**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
                  1934****For
                  the quarterly period ended March 31, 2006****or**** ̈**
              **TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934****For
                  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.**
              
              **06901****Stamford,
                  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, or a non-accelerated filer. See definition of accelerated
        filer and large accelerated filer in Rule 12b-2 of the exchange Act. (Check
        one):
 
 Large
                  accelerated filer**x**
              Accelerated
                  filer**o**
              Non-accelerated
                  filer**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, 2006, there were 20,000,000 shares of The Student Loan Corporation’s Common
        Stock outstanding.
 
 Available
        on the World Wide Web at studentloan.com
  Form
        10-Q
  Table
        of Contents
 
 Part
                  I
              Consolidated
                  Financial InformationPageItem
                  1 -
              Consolidated
                  Financial StatementsConsolidated
                  Statement of Income (Unaudited) for the Three-Month Periods Ended
                  March
                  31, 2006 and 2005
              3Consolidated
                  Balance Sheet as of March 31, 2006 (Unaudited) and December 31,
                  2005
              4Consolidated
                  Statement of Cash Flows (Unaudited) for the Three-Month Periods
                  Ended
                  March 31, 2006 and 2005
              5Consolidated
                  Statement of Changes in Stockholders’ Equity (Unaudited) for the
                  Three-Month Periods Ended March 31, 2006 and 2005
              6Notes
                  to Consolidated Financial Statements (Unaudited)
              7
                  -
                  18Item
                  2 -
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              19
                  - 30Item
                  3 -
              Quantitative
                  and Qualitative Disclosures About Market Risk
              31Item
                  4 -
              Controls
                  and Procedures
              32Part
                  II
              Other
                  InformationItem
                1A-
              Risk
                Factors
              33-35Item
                5 -
              Other
                Information
              36Item
                  6 -
              Exhibits
              36Signature
              37Exhibit
                  Index
              38-39
          2
 **PART
        I   CONSOLIDATED FINANCIAL INFORMATION**
 
 **Item
                  1.**
              **Consolidated
                  Financial Statements**
 
 **THE
        STUDENT LOAN CORPORATION**
 CONSOLIDATED
        STATEMENT OF INCOME
 (Dollars
        in thousands, except per share amounts)
 (Unaudited)
 
 Three
                  months endedMarch
                  31,2006
              
              2005**REVENUE**Interest
                  income
              $
                  376,918
              
              $
                  282,936Interest
                  expense to principal shareholder
              269,819
              
              154,041**Net
                  interest income**
              107,099
              
              128,895Less:
                  provision for loan losses
              (6,140)
              
              (602)Net
                  interest income after provision for loan losses
              100,959
              
              128,293Gains
                  on sale of loans
              6,751
              
              25Fee
                  and other income/(loss)
              5,149
              
              (806)**Total
                  revenue, net**
              112,859
              
              127,512**OPERATING
                  EXPENSES**Salaries
                  and employee benefits
              12,711
              
              11,413Other
                  expenses
              24,850
              
              16,521**Total
                  operating expenses**
              37,561
              
              27,934**Income
                  before income taxes**
              75,298
              
              99,578Income
                  taxes
              29,143
              
              33,443**NET
                  INCOME**
              $
                  46,155
              
              $
                  66,135**DIVIDENDS
                  DECLARED**
              $
                  21,600
              
              $
                  21,600**BASIC
                  AND DILUTED EARNINGS PER COMMON SHARE**
              $    
                  2.31
              
              $   
                   3.31(based
                  on 20 million average shares outstanding)**DIVIDENDS
                  DECLARED PER COMMON SHARE**
              $   
                   1.08
              
              $    
                  1.08**OPERATING
                  RATIOS**Net
                  interest margin
              1.68%
              
              2.03%Operating
                  expenses as a percentage of average managed student loans
              0.49%
              
              0.41%Return
                  on Average Equity
              13.6%
              
              23.0%
 
 See
        accompanying notes to the consolidated financial statements.
       3
 **THE
        STUDENT LOAN CORPORATION**
 CONSOLIDATED
        BALANCE SHEET
 (Dollars
        in thousands, except per share amounts)
 
 March
                  31,
              
              December
                  31,2006
              
              2005(Unaudited)
              
              (Audited)**ASSETS**Federally
                  insured student loans
              $
                  17,812,247
              
              $
                  17,508,605Private
                  education loans
              5,014,997
              
              4,812,443Deferred
                  origination and premium costs
              722,569
              
              706,736Less:
                  allowance for loan losses
              (9,387)
              
              (4,990)Student
                  loans, net
              
              
              23,540,426
              
              23,022,794Other
                  loans and lines of credit
              
              
              108,880
              
              50,085Loans
                  held for sale
              
              
              2,555,923
              
              2,067,937Cash
              
              
              517
              
              1,152Other
                  assets
              
              
              920,096
              
              845,729**Total
                  Assets**
              
              
              $
                  27,125,842
              
              $
                  25,987,697**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**Short-term
                  borrowings, payable to principal shareholder
              $
                  13,838,900
              
              $
                  10,781,100Long-term
                  borrowings, payable to principal shareholder
              11,200,000
              
              13,200,000Deferred
                  income taxes
              
              
              280,246
              
              289,843Other
                  liabilities
              
              
              416,910
              
              354,909Total
                  Liabilities
              
              
              25,736,056
              
              24,625,852Common
                  stock, $0.01 par value; authorized 50,000,000 shares; 20,000,000
                  shares
                  issued and outstanding
              200
              
              200Additional
                  paid-in capital
              
              141,275
              
              139,383Retained
                  earnings
              
              
              1,248,311
              
              1,222,262Total
                  Stockholders' Equity
              
              1,389,786
              
              1,361,845**Total
                  Liabilities and Stockholders' Equity**
              $
                  27,125,842
              
              $
                  25,987,697**AVERAGE
                  OWNED LOANS**
              $
                  25,889,746
              
              $
                  26,305,182(year-to-date)**AVERAGE
                  MANAGED LOANS**
              $
                  31,246,516
              
              $
                  29,273,135(year-to-date)**MANAGED
                  LOANS AT END OF PERIOD**
              $
                  31,501,260
              
              $
                  30,573,499(year-to-date)
 
 See
        accompanying notes to consolidated financial statements.
   4
 **THE
        STUDENT LOAN CORPORATION**
 CONSOLIDATED
        STATEMENT OF CASH FLOWS
 (Dollars
        in thousands)
 (Unaudited)
 Three
                  months endedMarch
                  31,**2006**
              
              **2005**Cash
                  flows from operating activities:Net
                  income
              $  
                  46,155
              
              $  
                  66,135Adjustments
                  to reconcile net income to net cash from operating
                  activities:Depreciation
                  and amortization of equipment and computer software
              3,226
              
              3,261Amortization
                  of servicing asset
              -
              
              881Amortization
                  of deferred loan origination and purchase costs
              37,422
              
              26,576Provision
                  for loan losses
              6,140
              
              602Deferred
                  tax (benefit)/provision
              (10,539)
              
              14,624Gain
                  on sale of loans
              (6,751)
              
              (25)Loss
                  on valuation of residual interests designated as trading
              4,944
              
              -Loss
                  on valuation of servicing assets
              3,242
              
              -Disbursements
                  of loans for resale
              -
              
              (24,878)Secondary
                  market and other loan procurement activity for resale
              (8,658)
              
              (7,844)Impairment
                  loss on residual interests in securitized assets
              685
              
              5,702Impairment
                  loss on servicing assets in securitized assets
              -
              
              267(Increase)
                  in accrued interest receivable
              (62,122)
              
              (48,963)(Increase)
                  in other assets
              (19,255)
              
              (997)Increase/(decrease)
                  in other liabilities
              63,893
              
              (43,151)**Net
                  cash provided by/(used in) operating
                  activities**
              58,382
              
              (7,810)Cash
                  flows from investing activities:Disbursements
                  of loans
              
              
              (1,275,882)
              
              (1,156,030)Secondary
                  market and other loan procurement activity for portfolio
              (1,328,054)
              
              (1,379,916)Loan
                  reductions
              1,353,746
              
              1,104,876Deferral
                  of loan origination costs and purchase premiums
              (65,856)
              
              (74,394)Proceeds
                  from loans sold
              223,479
              
              775Cash
                  received on residual interests in securitized assets
              -
              
              6,050Capital
                  expenditures on equipment and computer software
              (2,650)
              
              (4,721)**Net
                  cash used in investing activities**
              (1,095,217)
              
              (1,503,360)Cash
                  flows from financing activities:Net
                  increase in borrowings with original maturities of one year or
                  less
              1,057,800
              
              4,683,100Repayments
                  of borrowings with original terms of one year or more
              -
              
              (3,150,000)Dividends
                  paid to stockholders
              (21,600)
              
              (21,600)**Net
                  cash provided by financing activities**
              1,036,200
              
              1,511,500**Net
                  (decrease)/increase in cash**
              (635)
              
              330**Cash
                  - beginning of period**
              1,152
              
              628**Cash
                  - end of period**
              $     
                   517
              
              $     
                   958**Supplemental
                  disclosure:**Cash
                  paid for:Interest
              $254,022
              
              $132,768Income
                  taxes, net
              $
                   26,506
              
              $
                   53,777
  See
        accompanying notes to consolidated financial statements.
 5
 **THE
        STUDENT LOAN CORPORATION**
 CONSOLIDATED
        STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
 (Dollars
        in thousands, except per share amounts)
 (Unaudited)
 
 Three
                  months ended March 31,2006
              
              2005**COMMON
                  STOCK AND ADDITIONAL PAID-IN CAPITAL**Balance,
                  beginning of period
              $  
                  139,583
              
              $  
                  139,376Capital
                  contributions and other changes
              1,892
              
              73Balance,
                  end of period
              $ 
                   141,475
              
              $  
                  139,449**RETAINED
                  EARNINGS**Balance,
                  beginning of period
              $1,222,262
              
              $  
                  999,702Cumulative
                  effect of adoption of accounting standard, net of taxes of $941
                  in
                  2006
              1,494
              
              -Net
                  income
              46,155
              
              66,135Common
                  dividends declared, $1.08 per common share in both 2006 and
                  2005
              (21,600)
              
              (21,600)Balance,
                  end of period
              $1,248,311
              
              $1,044,237**ACCUMULATED
                  OTHER CHANGES IN EQUITY FROM NONOWNER SOURCES**Balance,
                  beginning of period
              $              -
              
              $     
                   7,829Net
                  change in unrealized losses on investment securities, net of taxes
                  of
                  $(984) in 2005
              -
              
              (1,434)Balance,
                  end of period
              $             
                  -
              
              $      
                  6,395**TOTAL
                  STOCKHOLDERS' EQUITY**
              $1,389,786
              
              $1,190,081**SUMMARY
                  OF CHANGES IN EQUITY FROM NONOWNER SOURCES**Net
                  income
              $    
                  46,155
              
              $    
                  66,135Changes
                  in equity from nonowner sources, net of taxes
              -
              
              (1,434)Total
                  changes in equity from nonowner sources
              $    
                  46,155
              
              $   
                   64,701
 
 See
        accompanying notes to consolidated financial statements.
               6
  **THE
        STUDENT LOAN CORPORATION**
 **Notes
        to Consolidated Financial Statements (Unaudited)**
 **March
        31, 2006**
  **1.**
                **Significant
                    Accounting Policies**
  **Interim
            Financial Information**
 
 The
            accompanying consolidated financial statements of The Student Loan Corporation
            (the Company), a Delaware corporation, include the accounts of the Company
            and
            its wholly owned subsidiary, Educational Loan Center, Inc. (ELC). All
            intercompany balances and transactions have been eliminated.
 
 The
            financial information of the Company as of March 31, 2006 and for the
            three-month periods ended March 31, 2006 and 2005 is unaudited and includes
            all
            adjustments (consisting of normal recurring accruals) which, in the opinion
            of
            management, are necessary to state fairly the Company's financial position
            and
            results of operations in conformity with U.S. generally accepted accounting
            principles. The results for the three-month period ended March 31, 2006
            may not
            be indicative of the results for the full year ended December 31,
            2006. **** The
            accompanying consolidated financial statements should be read in conjunction
            with the consolidated financial statements and related notes included
            in the
            Company’s 2005 Annual Report and Form 10-K.
  Certain
            amounts in the prior period’s consolidated financial statements have been
            reclassified to conform to the current period’s presentation. Such
            reclassifications 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.
 
 **Principles
            of Consolidation**
  The
            consolidated financial statements include the accounts of the Company
            and its
            subsidiary, ELC. The Company consolidates subsidiaries in which it holds,
            directly or indirectly, more than 50% of the voting rights or where it
            exercises
            control.
 
 **Revenue
            Recognition**
 
 Revenues,
            which include net interest income, fees and gains on loans sold or securitized,
            if any, are recognized as they are earned. Interest income may include
            special
            allowance payments made by the federal government as prescribed under
            the Higher
            Education Act of 1965, as amended (the Higher Education Act).
 
 Loan
            purchase premiums and origination costs are deferred and amortized 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* .
            All
            CitiAssist Loan insurance costs as well as origination costs on
            internally serviced Federal Family Education Loan (FFEL) Program loans with
            a first disbursement on or after April 1, 2005 are deferred and amortized
            to
            interest income as yield adjustments on a loan-by-loan basis using the
            interest
            method. Also, premiums and referral fees paid on CitiAssist
            Loans disbursed on or after March 17, 2006 are deferred
            and amortized to interest income on a loan-by-loan basis.  Premiums
            and origination costs on other of the Company's loans are deferred and
            amortized
            as yield adjustments to interest income on an aggregate loan pool basis
            in
            proportion to and over the period of estimated net interest income, which
            approximates the interest method.
 
