There were no material changes to The Student Loan Corporation's (the Company's) critical accounting policies in the first quarter of 2005. The Company considers its accounting policies on revenue recognition, allowance for loan losses and student loan securitizations to be its critical accounting policies. For a description of these and other significant accounting policies, see Notes 1, 3 and 7 to the consolidated financial statements or the notes to the financial statements in the Company's 2004 Annual Report and Form 10-K.

Other Than Temporary Impairment
On December 31, 2004, the Company adopted the disclosure requirements of EITF 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investmentswhich provides guidance on recognizing other-than temporary impairments on certain investments. Adoption of EITF 03-1 had no impact on the Company's disclosures.

Certain Loans or Debt Securities Acquired in a Transfer On January 1, 2005, the Company adopted the requirements of Statement of Position No. 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer (SOP 03-3). SOP 03-3 requires acquired loans to be brought in at fair value and prohibits carrying over valuation allowances in the initial accounting for loans that have exhibited deterioration in credit quality since origination, when it is probable that the investor will be unable to collect all contractual cash flows. Loans carried at fair value, mortgage loans held for sale, loans originated by the entity, loans that are retained interests and loans to borrowers in good standing under revolving credit agreements are excluded from the scope of SOP 03-3.

SOP 03-3 limits the yield that may be accreted to the excess of the undiscounted expected cash flows over the investor's initial investment in the loan. The excess of the contractual cash flows over expected cash flows may not be recognized as an adjustment of yield. Subsequent increases in cash flows expected to be collected are recognized prospectively through an adjustment of the loan's yield over its remaining life. Decreases in expected cash flows are recognized as impairment.

The Company is a market leader in education finance and offers a full array of student loan products to students and their parents. Generally, most of the loans that are directly originated by the Company are serviced by the Company throughout their lifecycle.

The earnings of the Company are primarily generated by the spread between the interest earned on its loan assets (based on either the 91-day Treasury Bill rate or the 90-day Commercial Paper rate) and the interest paid on its borrowings (based on LIBOR). The Company's earnings are also impacted by floor income and portfolio growth, as described below. Net interest income may be adversely impacted by changes in the current interest rate environment and, especially, by spread changes between either the 91-day Treasury Bill rate or the commercial paper rate and LIBOR. The Company manages these risks by regularly monitoring interest rates and acting upon fluctuations in the interest rate curves, and also may enter into interest rate swap agreements on portions of its portfolio. In declining short-term rate environments, the Company's net interest income may benefit from floor income, which is generated when the Company's cost of funds declines while borrower and government subsidized interest rates remain fixed at the annual reset rate, yielding net interest income in excess of the minimum expected spread. Also, although the fixed interest rate at which borrowers pay interest on Federal Consolidation Loans is generally not subject to the annual reset provisions, a decline in the Company's cost of funds during the term of such loans could contribute to floor income. See the definition of floor income in Special Allowance and Floor Income on page 20.

In addition to floor income and portfolio growth, other factors that may impact earnings are applicable laws and regulations, prepayment rates on student loans including those resulting from student loan consolidations, the number of borrowers eligible for benefits, financing options available to students and their parents, and competitors' initiatives.

Also impacting earnings is the amount of asset sales and securitizations, included in fees and other income, which can fluctuate on a quarterly basis.

Certain of the above statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. See Forward-Looking Statements on page 23.

Citibank, N.A. (CBNA), an indirect wholly owned subsidiary of Citigroup Inc. (Citigroup), owns 80% of the outstanding common stock of the Company.

At March 31, 2005, the Company's student loan assets were composed of a $24.5 billion portfolio of loans held and a $1.9 billion inventory of loans held for sale. The combined $26.4 billion of loan assets, composed primarily of loans originated under the Federal Family Education Loan (FFEL) Program, increased by $1.5 billion (6%) from $24.9 billion at December 31, 2004. This growth was attributable to FFEL Program Stafford and Parent Loans to Undergraduate Students (PLUS) loan disbursements totaling $1,181 million and loan purchases of $1,388 million in the first three months of 2005, partially offset by $1,105 million in loan reductions (attributable primarily to borrower principal payments, loan consolidations and claims paid by guarantors), loan portfolio sales of $1 million and deferred costs and other adjustments of $46 million. During the first three months of 2004, the Company had FFEL Program Stafford and PLUS loan disbursements of $1,074 million, loan purchases of $1,104 million, loan reductions of $1,090 million, loan portfolio sales of $532 million and deferred costs and other adjustments of $30 million.

