**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**__________________**


**FORM
      10-Q**


**__________________**





**(Mark
                One)****x**
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934****For
                the quarterly period ended September 30, 2007****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
      October 31, 2007, there were 20,000,000 shares of The Student Loan Corporation’s
      common stock outstanding.





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






Form
      10-Q





Table
      of Contents





Part
                I
            Consolidated
                Financial InformationPageItem
                1 -
            Consolidated
                Financial StatementsConsolidated
                Statements of Income (Unaudited) for the Three and Nine Months Ended
                September 30, 2007 and 2006
            3Consolidated
                Balance Sheets as of September 30, 2007 (Unaudited) and December
                31,
                2006
            4Consolidated
                Statements of Cash Flows (Unaudited) for the Nine Months Ended September
                30, 2007 and 2006
            5Consolidated
                Statements of Changes in Stockholders’ Equity (Unaudited) for the Nine
                Months Ended September 30, 2007 and 2006
            6Notes
                to Consolidated Financial Statements (Unaudited)
            7
–
                17Item
                2 -
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            18
                – 27Item
                3 -
            Quantitative
                and Qualitative Disclosures About Market Risk
            27Item
                4 -
            Controls
                and Procedures
            28Part
                II
            Other
                InformationItem
                1A-
            Risk
                Factors
            29Item
                6 -
            Exhibits
            29Signature
            
            
            30Exhibit
                Index
            
            31








**PART
      I    CONSOLIDATED FINANCIAL
      INFORMATION**





**Item
                1.**
            **Consolidated
                Financial Statements**





**THE
      STUDENT LOAN CORPORATION**


CONSOLIDATED
      STATEMENTS OF INCOME


(Dollars
      in thousands, except per share amounts)


(Unaudited)





Three
                months ended
            
            
            Nine
                months endedSeptember
                30,
            
            
            September
                30,2007
            
            
            2006
            
            
            2007
            
            
            2006**NET
                INTEREST INCOME**Interest
                income
            
            $
            398,675
            
            
            $
            420,366
            
            
            $
            1,177,996
            
            
            $
            1,227,924Interest
                expense
            
            
            298,345
            
            
            
            321,962
            
            
            
            881,032
            
            
            
            907,234**Net
                interest income**
            
            
            100,330
            
            
            
            98,404
            
            
            
            296,964
            
            
            
            320,690Provision
                for loan losses
            
            
            (21,419
            )
            
            
            (7,065
            )
            
            
            (35,842
            )
            
            
            (18,506
            )**Net
                interest income after provision for loan losses**
            
            
            78,911
            
            
            
            91,339
            
            
            
            261,122
            
            
            
            302,184**OTHER
                INCOME**Gains
                on loans securitized
            
            
            -
            
            
            
            75,163
            
            
            
            48,548
            
            
            
            144,236Gains
                on loans sold
            
            
            15,815
            
            
            
            5,904
            
            
            
            36,081
            
            
            
            26,103Fee
                and other (loss)/income
            
            
            (10,052
            )
            
            
            (2,433
            )
            
            
            14,231
            
            
            
            16,963**Total
                other income**
            
            
            5,763
            
            
            
            78,634
            
            
            
            98,860
            
            
            
            187,302**OPERATING
                EXPENSES**Salaries
                and employee benefits
            
            
            15,202
            
            
            
            14,969
            
            
            
            45,772
            
            
            
            41,128Other
                expenses
            
            
            28,776
            
            
            
            29,023
            
            
            
            88,155
            
            
            
            80,811**Total
                operating expenses**
            
            
            43,978
            
            
            
            43,992
            
            
            
            133,927
            
            
            
            121,939**Income
                before income taxes**
            
            
            40,696
            
            
            
            125,981
            
            
            
            226,055
            
            
            
            367,547Income
                taxes
            
            
            15,695
            
            
            
            48,170
            
            
            
            86,514
            
            
            
            141,771**NET
                INCOME**
            
            $
            25,001
            
            
            $
            77,811
            
            
            $
            139,541
            
            
            $
            225,776**DIVIDENDS
                DECLARED AND PAID**
            
            $
            28,600
            
            
            $
            26,000
            
            
            $
            83,200
            
            
            $
            73,600**BASIC
                EARNINGS PER COMMON SHARE**
            
            $
            1.25
            
            
            $
            3.89
            
            
            $
            6.98
            
            
            $
            11.29(based
                on 20 million average shares outstanding)**DIVIDENDS
                DECLARED AND PAID PER COMMON SHARE**
            
            $
            1.43
            
            
            $
            1.30
            
            
            $
            4.16
            
            
            $
            3.68





See
      accompanying notes to the consolidated financial statements.





**THE
      STUDENT LOAN CORPORATION**


CONSOLIDATED
      BALANCE SHEETS


(Dollars
      in thousands, except per share amounts)





September
                30,
            
            
            December
                31,2007
            
            
            2006(Unaudited)**ASSETS**Federally
                insured student loans
            
            $
            16,685,148
            
            
            $
            17,184,133Private
                education loans
            
            
            3,112,925
            
            
            
            3,072,394Deferred
                origination and premium costs
            
            
            615,604
            
            
            
            632,872Allowance
                for loan losses
            
            
            (27,630
            )
            
            
            (14,197
            )Student
                loans, net
            
            
            20,386,047
            
            
            
            20,875,202Other
                loans and lines of credit
            
            
            90,594
            
            
            
            76,117Loans
                held for sale
            
            
            2,943,978
            
            
            
            323,041Cash
            
            
            4,578
            
            
            
            6,570Residual
                interests in securitized loans
            
            
            564,729
            
            
            
            546,422Other
                assets
            
            
            1,079,390
            
            
            
            809,251**Total
                Assets**
            
            $
            25,069,316
            
            
            $
            22,636,603**LIABILITIES
                AND STOCKHOLDERS' EQUITY**Short-term
                borrowings, payable to principal stockholder
            
            $
            16,655,700
            
            
            $
            11,136,800Long-term
                borrowings, payable to principal stockholder
            
            
            6,100,000
            
            
            
            9,200,000Deferred
                income taxes
            
            
            248,560
            
            
            
            287,641Other
                liabilities
            
            
            455,388
            
            
            
            458,861Total
                Liabilities
            
            
            23,459,648
            
            
            
            21,083,302Common
                stock, $0.01 par value; authorized 50,000,000 shares;20,000,000 shares issued and outstanding
            
            
            200
            
            
            
            200Additional
                paid-in capital
            
            
            141,350
            
            
            
            141,324Retained
                earnings
            
            
            1,468,118
            
            
            
            1,410,968Accumulated
                other changes in equity from nonowner sources
            
            
            -
            
            
            
            809Total
                Stockholders' Equity
            
            
            1,609,668
            
            
            
            1,553,301**Total
                Liabilities and Stockholders' Equity**
            
            $
            25,069,316
            
            
            $
            22,636,603





See
      accompanying notes to consolidated financial statements.





**THE
      STUDENT LOAN CORPORATION**


CONSOLIDATED
      STATEMENTS OF CASH FLOWS


(Dollars
      in thousands)


(Unaudited)


Nine
                months endedSeptember
                30,2007
            
            
            2006Cash
                flows from operating activities:Net
                income
            
            $
            139,541
            
            
            $
            225,776Adjustments
                to reconcile net income to net cash from operating
                activities:Depreciation
                and amortization of equipment and computer software
            
            
            10,726
            
            
            
            9,962Amortization
                of deferred loan origination and purchase costs
            
            
            80,761
            
            
            
            110,431Accreted
                interest on residual interests
            
            
            (44,021
            )
            
            
            (15,306
            )Provision
                for loan losses
            
            
            35,842
            
            
            
            18,506Deferred
                tax provision
            
            
            (39,082
            )
            
            
            (1,346
            )Gains
                on loans sold and securitized
            
            
            (84,629
            )
            
            
            (170,339
            )Loss
                on valuation of residual interests
            
            
            28,306
            
            
            
            8,871Loss
                on valuation of servicing assets
            
            
            15,160
            
            
            
            12,917Disbursements
                and procurements of loans for resale
            
            
            (274,213
            )
            
            
            (901,235
            )Proceeds
                from loans sold and securitized
            
            
            197,657
            
            
            
            841,292Cash
                received on residual interests classified as trading
                assets
            
            
            53,991
            
            
            
            2,754Change
                in accrued interest receivable
            
            
            (226,818
            )
            
            
            (168,245
            )Change
                in other assets
            
            
            (47,303
            )
            
            
            (13,685
            )Change
                in other liabilities
            
            
            (3,447
            )
            
            
            225,451**Net
                cash (used in)/provided by operating activities**
            
            
            (157,529
            )
            
            
            185,804Cash
                flows from investing activities:Change
                in loans
            
            
            (4,383,506
            )
            
            
            (3,173,495
            )Increase
                in loan origination costs and purchase premiums
            
            
            (199,775
            )
            
            
            (225,738
            )Proceeds
                from loans sold and securitized
            
            
            2,407,782
            
            
            
            4,684,130Cash
                received on residual interests classified as available-for-sale
                assets
            
            
            -
            
            
            
            5,818Capital
                expenditures on equipment and computer software
            
            
            (4,664
            )
            
            
            (7,744
            )**Net
                cash (used in)/provided by investing activities**
            
            
            (2,180,163
            )
            
            
            1,282,971Cash
                flows from financing activities:Net
                increase in borrowings with original maturities of one year or
                less
            
            
            1,318,900
            
            
            
            1,603,700Proceeds
                from borrowings with original terms of one year or more
            
            
            3,100,000
            
            
            
            -Repayments
                of borrowings with original terms of one year or more
            
            
            (2,000,000
            )
            
            
            (3,000,000
            )Dividends
                paid to stockholders
            
            
            (83,200
            )
            
            
            (73,600
            )**Net
                cash provided by/(used in) financing activities**
            
            
            2,335,700
            
            
            
            (1,469,900
            )**Net
                decrease in cash**
            
            
            (1,992
            )
            
            
            (1,125
            )**Cash
                - beginning of period**
            
            
            6,570
            
            
            
            1,152**Cash
                - end of period**
            
            $
            4,578
            
            
            $
            27**Supplemental
                disclosure:**Cash
                paid for:Interest
            
            $
            868,846
            
            
            $
            905,888Income
                taxes, net
            
            $
            128,333
            
            
            $
            74,078





See
      accompanying notes to consolidated financial statements.