 The
            expected weighted average lives of loans with costs accounted for on
            a pool
            basis are determined by several factors, the most significant of which
            is
            anticipated future prepayments. Expected life, which is initially determined
            and
            may subsequently be revised, may be different from one portfolio to another
            based upon loan type, year of origination or purchase or other factors.
            Therefore, different lives are used for different pooled portfolios based
            upon
            these underlying loan characteristics and historical performance. Since
            the
            Company holds a large number of similar loans for which prepayments are
            probable
            and can be reasonably estimated, the Company considers estimates of future
            prepayments in the calculation of weighted average expected life. If
            a
            difference arises between
            the
    7
 Company’s
            anticipated prepayments and the actual prepayment rates experienced,
            the Company
            recalculates the effective spread to reflect actual payments to date,
            with a
            corresponding adjustment of deferred costs through current period interest
            income. In addition, the expected future weighted average lives of these
            loans
            are reviewed periodically and any difference between the amortization
            that would
            have been recognized using the new estimates of future weighted average
            lives
            instead of the past estimates are adjusted through current period interest
            income to arrive at the balance that would have been remaining had the
            new
            effective spread been applied since loan inception or acquisition date.
            Anticipated future prepayments of these loans are reviewed quarterly.
  **Loans**
 
 Loans
            primarily consist of student loans originated under the FFEL Program
            authorized
            by the U.S. Department of Education (the Department) under the Higher
            Education
            Act, and are insured by guaranty agencies (guarantors). Student loan
            interest,
            inclusive of special allowance payments and floor income, if any, is
            recognized
            as it is earned. Federally mandated loan origination or lender fees paid
            on
            disbursements, as well as other qualifying loan origination costs and
            premiums
            on loan portfolio purchases, are deferred and recognized as yield adjustments
            to
            interest income using either an aggregate loan pool basis or a loan-by-loan
            basis.
 
 The
            Company also has a portfolio of alternative private loans, primarily
            CitiAssist
            Loans. Generally, such loans are insured against loss by private insurers
            and/or are covered under other risk-sharing agreements with key schools.
            Qualifying loan origination costs, purchase premiums and insurance costs
            are
            deferred and recognized as yield adjustments to interest income using
            either an
            aggregate loan pool basis or a loan-by-loan basis.
 
 The
            Company immediately 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 uninsured CitiAssist Loan reaches 90 days of delinquency, or (3) an
            insured
            CitiAssist Loan reaches 150 days of delinquency. The Company immediately
            writes
            off the principal corresponding to the unguaranteed portion of FFEL Program
            Loans at 270 days of delinquency, the guaranteed principal of FFEL Program
            loans
            at 450 days of delinquency, the uninsured portion of CitiAssist Loans at
            120 days of delinquency, and the insured portion of the CitiAssist Loans
            at 210
            days of delinquency. For the loans or portions of loans written off,
            the Company
            charges off the outstanding principal balance to the allowance for loan
            losses
            and reduces interest income by the amounts of accrued, uncollected interest.
            Recoveries on loans previously charged off are recorded as increases
            to the
            allowance for loan losses. Accrual of interest is resumed when the loan
            guarantee is reinstated.
 
 **Allowance
            for Loan Losses**
  Most
              of
              the Company’s FFEL Program and private loans have loss guarantees, insurance
              coverage, or are covered under risk-sharing agreements to minimize
              the Company’s
              exposure to loan losses. However, for loans in which the principal
              and interest
              are not 100% covered under such policies or agreements, 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
              2%
              risk-sharing provisions of the Higher Education Act, (2) the portion
              of the FFEL
              Program portfolio serviced by Exceptional Performers which will be
              subject to 1%
              risk-sharing for default claims submitted on or after July 1, 2006,
              and (3) the
              CitiAssist Loan portfolio, after considering the credit risk insurance
              coverage
              obtained from third parties and the benefits of any risk-sharing agreements
              with
              third parties. Amounts of estimated potential future losses inherent
              in the
              Company’s portfolio are expensed currently and increase the provision for loan
              losses. Actual losses are charged off against the reserve as they occur.
              Subsequent recoveries increase the allowance for loan losses.
 The
            size
            of the allowance is established based on amounts of estimated probable
            losses
            inherent in the Company’s CitiAssist and FFEL Program loan portfolios on the
            first day of delinquency. Estimated losses, which are based on historical
            delinquency and credit loss experience updated for recent conditions,
            are
            determined after considering the current aging of the portfolio.
 
 **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* (SFAS
            140). In order for a transfer of financial assets to be considered a
            sale, the
            assets transferred by the Company must either have been isolated from
            the
            seller, if in bankruptcy or other receivership, and the purchaser
       8
 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***
 Securitization
            is a process by which loans are sold to a special purpose entity (SPE),
            thereby
            converting those loans into cash before they would have been realized
            in the
            normal course of business. The SPEs obtain the cash to pay for the loan
            assets
            by issuing securities to outside investors in the form of debt instruments
            (asset-backed securities). Investors have recourse to the assets in the
            SPE, but
            not to the Company, and benefit from other credit enhancements, such
            as a cash
            collateral account and other specified enhancements. Accordingly, the
            SPE can
            typically obtain a more favorable credit rating from rating agencies
            than the
            Company could obtain for its own debt issuances, which may result in
            less
            expensive financing costs than the Company could obtain from other sources.
 
 The
            Company accounts for its securitization transactions in accordance with
            the
            provisions of SFAS 140. For the securitization of financial assets to
            be
            considered a sale, the assets transferred by the Company must have been
            isolated
            from the seller, if in bankruptcy or other receivership, and the purchaser
            must
            have the right to sell the assets transferred. In addition, the purchaser
            must
            be a qualifying special purpose entity (QSPE) meeting certain significant
            restrictions on its activities, its investors must have the right to
            sell their
            ownership interests in the entity, and the seller must not continue to
            control
            the assets transferred either through an agreement to repurchase them
            or by the
            right to cause the assets to be returned (known as a call option). A
            securitization of financial assets that meets these sale requirements
            is removed
            from the Company’s consolidated balance sheet. If the conditions for sale are
            not met, the transfer is considered to be a secured borrowing and the
            assets
            remain on the Company’s consolidated balance sheet. In determining whether
            financial assets transferred have, in fact, been isolated from the Company,
            an
            opinion of legal counsel is obtained. For sale treatment to be appropriate,
            the
            legal opinion must state that the assets transferred are legally isolated
            from
            the seller and would not be consolidated with the Company’s other assets in the
            event of the SPE’s insolvency. Gains or losses realized on securitizations
            depend primarily on the previous carrying value of the transferred loans,
            which
            is allocated between the relative fair values of the loans sold and the
            interests retained, comprised of residual and servicing assets.
 
 Since
            the
            securitizations meet the SFAS 140 criteria for sale recognition and the
            trusts
            qualify as QSPEs, the trusts are not subject to the consolidation requirements
            of Financial Accounting Standards Board (FASB) Interpretation No. 46 *,
            Consolidation of Variable Interest Entities (revised December
            2003)* (FIN
            46-R), which requires consolidation of the variable interest entity by
            its
            primary beneficiary.
 
 Residual
            interests retained in the securitizations are recorded in other assets
            at fair
            value. The Company’s estimate of fair value is based on the present value of the
            estimated cash flows expected to be generated from the loans sold to
            the trusts
            in excess of the estimated note interest and other expenses expected
            to be paid
            by the trusts. Initial and subsequent measurements of the fair values
            of the
            residual interests are performed using a discounted cash flow model that
            incorporates management’s best estimates of key assumptions, including
            prepayment speeds, discount rates, and borrower benefits. Borrower benefits
            are
            interest rate and/or principal reductions that are granted to borrowers
            with
            qualifying loans.
 
 The
            Company accounts for the residual interests as investments in debt securities
            that are either classified as available-for-sale or trading in accordance
            with
            SFAS 115, *Accounting
            for Certain Investments in Debt and Equity Securities* ,
            depending on the designation at the time of securitization. The
            Company accounts for the residual interests from the 2004 securitization
            as
            investments in available-for-sale securities and its residual interests
            from the
            2005 securitizations as investments in trading securities, in accordance
            with
            their designation at the time of securitization. Temporary
            changes in fair value for residual interests accounted for as available-for-sale
            securities are recorded, net of applicable income taxes, in accumulated
            other
            changes in equity from non-owner sources and are reflected in the yield
            on a
            prospective basis. Declines in fair value that are determined to be other
            than
            temporary are charged to earnings in Fee and other income. Changes in
            the fair
            value of residual interests accounted for as trading securities are reflected
            in
            Fee and other income.
 
 The
            fair
            values of residual interests are determined after interest is accreted
            on an
            effective yield basis. In accordance with Emerging Issues Task Force
            (EITF)
            Issue No. 99-20, *Recognition
            of Income and Impairment on Purchased and Retained Beneficial Interests
            in
            Securitized Financial Assets* ,
            interest is accreted on the residual interests. Accreted interest is
            recorded in
            Interest income.
 
 The
            Company also maintains certain servicing rights in the assets securitized.
            Prior
            to January 1, 2006, unamortized servicing rights, which were recorded
            in Other
            assets, were initially recorded at an amount equal to the allocated basis
            of the
            estimated future servicing revenue that would be received in excess of
            the fair
            market value of such
       9
 services,
            based on their relative fair values at the date of securitization. These
            servicing assets were amortized in proportion to and over the period
            of
            estimated net servicing income and were recorded at the lower of amortized
            cost
            or fair value. The Company receives servicing income from the securitization
            trusts, which is included in Fee and other income.
  Effective
                January 1, 2006, the Company elected to early-adopt SFAS No. 156, *Accounting
                for Servicing of Financial Assets - an amendment of FASB statement
                No. 140* (SFAS
                156). In accordance with SFAS 156, the Company was permitted to choose
                a
                measurement method to value its servicing assets and decided to change
                from the
                amortized cost method to the fair value measurement method. In order
                to convert
                to the fair value method, effective January 1, 2006 the Company recorded
                a
                cumulative effect adjustment through retained earnings for the difference
                between the fair value and the carrying value of its servicing assets.
                Also, the
                Company recorded the first quarter 2006 change in fair value of its
                servicing
                assets in Fee and other income.
 **Loans
            Held for Sale**
 
 Loans
            held for sale are primarily those loans originated or purchased by the
            Company
            for 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 loan sale requirements for the next three months.
            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,
            2006 and 2005, market value exceeded cost. Thus, no valuation allowance
            was
            necessary.
 
 **Internally
            Developed Software**
 
 Certain
            direct costs associated with the development of internally developed
            software
            are capitalized. The Company capitalizes internally developed software
            costs 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 other
            operating expense.
 **2.**
              **New
                  Accounting Standards** ***Accounting
            for Certain Hybrid Financial Instruments***
 On
              January 1, 2006, the Company elected to early-adopt SFAS No. 155, *Accounting
              for Certain Hybrid Financial Instruments* (SFAS
              155) *.* In
              accordance with this standard, hybrid financial instruments, such as
              structured
              notes containing embedded derivatives that otherwise would require
              bifurcation,
              as well as interest-only instruments, may be accounted for at fair
              value, with
              the charge recorded to current earnings. The Company’s early adoption of SFAS
              155 on January 1, 2006 had no impact on its results of operations,
              as the
              Company had already been accounting for the hybrid financial instruments
              at fair
              value.
  ***Accounting
            for Servicing of Financial Assets***
 On
              January 1, 2006, the Company elected to early-adopt SFAS No. 156, *Accounting
              for Servicing of Financial Assets, an Amendment to SFAS No. 140* (SFAS
              156). This pronouncement permits an election to remeasure servicing
              rights at
              fair value, with the changes in the fair value being recorded in current
              earnings. Upon
              adoption, the Company chose the fair value measurement method for recording
              its
              servicing assets and increased its beginning of the period retained
              earnings by
              a $1.5 million after tax cumulative effect adjustment to reflect its
              student
              loan servicing assets at fair value at January 1, 2006. The Company
              also
              recorded a $3.2 million pretax charge to Fee and other income in the
              first
              quarter of 2006 to record the valuation adjustment of the servicing
              asset for
              the quarter.
  **3.**
              **Student****Loans**
 
 The
        Company’s portfolio of student loans primarily consists of FFEL Program
        guaranteed student loans authorized by the Department under the Higher
        Education Act, as well as CitiAssist Loans originated through a private
        alternative student loan program. CitiAssist Loans are generally insured
        by
        private third-party insurers.
        10
 The
        Company’s loans are summarized by program type as follows:
  **March
                  31,**
              
              **December 31,**(*Dollars
                  in thousands)*
              **2006**
              
              **2005**Federal
                  Stafford Loans
              $
              8,481,786
              
              $
              8,374,721Federal
                  Consolidation Loans
              
              8,325,141
              
              
              8,177,635Federal
                  SLS/PLUS/HEAL Loans
              
              1,005,320
              
              
              956,249CitiAssist
                  Loans
              
              5,014,917
              
              
              4,812,361Other
                  alternative loans
              
              80
              
              
              82Total
                  student loans held, excluding deferred costs
              
              22,827,244
              
              
              22,321,048Deferred
                  origination and premium costs
              
              722,569
              
              
              706,736Student loans
                  held
              
              23,549,813
              
              
              23,027,784Less:
                  allowance for loan losses
              
              (9,387)
              
              
              (4,990)**Student
                  loans held, net**
              
              23,540,426
              
              
              23,022,794Loans
                  held for sale, primarily Federal Consolidation Loans, excluding
                  deferred
                  costs
              
              2,517,642
              
              
              2,039,728Deferred
                  origination and premium costs
              
              38,281
              
              
              28,209**Loans
                  held for sale**
              
              2,555,923
              
              
              2,067,937**Other
                  loans and lines of credit**
              
              108,880
              
              
              50,085**Total
                  loan assets**
              $
              26,205,229
              
              $
              25,140,816
  Delinquencies
        impact earnings through charge offs and increased servicing and collection
        costs. Information on CitiAssist Loans, including delinquency and insurance
        coverage, are shown in the table below:
  **March
                  31,**
              
              **December 31,***(Dollars
                  in thousands)*
              **2006**
              
              **2005**Total
                  CitiAssist Loans
              $
              5,014,917
              
              $
              4,812,361CitiAssist
                  Loans in repayment
              $
              2,478,108
              
              $
              2,541,869CitiAssist
                  Loans in forbearance
              $
              201,818
              
              $
              193,383CitiAssist
                  Loans delinquent 30 - 89 days as a % of total CitiAssist Loans
                  in
                  repayment
              
