SLM HOLDING CORP, POS AM, 1997-07-08

SLM HOLDING CORP
POS AM, 1997-07-08
FINANCE SERVICES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 8, 1997

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

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

POST-EFFECTIVE AMENDMENT NO. 3

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. [ ]

================================================================================
<PAGE> 2

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

<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION CAPTION IN PROSPECTUS
- -------- --------------------------------------------- -------------------------------------
<S> <C> <C>
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.................................. *
</TABLE>
<PAGE> 3

<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION CAPTION IN PROSPECTUS
- -------- --------------------------------------------- -------------------------------------
<S> <C> <C>
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....................... *
</TABLE>

- ---------------
* Omitted because inapplicable or answer is negative.
<PAGE> 4

(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 July , 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, July 31, 1997, at 11:00 a.m., local time, at
the Four Seasons Hotel, 2800 Pennsylvania Avenue, N.W., Washington, D.C. 20007.
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 currently includes nine 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. If a shareholder timely and
validly delivers both a BLUE proxy card and a GREEN proxy card, only the later
dated proxy card will be counted.

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 July 31, 1997.

Sincerely,

William Arceneaux
Chairman of the Board
<PAGE> 5

STUDENT LOAN MARKETING ASSOCIATION

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

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD ON JULY 31, 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, July 31, 1997, at 11:00 a.m., local time at the Four Seasons
Hotel, 2800 Pennsylvania Avenue, N.W., Washington, D.C. 20007. 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 currently includes nine 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
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 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.

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

July , 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. IF A HOLDER TIMELY AND VALIDLY DELIVERS BOTH A BLUE PROXY CARD AND A
GREEN PROXY CARD, ONLY THE LATER DATED PROXY CARD WILL BE COUNTED. 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.

<PAGE> 6

SUBJECT TO COMPLETION, DATED JULY 8, 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 currently includes nine of
the 21 Sallie Mae directors (the "CRV"), for use at the Special Meeting of
Sallie Mae shareholders (the "Special Meeting") to be held on Thursday, July 31,
1997 at 11:00 a.m. at the Four Seasons Hotel, 2800 Pennsylvania Avenue, N.W.,
Washington, D.C. 20007 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 July , 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 JULY , 1997.

<PAGE> 7

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
<PAGE> 8

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
<PAGE> 9

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY............................................................................... 1
Sallie Mae and the Holding Company............................................... 1
The Special Meeting.............................................................. 1
The Reorganization Proposal...................................................... 3
The Privatization Act............................................................ 5
Other Provisions of the Reorganization........................................... 7
Certain Federal Income Tax Consequences.......................................... 8
Regulation....................................................................... 8
Comparison of Stockholder Rights................................................. 8
Holding Company Board of Directors............................................... 9
Summary Risk Factors............................................................. 9
Summary Selected Financial Data.................................................. 10
Market Data...................................................................... 11
RISK FACTORS.......................................................................... 12
No Historical Operations......................................................... 12
New Board of Directors........................................................... 12
Political Risks.................................................................. 12
INFORMATION REGARDING THE SPECIAL MEETING............................................. 13
Purpose.......................................................................... 13
Place, Time and Date of Meeting.................................................. 14
Record Date; Shares Entitled to Vote............................................. 14
Quorum; Votes Required........................................................... 14
Common Stock Information......................................................... 14
Voting and Revocation of Proxies................................................. 14
Solicitation of Proxies.......................................................... 15
No Dissenters' Appraisal Rights.................................................. 15
THE REORGANIZATION PROPOSAL........................................................... 16
Background....................................................................... 16
Reasons for the Reorganization; Recommendation of Sallie Mae and the CRV......... 21
Corporate Structure Before and After the Reorganization.......................... 22
Diagrams of Current and Proposed Corporate Structures............................ 23
Exchange of Stock Certificates................................................... 24
Treatment of Preferred Stock..................................................... 24
Effect on Stock Options and Employee Benefits.................................... 24
Dividend Policy.................................................................. 24
Stock Exchange Listing........................................................... 25
Certain Consequences of Shareholder Vote......................................... 25
TERMS OF THE REORGANIZATION AGREEMENT................................................. 26
THE PRIVATIZATION ACT................................................................. 27
Reorganization................................................................... 27
Oversight Authority.............................................................. 28
Restrictions on Intercompany Relations........................................... 28
Limitations on Holding Company Activities........................................ 28
GSE Dissolution After Reorganization............................................. 29
Charter Sunset If Reorganization Does Not Occur.................................. 30
CERTAIN FEDERAL INCOME TAX CONSEQUENCES............................................... 31
Reporting Requirement............................................................ 31
THE BOARD SLATE PROPOSAL.............................................................. 33
</TABLE>

iv
<PAGE> 10

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BUSINESS.............................................................................. 34
General.......................................................................... 34
Industry Overview................................................................ 35
Products and Services............................................................ 35
Loan Purchases.............................................................. 35
Borrower Benefits and Program Technology Support............................ 36
Joint Venture with The Chase Manhattan Bank................................. 37
Servicing........................................................................ 37
Specialized Financial Services................................................... 37
Warehousing Advances........................................................ 38
Academic Facilities Financings and Student Loan Revenue Bonds............... 38
Letters of Credit........................................................... 38
Private Student Loan Insurance.............................................. 38
Financing/Securitization......................................................... 38
Economic Impact of the Privatization Act on the Company's Business............... 39
Funding Costs and Leverage.................................................. 39
Preferred Stock Redemption.................................................. 39
State Taxes................................................................. 39
Impact on Other Activities.................................................. 39
Consideration............................................................... 40
Operations Following the Reorganization.......................................... 40
Competition...................................................................... 41
College Construction Loan Insurance Association.................................. 41
Properties....................................................................... 42
Employees........................................................................ 42
Legal Proceedings................................................................ 42
REGULATION............................................................................ 44
Current Regulation............................................................... 44
GSE Regulation.............................................................. 44
Other Regulation............................................................ 45
Regulation Following Reorganization.............................................. 45
Non-Discrimination and Limitations on Affiliation with Depository Institutions... 45
CAPITALIZATION........................................................................ 46
SELECTED FINANCIAL DATA............................................................... 47
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 48
Overview......................................................................... 48
Three Months ended March 31, 1997 and 1996....................................... 49
Selected Financial Data..................................................... 49
Results of Operations....................................................... 49
Student Loan Spread Analysis................................................ 51
Net Interest Income......................................................... 53
Average Balance Sheets...................................................... 54
Funding Costs............................................................... 55
Rate/Volume Analysis........................................................ 55
Operating Expenses.......................................................... 55
Privatization............................................................... 56
Federal and State Taxes..................................................... 57
Liquidity and Capital Resources............................................. 57
Preferred Stock............................................................. 60
</TABLE>

v
<PAGE> 11

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Other Related Events and Information........................................ 60
Years ended December 31, 1994-1996............................................... 63
Selected Financial Data..................................................... 63
Results of Operations....................................................... 63
Student Loan Spread Analysis................................................ 65
Net Interest Income......................................................... 67
Average Balance Sheets...................................................... 68
Funding Costs............................................................... 69
Rate/Volume Analysis........................................................ 69
Operating Expenses.......................................................... 70
Federal and State Taxes..................................................... 71
Liquidity and Capital Resources............................................. 71
Preferred Stock............................................................. 75
Other Related Events and Information........................................ 75
DESCRIPTION OF HOLDING COMPANY CAPITAL STOCK.......................................... 80
General.......................................................................... 80
Common Stock..................................................................... 80
Preferred Stock.................................................................. 80
Warrants......................................................................... 81
COMPARISON OF STOCKHOLDER RIGHTS...................................................... 82
MANAGEMENT............................................................................ 83
Holding Company Board of Directors............................................... 83
Sallie Mae Board of Directors.................................................... 83
Statutory Requirements...................................................... 83
Meetings of the Board............................................................ 88
Audit Committee............................................................. 88
Compensation and Personnel Committee........................................ 88
Nominations and Board Affairs Committee..................................... 89
Transactions with Affiliated Institutions........................................ 89
DIRECTOR COMPENSATION................................................................. 90
EXECUTIVE OFFICERS OF THE COMPANY..................................................... 91
Names and Titles................................................................. 91
Previous Experience.............................................................. 91
EXECUTIVE COMPENSATION................................................................ 91
Report of the Compensation and Personnel Committee............................... 92
Policy...................................................................... 92
Compensation Related to Achievement of Annual and Long-Term Goals........... 92
Base Salary................................................................. 92
Annual Bonus................................................................ 93
Incentive Performance Plan.................................................. 93
Stock Option Plan........................................................... 93
Compensation Tables.............................................................. 95
Description of Benefit Plans..................................................... 97
Thrift and Savings Plans.................................................... 97
Stock Purchase Plan......................................................... 98
Deferred Compensation Plan for Key Employees................................ 98
Stock Option Plan........................................................... 98
Stock Compensation Plan..................................................... 98
Performance Graph........................................................... 99
</TABLE>

vi
<PAGE> 12

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
OWNERSHIP OF SALLIE MAE STOCK......................................................... 100
Board and Management Ownership of the Company.................................... 100
Principal Holders................................................................ 101
LEGAL MATTERS......................................................................... 101
EXPERTS............................................................................... 101
SALLIE MAE ANNUAL MEETING SHAREHOLDER PROPOSALS....................................... 102
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................................... **
</TABLE>

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

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<PAGE> 13

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 currently includes nine of the 21 Sallie
Mae directors (the "CRV"). The Proxy Statement Supplements of the Majority
Directors and the CRV are an integral part of this Proxy Statement/Prospectus.
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, July 31, 1997 at 11:00 a.m., at the Four Seasons Hotel,
2800 Pennsylvania Avenue, N.W., Washington, D.C. 20007. The Special Meeting is
being called pursuant to the Letter Agreement between Sallie Mae and the

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<PAGE> 14

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 296,217
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.

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. If a
holder timely and validly delivers both a BLUE proxy card and a GREEN proxy
card, only the later dated proxy card will be counted.

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.

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<PAGE> 15

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 (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

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<PAGE> 16

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.

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. As a result, assuming
a quorum is present at the Special Meeting and the Reorganization Proposal is
approved, either the Majority Director Slate or the CRV Slate will be elected in
its entirety. The initial size of the Holding Company Board has been set at 15
members. The Majority Director Slate consists of 10 members and the CRV Slate
consists of 15 members. Each of the nominees on the CRV Slate has indicated that
he or she would not serve on the Holding Company Board if the Majority Director
Slate receives the greater number of votes at the Special Meeting. The CRV has
advised the Company that it is waiving its right under the Letter Agreement to
fill minority positions on the Holding Company Board. Accordingly, if the
Reorganization Proposal is approved by shareholders and the Majority Director
Slate receives the highest plurality of votes cast in person or by proxy at the
Special Meeting in respect of the Board Slate Proposal, the remaining five
positions on the Holding Company Board would either be filled by the Holding
Company Board or left vacant until the next election of directors. The members
of the Majority Director Slate have no current intention to fill any such
vacancies prior to the next election of directors. 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

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<PAGE> 17

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."

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

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<PAGE> 18

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 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.

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<PAGE> 19

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 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."

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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 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

8
<PAGE> 21

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.

SUMMARY 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."

9
<PAGE> 22

SUMMARY SELECTED FINANCIAL DATA

(DOLLARS IN MILLIONS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>

- ---------------
(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."

10
<PAGE> 23

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.

<TABLE>
<CAPTION>
HIGH LOW DIVIDEND
---- --- --------
<S> <C> <C> <C>
1994
First Quarter................................. $ 497/8 $427/8 $.35
Second Quarter................................ 441/8 353/4 .35
Third Quarter................................. 391/8 32 .35
Fourth Quarter................................ 35 311/4 .37
1995
First Quarter................................. 39 327/8 .37
Second Quarter................................ 483/8 341/2 .37
Third Quarter................................. 553/4 47 .37
Fourth Quarter................................ 707/8 54 .40
1996
First Quarter................................. 861/8 631/4 .40
Second Quarter................................ 831/2 66 .40
Third Quarter................................. 77 691/4 .40
Fourth Quarter................................ 981/4 771/4 .44
1997
First Quarter................................. 1141/4 89 .44
Second Quarter................................ 1373/4 945/8 .44
Third Quarter (through July 7, 1997).......... 138 127 --
</TABLE>

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.

11
<PAGE> 24

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."

12
<PAGE> 25

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 currently includes nine 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.

13
<PAGE> 26

PLACE, TIME AND DATE OF MEETING

The Special Meeting will be held on Thursday, July 31, 1997 at the Four
Seasons Hotel, 2800 Pennsylvania Avenue, N.W., Washington, D.C. 20007, 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 296,217
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

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.

14
<PAGE> 27

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, 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. and Innisfree M&A Incorporated 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 Innisfree M&A
Incorporated will be paid a fee, estimated not to exceed $200,000, and each 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.

15
<PAGE> 28

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

16
<PAGE> 29

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

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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,
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.

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<PAGE> 31

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 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.

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<PAGE> 32

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.

Sallie Mae's current chief executive officer, Mr. Lawrence A. Hough, has
discussed with the Majority Directors his belief that the newly-privatized
Holding Company should have a new chief executive with a demonstrated record of
success in the public company sector, and that executive experience solely in
the GSE-context is not ideal. Mr. Hough has stated that he will resign upon
selection of the new chief executive officer. Accordingly, the Holding Company
Board elected at the Special Meeting will be responsible for selecting a new
chief executive officer for the Holding Company. For additional information
concerning selection of a new chief executive officer if the Majority Director
Slate is elected, see the Proxy Statement Supplement of the Majority Directors.
For additional information concerning selection of a new chief executive officer
if the CRV Slate is elected, see the Proxy Statement Supplement of the CRV.

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On June 26, Ms. Gilleland advised the Company that she had accepted the
CRV's invitation to be named as a member of the CRV Slate.

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.

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."

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<PAGE> 34

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
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.

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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]

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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

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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."

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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."

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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

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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

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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

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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.

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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.

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.

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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).

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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. As a result, assuming a quorum is present at the Special Meeting and the
Reorganization Proposal is approved, either the Majority Director Slate or the
CRV Slate will be elected in its entirety. The initial size of the Holding
Company Board has been set at 15 members. The Majority Director Slate consists
of 10 members and the CRV Slate consists of 15 members. Each of the nominees on
the CRV Slate has indicated that he or she would not serve on the Holding
Company Board if the Majority Director Slate receives the greater number of
votes at the Special Meeting. The CRV has advised the Company that it is waiving
its right under the Letter Agreement to fill minority positions on the Holding
Company Board. Accordingly, if the Reorganization Proposal is approved by
shareholders and the Majority Director Slate receives the highest plurality of
votes cast in person or by proxy at the Special Meeting in respect of the Board
Slate Proposal, the remaining five positions on the Holding Company Board would
either be filled by the Holding Company Board or left vacant until the next
election of directors. The members of the Majority Director Slate have no
current intention to fill any such vacancies prior to the next election of
directors.

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. If a holder timely and validly delivers both a BLUE proxy card
and a GREEN proxy card, only the later dated proxy card will be counted. A valid
timely abstention on any matter in person or on either proxy card will have the
effect of cancelling any prior proxy with respect to such matter.

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.

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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.

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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

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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 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.

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<PAGE> 49

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 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.

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<PAGE> 50

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.

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

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<PAGE> 51

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 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

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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 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.

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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.

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.

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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:

<TABLE>
<CAPTION>
APPROXIMATE
LOCATION FUNCTION SQUARE FEET
----------------------------------- ----------------------------------- -----------
<S> <C> <C>
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
</TABLE>

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.

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.

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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.

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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

44
<PAGE> 57

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."

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.

45
<PAGE> 58

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.

<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------------
AS
ACTUAL ADJUSTED
----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) (UNAUDITED)
<S> <C> <C>
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
=========== ===========
</TABLE>

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

(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.

46
<PAGE> 59

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.
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C> <C>
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

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

(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.

47
<PAGE> 60

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.

48
<PAGE> 61

THREE MONTHS ENDED MARCH 31, 1997 AND 1996

SELECTED FINANCIAL DATA
CONDENSED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
THREE MONTHS
ENDED INCREASE
MARCH 31, (DECREASE)
-------------- ------------
1997 1996 $ %
----- ----- ---- ----
<S> <C> <C> <C> <C>
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%
===== ===== ==== ===
</TABLE>

CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
INCREASE
(DECREASE)
MARCH 31, DECEMBER 31, ----------------------------
1997 1996 $ %
--------- ------------ ------------ ---
<S> <C> <C> <C> <C>
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)%
======= ======== ========== ===
</TABLE>

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.

49
<PAGE> 62

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.

50
<PAGE> 63

STUDENT LOAN SPREAD ANALYSIS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1997 1996
------- -------
<S> <C> <C>
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
======= =======
</TABLE>

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

51
<PAGE> 64

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. 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.

52
<PAGE> 65

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.

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

<TABLE>
<CAPTION>
THREE MONTHS
ENDED INCREASE
MARCH 31, (DECREASE)
------------ ------------
1997 1996 $ %
---- ---- ---- ----
<S> <C> <C> <C> <C>
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)%
==== ==== ==== ===
</TABLE>

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

53
<PAGE> 66

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.

