Forward-Looking Statements

Certain statements contained in this report that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by the words or phrases "believe", "expect", "anticipate", "intend", "estimate", "may increase", "may result in", "may fluctuate", and similar expressions or future or conditional verbs such as "will", "should", "would" and "could". These forward-looking statements involve risks and uncertainties, which could cause The Student Loan Corporation's (the Company) actual results to differ materially from those the Company expects, including, but not limited to:
· the effects of legislative and regulatory changes that affect the demand for interest rates on student loans, especially the establishment of certain fixed rates of interest on Federal Family Education Loan (FFEL) Program loans, as well as the President's 2010 budget proposal which could eliminate the FFEL Program;

· the availability and amount of loan subsidies and any effect on the Company's net interest margin;

· the availability of alternative financing options to students and their parents, including competitive products offered by other lenders;

· the effects of changes in GAAP, including without limitation the Financial Accounting Standards Board's (FASB) Statement of Financial Accounting Standards No. 166, Accounting for Transfers of Financial Assets - an amendment of FASB Statement No. 140 (SFAS 166), now authoritative under ASC 860, and FASB Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R) (SFAS167), now authoritative under ASC 810-10;

· fluctuations in interest rates and between various interest rate indices, particularly the manner in which short-term rates affect the Company's funding costs, consolidation rates, the rates at which interest accrues on its loan portfolio and the demand for student loans;

· the success of the Company's strategic repositioning efforts;

· the amount, availability, and cost of future short- and long-term financing to the Company from Citibank, N.A. (CBNA), government funding programs, securitizations, whole loan sales, and other sources;

· the Company's ability to acquire or originate loans in the amounts anticipated and with interest rates that generate sufficient yields and margins;

· any change in ownership of the Company that could result from the potential disposition by CBNA;

· the adequacy of the Company's capital expenditures and of funds allocated for future capital expenditures;

· the amount of financial aid available to students and their parents and cost of education;

· general economic conditions, including, without limitation, the performance of financial markets and unemployment rates;

· changes in prepayment rates on student loans from anticipated rates and in the quality and profitability of those loans that move into repayment status, as well as actual experience with the repayment cycle of the loan portfolio;

· actual credit losses, loan collection strategies and their impact on delinquency rates, and the adequacy of loan loss reserves;

· the performance of the Company's loan portfolio servicers, insurers risk-sharers and higher education institution clients;

· the Company's and other servicers' ability to continue to service the loan portfolio in accordance with their contractual obligations;

· loan origination costs;

· the volume of loan consolidations; and

· the success of the Company's marketing and sales efforts.

The following discussion should be read in conjunction with the accompanying unaudited Consolidated Financial Statements and Notes, the Company's 2008 Annual Report on Form 10-K, and the Company's Form 10-Q for the quarter ended June 30, 2009.

Management's Discussion and Analysis provides the Company's perspective on its operations and business environment, including the following:

Business Overview - a general description of the Company's business as well as the impacts of market conditions on the business and business trends.

Business Highlights - a review of key events affecting the Company's historical and future operating results.

Critical Accounting Estimates - an overview of accounting policies that require critical judgments and estimates.

Financial Condition - a discussion and analysis of the Company's loan portfolio, disbursement and procurement activity and allowance for loan losses.

Results of Operations - a review of the Company's results of operations for the three and nine months ended September 30, 2009 and 2008 and discussion of the key factors impacting those results.

Liquidity and Capital Resources - an analysis of the Company's sources and uses of cash and capital obligations.

Legislation and Regulations - a discussion of legislative activities that affect the student loan industry.

Business Overview

The Company is one of the nation's leading originators of student loans. The Company was incorporated in 1992 under the laws of the State of Delaware. CBNA owns 80% of the Company's outstanding common stock and is an indirect wholly owned subsidiary of Citigroup Inc. (Citigroup). The majority of the Company's loans are originated and guaranteed under the FFEL Program, authorized by the U.S. Department of Education (the Department) under the Higher Education Act of 1965, as amended (the Higher Education Act). The Company, which has a trust agreement to originate loans through CBNA, is an originator, manager and servicer of student loans made in accordance with federally sponsored guaranteed student loan programs.

