Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
 	 	 	
þ	 	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
For the quarterly period ended June 30, 2009
or
 	 	 	
o	 	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 001-31924
 
NELNET, INC.
(Exact name of registrant as specified in its charter)
 	 	 	
NEBRASKA
(State or other jurisdiction of incorporation or organization)	 	84-0748903
(I.R.S. Employer Identification No.)	
 	 	 	
121 SOUTH 13TH STREET, SUITE 201
LINCOLN, NEBRASKA
(Address of principal executive offices)	 	68508
(Zip Code)	
(402) 458-2370
(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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 	 	 	 	 	 	 	
Large accelerated filer o	 	Accelerated filer þ	 	Non-accelerated filer o	 	Smaller reporting company o	
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
As of July 31, 2009, there were 38,325,862 and 11,495,377 shares of Class A Common Stock and Class B Common Stock, par value $0.01 per share, outstanding, respectively (excluding 11,317,364 shares of Class A Common Stock held by a wholly owned subsidiary).

 

 

NELNET, INC.
FORM 10-Q
INDEX
June 30, 2009
 	 	 	 	 	
PART I. FINANCIAL INFORMATION	 	 	 	 	
 	 	 	 	 	
Item 1. Financial Statements	 	 	2	 	
 	 	 	 	 	
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	 	 	29	 	
 	 	 	 	 	
Item 3. Quantitative and Qualitative Disclosures about Market Risk	 	 	73	 	
 	 	 	 	 	
Item 4. Controls and Procedures	 	 	78	 	
 	 	 	 	 	
PART II. OTHER INFORMATION	 	 	 	 	
 	 	 	 	 	
Item 1. Legal Proceedings	 	 	78	 	
 	 	 	 	 	
Item 1A. Risk Factors	 	 	80	 	
 	 	 	 	 	
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	 	 	80	 	
 	 	 	 	 	
Item 4. Submission of Matters to a Vote of Security Holders	 	 	82	 	
 	 	 	 	 	
Item 6. Exhibits	 	 	83	 	
 	 	 	 	 	
Signatures	 	 	84	 	
 	 	 	 	 	
  Exhibit 10.2	
  Exhibit 10.3	
  Exhibit 10.4	
  Exhibit 31.1	
  Exhibit 31.2	
  Exhibit 32	

Table of Contents
PART I. FINANCIAL INFORMATION

ITEM 1.	 	FINANCIAL STATEMENTS	
NELNET, INC. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
 (Dollars in thousands, except share data)
 	 	 	 	 	 	 	 	 	
 	 	As of	 	 	As of	 	
 	 	June 30, 2009	 	 	December 31, 2008	 	
 	 	(unaudited)	 	 	 	 	 	
Assets:	 	 	 	 	 	 	 	 	
Student loans receivable (net of allowance for loan losses of $50,000 and $50,922, respectively)	 	$	23,889,571	 	 	 	25,413,008	 	
Student loans receivable — held for sale	 	 	1,749,290	 	 	 	—	 	
Cash and cash equivalents:	 	 	 	 	 	 	 	 	
Cash and cash equivalents — not held at a related party	 	 	14,171	 	 	 	13,129	 	
Cash and cash equivalents — held at a related party	 	 	352,656	 	 	 	176,718	 	
 	 	 	 	 	 	 	
Total cash and cash equivalents	 	 	366,827	 	 	 	189,847	 	
Restricted cash and investments	 	 	1,082,480	 	 	 	997,272	 	
Restricted cash — due to customers	 	 	41,127	 	 	 	160,985	 	
Accrued interest receivable	 	 	385,158	 	 	 	471,878	 	
Accounts receivable (net of allowance for doubtful accounts of $1,273 and $1,005, respectively)	 	 	52,106	 	 	 	42,088	 	
Goodwill	 	 	175,178	 	 	 	175,178	 	
Intangible assets, net	 	 	65,115	 	 	 	77,054	 	
Property and equipment, net	 	 	31,541	 	 	 	38,747	 	
Other assets	 	 	103,429	 	 	 	113,666	 	
Fair value of derivative instruments	 	 	168,720	 	 	 	175,174	 	

Total assets	 	$	28,110,542	 	 	 	27,854,897	 	

Liabilities:	 	 	 	 	 	 	 	 	
Bonds and notes payable	 	$	27,169,573	 	 	 	26,787,959	 	
Accrued interest payable	 	 	34,911	 	 	 	81,576	 	
Other liabilities	 	 	176,390	 	 	 	179,336	 	
Due to customers	 	 	41,127	 	 	 	160,985	 	
Fair value of derivative instruments	 	 	7,354	 	 	 	1,815	 	
 	 	 	 	 	 	 	
Total liabilities	 	 	27,429,355	 	 	 	27,211,671	 	

Shareholders’ equity:	 	 	 	 	 	 	 	 	
Preferred stock, $0.01 par value. Authorized 50,000,000 shares; no shares issued or outstanding	 	 	—	 	 	 	—	 	
Common stock:	 	 	 	 	 	 	 	 	
Class A, $0.01 par value. Authorized 600,000,000 shares; issued and outstanding 38,325,492 shares as of June 30, 2009 and 37,794,067 shares as of December 31, 2008	 	 	383	 	 	 	378	 	
Class B, convertible, $0.01 par value. Authorized 60,000,000 shares; issued and outstanding 11,495,377 shares as of June 30, 2009 and December 31, 2008	 	 	115	 	 	 	115	 	
Additional paid-in capital	 	 	107,959	 	 	 	103,762	 	
Retained earnings	 	 	574,179	 	 	 	540,521	 	
Employee notes receivable	 	 	(1,449	)	 	 	(1,550	)	
 	 	 	 	 	 	 	
Total shareholders’ equity	 	 	681,187	 	 	 	643,226	 	
 	 	 	 	 	 	 	
Commitments and contingencies	 	 	 	 	 	 	 	 	
Total liabilities and shareholders’ equity	 	$	28,110,542	 	 	 	27,854,897	 	
 	 	 	 	 	 	 	
See accompanying notes to consolidated financial statements.
 
 2 

Table of Contents

NELNET, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Dollars in thousands, except share data)
(unaudited)
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months	 	 	Six months	 	
 	 	ended June 30,	 	 	ended June 30,	 	
 	 	2009	 	 	2008	 	 	2009	 	 	2008	 	
Interest income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan interest	 	$	160,413	 	 	 	296,686	 	 	 	331,332	 	 	 	626,672	 	
Investment interest	 	 	2,776	 	 	 	9,116	 	 	 	6,867	 	 	 	20,796	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total interest income	 	 	163,189	 	 	 	305,802	 	 	 	338,199	 	 	 	647,468	 	
Interest expense:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest on bonds and notes payable	 	 	106,082	 	 	 	232,464	 	 	 	252,584	 	 	 	557,605	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income	 	 	57,107	 	 	 	73,338	 	 	 	85,615	 	 	 	89,863	 	
Less provision for loan losses	 	 	8,000	 	 	 	6,000	 	 	 	15,500	 	 	 	11,000	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income after provision for loan losses	 	 	49,107	 	 	 	67,338	 	 	 	70,115	 	 	 	78,863	 	

Other income (expense):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan and guaranty servicing revenue	 	 	28,803	 	 	 	23,821	 	 	 	55,274	 	 	 	48,482	 	
Tuition payment processing and campus commerce revenue	 	 	11,848	 	 	 	10,270	 	 	 	27,386	 	 	 	24,117	 	
Enrollment services revenue	 	 	28,747	 	 	 	26,068	 	 	 	57,518	 	 	 	53,290	 	
Software services revenue	 	 	6,119	 	 	 	5,979	 	 	 	11,824	 	 	 	14,183	 	
Other income	 	 	11,527	 	 	 	6,125	 	 	 	28,389	 	 	 	12,379	 	
Gain (loss) on sale of loans	 	 	(196	)	 	 	48	 	 	 	(402	)	 	 	(47,426	)	
Derivative market value, foreign currency, and put option adjustments and derivative settlements, net	 	 	(24,478	)	 	 	20,192	 	 	 	(5,000	)	 	 	3,594	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other income	 	 	62,370	 	 	 	92,503	 	 	 	174,989	 	 	 	108,619	 	

Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and benefits	 	 	40,180	 	 	 	43,549	 	 	 	78,406	 	 	 	97,392	 	
Other operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cost to provide enrollment services	 	 	18,092	 	 	 	14,755	 	 	 	35,885	 	 	 	30,158	 	
Depreciation and amortization	 	 	9,527	 	 	 	10,603	 	 	 	19,610	 	 	 	21,437	 	
Professional and other services	 	 	7,721	 	 	 	8,029	 	 	 	13,798	 	 	 	15,224	 	
Occupancy and communications	 	 	5,588	 	 	 	4,914	 	 	 	10,942	 	 	 	10,755	 	
Trustee and other debt related fees	 	 	2,444	 	 	 	2,464	 	 	 	5,100	 	 	 	4,854	 	
Postage and distribution	 	 	2,274	 	 	 	2,534	 	 	 	5,142	 	 	 	6,115	 	
Advertising and marketing	 	 	1,986	 	 	 	2,046	 	 	 	3,696	 	 	 	3,994	 	
Impairment expense	 	 	—	 	 	 	—	 	 	 	—	 	 	 	18,834	 	
Other	 	 	9,544	 	 	 	9,028	 	 	 	17,348	 	 	 	17,996	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other operating expenses	 	 	57,176	 	 	 	54,373	 	 	 	111,521	 	 	 	129,367	 	

Total operating expenses	 	 	97,356	 	 	 	97,922	 	 	 	189,927	 	 	 	226,759	 	

Income (loss) before income taxes	 	 	14,121	 	 	 	61,919	 	 	 	55,177	 	 	 	(39,277	)	
Income tax (expense) benefit	 	 	(5,918	)	 	 	(19,195	)	 	 	(21,519	)	 	 	12,176	 	

Income (loss) from continuing operations	 	 	8,203	 	 	 	42,724	 	 	 	33,658	 	 	 	(27,101	)	
Income from discontinued operations, net of tax	 	 	—	 	 	 	981	 	 	 	—	 	 	 	981	 	

Net income (loss)	 	$	8,203	 	 	 	43,705	 	 	 	33,658	 	 	 	(26,120	)	

Earnings (loss) per share, basic and diluted:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) from continuing operations	 	$	0.16	 	 	 	0.86	 	 	 	0.68	 	 	 	(0.55	)	
Income from discontinued operations	 	 	—	 	 	 	0.02	 	 	 	—	 	 	 	0.02	 	

Net income (loss)	 	$	0.16	 	 	 	0.88	 	 	 	0.68	 	 	 	(0.53	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
See accompanying notes to consolidated financial statements.
 
 3 

Table of Contents

NELNET, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)
 (Dollars in thousands, except share data)
(unaudited)
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Preferred	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Class A	 	 	Class B	 	 	Additional	 	 	 	 	 	 	Employee	 	 	Total	 	
 	 	stock	 	 	Common stock shares	 	 	Preferred	 	 	common	 	 	common	 	 	paid-in	 	 	Retained	 	 	notes	 	 	shareholders’	 	
 	 	shares	 	 	Class A	 	 	Class B	 	 	stock	 	 	stock	 	 	stock	 	 	capital	 	 	earnings	 	 	receivable	 	 	equity	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance as of March 31, 2008	 	 	—	 	 	 	37,912,773	 	 	 	11,495,377	 	 	$	—	 	 	 	379	 	 	 	115	 	 	 	97,875	 	 	 	442,034	 	 	 	(2,296	)	 	 	538,107	 	
Comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	43,705	 	 	 	—	 	 	 	43,705	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	43,705	 	
Issuance of common stock, net of forfeitures	 	 	—	 	 	 	53,467	 	 	 	—	 	 	 	—	 	 	 	1	 	 	 	—	 	 	 	310	 	 	 	—	 	 	 	—	 	 	 	311	 	
Compensation expense for stock based awards	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1,848	 	 	 	—	 	 	 	—	 	 	 	1,848	 	
Repurchase of common stock	 	 	—	 	 	 	(13,994	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(179	)	 	 	—	 	 	 	—	 	 	 	(179	)	
Reduction of employee stock notes receivable	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	250	 	 	 	250	 	

Balance as of June 30, 2008	 	 	—	 	 	 	37,952,246	 	 	 	11,495,377	 	 	$	—	 	 	 	380	 	 	 	115	 	 	 	99,854	 	 	 	485,739	 	 	 	(2,046	)	 	 	584,042	 	

Balance as of March 31, 2009	 	 	—	 	 	 	38,276,870	 	 	 	11,495,377	 	 	$	—	 	 	 	383	 	 	 	115	 	 	 	106,678	 	 	 	565,976	 	 	 	(1,550	)	 	 	671,602	 	
Comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	8,203	 	 	 	—	 	 	 	8,203	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	8,203	 	
Issuance of common stock, net of forfeitures	 	 	—	 	 	 	51,951	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	953	 	 	 	—	 	 	 	—	 	 	 	953	 	
Compensation expense for stock based awards	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	353	 	 	 	—	 	 	 	—	 	 	 	353	 	
Repurchase of common stock	 	 	—	 	 	 	(3,329	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(25	)	 	 	—	 	 	 	—	 	 	 	(25	)	
Reduction of employee stock notes receivable	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	101	 	 	 	101	 	

Balance as of June 30, 2009	 	 	—	 	 	 	38,325,492	 	 	 	11,495,377	 	 	$	—	 	 	 	383	 	 	 	115	 	 	 	107,959	 	 	 	574,179	 	 	 	(1,449	)	 	 	681,187	 	

Balance as of December 31, 2007	 	 	—	 	 	 	37,980,617	 	 	 	11,495,377	 	 	$	—	 	 	 	380	 	 	 	115	 	 	 	96,185	 	 	 	515,317	 	 	 	(3,118	)	 	 	608,879	 	
Comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net loss	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(26,120	)	 	 	—	 	 	 	(26,120	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total comprehensive income (loss)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(26,120	)	
Cash dividend on Class A and Class B common stock — $0.07 per share	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(3,458	)	 	 	—	 	 	 	(3,458	)	
Issuance of common stock, net of forfeitures	 	 	—	 	 	 	33,687	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1,073	 	 	 	—	 	 	 	—	 	 	 	1,073	 	
Compensation expense for stock based awards	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	3,263	 	 	 	—	 	 	 	—	 	 	 	3,263	 	
Repurchase of common stock	 	 	—	 	 	 	(62,058	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(667	)	 	 	—	 	 	 	—	 	 	 	(667	)	
Reduction of employee stock notes receivable	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1,072	 	 	 	1,072	 	

Balance as of June 30, 2008	 	 	—	 	 	 	37,952,246	 	 	 	11,495,377	 	 	$	—	 	 	 	380	 	 	 	115	 	 	 	99,854	 	 	 	485,739	 	 	 	(2,046	)	 	 	584,042	 	

Balance as of December 31, 2008	 	 	—	 	 	 	37,794,067	 	 	 	11,495,377	 	 	$	—	 	 	 	378	 	 	 	115	 	 	 	103,762	 	 	 	540,521	 	 	 	(1,550	)	 	 	643,226	 	
Comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	33,658	 	 	 	—	 	 	 	33,658	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	33,658	 	
Issuance of common stock, net of forfeitures	 	 	—	 	 	 	538,534	 	 	 	—	 	 	 	—	 	 	 	5	 	 	 	—	 	 	 	3,298	 	 	 	—	 	 	 	—	 	 	 	3,303	 	
Compensation expense for stock based awards	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	961	 	 	 	—	 	 	 	—	 	 	 	961	 	
Repurchase of common stock	 	 	—	 	 	 	(7,109	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(62	)	 	 	—	 	 	 	—	 	 	 	(62	)	
Reduction of employee stock notes receivable	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	101	 	 	 	101	 	

Balance as of June 30, 2009	 	 	—	 	 	 	38,325,492	 	 	 	11,495,377	 	 	$	—	 	 	 	383	 	 	 	115	 	 	 	107,959	 	 	 	574,179	 	 	 	(1,449	)	 	 	681,187	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
See accompanying notes to consolidated financial statements.
 
 4 

Table of Contents

NELNET, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in thousands)
(unaudited)
 	 	 	 	 	 	 	 	 	
 	 	Six months ended June 30,	 	
 	 	2009	 	 	2008	 	
 	 	 	 	 	 	 	 	 	
Net income (loss)	 	$	33,658	 	 	 	(26,120	)	
Income from discontinued operations	 	 	—	 	 	 	981	 	
 	 	 	 	 	 	 	
Income (loss) from continuing operations	 	 	33,658	 	 	 	(27,101	)	
Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities:	 	 	 	 	 	 	 	 	
Depreciation and amortization, including loan premiums and deferred origination costs	 	 	57,890	 	 	 	74,312	 	
Provision for loan losses	 	 	15,500	 	 	 	11,000	 	
Impairment expense	 	 	—	 	 	 	18,834	 	
Derivative market value adjustment	 	 	22,270	 	 	 	(47,462	)	
Foreign currency transaction adjustment	 	 	16,623	 	 	 	88,530	 	
Change in value of put options issued in business combinations	 	 	—	 	 	 	538	 	
Proceeds to terminate and/or amend derivative instruments	 	 	1,432	 	 	 	7,547	 	
Payments to terminate and/or amend derivative instruments	 	 	(11,710	)	 	 	—	 	
Gain from purchase of debt	 	 	(13,937	)	 	 	—	 	
Loss on sale of loans	 	 	402	 	 	 	47,426	 	
Non-cash compensation expense	 	 	1,371	 	 	 	4,372	 	
Deferred income tax benefit	 	 	(26,864	)	 	 	(24,237	)	
Other non-cash items	 	 	8,692	 	 	 	344	 	
Decrease in accrued interest receivable	 	 	86,720	 	 	 	91,778	 	
(Increase) decrease in accounts receivable	 	 	(10,018	)	 	 	3,098	 	
Decrease in other assets	 	 	10,036	 	 	 	9,419	 	
Decrease in accrued interest payable	 	 	(46,665	)	 	 	(42,950	)	
Increase (decrease) in other liabilities	 	 	10,616	 	 	 	(28,351	)	

Net cash flows from operating activities — continuing operations	 	 	156,016	 	 	 	187,097	 	
Net cash flows from operating activities — discontinued operations	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	
Net cash provided by operating activities	 	 	156,016	 	 	 	187,097	 	

Cash flows from investing activities:	 	 	 	 	 	 	 	 	
Originations, purchases, and consolidations of student loans, including loan premiums and deferred origination costs	 	 	(1,467,312	)	 	 	(1,480,305	)	
Purchases of student loans, including loan premiums, from a related party	 	 	(20,392	)	 	 	(212,888	)	
Net proceeds from student loan repayments, claims, capitalized interest, participations, and other	 	 	1,177,455	 	 	 	1,061,510	 	
Proceeds from sale of student loans	 	 	341	 	 	 	1,267,826	 	
Proceeds from sale of student loans to a related party	 	 	40,033	 	 	 	—	 	
Purchases of property and equipment, net	 	 	(444	)	 	 	(3,721	)	
Increase in restricted cash and investments, net	 	 	(85,208	)	 	 	(80,066	)	
Purchases of equity method investments	 	 	—	 	 	 	(2,988	)	
Business acquisition — contingent consideration	 	 	—	 	 	 	(18,000	)	
 	 	 	 	 	 	 	
Net cash flows from investing activities — continuing operations	 	 	(355,527	)	 	 	531,368	 	
Net cash flows from investing activities — discontinued operations	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	
Net cash (used in) provided by investing activities	 	 	(355,527	)	 	 	531,368	 	

Cash flows from financing activities:	 	 	 	 	 	 	 	 	
Payments on bonds and notes payable	 	 	(2,184,109	)	 	 	(5,444,408	)	
Proceeds from issuance of bonds and notes payable	 	 	2,584,680	 	 	 	4,761,143	 	
(Payments) proceeds from issuance of notes payable due to a related party, net	 	 	(21,520	)	 	 	9,269	 	
Payments of debt issuance costs	 	 	(2,830	)	 	 	(14,634	)	
Dividends paid	 	 	—	 	 	 	(3,458	)	
Proceeds from issuance of common stock	 	 	231	 	 	 	423	 	
Repurchases of common stock	 	 	(62	)	 	 	(667	)	
Payments received on employee stock notes receivable	 	 	101	 	 	 	575	 	
 	 	 	 	 	 	 	
Net cash flows from financing activities — continuing operations	 	 	376,491	 	 	 	(691,757	)	
Net cash flows from financing activities — discontinued operations	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	
Net cash provided by (used in) financing activities	 	 	376,491	 	 	 	(691,757	)	

Net increase in cash and cash equivalents	 	 	176,980	 	 	 	26,708	 	
 	 	 	 	 	 	 	 	 	
Cash and cash equivalents, beginning of period	 	 	189,847	 	 	 	111,746	 	

Cash and cash equivalents, end of period	 	$	366,827	 	 	 	138,454	 	

Supplemental disclosures of cash flow information:	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Interest paid	 	$	294,041	 	 	 	589,578	 	
 	 	 	 	 	 	 	
Income taxes paid, net of refunds	 	$	30,299	 	 	 	14,126	 	
 	 	 	 	 	 	 	
See accompanying notes to consolidated financial statements.
 
 5 

Table of Contents
NELNET, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 2009 and for the three and six months ended
June 30, 2009 and 2008 is unaudited)
(Dollars in thousands, except per share amounts, unless otherwise noted)
1. Basis of Financial Reporting
The accompanying unaudited consolidated financial statements of Nelnet, Inc. and subsidiaries (the “Company”) as of June 30, 2009 and for the three and six months ended June 30, 2009 and 2008 have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2008 and, in the opinion of the Company’s management, the unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of results of operations for the interim periods presented. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three and six months ended June 30, 2009 are not necessarily indicative of the results for the year ending December 31, 2009. The unaudited consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. Certain amounts from 2008 have been reclassified to conform to the current period presentation. Management has evaluated subsequent events, and the impact on the reported results and disclosures, through August 10, 2009, which is the date these financial statements were filed with the Securities and Exchange Commission.
2. Restructuring Charge
During the second quarter of 2009, the Company adopted a plan to further streamline its operations by continuing to reduce its geographic footprint and consolidate servicing operations and related support services.
Management has developed a restructuring plan that will result in lower costs and provide enhanced synergies through cross training, career development, and simplified communications. The Company will simplify its operating structure to leverage its larger facilities and technology by closing certain offices and downsizing its presence in certain geographic locations. Approximately 300 associates will be impacted by this restructuring plan. However, the majority of these functions will be relocated to the Company’s Lincoln headquarters and Denver offices. Implementation of the plan began immediately and is expected to be substantially complete during the second quarter of 2010.
The Company estimates that the charge to earnings associated with this restructuring plan will be fully recognized by December 31, 2010 and will total approximately $9.2 million, consisting of approximately $5.7 million in severance costs and approximately $3.5 million in contract terminations, of which approximately $5.4 million are expected to be recognized in 2009. During the three month period ended June 30, 2009, the Company recorded charges of $2.8 million. Selected information relating to the restructuring charge follows:
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Employee	 	 	 	 	 	 	 	
 	 	termination	 	 	Lease	 	 	 	 	
 	 	benefits	 	 	terminations	 	 	Total	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Restructuring costs recognized during the three month period ended June 30, 2009	 	$	1,482	(a)	 	 	1,291	(b)	 	 	2,773	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash payments	 	 	672	 	 	 	—	 	 	 	672	 	

Restructuring accrual as of June 30, 2009	 	$	810	 	 	 	1,291	 	 	 	2,101	 	

(a)	 	Employee termination benefits are included in “salaries and benefits” in the consolidated statements of operations.	
 		
(b)	 	Lease termination costs are included in “occupancy and communications” in the consolidated statements of operations.	
 
 6 

Table of Contents
Selected information relating to the restructuring charge by operating segment and Corporate Activity and Overhead follows:
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Restructuring	 	 	 	 	 	 	 	 	
 	 	costs	 	 	 	 	 	 	 	 	
 	 	recognized	 	 	 	 	 	 	 	 	
 	 	during the three	 	 	 	 	 	 	Restructuring	 	
 	 	month period ended	 	 	Cash	 	 	accrual as of	 	
Operating segment	 	June 30, 2009	 	 	payments	 	 	June 30, 2009	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Student Loan and Guaranty Servicing	 	$	1,998	 	 	 	186	 	 	 	1,812	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Tuition Payment Processing and Campus Commerce	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Enrollment Services	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Software and Technical Services	 	 	422	 	 	 	273	 	 	 	149	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Asset Generation and Management	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Corporate Activity and Overhead	 	 	353	 	 	 	213	 	 	 	140	 	

 	 	$	2,773	 	 	 	672	 	 	 	2,101	 	

 	 	 	 	 	 	Restructuring	 	 	 	 	
 	 	 	 	 	 	costs recognized	 	 	Remaining	 	
 	 	Estimated	 	 	during the three	 	 	restructuring costs	 	
 	 	total restructuring	 	 	month period ended	 	 	expected to be	 	
Operating segment	 	costs	 	 	June 30, 2009	 	 	recognized	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Student Loan and Guaranty Servicing	 	$	6,752	 	 	 	1,998	 	 	 	4,754	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Tuition Payment Processing and Campus Commerce	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Enrollment Services	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Software and Technical Services	 	 	1,066	 	 	 	422	 	 	 	644	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Asset Generation and Management	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Corporate Activity and Overhead	 	 	1,418	 	 	 	353	 	 	 	1,065	 	

 	 	$	9,236	 	 	 	2,773	 	 	 	6,463	 	

 7 

Table of Contents
In 2007 and 2008, the Company recorded restructuring charges related to certain legislative events and disruptions in the capital markets. As a result of the restructurings, the Company incurred expenses related to severance, contract terminations, and impairment of long-lived assets. These restructuring plans were completed by management in December 2007 and January 2008. However, an accrual related to certain lease terminations remains. Information relating to such accrual follows:
 	 	 	 	 	
Restructuring accrual as of December 31, 2008	 	$	3,480	 	
 	 	 	 	 	
Cash payments	 	 	(228	)	

Restructuring accrual as of March 31, 2009	 	 	3,252	 	
 	 	 	 	 	
Cash payments	 	 	(228	)	
 	 	 	 	 	
Adjustment from initial estimate of charges (a)	 	 	515	 	

Restructuring accrual as of June 30, 2009	 	$	3,539	 	

(a)	 	Additional expense related to this adjustment is included in “occupancy and communications” in the consolidated statements of operations.	
3. Student Loans Receivable and Allowance for Loan Losses
Student loans consist of federally insured student loans, non-federally insured student loans, and student loan participations. If the Company has the ability and intent to hold loans for the foreseeable future, such loans are held for investment and, carried at amortized cost. Amortized cost includes the unamortized premiums and capitalized origination costs and fees, all of which are amortized to interest income. Loans which are held-for-investment also have an allowance for loan loss as needed. Any loans the Company has the ability and intent to sell are classified as held for sale and are carried at the lower of cost or fair value. Loans which are held-for-sale do not have the associated premium and origination costs and fees amortized into interest income and there is also no related allowance for loan losses.
As of June 30, 2009, the Company had $1.7 billion of Federal Family Education Loan Program (“FFELP”) loans classified as held for sale. These loans are funded using the Department of Education’s Loan Participation Program (the “Participation Program”) and are expected to be sold to the Department of Education (the “Department”) under the Department’s Loan Purchase Commitment Program (the “Purchase Program”) during 2009. Under the Purchase Program, the Department will purchase loans at a price equal to the sum of (i) par value, (ii) accrued interest, (iii) the one percent origination fee paid to the Department, and (iv) a fixed amount of $75 per loan. Upon selling the $1.7 billion in loans held for sale, the Company expects to recognize a gain of approximately $31 million to $34 million. The Company plans to continue to use the Participation and Purchase Programs to fund loans originated through the 2009-2010 academic year (see note 4 for additional information related to the Department’s Participation and Purchase Programs).
Student loans receivable consisted of the following:
 	 	 	 	 	 	 	 	 	
 	 	As of	 	 	As of	 	
 	 	June 30, 2009	 	 	December 31, 2008	 	
 	 	 	 	 	 	 	 	 	
Federally insured loans — held-for-investment	 	$	23,367,777	 	 	 	24,787,941	 	
Federally insured loans — held-for-sale	 	 	1,731,040	 	 	 	—	 	
Non-federally insured loans	 	 	200,722	 	 	 	273,108	 	
 	 	 	 	 	 	 	
 	 	 	25,299,539	 	 	 	25,061,049	 	
Unamortized loan premiums and deferred origination costs — held-for-investment	 	 	371,072	 	 	 	402,881	 	
Unamortized loan premiums and deferred origination costs — held-for-sale	 	 	18,250	 	 	 	—	 	
Allowance for loan losses – federally insured loans (held-for-investment)	 	 	(28,093	)	 	 	(25,577	)	
Allowance for loan losses – non-federally insured loans	 	 	(21,907	)	 	 	(25,345	)	

 	 	$	25,638,861	 	 	 	25,413,008	 	

Allowance for federally insured loans — held-for-investment as a percentage of such loans	 	 	0.12	%	 	 	0.10	%	
Allowance for non-federally insured loans as a percentage of such loans	 	 	10.91	%	 	 	9.28	%	
Total allowance as a percentage of the ending balance of total loans (excluding loans held-for-sale)	 	 	0.21	%	 	 	0.20	%	
 
 8 

Table of Contents
The Company has provided for an allowance for loan losses related to its student loan portfolio. Activity in the allowance for loan losses is shown below:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended June 30,	 	 	Six months ended June 30,	 	
 	 	2009	 	 	2008	 	 	2009	 	 	2008	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Beginning balance	 	$	48,497	 	 	 	46,137	 	 	 	50,922	 	 	 	45,592	 	
Provision for loan losses	 	 	8,000	 	 	 	6,000	 	 	 	15,500	 	 	 	11,000	 	
Loans charged off, net of recoveries	 	 	(5,197	)	 	 	(4,228	)	 	 	(9,102	)	 	 	(7,933	)	
Sale of loans	 	 	(1,300	)	 	 	—	 	 	 	(7,320	)	 	 	(750	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Ending balance	 	$	50,000	 	 	 	47,909	 	 	 	50,000	 	 	 	47,909	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan Sales
During 2008 and the six months ended June 30, 2009, the Company sold federally insured student loans to third parties in order to reduce the amount of student loans remaining under the Company’s multi-year committed financing facility for FFELP loans, which contains certain equity support provisions and has an expiration date in May 2010 (see note 4 for additional information related to the FFELP warehouse facility).
On March 31, 2008, the Company sold $857.8 million (par value) of federally insured student loans resulting in the recognition of a loss of $30.4 million. In addition, on April 8, 2008, the Company sold $428.6 million (par value) of federally insured student loans. The portfolio of student loans sold on April 8, 2008 was presented as “held for sale” on the March 31, 2008 consolidated balance sheet and was valued at the lower of cost or fair value. The Company recognized a loss of $17.1 million during the three month period ended March 31, 2008 as a result of marking these loans to fair value.
During the three and six months ended June 30, 2009, the Company sold $20.0 million (par value) and $40.0 million (par value), respectively, of federally insured student loans to Union Bank & Trust Company (“Union Bank”), an entity under common control with the Company, resulting in the recognition of losses of $0.2 million and $0.4 million, respectively.
In addition, during the three and six months ended June 30, 2009, the Company participated $14.5 million and $65.0 million, respectively, of non-federally insured loans to third parties. Loans participated under these agreements qualify as sales pursuant to the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (“SFAS No. 140”). Accordingly, the participation interests sold are not included on the Company’s consolidated balance sheet. The loss on the sale of these loans was not material. Per the terms of the servicing agreements, the Company’s servicing operations are obligated to repurchase loans subject to the participation interests when such loans become 60 or 90 days delinquent. The activity in the accrual account related to this repurchase obligation, which is included in “other liabilities” in the accompanying consolidated balance sheet, is detailed below.
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended June 30,	 	 	Six months ended June 30,	 	
 	 	2009	 	 	2008	 	 	2009	 	 	2008	 	
Beginning balance	 	$	5,500	 	 	 	—	 	 	 	—	 	 	 	—	 	
Transfer from allowance for loan losses	 	 	1,300	 	 	 	—	 	 	 	6,800	 	 	 	—	 	
Reserve for repurchase of delinquent loans (a)	 	 	800	 	 	 	—	 	 	 	800	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Ending balance	 	$	7,600	 	 	 	—	 	 	 	7,600	 	 	 	—	 	

(a)	 	The reserve for repurchase of loans is included in “other” under other operating expenses in the accompanying consolidated statements of operations.	
 
 9 

Table of Contents
4. Bonds and Notes Payable
The following tables summarize outstanding bonds and notes payable by type of instrument:
 	 	 	 	 	 	 	 	 	
 	 	As of June 30, 2009	
 	 	Carrying	 	 	Interest rate	 	 	
 	 	amount	 	 	range	 	Final maturity	
 	 	 	 	 	 	 	 	 	
Variable-rate bonds and notes (a):	 	 	 	 	 	 	 	 	
Bonds and notes based on indices	 	$	20,063,227	 	 	0.61% – 6.90%	 	09/25/13 – 06/25/41	
Bonds and notes based on auction or remarketing	 	 	2,606,740	 	 	0.46% – 2.96%	 	11/01/09 – 07/01/43	

Total variable-rate bonds and notes	 	 	22,669,967	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Commercial paper — FFELP facility (b)	 	 	420,936	 	 	0.32% – 1.13%	 	05/09/10	
Fixed-rate bonds and notes (a)	 	 	188,797	 	 	5.40% – 6.50%	 	11/01/09 – 05/01/29	
Unsecured fixed rate debt	 	 	402,864	 	 	5.125% and 7.40%	 	06/01/10 and 09/15/61	
Unsecured line of credit	 	 	691,500	 	 	0.79% – 0.85%	 	05/08/12	
Department of Education Participation	 	 	1,741,481	 	 	1.24%	 	09/30/09	
Department of Education Conduit	 	 	1,023,600	 	 	0.52%	 	05/08/14	
Other borrowings	 	 	30,428	 	 	0.32% – 5.10%	 	01/01/10 – 11/01/15	

 	 	$	27,169,573	 	 	 	 	 	

 	 	As of December 31, 2008	 	
 	 	Carrying	 	 	Interest rate	 	 	 	 	
 	 	amount	 	 	range	 	 	Final maturity	 	
Variable-rate bonds and notes (a):	 	 	 	 	 	 	 	 	 	 	 	 	
Bonds and notes based on indices	 	$	20,509,073	 	 	 	0.75% – 5.02%	 	 	 	09/25/13 – 06/25/41	 	
Bonds and notes based on auction or remarketing	 	 	2,713,285	 	 	 	0.00% – 6.00%	 	 	 	11/01/09 – 07/01/43	 	

Total variable-rate bonds and notes	 	 	23,222,358	 	 	 	 	 	 	 	 	 	
 		
Commercial paper — FFELP facility (b)	 	 	1,445,327	 	 	 	1.32% – 2.94%	 	 	 	05/09/10	 	
Commercial paper — private loan facility (b)	 	 	95,020	 	 	 	2.49%	 	 	 	03/14/09	 	
Fixed-rate bonds and notes (a)	 	 	202,096	 	 	 	5.30% – 6.68%	 	 	 	11/01/09 – 05/01/29	 	
Unsecured fixed rate debt	 	 	475,000	 	 	 	5.125% and 7.40%	 	 	 	06/01/10 and 09/15/61	 	
Unsecured line of credit	 	 	691,500	 	 	 	0.98% – 2.41%	 	 	 	05/08/12	 	
Department of Education Participation	 	 	622,170	 	 	 	3.37%	 	 	 	09/30/09	 	
Other borrowings	 	 	34,488	 	 	 	1.25% – 5.47%	 	 	 	05/22/09 – 11/01/15	 	

 	 	$	26,787,959	 	 	 	 	 	 	 	 	 	

(a)	 	Issued in asset-backed securitizations	
 		
(b)	 	Loan warehouse facilities	
Secured Financing Transactions
The Company has historically relied upon secured financing vehicles as its most significant source of funding for student loans. The net cash flow the Company receives from the securitized student loans generally represents the excess amounts, if any, generated by the underlying student loans over the amounts required to be paid to the bondholders, after deducting servicing fees and any other expenses relating to the securitizations. The Company’s rights to cash flow from securitized student loans are subordinate to bondholder interests and may fail to generate any cash flow beyond what is due to bondholders. The Company’s secured financing vehicles are loan warehouse facilities, asset-backed securitizations, and the government’s Participation and Conduit Programs (as described below).
Most of the bonds and notes payable are primarily secured by the student loans receivable, related accrued interest, and by the amounts on deposit in the accounts established under the respective bond resolutions or financing agreements. The student loan interest margin notes, included in fixed rate bonds and notes in the above tables, are secured by the rights to residual cash flows from certain variable rate bonds and notes and fixed rate notes. Certain variable rate bonds and notes and fixed rate bonds are secured by financial guaranty insurance policies or a letter of credit and reimbursement agreement issued by Municipal Bond Investors Assurance Corporation, Ambac Assurance Corporation, and State Street.
 
 10 

Table of Contents
On July 31, 2008, the Company did not renew its liquidity provisions on its FFELP loan warehouse facility. Accordingly, the facility became a term facility and no new loan originations could be funded with this facility. In August 2008, the Company began to fund FFELP student loan originations for the 2008-2009 academic year pursuant to the Department’s Participation Program and an existing participation agreement with Union Bank. In May 2009, the Company began to fund FFELP loans pursuant to the Department’s program under which it finances eligible FFELP Stafford and PLUS loans in a conduit vehicle established to provide funding for student lenders (the “Conduit Program”).
Loan warehouse facilities
Student loan warehousing has historically allowed the Company to buy and manage student loans prior to transferring them into more permanent financing arrangements. To support its funding needs on a short-term basis, the Company historically relied upon a multi-year committed facility for FFELP loans.
FFELP Warehouse Facility
The Company’s multi-year committed facility for FFELP loans terminates in May 2010 and was supported by 364-day liquidity which was up for renewal on May 9, 2008. The Company obtained an extension on this renewal until July 31, 2008. On July 31, 2008, the Company did not renew the liquidity provisions of this facility. Accordingly, as of July 31, 2008, the facility became a term facility with a final maturity date of May 9, 2010. Pursuant to the terms of the agreement, since liquidity was not renewed, the Company’s cost of financing under this facility increased 10 basis points. The agreement also includes provisions which allow the banks to charge a rate equal to LIBOR plus 128.5 basis points if they choose to finance their portion of the facility with sources of funds other than their commercial paper conduit.
The terms and conditions of the Company’s warehouse facility for FFELP loans provides for formula based advance rates based on market conditions. While the Company does not believe that the loan valuation formula is reflective of the actual fair value of its loans, it is subject to compliance with such mark-to-formula provisions of the warehouse facility agreement. As of December 31, 2008, the Company had $1.6 billion of student loans in the facility, $1.4 billion borrowed under the facility, and $280.6 million posted as equity funding support for this facility.
On March 26, 2009, the Company completed a privately placed asset-backed securitization of $294.6 million. Subsequent to March 31, 2009, the Company used the proceeds from the sale of these notes and additional funds of approximately $10 million to purchase approximately $305 million of principal and interest on student loans, which were previously financed under the Company’s FFELP warehouse facility.
In June 2009, the Company accessed the Department’s Conduit Program (as further discussed below) to fund approximately $790 million of principal and interest on student loans, which were previously financed under the Company’s FFELP warehouse facility. The Company is permitted to fund 97% of the principal and interest expected to be capitalized. Accordingly, the Company borrowed approximately $763 million under the Conduit Program for purposes of refinancing loans in the FFELP warehouse facility. Excess amounts needed to fund the remaining 3% of the student loan balances were contributed by the Company.
Removing student loans from the FFELP warehouse facility as a result of the privately placed asset-backed securitization and Conduit Program allowed the Company to withdraw cash posted as equity funding support for the FFELP facility. As of June 30, 2009, the Company had $403.7 million of student loans in the facility, $420.9 million borrowed under the facility, and $62.8 million posted as equity funding support.
On August 3, 2009, the Company entered into a new FFELP warehouse facility (the “2009 FFELP Warehouse Facility”). The 2009 FFELP Warehouse Facility has a maximum financing amount of $500.0 million, with a revolving financing structure supported by 364-day liquidity provisions, which expire on August 2, 2010. The final maturity date of the facility is August 3, 2012. In the event the Company is unable to renew the liquidity provisions by August 2, 2010, the facility would become a term facility at a stepped-up cost, with no additional student loans being eligible for financing, and the Company would be required to refinance the existing loans in the facility by August 3, 2012. The Company plans to utilize the new facility to refinance the remaining student loans in the Company’s prior FFELP warehouse facility that expires in May 2010. Refinancing these loans will allow the Company to withdraw all remaining equity funding support from the prior FFELP warehouse facility.
The 2009 FFELP Warehouse Facility provides for formula based advance rates depending on FFELP loan type. The advance rates for collateral may increase or decrease based on market conditions. The all-in pricing for the facility during the first year (including up-front fees and other costs to structure the facility) is expected to be just below the conduit’s commercial paper rate plus 1%. The facility contains financial covenants relating to levels of the Company’s consolidated net worth, ratio of adjusted EBITDA to corporate debt interest, and unencumbered cash. Any violation of these covenants could result in a requirement for the immediate repayment of any outstanding borrowings under the facility. Unlike the Company’s prior FFELP warehouse facility, the new facility does not require the Company to refinance or remove a percentage of the pledged student loan collateral on an annual basis.
 
 11 

Table of Contents
Private Loan Warehouse Facility
On February 25, 2009, the Company paid $91.5 million on the outstanding debt of its private loan warehouse facility with operating cash and terminated the facility. Beginning in January 2008, the Company suspended private student loan originations.
Asset-backed securitizations
As part of the Company’s issuance of asset-backed securities in March 2008 and May 2008, due to credit market conditions when these notes were issued, the Company purchased the Class B subordinated notes of $36 million (par value) and $41 million (par value), respectively. These notes are not included on the Company’s consolidated balance sheet. If the credit market conditions improve, the Company anticipates selling these notes to third parties. Upon a sale to third parties, the Company would obtain cash proceeds equal to the market value of the notes on the date of such sale. Upon sale, these notes would be shown as “bonds and notes payable” on the Company’s consolidated balance sheet. Unless there is a significant market improvement, the Company believes the market value of such notes will be less than par value. The difference between the par value and market value would be recognized by the Company as interest expense over the life of the bonds.
Department of Education’s Loan Participation and Purchase Commitment Programs
In August 2008, the Department implemented the Purchase Program and the Participation Program pursuant to the Ensuring Continued Access to Student Loans Act of 2008 (“ECASLA”). Under the Department’s Purchase Program, the Department will purchase loans at a price equal to the sum of (i) par value, (ii) accrued interest, (iii) the one percent origination fee paid to the Department, and (iv) a fixed amount of $75 per loan. Under the Participation Program, the Department provides interim short term liquidity to FFELP lenders by purchasing participation interests in pools of FFELP loans. FFELP lenders are charged a rate of commercial paper plus 50 basis points on the principal amount of participation interests outstanding. Loans funded under the Participation Program for the 2008-2009 academic year must be either refinanced by the lender or sold to the Department pursuant to the Purchase Program prior to September 30, 2009. To be eligible for purchase or participation under the Department’s programs, loans were originally limited to FFELP Stafford or PLUS loans made for the academic year 2008-2009, first disbursed between May 1, 2008 and July 1, 2009, with eligible borrower benefits.
On October 7, 2008, legislation was enacted to extend the Department’s authority to address FFELP student loans made for the 2009-2010 academic year and allowing for the extension of the Participation Program and Purchase Program from September 30, 2009 to September 30, 2010. The Department indicated that loans for the 2008-2009 academic year which are funded under the Department’s Participation Program will need to be refinanced or sold to the Department prior to September 30, 2009. On November 8, 2008, the Department announced the replication of the terms of the Participation and Purchase Programs, in accordance with the October 7, 2008 legislation, which will include FFELP student loans made for the 2009-2010 academic year.
As of June 30, 2009, the Company had $1.7 billion of FFELP loans funded using the Participation Program, which are classified as held for sale on the Company’s consolidated balance sheet. These loans are expected to be sold to the Department under its Purchase Program in 2009. The Company plans to continue to use the Participation and Purchase Programs to fund loans through the 2009-2010 academic year.
Department of Education’s Conduit Program
In January 2009, the Department published summary terms under which it will finance eligible FFELP Stafford and PLUS loans in a conduit vehicle established to provide funding for student lenders. Loans eligible for the Conduit Program must be first disbursed on or after October 1, 2003, but not later than June 30, 2009, and fully disbursed before September 30, 2009, and meet certain other requirements. The Conduit Program was launched on May 11, 2009. Funding for the Conduit Program is provided by the capital markets at a cost based on market rates, with the Company being advanced 97 percent of the student loan face amount. The Conduit Program has a term of five years and expires on May 8, 2014. The Student Loan Short-Term Notes (“Student Loan Notes”) issued by the Conduit Program are supported by a combination of (i) notes backed by FFELP loans, (ii) the Liquidity Agreement with the Federal Financing Bank, and (iii) the Put Agreement provided by the Department. If the conduit does not have sufficient funds to pay all Student Loan Notes, then those Student Loan Notes will be repaid with funds from the Federal Financing Bank. The Federal Financing Bank will hold the notes for a short period of time and, if at the end of that time, the Student Loan Notes still cannot be paid off, the underlying FFELP loans that serve as collateral to the Conduit Program will be sold to the Department through the Put Agreement at a price of 97% of the face amount of the loans. As of June 30, 2009, the Company had $1.1 billion of student loans funded through the Conduit Program and $1.0 billion borrowed under the facility.
Union Bank Participation Agreement
The Company maintains an agreement with Union Bank, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in student loans (the “FFELP Participation Agreement”). The Company has the option to purchase the participation interests from the grantor trusts at the end of a 364-day term upon termination of the participation certificate. As of June 30, 2009 and December 31, 2008, $786.3 million and $548.4 million, respectively, of loans were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement. The agreement automatically renews annually and is terminable by either party upon five business days notice. This agreement provides beneficiaries of Union Bank’s grantor trusts with access to investments in interests in student loans, while providing liquidity to the Company on a short-term basis. The Company can participate loans to Union Bank to the extent of availability under the grantor trusts, up to $750 million or an amount in excess of $750 million if mutually agreed to by both parties. Loans participated under this agreement qualify as a sale pursuant to the provisions of SFAS No. 140. Accordingly, the participation interests sold are not included on the Company’s consolidated balance sheet.
 
 12 

Table of Contents
Unsecured Line of Credit
The Company has a $750.0 million unsecured line of credit that terminates in May 2012. As of June 30, 2009, there was $691.5 million outstanding on this line. The weighted average interest rate on this line of credit was 0.80% as of June 30, 2009. Upon termination in 2012, there can be no assurance that the Company will be able to maintain this line of credit, find alternative funding, or increase the amount outstanding under the line, if necessary. The lending commitment under the Company’s unsecured line of credit is provided by a total of thirteen banks, with no individual bank representing more than 11% of the total lending commitment. The bank lending group includes Lehman Brothers Bank (“Lehman”), a subsidiary of Lehman Brothers Holdings Inc., which represents approximately 7% of the lending commitment under the line of credit. On September 15, 2008, Lehman Brothers Holdings Inc. filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. Since the bankruptcy filing, the Company has experienced funding delays from Lehman for its portion of the lending commitment under the line of credit and the Company does not expect that Lehman will fund future borrowing requests. As of June 30, 2009, excluding Lehman’s lending commitment, the Company has $51.2 million available for future use under its unsecured line of credit.
The line of credit agreement contains certain financial covenants that, if not met, lead to an event of default under the agreement. The covenants include maintaining:

 	•	 	A minimum consolidated net worth	
 		
 	•	 	A minimum adjusted EBITDA to corporate debt interest (over the last four rolling quarters)	
 		
 	•	 	A limitation on subsidiary indebtedness	
 		
 	•	 	A limitation on the percentage of non-guaranteed loans in the Company’s portfolio	
As of June 30, 2009, the Company was in compliance with all of these requirements. Many of these covenants are duplicated in the Company’s other lending facilities, including its FFELP warehouse facilities.
The Company’s operating line of credit does not have any covenants related to unsecured debt ratings. However, changes in the Company’s ratings (as well as the amounts the Company borrows) have modest implications on the pricing level at which the Company obtains funding.
A default on the 2009 FFELP Warehouse Facility would result in an event of default on the Company’s unsecured line of credit that would result in the outstanding balance on the line of credit becoming immediately due and payable.
Debt Purchases
During the first and second quarters of 2009, the Company purchased $34.9 million and $35.5 million, respectively, of its 5.125% Senior Notes due 2010 (the “2010 Notes”) for a purchase price of $26.8 million and $31.1 million, respectively. These transactions resulted in gains of $8.1 million and $4.4 million, respectively. On July 28, 2009, the Company purchased $102.6 million of the 2010 Notes at par. Subsequent to this transaction, the Company has $102.0 million of 2010 Notes outstanding.
During the second quarter of 2009, the Company purchased $1.75 million of its Junior Subordinated Hybrid Securities for a purchase price of $0.35 million, which resulted in a gain of $1.4 million.
Subsequent to June 30, 2009, the Company repurchased $21.6 million of certain asset-backed securities for a purchase price of $19.3 million, which resulted in the Company recording a gain of $2.3 million in the third quarter of 2009.
Any gains recorded by the Company from the purchase of debt are included in “other income” on the Company’s consolidated statement of operations.
5. Derivative Financial Instruments
The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments are interest rate risk and foreign currency exchange risk.
Interest Rate Risk
The Company’s primary market risk exposure arises from fluctuations in its borrowing and lending rates, the spread between which could impact the Company due to shifts in market interest rates. Because the Company generates a significant portion of its earnings from its student loan spread, the interest rate sensitivity of the balance sheet is a key profitability driver. The Company has adopted a policy of periodically reviewing the mismatch related to the interest rate characteristics of its assets and liabilities together with the Company’s outlook as to current and future market conditions. Based on those factors, the Company uses derivative instruments as part of its overall risk management strategy.
 
 13 

Table of Contents
The Company issues asset-backed securities, the vast majority being variable rate, to fund its student loan assets. The variable rate debt is generally indexed to 3-month LIBOR, set by auction, or through a remarketing process. The income generated by the Company’s student loan assets is generally driven by short term indices (treasury bills, commercial paper, and certain fixed rates) that are different from those which affect the Company’s liabilities (generally LIBOR), which creates basis risk. Moreover, the Company also faces repricing risk due to the timing of the interest rate resets on its liabilities, which may occur as infrequently as every quarter, and the timing of the interest rate resets on its assets, which generally occurs daily. In a declining interest rate environment, this may cause the Company’s student loan spread to compress, while in a rising rate environment, it may cause the spread to increase.
In using different index types and different index reset frequencies to fund assets, the Company is exposed to interest rate risk in the form of basis risk and repricing risk, which, as noted above, is the risk that the different indices may reset at different frequencies, or will not move in the same direction or with the same magnitude. While these indices are short term with rate movements that are highly correlated over a longer period of time, they have recently become less correlated. Due to capital market dislocations or other factors not within the Company’s control, there can be no assurance the indices will regain their high level of correlation in the future.
The Company has used derivative instruments to hedge the repricing risk due to the timing of the interest rate resets on its assets and liabilities. The Company has entered into basis swaps in which the Company (i) receives three-month LIBOR set discretely in advance and pays a daily weighted average three-month LIBOR less a spread as defined in the agreements (the “Average/Discrete Basis Swaps”); and (ii) receives three-month LIBOR and pays one-month LIBOR plus or minus a spread as defined in the agreements (the “1/3 Basis Swaps”).
However, the Company does not generally hedge the basis risk due to the different interest rate indices associated with its assets and liabilities, since the derivatives needed to hedge this risk are generally illiquid or non-existent and the relationship between the indices for most of the Company’s assets and liabilities has been highly correlated over a long period of time.
As of June 30, 2009, the Company had approximately $24.0 billion of FFELP loans indexed to three-month financial commercial paper rate and $20.1 billion of debt indexed to LIBOR. Due to the unintended consequences of government intervention in the commercial paper markets and limited issuances of qualifying financial commercial paper, the relationship between the three-month financial CP and LIBOR rates has been distorted and volatile. To address this issue, the Department announced that for purposes of calculating the FFELP loan index from October 27, 2008 to December 31, 2008, the Federal Reserve’s Commercial Paper Funding Facility rate was used for those days in which no three-month financial commercial paper rate was available. This action partially mitigated the volatility between CP and LIBOR during the fourth quarter of 2008. However, the Department did not implement a similar methodology for the first and second quarters of 2009, which negatively impacted the Company’s interest income earned on its student loan portfolio.
The following table summarizes the Company’s basis swaps outstanding as of June 30, 2009 and December 31, 2008 used by the Company to hedge the repricing risk due to the timing of the interest rate resets on its assets and liabilities.
 	 	 	 	 	 	 	 	 	
 	 	As of June 30, 2009	 	
 	 	Notional amount	 	
 	 	Average/Discrete	 	 	 	 	
Maturity	 	Basis Swaps	 	 	1/3 Basis Swaps (c)	 	
 		
2009 (a)	 	$	7,000,000	 	 	 	—	 	
2011 (b)	 	 	6,000,000	 	 	 	—	 	
2018	 	 	—	 	 	 	1,300,000	 	
2019	 	 	—	 	 	 	500,000	 	
2021	 	 	—	 	 	 	250,000	 	
2023	 	 	—	 	 	 	1,250,000	 	
2024	 	 	—	 	 	 	250,000	 	
2028	 	 	—	 	 	 	100,000	 	

 	 	$	13,000,000	 	 	 	3,650,000	 	

(a)	 	Subsequent to June 30, 2009, the Company terminated all the Average/Discrete Basis Swaps with a maturity in 2009 for total proceeds of $2.4 million.	
 
 14 

Table of Contents

(b)	 	Certain of these derivatives have forward effective start dates of January 2010 ($1.5 billion), February 2010 ($1.5 billion), and March 2010 ($1.5 billion).	
 		
(c)	 	Subsequent to June 30, 2009, the Company entered into additional 1/3 Basis Swaps with notional amounts of $500.0 million and $150.0 million with maturity dates in 2014 and 2039, respectively.	
 	 	 	 	 	 	 	 	 	
 	 	As of December 31, 2008	 	
 	 	Notional amount	 	
 	 	Average/Discrete	 	 	 	 	
Maturity	 	Basis Swaps	 	 	1/3 Basis Swaps	 	
 	 	 	 	 	 	 	 	 	
2010	 	$	4,500,000	 	 	 	—	 	
2011	 	 	2,700,000	 	 	 	—	 	
2012	 	 	2,400,000	 	 	 	—	 	
2018	 	 	—	 	 	 	1,300,000	 	
2023	 	 	—	 	 	 	1,250,000	 	
2028	 	 	—	 	 	 	100,000	 	

 	 	$	9,600,000	 	 	 	2,650,000	 	
 	 	 	 	 	 	 	
During the three months ended March 31, 2009, the Company terminated and/or amended certain Average/Discrete Basis Swap agreements for net payments of $11.7 million.
FFELP loans originated prior to April 1, 2006 generally earn interest at the higher of a floating rate based on the Special Allowance Payment or SAP formula set by the Department and the borrower rate, which is fixed over a period of time. The SAP formula is based on an applicable index plus a fixed spread that is dependent upon when the loan was originated, the loan’s repayment status, and funding sources for the loan. The Company generally finances its student loan portfolio with variable rate debt. In low and/or declining interest rate environments, when the fixed borrower rate is higher than the rate produced by the SAP formula, the Company’s student loans earn at a fixed rate while the interest on the variable rate debt typically continues to decline. In these interest rate environments, the Company may earn additional spread income that it refers to as floor income.
Depending on the type of loan and when it was originated, the borrower rate is either fixed to term or is reset to an annual rate each July 1. As a result, for loans where the borrower rate is fixed to term, the Company may earn floor income for an extended period of time, which the Company refers to as fixed rate floor income, and for those loans where the borrower rate is reset annually on July 1, the Company may earn floor income to the next reset date, which the Company refers to as variable rate floor income. In accordance with legislation enacted in 2006, lenders are required to rebate fixed rate floor income and variable rate floor income to the Department for all FFELP loans first originated on or after April 1, 2006.
Absent the use of derivative instruments, a rise in interest rates may reduce the amount of floor income received and this may have an impact on earnings due to interest margin compression caused by increasing financing costs, until such time as the federally insured loans earn interest at a variable rate in accordance with their special allowance payment formulas. In higher interest rate environments, where the interest rate rises above the borrower rate and fixed rate loans effectively become variable rate loans, the impact of the rate fluctuations is reduced.
As of June 30, 2009, the Company held the following interest rate derivatives to hedge fixed-rate student loan assets earning fixed rate floor income.
 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Weighted	 	
 	 	 	 	 	 	average fixed	 	
 	 	Notional	 	 	rate paid by	 	
Maturity	 	Amount	 	 	the Company (a)	 	
 	 	 	 	 	 	 	 	 	
2010 (b)	 	$	750,000	 	 	 	0.80	%	

(a)	 	For all interest rate derivatives, the Company receives discrete three-month LIBOR.	
 		
(b)	 	Certain of these derivatives have forward effective start dates of July 2009 ($250 million) and August 2009 ($250 million).	
 
 15 

Table of Contents
Foreign Currency Exchange Risk
During 2006, the Company completed separate debt offerings of student loan asset-backed securities that included 420.5 million and 352.7 million Euro-denominated notes (the “Euro Notes”) with interest rates based on a spread to the EURIBOR index. As a result of this transaction, the Company is exposed to market risk related to fluctuations in foreign currency exchange rates between the U.S. dollar and Euro. The principal and accrued interest on these notes is re-measured at each reporting period and recorded on the Company’s balance sheet in U.S. dollars based on the foreign currency exchange rate on that date. Changes in the principal and accrued interest amounts as a result of foreign currency exchange rate fluctuations are included in the “derivative market value, foreign currency, and put option adjustments and derivative settlements, net” in the Company’s consolidated statements of operations.
The Company entered into cross-currency interest rate swaps in connection with the issuance of the Euro Notes. Under the terms of these derivative instrument agreements, the Company receives from a counterparty a spread to the EURIBOR index based on notional amounts of € 420.5 million and € 352.7 million and pays a spread to the LIBOR index based on notional amounts of $500.0 million and $450.0 million, respectively. In addition, under the terms of these agreements, all principal payments on the Euro Notes will effectively be paid at the exchange rate in effect as of the issuance of the notes.
For the three and six months ended June 30, 2009, the Company recorded an expense of $63.9 million and $16.6 million, respectively, as a result of re-measurement of the Euro Notes, and income of $41.2 million and an expense of $15.9 million, respectively, for the change in the fair value of the related derivative instruments. For the three and six months ended June 30, 2008, the Company recorded income of $4.4 million and an expense of $88.5 million, respectively, as a result of re-measurement of the Euro Notes, and an expense of $2.4 million and income of $91.7 million, respectively, for the change in the fair value of the related derivative instruments.
The re-measurement of the Euro-denominated bonds generally correlates with the change in fair value of the cross-currency interest rate swaps. However, the Company will experience unrealized gains or losses related to the cross-currency interest rate swaps if the two underlying indices (and related forward curve) do not move in parallel. Management intends to hold the cross-currency interest rate swaps through the maturity of the Euro-denominated bonds.
Accounting for Derivative Financial Instruments
The Company accounts for derivative instruments under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS No. 133”), which requires that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at its fair value. Management has structured all of the Company’s derivative transactions with the intent that each is economically effective; however, the Company’s derivative instruments do not qualify for hedge accounting under SFAS No. 133. As a result, the change in fair value of the Company’s derivatives at each reporting date are included in “derivative market value, foreign currency, and put option adjustments and derivative settlements, net” in the Company’s consolidated statements of operations. Changes or shifts in the forward yield curve and fluctuations in currency rates can significantly impact the valuation of the Company’s derivatives. Accordingly, changes or shifts to the forward yield curve and fluctuations in currency rates will impact the financial position and results of operations of the Company.
Any proceeds received or payments made by the Company to terminate a derivative in advance of its expiration date or to amend the terms of an existing derivative, are included in “derivative market value, foreign currency, and put option adjustments and derivative settlements, net” on the consolidated statements of operations and are accounted for as a change in fair value on such derivative.
The following table summarizes the fair value of the Company’s derivatives not designated as hedging instruments under SFAS No. 133:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Asset derivatives	 	 	Liability derivatives	 	
 	 	Fair value as of	 	 	Fair value as of	 	 	Fair value as of	 	 	Fair value as of	 	
 	 	June 30, 2009	 	 	December 31, 2008	 	 	June 30, 2009	 	 	December 31, 2008	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest rate swaps	 	$	1,042	 	 	 	—	 	 	 	(32	)	 	 	—	 	
Average/Discrete Basis Swaps	 	 	1,170	 	 	 	2,817	 	 	 	(7,322	)	 	 	(1,800	)	
1/3 Basis Swaps	 	 	15,089	 	 	 	5,037	 	 	 	—	 	 	 	(15	)	
Cross-currency interest rate swaps	 	 	151,419	 	 	 	167,320	 	 	 	—	 	 	 	—	 	

Total	 	$	168,720	 	 	 	175,174	 	 	 	(7,354	)	 	 	(1,815	)	

 16 

Table of Contents
The following table summarizes the effect of derivative instruments in the consolidated statements of operations. All gains and losses recognized in income related to the Company’s derivative activity are included in “Derivative market value, foreign currency, and put option adjustments and derivative settlements, net”, on the consolidated statements of operations.
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Derivatives not designated	 	Amount of gain (or loss) recognized	 	 	Amount of gain (or loss) recognized	 	
as hedging under SFAS No. 133	 	in income on derivatives	 	 	in income on derivatives	 	
 	 	Three months ended June 30	 	 	Six months ended June 30	 	
 	 	2009	 	 	2008	 	 	2009	 	 	2008	 	
Settlements:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest rate swaps	 	$	(11	)	 	 	(7,842	)	 	 	(11	)	 	 	(11,019	)	
Average/Discrete Basis Swaps	 	 	1,040	 	 	 	5,148	 	 	 	11,062	 	 	 	44,711	 	
1/3 Basis Swaps	 	 	6,657	 	 	 	—	 	 	 	17,401	 	 	 	894	 	
Cross-currency interest rate swaps	 	 	1,849	 	 	 	7,131	 	 	 	5,441	 	 	 	10,614	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total settlements	 	 	9,535	 	 	 	4,437	 	 	 	33,893	 	 	 	45,200	 	

Change in fair value:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest rate swaps	 	 	1,011	 	 	 	38,969	 	 	 	1,011	 	 	 	4,098	 	
Average/Discrete Basis Swaps	 	 	(6,682	)	 	 	(25,049	)	 	 	(18,678	)	 	 	(51,337	)	
1/3 Basis Swaps	 	 	(7,118	)	 	 	—	 	 	 	9,867	 	 	 	2,568	 	
Cross-currency interest rate swaps	 	 	41,209	 	 	 	(2,461	)	 	 	(15,902	)	 	 	91,668	 	
Other	 	 	1,432	 	 	 	—	 	 	 	1,432	 	 	 	465	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total change in fair value	 	 	29,852	 	 	 	11,459	 	 	 	(22,270	)	 	 	47,462	 	

Total impact to statements of operations	 	$	39,387	 	 	 	15,896	 	 	 	11,623	 	 	 	92,662	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Derivative Instruments — Credit and Market Risk
By using derivative instruments, the Company is exposed to credit and market risk.
When the fair value of a derivative instrument is negative, the Company would owe the counterparty if the derivative was settled and, therefore, has no immediate credit risk. Additionally, if the negative fair value of derivatives with a counterparty exceeds a specified threshold, the Company may have to make a collateral deposit with the counterparty. The threshold at which the Company posts collateral may depend on the Company’s unsecured credit rating. If interest and foreign currency exchange rates move materially, the Company could be required to deposit a significant amount of collateral with its derivative instrument counterparties. The collateral deposits, if significant, could negatively impact the Company’s liquidity and capital resources.
When the fair value of a derivative contract is positive, this generally indicates that the counterparty would owe the Company if the derivative was settled. If the counterparty fails to perform, credit risk with such counterparty is equal to the extent of the fair value gain in the derivative less any collateral held by the Company.
The Company attempts to manage market and credit risks associated with interest and foreign currency exchange rates by establishing and monitoring limits as to the types and degree of risk that may be undertaken, and by entering into transactions with high-quality counterparties that are reviewed periodically by the Company’s risk committee. The Company also has a policy of requiring that all derivative contracts be governed by an International Swaps and Derivatives Association, Inc. Master Agreement.
6. Segment Reporting
The Company has five operating segments as defined in SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information , (“SFAS No. 131”), as follows: Student Loan and Guaranty Servicing, Tuition Payment Processing and Campus Commerce, Enrollment Services, Software and Technical Services, and Asset Generation and Management. The Company’s operating segments are defined by the products and services they offer or the types of customers they serve, and they reflect the manner in which financial information is currently evaluated by management. The accounting policies of the Company’s operating segments are the same as those described in the summary of significant accounting policies. Intersegment revenues are charged by a segment to another segment that provides the product or service. Intersegment revenues and expenses are included within each segment consistent with the income statement presentation provided to management. Changes in management structure or allocation methodologies and procedures may result in changes in reported segment financial information.
The management reporting process measures the performance of the Company’s operating segments based on the management structure of the Company as well as the methodology used by management to evaluate performance and allocate resources. Management, including the Company’s chief operating decision maker, evaluates the performance of the Company’s operating segments based on their profitability. As discussed further below, management measures the profitability of the Company’s operating segments based on “base net income.” Accordingly, information regarding the Company’s operating segments is provided based on “base net income.” The Company’s “base net income” is not a defined term within generally accepted accounting principles (“GAAP”) and may not be comparable to similarly titled measures reported by other companies. Unlike financial accounting, there is no comprehensive, authoritative guidance for management reporting.
 
 17 

Table of Contents
Historically, the Company generated the majority of its revenue from net interest income earned in its Asset Generation and Management operating segment. In recent years, the Company has made several acquisitions that have expanded the Company’s products and services and has diversified its revenue – primarily from fee-based businesses. The Company currently offers a broad range of pre-college, in-college, and post-college products and services to students, families, schools, and financial institutions. These products and services help students and families plan and pay for their education and students plan their careers. The Company’s products and services are designed to simplify the education planning and financing process and are focused on providing value to students, families, and schools throughout the education life cycle. The Company continues to diversify its sources of revenue, including those generated from businesses that are not dependent upon government programs, thereby reducing legislative and political risk.
Fee-Based Operating Segments
Student Loan and Guaranty Servicing
The Student Loan and Guaranty Servicing segment provides for the servicing of the Company’s student loan portfolios and the portfolios of third parties and servicing provided to guaranty agencies. The servicing and business process outsourcing activities include loan origination activities, application processing, borrower updates, payment processing, due diligence procedures, and claim processing. These activities are performed internally for the Company’s portfolio in addition to generating fee revenue when performed for third-party clients. The guaranty servicing, servicing support, and business process outsourcing activities include providing software and data center services, borrower and loan updates, default aversion tracking services, claim processing services, and post-default collection services to guaranty agencies. The following are the primary product and service offerings the Company offers as part of its Student Loan and Guaranty Servicing segment:

 	•	 	Origination and servicing of FFELP loans	
 		
 	•	 	Origination and servicing of non-federally insured student loans	
 		
 	•	 	Servicing and support outsourcing for guaranty agencies	
Tuition Payment Processing and Campus Commerce
The Tuition Payment Processing and Campus Commerce segment provides products and services to help institutions and education-seeking families manage the payment of education costs during the pre-college and college stages of the education life cycle. The Company provides actively managed tuition payment solutions, online payment processing, detailed information reporting, financial needs analysis, and data integration services to K-12 and higher educational institutions, families, and students. In addition, the Company provides customer-focused electronic transactions, information sharing, and account and bill presentment to colleges and universities.
Enrollment Services
The Enrollment Services segment offers products and services that are focused on helping (i) students plan and prepare for life after high school (content management and publishing and editing services) and (ii) colleges recruit and retain students (lead generation and recruitment services). Lead generation products and services include vendor lead management services and admissions lead generation. Publishing and editing services include test preparation study guides and essay and resume editing services. Content management products and services include online courses and related services. Recruitment services include pay per click marketing management, email marketing, list marketing services, and admissions consulting.
Software and Technical Services
The Software and Technical Services segment provides information technology products and full-service technical consulting, with core areas of business in educational loan software solutions, business intelligence, technical consulting services, and Enterprise Content Management solutions.
Asset Generation and Management Operating Segment
The Asset Generation and Management segment includes the acquisition, management, and ownership of the Company’s student loan assets. Revenues are primarily generated from the Company’s earnings from the spread, referred to as the Company’s student loan spread, between the yield received on the student loan portfolio and the costs associated with originating, acquiring, and financing its student loan portfolio. The Company generates student loan assets through direct origination or through acquisitions. The student loan assets are held in a series of education lending subsidiaries designed specifically for this purpose. In addition to the student loan portfolio, all costs and activity associated with the generation of assets, funding of those assets, and maintenance of the debt transactions are included in this segment. This includes derivative activity and the related derivative market value and foreign currency adjustments. The Company is also able to leverage its capital market expertise by providing investment advisory services and other related services to third parties through a licensed broker dealer subsidiary. Revenues and expenses for those functions are also included in the Asset Generation and Management segment.
 
 18 

Table of Contents
Segment Operating Results — “Base Net Income”
The tables below include the operating results of each of the Company’s operating segments. Management, including the chief operating decision maker, evaluates the Company on certain non-GAAP performance measures that the Company refers to as “base net income” for each operating segment. While “base net income” is not a substitute for reported results under GAAP, the Company relies on “base net income” to manage each operating segment because it believes this measure provides additional information regarding the operational and performance indicators that are most closely assessed by management.
“Base net income” is the primary financial performance measure used by management to develop the Company’s financial plans, track results, and establish corporate performance targets and incentive compensation. Management believes this information provides additional insight into the financial performance of the core business activities of the Company’s operating segments. Accordingly, the tables presented below reflect “base net income,” which is the operating measure reviewed and utilized by management to manage the business. Reconciliation of the segment totals to the Company’s operating results in accordance with GAAP are also included in the tables below.
Segment Results and Reconciliations to GAAP
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended June 30, 2009	 	
 	 	Fee-Based	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Student	 	 	Tuition	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	“Base net	 	 	 	 	
 	 	Loan	 	 	Payment	 	 	 	 	 	 	Software	 	 	 	 	 	 	Asset	 	 	Corporate	 	 	 	 	 	 	income”	 	 	 	 	
 	 	and	 	 	Processing	 	 	 	 	 	 	and	 	 	Total	 	 	Generation	 	 	Activity	 	 	Eliminations	 	 	Adjustments	 	 	GAAP	 	
 	 	Guaranty	 	 	and Campus	 	 	Enrollment	 	 	Technical	 	 	Fee-	 	 	and	 	 	and	 	 	and	 	 	to GAAP	 	 	Results of	 	
 	 	Servicing	 	 	Commerce	 	 	Services	 	 	Services	 	 	Based	 	 	Management	 	 	Overhead	 	 	Reclassifications	 	 	Results	 	 	Operations	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total interest income	 	$	13	 	 	 	11	 	 	 	—	 	 	 	—	 	 	 	24	 	 	 	156,233	 	 	 	1,312	 	 	 	(422	)	 	 	6,042	 	 	 	163,189	 	
Interest expense	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	98,338	 	 	 	8,166	 	 	 	(422	)	 	 	—	 	 	 	106,082	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income (loss)	 	 	13	 	 	 	11	 	 	 	—	 	 	 	—	 	 	 	24	 	 	 	57,895	 	 	 	(6,854	)	 	 	—	 	 	 	6,042	 	 	 	57,107	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Less provision for loan losses	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	8,000	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	8,000	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income (loss) after provision for loan losses	 	 	13	 	 	 	11	 	 	 	—	 	 	 	—	 	 	 	24	 	 	 	49,895	 	 	 	(6,854	)	 	 	—	 	 	 	6,042	 	 	 	49,107	 	

Other income (expense):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan and guaranty servicing revenue	 	 	29,184	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	29,184	 	 	 	—	 	 	 	(381	)	 	 	—	 	 	 	—	 	 	 	28,803	 	
Tuition payment processing and campus commerce revenue	 	 	—	 	 	 	11,848	 	 	 	—	 	 	 	—	 	 	 	11,848	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	11,848	 	
Enrollment services revenue	 	 	—	 	 	 	—	 	 	 	28,747	 	 	 	—	 	 	 	28,747	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	28,747	 	
Software services revenue	 	 	925	 	 	 	—	 	 	 	—	 	 	 	5,194	 	 	 	6,119	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	6,119	 	
Other income	 	 	249	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	249	 	 	 	4,241	 	 	 	7,037	 	 	 	—	 	 	 	—	 	 	 	11,527	 	
Loss on sale of loans	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(196	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(196	)	
Intersegment revenue	 	 	20,888	 	 	 	53	 	 	 	277	 	 	 	3,896	 	 	 	25,114	 	 	 	—	 	 	 	8,463	 	 	 	(33,577	)	 	 	—	 	 	 	—	 	
Derivative market value, foreign currency, and put option adjustments	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(34,013	)	 	 	(34,013	)	
Derivative settlements, net	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	9,535	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	9,535	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other income (expense)	 	 	51,246	 	 	 	11,901	 	 	 	29,024	 	 	 	9,090	 	 	 	101,261	 	 	 	13,580	 	 	 	15,119	 	 	 	(33,577	)	 	 	(34,013	)	 	 	62,370	 	

Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and benefits	 	 	13,355	 	 	 	6,402	 	 	 	5,863	 	 	 	5,715	 	 	 	31,335	 	 	 	1,735	 	 	 	6,234	 	 	 	876	 	 	 	—	 	 	 	40,180	 	
Restructure expense- severance and contract terminination costs	 	 	2,513	 	 	 	—	 	 	 	—	 	 	 	422	 	 	 	2,935	 	 	 	—	 	 	 	353	 	 	 	(3,288	)	 	 	—	 	 	 	—	 	
Cost to provide enrollment services	 	 	—	 	 	 	—	 	 	 	18,092	 	 	 	—	 	 	 	18,092	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	18,092	 	
Other expenses	 	 	11,140	 	 	 	2,339	 	 	 	3,041	 	 	 	838	 	 	 	17,358	 	 	 	5,875	 	 	 	8,259	 	 	 	1,807	 	 	 	5,785	 	 	 	39,084	 	
Intersegment expenses	 	 	9,484	 	 	 	669	 	 	 	508	 	 	 	764	 	 	 	11,425	 	 	 	20,732	 	 	 	815	 	 	 	(32,972	)	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating expenses	 	 	36,492	 	 	 	9,410	 	 	 	27,504	 	 	 	7,739	 	 	 	81,145	 	 	 	28,342	 	 	 	15,661	 	 	 	(33,577	)	 	 	5,785	 	 	 	97,356	 	

Income (loss) before income taxes	 	 	14,767	 	 	 	2,502	 	 	 	1,520	 	 	 	1,351	 	 	 	20,140	 	 	 	35,133	 	 	 	(7,396	)	 	 	—	 	 	 	(33,756	)	 	 	14,121	 	
Income tax (expense) benefit (a)	 	 	(5,612	)	 	 	(951	)	 	 	(577	)	 	 	(514	)	 	 	(7,654	)	 	 	(13,351	)	 	 	940	 	 	 	—	 	 	 	14,147	 	 	 	(5,918	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss)	 	$	9,155	 	 	 	1,551	 	 	 	943	 	 	 	837	 	 	 	12,486	 	 	 	21,782	 	 	 	(6,456	)	 	 	—	 	 	 	(19,609	)	 	 	8,203	 	

(a)	 	Income taxes are applied based on 38% of income (loss) before income taxes for the individual operating segments.	
 
 19 

Table of Contents

 	 	Three months ended June 30, 2008	 	
 	 	Fee-Based	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Student	 	 	Tuition	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	“Base net	 	 	 	 	
 	 	Loan	 	 	Payment	 	 	 	 	 	 	Software	 	 	 	 	 	 	Asset	 	 	Corporate	 	 	 	 	 	 	income”	 	 	 	 	
 	 	and	 	 	Processing	 	 	 	 	 	 	and	 	 	Total	 	 	Generation	 	 	Activity	 	 	Eliminations	 	 	Adjustments	 	 	GAAP	 	
 	 	Guaranty	 	 	and Campus	 	 	Enrollment	 	 	Technical	 	 	Fee-	 	 	and	 	 	and	 	 	and	 	 	to GAAP	 	 	Results of	 	
 	 	Servicing	 	 	Commerce	 	 	Services	 	 	Services	 	 	Based	 	 	Management	 	 	Overhead	 	 	Reclassifications	 	 	Results	 	 	Operations	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total interest income	 	$	243	 	 	 	310	 	 	 	1	 	 	 	—	 	 	 	554	 	 	 	282,293	 	 	 	1,574	 	 	 	(546	)	 	 	21,927	 	 	 	305,802	 	
Interest expense	 	 	—	 	 	 	—	 	 	 	1	 	 	 	—	 	 	 	1	 	 	 	222,402	 	 	 	10,607	 	 	 	(546	)	 	 	—	 	 	 	232,464	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income (loss)	 	 	243	 	 	 	310	 	 	 	—	 	 	 	—	 	 	 	553	 	 	 	59,891	 	 	 	(9,033	)	 	 	—	 	 	 	21,927	 	 	 	73,338	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Less provision for loan losses	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	6,000	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	6,000	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income (loss) after provision for loan losses	 	 	243	 	 	 	310	 	 	 	—	 	 	 	—	 	 	 	553	 	 	 	53,891	 	 	 	(9,033	)	 	 	—	 	 	 	21,927	 	 	 	67,338	 	

Other income (expense):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan and guaranty servicing revenue	 	 	23,664	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	23,664	 	 	 	157	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	23,821	 	
Tutition payment processing and campus commerce revenue	 	 	—	 	 	 	10,270	 	 	 	—	 	 	 	—	 	 	 	10,270	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	10,270	 	
Enrollment services revenue	 	 	—	 	 	 	—	 	 	 	26,068	 	 	 	—	 	 	 	26,068	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	26,068	 	
Software services revenue	 	 	1,083	 	 	 	—	 	 	 	—	 	 	 	4,896	 	 	 	5,979	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	5,979	 	
Other income	 	 	6	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	6	 	 	 	4,851	 	 	 	1,268	 	 	 	—	 	 	 	—	 	 	 	6,125	 	
Gain on sale of loans	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	48	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	48	 	
Intercompany revenue	 	 	18,382	 	 	 	(76	)	 	 	—	 	 	 	1,517	 	 	 	19,823	 	 	 	—	 	 	 	13,960	 	 	 	(33,783	)	 	 	—	 	 	 	—	 	
Derivative market value, foreign currency, and put option adjustments	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	15,755	 	 	 	15,755	 	
Derivative settlements, net	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	11,638	 	 	 	—	 	 	 	—	 	 	 	(7,201	)	 	 	4,437	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other income (expense)	 	 	43,135	 	 	 	10,194	 	 	 	26,068	 	 	 	6,413	 	 	 	85,810	 	 	 	16,694	 	 	 	15,228	 	 	 	(33,783	)	 	 	8,554	 	 	 	92,503	 	

Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and benefits	 	 	12,491	 	 	 	5,784	 	 	 	6,373	 	 	 	4,702	 	 	 	29,350	 	 	 	1,954	 	 	 	12,828	 	 	 	(1,333	)	 	 	750	 	 	 	43,549	 	
Restructure expense- severance and contract terminination costs	 	 	(104	)	 	 	—	 	 	 	(15	)	 	 	(8	)	 	 	(127	)	 	 	(52	)	 	 	(186	)	 	 	365	 	 	 	—	 	 	 	—	 	
Cost to provide enrollment services	 	 	—	 	 	 	—	 	 	 	14,755	 	 	 	—	 	 	 	14,755	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	14,755	 	
Other expenses	 	 	8,011	 	 	 	2,551	 	 	 	2,529	 	 	 	714	 	 	 	13,805	 	 	 	5,095	 	 	 	14,921	 	 	 	(764	)	 	 	6,561	 	 	 	39,618	 	
Intersegment expenses	 	 	9,822	 	 	 	461	 	 	 	1,580	 	 	 	342	 	 	 	12,205	 	 	 	18,952	 	 	 	894	 	 	 	(32,051	)	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating expenses	 	 	30,220	 	 	 	8,796	 	 	 	25,222	 	 	 	5,750	 	 	 	69,988	 	 	 	25,949	 	 	 	28,457	 	 	 	(33,783	)	 	 	7,311	 	 	 	97,922	 	

Income (loss) before income taxes	 	 	13,158	 	 	 	1,708	 	 	 	846	 	 	 	663	 	 	 	16,375	 	 	 	44,636	 	 	 	(22,262	)	 	 	—	 	 	 	23,170	 	 	 	61,919	 	
Income tax (expense) benefit (a)	 	 	4,079	 	 	 	530	 	 	 	262	 	 	 	206	 	 	 	5,077	 	 	 	13,837	 	 	 	(6,902	)	 	 	—	 	 	 	7,183	 	 	 	19,195	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss) from continuing operations	 	 	9,079	 	 	 	1,178	 	 	 	584	 	 	 	457	 	 	 	11,298	 	 	 	30,799	 	 	 	(15,360	)	 	 	—	 	 	 	15,987	 	 	 	42,724	 	
Income from discontinued operations, net of tax	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	981	 	 	 	981	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss)	 	$	9,079	 	 	 	1,178	 	 	 	584	 	 	 	457	 	 	 	11,298	 	 	 	30,799	 	 	 	(15,360	)	 	 	—	 	 	 	16,968	 	 	 	43,705	 	

(a)	 	Income taxes are applied based on the consolidated effective tax rate to income (loss) before income taxes.	
 
 20 

Table of Contents

 	 	Six months ended June 30, 2009	 	
 	 	Fee-Based	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Student	 	 	Tuition	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	“Base net	 	 	 	 	
 	 	Loan	 	 	Payment	 	 	 	 	 	 	Software	 	 	 	 	 	 	Asset	 	 	Corporate	 	 	 	 	 	 	income”	 	 	 	 	
 	 	and	 	 	Processing	 	 	 	 	 	 	and	 	 	Total	 	 	Generation	 	 	Activity	 	 	Eliminations	 	 	Adjustments	 	 	GAAP	 	
 	 	Guaranty	 	 	and Campus	 	 	Enrollment	 	 	Technical	 	 	Fee-	 	 	and	 	 	and	 	 	and	 	 	to GAAP	 	 	Results of	 	
 	 	Servicing	 	 	Commerce	 	 	Services	 	 	Services	 	 	Based	 	 	Management	 	 	Overhead	 	 	Reclassifications	 	 	Results	 	 	Operations	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total interest income	 	$	79	 	 	 	41	 	 	 	—	 	 	 	—	 	 	 	120	 	 	 	328,820	 	 	 	2,739	 	 	 	(982	)	 	 	7,502	 	 	 	338,199	 	
Interest expense	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	236,932	 	 	 	16,634	 	 	 	(982	)	 	 	—	 	 	 	252,584	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income (loss)	 	 	79	 	 	 	41	 	 	 	—	 	 	 	—	 	 	 	120	 	 	 	91,888	 	 	 	(13,895	)	 	 	—	 	 	 	7,502	 	 	 	85,615	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Less provision for loan losses	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	15,500	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	15,500	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income (loss) after provision for loan losses	 	 	79	 	 	 	41	 	 	 	—	 	 	 	—	 	 	 	120	 	 	 	76,388	 	 	 	(13,895	)	 	 	—	 	 	 	7,502	 	 	 	70,115	 	

Other income (expense):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan and guaranty servicing revenue	 	 	56,037	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	56,037	 	 	 	—	 	 	 	(763	)	 	 	—	 	 	 	—	 	 	 	55,274	 	
Tuition payment processing and campus commerce revenue	 	 	—	 	 	 	27,386	 	 	 	—	 	 	 	—	 	 	 	27,386	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	27,386	 	
Enrollment services revenue	 	 	—	 	 	 	—	 	 	 	57,518	 	 	 	—	 	 	 	57,518	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	57,518	 	
Software services revenue	 	 	1,800	 	 	 	—	 	 	 	—	 	 	 	10,024	 	 	 	11,824	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	11,824	 	
Other income	 	 	361	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	361	 	 	 	8,892	 	 	 	19,136	 	 	 	—	 	 	 	—	 	 	 	28,389	 	
Loss on sale of loans	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(402	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(402	)	
Intersegment revenue	 	 	40,766	 	 	 	110	 	 	 	277	 	 	 	7,020	 	 	 	48,173	 	 	 	—	 	 	 	17,384	 	 	 	(65,557	)	 	 	—	 	 	 	—	 	
Derivative market value, foreign currency, and put option adjustments	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(38,893	)	 	 	(38,893	)	
Derivative settlements, net	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	33,893	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	33,893	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other income (expense)	 	 	98,964	 	 	 	27,496	 	 	 	57,795	 	 	 	17,044	 	 	 	201,299	 	 	 	42,383	 	 	 	35,757	 	 	 	(65,557	)	 	 	(38,893	)	 	 	174,989	 	

Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and benefits	 	 	28,059	 	 	 	12,947	 	 	 	11,958	 	 	 	10,900	 	 	 	63,864	 	 	 	3,510	 	 	 	12,501	 	 	 	(1,628	)	 	 	159	 	 	 	78,406	 	
Restructure expense- severance and contract termination costs	 	 	2,513	 	 	 	—	 	 	 	—	 	 	 	422	 	 	 	2,935	 	 	 	—	 	 	 	353	 	 	 	(3,288	)	 	 	—	 	 	 	—	 	
Cost to provide enrollment services	 	 	—	 	 	 	—	 	 	 	35,885	 	 	 	—	 	 	 	35,885	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	35,885	 	
Other expenses	 	 	19,737	 	 	 	4,747	 	 	 	6,336	 	 	 	1,516	 	 	 	32,336	 	 	 	10,834	 	 	 	18,720	 	 	 	1,807	 	 	 	11,939	 	 	 	75,636	 	
Intersegment expenses	 	 	18,954	 	 	 	1,292	 	 	 	1,054	 	 	 	1,409	 	 	 	22,709	 	 	 	38,608	 	 	 	1,131	 	 	 	(62,448	)	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating expenses	 	 	69,263	 	 	 	18,986	 	 	 	55,233	 	 	 	14,247	 	 	 	157,729	 	 	 	52,952	 	 	 	32,705	 	 	 	(65,557	)	 	 	12,098	 	 	 	189,927	 	

Income (loss) before income taxes	 	 	29,780	 	 	 	8,551	 	 	 	2,562	 	 	 	2,797	 	 	 	43,690	 	 	 	65,819	 	 	 	(10,843	)	 	 	—	 	 	 	(43,489	)	 	 	55,177	 	
Income tax (expense) benefit (a)	 	 	(11,317	)	 	 	(3,249	)	 	 	(973	)	 	 	(1,064	)	 	 	(16,603	)	 	 	(25,012	)	 	 	3,135	 	 	 	—	 	 	 	16,961	 	 	 	(21,519	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss)	 	$	18,463	 	 	 	5,302	 	 	 	1,589	 	 	 	1,733	 	 	 	27,087	 	 	 	40,807	 	 	 	(7,708	)	 	 	—	 	 	 	(26,528	)	 	 	33,658	 	

(a)	 	Income taxes are applied based on 38% of income (loss) before income taxes for the individual operating segments.	
 
 21 

Table of Contents

 	 	Six months ended June 30, 2008	 	
 	 	Fee-Based	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Student	 	 	Tuition	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	“Base net	 	 	 	 	
 	 	Loan	 	 	Payment	 	 	 	 	 	 	Software	 	 	 	 	 	 	Asset	 	 	Corporate	 	 	 	 	 	 	income”	 	 	 	 	
 	 	and	 	 	Processing	 	 	 	 	 	 	and	 	 	Total	 	 	Generation	 	 	Activity	 	 	Eliminations	 	 	Adjustments	 	 	GAAP	 	
 	 	Guaranty	 	 	and Campus	 	 	Enrollment	 	 	Technical	 	 	Fee-	 	 	and	 	 	and	 	 	and	 	 	to GAAP	 	 	Results of	 	
 	 	Servicing	 	 	Commerce	 	 	Services	 	 	Services	 	 	Based	 	 	Management	 	 	Overhead	 	 	Reclassifications	 	 	Results	 	 	Operations	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total interest income	 	$	856	 	 	 	1,075	 	 	 	10	 	 	 	—	 	 	 	1,941	 	 	 	602,651	 	 	 	2,771	 	 	 	(640	)	 	 	40,745	 	 	 	647,468	 	
Interest expense	 	 	—	 	 	 	—	 	 	 	2	 	 	 	—	 	 	 	2	 	 	 	538,417	 	 	 	19,826	 	 	 	(640	)	 	 	—	 	 	 	557,605	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income (loss)	 	 	856	 	 	 	1,075	 	 	 	8	 	 	 	—	 	 	 	1,939	 	 	 	64,234	 	 	 	(17,055	)	 	 	—	 	 	 	40,745	 	 	 	89,863	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Less provision for loan losses	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	11,000	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	11,000	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income (loss) after provision for loan losses	 	 	856	 	 	 	1,075	 	 	 	8	 	 	 	—	 	 	 	1,939	 	 	 	53,234	 	 	 	(17,055	)	 	 	—	 	 	 	40,745	 	 	 	78,863	 	

Other income (expense):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan and guaranty servicing revenue	 	 	48,320	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	48,320	 	 	 	162	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	48,482	 	
Tutition payment processing and campus commerce revenue	 	 	—	 	 	 	24,117	 	 	 	—	 	 	 	—	 	 	 	24,117	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	24,117	 	
Enrollment services revenue	 	 	—	 	 	 	—	 	 	 	53,290	 	 	 	—	 	 	 	53,290	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	53,290	 	
Software services revenue	 	 	2,535	 	 	 	—	 	 	 	37	 	 	 	11,611	 	 	 	14,183	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	14,183	 	
Other income	 	 	38	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	38	 	 	 	9,708	 	 	 	2,633	 	 	 	—	 	 	 	—	 	 	 	12,379	 	
Loss on sale of loans	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(47,426	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(47,426	)	
Intersegment revenue	 	 	38,606	 	 	 	184	 	 	 	—	 	 	 	3,333	 	 	 	42,123	 	 	 	—	 	 	 	31,172	 	 	 	(73,295	)	 	 	—	 	 	 	—	 	
Derivative market value, foreign currency, and put option adjustments	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	466	 	 	 	—	 	 	 	—	 	 	 	(42,072	)	 	 	(41,606	)	
Derivative settlements, net	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	55,165	 	 	 	—	 	 	 	—	 	 	 	(9,965	)	 	 	45,200	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other income (expense)	 	 	89,499	 	 	 	24,301	 	 	 	53,327	 	 	 	14,944	 	 	 	182,071	 	 	 	18,075	 	 	 	33,805	 	 	 	(73,295	)	 	 	(52,037	)	 	 	108,619	 	

Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and benefits	 	 	26,489	 	 	 	11,214	 	 	 	12,896	 	 	 	9,870	 	 	 	60,469	 	 	 	4,178	 	 	 	27,419	 	 	 	3,280	 	 	 	2,046	 	 	 	97,392	 	
Restructure expense- severence and contract terminination costs	 	 	747	 	 	 	—	 	 	 	282	 	 	 	510	 	 	 	1,539	 	 	 	1,844	 	 	 	3,729	 	 	 	(7,112	)	 	 	—	 	 	 	—	 	
Impairment expense	 	 	5,074	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	5,074	 	 	 	9,351	 	 	 	4,409	 	 	 	—	 	 	 	—	 	 	 	18,834	 	
Cost to provide enrollment services	 	 	—	 	 	 	—	 	 	 	30,158	 	 	 	—	 	 	 	30,158	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	30,158	 	
Other expenses	 	 	16,498	 	 	 	4,611	 	 	 	5,289	 	 	 	1,333	 	 	 	27,731	 	 	 	10,439	 	 	 	28,786	 	 	 	298	 	 	 	13,121	 	 	 	80,375	 	
Intersegment expenses	 	 	23,100	 	 	 	757	 	 	 	3,427	 	 	 	736	 	 	 	28,020	 	 	 	39,554	 	 	 	2,187	 	 	 	(69,761	)	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating expenses	 	 	71,908	 	 	 	16,582	 	 	 	52,052	 	 	 	12,449	 	 	 	152,991	 	 	 	65,366	 	 	 	66,530	 	 	 	(73,295	)	 	 	15,167	 	 	 	226,759	 	

Income (loss) before income taxes	 	 	18,447	 	 	 	8,794	 	 	 	1,283	 	 	 	2,495	 	 	 	31,019	 	 	 	5,943	 	 	 	(49,780	)	 	 	—	 	 	 	(26,459	)	 	 	(39,277	)	
Income tax (expense) benefit (a)	 	 	5,719	 	 	 	2,727	 	 	 	397	 	 	 	774	 	 	 	9,617	 	 	 	1,842	 	 	 	(15,433	)	 	 	—	 	 	 	(8,202	)	 	 	(12,176	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss) from continuing operations	 	 	12,728	 	 	 	6,067	 	 	 	886	 	 	 	1,721	 	 	 	21,402	 	 	 	4,101	 	 	 	(34,347	)	 	 	—	 	 	 	(18,257	)	 	 	(27,101	)	
Income from discontinued operations, net of tax	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	981	 	 	 	981	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss)	 	$	12,728	 	 	 	6,067	 	 	 	886	 	 	 	1,721	 	 	 	21,402	 	 	 	4,101	 	 	 	(34,347	)	 	 	—	 	 	 	(17,276	)	 	 	(26,120	)	

(a)	 	Income taxes are applied based on the consolidated effective tax rate to income (loss) before income taxes.	
Corporate Activity and Overhead in the previous tables primarily includes the following items:

 	•	 	Income earned on certain investment activities	
 		
 	•	 	Interest expense incurred on unsecured debt transactions	
 		
 	•	 	Other products and service offerings that are not considered operating segments	
 		
 	•	 	Certain corporate activities and unallocated overhead functions related to executive management, human resources, accounting and finance, legal, marketing, and corporate technology support	
 
 22 

Table of Contents
The adjustments required to reconcile from the Company’s “base net income” measure to its GAAP results of operations relate to differing treatments for derivatives, foreign currency transaction adjustments, and certain other items that management does not consider in evaluating the Company’s operating results. The following tables reflect adjustments associated with these areas by operating segment and Corporate Activity and Overhead:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Student	 	 	Tuition	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Loan	 	 	Payment	 	 	 	 	 	 	Software	 	 	Asset	 	 	Corporate	 	 	 	 	
 	 	and	 	 	Processing	 	 	 	 	 	 	and	 	 	Generation	 	 	Activity	 	 	 	 	
 	 	Guaranty	 	 	and Campus	 	 	Enrollment	 	 	Technical	 	 	and	 	 	and	 	 	 	 	
 	 	Servicing	 	 	Commerce	 	 	Services	 	 	Services	 	 	Management	 	 	Overhead	 	 	Total	 	
 	 	Three months ended June 30, 2009	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Derivative market value, foreign currency, and put option adjustments (1)	 	$	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	35,445	 	 	 	(1,432	)	 	 	34,013	 	
Amortization of intangible assets (2)	 	 	1,079	 	 	 	1,869	 	 	 	2,701	 	 	 	136	 	 	 	—	 	 	 	—	 	 	 	5,785	 	
Compensation related to business combinations (3)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Variable-rate floor income, net of settlements on derivatives (4)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(6,042	)	 	 	—	 	 	 	(6,042	)	
Income from discontinued operations, net of tax (5)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Net tax effect (6)	 	 	(410	)	 	 	(710	)	 	 	(1,027	)	 	 	(52	)	 	 	(11,173	)	 	 	(775	)	 	 	(14,147	)	

Total adjustments to GAAP	 	$	669	 	 	 	1,159	 	 	 	1,674	 	 	 	84	 	 	 	18,230	 	 	 	(2,207	)	 	 	19,609	 	

 	 	Three months ended June 30, 2008	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Derivative market value, foreign currency, and put option adjustments (1)	 	$	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(15,866	)	 	 	111	 	 	 	(15,755	)	
Amortization of intangible assets (2)	 	 	1,165	 	 	 	1,997	 	 	 	3,113	 	 	 	286	 	 	 	—	 	 	 	—	 	 	 	6,561	 	
Compensation related to business combinations (3)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	750	 	 	 	750	 	
Variable-rate floor income, net of settlements on derivatives (4)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(14,726	)	 	 	—	 	 	 	(14,726	)	
Income from discontinued operations, net of tax (5)	 	 	(981	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(981	)	
Net tax effect (6)	 	 	(361	)	 	 	(619	)	 	 	(965	)	 	 	(89	)	 	 	9,484	 	 	 	(267	)	 	 	7,183	 	

Total adjustments to GAAP	 	$	(177	)	 	 	1,378	 	 	 	2,148	 	 	 	197	 	 	 	(21,108	)	 	 	594	 	 	 	(16,968	)	

 	 	Six months ended June 30, 2009	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Derivative market value, foreign currency, and put option adjustments (1)	 	$	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	40,325	 	 	 	(1,432	)	 	 	38,893	 	
Amortization of intangible assets (2)	 	 	2,158	 	 	 	3,756	 	 	 	5,743	 	 	 	282	 	 	 	—	 	 	 	—	 	 	 	11,939	 	
Compensation related to business combinations (3)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	159	 	 	 	159	 	
Variable-rate floor income, net of settlements on derivatives (4)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(7,502	)	 	 	—	 	 	 	(7,502	)	
Income from discontinued operations, net of tax (5)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Net tax effect (6)	 	 	(842	)	 	 	(1,465	)	 	 	(2,240	)	 	 	(110	)	 	 	(12,800	)	 	 	496	 	 	 	(16,961	)	

Total adjustments to GAAP	 	$	1,316	 	 	 	2,291	 	 	 	3,503	 	 	 	172	 	 	 	20,023	 	 	 	(777	)	 	 	26,528	 	

 	 	Six months ended June 30, 2008	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Derivative market value, foreign currency, and put option adjustments (1)	 	$	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	41,534	 	 	 	538	 	 	 	42,072	 	
Amortization of intangible assets (2)	 	 	2,421	 	 	 	4,048	 	 	 	5,935	 	 	 	572	 	 	 	145	 	 	 	—	 	 	 	13,121	 	
Compensation related to business combinations (3)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	2,046	 	 	 	2,046	 	
Variable-rate floor income, net of settlements on derivatives (4)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(30,780	)	 	 	—	 	 	 	(30,780	)	
Income from discontinued operations, net of tax (5)	 	 	(981	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(981	)	
Net tax effect (6)	 	 	(750	)	 	 	(1,255	)	 	 	(1,840	)	 	 	(178	)	 	 	(3,378	)	 	 	(801	)	 	 	(8,202	)	

Total adjustments to GAAP	 	$	690	 	 	 	2,793	 	 	 	4,095	 	 	 	394	 	 	 	7,521	 	 	 	1,783	 	 	 	17,276	 	

(1)	 	Derivative market value, foreign currency, and put option adjustments: “Base net income” excludes the periodic unrealized gains and losses that are caused by the change in fair value on derivatives used in the Company’s risk management strategy in which the Company does not qualify for “hedge treatment” under GAAP. Included in “base net income” are the economic effects of the Company’s derivative instruments, which includes any cash paid or received being recognized as an expense or revenue upon actual derivative settlements. “Base net income” also excludes the foreign currency transaction gains or losses caused by the re-measurement of the Company’s Euro-denominated bonds to U.S. dollars and the change in fair value of put options issued by the Company for certain business acquisitions.	
 		
(2)	 	Amortization of intangible assets: “Base net income” excludes the amortization of acquired intangibles.	
 
 23 

Table of Contents

(3)	 	Compensation related to business combinations: The Company has structured certain business combinations in which the consideration paid has been dependent on the sellers’ continued employment with the Company. As such, the value of the consideration paid is recognized as compensation expense by the Company over the term of the applicable employment agreement. “Base net income” excludes this expense.	
 		
(4)	 	Variable-rate floor income: Loans that reset annually on July 1 can generate excess spread income compared with the rate based on the special allowance payment formula in declining interest rate environments. The Company refers to this additional income as variable-rate floor income. The Company excludes variable-rate floor income, net of settlements paid on derivatives used to hedge student loan assets earning variable-rate floor income, from its “base net income” since the timing and amount of variable-rate floor income (if any) is uncertain, it has been eliminated by legislation for all loans originated on and after April 1, 2006, and it is in excess of expected spreads. In addition, because variable-rate floor income is subject to the underlying rate for the subject loans being reset annually on July 1, it is a factor beyond the Company’s control which can affect the period-to-period comparability of results of operations.	
 		
 	 	Prior to October 1, 2008, variable rate floor income was calculated by the Company on a statutory maximum basis. However, as a result of the disruption in the capital markets beginning in August 2007, the full benefit of variable rate floor income calculated on a statutory maximum basis has not been realized by the Company due to the widening of the spread between short term interest rate indices and the Company’s actual cost of funds. As a result of the ongoing volatility of interest rates, effective October 1, 2008, the Company changed its calculation of variable rate floor income to better reflect the economic benefit received by the Company. The economic benefit received by the Company related to variable rate floor income was $6.0 million and $19.3 million for the three months ended June 30, 2009 and 2008, respectively, and $7.5 million and $25.6 million for the six months ended June 30, 2009 and 2008, respectively. Variable rate floor income calculated on a statutory maximum basis was $13.0 million and $21.9 million for the three months ended June 30, 2009 and 2008, respectively, and $23.8 million and $40.7 million for the six months ended June 30, 2009 and 2008, respectively. Beginning October 1, 2008, the economic benefit received by the Company has been used to determine base net income.	
 		
 	 	The Company has used derivative instruments to hedge variable rate floor income during certain periods. During the three and six months ended June 30, 2008, the Company made payments (settlements) of $7.2 million and $10.0 million, respectively, on such derivatives. These settlements are netted with variable-rate floor income and are excluded from “base net income”.	
 		
(5)	 	Discontinued operations: In May 2007, the Company sold EDULINX. As a result of this transaction, the results of operations for EDULINX are reported as discontinued operations for all periods presented. The Company presents “base net income” excluding discontinued operations since the operations and cash flows of EDULINX have been eliminated from the ongoing operations of the Company.	
 		
(6)	 	For 2009, income taxes are applied based on 38% of income (loss) before income taxes for the individual operating segments. For 2008, income taxes for each individual operating segment are applied based on the consolidated effective tax rate.	
7. Intangible Assets and Goodwill
Intangible assets consist of the following:
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Weighted	 	 	 	 	 	 	 	
 	 	average	 	 	 	 	 	 	 	
 	 	remaining	 	 	 	 	 	 	 	
 	 	useful life as of	 	 	As of	 	 	As of	 	
 	 	June 30,	 	 	June 30,	 	 	December 31,	 	
 	 	2009	 	 	2009	 	 	2008	 	
Amortizable intangible assets:	 	 	 	 	 	 	 	 	 	 	 	 	
Customer relationships (net of accumulated amortization of $34,306 and $29,737, respectively)	 	 	101	 	 	$	46,054	 	 	 	50,623	 	
Trade names (net of accumulated amortization of $7,369 and $5,478, respectively)	 	 	38	 	 	 	9,690	 	 	 	11,581	 	
Covenants not to compete (net of accumulated amortization of $17,683 and $14,887, respectively)	 	 	14	 	 	 	5,939	 	 	 	8,735	 	
Database and content (net of accumulated amortization of $6,574 and $5,447, respectively)	 	 	17	 	 	 	2,906	 	 	 	4,033	 	
Computer software (net of accumulated amortization of $8,642 and $7,441, respectively)	 	 	8	 	 	 	360	 	 	 	1,561	 	
Student lists (net of accumulated amortization of $8,197 and $7,855, respectively)	 	 	—	 	 	 	—	 	 	 	342	 	
Other (net of accumulated amortization of $108 and $95, respectively)	 	 	80	 	 	 	166	 	 	 	179	 	

Total — amortizable intangible assets	 	79 months	 	 	$	65,115	 	 	 	77,054	 	

 24 

Table of Contents
The Company recorded amortization expense on its intangible assets of $5.8 million and $6.6 million for the three months ended June 30, 2009 and 2008, respectively, and $11.9 million and $13.1 million for the six months ended June 30, 2009 and 2008, respectively. The Company will continue to amortize intangible assets over their remaining useful lives. As of June 30, 2009, the Company estimates it will record amortization expense as follows:
 	 	 	 	 	
2009	 	$	10,379	 	
2010	 	 	15,985	 	
2011	 	 	10,031	 	
2012	 	 	9,029	 	
2013	 	 	6,168	 	
2014 and thereafter	 	 	13,523	 	
 	 	 	 	
 	 	$	65,115	 	
 	 	 	 	
The following table summarizes the Company’s allocation of goodwill by operating segment as of June 30, 2009 and December 31, 2008:
 	 	 	 	 	
Tuition Payment Processing and Campus Commerce	 	$	58,086	 	
Enrollment Services	 	 	66,613	 	
Software and Technical Services	 	 	8,596	 	
Asset Generation and Management	 	 	41,883	 	
 	 	 	 	
 	 	$	175,178	 	
 	 	 	 	
8. Fair Value of Financial Instruments
On January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a consistent framework for measuring fair value, and expands disclosure requirements about fair value measurements. SFAS No. 157 applies when other accounting pronouncements require or permit fair value measurements; it does not require new fair value measurements. In February 2008, the Financial Accounting Standards Board (“FASB”) released FASB Staff Position SFAS No. 157-2, Effective Date of FASB Statement No. 157 (“SFAS No. 157-2”), which delayed the application of SFAS No. 157 to nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. Effective January 1, 2009, the Company adopted SFAS No. 157-2 on certain nonfinancial assets and nonfinancial liabilities, which are recorded at fair value only upon impairment.
Fair value under SFAS No. 157 is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. 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. Transaction costs are not included in the determination of fair value. When possible, the Company seeks to validate the model’s output to market transactions. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values.
Under SFAS No. 157, the Company categorizes its fair value estimates based on a hierarchal framework associated with three levels of price transparency utilized in measuring financial instruments at fair value. Classification is based on the lowest level of input that is significant to the fair value of the instrument. The three levels include:

•	 	Level 1: Quoted prices for identical instruments in active markets. The types of financial instruments included in Level 1 are highly liquid instruments with quoted prices.	
 		
•	 	Level 2: Quoted prices for similar instruments in active markets, 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 . Inputs are developed based on the best information available; however, significant judgment is required by management in developing the inputs.	
 
 25 

Table of Contents
The following table presents the Company’s financial assets and liabilities that are measured at fair value on a recurring basis. All financial assets and liabilities that are measured at fair value are categorized as Level 1 or 2 based on the above hierarchy.
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	As of June 30, 2009	 	
 	 	Level 1	 	 	Level 2	 	 	Total	 	
Assets:	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents (a)	 	$	366,827	 	 	 	—	 	 	 	366,827	 	
Restricted cash (a)	 	 	481,641	 	 	 	—	 	 	 	481,641	 	
Restricted cash — due to customers (a)	 	 	41,127	 	 	 	—	 	 	 	41,127	 	
Other assets (b)	 	 	4,577	 	 	 	4,553	 	 	 	9,130	 	
Fair value of derivative instruments (c)	 	 	—	 	 	 	168,720	 	 	 	168,720	 	

Total assets	 	$	894,172	 	 	 	173,273	 	 	 	1,067,445	 	

Liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	
Fair value of derivative instruments (c)	 	$	—	 	 	 	7,354	 	 	 	7,354	 	

Total liabilities	 	$	—	 	 	 	7,354	 	 	 	7,354	 	

 	 	As of December 31, 2008	 	
 	 	Level 1	 	 	Level 2	 	 	Total	 	
Assets:	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents (a)	 	$	189,847	 	 	 	—	 	 	 	189,847	 	
Restricted cash (a)	 	 	387,404	 	 	 	—	 	 	 	387,404	 	
Restricted cash — due to customers (a)	 	 	160,985	 	 	 	—	 	 	 	160,985	 	
Other assets (b)	 	 	4,941	 	 	 	3,876	 	 	 	8,817	 	
Fair value of derivative instruments (c)	 	 	—	 	 	 	175,174	 	 	 	175,174	 	

Total assets	 	$	743,177	 	 	 	179,050	 	 	 	922,227	 	

Liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	
Fair value of derivative instruments (c)	 	$	—	 	 	 	1,815	 	 	 	1,815	 	

Total liabilities	 	$	—	 	 	 	1,815	 	 	 	1,815	 	

(a)	 	The carrying amount for cash and cash equivalents, restricted cash, and restricted cash – due to customers approximates fair value due to the variable rate of interest and/or the short maturities of these instruments.	
 		
(b)	 	Other assets includes investments recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices. Level 1 investments include investments traded on an active exchange, such as the New York Stock Exchange, and U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets. Level 2 investments include corporate debt securities.	
 		
(c)	 	All derivatives are accounted for at fair value on a recurring basis. The fair values of derivative financial instruments are determined by derivative pricing models using the stated terms of the contracts and observable yield curves, forward foreign currency exchange rates, and volatilities from active markets. It is the Company’s policy to compare its derivative fair values to those received by its counterparties in order to validate the model’s outputs. Fair value of derivative instruments is comprised of market value less accrued interest and excludes collateral.	
The following table summarizes the fair values of all of the Company’s financial instruments on the consolidated balance sheet:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	As of	 	 	As of	 	
 	 	June 30, 2009	 	 	December 31, 2008	 	
 	 	Fair value	 	 	Carrying value	 	 	Fair value	 	 	Carrying value	 	
Financial assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Student loans receivable	 	$	24,278,217	 	 	 	23,889,571	 	 	 	25,743,732	 	 	 	25,413,008	 	
Student loans receivable — held for sale	 	 	1,781,972	 	 	 	1,749,290	 	 	 	—	 	 	 	—	 	
Cash and cash equivalents	 	 	366,827	 	 	 	366,827	 	 	 	189,847	 	 	 	189,847	 	
Restricted cash	 	 	481,641	 	 	 	481,641	 	 	 	387,404	 	 	 	387,404	 	
Restricted cash – due to customers	 	 	41,127	 	 	 	41,127	 	 	 	160,985	 	 	 	160,985	 	
Restricted investments	 	 	600,839	 	 	 	600,839	 	 	 	609,868	 	 	 	609,868	 	
Accrued interest receivable	 	 	385,158	 	 	 	385,158	 	 	 	471,878	 	 	 	471,878	 	
Other assets	 	 	9,130	 	 	 	9,130	 	 	 	8,817	 	 	 	8,817	 	
Derivative instruments	 	 	168,720	 	 	 	168,720	 	 	 	175,174	 	 	 	175,174	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Financial liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Bonds and notes payable	 	 	27,052,894	 	 	 	27,169,573	 	 	 	26,512,082	 	 	 	26,787,959	 	
Accrued interest payable	 	 	34,911	 	 	 	34,911	 	 	 	81,576	 	 	 	81,576	 	
Due to customers	 	 	41,127	 	 	 	41,127	 	 	 	160,985	 	 	 	160,985	 	
Derivative instruments	 	 	7,354	 	 	 	7,354	 	 	 	1,815	 	 	 	1,815	 	
 
 26 

Table of Contents
The methodologies for estimating the fair value of financial assets and liabilities that are measured at fair value on a recurring basis are discussed above. The remaining financial assets and liabilities were estimated using the following methods and assumptions:
Student Loans Receivable and Student Loans Receivable – Held for Sale
The fair value of student loans receivable is estimated at amounts recently paid and/or received or amounts anticipated to be received by the Company to acquire and/or sell similar loans in the market and/or the characteristics of the portfolio.
Restricted Investments, Accrued Interest Receivable/Payable, and Due to Customers
The carrying amount approximates fair value due to the variable rate of interest and/or the short maturities of these instruments.
Bonds and Notes Payable
The fair value of the bonds and notes payable is based on market prices for securities that possess similar credit risk and interest rate risk.
Limitations
The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
9. Shareholders’ Equity
Issuance of Class A Common Stock
In March 2009, the Company’s 2008 annual performance-based incentives awarded to management were paid in approximately 455,000 fully vested and unrestricted shares of Class A common stock issued pursuant to the Company’s Restricted Stock Plan. It is the Company’s current intention to pay future annual performance-based incentives to management, if any, in common stock issued pursuant to the Restricted Stock Plan.
10. Earnings per Common Share
Presented below is a summary of the components used to calculate basic and diluted earnings per share. The Company adopted FASB Staff Position No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities , on January 1, 2009, which requires application of the two-class method of computing earnings per share. Under this pronouncement, unvested share-based awards that contain nonforfeitable rights to dividends are considered securities which participate in undistributed earnings with common stock. The two-class method requires the calculation of separate earnings per share amounts for the unvested share-based awards and for common stock. Earnings per share attributable to common stock is shown in the table below. Prior period earnings per share data has been retroactively adjusted to conform to the pronouncement.
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three	 	 	Six	 	
 	 	months ended	 	 	months ended	 	
 	 	June 30,	 	 	June 30,	 	
 	 	2009	 	 	2008	 	 	2009	 	 	2008	 	
Net income (loss) attributable to Nelnet, Inc.	 	$	8,203	 	 	 	43,705	 	 	 	33,658	 	 	 	(26,120	)	
Less earnings (loss) allocated to unvested restricted stockholders	 	 	52	 	 	 	307	 	 	 	219	 	 	 	(196	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss) available to common stockholders	 	$	8,151	 	 	 	43,398	 	 	 	33,439	 	 	 	(25,924	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average common shares outstanding — basic	 	 	49,534,413	 	 	 	49,095,153	 	 	 	49,339,451	 	 	 	49,073,580	 	
Dilutive effect of the assumed vesting of restricted stock awards	 	 	199,148	 	 	 	219,788	 	 	 	204,010	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average common shares outstanding — diluted	 	 	49,733,561	 	 	 	49,314,941	 	 	 	49,543,461	 	 	 	49,073,580	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic earnings (loss) per common share	 	$	0.16	 	 	 	0.88	 	 	 	0.68	 	 	 	(0.53	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted earnings (loss) per common share	 	$	0.16	 	 	 	0.88	 	 	 	0.68	 	 	 	(0.53	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
No dilutive effect of nonvested restricted stock is presented for the six months ended June 30, 2008 as the Company reported a net loss and including these shares would have been antidilutive for the period. The dilutive effect of these shares if the Company had net income for the period was not significant.
 
