FFELP Capital Markets Update

1. FFELP Capital Markets Update NCHELP Spring Meeting May 15, 2012 Mark Weadick Student Loan Capital Strategies LLC

2. Discussion Topics • Topics to discuss today include: • Student Loan Collateral Performance • FFELP Capital Markets Conditions • Changing Business Models/Consolidation • Predictions for 2012 and 2013 • and…….Industry Gossip • I’m looking forward to an open discussion, so please ask Qs as we go. • Thank you for having me at your meeting.

3. Who holds Student Loan Collateral? Loan Programs: $870 B Funding Source: $870 B Dollars in Billions, Public sources and SLCS guesstimates as of September 30, 2011

4. FFELP Performance Stabilizing? • Forbearance and delinquency have increased • Cohort gross defaults have increased; likely will reach low to mid 20% levels Source: SLM public reports; SLCS estimates

5. FFELP CPRs are Slower • Since issued Trust CPRs as of 12/31/11: Source: SLM securitization reports

6. FFELP Financing Spreads • The table below shows FFELP FRN financing spreads over time.

7. Forward Interest Rates • Existing ARS financing trusts benefit from low interest rates. • The graph below illustrates forward interest rate projections based on LIBOR. The current projection continues to call for low rates for some time.

8. Securitization Then & Now Pre Credit Crisis • Investment Grade market – “AAA” down to “A” • Advance rates up to 104% of FFELP Portfolio • “Ready, shoot, aim” investor marketing • “All-in” debt cost of LIBOR + 25 • ARS and FRN markets are workhorses • Trust structures contain myriad of debt types – ARS, FRN, Muni, Fixed Rate, RRN • Excess Spread released at 103 parity • Rating Agencies “fair and flexible” Current • “AAA” taxable market only; though munis down to “A” marketable • Advance rates around 95% of FFELP Portfolio • “By appointment only” investor marketing • “All-in” debt cost of LIBOR + 100A in ARS “fail” mode; and +110A for new issue • FRN market selectively open • Discreet Trust Structures only • Excess Spread retained until Investors paid • Rating Agencies “very tough”

9. NFP/Agency FRN Transactions

10. Rating Agency Update • The rating process is substantially more complicated: • Chinese wall between rating engagement and rating process • Rating analysts cannot discuss transaction structure • Servicing and trust administration a key area of focus - Backup Servicing and Administration often required • Increased surveillance post closing • Stepped up site visits and heightened scrutiny broadly • Moody’s requires tapes direct from the servicer to verify collateral work • SEC rule 17g-5 may come into play – requires all deal documents to be posted to a website where any rating agency can choose to rate a transaction

11. FFELP “Fair Market Value” • The chart below shows Sallie Mae’s fair market value disclosures for their FFELP Portfolio from Dec. 31, 2006 to the present. Par Source: SLM SEC filings

12. Market (R)Evolution • Private Sector FFELP Portfolio is $350 Billion and amortizing • Non-scale programs: “Restructure”, “right size” or “sell”? • Scale programs: add Portfolio and servicing volumes to defray investment • An estimated $50B is not term financed • Capital Markets recovery: more “half full than half empty” • Financing costs have tightened dramatically though remain elevated • Financings are difficult to execute – a “by appointment only” market • Approximately $28B of Loans are financed in ECASLA’s Straight A Conduit • Broker/Dealers & Investors are monetizing losses • ARS Bonds often sold/exchanged at a discount (high-80s to mid-90s) • Whole loan portfolio sales occur (low- to high- 90s)

13. Market (R)Evolution • NFPs/Agencies are exploring different business models • NFP DL Servicing opportunity, though economics are thin • State-based Fixed Rate Private loan programs are well received by investors • Non-diversified business models face greater challenges • The Big Guys (SLM/USAF, NNI, Large Banks, TIVAS) • Many are seeking and achieving market share gains • Continuous focus on cost efficiencies • Increased focus on extracting value • Legacy Broker Dealers continue to play a significant role • Continue to hold large ARS and warehouse positions • Broker Dealer financial participation required for most “restructurings”

14. Industry Consolidation • Sale of Student Loan Corporation • $26B of securitized FFELP and servicing rights sold to SLM • Citi Holdings purchases remaining FFELP and Privates • Discover purchases “stock”, thus receiving origination platform and certain securitized private loans • Alliance Holdings acquisitions: • Northstar Capital Markets (servicing and admin rights) • Panhandle Plains Servicing (servicing and admin rights) • CollegeInvest sale of $1.4B FFELP Portfolio to NNI • Liquidation of $1.8B NextStudent FFELP Trust • First Marblehead dispositions

15. 2012/3 Market Developments? • Financing “restructurings” and Industry consolidation will continue • Transaction timing will be uncertain – market, Board timing, regulators • Companies, business lines and FFELP portfolios will change hands • High levels of “stuck” collateral in non-term financings • Dept. of Education’s Policy during FFELP wind down is unclear • DL and NFP Servicing impact • Guarantors: VFA? Other tracks • FFELP asset values will remain under par: likely in mid-to-high 90s • Value range will be driven by securitization market spreads • “legacy” program and thin buyer base will keep prices at or below par