The Company, through its trust agreement with CBNA, is also a leading originator, manager and servicer of private education loans. The Company's portfolio of private education loan products provides it with the ability to offer a full array of student loan products to students and their parents. The Company is committed to providing exceptional service to borrowers and schools, offering competitive and innovative products with solutions that allow students and their families to finance the education of their choice.

Since December 2008 the Company has been utilizing programs available to lenders of FFEL Program student loans through the Ensuring Continued Access to Student Loans Act (ECASLA) to fund loan disbursements and for liquidity. These programs are currently only available for FFEL Program loans disbursed for the 2009 - 2010 academic year. If the current capital market disruption continues and if these programs are not extended or similar programs are not made available, student lenders, including the Company may find it difficult to remain in this segment of the industry.

Congress is currently considering legislation that will likely result in significant changes to federal student loan programs. The President and various industry groups have offered proposals for reform, the most significant of which could result in the elimination of the FFEL Program. In September 2009, the House of Representatives approved a bill which, among other changes, would eliminate the FFEL Program. The Senate has not yet introduced a companion bill. The Company cannot predict what the new legislation will look like in its final form. Any of the proposed changes, in particular the proposal to eliminate the FFEL Program, could have a material adverse effect on the Company's financial condition and results of operations. See Legislation and Regulations on page 47 for additional information about the proposals.

The earnings of the Company are primarily generated by the spread between the interest earned on its loan assets, (based on the 90-day Commercial Paper rate as published by the Department (CP), the prime rate, or the 91-day Treasury Bill rate) and the interest paid on its borrowings (based on London Interbank Offered Rate (LIBOR), CP or the prime rate). Net interest income is the interest earned less the interest expense incurred during the period. Net interest income is impacted by, among other things: spread changes between CP, the prime rate or the 91-day Treasury Bill rate and LIBOR; credit premiums on the Company's debt; legislative changes that impact FFEL Program subsidies; utilization rates of borrower benefits; and portfolio growth or contraction. The Company regularly monitors interest rates and may enter into interest rate derivative agreements on portions of its portfolio in an effort to manage its interest rate risk exposure.

The Company maintains programs to securitize certain portfolios of student loan assets. Under the Company's securitization programs, transactions qualifying as sales are off-balance sheet transactions, in which loans are removed from the Consolidated Financial Statements of the Company and sold to an independent trust, giving rise to a gain or loss on sale. The Company also enters into similar securitization transactions that do not qualify for sale treatment and accordingly, are accounted for as secured borrowings. These secured borrowings do not give rise to a gain or loss on sale.

Historically, loan securitizations and whole loan sales have contributed significantly to the Company's earnings. From year to year, the Company's earnings have been and continue to be impacted by the number, size and profitability of asset sales and securitizations. The Company's involvement in future asset sales and securitization transactions will vary from period to period based on market conditions and the Company's operational strategies.

The Company's earnings have also historically been impacted by valuation changes on its subordinated residual interests (i.e., interest-only strips), servicing rights and, in certain cases, subordinated notes issued by the trusts (collectively, retained interests) from off-balance sheet securitizations. The fair value of the Company's retained interests fluctuates based on factors such as interest rate changes, prepayment and default rates and regulatory changes. Other factors that may impact earnings include loan servicing revenue and loan servicing costs, the effectiveness of the Company's economic hedges, changes in applicable laws and regulations, alternative financing options available to students and their parents, competition, and overall economic conditions.

Accounting changes, effective January 1, 2010, will make it more difficult for securitizations to qualify for off-balance sheet treatment. The accounting changes are expected to result in the consolidation of assets previously sold to unconsolidated securitization entities and the elimination of retained interests, both of which affect the Company's financial position. The accounting changes are also expected to impact the Company's results of operations beginning in 2010 by eliminating securitization gains and valuation gains and losses on retained interests while net interest income and provision for loan losses are expected to increase for securitization trusts consolidated upon adoption of these standards. See Note 2 to the Consolidated Financial Statements for additional information on the accounting changes.

The Company has derivative financial instruments including interest rate swaps and floor options which are intended to economically hedge the interest rate risk inherent in its retained interests in off-balance sheet securitizations. As a result of the accounting changes described above, which will eliminate the retained interests being hedged, the Company expects to close out of these derivative positions beginning in the fourth quarter of 2009. This may result in losses and will likely increase the Company's exposure to earnings volatility from interest rate changes during the fourth quarter as changes in the fair value of these derivatives would no longer hedge changes in mark-to-market adjustments on the Company's retained interests.

