The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and related Notes included elsewhere in this Quarterly Report on Form 10-Q.

This report contains "forward-looking statements" and information based on management's current expectations as of the date of this document. Statements that are not historical facts, including statements about the Company's beliefs or expectations and statements that assume or are dependent upon future events, are forward-looking statements. Forward-looking statements are subject to risks, uncertainties, assumptions and other factors that may cause actual results to be materially different from those reflected in such forward-looking statements. These factors include, among others, the risks and uncertainties set forth in Item 1A "Risk Factors" and elsewhere in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 (the "2011 Form 10-K"), in this Quarterly Report on Form 10-Q and subsequent filings with the SEC; increases in financing costs; limits on liquidity; increases in costs associated with compliance with laws and regulations; changes in accounting standards and the impact of related changes in significant accounting estimates; any adverse outcomes in any significant litigation to which the Company is a party; credit risk associated with the Company's exposure to third parties, including counterparties to the Company's derivative transactions; and changes in the terms of student loans and the educational credit marketplace (including changes resulting from new laws and the implementation of existing laws). The Company could also be affected by, among other things: changes in its funding costs and availability; reductions to its credit ratings or the credit ratings of the United States of America; failures of its operating systems or infrastructure, including those of third-party vendors; damage to its reputation; failures to successfully implement cost-cutting and restructuring initiatives and adverse effects of such initiatives on its business; changes in the demand for educational financing or in financing preferences of lenders, educational institutions, students and their families; changes in law and regulations with respect to the student lending business and financial institutions generally; increased competition from banks and other consumer lenders; the creditworthiness of its customers; changes in the general interest rate environment, including the rate relationships among relevant money-market instruments and those of its earning assets vs. its funding arrangements; changes in general economic conditions; and changes in the demand for debt management services. The preparation of the Company's consolidated financial statements also requires management to make certain estimates and assumptions including estimates and assumptions about future events. These estimates or assumptions may prove to be incorrect. All forward-looking statements contained in this report are qualified by these cautionary statements and are made only as of the date of this document. The Company does not undertake any obligation to update or revise these forward-looking statements to conform the statement to actual results or changes in its expectations.

Definitions for certain capitalized terms used in this document can be found in the 2011 Form 10-K.

Certain reclassifications have been made to the balances as of and for the three and six months ended June 30, 2011 to be consistent with classifications adopted for 2012, and had no effect on net income, total assets, or total liabilities.

Through this discussion and analysis, we intend to provide the reader with some narrative context for how our management views our consolidated financial statements, additional context within which to assess our operating results, and information on the quality and variability of our earnings, liquidity and cash flows.

Selected Financial Information and Ratios



                                                Three Months Ended                 Six Months Ended
                                                     June 30,                          June 30,
(In millions, except per share data)           2012            2011             2012             2011
GAAP Basis
Net income (loss) attributable to SLM
Corporation                                  $     292       $      (6 )      $     403        $     169
Diluted earnings (loss) per common share
attributable to SLM Corporation              $     .59       $    (.02 )      $     .79        $     .30
Weighted average shares used to compute
diluted earnings (loss) per share                  488             524              499              531
Return on assets                                   .64 %          (.01 )%           .44 %            .18 %
"Core Earnings" Basis(1)
"Core Earnings" attributable to SLM
Corporation                                  $     243       $     260        $     527        $     520
"Core Earnings" diluted earnings per
common share attributable to SLM
Corporation                                  $     .49       $     .48        $    1.03        $     .96
Weighted average shares used to compute
diluted earnings per share                         488             530              499              531
"Core Earnings" return on assets                   .53 %           .54 %            .58 %            .54 %
Other Operating Statistics
Ending FFELP Loans, net                      $ 132,833       $ 142,635        $ 132,833        $ 142,635
Ending Private Education Loans, net             36,454          35,753           36,454           35,753

Ending total student loans, net              $ 169,287       $ 178,388        $ 169,287        $ 178,388

Average student loans                        $ 172,436       $ 180,783        $ 173,689        $ 182,575

(1) "Core Earnings" are non-GAAP financial measures and do not represent a comprehensive basis of accounting. For a greater explanation of "Core Earnings," see the section titled "'Core Earnings' - Definition and Limitations" and subsequent sections.

Overview

Our primary business is to originate, service and collect loans we make to students and/or their parents to finance the cost of their education. The core of our marketing strategy is to generate student loan originations by promoting our products on campus through the financial aid office and through direct marketing to students and their families. We also provide servicing, loan default aversion and defaulted loan collection services for loans owned by other institutions, including ED. We also provide processing capabilities to educational institutions, 529 college savings plan program management services and a consumer savings network. In addition we are the largest holder, servicer and collector of loans made under FFELP, a program that was discontinued in 2010.