              2.0%
              
              
              1.8%CitiAssist
                  Loans delinquent 90 days or greater as a % of total CitiAssist
                  Loans in
                  repayment
              
              1.0%
              
              
              0.7%Allowance
                  for loan losses for CitiAssist Loans
              $
              5,142
              
              $
              2,997Total
                  CitiAssist Loans insured by third party insurers(1)
              $
              4,349,496
              
              $
              4,149,354Total
                  uninsured CitiAssist Loans(2)
              $
              665,421
              
              $
              663,007(1)      The
                  Company is subject to 5% - 20% risk sharing on default claims paid on
                  these loans.  Therefore, the insurer reimburses the
                  Company
                80%
                  - 95% ofthe
                  approved claim amounts.
                (2)     
                  Of the uninsured CitiAssist Loans, $551.2 million and $436.9
                  million  at March 31, 2006 and December 31, 2005,
                   respectively, were
                covered
                  forbetween
                  50% and 100% of the losses up to 8% of the loss amount under
                  risk-sharingagreements
                  with schools and
                  universities.
            11
  **4.**
              **Other
                  Assets**
 
 Other
        assets are summarized as follows:
  **March
                    31,**
                
                **December 31,**(*Dollars
                    in thousands*)
                
                **2006**
                
                **2005**Accrued
                    interest receivable:from
                    student loan borrowers/others
                
                $
                426,125
                
                $
                382,181from
                    federal government
                
                
                151,910
                
                
                133,732Residual
                    interests in securitized assets (note 9)
                
                
                187,299
                
                
                188,454Servicing
                    asset from securitization activity (note 9)
                
                
                75,977
                
                
                76,784Equipment
                    and computer software(1)
                
                
                46,655
                
                
                47,231Other
                
                
                32,130
                
                
                17,347Total
                    other assets
                
                $
                920,096
                
                $
                845,729(1)     
                    Amount includes $40.5 million and $40.8 million of capitalized
                    internally
                    developed software At March 31, 2006 and December 31, 2005,
                  respectively.These
                    internally developed software amounts are reflected net of
                    accumulated amortization of $28.9 million and $26.4
                    million
                  at March 31, 2006andDecember
                    31, 2005, respectively.
  **5.**
                **Fee
                  and Other
                  Income/(Loss)**
  A
          summary
          of Fee and other income follows:
  **Three-month period ended***(Dollars
                  in thousands)*
              **March 31,****2006**
              
              **2005**Valuation
                  adjustment on residual interests
              $
              (4,944)
              
              $
              -Valuation
                  adjustment on servicing assets
              
              (3,242)
              
              
              -Mark-to-market
                  gains on options and interest rate derivatives
              
              2,877
              
              
              -Servicing
                  fees on securitized assets (net of amortization for
                  2005)
              
              6,880
              
              
              1,006Fees
                  for originating and servicing CitiAssist Loans for
                  CBNA
              
              1,870
              
              
              1,694Servicing
                  asset impairments
              
              -
              
              
              (267)Residual
                  interest impairments
              
              (685)
              
              
              (5,702)Late
                  fees
              
              2,206
              
              
              2,355Other
              
              187
              
              
              108Total
                  fee and other income/(loss)
              $
              5,149
              
              $
              (806)
  **6.**
              **Related
                  Party Transactions**
 
 Citibank,
        N.A. (CBNA), an indirect wholly owned subsidiary of Citigroup Inc. (Citigroup),
        owns 80% of the outstanding common stock of the Company. A number of significant
        transactions are carried out between the Company and Citigroup and its
        affiliates. CBNA
        is a
        party to certain intercompany agreements entered into by the Company. These
        intercompany agreements include the Omnibus Credit Agreement, a tax-sharing
        agreement and student loan originations and servicing agreements. In addition,
        the Company has an agreement for education loan servicing with Citibank USA,
        N.A.
       12
 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 for the three-month periods
        ended
        March 31, 2006 and 2005, respectively.
  **Three-month
                  period****ended***(Dollars
                in thousands)*
              
              **March
                  31,****2006**
              
              **2005****Revenues**
                Interest
                  expense
              
              $
              269,819
              
              $
              154,041Fee
                  and other income (Note 5)
              
              
              1,870
              
              
              1,694**Operating
                  Expenses**
                ***Salaries
                  and employee benefits***
                Employee
                  benefits and administration
              
              $
              1,963
              
              $
              2,173Stock-based
                  compensation
              
              
              382
              
              
              218***Other
                  expenses***Servicing,
                  professional and other fees paid
              
              $
              9,726
              
              $
              8,980Data
                  processing and communications
              
              
              1,557
              
              
              1,614Premises,
                  primarily rent
              
              
              731
              
              
              619Other
              
              
              373
              
              
              497
  *CBNA
          Omnibus Credit Agreement*
 The
          Company had outstanding short- and long-term unsecured borrowings with
          CBNA of
          $13.8 billion and $11.2 billion, respectively, at March 31, 2006 and $10.8
          billion and $13.2 billion, respectively, at December 31, 2005, incurred
          under
          the terms of the Omnibus Credit Agreement with CBNA. This agreement provides
          for
          up to $30 billion in total credit at March 31, 2006.
 
 Interest accrued
          on the Company’s fundings with CBNA are reflected in Interest expense in
          the table above.
 
 *Interest
          Rate Derivative Agreements*
 During
              the three-month periods ending March 31, 2006 and 2005, the Company
              entered into
              several interest rate derivative agreements with CBNA to manage its
              interest
              rate risk exposure. Interest paid or received on these interest rate
              derivative
              agreements are reflected in Interest expense in the table above. Also,
              as
              of March 31, 2006, the Company was a party to several interest rate
              options with
              CBNA. The derivatives, which mature January 1, 2016, had a $8.5 million
              fair
              value and a $4.3 billion notional value at March 31, 2006. For
              further information on the Company’s derivatives, see Note
              7.
  *Servicing
          Fees Earned*
 The
          Company earned loan origination and servicing revenue for work performed
          by the
          Company on CitiAssist Loans held by CBNA prior to purchase by the Company.
          This
          revenue is in Fee and other income in the table above.
 
 *Servicing
          Expenses*
 The
          Company’s loan portfolio consists primarily of student loans originated under
          the FFEL Program through a trust agreement with CBNA. The majority of the
          Company’s loan originations and servicing work on the Company’s FFEL program amd
          alternative loan portfolios were performed through the provisions of
          intercompany agreements with affiliates of Citigroup.
 
 *CBNA
          Tax-sharing Agreement*
 The
          Company shares with CBNA 50% of the deferred tax assets resulting from
          the
          payments made to Citibank (New York State) (CNYS) in 1992 by the Company
          in
          exchange for the transfer of assets to the Company and the execution of
          a
          non-competition agreement. In 2003, CNYS merged with CBNA and CBNA became
          a
          party to the tax-sharing agreement. For the three-month periods ended March
          31,
          2006 and 2005, $0.2 million and $0.3 million, respectively, were paid to
          CBNA
          under the tax-sharing agreement. At March 31, 2006, the Company had a remaining
          liability under this agreement of $2.5 million recorded in other liabilities.
          The Company is also included in the consolidated federal income tax return
          of
          Citigroup, and is included in certain combined or unitary state/local income
          or
          franchise tax returns of Citigroup or its subsidiaries. For the three-month
          periods ended March 31, 2006
     13
 and
          2005,
          the Company paid $26.5 million and $53.7 million, respectively, to CBNA
          for tax
          allocation payments. These tax allocation expenses 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 employee stock-based compensation plans, cash management,
          data processing and communication, employee benefits and administration,
          and
          premises, primarily rent. Management believes that the terms under which
          these
          transactions and services are provided are, in the aggregate, no less favorable
          to the Company than those that could be obtained from third parties.
  7. **Interest
              Rate Derivative Agreements**
  From
              time
              to time, the Company enters into interest rate derivative agreements to
              manage its interest rate risk exposure resulting from interest rate
              variability
              between the rates paid on its borrowings (based on London Interbank
              Offered
              Rate, or LIBOR) and received on its loan assets (based on either the 91-day
              Treasury Bill rate or the 90-day Commercial Paper rate). Derivative
              agreements are commitments to make cash settlements to counterparties
              at
              specified future dates, based on differentials between specified financial
              indices, as applied to a notional principal amount.
  During
                the three-month period ended March 31, 2006, the Company entered
                into a short
                term interest rate derivative with CBNA, an investment-grade counterparty,
                that
                was not designated as a hedge and, therefore, did not qualify for
                hedge
                accounting treatment under SFAS 133. The derivative agreement had
                a notional
                amount of $2.0 billion at March 31, 2006. The derivative, which matures
                January
                1, 2007, had a $0.3 million fair value at March 31, 2006. Changes
                in the fair
                value of the derivative are recorded in Fee and other income.
 At
          March
          31, 2006, the Company was a party to several sold option agreements with
          CBNA.
          These option agreements were liabilities with a fair value of $8.5 million
          and a
          notional amount of $4.3 billion at March 31, 2006. At December 31, 2005,
          the
          options had a fair value of $6.1 million and a $2.0 billion notional amount.
          These option agreements were not designated as hedges and do not qualify
          for
          hedge accounting treatment under SFAS 133. The Company entered into these
          option
          agreements as economic hedges to the floor income component of the residual
          interests in the securitized assets. Changes in the fair value of the options
          are recorded in Fee and other income.
  8. **Commitments
                and Contingencies**
 In
                the
                ordinary course of business, the Company is a defendant, co-defendant
                or party
                to various litigation and regulatory matters 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. This statement is a forward-looking statement within
                the meaning
                of the Private Securities Litigation Reform Act. See **Forward-Looking
                Statements** on page
                30.
 **9.**
              **Student
                  Loan Securitizations**
  The
        Company maintains a program to securitize certain portfolios of FFEL Program
        student loan assets. Under the Company’s program to securitize student loans,
        the loans are removed from the consolidated financial statements of the Company
        and ultimately 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 had no securitization transactions
        in the first quarter of either 2006 or 2005.
         14
 The
        following table reflects amounts and activities related to the Company’s
        securitizations at March 31, 2006 and December 31, 2005:
  *(Dollars
                    in thousands)*
                
                **2006**
                
                **2005**Total
                    student loan assets in trusts
                
                $
                5,286,645
                
                $
                5,427,693Residual
                    interests
                
                
                187,299
                
                
                188,454Servicing
                    assets
                
                
                75,977
                
                
                76,784Receivable
                    from trusts for servicing
                
                
                2,223
                
                
                1,776Payable
                    to trusts for student loan payments
                
                
                1,345
                
                
                1,007
  The
          following table reflects amounts received from the securitization trusts
          for the
          first three months of 2006 and 2005:
 *(Dollars
                      in thousands)*
                  
                  2006
                  
                  **2005**Cash
                      received from trust for servicing
                  
                  $
                  6,433
                  
                  $
                  1,898Cash
                      received from trust on residual
                  
                  
                  -
                  
                  
                  6,050
 The
          changes in the Company’s residual interests during the three-month periods ended
          March 31, 2006 and 2005 are summarized in the table below:
  *(Dollars
                  in thousands)*
              **Three
                  Months Ended March 31,****2006**
              
              **2005**Balance
                    at beginning of period
              $
              188,454
              
              $
              72,733Accreted
                    interest
              
              4,474
              
              
              1,640Cash
                    flows from trusts
              
              -
              
              
              (6,050)Temporary
                    change in fair value of available-for-sale
                    securities
              
              -
              
              
              (2,418)Valuation
                  adjustment on trading securities
              
              (4,944)
              
              
              -Impairment
                    of 2004 trust
              
              (685)
              
              
              (5,702)Balance
                    at end of period
              $
              187,299
              
              $
              60,203
  The
        residual interest in the 2004 Trust is accounted for as an investment in
        available-for-sale securities. The residual interests in the 2005 Trusts
        are
        accounted for as trading securities.
  The
          Company continues to service the loan portfolios after they have been
          securitized and considers the securitized portfolios to be part of the
          portfolio
          that it manages. At March 31, 2006, the Company’s managed loans included $865.8
          million of loans that were 90 or more days delinquent, of which $728.6
          million
          were in the Company’s owned portfolio and $137.2 million were in securitized
          portfolios. At December 31, 2005, managed loans included $879.3 million
          loans
          that were 90 or more days delinquent, of which $742.6 million were in the
          Company’s owned portfolio and $136.7 million were in securitized portfolios.
             15
 Changes
        in the Company’s servicing assets during the three-month periods ended March 31,
        2006 and 2005 are presented below.   During the first quarters of
        2006 and 2005, the Company earned $6.9 million and $1.9 million,
        respectively, of revenue, gross of amortization, for servicing the
        trust portfolios. Failure to service the loans in accordance with contractual
        requirements could lead to a termination of the servicing rights and the
        loss of
        future servicing fees.
 
 *(Dollars
                  in thousands)*
              **Three
                  Months Ended March 31,****2006**
              
              **2005**Balance
                  at beginning of period
              
              $
              76,784
              
              $
              28,177Cumulative
                  effect adjustment
              
              
              2,435
              
              
              -Other-than-temporary
                  impairment
              
              
              -
              
              
              (267)Valuation
                  adjustment
              
              
              (3,242)
              
              
              -Amortization
              
              
              -
              
              
              (881)Balance
                  at end of period
              
              $
              75,977
              
              $
              27,029
  The
          cumulative effect adjustment in the table above was related to the adoption
          of
          SFAS 156. See notes 1 and 2 for further information. The valuation adjustment
          in
          the table above primarily represents the time value decay of the servicing
          asset. Prior to the adoption of SFAS 156, this adjustment was recorded
          as
          amortization. The valuation adjustment related to changes in loan balances
          and
          assumptions.
 The
        key
        assumptions used to value the residual interests for the securitization trusts
        at March 31, 2006 and December 31, 2005 were as follows:
 
 **March
                  31, 2006**
              **December
                  31, 2005**Discount
                  rate
              10.0%
              10.0%Consolidation
                  prepayment rates
              Up
                  to 10.0% in 6 to
              Up
                  to 10.0% in 6 to10
                  years
              10
                  yearsAnticipated
                  net credit losses
              0.08%
                  to 0.11%
              0.00%Basis
                  spread between LIBOR and Commercial Paper rate
              0.10%
              0.10%Borrower
                  Benefits - Automated Clearing House
              18.0%
                  to 41.5%
              18.0%
                  to 39.7%Borrower
                  Benefits - On time payments
              14.5%
                  to 33.5%
              14.5%
                  to 33.0%
  The
        key
        assumptions used to value the servicing assets for the securitization trusts
        at
        March 31, 2006 and December 31, 2005 were as follows:
 
 **March
                  31, 2006**
              
              **December
                  31, 2005**Discount
                  rate
              6.1%
              
              6.0%Consolidation
                  prepayment rates
              Up
                  to 10.0% in 6 to 10
                  years
              
              Up
                  to 10.0% in 6 to 10
                  yearsAnticipated
                net credit loss
              0.08%
                to 0.11%
              
              0.00%Servicing
                  margin
              26
                  basis points
              
              26
                  basis points
 
 The
          loans
          held in the trust are eligible for various borrower benefits. Specifically,
          borrowers receive a 25 basis point rate reduction if they sign up for automated
          clearing house payments. In addition, borrowers can receive a 1% rate reduction
          if they make 36, 48 or 60 consecutive on time payments, depending on the
          program, and continue to make on time payments.
 