      Loan Activity

     The Company's loan disbursements and loan commitments to finance education
     for the first three months of 2005 and 2004 are presented below:




                (Dollars in millions) 2005 2004 Difference % Change
                --------------------- ---- ---- ---------- --------


FFEL Program Stafford and PLUS Loan    $1,181        $1,074       $  107        10.0%
disbursements
CitiAssist Loans under commitments        548 (1)       465 (2)       83        17.8%
to purchase
                                    ------------- ------------- ----------- -----------
Total loan disbursements and           $1,729        $1,539       $  190        12.3%
CitiAssist commitments
                                    ------------- ------------- ----------- -----------

(1) This amount is composed of the CitiAssist Loans that were disbursed by CBNA in the first quarter of 2005, but have not yet been purchased by the Company. In addition, $17 million of CitiAssist Loan commitments are awaiting disbursement by CBNA. These Loans will be purchased by the Company after final disbursement.

(2) This amount is composed of the CitiAssist Loans that had been disbursed by CBNA in the first quarter of 2004, but had not yet been purchased by the Company. In addition, $12 million of CitiAssist Loan commitments were awaiting disbursement by CBNA. These loans were purchased by the Company after final disbursement.

The $107 million increase in FFEL Program loan disbursements for the first three months of 2005, compared to the same period last year, is primarily attributable to ongoing sales initiatives and overall growth in the marketplace.

In order to comply with certain regulatory requirements, CitiAssist Loans are originated by CBNA through an intercompany agreement. Following full disbursement, the Company purchases all qualified CitiAssist Loans at CBNA's carrying value at the time of purchase, plus contractual costs, the total of which approximates fair value. CitiAssist Loans are originated through an alternative loan program and do not carry federal government guarantees.

The Company's secondary market and other loan procurement activities for the first three months of 2005 and 2004 are presented in the table below:

(Dollars in millions) 2005 2004 Difference % Change

 FFEL Program Consolidation Loan volume    $  797        $  648      $ 149  23.0%
 CitiAssist Loan purchases                    507 (1)       369 (2)    138  37.4%
 Other loan purchases                          84            88         (4) (4.5%)
                                        ------------- ------------- ------- ------
 Total loan purchases                      $1,388        $1,105      $ 283  25.6%
                                        ------------- ------------- ------- ------

From time to time, the Company makes student loan purchases. For the first three months of 2005, the Company's loan purchases

were $1,388 million, an increase of $283 million compared to the same period last year. Proportionately, CitiAssist Loan growth has been faster than FFEL Program growth, reflecting borrowers' increased need to find alternative sources of education funding outside of the FFEL Loan Program. This need for alternative financing is due to the rising cost of education and the loan limits that exist under the current FFEL Program.

The historically low interest rate environment has encouraged borrowers to consolidate their eligible student loans to lock in their interest rates, resulting in continued higher prepayments of Federal Stafford Loans. These loan consolidations have comprised a sizeable portion of the Company's overall loan volume for several years. As interest rates rise and loan consolidation becomes less attractive, consolidation activity and related prepayment levels are expected to moderate.

A portion of the Federal Consolidation Loans were purchased for the Company's held for sale inventory, which was established to create a portfolio of loans held for future securitization. The size of the held for sale portfolio is dependent upon the needs of the securitization program. The Company's decision to participate in securitization and secondary market loan activities is made after analyzing market conditions. Of the Consolidation Loan volume presented in the table above, $308 million and $290 million for the first three months of 2005 and 2004, respectively, were consolidations of federally guaranteed student loans already held in the Company's loan portfolio. For the first three months of 2005, the Company's student loan purchases included $1,355 million purchased for its portfolio and $33 million purchased for its resale inventory. During the three months ended March 31, 2004, the Company purchased $715 million of student loans for its portfolio and $390 million for its resale inventory.