**THE
      STUDENT LOAN CORPORATION**


CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


(Dollars
      in thousands, except per share amounts)


(Unaudited)





Nine
                months ended September 30,2007
            
            
            2006**COMMON
                STOCK AND ADDITIONAL PAID-IN CAPITAL**Balance,
                beginning of period
            
            $
            141,524
            
            
            $
            139,583Capital
                contributions and other changes
            
            
            26
            
            
            
            1,929Balance,
                end of period
            
            $
            141,550
            
            
            $
            141,512**RETAINED
                EARNINGS**Balance,
                beginning of period
            
            $
            1,410,968
            
            
            $
            1,222,262Cumulative
                effect of adoption of accounting standard, net of taxes of $506 and
                $941
                in 2007 and 2006, respectively
            
            
            809
            
            
            
            1,494Net
                income
            
            
            139,541
            
            
            
            225,776Common
                dividends declared, $4.16 and $3.68 per common share in 2007 and
                2006,
                respectively
            
            
            (83,200
            )
            
            
            (73,600
            )Balance,
                end of period
            
            $
            1,468,118
            
            
            $
            1,375,932**ACCUMULATED
                OTHER CHANGES IN EQUITY FROM NONOWNER SOURCES**Balance,
                beginning of period
            
            $
            809
            
            
            $
            -Cumulative
                effect of adoption of accounting standard, net of taxes of $506 and
                $850
                in 2007 and 2006, respectively
            
            
            (809
            )
            
            
            1,351Balance,
                end of period
            
            $
            -
            
            
            $
            1,351**TOTAL
                STOCKHOLDERS' EQUITY**
            
            $
            1,609,668
            
            
            $
            1,518,795





See
      accompanying notes to consolidated financial statements.





**THE
      STUDENT LOAN CORPORATION**


**Notes
      to Consolidated Financial Statements (Unaudited)**


**September
      30, 2007**








**1.**
            **Basis
                of Presentation and Significant Accounting
                Policies**





**Interim
      Financial Information**





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





In
      the
      opinion of management, all adjustments, consisting of normal, recurring
      accruals, necessary to state fairly the Company's financial position and results
      of operations in conformity with U.S. generally accepted accounting principles
      (GAAP) have been reflected.  The results for the three and nine month
      periods ended September 30, 2007 may not be indicative of the results for the
      full year ended December 31, 2007.****Certain financial
      information that is normally included in annual financial statements prepared
      in
      accordance with GAAP, but is not required for interim reporting purposes, has
      been condensed or omitted.****The accompanying consolidated
      financial statements should be read in conjunction with the consolidated
      financial statements and related notes included in the Company’s 2006 Annual
      Report on Form 10-K.





**Use
      of Estimates**





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





**Revenue
      Recognition**





Revenues,
      which include net interest income, fees and gains on loans sold or securitized,
      if any, are recognized as they are earned.  Interest income includes
      special allowance payments made by the federal government as prescribed under
      the Higher Education Act of 1965, as amended (the Higher Education Act), and
      is
      net of amortization of premiums and origination costs. The Company accounts
      for
      premiums and origination costs in accordance with the Financial Accounting
      Standards Board’s (FASB) 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*. Deferred premiums
      and origination costs on the Company’s loan portfolio are amortized using the
      interest method.





**Loans**





The
      majority of the Company’s student loans were originated under the Federal Family
      Education Loan (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, 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.





The
      Company also has a portfolio of private education loans.  Generally,
      such loans are either insured against loss by private insurers or are covered
      under other risk-sharing agreements with schools. Qualifying loan origination
      costs, purchase premiums and insurance costs are deferred and recognized as
      yield adjustments to interest income.





**Allowance
      for Loan Losses**





Most
      of
      the Company’s FFEL Program and private education loans have loss guarantees,
      insurance coverage, or are covered under risk-sharing agreements that minimize
      the Company’s exposure to loan losses.  However, for the portion of
      loan portfolios not 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 portfolio subject to the risk-sharing
      provisions of the Higher Education Act, and (2) the CitiAssist Loan portfolio,
      after considering the credit risk insurance coverage obtained from third parties
      and the impact of any risk-sharing agreements with certain schools. 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 allowance as they occur. Subsequent recoveries increase
      the allowance for loan losses. Estimated losses are based on historical
      delinquencies, credit loss experience updated for current performance and the
      current aging of the portfolio.





The
      Company ceases to accrue interest income on a student loan when one of the
      following events occurs: (1) a FFEL Program loan loses its guarantee, (2) an
      insured CitiAssist Loan reaches 150 days of delinquency, or (3) an uninsured
      CitiAssist Loan reaches 90 days of delinquency. Accrual of interest is resumed
      on CitiAssist Loans if the loan falls below 30 days of delinquency and on FFEL
      Program loans if the loan guarantee is reinstated. The Company writes off the
      loan balance corresponding to the unguaranteed portion of FFEL Program Loans
      at
      270 days of delinquency and the uninsured portion of CitiAssist Loans at 120
      days of delinquency. Also, the Company generally writes off the loan balances
      for loans in which the claim payment is not received for FFEL Program and
      CitiAssist loans at 450 days and 240 days, respectively. When loans or portions
      of loans are written off, the Company reduces interest income by the amounts
      of
      accrued, uncollected interest.





The
      Company’s private education loan portfolio is not guaranteed by the federal
      government. Although most of the CitiAssist Loans are insured by private
      third-party insurers, a portion is uninsured. The Company is subject to 5%
      to
      20% risk sharing for claims paid on loans covered by third-party insurers.
      For
      insured loans originated since the second quarter of 2003, maximum portfolio
      loss coverage limits apply that range from 12.5% to 13.5% of cumulative
      portfolio losses. For loans insured during 2005 and 2006, the insurance premium
      is calculated under an experience-rated plan.  Limited additional
      premium payments may be required in the future if performance falls below the
      established parameters. The insurance provided by third-party agencies is
      provided on an individual loan basis. The majority of the uninsured CitiAssist
      Loans are covered under various risk-sharing agreements with schools.
      Risk-sharing agreements with schools are provided on a pooled-loan
      basis.





**Transfer
      of Student Loans through Sale or Securitization**





***Whole
      Loan Sales***





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





***Loans
      Securitized***





There
      are
      two key accounting determinations that must be made relating to securitizations.
      First, a decision must be made as to whether that transfer is considered a
      sale
      in accordance with GAAP. If it is a sale, the transferred assets are removed
      from the Company's consolidated balance sheet and a gain or loss is
      recognized.





Second,
      determination must be made as to whether the securitization entity or purchaser
      is sufficiently independent. If so, the entity would not be included in the
      Company's consolidated financial statements. For each securitization entity
      with
      which it is involved, the Company makes a determination of whether the entity
      should be considered a subsidiary of the Company and be included in its
      consolidated financial statements or whether the entity is sufficiently
      independent such that it does not need to be consolidated. If the securitization
      entity's activities are sufficiently restricted to meet accounting requirements
      to be a qualified special purpose entity (QSPE), the securitization entity
      is
      not consolidated by the seller of transferred assets.





Interests
      in the securitized loans are retained in the form of subordinated residual
      interests (i.e., interest-only strips) and servicing rights. Prior to January
      1,
      2007, the Company accounted for its residual interest from the 2004
      securitization as available-for-sale securities, with unrealized gains and
      losses reported in **Accumulated other changes in equity from nonowner
      sources**. Effective January 1, 2007**,**the Company
      early-adopted SFAS No. 159, *The Fair Value Option for Financial Assets and
      Financial Liabilities* (SFAS 159). In accordance with SFAS 159, the Company
      elected to measure its residual interest from the 2004 securitization at fair
      value. Electing the fair value option for this residual interest resulted in
      consistent treatment for all of the Company’s residual interests and related
      derivatives. In order to convert to the fair value method, effective January
      1,
      2007, the Company reclassified the unrealized gain on the residual interest
      from
      the 2004 securitization from **Accumulated other changes in equity from
      nonowner sources**to**Retained earnings**. Beginning with
      the first quarter of 2007, changes in fair value of the 2004 residual interest
      are reported in**Fee and other (loss)/income**. The residual
      interests from its other securitizations continue to be accounted for as trading
      securities, with unrealized gains and losses reported in **Fee and other
      (loss)/income**. See Note 2 for more information on SFAS 159. The
      Company’s servicing assets are reported at fair value, in accordance with the
      provisions of SFAS No. 156, *Accounting for Servicing of Financial Assets –
an amendment of FASB Statement No. 140*(SFAS 156),  and are
      included in **Other assets** on its consolidated financial
      statements. Unrealized gains and losses associated with servicing asset
      valuation changes are reported in **Fee and other
      (loss)/income**.





Gains
      are
      recognized at the time of securitization and are reported in **Gains on
      loans securitized**.  Securitization gains depend in part on
      the previous carrying amount of the loans involved in the transfer and are
      allocated between the loans sold and the residual interests and servicing
      assets, collectively, the retained interests, based on their relative fair
      values at the date of sale.  The Company estimates the fair value of
      these retained interests using an income approach by determining the present
      value of expected future cash flows using modeling techniques that incorporate
      management's best estimates of key assumptions, including, but not limited
      to
      prepayment speeds, credit losses, borrower benefits and discount
      rates.