 Since
          the
          Company receives risk-sharing benefits as an Exceptional Performer, the
          Company
          used an anticipated net credit loss assumption of 0.08% to 0.11% for the
          securitized loans at March 31, 2006 and 0% at December 31, 2005. The
          increase in the anticipated net credit loss assumption for 2006 reflects
          changes in the Exceptional Performer provisions implemented under the
          Deficit Reduction Act, which was enacted in February 2006. These provisions
          impose a 1% risk-sharing deductible on default claims submitted by Exceptional
          Performers. Previously, servicers with this designation were not subject
          to
          risk-sharing deductibles. If the Company lost its Exceptional Performer
          designation, the fair value of the residual interests at March 31, 2006
          would
          decrease by approximately $3.2 million. Also, a change in market interest
          rates
          could affect the value of the residual interests.
  16
 A
          sensitivity analysis is provided 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 must be
          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, 2006
              $  
                   187,299
              $     
                  75,977Discount
                  rate
              10.0%
              6.1%10%
                  adverse change
              $
                   (7,472.9)
              $
                   (1,776.8)20%
                  adverse change
              $(14,379.0)
              $
                   (3,480.3)Consolidation
                  prepayment rate
              Up
                  to 10.0% in 6 to
              Up
                  to 10.0% in 6 to10
                  years
              10
                  years10%
                  adverse change
              $
                   (3,673.4)
              $
                   (1,761.6)20%
                  adverse change
              $
                   (7,215.4)
              $
                   (3,477.7)Anticipated
                net credit losses
              0.08%
                to 0.11%
              0.08%
                to 0.11%10%
                adverse change
              $
                 (1,325.9)
              $
                    (436.8)20%
                adverse change
              $
                 (2,648.6)
              $
   
(884.4)Servicing
                  margin
              -
              26
                  basis points10%
                  adverse change
              -
              $
                   (5,787.0)20%
                  adverse change
              -
              $(11,574.1)Basis
                  spread
              0.10%
              -10%
                  adverse change
              $ 
                  (2,238.9)
              -20%
                  adverse change
              $
                   (4,477.6)
              -Borrower
                  benefits - ACH
              18.0%
                  to 41.5%
              -10%
                  adverse change
              $
                   (1,449.8)
              -20%
                  adverse change
              $
                   (2,995.9)
              -Borrower
                  benefits - on time payments
              14.5%
                  to 33.5%
              -10%
                  adverse change
              $
                   (3,982.2)
              -20%
                  adverse change
              $
                   (7,973.1)
              -
  These
        estimates and assumptions are subject to change and, therefore, the fair
        values
        of the retained interests as presented in the consolidated financial statements
        are subject to possible further impairment and may not be fully recoverable.
  The
          Company uses standard industry models to determine the valuation of its
          residual
          interests and servicing assets. These models have been validated internally.
          Each class of servicing assets is valued individually.
 **10.**
              **Short-
                  and Long-Term
                  Borrowings**
 The
          Company’s outstanding borrowings were procured through the terms of an Omnibus
          Credit Agreement with CBNA.
 Approximately
            $7 billion of the Company's outstanding short- and long-term debt includes
            various interest rate options embedded in the respective debt instruments.
            These
            embedded options have been determined to be clearly and closely related
            to the
            underlying debt instruments and, in accordance with SFAS 133, do not
            require
            bifurcation. Management considers these options as economic hedges to
            the floor
            income component of its assets.
 17
 **11.**
              **Future
                  Application of Accounting
                  Standards**
 
 ***Other-than-Temporary
        Impairment of Certain Investments***
 On
          September 30, 2004, the FASB voted unanimously to delay the effective date
          of
          EITF 03-1, *The
          Meaning of Other-Than-Temporary Impairment and its Applications*  *to
          Certain Investments.* The
          delay
          applies to both debt and equity securities and specifically applies to
          impairments caused by interest rate and sector spreads. In addition, the
          provisions of EITF 03-1 that were delayed relate to the requirements that
          a
          company declare its intent to hold the security to recovery and designate
          a
          recovery period in order to avoid recognizing an other-than-temporary impairment
          charge through earnings. On November 3, 2005, the FASB issued FASB Staff
          Position FAS 115-1, *The
          Meaning of Other-Than-Temporary Impairment and its Applications to Certain
          Investments,* revising
          the guidance in EITF 03-1, which did not have a material impact on the
          Company’s
          Consolidated Financial Statements.
                                         18
 **Item
                  2.**
              **Management's
                  Discussion and Analysis of Financial Condition and Results of
                  Operations**
  **General**
 
 The
          following discussion should be read in conjunction with the Consolidated
          Financial Statements and accompanying notes.
 
 For
          a
          description of certain terms used in this Form 10-Q, see the Company’s 2005
          Annual Report and Form 10-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
          30.
  **Background
            of The Student Loan Corporation**
  The
              Company is one of the nation’s leading originators and holders of student loans,
              principally those 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
              Student Loan Corporation (the Company) originates, manages and services
              federally insured student 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 and holds
              student loans that are not insured under the Higher Education Act,
              primarily
              CitiAssist Loans.
 
 **Management
            Summary**
 
 The
            Company is a market leader in education finance and offers a full array
            of
            student loan products to students and their parents. The Company is committed
            to
            providing exceptional service to schools’ financial aid administrators (FAAs)
            and borrowers, offering competitive and innovative products to students
            and
            their families, and maximizing the functionality of its on-line services.
            The
            Company differentiates itself from its competitors by offering life of
            loan
            servicing on most loans directly originated by it.
 
 The earnings
            of the Company are primarily generated by the spread between the interest
            earned
            on its loan assets (based on either the 91-day Treasury Bill rate or
            the 90-day
            Commercial Paper rate) and the interest paid on its borrowings (primarily
            based
            on LIBOR). This earnings spread between the interest earned and the
            interest expensed represents net interest income. The Company’s earnings are
            also impacted by portfolio growth and floor income, as described below.
            Net
            interest income may be adversely impacted by changes in the current interest
            rate environment and, especially, by spread changes between either the
            91-day
            Treasury Bill rate or the 90-day Commercial Paper rate
            and LIBOR. The Company manages these risks by regularly monitoring interest
            rates. The Company acts upon fluctuations in the interest rate curves
            and may
            enter into interest rate derivative agreements on portions of its portfolio.
            In
            declining short-term rate environments, the Company’s net interest income may
            benefit from floor income, which is generated when the Company’s cost of funds
            declines while borrower and government subsidized interest rates remain
            fixed at
            the annual reset rate, yielding net interest income in excess of the
            minimum
            expected spread. Also, although the fixed interest rate at which borrowers
            pay
            interest on Federal Consolidation Loans is generally not subject to the
            annual
            reset provisions, a decline in the Company’s cost of funds during the term of
            such loans could contribute to floor income. See the definition of floor
            income
            in ***Special
            Allowance and Floor Income*** **** on
            page
            25.
  In
            addition to floor income and portfolio growth, the Company’s earnings may also
            be impacted by the number and size of asset sales and securitizations,
            which can
            fluctuate on a quarterly basis. Other factors that may impact earnings
            are loan
            servicing revenue and loan servicing costs, applicable laws and regulations,
            prepayment rates on student loans including those resulting from student
            loan
            consolidations, the number of borrowers eligible for borrower benefits,
            financing options available to students and their parents, and competitors’
initiatives.
 **Critical
          Accounting Policies**
 
 There
          were no material changes to The Student Loan Corporation’s (the Company’s)
          critical accounting policies in the first quarter of 2006. The Company
          considers
          its accounting policies on revenue recognition, loan accounting, allowance
          for
          loan losses and student loan securitizations to be its critical accounting
          policies. For a description of these and other significant accounting policies,
          see Notes 1, 3 and 9 to the consolidated financial statements or the notes
          to
          the consolidated financial statements in the Company’s 2005 Annual Report and
          Form 10-K.
      19
 ***Revenue
            Recognition***
  As
            discussed in Note 1 to the consolidated financial statements, revenues
            are
            impacted by the amortization of deferred premium and origination costs
            and the
            effect of prepayments on these deferred costs. The Company considers
            estimates
            of future prepayments in the calculation of expected life. Estimates
            of future
            prepayment speeds are based on a combination of actual past prepayment
            rates as
            well as management’s estimate of future consolidation rates, which are
            influenced by current and future interest rates. Future prepayment speeds
            are
            also impacted by whether the underlying Stafford or PLUS Loans are consolidated
            off-balance sheet (i.e., prepayments) or are retained in the Company’s own
            portfolio, which is not accounted for as prepayment. In the last few
            years,
            higher levels of loan consolidations were experienced as borrowers converted
            their variable rate loans to fixed rate loans in a rising interest rate
            environment. This has decreased the weighted average lives of Stafford
            and PLUS
            Loans. In addition, higher levels of consolidation loan prepayments have
            decreased the weighted average lives of consolidation loans in recent
            years.
            Management believes that the high consolidation levels will begin to
            decline
            after June 30, 2006, when certain interest rate provisions of the Deficit
            Reduction Act will take effect.
  Unamortized
            deferred origination costs and loan premiums that are being amortized
            on the
            pool method may be impacted by actual prepayment rates that differ from
            the
            original estimated assumption. If a difference arises between the Company’s
            anticipated future prepayments and the actual prepayment rates, the Company
            recalculates the effective yield to reflect actual prepayments to date,
            and the
            adjustment is charged to current period interest income. The net investment
            in
            the loans is adjusted to the amount that would have existed had the new
            effective yield been applied since loan inception or the acquisition date.
            Anticipated future prepayments of these loans are reviewed
            quarterly.
  ***Securitization
            Activity and Off-Balance Sheet Transactions***
 
 The
            Company securitizes student loan assets as a means of strengthening its
            balance
            sheet and to access competitive financing rates in the market. Under
            these
            securitization programs, assets are sold into a trust and used as collateral
            by
            the trust to access financing. The cash flows from assets in the trust
            service
            the corresponding trust securities. If the structure of the trust meets
            stringent accounting guidelines, trust assets are treated as sold and
            are no
            longer reflected as assets of the Company. See Note 1 to the consolidated
            financial statements for further information.
  Gains
            or
            losses on securitization depend in part on the previous carrying amount
            of the
            loans involved in the sale, which is allocated between the loans sold
            and the
            interests retained based on the relative fair values at the date of sale.
            Initial and subsequent measurements of the fair value of the residual
            interests
            are performed using a discounted cash flow model. The discount rate,
            basis
            spreads, anticipated net credit loss rate, average loan life, and borrower
            benefits are the key assumptions utilized to measure the fair value of
            the
            residual interests. The Company estimates the market discount rate based
            on a
            market return on equity for an investment of this type, which was 10%
            at March
            31, 2006 and 2005. Changes in the prepayment rates also impact the valuation
            of
            the residual interests. Historical statistics on prepayments and borrower
            defaults are utilized to estimate prepayment rates. In addition, since
            the
            underlying asset class has long maturities, market data is also utilized
            to
            predict future prepayment speeds for periods into the future that are
            longer
            than the Company’s historical data can predict. The Company uses a loan
            prepayment ramp curve to predict prepayment speeds. At March 31, 2006,
            the
            Company used a ramp that predicts prepayment rates at graduated levels
            from 0%
            to 10% in 6 to 10 years. At March 31, 2005, the Company used a prepayment
            ramp
            of up to 8% in 10 years. When prepayment rates increase and the average
            life of
            the student loan decreases, a corresponding decrease is reflected in
            the fair
            value of the residual interests.
  The
            Company was designated as an Exceptional Performer by the Department
            effective
            January 1, 2004, in recognition of its exceptional level of performance
            in
            servicing FFEL Program loans and currently receives 100% reimbursement
            on claims
            submitted for all eligible FFEL Program loans serviced by the Company
            or its
            similarly designated servicers and qualifies for exemption from the 2%
            risk-sharing deductible otherwise imposed with respect to such claim
            payments.
            Under the provisions of the Deficit Reduction Act, the Company will be subject
            to a 1% risk-sharing deductible for loans submitted for default claim
            on or
            after July 1, 2006. Previously, eligible loans serviced by Exceptional
            Performers were not subject to any risk-sharing deductibles. As a result of
            these Exceptional Performer risk-sharing provisions, the Company recorded a
            $3.0 million reduction in fair value of its securitization residual interests
            in
            the first quarter of 2006. If the Company and its qualified servicers lost
            their Exceptional Performer designations, the fair value of the residual
            interests at March 31, 2006 would decrease by an additional $3.2
            million.
  20
 For
            further information on the Company’s student loan securitizations, see Note 9 to
            the consolidated financial statements.
  ***Allowance
            for Loan Losses***
 
