
ASSETS                                                                                            
Student loans............................. $33,754    $34,336  $  (582)    (2)%   $ 3,965     13% 
Warehousing advances......................   2,790      3,865   (1,075)   (28)     (3,167)   (45) 
Academic facilities financings............   1,473      1,313      160     12        (235)   (15) 
Cash and investments......................   7,706      8,867   (1,161)   (13)     (3,830)   (30) 
Other assets..............................   1,907      1,621      286     18         308     23  
                                           -------    -------  -------    ---     -------    ---  
Total assets.............................. $47,630    $50,002  $(2,372)    (5)%   $(2,959)    (6)%
                                           =======    =======  =======    ===     =======    ===  
LIABILITIES AND STOCKHOLDERS' EQUITY                                                              
Short-term borrowings..................... $22,157    $17,447  $ 4,710     27%    $ 1,431      9% 
Long-term notes...........................  22,606     30,083   (7,477)   (25)     (4,236)   (12) 
Other liabilities.........................   1,819      1,391      428     31         236     20  
                                           -------    -------  -------    ---     -------    ---  
Total liabilities.........................  46,582     48,921   (2,339)    (5)     (2,569)    (5) 
                                           -------    -------  -------    ---     -------    ---  
Stockholders' equity before treasury                                                              
  stock...................................   1,585      3,876   (2,291)   (59)        470     14  
Common stock held in treasury at cost.....     537      2,795   (2,258)   (81)        860     44  
                                           -------    -------  -------    ---     -------    ---  
Total stockholders' equity................   1,048      1,081      (33)    (3)       (390)   (27) 
                                           -------    -------  -------    ---     -------    ---  
Total liabilities and stockholders'                                                               
  equity.................................. $47,630    $50,002  $(2,372)    (5)%   $(2,959)    (6)%
                                           =======    =======  =======    ===     =======    ===  

RESULTS OF OPERATIONS                                                           

    Sallie Mae's net income was $419 million ($7.32 per common share) for 1996
compared to $366 million ($5.27 per common share) in 1995.                      

     The net income increase of $53 million (15 percent) in 1996 was primarily a
result of continued growth in managed student loan assets and, on an after-tax  
basis, the effect of accelerating income recognition associated with the        
securitization of student loans of $14 million, lower short-term U.S. Treasury  
rates which resulted in                                                         

61

POS AM
74th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 74th

an increase of $19 million in floor revenues, lower operating expenses of $21   
million and $6 million due to the reversal of a previously established loss     
reserve based on the successful outcome of a lawsuit against the federal        
government regarding SAP on certain student loans. These positive factors were  
somewhat offset by the increase in loans subject to Omnibus Budget              
Reconciliation Act ("OBRA") fees, as discussed below, and $9 million in         
additions to other student loan loss reserves unrelated to risk-sharing on FFELP
loans. Earnings per common share were further enhanced by repurchases of 4.6    
million shares (8 percent of shares outstanding) in 1996.                       

     The 1995 net income of $366 million decreased $54 million (13 percent) from
1994 due principally to higher short-term U.S. Treasury rates which resulted in 
a decrease in after-tax floor revenues of $73 million, somewhat offset by higher
after-tax gains on sales of securities of $16 million. The 1995 earnings per    
common share were $5.27, an increase of $.14 (3 percent) from 1994, largely a   
result of Sallie Mae's repurchase of 16.1 million common shares (22 percent of  
shares outstanding) during 1995.                                                

OBRA imposed legislative fees and risk-sharing on Sallie Mae and other
participants in the Federal Family Education Loan Program ("FFELP") including an
offset fee applicable only to Sallie Mae, consolidation loan rebate fees, and   
risk-sharing on defaulted loans applicable to all FFELP participants. The impact
of these fees and reserves for risk-sharing on Sallie Mae's on-balance sheet    
portfolio of student loans reduced net income by $62 million, $37 million and   
$17 million in 1996, 1995 and 1994, respectively. In addition to these fees,    
OBRA also imposed other yield reductions on all FFELP participants, principally 
loan origination fees paid to the federal government and reduced SAP during the 
period when a borrower is not in an active repayment status. Sallie Mae         
effectively shares the impact of these costs through the pricing of loan        
portfolios it purchases in the secondary market. Management believes the spreads
earned on Sallie Mae's portfolio of student loans will continue to be adversely 
affected as a result of these changes to the FFELP program for the next several 
years as older loans in its portfolio, which were not affected by OBRA, amortize
and are replaced by more recently originated loans which are affected by OBRA.  

Core Earnings and Core Student Loan Spread                                  

    Important measures of Sallie Mae's operating performance are core earnings
and the core student loan spread. Core earnings is defined as Sallie Mae's net  
income less the after-tax effect of floor revenues and other one-time charges.  
Management believes that these measures, which are not measures under generally 
accepted accounting principles (GAAP), are important because they depict Sallie 
Mae's earnings before the effects of one-time events such as floor revenues     
which are largely outside of Sallie Mae's control. Management believes that core
earnings as defined, while not necessarily comparable to other companies use of 
similar terminology, provide for meaningful period to period comparisons as a   
basis for analyzing trends in Sallie Mae's core student loan operations.        

     The following table analyzes the earning spreads on student loans for 1996,
1995 and 1994. The line captioned "Adjusted Student Loan Yields", reflects      
contractual yields adjusted for premiums paid to purchase loan portfolios and   
the estimated costs of borrower benefits. Sallie Mae, as the servicer of student
loans that it securitizes, will continue to earn fee revenues over the life of  
the securitized student loan portfolios. The off-balance sheet information      
presented in the Student Loan Spread Analysis that follows analyzes the on-going
fee revenues associated with the securitized portfolios of student loans.       

62

POS AM
75th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 75th

STUDENT LOAN SPREAD ANALYSIS                                                    

                                                        [Enlarge/Download Table]

                                                           YEARS ENDED DECEMBER 31,    
                                                        ------------------------------ 
                                                                                       
                                                         1996        1995       1994   
                                                        -------     -------    ------- 


                                                                                       
ON-BALANCE SHEET                                                                       

Adjusted student loan yields...........................    7.92%       8.40%      7.29%
Amortization of floor swap payments....................     .07           -          - 
Floor income...........................................     .13         .04        .44 
Direct OBRA costs......................................    (.29)       (.17)      (.09)
                                                        -------     -------    ------- 
Student loan income....................................    7.83        8.27       7.64 
Cost of funds..........................................   (5.49)      (5.95)     (4.69)
                                                        -------     -------    ------- 
Student loan spread....................................    2.34%       2.32%      2.95%
                                                        =======     =======    ======= 
Core student loan spread...............................    2.21%       2.28%      2.51%
                                                        =======     =======    ======= 
OFF-BALANCE SHEET                                                                      
Servicing and securitization revenue...................    1.43%        .80%         -%
                                                        =======     =======    ======= 
AVERAGE BALANCES (IN MILLIONS OF DOLLARS)                                              
Student loans, including participations................ $33,273     $32,758    $28,642 
Securitized loans......................................   4,020         177          - 
                                                        -------     -------    ------- 
Managed student loans.................................. $37,293     $32,935    $28,642 
                                                        =======     =======    ======= 

     The decrease in the core student loan spread in 1996 was due principally to
higher OBRA fees, the effect of student loan participations which contractually 
yield a lower rate than the underlying student loans (discussed below), and     
increased student loan loss reserves, offset by the revenues from the           
amortization of upfront payments received from student loan floor contracts and 
a one-time gain from the reversal of a previously established loss reserve due  
to the successful outcome of litigation related to SAP payments on certain      
loans. The decrease in the core student loan spread in 1995 was due principally 
to higher OBRA fees and higher student loan premium amortization on student     
loans acquired in recent years due to increased competition.                    

In the third quarter of 1996, Sallie Mae restructured its business    
relationship with Chase Manhattan Bank ("Chase") whereby Sallie Mae and Chase   
formed a joint venture ("the Chase Joint Venture") that will market education   
loans to be made by Chase and sold to a trust which holds the loans on behalf of
the Joint Venture. The Chase Joint Venture finances the loan purchases through  
sales of student loan participations to Sallie Mae and Chase. The contractual   
interest rate paid on student loan participations is a variable rate determined 
based on the yield of the underlying student loans less amounts to cover        
servicing and other operating expenses of the Chase Joint Venture. Sallie Mae's 
investment in the Chase Joint Venture is accounted for using the equity method. 
At December 31, 1996, the Chase Joint Venture owned $2.9 billion of federally   
insured education loans with substantially all of the loans serviced by Sallie  
Mae's servicing subsidiary.                                                     

Student Loan Floor Revenues                                                 

    The yield to holders of FFELP loans is subsidized on the borrower's behalf
by the federal government to provide a market rate of return through the payment
of SAP. Depending on the loan's status and origination date, the SAP increases  
the yield on loans to a variable 91-day Treasury bill-based rate plus 2.50      
percent, 3.10 percent, 3.25 percent or 3.50 percent, if that yield exceeds the  
borrower's interest rate. The interest rate paid by the borrower is either at a 
fixed rate or a rate that resets annually. Thus, the yield to holders of student
loans varies with the 91-day Treasury bill rate. In low interest rate           
environments, when the interest rate which the borrower is obligated to pay     
exceeds the variable rate determined by the SAP formula, the borrower's interest
rate which is the minimum interest rate earned on FFELP loans becomes, in       
effect, a floor rate. The floor enables Sallie Mae to earn wider spreads on     
these student loans since Sallie Mae's variable cost of funds, which are indexed
to the Treasury bill rate, reflects lower market rates. The floor generally     
becomes a factor when the Treasury bill rate is less than 5.90 percent. For     
loans which have fixed borrower interest rates, the                             

63

POS AM
76th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 76th

floor remains a factor until Treasury bill rates rise to a level at which the   
yield determined by the SAP formula exceeds the borrower's interest rate. For   
loans with annually reset borrower rates, the floor is a factor until either    
Treasury bill rates rise or the borrower's interest rate is reset which occurs  
on July 1 of each year. Under the FFELP program, the majority of loans disbursed
after July 1992 have variable borrower interest rates that reset annually.      

    As of December 31, 1996, approximately $30 billion of Sallie Mae's managed
student loans were eligible to earn floors ($16 billion with fixed borrower     
interest rates and $14 billion with variable borrower interest rates that reset 
annually). During 1996, Sallie Mae "monetized" the value of the floors related  
to $13 billion of such loans by entering into contracts with third parties under
which it agreed to pay the future floor revenues received, in exchange for      
upfront payments. These upfront payments are being amortized over the remaining 
lives of these contracts, which is approximately 2 years. The amortization of   
these payments, which are not dependent on future interest rate levels, is      
included in core earnings. In 1996, the amortization contributed $22 million    
pre-tax to core earnings. In addition, Sallie Mae earned $43 million net of $12 
million in payments under the floor revenue contracts, $14 million and $126     
million in floor revenues in 1996, 1995 and 1994, respectively, as the average  
bond equivalent 91-day Treasury bill rate was 5.16 percent in 1996 versus 5.68  
percent in 1995 and 4.38 percent in 1994. Of the remaining $17 billion of such  
loans at December 31, 1996, $9 billion were earning floor revenues based upon   
current interest rates.                                                         

Securitization                                                              

    During 1996 Sallie Mae completed four securitization transactions in which
a total of $6.0 billion of student loans was sold to a special purpose finance  
subsidiary and by the subsidiary to trusts that issued asset-backed securities  
to fund the student loans to term. When loans are securitized a gain on sale is 
recorded that is equal to the present value of the expected net cash flows from 
the trust taking into account principal, interest and SAP on the student loans  
less principal and interest payments on the notes and certificates financing the
student loans, the cost of servicing the student loans, the estimated cost of   
Sallie Mae's borrower benefit programs, losses from defaulted loans (which      
include risk-sharing, claim interest penalties, and reject costs), transaction  
costs and the current carrying value of the loans including any premiums paid.  
Accordingly, such gain effectively accelerates recognition of earnings versus   
the earnings that would have been recorded had the loans remained on the balance
sheet. The gains on sales to date have been reduced by the present value effect 
of the payment of future offset fees on loans securitized. (See below for       
further discussion of the offset fee litigation.) The pre-tax securitization    
gains on the transactions recorded in 1996 totaled $49 million and were         
immaterial for 1995. Gains on future securitizations will vary depending on the 
characteristics of the loan portfolios securitized as well as the outcome of the
offset fee litigation described below.                                          

In November 1995, the U.S. District Court for the District of Columbia
ruled, contrary to the Secretary of Education's statutory interpretation, that  
student loans owned by the securitization trusts are not subject to the 30 basis
point annual offset fee which Sallie Mae is required to pay on student loans    
which it owns. The Department of Education appealed this decision. On January   
10, 1997, the U.S. Court of Appeals for the District of Columbia Circuit struck 
down the Secretary of Education's interpretation that the 30 basis point offset 
fee (contained in the Omnibus Budget Reconciliation Act of 1993) applies to any 
loan in which Sallie Mae holds a direct or indirect interest, including         
securitized student loans. The Court of Appeals ruled that the fee applies only 
to loans that Sallie Mae owns and remanded the case to the District Court with  
instructions to remand the matter to the Secretary of Education. In addition,   
the Court of Appeals upheld the constitutionality of the offset fee, which      
applies annually with respect to the principal amount of student loans that     
Sallie Mae holds and that were acquired on or after August 10, 1993.            

  On April 29, 1997, U.S. District Court Judge Stanley Sporkin ordered the
U.S. Department of Education to decide, by July 31, 1997, on its final position 
with respect to the application of the offset fee to loans which Sallie Mae has 
securitized. If the final outcome following the remand is that the offset fee is
not applicable to loans securitized by Sallie Mae, the gains resulting from     
prior securitizations would be increased. As of December 31, 1996, the gains    
resulting from such securitizations would have been increased by approximately  
$55 million, pre-tax. Management considers this increase in gains as a          
contingent asset which will be                                                  

64

POS AM
77th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 77th

recognized upon a favorable final ruling in this matter. Offset fees relating to
securitizations have not been paid pending the final resolution of the case.    

In addition to the initial gain on sale, Sallie Mae is entitled to the
residual earnings from the trust. Although the loans are sold to the trusts,    
Sallie Mae continues to service such loans for a fee. The residual earnings and 
the fees for servicing the loans are reflected as servicing and securitization  
revenues in the Consolidated Statements of Income.                              

  To compare nontaxable asset yields to taxable yields on a similar basis,
the amounts in the following table are adjusted for the impact of certain       
tax-exempt and tax-advantaged investments based on the marginal corporate tax   
rate of 35 percent.                                                             

NET INTEREST INCOME                                                             

                                                        [Enlarge/Download Table]

                                                                         INCREASE (DECREASE)       
                                                                    -----------------------------  
                                                                      1996 VS.         1995 VS.    
                                         YEARS ENDED DECEMBER 31,       1995             1994      
                                        --------------------------  ------------     ------------  
                                         1996      1995      1994     $       %       $        %   
                                        ------    ------    ------  -----    ---     ----     ---  
                                                                                                   
Interest income                                                                                    
  Student loans........................ $2,607    $2,708    $2,189  $(101)    (4)%   $519      24% 
  Warehousing advances.................    194       408       334   (214)   (53)      74      22  
  Academic facilities financings.......    100       108       102     (8)    (7)       6       6  
  Investments..........................    542       697       499   (155)   (22)     198      40  
  Taxable equivalent adjustment........     36        52        54    (16)   (30)      (2)     (5) 
                                        ------    ------    ------  -----    ---     ----     ---  
Total taxable equivalent interest                                                                  
  income...............................  3,479     3,973     3,178   (494)   (12)     795      25  
Interest expense.......................  2,577     3,020     2,143   (443)   (15)     877      41  
                                        ------    ------    ------  -----    ---     ----     ---  
Taxable equivalent net interest                                                                    
  income............................... $  902    $  953    $1,035  $ (51)    (5)%   $(82)     (8)%
                                        ======    ======    ======  =====    ===     ====      ==  

     Taxable equivalent net interest income in 1996 declined by $51 million from
1995. This decline was due to the increase in loans subject to OBRA fees such as
the 30 basis point offset fee (unique to Sallie Mae) and risk sharing on claim  
payments (applicable to loans originated on or after October 1, 1993) plus loan 
origination fees and rebates to the Department of Education on consolidation    
loans. Other factors contributing to the decline in taxable equivalent net      
interest income include an increase in the non-risk sharing loss reserves for   
student loans of $14 million and lower average earning assets of $4.4 billion.  
In total, the impact of OBRA on income from student loans, including the fees   
paid directly by Sallie Mae and reserves for risk-sharing on claims payments,   
reduced taxable equivalent net interest income and net interest margin by $96   
million and .20 percent, respectively, in 1996 as compared to $57 million and   
.11 percent, respectively, in 1995 and $26 million and .05 percent in 1994,   
respectively. These negative factors were somewhat offset by the continued      
growth in managed student loan assets, lower short-term Treasury rates which    
result in higher floor revenue of $29 million and the reversal of a previously  
established reserve of $9 million as a result of the successful outcome of the  
SAP litigation. The decrease in interest income from warehousing advances and   
investments is due to a decline in the overall level of interest rates as well  
as to the decrease in the average balance of those assets as Sallie Mae reduced 
these assets and utilized the capital supporting them to purchase shares of its 
common stock. Since Sallie Mae's borrowings are largely variable rate in nature 
the year over year decrease in interest expense is reflective of the level of   
interest rates in general. In addition, the absolute level of borrowings        
decreased as the balance sheet was reduced in size through the securitization of
student loans as well as the aforementioned reductions in the investment and    
warehousing advance portfolios. See "-- Rate/Volume Analysis."                  

     Taxable equivalent net interest income in 1995 declined by $82 million from
1994 due primarily to student loan floor revenues totaling $14 million in 1995  
compared to $126 million in floor revenues in 1994 and the increased effects of 
OBRA on student loan spreads. Also contributing to the decline in student loan  
spreads were the relatively lower spreads earned on student loans acquired in   
recent years due to increased competition in the secondary market for student   
loan portfolios. These factors were somewhat offset by a higher percentage of   
student loans relative to average earning assets.                               

65

POS AM
78th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 78th

Allowance for Student Loans                                                 

The provision for student loan losses is the periodic expense of      
maintaining an adequate allowance at the amount estimated to be sufficient to   
absorb possible future losses, net of recoveries inherent in the existing on-   
balance sheet loan portfolio. In evaluating the adequacy of the allowance for   
loan losses, the Company takes into consideration several factors including     
trends in claims rejected for payment by guarantors and the amount of FFELP     
loans subject to 2 percent risk-sharing. To recognize these potential losses on 
student loans, Sallie Mae maintained a reserve of $84 million, $60 million and  
$65 million at December 31, 1996, 1995, and 1994, respectively. In 1996, Sallie 
Mae increased this reserve by $20 million due to increasing default rates on    
privately-insured loans. The provision for loan losses, net of recoveries, did  
not change materially in 1995 and 1994. Once a student loan is charged off as a 
result of an unpaid claim, it is the Company's policy to continue to pursue the 
recovery of principal and interest.                                             

     Management believes that the allowance for loan losses is adequate to cover
anticipated losses in the on-balance sheet student loan portfolio. However, this
evaluation is inherently subjective as it requires material estimates that may  
be susceptible to significant changes.                                          

     The following table reflects the rates earned on earning assets and paid on
liabilities for the years ended December 31, 1996, 1995 and 1994. Managed net   
interest margin includes net interest income plus gains on securitization sales 
and servicing and securitization income divided by average managed assets.      

AVERAGE BALANCE SHEETS                                                          

                                                        [Enlarge/Download Table]

                                                           YEARS ENDED DECEMBER 31,                 
                                            ------------------------------------------------------- 
                                                 1996                1995                1994       
                                            ---------------     ---------------     --------------- 
                                            BALANCE    RATE     BALANCE    RATE     BALANCE    RATE 
                                            -------    ----     -------    ----     -------    ---- 
                                                                                                    
AVERAGE ASSETS                                                                                      
  Student loans............................ $33,273    7.83%    $32,758    8.27%    $28,642    7.64%
  Warehousing advances.....................   3,206    6.04       6,342    6.43       6,981    4.82 
  Academic facilities financings...........   1,500    8.43       1,527    8.92       1,489    8.62 
  Investments..............................   9,444    5.85      11,154    6.46      11,283    4.65 
                                            -------    ----     -------    ----     -------    ---- 
Total interest earning assets..............  47,423    7.34%     51,781    7.67%     48,395    6.57%
                                                       ====                ====                ==== 
Non-interest earning assets................   1,858               1,673               1,240         
                                            -------             -------             -------         
Total assets............................... $49,281             $53,454             $49,635         
                                            =======             =======             =======         
AVERAGE LIABILITIES AND STOCKHOLDERS'                                                               
  EQUITY                                                                                            
  Six month floating rate notes............ $ 2,485    5.42%    $ 3,609    5.86%    $ 3,410    4.52%
  Other short-term borrowings..............  18,366    5.43      11,802    5.88      13,167    4.43 
  Long-term notes..........................  26,024    5.55      35,373    5.98      30,397    4.62 
                                            -------    ----     -------    ----     -------    ---- 
Total interest bearing liabilities.........  46,875    5.50%     50,784    5.95%     46,974    4.56%
                                                       ====                ====                ==== 
Non-interest bearing liabilities...........   1,377               1,237                 977         
Stockholders' equity.......................   1,029               1,433               1,684         
                                            -------             -------             -------         
Total liabilities and stockholders'                                                                 
  equity................................... $49,281             $53,454             $49,635         
                                            =======             =======             =======         
Net interest margin........................            1.90%               1.84%               2.14%
                                                       ====                ====                ==== 
Managed net interest margin................            1.96%               1.84%                  -%
                                                       ====                ====                ==== 

The increase in net interest margin in 1996 from 1995 is due to the   
increase in higher yielding student loans as a percentage of overall average    
assets which were offset by increased OBRA costs. The increase in managed net   
interest margin in 1996 is due to the increase in securitization gains of $49   
million and servicing and securitization income of $56 million as Sallie Mae    
securitized $6 billion of student loans in 1996 versus $1 billion in 1995. The  
decrease in net interest margin from 1994 to 1995 is mainly attributable to the 
decline in student loan floor revenues to $14 million in 1995 from $126 million 
of student loan floor revenues in 1994 and the increase in OBRA costs.          

66

POS AM
79th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 79th

FUNDING COSTS                                                                   

    Sallie Mae's borrowings are generally variable rate indexed principally to
the 91-day Treasury bill rate. The following table summarizes the average       
balance of debt (by index after giving effect to the impact of interest rate    
swaps) for the years ended December 31, 1996, 1995 and 1994 (dollars in         
millions).                                                                      

                                                        [Enlarge/Download Table]

                                                             YEARS ENDED DECEMBER 31,                   
                                          --------------------------------------------------------------
                                                 1996                  1995                  1994       
                                          ------------------    ------------------    ------------------
                                          AVERAGE    AVERAGE    AVERAGE    AVERAGE    AVERAGE    AVERAGE
                 INDEX                    BALANCE     RATE      BALANCE     RATE      BALANCE     RATE  
----------------------------------------  -------    -------    -------    -------    -------    -------
                                                                                                        
Treasury bill, principally 91-day.......  $35,375      5.48%    $34,039      5.93%    $31,204      4.70%
LIBOR...................................    7,797      5.38      14,290      5.87      11,888      4.03 
Discount notes..........................    2,694      5.35       1,209      5.85       2,718      4.48 
Fixed...................................      720      6.81         811      6.68         792      6.60 
Zero coupon.............................      123     11.12         123     11.06         111     11.06 
Other...................................      166      4.93         312      6.11         261      5.71 
                                          -------    -------    -------    -------    -------    -------
Total...................................  $46,875      5.50%    $50,784      5.95%    $46,974      4.56%
                                          =======    ======     =======    ======     =======    ====== 

   In the above table, for the years ended December 31, 1996, 1995 and 1994,
spreads for Treasury bill indexed borrowings averaged .25 percent, .26 percent  
and .29 percent, respectively, over the weighted average Treasury bill rates for
those years and spreads for London Interbank Offered Rate ("LIBOR") indexed     
borrowings averaged .26 percent, .31 percent and .39 percent, respectively,     
under the weighted average LIBOR rates.                                         

   The rate/volume analysis below shows the relative contribution of changes
in interest rates and asset volumes.                                            

RATE/VOLUME ANALYSIS                                                            

                                                        [Enlarge/Download Table]

                                                                                  INCREASE    
                                                                                 (DECREASE)   
                                                                   TAXABLE      ATTRIBUTABLE  
                                                                  EQUIVALENT    TO CHANGE IN  
                                                                   INCREASE   ----------------
                                                                  (DECREASE)  RATE      VOLUME
                                                                  ----------  -----     ------
                                                                                              
1996 VS. 1995                                                                                 
Taxable equivalent interest income...............................   $ (494)   $(202)    $(292)
Interest expense.................................................     (443)    (175)     (268)
                                                                  ----------  -----     ------
Taxable equivalent net interest income...........................   $  (51)   $ (27)    $ (24)
                                                                   =======    =====     ======
1995 VS. 1994                                                                                 
Taxable equivalent interest income...............................   $  795    $ 540     $ 255 
Interest expense.................................................      877      650       227 
                                                                  ----------  -----     ------
Taxable equivalent net interest income...........................   $  (82)   $(110)    $  28 
                                                                   =======    =====     ======

The $27 million decrease in taxable equivalent net interest income    
attributable to the change in rates in 1996 was principally due to increased    
OBRA costs of $39 million, an increase in student loan loss reserves (exclusive 
of risk sharing) of $14 million and to increased leverage of $15 million, offset
by the increase of $29 million in floor revenues, net of payments under the     
floor contracts, in 1996 versus 1995. Other items offsetting the decreases in   
taxable equivalent net interest income discussed above include $22 million of   
revenues from the amortization of the upfront payments received from student    
loan floor contracts, the $9 million reversal of a previously established       
reserve due to the successful outcome of the SAP litigation, and a higher       
percentage of student loans relative to average earning assets. The $24 million 
decrease in volume is primarily due to the decrease in the balance of           
warehousing advances and investments.                                           

67

POS AM
80th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 80th

   The $110 million decrease attributable to the change in rates in 1995 was
due to $14 million of pre-tax student loan floor revenue in 1995 versus $126    
million in 1994 and declining core spreads on student loans. Core student loan  
spreads declined due principally to the growth in the balance of federally      
insured student loans subject to the fees and default risk-sharing provisions of
OBRA. Also contributing to the decline were the relatively lower spreads earned 
on student loans acquired in recent years due to increased competition in the   
secondary market for student loan portfolios. These factors were somewhat offset
by a higher percentage of student loans relative to average earning assets.     

OPERATING EXPENSES                                                              

     Operating expenses include general and administrative costs, costs incurred
to service Sallie Mae's managed student loan portfolio and operational costs    
incurred in the process of acquiring student loan portfolios. Total operating   
expenses as a percentage of average managed student loans were 109 basis points,
133 basis points and 136 basis points for the years ended December 31, 1996,    
1995 and 1994, respectively. Operating expenses are summarized in the following 
tables:                                                                         

                                                        [Enlarge/Download Table]

                                                                 YEARS ENDED DECEMBER 31,                                       
                           -----------------------------------------------------------------------------------------------------
                                        1996                               1995                               1994              
                           -------------------------------    -------------------------------    -------------------------------
                                        SERVICING                          SERVICING                          SERVICING         
                                           AND                                AND                                AND            
                           CORPORATE   ACQUISITION   TOTAL    CORPORATE   ACQUISITION   TOTAL    CORPORATE   ACQUISITION   TOTAL
                           ---------   -----------   -----    ---------   -----------   -----    ---------   -----------   -----
                                                                                                                                
Salaries and employee                                                                                                           
  benefits................    $ 68         $138       $206       $ 75         $137       $212       $ 68         $128       $196
Occupancy and equipment...      24           60         84         25           49         74         21           37         58
Professional fees.........      15            8         23         34           11         45         18            9         27
Advertising and                                                                                                                 
  promotion...............       7            -          7          6            -          6          4            -          4
Office operations.........       8           32         40          9           35         44          9           34         43
Other.....................       9            2         11         12            2         14         10            2         12
                            ------      -------       ----     ------      -------       ----     ------      -------       ----
Total internal operating                                                                                                        
  expenses................     131          240        371        161          234        395        130          210        340
Third party servicing                                                                                                           
  costs...................       -           35         35          -           44         44          -           50         50
                            ------      -------       ----     ------      -------       ----     ------      -------       ----
Total operating                                                                                                                 
  expenses................    $131         $275       $406       $161         $278       $439       $130         $260       $390
                            ======      =======       ====     ======      =======       ====     ======      =======       ====
Employees at end of the                                                                                                         
  year....................     781        4,011      4,792        875        3,866      4,741        876        4,121      4,997
                              ====        =====      =====       ====        =====      =====       ====        =====      =====
                                                        [Enlarge/Download Table]

                                              YEARS ENDED DECEMBER                                 
                                                      31,                INCREASE/(DECREASE)       
                                              --------------------  ------------------------------ 
                                                                      1996 VS.          1995 VS.   
                                              1996    1995    1994      1995              1994     
                                              ----    ----    ----  ------------      ------------ 
                                                                     $        %        $        %  
                                                                    ---      ---      ---      --- 
                                                                                                   
Servicing costs.............................. $211    $205    $190  $ 6        3%     $15       8 %
Acquisition costs............................   64      73      70   (9)     (13)       3       5  
                                                                                                -  
                                              ----    ----    ----  ---      ---      ---          
Total servicing and acquisition costs........ $275    $278    $260  $(3)      (1)%    $18       7 %
                                              ====    ====    ====  ===      ===      ===       =  

    The decrease of $30 million in corporate operating expenses in 1996 versus
1995 was due principally to the divestiture of a majority interest in CyberMark,
a wholly-owned subsidiary, completed during the second quarter of 1996 which    
reduced 1996 operating expenses by $20 million. Reductions in corporate staffing
and professional fees reduced operating expenses by an additional $10 million.  

     Corporate operating expenses for the year ended December 31, 1995 increased
$31 million (23 percent) over 1994. The increase was related to the following:  
(1) CyberMark expenses in 1995 which totaled $22 million versus $6 million in   
1994; (2) increased costs associated with the student loan business of $11      
million, including advertising and promotion costs related to the corporate     
image campaign and subsidiary operating costs; (3) $4 million related to the    
1995 Annual Meeting and a proxy contest concerning the election of directors;   
and (4) severance costs of $2 million associated with the reduction in corporate
officers and staff.                                                             

Servicing costs include all operations and systems costs incurred to  
service Sallie Mae's portfolio of managed student loans, including fees paid to 
third party servicers. The 1992 legislated expansion of student                 

68

POS AM
81st Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 81st

eligibility and increases in loan limits resulted in higher average student loan
balances which generally command a higher price in the secondary market and     
contribute to lower servicing costs as a percentage of the average balance of   
managed student loans. When expressed as a percentage of the managed student    
loan portfolio, servicing costs averaged 57 basis points, 62 basis points and 66
basis points for the years ended December 31, 1996, 1995 and 1994, respectively.
These decreases were due principally to increased average student loan balances 
and to servicing efficiencies realized through the consolidation of certain     
servicing operations and recent technology investments.                         

     Loan acquisition costs are principally costs incurred under the ExportSS(R)
("ExportSS") loan origination and administration service, the costs of          
converting newly acquired portfolios onto Sallie Mae's servicing platform or    
those of third party servicers and costs of loan consolidation activities. The  
ExportSS service provides back-office support to clients by performing loan     
origination and servicing prior to the sale of portfolios to Sallie Mae. Student
loans added to the ExportSS pipeline, which represents loan volume serviced by  
and committed for sale to Sallie Mae, totaled $4.2 billion during 1996, compared
to $4.7 billion in the prior year. The decrease occurred as a result of the     
substantial growth in direct lending by the federal government. The outstanding 
portfolio of loans serviced for ExportSS lenders totaled $4.0 billion at        
December 31, 1996, down 11 percent from $4.5 billion at December 31, 1995. This 
trend is expected to continue commensurately with the growth in direct lending. 

FEDERAL AND STATE TAXES                                                         

  Sallie Mae maintains a portfolio of tax-advantaged assets principally to
support education-related financing activities. That portfolio was primarily    
responsible for the decrease in the effective federal income tax rate from the  
statutory rate of 35 percent to 30 percent, 27 percent and 29 percent in 1996,  
1995 and 1994, respectively. Sallie Mae 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. However, this tax exemption is     
effective at the GSE level and does not apply to its operating subsidiaries.    
Under its Privatization Act, the Company's GSE and non-GSE activities would be  
separated, with non-GSE activities being subject to taxation at the state and   
local level. State taxes are expected to be immaterial in 1997 as the majority  
of the Company's business activities will relate to the GSE. As increasing      
business activities occur outside of the GSE, the effects of state and local    
taxes are expected to increase accordingly.                                     

LIQUIDITY AND CAPITAL RESOURCES                                                 

In 1996, loan purchases totaled $9.9 billion, up 5 percent over $9.4  
billion in 1995. The 1996 loan purchases include $1.5 billion of student loan   
participation purchases from the Chase Joint Venture. Approximately two-thirds  
of the nonjoint venture purchase volume in 1996 was derived from Sallie Mae's   
base of commitment clients, particularly those who used the ExportSS loan       
origination service. Sallie Mae secures financing to fund the purchase of       
insured 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 and foreign currency denominated debt of      
varying maturities and interest rate characteristics. Sallie Mae's debt         
securities are currently rated at the highest credit rating level by Moody's    
Investor Services and Standard & Poor's. Historically, the rating agencies'     
ratings of Sallie Mae have been largely a factor of its status as a GSE.        
Management believes that, since the Privatization Act does not modify the       
attributes of debt issued by the GSE, it will retain its current credit ratings 
after the Reorganization.                                                       

The Sallie Mae Charter, as most recently amended by the Student Loan  
Marketing Association Reorganization Act of 1996 (the "Privatization Act"),     
effectively requires that Sallie Mae maintain a minimum statutory capital       
adequacy ratio (the ratio of stockholders' equity to total assets plus 50       
percent of the credit equivalent amount of certain off-balance sheet items) of  
at least 2 percent until January 1, 2000 and 2.25 percent thereafter or be      
subject to certain "safety and soundness" requirements designed to restore such 
statutory ratio. Management anticipates being able to fund the increase in      
required capital from Sallie Mae's current earnings. At December 31, 1996,      
Sallie Mae's statutory capital adequacy ratio was 2.11 percent. Additionally,   
the Privatization Act now requires management, prior to the payment of dividends
by Sallie                                                                       

69

POS AM
82nd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 82nd

Mae, to certify to the Secretary of the Treasury, that after giving effect to   
the payment of dividends, the statutory capital ratio test would have been met  
at the time the dividend was declared.                                          

The Privatization Act imposes certain restrictions on intercompany    
relations between the GSE and its affiliates during the wind-down period. In    
particular, the GSE must not extend credit to, nor guarantee any debt           
obligations of the Holding Company or the Holding Company's non-GSE             
subsidiaries. While the GSE may not finance the activities of its non-GSE       
affiliates, it may, subject to its minimum capital requirements, dividend       
retained earnings and surplus capital to the Holding Company, which in turn may 
contribute such amounts to its non-GSE subsidiaries.                            

    Management believes that the initial financing requirements of the Holding
Company will be relatively modest and can be accommodated through a number of   
alternative sources, including public and private debt placement, bank          
borrowings and dividends from subsidiaries, principally the GSE. Management     
intends to declare such dividends and to pay such amounts to the Holding Company
on a quarterly basis. Based on preliminary discussions with commercial banking  
sources, the Company believes it will be able to secure financing at a          
reasonable cost through the Holding Company for asset transfers during the first
year after the Reorganization. Although the foregoing asset transfers will      
likely result in some incremental financing costs and state taxes, such expenses
are not expected to have any material impact on the Company's financial results 
in 1997. Over the long term, securitization is expected to provide the principal
funding source for the anticipated student loan purchase activities of the      
Holding Company when such activities commence. However, when student loan       
purchase activities commence in the Holding Company there will also be a need   
for on-balance sheet financing for such activities until the loans are          
securitized. Such financings will likely require the Holding Company to obtain a
bond rating and such ratings will not be known until specific debt is issued. It
is expected that these ratings will be below the GSE's current credit rating    
levels.                                                                         

  Sallie Mae uses interest rate and foreign currency swaps (collateralized
where appropriate), purchases of U.S. Treasury securities and other hedging     
techniques to reduce the exposure to interest rate and currency fluctuations    
that arise from its financing activities and to match the characteristics of its
variable interest rate earning assets See "-- Interest Rate Risk Management".   
During 1996, Sallie Mae issued $8.3 billion of long-term notes to refund        
maturing and repurchased obligations. At December 31, 1996, Sallie Mae had $14.1
billion of outstanding long-term debt issues with stated maturities that could  
be accelerated through call provisions. Sallie Mae also funds its student loan  
assets through securitizations. Sallie Mae has issued adjustable rate cumulative
preferred stock, common stock, common stock warrants and puts, and subordinated 
debentures convertible to common stock, to diversify its funding sources.       

     During 1996, Sallie Mae repurchased 4.6 million shares of its common stock,
leaving 53.7 million shares outstanding at December 31, 1996. For the past few  
years the company has operated near the statutory minimum capital ratio of 2.00%
of risk adjusted assets required under its GSE charter. Capital in excess of    
such amounts has been used to repurchase common shares. As of December 31, 1996,
Sallie Mae had repurchased nearly all of the 20 million shares which, in May    
1995, it announced it would repurchase over a two year period. The funds        
necessary to complete the repurchase in that relatively short timeframe came    
from the combination of current earnings, increased leverage and reduced asset  
balances. As of December 31, 1996, the Company had authority to repurchase up to
an additional 5 million shares, pursuant to a May 1996 resolution of the Board. 
Management anticipates using current earnings to repurchase 7 to 9 percent of   
the outstanding shares in 1997.                                                 

Cash Flows                                                                  

     In 1996, operating activities provided net cash inflows of $574 million, an
increase of $388 million from 1995. This increase was due mainly to the decrease
in other liabilities of $549 million and to the increase in net income of $53   
million. Investing activities provided $1.6 billion in cash in 1996, a decrease 
of $926 million from the cash provided in 1995. In 1996, Sallie Mae purchased   
$9.9 billion of student loans and student loan participations. Sallie Mae also  
securitized $6.0 billion of student loans and received $5.6 billion in student  
loan and warehousing advance repayments. Financing activities used $3.2 billion 
in cash in 1996 as Sallie Mae                                                   

70

POS AM
83rd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 83rd

repaid a net $7.4 billion in long-term notes and saw an increase in net         
short-term borrowings of $4.7 billion. As student loans are securitized the need
for long-term financing of these assets on balance sheet will decrease.         

Securitization                                                              

  Sallie Mae's unsecured borrowings typically have terms to maturity which
are of a shorter duration than the student loans. In addition, Sallie Mae is    
assessed a 30 basis point annual offset fee on student loans that it holds,     
which effectively raises the cost of funding such assets on balance sheet. Since
1995, Sallie Mae has diversified its funding sources independent of its GSE     
borrower status by securitizing a portion of its student loan assets. A         
securitization involves the sale of student loans by Sallie Mae to a special    
purpose finance subsidiary and by the subsidiary to a trust. The trust funds the
student loans to term through the public issuance of student loan asset-backed  
securities ("ABS securities"). As student loans are securitized, Sallie Mae's   
on-balance sheet funding needs are reduced. During 1996, Sallie Mae completed   
four transactions in which it sold a total of $6.0 billion of student loans to  
trusts which issued securities backed by the loans.                             

While ABS securities generally have a higher cost of funds than Sallie
Mae's traditional on-balance sheet financing (due principally to term           
match-funding and the fact that ABS securities do not benefit from Sallie Mae's 
government-sponsored enterprise status), management believes that securitization
represents an efficient use of capital. See "Results of                         
Operations -- Securitizations" for discussion of the offset fee litigation.     
These asset backed transactions are expected to allow the Holding Company to    
obtain financing at a lower cost than it would otherwise be able to achieve if  
it were to borrow on an unsecured basis. Sallie Mae's securitizations have been 
structured to achieve a "AAA" credit rating on over 96 percent of its financing 
(with an "A" credit rating on the remaining subordinated securities). These     
ratings are independent of Sallie Mae's current status as a GSE. The securitized
portfolios require less capital than would otherwise be required had the assets 
remained on balance sheet. The Company currently anticipates securitizing at    
least $9 billion of loans in 1997 and management believes that securitization   
will grow in importance as a source of funding for the Company.                 

Interest Rate Risk Management                                               

Sallie Mae's principal objective in financing its loan assets is to   
minimize its sensitivity to changing interest rates by matching the interest    
rate characteristics of borrowings to specific assets in order to lock in       
spreads. Sallie Mae funds its floating rate loan assets (most of which have     
weekly rate resets) with variable rate debt and fixed rate debt converted to    
variable rates with interest rate swaps. To achieve a more precise match of     
interest rate characteristics between loan assets and their related liabilities,
Sallie Mae has effectively converted some of its variable rate debt to a        
different variable rate index with interest rate swaps. At December 31, 1996,   
$18.3 billion of fixed rate debt and $4.6 billion of variable rate debt were    
matched with interest rate swaps and foreign currency agreements. Fixed rate    
debt at December 31, 1996 also funded fixed rate warehousing advances and       
academic facilities financings. Investments were funded on a "pooled" approach, 
i.e., the pool of liabilities that funds the investment portfolio has an average
rate and maturity or reset date that corresponds to the average rate and        
maturity or reset date of the investments which they fund.                      

In both its match funding activities for its loan assets and its pool 
funding activities for its investments, Sallie Mae enters into various financial
instrument contracts in the normal course of business to reduce interest rate   
risk and foreign currency exposure on certain of its borrowings. These financial
instrument contracts include interest rate swaps, interest rate cap and collar  
agreements, foreign currency swaps, forward currency exchange agreements,       
options on currency exchange agreements, options on securities, and financial   
futures contracts.                                                              

  In the table below Sallie Mae'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. Nonperforming loans are     
included in the analysis based on their underlying                              

71

POS AM
84th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 84th

interest rate characteristics. The following gap analysis reflects              
rate-sensitive positions at December 31, 1996 and is not necessarily reflective 
of positions that existed throughout the period.                                

                                                        [Enlarge/Download Table]

                                                       INTEREST RATE SENSITIVITY PERIOD                  
                                       ----------------------------------------------------------------- 
                                                   3 MONTHS    6 MONTHS                                  
                                       3 MONTHS       TO          TO       1 TO 2      2 TO 5     OVER 5 
                                       OR LESS     6 MONTHS     1 YEAR      YEARS      YEARS      YEARS  
                                       --------    --------    --------    ------     -------     ------ 
                                                                                                         
 ASSETS                                                                                                  
Student loans........................  $ 30,270    $  3,484    $      -    $     -    $      -    $    - 
Warehousing advances.................     2,771           -           -          1           1        17 
Academic facilities financings.......       157          43          20         39         221       993 
Cash and investments.................     5,641          14          27         21         174     1,829 
Other assets.........................         -           -           -          -           -     1,907 
                                       --------    --------    --------    -------    --------    ------ 
     Total assets....................    38,839       3,541          47         61         396     4,746 
                                       --------    --------    --------    -------    --------    ------ 
LIABILITIES AND STOCKHOLDERS' EQUITY                                                                     
Short-term borrowings................    15,542       2,269       4,346          -           -         - 
Long-term notes......................     8,505           -           -      2,951      10,242       908 
Other liabilities....................         -           -           -          -           -     1,819 
Stockholders' equity.................         -           -           -          -           -     1,048 
                                       --------    --------    --------    -------    --------    ------ 
     Total liabilities and                                                                               
       stockholders' equity..........    24,047       2,269       4,346      2,951      10,242     3,775 
                                       --------    --------    --------    -------    --------    ------ 
OFF-BALANCE SHEET FINANCIAL                                                                              
  INSTRUMENTS                                                                                            
Interest rate swaps..................    14,522       2,410      (4,271)    (2,966)    (10,153)      458 
                                       --------    --------    --------    -------    --------    ------ 
Period gap...........................  $    270    $ (1,138)   $    (28)   $    76    $    307    $  513 
                                        =======     =======     =======    =======    ========    ====== 
Cumulative gap.......................  $    270    $   (868)   $   (896)   $  (820)   $   (513)   $    - 
                                        =======     =======     =======    =======    ========    ====== 
Ratio of interest-sensitive assets to                                                                    
  interest-sensitive liabilities.....     161.5%      156.1%        1.1%       2.1%        3.9%    312.7%
                                        =======     =======     =======    =======    ========    ====== 
Ratio of cumulative gap to total                                                                         
  assets.............................        .6%        1.8%        1.9%       1.7%        1.1%        -%
                                        =======     =======     =======    =======    ========    ====== 

  In low interest rate environments, floor revenues on student loans cause
the margins on these loans to widen beyond the locked-in spreads See "-- Results
of Operations -- Student Loan Floor Revenues." Such loans continue to be        
classified in the three months or less category in the table above, reflecting  
the fact that as interest rates rise these assets will resume their weekly rate 
reset.                                                                          

72

POS AM
85th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 85th

  The weighted average remaining terms to maturity of Sallie Mae's earning
assets and borrowings at December 31, 1996 were 5.5 years and 2.0 years,        
respectively. The following table reflects the average terms to maturity for    
Sallie Mae's earning assets and liabilities at December 31, 1996:               

AVERAGE TERMS TO MATURITY 
(IN YEARS)

                                                                [Download Table]
                                                                                   
EARNING ASSETS                                                                     
Student loans.................................................................. 6.0
Warehousing advances........................................................... 1.0
Academic facilities financings................................................. 8.0
Cash and investments........................................................... 5.5
                                                                                ---
Total earning assets........................................................... 5.5
                                                                                ---
BORROWINGS                                                                         
Short-term borrowings..........................................................  .5
Long-term borrowings........................................................... 3.5
                                                                                ---
Total borrowings............................................................... 2.0
                                                                                ---

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 5.5 years. As loans are   
securitized, the need for long-term on-balance sheet financing will decrease.   

PREFERRED STOCK                                                                 

Preferred stock dividends are cumulative and payable quarterly at 4.50
percentage points below the highest yield of certain long-term and short-term   
United States Treasury obligations. The dividend rate for any dividend period   
will not be less than 5 percent per annum nor greater than 14 percent per annum.
For the years ended December 31, 1996, 1995 and 1994, the preferred stock       
dividend rate was 5.00 percent and reduced net income attributable to common    
stock by $10.7 million, respectively. The Privatization Act requires that on the
dissolution date of September 30, 2008, the GSE shall repurchase or redeem, or  
make proper provisions for repurchase or redemption of any outstanding preferred
stock. Sallie Mae has the option of effecting an earlier dissolution if certain 
conditions are met.                                                             

OTHER RELATED EVENTS AND INFORMATION                                            

Privatization                                                               

On September 30, 1996, the Student Loan Marketing Association         
Reorganization Act of 1996 ("the Privatization Act") was enacted. The           
Privatization Act authorized the creation of a state-chartered holding company  
(the "Holding Company") that would become the parent of the GSE pursuant to a   
reorganization which must be approved by a majority vote of the GSE's           
shareholders, such vote to take place on or before March 31, 1998.              