We monitor and assess our ongoing operations and results based on the following four reportable segments:

• Consumer Lending Segment - In this segment, we originate, acquire, finance and service Private Education Loans. The Private Education Loans we make are largely to bridge the gap between the cost of higher education and the amount funded through financial aid, federal loans or borrowers' resources. In this segment, we earn net interest income on the Private Education Loan portfolio (after provision for loan losses) as well as servicing fees, which are primarily late fees. As of June 30, 2012 and December 31, 2011, we had $36.5 billion and $36.3 billion, respectively, of Private Education Loans outstanding.

• Business Services Segment - In our Business Services segment, we provide loan servicing for our FFELP Loans, ED and other third parties. We provide default aversion and contingency collections work on behalf of ED, Guarantors of FFELP Loans, and other institutions. Our Campus Solutions business provides comprehensive transaction processing solutions and associated technology to college financial aid offices and students to streamline the financial aid process. We provide 529 college

• FFELP Loans Segment - Our FFELP Loans segment consists of our $132.8 billion FFELP Loan portfolio at June 30, 2012 and the underlying debt and capital funding these loans. Because we no longer originate FFELP Loans, the portfolio is in runoff and is expected to amortize over approximately the next 20 years with a weighted average remaining life of 7.6 years.

We actively seek to acquire FFELP Loan portfolios to leverage our servicing scale and expertise to generate incremental earnings and cash flow. Of our total FFELP Loan portfolio at June 30, 2012, 95 percent was funded with non-recourse, long-term debt; 79 percent of our FFELP Loan portfolio being funded to term by securitization trusts, 11 percent funded through the ED Conduit Program which terminates on January 19, 2014, and 5 percent funded in our multi-year ABCP facility. This segment is expected to generate a stable net interest margin and significant amounts of cash as the FFELP portfolio amortizes.

• Other - Our Other segment primarily consists of the financial results related to activities of our holding company, including the repurchase of debt, the corporate liquidity portfolio and all overhead. We also include results from smaller wind-down and discontinued operations within this segment.

Recent Developments

Many aspects of our businesses are subject to federal and state regulation and administrative oversight. This year, as the Consumer Financial Protection Bureau (the "CFPB") becomes fully operationalized and various other regulatory agencies continue developing new rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), the probability of new or additional regulatory requirements or oversight being applied to our various businesses (most notably, private student lending, default aversion and debt collection) or, generally, to large non-bank financial services companies will likely increase.

Private Student Loan Industry Report Released

On July 20, 2012, the CFPB and the Department of Education ("ED") released their joint report on the Private Student Loan(1) industry (the "Report") as required by the Dodd-Frank Act. The Report's analysis and recommendations were based in part on aggregated lender loan-level and portfolio data, as well as qualitative responses voluntarily submitted by nine major commercial lenders and five state-affiliated non-profit lenders. Loan-level data was submitted for all loans originated from 2005 to 2011 and portfolio performance data was as of each quarter within the same period. In our periodic reports, we use Private Education Loans to mean education loans we make to students or parents of students that are not insured or guaranteed by the federal government. Our Private Education Loans made for higher education purposes are within the Report's scope.

The Report recognized the important role Private Student Loans play in funding higher education and recognized significant improvements in recent years in the quality of underwriting, extensive protections provided by federal consumer protection laws and detailed, required disclosures related to Private Student Loans. The Report focused particularly on industry practices in the 2005-2007 timeframe and took issue with several practices of that era while duly noting where improvements have been made.

The Report offered numerous observations and posited various, often alternative, possible causes for concern regarding matters such as borrowers perceived continuing confusion on the terms of federal Stafford loans and Private Student Loans, possible gaps in the college financial aid process, the continuing relevance of the non-dischargeability of Private Student Loans in bankruptcy and concerns that the scarcity of publicly-available racial and ethnicity data with regard to Private Student Loan borrowers promote the use of proxy indicators such as ED's published school cohort default rates as well as graduation rates which may contribute to possible fair lending law violations.

(1) The Report addresses "Private Student Loans" as defined in Section 140 of the Truth in Lending Act (15 USC§1650).

The CFPB recommended Congress give further consideration to five topics(2), only three of which currently have the potential to affect our business at this time.

• School Certification of Private Student Loans. The CFPB recommends Private Student Loan lenders obtain school certification that loan amounts do not exceed student need. We require school certification of all our Private Education Loans.

• Consider Modifications to Federal Bankruptcy Code. The CFPB recommends Congress consider whether its policy goals have been met by the federal Bankruptcy Code's treatment of Private Student Loans. Sallie Mae continues to support bankruptcy reform that would require a period of good faith payments, that is prospective so as not to rewrite existing contracts, and that applies to federal and non-federal education loans alike. Any reform must recognize that education loans have unique characteristics and benefits as compared to other consumer loan classes.