 The
            Company has an allowance for loan losses for those loans or portions
            of loans in
            its portfolio that are not 100% insured under government guarantees or
            private
            credit insurance. The allowance provides a reserve for estimated losses
            on the
            portion of the FFEL Program loan portfolio subject to the 2% risk-sharing
            provisions of the Act, as well as the portion of the CitiAssist Loan
            portfolio
            subject to deductibles applicable under the credit risk insurance obtained
            from
            third parties. Most insured CitiAssist Loans are subject to deductibles
            of
            between 5% and 20% of the claim amount. These uninsured CitiAssist Loans,
            which
            are fully reserved at 120 days of delinquency, are written off at that
            time. For
            information on insured and uninsured CitiAssist Loans, reserves and delinquency
            rates at March 31, 2006 and December 31, 2005, see Note 3 to the consolidated
            financial statements. Estimated provisions of probable losses inherent
            in the
            Company’s portfolios increase the allowance for loan losses and are expensed
            currently. Actual losses are charged off against the reserve as they
            occur and
            subsequent recoveries increase the reserve.
  As
              described in the Securitization Activity section above, effective January
              1,
              2004, the Company was designated as an Exceptional Performer by the
              Department.
              Of the Company’s total $20.3 billion of FFEL Program loan principal at March 31,
              2006, 95% is subject to the benefits of the Exceptional Performer designation.
              Also, as described above, on or after July 1, 2006 the provisions of
              the Deficit
              Reduction Act will subject the Company, which is an Exceptional Performer,
              to a
              1% risk-sharing deductible for loans submitted for default claim after
              that
              date. A 3% risk-sharing deductible will be applied to claims on loans
              originated
              on or after July 1, 2006 serviced by loan servicers that have not received
              the
              Exceptional Performer designation.
 The
            size
            of the allowance is established based on amounts of estimated probable
            losses
            inherent in the Company’s CitiAssist and FFEL Program loan portfolios starting
            with the first day of each loan’s delinquency. These losses are estimated from
            historical delinquency and credit loss experience, updated for current
            conditions, and applied to the current aging of the portfolio. Excluding
            special
            circumstances, such as the gain or loss of the Exceptional Performer
            designation, the allowance for loan loss typically follows the seasonality
            of
            the repayment cycle of the loan portfolio. Generally, repayments of loan
            balances increase as a result of graduating students entering repayment
            in
            either November or June. Delinquency generally increases twice each year,
            coinciding with the repayment start dates, and is usually followed by
            an
            increase in the allowance for loan losses .
 
 Actual
            losses, including those that arise from claims with guarantors and private
            insurers, are charged against the allowance as they occur. Government
            risk-sharing, changes in the quality of loans moving into repayment and
            changes
            in the Company’s collections strategies could impact delinquency rates and
            credit losses. Past experience has indicated that either of these changes
            could
            significantly impact loan loss reserve requirements.
                  21
 An
            analysis of the allowance for loan losses and its components is presented
            in the
            table below:
 
 *(Dollars
                      in*
                    *thousands)*
                  First
                    Quarter
                    2006
                  Fourth
                    Quarter
                    2005
                  Third
                    Quarter
                    2005
                  Second
                    Quarter
                    2005
                  First
                    Quarter
                    2005**Balance
                      at beginning of period**FFEL
                      Program
                  $1,993
                  $2,003
                  $1,338
                  $1,602
                  $1,753CitiAssist
                  2,997
                  2,662
                  3,327
                  2,744
                  3,2934,990
                  4,665
                  4,665
                  4,346
                  5,046**Provision
                      for loan losses**FFEL
                      Program
                  2,401
                  1,335
                  1,354
                  919
                  502CitiAssist
                  3,739
                  3,994
                  1,073
                  3,880
                  1006,140
                  5,329
                  2,427
                  4,799
                  602**Charge
                      offs**FFEL
                      Program
                  (154)
                  (1,348)
                  (691)
                  (1,184)
                  (801)CitiAssist
                  (2,006)
                  (3,818)
                  (2,001)
                  (3,511)
                  (1,470)(2,160)
                  (5,166)
                  (2,692)
                  (4,695)
                  (2,271)**Recoveries**FFEL
                      Program
                  5
                  3
                  2
                  1
                  148CitiAssist
                  412
                  159
                  263
                  214
                  821417
                  162
                  265
                  215
                  969**Balance
                      at end of period**
                    FFEL
                      Program
                    CitiAssist
                  4,245
                    5,142
                  1,993
                    2,997
                  2,003
                    2,662
                  1,338
                    3,327
                  1,602
                    2,744$9,387
                  $4,990
                  $4,665
                  $4,665
                  $4,346
  **Accounting
            Changes and Future Application of Accounting Standards**
 
 Management
            has determined that the impact on its financial condition and results
            of
            operations from the adoption of new accounting standards during the first
            quarter of 2006 and the future application of new accounting standards
            subsequent to the first quarter of 2006 is not material. See Notes 2
            and 11 to
            the consolidated financial statements for further discussion.
  **Financial
            Condition**
 
 During
            the three-month period ending March 31, 2006, the Company’s managed loan
            portfolio grew by $0.9 billion (3%) to $31.5 billion. Included in this
            amount
            are the Company’s owned loans of $26.2 billion, which consist primarily of loans
            originated under the Federal Family Education Loan (FFEL) Program, and
            $5.3
            billion of student loans held in securitization trusts. The Company’s owned
            assets, comprised of $23.6 billion of loans held in its portfolio and
            $2.6
            billion of loans held for sale, increased by $1.1 billion (4%) from $25.1
            billion at December 31, 200 5.
            22
  The
          table
          below shows the loan activity for the loans owned by the Company during the
          three-month periods ended March 31, 2006 and 2005.
 
 *(Dollars
                  in millions)*
              **March
                  31,**
                **2006**
              **March
                  31,**
                **2005**Balance
                  at beginning of period
              $25,141
              $24,884FFEL
                  Program Stafford and PLUS Loan disbursements
              1,276
              1,181Secondary
                  market and other loan procurement activities
              1,337
              1,388Loan
                  reductions(1)
              (1,354)
              (1,105)Loan sales,
                  gross
              (217)
              (1)Deferred
                  costs and other adjustments
              22
              47Balance
                  at end of period
              $26,205
              $26,394
 
 (1) 
        Loan reductions are attributable primarily to borrower principal payments,
        loan
        consolidations and claims paid by guarantors.
  ***Loan
        Disbursement and Procurement Activity***
 
 Loan
        disbursements volume continued to grow during the first three months of 2006
        compared to the same period last year. Loan disbursements represent the amount
        of cash distributed to or on behalf of the borrowers for loan
        principal related to loan originations. The Company’s loan disbursements and
        CitiAssist Loan commitments to finance education for the three-month periods
        ended March 31, 2006 and 2005 are presented in the table below:
 
 *(Dollars
                  in millions)*
              **2006**
              **2005**
              **Difference**
              **%
                  Change**FFEL
                  Program Stafford and PLUS Loan disbursements
              $1,276(1)
              $1,181(2)
              $  95
              8%CitiAssist
                  Loans disbursed under commitments to purchase, net
              619(3)
              548(4)
              71
              13%Total
                  loan disbursements and commitments
              $1,895
              $1,729
              $166
              10%
 
 (1)
        Of
        these disbursements, no material amount of loans were disbursed for
        resale.
 (2)
        Amount
        includes $1,156 million disbursed for portfolio and $25 million disbursed
        for
        resale.
 (3) This
        amount consists of the CitiAssist Loans that were disbursed by CBNA during
        2006.
        As of March 31, 2006, most of these loan disbursements had
 not
        yet been purchased by the Company. In addition, $26 million of CitiAssist
        Loan
        commitments were awaiting disbursement by CBNA. These loans
 will be
        purchased by the Company after final disbursement.
 (4) This
        amount consists of the CitiAssist Loans that had been disbursed by CBNA during
        2005. In addition, $17 million of CitiAssist Loan commitments
 were awaiting disbursement by CBNA.  Most of these
        loan disbursements were purchased by the Company during 2005.
 
 The
        $95
        million increase in FFEL Program loan disbursements for the first three months
        of 2006, compared to the same period last year, is primarily attributable
        to
        ongoing sales initiatives  and
        overall growth in the marketplace.  In
        order
        to comply with certain regulatory requirements, CitiAssist Loans are originated
        by CBNA through an intercompany agreement. Following full disbursement, the
        Company purchases all qualified CitiAssist Loans at CBNA’s carrying value at the
        time of purchase, plus contractual fees. CitiAssist Loans are originated
        through
        an alternative loan program and do not carry federal government
        guarantees.  Generally, such loans are insured against loss by private
        insurers and/or are covered under other risk-sharing arrangements with
        schools and universities. At
        March
        31, 2006 and 2005, $1,016 million and $709 million, respectively, of CitiAssist
        Loans were owned and held by CBNA. CitiAssist Loans are generally purchased
        from
        CBNA shortly after final disbursement.The
        CitiAssist Loan growth reflects borrowers’ increased need for alternative
        sources of education funding outside of the FFEL Program.
           23
 The
        Company’s secondary market and other loan procurement activities for the
        three-month periods ended March 31, 2006 and 2005 are presented in the table
        below:
 
 *(Dollars
                  in millions)*
              **2006**
              **2005**
              **Difference**
              **%
                  Change**FFEL
                  Program volume, primarily Consolidation Loans
              $   717
              $  
                  797
              $
                  (80)
              (10)%Purchases
                  of CitiAssist Loans
              344(1)
              507(1)
              (163)
              (32)%Other
                  loan purchases
              276
              84
              192
              229%Total
                  secondary market and other loan procurement activities
              $1,337(2)
              $1,388(3)
              $
                  (51)
              (4)%
  (1)
              The
                  Company purchases CitiAssist Loans from CBNA shortly after final
                  disbursement. These loans have also been fully included in the
                  loan
                  disbursements and commitments table on page 23 in
                  CitiAssist Loans disbursed under commitments to purchase, net in
                  this
                  quarter or in prior quarters depending on when the loan was disbursed
                  by
                  CBNA.
 (2)
              Amount
                  includes $1,328 million procured for portfolio and $9 million procured
                  for
                  resale. (3)
              Amount
                includes $1,380 million procured for portfolio and $8 million procured
                for
                resale.
  Consolidation
          loan volume is expected to decline after June 30, 2006, when certain provisions
          of the Deficit Reduction Act become effective. Of the Consolidation Loan
          volume
          for the three-month periods ended March 31, 2006 and 2005, presented in
          the
          table above, $460 million and $308 million, respectively, were consolidations
          of
          federally guaranteed student loans already held in the Company’s loan portfolio.
 
 Generally,
          most loans in the held for sale portfolio are not specifically purchased
          or
          originated for resale and are initially recorded in the Company’s held
          portfolio. However, as sales opportunities present themselves, certain
          of these
          loan purchases or originations may be reclassified to held for sale and
          eventually sold or securitized.
 
 The
          chart
          above includes CitiAssist Loans that were purchased from CBNA, the originator
          and disburser of these loans. Certain loans that are included in the loan
          disbursements and CitiAssist Loan commitments table on page 23 have not
          yet been
          purchased by the Company from CBNA and are not included in the Company’s March
          31, 2006 loan portfolio. The Company expects to acquire substantially all
          of
          those CBNA-owned CitiAssist Loans after they have been fully disbursed.
  ***Net
        Interest Margin Spread Analysis***
 
 A
        net
        interest margin spread analysis for the Company’s on-balance sheet portfolio is
        as follows:
 
 **Three-month
                  periods ended**
                **March
                  31,****2006**
              **2005**Student
                  loan yield, before floor income
              6.79
                  %
              4.88
                  %Floor
                  income
              0.06
                  %
              0.40
                  %Accreted
                  interest on securitizations
              0.08
                  %
              0.02
                  %Consolidation
                  loan rebate fees
              (0.44)%
              (0.44)%Amortization
                  of deferred loan origination and purchase costs
              (0.58)%
              (0.41)%Student
                  loan net yield
              5.91
                  %
              4.45
                  %Student
                  loan cost of funds
              (4.23)%
              (2.42)%Student
                  loan net interest margin
              1.68
                  %
              2.03
                  %
 
 Above
        is
        a net interest margin spread analysis which contains quarter-to-date
        comparisons. The overall student loan spread has decreased because of lower
        floor revenue in the Company’s loan consolidation portfolio and increases
        in the amount of amortization
        of deferred loan origination and purchase costs .
       24
 ***Rate/Volume
        Analysis***
 
 The
        following table shows the contribution to changes year-over-year 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.
 
 First
                  quarter of 2006 vs. First quarter of2005*(Dollars
                  in millions)*
              Increase
                  (Decrease) Due to Change In:Volume
              Rate(a)
              Net(b)Interest
                  earning assets
              $
                  1.4
              $  
                   92.6
              $   
                  94.0Interest
                  bearing liabilities
              0.1
              115.7
              115.8Net
                  interest income
              $
                  1.3
              $
                  (23.1)
              $
                  (21.8)
  (a)
              Changes
                  in rates for interest bearing liabilities refer to fluctuations
                  in Federal
                  Funds, LIBOR and Treasury Bill
                  indices.
 (b)
              Rate/volume
                  variance is allocated based on the percentage relationship of changes
                  in
                  volume and changes in rate to the absolute dollar amount of changes
                  in
                  each.
 
 The
          net
          interest income for the Company increased $1.3 million from volume for
          the
          three-month period ended March 31, 2006, compared to the same period of
          the
          prior year. The increase was primarily due to higher originations, which
          increased portfolio balances. The net interest income decreased by $23.1
          million
          from rate changes for the three-month period ended March 31, 2006, compared
          to
          the same period of the prior year. The decrease was primarily due to lower
          floor
          income of $18.3 million, which resulted from higher short-term interest
          rates in
          the first quarter of 2006 compared to the first quarter of 2005. This resulted
          in higher funding costs without corresponding interest revenue since certain
          student loan assets, such as loan consolidations, earn interest at fixed
          rates.
          Floor income is described more fully below. In addition, the current interest
          rate environment of increasing interest rates resulted in reduced net interest
          income during 2006 due to the compressed spread between earnings on the
          assets
          and funding costs. Generally in a rising rate environment, the rate at
          which the
          Company earns interest on its CitiAssist Loan assets (i.e., the prime rate)
          rises slower than the rate that the Company pays for its funding costs
          (i.e.,
          generally LIBOR).
 