  If the Reorganization is approved by shareholders, the GSE will transfer
certain assets, including stock in certain subsidiaries, to the Holding Company 
or one of its non-GSE subsidiaries. All GSE employees will be transferred to the
Holding Company or one of its non-GSE subsidiaries. During the wind-down period,
it is expected that non-GSE operations will be managed by the GSE's non-GSE     
affiliates. The Holding Company will remain a passive entity which supports the 
operations of the GSE and its other subsidiaries, and all business activities   
would be conducted through the GSE by such other subsidiaries.                  

   During the wind-down period following the Reorganization and prior to the
GSE's dissolution, the GSE will be restricted in the new business activities it 
may undertake. The GSE may continue to purchase student loans only through      
September 30, 2007. Warehousing advance, letter of credit and standby bond      
purchase activity by the GSE will be limited to takedowns on contractual        
financing and guarantee commitments in                                          

73

POS AM
86th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 86th

place. The Holding Company generally may begin to purchase student loans only   
after the GSE discontinues such activity. GSE debt obligations that are         
outstanding at the time of Reorganization will continue to be outstanding       
obligations of the GSE immediately after the Reorganization. The GSE will be    
able to continue to issue debt in the government agency market to finance       
student loans and other permissible asset acquisitions, although the maturity   
date of such issuances may not extend beyond September 30, 2008, the GSE's final
dissolution date. This restriction will not apply to debt issued to finance any 
lender of last resort or secondary market purchase activity requested by the    
Secretary of Education. At December 31, 1996, the GSE had $372 million in       
outstanding debt with maturities after September 30, 2008. Such debt along with 
cash or full faith and credit obligations of the United States or agency        
thereof, will be transferred into a defeasance trust in amounts sufficient, as  
determined by the Secretary of the Treasury, to pay principal and interest on   
deposited obligations for the benefit of the holders of such obligations, if it 
has not been repurchased prior to that date. 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 shares of Sallie Mae 
preferred stock. Sallie Mae has the option of effecting an earlier dissolution  
if certain conditions are met. The preferred stock is carried at its liquidation
value of $50 per share for a total of $214 million and pays a variable dividend 
that has been at its minimum rate of 5 percent per annum for the last several   
years. See "FINANCIAL STATEMENTS -- Footnote 13."                               

 As a government-sponsored enterprise, Sallie Mae is exempt from certain
state and local taxes. Earnings of non-GSE units would not be exempt from such  
taxes. As the proportion of the Company's earnings generated by the non-GSE     
units increases over time, the expense associated with such taxes will increase.
When fully phased in, management estimates that the Company's effective tax rate
will be increased by approximately five percentage points. In addition, state   
and local sales and property taxes ultimately are expected to increase operating
expenses by approximately two to three percent. Management believes the gradual 
imposition of such taxes represents the single most significant cost of         
privatization.                                                                  

  The Privatization Act requires that within 60 days after the merger, the
Company must pay $5 million to the D.C. Financial Control Board for use of the  
"Sallie Mae" name. In addition, the Holding Company must issue to the D.C.      
Financial Control Board warrants to purchase 555,015 shares of Holding Company  
Common Stock. These warrants, which are transferable, are exercisable at any    
time prior to September 30, 2008 at $72.43 per share. These provisions of the   
Privatization Act were part of the terms negotiated with the Administration and 
Congress as consideration for the GSE's privatization.                          

    If a reorganization pursuant to the Privatization Act does not occur on or
prior to March 31, 1998, the Privatization Act requires that Sallie Mae submit  
an alternative wind-down plan to Congress and the Treasury Department by 2007.  
This plan would call for the dissolution of Sallie Mae by 2013. During this     
alternative wind-down period, Sallie Mae could not engage in new business       
activities beyond its GSE charter, but could transfer assets, except for the    
"Sallie Mae" name, at any time its statutory capital requirements were          
satisfied. As with the Reorganization, any remaining obligations, and assets    
sufficient to pay such obligations, would be transferred to a fully             
collateralized trust at the time of dissolution. All other assets would be      
distributed to Sallie Mae shareholders. Under this alternative, Sallie Mae      
generally would have to cease its business activities after 2009 and could not  
issue debt obligations that mature after 2013. The Secretary of the Treasury,   
who would monitor the wind-down, could require Sallie Mae to amend its plan of  
dissolution if deemed necessary to ensure full payment of its obligations.      

Direct Loan Program and 1993 FFELP Changes                                  

    Sallie Mae's student loan business continued to be impacted by legislative
changes to the student loan program as well as increased competition. OBRA      
changed the FFELP in a number of ways that lower the profitability of FFELP     
loans for all participants and established the Federal Direct Student Loan      
Program ("FDSLP") under which the federal government can lend directly to       
students. FFELP changes include risk-sharing on defaulted loans and yield       
reductions, and a 30 basis point annual "offset fee" unique to Sallie Mae on    
student loans purchased and held on or after August 10, 1993. See "-- Other     
Related Events."                                                                

74

POS AM
87th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 87th

  Despite extensive consideration in 1995 and 1996, the 104th Congress did
not enact any significant changes to the federal student loan programs. No      
changes have been made that would effect the yield on student loans. Sallie Mae 
cannot predict whether future budget proposals or other changes will be made to 
the direct student loan program.                                                

    The FDSLP is funded directly by the federal government and administered by
the Department of Education. OBRA establishes goals for the phase-in of direct  
lending expressed as a percentage of the combined dollar amount of loans        
originated under the direct loan program and the FFELP with the following       
targets:                                                                        

                                                        [Enlarge/Download Table]

                                                                      DIRECT LOANS     
                         ACADEMIC YEARS                           AS A PERCENT OF TOTAL
----------------------------------------------------------------  ---------------------
                                                                                       
1994-1995.......................................................             5%        
1995-1996.......................................................            40         
1996-1998.......................................................            50         
1998-1999.......................................................            60         

     As of December 31, 1996, approximately 1,600 colleges and universities were
participating in the FDSLP for the 1996-97 academic year. Based on Department of
Education reports, management estimates that direct loan volume did not achieve 
its target market share of 40 percent of total student loan originations.       
Management estimates that Direct Loans accounted for approximately 31 percent of
total student loan volume in the 1995-96 academic year, up from approximately 7 
percent in the 1994-95 academic year. The FDLSP has a legislated market share   
goal of 50% for the 1996-1997 academic year.                                    

   In recent years as the FDSLP has grown, the volume of loans originated by
banks and other participants under the FFELP has been adversely impacted.       
Historically, Sallie Mae has purchased the majority of its student loans as they
near the repayment phase which commences after a borrower leaves school. On     
average there is a two to three year lag between the date a loan is originated  
and the date it enters repayment. This lag has delayed the adverse affect of    
FDSLP originations on Sallie Mae's purchases of student loans. As the volume of 
FDSLP loans reaching the repayment phase increases, Sallie Mae's percentage     
share of the overall student loan market will decline. In 1994, the Department  
of Education began to offer existing FFELP borrowers the opportunity to         
refinance FFELP loans into FDSLP loans. As of December 31, 1996, approximately  
$325 million of FFELP loans owned by Sallie Mae have been accepted for          
refinancing into FDSLP loans. Approximately $320 million have been refinanced   
into FDSLP loans with the remainder awaiting disbursement by the federal        
government.                                                                     

     OBRA provides that the special allowance for student loans made on or after
July 1, 1998 will be based on the U.S. Treasury security with comparable        
maturity plus 1.0 percent for Stafford, Unsubsidized Stafford, and PLUS loans.  
See Appendix C. The Secretary of Education has not adopted regulations          
specifying the U.S. Treasury security on which these interest rates will be     
based or how often the special allowance rate will reset. Borrower rates are    
reset annually. Sallie Mae management believes that the comparable maturity     
security will be the 10-year Treasury Note. Depending on the specifics of the   
regulations, these changes could adversely impact the FFELP market and Sallie   
Mae's business, because of the uncertain availability and costs of funding to   
support this new type of instrument. Representatives of the student loan        
industry are currently engaged in discussions with congressional staff          
concerning possible legislative modification of this OBRA provision.            

 OBRA also requires Sallie Mae to act as a lender of last resort to make
FFELP loans when other private lenders are not available. Such loans receive a  
100 percent guarantee and are not subject to the 30 basis point offset fee on   
loans held by Sallie Mae. If the Secretary of Education determines that Sallie  
Mae is not adequately implementing this provision, the offset fee paid by Sallie
Mae could be increased from 30 basis points to 100 basis points.                

     Legislated expansion of student eligibility as well as increases in student
and parent loan limits have increased the volume of national loan originations. 
FFELP originations rose nearly 30 percent year-to-year to about $23 billion for 
the 1994 federal fiscal year ended September 30, 1994. During the 1995 federal  
fiscal                                                                          

75

POS AM
88th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 88th

year, FFELP originations declined to $21 billion due to FDSLP originations      
totaling $5 billion. Management expects FFELP originations to have declined a   
similar amount in the 1996 federal fiscal year and to be flat in 1997. In the   
meantime, however, the competition for FFELP loans has intensified at both the  
originating and secondary market levels due mainly to the reduced volume and to 
securitization of student loans, which has developed into a significant funding 
alternative for FFELP lenders.                                                  

Recently Issued Accounting Pronouncements                                   

    In June 1996, Statement of Financial Accounting Standards ("FAS") No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments 
of Liabilities" was issued. This statement will govern the accounting for       
securitization transactions entered into after December 31, 1996. Also, under   
this statement in-substance defeasance transactions entered into after December 
31, 1996 no longer receive off-balance sheet treatment. Sallie Mae management   
believes the application of this Statement will have no material impact on      
Sallie Mae's results of operations.                                             

Other Related Events                                                        

 In 1995, the Congress declined to provide funding for HEAL loans to new
borrowers. Funds were provided in 1995 and 1996 for borrowers who have          
previously received HEAL loans. It is not known at this time whether Congress   
will be willing to reverse this decision and provide funds for new borrowers. As
of July 1, 1996, the Department of Education has exercised recently granted     
authority to raise the limits on Unsubsidized Stafford Loans to amounts equal to
the maximum available under the HEAL program. Loans of this size are available  
only to borrowers attending programs that otherwise would have been eligible for
HEAL funding and at schools that were active participants in the HEAL program in
1995.                                                                           

   On June 11, 1996, Orange County, California filed a complaint against the
Company in the U.S. Bankruptcy Court for the Central District of California. The
case is currently pending in the U.S. District Court for the Central District of
California. The complaint alleges that the Company made fraudulent              
representations and omitted material facts in offering circulars on various     
offerings purchased by Orange County, which contributed to Orange County's      
market losses and subsequent bankruptcy. The complaint seeks to hold Sallie Mae 
responsible for losses resulting from Orange County's bankruptcy, but does not  
specify the amount of damages claimed. The complaint against the Company is one 
of numerous cases that have been coordinated for discovery purposes. Other      
defendants include Merrill Lynch, Morgan Stanley, KPMG Peat Marwick, Standard & 
Poor's and Fannie Mae. The complaint includes a claim of fraud under Section    
10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5        
promulgated thereunder. In addition, the complaint includes counts under the    
California Corporations Code, as well as a count for common law fraud. The      
Company believes that the complaint is without merit and intends to defend the  
case vigorously. At this time, Management believes the impact of the lawsuit    
will not be material to the Company.                                            

   In September 1996, Sallie Mae obtained a declaratory judgment against the
Secretary of Education in the U.S. District Court for the District of Columbia. 
The Court found that the Secretary acted erroneously in refusing to allow Sallie
Mae to claim adjustments to SAP on certain FFELP loans which were required to be
converted from a fixed rate to a variable rate. The Secretary has filed a notice
of appeal of the District Court's decision.                                     

   In August 1996, Huntington National Bank, Battelle Memorial Institute and
Sallie Mae entered into an agreement to form a joint venture company, CyberMark 
LLC, to produce and market stored value cards and systems. Huntington and       
Battelle provided funding for the new company with Sallie Mae contributing the  
smart card system it developed over the past three years through its CyberMark  
subsidiary. Sallie Mae also contributed the CyberMark name to the joint venture 
company.                                                                        

   In September 1996, Sallie Mae restructured its arrangement with The Chase
Manhattan Bank, Sallie Mae's largest lending client, in light of Chase's merger 
with Chemical Banking Corporation. Chase and Sallie Mae established two joint   
venture companies in which they hold equal interests, Education First Finance   
LLC and Education First Marketing LLC. Education First Finance LLC acquired     
Chase's existing $2.6 billion student loan portfolio on October 1, 1996 and will
acquire all future loans originated by Chase. Education First                   

76

POS AM
89th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 89th

Marketing LLC will provide marketing services for Chase student loan products.  
Chase, which is now the largest originator in the FFELP, will originate insured 
student loans under the new arrangement. Sallie Mae will provide all processing 
and servicing support. Although the parties intend that the new arrangement be a
long-term relationship, they have allowed for mutual rights to acquire each     
other's interest in the joint venture after the first six years.                

On February 6, 1997, President Clinton submitted his Fiscal Year 1998 
budget proposal to Congress. In an effort to achieve a balanced federal budget  
by 2002, the President has proposed a number of budget savings affecting the    
FFELP. Included in these savings are proposals to reduce the yield on student   
loans during the in-school, grace and deferment periods, to decrease loan       
insurance from 98 percent of claim amount to 95 percent, to require lenders     
rather than the government to compensate guarantors for their assistance in     
default prevention, and to extend the Sallie Mae offset fee to loans sold by    
Sallie Mae as part of securitized transactions. In addition, the President has  
proposed a significant restructuring of guaranty agency finances and operations.
None of the proposals affecting lenders and secondary markets was included in   
the agreement on the budget which the President subsequently reached with the   
Congressional leadership or in the budget resolution passed by the Congress     
based upon that agreement. The agreement does call for the return of $1 billion 
in guarantee agency reserves in fiscal year 2002, although such provisions would
not adversely affect the Company. Legislation implementing the budget resolution
is now under consideration by both houses of the Congress.                      

77

POS AM
90th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 90th

DESCRIPTION OF HOLDING COMPANY CAPITAL STOCK

The statements set forth under this heading with respect to certain   
provisions of the Delaware General Corporation Law (the "DGCL"), the Certificate
of Incorporation of the Holding Company, as in effect as of the Effective Time  
(the "Holding Company Charter"), and the by-laws of the Holding Company (the    
"Holding Company By-Laws") are brief summaries thereof and do not purport to be 
complete and are qualified in their entirety by reference to the relevant       
provisions of the DGCL, the Holding Company Charter and the Holding Company     
By-Laws, as appropriate.                                                        

GENERAL                                                                         

The Holding Company Charter authorizes capital stock consisting of    
250,000,000 shares of Holding Company Common Stock, par value $.20 per share,   
and 20,000,000 shares of preferred stock ("Holding Company Preferred Stock"). In
connection with the Reorganization, each outstanding share of Sallie Mae Common 
Stock will be converted into one share of Holding Company Common Stock, and the 
outstanding shares of the common stock of MergerCo, a newly-created,            
wholly-owned subsidiary of the Holding Company will be converted into all of the
issued and outstanding shares of Sallie Mae Common Stock, all of which will then
be owned by the Holding Company. Accordingly, the number of shares of Holding   
Company Common Stock issued and outstanding immediately following the           
Reorganization will be equal to the number of shares of Sallie Mae Common Stock 
issued and outstanding immediately prior to the Reorganization. No shares of    
Holding Company Preferred Stock will be issued or outstanding prior to or       
immediately following the Reorganization.                                       

The Reorganization will become effective at the Effective Time, which 
management expects to occur as soon as practicable following the Special        
Meeting. As a result of the Reorganization, Sallie Mae will become a subsidiary 
of the Holding Company and all of the Holding Company Common Stock outstanding  
immediately after the Reorganization will be owned by the holders of Sallie Mae 
Common Stock outstanding immediately prior to the Reorganization. Shares of     
Holding Company Common Stock held by Sallie Mae and the Sallie Mae Common Stock 
held in treasury will be canceled and retired. Shares of the outstanding class  
of preferred stock of Sallie Mae will not be affected by the Reorganization, and
will remain outstanding, with the same voting powers, designations, preferences,
rights, qualifications, limitations and restrictions as prior to the            
Reorganization.                                                                 

COMMON STOCK                                                                    

  The holders of Holding Company Common Stock are entitled to one vote per
share on all matters submitted to a vote of stockholders and do not have        
cumulative voting rights. As a result, the holders of a majority of the shares  
voting for the election of directors can elect all the members of the Holding   
Company Board.                                                                  

    Holders of Holding Company Common Stock: (i) have equal and ratable rights
to dividends from funds legally available therefor when, as and if declared by  
the Holding Company Board, subject to any rights of the holders of Holding      
Company Preferred Stock; (ii) subject to any rights of the holders of Holding   
Company Preferred Stock, are entitled to share ratably in any distribution to   
holders of Holding Company Common Stock upon liquidation, after payment in full 
of all creditors; and (iii) do not have preemptive rights. Holding Company      
Common Stock is not redeemable or convertible. The outstanding shares of Holding
Company Common Stock are, and the shares to be issued in the Reorganization will
be, fully paid and non-assessable. The registrar and transfer agent for Holding 
Company Common Stock is Chase Mellon Shareholder Services.                      

PREFERRED STOCK                                                                 

  The Holding Company Board may, under certain circumstances, from time to
time authorize the issuances of one or more series of Holding Company Preferred 
Stock, with such designations of titles; dividend rates; any redemption         
provisions; special or relative rights in the event of liquidation, dissolution,
distribution or winding up; any sinking fund provisions; any conversion         
provisions; any voting rights thereof; and any other preferences, privileges,   
powers, rights, qualifications, limitations and restrictions, as shall be set   
forth as and                                                                    

78

POS AM
91st Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 91st

when established by the Holding Company Board. The shares of any series of      
Holding Company Preferred Stock will be, when issued, fully paid and            
nonassessable.                                                                  

   The Holding Company Board may, under certain circumstances, issue Holding
Company Preferred Stock with voting rights and other rights that could adversely
affect the voting power of holders of Holding Company Common Stock and such     
stock could be used to prevent a hostile takeover of the Holding Company. The   
Holding Company has no present plans to issue any shares of Holding Company     
Preferred Stock.                                                                

WARRANTS                                                                        

  Pursuant to the Privatization Act, the Holding Company must issue to the
D.C. Financial Control Board warrants to purchase 555,015 shares of Holding     
Company Common Stock. These warrants, which are transferable, are exercisable at
any time prior to September 30, 2008, at $72.43 per share. This provision of the
Privatization Act was part of the terms negotiated with the Administration and  
Congress as consideration for the GSE's privatization.                          

79

POS AM
92nd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 92nd

COMPARISON OF STOCKHOLDER RIGHTS

 Sallie Mae, as the sole stockholder of the Holding Company prior to the
Reorganization, will appoint the members of the Holding Company Board to serve  
until their successors are duly elected. After the Effective Time, the Company  
stockholders will elect all of the members of the Holding Company Board at each 
annual meeting beginning with the 1998 Annual Meeting of the Company, which     
meeting is expected to take place in April of 1998. The terms of the corporate  
governance provisions set forth in the Holding Company Certificate of           
Incorporation and By-laws following the effective date of the Reorganization    
depend upon whether the Majority Director Slate or the CRV Slate receives the   
highest plurality of votes cast in person or by proxy in respect of the Board   
Slate Proposal. In the event that the Reorganization Proposal is approved and   
the Majority Director Slate receives the highest plurality of votes cast in     
respect of the Board Slate Proposal, then after Sallie Mae appoints the Majority
Director Slate to the Holding Company Board of Directors and before the         
effectiveness of the Reorganization, the Holding Company Board of Directors and 
Sallie Mae (as sole shareholder of the Holding Company) will take or cause to be
taken any and all actions they deem necessary or appropriate to amend the       
Holding Company's Certificate of Incorporation and By-laws so as to implement   
the provisions as described in the Proxy Statement Supplement of the Majority   
Directors. In the event that the Reorganization Proposal is approved and the CRV
Slate receives the highest plurality of votes cast in respect of the Board Slate
Proposal, then after Sallie Mae appoints the CRV Slate to the Holding Company   
Board of Directors and before the effectiveness of the Reorganization, the      
Holding Company Board of Directors and Sallie Mae (as sole shareholder of the   
Holding Company) will take or cause to be taken any and all actions they deem   
necessary or appropriate to amend the Holding Company's Certificate of          
Incorporation and By-laws so as to implement the provisions as described in the 
Proxy Statement Supplement of the CRV.                                          

80

POS AM
93rd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 93rd

MANAGEMENT

HOLDING COMPANY BOARD OF DIRECTORS                                              

     Prior to the Effective Time, Sallie Mae, as sole stockholder of the Holding
Company prior to the Reorganization, will appoint the members of the Holding    
Company Board until their successors are duly elected.                          

    After the Effective Time, the Company's stockholders will elect all of the
members of the Holding Company Board at each annual meeting beginning with the  
1998 Annual Meeting of the Company, which is expected to take place in April of 
1998. If the Reorganization Proposal is approved by shareholders, the Sallie Mae
Board will elect to the Holding Company Board the slate of nominees receiving   
the highest plurality of the votes cast in person or by proxy in respect of the 
Board Slate Proposal. For information on the nominees included in the Majority  
Director Slate, see the Proxy Statement Supplement of the Majority Directors    
that comprises an integral part, and is being mailed to shareholders together   
with a copy, of this Proxy Statement/Prospectus. For information on the nominees
included in the CRV Slate, see the Proxy Statement Supplement of the CRV that   
comprises an integral part, and is being mailed to shareholders together with a 
copy, of this Proxy Statement/Prospectus.                                       

SALLIE MAE BOARD OF DIRECTORS                                                   

STATUTORY REQUIREMENTS                                                          

   The Sallie Mae Charter provides that the Sallie Mae Board will consist of
21 directors: 14 elected by the shareholders and seven appointed by the         
President of the United States. The Sallie Mae Charter provides that, for       
purposes of qualifying for election to the Board, seven directors must be       
affiliated with eligible institutions and seven directors must be affiliated    
with eligible lenders, as described in the Sallie Mae Charter. A nominee may be 
considered to be affiliated with an eligible institution or eligible lender if  
he or she has been, within five years of election to the Sallie Mae Board, an   
employee, officer, director, or similar official of: (1) any such institution or
lender; (2) an association whose members consist primarily of such institutions 
or lenders; or (3) a state agency, authority, instrumentality, commission, or   
similar institution, the primary purpose of which relates to educational matters
or banking matters. The Sallie Mae Charter also provides that the 14 elected    
directors serve for a term ending on the date of the next annual meeting and    
until their successors have been elected and have duly qualified. The Sallie Mae
Charter further provides that the seven appointed members serve at the pleasure 
of the President of the United States and until their successors have been      
appointed and have duly qualified. The Sallie Mae Charter also provides that the
President may designate a Chairman from among the 21 members of the Sallie Mae  
Board, and on November 12, 1993, President Clinton designated Mr. William       
Arceneaux as Chairman of the Sallie Mae Board.                                  

81

POS AM
94th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 94th

SHAREHOLDER-ELECTED DIRECTORS:

                                                        [Enlarge/Download Table]

                                               PRIMARY EMPLOYMENT DURING THE PAST FIVE YEARS 
       NAME AND AGE AT MARCH 31, 1997               AND DIRECTORSHIPS AT MARCH 31, 1997      
--------------------------------------------  -----------------------------------------------
                                                                                             
WILLIAM ARCENEAUX(3)(4)(5)..................  President, Louisiana Association of Independent
Director since 5/17/79                        Colleges and Universities, Baton Rouge, LA     
Age 55                                        (1987- present). Mr. Arceneaux also is Chairman
                                              of CSLA, Inc. and Foundation CODOFIL. He is    
                                              director and former chairman of the Board of   
                                              Louisiana Public Broadcasting.                 
JAMES E. BRANDON, ESQ.(1)...................  Attorney and Certified Public Accountant,      
Director since 7/5/95                         Amarillo, TX. Mr. Brandon is President and     
Age 70                                        director of: National Cattle Co., Inc.,        
                                              Automated Electronics Corp., Kirby Royalties,  
                                              Inc., and El Paso Venezuela Company, each an   
                                              oil and gas company; Oldham Ranches, Inc.,     
                                              Grain Properties, Inc., and Park Princess,     
                                              Inc., each a real estate investment company.   
                                              Mr. Brandon is a trustee of Eureka College in  
                                              Illinois. Mr. Brandon previously served as a   
                                              director of Sallie Mae, by appointment of the  
                                              President of the United States, from 1982 to   
                                              1991.                                          
DAVID A. DABERKO(3)(4)......................  Chairman and Chief Executive Officer of        
Director since 5/20/87                        National City Corporation (July 1995-present). 
Age 51                                        Mr. Daberko previously served as President and 
                                              Chief Operating Officer (1993-July 1995) and as
                                              Deputy Chairman at National City Corporation   
                                              (1987-1993), as well as Chairman, National City
                                              Bank, both located in Cleveland, OH. He also   
                                              serves as a director of National City Bank,    
                                              Cleveland; National City Bank, Columbus;       
                                              National City Bank, Indiana. He is also on the 
                                              Boards of Case-Western Reserve University, and 
                                              the Ohio Foundation of Independent Colleges.   
CHARLES L. DALEY(2).........................  Director, Executive Vice President and         
Director since 7/5/95                         Secretary of TEB Associates, Inc., Voorhees,   
Age 64                                        NJ, a real estate finance company              
                                              (1992-Present). Previously, Mr. Daley was      
                                              Executive Vice President and Chief Operating   
                                              Officer of First Peoples Financial Corporation,
                                              a bank holding company, (1987-1992) and        
                                              Executive Vice President and Chief Operating   
                                              Officer of First Peoples Bank of New Jersey, a 
                                              state-chartered commercial bank, (1984-1992).  
RONALD F. HUNT, ESQ.(2)(4)..................  Attorney in New Bern, NC (1990-present). Since 
Director since 7/5/95                         1987 he has served as Corporate Secretary of   
Age 53                                        the Construction Loan Insurance Association and
                                              as a director and Corporate Secretary of Connie
                                              Lee Insurance Company and of Connie Lee        
                                              Management Services Corporation. Mr. Hunt      
                                              served as Chairman of the Board of Directors of
                                              the National Student Loan Clearinghouse        
                                              (1993-1995).                                   
THOMAS H. JACOBSEN(3).......................  Chairman, President, and Chief Executive       
Director since 1/20/87                        Officer of Mercantile Bancorporation Inc., St. 
Age 57                                        Louis, MO (1989- present). Mr. Jacobsen        
                                              presently serves as director of Trans World    
                                              Airlines, Inc. and Union Electric Company.     

82

POS AM
95th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 95th

                                                        [Enlarge/Download Table]

                                               PRIMARY EMPLOYMENT DURING THE PAST FIVE YEARS 
       NAME AND AGE AT MARCH 31, 1997               AND DIRECTORSHIPS AT MARCH 31, 1997      
--------------------------------------------  -----------------------------------------------
                                                                                             
BENJAMIN J. LAMBERT, III(3).................  Virginia State Senator since 1987 and          
Director since 7/5/95                         optometrist, Richmond, VA (1962-Present). Mr.  
Age 58                                        Lambert is currently a director of Consolidated
                                              Bank & Trust Company (since 1989), Virginia    
                                              Power (since 1992) and Dominion Resources      
                                              (since 1994). Dr. Lambert is also Secretary of 
                                              the Board of Trustees of Virginia Union        
                                              University, where he has served as a trustee   
                                              for over 15 years.                             
ALBERT L. LORD(2)(4)........................  President and principal shareholder, LCL, Ltd.,
Director since 7/5/95                         a Washington D.C. firm that provides consulting
Age 51                                        services in investment and financial services  
                                              (1994- Present). Mr. Lord served in various    
                                              executive positions with the Company from      
                                              October 1981 until January 1994, including     
                                              Executive Vice President (1986-1994) and Chief 
                                              Operating Officer (1990-1994). Mr. Lord is a   
                                              director of Princeton Bank, Princeton, MN      
                                              (1995-Present) and of First Alliance           
                                              Corporation, Irvine, CA.                       
A. ALEXANDER PORTER, JR.(1).................  Co-founder and President, Porter, Felleman,    
Director since 7/5/95                         Inc., New York, NY (1983-Present). Mr. Porter  
Age 58                                        is a general partner of Amici Associates, L.P.,
                                              and the Collectors' Fund, both investment      
                                              partnerships, and the founder and a director of
                                              Distributions Technology, Inc. Mr. Porter is   
                                              also a trustee of Davidson College, NC, (since 
                                              1972), a governor of the New York Athletic Club
                                              (since 1991) and a trustee of The John Simon   
                                              Guggenheim Memorial Foundation.                
JAMES E. ROHR(3)............................  President and Director of PNC Bank Corp., and  
Director since 5/27/93                        President and Chief Executive Officer, PNC     
Age 48                                        Bank, N.A., Pittsburgh, PA (1992-present). Mr. 
                                              Rohr served previously as Vice Chairman of PNC 
                                              Bank Corp. (1989-1992). Mr. Rohr serves on the 
                                              boards of Allegheny Teledyne Corporation,      
                                              Equitable Resources, Inc. and Carnegie-Mellon  
                                              University.                                    
STEVEN L. SHAPIRO(3)........................  Certified Public Accountant and Personal       
Director since 7/5/95                         Financial Specialist, Mr. Shapiro is Chairman  
Age 56                                        of Alloy, Silverstein, Shapiro, Adams, Mulford 
                                              & Co., Certified Public Accountants, Cherry    
                                              Hill, NJ where he has been employed since 1960 
                                              and has served on its board directors since    
                                              1966. Mr. Shapiro is Commissioner of the New   
                                              Jersey Casino Reinvestment Development         
                                              Authority, Trustee of the West Jersey Hospital 
                                              Foundation and a federal key person of the     
                                              American Institute of Certified Public         
                                              Accountants. Since 1992, Mr. Shapiro has been a
                                              member of the Executive Advisory Council of    
                                              Rutgers University and a member of the board of
                                              Carnegie Bancorp, Princeton, NJ. Previously,   
                                              Mr. Shapiro was a director of the First Peoples
                                              Financial Corp. (1990-1992).                   
JOHN W. SPIEGEL(3)..........................  Executive Vice President and Chief Financial   
Director since 5/27/93                        Officer, SunTrust Banks, Inc. and Treasurer,   
Age 56                                        SunTrust Banks of Georgia, Atlanta, GA         
                                              (1985-present). He is also a member of the     
                                              board of directors of Rock-10 Company,         
                                              Conti-Financial Corporation and Suburban Lodges
                                              of America.                                    

83

POS AM
96th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 96th

                                                        [Enlarge/Download Table]

                                               PRIMARY EMPLOYMENT DURING THE PAST FIVE YEARS 
       NAME AND AGE AT MARCH 31, 1997               AND DIRECTORSHIPS AT MARCH 31, 1997      
--------------------------------------------  -----------------------------------------------
                                                                                             
DAVID J. VITALE(2)(4).......................  Vice Chairman of First Chicago NBD Corporation 
Director since 5/19/77 Age 50                 and President of The First National Bank of    
                                              Chicago, Chicago, IL (1995-present). In 1995,  
                                              Mr. Vitale served as Senior Risk Management    
                                              Officer. He previously served as Vice Chairman 
                                              (1993-1995) of The First National Bank of      
                                              Chicago and First Chicago Corporation, Chicago,
                                              IL and as Executive Vice President of First    
                                              Chicago Corporation (1986-1993). Mr. Vitale is 
                                              a director of First Chicago Investment         
                                              Management Company, Chicago, IL and a Trustee  
                                              of the Illinois Institute of Technology.       
RANDOLPH H. WATERFIELD, JR.(1)..............  Certified Public Accountant and Accounting     
Director since 7/5/95                         Consultant, Barnegat Light, NJ (1990-Present). 
Age 65                                        Mr. Waterfield has been a trustee of Drexel    
                                              University since 1981.                         

---------------                                                                 
(1) Affiliated with eligible institutions.                                      

(2) Affiliated with eligible lenders.                                           

(3) Affiliated with eligible institutions and eligible lenders.                 

(4) Member of the Executive Committee.                                          

(5) Designated Chairman of the Board, November 12, 1993 by the President of the 
  United States, pursuant to Section 439(c)(1)(B) of the Sallie Mae Charter.

PRESIDENTIAL APPOINTEES:

  THE FOLLOWING DIRECTORS, APPOINTED BY THE PRESIDENT OF THE UNITED STATES
PURSUANT TO SECTION 439(C)(1)(A) OF THE SALLIE MAE CHARTER, SERVE AT THE        
PLEASURE OF THE PRESIDENT OF THE UNITED STATES AND ARE NOT ELECTED BY           
SHAREHOLDERS. UNDER THE PRIVATIZATION ACT, DIRECTORS OF SALLIE MAE APPOINTED BY 
THE PRESIDENT OF THE UNITED STATES ARE NOT ELIGIBLE TO SERVE ON THE HOLDING     
COMPANY BOARD.                                                                  

                                                        [Enlarge/Download Table]

                                               PRIMARY EMPLOYMENT DURING THE PAST FIVE YEARS 
       NAME AND AGE AT MARCH 31, 1997               AND DIRECTORSHIPS AT MARCH 31, 1997      
--------------------------------------------  -----------------------------------------------
                                                                                             
MITCHELL W. BERGER, ESQ.....................  President and Founder of Berger, Davis &       
Director since 3/25/94                        Singerman, a law firm with offices located in  
Age 40                                        Fort Lauderdale, Miami and Tallahassee, Florida
                                              (1985-Present). Mr. Berger currently serves on 
                                              the Board of Governors of the Nova University  
                                              School of Business and was a Commissioner on   
                                              The Florida Environmental Regulation Commission
                                              (1991-1997). In 1994, Mr. Berger served as     
                                              Co-Chair of the Community Relations Committee  
                                              for the Summit of the Americas in Miami, FL.   
                                              Mr. Berger was recently appointed by the       
                                              Governor and confirmed by the Florida Senate,  
                                              to serve on the Board of the South Florida     
                                              Water Management District.                     
KRIS E. DURMER, ESQ(1)......................  Attorney/Owner, Kris E. Durmer Law Offices,    
Director since 3/25/94                        Nashua and Manchester, NH (1994-Present).      
Age 47                                        Previously Mr. Durmer was director of the law  
                                              firm of Currier, Zall, Durmer, Shepard & Barry,
                                              P.A. (1988-1993). Mr. Durmer is also a         
                                              Commissioner of the Nashua Housing Authority   
                                              and a Director of the Neighborhood Health      
                                              Center for Greater Nashua. He was also a       
                                              Founder and Director of the Greater Nashua     
                                              Housing and Development Foundation (1989-1996).

84

POS AM
97th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 97th

                                                        [Enlarge/Download Table]

                                               PRIMARY EMPLOYMENT DURING THE PAST FIVE YEARS 
       NAME AND AGE AT MARCH 31, 1997               AND DIRECTORSHIPS AT MARCH 31, 1997      
--------------------------------------------  -----------------------------------------------
                                                                                             
DIANE S. GILLELAND..........................  Senior Fellow, American Council on Education,  
Director since 3/25/94                        Washington, D.C. Previously, Ms. Gilleland was 
Age 50                                        the Director, Arkansas Department of Higher    
                                              Education, Little Rock, AR (1990-1997). She    
                                              currently serves on the boards of several      
                                              organizations including the Board of the       
                                              Arkansas School of Mathematics and Science.    
REGINA T. MONTOYA, ESQ.(1)..................  President of WorkRules Company, a consulting   
Director since 3/25/94                        firm and Visiting Professor at the University  
Age 43                                        of Texas at Dallas since September 1995. Ms.   
                                              Montoya was elected national president of Girls
                                              Incorporated in April 1996. Ms. Montoya has    
                                              also been a political analyst for KDFW-TV since
                                              August 1995. Previously, Ms. Montoya served as 
                                              President of Jayhawk, Inc. and Vice President  
                                              for Special Projects and Special Advisor to the
                                              Chairman of the Board of Westcott              
                                              Communications, Inc. Dallas, TX (1994-1995). In
                                              1993, Ms. Montoya served as Assistant to       
                                              President Clinton and Director of the Office of
                                              Intergovernmental Affairs. Ms. Montoya         
                                              previously worked with the Texas law firm of   
                                              Godwin & Carlton from September 1990 to January
                                              1993. Ms. Montoya has also served as a member  
                                              of the Board of Directors of Jayhawk Acceptance
                                              Corporation since February 1994, and as a      
                                              member of the Board of Directors of Trammell   
                                              Crow Company since December 1993. Ms. Montoya  
                                              also serves on the Board of Trustees of        
                                              Wellesley College and is Vice President and    
                                              member of the Board of Directors of the Harvard
                                              Alumni Association.                            
JAMES E. MOORE..............................  President and Chief Executive Officer,         
Director since 3/25/94                        ContiFinancial Corporation (1995-Present),     
Age 50                                        Chairman of ContiMortgage Corporation          
                                              (1990-Present) and Chairman of Triad Financial 
                                              Corporation (1996-Present). He is also a       
                                              director of the National Home Equity Mortgage  
                                              Association and Home Equity Lenders Leadership 
                                              Organization.                                  
IRENE NATIVIDAD.............................  Principal, Natividad & Associates, Washington, 
Director since 3/25/94                        D.C. and Executive Director of the Philippine  
Age 48                                        American Foundation (1990-Present). Ms.        
                                              Natividad currently serves as the Chair of the 
                                              National Commission on Working Women.          
                                              Previously, she held the position of President 
                                              of the National Women's Political Caucus       
                                              (1985-1989). A Panelist on PBS' "To the        
                                              Contrary", a national news-analysis program,   
                                              Ms. Natividad serves on numerous Boards        
                                              including the National Museum for Women in the 
                                              Arts and the Center for Women Policy Studies.  

85

POS AM
98th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 98th

                                                        [Enlarge/Download Table]

                                               PRIMARY EMPLOYMENT DURING THE PAST FIVE YEARS 
       NAME AND AGE AT MARCH 31, 1997               AND DIRECTORSHIPS AT MARCH 31, 1997      
--------------------------------------------  -----------------------------------------------
                                                                                             
RONALD J. THAYER............................  Department Executive, Wayne County, Office of  
Director since 3/25/94                        Jobs and Economic Development, Detroit, MI     
Age 57                                        (1994- Present). Mr. Thayer served as the      
                                              Senior Vice President for Fund Development at  
                                              WTVS-TV, a public television station in        
                                              Detroit, MI (1990-1992). Mr. Thayer is also a  
                                              Principal of The Fund Raising Specialists, a   
                                              Member of the Board of Trustees of Siena       
                                              Heights College and a member of the President's
                                              Cabinet, Executive Board of the University of  
                                              Detroit, Mercy.                                

---------------                                                                 
(1) Member of the Executive Committee.                                          

MEETINGS OF THE BOARD                                                           

  The Holding Company anticipates that the Holding Company Board will hold
meetings and maintain committees substantially similar to those currently       
maintained by Sallie Mae.                                                       

     The Sallie Mae Board of Directors conducts regular meetings on a bi-monthly
basis and special meetings as may be required from time to time. Six meetings   
were held during 1996. In addition, the Executive Committee of the Board, which 
is empowered, with certain exceptions, to take all such actions of the Sallie   
Mae Board as may be necessary between the Sallie Mae Board's regular meetings   
meets from time to time as required. The members of the Sallie Mae Board who    
served during 1996 attended at least 75 percent of the total number of meetings 
of the Sallie Mae Board and committees of which they were members in 1996.      

The Sallie Mae Board uses a number of committees to assist it in the  
performance of its duties. Meetings of the committees of the Sallie Mae Board   
are generally held on the day prior to the regular meetings of the Sallie Mae   
Board and on such other dates as may be necessary between regular meetings. The 
present standing committees are the Audit Committee, the Compensation and       
Personnel Committee, the Executive Committee, the External Concerns Committee,  
the Finance Committee, the Nominations and Board Affairs Committee, the         
Operations Committee, and the Strategic Planning Committee. The purposes of the 
Audit, Compensation and Personnel, and Nominations and Board Affairs Committees,
the identity of their current members, and the number of meetings held during   
1996 are set forth below.                                                       

AUDIT COMMITTEE.  The Audit Committee is empowered to: (1) make       
recommendations to the Board on the selection of independent auditors; (2)      
review with independent auditors the scope of their examination and the proposed
fee; (3) review with independent auditors the results of the examination; (4)   
review with management the nature and extent of all non-audit-related services  
provided to Sallie Mae by the independent auditor; (5) review the management,   
scope, and results of the internal audit program; and (6) review the Employee   
Standards of Conduct and the Board of Directors Code of Conduct and employee and
director compliance with each.                                                  

    The Sallie Mae Audit Committee held five meetings during 1996. The current
membership of the Sallie Mae Audit Committee is as follows: James E. Moore,     
Chairman; Randolph H. Waterfield, Jr., Vice Chairman; James E. Brandon; David A.
Daberko; Diane S. Gilleland; and James E. Rohr. The membership of the Holding   
Company Audit Committee will be determined by the Holding Company Board         
following shareholder approval of the Reorganization.                           

COMPENSATION AND PERSONNEL COMMITTEE.  The Compensation and Personnel 
Committee is empowered to (1) consider and make recommendations to the Board    
with respect to compensation and other benefits for the Board and employees of  
Sallie Mae; (2) review Sallie Mae's management resources, manpower planning,    
development, selection process, and the performance of its key executives; (3)  
review position evaluations and salary rates for officers; (4) review Sallie    
Mae's policies relating to development and continuity of able management; and   
(5) recommend to the Board a process of succession for Sallie Mae's senior      
officers.                                                                       

86

POS AM
99th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 99th

The Sallie Mae Compensation and Personnel Committee held six meetings 
during 1996. The current membership of the Sallie Mae Compensation and Personnel
Committee is as follows: David A. Daberko, Chairman; Irene Natividad, Vice      
Chairman; Charles L. Daley; Steven L. Shapiro; Ronald J. Thayer; and David J.   
Vitale. The membership of the Holding Company Compensation and Personnel        
Committee will be determined by the Holding Company Board following shareholder 
approval of the Reorganization.                                                 

     NOMINATIONS AND BOARD AFFAIRS COMMITTEE.  The Nominations and Board Affairs
Committee is empowered to: (1) identify and recommend nominees for election to  
the Board; (2) identify and review the qualifications of eligible candidates for
consideration as advisory members and Board members; and (3) review the         
effectiveness and composition of the Board.                                     

 The Sallie Mae Nominations and Board Affairs Committee held one meeting
during 1996. The current membership of the Sallie Mae Nominations and Board     
Affairs Committee is as follows: Thomas H. Jacobsen, Chairman; Benjamin J.      
Lambert, Vice Chairman; Kris E. Durmer, James E. Brandon; John W. Spiegel; and  
Ronald J. Thayer. The membership of the Holding Company Nominations and Board   
Affairs Committee will be determined by the Holding Company Board following     
shareholder approval of the Reorganization.                                     

TRANSACTIONS WITH AFFILIATED INSTITUTIONS                                       

Certain directors of the Company are also directors and/or executive  
officers of other companies with which the Company, from time to time, engages  
in business transactions. Management believes that the terms and conditions of  
such transactions are no less favorable to the Company than the terms and       
conditions of transactions generally entered into by the Company. The Company   
does not believe that it is a party to any transactions in which a director of  
the Company has a direct or indirect material interest.                         

87

POS AM
100th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 100th

DIRECTOR COMPENSATION 

During 1996, each director of Sallie Mae, with the exception of the   
Chairman of the Board, earned an annual retainer in the amount of $20,000. Each 
Chairman of a standing committee with the exception of the Chairman of the      
Board, received an additional annual retainer of $2,000. In addition, a fee of  
$1,500 accrued to each director for attending each regular bi-monthly or special
meeting of the Sallie Mae Board and a fee of $1,500 accrued to each director for
attending each regularly scheduled committee meeting of the Sallie Mae Board    
(with only a single fee paid for multiple committee meetings on the same day).  
The Chairman of the Board, in recognition of the additional time that he is     
required to devote to the affairs of Sallie Mae, was compensated on the basis of
an annual retainer in the amount of $50,000 and a per diem in the amount of     
$1,750 for each day spent on the affairs of Sallie Mae. The Chairman of the     
Board may authorize additional reimbursement for directors who perform          
additional services or devote unusual amounts of time to Sallie Mae's           
activities, which are not covered under the normal compensation schedules.      

   Directors may elect to defer cash compensation under the Sallie Mae Board
of Directors' Deferred Compensation Plan and invest deferred compensation in a  
cash account on which interest is accrued and/or in a Sallie Mae Common Stock   
account, on which dividends and other capital adjustments are made. At least 50%
of each director's annual retainer is credited to the Board of Directors'       
Deferred Compensation Plan -- Stock Account. See "OWNERSHIP OF SALLIE MAE       
STOCK".                                                                         

  Directors are provided with $50,000 of group term life insurance and are
covered by a travel insurance plan while traveling on Sallie Mae business.      

    Consistent with Sallie Mae's philosophy that management and the Sallie Mae
Board's compensation should be aligned with the interests of the shareholders,  
effective December 31, 1995, the Sallie Mae Board of Directors' Pension Plan, a 
"nonqualified" plan, providing a benefit computed on the highest consecutive    
three-year average of compensation, was eliminated. Benefits accrued to         
directors serving on the Board at December 31, 1995 were frozen. Further, the   
Board recommended that a substantial portion of compensation be stock-based.    

    Directors may participate in the Sallie Mae Employees' Stock Purchase Plan
on the same terms and conditions as employees. Directors do not receive a salary
from Sallie Mae nor do they participate in any of the other plans discussed in  
the Executive Compensation section.                                             

    Under the terms of the shareholder-approved Sallie Mae Board of Directors'
Restricted Stock Plan, each director may annually receive up to a maximum of 500
shares of restricted Common Stock. Shares granted under the Directors'          
Restricted Stock Plan may not be transferred by a director until the later of   
six months from the date of grant or the date the director separates from       
service as a Board member. During 1996, each director was granted 100 shares of 
restricted Sallie Mae Common Stock. The aggregate number of shares issued to    
directors during 1996 was 2,100 shares.                                         

    Pursuant to the Board of Directors Stock Option Plan, approved at the 1996
Annual Meeting of Shareholders of Sallie Mae, each director was awarded options 
to acquire 3,000 shares of Sallie Mae Common Stock at $73.00 per share.         
Beginning in 1997, each director will annually receive grants of 1,000 stock    
options pursuant to the Board of Directors' Stock Option Plan. At December 31,  
1996, 63,000 options were outstanding and exercisable and had a value of        
$1,267,875.                                                                     

The Department of the Treasury, in connection with its oversight      
responsibilities related to Sallie Mae, the government-sponsored enterprise, has
discussed and questioned the holding of options to purchase shares of stock in  
the newly-formed Holding Company by public directors of the government-sponsored
enterprise as a form of compensation under the new holding company structure.   

   While the Company does not share this view, the Company has agreed to use
its best efforts, following the Reorganization, to have the newly formed Holding
Company acquire any outstanding options held by the presidential appointees to  
the Sallie Mae Board and to discontinue such directors' future participation in 
the Sallie Mae Employees' Stock Purchase Plan.                                  