 27 

Table of Contents
11. Gain from Sale of Equity Method Investment
On September 28, 2007, the Company sold its 50% membership interests in Premiere Credit of North America, LLC (“Premiere”) for initial proceeds of $10.0 million. The Company recognized an initial gain on the sale of Premiere of $3.9 million during the three month period ended September 30, 2007. In January 2009, the Company earned $3.5 million in additional consideration as a result of the sale of Premiere. This payment represented contingent consideration that was owed to the Company if Premiere was awarded a collections contract as defined in the purchase agreement. The $3.5 million of contingent consideration is included in “other income” in the accompanying consolidated statements of operations for the six months ended June 30, 2009.
12. Legal Proceedings and Regulatory Reviews
General
The Company is subject to various claims, lawsuits, and proceedings that arise in the normal course of business. These matters principally consist of claims by student loan borrowers disputing the manner in which their student loans have been processed and disputes with other business entities. In addition, from time to time the Company receives information and document requests from state or federal regulators concerning its business practices. The Company cooperates with these inquiries and responds to the requests. While the Company cannot predict the ultimate outcome of any inquiry or investigation, the Company believes its activities have materially complied with applicable law, including the Higher Education Act, the rules and regulations adopted by the Department of Education thereunder, and the Department’s guidance regarding those rules and regulations. On the basis of present information, anticipated insurance coverage, and advice received from counsel, it is the opinion of the Company’s management that the disposition or ultimate determination of these claims, lawsuits, and proceedings will not have a material adverse effect on the Company’s business, financial position, or results of operations.
Department of Education Review
The Department of Education periodically reviews participants in the FFELP for compliance with program provisions. On June 28, 2007, the Department notified the Company that it would be conducting a review of the Company’s practices in connection with the prohibited inducement provisions of the Higher Education Act and the associated regulations that allow borrowers to have a choice of lenders. The Company understands that the Department selected several schools and lenders for review. The Company responded to the Department’s requests for information and documentation and cooperated with their review. On May 1, 2009, the Company received the Department’s preliminary program review report, which covered the Department’s review of the period from October 1, 2002 to September 30, 2007. The preliminary program review report contained certain initial findings of noncompliance with the Higher Education Act’s prohibited inducement provisions and required that the Company provide an explanation for the basis of the arrangements noted in the preliminary program review report. The Company has responded and provided an explanation of the arrangements noted in the Department’s initial findings, and the Department is expected to issue a final program review determination letter and advise the Company whether it intends to take any additional action. To the extent any findings are contained in a final letter, the additional action may include the assessment of fines or penalties, or the limitation, suspension, and termination of the Company’s participation in FFELP.
The Company believes that it has materially complied with the Higher Education Act’s prohibited inducement provisions and the rules, regulations, and guidance of the Department thereunder; however, it cannot predict the ultimate outcome of the Department’s review.
13. Recent Developments — Legislation
On February 26, 2009, the President introduced several proposals related to the fiscal year 2010 Federal budget, including a proposal for the elimination of the FFEL Program and a recommendation that all new student loan originations be funded through the Direct Loan Program, with loan servicing to be provided by private sector companies through performance-based contracts with the Department. On April 29, 2009, Congress passed a budget resolution including the President’s proposal to eliminate the FFEL Program using the budget reconciliation procedure. In the reconciliation instructions, both the Senate Committee on Health, Education, Labor, and Pensions and the House Committee on Education and Labor shall report out for consideration by the Senate and House, respectively, no later than October 15, 2009, changes to the budget which will reduce the deficit by $1 billion for fiscal years 2009 through 2014. The resolution also includes non-binding language to maintain “a competitive private sector role in the student loan program.” On May 7, 2009, the President released the detailed fiscal year 2010 Federal budget, which the Department of Education has indicated reflects the elimination of the FFEL Program for loans originated on or after July 1, 2010.
On July 21, 2009, the House Committee on Education and Labor approved the Student Aid Reform and Fiscal Responsibility Act (“SAFRA”), which would eliminate the FFEL Program and require that after July 1, 2010 all new federal student loans be made through the Direct Student Loan Program. It is currently expected that the full House will consider the legislation in September 2009. The Senate Committee on Health, Education, Labor, and Pensions has not released a timeline for its consideration of the proposed legislation, but it is expected that they will begin considering student loan legislation no earlier than September. In addition to the House’s proposal, there are several other proposals for changes to the education financing framework that may be considered as the legislation moves forward. These include a possible extension of ECASLA, which expires on July 1, 2010, and the Student Loan Community Proposal, a proposal endorsed by a cross-section of FFELP service providers (including the Company) as an alternative to the 100% federal direct lending proposal reflected in SAFRA.
 
 28 

Table of Contents
Elimination of the FFEL Program would impact the Company’s operations and profitability by, among other things, reducing the Company’s interest revenues as a result of the inability to add new FFELP loans to the Company’s portfolio and reducing guarantee and third-party servicing fees as a result of reduced FFELP loan servicing and origination volume. Additionally, the elimination of the FFEL Program would reduce education loan software sales and related consulting fees received from lenders using the Company’s software products and services. The fair value and/or recoverability of the Company’s goodwill, intangible assets, and other long-lived assets related to these activities could be adversely affected if the FFEL Program is eliminated.

ITEM 2.	 	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	
(Management’s Discussion and Analysis of Financial Condition and Results of Operations is for the three and six months ended June 30, 2009 and 2008. All dollars are in thousands, except per share amounts, unless otherwise noted).
The following discussion and analysis provides information that the Company’s management believes is relevant to an assessment and understanding of the consolidated results of operations and financial condition of the Company. The discussion should be read in conjunction with the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.
Forward-looking and cautionary statements
This report contains forward-looking statements and information that are based on management’s current expectations as of the date of this document. Statements that are not historical facts, including statements about the Company’s expectations and statements that assume or are dependent upon future events, are forward-looking statements. These forward-looking statements are subject to risks, uncertainties, assumptions, and other factors that may cause the actual results to be materially different from those reflected in such forward-looking statements. These factors include, among others, the risks and uncertainties set forth in “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 and changes in the terms of student loans and the educational credit marketplace arising from the implementation of, or changes in, applicable laws and regulations (including changes resulting from new laws, such as any new laws enacted to implement the Administration’s 2010 budget proposals as they relate to FFELP), which may reduce the volume, average term, special allowance payments, and yields on student loans under the FFEL Program of the Department or result in loans being originated or refinanced under non-FFEL programs or may affect the terms upon which banks and others agree to sell FFELP loans to the Company. The Company could also be affected by changes in the demand for educational financing or in financing preferences of lenders, educational institutions, students, and their families; the Company’s ability to maintain its credit facilities or obtain new facilities; the ability of lenders under the Company’s credit facilities to fulfill their lending commitments under these facilities; changes to the terms and conditions of the liquidity programs offered by the Department; changes in the general interest rate environment and in the securitization markets for education loans, which may increase the costs or limit the availability of financings necessary to initiate, purchase, or carry education loans; losses from loan defaults; changes in prepayment rates, guaranty rates, loan floor rates, and credit spreads; the uncertain nature of estimated expenses that may be incurred and cost savings that may result from restructuring plans; incorrect estimates or assumptions by management in connection with the preparation of the consolidated financial statements; and changes in general economic conditions. Additionally, financial projections may not prove to be accurate and may vary materially. The reader should not place undue reliance on forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. The Company is not obligated to publicly release any revisions to forward-looking statements to reflect events after the date of this Quarterly Report on Form 10-Q or unforeseen events. Although the Company may from time to time voluntarily update its prior forward-looking statements, it disclaims any commitment to do so except as required by securities laws.
OVERVIEW
The Company is an education planning and financing company focused on providing quality products and services to students, families, schools, and financial institutions nationwide. The Company is a vertically-integrated organization that offers a broad range of products and services to its customers throughout the education life cycle.
Built through a focus on long term organic growth and further enhanced by strategic acquisitions, the Company earns its revenues from fee-based revenues related to its diversified education finance and service operations and from net interest income on its portfolio of student loans.
 
 29 

Table of Contents

The Company has certain business objectives in place for 2009 and beyond that include:

 	•	 	Grow and diversify fee-based businesses	
 		
 	•	 	Manage operating costs	
 		
 	•	 	Maximize the value of existing portfolio	
 		
 	•	 	Eliminate exposure to liquidity risk and unfunded debt burden	
 		
 	•	 	Reposition asset generation business	
Achieving these business objectives has impacted the financial condition and operating results of the Company during the first and second quarters of 2009 as discussed below.
In addition, recent proposed legislation concerning the student loan industry may impact the future financial condition and operating results of the Company.
Grow and Diversify Fee-Based Businesses
In recent years, the Company has expanded products and services generated from businesses that are not dependent upon the FFEL Program, thereby reducing legislative and political risk. Revenues from these businesses are primarily generated from products and services offered in the Company’s Tuition Payment Processing and Campus Commerce and Enrollment Services operating segments. As shown below, revenue earned from businesses less dependent upon government programs has grown $6.3 million (23.2%) for the three months ended June 30, 2009 compared to the same period in 2008, and $11.6 million (19.9%) for the six months ended June 30, 2009 compared to the same period in 2008.
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended June 30,	 	
 	 	2009	 	 	2008	 	 	$ Change	 	 	% Change	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Tuition Payment Processing and Campus Commerce	 	$	11,848	 	 	 	10,270	 	 	 	1,578	 	 	 	 	 	
Enrollment Services — Lead Generation	 	 	21,709	 	 	 	16,972	 	 	 	4,737	 	 	 	 	 	

 	 	 	33,557	 	 	 	27,242	 	 	$	6,315	 	 	 	23.2	%	

Enrollment Services — Other	 	 	7,038	 	 	 	9,096	 	 	 	 	 	 	 	 	 	
Student Loan and Guaranty Servicing	 	 	30,109	 	 	 	24,747	 	 	 	 	 	 	 	 	 	
Software and Technical Services	 	 	5,194	 	 	 	4,896	 	 	 	 	 	 	 	 	 	

Total revenue from fee-based businesses	 	$	75,898	 	 	 	65,981	 	 	 	 	 	 	 	 	 	

 	 	Six months ended June 30,	 	
 	 	2009	 	 	2008	 	 	$ Change	 	 	% Change	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Tuition Payment Processing and Campus Commerce	 	$	27,386	 	 	 	24,117	 	 	 	3,269	 	 	 	 	 	
Enrollment Services — Lead Generation	 	 	42,779	 	 	 	34,406	 	 	 	8,373	 	 	 	 	 	

 	 	 	70,165	 	 	 	58,523	 	 	$	11,642	 	 	 	19.9	%	

Enrollment Services — Other	 	 	14,739	 	 	 	18,921	 	 	 	 	 	 	 	 	 	
Student Loan and Guaranty Servicing	 	 	57,837	 	 	 	50,855	 	 	 	 	 	 	 	 	 	
Software and Technical Services	 	 	10,024	 	 	 	11,611	 	 	 	 	 	 	 	 	 	

Total revenue from fee-based businesses	 	$	152,765	 	 	 	139,910	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Department of Education Servicing Contract
In June 2009, the Department of Education named the Company as one of four private sector servicers awarded a servicing contract to service student loans. The contract specifically covers the servicing of all federally-owned student loans, including the servicing of FFELP loans purchased by the Department pursuant to ECASLA. The Company expects the contract to begin on or around August 31, 2009 and span five years with one, five-year renewal option. Beginning in August 2010, the contract will also cover the servicing on new loans originated under the Direct Loan Program. Servicing volume will initially be allocated by the Department to servicers awarded a contract, and performance factors such as customer satisfaction levels and default rates will determine volume allocations over time. Servicing loans under this contract will further diversify the Company’s revenue and customer base.
 
 30 

Table of Contents

Manage Operating Costs
Excluding costs to provide enrollment services and restructure and impairment charges, operating expenses decreased $7.6 million (9.0%) and $19.9 million (11.7%) for the three and six months ended June 30, 2009 compared to the same periods in 2008. These decreases were the result of continued focus by the Company on managing costs and gaining efficiencies and continued benefits from prior restructuring activities.
During the second quarter of 2009, the Company adopted a plan to further streamline its operations by continuing to reduce its geographic footprint and consolidate servicing operations and related support services. The Company estimates that the charge to earnings associated with this restructuring plan will be fully recognized by December 31, 2010 and will total approximately $9.2 million, consisting of approximately $5.7 million in severance costs and approximately $3.5 million in contract terminations, of which approximately $5.4 million are expected to be recognized in 2009. During the three month period ended June 30, 2009, the Company recorded charges of $2.8 million related to this plan.
Maximize the Value of Existing Portfolio
CP/LIBOR distortion
The Company’s student loan spread during 2009 was impacted by the distortion in the CP and LIBOR indices and fixed rate floor income as discussed below.
The Company’s variable student loan spread for the three and six months ended June 30, 2009 was 0.60% and 0.54%, respectively, compared to 1.15% and 0.99% for the same periods in 2008. This decrease is primarily related to the volatility between CP and LIBOR.
As of June 30, 2009 the Company had $24.0 billion of FFELP loans indexed to three-month financial commercial paper rate and $20.0 billion in debt indexed to LIBOR. Due to the unintended consequences of government intervention in the commercial paper markets and limited issuances of qualifying financial commercial paper, the relationship between the three-month financial CP and LIBOR rates has been distorted and volatile. To address this issue, the Department announced that for purposes of calculating the FFELP loan index from October 27, 2008 to December 31, 2008, the Federal Reserve’s Commercial Paper Funding Facility rate was used for those days in which no three-month financial commercial paper rate was available. This resulted in a CP/LIBOR spread of 21 basis points in the fourth quarter of 2008. This action partially mitigated the volatility between CP and LIBOR during the fourth quarter of 2008. However, the Department did not implement a similar methodology for the first and second quarters of 2009. The CP/LIBOR spread during the first and second quarters of 2009 was 52 basis points and 45 basis points, respectively, compared to 9 basis points and 5 basis points for the same periods in 2008. The distortion of these indexes negatively impacted the Company’s interest income earned on its student loan portfolio.
Fixed rate floor income
The Company’s core student loan spread (variable student loan spread including fixed rate floor contribution) for the three and six months ended June 30, 2009 was 1.09% and 1.02%, respectively, compared to 1.11% and 1.00% for the same periods in 2008. During the three and six months ended June 30, 2009, loan interest income includes $37.1 million (59 basis points of spread contribution) and $67.3 million (54 basis points), respectively, of fixed rate floor income compared to $9.9 million (15 basis points) and $18.4 million (14 basis points) during the same periods in 2008. The increase in fixed rate floor income is due to lower interest rates in 2009 compared to the same periods in 2008.
Loans originated prior to April 1, 2006 generally earn interest at the higher of a floating rate based on the Special Allowance Payment or the SAP formula set by the Department and the borrower rate, which is fixed over a period of time. The SAP formula is based on an applicable index plus a fixed spread that is dependent upon when the loan was originated, the loan’s repayment status, and funding sources for the loan. The Company generally finances its student loan portfolio with variable rate debt. In low and/or declining interest rate environments, when the fixed borrower rate is higher than the rate produced by the SAP formula, the Company’s student loans earn at a fixed rate while the interest on the variable rate debt typically continues to decline. In these interest rate environments, the Company may earn additional spread income that it refers to as floor income. For loans where the borrower rate is fixed to term, the Company may earn floor income for an extended period of time, which the Company refers to as fixed rate floor income.
 
 31 

Table of Contents

Future Cash Flow from Portfolio
As of June 30, 2009, the Company had $20.1 billion of notes issued under asset-backed securitizations that primarily reprice at a fixed spread to three month LIBOR and are structured to substantially match the maturity of the funded assets. These notes fund FFELP student loans that are predominantly set based on a spread to three month commercial paper. The three month LIBOR and three month commercial paper indexes have historically been highly correlated. Based on cash flow models developed to reflect management’s current estimate of, among other factors, prepayments, defaults, deferment, forbearance, and interest rates, the Company currently expects future undiscounted cash flows from these transactions will be in excess of $1.4 billion. These cash flows consist of net spread and servicing and administrative revenue in excess of estimated cost. However, due to the unintended consequences of government intervention in the commercial paper markets and limited issuances of qualifying financial commercial paper, the relationship between the three-month financial commercial paper and LIBOR rates has been distorted and volatile. Such distortion has had and may continue to have a significant impact on the earnings and cash flows of this portfolio.
Eliminate Exposure to Liquidity Risk and Unfunded Debt Burden
The Company’s FFELP warehouse facility that expires in May 2010 provides for formula based advance rates based on current market conditions, which require equity support to be posted to the facility under certain circumstances. As of December 31, 2008, the Company had $1.6 billion of student loans in the facility, $1.4 billion borrowed under the facility, and $280.6 million posted as equity funding support for this facility. In order to reduce exposure related to these equity support provisions, the Company reduced the amount of loans included in the facility in the first half of 2009 by completing an asset-backed securities transaction of $294.6 million, selling $40.4 million in student loan assets, and accessing the Department’s Conduit Program. These transactions allowed the Company to withdraw cash posted as equity funding support for the facility. As of June 30, 2009, the Company had $403.7 million of student loans in the facility, $420.9 million borrowed under the facility, and $62.8 million posted as equity funding support.
On August 3, 2009, the Company entered into a new $500.0 million FFELP warehouse facility with a final maturity date of August 3, 2012. The Company plans to utilize the new facility to refinance the remaining student loans in the Company’s prior FFELP warehouse facility that expires in May 2010. Refinancing these loans will allow the Company to withdraw all remaining equity funding support from the prior FFELP warehouse facility.
The Company purchased $34.9 million, $35.5 million, and $102.6 million of its 5.125% Senior Notes due 2010 (the “2010 Notes”) for $26.8 million, $31.1 million, and $102.6 million during the first and second quarters of 2009 and July 2009, respectively. These transactions resulted in the Company recognizing gains of $8.1 million and $4.4 million in the first and second quarters of 2009, respectively. The $102.6 million in notes purchased in July 2009 were purchased at par. Subsequent to these transactions, the Company has $102.0 million of 2010 Notes outstanding.
Reposition Asset Generation Business
In August 2008, the Department implemented the Loan Purchase Commitment Program and the Loan Purchase Participation Program pursuant to ECASLA. As of June 30, 2009, the Company had $1.7 billion of FFELP loans funded using the Participation Program, which are classified as held for sale on the Company’s consolidated balance sheet. These loans are expected to be sold to the Department under its Purchase Program during 2009. Upon selling the $1.7 billion in loans held for sale, the Company expects to recognize a gain of approximately $31 million to $34 million. The Company plans to continue to use the Participation and Purchase Programs to fund loans originated through the 2009-2010 academic year. The Company is also further repositioning its student loan asset generation business in view of the legislative developments discussed below.
Legislation
On February 26, 2009, the President introduced several proposals related to the fiscal year 2010 Federal budget, including a proposal for the elimination of the FFEL Program and a recommendation that all new student loan originations be funded through the Direct Loan Program, with loan servicing to be provided by private sector companies through performance-based contracts with the Department. On April 29, 2009, Congress passed a budget resolution including the President’s proposal to eliminate the FFEL Program using the budget reconciliation procedure. In the reconciliation instructions, both the Senate Committee on Health, Education, Labor, and Pensions and the House Committee on Education and Labor shall report out for consideration by the Senate and House, respectively, no later than October 15, 2009, changes to the budget which will reduce the deficit by $1 billion for fiscal years 2009 through 2014. The resolution also includes non-binding language to maintain “a competitive private sector role in the student loan program.” On May 7, 2009, the President released the detailed fiscal year 2010 Federal budget, which the Department of Education has indicated reflects the elimination of the FFEL Program for loans originated on or after July 1, 2010.
 
 32 

Table of Contents

On July 21, 2009, the House Committee on Education and Labor approved the Student Aid Reform and Fiscal Responsibility Act (“SAFRA”), which would eliminate the FFEL Program and require that after July 1, 2010 all new federal student loans be made through the Direct Loan Program. It is currently expected that the full House will consider the legislation in September 2009. The Senate Committee on Health, Education, Labor, and Pensions has not released a timeline for its consideration of the proposed legislation, but it is expected that they will begin considering student loan legislation no earlier than September. In addition to the House’s proposal, there are several other proposals for changes to the education financing framework that may be considered as the legislation moves forward. These include a possible extension of ECASLA, which expires on July 1, 2010, and the Student Loan Community Proposal, a proposal endorsed by a cross-section of FFELP service providers (including the Company) as an alternative to the 100% federal direct lending proposal reflected in SAFRA.
Elimination of the FFEL Program would impact the Company’s operations and profitability by, among other things, reducing the Company’s interest revenues as a result of the inability to add new FFELP loans to the Company’s portfolio and reducing guarantee and third-party servicing fees as a result of reduced FFELP loan servicing and origination volume. Additionally, the elimination of the FFEL Program would reduce education loan software sales and related consulting fees received from lenders using the Company’s software products and services. The fair value and/or recoverability of the Company’s goodwill, intangible assets, and other long-lived assets related to these activities could be adversely affected if the FFEL Program is eliminated. As discussed previously, in recent years, the Company has expanded products and services generated from businesses that are not dependent upon the FFEL Program, thereby reducing legislative and political risk.
RESULTS OF OPERATIONS
The Company’s operating results are primarily driven by the performance of its existing portfolio, the cost necessary to generate new assets, the revenues generated by its fee based businesses, and the cost to provide those services. The performance of the Company’s portfolio is driven by net interest income and losses related to credit quality of the assets along with the cost to administer and service the assets and related debt.
Net Interest Income
The Company generates a significant portion of its earnings from the spread, referred to as its student loan spread, between the yield the Company receives on its student loan portfolio and the cost of funding these loans. This spread income is reported on the Company’s consolidated statements of operations as net interest income. The amortization of loan premiums, including capitalized costs of origination, the 1.05% per year consolidation loan rebate fee paid to the Department, and yield adjustments from borrower benefit programs, are netted against loan interest income on the Company’s statements of operations. The amortization of debt issuance costs is included in interest expense on the Company’s statements of operations.
The Company’s portfolio of FFELP loans originated prior to April 1, 2006 earns interest at the higher of a variable rate based on the special allowance payment (SAP) formula set by the Department of Education and the borrower rate. The SAP formula is based on an applicable index plus a fixed spread that is dependent upon when the loan was originated, the loan’s repayment status, and funding sources for the loan. As a result of one of the provisions of the Higher Education Reconciliation Act of 2005 (“HERA”), the Company’s portfolio of FFELP loans originated on or after April 1, 2006 earns interest at a variable rate based on the SAP formula. For the portfolio of loans originated on or after April 1, 2006, when the borrower rate exceeds the variable rate based on the SAP formula, the Company must return the excess to the Department.
In September 2007, the College Cost Reduction and Access Act of 2007 (the “College Cost Reduction Act”) was enacted into law. This legislation reduced the annual yield on FFELP loans originated after October 1, 2007 and should be considered when reviewing the Company’s results of operations. The Company has mitigated some of the reduction in annual yield by creating efficiencies and lowering costs, modifying borrower benefits, and reducing loan acquisition costs.
Because the Company generates a significant portion of its earnings from its student loan spread, the interest rate sensitivity of the Company’s balance sheet is very important to its operations. The current and future interest rate environment can and will affect the Company’s interest earnings, net interest income, and net income. The effects of changing interest rate environments are further outlined in Item 3, “Quantitative and Qualitative Disclosures about Market Risk — Interest Rate Risk.”
Investment interest income, which is a component of net interest income, includes income from unrestricted interest-earning deposits and funds in the Company’s special purpose entities which are utilized for its asset-backed securitizations.
Net interest income also includes interest expense on unsecured debt offerings. The proceeds from these unsecured debt offerings were used by the Company to fund general business operations, certain asset and business acquisitions, and the repurchase of stock under the Company’s stock repurchase plan.
 
 33 

Table of Contents

Provision for Loan Losses
Management estimates and establishes an allowance for loan losses through a provision charged to expense. Losses are charged against the allowance when management believes the collectibility of the loan principal is unlikely. Recovery of amounts previously charged off is credited to the allowance for loan losses. Management maintains the allowance for federally insured and non-federally insured loans at a level believed to be adequate to provide for estimated probable credit losses inherent in the loan portfolio. This evaluation is inherently subjective because it requires estimates that may be susceptible to significant changes. The Company analyzes the allowance separately for its federally insured loans and its non-federally insured loans.
The allowance for the federally insured loan portfolio is based on periodic evaluations of the Company’s loan portfolios considering past experience, trends in student loan claims rejected for payment by guarantors, changes to federal student loan programs, current economic conditions, and other relevant factors. The federal government currently guarantees 97% of the principal of and the interest on federally insured student loans disbursed on and after July 1, 2006 (and 98% for those loans disbursed prior to July 1, 2006), which limits the Company’s loss exposure on the outstanding balance of the Company’s federally insured portfolio. Also, in accordance with the Student Loan Reform Act of 1993, student loans disbursed prior to October 1, 1993 are fully insured.
In determining the adequacy of the allowance for loan losses on the non-federally insured loans, the Company considers several factors including: loans in repayment versus those in a nonpaying status, months in repayment, delinquency status, type of program, and trends in defaults in the portfolio based on Company and industry data. The Company places a non-federally insured loan on nonaccrual status when the collection of principal and interest is 30 days past due and charges off the loan when the collection of principal and interest is 120 days past due.
Other Income
The Company also earns fees and generates revenue from other sources, including loan and guaranty servicing, enrollment services, payment management activities, and fees from providing software and technical services.
Student Loan and Guaranty Servicing Revenue — Loan servicing fees are determined according to individual agreements with customers and are calculated based on the dollar value of loans, number of loans, or number of borrowers serviced for each customer. Guaranty servicing fees, generally, are calculated based on the number of loans serviced, volume of loans serviced, or amounts collected. Revenue is recognized when earned pursuant to applicable agreements, and when ultimate collection is assured.
Enrollment Services Revenue — Enrollment services revenue includes the sale of lists and print products, subscription-based products and services, and multiple deliverable arrangements. Revenue from the sale of lists and printed products is generally earned and recognized, net of estimated returns, upon shipment or delivery. Revenues from the sales of subscription-based products and services are recognized ratably over the term of the subscription. Subscription revenue received or receivable in advance of the delivery of services is included in deferred revenue. Revenue from multiple deliverable arrangements is recognized separately for separate units of accounting based on the units’ relative fair value.
Tuition Payment Processing and Campus Commerce Revenue — Tuition payment processing and campus commerce revenue includes actively managed tuition payment solutions, online payment processing, detailed information reporting, and data integration services. Fees for these payment management services are recognized over the period in which services are provided to customers.
Software Services Revenue — Software services revenue is determined from individual agreements with customers and includes license and maintenance fees associated with student loan software products. Computer and software consulting services are recognized over the period in which services are provided to customers.
Operating Expenses
Operating expenses includes indirect costs incurred to generate and acquire student loans, costs incurred to manage and administer the Company’s student loan portfolio and its financing transactions, costs incurred to service the Company’s student loan portfolio and the portfolios of third parties, the cost to provide enrollment services, costs incurred to provide tuition payment processing, campus commerce, content management, recruitment, software and technical services to third parties, the depreciation and amortization of capital assets and intangible assets, investments in products, services, and technology to meet customer needs and support continued revenue growth, and other general and administrative expenses. The cost to provide enrollment services consists of costs incurred to provide lead generation and publishing and editing services in the Company’s Enrollment Services operating segment. Operating expenses also includes employee termination benefits, lease termination costs, and the write-down of certain assets related to the Company’s restructuring initiatives.
 
 34 

Table of Contents

Three and six months ended June 30, 2009 compared to the three and six months ended June 30, 2008
Net Interest Income
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended June 30,	 	 	Six months ended June 30,	 	
 	 	 	 	 	 	 	 	 	 	Change	 	 	 	 	 	 	 	 	 	 	Change	 	
 	 	2009	 	 	2008	 	 	$	 	 	%	 	 	2009	 	 	2008	 	 	$	 	 	%	 	
Interest income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan interest	 	$	160,413	 	 	 	296,686	 	 	 	(136,273	)	 	 	(45.9	)%	 	$	331,332	 	 	 	626,672	 	 	 	(295,340	)	 	 	(47.1	)%	
Investment interest	 	 	2,776	 	 	 	9,116	 	 	 	(6,340	)	 	 	(69.5	)	 	 	6,867	 	 	 	20,796	 	 	 	(13,929	)	 	 	(67.0	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total interest income	 	 	163,189	 	 	 	305,802	 	 	 	(142,613	)	 	 	(46.6	)	 	 	338,199	 	 	 	647,468	 	 	 	(309,269	)	 	 	(47.8	)	
Interest expense:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest on bonds and notes payable	 	 	106,082	 	 	 	232,464	 	 	 	(126,382	)	 	 	(54.4	)	 	 	252,584	 	 	 	557,605	 	 	 	(305,021	)	 	 	(54.7	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income	 	 	57,107	 	 	 	73,338	 	 	 	(16,231	)	 	 	(22.1	)	 	 	85,615	 	 	 	89,863	 	 	 	(4,248	)	 	 	(4.7	)	
Provision for loan losses	 	 	8,000	 	 	 	6,000	 	 	 	2,000	 	 	 	33.3	 	 	 	15,500	 	 	 	11,000	 	 	 	4,500	 	 	 	40.9	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income after provision for loan losses	 	$	49,107	 	 	 	67,338	 	 	 	(18,231	)	 	 	(27.1	)%	 	$	70,115	 	 	 	78,863	 	 	 	(8,748	)	 	 	(11.1	)%	

•	 	Net interest income decreased for the three and six months ended June 30, 2009 compared to 2008 as a result of the following:	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended June 30,	 	 	Six months ended June 30,	 	
 	 	 	 	 	 	 	 	 	 	Change	 	 	 	 	 	 	 	 	 	 	Change	 	
 	 	2009	 	 	2008	 	 	$	 	 	%	 	 	2009	 	 	2008	 	 	$	 	 	%	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Student loan interest margin, excluding derivative settlements (a)	 	$	25,443	 	 	 	64,939	 	 	 	(39,496	)	 	 	(60.8	)%	 	$	28,043	 	 	 	70,483	 	 	 	(42,440	)	 	 	(60.2	)%	
Fixed rate floor income (b)	 	 	37,054	 	 	 	9,890	 	 	 	27,164	 	 	 	274.7	 	 	 	67,339	 	 	 	18,410	 	 	 	48,929	 	 	 	265.8	 	
Investment interest (c)	 	 	2,776	 	 	 	9,116	 	 	 	(6,340	)	 	 	(69.5	)	 	 	6,867	 	 	 	20,796	 	 	 	(13,929	)	 	 	(67.0	)	
Corporate debt interest expense (d)	 	 	(8,166	)	 	 	(10,607	)	 	 	2,441	 	 	 	(23.0	)	 	 	(16,634	)	 	 	(19,826	)	 	 	3,192	 	 	 	(16.1	)	

Net interest income	 	$	57,107	 	 	 	73,338	 	 	 	(16,231	)	 	 	(22.1	)%	 	$	85,615	 	 	 	89,863	 	 	 	(4,248	)	 	 	(4.7	)%	

(a)	 	Student loan interest margin, excluding derivative settlements, decreased for the three and six months ended June 30, 2009 compared to the same periods in 2008 as a result of a decrease in the Company’s variable student loan spread, excluding derivative settlements, as discussed in this Item 2 under “Asset Generation and Management Operating Segment – Results of Operations.” For the three months ended June 30, 2009 and 2008, variable student loan spread, excluding derivative settlements, was 0.45% and 1.07%, respectively. For the six months ended June 30, 2009 and 2008, variable student loan spread, excluding derivative settlements, was 0.27% and 0.65%, respectively.	
 		
(b)	 	The Company has a portfolio of student loans that are earning interest at a fixed borrower rate which exceeds the statutorily defined variable lender rate creating fixed rate floor income. Due to lower interest rates in the three and six months ended June 30, 2009 compared to the same periods in 2008, the Company received additional fixed rate floor income on a portion of its student loan portfolio. See Item 3, “Quantitative and Qualitative Disclosures about Market Risk – Interest Rate Risk” for additional information.	
 		
(c)	 	Investment interest decreased for the three and six months ended June 30, 2009 compared to the same period in 2008 due to lower interest rates in 2009.	
 		
(d)	 	Corporate debt interest expense decreased for the three and six months ended June 30, 2009 compared to the same periods in 2008 as a result of a decrease in interest rates, as well as a reduction in debt outstanding due to the purchase of unsecured fixed rate debt. The weighted average interest rate and notes outstanding on the Company’s unsecured line of credit was 0.80% and $691.5 million, respectively, as of June 30, 2009 compared to 2.90% and $450.0 million, respectively, as of June 30, 2008. During the first and second quarters of 2009, the Company purchased $34.9 million and $35.5 million, respectively, of its 5.125% Senior Notes due 2010.	

•	 	The provision for loan losses increased for the three and six months ended June 30, 2009 compared to 2008 primarily due to increases in delinquencies.	
 
 35 

Table of Contents

Other Income
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended June 30,	 	 	Six months ended June 30,	 	
 	 	 	 	 	 	 	 	 	 	Change	 	 	 	 	 	 	 	 	 	 	Change	 	
 	 	2009	 	 	2008	 	 	$	 	 	%	 	 	2009	 	 	2008	 	 	$	 	 	%	 	
Loan and guaranty servicing revenue	 	$	28,803	 	 	 	23,821	 	 	 	4,982	 	 	 	20.9	%	 	$	55,274	 	 	 	48,482	 	 	 	6,792	 	 	 	14.0	%	
Tuition payment processing and campus commerce revenue	 	 	11,848	 	 	 	10,270	 	 	 	1,578	 	 	 	15.4	 	 	 	27,386	 	 	 	24,117	 	 	 	3,269	 	 	 	13.6	 	
Enrollment services revenue	 	 	28,747	 	 	 	26,068	 	 	 	2,679	 	 	 	10.3	 	 	 	57,518	 	 	 	53,290	 	 	 	4,228	 	 	 	7.9	 	
Software services revenue	 	 	6,119	 	 	 	5,979	 	 	 	140	 	 	 	2.3	 	 	 	11,824	 	 	 	14,183	 	 	 	(2,359	)	 	 	(16.6	)	
Other income	 	 	11,527	 	 	 	6,125	 	 	 	5,402	 	 	 	88.2	 	 	 	28,389	 	 	 	12,379	 	 	 	16,010	 	 	 	129.3	 	
Gain (loss) on sale of loans	 	 	(196	)	 	 	48	 	 	 	(244	)	 	 	(508.3	)	 	 	(402	)	 	 	(47,426	)	 	 	47,024	 	 	 	(99.2	)	
Derivative market value, foreign currency, and put option adjustments	 	 	(34,013	)	 	 	15,755	 	 	 	(49,768	)	 	 	(315.9	)	 	 	(38,893	)	 	 	(41,606	)	 	 	2,713	 	 	 	(6.5	)	
Derivative settlements, net	 	 	9,535	 	 	 	4,437	 	 	 	5,098	 	 	 	114.9	 	 	 	33,893	 	 	 	45,200	 	 	 	(11,307	)	 	 	(25.0	)	

Total other income	 	$	62,370	 	 	 	92,503	 	 	 	(30,133	)	 	 	(32.6	)%	 	$	174,989	 	 	 	108,619	 	 	 	66,370	 	 	 	61.1	%	

 	•	 	“Loan and guaranty servicing revenue” increased due to an increase in FFELP loan servicing revenue and guaranty servicing revenue as further discussed in this Item 2 under “Student Loan and Guaranty Servicing Operating Segment — Results of Operations.”	
 		
 	•	 	“Tuition payment processing and campus commerce revenue” increased due to an increase in the number of managed tuition payment plans and an increase in campus commerce transactions processed.	
 		
 	•	 	“Enrollment services revenue” increased due to an increase in the number of lead generation transactions processed offset by a reduction in other enrollment products and services offered as further discussed in this Item 2 under “Enrollment Services Operating Segment — Results of Operations.”	
 		
 	•	 	“Software and technical services revenue” decreased for the six months ended June 30, 2009 compared to the same period in 2008 as the result of a reduction in the number of projects for existing customers and the loss of customers due to the legislative developments in the student loan industry throughout 2008.	
 		
 	•	 	“Other income” increased for the three and six months ended June 30, 2009 compared to 2008 due to gains of $5.8 million and $13.9 million from the purchase of debt in the first and second quarters of 2009, respectively. In addition, the Company received a contingency payment in the first quarter of 2009 from the sale of an equity method investment, which resulted in a $3.5 million gain.	
 		
 	•	 	The Company recognized a loss of $47.5 million during the first quarter of 2008 as a result of the sale of $1.3 billion of student loans as further discussed in this Item 2 under “Asset Generation and Management Operating Segment — Results of Operations.”	
 		
 	•	 	The change in “derivative market value, foreign currency, and put option adjustments” was caused by the change in the fair value of the Company’s derivative portfolio and foreign currency rate fluctuations which are further discussed in Item 3, “Quantitative and Qualitative Disclosures about Market Risk.”	
 		
 	•	 	Further detail of the components of derivative settlements is included in Item 3, “Quantitative and Qualitative Disclosures about Market Risk.” The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Management has structured all of the Company’s derivative transactions with the intent that each is economically effective; however, the Company’s derivative instruments do not qualify for hedge accounting under SFAS No. 133. Derivative settlements for each applicable period should be evaluated with the Company’s net interest income.	
Operating Expenses
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
 	 	Three months ended June 30,	 	 	Six months ended June 30,	 	
 	 	2009	 	 	2008	 	 	$ Change	 	 	% Change	 	 	2009	 	 	2008	 	 	$ Change	 	 	% Change	 		
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Salaries and benefits	 	$	38,699	 	 	 	43,739	 	 	 	(5,040	)	 	 	(11.5	)%	 	$	76,925	 	 	 	91,678	 	 	 	(14,753	)	 	 	(16.1	)%		
Other expenses	 	 	37,277	 	 	 	39,793	 	 	 	(2,516	)	 	 	(6.3	)	 	 	73,829	 	 	 	78,977	 	 	 	(5,148	)	 	 	(6.5	)		
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Operating expenses, excluding the cost to provide enrollment services and restructure and impairment expenses	 	 	75,976	 	 	 	83,532	 	 	$	(7,556	)	 	 	(9.0	)%	 	 	150,754	 	 	 	170,655	 	 	$	(19,901	)	 	 	(11.7	)%		
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Cost to provide enrollment services	 	 	18,092	 	 	 	14,755	 	 	 	 	 	 	 	 	 	 	 	35,885	 	 	 	30,158	 	 	 	 	 	 	 	 	 		
Restructure expense	 	 	3,288	 	 	 	(365	)	 	 	 	 	 	 	 	 	 	 	3,288	 	 	 	7,112	 	 	 	 	 	 	 	 	 		
Impairment expense	 	 	—	 	 	 	—	 	 	 	 	 	 	 	 	 	 	 	—	 	 	 	18,834	 	 	 	 	 	 	 	 	 		
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		
Total operating expenses	 	$	97,356	 	 	 	97,922	 	 	 	 	 	 	 	 	 	 	$	189,927	 	 	 	226,759	 	 	 	 	 	 	 	 	 		

 36 

Table of Contents

Excluding the cost to provide enrollment services and restructuring and impairment charges, operating expenses decreased $7.6 million (9.0%) and $19.9 million (11.7%) for the three and six months ended June 30, 2009 compared to the same periods in 2008. These decreases were the result of continued focus by the Company on managing costs and gaining efficiencies and continued benefits from prior restructuring activities.
Income Taxes
The Company’s effective tax rate was 41.9% and 39.0% for the three and six months ended June 30, 2009, compared to 31.0% for the same periods in 2008. The 2008 effective tax rates were lower than the 2009 rates due to the Company recognizing a year-to-date tax benefit in 2008 which was reduced by various state gross receipts taxes and other items which were not deductible for tax purposes. The year-to-date tax benefit in 2008 was the result of a significant loss incurred by the Company during the first quarter of 2008 as a result of a sale of loans. The effective tax rate during the second quarter of 2009 increased as compared to the first quarter of 2009 due to various state tax law changes and the increase in other items which are not deductible for tax purposes.
Additional information on the Company’s results of operations is included with the discussion of the Company’s operating segments in this Item 2 under “Operating Segments”.
Financial Condition as of June 30, 2009 compared to December 31, 2008
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	As of	 	 	As of	 	 	 	 	
 	 	June 30,	 	 	December 31,	 	 	Change	 	
 	 	2009	 	 	2008	 	 	Dollars	 	 	Percent	 	
Assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Student loans receivable, net	 	$	23,889,571	 	 	 	25,413,008	 	 	 	(1,523,437	)	 	 	(6.0	)%	
Student loans receivable — held for sale	 	 	1,749,290	 	 	 	—	 	 	 	1,749,290	 	 	 	100.0	 	
Cash, cash equivalents, and investments	 	 	1,490,434	 	 	 	1,348,104	 	 	 	142,330	 	 	 	10.6	 	
Goodwill	 	 	175,178	 	 	 	175,178	 	 	 	—	 	 	 	—	 	
Intangible assets, net	 	 	65,115	 	 	 	77,054	 	 	 	(11,939	)	 	 	(15.5	)	
Fair value of derivative instruments	 	 	168,720	 	 	 	175,174	 	 	 	(6,454	)	 	 	(3.7	)	
Other assets	 	 	572,234	 	 	 	666,379	 	 	 	(94,145	)	 	 	(14.1	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total assets	 	$	28,110,542	 	 	 	27,854,897	 	 	 	255,645	 	 	 	0.9	%	

Liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Bonds and notes payable	 	$	27,169,573	 	 	 	26,787,959	 	 	 	381,614	 	 	 	1.4	%	
Fair value of derivative instruments	 	 	7,354	 	 	 	1,815	 	 	 	5,539	 	 	 	305.2	 	
Other liabilities	 	 	252,428	 	 	 	421,897	 	 	 	(169,469	)	 	 	(40.2	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total liabilities	 	 	27,429,355	 	 	 	27,211,671	 	 	 	217,684	 	 	 	0.8	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Shareholders’ equity	 	 	681,187	 	 	 	643,226	 	 	 	37,961	 	 	 	5.9	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total liabilities and shareholders’ equity	 	$	28,110,542	 	 	 	27,854,897	 	 	 	255,645	 	 	 	0.9	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	
The Company’s total assets increased during 2009 primarily due to an increase in student loans receivable as a result of loan originations and acquisitions, net of repayments and participations as further discussed in this Item 2 under “Asset Generation and Management Operating Segment – Results of Operations.” Total liabilities increased primarily due to an increase in bonds and notes payable as a result of an increase in student loan funding obligations in order to fund the increase in the Company’s student loan portfolio.
 
 37 

Table of Contents

OPERATING SEGMENTS
The Company has five operating segments as defined in SFAS No. 131 as follows: Student Loan and Guaranty Servicing, Tuition Payment Processing and Campus Commerce, Enrollment Services, Software and Technical Services, and Asset Generation and Management. The Company’s operating segments are defined by the products and services they offer or the types of customers they serve, and they reflect the manner in which financial information is currently evaluated by management. The accounting policies of the Company’s operating segments are the same as those described in the summary of significant accounting policies included in the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. Intersegment revenues are charged by a segment to another segment that provides the product or service. Intersegment revenues and expenses are included within each segment consistent with the income statement presentation provided to management. Changes in management structure or allocation methodologies and procedures may result in changes in reported segment financial information.
The management reporting process measures the performance of the Company’s operating segments based on the management structure of the Company as well as the methodology used by management to evaluate performance and allocate resources. Management, including the Company’s chief operating decision maker, evaluates the performance of the Company’s operating segments based on their profitability. As discussed further below, management measures the profitability of the Company’s operating segments on the basis of “base net income.” Accordingly, information regarding the Company’s operating segments is provided based on “base net income.” The Company’s “base net income” is not a defined term within GAAP and may not be comparable to similarly titled measures reported by other companies. Unlike financial accounting, there is no comprehensive, authoritative guidance for management reporting.
Historically, the Company generated the majority of its revenue from net interest income earned in its Asset Generation and Management operating segment. In recent years, the Company has made several acquisitions that have expanded the Company’s products and services and has diversified its revenue – primarily from fee-based businesses. The Company currently offers a broad range of pre-college, in-college, and post-college products and services to students, families, schools, and financial institutions. These products and services help students and families plan and pay for their education and students plan their careers. The Company’s products and services are designed to simplify the education planning and financing process and are focused on providing value to students, families, and schools throughout the education life cycle. The Company continues to look for ways to diversify its sources of revenue, including those generated from businesses that are not dependent upon government programs, reducing legislative and political risk.
“Base net income” is the primary financial performance measure used by management to develop the Company’s financial plans, track results, and establish corporate performance targets and incentive compensation. While “base net income” is not a substitute for reported results under GAAP, the Company relies on “base net income” in operating its business because “base net income” permits management to make meaningful period-to-period comparisons of the operational and performance indicators that are most closely assessed by management. Management believes this information provides additional insight into the financial performance of the core business activities of the Company’s operating segments.
Accordingly, the tables presented below reflect “base net income” which is reviewed and utilized by management to manage the business for each of the Company’s operating segments. Reconciliation of the segment totals to the Company’s consolidated operating results in accordance with GAAP are also included in the tables below. Included below under “Non-GAAP Performance Measures” is further discussion regarding “base net income” and its limitations, including a table that details the differences between “base net income” and GAAP net income by operating segment.
 
 38 

Table of Contents

Segment Results and Reconciliations to GAAP
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended June 30, 2009	 	
 	 	Fee-Based	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Student	 	 	Tuition	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	“Base net	 	 	 	 	
 	 	Loan	 	 	Payment	 	 	 	 	 	 	Software	 	 	 	 	 	 	Asset	 	 	Corporate	 	 	 	 	 	 	income”	 	 	 	 	
 	 	and	 	 	Processing	 	 	 	 	 	 	and	 	 	Total	 	 	Generation	 	 	Activity	 	 	Eliminations	 	 	Adjustments	 	 	GAAP	 	
 	 	Guaranty	 	 	and Campus	 	 	Enrollment	 	 	Technical	 	 	Fee-	 	 	and	 	 	and	 	 	and	 	 	to GAAP	 	 	Results of	 	
 	 	Servicing	 	 	Commerce	 	 	Services	 	 	Services	 	 	Based	 	 	Management	 	 	Overhead	 	 	Reclassifications	 	 	Results	 	 	Operations	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total interest income	 	$	13	 	 	 	11	 	 	 	—	 	 	 	—	 	 	 	24	 	 	 	156,233	 	 	 	1,312	 	 	 	(422	)	 	 	6,042	 	 	 	163,189	 	
Interest expense	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	98,338	 	 	 	8,166	 	 	 	(422	)	 	 	—	 	 	 	106,082	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income (loss)	 	 	13	 	 	 	11	 	 	 	—	 	 	 	—	 	 	 	24	 	 	 	57,895	 	 	 	(6,854	)	 	 	—	 	 	 	6,042	 	 	 	57,107	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Less provision for loan losses	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	8,000	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	8,000	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income (loss) after provision for loan losses	 	 	13	 	 	 	11	 	 	 	—	 	 	 	—	 	 	 	24	 	 	 	49,895	 	 	 	(6,854	)	 	 	—	 	 	 	6,042	 	 	 	49,107	 	

Other income (expense):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan and guaranty servicing revenue	 	 	29,184	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	29,184	 	 	 	—	 	 	 	(381	)	 	 	—	 	 	 	—	 	 	 	28,803	 	
Tuition payment processing and campus commerce revenue	 	 	—	 	 	 	11,848	 	 	 	—	 	 	 	—	 	 	 	11,848	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	11,848	 	
Enrollment services revenue	 	 	—	 	 	 	—	 	 	 	28,747	 	 	 	—	 	 	 	28,747	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	28,747	 	
Software services revenue	 	 	925	 	 	 	—	 	 	 	—	 	 	 	5,194	 	 	 	6,119	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	6,119	 	
Other income	 	 	249	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	249	 	 	 	4,241	 	 	 	7,037	 	 	 	—	 	 	 	—	 	 	 	11,527	 	
Loss on sale of loans	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(196	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(196	)	
Intersegment revenue	 	 	20,888	 	 	 	53	 	 	 	277	 	 	 	3,896	 	 	 	25,114	 	 	 	—	 	 	 	8,463	 	 	 	(33,577	)	 	 	—	 	 	 	—	 	
Derivative market value, foreign currency, and put option adjustments	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(34,013	)	 	 	(34,013	)	
Derivative settlements, net	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	9,535	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	9,535	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other income (expense)	 	 	51,246	 	 	 	11,901	 	 	 	29,024	 	 	 	9,090	 	 	 	101,261	 	 	 	13,580	 	 	 	15,119	 	 	 	(33,577	)	 	 	(34,013	)	 	 	62,370	 	

Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and benefits	 	 	13,355	 	 	 	6,402	 	 	 	5,863	 	 	 	5,715	 	 	 	31,335	 	 	 	1,735	 	 	 	6,234	 	 	 	876	 	 	 	—	 	 	 	40,180	 	
Restructure expense- severance and contract terminination costs	 	 	2,513	 	 	 	—	 	 	 	—	 	 	 	422	 	 	 	2,935	 	 	 	—	 	 	 	353	 	 	 	(3,288	)	 	 	—	 	 	 	—	 	
Cost to provide enrollment services	 	 	—	 	 	 	—	 	 	 	18,092	 	 	 	—	 	 	 	18,092	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	18,092	 	
Other expenses	 	 	11,140	 	 	 	2,339	 	 	 	3,041	 	 	 	838	 	 	 	17,358	 	 	 	5,875	 	 	 	8,259	 	 	 	1,807	 	 	 	5,785	 	 	 	39,084	 	
Intersegment expenses	 	 	9,484	 	 	 	669	 	 	 	508	 	 	 	764	 	 	 	11,425	 	 	 	20,732	 	 	 	815	 	 	 	(32,972	)	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating expenses	 	 	36,492	 	 	 	9,410	 	 	 	27,504	 	 	 	7,739	 	 	 	81,145	 	 	 	28,342	 	 	 	15,661	 	 	 	(33,577	)	 	 	5,785	 	 	 	97,356	 	

Income (loss) before income taxes	 	 	14,767	 	 	 	2,502	 	 	 	1,520	 	 	 	1,351	 	 	 	20,140	 	 	 	35,133	 	 	 	(7,396	)	 	 	—	 	 	 	(33,756	)	 	 	14,121	 	
Income tax (expense) benefit (a)	 	 	(5,612	)	 	 	(951	)	 	 	(577	)	 	 	(514	)	 	 	(7,654	)	 	 	(13,351	)	 	 	940	 	 	 	—	 	 	 	14,147	 	 	 	(5,918	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss)	 	$	9,155	 	 	 	1,551	 	 	 	943	 	 	 	837	 	 	 	12,486	 	 	 	21,782	 	 	 	(6,456	)	 	 	—	 	 	 	(19,609	)	 	 	8,203	 	

(a) Income taxes are applied based on 38% of income (loss) before income taxes for the individual operating segments.	 	 		
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Three months ended June 30, 2009:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Before Tax Operating Margin	 	 	28.8	%	 	 	21.0	%	 	 	5.2	%	 	 	14.9	%	 	 	19.9	%	 	 	55.3	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Before Tax Operating Margin —
excluding net interest income for fee-based businesses, restructure expense, and the revenue and expenses associated with rehabiliation loan sales	 	 	30.4	%	 	 	20.9	%	 	 	5.2	%	 	 	19.5	%	 	 	22.8	%	 	 	55.3	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Three months ended June 30, 2008:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Before Tax Operating Margin	 	 	30.3	%	 	 	16.3	%	 	 	3.2	%	 	 	10.3	%	 	 	19.0	%	 	 	63.2	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Before Tax Operating Margin —
excluding net interest income for fee-based businesses, restructure expense, and the revenue and expenses associated with rehabilitation loan sales	 	 	30.1	%	 	 	13.7	%	 	 	3.2	%	 	 	10.2	%	 	 	18.3	%	 	 	63.2	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 
 39 

Table of Contents

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended June 30, 2008	 	
 	 	Fee-Based	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Student	 	 	Tuition	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	“Base net	 	 	 	 	
 	 	Loan	 	 	Payment	 	 	 	 	 	 	Software	 	 	 	 	 	 	Asset	 	 	Corporate	 	 	 	 	 	 	income”	 	 	 	 	
 	 	and	 	 	Processing	 	 	 	 	 	 	and	 	 	Total	 	 	Generation	 	 	Activity	 	 	Eliminations	 	 	Adjustments	 	 	GAAP	 	
 	 	Guaranty	 	 	and Campus	 	 	Enrollment	 	 	Technical	 	 	Fee-	 	 	and	 	 	and	 	 	and	 	 	to GAAP	 	 	Results of	 	
 	 	Servicing	 	 	Commerce	 	 	Services	 	 	Services	 	 	Based	 	 	Management	 	 	Overhead	 	 	Reclassifications	 	 	Results	 	 	Operations	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total interest income	 	$	243	 	 	 	310	 	 	 	1	 	 	 	—	 	 	 	554	 	 	 	282,293	 	 	 	1,574	 	 	 	(546	)	 	 	21,927	 	 	 	305,802	 	
Interest expense	 	 	—	 	 	 	—	 	 	 	1	 	 	 	—	 	 	 	1	 	 	 	222,402	 	 	 	10,607	 	 	 	(546	)	 	 	—	 	 	 	232,464	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income (loss)	 	 	243	 	 	 	310	 	 	 	—	 	 	 	—	 	 	 	553	 	 	 	59,891	 	 	 	(9,033	)	 	 	—	 	 	 	21,927	 	 	 	73,338	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Less provision for loan losses	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	6,000	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	6,000	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income (loss) after provision for loan losses	 	 	243	 	 	 	310	 	 	 	—	 	 	 	—	 	 	 	553	 	 	 	53,891	 	 	 	(9,033	)	 	 	—	 	 	 	21,927	 	 	 	67,338	 	

Other income (expense):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan and guaranty servicing revenue	 	 	23,664	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	23,664	 	 	 	157	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	23,821	 	
Tutition payment processing and campus commerce revenue	 	 	—	 	 	 	10,270	 	 	 	—	 	 	 	—	 	 	 	10,270	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	10,270	 	
Enrollment services revenue	 	 	—	 	 	 	—	 	 	 	26,068	 	 	 	—	 	 	 	26,068	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	26,068	 	
Software services revenue	 	 	1,083	 	 	 	—	 	 	 	—	 	 	 	4,896	 	 	 	5,979	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	5,979	 	
Other income	 	 	6	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	6	 	 	 	4,851	 	 	 	1,268	 	 	 	—	 	 	 	—	 	 	 	6,125	 	
Gain on sale of loans	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	48	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	48	 	
Intercompany revenue	 	 	18,382	 	 	 	(76	)	 	 	—	 	 	 	1,517	 	 	 	19,823	 	 	 	—	 	 	 	13,960	 	 	 	(33,783	)	 	 	—	 	 	 	—	 	
Derivative market value, foreign currency, and put option adjustments	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	15,755	 	 	 	15,755	 	
Derivative settlements, net	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	11,638	 	 	 	—	 	 	 	—	 	 	 	(7,201	)	 	 	4,437	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other income (expense)	 	 	43,135	 	 	 	10,194	 	 	 	26,068	 	 	 	6,413	 	 	 	85,810	 	 	 	16,694	 	 	 	15,228	 	 	 	(33,783	)	 	 	8,554	 	 	 	92,503	 	

Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and benefits	 	 	12,491	 	 	 	5,784	 	 	 	6,373	 	 	 	4,702	 	 	 	29,350	 	 	 	1,954	 	 	 	12,828	 	 	 	(1,333	)	 	 	750	 	 	 	43,549	 	
Restructure expense- severance and contract termination costs	 	 	(104	)	 	 	—	 	 	 	(15	)	 	 	(8	)	 	 	(127	)	 	 	(52	)	 	 	(186	)	 	 	365	 	 	 	—	 	 	 	—	 	
Cost to provide enrollment services	 	 	—	 	 	 	—	 	 	 	14,755	 	 	 	—	 	 	 	14,755	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	14,755	 	
Other expenses	 	 	8,011	 	 	 	2,551	 	 	 	2,529	 	 	 	714	 	 	 	13,805	 	 	 	5,095	 	 	 	14,921	 	 	 	(764	)	 	 	6,561	 	 	 	39,618	 	
Intersegment expenses	 	 	9,822	 	 	 	461	 	 	 	1,580	 	 	 	342	 	 	 	12,205	 	 	 	18,952	 	 	 	894	 	 	 	(32,051	)	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating expenses	 	 	30,220	 	 	 	8,796	 	 	 	25,222	 	 	 	5,750	 	 	 	69,988	 	 	 	25,949	 	 	 	28,457	 	 	 	(33,783	)	 	 	7,311	 	 	 	97,922	 	

Income (loss) before income taxes	 	 	13,158	 	 	 	1,708	 	 	 	846	 	 	 	663	 	 	 	16,375	 	 	 	44,636	 	 	 	(22,262	)	 	 	—	 	 	 	23,170	 	 	 	61,919	 	
Income tax (expense) benefit (a)	 	 	4,079	 	 	 	530	 	 	 	262	 	 	 	206	 	 	 	5,077	 	 	 	13,837	 	 	 	(6,902	)	 	 	—	 	 	 	7,183	 	 	 	19,195	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss) from continuing operations	 	 	9,079	 	 	 	1,178	 	 	 	584	 	 	 	457	 	 	 	11,298	 	 	 	30,799	 	 	 	(15,360	)	 	 	—	 	 	 	15,987	 	 	 	42,724	 	
Income from discontinued operations, net of tax	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	981	 	 	 	981	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss)	 	$	9,079	 	 	 	1,178	 	 	 	584	 	 	 	457	 	 	 	11,298	 	 	 	30,799	 	 	 	(15,360	)	 	 	—	 	 	 	16,968	 	 	 	43,705	 	

(a)	 	Income taxes are applied based on the consolidated effective tax rate to income (loss) before income taxes.	
 
 40 

Table of Contents

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
  	 	Six months ended June 30, 2009	 	
 	 	Fee-Based	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Student	 	 	Tuition	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	“Base net	 	 	 	 	
 	 	Loan	 	 	Payment	 	 	 	 	 	 	Software	 	 	 	 	 	 	Asset	 	 	Corporate	 	 	 	 	 	 	income”	 	 	 	 	
 	 	and	 	 	Processing	 	 	 	 	 	 	and	 	 	Total	 	 	Generation	 	 	Activity	 	 	Eliminations	 	 	Adjustments	 	 	GAAP	 	
 	 	Guaranty	 	 	and Campus	 	 	Enrollment	 	 	Technical	 	 	Fee-	 	 	and	 	 	and	 	 	and	 	 	to GAAP	 	 	Results of	 	
 	 	Servicing	 	 	Commerce	 	 	Services	 	 	Services	 	 	Based	 	 	Management	 	 	Overhead	 	 	Reclassifications	 	 	Results	 	 	Operations	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total interest income	 	$	79	 	 	 	41	 	 	 	—	 	 	 	—	 	 	 	120	 	 	 	328,820	 	 	 	2,739	 	 	 	(982	)	 	 	7,502	 	 	 	338,199	 	
Interest expense	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	236,932	 	 	 	16,634	 	 	 	(982	)	 	 	—	 	 	 	252,584	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income (loss)	 	 	79	 	 	 	41	 	 	 	—	 	 	 	—	 	 	 	120	 	 	 	91,888	 	 	 	(13,895	)	 	 	—	 	 	 	7,502	 	 	 	85,615	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Less provision for loan losses	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	15,500	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	15,500	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income (loss) after provision for loan losses	 	 	79	 	 	 	41	 	 	 	—	 	 	 	—	 	 	 	120	 	 	 	76,388	 	 	 	(13,895	)	 	 	—	 	 	 	7,502	 	 	 	70,115	 	

Other income (expense):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan and guaranty servicing revenue	 	 	56,037	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	56,037	 	 	 	—	 	 	 	(763	)	 	 	—	 	 	 	—	 	 	 	55,274	 	
Tuition payment processing and campus commerce revenue	 	 	—	 	 	 	27,386	 	 	 	—	 	 	 	—	 	 	 	27,386	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	27,386	 	
Enrollment services revenue	 	 	—	 	 	 	—	 	 	 	57,518	 	 	 	—	 	 	 	57,518	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	57,518	 	
Software services revenue	 	 	1,800	 	 	 	—	 	 	 	—	 	 	 	10,024	 	 	 	11,824	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	11,824	 	
Other income	 	 	361	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	361	 	 	 	8,892	 	 	 	19,136	 	 	 	—	 	 	 	—	 	 	 	28,389	 	
Loss on sale of loans	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(402	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(402	)	
Intersegment revenue	 	 	40,766	 	 	 	110	 	 	 	277	 	 	 	7,020	 	 	 	48,173	 	 	 	—	 	 	 	17,384	 	 	 	(65,557	)	 	 	—	 	 	 	—	 	
Derivative market value, foreign currency, and put option adjustments	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(38,893	)	 	 	(38,893	)	
Derivative settlements, net	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	33,893	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	33,893	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other income (expense)	 	 	98,964	 	 	 	27,496	 	 	 	57,795	 	 	 	17,044	 	 	 	201,299	 	 	 	42,383	 	 	 	35,757	 	 	 	(65,557	)	 	 	(38,893	)	 	 	174,989	 	

Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and benefits	 	 	28,059	 	 	 	12,947	 	 	 	11,958	 	 	 	10,900	 	 	 	63,864	 	 	 	3,510	 	 	 	12,501	 	 	 	(1,628	)	 	 	159	 	 	 	78,406	 	
Restructure expense- severance and contract termination costs	 	 	2,513	 	 	 	—	 	 	 	—	 	 	 	422	 	 	 	2,935	 	 	 	—	 	 	 	353	 	 	 	(3,288	)	 	 	—	 	 	 	—	 	
Cost to provide enrollment services	 	 	—	 	 	 	—	 	 	 	35,885	 	 	 	—	 	 	 	35,885	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	35,885	 	
Other expenses	 	 	19,737	 	 	 	4,747	 	 	 	6,336	 	 	 	1,516	 	 	 	32,336	 	 	 	10,834	 	 	 	18,720	 	 	 	1,807	 	 	 	11,939	 	 	 	75,636	 	
Intersegment expenses	 	 	18,954	 	 	 	1,292	 	 	 	1,054	 	 	 	1,409	 	 	 	22,709	 	 	 	38,608	 	 	 	1,131	 	 	 	(62,448	)	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating expenses	 	 	69,263	 	 	 	18,986	 	 	 	55,233	 	 	 	14,247	 	 	 	157,729	 	 	 	52,952	 	 	 	32,705	 	 	 	(65,557	)	 	 	12,098	 	 	 	189,927	 	

Income (loss) before income taxes	 	 	29,780	 	 	 	8,551	 	 	 	2,562	 	 	 	2,797	 	 	 	43,690	 	 	 	65,819	 	 	 	(10,843	)	 	 	—	 	 	 	(43,489	)	 	 	55,177	 	
Income tax (expense) benefit (a)	 	 	(11,317	)	 	 	(3,249	)	 	 	(973	)	 	 	(1,064	)	 	 	(16,603	)	 	 	(25,012	)	 	 	3,135	 	 	 	—	 	 	 	16,961	 	 	 	(21,519	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss)	 	$	18,463	 	 	 	5,302	 	 	 	1,589	 	 	 	1,733	 	 	 	27,087	 	 	 	40,807	 	 	 	(7,708	)	 	 	—	 	 	 	(26,528	)	 	 	33,658	 	

(a) Income taxes are applied based on 38% of income (loss) before income taxes for the individual operating segments.	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Six months ended June 30, 2009:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Before Tax Operating Margin	 	 	30.1	%	 	 	31.1	%	 	 	4.4	%	 	 	16.4	%	 	 	21.7	%	 	 	55.4	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Before Tax Operating Margin —
excluding net interest income for fee-based businesses, restructure expense, and the revenue and expenses associated with rehabiliation loan sales	 	 	31.0	%	 	 	30.9	%	 	 	4.4	%	 	 	18.9	%	 	 	23.1	%	 	 	55.4	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Six months ended June 30, 2008:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Before Tax Operating Margin	 	 	20.4	%	 	 	34.7	%	 	 	2.4	%	 	 	16.7	%	 	 	16.9	%	 	 	8.3	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Before Tax Operating Margin —
excluding net interest income for fee-based businesses, restructure expense, impairment expense, the loss on sale of loans, and the revenue and expenses associated with rehabilitation loan sales	 	 	25.7	%	 	 	31.8	%	 	 	2.9	%	 	 	20.1	%	 	 	19.6	%	 	 	54.4	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 
 41 

Table of Contents

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Six months ended June 30, 2008	 	
 	 	Fee-Based	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Student	 	 	Tuition	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	“Base net	 	 	 	 	
 	 	Loan	 	 	Payment	 	 	 	 	 	 	Software	 	 	 	 	 	 	Asset	 	 	Corporate	 	 	 	 	 	 	income”	 	 	 	 	
 	 	and	 	 	Processing	 	 	 	 	 	 	and	 	 	Total	 	 	Generation	 	 	Activity	 	 	Eliminations	 	 	Adjustments	 	 	GAAP	 	
 	 	Guaranty	 	 	and Campus	 	 	Enrollment	 	 	Technical	 	 	Fee-	 	 	and	 	 	and	 	 	and	 	 	to GAAP	 	 	Results of	 	
 	 	Servicing	 	 	Commerce	 	 	Services	 	 	Services	 	 	Based	 	 	Management	 	 	Overhead	 	 	Reclassifications	 	 	Results	 	 	Operations	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total interest income	 	$	856	 	 	 	1,075	 	 	 	10	 	 	 	—	 	 	 	1,941	 	 	 	602,651	 	 	 	2,771	 	 	 	(640	)	 	 	40,745	 	 	 	647,468	 	
Interest expense	 	 	—	 	 	 	—	 	 	 	2	 	 	 	—	 	 	 	2	 	 	 	538,417	 	 	 	19,826	 	 	 	(640	)	 	 	—	 	 	 	557,605	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income (loss)	 	 	856	 	 	 	1,075	 	 	 	8	 	 	 	—	 	 	 	1,939	 	 	 	64,234	 	 	 	(17,055	)	 	 	—	 	 	 	40,745	 	 	 	89,863	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Less provision for loan losses	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	11,000	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	11,000	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income (loss) after provision for loan losses	 	 	856	 	 	 	1,075	 	 	 	8	 	 	 	—	 	 	 	1,939	 	 	 	53,234	 	 	 	(17,055	)	 	 	—	 	 	 	40,745	 	 	 	78,863	 	

Other income (expense):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan and guaranty servicing revenue	 	 	48,320	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	48,320	 	 	 	162	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	48,482	 	
Tutition payment processing and campus commerce revenue	 	 	—	 	 	 	24,117	 	 	 	—	 	 	 	—	 	 	 	24,117	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	24,117	 	
Enrollment services revenue	 	 	—	 	 	 	—	 	 	 	53,290	 	 	 	—	 	 	 	53,290	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	53,290	 	
Software services revenue	 	 	2,535	 	 	 	—	 	 	 	37	 	 	 	11,611	 	 	 	14,183	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	14,183	 	
Other income	 	 	38	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	38	 	 	 	9,708	 	 	 	2,633	 	 	 	—	 	 	 	—	 	 	 	12,379	 	
Loss on sale of loans	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(47,426	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(47,426	)	
Intersegment revenue	 	 	38,606	 	 	 	184	 	 	 	—	 	 	 	3,333	 	 	 	42,123	 	 	 	—	 	 	 	31,172	 	 	 	(73,295	)	 	 	—	 	 	 	—	 	
Derivative market value, foreign currency, and put option adjustments	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	466	 	 	 	—	 	 	 	—	 	 	 	(42,072	)	 	 	(41,606	)	
Derivative settlements, net	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	55,165	 	 	 	—	 	 	 	—	 	 	 	(9,965	)	 	 	45,200	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other income (expense)	 	 	89,499	 	 	 	24,301	 	 	 	53,327	 	 	 	14,944	 	 	 	182,071	 	 	 	18,075	 	 	 	33,805	 	 	 	(73,295	)	 	 	(52,037	)	 	 	108,619	 	

Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and benefits	 	 	26,489	 	 	 	11,214	 	 	 	12,896	 	 	 	9,870	 	 	 	60,469	 	 	 	4,178	 	 	 	27,419	 	 	 	3,280	 	 	 	2,046	 	 	 	97,392	 	
Restructure expense- severance and contract termination costs	 	 	747	 	 	 	—	 	 	 	282	 	 	 	510	 	 	 	1,539	 	 	 	1,844	 	 	 	3,729	 	 	 	(7,112	)	 	 	—	 	 	 	—	 	
Impairment expense	 	 	5,074	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	5,074	 	 	 	9,351	 	 	 	4,409	 	 	 	—	 	 	 	—	 	 	 	18,834	 	
Cost to provide enrollment services	 	 	—	 	 	 	—	 	 	 	30,158	 	 	 	—	 	 	 	30,158	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	30,158	 	
Other expenses	 	 	16,498	 	 	 	4,611	 	 	 	5,289	 	 	 	1,333	 	 	 	27,731	 	 	 	10,439	 	 	 	28,786	 	 	 	298	 	 	 	13,121	 	 	 	80,375	 	
Intersegment expenses	 	 	23,100	 	 	 	757	 	 	 	3,427	 	 	 	736	 	 	 	28,020	 	 	 	39,554	 	 	 	2,187	 	 	 	(69,761	)	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating expenses	 	 	71,908	 	 	 	16,582	 	 	 	52,052	 	 	 	12,449	 	 	 	152,991	 	 	 	65,366	 	 	 	66,530	 	 	 	(73,295	)	 	 	15,167	 	 	 	226,759	 	

Income (loss) before income taxes	 	 	18,447	 	 	 	8,794	 	 	 	1,283	 	 	 	2,495	 	 	 	31,019	 	 	 	5,943	 	 	 	(49,780	)	 	 	—	 	 	 	(26,459	)	 	 	(39,277	)	
Income tax (expense) benefit (a)	 	 	5,719	 	 	 	2,727	 	 	 	397	 	 	 	774	 	 	 	9,617	 	 	 	1,842	 	 	 	(15,433	)	 	 	—	 	 	 	(8,202	)	 	 	(12,176	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss) from continuing operations	 	 	12,728	 	 	 	6,067	 	 	 	886	 	 	 	1,721	 	 	 	21,402	 	 	 	4,101	 	 	 	(34,347	)	 	 	—	 	 	 	(18,257	)	 	 	(27,101	)	
Income from discontinued operations, net of tax	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	981	 	 	 	981	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss)	 	$	12,728	 	 	 	6,067	 	 	 	886	 	 	 	1,721	 	 	 	21,402	 	 	 	4,101	 	 	 	(34,347	)	 	 	—	 	 	 	(17,276	)	 	 	(26,120	)	

(a)	 	Income taxes are applied based on the consolidated effective tax rate to income (loss) before income taxes.	
 
 42 

Table of Contents

Non-GAAP Performance Measures
In accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”), the Company prepares financial statements in accordance with generally accepted accounting principles. In addition to evaluating the Company’s GAAP-based financial information, management also evaluates the Company’s operating segments on a non-GAAP performance measure referred to as “base net income” for each operating segment. While “base net income” is not a substitute for reported results under GAAP, the Company relies on “base net income” to manage each operating segment because management believes these measures provide additional information regarding the operational and performance indicators that are most closely assessed by management.
“Base net income” is the primary financial performance measure used by management to develop financial plans, allocate resources, track results, evaluate performance, establish corporate performance targets, and determine incentive compensation. Accordingly, financial information is reported to management on a “base net income” basis by operating segment, as these are the measures used regularly by the Company’s chief operating decision maker. The Company’s board of directors utilizes “base net income” to set performance targets and evaluate management’s performance. The Company also believes analysts, rating agencies, and creditors use “base net income” in their evaluation of the Company’s results of operations. While “base net income” is not a substitute for reported results under GAAP, the Company utilizes “base net income” in operating its business because “base net income” permits management to make meaningful period-to-period comparisons by eliminating the temporary volatility in the Company’s performance that arises from certain items that are primarily affected by factors beyond the control of management. Management believes “base net income” provides additional insight into the financial performance of the core business activities of the Company’s operations.
Limitations of “Base Net Income”
While GAAP provides a uniform, comprehensive basis of accounting, for the reasons discussed above, management believes that “base net income” is an important additional tool for providing a more complete understanding of the Company’s results of operations. Nevertheless, “base net income” is subject to certain general and specific limitations that investors should carefully consider. For example, as stated above, unlike financial accounting, there is no comprehensive, authoritative guidance for management reporting. The Company’s “base net income” is not a defined term within GAAP and may not be comparable to similarly titled measures reported by other companies. Investors, therefore, may not be able to compare the Company’s performance with that of other companies based upon “base net income”. “Base net income” results are only meant to supplement GAAP results by providing additional information regarding the operational and performance indicators that are most closely monitored and used by the Company’s management and board of directors to assess performance and information which the Company believes is important to analysts, rating agencies, and creditors.
Other limitations of “base net income” arise from the specific adjustments that management makes to GAAP results to derive “base net income” results. These differences are described below.
 
 43 

Table of Contents

The adjustments required to reconcile from the Company’s “base net income” measure to its GAAP results of operations relate to differing treatments for derivatives, foreign currency transaction adjustments, and certain other items that management does not consider in evaluating the Company’s operating results. The following table reflects adjustments associated with these areas by operating segment and Corporate Activity and Overhead:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Student	 	 	Tuition	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Loan	 	 	Payment	 	 	 	 	 	 	Software	 	 	Asset	 	 	Corporate	 	 	 	 	
 	 	and	 	 	Processing	 	 	 	 	 	 	and	 	 	Generation	 	 	Activity	 	 	 	 	
 	 	Guaranty	 	 	and Campus	 	 	Enrollment	 	 	Technical	 	 	and	 	 	and	 	 	 	 	
 	 	Servicing	 	 	Commerce	 	 	Services	 	 	Services	 	 	Management	 	 	Overhead	 	 	Total	 	
 	 	Three months ended June 30, 2009	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Derivative market value, foreign currency, and put option adjustments	 	$	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	35,445	 	 	 	(1,432	)	 	 	34,013	 	
Amortization of intangible assets	 	 	1,079	 	 	 	1,869	 	 	 	2,701	 	 	 	136	 	 	 	—	 	 	 	—	 	 	 	5,785	 	
Compensation related to business combinations	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Variable-rate floor income, net of settlements on derivatives	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(6,042	)	 	 	—	 	 	 	(6,042	)	
Income from discontinued operations, net of tax	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Net tax effect (a)	 	 	(410	)	 	 	(710	)	 	 	(1,027	)	 	 	(52	)	 	 	(11,173	)	 	 	(775	)	 	 	(14,147	)	

Total adjustments to GAAP	 	$	669	 	 	 	1,159	 	 	 	1,674	 	 	 	84	 	 	 	18,230	 	 	 	(2,207	)	 	 	19,609	 	

 	 	Three months ended June 30, 2008	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Derivative market value, foreign currency, and put option adjustments	 	$	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(15,866	)	 	 	111	 	 	 	(15,755	)	
Amortization of intangible assets	 	 	1,165	 	 	 	1,997	 	 	 	3,113	 	 	 	286	 	 	 	—	 	 	 	—	 	 	 	6,561	 	
Compensation related to business combinations	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	750	 	 	 	750	 	
Variable-rate floor income, net of settlements on derivatives	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(14,726	)	 	 	—	 	 	 	(14,726	)	
Income from discontinued operations, net of tax	 	 	(981	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(981	)	
Net tax effect (a)	 	 	(361	)	 	 	(619	)	 	 	(965	)	 	 	(89	)	 	 	9,484	 	 	 	(267	)	 	 	7,183	 	

Total adjustments to GAAP	 	$	(177	)	 	 	1,378	 	 	 	2,148	 	 	 	197	 	 	 	(21,108	)	 	 	594	 	 	 	(16,968	)	

 	 	Six months ended June 30, 2009	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Derivative market value, foreign currency, and put option adjustments	 	$	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	40,325	 	 	 	(1,432	)	 	 	38,893	 	
Amortization of intangible assets	 	 	2,158	 	 	 	3,756	 	 	 	5,743	 	 	 	282	 	 	 	—	 	 	 	—	 	 	 	11,939	 	
Compensation related to business combinations	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	159	 	 	 	159	 	
Variable-rate floor income, net of settlements on derivatives	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(7,502	)	 	 	—	 	 	 	(7,502	)	
Income (loss) from discontinued operations, net of tax	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Net tax effect (a)	 	 	(842	)	 	 	(1,465	)	 	 	(2,240	)	 	 	(110	)	 	 	(12,800	)	 	 	496	 	 	 	(16,961	)	

Total adjustments to GAAP	 	$	1,316	 	 	 	2,291	 	 	 	3,503	 	 	 	172	 	 	 	20,023	 	 	 	(777	)	 	 	26,528	 	

 	 	Six months ended June 30, 2008	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Derivative market value, foreign currency, and put option adjustments	 	$	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	41,534	 	 	 	538	 	 	 	42,072	 	
Amortization of intangible assets	 	 	2,421	 	 	 	4,048	 	 	 	5,935	 	 	 	572	 	 	 	145	 	 	 	—	 	 	 	13,121	 	
Compensation related to business combinations	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	2,046	 	 	 	2,046	 	
Variable-rate floor income, net of settlements on derivatives	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(30,780	)	 	 	—	 	 	 	(30,780	)	
Loss from discontinued operations, net of tax	 	 	(981	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(981	)	
Net tax effect (a)	 	 	(750	)	 	 	(1,255	)	 	 	(1,840	)	 	 	(178	)	 	 	(3,378	)	 	 	(801	)	 	 	(8,202	)	

Total adjustments to GAAP	 	$	690	 	 	 	2,793	 	 	 	4,095	 	 	 	394	 	 	 	7,521	 	 	 	1,783	 	 	 	17,276	 	

(a)	 	For 2009, income taxes are applied based on 38% of income (loss) before income taxes for the individual operating segments. For 2008, income taxes for each individual operating segment are applied based on the consolidated effective tax rate.	
Differences between GAAP and “Base Net Income”
Management’s financial planning and evaluation of operating results does not take into account the following items because their volatility and/or inherent uncertainty affect the period-to-period comparability of the Company’s results of operations. A more detailed discussion of the differences between GAAP and “base net income” follows.
 
 44 

Table of Contents

Derivative market value, foreign currency, and put option adjustments: “ Base net income” excludes the periodic unrealized gains and losses that are caused by the change in fair value on derivatives used in the Company’s risk management strategy in which the Company does not qualify for “hedge treatment” under GAAP. SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities , requires that changes in fair value of derivative instruments be recognized currently in earnings unless specific hedge accounting criteria, as specified by SFAS No. 133, are met. The Company maintains an overall interest rate risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Derivative instruments primarily used by the Company include interest rate swaps, basis swaps, and cross-currency interest rate swaps. Management has structured all of the Company’s derivative transactions with the intent that each is economically effective. However, the Company does not qualify its derivatives for “hedge treatment” as defined by SFAS No. 133, and the stand-alone derivative must be marked-to-market in the income statement with no consideration for the corresponding change in fair value of the hedged item. The Company believes these point-in-time estimates of asset and liability values that are subject to interest rate fluctuations make it difficult to evaluate the ongoing results of operations against its business plan and affect the period-to-period comparability of the results of operations. Included in “base net income” are the economic effects of the Company’s derivative instruments, which includes any cash paid or received being recognized as an expense or revenue upon actual derivative settlements. These settlements are included in “Derivative market value, foreign currency, and put option adjustments and derivative settlements, net” on the Company’s consolidated statements of operations.
“Base net income” excludes the foreign currency transaction gains or losses caused by the re-measurement of the Company’s Euro-denominated bonds to U.S. dollars. In connection with the issuance of the Euro-denominated bonds, the Company has entered into cross-currency interest rate swaps. Under the terms of these agreements, the principal payments on the Euro-denominated notes will effectively be paid at the exchange rate in effect at the issuance date of the bonds. The cross-currency interest rate swaps also convert the floating rate paid on the Euro-denominated bonds (EURIBOR index) to an index based on LIBOR. Included in “base net income” are the economic effects of any cash paid or received being recognized as an expense or revenue upon actual settlements of the cross-currency interest rate swaps. These settlements are included in “Derivative market value, foreign currency, and put option adjustments and derivative settlements, net” on the Company’s consolidated statements of operations. However, the gains or losses caused by the re-measurement of the Euro-denominated bonds to U.S. dollars and the change in market value of the cross-currency interest rate swaps are excluded from “base net income” as the Company believes the point-in-time estimates of value that are subject to currency rate fluctuations related to these financial instruments make it difficult to evaluate the ongoing results of operations against the Company’s business plan and affect the period-to-period comparability of the results of operations. The re-measurement of the Euro-denominated bonds generally correlates with the change in fair value of the cross-currency interest rate swaps. However, the Company will experience unrealized gains or losses related to the cross-currency interest rate swaps if the two underlying indices (and related forward curve) do not move in parallel.
In 2008, “base net income” also excluded the change in fair value of put options issued by the Company for certain business acquisitions. The put options were valued by the Company each reporting period using a Black-Scholes pricing model. Therefore, the fair value of those options were primarily affected by the strike price and term of the underlying option, the Company’s stock price, and the dividend yield and volatility of the Company’s stock. The Company believed those point-in-time estimates of value that were subject to fluctuations made it difficult to evaluate the ongoing results of operations against the Company’s business plans and affected the period-to-period comparability of the results of operations. In 2008, the Company settled all of its obligations related to these put options.
The gains and/or losses included in “Derivative market value, foreign currency, and put option adjustments and derivative settlements, net” on the Company’s consolidated statements of operations are primarily caused by interest rate and currency volatility, changes in the value of put options based on the inputs used in the Black-Scholes pricing model, as well as the volume and terms of put options and of derivatives not receiving hedge treatment. “Base net income” excludes these unrealized gains and losses and isolates the effect of interest rate, currency, and put option volatility on the fair value of such instruments during the period. Under GAAP, the effects of these factors on the fair value of the put options and the derivative instruments (but not the underlying hedged item) tend to show more volatility in the short term.
Amortization of intangible assets: “Base net income” excludes the amortization of acquired intangibles, which arises primarily from the acquisition of definite life intangible assets in connection with the Company’s acquisitions, since the Company feels that such charges do not drive the Company’s operating performance on a long-term basis and can affect the period-to-period comparability of the results of operations.
Compensation related to business combinations: The Company has structured certain business combinations in which the consideration paid has been dependent on the sellers’ continued employment with the Company. As such, the value of the consideration paid is recognized as compensation expense by the Company over the term of the applicable employment agreement. “Base net income” excludes this expense because the Company believes such charges do not drive its operating performance on a long-term basis and can affect the period-to-period comparability of the results of operations. If the Company did not enter into the employment agreements in connection with the acquisition, the amount paid to these former shareholders of the acquired entity would have been recorded by the Company as additional consideration of the acquired entity, thus, not having an effect on the Company’s results of operations.
 
 45 

Table of Contents

Variable-rate floor income, net of settlements on derivatives : Loans that reset annually on July 1 can generate excess spread income compared with the rate based on the special allowance payment formula in declining interest rate environments. The Company refers to this additional income as variable-rate floor income. The Company excludes variable-rate floor income, net of settlements paid on derivatives used to hedge student loan assets earning variable-rate floor income, from its “base net income” since the timing and amount of variable-rate floor income (if any) is uncertain, it has been eliminated by legislation for all loans originated on and after April 1, 2006, and it is in excess of expected spreads. In addition, because variable-rate floor income is subject to the underlying rate for the subject loans being reset annually on July 1, it is a factor beyond the Company’s control which can affect the period-to-period comparability of results of operations.
Prior to October 1, 2008, variable rate floor income was calculated by the Company on a statutory maximum basis. However, as a result of the disruption in the capital markets beginning in August 2007, the full benefit of variable rate floor income calculated on a statutory maximum basis has not been realized by the Company due to the widening of the spread between short term interest rate indices and the Company’s actual cost of funds. As a result of the ongoing volatility of interest rates, effective October 1, 2008, the Company changed its calculation of variable rate floor income to better reflect the economic benefit received by the Company. The economic benefit received by the Company related to variable rate floor income was $6.0 million and $19.3 million for the three months ended June 30, 2009 and 2008, respectively, and $7.5 million and $25.6 million for the six months ended June 30, 2009 and 2008, respectively. Variable rate floor income calculated on a statutory maximum basis was $13.0 million and $21.9 million for the three months ended June 30, 2009 and 2008, respectively, and $23.8 million and $40.7 million for the six months ended June 30, 2009 and 2008, respectively. Beginning October 1, 2008, the economic benefit received by the Company has been used to determine base net income.
The Company has used derivative instruments to hedge variable rate floor income during certain periods. During the three and six months ended June 30, 2008, the Company made payments (settlements of) of $7.2 million and $10.0 million, respectively, on such derivatives. These settlements are netted with variable-rate floor income and are excluded from “base net income”.
STUDENT LOAN AND GUARANTY SERVICING OPERATING SEGMENT – RESULTS OF OPERATIONS
The Student Loan and Guaranty Servicing operating segment provides for the servicing of the Company’s student loan portfolio and the portfolios of third parties and servicing provided to guaranty agencies. The servicing and business process outsourcing activities include loan origination activities, application processing, borrower updates, payment processing, due diligence procedures, and claim processing. These activities are performed internally for the Company’s portfolio in addition to generating fee revenue when performed for third-party clients. The guaranty servicing, servicing support, and business process outsourcing activities include providing software and data center services, borrower and loan updates, default aversion tracking services, claim processing services, and post-default collection services to guaranty agencies.
Loan servicing fees are determined according to individual agreements with customers and are calculated based on the dollar value of loans, number of loans, or number of borrowers serviced for each customer. In addition, the Company earns servicing revenue for the origination of loans. Guaranty servicing fees, generally, are calculated based on the number of loans serviced, volume of loans serviced, or amounts collected.
In June 2009, the Department of Education named the Company as one of four private sector servicers awarded a servicing contract to service student loans. The contract specifically covers the servicing of all federally-owned student loans, including the servicing of FFELP loans purchased by the Department pursuant to the ECASLA. The Company expects the contract to begin on or around August 31, 2009 and span five years with one, five-year renewal option. Beginning in August 2010, the contract will also cover the servicing on new loans originated under the Direct Loan Program. Service volume will initially be allocated by the Department to servicers awarded a contract, however, performance factors such as customer satisfaction levels and default rates will determine volume allocations over time. Servicing loans under this contract will increase revenue earned by this segment. However, operating margins under this contract are expected to be lower than historical levels achieved.
 
 46 

Table of Contents

Student Loan Servicing Volumes (dollars in millions)

(a)	 	As of June 30, 2009, the Company is servicing $1.7 billion of loans owned by the Company and $1.3 billion of loans for third parties that were disbursed on or after May 1, 2008 and may be eligible to be sold to the Department of Education pursuant to its Loan Purchase Commitment Program. The Company expects to retain servicing rights on all loans sold to the Department after September 1, 2009, which are currently being serviced by the Company. However, the Company expects to lose servicing rights on loans sold to the Department prior to September 1, 2009.	
 		
(b)	 	Includes loans that are accounted for as participation interests sold under an agreement with Union Bank.	
 
 47 

Table of Contents

Three and six months ended June 30, 2009 compared to the three and six months ended June 30, 2008
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended June 30,	 	 	Six months ended June 30,	 	
 	 	 	 	 	 	 	 	 	 	Change	 	 	 	 	 	 	 	 	 	 	Change	 	
 	 	2009	 	 	2008	 	 	$	 	 	%	 	 	2009	 	 	2008	 	 	$	 	 	%	 	
Net interest income	 	$	13	 	 	 	243	 	 	 	(230	)	 	 	(94.7	)%	 	$	79	 	 	 	856	 	 	 	(777	)	 	 	(90.8	)%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan and guaranty servicing revenue	 	 	29,184	 	 	 	23,664	 	 	 	5,520	 	 	 	23.3	 	 	 	56,037	 	 	 	48,320	 	 	 	7,717	 	 	 	16.0	 	
Software services revenue	 	 	925	 	 	 	1,083	 	 	 	(158	)	 	 	(14.6	)	 	 	1,800	 	 	 	2,535	 	 	 	(735	)	 	 	(29.0	)	
Other income	 	 	249	 	 	 	6	 	 	 	243	 	 	 	4,050.0	 	 	 	361	 	 	 	38	 	 	 	323	 	 	 	850.0	 	
Intersegment revenue	 	 	20,888	 	 	 	18,382	 	 	 	2,506	 	 	 	13.6	 	 	 	40,766	 	 	 	38,606	 	 	 	2,160	 	 	 	5.6	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other income	 	 	51,246	 	 	 	43,135	 	 	 	8,111	 	 	 	18.8	 	 	 	98,964	 	 	 	89,499	 	 	 	9,465	 	 	 	10.6	 	

Salaries and benefits	 	 	13,355	 	 	 	12,491	 	 	 	864	 	 	 	6.9	 	 	 	28,059	 	 	 	26,489	 	 	 	1,570	 	 	 	5.9	 	
Restructure expense	 	 	2,513	 	 	 	(104	)	 	 	2,617	 	 	 	(2,516.3	)	 	 	2,513	 	 	 	747	 	 	 	1,766	 	 	 	236.4	 	
Impairment expense	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	5,074	 	 	 	(5,074	)	 	 	—	 	
Other expenses	 	 	11,140	 	 	 	8,011	 	 	 	3,129	 	 	 	39.1	 	 	 	19,737	 	 	 	16,498	 	 	 	3,239	 	 	 	19.6	 	
Intersegment expenses	 	 	9,484	 	 	 	9,822	 	 	 	(338	)	 	 	(3.4	)	 	 	18,954	 	 	 	23,100	 	 	 	(4,146	)	 	 	(17.9	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating expenses	 	 	36,492	 	 	 	30,220	 	 	 	6,272	 	 	 	20.8	 	 	 	69,263	 	 	 	71,908	 	 	 	(2,645	)	 	 	(3.7	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
“Base net income” before income taxes	 	 	14,767	 	 	 	13,158	 	 	 	1,609	 	 	 	12.2	 	 	 	29,780	 	 	 	18,447	 	 	 	11,333	 	 	 	61.4	 	
Income tax expense	 	 	(5,612	)	 	 	(4,079	)	 	 	(1,533	)	 	 	37.6	 	 	 	(11,317	)	 	 	(5,719	)	 	 	(5,598	)	 	 	97.9	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
“Base net income”	 	$	9,155	 	 	 	9,079	 	 	 	76	 	 	 	0.8	%	 	$	18,463	 	 	 	12,728	 	 	 	5,735	 	 	 	45.1	%	

Before Tax Operating Margin	 	 	28.8	%	 	 	30.3	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	30.1	%	 	 	20.4	%	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Before Tax Operating Margin - excluding net interest income, restructure expense, impairment expense, and the revenue and expenses associated with rehabiliation loan sales	 	 	30.4	%	 	 	30.1	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	31.0	%	 	 	25.7	%	 	 	 	 	
N et interest income . Investment income decreased as a result of decreases in interest rates on cash held in 2009 compared to 2008.
Loan and guaranty servicing revenue and intersegment revenue . Loan and guaranty servicing revenue and intersegment revenue for the three and six months ended June 30, 2009 increased from the same periods in 2008 as follows:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended June 30,	 	
 	 	2009	 	 	2008	 	
 	 	Origination	 	 	Servicing	 	 	Total	 	 	Origination	 	 	Servicing	 	 	Total	 	
 	 	revenue	 	 	revenue	 	 	revenue	 	 	revenue	 	 	revenue	 	 	revenue	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
FFELP servicing (a)	 	$	458	 	 	 	13,852	 	 	 	14,310	 	 	 	963	 	 	 	11,571	 	 	 	12,534	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Private servicing	 	 	44	 	 	 	1,951	 	 	 	1,995	 	 	 	41	 	 	 	1,831	 	 	 	1,872	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Guaranty servicing (b)	 	 	37	 	 	 	12,842	 	 	 	12,879	 	 	 	46	 	 	 	9,212	 	 	 	9,258	 	

Loan and guaranty servicing revenue	 	 	539	 	 	 	28,645	 	 	 	29,184	 	 	 	1,050	 	 	 	22,614	 	 	 	23,664	 	

Intersegment revenue (c)	 	 	1,466	 	 	 	19,422	 	 	 	20,888	 	 	 	666	 	 	 	17,716	 	 	 	18,382	 	

Total servicing revenue	 	$	2,005	 	 	 	48,067	 	 	 	50,072	 	 	 	1,716	 	 	 	40,330	 	 	 	42,046	 	

(a)	 	FFELP origination revenue decreased in 2009 compared to 2008 due to lenders exiting the FFELP marketplace as a result of legislative changes and disruptions in the capital markets. FFELP servicing revenue increased due to the receipt of $1.9 million in deconversion fees from third parties in the second quarter of 2009 related to $155.5 million of loans deconverted as part of the Department’s Loan Purchase Commitment Program.	
 		
(b)	 	Guaranty servicing revenue increased due to the receipt of $5.8 million in fees received from a rehabilitation sale of defaulted loan assets in the second quarter of 2009. In the second quarter of 2008, revenue from rehabilitation sales of defaulted loans was $2.8 million.	
 		
(c)	 	Intersegment origination revenue increased in 2009 due to an increase in the Company’s disbursement volume compared to 2008. Intersegment servicing revenue increased due to the receipt of $1.8 million in fees in the second quarter of 2009 earned as a result of transferring loans between various Company financings as the Company was executing various liquidity strategies.	
 
 48 

Table of Contents

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Six months ended June 30,	 	
 	 	2009	 	 	2008	 	
 	 	Origination	 	 	Servicing	 	 	Total	 	 	Origination	 	 	Servicing	 	 	Total	 	
 	 	revenue	 	 	revenue	 	 	revenue	 	 	revenue	 	 	revenue	 	 	revenue	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
FFELP servicing (a)	 	$	775	 	 	 	29,321	 	 	 	30,096	 	 	 	1,555	 	 	 	23,258	 	 	 	24,813	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Private servicing	 	 	104	 	 	 	3,763	 	 	 	3,867	 	 	 	181	 	 	 	3,962	 	 	 	4,143	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Guaranty servicing (b)	 	 	214	 	 	 	21,860	 	 	 	22,074	 	 	 	269	 	 	 	19,095	 	 	 	19,364	 	

Loan and guaranty servicing revenue	 	 	1,093	 	 	 	54,944	 	 	 	56,037	 	 	 	2,005	 	 	 	46,315	 	 	 	48,320	 	

Intersegment revenue (c)	 	 	4,167	 	 	 	36,599	 	 	 	40,766	 	 	 	2,176	 	 	 	36,430	 	 	 	38,606	 	

Total servicing revenue	 	$	5,260	 	 	 	91,543	 	 	 	96,803	 	 	 	4,181	 	 	 	82,745	 	 	 	86,926	 	

(a)	 	FFELP origination revenue decreased in 2009 compared to 2008 due to lenders exiting the FFELP marketplace as a result of legislative changes and disruptions in the capital markets. FFELP servicing revenue increased due to an increase in servicing volume and the receipt of $2.1 million in deconversion fees from third parties in 2009 related to $167.5 million of loans deconverted as part of the Department’s Loan Purchase Commitment Program.	
 		
(b)	 	Guaranty servicing revenue increased due to an increase in collection revenue, as well as the receipt of $6.2 million in fees received from rehabilitation sales of defaulted loan assets in 2009. In 2008, the revenue from rehabilitation sales of defaulted loans was $5.6 million.	
 		
(c)	 	Intersegment origination revenue increased in 2009 due to an increase in the Company’s disbursement volume compared to 2008.	
Operating expenses . Excluding restructure and impairment charges and collection fees paid related to rehabilitation sales, operating expenses increased $3.4 million (10.8%) and $1.6 million (2.5%) for the three and six months ended June 30, 2009 compared to the same periods in 2008, respectively. These increases were the result of additional costs related to system development and maintenance, as well as costs allocated to this segment which were included in Corporate Activity and Overhead in the prior periods.
 
 49 

Table of Contents

TUITION PAYMENT PROCESSING AND CAMPUS COMMERCE OPERATING SEGMENT — RESULTS OF OPERATIONS
The Tuition Payment Processing and Campus Commerce operating segment provides products and services to help institutions and education seeking families manage the payment of education costs during the pre-college and college stages of the education life cycle. The Company provides actively managed tuition payment solutions, online payment processing, detailed information reporting, financial needs analysis, and data integration services to K-12 and higher educational institutions, families, and students. In addition, the Company provides customer-focused electronic transactions, information sharing, and account and bill presentment to colleges and universities.
This segment of the Company’s business is subject to seasonal fluctuations which correspond, or are related to, the traditional school year. Tuition management revenue is recognized over the course of the academic term, but the peak operational activities take place in summer and early fall. Revenue associated with providing electronic commerce subscription services is recognized over the service period with the highest revenue months being July through September and December and January. The Company’s operating expenses do not follow the seasonality of the revenues. This is primarily due to fixed year-round personnel costs and seasonal marketing costs.
Three and six months ended June 30, 2009 compared to the three and six months ended June 30, 2008
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended June 30,	 	 	Six months ended June 30,	 	
 	 	 	 	 	 	 	 	 	 	Change	 	 	 	 	 	 	 	 	 	 	Change	 	
 	 	2009	 	 	2008	 	 	$	 	 	%	 	 	2009	 	 	2008	 	 	$	 	 	%	 	
Net interest income	 	$	11	 	 	 	310	 	 	 	(299	)	 	 	(96.5	)%	 	$	41	 	 	 	1,075	 	 	 	(1,034	)	 	 	(96.2	)%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Tuition payment processing and campus commerce revenue	 	 	11,848	 	 	 	10,270	 	 	 	1,578	 	 	 	15.4	 	 	 	27,386	 	 	 	24,117	 	 	 	3,269	 	 	 	13.6	 	
Intersegment revenue	 	 	53	 	 	 	(76	)	 	 	129	 	 	 	(169.7	)	 	 	110	 	 	 	184	 	 	 	(74	)	 	 	(40.2	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other income	 	 	11,901	 	 	 	10,194	 	 	 	1,707	 	 	 	16.7	 	 	 	27,496	 	 	 	24,301	 	 	 	3,195	 	 	 	13.1	 	

Salaries and benefits	 	 	6,402	 	 	 	5,784	 	 	 	618	 	 	 	10.7	 	 	 	12,947	 	 	 	11,214	 	 	 	1,733	 	 	 	15.5	 	
Other expenses	 	 	2,339	 	 	 	2,551	 	 	 	(212	)	 	 	(8.3	)	 	 	4,747	 	 	 	4,611	 	 	 	136	 	 	 	2.9	 	
Intersegment expenses	 	 	669	 	 	 	461	 	 	 	208	 	 	 	45.1	 	 	 	1,292	 	 	 	757	 	 	 	535	 	 	 	70.7	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating expenses	 	 	9,410	 	 	 	8,796	 	 	 	614	 	 	 	7.0	 	 	 	18,986	 	 	 	16,582	 	 	 	2,404	 	 	 	14.5	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
“Base net income” before income taxes	 	 	2,502	 	 	 	1,708	 	 	 	794	 	 	 	46.5	 	 	 	8,551	 	 	 	8,794	 	 	 	(243	)	 	 	(2.8	)	
Income tax expense	 	 	(951	)	 	 	(530	)	 	 	(421	)	 	 	79.4	 	 	 	(3,249	)	 	 	(2,727	)	 	 	(522	)	 	 	19.1	 	

“Base net income”	 	$	1,551	 	 	 	1,178	 	 	 	373	 	 	 	31.7	%	 	$	5,302	 	 	 	6,067	 	 	 	(765	)	 	 	(12.6	)%	

Before Tax Operating Margin	 	 	21.0	%	 	 	16.3	%	 	 	 	 	 	 	 	 	 	 	31.1	%	 	 	34.7	%	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Before Tax Operating Margin, excluding net interest income	 	 	20.9	%	 	 	13.7	%	 	 	 	 	 	 	 	 	 	 	30.9	%	 	 	31.8	%	 	 	 	 	 	 	 	 	
Net interest income . Investment income decreased as a result of decreases in interest rates on cash held in 2009 compared to 2008.
Tuition payment processing and campus commerce revenue . Tuition payment processing and campus commerce revenue increased in 2009 compared to the same periods in 2008 as a result of an increase in the number of managed tuition payment plans as well as an increase in campus commerce transactions processed.
Operating expenses . Operating expenses increased for the three and six months ended June 30, 2009 compared to the same periods in 2008 as a result of incurring additional costs associated with salaries and benefits to support the increase in the number of managed tuition payment plans and campus commerce transactions. In addition, the Company continues to invest in new products and services to meet customer needs and expand product and service offerings. These investments increased operating expenses for the three and six months ended June 30, 2009 compared to the same period in 2008.
Before tax operating margin, excluding net interest income . The Company evaluates the results of this segment based on operating margins excluding net interest income. Net interest income earned by the Company during any given period is subject to the underlying interest rate earned on cash and is a factor beyond the Company’s control which can affect the period-to-period comparability of results of operations.
 
 50 

Table of Contents

ENROLLMENT SERVICES OPERATING SEGMENT — RESULTS OF OPERATIONS
The Enrollment Services segment offers products and services that are focused on helping (i) students plan and prepare for life after high school (content management and publishing and editing services) and (ii) colleges recruit and retain students (lead generation and recruitment services). Lead generation products and services include vendor lead management services and admissions lead generation. Publishing and editing services include test preparation study guides and essay and resume editing services. Content management products and services include online courses and related services. Recruitment services include pay per click marketing management, email marketing, list marketing services, and admissions consulting.
Three and six months ended June 30, 2009 compared to the three and six months ended June 30, 2008
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended June 30,	 	 	Six months ended June 30,	 	
 	 	 	 	 	 	 	 	 	 	Change	 	 	 	 	 	 	 	 	 	 	Change	 	
 	 	2009	 	 	2008	 	 	$	 	 	%	 	 	2009	 	 	2008	 	 	$	 	 	%	 	
Net interest income	 	$	—	 	 	 	—	 	 	 	—	 	 	 	—	%	 	$	—	 	 	 	8	 	 	 	(8	)	 	 	(100.0	)%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Enrollment services revenue	 	 	28,747	 	 	 	26,068	 	 	 	2,679	 	 	 	10.3	 	 	 	57,518	 	 	 	53,290	 	 	 	4,228	 	 	 	7.9	 	
Software services revenue	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	37	 	 	 	(37	)	 	 	(100.0	)	
Intersegment revenue	 	 	277	 	 	 	—	 	 	 	277	 	 	 	—	 	 	 	277	 	 	 	—	 	 	 	277	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other income	 	 	29,024	 	 	 	26,068	 	 	 	2,956	 	 	 	11.3	 	 	 	57,795	 	 	 	53,327	 	 	 	4,468	 	 	 	8.4	 	

Salaries and benefits	 	 	5,863	 	 	 	6,373	 	 	 	(510	)	 	 	(8.0	)	 	 	11,958	 	 	 	12,896	 	 	 	(938	)	 	 	(7.3	)	
Restructure expense — severance and contract termination costs	 	 	—	 	 	 	(15	)	 	 	15	 	 	 	(100.0	)	 	 	—	 	 	 	282	 	 	 	(282	)	 	 	(100.0	)	
Cost to provide enrollment services	 	 	18,092	 	 	 	14,755	 	 	 	3,337	 	 	 	22.6	 	 	 	35,885	 	 	 	30,158	 	 	 	5,727	 	 	 	19.0	 	
Other expenses	 	 	3,041	 	 	 	2,529	 	 	 	512	 	 	 	20.2	 	 	 	6,336	 	 	 	5,289	 	 	 	1,047	 	 	 	19.8	 	
Intersegment expenses	 	 	508	 	 	 	1,580	 	 	 	(1,072	)	 	 	(67.8	)	 	 	1,054	 	 	 	3,427	 	 	 	(2,373	)	 	 	(69.2	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating expenses	 	 	27,504	 	 	 	25,222	 	 	 	2,282	 	 	 	9.0	 	 	 	55,233	 	 	 	52,052	 	 	 	3,181	 	 	 	6.1	 	

“Base net income” before income taxes	 	 	1,520	 	 	 	846	 	 	 	674	 	 	 	79.7	 	 	 	2,562	 	 	 	1,283	 	 	 	1,279	 	 	 	99.7	 	
Income tax expense	 	 	(577	)	 	 	(262	)	 	 	(315	)	 	 	120.2	 	 	 	(973	)	 	 	(397	)	 	 	(576	)	 	 	145.1	 	

“Base net income”	 	$	943	 	 	 	584	 	 	 	359	 	 	 	61.5	%	 	$	1,589	 	 	 	886	 	 	 	703	 	 	 	79.3	%	

Before Tax Operating Margin	 	 	5.2	%	 	 	3.2	%	 	 	 	 	 	 	 	 	 	 	4.4	%	 	 	2.4	%	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Before Tax Operating Margin -
excluding net interest income and restructure expense	 	 	5.2	%	 	 	3.2	%	 	 	 	 	 	 	 	 	 	 	4.4	%	 	 	2.9	%	 	 	 	 	 	 	 	 	
 
 51 

Table of Contents

Enrollment services revenue, cost to provide enrollment services, and gross profit.
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended June 30, 2009	 	
 	 	 	 	 	 	Publishing	 	 	 	 	 	 	Content	 	 	 	 	
 	 	 	 	 	 	and	 	 	 	 	 	 	management	 	 	 	 	
 	 	Lead	 	 	editing	 	 	 	 	 	 	and recruitment	 	 	 	 	
 	 	generation (a)	 	 	services (b)	 	 	Subtotal	 	 	services (c)	 	 	Total	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Enrollment services revenue	 	$	21,709	 	 	 	2,072	 	 	 	23,781	 	 	 	4,966	 	 	 	28,747	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cost to provide enrollment services	 	 	17,071	 	 	 	1,021	 	 	 	18,092	 	 	 	 	 	 	 	 	 	

Gross profit	 	$	4,638	 	 	 	1,051	 	 	 	5,689	 	 	 	 	 	 	 	 	 	

Gross profit %	 	 	21.4	%	 	 	50.7	%	 	 	23.9	%	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended June 30, 2008	 	
 	 	 	 	 	 	Publishing	 	 	 	 	 	 	Content	 	 	 	 	
 	 	 	 	 	 	and	 	 	 	 	 	 	management	 	 	 	 	
 	 	Lead	 	 	editing	 	 	 	 	 	 	and recruitment	 	 	 	 	
 	 	generation (a)	 	 	services (b)	 	 	Subtotal	 	 	services (c)	 	 	Total	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Enrollment services revenue	 	$	16,972	 	 	 	2,724	 	 	 	19,696	 	 	 	6,372	 	 	 	26,068	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cost to provide enrollment services	 	 	13,613	 	 	 	1,142	 	 	 	14,755	 	 	 	 	 	 	 	 	 	

Gross profit	 	$	3,358	 	 	 	1,582	 	 	 	4,940	 	 	 	 	 	 	 	 	 	

Gross profit %	 	 	19.8	%	 	 	58.1	%	 	 	25.1	%	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Six months ended June 30, 2009	 	
 	 	 	 	 	 	Publishing	 	 	 	 	 	 	Content	 	 	 	 	
 	 	 	 	 	 	and	 	 	 	 	 	 	management	 	 	 	 	
 	 	Lead	 	 	editing	 	 	 	 	 	 	and recruitment	 	 	 	 	
 	 	generation (a)	 	 	services (b)	 	 	Subtotal	 	 	services (c)	 	 	Total	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Enrollment services revenue	 	$	42,779	 	 	 	4,952	 	 	 	47,731	 	 	 	9,787	 	 	 	57,518	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cost to provide enrollment services	 	 	33,650	 	 	 	2,235	 	 	 	35,885	 	 	 	 	 	 	 	 	 	

Gross profit	 	$	9,129	 	 	 	2,717	 	 	 	11,846	 	 	 	 	 	 	 	 	 	

Gross profit %	 	 	21.3	%	 	 	54.9	%	 	 	24.8	%	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Six months ended June 30, 2008	 	
 	 	 	 	 	 	Publishing	 	 	 	 	 	 	Content	 	 	 	 	
 	 	 	 	 	 	and	 	 	 	 	 	 	management	 	 	 	 	
 	 	Lead	 	 	editing	 	 	 	 	 	 	and recruitment	 	 	 	 	
 	 	generation (a)	 	 	services (b)	 	 	Subtotal	 	 	services (c)	 	 	Total	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Enrollment services revenue	 	$	34,406	 	 	 	6,273	 	 	 	40,679	 	 	 	12,611	 	 	 	53,290	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cost to provide enrollment services	 	 	27,474	 	 	 	2,684	 	 	 	30,158	 	 	 	 	 	 	 	 	 	

Gross profit	 	$	6,931	 	 	 	3,589	 	 	 	10,520	 	 	 	 	 	 	 	 	 	

Gross profit %	 	 	20.1	%	 	 	57.2	%	 	 	25.9	%	 	 	 	 	 	 	 	 	
 	 	 	
(a)	 	Lead generation revenue increased $4.7 million (27.9%) and $8.4 million (24.3%) for the three and six months ended June 30, 2009 compared to the same periods in 2008, respectively, as a result of an increase in lead generation services volume. The gross profit for lead generation services increased due to the Company’s focus on eliminating lower margin sales and creating cost efficiencies.	
 		
(b)	 	Publishing and editing services revenue decreased $0.7 million (23.9%) and $1.3 million (21.0%) for the three and six months ended June 30, 2009 compared to the same periods in 2008, respectively, due to competition related to online delivery of similar products, as well as a general downturn in economic conditions. The gross profit for publishing and editing services decreased as a result of a shift in the mix of products sold.	
 		
(c)	 	Content management and recruitment services revenue decreased $1.4 million (22.0%) and $2.8 million (22.3%) for the three and six months ended June 30, 2009 compared to the same periods in 2008, respectively. These decreases were the result of decreases of $1.2 million and $2.0 million for the three and six months ended June 30, 2009 compared to the same periods in 2008, respectively, associated with the Company’s pay per click marketing management, email marketing, and admissions consulting services as a result of a change in the delivery of such products and a decrease of $0.8 million associated with the Company’s list marketing services for the six months ended June 30, 2009 compared to the same period in 2008 as a result of legislative developments in the student loan industry.	
 
 52 

Table of Contents

Operating expenses . Excluding restructure charges and the cost to provide enrollment services, operating expenses decreased $1.1 million (10.2%) and $2.3 million (10.5%), respectively, for the three and six months ended June 30, 2009 compared to the same period in 2008 as a result of continued focus on cost efficiencies.
SOFTWARE AND TECHNICAL SERVICES OPERATING SEGMENT — RESULTS OF OPERATIONS
The Software and Technical Services operating segment develops student loan servicing software, which is used internally by the Company and also licensed to third-party student loan holders and servicers. This segment also provides information technology products and services, with core areas of business in educational loan software solutions, business intelligence, technical consulting services, and Enterprise Content Management solutions.
Many of the Company’s external customers receiving services in this segment have been negatively impacted as a result of the passage of the College Cost Reduction Act and the recent disruption in the capital markets. This impact could decrease the demand for products and services and affect this segment’s future revenue and profit margins.
Three and six months ended June 30, 2009 compared to the three and six months ended June 30, 2008
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended June 30,	 	 	Six months ended June 30,	 	
 	 	 	 	 	 	 	 	 	 	Change	 	 	 	 	 	 	 	 	 	 	Change	 	
 	 	2009	 	 	2008	 	 	$	 	 	%	 	 	2009	 	 	2008	 	 	$	 	 	%	 	
Software services revenue	 	$	5,194	 	 	 	4,896	 	 	 	298	 	 	 	6.1	%	 	$	10,024	 	 	 	11,611	 	 	 	(1,587	)	 	 	(13.7	)%	
Intersegment revenue	 	 	3,896	 	 	 	1,517	 	 	 	2,379	 	 	 	156.8	 	 	 	7,020	 	 	 	3,333	 	 	 	3,687	 	 	 	110.6	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other income	 	 	9,090	 	 	 	6,413	 	 	 	2,677	 	 	 	41.7	 	 	 	17,044	 	 	 	14,944	 	 	 	2,100	 	 	 	14.1	 	

Salaries and benefits	 	 	5,715	 	 	 	4,702	 	 	 	1,013	 	 	 	21.5	 	 	 	10,900	 	 	 	9,870	 	 	 	1,030	 	 	 	10.4	 	
Restructure expense — severance and contract termination costs	 	 	422	 	 	 	(8	)	 	 	430	 	 	 	(5,375.0	)	 	 	422	 	 	 	510	 	 	 	(88	)	 	 	(17.3	)	
Other expenses	 	 	838	 	 	 	714	 	 	 	124	 	 	 	17.4	 	 	 	1,516	 	 	 	1,333	 	 	 	183	 	 	 	13.7	 	
Intersegment expenses	 	 	764	 	 	 	342	 	 	 	422	 	 	 	123.4	 	 	 	1,409	 	 	 	736	 	 	 	673	 	 	 	91.4	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating expenses	 	 	7,739	 	 	 	5,750	 	 	 	1,989	 	 	 	34.6	 	 	 	14,247	 	 	 	12,449	 	 	 	1,798	 	 	 	14.4	 	

“Base net income” before income taxes	 	 	1,351	 	 	 	663	 	 	 	688	 	 	 	103.8	 	 	 	2,797	 	 	 	2,495	 	 	 	302	 	 	 	12.1	 	
Income tax expense	 	 	(514	)	 	 	(206	)	 	 	(308	)	 	 	149.5	 	 	 	(1,064	)	 	 	(774	)	 	 	(290	)	 	 	37.5	 	

“Base net income”	 	$	837	 	 	 	457	 	 	 	380	 	 	 	83.2	%	 	$	1,733	 	 	 	1,721	 	 	 	12	 	 	 	0.7	%	

Before Tax Operating Margin	 	 	14.9	%	 	 	10.3	%	 	 	 	 	 	 	 	 	 	 	16.4	%	 	 	16.7	%	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Before Tax Operating Margin -
excluding restructure expense	 	 	19.5	%	 	 	10.2	%	 	 	 	 	 	 	 	 	 	 	18.9	%	 	 	20.1	%	 	 	 	 	 	 	 	 	
Software services revenue . Software services revenue decreased in 2009 compared to 2008 as the result of a reduction in the number of projects for existing external customers and the loss of external customers due to the legislative developments in the student loan industry throughout 2008 and 2009. During the second quarter of 2009, this decrease was offset by certain fees from existing external customers on non-routine projects.
Intersegment revenue . Intersegment revenue increased in 2009 compared to the same periods in 2008 as a result of an increase in the number of projects for internal customers.
Operating expenses . Operating expenses increased in 2009 compared to the same periods in 2008 as a result of costs associated with salaries and benefits to support the increase in intersegment revenue.
 