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





**Loans
      Held for Sale**





Loans
      held for sale are loans that the Company plans to include in a future
      securitization or sale. Management continually assesses its future
      securitization and loan sale plans and transfers sufficient amounts of loans
      to
      the held for sale portfolio to meet the Company’s anticipated near term sale
      requirements. These loans are recorded at the lower of cost, consisting of
      principal and deferred costs, or market value.  For the three and
      nine month periods ended September 30, 2007 and 2006, market value exceeded
      cost. Accordingly, no valuation allowance was necessary.





**Derivatives**





The
      Company manages its exposure to market rate changes through the use of
      derivative financial products including swaps and written options. These
      derivatives are carried at fair value in **Other assets** or
**Other liabilities** in the Company’s consolidated balance sheet
      with changes in fair value recorded currently in **Fee and other
      (loss)/income**.





**Internally
      Developed Software**





Certain
      direct costs associated with the development of internal use software are
      capitalized. The Company capitalizes development costs for internal use software
      in accordance with the provisions of Statement of Position 98-1,*Accounting
      for the Costs of Computer Software Developed or Obtained for Internal Use.*
      These capitalized costs are included in **Other assets** and are
      amortized using the straight-line method over the useful life, 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 internal use software costs are
      periodically reviewed for obsolescence.  Capitalized costs of projects
      deemed to be obsolete or abandoned are written off to operating
      expense.





**2.**
            **New
                Accounting Standards**





***Fair
      Value Measurements***





As
      of
      January 1, 2007, the Company elected to early-adopt SFAS No. 157, *Fair Value
      Measurements* (SFAS 157). SFAS 157 defines fair value, establishes a
      consistent framework for measuring fair value and expands disclosure
      requirements about fair value measurements. The Company’s early adoption of SFAS
      157 had no material impact on its results of operations or financial
      condition.





***Fair
      Value Option***





As
      of
      January 1, 2007, the Company elected to early-adopt SFAS 159. Under this
      Standard, the Company may elect to report financial instruments and certain
      other items at fair value on a contract-by-contract basis with changes in fair
      value reported in earnings.  This election is generally made when the
      Company first recognizes a financial asset or liability and is
      irrevocable.  SFAS 159 provides an opportunity to mitigate volatility
      in reported earnings that was caused by measuring hedged assets and liabilities
      that were previously required to use an accounting method other than fair value,
      while the related economic hedges were reported at fair value.  Upon
      adoption, the Company elected to account for its residual interest from the
      2004
      securitization, which was classified as an available-for-sale security, at
      fair
      value. As a result, the Company reclassified $0.8 million in unrealized gains
      from **Accumulated other changes in equity from nonowner sources**
      to **Retained earnings**.





***Accounting
      for Uncertainty in Income Taxes***





In
      June
      2006, the FASB issued FASB Interpretation No. 48, *Accounting for Uncertainty
      in Income Taxes*(FIN 48), which sets out a framework for preparers to use
      to determine the appropriate level of tax reserves to maintain for uncertain
      tax
      positions. This interpretation of FASB's SFAS No. 109, *Accounting for
      Income Taxes* uses a two-step approach wherein a tax benefit is recognized
      if a position is more-likely-than-not to be sustained. The amount of the benefit
      is then measured to be the highest tax benefit which is greater than fifty
      percent likely to be realized. FIN 48 also sets out disclosure requirements
      to
      enhance transparency of an entity's tax reserves. The Company adopted FIN 48
      as
      of January 1, 2007. The Company’s adoption of FIN 48 on January 1, 2007 did not
      have a material impact on its results of operations or financial
      condition.




The
      Company has no material unrecognized tax benefits. The Company’s policy is to
      classify interest and penalties as income tax expense. The Company has not
      recognized any material amounts of interest or penalties in the consolidated
      financial statements for the nine months ended September 30, 2007 and 2006.
      The
      following are the major tax jurisdictions in which the Company operates and
      the
      earliest tax year subject to examination:






**Jurisdiction**
            **Tax
                year**United
                States
            2003New
                York
            2005





**3.           StudentLoans**





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





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





**September
                30,**
            
            
            **December
                31,**(*Dollars
                in thousands)*
            
            **2007**
            
            
            **2006**Federal
                Stafford Loans
            
            $
            8,396,926
            
            
            $
            7,192,550Federal
                Consolidation Loans
            
            
            7,129,905
            
            
            
            9,118,615Federal
                SLS/PLUS/HEAL Loans
            
            
            1,158,317
            
            
            
            872,968Private
                education loans
            
            
            3,112,925
            
            
            
            3,072,394Total
                student loans held, excluding deferred costs
            
            
            19,798,073
            
            
            
            20,256,527Deferred
                origination and premium costs
            
            
            615,604
            
            
            
            632,872Student
                loans held
            
            
            20,413,677
            
            
            
            20,889,399Less:
                allowance for loan losses
            
            
            (27,630
            )
            
            
            (14,197
            )**Student
                loans held, net**
            
            
            20,386,047
            
            
            
            20,875,202Loans
                held for sale, excluding deferred costs
            
            
            2,850,531
            
            
            
            315,927Deferred
                origination and premium costs
            
            
            93,447
            
            
            
            7,114**Loans
                held for sale**
            
            
            2,943,978
            
            
            
            323,041**Other
                loans and lines of credit**
            
            
            90,594
            
            
            
            76,117**Total
                loan assets**
            
            $
            23,420,619
            
            
            $
            21,274,360






**4.             Other
      Assets**





Other
      assets are summarized as follows:





**September
                30,**
            
            
            **December
                31,**(*Dollars
                in thousands*)
            
            **2007**
            
            
            **2006**Accrued
                interest receivable:from
                student loan borrowers/others
            
            $
            669,018
            
            
            $
            440,992from
                federal government
            
            
            125,721
            
            
            
            126,929Servicing
                asset from securitization activity
            
            
            171,315
            
            
            
            169,234Equipment
                and computer software(1)
            
            
            36,360
            
            
            
            42,423Other
            
            
            76,976
            
            
            
            29,673**Total
                other assets**
            
            $
            1,079,390
            
            
            $
            809,251





(1)
            Amounts
                are reflected net of accumulated depreciation and amortization of
                $50
                million and $44 million at September 30, 2007 and December 31, 2006,
                respectively.








**5.           Fee
      and Other (Loss)/Income**





A
      summary
      of fee and other (loss)/ income follows:





**Three
                months ended**
              **September
                30,**
            
            
            **Nine
                months ended**
              **September
                30,***(Dollars
                in thousands)*
            
            **2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Losses
                related to residual interests
            
            $
            (26,414
            )
            
            $
            (3,500
            )
            
            $
            (28,306
            )
            
            $
            (8,871
            )Servicing
                revenue net of losses related to servicing assets
            
            
            14,452
            
            
            
            4,578
            
            
            
            34,576
            
            
            
            9,381Mark-to-market
                (losses)/gains on derivatives
            
            
            (1,921
            )
            
            
            (8,434
            )
            
            
            (3,583
            )
            
            
            2,867Other
                origination and servicing fees
            
            
            2,450
            
            
            
            2,656
            
            
            
            5,532
            
            
            
            5,456Late
                fees
            
            
            1,105
            
            
            
            2,039
            
            
            
            4,646
            
            
            
            5,293Other
            
            
            276
            
            
            
            228
            
            
            
            1,366
            
            
            
            2,837**Total
                fee and other (loss)/income**
            
            $
            (10,052
            )
            
            $
            (2,433
            )
            
            $
            14,231
            
            
            $
            16,963







**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. Pursuant to various
      intercompany agreements, a number of significant transactions are carried out
      between the Company and Citigroup, CBNA and their affiliates. Intercompany
      agreements with CBNA include an Omnibus Credit Agreement, as amended (Omnibus
      Credit Agreement), a tax-sharing agreement and student loan originations and
      servicing agreements.  In addition, the Company maintains a trust
      agreement with CBNA through which it originates FFEL Program
      loans.  Also, the Company has an agreement for education loan
      servicing with Citibank (South Dakota), N.A.  Management believes that
      the 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 unaffiliated third parties.





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





**Three
                months ended**
              **September
                30,**
            
            
            **Nine
                months ended**
              **September
                30,***(Dollars
                in thousands)*
            
            **2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006****Revenues**
              Interest
                income
            
            $
            376
            
            
            $
            88
            
            
            $
            908
            
            
            $
            304Interest
                expense
            
            
            298,345
            
            
            
            321,962
            
            
            
            881,027
            
            
            
            907,234Fee
                and other (loss)/ incomeDerivative
                valuation
            
            
            (1,921
            )
            
            
            (8,434
            )
            
            
            (3,583
            )
            
            
            2,867Other
            
            
            2,450
            
            
            
            2,656
            
            
            
            5,532
            
            
            
            5,456**Operating
                Expenses**
              ***Salaries
                and employee benefits***
              Employee
                benefits and administration
            
            $
            2,672
            
            
            $
            2,703
            
            
            $
            8,194
            
            
            $
            7,832Stock-based
                compensation
            
            
            501
            
            
            
            397
            
            
            
            1,913
            
            
            
            1,481***Other
                expenses***Servicing,
                professional and other fees paid
            
            $
            13,648
            
            
            $
            12,551
            
            
            $
            37,127
            
            
            $
            34,096Data
                processing  and communications
            
            
            1,715
            
            
            
            1,678
            
            
            
            4,755
            
            
            
            4,698Premises
            
            
            700
            
            
            
            734
            
            
            
            2,227
            
            
            
            2,202Other
            
            
            610
            
            
            
            1,361
            
            
            
            1,773
            
            
            
            1,759








*CBNA
      Omnibus Credit Agreement*


All
      of
      the Company’s outstanding short and long-term unsecured borrowings were incurred
      under the terms of an Omnibus Credit Agreement with CBNA. This agreement
      provides a maximum aggregate credit limit of $30 billion through December 31,
      2009, at which time it is anticipated that the agreement will be
      extended.





