 
      CHAPTER 28--HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE
 
                    SUBCHAPTER IV--STUDENT ASSISTANCE
 
              Part B--Federal Family Education Loan Program
 
Sec. 1087-3. Reorganization of Student Loan Marketing 
        Association through formation of Holding Company
        

(a) Actions by 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) of this section, 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) of this section 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.

(c) Transition

    In the event the shareholders of the Association approve the plan of 
reorganization under subsection (b) of this section, 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 1087-
    2 of this title, 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 1087-2 of this title, 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 chapter 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 1087-2(q) of this 
    title 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 
            September 30, 1996, 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 1087-
    2(r) of this title. 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 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 1087-2(d) of this 
        title 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 1087-2(q) of this title; and
                (iv) the Association's purchase of 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 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 
        1087-2(h)(7) of this title 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 1087-2(q) of this title 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 1087-2 of this title, 
    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) of this 
    section.

               (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 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 1087-2(c)(1)(A) of this title 
            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.

        (F) Confidentiality

            Any information provided by the Association pursuant to this 
        section shall be subject to the same confidentiality obligations 
        contained in section 1087-2(r)(12) of this title.

        (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 September 30, 1996, 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 September 30, 1996, 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 1155(e) \1\ of this title amounts collected from 
        the sale and proceeds resulting from the exercise of the stock 
        warrants pursuant to this subparagraph.
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      (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, without prior approval of the Secretary 
    of the Treasury and the Secretary of Education.

(d) Termination of Association

    In the event the shareholders of the Association approve a plan of 
reorganization under subsection (b) of this section, 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 1087-2(q) of this title or continues to be 
needed to purchase loans under an agreement with the Secretary described 
in subsection (c)(6) of this section. 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 Holding Company

    In the event the shareholders of the Association approve the plan of 
reorganization under subsection (b) of this section, 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 Company). The 
    Association shall remit to the account established under section 
    1155(e) \2\ of this title, $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.
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                       (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 September 30, 1996.

(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) of this 
    section.

                         (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) of this section.

                      (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 1087-2(d) of this title (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 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 1087-2 of this title, 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) of this section.

                  (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) of this 
    section and shall not be later than the date that is 18 months after 
    September 30, 1996.

                           (8) Subsidiary

        The term ``subsidiary'' means one or more direct or indirect 
    subsidiaries.

(Pub. L. 89-329, title IV, Sec. 440, as added Pub. L. 104-208, div. A, 
title I, Sec. 101(e) [title VI, Sec. 602(a)], Sept. 30, 1996, 110 Stat. 
3009-233, 3009-275.)

                            Repeal of Section

        Pub. L. 104-208, div. A, title I, Sec. 101(e) [title VI, 
    Sec. 602(d)], Sept. 30, 1996, 110 Stat. 3009-233, 3009-289, provided 
    that this section is repealed effective one year after date on which 
    all obligations of trust established under subsec. (d)(1) of this 
    section have been extinguished, if reorganization occurs in 
    accordance with this section, or date on which all obligations of 
    trust established under section 1087-2(s)(3)(A) of this title have 
    been extinguished, if reorganization does not occur in accordance 
    with this section.

                       References in Text

    This chapter, referred to in subsec. (c)(1), was in the original 
``this Act'', meaning Pub. L. 89-329, as amended, known as the Higher 
Education Act of 1965. For complete classification of this Act to the 
Code, see Short Title note set out under section 1001 of this title and 
Tables.
    Section 1155(e) of this title, referred to in subsecs. (c)(9)(B) and 
(e)(3), was in the original a reference to section 3(e) of the Student 
Loan Marketing Association Reorganization Act of 1996, and was 
translated as reading section 603(e) of that Act, which is Pub. L. 104-
208, div. A, title I, Sec. 101(e) [title VI, Sec. 603(e)], Sept. 30, 
1996, 110 Stat. 3009-233, 3009-293, to reflect the probable intent of 
Congress, because that Act does not contain a section 3(e), but does 
contain a section 603(e) which establishes the account referred to in 
text.


                            Prior Provisions

    A prior section 1087-3, Pub. L. 89-329, title IV, Sec. 439A, as 
added Pub. L. 94-482, title I, Sec. 127(a), Oct. 12, 1976, 90 Stat. 
2141, related to a five-year nondischargeability of certain loan debts, 
prior to repeal by Pub. L. 95-598, title III, Sec. 317, Nov. 6, 1978, 92 
Stat. 2678, eff. Nov. 6, 1978.
    A prior section 1087-3a, Pub. L. 89-329, title IV, Sec. 439B, as 
added Pub. L. 95-566, Sec. 8, Nov. 1, 1978, 92 Stat. 2404, authorized 
any loan under this part to be counted as part of the expected family 
contribution in the determination of need, prior to repeal by Pub. L. 
97-35, title V, Sec. 532(b)(2), Aug. 13, 1981, 95 Stat. 452, applicable 
to loans for the statement required by section 1078(a)(2)(A) of this 
title is completed on or after Oct. 1, 1981.

                  Section Referred to in Other Sections

    This section is referred to in sections 1078-3, 1085, 1087-2, 1087-
4, 1155 of this title; title 12 section 1828.