      Loans

  The Company's loans are summarized by program type as follows:



(Dollars in thousands)                      March 31, 2005     December 31, 2004
---------------------------------------- -------------------- --------------------
Federal Stafford Loans                        $9,686,895           $9,286,217
Federal Consolidation Loans                    8,894,883            8,316,851
Federal SLS/PLUS/HEAL Loans                    1,218,269            1,164,783
CitiAssist/other alternative loans             4,073,940            3,648,630
                                         -------------------- --------------------
Total student loans held, excluding           23,873,987           22,416,481
deferred costs
Deferred origination and premium costs           588,791              541,814
                                         -------------------- --------------------
Loans held                                    24,462,778           22,958,295
Less: allowance for loan losses                   (4,346)              (5,046)
                                         -------------------- --------------------
Loans held, net                               24,458,432           22,953,249
                                         -------------------- --------------------
Federal Consolidation Loans held for
sale, excluding deferred                       1,887,323            1,883,084
   costs
Deferred origination costs                        48,055               47,216
                                         -------------------- --------------------
Loans held for sale                            1,935,378            1,930,300
                                         -------------------- --------------------
Total loan assets                            $26,393,810          $24,883,549
                                         -------------------- --------------------

Both FFEL Program and CitiAssist Loan volumes are experiencing steady growth. Given the rising cost of education and students' needs for alternative sources of education financing, CitiAssist Loans continue to be the fastest growing segment of the Company's loan portfolio. Although loan consolidation volume has increased substantially in recent years, this volume is expected to temper not only as interest rates rise, but also as the number of borrowers who have not yet consolidated their eligible loans declines.

The Company's allowance for loan losses of $4.3 million at March 31, 2005 is composed of $0.6 million for its FFEL Program loan portfolio and $3.7 million for its CitiAssist Loans. The allowance at December 31, 2004 of $5.0 million is composed of $1.7 million for its FFEL Program loans and $3.3 million for its CitiAssist Loans.

The Company's alternative loan portfolio is primarily composed of CitiAssist Loans that are not guaranteed by the federal

government. Most of the CitiAssist Loan portfolio is insured by private third party insurers. However, a portion is not covered by insurance. At March 31, 2005, approximately $361 million of the CitiAssist Loans in repayment are self-insured by the Company, do not carry outside credit risk insurance, and are either covered under risk-sharing agreements or are self-insured. See Student Loans in Note 3 to the consolidated financial statements for further information about delinquency rates and the loan loss reserve for CitiAssist Loans.

The insured and uninsured amounts of CitiAssist Loans in repayment are presented in the table below:

(Dollars in millions) March 31, 2005 % December 31, 2004 %

           Insured CitiAssist Loans            $1,470   80% $1,502   80%
           Uninsured CitiAssist Loans             361   20%    380   20%
                                               ------ ----- ------ -----

As discussed in Note 1 to the consolidated financial statements, the Company holds a large number of similar loans for which prepayments are probable and the timing of payments can be reasonably estimated. The Company considers estimates of future prepayments in the calculation of weighted average life. Estimates of future prepayment speeds are based on a combination of actual past prepayment rates as well as management's estimate of future consolidation rates, which are influenced by current and future interest rates. Future prepayment speeds are also impacted by whether the underlying Stafford or PLUS loans are consolidated off-balance sheet (i.e. prepayments) or are retained in the Company's own portfolio, which is not accounted for as prepayment. Historically low interest rates have led to a record level of loan consolidations, which have decreased the weighted average lives of Stafford and PLUS Loans. Management believes that the high consolidation rate will continue in the short term, but will begin to decline from the record levels recently experienced when the July 1, 2005 reset occurs, as higher borrower interest rates are expected at that time.

Unamortized deferred origination costs and loan premiums currently on the balance sheet may be impacted by actual prepayment rates that differ from the original estimated assumption. If a difference arises between the Company's anticipated prepayments and the actual prepayment rates, the Company recalculates the effective spread to reflect actual payments to date, with a corresponding adjustment to current period interest income. In addition, the expected future weighted average lives of these loans are reviewed periodically and any difference between the future weighted average lives and the past estimates are adjusted to current interest income to arrive at the investment balance that would have been remaining had the new effective spread been applied since loan inception.