 ***Special
          Allowance and Floor Income***
 
 Most
          FFEL
          Program loans qualify for the federal government’s special allowance
          payment (SAP). Whenever the stated interest rate on these FFEL Program
          loans
          provides less than prescribed rates of return, as defined by the Act, the
          federal government makes a SAP.
  For
          purposes of evaluating the Company’s financial results, management determines
          floor income to be the amount of additional interest income generated when
          net
          interest margin exceeds the minimum expected spreads. Generally, floor
          income is
          earned in declining short-term interest rate environments when borrower
          and
          government subsidized interest rates remain fixed. See ***Net
          Interest Margin Spread*** **** ***Analysis*** on page
          24 to see the impact of floor income on net interest margin.
 Floor
        income, as determined by the Company, is a financial measure that is not
        defined
        by U.S. GAAP. The following table depicts the relationship of floor income
        to
        total net interest income for the three-month periods ended March 31, 2006
        and
        2005:
 
 *(Dollars
                  in millions)*
              2006
              2005Floor
                  income
              $    4.1
              $ 
                  22.4Other
                  interest income, net
              103.0
              106.5Net
                  interest income
              $107.1
              $128.9
  The
          Company earned $4.1 million of floor income in the first quarter of 2006,
          compared to $22.4 million during the same period of the prior year. The
          decrease
          in 2006 year-to-date floor income, compared to the prior year, is primarily
          attributable to higher short-term interest rates in 2006. Floor income,
          which is
          included in interest income, may
          be
          further reduced in future quarters should short-term interest rates continue
          to
          rise. In addition, floor income will be further reduced when certain provisions
          of the Deficit Reduction Act take effect. These
          provisions require the rebate of almost all floor income to the Department
          effective April 1, 2006 for loans for which the first disbursement is made
          on or
          after April 1, 2006.
  25
  ***Loans***
 
 The
          Company’s portfolio of FFEL Program Stafford Loans, excluding deferred fees, was
          $8,482 million at March 31, 2006, an increase of $107 million (1%) from
          December
          31, 2005. The Company’s securitized loan portfolio and its loans
          held for sale, composed primarily of FFEL Program Consolidation
          Loans, totaled $16,129 million, excluding deferred fees, an increase
          of $483 million (3%) from December 31, 2005. Without the securitized
          portfolios, FFEL Program Consolidation Loans of $10,843 million, excluding
          deferred fees, at March 31, 2006 increased $625 million (6%) from December
          31,
          2005. CitiAssist Loans of $5,015 million, excluding deferred fees, increased
          $203 million (4%) from December 31, 2005. See the summary of the Company’s loans
          by program type in Note 3 to the consolidated financial statements. Of
          the
          Company’s total student loan portfolio, $4.1 billion are serviced by external
          servicers.
 
 Given
          the
          rising cost of education and students’ needs for alternative sources of
          education financing, CitiAssist Loans continue to be the fastest growing
          segment
          of the Company’s loan portfolio. Although loan consolidation volume has
          increased substantially in recent years, this volume is expected to temper
          not
          only as interest rates rise, but also as the number of borrowers who have
          not
          yet consolidated their eligible loans declines.
  The
          Company’s allowance for loan losses of $9.4 million at March 31, 2006 includes
          $4.2 million for its FFEL Program loan portfolio and $5.2 million for its
          CitiAssist Loans. The allowance at December 31, 2005 of $5.0 million was
          composed of $2.0 million for its FFEL Program loans and $3.0 million for
          its
          CitiAssist Loans. See information on the allowance for loan losses beginning
          on
          page 21. The
          increase in the allowance for loan losses at March 31, 2006 compared to
          the
          prior year was primarily attributable to the risk-sharing provisions of
          the
          Deficit Reduction Act. For more information on the impact of the Deficit
          Reduction Act, see**Regulatory
          Impacts**on page
          29.
 
 ***Private
          Education Loans in Repayment***
  The
            Company’s alternative private education loan portfolio consists primarily of
            CitiAssist Loans. Private education loans are not guaranteed by the federal
            government. However, although most of the CitiAssist Loans are insured
            by
            private third party insurers, a portion is not covered by insurance.
            At March
            31, 2006, approximately $0.4 million of the CitiAssist Loans in repayment
            are
            self-insured by the Company, do not carry outside credit risk insurance,
            and may
            be covered under risk-sharing agreements with key schools. The Company
            is
            exposed to losses of up to 100% on loans that do not carry insurance
            or maintain
            contracts with schools for risk-sharing arrangements
  The
        insured and uninsured amounts of CitiAssist Loans in repayment are presented
        in
        the table below:
 
 March 31, 2006
              December 31, 2005*(Dollars
                  in millions)*
              Amount
              %
              Amount
              %Insured
                  CitiAssist Loans
              $2,042
              82%
              $2,081
              82%Uninsured
                  CitiAssist Loans
              436
              18%
              461
              18%Total
                  CitiAssist Loans in repayment
              $2,478
              100%
              $2,542
              100%
  Insured
            CitiAssist Loans are covered under agreements with one of the following
            insurance companies: Guaranty National Insurance Company (GNIC), Royal
            Indemnity
            Company (RIC), or United Guaranty (UG). UG is a subsidiary of American
            International Group. GNIC and RIC are part of Royal & SunAlliance’s US
            insurance operations (RSA USA). The GNIC and RIC insured CitiAssist Loans
            that
            are submitted for default claim are paid the claim amount less a risk-sharing
            loss of 5% of the sum of the outstanding principal and accrued interest
            balances. Under UG's program, which insures most new CitiAssist Loan
            originations, defaults generally subject the Company to risk-sharing
            losses of
            between 10% and 20% of the claim amount. In the fourth quarter of 2005,
            the
            Company signed a new contract with UG that provided for insurance coverage
            on
            new CitiAssist Loans originated during 2006. During the first quarter
            of 2006,
            the Standard & Poor’s credit rating for RSA USA was withdrawn. American
            International Group is rated AA by Standard & Poor’s and UG is not
            rated as of March 31, 2006. See  Note
            3 to
            the consolidated financial statements for further information about CitiAssist
            Loans.
  ***Interest
          Rate Derivative Agreements***
 
 From
          time
          to time, the Company enters into interest rate derivative agreements to
          manage its interest rate risk exposure resulting from interest rate variability
          between the rates paid on its borrowings (generally based on LIBOR) and
          received
          on its loan assets (generally based on either the 91-day Treasury Bill
          rate or
          the 90-day Commercial Paper rate).
    26
 Derivative
          agreements are commitments to make cash settlements to counterparties at
          specified future dates, based on differentials between specified financial
          indices, as applied to a notional principal amount.
 
 During
          the quarter ended March 31, 2006, the Company entered into a
          short-term interest rate derivative with CBNA, an investment-grade
          counterparty, that was not designated as a hedge and, therefore, did not
          qualify
          for hedge accounting treatment under SFAS 133. The derivative agreement had
          a notional amount of $2.0 billion at March 31, 2006. The derivative, which
          matures January 1, 2007, had a $0.3 million fair value at March 31,
          2006.
 
 In
          March
          2006, the Company was a party to several sold option agreements with CBNA.
          These
          option agreements were liabilities with a fair value of $8.5 million and
          a
          notional amount of $4.3 billion at March 31, 2006. At December 31, 2005,
          the
          options had a fair value of $6.1 million and a $2.0 billion notional amount.
          These option agreements were not designated as hedges and do not qualify
          for
          hedge accounting treatment under SFAS 133. The Company entered into
          these option agreements as economic hedges to the floor income
          component of the residual interests in the securitized assets. The value
          of the
          options is recorded in Other liabilities on the consolidated balance sheet.
  Changes
            in the fair values of the derivative and the options are recorded in
            Fee and
            other 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.
 
 Deferred
          income taxes of $280.2 million at March 31, 2006 decreased $9.6 million
          compared
          to year-end 2005. This decrease is primarily attributable to the effects
          of
          risk-sharing and securitization trust activity.
  ***Other
          Liabilities***
 
 The
          $62.0
          million (17%) increase in other liabilities from $354.9 million at December
          31,
          2005 to $416.9 million at March 31, 2006 is primarily due the seasonality
          of
          payables related to disbursements. In addition, $15.8 million of the increase
          is
          due to increased interest payable on the Company’s borrowings, which is
          primarily attributable to timing of the interest due dates and higher interest
          rates on the borrowings. In addition, the reserve for taxes increased by
          $11.2
          million for the first quarter of 2006 compared to the same period last
          year,
          primarily due to the impact of deferred taxes.
  ***Borrowings***
 
 The
          Company’s short- and long-term borrowings were procured primarily through the
          Omnibus Credit Agreement with CBNA, which expires December 2009. Total
          short- and long-term borrowings of $25.0 billion at March 31, 2006 increased
          $1.1 billion compared to year-end 2005. The increased borrowings were used
          to
          fund new loan originations and purchases.
 
 At
          March
          31, 2006 and 2005, the outstanding borrowings had contracted weighted average
          interest rates of 4.5% and 2.6%, respectively, generally based on LIBOR at
          the time the borrowings were established or rates reset. For
          the
          three-month periods ended March 31, 2006 and 2005, the Company recorded
          $269.8
          million and $153.4 million, respectively, in interest expense payable to
          CBNA
          related to these borrowings.
 
 ***Dividends***
 
 The
          Company paid a quarterly dividend of $1.08 per common share on March 1,
          2006. On
          April 14, 2006, the Board of Directors declared a regular quarterly dividend
          on
          the Company’s common stock of $1.30 per share. The dividend will be paid June 1,
          2006 to stockholders of record on May 15, 2006.
 
 ***Sources
          and Uses of Cash***
 
 Cash
          received from borrower repayments, claim payments and subsidized interest
          and
          SAP from the federal government are the Company’s primary sources of cash. The
          Company carefully weighs interest rate risk in choosing between funding
          alternatives. Currently, it primarily meets its funding requirements through
          credit facilities provided by CBNA. In addition, from time to time the
          Company
          utilizes alternative sources of financing, such as securitizations. The
          Company’s primary uses of cash are for new loan originations and purchases. The
     27
 Company’s
          current funding sources are sufficient to meet the Company’s cash needs for
          operational activities, including debt service.
  The
            Company had loan purchase commitments of $1,028 million, loan disbursement
            commitments of $288 million and loan sales commitments of $276 million
            at March
            31, 2006. Generally, the Company purchases the loans for which it has
            a
            commitment to purchase within one year of first disbursement or in accordance
            with contractual terms.
 **Results
        of Operations**
 
 **Quarter
          Ended March 31, 2006**
 
 ***Net
          income***
 
 Net
          income was $46.1 million ($2.31 basic and diluted earnings per share) for
          the
          first quarter of 2006. This was a decrease of $20.0 million (30%) compared
          to
          net income of $66.1 million ($3.31 basic and diluted earnings per share)
          for the
          same period last year. The decrease in net income was primarily attributable
          to
          a reduction in floor income of $12.4 million (after tax) and the impact of
          the Deficit Reduction Act of $3.4 million (after tax) which reduced revenue
          by
          $1.9 million (after tax) and increased the provision for loan losses by
          $1.5
          million (after tax). Net
          income was also reduced by an increase in operating expenses of $4.5 million
          (after tax) and by a higher effective tax rate compared to the prior year.
          The
          operating expense increase was primarily due to the $3.8 million (after
          tax)
          impact from the favorable
          settlement of certain accrued state sales and use taxes in
          the
          first quarter of 2005 that did not recur in 2006. These adverse impacts
          were
          partially offset by 13% growth in the average managed loan portfolio over
          the
          previous twelve months.
  ***Gains
          on sale of loans***
 
 For
          the
          first quarter of 2006, gains on the sale of loans increased $6.7 million
          due to the sale of $214 million in loan assets. The loans sold were serviced
          by
          third parties. No material amounts of loan sales occurred during the the
          same period of the prior year.
 
 ***Fee
          and other income/loss***
 
 Fee
          and
          other income of $5.1 million for the first quarter of 2006 increased by
          $5.9
          million from a loss of $0.8 million for the first quarter of 2005. For
          the first
          quarter of 2006, Fee and other income included a $3.0 million reduction
          in net securitization-related losses as well as mark-to-market gains on
          options and interest rate derivatives of $2.9 million. For additional
          information, see Note 5 to the consolidated financial statements.
 
 ***Net
          interest income***
 
 Net
          interest income of $107.1 million for the first quarter of 2006 was $21.8
          million (17%) lower than net interest income of $128.9 million for the
          same
          period of 2005. The decrease in net interest income was primarily attributable
          to an $18.3 million decrease in floor income for the first quarter of 2006,
          compared to the same period of 2005. See ***Special
          Allowance and Floor Income*** on page
          25 for further information. In
          addition, net interest income was impacted by a $7.8 million net spread
          reduction on loan assets. This net spread reduction was due to higher
          amortization of deferred loan origination and purchase costs as well as
          lower
          spreads on loans. The net interest margin for the first quarter of 2006
          was
          1.68%, a decrease of 35 basis points from 2.03% for the same period of
          2005.
  ***Operating
          expenses***
 
 Total
          operating expenses for the first quarter of 2006 of $37.6 million increased
          $9.6
          million (34%) from the same period last year, primarily due to the impact of the $5.8 million favorable
          settlement of certain accrued state sales and use taxes in
          the
          first quarter of 2005 that did not recur in 2006. The remaining increase
          primarily reflects the incremental costs to originate, service and administer
          the larger managed loan portfolio. The Company’s operating expense ratio (total
          operating expenses as a percentage of average managed student loans) for
          the
          first quarter of 2006 was 0.49%, eight basis points higher than the same
          quarter
          of 2005, primarily due to the 2005 tax settlement noted above.
       28
 ***Loan
          losses***
  The
            Company’s provision for loan losses increased $5.5 million to $6.1 million for
            the first quarter of 2006 from $0.6 million for the same period last
            year.
            Approximately $3.0 million of the increase was primarily attributable
            to an
            increase in CitiAssist Loans in repayment at March 31, 2006, compared to
            March 31, 2005. The remaining $2.5 million increase was attributable
            to the
            risk-sharing provisions of the recently enacted Deficit Reduction Act.
            The
            Deficit Reduction Act imposes a 1% risk-sharing deductible on FFEL Program
            default claims submitted on or after July 1, 2006 by loan servicers,
            such as the
            Company, that have been designated by the Department as Exceptional Performers.
            This designation is granted by the Department in recognition of an exceptional
            level of performance in servicing federally guaranteed student loans.
            Currently,
            a recipient of this designation receives 100% reimbursement on eligible
            FFEL
            Program claims submitted.
 ***Return
          on Average Equity***
 
 The
          Company’s first quarter return on equity for 2006 decreased to 13.6% from 23.0%
          in the first quarter of 2005. The
          first
          quarter 2006 decline in return on average equity was primarily attributable
          to
          the lower net interest income in the first quarter of 2006 compared to
          the prior
          year. Return on average equity is calculated by dividing annual net income
          by
          average equity for the period.
 