• Determine if Additional Data is Needed for Consumer Decision-Making and Lender Underwriting. The Report observes that the scarcity of other reliable and publicly available data may contribute to the use by Private Student Loan lenders of indicators such as ED's published school cohort default rates which represent the percentage of a school's federal student loan borrowers that default within certain periods of entering repayment. While we no longer use these rates in underwriting or pricing, in light of this scarcity of information and their highly predictive nature, we believe proper use of this attribute could meet legitimate needs of both and lenders.

(2) The Report also recommends certain clarifications to the definition of "private student loan" as the term is used in Federal Truth-in-Lending laws that are not relevant to our business. The Report also recommends adopting meaningful mechanisms and processes that provide greater clarity to customers regarding their Private Student Loans. We will continue to monitor this recommendation.

Key Financial Measures

Our operating results are primarily driven by net interest income from our student loan portfolios (which include financing costs), provisions for loan losses, the revenues and expenses generated by our service businesses, and gains and losses on loan sales and debt repurchases. We manage and assess the performance of each business segment separately as each is focused on different customers and each derives its revenue from different activities and services. A brief summary of our key financial measures (net interest income; provisions for loan losses; charge-offs and delinquencies; servicing and contingency revenues; other income (loss); operating expenses; and "Core Earnings") can be found in Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2011 Form 10-K.

First Half of 2012 Summary of Results

We continue to operate in a challenging macroeconomic environment marked by high unemployment and financial uncertainty which contributes added uncertainty to Private Education Loan repayment and default patterns. Our business has changed significantly over the past two years as we no longer originate FFELP Loans. A detailed discussion of these changes can be found in Item 1 "Business" and in Item 1A "Risk Factors" in our 2011 Form 10-K.

Nonetheless, we were able to achieve significant accomplishments during the second quarter of 2012 as discussed below.

We report financial results on a GAAP basis and also present certain "Core Earnings" performance measures. Our management, equity investors, credit rating agencies and debt capital providers use these "Core Earnings" measures to monitor our business performance. See "'Core Earnings' - Definition and Limitations" for a further discussion and a complete reconciliation between GAAP net income and "Core Earnings."

Second-quarter 2012 GAAP net income was $292 million ($.59 diluted earnings per share), versus a net loss of $(6) million ($(.02) diluted loss per share) in the second-quarter 2011. The changes in GAAP net income are

driven by the same types of "Core Earnings" items discussed below as well as changes in "mark-to-market" unrealized gains and losses on derivative contracts and amortization and impairment of goodwill and intangible assets that are recognized in GAAP but not in "Core Earnings" results. Second-quarter 2012 and 2011 GAAP results included an $82 million gain and a $414 million loss, respectively, resulting from derivative accounting treatment compared to "Core Earnings."

"Core Earnings" for the quarter were $243 million ($.49 diluted earnings per share), compared with $260 million ($.48 diluted earnings per share) in the year-ago period. Versus the prior-year quarter, earnings benefited from a $48 million lower loan loss provision and a $29 million operating expense reduction. Debt repurchase gains were $20 million higher. However, the acceleration of $50 million of non-cash loan premium amortization in the quarter contributed to offset these improvements. This amount is attributable to approximately $4.5 billion of federally guaranteed student loans (approximately three percent of that portfolio) expected to be consolidated under the recently completed Special Direct Consolidation Loan Initiative. (See "FFELP Loans Segment" for further discussion.) Net interest income declined by an additional $56 million primarily due to higher funding costs, which in turn was partly due to refinancing debt into longer term liabilities, and lower federally guaranteed student loan balances.

During the first six months of 2012, we:

• issued $4.3 billion of FFELP asset-backed securities ("ABS"), $2.6 billion of Private Education Loan ABS and $1.85 billion of unsecured bonds;

• repurchased $290 million of debt and realized "Core Earnings" gains of $58 million, compared with $885 million of debt repurchased and $64 million of gains in the first six months of 2011;

• amended our FFELP asset-backed commercial paper facility to increase the current amount available to $7.5 billion and extended the final maturity date by one year to January 9, 2015;

• repurchased 40.5 million common shares for $609 million on the open market as part of our previously announced share repurchase program authorization of up to $900 million; and

• increased our regular quarterly common stock dividend to $.125 per share, up from $.10 per share in the fourth quarter of 2011. We paid our quarterly dividends on March 16, 2012 and June 15, 2012.