88

POS AM
101st Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 101st

     The total compensation accrued to directors in 1996 (including the value of
restricted stock grants and compensation related to participation in the Sallie 
Mae Employees Stock Purchase Plan) aggregated $1,215,767.                       

EXECUTIVE OFFICERS OF THE COMPANY 

NAMES AND TITLES                                                                

   The executive officers of Sallie Mae at March 31, 1997, their titles, and
their years of employment with Sallie Mae are below. Their previous experience, 
including principal occupations for the past five years, follows.               

                                                        [Enlarge/Download Table]

                                                                                      YEAR    
                                                                                   COMMENCED/ 
                                                                          AGE AT    REJOINED  
                              NAME & TITLE                                3/31/97  EMPLOYMENT 
------------------------------------------------------------------------  -------  -----------
                                                                                              
Lawrence A. Hough.......................................................     52    1973/1979  
     President and Chief Executive Officer                                                    
Timothy G. Greene.......................................................     57    1973/1990  
     Executive Vice President and General Counsel                                             
Lydia M. Marshall.......................................................     48    1985       
     Executive Vice President, Marketing                                                      
Denise B. McGlone.......................................................     45    1977/1994  
     Executive Vice President and Chief Financial Officer                                     

PREVIOUS EXPERIENCE                                                             

Lawrence A. Hough, President and Chief Executive Officer, was first   
employed by Sallie Mae from 1973 to 1977 and rejoined Sallie Mae in 1979. He was
appointed to his present position in July 1990. As more fully described in the  
Proxy Statement Supplement of the Majority Directors, Mr. Hough intends to      
resign following consummation of the Reorganization upon selection of his       
successor.                                                                      

    Timothy G. Greene, Executive Vice President and General Counsel, was first
employed by Sallie Mae from 1973 to 1979 and rejoined Sallie Mae in July 1990,  
at which time he was appointed to his present position. A $500,000 loan made by 
Sallie Mae to Mr. Greene in order to assist him in relocating to Washington,    
D.C. to accept employment with Sallie Mae was repaid by Mr. Greene on June 30,  
1996.                                                                           

 Lydia M. Marshall, Executive Vice President, Marketing, was employed by
Sallie Mae in July 1985. Prior to her current appointment in November 1993, she 
served as Senior Vice President, Marketing from 1991 to 1993.                   

  Denise B. McGlone, Executive Vice President and Chief Financial Officer,
was first employed by Sallie Mae from 1977 to 1983 and rejoined Sallie Mae on   
January 31, 1994, at which time she was appointed to her present position. From 
December 1991 through December 1993, Ms. McGlone held the position of Executive 
Vice President and Global Head of Derivatives of DKB Financial Products, Inc. in
New York.                                                                       

EXECUTIVE COMPENSATION

    This section includes: (1) a report made by the Compensation and Personnel
Committee of Sallie Mae regarding executive compensation policy; (2) a summary  
description in tabular form of executive compensation; (3) a summary of 1997    
stock option grants; (4) a valuation of option exercises and remaining option   
holdings; (5) a summary of awards under the Student Loan Marketing Association  
Incentive Performance Plan (the "Incentive Performance Plan" or the "IPP"); (6) 
a description of benefit plans; and (7) a comparison of stock performance to    
market indices. Sallie Mae does not have any termination or change in control   
agreements with its executive officers.                                         

89

POS AM
102nd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 102nd

REPORT OF THE COMPENSATION AND PERSONNEL COMMITTEE                              

  This report is issued by the Compensation and Personnel Committee to set
forth the Sallie Mae Board's philosophy and practice in the area of executive   
compensation. Written comments by shareholders on the report are encouraged and 
should be directed to the Chairman, Compensation and Personnel Committee.       

   POLICY.  The purpose of Sallie Mae's executive compensation program is to
link compensation to the achievement of Sallie Mae's education finance program  
and financial goals. These goals are to: increase the availability of education 
related credit in the United States, improve the delivery of that credit, and   
increase total shareholder return. Although the Holding Company Board has not   
yet adopted a policy for its compensation programs, it is anticipated that the  
Holding Company Board will adopt a policy substantially similar to that         
currently in effect for Sallie Mae's Compensation and Personnel Committee.      

Sallie Mae's experience demonstrates that its goals are best achieved 
through the coordinated efforts of its entire senior management team. To create 
an environment in which such coordinated efforts will occur, each component of  
the executive compensation program applies to all executive officers, including 
the President and Chief Executive Officer. In 1994, however, Mr. Hough suggested
that the Compensation and Personnel Committee consider awarding him a portion of
his annual bonus in restricted stock in order to further link the value of his  
compensation package to the creation of shareholder value. The Committee decided
to act on Mr. Hough's suggestion and, therefore, the bonus component of Mr.     
Hough's compensation (discussed below) is different from that of the other      
executive officers.                                                             

    The compensation program is designed to: (1) create a performance-oriented
environment by making a significant portion of annual compensation dependent on 
the achievement of both annual and long-term goals; (2) align management and    
shareholder interests by providing a portion of annual compensation in the form 
of market-priced stock options which also provide the opportunity for management
to acquire shares of Sallie Mae's Common Stock; and (3) attract and retain key  
executives. The program is reviewed at least annually to determine that it meets
the objectives set forth above.                                                 

  In November 1994, to further support Sallie Mae's belief that management
ownership of Sallie Mae's Common Stock helps align management and shareholder   
interests, Sallie Mae established minimum guidelines for stock ownership for all
officers of Sallie Mae. The guidelines provide that each officer should own a   
specified number of shares depending on the officer's level of seniority. Each  
officer is expected to increase his or her share ownership annually until the   
guideline is achieved.                                                          

     The stock ownership guideline for the President and Chief Executive Officer
is 30,000 shares. For each Executive Vice President the guideline is 10,000     
shares. For each Vice President earning more than $140,000 in salary, the       
guideline is 4,000 shares. For each Vice President earning $140,000 or less in  
salary, the guideline is 2,000 shares. For each Assistant Vice President, the   
guideline is 1,000 shares. See "OWNERSHIP OF SALLIE MAE STOCK -- Board and      
Management Ownership" for stock ownership information.                          

  Only shares owned directly or through Sallie Mae's Employees' Thrift and
Savings Plan, Supplemental Employees' Thrift and Savings Plan, and Deferred     
Compensation Plan for Key Employees are considered in determining if an officer 
meets the guidelines. Officers of Sallie Mae have five years within which to    
meet the ownership guidelines.                                                  

 COMPENSATION RELATED TO ACHIEVEMENT OF ANNUAL AND LONG-TERM GOALS.  The
following describes each element of the executive compensation program and its  
relationship to the goals described above. Also described is the relationship of
each element to the President and Chief Executive Officer's compensation for    
1996.                                                                           

   BASE SALARY.  Each executive officer's base salary takes into account the
officer's responsibility level, the officer's accomplishments in meeting that   
responsibility, the leadership demonstrated by the officer, and the officer's   
length of service with Sallie Mae. In determining the compensation, including   
the salary for each executive officer, Sallie Mae also reviews the compensation 
paid by comparable financial institutions to officers with similar              
responsibilities. The companies in this group are publicly held financial       
services companies with strong financial performance characteristics as         
determined by shareholder return over five                                      

90

POS AM
103rd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 103rd

years and by earnings fundamentals. The group includes banks, insurance         
companies, and other government-sponsored enterprises. It is not Sallie Mae's   
policy to match salaries on a dollar-for-dollar basis; however, Sallie Mae does 
take comparable salaries into consideration when deciding what compensation     
levels are necessary to attract and retain qualified executives. Based on the   
Board of Director's evaluation of these considerations, Mr. Hough's salary      
increased 2.86 percent from 1995 to 1996.                                       

   ANNUAL BONUS.  The annual bonus represents "at risk" compensation and the
Committee has determined that opportunities for increases in annual cash        
compensation should be primarily reflected by the annual bonus. Each executive  
officer's 1996 annual bonus is determined on the basis of the Board of          
Directors' evaluation of the officer's performance in achieving certain goals   
set forth in an annual plan and in meeting anticipated and unanticipated        
challenges which arise during the year. The Board of Directors reviews each     
officer's overall performance in the context of all of the goals and of each    
year's challenges and, therefore, does not believe it appropriate to assign each
element of the annual plan a specific weight. In the case of the President and  
Chief Executive Officer, the 1996 bonus was based on his planning and           
implementation of successful business strategies. In evaluating his performance,
the following factors were considered: financial results, board relations,      
congressional relations and team building. These factors include increased      
earnings per common share, increased return on shareholder equity, asset growth,
improvements in student loan servicing quality, efforts to achieve rechartering 
of Sallie Mae from a government-sponsored enterprise to state chartered         
corporation on terms favorable to shareholders, and leadership in improving the 
availability and quality of delivery of education credit, including efforts     
related to student loan legislation. Ultimate supervisory responsibility for    
employees who created a document which is the subject of a complaint filed with 
the Federal Election Commission, was also considered in arriving at Mr. Hough's 
bonus, as well as that of another executive officer. Based on Mr. Hough's       
performance for 1996, he received a bonus of $440,000 of which $220,036 was paid
in cash and $219,964 was paid in the form of 2,263 restricted shares of Sallie  
Mae Common Stock. Pursuant to the Stock Compensation Plan the restricted shares 
of Sallie Mae Common Stock were valued at 90 percent of the closing price of the
Sallie Mae Common Stock on the NYSE on the date of grant. The restricted shares 
of Sallie Mae Common Stock pay dividends and provides voting rights to the same 
extent as unrestricted Sallie Mae Common Stock. From one year from the date of  
grant, such restricted shares of Sallie Mae Common Stock may be forfeited, under
certain circumstances.                                                          

    INCENTIVE PERFORMANCE PLAN.  The Incentive Performance Plan is designed to
reward the achievement of long-term corporate goals and to create an incentive  
for each executive officer and certain other senior officers of Sallie Mae to   
remain employed by Sallie Mae. Under the Incentive Performance Plan, the        
Compensation and Personnel Committee may establish each year corporate          
performance targets to be achieved over a three-year period. At the end of each 
three-year period, the level of achievement of each target is determined and,   
based on the weight given to each target and the participation level of each    
officer in the Incentive Performance Plan an award is made ranging from 0       
percent to 100 percent of the officer's then-current salary. Payments under each
plan are made in three equal annual installments and are dependent upon the     
continued employment of the executive officer, unless the officer retires from  
Sallie Mae, in which case accrued payments are made.                            

  In January of 1996, the Board of Directors made awards for the completed
1993 Plan, which contained the following weighted performance measurements: (1) 
33.33 percent for educational credit enhancements; (2) 33.33 percent for total  
shareholder return; and (3) 33.33 percent for return on equity, return on assets
and earnings per share. Mr. Hough received an award of $267,750 under the 1993  
Plan, payable in three annual installments beginning in January of 1996. The    
amount of the award was 22 percent less than the prior year, primarily as a     
reflection of the decrease in the price of Sallie Mae Common Stock during 1994. 

  In 1996, the same performance measurements were set for the 1996 Plan as
noted above for the 1993 Plan.                                                  

STOCK OPTION PLAN.  The Board of Directors strongly believes that in  
addition to compensating executives for the successful financial performance of 
Sallie Mae through annual bonuses and three-year incentive plans, a portion of  
executive compensation should be linked to Sallie Mae Common Stock value by     
granting stock options to executives. The value of the options granted is at    
risk and directly tied to the increase                                          

91

POS AM
104th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 104th

in share price from the date of grant. The terms of the options, granted at     
market price and not exercisable for a period from 12 to 36 months and expiring 
in ten years, are designed to retain key employees and to provide incentives for
management to increase share price. The number of options granted each year is  
based on the same factors as discussed under "Annual Bonus" above. Previous     
grants of stock options are reviewed but are not an element in determining      
option awards. Based on the Board of Director's evaluation of these performance 
measurements, in 1996 Mr. Hough received 30,000 stock options, exercisable at a 
price of $73.00 each, the then current market price. In January of 1997, the    
Board of Directors awarded Mr. Hough 27,000 stock options, exercisable at a     
price of $108 each.                                                             

    In 1994, 1995, and 1996, Mr. Hough's cash and stock compensation consisted
of 43 percent, 40 percent, and 41 percent respectively, in base salary; 25      
percent, 32 percent, and 34 percent respectively, in annual bonus based on      
performance for each such year; and 32 percent, 28 percent, and 25 percent      
respectively, in payments under the Incentive Performance Plan.                 

Compensation and Personnel Committee

                                                                [Download Table]
                                       
David A. Daberko, Chairman             
Irene Natividad, Vice Chairman         
Charles L. Daley*, Member              
Steven L. Shapiro*, Member             
Ronald J. Thayer, Member               
David J. Vitale, Member                

--------------------                                                  
* dissents to the foregoing report.                                   

The individuals listed above constitute the current membership of the 
Sallie Mae Compensation and Personnel Committee. Messrs. Daley and Shapiro      
dissented from this Report of the Compensation and Personnel Committee. On March
4, 1997, a written statement was delivered to the Company on behalf of Messrs.  
Daley and Shapiro setting forth the reasons of Messrs. Daley and Shapiro for so 
dissenting. The statement of Messrs. Daley and Shapiro has been included in this
Proxy Statement/Prospectus at their request and is set forth in Appendix E.     

The comparable financial institutions referred to in the Report of the
Compensation and Personnel Committee are a group of 20 high-performing financial
service corporations, and include Federal Home Loan Mortgage Corporation and    
Federal National Mortgage Association, which are also included in Standard &    
Poor's Financial-Miscellaneous Index referred to in "EXECUTIVE                  
COMPENSATION -- Performance Graph."                                             

92

POS AM
105th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 105th

COMPENSATION TABLES                                                             

   Set forth below is historical information relating to the compensation of
executive officers of Sallie Mae. It is anticipated that the Holding Company    
will compensate its executive officers in a manner that is substantially similar
to the manner in which Sallie Mae compensates its executive officers.           

SUMMARY COMPENSATION TABLE

                                                        [Enlarge/Download Table]

                                                                         LONG-TERM COMPENSATION                         
                                                                 --------------------------------------                 
                                                                          AWARDS                                        
                                                                 ------------------------     PAYOUTS                   
                                       ANNUAL COMPENSATION                     SECURITIES    ----------                 
                                  -----------------------------  RESTRICTED    UNDERLYING       LTIP       ALL OTHER    
                            YEAR  SALARY(1)   BONUS(2)    OTHER   STOCK(3)     OPTIONS(4)    PAYOUT(5)   COMPENSATION(6)
                            ----  --------    --------    -----  ----------    ----------    ----------  -------------- 
                                                                                                                        
Lawrence A. Hough.......... 1996  $540,000    $220,036      -     $219,964       30,000       $ 329,656     $ 54,578    
President and CEO           1995   525,000     210,052      -      209,948       50,000         372,078       31,465    
                            1994   510,000     145,025      -      144,975       30,000         381,100       30,565    
Timothy G. Greene.......... 1996   304,000     184,000      -       46,000       14,000         186,029       40,392    
EVP and General Counsel     1995   295,000     192,000      -            -       18,500         197,557       17,684    
                            1994   288,000     155,000      -            -       12,000         133,237       17,280    
Denise B. McGlone.......... 1996   295,000           0      -      240,000       14,000               -       17,677    
EVP and CFO                 1995   285,000     260,000      -            -       15,000               -       17,077    
                            1994   253,846     250,000      -            -       12,000               -       15,231    
Robert D. Friedhoff(7)..... 1996   275,000     235,000      -            -       14,000         105,733       16,465    
EVP, Systems and Servicing  1995   260,000     210,000      -            -       18,500          96,236       15,565    
                            1994   245,000     165,000      -            -       12,000          82,683       14,700    
Lydia M. Marshall.......... 1996   275,000     245,000      -            -       14,000          98,984       16,454    
EVP, Marketing              1995   255,000     220,000      -            -       18,500          86,457       15,254    
                            1994   235,000     165,000      -            -       12,000          73,058       14,100    

---------------                                                                 
(1) "Salary" is the base salary earned in the current year including all salary 
deferred to future years.                                               

(2) "Bonus" is the amount earned for the year. The Bonus is determined and      
payable in the following year.                                          

  Of Mr. Hough's 1996 Bonus of $440,000, 50% was paid in cash ($220,036) and
   50% was granted in the form of 2,263 restricted shares of Sallie Mae Common
Stock (determined at 90% of value on date of grant) with a cash value of
$244,404 on the date of grant.                                          

Pursuant to the Stock Compensation Plan, per his election, 80% of Mr.   
Greene's 1996 Bonus of $230,000 was paid in cash ($184,024) and 20% was 
granted in the form of 473 restricted shares of Sallie Mae Common Stock 
  (determined at 90% of value on date of grant) with a cash value of $51,084
on the date of grant.                                                   

Pursuant to the Stock Compensation Plan, per her election, 100% of Ms.  
    McGlone's 1996 Bonus of $240,000 was granted in the form of 2,469 restricted
shares of Sallie Mae Common Stock (determined at 90% of value on date of
grant) with a cash value of $266,652 on the date of grant.              

(3) Grantees of restricted shares of Sallie Mae Common Stock are eligible to    
receive dividends. Mr. Hough's 1994 and 1995 grants will both become    
  unrestricted as of January 27 and 26, 1997, respectively. All other grants
   will become unrestricted on January 23, 1998. On the last day of the fiscal
  year, the aggregate number of restricted shares of Sallie Mae Common Stock
   granted equaled 6,742 shares with a value at December 31, 1996 of $627,849.

(4) "Securities Underlying Options" includes stock options granted at market    
prices in January of each year. The exercise price of the options are as
follows: January 1994: $49.00; January 1995: $37.00 and January 1996:   
$73.00; except for Ms. McGlone's 1994 grant, the date of which grant was
November 17, 1993 priced at $44.50.                                     

(5) Each year's Long-Term Incentive Plan ("LTIP") Payout is comprised of the    
following payments under the Incentive Performance Plan:                

  1996 -- 1/3 of the total award earned in each of the IPP years 1993, 1992,
and 1991, paid in January 1996;                                         

  1995 -- 1/3 of the total award earned in each of the IPP years 1992, 1991,
and 1990, paid in January 1995;                                         

  1994 -- 1/3 of the total award earned in each of the IPP years 1991, 1990,
and 1989, paid in January 1994;                                         

Ms. McGlone is not eligible to receive awards earned under IPP until the
1994 IPP payout which commences in 1997.                                

(6) "All Other Compensation" consists of the Employees' Thrift and Savings      
 Plan's and the Supplemental Employees' Thrift and Savings Plan's employer
   matching contributions of up to 6% of base salary and for Messrs. Hough and
Greene, $22,213 and $22,173 resulting from purchases of discounted stock
under the Employees' Stock Purchase Plan.                               

(7) Mr. Friedhoff resigned from his positions with Sallie Mae, effective March  
26, 1997 for personal reasons.                                          

93

POS AM
106th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 106th

1996 OPTION GRANTS TABLE

                                                        [Enlarge/Download Table]

                                                                     PERCENT                                 
                                                                       OF                                    
                                                        NUMBER OF     TOTAL                                  
                                                        SECURITIES  GRANTS TO                                
                                                        UNDERLYING  EMPLOYEES                        VALUE AT
                                                         OPTIONS       IN      EXERCISE  EXPIRATION   GRANT  
           NAME                      POSITION            GRANTED     1996(1)    PRICE       DATE     DATE(2) 
---------------------------  -------------------------  ----------  ---------  --------  ----------  --------
                                                                                                             
Lawrence A. Hough..........  President and CEO            30,000       9.3 %    $73.00    1/25/2006  $774,000
Timothy G. Greene..........  EVP and General Counsel      14,000       4.3       73.00    1/25/2006   361,200
Denise B. McGlone..........  EVP and CFO                  14,000       4.3       73.00    1/25/2006   361,200
Robert D. Friedhoff(3).....  EVP, Systems & Servicing     14,000       4.3       73.00    1/25/2006   361,200
Lydia M. Marshall..........  EVP, Marketing               14,000       4.3       73.00    1/25/2006   361,200

---------------                                                                 

(1) The total number of stock options granted to employees in 1996 was 324,045. 

(2) Value is determined on the basis of the Extended Binomial Options Pricing   
Model, a variation of the Black-Scholes pricing model. The following    
assumptions have been used in valuing the stock options as of the grant 
date -- January 25, 1996: volatility -- 29.42%; risk-free rate of       
 return -- 5.93%; dividend growth rate -- 8.0%; vesting period -- one year
from grant and time of exercise -- expiration date.                     

(3) Mr. Friedhoff resigned from his positions with Sallie Mae, effective March  
26, 1997 for personal reasons.                                          

1996 OPTION EXERCISES AND YEAR-END VALUE TABLE

                                                        [Enlarge/Download Table]

                                                                                  NUMBER OF          VALUE OF      
                                                                                  SECURITIES        UNEXERCISED    
                                                                                  UNDERLYING       IN-THE-MONEY    
                                                                                  OPTIONS AT        OPTIONS AT     
                                                                      VALUE        YEAR END      DECEMBER 31, 1996 
                                                          SHARES   REALIZED ON   EXERCISABLE/      EXERCISABLE/    
            NAME                      POSITION           ACQUIRED   EXERCISE    UNEXERCISABLE      UNEXERCISABLE   
----------------------------- -------------------------  --------  -----------  --------------  -------------------
                                                                                                                   
Lawrence A. Hough............ President and CEO           10,000    $ 604,500   148,250/30,000  $6,485,468/$603,750
Timothy G. Greene............ EVP and General Counsel      1,080       52,920    44,920/14,000   1,825,072/ 281,750
Denise B. McGlone............ EVP and CFO                  8,500      309,812    18,500/14,000     948,312/ 281,750
Robert D. Friedhoff(1)....... EVP, Systems & Servicing         0            0    51,000/14,000   2,176,937/ 281,750
Lydia M. Marshall............ EVP, Marketing              18,500      832,500    24,800/14,000     927,650/ 281,750

---------------                                                                 

(1) Mr. Friedhoff resigned from his positions with Sallie Mae, effective March  
26, 1997 for personal reasons.                                          

LONG-TERM INCENTIVE PLAN TABLE
INCENTIVE PERFORMANCE PLAN (IPP)

                                                        [Enlarge/Download Table]

                                                                                          PERFORMANCE OR OTHER PERIOD   
           NAME                     POSITION               AWARDS FOR 1993 IPP(1)         UNTIL MATURITY OR PAYOUT(2)   
--------------------------  -------------------------  -------------------------------  --------------------------------
                                                                                                                        
Lawrence A. Hough.........  President and CEO          Three installments of $89,250.   Payable beginning January 1996. 
Timothy G. Greene.........  EVP and General Counsel    Three installments of $50,150    Payable beginning January 1996. 
Denise B. McGlone(3)......  EVP and CFO                              N/A                              N/A               
Robert D. Friedhoff(4)....  EVP, Systems & Servicing   Three installments of $38,061.   Payable beginning January 1996. 
Lydia M. Marshall.........  EVP, Marketing             Three installments of $37,329.   Payable beginning January 1996. 

---------------                                                                 

(1) The 1993 IPP commenced January 1, 1993 and ended December 31, 1995. Awards  
for that IPP were determined by the Board of Directors in January 1996. 

(2) The January 1996 payment for the 1993 IPP is included in the Summary        
Compensation Table under "LTIP Payout".                                 

(3) Denise McGlone rejoined the Corporation in February 1994. Ms. McGlone is not
eligible to receive awards until the 1994 IPP payout which commences in 
1997.                                                                   

(4) Mr. Friedhoff resigned from his positions with Sallie Mae, effective March  
26, 1997 for personal reasons.                                          

94

POS AM
107th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 107th

DESCRIPTION OF BENEFIT PLANS                                                    

    Set forth below are current benefit plans of Sallie Mae. It is anticipated
that following the Reorganization, the Holding Company will become the sponsor  
of each of these benefit plans and maintain such plans in a manner substantially
similar to the manner in which Sallie Mae currently maintains such plans.       

PENSION PLANS 

PENSION PLAN TABLE
ANNUAL NORMAL RETIREMENT BENEFIT(1) 

                                                                [Download Table]

   FINAL                   YEARS OF SERVICE AT NORMAL RETIREMENT DATE           
  AVERAGE        ---------------------------------------------------------------
COMPENSATION          15               20               25               30     
------------     ------------     ------------     ------------     ------------
                                                                                 
  $400,000         $  129,671       $  172,895       $  216,119       $  259,343
   450,000            146,171          194,895          243,619          292,343
   500,000            162,671          216,895          271,119          325,343
   550,000            179,171          238,895          298,619          358,343
   600,000            195,671          260,895          326,119          391,343
   650,000            212,171          282,895          353,619          424,343
   700,000            228,671          304,895          381,119          457,343
   750,000            245,171          326,895          408,619          490,343
   800,000            261,671          348,895          436,119          523,343
   850,000            278,171          370,895          463,619          556,343
   900,000            294,671          392,895          491,119          589,343

---------------                                                                 
(1) Payable for life to employees retiring in 1996 at age 62.                   

The credited years of service for the individuals named in the Summary
Compensation Table are: Mr. Hough: 21 years, 10 months; Mr. Greene: 12 years, 5 
months; Ms. McGlone: 9 years, 3 months; Mr. Friedhoff: 17 years, 11 months; and 
Ms. Marshall: 11 years, 6 months.                                               

The Student Loan Marketing Association Employees' Pension Plan (the   
"Pension Plan") provides monthly benefits upon retirement to employees who      
complete five years of service. Benefits are calculated according to a formula  
which is based on an employee's highest consecutive five-year average base      
salary, length of credited service, and are integrated with social security     
benefits. The maximum number of years for which a participant receives credit   
for service under the Pension Plan is 30 years, and normal retirement age is 62.
The Pension Plan also provides early retirement benefits at age 55, as well as  
joint and survivor benefits. The Pension Plan is funded solely by corporate     
contributions. Annual contributions to the Pension Plan trust are determined on 
an actuarial basis.                                                             

The Student Loan Marketing Association Supplemental Pension Plan (the 
"Supplemental Pension Plan") assures that designated participants receive the   
full amount of benefits to which they would have been entitled under the Pension
Plan but for limits on compensation and benefit levels imposed by the Internal  
Revenue Code. The portions of compensation that are considered covered          
compensation for the Supplemental Pension Plan for each named executive officer 
are the salary and annual bonus amounts, up to 35% of the prior year's salary,  
disclosed in the Summary Compensation Table.                                    

  Benefit amounts under both the Pension Plan and the Supplemental Pension
Plan are computed on an actuarial basis without individual allocation. The table
above shows estimated annual benefits payable under the Pension Plan and the    
Supplemental Pension Plan to an employee for life upon retirement at age 62 in  
specified years-of-service and remuneration classes, using assumptions about    
compensation increases, under a straight life annuity option. The benefit       
amounts shown in the table are not subject to any deduction for social security 
or other offset amount.                                                         

THRIFT AND SAVINGS PLANS.  The Student Loan Marketing Association     
Employees' Thrift and Savings Plan (the "Thrift and Savings Plan") is available 
to all employees of Sallie Mae after the completion of one year of service.     
Employees participate in the Thrift and Savings Plan by contributing up to six  
percent of their salaries. Sallie Mae provides a matching contribution equal to 
100 percent of each participant's contribution.                                 

95

POS AM
108th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 108th

Participants are always fully vested in their own contributions to the
Thrift and Savings Plan. Participants vest in Sallie Mae's matching contribution
at the rate of 25 percent for each year of participation after their first year 
of service and, therefore, are fully vested in the matching contributions after 
five years of service. Participants may make withdrawals from the Thrift and    
Savings Plan, subject to penalties in most instances, and borrow under certain  
limited conditions.                                                             

   The Student Loan Marketing Association Supplemental Employees' Thrift and
Savings Plan (the "Supplemental Thrift and Savings Plan") assures that          
designated participants receive the full amount of benefits to which they would 
have been entitled under the Thrift and Savings Plan but for limits on          
compensation and contribution levels imposed by the Internal Revenue Code.      

 Salary deferrals made under the Thrift and Savings and the Supplemental
Thrift and Savings Plans by any of the five most highly-compensated executive   
officers are reported under the "Salary" column of the Summary Compensation     
Table. Sallie Mae contributions made under the Thrift and Savings and           
Supplemental Thrift and Savings Plans on behalf of the five most highly         
compensated executive officers are reported under the "All Other Compensation"  
column of the Summary Compensation Table.                                       

    STOCK PURCHASE PLAN.  The Employees' Stock Purchase Plan provides that all
full-time and certain part-time employees and members of the Board of Directors 
may purchase shares of Sallie Mae Common Stock at the end of a two-year period. 
The purchase price is equal to the fair market value of the Sallie Mae Common   
Stock at the beginning of the two-year period, less 15 percent. Purchases are   
made with funds that accumulate in a taxable, interest-bearing account funded by
payments from participating employees. Contributions to an employee's account   
may be made only through after-tax payroll deductions and are limited to 10     
percent of compensation, but no more than $10,000. The Board authorized         
1,250,000 shares of Sallie Mae Common Stock to be issued pursuant to the        
Employees' Stock Purchase Plan.                                                 

The Employees' Stock Purchase Plan is not a "qualified" stock purchase
plan. Accordingly, upon the purchase of stock, employees have taxable income to 
the extent that the fair market value of the stock on the date of purchase      
exceeds the purchase price. Income for any of the five most highly compensated  
executive officers resulting from purchases of stock under the Employees' Stock 
Purchase Plan is reported under the "All Other Compensation" column of the      
Summary Compensation Table.                                                     

  DEFERRED COMPENSATION PLAN FOR KEY EMPLOYEES.  The Deferred Compensation
Plan for Key Employees provides that participants may elect to defer earnings   
and invest the compensation in an interest-bearing cash account and/or a Sallie 
Mae Common Stock account. Effective January 1, 1996, the Deferred Compensation  
Plan was closed to new participants and closed to additional deferrals after    
December 29, 1995. None of the five most highly compensated executive officers  
participated in the Plan in 1996.                                               

 STOCK OPTION PLAN.  The Stock Option Plan, effective from March 1993 to
March 1998, provides key employees an opportunity to acquire an equity interest 
in Sallie Mae. The Stock Option Plan is administered by the Compensation and    
Personnel Committee, none of whose members are eligible for benefits under the  
Stock Option Plan.                                                              

The Stock Option Plan provides for the issuance of "non-qualified" or 
"qualified" stock options at market value on the day of the grant with terms of 
ten years from the date of the grant. Options must be held for a period of      
between 12 and 36 months, as determined at the time the option is granted,      
before the option may be exercised. The Stock Option Plan authorizes the        
granting of options with respect to no more than 5,091,450 shares of Sallie Mae 
Common Stock, subject to adjustments for stock splits. All options granted in   
1996 were "nonqualified" options.                                               

    The Stock Option Plan includes a "reload" option feature that was approved
at the 1996 Annual Meeting of Shareholders of Sallie Mae and that is designed to
encourage officers of Sallie Mae to exercise options and to retain ownership of 
the Sallie Mae Common Stock issued pursuant to such exercises.                  

   STOCK COMPENSATION PLAN.  At the 1996 Annual Meeting of Shareholders, the
Board of Directors adopted the Sallie Mae Stock Compensation Plan (the "Stock   
Plan"). The purpose of the Stock Plan is to continue to promote and encourage   
Sallie Mae Common Stock ownership by key employees in order to link             

96

POS AM
109th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 109th

the interests of the key employees of Sallie Mae with the interests of the      
shareholders of Sallie Mae and to provide the Board of Directors a method to    
compensate key employees with Sallie Mae Common Stock in lieu of a portion of   
their cash compensation.                                                        

Awards will be granted, in lieu of all or part of an officer's annual 
bonus, at the discretion of the Compensation and Personnel Committee, to        
officers of Sallie Mae eligible to receive an annual bonus. Awards will be made,
at the discretion of the Compensation and Personnel Committee, in the form of   
Sallie Mae Common Stock, restricted stock, or stock units. In its discretion,   
the Committee may provide an officer with the opportunity to elect to receive an
annual bonus in cash or in restricted stock at a 10 percent discount.           

PERFORMANCE GRAPH                                                               

STUDENT LOAN MARKETING ASSOCIATION
FIVE-YEAR CUMULATIVE TOTAL RETURN 

                                                                [Download Table]

        MEASUREMENT PERIOD                S&P FINANCIAL-                
      (FISCAL YEAR COVERED)  SLMA              MISC.        S&P 500     
                                                                        
1991                                 100               100           100
1992                               94.51            117.56        107.61
1993                               63.29            140.35        118.39
1994                               47.69            135.14        119.99
1995                               99.93            216.44        164.92
1996                              143.94            282.03        202.69
                                                                [Download Table]

                                  BASE                                    
                   COMPANY/INDEX  YEAR   1992   1993   1994   1995   1996 
                                                                          


                                                                          
Sallie Mae                        100.0   94.5   63.3   47.7   99.9  143.9
S&P Financial-Misc.(1)(2)         100.0  117.6  140.4  135.1  216.4  282.0
S&P 500 Comp-Ltd(2)               100.0  107.6  118.4  120.0  164.9  202.7

(1) Companies included in Standard & Poor's Financial-Miscellaneous Index:      
  American Express, American General Finance, Dean Witter, Federal Home Loan
Mortgage Corporation, Federal National Mortgage Association, Green Tree 
Financial, MBIA Inc, MBNA Corporation, and Transamerica Corporation.    

(2) Source: Bloomberg Comparative Return Table                                  

97

POS AM
110th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 110th

OWNERSHIP OF SALLIE MAE STOCK 

BOARD AND MANAGEMENT OWNERSHIP OF THE COMPANY                                   

 The following table provides information regarding shares of Sallie Mae
Common Stock owned by the Company's management and Sallie Mae directors at June 
6, 1997, unless otherwise indicated. None of such persons nor such persons as a 
group were the beneficial owner of more than 1 percent of the outstanding shares
of Sallie Mae Common Stock at June 6, 1997. If the Reorganization is approved,  
all shares of Sallie Mae Common Stock beneficially owned by such persons shall  
be converted into shares of Holding Company Common Stock.                       

The Department of the Treasury, in connection with its oversight      
responsibilities related to Sallie Mae, the government-sponsored enterprise, has
discussed and questioned the holding of options to purchase shares of stock in  
the newly formed Holding Company by public directors of the government-sponsored
enterprise as a form of compensation under the new holding company structure.   

   While the Company does not share this view, the Company has agreed to use
its best efforts, following the Reorganization, to have the newly formed Holding
Company acquire any outstanding options held by the presidential appointees to  
the Sallie Mae Board and to discontinue such directors' future participation in 
the Sallie Mae Employees' Stock Purchase Plan.                                  

SALLIE MAE

                                                        [Enlarge/Download Table]

                                                                                         TOTAL SHARES           
                                                                                          OWNED AND     MAY BE  
                                                                           CREDITED TO   CREDITED TO   ACQUIRED 
                                                                           BENEFIT PLAN  BENEFIT PLAN  WITHIN 60
                                                                 OWNED(1)   ACCOUNT(2)    ACCOUNT(3)    DAYS(4) 
                                                                 --------  ------------  ------------  ---------
                                                                                                                
SALLIE MAE DIRECTORS                                                                                            
William Arceneaux...............................................   1,591       2,762          4,353       2,500 
Mitchell W. Berger..............................................     767         364          1,131       4,000 
James E. Brandon................................................   1,625         849          2,474       4,000 
David A. Daberko................................................   1,288       3,697          4,985       4,000 
Charles L. Daley................................................   4,850         244          5,094       4,000 
Kris E. Durmer..................................................     768         332          1,100       2,000 
Diane S. Gilleland..............................................     768         694          1,462       3,650 
Ronald F. Hunt, Esq. ...........................................   5,881       1,043          6,924       1,000 
Thomas H. Jacobsen..............................................   1,775         873          2,648       4,000 
Benjamin J. Lambert.............................................     350         443            793       1,000 
Albert L. Lord..................................................  38,450         474         38,924       1,000 
Regina T. Montoya...............................................     768         332          1,100       3,000 
James E. Moore..................................................   1,264       1,022          2,286       4,000 
Irene Natividad.................................................     768         322          1,090       2,500 
A. Alexander Porter, Jr.........................................  21,350         244         21,594       4,000 
James E. Rohr...................................................   1,041         417          1,458       4,000 
Steven L. Shapiro...............................................   1,350         655          2,005       4,000 
John W. Spiegel.................................................     742         322          1,064       4,000 
Ronald J. Thayer................................................     450         322            772       1,500 
David J. Vitale.................................................     775      12,371         13,146       4,000 
Randolph H. Waterfield, Jr......................................     550         575          1,125       4,000 

SALLIE MAE NAMED EXECUTIVE OFFICERS(5)                                                                          
Timothy G. Greene...............................................   6,940       2,678          9,618      58,920 
Lawrence A. Hough............................................... 140,580       6,248        146,828     178,250 
Lydia M. Marshall...............................................  11,186       1,486         12,672      38,800 
Denise B. McGlone...............................................   9,086       1,602         10,688      32,500 

SALLIE MAE DIRECTORS AND NAMED EXECUTIVE OFFICERS                                                               
  AS A GROUP(5)................................................. 254,963      40,371        295,334     374,620 

---------------                                                                 
(1) Consists of shares held, directly or indirectly, by the individual or a     
 related party, including restricted shares, and, in the case of officers,
 shares credited directly to the individual's account under the Employees'
    Thrift and Savings Plan. Pursuant to the Employees' Thrift and Savings Plan,
    a participant has the power to direct the voting of stock held on his behalf
in the Employees' Thrift and Savings Plan Trust.                        

(2)Consists of shares credited under the Directors' Deferred Compensation Plan, 
the Supplemental Employees' Thrift and Savings Plan, and the Deferred     
Compensation Plan for Key Employees.                                      

(3)Consists of total of columns 1 and 2.                                        

(4)Consists of shares which may be acquired through the Stock Option Plan and   
the Board of Directors' Stock Option Plan.                                

(5)Does not include shares beneficially owned by Mr. Robert D. Friedhoff who    
resigned from his positions with Sallie Mae, effective March 26, 1997, for
   personal reasons. At December 31, 1996, Mr. Friedhoff owned 8,288 shares, had
 206 shares credited to his Benefit Plan Account and was entitled to acquire
65,000 shares within 60 days of such date.                                

98

POS AM
111th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 111th

PRINCIPAL HOLDERS                                                               

    Sallie Mae believes the following institutions were beneficial owners of 5
percent or more of the outstanding shares of Sallie Mae Common Stock at March   
31, 1997 based upon information from such institutions and Sallie Mae's records.

                                                        [Enlarge/Download Table]

                                                                          OWNERSHIP PERCENTAGE AT 
                      PRINCIPAL HOLDERS                         SHARES         MARCH 31, 1997     
-------------------------------------------------------------  ---------  ------------------------
                                                                                                  
FMR Corporation..............................................  6,372,800            12.1%         
Chancellor Capital...........................................  5,452,376            10.3%         
The Capital Group Companies, Inc.(1).........................  5,405,400            10.2%         
Scudder Stevens & Clark......................................  3,230,525             6.1%         
Boston Partners..............................................  3,155,500             6.0%         
AIM Management Group.........................................  2,948,300             5.6%         

---------------                                                                 
(1) Certain operating subsidiaries of the Capital Group Companies, Inc.         
 exercised investment discretion over various institutional accounts which
held, as of March 31, 1997, 5,405,400 shares of the issue (10.2% of the 
 outstanding shares of the class). Capital Guardian Trust Company, a bank,
 and one of such operating companies, exercised investment discretion over
2,025,400 of said shares. Capital Research and Management Company, a    
registered investment adviser had investment discretion with respect to 
3,380,000 shares of the above shares.                                   

LEGAL MATTERS 

   The legality of the Holding Company Common Stock to be issued pursuant to
the Reorganization and certain other matters in connection with the             
Reorganization will be passed upon by Timothy G. Greene, General Counsel of     
Sallie Mae and of the Holding Company. Under the terms of the Reorganization    
Agreement, it is a condition precedent to the Merger that Sallie Mae shall have 
received an opinion of counsel as to certain federal income tax consequences of 
the Merger. In the event that the Reorganization Proposal is approved and the   
Majority Director Slate receives the highest plurality of votes cast in respect 
of the Board Slate Proposal, Skadden, Arps, Slate, Meagher & Flom LLP,          
Washington, D.C., is expected to render such an opinion to Sallie Mae and the   
Holding Company.                                                                

EXPERTS 

The balance sheet of the Holding Company at February 3, 1997 and the  
consolidated financial statements of Sallie Mae as of December 31, 1996 and     
1995, and for each of the three years in the period ended December 31, 1996     
appearing in this Prospectus and Registration Statement have been audited by    
Ernst & Young LLP, independent auditors, as set forth in their reports thereon  
appearing elsewhere herein, and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.          

 Representatives of Ernst & Young LLP are expected to attend the Special
Meeting, will have the opportunity to make a statement if they desire to do so, 
and can be expected to respond to appropriate questions from shareholders       
present at the Special Meeting.                                                 

99

POS AM
112th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 112th

SALLIE MAE ANNUAL MEETING SHAREHOLDER PROPOSALS 

   If the Reorganization is not consummated, an annual meeting of Sallie Mae
will be held as soon as practicable after the Special Meeting. To be included in
the proxy material for the 1997 Annual Meeting of Shareholders of Sallie Mae,   
any shareholder proposal must be received by Sallie Mae no later than July 31,  
1997. The submission of a shareholder proposal does not guarantee that it will  
be included in such proxy material.                                             
                                      By Order of the Board of Directors
                     Ann Marie Plubell
                                     Vice President, Associate General
               Counsel and
             Secretary

 100

POS AM
113th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 113th

FINANCIAL STATEMENTS

INDEX 

                                                        [Enlarge/Download Table]

                                                                                      PAGE
                                                                                      ----
                                                                                          
SLM HOLDING CORPORATION                                                                   
Report of Independent Auditors.......................................................  F-2
Balance Sheets.......................................................................  F-3
Notes to Balance Sheets..............................................................  F-4

STUDENT LOAN MARKETING ASSOCIATION                                                        
Report of Independent Auditors.......................................................  F-6
Consolidated Balance Sheets..........................................................  F-7
Consolidated Statements of Income....................................................  F-8
Consolidated Statements of Changes in Stockholders' Equity...........................  F-9
Consolidated Statements of Cash Flows................................................ F-10
Notes to Consolidated Financial Statements........................................... F-11

 F-1

POS AM
114th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 114th

REPORT OF INDEPENDENT AUDITORS

The Board of Directors                                                          
SLM Holding Corporation                                                         

   We have audited the accompanying balance sheet of SLM Holding Corporation
as of February 3, 1997. This balance sheet is the responsibility of the         
management of SLM Holding Corporation. Our responsibility is to express an      
opinion on this balance sheet based on our audit.                               

We conducted our audit in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to obtain 
reasonable assurance about whether the balance sheet is free of material        
misstatement. An audit includes examining, on a test basis, evidence supporting 
the amounts and disclosures in the balance sheet. An audit also includes        
assessing the accounting principles used and significant estimates made by      
management, as well as evaluating the overall balance sheet presentation. We    
believe that our audit of the balance sheet provides a reasonable basis for our 
opinion.                                                                        

     In our opinion, the balance statement referred to above presents fairly, in
all material respects, the financial position of SLM Holding Corporation at     
February 3, 1997 in conformity with generally accepted accounting principles.   

Washington, D.C.                                           Ernst & Young LLP    
February 3, 1997                                                                

 F-2

POS AM
115th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 115th

SLM HOLDING CORPORATION 
BALANCE SHEETS

                                                        [Enlarge/Download Table]

                                                                         MARCH 31,    FEBRUARY 3,
                                                                            1997         1997    
                                                                        ------------  -----------
                                                                        (UNAUDITED)              
                                                                                                 
ASSETS                                                                                           
Cash..................................................................     $1,000       $ 1,000  
                                                                           ======       =======  
LIABILITIES...........................................................     $    -       $     -  
STOCKHOLDER'S EQUITY                                                                             
Preferred stock, par value $.20 per share, 20,000,000 shares                                     
  authorized,                                                                                    
  none issued and outstanding.........................................          -             -  
Common stock, par value $.20 per share, 250,000,000 shares authorized,                           
  1,000 shares issued and outstanding.................................        200           200  
Additional paid-in capital............................................        800           800  
                                                                           ------       -------  
Total stockholder's equity............................................      1,000         1,000  
                                                                           ------       -------  
Total liabilities and stockholder's equity............................     $1,000       $ 1,000  
                                                                           ======       =======  

See accompanying notes to balance sheets. 

 F-3

POS AM
116th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 116th

SLM HOLDING CORPORATION 

NOTES TO BALANCE SHEETS 
(INFORMATION AT MARCH 31, 1997 IS UNAUDITED)

1.  ORGANIZATION AND PRIVATIZATION                                              

SLM Holding Corporation (the "Holding Company") was incorporated on   
February 3, 1997 under Delaware law. The Holding Company is a wholly-owned      
subsidiary of the Student Loan Marketing Association ("Sallie Mae" or the       
"GSE"), a corporation chartered under federal law. The Holding Company was      
incorporated to effect the reorganization of the business of Sallie Mae and the 
eventual dissolution of Sallie Mae. The Holding Company has had no operations   
since its incorporation and will commence operations effective upon the         
reorganization as described below.                                              

Privatization                                                               

    Sallie Mae is a stockholder-owned corporation which was created in 1972 as
a federally chartered government-sponsored enterprise under the Higher Education
Act of 1965 (the "Act"). The Act defines Sallie Mae's charter and limits its    
corporate authority to education finance related activities, while imposing     
certain obligations on Sallie Mae, including acting as a lender of last resort  
to eligible borrowers under the Federal Family Education Loan Program (the      
"FFELP").                                                                       

On May 15, 1997, Sallie Mae convened a special shareholders meeting   
pursuant to a combined Proxy Statement/Prospectus registered with the Securities
and Exchange Commission to approve a privatization plan and a slate of directors
for the new Holding Company. The solicitation was opposed by eight members of   
Sallie Mae's Board of Directors who are members of the Committee to Restore     
Value ("CRV") and who obtained shareholder support for a separate shareholders  
meeting that was held on May 9, 1997. Neither Sallie Mae management nor the CRV 
were successful in obtaining the necessary majority approval for adoption of    
their respective privatization plans. On May 27, 1997, Sallie Mae and the CRV   
announced that they had agreed to jointly hold a new special meeting at which   
shareholders will vote on a single plan of privatization and reorganization. At 
the special meeting, shareholders also will vote to elect a 15-member Holding   
Company board of directors from separate slates nominated by Sallie Mae and the 
CRV. The new special meeting will be held approximately 20 days following the   
mailing of proxy materials to shareholders.                                     