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

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------
1997 1996
--------------- ---------------
BALANCE RATE BALANCE RATE
------- ---- ------- ----
<S> <C> <C> <C> <C>
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%
==== ====
</TABLE>

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.

54
<PAGE> 67

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).
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------
1997 1996
------------------ ------------------
AVERAGE AVERAGE AVERAGE AVERAGE
INDEX BALANCE RATE BALANCE RATE
- --------------------------------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
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%
======= ====== ======= ======
</TABLE>

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

<TABLE>
<CAPTION>
INCREASE
(DECREASE)
TAXABLE ATTRIBUTABLE
EQUIVALENT TO CHANGE IN
INCREASE --------------
(DECREASE) RATE VOLUME
---------- ---- ------
<S> <C> <C> <C>
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)
======= ==== ======
</TABLE>

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

55
<PAGE> 68

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

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------------------------------------
1997 1996
------------------------------- -------------------------------
SERVICING SERVICING
AND AND
CORPORATE ACQUISITION TOTAL CORPORATE ACQUISITION TOTAL
--------- ----------- ----- --------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
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
===== ===== ===== ===== ===== =====
</TABLE>

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

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

56
<PAGE> 69

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.

57
<PAGE> 70

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,

58
<PAGE> 71

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.

<TABLE>
<CAPTION>
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
-------- -------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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% -%
======== ======== ====== ====== ====== ======
</TABLE>

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.

59
<PAGE> 72

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)

<TABLE>
<S> <C>
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
---
</TABLE>

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.

60
<PAGE> 73

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.

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<PAGE> 74

On June 25, 1997, the United States House of Representatives passed a tax
reform bill (the "House Proposed Legislation"), which would prevent Section 355
of the 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 (an
"Intragroup Distribution"). On June 27, 1997, the United States Senate passed a
different tax reform bill (the "Senate Proposed Legislation"), which would
prevent Section 355 from applying, except as provided in Treasury Department
regulations, to any Intragroup Distribution made as part of a transaction that
results in certain acquisitions of either the distributing corporation or the
distributed corporation. Subject to various transition rules, both the House
Proposed Legislation and the Senate Proposed Legislation (collectively, the
"Proposed Legislation") are 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 House 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. If the Senate Proposed Legislation were enacted in its current form
with applicable effective dates, any such remaining ability would not be so
eliminated. The Holding Company has no current plans to make any such
distributions.

62
<PAGE> 75

YEARS ENDED DECEMBER 31, 1994-1996

SELECTED FINANCIAL DATA
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
INCREASE (DECREASE)
----------------------------
YEARS ENDED DECEMBER 1996 VS. 1995 VS.
31, 1995 1994
----------------------- ------------ -----------
1996 1995 1994 $ % $ %
----- ----- ----- ----- --- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C>
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%
===== ===== ===== ===== === ==== ===
</TABLE>

CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
INCREASE (DECREASE)
---------------------------------
DECEMBER 31, 1996 VS. 1995 1995 VS. 1994
------------------ -------------- --------------
1996 1995 $ % $ %
------- ------- ------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C>
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)%
======= ======= ======= === ======= ===
</TABLE>

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

63
<PAGE> 76

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.

64
<PAGE> 77

STUDENT LOAN SPREAD ANALYSIS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>

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

65
<PAGE> 78

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.

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. 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 December 31, 1996, the gains resulting
from such securitizations would have been increased by approximately $55
million, pre-tax. Management

66
<PAGE> 79

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.

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.

NET INTEREST INCOME

<TABLE>
<CAPTION>
INCREASE (DECREASE)
-----------------------------
1996 VS. 1995 VS.
YEARS ENDED DECEMBER 31, 1995 1994
-------------------------- ------------ ------------
1996 1995 1994 $ % $ %
------ ------ ------ ----- --- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C>
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)%
====== ====== ====== ===== === ==== ==
</TABLE>

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.

67
<PAGE> 80

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.

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
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
BALANCE RATE BALANCE RATE BALANCE RATE
------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
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% -%
==== ==== ====
</TABLE>

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.

68
<PAGE> 81

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).
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1996 1995 1994
------------------ ------------------ ------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
INDEX BALANCE RATE BALANCE RATE BALANCE RATE
- ---------------------------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
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%
======= ====== ======= ====== ======= ======
</TABLE>

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

<TABLE>
<CAPTION>
INCREASE
(DECREASE)
TAXABLE ATTRIBUTABLE
EQUIVALENT TO CHANGE IN
INCREASE ----------------
(DECREASE) RATE VOLUME
---------- ----- ------
<S> <C> <C> <C>
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
====== ===== =====
</TABLE>

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.

69
<PAGE> 82

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:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------------
1996 1995 1994
------------------------------- ------------------------------- -------------------------------
SERVICING SERVICING SERVICING
AND AND AND
CORPORATE ACQUISITION TOTAL CORPORATE ACQUISITION TOTAL CORPORATE ACQUISITION TOTAL
--------- ----------- ----- --------- ----------- ----- --------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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.................... 761 4,031 4,792 856 3,885 4,741 857 4,140 4,997
==== ===== ===== ==== ===== ===== ==== ===== =====
</TABLE>

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, INCREASE/(DECREASE)
-------------------- ------------------------------
1996 VS. 1995 VS.
1996 1995 1994 1995 1994
---- ---- ---- ------------ ------------
$ % $ %
--- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
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 %
==== ==== ==== === === === =
</TABLE>

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.

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<PAGE> 83

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

71
<PAGE> 84

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

72
<PAGE> 85

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.

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<PAGE> 86

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.
<TABLE>
<CAPTION>
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
-------- -------- -------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
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% -%
======== ======== ======== ======= ======== ======
</TABLE>

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.

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<PAGE> 87

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)

<TABLE>
<S> <C>
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
---
</TABLE>

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

75
<PAGE> 88

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."

76
<PAGE> 89

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:

<TABLE>
<CAPTION>
DIRECT LOANS
ACADEMIC YEARS AS A PERCENT OF TOTAL
---------------------------------------------------------------- ---------------------
<S> <C>
1994-1995....................................................... 5%
1995-1996....................................................... 40
1996-1998....................................................... 50
1998-1999....................................................... 60
</TABLE>

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.

77
<PAGE> 90

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

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<PAGE> 91

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.

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<PAGE> 92

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

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<PAGE> 93

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.

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<PAGE> 94

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.

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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.

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<PAGE> 96

SHAREHOLDER-ELECTED DIRECTORS:

<TABLE>
<CAPTION>
PRIMARY EMPLOYMENT DURING THE PAST FIVE YEARS
NAME AND AGE AT MARCH 31, 1997 AND DIRECTORSHIPS AT MARCH 31, 1997
- -------------------------------------------- -----------------------------------------------
<S> <C>
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.
</TABLE>

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<PAGE> 97

<TABLE>
<CAPTION>
PRIMARY EMPLOYMENT DURING THE PAST FIVE YEARS
NAME AND AGE AT MARCH 31, 1997 AND DIRECTORSHIPS AT MARCH 31, 1997
- -------------------------------------------- -----------------------------------------------
<S> <C>
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.
</TABLE>

85
<PAGE> 98

- ---------------
(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.

86
<PAGE> 99

<TABLE>
<CAPTION>
PRIMARY EMPLOYMENT DURING THE PAST FIVE YEARS
NAME AND AGE AT MARCH 31, 1997 AND DIRECTORSHIPS AT MARCH 31, 1997
- -------------------------------------------- -----------------------------------------------
<S> <C>
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.
</TABLE>

87
<PAGE> 100

- ---------------
(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.

88
<PAGE> 101

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.

89
<PAGE> 102

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.

90
<PAGE> 103

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.

<TABLE>
<CAPTION>
YEAR
COMMENCED/
AGE AT REJOINED
NAME & TITLE 3/31/97 EMPLOYMENT
- ------------------------------------------------------------------------ ------- -----------
<S> <C> <C>
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
</TABLE>

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.

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<PAGE> 104

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

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<PAGE> 105

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

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<PAGE> 106

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

<TABLE>
<S> <C>
David A. Daberko, Chairman
Irene Natividad, Vice Chairman
Charles L. Daley*, Member
Steven L. Shapiro*, Member
Ronald J. Thayer, Member
David J. Vitale, Member
</TABLE>

--------------------
* 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."

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<PAGE> 107

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

<TABLE>
<CAPTION>
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)
---- -------- -------- ----- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>

- ---------------
(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.

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<PAGE> 108

1996 OPTION GRANTS TABLE

<TABLE>
<CAPTION>
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)
- --------------------------- ------------------------- ---------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>

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

(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

<TABLE>
<CAPTION>
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
- ----------------------------- ------------------------- -------- ----------- -------------- -------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>

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

(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)

<TABLE>
<CAPTION>
PERFORMANCE OR OTHER PERIOD
NAME POSITION AWARDS FOR 1993 IPP(1) UNTIL MATURITY OR PAYOUT(2)
- -------------------------- ------------------------- ------------------------------- --------------------------------
<S> <C> <C> <C>
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.
</TABLE>

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

(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.

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<PAGE> 109

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)

<TABLE>
<CAPTION>
FINAL YEARS OF SERVICE AT NORMAL RETIREMENT DATE
AVERAGE ---------------------------------------------------------------
COMPENSATION 15 20 25 30
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
$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
</TABLE>

- ---------------
(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.

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<PAGE> 110

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

98
<PAGE> 111

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

<TABLE>
<CAPTION>
MEASUREMENT PERIOD S&P FINANCIAL-
(FISCAL YEAR COVERED) SLMA MISC. S&P 500
<S> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
BASE
COMPANY/INDEX YEAR 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>

<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>

(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

99
<PAGE> 112

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.

SALLIE MAE

<TABLE>
<CAPTION>
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)
-------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
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.................................................. 39,450 474 39,924 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............................................... 6,957 2,669 9,626 58,920
Lawrence A. Hough............................................... 140,434 6,270 146,704 178,250
Lydia M. Marshall............................................... 11,173 1,481 12,654 38,800
Denise B. McGlone............................................... 9,108 1,597 10,705 32,500
-------- ------ ------------ ---------

SALLIE MAE DIRECTORS AND NAMED EXECUTIVE OFFICERS
AS A GROUP(5)................................................. 255,843 40,374 296,217 374,620
</TABLE>

- ---------------
(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.

100
<PAGE> 113

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.

<TABLE>
<CAPTION>
OWNERSHIP PERCENTAGE AT
PRINCIPAL HOLDERS SHARES MARCH 31, 1997
- ------------------------------------------------------------- --------- ------------------------
<S> <C> <C>
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%
</TABLE>

- ---------------
(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.

101
<PAGE> 114

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

102
<PAGE> 115

FINANCIAL STATEMENTS

INDEX

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
</TABLE>

F-1
<PAGE> 116

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
<PAGE> 117

SLM HOLDING CORPORATION
BALANCE SHEETS

MARCH 31, FEBRUARY 3,
1997 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
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
========= ========
</TABLE>

See accompanying notes to balance sheets.

F-3
<PAGE> 118

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
<PAGE> 119

SLM HOLDING CORPORATION

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

1. ORGANIZATION AND PRIVATIZATION -- (CONTINUED)

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
<PAGE> 120

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
<PAGE> 121

STUDENT LOAN MARKETING ASSOCIATION

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

DECEMBER 31,
MARCH 31, --------------------------
1997 1996 1995
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
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
=========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-7
<PAGE> 122

STUDENT LOAN MARKETING ASSOCIATION

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

<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED DECEMBER 31,
MARCH 31, --------------------------------------
-------------------------- 1996 1995 1994
1997 1996 ---------- ---------- ----------
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
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
========== ========== ========== ========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-8
<PAGE> 123

STUDENT LOAN MARKETING ASSOCIATION

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

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH YEARS ENDED DECEMBER 31,
31, -------------------------------------
------------------------- 1996 1995 1994
1997 1996 ----------- ---------- ----------
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
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
=========== =========== =========== ========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-9
<PAGE> 124

STUDENT LOAN MARKETING ASSOCIATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------------------ -----------------------------------------------
1997 1996 1996 1995 1994
------------- ------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
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
============= ============= ============= ============= =============
</TABLE>

See accompanying notes to consolidated financial statements.

F-10
<PAGE> 125

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
<PAGE> 126

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.

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
<PAGE> 127

STUDENT LOAN MARKETING ASSOCIATION

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
<PAGE> 128

STUDENT LOAN MARKETING ASSOCIATION

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
<PAGE> 129

STUDENT LOAN MARKETING ASSOCIATION

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
<PAGE> 130

STUDENT LOAN MARKETING ASSOCIATION

3. STUDENT LOANS

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
<PAGE> 131

STUDENT LOAN MARKETING ASSOCIATION

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.

<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
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
=========== =========== ===========
</TABLE>

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
<PAGE> 132

STUDENT LOAN MARKETING ASSOCIATION

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.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------- ---------------------------------
1997 1996 1996 1995 1994
------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
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
======= ======= ======== ======== =======
</TABLE>

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:

<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>

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:

<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>

F-18
<PAGE> 133

STUDENT LOAN MARKETING ASSOCIATION

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.

<TABLE>
<CAPTION>
YEAR OF MATURITY MARCH 31, 1997 DECEMBER 31, 1996
------------------------------------------------------- -------------- -----------------
<S> <C> <C>
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
========== ===========
</TABLE>

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
<PAGE> 134

STUDENT LOAN MARKETING ASSOCIATION

5. ACADEMIC FACILITIES FINANCINGS -- (CONTINUED)

The following tables summarize the academic facilities bonds at March 31,
1997 and December 31, 1996 and 1995.

<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
BONDS -- AVAILABLE-FOR-SALE COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
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
========= ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
BONDS -- AVAILABLE-FOR-SALE COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
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
========= ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
BONDS -- AVAILABLE-FOR-SALE COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
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
========= ======== ======== ========
</TABLE>

The following table summarizes academic facilities loans at March 31, 1997
and at December 31, 1996 and 1995.

<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------------
LOANS 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
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
========= ========= =========
</TABLE>

F-20
<PAGE> 135

STUDENT LOAN MARKETING ASSOCIATION

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:

<TABLE>
<CAPTION>
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
------------------------ -------- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
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
======== ========= ======== ======== ========= ========
</TABLE>

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
<PAGE> 136

STUDENT LOAN MARKETING ASSOCIATION

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:

<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
========== ========= ======== ==========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
========== ========= ====== ==========
</TABLE>

F-22
<PAGE> 137

STUDENT LOAN MARKETING ASSOCIATION

6. INVESTMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
========== ========= ========= ==========
</TABLE>

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:

<TABLE>
<CAPTION>
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
------------------ -------- ---------- ----------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
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
======== ========== =========== ======== ========== ===========
</TABLE>

F-23
<PAGE> 138

STUDENT LOAN MARKETING ASSOCIATION

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.

<TABLE>
<CAPTION>
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
----------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
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
===========
</TABLE>

<TABLE>
<CAPTION>
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
----------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
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
===========
</TABLE>

F-24
<PAGE> 139

STUDENT LOAN MARKETING ASSOCIATION

7. SHORT-TERM BORROWINGS -- (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
AT DECEMBER 31, 1995 ---------------------------------
---------------------- WEIGHTED
WEIGHTED WEIGHTED AVERAGE
AVERAGE AVERAGE EFFECTIVE
ENDING INTEREST AVERAGE INTEREST INTEREST
BALANCE RATE BALANCE RATE RATE
----------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
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
===========
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
AT DECEMBER 31, 1994 ---------------------------------
---------------------- WEIGHTED
WEIGHTED WEIGHTED AVERAGE
AVERAGE AVERAGE EFFECTIVE
ENDING INTEREST AVERAGE INTEREST INTEREST
BALANCE RATE BALANCE RATE RATE
----------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
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
===========
</TABLE>

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
<PAGE> 140

STUDENT LOAN MARKETING ASSOCIATION

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.

<TABLE>
<CAPTION>
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
----------- -------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
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%
=========== ==== =========== =========== ====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
AT DECEMBER 31, 1996 -----------------------
----------------------------------------- WEIGHTED
WEIGHTED AVERAGE
AVERAGE NOTIONAL EFFECTIVE
ENDING INTEREST AMOUNT AVERAGE INTEREST
BALANCE RATE OF DERIVATIVES BALANCE RATE
----------- -------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
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
<PAGE> 141

STUDENT LOAN MARKETING ASSOCIATION

8. LONG-TERM NOTES --(CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
AT DECEMBER 31, 1995 -----------------------
----------------------------------------- WEIGHTED
WEIGHTED AVERAGE
AVERAGE NOTIONAL EFFECTIVE
ENDING INTEREST AMOUNT AVERAGE INTEREST
BALANCE RATE OF DERIVATIVES BALANCE RATE
----------- ---- ----------- ----------- ----
<S> <C> <C> <C> <C> <C>
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%
=========== ==== =========== =========== ====
</TABLE>

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:

<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
-------------------------- --------------------------
STATED MATURITY TO STATED MATURITY TO
YEAR OF MATURITY MATURITY CALL DATE MATURITY CALL DATE
---------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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
=========== =========== =========== ===========
</TABLE>

F-27
<PAGE> 142

STUDENT LOAN MARKETING ASSOCIATION

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):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
--------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Maturity value.................................................... $90 $62 $138
==== ==== ====
Carrying value.................................................... $ 8 $ 8 $ 21
==== ==== ====
Premiums.......................................................... $ 7 $ 8 $ 14
==== ==== ====
</TABLE>

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. 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.