2012 Management Objectives

In 2012 we have set out five major goals to create shareholder value. They are:
(1) prudently grow Consumer Lending segment assets and revenue; (2) sustain Business Services segment revenue; (3) maximize cash flows from FFELP Loans;
(4) reduce our operating expenses; and (5) improve our financial strength. Here is how we plan to achieve these objectives and the progress we have made to date:

Prudently Grow Consumer Lending Segment Assets and Revenues

We will continue to pursue managed growth in our Private Education Loan portfolio in 2012, currently targeting $3.2 billion in new originations for the year compared to $2.7 billion in 2011. We will also be increasing our efforts to improve our return on these assets. We expect further improvements in our charge-off rates and provision for loan losses as the quality of our Private Education Loans continues to improve. Originations were 22 percent higher in the second quarter of 2012 compared with the year-ago quarter. Charge-offs decreased to 3.09 percent (annualized) of loans in repayment from 3.71 percent in the year-ago quarter. Provisions for loans losses decreased to $225 million in the second quarter of 2012 compared to $265 million in the second quarter of 2011.

Sustain Business Services Segment Revenue

Our Business Services segment generates the vast majority of its revenue from servicing and collecting on our FFELP Loan portfolio and FFELP Loans for others. As a result of the elimination of FFELP in 2010,

servicing and collection revenues derived from FFELP-related sources are in decline. In 2012 we will work to offset these declines through two primary means
- pursuing additional growth and expansion of our non-FFELP- related servicing and collection businesses and seeking to increase the FFELP-related loan servicing and collection work we do for third parties. In 2012 we are targeting significant growth in the number of customers we service for ED under our ED servicing and collection contracts, as well as in the total assets under management in our 529 college savings plans. We will explore both complementary and diversified strategies to expand demand for our services in and beyond the student loan market. We will also more aggressively seek to leverage our existing FFELP servicing platforms to be able to provide lower cost FFELP servicing to others while increasing segment revenues from these sources. For the six months ended June 30, 2012, our Business Services segment revenue is down two percent from the year-ago period primarily due to the amortization of our FFELP portfolio. We are continuing our efforts to offset this decline by growing other sources of revenue. Below are examples of growth in other Business Services activities:

• We are currently servicing approximately 3.8 million accounts under the ED Servicing Contract as of June 30, 2012 compared to 3.0 million accounts at June 30, 2011. Market share under the ED Servicing Contract is set annually based on the performance rankings of the four servicing companies that are parties to the contract. We must remain focused on improving our performance relative to other servicers.

• Campus Solutions added 15 new refund disbursement clients in the first six months of 2012.

• Assets under management in 529 college savings plans totaled $41.4 billion at June 30, 2012 and grew 10 percent over the year-ago quarter.

Maximize Cash Flows from FFELP Loans

In 2012 we will continue to focus on opportunistically purchasing additional FFELP Loan portfolios from other lenders. As cash flows from our existing FFELP Loans decline over coming years, it also becomes increasingly important that we actively manage and continue to reduce operating and overhead costs attributable to the maintenance and management of this segment. Continuing to reduce these operating and overhead costs will also increase net income for our Business Services segment. During the first half of 2012, we purchased $2.8 billion of FFELP Loans. We expect to make additional purchases during 2012. These acquisitions helped partially offset the $4.5 billion of loans we expect to consolidate to ED in 2012 as part of the Special Direct Consolidation Loan Initiative. See "FFELP Loans Segment" for further discussion regarding the effect of the Special Direct Consolidation Loan Initiative. The Special Direct Consolidation Loan Initiative impact will not be material to future earnings or cash flows. We will continue to actively and aggressively seek to acquire additional portfolios.

Reduce Operating Expenses

We achieved our 2011 management objective of having a quarterly operating expense of $250 million or less in the fourth quarter of 2011. We will remain focused on reducing operating expenses in 2012 and expect to improve on the $1.1 billion of operating expenses incurred in 2011. Second-quarter 2012 operating expenses were $239 million, down from $268 million in the year-ago quarter primarily due to the current-year benefit of the cost-cutting efforts we implemented throughout 2011.

Improve Our Financial Strength

It is management's objective for 2012 to provide increased shareholder distributions while at the same time ending 2012 with a balance sheet and capital position as strong as or stronger than those with which we ended in 2011. We increased our regular quarterly common stock dividends to $0.125 per share in the first and second quarters of 2012, up from $0.10 per share for the last three quarters of 2011. During the second quarter of 2012, we authorized an additional $400 million to be utilized in our ongoing share repurchase program; we previously authorized $500 million in January 2012. During the first half of 2012, we repurchased 40.5 million shares of common stock at an aggregate price of $609 million. At June 30, 2012, we had $291 million of remaining share repurchase authorization.

RESULTS OF OPERATIONS

We present the results of operations below first on a consolidated basis in accordance with GAAP. Following our discussion of consolidated earnings results on a GAAP basis, we present our results on a segment basis. We have four business segments: FFELP Loans, Consumer Lending, Business Services and Other. Since these segments operate in distinct business environments and we manage and evaluate the financial performance of these segments using non-GAAP financial measures, these segments are presented on a "Core Earnings" basis (see "'Core Earnings' - Definition and Limitations").