As described in the above-mentioned Proxy Statement/Prospectus, if the
Reorganization is approved by the shareholders, the GSE, which will become a    
wholly-owned subsidiary of the Holding Company, will be gradually liquidated and
its federal charter rescinded on or before September 30, 2008. Pursuant to the  
Reorganization, each outstanding share of Sallie Mae Common Stock will be       
converted into one share of Holding Company Common Stock. In addition, Sallie   
Mae will transfer certain assets, including stock in certain subsidiaries to the
Holding Company or one of its non-GSE subsidiaries. As required by the          
Privatization Act, all GSE employees will be transferred to one of the Holding  
Company's subsidiaries. During the wind-down period, it is expected that all    
Sallie Mae operations will be managed pursuant to an arms-length service        
agreement with a Sallie Mae affiliate. In addition, the Holding Company will    
remain a passive entity which supports the operations of the GSE and its other  
subsidiaries, and all business activities would be conducted through the GSE and
by such other subsidiaries.                                                     

The Privatization Act imposes certain restrictions on intercompany    
relations between Sallie Mae and its affiliates during the wind-down period. In 
particular, Sallie Mae must not extend credit to, nor guarantee any debt        
obligations of the Holding Company, or the Holding Company's non-GSE            
subsidiaries. Furthermore, the loan servicing arrangements must be on terms no  
less favorable to Sallie Mae than Sallie Mae could obtain from an unrelated     
third party. While Sallie Mae may not finance the activities of its non-GSE     
affiliates, it may, subject to its minimum capital requirements, dividend       
retained earnings and surplus capital to the Holding Company, which in turn may 
use such amounts to support its non-GSE subsidiaries. The Sallie Mae charter    
requires that Sallie Mae maintain a minimum capital ratio of at least 2.0       
percent until 2000, and at least 2.25 percent thereafter. The Privatization Act 
further directs that under no circumstances shall the assets of Sallie Mae be   
available or used to pay claims or debts of or incurred by the Holding Company. 

 F-4

POS AM
117th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 117th

SLM HOLDING CORPORATION 

NOTES TO BALANCE SHEETS -- (CONTINUED)
(INFORMATION AT MARCH 31, 1997 IS UNAUDITED)

1.  ORGANIZATION AND PRIVATIZATION -- (CONTINUED)                               
   During the wind-down period following the Reorganization and prior to the
GSE's dissolution, the GSE will be restricted in the new business activities it 
may undertake. Sallie Mae may continue to purchase student loans only through   
September 30, 2007.                                                             

    Warehousing advances, letters of credit and standby bond purchase activity
by the GSE will be limited to takedowns on contractual financing and guarantee  
commitments in place as of the Reorganization's effective date. The Holding     
Company generally may begin to purchase student loans only after the GSE        
discontinues such activity. Sallie Mae's debt obligations that are outstanding  
at the time of Reorganization will continue to be outstanding obligations of the
GSE immediately after the Reorganization. Sallie Mae will be able to continue to
issue debt in the government agency market to finance student loans and other   
permissible asset acquisitions, although the maturity date of such issuances    
generally may not extend beyond September 30, 2008, Sallie Mae's final          
dissolution date. At March 31, 1997 and December 31, 1996, Sallie Mae had $376  
million and $372 million, respectively, in outstanding debt with maturities     
after September 30, 2008. Such debt will be transferred into a defeasance trust 
on the final dissolution date.                                                  

  The Privatization Act requires that within 60 days after the merger, the
Holding Company must pay $5 million to the D.C. Financial Control Board for use 
of the "Sallie Mae" name. In addition, the Holding Company must issue to the    
D.C. Financial Control Board warrants to purchase 555,015 shares of Holding     
Company Common Stock. These warrants are transferable and exercisable at any    
time prior to September 30, 2008 at $72.43 per share. These provisions of the   
Privatization Act were part of the terms negotiated with the Administration and 
Congress as consideration for the GSE's privatization.                          

   Beginning in fiscal 1997, and until the GSE is dissolved, Sallie Mae also
must reimburse the U.S. Treasury Department up to $800,000 annually (subject to 
adjustment based on the Consumer Price Index) for its reasonable costs and      
expenses of carrying out its supervisory duties under the Privatization Act.    

   The transfer of subsidiaries and assets of the GSE to the Holding Company
and the related exchange of common stock between the GSE and the Holding Company
will be accounted for at historical cost similar to a pooling of interests.     
Operations performed outside the GSE after the Reorganization will be subject to
state and local taxes.                                                          

If the Reorganization is not approved by shareholders certain charter 
sunset provisions of the Privatization Act become applicable and will result in 
the dissolution of the GSE by July 1, 2013.                                     

2.  BASIS OF PRESENTATION                                                       

  The accompanying unaudited balance sheet of the Holding Company has been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of  
Regulation S-X. Accordingly, they do not include all of the information and     
footnotes required by generally accepted accounting principles for complete     
financial statements. In the opinion of management, all adjustments (consisting 
of normal recurring accruals) considered necessary for a fair presentation have 
been included.                                                                  

3.  RISKS AND UNCERTAINTIES                                                     

The preparation of financial statements, in conformity with generally 
accepted accounting principles, requires management to make estimates and       
assumptions that affect the reported amounts of assets and liabilities and      
disclosure of contingent assets and liabilities at the date of the financial    
statements. Actual results could differ from those estimates.                   

 F-5

POS AM
118th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 118th

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders                                         
Student Loan Marketing Association                                              

     We have audited the accompanying consolidated balance sheets of the Student
Loan Marketing Association at December 31, 1996 and 1995, and the related       
consolidated statements of income, changes in stockholders' equity and cash     
flows for each of the three years in the period ended December 31, 1996. These  
financial statements are the responsibility of the Company's management. Our    
responsibility is to express an opinion on these financial statements based on  
our audits.                                                                     

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain 
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes 
assessing the accounting principles used and significant estimates made by      
management, as well as evaluating the overall financial statement presentation. 
We believe that our audits provide a reasonable basis for our opinion.          

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Student    
Loan Marketing Association at December 31, 1996 and 1995, and the consolidated  
results of their operations and their cash flows for each of the three years in 
the period ended December 31, 1996, in conformity with generally accepted       
accounting principles.                                                          

 As discussed in Note 2, the Company's financial statements for 1995 and
1994 have been restated to reflect a change in its method of accounting for     
student loan income. In addition, as discussed in Note 2, in 1994 the Company   
changed its method of accounting for certain investments in debt and equity     
securities.                                                                     

Washington, D.C.                                           Ernst & Young LLP    
January 13, 1997, except as to the                                              
third and fourth paragraphs of Note 2,                                          
which is as of April 7, 1997                                                    

 F-6

POS AM
119th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 119th

STUDENT LOAN MARKETING ASSOCIATION

CONSOLIDATED BALANCE SHEETS 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                        [Enlarge/Download Table]

                                                                            DECEMBER 31,       
                                                         MARCH 31,   --------------------------
                                                           1997         1996           1995    
                                                        -----------  -----------    -----------
                                                        (UNAUDITED)                            
                                                                                               
ASSETS                                                                                         
Insured student loans purchased.......................  $31,042,629  $32,307,930    $34,336,211
Student loan participations...........................    1,804,654    1,445,596              -
                                                        -----------  -----------    -----------
Insured student loans.................................   32,847,283   33,753,526     34,336,211
Warehousing advances..................................    2,533,248    2,789,485      3,865,093
Academic facilities financings                                                                 
  Bonds -- available-for-sale.........................      866,253      934,481        710,112
  Loans...............................................      538,631      538,850        602,122
                                                        -----------  -----------    -----------
Total academic facilities financings..................    1,404,884    1,473,331      1,312,234
Investments                                                                                    
  Available-for-sale..................................    7,090,893    6,833,695      6,988,199
  Held-to-maturity....................................      571,458      601,887        625,856
                                                        -----------  -----------    -----------
Total investments.....................................    7,662,351    7,435,582      7,614,055
Cash and cash equivalents.............................       75,648      270,887      1,252,920
Other assets, principally accrued interest                                                     
  receivable..........................................    1,806,796    1,907,079      1,621,222
                                                        -----------  -----------    -----------
Total assets..........................................  $46,330,210  $47,629,890    $50,001,735
                                                        ===========  ===========    ===========
LIABILITIES                                                                                    
Short-term borrowings.................................  $23,003,597  $22,156,548    $17,447,000
Long-term notes.......................................   20,101,768   22,606,226     30,082,615
Other liabilities.....................................    2,215,088    1,819,286      1,390,915
                                                        -----------  -----------    -----------
Total liabilities.....................................   45,320,453   46,582,060     48,920,530
                                                        -----------  -----------    -----------
COMMITMENTS AND CONTINGENCIES                                                                  
STOCKHOLDERS' EQUITY                                                                           
Preferred stock, par value $50.00 per share, 5,000,000                                         
  shares authorized and issued, 4,277,650                                                      
  outstanding.........................................      213,883      213,883        213,883
Common stock, par value $.20 per share, 250,000,000                                            
  shares authorized: 66,067,940; 65,695,571 and                                                
  124,121,770 shares issued, respectively.............       13,213       13,139         24,824
Additional paid-in capital............................       22,953            -        537,818
Unrealized gains on investments (net of tax of                                                 
  $178,243; $188,050 and $199,686, respectively)......      331,023      349,235        370,846
Retained earnings.....................................    1,101,450    1,008,737      2,728,383
                                                        -----------  -----------    -----------
Stockholders' equity before treasury stock............    1,682,522    1,584,994      3,875,754
Common stock held in treasury at cost: 13,287,816;                                             
  12,004,976 and 66,415,524 shares, respectively......      672,765      537,164      2,794,549
                                                        -----------  -----------    -----------
Total stockholders' equity............................    1,009,757    1,047,830      1,081,205
                                                        -----------  -----------    -----------
Total liabilities and stockholders' equity............  $46,330,210  $47,629,890    $50,001,735
                                                        ===========  ===========    ===========

See accompanying notes to consolidated financial statements.

 F-7

POS AM
120th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 120th

STUDENT LOAN MARKETING ASSOCIATION

CONSOLIDATED STATEMENTS OF INCOME 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                        [Enlarge/Download Table]

                                                  THREE MONTHS ENDED                                             
                                                      MARCH 31,                  YEARS ENDED DECEMBER 31,        
                                              --------------------------  -------------------------------------- 
                                                 1997           1996         1996          1995          1994    
                                              -----------    -----------  ----------    ----------    ---------- 
                                              (UNAUDITED)    (UNAUDITED)                                         
                                                                                                                 
Interest income:                                                                                                 
  Insured student loans purchased............  $ 617,609      $ 671,763   $2,586,035    $2,708,079    $2,188,971 
  Student loan participations................     22,307              -       20,625             -             - 
                                              -----------    -----------  ----------    ----------    ---------- 
  Insured student loans......................    639,916        671,763    2,606,660     2,708,079     2,188,971 
  Warehousing advances.......................     40,968         57,895      193,654       407,866       334,012 
  Academic facilities financings:                                                                                
    Taxable..................................     12,242         13,411       52,163        54,862        52,079 
    Tax-exempt...............................     11,922         10,096       48,262        52,859        49,576 
                                              -----------    -----------  ----------    ----------    ---------- 
  Total academic facilities financings.......     24,164         23,507      100,425       107,721       101,655 
  Investments................................    141,110        134,325      542,469       697,724       499,443 
                                              -----------    -----------  ----------    ----------    ---------- 
Total interest income........................    846,158        887,490    3,443,208     3,921,390     3,124,081 
Interest expense:                                                                                                
  Short-term debt............................    354,155        253,236    1,132,159       905,933       737,798 
  Long-term debt.............................    292,977        401,575    1,444,613     2,114,716     1,404,697 
                                              -----------    -----------  ----------    ----------    ---------- 
Total interest expense.......................    647,132        654,811    2,576,772     3,020,649     2,142,495 
                                              -----------    -----------  ----------    ----------    ---------- 
NET INTEREST INCOME..........................    199,026        232,679      866,436       900,741       981,586 
Other income:                                                                                                    
  Gain on sale of student loans..............     33,992          9,929       48,981             -             - 
  Servicing and securitization revenue.......     25,960          4,539       57,736         1,423             - 
  Gains/(losses) on sales of securities......      3,183          1,860       11,898        24,032          (100)
  Other......................................     12,805          5,426       28,301        24,958        13,903 
                                              -----------    -----------  ----------    ----------    ---------- 
Total other income...........................     75,940         21,754      146,916        50,413        13,803 
                                              -----------    -----------  ----------    ----------    ---------- 
Operating expenses:                                                                                              
  Salaries and benefits......................     30,917         30,121      206,347       211,787       196,022 
  Other......................................     70,642         68,652      199,305       226,914       193,920 
                                              -----------    -----------  ----------    ----------    ---------- 
Total operating expenses.....................    101,559         98,773      405,652       438,701       389,942 
                                              -----------    -----------  ----------    ----------    ---------- 
Income before federal income taxes and                                                                           
  premiums on debt extinguished..............    173,407        155,660      607,700       512,453       605,447 
                                              -----------    -----------  ----------    ----------    ---------- 
Federal income taxes:                                                                                            
  Current....................................     67,046         54,154      207,437       141,803       178,812 
  Deferred...................................    (12,476)        (6,186)     (23,939)         (540)       (2,897)
                                              -----------    -----------  ----------    ----------    ---------- 
Total federal income taxes...................     54,570         47,968      183,498       141,263       175,915 
                                              -----------    -----------  ----------    ----------    ---------- 
Income before premiums on debt                                                                                   
  extinguished...............................    118,837        107,692      424,202       371,190       429,532 
Premiums on debt extinguished, net of tax....          -         (4,792)      (4,792)       (4,911)       (9,329)
                                              -----------    -----------  ----------    ----------    ---------- 
NET INCOME...................................    118,837        102,900      419,410       366,279       420,203 
Preferred stock dividends....................      2,674          2,673       10,694        10,694        10,694 
                                              -----------    -----------  ----------    ----------    ---------- 
Net income attributable to common stock......  $ 116,163      $ 100,227   $  408,716    $  355,585    $  409,509 
                                              ==========     ==========   ==========    ==========    ========== 
Earnings per common share before premiums on                                                                     
  debt extinguished..........................  $    2.17      $    1.82   $     7.41    $     5.34    $     5.25 
                                              ==========     ==========   ==========    ==========    ========== 
EARNINGS PER COMMON SHARE....................  $    2.17      $    1.74   $     7.32    $     5.27    $     5.13 
                                              ==========     ==========   ==========    ==========    ========== 

See accompanying notes to consolidated financial statements.

 F-8

POS AM
121st Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 121st

STUDENT LOAN MARKETING ASSOCIATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                        [Enlarge/Download Table]


                                    THREE MONTHS ENDED MARCH 31,        YEARS ENDED DECEMBER 31,        
                                    -----------------------------  ------------------------------------ 
                                         1997          1996          1996          1995         1994    
                                    -------------   -------------  ----------   ----------   ---------- 
                                      (UNAUDITED)   (UNAUDITED)                                         
                                                                                                        
PREFERRED STOCK:                                                                                        
  Balance, beginning and end of                                                                         
     period.........................  $   213,883   $   213,883   $   213,883   $  213,883   $  213,883 
                                      -----------   -----------   -----------   ----------   ---------- 
COMMON STOCK:                                                                                           
  Balance, beginning of period......       13,139        24,824        24,824       24,769       24,766 
     Issuance of common shares......           74            73           115           55            3 
     Retirement of common shares....            -             -       (11,800)           -            - 
                                      -----------   -----------   -----------   ----------   ---------- 
  Balance, end of period............       13,213        24,897        13,139       24,824       24,769 
                                      -----------   -----------   -----------   ----------   ---------- 
ADDITIONAL PAID-IN CAPITAL:                                                                             
  Balance, beginning of period......            -       537,818       537,818      524,511      523,935 
     Proceeds in excess of par value                                                                    
       from issuance of common                                                                          
       stock........................       22,953        14,756        22,920       11,673          514 
     Tax benefit related to employee                                                                    
       stock option and purchase                                                                        
       plans........................            -             -         7,393        1,634           62 
     Retirement of common shares....            -             -      (568,131)           -            - 
                                      -----------   -----------   -----------   ----------   ---------- 
  Balance, end of period............       22,953       552,574             -      537,818      524,511 
                                      -----------   -----------   -----------   ----------   ---------- 
UNREALIZED GAINS ON INVESTMENTS, NET                                                                    
  OF TAX:                                                                                               
  Balance, beginning of period......      349,235       370,846       370,846      299,558            - 
     Unrealized gains as of January                                                                     
       1, 1994......................                          -             -            -      304,851 
     Change in unrealized gains.....      (18,212)      (28,328)      (21,611)      71,288       (5,293)
                                      -----------   -----------   -----------   ----------   ---------- 
  Balance, end of period............      331,023       342,518       349,235      370,846      299,558 
                                      -----------   -----------   -----------   ----------   ---------- 
RETAINED EARNINGS:                                                                                      
  Balance, beginning of period (as                                                                      
     restated, see note 2)..........    1,008,737     2,728,383     2,728,383    2,473,048    2,176,485 
     Net income.....................      118,837       102,900       419,410      366,279      420,203 
     Retirement of common shares....            -             -    (2,037,368)           -            - 
     Cash dividends:                                                                                    
       Common stock ($.44, $.40,                                                                        
          $1.64, $1.51 and $1.42 per                                                                    
          share, respectively)......      (23,450)      (22,922)      (90,994)    (100,250)    (112,946)
       Preferred stock..............       (2,674)       (2,673)      (10,694)     (10,694)     (10,694)
                                      -----------   -----------   -----------   ----------   ---------- 
  Balance, end of period............    1,101,450     2,805,688     1,008,737    2,728,383    2,473,048 
                                      -----------   -----------   -----------   ----------   ---------- 
COMMON STOCK HELD IN TREASURY AT                                                                        
  COST:                                                                                                 
  Balance, beginning of period......      537,164     2,794,549     2,794,549    1,934,377    1,546,272 
     Repurchase of 1,282,840;                                                                           
       1,541,737; 4,589,452;                                                                            
       16,094,701 and 10,542,791                                                                        
       common shares,                                                                                   
       respectively.................      135,601       120,278       359,914      860,172      388,105 
     Retirement of 59,000,000 common                                                                    
       shares.......................            -             -    (2,617,299)           -            - 
                                      -----------   -----------   -----------   ----------   ---------- 
  Balance, end of period............      672,765     2,914,827       537,164    2,794,549    1,934,377 
                                      -----------   -----------   -----------   ----------   ---------- 
TOTAL STOCKHOLDERS' EQUITY..........  $ 1,009,757   $ 1,024,733   $ 1,047,830   $1,081,205   $1,601,392 
                                      ===========   ===========   ===========   ==========   ========== 

See accompanying notes to consolidated financial statements.

 F-9

POS AM
122nd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 122nd

STUDENT LOAN MARKETING ASSOCIATION

CONSOLIDATED STATEMENTS OF CASH FLOWS 
(DOLLARS IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                              THREE MONTHS ENDED                                                         
                                                  MARCH 31,                         YEARS ENDED DECEMBER 31,             
                                        ------------------------------   ----------------------------------------------- 
                                            1997             1996            1996             1995             1994      
                                        -------------    -------------   -------------    -------------    ------------- 
                                         (UNAUDITED)     (UNAUDITED)                                                     
                                                                                                                         
OPERATING ACTIVITIES                                                                                                     
  Net income........................... $     118,837    $     102,900   $     419,410    $     366,279    $     420,203 
  Adjustments to reconcile net income                                                                                    
    to net cash provided by operating                                                                                    
    activities:                                                                                                          
    (Increase) decrease in accrued                                                                                       
      interest receivable..............       124,527          101,661         (11,286)        (179,505)        (184,021)
    Increase (decrease) in accrued                                                                                       
      interest payable.................       (43,675)        (134,827)       (109,214)         112,133          114,310 
    (Increase) in other assets.........       (23,120)         (74,788)       (274,572)        (128,799)         (86,959)
    Increase in other liabilities......       449,284          185,164         549,221           15,804          203,630 
                                        -------------    -------------   -------------    -------------    ------------- 
  Total adjustments....................       507,016           77,210         154,149         (180,367)          46,960 
                                        -------------    -------------   -------------    -------------    ------------- 
Net cash provided by operating                                                                                           
  activities...........................       625,853          180,110         573,559          185,912          467,163 
                                        -------------    -------------   -------------    -------------    ------------- 
INVESTING ACTIVITIES                                                                                                     
  Insured student loans purchased......    (1,676,610)      (2,266,227)     (8,370,836)      (9,379,663)      (7,955,655)
  Reduction of insured student loans                                                                                     
    purchased:                                                                                                           
    Installment payments...............       579,671          939,529       3,094,937        3,452,985        3,220,233 
    Claims and resales.................       313,040          282,295       1,277,400        1,161,163        1,142,350 
    Proceeds from securitization of                                                                                      
      student loans....................     2,049,200        1,500,000       6,026,780        1,000,000                - 
  Participations purchased.............      (412,997)               -      (1,498,868)               -                - 
  Participation repayments.............        53,939                -          53,272                -                - 
  Warehousing advances made............      (139,137)        (460,436)     (1,391,590)      (2,250,077)      (3,377,494)
  Warehousing advance repayments.......       395,374          987,333       2,467,198        5,416,890        3,379,484 
  Academic facilities financings                                                                                         
    made...............................       (14,393)         (82,274)       (465,596)        (122,813)        (292,966)
  Academic facilities financings                                                                                         
    reductions.........................        72,346           24,067         302,557          379,283          103,314 
  Investments purchased................    (4,352,859)      (5,466,319)    (15,966,490)     (43,716,393)     (87,312,581)
  Proceeds from sale or maturity of                                                                                      
    investments........................     4,107,441        6,340,675      16,113,659       46,627,289       86,495,100 
                                        -------------    -------------   -------------    -------------    ------------- 
Net cash provided by (used in)                                                                                           
  investing activities.................       975,015        1,798,643       1,642,423        2,568,664       (4,598,215)
                                        -------------    -------------   -------------    -------------    ------------- 
FINANCING ACTIVITIES                                                                                                     
  Short-term borrowings issued.........   192,424,478       45,686,192     267,164,206      163,805,115      118,724,135 
  Short-term borrowings repaid.........  (190,450,863)     (47,089,055)   (262,491,657)    (166,764,320)    (113,946,559)
  Long-term notes issued...............     1,348,531        3,603,668       8,304,988       12,350,217       16,317,375 
  Long-term notes repaid...............    (4,979,555)      (4,007,587)    (15,744,378)     (12,196,436)     (15,303,842)
  Common stock issued..................        23,027           14,829          30,428           13,362              579 
  Common stock repurchased.............      (135,601)        (120,278)       (359,914)        (860,172)        (388,105)
  Dividends paid.......................       (26,124)         (25,595)       (101,688)        (110,944)        (123,640)
                                        -------------    -------------   -------------    -------------    ------------- 
Net cash provided by (used in)                                                                                           
  financing activities.................    (1,796,107)      (1,937,826)     (3,198,015)      (3,763,178)       5,279,943 
                                        -------------    -------------   -------------    -------------    ------------- 
Net increase (decrease) in cash and                                                                                      
  cash equivalents.....................      (195,239)          40,927        (982,033)      (1,008,602)       1,148,891 
Cash and cash equivalents at beginning                                                                                   
  of period............................       270,887        1,252,920       1,252,920        2,261,522        1,112,631 
                                        -------------    -------------   -------------    -------------    ------------- 
CASH AND CASH EQUIVALENTS AT END OF                                                                                      
  PERIOD............................... $      75,648    $   1,293,847   $     270,887    $   1,252,920    $   2,261,522 
                                        =============    =============   =============    =============    ============= 

See accompanying notes to consolidated financial statements.

F-10

POS AM
123rd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 123rd

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1.  ORGANIZATION AND PRIVATIZATION                                              

 The Student Loan Marketing Association ("Sallie Mae" or the "GSE") is a
stockholder-owned corporation chartered by Congress to provide liquidity for    
originators of student loans made under federally sponsored student loan        
programs and otherwise to support the credit needs of students and educational  
institutions. The GSE charter is subject to legislative change from time to     
time. Sallie Mae is predominantly engaged in the purchase of student loans      
insured under federally sponsored programs. Sallie Mae also makes secured loans 
(warehousing advances) to providers of education credit, and provides financing 
to educational institutions for their physical plant and equipment (academic    
facilities financings).                                                         

Privatization                                                               

On September 30, 1996, the Student Loan Marketing Association         
Reorganization Act of 1996 (the "Privatization Act") was enacted. The           
Privatization Act authorized the creation of a state-chartered holding company  
(the "Holding Company") that can pursue new business opportunities beyond the   
limited scope of the GSE's restrictive federal charter. The Holding Company     
would become the parent of the GSE pursuant to a reorganization ("the           
Reorganization") which must be approved by a majority vote of the GSE's         
shareholders, such vote to take place on or before March 31, 1998.              

On May 15, 1997, Sallie Mae convened a special shareholders meeting   
pursuant to a combined Proxy Statement/Prospectus registered with the Securities
and Exchange Commission to approve a privatization plan and a slate of directors
for the new Holding Company. The solicitation was opposed by eight members of   
Sallie Mae's Board of Directors who are members of the Committee to Restore     
Value ("CRV") and who obtained shareholder support for a separate shareholders  
meeting that was held on May 9, 1997. Neither Sallie Mae management nor the CRV 
were successful in obtaining the necessary majority approval for adoption of    
their respective privatization plans. On May 27, 1997, the Company and the CRV  
announced that they had agreed to jointly hold a new special meeting at which   
shareholders will vote on a single plan of privatization and reorganization. At 
the special meeting, shareholders also will select for election to the Holding  
Company board of directors either a slate of nominees proposed by a majority of 
the Sallie Mae Board or a slate of nominees proposed by the CRV. The new special
meeting will be held approximately 20 days following the mailing of proxy       
materials to shareholders.                                                      

The Privatization Act imposes certain restrictions on intercompany    
relations between Sallie Mae and its affiliates during the wind-down period. In 
particular, Sallie Mae must not extend credit to, nor guarantee any debt        
obligations, of the Holding Company or the Holding Company's non-GSE            
subsidiaries. Furthermore, the Privatization Act mandates that transactions     
between Sallie Mae and the Holding Company, including any loan servicing        
arrangements, shall be on terms no less favorable to Sallie Mae than Sallie Mae 
could obtain from an unrelated third party. While Sallie Mae may not finance the
activities of its non-GSE affiliates, it may, subject to its minimum capital    
requirements, dividend retained earnings and surplus capital to the Holding     
Company, which in turn may use such amounts to support its non-GSE subsidiaries.
The Sallie Mae charter requires that Sallie Mae maintain a minimum capital ratio
of at least 2.0 percent until 2000 and 2.25 percent thereafter. The             
Privatization Act further directs that under no circumstances shall the assets  
of Sallie Mae be available or used to pay claims or debts of, or incurred by,   
the Holding Company.                                                            

   During the wind-down period following the Reorganization and prior to the
GSE's dissolution, the GSE will be restricted in the new business activities it 
may undertake. Sallie Mae may continue to purchase student loans only through   
September 30, 2007. Warehousing advances, letters of credit and standby bond    
purchase activity by the GSE will be limited to takedowns on contractual        
financing and guarantee commitments in place as of the Reorganization's         
effective date. The Holding Company generally may begin to purchase             

F-11

POS AM
124th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 124th

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1.  ORGANIZATION AND PRIVATIZATION -- (CONTINUED)                               
student loans only after the GSE discontinues such activity. Sallie Mae's GSE   
debt obligations that are outstanding at the time of Reorganization will        
continue to be outstanding obligations of the GSE immediately after the         
Reorganization. Sallie Mae will be able to continue to issue debt in the        
government agency market to finance student loans and other permissible asset   
acquisitions, although the maturity date of such issuances generally may not    
extend beyond September 30, 2008, Sallie Mae's final dissolution date. At March 
31, 1997 and December 31, 1996, Sallie Mae had $376 million and $372 million,   
respectively, in carrying value of outstanding debt with maturities after       
September 30, 2008. Such debt will be transferred into a defeasance trust on the
final dissolution date.                                                         

  The Privatization Act requires that within 60 days after the merger, the
Holding Company must pay $5 million to the D.C. Financial Control Board for use 
of the "Sallie Mae" name. In addition, the Holding Company must issue to the    
D.C. Financial Control Board warrants to purchase 555,015 shares of Holding     
Company Common Stock. These warrants, which are transferable, are exercisable at
any time prior to September 30, 2008 at $72.43 per share. These provisions of   
the Privatization Act were part of the terms negotiated with the Administration 
and Congress as consideration for the GSE's privatization.                      

   Beginning in fiscal 1997, and until the GSE is dissolved, Sallie Mae also
must reimburse the U.S. Treasury Department up to $800,000 annually (subject to 
adjustment based on the Consumer Price Index) for its reasonable costs and      
expenses of carrying out its supervisory duties under the Privatization Act.    

   The transfer of subsidiaries and assets of the GSE to the Holding Company
and the related exchange of common stock between the GSE and the Holding Company
will be accounted for at historical cost similar to a pooling of interests.     
Operations performed outside the GSE after the Reorganization will be subject to
state and local taxes.                                                          

     If the Privatization is not approved by shareholders certain charter sunset
provisions of the Privatization Act become applicable and will result in the    
dissolution of the GSE by July 1, 2013.                                         

2.  SIGNIFICANT ACCOUNTING POLICIES                                             

Loans                                                                       

Loans, consisting of insured student loans purchased (student loans), 
student loan participations, warehousing advances, and academic facilities      
financings are carried at their unpaid principal balances which, for student    
loans, are adjusted for unamortized premiums and unearned purchase discounts.   

Student Loan Income                                                         

    Sallie Mae recognizes student loan income as earned, including adjustments
for the amortization of premiums and accretion of discounts. Interest income    
earned on student loan participations is recognized in accordance with the terms
of the joint venture agreement with The Chase Manhattan Bank which effectively  
reflects the underlying interest income earned on the student loans less        
servicing costs and the general and administrative expenses of the joint        
venture.                                                                        

Restatement of Previously Issued Financial Statements                       

   Student loan servicing costs are generally incurred in a fixed amount per
borrower and thus increase in proportion to principal balances outstanding as   
loans are repaid. Prior to 1995, to achieve a level yield to maturity, interest 
income was deferred during the early years of the loans, then recognized during 
the later                                                                       

F-12

POS AM
125th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 125th

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

2.  SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)                              
years to offset the aforementioned proportional servicing cost increases.       
Changes in the estimates of future loan servicing costs were reflected in       
student loan income over the estimated remaining terms of the loans. In the     
fourth quarter of 1995, Sallie Mae discontinued its accounting method of        
deferring income on student loans which resulted in an increase in 1995 net     
income and income before premiums on debt extinguished of $21 million ($.30 per 
common share).                                                                  

   After discussions with the Securities and Exchange Commission, management
determined that the Company's method for recognizing student loan income as     
discussed in the second preceding paragraph should be used for all periods      
presented. Accordingly, the previously reported financial statements for the    
years ended December 31, 1995 and 1994 have been restated. For 1995, the        
cumulative effect of the change in accounting method of $130 million ($1.93 per 
common share) has been eliminated, thereby, decreasing net income and increasing
the beginning balance of retained earnings by $130 million. For 1994, net income
and income before premiums on debt extinguished increased by $17 million ($.22  
per common share) and the beginning balance of retained earnings increased by   
$113 million.                                                                   

Securitizations                                                             

During 1997, the Company adopted the requirements of FAS No. 125,     
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments 
of Liabilities," which establishes the accounting for certain financial asset   
transfers including securitization transactions. The effect of implementing this
standard was not material on the Company's financial statements. Management also
believes that this standard will not have a material effect on the financial    
statements in the future.                                                       

 The Company securitizes student loans by selling selected portfolios of
such loans to trusts. Upon the sale of the loans to the Trusts, Sallie Mae      
continues to carry the retained interests in those loans on its Balance Sheet. A
gain is recorded on a present value basis which takes into account principal,   
interest and special allowance receipts on the student loans less principal and 
interest payments on the notes and certificates financing the student loans, a  
normal servicing fee, borrower benefit programs, losses from defaulted student  
loans (which includes risk-sharing, claim interest penalties and reject costs), 
transaction costs, offset fees and the current carrying value of the loans      
including any premiums paid.                                                    

In addition to the initial gain on sale, Sallie Mae is entitled to the
residual cash flows from the trust. After the loans are sold to trusts, Sallie  
Mae continues to service them for a fee. These amounts are reflected as         
servicing and securitization revenues in the Consolidated Statements of Income. 

Student Loan Loss Reserves                                                  

 Sallie Mae has established reserves for potential losses on its student
loan portfolio that can result from defective servicing, risk-sharing on claim  
payments and on privately insured loans. The reserve is based on periodic       
evaluations of its loan portfolios considering past experience, changes to      
federally funded programs, current economic conditions and other relevant       
factors. The reserve is maintained at a level that management believes is       
adequate to absorb estimated potential credit losses. This evaluation is        
inherently subjective as it requires material estimates that may be susceptible 
to significant changes.                                                         

Cash and Cash Equivalents                                                   

 Cash and cash equivalents excludes term federal funds and bank deposits
with terms to maturity exceeding three months.                                  

F-13

POS AM
126th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 126th

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

2.  SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)                              
Investments                                                                 

Investments are held to provide liquidity, to hedge certain financing 
activities and to serve as a source of short-term income. Investments are       
segregated into three categories as required under Statement of Financial       
Accounting Standards ("FAS") No. 115. Securities that are actively traded are   
accounted for at fair market value with unrealized gains and losses included in 
investment income. Securities that are intended to be held to maturity are      
accounted for at amortized cost. Securities that fall outside of the two        
previous categories are considered as available-for-sale. Such securities are   
carried at market value, with the after-tax unrealized gain or loss, along with 
after-tax unrealized gain or loss on instruments which hedge such securities,   
carried as a separate component of equity. The amortized cost of debt securities
in this category is adjusted for amortization of premiums and accretion of      
discounts.                                                                      

Interest Expense                                                            

    Interest expense is based upon contractual interest rates adjusted for net
payments under derivative financial instruments with off-balance sheet risks,   
which include interest rate and foreign currency exchange agreements and the    
amortization of debt issuance costs and deferred gains and losses on hedge      
transactions entered into to reduce interest rate risk.                         

Interest Rate Swaps                                                         

     Sallie Mae utilizes interest rate swap agreements ("swaps") principally for
hedging purposes to alter the interest rate characteristics of its debt in order
to manage interest rates. This enables Sallie Mae to match the interest rate    
characteristics of borrowings to specific assets in order to lock-in spreads.   
Sallie Mae does not hold or issue interest rate swap agreements for trading     
purposes.                                                                       

  Amounts paid or received under swaps that are used to alter the interest
rate characteristics of its interest-sensitive liabilities are accrued and      
recognized as an adjustment of the interest expense on the related borrowing.   
The related net receivable or payable from counterparties is included in other  
assets or other liabilities. Gains and losses associated with the termination of
swaps for designated positions are deferred and amortized over the remaining    
life of the designated instrument as an adjustment to interest expense.         

    Sallie Mae's credit exposure on swaps is limited to the value of the swaps
that have become favorable to the Company in the event of nonperformance by the 
counterparties. Sallie Mae manages the credit risk associated with these        
instruments by performing credit reviews of counterparties and monitoring market
conditions to establish counterparty, sovereign and instrument-type credit lines
and, when appropriate, requiring collateral.                                    

Foreign Currency Derivatives                                                

 Sallie Mae enters into various foreign currency swaps, forward currency
exchange agreements and options on forward currency exchange agreements to hedge
its foreign currency linked debt agreements. These contracts mature concurrently
with the maturities of the debt and are subject to the same credit standards as 
interest rate swaps. Foreign currency derivatives and the related foreign       
currency borrowings are translated at the market rates of exchange as of the    
balance sheet date. Gains and losses on foreign currency transactions that are  
designated hedges are deferred and included in the basis of the designated      
instrument.                                                                     

F-14

POS AM
127th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 127th

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

2.  SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)                              
Federal Income Taxes                                                        

Deferred income taxes reflect the net effect of temporary differences 
between the carrying amounts of assets and liabilities for financial reporting  
purposes and the amounts used for income tax purposes.                          

Earnings per Common Share                                                   

     Earnings per common share are computed using the weighted average of common
and common equivalent shares outstanding for the period. Common equivalent      
shares include shares issuable upon exercise of incentive stock options.        

Consolidation                                                               

  The consolidated financial statements include the accounts of Sallie Mae
and its subsidiaries, after eliminating significant intercompany accounts and   
transactions.                                                                   

Reclassification                                                            

     Certain prior year amounts in the Consolidated Statements of Income for the
three months ended March 31, 1996 and for the years ended December 31, 1995 and 
1994 have been reclassified to conform with the 1996 year-end presentation.     

Basis of Presentation                                                       

     The accompanying unaudited consolidated financial statements of the Company
have been prepared in accordance with generally accepted accounting principles  
for interim financial information and with the instructions to Form 10-Q and    
Article 10 of Regulation S-X. Accordingly, they do not include all of the       
information and footnotes required by generally accepted accounting principles  
for complete consolidated financial statements. In the opinion of management,   
all adjustments (consisting of normal recurring accruals) considered necessary  
for a fair presentation have been included. The preparation of financial        
statements in conformity with generally accepted accounting principles requires 
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ    
from those estimates. Operating results for the three months ended March 31,    
1997 are not necessarily indicative of the results for the year ending December 
31, 1997.                                                                       

Use of Estimates                                                            

The preparation of financial statements in conformity with generally  
accepted accounting principles requires management to make estimates and        
assumptions that affect the reported amounts of assets and liabilities, reported
amounts of revenues and expenses and other disclosures. Actual results could    
differ from those estimates.                                                    

Recently Issued Accounting Pronouncements                                   

     In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("FAS") No. 128, "Earnings Per Share," which  
is required to be adopted on December 15, 1997. At that time, the Company will  
be required to change the method used to compute earnings per share and to      
restate all prior periods. Under the new requirements for calculating primary   
earnings per share, the dilutive effect of stock options will be excluded. The  
adoption is expected to have no material impact on Sallie Mae's reported        
earnings per share.                                                             

F-15

POS AM
128th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 128th

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

3.  STUDENT LOANS                                                               

     Sallie Mae purchases student loans from originating lenders, typically just
before the student leaves school and is required to begin repayment of the loan.
Sallie Mae'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"). Sallie Mae 
also purchases privately insured loans from time to time, principally those     
insured by a wholly-owned subsidiary.                                           

  There are four principal categories of FFELP loans: Stafford loans, PLUS
loans, SLS loans and consolidation loans. Generally, these loans have repayment 
periods of between five and ten years, with the exception of consolidation      
loans, and obligate the borrower to pay interest at a stated fixed rate or an   
annually reset variable rate that has a cap. However, the yield to holders is   
subsidized on the borrowers' behalf by the federal government to provide a      
market rate of return. The formula through which the subsidy is determined is   
referred to as the special allowance formula. Special allowance is paid whenever
the average of all of the 91-day Treasury bill auctions in a calendar quarter,  
plus a spread of between 2.50 and 3.50 percentage points depending on the loan  
status and when it was originated, exceeds the rate of interest which the       
borrower is obligated to pay.                                                   

    In low interest rate environments the rate which the borrower is obligated
to pay may exceed the rate determined by the special allowance formula. In those
instances the rate paid by the borrower becomes a floor on an otherwise variable
rate asset. In 1996, Sallie Mae entered into contracts with third parties under 
which it agreed to pay the future floor revenues received on student loans with 
a principal balance of $13 billion in exchange for upfront payments of $128     
million. The upfront payments, which are recorded in other liabilities are being
amortized over the average remaining life of these contracts, which is          
approximately 2 years. For the three months ended March 31, 1997 and 1996 and   
for the year ended December 31, 1996, the amortization of the upfront payments  
increased student loan income by $11 million, $2 million, and $23 million,      
respectively. For the three months ended March 31, 1997 and 1996 and for the    
year ended December 31, 1996, payments under the contracts totaled $5 million,  
$1 million, and $12 million, respectively.                                      

   The Omnibus Budget Reconciliation Act of 1993 ("OBRA"), enacted on August
10, 1993, made significant changes to the student loan delivery system and      
created a program of direct lending to students by the federal government. The  
direct lending program replaced approximately 7 percent of the FFELP            
originations in the 1994-1995 academic year and under OBRA this is scheduled to 
increase up to 60 percent in the 1998-1999 academic year. Management believes   
these changes to the student loan delivery system along with direct lending,    
which reduce the pool of loans originated by the bank-based FFELP, will have an 
increasing material adverse effect on Sallie Mae's long-term earning prospects  
as a higher percentage of loans subject to OBRA will be available to Sallie Mae 
and the full effects of direct lending originations are factored in. OBRA also  
required Sallie Mae to pay an annual 30 basis point "offset fee" on FFELP       
student loans purchased and held on or after August 10, 1993.                   

F-16

POS AM
129th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 129th

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

3.  STUDENT LOANS -- (CONTINUED)                                                
   The estimated average remaining term of purchased student loans in Sallie
Mae's portfolio was approximately 6.0 years at both March 31, 1997 and December 
31, 1996. The following table reflects the distribution of Sallie Mae's loan    
portfolio by program.                                                           

                                                        [Enlarge/Download Table]

                                                                   DECEMBER 31,       
                                                MARCH 31,   --------------------------
                                                  1997         1996           1995    
                                               -----------  -----------    -----------
                                                                                      
FFELP -- Stafford............................. $15,778,384  $17,292,273    $20,210,325
FFELP -- PLUS/SLS.............................   3,455,456    3,580,803      4,514,976
FFELP -- Consolidation loans..................   8,003,416    7,658,035      5,960,091
HEAL..........................................   2,736,874    2,758,860      2,764,244
Privately insured.............................   1,068,499    1,017,959        886,575
                                               -----------  -----------    -----------
Student loans purchased.......................  31,042,629   32,307,930     34,336,211
Participations................................   1,804,654    1,445,596              -
                                               -----------  -----------    -----------
Total student loans........................... $32,847,283  $33,753,526    $34,336,211
                                                ==========   ==========     ==========

As of March 31, 1997 and December 31, 1996, 83 percent and 84 percent,
respectively, of Sallie Mae's on-balance sheet student loan portfolio was in    
repayment.                                                                      

   Holders of FFELP loans are insured against the borrower's default, death,
disability, or bankruptcy. Insurance on FFELP loans is provided by certain state
or non-profit guarantee agencies, which are reinsured by the federal government.
FFELP loans originated after October 1, 1993, of which Sallie Mae owned $14.9   
billion at March 31, 1997 and $13.6 billion at December 31, 1996, are insured   
for 98 percent of their unpaid balance resulting in 2 percent risk-sharing for  
holders of these loans. HEAL loans are directly insured by the federal          
government. Both FFELP and HEAL loans are subject to regulatory requirements    
relating to servicing. In the event of default on a student loan or the         
borrower's death, disability, or bankruptcy, Sallie Mae files a claim with the  
insurer or guarantor of the loan, who, provided the loan has been properly      
originated and serviced, and in the case of HEAL, litigated, pays Sallie Mae the
unpaid principal balance and accrued interest on the loan less risk-sharing,    
where applicable.                                                               

 Claims not immediately honored by the guarantor because of servicing or
origination defects are returned for remedial servicing, during which period    
income is not recognized. On certain paid claims, guarantors assess a penalty   
for minor servicing defects. Costs associated with claims on defaulted student  
loans, which include such penalties and reduced interest income on student loans
by $2.5 million, $3.6 million, $12.8 million, $15.8 million, and $16.8 million  
for the three months ended March 31, 1997 and 1996 and for the years ended      
December 31, 1996, 1995 and 1994, respectively.                                 

F-17

POS AM
130th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 130th

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

3.  STUDENT LOANS -- (CONTINUED)                                                
  The following table summarizes the reserves that Sallie Mae has recorded
for estimated losses due to risk-sharing, unpaid guarantee claims and defaults  
on privately insured loans.                                                     

                                                        [Enlarge/Download Table]

                                THREE MONTHS ENDED                                      
                                     MARCH 31,            YEARS ENDED DECEMBER 31,      
                                -------------------   --------------------------------- 
                                 1997        1996       1996         1995        1994   
                                -------     -------   --------     --------     ------- 
                                                                                        
BALANCE AT BEGINNING OF                                                                 
  PERIOD....................... $84,063     $60,337   $ 60,337     $ 64,928     $66,814 
Additions                                                                               
  Provisions for loan losses...   5,818       4,292     29,749          800         202 
  Recoveries...................   3,093       1,700      7,235        6,096       5,998 
Deductions                                                                              
  Losses on loans..............  (5,596)     (4,495)   (13,258)     (11,487)     (8,086)
                                -------     -------   --------     --------     ------- 
BALANCE AT END OF PERIOD....... $87,378     $61,834   $ 84,063     $ 60,337     $64,928 
                                =======     =======   ========     ========     ======= 

4.  WAREHOUSING ADVANCES                                                        

    Warehousing advances are secured loans made, generally, to finance student
loans and other education-related loans at certain financial and educational    
institutions and public sector agencies. Such advances are collateralized by    
student loans, obligations of the United States government or instrumentalities 
thereof, or by other collateral, such as residential first mortgages and        
mortgage-backed securities. As of March 31, 1997, approximately 97 percent were 
collateralized by student loans, 2 percent by U.S. government securities and 1  
percent by other collateral. As of December 31, 1996, approximately 97 percent  
were collateralized by student loans, 1 percent by U.S. government securities   
and 2 percent by other collateral. A summary of warehousing advances by industry
concentration follows:                                                          

                                                        [Enlarge/Download Table]

                                                                    DECEMBER 31,      
                                                  MARCH 31,   ------------------------
                                                     1997        1996          1995   
                                                  ----------  ----------    ----------
                                                                                      
Commercial banks................................. $1,249,480  $1,547,193    $2,612,125
Public sector agencies...........................  1,165,601   1,126,095       985,182
Educational institutions.........................    118,167     116,197       167,786
Thrift institutions..............................          -           -       100,000
                                                  ----------  ----------    ----------
                                                  $2,533,248  $2,789,485    $3,865,093
                                                   =========   =========     =========

   Warehousing advances have specific maturities and generally bear rates of
interest which vary with the 91-day Treasury bill rate, or the London Interbank 
Offered Rate ("LIBOR"), or which are fixed for the term of the advance. A       
summary of warehousing advance interest rate characteristics follows:           

                                                        [Enlarge/Download Table]

                                                                    DECEMBER 31,      
                                                  MARCH 31,   ------------------------
                                                     1997        1996          1995   
                                                  ----------  ----------    ----------
                                                                                      
Variable rate:                                                                        
  Treasury bill.................................. $1,815,939  $1,723,588    $2,138,929
  LIBOR..........................................    697,890   1,046,086     1,623,028
Fixed rate.......................................     19,419      19,811       103,136
                                                  ----------  ----------    ----------
                                                  $2,533,248  $2,789,485    $3,865,093
                                                   =========   =========     =========

F-18

POS AM
131st Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 131st

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

4.  WAREHOUSING ADVANCES -- (CONTINUED)                                         
The average remaining term to maturity of warehousing advances was 1.5
years as of March 31, 1997 and 1.0 year as of December 31, 1996.                