From time to time the Company enters into securitization transactions and considers securitization proceeds to be an alternative source of financing. Securitization is a process by which loans are transferred to a special purpose entity (SPE), thereby realizing cash flows from these loans before they would have been received in the normal course of business. The securitized loans are removed from the financial statements of the Company and ultimately sold to the SPEs (independent trusts) through a wholly owned entity formed to acquire the Company's loans. The SPEs obtain the cash to pay for the loan assets received by issuing securities to outside investors in the form of debt instruments (asset-backed securities). Investors have recourse to the assets in the SPE, but not to the Company, and benefit from any available credit enhancements, such as a cash collateral account and other specified enhancements. Accordingly, the SPE can typically obtain a more favorable credit rating from rating agencies than the Company could obtain for its own debt issuances, resulting in less expensive financing costs. The Company's SPEs meet the requirements of a qualifying special purpose entity (QSPE), and are, therefore, not subject to FASB Interpretation No. 46, Consolidation of Variable Interest Entities (revised December 2003)(FIN 46-R), which requires consolidation of the variable interest entity by the primary beneficiary. As such, the Company's SPEs are not consolidated with the financial statements of the Company.

In 2002 and 2004, the Company securitized certain portfolios of FFEL Program Consolidation Loans through a wholly owned SPE formed to acquire them from the Company. During the three-month periods ended March 31, 2005 and 2004, the Company did not enter into any new securitizations. At March 31, 2005, $1.8 billion of student loan assets were held by the Trusts.

The Company accounts for its securitization transactions in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of FASB Statement No. 125. Securitization gains or losses are reflective of the difference between the carrying value of the assets sold to the trust and the fair value of the assets received, which are composed of cash proceeds and residual interests

retained in the loans securitized. The Company accounts for the retained interests as investments in available-for-sale securities and records them in other assets in the consolidated financial statements. They are regularly reviewed for impairment in accordance with EITF Issue No. 99-20.

At March 31, 2005 and December 31, 2004, the Company had retained interests in the assets securitized of approximately $60.2 million and $72.7 million, respectively, recorded at fair value. The $12.5 million decrease in the retained interest for the three-month period ended March 31, 2005 was due to a $2.4 million decrease in the fair value estimate, an impairment of $5.7 million and $6.0 million cash received from the trust, partially offset by the accretion of interest income of $1.6 million in the first three months of 2005.

Initial and subsequent measurements of the fair value of the retained interests are performed using a discounted cash flow model. The discount rate, basis spreads, anticipated net credit loss rate, average loan life, and borrower benefits are the key assumptions utilized to measure the fair value of the retained interests. The Company estimates the market discount rate based on its required return on equity, which was 10% at March 31, 2005 and December 31, 2004. Changes in the prepayment rates also impact the valuation of the retained interests. Historical statistics on prepayments and borrower defaults are utilized to estimate prepayment rates. In addition, since the underlying asset class has long maturities, market data is also utilized to predict future prepayment speeds for periods into the future that are longer than the Company's historical data can predict. For the 2004 securitization trust, a prepayment curve called the Consolidation Loan Ramp (CLR) was used for the prepayment assumption. The CLR is the industry standard consolidation loan prepayment ramp that estimates prepayment rates at a graduated level from 0% to 8% over the first ten years and stays flat at 8% thereafter. The prepayment rate assumption was utilized in structuring the debt tenors and was disclosed to the investors of such notes. When prepayment rates increase and the average life of the student loan decreases, a corresponding decrease is reflected in the fair value of the retained interests. If future securitizations were to include loans other than FFEL Program Consolidation Loans, this could impact the prepayment rates used in calculating the fair value of the retained interests. Anticipated net credit losses are based on the benefits from the Exceptional Performer designation, resulting in an anticipated net credit loss assumption of 0% for the specific loans securitized. If the Company or its third party servicers were to lose their Exceptional Performer designations, the value of the retained interests would decline. In addition, the loans held in the trusts are eligible for various borrower benefits of which the largest is a 1% rate reduction if the borrower makes 36 consecutive on-time payments and keeps making on time payments. Management has estimated that, on average, up to approximately 28% of the borrowers will receive the 1% rate reduction. This estimate is based on historical on-time payment statistics for similar assets in the Company's portfolio. To the extent the actual results differ from this estimate, the fair value of the residual will be impacted accordingly.