F-28
<PAGE> 143

STUDENT LOAN MARKETING ASSOCIATION

9. STUDENT LOAN SECURITIZATION -- (CONTINUED)
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 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
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STUDENT LOAN MARKETING ASSOCIATION

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).

<TABLE>
<CAPTION>
AT MARCH 31, 1997
-------------------------------------------------------------------------------
SWAPS
------------------------------------ FOREIGN
BASIS/ CURRENCY TOTAL
BORROWINGS STANDARD REVERSE REVERSE BASIS AGREEMENTS DERIVATIVES
---------- -------- ------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
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
====== ====== === ===== ==== =====
</TABLE>

F-30
<PAGE> 145

STUDENT LOAN MARKETING ASSOCIATION

10. DERIVATIVE FINANCIAL INSTRUMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
-------------------------------------------------------------------------------
SWAPS
------------------------------------ FOREIGN
BASIS/ CURRENCY TOTAL
BORROWINGS STANDARD REVERSE REVERSE BASIS AGREEMENTS DERIVATIVES
---------- -------- ------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
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
===== ===== ===== ===== ==== =====
</TABLE>

F-31
<PAGE> 146

STUDENT LOAN MARKETING ASSOCIATION

10. DERIVATIVE FINANCIAL INSTRUMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
-------------------------------------------------------------------------------
SWAPS
------------------------------------ FOREIGN
BASIS/ CURRENCY TOTAL
BORROWINGS STANDARD REVERSE REVERSE BASIS AGREEMENTS DERIVATIVES
---------- -------- ------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
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
===== ===== ===== ===== ==== =====
</TABLE>

F-32
<PAGE> 147

STUDENT LOAN MARKETING ASSOCIATION

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).

<TABLE>
<CAPTION>
NOTIONAL PRINCIPAL
---------------------------
FOREIGN FUTURES
INTEREST RATE CURRENCY CONTRACT
SWAPS AGREEMENTS AMOUNTS
------------- ---------- --------
<S> <C> <C> <C>
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
=========== ======== ========
</TABLE>

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
<PAGE> 148

STUDENT LOAN MARKETING ASSOCIATION

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.

<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
----------------------- -----------------------
STATED MATURITY TO STATED MATURITY TO
YEAR OF MATURITY MATURITY PUT DATE MATURITY PUT DATE
--------------------------------------------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
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
======= ======== ======= ========
</TABLE>

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).

<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
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
</TABLE>

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
<PAGE> 149

STUDENT LOAN MARKETING ASSOCIATION

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
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STUDENT LOAN MARKETING ASSOCIATION

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):

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------
MARCH 31, 1997 1996 1995
------------------------------- ---------------------------------- ----------------------------------
FAIR CARRYING FAIR CARRYING FAIR CARRYING
VALUE VALUE DIFFERENCE VALUE VALUE DIFFERENCE VALUE VALUE DIFFERENCE
------- -------- ---------- ---------- -------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
======== ======== ========
</TABLE>

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
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STUDENT LOAN MARKETING ASSOCIATION

12. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)

Commitments outstanding are summarized below:

<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
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
=========== =========== ===========
</TABLE>

The following schedules summarize expirations of commitments outstanding at
March 31, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------------------------------------
ACADEMIC
STUDENT LOAN WAREHOUSING FACILITIES LETTERS OF
PURCHASES ADVANCES FINANCINGS CREDIT
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
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
============ ========== ========= ==========

<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------------
ACADEMIC
STUDENT LOAN WAREHOUSING FACILITIES LETTERS OF
PURCHASES ADVANCES FINANCINGS CREDIT
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
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
============ ========== ========== ==========
</TABLE>

Litigation

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STUDENT LOAN MARKETING ASSOCIATION

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

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<PAGE> 153

STUDENT LOAN MARKETING ASSOCIATION

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.

<TABLE>
<CAPTION>
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
-------- ------- --------- ------- --------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
------- ------- -------
</TABLE>

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.

<TABLE>
<CAPTION>
AVERAGE REMAINING
EXERCISE PRICES OPTIONS AVERAGE PRICE CONTRACTUAL LIFE
---------------------- ------- ------------- -----------------
<S> <C> <C> <C>
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.
======= ------- ---------

</TABLE>

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.

<TABLE>
<CAPTION>
AVERAGE REMAINING
EXERCISE PRICES OPTIONS AVERAGE PRICE CONTRACTUAL LIFE
---------------------- ------- ------------- -----------------
<S> <C> <C> <C>
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.
======= ------- --------

</TABLE>

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
<PAGE> 154

STUDENT LOAN MARKETING ASSOCIATION

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.

<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
------------------ ------------------
AVERAGE AVERAGE
OPTIONS PRICE OPTIONS PRICE
------- ------- ------- -------
<S> <C> <C> <C> <C>
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
------- -------
</TABLE>

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.

<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
-------------------- --------------------
1997 1996 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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
======== ======== ======== ========
</TABLE>

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<PAGE> 155

STUDENT LOAN MARKETING ASSOCIATION

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.

<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
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)
======== ========
</TABLE>

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:

<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
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
======== ======== =======
</TABLE>

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
<PAGE> 156

STUDENT LOAN MARKETING ASSOCIATION

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:

<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
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
========= ========= =========
</TABLE>

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.

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<PAGE> 157

STUDENT LOAN MARKETING ASSOCIATION

17. FEDERAL INCOME TAXES -- (CONTINUED)

Reconciliations of the statutory United States federal income tax rates to
Sallie Mae's effective tax rate follow:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH YEARS ENDED DECEMBER
31, 31,
------------ ----------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994
---- ---- ---- ---- ----

<CAPTION>
<S> <C> <C> <C> <C> <C>
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%
==== ==== ==== ==== ====
</TABLE>

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)
<TABLE>
<CAPTION>
1997 1996
-------- --------------------------------------------
<S> <C> <C> <C> <C> <C>
FIRST FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------- --------

<CAPTION>
<S> <C> <C> <C> <C> <C>
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
======== ======== ======== ======== ========
</TABLE>

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<PAGE> 158

STUDENT LOAN MARKETING ASSOCIATION

18. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) -- (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1995
--------------------------------------------

<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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
======== ======== ======== ========
</TABLE>

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 and on June 26, 1997, the loan was further extended to
December 29, 1997.

F-44
<PAGE> 159

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
<PAGE> 160

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
<PAGE> 161

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
<PAGE> 162

(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
<PAGE> 163

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.

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"(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

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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

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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.

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"(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

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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

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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

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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

"(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.".

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(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

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(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

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(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.

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"(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

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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).

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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.

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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. Section 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.

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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.

<TABLE>
<CAPTION>
DATE OF DISBURSEMENT SPECIAL ALLOWANCE MARGIN
- --------------------------------------------- --------------------------------------------------
<S> <C>
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)
</TABLE>

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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.

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MAXIMUM LOAN AMOUNTS
FEDERAL STAFFORD LOAN PROGRAM

<TABLE>
<CAPTION>
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
- -------------------------------------- ---------- ----------- --------------- ------------ --------
<S> <C> <C> <C> <C> <C>
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
</TABLE>

- ---------------
(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.

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SUBSIDIZED STAFFORD LOANS

<TABLE>
<CAPTION>
DATE OF DISBURSEMENT BORROWER RATE MAXIMUM RATE INTEREST RATE MARGIN
- ------------------------------ -------------------- -------------------- --------------------
<S> <C> <C> <C>
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
</TABLE>

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

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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

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<PAGE> 183

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

<TABLE>
<CAPTION>
DATE OF DISBURSEMENT BORROWER RATE MAXIMUM RATE INTEREST RATE MARGIN
- ----------------------------------------- -------------------- ------------ --------------------
<S> <C> <C> <C>
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
</TABLE>

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.

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<PAGE> 184

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.

<TABLE>
<CAPTION>
GUARANTEE AGENCY'S
CLAIMS EXPERIENCE APPLICABLE REINSURANCE RATE
- --------------------------------------------- ---------------------------------------------------
<S> <C>
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)
</TABLE>

- ---------------
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
<PAGE> 185

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
<PAGE> 186

APPENDIX D

INTENTIONALLY OMITTED

D-1
<PAGE> 187

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
<PAGE> 188

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
<PAGE> 189

APPENDIX F

PROVIDED SEPARATELY BY MAJORITY DIRECTORS

F-1
<PAGE> 190

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

July , 1997

Dear Sallie Mae Shareholder:

With this letter, we enclose the proxy and registration materials for the
Special Meeting of Shareholders that will be held on July 31, 1997. A MAJORITY
OF SALLIE MAE'S EXISTING DIRECTORS STRONGLY URGE YOU TO COMPLETE, SIGN, DATE AND
PROMPTLY RETURN THE ENCLOSED BLUE PROXY CARD VOTING "FOR" ADOPTION OF THE
REORGANIZATION PROPOSAL AND "FOR" ELECTION OF THE MAJORITY DIRECTOR SLATE
DESCRIBED IN THE ACCOMPANYING MATERIALS.

The members of the Board of Directors slate nominated by a majority of the
Sallie Mae Board have asked me to serve as the non-executive Chairman of the
Board if we are elected to lead the privatized company. I am writing to tell you
the views and recommendations of the Majority Director Slate nominees.

PRIVATIZATION IS, UNQUESTIONABLY, THE CORNERSTONE OF OUR COMPANY'S
FUTURE. The accompanying materials describe a plan of privatization endorsed
both by Management and by the CRV. It is an excellent plan, and it should serve
our company well.

IF PRIVATIZATION IS APPROVED, AS IT SHOULD BE, THE OUTSTANDING ISSUES
BEFORE YOU WILL BOIL DOWN TO THESE: WHICH BUSINESS PLAN SHOULD SALLIE MAE
FOLLOW? AND, WHO SHOULD LEAD OUR COMPANY?

Management's post-privatization business plan builds on the additional
share value growth potential that privatization will make possible. The central
features of this plan are the following: maximize student loan revenue through
expansion of the highly successful school-based strategy and through disciplined
spot market purchases; significantly reduce operating expenses as a percent of
managed student loans; aggressively manage capital primarily through loan
securitizations and common share repurchases; invest in our servicing and
client-support systems to fuel earnings growth; minimize political risk; and
gradually introduce new revenue sources that draw on our operating skills, our
business relationships and our customer base. This plan has generated
exceptional growth in shareholder value over the last two years. Privatization
will enhance its potential for further growth.

YOU WILL HAVE THE OPPORTUNITY TO COMPARE OUR BUSINESS PLAN WITH THAT OF THE
CRV. OUR VIEW IS THAT SALLIE MAE'S BASIC BUSINESS, AS PRESENTLY CONSTITUTED, IS
A PARTICULARLY ATTRACTIVE INVESTMENT AND THAT THE CRV'S DECLARED INTENTIONS
PLACE THIS BUSINESS AT RISK. Discussions with our bank distribution partners
confirm that we have lost a substantial volume of student loan purchases in the
last two months as a result of the CRV's publicly-declared intention to
originate student loans in head-to-head competition with our principal business
suppliers. We consider it essential to halt this business erosion; the place to
discuss these ideas is in the boardroom, not in the news media.

<PAGE> 191

BY NOW YOU SHOULD KNOW THAT LAWRENCE A. HOUGH HAS ANNOUNCED HIS RESIGNATION
AS PRESIDENT AND CHIEF EXECUTIVE OFFICER EFFECTIVE UPON COMPLETION OF THE
TRANSITION TO PRIVATIZATION AND THE SELECTION OF A NEW CHIEF EXECUTIVE
OFFICER. Sallie Mae owes Larry Hough a large debt of gratitude for his
accomplishments as CEO, achieving landmark privatization legislation not least
among them. His initiative allows us to seek out a new chief executive officer
with a substantial record of share value creation outside the GSE context --
where Sallie Mae will soon be operating.

INSTALLING A NEW CHIEF EXECUTIVE WILL BE THE NEW BOARD'S IMMEDIATE
PRIORITY. HOWEVER, THERE WILL BE NO GAP IN SALLIE MAE LEADERSHIP. UNTIL HIS
SUCCESSOR IS IN PLACE, LARRY HOUGH WILL REMAIN IN CHARGE, EXECUTING OUR BUSINESS
PLAN, WITH THE FULL SUPPORT OF THE BOARD AND THE MANAGEMENT TEAM. THIS WILL BE
AN ORDERLY, PRODUCTIVE AND PROFITABLE TRANSITION.

OUR NEW CEO WILL BE GUIDED AND SUPPORTED BY A STRONG BOARD OF DIRECTORS AND
THE PROVEN EXISTING MANAGEMENT TEAM. Our Board nominees, described in the
materials that follow, bring an impressive array of leadership experiences to
the Company. In addition, the governance provisions proposed by the Majority
Director Slate nominees contain strong shareholder rights provisions recommended
to us by our shareholders.

In an effort to be responsive to the wishes of Sallie Mae shareholders, we
reserved five of the fifteen seats on our slate of directors for representatives
of the CRV. Unfortunately, the CRV has rejected this offer. However, the
Majority Directors continue to hold these seats open.

Sallie Mae possesses a unique business franchise for shareholder value
creation, as the last two years have clearly shown. The privatization plan,
business plan and Board slate we present here represent a consensus of Board
members, management and shareholders as to how to best maintain that business
leadership and that value creation. I URGE YOU TO READ CAREFULLY THE MATERIAL
THAT FOLLOWS -- AND TO VOTE FOR MAINTAINING THE MOMENTUM OF SALLIE MAE BY
COMPLETING, SIGNING, DATING AND RETURNING THE ENCLOSED BLUE PROXY CARD, USING
THE POSTAGE-PAID ENVELOPE.

Sincerely,

David J. Vitale

If you have any questions or 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. Your vote is important. Please act promptly.
<PAGE> 192

SUBJECT TO COMPLETION, DATED JULY 8, 1997

PROXY STATEMENT SUPPLEMENT
OF
THE MAJORITY OF THE BOARD OF DIRECTORS OF
STUDENT LOAN MARKETING ASSOCIATION

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

SOLICITATION OF PROXIES IN FAVOR OF THE REORGANIZATION PROPOSAL
AND THE SELECTION OF THE MAJORITY DIRECTOR SLATE

This Proxy Statement Supplement (the "Majority Director Supplement") and
the enclosed BLUE proxy card are being furnished to shareholders of the Student
Loan Marketing Association ("Sallie Mae") in connection with the solicitation of
proxies by and on behalf of the majority of the Board of Directors of Sallie Mae
(the "Majority Directors") for use at the Special Meeting of shareholders of
Sallie Mae called for July 31, 1997 (the "Special Meeting"). This Majority
Director Supplement describes the slate of nominees recommended by the Majority
Directors (the "Majority Director Slate"), the business strategy the Majority
Director Slate intends to pursue and the governance structure which will be
implemented for the Holding Company if the Majority Directors Slate is elected.
This Majority Director Supplement is being furnished to shareholders together
with the Proxy Statement/Prospectus dated July , 1997 (the "Proxy Statement/
Prospectus") and comprises an integral part of such Proxy Statement/Prospectus.
Capitalized terms used but not otherwise defined herein shall have the meanings
ascribed to such terms in the Proxy Statement/ Prospectus.

The Majority Directors solicit your proxy in favor of (i) the approval and
adoption of an Agreement and Plan of Reorganization, as more fully described in
the Proxy Statement/Prospectus (such proposal, the "Reorganization Proposal"),
and (ii) if the Reorganization Proposal is approved, the selection of the
Majority Director Slate as the initial Holding Company Board of Directors in
connection with the Reorganization (such proposal, the "Board Slate Proposal").
To this end, the Majority Directors urge you to sign, date and return the BLUE
proxy card that accompanies this Majority Director Supplement.

Shareholders will also be receiving, in a separate mailing, a proxy
statement supplement prepared by the Committee to Restore Value at Sallie Mae
(the "CRV"), a group of shareholder dissidents seeking control of the Company.
The Majority Directors have not participated in the preparation of such CRV
proxy statement supplement and assume no responsibility for statements contained
therein.

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:

If you have any question or 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.

THE DATE OF THIS PROXY STATEMENT SUPPLEMENT IS JULY , 1997

<PAGE> 193

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MAJORITY DIRECTOR SLATE SUMMARY....................................................... 1
MAJORITY DIRECTOR SLATE NOMINEES...................................................... 2
BUSINESS STRATEGY..................................................................... 5
Executive Summary................................................................ 5
Maximizing Income from the Student Loan Industry................................. 7
Controlling Operating Expenses................................................... 15
Maximizing Return Through Shareholder Value-Based Funding and Capital
Management...................................................................... 18
COMPARISON OF STOCKHOLDER RIGHTS...................................................... 20
</TABLE>

YOUR VOTE IS IMPORTANT.

THE MAJORITY DIRECTORS URGE YOU TO PROMPTLY COMPLETE, SIGN, DATE AND RETURN
THE ENCLOSED BLUE PROXY CARD, USING THE ACCOMPANYING POSTAGE-PAID ENVELOPE,
VOTING "FOR" ADOPTION OF THE REORGANIZATION PROPOSAL AND SELECTION OF THE
MAJORITY DIRECTOR SLATE.