The Company has historically funded its loan originations primarily through borrowings under the Omnibus Credit Agreement with CBNA and through loan securitizations. In addition to funding available to the Company under the Omnibus Credit Agreement and through loan securitizations, the Company has further diversified its sources of funding, and continues to seek additional alternative sources of funding. Since December 2008, the Company has been utilizing funding available under the Department's Loan Participation Purchase Program (the Participation Program) established under ECASLA. In 2009, the Company sold eligible loans to the Department under the Loan Purchase Commitment Program (the Purchase Program) and accessed additional funding through the Department sponsored conduit, Straight-A Funding, LLC (the Conduit).

The current Omnibus Credit Agreement expires on December 31, 2009. However, existing borrowings will continue to mature based on their originally contracted maturities. Additionally, the Company is currently negotiating a new agreement with CBNA as well as exploring other sources of funding. If a suitable replacement is not put in place by year-end, the Company will no longer have a guaranteed funding source. See Liquidity and Capital Resources on page 45 and Risk Factors on page 52 for additional information related to the Omnibus Credit Agreement and associated risks.

Business Highlights

During the third quarter of 2009, the financial markets showed continued improvement over the modest gains made earlier in the year. However, credit premiums remain significantly higher than those available prior to the credit market dislocation that began in the summer of 2007. These higher credit premiums as well as the shift from one month LIBOR to longer-term base indices such as three month LIBOR have contributed to net interest margin compression as the Company refinanced maturing debt with longer-term funding at higher premiums over base indices, resulting in a decrease in third quarter net interest income of $25.4 million compared to 2008. Higher yields on the Company's student loan assets, which increased net interest income for the third quarter by $12.3 million compared with 2008, partially offset the impact of the higher premiums on borrowings.

Net interest margin compression for the nine months ended September 30, 2009 was also impacted by divergence between CP and LIBOR during the first half of 2009 as well as the continued impact of regulatory changes, particularly the reductions of special allowance payments contained in the College Cost Reduction and Access Act (CCRA Act).

The weakening of the US economy during 2009 has increased loan charge-offs as well as expected loss rates. The Company expects these conditions to continue in the near to medium term.

During the nine months ended September 30, 2009, the Company further diversified its sources of funding by leveraging an additional $14.2 billion of long-term structural liquidity. This included a cumulative $10.4 billion from the Conduit. The Company also executed three securitizations, including two FFEL Program loan securitizations which provided a total of $2.4 billion of funding, and a private education loan securitization under the Term Asset-Backed Securities Loan Facility (TALF) which provided $1.4 billion of funding.

The Company continued to draw on financing through the Participation Program. The Company has funded $2.9 billion of FFEL Program Stafford and PLUS loan disbursements through this program since its inception. During the nine months ended September 30, 2009, the Company sold $2.3 billion of loans to the Department under the Purchase Program. These proceeds were used to pay back funding from the Participation Program.

During the twelve-month period ended September 30, 2009, the Company's managed student loan portfolio grew by $1.9 billion or 5% to $43.3 billion, reflecting the Company's continued commitment to the education lending market. The managed portfolio includes $28.4 billion of the Company's owned loan assets and $14.9 billion of loans serviced on behalf of securitization trusts or other lenders. Originations for the quarter included FFEL Program Stafford and PLUS loan originations of $1.9 billion, a 10% decrease from the same quarter of 2008. This decrease is largely due to schools moving from the FFEL Program to the Department's Direct Lending Program. The Company also made new CitiAssist loan commitments of $0.3 billion, which was 47% lower than the same quarter of 2008, continuing the recent effort to originate higher quality private education loans.

Critical Accounting Estimates

Certain accounting estimates made by management are considered to be important to the portrayal of the Company's consolidated financial condition. Since management is required to make difficult, complex or subjective judgments and estimates, actual results could differ, possibly materially, from those estimates. The most significant of these critical estimates and judgments are those used to account for student loan securitizations, related retained interests and allowance for loan losses, which are more fully described in the Company's 2008 Annual Report on Form 10-K. See the Notes to the Consolidated Financial Statements for more information on the Company's accounting estimates.