 53 

Table of Contents

ASSET GENERATION AND MANAGEMENT OPERATING SEGMENT — RESULTS OF OPERATIONS
The Asset Generation and Management Operating Segment includes the origination, acquisition, management, and ownership of the Company’s student loan assets, which has historically been the Company’s largest product and service offering. The Company historically generated a substantial portion of its earnings from the spread, referred to as the Company’s student loan spread, between the yield it receives on its student loan portfolio and the costs associated with originating, acquiring, and financing its portfolio. The Company generates student loan assets through direct origination or through acquisitions. The student loan assets are held in a series of education lending subsidiaries designed specifically for this purpose.
In addition to the student loan portfolio, all costs and activity associated with the generation of assets, funding of those assets, and maintenance of the debt transactions are included in this segment. This includes derivative activity and the related derivative market value and foreign currency adjustments. The Company is also able to leverage its capital market expertise by providing investment advisory services and other related services to third parties through a licensed broker-dealer subsidiary. Revenues and expenses for those functions are also included in the Asset Generation and Management segment.
Student Loan Portfolio
The tables below outline the components of the Company’s student loan portfolio:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	As of June 30, 2009	 	
 	 	 	 	 	 	 	 	 	 	Originated	 	 	Originated	 	 	Originated on or	 	
 	 	 	 	 	 	 	 	 	 	prior to	 	 	between 10/1/07	 	 	after 6/4/08 -	 	
 	 	Total	 	 	10/1/07	 	 	and 6/3/08 (a)	 	 	held for sale (b)	 	
Federally insured:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stafford	 	$	8,383,144	 	 	 	32.7	%	 	$	6,340,889	 	 	 	467,338	 	 	 	1,574,917	 	
PLUS/SLS	 	 	589,223	 	 	 	2.3	%	 	 	384,180	 	 	 	48,920	 	 	 	156,123	 	
Consolidation	 	 	16,126,450	 	 	 	62.9	%	 	 	15,969,110	 	 	 	157,340	 	 	 	—	 	

Total federally insured	 	 	25,098,817	 	 	 	97.9	%	 	$	22,694,179	 	 	 	673,598	 	 	 	1,731,040	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	100.0	%	 	 	 	 	 	 	90.4	%	 	 	2.7	%	 	 	6.9	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-federally insured	 	 	200,722	 	 	 	0.8	%	 	 	 	 	 	 	 	 	 	 	 	 	

Total student loans receivable (gross)	 	 	25,299,539	 	 	 	98.7	%	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unamortized premiums and deferred origination costs — held for investment	 	 	371,072	 	 	 	1.4	%	 	 	 	 	 	 	 	 	 	 	 	 	
Unamortized premiums and deferred origination costs — held for sale	 	 	18,250	 	 	 	0.1	%	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Allowance for loan losses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Federally insured	 	 	(28,093	)	 	 	(0.1	%)	 	 	 	 	 	 	 	 	 	 	 	 	
Non-federally insured	 	 	(21,907	)	 	 	(0.1	%)	 	 	 	 	 	 	 	 	 	 	 	 	

Total student loans receivable (net)	 	$	25,638,861	 	 	 	100.0	%	 	 	 	 	 	 	 	 	 	 	 	 	

 54 

Table of Contents

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	As of December 31, 2008	 	
 	 	 	 	 	 	 	 	 	 	Originated	 	 	Originated	 	 	Originated	 	
 	 	 	 	 	 	 	 	 	 	prior to	 	 	between 10/1/07	 	 	on or after	 	
 	 	Total	 	 	10/1/07	 	 	and 6/3/08 (a)	 	 	6/4/08 (b)	 	
Federally insured:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stafford	 	$	7,602,568	 	 	 	29.9	%	 	$	6,641,817	 	 	 	390,658	 	 	 	570,093	 	
PLUS/SLS	 	 	527,670	 	 	 	2.1	%	 	 	412,142	 	 	 	48,346	 	 	 	67,182	 	
Consolidation	 	 	16,657,703	 	 	 	65.5	%	 	 	16,614,950	 	 	 	42,753	 	 	 	—	 	

Total federally insured	 	 	24,787,941	 	 	 	97.5	%	 	$	23,668,909	 	 	 	481,757	 	 	 	637,275	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	100.0	%	 	 	 	 	 	 	95.5	%	 	 	1.9	%	 	 	2.6	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-federally insured	 	 	273,108	 	 	 	1.1	%	 	 	 	 	 	 	 	 	 	 	 	 	

Total student loans receivable (gross)	 	 	25,061,049	 	 	 	98.6	%	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unamortized premiums and deferred origination costs	 	 	402,881	 	 	 	1.6	%	 	 	 	 	 	 	 	 	 	 	 	 	
Allowance for loan losses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Federally insured	 	 	(25,577	)	 	 	(0.1	%)	 	 	 	 	 	 	 	 	 	 	 	 	
Non-federally insured	 	 	(25,345	)	 	 	(0.1	%)	 	 	 	 	 	 	 	 	 	 	 	 	

Total student loans receivable (net)	 	$	25,413,008	 	 	 	100.0	%	 	 	 	 	 	 	 	 	 	 	 	 	

(a)	 	Federally insured student loans originated on or after October 1, 2007 earn a reduced annual yield as a result of the enactment of the College Cost Reduction Act in September 2007.	
 		
(b)	 	Federally insured student loans originated by the Company on or after June 4, 2008 are eligible to be participated and sold to the Department under the Department’s Participation and Purchase Programs. As of June 30, 2009, these loans are classified as held for sale as they are expected to be sold to the Department under the Department’s Purchase Program.	
Origination and Acquisition
The Company has historically originated and acquired loans through various methods and channels including: (i) direct-to-consumer channel (in which the Company originates student loans directly with student and parent borrowers), (ii) campus based origination channels, and (iii) spot purchases.
The Company will originate or acquire loans through its campus based channel either directly under one of its brand names or through other originating lenders. In addition to its brands, the Company acquires student loans from lenders to whom the Company provides marketing and/or origination services established through various contracts. Branding partners are lenders for which the Company acts as a marketing agent in specified geographic areas. A forward flow lender is one for whom the Company provides origination services but provides no marketing services or whom simply agrees to sell loans to the Company under forward sale commitments.
 
 55 

Table of Contents

The following table sets forth the activity of loans originated or acquired through each of the Company’s channels:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended June 30,	 	 	Six months ended June 30,	 	
 	 	2009	 	 	2008	 	 	2009	 	 	2008	 	
Beginning balance	 	$	25,274,173	 	 	 	26,347,354	 	 	 	25,061,049	 	 	 	26,329,213	 	
Direct channel:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Consolidation loan originations	 	 	—	 	 	 	3,284	 	 	 	—	 	 	 	69,029	 	
Less consolidation of existing portfolio	 	 	—	 	 	 	(988	)	 	 	—	 	 	 	(28,447	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net consolidation loan originations	 	 	—	 	 	 	2,296	 	 	 	—	 	 	 	40,582	 	
Stafford/PLUS loan originations	 	 	256,844	 	 	 	114,228	 	 	 	798,436	 	 	 	535,329	 	
Branding partner channel	 	 	183,258	 	 	 	127,929	 	 	 	595,571	 	 	 	601,307	 	
Forward flow channel	 	 	51,044	 	 	 	84,216	 	 	 	51,044	 	 	 	403,060	 	
Other channels	 	 	6,565	 	 	 	—	 	 	 	20,370	 	 	 	55,922	 	

Total channel acquisitions	 	 	497,711	 	 	 	328,669	 	 	 	1,465,421	 	 	 	1,636,200	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Repayments, claims, capitalized interest, participations, and other	 	 	(385,041	)	 	 	(585,443	)	 	 	(1,013,968	)	 	 	(885,243	)	
Consolidation loans lost to external parties	 	 	(67,071	)	 	 	(46,849	)	 	 	(172,589	)	 	 	(176,267	)	
Loans sold	 	 	(20,233	)	 	 	(431,605	)	 	 	(40,374	)	 	 	(1,291,777	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Ending balance	 	$	25,299,539	 	 	 	25,612,126	 	 	 	25,299,539	 	 	 	25,612,126	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
The Company has significant financing needs that it meets through the capital markets. Since August 2007, the capital markets have experienced unprecedented disruptions, which have had an adverse impact on the Company’s earnings and financial condition. Since the Company could not determine nor control the length of time or extent to which the capital markets would remain disrupted, it reduced its direct and indirect costs related to its asset generation activities and was more selective in pursuing origination activity in the direct to consumer channel. Accordingly, beginning in January 2008, the Company suspended Consolidation and private student loan originations and exercised contractual rights to discontinue, suspend, or defer the acquisition of student loans in connection with substantially all of its branding and forward flow relationships. Prior to and in conjunction with exercising this right, during the first quarter of 2008, the Company accelerated the purchase of loans from certain branding partner and forward flow lenders of approximately $511 million.
Historically, the Company funded new loan originations using loan warehouse facilities and asset-backed securitizations. Student loan warehousing has historically allowed the Company to buy and manage student loans prior to transferring them into more permanent financing arrangements. In July 2008, the Company did not renew its liquidity provisions on its FFELP warehouse facility. Accordingly, the facility became a term facility and no new loan originations could be funded with this facility. In August 2008, the Company began funding FFELP Stafford and PLUS student loan originations for the 2008-2009 academic year pursuant to the Department’s Participation Program (as discussed below).
In August 2008, the Department implemented the Purchase and Participation Programs pursuant to the ECASLA. Under the Department’s Purchase Program, the Department will purchase loans at a price equal to the sum of (i) par value, (ii) accrued interest, (iii) the one percent origination fee paid to the Department, and (iv) a fixed amount of $75 per loan. Under the Participation Program, the Department provides interim short term liquidity to FFELP lenders by purchasing participation interests in pools of FFELP loans. FFELP lenders are charged a rate of commercial paper plus 50 basis points on the principal amount of participation interests outstanding. Loans funded under the Participation Program must be either refinanced by the lender or sold to the Department pursuant to the Purchase Program prior to its expiration on September 30, 2009. To be eligible for purchase or participation under the Department’s programs, loans were originally limited to FFELP Stafford or PLUS loans made for the academic year 2008-2009, first disbursed between May 1, 2008 and July 1, 2009, with eligible borrower benefits.
On October 7, 2008, legislation was enacted to extend the Department’s authority to address FFELP student loans made for the 2009-2010 academic year and allowing for the extension of the Participation Program and Purchase Program from September 30, 2009 to September 30, 2010. The Department indicated that loans for the 2008-2009 academic year which are funded under the Department’s Participation Program will need to be refinanced or sold to the Department prior to September 30, 2009. On November 8, 2008, the Department announced the replication of the terms of the Participation and Purchase Program, in accordance with the October 7, 2008 legislation, which will include FFELP student loans made for the 2009-2010 academic year.
The Company plans to continue to use the Participation Program and a participation agreement with Union Bank to fund loans through the 2009-2010 academic year. These programs are allowing the Company to continue originating new federal student loans to all students regardless of the school they attend.
 
 56 

Table of Contents

Activity in the Allowance for Loan Losses
The provision for loan losses represents the periodic expense of maintaining an allowance sufficient to absorb losses, net of recoveries, inherent in the portfolio of student loans. An analysis of the Company’s allowance for loan losses is presented in the following table:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended June 30,	 	 	Six months ended June 30,	 	
 	 	2009	 	 	2008	 	 	2009	 	 	2008	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at beginning of period	 	$	48,497	 	 	 	46,137	 	 	 	50,922	 	 	 	45,592	 	
Provision for loan losses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Federally insured loans	 	 	5,000	 	 	 	4,000	 	 	 	10,500	 	 	 	7,500	 	
Non-federally insured loans	 	 	3,000	 	 	 	2,000	 	 	 	5,000	 	 	 	3,500	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total provision for loan losses	 	 	8,000	 	 	 	6,000	 	 	 	15,500	 	 	 	11,000	 	
Charge-offs, net of recoveries:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Federally insured loans	 	 	(4,216	)	 	 	(3,878	)	 	 	(7,463	)	 	 	(7,200	)	
Non-federally insured loans	 	 	(981	)	 	 	(350	)	 	 	(1,639	)	 	 	(733	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net charge-offs	 	 	(5,197	)	 	 	(4,228	)	 	 	(9,102	)	 	 	(7,933	)	
Sale of federally insured loans	 	 	—	 	 	 	—	 	 	 	(520	)	 	 	(750	)	
Sale of non-federally insured loans	 	 	(1,300	)	 	 	—	 	 	 	(6,800	)	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at end of period	 	$	50,000	 	 	 	47,909	 	 	 	50,000	 	 	 	47,909	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Allocation of the allowance for loan losses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Federally insured loans	 	$	28,093	 	 	 	24,084	 	 	 	28,093	 	 	 	24,084	 	
Non-federally insured loans	 	 	21,907	 	 	 	23,825	 	 	 	21,907	 	 	 	23,825	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total allowance for loan losses	 	$	50,000	 	 	 	47,909	 	 	 	50,000	 	 	 	47,909	 	

Net loan charge-offs as a percentage of average student loans	 	 	0.083	%	 	 	0.066	%	 	 	0.072	%	 	 	0.060	%	
Total allowance as a percentage of average student loans	 	 	0.199	%	 	 	0.186	%	 	 	0.198	%	 	 	0.182	%	
Total allowance as a percentage of the ending balance of student loans (excluding loans held-for-sale)	 	 	0.212	%	 	 	0.187	%	 	 	0.198	%	 	 	0.187	%	
Allowance for non-federally insured loans as a percentage such loans	 	 	10.914	%	 	 	8.510	%	 	 	10.914	%	 	 	8.510	%	
Average student loans	 	$	25,123,382	 	 	 	25,767,123	 	 	 	25,194,642	 	 	 	26,313,226	 	
Ending balance of student loans (excluding loans held-for-sale)	 	 	23,568,499	 	 	 	25,612,126	 	 	 	25,299,539	 	 	 	25,612,126	 	
Ending balance of non-federally insured loans	 	 	200,722	 	 	 	279,953	 	 	 	200,722	 	 	 	279,953	 	
Delinquencies have the potential to adversely impact the Company’s earnings through increased servicing and collection costs and account charge-offs. The table below shows the Company’s student loan delinquency amounts:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	As of June 30, 2009	 	 	As of December 31, 2008	 	
 	 	Dollars	 	 	Percent	 	 	Dollars	 	 	Percent	 	
Federally Insured Loans:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loans in-school/grace/deferment(1)	 	$	7,964,379	 	 	 	 	 	 	$	7,374,602	 	 	 	 	 	
Loans in forebearance(2)	 	 	2,381,227	 	 	 	 	 	 	 	2,484,478	 	 	 	 	 	
Loans in repayment status:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loans current	 	 	12,949,200	 	 	 	87.8	%	 	 	13,169,101	 	 	 	88.2	%	
Loans delinquent 31-60 days(3)	 	 	551,179	 	 	 	3.7	 	 	 	536,112	 	 	 	3.6	 	
Loans delinquent 61-90 days(3)	 	 	296,130	 	 	 	2.0	 	 	 	240,549	 	 	 	1.6	 	
Loans delinquent 91 days or greater(4)	 	 	956,702	 	 	 	6.5	 	 	 	983,099	 	 	 	6.6	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total loans in repayment	 	 	14,753,211	 	 	 	100.0	%	 	 	14,928,861	 	 	 	100.0	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total federally insured loans	 	$	25,098,817	 	 	 	 	 	 	$	24,787,941	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-Federally Insured Loans:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loans in-school/grace/deferment(1)	 	$	57,133	 	 	 	 	 	 	$	84,237	 	 	 	 	 	
Loans in forebearance(2)	 	 	5,347	 	 	 	 	 	 	 	9,540	 	 	 	 	 	
Loans in repayment status:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loans current	 	 	130,015	 	 	 	94.1	%	 	 	169,865	 	 	 	94.7	%	
Loans delinquent 31-60 days(3)	 	 	2,852	 	 	 	2.0	 	 	 	3,315	 	 	 	1.8	 	
Loans delinquent 61-90 days(3)	 	 	1,931	 	 	 	1.4	 	 	 	1,743	 	 	 	1.0	 	
Loans delinquent 91 days or greater(4)	 	 	3,444	 	 	 	2.5	 	 	 	4,408	 	 	 	2.5	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total loans in repayment	 	 	138,242	 	 	 	100.0	%	 	 	179,331	 	 	 	100.0	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total non-federally insured loans	 	$	200,722	 	 	 	 	 	 	$	273,108	 	 	 	 	 	

(1)	 	Loans for borrowers who still may be attending school or engaging in other permitted educational activities and are not yet required to make payments on the loans, e.g. , residency periods for medical students or a grace period for bar exam preparation for law students.	
 		
(2)	 	Loans for borrowers who have temporarily ceased making full payments due to hardship or other factors, according to a schedule approved by the servicer consistent with the established loan program servicing procedures and policies.	
 		
(3)	 	The period of delinquency is based on the number of days scheduled payments are contractually past due and relate to repayment loans, that is, receivables not charged off, and not in school, grace, deferment, or forbearance.	
 		
(4)	 	Loans delinquent 91 days or greater include loans in claim status, which are loans that have gone into default and have been submitted to the guaranty agency for FFELP loans, or, if applicable, the insurer for non-federally insured loans, to process the claim for payment.	
 
 57 

Table of Contents

Student Loan Spread Analysis
The following table analyzes the student loan spread on the Company’s portfolio of student loans and represents the spread on assets earned in conjunction with the liabilities and derivative instruments used to fund the assets:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended June 30,	 	 	Six months ended June 30,	 	
 	 	2009	 	 	2008	 	 	2009	 	 	2008	 	
Variable student loan yield	 	 	2.94	%	 	 	5.48	%	 	 	3.10	%	 	 	5.70	%	
Consolidation rebate fees	 	 	(0.70	)	 	 	(0.74	)	 	 	(0.71	)	 	 	(0.74	)	
Premium and deferred origination costs amortization	 	 	(0.27	)	 	 	(0.36	)	 	 	(0.28	)	 	 	(0.37	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Variable student loan net yield	 	 	1.97	 	 	 	4.38	 	 	 	2.11	 	 	 	4.59	 	
Student loan cost of funds — interest expense	 	 	(1.52	)	 	 	(3.31	)	 	 	(1.84	)	 	 	(3.94	)	
Student loan cost of funds — derivative settlements	 	 	0.15	 	 	 	0.08	 	 	 	0.27	 	 	 	0.34	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Variable student loan spread	 	 	0.60	 	 	 	1.15	 	 	 	0.54	 	 	 	0.99	 	
Variable rate floor income, net of settlements on derivatives (a)	 	 	(0.10	)	 	 	(0.19	)	 	 	(0.06	)	 	 	(0.13	)	
Fixed rate floor income, net of settlements on derivatives	 	 	0.59	 	 	 	0.15	 	 	 	0.54	 	 	 	0.14	 	

Core student loan spread	 	 	1.09	%	 	 	1.11	%	 	 	1.02	%	 	 	1.00	%	

Average balance of student loans	 	$	25,123,382	 	 	 	25,767,123	 	 	 	25,194,642	 	 	 	26,313,226	 	
Average balance of debt outstanding	 	 	25,683,991	 	 	 	26,767,459	 	 	 	25,723,916	 	 	 	27,297,445	 	
 	 	 	
(a)	 	As a result of the ongoing volatility of interest rates, effective October 1, 2008, the Company changed its calculation of variable rate floor income to better reflect the economic benefit received by the Company. The economic benefit received by the Company related to variable rate floor income was $6.0 million and $19.3 million for the three months ended June 30, 2009 and 2008, respectively, and $7.5 million and $25.6 million for the six months ended June 30, 2009 and 2008, respectively. Variable rate floor income calculated on a statutory maximum basis was $13.0 million and $21.9 million for the three months ended June 30, 2009 and 2008, respectively, and $23.8 million and $40.7 million for the six months ended June 30, 2009 and 2008, respectively. Beginning October 1, 2008, and for presentation of prior periods, the economic benefit received by the Company has been used to determine core student loan spread. For the student loan spread analysis shown above, variable-rate floor income for prior periods was changed to reflect the economic benefit to conform to the current period presentation.	
The Company’s core student loan spread during the three and six months ended June 30, 2009 compared to 2008 was impacted by the following items:
Increases

 	•	 	The amortization of loan premiums and deferred origination costs, which is a reduction to core student loan spread, decreased as a result of reduced costs to acquire or originate loans and a decrease in the yield earned on student loans.	
 		
 	•	 	The Company has a portfolio of student loans that are earning interest at a fixed borrower rate which exceeds the statutorily defined variable lender rate creating fixed rate floor income which is included in its core student loan spread. Due to lower interest rates in the three and six month period ended June 30, 2009 compared to the same period in 2008, the Company received additional fixed rate floor income on a portion of its student loan portfolio. See Item 3, “Quantitative and Qualitative Disclosures about Market Risk - Interest Rate Risk” for additional information.	
 		
 	•	 	The Company has used derivative instruments to hedge the repricing risk due to the timing of the interest rate resets on its assets and liabilities. The Company has entered into basis swaps in which the Company receives three-month LIBOR and pays one-month LIBOR plus or minus a spread as defined in the agreements (“1/3 Basis Swaps”). During the three and six months ended June 30, 2009, the Company received $6.7 million and $17.4 million, respectively, of settlements on its 1/3 Basis Swaps. During the first quarter of 2008, the Company received $0.9 million of settlements on its 1/3 Basis Swaps. No 1/3 Basis Swaps were outstanding during the three months ended June 30, 2008.	
 
 58 

Table of Contents

Decreases

 	•	 	The passage of the College Cost Reduction Act has reduced the yield on all FFELP loans originated after October 1, 2007. As of June 30, 2009, 9.6% of the Company’s federally insured student loan portfolio was originated after October 1, 2007 as compared to 2.2% as of June 30, 2008.	
 		
 	•	 	Historically, the movement of the various interest rate indices received on the Company’s student loan assets and paid on the debt to fund such loans was highly correlated. The short term movement of the indices was dislocated beginning in August 2007. Due to the unintended consequences of government intervention in the commercial paper markets and limited issuances of qualifying financial commercial paper, the relationship between the three-month financial CP and LIBOR rates has continued to widen. To address this issue, the Department announced that for purposes of calculating the FFELP loan index from October 27, 2008 to December 31, 2008, the Federal Reserve’s Commercial Paper Funding Facility rate was used for those days in which no three-month financial commercial paper rate was available. This action partially mitigated the volatility between CP and LIBOR for the three-month period ended on December 31, 2008. However, the Department of Education did not make a similar adjustment for the first and second quarters of 2009, which negatively impacted the Company’s net interest income for the three and six months ended June 30, 2009.	
 		
 	•	 	The spread to LIBOR on asset-backed securities transactions has increased significantly since August 2007. The Company issued $4.4 billion of notes in asset-backed securities transactions in 2008 ($1.2 billion in March 2008, $1.9 billion in April 2008, and $1.3 billion in May 2008) and an additional $0.3 billion in March 2009. Prior to completing these asset-backed securities transactions, these loans were funded in the Company’s FFELP warehouse facility in which the cost of funds were lower than the asset-backed securities transactions.	
 		
 	•	 	The Company has used derivative instruments to hedge the repricing risk due to the timing of the interest rate resets on its assets and liabilities. The Company has entered into basis swaps in which the Company receives three-month LIBOR set discretely in advance and pays a daily weighted average three-month LIBOR less a spread as defined in the individual agreements (“the Average/Discrete Basis Swaps”). The Company received less settlements on its Average/Discrete Basis Swaps in the first and second quarters of 2009 compared to the same periods in 2008, due to the significant drop in interest rates which triggered larger settlements during the first and second quarters of 2008.	
 
 59 

Table of Contents

Three and six months ended June 30, 2009 compared to the three and six months ended June 30, 2008
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended June 30,	 	 	Six months ended June 30,	 	
 	 	 	 	 	 	 	 	 	 	Change	 	 	 	 	 	 	 	 	 	 	Change	 	
 	 	2009	 	 	2008	 	 	$	 	 	%	 	 	2009	 	 	2008	 	 	$	 	 	%	 	
Net interest income after provision for loan losses	 	$	49,895	 	 	 	53,891	 	 	 	(3,996	)	 	 	(7.4	)%	 	$	76,388	 	 	 	53,234	 	 	 	23,154	 	 	 	43.5	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan and guaranty servicing revenue	 	 	—	 	 	 	157	 	 	 	(157	)	 	 	(100.0	)	 	 	—	 	 	 	162	 	 	 	(162	)	 	 	(100.0	)	
Other income	 	 	4,241	 	 	 	4,851	 	 	 	(610	)	 	 	(12.6	)	 	 	8,892	 	 	 	9,708	 	 	 	(816	)	 	 	(8.4	)	
Gain (loss) on sale of loans	 	 	(196	)	 	 	48	 	 	 	(244	)	 	 	(508.3	)	 	 	(402	)	 	 	(47,426	)	 	 	47,024	 	 	 	(99.2	)	
Derivative market value, foreign currency, and put option adjustments	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	466	 	 	 	(466	)	 	 	(100.0	)	
Derivative settlements, net	 	 	9,535	 	 	 	11,638	 	 	 	(2,103	)	 	 	(18.1	)	 	 	33,893	 	 	 	55,165	 	 	 	(21,272	)	 	 	(38.6	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other income	 	 	13,580	 	 	 	16,694	 	 	 	(3,114	)	 	 	(18.7	)	 	 	42,383	 	 	 	18,075	 	 	 	24,308	 	 	 	134.5	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Salaries and benefits	 	 	1,735	 	 	 	1,954	 	 	 	(219	)	 	 	(11.2	)	 	 	3,510	 	 	 	4,178	 	 	 	(668	)	 	 	(16.0	)	
Restructure expense — severance and contract termination costs	 	 	—	 	 	 	(52	)	 	 	52	 	 	 	(100.0	)	 	 	—	 	 	 	1,844	 	 	 	(1,844	)	 	 	(100.0	)	
Impairment expense	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	9,351	 	 	 	(9,351	)	 	 	(100.0	)	
Other expenses	 	 	5,875	 	 	 	5,095	 	 	 	780	 	 	 	15.3	 	 	 	10,834	 	 	 	10,439	 	 	 	395	 	 	 	3.8	 	
Intersegment expenses	 	 	20,732	 	 	 	18,952	 	 	 	1,780	 	 	 	9.4	 	 	 	38,608	 	 	 	39,554	 	 	 	(946	)	 	 	(2.4	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating expenses	 	 	28,342	 	 	 	25,949	 	 	 	2,393	 	 	 	9.2	 	 	 	52,952	 	 	 	65,366	 	 	 	(12,414	)	 	 	(19.0	)	

“Base net income” before income taxes	 	 	35,133	 	 	 	44,636	 	 	 	(9,503	)	 	 	(21.3	)	 	 	65,819	 	 	 	5,943	 	 	 	59,876	 	 	 	1,007.5	 	
Income tax expense	 	 	(13,351	)	 	 	(13,837	)	 	 	486	 	 	 	(3.5	)	 	 	(25,012	)	 	 	(1,842	)	 	 	(23,170	)	 	 	1,257.9	 	

“Base net income”	 	$	21,782	 	 	 	30,799	 	 	 	(9,017	)	 	 	(29.3	)%	 	$	40,807	 	 	 	4,101	 	 	 	36,706	 	 	 	895.0	%	

Before Tax Operating Margin	 	 	55.3	%	 	 	63.2	%	 	 	 	 	 	 	 	 	 	 	55.4	%	 	 	8.3	%	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Before Tax Operating Margin - excluding restructure expense, impairment expense, and loss on sale of loans during the first quarter of 2008	 	 	55.3	%	 	 	63.2	%	 	 	 	 	 	 	 	 	 	 	55.4	%	 	 	54.4	%	 	 	 	 	 	 	 	 	
Net interest income after provision for loan losses .
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended June 30,	 	 	Change	 	
 	 	2009	 	 	2008	 	 	Dollars	 	 	Percent	 	
Loan interest	 	$	214,986	 	 	 	345,321	 	 	 	(130,335	)	 	 	(37.7	)%	
Consolidation rebate fees	 	 	(43,827	)	 	 	(47,721	)	 	 	3,894	 	 	 	8.2	 	
Amortization of loan premiums and deferred origination costs	 	 	(16,789	)	 	 	(22,841	)	 	 	6,052	 	 	 	26.5	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total loan interest	 	 	154,370	 	 	 	274,759	 	 	 	(120,389	)	 	 	(43.8	)	
Investment interest	 	 	1,863	 	 	 	7,534	 	 	 	(5,671	)	 	 	(75.3	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total interest income	 	 	156,233	 	 	 	282,293	 	 	 	(126,060	)	 	 	(44.7	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest on bonds and notes payable	 	 	97,916	 	 	 	221,856	 	 	 	(123,940	)	 	 	(55.9	)	
Intercompany interest	 	 	422	 	 	 	546	 	 	 	(124	)	 	 	(22.7	)	
Provision for loan losses	 	 	8,000	 	 	 	6,000	 	 	 	2,000	 	 	 	33.3	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income after provision for loan losses	 	$	49,895	 	 	 	53,891	 	 	 	(3,996	)	 	 	(7.4	)%	

 	•	 	Loan interest income decreased $130.3 million as a result of a decrease in the average student loan portfolio of $0.6 billion (2.5%) and a decrease in the yield earned on student loans due to a decrease in interest rates for the three months ended June 30, 2009 compared to the same period in 2008.	
 		
 	•	 	Consolidation rebate fees decreased due to the $1.8 billion (10.0%) decrease in the average consolidation portfolio.	
 		
 	•	 	The amortization of loan premiums and deferred origination costs decreased as a result of reduced costs to acquire or originate loans and a decrease in the yield earned on student loans.	
 
 60 

Table of Contents

 	•	 	Investment income decreased as a result of lower interest rates in the second quarter of 2009 as compared to the same period in 2008.	
 		
 	•	 	Interest expense decreased as a result of a decrease in interest rates on the Company’s variable rate debt which lowered the Company’s cost of funds (excluding net derivative settlements) to 1.52% for the three months ended June 30, 2009 compared to 3.31% for the same period a year ago. In addition, average debt decreased by $1.1 billion (4.0%) for the three months ended June 30, 2009 compared to the same period in 2008.	
 		
 	•	 	The provision for loan losses increased for the three months ended June 30, 2009 compared to the same period in 2008 primarily due to increases in delinquencies.	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Six months ended June 30,	 	 	Change	 	
 	 	2009	 	 	2008	 	 	Dollars	 	 	Percent	 	
Loan interest	 	$	447,572	 	 	 	731,747	 	 	 	(284,175	)	 	 	(38.8	)%	
Consolidation rebate fees	 	 	(88,304	)	 	 	(97,575	)	 	 	9,271	 	 	 	9.5	 	
Amortization of loan premiums and deferred origination costs	 	 	(35,439	)	 	 	(48,245	)	 	 	12,806	 	 	 	26.5	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total loan interest	 	 	323,829	 	 	 	585,927	 	 	 	(262,098	)	 	 	(44.7	)	
Investment interest	 	 	4,991	 	 	 	16,724	 	 	 	(11,733	)	 	 	(70.2	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total interest income	 	 	328,820	 	 	 	602,651	 	 	 	(273,831	)	 	 	(45.4	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest on bonds and notes payable	 	 	235,949	 	 	 	537,777	 	 	 	(301,828	)	 	 	(56.1	)	
Intercompany interest	 	 	983	 	 	 	640	 	 	 	343	 	 	 	53.6	 	
Provision for loan losses	 	 	15,500	 	 	 	11,000	 	 	 	4,500	 	 	 	40.9	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income (loss) after provision for loan losses	 	$	76,388	 	 	 	53,234	 	 	 	23,154	 	 	 	(43.5	)%	

 	•	 	Loan interest income decreased $284.2 million as a result of a decrease in the average student loan portfolio of $0.5 billion (2.0%) and a decrease in the yield earned on student loans due to a decrease in interest rates for the six months ended June 30, 2009 compared to the same period in 2008.	
 		
 	•	 	Consolidation rebate fees decreased due to the $2.3 billion (12.2%) decrease in the average consolidation portfolio.	
 		
 	•	 	The amortization of loan premiums and deferred origination costs decreased as a result of reduced costs to acquire or originate loans and a decrease in the yield earned on student loans.	
 		
 	•	 	Investment income decreased as a result of lower interest rates for the six months ended June 30, 2009 as compared to the same period in 2008.	
 		
 	•	 	Interest expense decreased as a result of a decrease in interest rates on the Company’s variable rate debt which lowered the Company’s cost of funds (excluding net derivative settlements) to 1.84% for the six months ended June 30, 2009 compared to 3.94% for the same period a year ago. In addition, average debt decreased by $1.6 billion (5.8%) for the six months ended June 30, 2009 compared to the same period in 2008.	
 		
 	•	 	The provision for loan losses increased for the six months ended June 30, 2009 compared to the same period in 2008 primarily due to increases in delinquencies.	
Loss on sale of loans . The Company sold student loan portfolios to third parties in 2008 and 2009 in order to reduce the amount of student loans remaining under the Company’s multi-year committed financing facility for FFELP loans, which reduced the Company’s exposure related to certain equity support provisions included in this facility. During the three and six months ended June 30, 2009, the Company sold $20.0 million (par value) and $40.4 million (par value), respectively, of federally insured student loans, resulting in the recognition of losses of $0.2 million and $0.4 million, respectively. On March 31, 2008, the Company sold $857.8 million (par value) of federally insured student loans resulting in the recognition of a loss of $30.4 million. In addition, on April 8, 2008, the Company sold $428.6 million (par value) of federally insured student loans. The portfolio of student loans sold on April 8, 2008 was presented as “held for sale” on the March 31, 2008 consolidated balance sheet and was valued at the lower of cost or fair value. The Company recognized a loss of $17.1 million during the three month period ended March 31, 2008 as a result of marking these loans to fair value.
Derivative settlements, net . The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. Management has structured all of the Company’s derivative transactions with the intent that each is economically effective; however, the Company’s derivative instruments do not qualify for hedge accounting under SFAS No. 133. Derivative settlements for each applicable period should be evaluated with the Company’s net interest income.
 
 61 

Table of Contents

Operating expenses . During the second quarter of 2009, the Asset Generation and Management operating segment paid $1.8 million in fees to the Student Loan and Guaranty Servicing operating segment to transfer loans between various financings as the Company was executing certain liquidity strategies. In addition, the Company recognized $0.8 million in expenses associated with the Company’s obligation to repurchase loans related to the participation of non-federally insured loans to third parties. Excluding these expenses and the restructure and impairment charges, operating expenses decreased $0.3 million (1.0%) and $3.8 million (7.0%) for the three and six months ended June 30, 2009 compared to same periods in 2008. Operating expenses decreased as a result of continued focus by the Company on managing costs and gaining efficiencies and continued benefits from prior restructuring activities.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s fee-based businesses are not capital intensive businesses and all of these businesses produce positive operating cash flows. As such, a minimal amount of debt and equity capital is allocated to these segments. Therefore, the majority of the Liquidity and Capital Resources discussion is concentrated on the Company’s Asset Generation and Management operating segment. The Company has historically utilized operating cash flow, secured financing transactions (which include warehouse facilities and asset-backed securitizations), operating lines of credit, and other borrowing arrangements to fund its Asset Generation and Management operations and student loan acquisitions. In addition, the Company uses operating cash flow, borrowings on its unsecured line of credit, and unsecured debt offerings to fund corporate activities, business acquisitions, and repurchases of common stock. The Company has also used its common stock to partially fund certain business acquisitions. The Company has a universal shelf registration statement with the SEC which allows the Company to sell up to $825.0 million of securities that may consist of common stock, preferred stock, unsecured debt securities, warrants, stock purchase contracts, and stock purchase units. The terms of any securities are established at the time of the offering.
The Company may issue equity and debt securities in the future in order to improve capital, increase liquidity, refinance upcoming maturities, or provide for general corporate purposes. Moreover, the Company may from time-to-time repurchase certain amounts of its outstanding secured and unsecured debt securities, including debt securities which the Company may issue in the future, for cash and/or through exchanges for other securities. Such repurchases or exchanges may be made in open market transactions, privately negotiated transactions, or otherwise. Any such repurchases or exchanges will depend on prevailing market conditions, the Company’s liquidity requirements, contractual restrictions, compliance with securities laws, and other factors. The amounts involved in any such transactions may be material.
 
 62 

Table of Contents

The following table summarizes the Company’s bonds and notes outstanding as of June 30, 2009:
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Carrying	 	 	Interest rate	 	 	 	 	
 	 	amount	 	 	range	 	 	Final maturity	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Variable-rate bonds and notes (a):	 	 	 	 	 	 	 	 	 	 	 	 	
Bonds and notes based on indices	 	$	20,063,227	 	 	 	0.61% – 6.90%	 	 	 	09/25/13 – 6/25/41	 	
Bonds and notes based on auction or remarketing	 	 	2,606,740	 	 	 	0.46% – 2.96%	 	 	 	11/01/09 – 07/01/43	 	

Total variable-rate bonds and notes	 	 	22,669,967	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Commercial paper — FFELP facility (b)	 	 	420,936	 	 	 	0.32% – 1.13%	 	 	 	05/09/10	 	
Fixed-rate bonds and notes (a)	 	 	188,797	 	 	 	5.40% – 6.50%	 	 	 	11/01/09 – 05/01/29	 	
Unsecured fixed rate debt	 	 	402,864	 	 	 	5.125% and 7.40%	 	 	 	06/01/10 and 09/15/61	 	
Unsecured line of credit	 	 	691,500	 	 	 	0.79% – 0.85%	 	 	 	05/08/12	 	
Department of Education Participation	 	 	1,741,481	 	 	 	1.24%	 	 	 	09/30/09	 	
Department of Education Conduit	 	 	1,023,600	 	 	 	0.52%	 	 	 	05/08/14	 	
Other borrowings	 	 	30,428	 	 	 	0.32% – 5.10%	 	 	 	01/10/10 – 11/01/15	 	

 	 	$	27,169,573	 	 	 	 	 	 	 	 	 	

(a)	 	Issued in asset-backed securitizations	
 		
(b)	 	Loan warehouse facilities	
Secured Financing Transactions
The Company has historically relied upon secured financing vehicles as its most significant source of funding for student loans. The net cash flow the Company receives from the securitized student loans generally represents the excess amounts, if any, generated by the underlying student loans over the amounts required to be paid to the bondholders, after deducting servicing fees and any other expenses relating to the securitizations. The Company’s rights to cash flow from securitized student loans are subordinate to bondholder interests and may fail to generate any cash flow beyond what is due to bondholders. The Company’s secured financing vehicles are loan warehouse facilities, asset-backed securitizations, and the government’s Participation and Conduit Programs (as described below).
Historically, the Company funded new loan originations using loan warehouse facilities and asset-backed securitizations. Student loan warehousing has historically allowed the Company to buy and manage student loans prior to transferring them into more permanent financing arrangements. In July 2008, the Company did not renew its liquidity provisions on its FFELP warehouse facility. Accordingly, the facility became a term facility and no new loan originations could be funded with this facility. In August 2008, the Company began funding FFELP Stafford and PLUS student loan originations for the 2008-2009 academic year pursuant to the Department’s Loan Participation Program and a participation agreement with Union Bank.
Loan warehouse facilities
Student loan warehousing has historically allowed the Company to buy and manage student loans prior to transferring them into more permanent financing arrangements. To support its funding needs on a short-term basis, the Company historically relied upon a multi-year committed facility for FFELP loans as further discussed below.
FFELP Warehouse Facility
The Company’s multi-year committed facility for FFELP loans terminates in May 2010 and was supported by 364-day liquidity which was up for renewal on May 9, 2008. The Company obtained an extension on this renewal until July 31, 2008. On July 31, 2008, the Company did not renew the liquidity provisions of this facility. Accordingly, as of July 31, 2008, the facility became a term facility with a final maturity date of May 9, 2010. Pursuant to the terms of the agreement, since liquidity was not renewed, the Company’s cost of financing under this facility increased 10 basis points. The agreement also includes provisions which allow the banks to charge a rate equal to LIBOR plus 128.5 basis points if they choose to finance their portion of the facility with sources of funds other than their commercial paper conduit.
The terms and conditions of the Company’s warehouse facility for FFELP loans provides for formula based advance rates based on market conditions. While the Company does not believe that the loan valuation formula is reflective of the actual fair value of its loans, it is subject to compliance with such mark-to-formula provisions of the warehouse facility agreement. As of December 31, 2008, the Company had $1.6 billion of student loans in the facility, $1.4 billion borrowed under the facility, and $280.6 million posted as equity funding support for this facility.
 
 63 

Table of Contents

On March 26, 2009, the Company completed a privately placed asset-backed securitization of $294.6 million. Subsequent to March 31, 2009, the Company used the proceeds from the sale of these notes and additional funds of approximately $10 million to purchase approximately $305 million of principal and interest on student loans, which were previously financed under the Company’s FFELP warehouse facility.
In June 2009, the Company accessed the Department’s Conduit Program (as further discussed below) to fund approximately $790 million of principal and interest on student loans, which were previously financed under the Company’s FFELP warehouse facility. The Company is permitted to fund 97% of the principal and interest expected to be capitalized. Accordingly, the Company borrowed approximately $763 million under the Conduit Program for purposes of refinancing loans in the FFELP warehouse facility. Excess amounts needed to fund the remaining 3% of the student loan balances were contributed by the Company.
Removing student loans from the FFELP warehouse facility as a result of the privately placed asset-backed securitization and Conduit Program allowed the Company to withdraw cash posted as equity funding support for the FFELP facility. As of June 30, 2009, the Company had $403.7 million of student loans in the facility, $420.9 million borrowed under the facility, and $62.8 million posted as equity funding support.
On August 3, 2009, the Company entered into a new FFELP warehouse facility (the “2009 FFELP Warehouse Facility”). The 2009 FFELP Warehouse Facility has a maximum financing amount of $500.0 million, with a revolving financing structure supported by 364-day liquidity provisions, which expire on August 2, 2010. The final maturity date of the facility is August 3, 2012. In the event the Company is unable to renew the liquidity provisions by August 2, 2010, the facility would become a term facility at a stepped-up cost, with no additional student loans being eligible for financing, and the Company would be required to refinance the existing loans in the facility by August 3, 2012. The Company plans to utilize the new facility to refinance the remaining student loans in the Company’s prior FFELP warehouse facility that expires in May 2010. Refinancing these loans will allow the Company to withdraw all remaining equity funding support from the prior FFELP warehouse facility.
The 2009 FFELP Warehouse Facility provides for formula based advance rates depending on FFELP loan type. The advance rates for collateral may increase or decrease based on market conditions. The all-in pricing for the facility during the first year (including up-front fees and other costs to structure the facility) is expected to be just below the conduit’s commercial paper rate plus 1%. The facility contains covenants, including financial covenants relating to levels of the Company’s consolidated net worth, ratio of adjusted EBITDA to corporate debt interest, and unencumbered cash. Any violation of these covenants could result in a requirement for the immediate repayment of any outstanding borrowings under the facility. Unlike the Company’s prior FFELP warehouse facility, the new facility does not require the Company to refinance or remove a percentage of the pledged student loan collateral on an annual basis.
Private Loan Warehouse Facility
On February 25, 2009, the Company paid $91.5 million on the debt of its private loan warehouse facility with operating cash and terminated the facility. Beginning in January 2008, the Company suspended private student loan originations.
Asset-backed securitizations
Of the $27.2 billion of debt outstanding as of June 30, 2009, $22.9 billion was issued under term asset-backed securitizations. Depending on market conditions, the Company anticipates continuing to access the asset-backed securities market. As a result of the disruptions in the credit markets, the Company may not be able to issue asset-backed financings at rates historically achieved by the Company, at levels equal to or less than other financing agreements, or at levels otherwise considered beneficial to the Company. Accordingly, the Company’s operational and financial results may be negatively impacted. Securities issued in the securitization transactions are generally priced based upon a spread to LIBOR or set under an auction or remarketing procedure.
 
 64 

Table of Contents

LIBOR based notes
As of June 30, 2009, the Company had $20.1 billion of notes issued under asset-backed securitizations that primarily reprice at a fixed spread to three month LIBOR and are structured to substantially match the maturity of the funded assets. These notes fund FFELP student loans that are predominantly set based on a spread to three month commercial paper. The three month LIBOR and three month commercial paper indexes have historically been highly correlated. Based on cash flows developed to reflect management’s current estimate of, among other factors, prepayments, defaults, deferment, forbearance, and interest rates, the Company currently expects future undiscounted cash flows from these transactions will be in excess of $1.4 billion. These cash flows consist of net spread and servicing and administrative revenue in excess of estimated cost. However, due to the unintended consequences of government intervention in the commercial paper markets and limited issuances of qualifying financial commercial paper, the relationship between the three-month financial commercial paper and LIBOR rates has been distorted and volatile. Such distortion has had and may continue to have a significant impact on the earnings and cash flows of this portfolio.
Auction or remarketing based notes
The interest rates on certain of the Company’s asset-backed securities are set and periodically reset via a “dutch auction” (“Auction Rate Securities”) or through a remarketing utilizing remarketing agents (“Variable Rate Demand Notes”). The Company is currently sponsor on approximately $1.9 billion of Auction Rate Securities and $0.8 billion of Variable Rate Demand Notes.
For Auction Rate Securities, investors and potential investors submit orders through a broker-dealer as to the principal amount of notes they wish to buy, hold, or sell at various interest rates. The broker-dealers submit their clients’ orders to the auction agent, who then determines the clearing interest rate for the upcoming period. Interest rates on these Auction Rate Securities are reset periodically, generally every 7 to 35 days, by the auction agent or agents. During the first quarter of 2008, as part of the credit market crisis, auction rate securities from various issuers failed to receive sufficient order interest from potential investors to clear successfully, resulting in failed auction status. Since February 8, 2008, the Company’s Auction Rate Securities have failed in this manner. Under normal conditions, banks have historically purchased these securities when investor demand is weak. However, since February 2008, banks have been allowing auctions to fail. Currently, all of the Company’s Auction Rate Securities are in a failed auction status and the Company believes they will remain in a failed status for an extended period of time and possibly permanently.
As a result of a failed auction, the Auction Rate Securities will generally pay interest to the holder at a maximum rate as defined by the indenture. While these rates will vary, they will generally be based on a spread to LIBOR or Treasury Securities. Due to the failed auctions related to these securities, the Company has been and may continue to be subject to interest costs substantially above the anticipated and historical rates paid on these types of securities.
The Company cannot predict whether future auctions related to its Auction Rate Securities will be successful, but management believes it is likely auctions will continue to fail indefinitely. The Company is currently seeking alternatives for reducing its exposure to the auction rate market, but may not be able to achieve alternate financing for some or all of its Auction Rate Securities.
In accordance with the various indentures, the Company expects to use funds available in the trust to such securities purchase for cash in open market transactions, privately negotiated transactions, or otherwise to redeem such securities. Under the terms of the indentures, the purchase price paid in any such transaction must be less than the par amount of securities acquired. Any redemptions in the normal course must be made at par. Any such transaction will depend on prevailing market conditions, liquidity requirements, contractual restrictions, compliance with securities laws, and other factors.
For Variable Rate Demand Notes, the remarketing agents set the price, which is then offered to investors. If there are insufficient potential bid orders to purchase all of the notes offered for sale, the Company could be subject to interest costs substantially above the anticipated and historical rates paid on these types of securities.
Department of Education’s Conduit Program
In January 2009, the Department published summary terms under which it will finance eligible FFELP Stafford and PLUS loans in a conduit vehicle established to provide funding for student lenders. Loans eligible for the Conduit Program must be first disbursed on or after October 1, 2003, but not later than June 30, 2009, and fully disbursed before September 30, 2009, and meet certain other requirements. The Conduit Program was launched on May 11, 2009. Funding for the Conduit Program is provided by the capital markets at a cost based on market rates, with the Company being advanced 97 percent of the student loan face amount. The Conduit Program has a term of five years and expires on May 8, 2014. The Student Loan Notes issued by the Conduit Program are supported by a combination of (i) notes backed by FFELP loans, (ii) the Liquidity Agreement with the Federal Financing Bank, and (iii) the Put Agreement provided by the Department. If the conduit does not have sufficient funds to pay all Student Loan Notes then those Student Loan Notes will be repaid with funds from the Federal Financing Bank. The Federal Financing Bank will hold the notes for a short period of time and, if at the end of that time, the Student Loan Notes still cannot be paid off, the underlying FFELP loans that serve as collateral to the Conduit Program will be sold to the Department through the Put Agreement at a price of 97% of the face amount of the loans. As of June 30, 2009, the Company had $1.1 billion of student loans funded through the Conduit Program and $1.0 billion borrowed under the facility.
Funding New FFELP Student Loan Originations
As previously discussed, in July 2008, the Company did not renew its liquidity provisions on its FFELP warehouse facility. Accordingly, the facility became a term facility and no new loan originations could be funded with this facility. In August 2008, the Company began funding FFELP Stafford and PLUS student loan originations for 2008-2009 academic year pursuant to a participation agreement with Union Bank and the Department’s Loan Participation Program.
 
 65 

Table of Contents

Union Bank Participation Agreement
The Company maintains an agreement with Union Bank, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in student loans (the “FFELP Participation Agreement”). The Company has the option to purchase the participation interests from the grantor trusts at the end of a 364-day period upon termination of the participation certificate. As of June 30, 2009, $786.3 million of loans were subject to outstanding participation interests held by Union Bank, as trustee, under this agreement. The agreement automatically renews annually and is terminable by either party upon five business days notice. This agreement provides beneficiaries of Union Bank’s grantor trusts with access to investments in interests in student loans, while providing liquidity to the Company on a short term basis. The Company can participate loans to Union Bank to the extent of availability under the grantor trusts, up to $750 million or an amount in excess of $750 million if mutually agreed to by both parties. Loans participated under this agreement qualify as a sale pursuant to the provisions of SFAS No. 140. Accordingly, the participation interests sold are not included on the Company’s consolidated balance sheet.
Department of Education’s Loan Participation and Purchase Commitment Programs
In August 2008, the Department implemented the Purchase and Participation Programs pursuant to ECASLA. Under the Department’s Purchase Program, the Department will purchase loans at a price equal to the sum of (i) par value, (ii) accrued interest, (iii) the one percent origination fee paid to the Department, and (iv) a fixed amount of $75 per loan. Under the Participation Program, the Department provides interim short term liquidity to FFELP lenders by purchasing participation interests in pools of FFELP loans. FFELP lenders are charged a rate of commercial paper plus 50 basis points on the principal amount of participation interests outstanding. Loans funded under the Participation Program must be either refinanced by the lender or sold to the Department pursuant to the Purchase Program prior to its expiration on September 30, 2009. To be eligible for purchase or participation under the Department’s programs, loans were originally limited to FFELP Stafford or PLUS loans made for the academic year 2008-2009, first disbursed between May 1, 2008 and July 1, 2009, with eligible borrower benefits.
On October 7, 2008, legislation was enacted to extend the Department’s authority to address FFELP student loans made for the 2009-2010 academic year and allowing for the extension of the Participation Program and Purchase Program from September 30, 2009 to September 30, 2010. The Department indicated that loans for the 2008-2009 academic year which are funded under the Department’s Participation Program will need to be refinanced or sold to the Department prior to September 30, 2009. On November 8, 2008, the Department announced the replication of the terms of the Participation and Purchase Programs, in accordance with the October 7, 2008 legislation, which will include FFELP student loans made for the 2009-2010 academic year.
As of June 30, 2009, the Company had $1.7 billion of FFELP loans funded using the Participation Program, which are classified as held for sale on the Company’s consolidated balance sheet. These loans are expected to be sold to the Department under its Purchase Program. Upon selling the $1.7 billion in loans, the Company expects to recognize a gain of $31 million to $34 million.
The Company plans to continue to use the Participation and Purchase Programs to fund loans originated through the 2009-2010 academic year.
Unsecured Line of Credit
The Company has a $750.0 million unsecured line of credit that terminates in May 2012. As of June 30, 2009, there was $691.5 million outstanding on this line. The weighted average interest rate on this line of credit was 0.80% as of June 30, 2009. Upon termination in 2012, there can be no assurance that the Company will be able to maintain this line of credit, find alternative funding, or increase the amount outstanding under the line, if necessary. The lending commitment under the Company’s unsecured line of credit is provided by a total of thirteen banks, with no individual bank representing more than 11% of the total lending commitment. The bank lending group includes Lehman Brothers Bank, a subsidiary of Lehman Brothers Holdings Inc., which represents approximately 7% of the lending commitment under the line of credit. On September 15, 2008, Lehman Brothers Holdings Inc. filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. Since the bankruptcy filing, the Company has experienced funding delays from Lehman and does not expect Lehman to fund future borrowing requests. As of June 30, 2009, excluding Lehman’s lending commitment, the Company had $51.2 million available for future use under its unsecured line of credit.
The line of credit agreement contains certain financial covenants that, if not met, lead to an event of default under the agreement. The covenants include maintaining:

 	•	 	A minimum consolidated net worth	
 		
 	•	 	A minimum adjusted EBITDA to corporate debt interest (over the last four rolling quarters)	
 		
 	•	 	A limitation on subsidiary indebtedness	
 		
 	•	 	A limitation on the percentage of non-guaranteed loans in the Company’s portfolio	
As of June 30, 2009, the Company was in compliance with all of these requirements. Many of these covenants are duplicated in the Company’s other lending facilities, including its FFELP warehouse facilities.
A default on the 2009 FFELP Warehouse Facility would result in an event of default on the Company’s unsecured line of credit that would result in the outstanding balance on the line of credit becoming immediately due and payable.
 
 66 

Table of Contents

The Company’s operating line of credit does not have any covenants related to unsecured debt ratings. However, changes in the Company’s ratings (as well as the amounts the Company borrows) have modest implications on the pricing level at which the Company obtains funding.
Unsecured Debt Offerings
In May 2005, the Company issued $275.0 million in aggregate principal amount of the 2010 Notes. The 2010 Notes are unsecured obligations of the Company. The interest rate on the 2010 Notes is 5.125%, payable semiannually. At the Company’s option, the 2010 Notes are redeemable in whole at any time or in part from time to time at the redemption price described in the Company’s prospectus supplement.
During the first and second quarters of 2009, the Company purchased $34.9 million and $35.5 million, respectively, of the 2010 Notes for a purchase price of $26.8 million and $31.1 million, respectively. These transactions resulted in a gain of $8.1 million and $4.4 million, respectively. On July 28, 2009, the Company purchased $102.6 million of the 2010 Notes at par. Subsequent to this transaction, the Company has $102.0 million of 2010 Notes outstanding.
In September 2006, the Company issued $200.0 million aggregate principal amount of Junior Subordinated Hybrid Securities (“Hybrid Securities”). The Hybrid Securities are unsecured obligations of the Company. The interest rate on the Hybrid Securities from the date they were issued through the optional redemption date, September 28, 2011, is 7.40%, payable semi-annually. Beginning September 29, 2011 through September 29, 2036, the “scheduled maturity date”, the interest rate on the Hybrid Securities will be equal to three-month LIBOR plus 3.375%, payable quarterly. The principal amount of the Hybrid Securities will become due on the scheduled maturity date only to the extent that the Company has received proceeds from the sale of certain qualifying capital securities prior to such date (as defined in the Hybrid Securities’ prospectus). If any amount is not paid on the scheduled maturity date, it will remain outstanding and bear interest at a floating rate as defined in the prospectus, payable monthly. On September 15, 2061, the Company must pay any remaining principal and interest on the Hybrid Securities in full whether or not the Company has sold qualifying capital securities. At the Company’s option, the Hybrid Securities are redeemable in whole at any time or in part from time to time at the redemption price described in the prospectus supplement.
During the second quarter of 2009, the Company purchased $1.75 million of its Hybrid Securities for a purchase price of $0.35 million which resulted in a gain of $1.4 million.
Contractual Obligations
The Company is committed under noncancelable operating leases for certain office and warehouse space and equipment. The Company’s contractual obligations as of June 30, 2009 were as follows:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Less than	 	 	1 to 3	 	 	3 to 5	 	 	More than	 	
 	 	Total	 	 	1 year	 	 	years	 	 	years	 	 	5 years	 	
Bonds and notes payable	 	$	27,169,573	 	 	 	2,433,272	 	 	 	811,311	 	 	 	1,359,558	 	 	 	22,565,432	 	
Operating lease obligations (a)	 	 	31,096	 	 	 	8,624	 	 	 	12,828	 	 	 	8,449	 	 	 	1,195	 	
Other	 	 	36,863	 	 	 	20,000	 	 	 	16,863	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	27,237,532	 	 	 	2,461,896	 	 	 	841,002	 	 	 	1,368,007	 	 	 	22,566,627	 	

(a)	 	Operating lease obligations are presented net of approximately $2.1 million in sublease arrangements.	
As of June 30, 2009, the Company had a reserve of $6.6 million for uncertain income tax positions (including the federal benefit received from state positions and accrued interest) per the provisions of Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (“FIN 48”). This obligation is not included in the above table as the timing and resolution of the income tax positions cannot be reasonably estimated at this time.
The Company has an obligation to purchase $36.9 million of private loans from an unrelated financial institution in quarterly installments of approximately $5.0 million through the third quarter of 2010 with any remaining amount to be purchased at that time. This obligation is included in “other” in the above table.
 
 67 

Table of Contents

During the three and six month period ended June 30, 2009, the Company participated $14.5 million and $65.0 million, respectively, of non-federally insured loans to third parties. Loans participated under these agreements qualify as sales pursuant to the provisions of SFAS No. 140. Accordingly, the participation interests sold are not included on the Company’s consolidated balance sheet. Per the terms of the servicing agreements, the Company’s servicing operations is obligated to repurchase loans subject to the participation interests when such loans become 60 or 90 days delinquent. As of June 30, 2009, the Company has $7.6 million accrued related to this obligation which is included in “other liabilities” in the Company’s consolidated balance sheet. This obligation is not included in the above table.
The Company has commitments with its branding partners and forward flow lenders which obligate the Company to purchase loans originated under specific criteria, although the branding partners and forward flow lenders are typically not obligated to provide the Company with a minimum amount of loans. These commitments generally run for periods ranging from one to five years and are generally renewable. The Company has significant financing needs that it meets through the capital markets, including the debt and secondary markets. Since August 2007, these markets have experienced unprecedented disruptions, which are having an adverse impact on the Company’s earnings and financial condition. The Company cannot determine nor control the length of time or extent to which the capital markets will remain disrupted. Accordingly, the Company has the ability to exercise contractual rights to discontinue, suspend, or defer the acquisition of student loans in connection with its branding and forward flow relationships. Commitments to purchase loans under these arrangements are not included in the table above.
As a result of the Company’s previous acquisitions, the Company has certain contractual obligations or commitments as follows:

 	•	 	LoanSTAR Funding Group, Inc. (“LoanSTAR”) — As part of the agreement for the acquisition of the capital stock of LoanSTAR from the Greater Texas Foundation (“Texas Foundation”), the Company agreed to sell student loans in an aggregate amount sufficient to permit the Texas Foundation to maintain a portfolio of loans equal to no less than $200 million through October 2010. The sales price for such loans is the fair value mutually agreed upon between the Company and the Texas Foundation. To satisfy this obligation, the Company is obligated to sell loans to the Texas Foundation on a quarterly basis; however, the Foundation recently has chosen not to purchase such loans.	
 		
 	•	 	infiNET Integrated Solutions, Inc. (“infiNET”) — Stock price guarantee of $104.8375 per share on 95,380 shares of Class A Common Stock (less the greater of $41.9335 or the gross sales price such seller obtains from a sale of the shares occurring prior to February 28, 2011 as defined in the agreement) issued as part of the original purchase price. The obligation to pay this guaranteed stock price is due February 28, 2011 and is not included in the table above. Based upon the closing sale price of the Company’s Class A Common Stock as of June 30, 2009 of $13.59 per share, the Company’s obligation under this stock price guarantee would have been $6.0 million (($104.8375 — $41.9335) x 95,380 shares). Any cash paid by the Company in consideration of satisfying the guaranteed value of stock issued for this acquisition would be recorded by the Company as a reduction to additional paid-in capital.	
Sources of Liquidity
Sources of Liquidity Available for New FFELP Stafford and PLUS Loans
The Company has unlimited sources of primary liquidity available for new FFELP Stafford and PLUS loan originations through the 2009-2010 academic year under the Department’s Participation and Purchase Programs. In addition, the Company maintains an agreement with Union Bank, as trustee for various grantor trusts, under which Union Bank has agreed to purchase from the Company participation interests in student loans. See “Union Bank Participation Agreement” discussed earlier in this section.
Sources of Liquidity Available for General Corporate Purposes
The following table details the Company’s primary sources of liquidity and the available capacity at August 7, 2009 for general corporate purposes:
 	 	 	 	 	
Sources of primary liquidity: (a)	 	 	 	 	
Cash and cash equivalents (b)	 	$	345,000	 	
Unencumbered FFELP student loan assets	 	 	16,000	 	
Unencumbered private student loan assets	 	 	170,000	 	
Unused unsecured line of credit (c)	 	 	51,000	 	

Total sources of primary liquidity	 	$	582,000	 	

(a)	 	The sources of primary liquidity table above does not include asset-backed security investments. As part of the Company’s issuance of asset-backed securitizations in March 2008 and May 2008, due to credit market conditions when these notes were issued, the Company purchased the Class B subordinated notes of $36 million (par value) and $41 million (par value), respectively. These notes are not included on the Company’s consolidated balance sheet. If the credit market conditions improve, the Company anticipates selling these notes to third parties. Upon a sale to third parties, the Company would obtain cash proceeds equal to the market value of the notes on the date of such sale. Upon sale, these notes would be shown as “bonds and notes payable” on the Company’s consolidated balance sheet. Unless there is a significant market improvement, the Company believes the market value of such notes will be less than par value. The difference between the par value and market value would be recognized by the Company as interest expense over the life of the bonds.	
 
 68 

Table of Contents

 	 	 	
(b)	 	The Company also has restricted cash and investments; however, the Company is limited in the amounts of funds that can be transferred from its subsidiaries through intercompany loans, advances, or cash dividends. These limitations result from the restrictions contained in trust indentures under debt financing arrangements to which the Company’s education lending subsidiaries are parties. The Company does not believe these limitations will significantly affect its operating cash needs. The amounts of cash and investments restricted in the respective reserve accounts of the education lending subsidiaries are shown on the balance sheets as restricted cash and investments.	
 		
(c)	 	The lending commitment under the Company’s unsecured line of credit is provided by a total of thirteen banks, with no individual bank representing more than 11% of the total lending commitment. The bank lending group includes Lehman Brothers Bank, a subsidiary of Lehman Brothers Holdings Inc., which represents approximately 7% of the lending commitment under the line of credit. On September 15, 2008, Lehman Brothers Holdings Inc. filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. Since the bankruptcy filing, the Company has experienced funding delays from Lehman and does not expect Lehman to fund future borrowing requests. The amount included in the table above excludes Lehman’s commitment.	
Dividends
In the first quarter of 2007, the Company began paying dividends of $0.07 per share on the Company’s Class A and Class B Common Stock which were paid quarterly through the first quarter of 2008. On May 21, 2008, the Company announced that it was temporarily suspending its quarterly dividend program. The Company will continue to evaluate its dividend policy, which is subject to future earnings, capital requirements, financial condition, and other factors.
CRITICAL ACCOUNTING POLICIES
This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of income and expenses during the reporting periods. The Company bases its estimates and judgments on historical experience and on various other factors that the Company believes are reasonable under the circumstances. Actual results may differ from these estimates under varying assumptions or conditions. Note 3 of the consolidated financial statements, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, includes a summary of the significant accounting policies and methods used in the preparation of the consolidated financial statements.
On an on-going basis, management evaluates its estimates and judgments, particularly as they relate to accounting policies that management believes are most “critical” — that is, they are most important to the portrayal of the Company’s financial condition and results of operations and they require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management has identified the following critical accounting policies that are discussed in more detail below: allowance for loan losses, revenue recognition, impairment assessments related to goodwill and intangible assets, income taxes, and accounting for derivatives.
Allowance for Loan Losses
The allowance for loan losses represents management’s estimate of probable losses on student loans. This evaluation process is subject to numerous estimates and judgments. The Company evaluates the adequacy of the allowance for loan losses on its federally insured loan portfolio separately from its non-federally insured loan portfolio.
The allowance for the federally insured loan portfolio is based on periodic evaluations of the Company’s loan portfolios considering past experience, trends in student loan claims rejected for payment by guarantors, changes to federal student loan programs, current economic conditions, and other relevant factors. Should any of these factors change, the estimates made by management would also change, which in turn would impact the level of the Company’s future provision for loan losses.
In determining the adequacy of the allowance for loan losses on the non-federally insured loans, the Company considers several factors including: loans in repayment versus those in a nonpaying status, months in repayment, delinquency status, type of program, and trends in defaults in the portfolio based on Company and industry data. Should any of these factors change, the estimates made by management would also change, which in turn would impact the level of the Company’s future provision for loan losses. The Company places a non-federally insured loan on nonaccrual status when the collection of principal and interest is 30 days past due and charges off the loan when the collection of principal and interest is 120 days past due.
The allowance for federally insured and non-federally insured loans is maintained at a level management believes is adequate to provide for estimated probable credit losses inherent in the loan portfolio. This evaluation is inherently subjective because it requires estimates that may be susceptible to significant changes.
 
 69 

Table of Contents

Revenue Recognition
Student Loan Income — The Company recognizes student loan income as earned, net of amortization of loan premiums and deferred origination costs. Loan income is recognized based upon the expected yield of the loan after giving effect to borrower utilization of incentives such as principal reductions for timely payments (“borrower benefits”) and other yield adjustments. The estimate of the borrower benefits discount is dependent on the estimate of the number of borrowers who will eventually qualify for these benefits. For competitive and liquidity purposes, the Company frequently changes the borrower benefit programs in both amount and qualification factors. These programmatic changes must be reflected in the estimate of the borrower benefit discount. Loan premiums, deferred origination costs, and borrower benefits are included in the carrying value of the student loan on the consolidated balance sheet and are amortized over the estimated life of the loan in accordance with SFAS No. 91, Accounting for Non-Refundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases . The most sensitive estimate for loan premiums, deferred origination costs, and borrower benefits is the estimate of the constant prepayment rate (“CPR”). CPR is a variable in the life of loan estimate that measures the rate at which loans in a portfolio pay before their stated maturity. The CPR is directly correlated to the average life of the portfolio. CPR equals the percentage of loans that prepay annually as a percentage of the beginning of period balance. A number of factors can affect the CPR estimate such as the rate of consolidation activity and default rates. Should any of these factors change, the estimates made by management would also change, which in turn would impact the amount of loan premium and deferred origination cost amortization recognized by the Company in a particular period.
Other Income — Other income is primarily attributable to fees for providing services and the sale of lists and print products. Fees associated with services are recognized in the period services are rendered and earned under service arrangements with clients where service fees are fixed or determinable and collectability is reasonably assured. The Company’s service fees are determined based on written price quotations or service agreements having stipulated terms and conditions that do not require management to make any significant judgments or assumptions regarding any potential uncertainties. Revenue from the sale of lists and print products is generally earned and recognized, net of estimated returns, upon shipment or delivery.
The Company assesses collectability of revenues and its allowance for doubtful accounts based on a number of factors, including past transaction history with the customer and the credit-worthiness of the customer. An allowance for doubtful accounts is established to record accounts receivable at estimated net realizable value. If the Company determines that collection of revenues is not reasonably assured at or prior to delivery of the Company’s services, revenue is recognized upon the receipt of cash.
Goodwill and Intangible Assets — Impairment Assessments
The Company reviews goodwill for impairment annually and whenever triggering events or changes in circumstances indicate its carrying value may not be recoverable in accordance with SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”). The provisions of SFAS No. 142 require that a two-step impairment test be performed on goodwill. In the first step, the Company compares the fair value of each reporting unit to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is considered not impaired and the Company is not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the Company must perform the second step of the impairment test in order to determine the implied fair value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then the Company would record an impairment loss equal to the difference.
Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions, and determination of appropriate market comparables. Actual future results may differ from those estimates.
The Company makes judgments about the recoverability of purchased intangible assets annually and whenever triggering events or changes in circumstances indicate that an other than temporary impairment may exist. Each quarter the Company evaluates the estimated remaining useful lives of purchased intangible assets and whether events or changes in circumstances warrant a revision to the remaining periods of amortization. In accordance with FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets , recoverability of these assets is measured by comparison of the carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset.
Assumptions and estimates about future values and remaining useful lives of the Company’s intangible and other long-lived assets are complex and subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in the Company’s business strategy and internal forecasts. Although the Company believes the historical assumptions and estimates used are reasonable and appropriate, different assumptions and estimates could materially impact the reported financial results.
Income Taxes
The Company is subject to the income tax laws of the U.S and its states and municipalities in which the Company operates. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant government taxing authorities. In establishing a provision for income tax expense, the Company must make judgments and interpretations about the application of these inherently complex tax laws. The Company must also make estimates about when in the future certain items will affect taxable income in the various tax jurisdictions. Disputes over interpretations of the tax laws may be subject to review/adjudication by the court systems of the various tax jurisdictions or may be settled with the taxing authority upon examination or audit. The Company reviews these balances quarterly and as new information becomes available, the balances are adjusted, as appropriate.
 
 70 

Table of Contents

Derivative Accounting
The Company accounts for its derivatives in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities , as amended by SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment of FASB Statement No. 133. SFAS No. 133 requires that every derivative instrument, including certain derivative instruments embedded in other contracts, be recorded at fair value on the balance sheet as either an asset or liability. The Company determines the fair value for its derivative contracts using either (i) pricing models that consider current market conditions and the contractual terms of the derivative contract or (ii) counterparty valuations. These factors include interest rates, time value, forward interest rate curve, and volatility factors, as well as foreign exchange rates. Pricing models and their underlying assumptions impact the amount and timing of unrealized gains and losses recognized, and the use of different pricing models or assumptions could produce different financial results. Management has structured all of the Company’s derivative transactions with the intent that each is economically effective. However, the Company’s derivative instruments do not qualify for hedge accounting under SFAS No. 133. Accordingly, changes in the fair value of derivative instruments are reported in current period earnings. Net settlements on derivatives are included in “derivative market value, foreign currency, and put option adjustments and derivative settlements, net” on the consolidated statements of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements . This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of SFAS No. 157 are effective as of the beginning of the first fiscal year that begins after November 15, 2007 (January 1, 2008 for the Company) and is to be applied prospectively. The Company adopted SFAS No. 157 on January 1, 2008.
In February 2008, the FASB released FSP SFAS No. 157-2, Effective Date of FASB Statement No. 157 , which delayed the application of SFAS No. 157 to nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. For the Company, SFAS No. 157-2 was effective January 1, 2009. Effective January 1, 2009, the Company adopted SFAS No. 157 on certain nonfinancial assets and nonfinancial liabilities, which are recorded at fair value only upon impairment.
In light of the recent economic turmoil occurring in the United States, the FASB released FSP SFAS No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active (“SFAS No. 157-3”), on October 10, 2008. SFAS No. 157-3 clarified, among other things, that quotes and other market inputs need not be solely used to determine fair value if they do not relate to an active market. SFAS No. 157-3 points out that when relevant observable market information is not available, an approach that incorporates management’s judgments about the assumptions that market participants would use in pricing the asset in a current sale transaction would be acceptable (such as a discounted cash flow analysis). Regardless of the valuation technique applied, entities must include appropriate risk adjustments that market participants would make, including adjustments for nonperformance risk (credit risk) and liquidity risk.
In April 2009, the FASB released FSP SFAS 157-4, Determining Fair Value When Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (“SFAS No. 157-4”). SFAS No. 157-4 supersedes SFAS No. 157-3. SFAS No. 157-4 provides guidance on how to determine the fair value of assets and liabilities when the volume and level of activity for the asset/liability has significantly decreased. SFAS No. 157-4 also provides guidance on identifying circumstances that indicate a transaction is not orderly. In addition, SFAS No. 157-4 requires disclosure in interim and annual periods of the inputs and valuation techniques used to measure fair value and a discussion of changes in valuation techniques. SFAS No. 157-4 is effective for interim and annual periods ending after June 15, 2009 (June 30, 2009 for the Company) and shall be applied prospectively. SFAS No. 157-4 does not have a material impact on the preparation of and disclosures in the Company’s consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (“SFAS No. 160”), which establishes new standards governing the accounting for and reporting of noncontrolling interests (“NCIs”) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCIs (previously referred to as minority interests) be treated as a separate component of equity, not as a liability; that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions, rather than as step acquisitions or dilution gains or losses; and that losses of a partially owned consolidated subsidiary be allocated to the NCI even when such allocation might result in a deficit balance. This standard also requires changes to certain presentation and disclosure requirements. For the Company, SFAS No. 160 was effective January 1, 2009. SFAS No. 160 does not have a material impact on the preparation of the Company’s consolidated financial statements. The provisions of the standard are to be applied to all NCIs prospectively, except for the presentation and disclosure requirements, which are to be applied retrospectively to all periods presented.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities , which is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand the effects of derivative instruments and hedging activities on an entity’s financial position, financial performance, and cash flows.
 
 71 

Table of Contents

The new standard also improves transparency about the location and amounts of derivative instruments in an entity’s financial statements, how derivative instruments and related hedged items are accounted for under SFAS No. 133, and how derivative instruments and related hedged items affect its financial position, financial performance, and cash flows. The standard is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company adopted SFAS No. 161 on January 1, 2009 (see note 5 in the notes to the consolidated financial statements included in this Quarterly Report on Form 10-Q).
In April 2009, the FASB released FSP SFAS No. 115-2 and SFAS No. 124-2, Recognition and Presentation of Other-Than-Temporary Impairment (“SFAS No. 115-2/SFAS No. 124-2”). SFAS No. 115-2/SFAS No. 124-2 amends the requirements for the recognition and measurement of other-than-temporary impairments for debt securities by modifying the pre-existing “intent and ability” indicator. Under SFAS No. 115-2/SFAS No. 124-2, an other-than-temporary impairment is triggered when there is an intent to sell the security, it is more likely than not that the security will be required to be sold before recovery, or the security is not expected to recover the entire amortized cost basis of the security. Additionally, SFAS No. 115-2/SFAS No. 124-2 changes the presentation of an other-than-temporary impairment in the income statement for those impairments involving credit losses. The credit loss component will be recognized in earnings and the remainder of the impairment will be recorded in other comprehensive income. SFAS No. 115-2/SFAS No. 124-2 is effective for interim and annual periods ending after June 15, 2009 (June 30, 2009 for the Company). SFAS No. 115-1/SFAS No. 124-2 does not have a material impact on the preparation of and disclosures in the Company’s consolidated financial statements.
In April 2009, the FASB released FSP SFAS No. 107-1 and APB 28-1, Interim Disclosure about Fair Value of Financial Instruments (“SFAS No. 107-1”). SFAS No. 107-1 requires interim disclosures regarding the fair values of financial instruments that are within the scope of SFAS No. 107, Disclosures about the Fair Value of Financial Instruments. Additionally, SFAS No. 107-1 requires disclosure of the methods and significant assumptions used to estimate the fair value of financial instruments on an interim basis as well as changes of the methods and significant assumptions from prior periods. SFAS No. 107-1 does not change the accounting treatment for these financial instruments and is effective for interim and annual periods ending after June 15, 2009 (June 30, 2009 for the Company). The Company adopted SFAS No. 107-1 on June 30, 2009 (see note 8 in the notes to the consolidated financial statements included in this Quarterly Report on Form 10-Q).
In May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS No. 165”). SFAS No. 165 establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires entities to disclose the date through which it has evaluated subsequent events and the basis for that date. SFAS No. 165 is effective for interim and annual periods ending after June 15, 2009. The Company adopted SFAS No. 165 on June 30, 2009 (see note 1 in the notes to the financial statements included in this Quarterly Report on Form 10-Q).
In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140 (“SFAS No. 166”). The objective of SFAS No. 166 is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. SFAS No. 166 removes the concept of a qualifying special-purpose entity from Statement 140 and removes the exception from applying FASB Interpretation No. 46, Consolidation of Variable Interest Entities , to qualifying special-purpose entities. Additionally, SFAS No. 166 defines the term participating interest to establish specific conditions for reporting a transfer of a portion of a financial asset as a sale, and also requires that a transferor recognize and initially measure at fair value all assets obtained (including a transferor’s beneficial interest) and liabilities incurred as a result of a transfer of financial assets accounted for as a sale. SFAS No. 166 is effective for fiscal periods ending after November 15, 2009 (January 1, 2010 for the Company). The Company is currently evaluating the impacts and disclosures related to SFAS No. 166.
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS No. 167”). SFAS No. 167 amends guidance in Interpretation 46 (R) for determining whether an entity is a variable interest entity in addition to subjecting enterprises to a number of other requirements including, among other things: (i) requiring an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity and specifies the characteristics the primary beneficiary of a variable interest entity must have to be designated as such; (ii) requiring an enterprise to assess whether it has an implicit financial responsibility to ensure that a variable interest entity operates as designed when determining whether it has the power to direct the activities of the variable interest entity that most significantly impact the entity’s economic performance; (iii) requiring the ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity; (iv) the elimination of the quantitative approach previously required for determining the primary beneficiary of a variable interest entity, and (v) adding an additional reconsideration event for determining whether an entity is a variable interest entity when any changes in facts and circumstances occur such that investors of the equity investment at risk, as a group, lose the power from voting or similar rights of the investment to direct the activities of the entity that have the most significant impact on the entity’s economic performance. SFAS No. 167 is effective for fiscal and interim periods ending after November 15, 2009 (January 1, 2010 for the Company). The Company is currently evaluating the impacts and disclosures related to SFAS No. 167.
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162 (“SFAS No. 168”). SFAS No. 168 establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. SFAS No. 168 is effective for fiscal and interim periods ending after September 15, 2009 (September 30, 2009 for the Company). The Company is currently evaluating the impacts and disclosures related to SFAS No. 168.
 
 72 

Table of Contents

ITEM 3.	 	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	
(All dollars are in thousands, except share amounts, unless otherwise noted)
Interest Rate Risk
The Company’s primary market risk exposure arises from fluctuations in its borrowing and lending rates, the spread between which could impact the Company due to shifts in market interest rates. Because the Company generates a significant portion of its earnings from its student loan spread, the interest sensitivity of the balance sheet is a key profitability driver.
The following table sets forth the Company’s loan assets and debt instruments by rate characteristics:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	As of June 30, 2009	 	 	As of December 31, 2008	 	
 	 	Dollars	 	 	Percent	 	 	Dollars	 	 	Percent	 	
Fixed-rate loan assets	 	$	8,517,251	 	 	 	33.7	%	 	$	2,532,609	 	 	 	10.1	%	
Variable-rate loan assets	 	 	16,782,288	 	 	 	66.3	 	 	 	22,528,440	 	 	 	89.9	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	25,299,539	 	 	 	100.0	%	 	$	25,061,049	 	 	 	100.0	%	

Fixed-rate debt instruments	 	$	591,661	 	 	 	2.2	%	 	$	677,096	 	 	 	2.5	%	
Variable-rate debt instruments	 	 	26,577,912	 	 	 	97.8	 	 	 	26,110,863	 	 	 	97.5	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	27,169,573	 	 	 	100.0	%	 	$	26,787,959	 	 	 	100.0	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Loans originated prior to April 1, 2006 generally earn interest at the higher of a floating rate based on the Special Allowance Payment or SAP formula set by the Department and the borrower rate, which is fixed over a period of time. The SAP formula is based on an applicable index plus a fixed spread that is dependent upon when the loan was originated, the loan’s repayment status, and funding sources for the loan. The Company generally finances its student loan portfolio with variable rate debt. In low and/or declining interest rate environments, when the fixed borrower rate is higher than the rate produced by the SAP formula, the Company’s student loans earn at a fixed rate while the interest on the variable rate debt typically continues to decline. In these interest rate environments, the Company may earn additional spread income that it refers to as floor income.
Depending on the type of loan and when it was originated, the borrower rate is either fixed to term or is reset to an annual rate each July 1. As a result, for loans where the borrower rate is fixed to term, the Company may earn floor income for an extended period of time, which the Company refers to as fixed rate floor income, and for those loans where the borrower rate is reset annually on July 1, the Company may earn floor income to the next reset date, which the Company refers to as variable rate floor income. In accordance with new legislation enacted in 2006, lenders are required to rebate fixed rate floor income and variable rate floor income to the Department for all new FFELP loans first originated on or after April 1, 2006.
For the three months ended June 30, 2009 and 2008, loan interest income includes approximately $37.1 million and $9.9 million, respectively, of fixed rate floor income. For the six months ended June 30, 2009 and 2008, loan interest income includes approximately $67.3 million and $18.4 million, respectively, of fixed rate floor income, respectively.
As a result of the ongoing volatility of interest rates, effective October 1, 2008, the Company changed its calculation of variable rate floor income to better reflect the economic benefit received by the Company related to this income taking into consideration the volatility of certain rate indices which offset the value received. The economic benefit received by the Company related to variable rate floor income was $6.0 million and $19.3 million for the three months ended June 30, 2009 and 2008, respectively, and $7.5 million and $25.6 million for the six months ended June 30, 2009 and 2008, respectively. Variable rate floor income calculated on a statutory maximum basis was $13.0 million and $21.9 million for the three months ended June 30, 2009 and 2008, respectively, and $23.8 million and $40.7 million for the six months ended June 30, 2009 and 2008, respectively.
Absent the use of derivative instruments, a rise in interest rates may reduce the amount of floor income received and this may have an impact on earnings due to interest margin compression caused by increasing financing costs, until such time as the federally insured loans earn interest at a variable rate in accordance with their special allowance payment formulas. In higher interest rate environments, where the interest rate rises above the borrower rate and fixed rate loans effectively become variable rate loans, the impact of the rate fluctuations is reduced.
 
 73 

Table of Contents

The following graph depicts fixed rate floor income for a borrower with a fixed rate of 6.75% and a SAP rate of 2.64%:

The following table shows the Company’s student loan assets that are earning fixed rate floor income as of June 30, 2009:
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Borrower/	 	 	Estimated	 	 	Balance of	 	
Fixed	 	lender	 	 	variable	 	 	assets earning fixed-rate	 	
interest	 	weighted	 	 	conversion	 	 	floor income as of	 	
rate range	 	average yield	 	 	rate (a)	 	 	June 30, 2009	 	
3.0 – 3.49%	 	 	3.29	%	 	 	0.65	%	 	$	1,422,021	 	
3.5 – 3.99%	 	 	3.65	%	 	 	1.01	%	 	 	1,964,657	 	
4.0 – 4.49%	 	 	4.20	%	 	 	1.56	%	 	 	1,560,391	 	
4.5 – 4.99%	 	 	4.72	%	 	 	2.08	%	 	 	857,487	 	
5.0 – 5.49%	 	 	5.24	%	 	 	2.60	%	 	 	562,170	 	
5.5 – 5.99%	 	 	5.67	%	 	 	3.03	%	 	 	333,278	 	
6.0 – 6.49%	 	 	6.19	%	 	 	3.55	%	 	 	393,323	 	
6.5 – 6.99%	 	 	6.70	%	 	 	4.06	%	 	 	349,130	 	
7.0 – 7.49%	 	 	7.17	%	 	 	4.53	%	 	 	119,331	 	
7.5 – 7.99%	 	 	7.71	%	 	 	5.07	%	 	 	204,825	 	
8.0 – 8.99%	 	 	8.16	%	 	 	5.52	%	 	 	467,583	 	
> 9.0%	 	 	9.04	%	 	 	6.40	%	 	 	283,055	 	
 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	$	8,517,251	 	

(a)	 	The estimated variable conversion rate is the estimated short-term interest rate at which loans would convert to variable rate.	
The following table summarizes the outstanding derivatives instruments as of June 30, 2009 used by the Company to hedge fixed-rate student loan assets.
 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Weighted	 	
 	 	 	 	 	 	average fixed	 	
 	 	Notional	 	 	rate paid by	 	
Maturity	 	Amount	 	 	the Company (a)	 	
 	 	 	 	 	 	 	 	 	
2010	 	$	750,000	 	 	 	0.80	%	

(a)	 	For all interest rate derivatives for which the Company pays a fixed rate, the Company receives discrete three-month LIBOR.	
As of June 30, 2009, the Company had $3.5 billion of student loan assets that were eligible to earn variable-rate floor income.
 
 74 

Table of Contents

The Company is exposed to interest rate risk in the form of basis risk and repricing risk because the interest rate characteristics of the Company’s assets do not match the interest rate characteristics of the funding. The Company attempts to match the interest rate characteristics of certain pools of loan assets with debt instruments of substantially similar characteristics. Due to the variability in duration of the Company’s assets and varying market conditions, the Company does not attempt to perfectly match the interest rate characteristics of the entire loan portfolio with the underlying debt instruments. The Company has adopted a policy of periodically reviewing the mismatch related to the interest rate characteristics of its assets and liabilities together with the Company’s outlook as to current and future market conditions. Based on those factors, the Company uses derivative instruments as part of its overall risk management strategy. Derivative instruments used as part of the Company’s interest rate risk management strategy currently include basis swaps and cross-currency swaps.
The following table presents the Company’s FFELP student loan assets and related funding arranged by underlying indices as of June 30, 2009:
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	Debt	 	
 	 	 	 	 	 	 	 	 	 	outstanding	 	
 	 	Frequency of	 	 	 	 	 	 	that funded	 	
 	 	Variable	 	 	 	 	 	 	student loan	 	
Index (f)	 	Resets	 	 	Assets	 	 	assets (a)	 	
3 month H15 financial commercial paper (b)	 	Daily	 	$	23,981,416	 	 	 	1,741,481	 	
3 month Treasury bill	 	Varies	 	 	1,117,401	 	 	 	—	 	
3 month LIBOR (c)	 	Quarterly	 	 	—	 	 	 	20,063,227	 	
Auction-rate or remarketing	 	Varies	 	 	—	 	 	 	2,606,740	 	
Asset-backed commercial paper (d)	 	Varies	 	 	—	 	 	 	1,444,536	 	
Fixed rate	 	 	 	 	 	 	—	 	 	 	188,797	 	
Other (e)	 	 	 	 	 	 	945,964	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	$	26,044,781	 	 	 	26,044,781	 	

(a)	 	The Company has certain basis swaps outstanding in which the Company (i) receives three-month LIBOR set discretely in advance and pays a daily weighted average three-month LIBOR less a spread as defined in the individual agreements (the “Average/Discrete Basis Swaps”); and (ii) receives three-month LIBOR and pays one-month LIBOR plus or minus a spread as defined in the agreements (the “1/3 Basis Swaps”). The Company entered into these derivative instruments to better match the interest rate characteristics on its student loan assets and the debt funding such assets. The following table summarizes these derivatives as of June 30, 2009:	
 	 	 	 	 	 	 	 	 	
 	 	Notional Amount	 	
 	 	Average/Discrete	 	 	 	 	
Maturity	 	Basis Swaps	 	 	1/3 Basis Swaps (c)	 	
 		
2009 (a)	 	$	7,000,000	 	 	 	—	 	
2011 (b)	 	 	6,000,000	 	 	 	—	 	
2018	 	 	—	 	 	 	1,300,000	 	
2019	 	 	—	 	 	 	500,000	 	
2021	 	 	—	 	 	 	250,000	 	
2023	 	 	—	 	 	 	1,250,000	 	
2024	 	 	—	 	 	 	250,000	 	
2028	 	 	—	 	 	 	100,000	 	

 	 	$	13,000,000	 	 	 	3,650,000	 	

(a)	 	(a) Subsequent to June 30, 2009, the Company terminated all of the Average/Discrete Basis Swaps with a maturity in 2009.	
 		
(b)	 	Certain of these derivatives have forward effective start dates of January 2010 ($1.5 billion), February 2010 ($1.5 billion), and March 2010 ($1.5 billion).	
 		
(c)	 	Subsequent to June 30, 2009, the Company entered into additional 1/3 Basis Swaps with notional amounts of $500.0 million and $150.0 million with maturity dates in 2014 and 2039, respectively.	
 
 75 

Table of Contents

 	 	 	
(b)	 	The Company’s FFELP student loans earn interest based on the daily average H15 financial commercial paper index calculated on a fiscal quarter. The Company’s funding includes FFELP student loans under the Department’s Participation Program. The interest rate on the principal amount of participation interests outstanding under the Department’s Participation Program is based on a rate of commercial paper plus 50 basis points, which is set a quarter in arrears, while the earnings on the student loans is based primarily on the daily average H15 financial commercial paper index calculated on the current fiscal quarter. Due to a declining interest rate environment during the three and six months ended June 30, 2009, the Company’s core student loan spread was compressed due to the mismatch in the timing of these rate resets.	
 		
(c)	 	The Company has Euro-denominated notes that reprice on the EURIBOR index. The Company has entered into derivative instruments (cross-currency interest rate swaps) that convert the EURIBOR index to 3 month LIBOR. As a result, these notes are reflected in the 3 month LIBOR category in the above table. See “Foreign Currency Exchange Risk.”	
 		
(d)	 	Asset-backed commercial paper consists of $0.4 million funded in the Company’s FFELP warehouse facility and $1.0 billion funded through the Department’s Conduit Program. Funding for the Conduit Program is provided by the capital markets at a cost based on market rates.	
 	 	 	
(e)	 	Assets include restricted cash and investments and other assets.	
 		
(f)	 	Historically, the movement of the various interest rate indices received on the Company’s student loan assets and paid on the debt to fund such loans was highly correlated. The short term movement of the indices was dislocated beginning in August 2007. This dislocation has had a negative impact on the Company’s student loan net interest income.	
Financial Statement Impact of Derivative Instruments
The Company accounts for its derivative instruments in accordance with SFAS No. 133. SFAS No. 133 requires that changes in the fair value of derivative instruments be recognized currently in earnings unless specific hedge accounting criteria as specified by SFAS No. 133 are met. Management has structured all of the Company’s derivative transactions with the intent that each is economically effective. However, the Company’s derivative instruments do not qualify for hedge accounting under SFAS No. 133; consequently, the change in fair value of these derivative instruments is included in the Company’s operating results. Changes or shifts in the forward yield curve and fluctuations in currency rates can significantly impact the valuation of the Company’s derivatives. Accordingly, changes or shifts to the forward yield curve and fluctuations in currency rates will impact the financial position and results of operations of the Company. The change in fair value of the Company’s derivatives are included in “derivative market value, foreign currency, and put option adjustments and derivative settlements, net” in the Company’s consolidated statements of operations and resulted in income of $29.9 million and expense of $22.3 million for the three and six months ended June 30, 2009, respectively, and income of $11.5 million and $47.5 million for the three and six months ended June 30, 2008, respectively.
The following summarizes the derivative settlements included in “derivative market value, foreign currency, and put option adjustments and derivative settlements, net” on the consolidated statements of operations:
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended June 30	 	 	Six months ended June 30	 	
 	 	2009	 	 	2008	 	 	2009	 	 	2008	 	
Interest rate swaps	 	$	(11	)	 	 	(7,842	)	 	 	(11	)	 	 	(11,019	)	
Average/Discrete Basis Swaps	 	 	1,040	 	 	 	5,148	 	 	 	11,062	 	 	 	44,711	 	
1/3 Basis Swaps	 	 	6,657	 	 	 	—	 	 	 	17,401	 	 	 	894	 	
Cross-currency interest rate swaps	 	 	1,849	 	 	 	7,131	 	 	 	5,441	 	 	 	10,614	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total settlements	 	$	9,535	 	 	 	4,437	 	 	 	33,893	 	 	 	45,200	 	

 76 

Table of Contents

Sensitivity Analysis
The following tables summarize the effect on the Company’s earnings, based upon a sensitivity analysis performed by the Company assuming hypothetical increases in interest rates of 100 and 200 basis points while funding spreads remain constant. In addition, as it relates to the effect on earnings, a sensitivity analysis was performed assuming the funding index increases 10 basis points while holding the asset index constant, if the funding index is different than the asset index. The effect on earnings was performed on the Company’s variable rate assets and liabilities. The analysis includes the effects of the Company’s interest rate and basis swaps in existence during these periods.
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three months ended June 30, 2009	 	
 	 	Interest Rates	 	 	Asset and funding index	 	
 	 	Change from decrease of 100	 	 	Change from increase of 100	 	 	mismatches	 	
 	 	basis points	 	 	basis points	 	 	Increase of 10 basis points	 	
 	 	Dollar	 	 	Percent	 	 	Dollar	 	 	Percent	 	 	Dollar	 	 	Percent	 	
Effect on earnings:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Increase (decrease) in pre-tax net income before impact of derivative settlements	 	$	34,046	 	 	 	241.1	%	 	 	(34,046	)	 	 	(241.1	)%	 	 	(6,403	)	 	 	45.4	%	
Impact of derivative settlements	 	 	(41	)	 	 	(0.3	)	 	 	41	 	 	 	0.3	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Increase (decrease) in net income before taxes	 	$	34,005	 	 	 	240.8	%	 	 	(34,005	)	 	 	(240.8	)%	 	 	(6,403	)	 	 	45.4	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Increase (decrease) in basic and diluted earnings per share	 	$	0.41	 	 	 	 	 	 	 	(0.41	)	 	 	 	 	 	 	(0.08	)	 	 	 	 	

 	 	Three months ended June 30, 2008	 	
 	 	Interest Rates	 	 	Asset and funding index	 	
 	 	Change from decrease of 100	 	 	Change from increase of 100	 	 	mismatches	 	
 	 	basis points	 	 	basis points	 	 	Increase of 10 basis points	 	
 	 	Dollar	 	 	Percent	 	 	Dollar	 	 	Percent	 	 	Dollar	 	 	Percent	 	
Effect on earnings:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Increase (decrease) in pre-tax net income before impact of derivative settlements	 	$	10,566	 	 	 	17.1	%	 	 	(10,566	)	 	 	(17.1	)%	 	 	(6,681	)	 	 	(10.8)	%	
Impact of derivative settlements	 	 	(8,492	)	 	 	(13.7	)	 	 	8,492	 	 	 	13.7	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Increase (decrease) in net income before taxes	 	$	2,074	 	 	 	3.4	%	 	 	(2,074	)	 	 	(3.4	)%	 	 	(6,681	)	 	 	(10.8)	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Increase (decrease) in basic and diluted earnings per share	 	$	0.03	 	 	 	 	 	 	 	(0.03	)	 	 	 	 	 	 	(0.14	)	 	 	 	 	

 	 	Six months ended June 30, 2009	 	
 	 	Change from decrease of 100	 	 	Change from increase of 100	 	 	Change from increase of 200	 	
 	 	basis points	 	 	basis points	 	 	basis points	 	
 	 	Dollar	 	 	Percent	 	 	Dollar	 	 	Percent	 	 	Dollar	 	 	Percent	 	
Effect on earnings:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Increase (decrease) in pre-tax net income before impact of derivative settlements	 	$	68,402	 	 	 	124.0	%	 	 	(63,076	)	 	 	(114.3	)%	 	 	(12,757	)	 	 	(23.1	)%	
Impact of derivative settlements	 	 	(41	)	 	 	(0.1	)	 	 	41	 	 	 	0.1	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Increase (decrease) in net income before taxes	 	$	68,361	 	 	 	123.9	%	 	 	(63,035	)	 	 	(114.2	)%	 	 	(12,757	)	 	 	(23.1	)%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Increase (decrease) in basic and diluted earning per share	 	$	0.85	 	 	 	 	 	 	 	(0.78	)	 	 	 	 	 	 	(0.16	)	 	 	 	 	

 	 	Six months ended June 30, 2008	 	
 	 	Change from decrease of 100	 	 	Change from increase of 100	 	 	Change from increase of 200	 	
 	 	basis points	 	 	basis points	 	 	basis points	 	
 	 	Dollar	 	 	Percent	 	 	Dollar	 	 	Percent	 	 	Dollar	 	 	Percent	 	
Effect on earnings:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Increase (decrease) in pre-tax net income before impact of derivative settlements	 	$	22,151	 	 	 	56.4	%	 	 	(22,151	)	 	 	(56.4	)%	 	 	(6,806	)	 	 	(17.3	)%	
Impact of derivative settlements	 	 	(14,785	)	 	 	(37.6	)	 	 	14,785	 	 	 	37.6	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Increase (decrease) in net income before taxes	 	$	7,366	 	 	 	18.8	%	 	 	(7,366	)	 	 	(18.8	)%	 	 	(6,806	)	 	 	(17.3	)%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Increase in basic and diluted earning per share	 	$	0.10	 	 	 	 	 	 	 	(0.10	)	 	 	 	 	 	 	(0.14	)	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Foreign Currency Exchange Risk
During 2006, the Company completed separate debt offerings of student loan asset-backed securities that included 420.5 million and 352.7 million Euro-denominated notes with interest rates based on a spread to the EURIBOR index. As a result of this transaction, the Company is exposed to market risk related to fluctuations in foreign currency exchange rates between the U.S. dollar and Euro. The principal and accrued interest on these notes is re-measured at each reporting period and recorded on the Company’s balance sheet in U.S. dollars based on the foreign currency exchange rate on that date. Changes in the principal and accrued interest amounts as a result of foreign currency exchange rate fluctuations are included in the “derivative market value, foreign currency, and put option adjustments and derivative settlements, net” in the Company’s consolidated statements of operations.
 
 77 

Table of Contents

The Company entered into cross-currency interest rate swaps in connection with the issuance of the Euro Notes. Under the terms of these derivative instrument agreements, the Company receives from a counterparty a spread to the EURIBOR index based on notional amounts of € 420.5 million and € 352.7 million and pays a spread to the LIBOR index based on notional amounts of $500.0 million and $450.0 million, respectively. In addition, under the terms of these agreements, all principal payments on the Euro Notes will effectively be paid at the exchange rate in effect as of the issuance of the notes. The Company did not qualify these derivative instruments as hedges under SFAS No. 133; consequently, the change in fair value is included in the Company’s operating results.
For the three and six months ended June 30, 2009, the Company recorded an expense of $63.9 million and $16.6 million, respectively, as a result of re-measurement of the Euro Notes and income of $41.2 million and a loss of $15.9 million, respectively, for the change in the fair value of the related derivative instruments. For the three and six months ended June 30, 2008, the Company recorded income of $4.4 million and an expense of $88.5 million, respectively, as a result of the re-measurement of the Euro Notes and a loss of $2.4 million and income of $91.7 million, respectively, for the change in the fair value of the related derivative instruments. These amounts are included in “derivative market value, foreign currency, and put option adjustments and derivative settlements, net” on the Company’s consolidated statements of operations.
The re-measurement of the Euro-denominated bonds generally correlates with the change in fair value of the cross-currency interest rate swaps. However, the Company will experience unrealized gains or losses related to the cross-currency interest rate swaps if the two underlying indices (and related forward curve) do not move in parallel. Management intends to hold the cross-currency interest rate swaps through the maturity of the Euro-denominated bonds.

ITEM 4.	 	CONTROLS AND PROCEDURES	
Disclosure Controls and Procedures
Under supervision and with the participation of certain members of the Company’s management, including the chief executive and the chief financial officers, the Company completed an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in SEC Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, the Company’s chief executive and chief financial officers believe that the disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q with respect to timely communication to them and other members of management responsible for preparing periodic reports and material information required to be disclosed in this Quarterly Report on Form 10-Q as it relates to the Company and its consolidated subsidiaries.
The effectiveness of the Company’s or any system of disclosure controls and procedures is subject to certain limitations, including the exercise of judgment in designing, implementing, and evaluating the controls and procedures, the assumptions used in identifying the likelihood of future events, and the inability to eliminate misconduct completely. As a result, there can be no assurance that the Company’s disclosure controls and procedures will prevent all errors or fraud or ensure that all material information will be made known to appropriate management in a timely fashion. By their nature, the Company’s or any system of disclosure controls and procedures can provide only reasonable assurance regarding management’s control objectives.
Changes in Internal Control over Financial Reporting
There was no change in the Company’s internal control over financial reporting during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION

ITEM 1.	 	LEGAL PROCEEDINGS	
General
The Company is subject to various claims, lawsuits, and proceedings that arise in the normal course of business. These matters principally consist of claims by student loan borrowers disputing the manner in which their student loans have been processed and disputes with other business entities. In addition, from time to time the Company receives information and document requests from state or federal regulators concerning its business practices. The Company cooperates with these inquiries and responds to the requests. While the Company cannot predict the ultimate outcome of any inquiry or investigation, the Company believes its activities have materially complied with applicable law, including the Higher Education Act, the rules and regulations adopted by the Department of Education thereunder, and the Department’s guidance regarding those rules and regulations. On the basis of present information, anticipated insurance coverage, and advice received from counsel, it is the opinion of the Company’s management that the disposition or ultimate determination of these claims, lawsuits, and proceedings will not have a material adverse effect on the Company’s business, financial position, or results of operations.
 
 78 

Table of Contents

Municipal Derivative Bid Practices Investigation
As previously disclosed, on February 8, 2008, Shockley Financial Corp. (“SFC”), an indirect, wholly-owned subsidiary of the Company that provides investment advisory services for the investment of proceeds from the issuance of municipal and corporate bonds, received a grand jury subpoena issued by the U.S. District Court for the Southern District of New York upon application of the Antitrust Division of the U.S. Department of Justice (“DOJ”). The subpoena seeks certain information and documents from SFC in connection with DOJ’s criminal investigation of the bond industry with respect to possible anti-competitive practices related to awards of guaranteed investment contracts and other products for the investment of proceeds from bond issuances. SFC currently has one employee. The Company and SFC are cooperating with the investigation.
On March 5, 2008, SFC received a subpoena from the SEC related to a similar investigation. In addition, on June 6, 2008 and June 12, 2008, SFC received subpoenas from the New York Attorney General and the Florida Attorney General, respectively, relating to their similar investigations. Each of the subpoenas seeks information similar to that of the DOJ. The Company and SFC are cooperating with these investigations.
SFC was also named as a defendant in a number of substantially identical purported class action lawsuits, which as of June 16, 2008 have been consolidated before the U.S. District Court for the Southern District of New York, under the caption In re Municipal Derivatives Antitrust Litigation . The consolidated suit (the “Suit”) alleges several financial institutions and financial service provider defendants engaged in a conspiracy not to compete and to fix prices and rig bids for municipal derivatives (including GICs) sold to issuers of municipal bonds. The Suit also asserts claims for violations of Section 1 of the Sherman Act, fraudulent concealment, unfair competition and violation of the California Cartwright Act.
On January 30, 2009, SFC entered into a Tolling and Cooperation Agreement (“Tolling Agreement”) with a number of the plaintiffs involved in the Suit. In connection with the Tolling Agreement, on February 5, 2009 SFC was voluntarily dismissed from the Suit, without prejudice, on motion of the plaintiffs who are parties to the Tolling Agreement. On March 2, 2009, SFC entered into a second Tolling Agreement with the remainder of the plaintiffs involved in the Suit, and on March 3, 2009, SFC was voluntarily dismissed from the Suit without prejudice, on motion of the plaintiffs who are parties to the second Tolling Agreement. On April 30, 2009, the court granted a motion by several defendants, including SFC, to dismiss the class action complaint, with the plaintiffs granted the opportunity to file an amended complaint to replead claims.
SFC, the Company, or other subsidiaries of the Company may receive subpoenas from other regulatory agencies. Due to the preliminary nature of these matters as to SFC, the Company is unable to predict the ultimate outcome of the investigations or the Suit.
Regulatory Reviews
In connection with the Company’s settlement with the Department of Education in January 2007 to resolve the Office of Inspector General of the Department of Education (the “OIG”) audit report with respect to the Company’s student loan portfolio receiving special allowance payments at a minimum 9.5% interest rate, the Company was informed in February 2007 by the Department of Education that a civil attorney with the Department of Justice had opened a file regarding the issues set forth in the OIG report, which the Company understands is common procedure following an OIG audit report. The Company has engaged in discussions with and provided information to the DOJ in connection with the review.
By letter dated November 18, 2008, the DOJ requested that the Company provide the DOJ certain documents and information related to the Company’s compliance with the prohibited inducement provisions of the Higher Education Act and associated regulations. The Company responded to the DOJ’s requests and is cooperating with their review.
The Department of Education periodically reviews participants in the FFELP for compliance with program provisions. On June 28, 2007, the Department notified the Company that it would be conducting a review of the Company’s practices in connection with the prohibited inducement provisions of the Higher Education Act and the associated regulations that allow borrowers to have a choice of lenders. The Company understands that the Department selected several schools and lenders for review. The Company responded to the Department’s requests for information and documentation and cooperated with their review. On May 1, 2009, the Company received the Department’s preliminary program review report, which covered the Department’s review of the period from October 1, 2002 to September 30, 2007. The preliminary program review report contained certain initial findings of noncompliance with the Higher Education Act’s prohibited inducement provisions and required that the Company provide an explanation for the basis of the arrangements noted in the preliminary program review report. The Company has responded and provided an explanation of the arrangements noted in the Department’s initial findings, and the Department is expected to issue a final program review determination letter and advise the Company whether it intends to take any additional action. To the extent any findings are contained in a final letter, the additional action may include the assessment of fines or penalties, or the limitation, suspension, and termination of the Company’s participation in FFELP.
While the Company is unable to predict the ultimate outcome of these reviews, the Company believes its practices complied with applicable law, including the provisions of the Higher Education Act, the rules and regulations adopted by the Department of Education thereunder, and the Department’s guidance regarding those rules and regulations.
 
 79 

Table of Contents

			
ITEM 1A.	 	RISK FACTORS	
There have been no material changes from the risk factors described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 in response to Item 1A of Part I of such Form 10-K.

ITEM 2.	 	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	
Stock Repurchases
The following table summarizes the repurchases of Class A common stock during the second quarter of 2009 by the Company or any “affiliated purchaser” of the Company, as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934.
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	Total number of	 	 	Maximum number	 	
 	 	 	 	 	 	 	 	 	 	shares purchased	 	 	of shares that may	 	
 	 	Total number	 	 	Average	 	 	as part of publicly	 	 	yet be purchased	 	
 	 	of shares	 	 	price paid	 	 	announced plans	 	 	under the plans	 	
Period	 	purchased (1)	 	 	per share	 	 	or programs (2) (3)	 	 	or programs (4)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
April 1 – April 30, 2009	 	 	1,054	 	 	$	7.24	 	 	 	1,054	 	 	 	10,891,276	 	
May 1 – May 31, 2009	 	 	632	 	 	 	7.05	 	 	 	632	 	 	 	9,154,379	 	
June 1 – June 30, 2009	 	 	1,643	 	 	 	8.12	 	 	 	1,643	 	 	 	7,526,344	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	3,329	 	 	$	7.64	 	 	 	3,329	 	 	 	 	 	

(1)	 	The total number of shares includes: (i) shares purchased pursuant to the 2006 Plan discussed in footnote (2) below; and (ii) shares purchased pursuant to the 2006 ESLP discussed in footnote (3) below, of which there were none for the months of April, May, or June 2009. Shares of Class A common stock purchased pursuant to the 2006 Plan included 1,054 shares, 632 shares, and 1,643 shares in April, May, and June, respectively, that had been issued to the Company’s 401(k) plan and allocated to employee participant accounts pursuant to the plan’s provisions for Company matching contributions in shares of Company stock, and were purchased by the Company from the plan pursuant to employee participant instructions to dispose of such shares.	
 		
(2)	 	On May 25, 2006, the Company publicly announced that its Board of Directors had authorized a stock repurchase program to repurchase up to a total of five million shares of the Company’s Class A common stock (the “2006 Plan”). On February 7, 2007, the Company’s Board of Directors increased the total shares the Company is allowed to repurchase to 10 million. The 2006 Plan had an initial expiration date of May 24, 2008, which was extended until May 24, 2010 by the Company’s Board of Directors on January 30, 2008.	
 		
(3)	 	On May 25, 2006, the Company publicly announced that the shareholders of the Company approved an Employee Stock Purchase Loan Plan (the “2006 ESLP”) to allow the Company to make loans to employees for the purchase of shares of the Company’s Class A common stock either in the open market or directly from the Company. A total of $40 million in loans may be made under the 2006 ESLP, and a total of one million shares of Class A common stock are reserved for issuance under the 2006 ESLP. Shares may be purchased directly from the Company or in the open market through a broker at prevailing market prices at the time of purchase, subject to any conditions or restrictions on the timing, volume, or prices of purchases as determined by the Compensation Committee of the Board of Directors and set forth in the Stock Purchase Loan Agreement with the participant. The 2006 ESLP shall terminate May 25, 2016.	
 		
(4)	 	The maximum number of shares that may yet be purchased under the plans is calculated below. There are no assurances that any additional shares will be repurchased under either the 2006 Plan or the 2006 ESLP. Shares under the 2006 ESLP may be issued by the Company rather than purchased in open market transactions.	
 
 80 

Table of Contents

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	(B / C)	 	 	(A + D)	 	
 	 	 	 	 	 	Approximate dollar	 	 	Closing price on	 	 	Approximate	 	 	Approximate	 	
 	 	Maximum number of	 	 	value of shares that	 	 	the last trading day	 	 	number of shares	 	 	number of shares	 	
 	 	shares that may yet	 	 	may yet be	 	 	of the Company’s	 	 	that may yet be	 	 	that may yet be	 	
 	 	be purchased under the	 	 	purchased under	 	 	Class A Common	 	 	purchased under	 	 	purchased under	 	
 	 	2006 Plan	 	 	the 2006 ESLP	 	 	Stock	 	 	the 2006 ESLP	 	 	the 2006 Plan and	 	
As of	 	(A)	 	 	(B)	 	 	(C)	 	 	(D)	 	 	2006 ESLP	 	
April 30, 2009	 	 	4,846,500	 	 	 	36,450,000	 	 	 	6.03	 	 	 	6,044,776	 	 	 	10,891,276	 	
May 31, 2009	 	 	4,845,868	 	 	 	36,450,000	 	 	 	8.46	 	 	 	4,308,511	 	 	 	9,154,379	 	
June 30, 2009	 	 	4,844,225	 	 	 	36,450,000	 	 	 	13.59	 	 	 	2,682,119	 	 	 	7,526,344	 	
Working capital and dividend restrictions/limitations
The Company’s credit facilities, including its revolving line of credit which is available through May of 2012, impose restrictions on the Company’s minimum consolidated net worth, the ratio of the Company’s Adjusted EBITDA to corporate debt interest, the indebtedness of the Company’s subsidiaries, and the ratio of Non-FFELP loans to all loans in the Company’s portfolio. In addition, trust indentures and other financing agreements governing debt issued by the Company’s education lending subsidiaries may have general limitations on the amounts of funds that can be transferred to the Company by its subsidiaries through cash dividends.
On September 27, 2006 the Company consummated a debt offering of $200.0 million aggregate principal amount of Hybrid Securities. So long as any Hybrid Securities remain outstanding, if the Company gives notice of its election to defer interest payments but the related deferral period has not yet commenced or a deferral period is continuing, then the Company will not, and will not permit any of its subsidiaries to:

 	•	 	declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment regarding, any of the Company’s capital stock	
 		
 	•	 	except as required in connection with the repayment of principal, and except for any partial payments of deferred interest that may be made through the alternative payment mechanism described in the Hybrid Securities indenture, make any payment of principal of, or interest or premium, if any, on, or repay, repurchase, or redeem any of the Company’s debt securities that rank pari passu with or junior to the Hybrid Securities	
 		
 	•	 	make any guarantee payments regarding any guarantee by the Company of the subordinated debt securities of any of the Company’s subsidiaries if the guarantee ranks pari passu with or junior in interest to the Hybrid Securities	
In addition, if any deferral period lasts longer than one year, the limitation on the Company’s ability to redeem or repurchase any of its securities that rank pari passu with or junior in interest to the Hybrid Securities will continue until the first anniversary of the date on which all deferred interest has been paid or cancelled.
If the Company is involved in a business combination where immediately after its consummation more than 50% of the surviving entity’s voting stock is owned by the shareholders of the other party to the business combination, then the immediately preceding sentence will not apply to any deferral period that is terminated on the next interest payment date following the date of consummation of the business combination.
However, at any time, including during a deferral period, the Company will be permitted to:

 	•	 	pay dividends or distributions in additional shares of the Company’s capital stock	
 		
 	•	 	declare or pay a dividend in connection with the implementation of a shareholders’ rights plan, or issue stock under such a plan, or redeem or repurchase any rights distributed pursuant to such a plan	
 		
 	•	 	purchase common stock for issuance pursuant to any employee benefit plans	
 
 81 

Table of Contents

ITEM 4.	 	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	
At the Company’s annual meeting of shareholders held on May 20, 2009, the following proposals were submitted to a vote of shareholders and were approved by the margins indicated:

1.	 	To elect nine directors to serve on the Company’s Board of Directors for one-year terms or until their successors are elected and qualified. All directors seeking election were in attendance at the annual meeting.	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Number of Shares	 	
 	 	Votes For	 	 	Votes Against	 	 	Abstain	 	
James P. Abel	 	 	142,857,237	 	 	 	609,155	 	 	 	6,101	 	
Stephen F. Butterfield	 	 	143,189,176	 	 	 	281,445	 	 	 	1,871	 	
Michael S. Dunlap	 	 	142,781,175	 	 	 	690,568	 	 	 	749	 	
Kathleen A. Farrell	 	 	142,966,264	 	 	 	498,367	 	 	 	7,861	 	
Thomas E. Henning	 	 	142,863,876	 	 	 	602,379	 	 	 	6,237	 	
Brian J. O’Connor	 	 	142,860,435	 	 	 	604,721	 	 	 	7,336	 	
Kimberly K. Rath	 	 	142,884,524	 	 	 	575,571	 	 	 	12,397	 	
Michael D. Reardon	 	 	142,861,471	 	 	 	598,786	 	 	 	12,236	 	
James H. Van Horn	 	 	142,881,278	 	 	 	580,411	 	 	 	10,803	 	

2.	 	To ratify the appointment of KPMG LLP as the Company’s independent registered public accounting firm for 2009.	
 	 	 	 	 	
Number of Shares	
Votes For	 	Votes Against	 	Abstain	
142,875,383	 	583,144	 	13,965	

3.	 	To approve an amendment to the Restricted Stock Plan to increase the authorized number of shares of Class A common stock that may be issued under the plan from a total of 2,000,000 shares to a total of 4,000,000 shares.	
 	 	 	 	 	