The Majority Directors also urge you NOT to sign or return any of the green
proxy cards sent to you by the CRV. If you already have signed the CRV's green
proxy card, you have every right to change your vote by signing, dating and
returning the enclosed BLUE proxy card. Only your latest dated proxy counts.

ATTENTION BROKER CLIENTS

If your shares are held for you by a brokerage firm, only your broker can
vote your shares and only after receiving your specific voting instructions.
Please complete, sign, date and return the enclosed voting instruction form
using the accompanying postage-paid envelope. To ensure that your shares are
voted as you direct, you also should call your broker or account representative
and instruct that person to cast your vote on the Majority Directors' BLUE proxy
card today.

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

IF YOU HAVE ANY QUESTION OR 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.

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

THE SPECIAL MEETING HAS BEEN CALLED FOR JULY 31, 1997.
PLEASE ACT PROMPTLY.

<PAGE> 194

MAJORITY DIRECTOR SLATE SUMMARY

Sallie Mae, as 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. If the Reorganization Proposal is
approved by shareholders, the Sallie Mae Board will elect to the Holding Company
Board the 15 nominees that receive 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 by shareholders and the Majority Director
Slate receives the highest plurality of votes cast in respect of the Board
Proposal, the 10 individuals named below under the caption "Majority Director
Slate Nominees" will be elected by Sallie Mae to the Holding Company Board. The
individuals who comprise the Majority Director Slate Nominees include five
members of the current Sallie Mae Board of Directors and five outstanding new
members. The Majority Director Slate Nominees include an impressive range of
leaders of public companies whom the Majority Directors believe will provide the
breadth and depth of experience and talent the Company will require in facing
future challenges.

The initial size of the Holding Company Board has been set at 15 members,
which is greater than the 10 nominees included in the Majority Director Slate.
The CRV has advised the Company that it is waiving its right under the Letter
Agreement to fill the minority positions on the Holding Company Board and that
none of the nominees in the CRV Slate will consent to serve in such positions.
However, the Majority Directors continue to hold these seats open. Any vacant
Holding Company Board position will either be filled by the Holding Company
Board or left vacant until the next election of directors. The Majority
Directors have no current intention to fill any such vacancies prior to the next
election of directors. See "MAJORITY DIRECTOR SLATE NOMINEES."

1
<PAGE> 195

MAJORITY DIRECTOR SLATE NOMINEES

The members of the Sallie Mae Board of Directors constituting the Majority
Directors are William Arceneaux, Mitchell W. Berger, David A. Daberko, Kris E.
Durmer, Thomas H. Jacobsen, Regina T. Montoya, James E. Moore, Irene Natividad,
James E. Rohr, John W. Spiegel, Ronald J. Thayer and David J. Vitale. The
Majority Directors, based on their experiences involving the recent solicitation
of Sallie Mae shareholders and their discussions with various shareholders,
believe that a majority of Sallie Mae shareholders desire a Holding Company
Board that is comprised of a majority of members that support the business
strategy discussed herein under the section entitled "BUSINESS STRATEGY" but
also includes significant representation by members of the CRV. Accordingly, the
Majority Directors have proposed the following slate of 10 outstanding nominees
to the Holding Company Board, including five current members of the Sallie Mae
Board and five new individuals with a broad array of experience and talent. As
structured, the Majority Director Slate also provided 5 seats for nominees
included in the CRV Slate. The CRV has advised the Company that it is waiving
its right under the Letter Agreement to fill the minority positions on the
Holding Company Board and that none of the nominees in the CRV Slate will
consent to serve in such positions. However, the Majority Directors continue to
hold these seats open.

The Majority Directors also believe that accountability to shareholders is
best insured by having a Chairman of the Holding Company Board who is not
affiliated with management or otherwise having a director who is independent of
management and has responsibility for leading the oversight function of the
Holding Company Board. To this end, the Holding Company Charter and the Holding
Company By-Laws proposed by the Majority Directors provide for certain corporate
governance provisions, see "COMPARISON OF STOCKHOLDER RIGHTS," and the Majority
Directors have determined that, should the nominees included in the Majority
Director Slate be seated, Mr. David J. Vitale will be elected as Chairman of the
Holding Company Board. Mr. Vitale has stated his intention, as Chairman, to
develop a set of written governance policies to enhance director
professionalism, shareholder accountability and long-term corporate performance.

MAJORITY DIRECTOR SLATE NOMINEES

<TABLE>
<CAPTION>
NAME AND AGE AT MARCH 31, 1997
- ----------------------------------------------------------------------------------------------
<S> <C>
William Arceneaux*............. President, Louisiana Association of Independent Colleges and
Age 55 Universities, Baton Rouge, LA (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.
Dolores E. Cross**............. President, GE Fund (effective October 1, 1997); President,
Age 58 Chicago State University (1990-present), Chicago, Illinois.
She is a Director of Northern Trust Company where she serves
on the Business Risk and Strategic Planning Committees. Dr.
Cross served as a member the Sallie Mae Board of Directors
(1992-1995). Dr. Cross also serves as a Director of Campus
Compact and of the Association of Black Women in Higher
Education. Dr. Cross previously served as Secretary to the
Board, American Council on Education. Dr. Cross is
Chairman-elect of the American Association of Higher
Education.
David A. Daberko*.............. Chairman and Chief Executive Officer of National City
Age 51 Corporation (July 1995-present). 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.
</TABLE>

2
<PAGE> 196

<TABLE>
<CAPTION>
NAME AND AGE AT MARCH 31, 1997
- ----------------------------------------------------------------------------------------------
<S> <C>
Gale Duff-Bloom................ President of Marketing and Company Communications, J.C.
Age 57 Penney Company, Inc. (1996-Present). Previously, Ms.
Duff-Bloom held various executive positions at J.C. Penney
Company, including Executive Vice President of Company
Communications and Senior Vice President of Investor and
Community Relations. Ms. Duff-Bloom is also a director of
the Geon Company.
Richard L. Huber............... Vice Chairman, Strategy, Finance and Administration and
Age 60 member of the Board, Aetna Inc. (1995-present). Formerly,
Mr. Huber was President and Chief Operating Officer of Grupo
Wasserstein Perella, (1994-95) and Vice Chairman, Board of
Directors of Continental Bank Corp./Continental Bank, N.A.,
Chicago (1990-94). He also previously held various senior
executive positions at The Chase Manhattan Bank, N.A. and
Citibank, N.A. Mr. Huber is also a director of Capital Re
and a Trustee of Trinity College.
Thomas H. Jacobsen*............ Chairman, President, and Chief Executive Officer of
Age 57 Mercantile Bancorporation Inc., St. Louis, MO
(1989-present). Mr. Jacobsen presently serves as director of
Trans World Airlines, Inc. and Union Electric Company.
Ann Reese...................... Executive Vice President and Chief Financial Officer, ITT
Age 44 Corporation (1996-present). Ms. Reese served in various
positions of increasing responsibility at ITT Corporation
(1987-1996).
Lawrence Ricciardi............. Senior Vice President, General Counsel and interim Chief
Age 56 Financial Officer, International Business Machines
(1995-present). Previously, Mr. Ricciardi served in various
positions of increasing responsibility at RJR Nabisco
Holding Corp., including President, Co-Chairman and Chief
Executive Officer and Executive Vice President & General
Counsel (1989-1995).
John W. Spiegel*............... Executive Vice President and Chief Financial Officer,
Age 56 SunTrust Banks, Inc. and Treasurer, SunTrust Banks of
Georgia, Atlanta, GA (1985-present). He is also a member of
the board of directors of Rock-Tenn Company and
ContiFinancial Corporation, and Suburban Lodges of America.
David J. Vitale*............... Vice Chairman of First Chicago NBD Corporation and President
Age 50 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.
</TABLE>

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

* Currently a member of the Sallie Mae Board of Directors.

** Currently a member of the Sallie Mae Board of Directors Advisory Council and
formerly a member of the Sallie Mae Board of Directors. Not re-elected at the
1995 Annual Meeting of Sallie Mae shareholders.

3
<PAGE> 197

BOARD AND MANAGEMENT OWNERSHIP OF THE HOLDING COMPANY

The following table provides information regarding shares of Sallie Mae
Common Stock owned by the nominees included in the Majority Director Slate who
have consented to serve as Holding Company directors and the Company's
management at June 6, 1997, unless otherwise indicated. None of such persons nor
such persons as a group was 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.

<TABLE>
<CAPTION>
TOTAL SHARES MAY BE
OWNED AND ACQUIRED
CREDITED TO CREDITED TO WITHIN
BENEFIT PLAN BENEFIT PLAN 60
OWNED(1) ACCOUNT(2) ACCOUNT(3) DAYS(4)
------- ------------ ------------ -------
<S> <C> <C> <C> <C>
MAJORITY DIRECTOR SLATE NOMINEES
William Arceneaux.................................. 1,591 2,762 4,353 2,500
Dolores E. Cross................................... 150 0 150 0
David A. Daberko................................... 1,288 3,697 4,985 4,000
Gale Duff-Bloom.................................... 0 0 0 0
Richard L. Huber................................... 0 0 0 0
Thomas H. Jacobsen................................. 1,775 873 2,648 4,000
Ann Reese.......................................... 0 0 0 0
Lawrence Ricciardi................................. 0 0 0 0
John W. Spiegel.................................... 742 322 1,064 4,000
David J. Vitale.................................... 775 12,371 13,146 4,000

HOLDING COMPANY NAMED EXECUTIVE OFFICERS
Timothy G. Greene.................................. 6,957 2,669 9,626 58,920
Lawrence A. Hough.................................. 140,434 6,270 146,704 178,250
Lydia M. Marshall.................................. 11,173 1,481 12,654 38,800
Denise B. McGlone.................................. 9,108 1,597 10,705 32,500

MAJORITY DIRECTOR SLATE NOMINEES AND
NAMED EXECUTIVE OFFICERS AS A GROUP.............. 173,993 32,042 206,035 326,970
</TABLE>

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

(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, as of May 31, 1997, 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.

Sallie Mae's current chief executive officer, Mr. Lawrence A. Hough, has
discussed with the Majority Directors his belief that the newly-privatized
Holding Company should have a new chief executive with a demonstrated record of
success in the public company sector, and that executive experience solely in
the GSE-context is not ideal. The Majority Directors share these beliefs and
have determined that the new Holding Company Board will establish a search
committee to select an individual with broad-based public company experience to
serve as the chief executive officer of the Holding Company following the
Reorganization. Mr. Hough has stated that he will resign upon selection of the
new chief executive officer. In the interim, Mr. Hough will continue to serve as
CEO and assist in the selection process.

4
<PAGE> 198

BUSINESS STRATEGY

The following discussion contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of Company
Management as well as assumptions made by and information currently available to
the Company, including assumptions that the offset fee litigation with respect
to securitized loans will be resolved in the Company's favor in 1998, that there
will be no legislative or regulatory changes affecting the market share or
profitability of either the FFELP or the FDSLP, and that the FFELP industry will
be successful in modifying OBRA provisions which change the interest rate and
special allowance for student loans made on or after July 1, 1998. Such
forward-looking statements reflect the current views of the Company with respect
to future events and are subject to certain risks, uncertainties and
assumptions. Estimates contained herein of future performance under the Majority
Director Slate's business plan reflect Management's assessment of probable
results of operations, given certain assumptions that Management believes are
reasonable. The Majority Director Slate's business plan was developed based upon
an integrated model with a number of independent variables, certain of which are
beyond the Company's control. Should one or more of these risks or uncertainties
materialize, variables change or underlying assumptions prove incorrect, actual
results may vary materially from those described in this Majority Director
Supplement. Information concerning the CRV's business plan was derived from
materials previously distributed by the CRV. Industry data on the FFELP and the
FDSLP contained herein is based on sources that the Company believes to be
reliable and to present the best available information for these purposes,
including published and unpublished Department of Education data and industry
publications. The Company does not intend to update any of the forward-looking
statements contained herein. For additional information relating to the Company
and its future, investors should review the Company's Proxy Statement/Prospectus
including the information set forth under the caption "Risk Factors."

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, intend to implement the business plan
discussed below.

EXECUTIVE SUMMARY

MANAGEMENT'S STRATEGY IS A GROWTH STRATEGY

During the first 21 years of its 25 year history, Sallie Mae's mission,
marketplace focus, and strategy were essentially unchanged. Since 1992, however,
the Company has undergone a complete overhaul in how it views its marketplace,
defines its customer, competes for business, and is viewed by its constituents.
This transformation was driven by stagnating loan purchase volumes in the early
90's -- base volume (i.e., all FFELP loan volume except consolidation loans)
peaked at about $5 billion in 1990 and remained at that level in 1991 and
1992 -- and by a set of serious external challenges. Among these challenges were
the devastating effects of the 1993 Omnibus Budget Reconciliation Act ("OBRA"),
including legislated margin reductions and introducing the federal government as
a direct competitor ("direct lending").

Management's successful initiatives restored market share growth, removed
the Company from commodity price competition, reduced operating expenses as a
percent of average managed (on balance sheet plus securitized) student loans
("managed student loans") and stalled government direct lending -- the most
significant threat to the Company's business in its 25 year history. Sallie
Mae's transformation will continue as the student loan industry undergoes
fundamental change. Nevertheless, as the recognized industry leader, the Company
is in an enviable position. The Company led the industry's move to improve and
simplify the student loan process and product. Education and education-finance
are growth businesses, and Sallie Mae is the largest U.S. public company whose
focus is solely on education finance.

As a result of its transformation over the past few years, Sallie Mae has
an unmatched standing to address the education financing needs of American
families as well as the needs of higher education institutions and, thereby,
benefit through significant growth in its core student lending business.
Privatization comes at precisely the right time in the Company's history. It
provides the Company with an opportunity, unconstrained

5
<PAGE> 199

by its GSE charter limitations, to innovate further in student lending and
generate student loan purchase growth in excess of overall market growth.

The Company's strategy is designed to deliver market share growth and
margin expansion. It positions the Company to maximize earnings from a changing
student loan industry. It recognizes the many constituents who influence our
growth -- consumers, schools, the federal government, lenders, guarantors,
servicers, competitors -- and positions the Company to deal adroitly with each,
all with the aim of becoming the provider of choice in higher education for
consumers and schools.

To capitalize on this unique market position, management has implemented a
growth strategy directed toward three goals: 1) maximizing income from the
student loan industry by building on the school-based strategy, 2) controlling
operating expenses and 3) managing capital aggressively.

1) MAXIMIZING INCOME FROM THE STUDENT LOAN INDUSTRY BY BUILDING ON THE
SCHOOL-BASED STRATEGY

The student loan asset can generate earnings for Sallie Mae in two basic
ways -- the Company can acquire loans and garner all of the income available or
the Company can service loans and realize a portion of the income available by
collecting fees for conducting the back-office processing on the loans. The
school-based strategy, developed and implemented by Management, is based on an
analysis of the economics of these alternatives and provides the foundation for
the Company's plan of growth and value creation. Management's objective is
straightforward: to acquire the most loans at the least possible cost.

The Company's school-based strategy involves the development and marketing
of differentiated products and services designed to meet school and borrower
needs, thereby creating preferential demand for Sallie Mae and Sallie Mae's
lending partners. Borrower-focused products include flexible repayment options
and rewards for on-time payment. Other products and services, such as
ExportSS(R), LineSS(SM), and EFT address the schools' needs for improved
front-end application processing and help lenders manage costs.

The Company's "brand within a brand" distribution strategy leverages the
broad national origination capability of its 900 commitment lenders and
capitalizes on their brand name recognition and their consumer and school
marketing efforts. Management believes the strategy ensures a predictable loan
flow to the Company at lower relative premiums because of the value the Company
provides.

The school-based strategy plays a key role in achieving two broad corporate
objectives: stalling direct lending and profitably increasing marketshare.

Management's strategy has been successful:

- Sallie Mae's managed student loan portfolio increased at a 14 percent
compound annual growth rate ("CAGR") from 1993-1996.

- Premiums declined by an average of 5 percent on all renewed loan purchase
commitment agreements renegotiated in 1996.

- Direct lending's student loan marketshare reached only 35 percent, far
below its statutory target of 50 percent for the 1996-1997 academic year.

The Company expects continued growth in share value to be driven by gains
in profitable loan purchase volume. Sallie Mae's market position and industry
dominance will enable it to increase loan purchase volume at a CAGR of 12 to 14
percent over the next five years, while the managed student loan portfolio is
expected to increase by a CAGR of 9 to 11 percent. Through the school-based
strategy, Management believes it can reduce relative premiums on secondary
market purchases by 25 percent over the next five years. See "Change Continues
at Sallie Mae."

2) CONTROLLING OPERATING EXPENSES

Management will continue to manage costs aggressively. Operating expenses
include three components: servicing costs, corporate operating expenses, and
acquisition costs. Management intends to reduce operating expenses as a
percentage of managed student loans by 27 percent, from approximately 109 basis
points in 1996

6
<PAGE> 200

to the low 80 basis point range by the year 2001 without sacrificing the
investments needed to beat direct lending, increase market share and continue
its drive to retail. The Company expects to accomplish this primarily by
reducing servicing costs and by holding the annual growth rate in corporate
operating expenses to 5 percent, half of the expected CAGR on managed student
loans.