  The following table summarizes the maturities of warehousing advances at
March 31, 1997 and December 31, 1996.                                           

                                                        [Enlarge/Download Table]

                   YEAR OF MATURITY                      MARCH 31, 1997  DECEMBER 31, 1996
-------------------------------------------------------  --------------  -----------------
                                                                                          
1997...................................................    $  885,234       $ 1,221,148   
1998...................................................     1,232,174         1,232,186   
1999...................................................       180,668           175,391   
2000...................................................       130,862           127,863   
2001...................................................             -                 -   
After 2001.............................................       104,310            32,897   
                                                         ------------    --------------   
                                                           $2,533,248       $ 2,789,485   
                                                          ===========     =============   

5.  ACADEMIC FACILITIES FINANCINGS                                              

   Academic facilities financings are comprised of bonds issued by and loans
to educational institutions to finance their physical plant and equipment.      

At December 31, 1994, academic facilities bonds were classified as    
held-to-maturity securities and carried at amortized cost. In December 1995, as 
a result of the one-time reclassification permitted in connection with the      
issuance of a special report issued by the FASB staff, "A Guide to              
Implementation of Statement 115 on Accounting for Certain Investments in Debt   
and Equity Securities" ("FASB No. 115 Q&A"), academic facilities bonds were     
transferred from held-to-maturity to available-for-sale securities. The academic
facilities bonds transferred had a fair market value of approximately $710      
million with an amortized cost of $690 million.                                 

F-19

POS AM
132nd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 132nd

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

5.  ACADEMIC FACILITIES FINANCINGS -- (CONTINUED)                               
   The following tables summarize the academic facilities bonds at March 31,
1997 and December 31, 1996 and 1995.                                            

                                                        [Enlarge/Download Table]

                                                              MARCH 31, 1997                  
                                             -------------------------------------------------
                                                            GROSS         GROSS               
                                             AMORTIZED    UNREALIZED    UNREALIZED     MARKET 
BONDS -- AVAILABLE-FOR-SALE                    COST         GAINS         LOSSES       VALUE  
                                             ---------    ----------    ----------    --------
                                                                                              
  Fixed..................................... $ 774,565     $ 11,233      $ (2,781)    $783,017
  Variable..................................    83,813            7          (584)      83,236
                                             ---------    ----------    ----------    --------
Total academic facilities bonds............. $ 858,378     $ 11,240      $ (3,365)    $866,253
                                              ========     ========      ========     ========

                                                        [Enlarge/Download Table]

                                                             DECEMBER 31, 1996                
                                             -------------------------------------------------
                                                            GROSS         GROSS               
                                             AMORTIZED    UNREALIZED    UNREALIZED     MARKET 
BONDS -- AVAILABLE-FOR-SALE                    COST         GAINS         LOSSES       VALUE  
                                             ---------    ----------    ----------    --------
                                                                                              
  Fixed..................................... $ 831,711     $ 19,794      $   (978)    $850,527
  Variable..................................    84,401           10          (457)      83,954
                                             ---------    ----------    ----------    --------
Total academic facilities bonds............. $ 916,112     $ 19,804      $ (1,435)    $934,481
                                              ========     ========      ========     ========

                                                        [Enlarge/Download Table]

                                                             DECEMBER 31, 1995                
                                             -------------------------------------------------
                                                            GROSS         GROSS               
                                             AMORTIZED    UNREALIZED    UNREALIZED     MARKET 
BONDS -- AVAILABLE-FOR-SALE                    COST         GAINS         LOSSES       VALUE  
                                             ---------    ----------    ----------    --------
                                                                                              
  Fixed..................................... $ 591,407     $ 23,628      $ (1,692)    $613,343
  Variable..................................    98,394           48        (1,673)      96,769
                                             ---------    ----------    ----------    --------
Total academic facilities bonds............. $ 689,801     $ 23,676      $ (3,365)    $710,112
                                              ========     ========      ========     ========

    The following table summarizes academic facilities loans at March 31, 1997
and at December 31, 1996 and 1995.                                              

                                                        [Enlarge/Download Table]

                                                                       DECEMBER 31,     
                                                       MARCH 31,  ----------------------
LOANS                                                    1997       1996         1995   
                                                       ---------  ---------    ---------
                                                                                        
  Fixed rate.......................................... $ 471,050  $ 474,659    $ 489,913
  Variable rate.......................................    67,581     64,191      112,209
                                                       ---------  ---------    ---------
Total academic facilities loans....................... $ 538,631  $ 538,850    $ 602,122
                                                        ========   ========     ========

F-20

POS AM
133rd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 133rd

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

5.  ACADEMIC FACILITIES FINANCINGS -- (CONTINUED)                               
  The average remaining term to maturity of academic facilities financings
was 8.0 years at both March 31, 1997 and December 31, 1996. The stated          
maturities and maturities if accelerated to the put or call dates for academic  
facilities bonds and loans at March 31, 1997 and December 31, 1996 are shown in 
the following table:                                                            

                                                        [Enlarge/Download Table]

                                   MARCH 31, 1997                    DECEMBER 31, 1996        
                          ---------------------------------  ---------------------------------
                                  BONDS             LOANS            BONDS             LOANS  
                          ---------------------    --------  ---------------------    --------
                                      MATURITY                           MATURITY             
                                         TO                                 TO                
                           STATED      PUT OR       STATED    STATED      PUT OR       STATED 
    YEAR OF MATURITY      MATURITY    CALL DATE    MATURITY  MATURITY    CALL DATE    MATURITY
------------------------  --------    ---------    --------  --------    ---------    --------
                                                                                              
1997....................  $ 34,986    $  81,387    $  9,029  $ 44,078    $  97,657    $  8,325
1998....................    76,975      134,224      11,804    77,409      127,774      14,065
1999....................    43,333       60,039      47,962    43,638       57,366      45,115
2000....................    78,135       98,582      17,294    78,588       98,515      17,368
2001....................    86,526      106,199      22,550    87,197      107,464      22,673
2002-2006...............   439,229      354,549     103,925   486,168      410,945     104,872
after 2006..............   107,069       31,273     326,067   117,403       34,760     326,432
                          --------    ---------    --------  --------    ---------    --------
                          $866,253    $ 866,253    $538,631  $934,481    $ 934,481    $538,850
                          ========    =========    ========  ========    =========    ========

6.  INVESTMENTS                                                                 

    At March 31, 1997 and December 31, 1996 and 1995, all investments with the
exception of other investments are classified as available-for-sale securities  
under FAS No. 115 and carried at fair market values which approximate amortized 
costs, except for U.S. Treasury securities which have an amortized cost of $812 
million. The fair market value of U.S. Treasury securities is adjusted for      
unrealized gains and losses on interest rate swaps, which are held to reduce    
interest rate risk related to these securities ($68.9 million and $19.5 million 
of unrealized gains at March 31, 1997 and December 31, 1996, respectively, and  
$56.6 million of unrealized losses at December 31, 1995). During 1995, as a     
result of the one-time reclassification permitted in connection with the        
issuance of the FASB No. 115 Q&A, asset-backed securities, variable corporate   
bonds, federal funds and bank deposits, student loan revenue bonds and          
commercial paper were transferred from                                          

F-21

POS AM
134th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 134th

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

6.  INVESTMENTS -- (CONTINUED)                                                  
held-to-maturity securities to available-for-sale securities at fair market     
values which approximated amortized cost. A summary of investments at March 31, 
1997 and at December 31, 1996 and 1995 follows:                                 

                                                        [Enlarge/Download Table]

                                                              MARCH 31, 1997                   
                                           ----------------------------------------------------
                                                           GROSS         GROSS                 
                                           AMORTIZED     UNREALIZED    UNREALIZED      MARKET  
                                              COST         GAINS         LOSSES        VALUE   
                                           ----------    ----------    ----------    ----------
                                                                                               
AVAILABLE-FOR-SALE                                                                             
  U.S. Treasury and other U.S. government                                                      
     agencies obligations                                                                      
          U.S. Treasury securities.......  $  812,172      $490,116      $   (29)    $1,302,259
  State and political subdivisions of the                                                      
     United States                                                                             
          Student loan revenue bonds.....     185,231         3,845         (932)       188,144
  Asset-backed and other securities                                                            
          Asset-backed securities........   4,982,587         6,894          (78)     4,989,403
          Variable corporate bonds.......     523,469           451            -        523,920
          Commercial paper...............      31,373             -            -         31,373
          Other securities...............      55,794             -            -         55,794
                                           ----------      --------      -------     ----------
     Total available-for-sale investment                                                       
       securities........................  $6,590,626      $501,306      $(1,039)    $7,090,893
                                           ==========      ========      =======     ==========
HELD-TO-MATURITY                                                                               
  Other..................................  $  571,458      $     64      $  (439)    $  571,083
                                           ==========      ========      =======     ==========

                                                        [Enlarge/Download Table]

                                                            DECEMBER 31, 1996                  
                                           ----------------------------------------------------
                                                           GROSS         GROSS                 
                                           AMORTIZED     UNREALIZED    UNREALIZED      MARKET  
                                              COST         GAINS         LOSSES        VALUE   
                                           ----------    ----------    ----------    ----------
                                                                                               
AVAILABLE-FOR-SALE                                                                             
  U.S. Treasury and other U.S. government                                                      
     agencies obligations                                                                      
          U.S. Treasury securities.......  $  809,164      $508,758      $  (41)     $1,317,881
  State and political subdivisions of the                                                      
     United States                                                                             
          Student loan revenue bonds.....     201,248         5,563        (431)        206,380
  Asset-backed and other securities                                                            
          Asset-backed securities........   4,645,046         4,746        (167)      4,649,625
          Variable corporate bonds.......     634,925           489           -         635,414
          Commercial paper...............      24,395             -           -          24,395
                                           ----------      --------      ------      ----------
     Total available-for-sale investment                                                       
       securities........................  $6,314,778      $519,556      $ (639)     $6,833,695
                                           ==========      ========      ======      ==========
HELD-TO-MATURITY                                                                               
  Other..................................  $  601,887      $    125      $ (267)     $  601,745
                                           ==========      ========      ======      ==========

F-22

POS AM
135th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 135th

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

6.  INVESTMENTS -- (CONTINUED)                                                  

                                                        [Enlarge/Download Table]

                                                            DECEMBER 31, 1995                  
                                           ----------------------------------------------------
                                                           GROSS         GROSS                 
                                           AMORTIZED     UNREALIZED    UNREALIZED      MARKET  
                                              COST         GAINS         LOSSES        VALUE   
                                           ----------    ----------    ----------    ----------
                                                                                               
AVAILABLE-FOR-SALE                                                                             
  U.S. Treasury and other U.S. government                                                      
     agencies obligations                                                                      
          U.S. Treasury securities.......  $  728,584      $596,577      $(56,661)   $1,268,500
  State and political subdivisions of the                                                      
     United States                                                                             
          Student loan revenue bonds.....     271,514         9,152            (4)      280,662
  Asset-backed and other securities                                                            
          Asset-backed securities........   4,305,127         1,180          (334)    4,305,973
          Variable corporate bonds.......     611,344           312            (2)      611,654
          Commercial paper...............     121,410             -             -       121,410
          Federal funds and bank                                                               
            deposits.....................     400,000             -             -       400,000
                                           ----------      --------      --------    ----------
     Total available-for-sale investment                                                       
       securities........................  $6,437,979      $607,221      $(57,001)   $6,988,199
                                           ==========      ========      ========    ==========
HELD-TO-MATURITY                                                                               
  Other..................................  $  625,856      $    928      $    (97)   $  626,687
                                           ==========      ========      ========    ==========

     Sallie Mae sold available-for-sale securities with a carrying value of $749
million, $1.8 billion, $4.6 billion and $6.6 billion for the three months ended 
March 31, 1997 and 1996 and for the years ended December 31, 1996 and 1995,     
respectively. There were no sales of available-for-sale securities in 1994.     

As of March 31, 1997 and December 31, 1996, stated maturities and     
maturities if accelerated to the put or call dates for investments are shown in 
the following table:                                                            

                                                        [Enlarge/Download Table]

                               MARCH 31, 1997                        DECEMBER 31, 1996          
                    -------------------------------------  -------------------------------------
                    HELD-TO-       AVAILABLE-FOR-SALE      HELD-TO-       AVAILABLE-FOR-SALE    
                    MATURITY    -------------------------  MATURITY    -------------------------
                    --------                  MATURITY TO  --------                  MATURITY TO
                     STATED       STATED        PUT OR      STATED       STATED        PUT OR   
 YEAR OF MATURITY   MATURITY     MATURITY      CALL DATE   MATURITY     MATURITY      CALL DATE 
------------------  --------    ----------    -----------  --------    ----------    -----------
                                                                                                
1997..............  $ 74,797    $  184,859    $   285,825  $106,823    $  216,807    $   275,955
1998..............    13,155       277,852        228,210    12,493       278,153        278,528
1999..............     9,896       470,474        429,491     9,229       532,975        488,182
2000..............   103,462       310,969        320,994   102,879       142,401        150,981
2001..............     5,273     1,003,355      1,018,084     4,721     1,059,148      1,073,776
2002-2006.........    45,036     2,454,874      2,437,918    46,058     2,534,058      2,514,787
After 2006........   319,839     2,388,510      2,370,371   319,684     2,070,153      2,051,486
                    --------    ----------    -----------  --------    ----------    -----------
                    $571,458    $7,090,893    $ 7,090,893  $601,887    $6,833,695    $ 6,833,695
                    ========    ==========    ===========  ========    ==========    ===========

F-23

POS AM
136th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 136th

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

7.  SHORT-TERM BORROWINGS                                                       

     Short-term borrowings have an original or remaining term to maturity of one
year or less. The following tables summarize outstanding short-term notes at    
March 31, 1997, and December 31, 1996, 1995 and 1994, the weighted average      
interest rates at the end of each period, and the related average balances,     
weighted average interest rates and weighted average effective interest rates,  
which include the effects of related off-balance sheet financial instruments    
(see Note 10) during the periods.                                               

                                                        [Enlarge/Download Table]

                                                                  THREE MONTHS ENDED MARCH 31, 1997 
                                            AT MARCH 31, 1997     --------------------------------- 
                                          ----------------------                           WEIGHTED 
                                                        WEIGHTED                WEIGHTED   AVERAGE  
                                                        AVERAGE                 AVERAGE    EFFECTIVE
                                            ENDING      INTEREST    AVERAGE     INTEREST   INTEREST 
                                            BALANCE       RATE      BALANCE       RATE       RATE   
                                          -----------   --------  -----------   --------   -------- 
                                                                                                    
Six month floating rate notes...........  $ 3,099,428     5.37%   $ 2,986,097     5.35%      5.46%  
Other floating rate notes...............    2,380,596     5.41      2,186,023     5.39       5.43   
Discount notes..........................    2,242,575     6.40      5,858,466     5.28       5.33   
Fixed rate notes........................    5,120,889     5.91      4,466,944     6.03       5.52   
Securities sold -- not yet purchased and                                                            
  repurchase agreements.................            -        -        329,092     5.27       5.27   
Short-term portion of long-term notes...   10,160,109     5.60     10,525,909     5.67       5.50   
                                          -----------     ----    -----------     ----       ----   
Total short-term notes..................  $23,003,597     5.70%   $26,352,531     5.58%      5.45%  
                                          ===========     ====    ===========     ====       ====   

Maximum outstanding at any month end....  $27,678,979                                               
                                          ===========                                               

                                                        [Enlarge/Download Table]

                                                                    YEAR ENDED DECEMBER 31, 1996    
                                           AT DECEMBER 31, 1996   --------------------------------- 
                                          ----------------------                           WEIGHTED 
                                                        WEIGHTED                WEIGHTED   AVERAGE  
                                                        AVERAGE                 AVERAGE    EFFECTIVE
                                            ENDING      INTEREST    AVERAGE     INTEREST   INTEREST 
                                            BALANCE       RATE      BALANCE       RATE       RATE   
                                          -----------   --------  -----------   --------   -------- 
                                                                                                    
Six month floating rate notes...........  $ 2,699,477     5.23%   $ 2,485,322     5.32%      5.42%  
Other floating rate notes...............    1,827,643     5.28      1,960,926     5.47       5.39   
Discount notes..........................    2,377,976     6.43      3,072,019     5.31       5.36   
Fixed rate notes........................    3,964,777     6.01      1,211,197     6.07       5.53   
Securities sold -- not yet purchased and                                                            
  repurchase agreements.................            -        -        165,792     4.93       4.93   
Short-term portion of long-term notes...   11,286,675     5.55     11,956,008     5.75       5.45   
                                          -----------     ----    -----------     ----       ----   
Total short-term notes..................  $22,156,548     5.67%   $20,851,264     5.62%      5.43%  
                                          ===========     ====    ===========     ====       ====   
Maximum outstanding at any month end....  $25,051,644                                               
                                          ===========                                               

F-24

POS AM
137th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 137th

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

7.  SHORT-TERM BORROWINGS -- (CONTINUED)                                        

                                                        [Enlarge/Download Table]

                                           AT DECEMBER 31, 1995     YEAR ENDED DECEMBER 31, 1995    
                                          ----------------------  --------------------------------- 
                                                                                           WEIGHTED 
                                                        WEIGHTED                WEIGHTED   AVERAGE  
                                                        AVERAGE                 AVERAGE    EFFECTIVE
                                            ENDING      INTEREST    AVERAGE     INTEREST   INTEREST 
                                            BALANCE       RATE      BALANCE       RATE       RATE   
                                          -----------   --------  -----------   --------   -------- 
                                                                                                    
Six month floating rate notes...........  $ 2,699,595     5.64%   $ 3,608,930     5.78%      5.86%  
Other floating rate notes...............    1,942,360     5.82      1,221,480     5.60       5.78   
Discount notes..........................    1,074,257     5.58      1,427,363     5.81       5.86   
Fixed rate notes........................      350,000     6.97        903,670     7.99       5.82   
Securities sold -- not yet purchased and                                                            
  repurchase agreements.................      131,112     6.38        311,797     6.10       6.10   
Short-term portion of long-term notes...   11,249,676     5.79      7,937,658     5.83       5.90   
                                          -----------     ----    -----------     ----       ----   
Total short-term notes..................  $17,447,000     5.79%   $15,410,898     5.93%      5.88%  
                                          ===========     ====    ===========     ====       ====   
Maximum outstanding at any month end....  $18,046,974                                               
                                          ===========                                               

                                                        [Enlarge/Download Table]

                                           AT DECEMBER 31, 1994     YEAR ENDED DECEMBER 31, 1994    
                                          ----------------------  --------------------------------- 
                                                                                           WEIGHTED 
                                                        WEIGHTED                WEIGHTED   AVERAGE  
                                                        AVERAGE                 AVERAGE    EFFECTIVE
                                            ENDING      INTEREST    AVERAGE     INTEREST   INTEREST 
                                            BALANCE       RATE      BALANCE       RATE       RATE   
                                          -----------   --------  -----------   --------   -------- 
                                                                                                    
Six month floating rate notes...........  $ 3,849,125     5.39%   $ 3,410,090     4.40%      4.52%  
Other floating rate notes...............      811,550     5.75        596,894     3.96       4.43   
Discount notes..........................    2,696,122     5.89      3,244,158     4.28       4.45   
Fixed rate notes........................    1,397,717     9.04        836,816     9.27       4.95   
Securities sold -- not yet purchased and                                                            
  repurchase agreements.................      402,015     6.29        245,169     5.36       5.36   
Short-term portion of long-term notes...    6,859,065     5.90      8,243,360     5.75       4.35   
                                          -----------     ----    -----------     ----       ----   
Total short-term notes..................  $16,015,594     6.05%   $16,576,487     5.29%      4.45%  
                                          ===========     ====    ===========     ====       ====   
Maximum outstanding at any month end....  $19,030,670                                               
                                          ===========                                               

 At both March 31, 1997 and December 31, 1996, the short-term portion of
long-term notes included issues totaling $80 million repayable in U.S. dollars, 
with principal repayment obligations tied to foreign currency exchange rates. At
March 31, 1997 and December 31, 1996, the short-term portion of long-term notes 
also included issues totaling $774 million and $771 million, respectively which 
require the payment of interest and principal in foreign currencies. To         
eliminate its exposure to the effect of currency fluctuations on these          
contractual obligations, Sallie Mae has entered into various foreign currency   
agreements with independent parties (see Note 10).                              

 To match the interest rate characteristics on short-term notes with the
rate characteristics of its assets, Sallie Mae enters into interest rate swaps  
with independent parties. Under these agreements, Sallie Mae makes periodic     
payments, indexed to the related asset rates, in exchange for periodic payments 
which generally match Sallie Mae's interest obligations on fixed or variable    
rate notes (see Note 10).                                                       

F-25

POS AM
138th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 138th

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

8.  LONG-TERM NOTES                                                             

 The following tables summarize outstanding long-term notes at March 31,
1997, and December 31, 1996 and 1995, the weighted average interest rates and   
related notional amount of derivatives at the end of the periods, and the       
related average balances and weighted average effective interest rates, which   
include the effects of related off-balance sheet financial instruments (see Note
10), during the periods.                                                        

                                                        [Enlarge/Download Table]

                                                                                 THREE MONTHS ENDED    
                                                AT MARCH 31, 1997                  MARCH 31, 1997      
                                    -----------------------------------------  ----------------------- 
                                                                                              WEIGHTED 
                                                   WEIGHTED                                   AVERAGE  
                                                   AVERAGE        NOTIONAL                    EFFECTIVE
                                      ENDING       INTEREST        AMOUNT        AVERAGE      INTEREST 
                                      BALANCE        RATE      OF DERIVATIVES    BALANCE        RATE   
                                    -----------    --------    --------------  -----------    -------- 
                                                                                                       
Floating rate notes:                                                                                   
  U.S. dollar denominated:                                                                             
     Interest bearing, due                                                                             
       1998-2003................... $ 7,360,772      5.37%        $ 1,763,223  $ 8,013,855      5.45%  
                                    -----------      ----         -----------  -----------      ----   
Fixed rate notes:                                                                                      
  U.S. dollar denominated:                                                                             
     Interest bearing, due                                                                             
       1998-2018...................  11,900,604      6.22          19,590,971   12,477,420      5.58   
     Zero coupon, due 1998-2022....     333,345      8.27             360,394      330,119      7.63   
  Dual currency, due 1998..........     249,947      7.63             272,000      249,192      6.74   
  Foreign currency:                                                                                    
     Interest bearing, due                                                                             
       1999-2000...................     257,100      5.39             495,785      257,100      5.43   
                                    -----------      ----         -----------  -----------      ----   
Total fixed rate notes.............  12,740,996      6.28          20,719,150   13,313,831      5.65   
                                    -----------      ----         -----------  -----------      ----   
Total long-term notes.............. $20,101,768      5.95%        $22,482,373  $21,327,686      5.57%  
                                    ===========      ====         ===========  ===========      ====   
                                                        [Enlarge/Download Table]

                                                                                     YEAR ENDED        
                                              AT DECEMBER 31, 1996                DECEMBER 31, 1996    
                                    -----------------------------------------  ----------------------- 
                                                                                              WEIGHTED 
                                                   WEIGHTED                                   AVERAGE  
                                                   AVERAGE        NOTIONAL                    EFFECTIVE
                                      ENDING       INTEREST        AMOUNT        AVERAGE      INTEREST 
                                      BALANCE        RATE      OF DERIVATIVES    BALANCE        RATE   
                                    -----------    --------    --------------  -----------    -------- 
                                                                                                       
Floating rate notes:                                                                                   
  U.S. dollar denominated:                                                                             
     Interest bearing, due                                                                             
       1998-2003................... $ 8,844,825      5.27%        $ 2,022,044  $12,740,190      5.46%  
                                    -----------      ----         -----------  -----------      ----   
Fixed rate notes:                                                                                      
  U.S. dollar denominated:                                                                             
     Interest bearing, due                                                                             
       1998-2018...................  12,928,983      6.35          21,676,042   11,971,640      5.59   
     Zero coupon, due 1998-2022....     326,875      8.25             358,071      304,990      7.68   
  Dual currency, due 1998..........     248,443      7.63             272,000      245,569      6.65   
  Foreign currency:                                                                                    
     Interest bearing, due                                                                             
       1999-2000...................     257,100      5.34             495,785      577,592      5.31   
     Zero coupon, due 1997.........           -         -                   -      183,647      5.42   
                                    -----------      ----         -----------  -----------      ----   
Total fixed rate notes.............  13,761,401      6.40          22,801,898   13,283,438      5.64   
                                    -----------      ----         -----------  -----------      ----   
Total long-term notes.............. $22,606,226      5.96%        $24,823,942  $26,023,628      5.55%  
                                    ===========      ====         ===========  ===========      ====   


F-26

POS AM
139th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 139th

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

8.  LONG-TERM NOTES --(CONTINUED)                                               

                                                        [Enlarge/Download Table]

                                                                                     YEAR ENDED        
                                              AT DECEMBER 31, 1995                DECEMBER 31, 1995    
                                    -----------------------------------------  ----------------------- 
                                                                                              WEIGHTED 
                                                   WEIGHTED                                   AVERAGE  
                                                   AVERAGE        NOTIONAL                    EFFECTIVE
                                      ENDING       INTEREST        AMOUNT        AVERAGE      INTEREST 
                                      BALANCE        RATE      OF DERIVATIVES    BALANCE        RATE   
                                    -----------      ----       -----------    -----------      ----   
                                                                                                       
Floating rate notes:                                                                                   
  U.S. dollar denominated:                                                                             
     Interest bearing, due                                                                             
       1997-2002................... $16,995,853      5.58%        $ 5,053,732  $21,998,541      5.95%  
                                    -----------      ----         -----------  -----------      ----   
Fixed rate notes:                                                                                      
  U.S. dollar denominated:                                                                             
     Interest bearing, due                                                                             
       1997-2018...................  11,430,127      6.70          17,050,772   12,035,074      5.99   
     Zero coupon, due 1997-2022....     400,023      8.27             435,001      283,282      7.99   
  Dual currency, due 1998..........     242,775      7.63             206,000      240,182      7.02   
  Foreign currency:                                                                                    
     Interest bearing, due                                                                             
       1997-2000...................     767,100      4.01           1,486,130      627,900      5.78   
     Zero coupon, due 1997.........     246,737      5.79             253,626      188,399      5.85   
                                    -----------      ----         -----------  -----------      ----   
Total fixed rate notes.............  13,086,762      6.59          19,431,529   13,374,837      6.02   
                                    -----------      ----         -----------  -----------      ----   
Total long-term notes.............. $30,082,615      6.02%        $24,485,261  $35,373,378      5.98%  
                                    ===========      ====         ===========  ===========      ====   

At March 31, 1997 and December 31, 1996, Sallie Mae had outstanding   
long-term debt issues with call features totaling $13.7 billion and $14.1       
billion, respectively. As of March 31, 1997 and December 31, 1996, the stated   
maturities and maturities if accelerated to the call dates for long-term notes  
are shown in the following table:                                               

                                                        [Enlarge/Download Table]

                                          MARCH 31, 1997            DECEMBER 31, 1996     
                                    --------------------------  --------------------------
                                      STATED       MATURITY TO    STATED       MATURITY TO
         YEAR OF MATURITY            MATURITY       CALL DATE    MATURITY       CALL DATE 
----------------------------------  -----------    -----------  -----------    -----------
                                                                                          
1997..............................  $         -    $11,640,415  $         -    $12,794,908
1998..............................    4,871,914      3,856,622    7,466,131      5,510,293
1999..............................    7,876,747      2,285,849    7,676,221      2,185,610
2000..............................    4,037,732      1,683,932    4,077,772      1,483,972
2001..............................    2,366,525         79,200    2,465,758         79,200
2002-2022.........................      948,850        555,750      920,344        552,243
                                    -----------    -----------  -----------    -----------
                                    $20,101,768    $20,101,768  $22,606,226    $22,606,226
                                    ===========    ===========  ===========    ===========

F-27

POS AM
140th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 140th

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

8.  LONG-TERM NOTES --(CONTINUED)                                               
For the years ended December 31, 1996, 1995 and 1994, Sallie Mae      
repurchased certain long-term notes prior to their scheduled maturity to lower  
future years' interest expense. The following table summarizes these            
transactions (dollars in millions):                                             

                                                        [Enlarge/Download Table]

                                                                   YEARS ENDED DECEMBER
                                                                           31,         
                                                                   --------------------
                                                                   1996    1995    1994
                                                                   ----    ----    ----
                                                                                       
Maturity value.................................................... $90     $62     $138
                                                                   ====    ====    ====
Carrying value.................................................... $ 8     $ 8     $ 21
                                                                   ====    ====    ====
Premiums.......................................................... $ 7     $ 8     $ 14
                                                                   ====    ====    ====

Sallie Mae issues debt with interest and/or principal payment         
characteristics tied to foreign currency indices to attempt to minimize its cost
of funds. At March 31, 1997 and December 31, 1996 and 1995, Sallie Mae had      
outstanding long-term foreign currency notes which require the payment of       
principal and interest in foreign currencies, and dual currency notes which     
require the payment of interest in foreign currencies. To eliminate the         
corporation's exposure to the effect of currency fluctuations on these          
contractual obligations, Sallie Mae has entered into various foreign currency   
agreements with independent parties (see Note 10).                              

     To match the interest rate characteristics on its long-term borrowings with
the interest rate characteristics of its assets, Sallie Mae enters into interest
rate swaps with independent parties. Under these agreements, Sallie Mae makes   
periodic payments, indexed to the related asset rates, in exchange for periodic 
payments which generally match Sallie Mae's interest obligations on fixed or    
variable rate borrowings (see Note 10).                                         

9.  STUDENT LOAN SECURITIZATION                                                 

     For the first three months of 1997 and 1996 and for the year ended December
31, 1996 and in October 1995, SLM Funding Corporation, a wholly-owned special   
purpose finance subsidiary, purchased from Sallie Mae and sold $2 billion, $1.5 
billion, $6 billion and $1 billion, respectively, of student loans to trusts    
which issued floating rate student loan asset-backed securities in underwritten 
public offerings. At March 31, 1997 and December 31, 1996, securitized student  
loans outstanding totaled $8.0 billion and $6.3 billion, respectively.          

In November 1995, the U.S. District Court for the District of Columbia
ruled, contrary to the Secretary of Education's ruling, that student loans owned
by the trusts are not subject to the 30 basis point annual offset fee. The      
Department of Education appealed this decision and in January 1997, the U.S.    
Court of Appeals for the District of Columbia issued a decision affirming the   
District Court's ruling. However, the Court of Appeals remanded the case to the 
District Court with instructions to remand to the Department of Education and on
April 29, 1997, the District Court Judge ordered the Department of Education to 
decide by July 31, 1997, on its final position with respect to whether the fee  
applies to securitized loans. It is therefore uncertain what the final outcome  
of this litigation will be. If the final outcome following the remand is that   
the offset fee is not applicable to loans securitized by Sallie Mae, the gains  
resulting from prior securitizations would be increased. As of March 31, 1997   
and December 31, 1996, such increases would amount to approximately $75 million,
pre-tax, and $55 million, pre-tax, respectively. Offset fees relating to        
securitizations have not been paid pending final resolution of the case.        
Management considers this increase in gains as a contingent asset which will be 
recognized upon a favorable final ruling in this matter. Gains on future        
securitizations will vary                                                       

F-28

POS AM
141st Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 141st

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

9.  STUDENT LOAN SECURITIZATION -- (CONTINUED)                                  
depending on the characteristics of the loan portfolios securitized as well as  
the outcome of the offset fee ruling.                                           

10.  DERIVATIVE FINANCIAL INSTRUMENTS                                           

Derivative Financial Instruments Held or Issued for Purposes Other than     
Trading                                                                         

     Sallie Mae enters into various financial instruments with off-balance sheet
risk in the normal course of business primarily to reduce interest rate risk and
foreign currency exposure on certain borrowings. These financial instruments    
include interest rate swaps, interest rate cap and collar agreements, foreign   
currency swaps, forward currency exchange agreements, options on currency       
exchange agreements, options on securities and financial futures contracts.     

 Sallie Mae enters into three general types of interest rate swaps under
which it pays the following: 1) a floating rate in exchange for a fixed rate    
(standard swaps); 2) a fixed rate in exchange for a floating rate (reverse      
swaps); and 3) a floating rate in exchange for another floating rate, based upon
different market indices (basis/reverse basis swaps). At March 31, 1997, Sallie 
Mae had outstanding $18.1 billion, $1.1 billion, and $17.0 billion of notional  
principal amount of standard swaps, reverse swaps, and basis/reverse basis      
swaps, respectively. Of Sallie Mae's $36.2 billion of interest rate swaps       
outstanding at March 31, 1997, $35.1 billion was related to debt and $1.1       
billion was related to assets. At December 31, 1996, Sallie Mae had outstanding 
$18.2 billion, $1.1 billion, and $17.8 billion of notional principal amount of  
standard swaps, reverse swaps, and basis/reverse basis swaps, respectively. Of  
Sallie Mae's $37.1 billion of interest rate swaps outstanding at December 31,   
1996, $36 billion was related to debt and $1.1 billion was related to assets.   

F-29

POS AM
142nd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 142nd

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

10.  DERIVATIVE FINANCIAL INSTRUMENTS -- (CONTINUED)                            
   The following tables summarize the ending balances of the borrowings that
have been matched with interest rate swaps and foreign currency agreements at   
March 31, 1997, and December 31, 1996 and 1995 (dollars in billions).           

                                                        [Enlarge/Download Table]

                                                                   AT MARCH 31, 1997                               
                                    -------------------------------------------------------------------------------
                                                                 SWAPS                                             
                                                  ------------------------------------     FOREIGN                 
                                                                            BASIS/         CURRENCY        TOTAL   
                                    BORROWINGS    STANDARD    REVERSE    REVERSE BASIS    AGREEMENTS    DERIVATIVES
                                    ----------    --------    -------    -------------    ----------    -----------
                                                                                                                   
SHORT-TERM NOTES                                                                                                   
Six month floating rate notes.....     $  .3        $   -       $ -          $  .3           $  -          $  .3   
Other floating rate notes.........        .3            -         -             .6              -             .6   
Discount notes....................        .1            -         -             .1              -             .1   
Fixed rate notes..................       4.5          4.5         -            2.4              -            6.9   
Securities sold -- not yet                                                                                         
  purchased and repurchase                                                                                         
  agreements......................         -            -         -              -              -              -   
Short-term portion of long-term                                                                                    
  notes...........................       3.8          1.6         -            3.3             .9            5.8   
                                       -----        -----     -----          -----           ----          -----   
     Total short-term notes.......       9.0          6.1         -            6.7             .9           13.7   
                                       -----        -----     -----          -----           ----          -----   

LONG-TERM NOTES                                                                                                    
Floating rate notes:                                                                                               
  U.S. dollar denominated interest                                                                                 
     bearing......................       1.2           .3         -            1.5              -            1.8   
Fixed rate notes:                                                                                                  
  U.S. dollar denominated:                                                                                         
     Interest bearing.............      11.3         11.3         -            8.3              -           19.6   
     Zero coupon..................        .2           .2         -             .2              -             .4   
  Dual currency...................        .2           .2         -             .1              -             .3   
  Foreign currency:                                                                                                
     Interest bearing.............        .3            -         -             .2             .3             .5   
     Zero coupon..................         -            -         -              -              -              -   
                                       -----        -----     -----          -----           ----          -----   
       Total long-term notes......      13.2         12.0         -           10.3             .3           22.6   
                                       -----        -----     -----          -----           ----          -----   
       Total notes................     $22.2        $18.1       $ -          $17.0           $1.2          $36.3   
                                       =====        =====     =====          =====           ====          =====   

F-30

POS AM
143rd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 143rd

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

10.  DERIVATIVE FINANCIAL INSTRUMENTS -- (CONTINUED)                            

                                                        [Enlarge/Download Table]

                                                                 AT DECEMBER 31, 1996                              
                                    -------------------------------------------------------------------------------
                                                                 SWAPS                                             
                                                  ------------------------------------     FOREIGN                 
                                                                            BASIS/         CURRENCY        TOTAL   
                                    BORROWINGS    STANDARD    REVERSE    REVERSE BASIS    AGREEMENTS    DERIVATIVES
                                    ----------    --------    -------    -------------    ----------    -----------
                                                                                                                   
SHORT-TERM NOTES                                                                                                   
Six month floating rate notes.....     $  .3        $   -       $ -          $  .3           $  -          $  .3   
Other floating rate notes.........        .3            -         -             .6              -             .6   
Discount notes....................         -            -         -              -              -              -   
Fixed rate notes..................       3.4          3.4         -            2.2              -            5.6   
Securities sold -- not yet                                                                                         
  purchased and repurchase                                                                                         
  agreements......................         -            -         -              -              -              -   
Short-term portion of long-term                                                                                    
  notes...........................       4.5          1.8         -            3.2             .9            5.9   
                                       -----        -----     -----          -----           ----          -----   
     Total short-term notes.......       8.5          5.2         -            6.3             .9           12.4   
                                       -----        -----     -----          -----           ----          -----   

LONG-TERM NOTES                                                                                                    
Floating rate notes:                                                                                               
  U.S. dollar denominated interest                                                                                 
     bearing......................       1.4           .3         -            1.8              -            2.1   
Fixed rate notes:                                                                                                  
  U.S. dollar denominated:                                                                                         
     Interest bearing.............      12.3         12.3         -            9.3              -           21.6   
     Zero coupon..................        .2           .2         -             .1              -             .3   
  Dual currency...................        .2           .2         -             .1              -             .3   
  Foreign currency:                                                                                                
     Interest bearing.............        .3            -         -             .2             .3             .5   
     Zero coupon..................         -            -         -              -              -              -   
                                       -----        -----     -----          -----           ----          -----   
       Total long-term notes......      14.4         13.0         -           11.5             .3           24.8   
                                       -----        -----     -----          -----           ----          -----   
       Total notes................     $22.9        $18.2       $ -          $17.8           $1.2          $37.2   
                                       =====        =====     =====          =====           ====          =====   

F-31

POS AM
144th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 144th

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

10.  DERIVATIVE FINANCIAL INSTRUMENTS -- (CONTINUED)                            

                                                        [Enlarge/Download Table]

                                                                 AT DECEMBER 31, 1995                              
                                    -------------------------------------------------------------------------------
                                                                 SWAPS                                             
                                                  ------------------------------------     FOREIGN                 
                                                                            BASIS/         CURRENCY        TOTAL   
                                    BORROWINGS    STANDARD    REVERSE    REVERSE BASIS    AGREEMENTS    DERIVATIVES
                                    ----------    --------    -------    -------------    ----------    -----------
                                                                                                                   
SHORT-TERM NOTES                                                                                                   
Six month floating rate notes.....     $   -        $   -       $ -          $   -           $  -          $   -   
Other floating rate notes.........       1.5            -         -            2.8              -            2.8   
Discount notes....................         -            -         -              -              -              -   
Fixed rate notes..................        .3           .3         -              -              -             .3   
Securities sold -- not yet                                                                                         
  purchased and repurchase                                                                                         
  agreements......................         -            -         -              -              -              -   
Short-term portion of long-term                                                                                    
  notes...........................       5.7          1.4        .3            6.7             .3            8.7   
                                       -----        -----     -----          -----           ----          -----   
     Total short-term notes.......       7.5          1.7        .3            9.5             .3           11.8   
                                       -----        -----     -----          -----           ----          -----   

LONG-TERM NOTES                                                                                                    
Floating rate notes:                                                                                               
  U.S. dollar denominated interest                                                                                 
     bearing......................       3.9           .9         -            4.1              -            5.0   
Fixed rate notes:                                                                                                  
  U.S. dollar denominated:                                                                                         
     Interest bearing.............      10.8         10.8         -            6.1             .2           17.1   
     Zero coupon..................        .3           .3         -             .2              -             .5   
  Dual currency...................        .2           .2         -              -              -             .2   
  Foreign currency:                                                                                                
     Interest bearing.............        .8            -         -             .7             .8            1.5   
     Zero coupon..................        .2            -         -              -             .2             .2   
                                       -----        -----     -----          -----           ----          -----   
       Total long-term notes......      16.2         12.2         -           11.1            1.2           24.5   
                                       -----        -----     -----          -----           ----          -----   
       Total notes................     $23.7        $13.9       $.3          $20.6           $1.5          $36.3   
                                       =====        =====     =====          =====           ====          =====   

F-32

POS AM
145th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 145th

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

10.  DERIVATIVE FINANCIAL INSTRUMENTS -- (CONTINUED)                            
    The following table summarizes the activity for Sallie Mae's interest rate
swaps, foreign currency agreements and futures contracts held or issued for     
purposes other than trading for the years ended December 31, 1994, 1995 and 1996
and the three months ended March 31, 1997 (dollars in millions).                

                                                        [Enlarge/Download Table]

                                                          NOTIONAL PRINCIPAL                
                                                      ---------------------------           
                                                                        FOREIGN    FUTURES  
                                                      INTEREST RATE     CURRENCY   CONTRACT 
                                                          SWAPS        AGREEMENTS  AMOUNTS  
                                                      -------------    ----------  -------- 
                                                                                            
Balance, December 31, 1993...........................   $  23,253        $1,500    $  1,805 
  Issuances/Opens....................................      15,402           510       4,437 
  Maturities/Expirations.............................      (9,518)         (575)     (3,088)
  Terminations/Closes................................         (99)          (37)     (2,598)
                                                        -----------      --------  -------- 
Balance, December 31, 1994...........................      29,038         1,398         556 
  Issuances/Opens....................................      19,549           466       2,370 
  Maturities/Expirations.............................     (10,634)         (380)       (535)
  Terminations/Closes................................      (1,773)            -      (2,211)
                                                        -----------      --------  -------- 
Balance, December 31, 1995...........................      36,180         1,484         180 
  Issuances/Opens....................................      14,571            14       2,631 
  Maturities/Expirations.............................     (13,369)         (310)       (708)
  Terminations/Closes................................        (300)            -      (1,925)
                                                        -----------      --------  -------- 
Balance, December 31, 1996...........................      37,082         1,188         178 
  Issuances/Opens....................................       2,870             3         350 
  Maturities/Expirations.............................      (3,789)            -        (225)
  Terminations/Closes................................           -             -        (178)
                                                        -----------      --------  -------- 
Balance, March 31, 1997..............................   $  36,163        $1,191    $    125 
                                                        =========      ========    ======== 

Interest Rate Swaps                                                         

 Net payments related to the debt-related swaps are recorded in interest
expense. For the three months ended March 31, 1997 and 1996 and for the years   
ended December 31, 1996, 1995 and 1994, Sallie Mae received net payments on all 
debt-related swaps reducing interest expense by $38 million, $41 million, $165  
million, $94 million and $262 million, respectively.                            

F-33

POS AM
146th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 146th

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

10.  DERIVATIVE FINANCIAL INSTRUMENTS -- (CONTINUED)                            
   As of March 31, 1997 and December 31, 1996, stated maturities of interest
rate swaps and maturities if accelerated to the put dates, are shown in the     
following table (dollars in millions). The maturities of interest rate swaps    
generally coincide with the maturities of the associated assets or borrowings.  

                                                        [Enlarge/Download Table]

                                                   MARCH 31, 1997          DECEMBER 31, 1996   
                                               -----------------------  -----------------------
                                                STATED     MATURITY TO   STATED     MATURITY TO
              YEAR OF MATURITY                 MATURITY     PUT DATE    MATURITY     PUT DATE  
---------------------------------------------  --------    -----------  --------    -----------
                                                                                               
1997.........................................  $  5,376      $12,718    $  7,599      $15,161  
1998.........................................     8,379        8,208       7,102        7,001  
1999.........................................    10,741        8,025      10,541        7,925  
2000.........................................     7,110        4,760       7,225        4,560  
2001.........................................     3,135        1,350       3,235        1,350  
2002-2008....................................     1,422        1,102       1,380        1,085  
                                               --------    -----------  --------    -----------
                                               $ 36,163      $36,163    $ 37,082      $37,082  
                                                =======     ========     =======     ========  

Foreign Currency Agreements                                                 

  At March 31, 1997, December 31, 1996 and 1995, Sallie Mae had borrowings
repayable in U.S. dollars, with principal repayment obligations tied to foreign 
currency exchange rates of $80 million, $80 million and $235 million,           
respectively, and borrowings with principal repayable in foreign currencies of  
$1.0 billion. Such debt issuances were hedged by forward currency exchange      
agreements, foreign currency swaps, and options on currency exchange agreements.
Such agreements typically mature concurrently with the maturities of the debt.  
At both March 31, 1997 and December 31, 1996, Sallie Mae also had outstanding   
$80 million, $1.0 billion and $80 million of notional principal in foreign      
currency exchange agreements, foreign currency swaps and foreign currency       
options, respectively. The following table summarizes the outstanding amount of 
these borrowings and their currency translation values at March 31, 1997 and    
December 31, 1996 and 1995, using spot rates at the respective dates (dollars in
millions).                                                                      

                                                        [Enlarge/Download Table]

                                                                            DECEMBER 31,     
                                                            MARCH 31,  ----------------------
                                                              1997       1996         1995   
                                                            ---------  ---------    ---------
                                                                                             
Carrying value of outstanding foreign currency debt.......   $ 1,111    $  1,108     $  1,249
Currency translation value of outstanding foreign currency                                   
  debt....................................................       965       1,002        1,149

Futures Contracts                                                           

 Sallie Mae enters into financial futures contracts to hedge the risk of
future interest rate changes. The contracts are typically anticipatory hedges of
debt to be issued to fund Sallie Mae's assets, mainly the portfolio of student  
loans in the PLUS program. These student loans pay interest that are indexed to 
the one-year Treasury bill, reset annually on the final auction prior to June 1.
The gains and losses on these hedging transactions are deferred and included in 
other assets and will be recognized as an adjustment of interest expense. At    
March 31, 1997 and December 31, 1996, the futures contracts sold by the Company 
hedged approximately $125 million and $178 million, respectively, of anticipated
funding. Approximately $2 million and $7 million of realized losses have been   
deferred at March 31, 1997 and December 31, 1996, respectively, related to      
futures contracts.                                                              

F-34

POS AM
147th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 147th

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

10.  DERIVATIVE FINANCIAL INSTRUMENTS -- (CONTINUED)                            
Derivative Financial Instruments Held or Issued for Trading Purposes        

 From time to time Sallie Mae maintains a small number of active trading
positions in derivative financial instruments which are designed to generate    
additional income based on market conditions. Trading results for these         
positions were immaterial to Sallie Mae's financial statements for the three    
months ended March 31, 1997 and 1996 and for the years ended December 31, 1996, 
1995 and 1994. During December 1995, Sallie Mae entered into a derivative       
contract of $1.5 billion notional amount whose value is determined by both the  
market value and the yield of certain AAA rated variable rate asset-backed      
securities. The contract, which had an original maturity date of January 1997,  
was extended to January 1998. The mark-to-market gain on this contract was $4   
million at March 31, 1997 and December 31, 1996 and immaterial at December 31,  
1995.                                                                           

11.  FAIR VALUES OF FINANCIAL INSTRUMENTS                                       

FAS No. 107, "Disclosures About Fair Value of Financial Instruments," 
requires estimation of the fair values of financial instruments. The following  
is a summary of the assumptions and methods used to estimate those values.      

Student Loans                                                               

  Fair value was determined by analyzing amounts which Sallie Mae has paid
recently to acquire similar loans in the secondary market.                      