 ***Effect
          of Taxes***
  The
          Company’s effective tax rates were 38.7% for the first quarter of 2006 and 33.6%
          for the same period of the prior year. The increase in the effective tax
          rate
          was primarily due to certain adjustments to the Company’s deferred tax assets
          and liabilities in the first quarter of 2005 that did not recur in
          2006.
  **Regulatory
          Impacts**
 
 Over
            the
            past decade, certain amendments to the Higher Education Act governing
            the FFEL
            Program have reduced interest spread earned by holders of FFEL Program
            guaranteed student loans as new loans with lower yields were added to
            the
            portfolio and older, more profitable loans were repaid.  In addition,
            amendments to the Higher Education Act authorized a competitor program,
            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.
  In
            February 2006, the Deficit Reduction Act, P.L. 109-171, was signed into
            law,
            marking Congress’ completion of the federal fiscal year 2006 budget
            reconciliation process.  Title VIII-A of the Deficit Reduction Act
            addresses a number of budget-related higher education issues that modify
            certain
            provisions of the Higher Education Act. Among the provisions of Title
            VIII-A is one that imposes a 1% risk-sharing deductible on default claims
            submitted for reimbursement on or after July 1, 2006 for loans that are
            serviced
            by Exceptional Performers, such as the Company. As a result, in the first
            quarter of 2006 the Company increased its provision for loan losses by
            $2.5
            million, primarily to provide a loan loss reserve for the estimated impact
            for
            the risk-sharing deductible. In addition, the Company recorded a $3.0
            million
            unrealized loss on its residual interests in its securitized portfolios
            related
            to these risk-sharing provisions. Non-Exceptional Performers are subject
            to a 3%
            risk-sharing deductible  for
            loans
            made on or after July 1, 2006 and a 2% risk-sharing deductible for loans
            made
            prior to July 1, 2006. Prior to July 1, 2006, Exceptional Performers
            received
            100% reimbursement on eligible FFEL Program claims submitted as long
            as they
            continued to meet eligibility standards. The Exceptional Performer designation
            is granted by the Department of Education in recognition of an exceptional
            level
            of performance in servicing federally guaranteed student loans. In addition
            to
            the impact of the Deficit Reduction Act recognized this quarter, since
            the loans
            that are now serviced by Exceptional Performers will now be subject to
            a 1%
            risk-sharing deductible on default claims submitted for reimbursement
            on or
            after July 1, 2006, future quarterly provision for loan losses could
            be higher
            than past periods when Exceptional Performer serviced loans were not
            subject to
            any risk-sharing deductibles. Key student loan provisions of the Deficit
            Reduction Act are as follows:
 ·
                  Stafford
                      Loans disbursed on or after July 1, 2006 will have a fixed
                      interest rate
                      of 6.80%, in contrast to loans
                    disbursed
                      prior to July 1, 2006 which have a variable rate.
 ·
                  Stafford
                      Loan limits, which previously were $2,625 for freshman and
                      $3,500 for
                      sophomores, will increase to
                    $3,500
                      for freshmen and $4,500 for sophomores, effective July 1, 2007,
                      with
                      aggregate Stafford Loan limits
                    remaining
                      unchanged. Stafford Loan limits for third and fourth year
                      undergraduate students will remain at
                    $5,500.
                      Unsubsidized Stafford Loan limits which previously were $10,000
                      for
                      graduate and professional
                    students
                      will increase to $12,000 per year, with aggregate limits remaining
                      unchanged.
       29
 ·
                  PLUS
                      Loans disbursed on or after July 1, 2006 will have a fixed
                      interest rate
                      of 8.50%, while loans
                    disbursed
                      prior to July 1, 2006 have an annual variable
                      rate.
 ·
                  On
                      July 1, 2006, the PLUS Loan program will be opened to qualified
                      graduate
                      and professional students.
 ·
                  The
                      3% borrower origination fee required to be paid on Stafford
                      Loans will be
                      phased out over a
                    five-year
                      period starting July 1, 2006, but an additional 1% mandatory
                      guaranty fee
                      payable by
                    borrowers
                      will be imposed on Stafford and PLUS Loans starting on that
                      date.
 ·
                  Rebate
                      to the Department of almost all floor income by FFEL Program
                      lenders is
                      required, effective April 1,
                    2006,
                      for loans for which the first disbursement of principal is
                      made on or
                      after April 1, 2006.
 ·
                  FFEL
                      Program lender insurance is reduced from 98% to 97% for default
                      claims on
                      loans for which the first
                    disbursement
                      of principal is made on or after July 1, 2006.
 ·
                  Exceptional
                      Performer designation rules are retained, with a 1% reduction in
                      amounts reimbursed on
                    Exceptional
                      Performer default claims submitted on or after July 1, 2006,
                      resulting in
                      reimbursement of
                    99%
                      of the claimed amount.
 ·
                  A
                      new moratorium has been created for the school-as-lender program
                      as of
                      April 1, 2006, with the
                    addition
                      of new requirements for schools participating in the school-as-lender
                      program prior to April 1, 2006.
 ·
                  In-school
                      loan consolidation and spousal loan consolidation are being
                      repealed after
                      June 30, 2006.
  Higher
              education issues not resolved following enactment of the Deficit Reduction
              Act
              and completion of the federal fiscal year 2006 budget reconciliation
              process
              will be addressed as part of reauthorization of the Higher Education
              Act, which
              is expected to occur in 2006.  The House Reauthorization Bill H.R. 609,
              also referred to as the College Access and Opportunity Act of 2005,
              was passed
              on March 30, 2006. The version of H.R. 609 passed by the House is,
              in large
              part, based on the bill reported by the House Committee on Education
              and the
              Workforce on September 22, 2005, reduced by the higher education provisions
              that
              were already included in the Deficit Reduction Act.  In the Senate, the
              Committee on Health, Education, Labor and Pensions last reported its
              Reauthorization Bill S. 1614, the Higher Education Amendments 2005,
              on November
              17, 2005.  Upon enactment of a Reauthorization Bill by Congress, further
              modifications to the Higher Education Act affecting student loan lending
              may
              result.
 The
          Company continues to search for ways to diversify its revenue sources.
          It is
          pursuing both new and existing marketing programs, including electronic
          commerce, and continues to expand its guarantor relationships and pursue
          alternative loan products, such as CitiAssist, that are not dependent on
          federal
          funding and program authorization.
  **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 the Deficit Reduction Act
          and 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 floor income, 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
          and
          loan consolidations, and the seasonality of loan delinquencies relative
          to
          expected loan loss allowances; the Company’s and other servicers’ ability to
          continue to service the loan portfolio in accordance with their contractual
          obligations and to maintain their Exceptional Performer loan servicing
          status,
          and the level of benefits available to servicers with that designation; the
          adequacy of the Company’s 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.
 30
 **Item
                  3.**
              **Quantitative
                  and Qualitative Disclosures About Market
                  Risk**
 
 The
          Company’s primary market risk exposure results from fluctuations in the spreads
          between the Company’s borrowing and lending rates, which may be impacted by
          shifts in market interest rates. Market risk is measured using various
          tools,
          including Earnings-at-Risk. The Earnings-at-Risk calculation seeks to estimate
          the effect that shifts in interest rates are expected to have on net interest
          margin in future periods. The Company prepares Earnings-at-Risk calculations
          to
          measure the discounted pre-tax earnings impact over a preset time span
          of a
          specific parallel upward and downward shift in the interest rate yield
          curve.
          The Earnings-at-Risk calculation, a static and passive measurement that
          excludes
          management’s responses to prospective changes in market interest rates, reflects
          the repricing gaps in the position as well as option positions, both explicit
          and embedded, in the loan portfolio. Earnings-at-Risk is calculated by
          multiplying the gap between interest sensitive items, including assets,
          liabilities and derivative instruments, by 35 and 100 basis point changes
          in the
          yield curve. A 35 basis point change in the yield curve represents approximately
          a two standard deviation change. The one hundred basis point information
          is
          provided for comparative purposes.
 
 The
          Earnings-at-Risk calculation measures the Company’s position at one point in
          time. As indicated in the table below, as of March 31, 2006, a 35 basis
          point
          increase in the interest yield curve would have a potential positive impact
          on
          the Company’s pretax earnings of approximately $2.1 million for the next twelve
          months and a potential negative impact of approximately $28.9 million
          thereafter. A 35 basis point decrease in the interest yield curve as of
          March
          31, 2006 would have a potential negative impact on the Company’s pretax earnings
          of approximately $1.5 million for the next twelve months and a potential
          positive impact of approximately $30.5 million thereafter. The change in
          the
          March 31, 2006 Earnings-at-Risk, compared to that at March 31, 2005, was
          due to
          the change in the interest rate environment and its impact on floor
          income.
  Earnings-at-Risk
          (on pre-tax
          earnings)
 **March 31, 2006**
              
              **March 31, 2005***(Dollars
                  in millions)*
              
              Next
                12
                  Mos.
              
              
              Thereafter
              
              
              Total
              
              
              Next
                12
                  Mos.
              
              
              Thereafter
              
              
              TotalThirty-five
                  basis point increase
              $
              2.1
              
              $
              (28.9
              )
              $
              (26.8
              )
              $
              (21.3
              )
              $
              (86.7
              )
              $
              (108.0
              )Thirty-five
                  basis point decrease
              $
              (1.5
              )
              $
              30.5
              
              $
              29.0
              
              $
              19.5
              
              $
              86.7
              
              $
              106.2One
                  hundred basis point increase
              $
              16.9
              
              $
              (57.2
              )
              $
              (40.3
              )
              $
              (53.6
              )
              $
              (245.7
              )
              $
              (299.3
              )One
                  hundred basis point decrease
              $
              21.4
              
              $
              147.9
              
              $
              169.3
              
              $
              46.6
              
              $
              245.4
              
              $
              292.0
 
 In
        addition, the Company has exposure to uneven shifts in interest rate curves
        (i.e., the Treasury Bill to LIBOR rate spreads). The Company, through its
        Asset/Liability Management Committee, actively manages these risks by setting
        Earnings-at-Risk limits and takes action in response to interest rate movements
        against the existing structure.
                 31
  **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 controls 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.
                                 32
  **PART
        II. OTHER INFORMATION**
 
 **Item
          1A. Risk Factors**
  The
            below
            discussion is intended to supplement and to restate in its entirety the
            Risk
            Factors discussion contained on pages 26 - 28 of the Company’s 2005 Annual
            Report and Form 10-K.
 
 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
            30.
 
 In
            addition, the following discussion sets forth certain risks that the
            Company
            believes could cause its actual future results to differ materially from
            expected results. However, the discussion below is not exhaustive, and
            other
            factors, such as natural disasters, acts of terrorism, and epidemic could
            have a
            material adverse impact on the Company’s results.
 
 **Economic
            conditions**
 
 The
            Company’s profitability could be affected by general economic conditions as well
            as regional trends, especially given the Company’s historic concentration of
            student loan originations in New York and California. Factors that could
            significantly affect the demand for and net margins on student loans,
            as well as
            the cost of funding such loans, include the level and volatility of interest
            rates and inflation. Rising interest rates could reduce demand for student
            loans, as some prospective borrowers could defer attendance at certain
            eligible
            educational institutions, pursue programs at less costly institutions,
            and thus
            borrow less, or otherwise determine that the cost of borrowing for higher
            education is too great. During periods of economic weakness, particularly
            in the
            case of high unemployment or high inflation, the cost of higher education
            could
            increase materially. As a result, some prospective borrowers could defer
            pursuing higher education until economic conditions improve. Also, the
            ability
            of some borrowers to repay their loans may deteriorate, resulting in
            higher
            delinquencies and losses.
 
 Any
            of
            these conditions may be more prevalent in particular regions of the United
            States. If the regions affected were those where a large segment of the
            Company’s loans had been originated or its borrowers reside, a
            reduction in new loan originations and higher delinquencies and losses on
            existing loans could occur.
 
 **Market,
            credit and liquidity risk**
 
 The
            Company’s revenue is dependent upon the extent to which management can
            successfully manage credit, market and liquidity risks.
 
 The
            Company’s credit risk exposure depends largely on certain risk-sharing
            arrangements made with loan guarantors, in the form of government guarantees,
            third party insurers, and certain educational institutions’ risk-sharing
            agreements. The Company actively monitors the creditworthiness of these
            parties,
            but in the event that a guarantor is unable to meet its contractual obligations
            under such arrangements, the Company’s financial condition could be adversely
            affected. Similarly, the loss of the Exceptional Performer designation
            by the
            Company or any of its loan servicers could adversely affect the Company’s
            results.
 
 The
            Company’s market risk exposure varies depending upon its ability to properly
            identify and promptly respond to changes in interest rate conditions.
            The
            majority of the Company’s earnings are generated from the spread between the
            Company’s interest earning assets (based on either the 91-day Treasury Bill rate
            or the 90-day Commercial Paper rate) and its funding costs (based primarily
            on
            LIBOR). Therefore, basis risk could have an effect on the Company's results
            of
            operations.
 