3) MAXIMIZING RETURN THROUGH SHAREHOLDER VALUE-BASED FUNDING AND CAPITAL
MANAGEMENT

Sallie Mae's objective is to maintain a capital level that maximizes
shareholder value. From January 1, 1994 to December 31, 1996, the number of
shares of outstanding Sallie Mae Common Stock was reduced by 36 percent through
share repurchases. Management expects to continue its aggressive capital
management program, and to use asset-backed securitizations and earnings to
repurchase approximately 30 percent of outstanding common stock over the next
five years, depending on share price levels.

CONCLUSION

The Company's proven business plan is enhanced by the opportunities
privatization brings. It was crafted by the same managers who transformed the
Company into the recognized marketplace leader, acknowledged by schools and
competitors alike. The plan leverages Management's marketing skills, financial
acumen, operational expertise and industry and customer relationships. The plan
presents clear goals and positions the Company to maximize earnings from a
growing student loan market. The Company's plan is opportunistic, flexible and
offers significant short-term and long-term growth. Management believes this
plan will deliver sustainable growth in earnings per share at a minimum CAGR of
15 percent and compound annual net income growth of 7-9 percent.

MAXIMIZING INCOME FROM THE STUDENT LOAN INDUSTRY

INDUSTRY CHANGE AND COMPANY TRANSFORMATION

From its founding in 1972 through 1992, Sallie Mae's mission and its
marketplace focus and strategy were unchanged. Sallie Mae focused on lenders,
viewing them as its primary customers.

By the early 1990s, nearly all the states, along with several other
non-governmental, non-profit entities were active participants in the student
loan secondary market. With this increased competition, the Company's rate of
growth slowed. Base volume peaked at approximately $5 billion in 1990 and
remained at that level in 1991 and 1992. The Company's basic function, providing
liquidity to the student loan market, had become a highly competitive,
price-driven commodity service. Lenders had numerous alternatives, particularly
as the potential for securitization became clearer. In short, Sallie Mae's
growth became entirely dependent on one-time spot market portfolio liquidations
and aggressive competitive bidding -- a situation that placed increasing
pressure on margins. There was a need for strategic reassessment and change.

At the same time, Management recognized the fundamental changes occurring
in the student loan marketplace. Out of frustration with process complexity,
colleges and universities had begun to insert themselves into the lender
selection process to drive down the escalating costs associated with managing
loan applications from hundreds of different lenders. Increasingly, schools
adopted preferred lender lists to simplify the lender selection process. Today,
the typical preferred lender list has slots for six to eight lenders which the
school recommends to families.

The Company began to do market research among schools. It found that many
schools were unfamiliar with Sallie Mae. They viewed the Company as a distant
"back-end" player because of its focus on lenders and post-origination loan
servicing. Furthermore, Sallie Mae's service quality was seen as no better than
the other student loan servicers. Research also confirmed that a significant
number of schools were dissatisfied with the complexity of the guaranteed loan
program and process.

7
<PAGE> 201

Management grasped the inherent opportunity in this
situation -- redirecting its marketing focus toward retail rather than
wholesale, redefining its customers as the schools and the borrowers. It
developed a set of differentiated products and services in order to build
preference and competitive advantage for the Company and its lender-partners. As
part of this school focused differentiation strategy, Sallie Mae reengineered
its loan servicing to become recognized as the "best in class," and the Company
continues to innovate in the servicing area today.

Moreover, the Company greatly expanded its network of commitment lenders.
These lenders are permitted to market the Company's differentiated products and
services as a result of entering into forward loan sale commitment contracts. To
fully realize the advantages inherent in its strategy, the Company marketed
directly to schools, supporting the sales efforts of Sallie Mae's
lender-partners. It educated the schools on the need to put Sallie Mae lenders
on their preferred lender lists in order to access Sallie Mae products and
services. This "brand within a brand" strategy, similar to that successfully
employed by Intel Corporation, builds the largest possible national distribution
system and leverages the significant financial investments made by the Company's
lender-partners to develop brand name recognition. In addition, the Company
benefits from its lending partners' consumer and school marketing investments.

The results of Sallie Mae's massive transformation are noteworthy. The
Company's managed student loan portfolio grew at a CAGR of 14 percent from 1993
to 1996 -- despite direct lending eroding available inventories and
significantly increasing competition. Through the Company's ExportSS(R) loan
origination and administration service, the Company has increased its share of
the annual FFELP originations that are committed for sale to the Company from 15
percent in 1993 to 25 percent in 1996. The effect of commodity pricing was
reduced as spot volume dropped from 15 percent of base purchases in 1993 to 5
percent of base purchases in 1996 (after accounting for portfolio liquidation
associated with new lenders entering into loan sale commitments).

Over the last three years, the characteristics of loan purchases, as
defined by higher average borrower indebtedness ("ABI"), have improved
significantly. The Company has been able to purchase higher quality loans at
lower relative costs as ABI growth exceeded the increase in prices the Company
contracted to pay for corresponding loan quality.

8
<PAGE> 202

CHANGE CONTINUES IN THE MARKETPLACE

Education and education finance will continue to be growth businesses.
Based on Department of Education data, enrollment at institutions of higher
learning is expected to rise 7.5 percent from 1997 through 2001 to 15.7 million
students. The growth is a result of rising enrollment rates in most age groups
and an increase in the traditional college student population. This group (ages
18-24) is expected to grow by 9 percent in total from 1997 through 2001,
following a decline for many years. In addition, tuition increases are expected
to exceed the inflation rate marginally.

As shown in the chart below, demand for federal student loans is projected
by Management to grow from approximately $30 billion in 1997 to $41 billion in
2001. Management also projects FFELP volume to grow at a CAGR of 8 percent from
$20 billion in 1997, while direct lending's share of annual originations will
decrease by at least 5 percent to 30 percent by 2001.

TOTAL FEDERAL STUDENT LOAN ORIGINATIONS
(FEDERAL FISCAL YEARS)

$ In billions

<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) FDSLP FFELP
<S> <C> <C>
1993 17.9 17.9
1994 23.1 24
1995 20.6 25.8
1996 19.7 29
1997E 19.9 30.2
1998E 21.8 32.6
1999E 23.7 34.9
2000E 25.9 37.5
2001E 28.4 40.5
</TABLE>

Colleges and universities are under ongoing pressure to deal with issues
such as affordability, high infrastructure costs, the need for lifelong
learning, excess capacity, declining student retention rates and the lengthening
time frames needed to complete a college degree. Technology will be a major
factor in addressing these issues -- both on the academic and administrative
sides of the institution. Integrated administrative systems are being designed
and installed which will affect the way financial aid, and other administrative
functions, are managed. Management believes that schools will continue to choose
to do business only with lenders that fit into a streamlined campus process -- a
process integrating simplified loan origination with overall financial aid, and
financial aid with related campus administrative functions. Management believes
it will receive increased loan volumes by bringing the best integrated
technology solutions to schools.

The affordability problem, centered primarily on high-cost private colleges
and universities, will cause continuing growth in demand for privately-insured
(i.e., non-federally guaranteed) loan programs. At a growing number of schools,
that type of program is a prerequisite to gaining a slot on a school's preferred
lender list and a pre-condition to acquiring federally-guaranteed loan volume.

9
<PAGE> 203

This affordability crisis has created a need for early information on
financing options, guidance through the process and further options to manage
repayment. From the consumer vantage point, Internet technology will transform
the college application process -- and with it the financial aid process.
Consumers are acutely aware of, and concerned about, continuing increases in
education costs.

Sallie Mae is the only truly national player in the student loan secondary
market. It is well positioned within the FFELP industry which continues to be
highly fragmented. There are forty-three other non-profit, state-based competing
secondary markets. Many of these entities are affiliated with the state
guarantors that administer the insurance function and have unique relationships
with schools because of their role in administering state aid and grant
programs. In many cases, these guarantors also provide front-end loan
origination processing and/or back-end servicing. Since these competitors are
largely creatures of state government or state affiliation (known by their
acronyms -- CHELA, PHEAA, GLHEC, USA GROUP, NYHESC, SLFC, AFSA, etc.), state as
well as federal government interests and relationships continue to be a factor
in competition. Politics can be a source of competitive advantage or
disadvantage in influencing volume flows. The secondary market sector's share
(exclusive of Sallie Mae) of FFELP loans outstanding has remained stable over
the past five years at around 20 percent. Management believes non-profit
secondary market agencies will continue to be a major competitive force.
Management also believes that banks will continue to be minor players in the
secondary market, reflecting the reluctance of lenders to sell their customers'
names to competitors.

The industry's fragmentation continues to be an issue, causing process
variation and complexity for schools. Sallie Mae, teaming with the industry, has
responded with technology solutions which deliver a common process. Examples of
this response are the CommonLine Network (developed by Sallie Mae and USA GROUP)
and the Student Loan Clearinghouse (started by Sallie Mae). Both initiatives are
of critical importance to school satisfaction and private-sector program
vitality.

The availability of asset-backed loan securitization as a funding
alternative has had minimal impact on the Company's ability to renew forward
purchase commitments ("FPCs"). Only six originators have securitized portfolios
since 1992 and only four did so in 1996. In fact, the Company's success at
creating preference among schools has resulted in FPCs from lenders who formerly
held or securitized their loans and even from competing secondary markets.

Management believes that direct lending has peaked at a market share of
about 35 percent of originations, far below the 50 percent target for the
1996-97 academic year. Many colleges and universities have decided not to enter
direct lending as a result of the Company's leadership in process and product
innovation and as a result of programwide changes delivered by the FFELP
industry coalition of lenders, guarantors, servicers and secondary markets. The
Department of Education reports that only ten additional four-year schools are
expected to participate in the 1997-1998 academic year. In the most recent
quarter, Department of Education data shows that direct lending's market share
has actually declined by one percentage point from the year ago quarter.

CHANGE CONTINUES AT SALLIE MAE

The Company's managed student loan portfolio growth rate and loan
acquisition margins depend on a continued ability to adapt its strategy to
anticipate and capitalize on marketplace trends. In an environment of rapid
change, the capacity for strategic flexibility is critical. There are four key
components of Management's approach to the market: the push to retail, the
"brand within a brand" strategy, the differentiation strategy, and the building
of constituencies.

10
<PAGE> 204

Aggressive Push to Retail

The Company will continue to aggressively pursue its successful
school-based strategy maintaining the focus on the school decision-maker. Future
implementation calls for:

- applying Internet-based technology and business process improvements
to student loan delivery systems to: (i) address the need of higher
education for improved delivery of loans and (ii) to create
competitive advantage,

- expanding the Company's Signature(SM) loan program, a line of private
loans insured by the Company's Hemar Insurance Company of America
("HICA") insurance subsidiary and designed to provide borrowing
capacity beyond the federal program,

- partnering with key campus providers of proprietary software (for
example, the recently formed business relationship with PeopleSoft,
Inc. ("PeopleSoft")) to bring loan flows to Sallie Mae lenders,

- providing operational outsourcing services (for example, financial aid
and student billing) that reduce costs for higher education
institutions, direct loan flows to Sallie Mae, and profitably leverage
Sallie Mae's operational skills and scale economies, and

- building the Company's academic facilities financing unit, Education
Securities Inc. ("ESI"), a wholly-owned broker-dealer subsidiary that
specializes in education-related capital markets transactions
including corporate finance, public finance, technology leasing
activities and higher education restructuring services.

In addition, the Company will aggressively raise its name awareness through
its ongoing consumer advertising campaigns, increased exposure within high
school guidance offices and application of Internet-based technology. These are
critical components of the strategy to create preference for Sallie Mae among
consumers and to generate additional low cost loan volume. Management believes
that a strong relationship with the retail consumer effectively positions the
Company should consumers assert themselves in the lender selection process. It
also offers protection against shifts in lender strategies. It is a key element
of the Company's strategic flexibility.

Continue the "Brand Within a Brand" Strategy

The Company's market share and loan profitability are a function of its
well developed distribution strategy. Some contend that the Company should
abandon its "brand within a brand" strategy in favor of becoming a loan
originator -- thereby competing head-to-head with lenders for slots on schools'
preferred lenders lists.

In today's market, to maximize share value, the economics favor loan
purchasing over loan origination. As long as schools choose to refer multiple
lenders (typically 6-8) to students through their preferred lender lists, Sallie
Mae maximizes its earnings by using its "brand within a brand" strategy.

VALUE TRADE-OFF OF LOAN PURCHASES VS. ORIGINATIONS

<TABLE>
<CAPTION>
SHAREHOLDER
CURRENT VALUE
MARKET POTENTIAL(5)
SHAREHOLDER VALUE(1) SHARE ($ IN MILLIONS)
------------------------ ------- -----------------
<S> <C> <C> <C>
Purchase........................................ $ 26 48%(3) $ 250
Originate....................................... $ 38(2) 8%(4) $ 60
</TABLE>

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

(1) Shareholder value (expressed in $ millions per $ billion of loans) is
defined as the present value of cumulative net income after capital costs of
15 percent.

(2) Assumes loan origination is approximately 1.4 times as profitable as loan
purchasing.

11
<PAGE> 205

(3) The Company's FFELP purchases relative to federal fiscal year 1996
originations.

(4) The market share of The Chase Manhattan Bank, the largest FFELP lender
(federal fiscal year 1996).

(5) Calculated based on shareholder value multiplied by an assumed current
market share and a $20 billion annual FFELP originations market size.

The above table demonstrates that loan origination is more profitable than
loan purchasing on a per loan basis. However, when the market share differential
is taken into account by comparing the Company's market share to the market
share of the largest lender, the Company's "brand within a brand" strategy
delivers a shareholder value four times greater than that of the largest lender.
This is the power of leveraging the preferred lender list slots of 900
commitment lender-partners, instead of relying on the significantly lower market
share an individual originator is able to generate from a single slot on a
school lender list.

The CRV has contended that the Company can become an originator without
cannibalizing its loan purchase business. Despite the availability of numerous
alternative service providers, the CRV has asserted that the Company's
lender-partners have no alternative but to continue to sell to the Company.
Based on conversations with lenders, Management believes that, as a direct
result of the CRV's public expression of its intention to compete head-to-head
with lenders at the school level, the Company is already seeing evidence of
cannibalization. Specifically, Sallie Mae has lost a major portfolio purchase in
the second quarter totalling $240 million and Management believes that three
other transactions totalling approximately $850 million have been postponed by
clients until the outcome of the proxy contest is known.

The CRV has embraced the idea of a pilot or limited origination program
competing against banks on certain college campuses as a proactive and
aggressive way of beginning to realize the higher per loan profitability of
origination. The Company has examined the CRV's proposal of limited origination
and concluded that it presents significant risk.

As noted above, because of the earnings differential, the Company could
deliver the same level of earnings from a single share point of origination
volume as it enjoys from 1.4 percentage share points of purchases. Thus, if the
Company attained a 2 percent share of market through a limited pilot program (a
share level which would place it among the top ten lenders), it could afford to
lose purchases equal to 2.8 percent of the market and be no worse off. This 2.8
percent share is equal to the loss of only one of the Company's large
lenders -- a loss which Management believes is nearly certain to occur if it
moves to originate loans. Indeed, as lenders learn of the Company's competitive
pilot program, Management believes that numerous lenders will seek alternatives
rather than lose share to the Company as it expands its pilot program and
displaces lender-partners on schools' preferred lists.

Since approximately one-third of the Company's FPCs are renewed each year,
a substantial proportion of the Company's purchase volume is at risk as soon as
the Company begins to compete as a lender. Moreover, since 75 percent of FFELP
origination volume is processed by other market participants, Sallie Mae's
lender-partners can easily switch to competitors.

To acquire loans, a lender must first convince schools to place it on the
school preferred lender list and then convince consumers to pick it from the
list. Consumers select lenders based on their familiarity or prior experience.
Since the Company's awareness level among consumers and current brand
development expenditures are minimal, substantial investment in advertising and
marketing would be required for the Company to achieve a market share equal to
or exceeding that of the country's largest banks. In addition to the high market
share levels of origination volume required in the early years to offset
cannibalization risk, the required marketing investments associated with
origination would create losses in the first two years of a new origination
program.

A further challenge to the origination alternative is its inherently long
ramp-up time. New start-up lenders are largely limited to first time borrowers
in their first year of operation, because of school requirements and regulations
that restrict students to the use of a single lender for all their borrowings.
It takes a period of five years before a new lender would have access to the
entire market.

The Company's decision with regard to its distribution strategy is based on
a single overriding goal -- delivering the highest amount of earnings to
shareholders. There are conditions under which replacing the Company's
multi-lender distribution network with single lender origination would make
sense. For example,

12
<PAGE> 206

should Sallie Mae's lender-partners abandon their loan sale commitments in favor
of securitization or should premiums increase to the point where the per loan
profitability differential offsets the market share advantage, a shift in
strategy would be warranted.

Create Further Competitive Advantage Through Differentiation

The Company's strategy to create preference through differentiated products
and services has propelled profitable market share growth and contained direct
lending. Management believes that this strategy will enable the FFELP market to
eventually beat direct lending, returning billions of dollars of student loans
to the private sector.

With its ExportSS(R), LineSS(SM) and EFT products the Company moved into
front-end loan application processing, addressing the school's need for improved
process and technology. With its Great Rewards(R), Great Returns(SM), Direct
Repay(SM), Select Step(R) and repayment products, it addressed school and
consumer needs for cost-effective borrowing and breadth of repayment products.
Through its 24x7 service, under ten-second telephone answer rates, speedy
correspondence processing, 24-hour application data entry and other initiatives,
the Company reengineered its loan servicing to become recognized as "best in
class."