Warehousing Advances and Academic Facilities Financings                     

The fair values of both warehousing advances and academic facilities  
financings were determined through standard bond pricing formulas using current 
interest rates and credit spreads.                                              

Cash and Investments                                                        

     For investments with remaining maturities of three months or less, carrying
value approximated fair value. Investments in U.S. Treasury securities were     
valued at market quotations. All other investments were valued through standard 
bond pricing formulas using current interest rates and credit spreads.          

Short-term Borrowings and Long-term Notes                                   

    For borrowings with remaining maturities of three months or less, carrying
value approximated fair value. Where available the fair value of financial      
liabilities was determined from market quotations. If market quotations were    
unavailable standard bond pricing formulas were applied using current interest  
rates and credit spreads.                                                       

Off-balance Sheet Financial Instruments                                     

The fair values of off-balance sheet financial instruments, including 
interest rate swaps, interest rate cap and collar agreements, foreign currency  
swaps, forward exchange agreements and financial futures contracts, were        
estimated at the amount that would be required to terminate such agreements,    
taking into account current interest rates and credit spreads.                  

F-35

POS AM
148th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 148th

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

11.  FAIR VALUES OF FINANCIAL INSTRUMENTS -- (CONTINUED)                        
  The following table summarizes the fair values of Sallie Mae's financial
assets and liabilities, including off-balance sheet financial instruments       
(dollars in millions):                                                          

                                                        [Enlarge/Download Table]

                                                                                  DECEMBER 31,                              
                                                     -----------------------------------------------------------------------
                            MARCH 31, 1997                          1996                                 1995               
                    -------------------------------  ----------------------------------   ----------------------------------
                     FAIR     CARRYING                  FAIR      CARRYING                   FAIR      CARRYING             
                     VALUE     VALUE     DIFFERENCE    VALUE       VALUE     DIFFERENCE     VALUE       VALUE     DIFFERENCE
                    -------   --------   ----------  ----------   --------   ----------   ----------   --------   ----------
                                                                                                                            
EARNING ASSETS                                                                                                              
Student loans...... $33,127   $ 32,847      $280      $  34,005   $ 33,754      $251       $  34,551   $ 34,336      $215   
Warehousing                                                                                                                 
  advances.........   2,535      2,533         2          2,793      2,790         3           3,878      3,865        13   
Academic facilities                                                                                                         
  financings.......   1,393      1,405       (12)         1,473      1,473         -           1,347      1,313        34   
Cash and                                                                                                                    
  investments......   7,738      7,738         -          7,706      7,706         -           8,868      8,867         1   
                    -------   --------     -----     ----------   --------     -----      ----------   --------     -----   
Total earning                                                                                                               
  assets...........  44,793     44,523       270         45,977     45,723       254          48,644     48,381       263   
                    -------   --------     -----     ----------   --------     -----      ----------   --------     -----   
INTEREST BEARING                                                                                                            
  LIABILITIES                                                                                                               
Short-term                                                                                                                  
  borrowings.......  22,856     23,003       147         22,096     22,157        61          17,423     17,447        24   
Long-term notes....  19,850     20,102       252         22,519     22,606        87          30,252     30,083      (169)  
                    -------   --------     -----     ----------   --------     -----      ----------   --------     -----   
Total interest                                                                                                              
  bearing                                                                                                                   
  liabilities......  42,706     43,105       399         44,615     44,763       148          47,675     47,530      (145)  
                    -------   --------     -----     ----------   --------     -----      ----------   --------     -----   
OFF-BALANCE SHEET                                                                                                           
  FINANCIAL                                                                                                                 
  INSTRUMENTS                                                                                                               
Interest rate                                                                                                               
  swaps............    (158)         -      (158)           (21)         -       (21)            245          -       245   
Forward exchange                                                                                                            
  agreements and                                                                                                            
  foreign currency                                                                                                          
  swaps............    (204)         -      (204)          (161)         -      (161)           (184)         -      (184)  
Warehousing advance                                                                                                         
  commitments......       -          -         -              -          -         -               -          -         -   
Academic facilities                                                                                                         
  financing                                                                                                                 
  commitments......       -          -         -              -          -         -               -          -         -   
Letters of                                                                                                                  
  credit...........       -          -         -              -          -         -               -          -         -   
                                           -----                               -----                                -----   
Excess of fair                                                                                                              
  value over                                                                                                                
  carrying value...                         $307                                $220                                 $179   
                                            ====                                ====                                 ====   

At March 31, 1997 and December 31, 1996 and 1995, substantially all   
interest rate swaps and foreign exchange agreements and foreign currency swaps  
were hedging liabilities.                                                       

12.  COMMITMENTS AND CONTINGENCIES                                              

     Sallie Mae has committed to purchase student loans during specified periods
and to lend funds under the warehousing advance commitment, academic facilities 
financing commitment and letters of credit programs. Letters of credit support  
the issuance of state student loan revenue bonds. They represent unconditional  
guarantees of Sallie Mae to repay holders of the bonds in the event of a        
default. In the event that letters of credit are drawn upon, such loans are     
collateralized by the student loans underlying the bonds.                       

F-36

POS AM
149th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 149th

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

12.  COMMITMENTS AND CONTINGENCIES -- (CONTINUED)                               
Commitments outstanding are summarized below:                         

                                                        [Enlarge/Download Table]

                                                                   DECEMBER 31,       
                                                MARCH 31,   --------------------------
                                                  1997         1996           1995    
                                               -----------  -----------    -----------
                                                                                      
Student loan purchase commitments............. $20,149,339  $15,845,821    $14,244,234
Warehousing advance commitments...............   2,261,818    2,367,288        698,019
Academic facilities financing commitments.....     172,927        9,930          6,330
Letters of credit.............................   3,717,441    3,743,892      3,063,390
                                               -----------  -----------    -----------
                                               $26,301,525  $21,966,931    $18,011,973
                                                ==========   ==========     ==========

     The following schedules summarize expirations of commitments outstanding at
March 31, 1997 and December 31, 1996:                                           

                                                        [Enlarge/Download Table]

                                                            MARCH 31, 1997                     
                                        -------------------------------------------------------
                                                                        ACADEMIC               
                                        STUDENT LOAN    WAREHOUSING    FACILITIES    LETTERS OF
                                         PURCHASES       ADVANCES      FINANCINGS      CREDIT  
                                        ------------    -----------    ----------    ----------
                                                                                               
1997................................... $  2,220,978    $  220,237      $   2,166    $  251,392
1998...................................    2,041,135       175,488         30,346     1,092,378
1999...................................    7,049,562       128,332         10,700       816,630
2000...................................      753,354        31,860              -       826,875
2001...................................            -             -         70,000       137,620
2002-2017..............................    8,084,310     1,705,901         59,715       592,546
                                        ------------    -----------    ----------    ----------
     Total............................. $ 20,149,339    $2,261,818      $ 172,927    $3,717,441
                                          ==========     =========       ========     =========


                                                           DECEMBER 31, 1996                   
                                        -------------------------------------------------------
                                                                        ACADEMIC               
                                        STUDENT LOAN    WAREHOUSING    FACILITIES    LETTERS OF
                                         PURCHASES       ADVANCES      FINANCINGS      CREDIT  
                                        ------------    -----------    ----------    ----------
                                                                                               
1997................................... $  3,299,173    $  348,072      $   1,230    $  367,829
1998...................................    1,793,359       172,647              -     1,122,724
1999...................................    4,367,745       103,609          8,700       861,630
2000...................................      272,743        34,859              -       826,690
2001...................................            -             -              -       207,620
2002-2017..............................    6,112,801     1,708,101              -       357,399
                                        ------------    -----------    ----------    ----------
     Total............................. $ 15,845,821    $2,367,288      $   9,930    $3,743,892
                                          ==========     =========       ========     =========

Litigation                                                                  

   On June 11, 1996, Orange County, California filed a complaint against the
Company in the U.S. Bankruptcy Court for the Central District of California. The
case is currently pending in the U.S. District Court for the Central District of
California. The complaint alleges that the Company made fraudulent              
representations and omitted material facts in offering circulars on various bond
offerings purchased by Orange County, which contributed to Orange County's      
market losses and subsequent bankruptcy. The complaint seeks to hold Sallie Mae 
responsible for losses resulting from Orange County's bankruptcy, but does not  
specify the amount of damages claimed. In addition, the complaint includes      
counts under the California                                                     

F-37

POS AM
150th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 150th

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

12.  COMMITMENTS AND CONTINGENCIES -- (CONTINUED)                               
Corporations Code, as well as a count for common law fraud. The Company believes
that the complaint is without merit and intends to defend the case vigorously.  
At this time, Management believes the impact of the lawsuit will not be material
to the Company.                                                                 

13.  PREFERRED STOCK                                                            

   Sallie Mae's 4.3 million outstanding shares of non-voting adjustable rate
cumulative preferred stock, par value $50.00 per share, pay cumulative quarterly
dividends at a per annum rate of 4.5 percentage points below the highest yield  
of certain United States Treasury obligations. However, the dividend rate for   
any dividend period will not be less than 5 percent per annum nor greater than  
14 percent per annum. The dividend rate was 5 percent for the three months ended
March 31, 1997 and 1996 and the years ended December 31, 1996, 1995 and 1994.   
The stock is redeemable, at the option of Sallie Mae, in whole or in part, at   
$50.00 per share plus accrued dividends.                                        

  In May 1986, the Board of Directors authorized management, under certain
circumstances, to repurchase up to $50 million of Sallie Mae's adjustable rate  
cumulative preferred stock at market prices. As of March 31, 1997 and December  
31, 1996, Sallie Mae had repurchased 722,350 shares at an average price of      
$45.23 per share, totalling $32.7 million.                                      

14.  COMMON STOCK                                                               

   The Board of Directors has reserved 11 million common shares for issuance
under various compensation and benefit plans with 6 million shares remaining at 
both March 31, 1997 and December 31, 1996.                                      

  Sallie Mae has engaged in repurchases of its common stock since 1986. In
December 1996, Sallie Mae retired 59 million shares of common stock held as     
treasury stock at an average price of $44.36. As a result, treasury stock       
decreased by $2.6 billion with a corresponding decrease of $12 million to common
stock, par; $568 million to additional paid-in capital; and $2.0 billion to     
retained earnings. As of March 31, 1997 and December 31, 1996, Sallie Mae held  
as treasury stock 13.3 million common shares purchased at an average price of   
$50.63 and 12 million common shares purchased at an average price of $44.75,    
respectively.                                                                   

   Earnings per common share are computed based on net income less dividends
on preferred stock divided by the weighted average common and common equivalent 
shares outstanding for the period. Average common and common equivalent shares  
outstanding for the three months ended March 31, 1997 and 1996 and the years    
ended December 31, 1996, 1995 and 1994 totaled 53,643,811; 57,479,252;          
55,811,279; 67,450,889; and 79,776,993, respectively.                           

15.  STOCK OPTION PLANS                                                         

  Sallie Mae maintains a stock option plan for key employees which permits
grants of stock options for the purchase of common stock with exercise prices   
equal to the market value on the date of the grant. Stock options are           
exercisable one year after date of grant and have ten year terms. Sallie Mae's  
1993-1998 Employee                                                              

F-38

POS AM
151st Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 151st

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

15.  STOCK OPTION PLANS -- (CONTINUED)                                          
Stock Option Plan authorized the grant of options for up to 5.1 million shares  
of common stock. The following table summarizes employee stock options plan     
activity.                                                                       

                                                        [Enlarge/Download Table]

                                                                    YEARS ENDED DECEMBER 31,                      
                          THREE MONTHS ENDED   -------------------------------------------------------------------
                            MARCH 31, 1997             1996                    1995                   1994        
                          -------------------  --------------------    --------------------    -------------------
                                      AVERAGE               AVERAGE                 AVERAGE                AVERAGE
                          OPTIONS      PRICE    OPTIONS      PRICE      OPTIONS      PRICE     OPTIONS      PRICE 
                          --------    -------  ---------    -------    ---------    -------    --------    -------
                                                                                                                  
Outstanding at beginning                                                                                          
  of period..............  931,857    $ 60.80  1,094,975    $48.80       931,255    $54.49      698,550    $58.80 
Granted..................  336,385     107.63    325,545     73.08       517,800     37.15      367,150     48.03 
Exercised................ (310,852)     62.52   (485,363)    41.88      (223,180)    42.76      (13,445)    31.56 
Canceled.................  (14,250)    108.00     (3,300)    73.00      (130,900)    53.52     (121,000)    62.33 
                          --------    -------  ---------    -------    ---------    -------    --------    -------
Outstanding at end of                                                                                             
  period.................  943,140    $ 76.22    931,857    $60.80     1,094,975    $48.80      931,255    $54.49 
                          =========   -------  =========    -------    =========    -------    =========   -------
Exercisable at end of                                                                                             
  period.................  616,255    $ 59.79    609,612    $54.30       641,075    $57.09      587,855    $58.34 
                          =========   -------  =========    -------    =========    -------    =========   -------
Weighted-average fair                                                                                             
  value of options                                                                                                
  granted during the                                                                                              
  period.................             $ 46.98               $25.87                  $10.18                        
                                      -------               -------                 -------                       

 The following table summarizes the number, weighted-average of exercise
prices (which ranged from $34 to $112) and weighted-average remaining           
contractual life of the employee stock options outstanding at March 31, 1997.   

                                                                [Download Table]

                                                        AVERAGE REMAINING
   EXERCISE PRICES        OPTIONS     AVERAGE PRICE     CONTRACTUAL LIFE 
----------------------    -------     -------------     -----------------
                                                                         
Under $40                 125,420        $ 36.74              7.5 yrs.   
$40-$80                   495,535          65.74              6.5        
Above $80                 322,185         107.71             10.0        
                          -------        -------             --------    
Total                     943,140        $ 76.22              8.0 yrs.   
                          =======        -------             --------    


 The following table summarizes the number, weighted-average of exercise
prices (which ranged from $29 to $95) and weighted-average remaining contractual
life of the employee stock options outstanding at December 31, 1996.            

                                                                [Download Table]

                                                        AVERAGE REMAINING
   EXERCISE PRICES        OPTIONS     AVERAGE PRICE     CONTRACTUAL LIFE 
----------------------    -------     -------------     -----------------
                                                                         
Under $40                 178,938        $ 36.63              7.5 yrs.   
$40-$80                   751,419          66.48              7.0        
Above $80                   1,500          94.75             10.0        
                          -------        -------             --------    
Total                     931,857        $ 60.80              7.0 yrs.   
                          =======        -------             --------    

In May 1996, shareholders approved the Board of Directors Stock Option
Plan, which authorized the grant of options to acquire up to 200,000 shares of  
common stock. Options under this plan are exercisable on                        

F-39

POS AM
152nd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 152nd

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

15.  STOCK OPTION PLANS -- (CONTINUED)                                          
the date of grant and have ten year terms. The following table summarizes the   
Board of Directors Stock Option Plan activity.                                  

                                                        [Enlarge/Download Table]

                                                    THREE MONTHS ENDED      YEAR ENDED    
                                                      MARCH 31, 1997    DECEMBER 31, 1996 
                                                    ------------------  ------------------
                                                               AVERAGE             AVERAGE
                                                    OPTIONS     PRICE   OPTIONS     PRICE 
                                                    -------    -------  -------    -------
                                                                                          
Outstanding at beginning of period.................  63,000    $ 73.00        -    $     -
Granted............................................  21,000     108.00   63,000      73.00
Exercised..........................................  (4,500)     73.00        -          -
Canceled...........................................       -          -        -          -
                                                    -------    -------  -------    -------
Outstanding at end of period.......................  79,500    $ 82.25   63,000    $ 73.00
                                                     ======    -------   ======    -------
Exercisable at end of period.......................  79,500    $ 82.25   63,000    $ 73.00
                                                     ======    -------   ======    -------
Weighted-average fair value of options granted                                            
  during the period................................            $ 47.26             $ 25.84
                                                               -------             -------

At both March 31, 1997 and December 31, 1996, the outstanding Board of
Directors options had a weighted-average remaining contractual life of 9 years. 

Sallie Mae accounts for its stock option plans in accordance with     
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to     
Employees," which results in no compensation expense for stock options granted  
under the plans.                                                                

   The following table summarizes pro forma disclosures for the three months
ended March 31, 1997 and 1996 and for the years ended December 31, 1996 and     
1995, as if Sallie Mae 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 FAS No. 123, "Accounting for Stock-Based Compensation."  
The fair value for these options was estimated at the date of grant using the   
Extended Binomial Options Pricing Model, a variation of the Black-Sholes option 
pricing model, with the following weighted average assumptions for the three    
months ended March 31, 1997 and 1996 and for the years ended December 31, 1996  
and 1995, respectively: risk-free interest rate of 7 percent, 6 percent, 6      
percent and 8 percent; volatility factor of the expected market price of Sallie 
Mae common stock of 30 percent, 29 percent, 29 percent and 29 percent; dividend 
growth rate of 8 percent; vesting period of one year from date of grant; and    
time of exercise-expiration date.                                               

                                                        [Enlarge/Download Table]

                                              THREE MONTHS ENDED       YEARS ENDED     
                                                  MARCH 31,            DECEMBER 31,    
                                             --------------------  --------------------
                                               1997        1996      1996        1995  
                                             --------    --------  --------    --------
                                                                                       
Net income.................................. $118,837    $102,900  $419,410    $366,279
                                             ========    ========  ========    ========
Pro forma net income........................ $116,575    $101,451  $413,121    $363,500
                                             ========    ========  ========    ========
Earnings per common share................... $   2.17    $   1.74  $   7.32    $   5.27
                                             ========    ========  ========    ========
Pro forma earnings per common share......... $   2.12    $   1.72  $   7.21    $   5.23
                                             ========    ========  ========    ========

F-40

POS AM
153rd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 153rd

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

16.  BENEFIT PLANS                                                              

Pension Plans                                                               

 Sallie Mae has a qualified noncontributory defined benefit pension plan
(the "Plan") covering substantially all employees who meet certain service      
requirements. The Plan's benefits are based on years of service and the         
employee's compensation. Effective April 1, 1995, Sallie Mae modified the Plan  
to compute plan benefits on 5-year highest average base salary, a maximum       
service accrual period of 30 years, and normal retirement age of 62. Prior to   
these modifications, plan benefits were computed based on 3-year highest average
base salary, a maximum service accrual period of 26.67 years, and a normal      
retirement age of 60. The Plan is funded annually based on the maximum amount   
that can be deducted for federal income tax purposes. The assets of the plan are
primarily invested in equities and fixed income securities.                     

 The following table sets forth the Plan's actuarially determined funded
status and amounts recognized in Sallie Mae's consolidated financial statements.

                                                        [Enlarge/Download Table]

                                                                   1996       1995   
                                                                 --------   -------- 
                                                                                     
Accumulated Benefits:                                                                
Actuarial present value of accumulated benefit obligations:                          
  Vested........................................................ $ 39,949   $ 34,232 
  Nonvested.....................................................    5,099      6,840 
                                                                 --------   -------- 
     Total...................................................... $ 45,048   $ 41,072 
                                                                 ========   ======== 
Pension Asset (Liability):                                                           
  Actuarial present value of projected benefit obligation for                        
     service rendered to date................................... $(75,106)  $(72,361)
  Plan assets at fair value.....................................   75,587     54,222 
                                                                 --------   -------- 
  Plan assets (less than) greater than projected benefit                             
     obligation.................................................      481    (18,139)
  Unrecognized prior service cost...............................   (4,023)    (4,444)
  Unrecognized transition obligation............................    1,286      1,500 
  Unrecognized (gain) loss......................................   (7,149)    12,613 
                                                                 --------   -------- 
     Accrued pension cost....................................... $ (9,405)  $ (8,470)
                                                                 ========   ======== 

In determining the projected benefit obligation, the weighted-average 
assumed discount rate used was 7.5 percent in 1996, 7.0 percent in 1995 and 8.0 
percent in 1994, while the assumed average rate of compensation increase was 6.0
percent in 1996 and in 1995 and 7.0 percent in 1994. The expected long-term rate
of return on plan assets used in determining net periodic pension cost was 8.0  
percent in 1996, 1995 and 1994.                                                 

Net periodic pension cost included the following components:          

                                                        [Enlarge/Download Table]

                                                          1996       1995      1994   
                                                        --------   --------   ------- 
                                                                                      
Service cost -- benefits earned during the period...... $  8,369   $  8,867   $ 6,737 
Interest cost on project benefit obligations...........    5,055      3,659     3,345 
Actual return on plan assets...........................  (13,009)   (11,736)   (1,228)
Net amortization and deferral..........................    8,429      8,327      (220)
                                                        --------   --------   ------- 
  Net periodic pension cost............................ $  8,844   $  9,117   $ 8,634 
                                                        ========   ========   ======= 

     Sallie Mae maintains a non-qualified pension plan for certain key employees
as designated by the Board of Directors and a nonqualified pension plan for its 
Board of Directors. Total pension expense for these plans in 1996, 1995 and 1994
was $11.9 million, $11.2 million and $11.7 million, respectively.               

F-41

POS AM
154th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 154th

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

16.  BENEFIT PLANS -- (CONTINUED)                                               
Thrift and Savings Plans                                                    

     Sallie Mae's Thrift and Savings Plan ("the Plan") is a defined contribution
plan that is intended to qualify under section 401(k) of the Internal Revenue   
Code. The Plan covers substantially all employees who have been employed by     
Sallie Mae for one or more years and have completed at least a thousand hours of
service. Participating employees may contribute up to 6 percent of base salary  
and these contributions are matched 100 percent by Sallie Mae.                  

     Sallie Mae also maintains a non-qualified Thrift and Savings Plan to assure
that designated participants receive the full amount of benefits to which they  
would have been entitled under the Thrift and Savings Plan but for limits on    
compensation and contribution levels imposed by the Internal Revenue Code.      

 Total expenses related to the Thrift and Savings Plan was $5.0 million,
$4.9 million and $4.8 million in 1996, 1995 and 1994, respectively.             

17.  FEDERAL INCOME TAXES                                                       

    Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting  
purposes and the amounts used for income tax purposes. Significant components of
the company's deferred tax liabilities and assets as of March 31, 1997 and      
December 31, 1996 and 1995 under the liability method are as follows:           

                                                        [Enlarge/Download Table]

                                                                       DECEMBER 31,     
                                                       MARCH 31,  ----------------------
                                                         1997       1996         1995   
                                                       ---------  ---------    ---------
                                                                                        
Deferred tax liabilities:                                                               
  Leases.............................................. $ 346,170  $ 351,093    $ 344,438
  Unrealized investment gains.........................   178,243    188,050      199,686
  Other...............................................    35,839     32,669       19,574
                                                       ---------  ---------    ---------
                                                         560,252    571,812      563,698
                                                       ---------  ---------    ---------
Deferred tax assets:                                                                    
  ExportSS operating costs............................    68,411     68,874       54,953
  Student loan reserves...............................    50,334     47,004       31,566
  In-substance defeasance transactions................    30,707     30,788       31,014
  Asset valuation allowances..........................    24,490     24,842       25,512
  Securitization transactions.........................    16,274     13,076            -
  Other...............................................    33,104     31,211       25,522
                                                       ---------  ---------    ---------
                                                         223,320    215,795      168,567
                                                       ---------  ---------    ---------
Net deferred tax liabilities.......................... $ 336,932  $ 356,017    $ 395,131
                                                        ========   ========     ========

   Sallie Mae is exempt from all state, local and District of Columbia taxes
except for real property taxes. Deferred tax assets on in-substance defeasance  
transactions resulted from premiums on the debt extinguished. These premiums are
capitalized and amortized over the life of the defeasance trust for tax         
purposes.                                                                       

F-42

POS AM
155th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 155th

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

17.  FEDERAL INCOME TAXES -- (CONTINUED)                                        
    Reconciliations of the statutory United States federal income tax rates to
Sallie Mae's effective tax rate follow:                                         

                                                        [Enlarge/Download Table]

                                                     THREE MONTHS                          
                                                     ENDED MARCH     YEARS ENDED DECEMBER  
                                                         31,                 31,           
                                                     ------------   ---------------------- 
                                                     1997    1996   1996     1995     1994 
                                                     ----    ----   ----     ----     ---- 
                                                                                           
Statutory rate...................................... 35.0%   35.0%  35.0%    35.0%    35.0%
Tax exempt interest and dividends received                                                 
  deduction......................................... (3.0)   (3.2)  (3.8)    (6.4)    (5.7)
Other, net..........................................  (.7)   (1.2)  (1.3)    (1.2)     (.4)
                                                     ----    ----   ----     ----     ---- 
Effective tax rate.................................. 31.3%   30.6%  29.9%    27.4%    28.9%
                                                     ====    ====   ====     ====     ==== 

 Federal income taxes paid for the three months ended March 31, 1997 and
1996 and for the years ended December 31, 1996, 1995 and 1994 were $37 million, 
$39 million, $202 million, $122 million and $188 million, respectively.         

18.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)                                

                                                        [Enlarge/Download Table]

                                             1997                        1996                    
                                           --------  --------------------------------------------
                                            FIRST     FIRST       SECOND      THIRD       FOURTH 
                                           QUARTER   QUARTER     QUARTER     QUARTER     QUARTER 
                                           --------  --------    --------    --------    --------
                                                                                                 
Net interest income....................... $199,026  $232,679    $219,561    $208,988    $205,208
Other income..............................   75,940    21,754      27,899      35,211      62,052
Operating expenses........................  101,559    98,773     100,145     100,075     106,659
Federal income taxes......................   54,570    47,968      44,340      42,877      48,313
                                           --------  --------    --------    --------    --------
Income before premiums on debt                                                                   
  extinguished............................  118,837   107,692     102,975     101,247     112,288
Premiums on debt extinguished, net of                                                            
  tax.....................................        -    (4,792)          -           -           -
                                           --------  --------    --------    --------    --------
Net income................................ $118,837  $102,900    $102,975    $101,247    $112,288
                                           ========  ========    ========    ========    ========
Earnings per common share before premiums                                                        
  on debt extinguished.................... $   2.17  $   1.82    $   1.79    $   1.79    $   2.01
                                           ========  ========    ========    ========    ========
Earnings per common share................. $   2.17  $   1.74    $   1.79    $   1.79    $   2.01
                                           ========  ========    ========    ========    ========

F-43

POS AM
156th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 156th

STUDENT LOAN MARKETING ASSOCIATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 
(INFORMATION AT MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED 
MARCH 31, 1997 AND 1996 IS UNAUDITED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

18.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED) -- (CONTINUED)                 

                                                        [Enlarge/Download Table]

                                                                         1995                     
                                                     -------------------------------------------- 
                                                      FIRST       SECOND      THIRD       FOURTH  
                                                     QUARTER     QUARTER     QUARTER     QUARTER  
                                                     --------    --------    --------    -------- 
                                                                                                  
Net interest income................................. $221,147    $222,694    $227,952    $228,948 
Other operating income..............................      321       7,883       8,971      33,238 
Operating expenses..................................  101,768     111,368     118,325     107,240 
Federal income taxes................................   30,906      31,187      32,031      47,139 
                                                     --------    --------    --------    -------- 
Income before premiums on debt extinguished.........   88,794      88,022      86,567     107,807 
Premiums on debt extinguished, net of tax...........        -           -           -      (4,911)
                                                     --------    --------    --------    -------- 
Net income.......................................... $ 88,794    $ 88,022    $ 86,567    $102,896 
                                                     ========    ========    ========    ======== 
Earnings per common share before premiums on debt                                                 
  extinguished...................................... $   1.17    $   1.20    $   1.28    $   1.76 
                                                     ========    ========    ========    ======== 
Earnings per common share........................... $   1.17    $   1.20    $   1.28    $   1.67 
                                                     ========    ========    ========    ======== 

19.  COLLEGE CONSTRUCTION LOAN INSURANCE ASSOCIATION                            

In 1987, Sallie Mae assisted in creating the College Construction Loan
Insurance Association ("Connie Lee"), a private, for-profit, stockholder-owned  
corporation, authorized by Congress to insure and reinsure educational          
facilities obligations. At both March 31, 1997 and December 31, 1996, the       
carrying value of Sallie Mae's investment in Connie Lee was approximately $44   
million, and as of March 31, 1997 and December 31, 1996, through its ownership  
of preferred and common stock and through agreements with other shareholders,   
Sallie Mae effectively controlled 42 percent and 36 percent, respectively of    
Connie Lee's outstanding voting stock. In February 1997, Connie Lee converted to
a private, shareholder-controlled corporation pursuant to statutory provisions  
under Pub. L. No. 104-208 that required Connie Lee to repurchase shares of its  
stock owned by the U.S. government at a purchase price determined by an         
independent appraisal. On February 28, 1997 Sallie Mae loaned Connie Lee $18    
million to repurchase the shares. On May 27, 1997 the term of this loan was     
extended to June 29, 1997.                                                      

F-44

POS AM
157th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 157th

                                                                      APPENDIX A

AGREEMENT AND PLAN OF REORGANIZATION

    THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is dated as of
April 7, 1997 among the STUDENT LOAN MARKETING ASSOCIATION, a federally         
chartered corporation ("Sallie Mae"), SLM Holding Corporation, a Delaware       
corporation and a wholly owned subsidiary of Sallie Mae ("Holding Company") and 
SALLIE MAE MERGER COMPANY, a Delaware corporation and a wholly owned subsidiary 
of Holding Company ("MergerCo").                                                

WHEREAS, Sallie Mae has an authorized capitalization consisting of:   

    (i) 250,000,000 shares of Common Stock, par value $.20 per share
 ("Sallie Mae Common Stock"), of which 53,690,595 shares were issued and
outstanding at December 31, 1996; and                                 

     (ii) 5,000,000 shares of Preferred Stock, par value $50 per share
  ("Sallie Mae Preferred Stock") of which 4,277,650 shares were issued and
outstanding at December 31, 1996.                                     

WHEREAS, MergerCo has an authorized capitalization consisting of 1000 
shares of Common Stock, par value $.01 per share ("MergerCo Common Stock"), all 
of which are issued and outstanding and owned beneficially and of record by     
Holding Company; and                                                            

 WHEREAS, Holding Company has an authorized capitalization consisting of
250,000,000 shares of Common Stock, par value $.20 per share ("Holding Company  
Common Stock"), of which 1000 shares are issued and outstanding and owned       
beneficially and of record by Sallie Mae; and                                   

    WHEREAS, The Student Loan Marketing Association Reorganization Act of 1996
(the "Privatization Act") authorizes Sallie Mae to reorganize through the       
formation of a state-chartered holding company that would own all issued and    
outstanding Sallie Mae Common Stock; and                                        

WHEREAS, the Boards of Directors of Sallie Mae, MergerCo and Holding  
Company, deem it advisable for MergerCo to merge with and into Sallie Mae (the  
"Merger") in accordance with the Delaware General Corporation Law, as amended   
(the "DGCL"), and this Agreement and have, by resolutions duly adopted, approved
this Agreement and directed that it be executed by the undersigned officers and 
that it be submitted to a vote of the respective shareholders of Sallie Mae and 
MergerCo; and                                                                   

     WHEREAS, Holding Company, as sole stockholder of MergerCo, has approved the
Agreement.                                                                      

  NOW THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties to this Agreement agree 
that MergerCo shall merge with and into Sallie Mae and Sallie Mae shall be the  
corporation surviving the Merger. The terms and conditions of the Merger, the   
mode of carrying it into effect and the manner and basis of converting shares in
the Merger shall be as follows:                                                 

ARTICLE I 

THE MERGER

At the Effective Time (as herein defined), in accordance with the     
provisions of this Agreement and the DGCL, MergerCo shall be merged with and    
into Sallie Mae, whereupon the separate corporate existence of MergerCo shall   
cease and Sallie Mae shall continue as the surviving corporation (the "Surviving
Corporation").                                                                  

 Subject to and in accordance with the provisions of this Agreement, the
parties hereto shall consummate the Merger by filing a certificate of merger    
with the Secretary of State of the State of Delaware and making all other       
filings or recordings required by the DGCL in connection with the Merger. The   
Merger shall become effective at such time as the certificate of merger is duly 
filed with the Secretary of State of the State of Delaware (the "Effective      
Time"). The Merger shall have the effects set forth in the DGCL. Without        
limiting the generality of the foregoing, and subject thereto and to any other  
applicable laws, at the Effective time all                                      

 A-1

POS AM
158th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 158th

the properties, rights, privileges, powers and franchises of Sallie Mae and     
MergerCo shall vest in the Surviving Corporation, and all debts, liabilities,   
restrictions, disabilities and duties of Sallie Mae and MergerCo shall become   
the debts, liabilities, restrictions, disabilities and duties of the Surviving  
Corporation.                                                                    

ARTICLE II

TERMS OF CONVERSION OF SHARES 

At the Effective Time:                                                

    (a) Each share of Sallie Mae Common Stock issued and outstanding
  immediately prior to the Effective Time shall thereupon, and without any
 action on the part of the holder thereof, be converted into one validly
     issued, fully paid and nonassessable share of Holding Company Common Stock.

          (b) Each share of Sallie Mae Common Stock held in treasury immediately
  prior to the Effective Time shall thereupon be cancelled and retired and
all rights in respect thereof shall cease.                            

       (c) The shares of Sallie Mae Preferred Stock issued and outstanding
     immediately prior to the Effective Time shall not be converted or otherwise
     affected by the Merger, and each such share shall continue to be issued and
    outstanding and to be one fully paid and nonassessable share of the Sallie
Mae Preferred Stock of the Surviving Corporation.                     

  (d) Each share of MergerCo Common Stock issued and outstanding
     immediately prior to the Effective Time shall be converted into one validly
  issued, fully paid and nonassessable share of the Surviving Corporation.

         (e) Each share of Holding Company Common Stock issued and outstanding
    immediately prior to the Effective Time shall be cancelled and restored to
the status of authorized and unissued Holding Company Common Stock.   

ARTICLE III 

CHARTER AND BYLAWS

(a) From and after the Effective Time, and until thereafter amended as
provided by law, the provisions of the Higher Education Act of 1965, as amended 
(the "Sallie Mae Charter"), as in effect immediately prior to the Effective     
Time, shall be and continue to be the governing statute of the Surviving        
Corporation.                                                                    

(b) From and after the Effective Time, the Bylaws of Sallie Mae as in 
effect immediately prior to the Effective Time shall be and continue to be the  
Bylaws of the Surviving Corporation until amended.                              

ARTICLE IV

STOCK CERTIFICATES

    Following the Effective Time, each holder of an outstanding certificate or
certificates theretofore representing shares of Sallie Mae Common Stock may, but
shall not be required to, surrender the same to Holding Company for             
cancellation, exchange or transfer, and each such holder or transferee thereof  
will be entitled to receive a certificate or certificates representing the same 
number of shares of Holding Company Common Stock as the number of shares of     
Sallie Mae Common Stock previously represented by the stock certificate or      
certificates so surrendered. Until so surrendered or presented for cancellation,
exchange or transfer, each outstanding certificate which, prior to the Effective
Time, represented shares of Sallie Mae Common Stock shall be deemed and treated 
for all corporate purposes to represent the ownership of the same number of     
shares of Holding Company Common Stock as though such surrender for             
cancellation, exchange or transfer thereof had taken place. If any certificate  
representing shares of Holding Company Common Stock is to be issued in a name   
other than that of the registered holder of the certificate formerly            
representing shares of Sallie Mae Common Stock presented for transfer, it shall 
be a condition of issuance that (a) the certificate so                          

 A-2

POS AM
159th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 159th

surrendered shall be properly endorsed or accompanied by a stock power and shall
otherwise be in proper form for transfer and (b) the person requesting such     
issuance shall pay to Holding Company's transfer agent any transfer or other    
taxes required by reason of issuance of certificates representing Holding       
Company Common Stock in a name other than that of the registered holder of the  
certificate presented, or establish to the satisfaction of Holding Company or   
its registered agent that such taxes have been paid or are not applicable. The  
stock transfer books for Sallie Mae Common Stock shall be deemed to be closed at
the Effective Time, and no transfer of shares of Sallie Mae Common Stock        
outstanding immediately prior to the Effective Time shall thereafter be made on 
such books. Following the Effective Time, the holders of certificates           
representing Sallie Mae Common Stock outstanding immediately before the         
Effective Time shall cease to have any rights with respect to stock of the      
Surviving Corporation and their sole rights shall be with respect to the Holding
Company Common Stock into which their shares of Sallie Mae Common Stock shall   
have been converted in the Merger.                                              

ARTICLE V 

CONDITIONS OF THE MERGER

  Consummation of the Merger is subject to the satisfaction of each of the
following conditions:                                                           

        (a) The Merger shall have received such approval of the shareholders
of Sallie Mae as is required by the Privatization Act.                

        (b) Sallie Mae shall have received an opinion of counsel in form and
    substance reasonably satisfactory to Sallie Mae, dated as of the Effective
Time, substantially to the effect that, on the basis of facts,        
representations and assumptions set forth in such opinion which are   
consistent with the state of facts existing at the Effective Time, the
Merger will be treated for U.S. federal income tax purposes as a      
nonrecognition transfer of shares of Sallie Mae Common Stock by those 
     holders thereof to the Holding Company for shares of Holding Company Common
Stock.                                                                

         (c) The shares of Holding Company Common Stock to be issued and to be
  reserved for issuance as a result of the Merger shall have been approved
for listing, upon official notice of issuance, by the New York Stock  
Exchange.                                                             

      (d) A registration statement on Form S-4 relating to the shares of
 Holding Company Common Stock to be issued or reserved for issuance as a
    result of the Merger, shall be declared effective under the Securities Act
of 1933, as amended, and shall not be the subject of any "stop order."

ARTICLE VI

AMENDMENT AND WAIVER

The parties hereto, by mutual consent of their respective Boards of   
Directors, may amend, modify or supplement this Agreement, or waive any         
condition set forth herein, in such manner as may be agreed upon by them in     
writing, at any time before or after approval of this Agreement by the          
shareholders of Sallie Mae, to the extent permitted by the DGCL.                

ARTICLE VII 

MISCELLANEOUS 

 (a) This Agreement may be executed in two or more counterparts, each of
which when so executed shall be deemed to be an original, and such counterparts 
shall together constitute but one and the same instrument.                      

    (b) This Agreement shall be governed by, and construed in accordance with,
the internal laws of the State of Delaware.                                     

 A-3

POS AM
160th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 160th

  (c) The parties hereto shall take all such action as may be necessary or
appropriate in order to effectuate the Merger. In case at any time after the    
Effective Time, any further action is necessary or desirable to carry out the   
purposes of this Agreement, the officers and directors of each of the parties   
hereto shall take all such further action.                                      

     IN WITNESS WHEREOF, Sallie Mae, MergerCo and Holding Company, have executed
this Agreement and Plan of Reorganization by their respective duly authorized   
officers as of the date first written above.                                    

                                      STUDENT LOAN MARKETING ASSOCIATION

       By:
                                            ------------------------------------
                             Name:   Lawrence A. Hough
                                         Title:  President and Chief Executive
                           Officer

                             SALLIE MAE MERGER COMPANY

       By:
                                            ------------------------------------
                             Name:   Lawrence A. Hough
                                         Title:  President and Chief Executive
                           Officer

                           SLM HOLDING CORPORATION

       By:
                                            ------------------------------------
                             Name:   Lawrence A. Hough
                                         Title:  President and Chief Executive
                           Officer

 A-4

POS AM
161st Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 161st

                                                                      APPENDIX B

    Set forth below is the text of certain pertinent provisions of Title VI of
U.S. Public Law 104-208, also known as the "Student Loan Marketing Association  
Reorganization Act of 1996" (the "Privatization Act"). The Privatization Act has
three principal provisions relating to Sallie Mae: (1) Section 602(a) adds to   
Part B of Title IV of the Higher Education Act of 1965 (the "Higher Education   
Act") a new Section 440 that provides for the reorganization of the Student Loan
Marketing Association ("Sallie Mae") into a subsidiary of a new holding company;
(2) Section 602(b) amends Section 439(r) of the Higher Education Act to require 
certain enhanced regulatory oversight of Sallie Mae to ensure its financial     
safety and soundness; and (3) Section 602(c) adds to Section 439 of the Higher  
Education Act a new subsection (s) that requires Sallie Mae to eventually       
dissolve in the event Sallie Mae does not reorganize in accordance with the     
provisions of the new Section 440 (added by Section 602(a)).                    

TITLE VI -- REORGANIZATION AND PRIVATIZATION OF 
SALLIE MAE

SEC.601. SHORT TITLE.                                                           

This title may be cited as the "Student Loan Marketing Association    
Reorganization Act of 1996".                                                    

SEC.602. REORGANIZATION OF THE STUDENT LOAN MARKETING ASSOCIATION THROUGH THE   
FORMATION OF A HOLDING COMPANY.                                                 

     Sec. 602(a) AMENDMENT. -- Part B of title IV of the Higher Education Act of
1965 (20 U.S.C. 1071 et seq.) is amended by inserting after section 439 (20     
U.S.C. 1087-2) the following new section:                                       

    "SEC.440. REORGANIZATION OF THE STUDENT LOAN MARKETING ASSOCIATION THROUGH
THE FORMATION OF A HOLDING COMPANY.                                   

         "(a) ACTIONS BY THE ASSOCIATION'S BOARD OF DIRECTORS. -- The Board of
Directors of the Association shall take or cause to be taken all such 
    action as the Board of Directors deems necessary or appropriate to effect,
    upon the shareholder approval described in subsection (b), a restructuring
     of the common stock ownership of the Association, as set forth in a plan of
    reorganization adopted by the Board of Directors (the terms of which shall
be consistent with this section) so that all of the outstanding common
 shares of the Association shall be directly owned by a Holding Company.
   Such actions may include, in the Board of Director's discretion, a merger
of a wholly-owned subsidiary of the Holding Company with and into the 
Association, which would have the effect provided in the plan of      
    reorganization and the law of the jurisdiction in which such subsidiary is
incorporated. As part of the restructuring, the Board of Directors may
cause --                                                              

           "(1) the common shares of the Association to be converted, on the
      reorganization effective date, to common shares of the Holding Company
       on a one for one basis, consistent with applicable State or District of
Columbia law; and                                               

      "(2) Holding Company common shares to be registered with the
Securities and Exchange Commission.                             

       "(b) SHAREHOLDER APPROVAL. -- The plan of reorganization adopted by
 the Board of Directors pursuant to subsection (a) shall be submitted to
common shareholders of the Association for their approval. The        
   reorganization shall occur on the reorganization effective date, provided
     that the plan of reorganization has been approved by the affirmative votes,
    cast in person or by proxy, of the holders of a majority of the issued and
outstanding shares of the Association common stock.                   

 B-1

POS AM
162nd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 162nd

        "(c) TRANSITION. -- In the event the shareholders of the Association
approve the plan of reorganization under subsection (b), the following
provisions shall apply beginning on the reorganization effective date:

     "(1) IN GENERAL. -- Except as specifically provided in this
     section, until the dissolution date the Association shall continue to
    have all of the rights, privileges and obligations set forth in, and
       shall be subject to all of the limitations and restrictions of, section
    439, and the Association shall continue to carry out the purposes of
   such section. The Holding Company and any subsidiary of the Holding
        Company (other than the Association) shall not be entitled to any of the
    rights, privileges, and obligations, and shall not be subject to the
 limitations and restrictions, applicable to the Association under
 section 439, except as specifically provided in this section. The
     Holding Company and any subsidiary of the Holding Company (other than
      the Association or a subsidiary of the Association) shall not purchase
      loans insured under this Act until such time as the Association ceases
       acquiring such loans, except that the Holding Company may purchase such
   loans if the Association is merely continuing to acquire loans as a
      lender of last resort pursuant to section 439(q) or under an agreement
with the Secretary described in paragraph (6).                  

"(2) TRANSFER OF CERTAIN PROPERTY. --                 

              "(A) IN GENERAL. -- Except as provided in this section, on the
         reorganization effective date or as soon as practicable thereafter,
          the Association shall use the Association's best efforts to transfer
         to the Holding Company or any subsidiary of the Holding Company (or
      both), as directed by the Holding Company, all real and personal
           property of the Association (both tangible and intangible) other than
     the remaining property. Subject to the preceding sentence, such
      transferred property shall include all right, title and interest
in --                                                     

               "(i) direct or indirect subsidiaries of the Association
              (excluding special purpose funding companies in existence on the
       date of enactment of this section and any interest in any
government-sponsored enterprise);                 

            "(ii) contracts, leases, and other agreements of the
Association;                                      

              "(iii) licenses and other intellectual property of the
Association; and                                  

    "(iv) any other property of the Association.

        "(B) CONSTRUCTION. -- Nothing in this paragraph shall be
       construed to prohibit the Association from transferring remaining
         property from time to time to the Holding Company or any subsidiary
         of the Holding Company, subject to the provisions of paragraph (4).

        "(3) TRANSFER OF PERSONNEL. -- On the reorganization effective
        date, employees of the Association shall become employees of the Holding
   Company (or any subsidiary of the Holding Company), and the Holding
    Company (or any subsidiary of the Holding Company) shall provide all
       necessary and appropriate management and operational support (including
        loan servicing) to the Association, as requested by the Association. The
        Association, however, may obtain such management and operational support
 from persons or entities not associated with the Holding Company.

             "(4) DIVIDENDS. -- The Association may pay dividends in the form of
       cash or noncash distributions so long as at the time of the declaration
       of such dividends, after giving effect to the payment of such dividends
   as of the date of such declaration by the Board of Directors of the
      Association, the Association's capital would be in compliance with the
      capital standards and requirements set forth in section 439(r). If, at
       any time after the reorganization effective date, the Association fails
to comply with such capital standards, the Holding Company shall
    transfer with due diligence to the Association additional capital in
  such amounts as are necessary to ensure that the Association again
complies with the capital standards.                            

          "(5) CERTIFICATION PRIOR TO DIVIDEND. -- Prior to the payment of
      any dividend under paragraph (4), the Association shall certify to the
Secretary of the Treasury that the payment                      

 B-2

POS AM
163rd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 163rd

       of the dividend will be made in compliance with paragraph (4) and shall
     provide copies of all calculations needed to make such certification.

             "(6) RESTRICTIONS ON NEW BUSINESS ACTIVITY OR ACQUISITION OF ASSETS
BY ASSOCIATION. --                                              

                "(A) IN GENERAL. -- After the reorganization effective date, the
    Association shall not engage in any new business activities or
       acquire any additional program assets described in section 439(d)
other than in connection with --                          

               "(i) student loan purchases through September 30, 2007;

            "(ii) contractual commitments for future warehousing
        advances, or pursuant to letters of credit or standby bond
  purchase agreements, which are outstanding as of the
reorganization effective date;                    

                 "(iii) the Association serving as a lender-of-last-resort
pursuant to section 439(q); and                   

                    "(iv) the Association's purchase of loans insured under this
           part, if the Secretary, with approval of the Secretary of the
             Treasury, enters into an agreement with the Association for the
              continuation or resumption of the Association's secondary market
        purchase program because the Secretary determines there is
  inadequate liquidity for loans made under this part.

               "(B) AGREEMENT. -- The Secretary is authorized to enter into an
     agreement described in clause (iv) of subparagraph (A) with the
          Association covering such secondary market activities. Any agreement
           entered into under such clause shall cover a period of 12 months, but
       may be renewed if the Secretary determines that liquidity remains
          inadequate. The fee provided under section 439(h)(7) shall not apply
    to loans acquired under any such agreement with the Secretary.