*Interest
      Rate Swap and Option Agreements*


The
      Company is a party to interest rate swaps and options with CBNA, an investment
      grade counterparty, to manage its interest rate risk exposure. At September
      30,
      2007 and December 31, 2006, the Company had $36 million and $11 million,
      respectively, in a margin account maintained with CBNA. The increase in the
      account was due to additional interest rate swap and option agreements entered
      into during the first nine months of 2007 as well as increases in the collateral
      requirements for certain agreements. For further information on the Company’s
      interest rate derivative agreements, see Note 7.





*Student
      Loan Origination Agreement and Servicing Fees Earned*


Private
      education loans are originated by CBNA through an intercompany
      agreement.  Following full disbursement, the Company purchases all
      qualified private education loans at CBNA’s carrying value at the time of
      purchase, plus a contractual premium. Total private education loans purchased
      by
      the Company during the nine months ended September 30, 2007 and 2006 was $1.8
      billion and $1.5 billion, respectively. Total premiums paid by the Company
      related to private education loan purchases for the nine months ended September
      30, 2007 and 2006 were $12 million and $10 million, respectively. At September
      30, 2007, the Company was committed to purchase private education loans of
      $1.1
      billion.





The
      Company also earns loan origination and servicing revenue for work performed
      on
      private education loans held by CBNA prior to purchase by the
      Company.  The Company received revenue related to this agreement of $6
      million and $5 million for the nine month periods ended September 30, 2007
      and
      2006, respectively. This revenue is included in **Fee and other
      (loss)/income** in the table above.





*Servicing,
      Professional and Other Fees Paid*


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 loan originations and servicing work on the Company’s FFEL program and
      private education loan portfolios was performed under the provisions of
      intercompany agreements with affiliates of Citigroup, including Citibank (South
      Dakota), N.A. The increase in the charges is primarily due to managed loan
      portfolio growth.





*CBNA
      Tax-sharing Agreement*


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





*Other
      Intercompany Arrangements*


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




**7.**
            **Interest
                Rate Derivative
                Agreements**





The
      Company enters into interest rate derivative agreements to help manage its
      exposure to interest rate risk.  The counterparty to all of the
      Company’s derivative agreements is CBNA, an investment grade company. None of
      the derivatives held by the Company during 2007 and 2006 were designated as
      hedges and accordingly they did not qualify for hedge accounting treatment
      under
      SFAS No. 133, *Accounting for Derivative Instruments and Hedging
      Activities***(SFAS 133).







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





**September
                30, 2007**
            
            
            **December
                31, 2006****Fair
                Value**
            
            
            
            
            
            **Fair
                Value**(*Dollars
                in thousands*)
            
            **Notional**
            
            
            **Asset**
            
            
            **Liability**
            
            
            **Notional**
            
            
            **Asset**
            
            
            **Liability**Prime
                / LIBOR Swaps
            
            $
            ----
            
            
            $
            ----
            
            
            $
            ----
            
            
            $
            4,000,000
            
            
            $
            ----
            
            
            $
            761Other
                LIBOR Based Swaps
            
            
            8,500,000
            
            
            
            16,257
            
            
            
            1,087
            
            
            
            8,035,000
            
            
            
            462
            
            
            
            1,803Interest
                Rate Floor Options
            
            
            8,236,547
            
            
            
            ----
            
            
            
            42,161
            
            
            
            6,200,000
            
            
            
            ----
            
            
            
            9,500





The
      Company’s LIBOR based swaps are intended to economically hedge the interest rate
      risk inherent in the Company’s residual interests. These swaps mature between
      2009 and 2017.





The
      Company’s interest rate floor options are written derivative contracts that are
      designed to function as economic hedges of the floor income component of the
      residual interests. Portions of the options mature in 2016 and 2021 with the
      remainder maturing in 2022.





**8.**
            **Student
                Loan Securitizations**





The
      Company maintains a program to securitize certain portfolios of student loan
      assets. Under the Company’s securitization program, the loans are removed from
      the consolidated financial statements of the Company and sold to an independent
      trust.  In order to pay for the loan assets, the trust sells debt
      securities, backed by the student loan assets, to outside
      investors.





A
      summary
      of the Company’s securitization transactions is presented in the table
      below:





**Three
                Months Ended**
              **September
                30,**
            
            
            **Nine
                Months Ended**
              **September
                30,***(Dollars
                in thousands)*
            
            **2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Student
                loans securitized during the period
            
            $
            -
            
            
            $
            2,498,373
            
            
            $
            1,201,603
            
            
            $
            4,698,605Proceeds
                from student loans securitized during the period
            
            
            -
            
            
            
            2,464,640
            
            
            
            1,221,216
            
            
            
            4,650,616Realized
                gains on loans securitized
            
            
            -
            
            
            
            75,163
            
            
            
            48,548
            
            
            
            144,236Mark-to-market
                gains on retained interests at securitization date
            
            
            -
            
            
            
            3,574
            
            
            
            3,075
            
            
            
            6,292





The
      following table reflects amounts received from the securitization
      trusts:





**Nine
                Months Ended**
              **September
                30,**
            
            
            **Nine
                Months Ended**
              **September
                30,***(Dollars
                in thousands)*
            
            **2007**
            
            
            **2006**Cash
                received from trusts for contractual servicing fees
            
            $
            47,919
            
            
            $
            21,080Cash
                received from trusts on residual interests
            
            
            53,991
            
            
            
            8,572





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





*(Dollars
                in thousands)*
            
            **September
                30, 2007**
            
            
            **December
                31, 2006**Receivable
                from trusts for servicing
            
            $
            5,766
            
            
            $
            3,950Payable
                to trusts for student loan payments
            
            
            13,285
            
            
            
            11,494








During
      the nine months ended September 30, 2007 and 2006, the Company earned $50
      million and $22 million, respectively, of revenue for servicing the trust
      portfolios.





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





**Three
                months ended**
              **September
                30,**
            
            
            **Nine
                months ended**
              **September
                30,***(Dollars
                in thousands)*
            
            **2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Balance
                at beginning of period
            
            $
            174,077
            
            
            $
            100,689
            
            
            $
            169,234
            
            
            $
            76,784Cumulative
                effect adjustment
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,435Changes
                in fair value due to changes in inputs and assumptions
            
            
            5,258
            
            
            
            (99
            )
            
            
            8,519
            
            
            
            (3,596
            )Other
                changes (1)
            
            
            (8,020
            )
            
            
            (4,320
            )
            
            
            (23,679
            )
            
            
            (9,321
            )Student
                loan securitizations
            
            
            -
            
            
            
            39,288
            
            
            
            17,241
            
            
            
            69,256**Balance
                at end of period**
            
            $
            171,315
            
            
            $
            135,558
            
            
            $
            171,315
            
            
            $
            135,558(1)   
                Amounts represent the effects of payments and the passage of
                time.





The
      cumulative effect adjustment in the table above was related to the adoption
      of
      SFAS 156. See Note 1 for further information.





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





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





**September
                30, 2007**
            **December
                31, 2006**Weighted
                average discount rate:FFEL
                Program Consolidation Loans
            10.7%
            10.0%Private
                education loans
            12.7%
            12.0%Constant
                prepayment rates:FFEL
                Program Consolidation Loans
            Up
                to 6.5% in 5 to 10 years
            Up
                to 9.8% in 5 to 10 yearsPrivate
                education loans
            6.7%
                to 21.6% over 12 years
            4.6%
                to 20.0% over 12 yearsAnticipated
                credit losses, net of insurance and guarantees:FFEL
                Program Consolidation Loans
            0.31%
            0.11%Private
                education loans
            1.13%
            1.10%Expected
                basis spread between LIBOR and Commercial Paper rate
            11.0
                basis points
            10.7
                basis pointsUtilization
                rate of borrower benefits:Automated
                clearing house
            10.0%
                to 40.1%
            17.5%
                to 39.8%On
                time payments
            0%
                to 41.6%
            14.5%
                to 36.5%





The
      key
      assumptions used to value the servicing assets for all securitization trusts
      were as follows:





**September
                30, 2007**
            **December
                31, 2006**Weighted
                average discount rate:FFEL
                Program Consolidation Loans
            6.1%
            6.0%Private
                education loans
            6.6%
            6.5%Constant
                prepayment rates:FFEL
                Program Consolidation Loans
            Up
                to 6.5% in 5 to 10 years
            Up
                to 9.8% in 5 to 10 yearsPrivate
                education loans
            6.7%
                to 21.6% over 12 years
            4.6%
                to 20.0% over 12 yearsServicing
                margin
            25.0
                basis points
            25.0
                basis points








A
      sensitivity analysis is provided in the table below that shows the effects
      of
      adverse changes in each of the key assumptions used to determine the fair value
      of the retained interests.  The adverse effect of the change in each
      assumption 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**
              **Assets**Fair
                value at September 30, 2007
            
            $
            564,729
            
            
            $
            171,315**Discount
                rate**10%
                adverse change
            
            
            (22,348
            )
            
            
            (3,970
            )20%
                adverse change
            
            
            (43,038
            )
            
            
            (7,776
            )**Constant
                prepayment rate**10%
                adverse change
            
            
            (10,483
            )
            
            
            (2,846
            )20%
                adverse change
            
            
            (21,141
            )
            
            
            (5,835
            )**Anticipated
                net credit losses/defaults**10%
                adverse change
            
            
            (5,404
            )
            
            
            (1,093
            )20%
                adverse change
            
            
            (10,749
            )
            
            
            (2,150
            )**Servicing
                margin**10%
                adverse change
            
            
            -
            
            
            
            (16,922
            )20%
                adverse change
            
            
            -
            
            
            
            (33,666
            )**Basis
                spread**
            
            
            
            
            
            
            -10%
                adverse change
            
            
            (5,823
            )
            
            
            -20%
                adverse change
            
            
            (11,646
            )
            
            
            -**Borrower
                benefits – ACH**
            
            
            
            
            
            
            -10%
                adverse change
            
            
            (3,096
            )
            
            
            -20%
                adverse change
            
            
            (6,184
            )
            
            
            -**Borrower
                benefits – on time payments**
            
            
            
            
            
            
            -10%
                adverse change
            
            
            (9,450
            )
            
            
            -20%
                adverse change
            
            
            (18,948
            )
            
            
            -





The
      Company continues to service the loans transferred to the trusts after
      securitization. As a result, the Company considers the securitized loans to
      be
      part of the Company’s managed loan portfolio.