 The
            Company uses interest rate derivative agreements to manage interest rate
            risk.
            The Company’s interest rate derivatives were not designated as hedges and
            therefore do not qualify for the accounting under SFAS 133, and consequently,
            the change in fair value of these derivative instruments is included
            in the
            Company's earnings, while the change in fair value of the hedged asset
            is not
            included in earnings. Shifts in the forward yield curve could significantly
            impact the valuation of the Company's derivatives and, accordingly, impact
            the
            Company’s financial position and results of operations.
 
 The
            Company's interest rate risk management activities could expose the Company
            to
            losses if interest rates move in a manner materially different than management's
            expectations. The Company’s economic hedging activities may not
     33
 effectively
            manage its interest rate sensitivity or have the desired impact on its
            results
            of operations or financial condition.
  Moreover,
            changes in fixed interest rates could provide an incentive for borrowers
            to
            consolidate their student loans, increasing the principal payment rates
            on the
            Company’s student loan portfolio with the effect of reducing the
            weighted-average interest rate paid on the portfolio.
 
 Liquidity
            risk is another exposure faced by the Company. For example, the Company
            has
            relied upon asset-backed securitizations as a significant funding source.
            The
            net cash flow the Company receives from the securitized student loan
            assets
            generally represents the excess amounts, if any, generated by the underlying
            student loans over the amounts required to be paid to the noteholders
            after
            deducting servicing costs and any other expenses. The Company's rights
            to the
            cash flows from securitized student loans are subordinate to the noteholders’
interests. Cash flows from the securitized loans may fail to generate
            the
            projected cash flows in excess of amounts due to the noteholders. The
            Company
            has recently funded an increased proportion of its operations through
            the
            securitization of student loans. To the extent that the market for student
            loan
            securitizations becomes less liquid in the future, the Company’s funding costs
            could be adversely affected.
 
 Likewise,
            the Company’s earnings will be dependent upon the accuracy of its critical
            accounting estimates, particularly those relating to revenue recognition,
            loan
            securitizations and loan losses. If future behavior deviates from management’s
            assumptions, future adverse adjustments of certain balance sheet and/or
            income
            statement line items could result.
  **Future
            volume of student loans**
 
 The
            Company originates loans to borrowers in all 50 states. Volumes of the
            Company’s
            loan originations are greater at some schools than others, primarily
            dependent
            on whether or not the Company appears on the school’s preferred lender list, as
            well as the number of students at that school that need financial aid.
            The
            Company's ability to remain on a school’s preferred lender list is subject to a
            variety of risks, including each school’s ability to remove the Company from its
            preferred lender list or to add competing lenders to its preferred lender
            list,
            each school’s option to choose the Direct Lending Program, instead of choosing
            to participate in the FFEL Program, or a school’s decision to begin making
            student loans itself. While the Company may acquire student loans through
            forward purchase commitments with schools and universities, each of these
            commitments has a termination date. There can be no assurance that these
            schools
            will renew or extend these forward purchase commitments on terms that
            are
            favorable to the Company, or at all.
 
 **Competition**
 
 The
            Company competes with hundreds of other student loan originators. These
            include
            Sallie Mae, which originates several times more FFEL Program Loans than
            does the
            Company. The Company also competes with the Federal Direct Lending Program,
            in
            which the Company is not eligible to participate. The Company’s ability to
            increase its loan originations is largely dependent upon its ability
            to offer
            competitively-priced and desirable loan products, as well as its ability
            to
            communicate effectively about these products with prospective borrowers.
            The
            Company plans to continue to offer competitively-priced products by managing
            its
            expenses through economies of scale, which reduce its origination and
            servicing
            costs, and securitization activities, which allow the Company to fund
            its
            operations at a lower cost. The Company also plans to expand its electronic
            communications with prospective borrowers and those that affect their
            decision
            making. An inability to achieve these goals could adversely affect the
            Company’s
            competitive position in the marketplace and its ability to increase the
            volume
            of its loan originations.
 
 **Operational
            risk**
 
 The
            Company is exposed to many types of operational risk, including the risk
            of loss
            resulting from inadequate or failed internal processes, people or systems,
            or
            from external events. It includes reputational and franchise risks associated
            with the Company’s and Citibank, N.A.’s (CBNA’s) business practices or market
            conduct. It also includes the risk of the Company’s, its servicer’s, or CBNA’s
            failure to comply with applicable laws, regulations, regulatory administrative
            actions or the Company’s internal policies. Given the high volume of
            transactions at the Company or its servicers, certain errors may be repeated
            or
            compounded before they are discovered and rectified. In addition, the
            Company’s
            necessary dependence upon automated systems to record and process its
            transaction volume may further increase the risk that technical system
            flaws or
            employee tampering or manipulation of those systems will result in losses
            that
            are difficult to detect. The Company may also be subject to disruptions
            of its
            operating systems arising from events that are wholly or partially beyond
            its
            control (for example, natural disasters,
      34
 acts
            of
            terrorism, epidemics, computer viruses, and electrical/ telecommunications
            outages), which may give rise to losses in service to borrowers and/or
            monetary
            loss to the Company. All of these risks are also applicable to outside
            vendors
            upon which the Company relies to provide services to it and its borrowers.
            In
            addition, the Company is subject to operational risk associated with
            its
            intercompany agreements with CBNA and its affiliates. Failure by these
            entities
            to perform under these agreements could have an adverse effect on customer
            service, operations, funding and other areas.
  **Reputational
            and legal risk**
 
 Various
            issues may give rise to reputational risk and cause harm to the Company
            and its
            business prospects. These issues include appropriately dealing with legal
            and
            regulatory requirements; ethical issues; competitive issues; fair credit
            reporting and privacy laws; and information security policies. Failure
            to
            address these issues appropriately could give rise to additional legal
            risk to
            the Company. In addition, the Company could be subject to reputational
            risk due
            to its associations and relationships with its majority shareholder,
            CBNA, and
            its affiliates. The reputation of these entities could affect the Company’s own
            reputation.
 
 **U.S.
            fiscal and monetary policies**
 
 The
            Company’s businesses and earnings are affected by fiscal and monetary policies
            adopted by the United States government and its regulatory agencies.
            For
            example, policies of the Federal Reserve Board directly influence the
            rate of
            interest paid by commercial banks, including CBNA, the Company’s primary funding
            source, on its interest-bearing deposits. This could affect the Company’s cost
            of borrowing from CBNA, and also may affect the value of financial instruments,
            including securitization residuals and assets held for sale by the Company.
            In
            addition, such changes in monetary policy may affect the creditworthiness
            of the
            Company’s borrowers.
 
 **Legislative
            and 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 affect 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 and amounts of floor income recognized as
              income by the
              Company are likely to decline in the future as provisions of the Deficit
              Reduction Act are implemented.
 
 In
            addition, the Company is also subject to rules and regulations of the
            agencies
            that act as guarantors of the student loans, known as guaranty agencies.
 
 Finally,
            the Company is subject to certain federal and state banking laws, regulations,
            and examinations, as well as federal and state consumer protection laws
            and
            regulations, including, specifically with respect to the Company's non-federally
            insured loan portfolio, certain state usury laws and related regulations
            and the
            Federal Truth in Lending Act. 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.
 
 The
            Company cannot plan for or mitigate the effects of all such legislative
            or
            regulatory changes. The Deficit Reduction Act, which modifies certain
            provisions
            of the Higher Education Act, was signed by President Bush in February
            2006. The
            Deficit Reduction Act imposes a 1% risk-sharing deductible on default
            claims
            submitted on loans serviced by Exceptional Performers, such as the Company.
            This
            risk-sharing provision could result in further increases to the Company’s
            allowance for loan losses and may decrease the fair value of its
            residual interests in the securitized loans. Other provisions of the
            Deficit
            Reduction Act may also adversely affect the Company’s operating results and
            could reduce its previously expected earnings for 2006. For further information
            on the impact of the Deficit Reduction Act, see **Regulatory
            Impacts** on
            page
            29. In addition, future regulatory changes cannot be predicted and could
            have a
            material impact on the Company’s financial condition or results of
            operations.
   35
  **Item
          5.   Other Information**
  On
          May 5,
          2006, the Company, Citibank, N.A. and Citigroup Inc. entered into an amendment
          to their Non-Competition Agreement that extended the termination date thereof
          to
          June 22, 2007.  Such amendment is filed herewith as Exhibit
          10.2.8.
 **Item
                  6.**
              **Exhibits**
  See
        Exhibit Index.
                                        36
   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
        9, 2006
 
 The
                  Student Loan CorporationBy
              /s/
                  Daniel P. McHughDaniel
                  P. McHugh
                Chief
                  Financial Officer and Duly Authorized Officer(Principal
                  Financial Officer)
                                37
 **EXHIBIT
          INDEX**
  **Exhibit**
 **Number**
                **Description
                    of Exhibit**
  3.1
                Restated
                    Certificate of Incorporation of the Company, incorporated by
                    reference to
                    Exhibit 3.1 tothe
                    Company’s 1992 Annual Report on Form 10-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 Quarterly Report on Form 10-Q for the fiscal quarter ended
                    September 30, 1993 (File No.
                    1-11616).
 
 10.1
                Trust
                    Agreement, dated as of December 21, 1992, between the Company
                    and CNYS,
                    incorporatedby
                    reference to Exhibit 10.2 to the Company’s 1992 Annual Report on Form 10-K
                    (File No. 1-11616).
 
 10.2.1
                Non-Competition
                    Agreement, dated as of December 22, 1992, among the Company,
                    CNYS andCiticorp,
                    incorporated by reference to Exhibit 10.4 to the Company’s 1992 Annual
                    Report on Form 10-K (File No.
                    1-11616).
 
 10.2.2
                Amendment
                    No. 1, dated as of June 22, 2000, to Non-Competition Agreement
                    among the
                    Company, CNYS and Citigroup Inc., incorporated by reference to
                    Exhibit
                    10.2.2 to the Company’s 2001 Annual Report on Form 10-K (File No.
                    1-11616).
 
 10.2.3
                Amendment
                    No. 2, dated as of June 22, 2001, to Non-Competition Agreement
                    among the
                    Company, CNYS and Citigroup Inc., incorporated by reference to
                    Exhibit
                    10.2.3 to the Company’s 2001 Annual Report on Form 10-K (File No.
                    1-11616).
 
 10.2.4
                Amendment
                    No. 3, dated as of May 5, 2002, to Non-Competition Agreement
                    among the
                    Company, CNYS and Citigroup Inc., incorporated by reference to
                    Exhibit
                    10.2.4 to the Company’s Quarterly Report on Form 10-Q for the fiscal
                    quarter ended June 30, 2004 (File No.
                    1-11616).
 
 10.2.5
                Amendment
                    No. 4, dated as of June 22, 2003, to Non-Competition Agreement
                    among the
                    Company, CNYS and Citigroup Inc., incorporated by reference to
                    Exhibit
                    10.2.5 to the Company’s Quarterly Report on Form 10-Q for the fiscal
                    quarter ended June 30, 2004 (File No.
                    1-11616).
 
 10.2.6
                Amendment
                    No. 5, dated as of June 22, 2004, to Non-Competition Agreement
                    among the
                    Company, CBNA and Citigroup Inc., incorporated by reference to
                    Exhibit
                    10.2.6 to the Company’s Quarterly Report on Form 10-Q for the fiscal
                    quarter ended June 30, 2004 (File No.
                    1-11616).
 
 10.2.7
                Amendment
                    No. 6, dated as of June 22, 2005, to Non-Competition Agreement
                    among the
                    Company, CBNA and Citigroup Inc., incorporated by reference to
                    Exhibit
                    10.2.7 to the Company’s Quarterly Report on Form 10-Q for the fiscal
                    quarter ended June 30, 2005 (File No. 1-11616).
 
 10.2.8
                    *
                Amendment
                    No. 7, dated as of June 22, 2006, to Non-Competition Agreement
                    among the
                    Company, CBNA and Citigroup Inc.
 
 10.3
                Tax
                    Agreement, dated as of December 22, 1992, between the Company
                    and CNYS,
                    incorporatedby
                    reference to Exhibit 10.5 to the Company’s 1992 Annual Report on Form 10-K
                    (File No. 1-11616).
 
 10.4
                Omnibus
                    Credit Agreement, dated November 30, 2000, between the Company
                    and CNYS,incorporated
                    by reference to Exhibit 10.10 to the Company’s 2000 Annual Report on Form
                    10-K(File No. 1-11616).
 
 10.4.1
                Amendment
                    No. 1, dated as of October 15, 2002, to Omnibus Credit Agreement
                    between
                    the Company andCNYS, incorporated by reference to Exhibit 10.4.1 to the Company’s 2002
                    Annual Report on Form 10-K (File No. 1-11616).
  10.4.2
                Amendment
                    No. 2, dated as of March 5, 2004, to Omnibus Credit Agreement
                    between the
                    Company and CBNA (as successor to CNYS), incorporated by reference
                    to
                    Exhibit 10.4.2 to the Company’s 2003 Annual Report on Form 10-K (File No.
                    1-11616).
 38
  10.4.3
                Amendment
                    No. 3, dated as of January 20, 2005, to Omnibus Credit Agreement
                    between
                    the Company and CBNA (as successor to CNYS), incorporated by
                    reference to
                    Exhibit 10.4.3 to the Current Report on Form 8-K filed January
                    24, 2005
                    (File No. 1-11616).
 
 10.5
                Facilities
                    Occupancy, Management and Support Service Agreement, dated as
                    of January
                    1, 1998, by and between the Company, CNYS and Citicorp North
                    America,
                    Inc., incorporated by reference to Exhibit 10.5 to the Company’s 2001
                    Annual Report on Form 10-K (File No.
                    1-11616).
 
 10.6
                Retention
                    Agreement for Sue F. Roberts, dated April 28, 2003, incorporated
                    by
                    reference to Exhibit 10.6 tothe
                    Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended
                    March
                    31, 2004(File
                    No. 1-11616).
 
 10.6.1
                Letter
                    Agreement, dated as of February 11, 2005, by and between the
                    Company and
                    Sue F. Roberts, incorporated by reference to Exhibit 10.6.1 to
                    the
                    Company’s 2004 Annual Report on Form 10-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., incorporated by reference
                    to
                    Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the fiscal
                    quarter ended September 30, 2004 (File No.
                    1-11616).
 
 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
                        39