         "(7) ISSUANCE OF DEBT OBLIGATIONS DURING THE TRANSITION PERIOD;
     ATTRIBUTES OF DEBT OBLIGATIONS. -- After the reorganization effective
   date, the Association shall not issue debt obligations which mature
     later than September 30, 2008, except in connection with serving as a
   lender-of-last-resort pursuant to section 439(q) or with purchasing
     loans under an agreement with the Secretary as described in paragraph
     (6). Nothing in this section shall modify the attributes accorded the
 debt obligations of the Association by section 439, regardless of
   whether such debt obligations are incurred prior to, or at any time
    following, the reorganization effective date or are transferred to a
trust in accordance with subsection (d).                        

"(8) MONITORING OF SAFETY AND SOUNDNESS. --           

"(A) OBLIGATION TO OBTAIN, MAINTAIN, AND REPORT 
       INFORMATION. -- The Association shall obtain such information and
          make and keep such records as the Secretary of the Treasury may from
time to time prescribe concerning --                      

                 "(i) the financial risk to the Association resulting from
         the activities of any associated person, to the extent such
               activities are reasonably likely to have a material impact on the
   financial condition of the Association, including the
              Association's capital ratio, the Association's liquidity, or the
            Association's ability to conduct and finance the Association's
operations; and                                   

                 "(ii) the Association's policies, procedures, and systems
     for monitoring and controlling any such financial risk.

          "(B) SUMMARY REPORTS. -- The Secretary of the Treasury may
          require summary reports of the information described in subparagraph
           (A) to be filed no more frequently than quarterly. If, as a result of
        adverse market conditions or based on reports provided pursuant to

 B-3

POS AM
164th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 164th

        this subparagraph or other available information, the Secretary of
      the Treasury has concerns regarding the financial or operational
      condition of the Association, the Secretary of the Treasury may,
          notwithstanding the preceding sentence and subparagraph (A), require
      the Association to make reports concerning the activities of any
          associated person whose business activities are reasonably likely to
         have a material impact on the financial or operational condition of
the Association.                                          

"(C) SEPARATE OPERATION OF CORPORATIONS. --     

                   "(i) IN GENERAL. -- The funds and assets of the Association
            shall at all times be maintained separately from the funds and
            assets of the Holding Company or any subsidiary of the Holding
            Company and may be used by the Association solely to carry out
         the Association's purposes and to fulfill the Association's
obligations.                                      

                  "(ii) BOOKS AND RECORDS. -- The Association shall maintain
               books and records that clearly reflect the assets and liabilities
             of the Association, separate from the assets and liabilities of
           the Holding Company or any subsidiary of the Holding Company.

                    "(iii) CORPORATE OFFICE. -- The Association shall maintain a
             corporate office that is physically separate from any office of
           the Holding Company or any subsidiary of the Holding Company.

                "(iv) DIRECTOR. -- No director of the Association who is
             appointed by the President pursuant to section 439(c)(1)(A) may
serve as a director of the Holding Company.       

                    "(v) ONE OFFICER REQUIREMENT. -- At least one officer of the
        Association shall be an officer solely of the Association.

                   "(vi) TRANSACTIONS. -- Transactions between the Association
               and the Holding Company or any subsidiary of the Holding Company,
             including any loan servicing arrangements, shall be on terms no
          less favorable to the Association than the Association could
      obtain from an unrelated third party offering comparable
services.                                         

               "(vii) CREDIT PROHIBITION. -- The Association shall not
           extend credit to the Holding Company or any subsidiary of the
             Holding Company nor guarantee or provide any credit enhancement
              to any debt obligations of the Holding Company or any subsidiary
of the Holding Company.                           

              "(viii) AMOUNTS COLLECTED. -- Any amounts collected on
     behalf of the Association by the Holding Company or any
             subsidiary of the Holding Company with respect to the assets of
        the Association, pursuant to a servicing contract or other
            arrangement between the Association and the Holding Company or
              any subsidiary of the Holding Company, shall be collected solely
         for the benefit of the Association and shall be immediately
               deposited by the Holding Company or such subsidiary to an account
under the sole control of the Association.        

             "(D) ENCUMBRANCE OF ASSETS. -- Notwithstanding any federal or
      State law, rule, or regulation, or legal or equitable principle,
           doctrine, or theory to the contrary, under no circumstances shall the
           assets of the Association be available or used to pay claims or debts
         of or incurred by the Holding Company. Nothing in this subparagraph
     shall be construed to limit the right of the Association to pay
      dividends not otherwise prohibited under this subparagraph or to
           limit any liability of the Holding Company explicitly provided for in
this section.                                             

            "(E) HOLDING COMPANY ACTIVITIES. -- After the reorganization
    effective date and prior to the dissolution date, all business
  activities of the Holding Company shall be conducted through
subsidiaries of the Holding Company.                      

 B-4

POS AM
165th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 165th

        "(F) CONFIDENTIALITY. -- Any information provided by the
       Association pursuant to this section shall be subject to the same
  confidentiality obligations contained in section 439(r)(12).

            "(G) DEFINITION. -- For purposes of this paragraph, the term
        'associated person' means any person, other than a natural person,
        who is directly or indirectly controlling, controlled by, or under
common control with, the Association.                     

"(9) ISSUANCE OF STOCK WARRANTS. --                   

             "(A) IN GENERAL. -- On the reorganization effective date, the
       Holding Company shall issue to the District of Columbia Financial
          Responsibility and Management Assistance Authority a number of stock
        warrants that is equal to one percent of the outstanding shares of
          the Association, determined as of the last day of the fiscal quarter
      preceding the date of enactment of this section, with each stock
        warrant entitling the holder of the stock warrant to purchase from
         the Holding Company one share of the registered common stock of the
        Holding Company or the Holding Company's successors or assigns, at
           any time on or before September 30, 2008. The exercise price for such
           warrants shall be an amount equal to the average closing price of the
           common stock of the Association for the 20 business days prior to the
          date of enactment of this section on the exchange or market which is
     then the primary exchange or market for the common stock of the
       Association. The number of shares of Holding Company common stock
        subject to each stock warrant and the exercise price of each stock
warrant shall be adjusted as necessary to reflect --      

                    "(i) the conversion of Association common stock into Holding
        Company common stock as part of the plan of reorganization
approved by the Association's shareholders; and   

                  "(ii) any issuance or sale of stock (including issuance or
     sale of treasury stock), stock split, recapitalization,
           reorganization, or other corporate event, if agreed to by the
Secretary of the Treasury and the Association.    

             "(B) AUTHORITY TO SELL OR EXERCISE STOCK WARRANTS; DEPOSIT OF
        PROCEEDS. -- The District of Columbia Financial Responsibility and
           Management Assistance Authority is authorized to sell or exercise the
   stock warrants described in subparagraph (A). The District of
           Columbia Financial Responsibility and Management Assistance Authority
          shall deposit into the account established under section 3(e) of the
           Student Loan Marketing Association Reorganization Act of 1996 amounts
         collected from the sale and proceeds resulting from the exercise of
the stock warrants pursuant to this subparagraph.         

             "(10) RESTRICTIONS ON TRANSFER OF ASSOCIATION SHARES AND BANKRUPTCY
       OF ASSOCIATION. -- After the reorganization effective date, the Holding
     Company shall not sell, pledge, or otherwise transfer the outstanding
      shares of the Association, or agree to or cause the liquidation of the
      Association or cause the Association to file a petition for bankruptcy
 under title 11, United States Code, without prior approval of the
Secretary of the Treasury and the Secretary of Education.       

         "(d) TERMINATION OF THE ASSOCIATION. -- In the event the shareholders
   of the Association approve a plan of reorganization under subsection (b),
  the Association shall dissolve, and the Association's separate existence
   shall terminate on September 30, 2008, after discharge of all outstanding
debt obligations and liquidation pursuant to this subsection. The     
    Association may dissolve pursuant to this subsection prior to such date by
   notifying the Secretary of Education and the Secretary of the Treasury of
the Association's intention to dissolve, unless within 60 days after  
    receipt of such notice the Secretary of Education notifies the Association
  that the Association continues to be needed to serve as a lender of last
 resort pursuant to section 439(q) or continues to be needed to purchase
loans under an                                                        

 B-5

POS AM
166th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 166th

agreement with the Secretary described in subsection (c)(6). On the   
dissolution date, the Association shall take the following actions:   

            "(1) ESTABLISHMENT OF A TRUST. -- The Association shall, under the
     terms of an irrevocable trust agreement that is in form and substance
      satisfactory to the Secretary of the Treasury, the Association and the
        appointed trustee, irrevocably transfer all remaining obligations of the
Association to the trust and irrevocably deposit or cause to be 
   deposited into such trust, to be held as trust funds solely for the
benefit of holders of the remaining obligations, money or direct
      noncallable obligations of the United States or any agency thereof for
        which payment the full faith and credit of the United States is pledged,
       maturing as to principal and interest in such amounts and at such times
    as are determined by the Secretary of the Treasury to be sufficient,
       without consideration of any significant reinvestment of such interest,
      to pay the principal of, and interest on, the remaining obligations in
 accordance with their terms. To the extent the Association cannot
   provide money or qualifying obligations in the amount required, the
 Holding Company shall be required to transfer money or qualifying
obligations to the trust in the amount necessary to prevent any 
deficiency.                                                     

           "(2) USE OF TRUST ASSETS. -- All money, obligations, or financial
    assets deposited into the trust pursuant to this subsection shall be
  applied by the trustee to the payment of the remaining obligations
assumed by the trust.                                           

           "(3) OBLIGATIONS NOT TRANSFERRED TO THE TRUST. -- The Association
        shall make proper provision for all other obligations of the Association
        not transferred to the trust, including the repurchase or redemption, or
       the making of proper provision for the repurchase or redemption, of any
      preferred stock of the Association outstanding. Any obligations of the
       Association which cannot be fully satisfied shall become liabilities of
the Holding Company as of the date of dissolution.              

     "(4) TRANSFER OF REMAINING ASSETS. -- After compliance with
  paragraphs (1) and (3), any remaining assets of the trust shall be
   transferred to the Holding Company or any subsidiary of the Holding
Company, as directed by the Holding Company.                    

"(e) OPERATION OF THE HOLDING COMPANY. -- In the event the  
  shareholders of the Association approve the plan of reorganization under
subsection (b), the following provisions shall apply beginning on the 
reorganization effective date:                                        

           "(1) HOLDING COMPANY BOARD OF DIRECTORS. -- The number of members
      and composition of the Board of Directors of the Holding Company shall
   be determined as set forth in the Holding Company's charter or like
    instrument (as amended from time to time) or bylaws (as amended from
        time to time) and as permitted under the laws of the jurisdiction of the
Holding Company's incorporation.                                

            "(2) HOLDING COMPANY NAME. -- The names of the Holding Company and
     any subsidiary of the Holding Company (other than the Association) --

     "(A) may not contain the name 'Student Loan Marketing
Association'; and                                         

                "(B) may contain, to the extent permitted by applicable State or
           District of Columbia law, 'Sallie Mae' or variations thereof, or such
     other names as the Board of Directors of the Association or the
Holding Company deems appropriate.                        

       "(3) USE OF SALLIE MAE NAME. -- Subject to paragraph (2), the
       Association may assign to the Holding Company, or any subsidiary of the
      Holding Company, the 'Sallie Mae' name as a trademark or service mark,
 except that neither the Holding Company nor any subsidiary of the
    Holding Company (other than the Association or any subsidiary of the
        Association) may use the 'Sallie Mae' name on, or to identify the issuer
        of, any debt obligation or other security offered or sold by the Holding
   Company or any subsidiary of the Holding Company (other than a debt
      obligation or other security issued to and held by the Holding Company
or any subsidiary of the Holding                                

 B-6

POS AM
167th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 167th

      Company). The Association shall remit to the account established under
     section 3(e) of the Student Loan Marketing Association Reorganization
      Act of 1996, $5,000,000 within 60 days of the reorganization effective
       date as compensation for the right to assign the 'Sallie Mae' name as a
trademark or service mark.                                      

          "(4) DISCLOSURE REQUIRED. -- Until 3 years after the dissolution
    date, the Holding Company, and any subsidiary of the Holding Company
(other than the Association), shall prominently display --      

               "(A) in any document offering the Holding Company's securities,
     a statement that the obligations of the Holding Company and any
      subsidiary of the Holding Company are not guaranteed by the full
faith and credit of the United States; and                

                "(B) in any advertisement or promotional materials which use the
     'Sallie Mae' name or mark, a statement that neither the Holding
Company nor any subsidiary of the Holding Company is a    
      government-sponsored enterprise or instrumentality of the United
States.                                                   

         "(f) STRICT CONSTRUCTION. -- Except as specifically set forth in this
    section, nothing in this section shall be construed to limit the authority
    of the Association as a federally chartered corporation, or of the Holding
Company as a State or District of Columbia chartered corporation.     

         "(g) RIGHT TO ENFORCE. -- The Secretary of Education or the Secretary
of the Treasury, as appropriate, may request that the Attorney General
 bring an action in the United States District Court for the District of
Columbia for the enforcement of any provision of this section, or may,
under the direction or control of the Attorney General, bring such an 
   action. Such court shall have jurisdiction and power to order and require
compliance with this section.                                         

          "(h) DEADLINE FOR REORGANIZATION EFFECTIVE DATE. -- This section shall
be of no further force and effect in the event that the reorganization
effective date does not occur on or before 18 months after the date of
enactment of this section.                                            

"(i) DEFINITIONS. -- For purposes of this section:          

            "(1) ASSOCIATION. -- The term 'Association' means the Student Loan
Marketing Association.                                          

     "(2) DISSOLUTION DATE. -- The term 'dissolution date' means
      September 30, 2008, or such earlier date as the Secretary of Education
permits the transfer of remaining obligations in accordance with
subsection (d).                                                 

           "(3) HOLDING COMPANY. -- The term 'Holding Company' means the new
business corporation established pursuant to this section by the
   Association under the laws of any State of the United States or the
District of Columbia for the purposes of the reorganization and 
restructuring described in subsection (a).                      

         "(4) REMAINING OBLIGATIONS. -- The term 'remaining obligations'
   means the debt obligations of the Association outstanding as of the
dissolution date.                                               

             "(5) REMAINING PROPERTY. -- The term 'remaining property' means the
following assets and liabilities of the Association which are   
outstanding as of the reorganization effective date:            

"(A) Debt obligations issued by the Association.

                "(B) Contracts relating to interest rate, currency, or commodity
positions or protections.                                 

    "(C) Investment securities owned by the Association.

                "(D) Any instruments, assets, or agreements described in section
  439(d) (including, without limitation, all student loans and
    agreements relating to the purchase and sale of student loans,
     forward purchase and lending commitments, warehousing advances,
academic facilities                                       

 B-7

POS AM
168th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 168th

       obligations, letters of credit, standby bond purchase agreements,
           liquidity agreements, and student loan revenue bonds or other loans).

         "(E) Except as specifically prohibited by this section or
     section 439, any other nonmaterial assets or liabilities of the
          Association which the Association's Board of Directors determines to
  be necessary or appropriate to the Association's operations.

     "(6) REORGANIZATION. -- The term 'reorganization' means the
        restructuring event or events (including any merger event) giving effect
to the Holding Company structure described in subsection (a).   

         "(7) REORGANIZATION EFFECTIVE DATE. -- The term 'reorganization
 effective date' means the effective date of the reorganization as
        determined by the Board of Directors of the Association, which shall not
       be earlier than the date that shareholder approval is obtained pursuant
        to subsection (b) and shall not be later than the date that is 18 months
after the date of enactment of this section.                    

            "(8) SUBSIDIARY. -- The term 'subsidiary' means one or more direct
or indirect subsidiaries."                                      

Sec. 602(b) TECHNICAL AMENDMENTS. --                                  

(1) ELIGIBLE LENDER. --                                     

(A) AMENDMENTS TO THE HIGHER EDUCATION ACT. --        

             (i) DEFINITION OF ELIGIBLE LENDER. -- Section 435(d)(1)(F) of
           the Higher Education Act of 1965 (20 U.S.C. 1085(d)(1)(F)) is amended
 by inserting after "Student Loan Marketing Association" the
      following: "or the Holding Company of the Student Loan Marketing
           Association, including any subsidiary of the Holding Company, created
pursuant to section 440,".                                

            (ii) DEFINITION OF ELIGIBLE LENDER AND FEDERAL CONSOLIDATION
       LOANS. -- Sections 435(d)(1)(G) and 428C(a)(1)(A) of such Act (20
   U.S.C. 1085(d)(1)(G) and 1078-3(a)(1)(A)) are each amended by
         inserting after "Student Loan Marketing Association" the following:
        "or the Holding Company of the Student Loan Marketing Association,
          including any subsidiary of the Holding Company, created pursuant to
section 440".                                             

            (B) EFFECTIVE DATE. -- The amendments made by this paragraph shall
take effect on the                                              
        reorganization effective date as defined in section 440(h) of the Higher
Education Act of 1965 (as added by subsection (a)).             

       (2) ENFORCEMENT OF SAFETY AND SOUNDNESS REQUIREMENTS. -- Section 439(r)
 of the Higher Education Act of 1965 (20 U.S.C. 1087-2(r)) is amended --

           (A) in the first sentence of paragraph (12), by inserting "or the
Association's associated persons" after "by the Association";   

    (B) by redesignating paragraph (13) as paragraph (15); and

            (C) by inserting after paragraph (12) the following new paragraph:

              "(13) ENFORCEMENT OF SAFETY AND SOUNDNESS REQUIREMENTS. -- The
 Secretary of Education or the Secretary of the Treasury, as
           appropriate, may request that the Attorney General bring an action in
           the United States District Court for the District of Columbia for the
     enforcement of any provision of this section, or may, under the
         direction or control of the Attorney General, bring such an action.
       Such court shall have jurisdiction and power to order and require
compliance with this section.".                           

 B-8

POS AM
169th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 169th

       (3) FINANCIAL SAFETY AND SOUNDNESS. -- Section 439(r) of the Higher
Education Act of 1965 (20 U.S.C.1087-2(r)) is further amended --      

(A) in paragraph (1) --                               

     (i) by striking "and" at the end of subparagraph (A);

              (ii) by striking the period at the end of subparagraph (B) and
inserting "; and" and                                     

          (iii) by adding at the end the following new subparagraph:

                 "(C)(i) financial statements of the Association within 45
days of the end of each fiscal quarter; and       

                  "(ii) reports setting forth the calculation of the capital
         ratio of the Association, within 45 days of the end of each
fiscal quarter.";                                 

(B) in paragraph (2) --                               

            (i) by striking clauses (i) and (ii) of subparagraph (A) and
inserting the following:                                  

                   "(i) appoint auditors or examiners to conduct audits of the
             Association from time to time to determine the condition of the
        Association for the purpose of assessing the Association's
         financial safety and soundness and to determine whether the
             requirements of this section and section 440 are being met; and

                  "(ii) obtain the services of such experts as the Secretary
      of the Treasury determines necessary and appropriate, as
           authorized by section 3109 of title 5, United States Code, to
            assist in determining the condition of the Association for the
         purpose of assessing the Association's financial safety and
          soundness, and to determine whether the requirements of this
section and section 440 are being met."; and      

             (ii) by adding at the end of the following new subparagraph:"

(D) ANNUAL ASSESSMENT. --               

                        "(i) IN GENERAL. -- For each fiscal year beginning on or
              after October 1, 1996, the Secretary of the Treasury may
                  establish and collect from the Association an assessment (or
                  assessments) in amounts sufficient to provide for reasonable
          costs and expenses of carrying out the duties of the
                  Secretary of the Treasury under this section and section 440
                  during such fiscal year. In no event may the total amount so
                 assessed exceed, for any fiscal year, $800,000 adjusted for
              each fiscal year ending after September 30, 1997, by the
               ratio of the Consumer Price Index for All Urban Consumers
              (issued by the Bureau of Labor Statistics) for the final
                  month of the fiscal year preceding the fiscal year for which
                the assessment is made to the Consumer Price Index for All
Urban Consumers for September 1997.       

                    "(ii) DEPOSIT. -- Amounts collected from assessments
              under this subparagraph shall be deposited in an account
                   within the Treasury of the United States as designated by the
                  Secretary of the Treasury for that purpose. The Secretary of
               the Treasury is authorized and directed to pay out of any
              funds available in such account the reasonable costs and
                 expenses of carrying out the duties of the Secretary of the
              Treasury under this section and section 440. None of the
                  funds deposited into such account shall be available for any
           purpose other than making payments for such costs and
expenses."; and                           

 B-9

POS AM
170th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 170th

      (C) by inserting after paragraph (13) (as added by paragraph
(2)(C)) the following new paragraph:"                           

(14) ACTIONS BY SECRETARY. --                   

              "(A) IN GENERAL. -- For any fiscal quarter ended after
               January 1, 2000, the Association shall have a capital ratio of at
             least 2.25 percent. The Secretary of the Treasury may, whenever
        such capital ratio is not met, take any one or more of the
actions described in paragraph (7), except that --

                 "(i) the capital ratio to be restored pursuant to
 paragraph (7)(D) shall be 2.25 percent; and

                      "(ii) if the relevant capital ratio is in excess of or
               equal to 2 percent for such quarter, the Secretary of the
                 Treasury shall defer taking any of the actions set forth in
                  paragraph (7) until the next succeeding quarter and may then
                   proceed with any such action only if the capital ratio of the
Association remains below 2.25 percent.   

                "(B) APPLICABILITY. -- The provisions of paragraphs (4),
       (5), (6), (8), (9), (10), and (11) shall be of no further
            application to the Association for any period after January 1,
2000."                                            

        (4) INFORMATION REQUIRED; DIVIDENDS. -- Section 439(r) of the Higher
Education Act of 1965 (20 U.S.C. 1087-2(r)) is further amended --     

         (A) by adding at the end of paragraph (2) (amended in paragraph
(3)(B)(ii)) the following new subparagraph:                     

             "(E) OBLIGATION TO OBTAIN, MAINTAIN, AND REPORT INFORMATION. --

             "(i) IN GENERAL. -- The Association shall obtain such
            information and make and keep such records as the Secretary of
        the Treasury may from time to time prescribe concerning --

                    "(I) the financial risk to the Association resulting
                 from the activities of any associated person, to the extent
              such activities are reasonably likely to have a material
           impact on the financial condition of the Association,
                  including the Association's capital ratio, the Association's
            liquidity, or the Association's ability to conduct and
finance the Association's operations; and 

                 "(II) the Association's policies, procedures, and
               systems for monitoring and controlling any such financial
risk.                                     

                   "(ii) SUMMARY REPORTS. -- The Secretary of the Treasury may
             require summary reports of such information to be filed no more
          frequently than quarterly. If, as a result of adverse market
      conditions or based on reports provided pursuant to this
               subparagraph or other available information, the Secretary of the
          Treasury has concerns regarding the financial or operational
              condition of the Association, the Secretary of the Treasury may,
            notwithstanding the preceding sentence and clause (i), require
              the Association to make reports concerning the activities of any
         associated person, whose business activities are reasonably
              likely to have a material impact on the financial or operational
condition of the Association.                     

                    "(iii) DEFINITION. -- For purposes of this subparagraph, the
             term 'associated person' means any person, other than a natural
           person, directly or indirectly controlling, controlled by, or
under common control with the Association."; and  

B-10

POS AM
171st Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 171st

(B) by adding at the end the following new paragraphs:

                (16) DIVIDENDS. -- The Association may pay dividends in the form
    of cash or noncash distributions so long as at the time of the
          declaration of such dividends, after giving effect to the payment of
       such dividends as of the date of such declaration by the Board of
         Directors of the Association, the Association's capital would be in
      compliance with the capital standards set forth in this section.

             "(17) CERTIFICATION PRIOR TO PAYMENT OF DIVIDEND. -- Prior to
       the payment of any dividend under paragraph (16), the Association
        shall certify to the Secretary of the Treasury that the payment of
          the dividend will be made in paragraph (16) and shall provide copies
of all calculations needed to make such certification."   

    "Sec. 602(c) SUNSET OF THE ASSOCIATION'S CHARTER IF NO REORGANIZATION PLAN
OCCURS. -- Section 439 of the Higher Education Act of 1965 (20 U.S.C. 1087-2) is
amended by adding at the end the following new subsection:                      

"(s) CHARTER SUNSET. --                                     

    "(1) APPLICATION OF PROVISIONS. -- This subsection applies
   beginning 18 months and one day after the date of enactment of this
       subsection if no reorganization of the Association occurs in accordance
with the provisions of section 440.                             

"(2) SUNSET PLAN. --                                  

               "(A) PLAN SUBMISSION BY THE ASSOCIATION. -- Not later than July
   1, 2007, the Association shall submit to the Secretary of the
         Treasury and to the Chairman and Ranking Member of the Committee on
          Labor and Human Resources of the Senate and the Chairman and Ranking
          Member of the Committee on Economic and Educational Opportunities of
           the House of Representatives, a detailed plan for the orderly winding
           up, by July 1, 2013, of business activities conducted pursuant to the
charter set forth in this section. Such plan shall --     

                  "(i) ensure that the Association will have adequate assets
               to transfer to a trust, as provided in this subsection, to ensure
         full payment of remaining obligations of the Association in
accordance with the terms of such obligations;    

                 "(ii) provide that all assets not used to pay liabilities
      shall be distributed to shareholders as provided in this
subsection; and                                   

                   "(iii) provide that the operations of the Association shall
               remain separate and distinct from that of any entity to which the
assets of the Association are transferred;        

     "(B) AMENDMENT OF THE PLAN BY THE ASSOCIATION. -- The
    Association shall from time to time amend such plan to reflect
           changed circumstances, and submit such amendments to the Secretary of
         the Treasury and to the Chairman and Ranking Minority Member of the
           Committee on Labor and Human Resources of the Senate and Chairman and
          Ranking Minority Member of the Committee on Economic and Educational
       Opportunities of the House of Representatives. In no case may any
          amendment extend the date for full implementation of the plan beyond
the dissolution date provided in paragraph (3).           

            "(C) PLAN MONITORING. -- The Secretary of the Treasury shall
           monitor the Association's compliance with the plan and shall continue
to review the plan (including any amendments thereto).    

  "(D) AMENDMENT OF THE PLAN BY THE SECRETARY OF THE
TREASURY. -- The Secretary of the Treasury may require the
           Association to amend the plan (including any amendments to the plan),
          if the Secretary of the Treasury deems such amendments are necessary
   to ensure full payment of all obligations of the Association.

B-11

POS AM
172nd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 172nd

                "(E) IMPLEMENTATION BY THE ASSOCIATION. -- The Association shall
        promptly implement the plan (including any amendments to the plan,
         whether such amendments are made by the Association or are required
to be made by the Secretary of the Treasury).             

       "(3) DISSOLUTION OF THE ASSOCIATION. -- The Association shall
    dissolve and the Association's separate existence shall terminate on
     July 1, 2013, after discharge of all outstanding debt obligations and
     liquidation pursuant to this subsection. The Association may dissolve
pursuant to this subsection prior to such date by notifying the 
Secretary of Education and the Secretary of the Treasury of the 
        Association's intention to dissolve, unless within 60 days of receipt of
        such notice the Secretary of Education notifies the Association that the
      Association continues to be needed to serve as a lender of last resort
      pursuant to subsection (q) or continues to be needed to purchase loans
       under an agreement with the Secretary described in paragraph (4)(A). On
       the dissolution date, the Association shall take the following actions:

              "(A) ESTABLISHMENT OF A TRUST. -- The Association shall, under
       the terms of an irrevocable trust agreement in form and substance
         satisfactory to the Secretary of the Treasury, the Association, and
           the appointed trustee, irrevocably transfer all remaining obligations
          of the Association to a trust and irrevocably deposit or cause to be
         deposited into such trust, to be held as trust funds solely for the
      benefit of holders of the remaining obligations, money or direct
        noncallable obligations of the United States or any agency thereof
         for which payment the full faith and credit of the United States is
           pledged, maturing as to principal and interest in such amounts and at
         such times as are determined by the Secretary of the Treasury to be
          sufficient, without consideration of any significant reinvestment of
  such interest, to pay the principal of, and interest on, the
remaining obligations in accordance with their terms.     

       "(B) USE OF TRUST ASSETS. -- All money, obligations, or
           financial assets deposited into the trust pursuant to this subsection
     shall be applied by the trustee to the payment of the remaining
   obligations assumed by the trust. Upon the fulfillment of the
         trustee's duties under the trust, any remaining assets of the trust
 shall be transferred to the persons who, at the time of the
      dissolution, were the shareholders of the Association, or to the
legal successors or assigns of such persons.              

     "(C) OBLIGATIONS NOT TRANSFERRED TO THE TRUST. -- The
          Association shall make proper provision for all other obligations of
     the Association, including the repurchase or redemption, or the
         making of proper provision for the repurchase or redemption, of any
preferred stock of the Association outstanding.           

           "(D) TRANSFER OF REMAINING ASSETS. -- After compliance with
      subparagraphs (A) and (C), the Association shall transfer to the
 shareholders of the Association any remaining assets of the
Association.                                              

(4) RESTRICTIONS RELATING TO WINDING UP. --           

            "(A) RESTRICTIONS ON NEW BUSINESS ACTIVITY OR ACQUISITION OF
ASSETS BY THE ASSOCIATION. --                             

          "(i) IN GENERAL. -- Beginning on July 1, 2009, the
            Association shall not engage in any new business activities or
               acquire any additional program assets (including acquiring assets
              pursuant to contractual commitments) described in subsection (d)
other than in connection with the Association --  

                   "(I) serving as a lender of last resort pursuant to
subsection (q); and                       

                      "(II) purchasing loans insured under this part, if the
          Secretary, with the approval of the Secretary of the
                 Treasury, enters into an agreement with the Association for
                   the continuation or resumption of the Association's secondary
market                                    

B-12

POS AM
173rd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 173rd

                purchase program because the Secretary determines there is
          inadequate liquidity for loans made under this part.

                "(ii) AGREEMENT. -- The Secretary is authorized to enter
              into an agreement described in subclause (II) of clause (i) with
            the Association covering such secondary market activities. Any
              agreement entered into under such subclause shall cover a period
               of 12 months, but may be renewed if the Secretary determines that
             liquidity remains inadequate. The fee provided under subsection
               (h)(7) shall not apply to loans acquired under any such agreement
with the Secretary."                              

            "(B) ISSUANCE OF DEBT OBLIGATIONS DURING THE WIND UP PERIOD;
        ATTRIBUTES OF DEBT OBLIGATIONS. -- The Association shall not issue
      debt obligations which mature later than July 1, 2013, except in
    connection with serving as a lender of last resort pursuant to
         subsection (q) or with purchasing loans under an agreement with the
 Secretary as described in subparagraph (A). Nothing in this
          subsection shall modify the attributes accorded the debt obligations
         of the Association by this section, regardless of whether such debt
         obligations are transferred to a trust in accordance with paragraph
(3).                                                      

        "(C) USE OF ASSOCIATION NAME. -- The Association may not
    transfer or permit the use of the name 'Student Loan Marketing
        Association', 'Sallie Mae', or any variation thereof, to or by any
entity other than a subsidiary of the Association."       

Sec. 602(d) REPEALS. --                                               

       (1) IN GENERAL. -- Sections 439 of the Higher Education Act of 1965
   (20 U.S.C.1087-2) and 440 of such Act (as added by subsection (a) of this
section) are repealed.                                                

     (2) EFFECTIVE DATE. -- The repeals made by paragraph (1) shall be
effective one year after --                                           

   (A) the date on which all of the obligations of the trust
       established under section 440(d)(1) of the Higher Education Act of 1965
        (as added by subsection (a)) have been extinguished, if a reorganization
occurs in accordance with section 440 of such Act; or           

   (B) the date on which all of the obligations of the trust
  established under subsection 439(s)(3)(A) of such Act (as added by
    subsection (c)) have been extinguished, if a reorganization does not
occur in accordance with section 440 of such Act.               

Sec. 602(e) ASSOCIATION NAMES. -- Upon dissolution in accordance with 
section 439(s) of the Higher Education Act of 1965 (20 U.S.C. 1087-2), the names
"Student Loan Marketing Association", "Sallie Mae", and any variations thereof  
may not be used by any entity engaged in any business similar to the business   
conducted pursuant to section 439 of such Act (as such section was in effect on 
the date of enactment of this Act) without the approval of the Secretary of the 
Treasury.                                                                       

Sec. 602(f) RIGHT TO ENFORCE. -- The Secretary of Education or the    
Secretary of the Treasury, as appropriate, may request that the Attorney General
bring an action in the United States District Court for the District of Columbia
for the enforcement of any provision of subsection (e), or may, under the       
direction or control of the Attorney General, bring such an action. Such court  
shall have jurisdiction and power to order and require compliance with          
subsection (e).                                                                 

B-13

POS AM
174th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 174th

                                                                      APPENDIX C

THE FEDERAL FAMILY EDUCATION LOAN PROGRAM 

GENERAL                                                                         

The Federal Family Education Loan Program ("FFELP") (formerly the     
Guaranteed Student Loan Program ("GSLP")) under Title IV of the Higher Education
Act (the "Act") provides for loans to be made to students or parents of         
dependent students enrolled in eligible institutions to finance a portion of the
costs of attending school. If a borrower defaults on a student loan, becomes    
totally or permanently disabled, dies, files for bankruptcy or attends a school 
that closes prior to the student earning a degree, or if the applicable         
education institution falsely certifies the borrower's eligibility for a Student
Loan (collectively "insurance triggers"), the holder of the loan (which must be 
an eligible lender) may file a claim with the applicable Guarantee Agency.      
Provided that the loan has been properly originated and serviced, the Guarantee 
Agency pays the holder all or a portion of the unpaid principal balance on the  
loan as well as accrued interest. Origination and servicing requirements, as    
well as procedures to cure deficiencies, are established by the U.S. Department 
of Education (the "Department") and the various Guarantee Agencies.             

Under the FFELP, payment of principal and interest with respect to the
student loans is guaranteed against default, death, bankruptcy or disability of 
the applicable borrower by the applicable Guarantee Agency. As described herein,
the guarantee agencies are entitled, subject to certain conditions, to be       
reimbursed for all or a portion of Guarantee Payments they make by the          
Department pursuant to a program of federal reinsurance under the Act. See      
"Guarantee Agencies".                                                           

    Guarantee Agencies enter into reinsurance agreements with the Secretary of
Education pursuant to which the Secretary agrees to reimburse the Guarantee     
Agency for all or a portion of the amount expended by the Guarantee Agency in   
discharge of its guarantee obligation with respect to default claims provided   
the loans have been properly originated and serviced. Except for claims         
resulting from death, disability or bankruptcy of a borrower, in which case the 
Secretary pays the full amount of the claim, the amount of reinsurance depends  
on the default experience of the Guarantee Agency. See " -- Federal Insurance   
and Reinsurance of Guarantee Agencies".                                         

   In the event of a shortfall between the amounts of claims paid to holders
of defaulted loans and reinsurance payments from the federal government,        
Guarantee Agencies pay the claims from their reserves. These reserves come from 
four principal sources: insurance premiums they charge on student loans         
(currently up to 1 percent of loan principal), administrative cost allowances   
from the Department (payment of which is currently discretionary on the part of 
the Department)(1), debt collection activities (generally, the Guarantee Agency 
may retain 27 percent of its collections on defaulted student loans), and       
investment income from reserve funds. Claims which a Guarantee Agency is        
financially unable to pay will be paid by the Secretary or transferred to a     
financially sound Guarantee Agency, if the Secretary makes the necessary        
determination that the guarantor is financially unable to pay.                  

  Several types of guaranteed student loans are currently authorized under
the Act: (i) loans to students who pass certain financial need tests            
("Subsidized Stafford Loans"); (ii) loans to students who do not pass the       
Stafford need tests or who need additional loans to supplement their Subsidized 
Stafford Loans ("Unsubsidized Stafford Loans"); (iii) loans to parents of       
students ("PLUS Loans") who are dependents and whose need exceed the financing  
available from Subsidized Stafford Loans and/or Unsubsidized Stafford Loans; and
(iv) loans to consolidate the borrower's obligations under various federally    
authorized student loan programs into a single loan ("Consolidation Loans").    
Prior to July 1, 1994 the Act also permitted loans to graduate and professional 
students and independent undergraduate students and, under certain              
circumstances, dependent                                                        

---------------                                                                 

   (1) The Fiscal Year 1996 Omnibus Appropriations Act provided that for the
1995 and 1996 federal fiscal years, the Secretary must pay an administrative    
cost allowance to guaranty agencies equal to .085 percent of each agency's loan 
originations.                                                                   

 C-1

POS AM
175th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 175th

undergraduate students who needed additional loans to supplement their          
Subsidized Stafford Loans ("Supplemental Loans to Students" or "SLS Loans").    

The FFELP is subject to statutory and regulatory revision from time to
time. The most recent significant revisions are contained in the Higher         
Education Amendments of 1992 ("the 1992 Amendments"), the Omnibus Budget        
Reconciliation Act of 1993 ("the 1993 Act") and the "Higher Education Technical 
Amendments of 1993" (the "Technical Amendments"). As part of the 1992 Amendments
the name of the Guaranteed Student Loan Program was changed to the FFELP. The   
1993 Act contains significant changes to the FFELP and creates a direct loan    
program funded directly by the U.S. Department of Treasury (each loan under such
program, a "Federal Direct Student Loan").                                      

Following enactment of the 1992 Amendments, Subsidized Stafford Loans,
Unsubsidized Stafford Loans, PLUS Loans and Consolidation Loans are officially  
referred to as "Federal Stafford Loans," "Federal Unsubsidized Stafford Loans," 
"Federal PLUS Loans" and "Federal Consolidation Loans," respectively.           

The description and summaries of the Act, the FFELP, the Guarantee    
Agreements and the other statutes and regulations referred to in this Proxy     
Statement/Prospectus do not purport to be comprehensive, and are qualified in   
their entirety by reference to each such statute or regulation. The Act is      
codified at 20 U.S.C. (LOGO) 1071 et seq., and the regulations promulgated      
thereunder can be found at 34 C.F.R. Part 682. There can be no assurance that   
future amendments or modifications will not materially change any of the terms  
or provisions of the programs described in this Proxy Statement/Prospectus or of
the statutes and regulations implementing these programs.                       

LEGISLATIVE AND ADMINISTRATIVE MATTERS                                          

The Act was amended by enactment of the 1992 Amendments, the general  
provisions of which became effective on July 23, 1992 and which extend the      
principal provisions of the FFELP to September 30, 1998 (or in the case of      
borrowers who have received loans prior to that date, September 30, 2002, except
that authority to make Consolidation Loans expires on September 30, 1998). The  
Technical Amendments became effective on December 20, 1993.                     

    The 1993 Act, effective on August 10, 1993, implements a number of changes
to the federal guaranteed student loan programs, including imposing on lenders  
or holders of guaranteed student loans certain fees, providing for 2 percent    
lender risk sharing, reducing interest rates and Special Allowance Payments for 
certain loans, effectively reducing the interest payable to holders of          
Consolidation Loans and affecting the Department's financial assistance to      
Guarantee Agencies, including by reducing the percentage of claims the          
Department will reimburse Guarantee Agencies and reducing more substantially the
premiums and default collections that Guarantee Agencies are entitled to receive
and/or retain. In addition, such legislation also contemplates replacement of at
least 60 percent of the federal guaranteed student loan programs with direct    
lending by the Department by the 1998-99 academic year.                         

ELIGIBLE LENDERS, STUDENTS AND INSTITUTIONS                                     

Lenders eligible to make and/or hold loans under the FFELP generally  
include banks, savings and loan associations, credit unions, pension funds,     
insurance companies and, under certain conditions, schools and guarantee        
agencies. Sallie Mae is an eligible lender for making Consolidation Loans and as
a lender of last resort and for holding FFELP loans.                            

     A FFELP loan may be made only to qualified borrowers. Generally a qualified
borrower is an individual or parent of an individual who (a) has been accepted  
for enrollment or is enrolled and is maintaining satisfactory progress at an    
eligible institution, (b) is carrying or will carry at least one-half of the    
normal full-time academic workload for the course of study the student is       
pursuing, as determined by such institution, (c) has agreed to notify promptly  
the holder of the loan of any address change and (d) meets the applicable "need"
requirements for the particular loan program. Each loan is to be evidenced by an
unsecured promissory note signed by the qualified borrower.                     

 C-2

POS AM
176th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 176th

Eligible institutions are post-secondary schools which meet the       
requirements set forth in the Act. They include institutions of higher          
education, proprietary institutions of higher education and post-secondary      
vocational institutions. With specified exceptions, institutions are excluded   
from consideration as eligible institutions if the institution (i) offers more  
than 50 percent of its courses by correspondence; (ii) enrolls 50 percent or    
more of its students in correspondence courses; (iii) has a student enrollment  
in which more than 25 percent of the students are incarcerated; or (iv) has a   
student enrollment in which more than 50 percent of the students are admitted   
without a high school diploma or its equivalent on the basis of their ability to
benefit from the education provided (as defined by statute and regulation).     
Further, schools are specifically excluded from participation if (i) the        
institution has filed for bankruptcy or (ii) the institution, the owner or its  
chief executive officer, has been convicted or pleaded nolo contendere or guilty
to a crime involving the acquisition, use or expenditure of federal student aid 
funds, or has been judicially determined to have committed fraud involving funds
under the student aid program. In order to participate in the program, the      
eligibility of a school must be approved by the Department under standards      
established by regulation.                                                      

FINANCIAL NEED ANALYSIS                                                         

   Student loans may generally be made in amounts, subject to certain limits
and conditions, to cover the student's estimated costs of attendance, including 
tuition and fees, books, supplies, room and board, transportation and           
miscellaneous personal expenses (as determined by the institution). Each        
borrower must undergo a need analysis, which requires the borrower to submit a  
need analysis form which is forwarded to the federal central processor. The     
central processor evaluates the parents' and student's financial condition under
federal guidelines and calculates the amount that the student and/or the family 
is expected to contribute towards the student's cost of education (the "family  
contribution"). After receiving information on the family contribution, the     
institution then subtracts the family contribution from its cost of attendance  
to determine the student's eligibility for grants, Subsidized Stafford Loans and
work assistance. The difference between (a) the sum of the (i) amount of grants,
(ii) the amount earned through work assistance and (iii) the amount of          
Subsidized Stafford Loans for which the borrower is eligible and (b) the        
student's estimated cost of attendance (the "Unmet Need") may be borrowed       
through Unsubsidized Stafford Loans. Parents may finance the family contribution
amount through their own resources or through PLUS Loans.                       

SPECIAL ALLOWANCE PAYMENTS                                                      

The Act provides for quarterly special allowance payments ("Special   
Allowance Payments") to be made by the Department to holders of student loans to
the extent necessary to ensure that such holder receives at least a specified   
market interest rate of return on such loans. The rates for Special Allowance   
Payments are based on formulas that differ according to the type of loan and the
date the loan was originally made or insured. A Special Allowance Payment is    
made for each of the 3-month periods ending March 31, June 30, September 30, and
December 31. The Special Allowance Payments equal the average unpaid principal  
balance (including interest permitted to be capitalized) of all eligible loans  
held by such holder during such period multiplied by the special allowance      
percentage. The special allowance percentage shall be computed by (i)           
determining the average of the bond equivalent rates of 91-day Treasury bills   
auctioned for such 3-month period, (ii) subtracting the applicable borrower     
interest rate on such loans from such average, (iii) adding the applicable      
Special Allowance Margin (defined below) to the resultant percentage, and (iv)  
dividing the resultant percentage by 4.                                         

                                                        [Enlarge/Download Table]

            DATE OF DISBURSEMENT                            SPECIAL ALLOWANCE MARGIN             
---------------------------------------------  --------------------------------------------------
                                                                                                 
Prior to 10/17/86............................  3.50%                                             
10/17/86-9/30/92.............................  3.25%                                             
10/01/92-6/30/95.............................  3.10%                                             
7/1/95-6/30/98...............................  2.50% (Subsidized and Unsubsidized Stafford Loans,
                                               in school, grace or deferment)                    
                                               3.10% (Subsidized and Unsubsidized Stafford Loans,
                                               in repayment and all other loans)                 

 C-3

POS AM
177th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 177th

  Special Allowance Payments are available on variable rate PLUS Loans and
SLS Loans as described below under "PLUS and SLS Loan Programs" only to cover   
any amount by which the variable rate, which is reset annually based on the     
52-week Treasury Bill, would exceed the applicable maximum rate.                

As part of the amendments made to the Act by the Omnibus Budget       
Reconciliation Act of 1993, the method for calculating borrower interest and    
special allowance payment is scheduled to be altered for loans made on or after 
July 1, 1998. As of that date, the borrower interest rate on Stafford Loans and 
Unsubsidized Stafford Loans will be established annually at the "bond equivalent
rate of the securities with the comparable maturity", as determined by the      
Secretary of Education, plus 1.0 percent. This rate will apply for loans both   
during the in-school and repayment periods. For PLUS loans, the rate will be the
same, except that 2.10 percent will be added to the rate basis. Special         
allowance payments on these loans will be paid at the "bond equivalent rate of  
the securities with comparable maturities" plus 1.0 percent and reset at        
intervals established by the Secretary of Education. The Secretary of Education 
has yet to issue formal guidance on the rate basis or on the method or timing of
special allowance payments for these loans.                                     

ORIGINATION FEES                                                                

    The eligible lender charges borrowers an origination fee, which in turn is
passed on to the federal government, on Subsidized and Unsubsidized Stafford    
Loans and PLUS Loans equal to 3 percent of the principal balance of each loan.  
The amount of the origination fee may be deducted from each disbursement        
pursuant to a loan on a pro rata basis. No origination fee is paid on           
Consolidation Loans.                                                            

 Lenders must refund all origination fees attributable to a disbursement
that was returned to the lender by the school or repaid or not delivered within 
120 days of the disbursement. Such origination fees must be refunded by         
crediting the borrower's loan balance with the applicable lender.               

STAFFORD LOANS                                                                  

 The Act provides for (i) federal insurance or reinsurance of Subsidized
Stafford Loans made by eligible lenders to qualified students, (ii) federal     
interest subsidy payments on certain eligible Subsidized Stafford Loans to be   
paid by the Department to holders of the loans in lieu of the borrower making   
interest payments ("Interest Subsidy Payments"), and (iii) Special Allowance    
Payments representing an additional subsidy paid by the Department to the       
holders of eligible Subsidized Stafford Loans (collectively referred to herein  
as "Federal Assistance").                                                       

     Subsidized Stafford Loans are loans under the FFELP that may be made, based
on need, only to post-secondary students accepted or enrolled in good standing  
at an eligible institution who are carrying at least one-half the normal        
full-time course load at that institution. The Act limits the amount a student  
can borrow in any academic year and the amount he or she can have outstanding in
the aggregate. The following chart sets forth the historic loan limits.         