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





*(Dollars
                in thousands)*
            
            **September
                30, 2007**
            
            
            **December
                31, 2006****Principal
                amounts, at period end**On-balance
                sheet loans
            
            $
            23,448,249
            
            
            $
            21,288,557Securitized
                amounts
            
            
            12,686,000
            
            
            
            12,375,339**Total
                managed**
            
            $
            36,134,249
            
            
            $
            33,663,896**Delinquencies,
                at period end**On-balance
                sheet loans  (1)****
            
            $
            776,053
            
            
            $
            775,345Securitized
                amounts
            
            
            310,744
            
            
            
            217,090**Total
                managed******(1)
                (2)
            
            $
            1,086,797
            
            
            $
            992,435


(1)  Amounts
      include loans available for sale.


(2)  Of
      these loans, 99% were accruing interest at September 30, 2007 and December
      31,
      2006.








Credit
      losses, net of recoveries, for the Company’s managed loan portfolios are
      presented in the table below:





**Three
                months ended**
              **September
                30,**
            
            
            **Nine
                months ended**
              **September
                30,***(Dollars
                in thousands)*
            
            **2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006****Credit
                losses, net of recoveries:**On-balance
                sheet loans
            
            $
            8,429
            
            
            $
            5,624
            
            
            $
            18,715
            
            
            $
            12,118Securitized
                amounts
            
            
            2,124
            
            
            
            67
            
            
            
            4,685
            
            
            
            67**Total
                managed**
            
            $
            10,553
            
            
            $
            5,691
            
            
            $
            23,400
            
            
            $
            12,185








**9.**
            **Fair
                Value**





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





·
            Level
                1 – Quoted prices for *identical* instruments in active
                markets.


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


·
            Level
                3 – Instruments whose primary value drivers are
                *unobservable*.





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





**September
                30, 2007***(Dollars
                in Thousands)*
            
            **Level
                2**
            
            
            **Level
                3****Assets**Residual
                interests in securitized loans
            
            $
            -
            
            
            $
            564,729Other
                assets
            
            
            16,257
            
            
            
            171,315**Total
                Assets**
            
            $
            16,257
            
            
            $
            736,044**Liabilities**Other
                liabilities
            
            $
            43,248
            
            
            $
            -





**Derivatives**


Derivatives
      are used to manage interest rate risk. Fair value was based upon market quotes
      received from counterparties. Derivatives are recorded at fair value and are
      included in **Other assets** and **Other liabilities**
      in the table above and on the consolidated financial statements. For more
      information on derivatives, see Note 7.





**Retained
      Interests in Securitized Loans**


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








The
      following tables present the changes in the Level 3 fair value category for
      the
      three and nine months ended September 30, 2007:





*(Dollars
                in Thousands)*
            
            **Residual
                Interests in**
              **Securitized
                Loans**
            
            
            **Other**
              **Assets**Balance
                at June 30, 2007
            
            $
            593,552
            
            
            $
            174,077Net
                unrealized (losses)/gains (1)
            
            
            (11,206
            )
            
            
            8,087Issuances
                and settlements
            
            
            (17,617
            )
            
            
            (10,849
            )**Balance
                at September 30, 2007**
            
            $
            564,729
            
            
            $
            171,315




*(Dollars
                in Thousands)*
            
            **Residual
                Interests in**
              **Securitized
                Loans**
            
            
            **Other**
              **Assets**Balance
                at December 31, 2006
            
            $
            546,422
            
            
            $
            169,234Net
                unrealized gains(1)
            
            
            15,715
            
            
            
            16,471Issuances
                and settlements
            
            
            2,592
            
            
            
            (14,390
            )**Balance
                at September 30, 2007**
            
            $
            564,729
            
            
            $
            171,315




(1)
            Amount
                includes, as applicable, accreted interest which is included in
                **Interest income** and other unrealized (losses)/gains which
                are included in **Fee and other (loss)/income**in the
                consolidated statement of income.





**10.**
            **Short
                and Long-Term
                Borrowings**





The
      Company’s outstanding borrowings were obtained under the terms of an Omnibus
      Credit Agreement with CBNA. This agreement expires December 2009, at which
      time
      it is anticipated that the agreement will be extended.





Approximately
      $4.5 billion of the Company's outstanding short and long-term debt includes
      various interest rate options embedded in the respective debt instruments at
      September 30, 2007.  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.




**11.**
            **Commitments
                and Contingencies**





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





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








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





The
      following Management’s Discussion and Analysis (MD&A) discussion should be
      read in conjunction with the accompanying unaudited consolidated financial
      statements and notes and the Company’s 2006 Annual Report on Form
      10-K.





The
      MD&A provides the Company’s perspective on the individual sections, which
      include the following:





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





**Critical
      Accounting Estimates** - an overview of accounting policies that require
      critical judgments and estimates





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





**Financial
      Condition**– a discussion and analysis of the Company’s products,
      disbursement and procurement activity, allowance for loan losses, private
      education loans in repayment, and sources and uses of cash





**Results
      of Operations** - an analysis of the Company’s results of operations for
      the three and nine months ended September 30, 2007 and 2006





**Regulatory
      Impacts**– a discussion of legislative activities that affect the student
      loan industry (including the College Cost Reduction and Access Act which will
      have an adverse affect on the financial condition and results of operations
      of
      the Company)





**Off-Balance
      Sheet Arrangements**– a description and analysis of the Company’s
      arrangements and commitments





**Forward-Looking
      Statements**– an explanation of Forward-Looking Statements within the
      meaning of the Private Securities Litigation Reform Act





**Business
      Overview**





The
      Student Loan Corporation (the Company) is one of the nation’s leading
      originators and holders of student loans offering a full array of student loan
      products to students and their parents. The majority of the Company’s loans are
      guaranteed under the Federal Family Education Loan (FFEL) Program, authorized
      by
      the U.S. Department of Education (the Department) under the Higher Education
      Act
      of 1965, as amended (the Higher Education Act). The Company originates, manages
      and services 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
      through CBNA and holds private education loans that are not insured under the
      Higher Education Act. The Company is committed to providing exceptional service
      to borrowers and schools and offering competitive and innovative products to
      students and their families. The Company differentiates itself from its
      competitors by offering life of loan servicing on most loans.





The
      earnings of the Company are primarily generated by the spread between the
      interest earned on its loan assets (based on the 91-day Treasury Bill rate,
      the
      90-day Commercial Paper rate or the prime 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. Net interest
      income is also impacted by changes in the size of the Company’s loan portfolio
      and changes in the current interest rate environment, particularly by spread
      changes between the 91-day Treasury Bill rate, the 90-day Commercial Paper
      rate
      or the prime rate and LIBOR.  The Company regularly monitors interest
      rates and may enter into interest rate derivative agreements on portions of
      its
      portfolio in response to interest rate fluctuations.





The
      Company’s earnings are affected by the number and size of asset sales and
      securitizations, which fluctuate on a quarterly basis. During the third quarter
      of 2007, the Company elected to postpone its securitization activities due
      to
      market conditions.





The
      Company’s earnings are also affected by valuation changes to its retained
      interests from securitizations, which fluctuate based on factors such as market
      rate changes, prepayment speeds, default rates and regulatory changes. 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, net credit losses,
      the number of borrowers qualifying for borrower benefits, financing options
      available to students and their parents, and competition.








During
      2007, the College Cost Reduction and Access Act (CCRA Act) was passed into
      law,
      which contains provisions that are effective beginning in the fourth quarter
      of
      2007.  Prior to the CCRA Act, the Company received 99% default
      reimbursement on FFEL Program loans. The CCRA Act eliminates the Exceptional
      Performer (EP) program, thereby decreasing the Company’s reimbursement rates on
      FFEL Program loans. For substantially all claims filed after October 1, 2007,
      the Company will receive 97% or 98% reimbursement, depending on the origination
      date of the loan. The CCRA Act also provides for a further reduction in the
      reimbursement rate to 95% for new loans disbursed on or after October 1,
      2012.





Other
      provisions included in the CCRA Act for new loans originated on or after October
      1, 2007 increase lenders fees from 0.5% to 1.0% and reduce special allowance
      payments by 55 basis points for Stafford and Consolidation loans and 85 basis
      points for PLUS loans.  These provisions are expected to have an
      adverse effect on the Company’s future financial position and results of
      operations, specifically Net interest income, Provision for loan losses and
      Residual interests in securitized loans.   See **Regulatory
      Impacts** on page 25 for more information regarding recent legislative
      activity.