Financial Condition

Loans

At September 30, 2009, the Company's student loan assets were composed of FFEL Program loans, private education loans, a portfolio of loans held for sale and related deferred costs.

See Note 4 to the Consolidated Financial Statements for a presentation of the loan portfolio by program type.

Balances related to the Company's owned and managed loan portfolios are summarized below:

                                               Ending Balances
         (Dollars in millions)    September 30, 2009       December 31, 2008
         Owned loans             $             28,448     $            25,643
         Managed loans                         43,325                  42,107



                                        Year-to-Date Average Balances
        (Dollars in millions)    September 30, 2009         December 31, 2008
        Owned loans             $             27,631       $            24,316
        Managed loans                         43,765                    39,938

Loan Disbursements and Procurement Activity

The Company makes loans through the retail and wholesale channels. The retail channel represents loan activity initiated through the Company's relationships with colleges and universities. The majority of the Company's new FFEL Program Stafford and PLUS loan and school-certified private education loan originations are initiated through the efforts of the Company's retail sales force. The Company originates the remaining portion of such originations by marketing directly to students and their families, for example, through email and online advertising campaigns. In previous years, the Company also originated FFEL Program and private education loan consolidations through direct marketing to consumers. The wholesale channel, which accounts for a small fraction of the Company's new loan originations, represents loan activity initiated outside of the retail channel, such as purchases of loans originated by other lenders under existing loan purchase commitments.

Details of the Company's origination activity are presented in the table below:

                                           Three Months Ended           Nine Months Ended
                                             September 30,                September 30,
 (Dollars in millions)                        2009          2008           2009         2008
 Retail:
 FFEL Program Stafford and PLUS loan
 disbursements                          $    1,933      $  2,137     $    4,846     $  4,732
 CitiAssist loans disbursed under
 commitments to purchase (1)                   346           649          1,112        1,474
 Total Retail                                2,279         2,786          5,958        6,206
 Loan consolidation and other
 secondary market volume                        16            95             58          821
 Total Originations                     $    2,295      $  2,881     $    6,016     $  7,027

(1) This amount consists of the CitiAssist loans that were disbursed by CBNA. These loans have been or will be purchased by the Company after final disbursement.

The Company's FFEL Program loan originations decreased by 10% for the three months ended September 30, 2009 as compared to the same period in 2008. This decrease is largely due to schools moving from the FFEL Program to the Department of Education's Direct Lending Program and adding additional lenders to their preferred lender lists to comply with regulatory requirements and concerns. The impact of these actions was partially absorbed by the withdrawal of many lenders from the FFEL Program and overall growth in the marketplace.

The Company's CitiAssist loan commitments are significantly lower than the same periods in 2008, continuing the recent effort to originate higher quality private education loans.

In order to comply with certain legal and regulatory requirements, private education loans are originated by CBNA through an intercompany agreement. After final disbursement, the Company purchases all private education loans from CBNA. At September 30, 2009 and December 31, 2008, the private education loans disbursed and still held by CBNA were $0.4 billion and $1.0 billion, respectively.

Historically, loans were not specifically purchased or originated for resale, and accordingly were recorded in the Company's portfolio. However, certain loans originated since the fourth quarter of 2008 have been originated with the intent of selling to the Department under the Purchase Program and, accordingly, were recorded in held for sale. At September 30, 2009, $2.2 billion of loans were classified as held for sale.

Allowance for loan losses

The Company categorizes allowance for loan losses as FFEL Program, Insured CitiAssist, Uninsured CitiAssist Standard and Uninsured CitiAssist Custom. Uninsured CitiAssist Standard is primarily composed of CitiAssist loans that have been approved based on standard underwriting criteria similar to Insured CitiAssist and were originated on or after January 1, 2008. Uninsured CitiAssist Custom is primarily composed of loans made to non-traditional students or loans with less stringent underwriting standards. The Company no longer originates Uninsured CitiAssist Custom loans. For a full understanding of the methodology used to calculate allowance for loan losses, see Note 1 to the Consolidated Financial Statements.

The Company's allowance for loan losses at September 30, 2009 increased by $31.0 million compared to the balance at December 31, 2008. This increase is largely due to continued deterioration in the economic environment, higher loan balances, seasoning of the portfolios as more loans entered repayment, and lower recovery rates.

