FFEL Program Financing

FFEL Program Financing NCHELP Program Operations Update May 26, 2009

Discussion Topics • FFELP’s Commitment • Legislation Overview • PUT Program • Participation Program • Conduit Program • Talking Points and Q&As

FFELP’s Commitment • FFELP providers are committed to providing students, families, and schools uninterrupted student loan services during these challenging economic times. • The FFELP community is committed to working diligently with the U.S. Department of Education to make the programs as easy and smooth as possible for you and your student and parent borrowers. • FFELP providers are rapidly utilizing the new legislative tools (Participation program, PUT program, and Asset-backed Commercial Paper conduit) in order to provide continued financing to our shared customers: students and their families.

FFELP’s Commitment • Utilization of the legislative tools provides a short-term solution to create liquidity for lenders in the current financial markets. It is the FFELP community’s intent to cease using the programs as soon as the financial markets stabilize. • FFELP community will continue to communicate specifics of this initiative as they become available.

Legislation Overview • Situation • Lack of liquidity in financial markets impacting ability of FFEL Program lenders and secondary markets to find cost effective financing. • Goals • Ensure that eligible students and parents continue to receive FFEL Program loans. • Support the FFEL Program as a successful private/public partnership. • Protect taxpayer interests - no additional cost to the government

Legislation Overview • Solution • ECASLA signed by President on May 7, 2008 • Covers the 2008/09 academic year • Extension signed by President on October 8, 2008 • Covers the 2009/10 academic year • Does not authorize the Department to make advances or to otherwise “lend” money to FFEL lenders. • Resource link http://federalstudentaid.ed.gov/ffelp

Legislation Overview • Response • Three Funding Programs – • Loan Purchase Commitment Program (PUT) • Expansion of PUT program to include 2007/08 loans announced November 21, 2008 as stop-gap solution before conduit is up and running • Loan Participation Purchase Program • Conduit Program announced November 10, 2008

Eligible Loans • Stafford (subsidized and unsubsidized), PLUS and Grad PLUS program • Excludes LLR loans from Participation and PUT programs • Excludes consolidation loans • Excludes loans 210 days or more delinquent • Borrower benefit limitations in some cases

Eligible Time Periods • Four Independent Time Periods • Academic Year 2008/09 • Loan period includes or begins on or after July 1, 2008 • First disbursement on or after May 1, 2008 and no later than July 1, 2009 • Will be fully disbursed no later than September 30, 2009 • Must be redeemed or Put to ED by September 30, 2009 • Academic Year 2009/10 • Loan period includes or begins on or after July 1, 2009 • First disbursement on or after May 1, 2009 and no later than July 1, 2010 • Will be fully disbursed no later than September 30, 2010 • Must be redeemed or Put to ED by September 30

Eligible Time Periods (con.) • Academic Year 2007/08 included in Short-Term PUT • Loan period includes or begins on or after July 1, 2007 • First disbursement on or after May 1, 2007 and no later than July 1, 2008 • Must be Put to ED by February 28, 2009 (http://www.nchelp.org/initiatives/ECASLA/Pages%20from%20db1120.pdf) • Conduit Only: “Loans made between October 1, 2003 and July 1, 2009 • First disbursement on or after October 1, 2003 and no later than July 1, 2009 • Fully disbursed by September 30, 2009 • Conveyed to conduit by June 30, 2010 • Loans may be PUT to Department by conduit through September 30, 2014

Programs Comparison Loan Purchase (PUT) Loan Participation Provides liquidity as disbursements are made Lender, servicer and guarantor intact Lender funds first disbursement, requests Dept. to participate in loan Dept. provides funds to lender for immediate liquidity Loans must be bought back or PUT by Sept. 30 of applicable year • Provides liquidity after fully disbursed • Lender funds and holds the loan until sold (PUT) • Guarantor holds guarantee until sold (PUT) • FFELP loans sold to the Dept. • All FFEL lenders eligible, regardless of size • Holder, servicer and guaranty moved to Dept. when PUT

PUT Program • How it Works • 9-day freeze on loan adjustments before PUT date • Optional: Lender notifies schools and/or guarantor at least 9-days before PUT • PUT loans sent to the original guarantor and NSLDS within 30-days after PUT date by Department Servicer • Sent as a loan transfer file with LID 899577 or 898577 for Short-Term PUT; Servicer 700577; and Guarantor 577 • Guarantor transfers the guarantee to the Department

PUT Program Procedures • Department’s Servicer processes the sale on the required loan purchase date • Ownership of loans transfers to the Department as of purchase date • Department’s Servicer assumes servicing of all loans included in sale • Department’s Servicer notifies borrower, guarantor and NSLDS • Payment is deposited in lender’s account • Lender forwards any post sale adjustments to Department’s Servicer