**Critical
      Accounting Estimates**





Certain
      accounting estimates made by management are considered to be critical accounting
      estimates because they require management to make difficult, complex or
      subjective judgments and estimates that could have a material affect on the
      Company’s results. The Company’s critical accounting estimates, which relate to
      student loan securitizations and allowance for loan losses, are described fully
      in the Company’s 2006 Annual Report on Form 10-K. The following section
      highlights changes in the critical accounting estimates.




***Student
      loan securitizations***





The
      Company securitizes student loan assets as a means to access competitive
      financing rates in the market and provide an alternative source of funding.
      Initial and subsequent measurements of the fair value of retained interests
      in
      securitized assets are performed using a discounted cash flow model. The
      discount rate, basis spreads, anticipated net credit loss rate, average loan
      life, anticipated prepayment rates and borrower benefits are key assumptions
      utilized to measure the fair value of retained interests. These assumptions
      are
      updated on a quarterly basis to reflect current market conditions. During the
      third quarter of 2007, events occurred which required changes to certain
      assumptions. The enactment of the CCRA Act, which eliminated the EP program,
      resulted in an increase in the anticipated net credit losses for the FFEL
      Program Consolidation Loan securitization trusts and a $10 million reduction
      in
      the fair value of the Company’s retained interests. In addition, changes in the
      interest rate environment during the third quarter of 2007 resulted in a $29
      million reduction in the fair value of the Company’s retained interests. Future
      changes in prevailing market conditions or the regulatory environment could
      result in further writedowns of the Company’s retained interests.





***Allowance
      for loan losses***





Most
      of
      the Company’s loans have loss guarantees from the U.S. government or private
      insurance coverage which reduce the Company’s exposure to loan losses. The
      allowance provides a reserve for estimated losses on the portion of the student
      loan portfolio that is not covered by such guarantees or insurance. The CCRA
      Act’s elimination of the EP program increased the Company’s anticipated net
      credit losses and resulted in an $8 million increase in the allowance for loan
      losses. Future changes in loss rate experience or the regulatory environment
      could result in further increases in the allowance for loan losses.





**Accounting
      Changes and Future Application of Accounting Standards**





See
      Note
      2 to the consolidated financial statements for a discussion of new accounting
      standards.





**Financial
      Condition**





***Loans***





At
      September 30, 2007, the Company’s student loan assets were comprised of FFEL
      Program loans, private education loans, an inventory of loans held for sale
      and
      related deferred costs. See Note 3 to the consolidated financial statements
      for
      a presentation of the loan portfolio by program type. Balances related to the
      Company’s owned and managed loan portfolios are summarized below:





*(Dollars
                in millions)*
            
            **September
                30,**
              **2007**
            
            
            **December
                31,**
              **2006**Average
                owned loans (year to date)
            
            $
            22,749
            
            
            $
            25,355Owned
                loans at end of period
            
            
            23,448
            
            
            
            21,289Average
                managed loans (year to date)
            
            
            35,089
            
            
            
            32,403Managed
                loans at end of period
            
            
            36,134
            
            
            
            33,664





***Loan
      Disbursement and Procurement Activity***





The
      Company makes loans through retail, direct-to-consumer and wholesale channels.
      The retail channel represents loan activity directed by the Company’s retail
      sales force and is initiated primarily through the Company’s relationships with
      schools and universities. Retail volume consists primarily of FFEL Program
      Stafford and PLUS loans and CitiAssist loans. Loan consolidation and other
      secondary market volume represents loan activity initiated outside the retail
      channel, through activities such as direct marketing to consumers or purchases
      of loans originated by other lenders, and is comprised primarily of FFEL Program
      Stafford, PLUS and Consolidation Loans. Details of the Company’s origination
      activity are presented in the table below:





**Three
                months ended**
              **September
                30,**
            
            
            **Nine
                months ended**
              **September
                30,***(Dollars
                in millions)*
            
            **2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006****Retail:**FFEL
                Program Stafford and PLUS Loan originations
            
            $
            1,656
            
            
            $
            1,307
            
            
            $
            3,750
            
            
            $
            3,095CitiAssist
                Loans disbursed under commitments to purchase(1)
            
            
            614
            
            
            
            682
            
            
            
            1,500
            
            
            
            1,463**Total
                Retail**
            
            
            2,270
            
            
            
            1,989
            
            
            
            5,250
            
            
            
            4,558**Loan
                consolidation and other secondary market volume**
            
            
            853
            
            
            
            2,179
            
            
            
            1,999
            
            
            
            4,370**Total
                Originations**
            
            $
            3,123
            
            
            $
            4,168
            
            
            $
            7,249
            
            
            $
            8,928


(1)
            These
                amounts represent CitiAssist Loans disbursed by CBNA. These loans
                have
                been or will be purchased by the Company after final
                disbursement.





The
      $655
      million increase in FFEL Program Stafford and PLUS loan originations for the
      nine month period ended September 30, 2007, compared to the same period of
      2006,
      is primarily attributable to the success of ongoing marketing initiatives,
      as
      well as overall growth in the marketplace. The $37 million increase in
      CitiAssist Loan disbursements for the nine month period ended September 30,
      2007
      compared to the same period last year resulted from increasing borrower demands
      for private education financing above the statutory limits provided by the
      FFEL
      Program partially offset by the shift in volume to the Graduate PLUS loan
      product introduced in 2006.





In
      order
      to comply with certain legal and regulatory requirements, CitiAssist Loans
      are
      originated by CBNA through an intercompany agreement. Following full
      disbursement, the Company purchases all CitiAssist Loans from CBNA. See Note
      6
      to the consolidated financial statements for further information regarding
      the
      Company’s purchases of CitiAssist Loans from CBNA. CitiAssist Loans do not carry
      federal government guarantees, but generally carry private insurance. At
      September 30, 2007 and 2006, $615 million and $655 million, respectively, of
      CitiAssist Loans were owned and held by CBNA.




Approximately
      half of the loan consolidation and other secondary market volume presented
      in
      the table above for the nine month periods ended September 30, 2007 and
      2006, respectively, were consolidations of student loans already held in the
      Company’s loan portfolio. The decrease in loan consolidation and other secondary
      market volume is within expectations due to the difference in the interest
      rate
      environment during the first nine months of 2007 as compared to the same period
      of 2006.





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






***Allowance
      for loan losses***





Most
      of
      the Company’s loans have loss guarantees provided by the U.S. government or
      private insurance coverage which reduce the Company’s exposure to loan losses.
      The Company’s loan loss allowance provides a reserve for estimated losses on the
      portion of the FFEL Program loan portfolio that is subject to the risk-sharing
      provisions of the Higher Education Act and the private education loan portfolio,
      after considering the credit risk insurance coverage obtained from third parties
      and the impact of any risk-sharing agreements with certain schools. For further
      information on the allowance for loan losses, see Note 1 to the consolidated
      financial statements.





The
      Company’s allowance for loan losses and current period provision for loan loss
      expense increased significantly as compared to both the prior quarter and the
      same quarter of the prior year. There are two primary factors driving this
      increase  Seasoning of the uninsured private loan portfolio resulted
      in higher losses, which increased current period charge-offs as well as the
      required loan loss allowance. In addition, the CCRA Act cut default claim
      reimbursements by eliminating the EP program, which  increased the
      Company’s allowance for loan losses by $8 million.  See
**Regulatory Impacts** on page 25 for further information about the
      CCRA Act. Each of these factors is expected to continue to adversely impact
      the
      Company’s provision for loan losses.





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





**Three
                months ended September 30,**
            
            
            **Nine
                months ended September 30,***(Dollars
                in thousands)*
            
            **2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006****Balance
                at beginning of period**FFEL
                Program
            
            $
            4,700
            
            
            $
            5,519
            
            
            $
            6,911
            
            
            $
            1,993CitiAssist
            
            
            10,711
            
            
            
            4,417
            
            
            
            7,286
            
            
            
            2,99715,411
            
            
            
            9,936
            
            
            
            14,197
            
            
            
            4,990**Provision
                for loan losses**FFEL
                Program
            
            
            11,671
            
            
            
            3,170
            
            
            
            12,540
            
            
            
            6,720CitiAssist
            
            
            9,748
            
            
            
            3,895
            
            
            
            23,302
            
            
            
            11,78621,419
            
            
            
            7,065
            
            
            
            35,842
            
            
            
            18,506**Charge
                offs**FFEL
                Program
            
            
            (2,731
            )
            
            
            (2,316
            )
            
            
            (5,307
            )
            
            
            (2,346
            )CitiAssist
            
            
            (7,489
            )
            
            
            (3,776
            )
            
            
            (17,320
            )
            
            
            (11,075
            )(10,220
            )
            
            
            (6,092
            )
            
            
            (22,627
            )
            
            
            (13,421
            )**Recoveries**FFEL
                Program
            
            
            -
            
            
            
            1
            
            
            
            -
            
            
            
            7CitiAssist
            
            
            1,791
            
            
            
            467
            
            
            
            3,912
            
            
            
            1,2951,791
            
            
            
            468
            
            
            
            3,912
            
            
            
            1,302**Other**(1)FFEL
                Program
            
            
            (771
            )
            
            
            -
            
            
            
            (1,275
            )
            
            
            -CitiAssist
            
            
            -
            
            
            
            -
            
            
            
            (2,419
            )
            
            
            -(771
            )
            
            
            -
            
            
            
            (3,694
            )
            
            
            -**Balance
                at end of period**FFEL
                Program
            
            
            12,869
            
            
            
            6,374
            
            
            
            12,869
            
            
            
            6,374CitiAssist
            
            
            14,761
            
            
            
            5,003
            
            
            
            14,761
            
            
            
            5,003$
            27,630
            
            
            $
            11,377
            
            
            $
            27,630
            
            
            $
            11,377





(1)
            Represents
                reserve amounts associated with loans sold or reclassified as
                held-for-sale.