The Company will continue to innovate, particularly in front-end loan
application processing and Internet-based services. Differentiated loan
processing from origination through repayment will continue to be a component of
the drive to increase the growth in market share.

The Company generally only offers third-party servicing to lenders in
strategic situations -- where it has no or a low expectation of acquiring a
portfolio or where it is unlikely to erode its loan purchase market share by
doing so. The Company believes that the CRV strategy to provide open access to
Sallie Mae's differentiated servicing to lenders with no corresponding
obligation to sell loans to Sallie Mae, would cannibalize purchase volume and
erode shareholder value. The CRV proposal to provide Sallie Mae servicing to the
direct loan program would reinvigorate a program which is struggling and
significantly reduce a source of future earnings opportunity.

The Company's primary business objective is to maximize its earnings from
the student loan industry. The Company employs a business strategy which
recognizes the hierarchy of earnings alternatives: namely that loan purchase is
far more profitable and offers more opportunity than does loan servicing.

RELATIVE AVAILABLE SHAREHOLDER VALUE OF LOAN PURCHASE VS. SERVICING

<TABLE>
<CAPTION>
TOTAL
AVAILABLE SHAREHOLDER
SHAREHOLDER MARKET(2) VALUE POTENTIAL
VALUE(1) ($ IN BILLIONS) ($ IN MILLIONS)
----------- --------------- ---------------
<S> <C> <C> <C>
Loan Purchase........................................ $26 $31 $ 806
Third Party Loan Servicing........................... $ 4 $11 $ 44
</TABLE>

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

(1) Shareholder value (expressed in $ millions per $ billion of loans) is
defined as the present value of cumulative net income after capital costs of
15%.

(2) Based on Management's market analysis.

The above table shows the relative profitability of third party servicing
versus purchasing loans. This table clearly demonstrates the loss in shareholder
value that could result from the cannibalization of student loan purchases if
the Company offered open access to its "best in class" servicing.

Finally, the Company's product differentiation strategy provides the basis
for differential pricing in what is otherwise a mature commodity market
dominated by non-profit institutions which have low profitability and no return
on equity concerns. In 1996, despite steep increases in spot market pricing due
to the impact of direct lending and the availability of securitization as an
alternative, renewing clients, on average, entered new FPCs at a 5 percent lower
effective premium than that paid under their prior commitments, demonstrating

13
<PAGE> 207

marketplace preference for the Company's products and services. This result
underscores the soundness of the Company's effort through innovation and
investment to secure market position which can be gradually leveraged to gain
pricing advantage.

Managing Political Risk by Building the Constituency Bases

Sallie Mae functions in an extremely complex political environment. Over
the past decade, legislative action has been the primary driver of change in the
market for the federal guaranteed student loan program -- Sallie Mae's core
business. These efforts reduced the eligible borrower population, then increased
it. Other changes expanded regulatory burdens and costs on program participants,
and even went so far as to introduce a competing government product -- direct
federal lending. And during this same 10 year period, the control of the Senate
changed more than once, a Republican majority was elected in the House of
Representatives for the first time in decades, and a Democratic President raised
the visibility of the student loan program, transforming it into a high profile
political issue.

In sum, as long as the Company's core business involves a
government-regulated product and marketplace, Sallie Mae will face significant
and constant political risk that must be managed effectively. To ensure that the
Company is in the best possible position to protect its business from
potentially negative legislative or governmental action, management employs a
proactive strategy.

First, the Company has and will continue to foster good working
relationships and effective lines of communication with appropriate officials in
the legislative and executive branches of the federal government. These
relationships provide the access to information the Company needs to weigh the
political risks of business decisions effectively. And, equally important, they
ensure that Management's initiatives and insights receive a fair hearing. The
privatization effort of 1996 and the equitable resolution of loan issues
evidenced in the recent budget agreement demonstrate Management's effectiveness
in action. Sallie Mae is leading a united, industry-wide effort to ensure that
the interest rate structure for FFELP loans can continue to be financed by the
private sector. Management has worked with key members of Congress and their
staffs to develop acceptable alternatives to the FFELP interest rate changes
scheduled to take effect in July 1998. Congress is currently studying this
issue, focusing on preserving a strong FFELP program while protecting students.
Management believes that this Congress will timely enact a favorable legislative
solution to this problem.

Second, Management recognizes the importance of building allies within the
student lending industry. The Company's network of lender-partners plays a
critical role in the legislative process, positively influencing the annual
debate over the Congressional budget and the impending reauthorization of the
Higher Education Act. Sallie Mae has also taken a leadership role in the student
loan industry -- forming an advocacy coalition to improve the guaranteed student
loan program. As added benefit, the same coalition has helped forge industry
member cooperation in addressing the diverse challenges currently facing the
student loan business.

Third, Management has made it a priority to develop strong working
relationships within the higher education industry, particularly among financial
aid professionals. In order to ensure a healthy dialogue with financial aid
professionals, Management created Sallie Mae's National Financial Aid Advisory
Council in 1993. This group, which is comprised of approximately 25 of the
nation's leading financial aid professionals, is a critical sounding board for
the Company, helping Sallie Mae and financial aid administrators understand each
other's priorities.

Finally, as the Company increases its name recognition among consumers, in
part by providing valuable financial aid information, another important
constituency is being expanded -- the students and families benefiting from
Sallie Mae's products. By continuing this effort, the Company believes it will
create a growing base of consumer support and advocacy for the Company's
products and services.

NEW BUSINESS

Management's strategy also includes a plan to develop new products that are
important to the Company's core business and to create profitable ancillary
business lines that further apply the Company's investment in servicing
technology, its client relationships and its highly skilled workforce.
Management believes privatization will permit the Company to further leverage
its business strengths and create new sources of earnings.

14
<PAGE> 208

Specifically, new business initiatives identified by Management must meet the
following requirements: they must fit strategically, have solid growth
potential, require minimal additional capital investment and be additive to
earnings per share. They fall into two broad categories -- those which are
education-related and those which build upon the Company's existing servicing
and technical capabilities. Management expects these initiatives to contribute
in excess of $70 million to pre-tax income by the year 2001.

Education-Related Activities

To broaden its campus relationships, the Company is pursuing several new
education-related business opportunities. For example, the Company recently
formed a business relationship with PeopleSoft to develop student information
and financial aid software. It acquired the Kaludis Consulting Group, a higher
education strategic consulting firm which offers a broad array of services aimed
at helping college presidents and governing boards with strategic planning. In
addition, ESI, the Company's wholly-owned broker-dealer subsidiary provides
capital markets solutions and corporate finance advice to colleges and
universities. Sallie Mae's private Signature Education Loan(SM)Program,
introduced in 1996, is now available through hundreds of schools nationwide. The
Company insures these loans through its HICA subsidiary.

These education-related activities already have their own revenue streams,
and management believes they will be additive to earnings per share in 1997 and
beyond. Equally important, they enable Sallie Mae to broaden its relationships
on campus with key decision makers -- administrators who determine where loan
flows will be directed. The Company is developing broad relationships at the
President/CFO level in addition to the financial aid administrator level. These
senior administrators are most frequently responsible for determining whether
their institutions will participate in or withdraw from the direct loan program.

Servicing-Related Activities

Management has identified business opportunities for the Company's
world-class servicing capabilities and state-of-the-art technology, including:
unclaimed financial property servicing, teleservicing, government debt
collections and administration of pre-paid tuition programs. Management believes
these businesses are in markets characterized by strong growth potential,
fragmented competitive landscapes and attractive risk/return profiles, and they
capitalize on Sallie Mae's core competencies.

For example, $3 billion in unclaimed financial property is remitted by the
states each year and the market is projected to grow at a 10 percent annual rate
over the next five years. Many states have begun to outsource the processing of
claims for this property. Sallie Mae's servicing expertise positions it
favorably for this business and the Company has already won a contract to
provide this service in Florida. In addition, teleservicing is a large ($80
billion plus revenue), fragmented and growing industry. Sallie Mae's nationwide
network of state-of-the-art call centers and highly trained workforce positions
the Company to compete in this market. Finally, the Company has won several
non-student loan contracts, including the administration of pre-paid tuition
programs for Texas and Virginia.

CONTROLLING OPERATING EXPENSES

Controlling operating expenses is critical to the creation of shareholder
value. Operating expenses include three components: acquisition costs, servicing
costs and corporate operating expenses. Acquisition costs are principally the
costs incurred under the ExportSS(R) loan origination and administration
service, the costs of converting newly acquired portfolios and the processing
costs associated with the loan consolidation program. Servicing costs include
the systems and operating costs incurred to service the managed student loan
portfolio as well as loans serviced but not owned by Sallie Mae in the Chase
Joint Venture. Corporate operating expenses include all other operating costs
necessary to carry out the Company's business strategy -- costs associated with
the legal, finance, human resources, and marketing departments, as well as
expenses associated with the education-related entities (ESI, HICA, MPC, Kaludis
and the PeopleSoft business arrangement).

15
<PAGE> 209

TOTAL OPERATING EXPENSES

The chart below shows historical and anticipated total operating expenses
as a percentage of managed student loans.

TOTAL OPERATING EXPENSES/MANAGED STUDENT LOANS

<TABLE>
<CAPTION>
MEASUREMENT PERIOD CORPORATE
(FISCAL YEAR COVERED) OPERATING SERVICING ACQUISITION
<S> <C> <C> <C>
1994 .46 .66 .24
1995 .49 .62 .22
1996 .35 .57 .17
1997E .33 .54 .16
1998E .31 .51 .16
1999E .29 .48 .15
2000E .27 .45 .15
2001E .25 .43 .14
</TABLE>

Management has achieved significant reductions in operating expenses as a
percentage of managed student loans by applying technology, process
reengineering and reducing corporate staff. Management decreased total operating
expenses (as a percentage of managed student loans) by 20 percent over the past
two years -- from 1.36 percent for the year ended December 31, 1994 to 1.09
percent for the year ended December 31, 1996.

Management accomplished this decrease in total operating expenses as a
percentage of managed student loans while continuing to make appropriate
investments to sustain a competitive workforce, maintain its technology
advantage and build brand awareness. These investments have led to increased
market share and increased productivity while containing the expansion of the
FDSLP program.

Management will continue to improve operating efficiency over the next five
years and believes total operating expenses as a percentage of managed student
loans will fall to the low 80 basis point range by the year 2001.

SERVICING COSTS

Servicing costs as a percentage of managed student loans declined 14
percent between 1994 and 1996. The reductions resulted from consolidation of
certain servicing operations, process reengineering and technology investments,
as well as higher managed student loan balances. Management expects to decrease
servicing costs as a percentage of managed student loans to the low 40 basis
point range through enhanced productivity and higher average borrower balances.

CORPORATE OPERATING EXPENSES

Corporate operating expenses as a percentage of managed student loans were
.46 percent, .49 percent, and .35 percent for 1994, 1995, and 1996,
respectively. Corporate operating expenses between 1995 and 1996 declined
because reductions in corporate staffing and professional fees and the
divestiture of a majority interest in a wholly-owned subsidiary, Cybermark Inc.

Management expects to reduce corporate operating expenses as a percentage
of managed student loans to the mid 20 basis point range by 2001. This reduction
is expected to occur even as the Company continues to

16
<PAGE> 210

invest in the franchise, particularly related to the products and services
necessary to broaden school and consumer relationships.

The following chart shows "base" corporate operating expenses (corporate
operating expenses less all expenses associated with education-related
entities). Excluding the education-related entities isolates the expenses
associated with the "base" business -- the purchase of student loans. The
operating results of the education-related entities are expected to be additive
to earnings per share in 1997 and beyond.

BASE CORPORATE OPERATING EXPENSES/MANAGED STUDENT LOANS
(DOLLAR AMOUNTS IN MILLIONS)

* Excludes 1997 proxy related expenses.

The chart shows that base corporate operating expenses have declined by 30
percent from 44 basis points to 31 basis points on managed student loans from
1992 to 1996. In absolute dollar terms, these expenses increased at a CAGR less
than the rate of inflation while managed student loans increased at a CAGR of 13
percent.

The table below shows base corporate operating expenses, advertising and
promotion expenses and managed student loans.

<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997(E)
---- ---- ---- ---- ---- -------
($ IN MILLIONS EXCEPT WHERE NOTED)
<S> <C> <C> <C> <C> <C> <C>
Base Corporate Operating Expenses...... $101 $109 $117 $123 $115 $ 115(1)
Less: Advertising and Promotion
Expenses............................. 2 2 3 6 7 10
---- ---- ---- ---- ---- ----
$ 99 $107 $114 $117 $108 $ 105
==== ==== ==== ==== ==== ====
Managed Student Loans
($ in billions)...................... $ 23 $ 25 $ 29 $ 33 $ 37 $ 42
==== ==== ==== ==== ==== ====
</TABLE>

- ---------------
(1) Excludes 1997 proxy related expenses.

This table shows that the absolute expenses associated with the base
business, exclusive of the increase in advertising and promotion expenses, are
estimated to be $105 million in 1997 -- less than the four previous years.
Advertising and promotion expenses for 1997 are estimated to be $10 million,
reflecting the investment to develop brand awareness at the retail level.
Management has been able to reduce base corporate operating expenses while
supporting a much larger asset base and making investments in the school-based
strategy.

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<PAGE> 211

Management believes that a move by Sallie Mae to become a lender would
require a dramatic increase in base corporate operating expenses as the Company
would have to make investments to enhance brand recognition, expand its
marketing force, and increase product promotion necessary to capture market
share at the retail level.

MAXIMIZING RETURN THROUGH SHAREHOLDER VALUE-BASED FUNDING AND CAPITAL MANAGEMENT

SHAREHOLDER VALUE-BASED FUNDING

The principal business of the Company will continue to be the acquisition,
servicing and financing of student loans following the Reorganization. The
Privatization Act allows Sallie Mae to continue to issue debt securities as a
government-sponsored enterprise with maturities no later than September 30, 2008
to finance GSE activities. Management expects that student loans will continue
to be acquired through the GSE as long as it is economically favorable to do so.
Management believes that the initial financing requirement for the privatized
holding company will be minimal and accommodated through a number of sources
including public and private debt placements, bank borrowings, and dividends
from subsidiaries.

The Company has two funding goals:
- to provide the maximum economic return (defined as the present value of
cumulative net income after capital costs of 15 percent) to shareholders
for each asset type, and
- to maintain funding flexibility through access to multiple funding
sources.

The continued aggressive use of asset securitization is Management's
strategy to finance student loan assets and generate capital to repurchase
shares. Student loan securitizations totaled $6 billion in 1996 and are expected
to increase by 50 percent in 1997 to at least $9 billion. Management intends to
increase the amount of loans securitized for the foreseeable future in
conjunction with higher levels of anticipated purchase volume.

Asset backed securities ("ABS") have a higher cost of funds than Sallie
Mae's traditional on balance sheet financing due to the term match funding
associated with ABS and the fact that ABS do not benefit from Sallie Mae's
status as a GSE. However, the increase in funding cost which reduces net income
is generally offset by investing the capital that is released as loans are
removed from the balance sheet. This off-balance sheet technique represents the
most efficient financing alternative available to the Company for most loan
types.

Under certain capital market conditions and for certain student loan types,
the benefit realized from the reduced capital requirement fails to offset the
net income reduction associated with the higher cost of funds. In these cases,
the shareholder may be best served by retaining the loan on the balance sheet.

For example, in the case of consolidation loans (which have repayment terms
of up to 30 years and are not subject to the 30 basis point offset fee) the
economics of securitization are not compelling. The increased funding cost
associated with taking loans off balance sheet through securitization reduces
net yield for these loans by approximately 60 percent under today's capital
market conditions. It is better to leave these loans on the balance sheet unless
the capital released through securitization can be invested at a 33 percent
after tax return -- a return difficult to replicate at the minimal risk level of
a government guaranteed asset.

The decision to securitize a loan is made by comparison of the tradeoff
between higher funding costs and the alternative uses for the capital that is
released by removing loans from the balance sheet. For most student loans, the
benefit realized from reduced capital requirements outweighs the higher funding
costs. Such student loans are securitized and the released capital redeployed to
alternative investments, including repurchasing shares.

In all cases, Management continuously monitors the capital markets.
Decisions are guided by the marginal economics of keeping assets on the balance
sheet relative to removing them through securitization. Extensive sensitivity
analysis with respect to capital levels, funding costs and alternative uses for
capital are performed routinely, all with a view toward maximizing shareholder
value.

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<PAGE> 212

AGGRESSIVE CAPITAL MANAGEMENT

Sallie Mae's capital management philosophy is straightforward: to maintain
a capital level that maximizes shareholder value. Investments are evaluated in a
disciplined manner and compared against hurdle rates and analysis of alternative
uses of capital.

Management is committed to returning excess capital to shareholders through
common stock repurchases. From January 1, 1994 to December 31, 1996, Sallie Mae
reduced the number of shares of outstanding common stock by 36 percent. Sources
of capital included, but were not limited to, increased leverage, earnings,
securitization, FAS 115 unrealized gains and downsizing of the investment
portfolio. Also in 1994, the Company introduced a risk-based capital discipline
and subsequently reduced the capital ratio from the historical level of 2.75
percent of assets to approximately 2.08 percent at March 31, 1997.