PUT Program - Assisting Schools • Plan of Action to Assist School: • Communication of loan changes to DL servicer on PUT loans • Lender and/or guarantor will communication those loans that are PUT • (specifics provided by lender and/or guarantor) • Lender and/or guarantor will work with the school to ensure that during the 9-day freeze that certain loan changes do not occur • (specifics provided by lender and/or guarantor) • Re-certification of PUT loan to reinstate guaranty and/or increase loan amount • Lender and/or guarantor will work with the school to provide resources/tools to address borrower questions about PUT loans

PUT Program - Communications to Schools • Options: • NCHELP Trading Partner Notification of ECASLA PUT File • Published November 21, 2008 • Sent by lender at least 9-days before PUT date • Used to notify guarantors, originators and others of loans that may be PUT • CommonLine Response File • Published November 25, 2008 • Sent by lender at least 9-days before PUT date • Used to notify schools of loans that may be PUT • Lender, servicer and guarantor may have specific communication tools

PUT Program - Assisting Borrowers • Develop Plan of Action to Assist Borrowers: • Split servicing: In School • Assist school to communicate to borrower PUT loans and provide general information and direction on split servicing loans • Set up a communication system with ED servicer to ensure all loans are updated correctly • Split servicing: In Repayment • Facilitate communication between the borrower and ED servicer • Work to assist borrower in addressing all FFELP loans, even PUT loans • Extend Default Prevention and Financial Literacy programs to PUT serviced loans • Encourage the use of industry products to locate all loans (NSLDS. Meteor, etc.)

Participation Program • Terminology: • Sponsor – Originating lender • Custodian – Lender managing the participation requests to the Department and “holding” the loan disbursements • Facility – The “place” where the Department’s participation interests are held • Holder, servicer and guarantee retained by the Sponsor and original guarantor • Redeem – The Sponsor buys back from the Department, its participation in the loan that is held in the facility • PUT – The loan asset is transferred to the Department if the Sponsor does not redeem it from the facility • Holder is now the Department, servicer is the Department’s Servicer

Participation Program • How it works: • Sponsor enters into an agreement with an eligible custodian • Custodian receives a LID from the Department • Sponsor originates loan and makes first disbursement • Sponsor notifies custodian to request the disbursement amount • Sponsor transfers the first disbursement to the facility

Participation Program • How it works (cont.): • Sponsor continues to make subsequent disbursements and participates each until fully disbursed • Sponsor transfers LID to custodian once fully disbursed • NSLDS reflects new custodian LID • Sponsor, servicer and guarantor remain intact, as normal • Sponsor redeems or PUTs loan by Sept. 30 of the applicable year

Participation Program -School and Borrower Impact • School Impacts: • Lender, servicer and guarantor remain the same • LID transfer to the custodian after full disbursement is for federal reporting purposes and does not impact servicing • If lender redeems the loan, LID will transfer from custodian back to sponsor • If lender PUTs the loan, all PUT impacts apply • Borrower Impacts: • None unless loan is PUT

Conduit Program – • What We Know: • Announced in a letter from the Secretary of Education on November 10, 2008 • Created to provide longer-term stability to FFELP • Conduit will be private sector based

Conduit Program – • What We Know (cont.): • Department of Education will be the “safety net” (purchaser of last resort if needed) • Guarantee stays with the original guarantor and servicing remains with the holder/servicer while in the conduit • Guarantor and servicer changes only if/when the Department of Education purchases the loans

Conduit Program – • Eligible Loans: • Loans eligible for the conduit include Stafford and PLUS loans • First disbursement on or after October 1, 2003 and no later than July 1, 2009 • Fully disbursed by September 30, 2009 • Conveyed to conduit by June 30, 2010 • Loans may be PUT to Department by conduit through September 30, 2014 24

Conduit Program – • How it Works: • Third party administrator creates a conduit to which other lenders transfer ownership of their loans • Conduit issues funding notes to sell, backed by the loans in the conduit • Private investors purchase the funding notes • Lenders would pledge loans to the conduit and the conduit pays the lenders from amounts received from investors 25

Conduit Program – • How it Works (cont.): • Federal Financing Bank provides liquidity to investors; reimbursed by the Department of Education • Department of Education promises to purchase the loans if the commercial paper that has been issued by the conduit cannot be reissued and the conduit doesn’t have sufficient cash to repay the investors 26

Program General Overview and Q&As • Key Messages and Questions and Answers posted on NCHELP web site at http://www.nchelp.org/pages/page.cfm?id=136

Questions? • http://federalstudentaid.ed.gov/ffelp • http://www.nchelp.org/

FFEL Program Financing