 C-4

POS AM
178th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 178th

MAXIMUM LOAN AMOUNTS
FEDERAL STAFFORD LOAN PROGRAM 

                                                        [Enlarge/Download Table]

                                                                 ALL STUDENTS(1)                          
                                                                 ---------------  INDEPENDENT STUDENTS(3) 
                                                                   BASE AMOUNT    ------------------------
                                                                 SUBSIDIZED AND    ADDITIONAL             
                                                    SUBSIDIZED    UNSUBSIDIZED    UNSUBSIDIZED            
                                        SUBSIDIZED  ON OR AFTER    ON OR AFTER     ONLY ON OR      TOTAL  
      BORROWER'S ACADEMIC LEVEL         PRE-1/1/87    1/1/87        7/7/93(2)     AFTER 7/1/94     AMOUNT 
--------------------------------------  ----------  -----------  ---------------  ------------    --------
                                                                                                          
Undergraduate (per year)                                                                                  
1st year..............................   $  2,500     $ 2,625        $ 2,625        $  4,000      $  6,625
2nd year..............................   $  2,500     $ 2,625        $ 3,500        $  4,000      $  7,500
3rd year & above......................   $  2,500     $ 4,000        $ 5,500        $  5,000      $ 10,500
Graduate (per year)...................   $  5,000     $ 7,500        $ 8,500        $ 10,000      $ 18,500
Aggregate Limit                                                                                           
  Undergraduate.......................   $ 12,500     $17,250        $23,000        $ 23,000      $ 46,000
  Graduate (including                                                                                     
     undergraduate)...................   $ 25,000     $54,750        $65,500        $ 73,000      $138,500

---------------                                                                 
(1) The loan limits are inclusive of both Federal Stafford Loans and Federal    
Direct Student Loans.                                                 

(2) These amounts represent the combined maximum loan amount per year for       
     Subsidized and Unsubsidized Stafford Loans. Accordingly, the maximum amount
that a student may borrow under an Unsubsidized Loan is the difference
between the combined maximum loan amount and the amount the student   
received in the form of a Subsidized Loan.                            

(3) Independent undergraduate students, graduate students or professional       
students may borrow these additional amounts. In addition, dependent  
  undergraduate students may also receive these additional loan amounts if
    the parents of such students are unable to provide the family contribution
 amount and it is unlikely that the student's parents will qualify for a
Federal PLUS Loan.                                                    

(4) Some graduate health profession students otherwise eligible to borrow under 
 HEAL may be entitled to increase unsubsidized loan limits not to exceed
HEAL statutory limits for each course of study per academic year.     

The interest rate paid by borrowers on a Subsidized Stafford Loan is  
dependent on the date of the loan except for loans made prior to October 1,     
1992, whose interest rate depends on any outstanding borrowings of that borrower
as of such date. The rate for variable rate Subsidized Stafford Loans applicable
for any 12-month period beginning on July 1 and ending on June 30, is determined
on the preceding June 1 and is equal to the lesser of (a) the applicable Maximum
Rate or, (b) the sum of (i) the bond equivalent rate of 91-day Treasury bills   
auctioned at the final auction held prior to such June 1, and (ii) the          
applicable Interest Rate Margin.                                                

 C-5

POS AM
179th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 179th

SUBSIDIZED STAFFORD LOANS 

                                                        [Enlarge/Download Table]

     DATE OF DISBURSEMENT          BORROWER RATE          MAXIMUM RATE      INTEREST RATE MARGIN
------------------------------  --------------------  --------------------  --------------------
                                                                                                
09/13/83-06/30/88.............  8%                           8.00%                              
07/01/88-09/30/92.............  8% for 48 months;     8.00% for 48 months,         3.25%        
                                thereafter, 91-Day          then 10%                            
                                Treasury +                                                      
                                Interest Rate Margin                                            
10/01/92-06/30/94.............  91-Day Treasury +            9.00%                 3.10%        
                                Interest Rate Margin                                            
07/01/94-06/30/95.............  91-Day Treasury +            8.25%                 3.10%        
                                Interest Rate Margin                                            
07/01/95-06/30/98.............  91-Day Treasury +            8.25%           2.50% (in school,  
                                Interest Rate Margin                        grace, or deferment)
                                                                            3.10% (in repayment)
After 07/01/98................  The bond equivalent          8.25%                  1.0%        
                                rate of the                                                     
                                securities with a                                               
                                comparable maturity                                             
                                as established by                                               
                                the Secretary +                                                 
                                Interest Rate Margin                                            

The Technical Amendments provide that, for fixed rate loans made on or
after July 23, 1992 and for certain loans made to new borrowers on or after July
1, 1988, the lender must convert the loan to a variable rate loan capped at the 
interest rate existing prior to the conversion. This conversion must have been  
completed by January 1, 1995.                                                   

Holders of Subsidized Stafford Loans are eligible to receive Special  
Allowance Payments. The Department is responsible for paying interest on        
Subsidized Stafford Loans while the borrower is a qualified student, during a   
grace period or during certain deferment periods. The Department makes quarterly
Interest Subsidy Payments to the owner of Subsidized Stafford Loans in the      
amount of interest accruing on the unpaid balance thereof prior to the          
commencement of repayment or during any deferment periods. The Act provides that
the owner of an eligible Subsidized Stafford Loan shall be deemed to have a     
contractual right against the United States to receive Interest Subsidy Payments
(and Special Allowance Payments) in accordance with its provisions. Receipt of  
Interest Subsidy Payments and Special Allowance Payments is conditioned on      
compliance with the requirements of the Act and continued eligibility of such   
loan for federal reinsurance.                                                   

Interest Subsidy Payments and Special Allowance Payments are generally
received within 45 days to 60 days after the end of any given calendar quarter  
(provided that the applicable claim form is properly filed with the Department),
although there can be no assurance that such payments will in fact be received  
from the Department within that period.                                         

Repayment of principal on a Subsidized or Unsubsidized Stafford Loan  
typically does not commence while a student remains a qualified student, but    
generally begins upon expiration of the applicable grace period, as described   
below. Any borrower may voluntarily prepay without premium or penalty any loan  
and in connection therewith may waive any grace period or deferment period. In  
general, each loan must be scheduled for repayment over a period of not more    
than ten years after the commencement of repayment. The Act currently requires  
minimum annual payments of $600 including principal and interest, unless the    
borrower and the lender agree to lesser payments. As of July 1, 1995, lenders   
are required to offer borrowers a choice among standard, graduated and          
income-sensitive repayment schedules. These repayment options must be offered to
all new borrowers who enter repayment on or after July 1, 1995. If a borrower   
fails to elect a                                                                

 C-6

POS AM
180th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 180th

particular repayment schedule or fails to submit the documentation necessary for
the option the borrower chooses, the standard repayment schedule is used.       

Repayment of principal on a Subsidized Stafford Loan must generally   
commence following a period of (a) not less than 9 months or more than 12 months
(with respect to loans for which the applicable interest rate is 7 percent per  
annum) and (b) not more than 6 months (with respect to loans for which the      
applicable interest rate is 9 percent per annum or 8 percent per annum and for  
loans to first time borrowers on or after July 1, 1988) after the borrower      
ceases to pursue at least a half-time course of study (a "Grace Period").       
However, during certain other periods (each a "Deferment Period") and subject to
certain conditions, no principal repayments need be made, including periods when
the student has returned to an eligible educational institution on a full-time  
(or in certain cases half time) basis or is pursuing studies pursuant to an     
approved graduate fellowship program, or when the student is a member of the    
Armed Forces or a volunteer under the Peace Corps Act or the Domestic Volunteer 
Service Act of 1973, or when the borrower is temporarily or totally disabled, or
periods during which the borrower may defer principal payments because of       
temporary financial hardship. For new borrowers to whom loans are first         
disbursed on or after July 1, 1993, payment of principal may be deferred only   
while the borrower is at least a half-time student or is in an approved graduate
fellowship program or is enrolled in a rehabilitation program, or when the      
borrower is seeking but unable to find full-time employment, or when for any    
reason the lender determines that payment of principal will cause the borrower  
economic hardship; in the case of unemployment or economic hardship the         
deferment is subject to a maximum deferment period of three years. The 1992     
Amendments also require forbearance of loans in certain circumstances and permit
forbearance of loans in certain other circumstances (each such period, a        
"Forbearance Period").                                                          

     The Unsubsidized Stafford Loan program created under the 1992 Amendments is
designed for students who do not qualify for Subsidized Stafford Loans and for  
independent graduate and professional students whose Unmet Need exceeds what    
they can borrow under the Subsidized Stafford Loan Program. The basic           
requirements for Unsubsidized Stafford Loans are essentially the same as those  
for the Subsidized Stafford Loans, including with respect to provisions         
governing the interest rate, the annual loan limits and the Special Allowance   
Payments. The terms of the Unsubsidized Stafford Loans, however, differ in some 
respects. The federal government does not make Interest Subsidy Payments on     
Unsubsidized Stafford Loans. The borrower must either pay interest on a periodic
basis beginning 60 days after the time the loan is disbursed or capitalize the  
interest that accrues until repayment begins. Effective July 1, 1994, the       
maximum insurance premium was set at 1 percent. Subject to the same loan limits 
established for Subsidized Stafford Loans, the student may borrow up to the     
amount of such student's Unmet Need. Lenders are authorized to make Unsubsidized
Stafford Loans applicable for periods of enrollment beginning on or after       
October 1, 1992.                                                                

PLUS AND SLS LOAN PROGRAMS                                                      

   The Act also provides for the PLUS Program. The Act authorizes PLUS Loans
to be made to parents of eligible dependent students. The 1993 Act eliminated   
the SLS Program after July 1, 1994.                                             

    The PLUS program permits parents of dependent students to borrow an amount
equal to each student's Unmet Need. Under the former SLS program, independent   
graduate or professional school students and certain dependent undergraduate    
students were permitted to borrow subject to the same loan limitations.         

   The first payment of principal and interest is due within 60 days of full
disbursement of the loan except for borrowers eligible for deferment who may    
defer principal and interest payments while eligible for deferment; deferred    
interest is then capitalized periodically or at the end of the deferment period 
under specific arrangements with the borrower. The maximum repayment term is 10 
years. PLUS and SLS loans carry no in-school interest subsidy.                  

     The interest rate determination for a PLUS or SLS loan is dependent on when
the loan was originally made or disbursed. Some PLUS or SLS loans carry a       
variable rate. The rate varies annually for each 12-month period beginning on   
July 1 and ending on June 30. The variable rate is determined on the preceding  
June 1 and is equal to the lesser of (a) the applicable Maximum Rate or (b) the 
sum of (i) the bond                                                             

 C-7

POS AM
181st Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 181st

equivalent rate of 52-week Treasury bills auctioned at the final auction held   
prior to such June 1, and (ii) the applicable Interest Rate Margin as set forth 
below.                                                                          

PLUS/SLS LOANS

                                                        [Enlarge/Download Table]

          DATE OF DISBURSEMENT                BORROWER RATE      MAXIMUM RATE  INTEREST RATE MARGIN
-----------------------------------------  --------------------  ------------  --------------------
                                                                                                   
Prior to 10/01/81........................  9%                        9%                            
10/01/81-10/31/82........................  14%                      14%                            
11/01/82-06/30/87........................  12%                      12%                            
07/01/87-09/30/92........................  52-Week Treasury +       12%            3.25%           
                                           Interest Rate Margin                                    
10/01/92-06/30/94........................  52-Week Treasury +     PLUS 10%         3.10%           
                                           Interest Rate Margin   SLS 11%                          
After 06/30/94                                                                                     
  (SLS repealed 07/01/94)................  52-Week Treasury +        9%            3.10%           
                                           Interest Rate Margin                                    

 A holder of a PLUS or SLS loan is eligible to receive Special Allowance
Payments during any such 12-month period if (a) the sum of (i) the bond         
equivalent rate of 52-week Treasury bills auctioned at the final auction held   
prior to such June 1, and (ii) the Interest Rate Margin, exceeds (b) the Maximum
Rate.                                                                           

THE CONSOLIDATION LOAN PROGRAM                                                  

    The Act authorizes a program under which certain borrowers may consolidate
their various student loans into Consolidation Loans which will be insured and  
reinsured to the same extent as other loans made under the FFELP. Under this    
program, a lender may make a Consolidation Loan only if (a) such lender holds   
one of the borrower's outstanding student loans that is selected for            
consolidation, or (b) the borrower has unsuccessfully sought a Consolidation    
Loan from the holders of the Student Loans selected for consolidation.          

 Consolidation Loans are made in an amount sufficient to pay outstanding
principal and accrued unpaid interest and late charges on all FFELP loans, as   
well as loans made pursuant to various other federal student loan programs,     
which were selected by the borrower for consolidation. The unpaid principal     
balance of a Consolidation Loan made prior to July 1, 1994 bears interest at a  
rate not less than 9 percent. The interest rate on a Consolidation Loan made on 
or after July 1, 1994 is equal to the weighted average of the interest rates on 
the loans selected for consolidation, rounded upward to the nearest whole       
percent. The holder of a Consolidation Loan made on or after October 1, 1993    
must pay the Secretary a monthly rebate fee calculated on an annual basis equal 
to 1.05 percent of the principal plus accrued unpaid interest on any such loan. 

 The repayment term under a Consolidation Loan varies depending upon the
aggregate amount of the loans being consolidated. In no case may the repayment  
term exceed 30 years. A Consolidation Loan is evidenced by an unsecured         
promissory note and entitles the borrower to prepay the loan, in whole or in    
part, without penalty.                                                          

GUARANTEE AGENCIES                                                              

  The Act authorizes Guarantee Agencies to support education financing and
credit needs of students at post-secondary schools. Under various programs      
throughout the United States, Guarantee Agencies insure student loans. The      
Guarantee Agencies are reinsured by the federal government for 80 percent to 100
percent of claims paid, depending on their claims experience for loans disbursed
prior to October 1, 1993 and for 78 percent to 98 percent of claims paid for    
loans disbursed on or after October 1, 1993.                                    

   Guarantee Agencies collect a one-time insurance fee of up to 1 percent of
the principal amount of each loan, other than Consolidation Loans, that the     
agency guarantees.                                                              

 C-8

POS AM
182nd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 182nd

 The Guarantee Agencies generally guarantee loans for students attending
institutions in their particular state or region or for residents of their      
particular state or region attending schools in another state. Certain Guarantee
Agencies have been designated as the Guarantee Agency for more than one state.  
Some Guarantee Agencies contract with other entities to administer their        
guarantee agency programs.                                                      

FEDERAL INSURANCE AND REINSURANCE OF GUARANTEE AGENCIES                         

    A student loan is considered to be in default for purposes of the Act when
the borrower fails to make an installment payment when due, or to comply with   
other terms of the loan, and if the failure persists for 180 days in the case of
a loan repayable in monthly installments or for 240 days in the case of a loan  
repayable in less frequent installments.                                        

 If the loan is guaranteed by a Guarantee Agency, the eligible lender is
reimbursed by the Guarantee Agency for 100 percent (98 percent for loans        
disbursed on or after October 1, 1993) of the unpaid principal balance of the   
loan plus accrued interest on any loan defaulted so long as the eligible lender 
has properly originated and serviced such loan. Under certain circumstances a   
loan deemed ineligible for reimbursement may be restored to eligibility.        

     Under the Act, the Department enters into a reinsurance agreement with each
Guarantee Agency, which provides for federal reinsurance of amounts paid to     
eligible lenders by the Guarantee Agency. Pursuant to such agreements, the      
Department agrees to reimburse a Guarantee Agency for 100 percent of the amounts
expended in connection with a claim resulting from the death, bankruptcy, or    
total and permanent disability of a borrower, the death of a student whose      
parent is the borrower of a PLUS Loan, or claims by borrowers who received loans
on or after January 1, 1986 and who are unable to complete the programs in which
they are enrolled due to school closure, or borrowers whose borrowing           
eligibility was falsely certified by the eligible institution; such claims are  
not included in calculating a Guaranty Agency's claims experience for federal   
reinsurance purposes, as set forth below. The Department is also required to    
repay the unpaid balance of any loan if collection is stayed under the          
Bankruptcy Code, and is authorized to acquire the loans of borrowers who are at 
high risk of default and who request an alternative repayment option from the   
Department.                                                                     

   With respect to FFELP loans in default, the Department is required to pay
the applicable Guarantee Agency a certain percentage ("Reinsurance Rate") of the
amount such agency paid pursuant to default claims filed by the lender on a     
reinsured loan. The amount of such Reinsurance Rate is subject to specified     
reductions when the total reinsurance claims paid by the Department to a        
Guarantee Agency during a fiscal year equals or exceeds 5 percent of the        
aggregate original principal amount of FFELP loans guaranteed by such agency    
that are in repayment on the last day of the prior fiscal year. Accordingly, the
amount of the reinsurance payment received by the Guarantee Agency may vary. The
Reinsurance Rates are set forth in the following table.                         

                                                        [Enlarge/Download Table]

             GUARANTEE AGENCY'S                                                                   
              CLAIMS EXPERIENCE                            APPLICABLE REINSURANCE RATE            
---------------------------------------------  ---------------------------------------------------
                                                                                                  
0% up to 5%..................................  98% (100% for loans disbursed before Oct. 1, 1993) 
5% up to 9%..................................  88% (90% for loans disbursed before Oct. 1, 1993)  
9% and over..................................  78% (80% for loans disbursed before Oct. 1, 1993)  

---------------                                                                 
    The claims experience is not cumulative. Rather, the claims experience for
any given Guarantee Agency is determined solely on the basis of claims for any  
one federal fiscal year compared with the original principal amount of loans in 
repayment at the beginning of that year.                                        

    The 1992 Amendments addressed industry concerns regarding the Department's
commitment to providing support in the event of Guarantee Agency failures.      
Pursuant to the 1992 Amendments, Guarantee Agencies are required to maintain    
specified reserve fund levels. Such levels are defined as 0.5 percent of the    
total attributable amount of all outstanding loans guaranteed by the agency for 
the fiscal year of the agency that begins in 1993, 0.7 percent for the agency's 
fiscal year beginning in 1994, 0.9 percent for the agency's fiscal year         
beginning in 1995, and 1.1 percent for the agency's fiscal year beginning on or 
after January 1, 1996.                                                          

 C-9

POS AM
183rd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 183rd

If (i) the Guarantee Agency fails to achieve the minimum reserve level in any   
two consecutive years, (ii) the Guarantee Agency's federal reimbursements are   
reduced to 80 percent (or 78 percent after October 1, 1993) or (iii) the        
Department determines the Guarantee Agency's administrative or financial        
condition jeopardizes its continued ability to perform its responsibilities, the
Department must require the Guarantee Agency to submit and implement a          
management plan to address the deficiencies. The Department may terminate the   
Guarantee Agency's agreements with the Department if the Guarantee Agency fails 
to submit the required plan, or fails to improve its administrative or financial
condition substantially, or if the Department determines the Guarantee Agency is
in danger of financial collapse. In such event, the Department is authorized to 
undertake specified actions to assure the continued payment of claims, including
making advances to guarantee agencies to cover immediate cash needs,            
transferring of guarantees to another Guarantee Agency, or transfer of          
guarantees to the Department itself.                                            

   The Act provides that, subject to compliance with the Act, the full faith
and credit of the United States is pledged to the payment of federal reinsurance
claims. It further provides that Guarantee Agencies are deemed to have a        
contractual right against the United States to receive reinsurance in accordance
with its provisions. In addition, the 1992 Amendments provide that if the       
Department determines that a Guarantee Agency is unable to meet its insurance   
obligations, holders of loans may submit insurance claims directly to the       
Department until such time as the obligations are transferred to a new Guarantee
Agency capable of meeting such obligations or until a successor Guarantee Agency
assumes such obligations. There can be no assurance that the Department would   
under any given circumstances assume such obligation to assure satisfaction of a
guarantee obligation by exercising its right to terminate a reimbursement       
agreement with a Guarantee Agency or by making a determination that such        
Guarantee Agency is unable to meet its guarantee obligations.                   

Lastly, the 1993 Act provides the Secretary of Education with broad   
authority to manage the finances and affairs of Guarantee Agencies. In general, 
the Act provides that agency reserve funds are federal property and may be taken
by the Secretary if he determines such action is in the best interests of the   
loan program. Also, the Secretary has broad authority to terminate a Guarantee  
Agency's reinsurance agreement with the Department.                             

Within each fiscal year, the applicable Reinsurance Rate steps down   
incrementally with respect to claims made only after the claims experience      
thresholds are reached.                                                         

C-10

POS AM
184th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 184th

                                                                      APPENDIX D

INTENTIONALLY OMITTED 

 D-1

POS AM
185th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 185th

                                                                      APPENDIX E

DISSENT TO THE REPORT OF THE COMPENSATION AND PERSONNEL COMMITTEE 

 The following statement has been included at the written request of the
directors listed below and represents solely their views.                       

 Messrs. Daley and Shapiro voted against the executive officer bonus and
stock option awards that were approved by the Compensation and Personnel        
Committee (the "Committee"). This statement summarizes the reasons they dissent 
from the Report on Executive Compensation submitted by the Committee.           

GENERAL POLICY. At Sallie Mae, a majority of executive officers'      
compensation is based on the Committee's subjective evaluations. While peer     
company compensation data is compiled and distributed to Committee members, for 
1996 neither base salaries nor overall compensation levels were targeted to     
those of peer companies, and the Committee did not assign a specified weight to 
any particular factor considered in setting annual bonuses and annual stock     
option grants. For the reasons discussed below, Messrs. Daley and Shapiro       
believe that the Committee's subjective evaluations of performance resulted in  
1996 compensation being excessive relative to the Company's performance.        

     ANNUAL BONUS. Messrs. Daley and Shapiro believe that a true "at risk" bonus
system should result in bonuses that vary based on performance. They believe    
that 1996 bonuses do not sufficiently reflect such a link. In reaching this     
conclusion, Messrs. Daley and Shapiro noted that Sallie Mae's performance in    
1996 had both positive and negative aspects. They believe that management cannot
claim credit for some of the factors that resulted in positive performance, such
as the influence that the Company's stock repurchase program, a generally       
improved political environment and a strong stock market had on the Company's   
stock price increase. In contrast, they believe that performance in areas where 
management had more direct control and responsibility was not satisfactory. In  
reaching this conclusion, Messrs. Daley and Shapiro noted that in three         
significant areas management failed to exceed or even achieve stated objectives.
Student loan purchase volume was below planned levels without a significant     
increase in yield. Importantly, both the amount of student loans originated from
the ExportSS product and the number of ExportSS lending clients declined.       
Additionally, operating expenses exceeded management's plan and, after          
accounting for the elimination of expenses as a result of the Company's         
disposition of its CyberMark venture, continued at levels that Messrs. Daley and
Shapiro believe to be above what reasonably should be expected.                 

 STOCK OPTIONS. Sallie Mae grants stock options in January of each year,
after evaluating performance for the previous year. Thus, the number of options 
reported in the Summary Compensation Table and the Option Grants Table as having
been granted in 1996 relates to 1995 performance. Options granted in January    
1997 after the Committee's evaluation of 1996 performance are not reflected in  
those tables.                                                                   

    Messrs. Daley and Shapiro believe that the Company's option grant activity
is not guided by a formal methodology. Messrs. Daley and Shapiro believe that   
three factors should be considered in determining the size of option grants: (1)
corporate performance, (2) the size and value of previous years' option grants, 
and (3) the extent to which optionees have retained shares issued upon the      
exercise of previously granted options. Based on these considerations, Messrs.  
Daley and Shapiro believe that the Committee's January 1997 option grants to    
executive officers were too large. In reaching this conclusion, they considered 
the performance issues discussed above under "Annual Bonus" and the fact that   
the approximately 40% increase in the Company's stock price between January 1996
and January 1997 resulted in a January 1997 option having a significantly higher
value than the January 1996 option grant.                                       

   CEO COMPENSATION. Messrs. Daley and Shapiro voted in favor of an increase
in Mr. Hough's salary because of the modest size of the increase. However, the  
chairman of the Committee has stated that he believes Mr. Hough's salary is     
relatively low and that the Committee will address this in the coming year.     
Messrs. Daley and Shapiro do not believe that the CEO's salary is relatively    
low.                                                                            

   For 1996, the Committee established a $500,000 bonus for Mr. Hough, which
it then reduced to $440,000 to reflect the recommendation of the Board's Audit  
Committee. Specifically, following an internal inquiry into                     

 E-1

POS AM
186th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 186th

the source of a document which is the subject of a complaint filed with the     
Federal Election Commission involving the Company, the Audit Committee suggested
that the Compensation Committee take into consideration the Audit Committee's   
findings relative to Mr. Hough's supervisory responsibility when considering Mr.
Hough's 1996 compensation. The 1996 bonus established by the Committee for Mr.  
Hough, even after the purported reduction described above, resulted in a 1996   
annual bonus (cash and restricted stock) equal to approximately 81% of Mr.      
Hough's 1996 base salary, compared to a 1995 bonus equal to approximately 80% of
Mr. Hough's 1995 base salary.                                                   

Messrs. Daley and Shapiro do not believe that the Committee's actions 
resulted in an appropriate reduction in Mr. Hough's compensation given the Audit
Committee's findings, and do not believe that the Company's operating results   
justify a bonus of the magnitude granted to Mr. Hough. They also do not believe 
that the other factors considered by the Committee -- board relations,          
congressional relations and team building -- offset the Company's operating     
performance so as to justify Mr. Hough's bonus. As to board relations, they     
believe that Mr. Hough failed to respond to requests and concerns raised by     
eight directors (including themselves) who were nominated by The Committee to   
Restore Value at Sallie Mae and first elected to the board by stockholders in   
1995. As to Congressional relations, Messrs. Daley and Shapiro believe that the 
incident leading to the filing of a complaint with the Federal Election         
Commission referred to above damaged the Company's relationship with the Clinton
Administration and with some in Congress. In particular, they believe that      
following that incident, the relationship of presidentially appointed directors 
were a more important factor than Mr. Hough's congressional relations in        
obtaining passage of privatization legislation. Messrs. Daley and Shapiro       
believe that "team building" is too subjective a criteria to be afforded much   
weight in awarding bonuses.                                                     

 Finally, in determining to vote against the bonus awarded to Mr. Hough,
Messrs. Daley and Shapiro noted that the chairman of the Committee requested    
Committee members to consider Mr. Hough's establishment and execution of a      
longer term strategy in evaluating his performance. Messrs. Daley and Shapiro   
view privatization as a means to implementing a business strategy, and do not   
view Congressional passage of privatization legislation as a strategy in itself.
They believe that Mr. Hough has not presented to the Board any significant      
strategy for taking advantage of privatization to enhance the value of          
stockholders' investment in the Company. Accordingly, they do not believe that  
Mr. Hough has performed strongly under this criteria.                           

     In consideration of all of the foregoing, Messrs. Daley and Shapiro believe
that a lower annual bonus award would have been more appropriate for the        
Company's CEO.                                                                  

Messrs. Daley and Shapiro believe that the 27,000 share option grant  
awarded to Mr. Hough in January 1997 -- following a 30,000 share option grant   
for Mr. Hough in January 1996 -- is excessive. Their determination is based on  
the same factors discussed above regarding Mr. Hough's annual bonus, as well as 
their view as to valuation factors that they believe should be considered in    
granting options, as discussed above in this dissent under "Stock Options."     

 E-2

POS AM
187th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 187th

                                                                      APPENDIX F

PROVIDED SEPARATELY BY MAJORITY DIRECTORS 

 F-1

POS AM
188th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 188th

                                                                      APPENDIX G

PROVIDED SEPARATELY BY THE CRV

 G-1

POS AM
189th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 189th
PROXY                                                                           
TIME SENSITIVE

STUDENT LOAN MARKETING ASSOCIATION

SOLICITED ON BEHALF OF THE MAJORITY OF THE BOARD OF DIRECTORS OF THE
STUDENT LOAN MARKETING ASSOCIATION FOR THE
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD JULY __, 1997

The undersigned hereby constitutes and appoints David J. Vitale and [Regina T.  
Montoya], and each or any of them, as true and lawful agents and proxies with   
full power of substitution in each to represent and to vote all the shares of   
Sallie Mae Common Stock which the undersigned is entitled to vote at the Special
Meeting of Shareholders of the Student Loan Marketing Association to be held    
on Thursday, July __, 1997, at 11:00 a.m., eastern time, at the [               
   ], Washington, DC [     ], and at any adjournments thereof, and to vote
upon any other business as may properly come before said Special Meeting, or any
adjournment thereof, hereby revoking all proxies heretofore given.              

You are encouraged to specify your choices by marking the appropriate boxes on  
the reverse side of this card.  If you sign and return this card but do not     
mark any boxes, your shares of Sallie Mae Common Stock will be voted FOR the    
proposal to approve and adopt the Reorganization Agreement, as more fully       
described in the accompanying Proxy Statement/Prospectus dated June __, 1997,   
as such may be supplemented from time to time, and FOR the nominees to the      
Holding Company Board included in the Majority Director Slate, as more fully    
described in the accompanying Proxy Statement Supplement of the Majority        
Directors, as such may be supplemented from time to time.  The persons listed   
above cannot vote your shares of Sallie Mae Common Stock as directed by you     
unless you sign and return this card.                                           

If you need assistance in voting your shares, please call the Majority
Directors' proxy solicitor, D. F. King & Co., Inc., toll free at                
1-800-848-3410.                                                                 
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.) 

                                                                SEE REVERSE SIDE

POS AM
190th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 190th

                                                        [Enlarge/Download Table]
                                                                                                                                 
THE MAJORITY OF THE BOARD OF DIRECTORS           FOR        AGAINST      ABSTAIN                  [X] Please mark                
RECOMMENDS A VOTE FOR:                          [   ]        [    ]       [   ]                        your votes                
                                                                                                        as this                  
THE PROPOSAL TO APPROVE AND ADOPT THE                                                                                            
REORGANIZATION AGREEMENT, which                                                                                                  
provides for the Reorganization of the                                                                                           
Student Loan Marketing Association                                                                   PLEASE MARK BOX             
into a subsidiary of the Holding Company                                                                 BELOW IF                
and the conversion of each                                                                         SHAREHOLDER WILL BE           
outstanding share of Sallie Mae Common                                                                ATTENDING THE              
Stock into one share of Holding                                                                      SPECIAL MEETING             
Company Common Stock, as more fully                                                                                              
described in the accompanying Proxy                                                                                              
Statement/Prospectus, as such may be                                                                                             
supplemented from time to time.                                                                           [      ]               

THE MAJORITY OF THE BOARD OF DIRECTORS                                                                                           
RECOMMENDS A VOTE FOR:                                                                                                           

THE NOMINEES TO THE HOLDING COMPANY                 FOR        AGAINST      ABSTAIN                                              
BOARD INCLUDED IN THE MAJORITY                     [   ]        [    ]       [   ]   NOTE: Receipt is hereby acknowledged of the 
DIRECTOR SLATE, which nominees                                                       Notice of Special Meeting and the           
include Messrs. Arceneaux, Daberko,                                                  accompanying Proxy Statement/Prospectus     
Huber, Jacobsen, Ricciardi, Spiegel and                                              and the Proxy Statement Supplement of the   
Vitale and Mmes. Cross, Duff-Bloom and                                               Majority Directors.  This Proxy revokes all 
Reese, as more fully described in the                                                proxies previously given by the undersigned 
accompanying Proxy Statement Supplement                                              with respect to all shares of Sallie Mae    
of the Majority Directors, as such may                                               Common Stock as to which the undersigned    
be supplemented from time to time.                                                   has voting power.  This Proxy, when properly
                                                                                     executed by the undersigned, will be voted  
                                                                                     in the manner directed.  If the votes are   
                                                                                     not directed otherwise, this Proxy will be  
                                                                                     voted for approval and adoption of the      
                                                                                     Reorganization Agreement and for the        
                                                                                     nominees to the Holding Company Board       
                                                                                     included in the Majority Director Slate.    
                                                                                     Votes for the Majority Director Slate will  
                                                                                     be deemed votes for each of the nominees    
                                                                                     included therein, nothwithstanding any marks
                                                                                     or purported withdrawal of authority with   
                                                                                     respect to any individual nominee. A        
                                                                                     majority (or if only one, then that one) of 
                                                                                     the proxies or substitutes acting at the    
                                                                                     Special Meeting, or at any adjournment      
                                                                                     thereof, may exercise the powers conferred  
                                                                                     by this Proxy.                              

Signature                      Signature                          Date                                                           
          --------------------            -----------------------      ---------                                                 

NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please  
give full title as such.                                                        

POS AM
191st Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 191st
PROXY                                                                           
TIME SENSITIVE

STUDENT LOAN MARKETING ASSOCIATION

SOLICITED ON BEHALF OF THE COMMITTEE TO RESTORE VALUE   
AT SALLIE MAE ("CRV") FOR THE   
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD JULY __, 1997

The undersigned hereby constitutes and appoints Albert L. Lord, Ronald F. Hunt  
and [J. Paul Craig] and each or any of them, as true and lawful agents and      
proxies with full power of substitution in each to represent and to vote all    
the shares of Sallie Mae Common Stock which the undersigned is entitled to      
vote at the Special Meeting of Shareholders of the Student Loan Marketing       
Association to be held on Thursday, July __, 1997, at 11:00 a.m., eastern time, 
at the [            ], Washington, DC [     ], and at any adjournments thereof, 
and to vote upon any other business as may properly come before said Special    
Meeting, or any adjournment thereof, hereby revoking all proxies heretofore     
given.                                                                          

You are encouraged to specify your choices by marking the appropriate boxes on  
the reverse side of this card.  If you sign and return this card but do not     
mark any boxes, your shares of Sallie Mae Common Stock will be voted FOR the    
proposal to approve and adopt the Reorganization Agreement, as more fully       
described in the accompanying Proxy Statement/Prospectus dated June __, 1997,   
as such may be supplemented from time to time, and FOR slate of directors       
nominated by the CRV to save as directors of the Holding Company (the "CRV      
Slate"), as more fully described in the accompanying Proxy Statement            
Supplement of the CRV, as such may be supplemented from time to time.  The      
persons listed above cannot vote your shares of Sallie Mae Common Stock as      
directed by you unless you sign and return this card.                           

If you need assistance in voting your shares, please call the CRV's   
proxy solicitor, MacKenzie Partners,Inc., toll free at 1-800-322-2885.          

(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.) 

                                                                SEE REVERSE SIDE

POS AM
192nd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 192nd

                                                        [Enlarge/Download Table]
                                                                                                                                 
THE CRV RECOMMENDS A VOTE FOR:                   FOR        AGAINST      ABSTAIN                  [X] Please mark                
                                                [   ]        [    ]       [   ]                        your votes                
THE PROPOSAL TO APPROVE AND ADOPT THE                                                                   as this                  
REORGANIZATION AGREEMENT, which                                                                                                  
provides for the Reorganization of the                                                                                           
Student Loan Marketing Association                                                                   PLEASE MARK BOX             
into a subsidiary of the Holding Company                                                                 BELOW IF                
and the conversion of each                                                                         SHAREHOLDER WILL BE           
outstanding share of Sallie Mae Common                                                                ATTENDING THE              
Stock into one share of Holding                                                                      SPECIAL MEETING             
Company Common Stock, as more fully                                                                                              
described in the accompanying Proxy                                                                                              
Statement/Prospectus, as such may be                                                                                             
supplemented from time to time.                                                                           [      ]               

THE CRV RECOMMENDS A VOTE FOR:                                                                                                   

THE SLATE OF NOMINEES NOMINATED BY THE              FOR                     ABSTAIN                                              
CRV TO SERVE AS DIRECTORS OF THE HOLDING           [   ]                     [   ]   NOTE: Receipt is hereby acknowledged of the 
COMPANY, which nominees include Messrs.                                              Notice of Special Meeting and the           
Brandon, Daley, Fitzpatrick, Fox, Hunt,                                              accompanying Proxy Statement/Prospectus     
Lambert, Lord Porter, Schoellkopf, Shapiro                                           and the Proxy Statement Supplement of the   
and Waterfield, and Mmes. Grant and                                                  CRV.  This Proxy revokes all proxies        
McDemmond, as more fully described in the                                            previously given by the undersigned         
accompanying Proxy Statement Supplement                                              with respect to all shares of Sallie Mae    
of the Majority Directors, as such may                                               Common Stock as to which the undersigned    
be supplemented from time to time.                                                   has voting power.  This Proxy, when properly
                                                                                     executed by the undersigned, will be voted  
                                                                                     in the manner directed.  If the votes are   
                                                                                     not directed otherwise, this Proxy will be  
                                                                                     voted for approval and adoption of the      
                                                                                     Reorganization Agreement and for the        
                                                                                     slate of directors nominated by the CRV     
                                                                                     to serve as directors of the Holding        
                                                                                     Company.  Votes for the CRV Slate will be   
                                                                                     deemed votes for each of the nominees       
                                                                                     included therein, nothwithstanding any marks
                                                                                     or purported withdrawal of authority with   
                                                                                     respect to any individual nominee. A        
                                                                                     majority (or if only one, then that one) of 
                                                                                     the proxies or substitutes acting at the    
                                                                                     Special Meeting, or at any adjournment      
                                                                                     thereof, may exercise the powers conferred  
                                                                                     by this Proxy.                              

Signature                      Signature                          Date                                                           
          --------------------            -----------------------      ---------                                                 

NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please  
give full title as such.                                                        

POS AM
193rd Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 193rd

PART II 

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.                            

    Article IX of the Registrant's By-Laws provides for indemnification of the
officers and directors of SLM Holding Corporation to the fullest extent         
permitted by applicable law. Section 145 of the Delaware General Corporation Law
provides, in relevant part, that a corporation organized under the laws of      
Delaware shall have the power, and in certain cases the obligation, to indemnify
any person who was or is a party or is threatened to be made a party to any suit
or proceeding because such person is or was a director, officer, employee or    
agent of the corporation or is or was serving, at the request of the            
corporation, as a director, officer, employee or agent of another corporation,  
against all costs actually and reasonably incurred by him in connection with    
such suit or proceeding if he acted in good faith and in a manner he reasonably 
believed to be in or not opposed to the best interests of the corporation and,  
with respect to any criminal proceeding, he had no reason to believe his conduct
was unlawful. Similar indemnity is permitted to be provided to such persons in  
connection with an action or suit by or in right of the corporation, provided   
such person acted in good faith and in a manner he believed to be in or not     
opposed to the best interests of the corporation, and provided further (unless a
court of competent jurisdiction otherwise determines) that such person shall not
have been adjudged liable to the corporation.                                   

   The directors and officers of the Registrant and its subsidiaries will be
covered by a policy of insurance under which they will be insured, within limits
and subject to certain limitations, against certain expenses in connection with 
the defense of actions, suits or proceedings, and certain liabilities that might
be imposed as a result of such actions, suits or proceedings in which they are  
parties by reason of being or having been directors or officers.                

ITEM 21.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.                           

(a) The following exhibits are filed as part of this Registration     
Statement.                                                                      

                                                        [Enlarge/Download Table]

EXHIBIT NO.                                  DESCRIPTION OF DOCUMENT                             
-----------     ---------------------------------------------------------------------------------
                                                                                                 
     *2      -- Form of Agreement and Plan of Reorganization by and among the Student Loan       
                Marketing Association ("Sallie Mae"), SLM Holding Corporation ("Registrant"), and
                Sallie Mae Merger Company ("MergerCo") (Appendix A to the Proxy                  
                Statement/Prospectus contained in this Registration Statement)                   
    **3.1A   -- Majority Director Form of Amended and Restated Certificate of Incorporation of   
                Registrant                                                                       
     *3.1B   -- CRV Form of Amended and Restated Certificate of Incorporation of Registrant      
    **3.2A   -- Majority Director Form of By-Laws of Registrant                                  
     *3.2B   -- CRV Form By-Laws of Registrant                                                   
    **4A     -- Reference is made to the Form of Amended and Restated Certificate of             
                Incorporation of Registrant (Exhibit 3.1A herein)                                
     *4B     -- Reference is made to the Form of Amended and Restated Certificate of             
                Incorporation of Registrant (Exhibit 3.1B herein)                                
    **5      -- Opinion of Timothy G. Greene, Executive Vice President and General Counsel, as to
                the legality of the securities being registered                                  
    **8      -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to certain tax matters    
   **10.1    -- Board of Directors' Restricted Stock Plan                                        
   **10.2    -- Board of Directors' Stock Option Plan                                            
   **10.3    -- Deferred Compensation Plan for Directors                                         
   **10.4    -- Incentive Performance Plan                                                       
   **10.5    -- Stock Compensation Plan                                                          
   **10.6    -- 1993-1998 Stock Option Plan                                                      
   **10.7    -- Supplemental Pension Plan                                                        
   **10.8    -- Supplemental Employees' Thrift & Savings Plan                                    
   **10.9    -- Letter Agreement dated May 27, 1997 by and between Sallie Mae and the CRV        
   **21      -- Subsidiaries of the Registrant                                                   
    *23.1    -- Consent of Ernst & Young LLP                                                     

II-1

POS AM
194th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 194th

                                                        [Enlarge/Download Table]

EXHIBIT NO.                                  DESCRIPTION OF DOCUMENT                             
-----------     ---------------------------------------------------------------------------------
                                                                                                 
   **23.2A   -- Consents of Persons Who Have Agreed to Serve as Directors of the Holding Company 
    *23.2B   -- Consents of Additional Persons Who Have Agreed to Serve as Directors of the      
                Holding Company                                                                  
    *27      -- Financial Data Schedule                                                          
   **99.1    -- Charter of Sallie Mae                                                            
   **99.2    -- By-Laws of Sallie Mae                                                            
   **99.3    -- Appendix F--Proxy Statement Supplement of the Majority Directors                 
    *99.4    -- Appendix G--Proxy Statement Supplement of the CRV                                

---------------                                                                 

* Filed herewith.                                                           

** Previously filed.                                                          

(b) Financial statement schedules required by Regulation S-X and Item 
14(e), Item 17(a) or Item 17(b)(9) of S-4 -- None                               

ITEM 22.  UNDERTAKINGS.                                                         

The undersigned Registrant hereby undertakes as follows:              

        (1) That prior to any public reoffering of the securities registered
    hereunder through use of a prospectus which is a part of this registration
     statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable  
    registration form with respect to reofferings by persons who may be deemed
    underwriters, in addition to the information called for by the other items
of the applicable form.                                               

         (2) That every prospectus (i) that is filed pursuant to paragraph (1)
  immediately preceding, or (ii) that purports to meet the requirements of
    Section 10(a)(3) of the Securities Act of 1933, as amended, and is used in
connection with an offering of securities subject to Rule 415, will be
    filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of  
determining any liability under the Securities Act of 1933, each such 
     post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein and the offering of such   
securities at that time shall be deemed to be the initial bona fide   
offering thereof.                                                     

    (3) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and    
     controlling persons of the Registrant pursuant to the foregoing provisions,
  or otherwise, the Registrant has been advised that in the opinion of the
   Securities and Exchange Commission such indemnification is against public
 policy as expressed in the Act and is, therefore, unenforceable. In the
     event that a claim for indemnification against such liabilities (other than
   the payment by the Registrant of expenses incurred or paid by a director,
   officer or controlling person of the Registrant in the successful defense
     of any action, suit or proceeding) is asserted by such director, officer or
    controlling person in connection with the securities being registered, the
   Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate    
 jurisdiction the question whether such indemnification by it is against
 public policy as expressed in the Act and will be governed by the final
adjudication of such issue.                                           

        (4) To supply by means of a post-effective amendment all information
    concerning a transaction, and the company being acquired involved therein,
     that was not the subject of and included in the registration statement when
it became effective.                                                  

II-2

POS AM
195th Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 195th

SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement, as amended to be signed 
on its behalf by the undersigned, thereunto duly authorized, in the City of     
Washington, District of Columbia, on June 18, 1997.                             

                           SLM Holding Corporation

                             By: /s/ LAWRENCE A. HOUGH
                                            ------------------------------------
                         Lawrence A. Hough
                                     President and Chief Executive
           Officer

 Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement, as amended has been signed by the following persons
in the capacities and on the dates indicated.                                   

/s/ LAWRENCE A. HOUGH                                                           
----------------------------------------------------                            
Lawrence A. Hough                                                               
President and Chief Executive Officer and Director                              
(Principal Executive Officer)                                                   

/s/ DENISE B. MCGLONE                                                           
----------------------------------------------------                            
Denise B. McGlone                                                               
Chief Financial Officer and Controller                                          
(Principal Financial Officer and                                                
Principal Accounting Officer)                                                   

II-3

POS AM
Last Page of 196
TOC
1st
Previous
Next
↓Bottom
Just 196th

EXHIBIT INDEX 

                                                        [Enlarge/Download Table]

                                                                                         PAGE IN  
                                                                                        SEQUENTIAL
                                                                                        NUMBERING 
EXHIBIT NO.                                                                              SYSTEM   
-----------                                                                             --------- 
                                                                                                  
    *2       --  Form of Agreement and Plan of Reorganization by and among the Student            
                 Loan Marketing Association ("Sallie Mae"), SLM Holding Corporation               
                 ("Registrant"), and Sallie Mae Merger Company ("MergerCo") (Appendix             
                 A to the Proxy Statement/Prospectus contained in this Registration               
                 Statement)...........................................................            
   **3.1A    --  Majority Director Form of Amended and Restated Certificate of                    
                 Incorporation of Registrant..........................................            
    *3.1B    --  CRV Form of Amended and Restated Certificate of Incorporation of                 
                 Registrant...........................................................            
   **3.2A    --  Majority Director Form of By-Laws of Registrant......................            
    *3.2B    --  CRV Form of By-Laws of Registrant....................................            
   **4A      --  Reference is made to the Form of Amended and Restated Certificate of             
                 Incorporation of Registrant (Exhibit 3.1A herein)....................            
    *4B      --  Reference is made to the Form of Amended and Restated Certificate of             
                 Incorporation of Registrant (Exhibit 3.1B herein)....................            
   **5       --  Opinion of Timothy G. Greene, Executive Vice President and General               
                 Counsel, as to the legality of the securities being registered.......            
   **8       --  Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to certain tax            
                 matters..............................................................            
  **10.1     --  Board of Directors' Restricted Stock Plan............................            
  **10.2     --  Board of Directors' Stock Option Plan................................            
  **10.3     --  Deferred Compensation Plan for Directors.............................            
  **10.4     --  Incentive Performance Plan...........................................            
  **10.5     --  Stock Compensation Plan..............................................            
  **10.6     --  1993-1998 Stock Option Plan..........................................            
  **10.7     --  Supplemental Pension Plan............................................            
  **10.8     --  Supplemental Employees' Thrift & Savings Plan........................            
  **10.9     --  Letter Agreement dated May 27, 1997 by and between Sallie Mae and the            
                 CRV..................................................................            
  **21       --  Subsidiaries of the Registrant.......................................            
   *23.1     --  Consent of Ernst & Young LLP.........................................            
  **23.2A    --  Consents of Persons Who Have Agreed to Serve as Directors of the                 
                 Holding Company......................................................            
   *23.2B    --  Consents of Additional Persons Who Have Agreed to Serve as Directors             
                 of the Holding Company...............................................            
   *27       --  Financial Data Schedule..............................................            
  **99.1     --  Charter of Sallie Mae................................................            
  **99.2     --  By-Laws of Sallie Mae................................................            
  **99.3     --  Appendix F--Proxy Statement Supplement of the Majority Directors                 
   *99.4     --  Appendix G--Proxy Statement Supplement of the CRV                                

---------------                                                                 
* Filed herewith.                                                           

** Previously filed.