***Private
      Education Loans in Repayment***





The
      Company’s private education loan portfolios are not guaranteed by the federal
      government. Although private education loans do not carry a federal government
      guarantee, most of these loans are insured by either Arrowood Indemnity Company
      (Arrowood), formerly Royal Indemnity Company, or United Guaranty Commercial
      Insurance Company of North Carolina/New Hampshire Insurance Company
      (UGCIC/NHIC).  Arrowood is part of Arrowpoint Capital Corp.





These
      third-party entities insure the Company against loss in cases of borrower loan
      default, bankruptcy or death.  Under the Arrowood program, private
      education loans that are submitted for default claim are generally subject
      to a
      risk-sharing deductible of 5% of the sum of the outstanding principal and
      accrued interest balances. Under the UGCIC/NHIC program, defaults are generally
      subject to risk-sharing deductibles between 10% and 20% of the claim
      amounts.  UGCIC/NHIC insures most of the Company’s new private
      education loan originations.  UGCIC is rated Aa2 by Moody’s and NHIC
      is rated AA+ / Stable by Standard & Poor’s as of September 30,
      2007.




Private
      education loan delinquencies impact earnings through charge offs and increased
      servicing and collection costs. Information on private education loans,
      including delinquency and insurance coverage, are shown in the table
      below:





**September
                30,**
            
            
            **December
                31,***(Dollars
                in thousands)*
            
            **2007**
            
            
            **2006**Total
                private education loans (including loans held for sale)
            
            $
            4,510,506
            
            
            $
            3,072,394Private
                education loans in repayment
            
            $
            1,319,651
            
            
            $
            1,156,184Private
                education loans in forbearance(1)
            
            $
            150,748
            
            
            $
            81,761Private
                education loans delinquent 30 - 89 days as a % of total private education
                loans in repayment
            
            
            3.9%
            
            
            
            2.6%Private
                education loans delinquent 90 days or greater as a % of total private
                education loans in repayment
            
            
            1.7%
            
            
            
            2.6%Allowance
                for loan losses for private education loans
            
            $
            14,761
            
            
            $
            7,286Total
                private education loans insured by third parties
            
            $
            3,693,694
            
            
            $
            2,410,142Total
                uninsured private education loans
            
            $
            816,812
            
            
            $
            662,252(1)     
                Changes from December 31, 2006 to September 30, 2007 are due primarily
                to
                seasonality.




A
      portion
      of the uninsured loans are covered by risk-sharing agreements with schools
      and
      universities. Such risk-sharing agreements covered $505 million and $501 million
      of uninsured private education loans as of September 30, 2007 and December
      31,
      2006, respectively. The Company is exposed to losses of up to 100% on uninsured
      loans that do not have risk-sharing agreements.





***Sources
      and Uses of Cash***





Cash
      received from borrower repayments, claim payments, subsidized interest and
      special allowance payments (SAP) from the federal government, securitizations
      and the Omnibus Credit Agreement are the Company’s primary sources of cash. The
      Company’s primary uses of cash are new loan originations and purchases, funding
      operating expenses and repayment of debt.  The Company’s current
      funding sources are sufficient to meet the Company’s cash needs for operational
      activities, including debt service, for the foreseeable future.





The
      Company had loan purchase commitments of $1.3 billion and loan disbursement
      commitments of $1.7 billion at September 30, 2007. Generally, the Company
      purchases loans under commitment obligations within one year of first
      disbursement or in accordance with contractual terms. The Company also provides
      lines of credit to certain institutions. Such lines are used by these
      organizations exclusively to disburse FFEL Program loans which the Company
      will
      subsequently purchase. At September 30, 2007, these organizations have unused
      lines of credit of $210 million available to them. In addition, the Company
      had
      loan sale commitments of $314 million at September 30, 2007.








**Results
      of Operations**





***Factors
      Affecting Net Interest Income***





*Net
      Interest Margin Spread Analysis*





A
      net
      interest margin spread analysis for the Company’s on-balance sheet portfolio is
      as follows:





**Nine
                months ended September 30,****2007**
            
            
            **2006**Student
                loan yield
            
            
            7.37
            %
            
            
            7.19
            %Consolidation
                loan rebate fees
            
            
            (0.41
            )
            
            
            (0.43
            )Accreted
                interest on residual interests
            
            
            0.25
            
            
            
            0.08Amortization
                of deferred loan origination and purchase costs
            
            
            (0.46
            )
            
            
            (0.57
            )Net
                yield
            
            
            6.75
            
            
            
            6.27Cost
                of funds
            
            
            (5.05
            )
            
            
            (4.63
            )**Net
                interest margin**
            
            
            1.70
            %
            
            
            1.64
            %





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





The
      Company’s net interest margin increased slightly during the nine months ended
      September 30, 2007 compared to the same period last year due to increases in
      interest earned that outpaced increases in funding costs. At September 30,
      2007
      and 2006, the outstanding borrowings had contractual weighted average interest
      rates of 5.4% and 5.3%, respectively.





*Rate/Volume
      Analysis*





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





**Nine
                months ended September 30, 2007 vs.**
              **the
                nine months ended September 30, 2006****Increase
                (decrease) due to change in:***(Dollars
                in millions)*
            
            **Volume**
            
            
            **Rate**
            
            
            **Net**Interest
                earning assets
            
            $
            (135.4
            )
            
            $
            85.5
            
            
            $
            (49.9
            )Interest
                bearing liabilities
            
            
            (104.7
            )
            
            
            78.5
            
            
            
            (26.2
            )**Net
                interest income**
            
            $
            (30.7
            )
            
            $
            7.0
            
            
            $
            (23.7
            )








***Quarter
      Ended September 30, 2007***





*Net
      interest income*





Net
      interest income for the quarter ended September 30, 2007 was $100 million as
      compared to $98 million for the quarter ended September 30, 2006.  The
      $2 million or 2% increase is primarily due to the increase in net interest
      margin, partially offset by decreasing loan portfolio balances. See
**Factors Affecting Net Interest Income** above for further
      information.








*Gains
      on loans sold and securitized*





Gains
      on
      loans sold and securitized totaled $16 million for the quarter ended
      September 30, 2007 as compared to $81 million for the quarter ended September
      30, 2006.  The $65 million decrease is primarily due to a $75 million
      gain on loans securitized during the quarter ended September 30, 2006, while
      there were no securitizations during the quarter ended September 30,
      2007.





*Fee
      and other (loss)/income*





Fee
      and
      other (loss)/income for the quarter ended September 30, 2007 was a loss of
      $10
      million, compared to a loss of $2 million for the quarter ended September 30,
      2006.  The increased loss of $8 million was primarily due to the
      decline in the fair market value of the Company’s residual interests by $23
      million, partially offset by a lower loss on derivative market valuations of
      $7
      million and higher servicing revenue from trusts of $8 million.





*Operating
      expenses*





Total
      operating expenses for the quarters ended September 30, 2007 and 2006 were
      $44
      million.  This remained flat despite an overall 8% increase in the
      Company’s managed portfolio.  The operating expense ratio, calculated
      by dividing operating expenses by average managed loans for the quarter ended
      September 30, 2007 was 0.49%, a decrease of four basis points from the same
      period in 2006.





*Provision
      for loan losses*





Provision
      for loan losses were $21 million for the quarter ended September 30, 2007 as
      compared to $7 million for the quarter ended September 30, 2006.  The
      $14 million increase is primarily due to the CCRA Act’s elimination of the EP
      program.  See **Regulatory Impacts** on page 25 for
      additional information on the CCRA Act and other legislation.  The
      increase was also affected by higher loss rates, especially in the non-insured
      private loan portfolio.





*Income
      taxes*





Income
      taxes for the quarter ended September 30, 2007 totaled $16 million, compared
      to
      $48 million for the quarter ended September 30, 2006. The effective tax rate
      was
      38.6% for the third quarter in 2007 as compared to 38.2% for the same period
      of
      2006. The increase in the tax rate was primarily due to a reduction in the
      Texas
      statutory tax rate in the third quarter of 2006 that did not recur in
      2007.





***Nine
      Months Ended September 30, 2007***





*Net
      interest income*





Net
      interest income for the nine months ended September 30, 2007 was $297 million
      as
      compared to $321 million for the nine months ended September 30,
      2006.  The $24 million or 7% decrease was mainly the result of
      declining loan portfolio balances. See **Factors Affecting Net Interest
      Income** above for further information.





*Gains
      on loans sold and securitized*





Gains
      on
      loans sold and securitized totaled $85 million for the nine months ended
      September 30, 2007 as compared to $170 million for the nine months ended
      September 30, 2006.  The $85 million decrease reflects the impact of
      lower securitizations as compared to the same period of last year.





*Fee
      and other (loss)/income*





Fee
      and
      other (loss)/income for the nine months ended September 30, 2007 was $14 million
      of income, compared to $17 million of income for the nine months ended September
      30, 2006.  The $3 million or 16% decrease was primarily due to a $28
      million increase in losses due to changes in the fair market value of the
      Company’s retained interests and derivatives, partially offset by a $27 million
      increase in servicing revenue, reflecting the growth of the Company’s managed
      loan portfolio.








*Operating
      expenses*





Total
      operating expenses for the nine months ended September 30, 2007 was $134
      million as compared to $122 million for the nine months ended September 30,
      2006.  The $12 million or 10% increase was primarily due to a decrease
      in expense deferrals relating to capitalizable internally developed software
      projects as well as incremental costs to originate, service and administer
      the
      larger managed loan portfolio. The increase was also affected by the Company’s
      $2 million voluntary contribution to a national fund for the purpose of
      educating high school seniors and their parents on the subject of financing
      higher education. The operating expense ratio, calculated by dividing operating
      expenses by average managed loans, was 0.51% for the first nine months of 2007,
      which was unchanged from the same period of 2006.