In connection with the securitization of loans, the Company retains servicing rights which entitle the Company to a future stream of cash flows based on the outstanding principal balances of the loans and the contractual servicing fee. Failure to service the loans in accordance with contractual requirements may lead to a termination of the servicing rights and the loss of future servicing fees. As a result, the Company considers both the securitized and unsecuritized student loans to be part of the business it manages. At March 31, 2005 and December 31, 2004, the Company's servicing asset was $27.0 million and $28.2 million, respectively, representing the amount of unamortized carrying value at that date. The fair value of the servicing asset was $27.0 million and $28.5 million at March 31, 2005 and December 31, 2004, respectively, measured using a discount rate of 5.85% to 5.88%, servicing revenue of 49 basis points and servicing costs of approximately 23 basis points. During the first quarter of 2005, an impairment charge of $0.3 million was recorded on the servicing asset.

See Note 7 to the consolidated financial statements for further information on the Company's securitization transactions.

The Company has an allowance for loan losses for those loans or portions of loans in its portfolio that are not 100% insured under government guarantees or private credit insurance. The allowance provides a reserve for estimated losses on the portion of the FFEL Program loan portfolio that is subject to the 2% risk-sharing provisions of the Act, as well as the portion of the CitiAssist Loan portfolio that is subject to the risk-sharing provisions of the credit risk insurance obtained from third parties after considering the benefits of risk-sharing agreements with other third parties. Most insured CitiAssist Loans are subject to risk-sharing provisions of 5% to 20% of the claim amount. The allowance also provides a reserve for certain CitiAssist Loans that are neither insured against loss nor covered under risk-sharing agreements with third parties. Provisions of estimated potential future losses increase the allowance for loan losses and are expensed currently. Actual losses are charged off against the reserve as they occur and subsequent recoveries increase the reserve.

During 2003, the Company was designated as an Exceptional Performer by the Department in recognition of its exceptional level of performance in servicing FFEL Program loans. As a result of this designation, the Company receives 100% reimbursement on all eligible FFEL Program default claims filed for reimbursement after December 31, 2003 on loans that are serviced by the Company, and the Company is not subject to the 2% risk-sharing loss for eligible claims submitted after that date. Similarly, in 2004, third party servicers servicing $5.5 billion of the Company's FFEL Program loan portfolio received the Exceptional Performer designation. Of the Company's FFEL Program loans, only those that are serviced by the Company or its qualified and designated third party servicers

are subject to this designation. Under current Department rules, as long as the Company and these servicers continue to meet eligibility standards and maintain their Exceptional Performer designation, their serviced portfolios are not subject to the risk-sharing provisions and they will receive 100% reimbursement on all eligible FFEL Program default claims filed. The Company's provision for loan losses for the first quarter of 2005 was $0.6 million, $1.6 million less than the provision for the same period of 2004. The decrease was attributable to lower risk-sharing losses resulting from the receipt of the Exceptional Performer designation by certain of the Company's loan servicing vendors in 2004.

The size of the allowance is established based on amounts of estimated probable losses inherent in the Company's CitiAssist and FFEL Program loan portfolios starting with the first day of each loan's delinquency. These losses are estimated from historical delinquency and credit loss experience, updated for recent trends and conditions, applied to the current aging of the portfolio. Actual losses, including those that arise from claims with guarantors and private insurers, are charged against the allowance as they occur. Changes in the quality of loans moving into repayment status as well as the Company's collections strategies could impact the delinquency rates and credit losses. Past experience has indicated that either of these changes could significantly impact the reserve requirements.

From time to time, the Company enters into interest rate swap agreements on portions of its loan portfolio to manage its basis risk exposure resulting from interest rate variability between the rates paid on its borrowings (based on LIBOR) and received on its loan assets based on the 91-day Treasury Bill rate. The Company had no swaps outstanding at March 31, 2005. Prior to 2005, the Company participated in a swap program that met the hedge accounting requirements of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended.

During 2004, the Company had interest rate swap agreements with CBNA, to receive payments based on LIBOR and make payments based on the asset yield at the 91-day Treasury Bill rate. These agreements, which had been designated as hedges, were effective in offsetting the changes in cash flow hedges for the risk being hedged. All of the Company's outstanding swaps . . .