Number of Shares	
Votes For	 	Votes Against	 	Abstain	
138,450,966	 	382,345	 	4,821	
 
 82 

Table of Contents

ITEM 6.	 	EXHIBITS	
 	 	 	 	
10.1	+	 	Nelnet, Inc. Restricted Stock Plan, as amended through May 20, 2009, filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on May 27, 2009 and incorporated herein by reference.	
 	 	 	 	
10.2	*	 	Funding Note Purchase Agreement, dated as of May 13, 2009, among Straight-A Funding, LLC, a Delaware limited liability company, as Conduit Lender, Nelnet Super Conduit Funding, LLC, a Delaware limited liability company, as Funding Note Issuer, First National Bank, a national banking association, as Eligible Lender Trustee, The Bank of New York Mellon, a New York banking corporation, as Conduit Administrator for the Conduit Lender, as Securities Intermediary and as Conduit Lender Eligible Lender Trustee, National Education Loan Network, Inc., a Nevada corporation, as the SPV Administrator for the Funding Note Issuer, Nelnet, Inc., a Nebraska corporation, as Sponsor, BMO Capital Markets Corp., a Delaware company, as Manager for the Conduit Lender, and National Education Loan Network, Inc., a Nevada corporation, as Master Servicer.	
 	 	 	 	
10.3	*	 	Eligible Lender Trust Agreement, dated as of May 13, 2009 between Nelnet Super Conduit Funding, LLC, a Delaware limited liability company, and Zions First National Bank, a national banking association, not in its individual capacity but solely as eligible lender trustee on behalf and for the benefit of the Funding Note Issuer.	
 	 	 	 	
10.4	*	 	Student Loan Purchase Agreement, dated as of May 13, 2009, among National Education Loan Network, Inc., a Nevada corporation, Union Bank and Trust Company, a Nebraska banking corporation, not in its individual capacity but solely as eligible lender trustee for the benefit of the Seller and its assigns, Nelnet Super Conduit Funding, LLC, a Delaware limited liability company, and Zions First National Bank, a national banking association, not in its individual capacity but solely as eligible lender trustee for the benefit of the Purchaser and its assigns.	
 	 	 	 	
10.5	+	 	Nelnet, Inc. Second Amended Executive Officers Bonus Plan, filed as Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q filed on May 11, 2009 and incorporated herein by reference.	
 	 	 	 	
31.1	*	 	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer Michael S. Dunlap.	
 	 	 	 	
31.2	*	 	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer Terry J. Heimes.	
 	 	 	 	
32	**	 	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
 	 	 	
*	 	Filed herewith	
 		
**	 	Furnished herewith	
 		
+	 	Indicates a compensatory plan or arrangement	
 
 83 

Table of Contents
SIGNATURES
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.
 	 	 	 	 	
 	NELNET, INC.
 	 	
Date: August 10, 2009 	By:  	/s/ MICHAEL S. DUNLAP  	 	
 	 	Name:  	Michael S. Dunlap 	 	
 	 	Title:  	Chairman and Chief Executive Officer 	 	
 	
 	By:  	/s/ TERRY J. HEIMES  	 	
 	 	Name:  	Terry J. Heimes 	 	
 	 	Title:  	Chief Financial Officer 	 	
 
 84 

Table of Contents
EXHIBIT INDEX
 	 	 	 	
10.1	+	 	Nelnet, Inc. Restricted Stock Plan, as amended through May 20, 2009, filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on May 27, 2009 and incorporated herein by reference.	
 	 	 	 	
10.2	*	 	Funding Note Purchase Agreement, dated as of May 13, 2009, among Straight-A Funding, LLC, a Delaware limited liability company, as Conduit Lender, Nelnet Super Conduit Funding, LLC, a Delaware limited liability company, as Funding Note Issuer, First National Bank, a national banking association, as Eligible Lender Trustee, The Bank of New York Mellon, a New York banking corporation, as Conduit Administrator for the Conduit Lender, as Securities Intermediary and as Conduit Lender Eligible Lender Trustee, National Education Loan Network, Inc., a Nevada corporation, as the SPV Administrator for the Funding Note Issuer, Nelnet, Inc., a Nebraska corporation, as Sponsor, BMO Capital Markets Corp., a Delaware company, as Manager for the Conduit Lender, and National Education Loan Network, Inc., a Nevada corporation, as Master Servicer.	
 	 	 	 	
10.3	*	 	Eligible Lender Trust Agreement, dated as of May 13, 2009 between Nelnet Super Conduit Funding, LLC, a Delaware limited liability company, and Zions First National Bank, a national banking association, not in its individual capacity but solely as eligible lender trustee on behalf and for the benefit of the Funding Note Issuer.	
 	 	 	 	
10.4	*	 	Student Loan Purchase Agreement, dated as of May 13, 2009, among National Education Loan Network, Inc., a Nevada corporation, Union Bank and Trust Company, a Nebraska banking corporation, not in its individual capacity but solely as eligible lender trustee for the benefit of the Seller and its assigns, Nelnet Super Conduit Funding, LLC, a Delaware limited liability company, and Zions First National Bank, a national banking association, not in its individual capacity but solely as eligible lender trustee for the benefit of the Purchaser and its assigns.	
 	 	 	 	
10.5	+	 	Nelnet, Inc. Second Amended Executive Officers Bonus Plan, filed as Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q filed on May 11, 2009 and incorporated herein by reference.	
 	 	 	 	
31.1	*	 	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer Michael S. Dunlap.	
 	 	 	 	
31.2	*	 	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer Terry J. Heimes.	
 	 	 	 	
32	**	 	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
 	 	 	
*	 	Filed herewith	
 		
**	 	Furnished herewith	
 		
+	 	Indicates a compensatory plan or arrangement	
 
 85 

Exhibit 10.2
 
FUNDING NOTE PURCHASE AGREEMENT
by and among
STRAIGHT-A FUNDING, LLC,
as Conduit Lender,
NELNET SUPERCONDUIT FUNDING, LLC,
as Funding Note Issuer,
ZIONS FIRST NATIONAL BANK,
as Eligible Lender Trustee,
THE BANK OF NEW YORK MELLON,
as Conduit Administrator, Securities Intermediary and Conduit Lender Eligible Lender Trustee,
NATIONAL EDUCATION LOAN NETWORK, INC.,
as SPV Administrator,
NELNET, INC.,
as Sponsor
BMO CAPITAL MARKETS CORP.,
as Manager
and
NATIONAL EDUCATION LOAN NETWORK, INC.,
as Master Servicer
May 13, 2009

 

 

 	 	 	 	 	
ARTICLE I. THE FACILITY	 	 	1	 	
 	 	 	 	 	
Section 1.01. Making of Advances; Issuance of Funding Note	 	 	1	 	
Section 1.02. Funding Requests; Advance Procedures	 	 	1	 	
Section 1.03. Repayments and Prepayments	 	 	2	 	
Section 1.04. Establishment and Management of Trust Accounts	 	 	6	 	
Section 1.05. Deposits to and Transfers from Funding Note Issuer Collection Account	 	 	7	 	
Section 1.06. Transfers to and from the Reserve Account	 	 	9	 	
Section 1.07. DOE Reserve Account and Excluded Borrower Benefit Account	 	 	9	 	
Section 1.08. Grant of a Security Interest	 	 	10	 	
Section 1.09. Payments by the Funding Note Issuer	 	 	11	 	
Section 1.10. Yield Protection	 	 	11	 	
Section 1.11. Taxes	 	 	12	 	
Section 1.12. Startup Costs Allocation	 	 	13	 	
 	 	 	 	 	
ARTICLE II. THE FUNDING NOTE	 	 	13	 	
 	 	 	 	 	
Section 2.01. Form of Funding Note Generally	 	 	13	 	
Section 2.02. Note Register	 	 	13	 	
 	 	 	 	 	
ARTICLE III. CONDITIONS precedent	 	 	13	 	
 	 	 	 	 	
Section 3.01. Conditions Precedent to Effectiveness	 	 	13	 	
Section 3.02. Conditions Precedent to All Advances	 	 	13	 	
Section 3.03. Conditions Precedent to All Grants of Student Loans	 	 	13	 	
 	 	 	 	 	
ARTICLE IV. REPRESENTATIONS AND WARRANTIES	 	 	14	 	
 	 	 	 	 	
Section 4.01. Representations and Warranties of the Funding Note Issuer	 	 	14	 	
Section 4.02. Representation and Warranties of the Sponsor	 	 	14	 	
Section 4.03. Reimbursement Events	 	 	14	 	
Section 4.04. Enforcement of Purchase Obligations Under Transaction Documents	 	 	14	 	
Section 4.05. Release of Lien Upon Purchase of Student Loan	 	 	14	 	
 	 	 	 	 	
ARTICLE V. COVENANTS OF THE FUNDING NOTE ISSUER	 	 	15	 	
 	 	 	 	 	
ARTICLE VI. EVENTS OF DEFAULT; SALE OF PLEDGED COLLATERAL	 	 	15	 	
 	 	 	 	 	
Section 6.01. Events of Default	 	 	15	 	
Section 6.02. Remedies Upon Event of Default	 	 	15	 	
Section 6.03. Sale of Financed Student Loans	 	 	16	 	
 	 	 	 	 	
ARTICLE VII. INDEMNIFICATION	 	 	17	 	
 	 	 	 	 	
Section 7.01. Indemnification by the Funding Note Issuer	 	 	17	 	
Section 7.02. Indemnification by the SPV Administrator	 	 	18	 	
Section 7.03. Indemnification by the Master Servicer	 	 	19	 	
Section 7.04. Sponsor Guarantee	 	 	19	 	
Section 7.05. Indemnification by the Sponsor	 	 	19	 	
 
 i 

 

 	 	 	 	 	
ARTICLE VIII. CONDUIT ADMINISTRATOR PROVISIONS	 	 	20	 	
 	 	 	 	 	
ARTICLE IX. SPV ADMINISTRATOR PROVISIONS	 	 	20	 	
 	 	 	 	 	
ARTICLE X. Manager provisions	 	 	20	 	
 	 	 	 	 	
ARTICLE XI. Master servicer PROVISIONS	 	 	20	 	
 	 	 	 	 	
ARTICLE XII. MISCELLANEOUS	 	 	21	 	
 	 	 	 	 	
Section 12.01. Amendments, Etc.	 	 	21	 	
Section 12.02. Notices	 	 	21	 	
Section 12.03. No Waiver; Remedies	 	 	21	 	
Section 12.04. Successors and Assigns; Binding Effect	 	 	22	 	
Section 12.05. Survival	 	 	22	 	
Section 12.06. Governing Law	 	 	22	 	
Section 12.07. Submission to Jurisdiction; Waiver of Jury Trial; Appointment of Service Agent	 	 	22	 	
Section 12.08. Costs and Expenses	 	 	23	 	
Section 12.09. Bankruptcy Non-Petition and Limited Recourse	 	 	23	 	
Section 12.10. Recourse Against Certain Parties	 	 	23	 	
Section 12.11. Execution in Counterparts; Severability	 	 	24	 	
Section 12.12. Confidentiality	 	 	24	 	
Section 12.13. Section Titles	 	 	25	 	
Section 12.14. Entire Agreement	 	 	25	 	
Section 12.15. No Petition	 	 	25	 	
Section 12.16. Excess Funds	 	 	25	 	
Section 12.17. Eligible Lender Trustee	 	 	26	 	
Section 12.18. USA PATRIOT Act Notice	 	 	26	 	
 
 ii 

 

 	 	 	 	 	
APPENDIX A DEFINITIONS	 	 	 	 	
APPENDIX B CONDITIONS PRECEDENT	 	 	 	 	
APPENDIX C REPRESENTATIONS AND WARRANTIES	 	 	 	 	
APPENDIX D COVENANTS OF THE FUNDING NOTE ISSUER	 	 	 	 	
APPENDIX E EVENTS OF DEFAULT	 	 	 	 	
APPENDIX F SPV ADMINISTRATOR PROVISIONS	 	 	 	 	
APPENDIX G FAIR MARKET AUCTION PROCEDURE	 	 	 	 	
 		
EXHIBIT A FORM OF FUNDING REQUEST	 	 	 	 	
EXHIBIT B FORM OF MONTHLY CONDUIT ADMINISTRATOR’S REPORT	 	 	 	 	
EXHIBIT C FORM OF NOTICE OF RELEASE	 	 	 	 	
EXHIBIT D FORM OF FUNDING NOTE	 	 	 	 	
EXHIBIT E FORM OF LIQUIDITY PREPAYMENT NOTICE	 	 	 	 	
EXHIBIT F NOTICE ADDRESSES	 	 	 	 	
EXHIBIT G FORM OF UCC-1 FINANCING STATEMENTS	 	 	 	 	
EXHIBIT H FORM OF OFFICER’S CERTIFICATE REGARDING ORGANIZATION	 	 	 	 	
EXHIBIT I MATTERS TO BE ADDRESSED BY CLOSING DATE OPINIONS OF COUNSEL	 	 	 	 	
EXHIBIT J FORM OF CERTIFICATE OF CONDUIT ADMINISTRATOR REGARDING TRUST ACCOUNTS	 	 	 	 	
EXHIBIT K FORM OF POWER OF ATTORNEY	 	 	 	 	
EXHIBIT L FORM OF NOTICE OF INTENT TO PARTICIPATE	 	 	 	 	
EXHIBIT M FORM OF SERVICING AGREEMENT	 	 	 	 	
EXHIBIT N FORM OF TRUST RECEIPT	 	 	 	 	
EXHIBIT O FORM OF ANNUAL STATEMENT OF COMPLIANCE	 	 	 	 	
EXHIBIT P FORM OF NOTICE OF DISPOSITION	 	 	 	 	
EXHIBIT Q FORM OF ADVANCE CONFIRMATION	 	 	 	 	
EXHIBIT R FORM OF SECURITY RELEASE CERTIFICATION	 	 	 	 	
EXHIBIT S FORM OF LOAN DESIGNATION NOTICE	 	 	 	 	
EXHIBIT T FORM OF REVOCATION NOTICE	 	 	 	 	
EXHIBIT U FORM OF EXPECTED FUNDING NOTICE	 	 	 	 	
EXHIBIT V FORM OF LOAN DATA SCHEDULE	 	 	 	 	
EXHIBIT W FORM OF NOTICE OF REQUIRED PAYMENT ADVANCE	 	 	 	 	
EXHIBIT X FORM OF RESERVE AND PORTFOLIO CRITERIA SUPPLEMENT	 	 	 	 	
 
 iii 

 

FUNDING NOTE PURCHASE AGREEMENT
THIS FUNDING NOTE PURCHASE AGREEMENT is made as of May 13, 2009, among STRAIGHT-A FUNDING, LLC , a limited liability company organized under the laws of the State of Delaware, as Conduit Lender, NELNET SUPERCONDUIT FUNDING, LLC , a Delaware limited liability company, as Funding Note Issuer, ZIONS FIRST NATIONAL BANK , a national banking association, as the Eligible Lender Trustee hereunder, THE BANK OF NEW YORK MELLON , a New York banking corporation, as Conduit Administrator for the Conduit Lender, as Securities Intermediary and as Conduit Lender Eligible Lender Trustee, NATIONAL EDUCATION LOAN NETWORK, INC. , a Nevada corporation, as the SPV Administrator for the Funding Note Issuer, NELNET, INC. , a Nebraska corporation, as Sponsor, BMO CAPITAL MARKETS CORP ., a company organized under the laws of the State of Delaware, as Manager for the Conduit Lender, and NATIONAL EDUCATION LOAN NETWORK, INC. , a Nevada corporation, as Master Servicer. Certain capitalized terms used throughout this Agreement are defined in Appendix A . Certain rules of interpretation applicable to this Agreement are set forth in Appendix A .
PRELIMINARY STATEMENTS
WHEREAS, the Funding Note Issuer desires to fund certain Eligible Loans (or the acquisition thereof) in part through the issuance of a Funding Note and the sale of such Funding Note to the Conduit Lender, on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, the parties hereto agree as follows:
ARTICLE I.
THE FACILITY
Section 1.01. Making of Advances; Issuance of Funding Note . On the terms and conditions hereinafter set forth, the Conduit Lender, in its sole discretion, may make Advances to the Funding Note Issuer from time to time. All Advances made by the Conduit Lender from time to time shall be evidenced by a single Funding Note issued to and initially registered in the name of the Conduit Lender on the date of the initial Advance hereunder.
Section 1.02. Funding Requests; Advance Procedures .
(a) The Manager will notify the Funding Note Issuer and the Conduit Administrator of each Expected Funding Date by delivery of an Expected Funding Notice. By not later than 5:00 p.m. on the second (2 nd ) Business Day following receipt of an Expected Funding Notice, the Funding Note Issuer may submit to the Manager a Funding Request specifying the amount of the Advance it is requesting for such Expected Funding Date. The Manager may reschedule or cancel any Expected Funding Date in accordance with the Funding Allocation Procedures. Each Funding Request (other than a Funding Request relating to a Required Payment Advance) shall be submitted to the Manager in accordance with the requirements of the Funding Allocation Procedures. Funding Requests shall be irrevocable and binding on the Funding Note Issuer after the deadline for revocation specified in the Funding Allocation Procedures. No Advances will be made except on dates scheduled by the Manager in accordance with the Funding Allocation Procedures.
(b) After receiving notice from the Manager of its Allocation Amount for any Expected Funding Date, other than in the case of a Required Payment Advance, by no later than 3:00 p.m. on the seventh (7 th ) Business Day prior to the Expected Funding Date, the Funding Note Issuer shall submit to the Manager a duly completed Advance Confirmation and Agreed Upon Procedures Letter, to the extent required in connection with such Advance. At any time before delivering an Advance Confirmation, the Funding Note Issuer may revoke its Funding Request by delivering a Revocation Notice. If the aggregate of the Funding Note Balance and the funding note balances (including capitalized ratable financing costs) of all funding notes issued by Program Funding Note Issuers that are Affiliates of the Funding Note Issuer is less than $5 billion at such time, the Funding Note Issuer shall be required to post cash collateral in an amount equal to 0.50% of its Allocation Amount at the time the Advance Confirmation is submitted. Such cash collateral shall be held in the Breakage Account and shall be used solely to cover potential breakage costs under Section 1.03(g) in connection with the related Advance.
 
 1 

 

(c) In connection with any Agreed Upon Procedures Letter required to be delivered in connection with any Advance or any Grant, the Funding Note Issuer shall simultaneously deliver the information related to the student loan pool from which the sample student loans subject to the Agreed Upon Procedures Letter will be selected to the Conduit Administrator at the same time such information is provided to the accountants preparing such Agreed Upon Procedures Letter.
(d) Subject to Section 1.02(f) , on the Expected Funding Date, the Conduit Lender, in its sole discretion, shall either (i) make available to the Funding Note Issuer, in same day funds, on the Advance Date the Net Cash Advance Amount and shall make all required deposits into the applicable Trust Accounts or (ii) notify the Funding Note Issuer that the Conduit Lender declines to make such Advance. The Conduit Administrator shall determine the Reserve Account Specified Balance after giving effect to the requested Advance and the amount required to be deposited to the Reserve Account and DOE Reserve Account on each Advance Date and shall confirm that the instructions for depositing funds to the Trust Accounts are accurately set forth in the Advance Confirmation.
(e) If an Advance is made on any Advance Date and cash collateral has been posted by the Funding Note Issuer pursuant to Section 1.02(b) , such cash collateral will be credited against any deductions from the Advance Amount in the calculation of the Net Cash Advance Amount for such Advance Date. If no Advance is made because the Funding Note Issuer either revokes its request (in whole or in part) for an Advance or the conditions precedent to such Advance are not satisfied on the Expected Funding Date, the posted cash collateral will be applied by the Manager to cover breakage amounts pursuant to Section 1.03(g) and the Funding Allocation Procedures, and any remainder will be returned to the Funding Note Issuer.
(f) The Conduit Administrator, based on the most recent Monthly Conduit Administrator’s Report, shall determine whether (i) any amounts then due to the Department with respect to the Financed Student Loans or otherwise owed to the Department by the Funding Note Issuer in connection with the transactions contemplated by this Agreement, the Department Put Agreement or any other Transaction Document have not been paid, (ii) the amount on deposit in the Reserve Account is less than the Reserve Account Specified Balance or (iii) any Obligation described in clause  (v) , (vi) , (vii) or ( viii ) of Section 1.05(c) has remained unpaid for three consecutive Settlement Dates, and, if any such condition exists as of the date of the related Monthly Conduit Administrator’s Report, the Conduit Administrator shall, by not later than 5:00 p.m. on the second (2nd) Business Day following receipt of an Expected Funding Notice, deliver a Notice of Required Payment Advance to the Manager, and the Funding Note Issuer shall be deemed to have requested an Advance (a “ Required Payment Advance ”) in an amount sufficient to pay or deposit, as applicable, all amounts described in the preceding clauses (i) through (iii) , plus , in the case of any Obligation described in clause (iii) that has remained unpaid on three consecutive Settlement Dates, an amount sufficient to pay all other amounts payable pursuant to clause (v) , (vi) , (vii) or ( viii ) of Section 1.05(c) that would be paid in priority to such Obligation; provided that a Funding Note Issuer shall only be deemed to request a Required Payment Advance if, and to the extent, the related Advance Amount would not cause the Asset Coverage Ratio to be less than the Minimum Asset Coverage Ratio. The proceeds of a Required Payment Advance shall be applied by the Conduit Administrator to (i)  first , pay any amounts then due to the Department with respect to the Financed Student Loans or otherwise owed to the Department by the Funding Note Issuer in connection with the transactions contemplated by this Agreement, the Department Put Agreement or any other Transaction Document that have not been paid, (ii)  second , to deposit to the Reserve Account such amount as shall be necessary to cause the amount on deposit in the Reserve Account to equal the Reserve Account Specified Balance and (iii)  third , to pay any Obligation described in clause (iii) of the preceding sentence that has remained unpaid on three consecutive Settlement Dates and all other amounts payable pursuant to clause (v) , (vi) , (vii) or ( viii ) of Section 1.05(c) that would be paid in priority to such Obligation, in the order of priority specified in Section 1.05(c) . With respect to any Expected Funding Date on which a Required Payment Advance is deemed to be requested, the Funding Note Issuer may not submit a Funding Request with respect to an additional Advance.
Section 1.03. Repayments and Prepayments .
(a)  Repayment at Final Maturity . The Funding Note Issuer shall repay in full the Funding Note Balance and all accrued Ratable Financing Costs on the Final Maturity Date or, if earlier, upon acceleration of the Obligations.
(b)  Optional Prepayments . The Funding Note Issuer may prepay any principal of, and Ratable Financing Costs due or accrued on, the Funding Note in whole or in part on any Business Day by giving written notice at least five (5) Business Days prior to such date to the Conduit Administrator indicating the amount of such prepayment and the date on which such prepayment shall be made. It shall be a condition precedent to any such prepayment that an amount sufficient to pay all other Obligations then due and owing by the Funding Note Issuer shall be deposited into the Funding Note Issuer Collection Account, including the amount payable by the Funding Note Issuer pursuant to Section 1.03(g) in connection with such prepayment. It shall be a further condition precedent to any such prepayment that the prepayment not cause any other Program Funding Note Issuer that is not a “Restricted Special Purpose Entity” (as defined in Rule 2a-7(c)(4)(ii)(D)(2) promulgated under the Investment Company Act) to be a “Ten Percent Obligor” (as defined in Rule 2a-7(c)(4)(ii)(D)(1)(i) promulgated under the Investment Company Act); provided that the foregoing condition precedent shall not apply if (i) the Manager advises the Funding Note Issuer that the Conduit Lender will no longer issue Student Loan Short-Term Notes or (ii) the Manager determines, based on a no-action letter or other guidance from the Securities and Exchange Commission, that the foregoing condition precedent is no longer necessary.
 
 2 

 

(c) Mandatory Prepayments .
(i) If a Department Put Event described in clause (i) of the definition of “Department Put Event” occurs, the Conduit Administrator will deliver a Liquidity Prepayment Notice to the Funding Note Issuer (with a copy to the Manager) as soon as reasonably practicable thereafter but in no event later than 1:00 p.m. on the Business Day following the day on which the Department Put Event occurred. On or before the Required Liquidity Prepayment Date, the Funding Note Issuer shall be required to prepay a portion of the Funding Note Balance in an amount equal to the Liquidity Prepayment Amount, together with Ratable Financing Costs accrued or otherwise payable on the portion of the Funding Note Balance required to be prepaid and any amounts payable pursuant to Section 1.03(g) in connection with such prepayment. Unless the amount described in the preceding sentence shall be paid in full on or before the Required Liquidity Prepayment Date, by no later than the Required Liquidity Prepayment Date the Funding Note Issuer shall select Financed Student Loans in accordance with the Loan Put Allocation Criteria having an aggregate Estimated Department Put Price (as set forth in the Loan Put Schedule) equal to the Liquidity Prepayment Amount and shall deliver, or cause the related Servicers to deliver, a Loan Put Schedule of such selected Financed Student Loans to the Conduit Administrator and Manager, and any failure to select such pool of Financed Student Loans and deliver the Loan Put Schedule shall constitute an Event of Default. If the Funding Note Issuer fails to pay the Liquidity Prepayment Amount, together with Ratable Financing Costs accrued or otherwise payable on the portion of the Funding Note Balance required to be prepaid plus any amount required to be paid by the Funding Note Issuer in accordance with Section 1.03(g) in connection with the prepayment, in full on the Required Liquidity Prepayment Date, there shall be a “default” for purposes of the applicable UCC solely with respect to the Liquidity Prepayment Amount not paid on the Liquidity Prepayment Date, and the Conduit Lender shall have the rights and remedies upon a “default” available to a secured creditor under the UCC of the applicable jurisdiction and other applicable laws, including, without limitation, the right to sell Financed Student Loans in accordance with Section 6.03 ; provided , however , any failure to pay a Liquidity Prepayment Amount when due shall constitute neither an Event of Default nor a Reimbursement Event. If the Funding Note Issuer has selected Financed Student Loans in accordance with the Loan Put Allocation Criteria as described above and delivered the related Loan Put Schedule to the Manager on or prior to the Required Liquidity Prepayment Date, the Manager will use reasonable efforts to conduct a Fair Market Auction of the selected pool of Financed Student Loans prior to the tenth (10 th ) day following the Required Liquidity Prepayment Date; however neither the Conduit Lender nor any agent of the Conduit Lender will sell any Financed Student Loan for a price less than the Estimated Department Put Price (determined as of the date used to prepare the Loan Put Schedule or, if later, the cut-off date for determining the sale price of the related Student Loans) for such Financed Student Loan. If the selected pool of Financed Student Loans has not been sold pursuant to a Fair Market Auction by the tenth (10 th ) day following the Required Liquidity Prepayment Date, the Funding Note Issuer shall deliver a Loan Put Schedule to the Manager on such tenth (10 th ) day and the Conduit Lender shall thereafter sell such pool of Financed Student Loans to the Department for a price equal to the aggregate of the Department Put Prices for all such Financed Student Loans in accordance with the Department Put Agreement.
(ii) If the Conduit Lender requests a Liquidity Advance, the Conduit Administrator will deliver a Liquidity Prepayment Notice to the Funding Note Issuer as soon as reasonably practicable thereafter but in no event later than 1:00 p.m. on the Business Day following the day on which the Liquidity Advance is requested. On or before the Required Liquidity Prepayment Date, the Funding Note Issuer shall be required to prepay a portion of the Funding Note Balance in an amount equal to the Liquidity Prepayment Amount, together with Ratable Financing Costs accrued or otherwise payable on the portion of the Funding Note Balance required to be prepaid and any amounts payable pursuant to Section 1.03(g) in connection with such prepayment. The Conduit Administrator shall promptly notify the Funding Note Issuer of any reduction in whole or in part of the Liquidity Prepayment Amount that occurs prior to the Required Liquidity Prepayment Date. Unless the Liquidity Prepayment Amount, together with Ratable Financing Costs accrued or otherwise payable on the portion of the Funding Note Balance required to be prepaid, shall be paid in full on or before the Required Liquidity Prepayment Date, by no later than the Required Liquidity Prepayment Date the Funding Note Issuer shall select Financed Student Loans in accordance with the Loan Put Allocation Criteria having an aggregate Estimated Department Put Price equal to the Liquidity Prepayment Amount and shall deliver, or cause the related Servicers to deliver, a Loan Put Schedule of such selected Financed Student Loans to the Conduit Administrator and the Manager, and any failure to select such pool of Financed Student Loans and deliver the Loan Put Schedule shall constitute an Event of Default. If the Funding Note Issuer fails to pay the Liquidity Prepayment Amount, together with Ratable Financing Costs accrued or otherwise payable on the portion of the Funding Note Balance required to be prepaid plus any amount required to be paid by the Funding Note Issuer in accordance with Section 1.03(g) in connection with the prepayment, in full on the Required Liquidity Prepayment Date, there shall be a “default” for purposes of the applicable UCC solely with respect to the Liquidity Prepayment Amount not paid on the Liquidity Prepayment Date, and the Conduit Lender shall have the rights and remedies upon a “default” available to a secured creditor under the UCC of the applicable jurisdiction
 
 3 

 

and other applicable laws, including, without limitation, the right to sell Financed Student Loans in accordance with Section 6.03 ; provided , however , any failure to pay a Liquidity Prepayment Amount when due shall not constitute an Event of Default nor a Reimbursement Event. If the Funding Note Issuer has selected Financed Student Loans in accordance with the Loan Put Allocation Criteria as described above and delivered the related Loan Put Schedule to the Manager on or prior to the Required Liquidity Prepayment Date, the Manager will use reasonable efforts to conduct a Fair Market Auction of the selected pool of Financed Student Loans prior to the fifteenth (15 th ) day following the Required Liquidity Prepayment Date; however neither the Conduit Lender nor any agent of the Conduit Lender will sell any Financed Student Loan for a price less than the Estimated Department Put Price (determined as of the date used to prepare the Loan Put Schedule or, if later, the cut-off date for determining the sale price of the related Student Loans) for such Financed Student Loan. If the selected pool of Financed Student Loans has not been sold pursuant to a Fair Market Auction by the fifteenth (15 th ) day following the Required Liquidity Prepayment Date, the Funding Note Issuer shall deliver a Loan Put Schedule to the Manager on such fifteenth (15 th ) day and the Conduit Lender shall thereafter sell such pool of Financed Student Loans to the Department for a price equal to the aggregate of the Department Put Prices for all such Financed Student Loans in accordance with the Department Put Agreement.
(iii) Upon the occurrence of a FFELP Commitment Default, the Funding Note Issuer shall be required to prepay a portion of the Funding Note Balance in an amount equal to the FFELP Commitment Prepayment Amount, together with Ratable Financing Costs accrued or otherwise payable on the portion of the Funding Note Balance required to be prepaid and any amounts payable pursuant to Section 1.03(g) in connection with such prepayment. Unless the amount described in the preceding sentence shall have been paid in full, on or before the fifth (5 th ) day following the occurrence of a FFELP Commitment Default, the Funding Note Issuer shall select Financed Student Loans in accordance with the Loan Put Allocation Criteria having an aggregate Estimated Department Put Price equal to the FFELP Commitment Prepayment Amount and shall deliver, or cause the related Servicers to deliver, a Loan Put Schedule of such selected Financed Student Loans to the Conduit Administrator and the Manager, and any failure to select such pool of Financed Student Loans and deliver the Loan Put Schedule, shall constitute an Event of Default. If the Funding Note Issuer shall not have prepaid the FFELP Commitment Prepayment Amount, together with Ratable Financing Costs accrued or otherwise payable on the portion of the Funding Note Balance required to be prepaid plus any amount required to be paid by the Funding Note Issuer in accordance with Section 1.03(g) in connection with the prepayment, on or before the fifth (5 th ) day following the occurrence of a FFELP Commitment Default, there shall be a “default” for purposes of the applicable UCC, and the Conduit Lender shall have the right to sell the selected pool of Financed Student Loans listed in the Loan Put Schedule delivered pursuant to this Section 1.03(c)(iii) in accordance with Section 6.03 . Upon the occurrence of a FFELP Commitment Default, the Conduit Administrator shall deliver a Put Notice to the Department in accordance with the Department Put Agreement of the occurrence of the related Department Put Event and its intention to sell the Financed Student Loans to the Department with an aggregate Department Put Price equal to the FFELP Commitment Prepayment Amount. If the Funding Note Issuer has selected Financed Student Loans in accordance with the Loan Put Allocation Criteria as described above and delivered the related Loan Put Schedule to the Manager on or prior to the fifth (5 th ) day following the FFELP Commitment Default, the Manager shall use reasonable efforts to sell the selected pool of Financed Student Loans pursuant to a Fair Market Auction no later than the fifteenth (15 th ) day following the FFELP Commitment Prepayment Date; however neither the Conduit Lender nor any agent of the Conduit Lender will sell any Financed Student Loan for a price less than the Estimated Department Put Price (determined as of the date used to prepare the Loan Put Schedule or, if later, the cut-off date for determining the sale price of the related Student Loans) for such Financed Student Loan. If the Manager has not sold the selected pool of Financed Student Loans pursuant to a Fair Market Auction by the fifteenth (15 th ) day following the occurrence of a FFELP Commitment Default, the Funding Note Issuer shall deliver, or cause each related Servicer to deliver, a Loan Put Schedule to the Conduit Administrator and the Manager on such fifteenth (15 th ) day and the Conduit Lender shall thereafter sell such pool of Financed Student Loans to the Department for a price equal to the aggregate of the Department Put Prices for all such Financed Student Loans.
 
 4 

 

(d)  Delinquency Put Event . If a Delinquency Put Event occurs with respect to any Financed Student Loan, a Department Put Event with respect to such Financed Student Loan shall automatically be deemed to have occurred. The Funding Note Issuer may in its discretion sell and assign to an Affiliated Servicer, and an Affiliated Servicer may in its discretion purchase, any Delinquent Student Loan serviced by such Affiliated Servicer for an amount not less than the Estimated Department Put Price (determined using the most current loan information available as of the date of sale) for such Delinquent Student Loan; provided that the aggregate Principal Balance of all such Delinquent Student Loans sold to any Affiliated Servicer pursuant to this Section 1.03(d) shall not exceed 10% of the highest aggregate Principal Balance of all Financed Student Loans serviced by such Affiliated Servicer at any one point in time. If such Delinquent Student Loan does not cease to be a Delinquent Student Loan prior to the thirtieth (30 th ) day following such Delinquency Put Event and such Delinquent Student Loan is not sold to an Affiliated Servicer, there shall be a “default” for purposes of the applicable UCC, and the Conduit Lender shall have the rights and remedies available to a secured creditor upon a “default” and the Conduit Lender shall dispose of such Delinquent Student Loan in a Fair Market Auction or in any other commercially reasonable manner. Unless the Manager determines, in its good faith discretion, that a Fair Market Auction would be likely to yield a price for the Delinquent Student Loan equal to or in excess of the Department Put Price, neither the Conduit Lender nor the Manager shall be required to conduct a Fair Market Auction and, in such circumstance, the Funding Note Issuer agrees that a sale of such Delinquent Student Loan to the Department for a price equal to the Department Put Price shall be commercially reasonable. Unless the Delinquent Student Loan shall be sold prior to the Revocation Date for the related Delinquency Put Event, the Conduit Lender shall sell such Delinquent Student Loan to the Department in accordance with the Department Put Agreement, effective as of the related Delinquency Put Date, at a purchase price equal to the Department Put Price for such Student Loan. The Funding Note Issuer shall cooperate with the Conduit Administrator to satisfy any conditions for the sale of such Student Loan to the Department in accordance with the Department Put Agreement.
(e)  Release of Collateral . The Funding Note Issuer may request the Conduit Lender and the Conduit Lender Eligible Lender Trustee to release its security interest in all or a portion of the Financed Student Loans by delivering a Notice of Release to the Conduit Administrator and the Manager, not less than five (5) Business Days before any day on which the Funding Note Issuer may desire that such release occur. If less than all Financed Student Loans are requested to be released, the Funding Note Issuer shall deliver a Loan Removal Data Schedule to the Department , the Conduit Administrator and the Manager not less than the third (3 rd ) Business Day before the release date and the portion of the Financed Student Loans to be released will be selected in accordance with the Loan Release Allocation Criteria. The release of the Conduit Lender’s and the Conduit Lender Eligible Lender Trustee’s security interest in any Financed Student Loan pursuant to this Section 1.03(e) or in connection with any sale of Financed Student Loans to any Servicer in accordance with Section 1.03(d) shall be subject to the following conditions precedent: (i) no Event of Default or Potential Event of Default (other than a FFELP Commitment Default giving rise to a sale pursuant to Section 1.03(c) ) shall have occurred and be continuing, (ii) the Asset Coverage Ratio shall be not less than the Minimum Asset Coverage Ratio after giving effect to such release, (iii) no amounts described in clauses (i) through (viii) of Section 1.05(c) shall be due and owing by the Funding Note Issuer and no amounts due and owing from any Transaction Party shall be unpaid and (iv) on or prior to such release, the Funding Note Issuer shall have deposited into the Funding Note Issuer Collection Account cash in an amount equal to 97% of the outstanding Principal Balance of such released Financed Student Loans, plus accrued and unpaid interest thereon (to the extent not previously capitalized or to be capitalized) through the date of release, plus the amount payable by the Funding Note Issuer pursuant to Section 1.03(g) in connection with such prepayment. No Financed Student Loan shall be released from the Conduit Lender’s and the Conduit Lender Eligible Lender Trustee’s security interest unless the amount deposited in the Funding Note Issuer Collection Account pursuant to the preceding sentence shall be sufficient to pay all Ratable Financing Costs accrued or otherwise payable on the portion of the Funding Note Balance prepaid in connection with the release of Financed Student Loans and all estimated Negative Special Allowance Payments on the released Financed Student Loans accrued through the date of release of such Financed Student Loan. Any such funds deposited into the Funding Note Issuer Collection Account in respect of released Financed Student Loans shall be transferred to the DOE Reserve Account to the extent necessary to cover estimated Negative Special Allowance Payments on the released Financed Student Loans accrued through the date of the release.
(f)  Effect of Release of Collateral . Upon the satisfaction of the conditions in Section 1.03(e) , all right, title and interest of the Conduit Lender and the Conduit Lender Eligible Lender Trustee in, to and under such Released Collateral shall terminate and revert to the Funding Note Issuer, its successors and assigns, and the right, title and interest of the Conduit Lender in such Released Collateral shall thereupon cease, terminate and become void; and, upon the written request of the Funding Note Issuer, and at the cost and expense of the Funding Note Issuer, the Conduit Administrator shall authorize and, if necessary, execute such UCC-3 financing statements and releases prepared by and submitted to the Conduit Administrator for authorization as are necessary or reasonably requested in writing by the Funding Note Issuer to terminate and remove of record any documents constituting public notice of the security interest in such Released Collateral Granted hereunder being released. The Funding Note Issuer shall be entitled to all Interest Subsidy Payments and Special Allowance Payments on any Financed Student Loans up to but not including the date on which the Conduit Lender and the Conduit Eligible Lender Trustee release their security interest in such Financed Student Loans and such Interest Subsidy Payments and Special Allowance Payments shall be included in Available Funds.
 
 5 

 

(g)  Breakage Amounts . The Funding Note Issuer shall indemnify each of the Manager, the Conduit Lender and the Conduit Administrator against any loss or expense incurred by such parties, either directly or indirectly, as a result of any failure by the Funding Note Issuer to complete any Advance after delivery of an Advance Confirmation, including any negative carry cost on the Securities issued to fund such Advance from the date of issuance of such Securities through the maturity date of such Securities. In addition, the Funding Note Issuer shall pay the Conduit Lender, on demand, such amount or amounts as shall compensate the Conduit Lender for any loss (including loss of profit and any loss as a result of receiving funds prior to the corresponding maturity date for the Securities issued to fund or maintain the Funding Note), cost or expense incurred by the Conduit Lender, the Manager or the Conduit Administrator (as reasonably determined by the applicable party), as the case may be, and hold the Conduit Lender, the Manager and the Conduit Administrator harmless from any such loss, cost or expense, incurred by it as a result of payments with respect to the Funding Note in connection with a prepayment under this Section 1.03 or otherwise, whether voluntary, mandatory, automatic by reason of acceleration or otherwise; provided , however , that no such breakage amounts shall be payable by the Funding Note Issuer with respect to the regular distribution of Available Funds on any Settlement Date pursuant to the priority of payments set forth in Section 1.05(c) . To ensure that the Conduit Lender has adequate funds available to cover any negative carry cost on the Securities issued to fund the portion of any Advance that is prepaid, the Funding Note Issuer shall be required to pay the discount accrued and to accrue on such Securities through the maturity date of such Securities as a condition to any prepayment. To the extent the amount paid by the Funding Note Issuer pursuant to the preceding sentence exceeds the actual loss or expense incurred by the Conduit Lender (taking into account the investment earnings, if any, earned on proceeds available to repay the relevant Securities until their application to pay such Securities on their respective maturity dates), the Manager will return any overpayment to the Funding Note Issuer after the actual loss or expense of the Conduit Lender has been determined. The determination by the Conduit Administrator or the Manager, as the case may be, of the amount of any such loss or expense shall be set forth in a written notice to the Funding Note Issuer, including a statement as to such loss or expense (including calculation thereof in reasonable detail), and shall be conclusive, absent manifest error.
Section 1.04. Establishment and Management of Trust Accounts .
(a) On or prior to the date hereof, the Funding Note Issuer shall establish and maintain, or cause to be established and maintained, the Trust Accounts. The Trust Accounts shall be maintained as segregated accounts at the Conduit Administrator, in the name of the Funding Note Issuer for the benefit of the Conduit Lender, and shall be under the sole dominion and control of the Conduit Administrator.
(b) The Conduit Administrator shall invest all funds held in the Trust Accounts at the direction of the Funding Note Issuer in Eligible Investments having a maturity date (or which can otherwise be liquidated without loss) not later than the next Settlement Date. In the event that the Funding Note Issuer shall have failed to give investment directions to the Conduit Administrator by 11:00 a.m. on any Business Day on which there may be uninvested funds deposited in any Trust Account, the Conduit Administrator shall have no obligation to invest such funds and shall not be liable for any lost potential investment earnings.
(c) The Conduit Administrator, in its capacity as Securities Intermediary or depositary bank with respect to each Trust Account, hereby agrees with the Funding Note Issuer that (i) each of the Trust Accounts shall be either “securities accounts” (each, a “ Securities Account ”) or “deposit accounts” maintained at the Conduit Administrator, (ii) each item of property (whether investment property, financial asset, uninvested funds, credit balances or instrument) credited to any Trust Account shall be treated as a “financial asset” within the meaning of Section 8-102(a)(9) of the UCC to the extent any such Trust Account is a Securities Account, (iii) the Securities Intermediary shall comply with entitlement orders originated by the Conduit Lender (or the Conduit Administrator) with respect to any of the foregoing accounts that is a securities account and shall comply with instructions directing the disposition of funds originated by the Conduit Lender (or the Conduit Administrator) with respect to any of the foregoing accounts that is a deposit account, in each case without the further consent of any other Person or entity, (iv) except as otherwise provided in this Section 1.04(c) , the Securities Intermediary shall not agree to comply with entitlement orders or instructions directing the disposition of funds originated by any Person or entity other than the Conduit Lender (or the Conduit Administrator), (v) the Trust Accounts, and all property credited to such accounts shall not be subject to any lien, security interest, right of set-off or encumbrance in favor of the Conduit Administrator in its capacity as Securities Intermediary or depositary bank or anyone claiming through the Conduit Administrator as Securities Intermediary or depositary bank (other than the Conduit Lender in its capacity as secured party hereunder), and (vi) the jurisdiction of The Bank of New York Mellon, in its capacity as Securities Intermediary or depositary bank with respect to each Trust Account, shall be the State of New York for purposes of the UCC. No property held in the Trust Accounts (i) shall be subject to any other security interest or (ii) shall constitute proceeds of any property subject to the security interest of any party other than the Conduit Lender. Each term used in this Section 1.04(c) and defined in the New York UCC shall have the meaning set forth in the New York UCC.
 
 6 

 

(d) The Funding Note Issuer agrees to report as its income for financial reporting and tax purposes (to the extent reportable) all investment earnings on amounts in the Trust Accounts.
(e) The Conduit Administrator shall not in any way be held liable by reason of any insufficiency in the Trust Accounts resulting from losses on investments made in accordance with instructions of the Funding Note Issuer and the provisions of this Agreement (but the institution serving as Conduit Administrator shall at all times remain liable for its debt obligations, if any, constituting part of such investments).
(f) With respect to each of the Trust Accounts that is a Securities Account, the Securities Intermediary hereby confirms and agrees that:
(i) all securities, financial assets or other property credited to the Securities Accounts shall be registered in the name of the Securities Intermediary by a clearing corporation or other securities intermediary and as to which the Securities Intermediary is entitled to exercise the rights that comprise any financial assets credited to such Securities Account, indorsed to the Securities Intermediary in blank or credited to another Securities Account maintained in the name of the Securities Intermediary, and in no case shall any financial asset credited to any Securities Account be registered in the name of the Funding Note Issuer, payable to the order of the Funding Note Issuer or specially indorsed to the Funding Note Issuer;
(ii) all securities and other property delivered to the Securities Intermediary pursuant to this Agreement shall be promptly credited to the appropriate Securities Account;
(iii) each Securities Account is an account to which financial assets are or may be credited; and
(iv) except for the claims and interest of the Conduit Administrator, the Conduit Lender and of the Funding Note Issuer in the Securities Accounts and without independent investigation of any kind, the Securities Intermediary does not know of any Adverse Claim to, or interest in, any Securities Account or in any financial asset credited thereto; if any Person asserts any lien, encumbrance or Adverse Claim (including any writ, garnishment, judgment, warrant of attachment, execution or similar process) against any Securities Account or in any financial asset carried therein, the Securities Intermediary will promptly notify the Conduit Administrator and the Funding Note Issuer thereof upon receiving notice or other actual knowledge thereof.
(g) Each party hereto acknowledges that the Securities Intermediary constitutes a “securities intermediary” within the meaning of Section 8-102(a)(14) of the New York UCC with respect to each Securities Account and constitutes a “bank” within the meaning of Section 9-102(a)(8) of the New York UCC with respect to each Trust Account that is a “deposit account.”
Section 1.05. Deposits to and Transfers from Funding Note Issuer Collection Account .
(a) Any Collections received by the Funding Note Issuer or any agent thereof will be identified to the related Financed Student Loan within two (2) Business Days of receipt thereof and shall be transmitted to the Funding Note Issuer Collection Account as soon as practicable, but in any event within two (2) Business Days of identification of the Financed Student Loan to which the related Collections shall be applied. The Funding Note Issuer shall direct in writing the Eligible Lender Trustee, each Servicer, each Seller, and each agent of any of the foregoing, to identify the Financed Student Loan relating to any Collections it receives within two (2) Business Days of receipt thereof and to transmit such Collections with respect to the Financed Student Loans directly to the Funding Note Issuer Collection Account within two (2) Business Days of identification of the related Student Loan; provided that if an Affiliated Servicer satisfies the Monthly Remittance Condition, such Affiliated Servicer may direct each other Servicer to transmit any Collections it receives during any Settlement Period to such Affiliated Servicer within two (2) Business Days of identification of the related Student Loan, and such Affiliated Servicer shall transmit such Collections to the Funding Note Issuer Collection Account by no later than the third (3 rd ) Business Day immediately preceding the Settlement Date following the end of such Settlement Period. If any Affiliated Servicer has previously indicated in a Monthly Servicer Report that it satisfies the Monthly Remittance Condition and such Affiliated Servicer thereafter ceases to satisfy the Monthly Remittance Condition, such Affiliated Servicer shall notify the Conduit Administrator and the Manager no later than the Business Day following the first date on which such Affiliated Servicer ceases to satisfy the Monthly Remittance Condition. On each Settlement Date, prior to making the deposits and distributions specified in Section 1.05(c) , the Conduit Administrator shall pay, from funds on deposit in the Funding Note Issuer Collection Account, any accrued and unpaid amounts due and owing to the Department or any Guarantor, in its capacity as Guarantor, with respect to the Financed Student Loans or otherwise owed by the Funding Note Issuer to the Department or any Guarantor in connection with the transactions contemplated by this Agreement, the Department Put Agreement or any other Transaction Document, including, without limitation, any Negative Special Allowance Payments to the extent not previously paid or transferred to the DOE Reserve Account pursuant to Section 1.07 .
 
 7 

 

(b) The Conduit Administrator shall provide to the Funding Note Issuer, the Manager and each Rating Agency the Monthly Conduit Administrator’s Report no later than two (2) Business Days prior to each Settlement Date. If the Conduit Administrator uses an estimate of Conduit Financing Costs to determine the Ratable Financing Costs for any Yield Period, the Conduit Administrator will include in the Monthly Conduit Administrator’s Report a calculation of the actual Conduit Financing Costs for the preceding Yield Period and shall adjust the Ratable Financing Costs by adding any positive Estimated Financing Costs Adjustment and subtracting any negative Estimated Financing Costs Adjustment.
(c) The Conduit Administrator, on each Settlement Date, shall make the following deposits and distributions from Available Funds in the Funding Note Issuer Collection Account in the amount and in the order of priority set forth below:
(i) pay (A) first, to the Eligible Lender Trustee, the SPV Administrator and each Servicer, on a pro rata basis, an amount equal to the Eligible Lender Trustee Fees, SPV Administrator Fees and Senior Servicing Fees which are due and owing to such Person as of the close of business on the last day of the immediately preceding calendar month and (B) second, to the extent the Monthly Servicing Fee Cap exceeds the aggregate of the Senior Servicing Fees payable pursuant to clause (A) of this Section 1.05(c)(i), to pay to each Servicer, in an aggregate amount up to such excess amount, on a pro rata basis based on the amount owed to each Servicer, any other Servicing Fees payable to such Servicers;
(ii) pay to the Conduit Lender Account the Ratable Financing Costs related to the Funding Note for the preceding Yield Period;
(iii) pay to the Conduit Lender Account principal of the Funding Note (A) prior to the occurrence of an Event of Default, until the Asset Coverage Ratio is at least equal to the Minimum Asset Coverage Ratio and (B) after the occurrence of an Event of Default, until the Funding Note Balance has been reduced to zero;
(iv) prior to the occurrence of an Event of Default, pay to the Reserve Account, any amount required to cause the amount on deposit in the Reserve Account to equal the Reserve Account Specified Balance;
(v) pay to the Conduit Lender Account the Funding Note Issuer’s Ratable Other Conduit Costs;
(vi) pay to each Structuring Agent, pro rata, Structuring Agent Fees which are due and owing to such Person as of such Settlement Date;
(vii) on a pro rata basis, pay to the Eligible Lender Trustee, the Conduit Administrator, the Manager, the SPV Administrator and each Indemnified Party, any other Obligations then due and owing and not previously paid pursuant to clause (i) above (including all Funding Note Issuer Indemnified Amounts), all SPV Administrator Indemnified Amounts, all Seller Indemnified Amounts and all Master Servicer Indemnified Amounts;
(viii) pay to each Servicer, on a pro rata basis, an amount equal to any other amounts due and payable to such Servicer, which are accrued and unpaid as of the close of business on the last day of the immediately preceding Settlement Period, including any de-boarding, deconversion or related costs, penalties or fees in connection with the termination of any Servicing Agreement or the deconversion of any Financed Student Loan; and
 
 8 

 

(ix) so long as no Event of Default or Potential Event of Default has occurred and is continuing, to first, pay accrued interest and unpaid principal under the Subordinated Credit Facility, and second, pay to the Funding Note Issuer any Available Funds remaining after the payment in full of each of the foregoing items.
Any Available Funds not distributed as provided in the foregoing sentence shall be retained in the Funding Note Issuer Collection Account and included in Available Funds for the following Settlement Date.
(d) Any Ratable Financing Costs for any Yield Period that are not paid from Available Funds as described in Section 1.05(c)(ii) shall be included in Capitalized Ratable Financing Costs and shall increase the Funding Note Balance. References in this Agreement to accrued and unpaid Ratable Financing Costs shall exclude Capitalized Ratable Financing Costs.
Section 1.06. Transfers to and from the Reserve Account .
(a) In addition to deposits to the Reserve Account made pursuant to Section 1.05 , the Funding Note Issuer may, in its sole discretion, deliver additional funds to the Conduit Administrator for deposit to the Reserve Account.
(b) If funds on deposit in the DOE Reserve Account and the Funding Note Issuer Collection Account are not sufficient for the payment of all Negative Special Allowance Payments due and owing to the Department on any date, the Conduit Administrator, prior to any other permitted uses of the Reserve Account, shall withdraw funds on deposit in the Reserve Account to make such payments on any date on which such payments are required.
(c) To the extent there are insufficient Available Funds in the Funding Note Issuer Collection Account to pay the amounts set forth in clause (i) of Section 1.05(c) on any Settlement Date the Conduit Administrator shall transfer to the Funding Note Issuer Collection Account funds from the Reserve Account, to the extent available for distribution on the specified day (after giving effect to any withdrawal of funds pursuant to the preceding clause (b) of this Section 1.06 ), to pay the amounts set forth in clause (i) of Section 1.05(c) .
(d) If, on any Settlement Date, the Asset Coverage Ratio (which shall be determined on a pro forma basis assuming all Ratable Financing Costs for the preceding Yield Period that remain unpaid after giving effect to the application of Available Funds pursuant to Section 1.05(c) are included in Capitalized Ratable Financing Costs for purposes of calculating the Funding Note Balance) is less than the Minimum Asset Coverage Ratio, the Conduit Administrator shall transfer to the Funding Note Issuer Collection Account funds from the Reserve Account (to the extent available for distribution on the specified day after giving effect to any withdrawal of funds pursuant to the preceding clauses (b) and (c) of this Section 1.06 ) to pay Ratable Financing Costs until the Asset Coverage Ratio (calculated on a pro forma basis as described above) equals the Minimum Asset Coverage Ratio.
(e) Upon the occurrence of the Final Maturity Date, all amounts on deposit in the Reserve Account shall immediately be transferred to the Funding Note Issuer Collection Account and shall be part of Available Funds on the next Settlement Date.
(f) To the extent, as of the end of any Settlement Period, there are on deposit in the Reserve Account funds in excess of the Reserve Account Specified Balance calculated as of the end of such Settlement Period (giving effect to any purchase of additional Financed Student Loans between the end of such Settlement Period and the related Settlement Date), then the Conduit Administrator shall withdraw such excess from the Reserve Account and deposit such excess into the Funding Note Issuer Collection Account to be used as Available Funds on the related Settlement Date.
Section 1.07. DOE Reserve Account and Excluded Borrower Benefit Account . (a) On or before each Settlement Date, the Conduit Administrator will transfer from the Funding Note Issuer Collection Account to the DOE Reserve Account the Estimated Excess Accrual as of the end of the prior calendar month to the extent funds have not been deposited to the DOE Reserve Account in respect of such amount. On each Department Rebate Payment Date, when due under applicable laws and regulations, as of which the Servicers notify the Funding Note Issuer and the Conduit Administrator of the aggregate amount of Negative Special Allowance Payments, if any, that is due and owing to the Department for the preceding quarterly period, the Conduit Administrator shall withdraw from the DOE Reserve Account an amount equal to any Negative Special Allowance Payments due and owing to the Department. If the amount of Negative Special Allowance Payments due to the Department for any quarter is less than the amount deposited to the DOE Reserve Account in respect of Estimated Excess Accrual for the related period, the Conduit Administrator shall withdraw such excess amount from the DOE Reserve Account and deposit such excess funds into the Funding Note Issuer Collection Account for application as Available Funds in accordance with Sections 1.05(a) and (c) . If funds on deposit in the DOE Reserve Account are not sufficient for the payment of all Negative Special Allowance Payments due and owing to the Department, the Conduit Administrator shall, first , use funds on deposit in the Funding Note Issuer Collection Account for such purpose, and second , use funds on deposit in the Reserve Account for such purpose. In addition to deposits to the DOE Reserve Account made from funds on deposit in the Funding Note Issuer Collection Account, the Funding Note Issuer may, in its sole discretion, deliver additional funds to the Conduit Administrator for deposit to the DOE Reserve Account.
 
 9 

 

(b) On or before each Grant Date with respect to any Student Loan subject to an Excluded Borrower Benefit, the Funding Note Issuer shall notify the Conduit Administrator of the aggregate maximum amount of Excluded Borrower Benefits that could be payable on all such Financed Student Loans and shall deposit such amount into the Excluded Borrower Benefit Account. To the extent no Financed Student Loans are subject to Excluded Borrower Benefits, the Funding Note Issuer shall not be required to establish an Excluded Borrower Benefit Account. Prior to the sale of any Financed Student Loan to the Department under the Department Put Agreement, the Conduit Lender or its agent shall apply funds in the Excluded Borrower Benefit Account to pay any Excluded Borrower Benefits to the Person entitled (or potentially entitled) to such benefit. With respect to any Financed Student Loan subject to Excluded Borrower Benefits, the Conduit Administrator will pay such Excluded Borrower Benefits to the applicable Borrower when due, to the extent funds are available for such purpose in the Excluded Borrower Benefit Account, and provided that the Servicer for the related Financed Student Loan shall have timely provided all necessary instructions to the Conduit Administrator in the Monthly Servicer Report required to be delivered during the Settlement Period preceding the Settlement Period in which such payment is required to be made. On each Settlement Date, based on information provided by the related Servicers, the Conduit Administrator shall withdraw funds on deposit in the Excluded Borrower Benefit Account in excess of the aggregate maximum amount of Excluded Borrower Benefits that could be payable on all such Financed Student Loans and shall pay such excess amount to the Funding Note Issuer.
Section 1.08. Grant of a Security Interest . To secure the prompt and complete payment when due of the Obligations and the performance by the Funding Note Issuer of all of the covenants and obligations to be performed by it pursuant to this Agreement and each other Transaction Document, the Funding Note Issuer (and the Eligible Lender Trustee, in its capacity as record owner of the Financed Student Loans) hereby (i) assigns to the Conduit Lender and the Conduit Lender Eligible Lender Trustee, in its capacity as record owner, and Grants to the Conduit Lender and the Conduit Lender Eligible Lender Trustee, in its capacity as record owner, a security interest in, all of its right, title and interest in (but none of its obligations under), each of the Transaction Documents and the Department Put Agreement (to the extent relating to the Financed Student Loans), including all rights and remedies thereunder; and (ii) further Grants to the Conduit Lender and the Conduit Lender Eligible Lender Trustee, in its capacity as record owner, a security interest in all of the Funding Note Issuer’s and the Eligible Lender Trustee’s, respective, right, title and interest in the following property, whether now owned or existing or hereafter arising or acquired and wheresoever located (but excluding any right to make subsequent loans to a Borrower under any Promissory Note included in the Pledged Collateral or any disbursement under a Promissory Note included in the Pledged Collateral to the extent not constituting a Financed Student Loan):
(a) all Financed Student Loans;
(b) the Trust Accounts;
(c) all Collections from Financed Student Loans;
(d) all Eligible Investments and other property, financial assets, security entitlements, funds and accrued earnings thereon held, credited to or carried in any of the Trust Accounts;
(e) all Records relating to any of the foregoing items;
(f) all supporting obligations, liens securing any of the foregoing, money and claims and other rights under insurance policies relating to any of the foregoing;
(g) all accounts, general intangibles, payment intangibles, instruments, investment property, documents, chattel paper, goods, moneys, letters of credit, letter of credit rights, certificates of deposit, deposit accounts and all other property and interests in property of the Funding Note Issuer or the Eligible Lender Trustee, on behalf of the Funding Note Issuer, whether tangible or intangible; and
 
 10 

 

(h) all proceeds of any of the foregoing (collectively, along with the right and title to and interest of the Funding Note Issuer (and the Eligible Lender Trustee, in its capacity as titleholder to the Financed Student Loans) in the Transaction Documents and the Department Put Agreement and all proceeds thereof, the “ Pledged Collateral ”).
The Funding Note Issuer and the Eligible Lender Trustee agree that the foregoing sentence is intended to grant in favor of the Conduit Lender and the Conduit Lender Eligible Lender Trustee, in its capacity as record owner, a first priority continuing lien and security interest in all of the Funding Note Issuer’s (and the Eligible Lender Trustee’s in its capacity as titleholder to the Financed Student Loans) personal property. Each of the Funding Note Issuer and the Eligible Lender Trustee authorizes the Conduit Lender and any agent thereof and their counsel to file UCC financing statements describing the collateral as “all personal property of the Funding Note Issuer” or words to that effect. At the request of the Conduit Lender or the Conduit Administrator, the Funding Note Issuer shall file or cause to be filed, and the Funding Note Issuer authorizes both the Conduit Lender and any agent thereof and their counsel to file, UCC financing statement assignments assigning to the Conduit Lender any financing statement showing the Funding Note Issuer as secured party with respect to the Pledged Collateral. The Funding Note Issuer further confirms and agrees that the Conduit Lender shall have the sole right to enforce the Funding Note Issuer’s rights to sell Financed Student Loans to the Department under the Department Put Agreement, and following the occurrence or declaration of an Event of Default, the sole right to enforce the Funding Note Issuer’s rights and remedies under the Transaction Documents with respect to the Pledged Collateral, but without any obligation on the part of the Conduit Lender to perform any of the obligations of the Funding Note Issuer under the Transaction Documents.
Section 1.09. Payments by the Funding Note Issuer . All payments to be made by the Funding Note Issuer shall be made without set-off, recoupment or counterclaim. Except as otherwise expressly provided herein, all payments by, or on behalf of, the Funding Note Issuer to the Conduit Lender pursuant to Section 1.05(c) shall be made to the Conduit Lender Account. Such payments shall be made in immediately available funds to the Conduit Lender Account no later than 12:00 noon on the date specified herein. Any payment which is received in the Conduit Lender Account later than 12:00 noon (other than payments from amounts already on deposit in the Funding Note Issuer Collection Account) shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue.
Section 1.10. Yield Protection .
(a) If any Regulatory Change (including a change to Regulation D under the Securities Act):
(i) shall impose, modify or deem applicable any reserve (including, without limitation, any reserve imposed by the Federal Reserve Board), special deposit, insurance assessment, or similar requirement against assets of any Affected Party, deposits or obligations with or for the account of any Affected Party or with or for the account of any Affiliate (or entity deemed by the Federal Reserve Board to be an affiliate) of an Affected Party, or credit extended to or participated in by any Affected Party;
(ii) shall change the amount of capital maintained or required or requested or directed to be maintained by any Affected Party;
(iii) shall impose any other condition, cost or expense affecting this Agreement or any Program Support Agreement or its obligations or rights, if any, to provide funding pursuant to any Program Support Agreement;
(iv) shall change the rate for, or the manner in which the Federal Deposit Insurance Corporation (or any successor thereto) assesses deposit insurance premiums or similar charges; or
(v) shall subject any Affected Party to any tax of any kind whatsoever with respect to any Program Support Agreement, or change the basis of taxation of payments to such Affected Party in respect thereof (except for Indemnified Taxes or other Taxes covered by Section 1.11 and the imposition of, or any change in the rate of, any Excluded Tax payable by such Affected Party),
 
 11 

 

and the result of any of the foregoing is or would be:
(A) to increase the cost to or to impose a cost on an Affected Party funding or making any purchases, loans or other extensions of credit under any Program Support Agreement or any commitment of such Affected Party with respect to the foregoing;
(B) to reduce the amount of any sum received or receivable by an Affected Party under this Agreement or under any Program Support Agreement; or
(C) in the sole determination of such Affected Party, to reduce the rate of return on the capital of an Affected Party as a consequence of its obligations hereunder or under any Program Support Agreement or arising in connection herewith to a level below that which the Affected Party could otherwise have achieved;
then on the Settlement Date following the date of demand by such Affected Party, such additional amount or amounts as will compensate such Affected Party for such additional or increased cost or such reduction shall be included in the Conduit Financing Costs and/or Other Conduit Costs, as provided in the Administration Agreement.
Section 1.11. Taxes .
(a) All payments made by the Funding Note Issuer under this Agreement shall be made free and clear of, and without deduction or withholding for or on account of, any present or future Taxes, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, unless required by law. If any Taxes are required to be withheld from any amounts payable by the Funding Note Issuer hereunder or under any Program Support Agreement, if such Taxes are Indemnified Taxes, the amounts so payable shall be increased to the extent necessary to yield to such recipient (after payment of all such taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement, the Funding Note Issuer shall withhold the required amounts, the Funding Note Issuer shall remit such withheld amounts to the appropriate Governmental Authority, and the Funding Note Issuer shall, within 10 days after remittance of such amounts, send to the Conduit Administrator a certified copy of an original official receipt received by the Funding Note Issuer showing remittance of such withheld amounts. In addition, the Funding Note Issuer shall indemnify any Affected Party from any loss (including the imposition of any tax, including interest and penalties) arising from the Funding Note Issuer’s failure to timely withhold or remit to the appropriate Governmental Authority any Indemnified Taxes required to be withheld from any amounts payable by the Funding Note Issuer hereunder or under any Program Support Agreement. In addition, the Funding Note Issuer shall pay to the relevant Governmental Authority any and all Other Taxes imposed to the relevant Governmental Authority imposing such Other Taxes in accordance with applicable law.
(b) The Funding Note Issuer, the Eligible Lender Trustee, and the Conduit Lender each agree to treat for United States federal, state and local income and franchise tax purposes, (1) the Funding Note as indebtedness, (2) all amounts held in the applicable Trust Accounts as owned by and on behalf of the Funding Note Issuer and all income and loss in respect of amounts held in such Trust Accounts as income and loss of the Funding Note Issuer, (3) the Department Put Agreement and all amounts paid or accrued thereon (to the extent that it relates to the Financed Student Loans) as consisting of an agreement solely by and between the Department and the Funding Note Issuer, and (4) the Conduit Lender and the Conduit Administrator as acting on behalf of the Funding Note Issuer in respect of the Department Put Agreement (to the extent it relates to the Financed Student Loans). The Funding Note Issuer, the Eligible Lender Trustee and the Conduit Lender shall take no position inconsistent with this treatment, unless otherwise required by law.
(c) The agreements in this Section 1.11 shall survive the termination of this Agreement and the payment of all amounts payable hereunder.
(d) The Conduit Lender and any successor or assignee of the Funding Note shall at all times be a United States person under Section 7701(a)(30) of the Code and shall provide the Funding Note Issuer a properly executed IRS Form W-9 (or successor form) upon its acquisition of the Funding Note. The Funding Note Issuer’s obligation to pay additional amounts under Section 1.11(a) above is dependent upon its receiving the required IRS Form W-9 (or successor form).
 
 12 

 

Section 1.12. Startup Costs Allocation . The Startup Costs Allocation payable on any Advance Date shall be netted from the Advance Amount and deposited to the Startup Cost Account. The Manager shall direct the Conduit Administrator to apply all Startup Costs Allocations solely to the payment of Startup Costs of the Conduit Lender. The Manager agrees that, if on July 1, 2010 the aggregate of all Startup Costs Allocations and all similar allocations of Startup Costs paid by all Program Funding Note Issuers (together with investment earnings on any such amounts deposited to the Startup Cost Account) exceeds the Startup Costs of the Conduit Lender, the Manager shall direct the Conduit Administrator to refund to each Program Funding Note Issuer, a pro rata share (determined based on the amount of such allocations of Startup Costs paid by each Program Funding Note Issuer) of the portion of such allocations and investment earnings thereon that have not been applied to pay Startup Costs.
ARTICLE II.
THE FUNDING NOTE
Section 2.01. Form of Funding Note Generally . The Funding Note shall be in substantially the form set forth in Exhibit D with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Agreement, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may, consistently herewith, be determined by the officers executing such Funding Note, as evidenced by their execution of the Funding Note. The Funding Note shall be typewritten or printed. The Funding Note shall be issuable only in registered form and shall be delivered to, or at the instruction of, the Conduit Lender on the Closing Date.
Section 2.02. Note Register . The Conduit Administrator, as the agent for the Funding Note Issuer, shall maintain a Note Register (the “ Note Register ”) on its books in which shall be recorded (a) all Advances made pursuant to this Agreement, (b) the Funding Note Balance, (c) all payments of principal and Ratable Financing Costs made by or on behalf of the Funding Note Issuer on the Funding Note and (d) all appropriate debits and credits as provided in this Agreement including, without limitation, all fees, charges, expenses and interest. The entries in the Note Register shall be available for inspection by the Funding Note Issuer upon reasonable notice and at a reasonable time. Further, no assignment or transfer of a Funding Note shall be effective unless such assignment or transfer shall have been recorded in the Note Register by the Conduit Administrator. All entries in the Conduit Administrator’s Note Register shall be made in accordance with the Conduit Administrator’s customary accounting practices as in effect from time to time. The entries in the Note Register shall be conclusive and binding for all purposes, absent manifest error. Any failure to so record or any errors in doing so shall not, however, limit or otherwise affect the obligation of the Funding Note Issuer to pay any amount owing with respect to the Funding Note or any of the other Obligations.
ARTICLE III.
CONDITIONS PRECEDENT
Section 3.01. Conditions Precedent to Effectiveness . The effectiveness of this Agreement is subject to the conditions precedent set forth in Section 1 of Appendix B , unless waived by the Department and the Manager, on behalf of the Conduit Lender (the Funding Note Issuer, by executing this Agreement shall be deemed to have certified that all such conditions precedent unless waived are satisfied on the Closing Date).
Section 3.02. Conditions Precedent to All Advances . Each Advance shall be subject to the conditions precedent set forth in Sections 2 and 3 of Appendix B , unless waived by the Department and the Manager, on behalf of the Conduit Lender (the Funding Note Issuer, by accepting the proceeds of an Advance, shall be deemed to have certified that all such conditions unless waived are satisfied on the date of such Advance).
Section 3.03. Conditions Precedent to All Grants of Student Loans . Each Grant of Financed Student Loans shall be subject to the conditions precedent set forth in Sections 2 and 4 of Appendix B , unless waived by the Department and the Manager, on behalf of the Conduit Lender.
 
 13 

 

ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
Section 4.01. Representations and Warranties of the Funding Note Issuer . The SPV Administrator (on behalf of the Funding Note Issuer) makes the representations and warranties set forth in Appendix C for the benefit of the Affected Parties on or as of the respective dates specified in Appendix C .
Section 4.02. Representation and Warranties of the Sponsor . The Sponsor makes the following representations and warranties for the benefit of the Affected Parties on the Closing Date, on the date of each Advance and on each Grant Date:
(a) With respect to each state or jurisdiction therein in which the Sponsor or any of its Affiliates undertakes origination activities, the Sponsor or such Affiliate is in full compliance with such state’s or jurisdiction’s (as applicable) laws, rules, regulations, orders, settlement agreements and other standards and procedures, including those promulgated by agencies or officers thereof, applicable to it and pertaining to the conduct of participants in the student loan industry to the extent the Sponsor or any such Affiliate has assented to such voluntary code of conduct (including, without limitation, any applicable “code of conduct” for participants in the student loan industry that specifically and legally applies to the Sponsor, any such Affiliate and the Eligible Lender Trustee, to the extent that non-compliance with such a code of conduct would adversely affect the Department’s rights or interest with respect to the Putable Loans that the Department purchases pursuant to the Department Put Agreement or adversely affect any Affected Party);
(b) The Sponsor has administered, operated and maintained its federal family education loan program in such manner as to ensure that such program and the Financed Student Loans will benefit, in all material respects, from FFELP, the Guarantee Agreements related thereto and the federal program of reimbursement for FFELP student loans pursuant to the Higher Education Act; and
(c) The Sponsor has an internal quality control program that verifies, on a regular basis, the existence and accuracy of its legal documents, credit documents and underwriting decisions, including all such documents and decisions that would affect the validity of the representations and warranties required under this Section 4.02 . The program shall include evaluating and monitoring the overall quality of the Sponsor’s and its Affiliates’ loan production and the servicing of such loans. The program is to ensure that the Student Loans are originated and serviced in accordance with applicable law; guard against dishonest, fraudulent, or negligent acts; and guard against errors and omissions by officers, employees, or other authorized persons.
Section 4.03. Reimbursement Events . Upon the occurrence of a Reimbursement Event with respect to any Financed Student Loan and the expiration of a 30-day cure-period after written demand by the Conduit Administrator, the Funding Note Issuer or the Department, on or prior to such 30 th day, the Funding Note Issuer shall be required to deposit to the Funding Note Issuer Collection Account an amount equal to the Principal Balance of each related Financed Student Loan, plus accrued and unpaid interest thereon (to the extent not included in the Principal Balance), and, if applicable, Negative Special Allowance Payments with respect to such Student Loan from the related Grant Date to and including the date of repayment (such amount, the “ Reimbursement Amount ”); provided that if a Department Put Event shall have occurred with respect to such Financed Student Loan, after the Revocation Date for such Student Loan, the Reimbursement Amount shall be paid to the Department. The Funding Note Issuer shall reimburse each Affected Party for all attorneys’ fees, legal expenses, court costs, servicing fees or other fees and expenses incurred in connection with each Financed Student Loan for which the Funding Note Issuer is required to pay a Reimbursement Amount pursuant to this Section 4.03 (collectively, “ Reimbursement Event Fees and Expenses ”).
Section 4.04. Enforcement of Purchase Obligations Under Transaction Documents . The Funding Note Issuer shall cause the obligations of the Servicers and the Seller to purchase or repurchase Student Loans to be enforced to the extent such obligations are set forth in the Servicing Agreement or the Student Loan Purchase Agreement. The Funding Note Issuer shall be responsible for the selection of all Servicers and for paying all related fees and expenses in connection therewith.
Section 4.05. Release of Lien Upon Purchase of Student Loan . Each of the Conduit Lender and the Conduit Lender Eligible Lender Trustee hereby agrees to release its lien on and security interest in any Financed Student Loan for which the Funding Note Issuer has deposited to the Funding Note Issuer Collection Account an amount equal to the Reimbursement Amount and paid all other Reimbursement Event Fees and Expenses payable pursuant to Section 4.03 . The Department Put Agreement shall provide that upon the payment of the Reimbursement Amount to the Department and the payment of all other Reimbursement Event Fees and Expenses, the Department shall promptly deliver to the Funding Note Issuer or its designated agent the related Loan Documents endorsed, to the extent applicable, to the order of the Funding Note Issuer or its designee, and all documentation relating to the administration of such Student Loan by the Department subsequent to the date of purchase by the Department, a payment history and a collection history.
 
 14 

 

ARTICLE V.
COVENANTS OF THE FUNDING NOTE ISSUER
From the date hereof until all of the Obligations hereunder and under the other Transaction Documents have been satisfied in full, the Funding Note Issuer agrees to perform and observe the covenants set forth in Appendix D .
ARTICLE VI.
EVENTS OF DEFAULT; SALE OF PLEDGED COLLATERAL
Section 6.01. Events of Default . After the occurrence of an event described in Appendix E , the Conduit Lender or the Manager may instruct the Conduit Administrator to, by notice to the Funding Note Issuer, declare the occurrence of an “ Event of Default ;” provided that, in the case of any event with respect to the Funding Note Issuer or the Eligible Lender Trustee described in clause (e) of Appendix E or any event described in clause (a) , (k) , (w) or (y) of Appendix E , an Event of Default shall be deemed to have occurred automatically and with respect to any event described in clause (j) or (v) of Appendix E , an Event of Default shall be deemed to occur automatically unless the Department shall have consented to the waiver of the related breach; and provided, further, that the occurrence of any event described in clause (x) of Appendix E shall automatically be deemed to constitute an “Event of Default” unless waived by the Manager with the consent of the Department; however the sole remedy with respect to such Event of Default shall be as provided in Section 1.03(c)(iii) .
Section 6.02. Remedies Upon Event of Default .
(a) The Conduit Lender, the Manager , the SPV Administrator, the Eligible Lender Trustee and the Sponsor shall as soon as possible upon being made aware of the occurrence of any Event of Default or Potential Event of Default notify the Conduit Administrator. Upon the occurrence of an Event of Default, the Conduit Administrator shall have the right to declare, by notice to the Funding Note Issuer, that the Funding Note Balance, the Ratable Financing Costs accrued in respect of the Funding Note and all other Obligations of the Funding Note Issuer shall become immediately due and payable; provided that the Conduit Administrator shall not cause the acceleration of the Final Maturity Date unless instructed to take such action by the Manager; and provided further that the Funding Note Balance, the Ratable Financing Costs accrued in respect of the Funding Note and all other Obligations of the Funding Note Issuer shall automatically be accelerated upon the occurrence of any event with respect to the Funding Note Issuer described in clause (e) of Appendix E without any further action of the Conduit Lender, the Manager or the Conduit Administrator. Upon such acceleration of the Funding Note Balance, the Ratable Financing Costs accrued in respect of the Funding Note and all other Obligations of the Funding Note Issuer shall become immediately due and payable and the Conduit Lender shall have, in addition to all other rights and remedies under this Agreement or otherwise, but subject to the provisions of Section 6.02(b) , all other rights and remedies available to a secured party under the UCC of the applicable jurisdiction and other applicable laws, which rights shall be cumulative.
(b) Upon the declaration of an Event of Default or the automatic occurrence thereof, the Conduit Administrator shall (i) deliver a Put Notice to the Department in accordance with the Department Put Agreement of the occurrence of the related Department Put Event and its intention to sell the Financed Student Loans to the Department and (ii) notify each Servicer of the occurrence of such Event of Default. On or before the fifth (5 th ) day following the declaration of an Event of Default or the automatic occurrence thereof, the Funding Note Issuer shall, and shall cause each Servicer to, deliver a Loan Put Schedule to the Conduit Administrator and the Manager. The Manager shall use reasonable efforts to sell all of the Financed Student Loans pursuant to a Fair Market Auction no later than the fifteenth (15 th ) day following the Event of Default; provided that at any day prior to such auction, the Funding Note Issuer shall have the right to repay all outstanding Obligations and all Pledged Collateral shall thereupon be released. If the Manager has not sold the Financed Student Loans pursuant to a Fair Market Auction by the fifteenth (15 th ) day following the Event of Default, the Conduit Lender shall thereafter sell all of the Financed Student Loans to the Department for a price equal to the aggregate of the Department Put Prices for all such Financed Student Loans. Upon the declaration of the occurrence of an Event of Default this Section 6.02(b) shall require the Manager to sell all of the Financed Student Loans either through a Fair Market Auction or to the Department. Upon receipt of proceeds from each sale of a portion of the Financed Student Loans, the Manager shall direct the Conduit Administrator to accelerate a portion of the Funding Note Issuer’s obligations hereunder in an amount equal to the net proceeds of such sale, less the amount of any accrued and unpaid Ratable Financing Costs payable by the Funding Note Issuer. The Funding Note Issuer consents and agrees that the sale of all of the Financed Student Loans and the application of incremental proceeds as provided herein is commercially reasonable.
 
 15 

 

(c) Notwithstanding anything to the contrary in Section 1.05(a), the Funding Note Issuer shall direct in writing the Eligible Lender Trustee, each Servicer, the Seller, and each agent of any of the foregoing, to transmit directly to the Funding Note Issuer Collection Account any Collections with respect to Financed Student Loans selected for sale in connection with the exercise by the Conduit Lender of remedies pursuant to Section 1.03(c) or, following an Event of Default, any Collections on all Financed Student Loans within two (2) Business Days of identification of the related Student Loan. Such funds described in the preceding sentence shall be held in the Sold Loans Account and shall be used solely as described in this Section 6.02(c). If any Student Loan is sold to any Person other than the Department, the Conduit Administrator shall pay to the purchaser all Collections on the related Student Loans deposited to the Sold Loans Account after the related cut-off date for determining the sale price of such Student Loans, and any other Collections shall be applied by the Conduit Administrator in the same manner as the sale proceeds of the related Student Loans. If any Student Loan is purchased by the Department, the Conduit Administrator shall pay to the Department all Collections on the related Student Loans deposited to the Sold Loans Account to the extent such payments were not reflected in the Loan Put Schedule used to determine the Department Put Price for the related Student Loans, and any other Collections shall be applied by the Conduit Administrator in the same manner as the sale proceeds of the related Student Loans received from the Department.
Section 6.03. Sale of Financed Student Loans .
(a) The rights and remedies of a secured party which may be exercised by the Conduit Lender or its agent pursuant to Sections 6.02 , 1.03(c) and 1.03(d) shall include, without limitation, the right, without notice except as specified below, to solicit and accept bids for and sell the Pledged Collateral or any part thereof in a Fair Market Auction or to the Department in accordance with the Department Put Agreement. The Conduit Lender appoints the Manager as its agent, and the Manager accepts such appointment, to conduct any Fair Market Auction of the Pledged Collateral for and on its behalf. The Funding Note Issuer hereby appoints the Conduit Administrator, and the Conduit Administrator accepts such appointment, to sell and transfer any Financed Student Loan required to be sold to the Department in accordance with this Agreement and the Department Put Agreement. This power is coupled with an interest and is irrevocable while any obligation under this Agreement remains outstanding. Any sale or transfer by the Conduit Lender or the Conduit Administrator on behalf of the Conduit Lender of Financed Student Loans shall only be made to an Eligible Lender or the Department. The Funding Note Issuer agrees that, to the extent notice of sale shall be required by law, five days’ notice to the Funding Note Issuer of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification and that it shall be commercially reasonable for the Conduit Lender or the Conduit Administrator on behalf of the Conduit Lender to sell the Pledged Collateral to an Eligible Lender on an “as is” basis, without representation or warranty of any kind. The Funding Note Issuer agrees that the procedures for any sale of a Financed Student Loan as set forth in Appendix G that is conducted in the timeframe specified in this Agreement for any such sale or a sale to the Department as contemplated by this Agreement and the Department Put Agreement are commercially reasonable and shall constitute the standards against which compliance with the requirements of Part 6 of Article 9 of the UCC shall be measured. The Conduit Lender shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given and may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.
(b) Except as provided in Section 1.03(c), the proceeds of any sale of Pledged Collateral shall be deposited into the Funding Note Issuer Collection Account and shall be distributed by the Conduit Administrator in the following priority: (i) to pay to the Department any accrued and unpaid amount due and owing to the Department or otherwise owed by the Funding Note Issuer to the Department in connection with the transactions contemplated by this Agreement, the Department Put Agreement or any other Transaction Document; (ii) to pay accrued and unpaid Ratable Financing Costs with respect to the Funding Note; (iii) to pay the Funding Note Balance; (iv) to pay the other Obligations of the Funding Note Issuer in accordance with the priority of payments described in Sections 1.05(a) and (c) ; and (v) to remit any excess amount to the Funding Note Issuer. As soon as reasonably practical, the Conduit Administrator shall prepare a report of amounts to be paid pursuant to the preceding sentence, and upon determination of such amounts, shall deliver such report to the Funding Note Issuer and distribute the proceeds of such sale in accordance with this Section 6.03(b) .
 
 16 

 

ARTICLE VII.
INDEMNIFICATION
Section 7.01. Indemnification by the Funding Note Issuer .
(a) Without limiting any other rights which the Affected Parties or any of their respective Affiliates may have hereunder or under applicable law, to the fullest extent permitted by applicable law, the Funding Note Issuer hereby agrees to indemnify the Affected Parties and each of their respective successors, transferees, participants and assigns, and any members, investors, officers, directors, employees, agents, advisors, attorneys-in-fact or Affiliates of the foregoing (each, an “ Indemnified Party ”) from and against any and all damages, losses, claims, liabilities and related costs and expenses, including reasonable attorneys’ fees and disbursements awarded against or incurred by any of the Indemnified Parties arising out of or relating to the Transaction Documents or the Pledged Collateral, including, without limitation the following items described in clauses (i) through (x) , but excluding , however (A) any indemnified amounts to the extent determined by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Indemnified Party seeking indemnification and (B) except as provided in the Transaction Documents, any recourse for defaulted Student Loans or Delinquent Student Loans or losses attributable to changes in the market value of the Financed Student Loans including, without limitation, because of changes in market interest rates or in rate of prepayment (the foregoing, being collectively referred to as “ Funding Note Issuer Indemnified Amounts ”):
(i) the inaccuracy of any representation or warranty by any Transaction Party or any untrue, inaccurate, incomplete or misleading statement by any Transaction Party in any Transaction Document or any certificate, report, information or other document delivered pursuant thereto or in connection therewith, including, without limitation, any Reimbursement Event or any Repurchase Event;
(ii) any failure by any Transaction Party to deliver any information, report, certification, accountants’ letter or other material when and as required under the Transaction Documents or any other failure by any Transaction Party to perform, or any negligence or willful misconduct in the performance by any Transaction Party of, any of its obligations in any Transaction Document;
(iii) any actual or alleged violations of law, breach of contract or tort by any Transaction Party (including any violations of law in the origination or servicing of any Financed Student Loan);
(iv) with respect to any Financed Student Loan, any claim or dispute arising prior to, or arising from or relating to facts, with respect to origination, occurring on or prior to, the date on which such Financed Student Loan became a Financed Student Loan;
(v) the unavailability or destruction of any documents included in the definition of Loan Documents;
(vi) any failure to pay an Excluded Borrower Benefit prior to the sale of any Financed Student Loan to the Department;
(vii) any failure to vest and maintain in favor of the Conduit Lender and the Conduit Lender Eligible Lender Trustee, in its capacity as record owner, a first priority perfected security interest in any Financed Student Loan or other Pledged Collateral;
(viii) the Department or any Guarantor, as the case may be, refuses to honor all or part of a claim filed with respect to a Financed Student Loan (including any claim for Interest Subsidy Payments, Special Allowance Payments or Guarantee payments);
(ix) to the extent not otherwise required to be paid pursuant to Section 1.11 hereof, any Indemnified Taxes and, without duplication, any sales, gross receipts, general corporation, tangible and intangible personal property, privilege or license taxes that may at any time be asserted against any Indemnified Party with respect to the Financed Student Loans or the transactions contemplated by the Transaction Documents or the Department Put Agreement, and any costs and expenses of defending the same; and
(x) any Regulatory Change.
(b) Any Funding Note Issuer Indemnified Amounts shall be paid by the Funding Note Issuer in accordance with Section 1.05(c) on the first Settlement Date following the date of demand therefor accompanied by reasonable supporting documentation with respect to such amounts.
 
 17 

 

Section 7.02. Indemnification by the SPV Administrator .
(a) Without limiting any other rights which the Affected Parties or any of their respective Affiliates may have hereunder or under applicable law, to the fullest extent permitted by applicable law, the SPV Administrator hereby agrees to indemnify each Indemnified Party from and against any and all damages, losses, claims, liabilities and related costs and expenses, including reasonable attorneys’ fees and disbursements awarded against or incurred by any of the Indemnified Parties arising out of or relating to the following items described in clauses (i) through (ix) , but excluding , however (A) any indemnified amounts to the extent determined by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Indemnified Party seeking indemnification and (B) except as provided in the Transaction Documents, any recourse for defaulted Student Loans or Delinquent Student Loans or losses attributable to changes in the market value of the Financed Student Loans including, without limitation, because of changes in market interest rates or in rate of prepayment (the foregoing, being collectively referred to as “ SPV Administrator Indemnified Amounts ”):
(i) the inaccuracy of any representation or warranty by the SPV Administrator or any untrue, inaccurate, incomplete or misleading statement by the SPV Administrator in any Transaction Document or any certificate, report, information or other document delivered pursuant thereto or in connection therewith;
(ii) any failure by the SPV Administrator to deliver any information, report, certification, accountants’ letter or other material when and as required under the Transaction Documents or any other failure by the SPV Administrator to perform, or any negligence or willful misconduct in the performance by the SPV Administrator of, any of its obligations in any Transaction Document;
(iii) any actual or alleged violations of law, breach of contract or tort by the SPV Administrator;
(iv) with respect to any Financed Student Loan, any claim or dispute arising prior to, or arising from or relating to facts, with respect to origination, occurring on or prior to, the date on which such Financed Student Loan became a Financed Student Loan;
(v) any failure to vest and maintain in favor of the Conduit Lender and the Conduit Lender Eligible Lender Trustee, in its capacity as record owner, a first priority perfected security interest in any Financed Student Loan or other Pledged Collateral;
(vi) [Reserved];
(vii) [Reserved];
(viii) the inaccuracy of any representation or warranty by the Funding Note Issuer or any untrue, inaccurate, incomplete or misleading statement by the Funding Note Issuer in Section 1 of Appendix C or any Reimbursement Amount or Reimbursement Event Fees and Expenses arising therefrom to the extent not paid when required to be paid by the Funding Note Issuer pursuant to Section 4.03 ; and
(ix) amounts payable by the Funding Note Issuer pursuant to Section 1.03(g) .
(b) The SPV Administrator shall be jointly and severally liable (together with the Funding Note Issuer) for any Reimbursement Amount or Reimbursement Event Fees and Expenses arising from the inaccuracy of any representation or warranty by the Funding Note Issuer or any untrue, inaccurate, incomplete or misleading statement by the Funding Note Issuer in Section 1 of Appendix C .
(c) [Reserved].
(d) To the extent not paid pursuant to Section 1.05(c) , any SPV Administrator Indemnified Amounts shall be paid by the SPV Administrator to the related Indemnified Party on or before the thirtieth (30 th ) day following the date of demand therefor accompanied by reasonable supporting documentation with respect to such amounts.
 
 18 

 

Section 7.03. Indemnification by the Master Servicer .
(a) Without limiting any other rights which the Affected Parties or any of their respective Affiliates may have hereunder or under applicable law, to the fullest extent permitted by applicable law, the Master Servicer hereby agrees to indemnify each Indemnified Party from and against any and all damages, losses, claims, liabilities and related costs and expenses, including reasonable attorneys’ fees and disbursements awarded against or incurred by any of the Indemnified Parties arising out of or relating to the following items described in clauses (i) through (vii) , but excluding , however (A) any indemnified amounts to the extent determined by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Indemnified Party seeking indemnification and (B) except as provided in the Transaction Documents, any recourse for defaulted Student Loans or Delinquent Student Loans or losses attributable to changes in the market value of the Financed Student Loans including, without limitation, because of changes in market interest rates or in rate of prepayment (the foregoing, being collectively referred to as “ Master Servicer Indemnified Amounts ”):
(i) the inaccuracy of any representation or warranty by any Servicer or any untrue, inaccurate, incomplete or misleading statement by any Servicer in any Transaction Document or any certificate, report, information or other document delivered pursuant thereto or in connection therewith;
(ii) any failure by any Servicer to deliver any information, report, certification, accountants’ letter or other material when and as required under the Transaction Documents or any other failure by any Servicer to perform, or any negligence or willful misconduct in the performance by any Servicer of, any of its obligations in any Transaction Document;
(iii) any actual or alleged violations of law, breach of contract or tort by any Servicer occurring, directly or indirectly, in connection with the performance of its duties under any Transaction Document to which it is a party;
(iv) with respect to any Financed Student Loan and the servicing of such Financed Student Loan, any claim or dispute arising prior to, or arising from or relating to facts occurring on or prior to, the date on which such Financed Student Loan became a Financed Student Loan;
(v) [Reserved];
(vi) the inaccuracy of any representation or warranty by the Funding Note Issuer or any untrue, inaccurate, incomplete or misleading statement by the Funding Note Issuer in Section 2 of Appendix C and any Reimbursement Amount or Reimbursement Event Fees and Expenses arising therefrom to the extent not paid when required to be paid by the Funding Note Issuer pursuant to Section 4.03 ; and
(vii) the unavailability or destruction of any documents included in the definition of Loan Documents.
(b) The Master Servicer shall be jointly and severally liable (together with the Funding Note Issuer) for any Reimbursement Amount or Reimbursement Event Fees and Expenses arising from the inaccuracy of any representation or warranty by the Funding Note Issuer or any untrue, inaccurate, incomplete or misleading statement by the Funding Note Issuer in Section 2 of Appendix C .
(c) [Reserved].
(d) To the extent not paid pursuant to Section 1.05(c) , any Master Servicer Indemnified Amounts shall be paid by the Master Servicer to the related Indemnified Party on or before the thirtieth (30 th ) day following the date of demand therefor accompanied by reasonable supporting documentation with respect to such amounts.
Section 7.04. Sponsor Guarantee . The Sponsor shall be jointly and severally liable for any Seller Indemnified Amounts and any Repurchase Amounts and all Repurchase Event Fees and Expenses payable under the Student Loan Purchase Agreement, all amounts payable by the SPV Administrator pursuant to Section 7.02 and all amounts payable by the Master Servicer pursuant to Section 7.03 .
Section 7.05. Indemnification by the Sponsor .
(a) Without limiting any other rights which the Affected Parties or any of their respective Affiliates may have hereunder or under applicable law, to the fullest extent permitted by applicable law, the Sponsor hereby agrees to indemnify each Indemnified Party from and against any and all damages, losses, claims, liabilities and related costs and expenses, including reasonable attorneys’ fees and disbursements awarded against or incurred by any of the Indemnified Parties arising out of or relating to the inaccuracy of any representation or warranty by the Sponsor or any untrue, inaccurate, incomplete or misleading statement by the Sponsor in any Transaction Document or any certificate, report, information or other document delivered pursuant thereto or in connection therewith, but excluding, however (A) any indemnified amounts to the extent determined by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Indemnified Party seeking indemnification and (B) except as provided in the Transaction Documents, any recourse for defaulted Student Loans or Delinquent Student Loans or losses attributable to changes in the market value of the Financed Student Loans, including, without limitation, because of changes in market interest rates or in rate of prepayment (the foregoing, being collectively referred to as “Sponsor Indemnified Amounts”).
 
 19 

 

(b) Any Sponsor Indemnified Amounts shall be paid by the Sponsor to the related Indemnified Party on or before the thirtieth (30th) day following the date of demand therefor accompanied by reasonable supporting documentation with respect to such amounts.
ARTICLE VIII.
CONDUIT ADMINISTRATOR PROVISIONS
The Conduit Administrator hereby accepts the obligations imposed upon it by this Agreement, and agrees to perform said obligations. No implied duties, covenants or obligations of the Conduit Administrator shall be read into this Agreement. Whether or not herein expressly so provided, every provision of this Agreement relating to the conduct or the performance by the Conduit Administrator of its obligations hereunder or affecting the liability of or affording protection to the Conduit Administrator shall be subject to the provisions of the Administration Agreement. The Conduit Administrator shall, on behalf of the Conduit Lender, through one or more Subcustodians, hold all Promissory Notes and related Loan Documents with respect to Financed Student Loans as bailee and agent for the Conduit Lender and not for any other person or entity; provided that upon sale of any Financed Student Loan to the Department, the Conduit Administrator or the applicable Subcustodian shall hold the related Loan Documents as bailee and agent for the Department. On the same Business Day as received from the Funding Note Issuer, the Conduit Administrator shall forward to the Manager all Loan Designation Notices excluding any Loan Transmittal Summary Forms that may be attached to such Loan Designation Notices. Commencing in the first month in which the Funding Note Issuer pledges a Financed Student Loan pursuant to this Agreement and ending in July 2010, the Conduit Administrator shall provide, or shall cause to be provided, to the Department a notice setting forth the amount of Net Cash Proceeds (as defined in the Student Loan Purchase Agreement) received by the Seller during such month.
ARTICLE IX.
SPV ADMINISTRATOR PROVISIONS
Certain provisions relating to the SPV Administrator are contained in Appendix F .
ARTICLE X.
MANAGER PROVISIONS
The Manager hereby accepts the obligations imposed upon it by this Agreement, and, in accordance with the performance standards set forth in the Management Agreement, agrees to perform said obligations. No implied duties, covenants or obligations of the Manager shall be read into this Agreement. Whether or not herein expressly so provided, every provision of this Agreement relating to the conduct or the performance by the Manager of its obligations hereunder or affecting the liability of or affording protection to the Manager shall be subject to the provisions of the Management Agreement.
ARTICLE XI.
MASTER SERVICER PROVISIONS
The Master Servicer shall manage, service, administer and make collections on the Financed Student Loans in accordance with the related Servicing Agreement. The Master Servicer may, at any time, appoint one or more subservicers to perform all or any portion of its obligations under its Servicing Agreement; provided , however , that the Master Servicer shall remain obligated and be liable to the Funding Note Issuer, the Eligible Lender Trustee and the Conduit Lender for the servicing and administering of the Financed Student Loans in accordance with the provisions hereof without diminution of such obligation and liability by virtue of the appointment of such subservicer and to the same extent and under the same terms and conditions as if the Master Servicer alone were servicing and administering the Financed Student Loans and provided further, that the Master Servicer shall not enter into a Servicing Agreement with any subservicer that has not demonstrated an ability to accurately produce a Monthly Servicer Report. To the extent the Master Servicer desires to appoint a subservicer to perform all or any portion of its duties as Servicer, the Master Servicer shall cause such subservicer to enter into a Servicing Agreement with the Master Servicer, to which the Funding Note Issuer and the Affected Parties shall be express third-party beneficiaries.
 
 20 

 

ARTICLE XII.
MISCELLANEOUS
Section 12.01. Amendments, Etc .
(a) Unless otherwise specified herein, no amendment to or waiver of any provision of this Agreement nor consent to any departure by the Funding Note Issuer or any other Person therefrom shall in any event be effective unless the same shall be in writing and signed by the parties hereto. Notwithstanding the foregoing, if the Conduit Administrator provides the parties hereto with notice of any proposed amendment that has been approved by the Conduit Advisory Committee and the Funding Note Issuer shall borrow an Advance hereunder or Grant Financed Student Loans hereunder subsequent to receiving such notice, the Funding Note Issuer, the SPV Administrator, the Master Servicer, the Eligible Lender Trustee and the Sponsor shall be deemed to have consented to such amendment. For purposes of the preceding sentence, notice shall be sufficient if delivered in accordance with Section 12.02 or if such amendment shall be posted to a website maintained by the Department. No amendment to this Agreement shall be effective without the prior written consent of the Department and the Federal Financing Bank, as liquidity lender to the Conduit Lender; provided further that, (i) with not less than ten (10) Business Days’ prior written notice to the Department and the Federal Financing Bank, the parties hereto may enter into any such amendment, subject to the provisions in this Section 12.01 , that does not have an adverse effect on the Department or the Federal Financing Bank and (ii) no amendment to this Agreement shall be effective unless each Rating Agency shall have been provided with at least ten (10) days prior notice and S&P shall not have notified the Manager or the Funding Note Issuer that such amendment would result in a reduction, qualification or withdrawal of the then-current rating of the Funding Note.
(b) Any such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. To the extent the consent of any of the parties hereto (other than the Funding Note Issuer) is required under any of the Transaction Documents, the determination as to whether to grant or withhold such consent shall be made by such party in its sole discretion without any implied duty toward any other Person, except as otherwise expressly provided herein or therein.
Section 12.02. Notices . All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including communication by facsimile copy or other electronic means) and mailed, delivered by nationally recognized overnight courier service, transmitted or delivered by hand, as to each party hereto, at its address set forth on Exhibit F hereto or at such other address as shall be designated by such party in a written notice to the other parties hereto. Each such notice, request or other communication shall be effective (i) if given by facsimile, when such facsimile is transmitted to the specified facsimile number and an appropriate confirmation is received, (ii) if given by e-mail (to the extent an e-mail address has been provided), when sent to the specified e-mail address and an appropriate confirmation is received, (iii) if given by mail, five days after being deposited in the United States mail, first class postage prepaid (except that notices and communications delivered to the Department or pursuant to Articles I and VI to the extent not mailed by registered or certified mail, return receipt requested, shall not be effective until received), (iv) if given by nationally recognized courier guaranteeing overnight delivery, the Business Day following such day after such communication is delivered to such courier (except that notices and communications delivered to the Department or pursuant to Articles I and VI to the extent not e-mailed or mailed by registered or certified mail, return receipt requested, shall not be effective until received) or (v) if given by any other means, when delivered at the address (electronic or otherwise) specified in this Section 12.02 . Notwithstanding the foregoing, with respect to any Transaction Document, any recipient may designate what it deems to be appropriate confirmation and that notification by e-mail to it shall not be effective without such confirmation.
Section 12.03. No Waiver; Remedies . No failure or delay by any party hereto in exercising any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.
 
 21 

 

Section 12.04. Successors and Assigns; Binding Effect .
(a) This Agreement shall be binding on the parties hereto and their respective successors and permitted assigns; provided , however , that, except as contemplated by Section 1.08 hereof, neither the Funding Note Issuer nor the SPV Administrator may assign or otherwise transfer any of its rights or obligations or delegate any of its duties hereunder or under any of the other Transaction Documents to which it is a party without the prior written consent of the Conduit Lender and the Department. In addition to the foregoing written consent requirement, no transfer of the rights to amounts described in Section 1.05(c)(ix) shall be effectuated by the Funding Note Issuer without obtaining an opinion of nationally recognized tax counsel (approved by the Conduit Lender) that any such transfer will not result in the Conduit Lender being subject to tax as an association taxable as a corporation for United States federal income tax purposes. No provision of this Agreement shall in any manner restrict the ability of the Conduit Administrator, the Conduit Lender or any Affected Party to assign, participate, grant security interests in, or otherwise transfer any portion of the Funding Note or any beneficial interest therein.
(b) The Conduit Lender may at any time pledge or Grant a security interest in all or any portion of its rights under this Agreement and any Funding Note (including, without limitation, rights to payment of principal and Ratable Financing Costs) to secure its obligations, including without limitation any pledge, grant, or assignment to secure obligations to a Federal Reserve Bank, without notice to or consent of any Transaction Party; provided , that no such pledge or Grant of a security interest shall substitute any such pledgee or grantee for the Conduit Lender as a party to this Agreement.
(c) Each of the parties hereto acknowledges and agrees that the Department and the other Affected Parties are express third party beneficiaries hereof entitled to enforce all of the obligations of the Funding Note Issuer with respect to Reimbursement Amounts and Reimbursement Event Fees and Expenses and indemnities owed by the Transaction Parties and to enforce the terms hereof as if they were parties hereto. For the avoidance of doubt, all rights and remedies of the Funding Note Issuer, the SPV Administrator and the Conduit Lender with respect to any Financed Student Loan sold to the Department in accordance with the Department Put Agreement shall automatically be assigned to the Department.
Section 12.05. Survival . The rights and remedies with respect to any breach of a representation and warranty made by or on behalf of the Funding Note Issuer pursuant to Article IV and the indemnification and payment provisions of Article VII and Sections 1.11 , 12.06 , 12.07 , 12.08 , 12.09 , 12.10 , 12.12 , 12.14 , 12.15 , 12.16 and 12.17 shall be continuing and shall survive the termination of this Agreement.
Section 12.06. Governing Law . THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF (OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW).
Section 12.07. Submission to Jurisdiction; Waiver of Jury Trial; Appointment of Service Agent .
(a) EACH OF THE PARTIES HERETO HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING IN THIS SECTION 12.07 SHALL AFFECT THE RIGHT OF THE CONDUIT LENDER OR ANY AFFECTED PARTY TO BRING ANY ACTION OR PROCEEDING AGAINST THE FUNDING NOTE ISSUER, THE SPV ADMINISTRATOR, THE MASTER SERVICER OR THE SPONSOR OR ANY OF THEIR RESPECTIVE PROPERTY IN THE COURTS OF OTHER JURISDICTIONS.
(b) EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG ANY OF THEM ARISING OUT OF, CONNECTED WITH, RELATING TO OR INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS.
 
 22 

 

(c) The Funding Note Issuer hereby appoints Corporation Service Company, 80 State Street, Albany, NY 12207-2543 as the authorized agent upon whom process may be served in any action arising out of or based upon this Agreement, the other Transaction Documents to which such Person is a party or the transactions contemplated hereby or thereby that may be instituted in the United States District Court for the Southern District of New York and of any New York State court sitting in the Borough of Manhattan by any Affected Party or any successor or assignee of any of them.
Section 12.08. Costs and Expenses . The Funding Note Issuer agrees to pay, on or before the 30 th day following the date of demand, all reasonable and customary costs, fees and expenses of the Eligible Lender Trustee, the Conduit Lender, the Department and the other Affected Parties incurred in connection with the due diligence, negotiation, preparation, execution, delivery, renewal or any amendment or modification of, or any waiver or consent issued in connection with, this Agreement, any Program Support Agreement, any Department Bill of Sale or any other Transaction Document, and the transactions contemplated herein or therein, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Eligible Lender Trustee, the Conduit Lender, the Department or the other Affected Parties with respect thereto and all other costs, fees and expenses, if any (including the applicable Rating Agency fees and reasonable auditors’ and counsel fees and expenses), incurred by the Eligible Lender Trustee, the Conduit Lender, the Department or the other Affected Parties in connection with the enforcement of this Agreement and the other Transaction Documents, including, without limitation, any costs, fees and expenses incurred in connection with transferring (including the transfer of ownership) and delivering Student Loans to the Conduit Lender or the Department. The Sponsor agrees to pay such required payments on behalf of the Funding Note Issuer on the Closing Date to the extent such expenses are accrued and properly invoiced prior to the Closing Date.
Section 12.09. Bankruptcy Non-Petition and Limited Recourse . Notwithstanding any other provision of this Agreement, each party hereto (other than the Funding Note Issuer) covenants and agrees that it shall not, prior to the date which is one year and one day (or, if longer, any applicable preference period plus one day) after payment in full of the Funding Note, institute against, or join any other Person in instituting against, the Funding Note Issuer, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding, or any similar proceeding under any federal or state bankruptcy or similar law; provided , that nothing in this provision shall preclude or be deemed to stop any party hereto (a) from taking any action prior to the expiration of the aforementioned one year and one day period in (i) any case or proceeding voluntarily filed or commenced by the Funding Note Issuer or (ii) any involuntary insolvency proceeding filed or commenced against the Funding Note Issuer by any Person other than a party hereto or (b) from commencing against the Funding Note Issuer or the Pledged Collateral any legal action which is not a bankruptcy, reorganization, arrangement, insolvency or a liquidation proceeding. The obligations of the Funding Note Issuer under this Agreement are limited recourse obligations payable solely from the Pledged Collateral and, following realization of the Pledged Collateral and its application in accordance with the terms hereof, any outstanding obligations of the Funding Note Issuer hereunder shall be extinguished and shall not thereafter revive. In addition, no recourse shall be had for any amounts payable or any other obligations arising under this Agreement against any officer, member, director, employee, partner or security holder of the Funding Note Issuer or any of its successors or assigns. The provisions of this Section 12.09 shall survive the termination of this Agreement.
Section 12.10. Recourse Against Certain Parties . No recourse under or with respect to any obligation, covenant or agreement (including, without limitation, the payment of any fees or any other obligations) of the Eligible Lender Trustee, the Conduit Administrator, the Conduit Lender or the Program Support Providers as contained in this Agreement or any other agreement, instrument or document entered into by it pursuant hereto or in connection herewith shall be had against any administrator of the Eligible Lender Trustee, the Conduit Administrator, the Conduit Lender or the Program Support Providers or any incorporator, Affiliate, stockholder, officer, employee or director of the Eligible Lender Trustee, the Conduit Administrator, the Conduit Lender or the Program Support Providers or of any such administrator, as such, by the enforcement of any assessment or by any legal or equitable proceeding, by virtue of any statute or otherwise; it being expressly agreed and understood that the agreements of the Eligible Lender Trustee, the Conduit Administrator, the Conduit Lender and the Program Support Providers contained in this Agreement and all of the other agreements, instruments and documents entered into by the Eligible Lender Trustee, the Conduit Administrator, the Conduit Lender or the Program Support Providers pursuant hereto or in connection herewith are, in each case, solely the corporate obligations of the Eligible Lender Trustee, the Conduit Lender or the Program Support Providers, as applicable. No personal liability whatsoever shall attach to or be incurred by any administrator of the Eligible Lender Trustee, the Conduit Administrator, the Conduit Lender or the Program Support Providers or any incorporator, stockholder, Affiliate, officer, employee or director thereof or any such administrator, as such, or any of them, under or by reason of any of the obligations, covenants or agreements of the Eligible Lender Trustee, the Conduit Administrator, the Conduit Lender or the Program Support Providers contained in this Agreement or in any other such instruments, documents or agreements, or which are implied therefrom, and any and all personal liability of every such administrator and each incorporator, stockholder, Affiliate, officer, employee or director of the Eligible Lender Trustee, the Conduit Administrator, the Conduit Lender or the Program Support Providers or of any such administrator, or any of them, for breaches by the Eligible Lender Trustee, the Conduit Administrator, the Conduit Lender or the Program Support Providers of any such obligations, covenants or agreements, which liability may arise either at common law or at equity, by statute or constitution, or otherwise, is hereby expressly waived as a condition of and in consideration for the execution of this Agreement except to the extent finally determined by a court of competent jurisdiction in a non-appealable judgment to have resulted from gross negligence, willful misconduct or fraud on the part of such Person. The provisions of this Section 12.10 shall survive the termination of this Agreement and, with respect to the rights of the Eligible Lender Trustee or the Conduit Administrator, the resignation or removal of the Eligible Lender Trustee or the Conduit Administrator.
 
 23 

 

Section 12.11. Execution in Counterparts; Severability . This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Delivery by facsimile or electronic mail of an executed signature page of this Agreement or any other Transaction Document shall be effective as delivery of an executed counterpart hereof. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.
Section 12.12. Confidentiality .
(a) Each of the Conduit Administrator and the Conduit Lender agrees to keep confidential and not disclose any non-public information or documents related to the Funding Note Issuer or any Affiliate of the Funding Note Issuer delivered or provided to such Person in connection with this Agreement, any other Transaction Document or the transactions contemplated hereby or thereby and which are clearly identified in writing by the Funding Note Issuer or such Affiliate as being confidential; provided , however , that each of the foregoing may (to the extent not prohibited by applicable privacy laws) disclose such information:
(i) to the extent required or deemed necessary and/or advisable by such Person’s counsel in any judicial, regulatory, arbitration or governmental proceeding or under any law, regulation, order, subpoena or decree;
(ii) to its officers, directors, employees, accountants, auditors and outside counsel, in each case, provided they are informed of the confidentiality thereof and agree to maintain such confidentiality;
(iii) to any Program Support Provider, any potential Program Support Provider, or any assignee or participant or potential assignee or participant of any Program Support Provider, provided they are informed of the confidentiality thereof and agree to maintain such confidentiality;
(iv) to any assignee, participant or potential assignee or participant of or with any of the foregoing;
(v) in connection with the enforcement hereof or of any of the other Transaction Documents or any Program Support Agreement;
(vi) to any Rating Agency rating the Securities or the Funding Note;
(vii) to the Manager;
(viii) to the Department; and
(ix) to such other Persons as may be approved by the Funding Note Issuer.
Notwithstanding the foregoing, the foregoing obligations shall not apply to any such information, documents or portions thereof that (x) were of public knowledge or literature generally available to the public at the time of such disclosure; or (y) have become part of the public domain by publication or otherwise, other than as a result of the failure of such party or any of its respective employees, directors, officers, advisors, accountants, auditors, or legal counsel to preserve the confidentiality thereof.
 
 24 

 

(b) Notwithstanding any statement to the contrary contained herein, each of the Funding Note Issuer, the SPV Administrator, the Master Servicer and the Sponsor hereby agrees that it will not issue any press release describing the Department Put Agreement, the Liquidity Facility, the Student Loan Short-Term Notes or the structure of the Conduit Lender or engage in any other publicity activities with respect to the transactions contemplated by the Transaction Documents that may constitute advertising or general solicitation with respect to the Securities.
(c) Notwithstanding any other provision herein to the contrary, each of the parties hereto (and each employee, representative or other agent of each such party) may disclose to any and all Persons, without limitation of any kind, any information with respect to the United States federal, state and local “tax treatment” and “tax structure” (in each case, within the meaning of Treasury Regulation Section 1.6011-4) of the transactions contemplated by the Transaction Documents and all materials of any kind (including opinions or other tax analyses) that are provided to such party or its representatives relating to such tax treatment and tax structure; provided , that no Person may disclose the name of or identifying information with respect to any party identified in the Transaction Documents or any pricing terms or other nonpublic business or financial information that is unrelated to the United States federal, state and local tax treatment of the transaction and is not relevant to understanding the United States federal, state and local tax treatment of the transaction, without complying with the provisions of Section 12.12(a) ; provided further , that with respect to any document or similar item that in either case contains information concerning the tax treatment or tax structure of the transaction as well as other information, this sentence shall only apply to such portions of the document or similar item that relate to the United States federal, state and local tax treatment or tax structure of the transactions contemplated hereby.
Section 12.13. Section Titles . The section titles contained in this Agreement shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties.
Section 12.14. Entire Agreement . This Agreement, including all Exhibits, Schedules and Appendices and other documents attached hereto or incorporated by reference herein, together with the other Transaction Documents constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all other negotiations, understandings and representations, oral or written, with respect to the subject matter hereof; provided that, with respect to any matter addressed in the Department Put Agreement, if this Agreement shall be inconsistent with the Department Put Agreement, the Department Put Agreement shall control.
Section 12.15. No Petition . Each of the Funding Note Issuer, the SPV Administrator, the Eligible Lender Trustee and the Conduit Administrator hereby covenants and agrees with respect to the Conduit Lender that, prior to the date which is one year and one day (or, if longer, any applicable preference period plus one day) after the payment in full of all outstanding indebtedness of the Conduit Lender, it will not institute against or join any other Person or entity in instituting against the Conduit Lender any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States. The foregoing shall not limit the rights of the Funding Note Issuer, the SPV Administrator, the Eligible Lender Trustee or the Conduit Administrator to file any claim in, or otherwise take any action with respect to, any insolvency proceeding instituted against the Conduit Lender by a Person other than the Funding Note Issuer, the SPV Administrator, the Eligible Lender Trustee or the Conduit Administrator, as applicable. The provisions of this Section 12.15 shall survive the termination of this Agreement.
Section 12.16. Excess Funds . Notwithstanding any provisions contained in this Agreement to the contrary, the Conduit Lender shall not, nor shall be obligated to, pay any amount pursuant to this Agreement unless (i) the Conduit Lender has received funds which may be used to make such payment and which funds are not required to repay its Securities when due and (ii) after giving effect to such payment, either (x) the Conduit Lender could issue Securities to refinance all of its outstanding Securities (assuming such outstanding Securities matured at such time) in accordance with the program documents governing the Conduit Lender’s Securities issuance program or (y) all of the Conduit Lender’s Securities are paid in full. Any amount which a Conduit Lender does not pay pursuant to the operation of the preceding sentence shall not constitute a claim (as defined in §101 of the Bankruptcy Code) against or corporate obligation of the Conduit Lender for any such insufficiency unless and until the Conduit Lender satisfies the provisions of clauses (i) and (ii) above.
 
 25 

 

Section 12.17. Eligible Lender Trustee .
(a) The parties hereto agree that the Eligible Lender Trustee shall be afforded all of the rights, immunities and privileges afforded to the Eligible Lender Trustee under the Eligible Lender Trust Agreement in connection with its execution of this Agreement.
(b) Notwithstanding the foregoing, none of the Affected Parties shall have recourse to the assets of the Eligible Lender Trustee in its individual capacity in respect of the obligations of the Funding Note Issuer. The parties hereto acknowledge and agree that Zions First National Bank and any successor eligible lender trustee is entering into this Agreement solely in its capacity as Eligible Lender Trustee, and not in its individual capacity, and in no case shall Zions First National Bank (or any Person acting as successor eligible lender trustee) be personally liable for or on account of any of the statements, representations, warranties, covenants or obligations stated to be those of the Funding Note Issuer, all such liability, if any, being expressly waived by the parties hereto, any Person claiming by, through, or under any such party.
Section 12.18. USA PATRIOT Act Notice . The Conduit Administrator hereby notifies the Funding Note Issuer that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “ Patriot Act ”), it is required to obtain, verify and record information that identifies the Funding Note Issuer, which information includes the name, address and organizational documents of the Funding Note Issuer and other information that will allow the Conduit Administrator to identify the Funding Note Issuer in accordance with the Patriot Act.
 
 26 

 

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.
 	 	 	 	 	 	 	 	 	
 	 	THE CONDUIT LENDER:	 	 	
 	 	 	 	 	 	 	 	 	
 	 	STRAIGHT-A FUNDING, LLC	 	 	
 	 	 	 	 	 	 	 	 	
 	 	By:	 	BMO Capital Markets Corp., not in its individual	 	 	
 	 	 	 	capacity but solely in its capacity as Manager	 	 	
 	 	 	 	 	 	 	 	 	
 	 	By:	 	/s/ Bart Steenbergen	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name:	 	Bart Steenbergen	 	 	
 	 	 	 	Title:	 	Managing Director	 	 	
 	 	 	 	 	 	 	 	 	
 	 	THE FUNDING NOTE ISSUER:	 	 	
 	 	 	 	 	 	 	 	 	
 	 	NELNET SUPERCONDUIT FUNDING, LLC	 	 	
 	 	 	 	 	 	 	 	 	
 	 	By:	 	/s/ Hannah Smitterberg	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name:	 	Hannah Smitterberg	 	 	
 	 	 	 	Title:	 	Assistant Vice President	 	 	
 	 	 	 	 	 	 	 	 	
 	 	THE ELIGIBLE LENDER TRUSTEE:	 	 	
 	 	 	 	 	 	 	 	 	
 	 	ZIONS FIRST NATIONAL BANK , not in its individual
capacity but solely in its capacity as Eligible Lender Trustee	 	 	

 	 	By:	 	/s/ David W. Bata	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name:	 	David W. Bata	 	 	
 	 	 	 	Title:	 	Vice President and Trust Officer	 	 	
 	 	 	 	 	 	 	 	 	
 	 	THE SPV ADMINISTRATOR:	 	 	
 	 	 	 	 	 	 	 	 	
 	 	NATIONAL EDUCATION LOAN NETWORK, INC.	 	 	
 	 	 	 	 	 	 	 	 	
 	 	By:	 	/s/ Terry Heimes	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name:	 	Terry Heimes	 	 	
 	 	 	 	Title:	 	CFO	 	 	
 
 S-1 

 

 	 	 	 	 	 	 	 	 	
 	 	CONDUIT ADMINISTRATOR:	 	 	
 	 	 	 	 	 	 	 	 	
 	 	THE BANK OF NEW YORK MELLON	 	 	
 	 	 	 	 	 	 	 	 	
 	 	By:	 	/s/ Dennis Kildea	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name:	 	Dennis Kildea	 	 	
 	 	 	 	Title:	 	Assistant Vice President	 	 	
 	 	 	 	 	 	 	 	 	
 	 	SPONSOR:	 	 	
 	 	 	 	 	 	 	 	 	
 	 	NELNET, INC.	 	 	
 	 	 	 	 	 	 	 	 	
 	 	By:	 	/s/ Mike Dunlap	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name:	 	Mike S. Dunlap	 	 	
 	 	 	 	Title:	 	CEO	 	 	
 	 	 	 	 	 	 	 	 	
 	 	MASTER SERVICER:	 	 	
 	 	 	 	 	 	 	 	 	
 	 	NATIONAL EDUCATION LOAN NETWORK, INC.	 	 	
 	 	 	 	 	 	 	 	 	
 	 	By:	 	/s/ Terry Heimes	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name:	 	Terry Heimes	 	 	
 	 	 	 	Title:	 	CFO	 	 	
 	 	 	 	 	 	 	 	 	
 	 	MANAGER:	 	 	
 	 	 	 	 	 	 	 	 	
 	 	BMO CAPITAL MARKETS CORP.	 	 	
 	 	 	 	 	 	 	 	 	
 	 	By:	 	/s/ Bart Steenbergan	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name:	 	Bart Steenbergan	 	 	
 	 	 	 	Title:	 	Managing Director	 	 	
 
 S-2 

 

APPENDIX A
DEFINITIONS
As used in this Agreement and its exhibits and appendices, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined unless otherwise noted).
Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Transaction Document), (ii) any reference herein to any Person shall be construed to include such Person’s successors and assigns, and (iii) reference to any time shall mean New York City time.
“ Additional Securities ” means securities other than Student Loan Short-Term Notes issued by the Conduit Lender.
“ Administration Agreement ” means the Administration Agreement between the Conduit Lender and the Conduit Administrator.
“ Advance ” means an advance made by the Conduit Lender pursuant to Article I .
“ Advance Amount ” means, with respect to any Advance Date, the lesser of (i) the Allocation Amount for such Advance Date and (ii) the maximum amount by which the Funding Note Balance may be increased without causing the Asset Coverage Ratio to be less than the Minimum Asset Coverage Ratio.
“ Advance Confirmation ” means a notice in the form of Exhibit Q .
“ Advance Date ” means, with respect to any Advance, the date on which such Advance is made.
“ Adverse Claim ” means, without duplication, an “adverse claim” as such term is defined in the UCC and any lien, security interest, charge, encumbrance, property interest or other right or claim or restriction in favor of any Person (including any claim arising from any UCC financing statement or similar instrument filed against the assets of that Person) other than, with respect to the Pledged Collateral, any lien, security interest, charge, encumbrance or other right or claim or restriction in favor of the Conduit Lender.
“ Affected Party ” means the Conduit Lender, the Conduit Administrator, the Manager, each Structuring Agent, each Program Support Provider, the Eligible Lender Trustee, the Department, any dealer for the Student Loan Short-Term Notes and any permitted assignee of the Conduit Lender.
“ Affiliate ” means, when used with respect to a Person, any other Person controlling, controlled by or under common control with such Person. A Person shall be deemed to control another person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the other Person, whether through the ownership of voting securities, membership interests, by contract or otherwise.
“ Affiliated Prior Transferor ” means any Prior Transferor that is an Affiliate of the Funding Note Issuer.
“ Affiliated Servicer ” means any Servicer that is the Funding Note Issuer or an Affiliate of the Funding Note Issuer.
 
 Appenddix A-1 

 

“ Agreed Upon Procedures Letter ” means, an agreed upon procedures letter, prepared in accordance with the guidelines published by the Department from time to time, provided by a public accounting firm approved by the Manager covering compliance of a sample of Financed Student Loans with the criteria regarding loan eligibility as specified in the guidelines published by the Department from time to time. Unless otherwise specified in the guidelines published by the Department or in this Agreement, the relevant sample shall include such number of Student Loans as may be determined by the public accounting firm that will ensure a 95% rate of confidence in such sample. The relevant pool for any Agreed Upon Procedures Letter required to be delivered with respect to any Grant Date shall, at a minimum, include all Financed Student Loans pledged to the Conduit Lender on such Grant Date and all Financed Student Loans that have not previously been included in a relevant pool for an Agreed Upon Procedures Letter delivered to the Manager and the Department in respect of any prior Grant Date or Advance Date, and for the avoidance of doubt, may include additional Student Loans. The relevant pool for any Agreed Upon Procedures Letter required to be delivered with respect to any Advance Date that is not a Grant Date shall, at a minimum, include all Financed Student Loans that have not previously been included in a relevant pool for an Agreed Upon Procedures Letter delivered to the Manager and the Department in respect of any prior Grant Date or Advance Date, and for the avoidance of doubt, may include additional Student Loans. The relevant pool for any Agreed Upon Procedures Letter required to be delivered pursuant to Section 12 of Appendix D of this Agreement shall, at a minimum, include all Financed Student Loans that have not previously been included in a relevant pool for an Agreed Upon Procedures Letter delivered to the Manager and the Department pursuant to Section 12 of Appendix D of this Agreement, and may include other Financed Student Loans in accordance with the guidelines published by the Department.
“ Agreement ” means this Funding Note Purchase Agreement, together with all exhibits, schedules and appendices attached hereto as the same may be amended, restated, supplemented or otherwise modified from time to time hereafter.
“ Allocation Amount ” means, with respect to any Advance Date, all or a portion of the amount of the Advance requested by the Funding Note Issuer for such Advance Date, as determined in accordance with the Funding Allocation Procedures.
“ Applicable Document ” means, with respect to the Conduit Lender, the Funding Note Issuer, the Eligible Lender Trustee, the Conduit Administrator or the SPV Administrator, as the context requires, this Agreement and each other Transaction Document to which such entity it is a party.
“ Asset Coverage Ratio ” means, as of any date of determination, the ratio (expressed as a percentage and rounded to the nearest second decimal place) of (a) the Collateral Value of the Financed Student Loans as of the end of the most recent Settlement Period, less the Collateral Value of any Student Loans released from the Conduit Lender’s security interest after the end of the most recent Settlement Period and on or prior to such date of determination, plus the aggregate Collateral Value of any Student Loans that became Financed Student Loans after the end of the most recent Settlement Period and on or prior to such date of determination (determined as of the related Cut-off Date) to (b) the Funding Note Balance as of such date.
“ Authorized Officer ” means:
(a) with respect to the Funding Note Issuer, any officer of the Eligible Lender Trustee or the SPV Administrator who is authorized to act for the Eligible Lender Trustee or the SPV Administrator in matters relating to the Funding Note Issuer pursuant to the Transaction Documents and who is identified on the list of Authorized Officers delivered by the Eligible Lender Trustee or the SPV Administrator, as applicable, to the Conduit Lender on the Closing Date (as such list may be modified or supplemented by the Eligible Lender Trustee or the SPV Administrator, as applicable, from time to time thereafter and delivered to the Manager);
(b) with respect to the SPV Administrator, any officer of the SPV Administrator who is authorized to act for the SPV Administrator in matters relating to itself or to the Funding Note Issuer and to be acted upon by the SPV Administrator pursuant to the Transaction Documents and who is identified on the list of Authorized Officers delivered by the SPV Administrator to the Conduit Lender on the Closing Date (as such list may be modified or supplemented by the SPV Administrator from time to time thereafter and delivered to the Manager);
(c) with respect to any Servicer, any officer of such Servicer who is authorized to act for such Servicer in matters relating to itself or to be acted upon by such Servicer pursuant to the Transaction Documents and who is identified on the list of Authorized Officers delivered by such Servicer to the Conduit Lender on the Closing Date (as such list may be modified or supplemented by such Servicer from time to time thereafter and delivered to the Manager); and
(d) with respect to the Eligible Lender Trustee, any officer of the Eligible Lender Trustee who is authorized to act for the Eligible Lender Trustee in matters relating to itself or to be acted upon by the Eligible Lender Trustee pursuant to the Transaction Documents and who is identified on the list of Authorized Officers delivered by the Eligible Lender Trustee to the Conduit Lender on the Closing Date (as such list may be modified or supplemented by the Eligible Lender Trustee from time to time thereafter and delivered to the Manager and the Funding Note Issuer).
 
 Appenddix A-2 

 

“ Available Funds ” means, with respect to a Settlement Date, the sum of the following amounts received into the Funding Note Issuer Collection Account with respect to the related Settlement Period:
(a) all collections of principal and interest on the Financed Student Loans, including any payments received from the Guarantees on the Financed Student Loans, in each case, to the extent received after the related Cut-off Date for each Financed Student Loan but net of (i) any collections in respect of principal on the Financed Student Loans applied by the Funding Note Issuer to repurchase Guaranteed loans from the Guarantors under the Guarantee Agreements, (ii) amounts required by the Higher Education Act to be paid to the Department or to be repaid or rebated to Borrowers (whether or not in the form of a principal reduction of the applicable Financed Student Loan) on the Financed Student Loans for that Settlement Period and (iii) amounts deposited to the DOE Reserve Account pursuant to Section 1.07 in respect of Estimated Excess Accrual;
(b) any Interest Subsidy Payments and Special Allowance Payments with respect to the Financed Student Loans received during that Settlement Period for the Financed Student Loans;
(c) all Liquidation Proceeds from any Financed Student Loans which became Liquidated Student Loans during that Settlement Period in accordance with the Servicer’s applicable Servicing Policies, plus all Recoveries on Liquidated Student Loans which were written off in prior Settlement Periods or during that Settlement Period;
(d) the aggregate of the Reimbursement Amounts deposited to the Funding Note Issuer Collection Account during that Settlement Period and any amounts received from any Servicer in connection with Financed Student Loans purchased by such Servicer or its assignee or any other reimbursement obligations of any Servicer for breaches of representations, warranties, covenants or otherwise in accordance with this Agreement;
(e) investment earnings for that Settlement Period earned on investments in the Trust Accounts during such Settlement Period;
(f) amounts, if any, transferred into the Funding Note Issuer Collection Account from the Reserve Account in excess of the Reserve Account Specified Balance, calculated as of the end of the Settlement Period related to that Settlement Date;
(g) amounts received, if any, in respect of insurance proceeds after the related Cut-off Date for any Financed Student Loan;
(h) if a Financed Student Loan is consolidated, the portion of the proceeds of the applicable Consolidation Loan allocable to such Financed Student Loan;
(i) the aggregate Department Put Prices of any Financed Student Loans sold to the Department pursuant to the Department Put Agreement or the proceeds of any sale of Financed Student Loans; and
(j) all other Collections or other amounts deposited into the Funding Note Issuer Collection Account for application pursuant to Section 1.05(c) on the applicable Settlement Date (other than amounts deposited pursuant to clauses (c) and (d) of Section 1.06 , funds on deposit in the Sold Loans Account and cash collateral posted pursuant to Section 1.02(b) ).
“ Bankruptcy Code ” means Title 11 of the United States Code (11 U.S.C. Section 101 et seq .), as amended from time to time, and any successor statute.
“ Benefit Plan ” means any employee benefit plan as defined in Section 3(3) of ERISA in respect of which the Funding Note Issuer or any ERISA Affiliate is, or at any time during the immediately preceding six years was, an “employer” as defined in Section 3(5) of ERISA.
“ Bill of Sale ” means each agreement substantially in the form of Attachment A of the Student Loan Purchase Agreement and executed by an Authorized Officer of the Seller, the Seller Eligible Lender Trustee, the Funding Note Issuer and the Eligible Lender Trustee, pursuant to which the Seller and the Seller Eligible Lender Trustee grant, sell, assign, transfer, convey and, to the extent applicable, contribute to the Funding Note Issuer and the Eligible Lender Trustee, all right, title and interest of the Seller and the Seller Eligible Lender Trustee in certain Eligible Loans as listed on a Loan Transmittal Summary Form.
 
 Appenddix A-3 

 

“ Blackout Date ” means a day identified by the Department in writing to the Conduit Administrator as unavailable for making purchases of Loans or other payments under the Department Put Agreement, which notice shall be provided to the Conduit Administrator not less than ninety (90) days prior to the applicable Blackout Date except in the case of exigent circumstances, in which case the Department will provide notice as soon as reasonably practicable.
“ Borrower ” means the student or parent obligor on a Student Loan.
“ Breakage Account ” means the account identified as the “ Breakage Account ” in the certificate delivered by the Conduit Administrator pursuant to Section 1(a)(vi) of Appendix B on the Closing Date, or any account replacing such account.
“ Business Day ” means a day other than (i) a federal holiday, (ii) a Saturday or a Sunday or (iii) any other day on which commercial banks in New York are required by law to close.
“ Calculation Date ” means the date of issuance of the Funding Note or any date of an increase in the Highest Funding Note Balance of such Funding Note.
“ Calculation Date Structuring Fee ” means, for any Calculation Date, an amount equal to the Structuring Fee Rate in effect on such Calculation Date multiplied by the amount of the increase, if any, in the Highest Funding Note Balance of the Funding Note on such Calculation Date.
“ Capitalized Ratable Financing Costs ” means, any portion of the Ratable Financing Costs for any Yield Period that remains unpaid after giving effect to all distributions to be made on any Settlement Date.
“ Category Percentage ” means, with respect to a given category of Student Loans, the percentage of the Student Loans (by count) in such category in the Relevant Loan Portfolio.
“ Closing Date ” means May 13, 2009.
“ Code ” means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute and the regulations promulgated and rulings issued thereunder.
“ Collateral Value ” means, as to any Financed Student Loan as of any date of determination, the product of (a) the sum of (i) the Principal Balance of such Financed Student Loan on such date of determination, and (ii) all accrued and unpaid Interest Subsidy Payments and Special Allowance Payments on such Financed Student Loan multiplied by (b) 97%.
“ Collections ” means (a) all amounts received with respect to principal and interest and other proceeds, payments and reimbursements, including Recoveries, with respect to any Financed Student Loan and any other collection of amounts with respect to such Financed Student Loan after the related Cut-off Date for such Student Loan and (b) all other collections and other cash proceeds of the Pledged Collateral (including, without limitation, in each of clauses (a) and (b) above, each of the items enumerated in the definition of Available Funds with respect to any Settlement Period).
“ Commitment Amount ” means, with respect to the Funding Note Issuer and all pledges of Financed Student Loans to the Conduit Lender during a calendar month, an amount equal to the product of (a) the Net Cash Proceeds received by the Funding Note Issuer in such month, multiplied by (b) the applicable Market Adjustment.
“ Commitment Reporting Date ” is defined in Section 2 of the Student Loan Purchase Agreement.
“ Conduit Administrator ” means The Bank of New York Mellon, a New York banking corporation.
“ Conduit Advisory Committee ” means the conduit advisory committee formed for the Conduit Lender pursuant to the Administration Agreement.
“ Conduit Financing Costs ” means, with respect to any Yield Period, an amount equal to all financing and other fees, costs, expenses and indemnities of the Conduit Lender and the Securities issuance program of the Conduit Lender for such Yield Period, but excluding (i) Startup Costs, (ii) Transaction Costs and (iii) Other Conduit Costs.
 
 Appenddix A-4 

 

“ Conduit Lender ” means Straight-A Funding, LLC, a Delaware limited liability company.
“ Conduit Lender Account ” means the account identified as the “Collection Account” in the Administration Agreement.
“ Conduit Lender Eligible Lender Trustee ” means The Bank of New York Mellon, a New York banking corporation.
“ Confidence Range ” means the range between the Upper Boundary and the Lower Boundary.
“ Consolidation Loan ” means a loan made to a borrower which loan consolidates such borrower’s PLUS Loans, SLS Loans, direct loans made by the Department, Stafford Loans in accordance with the Higher Education Act and/or loans made under the Federal Health Education Assistance Loan Program authorized under Sections 701 through 720 of the Public Health Services Act.
“ Cut-off Date ” means, with respect to any Financed Student Loan, the date set forth as such in the Loan Designation Notice relating to the Grant of such Financed Student Loan.
“ Daily Put Limit ” means (i) $500,000,000 per week during any calendar week prior to July 20, 2009 or (ii) $10,000,000,000 on any Department Put Date on or after July 20, 2009.
“ Debt ” means, with respect to any Person, (a) indebtedness of such Person for borrowed money; (b) obligations of such Person evidenced by bonds, debentures, notes, letters of credit, interest rate and currency swaps or other similar instruments; (c) obligations of such Person to pay the deferred purchase price of property or services; (d) obligations of such Person as lessee under leases which shall have been or should be, in accordance with GAAP, recorded as capital leases; (e) obligations secured by an Adverse Claim upon property or assets owned by such Person, even though such Person has not assumed or become liable for the payment of such obligations; (f) obligations of such Person under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of other Persons of the kinds referred to in clauses (a) through (e) above; (g) all obligations of such Person upon which interest charges are customarily paid; (h) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person; (i) all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances or as an account party in respect of letters of credit and letters of guaranty; (j) all obligations of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such obligations provide that such Person is not liable therefor; and (k) any other liabilities of such Person which would be treated as indebtedness in accordance with GAAP.
“ Delinquency Put Date ” means, with respect to a Delinquency Put Event, the third Business Day of the calendar week that includes the date forty-five (45) days after the applicable Delinquency Put Event.
“ Delinquency Put Event ” means, with respect to any Financed Student Loan, such Financed Student Loan shall have become 210 days delinquent.
“ Delinquent Student Loan ” means any Financed Student Loan as to which any payment, or portion thereof, is more than 210 days past due from the original due date thereof.
“ Department ” means the United States Department of Education, or any official of the Department duly authorized to perform any function with respect to the transactions under the Department Put Agreement or the other Transaction Documents.
“ Department Bill of Sale ” means a bill of sale delivered pursuant to the Department Put Agreement, executed by an authorized officer of the Conduit Lender and the Conduit Administrator, which shall (i) set forth the Putable Loans sold by the Conduit Lender and the Conduit Administrator to the Department pursuant thereto; (ii) sell, assign and convey to the Department and its assignees, all right, title and interest of the Conduit Administrator, the Conduit Lender and the Funding Note Issuer in the Putable Loans listed on such bill of sale; and (iii) sell, assign and convey all rights of the Conduit Lender and the Conduit Administrator under this Agreement and the Student Loan Purchase Agreement with respect to the Putable Loans sold thereunder.
 
 Appenddix A-5 

 

“ Department Put Agreement ” means the agreement between the Conduit Administrator, the Conduit Lender and the Department pursuant to which the Department, subject to the terms and conditions described therein, has agreed to purchase Financed Student Loans from the Conduit Administrator upon the occurrence of certain events.
“ Department Put Date ” means the date (or, if such day is not a Business Day, the following Business Day or, if such day is a Blackout Date, the preceding Business Day that is not a Blackout Date and on which the Daily Put Limit has not been exceeded) forty-five (45) days after delivery of a Put Notice to the Department or, with respect to a Delinquency Put Event, the applicable Delinquency Put Date, on which the Conduit Lender and the Conduit Administrator sell and the Department purchases Putable Loans in accordance with this Agreement. The latest Department Put Date shall be the Put Expiration Date.
“ Department Put Event ” means the occurrence of any of the following:
(i) any failure to make a Liquidity Advance when due; provided, that, a Department Put Event shall not be deemed to occur under this clause (i) if the related Liquidity Advance shall have been made by any other Person; or
(ii) any Liquidity Advance which remains unpaid for more than forty-five (45) days after the date on which such Liquidity Advance was made in accordance with any Liquidity Facility; or
(iii) the date (or, if such date is not a Business Day, the immediately preceding Business Day) that is forty-five (45) days prior to the Put Expiration Date; provided , that a Department Put Event shall occur on each date preceding such forty-fifth (45 th ) day to the extent necessary in order to ensure that the Daily Put Limit is not exceeded on any related Department Put Date; or
(iv) the declaration or automatic occurrence of an Event of Default, including, without limitation, an Event of Default described in clause (x) of Appendix E ; or
(v) a Delinquency Put Event; or
(vi) the date (or, if such date is not a Business Day, the immediately preceding Business Day) that is forty-five (45) days prior to the maturity date of any Additional Securities; provided, that a Department Put Event shall occur on each date preceding such forty-fifth (45 th ) day to the extent necessary in order to ensure that the Daily Put Limit is not exceeded on any related Department Put Date.
“ Department Put Price ” means, as of any Department Put Date (i) with respect to Putable Loans (A) with respect to which the first disbursement was made on or after May 1, 2008; (B) subject to only Eligible Borrower Benefits; and (C) not more than 210 days delinquent as of the related Department Put Event, 100% of the sum of the Principal Balance of such Financed Student Loans on the related Department Put Date plus accrued and unpaid interest on such Financed Student Loans through the day immediately preceding such Department Put Date or (ii) with respect to all other Putable Loans, not more than 270 days delinquent, 97% of the sum of the Principal Balance of such Student Loans on the related Department Put Date plus accrued and unpaid interest on such Financed Student Loans through the day immediately preceding such Department Put Date.
“ Department Rebate Payment Date ” means the quarterly date that (i) Negative Special Allowance Payments with respect to the Financed Student Loans are due and payable to the Department or (ii) the Department offsets such Negative Special Allowance Payments from Interest Subsidy Payments or Special Allowance Payments due to the Funding Note Issuer.
“ Determination Date ” means the third (3 rd ) Business Day preceding each Settlement Date.
“ Disclosure Package ” is defined in Appendix G .
 
 Appenddix A-6 

 

“ DOE Reserve Account ” means the account identified as the “DOE Reserve Account” in the certificate delivered by the Funding Note Issuer pursuant to Section 1(a)(vi) of Appendix B on the Closing Date, or any account replacing such account.
“ Eligible Borrower Benefit ” means only those borrower benefits for a Student Loan that are (i) unconditional upfront fee reductions which are accrued and paid or made prior to the date on which the related Student Loan is sold to the Funding Note Issuer and (ii) permitted reductions in interest rates of not more than one-quarter of a percent (0.25%) that are contingent on the use of an automatic payment process by the Borrower for any payments due.
“ Eligible Investments ” means any of the following: (a) direct obligations of, and obligations fully and unconditionally guaranteed as to timely payment by, the United States government or any agency, instrumentality, or establishment of the United States government (“Government Securities”); (b) commercial paper having, at the time of investment or contractual commitment to invest therein, a rating of “A-1+” from S&P and “F1” or higher from Fitch; (c) repurchase and reverse repurchase agreements collateralized with Government Securities, including those of the Conduit Administrator or any of its affiliates; (d) investment in money market mutual funds having a rating in the highest investment category granted thereby from S&P and Fitch, including, without limitation, any mutual fund for which the Conduit Administrator or an affiliate of the Conduit Administrator serves as investment manager, administrator, shareholder servicing agent, and/or custodian or subcustodian, notwithstanding that (i) the Conduit Administrator or an affiliate of the Conduit Administrator receives fees from funds for services rendered, (ii) the Conduit Administrator collects fees for services rendered pursuant to the Administration Agreement, which fees are separate from the fees received from such funds, and (iii) services performed for such funds and pursuant to the Administration Agreement may at times duplicate those provided to such funds by the Conduit Administrator or an affiliate of the Conduit Administrator; and (e) demand deposits, including interest bearing money market accounts, time deposits, trust funds, trust accounts, overnight bank deposits, interest-bearing deposits and certificates of deposit or bankers acceptances of depository institutions, including the Conduit Administrator or any of its affiliates, having a long-term rating equivalent to “AAA” or higher by S&P and Fitch at the time of and during investment.
“ Eligible Lender ” means an entity that is an “eligible lender” under Section 435(d) of the Higher Education Act that holds Student Loans (whether directly or as an eligible lender trustee).
“ Eligible Lender Trust Agreement ” means the eligible lender trust agreement, dated as of May 13, 2009, between the Funding Note Issuer and the Eligible Lender Trustee.
“ Eligible Lender Trustee ” means Zions First National Bank, a national banking association, not in its individual capacity but solely as Eligible Lender Trustee under the Eligible Lender Trust Agreement and its successor or successors and any other corporation which may at any time be substituted in its place pursuant to the terms of the Eligible Lender Trust Agreement.
“ Eligible Lender Trustee Fees ” means the fees, reasonable expenses and charges of the Eligible Lender Trustee, including reasonable legal fees and expenses, as agreed to in writing by the Eligible Lender Trustee and the SPV Administrator, not to exceed $10,000 per annum.
“ Eligible Loan ” means a Student Loan which meets the following criteria as of the applicable Grant Date:
(a) the Student Loan is a Putable Loan and satisfies the representations and warranties set forth in Section 2 of Appendix C ;
(b) the Student Loan is fully disbursed;
(c) the Student Loan has been originated and serviced in compliance with all requirements of applicable law, including the Higher Education Act and the implementing regulations, the Equal Credit Opportunity Act, Regulation B and other applicable consumer credit laws and equal credit opportunity laws, as applicable to such Student Loan;
(d) the Student Loan is guaranteed at least 97% as to principal and interest by the applicable Guarantor and eligible for reinsurance by the Department in accordance with the Higher Education Act;
 
 Appenddix A-7 

 

(e) the Student Loan bears interest at a stated rate equal to the maximum rate permitted under the Higher Education Act for such Student Loan (except as the rate is modified by any borrower benefit other than an Excluded Borrower Benefit for which the required reserve has not been established);
(f) the Student Loan is eligible for the payment of quarterly Special Allowance Payments;
(g) if the Student Loan is not yet in repayment status, the Student Loan is eligible for payment of Interest Subsidy Payments, or if not eligible, has interest either billed quarterly to the Borrower or capitalized to the extent permitted by the applicable Guarantor (unless, by the applicable Grant Date, the Funding Note Issuer would not otherwise have billed the Borrower quarterly for interest accrued on the related Student Loan);
(h) the Student Loan is evidenced by a signed Promissory Note in the form (including any required addenda) published by, and prescribed by, the Department, without change of any kind, and is not subject to any agreement not contained in that note that would bar, condition or limit either transfer or pledge of the Student Loan or the exercise by a transferee of the rights of the Eligible Lender under terms of the note, except as such agreement relates exclusively to Eligible Borrower Benefits on the Student Loan;
(i) the Student Loan has not been modified, extended or renegotiated in any way, except as required under the Higher Education Act or other applicable laws, rules and regulations, and the applicable Guarantee Agreement, except as any such modification, extension, or renegotiation relates exclusively to borrower benefits on the Student Loan;
(j) the Student Loan constitutes a legal, valid and binding obligation to pay on the part of the related Borrower enforceable in accordance with its terms and the Borrower is not subject to a current bankruptcy proceeding;
(k) the Student Loan is supported by the Loan Documents;
(l) the Student Loan is subject to a Servicing Agreement;
(m) the sale, pledge or assignment of the Student Loan does not conflict with any law or require notice to or consent, approval, authorization or order of any Person or governmental authority, except for such consent, approval, authorizations or orders, if any, that have been obtained prior to the related Grant Date, and for any notices to Borrowers and Guarantors required by the Higher Education Act;
(n) if the Student Loan is made under Section 428 (Subsidized Stafford Loans) or Section 428H (Unsubsidized Stafford Loans) of the Higher Education Act, all of the Borrower’s other Subsidized Stafford Loans and Unsubsidized Stafford Loans that are Eligible Loans and that are held by or on behalf of the Seller (other than any such Student Loans that are Restricted Loans as described in clause (ii) of the definition thereof) are being sold to the Funding Note Issuer and will become Financed Student Loans on the applicable Grant Date;
(o) the Student Loan has been originated or acquired by either an Eligible Lender, or a lender that is not an Eligible Lender and the legal title of such Student Loan is held by an eligible lender trustee, and the Department has timely received the applicable Notice of Intent to Participate; and
(p) the Student Loan was selected in accordance with the Loan Sale Allocation Criteria.
“ ERISA ” means the United States Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor statute and the regulations promulgated and rulings issued thereunder.
“ ERISA Affiliate ” means a corporation, trade or business that is, along with the Funding Note Issuer, a member of a controlled group of corporations or a controlled group of trades or businesses, as described in Section 414 of the Code of 1986, as amended, or Section 4001 of ERISA.
 
 Appenddix A-8 

 

“ Estimated Department Put Price ” means, with respect to any Student Loan and any date of determination, the Department Put Price for such Student Loan, provided that for purposes of such calculation references to the “Department Put Date” in the definition of Department Put Price shall be deemed to refer to the relevant date of determination.
“ Estimated Excess Accrual ” means, with respect to any calendar month, (i) the estimated monthly accrual of Negative Special Allowance Payments since the prior Department Rebate Payment Date, less (ii) the amount of accrued Interest Subsidy Payments or Special Allowance Payments due to the Funding Note Issuer since the prior Department Rebate Payment Date.
“ Estimated Financing Costs Adjustment ” means, for each Settlement Date, an amount (positive or negative) equal to (x) the Ratable Financing Costs that accrued during the Yield Period ending on the preceding Settlement Date minus (y) the Ratable Financing Costs paid on such preceding Settlement Date.
“ Event of Bankruptcy ” means, with respect to a specified Person, (a) the filing of a decree or order for relief by a court having jurisdiction in the premises in respect of such Person or any substantial part of its property in an involuntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for such Person or for any substantial part of its property, or ordering the winding-up or liquidation of such Person’s affairs, which decree or order remains unstayed and in effect for a period of thirty (30) consecutive days; or (b) the commencement by such Person of a voluntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or the consent by such Person to the entry of an order for relief in an involuntary case under any such law, or the consent by such Person to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for such Person or for any substantial part of its property, or the making by such Person of any general assignment for the benefit of creditors, or the failure by such Person generally to pay its debts as such debts become due, or the taking of action by such Person in furtherance of any of the foregoing.
“ Event of Default ” has the meaning assigned to such term in Section 6.01 .
“ Excluded Borrower Benefit Account ” means, to the extent any Financed Student Loan is subject to Excluded Borrower Benefits, the account identified as the “Excluded Borrower Benefit Account” in the Officer’s Certificate delivered by the Funding Note Issuer pursuant to Section 1(a)(vi) of Appendix B on the Closing Date or related Grant Date, or any account replacing such account.
“ Excluded Borrower Benefits ” means any borrower benefit that requires the lender to pay or rebate any amount to the Borrower or provide the Borrower with any gift or item of property, in any such case that has not been paid in full or delivered prior to the related Grant Date, which obligation shall be satisfied prior to the sale of such Student Loan to the Department.
“ Excluded Loan ” means any Student Loan (a) sold pursuant to the Student Loan Purchase Agreement or pledged pursuant to this Agreement, (b) sold to the Department in connection with the Loan Purchase Commitment Program, and (c) with respect to which participation interests are sold to the Department in connection with the Loan Participation Purchase Program.
“ Excluded Tax ” means all Taxes other than Indemnified Taxes.
“ Expected Funding Date ” means a date specified in an Expected Funding Notice to Program Funding Note Issuers delivered pursuant to the Funding Allocation Procedures on which the Conduit Lender expects to increase the amount of its funding, as such date may be rescheduled or canceled by the Manager in accordance with the Funding Allocation Procedures.
“ Expected Funding Notice ” means a notice from the Manager that an Expected Funding Date has been scheduled substantially in the form attached hereto as Exhibit U .
“ Fair Market Auction ” means a sale of Financed Student Loans pursuant to an auction process conducted in accordance with Appendix G .
“ Federal Reimbursement Contracts ” means any agreement between any Guarantor and the Department providing for the payment by the Department of amounts authorized to be paid pursuant to the Higher Education Act, including but not necessarily limited to reimbursement of amounts paid or payable upon defaulted Student Loans Guaranteed by such Guarantor to holders of qualifying Student Loans.
 
 Appenddix A-9 

 

“ FFELP ” means the Federal Family Education Loan Program as set forth and authorized under the Higher Education Act.
“ FFELP Commitment Default ” means the occurrence of an Event of Default described in clause (x) of Appendix E .
“ FFELP Commitment Prepayment Amount ” means, with respect to any FFELP Commitment Default, the amount by which the Commitment Amount required to be satisfied on the related Commitment Reporting Date exceeds the amount of FFELP student loans originated and/or acquired by the Seller during the corresponding period ending on such Commitment Reporting Date.
“ Final Maturity Date ” means the earlier of (i) the date on which the Final Maturity Date is declared or occurs automatically in accordance with Section 6.02 and (ii) with respect to the Funding Note (or any portion thereof) not paid in full on the related Mandatory Final Prepayment Date , the Department Put Date with respect to the Department Put Event arising from failure to pay the Funding Note Balance (or portion thereof) due on such Mandatory Final Prepayment Date; provided that, if on the Final Maturity Date determined pursuant to the preceding clause (ii), there are any accrued and unpaid Interest Subsidy Payments or Special Allowance Payments with respect to any Student Loans that were sold to the Department pursuant to the Department Put Agreement, the Final Maturity Date shall be extended to the Business Day following the date on which the Department shall have paid to the Funding Note Issuer all such Interest Subsidy Payments and Special Allowance Payments on the Student Loans previously sold to the Department or shall have offset all such accrued amounts against Negative Special Allowance Payments or other amounts payable by the Funding Note Issuer to the Department.
“ Financed Student Loan ” means any Student Loan identified on a Loan Transmittal Summary Form attached to a Loan Designation Notice.
“ Fitch ” means Fitch, Inc. (or its successors in interest).
“ Funding Allocation Procedures ” means the Conduit Lender’s procedures for requesting and making advances published by the Manager from time to time (including, without limitation, in any website posting), with the consent of the Department, to the extent such consent is required in accordance with the Management Agreement.
“ Funding Note ” means a variable funding note issued by the Funding Note Issuer, substantially in the form attached hereto as Exhibit D .
“ Funding Note Balance ” means, as of any date of determination, (a) the aggregate principal amount of all Advances made hereunder on or prior to such date of determination, less (b) all payments of principal on the Funding Note made on or prior to such date of determination, plus (c) Capitalized Ratable Financing Costs. For the avoidance of doubt, the principal amount of each Advance shall include, and the Funding Note Balance shall be increased on each Advance Date by, the Advance Amount, including any portion of the Advance Amount deposited into the Reserve Account on the related Advance Date or applied to reimburse Transaction Costs or pay the Startup Costs Allocation (if any) on the related Advance Date.
“ Funding Note Issuer ” means Nelnet Superconduit Funding, LLC, a Delaware limited liability company.
“ Funding Note Issuer Collection Account ” means the account identified as the “Funding Note Issuer Collection Account” in the certificate delivered by the Conduit Administrator pursuant to Section 1(a)(vi) of Appendix B on the Closing Date, or any account replacing such account.
“ Funding Note Issuer Indemnified Amounts ” has the meaning assigned to such term in Section 7.01(a) .
“ Funding Request ” means a notice substantially in the form of Exhibit A .
 
 Appenddix A-10 

 

“ GAAP ” means generally accepted accounting principles as in effect from time to time in the United States of America that are applicable to the circumstances as of the date of determination and applied on a consistent basis.
“ Governmental Authority ” means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any body or entity exercising executive, legislative, judicial, regulatory or administrative functions or pertaining to government, including without limitation any court, and any Person owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing.
“ Grant ” means to pledge, create and grant a security interest in and with regard to property. A Grant of Financed Student Loans, other assets or of any other agreement includes all rights, powers and options (but none of the obligations) of the granting party thereunder.
“ Grant Date ” means, with respect to any Student Loan, the date on which such Student Loan is sold by the Seller to the Funding Note Issuer, and pledged by the Funding Note Issuer to the Conduit Lender pursuant to this Agreement.
“ Guarantee ” or “ Guaranteed ” means, with respect to a Student Loan, the insurance or guarantee by the applicable Guarantor, in accordance with the terms and conditions of the applicable Guarantee Agreement, of some or all of the principal of and accrued interest on such Student Loan and the coverage of such Student Loan by the Federal Reimbursement Contracts providing, among other things, for reimbursement to such Guarantor for losses incurred by it on defaulted Student Loans insured or guaranteed by such Guarantor.
“ Guarantee Agreement ” means an agreement between a Guarantor and the Seller Eligible Lender Trustee on behalf of the Seller that provides for the payment by such Guarantor of amounts authorized to be paid pursuant to the Higher Education Act to holders of qualifying FFELP student loans guaranteed in accordance with the Higher Education Act.
“ Guarantor ” means any FFELP guaranty agency with which the Seller, the Eligible Lender Trustee or the Funding Note Issuer has in place a Guarantee Agreement, and which guarantor is reinsured by the Department for a percentage of claims paid for a given federal fiscal year.
“ Higher Education Act ” means the Higher Education Act of 1965, 20 U.S.C. Section 1001 et seq ., as amended or supplemented from time to time, and all regulations and guidelines promulgated thereunder.
“ Highest Funding Note Balance ” means, with respect to a Funding Note, the highest Funding Note Balance at any time from and after the issuance thereof (for purposes of calculating the Funding Note Balance as used in this definition for any date, the amount described in clause (c) of the definition of Funding Note Balance shall not exceed the amount described in clause (b) of such definition).
“ Indemnified Party ” has the meaning assigned to such term in Section 7.01(a) .
“ Indemnified Taxes ” means any Taxes other than net income and franchise taxes imposed with respect to any Affected Party by the Governmental Authority under the laws of which such Affected Party is organized or in which it maintains its applicable lending office.
“ Interest Subsidy Payments ” means the interest subsidy payments on certain FFELP student loans authorized to be made by the Department pursuant to Section 428 of the Higher Education Act.
“ Investment Company Act ” means the Investment Company Act of 1940, as amended.
“ Liquidated Student Loan ” means any defaulted Student Loan no longer subject to a Guarantee Agreement and liquidated by the Servicer (which shall not include any Financed Student Loan on which payments pursuant to the applicable Guarantee are received) or which the applicable Servicer has, after using all reasonable efforts to realize upon such Financed Student Loan, determined to charge off in accordance with the applicable Servicing Policies.
 
 Appenddix A-11 

 

“ Liquidation Proceeds ” means, with respect to any Liquidated Student Loan which became a Liquidated Student Loan during the current Settlement Period in accordance with the applicable Servicing Policies, the amounts collected in respect of the liquidation thereof from whatever source, other than Recoveries, net of the sum of any amounts expended by the related Servicer in connection with such liquidation and any amounts required by law to be remitted to the Borrower on such Liquidated Student Loan.
“ Liquidity Advance ” means an advance made to the Conduit Lender pursuant to a Liquidity Facility.
“ Liquidity Facility ” means any liquidity agreement for the benefit of the Conduit Lender.
“ Liquidity Prepayment Amount ” means (i) with respect to a Department Put Event described in clause (i) of the definition of “Department Put Event,” the Funding Note Issuer’s Ratable Liquidity Draw Percentage of the requested Liquidity Advance that was not made when due and (ii) with respect to a Department Put Event described in clause (ii) of the definition of “Department Put Event,” the Funding Note Issuer’s Ratable Liquidity Draw Percentage of the outstanding principal amount of the related Liquidity Advance on the Required Liquidity Prepayment Date.
“ Liquidity Prepayment Notice ” means a notice substantially in the form of Exhibit E .
“ Loan Data Schedule ” means the schedule completed by the Seller and delivered to the Department (in the form attached as Exhibit V ) that lists, by academic year, with respect to such Seller’s Relevant Loan Portfolio, (i) the average Principal Balance of such Student Loans, (ii) the type of school with respect to which such Student Loans were made expressed as a percentage of such Relevant Loan Portfolio (i.e. two-year, four-year or proprietary institution), (iii) the payment status of such Student Loans expressed as a percentage of such Relevant Loan Portfolio (i.e. in-school, repayment, grace period, deferment or forbearance) and (iv) the loan type of such Student Loans expressed as a percentage of such Relevant Loan Portfolio (i.e. Subsidized Stafford Loan, PLUS Loan or Unsubsidized Stafford Loan).
“ Loan Designation Notice ” means a certificate substantially in the form of Exhibit S .
“ Loan Documents ” means with respect to each Student Loan, the following documents:
(a) a copy of the loan application if a separate application was provided to the Seller;
(b) a copy of the signed Promissory Note;
(c) the repayment schedule;
(d) a record of each disbursement;
(e) notices of changes in a Borrower’s address and status as at least a half-time student;
(f) if applicable, evidence of the Borrower’s eligibility for any current period of deferment;
(g) if applicable, the documents required for any current exercise of forbearance;
(h) documentation of the assignment of the loan, if any;
(i) if applicable, a payment history showing the date and amount of each payment received from or on behalf of the Borrower, and the amount of each payment that was attributed to principal, interest, late charges, and other costs;
(j) a collection history showing the date and subject of each communication between the Seller and the Borrower or endorser relating to collection of a delinquent Financed Student Loan, each communication other than regular reports by the Seller showing that an account is current, between the Seller and a credit bureau regarding the loan, each effort to locate an Borrower whose address is unknown at any time, and each request by the Borrower for default aversion assistance on the Financed Student Loan;
 
 Appenddix A-12 

 

(k) documentation of any master promissory note confirmation process or processes;
(l) any additional records that are necessary to document the validity of a claim against the guarantee or the accuracy of reports submitted by the Seller; and
(m) a statement identifying the name and location of the entity in possession of the original electronic Promissory Note (if applicable) and, if different, the name, company, address and contact information of the person who is able to provide the affidavit or certification described in 34 C.F.R. Section 682.414(a)(6)(i), including any necessary supporting documentation;
provided , that with respect to Student Loans evidenced by electronically signed Promissory Notes, the documents described in clauses (k) , (l) and (m) may instead be evidenced by delivering a “representative affidavit,” with full supporting material, that describes the procedures the Borrower used to make and hold a particular Student Loan and the procedures whereby the Funding Note Issuer and each Seller will be able to meet any additional needs of the Conduit Lender or the Department for records supporting that Student Loan, and a certification that such representative affidavit describes the procedures that have been and will be used respecting all other Financed Student Loans (unless otherwise indicated respecting any such other Financed Student Loans, in which case a separate representative affidavit shall be provided). Such representative affidavit must be submitted by no later than November 30, 2009 for any Loan Designation Notice delivered prior to November 30, 2009, and for any Loan Designation Notice delivered on or after November 30, 2009, must be submitted with the related Loan Designation Notice. A representative affidavit shall be acceptable only if it contains each of the following elements:
(i) The name and location of the entity in possession of any original electronic promissory note.
(ii) A description (such as a flow chart) of the steps followed by the Borrower to execute the Promissory Note (including those relating to any applicable master promissory note confirmation process).
(iii) A copy of each computer screen as it appeared to the Borrower when signing the note electronically.
(iv) A description of the field edits and any other security measures used to ensure the integrity of the data submitted to the originator electronically.
(v) A description of how the executed promissory note has been preserved so as to ensure that it could not be altered after it was executed.
(vi) Documentation supporting the Funding Note Issuer’s, the related Seller’s or the Sponsor’s authentication and electronic signature process.
(vii) An indication of the Funding Note Issuer’s, the related Seller’s or the Sponsor’s capability and readiness to provide Student Loan-specific affidavits for particular Student Loans in the future, as may be requested by the Conduit Lender or the Department.
“ Loan Participation Purchase Program ” means the program enacted pursuant to Section 459A of the Higher Education Act under which the Department purchases participation interests in FFELP student loans held by Eligible Lenders, acting as sponsors, that have elected to participate in such program pursuant to a master participation agreement.
“ Loan Purchase Commitment Program ” means the program enacted pursuant to Section 459A of the Higher Education Act under which the Department purchases FFELP student loans from Eligible Lenders that have elected to participate in such program, pursuant to a master loan sale agreement.
“ Loan Put Allocation Criteria ” means (i) with respect to Putable Loans sold and purchased pursuant to a bill of sale as of any Department Put Date (other than with respect to a Department Put Event under clauses (iv) and (v) of the definition thereof) a random selection by the Funding Note Issuer (selected in the manner specified below) and an allocation by the Conduit Administrator, pro rata, with respect to each funding note issued by a Program Funding Note Issuer and owned by the Conduit Lender as of such Department Put Date and (ii) with respect to Putable Loans sold and purchased pursuant to a bill of sale as of any Department Put Date under clause (iv) of the definition thereof, a random selection by the Funding Note Issuer (selected in the manner specified below); provided , that notwithstanding anything to the contrary, each pool of Putable Loans sold and purchased pursuant to a bill of sale must include either all or none of the Student Loans made to any related Borrower (i.e. “by account”). Student Loans required to be selected at random pursuant to this definition shall be selected on a random basis (in the manner approved by the Department) from the aggregate pool of Financed Student Loans owned by the Funding Note Issuer.
 
 Appenddix A-13 

 

“ Loan Put Schedule ” means a schedule (in a form approved by the Department) listing Financed Student Loans selected for sale by the Funding Note Issuer in accordance with Section 1.03(c) or subject to sale as a result of the exercise of remedies by the Conduit Lender in accordance with Section 6.03 , which schedule shall be prepared using the most current loan information available to the Servicers of the Student Loans included in the Loan Put Schedule and shall include (i) the name and address of the Borrower, (ii) the loan number, (iii) the qualifying institution attended by the Borrower and (iv) the Principal Balance and accrued interest (to the extent not included in the Principal Balance) of such Financed Student Loans.
“ Loan Release Allocation Criteria ” means the following criteria, which shall be used by the Funding Note Issuer to select Financed Student Loans to be released from the lien of the Conduit Lender in accordance with Section 1.03(e) :
(a) the Funding Note Issuer shall select Financed Student Loans to be released from the lien of the related Funding Note at random (selected in the manner specified by the Funding Note Issuer to, and approved by the Department prior to such selection) within each applicable academic year; and
(b) the following conditions conducted in sequential order for each Proposed Pool:
(i) if the Proposed Pool of Student Loans selected in accordance with clause (a) does not meet the Threshold Test with respect to the average Principal Balance, the Funding Note Issuer shall remove Student Loans from such Proposed Pool until it meets the Threshold Test with respect to the average Principal Balance, starting with, if the Proposed Pool exceeds the Threshold Test, the Student Loan with the highest Principal Balance and then the next highest Principal Balance (and so on) and, if the Proposed Pool was less than the Threshold Test, the Student Loan with the lowest Principal Balance and then the next lowest Principal Balance (and so on);
(ii) if the resultant Proposed Pool of Student Loans selected in accordance with clause (i) above does not meet the Threshold Test with respect to each category of school type, the Funding Note Issuer shall randomly (in the manner approved by the Department) remove Student Loans from the category the Category Percentage of which exceeds the Threshold Test by the greatest amount, until such category meets the Threshold Test, then, if such Proposed Pool does not meet the Threshold Test with respect to the remaining categories of school type, it shall randomly (in the manner approved by the Department) remove Student Loans from the category the Category Percentage of which exceeds the Threshold Test until the Threshold Test is met with respect to each category of school type;
(iii) if the resultant Proposed Pool of Student Loans selected in accordance with clauses (i) and (ii) above does not meet the Threshold Test with respect to each category of payment status, the Funding Note Issuer shall randomly (in the manner approved by the Department) remove Student Loans from the category the Category Percentage of which exceeds the Threshold Test by the greatest amount, until such category meets the Threshold Test, then, if such Proposed Pool of Student Loans does not meet the Threshold Test with respect to the remaining categories of payment status, it shall randomly (in the manner approved by the Department) remove Student Loans from the category the Category Percentage of which exceeds the Threshold Test by the greatest amount, until such category meets the Threshold Test, and so on by category, until the Threshold Test is met with respect to each category of payment status; and
(iv) if the resultant Proposed Pool of Student Loans selected in accordance with clauses (i) through (iii) above does not meet the Threshold Test with respect to each category of loan type, the Funding Note Issuer shall randomly (in the manner approved by the Department) remove Student Loans from the category the Category Percentage of which exceeds the Threshold Test by the greatest amount, until such category meets the Threshold Test, then, if such Proposed Pool does not meet the Threshold Test with respect to the remaining categories of loan type, it shall randomly (in the manner approved by the Department) remove Student Loans from the category the Category Percentage of which exceeds the Threshold Test until the Threshold Test is met with respect to each category of loan type.
provided , that, each Proposed Pool of Student Loans selected to be released from the lien of the Conduit Lender must include either all or none of the Eligible Loans made to any related Borrower (i.e. “by account”) other than Restricted Loans as defined in clause (ii) of the definition thereof.
 
 Appenddix A-14 

 

“ Loan Removal Data Schedule ” means a schedule (in the form provided by the Department) that lists, by academic year, with respect to the Student Loans then securing the related Funding Note, (i) the average Principal Balance of such Financed Student Loans, (ii) the type of school with respect to which such Financed Student Loans were made expressed as a percentage of the related Financed Student Loans (i.e. two-year, four-year or proprietary institution), (iii) the payment status of such Financed Student Loans expressed as a percentage of the related Financed Student Loans (i.e. in-school, repayment, grace period, deferment or forbearance) and (iv) the loan type of such Student Loans expressed as a percentage of the related Financed Student Loans (i.e. Subsidized Stafford Loan, PLUS Loan or Unsubsidized Stafford Loan).
“ Loan Sale Allocation Criteria ” means the following criteria, which shall be used by the Seller to select Student Loans to be sold to the Funding Note Issuer under the Student Loan Purchase Agreement:
(a) if a Proposed Pool contains an amount of Student Loans that is less than the Relevant Loan Portfolio of a particular Servicer then servicing the Student Loans in the Seller’s Relevant Loan Portfolio, the Seller shall select Student Loans for sale from the Relevant Loan Portfolio of each such Servicer at random (selected in the manner specified by the Seller to, and approved by, the Department prior to such selection) within each applicable academic year; and
(b) the following conditions conducted in sequential order for each Proposed Pool:
(i) if the Proposed Pool of Student Loans selected in accordance with clause (a) does not meet the Threshold Test with respect to the average Principal Balance, the Seller shall remove Student Loans from such Proposed Pool until it meets the Threshold Test with respect to average Principal Balance, starting with, if the Proposed Pool exceeds the Threshold Test, the Student Loan with the highest Principal Balance and then the next highest Principal Balance (and so on) and, if the Proposed Pool was less than the Threshold Test, the Student Loan with the lowest Principal Balance and then the next lowest Principal Balance (and so on);
(ii) if the resultant Proposed Pool of Student Loans selected in accordance with clause (i) above does not meet the Threshold Test with respect to each category of school type, the Seller shall randomly remove Student Loans from the category the Category Percentage of which exceeds the Threshold Test by the greatest amount, until such category meets the Threshold Test, then, if such Proposed Pool does not meet the Threshold Test with respect to the remaining categories of school type, it shall randomly remove Student Loans from the category the Category Percentage of which exceeds the Threshold Test until the Threshold Test is met with respect to each category of school type;
(iii) if the resultant Proposed Pool of Student Loans selected in accordance with clauses (i) and (ii) above does not meet the Threshold Test with respect to each category of payment status, the Seller shall randomly remove Student Loans from the category the Category Percentage of which exceeds the Threshold Test by the greatest amount, until such category meets the Threshold Test, then, if such Proposed Pool does not meet the Threshold Test with respect to the remaining categories of payment status, it shall randomly remove Student Loans from the category the Category Percentage of which exceeds the Threshold Test by the greatest amount, until such category meets the Threshold Test, and so on by category, until the Threshold Test is met with respect to each category of payment status; and
(iv) if the resultant Proposed Pool of Student Loans selected in accordance with clauses (i) through (iii) above does not meet the Threshold Test with respect to each category of loan type, the Seller shall randomly remove Student Loans from the category the Category Percentage of which exceeds the Threshold Test by the greatest amount, until such category meets the Threshold Test, then, if such Proposed Pool does not meet the Threshold Test with respect to the remaining categories of loan type, it shall randomly remove Student Loans from the category the Category Percentage of which exceeds the Threshold Test until the Threshold Test is met with respect to each category of loan type;
provided , however , that if the Proposed Pool of Student Loans was selected at random from the Relevant Loan Portfolio of all Servicers then servicing the Relevant Loan Portfolio of such Seller, the Seller need not comply with clauses (b)(i) through (iv) above. If the Seller is required to perform the Threshold Tests on a Proposed Pool, the initial Proposed Pool selected may be larger than the intended Proposed Pool to take into account Student Loans that may be removed during the testing steps. If the aggregate Principal Balance of the final Proposed Pool after testing and removal exceeds the intended size of the Proposed Pool, the Seller may remove Student Loans at random until the intended size is achieved. Notwithstanding anything to the contrary herein, each Proposed Pool of Student Loans sold to the Funding Note Issuer must include either all or none of the Eligible Loans made to any related Borrower (i.e. “by account”) other than Restricted Loans as described in clause (ii) of the definition thereof.
 
 Appenddix A-15 

 

“ Loan Transmittal Summary Forms ” means the form attached as Annex I to each Bill of Sale and each Loan Designation Notice, which lists, by Borrower, each Student Loan subject to the related Bill of Sale or Loan Designation Notice, including (i) the outstanding Principal Balance of each such Student Loan as of the related Cut-off Date, (ii) the Guarantor that Guarantees each Student Loan subject to the related Bill of Sale or Loan Designation Notice, as applicable, (iii) the Servicer that services each Student Loan subject to the related Bill of Sale or Loan Designation Notice, as applicable, (iv) notice information for the Servicer that services each Student Loan subject to the related Bill of Sale or Loan Designation Notice, as applicable, and (v) information relating to the type of school with respect to which the Student Loans were made.
“ Lower Boundary ” means an amount equal to the sum of (i) the applicable Sample Mean minus (ii) the product of (A) 1.96 and (B) the applicable Standard Error.
“ Management Agreement ” means the management agreement between the Manager and the Conduit Lender.
“ Manager ” means BMO Capital Markets Corp., a company organized under the laws of the State of Delaware, and its successors and assigns.
“ Mandatory Final Prepayment Date ” means November 19, 2013 or, one or more Business Days thereafter as determined by the Manager, which date(s) shall be no later than forty-six (46) days prior to the Put Expiration Date (or such earlier date as shall be necessary to ensure that the Department Put Date with respect to any Department Put Event occurring on such Mandatory Final Prepayment Date would occur prior to the Put Expiration Date). The Manager, in its sole discretion, will assign Mandatory Final Prepayment Dates for the funding notes issued by all Program Funding Note Issuers and may assign multiple Mandatory Final Prepayment Dates to a single Program Funding Note Issuer, each of which will apply to a specific portion of the outstanding funding notes of such Program Funding Note Issuer; provided that the aggregate amount of funding notes maturing on any day may not exceed the Daily Put Limit. The Manager will assign the Mandatory Final Prepayment Dates by no later than October 18, 2013.
“ Market Adjustment ” means, as of any date of determination and any Commitment Amount, the lesser of (a) one (1) and (b) the percentage equivalent of a fraction, (i) the numerator of which is the annualized aggregate original principal balance of all Student Loans originated by all Eligible Lenders (as shown on the Department’s NSLDS system) during the period commencing with the month immediately following the month of the applicable pledge of Student Loans to the Conduit Lender and ending at the end of the twenty-fourth month after such pledge (or at the end of the preceding month if less than twenty-four months have elapsed since such pledge), and (ii) the denominator of which is the aggregate original principal balance of all Student Loans originated by all Eligible Lenders (as shown on the Department’s NSLDS system) during the twelve month period ending with the month immediately preceding the month of the applicable pledge of Student Loans to the Conduit Lender.
“ Master Servicer ” means National Education Loan Network, Inc., a Nevada corporation.
“ Master Servicer Indemnified Amounts ” has the meaning specified in Section 7.03(a) .
“ Material Adverse Effect ” means a material adverse effect on:
(a) with respect to the Funding Note Issuer, the status, existence, perfection, priority or enforceability of the Conduit Lender’s or the Conduit Lender Eligible Lender Trustee’s interest in the Pledged Collateral or the ability of the Funding Note Issuer to perform its obligations under this Agreement or any other Transaction Document or the ability to collect on a material portion of the Pledged Collateral; or
(b) with respect to any other Person, the ability of the applicable Person to perform its obligations under this Agreement or any other Transaction Document.
 
 Appenddix A-16 

 

“ Material Servicer ” means any Affiliated Servicer and any other Servicer responsible for servicing more than 10% of the Financed Student Loans by aggregate Principal Balance.
“ Membership Interest ” has the meaning assigned to such term in the Funding Note Issuer’s limited liability company agreement.
“ Minimum Asset Coverage Ratio ” means 100%.
“ Monthly Conduit Administrator’s Report ” means the report to be delivered by the Conduit Administrator pursuant to Section 1.05(b) in substantially the form of Exhibit B hereto.
“ Monthly Remittance Condition ” means, with respect to any Affiliated Servicer, that (a) no Servicer Default or Potential Event of Default relating to a Servicer Default has occurred and is continuing with respect to such Servicer and (b) the short term unsecured debt of such Servicer is rated by S&P and is rated “A-1” or better by S&P and (ii) if rated by Fitch, “F1” or better by Fitch.
“ Monthly Servicer Report ” means a report substantially in the form of Exhibit A to each Servicing Agreement.
“ Monthly Servicing Fee Cap ” means, with respect to any Settlement Date, the aggregate for all Student Loans that were Financed Student Loans as of the last day of the preceding Settlement Period, of the product of (a) the number of days during such Settlement Period during which each such Student Loan was a Financed Student Loan, divided by 360, (b) .70% and (c) the Principal Balance of each such Financed Student Loan as of the first day of the preceding Settlement Period (or, if later, the Cut-off Date for each such Financed Student Loan).
“ Multiemployer Plan ” means a “multiemployer plan” as defined in Section 4001(a)(3) of ERISA which is or was at any time during the current year or the immediately preceding six years contributed to by the Funding Note Issuer or any ERISA Affiliate.
“ Negative Special Allowance Payments ” means any special allowance payments rebate on FFELP student loans required to be made by the holder of any such loan pursuant to Section 438 of the Higher Education Act.
“ Net Cash Advance Amount ” means, except in the case of a Required Payment Advance, on any Advance Date, the excess of the Advance Amount on such Advance Date minus the sum of (i) the amount needed to increase the Reserve Account to the Reserve Account Specified Balance, (ii) reimbursement of the Transaction Costs relating to such Advance, (iii) the Startup Costs Allocation (if any) relating to such Advance (iv) any Estimated Excess Accrual for any prior calendar month to the extent not previously deposited to the DOE Reserve Account on any Settlement Date on or prior to the Advance Date and any amounts owing to the Department with respect to the Financed Student Loans or otherwise owed to the Department by the Funding Note Issuer in connection with the transactions contemplated by this Agreement to the extent sufficient funds have not been deposited into the DOE Reserve Account to pay such amounts and (v) any amount required to be deposited to the Excluded Borrower Benefits Account.
“ New York UCC ” means the New York Uniform Commercial Code as in effect from time to time.
“ Note Register ” has the meaning specified in Section 2.02 .
“ Notice of Intent to Participate ” means a notice in the form of Exhibit L .
“ Notice of Release ” means a notice in substantially the form of Exhibit C .
“ Notice of Required Payment Advance ” means a notice in substantially the form of Exhibit W .
 
 Appenddix A-17 

 

“ Obligations ” means all present and future indebtedness and other liabilities and obligations (howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, or due or to become due) of the Funding Note Issuer to the Affected Parties, arising under or in connection with this Agreement or any other Transaction Document or the transactions contemplated hereby or thereby and shall include, without limitation, all liability for principal of and Ratable Financing Costs on the Funding Note, closing fees, unused line fees, audit fees, expense reimbursements, indemnifications, and other amounts due or to become due under the Transaction Documents, including, without limitation, interest, fees and other obligations that accrue after the commencement of an insolvency proceeding (in each case whether or not allowed as a claim in such insolvency proceeding).
“ Officer’s Certificate ” means a certificate signed and delivered by an Authorized Officer.
“ Official Body ” means any government or political subdivision or any agency, authority, bureau, central bank, commission, department or instrumentality of any such government or political subdivision, or any court, tribunal, grand jury or arbitrator, or any accounting board or authority (whether or not a part of government) which is responsible for the establishment or interpretation of national or international accounting principles, in each case whether foreign or domestic.
“ Opinion of Counsel ” means an opinion in writing of legal counsel, who may be counsel or special counsel to the Funding Note Issuer, any Affiliate of the Funding Note Issuer, the Eligible Lender Trustee, the SPV Administrator, the Manager, the Conduit Administrator or the Conduit Lender, as the case may be.
“ Other Conduit Costs ” means amounts payable by the Conduit Lender pursuant to the Administration Agreement in respect of Variable Put Fees and any other fees, expenses, indemnities and other amounts payable by the Conduit Lender pursuant to the Administration Agreement that are subordinate to Variable Put Fees in right to payment from available funds of the Conduit Lender.
“ Other Taxes ” means any and all stamp, documentary or similar taxes, or any other excise or property taxes or similar levies that arise on account of any payment being or being required to be made hereunder or under any Funding Note or from the execution, delivery, registration, recording or enforcement of this Agreement or any Transaction Document or the Department Put Agreement.
“ Patriot Act ” has the meaning assigned to such term in Section 12.18 .
“ PBGC ” means the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA (or any successor).
“ Person ” means an individual, partnership, corporation, limited liability company, joint stock company, trust, unincorporated association, joint venture, government or any agency or political subdivision thereof or other entity.
“ Pledged Collateral ” has the meaning specified in Section 1.08 .
“ PLUS Loan ” means a student loan described in Section 428B of the Higher Education Act and shall include student loans to parents, designated as “PLUS Loans” or student loans to graduate or professional students, designated as “Grad PLUS Loans.”
“ Portfolio Criteria ” means the criteria for the Financed Student Loans set forth in the most recently executed Reserve and Portfolio Criteria Supplement.
“ Potential Event of Default ” means an event which but for the lapse of time or the giving of notice, or both, would constitute an Event of Default.
“ Power of Attorney ” means that certain Power of Attorney of the Funding Note Issuer or the Seller, as applicable, dated as of the Closing Date, appointing The Bank of New York Mellon, as Conduit Administrator, and Straight-A Funding, LLC, as Conduit Lender as the Funding Note Issuer’s or the Seller’s, as applicable, attorney-in-fact in the form attached hereto as Exhibit K .
“ Principal Balance ” means, with respect to any Student Loan and any specified date, the outstanding principal amount of such Student Loan, plus all accrued and unpaid interest thereon to be capitalized.
 
 Appenddix A-18 

 

“ Prior Transferor ” means, with respect to a Financed Student Loan, any Person that at any time owned such Financed Student Loan prior to the transfer thereof to the Funding Note Issuer.
“ Program Funding Note Issuer ” means any funding note issuer that has funded purchases of Student Loans through the Conduit Lender’s Securities issuance program.
“ Program Support Agreement ” means any liquidity agreement or any other agreement entered into by any Program Support Provider providing for the making of loans and/or other extensions of liquidity to the Conduit Lender in connection with its Securities issuance program.
“ Program Support Provider ” means and includes any Person now or hereafter extending liquidity or having a commitment to extend liquidity to or for the account of, or to make purchases from, the Conduit Lender in support of Securities issued by the Conduit Lender or other instrument to support any obligations arising under or in connection with the Conduit Lender’s Securities issuance program.
“ Promissory Note ” means the master promissory note of the Borrower and any amendment thereto evidencing the Borrower’s obligation with regard to a Student Loan Guaranteed under the Higher Education Act, whether in hardcopy or electronic form, and that contains the terms required by the Higher Education Act and implementing regulations.
“ Proposed Pool ” means a pool of Student Loans from a single academic year proposed to be pledged pursuant to this Agreement or sold pursuant to the Student Loan Purchase Agreement, as applicable, or released pursuant to Section 1.03(e) .
“ Putable Loan ” means any Financed Student Loan that (i) became a Financed Student Loan prior to the earlier of July 1, 2010 and the occurrence of an Event of Default, (ii) is a Stafford Loan or a PLUS Loan (and not a FFELP consolidation loan) and (iii) with respect to which the first disbursement thereon has been made on or after October 1, 2003 but no later July 1, 2009, and that was fully disbursed no later than September 30, 2009.
“ Put Expiration Date ” means, with respect to all Student Loans, the earlier of (i) the date falling five years from the execution of the Department Put Agreement and (ii) September 30, 2014.
“ Put Notice ” means the notice the Conduit Administrator delivers to the Department under the Department Put Agreement upon the occurrence of a Department Put Event.
“ Ratable Financing Costs ” means, for any Yield Period, the result of (a) the product of (i) the Conduit Financing Costs for such Yield Period, multiplied by (ii) the quotient of (x) the sum of the Ratable Percentages for all days during such Yield Period, divided by (y) the number of days during such Yield Period, plus or minus (b) the Estimated Financing Costs Adjustment, if and as applicable.
“ Ratable Other Conduit Costs ” means for any Yield Period, the sum of (a) the product of (i) the Other Conduit Costs for such Yield Period, multiplied by (ii) the quotient of (x) the sum of the Ratable Percentages for all days during such Yield Period, divided by (y) the number of days during such Yield Period.
“ Ratable Liquidity Draw Percentage ” means, with respect to any Liquidity Advance, the Funding Note Issuer’s Ratable Percentage immediately prior to the making of such Liquidity Advance.
“ Ratable Percentage ” means, for any day, the quotient (expressed as a percentage) of (a) the Funding Note Balance, divided by (b) the aggregate unpaid principal amount (including capitalized ratable financing costs) of all outstanding notes evidencing advances made by the Conduit Lender to Program Funding Note Issuers.
“ Rating Agencies ” means S&P and Fitch.
“ Records ” means all documents, books, records, Promissory Notes and other information (including without limitation, computer programs, tapes, disks, punch cards, data processing software and related property and rights) maintained with respect to Financed Student Loans or otherwise in respect of the Pledged Collateral.
 
 Appenddix A-19 

 

“ Recoveries ” means amounts collected from whatever source with respect to any Liquidated Student Loan which was written off in prior Settlement Periods or during the current Settlement Period, net of the sum of any amounts expended by the applicable Servicer with respect to such Student Loan for the account of any Borrower and any amounts required by law to be remitted to any Borrower.
“ Regulatory Change ” means, relative to any Affected Party:
(a) after the date of this Agreement, any change in or the adoption or implementation of, any new (or any new interpretation or administration of any existing):
(i) United States federal or state law or foreign law applicable to such Affected Party;
(ii) regulation, interpretation, directive, requirement, guideline or request (whether or not having the force of law) applicable to such Affected Party of (A) any court or Governmental Authority charged with the interpretation or administration of any law referred to in clause (a)(i) above or (B) any fiscal, monetary or other authority having jurisdiction over such Affected Party; or
(iii) generally accepted accounting principles or regulatory accounting principles applicable to such Affected Party and affecting the application to such Affected Party of any law, regulation, interpretation, directive, requirement, guideline or request referred to in clause (a)(i) or (a)(ii) above; or
(b) any change after the date of this Agreement in the application to such Affected Party (or any implementation by such Affected Party) of any existing law, regulation, interpretation, directive, requirement, guideline or request referred to in clause (a)(i) , (a)(ii) or (a)(iii) above.
“ Reimbursement Amount ” has the meaning specified in Section 4.03 .
“ Reimbursement Event ” means, the occurrence of any of the following events:
(i) any representation or warranty made or furnished by the Funding Note Issuer or the Eligible Lender Trustee pursuant to this Agreement shall prove to have been materially incorrect when made;
(ii) a Student Loan is not an Eligible Loan on its Grant Date;
(iii) any Financed Student Loan shall be subject to an Adverse Claim.
“ Reimbursement Event Fees and Expenses ” has the meaning specified in Section 4.03 .
“ Released Collateral ” means any Pledged Collateral released from the Conduit Lender’s and Conduit Lender Eligible Lender Trustee’s lien pursuant to Section 1.03(e) or 4.05 .
“ Relevant Loan Portfolio ” means the complete portfolio of Eligible Loans (not including Restricted Loans) (i) owned by the Funding Note Issuer or the Seller or (ii) serviced by a Servicer for the Funding Note Issuer or the Seller, as applicable.
“ Reportable Event ” means any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30 day notice period has been waived.
“ Repurchase Amount ” is defined in the Student Loan Purchase Agreement.
“ Repurchase Event ” is defined in the Student Loan Purchase Agreement.
“ Repurchase Event Fees and Expenses ” is defined in the Student Loan Purchase Agreement.
“ Required Liquidity Prepayment Date ” means (i) with respect to a Department Put Event described in clause (i) of the definition of “Department Put Event,” the fifth day following the failure to make a Liquidity Advance when due and (ii) with respect to a Department Put Event described in clause (ii) of the definition of “Department Put Event,” the forty-fifth (45 th ) day after the date on which the Liquidity Advance was made.
 
 Appenddix A-20 

 

“ Required Payment Advance ” has the meaning specified in Section 1.02(f) .
“ Reserve Account ” means the account identified as the “Reserve Account” in the certificate delivered by the Conduit Administrator pursuant to Section 1(a)(vi) of Appendix B on the Closing Date, or any account replacing such account.
“ Reserve Account Specified Balance ” means, for any Advance Date or Settlement Date, the amount specified on the most recently executed Reserve and Portfolio Criteria Supplement; provided, that the Manager, with the consent of the Conduit Advisory Committee, may specify a Reserve Account Specified Balance that is higher than the amount determined pursuant to this definition by notice to the Funding Note Issuer prior to the applicable Settlement Date or Advance Date.
“ Reserve and Portfolio Criteria Supplement ” means the most recently executed supplement to this Agreement in the form of Exhibit X attached hereto; provided that each Rating Agency shall have confirmed in writing to the Manager that such supplement would not cause such Rating Agency to withdraw the rating of the Funding Note or lower the rating of the Funding Note to below “AAA” or its equivalent.
“ Restricted Loan ” means any Student Loan that may not be sold or pledged pursuant to the Funding Note Purchase Agreement and the Student Loan Purchase Agreement because (i) the servicing agreement under which such Student Loan is serviced provides that the servicing rights created therein are not transferable in the manner required by the Department Put Agreement or (ii) such Student Loan is subject to a financing arrangement the program documents of which contain restrictions on the transferability of such Student Loan, such Student Loan is included in a term securitization or in the Loan Purchase Commitment Program or Loan Participation Purchase Program; provided, that, the Funding Note Issuer or the Seller may deem a Student Loan not a Restricted Loan by delivering notice to the Conduit Administrator and the Department; provided further that, if a Student Loan is designated as a Restricted Loan, it shall not be eligible to be included in a Relevant Loan Portfolio thereafter, unless (a) the Funding Note Issuer or the Seller notifies the Conduit Administrator, with a copy to the Department, that such Student Loan is no longer a Restricted Loan within ninety (90) days of such designation or (b) such Student Loan was a Restricted Loan pursuant to clause (ii) above and the Funding Note Issuer or the Seller has subsequently obtained the ability to acquire, and includes in its next Relevant Loan Portfolio, all of the Student Loans in such financing or securitization.
“ Revocation Date ” means (a) with respect to an event described in clauses (i) through (iv) and (vi) of the definition of “Department Put Event”, fifteen (15) days after the delivery to the Department of a Put Notice and (b) with respect to an event described in clause (v) of the definition of Department Put Event, thirty (30) days after the date upon which such Department Put Event shall have occurred.
“ Revocation Notice ” means a notice in the form of Exhibit T .
“ S&P ” means Standard & Poor’s Ratings Service, a division of The McGraw-Hill Companies, Inc. (or its successors in interest).
“ Sample Mean ” means, with respect to the Proposed Pool and a category of Student Loans, (a) with respect to average Principal Balance, the average Principal Balance of the Student Loans in the Proposed Pool and (b) with respect to all other categories, the product of (i) the percentage of the Student Loans (by count) in such category in the Proposed Pool multiplied by (ii) the Sample Size.
“ Sample Size ” means the number of Student Loans in the Proposed Pool.
“ Schedule of Financed Student Loans ” means a listing of all Financed Student Loans delivered to and held by the Conduit Administrator (which Schedule of Financed Student Loans may be in the form of microfiche, CD-ROM, electronic or magnetic data file or other medium acceptable to the Conduit Administrator), as from time to time amended, supplemented, or modified, which Schedule of Financed Student Loans shall be the master list of all Financed Student Loans then comprising a part of the Pledged Collateral pursuant to this Agreement.
 
 Appenddix A-21 

 

“ Secretary ” means the Secretary of Education, and includes any official of the Department duly authorized to perform any function with respect to the transactions under the Department Put Agreement or the other Transaction Documents.
“ Securities ” means the Student Loan Short-Term Notes and Additional Securities issued by the Conduit Lender.
“ Securities Account ” has the meaning assigned to such term in Section 1.04(c) .
“ Securities Act ” means the Securities Act of 1933, as amended.
“ Securities Intermediary ” means The Bank of New York Mellon, a New York banking corporation.
“ Security Release Certification ” means any release of lien documentation executed by the applicable lienholder with respect to one or more Student Loans in the form of Exhibit R (which form shall have been approved by the Department).
“ Seller ” means National Education Loan Network, Inc., a Nevada Corporation.
“ Seller Eligible Lender Trustee ” means Union Bank and Trust Company, a Nebraska banking corporation.
“ Seller Eligible Lender Trust Agreement ” means the Seller Eligible Lender Trust Agreement between the Seller and the Seller Eligible Lender Trustee under which the Seller Eligible Lender Trustee agrees to hold legal title to certain Student Loans for the benefit of the Seller.
“ Seller Indemnified Amounts ” with respect to the Seller, shall have the meaning specified in the Student Loan Purchase Agreement.
“ Senior Servicing Fees ” means any servicing fees payable to any Servicer by the Funding Note Issuer on any Settlement Date in an amount not to exceed the product of (a) 1/12 and (b) .70% of the aggregate of the Principal Balances of all Student Loans serviced by such Servicer (determined as of the last day of the preceding Settlement Period); provided that the Senior Servicing Fees payable to the Master Servicer on any Settlement Date shall not exceed the excess of (a) the Monthly Servicing Fee Cap, over (b) all other Senior Servicing Fees payable on such Settlement Date.
“ Servicer ” means any organization with which the Funding Note Issuer has entered into a Servicing Agreement with respect to the Financed Student Loans, with the prior written approval of the Conduit Administrator.
“ Servicer Default ” means (a) any Servicer shall fail in any material respect to perform or observe any term, covenant or agreement that is an obligation of such Servicer under its Servicing Agreement (other than as referred to in clause (b) below) and such failure continues unremedied for ten (10) days after (i) written notice thereof shall have been given by the SPV Administrator, the Conduit Administrator or the Manager to the Servicer or (ii) the Servicer has actual knowledge thereof; (b) any Servicer shall fail to make any payment or deposit to be made by it under its Servicing Agreement when due and such failure shall remain unremedied for two (2) Business Days; (c) any representation or warranty made or deemed to be made by any Servicer (or any of its officers) under or in connection with its Servicing Agreement or any information or report delivered pursuant to its Servicing Agreement shall prove to have been false or incorrect in any material respect when made; (d) an Event of Bankruptcy shall have occurred with respect to a Servicer; (e) a material adverse change in the condition (financial or otherwise), business or properties of the Servicer or in the ability of the Servicer to service and collect on the Financed Student Loans; or (f)(i) any litigation (including, without limitation, derivative actions), arbitration proceedings or governmental proceedings (whether or not existing at the time of the execution hereof) not disclosed in writing by the SPV Administrator to the Conduit Administrator and the Manager prior to the execution and delivery of this Agreement is pending against a Servicer or any of its Affiliates at the time of the execution thereof; or (ii) any material development not so disclosed has occurred in any such litigation or proceedings so disclosed, which in the case of clause (i) or (ii) above, in the opinion of the Conduit Administrator or the Manager has a material adverse effect on the ability of such Servicer to perform its obligations under its Servicing Agreement.
 
 Appenddix A-22 

 

“ Servicing Agreement ” means any servicing agreement in the form of Exhibit M between the Funding Note Issuer and any Servicer (or between a Master Servicer, the Funding Note Issuer and any subservicer whereby the Affected Parties are expressly intended third-party beneficiaries), including any “Supplemental Servicing Agreement” identified therein, as any such agreement may be amended or supplemented from time to time with the prior written consent of the Department, the Conduit Administrator and the Manager, under which the respective Servicer agrees to administer and collect the Financed Student Loans in accordance with Department regulations and which agreement: (i) contains customary terms and conditions, including representations, warranties, covenants and events of default, that reflect a negotiated, arms-length transaction, (ii) includes an acknowledgement by the Servicer that the Department and the Conduit Lender (if the Conduit Lender is not a party to such Servicing Agreement) are the intended third party beneficiaries of such servicing agreement and that the Department, upon the purchase of any Student Loan serviced thereunder, is entitled to instruct the related Servicer and exercise remedies with respect to such Student Loan and (iii) provides that, upon the occurrence of a Department Put Event with respect to any Student Loan serviced thereunder, such agreement shall automatically terminate with respect to such Student Loan upon the relevant Department Put Date, unless the Department otherwise notifies the related Servicer as soon as reasonably practicable but not less than five (5) Business Days prior to the related Department Put Date, without any payment by the Department, the Conduit Lender or any other Person (except the Funding Note Issuer as provided in Section 1.05(c)(viii) or the Master Servicer if so provided in the related “Supplemental Servicing Agreement” identified therein) of any de-boarding, deconversion or related costs, penalties or fees to the related Servicer and that the servicing of such Student Loan shall be transferred as instructed by the Department.
“ Servicing Fees ” means any fees payable by the Funding Note Issuer to a Servicer in respect of servicing Financed Student Loans pursuant to the provisions of any Servicing Agreement.
“ Servicing Policies ” means, with respect to a Servicer, the policies and procedures required under the Higher Education Act and any other policies and procedures of such Servicer with respect to the servicing of Student Loans which are not inconsistent with the requirements of the Higher Education Act.
“ Settlement Date ” means the twenty-fifth (25 th ) day of each calendar month, beginning June 25, 2009 or, if such day is not a Business Day, the following Business Day. A Settlement Date “relates” to the Settlement Period falling in the prior calendar month.
“ Settlement Period ” means (i) initially the period commencing on the Closing Date and ending on May 31, 2009, and (ii) thereafter, each calendar month.
“ SLS Loans ” means a Student Loan originated under the authority set forth in Section 428A (or a predecessor section thereto) of the Higher Education Act and shall include Student Loans designated as “SLS Loans,” as defined under the Higher Education Act.
“ Sold Loans Account ” means the account identified as the “Sold Loans Account” in the certificate delivered by the Conduit Administrator pursuant to Section 1(a)(vi) of Appendix B on the Closing Date, or any account replacing such account.
“ Special Allowance Payments ” means special allowance payments on Student Loans authorized to be made by the Department pursuant to Section 438 of the Higher Education Act.
“ Sponsor ” means Nelnet, Inc., a Nebraska corporation.
“ SPV Administrator ” means National Education Loan Network, Inc., a Nevada corporation, and its successors and assigns, in its capacity as SPV Administrator of the Funding Note Issuer.
“ SPV Administrator Fee ” means, for each calendar month, a fee payable to the SPV Administrator monthly in arrears on each Settlement Date equal to $50,000.
“ SPV Administrator Indemnified Amounts ” has the meaning assigned to such term in Section 7.02 .
“ SPV Administrator Material Adverse Effect ” has the meaning assigned to such term in Appendix F .
“ Stafford Loan ” means a Subsidized Stafford Loan or an Unsubsidized Stafford Loan.
 
 Appenddix A-23 

 

“ Standard Error ” means, with respect to the Proposed Pool and a category of Student Loans the square root of the applicable Variance divided by the square root of the Sample Size.
“ Startup Cost Account ” means an account of the Manager established and maintained by the Conduit Administrator, for the purpose of receiving deposits of Startup Costs Allocations.
“ Startup Costs ” means all costs of the Conduit Lender in connection with the creation of the Conduit Lender and the commencement of the Conduit Lender’s Securities issuance program.
“ Startup Costs Allocation ” means, with respect to any Advance Date occurring prior to the later of (x) July 1, 2010 and (y) the date on which all Startup Costs of the Conduit Lender have been paid in full, an amount payable by the Funding Note Issuer to the Manager equal to the product of (i) 0.04%, multiplied by (ii) the amount of the increase, if any, in the Highest Funding Note Balance of the Funding Note on such Advance Date.
“ Structuring Agent ” means each of Citibank, N.A. and Morgan Stanley & Co. Incorporated, each in its capacity as a structuring agent for the Conduit Lender.
“ Structuring Agent Fee ” means the sum of all Calculation Date Structuring Fees of the Funding Note Issuer.
“ Structuring Fee Rate ” means, (a) for any Calculation Date until the Highest Funding Note Balance is $100 million, 0%, (b) for any Calculation Date thereafter until the Highest Funding Note Balance is at least $5.1 billion, 0.10%, and (c) thereafter, 0.05%.
“ Student Loan ” means a Stafford Loan or a PLUS Loan (and not a FFELP consolidation loan) that was made to a student or, in the case of a parent PLUS Loan, made to a parent of a dependent student, evidenced by a Promissory Note and all other related Loan Documents together with any guaranties and other rights relating thereto including, without limitation, Interest Subsidy Payments and Special Allowance Payments, together with the servicing rights related thereto.
“ Student Loan Purchase Agreement ” means the Student Loan Purchase Agreement, dated as of the Closing Date, among the Seller, the Seller Eligible Lender Trustee, the Funding Note Issuer and the Eligible Lender Trustee, under which the Seller will transfer certain Eligible Loans to the Funding Note Issuer, together with all sale agreements, blanket endorsements and bills of sale executed pursuant thereto.
“ Student Loan Short-Term Notes ” means short-term promissory notes issued by the Conduit Lender.
“ Subcustodian ” means a Servicer that has agreed to act as a subcustodian to hold the Loan Documents on behalf of the Conduit Lender and the Department pursuant to the Servicing Agreement to which such Servicer is a party.
“ Subordinated Credit Facility ” has the meaning assigned to such term in the Student Loan Purchase Agreement.
“ Subsidized Stafford Loan ” means a student loan described in Section 428(a) of the Higher Education Act.
“ Taxes ” means any and all sales, gross receipts, general corporation tangible and intangible property, privilege or license, income, stamp or other taxes, duties, levies, imposts, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, and all interest, penalties or similar liabilities with respect thereto.
“ Threshold Test ” shall be met with respect to given category of Student Loans if the applicable Category Percentage (or average Principal Balance with respect to the Principal Balance category) falls within the Confidence Range for such category in the Proposed Pool.
“ Transaction Costs ” means all costs of the Conduit Lender paid by Program Funding Note Issuers in connection with the preparation and execution of any transaction documents relating to an investment by the Conduit Lender in securities issued by any Program Funding Note Issuer.
 
 Appenddix A-24 

 

“ Transaction Documents ” means, collectively, this Agreement, the Eligible Lender Trust Agreement, all Servicing Agreements, the Student Loan Purchase Agreement, the Seller Eligible Lender Trust Agreement, all Guarantee Agreements, the Power of Attorney, the limited liability company agreement of the Funding Note Issuer, the Subordinated Credit Facility, the Reserve and Portfolio Criteria Supplement and all other instruments, fee letters, documents and agreements executed in connection with any of the foregoing.
“ Transaction Party ” means each of the Funding Note Issuer, the Sponsor, the SPV Administrator, the Seller and each Servicer.
“ Treasury Regulations ” means any regulations promulgated by the Internal Revenue Service interpreting the provisions of the Code.
“ Trust Accounts ” means the Funding Note Issuer Collection Account, the Excluded Borrower Benefit Account (if applicable), the Reserve Account, the DOE Reserve Account, the Breakage Account and the Sold Loans Account.
“ Trust Receipt ” means a receipt executed by the Conduit Administrator substantially in the form of Exhibit N .
“ UCC ” means the Uniform Commercial Code as from time to time in effect in the specified jurisdiction.
“ United States ” means the United States of America, its territories and possessions.
“ Unsubsidized Stafford Loan ” means a student loan described in Section 428H of the Higher Education Act.
“ Upper Boundary ” means an amount equal to the sum of (i) the applicable Sample Mean plus (ii) the product of (A) 1.96 and (B) the applicable Standard Error.
“ Variable Put Fee ” means, the variable portion of the fee as further described in the Department Put Agreement payable by the Conduit Lender to the Department determined by reference to the Conduit Lender’s cost of funds.
“ Variance ” means, with respect to the Proposed Pool and a category of Student Loans, (a) with respect to average Principal Balance, (i) for each Student Loan in the Proposed Pool, calculate difference between the Principal Balance of such Student Loan and the Sample Mean, (ii) square such difference, (iii) sum all squared differences for the Proposed Pool and (iv) divided by the Sample Size minus one (1), and (b) with respect to all other categories, the applicable Category Percentage, multiplied by (ii) one (1) minus the applicable Category Percentage.
“ Yield Period ” means (i) initially the period commencing on the Closing Date and ending on (but excluding) the initial Determination Date, and (ii) thereafter, each period commencing on (and including) a Determination Date ending (but excluding) on the following Determination Date; provided that the Yield Period relating to the final Settlement Date shall end on the final Settlement Date. A Yield Period “relates” to the Settlement Date falling next after the end of such Yield Period.
 
 Appenddix A-25 

 

APPENDIX B
CONDITIONS PRECEDENT
Section 1. Conditions Precedent to Effectiveness. In accordance with the provisions of Section 3.01 , the effectiveness of this Agreement is subject to the following conditions:
(a) the Conduit Administrator, the Manager and the Department shall have received on or before the Closing Date the following documents and opinions, in form and substance satisfactory to the Manager:
(i) executed copies of the relevant Transaction Documents, including a duly executed Funding Note in form and substance approved by the Department;
(ii) UCC-1 Financing Statements substantially in the form attached as Exhibit G for filing naming each of the Seller, the Seller Eligible Lender Trustee, the Eligible Lender Trustee and the Funding Note Issuer, as debtor, and the Conduit Lender and Conduit Lender Eligible Lender Trustee as ultimate secured party or other similar instruments or documents as may be necessary under the applicable UCC of all appropriate jurisdictions to perfect the transfers (including Grants of security interests) under the Transaction Documents;
(iii) Officer’s Certificates of the Funding Note Issuer, the Sponsor, the Eligible Lender Trustee, the SPV Administrator, and each Affiliated Servicer and each Seller substantially in the form attached as Exhibit H , certifying, in each case the articles of incorporation or equivalent organization document, certificate of formation, by-laws or the equivalent, board resolutions, good standing certificates and the incumbency and specimen signature of each officer authorized to execute the Transaction Documents (on which certificates the Conduit Administrator and the Conduit Lender may conclusively rely until such time as the Conduit Administrator and the Conduit Lender shall receive from the applicable Person a revised certificate meeting the requirements of this clause);
(iv) Opinions of Counsel in form and substance approved by the Department addressed to the Conduit Lender, the Manager, the Conduit Administrator and the Department, in form satisfactory to the Manager, from counsel to (A) the Funding Note Issuer, the Seller, the SPV Administrator, the Eligible Lender Trustee and each Material Servicer as to corporate law and enforceability matters set out in Part I of Exhibit I , and (B) the Funding Note Issuer, each Seller and the SPV Administrator as to (1) the securities law matters set out in Part II of Exhibit I , (2) the federal income tax matters set out in Part III of Exhibit I , (3) the UCC matters set out in Part IV of Exhibit I , and (4) the insolvency law matters set out in Part V of Exhibit I .
(v) UCC search report results dated within forty-five (45) days of the Closing Date listing all effective financing statements which name the Funding Note Issuer, each Seller or any Affiliated Prior Transferor (under its present name or any previous names) in any jurisdictions where filings are to be made under clause (ii) above (or similar filings would have been made in the past five years);
(vi) a certificate of the Conduit Administrator substantially in the form attached as Exhibit J evidencing the of establishment of the Trust Accounts in the name of the Funding Note Issuer;
(vii) the Funding Note Issuer and the Seller shall have delivered a Notice of Intent to Participate to the Department; and
(viii) the Powers of Attorney from the Funding Note Issuer and the Seller in favor of the Conduit Lender and the Conduit Administrator in the form attached as Exhibit K;
(b) all fees due and payable to the Conduit Lender, the Conduit Administrator and the Eligible Lender Trustee on the Closing Date shall have been paid; and
(c) such other information, certificates, documents and actions as the Manager or the Conduit Administrator may reasonably request has been received or performed.
 
 Appendix B-1 

 

Section 2. Conditions Precedent to All Advances and each Grant of Financed Student Loans. In accordance with the provisions of Sections 3.02 and 3.03 , each Advance and each Grant of Financed Student Loans under this Agreement is subject to the following conditions:
(a) on the Advance Date or Grant Date, as applicable, the following statements shall be true, and the Funding Note Issuer shall be deemed to have certified that:
(i) the representations and warranties contained in Article IV are correct on and as of such date, both before and after giving effect to any Advance or Grant of Financed Student Loans on such date (or, to the extent such representations and warranties speak as of a specific date, were true and correct on and as of such date);
(ii) no event has occurred and is continuing, or would result from any Advance or Grant of Financed Student Loans on such date, which constitutes (1) an Event of Default, (2) a Servicer Default, (3) a Potential Event of Default or (4) a “default” under Section 1.03(c) ; provided that, solely for purposes of this clause (ii) , to the extent that the relevant Advance is a Required Payment Advance, the failure to make a deposit or payment that would give rise to such Required Payment Advance shall not be deemed to be a Potential Event of Default;
(iii) there has occurred no event which could reasonably be determined to have a Material Adverse Effect with respect to the Funding Note Issuer;
(iv) no law or regulation shall prohibit, and no order, judgment or decree of any Official Body shall prohibit or enjoin, the making of such Advance or such Grant in accordance with the provisions hereof;
(v) all covenants and agreements contained in the Transaction Documents, including the delivery of all reports required to be delivered thereunder, shall have been complied with by the Funding Note Issuer, subject to any applicable grace periods or waivers granted;
(vi) in the case of any Advance, the Asset Coverage Ratio is greater than or equal to the Minimum Asset Coverage Ratio after giving effect to the related Advance;
(vii) except in the case of a Required Payment Advance, there are no amounts then due and payable by any Transaction Party to any Affected Party that remain unpaid as of such Advance Date or such Grant Date; and
(viii) the Funding Note Issuer shall either (A) not be a “Ten Percent Obligor” (as defined in Rule 2a-7(c)(4)(ii)(D)(1)(i) promulgated under the Investment Company Act) or (B) qualify as a “Restricted Special Purpose Entity” (as defined in Rule 2a-7(c)(4)(ii)(D)(2) promulgated under the Investment Company Act).
(b) the Final Maturity Date shall not have occurred;
(c) no suit, action or other proceeding, investigation or injunction, or final judgment relating thereto, shall be pending or threatened before any court or governmental agency, seeking to restrain or prohibit or to obtain damages or other relief in connection with any of the Transaction Documents or the consummation of the transactions contemplated hereby;
(d) no statute, rule, regulation or order shall have been enacted, entered or deemed applicable by any government or governmental or administrative agency or court that would make the transactions contemplated by any of the Transaction Documents illegal or otherwise prevent the consummation thereof; and
(e) no Rating Agency shall have withdrawn the rating of the Funding Note or lowered the rating of the Funding Note to below “AAA” or its equivalent.
Section 3. Additional Conditions Precedent to All Advances . In accordance with the provisions of Section 3.02 , each Advance is subject to the following conditions:
(a) except in the case of a Required Payment Advance, on the dates specified in Section 1.02 and in the Funding Allocation Procedures, the Funding Note Issuer shall have delivered to the Conduit Administrator and the Manager (i) a Funding Request, (ii) an Advance Confirmation, and (iii) any cash collateral required to be posted to the Breakage Account in accordance with Section 1.02(b) ;
 
 Appendix B-2 

 

(b) [Reserved];
(c) except in the case of a Required Payment Advance, an Agreed Upon Procedures Letter shall be delivered to the Manager and the Conduit Administrator, by no later than 3:00 p.m. on the seventh (7 th ) Business Day prior to the Advance Date, and the Conduit Administrator shall have confirmed to the Manager and the Funding Note Issuer on or before the seventh (7 th ) Business Day preceding the Advance Date that the Conduit Administrator was able to verify, with no exceptions, that all Student Loans listed on the Loan Transmittal Summary Forms attached to all Loan Designation Notices received since the date of the most recent Agreed Upon Procedures Letter (if any) delivered to the Manager and the Conduit Administrator were included in the relevant loan data file transmitted to the Conduit Administrator pursuant to Section 1.02(c) in connection with such Agreed Upon Procedures Letter; provided that (1) if the Agreed Upon Procedures Letter discloses that any Student Loan in the relevant sample does not meet the eligibility criteria specified in the guidelines published by the Department, then such Student Loan (i) shall be excluded from the relevant pool of Student Loans for such Agreed Upon Procedures Letter and (ii) shall not be included as a Financed Student Loan to be Granted to the Conduit on the relevant Grant Date, and (2) if the Agreed Upon Procedures Letter discloses that any Student Loan in the relevant sample is not a Putable Loan, then the Funding Note Issuer and the Master Servicer shall provide to the Conduit Administrator and the Manager by no later than 3:00 p.m. on the seventh (7 th ) Business Day prior to the Advance Date (i) a report explaining the cause of noncompliance and the procedures that the Funding Note Issuer and the Master Servicer have or will implement to assure compliance by the Financed Student Loans with the criteria for Putable Loans and (ii) an additional Agreed Upon Procedures Letter using a sample as may be determined by the public accounting firm that will ensure a 99% rate of confidence in such sample; provided further that no Agreed Upon Procedures Letter shall be required to be delivered on any Advance Date that is not a Grant Date if all Financed Student Loans were previously included in a relevant pool for an Agreed Upon Procedures Letter delivered prior to the Advance Date; and
(d) in the case of the initial Advance, on or prior to the date of delivery of the related Advance Confirmation, (i) the Conduit Administrator and the Manager shall have received any two (2) of the following: (x) a letter from S&P stating that the Funding Note has received a long term definitive rating of “AAA”, subject to customary surveillance procedures; and (y) a letter from Fitch stating that the Funding Note has received a long term definitive rating of “AAA”, subject to customary surveillance procedures and a copy of such rating letters shall be delivered to the Department and (ii) neither the Conduit Administrator nor the Manager shall have received notice that the Funding Note has received a rating below the highest investment-grade rating category from any nationally recognized statistical rating organization.
Section 4. Additional Conditions to All Grants of Financed Student Loans . In accordance with the provisions of Section 3.03 , each Grant of Financed Student Loans is subject to the following conditions:
(a) the Funding Note Issuer shall have delivered to the Conduit Administrator and the Department a Loan Designation Notice by not later than 3:00 p.m. on the third (3 rd ) Business Day prior to the related Grant Date, or, if such Grant is being made in connection with any Advance, by not later than 3:00 p.m. on the eighth (8 th ) Business Day prior to the Advance Date, which Loan Designation Notice shall indicate whether the Student Loans to be pledged on the related Grant Date satisfy the Portfolio Criteria or whether each Rating Agency confirmed in writing that the Grant of the related Financed Student Loans would not cause such Rating Agency to withdraw the rating of the Funding Note or lower the rating of the Funding Note to below “AAA” or its equivalent, and, if applicable, include such supporting calculations and data as shall be necessary for the Conduit Administrator to verify compliance with the Portfolio Criteria;
(b) on or prior to the Grant Date, the Funding Note Issuer shall cause to be delivered to the Conduit Administrator copies of the bills of sale and blanket endorsements and copies of all schedules, financing statements and other documents required to be delivered by each Seller as a condition of purchase of any Student Loans being purchased under the Student Loan Purchase Agreement on such Advance Date;
(c) the related Subcustodian shall be in possession of the Loan Documents with respect to the Student Loans (if any) being pledged to the Conduit Lender and the Conduit Lender Eligible Lender Trustee on the date of such Advance and the Conduit Administrator shall have delivered a Trust Receipt to the Department;
 
 Appendix B-3 

 

(d) unless the pool of Student Loans to be pledged on the related Grant Date satisfied the Portfolio Criteria (as evidenced by the certifications included in the related Loan Designation Notice), each Rating Agency shall have confirmed in writing to the Manager that the Grant of the related Financed Student Loans would not cause such Rating Agency to withdraw the rating of the Funding Note or lower the rating of the Funding Note to below “AAA” or its equivalent;
(e) the Funding Note Issuer shall have notified the Conduit Administrator of the aggregate maximum amount of Excluded Borrower Benefits that could be payable on all Financed Student Loans and shall have deposited such amount into the Excluded Borrower Benefit Account;
(f) an Agreed Upon Procedures Letter shall be delivered to the Manager and the Conduit Administrator by no later than 3:00 p.m. on the third (3 rd ) Business Day prior to the Grant Date, or, if such Grant is being made in connection with any Advance, by not later than 3:00 p.m. on the seventh (7 th ) Business Day prior to the Advance Date, and the Conduit Administrator shall have confirmed to the Manager and the Funding Note Issuer on or before the seventh (7 th ) Business Day preceding the Grant Date that the Conduit Administrator was able to verify, with no exceptions, that all Student Loans listed on the Loan Transmittal Summary Forms attached to all Loan Designation Notices received since the date of the most recent Agreed Upon Procedures Letter (if any) delivered to the Manager and the Conduit Administrator were included in the relevant loan data file transmitted to the Conduit Administrator pursuant to Section 1.02(c) in connection with such Agreed Upon Procedures Letter; provided that (1) if the Agreed Upon Procedures Letter discloses that any Student Loan in the relevant sample does not meet the eligibility criteria specified in the guidelines published by the Department, then such Student Loan (i) shall be excluded from the relevant pool of Student Loans for such Agreed Upon Procedures Letter and (ii) shall not be included as a Financed Student Loan to be Granted to the Conduit on the relevant Grant Date, and (2) if the Agreed Upon Procedures Letter discloses that any Student Loan in the relevant sample is not a Putable Loan, then the Funding Note Issuer and the Master Servicer shall provide to the Conduit Administrator and the Manager by no later than 3:00 p.m. on the third (3 rd ) Business Day prior to the Grant Date, or, if such Grant is being made in connection with any Advance, by not later than 3:00 p.m. on the seventh (7 th ) Business Day prior to the Advance Date (i) a report explaining the cause of noncompliance and the procedures that the Funding Note Issuer and the Master Servicer have or will implement to assure compliance by the Financed Student Loans with the criteria for Putable Loans and (ii) an additional Agreed Upon Procedures Letter using a sample as may be determined by the public accounting firm that will ensure a 99% rate of confidence in such sample; provided further that no Agreed Upon Procedures Letter shall be required to be delivered on any Grant Date that is not an Advance Date if the Collateral Value of Financed Student Loans pledged on such Grant Date is less than five percent (5%) of the Funding Note Balance (however such Student Loans shall be required to be included in the relevant pool for any Agreed Upon Procedures Letter delivered on a subsequent Advance Date);
(g) the Funding Note Issuer shall have delivered a Loan Data Schedule to the Department no later the third Business Day prior to the Grant Date;
(h) the Funding Note Issuer shall have delivered the Security Release Certifications and financing statement terminations on Form UCC-3, if necessary, to release any adverse claims in the Student Loans pledged on such Grant Date to the Manager and the Conduit Administrator;
(i) a copy of each fully executed Servicing Agreement relating to the Student Loans being pledged to the Conduit Lender and Conduit Lender Eligible Lender Trustee on such Grant Date, to the extent not delivered in connection with a prior Grant, shall be delivered to the Department and the Manager; each Servicer shall have demonstrated an ability to produce a Monthly Servicer Report to the extent not previously demonstrated on the Closing Date or a prior Grant Date; and, by not later than 3:00 p.m. on the third (3rd) Business Day prior to the related Grant Date, or, if such Grant is being made in connection with any Advance, by not later than 3:00 p.m. on the eighth (8th) Business Day prior to the Advance Date, the Funding Note Issuer shall have delivered to the Conduit Administrator, the Department and the Manager an Opinion of Counsel, in form and substance satisfactory to the Department and the Manager, as to the matters in Section I of Exhibit I covering each Servicing Agreement, to the extent not previously delivered on the Closing Date or a prior Grant Date;
 
 Appendix B-4 

 

(j) if any Student Loan to be pledged on the related Grant Date was previously transferred by an Affiliated Prior Transferor that was not covered by Opinions of Counsel as described in Sections IV F. and G. and Section V of Exhibit I delivered on the Closing Date or a previous Grant Date, by not later than 3:00 p.m. on the third (3rd) Business Day prior to the related Grant Date, or, if such Grant is being made in connection with any Advance, by not later than 3:00 p.m. on the eighth (8th) Business Day prior to the Advance Date, the Funding Note Issuer shall have delivered to the Conduit Administrator, the Department and the Manager Opinions of Counsel, in form and substance satisfactory to the Department and the Manager, as described in Sections IV F. and G. and Section V of Exhibit I ; and
(k) if any Student Loan to be pledged on the related Grant Date was previously transferred by an Affiliated Prior Transferor that was not included in UCC search report results delivered pursuant to Section 1(a)(v) of this Appendix B delivered on the Closing Date or a previous Grant Date, by not later than 3:00 p.m. on the third (3rd) Business Day prior to the related Grant Date, or, if such Grant is being made in connection with any Advance, by not later than 3:00 p.m. on the eighth (8th) Business Day prior to the Advance Date, the Funding Note Issuer shall have delivered to the Conduit Administrator, the Department and the Manager UCC search report results, which are satisfactory to the Department and the Manager, as described in Section 1(a)(v) of this Appendix B .
 
 Appendix B-5 

 

APPENDIX C
REPRESENTATIONS AND WARRANTIES
Section 1. Representations as to the Funding Note Issuer and the Eligible Lender Trustee.
Pursuant to this Agreement, the Funding Note Issuer, and to the extent expressly required below, the Eligible Lender Trustee, hereby represents and warrants for the benefit of the Affected Parties and their successors and assigns, in each case, as of the date of this Agreement and each Grant Date and Advance Date thereafter:
(a) Each of the Funding Note Issuer and the Eligible Lender Trustee (1) is duly organized, validly existing and in good standing under the laws of the State of its formation or of the United States, as applicable, (2) has all licenses necessary to carry out its business as now being conducted or is otherwise exempt under applicable law from such licensing or qualification or is otherwise not required under applicable law to effect such licensing or qualification and no demand for such licensing or qualification has been made upon it by any such state, and (3) in any event is in compliance with the laws of any such state to the extent necessary to ensure the enforceability of each Financed Student Loan. No licenses or approvals obtained by it have been suspended or revoked by any court, administrative agency, arbitrator or governmental body and no proceedings are pending which might result in such suspension or revocation;
(b) The Eligible Lender Trustee is an “eligible lender” as such term is defined in Section 435(d) of the Higher Education Act and has a lender identification number issued by the Department with respect to the Financed Student Loans (which lender identification number is not shared with any other Person and is not associated with any student loans other than Student Loans pledged to the Conduit Lender) and the Seller Eligible Lender Trustee has in effect a Guarantee Agreement with a Guarantor with respect to each of the Financed Student Loans;
(c) With respect to each state or jurisdiction therein in which the SPV Administrator undertakes origination activities, the SPV Administrator is in full compliance with such state’s or jurisdiction’s (as applicable) laws, rules, regulations, orders, settlement agreements and other standards and procedures, including those promulgated by agencies or officers thereof, applicable to it and pertaining to the conduct of participants in the student loan industry to the extent the Funding Note Issuer has assented to such voluntary code of conduct (including, without limitation, any applicable “code of conduct” for participants in the student loan industry that specifically and legally applies to the SPV Administrator and the Eligible Lender Trustee, to the extent that non-compliance with such a code of conduct would adversely affect the Department’s rights or interest with respect to the Putable Loans that the Department purchases);
(d) The SPV Administrator has administered, operated and maintained its federal family education loan program in such manner as to ensure that such program and the Student Loans will benefit, in all material respects, from the FFELP, the Guarantee Agreements related thereto and the federal program of reimbursement for FFELP loans pursuant to the Higher Education Act;
(e) The Funding Note Issuer has not, with respect to any Financed Student Loan sold under this Agreement, agreed to release any Guarantor from any of its contractual obligations as a guarantor of such Financed Student Loan or agreed otherwise to alter, amend or renegotiate any material term or condition under which such Financed Student Loan is Guaranteed, except as required by law or rules and regulations issued pursuant to law, without the express prior written consent of the Department;
(f) Each of the Funding Note Issuer and the Eligible Lender Trustee (1) has all requisite power and authority to hold each Financed Student Loan, to sell each Financed Student Loan, to pledge each Financed Student Loan and to execute, deliver and perform, and to enter into and consummate, all transactions contemplated by this Agreement and each other Applicable Document, (2) has duly authorized the execution, delivery and performance of this Agreement and each other Applicable Document and (3) has duly executed and delivered this Agreement and each other Applicable Document. This Agreement and each other Applicable Document, assuming due authorization, execution and delivery by the other parties thereto, constitutes the legal, valid and binding obligation of the Funding Note Issuer and the Eligible Lender Trustee, enforceable against it in accordance with its terms except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of rights of creditors generally, and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or law); provided, however, that if the Funding Note Issuer is not an Eligible Lender, the power and authority to hold, sell and pledge each Financed Student Loan described in clause (1) shall refer, with respect to the Funding Note Issuer, to the beneficial interest of the Funding Note Issuer, and with respect to the Eligible Lender Trustee, to its interest as the legal title holder of the Financed Student Loan;
 
 Appendix C-1 

 

(g) The execution and delivery of this Agreement and each other Applicable Document by each of the Funding Note Issuer and the Eligible Lender Trustee and the performance of and compliance with the terms of this Agreement and each other Applicable Document will not violate its formation documents or constitute a default under or result in a breach or acceleration of, any material contract, agreement or other instrument to which it is a party or which may be applicable to it or its assets;
(h) Neither the Funding Note Issuer nor the Eligible Lender Trustee is in violation of, and the execution and delivery of this Agreement and each other Applicable Document by it and its performance and compliance with the terms of this Agreement and each other Applicable Document will not constitute a violation with respect to, any order or decree of any court or any order or regulation of any federal, state, municipal or governmental agency having jurisdiction over it or its assets, which violation might have consequences that would materially and adversely affect the condition (financial or otherwise) or its operations or its assets or might have consequences that would materially and adversely affect the performance of its obligations and duties thereunder;
(i) The Funding Note Issuer does not believe, nor does it have any reason or cause to believe, that it cannot perform each and every covenant contained in this Agreement and each other Applicable Document;
(j) There are no actions or proceedings against, or investigations of, the Funding Note Issuer before any court, administrative agency or other tribunal (A) that might prohibit its entering into this Agreement or each other Applicable Document, (B) that seeks to prevent the sale or pledge of the Financed Student Loans or the consummation of the transactions contemplated by this Agreement or each other Applicable Document or (C) that might prohibit or materially and adversely affect the performance by the Funding Note Issuer of its obligations under, or the validity or enforceability of, this Agreement or each other Applicable Document;
(k) No consent, approval, authorization or order of any court or governmental agency or body is required for the execution, delivery and performance by the Funding Note Issuer or the Eligible Lender Trustee of, or compliance by it with, this Agreement or each other Applicable Document or the consummation of the transactions contemplated by this Agreement or each other Applicable Document, except for such consents, approvals, authorizations or orders, if any, that have been obtained prior to the related Advance Date or Grant Date, as applicable;
(l) The Funding Note Issuer will cause (i) the transfer of the Financed Student Loans to be treated as a secured financing on the books and records of the Funding Note Issuer and Eligible Lender Trustee and (ii) to the extent consistent with the facts and circumstances of the transaction and applicable tax and accounting standards, the Funding Note Issuer and Eligible Lender Trustee to treat the disposition of the Financed Student Loans pursuant to this Agreement for tax and accounting purposes as a secured financing. The Funding Note Issuer shall maintain a complete set of books and records for each Financed Student Loan which shall be clearly marked to reflect the ownership of each Financed Student Loan by the Funding Note Issuer and Eligible Lender Trustee and all filings (including financing statements pursuant to the applicable UCC) necessary in any jurisdiction to perfect the transfers and assignments contemplated in this Agreement to perfect the Conduit Lender’s and the Conduit Lender Eligible Lender Trustee’s security interest in the Financed Student Loans that is prior to any other interest held or to be held by any other Person have been made;
(m) The Funding Note Issuer is solvent and will not be rendered insolvent by the consummation of the transactions contemplated hereby. The Funding Note Issuer is not transferring any Financed Student Loan with any intent to hinder, delay or defraud any of its creditors;
(n) The SPV Administrator has an internal quality control program that verifies, on a regular basis, the existence and accuracy of its legal documents, credit documents and underwriting decisions, including all such documents and decisions that would affect the validity of the representations and warranties required under Section 4.01 of this Agreement. The program shall include evaluating and monitoring the overall quality of the loan production and servicing of the loans of the SPV Administrator. The program is to ensure that the Student Loans are originated and serviced in accordance with applicable law; and guard against dishonest, fraudulent, or negligent acts; and guard against errors and omissions by officers, employees, or other authorized persons; and
 
 Appendix C-2 

 

(o) The Funding Note Issuer will not adversely select Student Loans for pledge under this Agreement; provided the Loan Sale Allocation Criteria shall be deemed not to be adverse.
Section 2. Financed Student Loan Level Representations.
Pursuant to this Agreement, the Funding Note Issuer, and to the extent expressly required below, the Eligible Lender Trustee, hereby represents and warrants for the benefit of the Affected Parties and their successors and assigns, in each case, as of the date of the applicable Grant Date for each Financed Student Loan:
(a) The Funding Note Issuer with respect to beneficial ownership and the Eligible Lender Trustee with respect to record ownership, each has good and marketable title to, and are the sole owners of, the Financed Student Loans, free and clear of any security interest or lien (other than an interest or lien that (i) will be released simultaneously with the pledge of the Financed Student Loans hereunder pursuant to a Security Release Certification or (ii) will be created in favor of the Conduit Lender simultaneously with the pledge of the Financed Student Loans hereunder pursuant to one or more financing statements filed in accordance with the applicable UCC), charges, claims, offsets, defenses, counterclaims or encumbrances of any nature (including, without limitation, any circumstances that could impair the creation and perfection of the security interest in the Financed Student Loans free and clear of the claim of any party) and no right of rescission, offsets, defenses or counterclaims have been asserted or threatened with respect to any Financed Student Loan. The pledge of each Financed Student Loan constitutes a grant by the Funding Note Issuer, with respect to beneficial ownership, and the Eligible Lender Trustee, with respect to record ownership, to the Conduit Lender of a security interest in all of the Funding Note Issuer’s and Eligible Lender Trustee’s property and right (including the power to convey title thereto), title and interest, whether now owned or hereafter acquired, in and to the Financed Student Loans, together with all amounts payable now or in the future with respect to the Financed Student Loans;
(b) Each Financed Student Loan is an Eligible Loan and the description of and information regarding the Financed Student Loans set forth in any loan schedule prepared or delivered in connection with the pledge thereof is true, complete and correct as of the date of the applicable loan schedule;
(c) The Funding Note Issuer, with respect to beneficial ownership, and the Eligible Lender Trustee, with respect to record ownership, is authorized to pledge the Financed Student Loans and issue the Funding Note; and the pledge of such Financed Student Loans and issuance of such Funding Note is made pursuant to and consistent with all applicable laws and regulations, and will not violate any decree, judgment or order of any court or agency, or conflict with or result in a breach of any of the terms, conditions or provisions of any agreement or instrument to which it is a party or by which it or its property is bound, or constitute a default (or an event which could constitute a default with the passage of time or notice or both) thereunder;
(d) Each Financed Student Loan is in full force and effect in accordance with its terms and is the legal, valid and binding obligations of the respective Borrower thereunder subject to no defenses;
(e) Each Financed Student Loan has been duly made and serviced in accordance with the provisions of the FFELP established under the Higher Education Act, and has been duly guaranteed by a Guarantor; the Guarantee Agreement is in full force and effect, and all premiums due and payable to such Guarantor as of the related Grant Date shall have been paid in full;
(f) Each Financed Student Loan provides or, when the payment schedule with respect thereto is determined, will provide for payments on a periodic basis that fully amortize the Principal Balance thereof by its maturity, as such maturity may be modified in accordance with any applicable deferral or forbearance periods granted in accordance with applicable laws, including, those of the Higher Education Act or any applicable Guarantee Agreement, as applicable;
(g) Any payments on a Financed Student Loan received by the Funding Note Issuer that have been allocated to the reduction of principal and interest on such Financed Student Loan have been allocated on a simple interest basis;
(h) Each Financed Student Loan has been duly made and serviced in accordance with all applicable federal, state and local laws;
 
 Appendix C-3 

 

(i) Due diligence and reasonable care have been exercised in the making, administering, servicing and collecting on each Financed Student Loan and, all disclosures of information required to be made pursuant to the Higher Education Act prior to the Advance Date have been made;
(j) Each Borrower is an eligible borrower under the terms of Section 428, 428B or 428H of the Higher Education Act, as applicable;
(k) All borrower origination and loan fees required by Section 438 of the Higher Education Act have been paid to the Secretary;
(l) Each Financed Student Loan is denominated and payable only in United States dollars;
(m) The pledge contemplated in this Agreement constitutes the creation of a first priority security interest in favor of the Conduit Lender, such security interest has been perfected and the Conduit Lender shall be a secured creditor of the Funding Note Issuer in the event of its bankruptcy or the appointment of a receiver with respect to it;
(n) There is only one originally executed Promissory Note evidencing each Financed Student Loan, and such original Promissory Note (or a true and correct copy thereof) has been delivered to the Conduit Administrator or a Subcustodian or its designee on behalf of the Conduit Lender or its designee. If a true and exact copy of an original electronic Promissory Note has been delivered to the Conduit Administrator on behalf of the Conduit Lender or its designee, the Eligible Lender Trustee of such Financed Student Loan (or its designee) has possession of such electronic Promissory Note. The Promissory Notes that constitute or evidence the Financed Student Loans do not have any marks or notations indicating that they have been further pledged, assigned or otherwise conveyed to any Person other than the Conduit Lender or its designee (other than an interest or lien that will be released simultaneously with the pledge of Financed Student Loans under this Agreement);
(o) To the extent any Financed Student Loan is evidenced by an electronic Promissory Note, the Sponsor has complied (and has caused any originator or servicer of the Financed Student Loan to comply) with all regulations and other requirements adopted by the applicable Guarantor or the Department relating to the validity and enforceability of such Promissory Note;
(p) Neither the Funding Note Issuer nor the Eligible Lender Trustee has pledged, assigned, sold, granted a security interest in, or otherwise conveyed any of the Financed Student Loans (other than an interest or lien that (A) has been released or will be released simultaneously with the pledge of the Financed Student Loans hereunder pursuant to a Security Release Certification or (B) will be created in favor of the Conduit Lender simultaneously with the pledge of the Financed Student Loans hereunder). Other than with respect to clause (B) in the preceding sentence, neither the Funding Note Issuer nor the Eligible Lender Trustee has authorized the filing of or is aware of any financing statements against it that include a description of collateral covering the Financed Student Loans hereunder (whether or not any additional collateral is covered by such financing statements) or any other security interest that has not been terminated, or that will not be terminated upon the pledge by the Funding Note Issuer nor the Eligible Lender Trustee under this Agreement. Neither the Funding Note Issuer nor the Eligible Lender Trustee is aware of any judgment or tax lien filings against it;
(q) No Borrower of a Financed Student Loan, is noted in any loan file prepared in connection therewith, including the related Loan Transmittal Summary Form, as being currently involved in a bankruptcy proceeding;
(r) The Financed Student Loan satisfies all of the terms and conditions of the Transaction Documents;
(s) The Funding Note Issuer and the Eligible Lender Trustee had title to, and beneficial ownership of the Financed Student Loan on or after the date on which the Funding Note Issuer’s Notice of Intent to Participate was received and acknowledged by the Department, and before July 1, 2010;
(t) As of the date such Financed Student Loan was pledged by the Funding Note Issuer, the Financed Student Loan was not delinquent for 210 days or more or subject to a claim filed with the applicable Guarantor;
(u) The Financed Student Loan has not been previously pledged to secure the Funding Note;
 
 Appendix C-4 

 

(v) The Financed Student Loan is an Eligible Loan; and
(w) Either (i) the Financed Student Loan is not subject to any Excluded Borrower Benefits or (ii) with respect to a Financed Student Loan subject to Excluded Borrower Benefits, the amount required to be deposited into the Excluded Borrower Benefit Account has been deposited.
Section 3. Additional Representations and Warranties.
Pursuant to this Agreement, the Funding Note Issuer hereby represents and warrants for the benefit of the Affected Parties and their successors and assigns, in each case, as of the date of this Agreement and each Advance Date and Grant Date thereafter:
(a) The execution, delivery and performance by the Funding Note Issuer of this Agreement and all Transaction Documents to be delivered by it in connection herewith or therewith, including the Funding Note Issuer’s use of the proceeds of Advances,
(i) do not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties (other than in favor of the Conduit Lender and Conduit Lender Eligible Lender Trustee, with respect to the Pledged Collateral), and
(ii) do not require compliance with any bulk sales act or similar law.
(b) The Funding Note has been duly and validly authorized and, when executed and paid for in accordance with the terms of this Agreement, will be duly and validly issued and will be entitled to the benefits of this Agreement.
(c) No Event of Default, Servicer Default, or, to the best of the Funding Note Issuer’s knowledge, Potential Event of Default has occurred and is continuing.
(d) No information, exhibit, financial statement, document, book, record or report furnished or to be furnished by or on behalf of the Funding Note Issuer to the Affected Parties in connection with this Agreement is or will be incorrect in any material respect as of the date it is or shall be dated.
(e) The Funding Note Issuer is not required to register as an “investment company” and is not controlled by an entity that is required to be registered as an “investment company” under the Investment Company Act. The Funding Note Issuer is a “Restricted Special Purpose Entity” (as defined in Rule 2a-7(c)(4)(ii)(D)(2) promulgated under the Investment Company Act).
(f) The principal place of business and chief executive office of the Funding Note Issuer and the office where the Funding Note Issuer keeps any Records in its possession are located at the addresses of the Funding Note Issuer referred to in Section 12.02 or such other location as the Funding Note Issuer shall have given notice of to the Conduit Administrator and the Manager pursuant to this Agreement.
(g) All representations and warranties of the Funding Note Issuer set forth in the Transaction Documents to which it is a party are true and correct in all material respects as of the date made and the Funding Note Issuer is hereby deemed to have made each such representation and warranty, as of the date made, to, and for the benefit of, the Affected Parties as if the same were set forth in full herein.
(h) The issuance of the Funding Note to the Conduit Lender pursuant to this Agreement will not require the registration of the Funding Note under the Securities Act.
 