*Provision
      for loan losses*





Provision
      for loan losses was $36 million for the nine months ended September 30, 2007
      as
      compared to $19 million for the nine months ended September 30,
      2006.  The $17 million increase was due primarily to the reduction in
      FFEL Program reimbursement rates due to regulatory changes.  The
      increase was also due to higher loss rates, especially in the non-insured
      private loan portfolio.





*Income
      taxes*





Income
      taxes for the nine months ended September 30, 2007 totaled $87 million, compared
      to $142 million for the nine months ended September 30, 2006. The effective
      tax
      rate decreased slightly from 38.6% for the first nine months of 2006 to 38.3%
      for the same period of 2007. The decrease in the tax rate was primarily due
      to a
      decrease in the New York State statutory tax rate in 2007.





**Regulatory
      Impacts**





***Legislative
      Activity***





The
      CCRA
      Act was signed into law on September 27, 2007 with many of its provisions
      effective October 1, 2007.   Some of the provisions of this new
      law will have an adverse impact on the financial condition and results of
      operations of the Company by decreasing net interest income and fair value
      of
      residual interests and increasing the provision for loan losses.





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





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





On
      July
      24, 2007, the Senate approved S. 1642, the Higher Education Amendments of 2007,
      which provides for disclosures regarding the relationships, if any, between
      lenders and the borrower’s educational institution as well as limiting gifts,
      services or other contributions of value by a lender which has a relationship
      with an educational institution, a phase out of the school as lender program
      and
      the creation of a clearinghouse for comparison of student loan
      products.  Other bills pending in the U.S. Congress such as H.R. 3746,
      The College Access and Opportunity Act, H.R. 890, The Student Loan Sunshine
      Act,
      and The Private Student Loan Transparency and Improvement Act, a proposed
      amendment to S. 1642, would, if enacted, alter certain provisions of the Higher
      Education Act and the Truth in Lending Act.  Additional legislation
      may be enacted in the future that could further impact student loan
      lending.





***Ongoing
      Inquiries into the Student Loan Industry***





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




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





**Off-Balance
      Sheet Arrangements**





The
      Company is involved with several types of off-balance sheet arrangements,
      including securitizations and loan commitments. In a securitization, the Company
      transfers assets to a special purpose entity (SPE) or trust, thereby converting
      those assets into cash before they would have been realized in the normal course
      of business, through the SPE’s issuance of debt
      instruments.  Investors usually have recourse to the assets in the SPE
      and often benefit from other credit enhancements. Accordingly, the SPE can
      typically obtain a more favorable credit rating from rating agencies than the
      transferor could obtain for its own debt issuances, resulting in less expensive
      financing costs.





The
      Company securitizes student loans through trusts, which are established to
      purchase the loans sold.  The Company utilizes securitizations to fund
      a portion of its new loan procurement activity.  The Company generally
      retains a residual interest as well as the servicing rights in the loans
      securitized.





The
      following table reflects amounts related to the Company’s
      securitizations:





*(Dollars
                in millions)*
            
            **September
                30, 2007**
            
            
            **December
                31, 2006**Total
                student loan assets in trusts
            
            $
            12,686
            
            
            $
            12,375Residual
                interests
            
            
            565
            
            
            
            546Servicing
                assets
            
            
            171
            
            
            
            169Amounts
                receivable from trusts for servicing
            
            
            6
            
            
            
            4Amounts
                payable to trusts for student loan payments
            
            
            13
            
            
            
            12





For
      further information on the Company’s student loan securitizations, see Note 8 to
      the consolidated financial statements.





The
      Company also has credit commitments with schools and institutions which are
      detailed in **Sources and Uses of Cash** on page 22, as well as
      derivative agreements which are described in Note 7 to the consolidated
      financial statements.





**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”, “target”, “may increase”, “may fluctuate”, “may result in”, “are
      projected”, “will”, “should”, “would”, “could” and similar
      expressions.  These forward-looking statements involve risks and
      uncertainties, which could cause the Company’s actual results to differ
      materially from those the Company expects, including, but not limited to: the
      effects of legislative changes, particularly those relating to re-authorization
      of the Higher Education Act of 1965, as amended, and pending legislative
      proposals to change various provisions of the Higher Education Act, 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;
      the
      impact of ongoing inquiries into the student loan industry; loan origination
      costs; the availability and amount of  loan subsidies, and any effect
      on the Company’s interest rate spreads; the cost of education; the availability
      of alternative financing options to students and their parents, including
      competitive products offered by other lenders; the effects of changes in
      accounting standards; actual credit losses, loan collection strategies and
      their
      impact on delinquency rates, and the adequacy of loan loss reserves;
      fluctuations in interest rates and between various interest rate indices,
      particularly the manner in which short-term rates affect the Company’s funding
      costs, consolidation rates, the rates at which interest accrues on its loan
      portfolio and the demand for student loans; changes in prepayment rates on
      student loans from anticipated rates and in the quality and profitability of
      those loans that move into repayment status, as well as actual experience with
      the repayment cycle of the loan portfolio 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;  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 access to sources of
      funding, including its ability to borrow from CBNA and to securitize loans;
      as
      well as general economic conditions, including the performance of financial
      markets.





**Item
      3.   Quantitative and Qualitative Disclosures About Market
      Risk**





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





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





**September
                30,**
            
            
            **September
                30,***(Dollars
                in millions)*
            
            **2007**
            
            
            **2006**100
                basis points
            
            Increase
            
            
            Decrease
            
            
            Increase
            
            
            DecreaseChange
                in net interest income
            
            $
            (6.1
            )
            
            $
            20.8
            
            
            $
            19.2
            
            
            $
            29.3





In
      addition, the Company has exposure to uneven shifts in interest rate curves
      (i.e., the Treasury Bill to LIBOR spreads). The Company actively manages these
      risks by setting IRE limits and takes action in response to interest rate
      movements against the existing structure.










**Item
                4.**
            **Controls
                and Procedures**





**(a)**
            **Disclosure
                Controls and Procedures**





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





**(b)**
            **Internal
                Control Over Financial
                Reporting**





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





**PART
      II. OTHER INFORMATION**





**Item
      1A. Risk Factors**





The
      following represents changes from risk factors previously disclosed in Item
      1A
      of the Company’s Annual Report on Form 10-K for the year ended December 31,
      2006. This information should be read in conjunction with the Annual Report
      on
      Form 10-K and considered carefully as it could materially adversely affect
      the
      Company’s business, operating results or financial condition. Certain of the
      statements below are forward-looking statements within the meaning of the
      Private Securities Litigation Reform Act. See **Forward-Looking
      Statements** on page 25.





**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 that
      adversely impact the operating environment of the Company and its financial
      results. Certain amendments to the Higher Education Act governing the Federal
      Family Education Loan (FFEL) Program have reduced the interest spread earned
      by
      holders of FFEL Program guaranteed student loans. The Company is also subject
      to
      rules and regulations of the agencies that act as guarantors of the student
      loans, known as guaranty agencies. In addition, the Company is subject to
      certain federal and state banking laws, regulations, and examinations, as well
      as federal and state consumer protection laws and lending regulations,
      including, specifically with respect to the Company's CitiAssist loan portfolio,
      certain state usury laws and related regulations,  and many other
      lending laws. These laws and regulations impose substantial requirements upon
      lenders and servicers involved in consumer finance. Failure to comply with
      these
      laws and regulations could result in liability to borrowers, the imposition
      of
      civil penalties, and potential class action lawsuits.





It
      is
      difficult for the Company to plan for or mitigate the effects of such
      legislative or regulatory changes. The Deficit Reduction Act, enacted in 2006,
      imposed a 1% risk-sharing provision on default claims submitted on loans
      serviced by Exceptional Performers, such as the Company.  During 2007,
      the College Cost Reduction and Access Act of 2007 (CCRA Act) was passed
      into law, which contains provisions that are effective beginning in the fourth
      quarter of 2007. Prior to the CCRA Act, the Company received 99% default
      reimbursement on FFEL Program loans. The CCRA Act eliminates the Exceptional
      Performer (EP) program, thereby decreasing the Company’s reimbursement rates on
      FFEL Program loans. For substantially all claims filed after October 1, 2007,
      the Company will receive 97% or 98% reimbursement, depending on the origination
      date of the loan, which has resulted in increases to the Company’s allowance for
      loan losses and decreases in the fair value of its residual interests in
      securitized loans. The CCRA Act will result in further increases to the
      Company’s allowance for loan losses and decreases in net interest income and may
      negatively impact the Company’s retained interest valuation. In addition,
      Congress and the offices of various states’ attorneys general and federal
      authorities have announced that they are conducting investigations into student
      lending. For further information on the impact of legislative and regulatory
      changes, see **Regulatory Impacts** on page 25. Future regulatory
      changes cannot be predicted and could have a material adverse impact on the
      Company’s financial condition or results of operations.





**Item
                6.**
            **Exhibits**





See
      Exhibit Index.





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:
      November 7, 2007





The
                Student Loan CorporationBy
            /s/
                Daniel P. McHughDaniel
                P. McHugh
              Chief
                Financial Officer and Duly Authorized Officer(Principal
                Financial Officer)








**EXHIBIT
      INDEX**








**Exhibit**


**Number**
            **Description
                of Exhibit**








3.1
            Restated
                Certificate of Incorporation of the Company, incorporated by reference
                to
                Exhibit 3.1 to the Company’s 1992 Annual Report on Form 10-K (File No.
                1-11616).





3.2
            By-Laws
                of the Company, as amended through August 3, 2007, incorporated by
                reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q
                for the fiscal quarter ended June 30, 2007 (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