The provision for loan losses, which is composed of builds or releases in the loan loss reserves plus net charge-offs, decreased by $8.1 million in the third quarter of 2009 compared to the same period in 2008. This decrease is primarily driven by specific reserves established in the third quarter of 2008 for a bankrupt proprietary school. Charge-offs increased by $30.3 million during the nine months ended September 30, 2009 compared to the same period in 2008 primarily as a result of seasoning of the CitiAssist portfolios as more loans entered repayment. The Company expects charge-offs will continue to increase as a result of the expected seasoning of the higher risk Uninsured CitiAssist Custom and Uninsured CitiAssist Standard portfolios and credit deterioration across all portfolios.

An analysis of the allowance for loan losses and its components is presented in the table below:

                                           Three Months Ended           Nine Months Ended
                                              September 30,               September 30,
  (Dollars in thousands)                   2009          2008          2009          2008
  Balance at beginning of period
  FFEL Program                           $  21,622     $   8,668     $  14,445     $  12,312
  Insured CitiAssist                        12,771         5,585         8,512         3,214
  Uninsured CitiAssist Standard             15,513         3,028        11,891             -
  Uninsured CitiAssist Custom               78,831        64,536        75,481        26,589
                                         $ 128,737     $  81,817     $ 110,329     $  42,115
  Provision for loan losses
  FFEL Program                           $   7,423     $   4,561     $  19,786     $   8,956
  Insured CitiAssist                         9,836         7,247        21,335        13,354
  Uninsured CitiAssist Standard              6,095         6,155        12,232         9,183
  Uninsured CitiAssist Custom               15,336        28,828        51,305        86,437
                                         $  38,690     $  46,791     $ 104,658     $ 117,930
  Charge offs
  FFEL Program                           $  (4,068 )   $  (3,545 )   $  (9,254 )   $  (9,154 )
  Insured CitiAssist                        (4,520 )      (3,284 )     (11,760 )      (7,020 )
  Uninsured CitiAssist Standard             (2,654 )         (78 )      (5,169 )         (78 )
  Uninsured CitiAssist Custom              (19,098 )     (13,816 )     (58,247 )     (37,914 )
                                         $ (30,340 )   $ (20,723 )   $ (84,430 )   $ (54,166 )
  Recoveries
  FFEL Program                           $       -     $       -     $       -     $       -
  Insured CitiAssist                             -             -             -             -
  Uninsured CitiAssist Standard                 99             -            99             -
  Uninsured CitiAssist Custom                4,126         2,766        10,656         7,202
                                         $   4,225     $   2,766     $  10,755     $   7,202
  Other (1)
  FFEL Program                           $       -     $       -     $       -     $  (2,430 )
  Insured CitiAssist                             -             -             -             -
  Uninsured CitiAssist Standard                  -             -             -             -
  Uninsured CitiAssist Custom                    -             -             -             -
                                         $       -     $       -     $       -     $  (2,430 )
  Balance at end of period
  FFEL Program                           $  24,977     $   9,684     $  24,977     $   9,684
  Insured CitiAssist                        18,087         9,548        18,087         9,548
  Uninsured CitiAssist Standard             19,053         9,105        19,053         9,105
  Uninsured CitiAssist Custom Programs      79,195        82,314        79,195        82,314
                                         $ 141,312     $ 110,651     $ 141,312     $ 110,651

(1) Represents reserve amounts associated with loans sold, securitized or reclassified as held-for-sale.

The Company's allowance for loan losses includes all losses at each reporting period that are both probable and estimable. However, no assurance can be provided that the allowance for loan losses will be adequate to cover all losses that may in fact be realized in the future, or that a higher level of provision for loan losses will not be required. The Company's total allowance for loan losses is available to absorb probable credit losses inherent to all of the Company's owned loans.

Private Education Loans

The Company's private education loan portfolio is not guaranteed by the federal government. Although private education loans do not carry a federal government guarantee, 58% of the outstanding balances of these loans carry private insurance through United Guaranty Commercial Insurance Company of North Carolina and New Hampshire Insurance Company (UGCIC/NHIC), and 2% of the outstanding balances are insured through Arrowood Indemnity Company (Arrowood). UGCIC/NHIC are subsidiaries of American International Group (AIG). Arrowood is a wholly owned subsidiary of Arrowpoint Capital Corporation (Arrowpoint).

. . .