Aggressive capital management, including the potential for continued share
repurchases, remains a top priority for the Company. Management determines the
appropriate level of capital based on the greater of the capital required to
support the risk inherent in its business or the statutory minimum capital
adequacy ratio of 2.00 percent. Management anticipates maintaining sufficient
capital to attain a Holding Company investment grade rating (at a level below
the GSE's current credit status) that permits full access to the capital
markets.

MANAGEMENT'S COMMITMENT TO RESULTS

Management's plan is based on solid financial analysis and a thorough
understanding of the key players in the higher education market -- schools,
lenders, consumers, regulators, and legislators. It maximizes the benefits
derived from Privatization. It balances aggressive cost management with the need
to make prudent investments for future growth. The plan's funding and capital
management strategies are driven by disciplined analysis of alternative uses for
capital. Based on current market conditions, Management believes its plan will
deliver the following results:

<TABLE>
<CAPTION>
MANAGEMENT'S PLAN PROJECTED RESULTS
- ------------------------- --------------------------------------------------------------
<S> <C>
Profitable Loan Volume - 12-14 percent growth in loan purchase volume
- 9-11 percent growth in managed loans
- Reduction in relative purchase premiums

Cost Management - Operating costs reduced from 1.09 percent of managed
loans in 1996 to the low .80s percent by 2001

New Businesses Income - Over $70 million pre-tax income by 2001

Capital Management - Up to 30 percent of outstanding shares repurchased by 2001
</TABLE>

This plan -- taken as a whole -- is a sound approach to shareholder value
creation. Management's commitment to shareholders is to deliver a compound
annual increase in net income of 7-9 percent and a minimum sustainable compound
annual increase in earnings per share of 15 percent. Further, if securitization
gains are realized at the high end of Management's estimate (2.20-2.50 percent),
the minimum compound earnings per share growth is expected to increase to 18
percent. The level of such gains will be influenced by capital market
conditions, student loan characteristics and future servicing costs. Per share
estimates could be further increased by additional securitization if the
economics prove to be favorable.

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<PAGE> 213

COMPARISON OF STOCKHOLDER RIGHTS

In the event that the Reorganization Proposal is approved by shareholders
and the Majority Director Slate receives the highest plurality of votes cast in
person or by proxy at the Special Meeting in respect of the Board Slate
Proposal, the Majority Director Slate, once elected to the Holding Company
Board, 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 of the Certificate of Incorporation of the Holding
Company described in this Majority Director Supplement (for purposes hereof, the
"Holding Company Charter") and the By-Laws of the Holding Company described in
this Majority Director Supplement (for purposes hereof, the "Holding Company
By-Laws"). The statements set forth under this heading with respect to certain
provisions of the Privatization Act, the Sallie Mae Charter and the Sallie Mae
By-Laws, the General Corporation Law of the State of Delaware (the "DGCL"), the
Holding Company Charter, and 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 Privatization Act, the Sallie Mae
Charter and the Sallie Mae By-Laws, the DGCL, the Holding Company Charter, and
the Holding Company By-Laws, as appropriate.

GENERAL

As a result of the Reorganization, holders of Sallie Mae Common Stock,
whose rights are presently governed by the Sallie Mae Charter and federal common
law and by the Sallie Mae By-Laws (which were adopted by the Sallie Mae Board),
will become stockholders of the Holding Company, a Delaware corporation.
Accordingly, such shareholders' rights will be governed by the DGCL and the
Holding Company Charter and the Holding Company By-Laws. 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 Proposal, the nominees
included in the Majority Director Slate, once elected to the Holding Company
Board, will implement the provisions of the Holding Company Charter and By-Laws
described below. Assuming that the Reorganization Proposal is approved and that
the Majority Director Slate receives the highest plurality of votes cast in
respect of the Board Proposal, the following is a summary of material
similarities and 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.

BOARD OF DIRECTORS

NUMBER AND ELIGIBILITY. The Sallie Mae Charter provides for a Board of
Directors consisting of 21 members, seven of whom are Presidential appointees
and 14 of whom are elected by holders of Sallie Mae Common Stock. The President
of the United States (the "President") also has authority to designate the
Chairman of the Sallie Mae Board. In addition, the Sallie Mae Charter requires
that shareholder-elected directors be affiliated with certain financial or
educational institutions.

The Holding Company Charter provides that the Holding Company Board shall
consist of between 9 and 19 members all of whom are to be elected by holders of
Holding Company Common Stock. The initial number of directors has been set at 15
and may be set, from time to time, by resolution of the Holding Company Board.
The nominees included in the Majority Director Slate have no current intention
of expanding the initial number of directors beyond 15. The President will not
have authority to appoint the members of the Holding Company Board of Directors
or to designate the Chairman of the Holding Company Board. Under the
Privatization Act, Sallie Mae directors appointed by the President may not serve
on the Holding Company Board. There are no affiliation requirements for Holding
Company directors.

The Holding Company By-Laws also require that independent directors
constitute a majority of the Holding Company Board and the Executive Committee
and all of the members of the Audit Committee, the Nominations and Board Affairs
Committee and the Compensation and Personnel Committee. Under the Holding
Company By-Laws, a director will not generally be considered "independent" if he
or she: (a) has been employed by the Holding Company or one of its affiliates in
an executive capacity; (b) is an employee or owner of a firm that is one of the
Holding Company's or its affiliate's paid advisors or consultants; (c) is

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employed by a significant customer or supplier; (d) has a personal services
contract with the Holding Company or one of its affiliates; (e) is employed by a
foundation or university that receives significant grants or endowments from the
Holding Company or one of its affiliates; (f) is a relative of an executive of
the Holding Company or one of its affiliates; or (g) is part of an interlocking
directorate in which an executive officer of the Holding Company serves on the
board of another corporation that employs the director.

In addition, the Holding Company By-Laws provide that the Chairman of the
Holding Company Board shall not be an executive officer of the Holding Company
unless another member of the Holding Company Board is appointed by such Chairman
to serve as the lead director (the "Lead Director"), whose responsibilities as
Lead Director shall include chairing meetings of independent directors or such
other responsibilities as the independent directors as a whole might designate
from time to time.

TERM OF OFFICE. Under the Sallie Mae Charter, directors appointed by the
President serve at the pleasure of the President and until their successors have
been appointed and qualified. Elected members of the Sallie Mae Board of
Directors are elected for a term ending on the date of the next annual meeting
and serve until their successors have been elected and have qualified.

Prior to the Effective Time, provided that the Reorganization Proposal is
approved by shareholders and the Majority Director Slate receives the highest
plurality of votes cast in respect of the Board Proposal, Sallie Mae, as sole
stockholder of the Holding Company, will cause the initial Holding Company Board
to be composed of those individuals identified under the section of this Proxy
Statement Supplement entitled "MAJORITY DIRECTOR SLATE NOMINEES." After the
Effective Time, the Holding 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.

CUMULATIVE VOTING. The Sallie Mae Charter provides for cumulative voting
in the election of directors. Under cumulative voting, each share of stock
entitled to vote in an election of directors has such number of votes as is
equal to the number of directors to be elected. A shareholder may then cast all
of his or her votes for a single candidate or may allocate them among as many
candidates as the shareholder may choose.

The Holding Company Charter does not provide for cumulative voting rights.
Thus, holders of shares representing a majority of the votes entitled to be cast
in an election of directors for Holding Company will be able to elect all
directors then being elected.

REMOVAL. Pursuant to Sallie Mae's By-Laws, Sallie Mae directors may be
removed only for cause by vote of two-thirds of the directors remaining in
office, provided that at least a majority of the shareholder-elected directors
consent to such removal.

The Holding Company Charter provides that directors may be removed only by
the affirmative vote of the holders of a majority of the Holding Company's then
outstanding capital stock entitled to vote at an election of directors.

VACANCIES. The Sallie Mae Charter provides that any appointive seat on the
Sallie Mae Board that becomes vacant shall be filled by appointment of the
President, and any elective seat on the Board that becomes vacant after the
annual election of the directors shall be filled by the Board, but only for the
unexpired portion of the term.

The DGCL and the Holding Company By-Laws provide that vacancies, including
those created by an increase in the size of the Holding Company Board, may be
filled by vote of the majority of the directors then in office or by the
stockholders at any annual meeting or at a special meeting called for such
purpose.

MEETINGS AND FUNCTIONS OF THE BOARD. The Sallie Mae Charter provides that
the Sallie Mae Board shall meet at the call of its Chairman, but at least
semiannually. The Sallie Mae Board determines the general policies that govern
the operations of Sallie Mae. The Chairman of the Board, with the approval of
the Sallie Mae Board, selects, appoints, and compensates the officers of Sallie
Mae as provided for in the Sallie Mae By-Laws.

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<PAGE> 215

The Holding Company By-Laws provide that the Holding Company Board shall
have regular meetings as may be determined from time to time by the Holding
Company Board. Special Meetings of the Holding Company Board shall be called by
the Secretary upon the direction of the Chairman or the President, if the
President is a member of the Holding Company Board, or upon the written request
of a majority of the entire Holding Company Board of Directors. As with Sallie
Mae, the Holding Company Board shall determine the general policies that shall
govern the operations of the Holding Company.

CAPITALIZATION

Under the Sallie Mae Charter, the maximum number of shares of voting common
stock that Sallie Mae may issue and have outstanding at any one time shall be
fixed by the Sallie Mae Board from time to time, and Sallie Mae is authorized to
issue nonvoting preferred stock having such par value as may be fixed by the
Sallie Mae Board from time to time. Sallie Mae currently is authorized to issue
up to 250,000,000 shares of the Sallie Mae Common Stock, and up to 5,000,000
shares of the preferred stock.

Under the DGCL, the amount of capital stock must be set forth in the
certificate of incorporation, and may not be altered without the consent of the
stockholders. Under the Holding Company Charter, the Holding Company is
authorized to issue, without further action by shareholders, up to 250,000,000
shares of Holding Company Common Stock, and up to 20,000,000 shares of Holding
Company Preferred Stock.

In addition, the Holding Company Charter includes an "anti-greenmail"
provision which provides that unless approved by holders of a majority of the
outstanding capital stock of the Holding Company then entitled to vote at an
election of directors, the Holding Company shall not take any action that would
result in the acquisition by the Holding Company, directly or indirectly, from
any person or group, of five percent or more of the shares of Holding Company
Common Stock then outstanding, in one or a series of related transactions, at a
price in excess of the prevailing market price of such stock, other than
pursuant to a tender offer made to all holders of Holding Company Common Stock
or to all holders of less than 100 shares of Holding Company Common Stock.

PURPOSE

Under the Sallie Mae Charter, Sallie Mae's corporate purposes generally are
to be a private corporation financed by private capital and serving as a
secondary market and warehousing facility for student loans, including insured
loans, to provide liquidity for student loan investments in order to facilitate
secured transactions involving student loans, to assure nationwide the
establishment of adequate loan insurance programs for students, and to provide
for an additional program of loan insurance to be covered by agreements with the
Secretary of Education.

The Holding Company's purpose is to engage in any lawful activity, as is
typical of ordinary, state-chartered, for-profit corporations.

DIVIDENDS

Under the Sallie Mae Charter, subject to rights of holders of Sallie Mae
preferred stock, dividends may be declared on shares of Sallie Mae Common Stock
by the Sallie Mae Board to the extent that net income is earned and realized and
the specified statutory capital ratio is satisfied.

Under the DGCL, dividends are generally payable out of surplus or, if there
is no surplus, out of net profits for the fiscal year in which the dividend is
paid and the prior year.

EXEMPTION FROM CERTAIN LAWS

Under the Sallie Mae Charter, Sallie Mae is exempt from all state and local
taxes, other than taxes on real property. Sallie Mae also is exempt from certain
state and federal securities laws and from state registration requirements to do
business in a particular jurisdiction. After the Reorganization, Sallie Mae
would continue to have such exemptions. Sallie Mae currently undertakes to
provide to its shareholders substantially all information that would otherwise
be required to be provided under federal securities laws.

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<PAGE> 216

The Holding Company and its other subsidiaries would not receive the
benefit of any such exemptions. Consequently, all operations conducted by the
Holding Company and its subsidiaries other than Sallie Mae would be subject to
state and local tax liabilities. In addition, in connection with the proposed
Reorganization, shares of Holding Company Common Stock have been registered
under the Securities Act of 1933, as amended. Following the Reorganization, the
Holding Company will issue and file all periodic reports required under federal
and state securities laws, including the Securities Exchange Act of 1934, as
amended, and subject to rules governing proxy solicitations.

LIMITATIONS ON DIRECTOR LIABILITY

Under the Sallie Mae By-Laws, directors, officers and members of the
Directors' Advisory Council of Sallie Mae shall not be personally liable to
Sallie Mae or to shareholders for monetary damages for breach of fiduciary duty
acting in their respective official capacities, provided, however, that such
limitation of liability shall not apply to (a) any breach of the party's duty of
loyalty to Sallie Mae or its shareholders, (b) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, or
(c) any transaction from which the party derived an improper personal benefit.

The Holding Company Charter and the Holding Company By-Laws contain certain
provisions limiting the liability of its directors to the extent permitted under
Delaware law. Under Delaware law, a corporation may include in its certificate
of incorporation, a provision eliminating or limiting the liability of a
director to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, provided that such provision may not eliminate or
limit the liability of a director: (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law; (iii) for certain acts concerning unlawful payment of dividends or stock
purchases or redemptions under Section 174 of the DGCL; or (iv) for any
transaction from which a director derived an improper personal benefit.

INDEMNIFICATION

The Sallie Mae By-Laws generally provide that directors, officers and
employees of Sallie Mae shall be indemnified to the extent permitted by the
DGCL.

The Holding Company By-Laws contain provisions that provide for indemnity
of the Holding Company's officers and directors to the fullest extent permitted
under Delaware law. Under Delaware law, a corporation is permitted to indemnify
its officers, directors and certain others against any liability incurred in any
civil, criminal, administrative or investigative proceeding if they acted in
good faith and in a manner they reasonably believed to be in or not opposed to
the best interests of the Company, and, with respect to any criminal proceeding,
had no reasonable cause to believe their conduct was unlawful. In addition,
under Delaware law, to the extent that a director, officer, employee or agent of
a company has been successful on the merits or otherwise in defense of any
proceeding referred to above or in defense of any claim, issue or matter
therein, he must be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.

SPECIAL MEETINGS OF STOCKHOLDERS

The Sallie Mae By-Laws provide that a special meeting of stockholders may
be called by either the Chairman or a majority of the directors and shall be
called by the Chairman upon the written request of holders of at least one-third
of the outstanding Sallie Mae Common Stock.

The Holding Company Charter provides that a special meeting of stockholders
shall be called by the Secretary upon the written request of the holders of
one-third of the then outstanding capital stock of the Holding Company entitled
to vote at an election of directors. In addition, the Holding Company By-Laws
provide that a special meeting of stockholders shall be called by the Secretary
upon the direction of either the Chairman or the President of the Holding
Company, if the President of the Holding Company is a member of the Holding
Company Board, or upon the written request of either a majority of the Holding
Company Board or the holders of one-third of the then outstanding capital stock
entitled to vote at an election of directors.

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AMENDMENT OF GOVERNING DOCUMENTS

CHARTER. The Sallie Mae Charter is contained in a federal statute and may
be amended only by act of Congress. Sallie Mae stockholders have no right to
amend or otherwise direct the provisions of the Sallie Mae Charter.

An amendment to the Holding Company Charter must be authorized by the
Holding Company Board and generally requires the approval of holders of the
majority of all outstanding shares entitled to vote thereon at a meeting of
shareholders. Certain specified amendments affecting the rights of holders of a
class of securities, however, must be approved by vote of the majority of all
outstanding shares of such class entitled to vote thereon, even though they
ordinarily would not have voting rights. Certain limited amendments to the
Holding Company Charter require only the approval of the Holding Company Board.

BY-LAWS. The Sallie Mae By-Laws may be amended, consistent with the Sallie
Mae Charter, by the majority vote of the Sallie Mae Board. Sallie Mae
shareholders do not have authority to amend the Sallie Mae By-Laws.

Under the DGCL, subject to the stockholders' right to amend the by-laws,
directors can amend the bylaws only if such right is expressly conferred upon
the directors in the Company's certificate of incorporation. The Holding Company
Charter expressly provides the Holding Company Board with such authority.

UNITED STATES AND DELAWARE LAW

- -- ANTI-TAKEOVER LAWS

UNITED STATES. The authority of the President of the United States to
appoint one-third of the Sallie Mae Board (particularly given the cumulative
voting provisions contained in the Sallie Mae Charter) and to designate the
Chairman of the Sallie Mae Board, as well as the authority of the federal
government to amend the Sallie Mae Charter, could have a deterrent effect on a
potential acquiror. In addition, because certain amendments to the Federal
Deposit Insurance Act and the Federal Credit Union Act prohibit depository
institutions from being affiliates of government-sponsored enterprises, such
institutions are prohibited from being affiliates of Sallie Mae.