 Appendix C-5 

 

(i) (i) No Reportable Event has occurred during the six year period prior to the date on which this representation is made or deemed made with respect to any Benefit Plan; (ii) no steps have been taken by any Person to terminate any Benefit Plan subject to Title IV of ERISA; (iii) no contribution failure or other event has occurred with respect to any Benefit Plan which is sufficient to give rise to a lien on the assets of the Funding Note Issuer or any ERISA Affiliate in favor of the PBGC, during such six-year period; (iv) each Benefit Plan has been administered in all material respects in compliance with its terms and the applicable provisions of ERISA, the Code and all other applicable laws and regulations; (v) neither the Funding Note Issuer nor any ERISA Affiliate maintains or contributes to any employee welfare benefit plan within the meaning of Section 3(1) of ERISA which provides benefits to employees after termination of employment and which is unfunded by a material amount, except as specifically required by the continuation requirements of Part 6 of Title I of ERISA; (vi) the present value of all accrued benefits under each Benefit Plan subject to Title IV of ERISA (based on those assumptions used to fund such Benefit Plans) did not, as of the last valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Benefit Plan allocable to such accrued benefits; (vii) neither the Funding Note Issuer nor any ERISA Affiliate has had a complete or partial withdrawal from any Multiemployer Plan and neither the Funding Note Issuer nor any ERISA Affiliate would become subject to any liability under ERISA if the Funding Note Issuer or any such ERISA Affiliate were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made; and (viii) no such Multiemployer Plan is insolvent within the meaning of Section 4245 of ERISA or in reorganization within the meaning of Section 4241 of ERISA; provided that this subsection (i) shall not apply to events which could not reasonably be expected to have a Material Adverse Effect on the Funding Note Issuer or each Seller.
(j) No proceeds of any Advances will be used by the Funding Note Issuer for any purpose that violates applicable law, including Regulation U of the Federal Reserve Board. The Funding Note Issuer does not own any “margin stock” within the meaning of Regulation T, U and X of the Federal Reserve Board.
(k) Each payment of Ratable Financing Costs, Ratable Other Conduit Costs, principal of the Funding Note and any other payments by the Funding Note Issuer in respect of the Obligations will have been (i) in payment of a debt incurred in the ordinary course of business or financial affairs on the part of the Funding Note Issuer and (ii) made in the ordinary course of business or financial affairs of the Funding Note Issuer.
 
 Appendix C-6 

 

APPENDIX D
COVENANTS OF THE FUNDING NOTE ISSUER
In accordance with Article V of this Agreement, from the date of this Agreement until all of the Obligations under this Agreement and the other Transaction Documents have been satisfied in full, the Funding Note Issuer agrees to perform and observe the following covenants:
Section 1. Preservation of Separate Existence. The Funding Note Issuer will do all things necessary to maintain its existence as a Delaware limited liability company separate and apart from all Affiliates of the Funding Note Issuer, including complying with the provisions described in Section 8.2 of the limited liability company agreement of the Funding Note Issuer.
Section 2. Notice of Event of Default or Potential Event of Default. As soon as possible and in any event within three (3) Business Days after the occurrence of each Event of Default and each Potential Event of Default (or, to the extent the Funding Note Issuer does not have knowledge of an Event of Default or Potential Event of Default, promptly upon obtaining such knowledge), the Funding Note Issuer will provide (or shall cause the SPV Administrator to provide) to the Conduit Administrator and the Manager a statement setting forth details of such Event of Default or Potential Event of Default and the action which the Funding Note Issuer has taken or proposes to take with respect thereto.
Section 3. Notice of Material Adverse Change. As soon as possible and in any event within three (3) Business Days after becoming aware of an event which could reasonably be expected to have a Material Adverse Effect on the Funding Note Issuer, the Funding Note Issuer will provide to the Conduit Administrator and the Manager written notice thereof.
Section 4. Compliance with Laws; Preservation of Corporate Existence; Code of Conduct. The Funding Note Issuer will comply in all material respects with all applicable laws, rules, regulations and orders and preserve and maintain its legal existence, and will preserve and maintain its rights, franchises, qualifications and privileges in all material respects.
Section 5. Enforcement of Obligations.
(a)  Enforcement of Financed Student Loans . The Funding Note Issuer shall cause each Servicer to diligently enforce and take all steps, actions and proceedings reasonably necessary for the enforcement of all terms, covenants and conditions of all Financed Student Loans and agreements in connection therewith (except as otherwise permitted pursuant to the Transaction Documents), including the prompt payment of all principal and interest payments and all other amounts received by the Servicer and due the Funding Note Issuer or the Eligible Lender Trustee, as applicable thereunder.
(b)  Enforcement of Transaction Documents . The Funding Note Issuer shall cause to be diligently enforced, and take all reasonable steps, actions and proceedings necessary for the enforcement of, all terms, covenants and conditions of all Servicing Agreements and the Student Loan Purchase Agreement. Except as otherwise permitted under any Transaction Document, the Funding Note Issuer shall not permit the release of the obligations of any Servicer under any Servicing Agreement or the obligations of the Seller under the Student Loan Purchase Agreement and shall at all times, to the extent permitted by law, cause to be defended, enforced, preserved and protected the rights and privileges of the Funding Note Issuer, the Eligible Lender Trustee and the Conduit Lender under or with respect to each Servicing Agreement and the Student Loan Purchase Agreement. Upon the occurrence of a Servicer Default and during the continuation thereof, the Funding Note Issuer shall replace the Servicer subject to such Servicer Default if instructed to do so by the Conduit Administrator or the Manager.
(c)  Enforcement and Amendment of Guarantee Agreements . The Funding Note Issuer shall, from and after the Closing Date, (i) cause the Seller Eligible Lender Trustee to maintain the applicable Guarantee Agreements and diligently enforce the Seller Eligible Lender Trustee’s rights thereunder; (ii) cause the Seller Eligible Lender Trustee to enter into such other similar or supplemental agreements as shall be required to maintain benefits for all Financed Student Loans covered thereby; and (iii) not voluntarily consent to or permit any rescission of or consent to any amendment to or otherwise take any action under or in connection with any such Guarantee Agreement or any similar or supplemental agreement in any manner which would materially and adversely affect the ability of the Funding Note Issuer to perform its obligations under this Agreement or cause a Material Adverse Effect with respect to the Funding Note Issuer without the prior written consent of the Conduit Administrator and the Manager, except as shall be required by applicable laws or regulations.
 
 Appendix D-1 

 

Section 6. Notice of Material Litigation. As soon as possible and in any event within three (3) Business Days of the Funding Note Issuer’s actual knowledge thereof, the Funding Note Issuer shall cause the Conduit Administrator and the Manager to be provided with written notice of (a) any litigation, investigation or proceeding which may exist at any time which could be reasonably likely to have a Material Adverse Effect on the Funding Note Issuer; and (b) to the extent reasonably requested by the Conduit Administrator or the Manager, a monthly update of material adverse developments in previously disclosed litigation, including in each case, if known to the Funding Note Issuer.
Section 7. Notice of Relocation; Change of Jurisdiction of Formation or Organization. The SPV Administrator on behalf of the Funding Note Issuer shall cause the Conduit Administrator and the Manager to be provided notice of (i) any change in the location of the Funding Note Issuer’s principal offices or (ii) any change in the location of the Funding Note Issuer’s books and records within thirty (30) days before any such change.
Section 8. Rescission or Modification of Financed Student Loans and Transaction Documents.
(a) Except as expressly permitted in the Servicing Agreement, the Funding Note Issuer shall not permit the release of the obligations of any Borrower under any Financed Student Loan and shall at all times, to the extent permitted by law, cause to be defended, enforced, preserved and protected the rights and privileges of the Funding Note Issuer and the Conduit Lender under or with respect to each Financed Student Loan and each agreement in connection therewith. The Funding Note Issuer shall not consent or agree to or permit any modification, extension or renegotiation in any way of any Financed Student Loan or agreement in connection therewith unless such modification, extension or renegotiation is (i) required under the Higher Education Act or other applicable laws, rules and regulations and the applicable Guarantee Agreement, (ii) provided for in the applicable underwriting guidelines or Servicing Policies, if such modification, extension or renegotiation does not materially adversely affect the value or collectability thereof or (iii) expressly provided for or permitted in the Transaction Documents. Nothing in this Agreement shall be construed to prevent the Funding Note Issuer, the Eligible Lender Trustee or the Conduit Administrator, as applicable, from offering any Borrower any borrower benefit to the extent permissible by this Agreement or the Servicing Agreement or settling a default or curing a delinquency on any Financed Student Loan on such terms as shall be permitted by law and shall be consistent with the applicable underwriting guidelines or Servicing Policies.
(b) Unless otherwise specified pursuant to clause (a) above or in any Transaction Document, without the written consent of the Conduit Administrator and the Manager, the Funding Note Issuer will not (nor will it permit any of its agents to):
(i) cancel, terminate, extend, amend, modify or waive (or consent to or approve any of the foregoing) any provision of any Transaction Document (other than any cancellation or termination of a Guarantee Agreement that does not apply at such time to any Financed Student Loans or any extension, amendment, modification or waiver of a Guarantee Agreement that would not have a Material Adverse Effect on the Funding Note Issuer); or
(ii) take or consent to any other action that may impair the rights of the Conduit Lender to any Pledged Collateral or modify, in a manner adverse to the Conduit Lender, the right of the Conduit Lender to demand or receive payment under any of the Transaction Documents (other than any action with regard to a Guarantee Agreement that does not apply at such time to any Financed Student Loans or any extension, amendment, modification or waiver of a Guarantee Agreement that would not have a Material Adverse Effect on the Funding Note Issuer).
Section 9. Liens.
(a)  Transaction Documents . The Funding Note Issuer will cause to be taken all action necessary to perfect, protect and more fully evidence the ownership interest of the Funding Note Issuer (or of the Eligible Lender Trustee, acting on behalf of the Funding Note Issuer) and the first priority perfected security interest of the Conduit Lender and the Conduit Lender Eligible Lender Trustee in the Pledged Collateral.
(b)  UCC Matters; Protection and Perfection of Pledged Collateral; Delivery of Documents . Unless the Funding Note Issuer has complied with Section 7 of this Appendix D , the Funding Note Issuer will keep its principal place of business and chief executive office, and the office where it keeps any Records in its possession, at the address of the Funding Note Issuer referred to in Section 12.02 . The Funding Note Issuer will not make any change to its name unless prior to the effective date of any such name change or use, the Funding Note Issuer delivers to the Conduit Administrator and the Manager such financing statements necessary, or as the Conduit Administrator or the Manager may request, to reflect such name change, together with such other documents and instruments as the Conduit Administrator may request in connection therewith. The Funding Note Issuer will not change its jurisdiction of formation or form of organization.
 
 Appendix D-2 

 

The Funding Note Issuer agrees that from time to time, at its expense, it will promptly execute and deliver all further writings, and take all further action necessary, or that the Conduit Administrator may reasonably request, in order to maintain the Conduit Lender’s and the Conduit Lender Eligible Lender Trustee’s first priority perfected security interest in the Pledged Collateral, or to enable the Conduit Lender or the Conduit Administrator to exercise or enforce any of their respective rights hereunder or under the Pledged Collateral; provided , however , that prior to the occurrence and continuation of an Event of Default or the occurrence of a Department Put Event, the foregoing sentence shall not be deemed to require the Funding Note Issuer or the Servicer to relocate or deliver any Promissory Note or Loan Documents held by a Subcustodian.
For purposes of enabling the Conduit Administrator or the Conduit Lender to exercise their respective rights described in the preceding sentence and elsewhere in this Agreement, following the occurrence and during the continuation of an Event of Default or following a Department Put Event, the Funding Note Issuer and the Eligible Lender Trustee hereby authorize, and irrevocably grant a Power of Attorney to the Conduit Administrator and the Conduit Lender and their respective successors and assigns to take any and all steps in the Funding Note Issuer’s and the Eligible Lender Trustee’s name and on behalf of the Funding Note Issuer and/or the Eligible Lender Trustee necessary or desirable, in the determination of the Conduit Administrator or the Conduit Lender, to collect all amounts due under any and all Financed Student Loans and other Pledged Collateral, including, without limitation, (i) endorsing the promissory notes to the Conduit Lender or its designee, such that the Conduit Lender or such designee becomes the holder of the promissory notes and has the rights and powers of a holder under applicable law, (ii) endorsing the Funding Note Issuer’s and/or the Eligible Lender Trustee’s name on checks and other instruments representing Collections and (iii) enforcing such Financed Student Loans and other Pledged Collateral.
In the event that the Funding Note Issuer’s Obligations hereunder have not been repaid in full on or before such date, on a date that is not less than 53 months nor more than 54 months from the date of this Agreement, the SPV Administrator on behalf of the Funding Note Issuer shall deliver to the Conduit Lender, with copies to the Conduit Administrator and the Manager, (i) all financing statements, amendments, continuations or any other filings necessary or advisable to continue, maintain and perfect the security interest of the Funding Note Issuer in the Student Loans and the security interest of the Conduit Lender in the Pledged Collateral, each as a perfected security interest and (ii) an Opinion of Counsel confirming that except for the filings to be made in the jurisdictions and within the times specified in such Opinion of Counsel, no other filing is necessary under the UCC to perfect the security interest of the Funding Note Issuer or of the Conduit Lender as provided for in the Transaction Documents.
Section 10. Sales of Assets; Consolidation/Merger.
(a)  Sales, Liens, Etc. Except as otherwise provided herein or in any other Transaction Document, the Funding Note Issuer will not (nor will it permit the Eligible Lender Trustee to) sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon or with respect to, any Pledged Collateral.
(b)  Merger, Etc. The Funding Note Issuer will not merge or consolidate with any other entity. The Funding Note Issuer will not convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions), all or substantially all of its assets (whether now owned or hereafter acquired), or acquire all or substantially all of the assets or capital stock or other ownership interest of any Person, other than with respect to asset acquisitions or dispositions permitted under the Transaction Documents. The Funding Note Issuer shall not form or create any subsidiary without the consent of the Conduit Administrator and the Manager.
Section 11. Change in Business. The Funding Note Issuer will not make any change in the character of its business, which change could reasonably be expected to impair the collectability of any Pledged Collateral or otherwise materially adversely affect the interests or remedies of the Conduit Administrator, the Manager or the Affected Parties under this Agreement or any other Transaction Document.
Section 12. General Reporting Requirements. The SPV Administrator on behalf of the Funding Note Issuer shall provide to the Conduit Administrator, the Department and the Manager the following:
(a) by April 15 th of each year, an annual statement of compliance with the Transaction Documents, substantially in the form of Exhibit O ;
 
 Appendix D-3 

 

(b) (i) no later than 3:00 p.m. on the twentieth (20th) Business Day following the last day of a calendar quarter in which a Grant occurred, an Agreed Upon Procedures Letter regarding whether the Student Loans are Eligible Loans conducted in accordance with guidelines published by the Department from time to time, on a pool of loans that includes all Student Loans listed on the Loan Transmittal Summary Forms attached to all Loan Designation Notices received for such Grant, and (ii) upon notification from the Department, but not more frequently than annually, an Agreed Upon Procedures Letter, conducted in accordance with guidelines published by the Department;
(c) as soon as available and in any event no later than the 105 th day following the end of the Funding Note Issuer’s fiscal year, copies of the annual audited financial statements of the Funding Note Issuer and each Seller, and certified by an independent certified public accounting firm;
(d) promptly following the Conduit Administrator’s, the Manager’s or the Department’s request therefor, such other information respecting the Financed Student Loans and the other Pledged Collateral or the conditions or operations, financial or otherwise, of the Funding Note Issuer as the Conduit Administrator or the Manager or the Department may from time to time reasonably request;
(e) with respect to each Guarantor and only to the extent available, promptly after receipt thereof as made available to the Funding Note Issuer after request therefor, copies of any audited financial statements of such Guarantor certified by an independent certified public accounting firm;
(f) with respect to each Servicer and promptly after receipt thereof after a good faith effort to obtain such material is made by the Funding Note Issuer, (i) copies of any annual audited financial statements of such Servicer other than any Affiliated Servicer for so long as the such Affiliated Servicer is a consolidated subsidiary of the Seller, to the extent available, certified by an independent certified public accounting firm, (ii) on an annual basis within 30 days after receipt thereof, copies of SAS 70 reports for such Servicer, or, if not available, the annual compliance audit for each Servicer required by Section 428(b)(1)(U) of the Higher Education Act and (iii) to the extent not included in the financial information provided pursuant to clauses (i) and (ii) above and to the extent available, such Servicer’s net dollar loss for the year due to servicing errors;
(g) promptly following the Conduit Administrator’s, the Manager’s or the Conduit Lender’s request therefor, a Schedule of Financed Student Loans; and
(h) promptly and in any event within 45 days after the filing or receiving thereof, copies of all reports, documentation and notices with respect to (A) any “Reportable Event,” relating to a Benefit Plan (B) the institution of proceedings or the taking of any other action regarding the termination of, withdrawal from, reorganization within the meaning of Section 4241 of ERISA or insolvency within the meaning of Section 4245 of ERISA, any Benefit Plan subject to Title IV of ERISA which the Funding Note Issuer or any of its ERISA Affiliates files under ERISA with the Internal Revenue Service, the PBGC or the United States Department of Labor or which the Funding Note Issuer or any of its ERISA Affiliates receives from the PBGC, (C) a failure to make any required contribution to a Benefit Plan, (D) the creation of any lien against the assets of the Funding Note Issuer or an ERISA Affiliate in favor of the PBGC or a Benefit Plan under ERISA or (E) the taking of any action with respect to a Benefit Plan which could result in the requirement that the Funding Note Issuer or any ERISA Affiliate furnish a bond or other security to the PBGC or such Benefit Plan.
Section 13. Inspections. The Conduit Administrator, the Manager and the Department, and their respective agents, may, upon reasonable notice and from time to time during regular business hours: (i) examine and make copies of and take abstracts from all books, records and documents (including computer tapes and disks) relating to the Pledged Collateral and (ii) visit the offices and properties of the Funding Note Issuer, the SPV Administrator or any Servicer for the purpose of examining such materials described in clause (i) above, and to discuss matters relating to the Pledged Collateral or the Funding Note Issuer’s (or any Servicer’s or the SPV Administrator’s) performance hereunder and under the other Transaction Documents with any of the officers, directors, employees or independent public accountants of the Funding Note Issuer, the SPV Administrator or any Servicer having knowledge of such matters; provided that prior to the occurrence of an Event of Default, each of the Conduit Administrator and the Manager shall make not more than one such inspection per calendar year; it being understood that the Department shall not be subject to the limitation contained in the immediately preceding proviso. Any reasonable expenses related to such inspections shall be reimbursable directly by the SPV Administrator. In addition, from time to time during the year, the Conduit Administrator and the Manager may, each at its own expense, conduct any other inspections as it may deem necessary or appropriate, provided such inspections occur upon reasonable notice and during regular business hours.
 
 Appendix D-4 

 

Section 14. ERISA. The Funding Note Issuer will not adopt, maintain, contribute to or, other than by its relationship to an ERISA Affiliate which maintains a Benefit Plan, incur by any of its own actions or assume any legal obligation with respect to any Benefit Plan or Multiemployer Plan.
Section 15. Servicers. Except as permitted by any Servicing Agreement, the Funding Note Issuer will not permit any Person other than a Servicer to collect, service or administer the Financed Student Loans.
Section 16. Obligations of the Funding Note Issuer With Respect to Pledged Collateral. The Funding Note Issuer will pay when due any taxes, including without limitation, sales and excise taxes, payable in connection with the Pledged Collateral. In no event shall the Conduit Lender or any Affected Party have any obligation or liability with respect to any Financed Student Loans or other instrument document or agreement included in the Pledged Collateral, nor shall any of them be obligated to perform any of the obligations of the Funding Note Issuer or any of its Affiliates thereunder. The Funding Note Issuer will timely and fully comply in all respects with each Transaction Document to which it is a party.
Section 17. Amendment of Organizational Documents. The Funding Note Issuer shall cause the Conduit Administrator and the Manager to be notified in writing of any proposed amendments to the Funding Note Issuer’s organizational documents. No such amendment shall become effective unless and until the Conduit Administrator and the Manager has consented in writing thereto, which consent shall not be unreasonably withheld or delayed.
Section 18. Borrower Benefit Programs. The Funding Note Issuer shall not permit any Servicer to apply any new rate reduction programs with respect to the Financed Student Loans not in effect on the date of its purchase by the Funding Note Issuer unless: (i) such borrower benefit program is required by the Higher Education Act, (ii) such program is an Eligible Borrower Benefit or (iii) the applicable Servicer or the Seller has deposited funds into the Funding Note Issuer Collection Account in an amount sufficient to offset any effective yield reductions and the Conduit Lender shall have consented to the Funding Note Issuer’s participation in that borrower benefit program or other rate reduction program. With respect to any Financed Student Loan subject to an Excluded Borrower Benefit, the Funding Note Issuer and the Seller shall remain responsible for making all payments and satisfying all other obligations in connection with the related Excluded Borrower Benefits to the extent funds on deposit in the Excluded Borrower Benefits Account are not sufficient to satisfy all Excluded Borrower Benefits.
Section 19. Payment of Stamp Taxes, Etc. Subject to any limitations set forth in Section 1.11 of this Agreement, the Funding Note Issuer agrees to pay any present or future stamp, mortgage, value-added, court or documentary taxes or any other excise or property taxes, charges or similar levies imposed by any federal, state or local governmental body, agency or instrumentality relating to this Agreement, any of the other Transaction Documents or any recordings or filings made pursuant hereto and thereto.
Section 20. [Reserved].
Section 21. Reporting to Department; Additional Due Diligence. On a periodic basis as requested by the Department, the Funding Note Issuer will provide or cause to be provided to the Department all requested reports including, but not limited to standard reporting packages containing information on the Financed Student Loans sorted by schools, delinquencies and other features identified by the Department. The Department shall have the right to request, schedule and conduct, during normal business hours and upon reasonable prior notice, additional due diligence of the Conduit Lender and the Seller, Servicers and Funding Note Issuer relating to the Financed Student Loans, at each such party’s expense.
Section 22. Indebtedness. Other than with respect to all Obligations under the Transaction Documents and amounts borrowed under a Subordinated Credit Facility, the Funding Note Issuer will not incur any Debt, other than the usual and customary indebtedness incurred in the ordinary course of a special purpose entity’s on-going operations.
Section 23. Servicing Agreements. The Funding Note Issuer shall not enter into a Servicing Agreement with any Servicer that has not demonstrated an ability to produce a Monthly Servicer Report.
 
 Appendix D-5 

 

APPENDIX E
EVENTS OF DEFAULT
(a) (i) the Funding Note Issuer shall fail to pay the Funding Note Balance or any other Obligations in full on the related Mandatory Final Prepayment Date or the Final Maturity Date, (ii) the Funding Note Issuer shall fail to make any payment under Sections 1.05(c)(i) through 1.05(c)(viii) within two (2) Business Days of the due date thereof, or (iii) any Transaction Party shall fail to make any other payment, transfer or deposit on the date first required of such party under the Transaction Documents and such failure shall remain uncured following the expiration of any applicable payment or grace period provided for in the Transaction Documents; provided , however , that failure by the Funding Note Issuer to make a required payment on a Settlement Date under Sections 1.05(c)(i) through (viii) solely due to insufficient Available Funds on such Settlement Date shall not by itself constitute an Event of Default (other than with respect to all amounts due and owing on the Mandatory Final Prepayment Date or the Final Maturity Date or as expressly specified below); or
(b) any representation, warranty, certification or statement made or deemed to be made by any Transaction Party (but, in the case of any Servicer, only to the extent such entity remains a Servicer after the 30-day cure period noted below) under or in connection with this Agreement or any other Transaction Document, or other information, report or document delivered pursuant hereto or thereto shall prove to have been incorrect in any material respect when made, deemed made or delivered (except for representations and warranties concerning Financed Student Loans with respect to which (i) the Reimbursement Amount and all Reimbursement Event Fees and Expenses have been paid in accordance with Section 4.03 ) and (ii) the Repurchase Amount and all Repurchase Event Fees and Expenses have been paid in accordance with Section 6 of the Student Loan Purchase Agreement) and shall remain unremedied (if such default can be remedied) for the greater of (i) thirty (30) days or (ii) the time period expressly provided for the cure of such representation or warranty in the related Transaction Document, in each case after the earlier of actual knowledge by an Authorized Officer of the applicable party that made, or was deemed to have made, such incorrect representation, warranty, certificate or statement or to have provided such incorrect information or receipt of written notice thereof by the Funding Note Issuer; or
(c) any Transaction Party shall default in the performance or observance of any term, covenant or undertaking to be performed or observed herein or in any other Transaction Document on its part, other than any covenant or obligation of the Seller in Section 2 of the Student Loan Purchase Agreement to the extent addressed in clause   (x) of this Appendix E , and any such failure shall remain unremedied (if such default can be remedied) for thirty (30) days after the earlier of actual knowledge by an Authorized Officer of the applicable Transaction Party or receipt of written notice thereof by the applicable Transaction Party; provided , however , such 30-day cure period shall not apply to defaults under Sections 1 , 9 , or 10 of Appendix   D and shall not apply to any Event of Default in clause (v) below; or
(d) a Servicer Default shall have occurred and the related Servicer shall not have been replaced within thirty (30) days after notification from the Conduit Administrator or any Servicer shall resign or be removed or any Servicing Agreement shall not be in full force and effect for any reason and the related Servicer shall not have been replaced prior to the resignation or removal of the related Servicer or the termination of the related Servicing Agreement, as applicable; or
(e) an Event of Bankruptcy shall have occurred with respect to the Funding Note Issuer, the Eligible Lender Trustee, the Seller, the SPV Administrator or any Servicer; provided that the foregoing event shall not be an Event of Default if the related Servicer is not an Affiliated Servicer and within thirty (30) days of the occurrence of such event, such Servicer ceases to be a Servicer for any Financed Student Loans; or
(f) except as otherwise permitted by this Agreement, any Transaction Party shall fail to maintain its organizational status; or
(g) the SPV Administrator shall resign and shall not have been replaced prior to the effective date of such resignation; or
(h) the filing of any judgment or adverse ruling against the Funding Note Issuer that could reasonably be expected to have a Material Adverse Effect on the Funding Note Issuer and such judgment or ruling shall continue unsatisfied or unstayed for a period in excess of thirty (30) days; or
 
 Appendix E-1 

 

(i) the Conduit Lender or the Conduit Lender Eligible Lender Trustee shall, for any reason, cease to have a valid and perfected first priority security interest in the Pledged Collateral, or the Funding Note Issuer shall, for any reason, cease to have a valid and perfected first priority ownership interest in any of the Pledged Collateral, in each case for a period of two (2) Business Days following the date the Funding Note Issuer or the SPV Administrator acquired such knowledge or its receipt of such notice; or
(j) failure by the Conduit Administrator to pay any Negative Special Allowance Payments to the Department within thirty (30) days of the date on which any such payment is required to be made with respect to the Financed Student Loans; or
(k) the amount on deposit in the Reserve Account shall be less than the Reserve Account Specified Balance on two consecutive Settlement Dates, unless such shortfall shall have resulted from an increase in the Reserve Account Specified Balance specified by the Manager in accordance with the final proviso to the definition of Reserve Account Specified Balance; or
(l) the Funding Note Issuer shall be required to register as an “investment company” or shall be controlled by an entity that is required to be registered as an “investment company” under the Investment Company Act; or
(m) any failure by the Funding Note Issuer to pay amounts required to be paid under Section 7.01 or 12.08 on or before the thirtieth (30 th ) day following the date of demand for payment thereof; or
(n) any settlement or one or more judgments or orders for the payment of an amount or adverse rulings shall be rendered against any Transaction Party that could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on such Person and such judgment or ruling shall remain unsatisfied or unstayed for a period in excess of thirty (30) days; or
(o) any material adverse development in any federal or state litigation, investigation or proceeding against any Transaction Party shall occur that could reasonably be expected to have a Material Adverse Effect on such Person or on the Pledged Collateral which continues for thirty (30) days after the earlier to occur of knowledge thereof or written notice thereof shall have been received by the Funding Note Issuer or the SPV Administrator; or
(p) the filing of any actions or proceedings against any Transaction Party that involves the Transaction Documents or any material portion of the Pledged Collateral as to which the Conduit Administrator or the Manager reasonably believes there is likely to result a materially adverse determination which remains unsettled, unsatisfied or unstayed for a period in excess of thirty (30) days; or
(q) (i) the Internal Revenue Service shall file notice of a lien pursuant to Section 6323 of the Code with regard to any assets of the Funding Note Issuer and such lien shall not have been released within two (2) Business Days, or (ii) any Person shall institute steps to terminate any Benefit Plan if the assets of such Benefit Plan are insufficient to satisfy all of its benefit liabilities (as determined under Title IV of ERISA), or a contribution failure occurs with respect to any Benefit Plan, which is sufficient to give rise to a lien under Section 302(f) or 303(k), as applicable, of ERISA or where the PBGC shall, or shall indicate its intention to, file notice of a lien pursuant to Section 4068 of ERISA with regard to any of the assets of the Funding Note Issuer and in each case such lien shall not have been released within two (2) Business Days, or (iii) any Person shall engage in any non-exempt “prohibited transaction” (as defined in Section 406 of ERISA or Section 4975 of the Code) involving a Benefit Plan which causes liabilities to be assessed against the Funding Note Issuer or an ERISA Affiliate; or any Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, a Benefit Plan subject to Title IV of ERISA, which Reportable Event is likely to result in termination of such Benefit Plan, or (iv) the Funding Note Issuer or any ERISA Affiliate is likely to incur any liability in connection with the withdrawal from, or (v) the insolvency within the meaning of Section 4245 of ERISA or reorganization within the meaning of Section 4241 of ERISA of, a Multiemployer Plan; provided , that an event described in this subsection (q) shall not be an Event of Default unless such event could reasonably be expected to have a Material Adverse Effect on the Funding Note Issuer or the Pledged Collateral; or
(r) any material provision of this Agreement or any other Transaction Document (other than a Guarantee Agreement that does not apply at such time to any Financed Student Loans) to which the Funding Note Issuer, the SPV Administrator, the Seller or any Servicer is a party shall cease to be in full force and effect or any party to this Agreement or such Transaction Document shall so state in writing; or
 
 Appendix E-2 

 

(s) the Funding Note Issuer shall be a “Ten Percent Obligor” (as defined in Rule 2a-7(c)(4)(ii)(D)(1)(i) promulgated under the Investment Company Act) and shall fail to qualify as a “Restricted Special Purpose Entity” (as defined in Rule 2a-7(c)(4)(ii)(D)(2) promulgated under the Investment Company Act); or
(t) a “Program Default” or a “Program Winddown Event” each, as defined in Schedule I to the Administration Agreement shall have occurred and be continuing for thirty (30) days; or
(u) any amendment to any federal law, or the adoption of any federal law, that could reasonably be expected to have a Material Adverse Effect on any Transaction Party or materially adversely affect the interests of the Conduit Lender shall have been enacted and shall continue in effect for thirty (30) days; or
(v) failure by the Funding Note Issuer or the Seller to pay any amount to the Department when required to be paid pursuant to this Agreement or the Student Loan Purchase Agreement, including, without limitation any amounts payable pursuant to Section 4.03 or any Repurchase Amount or any Repurchase Event Fees and Expenses (each as defined in the related Student Loan Purchase Agreement); or
(w) after giving effect to all payments to be made on any Settlement Date and any change in the Funding Note Balance on such Settlement Date (including any increase thereof due to Capitalized Ratable Financing Costs for such Settlement Date), the Minimum Asset Coverage Ratio shall exceed the Asset Coverage Ratio on such Settlement Date and the Asset Coverage Ratio shall not be increased to the Minimum Asset Coverage Ratio by the third Business Day following such Settlement Date; or
(x) with respect to any Commitment Reporting Date, the Seller fails to comply with its commitment to originate and/or acquire FFELP student loans in an amount equal to or exceeding the Commitment Amounts required to be satisfied prior such Commitment Reporting Date pursuant to Section 2 of the Student Loan Purchase Agreement and such failure shall remain unremedied for thirty (30) days; or
(y) the Funding Note Issuer (i) shall fail to select a pool of Financed Student Loans for sale in accordance with Section 1.03(c)(i) or Section 1.03(c)(ii) on or prior to the Required Liquidity Prepayment Date with respect to a Department Put Event described in clause (i) or (ii) of the definition of “Department Put Event,” (ii) shall fail to select a pool of Student Loans for sale in accordance with Section 1.03(c)(iii) and deliver a Loan Put Schedule on or prior to the fifth (5 th ) day following the occurrence of a FFELP Commitment Default or (iii) shall fail to deliver any other Loan Put Schedule on the date such Loan Put Schedule is required to be delivered in accordance with this Agreement; or
(z) at any time that the Funding Note Issuer does not qualify as a “Restricted Special Purpose Entity” (as defined in Rule 2a-7(c)(4)(ii)(D)(2) promulgated under the Investment Company Act), the Funding Note Balance shall exceed 8% of the aggregate unpaid principal amount (including capitalized ratable financing costs) of all outstanding notes evidencing advances made by the Conduit Lender to Program Funding Note Issuers, and by the thirtieth (30th) day after the occurrence of such event, the Funding Note Issuer shall not have reduced the Funding Note Balance to an amount such that the Funding Note Balance does not exceed 5% of the aggregate unpaid principal amount (including capitalized ratable financing costs) of all outstanding notes evidencing advances made by the Conduit Lender to Program Funding Note Issuers;
provided that the Events of Default described in clauses (s) and (z) shall no longer be applicable to the Funding Note Issuer if (i) the Manager advises the Funding Note Issuer that the Conduit Lender will no longer issue Student Loan Short-Term Notes or (ii) the Manager determines, based on a no-action letter or other guidance from the Securities and Exchange Commission, that the foregoing condition precedent is no longer necessary.
 
 Appendix E-3 

 

APPENDIX F
SPV ADMINISTRATOR PROVISIONS
Section 1. Appointment. The Funding Note Issuer hereby appoints the SPV Administrator to function as administrator to perform such duties and obligations as are set forth herein and the Student Loan Purchase Agreement.
Section 2. Duties with Respect to the Transaction Documents.
(a) In addition to performing all duties and taking all actions that the SPV Administrator shall be expressly required to perform or take under any Transaction Document, the SPV Administrator shall, at its sole cost and expense, prepare for execution by the Funding Note Issuer or the Eligible Lender Trustee, as applicable, or cause the preparation by such other Persons as shall be appropriate therefor of, all such documents, reports, filings, instruments, certificates, opinions and notices as it shall be the duty of the Funding Note Issuer or the Eligible Lender Trustee to prepare, file or deliver, and shall take all appropriate action that it is the duty of the Funding Note Issuer to take, under any Transaction Document. In furtherance of the foregoing, the SPV Administrator shall monitor the performance of the Funding Note Issuer and shall advise the Eligible Lender Trustee, in writing, when action is necessary to comply with the Funding Note Issuer’s duties under any Transaction Document. Upon the request of the Eligible Lender Trustee, the SPV Administrator shall also, at its sole cost and expense, administer, perform or supervise the performance of such other activities in connection with the Pledged Collateral (including the Transaction Documents) as are expressly requested by the Eligible Lender Trustee and are reasonably within the capability of the SPV Administrator, regardless of whether such activities are required by any Transaction Document. The Funding Note Issuer authorizes the SPV Administrator to sign all such documents, reports, filings, instruments, certificates and notices as may be required to be executed by the Funding Note Issuer in connection with the Transaction Documents.
(b) In carrying out the foregoing duties or any of its other obligations under this Agreement, the SPV Administrator may enter into transactions with or otherwise deal with any of its Affiliates; provided, however, that the terms of any such transactions or dealings shall be, in the SPV Administrator’s opinion, no less favorable to the Funding Note Issuer than would be available from unaffiliated parties.
Section 3. Non-Ministerial Matters. With respect to matters that in the reasonable judgment of the SPV Administrator are non-ministerial, the SPV Administrator shall not take any action unless within a reasonable time before the taking of such action, the SPV Administrator shall have notified the Funding Note Issuer, the Eligible Lender Trustee and the Conduit Administrator, in writing, of the proposed action and the Funding Note Issuer shall not have withheld consent or provided an alternative direction within three (3) Business Days after its receipt of such notice. For the purpose of the preceding sentence, “non-ministerial matters” shall include, to the extent permitted by the Transaction Documents:
(a) the amendment, change or modification of any Transaction Document, except for any amendment, change or modification which by the express terms of such Transaction Document do not require the consent of the Eligible Lender Trustee or the Conduit Administrator;
(b) the initiation of any claim or lawsuit by the Funding Note Issuer and the compromise of any action, claim or lawsuit brought by or against the Funding Note Issuer (other than in connection with the collection or to defend the enforceability of the Financed Student Loans); and
(c) the appointment of any successor to, or the removal of, any Servicer.
Section 4. Compensation and Expenses. As compensation for the performance of the SPV Administrator’s obligations under this Agreement and as reimbursement for its expenses related thereto, the SPV Administrator shall be entitled to receive the SPV Administrator Fee for each Settlement Period payable in arrears on the related Settlement Date in accordance with Section 1.05(c) of this Agreement. The payment of the SPV Administrator Fee shall be solely an obligation of the Funding Note Issuer. The SPV Administrator shall be required to pay all expenses incurred by it in connection with its activities hereunder, including fees and disbursements of independent accountants, taxes imposed on the SPV Administrator and expenses incurred in connection with distributions and reports to any other party hereto. In addition, and in partial consideration of receipt of the monthly SPV Administrator Fees, the SPV Administrator agrees to pay on behalf of the Funding Note Issuer, on or prior to the thirtieth (30 th ) day following the date of demand, all costs and expenses payable by the Funding Note Issuer pursuant to Section 12.08 of this Agreement to the extent such costs and expenses have not been paid by another Person.
 
 Appendix F-1 

 

Section 5. Representations and Warranties of the SPV Administrator. The SPV Administrator makes the following representations and warranties on which the Funding Note Issuer is deemed to have relied in acquiring (through the Eligible Lender Trustee) the Financed Student Loans and the Affected Parties are deemed to have relied in entering into and performing their respective obligations under this Agreement and the other Transaction Documents to which they are respectively party. The representations and warranties speak as of the Closing Date and, except as set forth in subparagraph (i) below, each date thereafter until this Agreement has been terminated.
(a)  Organization and Good Standing . The SPV Administrator is duly organized and validly existing, and in good standing, under the laws of the jurisdiction of organization, with the power and authority to own its properties and to conduct its business as such properties are currently owned and such business is presently conducted.
(b)  Due Qualification . The SPV Administrator is duly qualified to do business and has obtained all necessary licenses and approvals in all jurisdictions in which the ownership or lease of property or the conduct of its business requires such qualifications.
(c)  Power and Authority . The SPV Administrator has the organizational power and authority to execute, deliver and perform this Agreement, and the execution, delivery and performance of this Agreement have been duly authorized by the SPV Administrator by all necessary organizational action.
(d)  Consents . No authorizations, consents, orders or approvals of or registrations or declarations with any court, regulatory body, administrative agent or other government instrumentality are required for the due execution, delivery and performance by, and enforceability against, the SPV Administrator of this Agreement.
(e)  Binding Obligation . This Agreement has been duly authorized, executed and delivered by the SPV Administrator and, assuming that it is duly executed and delivered by the other parties hereto, constitutes a valid and binding agreement of the SPV Administrator, enforceable against the SPV Administrator in accordance with its terms; except that the enforceability hereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors’ rights generally, (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity) and (iii) with respect to rights to indemnity hereunder, limitations of public policy.
(f)  No Violation . The consummation of the transactions contemplated by this Agreement and the fulfillment of the terms hereof will not (i) conflict with, result in any breach of any of the terms and provisions of, nor constitute (with or without notice or lapse of time or both) a default under, the organizational documents of the SPV Administrator, or any indenture, agreement or other instrument to which the SPV Administrator is a party or by which it shall be bound, (ii) result in the creation or imposition of any Adverse Claim upon any of its properties pursuant to the terms of any such indenture, agreement or other instrument (other than pursuant to this Agreement and the other Transaction Documents) or (iii) violate any law, rule or regulation or any order, judgment or decree, in any material respect, applicable to the SPV Administrator of any court or of any federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the SPV Administrator or its properties.
(g)  No Proceedings . There are no judgments, proceedings or investigations pending or, to the best of the SPV Administrator’s knowledge, threatened, against the SPV Administrator before any court, regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the SPV Administrator or its properties: (i) asserting the invalidity of this Agreement or any of the other Transaction Documents to which the SPV Administrator is a party; (ii) seeking to prevent the issuance of the Funding Note or the “Membership Interest,” as defined in the Funding Note Issuer’s limited liability company agreement, or the consummation of any of the transactions contemplated by this Agreement or any of the other Transaction Documents to which the SPV Administrator is a party; (iii) seeking any determination or ruling that could reasonably be expected to have a material adverse effect on the operations, business, properties, liabilities (actual or contingent) or condition (financial or otherwise) of the SPV Administrator or on the ability of the SPV Administrator to perform its obligations under this Agreement or any of the other Transaction Documents to which the SPV Administrator is a party (a “ SPV Administrator Material Adverse Effect ”) or could reasonably be expected to adversely affect the validity or enforceability of this Agreement or any of the other Transaction Documents to which the SPV Administrator is a party or (iv) relating to the SPV Administrator and which might adversely affect the federal or state income tax attributes of the Funding Note.
 
 Appendix F-2 

 

(h)  Accuracy of Information . All information supplied by the SPV Administrator in connection with this Agreement or the transactions contemplated hereby is true, accurate and complete in all material respects as of the date thereof stated. No information, exhibit or report furnished by the SPV Administrator to the Funding Note Issuer, the Eligible Lender Trustee or the Conduit Administrator in connection with this Agreement contains any material misstatement. The financial information regarding the SPV Administrator as heretofore delivered to any of the Funding Note Issuer, the Eligible Lender Trustee or the Conduit Administrator correctly and fairly presents the financial condition of the SPV Administrator as of the date thereof.
(i)  Events of Default . On the Closing Date and each Advance Date, no Event of Default or Potential Event of Default has occurred and is continuing as it relates to the SPV Administrator or, to the actual knowledge of the SPV Administrator, to any of its Affiliates that are party to any Transaction Document.
Section 6. SPV Administrator Change in Control. In the event of (a) any merger or consolidation of the SPV Administrator into another Person, (b) any merger or consolidation to which the SPV Administrator shall be a party resulting in the creation of another Person, (c) any Person succeeding to the properties and assets of the SPV Administrator substantially as a whole or (d) an event or series of events by which any Person acquires the right to vote more than 50% of the common stock or other voting interest of the SPV Administrator; the SPV Administrator shall cause such Person to execute an agreement which states expressly that such Person assumes every obligation of the SPV Administrator hereunder and under the other Transaction Documents to which the SPV Administrator is a party, in form satisfactory to the Manager.
Section 7. Resignation of SPV Administrator. The SPV Administrator shall not resign from the obligations and duties imposed on it as SPV Administrator under this Agreement except upon determination that its continued performance of such obligations and duties is no longer permissible under applicable law or would violate any final order not subject to appeal or review of a court or administrative agency with jurisdiction over the SPV Administrator or its properties. Notice of any such determination permitting or requiring the resignation of the SPV Administrator shall be communicated to the Conduit Administrator and the Manager as soon as practicable (and, if such communication is not in writing, shall thereafter be confirmed in writing as soon as practicable) and any such determination shall be evidenced by an Opinion of Counsel to such effect delivered to the Conduit Administrator, the Manager and the Conduit Lender concurrently with or promptly after such notice.
 
 Appendix F-3 

 

APPENDIX G
FAIR MARKET AUCTION PROCEDURE
The following of the procedure set forth below will constitute the conducting of a Fair Market Auction:
(a) The Conduit Lender, the Manager, any Servicer or any other Transaction Party, or any of their Affiliates, may purchase all or any portion of the Pledged Collateral in a public disposition.
(b) A disposition may be made on any Business Day at the offices of the Manager or at such other location selected by the Manager upon reasonable notice of disposition substantially in the form attached hereto as Exhibit P .
(c) The Conduit Administrator at the direction of the Manager may sell portions of the Pledged Collateral in parcels or may sell the Pledged Collateral in bulk. If less than all of the Financed Student Loans will be sold, (i) the Financed Student Loans will be selected for sale in accordance with the Loan Put Allocation Criteria, and (ii) any pool of Student Loans sold to a purchaser pursuant to the Fair Market Auction shall include either all or none of the Student Loans made to the related Borrower (i.e. “by account”). The Conduit Administrator shall not be required to sell or offer Financed Student Loans in parcels unless the Funding Note Issuer shall have provided the Manager and the Conduit Administrator with notice designating such parcels in accordance with the preceding sentence prior to the time of such sale.
(d) With respect to a public or private disposition, the Manager shall take such steps as it shall determine are necessary or appropriate to conduct a disposition of Pledged Collateral. The parties agree and acknowledge that any sale in which the Manager shall have contacted (by mail, electronic mail, facsimile or otherwise) and solicited bids from, without duplication, (i) at least two industry participants or other Persons in the business of purchasing or originating loans similar to the Financed Student Loans that are not Affiliates of the Funding Note Issuer and (ii) Persons for whom the Funding Note Issuer has provided to the Manager correct contact information within three (3) Business Days prior to the time that the Manager is required to commence sale efforts, and requiring a firm offer to purchase at a price greater than the Department Put Price within the time periods specified in Section 1.03(c), 1.03(d) or 6.02 is commercially reasonable. The Funding Note Issuer or the Seller may also solicit bids in connection with such disposition.
(e) All solicitations for bids shall (i) require that the purchase price for the Financed Student Loans be payable in immediately available funds and (ii) require a firm offer to purchase at a price not less than the Department Put Price within the time periods specified in Section 1.03(c), 1.03(d) or 6.02 , as applicable.
(f) The Manager may hire an investment broker to advise it with respect to any disposition or the Manager may act as the broker or auctioneer with respect to any public or private disposition.
(g) The Manager shall have no duty to prepare or process the Pledged Collateral for disposition, provided that the Manager shall make the Disclosure Package (if received in accordance with paragraph (h) below) available to qualified bidders/purchasers and shall, to the extent practicable, endeavor to provide an opportunity for diligence by qualified bidders/purchasers.
(h) On or before the first date on which the Manager is required to offer Financed Student Loans for sale under this Agreement, the Funding Note Issuer, the Seller and any related Servicer shall prepare and provide the Manager and each prospective bidder/purchaser of Pledged Collateral with a disclosure package (the “ Disclosure Package ”) with respect thereto and any other information (that is available to the Funding Note Issuer, the Seller or the related Servicer and is not subject to a confidentiality agreement or laws or regulations that prevents such disclosure). If timely received by the Manager, the Manager shall include the Disclosure Package in its solicitation for bids as required by this Appendix G . The Manager shall not have any liability with respect to any statements included in the Disclosure Package or for any loss or damage resulting from any failure to solicit or obtain bids for Financed Student Loans without a Disclosure Package.
 
 Appendix G-1 

 

Exhibit A
FORM OF
FUNDING REQUEST
[DATE]
The Bank of New York Mellon, as Conduit Administrator
101 Barclay Street, 4E
New York, New York 10286
Attention: Andrew J. Taylor
BMO Capital Markets Corp., as Manager
115 S. LaSalle St.
Chicago, IL 60603
Attention: Bart Steenbergen
StraightA.funding@bmo.com
Attn: Funding Request—Nelnet Superconduit Funding, LLC

Re: Funding Request
Reference is made to that certain Funding Note Purchase Agreement, dated as of May 13, 2009, by and among Nelnet Superconduit Funding, LLC, as the Funding Note Issuer, National Education Loan Network, Inc., as the SPV Administrator, Zions First National Bank, as the Eligible Lender Trustee, Straight-A Funding, LLC, as the Conduit Lender, The Bank of New York Mellon, as the Conduit Administrator, the Securities Intermediary and the Conduit Lender Eligible Lender Trustee, BMO Capital Markets Corp., as the Manager, Nelnet, Inc., as the Sponsor, and National Education Loan Network, Inc., as the Master Servicer (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Funding Note Purchase Agreement ”). Each capitalized term used but not defined herein has the meaning assigned to such term in the Funding Note Purchase Agreement.
This Funding Request is executed and delivered by the SPV Administrator, on behalf of the Funding Note Issuer and the Seller, pursuant to Section 1.02 of the Funding Note Purchase Agreement. The SPV Administrator, on behalf of the Funding Note Issuer and the Seller, hereby request that the Conduit Lender make an Advance to the Funding Note Issuer as follows:
 	 	 	 	 	 	 	 	 	
Requested Advance Amount 1	 	 	$	 	 	 	 	 	

Advance Date 2	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
The SPV Administrator, on behalf of the Funding Note Issuer, and the Seller hereby certify as follows: (i) there are no amounts due and payable by the Funding Note Issuer in connection with any prior Funding Request, (ii) on the date hereof, the Funding Note Issuer is not prohibited from submitting Funding Requests due to the occurrence of a “Funding Hold Period” and (iii) everything necessary to receive a rating letter from each Rating Agency within 5 Business Days of the date hereof has been completed and the receipt of such rating letters is expected. For purposes of this Funding Request, a “Funding Hold Period” shall mean a time period following the Funding Note Issuer’s cancellation or inability to fulfill a prior Funding Request equal to (i) with respect to the first occurrence of such cancellation or inability during any 12-month period, 15 calendar days thereafter, (ii) with respect to the second occurrence during any 12-month period, 40 calendar days thereafter, (iii) with respect to the third occurrence during any 12-month period, 90 calendar days thereafter and (iv) with respect to the fourth occurrence during any 12-month period, 365 days thereafter.

 	 	 	
1	 	The Requested Advance Amount may not exceed the maximum amount of Student Loan Short-Term Notes to be issued on the Advance Date, as specified by the Manager in accordance with the Funding Allocation Procedures.	
 		
2	 	The Advance Date will be an Expected Funding Date scheduled by the Manager in accordance with the Funding Allocation Procedures.	
 
 Exhibit A-1 

 

[The SPV Administrator, on behalf of the Funding Note Issuer and the Seller hereby notify the Conduit Lender and the Manager that this Funding Request shall be deemed to be withdrawn if the Allocation Amount is less than the Requested Advance Amount.] 3
IN WITNESS WHEREOF , the SPV Administrator, on behalf of the Funding Note Issuer and the Seller, has caused this Funding Request to be executed by their officers thereunto duly authorized, as of the date first written above.
 	 	 	 	 	
 	NATIONAL EDUCATION LOAN NETWORK, INC. , as the
SPV Administrator on behalf of the Funding Note Issuer
 	 	
 	By:  	 	 	
 	 	Name:  	 	 	
 	 	Title:  	 	 	
 	
 	NATIONAL EDUCATION LOAN NETWORK, INC. , as the Seller
 	 	
 	By:  	 	 	
 	 	Name:  	 	 	
 	 	Title:  	 	 	

 	 	 	
3	 	Bracketed text to be inserted for “fill or kill” option according to Funding Allocation Procedures.	
 
 Exhibit A-2 

 

Exhibit B
FORM OF
MONTHLY CONDUIT ADMINISTRATOR’S REPORT
 	 	 	 	 	 	 	
 	 	[FUNDING NOTE ISSUER]	 	 	
 	 	Monthly Conduit Administrator’s Report	 	 	
 	 	Month End Date	 	[DATE]	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
I. Pool Size	 	Beginning Balance	 	Ending Balance	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Outstanding Loan Principal	 	 	 	 	 	 	 	 	 	 	 	 	
Accrued Interest to be Capitalized	 	 	 	 	 	 	 	 	 	 	 	 	
Principal Balance	 	 	 	 	 	 	 	 	 	 	 	 	
Collateral Value (97%)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
II. Loan Type	 	# of Loans	 	Principal Balance	 	% of Total Principal Balance	 	
 	 	 	 	 	 	 	 	
GSL Subsidized	 	 	 	 	 	 	 	 	 	 	 	 	
GSL Unsubsidized	 	 	 	 	 	 	 	 	 	 	 	 	
Plus	 	 	 	 	 	 	 	 	 	 	 	 	
Other	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
III. Repayment Status	 	# of Loans	 	Principal Balance	 	 	 	 	
 	 	 	 	 	 	 	 	 	
School	 	 	 	 	 	 	 	 	 	 	 	 	
Grace	 	 	 	 	 	 	 	 	 	 	 	 	
Deferment	 	 	 	 	 	 	 	 	 	 	 	 	
Repayment	 	 	 	 	 	 	 	 	 	 	 	 	
Forbearance	 	 	 	 	 	 	 	 	 	 	 	 	
Claim Pending	 	 	 	 	 	 	 	 	 	 	 	 	
Claim Rejected	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
IV. Delinquency Status	 	# of Loans	 	Principal Balance	 	 	 	 	
 	 	 	 	 	 	 	 	 	
0-30	 	 	 	 	 	 	 	 	 	 	 	 	
31-60	 	 	 	 	 	 	 	 	 	 	 	 	
61-90	 	 	 	 	 	 	 	 	 	 	 	 	
91-120	 	 	 	 	 	 	 	 	 	 	 	 	
121-150	 	 	 	 	 	 	 	 	 	 	 	 	
151-180	 	 	 	 	 	 	 	 	 	 	 	 	
181-210	 	 	 	 	 	 	 	 	 	 	 	 	
211-240	 	 	 	 	 	 	 	 	 	 	 	 	
241-255	 	 	 	 	 	 	 	 	 	 	 	 	
>255	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
V. Weighted Average Remaining Maturity	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
VI. Accounts	 	 	 	 	 	 	 	 	 	 	 	 	
Reserve Account Beginning Balance	 	 	 	 	 	 	 	 	 	 	 	 	
Deposits for Period	 	 	 	 	 	 	 	 	 	 	 	 	
Withdrawals for Period (including withdrawals pursuant to Section 1.06(d))	 	 	 	 	 	 	 	 	 	 	 	 	
Reserve Account Ending Balance	 	 	 	 	 	 	 	 	 	 	 	 	
Reserve Account Specified Balance 4	 	 	 	 	 	 	 	 	 	 	 	 	
Reserve Account Excess or Shortfall	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
DOE Reserve Account Beginning Balance	 	 	 	 	 	 	 	 	 	 	 	 	
Deposits for Period	 	 	 	 	 	 	 	 	 	 	 	 	
Withdrawals for Period	 	 	 	 	 	 	 	 	 	 	 	 	
Ending Balance	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Excluded Borrower Benefits Reserve Account Balance	 	 	 	 	 	 	 	 	 	 	 	 	
Deposits for Period	 	 	 	 	 	 	 	 	 	 	 	 	
Withdrawals for Period	 	 	 	 	 	 	 	 	 	 	 	 	
Ending Balance	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
VII. Funding Note Issuer Collection Account Activity	 	 	 	 	 	 	 	 	 	 	 	 	
799 Payments	 	 	 	 	 	 	 	 	 	 	 	 	
Reimbursements by Schools	 	 	 	 	 	 	 	 	 	 	 	 	
Reimbursement By Guarantors	 	 	 	 	 	 	 	 	 	 	 	 	
Loan Proceeds / Redemptions	 	 	 	 	 	 	 	 	 	 	 	 	
Loans Put to the Department	 	 	 	 	 	 	 	 	 	 	 	 	
Borrower Principal Payments	 	 	 	 	 	 	 	 	 	 	 	 	

 	 	 	
4	 	Line items detailing the calculation of the Reserve Account Specified Balance as described in the most recently executed Reserve and Portfolio Criteria Supplement should be added as necessary.	
 
 Exhibit B-1 

 

 	 	 	 	 	 	 	 	 	 	 	 	 	
Borrower Interest Payments	 	 	 	 	 	 	 	 	 	 	 	 	
Other Cash / Fees Collected	 	 	 	 	 	 	 	 	 	 	 	 	
Investment Income	 	 	 	 	 	 	 	 	 	 	 	 	
Reserve Account Excess	 	 	 	 	 	 	 	 	 	 	 	 	
DOE Reserve Account Excess	 	 	 	 	 	 	 	 	 	 	 	 	
Other Deposits	 	 	 	 	 	 	 	 	 	 	 	 	
Cash Available For Distribution	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
VIII. Accruals	 	 	 	 	 	 	 	 	 	 	 	 	
Borrower Interest Accrued	 	 	 	 	 	 	 	 	 	 	 	 	
Interest Subsidy Accrued 5	 	 	 	 	 	 	 	 	 	 	 	 	
Special Allowance Payments Accrued	 	 	 	 	 	 	 	 	 	 	 	 	
Investment Earnings	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
IX. Fees and Expenses	 	 	 	 	 	 	 	 	 	 	 	 	
Servicing Fees	 	 	 	 	 	 	 	 	 	 	 	 	
ELT Fees	 	 	 	 	 	 	 	 	 	 	 	 	
[SPV Administrator Fees]	 	 	 	 	 	 	 	 	 	 	 	 	
Financing Costs	 	 	 	 	 	 	 	 	 	 	 	 	
Payments made to the Department	 	 	 	 	 	 	 	 	 	 	 	 	
Other Costs	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
X. [Reserved]	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
XI. Funding Note	 	 	 	 	 	 	 	 	 	 	 	 	
Minimum Asset Coverage Ratio	 	 	 	 	 	 	 	 	 	 	 	 	
pro forma Asset Coverage Ratio (before payments pursuant to Section 1.06(d) of Ratable Financing Costs to be capitalized)	 	 	 	 	 	 	 	 	 	 	 	 	
Asset Coverage Ratio (after payments pursuant to Section 1.06(d) of Ratable Financing Costs to be capitalized, if any)	 	 	 	 	 	 	 	 	 	 	 	 	
Funding Note Principal Due	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Opening Principal Balance of Funding Note	 	 	 	 	 	 	 	 	 	 	 	 	
plus: Advances	 	 	 	 	 	 	 	 	 	 	 	 	
Minus: Prepayments	 	 	 	 	 	 	 	 	 	 	 	 	
Subtotal: Principal Balance of Funding Note	 	 	 	 	 	 	 	 	 	 	 	 	
minus: Principal distributed to Funding Note	 	 	 	 	 	 	 	 	 	 	 	 	
equals: Ending Principal Balance of Funding Note	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
XII. Waterfall	 	 	 	 	 	 	 	 	 	 	 	 	
Available Funds	 	 	 	 	 	 	 	 	 	 	 	 	
i [Eligible Lender Trustee Fees]	 	 	 	 	 	 	 	 	 	 	 	 	
[SPV Administrator Fees]	 	 	 	 	 	 	 	 	 	 	 	 	
Senior Servicing Fees	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
ii Ratable Financing Costs to the Conduit Lender 6	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
iii Funding Note Principal to the Conduit Lender	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
iv Reinstatement of the Reserve Account	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
v Ratable Other Conduit Costs 7	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
vi Structuring Agent Fees	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
vii Other Obligations of the Eligible Lender Trustee, the Conduit Administrator, the Manager[, the SPV Administrator] and each Indemnified Party	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
viii Other Amounts due the Servicer	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
ix Payments on the Revolving Credit Agreement	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
xi Available Funds Remaining to the Funding Note Issuer	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
XIII. Monthly Remittance Condition Satisfied?	 	 	Y/N	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
XIV. Received Notice of an Event of Default or Potential Event of Default?	 	 	Y/N	 	 	 	 	 	 	 	 	 	

 	 	 	
5	 	Conduit Administrator to report on a consolidated basis, the “Accrued DOE Interest Subsidy Payment” as provided by the Servicer on Schedule II of the Monthly Servicer Report.	
 		
6	 	Conduit Administrator to provide a schedule detailing the components of Ratable Financing Costs.	
 		
7	 	Conduit Administrator to provide a schedule detailing the components of Ratable Other Conduit Costs.	
 
 Exhibit B-2 

 

Exhibit C
FORM OF
NOTICE OF RELEASE
[DATE]
The Bank of New York Mellon, as Conduit Administrator
101 Barclay Street, 4E
New York, New York 10286
Attention: Andrew J. Taylor
BMO Capital Markets Corp.
115 S. LaSalle St.
Chicago, IL 60603
Attention: Bart Steenbergen
StraightA.funding@bmo.com
Attn: Notice of Release—Nelnet Superconduit Funding, LLC
Re:      Request for Release of Financed Student Loans
Reference is made to that certain Funding Note Purchase Agreement, dated as of May 13, 2009, by and among Nelnet Superconduit Funding, LLC, as the Funding Note Issuer, National Education Loan Network, Inc., as the SPV Administrator, Zions First National Bank, as the Eligible Lender Trustee, Straight-A Funding, LLC, as the Conduit Lender, The Bank of New York Mellon, as the Conduit Administrator, the Securities Intermediary and the Conduit Lender Eligible Lender Trustee, BMO Capital Markets Corp., as the Manager, Nelnet, Inc., as the Sponsor, and National Education Loan Network, Inc., as Master Servicer (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Funding Note Purchase Agreement ”). Each capitalized term used but not defined herein has the meaning assigned to such term in the Funding Note Purchase Agreement.
This notice is executed and delivered by the SPV Administrator, on behalf of the Funding Note Issuer, pursuant to Section 1.03(e) of the Funding Note Purchase Agreement. The SPV Administrator, on behalf of the Funding Note Issuer, hereby requests that on [DATE] 1 (the “ Release Date ”), the Conduit Administrator release the security interests Granted to the Conduit Lender and the Conduit Lender Eligible Lender Trustee pursuant to Section 1.08 of the Funding Note Purchase Agreement in Financed Student Loans having an aggregate Collateral Value of $                      (the “ Release ”).
In connection with the foregoing, the SPV Administrator, on behalf of the Funding Note Issuer, hereby certifies as follows:

1.	 	No Event of Default or Potential Event of Default has occurred and is continuing or will result from the Release.	

2.	 	The Asset Coverage Ratio shall not be less than the Minimum Asset Coverage Ratio after giving effect to the Release.	

3.	 	No amounts described in clauses (i) through (viii) of Section 1.05(c) shall be due and owing after giving effect to the Release and no amounts due and owing from any Transaction Party shall be unpaid.	

4.	 	The Funding Note Issuer has, or on or prior to the Release Date, will obtain, sufficient funds to deposit into the Funding Note Issuer Collection Account cash in an amount equal to the Collateral Value of the Financed Student Loans subject to the Release, plus accrued and unpaid interest thereon (to the extent not previously capitalized or to be capitalized) through the Release Date, plus the amount payable by the Funding Note Issuer pursuant to Section 1.03(g) of the Funding Note Purchase Agreement in connection with such prepayment.	
 		
5.	 	The estimated amount of Negative Special Allowance Payments to accrue through the Release Date on the Financed Student Loans to be released is $_____  and sufficient funds have been deposited to the DOE Reserve Account in respect of such estimated Negative Special Allowance Payments.	
[Signature Follows]

 	 	 	
1	 	Date must be at least five (5) Business Days after the date of the Notice of Release.	
 
 Exhibit C-1 

 

IN WITNESS WHEREOF , the SPV Administrator on behalf of Funding Note Issuer has caused this Notice of Release to be executed by its officer thereunto duly authorized, as of the date first written above.
 	 	 	 	 	 	 	
 	 	NATIONAL EDUCATION LOAN NETWORK, INC. , as the
SPV Administrator on behalf of the Funding Note Issuer	
 	 	 	 	 	 	 	
 	 	By:	 	 	 	 	
 	 	 	 	 	
 	 	 	 	Name:	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Title:	 	 	

 Exhibit C-2 

 

Exhibit D
FORM OF
FUNDING NOTE
NELNET SUPERCONDUIT FUNDING, LLC
VARIABLE FUNDING NOTE

Number R-[ ]	 	[DATE]	
NELNET SUPERCONDUIT FUNDING, LLC, a Delaware limited liability company (the “ Funding Note Issuer ”), promises to pay to the order of STRAIGHT-A FUNDING, LLC (the “ Conduit Lender ”), on the Final Maturity Date set forth in the Funding Note Purchase Agreement (as hereinafter defined), the aggregate unpaid principal amount of all Advances made by the Conduit Lender, in immediately available funds at the designated office of the Conduit Lender, together with all Ratable Financing Costs at the rates, in the amounts and at the times set forth in the Funding Note Purchase Agreement.
This Funding Note is issued pursuant to, and is entitled to the benefits of, that certain Funding Note Purchase Agreement, dated as of May 13, 2009, by and among the Funding Note Issuer, National Education Loan Network, Inc., as the SPV Administrator, Zions First National Bank, as the Eligible Lender Trustee, Straight-A Funding, LLC, as the Conduit Lender, The Bank of New York Mellon, as the Conduit Administrator, the Securities Intermediary and the Conduit Lender Eligible Lender Trustee, BMO Capital Markets Corp., as the Manager, Nelnet, Inc., as the Sponsor, and National Education Loan Network, Inc., as Master Servicer (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Funding Note Purchase Agreement ”), to which reference is hereby made for a statement of the terms and conditions governing this Funding Note, including the terms and conditions under which this Funding Note may be prepaid or its maturity date accelerated. This Funding Note is secured by the Pledged Collateral as more particularly described in the Funding Note Purchase Agreement. Each capitalized term used but not defined herein has the meaning assigned to such term in the Funding Note Purchase Agreement.
THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR REGULATORY AUTHORITY OF ANY STATE. THIS NOTE HAS BEEN OFFERED AND SOLD PRIVATELY. THE FUNDING NOTE ISSUER IS NOT CLASSIFIED AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE “INVESTMENT COMPANY ACT OF 1940”) IN RELIANCE ON SECTION 3(c)(1) OF THE INVESTMENT COMPANY ACT OF 1940. THE REGISTERED OWNER HEREOF ACKNOWLEDGES THAT THESE SECURITIES ARE “RESTRICTED SECURITIES” THAT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT AND AGREES FOR THE BENEFIT OF THE FUNDING NOTE ISSUER AND ITS AFFILIATES THAT THESE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (I) TO A PERSON WHOM THE TRANSFEROR REASONABLY BELIEVES IS AN INSTITUTIONAL ACCREDITED INVESTOR TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR TRANSFER IS BEING MADE IN RELIANCE ON REGULATION D, AND IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR OTHER JURISDICTION OR (II) TO A PERSON IN A TRANSACTION THAT IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THE HOLDER HEREOF, BY ACQUIRING THIS NOTE, REPRESENTS AND AGREES FOR THE BENEFIT OF THE PARTIES TO THE FUNDING NOTE PURCHASE AGREEMENT THAT: IT IS AN INSTITUTIONAL ACCREDITED INVESTOR (AS DEFINED IN RULE 501(a)(1)-(3) AND (7) OF REGULATION D UNDER THE SECURITIES ACT) OR AN ENTITY IN WHICH ALL THE EQUITY OWNERS COME WITHIN SUCH PARAGRAPHS; ITS ACQUISITION OF THIS NOTE IS OTHERWISE EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS; AND IT IS HOLDING THIS NOTE FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION. THE HOLDER HEREOF, BY ACQUIRING THIS NOTE, FURTHER REPRESENTS AND AGREES FOR THE BENEFIT OF THE FUNDING NOTE ISSUER AND ITS AFFILIATES THAT THESE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS SUCH OFFER, SALE, PLEDGE OR TRANSFER SHALL NOT RESULT IN THE AGGREGATE NUMBER OF BENEFICIAL OWNERS OF THE FUNDING NOTE (WITHIN THE MEANING OF THE INVESTMENT COMPANY ACT) EXCEEDING TEN.
 
 Exhibit D-1 

 

Each holder of this Funding Note shall be deemed to agree that it shall not, prior to the date which is one year and one day (or, if longer, any applicable preference period plus one day) after payment in full of the Funding Note, institute against, or join any other Person in instituting against, the Funding Note Issuer, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding, or any similar proceeding under any federal or state bankruptcy or similar law; provided , that nothing in this provision shall preclude or be deemed to stop any holder of this Funding Note (a) from taking any action prior to the expiration of the aforementioned one year and one day period in (i) any case or proceeding voluntarily filed or commenced by the Funding Note Issuer or (ii) any involuntary insolvency proceeding filed or commenced against the Funding Note Issuer by any Person other than the holder hereof or (b) from commencing against the Funding Note Issuer or the Pledged Collateral any legal action which is not a bankruptcy, reorganization, arrangement, insolvency or a liquidation proceeding. The obligations of the Funding Note Issuer under this Funding Note are limited recourse obligations payable solely from the Pledged Collateral and, following realization of the Pledged Collateral and its application in accordance with the terms hereof, any outstanding obligations of the Funding Note Issuer hereunder shall be extinguished and shall not thereafter revive. In addition, no recourse shall be had for any amounts payable or any other obligations arising under this Funding Note against any officer, member, director, employee, partner or security holder of the Funding Note Issuer or any of its successors or assigns.
The holder hereof, by acquiring this Funding Note, represents and agrees that (i) at all times that it holds this Funding Note, it is and will be a United States person under Section 7701(a)(30) of the Code, (ii) it will provide the Funding Note Issuer with a properly executed IRS Form W-9 (or successor form) upon its acquisition of this Funding Note, and (iii) it will treat this Funding Note as indebtedness for United States federal, state and local income and franchise tax purposes, unless otherwise required by law.
THIS FUNDING NOTE AND THE RIGHTS OF ANY HOLDER OF THIS FUNDING NOTE AND THE OBLIGATIONS OF THE FUNDING NOTE ISSUER HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF (OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW).
[Signature Follows]
 
 Exhibit D-2 

 

IN WITNESS WHEREOF , the Funding Note Issuer has caused this Funding Note to be executed by its officer thereunto duly authorized, as of the date first written above.
 	 	 	 	 	 	 	
 	 	NELNET SUPERCONDUIT FUNDING, LLC	
 	 	 	 	 	 	 	
 	 	By:	 	 	 	 	
 	 	 	 	 	
 	 	 	 	Name:	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Title:	 	 	

 Exhibit D-3 

 

Exhibit E
FORM OF
LIQUIDITY PREPAYMENT NOTICE
[DATE]
National Education Loan Network, as SPV Administrator
  for Nelnet Superconduit Funding, LLC
121 S. 13th Street
Suite 201
Lincoln NE 68508
Attention: Carol Aversman
Telephone: 402-458-2305
Fax: 402-458-2399
E-mail: carol.aversman@nelnet.net
Re:      Liquidity Prepayment Notice
Reference is made to that certain Funding Note Purchase Agreement, dated as of May 13, 2009, by and among Nelnet Superconduit Funding, LLC, as the Funding Note Issuer, National Education Loan Network, Inc., as the SPV Administrator, Zions First National Bank, as the Eligible Lender Trustee, Straight-A Funding, LLC, as the Conduit Lender, The Bank of New York Mellon, as the Conduit Administrator, the Securities Intermediary and the Conduit Lender Eligible Lender Trustee, BMO Capital Markets Corp., as the Manager, Nelnet, Inc., as the Sponsor, and National Education Loan Network, Inc., as the Master Servicer (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Funding Note Purchase Agreement ”). Each capitalized term used but not defined herein has the meaning assigned to such term in the Funding Note Purchase Agreement.
This Liquidity Prepayment Notice is executed and delivered by the Conduit Administrator pursuant to Section 1.03(c)[(i)][(ii)] of the Funding Note Purchase Agreement. The Conduit Administrator hereby delivers notice that:
1. the Conduit Lender requested that a Liquidity Advance in the amount of $                      be made on [DATE] and the requested Liquidity Advance was [not] made when due;
2. the Funding Note Issuer’s Ratable Liquidity Draw Percentage with respect to such Liquidity Advance is  _____% [and the Liquidity Prepayment Amount is $                      ] 1 ; and
3. the Required Liquidity Prepayment Date is [           ], [20_____].
[Signature Follows]

1	 	Insert bracketed text if the requested Liquidity Advance was not made when due.	
 
 Exhibit E-1 

 

IN WITNESS WHEREOF , the Conduit Administrator has caused this Liquidity Prepayment Notice to be executed by its officer thereunto duly authorized, as of the date first written above.
 	 	 	 	 	 	 	
 	 	The Bank of New York Mellon,	
 	 	as the Conduit Administrator	
 	 	 	 	 	 	 	
 	 	By:	 	 	 	 	
 	 	 	 	 	
 	 	 	 	Name:	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Title:	 	 	

 Exhibit E-2 

 

Exhibit F
NOTICE ADDRESSES
The Funding Note Issuer
Nelnet Superconduit Funding, LLC
c/o National Education Loan Network, Inc.
121 South 13th Street
Suite 201
Lincoln NE 68508
Attention: Carol Aversman
Telephone: (402) 458-2305
Fax: (402) 458-2399
E-mail: carol.aversman@nelnet.net
With a copy to the SPV Administrator
The SPV Administrator
National Education Loan Network, Inc.
121 South 13th Street
Suite 201
Lincoln NE 68508
Attention: Carol Aversman
Telephone: (402) 458-2305
Fax: (402) 458-2399
E-mail: carol.aversman@nelnet.net
The Eligible Lender Trustee
Zions First National Bank
1001 17th Street, Suite 1050
Denver, CO 80202
Fax: (720) 947-7480
Email: casey.gunning@zionsbank.com
The Conduit Administrator, the Securities Intermediary and the Conduit Lender Eligible Lender Trustee
The Bank of New York Mellon
101 Barclay Street, 4E
New York, New York 10286
Attention: Andrew J. Taylor
Fax: (212) 815-2020
Email: BMOStraightA@bnymellon.com
The Conduit Lender
Straight-A Funding, LLC
c/o Global Securitization Services, LLC
68 South Service Road
Suite 120
Melville, NY 11747
Fax: (212) 302-8767
 
 Exhibit F-1 

 

With copies to the Conduit Administrator and the Manager
The Manager
BMO Capital Markets Corp.
115 S. LaSalle St.
Chicago, IL 60603
Attention: Bart Steenbergen
StraightA.issuer@bmo.com
The Sponsor
Nelnet, Inc.
121 South 13th Street
Suite 201
Lincoln NE 68508
Attention: Carol Aversman
Telephone: (402) 458-2305
Fax: (402) 458-2399
E-mail: carol.aversman@nelnet.net
The Master Servicer
National Education Loan Network, Inc.
121 South 13th Street
Suite 201
Lincoln NE 68508
Attention: Carol Aversman
Telephone: (402) 458-2305
Fax: (402) 458-2399
E-mail: carol.aversman@nelnet.net
The Department:
By United States Postal Service mail:
United States Department of Education
400 Maryland Avenue, SW
UCP, Room 111G3
Washington, DC 20202-5402
Attention: FFEL Agreement Process Team
By courier or express mail:
United States Department of Education
830 First Street, N.E.
Room 111G3
Washington, DC 20202-5402
Attention: FFEL Agreement Process Team
Email: FFEL.agreementprocess@ed.gov
 
 Exhibit F-2 

 

The Federal Financing Bank
By U.S. Postal Service mail :
The Federal Financing Bank
Main Treasury Building
1500 Pennsylvania Avenue, NW
Washington, DC 20220
Attention: Chief Financial Officer
Telephone: (202) 622-2470
Facsimile: (202) 622-0707
By courier or express mail :
The Federal Financing Bank
Suite 228, National Press Building
524 — 14th Street, NW
Washington, DC 20045-1201
Telephone: (202) 622-2470
The Rating Agencies:
Standard & Poor’s Ratings Services
55 Water Street, 41st floor
New York, NY 10041
Attention: ABS Surveillance
Email: servicer_reports@sandp.com
Fitch, Inc.
One State Street Plaza
New York, New York 10004
Attention: Asset-Backed Securities
Fax: (212) 514-9879
Email: notifications.abs@fitchratings.com
 
 Exhibit F-3 

 

Exhibit G
FORM OF
UCC-1 FINANCING STATEMENTS
[see attached]
 
 Exhibit G-1 

 

I. FORM OF UCC-1: SELLER, AS DEBTOR

I. FORM OF UCC-1: SELLER, AS DEBTOR

UCC FINANCING STATEMENT
FOLLOW INSTRUCTIONS (front and back) CAREFULLY
A. NAME & PHONE OF CONTACT AT FILER [optional]

B. SEND ACKNOWLEDGMENT TO: (Name and Address) Anne M. Gish, Esq.
Kutak Rock LLP
1801 California Street, Suite&nbsp;3100
Denver, Colorado 80202 THE ABOVE SPACE IS FOR FILING OFFICE USE ONLY 1. DEBTOR’S EXACT FULL LEGAL NAME — insert only one debtor name (1a or 1b) — do not abbreviate or combine names 1a. ORGANIZATION’S NAME &nbsp; &nbsp; &nbsp; &nbsp; OR&nbsp; &nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NATIONAL EDUCATION LOAN NETWORK, INC. &nbsp; &nbsp; &nbsp; &nbsp; 1b. INDIVIDUAL’S LAST NAME &nbsp; FIRST NAME &nbsp; MIDDLE NAME &nbsp; SUFFIX &nbsp; 1c. &nbsp; MAILING ADDRESS &nbsp; CITY &nbsp; STATE&nbsp;&nbsp; POSTALCODE &nbsp; COUNTRY &nbsp; &nbsp; &nbsp;&nbsp;121 S. 13th Street, Suite&nbsp;201 &nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Lincoln &nbsp; `NE&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 68508 &nbsp; USA `1d. &nbsp; `TAX ID #: SSN OR EIN &nbsp; ADD’L INFO RE
ORGANIZATION &nbsp; `1e. TYPE OF ORGANIZATION &nbsp; `1f. JURISDICTION OF ORGANIZATION &nbsp; `1g. ORGANIZATIONAL ID #, if any &nbsp; &nbsp; `&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; Corporation &nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Nevada &nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C2237-2000 &nbsp; &nbsp; `&nbsp; &nbsp; &nbsp; &nbsp; DEBTOR &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; NONE 2. ADDITIONAL DEBTOR’S EXACT FULL LEGAL NAME — insert only one debtor name (2a or 2b) — do not abbreviate or combine names 2a. ORGANIZATION’S NAME &nbsp; &nbsp; &nbsp; &nbsp; OR&nbsp; &nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;UNION BANK AND TRUST COMPANY &nbsp; &nbsp; &nbsp; &nbsp; 2b. INDIVIDUAL’S LAST NAME &nbsp; FIRST NAME &nbsp; MIDDLE NAME &nbsp; SUFFIX &nbsp; 2c. &nbsp; MAILING ADDRESS &nbsp; CITY &nbsp; STATE&nbsp;&nbsp; POSTALCODE &nbsp; COUNTRY &nbsp; &nbsp; &nbsp;&nbsp;6801 South 27th Street &nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Lincoln &nbsp; NE&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 68506 &nbsp; USA `2d. &nbsp; `TAX ID #: SSN OR EIN &nbsp; ADD’L INFO RE
ORGANIZATION &nbsp; `2e. TYPE OF ORGANIZATION &nbsp; `2f. JURISDICTION OF ORGANIZATION &nbsp; `2g. ORGANIZATIONAL ID #, if any &nbsp; &nbsp; `&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; State Bank &nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Nebraska &nbsp; 10036938 &nbsp; &nbsp; `&nbsp; &nbsp; &nbsp; &nbsp; DEBTOR &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; NONE 3. SECURED PARTY’S NAME (or NAME of TOTAL ASSIGNEE of ASSIGNORS/P) — insert only &nbsp;  _____  &nbsp; one secured party name (3a or 3b) 3a. ORGANIZATION’S NAME &nbsp; &nbsp; &nbsp; &nbsp; OR&nbsp; &nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;STRAIGHT-A FUNDING, LLC, as Conduit Lender &nbsp; &nbsp; &nbsp; &nbsp; 3b. INDIVIDUAL’S LAST NAME &nbsp; FIRST NAME &nbsp; MIDDLE NAME &nbsp; SUFFIX &nbsp; 3c. &nbsp; MAILING ADDRESS &nbsp; CITY &nbsp; STATE&nbsp;&nbsp; POSTALCODE &nbsp; COUNTRY &nbsp; &nbsp; &nbsp;&nbsp;68 South Service Road, Suite 120 &nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Melville &nbsp; NY&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 11747 &nbsp; USA 4. This FINANCING STATEMENT covers the following collateral: SEE ANNEX A ATTACHED HERETO AND MADE PART HEREOF AND INCORPORATED HEREIN BY REFERENCE. THERE ARE THREE ADDITIONAL SHEETS PRESENTED, CONSISTING OF TWO ONE-PAGE ADDENDA AND A ONE-PAGE ANNEX A. 5. ALTERNATIVE DESIGNATION [if applicable]: &nbsp; `LESSEE/LESSOR &nbsp; `CONSIGNEE/CONSIGNOR &nbsp; `BAILEE/BAILOR &nbsp; `SELLER/BUYER &nbsp; `AG. LIEN &nbsp; `NON-UCC FILING 6. ð This FINANCING STATEMENT is to be filed (for record) (or recorded in the &nbsp; `&nbsp;&nbsp;7. Check to REQUEST SEARCH REPORT(S) on &nbsp; `All Debtors &nbsp; `Debtor 1 &nbsp; `Debtor 2 `&nbsp;&nbsp;&nbsp;&nbsp;REAL ESTATE RECORDS. Attach addendum &nbsp; [if applicable] &nbsp; `&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Debtor(s) [ADDITIONAL FEE] [optional] &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; 8. OPTIONAL FILE REFERENCE DATA &nbsp;&nbsp;&nbsp;&nbsp; FILING OFFICE COPY — NATIONAL UCC FINANCING STATEMENT (FORM UCC 1) (REV. 07/29/98)	

 

UCC FINANCING STATEMENT ADDENDUM FOLLOW INSTRUCTIONS (front and back) CAREFULLY 9. NAME OF FIRST DEBTOR (1a or 1b) ON RELATED FINANCING STATEMENT 9a. ORGANIZATION’S NAME NATIONAL EDUCATION LOAN NETWORK, INC. OR 9b. INDIVIDUAL’S LAST NAME FIRST NAME MIDDLE NAME,SUFFIX &nbsp; 10. MISCELLANEOUS: &nbsp; Addendum 1 of 2 &nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The debtor listed in item 1 above is the owner of the beneficial interest in the collateral described on Annex A attached hereto. The additional debtor listed in item 2 above holds legal title, as eligible lender trustee, to certain collateral described on Annex A attached hereto. &nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The party listed in item 12 of this Addendum is the assignor secured party. &nbsp; THE ABOVE SPACE IS FOR FILING OFFICE USE ONLY 11. ADDITIONAL DEBTOR’S EXACT FULL LEGAL NAME — insert only one name (11a or 11b) — do not abbreviate or combine names 11a. ORGANIZATION’S NAME &nbsp; OR 11b. INDIVIDUAL’S LAST NAME FIRST NAME MIDDLE NAME SUFFIX &nbsp; 11c. MAILING ADDRESS CITY STATE&nbsp;&nbsp;&nbsp;POSTAL CODE COUNTRY 11d. TAX ID #:&nbsp;&nbsp;&nbsp; SSN OR EIN ADD’L INFO RE ORGANIZATION DEBTOR 11e. TYPE OF ORGANIZATION 11f. JURISDICTION OF ORGANIZATION 11g. ORGANIZATIONAL ID #, if any &nbsp; NONE 12. ADDITIONAL SECURED PARTY’S or ASSIGNOR S/P’S NAME — insert only one name (12a or 12b) 12a. ORGANIZATION’S NAME NELNET SUPERCONDUIT FUNDING, LLC OR &nbsp; &nbsp; &nbsp; 12b. INDIVIDUAL’S LAST NAME FIRST NAME MIDDLE NAME &nbsp; &nbsp; &nbsp; SUFFIX &nbsp; &nbsp; &nbsp; &nbsp; 12c. MAILING ADDRESS CITY STATE POSTAL CODE COUNTRY 121 S. 13th Street, Suite&nbsp;201 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Lincoln &nbsp;&nbsp;&nbsp;NE &nbsp; 68508 &nbsp; USA 13. This FINANCING STATEMENT covers timber to be cut or as-extracted collateral, or is filed as a ÿ fixture filing. 16. Additional collateral description: 14. Description of real estate: &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; 15. Name and address of a RECORD OWNER of above-described real estate
(if Debtor does not have a record interest): &nbsp; 17. Check only if applicable and check only one box. &nbsp; &nbsp; Debtor is a Trust or Trustee acting with respect to property held in trust Decedent’s Estate &nbsp; 18. Check only if applicable and check only one box. &nbsp; Debtor is a TRANSMITTING UTILITY &nbsp; Filed in connection with a Manufactured-Home Transaction — effective 30&nbsp;years &nbsp; Filed in connection with a Public-Finance Transaction — effective 30&nbsp;years FILING OFFICE COPY — NATIONAL UCC FINANCING STATEMENT ADDENDUM (FORM UCC1Ad) (REV. 07/29/98)	

 

UCC FINANCING STATEMENT ADDENDUM FOLLOW INSTRUCTIONS (front and back) CAREFULLY THE ABOVE SPACE IS FOR FILING OFFICE USE ONLY —— —	
9. NAME OF FIRST DEBTOR (1a or 1b) ON RELATED FINANCING STATEMENT	
OR 9a. ORGANIZATION’S NAME	
NATIONAL EDUCATION LOAN NETWORK, INC. —	
9b. INDIVIDUAL’S LAST NAME  _____  FIRST NAME  _____  MIDDLE NAME,SUFFIX	
10. MISCELLANEOUS: Addendum 2 of 2 The party listed in item 12 of this Addendum is an additional total assignee/additional secured party. —	
11. ADDITIONAL DEBTOR’S EXACT FULL LEGAL NAME — insert only one name (11a or 11b) — do not abbreviate or combine names —	
OR 11a. ORGANIZATION’S NAME	
11b. INDIVIDUAL’S LAST NAME  _____  FIRST NAME  _____  MIDDLE NAME  _____  SUFFIX	
11c. MAILING ADDRESS  _____  CITY  _____  STATE  _____  POSTAL CODE  _____  COUNTRY	
11d. TAX ID #: SSN OR EIN  _____  ADD’L INFO RE 11e. TYPE OF ORGANIZATION 11f. JURISDICTION OF ORGANIZATION 11g. ORGANIZATIONAL ID #, if any	
ORGANIZATION	
DEBTOR  _____  NONE —— —	
12. ADDITIONAL SECURED PARTY’S or  _____  ASSIGNOR S/P’S NAME — insert only one name (12a or 12b) —	
OR 12a. ORGANIZATION’S NAME	
THE BANK OF NEW YORK MELLON, as Conduit Lender Eligible Lender Trustee —	
12b. INDIVIDUAL’S LAST NAME  _____  FIRST NAME  _____  MIDDLE NAME  _____  SUFFIX	
12c. MAILING ADDRESS  _____  CITY  _____  STATE  _____  POSTAL CODE  _____  COUNTRY	
101 Barclay Street, 4E  _____  New York  _____  NY 10286 USA —— —— — —— —	
13. This FINANCING STATEMENT covers timber to be cut or as-extracted 16. Additional collateral description: collateral, or is filed as a ÿ fixture filing.	
14. Description of real estate:	
15. Name and address of a RECORD OWNER of above-described real estate (if Debtor does not have a record interest):	
17. Check only if applicable and check only one box. — Debtor is a Trust or Trustee acting with respect to property held in trust Decedent’s Estate —	
18. Check only if applicable and checkonly one box. — Debtor is a TRANSMITTING UTILITY Filed in connection with a Manufactured-Home Transaction — effective 30 years Filed in connection with a Public-Finance Transaction — effective 30 years —	
FILING OFFICE COPY — NATIONAL UCC FINANCING STATEMENT ADDENDUM (FORM UCC1Ad) (REV. 07/29/98)	

 

ANNEX A
TO
FINANCING STATEMENT
Debtor/Seller :
National Education Loan Network, Inc.
121 S. 13th Street
Suite 201
Lincoln Nebraska 68508
Additional Debtor :
Union Bank and Trust Company
as eligible Lender trustee for National Education Loan Network, Inc.
6801 South 27 th Street
Lincoln, Nebraska 68506
Assignor Secured Party/Purchaser :
Nelnet Superconduit Funding, LLC
c/o National Education Loan Network, Inc.
121 S. 13th Street
Suite 201
Lincoln Nebraska 68508
Total Assignee/Secured Party :
Straight-A Funding, LLC, as Conduit Lender
c/o Global Securitization Services, LLC
68 South Service Road
Melville, New York 11747
Additional Total Assignee/Secured Party :
The Bank of New York Mellon, as Conduit Lender Eligible Lender Trustee
101 Barclay Street, 4E
New York, New York 10286
The financing statement covers all of Debtor’s right, title and interest in (i) all Loans described in each Bill of Sale delivered pursuant to the Student Loan Purchase Agreement, (ii) all Related Security with respect to such Loans, and (iii) all proceeds of such Loans and Related Security (but excluding any right to make subsequent loans to a Borrower under any Promissory Note included in the collateral or any disbursement under a Promissory Note included in the collateral to the extent not constituting a Loan described in the Bill of Sale).
Capitalized terms used herein but not otherwise defined shall have the respective meaning assigned to such terms in the Student Loan Purchase Agreement, dated as of May 13, 2009 among National Education Loan Network, Inc., as seller, Union Bank and Trust Company, as seller eligible lender trustee, Nelnet Superconduit Funding, LLC, as purchaser and Zions First National Bank, as purchaser eligible lender trustee (including terms incorporated therein by reference).
A list of the student loans then subject to this financing statement may be obtained by contacting the Funding Note Issuer at Nelnet Superconduit Funding, LLC, c/o National Education Loan Network, Inc., 121 S. 13th Street, Suite 201, Lincoln NE 68508.
A PURCHASE OF OR SECURITY INTEREST IN ANY COLLATERAL DESCRIBED IN THIS FINANCING STATEMENT WILL VIOLATE THE RIGHTS OF THE CONDUIT LENDER AS SECURED PARTY.
Exhibit G-5

 

II. FORM OF UCC-1: SELLER ELIGIBLE LENDER TRUSTEE, AS DEBTOR

| | | | | | | | | | | | | | | | | | | UCC FINANCING STATEMENT FOLLOW INSTRUCTIONS (front and back) CAREFULLY THE ABOVE SPACE IS FOR FILING OFFICE USE ONLY —— — A. NAME & PHONE OF CONTACT AT FILER [optional] —	
| | | | | | | | | | | | | | | | | | | B. SEND ACKNOWLEDGMENT TO: (Name and Address) Anne M. Gish, Esq. Kutak Rock LLP 1801 California Street, Suite 3100 Denver, Colorado 80202 1. DEBTOR’S EXACT FULL LEGAL NAME — insert only one debtor name (1a or 1b) — do not abbreviate or combine names OR 1a. ORGANIZATION’S NAME UNION BANK AND TRUST COMPANY — 1b. INDIVIDUAL’S LAST NAME  _____  FIRST NAME  _____  MIDDLE NAME  _____  SUFFIX 1c. MAILING ADDRESS  _____  CITY  _____  STATE  _____  POSTALCODE  _____  COUNTRY 6801 South 27th Street  _____  Lincoln  _____  NE 68506 USA —— —— — —— —	
1d. TAX ID #: SSN OR EIN  _____  ADD’L INFO RE 1e. TYPE OF ORGANIZATION 1f. JURISDICTION OF ORGANIZATION 1g. ORGANIZATIONAL ID #, if any ORGANIZATION  _____  State Bank  _____  Nebraska 10036938	
DEBTOR  _____  NONE —— — 2. ADDITIONAL DEBTOR’S EXACT FULL LEGAL NAME — insert only one debtor name (2a or 2b) — do not abbreviate or combine names OR 2a. ORGANIZATION’S NAME NATIONAL EDUCATION LOAN NETWORK, INC. — 2b. INDIVIDUAL’S LAST NAME  _____  FIRST NAME  _____  MIDDLE NAME  _____  SUFFIX 2c. MAILING ADDRESS  _____  CITY  _____  STATE  _____  POSTALCODE  _____  COUNTRY 121 S. 13th Street, Suite 201 Lincoln  _____  NE 68508 USA —— —— — —— —	
2d. TAX ID #: SSN OR EIN  _____  ADD’L INFO RE 2e. TYPE OF ORGANIZATION 2f. JURISDICTION OF ORGANIZATION 2g. ORGANIZATIONAL ID #, if any ORGANIZATION  _____  Corporation  _____  Nevada  _____  C2237-2000 DEBTOR  _____  NONE —— — 3. SECURED PARTY’S NAME (or NAME of TOTAL ASSIGNEE of ASSIGNORS/P) — insert only  _____  one secured party name (3a or 3b) — OR 3a. ORGANIZATION’S NAME THE BANK OF NEW YORK MELLON, as Conduit Lender Eligible Lender Trustee — 3b. INDIVIDUAL’S LAST NAME  _____  FIRST NAME  _____  MIDDLE NAME  _____  SUFFIX 3c. MAILING ADDRESS  _____  CITY  _____  STATE  _____  POSTALCODE  _____  COUNTRY 101 Barclay Street, 4E  _____  New York  _____  NY 10286 USA —— —— — —— —	
4. This FINANCING STATEMENT covers the following collateral:	
SEE ANNEX A ATTACHED HERETO AND MADE PART HEREOF AND INCORPORATED HEREIN BY REFERENCE. THERE ARE THREE ADDITIONAL SHEETS PRESENTED, CONSISTING OF TWO ONE-PAGE ADDENDA AND A ONE-PAGE ANNEX A. — 5. ALTERNATIVE DESIGNATION [if applicable]: LESSEE/LESSOR  _____  CONSIGNEE/CONSIGNOR  _____  BAILEE/BAILOR  _____  SELLER/BUYER  _____  AG. LIEN  _____  NON-UCC FILING 6. ð This FINANCING STATEMENT is to be filed (for record) (or recorded in the 7. Check to REQUEST SEARCH REPORT(S) on All Debtors Debtor 1 Debtor 2 REAL ESTATE RECORDS. Attach addendum [if applicable] Debtor(s) [ADDITIONAL FEE] [optional] — 8. OPTIONAL FILE REFERENCE DATA — FILING OFFICE COPY — NATIONAL UCC FINANCING STATEMENT (FORM UCC 1) (REV. 07/29/98)	

 

UCC FINANCING STATEMENT ADDENDUM	
FOLLOW INSTRUCTIONS (front and back) CAREFULLY THE ABOVE SPACE IS FOR FILING OFFICE USE ONLY —— —	
9. NAME OF FIRST DEBTOR (1a or 1b) ON RELATED FINANCING STATEMENT OR 9a. ORGANIZATION’S NAME UNION BANK AND TRUST COMPANY — 9b. INDIVIDUAL’S LAST NAME  _____  FIRST NAME  _____  MIDDLE NAME,SUFFIX 10. MISCELLANEOUS:	
Addendum 1 of 2 The Trustee box in item 17 has been checked in connection with the debtor listed in item 1. The debtor listed in item 1 above holds legal title, as eligible lender trustee, to certain collateral described in Annex A attached hereto. The additional debtor listed in item 2 above is the settlor and the owner of the beneficial interest in the collateral described on Annex A attached hereto. The party listed in item 12 of this Addendum is the assignor secured party. — 11. ADDITIONAL DEBTOR’S EXACT FULL LEGAL NAME — insert only one name (11a or 11b) — do not abbreviate or combine names — OR 11a. ORGANIZATION’S NAME 11b. INDIVIDUAL’S LAST NAME  _____  FIRST NAME  _____  MIDDLE NAME  _____  SUFFIX 11c. MAILING ADDRESS  _____  CITY  _____  STATE  _____  POSTAL CODE  _____  COUNTRY 11d. TAX ID #: SSN OR EIN  _____  ADD’L INFO RE 11e. TYPE OF ORGANIZATION 11f. JURISDICTION OF ORGANIZATION 11g. ORGANIZATIONAL ID #, if any ORGANIZATION DEBTOR  _____  NONE —— — 12. ADDITIONAL SECURED PARTY’S or  _____  ASSIGNOR S/P’S NAME — insert only one name (12a or 12b) — OR 12a. ORGANIZATION’S NAME ZIONS FIRST NATIONAL BANK — 12b. INDIVIDUAL’S LAST NAME  _____  FIRST NAME  _____  MIDDLE NAME  _____  SUFFIX 12c. MAILING ADDRESS  _____  CITY  _____  STATE  _____  POSTAL CODE  _____  COUNTRY 1001 17TH Street, Suite 1050 Denver  _____  CO 80202 USA —— —— — —— —	
13. This FINANCING STATEMENT covers timber to be cut or as-extracted 16. Additional collateral description:	
collateral, or is filed as a ÿ fixture filing. 14. Description of real estate:	
15. Name and address of a RECORD OWNER of above-described real estate (if Debtor does not have a record interest):	
17. Check only if applicable and check only one box. — Debtor is a Trust or Trustee acting with respect to property held in trust Decedent’s Estate — 18. Check only if applicable and checkonly one box. — Debtor is a TRANSMITTING UTILITY Filed in connection with a Manufactured-Home Transaction — effective 30 years Filed in connection with a Public-Finance Transaction — effective 30 years — FILING OFFICE COPY — NATIONAL UCC FINANCING STATEMENT ADDENDUM (FORM UCC1Ad) (REV. 07/29/98)	

 

UCC FINANCING STATEMENT ADDENDUM	
FOLLOW INSTRUCTIONS (front and back) CAREFULLY THE ABOVE SPACE IS FOR FILING OFFICE USE ONLY —— —	
9. NAME OF FIRST DEBTOR (1a or 1b) ON RELATED FINANCING STATEMENT OR 9a. ORGANIZATION’S NAME UNION BANK AND TRUST COMPANY — 9b. INDIVIDUAL’S LAST NAME  _____  FIRST NAME  _____  MIDDLE NAME,SUFFIX 10. MISCELLANEOUS:	
Addendum 2 of 2 The party listed in item 12 of this addendum is an additional total assignee/additional secured party. — 11. ADDITIONAL DEBTOR’S EXACT FULL LEGAL NAME — insert only one name (11a or 11b) — do not abbreviate or combine names — OR 11a. ORGANIZATION’S NAME 11b. INDIVIDUAL’S LAST NAME  _____  FIRST NAME  _____  MIDDLE NAME  _____  SUFFIX 11c. MAILING ADDRESS  _____  CITY  _____  STATE  _____  POSTAL CODE  _____  COUNTRY 11d. TAX ID #: SSN OR EIN  _____  ADD’L INFO RE 11e. TYPE OF ORGANIZATION 11f. JURISDICTION OF ORGANIZATION 11g. ORGANIZATIONAL ID #, if any ORGANIZATION DEBTOR  _____  NONE —— — 12. ADDITIONAL SECURED PARTY’S or  _____  ASSIGNOR S/P’S NAME — insert only one name (12a or 12b) — OR 12a. ORGANIZATION’S NAME STRAIGHT-A FUNDING, LLC, as Conduit Lender — 12b. INDIVIDUAL’S LAST NAME  _____  FIRST NAME  _____  MIDDLE NAME  _____  SUFFIX 12c. MAILING ADDRESS  _____  CITY  _____  STATE  _____  POSTAL CODE  _____  COUNTRY 68 South Service Road, Suite 120 Melville  _____  NY 11747 USA —— —— — —— —	
13. This FINANCING STATEMENT covers timber to be cut or as-extracted 16. Additional collateral description:	
collateral, or is filed as a ÿ fixture filing. 14. Description of real estate:	
15. Name and address of a RECORD OWNER of above-described real estate (if Debtor does not have a record interest):	
17. Check only if applicable and check only one box. — Debtor is a Trust or Trustee acting with respect to property held in trust Decedent’s Estate — 18. Check only if applicable and checkonly one box. — Debtor is a TRANSMITTING UTILITY Filed in connection with a Manufactured-Home Transaction — effective 30 years Filed in connection with a Public-Finance Transaction — effective 30 years — FILING OFFICE COPY — NATIONAL UCC FINANCING STATEMENT ADDENDUM (FORM UCC1Ad) (REV. 07/29/98)	

 

ANNEX A
TO
FINANCING STATEMENT
Debtor/Seller Eligible Lender Trustee :
Union Bank and Trust Company
as eligible Lender trustee for National Education Loan Network, Inc.
6801 South 27 th Street
Lincoln, Nebraska 68506
Additional Debtor :
National Education Loan Network, Inc.
121 S. 13th Street
Suite 201
Lincoln Nebraska 68508
Assignor Secured Party/Eligible Lender Trustee :
Zions First National Bank
as Eligible Lender Trustee for the benefit of
Nelnet Superconduit Funding, LLC
1001 17th Street, Suite 1050
Denver, Colorado 80202
Total Assignee/Secured Party :
The Bank of New York Mellon, as Conduit Lender Eligible Lender Trustee
101 Barclay Street, 4E
New York, New York 10286
Additional Total Assignee/Secured Party :
Straight-A Funding, LLC, as Conduit Lender
c/o Global Securitization Services, LLC
68 South Service Road
Melville, New York 11747
The financing statement covers all of the Debtors’ right, title and interest in (i) all Loans described in each Bill of Sale delivered pursuant to the Student Loan Purchase Agreement, (ii) all Related Security with respect to such Loans, and (iii) all proceeds of such Loans and Related Security (but excluding any right to make subsequent loans to a Borrower under any Promissory Note included in the collateral or any disbursement under a Promissory Note included in the collateral to the extent not constituting a Loan described in the Bill of Sale).
Capitalized terms used herein but not otherwise defined shall have the respective meaning assigned to such terms in the Student Loan Purchase Agreement, dated as of May 13, 2009 among National Education Loan Network, Inc., as seller, Union Bank and Trust Company, as seller eligible lender trustee, Nelnet Superconduit Funding, LLC, as purchaser and Zions First National Bank, as purchaser eligible lender trustee (including terms incorporated therein by reference).
A list of the student loans then subject to this financing statement may be obtained by contacting the Funding Note Issuer at Nelnet Superconduit Funding, LLC, c/o National Education Loan Network, Inc., 121 S. 13th Street, Suite 201, Lincoln NE 68508.
A PURCHASE OF OR SECURITY INTEREST IN ANY COLLATERAL DESCRIBED IN THIS FINANCING STATEMENT WILL VIOLATE THE RIGHTS OF THE CONDUIT LENDER AS SECURED PARTY.
Exhibit G-9

 

III. FORM OF UCC-1: FUNDING NOTE ISSUER, AS DEBTOR (use for SPVs)

UCC FINANCING STATEMENT FOLLOW INSTRUCTIONS (front and back) CAREFULLY THE ABOVE SPACE IS FOR FILING OFFICE USE ONLY —— — A. NAME & PHONE OF CONTACT AT FILER [optional] —	
| | | | | | | | | | | | | | | |	
B. SEND ACKNOWLEDGMENT TO: (Name and Address)	
Anne M. Gish, Esq. Kutak Rock LLP 1801 California Street, Suite 3100 Denver, Colorado 80202	
1. DEBTOR’S EXACT FULL LEGAL NAME — insert only one debtor name (1a or 1b) — do not abbreviate or combine names	
OR 1a. ORGANIZATION’S NAME	
NELNET SUPERCONDUIT FUNDING, LLC —	
1b. INDIVIDUAL’S LAST NAME  _____  FIRST NAME  _____  MIDDLE NAME  _____  SUFFIX	
1c. MAILING ADDRESS  _____  CITY  _____  STATE  _____  POSTALCODE  _____  COUNTRY	
121 SOUTH 13 TH STREET, SUITE 201 LINCOLN  _____  NE 68508 USA —— —— — —— —	
1d. TAX ID #: SSN OR EIN  _____  ADD’L INFO RE 1e. TYPE OF ORGANIZATION 1f. JURISDICTION OF ORGANIZATION 1g. ORGANIZATIONAL ID #, if any	
ORGANIZATION  _____  Limited liability Company  _____  Delaware	
DEBTOR  _____  NONE —— —	
2. ADDITIONAL DEBTOR’S EXACT FULL LEGAL NAME — insert only one debtor name (2a or 2b) — do not abbreviate or combine names	
OR 2a. ORGANIZATION’S NAME	
2b. INDIVIDUAL’S LAST NAME  _____  FIRST NAME  _____  MIDDLE NAME  _____  SUFFIX	
2c. MAILING ADDRESS  _____  CITY  _____  STATE  _____  POSTALCODE  _____  COUNTRY	
2d. TAX ID #: SSN OR EIN  _____  ADD’L INFO RE 2e. TYPE OF ORGANIZATION 2f. JURISDICTION OF ORGANIZATION 2g. ORGANIZATIONAL ID #, if any	
ORGANIZATION	
DEBTOR  _____  NONE —— —	
3. SECURED PARTY’S NAME (or NAME of TOTAL ASSIGNEE of ASSIGNORS/P) — insert only  _____  one secured party name (3a or 3b) —	
OR 3a. ORGANIZATION’S NAME	
STRAIGHT-A FUNDING, LLC, as Conduit Lender —	
3b. INDIVIDUAL’S LAST NAME  _____  FIRST NAME  _____  MIDDLE NAME  _____  SUFFIX	
3c. MAILING ADDRESS  _____  CITY  _____  STATE  _____  POSTALCODE  _____  COUNTRY	
68 SOUTH SERVICE ROAD  _____  MELVILLE  _____  NY 11747 USA —— —— — —— —	
4. This FINANCING STATEMENT covers the following collateral:	
All of the Debtor’s right, title and interest in, to and under, in each case, whether now owned or existing, or hereafter arising or acquired, all loans, securities, financial assets, investment property, instruments, general intangibles, payment intangibles, accounts, including deposit accounts, money, documents, agreements, investments and all other property and assets of any type or nature in which the Debtor has an interest (excluding the share capital of the Debtor), including without limitation, all of the Debtor’s assets and property. A PURCHASE OF OR SECURITY INTEREST IN ANY COLLATERAL DESCRIBED IN THIS FINANCING STATEMENT WILL VIOLATE THE RIGHTS OF THE SECURED PARTY. —	
5. ALTERNATIVE DESIGNATION [if applicable]: LESSEE/LESSOR  _____  CONSIGNEE/CONSIGNOR  _____  BAILEE/BAILOR  _____  SELLER/BUYER  _____  AG. LIEN  _____  NON-UCC FILING	
6. ð This FINANCING STATEMENT is to be filed (for record) (or recorded in the 7. Check to REQUEST SEARCH REPORT(S) on All Debtors Debtor 1 Debtor 2 REAL ESTATE RECORDS. Attach addendum [if applicable] Debtor(s) [ADDITIONAL FEE] [optional] —	
8. OPTIONAL FILE REFERENCE DATA —	
FILING OFFICE COPY — NATIONAL UCC FINANCING STATEMENT (FORM UCC 1) (REV. 07/29/98)	
Exhibit G-10

 

UCC FINANCING STATEMENT ADDENDUM FOLLOW INSTRUCTIONS (front and back) CAREFULLY THE ABOVE SPACE IS FOR FILING OFFICE USE ONLY —— —	
9. NAME OF FIRST DEBTOR (1a or 1b) ON RELATED FINANCING STATEMENT	
OR 9a. ORGANIZATION’S NAME	
NELNET SUPERCONDUIT FUNDING, LLC —	
9b. INDIVIDUAL’S LAST NAME  _____  FIRST NAME  _____  MIDDLE NAME,SUFFIX	
10. MISCELLANEOUS: Addendum 1 of 1 —	
11. ADDITIONAL DEBTOR’S EXACT FULL LEGAL NAME — insert only one name (11a or 11b) — do not abbreviate or combine names —	
OR 11a. ORGANIZATION’S NAME	
11b. INDIVIDUAL’S LAST NAME  _____  FIRST NAME  _____  MIDDLE NAME  _____  SUFFIX	
11c. MAILING ADDRESS  _____  CITY  _____  STATE  _____  POSTAL CODE  _____  COUNTRY	
11d. TAX ID #: SSN OR EIN  _____  ADD’L INFO RE 11e. TYPE OF ORGANIZATION 11f. JURISDICTION OF ORGANIZATION 11g. ORGANIZATIONAL ID #, if any	
ORGANIZATION	
DEBTOR  _____  NONE —— —	
12. ADDITIONAL SECURED PARTY’S or  _____  ASSIGNOR S/P’S NAME — insert only one name (12a or 12b) —	
OR 12a. ORGANIZATION’S NAME	
THE BANK OF NEW YORK MELLON, as Conduit Lender Eligible Lender Trustee —	
12b. INDIVIDUAL’S LAST NAME  _____  FIRST NAME  _____  MIDDLE NAME  _____  SUFFIX	
12c. MAILING ADDRESS  _____  CITY  _____  STATE  _____  POSTAL CODE  _____  COUNTRY	
101 BARCLAY STREET, 4E  _____  NEW YORK  _____  NY 10286 USA —— —— — —— —	
13. This FINANCING STATEMENT covers timber to be cut or as-extracted 16. Additional collateral description: collateral, or is filed as a ÿ fixture filing.	
14. Description of real estate:	
15. Name and address of a RECORD OWNER of above-described real estate (if Debtor does not have a record interest):	
17. Check only if applicable and check only one box. — Debtor is a Trust or Trustee acting with respect to property held in trust Decedent’s Estate —	
18. Check only if applicable and checkonly one box. — Debtor is a TRANSMITTING UTILITY Filed in connection with a Manufactured-Home Transaction — effective 30 years Filed in connection with a Public-Finance Transaction — effective 30 years —	
FILING OFFICE COPY — NATIONAL UCC FINANCING STATEMENT ADDENDUM (FORM UCC1Ad) (REV. 07/29/98)	
Exhibit G-11

 

UCC FINANCING STATEMENT FOLLOW INSTRUCTIONS (front and back) CAREFULLY THE ABOVE SPACE IS FOR FILING OFFICE USE ONLY —— — A. NAME & PHONE OF CONTACT AT FILER [optional] —	
| | | | | | | | | | | | | | | | | | | B. SEND ACKNOWLEDGMENT TO: (Name and Address) Anne M. Gish, Esq. Kutak Rock LLP 1801 California Street, Suite 3100 Denver, Colorado 80202 1. DEBTOR’S EXACT FULL LEGAL NAME — insert only one debtor name (1a or 1b) — do not abbreviate or combine names OR 1a. ORGANIZATION’S NAME ZIONS FIRST NATIONAL BANK — 1b. INDIVIDUAL’S LAST NAME  _____  FIRST NAME  _____  MIDDLE NAME  _____  SUFFIX 1c. MAILING ADDRESS  _____  CITY  _____  STATE  _____  POSTALCODE  _____  COUNTRY 1001 17 TH Street, Suite 1050 Denver  _____  CO 80202 USA —— —— — —— —	
1d. TAX ID #: SSN OR EIN  _____  ADD’L INFO RE 1e. TYPE OF ORGANIZATION 1f. JURISDICTION OF ORGANIZATION 1g. ORGANIZATIONAL ID #, if any ORGANIZATION  _____  National Banking Association  _____  United States 4341	
DEBTOR  _____  NONE —— — 2. ADDITIONAL DEBTOR’S EXACT FULL LEGAL NAME — insert only one debtor name (2a or 2b) — do not abbreviate or combine names OR 2a. ORGANIZATION’S NAME NELNET SUPERCONDUIT FUNDING, LLC — 2b. INDIVIDUAL’S LAST NAME  _____  FIRST NAME  _____  MIDDLE NAME  _____  SUFFIX 2c. MAILING ADDRESS  _____  CITY  _____  STATE  _____  POSTALCODE  _____  COUNTRY 121 South 13th Street, Suite 201 Lincoln  _____  NE 68508 USA —— —— — —— —	
2d. TAX ID #: SSN OR EIN  _____  ADD’L INFO RE 2e. TYPE OF ORGANIZATION 2f. JURISDICTION OF ORGANIZATION 2g. ORGANIZATIONAL ID #, if any ORGANIZATION  _____  Limited liability Company  _____  Delaware 4669705	
DEBTOR  _____  NONE —— — 3. SECURED PARTY’S NAME (or NAME of TOTAL ASSIGNEE of ASSIGNORS/P) — insert only  _____  one secured party name (3a or 3b) — OR 3a. ORGANIZATION’S NAME STRAIGHT-A FUNDING, LLC, as Conduit Lender — 3b. INDIVIDUAL’S LAST NAME  _____  FIRST NAME  _____  MIDDLE NAME  _____  SUFFIX 3c. MAILING ADDRESS  _____  CITY  _____  STATE  _____  POSTALCODE  _____  COUNTRY 68 South Service Road  _____  Melville  _____  NY 11747 USA —— —— — —— —	
4. This FINANCING STATEMENT covers the following collateral:	
SEE ANNEX A ATTACHED HERETO AND MADE PART HEREOF AND INCORPORATED HEREIN BY REFERENCE. THERE ARE THREE ADDITIONAL SHEETS PRESENTED, CONSISTING OF A ONE-PAGE ADDENDUM AND A TWO-PAGE ANNEX A. — 5. ALTERNATIVE DESIGNATION [if applicable]: LESSEE/LESSOR  _____  CONSIGNEE/CONSIGNOR  _____  BAILEE/BAILOR  _____  SELLER/BUYER  _____  AG. LIEN  _____  NON-UCC FILING 6. ð This FINANCING STATEMENT is to be filed (for record) (or recorded in the 7. Check to REQUEST SEARCH REPORT(S) on All Debtors Debtor 1 Debtor 2 REAL ESTATE RECORDS. Attach addendum [if applicable] Debtor(s) [ADDITIONAL FEE] [optional] — 8. OPTIONAL FILE REFERENCE DATA — FILING OFFICE COPY — NATIONAL UCC FINANCING STATEMENT (FORM UCC 1) (REV. 07/29/98)	
Exhibit G-12

 

UCC FINANCING STATEMENT ADDENDUM	
FOLLOW INSTRUCTIONS (front and back) CAREFULLY THE ABOVE SPACE IS FOR FILING OFFICE USE ONLY —— —	
9. NAME OF FIRST DEBTOR (1a or 1b) ON RELATED FINANCING STATEMENT OR 9a. ORGANIZATION’S NAME ZIONS FIRST NATIONAL BANK — 9b. INDIVIDUAL’S LAST NAME  _____  FIRST NAME  _____  MIDDLE NAME,SUFFIX 10. MISCELLANEOUS:	
Addendum 1 of 1. The Trustee box in item 17 has been checked in connection with the debtor listed in item 1. The debtor listed in item 1 above holds legal title, as eligible lender trustee, to certain collateral described on Annex A attached hereto. The additional debtor listed in item 2 above is the settlor and the owner of the beneficial interest in the collateral described on Annex A attached hereto. 11. ADDITIONAL DEBTOR’S EXACT FULL LEGAL NAME — insert only one name (11a or 11b) — do not abbreviate or combine names — OR 11a. ORGANIZATION’S NAME 11b. INDIVIDUAL’S LAST NAME  _____  FIRST NAME  _____  MIDDLE NAME  _____  SUFFIX 11c. MAILING ADDRESS  _____  CITY  _____  STATE  _____  POSTAL CODE  _____  COUNTRY 11d. TAX ID #: SSN OR EIN  _____  ADD’L INFO RE 11e. TYPE OF ORGANIZATION 11f. JURISDICTION OF ORGANIZATION 11g. ORGANIZATIONAL ID #, if any ORGANIZATION DEBTOR  _____  NONE —— — 12. ADDITIONAL SECURED PARTY’S or  _____  ASSIGNOR S/P’S NAME — insert only one name (12a or 12b) — OR 12a. ORGANIZATION’S NAME THE BANK OF NEW YORK MELLON, as Conduit Lender Eligible Lender Trustee — 12b. INDIVIDUAL’S LAST NAME  _____  FIRST NAME  _____  MIDDLE NAME  _____  SUFFIX 12c. MAILING ADDRESS  _____  CITY  _____  STATE  _____  POSTAL CODE  _____  COUNTRY 101 Barclay Street, 4E  _____  New York  _____  NY 10286 USA —— —— — —— —	
13. This FINANCING STATEMENT covers timber to be cut or as-extracted 16. Additional collateral description:	
collateral, or is filed as a ÿ fixture filing. 14. Description of real estate:	
15. Name and address of a RECORD OWNER of above-described real estate (if Debtor does not have a record interest):	
17. Check only if applicable and check only one box. — Debtor is a Trust or Trustee acting with respect to property held in trust Decedent’s Estate — 18. Check only if applicable and checkonly one box. — Debtor is a TRANSMITTING UTILITY Filed in connection with a Manufactured-Home Transaction — effective 30 years Filed in connection with a Public-Finance Transaction — effective 30 years — FILING OFFICE COPY — NATIONAL UCC FINANCING STATEMENT ADDENDUM (FORM UCC1Ad) (REV. 07/29/98)	
Exhibit G-13

 

ANNEX A
TO
FINANCING STATEMENT
Debtor :
Zions First National Bank
as Eligible Lender Trustee for the benefit of
Nelnet Superconduit Funding, LLC
1001 17th Street, Suite 1050
Denver, Colorado 80202
Additional Debtor :
Nelnet Superconduit Funding, LLC
c/o National Education Loan Network, Inc.
121 S. 13th Street
Suite 201
Lincoln Nebraska 68508
Secured Party :
Straight-A Funding, LLC, as Conduit Lender
c/o Global Securitization Services, LLC
68 South Service Road
Melville, New York 11747
Additional Secured Party :
The Bank of New York Mellon, as Conduit Lender Eligible Lender Trustee
101 Barclay Street, 4E
New York, New York 10286
This financing statement covers (i) all of the Debtors’ right, title and interest in (but none of its obligations under), each of the Transaction Documents and the Department Put Agreement (to the extent relating to the Financed Student Loans), including all rights and remedies thereunder; and (ii) all of the Debtors’ right, title and interest in the following property, whether now owned or existing or hereafter arising or acquired and wheresoever located (but excluding any right to make subsequent loans to a Borrower under any Promissory Note included in the Pledged Collateral or any disbursement under a Promissory Note included in the Pledged Collateral to the extent not constituting a Financed Student Loan):
(a) all Financed Student Loans;
(b) the Trust Accounts;
(c) all Collections from Financed Student Loans;
(d) all Eligible Investments and other property, financial assets, security entitlements, funds and accrued earnings thereon held, credited to or carried in any of the Trust Accounts;
(e) all Records relating to any of the foregoing items;
(f) all supporting obligations, liens securing any of the foregoing, money and claims and other rights under insurance policies relating to any of the foregoing;
(g) all accounts, general intangibles, payment intangibles, instruments, investment property, documents, chattel paper, goods, moneys, letters of credit, letter of credit rights, certificates of deposit, deposit accounts and all other property and interests in property of the Funding Note Issuer or the Eligible Lender Trustee, on behalf of the Funding Note Issuer, to the extent relating to the Financed Student Loans, whether tangible or intangible; and
(h) all proceeds of any of the foregoing.
 
 Exhibit G-14 

 

Capitalized terms used herein but not otherwise defined shall have the respective meanings assigned to such terms in the Funding Note Purchase Agreement, dated as of May 13, 2009, among Straight-A Funding, LLC, as Conduit Lender, Nelnet Superconduit Funding, LLC, as Funding Note Issuer, Zions First National Bank, as Eligible Lender Trustee, The Bank of New York Mellon, as Conduit Administrator and Securities Intermediary and Conduit Lender Eligible Lender Trustee, National Education Loan Network, Inc., as SPV Administrator, Nelnet, Inc., as Sponsor, BMO Capital Markets Corp., as Manager, and National Education Loan Network, Inc., as Master Servicer.
A list of the Financed Student Loans covered by this Financing Statement is maintained by the Secured Party or its agent.
A PURCHASE OF OR SECURITY INTEREST IN ANY COLLATERAL DESCRIBED IN THIS FINANCING STATEMENT WILL VIOLATE THE RIGHTS OF THE CONDUIT LENDER AS SECURED PARTY.
 
 Exhibit G-15 

 

Exhibit H
FORM OF
OFFICER’S CERTIFICATE
REGARDING ORGANIZATION

[DATE]
Reference is made to that certain Funding Note Purchase Agreement, dated as of May 13, 2009, by and among Nelnet Superconduit Funding, LLC, as the Funding Note Issuer, National Education Loan Network, Inc., as the SPV Administrator, Zions First National Bank, as the Eligible Lender Trustee, Straight-A Funding, LLC, as the Conduit Lender, The Bank of New York Mellon, as the Conduit Administrator, the Securities Intermediary and the Conduit Lender Eligible Lender Trustee, BMO Capital Markets Corp., as the Manager, Nelnet, Inc., as the Sponsor, and National Education Loan Network, Inc., as the Master Servicer (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Funding Note Purchase Agreement ”). Each capitalized term used but not defined herein has the meaning assigned to such term in the Funding Note Purchase Agreement.
This officer’s certificate is executed and delivered by the undersigned pursuant to Section 1(a)(iii) of Appendix B to the Funding Note Purchase Agreement. The undersigned hereby certifies to the Conduit Administrator as follows:

1.	 	I am a duly elected, qualified and acting officer of [NAME] (the “Company”), I am familiar with the matters herein certified and I am authorized to execute and deliver this certificate.	

2.	 	Attached as Schedule I hereto is a true and correct copy of the certificate of [incorporation][partnership][formation] of the Company as in effect on the date hereof.	

3.	 	Attached as Schedule II hereto is a true and correct copy of a certificate of good standing 1 of the Company issued on [DATE] by the [Secretary of State] of the State of [ ].	

4.	 	Attached as Schedule III hereto is a true and correct copy of the [bylaws][limited partnership agreement][limited liability company agreement] of the Company as in effect on the date hereof.	

5.	 	Attached as Schedule IV hereto is a true and correct copy of duly and lawfully adopted resolutions of the [ ] of the Company [adopted by unanimous written consent] authorizing the Company to execute, deliver and perform each Transaction Document to which it is party (the “Resolutions”). As of the date hereof, the Resolutions have not been amended, altered or rescinded and are in full force and effect and no organizational action prohibiting or conflicting with the transactions contemplated thereby has been taken by the Company.	

6.	 	Attached as Schedule V hereto is an incumbency including the correct name and a genuine specimen of the signature of each duly elected, qualified and acting officer of the Company authorized to act on behalf of the Company in connection with the transactions contemplated by the Resolutions.	
[Signature Follows]
IN WITNESS WHEREOF , I have hereunto signed my name as of the date first written above.
 	 	 	 	 	
By:	 	 
 
Name:	 	 	
 	 	Title:	 	 	

 	 	 	
1	 	Certificate of good standing must be dated no more than 30 days prior (and with respect to the Eligible Lender Trustee, no more than 50 days prior, so long as a certificate of good standing is requested on the Closing Date and delivered to the Department promptly upon receipt) to the date of this Officer’s Certificate.	
 
 Exhibit H-1 

 

Exhibit I
MATTERS TO BE ADDRESSED BY CLOSING DATE OPINIONS OF COUNSEL

I.	 	General corporate matters and enforceability	
As to the Funding Note Issuer, the Seller, the Seller Eligible Lender Trustee, the SPV Administrator, the Eligible Lender Trustee and each Material Servicer (each, a “ Covered Party ”):

A.	 	Each Covered Party is a [corporation] [limited liability company] [other entity type] validly existing and in good standing under the laws of the state in which it is organized and has full [corporate] [limited liability] [other entity type] power and authority to execute, deliver and perform all of its obligations under the Transaction Documents to which it is a party and to consummate the transactions contemplated thereby.	

B.	 	The execution and delivery by each Covered Party of the Transaction Documents to which each is a party have been duly authorized by all necessary action on the part of such Covered Party.	

C.	 	Each of the Transaction Documents to which each Covered Party is a party has been duly executed and delivered by and on behalf of such party and constitutes legal, valid and binding obligations of such party, enforceable against such party in accordance with its terms.	

D.	 	The execution and delivery by each Covered Party of the Transaction Documents to which it is a party, and the consummation by each Covered Party of the transactions contemplated by such Transaction Documents, will not violate any applicable law 1 , statute or governmental rule or regulation.	

E.	 	The execution and delivery by each Covered Party of the Transaction Documents to which it is a party does not, and the consummation by each Covered Party of the transactions contemplated thereby will not, require any consent, authorization or approval of, the giving of notice to or registration with any governmental entity or other Person, except such as may have been made and such as may be required under the blue sky laws of any jurisdiction, the Higher Education Act or the Uniform Commercial Code of any state.	

F.	 	The execution and delivery by each Covered Party of the Transaction Documents to which it is a party do not, and the consummation by each Covered Party of the transactions contemplated thereby will not, (i) violate, or require the termination of, or require the approval or consent of any person (other than such approvals or consents as have been obtained) under, the terms of [any of the agreements identified in an exhibit to the opinion (which exhibit should be certified by an officer of the applicable Covered Party as identifying all material agreements relating to debt of such Covered Party)] [any material indenture, mortgage, deed of trust, loan agreement, lease agreement or any other agreement to which such Covered Party is a party or by which such Covered Party or any of its properties is bound], (ii) to the best of our knowledge, result in, or require, the creation or imposition of any lien on such Covered Party’s properties except for the security interests expressly created pursuant to the Transaction Documents and (iii) to the best of our knowledge, violate any order, writ, judgment, award, injunction or decree of any court, administrative agency or other governmental authority applicable to such Covered Party.	

II.	 	Securities law matters	

A.	 	The Agreement is not required to be qualified under the Trust Indenture Act of 1939, as amended.	

B.	 	Neither the Funding Note Issuer nor the Seller is now, or immediately following the consummation of the transactions contemplated to occur on the date of this opinion under the Transaction Documents will be, required to be registered under the Investment Company Act of 1940, as amended.	

III.	 	Federal income tax matters	

 	 	 	
1	 	Applicable law here and in the remainder of this Part I to include New York law and the law of the jurisdiction of organization of each Covered Party.	
 
 Exhibit I-1 

 

A.	 	For federal income tax purposes, to the effect that the Funding Note Issuer will not be treated as an association (or publicly traded partnership) taxable as a corporation.	

IV.	 	UCC matters 2	

A.	 	To the extent the Student Loans constitute accounts, chattel paper, payment intangibles or promissory notes under the New York UCC, the provisions of the Student Loan Purchase Agreement and an appropriately completed bill of sale (each, a “ Bill of Sale ”) in the form attached as Exhibit A to the Student Loan Purchase Agreement are effective under the New York UCC to create in favor of Funding Note Issuer (and, solely in the case of legal title thereto, Funding Note Issuer’s eligible lender trustee (“ Funding Note Issuer ELT ”)) a security interest in Seller’s (and, solely in the case of legal title thereto, Seller’s eligible lender trustee (“ Seller ELT ”)) rights in the Student Loans identified in such Bill of Sale and in any identifiable proceeds thereof. To the extent the Student Loans are instruments other than promissory notes under the New York UCC, then to the extent that the transfers thereunder are, notwithstanding the stated intent of the parties therein, recharacterized as loans to Seller by Funding Note Issuer secured by the Student Loans, then the provisions of the Student Loan Purchase Agreement and an appropriately completed Bill of Sale are effective to create, in favor of the Funding Note Issuer (and, solely in the case of legal title thereto, the Funding Note Issuer ELT) a security interest in Seller’s (and, solely in the case of legal title thereto, the Seller ELT’s) rights in the Student Loans identified in such Bill of Sale. (We note that a “security interest” as defined in 1-201(37) of the New York UCC includes the interests of a buyer of accounts, chattel paper, payment intangibles and promissory notes. We express no opinion as to whether Funding Note Issuer’s (or, solely in the case of legal title thereto, the Funding Note Issuer’s ELT’s) security interest would be characterized as an ownership interest or solely as a collateral interest held to secure a loan made to Seller.)	

B.	 	The provisions of the Agreement are effective under the New York UCC to create in favor of the Conduit Lender (and, solely in the case of legal title thereto, the Conduit Lender Eligible Lender Trustee), a security interest in Funding Note Issuer’s (and, solely in the case of legal title thereto, Funding Note Issuer ELT’s) rights in all Student Loans in which Funding Note Issuer and the Funding Note Issuer’s ELT has a security interest, as described in paragraph IV.A. above (the “ Funding Note Issuer Student Loans ”).	

C.	 	Under the New York UCC (including the choice of laws provisions thereof), while a debtor is “located” in a jurisdiction, the local law of that jurisdiction governs the perfection by the filing of a financing statement of a security interest in personal property that is accounts, chattel paper, payment intangibles or instruments. Under the New York UCC (including the choice of laws provisions thereof):	

 	1.	 	Assuming the laws of the State of *[SELLER’S STATE OF ORGANIZATION] require the applicable government office to maintain a public record showing a *[corporation]*[limited liability company]*[limited partnership] *[statutory trust] to have been organized, and the Seller is organized solely under the laws of [SELLER’S STATE OF ORGANIZATION], Seller is “located” in [SELLER’S STATE OF ORGANIZATION] and the local law of that state governs perfection of a nonpossessory security interest in Seller’s rights in the Student Loans by the filing of financing statements.	
[Use the appropriate paragraph for each applicable Seller Eligible Lender Trustee]

 	2.	 	[use if Seller ELT is NOT a national bank and NOT a Federal Savings Bank] Assuming the laws of the State of *[SELLER ELT’S STATE OF ORGANIZATION] require the applicable government office to maintain a public record showing a *[corporation]*[state bank][trust company]* to have been organized and Seller ELT is organized solely under the laws of [SELLER’S STATE OF ORGANIZATION], Seller ELT is “located” in [SELLER ELT’S STATE OF ORGANIZATION] and the local law of that state governs perfection of a nonpossessory security interest in Seller ELT’s rights in the Student Loans by the filing of financing statements.	

 	2.	 	[use if Seller ELT is a national bank] Assuming that (i) Seller ELT is a national banking association organized under the law of the United States and (ii) Seller ELT’s “main office” (as that term is used in Comptroller of the Currency Interpretive Letter #913 dated August 3, 2001) is located in the State of *[location of main office], then Seller ELT is “located” in the State of *[location of main office] and the local law of that state governs perfection by the filing of a financing statement of a security interest in Seller ELT’s rights in the Student Loans by the filing of financing statements.	

 	 	 	
2	 	To the extent there have been other transfers of the Student Loans by Affiliated Prior Transferors on or prior to the date of transfer to the Funding Note Issuer, those transfers should be similarly covered by opinions as to the matters described in IV. F . and G .	
 
 Exhibit I-2 

 

 	2.	 	[use if Seller ELT is a Federal Savings Bank] Assuming that (i) the [Seller] ELT is a federal saving bank organized under the law of the United States, (ii) its “home office” (as that term is used in 12 C.F.R. 552.3) is in the State of *[location of home office] and (iii) 12 C.F.R. 552.3 qualifies as a “law of the United States authoriz[ing] the registered organization ... to designate its State of location” within the meaning of Section 9-307(f)(2) of the *[law governing grant] UCC, then [Seller] ELT is “located” in the State of *[location of home office] and the local law of that state governs perfection by the filings of financing statements of a security interest in Seller ELT’s rights in the Student Loans.	

 	3.	 	Assuming the laws of the State of Delaware require the applicable government office to maintain a public record showing a limited liability company to have been organized, and the Funding Note Issuer is organized solely under the laws of the State of Delaware, Funding Note Issuer is “located” in Delaware and the local law of that state governs perfection of a nonpossessory security interest in Funding Note Issuer’s rights in Funding Note Issuer Student Loans by the filing of financing statements.	
[Use the appropriate paragraph for the Eligible Lender Trustee, if any]

 	4.	 	[use if Funding Note Issuer ELT is NOT a national bank and not a Federal Savings Bank] Assuming the laws of the State of *[FUNDING NOTE ISSUER ELT’S STATE OF ORGANIZATION] require the applicable government office to maintain a public record showing a *[corporation]*[state bank][trust company]* to have been organized, Funding Note Issuer ELT is “located” in [FUNDING NOTE ISSUER ELT’S STATE OF ORGANIZATION] and the local law of that state governs perfection of a nonpossessory security interest in Funding Note Issuer ELT’s rights in the Student Loans by the filing of financing statements.	

 	4.	 	[use if Funding Note Issuer ELT is a national bank] Assuming that (i) Funding Note Issuer ELT is a national banking association organized under the law of the United States and (ii) Funding Note Issuer ELT’s “main office” (as that term is used in Comptroller of the Currency Interpretive Letter #913 dated August 3, 2001) is located in the State of *[location of main office], then Funding Note Issuer ELT is “located” in the State of *[location of main office] and the local law of that state governs perfection by the filing of a financing statement of a security interest in Funding Note Issuer ELT’s rights in the Student Loans by the filing of financing statements.	

 	4.	 	[use if Funding Note Issuer ELT is a Federal Savings Bank] Assuming that (i) the [Funding Note Issuer] ELT is a federal saving bank organized under the law of the United States, (ii) its “home office” (as that term is used in 12 C.F.R. 552.3) is in the State of *[location of home office] and (iii) 12 C.F.R. 552.3 qualifies as a “law of the United States authoriz[ing] the registered organization ... to designate its State of location” within the meaning of Section 9-307(f)(2) of the *[law governing grant] UCC, then Funding Note Issuer ELT is “located” in the State of *[location of home office] and the local law of that state governs perfection by the filings of financing statements of a security interest in Funding Note Issuer ELT’s rights in the Student Loans.	

D.	 	When the Seller Financing Statement and the Seller ELT Financing Statement(s) are filed (within the meaning of Section 9-516 of the applicable UCC) in the [Seller J/S] Filing Office (in the case of the Seller Financing Statement) and the [ELT J/S] Filing Office (in the case of the Seller ELT Financing Statement) under the provisions of (i) the  _____  UCC and (ii) the  _____  UCC, respectively, and, when Funding Note Issuer [and the Funding Note Issuer’s ELT] obtain[s] a security interest in Student Loans and identifiable cash proceeds thereof as a result of the delivery of an appropriately completed and executed Bill of Sale as contemplated by paragraph IV.A. above, Funding Note Issuer’s [(and, solely with respect to legal title thereto, the Funding Note Issuer’s ELT)] security interest in the Seller’s (and, solely with respect to legal title thereto, the Seller ELT’s) rights in the Student Loans identified in such Bill of Sale and any identifiable cash proceeds thereof will be perfected.	

E.	 	When the Funding Note Issuer Financing Statement and the [Funding Note Issuer ELT Financing Statement] are filed (within the meaning of Section 9-516 of the applicable UCC) in the Delaware Filing Office (in the case of the Funding Note Issuer Financing Statement) [and the [ELT J/S] Filing Office (in the case of the Funding Note Issuer ELT Financing Statement), under the provisions of (i) the DE UCC and (ii) the  _____  UCC, respectively,] and, when Funding Note Issuer [(and, solely in the case of legal title thereto, Funding Note Issuer’s ELT)] obtains a security interest in Student Loans and identifiable cash proceeds thereof as a result of the delivery of an appropriately completed and executed Bill of Sale as contemplated by paragraph IV.A. above, the Conduit Lender’s and the Conduit Lender Eligible Lender Trustee’s security interest in Funding Note Issuer’s [(and, solely in the case of legal title thereto, Funding Note Issuer ELT’s)] rights in the Student Loans identified in such Bill of Sale and any identifiable cash proceeds thereof will be perfected.	
We bring to your attention to the provisions of the Higher Education Act codified at 20 U.S.C. § 1087-2(d)(3), which provide:
Notwithstanding the provisions of any State law to the contrary, including the Uniform Commercial Code as in effect in any State, a security interest in insured student loans created on behalf of . . . any eligible lender as defined in section 1085(a) of this title may be perfected either through the taking of possession of such loans or by the filing of notice of such security interest in such loans in the manner provided by such State law for perfection of security interests in accounts.
 
 Exhibit I-3 

 

And at former 20 U.S.C. § 1082(m)(1)(D)(iv) which, prior to December 21, 2000, provided:
Notwithstanding the provisions of any State law to the contrary, including the Uniform Commercial Code as in effect in any State, a security interest in loans made under this part created on behalf of any eligible lender as defined in section 1085(d) of this title may be perfected either through the taking of possession of such loans (which can be through taking possession of an original or copy of the master promissory note) or by the filing of notice of such security interest in such loans in the manner provided by such State law for perfection of security interests in accounts.
20 U.S.C. § 1082(m)(1)(D)(iv) has been repealed, and replaced with 20 U.S.C. § 1082(m)(1)(E), which provides in part:
(i) In general. Notwithstanding the provisions of any State law to the contrary, including the Uniform Commercial Code as in effect in any State, a security interest in loans made under this part, on behalf of any eligible lender (as defined in section 1085(d)) shall attach, be perfected, and be assigned priority in the manner provided by the applicable State’s law for perfection of security interests in accounts, as such law may be amended from time to time (including applicable transition provisions). If any such State’s law provides for a statutory lien to be created in such loans, such statutory lien may be created by the entity or entities governed by such State law in accordance with the applicable statutory provisions that created such a statutory lien.
(iii) Sales. Notwithstanding clauses (i) and (ii) and any provisions of any State law to the contrary, other than such State’s law providing for creation of a statutory lien, an outright sale of loans made under this part shall be effective and perfected automatically upon attachment as defined in the Uniform Commercial Code of such State.
Although the quoted provisions of the Higher Education Act have not been judicially interpreted, we note that current 20 U.S.C. § 1082(m)(1)(E) conflicts with 20 U.S.C. § 1087-2(d)(3), in that the former section requires that security interests in loans made under that part of the Higher Education Act be perfected in the manner in which a security interest in accounts would be perfected under applicable state law (or in the case of an outright sale, upon attachment as defined under applicable state law), while the latter section allows perfection either in such manner or by possession of the promissory note. Although we believe that a court should resolve the conflict in favor of the more recently adopted provision, we express no opinion as to the effect of any security interest in Student Loans perfected by possession under 20 U.S.C. § 1087-2(d)(3). In addition, although the amendments to 20 U.S.C. § 1082(m)(1) do not contain any transition provisions, we express no opinion as to the effect of any security interest in Student Loans perfected prior to the effective date of such amendment by possession of the original or a copy of a master promissory note. A possible effect of the quoted provisions is that a party who has perfected a security interest by possession of a copy of a master promissory note may take priority over the security interest in favor of the Seller, the Conduit Lender and any ELT.

F.	 	Reports of searches of the UCC record (“ Search Reports ”) were requested using the names of each of Seller and Funding Note Issuer (each, a “ Transferring Party ”) listed on an exhibit to the opinion. We have reviewed the Search Reports (each as of the dates set forth therein) and the Search Reports identify no secured party who has filed with the Search Office a financing statement that (a) is effective as of the date of the Search Report, (b) names a Transferring Party as debtor or seller and (c) indicates any Student Loan as collateral that has not been released [EXCLUSION, IF NECESSARY, FOR STUDENT LOANS COVERED BY LIENS BEING RELEASED AND LIENS OF AFFILIATED PRIOR TRANSFERORS].	

G.	 	Pursuant to Sections 9-301 through 9-307 of the New York UCC and Section 9-705(c) of the UCC now in effect in the applicable Transferring Party’s “location” as set forth in paragraph IV.C above, the Search Offices constitute all of the states in which searches must be made of filings naming the applicable Transferring Party as debtor to determine whether a security interest created by the applicable Transferring Party in such Student Loans has been perfected by filing.	

V.	 	Insolvency law matters 3	

 	 	 	
3	 	To the extent there have been other transfers of the Student Loans by Affiliated Prior Transferors on or prior to the date of transfer to the Funding Note Issuer, those transfers should be covered by opinions to the effect that the Student Loans would not be property of the bankruptcy estate of any affiliate of the Funding Note Issuer under Section 541(a)(1) of the Bankruptcy Code and the bankruptcy court would not substantively consolidate the assets and liabilities of the Funding Note Issuer with any affiliate of the Funding Note Issuer. In delivering any opinion described in the preceding sentence, counsel may rely on an officer’s certificate as to appropriate factual matters, including the identification of the relevant affiliates and Affiliated Prior Transferors.	
 
 Exhibit I-4 

 

A.	 	Unless Seller is a state agency or charitable organization exempt from being the subject of an involuntary filing under the Bankruptcy Code (and which is otherwise is not transferring its Student Loans to an SPV Funding Note Issuer):	

 	1.	 	An opinion of counsel to Seller and Funding Note Issuer to the effect that, based on the reasoning and subject to the assumptions, qualifications, exceptions and limitations set forth in the opinion letter, in the event Seller became a debtor in a case under the Bankruptcy Code, it is our opinion that in a properly presented and decided case:	

 	(a)	 	a court would determine that each transfer of the Student Loans pursuant to the Student Loan Purchase Agreement constitutes a sale of such Student Loans to Funding Note Issuer by Seller, and not a pledge or grant of security interest to secure a loan, and, therefore (assuming no substantive consolidation as addressed in paragraph B , below), (1) the Student Loans would not be property of Seller’s bankruptcy estate under Section 541(a)(1) of the Bankruptcy Code, and (2) Section 362(a) of the Bankruptcy Code would not operate to stay payments by any Servicer of collections on the Student Loans in accordance with the Agreements; and	

 	(b)	 	the bankruptcy court would not substantively consolidate the assets and liabilities of Funding Note Issuer with those of Seller, the Sponsor, the Master Servicer, the SPV Administrator or any Affiliated Servicer; and	

 	2.	 	One or more opinions of Delaware counsel to Funding Note Issuer addressing rating agency criteria relating to the use of Delaware limited liability companies as special purpose issuers. 4 .	

B.	 	If Funding Note Issuer is a state agency or charitable organization exempt from being the subject of an involuntary filing under the Bankruptcy Code (and is not transferring its Student Loans to an SPV Funding Note Issuer), an opinion to the effect that the Funding Note Issuer qualifies as either a municipality under Section 101(40) of the Bankruptcy Code or a “public-purpose entity” that would not be deemed a moneyed, business[,] or commercial corporation[s]” under Section 303 of the Bankruptcy Code.	

 	 	 	
4	 	Such opinion may be omitted unless (a) the formation documents of the Funding Note Issuer differ from the form limited liability company agreement provided for Program Funding Note Issuers in any material respect, (b) a change in applicable Delaware law has occurred since the date of the last similar opinion regarding these matters that has been delivered for Program Funding Note Issuers, (c) a similar opinion regarding this matter has not been delivered for any Program Funding Note Issuer in the past six (6) months or (d) any Rating Agency shall request such opinion.	
 
 Exhibit I-5 

 

Exhibit J
FORM OF CERTIFICATE OF CONDUIT
ADMINISTRATOR REGARDING TRUST ACCOUNTS

[DATE]
The undersigned, an authorized officer of The Bank of New York Mellon, as Conduit Administrator, hereby certifies in connection with the Funding Note Purchase Agreement, dated as of May 13, 2009, by and among Nelnet Superconduit Funding, LLC, as the Funding Note Issuer, National Education Loan Network, Inc., as the SPV Administrator, Zions First National Bank, as the Eligible Lender Trustee, Straight-A Funding, LLC, as the Conduit Lender, The Bank of New York Mellon, as the Conduit Administrator, the Securities Intermediary and the Conduit Lender Eligible Lender Trustee, BMO Capital Markets Corp., as the Manager, Nelnet, Inc., as the Sponsor, and National Education Loan Network, Inc., as the Master Servicer (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Funding Note Purchase Agreement ”), that the following accounts have been established in the name of the Funding Note Issuer:

 	1.	 	Account No. [_____], Funding Note Issuer Collection Account.	
 		
 	2.	 	Account No. [_____ ], Reserve Account.	
 		
 	3.	 	Account No. [_____ ], DOE Reserve Account.	
 		
 	4.	 	Account No. [_____ ], Breakage Account.	
 		
 	5.	 	Account No. [_____ ], Sold Loans Account.	
IN WITNESS WHEREOF , I have hereunto subscribed my name as of the date first above written.
 	 	 	 	 	 	 	 	 	
 	 	The Bank of New York Mellon,
as Conduit Administrator	 	 	
 	 	 	 	 	 	 	 	 	
 	 	By:	 	 	 	 	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name:	 	 	 	 	
 	 	 	 	 	 	 	 	 	
 	 	 	 	Title:	 	 	 	 	

 Exhibit J-1 

 

Exhibit K
FORM OF
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS , that                      , a                      (the “ Principal ”), [as the Funding Note Issuer under that certain Funding Note Purchase Agreement, dated as of May 13 2009, by and among the Principal, National Education Loan Network, Inc., as the SPV Administrator, Zions First National Bank, as the Eligible Lender Trustee, BMO Capital Markets Corp., as Manager, Nelnet, Inc., as the Sponsor, National Education Loan Network, Inc., as the Master Servicer, Straight-A Funding, LLC, as the Conduit Lender (an “Attorney”), and The Bank of New York Mellon, as the Conduit Administrator, the Securities Intermediary and the Conduit Lender Eligible Lender Trustee (an “ Attorney ”) (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Funding Note Purchase Agreement ”)] [as the seller under that certain Student Loan Purchase Agreement, dated as of May 13, 2009, by and among the Principal, as seller, and Union Bank and Trust Company, as seller eligible lender trustee, Nelnet Superconduit Funding, LLC, as purchaser, and Zions First National Bank, as purchaser eligible lender trustee] (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Student Loan Purchase Agreement ”)] 14 , has, and hereby affirms that it has, irrevocably made, constituted and appointed, and by these presents does irrevocably make, constitute and appoint, each of [Straight-A Funding, LLC, The Bank of New York Mellon and, with respect to any Financed Student Loans owned by the Department, the Department (an “ Attorney ” and, together with Straight-A Funding, LLC and The Bank of New York Mellon, the “ Attorneys ”)] [Straight-A Funding, LLC (an “ Attorney ”), The Bank of New York Mellon (an “ Attorney ”) and, with respect to any Financed Student Loans owned by the Department, the Department (an “ Attorney ” and, together with Straight-A Funding, LLC and The Bank of New York Mellon, the “ Attorneys ”)] (and their respective designated officers, employees and agents) as the Principal’s true and lawful attorney-in-fact with full irrevocable power and authority in the Principal’s place and stead and at the Principal’s expense and in the Principal’s name or in such Attorney’s own name, from time to time in such Attorney’s discretion, to take any and all appropriate action and to execute and deliver any and all documents and instruments that may be necessary or desirable to accomplish the purposes of the [Funding Note Purchase Agreement] [Student Loan Purchase Agreement] and the other Transaction Documents, and, without limiting the generality of the foregoing, hereby grants to each Attorney the power and right, on its behalf, without notice to or assent by it, to do the following in connection therewith, all as though such Attorney were the absolute owner of the [Pledged Collateral] [Loans and Related Security] for all purposes:
 	 	 	
[FIRST :	 	open mail for the Principal, and ask, demand, collect, give acquittances and receipts for, take possession of, or endorse and receive payment of, any checks, drafts, notes, acceptances, or other instruments for the payment of moneys due in respect of the Pledged Collateral;	
 	 	 	
SECOND :	 	to the extent related to the Pledged Collateral and the transactions contemplated by the Transaction Documents, pay or discharge any taxes, liens or other encumbrances levied or placed on or threatened against the Principal or the Pledged Collateral;	
 	 	 	
THIRD :	 	to the extent related to the Pledged Collateral and the transactions contemplated by the Transaction Documents, defend any suit, action or proceeding brought against the Principal if the Principal does not defend such suit, action or proceeding or if such Attorney reasonably believes that it is not pursuing such defense in a manner that will maximize the recovery to such Attorney, and settle, compromise or adjust any suit, action, or proceeding described above and, in connection therewith, give such discharges or releases as such Attorney may deem appropriate;	
 	 	 	
FOURTH :	 	file or prosecute any claim, litigation, suit or proceeding in any court of competent jurisdiction or before any arbitrator, or take any other action otherwise deemed appropriate by such Attorney for the purpose of collecting any and all such moneys due in respect of the Pledged Collateral to the Principal whenever payable and to enforce any other right in respect of the Pledged Collateral;	
 	 	 	
FIFTH :	 	sell, transfer, pledge, make any agreement with respect to, or otherwise deal with or dispose of the Pledged Collateral, and execute all necessary or appropriate bills of sale, assignments, endorsements and other instruments of conveyance or transfer in connection therewith;	
 	 	 	
SIXTH :	 	give any necessary receipts or acquittance for amounts collected or received under the Funding Note Purchase Agreement;	

 	 	 	
14	 	Use the first bracketed alternative throughout the form of this Exhibit K if Power of Attorney is being delivered by the Funding Note Issuer. Use the second bracketed alternative throughout the form of this Exhibit K if Power of Attorney is being delivered by the Seller.	
  
 Exhibit K-1 

 

 	 	 	
SEVENTH :	 	send such notification forms as the Attorney deems appropriate to give notice to Borrowers of the Conduit Lender’s interest in the Pledged Collateral;	
 	 	 	
EIGHTH :	 	sign any agreements, orders or other documents in connection with or pursuant to any Transaction Document, in each case to the extent permitted under the Funding Note Purchase Agreement;	
 	 	 	
NINTH :	 	cause the certified public accountants then engaged by the Principal to prepare and deliver to the Attorney at any time and from time to time, promptly upon Attorney’s request, any reports required to be prepared by or on behalf of the Principal under the Transaction Documents;] 15	
 	 	 	
TENTH :	 	individually endorse or cause to be individually endorsed in the name of the Principal any Student Loan (with respect to Student Loans that are not evidenced by electronic Promissory Notes),	
 	 	 	
ELEVENTH :	 	evidence the transfer of any Student Loan to the Department;	
 	 	 	
TWELFTH :	 	if the original Promissory Note evidencing a Student Loan [pledged under the Funding Note Purchase Agreement] [sold under the Student Loan Purchase Agreement] executed by the Borrower has not been previously delivered to the Attorney, to the extent needed in connection with an enforcement proceeding with respect to such (unless such Student Loan was made on the basis of a copy of the original Promissory Note), cause to be transferred physical possession from the Principal to the Attorney any Promissory Note and related Loan Documents evidencing a Student Loan pledged to the Attorney (or the related Servicer on its behalf) hereunder;	
 	 	 	
THIRTEENTH :	 	perform all other acts which the Attorney deems appropriate to protect, preserve and realize upon the Student Loans [pledged under the Funding Note Purchase Agreement] [sold under the Student Loan Purchase Agreement], including, but not limited to, the right to take possession of and endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due with respect to any Promissory Note, complete blanks in documents, transfer servicing and execute assignments and other instruments on behalf of the Principal as its attorney in fact; and	
 	 	 	
FOURTEENTH:	 	do, at the Attorney’s option and the Principal’s expense, at any time or from time to time, all acts and other things that the Attorney reasonably deems necessary to perfect, preserve or realize upon the [Pledged Collateral] [Loans and Related Security] and the security interest of the Conduit Lender thereon (including without limitation the filing of UCC financing statements and continuation statements), all as fully and effectively as the Principal might do.	
The Principal hereby ratifies, to the extent permitted by law, all that said attorneys shall lawfully do or cause to be done by virtue hereof. This Power of Attorney shall not be affected by the subsequent dissolution or disability of the Principal or its authorized representatives. This Power of Attorney shall be irrevocable during the term of the [Funding Note Purchase Agreement] [Student Loan Purchase Agreement] and coupled with an interest. To induce any third party to act hereunder, the Principal hereby agrees that any third party receiving a duly executed copy or facsimile of this instrument may act hereunder, and that any notice of revocation or termination hereof or other revocation or termination hereof by operation of law shall be ineffective as to such third party. Each capitalized term used but not defined herein has the meaning assigned to such term in the [Funding Note Purchase Agreement] [Student Loan Purchase Agreement].
[Signatures Follow]

 	 	 	
15	 	Clauses First through Ninth to be inserted only if Power of Attorney relates to a Funding Note Issuer. If Power of Attorney relates to a Seller, clauses Tenth through Fourteenth shall be re-numbered to be clauses First through Fifth.	
 
 Exhibit K-2 

 

IN WITNESS WHEREOF , the undersigned has executed this Power of Attorney on behalf of the Principal as of [DATE].
 	 	 	 	 	
By:	 	 
 
Name:	 	 	
 	 	Title:	 	 	
 
 Exhibit K-3 

 

ACKNOWLEDGMENT
 	 	 	 	 	 	 	 	 	
STATE OF [ ]	 	 	)	 	 	 	 	 	
 	 	 	)	 	 	ss	 	 	
COUNTY OF [ ]	 	 	)	 	 	 	 	 	
This instrument was acknowledged, sworn to and subscribed before me as of the date above written by                                           on behalf of the Principal, as its duly authorized representative.
 	 	 	 	 	 	 	
 	 	 	 	My commission expires:	 	 	

Notary Public	 	 	 	 

 Exhibit K-4 

 

Exhibit L
FORM OF NOTICE OF INTENT TO PARTICIPATE
[NOTICE OF INTENT TO PARTICIPATE THROUGH FFELP STUDENT LOAN CONDUIT]
[__________, 200_]
United States Department of Education
Washington, D.C.
By: E-mail: ffel.agreementprocess@ed.gov
The Bank of New York Mellon
as Conduit Administrator
Re: Loan Purchase Commitment Program for Eligible FFELP Student Loans
Ladies and Gentlemen:
The undersigned, a holder of beneficial interests in FFELP student loans, with Union Bank and Trust Company, an eligible lender trustee (together the “ Lender ”), intends to sell FFELP student loans to Nelnet Superconduit Funding, LLC and Zions First National Bank, as eligible lender trustee (together the “ SPV ”). The Lender and SPV hereby notify the Department of Education (the “ Department ”) that they intend to participate in the Loan Purchase Commitment Program authorized under Section 459A of the Higher Education Act of 1965, as amended. The SPV will purchase loans from the Lender with financing from Straight-A Funding, LLC, an asset-backed commercial paper conduit (the “ Conduit ”). The Conduit will hold a security interest in the loans purchased by the SPV, and holds a Put Agreement with the Department pursuant to the Notice of Terms and Conditions of Purchase of Loans under the Ensuring Continued Access to Student Loans Act of 2008 (“ Federal Register Notice ”) published in the Federal Register, Vol. 74, pg. 2518, January 15, 2009.
In consideration of the agreement of the Department to purchase eligible loans sold by the Lender to the SPV, the Lender hereby agrees that:

 	1.	 	The Lender will continue to originate or acquire FFELP student loans made to students and parents and to participate in the FFELP in accordance with the terms of the Purchase Agreement entered into by the Lender with the SPV.	

 	2.	 	The Lender warrants to the Conduit and to the Department that each representation the Lender makes regarding a loan it sells to the SPV will be true and correct at the time of sale to the SPV.	

 	3.	 	The Lender will be bound by the indemnification and recourse provisions included in the Purchase Agreement.	
If a Loan was made on the basis of a copy of the original promissory note, the Lender agrees to provide to the Department upon the Department’s request a statement explaining that the particular Loan was made on the basis of that copy of the promissory note and the name of the person or entity in possession of the original promissory note.
By filing this Notice of Intent to Participate Through FFELP Student Loan Conduit (this “Notice”), the SPV accepts the offer of the Department to purchase loans acquired by the SPV from the Lender with financing from the Conduit. The SPV hereby grants to the Conduit and its Conduit Administrator exclusive authority to exercise that right to sell such loans pursuant to the Put Agreement.
The Department will return to the Lender and SPV, via electronic mail (e-mail), receipt and acceptance by the Department of this Notice.
The Department will accept signed copies of this Notice sent as a PDF attachment via the Department’s e-mail address listed below.
The Lender and SPV are aware that they must refer to the Federal Register Notice and to the agreements referred to therein for a complete description of the terms and conditions under which the Department will administer the Loan Purchase Commitment Program with respect to the Conduit. The Lender and SPV also acknowledge that in order to participate in the Loan Purchase Commitment Program through participation in the FFELP Student Loan Conduit, they must execute a Purchase Agreement prescribed by Conduit containing terms specified in the Federal Register Notice.
 
 Exhibit L-1 

 

If the Lender includes a beneficial holder of FFELP student loans, the Lender has included on this form the LID(s) under which this beneficial holder and its ELT operate. If the party filing this notice is an ELT that files this Notice on behalf of its beneficial holders of FFELP student loans, the ELT includes the name and LID of each of those beneficial holders.
This Notice is hereby executed and dated as of the date first listed above.
The Lender asks that the Department please direct all inquiries and correspondence relating to these programs to:
 	 	 	 	 	 	 	
 	 	[Lender Name And Lender ID Number]	 	 	
 	 	 	 	 	 	 	
[ELT Name Or Beneficial Holder Name, If Any, And LIDs]	 	 	
 	 	 	 	 	 	 	
 	 	[Street Address]
[City], [State] [Zip]
Attention Of: [Name], [Title]
By Phone — [XXX-XXX-XXXX]
By Fax — [XXX-XXX-XXXX]
By E-mail — [email address]	 	 	
 	 	 	 	 	 	 	
 	 	[NAME OF ENTITY]	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	 
 
Name:	 	 	
 	 	 	 	Title:	 	 	
 	 	 	 	 	 	 	
 	 	[SPV Name and Name of ELT for SPV]
[Street Address]
[City], [State] [Zip]
Attention Of: [Name], [Title]
By Phone — [XXX-XXX-XXXX]
By Fax — [XXX-XXX-XXXX]
By E-mail — [email address]	 	 	
 	 	 	 	 	 	 	
 	 	[NAME OF ENTITY]	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	 
 
Name:	 	 	
 	 	 	 	Title:	 	 	
The completed, signed, and dated Notice should be sent as a PDF attachment to an e-mail message addressed to ffel.agreementprocess@ed.gov. The e-mail message subject line should read “Submission of Notice of Intent to Participate.”
The completed, signed, and dated Notice should also be sent to the Conduit as facsimile message to (212) 302-8767 and a PDF attachment to an e-mail message addressed to StraightA.issuer@bmo.com. The e-mail message subject line should read “Submission of Notice of Intent to Participate in Conduit.”
For questions concerning the submission and receipt of the email please call (202) 377-4401.
 
 Exhibit L-2 

 

Exhibit M
FORM OF
SERVICING AGREEMENT 16
This Servicing Agreement (this “ Agreement ”, and together with the Supplemental Servicing Agreement incorporated herein, the “ Servicing Agreement ”) is made by and among Nelnet Superconduit Funding, a Delaware Limited Liability Company (the “ Funding Note Issuer ”), Zions First National Bank, a National Banking Association, not in its individual capacity but solely as eligible lender trustee for the Funding Note Issuer (the “ Eligible Lender Trustee ”),] 17 [Nelnet Servicing, LLC, as subservicer (“ Servicer ”),] 18 [The Bank of New York Mellon, a New York banking corporation, as Conduit Administrator (the “ Conduit Administrator ”), Straight-A Funding, LLC, a Delaware limited liability company (the “ Conduit Lender ”)] and National Education Loan Network, Inc., a Nevada corporation, as master servicer under the Funding Note Purchase Agreement (as defined below) (the “ Master Servicer ”).
W I T N E S S E T H
WHEREAS , the Master Servicer is a party to the Funding Note Purchase Agreement, dated as of May 13, 2009, by and among the Funding Note Issuer, The Bank of New York Mellon, as the Conduit Administrator, the Securities Intermediary and the Conduit Lender Eligible Lender Trustee (the “ Conduit Administrator ”), Straight-A Funding, LLC, as the Conduit Lender (the “ Conduit Lender ”)] 19 the Eligible Lender Trustee, the Conduit Administrator, the Conduit Lender,] 20 [National Education Loan Network, Inc., as the SPV Administrator (the “ SPV Administrator ”)], Nelnet, Inc., as the Sponsor, BMO Capital Markets Corp., as the Manager, and the Master Servicer (the “ Funding Note Purchase Agreement ”); and
WHEREAS , [the Funding Note Issuer and the Master Servicer] [[the Funding Note Issuer,] the Master Servicer and the Servicer] are parties to a servicing agreement dated as of May 13, 2009 21 (the “ Supplemental Servicing Agreement ”), a copy of which is attached hereto as Annex A , pursuant to which the Servicer 22 has agreed to perform certain servicing duties in respect of the Financed Student Loans;
WHEREAS , [the Funding Note Issuer[, the Eligible Lender Trustee], the Conduit Lender and the Conduit Administrator] 23 [the Funding Note Issuer and the Master Servicer] 24 desire the Servicer to service the Financed Student Loans [guaranteed by [ ]] 25 , and the Servicer is willing to service such Financed Student Loans;
NOW, THEREFORE , in consideration of the mutual covenants contained in this Agreement, the parties hereto hereby agree as follows:
ARTICLE I
SERVICES
1.1 Definitions . Except as otherwise specified herein or as the context may otherwise require, each capitalized term used but not otherwise defined herein has the meaning ascribed thereto in the Funding Note Purchase Agreement.

 	 	 	
16	 	If a subcustodian does not otherwise service student loans, a modified Servicing Agreement will be required. The modified form will be available upon request.	
 		
17	 	Eligible Lender Trustee, Conduit Administrator and Conduit Lender will not be parties to Servicing Agreements between a Master Servicer and a subservicer.	
 		
18	 	Insert for Servicing Agreement appointing a subservicer.	
 		
19	 	Insert for Servicing Agreement appointing a subservicer.	
 		
20	 	Insert for Servicing Agreement appointing a Master Servicer.	
 		
21	 	Insert description of any additional servicing agreement that will govern servicing of the Financed Student Loans. The referenced agreement may be an existing servicing agreement entered into prior to the Funding Note Purchase Agreement or a supplemental servicing agreement entered into in connection with the Funding Note Purchase Agreement. Such agreement may not purport to supersede the terms of this Agreement.	
 		
22	 	If Servicing Agreement relates to servicing by the Master Servicer, references to “Servicer” should be globally changed to “Master Servicer”.	
 		
23	 	Insert for Servicing Agreement appointing the Master Servicer.	
 		
24	 	Insert for Servicing Agreement appointing subservicer.	
 		
25	 	Insert if less than all Financed Student Loans will be serviced by the Servicer. Language may be modified as necessary to identify relevant Serviced Loans.	
 
 Exhibit M-1 

 

1.2 Loans to be Serviced; Servicing of Student Loans . (aa) The parties hereto agree that the Servicer shall service all Financed Student Loans [which are guaranteed by [ ]] 26 (the “ Serviced Loans ”) in accordance with the Servicing Agreement and the Funding Note Purchase Agreement. The Servicer agrees to service the Serviced Loans in compliance with all requirements of applicable law, including the Higher Education Act and the implementing regulations, the Equal Credit Opportunity Act, Regulation B and other applicable consumer credit law and equal credit opportunity laws, as applicable to any such Serviced Loan. The Servicer represents that it is not under sanctions by the Department.
(b) The Servicer shall deposit all Collections with respect to the Serviced Loans during any Settlement Period [to the Funding Note Issuer Collection Account] 27 [in accordance with the instructions of the Master Servicer] 28 by no later than the [second (2 nd ) Business Day following identification thereof][the second (2 nd ) Business Day preceding the Settlement Date following the end of such Settlement Period; provided that the Servicer shall transmit directly to the Funding Note Issuer Collection Account any Collections with respect to Serviced Loans selected for sale in connection with the exercise by the Conduit Lender of remedies pursuant to Section 1.03(c ) of the Funding Note Purchase Agreement or, following an Event of Default, any Collections on all Serviced Loans within two (2) Business Days of identification of the related Student Loan.] 29 Within two (2) Business Days of receipt of Collections, the Servicer will identify such Collections to the related Student Loan.
1.3 Third-Party Beneficiaries . It is understood and agreed by the parties hereto that the Department and the Affected Parties are intended third-party beneficiaries of the Servicing Agreement and are entitled to enforce the obligations of the Servicer under the Servicing Agreement as if they were parties hereto. Each of the Conduit Lender and the Department (upon the purchase of any Serviced Loan by the Department) are entitled to instruct the Servicer and exercise remedies with respect to the Serviced Loans. Following the occurrence of a Department Put Event with respect to any Serviced Loan, the Department shall have the right to direct the Servicer to deconvert such Serviced Loan and to deliver all related Loan Documents and requested servicing records to the designee of the Department.
1.4 Sale of a Loan to the Department .
(a) Upon the occurrence of a Department Put Event with respect to any Serviced Loan, the Servicing Agreement shall automatically terminate with respect to such Serviced Loan upon the relevant Department Put Date for such Serviced Loan unless the Department otherwise notifies the Servicer as soon as reasonably practicable but not less than five (5) Business Days prior to the related Department Put Date. The Servicer shall not be entitled to receive from the Department or, except as provided in clause (d) of this Section 1.4 , any other Person any de-boarding, deconversion or related costs, penalties or fees in connection with the termination of the Servicing Agreement or the deconversion of any Serviced Loan (collectively, “ Deconversion Costs ”). Upon the occurrence of any Department Put Event, upon request of the Conduit Lender or the Conduit Administrator, the Servicer shall notify the Conduit Lender of any Excluded Borrower Benefits that are payable, or potentially payable, with respect to each Serviced Loan to be sold to the Department. Servicing of any such Serviced Loan shall be transferred in accordance with industry standards related to the prudent servicing of FFELP student loans and as instructed by the Department.
(b) After any termination as described in clause (a) above, the Servicer acknowledges that the Department shall have all rights to service the related Financed Student Loans previously serviced under the Servicing Agreement.
(c) If so requested by the Department or the Funding Note Issuer, the Servicer agrees to deliver the servicing and all related servicing files and records with respect to the transferred Serviced Loans to the designee specified by the Department in accordance with the servicing transfer provisions provided by the Department to the Servicer; provided , however , the Servicer and its designees may retain copies (in electronic or paper medium) of the servicing files related to the originator and servicing of the Serviced Loans sold to the Department.
(d) The [Funding Note Issuer] [[and the] Master Servicer] may agree pursuant to the Supplemental Servicing Agreement to pay any Deconversion Costs; however , the Servicer acknowledges and agrees that (i) payment of any such Deconversion Costs shall in no event constitute a condition to termination of the Servicing Agreement with respect to a Serviced Loan upon the occurrence of a Department Put Event with respect to such Serviced Loan, deconversion of such Serviced Loan or the transfer of servicing and related servicing files and records to the Department as required by this Agreement and (ii) failure to pay any such Deconversion Costs shall not constitute a defense to full and timely performance by the Servicer of all obligations and duties of the Servicer pursuant to the Servicing Agreement. No Deconversion Costs shall be payable by the Funding Note Issuer except to the extent the Funding Note Issuer has Available Funds for such purpose on any Settlement Date in accordance with Section 1.05(c)(viii) of the Funding Note Purchase Agreement.

 	 	 	
26	 	Insert if less than all Financed Student Loans will be serviced by the Servicer. Language may be modified as necessary to identify relevant Serviced Loans.	
 		
27	 	Insert bracketed text if monthly deposits are not permitted pursuant to Section 1.05(a) of the Funding Note Purchase Agreement.	
 		
28	 	Use bracketed text if Affiliated Servicer is permitted to make monthly deposits to the Funding Note Issuer Collection Account pursuant to Section 1.05(a) of the Funding Note Purchase Agreement.	
 		
29	 	Use bracketed text if Affiliated Servicer is permitted to make monthly deposits to the Funding Note Issuer Collection Account pursuant to Section 1.05(a) of the Funding Note Purchase Agreement.	
 
 Exhibit M-2 

 

1.5 Cooperation With Inspections . The Servicer shall allow the Department, the Conduit Administrator and their representatives to schedule and conduct, during normal business hours and upon reasonable prior notice, a due diligence review and/or audit of the Servicer’s operations in respect of the servicing of all Serviced Loans and the related settlement reports, at the expense of the Servicer. The Servicer agrees to provide the Funding Note Issuer and the Department with any audit reports or other annual compliance/operational audits performed on the Servicer relating to the servicing of Serviced Loans.
1.6 Reporting Requirements .
(a) The Servicer shall provide notice in the form attached as Exhibit D (the “ Notice of Delinquency ”) to the Funding Note Issuer, the Conduit Administrator and the Manager of any Serviced Loan as to which any payment, or portion thereof, is more than 210 days past due from the original due date thereof (each, a “ Delinquent Loan ”) by no later than 2:00 p.m. on the Business Day following the date on which such Serviced Loan first became a Delinquent Loan. On any date following delivery of the Notice of Delinquency with respect to any Delinquent Loan and prior to the sale of such Delinquent Loan to the Department, the Servicer shall provide notice to the Funding Note Issuer, the Conduit Administrator and the Manager of any change in the Principal Balance or delinquency status of such Serviced Loan.
(b) The Servicer shall provide to the Funding Note Issuer, the Manager and the Conduit Administrator, a Loan Put Schedule with respect to Serviced Loans selected for sale in connection with the exercise by the Conduit Lender of remedies pursuant to Section 1.03(c ) or Section 6.03 of the Funding Note Purchase Agreement, by no later than:
(i) with respect to a sale arising from a Department Put Event pursuant to clause (i) of the definition of “Department Put Event,” (x) two (2) Business Days after receiving notice from the Funding Note Issuer of the occurrence of such Department Put Event and (y) if the Servicer shall not have received notice from the Funding Note Issuer or the Manager that all the Serviced Loans listed on the Loan Put Schedule delivered pursuant to clause (x) of this subsection (i) have been sold pursuant to Section 1.03(c)(i) of the Funding Note Purchase Agreement by the tenth (10 th ) day following receipt of the notice described in clause (x) of this subsection (i) , the tenth (10 th ) day following receipt of the notice described in clause (x) of this subsection (i) ;
(ii) with respect to a sale arising from a Liquidity Advance, (x) two (2) Business Days after receiving notice from the Funding Note Issuer of the occurrence of such Liquidity Advance and (y) if the Servicer shall not have received notice from the Funding Note Issuer or the Manager that all the Serviced Loans listed on the Loan Put Schedule delivered pursuant to clause (x) of this subsection (ii) have been sold pursuant to Section 1.03(c)(ii) of the Funding Note Purchase Agreement by the fifteenth (15 th ) day following receipt of the notice described in clause (x) of this subsection (ii) , the fifteenth (15 th ) day following receipt of the notice described in clause (x) of this subsection (ii) ;
(iii) with respect to a sale arising from the occurrence of a FFELP Commitment Default, (x) two (2) Business Days after receiving notice from the Funding Note Issuer of the occurrence of such FFELP Commitment Default and (y) if the Servicer shall not have received notice from the Funding Note Issuer or the Manager that all the Serviced Loans listed on the Loan Put Schedule delivered pursuant to clause (x) of this subsection (iii) have been sold pursuant to Section 1.03(c)(iii) of the Funding Note Purchase Agreement by the fifteenth (15 th ) day following receipt of the notice described in clause (x) of this subsection (iii) , the fifteenth (15 th ) day following receipt of the notice described in clause (x) of this subsection (iii) ;
(iv) with respect to the sale of any Delinquent Loan, the forty-fifth (45 th ) day following the delivery of the Notice of Delinquency with respect to such Delinquent Loan; and
(v) with respect to a sale arising from the occurrence of an Event of Default, (x) two (2) Business Days after receiving notice from the Funding Note Issuer or the Conduit Administrator of the occurrence of such Event of Default and (y) if the Servicer shall not have received notice from the Manager that all the Serviced Loans listed on the Loan Put Schedule delivered pursuant to clause (x) of this subsection (v) have been sold pursuant to Section 6.02(b) of the Funding Note Purchase Agreement by the fifteenth (15 th ) day following receipt of the notice described in clause (x) of this subsection (v) , the fifteenth (15 th ) day following receipt of the notice described in clause (x) of this subsection (v) .
(c) By no later than 12 noon on the tenth (10 th ) Business Day of each month, the Servicer (i) will provide to the Conduit Administrator, a report in substantially the form of Exhibit A hereto with respect to the servicing of the Serviced Loans during the preceding month, and (ii) shall report to the Conduit Administrator (x) the Estimated Excess Accrual for the preceding calendar month based on the interest accrued during such calendar month on the Serviced Loans subject to Special Allowance Payments and the Special Allowance Payment support levels applicable to such Serviced Loans under the Higher Education Act and (y) Negative Special Allowance Payments required to be made to the Department on or prior to the fifth (5 th ) day of the following month.
 
 Exhibit M-3 

 

(d) The Servicer shall be required to deliver to the Department, the Conduit Administrator and the Manager an annual statement of compliance in the form attached as Exhibit B hereto no later than April 15 th of each year, together with an agreed upon procedures letter prepared in accordance with the guidelines published by the Department from time to time, provided by a public accounting firm approved by the Manager covering compliance with certain servicing criteria as specified in the guidelines published by the Department from time to time.
(e) The Servicer will provide to the Department and the Conduit Administrator all requested reports, data and information in respect of the Serviced Loans, including, but not limited to standard reporting packages containing information on the Serviced Loans sorted by schools, delinquencies and other features identified by the Department.
(f) The Servicer shall put in place such suitable file transfer protocol in accordance with customary servicing reporting standards as may be requested by the Conduit Administrator in respect of any report, information or data to be provided by the Servicer to the Conduit Administrator in respect of the Serviced Loans.
(g) By no later than 12 noon on the second (2 nd ) Business Day following each Grant Date, the Servicer will provide to the Conduit Administrator and the Manager, using reasonable assumptions, a reasonable estimate of the weighted average remaining term to maturity, at the time of such report, of the Serviced Loans.
1.7 Duties as Subcustodian . Pursuant to the Funding Note Purchase Agreement, the Conduit Administrator has agreed to hold all Promissory Notes and related Loan Documents with respect to each Serviced Loan as bailee and agent for the Conduit Lender, and upon sale of any Serviced Loan to the Department, to hold the related Serviced Loan as bailee and agent for the Department. [The Conduit Administrator hereby revocably appoints the Master Servicer, and the Master Servicer hereby accepts and acknowledges such appointment, to act for the benefit of the Conduit Lender as Subcustodian in respect of the Serviced Loans in accordance with the Funding Note Purchase Agreement.] 30 [The Conduit Administrator has revocably appointed the Master Servicer, and the Master Servicer has agreed to act for the benefit of the Conduit Lender as Subcustodian in respect of the Serviced Loans in accordance with the Funding Note Purchase Agreement. The Master Servicer further hereby revocably appoints the Servicer, and the Servicer hereby accepts and acknowledges such appointment, to act for the benefit of the Conduit Lender as Subcustodian in respect of the Serviced Loans in accordance with the Funding Note Purchase Agreement.] 31 The Servicer as Subcustodian will maintain accurate and complete accounts, records and computer systems pertaining to each Serviced Loan, including any electronic records evidencing the Promissory Notes, as will enable the Conduit Administrator to comply with the Funding Note Purchase Agreement. In performing its duties as Subcustodian, the Servicer shall comply in all material respects with all applicable federal and state laws, including the Higher Education Act and any applicable e-sign laws, with respect thereto. Promptly upon request by the Conduit Administrator, the Servicer will deliver to the Conduit Administrator a certification in the form attached as Exhibit C that the Servicer, as Subcustodian, is in possession of all applicable Loan Documents relating to the Serviced Loans.
1.8 Appointment of Subservicer . The Servicer may not appoint any subservicer to perform all or any portion of its obligations as the Servicer hereunder unless such subservicer shall have entered into a Servicing Agreement (as defined in the Funding Note Purchase Agreement).
1.9 Supplemental Servicing Agreement . The Supplemental Servicing Agreement is hereby incorporated into the Servicing Agreement in its entirety as if all provisions set forth therein were directly included herein; provided that if any provision, term or condition of the Supplemental Servicing Agreement conflicts with anything set forth in this Agreement, the provisions contained herein shall exclusively govern. [The Master Servicer shall enforce compliance by the Servicer with all indemnities, representations, warranties, covenants and repurchase obligations in the Servicing Agreement. The Master Servicer and Servicer agree that such indemnities, representations, warranties, covenants and repurchase obligations shall be for the benefit of the Funding Note Issuer and all Affected Parties and may be directly enforced by the Funding Note Issuer and the Affected Parties.] 32 [The Servicer hereby represents and warrants that the Supplemental Servicing Agreement contains customary terms and conditions including representations, warranties, covenants and events of default that reflect a negotiated arms-length transaction]. 33
1.10 Non-Petition . The Servicer will not, at any time, institute against [the Funding Note Issuer or] the Conduit Lender, or join in any institution against [the Funding Note Issuer or] the Conduit Lender of, any bankruptcy, reorganization, arrangement, insolvency, receivership or liquidation proceedings or other proceedings under any federal or state bankruptcy law in connection with any obligations relating to the Servicing Agreement.

 	 	 	
30	 	Use bracketed text if Servicing Agreement is for the Master Servicer.	
 		
31	 	Use bracketed text if Servicing Agreement is between Master Servicer and a subservicer.	
 		
32	 	Use bracketed text if Servicing Agreement is between Master Servicer and a subservicer.	
 		
33	 	Representation must be included if the Supplemental Servicing Agreement has not been approved by the Department.	
 
 Exhibit M-4 

 

1.11 Servicing Fees . Fees payable by the Funding Note Issuer to the Servicer shall be payable out of Available Funds to the extent available for such purpose in the order of priority specified in the Funding Note Purchase Agreement. [To the extent not paid as described in the preceding sentence, the Master Servicer shall be responsible for paying all fees, expenses and Deconversion Costs agreed to be paid by the Master Servicer as and to the extent set forth in the Supplemental Servicing Agreement and in no event shall the Funding Note Issuer or any Affected Party be liable to the Servicer for payment of any fees, expenses, Deconversion Costs or any other amounts owing from the Master Servicer to the Servicer under the Servicing Agreement.] 34
1.12 [ Indemnity; ]Repurchase Obligations .
(a) [To the fullest extent permitted by applicable law, the Servicer hereby agrees to indemnify the Funding Note Issuer, the Master Servicer and each Indemnified Party from and against any and all damages, losses, claims, liabilities and related costs and expenses, including reasonable attorneys’ fees and disbursements awarded against or incurred by any of the Funding Note Issuer, the Master Servicer and the Indemnified Parties arising out of or relating to the following items described in clauses (i) through (v), but excluding, however (A) any indemnified amounts to the extent determined by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Funding Note Issuer, the Master Servicer or the Indemnified Party seeking indemnification and (B) except as provided in the Servicing Agreement, any recourse for defaulted Student Loans or Delinquent Student Loans or losses attributable to changes in the market value of the Serviced Loans, including, without limitation, because of changes in market interest rates or in rate of prepayment (the foregoing, being collectively referred to as “ Servicer Indemnified Amounts ”):
(i) the inaccuracy of any representation or warranty by the Servicer or any untrue, inaccurate, incomplete or misleading statement by the Servicer in the Servicing Agreement, any other Transaction Document or any certificate, report, information or other document delivered pursuant thereto or in connection therewith;
(ii) any failure by the Servicer to deliver any information, report, certification, accountants’ letter or other material when and as required under the Servicing Agreement, any other Transaction Document or any other failure by the Servicer to perform, or any negligence or willful misconduct in the performance by the Servicer of, any of its obligations in the Servicing Agreement or any other Transaction Document;
(iii) any actual or alleged violations of law, breach of contract or tort by the Servicer occurring, directly or indirectly, in connection with the performance of its duties under the Servicing Agreement or any other Transaction Document to which it is a party;
(iv) the unavailability or destruction of any documents relating to the Serviced Loans included in the definition of Loan Documents; and
(v) any breach by the Servicer of its obligations under the Servicing Agreement that causes the Department to refuse to honor its obligation under the Department Put Agreement to purchase Financed Student Loans from the Conduit Administrator.] 35
(b) If the Servicer fails to comply with its obligations hereunder, including without limitation, Sections 1.6(a) and (b) , and as a result of such failure, the Department refuses to purchase a Student Loan in accordance with the Department Put Agreement, the Servicer shall be required to repurchase the related Student Loan from the Funding Note Issuer at the price that would have been received by the Funding Note Issuer if the Department had accepted such Student Loan for purchase.
(c) Any [Servicer Indemnified Amounts and] repurchase amounts payable pursuant to this Section 1.12 shall be paid by the Servicer to the Funding Note Issuer, the Master Servicer or the related Indemnified Party, as applicable, on or before the thirtieth (30 th ) day following the date of demand therefor accompanied by reasonable supporting documentation with respect to such amounts.
ARTICLE II
MISCELLANEOUS
2.1 Notices . Any written notice required or permitted to be given to the parties hereunder shall be given in accordance with the delivery instructions contained in the Funding Note Purchase Agreement [or, with respect to the Servicer, in the Supplemental Servicing Agreement].

 	 	 	
34	 	Use bracketed text if Servicing Agreement is between Master Servicer and a subservicer.	
 		
35	 	Use bracketed text if Servicing Agreement is between Master Servicer and a subservicer. To be “[Reserved]” if Servicing Agreement is between Funding Note Issuer and Master Servicer.	
 
 Exhibit M-5 

 

2.2 Waiver . No term or provision hereof will be deemed waived, and no variation of terms or provisions hereof shall be deemed consented to, unless such waiver or consent shall be in writing and signed by the party against whom such waiver or consent is sought to be enforced. Any delay, waiver or omission by the Servicer[,] [or] the Funding Note Issuer [or the Master Servicer] 36 to exercise any right or power arising from any breach or default of the other party in any of the terms, provisions or covenants of this Agreement shall not be construed to be a waiver by the Servicer[,] [or] the Funding Note Issuer [or the Master Servicer] of any subsequent breach or default of the same or other terms, provisions or covenants on the part of the other party.
2.3 Successors . Subject to the restrictions on assignment contained herein, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns.
2.4 Governing Law . [Governing law provision will match the governing law provision of the applicable Supplemental Servicing Agreement.]
2.5 Waiver of Jury Trial . EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG ANY OF THEM ARISING OUT OF, CONNECTED WITH, RELATING TO OR INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT.
2.6 Section Title . The section titles contained in this Agreement shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties.
2.7 Entire Agreement . The Servicing Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all other negotiations, understandings and representations, oral or written, with respect to the subject matter hereof. [The Master Servicer has not entered into any agreement with any party regarding the servicing of the Serviced Loans that does not constitute a Servicing Agreement (as defined in the Funding Note Purchase Agreement), a copy of which has been delivered to the Conduit Administrator and the Department.] 37
2.8 Modification . This Agreement may not be amended or modified except in a written document signed by the parties hereto; provided that (i) no amendment to this Agreement shall be effective without the prior written consent of the Department; provided that, with not less than ten (10) Business Days’ prior written notice to the Department, the parties hereto may enter into any such amendment, subject to the provisions in this Section 2.8 , that does not have an adverse effect on the Department and (ii) no amendment to this Agreement shall be effective unless each Rating Agency shall have been provided with at least ten (10) days notice and [neither] [S&P] [nor] [Moody’s] 38 shall [not] have notified the Manager or the Funding Note Issuer that such amendment would result in a reduction, qualification or withdrawal of the then-current rating of the Funding Note.
2.9 Severability . This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Delivery by facsimile or electronic mail of an executed signature page of this Agreement shall be effective as delivery of an executed counterpart hereof. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.
2.10 [Limitation of Liability . Notwithstanding anything contained herein to the contrary, this Agreement has been signed by [[ ], not in its individual capacity but solely in its capacity as eligible lender trustee for the Funding Note Issuer, and in no event shall [ ], in its individual capacity have any liability for the representations, warranties, covenants, agreements or other obligations under this Agreement or in any of the certificates, notices or agreements delivered pursuant hereto, as to all of which recourse shall be had solely to the assets of the Funding Note Issuer.] 39

 	 	 	
36	 	Insert for servicing agreement appointing Master Servicer.	
 		
37	 	Insert for servicing agreement appointing Master Servicer.	
 		
38	 	May be modified to delete reference to any rating agency that is not a “Rating Agency” for the Funding Note.	
 		
39	 	Use bracketed text if Servicing Agreement is for the Master Servicer.	
 
 Exhibit M-6 

 

IN WITNESS WHEREOF , the parties hereto have hereunto set their hands as of the  _____  day of , 20_____.
 	 	 	 	 	 	 	
[_____________], as Funding Note Issuer	 	 	
 	 	 	 	 	 	 	
By:	 	 	 	 	 	 	
 	 	 	 	 	
 	 	Title:	 	 	 	 	

 [[_____________], as Servicer	 	 	
 	 	 	 	 	 	 	
By:	 	 	 	 	 	 	
 	 	 	 	 	
 	 	Title:	 	 	] 40	 	

[_____________], as Master Servicer	 	 	
 	 	 	 	 	 	 	
By:	 	 	 	 	 	 	
 	 	 	 	 	
 	 	Title:	 	 	 	 	

[[[_____________], as Eligible Lender Trustee	 	 	
 	 	 	 	 	 	 	
By:	 	 	 	 	 	 	
 	 	 	 	]	
 	 	Title:	 	 	]	 	

The Bank of New York Mellon, as Conduit Administrator	 	 	
 	 	 	 	 	 	 	
By:	 	 	 	 	 	 	
 	 	 	 	 	
 	 	Title:	 	 	 	 	

Straight-A Funding , LLC, as Conduit Lender	 	 	
 	 	 	 	 	 	 	
By: BMO Capital Markets Corp., not in its individual capacity but solely in its capacity as Manager	 	 	
 	 	 	 	 	 	 	
By:	 	 	 	 	 	 	
 	 	 	 	 	
 	 	Title:	 	 	] 41	 	

 	 	 	
40	 	Insert for Servicing Agreement appointing Subservicer.	
 		
41	 	Insert for Servicing Agreement appointing the Master Servicer.	
 
 Exhibit M-7 

 

EXHIBIT A
FORM OF MONTHLY SERVICER REPORT
[FUNDING NOTE ISSUER]
Monthly Report
Monthly Report for the Month ending [_____], 20[_____]
I.  Specific Loan Level Information . The [Master] Servicer shall provide the information requested in Schedule I attached hereto in an electronic format, which such Schedule I shall be incorporated in this Monthly Servicer Report.
II.  Accrued Department Payments . The [Master] Servicer shall provide the information requested in Schedule II attached hereto in an electronic format, which such Schedule II shall be incorporated in this Monthly Servicer Report.
III. Detail of Monthly Servicing Fees . 42
[IV. Monthly Remittance Condition . The Master Servicer [satisfies] [does not satisfy] the Monthly Remittance Condition.] 43
The undersigned hereby represents and warrants that the foregoing is accurate accounting in accordance with the Servicing Agreement dated as of [_____], 20[_____] and that all representations and warranties are restated and reaffirmed.
 	 	 	 	 	
[SERVICER]	 	 	
 	 	 	 	 	
Signature: 	 	 	 	
 	 	 	 	 	
 	Name: 	 	 	 	
 	 	 	 	 	
 	Title: 	 	 	 	

42	 	Servicer to provide information as to the calculation of the Monthly Servicing Fee.	
 		
43	 	Bracketed text to be included in Monthly Reports for Master Servicers.	
 
 Exhibit M-8 

 

SCHEDULE I
Pipe delimited file
Header Record
 	 	 	 	 	 	 	
Field	 	Field Name	 	Data Type	 	Detail	
0	 	RecordTypeIndicator	 	X(001)	 	Yes; H = Header Record	
1	 	BatchID	 	9(003)	 	Yes; Unique to each transmission. The first batch would be 001.	
2	 	CustodianIDNumber(LID/RID)	 	X(008)	 	Yes	
3	 	ServicerID (LID/RID)	 	X(008)	 	Yes	
4	 	PCFundingRequest	 	9(08).99	 	Fill with 0	
5	 	CashCollections	 	9(012).99	 	Yes, even if zero. Example: $1,233.55 would be submitted as 000000001233.55	
6	 	FileCreationDate	 	9(008)	 	Yes; CCYYMMDD	
7	 	RecordCount	 	9(007)	 	Yes	
Loan Level Detailed Record
 	 	 	 	 	 	 	
Field	 	Field Name	 	Data Type	 	Detail	
0	 	RecordTypeIndicator	 	X(001)	 	Yes; L = Loan Level Detail	
1	 	LoanNumber	 	X(019)	 	Yes	
2	 	DataFlag	 	X(001)	 	Yes; See Table (1)	
3	 	SSN	 	9(009)	 	Yes	
4	 	BirthDate	 	9(008)	 	Yes; CCYYMMDD [Must be 8 digits]	
5	 	LastName	 	X(035)	 	Yes	
6	 	FirstName	 	X(020)	 	Yes	
7	 	PLUS/AlternativeSSN	 	9(009)	 	Yes, if this is a PLUS loan. Otherwise fill with zeroes.	
8	 	PLUS/AlternativeBirthDate	 	9(008)	 	Yes, if this is a PLUS loan (CCYYMMDD), otherwise, fill with zeroes.	
9	 	PLUS/AlternativeStudentLastName	 	X(035)	 	Yes, if this is a PLUS loan. Otherwise leave blank.	
10	 	PLUS/AlternativeStudentFirstName	 	X(020)	 	Yes, if this is a PLUS loan. Otherwise leave blank.	
11	 	SchoolID	 	9(008)	 	Yes	
12	 	GuarantyAgencyCode	 	9(003)	 	Yes	
13	 	GuarantyDate	 	9(008)	 	Yes; CCYYMMDD [Must be 8 digits]	
14	 	TotalNumberOfScheduledDisbursements	 	9(002)	 	Yes	
15	 	FirstDisbursementDate	 	9(008)	 	Yes; CCYYMMDD [Must be 8 digits]	
16	 	MostRecentDisbursementDate	 	9(008)	 	Yes; CCYYMMDD [Must be 8 digits]	
17	 	DisbursementNumber	 	9(002)	 	Yes, if requesting funding with this submission.	
18	 	DisbursementAmount	 	9(05).99	 	Yes, if requesting funding with this submission. Maximum amount is 99999.99 (Field length of 8)	
19	 	AnticipatedFinalDisbursementDate	 	9(008)	 	Yes; CCYYMMDD [Must be 8 digits]	
20	 	LoanType	 	X(002)	 	Yes; See Table (2)	
21	 	OriginalLenderID(LID/RID)	 	X(008)	 	Yes	
22	 	SponsorID(LID/RID)	 	X(008)	 	Yes	
23	 	OriginalLoanAmount	 	9(012).99	 	Yes	
24	 	ActualInterestRate	 	9(001).99999	 	Yes; Example: 6.8% should be submitted as 0.06800	
25	 	OutstandingPrincipalBalance	 	9(012).99	 	Yes	
26	 	OutstandingInterestBalance	 	9(012).99	 	Yes	
27	 	LoanPeriodBeginDate	 	9(008)	 	Yes; CCYYMMDD	
28	 	LoanStatus	 	X(002)	 	School, Grace, Deferment, Repayment, Forbearance, Claim
Pending, Claim Rejected	
  
 Exhibit M-9 

 

 	 	 	 	 	 	 	
Field	 	Field Name	 	Data Type	 	Detail	
29	 	ReductionAmountSchool	 	9(012).99	 	Yes. Report cash collections for reductions as a positive number. Only reversals should be reported as a negative number.	
30	 	ReductionReasonCodeSchool	 	X(002)	 	Yes, if the Participation Certificate balance has been reduced for this loan. See Table (3)	
31	 	GuarantyAgencyClaims	 	9(012).99	 	Yes, if there are GA claims. Report cash collections for claims as a positive number. Only reversals should be submitted as a negative number.	
32	 	ReductionReasonCodeGA	 	X(002)	 	Yes, if the Participation Certificate balance has been reduced for this loan. See Table (4)	
33	 	DateLoanRemovedFromPC	 	9(008)	 	Yes, if the loan has or is being removed from the corpus of the Participation Certificate. CCYYMMDD	
34	 	LoanProceeds	 	9(012).99	 	Yes, if funds are being returned. Report cash collections for proceeds as a positive number. Only reversals should be submitted as a negative number.	
35	 	LoanPutToDepartment	 	9(012).99	 	Yes, if loans are sold to the Department under the Put Option. Report Put amount as a positive number. Only reversals should be submitted as a negative number.	
36	 	BorrowerPrincipalCollection	 	9(012).99	 	Yes, if the borrower has made principal payments. Report collection amount as a positive number. Only reversals should be submitted as a negative number.	
37	 	BorrowerInterestCollection	 	9(012).99	 	Yes, if the borrower has made interest payments. Report collection amount as a positive number. Only reversals should be submitted as a negative number.	
38	 	OtherCash	 	9(012).99	 	Yes, if there are adjustments. Provide a brief explanation in Field 43.	
39	 	Lienholder	 	X(001)	 	Yes. See Table (5)	
40	 	OtherCashExplanation	 	X(015)	 	If amount reported in Field #41, provide a brief explanation here.	
41	 	Accrued Interest to be Capitalized	 	9(012).99	 	Unsubsidized Interest Accrued to be capitalized into principal in the future	
42	 	Repayment Status	 	X(020)	 	School, Grace, Deferment, Repayment, Forbearance, Claim
Pending, Claim Rejected	
43	 	Day of Delinquency	 	9(003)	 	# of days past the loan’s due date	
44	 	Put Agreement Ineligible Borrower Benefit Flag	 	X(001)	 	Y/N; Return Y if the benefit doesn’t conform to the definition of Eligible Borrower Benefit on the Grant Date	
45	 	ACH Reduction Benefit Code	 	9(004)	 	Benefit code that would be used in a conversion file for a put	
46	 	Benefit % reduction for ACH	 	9(001).99	 	interest reduction % of the benefit	
47	 	Borrower Benefit Eligibility Flag	 	X(001)	 	Y If the borrower is still eligible for benefits — if they have gone delinquent for example and have lost the ability to receive the ACH benefit return 0, if they are eligible for the benefit but have not had enough payments to receive the benefit yet, return Y.	
48	 	Max Cash Back Benefit Payable	 	9(005).99	 	Maximum $ amount that would be due to borrower in the future for a cash back benefit. If amount was paid to borrower already, display 0. This field will be used to calculate the monthly Excluded Benefit Account Requirement and release for the waterfall	
49	 	FNI Indicator	 	X(008)	 	text or number that uniquely identifies an SPV on the loan
servicing system	
50	 	Remaining Months to Maturity	 	9(003)	 	# of months from month end date through loan maturity date	
51	 	Put Price	 	9(003)	 	97% or 100% based on the Put Price definition	
52	 	# of days to Day 210 Delinquent	 	9(003)	 	count the # of days until 210 days past due from the month end date	
53	 	School Type	 	X(009)	 	Four Year, Two Year, Proprietary/Vocational, Other	
  
 Exhibit M-10 

 

For Field 2 — Loan Level Detail
Table (1)
 	 	 	 	 	
Data Flag	 	Code	 	
New Loan	 	 	N	 	
Updated Loan: New or additional information from prior Loan Schedule submission (e.g., increases in accrued interest, changes to borrower information (such as name change) or change in terms (such as reallocation between subsidized and unsubsidized))	 	 	U	 	
No change to this loan for this report	 	 	I	 	
For Field 20 — Loan Level Detail
Table (2)
 	 	 	 	 	
Loan Type	 	Code	 	
FFEL Stafford Subsidized Loan	 	SF	
FFEL Stafford Unsubsidized Loan	 	SU	
PLUS Loan — Parent	 	PL	
PLUS Loan — Graduate/Professional	 	GB	
For Field 30 — Loan Level Detail
 Table (3)
 	 	 	 	 	
Reduction Reason Code School	 	Code	 	
Cancellation	 	CA	
School Refund	 	RF	
  
 Exhibit M-11 

 

For Field 32 — Loan Level Detail
Table (4)
 	 	 	 	 	
Reduction Reason Code GA	 	Code	 	
GA Claim for Bankruptcy	 	BK	
GA Claim for Closed School/False Certification	 	FC	
GA Claim for Death	 	DE	
GA Claim for Disability	 	DI	
GA Claim for Discharged or Forgiven	 	DH	
GA Claim for Unpaid Refund	 	UR	
Guaranty Fee Reimbursement	 	GF	
For Field 39 — Loan Level Detail
Table (5)
 	 	 	 	 	
Lienholder	 	Code	 	
If the Eligible Loan is subject to a lien due to financing	 	 	Y	 	
If the Eligible Loan is not subject to a lien	 	 	N	 	
For Field 53 — Loan Level Detail
 Table (6)
 	 	 	 	 	
School Type	 	Code	 	
Four Year	 	 	4Y	 	
2Y Year	 	 	2N	 	
Proprietary	 	PP	
Vocational	 	VC	
Other	 	OT	
 
 Exhibit M-12 

 

SCHEDULE II
 	 	 	 	 	 	 	
Field	 	Field Name	 	Data Type	 	Detail	
1	 	CustodianIDNumber(LID/RID) (FNI)	 	X(008)	 	Yes	
 	 	 	 	 	 	 	
2	 	ServicerID (LID/RID) — (Servicer)	 	X(008)	 	Yes	
 	 	 	 	 	 	 	
3	 	Accrued DOE Interest Subsidy Payment	 	9(012).99	 	Accrued interest benefit due from the DOE	
 	 	 	 	 	 	 	
4	 	Accrued positive DOE Special Allowance	 	9(012).99	 	If (CP index + applicable SAP margin) > Borrower Rate, then (CP index + Applicable SAP margin ) x Avg Principal Balance. If < borrower rate, then 0.	
 	 	 	 	 	 	 	
5	 	Accrued DOE Excess Interest	 	9(012).99	 	(Borrower Rate — (CP + Applicable SAP margin)) x Avg Principal Balance if value is positive, if negative display 0.	
 
 Exhibit M-13 

 

EXHIBIT B
FORM OF ANNUAL STATEMENT OF COMPLIANCE
[FUNDING NOTE ISSUER]
[DATE]
United States Department of Education
400 Maryland Ave, SW
UCP, Room 111G3
Washington, DC 20202-5402
The Bank of New York Mellon, as Conduit Administrator
101 Barclay Street, 4E
New York, NY 10286
BMO Capital Markets Corp., as Manager
115 S. LaSalle St.
Chicago, IL 60603
Attention: Bart Steenbergen
StraightA.funding@bmo.com
Attn: Annual Statement of Compliance_[Funding Note Issuer][_Seller]
The undersigned, a duly authorized officer of [                                           ], as [master] 44 servicer (in such capacity, the “ [Master] Servicer ”) under the Servicing Agreement, dated as of [                      ], [                      ] (as amended and supplemented, or otherwise modified and in effect from time to time, the “ Servicing Agreement ”), by and among [                      ], as Funding Note Issuer, [[                      ], as Eligible Lender Trustee,] The Bank of New York Mellon, as Conduit Administrator, Straight-A Funding, LLC, as Conduit Lender, and the Master Servicer] 45 [the Servicer and [                      ], as Master Servicer] 46 does hereby certify that:

 	1.	 	A review of the activities of the [Master] Servicer as they relate to the Servicing Agreement, and of the [Master] Servicer’s performance under the Servicing Agreement, for the period from [                      ] through [                      ] 47 has been made under my supervision.	

2.	 	To the best of my knowledge, based on such review, the [Master] Servicer has fulfilled all of its obligations in all material respects under the Servicing Agreement throughout the period from [                      ] through [                      ] 48 .	
IN WITNESS WHEREOF, the undersigned has duly executed this certificate on behalf of the [Master] Servicer as of the day and year first written above.
 	 	 	 	 	 	 	 	 	
 	 	[MASTER] SERVICER, as [Master] Servicer	 	 	
 	 	 	 	 	 	 	 	 	
 	 	By:	 	 	 	 	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name:	 	 	 	 	
 	 	 	 	 	 	 	 	 	
 	 	 	 	Title:	 	 	 	 	

 	 	 	
44	 	Use Master Servicer configuration throughout if Servicing Agreement is for Master Servicer.	
 		
45	 	Use bracketed text if Servicing Agreement is for Master Servicer.	
 		
46	 	Use bracketed text if Servicing Agreement is not for Master Servicer.	
 		
47	 	This date should be the end of the fiscal year for the servicer.	
 		
48	 	This date should be the end of the fiscal year for the servicer.	
 
 Exhibit M-14 

 

EXHIBIT C
FORM OF SERVICER CERTIFICATION
 	 	 	
TO:	 	The Bank of New York Mellon, as Conduit Administrator	
 		
FROM:	 	[                      ], as Servicer	
 		
[DATE]	 	 	
Reference is made to that certain Servicing Agreement, dated as of [DATE], by and among [                      ], as Funding Note Issuer, [[                      ], as Eligible Lender Trustee,] The Bank of New York Mellon, as Conduit Administrator, Straight-A Funding, LLC, as Conduit Lender, and [                      ], as the Master Servicer] 49 [[                      ], as the Servicer, and [                      ], as the Master Servicer] 50 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Servicing Agreement ”) a copy of which is attached hereto.
Pursuant to Section 1.7 of the Servicing Agreement, the undersigned, being an Authorized Officer of the Servicer, does hereby certify on behalf of the Servicer that it, as Subcustodian, is in possession of the applicable Loan Documents relating to the Serviced Loans.
The Servicer hereby agrees to comply with its duties as Subcustodian in accordance with Section 1.7 of the Servicing Agreement. The Servicer hereby represents to the Conduit Administrator that all information or reports delivered to be delivered to the Conduit Administrator pursuant to the Servicing Agreement in respect to the Serviced Loans shall be true, complete and correct in all respects.
Each capitalized term used but not defined herein has the meaning assigned to such term in the Servicing Agreement.
[Signature Follows]

 	 	 	
49	 	Use bracketed text if Servicing Agreement is for Master Servicer.	
 		
50	 	Use bracketed text if Servicing Agreement is not for Master Servicer.	
 
 Exhibit M-15 

 

IN WITNESS WHEREOF , the Servicer has caused this Servicer Certification to be executed by its officer thereunto duly authorized, as of the date first written above.
[Servicer],
as the Servicer
 	 	 	 	 	
By:	 	 	 	 	
 	 	 	 	 	
 	 	Name:	 	 	
 	 	Title:	 	 	
 
 Exhibit M-16 

 

EXHIBIT D
FORM OF NOTICE OF DELINQUENCY
The Bank of New York Mellon, as Conduit Administrator
101 Barclay Street, 4E
New York, NY 10286 51
[DATE]
Reference is made to that certain Servicing Agreement, dated as of [DATE], by and among [                      ], as Funding Note Issuer, [[                      ], as Eligible Lender Trustee,] The Bank of New York Mellon, as Conduit Administrator, Straight-A Funding, LLC, as Conduit Lender, and [                      ], as the Master Servicer] 52 [[                      ], as the Servicer, and [                      ], as the Master Servicer] 53 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Servicing Agreement ”) a copy of which is attached hereto.
Pursuant to Section 1.6 of the Servicing Agreement, the undersigned, being an Authorized Officer of the Servicer, does hereby certify on behalf of the Servicer that [a] Serviced Loan[s] listed on Schedule I 54 attached hereto became [a] Delinquent Student Loan[s] on [DATE]:
Each capitalized term used but not defined herein has the meaning assigned to such term in the Servicing Agreement.
[Signature Follows]

 	 	 	
51	 	Notice of Delinquency may be delivered to the Conduit Administrator via posting to a secured website to be established and maintained by the Conduit Administrator.	
 		
52	 	Use bracketed text if Servicing Agreement is for Master Servicer.	
 		
53	 	Use bracketed text if Servicing Agreement is not for Master Servicer.	
 		
54	 	Schedule I shall be an electronic file and shall include, for each relevant Student Loan, the borrower name, loan identification number, principal balance outstanding, accrued interest outstanding, loan type and other additional information required by the Department in relation to the Department Put Agreement.	
 
 Exhibit M-17 

 

IN WITNESS WHEREOF , the Servicer has caused this Notice of Delinquency to be executed by its officer thereunto duly authorized, as of the date first written above.
[Servicer],
as the Servicer
 	 	 	 	 	
By:	 	 	 	 	
 	 	 	 	 	
 	 	Name:	 	 	
 	 	Title:	 	 	
  
 Exhibit M-18 

 

Schedule I
Pipe delimited file
 	 	 	 	 	 	 	
 	 	 	 	Data	 	 	
Field	 	Field Name	 	Type	 	Detail	
1	 	FNI IDNumber(LID/RID)	 	X(008)	 	Yes	
 	 	 	 	 	 	 	
2	 	ServicerID (LID/RID)	 	X(008)	 	Yes	
 	 	 	 	 	 	 	
3	 	SponsorID(LID/RID)	 	X(008)	 	Yes; Selling Lender ID	
 	 	 	 	 	 	 	
4	 	LoanType	 	X(002)	 	Yes; See Table (2)	
 	 	 	 	 	 	 	
5	 	OutstandingPrincipalBalance	 	9(012).99	 	Yes	
 	 	 	 	 	 	 	
6	 	LoanNumber	 	X(019)	 	Yes; CommonLine Unique ID &	
 	 	 	 	 	 	 	
 	 	 	 	 	 	Sequence Number or NSLDS ID?	
7	 	OutstandingInterestBalance	 	9(012).99	 	Yes	
 	 	 	 	 	 	 	
8	 	Delinquency Date	 	9(008)	 	Yes; CCYYMMDD [Must be 8 digits]	
 	 	 	 	 	 	 	
9	 	Day of Delinquency	 	9(003)	 	# of days past the loan’s due date	
 	 	 	 	 	 	 	
10	 	OutstandingGovt InterestBalance	 	9(012).99	 	Yes	
 
 Exhibit M-19 

 

Exhibit N
FORM OF
TRUST RECEIPT

[DATE]
Reference is made to that certain Funding Note Purchase Agreement, dated as of May 13, 2009, by and among Nelnet Superconduit Funding, LLC, as the Funding Note Issuer, National Education Loan Network, Inc., as the SPV Administrator, Zions First National Bank, as the Eligible Lender Trustee, Straight-A Funding, LLC, as the Conduit Lender, The Bank of New York Mellon, as the Conduit Administrator, the Securities Intermediary and the Conduit Lender Eligible Lender Trustee, BMO Capital Markets Corp., as the Manager, Nelnet, Inc., as the Sponsor, and National Education Loan Network, Inc., as the Master Servicer (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Funding Note Purchase Agreement”).
Pursuant to Section 4(c) of Appendix B of the Funding Note Purchase Agreement, the undersigned being an authorized officer of the Conduit Administrator, does hereby certify on behalf of the Conduit Administrator that it, or a Subcustodian holding physical possession on its behalf in accordance with a Servicing Agreement, is in possession of the applicable Loan Documents relating to the Financed Student Loans set forth on the Schedule of Financed Student Loans as of the date hereof.
Each capitalized term used but not defined herein has the meaning assigned to such term in the Funding Note Purchase Agreement.
[Signature Follows]
 
 Exhibit N- 1 

 

IN WITNESS WHEREOF , the Conduit Administrator has caused this Trust Receipt to be executed by its officer thereunto duly authorized, as of the date first written above.
The Bank of New York Mellon,
as the Conduit Administrator
 	 	 	 	 	
By:	 	 	 	 	
 	 	 	 	 	
 	 	Name:	 	 	
 	 	Title:	 	 	
 
 Exhibit N- 2 

 

Exhibit O
FORM OF ANNUAL STATEMENT OF COMPLIANCE
NELNET SUPERCONDUIT FUNDING, LLC
[DATE]
The Bank of New York Mellon. as Conduit Administrator
101 Barclay Street, 4E
New York, NY 10286
BMO Capital Markets Corp. as Manager
115 S. LaSalle St.
Chicago, IL 60603
Attention: Bart Steenbergen
StraightA.funding@bmo.com
Attn: Annual Statement of Compliance — Nelnet Superconduit Funding, LLC
The undersigned, a duly authorized officer of National Education Loan Network, Inc., as SPV Administrator on behalf of Nelnet Superconduit Funding, LLC (the “ Funding Note Issuer ”) (in such capacity, the SPV Administrator” ) under the Funding Note Purchase Agreement, dated as of May 13, 2009, (as amended and supplemented, or otherwise modified and in effect from time to time, the “ Funding Note Purchase Agreement ”), by and among Straight-A Funding, LLC, as Conduit Lender, the Funding Note Issuer, Zions First National Bank, as Eligible Lender Trustee, The Bank of New York Mellon, as Conduit Administrator, the Securities Intermediary and Conduit Lender Eligible Lender Trustee, the SPV Administrator, Nelnet, Inc., as Sponsor, BMO Capital Markets Corp., as Manager, and National Education Loan Network, Inc., as Master Servicer does hereby certify that:

 	1.	 	A review of the activities of the Funding Note Issuer as they relate to the Transaction Documents (as defined in the Funding Note Purchase Agreement), and of the Funding Note Issuer’s performance under the Transaction Documents, for the period from January 1 through December 31 has been made under my supervision.	

 	2.	 	To the best of my knowledge, based on such review, the Funding Note Issuer has fulfilled all of its obligations in all material respects under the Transaction Documents throughout the period from January 1 through December 31.	
IN WITNESS WHEREOF, the undersigned has duly executed this certificate on behalf of the Funding Note Issuer as of the day and year first written above.
 	 	 	 	 	 	 	
 	 	NELNET SUPERCONDUIT FUNDING, LLC , as Funding Note Issuer  	
 	 	 	 	 	 	 	
 	 	By: NATIONAL EDUCATION LOAN NETWORK, INC., as SPV Administrator	
 	 	 	 	 	 	 	
 	 	By:	 	 	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name:	 	 	
 	 	 	 	Title:	 	 	
 
 Exhibit O-1 

 

Exhibit P
FORM OF NOTICE OF DISPOSITION
To:      NELNET SUPERCONDUIT FUNDING, LLC and ZIONS FIRST NATIONAL BANK
From:    BMO Capital Markets Corp., as Manager on behalf of Straight-A Funding, LLC, as Conduit Lender
Name of Debtor(s): [ Include only if debtor(s) are not an addressee ]
[For a public disposition.]
We will sell the [ describe collateral ] [ to the highest qualified bidder ] in public as follows:
 	 	 	 	 	
Day and Date:	 	 	 	 	

Place:	 	 	 	 	
 	 	 	 	 	
You are entitled to an accounting of the unpaid indebtedness secured by the property that we intend to sell [ for a charge of $                      ]. You may request an accounting by calling us at [ telephone number ]
[For a private disposition]
We will sell the [ describe collateral ] privately sometime after [ day and date ]
You are entitled to an accounting of the unpaid indebtedness secured by the property that we intend to sell [ for a charge of $                      ]. You may request an accounting by calling us at [ telephone number ]
 
 Exhibt P-1 

 

Exhibit Q
FORM OF
ADVANCE CONFIRMATION
[DATE]
The Bank of New York Mellon, as Conduit Administrator
101 Barclay Street, 4E
New York, New York 10286
Attention: Andrew J. Taylor

BMO Capital Markets Corp., as Manager
115 S. LaSalle St.
Chicago, IL 60603
Attention: Bart Steenbergen
StraightA.funding@bmo.com
Attn: Advance Confirmation — Nelnet Superconduit Funding, LLC
Re:  Advance Confirmation
Reference is made to that certain Funding Note Purchase Agreement, dated as of May 13, 2009, by and among Nelnet Superconduit Funding, LLC, as the Funding Note Issuer, National Education Loan Network, Inc., as the SPV Administrator, Zions First National Bank, as the Eligible Lender Trustee, Straight-A Funding, LLC, as the Conduit Lender, The Bank of New York Mellon, as the Conduit Administrator, the Securities Intermediary and the Conduit Lender Eligible Lender Trustee, BMO Capital Markets Corp., as the Manager, Nelnet, Inc., as the Sponsor, and National Education Loan Network, Inc., as Master Servicer (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Funding Note Purchase Agreement ”). Each capitalized term used but not defined herein has the meaning assigned to such term in the Funding Note Purchase Agreement.
This irrevocable Advance Confirmation is executed and delivered by the SPV Administrator, on behalf of the Funding Note Issuer, pursuant to Section 1.02 of the Funding Note Purchase Agreement. The SPV Administrator, on behalf of the Funding Note Issuer, hereby confirms that it desires to receive an Advance as follows:
 	 	 	
Advance Date 1	 	                                         	
Cut-off Date (if Advance Date is a Grant Date) 2	 	                                         	
 	 	 	
Advance Amount 3	 	$                                          	
 	 	 	
Total Funding Note Balance after giving effect to the requested Advance	 	$                                          	
 	 	 	
Collateral Value of Student Loans to be pledged on Advance Date (if any)	 	$                                          	
 	 	 	
Total Collateral Value of Financed Student Loans after giving effect to the requested Advance	 	$                                          	
 	 	 	
Asset Coverage Ratio after Advance	 	                     %	
 	 	 	
Calculation of Reserve Account Specified Balance	 	 	
 	 	 	
Balance on deposit in Reserve Account before requested Advance	 	$                                          	

 	 	 	
1	 	The Advance Date will be the Expected Funding Date scheduled by the Manager in accordance with the Funding Allocation Procedures.	
 		
2	 	Cut-off Date will be selected by the Funding Note Issuer and will be the date as of which the Principal Balance of Student Loans is determined for purposes of the Loan Transmittal Summary Form.	
 		
3	 	The Advance Amount will equal the Allocation Amount for such Advance Date.	
 
 Exhibit Q-1 

 

 	 	 	 	 	 	 	
Reserve Account Specified Balance after requested Advance 4	 	$	 	 	
 	 	 	 	 	 	 	
Shortfall of Reserve Account to be deposited to the Reserve Account on the Advance Date	 	$	 	 	
 	 	 	 	 	 	 	
The SPV Administrator, on behalf of the Funding Note Issuer, directs the proceeds of
such Advance to be distributed as follows: 5 :	 	 	
 	 	 	 	 	 	 	
A.	 	Advance Amount	 	$	 	 	
 	 	 	 	 	 	 	
B.	 	Minus required deposit to the Reserve Account (Account Number: [                      ])	 	$(	 	)	
 	 	 	 	 	 	 	
C.	 	Minus reimbursement of the Transaction Costs relating to such Advance to be deposited to Account Number: [                      ] 6	 	$	 	 	
 	 	 	 	 	 	 	
D.	 	Minus Startup Costs Allocation payable to the Startup Cost Account	 	$(	 	)	
 	 	 	 	 	 	 	
E.	 	Minus required deposit to the DOE Reserve Account (Account Number: [                      ])	 	$(	 	)	
 	 	 	 	 	 	 	
F.	 	Minus required deposit to the Excluded Borrower Benefits Account (Account Number: [                      ])	 	$(	 	)	
 	 	 	 	 	 	 	
G .	 	Net Cash Advance Amount 7	 	$	 	 	
 	 	 	 	 	 	 	
H.	 	Plus return of cash collateral from the Breakage Account (Account Number: [                      ])	 	$	 	 	
 	 	 	 	 	 	 	
I.	 	Total cash to be deposited to Account Number: [                      ] 8	 	$	 	 	
In connection with the foregoing, the SPV Administrator, on behalf of the Funding Note Issuer, hereby certifies as follows:
 	 	 	
1.	 	The representations and warranties contained in Appendix C of the Funding Note Purchase Agreement will be correct on and as of the Advance Date as though made on and as of the Advance Date, both before and after giving effect to the Advance (or, to the extent such representations and warranties speak as of a specific date, were true and correct on and as of such date).	
 	 	 	
2.	 	No event has occurred and is continuing, or would result from the Advance, which constitutes (1) an Event of Default, (2) a Servicer Default, (3) a Potential Event of Default or (4) a “default” under Section 1.03(c) of the Funding Note Purchase Agreement.	
 	 	 	
3.	 	There has occurred no event which could reasonably be determined to have a Material Adverse Effect with respect to the Funding Note Issuer.	

 	 	 	
4	 	Calculation should match the definition of “Reserve Account Specified Balance” in the Reserve and Portfolio Criteria Supplement.	
 		
5	 	Complete wire instructions including Account Number, ABA # and Reference should be inserted for each item to be disbursed in relation to the Advance.	
 		
6	 	Pursuant to Section 12.08, properly invoiced Transaction Costs to be paid according to the instructions.	
 		
7	 	Equals the Sum of items A through F.	
 		
8	 	Equals the Sum of items G and H.	
  
 Exhibit Q-2 

 

 	 	 	
4.	 	No law or regulation prohibits, and no order, judgment or decree of any Official Body prohibits or enjoins, the making of the Advance in accordance with provisions this Funding Request and the Funding Note Purchase Agreement.	
 	 	 	
5.	 	The amount of money equal to any shortfall in the Reserve Account Specified Balance on the Advance Date will be deposited into the Reserve Account on the Advance Date from the proceeds of the Advance.	
 	 	 	
6.	 	All covenants and agreements contained in the Transaction Documents, including, without limitation, the delivery of all reports required to be delivered thereunder, have been complied with by the Funding Note Issuer, subject to any applicable grace periods or waivers granted.	
 	 	 	
7.	 	After giving effect to the Advance, the Asset Coverage Ratio is greater than or equal to the Minimum Asset Coverage Ratio.	

8.	 	There are no amounts due and payable by any Transaction Party to any Affected Party that are unpaid as of the Advance Date.	
 	 	 	
9.	 	The Final Maturity Date will not have occurred as of the Advance Date.	
 	 	 	
10.	 	No suit, action or other proceeding, investigation or injunction, or final judgment relating thereto, is pending or threatened before any court or governmental agency, seeking to restrain or prohibit or to obtain damages or other relief in connection with any of the Transaction Documents or the consummation of the transactions contemplated thereby.	
 	 	 	
11.	 	The Funding Note Issuer shall either (A) not be a “Ten Percent Obligor” (as defined in Rule 2a-7(c)(4)(ii)(D)(1)(i) promulgated under the Investment Company Act) or (B) qualify as a “Restricted Special Purpose Entity” (as defined in Rule 2a-7(c)(4)(ii)(D)(2) promulgated under the Investment Company Act).	
 	 	 	
12.	 	No statute, rule, regulation or order has been enacted, entered or deemed applicable by any government or governmental or administrative agency or court that would make the transactions contemplated by any of the Transaction Documents illegal or otherwise prevent the consummation thereof.	
 	 	 	
13.	 	Each Rating Agency has delivered a rating letter indicating the initial rating of the Funding Notes to be “AAA” or its equivalent and no Rating Agency shall have withdrawn the rating of the Funding Note or lowered the rating of the Funding Note to below “AAA” or its equivalent.	
 	 	 	
14.	 	All conditions precedent set forth in Appendix B of the Funding Note Purchase Agreement have been satisfied.	
 	 	 	
[15.	 	The Funding Note Issuer has posted cash collateral to the Breakage Account in an amount equal to 0.50% of the Advance Amount indicated on the previous page.] 9	
This Advance Confirmation shall be irrevocable and binding on the Funding Note Issuer, and the Funding Note Issuer hereby agrees to indemnify the Conduit Lender against any loss or expense incurred by the Conduit Lender, either directly or indirectly (including pursuant to any applicable Program Support Agreement) as a result of any failure by the Funding Note Issuer to complete this Advance, including any loss or expense incurred by the Conduit Lender, the Manager or the Conduit Administrator, either directly or indirectly (including pursuant to any applicable Program Support Agreement) by reason of the liquidation or reemployment of funds acquired by the Conduit Lender (or the applicable Program Support Providers) (including funds obtained by issuing Securities or obtaining deposits or loans from third parties) in order to fund this Advance.

 	 	 	
9	 	Required if the aggregate of the Funding Note Balance and the funding note balances (including capitalized ratable financing costs) of all funding notes issued by Program Funding Note Issuers that are Affiliates of the Funding Note Issuer is less than $5 billion on the date of the Advance Confirmation.	
 
 Exhibit Q-3 

 

IN WITNESS WHEREOF , the SPV Administrator, on behalf of the Funding Note Issuer, has caused this Funding Request to be executed by its officer thereunto duly authorized, as of the date first written above.
NATIONAL EDUCATION LOAN NETWORK, INC.,
as the SPV Administrator on behalf of the Funding Note Issuer
 	 	 	 	 	 	 	
By	 	 	 	 	 	 	
 	 	 	 	 	
 	 	Name:	 	 	 	 	
 	 	 	 	 	 	 	
 	 	Title:	 	 	 	 	

 Exhibit Q-4 

 

Exhibit R
FORM OF
SECURITY RELEASE CERTIFICATION 1
[                                           ] [                      ], 20[                    ]
[[Seller]
[                                                                ]
[                                                                ]
[                                                                ]
Attention: [                                                                ]] 2
Nelnet Superconduit Funding, LLC
c/o National Education Loan Network, Inc.
121 South 13th Street
Suite 201
Lincoln NE 68508
Attention: Carol Aversman
Straight-A Funding, LLC
c/o Global Securitization Services, LLC
68 South Service Road, Suite 120
Melville, New York 11747
Attention: Frank Bilotta
The Bank of New York Mellon, as Conduit Administrator
101 Barclay Street, 4E
New York, NY 10286
BMO Capital Markets Corp., as Manager
115 S. LaSalle St.
Chicago, IL 60603
Attention: Bart Steenbergen
StraightA.funding@bmo.com

Re:	 	[Description of Agreement Creating Lien], dated as of [                                                                   ] [                       ], 20[                       ] (as amended or modified from time to time, the “ Existing Financing Agreement ”), among [[SELLER] (the “Debtor”)], [LENDER 1] [and [LENDER 2]] ([each] [the] “ Existing Secured Party ”), [[AGENT] (the “ Agent ”)] and [OTHER PARTIES]	
Ladies and Gentlemen:
Reference is made to the Existing Financing Agreement referred to above. [The] [Each] Existing Secured Party understands that on [                                                                ] [                       ], 20[                      ] (the “ Payoff Date ”) the Debtor will cause $                                           (the “ Payoff Amount ”) to be paid to the [Agent on behalf of the Existing Secured Part[y] [ies]] [Existing Secured Part[y] [ies].
Subject to the conditions set forth herein and upon the receipt by [the Agent] the Existing Secured Part[y] [ies] by [4:00 p.m.], New York City time, on the Payoff Date, of the Payoff Amount, in immediately available funds, [the] [each] Existing Secured Party agrees that the release of any security interest or lien granted to the Existing Secured Part[y] [ies] with respect to each student loan and related collateral subject to the Release in Annex A hereto shall be automatically effective.

 	 	 	
1	 	Form contemplates that a payment will be made to the Secured Party on the Grant Date. If no such payment will be made, only the release in Annex A to this Exhibit R should be executed.	
 		
2	 	Omit Seller as an addressee of Security Release Certification if such Security Release Certification relates to an Eligible Direct Issuer.	
 
 Exhibit R-1 

 

As a condition to such release, the following amount[s] ([collectively,] the “ Payoff Amount ”) [are] [is] required to be paid in immediately available funds in accordance with the wire instructions set forth below:
[Insert amount[s] to be paid.]
[The] [Each] Existing Secured Party hereby instruct the Debtor to pay or cause to be paid the Payoff Amount by wire transfer to the following account[s] in accordance with the following wire transfer instructions:
Account Number [                                                                ] — $[                                                                 ] 3
 	 	 	
Bank:	 	[                                                                ]	
ABA#:	 	[                                                                ]	
Account #:	 	[                                                                ]	
Your signature below shall evidence your agreement with the foregoing.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 	 	 	
3	 	Insert additional accounts as necessary.	
 
 Exhibit R-2 

 

 	 	 	 	 	 	 	 	 	
 	 	Very truly yours,	 	 	
 	 	 	 	 	 	 	 	 	
 	 	[                                                                ],	 	 	
 	 	as Existing Secured Party 4	 	 	
 	 	 	 	 	 	 	 	 	
 	 	By:	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
 	 	By:	 	 	 	 	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name:	 	 	 	 	
 	 	 	 	 	 	 	 	 	
 	 	 	 	Title:	 	 	 	 	

Accepted and Agreed to:	 	 	
 	 	 	 	 	 	 	
[                                                                ],
as the Debtor	 	 	
 	 	 	 	 	 	 	
By:	 	 	 	 	 	 	
 	 	 	 	 	
 	 	Name:	 	 	 	 	
 	 	 	 	 	 	 	
 	 	Title:	 	 	 	 	

NELNET SUPERCONDUIT FUNDING, LLC ,
as Funding Note Issuer	
 	 	 	 	 	 	 	
By:	 	 	 	 	 	 	
 	 	 	 	 	
 	 	Name:	 	 	 	 	
 	 	 	 	 	 	 	
 	 	Title:	 	 	5  	 	

STRAIGHT-A FUNDING, LLC , as Conduit Lender	

By: BMO Capital Markets Corp., not in its individual capacity
but solely in its capacity as Manager	
 	 	 	 	 	 	 	
By:	 	 	 	 	 	 	
 	 	 	 	 	
 	 	Name:	 	 	 	 	
 	 	 	 	 	 	 	
 	 	Title:	 	 	 	 	

 	 	 	
4	 	Add additional signature blocks for multiple Secured Parties.	
 		
5	 	Omit if Funding Note Issuer is the Debtor.	
 
 Exhibit R-3 

 

ANNEX A
RELEASE
[                                            ] [                       ], 20[      ]
[[Seller]
[                                                                ]
[                                                                ]
[                                                                ]
Attention: [                                                                   ]] 6
Nelnet Superconduit Funding, LLC
c/o National Education Loan Network, Inc.
121 South 13th Street
Suite 201
Lincoln NE 68508
Attention: Carol Aversman
Straight-A Funding, LLC
c/o Global Securitization Services, LLC
68 South Service Road, Suite 120
Melville, New York 11747
Attention: Frank Bilotta
The Bank of New York Mellon, as Conduit Administrator
101 Barclay Street, 4E
New York, NY 10286
BMO Capital Markets Corp., as Manager
115 S. LaSalle St.
Chicago, IL 60603
Attention: Bart Steenbergen
StraightA.funding@bmo.com
[Reference is hereby made to the Security Release Certification, dated as [                                           ], 20[                       ], between [[Seller], as Debtor,] [Funding Note Issuer], as [Funding Note Issuer] [Debtor], Straight-A Funding, LLC, as Conduit Lender and [                                           ], as Existing Secured Party (the “ Security Release Certification ”). All terms used but not defined herein shall have the meaning assigned in the Security Release Certification.] On the [Payoff Date] [the date hereof] [[the] [each] Existing Secured Party] [                                           ], as existing secured party (the “ Existing Secured Party ”)] hereby release[s] all right, title and interest in and to the following (collectively, the “ Released Property ”):
(1) the student loans owned by [SELLER] [FUNDING NOTE ISSUER] (the “ Debtor ”) and listed on Schedule 1 (the “ Loans ”);
(2) all amounts received with respect to principal and interest and other proceeds, payments and reimbursements with respect to any Loan after the [Cut-off Date] [date hereof];
(3) with respect to any Loan, the related student loan file, all guaranties and other rights and security relating thereto including, without limitation, the insurance interest of the holder of such Loan under the Federal Family Education Loan Program, Interest Subsidy Payments, Special Allowance Payments and all related assets and documentation (the “ Related Security ”);
(4) all documents, books, records, promissory notes and other information (including without limitation, computer programs, tapes, disks, punch cards, data processing software and related property and rights) maintained with respect to Loans or otherwise in respect of the Related Security;

 	 	 	
6	 	Omit Seller as an addressee of the Release if such Release relates to an Eligible Direct Issuer.	
 
 Exhibit R-4 

 

(5) all supporting obligations, liens securing any of the foregoing, money and claims and other rights under insurance policies relating to any of the foregoing;
(6) all accounts, general intangibles, payment intangibles, instruments, investment property, documents, chattel paper, goods, moneys, letters of credit, letter of credit rights, certificates of deposit, deposit accounts and all other property and interests in property of the Debtor, whether tangible or intangible to the extent relating to the Loans or Related Security; and
(7) all proceeds of such Loans, Related Security and the foregoing clauses (1) through (6).
[[The] [Each] Existing Secured Party hereby authorizes the Debtor, or any designee of the Debtor, to file any amendment or partial release to any financing statement naming Debtor as debtor and [the] [any] Existing Secured Party as secured party filed with respect to the Released Property.] 7

 	 	 	
7	 	Use this paragraph only if the financing statements evidencing the security interest in favor of the Existing Secured Part[y] [ies] list particular loans or refer to all loans or all assets of the Debtor.	
 
 Exhibit R-5 

 

 	 	 	 	 	 	 	
 	 	Very truly yours,

[                                                                ],
as Existing Secured Party 8	
 	 	 	 	 	 	 	
 	 	By:	 	 	 	 	
 	 	 	 	 	 	 	
 	 	By:	 	 	 	 	
 	 	 	 	 	
 	 	 	 	Name:	 	 	
 	 	 	 	Title:	 	 	
 	 	 	 	 	 	 	
Accepted and Agreed to:	 	 	
 	 	 	 	 	 	 	
[                                                                ],
as the Debtor	 	 	
 	 	 	 	 	 	 	
By:	 	 	 	 	 	 	
 	 	 	 	 	
 	 	Name:	 	 	 	 	
 	 	 	 	 	 	 	
 	 	Title:	 	 	 	 	

NELNET SUPERCONDUIT FUNDING, LLC ,
as Funding Note Issuer	 	 	
 	 	 	 	 	 	 	
By:	 	 	 	 	 	 	
 	 	 	 	 	
 	 	Name:	 	 	 	 	
 	 	 	 	 	 	 	
 	 	Title:	 	 	9	 	

STRAIGHT-A FUNDING, LLC , as Conduit Lender	 	 	
 	 	 	 	 	 	 	
By: BMO Capital Markets Corp., not in its individual capacity but solely in its capacity as Manager	 	 	
 	 	 	 	 	 	 	
By:	 	 	 	 	 	 	
 	 	 	 	 	
 	 	Name:	 	 	 	 	
 	 	 	 	 	 	 	
 	 	Title:	 	 	 	 	

 	 	 	
8	 	Add additional signature blocks for multiple Secured Parties.	
 		
9	 	Omit if Funding Note Issuer is the Debtor.	
 
 Exhibit R-6 

 

SCHEDULE 1
IDENTIFICATION OF LOANS
 
 Exhibit R-7 

 

Exhibit S
FORM OF
LOAN DESIGNATION NOTICE

[DATE]
The Bank of New York Mellon, as Conduit Administrator
101 Barclay Street, 4E
New York, New York 10286
Attention: Andrew J. Taylor
United States Department of Education
400 Maryland Avenue, SW
UCP, Room 111G3
Washington, DC 20202-5402
Attention: FFEL Agreement Process Team
Email: FFEL.agreementprocess@ed.gov
Re:      Designation of Financed Student Loans
Reference is made to (i) that certain Funding Note Purchase Agreement, dated as of May 13, 2009, by and among Nelnet Superconduit Funding, LLC, as the Funding Note Issuer, National Education Loan Network, Inc., as the SPV Administrator, Zions First National Bank, as the Eligible Lender Trustee, Straight-A Funding, LLC, as the Conduit Lender, The Bank of New York Mellon, as the Conduit Administrator, the Securities Intermediary and the Conduit Lender Eligible Lender Trustee, BMO Capital Markets Corp., as the Manager, Nelnet, Inc., as the Sponsor, and National Education Loan Network, Inc., as Master Servicer (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Funding Note Purchase Agreement ”) and (ii) the Reserve and Portfolio Criteria Supplement No. [                      ] to Funding Note Purchase Agreement, dated as of [                                           ], 20[                      ], by the Funding Note Issuer as acknowledged by the Conduit Administrator (the “Supplement. Each capitalized term used but not defined herein has the meaning assigned to such term in the Funding Note Purchase Agreement.
This Loan Designation Notice is executed and delivered by the Funding Note Issuer, pursuant to the Funding Note Purchase Agreement.
Each of the Student Loans listed on the Loan Transmittal Summary Form attached hereto as Annex I shall be a Financed Student Loan from and after the Grant Date. For purposes of this Loan Designation Notice:
Cut-off Date 1
Grant Date
Do Student Loans Granted satisfy the Portfolio Criteria? 2            [YES] [NO] 3
In connection with the foregoing, the SPV Administrator, on behalf of the Funding Note Issuer, hereby certifies as follows:

1.	 	The Collateral Value of the Student Loans Granted to the Conduit Lender on the Grant Date is $                                           , and the Asset Coverage Ratio after giving effect to such Grant and, if applicable, any Advance to be made on such Grant Date is  _____%.	

 	 	 	
1	 	Cut-off Date will be selected by the Funding Note Issuer and will be the date as of which the Principal Balance of Student Loans are determined for purposes of the Loan Transmittal Summary Form.	
 		
2	 	Each Portfolio Criteria listed in the Supplement should be listed and confirmed in rows below.	
 		
3	 	If “Yes” is selected, a detailed schedule shall be attached, together with supporting data, confirming compliance with each requirement of the Pool Criteria. If “No” is selected, each Rating Agency shall have confirmed in writing to the Manager that the Grant of Student Loans listed on the Loan Transmittal Summary Form would not cause such Rating Agency to withdraw the rating of the Funding Note or lower the rating of the Funding Note to below “AAA” or its equivalent.	
 
 Exhibit S-1 

 

2.	 	The representations and warranties contained in Appendix C of the Funding Note Purchase Agreement will be correct on and as of the Grant Date as though made on and as of the Grant Date, after giving effect to the designation of Financed Student Loans pursuant to this Loan Designation Notice (or, to the extent such representations and warranties speak as of a specific date, were true and correct on and as of such date).	

3.	 	No event has occurred and is continuing, or would result from any Grant of Financed Student Loans on such date, which constitutes (1) an Event of Default, (2) a Servicer Default, (3) a Potential Event of Default or (4) a “default” under Section 1.03(c) of the Funding Note Purchase Agreement;.	

4.	 	There has occurred no event which could reasonably be determined to have a Material Adverse Effect with respect to the Funding Note Issuer.	

5.	 	No law or regulation shall prohibit, and no order, judgment or decree of any Official Body shall prohibit or enjoin, the making of such Grant in accordance with the provisions hereof.	

6.	 	All covenants and agreements contained in the Transaction Documents, including the delivery of all reports required to be delivered thereunder, shall have been complied with by the Funding Note Issuer, subject to any applicable grace periods or waivers granted.	

7.	 	There are no amounts then due and payable by any Transaction Party to any Affected Party that remain unpaid as of such Grant Date.	

8.	 	The Funding Note Issuer shall either (A) not be a “Ten Percent Obligor” (as defined in Rule 2a-7(c)(4)(ii)(D)(1)(i) promulgated under the Investment Company Act) or (B) qualify as a “Restricted Special Purpose Entity” (as defined in Rule 2a-7(c)(4)(ii)(D)(2) promulgated under the Investment Company Act).	

9.	 	The related Subcustodian is in possession of the Loan Documents with respect to each Proposed Loan and the Conduit Administrator has delivered a Trust Receipt with respect thereto.	
 		
10.	 	The Funding Note Issuer has delivered a Loan Data Schedule attached hereto to the Department no later the third Business Day prior to the Grant Date.	
 		
11.	 	[The amount of Excluded Borrower Benefits relating to the Proposed Loans is $                                           and such amount has been deposited to the Excluded Borrower Benefit Account.] [There are no Excluded Borrower Benefits relating to the Proposed Loans.]	
 		
12.	 	All conditions to the Grant of such Proposed Loans have been satisfied.	
IN WITNESS WHEREOF , the Funding Note Issuer, has caused this Loan Designation Notice to be executed by its officer thereunto duly authorized, as of the date first written above.
NELNET SUPERCONDUIT FUNDING, LLC
as the Funding Note Issuer
 	 	 	 	 	 	 	
By	 	 	 	 	 	 	
 	 	 	 	 	
 	 	Name:	 	 	 	 	
 	 	 	 	 	 	 	
 	 	Title:	 	 	 	 	

 Exhibit S-2 

 

Annex I
LOAN TRANSMITTAL SUMMARY FORM
Loan Transmittal File Pipe delimited file
 	 	 	 	 	 	 	
1	 	SSN	 	9(009)	 	Yes	
2	 	LastName	 	X(035)	 	Yes	
3	 	FirstName	 	X(020)	 	Yes	
4	 	LoanNumber 1	 	X(019)	 	Yes	
5	 	Principal Balance	 	9(012).99	 	Yes	
6	 	LoanType	 	 	 	 	
7	 	First Disbursement Date	 	—	 	 	
 	 	 	 	 	 	 	
8	 	Final Disbursement Date	 	—	 	 	
 	 	 	 	 	 	 	
9	 	Loan Period Begin Date	 	—	 	 	
10	 	Loan Period End Date	 	—	 	 	
11	 	Loan Status Code	 	 	 	 	
12	 	Seller or Eligible Direct Issuer LID	 	 	 	 	
13	 	Original Lender LID	 	 	 	 	
14	 	Guarantor	 	9(003)	 	Yes	
15	 	Servicer	 	X(008)	 	Yes	
16	 	School Type	 	X(009)	 	Four Year, Two Year, Proprietary/Vocational, Other; See table below.	
Notice information for Servicers:
[NAME]
[ADDRESS]
[ATTENTION]
[TELEPHONE]
[FAX]
[E-MAIL]
[REPEAT AS NECESSARY]

 	 	 	
1	 	Loan Number shall be a unique identifying number for each Student Loan. Such number must also be included in the information given to the accountants and the Conduit Administrator for any sample pool of Student Loans in connection with any Agreed Upon Procedures Letter.	
 
 Exhibit S-3 

 

Exhibit T
FORM OF
REVOCATION NOTICE
[DATE]
The Bank of New York Mellon, as Conduit Administrator
101 Barclay Street, 4E
New York, New York 10286
Attention: Andrew J. Taylor
BMO Capital Markets Corp., as Manager
115 S. LaSalle St.
Chicago, IL 60603
Attention: Bart Steenbergen
StraightA.funding@bmo.com
Attn: Revocation Notice— Nelnet Superconduit Funding, LLC
Re:       Notice to Revoke a Funding Request
Reference is made to that certain Funding Note Purchase Agreement, dated as of May 13, 2009, by and among Nelnet Superconduit Funding, LLC, as the Funding Note Issuer, National Education Loan Network, Inc., as the SPV Administrator, Zions First National Bank, as the Eligible Lender Trustee, Straight-A Funding, LLC, as the Conduit Lender, The Bank of New York Mellon, as the Conduit Administrator, the Securities Intermediary and the Conduit Lender Eligible Lender Trustee, BMO Capital Markets Corp., as the Manager, Nelnet, Inc., as the Sponsor, and National Education Loan Network, Inc., as the Master Servicer (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Funding Note Purchase Agreement ”). Each capitalized term used but not defined herein has the meaning assigned to such term in the Funding Note Purchase Agreement.
This Revocation Notice is executed and delivered by the SPV Administrator, on behalf of the Funding Note Issuer, and hereby provides notice and confirms that the Funding Request dated as of [                                             ], 20[                       ] in an amount of $[                                             ] and any Advances requested thereunder are revoked effective as of the date hereof.
[Signature Follows]
 
 Exhibit T-1 

 

IN WITNESS WHEREOF , the SPV Administrator, on behalf of the Funding Note Issuer, has caused this Revocation Notice to be executed by its officer thereunto duly authorized, as of the date first written above.
NATIONAL EDUCATION LOAN NETWORK, INC.,
as the SPV Administrator on behalf of the Funding Note Issuer
 	 	 	 	 	 	 	
By:	 	 	 	 	 	 	
 	 	 	 	 	
 	 	Name:	 	 	 	 	
 	 	 	 	 	 	 	
 	 	Title:	 	 	 	 	

 Exhibit T-2 

 

Exhibit U
FORM OF
EXPECTED FUNDING NOTICE
[DATE]
The Bank of New York Mellon, as Conduit Administrator
101 Barclay Street, 4E
New York, New York 10286
Attention: Andrew J. Taylor
Nelnet Superconduit Funding, LLC
c/o National Education Loan Network, Inc.
121 South 13th Street
Suite 201
Lincoln NE 68508
Attention: Carol Aversman
National Education Loan Network, Inc., as SPV Administrator
121 South 13th Street
Suite 201
Lincoln NE 68508
Attention: Carol Aversman
Re:       Expected Funding Notice
Reference is made to that certain Funding Note Purchase Agreement, dated as of May 13, 2009, by and among Nelnet Superconduit Funding, LLC, as the Funding Note Issuer, National Education Loan Network, Inc., as the SPV Administrator, Zions First National Bank, as the Eligible Lender Trustee, Straight-A Funding, LLC, as the Conduit Lender, The Bank of New York Mellon, as the Conduit Administrator, the Securities Intermediary and the Conduit Lender Eligible Lender Trustee, BMO Capital Markets Corp., as the Manager, Nelnet, Inc., as the Sponsor, and National Education Loan Network, Inc., as Master Servicer (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Funding Note Purchase Agreement”). Each capitalized term used but not defined herein has the meaning assigned to such term in the Funding Note Purchase Agreement.
This Expected Funding Notice is executed and delivered by the Manager pursuant to Section 1.02 of the Funding Note Purchase Agreement. The Manager hereby delivers notice that (i) [                                                                ], 20[                      ] has been scheduled as an Expected Funding Date and (ii) on such Expected Funding Date, the Conduit Lender estimates that the [initial funding][increase in the amount of funding] will be $[                                                                ]. However, such date may be rescheduled or canceled by the Manager, in its sole discretion, in accordance with the Funding Allocation Procedures.
[Signature Follows]
 
 Exhibit U-1 

 

IN WITNESS WHEREOF, the Manager has caused this Expected Funding Notice to be executed by its officer thereunto duly authorized, as of the date first written above.
BMO Capital Markets Corp.,
as the Manager
 	 	 	 	 	 	 	
By:	 	 	 	 	 	 	
 	 	 	 	 	
 	 	Name:	 	 	 	 	
 	 	 	 	 	 	 	
 	 	Title:	 	 	 	 	

 Exhibit U-2 

 

Exhibit V
FORM OF
LOAN DATA SCHEDULE
[DATE]
Seller:
Academic Year for Threshold Test (if applicable):
Threshold Test by Servicer or Relevant Loan Portfolio:
Servicers:
Eligible Lender Trustee:
Relevant Loan Portfolio Determination Date:
Final Selected Loan Portfolio Determination Date:
Relevant Loan Portfolio Schedule Matrix
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Academic Year	 	Total Portfolio	 	 	2008/2009	 	 	2007/2008	 	 	2006/2007	 	
 	 	 	 	 	 	 	 	 	 	 	 	Percentage	 	 	Percentage	 	 	 	 	 	 	 	 	 	 	Percentage	 	 	Percentage	 	 	 	 	 	 	 	 	 	 	Percentage	 	 	Percentage	 	 	 	 	 	 	 	 	 	 	Percentage	 	 	Percentage	 	
 	 	 	 	 	 	 	 	 	 	 	 	By Relevant	 	 	By Relevant	 	 	 	 	 	 	 	 	 	 	By Relevant	 	 	By Relevant	 	 	 	 	 	 	 	 	 	 	By Relevant	 	 	By Relevant	 	 	 	 	 	 	 	 	 	 	By Relevant	 	 	By Relevant	 	
 	 	 	 	 	 	 	 	 	 	Loan	 	 	Loan	 	 	 	 	 	 	 	 	 	 	Loan	 	 	Loan	 	 	 	 	 	 	 	 	 	 	Loan	 	 	Loan	 	 	 	 	 	 	 	 	 	 	Loan	 	 	Loan	 	
 	 	 	 	Loan	 	 	Dollar	 	 	Portfolio	 	 	Portfolio	 	 	 	 	 	 	Dollar	 	 	Portfolio	 	 	Portfolio	 	 	 	 	 	 	Dollar	 	 	Portfolio	 	 	Portfolio	 	 	 	 	 	 	Dollar	 	 	Portfolio	 	 	Portfolio	 	
Criteria	 	Sub-Criteria	 	Count	 	 	Balance	 	 	- Balance	 	 	- Loan Count	 	 	Loan Count	 	 	Balance	 	 	- Balance	 	 	- Loan Count	 	 	Loan Count	 	 	Balance	 	 	- Balance	 	 	- Loan Count	 	 	Loan Count	 	 	Balance	 	 	- Balance	 	 	- Loan Count	 	
Average Loan Principal Balance	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
School Type	 	 	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	4-Year Institution	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	2-Year Institution	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Proprietary/Vocational Institution	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Other	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Payment Type	 	 	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	In-school	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Grace	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Deferment	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Forbearance	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Repayment	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan Type	 	 	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Plus	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Stafford — Subsidized	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Stafford — Unsubsidized	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	

 Exhibit V-1 

 

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Academic Year	 	2005/2006	 	 	2004/2005	 	 	2003/2004	 	
 	 	 	 	 	 	 	 	 	 	 	 	Percentage	 	 	Percentage	 	 	 	 	 	 	 	 	 	 	Percentage	 	 	Percentage	 	 	 	 	 	 	 	 	 	 	Percentage	 	 	Percentage	 	
 	 	 	 	 	 	 	 	 	 	 	 	By Relevant	 	 	By Relevant	 	 	 	 	 	 	 	 	 	 	By Relevant	 	 	By Relevant	 	 	 	 	 	 	 	 	 	 	By Relevant	 	 	By Relevant	 	
 	 	 	 	 	 	 	 	 	 	 	 	Loan	 	 	Loan	 	 	 	 	 	 	 	 	 	 	Loan	 	 	Loan	 	 	 	 	 	 	 	 	 	 	Loan	 	 	Loan	 	
 	 	 	 	Loan	 	 	Dollar	 	 	Portfolio	 	 	Portfolio	 	 	 	 	 	 	Dollar	 	 	Portfolio	 	 	Portfolio	 	 	 	 	 	 	Dollar	 	 	Portfolio	 	 	Portfolio	 	
Criteria	 	Sub-Criteria	 	Count	 	 	- Balance	 	 	- Balance	 	 	Loan Count	 	 	Loan Count	 	 	- Balance	 	 	- Balance	 	 	- Loan Count	 	 	Loan Count	 	 	Balance	 	 	- Balance	 	 	- Loan Count	 	
Average Loan Principal Balance	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
School Type	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	4-Year Institution	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	2-Year Institution	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Proprietary/Vocational Institution	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Other	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Payment Type	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	In-school	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Grace	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Deferment	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Forbearance	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Repayment	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan Type	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Plus	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Stafford — Subsidized	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Stafford — Unsubsidized	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	

 Exhibit V-2 

 
Final Selected Loan Portfolio Schedule Matrix
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Academic Year	 	Total Portfolio	 	 	2008/2009	 	 	2007/2008	 	 	2006/2007	 	
 	 	 	 	 	 	 	 	 	 	 	 	Percentage	 	 	Percentage	 	 	 	 	 	 	 	 	 	 	Percentage	 	 	Percentage	 	 	 	 	 	 	 	 	 	 	Percentage	 	 	Percentage	 	 	 	 	 	 	 	 	 	 	Percentage	 	 	Percentage	 	
 	 	 	 	 	 	 	 	 	 	 	 	By Relevant	 	 	By Relevant	 	 	 	 	 	 	 	 	 	 	By Relevant	 	 	By Relevant	 	 	 	 	 	 	 	 	 	 	By Relevant	 	 	By Relevant	 	 	 	 	 	 	 	 	 	 	By Relevant	 	 	By Relevant	 	
 	 	 	 	 	 	 	 	 	 	 	 	Loan	 	 	Loan	 	 	 	 	 	 	 	 	 	 	Loan	 	 	Loan	 	 	 	 	 	 	 	 	 	 	Loan	 	 	Loan	 	 	 	 	 	 	 	 	 	 	Loan	 	 	Loan	 	
 	 	 	 	Loan	 	 	Dollar	 	 	Portfolio	 	 	Portfolio	 	 	 	 	 	 	Dollar	 	 	Portfolio	 	 	Portfolio	 	 	 	 	 	 	Dollar	 	 	Portfolio	 	 	Portfolio	 	 	 	 	 	 	Dollar	 	 	Portfolio	 	 	Portfolio	 	
Criteria	 	Sub-Criteria	 	Count	 	 	Balance	 	 	- Balance	 	 	- Loan Count	 	 	Loan Count	 	 	Balance	 	 	- Balance	 	 	- Loan Count	 	 	Loan Count	 	 	Balance	 	 	- Balance	 	 	- Loan Count	 	 	Loan Count	 	 	Balance	 	 	- Balance	 	 	- Loan Count	 	
Average Loan Principal Balance 0	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
School Type	 	 	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	4-Year Institution	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	2-Year Institution	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Proprietary/Vocational Institution	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Other	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Payment Type	 	 	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	In-school	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Grace	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Deferment	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Forbearance	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Repayment	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan Type	 	 	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Plus	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Stafford — Subsidized	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Stafford — Unsubsidized	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	

Academic Year	 	2005/2006	 	 	2004/2005	 	 	2003/2004	 	
 	 	 	 	 	 	 	 	 	 	 	 	Percentage	 	 	Percentage	 	 	 	 	 	 	 	 	 	 	Percentage	 	 	Percentage	 	 	 	 	 	 	 	 	 	 	Percentage	 	 	Percentage	 	
 	 	 	 	 	 	 	 	 	 	 	 	By Relevant	 	 	By Relevant	 	 	 	 	 	 	 	 	 	 	By Relevant	 	 	By Relevant	 	 	 	 	 	 	 	 	 	 	By Relevant	 	 	By Relevant	 	
 	 	 	 	 	 	 	 	 	 	 	 	Loan	 	 	Loan	 	 	 	 	 	 	 	 	 	 	Loan	 	 	Loan	 	 	 	 	 	 	 	 	 	 	Loan	 	 	Loan	 	
 	 	 	 	 	 	 	 	Dollar	 	 	Portfolio	 	 	Portfolio	 	 	 	 	 	 	Dollar	 	 	Portfolio	 	 	Portfolio	 	 	 	 	 	 	Dollar	 	 	Portfolio	 	 	Portfolio	 	
Criteria	 	Sub-Criteria	 	Loan Count	 	 	Balance	 	 	- Balance	 	 	- Loan Count	 	 	Loan Count	 	 	alance	 	 	- Balance	 	 	- Loan Count	 	 	Loan Count	 	 	Balance	 	 	- Balance	 	 	- Loan Count	 	
Average Loan Principal Balance	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
School Type	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	4-Year Institution	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	2-Year Institution	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Proprietary/Vocational Institution	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Other	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Payment Type	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	In-school	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Grace	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Deferment	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Forbearance	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Repayment	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan Type	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Plus	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Stafford — Subsidized	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Stafford — Unsubsidized	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	 	 	0	 	 	 	0	 	 	 	0.00	%	 	 	0.00	%	

 Exhibit V-3 

 

Exhibit W
FORM OF
NOTICE OF REQUIRED PAYMENT ADVANCE

[DATE]
BMO Capital Markets Corp., as Manager
115 S. LaSalle St.
Chicago, IL 60603
StraightA.funding@bmo.com
Attn: Notice of Required Payment Advance
Nelnet Superconduit Funding, LLC
c/o National Education Loan Network, Inc.
121 South 13th Street
Suite 201
Lincoln NE 68508
Attention: Carol Aversman
Re:       Notice of Required Payment Advance
Reference is made to that certain Funding Note Purchase Agreement, dated as of May 13, 2009, by and among Nelnet Superconduit Funding, LLC, as the Funding Note Issuer, National Education Loan Network, Inc., as the SPV Administrator, Zions First National Bank, as the Eligible Lender Trustee, Straight-A Funding, LLC, as the Conduit Lender, The Bank of New York Mellon, as the Conduit Administrator, Securities Intermediary and Conduit Lender Eligible Lender Trustee, BMO Capital Markets Corp., as the Manager, Nelnet, Inc., as the Sponsor, and National Education Loan Network, Inc., as Master Servicer (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Funding Note Purchase Agreement ”). Each capitalized term used but not defined herein has the meaning assigned to such term in the Funding Note Purchase Agreement.
This Notice of Required Payment Advance is executed and delivered by the Conduit Administrator pursuant to Section 1.02(f) of the Funding Note Purchase Agreement. The Conduit Administrator hereby notifies the Manager and the Funding Note Issuer that, as of the date hereof, the Funding Note Issuer shall be deemed to have requested an Advance as follows:
 	 	 	 	 	
Advance Amount	 	 	 	 	
(i) Amounts due to the Department which have not been paid	 	$	                                         	 	
(ii) Plus required deposit to the Reserve Account (Account Number: [                            ])	 	$	                                         	 	
Calculation of Reserve Account Specified Balance	 	 	 	 	
Balance on deposit in Reserve Account before requested Advance	 	$	                                         	 	
Reserve Account Specified Balance after requested Advance 1	 	$	                                         	 	
Shortfall of Reserve Account to be deposited to the Reserve Account on the Advance Date	 	$	                                         	 	

 	 	 	
1	 	Calculation should match the definition of “Reserve Account Specified Balance” in the Reserve and Portfolio Criteria Supplement.	

 

 	 	 	 	 	
(iii) Plus amount of any Obligation payable pursuant to Section 1.05(c)(v) — (viii) of the Funding Note Purchase Agreement that has remained unpaid for three consecutive Settlement Dates and an amount sufficient to pay all other amounts payable pursuant to clause (v), (vi), (vii) or (viii) of Section 1.05(c) that would be paid in priority to such Obligation [include list of amounts to be paid pursuant to Section 1.05(c) and applicable Funding Note Issuer Collection Account number]	 	$	                                         	 	
(iv) Plus Startup Costs Allocation payable to the Startup Cost Account 2	 	$	                                         	 	
Equals Required Payment Advance Amount 3	 	$	                                         	 	
[Signature Follows]

 	 	 	
2	 	Startup Costs Allocation shall equal the Required Payment Advance Amount minus the sum of items (i) through (iii).	
 		
3	 	Required Payment Advance Amount shall equal the quotient of (a) the sum of items (i) through (iii) divided by (b) .96.	

 

IN WITNESS WHEREOF , the Conduit Administrator has caused this Notice of Required Payment Advance to be executed by its officer thereunto duly authorized, as of the date first written above.
The Bank of New York Mellon,
as the Conduit Administrator
 	 	 	 	 	 	 	
By:	 	 	 	 	 	 	
 	 	 	 	 	
 	 	Name:	 	 	 	 	
 	 	 	 	 	 	 	
 	 	Title:	 	 	 	 	

   

 

Exhibit X
FORM OF
RESERVE AND PORTFOLIO CRITERIA SUPPLEMENT
RESERVE AND PORTFOLIO CRITERIA SUPPLEMENT NO. [___] TO FUNDING NOTE PURCHASE AGREEMENT
THIS RESERVE AND PORTFOLIO CRITERIA SUPPLEMENT NO. [                      ] TO FUNDING NOTE PURCHASE AGREEMENT, dated as of [                                           ], 20[                      ] (this “ Supplement ”), is by Nelnet Superconduit Funding, LLC, a Delaware limited liability company, as funding note issuer (the “ Funding Note Issuer ”), and The Bank of New York Mellon, a New York banking corporation, as conduit administrator (the “ Conduit Administrator ”).
BACKGROUND
WHEREAS, reference is made to the Funding Note Purchase Agreement, dated as of May 13, 2009 (as amended and supplemented, or otherwise modified and in effect from time to time, the “ Funding Note Purchase Agreement ”), by and among Straight-A Funding, LLC, as Conduit Lender, the Funding Note Issuer, Zions First National Bank, as Eligible Lender Trustee, The Bank of New York Mellon, as Conduit Administrator, Securities Intermediary and Conduit Lender Eligible Lender Trustee, National Education Loan Network, Inc., as SPV Administrator, Nelnet, Inc., as Sponsor, BMO Capital Markets Corp., as Manager, and National Education Loan Network, Inc., as Master Servicer; and
WHEREAS, the parties hereto desire to supplement the Funding Note Purchase Agreement as set forth herein.
NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
I.  Definitions . Capitalized terms used but not otherwise defined herein have the meanings given to them in the Funding Note Purchase Agreement.
II.  Supplements to Funding Note Purchase Agreement .
A. The “Reserve Account Specified Balance” shall mean [the lesser of (a) an amount equal to [] percent ([ ]%) of the aggregate Principal Balance of the Financed Student Loans as of the end of the most recent Settlement Period, less [ ] percent ([ ])% of the aggregate Principal Balance of the Financed Student Loans released from the security interest of the Conduit Lender after the end of the most recent Settlement Period, plus , in the case of any determination to be made on an Advance Date, [] percent ([ ]%) of the aggregate Principal Balance of Student Loans pledged by the Funding Note Issuer on such Advance Date determined as of the applicable Cut-off Date and (b) [ ] percent ([ ])% of the sum, with respect to all Grant Dates occurring on or prior to such date of determination, of the aggregate Principal Balance of the Student Loans pledged by the Funding Note Issuer on each such Grant Date determined in each case as of the applicable Cut-off Date (excluding for purposes of clause (b) any Student Loan released from the security interest of the Conduit Lender)]. 80
B. The “Portfolio Criteria” means the criteria specified on Schedule I attached hereto.
III. Representations and Warranties . The Funding Note Issuer represents and warrants to the Conduit Administrator as follows:
A.  Due Authorization, Non Contravention, etc . The execution, delivery and performance by such party of this Supplement are within its powers, have been duly authorized by all necessary action, and do not (i) contravene its organizational documents or (ii) contravene any contractual restriction, law or governmental regulation or court decree or order binding on or affecting it.
B.  Validity, etc . This Supplement constitutes the legal, valid and binding obligation of such party enforceable against such party in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights and general equitable principles.

 	 	 	
80	 	Insert additional text as necessary to specify Reserve Account mechanics as required by the Rating Agencies.	
 
 Exhibit X-1 

 

IV.  Binding Effect; Ratification .
A. This Supplement shall become effective as of the date first set forth above when counterparts hereof shall have been executed and delivered by the parties hereto, and thereafter shall be binding on the parties hereto and their respective successors and assigns.
B. The Funding Note Purchase Agreement, as supplemented hereby, remains in full force and effect. Any reference to the Funding Note Purchase Agreement from and after the date hereof shall be deemed to refer to the Funding Note Purchase Agreement as supplemented hereby, unless otherwise expressly stated.
V.  Miscellaneous .
A. THIS SUPPLEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF (OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW).
B. EACH OF THE PARTIES HERETO HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS SUPPLEMENT, ANY OTHER TRANSACTION DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING IN THIS PARAGRAPH B SHALL AFFECT THE RIGHT OF THE CONDUIT LENDER OR ANY AFFECTED PARTY TO BRING ANY ACTION OR PROCEEDING AGAINST THE FUNDING NOTE ISSUER [,THE SPV ADMINISTRATOR], THE MASTER SERVICER OR THE SPONSOR OR ANY OF THEIR RESPECTIVE PROPERTY IN THE COURTS OF OTHER JURISDICTIONS.
C. EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG ANY OF THEM ARISING OUT OF, CONNECTED WITH, RELATING TO OR INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM IN CONNECTION WITH THIS SUPPLEMENT OR THE OTHER TRANSACTION DOCUMENTS.
D. Headings used herein are for convenience of reference only and shall not affect the meaning of this Supplement or any provision hereof.
E. This Supplement may be executed in any number of counterparts, and by the parties hereto on separate counterparts, each of which when executed and delivered shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Executed counterparts of this Supplement may be delivered electronically.
 
 Exhibit X-2 

 

IN WITNESS WHEREOF, the parties hereto have caused this Supplement to be duly executed as of the date first above written.
 	 	 	 	 	 	 	 	 	
 	 	THE FUNDING NOTE ISSUER:	 	 	
 	 	 	 	 	 	 	 	 	
 	 	NELNET SUPERCONDUIT FUNDING, LLC	 	 	
 	 	 	 	 	 	 	 	 	
 	 	By:	 	 	 	 	 	 	
 	 	 	 	 	 	 	
 	 	 	 	Name:	 	 	 	 	
 	 	 	 	 	 	 	 	 	
 	 	 	 	Title:	 	 	 	 	

 	 	 	 	 	 	 	
AS ACKNOWLEDGED AND AGREED BY:	 	 	
 	 	 	 	 	 	 	
CONDUIT ADMINISTRATOR:	 	 	
 	 	 	 	 	 	 	
THE BANK OF NEW YORK MELLON	 	 	
 	 	 	 	 	 	 	
By:	 	 	 	 	 	 	
 	 	 	 	 	
 	 	Name:	 	 	 	 	
 	 	Title:	 	 	 	 	
 
 Exhibit X-3 

 

SCHEDULE I
PORTFOLIO CRITERIA
[To be determined by the Rating Agencies]
 
 Exhibit X-4 

Exhibit 10.3
 
ELIGIBLE LENDER TRUST AGREEMENT
between
NELNET SUPERCONDUIT FUNDING, LLC,
as the Funding Note Issuer
and
ZIONS FIRST NATIONAL BANK,
not in its individual capacity but solely as the
Eligible Lender Trustee
Dated as of May 13, 2009

   

 

TABLE OF CONTENTS
 	 	 	 	 	
 	 	Page	 	
 	 	 	 	 	
ARTICLE I DEFINITIONS AND USAGE	 	 	1	 	
 	 	 	 	 	
ARTICLE II APPOINTMENT OF ELIGIBLE LENDER TRUSTEE	 	 	1	 	
 	 	 	 	 	
Section 2.01. Appointment of Eligible Lender Trustee	 	 	1	 	
 	 	 	 	 	
Section 2.02. Declaration of Trust	 	 	2	 	
 	 	 	 	 	
Section 2.03. Title to Financed Student Loans	 	 	2	 	
 	 	 	 	 	
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE FUNDING NOTE ISSUER	 	 	2	 	
 	 	 	 	 	
ARTICLE IV AUTHORITY AND DUTIES OF ELIGIBLE LENDER TRUSTEE	 	 	3	 	
 	 	 	 	 	
Section 4.01. General Authority	 	 	3	 	
 	 	 	 	 	
Section 4.02. General Duties	 	 	3	 	
 	 	 	 	 	
Section 4.03. No Duties Except as Specified in this Agreement	 	 	3	 	
 	 	 	 	 	
Section 4.04. No Action Except Under Specified Documents	 	 	3	 	
 	 	 	 	 	
Section 4.05. Restrictions	 	 	3	 	
 	 	 	 	 	
ARTICLE V CONCERNING THE ELIGIBLE LENDER TRUSTEE	 	 	3	 	
 	 	 	 	 	
Section 5.01. Acceptance of Trust and Duties	 	 	3	 	
 	 	 	 	 	
Section 5.02. Representations and Warranties	 	 	4	 	
 	 	 	 	 	
Section 5.03. Not Acting in Individual Capacity	 	 	5	 	
 	 	 	 	 	
Section 5.04. Eligible Lender Trustee Not Liable for the Financed Student Loans	 	 	5	 	
 	 	 	 	 	
ARTICLE VI COMPENSATION AND INDEMNIFICATION OF ELIGIBLE LENDER TRUSTEE	 	 	5	 	
 	 	 	 	 	
Section 6.01. Fees	 	 	5	 	
 	 	 	 	 	
Section 6.02. Indemnity	 	 	5	 	
 	 	 	 	 	
Section 6.03. Survival	 	 	6	 	
 	 	 	 	 	
ARTICLE VII TERMINATION OF FUNDING NOTE ISSUER ELIGIBLE LENDER TRUST AGREEMENT	 	 	6	 	
 	 	 	 	 	
ARTICLE VIII SUCCESSOR ELIGIBLE LENDER TRUSTEES	 	 	6	 	
 	 	 	 	 	
Section 8.01. Eligibility Requirements for Eligible Lender Trustee	 	 	6	 	
 	 	 	 	 	
Section 8.02. Resignation or Removal of Eligible Lender Trustee	 	 	6	 	
 	 	 	 	 	
Section 8.03. Successor Eligible Lender Trustee	 	 	7	 	
 	 	 	 	 	
Section 8.04. Merger or Consolidation of Eligible Lender Trustee	 	 	7	 	
 	 	 	 	 	
ARTICLE IX MISCELLANEOUS	 	 	7	 	
 	 	 	 	 	
Section 9.01. Amendments and Waivers	 	 	7	 	
 	 	 	 	 	
Section 9.02. Notices	 	 	7	 	
 
 i 

 

 	 	 	 	 	
 	 	Page	 	
 	 	 	 	 	
Section 9.03. No Waivers; Remedies	 	 	8	 	
 	 	 	 	 	
Section 9.04. Successors and Assigns	 	 	8	 	
 	 	 	 	 	
Section 9.05. Governing Law	 	 	8	 	
 	 	 	 	 	
Section 9.06. Severability	 	 	8	 	
 	 	 	 	 	
Section 9.07. Waiver of Jury Trial	 	 	8	 	
 	 	 	 	 	
Section 9.08. Bankruptcy Non-Petition and Limited Recourse	 	 	8	 	
 	 	 	 	 	
Section 9.09. Execution in Counterparts	 	 	9	 	
 	 	 	 	 	
Section 9.10. Entire Agreement	 	 	9	 	
 	 	 	 	 	
Section 9.11. Limitation of Liability	 	 	9	 	
 	 	 	 	 	
Section 9.12. Section Titles	 	 	9	 	
 	 	 	 	 	
Section 9.13. Limitations on Rights of Others	 	 	9	 	
 	 	 	 	 	
Section 9.14. Acknowledgement and Agreement	 	 	9	 	
 	 	 	 	 	
Section 9.15. Force Majeure	 	 	10	 	
 	 	 	 	 	
Section 9.16. Survival	 	 	10	 	

 ii 

 

ELIGIBLE LENDER TRUST AGREEMENT
ELIGIBLE LENDER TRUST AGREEMENT (the “ Agreement ”), dated as of May 13, 2009 between NELNET SUPER CONDUIT FUNDING, LLC, a Delaware limited liability company (the “ Funding Note Issuer ”), and ZIONS FIRST NATIONAL BANK, a national banking association, not in its individual capacity but solely as eligible lender trustee on behalf and for the benefit of the Funding Note Issuer (the “ Eligible Lender Trustee ”).
WHEREAS, the Funding Note Issuer is a limited liability company established for the purpose of purchasing certain Eligible Loans from National Education Loan Network, Inc. or its subsidiaries or affiliates and will fund such purchases in part through the issuance and sale of a Funding Note to the Conduit Lender;
WHEREAS, on the date hereof, the Funding Note Issuer will enter into (i) a Student Loan Purchase Agreement with National Education Loan Network, Inc., a Nevada corporation (the “ Seller ”), (ii) various Servicing Agreements with the applicable Servicers, and (iii) the Funding Note Purchase Agreement (as defined below), for the purpose of effecting the purchase, servicing and pledge, as applicable, of certain Eligible Loans (the “ Financed Student Loans ”);
WHEREAS, the Funding Note Issuer desires that the Financed Student Loans be held by an “eligible lender” within the meaning of Section 435(d) of the Higher Education Act; and
WHEREAS, the Eligible Lender Trustee is an “eligible lender” within the meaning of Section 435(d) of the Higher Education Act and is willing to hold legal title to such Financed Student Loans on behalf and for the benefit of the Funding Note Issuer (which is not an “eligible lender”) according to the terms and conditions set forth herein.
NOW, THEREFORE, for and in consideration of the promises and of the mutual covenants contained herein, and for other valuable consideration, the receipt of which is hereby acknowledged, the Funding Note Issuer and the Eligible Lender Trustee hereby agree as follows:
ARTICLE I
DEFINITIONS AND USAGE
Except as otherwise specified herein or as the context may otherwise require, capitalized terms used but not otherwise defined herein are defined in the Funding Note Purchase Agreement, dated as of May 13, 2009, among the Funding Note Issuer, the Eligible Lender Trustee, Straight-A Funding, LLC, as Conduit Lender, The Bank of New York Mellon, as Conduit Administrator, Securities Intermediary and Conduit Lender Eligible Lender Trustee, National Education Loan Network, Inc., as SPV Administrator, Nelnet, Inc., as Sponsor, BMO Capital Markets Corp., as Manager, and National Education Loan Network, Inc., as Master Servicer (as amended, restated, supplemented or otherwise modified from time to time, the “ Funding Note Purchase Agreement ”), which also contains rules as to usage that shall be applicable herein.
ARTICLE II
APPOINTMENT OF ELIGIBLE LENDER TRUSTEE
Section 2.01. Appointment of Eligible Lender Trustee . The Funding Note Issuer hereby appoints the Eligible Lender Trustee, effective as of the date hereof, as trustee, to have all the rights, powers and duties set forth herein, including, without limitation:
(i) to hold legal title to the Financed Student Loans on behalf of and for the benefit of the Funding Note Issuer;
 
 1 

 

(ii) to the extent it is a party thereto, enter into and perform its obligations as the Eligible Lender Trustee under the Funding Note Purchase Agreement, the Student Loan Purchase Agreement, all Servicing Agreements, the Department Put Agreement and this Agreement; and
(iii) to engage in those activities, including entering into agreements, that are necessary, suitable or convenient to accomplish the foregoing or are incidental thereto or connected therewith.
Section 2.02. Declaration of Trust . The Eligible Lender Trustee hereby declares that it will hold the Financed Student Loans in trust upon and subject to the conditions set forth herein for the use and benefit of the Funding Note Issuer, subject to the obligations of the Eligible Lender Trustee under the Funding Note Purchase Agreement, the Student Loan Purchase Agreement, the Department Put Agreement and any Servicing Agreement to which it is a party. Effective as of the date hereof, the Eligible Lender Trustee shall have all rights, powers and duties set forth herein with respect to accomplishing the purposes of this Agreement.
Section 2.03. Title to Financed Student Loans . Legal title to all of the Financed Student Loans shall be vested at all times during the term of this Agreement in the Eligible Lender Trustee on behalf and for the benefit of the Funding Note Issuer.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE FUNDING NOTE ISSUER
The Funding Note Issuer hereby represents and warrants to the Eligible Lender Trustee that:
(i) It is duly organized and validly existing as a Delaware limited liability company in good standing under the laws of the State of Delaware, with power and authority to own its properties and to conduct its business as such properties are currently owned and such business is presently conducted.
(ii) It has all necessary power and authority to execute and deliver this Agreement and to carry out its terms; and the execution, delivery and performance of this Agreement has been duly authorized by the Funding Note Issuer by all necessary action.
(iii) This Agreement constitutes a legal, valid and binding obligation of the Funding Note Issuer enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization and similar laws relating to creditors’ rights generally and subject to general principles of equity.
(iv) The consummation of the transactions contemplated by this Agreement and the fulfillment of the terms hereof do not conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, the certificate of formation or limited liability company operating agreement, in effect as of the date hereof, of the Funding Note Issuer, or any indenture, agreement or other instrument to which the Funding Note Issuer is a party or by which it is bound; nor result in the creation or imposition of any Adverse Claim upon any of its properties pursuant to the terms of any such indenture, agreement or other instrument (other than as contemplated by the Transaction Documents); nor violate any law or any order, rule or regulation applicable to the Funding Note Issuer of any court or of any federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Funding Note Issuer or its properties.
 
 2 

 

ARTICLE IV
AUTHORITY AND DUTIES OF ELIGIBLE LENDER TRUSTEE
Section 4.01. General Authority . The Eligible Lender Trustee is authorized and directed to execute and deliver the Funding Note Purchase Agreement, the Student Loan Purchase Agreement, all Servicing Agreements to which it is a party and this Agreement and each certificate or other document attached as an exhibit to or contemplated by such agreements, in each case, in such form as the Funding Note Issuer shall approve as evidenced conclusively by the Eligible Lender Trustee’s execution thereof. The Eligible Lender Trustee is also authorized and directed on behalf and for the benefit of the Funding Note Issuer to acquire and hold legal title to the Financed Student Loans and to take all actions required of the Eligible Lender Trustee pursuant to the Funding Note Purchase Agreement, the Student Loan Purchase Agreement, all Servicing Agreements to which it is a party, the Department Put Agreement and this Agreement including, but not limited to, applying to the Department on behalf of itself and the Funding Note Issuer for a lender identification number with respect to the Financed Student Loans.
Section 4.02. General Duties . It shall be the duty of the Eligible Lender Trustee to discharge (or cause to be discharged) all its responsibilities as the Eligible Lender Trustee pursuant to the terms of the Funding Note Purchase Agreement, the Student Loan Purchase Agreement, all Servicing Agreements to which it is a party, the Department Put Agreement, this Agreement and any other Transaction Documents to which the Eligible Lender Trustee is a party.
Section 4.03. No Duties Except as Specified in this Agreement . The Eligible Lender Trustee shall not have any duty or obligation to manage, make any payment with respect to, register, record, sell, service, dispose of or otherwise deal with the Financed Student Loans, or to otherwise take or refrain from taking any action under, or in connection with, any document contemplated hereby to which the Eligible Lender Trustee is a party, except as expressly provided by the terms of the Funding Note Purchase Agreement, the Student Loan Purchase Agreement, any Servicing Agreement to which it is a party, the Department Put Agreement or this Agreement; and no implied duties or obligations shall be read into the Funding Note Purchase Agreement, the Student Loan Purchase Agreement, any Servicing Agreement to which it is a party, the Department Put Agreement or this Agreement against the Eligible Lender Trustee.
Section 4.04. No Action Except Under Specified Documents . The Eligible Lender Trustee shall not otherwise deal with the Financed Student Loans except in accordance with the powers granted to and the authority conferred upon the Eligible Lender Trustee pursuant to the Funding Note Purchase Agreement, the Student Loan Purchase Agreement, any Servicing Agreement to which it is a party, the Department Put Agreement, this Agreement and any other Transaction Documents to which the Eligible Lender Trustee is a party.
Section 4.05. Restrictions . The Eligible Lender Trustee shall not take any action that is inconsistent with the purposes of the Funding Note Issuer set forth in the Transaction Documents and the Department Put Agreement.
ARTICLE V
CONCERNING THE ELIGIBLE LENDER TRUSTEE
Section 5.01. Acceptance of Trust and Duties . The Eligible Lender Trustee accepts the trust hereby created and agrees to perform its duties hereunder with respect to such trust but only upon the terms of this Agreement. The Eligible Lender Trustee shall not be answerable or accountable hereunder or under the Funding Note Purchase Agreement, the Student Loan Purchase Agreement, the Department Put Agreement or any Servicing Agreement to which it is a party under any circumstances, except (i) for its own willful misconduct or negligence or (ii) in the case of the inaccuracy of any representation or warranty contained in Section 5.02 below expressly made by the Eligible Lender Trustee. In particular, but not by way of limitation (and subject to the exceptions set forth in the preceding sentence):
(i) The Eligible Lender Trustee shall not be liable for any error of judgment made by a responsible officer, director, employee, affiliate, agent or attorney of the Eligible Lender Trustee.
 
 3 

 

(ii) No provision of the Funding Note Purchase Agreement, the Student Loan Purchase Agreement, any Servicing Agreement to which it is a party, the Department Put Agreement or this Agreement shall require the Eligible Lender Trustee to expend or risk funds or otherwise incur any financial liability in the performance of any of its rights or powers hereunder or under the Funding Note Purchase Agreement, the Student Loan Purchase Agreement, the Department Put Agreement or any Servicing Agreement to which it is a party, if the Eligible Lender Trustee shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured or provided to it.
(iii) The Eligible Lender Trustee shall not be responsible for or in respect of the validity or sufficiency of this Agreement or for the due execution hereof by the Funding Note Issuer or for the form, character, genuineness, sufficiency, value or validity of any of the Financed Student Loans or for or in respect of the validity or sufficiency of the Funding Note Purchase Agreement, the Student Loan Purchase Agreement, the Department Put Agreement or any Servicing Agreement to which it is a party.
(iv) In no event shall the Eligible Lender Trustee or its affiliates, directors, officers, agents, attorneys or employees be responsible or liable for special, indirect or consequential loss or damage of any kind whatsoever irrespective of whether the Eligible Lender Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action.
(v) The Eligible Lender Trustee may execute any of the trusts or powers hereof and perform any of its duties by or through attorneys, agents, receivers or employees, and shall be entitled to advice of counsel concerning all matters, and may in all cases pay such reasonable compensation to any attorney, agent, receiver or employee retained or employed by it in connection herewith (such compensation to be reimbursed pursuant to Section 6.01 ). The Eligible Lender Trustee may act upon the opinion or advice of any attorney or accountant selected by it in the exercise of reasonable care or, if selected or retained by the Funding Note Issuer, approved by the Eligible Lender Trustee in the exercise of such care. The Eligible Lender Trustee shall not be responsible for any loss or damage resulting from any action or non-action based on its good faith reliance upon such opinion or advice.
(vi) The Eligible Lender Trustee shall not be responsible for any recital herein or for the recording or re-recording, filing, re-filing of any document or any supplement or amendment thereto, or the filing of financing statements, or for the validity of the execution by the Funding Note Issuer of this Agreement or any other Transaction Document to which it is a party, or of any supplemental agreements or instruments of further assurance, or for the value or title of the Financed Student Loans or otherwise as to the maintenance of the security hereof.
Section 5.02. Representations and Warranties . The Eligible Lender Trustee hereby represents and warrants to the Funding Note Issuer that:
(i) It is duly organized and validly existing in good standing under the laws of its governing jurisdiction and has an office located within the State of Utah, at which it will act as eligible lender trustee for the Funding Note Issuer. It has all requisite power and authority to execute, deliver and perform its obligations under the Funding Note Purchase Agreement, the Student Loan Purchase Agreement, all Servicing Agreements to which it is a party, the Department Put Agreement and this Agreement.
(ii) It has taken or will take, prior to the related effective date thereof, all action necessary to authorize the execution and delivery by it of the Funding Note Purchase Agreement, the Student Loan Purchase Agreement, all Servicing Agreements to which it is a party and this Agreement, and the Funding Note Purchase Agreement, the Student Loan Purchase Agreement, all Servicing Agreements to which it is a party and this Agreement have been executed and delivered by one of its officers who is duly authorized to execute and deliver the same on its behalf.
 
 4 

 

(iii) Neither the execution nor the delivery by it of the Funding Note Purchase Agreement, the Student Loan Purchase Agreement, any Servicing Agreement to which it is a party or this Agreement, nor the consummation by it of the transactions contemplated thereby or hereby nor compliance by it with any of the terms or provisions thereof or hereof will contravene any federal or New York state law, governmental rule or regulation governing the banking or trust powers of the Eligible Lender Trustee or any judgment or order binding on it, or constitute any default under its charter documents or by-laws or any indenture, mortgage, contract, agreement or instrument to which it is a party or by which any of its properties may be bound.
(iv) It is and will maintain its status as an “eligible lender” (as such term is defined in Section 435(d) of the Higher Education Act) for purposes of holding legal title to the Financed Student Loans and will apply to the Department for a lender identification number with respect to the Financed Student Loans as contemplated by the Funding Note Purchase Agreement, the Student Loan Purchase Agreement, all Servicing Agreements, the Department Put Agreement and this Agreement.
Section 5.03. Not Acting in Individual Capacity . Except as provided in this Article V , in accepting the trust hereby created, Zions First National Bank acts solely as Eligible Lender Trustee hereunder on behalf and for the benefit of the Funding Note Issuer and not in its individual capacity.
Section 5.04. Eligible Lender Trustee Not Liable for the Financed Student Loans . The Eligible Lender Trustee makes no representations as to the validity or sufficiency of the Funding Note Purchase Agreement, the Student Loan Purchase Agreement, any Servicing Agreement to which it is a party, the Department Put Agreement, this Agreement or of any Financed Student Loan or related documents. The Eligible Lender Trustee shall at no time have any responsibility for or with respect to the sufficiency of the Financed Student Loans; the validity or completeness of the assignment to the Eligible Lender Trustee of legal title to any Financed Student Loan on behalf and for the benefit of the Funding Note Issuer; the performance or enforcement (except as expressly set forth in the Funding Note Purchase Agreement, the Student Loan Purchase Agreement, the Department Put Agreement or any Servicing Agreement to which it is a party) of any Financed Student Loan; the compliance by the Funding Note Issuer or any Servicer with any warranty or representation made under any Transaction Document or in any related document or the accuracy of any such warranty or representation or any action or inaction of the SPV Administrator, the Conduit Administrator, the Manager, the Sponsor or any Servicer taken in the name of the Eligible Lender Trustee.
ARTICLE VI
COMPENSATION AND INDEMNIFICATION OF ELIGIBLE LENDER TRUSTEE
Section 6.01. Fees . The Eligible Lender Trustee shall receive as compensation for its services hereunder such fees as have been separately agreed upon before the date hereof between the Funding Note Issuer (or any affiliate thereof) and the Eligible Lender Trustee, and the Eligible Lender Trustee shall be entitled to be reimbursed by the Funding Note Issuer, to the extent provided in such separate agreement, for its other reasonable expenses hereunder, including, but not limited to, reimbursement of the fees and expenses of its counsel.
Section 6.02. Indemnity . The Funding Note Issuer shall, and shall cause the SPV Administrator to, and by its execution hereof, the SPV Administrator hereby agrees to, indemnify the Eligible Lender Trustee in its individual capacity and any of its officers, directors, employees and agents as and to the extent provided for in Sections 7.01 and 7.02 of the Funding Note Purchase Agreement.
 
 5 

 

Section 6.03. Survival . The provisions of this Article VI shall be continuing and shall survive the termination of this Agreement or the resignation or removal of the Eligible Lender Trustee.
ARTICLE VII
TERMINATION OF FUNDING NOTE ISSUER ELIGIBLE LENDER TRUST AGREEMENT
This Agreement (other than Article VI ) and the trust created hereby shall terminate and be of no further force or effect upon the earlier of (i) the payment in full of the principal of and interest on the Funding Notes and the termination of the Funding Notes under the Funding Note Purchase Agreement and (ii) the expiration of 21 years from the death of the last survivor of the descendants of Joseph P. Kennedy, the late Ambassador of the United States to the Court of St. James’s, living on the date hereof.
ARTICLE VIII
SUCCESSOR ELIGIBLE LENDER TRUSTEES
Section 8.01. Eligibility Requirements for Eligible Lender Trustee . The Eligible Lender Trustee shall at all times be a corporation or banking association (i) qualifying as an “eligible lender” as such term is defined in Section 435(d) of the Higher Education Act for purposes of holding legal title to the Financed Student Loans on behalf and for the benefit of the Funding Note Issuer, with a valid lender identification number with respect to the Financed Student Loans from the Department; and (ii) being authorized to exercise corporate trust powers and hold legal title to the Financed Student Loans. In case at any time the Eligible Lender Trustee shall cease to be eligible in accordance with the provisions of this Section, the Eligible Lender Trustee shall resign immediately in the manner and with the effect specified in Section 8.02 .
Section 8.02. Resignation or Removal of Eligible Lender Trustee . The Eligible Lender Trustee may at any time resign and be discharged from the trust hereby created by giving written notice thereof to the Funding Note Issuer. Upon receiving such notice of resignation, the Funding Note Issuer shall promptly appoint, with the consent of the Manager on behalf of the Conduit Lender (which consent shall not be unreasonably withheld, conditioned or delayed), a successor Eligible Lender Trustee meeting the eligibility requirements of Section 8.01 by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Eligible Lender Trustee and one copy to the successor Eligible Lender Trustee. If no successor Eligible Lender Trustee shall have been so appointed and have accepted appointment within 30 days after the giving of such notice of resignation, the resigning Eligible Lender Trustee may petition any court of competent jurisdiction for the appointment of a successor Eligible Lender Trustee; provided , however , that such right to appoint or to petition for the appointment of any such successor shall in no event relieve the resigning Eligible Lender Trustee from any obligations otherwise imposed on it under the Funding Note Purchase Agreement, the Student Loan Purchase Agreement, any Servicing Agreement to which it is a party, the Department Put Agreement or this Agreement until such successor has in fact assumed such appointment.
If at any time the Eligible Lender Trustee shall cease to be or shall be likely to cease to be eligible in accordance with the provisions of Section 8.01 and shall fail to resign after written request therefor by the Funding Note Issuer, then the Funding Note Issuer may remove the Eligible Lender Trustee. If the Funding Note Issuer shall remove the Eligible Lender Trustee under the authority of the immediately preceding sentence, the Funding Note Issuer shall promptly appoint a successor Eligible Lender Trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the outgoing Eligible Lender Trustee so removed and one copy to the successor Eligible Lender Trustee together with payment of all fees owed to the outgoing Eligible Lender Trustee.
Any resignation or removal of the Eligible Lender Trustee and appointment of a successor Eligible Lender Trustee pursuant to any of the provisions of this Section shall not become effective until acceptance of appointment by the successor Eligible Lender Trustee pursuant to Section 8.03 and payment of all fees and expenses owed to the outgoing Eligible Lender Trustee.
 
 6 

 

Section 8.03. Successor Eligible Lender Trustee . Any successor Eligible Lender Trustee appointed pursuant to Section 8.02 shall execute, acknowledge and deliver to the Funding Note Issuer and to its predecessor Eligible Lender Trustee an instrument accepting such appointment under this Agreement, and thereupon the resignation or removal of the predecessor Eligible Lender Trustee shall become effective and such successor Eligible Lender Trustee, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor under this Agreement, with like effect as if originally named as Eligible Lender Trustee. The predecessor Eligible Lender Trustee shall upon payment of its fees and expenses deliver to the successor Eligible Lender Trustee all documents, statements, moneys and properties held by it in trust under this Agreement and shall assign, if permissible, to the successor Eligible Lender Trustee any lender identification number obtained from the Department with respect to the Financed Student Loans to the extent such number is used by the Eligible Lender Trustee solely with respect to such Financed Student Loans; and the Funding Note Issuer and the predecessor Eligible Lender Trustee, at the sole cost and expense of the Funding Note Issuer, shall execute and deliver such instruments (in form and substance reasonable satisfactory to the Eligible Lender Trustee) and do such other things as may reasonably be required for fully and certainly vesting and confirming in the successor Eligible Lender Trustee all such rights, powers, duties and obligations.
No successor Eligible Lender Trustee shall accept such appointment as provided in this Section unless at the time of such acceptance such successor Eligible Lender Trustee shall be eligible pursuant to Section 8.01 .
Section 8.04. Merger or Consolidation of Eligible Lender Trustee . Any corporation or banking association into which the Eligible Lender Trustee may be merged or converted or with which it may be consolidated, or any corporation or banking association resulting from any merger, conversion or consolidation to which the Eligible Lender Trustee shall be a party, or any corporation or banking association succeeding to all or substantially all the corporate trust business of the Eligible Lender Trustee, shall, without the execution or filing of any instrument or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding, be the successor of the Eligible Lender Trustee hereunder; provided , that such corporation or banking association shall be eligible pursuant to Section 8.01 .
ARTICLE IX
MISCELLANEOUS
Section 9.01. Amendments and Waivers . Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and, in the case of an amendment, is signed by all the parties hereto and, in the case of a waiver, is signed by the party granting the waiver and then such waiver shall be effective only in the specific instance and for the specific purpose for which given; provided that no amendment to this Agreement shall be effective unless each Rating Agency shall have been provided with at least ten (10) days prior notice and S&P shall not have notified the Manager or the SPV Administrator that such amendment would result in a reduction, qualification or withdrawal of the then-current rating of the Funding Note. To the extent the consent of any of the parties hereto is required under this Agreement, the determination as to whether to grant or withhold such consent shall be made by such party in its sole discretion without any implied duty toward any other Person, except as otherwise expressly provided herein or therein.
Section 9.02. Notices . All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including communication by facsimile copy or other electronic means) and mailed, delivered by nationally recognized overnight courier service, transmitted or delivered by hand, as to each party hereto, at its address set forth on the signature pages hereto or as specified in the Funding Note Purchase Agreement or at such other address as shall be designated by such party in a written notice to the other parties hereto. Each such notice, request or other communication shall be effective (i) if given by facsimile, when such facsimile is transmitted to the specified facsimile number and an appropriate confirmation is received, (ii) if given by e-mail (to the extent an e-mail address has been provided), when sent to the specified e-mail address and an appropriate confirmation is received, (iii) if given by mail, five days after being deposited in the United States mails, first class postage prepaid, (iv) if given by recognized courier guaranteeing overnight delivery, the Business Day following such day after such communication is delivered to such courier or (v) if given by any other means, when delivered at the address specified in this Section.
 
 7 

 

Section 9.03. No Waivers; Remedies . No failure or delay by any party hereto in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.
Section 9.04. Successors and Assigns . The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, except that no party may assign or otherwise transfer any of its rights or obligations under this Agreement without the prior written consent of each other party, except as otherwise permitted by this Agreement and any such purported assignment without such consent shall be void.
Section 9.05. Governing Law . THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING REGARD TO CONFLICTS OF LAWS PRINCIPALS OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW).
Section 9.06. Severability . Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Agreement.
Section 9.07. Waiver of Jury Trial . EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG ANY OF THEM ARISING OUT OF, CONNECTED WITH, RELATING TO OR INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS.
Section 9.08. Bankruptcy Non-Petition and Limited Recourse . The Eligible Lender Trustee (not in its individual capacity but solely as Eligible Lender Trustee), by entering into this Agreement, hereby covenants and agrees that it will not, prior to the date which is one year and one day (or, if longer, any applicable preference period plus one day) after payment in full of the Funding Notes, institute against, or join any other Person in instituting against, the Funding Note Issuer, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding, or any similar proceeding under any federal or state bankruptcy or similar law; provided that nothing in this provision shall preclude or be deemed to stop any party hereto (a) from taking any action prior to the expiration of the aforementioned one year and one day period in (i) any case or proceeding voluntarily filed or commenced by the Funding Note Issuer or (ii) any involuntary insolvency proceeding filed or commenced against the Funding Note Issuer by a Person other than any other party hereto or (b) from commencing against the Funding Note Issuer or the Pledged Collateral any legal action which is not a bankruptcy, reorganization, arrangement, insolvency or a liquidation proceeding. The obligations of the Funding Note Issuer are limited recourse obligations payable solely from the Pledged Collateral and, following realization of the Pledged Collateral and its application in accordance with the terms of the Funding Note Purchase Agreement, any outstanding obligations of the Funding Note Issuer shall be extinguished and shall not thereafter revive. In addition, no recourse shall be had for any amounts payable or any other obligations arising under the Transaction Documents against any officer, member, director, employee, partner or security holder of the Funding Note Issuer or any of their successors or assigns. The foregoing shall not limit the rights of the Eligible Lender Trustee to file any claim in, or otherwise take any action with respect to, any insolvency proceeding instituted against the Funding Note Issuer by a Person other than the Eligible Lender Trustee.
 
 8 

 

Section 9.09. Execution in Counterparts . This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Delivery by facsimile or electronic mail of an executed signature page of this Agreement shall be effective as delivery of an executed counterpart hereof.
Section 9.10. Entire Agreement . This Agreement, including all Exhibits, Schedules and Appendices and other documents attached hereto or incorporated by reference herein, together with the other Transaction Documents, constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all other negotiations, understandings and representations, oral or written with respect to the subject matter hereof.
Section 9.11. Limitation of Liability . No claim may be made by any party hereto or any other Person against any other party hereto or their affiliates, directors, officers, employees, attorneys or agents for any special, consequential or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by this Agreement or any act, omission or event occurring in connection therewith; and each party hereto hereby waives, releases and agrees not to sue upon any claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor.
Section 9.12. Section Titles . The section titles contained in this Agreement shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties.
Section 9.13. Limitations on Rights of Others . Except as provided in Section 9.14 hereof, the provisions of this Agreement are solely for the benefit of the Funding Note Issuer and the Eligible Lender Trustee and nothing in this Agreement, whether express or implied, shall be construed to give to any other Person any legal or equitable right, remedy or claim in the Pledged Collateral or under or in respect of this Agreement or any covenants, conditions or provisions contained herein.
Section 9.14. Acknowledgement and Agreement . By execution of this Agreement, each party hereto expressly acknowledges and agrees that all of the Funding Note Issuer’s (and the Eligible Lender Trustee’s) right, title, and interests in, to, and under this Agreement shall be assigned by the Funding Note Issuer (or the Eligible Lender Trustee on its behalf) for collateral purposes to the Conduit Lender and the Conduit Lender Eligible Lender Trustee pursuant to the Funding Note Purchase Agreement, and such party consents to such assignment. Further, each of the parties hereto acknowledges and agrees that the Conduit Lender, the Conduit Lender Eligible Lender Trustee and the Affected Parties are express third party beneficiaries of the rights of the Funding Note Issuer and the Eligible Lender Trustee arising hereunder. The Eligible Lender Trustee acknowledges that after an Event of Default and during the continuation thereof, the Conduit Lender and the Conduit Lender Eligible Lender Trustee shall have the right to enforce the Funding Note Issuer’s rights and remedies under this Agreement, including, without limitation, the right at any time to enforce this Agreement and the obligations of the Eligible Lender Trustee hereunder; provided , however , that neither the Conduit Lender nor the Conduit Lender Eligible Lender Trustee shall be obligated to perform any of the obligations of the Funding Note Issuer or the Eligible Lender Trustee under this Agreement. The Eligible Lender Trustee acknowledges that the rights of the Funding Note Issuer, the Conduit Lender, the Conduit Lender Eligible Lender Trustee and any Affected Party with respect to the rights and remedies in connection with any breach of any representation, warranty or covenant made by the Eligible Lender Trustee under this Agreement shall be continuing and shall survive any termination of this Agreement.
 
 9 

 

Section 9.15. Force Majeure . The Eligible Lender Trustee shall not be deemed to have breached its obligations pursuant to this Agreement if it is rendered unable to perform such obligations, in whole or in part, by a force outside the control of the parties hereto (including acts of God, acts of war, fires, earthquakes, hurricanes, floods and other disasters). The Eligible Lender Trustee shall diligently perform its duties under this Agreement as soon as practicable following the termination of such interruption of business.
Section 9.16. Survival . The provisions of this Article IX shall be continuing and shall survive the termination of this Agreement.
 
 10 

 

IN WITNESS WHEREOF, the parties hereto have caused this Eligible Lender Trust Agreement to be duly executed by their respective officers hereunto duly authorized, as of the day and year first above written.
 	 	 	 	 	
 	ZIONS FIRST NATIONAL BANK,
not in its individual capacity but solely
as the Eligible Lender Trustee hereunder
 	 	
 	By:  	/s/ David W. Bata  	 	
 	 	Name:  	David W. Bata 	 	
 	 	Title:  	Vice President and Trust Officer 	 	
 	 	 	 	 	
 	 	Address :	 	 	
 	 	 	 	 	
 	 	1001 Seventeenth Street, Suite 1050
Denver, CO 80202	 	 	
 	 	 	 	 	
 	NELNET SUPERCONDUIT FUNDING, LLC,
as the Funding Note Issuer
 	 	
 	By:  	/s/ Hannah Smitterberg  	 	
 	 	Name:  	Hannah Smitterberg 	 	
 	 	Title:  	Assistant Vice President 	 	
 	 	 	 	 	
 	 	Address :	 	 	
 	 	 	 	 	
 	 	c/o National Education Loan Network, Inc.,
as Administrator
121 South 13 th Street, Suite 201
Lincoln, NE 68505	 	 	
 	 	 	 	 	 	 	
Acknowledged and Agreed with respect to
Section 6.02 :	 	 	
 	 	 	 	 	 	 	
NATIONAL EDUCATION LOAN NETWORK, INC., as the SPV Administrator	 	 	
 	 	 	 	 	 	 	
By:	 	/s/ Terry Heimes	 	 	
 	 	 	 	 	
 	 	Name:	 	Terry Heimes	 	 	
 	 	Title:	 	CFO	 	 	
 	 	 	 	 	 	 	
Address :
121 South 13 th Street, Suite 201
Lincoln, NE 68505	 	 	
 
 11 

Exhibit 10.4
 
STUDENT LOAN PURCHASE AGREEMENT
among
NATIONAL EDUCATION LOAN NETWORK, INC. ,
as Seller,
UNION BANK AND TRUST COMPANY ,
as Seller ELT,
NELNET SUPERCONDUIT FUNDING, LLC ,
as Purchaser,
and
ZIONS FIRST NATIONAL BANK ,
as Purchaser ELT

Dated as of May 13, 2009

   

 

TABLE OF CONTENTS
 	 	 	 	 	
 	 	Page	 	
 	 	 	 	 	
SECTION 1. TERMS	 	 	1	 	
 	 	 	 	 	
SECTION 2. COMMITMENT TO LEND UNDER FFELP	 	 	2	 	
 	 	 	 	 	
SECTION 3. DEFINITIONS	 	 	2	 	
 	 	 	 	 	
SECTION 4. TRANSFER OF LOANS	 	 	5	 	
 	 	 	 	 	
SECTION 5. REPRESENTATIONS, WARRANTIES AND COVENANTS	 	 	7	 	
 	 	 	 	 	
SECTION 6. REPURCHASE	 	 	8	 	
 	 	 	 	 	
SECTION 7. OBLIGATION TO REMIT SUBSEQUENT PAYMENTS AND FORWARD COMMUNICATIONS	 	 	8	 	
 	 	 	 	 	
SECTION 8. CONTINUING OBLIGATION OF THE SELLER	 	 	9	 	
 	 	 	 	 	
SECTION 9. LIABILITY OF THE SELLER; INDEMNITIES	 	 	9	 	
 	 	 	 	 	
SECTION 10. LIMITATION ON LIABILITY OF ELIGIBLE LENDER TRUSTEES	 	 	11	 	
 	 	 	 	 	
SECTION 11. EXPENSES	 	 	12	 	
 	 	 	 	 	
SECTION 12. SURVIVAL OF COVENANTS	 	 	12	 	
 	 	 	 	 	
SECTION 13. NOTICES	 	 	12	 	
 	 	 	 	 	
SECTION 14. FORM OF INSTRUMENTS	 	 	12	 	
 	 	 	 	 	
SECTION 15. WAIVERS AND AMENDMENTS	 	 	13	 	
 	 	 	 	 	
SECTION 16. NON-PETITION COVENANTS	 	 	13	 	
 	 	 	 	 	
SECTION 17. GOVERNING LAW	 	 	14	 	
 	 	 	 	 	
SECTION 18. SUCCESSORS AND ASSIGNS	 	 	14	 	
 	 	 	 	 	
SECTION 19. INTENDED THIRD PARTY BENEFICIARIES	 	 	14	 	
 	 	 	 	 	
SECTION 20. TAX TREATMENT	 	 	14	 	
 	 	 	 	 	
SECTION 21. SUBMISSION TO JURISDICTION	 	 	14	 	

 i 

 

 	 	 	
ATTACHMENTS	 	 	
 	 	 	
Attachment A:	 	Form of Bill of Sale	
 	 	 	
Attachment B:	 	Form of Blanket Endorsement	
 	 	 	
Attachment C-1:	 	Seller and Seller ELT Representations and Warranties — General	
 	 	 	
Attachment C-2:	 	Seller and Seller ELT Representations and Warranties — Loans	
 	 	 	
Attachment C-3:	 	Seller Representations and Warranties — Additional	
 	 	 	
Attachment C-4:	 	Purchaser ELT Representations and Warranties	
 	 	 	
Attachment D-1:	 	Seller Covenants	
 	 	 	
Attachment D-2:	 	Seller ELT Covenants	
 	 	 	
Attachment D-3:	 	Purchaser Covenants	
 	 	 	
Attachment D-4:	 	Purchaser ELT Covenants	
 	 	 	
Attachment E:	 	Notice Addresses	
 	 	 	
Attachment F:	 	Form of Subordinated Credit Agreement	
 	 	 	
Attachment G:	 	Form of Annual Statement of Compliance	

 

STUDENT LOAN PURCHASE AGREEMENT
This Student Loan Purchase Agreement (this “ Agreement ”), dated as of May 13, 2009 (the “ Closing Date ”), among NATIONAL EDUCATION LOAN NETWORK, INC., a Nevada corporation (in such capacity, the “ Seller ”), UNION BANK AND TRUST COMPANY, a Nebraska banking corporation, not in its individual capacity but solely as eligible lender trustee for the benefit of the Seller and its assigns (in such capacity, the “ Seller ELT ” and together with the Seller, the “ Seller Parties ”), NELNET SUPERCONDUIT FUNDING, LLC, a Delaware limited liability company (the “ Purchaser ”), and ZIONS FIRST NATIONAL BANK, a national banking association, not in its individual capacity but solely as eligible lender trustee for the benefit of the Purchaser and its assigns (in such capacity, the “ Purchaser ELT ” and together with the Purchaser, the “ Purchaser Parties ”), shall be effective upon execution by the parties hereto. For all purposes involving the holding or transferring of legal title to the Loans, any references to the Seller herein mean the Seller ELT and any references to the Purchaser herein mean the Purchaser ELT.
PRELIMINARY STATEMENTS
WHEREAS, the Seller is the owner of certain Student Loans;
WHEREAS, legal title to such Student Loans is vested in the Seller ELT, as trustee for the benefit of the Seller as the sole beneficiary;
WHEREAS, from time to time following the Closing Date, the Seller may desire to sell and/or transfer as a capital contribution, and the Purchaser may desire to purchase and/or accept as a capital contribution, such Student Loans in accordance with this Agreement and the related Bill of Sale;
WHEREAS, the Purchaser ELT is willing to hold legal title to, and serve as eligible lender trustee with respect to, Student Loans sold or contributed to the Purchaser hereunder for the benefit of the Purchaser; and
NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, the parties hereto agree as follows:
SECTION 1. TERMS
This Agreement establishes the terms under which the Seller may, in its sole discretion, sell and/or contribute and the Purchaser may, in its sole discretion, acquire the Student Loans (and all obligations of the Borrowers thereunder) specified in each Bill of Sale from time to time executed and delivered pursuant to the terms of this Agreement. Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Transaction Document) and (ii) any reference herein to any Person shall be construed to include such Person’s permitted successors and assigns. Each Bill of Sale shall be substantially in the form of Attachment A hereto, incorporating by reference the terms of this Agreement, and shall be a separate agreement among the Seller Parties and the Purchaser Parties with respect to the Loans covered by the terms of such Bill of Sale. If the terms of a Bill of Sale conflict with the terms of this Agreement, the terms of such Bill of Sale shall supersede and govern.
 
 1 

 

SECTION 2. COMMITMENT TO LEND UNDER FFELP
By its execution of this Agreement, and upon each Transfer hereunder, the Seller represents to the Department that: (i) during a twenty-four (24) month period commencing with the month in which it Transfers Loans pursuant to this Agreement, it will originate and disburse Stafford Loans or PLUS Loans, or will acquire Stafford Loans or PLUS Loans made by other lenders within the same twenty-four (24) month period, and that the combined amount of such originated and acquired Loans (other than Excluded Loans) shall equal the Commitment Amount for such month; (ii) if the Seller participates solely as a secondary market purchaser and does not originate and disburse Stafford Loans or PLUS Loans in its own right but rather acquires Stafford and PLUS Loans from others, that it will, during the term of this Agreement, acquire Stafford Loans or PLUS Loans first disbursed on or after July 1, 2009 and that have experienced a final disbursement on or before September 30, 2011; (iii) within the twelve (12) months following the month in which it Transfers Loans pursuant to this Agreement, it will conduct activities constituting a continued participation in the FFELP, including but not limited to servicing a pre-existing FFELP loan portfolio, purchasing additional FFELP student loans, or maintaining a platform from which the Seller may originate FFELP student loans; and (iv) not later than twenty-seven (27) months following the month in which it first Transfers Student Loans pursuant to this Agreement (and every six months thereafter until each Commitment Amount has been satisfied, each a “ Commitment Reporting Date ”), it will provide a report to the Department, the Manager and the Conduit Administrator certifying that it has originated and/or acquired FFELP student loans in an amount equal to or exceeding the Commitment Amounts required to be satisfied prior to such Commitment Reporting Date; provided, that, the Seller may satisfy the commitment set forth in this Section 2 by arranging to have another Eligible Lender assume such commitment, in whole or in part, as evidenced by a commitment letter, in form satisfactory to the Department, between such Eligible Lender and the Department, with a copy to the Conduit Administrator.
For the purposes of confirming compliance with the Seller’s commitment above, the Seller must, on an annual basis, provide annual audited financial statements conducted in accordance with the standards for audits issued by the Department’s Office of Inspector General and a report to the Department setting forth the activities conducted by the Seller with the Net Cash Proceeds received through the sale of Loans under this Agreement, the dollar value and number of loans originated and/or acquired, and detailing any other uses of Net Cash Proceeds received through the sale of Loans under this Agreement and the amounts expended on such “other uses”. In addition, in connection with the Seller’s commitment above, Seller agrees to cooperate with the Conduit Administrator in the preparation of the notices to be provided to the Department pursuant to Article VIII of the Funding Note Purchase Agreement.
SECTION 3. DEFINITIONS
Except as otherwise specified herein or as the context may otherwise require, each capitalized term used but not otherwise defined herein has the meaning ascribed thereto in the Funding Note Purchase Agreement.
“ Benefit Plan ” means any employee benefit plan as defined in Section 3(3) of ERISA in respect of which the Seller or any ERISA Affiliate is, or at any time during the immediately preceding six years was, an “employer” as defined in Section 3(5) of ERISA.
“ Bill of Sale ” means each document in the form of Attachment A hereto and executed by an authorized officer of each of the Seller Parties and the Purchaser Parties, which shall sell, assign and convey all rights of the Seller Parties (except as provided therein) with respect to the Student Loans sold thereunder.
“ Blanket Endorsement ” means a blanket endorsement in substantially the form included as Attachment B hereto.
“ Cash Proceeds ” is defined in the definition of Net Cash Proceeds in this Agreement.
“ Collateral Security Interest ” is defined in Section 4(e) hereof.
“ Commitment Amount ” means, with respect the Seller and all sales or pledges of Student Loans to the Purchaser during a calendar month, an amount equal to the product of (a) the Net Cash Proceeds received by the Seller in such month, multiplied by (b) the applicable Market Adjustment.
 
 2 

 

“ Commitment Reporting Date ” is defined in Section 2 hereof.
“ Deemed Liabilities ” means, with respect to the Seller and Student Loans not pledged to secure indebtedness of the Seller, an amount equal to the product of (a) the Cash Proceeds for such Student Loans and (b) the percentage equivalent of a fraction, the numerator of which equals the total liabilities and the denominator of which equals the total liabilities and stockholder’s equity, in each case calculated in accordance with generally accepted accounting principles and reflected in the most recent consolidated quarterly financial statements for the Seller (or the Seller’s ultimate parent to the extent financial statements are not available for the Seller).
“ Department Put Option ” means the option of the Conduit Lender and the Conduit Administrator to require the Department to purchase Student Loans subject to the terms and conditions in the Department Put Agreement.
“ ERISA Affiliate ” means (a) any corporation which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as the Seller, (b) a trade or business (whether or not incorporated) under common control (within the meaning of Section 414(c) of the Code) with the Seller, or (c) a member of the same affiliated service group (within the meaning of Section 414(m) of the Code) as the Seller, any corporation described in clause (a) above or any trade or business described in clause (b) above or other Person which is required to be aggregated with the Seller pursuant to regulations promulgated under Section 414(o) of the Code.
“ Excluded Loan ” means any Loan (a) Transferred pursuant to this Agreement or pledged pursuant to the Funding Note Purchase Agreement, (b) sold to the Department in connection with the Loan Purchase Commitment Program, and (c) with respect to which participation interests are sold to the Department in connection with the Loan Participation Purchase Program.
“ Funding Note Purchase Agreement ” means that certain Funding Note Purchase Agreement, dated as of May 13, 2009, among the Purchaser, as the funding note issuer, the Purchaser ELT, as the eligible lender trustee, National Education Loan Network, Inc., as the SPV administrator, The Bank of New York Mellon, as the conduit administrator, the securities intermediary and the conduit lender eligible lender trustee, National Education Loan Network, Inc., as master servicer, Nelnet, Inc., as sponsor, BMO Capital Markets Corp., as the manager, and Straight-A Funding, LLC, as the conduit lender, as amended, amended and restated, supplemented or otherwise modified from time to time.
“ Loan ” means a Student Loan sold to the Purchaser pursuant to a Bill of Sale.
“ Loan Transfer Statement ” means Department Form OE 1074 or its equivalent.
“ Market Adjustment ” means, as of any date of determination and any Commitment Amount, the lesser of (a) one (1) and (b) the percentage equivalent of a fraction, (i) the numerator of which is the annualized aggregate original principal balance of all Student Loans originated by all Eligible Lenders (as shown on the Department’s NSLDS system) during the period commencing with the month immediately following the month of the applicable Transfer of Student Loans to the Purchaser and ending at the end of the twenty-fourth month after such Transfer (or at the end of the preceding month if less than twenty-four months have elapsed since such Transfer), and (ii) the denominator of which is the aggregate original principal balance of all Student Loans originated by all Eligible Lenders (as shown on the Department’s NSLDS system) during the twelve month period ending with the month immediately preceding the month of the applicable Transfer of Student Loans to the Purchaser.
“ Material Adverse Effect ” means a material adverse effect upon the ability of the Seller to perform its obligations under any Transfer Agreement.
“ Multiemployer Plan ” means a “multiemployer plan” as defined in Section 4001(a)(3) of ERISA which is or was at any time during the current year or the immediately preceding six years contributed to by the Seller or any ERISA Affiliate.
 
 3 

 

“ Net Cash Proceeds ” means an amount equal to (a) the cash proceeds received by the Seller from the Transfer of Student Loans to the Purchaser (including cash proceeds received from the sale and/or pledge of Additional Securities) together with any reserves or expenses withheld or paid from the proceeds of the sale of the related Securities (“ Cash Proceeds ”), minus (b) the amount paid by the Seller in connection with such Transfer of the Student Loans to repay indebtedness secured by the Student Loans or, with respect to any Student Loans that are not pledged to secure indebtedness of the Seller, the Deemed Liabilities allocated to such Student Loans.
“ Purchase Price ” means, with respect to all Loans subject to a Bill of Sale, the dollar amount specified therein representing the aggregate purchase price therefor.
“ Related Security ” means, with respect to any Loan, any guaranties and other rights and security relating thereto including, without limitation, the insurance interest of the holder of such Loan under the FFELP, Interest Subsidy Payments, Special Allowance Payments and related assets, whether the same constitute accounts, instruments, chattel paper, investment property or general intangibles, all documents, books, records, Promissory Notes and other information (including without limitation, computer programs, tapes, disks, punch cards, data processing software and related property and rights) maintained with respect to such Loan, supporting obligations, liens securing any of the foregoing, amounts and claims and other rights under insurance policies relating to the foregoing and all related accounts, general intangibles, instruments, investment property, documents, chattel paper, goods, money, letters of credit, letter of credit rights, certificates of deposit, deposit accounts and all other related property and interests in property, and all proceeds of the foregoing, in each case whether now existing or hereafter arising.
“ Repurchase Amount ” is defined in Section 6(a) hereof.
“ Repurchase Event ” means the occurrence of any of the following events or circumstances which, if the related Repurchase Amounts are payable to the Department, shall be determined by the Department in its sole, good faith discretion:
(i) any representation or warranty made or furnished by the Seller Parties pursuant to this Agreement shall prove to have been materially incorrect when made;
(ii) a Student Loan is not an Eligible Loan on its Grant Date; or
(iii) a Student Loan shall be subject to an Adverse Claim created by or through the Seller.
“ Repurchase Event Fees and Expenses ” is defined in Section 6(a) hereof.
“ Sale Termination Date ” means the earliest to occur of (i) July 1, 2010 and (ii) the occurrence of an Event of Default.
“ Security Release Certification ” means any release of lien documentation executed by the applicable lienholder with respect to one or more Loans in a form reasonably acceptable to the Department, the Purchaser and the Conduit Administrator.
“ Seller Indemnified Amounts ” is defined in Section 9 hereof.
“ Seller Indemnified Party ” is defined in Section 9 hereof.
“ Servicer ” means, with respect to any Loan, the servicer of such Loan specified on the Loan Transmittal Summary Form incorporated into the related Bill of Sale.
“ Subordinated Credit Facility ” means a subordinated credit facility of the Purchaser evidenced by a revolving credit agreement substantially in the form attached hereto as Attachment F .
 
 4 

 

“ Transfer ” is defined in Section 4(a) hereof.
“ Transfer Agreement ” means this Agreement or a Bill of Sale.
“ Transfer Date ” means, with respect to each Loan, the date of the related Bill of Sale.
“ Transfer Document ” is defined in Section 15 hereof.
SECTION 4. TRANSFER OF LOANS
(a)  Consummation of Transfer . From time to time prior to the Sale Termination Date, the Seller may offer Student Loans as selected in accordance with the Loan Sale Allocation Criteria and the Related Security for sale and/or as a capital contribution to the Purchaser and the Purchaser may accept such offer pursuant to the terms of a Bill of Sale (each, a “ Transfer ” or such other conjugation thereof as is required by the context). Each Transfer shall, subject to the terms and conditions set forth therein, be consummated upon satisfaction of the conditions precedent set forth in Section 4(d) below. Upon consummation, such Transfer shall be effective as of the Transfer Date.
(b)  Interest Subsidy and Special Allowance Payments . The Seller Parties shall be entitled to all Interest Subsidy Payments and Special Allowance Payments on the Loans sold hereunder up to but not including the related Transfer Date, and shall be responsible for the payment of fees and other amounts due to the Department, if any, including, but not limited to, Negative Special Allowance Payments, applicable to Student Loans sold hereunder accruing from the date upon which the applicable Student Loans were sold pursuant to this Agreement, up to but not including the related Transfer Date. The Department shall be entitled to all interest and other payments on the Student Loans sold under the Department Put Agreement that accrues on and after the related Department Put Date.
(c)  Settlement of Purchase Price . The Purchase Price for Loans and Related Security Transferred hereunder shall be equal to the fair market value of such Loans based on current market conditions at the time of such Transfer. The Purchase Price shall be paid as follows:
(i) first, to the extent the Purchaser has funds available for such purpose, the Purchase Price shall be paid by the Purchaser to the Seller by wire transfer of immediately available funds to the account specified therefor in the related Bill of Sale; and
(ii) second, the remaining portion of the Purchase Price, if any, shall be deemed to be a capital contribution by the Seller to the Purchaser in respect of the Seller’s 100% membership interest in the Purchaser.
Funds available to the Purchaser pursuant to clause (i) shall include the Net Cash Advance Amount and may also include borrowings made by the Purchaser under a Subordinated Credit Facility. The Purchaser may borrow funds under such Subordinated Credit Facility only if all of the following conditions are satisfied:
(i) the Purchaser’s total assets exceed its total liabilities;
(ii) the Purchaser’s cash on hand is sufficient to satisfy all of its current obligations (other than any amounts due under such Subordinated Credit Facility and the obligation to pay the outstanding Funding Note);
(iii) the Purchaser is adequately capitalized at a commercially reasonable level;
(iv) the Purchaser has determined that its financial capacity to meet its financial commitment under such Subordinated Credit Facility is adequate; and
 
 5 

 

(v) the principal amount outstanding under such Subordinated Credit Facility, together with interest owing thereon, does not exceed the excess of the aggregate Collateral Value of all Financed Student Loans, over the aggregate amount of all Obligations.
(d)  Conditions Precedent to Transfer . Each Transfer is subject to satisfaction of the following conditions precedent (and the Seller, by accepting payment of the Purchase Price, shall be deemed to have certified that all such conditions (other than the authority of any Purchaser Party) are satisfied on the date of such Transfer):
(i) Execution and Delivery of Bill of Sale . The related Bill of Sale shall have been executed and delivered (with a copy to the Conduit Administrator and the Department) by a duly authorized officer of each of the Seller Parties and the Purchaser Parties and shall include a complete Loan Transmittal Summary Form.
(ii) Endorsement . The Seller Parties shall have (A) delivered to the Purchaser, with a copy to the Conduit Administrator and the Department, a Blanket Endorsement transferring to the Purchaser ELT the entire interest (except as set forth in the related Bill of Sale) of the Seller Parties in the Loans to be Transferred or (B) individually endorsed each of the related Promissory Notes at the direction of, and in such form as has been requested by, the Purchaser or the Department. The Seller Parties shall have delivered any UCC-3 financing statements in a form ready to be filed and/or other required Security Release Certifications as may be necessary to terminate any security interest related to the Loans listed on the related Bill of Sale.
(iii) Loan Transfer Statement . If the Purchaser has provided the Seller with one or more Loan Transfer Statements with respect to the Loans to be Transferred, the Seller shall have executed and delivered, and shall have caused the Seller ELT to execute and deliver, to the Purchaser and the Department such Loan Transfer Statement(s) dated as of the Transfer Date. The Seller agrees that the Purchaser Parties may use the related Bill of Sale, including the Loan Transmittal Summary Form attached thereto, in lieu of a Loan Transfer Statement, as official notification to the applicable Guarantors of the assignment by the Seller ELT to the Purchaser ELT of the Loans listed on the related Bill of Sale.
(iv) Payment of Purchase Price . The Purchaser shall have paid the related Purchase Price (other than any portion of the Purchase Price deemed to be a capital contribution) in accordance with Section 4(c) hereof.
(v) Servicing Agreement . A copy of the fully executed Servicing Agreement relating to the Loans being transferred on such Transfer Date, to the extent not delivered in connection with a prior Transfer, shall be delivered to the Department and the Manager.
(vi) Loan Data Schedule . The Seller shall deliver the Loan Data Schedule to the Department no later than the third (3 rd ) Business Day prior to the Transfer Date.
(vii) Notice of Intent to Participate . The Seller shall have executed and delivered a Notice of Intent to Participate to the Department with a copy to the Conduit Administrator.
(viii) Trust Receipt . The related Subcustodian shall be in possession of the Loan Documents with respect to the Student Loans being Transferred to the Purchaser Parties on the related Transfer Date and such Subcustodian shall have delivered a certification in the form specified in the related Servicing Agreement to the Conduit Administrator.
(ix) Power of Attorney . The Seller shall have executed and delivered the Power of Attorney in favor of the Conduit Lender and the Conduit Administrator.
 
 6 

 

(e)  Grant of Collateral Security Interest . Each of the Seller Parties and the Purchaser Parties, by its acceptance of the terms hereof, hereby acknowledges its intent that each Transfer be, and be construed as, a true sale or contribution of Loans from the Seller Parties to the Purchaser Parties. However, in the event that notwithstanding the intention of the parties, any Transfer is deemed to be a transfer for security, then the Seller Parties hereby grant to the Purchaser Parties, as of such Transfer Date, a continuing security interest (the “ Collateral Security Interest ”) in (i) all Loans described in the related Bill of Sale, (ii) all Related Security with respect to such Loans and (iii) all proceeds of such Loans and Related Security to secure a loan in an amount equal to the Purchase Price for such Loans; provided such Collateral Security Interest shall not include any right to make subsequent loans to a Borrower under any Promissory Note included in the Collateral Security Interest or any disbursement under a Promissory Note included in the Collateral Security Interest to the extent not constituting a Loan. Additionally, in the event that any Transfer is deemed to be a transfer for security, notwithstanding the intention of the parties, each of the Seller and the Purchaser hereby represents and warrants, as to itself, that each remittance of the Purchase Price (other than any portion of the Purchase Price deemed to be a capital contribution) by the Purchaser to the Seller hereunder will have been (i) the incurrence of a debt incurred in the ordinary course of business or financial affairs of the Seller and the Purchaser and (ii) made in the ordinary course of business or financial affairs of the Seller and the Purchaser.
(f)  Intent of the Parties . With respect to each Transfer, it is the intention of the Seller Parties and the Purchaser Parties, and the Seller hereby warrants that, except for United States federal, state and local income and franchise tax purposes, such Transfer constitutes a true sale of Loans from the Seller Parties to the Purchaser Parties and that the beneficial interest in, and title to, such Loans will not be part of either Seller Party’s estate in the event of the bankruptcy of such Seller Party or the appointment of a receiver with respect to such Seller Party.
(g)  Power of Attorney . The Seller Parties hereby grant to the Purchaser ELT, for the benefit of the Purchaser, an irrevocable power of attorney, which power of attorney is assignable to the Department and coupled with an interest, to individually endorse or cause to be individually endorsed in the name of the Seller Parties any Loan to evidence the Transfer of such Loan to the Purchaser ELT and to transfer or cause to be transferred any Promissory Note from the Seller Parties to the Conduit Administrator or a Subcustodian on its behalf.
SECTION 5. REPRESENTATIONS, WARRANTIES AND COVENANTS
(a)  Representations and Warranties of the Seller with respect to the Seller . The Seller, and to the extent expressly required in Attachment C-1 , the Seller ELT, makes each of the representations and warranties set forth on Attachment C-1 and Attachment C-3 hereto to the Purchaser Parties and the Department as of the Closing Date and each Transfer Date.
(b)  Representations and Warranties of the Seller with respect to the Loans . With respect to each Loan Transferred by the Seller pursuant to a Bill of Sale, the Seller, and to the extent expressly required in Attachment C-2 , the Seller ELT, makes each of the representations and warranties set forth on Attachment C-2 hereto to the Purchaser Parties and the Department as of the related Transfer Date.
(c)  Representations and Warranties of the Purchaser . The Purchaser makes each of the representations and warranties set forth on Attachment C-4 hereto to the Department as of the Closing Date and each Transfer Date.
(d)  Representations and Warranties of the Purchaser ELT . The Purchaser ELT makes each of the representations and warranties set forth on Attachment C-4 hereto to the Purchaser and the Department as of the Closing Date and each Transfer Date.
(e)  Covenants of the Seller . The Seller makes each of the covenants set forth on Attachment D-1 hereto with the Purchaser Parties and the Department.
 
 7 

 

(f)  Covenants of the Seller ELT . The Seller ELT makes each of the covenants set forth on Attachment D-2 hereto with the Purchaser Parties and the Department.
(g)  Covenants of the Purchaser . The Purchaser makes each of the covenants set forth on Attachment D-3 hereto with the Purchaser ELT and the Department.
(h)  Covenants of the Purchaser ELT . The Purchaser ELT makes each of the covenants set forth on Attachment D-4 hereto with the Purchaser and the Department.
SECTION 6. REPURCHASE
(a)  Repurchase of Student Loans; Repurchase . Upon the occurrence of a Repurchase Event with respect to any Student Loan, if the circumstances giving rise to such Repurchase Event shall not be cured within 30 days after written demand by the Purchaser, the Conduit Administrator or the Department, on or prior to such 30 th day, the Seller shall be required to remit to the Funding Note Issuer Collection Account an amount equal to the unpaid Principal Balance of each related Student Loan, plus accrued and unpaid interest thereon (to the extent not included in the Principal Balance), and, if applicable, Negative Special Allowance Payments with respect to such Student Loan from the related Transfer Date to and including the date of repayment in connection with such Repurchase Event (such amount, the “ Repurchase Amount ”); provided that if a Department Put Event shall have occurred with respect to such Student Loan, after the Revocation Date for such Student Loan, the Repurchase Amount shall be paid to the Department. The Seller shall reimburse the Purchaser and all Affected Parties for all attorneys’ fees, legal expenses, court costs, servicing fees or other fees and expenses incurred by the Purchaser and all Affected Parties in connection with each Student Loan for which the Seller is required to pay a Repurchase Amount pursuant to this Section 6 , including any amount required to be paid by the Funding Note Issuer pursuant to Section 1.03(g) of the Funding Note Purchase Agreement (collectively, “ Repurchase Event Fees and Expenses ”).
All of the rights of the Seller Parties under this Agreement with respect to any Student Loans for which the Department Put Option is exercised shall be assigned to the Department and after the Department Put Date with respect to a Student Loan, the Department shall have the right to enforce all repurchase and other rights against the Seller Parties.
(b)  Release of Lien Upon Purchase of Student Loan . The Purchaser hereby agrees to reconvey to the Seller and release its lien on and security interest in any Student Loan for which the Seller has remitted to the Funding Note Issuer Collection Account or the Department, as required by Section 6(a) , an amount equal to the Repurchase Amount and paid all other Repurchase Event Fees and Expenses payable pursuant to Section 6(a) .
SECTION 7. OBLIGATION TO REMIT SUBSEQUENT PAYMENTS AND FORWARD COMMUNICATIONS
(a) Any payment received by the Seller of amounts accrued on any Loan after the related Cut-off Date, which payment is not reflected in the related Loan Transmittal Summary Form, shall be received by the Seller in trust for the account of the Purchaser and the Seller hereby disclaims any title to or interest in any such amounts. Within two (2) Business Days following the date of receipt of good funds, the Seller shall remit to the Funding Note Issuer Collection Account immediately available funds in an amount equal to any such payment and shall deliver written notice to the Purchaser and the Conduit Administrator identifying the Loan with respect to which such payment was made, the amount of such payment and the date such payment was received.
(b) Any written communication received at any time by the Seller with respect to any Loan shall be transmitted by the Seller to the applicable Servicer promptly upon receipt. Such communications shall include, without limitation, letters, notices of death or disability, notices of bankruptcy and forms requesting deferment of repayment or loan cancellation.
 
 8 

 

SECTION 8. CONTINUING OBLIGATION OF THE SELLER
The Seller shall provide all reasonable assistance necessary in order for the Purchaser to resolve account problems raised by any Borrower, the Guarantor or the Department provided such account problems are attributable to or are alleged to be attributable to (a) an event occurring during the period the Seller owned the related Loan, or (b) a payment made or alleged to have been made to the Seller. In addition, the Seller agrees to reasonably cooperate in the preparation and filing of any UCC financing statements or amendments thereto at the request of the Purchaser Parties or the Department in order to reflect the Purchaser Parties respective interests in the Loans.
The Seller acknowledges that from time to time, the Department and its representatives shall have the right to request, schedule and conduct, during normal business hours and upon reasonable prior notice, additional due diligence of the Seller, relating to Student Loans subject to this Agreement, at the Seller’s expense and that before May 15 th of each year, the Seller shall be required to provide to the Conduit Administrator an annual statement of compliance with respect to the Transaction Documents, substantially in the form of Attachment G hereto, together with an Agreed Upon Procedures Letter. Additionally, on a periodic basis as requested by the Department, the Seller will provide to the Department all requested reports including, but not limited to standard reporting packages containing information on the Student Loans sorted by schools, delinquencies and other features identified by the Seller. As soon as available and in any event no later than the 105 th day following the end of the Seller’s fiscal year, the Seller shall provide to the Purchaser, the Conduit Administrator and the Manager, copies of the annual audited financial statements of the Seller, and certified by an independent certified public accounting firm.
Without the express prior written consent of the Department, the Purchaser and the Conduit Administrator, the Seller Parties shall not agree to release any Guarantor from any of its contractual obligations as a guarantor of any Loan or agree otherwise to alter, amend or renegotiate any material term or condition under which such Loan is guaranteed, except as required by applicable law or rules and regulations issued pursuant to applicable law.
SECTION 9. LIABILITY OF THE SELLER; INDEMNITIES
Without limiting any other rights that any such Person may have hereunder or under applicable law (including, without limitation, the right to recover damages for breach of contract), the Seller hereby agrees to indemnify (a) the Purchaser, (b) the Purchaser ELT and (c) each Affected Party, in their individual capacities and all successors, transferees, participants and assigns, and all officers, directors, employees, advisors and agents of any of the foregoing (each a “ Seller Indemnified Party ”), forthwith on demand, from and against any and all damages, losses, claims, liabilities and costs and expenses, including attorneys’ fees and disbursements (all of the foregoing being collectively referred to as “ Seller Indemnified Amounts ”) awarded against or incurred by any of them arising out of or relating to (i) the ownership of the Loans by the Seller Parties before the Transfer of such Loans to the Purchaser Parties, (ii) the Transfer of the Loans to the Purchaser Parties as of each Transfer Date, (iii) the servicing of the Loans before the transfer, (iv) the breach by the Seller of its representations, warranties and/or obligations under any Transaction Document to which it is a party or (v) any acts or omissions by the Seller relating to the Loans, excluding , however , (x) Seller Indemnified Amounts to the extent finally determined by a court of competent jurisdiction in a non-appealable judgment to have resulted from negligence or willful misconduct on the part of such Seller Indemnified Party and (y) recourse for defaulted Student Loans (except as specifically provided herein) or losses attributed to changes in the market value of the Loans, including, without limitation, because of changes in market interest rates or in the rate of prepayment. Without limiting the foregoing, the Seller shall indemnify each Seller Indemnified Party for Seller Indemnified Amounts arising out of or relating to, among other things:
(a) the adjustment or any non-cash reduction by the Seller in the outstanding Principal Balance of any Loan made by or at the direction of the Seller other than in connection with any borrower benefit that is not prohibited under the Funding Note Purchase Agreement;
 
 9 

 

(b) the transfer by the Seller of any interest in any Loan other than a Transfer to the Purchaser Parties as contemplated by this Agreement;
(c) any representation or warranty made or deemed made by the Seller (or any of its officers or Affiliates) under or in connection with any Transaction Document or any other information or report delivered by or on behalf of the Seller pursuant hereto, which shall have been false, incorrect or misleading in any respect when made or deemed made, including, without limitation, any Repurchase Event;
(d) the failure by the Seller to comply with any applicable law, rule or regulation with respect to any Loan, or the nonconformity of any Loan to any such applicable law, rule or regulation, including in each case (without limitation) failure to comply with the Higher Education Act and all applicable consumer credit laws;
(e) the failure due to acts or omissions of either Seller Party to vest in the Purchaser Parties an ownership interest and a first priority perfected security interest in each Loan, free and clear of any lien, other than a lien in favor of the Conduit Lender arising solely as a result of the transactions contemplated by the Transaction Documents;
(f) any dispute, claim, offset or defense (other than discharge in bankruptcy) of a Borrower or any Guarantor to the payment of any Loan or any payment made by a Guarantor arising out of the servicing of the applicable Loan prior to the related Transfer Date (including, without limitation, a defense based on such Loan or Guarantee Agreement not being a legal, valid and binding obligation of such Borrower or Guarantor, as the case may be, enforceable against it in accordance with its terms);
(g) the failure by the Seller to comply with any term, provision or covenant contained in any Transaction Document to which it is party;
(h) any lien (other than the lien granted to the Purchaser under this Agreement) resulting from an act or omission of either Seller Party attaching to any Loan or any related assets or Collections with respect thereto, whether existing at the time that such Loan initially arose or at any time thereafter;
(i) any claim or action of whatever sort arising out of or in connection with the origination or servicing of any Loan or any other services with respect to such Loan to the extent such origination, servicing or services were provided by the Seller or an Affiliate of the Seller on or before the related Transfer Date or were provided by a Person from whom the Seller is entitled to recover such Seller Indemnified Amounts;
(j) the failure to pay when due any Taxes and fees payable by the Seller in connection with the Transfer of any Loan or the execution, delivery, filing and recording of this Agreement or any of the other agreements and documents to be delivered hereunder (including any UCC financing statements);
(k) the payment by such Seller Indemnified Party of Indemnified Taxes and, without duplication, any sales, gross receipts, general corporation, tangible and intangible personal property, privilege or license taxes that may at any time be asserted against any Seller Indemnified Party with respect to the Loans or the transactions contemplated by the Transaction Documents or the Department Put Agreement, and any costs and expenses of defending the same, to the extent caused by the Seller’s actions or omissions in breach of this Agreement;
(l) the payment by such Seller Indemnified Party of Taxes (other than Taxes described in clauses (j) and (k) above); provided that the Seller Indemnified Amounts in this clause (l) with respect to any such Taxes accruing after the applicable Grant Date, shall not in the aggregate exceed 10% of the Cash Proceeds received by the Seller;
(m) the commingling of Collections with any other funds of the Seller or failure by the Seller to promptly remit all Collections inadvertently received to the applicable Servicer;
 
 10 

 

(n) any investigation, litigation or proceeding related to this Agreement or the use of proceeds of purchases made pursuant to this Agreement or any other Transaction Document to which the Seller is a party which arises out of any act or omission of the Seller with respect to one or more Loans;
(o) any claim brought by any Person arising from any activity by the Seller or an Affiliate of the Seller, prior to the transfer of such Loan to the Purchaser, in servicing, administering or collecting any Loan;
(p) the sale or pledge by the Seller of any Loan in violation of any applicable law, rule or regulation;
(q) any attempt by any Person to void any Transfer pursuant to any statutory provision or common law or equitable action, including, without limitation, any provision of the Bankruptcy Code, based on any act or omission or illegal conduct of either Seller Party or any Affiliate of either Seller Party (other than either Purchaser Party);
(r) any failure to pay an Excluded Borrower Benefit prior to the Transfer of any Loan;
(s) the Transfer of any Loans hereunder which were not Eligible Loans as of the related Transfer Date (unless such Loans are repurchased in accordance with Section 6 hereof); or
(t) with respect to any Loan for which the related Promissory Note is evidenced by an electronic promissory note or an electronic record, or contains an electronic signature, the failure of such Promissory Note to comply in all material respects with all regulations, standards and other requirements provided by the applicable Guarantor (if any) and the Department relating to the validity and enforceability of such Promissory Note including, but not limited to, clause (m) and the proviso following such clause under the definition of “Loan Documents” in the Funding Note Purchase Agreement.
Any amounts subject to the indemnification provisions of this Section 9 shall be paid by the Seller to the related Seller Indemnified Party on or before the 30 th day following demand therefor accompanied by reasonable supporting documentation with respect to such amounts.
Indemnification under this Section 9 shall survive the resignation or removal of the Purchaser ELT and the termination of this Agreement and shall include reasonable fees and expenses of counsel and expenses of litigation. If the Seller shall have made any indemnity payments pursuant to this Section 9 and the Person to or for the benefit of whom such payments are made thereafter shall collect any of such amounts from others, such Person shall promptly repay such amounts to the Seller, without interest.
SECTION 10. LIMITATION ON LIABILITY OF ELIGIBLE LENDER TRUSTEES
Notwithstanding anything contained herein to the contrary, this Agreement has been, and each Bill of Sale and Blanket Endorsement will be, signed by Union Bank and Trust Company, not in its individual capacity but solely in its capacity as the Seller ELT, and Zions First National Bank, not in its individual capacity but solely in its capacity as the Purchaser ELT, as the case may be, and in no event shall Union Bank and Trust Company, in its individual capacity, or Zions First National Bank, in its individual capacity, have any liability for the representations, warranties, covenants, agreements or other obligations of the Seller or the Purchaser under any Transfer Agreement or in any of the certificates, notices or agreements delivered pursuant hereto, as to all of which recourse shall be had solely to the assets of the Seller or the Purchaser, as the case may be.
The parties hereto agree that each of the Seller ELT and the Purchaser ELT shall be afforded all of the rights, immunities and privileges afforded to the Eligible Lender Trustee under the Funding Note Purchase Agreement in connection with its execution of this Agreement.
 
 11 

 

SECTION 11. EXPENSES
Each of the Seller and the Purchaser shall pay the legal fees and expenses of its attorneys in connection with the negotiation, preparation, execution and delivery of this Agreement and in connection with the review and negotiation of the other Transaction Documents; provided that in partial consideration of the Purchaser’s agreement to purchase Loans hereunder, the Seller may provide for the payment of all costs and expenses incurred by the Purchaser Parties in connection herewith.
The Seller shall pay all other costs and expenses incurred in connection with preparation, execution and delivery of this Agreement, the other Transaction Documents and any Bill of Sale and the transactions contemplated herein or therein, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for each of the Seller Parties, with respect thereto, and all other costs and expenses incurred in connection with the transfer and delivery of the Loans to the Purchaser or the Department, including, without limitation, any fees and expenses incurred in connection with transferring ownership of any Loans to any such entity.
SECTION 12. SURVIVAL OF COVENANTS
All covenants, agreements, representations and warranties made herein or in or pursuant to each Bill of Sale shall survive the Transfer of the Loans provided for in such Bill of Sale. All covenants, agreements, representations and warranties made or furnished pursuant hereto by or for the benefit of the Seller shall bind any successors and assigns of the Seller and inure to the benefit of any successors or assigns of the Purchaser Parties and shall survive with respect to each Loan. Each Bill of Sale supersedes all previous agreements and understandings between the Purchaser Parties and the Seller Parties with respect to the subject matter thereof.
SECTION 13. NOTICES
All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including communication by facsimile copy or other electronic means) and mailed, delivered by nationally recognized overnight courier service, transmitted or delivered by hand, as to each party hereto and the Department, at its address set forth on Attachment E hereto or at such other address as shall be designated by such party in a written notice to the other parties hereto. Each such notice, request or other communication shall be effective (i) if given by facsimile, when such facsimile is transmitted to the specified facsimile number and an appropriate confirmation is received, (ii) if given by e-mail (if e-mail address has been provided), when sent to the specified e-mail address and an appropriate confirmation is received, (iii) if given by mail, five (5) days after being deposited in the United States mails, first class postage prepaid, (iv) if given by recognized courier guaranteeing overnight delivery, the Business Day following the day delivered to such courier (except that notices and communications delivered to the Department to the extent not e-mailed or mailed by registered or certified mail, return receipt requested, shall not be effective until received) or (v) if given by any other means, when delivered at the address specified in this Section 13 .
SECTION 14. FORM OF INSTRUMENTS
Each of the instruments and documents delivered in connection with any Transfer Agreement, and all proceedings to be taken in connection with any Transfer Agreement and the transactions contemplated herein and therein, shall be in the applicable form set forth in the attachments hereto, and the Purchaser shall have received such copies thereof as it or its counsel shall reasonably request in connection therewith. