UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





__________________


FORM
10-Q


__________________





x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the quarterly period ended March 31, 2008or ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the transition period from ___ to ___





Commission
File Number: 1-11616





THE
STUDENT LOAN CORPORATION


(Exact
name of registrant as specified in its charter)





Delaware
            
            16-1427135(State
      or other jurisdiction of
            
            (I.R.S.
      Employer Identification No.)incorporation
      or organization)750
      Washington Blvd.
            
            06901Stamford,
      Connecticut
            
            (Zip
      Code)(Address
      of principal executive offices)





(203)
975-6320


(Registrant's
telephone number, including area code)


__________________





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.





Yes
            x
            No
            o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer  x
            
            Accelerated
      filer                   oNon-accelerated
      filer   o (Do not check if
      a smaller reporting company
            Smaller
      reporting company   o





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).





Yes
            o
            No
            x





On April
30, 2008, there were 20,000,000 shares of The Student Loan Corporation’s Common
Stock outstanding.





Available
on the World Wide Web at www.studentloan.com





Form
10-Q





TABLE
OF CONTENTS





Part
      I
            Consolidated
      Financial InformationPageItem
      1 -
            Consolidated
      Financial StatementsConsolidated
      Statements of Income (Unaudited) for the Three Months
      Ended  March 31, 2008 and 2007
            2Consolidated
      Balance Sheets as of March 31, 2008 (Unaudited) and December 31,
      2007
            3Consolidated
      Statements of Changes in Stockholders’ Equity (Unaudited) for
      the Three Months Ended March 31, 2008 and 2007
            4Consolidated
      Statements of Cash Flows (Unaudited) for the Three Months
      Ended  March 31, 2008 and 2007
            5Notes
      to Consolidated Financial Statements (Unaudited)
            6 –
      16Item
      2 -
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            17 –
      28Item
      3 -
            Quantitative
      and Qualitative Disclosures About Market Risk
            29Item
      4 -
            Controls
      and Procedures
            29Part
      II
            Other
      InformationItem
      1A-
            Risk
      Factors
            30Item
      6 -
            Exhibits
            30Signature
            31Exhibit
      Index
            32





1


PART
I    CONSOLIDATED FINANCIAL INFORMATION





Item
      1.
            Consolidated
      Financial Statements





THE
STUDENT LOAN CORPORATION


CONSOLIDATED
STATEMENTS OF INCOME


(Dollars
in thousands, except per share amounts)


(Unaudited)





Three
      months endedMarch
      31,2008
            
            
            2007NET
      INTEREST INCOMEInterest
      income
            
            $
            329,747
            
            
            $
            378,647Interest
      expense
            
            
            (248,300
            )
            
            
            (284,890
            )Net
      interest income
            
            
            81,447
            
            
            
            93,757Provision
      for loan losses
            
            
            (25,312
            )
            
            
            (10,528
            )Net
      interest income after provision for loan losses
            
            
            56,135
            
            
            
            83,229OTHER
      INCOMEGains
      on loans sold
            
            
            1,455
            
            
            
            17,774Fee
      and other income
            
            
            11,459
            
            
            
            14,863Total
      other income
            
            
            12,914
            
            
            
            32,637OPERATING
      EXPENSESSalaries
      and employee benefits
            
            
            15,469
            
            
            
            14,450Other
      expenses
            
            
            28,666
            
            
            
            29,748Total
      operating expenses
            
            
            44,135
            
            
            
            44,198Income
      before income taxes
            
            
            24,914
            
            
            
            71,668Income
      taxes
            
            
            9,680
            
            
            
            27,645NET
      INCOME
            
            $
            15,234
            
            
            $
            44,023DIVIDENDS
      DECLARED AND PAID
            
            $
            28,600
            
            
            $
            26,000BASIC
      EARNINGS PER COMMON SHARE
            
            $
            0.76
            
            
            $
            2.20(based
      on 20 million average shares outstanding)DIVIDENDS
      DECLARED AND PAID PER COMMON SHARE
            
            $
            1.43
            
            
            $
            1.30





See
accompanying Notes to Consolidated Financial Statements.


2




THE
STUDENT LOAN CORPORATION


CONSOLIDATED
BALANCE SHEETS


(Dollars
in thousands, except per share amounts)





March
      31,
            
            
            December
      31,2008
            
            
            2007(Unaudited)ASSETSFederally
      insured student loans
            
            $
            17,867,877
            
            
            $
            16,244,273Private
      education loans
            
            
            5,522,037
            
            
            
            4,696,337Deferred
      origination and premium costs
            
            
            721,954
            
            
            
            668,082Allowance
      for loan losses
            
            
            (54,752
            )
            
            
            (42,115
            )Student
      loans, net
            
            
            24,057,116
            
            
            
            21,566,577Other
      loans and lines of credit
            
            
            26,803
            
            
            
            87,437Loans
      held for sale
            
            
            417,923
            
            
            
            337,790Cash
            
            
            2,552
            
            
            
            25Residual
      interests in securitized loans
            
            
            694,839
            
            
            
            633,074Other
      assets
            
            
            1,290,121
            
            
            
            1,154,956Total
      Assets
            
            $
            26,489,354
            
            
            $
            23,779,859LIABILITIES
      AND STOCKHOLDERS' EQUITYShort-term
      borrowings, payable to principal stockholder
            
            $
            15,880,600
            
            
            $
            13,373,000Long-term
      borrowings, payable to principal stockholder
            
            
            6,600,000
            
            
            
            8,100,000Long-term
      secured borrowings
            
            
            1,579,320
            
            
            
            –Deferred
      income taxes
            
            
            289,490
            
            
            
            287,462Other
      liabilities
            
            
            529,077
            
            
            
            395,174Total
      Liabilities
            
            
            24,878,487
            
            
            
            22,155,636Common
      stock, $0.01 par value; authorized 50,000,000 shares; 20,000,000 shares
      issued and outstanding
            
            
            200
            
            
            
            200Additional
      paid-in capital
            
            
            141,365
            
            
            
            141,355Retained
      earnings
            
            
            1,469,302
            
            
            
            1,482,668Total
      Stockholders' Equity
            
            
            1,610,867
            
            
            
            1,624,223Total
      Liabilities and Stockholders' Equity
            
            $
            26,489,354
            
            
            $
            23,779,859





See
accompanying Notes to Consolidated Financial Statements.




3


THE
STUDENT LOAN CORPORATION


CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


(Dollars
in thousands, except per share amounts)


(Unaudited)





Three
      months ended March 31,2008
            
            
            2007COMMON
      STOCK AND ADDITIONAL PAID-IN CAPITALBalance,
      beginning of period
            
            $
            141,555
            
            
            $
            141,524Capital
      contributions and other changes
            
            
            10
            
            
            
            9Balance,
      end of period
            
            $
            141,565
            
            
            $
            141,533RETAINED
      EARNINGSBalance,
      beginning of period
            
            $
            1,482,668
            
            
            $
            1,410,968Cumulative
      effect of adoption of accounting standard, net of taxes of
      $506
            
            
            –
            
            
            
            809Net
      income
            
            
            15,234
            
            
            
            44,023Common
      dividends declared, $1.43 per common share in 2008 and $1.30 per common
      share in 2007
            
            
            (28,600
            )
            
            
            (26,000
            )Balance,
      end of period
            
            $
            1,469,302
            
            
            $
            1,429,800ACCUMULATED
      OTHER COMPREHENSIVE INCOMEBalance,
      beginning of period
            
            $
            –
            
            
            $
            809Cumulative
      effect of adoption of accounting standard, net of taxes of
      $(506)
            
            
            –
            
            
            
            (809
            )Balance,
      end of period
            
            $
            –
            
            
            $
            –TOTAL
      STOCKHOLDERS' EQUITY
            
            $
            1,610,867
            
            
            $
            1,571,333


See
accompanying Notes to Consolidated Financial Statements.


4






THE
STUDENT LOAN CORPORATION


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Dollars
in thousands)


(Unaudited)


Three
      months endedMarch
      31,2008
            
            
            2007Cash
      flows from operating activities:Net
      income
            
            $
            15,234
            
            
            $
            44,023Adjustments
      to reconcile net income to net cash from operating
    activities:Depreciation
      and amortization of equipment and computer software
            
            
            3,485
            
            
            
            3,533Amortization
      of deferred loan origination and purchase costs
            
            
            25,714
            
            
            
            27,949Accreted
      interest on residual interests
            
            
            (15,672
            )
            
            
            (14,383
            )Provision
      for loan losses
            
            
            25,312
            
            
            
            10,528Deferred
      tax benefit (provision)
            
            
            2,028
            
            
            
            (10,504
            )Gains
      on loans sold
            
            
            (1,455
            )
            
            
            (17,774
            )(Gain)
      loss on residual interest valuation
            
            
            (70,419
            )
            
            
            1,778Loss
      on servicing asset valuation
            
            
            2,047
            
            
            
            4,867Foreign
      currency loss
            
            
            4,770
            
            
            
            –Change
      in loans held for sale
            
            
            (131,413
            )
            
            
            (118,276
            )Change
      in loans held for sale origination and purchase costs
            
            
            (2,745
            )
            
            
            (2,009
            )Proceeds
      from loans sold
            
            
            55,480
            
            
            
            59,678Cash
      received on residual interests in trading securitized
    assets
            
            
            24,326
            
            
            
            13,130Change
      in accrued interest receivable
            
            
            (30,607
            )
            
            
            (87,523
            )Change
      in other assets
            
            
            (60,967
            )
            
            
            (13,674
            )Change
      in other liabilities
            
            
            133,913
            
            
            
            (52,291
            )Net
      cash used in operating activities
            
            
            (20,969
            )
            
            
            (150,948
            )Cash
      flows from investing activities:Change
      in loans
            
            
            (2,401,345
            )
            
            
            (1,856,183
            )Change
      in loan origination and purchase costs
            
            
            (79,586
            )
            
            
            (83,687
            )Proceeds
      from loans sold
            
            
            –
            
            
            
            679,071Change
      in restricted cash
            
            
            (46,515
            )
            
            
            –Capital
      expenditures on equipment and computer software
            
            
            (2,608
            )
            
            
            (1,952
            )Net
      cash used in investing activities
            
            
            (2,530,054
            )
            
            
            (1,262,751
            )Cash
      flows from financing activities:Net
      change in borrowings with original maturities of one year or
      less
            
            
            1,007,600
            
            
            
            663,200Proceeds
      from borrowings with original terms of one year or more
            
            
            –
            
            
            
            3,000,000Proceeds
      from issuance of secured debt
            
            
            1,574,550
            
            
            
            –Repayments
      of borrowings with original terms of one year or more
            
            
            –
            
            
            
            (2,000,000
            )Dividends
      paid to stockholders
            
            
            (28,600
            )
            
            
            (26,000
            )Net
      cash provided by financing activities
            
            
            2,553,550
            
            
            
            1,637,200Net
      increase in cash
            
            
            2,527
            
            
            
            223,501Cash
      - beginning of period
            
            
            25
            
            
            
            6,570Cash
      - end of period
            
            $
            2,552
            
            
            $
            230,071Supplemental
      disclosure:Cash
      paid (received) for:Interest
            
            $
            252,292
            
            
            $
            270,566Income
      taxes, net
            
            $
            (9,698
            )
            
            $
            57,040





See
accompanying Notes to Consolidated Financial Statements.


5




THE
STUDENT LOAN CORPORATION


Notes
to Consolidated Financial Statements (Unaudited)


March
31, 2008








1.
            BASIS OF
      PRESENTATION AND SIGNIFICANT ACCOUNTING
  POLICIES





Interim
Financial Information





The
accompanying Unaudited Consolidated Financial Statements of The Student Loan
Corporation (the Company), a Delaware corporation, include the accounts of the
Company and its wholly owned subsidiaries, Educational Loan Center, Inc. and SLC
Student Loan Receivables I, Inc. All intercompany balances and transactions have
been eliminated.





The
Company, through a trust agreement with Citibank, N.A. (CBNA), is an originator,
manager and servicer of student loans, including loans made in accordance with
federally sponsored guaranteed student loan programs as well as private
education loans.  CBNA, an indirect wholly owned subsidiary of
Citigroup Inc. (Citigroup), is the largest shareholder of the Company, owning
80% of the Company’s outstanding common stock.





In the
opinion of management, all adjustments, consisting of normal, recurring
accruals, necessary to state fairly the Company's financial position and results
of operations in conformity with U.S. generally accepted accounting principles
(GAAP) have been reflected.  The results for the three months ended
March 31, 2008 may not be indicative of the results for the full year ended
December 31, 2008.Certain financial
information that is normally included in annual financial statements prepared in
accordance with GAAP, but is not required for interim reporting purposes, has
been condensed or omitted.The accompanying
Consolidated Financial Statements should be read in conjunction with the
Consolidated Financial Statements and related Notes included in the Company’s
2007 Annual Report and Form 10-K.





Basis
of Presentation





The
Company’s accounting policies are in conformity with GAAP. The Company’s
operations are a single segment for financial reporting purposes, as the
Company’s only operations consist of originating, managing and servicing student
loans.





Certain
amounts in the prior period’s financial statements have been reclassified to
conform to the current period’s presentation. Such reclassification had no
effect on the results of operations as previously reported.





Use
of Estimates





The
preparation of the Consolidated Financial Statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the balance
sheet date and the reported amounts of revenues and expenses during the
reporting period.  Actual results could differ from those
estimates.





Revenue Recognition





Revenues,
which include net interest income, fees and gains on loans sold and securitized,
if any, are recognized as they are earned.  Interest income includes
special allowance payments from and excess interest to the federal government as
prescribed under the Higher Education Act of 1965, as amended (the Higher
Education Act), and is net of amortization of premiums and origination costs.
The Company accounts for premiums and origination costs in accordance with
Statement of Financial Accounting Standards (SFAS) No. 91, Accounting for Nonrefundable Fees
and Costs Associated with Originating or Acquiring Loans and Initial Direct
Costs of Leases(SFAS 91). Deferred premiums and origination costs on the
Company’s loan portfolio are amortized using the interest method.


6





Loans





The
Company has a portfolio of student loans originated under the Federal Family
Education Loan (FFEL) Program authorized by the U.S. Department of Education
(the Department) under the Higher Education Act, which are insured by guaranty
agencies (guarantors).   Student loan interest, inclusive of
special allowance payments from and excess interest to the federal government,
if any, is recognized as it is earned or incurred.





The
Company also has a portfolio of private education loans primarily consisting of
CitiAssist®
loans.  Some of those loans are insured against loss by private
insurers or covered under other risk-sharing agreements with creditworthy
schools.  Some of those loans, including many high risk loans, are
neither insured nor covered under risk-sharing agreements.  The
Company is exposed to 100% of loss on such loans. Effective January 1, 2008, the
Company elected to stop insuring new CitiAssist loan originations.





Allowance
for Loan Losses





The
Company has an allowance for loan losses that provides a reserve for estimated
losses on: (1) the portion of the FFEL Program loan portfolio that is subject to
the risk-sharing provisions of the Higher Education Act and (2) the private
education loan portfolio, after considering the credit risk insurance coverage
obtained from third parties, the impact of any risk-sharing agreements with
certain schools and counterparty risk ratings. Estimated losses are based on
historical delinquency and credit loss experience adjusted for projected market
conditions and aging of the portfolio.  Estimated losses are expensed
currently and increase the provision for loan losses.  Actual losses
are charged against the reserve as they occur.





The
Company ceases to accrue interest income on a student loan when one of the
following events occurs: (1) a FFEL Program loan loses its guarantee, (2) an
insured private education loan reaches 150 days of delinquency or (3) an
uninsured private education loan reaches 90 days of
delinquency.  Accrual of interest is resumed if the loan guarantee is
reinstated.  Interest received on non-accruing loans is recorded
directly into interest income. The Company immediately writes off the loan
balance corresponding to the unguaranteed portion of FFEL Program Loans at 270
days of delinquency and the uninsured portion of private education loans at 120
days of delinquency.  Also, the Company writes off the loan balances
for loans in which the guarantee claim is not received for FFEL Program and
private education loans after 450 days and 240 days, respectively. When loans or
portions of loans are written off, the Company reduces interest income by the
amounts of accrued, uncollected interest.





Restricted
Cash





Restricted
cash includes amounts held by loan securitization trusts that are being
accounted for as secured borrowings. This cash must be used to make payments
related to trust obligations and is classified as a component of Otherassets. Amounts on deposit in
these accounts are primarily the result of timing differences between when
principal and interest is collected on the trust assets and when principal and
interest is paid on trust liabilities.





Transfer
of Student Loans through Sale or Securitization





Whole
Loan Sales





The
Company accounts for its whole loan sales in accordance with the provisions of
SFAS No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
a replacement of FASB Statement No. 125,as amended(SFAS 140). In order
for a transfer of financial assets to be considered a sale, the assets
transferred by the Company must have been isolated from the seller, even in
bankruptcy or other receivership, and the purchaser must have the right to sell
the assets transferred. In addition, the sale accounting rules of SFAS 140
require the Company to relinquish effective control over the loans sold as of
the sale date.





Loans
Securitized





There are
two key accounting determinations that must be made relating to securitizations.
First, a decision must be made as to whether that transfer is considered a sale
in accordance with SFAS 140. If it is a sale, the transferred assets are removed
from the Company's Consolidated Balance Sheets and a gain or loss is
recognized.  Second, a determination must be made as to whether the
securitization entity should be included in the Company’s Consolidated Financial
Statements. If the securitization entity's activities are sufficiently
restricted to meet accounting requirements for a qualifying special purpose
entity (QSPE), the securitization entity is not consolidated by the seller of
transferred assets.




7


All of
the Company’s off-balance sheet securitizations meet the definition of a QSPE
and are not consolidated. The Company accounts for its on-balance sheet
securitization, which is not a QSPE, in accordance with Financial Accounting
Standards Board (FASB) Interpretation No. 46(R) (FIN 46(R)), Consolidation of Variable Interest
Entities,and is included in the Consolidated Financial Statements as the
Company is the primary beneficiary.





Interest
in the securitized loans accounted for as a sale are retained in the form of
subordinated interest-only strips (i.e., residual interests) and servicing
rights.





Prior to
January 1, 2007, the Company accounted for its residual interest from the 2004
securitization as available-for-sale securities. Effective January 1, 2007,the Company early-adopted
SFAS No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities (SFAS 159). In
accordance with SFAS 159, the Company elected to measure its residual interest
from the 2004 securitization at fair value. Converting to the fair value method
the Company reclassified the unrealized gain on the residual interest from the
2004 securitization from Accumulated other comprehensive
incometoRetained
earnings. Beginning January 1, 2007, all of the Company’s residual
interests from its securitizations are accounted for as trading securities, with
unrealized gains and losses reported in Fee and other
income.





The
Company’s servicing assets are reported at fair value, in accordance with the
provision of SFAS No.156, Accounting for Servicing of
Financial Assets – an amendment of FASB statement No. 140(SFAS 156), and
are included in Other
assets. Unrealized gains and losses associated with servicing asset
valuation changes are reported in Fee and other
income.





Gains are
recognized at the time of securitization and are reported in Gains on loans
securitized.  Securitization gains depend in part on the
previous carrying amount of the loans involved in the transfer and are allocated
between the loans sold and the residual interests and servicing assets,
collectively, the retained interests, based on their relative fair values at the
date of sale.  The Company estimates the fair value of these retained
interests using an income approach by determining the present value of expected
future cash flows using modeling techniques that incorporate management's best
estimates of key assumptions, including prepayment speeds, credit losses,
borrower benefits and discount rates.





Additional
information on the Company's securitization activities may be found in
Note 8.





Loans
Held for Sale





Loans
held for sale are loans that the Company plans to include in a future
securitization or sale. Management continually assesses its future
securitization and loan sale plans and transfers sufficient amounts of loans to
the held for sale portfolio to meet the Company’s anticipated near term sale
requirements. These loans are recorded at the lower of cost, consisting of
principal and deferred costs, or market value.  For the three month
periods ended March 31, 2008 and 2007, market value exceeded cost.
Accordingly, no valuation allowance was necessary.





Derivatives





The
Company endeavors to manage its exposure to interest rate changes through the
use of derivative financial products, including swaps and options. In addition,
the Company endeavors to manage its exposure to foreign currency exchange rates
on its foreign currency denominated secured borrowings through the use of cross
currency swaps. These derivatives are carried at fair value in Other assets or Other liabilities with changes
in fair value recorded currently in Fee and other
income.





Internally
Developed Software





Certain
direct costs associated with the development of internal use software are
capitalized. The Company capitalizes development costs for internal use software
in accordance with the provisions of Statement of Position 98-1,Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. These costs are
included in Other assets
and are amortized by the straight-line method over the service period, not to
exceed ten years.  Deferral of costs starts after the preliminary
project stage is completed and ends when the project is substantially complete
and ready for its intended use. Capitalized internally developed software costs
are periodically reviewed for obsolescence.  Capitalized costs of
projects deemed to be obsolete or abandoned are written off to operating
expense.





8


2.
            ACCOUNTING
      CHANGES





Elimination
of QSPEs and Changes in the FIN 46(R) Consolidation Model





During
April of 2008, the FASB voted to eliminate QSPE’s from the guidance in SFAS 140.
While the revised standard has not been finalized and the Board’s proposals will
be subject to a public comment period, this change may have a significant impact
on the Company’s Consolidated Financial Statements as the Company may lose sales
treatment for assets previously sold to a QSPE, as well as for future
sales.  This proposed revision could be effective as early as January
2009.


In
addition, the FASB has proposed three key changes to the consolidation model in
FIN 46(R).  First, the FASB will include former QSPE’s in the scope
FIN 46(R). Second, the proposed amendment to FIN 46(R) will change the method of
analyzing which party to a variable interest entity (VIE) should consolidate the
VIE to a qualitative determination of control instead of the current risks and
rewards model. Finally, the proposed amendment is expected to require all VIEs
and their primary beneficiaries to be reevaluated quarterly.  The
previous rules required reconsideration only when specified events
occurred.


The
Company will be evaluating the impact of these changes on its Consolidated
Financial Statements once the actual guidelines are provided.





Disclosures
about Derivative Instruments and Hedging Activities





In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities –


an amendment of FASB Statement No.
133, (SFAS 161). The standard requires enhanced disclosures about
derivative instruments and hedged items that are accounted for under SFAS No.
133, Accounting for Derivative
Instruments and Hedging Activities, as amended (SFAS 133) and related
interpretations. The standard will be effective for all of the Company’s interim
and annual financial statements for periods beginning after November 15, 2008,
with early adoption permitted. The standard expands the disclosure requirements
for derivatives and hedged items and has no impact on how the Company accounts
for these instruments.





3.
            STUDENT
      LOANS





The
Company’s portfolio of student loans consists primarily of loans originated
under government guaranteed loan programs, principally the FFEL Program, and
private education loans, primarily CitiAssist loans.





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





March
      31,
            
            December
      31,(Dollars in
      thousands)
            
            2008
            
            2007Federal
      Stafford Loans
            
            $
            9,912,641
            
            $
            8,687,483Federal
      Consolidation Loans
            
            
            6,516,310
            
            
            6,364,762Federal
      SLS/PLUS/HEAL Loans
            
            
            1,438,926
            
            
            1,192,028Private
      education loans
            
            
            5,522,037
            
            
            4,696,337Total
      student loans held, excluding deferred costs
            
            
            23,389,914
            
            
            20,940,610Deferred
      origination and premium costs
            
            
            721,954
            
            
            668,082Student
      loans held
            
            
            24,111,868
            
            
            21,608,692Less:
      allowance for loan losses
            
            
            (54,752
            )
            
            (42,115
            )Student
      loans held, net
            
            
            24,057,116
            
            
            21,566,577Loans
      held for sale, excluding deferred costs
            
            
            409,864
            
            
            331,263Deferred
      origination and premium costs
            
            
            8,059
            
            
            6,527Loans
      held for sale
            
            
            417,923
            
            
            337,790Other
      loans and lines of credit
            
            
            26,803
            
            
            87,437Total
      loan assets
            
            $
            24,501,842
            
            $
            21,991,804





9





4.          OTHER
ASSETS





Other
assets are summarized as follows:






March
      31,
            
            December
      31,(Dollars in
      thousands)
            
            2008
            
            2007Accrued
      interest receivablefrom
      student loan borrowers/others
            
            $
            735,524
            
            $
            649,219from
      federal government
            
            
            50,988
            
            
            106,686Servicing
      asset from securitization activity
            
            
            197,065
            
            
            199,112Collateral
      on derivatives with CBNA
            
            
            138,436
            
            
            86,699Restricted
      cash
            
            
            46,515
            
            
            –Equipment
      and computer software(1)
            
            
            33,686
            
            
            34,563Other
            
            
            87,907
            
            
            78,677Total
      other assets
            
            $
            1,290,121
            
            $
            1,154,956





(1)
            Amounts
      are reflected net of accumulated depreciation and software amortization of
      $57 million and $53 million at March 31, 2008 and December 31, 2007,
      respectively.





Accrued
interest receivable from the federal government decreased by $56 million or 52%
during the first quarter of 2008.  This decrease is primarily due to
the impact of declining interest rates, which reduced the special allowance
payments due from the federal government as well as increased the amount of
excess interest owed to the federal government.





The
Company enters into interest rate swaps and options in an effort to manage its
interest rate risk exposure.  The Company’s collateral on these
derivatives increased by $52 million or 60% as of March 31, 2008 from December
31, 2007 primarily as a result of declining interest rates.  For
further information on the Company’s derivative agreements, see Note
7.





During
March 2008, the Company completed its first on-balance sheet
securitization.  As a result the Company’s Consolidated Financial
Statements includes cash held by the trust, or restricted cash, which may be
used only for trust obligations.





5.
            FEE
      AND OTHER INCOME





Fee and
other income is summarized as follows:




Three
      Months Ended
              March
      31,(Dollars in
      thousands)
            
            2008
            
            2007Gains
      (losses) related to residual interests
            
            $
            70,419
            
            $
            (1,778
            )Mark-to-market
      (losses) gains on derivatives
            
            
            (72,420
            )
            
            258Servicing
      revenue net of valuation gains on servicing assets
            
            
            16,830
            
            
            11,636Foreign
      currency translation loss
            
            
            (4,770
            )
            
            –Late
      fees
            
            
            2,011
            
            
            2,032Other
      origination and servicing fees from CBNA
            
            
            1,732
            
            
            2,061Other
            
            
            (2,343
            )
            
            654Total
      fee and other income
            
            $
            11,459
            
            $
            14,863




10


6.
            RELATED
      PARTY TRANSACTIONS





Pursuant
to various intercompany agreements, a number of significant transactions are
carried out between the Company and Citigroup, CBNA and/or their affiliates.
Related party agreements with CBNA include an Omnibus Credit Agreement, a
tax-sharing agreement, student loan originations and servicing agreements, and
various derivative contracts.  In addition, the Company maintains a
trust agreement with CBNA through which it originates FFEL Program
loans.  Also, the Company has an agreement for education loan
servicing with Citibank (South Dakota), N.A.  Management believes that
the overall terms under which these transactions and services are provided are
no less favorable to the Company than those that could be obtained from
unaffiliated third parties.





Detailed
below is a description of, and amounts relating to, the Company’s transactions
with either CBNA or other Citigroup affiliates that have been reflected in the
accompanying Consolidated Statements of Income:





Three
      Months Ended
              March
      31,(Dollars
      in thousands)
            
            2008
            
            2007RevenuesInterest
      income
            
            $
            830
            
            $
            247Interest
      expense
            
            
            247,571
            
            
            284,886Fee
      and other income:Derivative
      valuation (loss) gain
            
            
            (76,831
            )
            
            258Other
      origination and servicing fees
            
            
            1,732
            
            
            2,061Operating
      ExpensesSalaries
      and employee benefitsEmployee
      benefits and administration
            
            $
            3,264
            
            $
            2,713Stock-based
      compensation
            
            
            1,078
            
            
            855Other
      expensesServicing,
      professional and other fees paid
            
            
            12,951
            
            
            11,790Data
      processing and communications
            
            
            1,533
            
            
            1,522Premises
            
            
            683
            
            
            753Other
            
            
            1,913
            
            
            768





CBNA
Omnibus Credit Agreement





All of
the Company’s outstanding short and long-term unsecured borrowings were incurred
under the terms of an Omnibus Credit Agreement with CBNA. This agreement
provides a maximum aggregate credit limit of $30 billion through December 31,
2009. Interest expense incurred under these borrowings is reflected in the table
above.





Interest
Rate Swap and Option Agreements





The
Company enters into interest rate swaps and options with CBNA, an
investment-grade counterparty, in an effort to manage its interest rate risk
exposure.  CBNA requires the Company to remit cash into a margin
account as collateral on these derivatives.  The Company’s collateral
on these derivatives increased to $138 million as of March 31, 2008 from $87
million as of December 31, 2007.  For further information on the
Company’s derivative agreements, see Note 7.





Student
Loan Origination Agreement and Servicing Fees Earned





CitiAssist
loans are originated and serviced under an intercompany agreement with
CBNA.  Following final disbursement by CBNA, the Company purchases all
qualified private education loans at CBNA’s carrying value at the time of
purchase, plus a contractual premium. Total principal balances of CitiAssist
loans purchased by the Company for the three months ended March 31, 2008 and
2007 were $960 million and $891 million, respectively. Total premiums paid by
the Company related to CitiAssist loan purchases were $6 million for the three
months ended March 31, 2008 and 2007. At March 31, 2008, the Company was
committed to purchase CitiAssist loans of $413 million.


11


Servicing,
Professional and Other Fees Paid





The
majority of the loan originations and servicing work on the Company’s FFEL
Program and CitiAssist loan portfolios was performed under the provisions of
intercompany agreements with affiliates of the Company, including Citibank
(South Dakota), N.A.  The increases in the charges are primarily due
to managed loan portfolio growth.





CBNA
Tax-sharing Agreement





The
Company is included in the consolidated federal income tax return of Citigroup,
as well as certain combined or unitary state/local income or franchise tax
returns of Citigroup or its subsidiaries.  As such, the Company pays
certain income taxes through CBNA. These tax apportionment expenses are based on
the Company’s effective tax rates determined on a stand-alone basis and are
reflected in the Company’s tax provision.




Other
Intercompany Arrangements





Citigroup
and its subsidiaries engage in other transactions and servicing activities with
the Company, including cash management, data processing, telecommunications,
payroll process and administration, facilities procurement and
others.






7.
            DERIVATIVE
      AGREEMENTS





The
Company enters into derivative agreements to help manage its exposure to
interest rate risk and its exposure to foreign currency exchange rates
fluctuations.  The counterparty to the Company’s interest rate
derivative agreements is CBNA, an investment grade company. None of the
derivatives held by the Company at March 31, 2008 were designated as hedges and
accordingly they did not qualify for hedge accounting treatment under SFAS
133.





The
Company’s derivative positions are provided in the table below:





March
      31, 2008
            
            December
      31, 2007Fair
      Value
            
            
            
            Fair
      Value(Dollars in
      thousands)
            
            Notional
            
            Asset
            
            Liability
            
            Notional
            
            Asset
            
            LiabilityLIBOR
      Based Swaps
            
            $
            12,363,900
            
            $
            29,877
            
            $
            23,738
            
            $
            8,495,000
            
            $
            34,492
            
            $
            2,113Interest
      Rate Floor Options
            
            
            12,176,824
            
            
            3,742
            
            
            173,514
            
            
            8,743,266
            
            
            1,372
            
            
            89,193Foreign
      Currency Swap
            
            
            232,050
            
            
            4,411
            
            
            –
            
            
            –
            
            
            –
            
            
            –





The
Company’s LIBOR based swaps are intended to economically hedge the interest rate
risk inherent in the Company’s retained interests. These swaps mature between
2009 and 2028.





The
Company’s interest rate floor options are derivative contracts that are designed
to function as economic hedges of the floor income component of the residual
interests. The options mature between 2011 and 2028.





The
Company’s foreign currency swap is intended to economically hedge the foreign
exchange translation on its foreign currency denominated secured debt. The swap
matures in 2032.





8.
            STUDENT
      LOAN SECURITIZATIONS





The
Company maintains programs to securitize certain portfolios of student loan
assets.   Under the Company’s securitization programs,
transactions qualifying as sales are off-balance sheet transactions in which the
loans are removed from the Consolidated Financial Statements of the Company and
sold to an independent trust. In order to pay for the loan assets, the trust
sells debt securities, backed by the student loan assets, to outside
investors.





The
Company also enters into similar securitization transactions that do not qualify
for sale treatment and accordingly, are accounted for as secured
borrowings.  These transactions do not give rise to a gain or loss on
sale.


12


The
following table summarizes the Company’s securitization activity. The
transaction in the first quarter of 2008 did not qualify for sales treatment and
is referred to as a secured borrowing:





Three
      Months EndedMarch
      31,(Dollars
      in thousands)
            
            2008
            
            2007Securitization
      financings:Student
      loans securitized during the period
            
            $
            1,993,213
            
            $
            –Net
      proceeds from student loans securitized during the period (1)
            
            
            1,526,211
            
            
            –





(1)Thedifference between student loans
      securitized and net proceeds primarily reflects $337 million of unissued
      debt and $130 million of required additional collateral, see Note
      10.





The
following table reflects amounts received from off-balance sheet securitization
trusts:





Three
      Months EndedMarch
      31,(Dollars
      in thousands)
            
            2008
            
            2007Cash
      received from trusts for servicing
            
            $
            18,932
            
            $
            14,906Cash
      received from trusts on residual interests
            
            
            24,326
            
            
            13,130





The
following table reflects receivables and payables related to the Company’s
off-balance sheet securitization trusts:





(Dollars
      in thousands)
            
            March
      31, 2008
            
            December
      31, 2007Receivable
      from trusts for servicing
            
            $
            6,216
            
            $
            6,356Payable
      to trusts for student loan payments received
            
            
            14,416
            
            
            17,249




During
the three month periods ended March 31, 2008 and 2007, the Company earned $19
million and $17 million, respectively, of revenue for servicing the trust
portfolios.




Changes
in the Company’s servicing assets are presented in the table below:





Three
      Months EndedMarch
      31,(Dollars
      in thousands)
            
            2008
            
            2007Balance
      at beginning of period
            
            $
            199,112
            
            $
            169,234Changes
      in fair value due to changes in inputs and
              assumptions
            
            
            6,918
            
            
            3,126Other
      changes(1)
            
            
            (8,965
            )
            
            (7,993
            )Balance
      at end of period
            
            $
            197,065
            
            $
            164,367




(1)       Amounts
represent the effects of cash received and the passage of
time.




The
Company routinely refines its estimates used to value its retained interests as
future events may deviate from forecasts. Such estimates, while based on
relevant observable data, inherently involve significant judgment and
uncertainty.


13


The key
assumptions used to value the residual interests for the off-balance sheet
securitization trusts were as follows:





March
      31, 2008
            
            
            December
      31, 2007Weighted
      average discount rate:FFEL
      Program Consolidation Loans
            
            11.00
            %
            
            10.56
            %Private
      education loans
            
            13.00
            %
            
            12.56
            %Constant
      prepayment rates:FFEL
      Program Consolidation Loans
            
            1.45%
      to 2.82
            %
            
            1.73%
      to 3.09
            %Private
      education loans
            
            11.53
            %
            
            13.03
            %Anticipated
      credit losses, net of insurance and guarantees:FFEL
      Program Consolidation Loans
            
            0.31
            %
            
            0.30
            %Private
      education loans
            
            0.71
            %
            
            0.81
            %Expected
      basis spread between LIBOR and Commercial Paper rate
            
            12.3
      basis points
            
            
            12.0
      basis pointsUtilization
      rate of borrower benefits:Automated
      clearing house
            
            10.0%
      to 40.1
            %
            
            10.0%
      to 40.2
            %On
      time payments
            
            0%
      to 41.6
            %
            
            0%
      to 41.3
            %




The key
assumptions used to value the servicing assets for the off-balance sheet
securitization trusts were as follows:





March
      31, 2008
            
            
            December
      31, 2007Weighted
      average discount rate:FFEL
      Program Consolidation Loans
            
            5.39
            %
            
            5.80
            %Private
      education loans
            
            5.89
            %
            
            6.30
            %Constant
      prepayment rates:FFEL
      Program Consolidation Loans
            
            1.45%
      to 2.82
            %
            
            1.73%
      to 3.09
            %Private
      education loans
            
            11.53
            %
            
            13.03
            %Weighted
      average servicing margin
            
            24.0
      basis points
            
            
            25.0
      basis points





A
sensitivity analysis is provided in the table below that shows the effects of
adverse changes in each of the key assumptions used to determine the fair value
of the retained interests.  The adverse effect of the change in each
assumption is calculated independently while holding all other assumptions
constant.  Because the key assumptions may not be independent, the net
effect of simultaneous adverse changes in the key assumptions may be different
from the sum of the individual effects shown in the table.





The
effects of the key assumptions on the residual interests and servicing assets
are presented below:





(Dollars
      in thousands)
            
            Residual
      Interests
            
            Servicing
      AssetsFair
      value at March 31, 2008
            
            $
            694,839
            
            $
            197,065Discount
      rate10%
      adverse change
            
            
            (21,558
            )
            
            (4,598
            )20%
      adverse change
            
            
            (41,710
            )
            
            (9,003
            )Constant
      prepayment rate10%
      adverse change
            
            
            (9,118
            )
            
            (2,955
            )20%
      adverse change
            
            
            (17,975
            )
            
            (5,866
            )Anticipated
      net credit losses/defaults10%
      adverse change
            
            
            (6,143
            )
            
            (1,220
            )20%
      adverse change
            
            
            (12,292
            )
            
            (2,424
            )Basis
      spread10%
      adverse change
            
            
            (6,119
            )
            
            –20%
      adverse change
            
            
            (12,238
            )
            
            –Borrower
      benefits – ACH10%
      adverse change
            
            
            (3,466
            )
            
            –20%
      adverse change
            
            
            (6,795
            )
            
            –Borrower
      benefits – on time payments10%
      adverse change
            
            
            (10,932
            )
            
            –20%
      adverse change
            
            
            (21,843
            )
            
            –Servicing
      margin10%
      adverse change
            
            
            –
            
            
            (19,290
            )20%
      adverse change
            
            
            –
            
            
            (38,402
            )


14


Principal
amounts of on-balance sheet loans, off-balance sheet securitized loans and the
related loan delinquencies (loans which are 90 days or more past due) are
presented in the following table:





(Dollars
      in thousands)
            
            March
      31, 2008
            
            
            December
      31, 2007Principal
      amounts, at period endOn-balance
      sheet loans (1)
            
            $
            24,556,594
            
            
            $
            22,033,919Off-balance
      sheet securitized loans
            
            
            13,818,207
            
            
            
            14,123,887Total(1)
            
            $
            38,374,801
            
            
            $
            36,157,806Delinquencies,
      at period endOn-balance
      sheet loans (1)
            
            $
            777,781
            
            
            $
            720,408Off-balance
      sheet securitized loans
            
            
            388,694
            
            
            
            413,175Total
            
            $
            1,166,475
            
            
            $
            1,133,583


(1) Amounts
include loans held for sale.





Credit
losses, net of recoveries, for the Company’s on-balance sheet loans and
off-balance sheet securitized loans are presented in the table
below:





Three
      Months EndedMarch
      31,(Dollars
      in thousands)
            
            2008
            
            2007Credit
      losses, net of recoveries:On-balance
      sheet loans
            
            $
            12,675
            
            $
            3,870Off-balance
      sheet securitized loans
            
            
            1,808
            
            
            662Total
            
            $
            14,483
            
            $
            4,532







9.
            FAIR
      VALUE (SFAS 156, 157 AND 159)





The
Company determines fair value using valuation techniques that are based upon
observable and unobservable inputs. Observable inputs reflect market data
obtained from independent sources, while unobservable inputs reflect the
Company’s market assumptions. These two types of inputs create the following
fair value hierarchy:





·
            Level
      1 –
            Quoted
      prices for identical instruments
      in active markets.·
            Level
      2 –
            Quoted
      prices for similar instruments in
      active market, quoted prices for identical or similar instruments in
      markets that are not active; and, model derived valuations whose inputs
      are observable or whose primary value drivers are
    observable.·
            Level
      3 –
            Instruments
      whose primary value drivers are unobservable.





The
following table presents the Company’s financial assets and liabilities that are
measured at fair value on a recurring basis for each of these hierarchy
levels:





(Dollars
      in thousands)
            
            Level
      2
            
            Level
      3AssetsResidual
      interests in securitized loans
            
            $
            –
            
            $
            694,839Other
      assets
            
            
            59,378
            
            
            197,065Total
      Assets
            
            $
            59,378
            
            $
            891,904LiabilitiesOther
      liabilities
            
            $
            197,252
            
            $
            –


15






Derivatives





Derivatives
are used in an effort to manage interest rate and foreign currency exchange rate
risk. Fair value was based upon quotes received from counterparties. Derivatives
are recorded at fair value and are included in Other assets and Other liabilities in the table
above and on the Consolidated Financial Statements. For more information on
derivatives, see Note 7.





Retained
Interests in Securitized Loans





The fair
values of the retained interests in securitized loans, including residual
interests and servicing assets, were determined using discounted cash flow
models. Servicing assets are included in Other assets in the table
above. Retained interests are recorded at fair value on the Consolidated
Financial Statements.  For more information on loan securitizations,
see Note 8.




The
following table presents the changes in the Level 3 fair value
category:





(Dollars
      in thousands)
            
            Residual
      Interests
              in
      Securitized Loans
            
            Other
      AssetsBalance
      at December 31, 2007
            
            $
            633,074
            
            $
            199,112Net
      unrealized gains (1)
            
            
            86,091
            
            
            9,685Issuances
      and settlements
            
            
            (24,326
            )
            
            (11,732
            )Balance
      at March 31, 2008
            
            $
            694,839
            
            $
            197,065





(1)
            Amounts
      include, as applicable, accreted interest which is included in Interest
      income and other unrealized gains and losses which are included in
      Fee
      and other incomein the Consolidated Statements of
      Income.





10.
            SHORT
      AND LONG-TERM BORROWINGS





At March
31, 2008 and December 31, 2007, the Company had borrowings under the terms of an
Omnibus Credit Agreement with CBNA, which expires in December 2009. The maximum
aggregate credit limit available for combined short and long-term borrowings was
$30 billion at March 31, 2008. Under the Omnibus Credit Agreement, the cost of
funding is negotiated on a borrowing-by-borrowing basis. The Omnibus Credit
Agreement contains no material financial covenants or restrictions, though it
terminates and all outstanding borrowings thereunder become due and payable if
less than 50% of the voting equity interest in the Company is owned or
controlled by CBNA or any of Citigroup’s subsidiaries.  Each one to
three months, the rates reset on all LIBOR and prime based borrowings. At March
31, 2008, the amount of credit available for additional short and long-term
borrowings under the Omnibus Credit Agreement was approximately $7.5
billion.





In March
2008, the Company issued $1.6 billion of secured debt through an on-balance
sheet securitization.  An additional $0.3 billion of notes associated
with the transaction were retained by the Company and remain available for
issuance.  The total authorized debt of $1.9 billion is collateralized
by $2.0 billion of FFEL Program Consolidation Loans.  Principal
payments on this secured debt are made as funds are collected on the
collateralized loans.





Approximately
$4.5 billion of the Company’s outstanding short and long-term debt includes
derivatives embedded in the respective debt instruments. These embedded
derivatives have been determined to be clearly and closely related to the
underlying debt instruments and, in accordance with SFAS No. 133, do not require
bifurcation. Management considers these options as economic hedges to the floor
income component of its assets.





11.
            COMMITMENTS
      AND CONTINGENCIES





In the
ordinary course of business, the Company is involved in various litigation
proceedings incidental to and typical of the business in which it is
engaged.  In the opinion of the Company’s management, the ultimate
resolution of these matters would not be likely to have a material adverse
effect on the results of the Company’s operations, financial condition or
liquidity.





Since
March 2007, the Company has been responding to and cooperating with a number of
inquiries into the student loan industry. Several U.S. Congressional committees
and the U.S. Department of Education commenced investigations of the student
loan industry. The Company has responded to requests for certain information and
documents in connection with these investigations. Additionally, the offices of
various states’ attorneys general and certain federal authorities have also
conducted investigations and/or have served formal or informal requests for
information upon the Company.


16


Item
      2.  Management's Discussion and Analysis of Financial Condition
      and Results of Operations





The
following discussion should be read in conjunction with the accompanying
Unaudited Consolidated Financial Statements and Notes and The Student Loan
Corporation’s (the Company) 2007 Annual Report and Form10-K.





Certain
of the statements in the Management’s Discussion and Analysis are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act.  See Forward-Looking Statements on
page 28.





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





Business Overview – a general
description of the Company’s business and the impacts of market conditions on
the business.





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





Accounting Changes and Future
Application of Accounting Standards– a summary of new accounting
standards.





Financial Condition – a
discussion and analysis of the Company’s products, disbursement and procurement
activity, allowance for loan losses and private education loans.





Results of Operations – an
analysis of the Company’s results of operations for the three months ended March
31, 2008 and 2007.





Liquidity and Capital
Resources – an analysis of historical information regarding sources and
uses of cash and capital obligations.





Regulatory Impacts – a
discussion of legislative activities that affect the student loan
industry.








Business
Overview





The
Company is one of the nation’s leading originators and holders of student loans
offering a full array of student loan products to students and their parents.
The majority of the Company’s loans are guaranteed under the Federal Family
Education Loan (FFEL) Program, authorized by the U.S. Department of Education
(the Department) under the Higher Education Act of 1965, as amended (the Higher
Education Act). The Company originates, manages and services FFEL Program loans
through a trust agreement with Citibank, N.A. (CBNA), an indirect wholly owned
subsidiary of Citigroup Inc. (Citigroup) and the Company’s principal
shareholder. The Company also originates through CBNA and holds private
education loans that are not insured under the FFEL Program, including
CitiAssist loans and Private Consolidation loans. The Company is committed to
providing exceptional service to borrowers and schools and offering competitive
and innovative products to students and their families. The Company
differentiates itself from its competitors by offering life of loan servicing on
most loans.





The
Company was incorporated in Delaware on November 4, 1992 and commenced
operations on December 22, 1992. CBNA owns 80% of the Company’s common
stock.





The
earnings of the Company are primarily generated by the spread between the
interest earned on its loan assets (based on the 90-day Commercial Paper rate,
the prime rate, or the 91-day Treasury Bill rate) and the interest paid on its
borrowings (primarily based on LIBOR).  The earnings spread between
the interest earned and the interest expense incurred represents net interest
income. Net interest income is impacted by spread changes between the 90-day
Commercial Paper rate, the prime rate or the 91-day Treasury Bill rate and
LIBOR, utilization rates of borrower benefits as well as portfolio growth or
contraction.  The Company regularly monitors interest rates and may
enter into interest rate derivative agreements on portions of its portfolio in
response to interest rate fluctuations.





Loan
securitizations and whole loan sales contribute significantly to the Company’s
earnings.  From year to year, the Company’s earnings are impacted by
the number, size and pricing of asset sales and securitizations.  Each
of these factors varies from period to period based on market conditions and the
Company’s operational strategies.





17


The
Company’s earnings are also impacted by valuation changes on its retained
interests from off-balance sheet securitizations, which fluctuate based on
factors such as interest rate changes, prepayment and default rates and
regulatory changes.  Other factors that may impact earnings are loan
servicing revenue and loan servicing costs, changes in applicable laws and
regulations, alternative financing options available to students and their
parents, and competition.




The
Company currently funds its loan originations primarily through borrowings under
the Omnibus Credit Agreement with CBNA and loan
securitizations.  Under the Omnibus Credit Agreement, the cost of
funding is negotiated on a borrowing-by-borrowing basis. Due to dislocation and
illiquidity in the credit markets, the interest rates on the Company’s most
recent borrowings under the Omnibus Credit Agreement as well as the interest
rates realized on securitizations have increased considerably. These increases
in funding costs combined with the impact of the College Cost Reduction and
Access Act (CCRA Act) have negatively affected the Company’s
profitability.  In response to these changes, the Company announced on
April 16, 2008 that it would suspend lending at certain schools where loans with
lower balances and shorter interest-earning periods currently result in
unsatisfactory financial returns.  In addition, the Company announced
that it would temporarily withdraw from the FFEL Program Consolidation Loan
market.  The Company will evaluate returning to these schools and
resume offering FFEL Program Consolidation Loans if market conditions
improve.





Critical
Accounting Estimates





Certain
accounting estimates made by management are considered to be important to the
portrayal of the Company’s consolidated financial condition. Since management is
required to make difficult, complex or subjective judgments and estimates,
actual results could differ from those estimates. The most significant of these
critical estimates and judgments are those used to account for student loan
securitizations and allowance for loan losses which are described in the
Company’s 2007 Annual Report and Form 10-K. There were no material changes to
the Company’s critical accounting estimates in the first three months of
2008.





Accounting
Changes and Future Application of Accounting Standards





See Note
2 to the Consolidated Financial Statements for a discussion of Accounting
Changes.





Financial
Condition





Loans





At March
31, 2008, the Company’s student loan assets were comprised of FFEL Program
loans, private education loans, an inventory of loans held for sale and
related deferred costs. See Note 3 to the Consolidated Financial Statements for
a presentation of the loan portfolio by program type.





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





Ending
      Balances(Dollars
      in millions)
            
            March
      31, 2008
            
            December
      31, 2007Owned
      loans
            
            $
            24,557
            
            $
            22,034Managed
      loans
            
            
            39,126
            
            
            37,311








Year
      to Date Average Balances(Dollars
      in millions)
            
            March
      31, 2008
            
            December
      31, 2007Owned
      loans
            
            $
            23,319
            
            $
            22,825Managed
      loans
            
            
            38,708
            
            
            36,109





Loan
Disbursements and Procurement Activity





The
Company makes loans through retail, direct-to-consumer and wholesale channels.
The retail channel represents loan activity directed by the Company’s retail
sales force and is initiated primarily through the Company’s relationships with
schools and universities. Retail volume consists primarily of FFEL Program
Stafford and PLUS Loans and CitiAssist loans. Loan consolidations and other
secondary market volume represent loan activity initiated outside the retail
channel, through activities such as direct marketing to consumers or purchases
of loans originated by other lenders and includes all loan types.


18


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





Three
      Months EndedMarch
      31,(Dollars
      in millions)
            
            2008
            
            2007
            
            Difference
            
            %
      ChangeRetail:FFEL
      Program Stafford and PLUS loan disbursements
            
            $
            1,894
            
            $
            1,512
            
            $
            382
            
            25
            %CitiAssist
      loans disbursed under commitments to purchase (1)
            
            
            649
            
            
            712
            
            
            (63
            )
            (9
            )%Total
      Retail
            
            
            2,543
            
            
            2,224
            
            
            319
            
            14
            %Loan
      consolidation and other secondary market volume
            
            
            541
            
            
            566
            
            
            (25
            )
            (4
            )%Total
      Originations
            
            $
            3,084
            
            $
            2,790
            
            $
            294
            
            11
            %





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





The FFEL
Program loan disbursements increase of $382 million during the first three month
period of 2008 compared to the same period of 2007, which the Company believes
is primarily attributable to the Company’s marketing initiatives, overall growth
in the marketplace and a shift in volume to the Graduate PLUS loan product from
CitiAssist loans.  The Graduate PLUS Loan program, introduced in 2006,
was the primary driver of the $63 million decrease in CitiAssist loan
disbursements during the first three months of 2008 compared to the same period
in 2007.





In
response to the dislocation in the capital markets and recent federal
legislation, the Company has recently curtailed some of its less profitable
retail, wholesale and FFEL Program Consolidation Loan origination
activities.  Although this recent curtailment could result in a
reduction in overall originations, the Company believes it may experience some
growth in markets in which the Company continues to operate as competitors exit
these segments.





In order
to comply with certain legal and regulatory requirements, private education
loans are originated by CBNA through an intercompany
agreement.  Following final disbursement, the Company purchases all
private education loans from CBNA.  At March 31, 2008 and December 31,
2007, the private education loans disbursed and still held by CBNA were $377
million and $669 million, respectively.





Approximately
half of the loan consolidation and other secondary market volume presented in
the table above for 2008 and 2007 represent consolidations of student loans
already held in the Company’s loan portfolio.





Generally,
loans are not specifically purchased or originated for resale, and accordingly
are recorded in the Company’s held portfolio.  However, as sales
opportunities present themselves, certain of these loan purchases or
originations may be reclassified as held for sale.





Allowance
for loan losses





The
Company’s allowance for loan losses and current period provision for loan loss
expense increased significantly compared to the prior year. The increase was
primarily driven by the continued seasoning of the uninsured CitiAssist
portfolio as well as an increase in the amount of higher risk loans made to
students attending proprietary schools entering repayment. In addition, the
elimination of the Exceptional Performer program as of October 1, 2007 also
negatively impacted the allowance for loan losses.  See Regulatory Impacts on page 25
for further information about the College Cost Reduction and Access Act (CCRA
Act), which eliminated the Exceptional Performer program.





19


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





Three
      Months EndedMarch
      31,(Dollars
      in thousands)
            
            2008
            
            2007Balance
      at beginning of periodFFEL
      Program
            
            $
            12,312
            
            $
            6,911CitiAssist
      Insured
            
            
            3,214
            
            
            721CitiAssist
      Uninsured
            
            
            26,589
            
            
            6,565$
            42,115
            
            $
            14,197Provision
      for loan lossesFFEL
      Program
            
            $
            4,205
            
            $
            3,824CitiAssist
      Insured
            
            
            3,484
            
            
            1,392CitiAssist
      Uninsured
            
            
            17,623
            
            
            5,312$
            25,312
            
            $
            10,528Charge
      offsFFEL
      Program
            
            $
            (3,276
            )
            $
            (1,198
            )CitiAssist
      Insured
            
            
            (1,367
            )
            
            (343
            )CitiAssist
      Uninsured
            
            
            (10,107
            )
            
            (3,648
            )$
            (14,750
            )
            $
            (5,189
            )RecoveriesFFEL
      Program
            
            $
            –
            
            $
            –CitiAssist
      Insured
            
            
            –
            
            
            –CitiAssist
      Uninsured
            
            
            2,075
            
            
            1,319$
            2,075
            
            $
            1,319Balance
      at end of periodFFEL
      Program
            
            $
            13,241
            
            $
            9,537CitiAssist
      Insured
            
            
            5,331
            
            
            1,770CitiAssist
      Uninsured
            
            
            36,180
            
            
            9,548$
            54,752
            
            $
            20,855





Private
Education Loans in Repayment





The
Company’s private education loan portfolio is not guaranteed by the federal
government. Although private education loans do not carry a federal government
guarantee, the Company has purchased private insurance on certain of these loans
through either Arrowood Indemnity Company (Arrowood), or United Guaranty
Commercial Insurance Company of North Carolina/New Hampshire Insurance Company
(UGCIC/NHIC).  Arrowood is a part of Arrowpoint Capital Corp.
UGCIC/NHIC are subsidiaries of American International Group (AIG).