DELAWARE. Section 203 of the DGCL generally prohibits a publicly-held
Delaware company from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless (i) prior to the date
of the business combination, the transaction is approved by the board of
directors of the Company, (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owns at least 85 percent of the outstanding voting stock, or (iii)
on or after such date the business combination is approved by the board and by
the affirmative vote of at least 66 2/3 percent of the outstanding voting stock
which is not owned by the "interested stockholder." A "business transaction"
includes mergers, assets sales and other transactions resulting in a financial
benefit to the stockholder. An "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of the Company's voting stock.

The provision in the Holding Company Charter for the issuance of preferred
stock with such designations, rights and preferences as the Holding Company
Board may authorize may be characterized as anti-takeover in nature. Such a
provision provides the Holding Company Board with greater flexibility for future
financings but may also be viewed as a means to restrict takeover bids. The
Holding Company Charter, however, restricts the ability of the Holding Company
Board to use such a provision to adopt a stockholder "rights plan." Under the
Holding Company Charter, the Holding Company Board is not permitted to adopt a
stockholders "rights plan" (which for the purpose of this limitation means any
arrangement pursuant to which directly or indirectly, Holding Company Common
Stock or Holding Company Preferred Stock purchase rights may be distributed to
stockholders that provide all stockholders, other than persons who meet certain
criteria specified in the arrangement, the right to purchase Holding Company
Common Stock or Holding Company Preferred Stock at less than the prevailing
market price of the Holding Company Common Stock or Holding

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Company Preferred Stock), unless (i) such rights plan is ratified by the
affirmative vote of a majority of the voting power of the shares of capital
stock of the Holding Company then entitled to vote at an election of directors,
(ii) by its terms, such rights plan expires within thirty-seven (37) months from
the date of its adoption, unless extended by the affirmative vote of a majority
of the voting power of the shares of capital stock of the Holding Company then
entitled to vote at an election of directors, and (iii) at any time the rights
issued thereunder will be redeemed by the Holding Company upon the affirmative
vote of a majority of the voting power of the shares of capital stock of the
Holding Company then entitled to vote at an election of directors.

- -- MERGERS

UNITED STATES. There is no general federal merger statute. Moreover, the
Sallie Mae Charter and Sallie Mae's status as a government-sponsored enterprise
present various obstacles to merger activity in the absence of congressional
action. The Privatization Act provides that the Reorganization must be approved
by the affirmative vote of holders of a majority of the outstanding shares of
Sallie Mae Common Stock.

DELAWARE. Approval of mergers and consolidations and of sales, leases or
exchanges of all or substantially all of the property or assets of a company,
requires the approval of the holders of a majority of the outstanding shares
entitled to vote, except that no vote of stockholders of the Company surviving a
merger is necessary if: (i) the merger does not amend the certificate of
incorporation of the Company, (ii) each outstanding share immediately prior to
the merger is to be an identical share after the merger, and (iii) either no
common stock of the Company and no securities or obligations convertible into
common stock are to be issued in the merger; or the common stock to be issued in
the merger plus that initially issuable on conversion of other securities issued
in the merger does not exceed 20 percent of the common stock of the Company
immediately before the merger. In addition, no vote is required under the DGCL
to approve the merger of a parent corporation and one or more of its
subsidiaries when the parent corporation owns at least 90 percent of the
outstanding shares of each class of stock of all such subsidiaries.

- -- DISSENTERS' RIGHTS

UNITED STATES. Neither the Sallie Mae Charter nor the Privatization Act
provides for any dissenters' rights.

DELAWARE. Stockholders are entitled to demand appraisal of their shares in
the case of mergers or consolidations, except where (i) they are stockholders of
the surviving company and the merger did not require their approval under the
DGCL or (ii) the Company shares are either listed on a national securities
exchange or Nasdaq or held of record by more than 2,000 stockholders. Appraisal
rights are available in either (i) or (ii) above, however, if the stockholders
are required by the terms of the merger or consolidation to accept any
consideration other than (a) stock of the Company surviving or resulting from
the merger or consolidation, (b) shares of stock of another company which are
either listed on a national securities exchange or held of record by more than
2,000 stockholders, (c) cash in lieu of fractional shares or (d) any combination
of the foregoing. Appraisal rights are not available in the case of a sale,
lease, exchange or other disposition by a company of all or substantially all of
its property and assets, nor in the case of a merger of a parent corporation and
one or more of its subsidiaries when the parent corporation owns at least 90
percent of the outstanding shares of each class of stock of all such
subsidiaries.

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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 or postponements
thereof, and to vote upon any other business as may properly come before said
Special Meeting, or any adjournments or postponements 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
<PAGE> 220

<TABLE>
<S> <C> <C>
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 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 adjournments
or postponements thereof, may exercise the
powers conferred by this Proxy.

Signature Signature Date
-------------------- ----------------------- ---------
</TABLE>

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.
<PAGE> 221

APPENDIX G

PROVIDED SEPARATELY BY THE CRV

G-1
<PAGE> 222

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.

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- ---------------------------------------------------------------------------------
<C> <C> <S>
*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
</TABLE>

II-1
<PAGE> 223

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- ---------------------------------------------------------------------------------
<C> <C> <S>
**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
</TABLE>

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

* 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
<PAGE> 224

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 July 8, 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
<PAGE> 225

EXHIBIT INDEX

<TABLE>
<CAPTION>
PAGE IN
SEQUENTIAL
NUMBERING
EXHIBIT NO. SYSTEM
- ----------- ---------
<C> <C> <S> <C>
*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................................................
</TABLE>

- ---------------
* Filed herewith.

** Previously filed.

<PAGE> 1

EXHIBIT 3.1A

AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SLM HOLDING CORPORATION

SLM Holding Corporation, a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), does hereby certify as
follows:

(1) The name of the Corporation is SLM Holding Corporation.

(2) The name under which the Corporation was originally incorporated
was SLM Holding Corporation, the original Certificate of Incorporation of
the Corporation was filed with the Secretary of State of the State of
Delaware on February 3, 1997 and an Amended and Restated Certificate of
Incorporation was filed with the Secretary of State of the State of
Delaware on May 5, 1997.

(3) This Amended and Restated Certificate of Incorporation was duly
adopted by the Board of Directors of the Corporation and by the sole
stockholder of the Corporation in accordance with the provisions of
Sections 228, 242 and 245 of the General Corporation Law of the State of
Delaware.

(4) This Amended and Restated Certificate of Incorporation restates
and integrates and further amends the Amended and Restated Certificate of
Incorporation of the Corporation filed with the Secretary of State of the
State of Delaware on May 5, 1997.

(5) The text of the Amended and Restated Certificate of Incorporation
of the Corporation filed with the Secretary of State of the State of
Delaware on May 5, 1997 is amended and restated in its entirety, as
follows:

RESTATED CERTIFICATE OF INCORPORATION
OF
SLM HOLDING CORPORATION

FIRST: The name of the Corporation is SLM Holding Corporation (hereinafter
the "Corporation").

SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, in the City of Wilmington, County of
New Castle. The name of its registered agent at that address is The Corporation
Trust Company.

THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware as set forth in Title 8 of the Delaware Code (the
"GCL").

FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is Two Hundred Seventy Million (270,000,000) shares of
capital stock, consisting of (i) Two Hundred Fifty Million (250,000,000) shares
of common stock, par value $.20 per share (the "Common Stock"), and (ii) Twenty
Million (20,000,000) shares of preferred stock, par value $.20 per share (the
"Preferred Stock").

a. Common Stock. The powers, preferences and rights, and the
qualifications, limitations and restrictions, of the Common Stock are as
follows:

(1) Voting. Except as otherwise expressly required by law or
provided in this Restated Certificate of Incorporation, and subject to
any voting rights provided to holders of Preferred Stock at any time
outstanding, at each annual or special meeting of stockholders, each
holder of record of shares of Common Stock on the relevant record date
shall be entitled to cast one vote in person or by proxy for each share
of the Common Stock standing in such holder's name on the stock transfer
records of the Corporation.
<PAGE> 2

(2) Dividends. Subject to the rights of the holders of Preferred
Stock, and subject to any other provisions of this Restated Certificate
of Incorporation, as it may be amended from time to time, holders of
shares of Common Stock shall be entitled to receive such dividends and
other distributions in cash, stock or property of the Corporation when,
as and if declared thereon by the Board of Directors from time to time
out of assets or funds of the Corporation legally available therefor.

(3) Liquidation, Dissolution, etc. In the event of any
liquidation, dissolution or winding up (either voluntary or involuntary)
of the Corporation, the holders of shares of Common Stock shall be
entitled to receive the assets and funds of the Corporation available
for distribution after payments to creditors and to the holders of any
Preferred Stock of the Corporation that may at the time be outstanding,
in proportion to the number of shares held by them.

(4) No Preemptive or Subscription Rights. No holder of shares of
Common Stock shall be entitled to preemptive or subscription rights.

b. Preferred Stock. The Board of Directors is hereby expressly
authorized to provide for the issuance of all or any shares of the
Preferred Stock in one or more classes or series, and to fix for each such
class or series such voting powers, full or limited, or no voting powers,
and such designations, preferences and relative, participating, optional or
other special rights and such qualifications, limitations or restrictions
thereof, as shall be stated and expressed in the resolution or resolutions
adopted by the Board of Directors providing for the issuance of such class
or series, including, without limitation, the authority to provide that any
such class or series may be (i) subject to redemption at such time or times
and at such price or prices; (ii) entitled to receive dividends (which may
be cumulative or non-cumulative) at such rates, on such conditions, and at
such times, and payable in preference to, or in such relation to, the
dividends payable on any other class or classes or any other series; (iii)
entitled to such rights upon the dissolution of, or upon any distribution
of the assets of, the Corporation; or (iv) convertible into, or
exchangeable for, shares of any other class or classes of stock, or of any
other series of the same or any other class or classes of stock, of the
Corporation at such price or prices or at such rates of exchange and with
such adjustments; all as may be stated in such resolution or resolutions.

c. Power to Sell and Purchase Shares. Subject to the requirements of
applicable law, the Corporation shall have the power to issue and sell all
or any part of any shares of any class of stock herein or hereafter
authorized to such persons, and for such consideration, as the Board of
Directors shall from time to time, in its discretion, determine, whether or
not greater consideration could be received upon the issue or sale of the
same number of shares of another class, and as otherwise permitted by law.
Subject to the requirements of applicable law, the Corporation shall have
the power to purchase any shares of any class of stock herein or hereafter
authorized from such persons, and for such consideration, as the Board of
Directors shall from time to time, in its discretion, determine, whether or
not less consideration could be paid upon the purchase of the same number
of shares of another class, and as otherwise permitted by law; provided,
however, that unless approved by holders of a majority of the outstanding
capital stock of the Corporation then entitled to vote at an election of
directors, the Corporation shall not take any action that would result in
the acquisition by the Corporation, directly or indirectly, from any person
or "group" (as defined in Section 13(d) of the Securities Exchange Act of
1934, as amended), of five percent or more of the shares of Common Stock
then outstanding, in one or a series of related transactions, at a price in
excess of the prevailing market price of such stock, other than pursuant to
a tender offer made to all holders of Common Stock or to all holders of
less than 100 shares of Common Stock.

d. Limitation on Stockholder Rights Plan. Notwithstanding any other
powers set forth in this Restated Certificate of Incorporation, the Board
of Directors shall not adopt a stockholders "rights plan" (which for this
purpose shall mean any arrangement pursuant to which directly or
indirectly, Common Stock or Preferred Stock purchase rights may be
distributed to stockholders that provide all stockholders, other than
persons who meet certain criteria specified in the arrangement, the right
to purchase the Common Stock or Preferred Stock at less than the prevailing
market price of the Common Stock or Preferred Stock), unless (i) such
rights plan is ratified by the affirmative vote of a majority of the voting

2
<PAGE> 3

power of the shares of capital stock of the Corporation then entitled to
vote at an election of directors, (ii) by its terms, such rights plan
expires within thirty-seven (37) months from the date of its adoption,
unless extended by the affirmative vote of a majority of the voting power
of the shares of capital stock of the Corporation then entitled to vote at
an election of directors; and (iii) at any time the rights issued
thereunder will be redeemed by the Corporation upon the affirmative vote of
a majority of the voting power of the shares of capital stock of the
Corporation then entitled to vote at an election of directors.

FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:

(1) The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors.

(2) (a) The number of directors of the Corporation shall initially be
15, and thereafter shall be such number as from time to time is fixed by
resolution of the Board of Directors, provided that the number of directors
shall not be less than nine nor more than 19.

(b) A director shall hold office until the next annual meeting of
stockholders of the Corporation and until his or her successor shall be
elected and shall qualify, subject, however, to prior death,
resignation, retirement, disqualification or removal from office.

(c) Subject to the terms of any one or more classes or series of
Preferred Stock, any vacancy on the Board of Directors may be filled by
stockholders of the Corporation at any annual meeting or at a special
meeting called for that purpose or by a majority of the Board of
Directors then in office, even if less than a quorum, or by a sole
remaining director. Subject to the rights, if any, of the holders of
shares of Preferred Stock then outstanding, any or all of the directors
of the Corporation may be removed from office at any time only by the
affirmative vote of the holders of at least a majority of the voting
power of the Corporation's then outstanding capital stock entitled to
vote at an election of directors. Notwithstanding the foregoing,
whenever the holders of any one or more classes or series of Preferred
Stock issued by the Corporation shall have the right, voting separately
by class or series, to elect directors at an annual or special meeting
of stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of
this Restated Certificate of Incorporation applicable thereto.

(3) No director shall be personally liable to the Corporation or any
of its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) pursuant to Section 174 of the GCL or (iv) for any
transaction from which the director derived an improper personal benefit.
Any repeal or modification of this Article FIFTH by the stockholders of the
Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or
modification with respect to acts or omissions occurring prior to such
repeal or modification.

(4) In addition to the powers and authority hereinbefore or by statute
expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation, subject, nevertheless, to the
provisions of the GCL, this Restated Certificate of Incorporation, and any
By-Laws adopted by the stockholders; provided, however, that no By-Laws
hereafter adopted by the stockholders shall invalidate any prior act of the
directors which would have been valid if such By-Laws had not been adopted.

SIXTH: Meetings of stockholders may be held within or without the State of
Delaware, as the By-Laws may provide. In addition to any other rights provided
in the By-Laws, special meetings of stockholders shall be called by the
Secretary of the Corporation at the request in writing of the holders of
one-third of the capital stock of the Corporation issued and outstanding and
then entitled to vote at an election of directors. The books of the Corporation
may be kept (subject to any provision contained in the GCL) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the Corporation.

3
<PAGE> 4

SEVENTH: No action by stockholders shall be valid unless taken at a duly
constituted meeting pursuant to the terms of the By-Laws of the Corporation.

EIGHTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Restated Certificate of Incorporation, in
the manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation. In furtherance and
not in limitation of the powers conferred upon it by the laws of the State of
Delaware, the Board of Directors shall have the power to adopt, amend, alter or
repeal the Corporation's By-Laws. The affirmative vote of at least a majority of
the entire Board of Directors shall be required to adopt, amend, alter or repeal
the Corporation's By-Laws.

IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate of Incorporation to be executed on its behalf this day of June,
1997.

SLM HOLDING CORPORATION

By:
--------------------------------------
LAWRENCE A. HOUGH
President and Chief Executive Officer

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" in
Post-Effective Amendment No. 3 to the Registration Statement (Form S-4 No.
333-21217) and related Prospectus of SLM Holding Corporation for the
registration of 54,600,000 shares of its common stock and to the use of our
report dated February 3, 1997, with respect to the balance sheet as of February
3, 1997 of SLM Holding Corporation and our report dated January 13, 1997 (except
as to the third and fourth paragraphs of Note 2, as to which the date is April
7, 1997), with respect to the consolidated financial statements of the Student
Loan Marketing Association for the year ended December 31, 1996 included in the
Prospectus and Registration Statement filed with the Securities and Exchange
Commission.

/s/ Ernst & Young LLP

Washington, D.C.
July 8, 1997

<ARTICLE> 9

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 42,648
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 33,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7,957,146
<INVESTMENTS-CARRYING> 571,458
<INVESTMENTS-MARKET> 571,083
<LOANS> 35,919,162
<ALLOWANCE> 87,378
<TOTAL-ASSETS> 46,330,210
<DEPOSITS> 0
<SHORT-TERM> 23,003,597
<LIABILITIES-OTHER> 2,215,088
<LONG-TERM> 20,101,768
0
213,883
<COMMON> 13,213
<OTHER-SE> 782,661
<TOTAL-LIABILITIES-AND-EQUITY> 46,330,210
<INTEREST-LOAN> 691,718
<INTEREST-INVEST> 154,440
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 846,158
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 647,132
<INTEREST-INCOME-NET> 199,026
<LOAN-LOSSES> 5,818
<SECURITIES-GAINS> 3,183
<EXPENSE-OTHER> 101,559
<INCOME-PRETAX> 173,407
<INCOME-PRE-EXTRAORDINARY> 118,837
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 118,837
<EPS-PRIMARY> 2.17
<EPS-DILUTED> 2.17
<YIELD-ACTUAL> 1.75
<LOANS-NON> 0
<LOANS-PAST> 1,600,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 84,063
<CHARGE-OFFS> 5,596
<RECOVERIES> 3,093
<ALLOWANCE-CLOSE> 87,378
<ALLOWANCE-DOMESTIC> 87,378
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0

</TABLE>