These
insurance providers insure the Company against loss in cases of borrower loan
default, bankruptcy or death.  Under the Arrowood program, private
education loans that are submitted for default claim are generally subject to a
risk-sharing deductible of 5% of the sum of the outstanding principal and
accrued interest balances. Under the UGCIC/NHIC program, defaults are generally
subject to risk-sharing deductibles between 10% and 20% of the claim
amounts.  UGCIC/NHIC insured most of the Company’s new private
education loan originations during 2006 and 2007.  UGCIC is rated Aa2
/ Negative by Moody’s and NHIC is rated AA+ / Negative by Standard & Poor’s
as of March 31, 2008. Arrowood is not rated and carries a higher risk that it
will be unable to fulfill its contractual obligations under these insurance
agreements.




20


For
UGCIC/NHIC insured loans originated since the second quarter of 2003, the
Company is insured for losses up to contractual maximum portfolio loss limits
that range from 12.5% to 13.5%. If cumulative portfolio losses exceed these
limits, the Company is exposed to 100% of subsequent losses. The Company does
not expect to exceed these maximum portfolio loss limits. For loans insured
during 2005 and 2006, the insurance premium is calculated under an
experience-rated plan, which may require limited additional premium payments to
be made in the future should performance be worse than the established
parameters. The Company elected to stop insuring new CitiAssist loans originated
on or after January 1, 2008. The Company expects that the increased loan losses
will be more than offset by decreases in insurance premiums paid. Private
education loan defaults impact earnings through charge offs and increased
servicing and collection costs.





Information
on private education loans, including delinquency and insurance coverage, are
shown in the table below:





March
      31,
            
            
            December
      31,2008
            
            
            2007(Dollars
      in thousands)
            
            Insured
            
            
            Uninsured
            
            
            Total
            
            
            Insured
            
            
            Uninsured
            
            
            TotalTotal
      private education loans
            
            $
            4,489,191
            
            
            $
            1,032,846
            
            
            $
            5,522,037
            
            
            $
            3,869,945
            
            
            $
            826,392
            
            
            $
            4,696,337Private
      education loans in repayment
            
            
            1,468,870
            
            
            
            529,626
            
            
            
            1,998,496
            
            
            
            1,443,110
            
            
            
            494,093
            
            
            
            1,937,203Private
      education loans in forbearance (1)
            
            
            226,894
            
            
            
            41,061
            
            
            
            267,955
            
            
            
            147,243
            
            
            
            22,841
            
            
            
            170,084Percent
      of private education loans that are delinquent 30 - 89
days
            
            
            2.6
            %
            
            
            3.6
            %
            
            
            2.8
            %
            
            
            2.4
            %
            
            
            3.8
            %
            
            
            2.8
            %Percent
      of private education loans that are delinquent 90 days or
    more
            
            
            2.0
            %
            
            
            1.5
            %
            
            
            1.9
            %
            
            
            1.3
            %
            
            
            1.0
            %
            
            
            1.2
            %Allowance
      for loan losses
            
            $
            5,331
            
            
            $
            36,180
            
            
            $
            41,511
            
            
            $
            3,214
            
            
            $
            26,589
            
            
            $
            29,803Private
      education loans covered by risk-sharing agreements with
      schools
            
            
            –
            
            
            
            492,224
            
            
            
            492,224
            
            
            
            –
            
            
            
            493,296
            
            
            
            493,296




(1)  Changes
from December 31, 2007 to March 31, 2008 were due primarily to seasonality and
loans entering repayment.




Of the
$1,033 million in uninsured loans at March 31, 2008, the Company views
approximately $185 million of the amount as higher risk loans made to students
attending proprietary schools.  Most of these higher risk loans do not
follow the Company’s traditional underwriting process.





A portion
of the uninsured loans are covered by risk-sharing agreements with schools and
universities. Under these programs, the school or university takes on a portion
of the Company’s credit exposure for the covered loans. The risk-sharing
agreements generally take one of two forms: i) the school reimburses the Company
for a specified percentage of losses of 50% to 100% when the losses exceed an
agreed upon threshold ranging from 0% to 9% or ii) the school pays 20% to 30% of
the total disbursed amount to compensate for future expected
losses.  Although this reduces the Company’s overall risk, these
programs generally transfer less risk than private insurance coverage. Of the
$185 million of higher risk loans, $84 million are covered under the
risk-sharing agreements described above.




21


Results
of Operations





Factors
Affecting Net Interest Income





Net
Interest Margin Spread Analysis




The
following table analyzes the components of net interest income for the Company’s
on-balance sheet portfolio:





Three
      months endedMarch
      31,2008
            
            
            2007Student
      loan yield
            
            5.98
            %
            
            7.35
            %Consolidation
      loan rebate fees
            
            (0.29
            )%
            
            (0.44
            )%Accreted
      interest on residual interests
            
            0.26
            %
            
            0.25
            %Amortization
      of deferred loan origination and purchase costs
            
            (0.43
            )%
            
            (0.49
            )%Net
      yield
            
            5.52
            %
            
            6.67
            %Cost
      of funds (1)
            
            (4.16
            )%
            
            (5.02
            )%Net
      interest margin
            
            1.36
            %
            
            1.65
            %





(1)  Cost of
funds was calculated by dividing interest expense by average interest bearing
assets.




The
Company’s net interest margin is affected by a variety of factors, including the
interest rate environment, regulatory actions and competition. Most FFEL Program
loans qualify for special allowance payments (SAP) from the federal government.
Whenever the stated interest rate on these FFEL Program loans provides less than
prescribed rates of return, as defined by the Higher Education Act, the federal
government makes a special allowance payment.  For loans originated on
or after April 1, 2006, the Company must return excess interest to the federal
government.  The CCRA Act reduced SAP for new loans originated on or
after October 1, 2007.  The impact of this reduction in SAP will be
gradual as the amount of loans originated after October 1, 2007 increases
relative to the Company’s overall portfolio. See Regulatory Impacts on page 25
for information on the CCRA Act.





The
Company’s cost of funds is primarily based on LIBOR plus an incremental credit
spread.  The effect of increasing or decreasing LIBOR rates combined
with increasing or decreasing credit spreads affect the Company’s overall
interest expense.  LIBOR rates on the Company’s debt reset
periodically while credit spreads are typically fixed based on market rates at
the time of borrowing.





In
contrast, the Company’s student loan yield is either based on Commercial Paper
or Treasury rates (FFEL Program loans) or the Prime rate (private education
loans) plus an incremental credit spread.  The Company has the ability
to set credit spreads on its private education loans to reflect current market
conditions at origination.  However, credit spreads earned on FFEL
Program loans are prescribed under the Higher Education Act.





The
credit spreads on the Company’s most recent borrowings under the Omnibus Credit
Agreement and on the most recent securitization have increased considerably.
Because credit spreads on FFEL Program loans cannot be adjusted to reflect
current market conditions these increases will cause net interest margin
compression.  This is due to the Company originating FFEL Program
loans with pre-determined credit spreads while borrowing at higher interest
rates under the current market conditions.  While this has not had a
material effect on the Company through the end of the first quarter, it is
expected to adversely impact results in 2008.





The
Company’s net interest margin decreased during the three month period ended
March 31, 2008 compared to the same period last year primarily due to rapidly
declining interest rates, which impacted assets more quickly than liabilities
and reduction in interest income due to the enactment of the CCRA
Act.





At March
31, 2008 and 2007, the outstanding borrowings had contractual weighted average
interest rates of 3.9% and 5.3%, respectively.


22
 Rate/Volume
Analysis





The
following table shows the contribution year-over-year to changes in net interest
income (interest income less interest expense) due to changes in both the
weighted average balances and interest rates of loan assets and funding
liabilities:




For
      the three months ended March 31, 2008 vs.
              the
      three months ended March 31, 2007Increase
      (decrease) due to change in:(Dollars
      in millions)
            
            Volume
            
            Rate
            
            NetInterest
      earning assets
            
            $
            16
            
            $
            (65
            )
            $
            (49
            )Interest
      bearing liabilities
            
            
            15
            
            
            (52
            )
            
            (37
            )Net
      interest income
            
            $
            1
            
            $
            (13
            )
            $
            (12
            )


Three
Months Ended March 31, 2008





The
Company’s comparisons of financial highlights are as follows:


Three
      Months Ended
            
            
            Favorable
            
            
            FavorableMarch
      31,
            
            
            (Unfavorable)
            
            
            (Unfavorable)(Dollars
      in thousands)
            
            2008
            
            
            2007
            
            
            Change
            
            
            %
      ChangeNet
      interest income
            
            $
            81,447
            
            
            $
            93,757
            
            
            $
            (12,310
            )
            
            (13
            )%Provision
      for loan losses
            
            
            (25,312
            )
            
            
            (10,528
            )
            
            
            (14,784
            )
            
            (140
            )%Gains
      on loans sold
            
            
            1,455
            
            
            
            17,774
            
            
            
            (16,319
            )
            
            (92
            )%Fee
      and other income
            
            
            11,459
            
            
            
            14,863
            
            
            
            (3,404
            )
            
            (23
            )%Operating
      expenses
            
            
            44,135
            
            
            
            44,198
            
            
            
            63
            
            
            0
            %Income
      taxes
            
            
            9,680
            
            
            
            27,645
            
            
            
            17,965
            
            
            65
            %Net
      income
            
            $
            15,234
            
            
            $
            44,023
            
            
            $
            (28,789
            )
            
            (65
            )%Total
      operating expenses as a percentage of average managed student
      loans
            
            
            0.46
            %
            
            
            0.49
            %
            
            
            0.03
            %Return
      on average equity
            
            
            3.8
            %
            
            
            11.4
            %
            
            
            (7.6
            )%Effective
      tax rates
            
            
            38.9
            %
            
            
            38.6
            %
            
            
            (0.3
            )%





Net
interest income





Net
interest income of $81 million for the three months ended March 31, 2008
decreased by $12 million or 13% as compared to the same period of 2007. The net
interest margin for the quarter was 1.36%, which was a 29 basis point decrease
from the same period of 2007. This decrease was primarily driven by rapidly
declining interest rates, which impacted assets more quickly than liabilities,
and also included a $2 million reduction in interest income due to the enactment
of the CCRA Act. This decrease was partially offset by higher average loan
balances. See
Factors
Affecting Net Interest Income on page 22 for further
information.





Gains
on loans sold





During
the three month period ended March 31, 2008, the Company sold $53 million of
student loans as compared to $708 million during the same period of the prior
year. The $655 million reduction in loan sales volume was due to the dislocation
and illiquidity in the credit markets, which began in the second half of 2007
and continued during the first quarter of 2008.





Fee
and other income





The
decrease in fee and other income was primarily due to losses on the Company’s
derivatives offset by a gain on the fair market value of its residual
interests. The Company also had losses of $5 million related to the foreign
exchange translation on its foreign currency denominated secured debt which was
generated as a result of the on-balance sheet securitization during March
2008.  See Critical
Accounting Estimateson page 18 and Note 8 to the Consolidated
Financial Statements for further information regarding the retained interests in
off-balance sheet securitized assets and the effect of changes in each of the
key assumptions used to determine the fair value of the retained interests. For
more information on the Company’s derivative agreements, see Note 7 to the
Consolidated Financial Statements.


23


Operating
expenses
  Total
operating expenses for the three months ended March 31, 2008 was unchanged from
the same period of 2007.  The Company’s operating expense ratio for
the three months ended March 31, 2008 was 0.46%, three basis points lower than
the same period of 2007.
  Provision for loan
losses


The
increase in provision for loan losses was driven by the continued seasoning of
the uninsured CitiAssist portfolio as well as an increase in the amount of
higher risk loans made to students attending proprietary schools entering
repayment. In addition, the elimination of the Exceptional Performer program as
of October 1, 2007 caused an increase in the provision.  The Company
expects that these conditions will continue to impact the provision for loan
losses through the remainder of the year.





Income
taxes





The
Company is included in the consolidated federal income tax return of Citigroup,
and is also included in certain combined or unitary state/local income or
franchise tax returns of Citigroup or its subsidiaries.  The increase
in the tax rate was primarily due to the impact of changes in certain state tax
apportionments and the change in a state statutory tax rate.





Securitization
Activity and Off-Balance Sheet Transactions





The
Company securitizes student loans through trusts, which are established to
purchase the loans sold and provide liquidity through the issuance of asset back
securities.  The Company relies on securitizations to fund a
significant portion of its new loan origination activity.  The Company
generally retains a residual interest as well as the servicing rights in the
securitized loans.





The
Company completed one securitization transaction in the three month period ended
March 31, 2008, which was accounted for as an on-balance sheet secured
borrowing. There were no securitizations during the same period of the
prior year.





The
following table reflects activities related to the Company’s on-balance sheet
securitization:


Three
      Months EndedMarch
      31,(Dollars
      in millions)
            
            2008
            
            2007Student
      loans securitized
            
            $
            1,993
            
            $
            –Net
      proceeds from student loans securitized (1)
            
            
            1,526
            
            
            –





(1)
            Thedifference
      between student loans securitized and net proceeds primarily reflects $337
      million of
              unissued
      debt and $130 million of required additional collateral, see Note
      10.





The
following table reflects balances related to all of the Company’s
securitizations:




(Dollars
      in millions)
            
            March
      31, 2008
            
            
            December
      31, 2007Total
      off-balance sheet student loans securitized (1)
            
            $
            13,818
            
            
            $
            14,124Total
      on-balance sheet student loans securitized (2)
            
            
            1,992
            
            
            
            –Total
      secured borrowings related to on-balance sheet
    securitization
            
            
            1,579
            
            
            
            –Residual
      interests on off-balance sheet student loans securitized
            
            
            695
            
            
            
            633Servicing
      assets on off-balance sheet student loans securitized
            
            
            197
            
            
            
            199Amounts
      receivable from trusts for servicing
            
            
            6
            
            
            
            6Amounts
      payable to trusts for student loan payments
            
            
            14
            
            
            
            17





(1)
            Amounts
      include securitized loan balances from nine off-balance sheet
      securitizations as of March 31, 2008 and December 31,
  2007.


(2)
            Amounts
      include securitized loan balances from one on-balance sheet securitization
      as of March 31, 2008.





For
further information on the Company’s student loan securitizations, see Note 8 to
the Consolidated Financial Statements.





The
Company also has credit commitments with schools and institutions which are
detailed in Sources and Uses of
Cash on page 25, as well as derivative agreements which are described in
Note 7 to the Consolidated Financial Statements.


24
 Liquidity
and Capital Resources





Sources
and Uses of Cash





Cash
received from borrower repayments, claim payments, subsidized interest and SAP
from the federal government, securitizations and the Omnibus Credit Agreement
are the Company’s primary sources of cash. The Company’s primary uses of cash
are new loan originations and purchases, funding operating expenses and
repayment of debt.




The
Omnibus Credit Agreement expires in December 2009, at which time it is
anticipated that the agreement will be replaced with another agreement with
CBNA. This agreement is the Company’s largest financing source.  Under
the Omnibus Credit Agreement the cost of funding is negotiated on a
borrowing-by-borrowing basis. The agreement provides a maximum aggregate credit
limit for combined short and long-term borrowings of $30 billion at market
interest rates. The agreement contains no material financial covenants or
restrictions, though it terminates and all outstanding borrowings thereunder
become due and payable if less than 50% of the voting equity interest in the
Company is owned or controlled by CBNA or any of Citigroup’s subsidiaries. This
agreement does not restrict the Company’s right to borrow from other sources. At
March 31, 2008, the amount of credit available for additional short and
long-term borrowings under the Omnibus Credit Agreement was approximately $7.5
billion.  On April 1, 2008 the Company entered into long-term
borrowings totaling $2.5 billion under the Omnibus Credit
Agreement.  Due to dislocation and illiquidity in the credit markets,
the interest rates on these borrowings are substantially higher than the
Company’s other borrowings under the Omnibus Credit Agreement.





In March
2008, the Company issued $1.6 billion of secured debt through an on-balance
sheet securitization. In April of 2008, the Company sold an additional $0.2
billion of the notes that were retained from this on-balance sheet
securitization.  The Company used the $1.8 billion of proceeds to fund
its operating activities. The credit spreads realized on this transaction were
higher than any of the Company’s previous deals, with credit spreads on the
Class A notes increasing from between 40 and 110 basis points over the
transaction the Company completed in the fourth quarter of 2007. This increase
is consistent with recent trends in the student loan asset-backed securities
market. See Note 8 to the Consolidated Financial Statements for additional
information about the Company’s securitization activities.





The
Company’s cash expenditures for equipment and computer software are primarily
comprised of software developed for internal use, which provides functionality
enhancements to the Company’s integrated loan management systems. Cash
expenditures for equipment and computer software amounted to $3 million and $2
million during the three month periods ended March 31, 2008 and 2007,
respectively.





The
Company’s future cash needs will depend primarily on the volume of new loan
disbursements and purchases as well as the cash provided by or (used in)
operating activities. The Company expects new loan disbursements and purchase
volumes to be funded primarily through borrowings under the Omnibus Credit
Agreement with CBNA and loan securitizations.  The Company is
evaluating alternative funding sources, but there can be no assurance that any
such alternatives will provide terms more favorable than those currently
available to the Company. Management currently considers liquidity and capital
to be sufficient to meet the Company's anticipated requirements for the next
twelve months and, based on the Company's expectation that it will enter into a
new funding agreement with CBNA before the 2009 expiration of the Omnibus Credit
Agreement, for the longer-term.





Regulatory
Impacts





Over the
past decade, certain amendments to the Higher Education Act of 1965, which
governs the FFEL Program, have reduced the interest spread earned by holders of
FFEL Program loans. The Company expects that yields will decrease as new loans
with lower yields are added to the portfolio and older, more profitable loans
are repaid. In addition, amendments to the Higher Education Act authorized the
enactment of the Federal Direct Student Loan Program (Direct Lending). Private
lenders, such as the Company, are not eligible to participate in this loan
program, which directly competes with the FFEL Program in originating student
loans.





During
2006, the Deficit Reduction Act, P.L. 109-171, was signed into law. Title VIII-A
of the Deficit Reduction Act addressed a number of budget-related higher
education issues that modified provisions of the Higher Education
Act.





Also
during 2006, the Emergency Supplemental Appropriations Act of 2006 (ESAA) was
signed into law. Included in the ESAA was a provision that eliminated the
‘single holder rule’ for Consolidation Loans. The law became effective as of the
enactment date. Under the new provisions, a borrower can consolidate his or her
loans with any lender even if that borrower did not obtain any of the underlying
loans from that lender.


25


The CCRA
Act was signed into law on September 27, 2007 with many of its provisions
effective October 1, 2007.   Some of the provisions of this new
law had an adverse impact on the financial condition and results of operations
of the Company by decreasing net interest income and the fair value of residual
interests and increasing the provision for loan losses. The CCRA Act also is
expected to have a prospective adverse impact on the Company’s net interest
margin, provision for loan losses and gains on loans securitized.




The CCRA
Act (H.R. 2669) includes provisions that:





·
            Reduce
      the Undergraduate Subsidized Stafford interest rate from 6.80% to 3.40%
      over the next five years, with the rate returning to 6.80% on July 1,
      2012.  The first reduction will occur effective July 1, 2008 as
      such, the Undergraduate Subsidized Stafford loans will have an interest
      rate of 6.0%.·
            Reduce
      lender SAP for new loans originated on or after October 1, 2007 to 1.19%
      for Stafford Loans not in repayment, 1.79% for Stafford Loans in repayment
      and PLUS Loans, and 2.09% for Consolidation Loans. This represents a 55
      basis point reduction for Stafford and Consolidation Loans and an 85 basis
      point reduction for PLUS Loans.·
            Limit
      lender reinsurance to 97% for most claims filed on or after October 1,
      2007 by eliminating the EP program, with a further reduction to 95% for
      loans made on or after October 1, 2012.·
            Increase
      the lender fee from 0.50% to 1.00% for new loans originated on or after
      October 1, 2007.·
            Create
      an income-based repayment plan beginning July 1, 2009 for most FFEL
      Program borrowers (currently an income-contingent repayment plan is only
      available to Direct Lending borrowers).  The new plan provides a
      monthly repayment cap of 15% of the amount by which a borrower’s adjusted
      gross income exceeds 150% of the poverty line, and forgives remaining debt
      after 25 years of repayment.·
            Require
      the Department of Education to conduct a pilot program for an auction of
      eligible Federal PLUS Loans (limited to parent PLUS loans) beginning on
      July 1, 2009.




The
Department of Education published regulations that will take effect on July 1,
2008 affecting the relationships and activities between FFEL Program lenders,
guaranty agencies and institutions of higher education. There is no expectation
that the provisions of these regulations will have any adverse impact on the
operations of the Company.





Legislative
Activity





H.R. 4137
(College Affordability and Opportunity Act of 2007) was approved by the House of
Representatives (the House) on February 7, 2008. It includes the student loan
sunshine provisions (previously included in H.R. 890 - the College Access and
Opportunity Act) and the Private Student Loan Transparency and Improvement Act
(a proposed amendment to S.1642).  The House and the Senate are
currently reconciling their respective bills and we recognize that as this piece
of legislation moves through the conference process, significant changes may be
made to the provisions outlined below, some of which, if enacted, may have an
adverse impact on the Company’s financial condition and results of operations.
There are reportedly a few open issues which may not be resolved by Congress
until May. Because Congress has not reached an agreement on the full
reauthorization of the Higher Education Act, the Senate passed another temporary
extension through May 31, 2008.  The House has not yet taken up that
measure.  Certain funding programs of the Higher Education Act may be
affected immediately but it is expected that a temporary extension of the Higher
Education Act will be passed in the House and signed into law by the President
quickly.  It is not expected that failure to enact a temporary
extension will have any adverse impact on the operations of the
Company.


26


Some of
the provisions of H.R. 4137 include:





1)
            Defining
      a preferred lender arrangement between a school and a lender under which
      the lender makes educational loans.2)
            Requiring
      a lender that participates in a preferred lender arrangement to certify to
      the Secretary of the Department of Education that its preferred lender
      arrangements comply with provisions of the Higher Education Act. The
      certification must be attested to by the lender’s
  auditor.3)
            Requiring
      the Department of Education to develop a model disclosure for use by
      schools and lenders in disclosing the terms of educational loans
      (including private educational loans) offered by the
    lender.4)
            Requiring
      lenders to submit a report to all schools with which they have preferred
      lender arrangements.  The schools are required to report this
      information to the Department, explaining why the loans are beneficial to
      the students. These reports must be available to students and parents.
      Schools must also disclose that students are not required to use preferred
      lenders.5)
            Requiring
      schools that provide information on private educational loans to inform
      the students of their eligibility for Title IV assistance, with a
      description of the terms of the loans that are less favorable than Title
      IV loans.6)
            Requiring
      schools with preferred lender lists for FFEL Program lenders to list at
      least 3 unaffiliated lenders and, if they recommend private lenders, at
      least 2 unaffiliated lenders. The school must disclose why it has entered
      into such an arrangement and disclose the method and criteria for
      selecting such lenders. Schools are identified as having a duty of care to
      compile the list for the students.7)
            Amending
      the Truth-in-Lending Act to include: additional disclosures in an
      application or solicitation upon loan approval of private education loans;
      a requirement that a creditor shall notify the school before it may issue
      educational loan funds; a restriction that no funds may be disbursed until
      acceptance of the loan by the borrower and the expiration of a three
      business day right-to cancel period following consummation; and an
      expansion of other specific provisions.8)
            Directing
      the General Accountability Office to conduct a study on the impact and
      benefits of using non-individual factors (e.g., school attributes) in
      underwriting criteria. The study is due one year following enactment of
      H.R. 4137.





Both the
House and Senate passed H.R. 5715 in April 2008.  This bill was
introduced into Congress to respond to the belief that there will be
an access problem for students attempting to obtain FFEL Program loans due to
lenders partially or wholly withdrawing from the FFEL Program market due to
the current liquidity restrictions in the capital markets, higher costs of funds
and the effects of the CCRA discussed above.  Provisions of this bill
would increase the annual and aggregate Stafford borrowing limits, provide
authority for the Department of Education to advance federal funds to FFEL
Program guaranty agencies acting as Lenders of Last Resort, and authorize the
Department of Education to purchase FFEL Program loans from current holders,
provided that the proceeds are reused in the FFEL Program.  The bill
also directs the Departments of Treasury and Education to issue a notice in the
Federal Register detailing more specific information about relevant parts of the
expanded funding and liquidity provisions.  H.R. 5723, another bill
introduced in Congress, would authorize a temporary source of liquidity in the
student loan market by authorizing the Federal Home Loan Banks to lend upon the
security of student loans and student-loan related securities, to invest in
student loan related securities and to provide secured advances to its member
banks to originate student loans or finance student loan-related
securities.


27


Inquiries
into the Student Loan Industry





Since
March 2007, the Company has been responding to and cooperating with a number of
inquiries into the student loan industry. Several U.S. Congressional committees
and the U.S. Department of Education commenced investigations of the student
loan industry. The Company has responded to requests for certain information and
documents in connection with these investigations. Additionally, the offices of
various states’ attorneys general and certain federal authorities have also
conducted investigations and/or have served formal or informal requests for
information upon the Company.





As an
operating subsidiary of a federally-regulated bank, the Company is subject to
the jurisdiction of the Office of the Comptroller of the Currency, however it
will cooperate with the state requests to the extent possible without
compromising federal jurisdiction.




Forward-Looking
Statements





Certain
statements contained in this report that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act.  Forward-looking statements are typically
identified by the words or phrases “believe”, “expect”, “anticipate”, “intend”,
“estimate”, “may increase”, “may result in”, and similar expressions or future
or conditional verbs such as “will”, “should”, “would” and
“could”.  These forward-looking statements involve risks and
uncertainties, which could cause the Company’s actual results to differ
materially from those the Company expects, including, but not limited to: the
effects of legislative changes, particularly those relating to re-authorization
of the Higher Education Act of 1965, as amended, that affect the demand for and
interest rates on student loans, especially the establishment of certain fixed
rates of interest on Stafford Loans and FFEL Program loans; loan origination
costs; the availability and amount of  loan subsidies, and any effect
on the Company’s interest rate spreads; the cost of education; the availability
of alternative financing options to students and their parents, including
competitive products offered by other lenders; the effects of changes in
accounting standards; actual credit losses, loan collection strategies and their
impact on delinquency rates, and the adequacy of loan loss reserves;
fluctuations in interest rates and between various interest rate indices,
particularly the manner in which short-term rates affect the Company’s funding
costs, consolidation rates, the rates at which interest accrues on its loan
portfolio and the demand for student loans; changes in prepayment rates on
student loans from anticipated rates and in the quality and profitability of
those loans that move into repayment status, as well as actual experience with
the repayment cycle of the loan portfolio; the Company’s and other servicers’
ability to continue to service the loan portfolio in accordance with their
contractual obligations; the volume of loan consolidations; the adequacy of the
Company’s capital expenditures and of funds allocated for future capital
expenditures; the success of its marketing efforts, especially its electronic
marketing efforts; the Company’s ability to acquire or originate loans in the
amounts anticipated and with interest rates that generate sufficient yields and
margins; the performance of the Company’s loan portfolio servicers, insurers and
risk-sharers; the Company’s ability to utilize alternative sources of funding,
including its ability to continue to securitize loans; as well as general
economic conditions, including the performance of financial
markets.





28


Item
3.    Quantitative and Qualitative Disclosures About Market
Risk





The
Company’s principal measure of market risk due to interest rate changes is
Interest Rate Exposure (IRE). IRE measures the change in expected net interest
margin that results solely from unanticipated, instantaneous changes in market
rates of interest. Other factors such as changes in volumes, spreads, margins
and the impact of prior period pricing decisions can also change current period
interest income, but are not captured by IRE. While IRE assumes that the Company
makes no additional changes in pricing or balances in response to the
unanticipated rate changes, in practice, the Company may alter its portfolio
mix, customer pricing or hedge positions, which could significantly impact
reported net interest margin. IRE does not measure the impact that market rate
changes would have on the Company’s earnings related to instruments classified
as trading.





IRE is
calculated by multiplying the gap between interest sensitive items, including
loan assets, borrowings and certain derivative instruments, by a 100 basis point
instantaneous change in the yield curve. The exposures in the table below
represent the approximate change in net interest margin for the next 12 months
based on current balances and pricing that would result from specific
unanticipated changes in interest rates:





March
      31,(Dollars
      in millions)
            
            2008
            
            2007100
      basis points
            
            Increase
            
            Decrease
            
            Increase
            
            DecreaseChange
      in interest income
            
            $
            (6.0
            )
            $
            4.2
            
            $
            17.1
            
            $
            16.5





In
addition, the Company has exposure to uneven shifts in interest rate curves
(i.e., the Commercial Paper to LIBOR spreads). The Company, through
Asset/Liability Management Committee, actively manages these risks by setting
IRE limits and takes action in response to interest rate movements against the
existing structure.




Item
      4.  Controls and
Procedures





(a)
            Disclosure
      Controls and Procedures





The
Company's management, with the participation of the Company’s Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the
Company's disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
(the Exchange Act)) as of the end of the period covered by this
report.  Based on such evaluation, the Company’s Chief Executive
Officer and Chief Financial Officer have concluded that, as of the end of such
period, the Company's disclosure controls and procedures are effective in
recording, processing, summarizing and reporting, on a timely basis, information
required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act.





(b)
            Internal
      Control Over Financial Reporting





There has
not been any change in the Company’s internal control over financial reporting
(as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) during the fiscal quarter to which this report relates that has materially
affected, or is reasonably likely to materially affect, the Company’s internal
control over financial reporting.


29


PART
II. OTHER INFORMATION





Item
1A.  Risk Factors





The
following represents material changes from risk factors previously disclosed in
Item 1A of the Company’s Annual Report and Form10-K for the year ended December
31, 2007. This information should be read in conjunction with such Annual Report
and considered carefully as it could materially adversely affect the Company’s
business, operating results or financial condition. Certain of the
statements below are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act. See Forward-Looking Statements on
page 28.





Regulatory
considerations





As a
leading originator and owner of student loans insured under the Higher Education
Act, the Company’s financial results and business are largely affected by the
provisions of the Higher Education Act. Amendments to the Higher Education Act
may be implemented from time to time. New legislation could impact the Company’s
products, its industry or otherwise affect its operations and the environment in
which it operates in substantial and unpredictable ways.  In recent
years, many changes to the Higher Education Act have been implemented, for
example, that adversely impact the operating environment of the Company and its
financial results. Certain amendments to the Higher Education Act governing the
FFEL Program have reduced the interest spread earned by holders of FFEL Program
guaranteed student loans. The Company is also subject to rules and regulations
of the agencies that act as guarantors of the student loans, known as guaranty
agencies. In addition, the Company is subject to certain federal and state
banking laws, regulations, and examinations, as well as federal and state
consumer protection laws and lending regulations, including, specifically with
respect to the Company's CitiAssist loan portfolio, certain state usury laws and
related regulations,  and many other lending laws. These laws and
regulations impose substantial requirements upon lenders and servicers involved
in consumer finance. Failure to comply with these laws and regulations could
result in liability to borrowers, the imposition of civil penalties and
potential class action lawsuits.





It is
difficult for the Company to plan for or mitigate the effects of such
legislative or regulatory changes. For further information on the impact of the
CCRA Act, see Regulatory
Impactson page 25.  In addition, future regulatory changes
cannot be predicted and could have a material impact on the Company’s financial
condition or results of operations.





Future
volume of student loans




The
Company originates loans to borrowers in all 50 states. The loan origination
volume generated by individual schools is primarily dependent on whether the
Company appears on the school’s list of lenders, as well as the number of
students at that school that need financial aid. Origination volume
could be negatively affected by the Company’s determination to suspend
lending to certain schools and to temporarily withdraw from the FFEL Program
Consolidation Loan market, although the Company may experience some growth in
the markets in which it continues to operate as competitors exit these segments.
The Company may be adversely impacted by borrowers’ or schools’ decisions to use
competing lenders, each school’s option to choose the Federal Direct Lending
Program instead of choosing to participate in the FFEL Program, or a school’s
decision to begin making student loans itself. The Company may acquire student
loans through purchase agreements with institutions, but each of these
agreements has a termination date and there are no assurances that these
institutions will renew or extend these forward purchase agreements on terms
that are favorable to the Company if at all.







Item
      6.
            Exhibits





See
Exhibit Index.


30


SIGNATURE








Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





Date: May
7, 2008





The
      Student Loan CorporationBy
            /s/ Scot ParnellScot
      Parnell
              Chief
      Financial Officer and Duly Authorized Officer(Principal
      Financial Officer)





31


EXHIBIT
INDEX








Exhibit


Number
            Description of
      Exhibit





3.1
            Restated
      Certificate of Incorporation of the Company, incorporated by reference to
      Exhibit 3.1 to the Company’s 1992 Annual Report and Form10-K (File No.
      1-11616).3.2
            By-Laws
      of the Company, as amended, incorporated by reference to Exhibit 3.2 to
      the Company’s 1994 Annual Report and Form10-K (File No.
      1-11616).10.7 *
            Amended
      and Restated Agreement for Education Loan Servicing among the
      Company, Citibank USA, N.A. and Citibank, N.A., dated as of May 5,
      2008.31.1 *
            Certification
      of Principal Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2 *
            Certification
      of Principal Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1 *
            Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.


* Filed
herewith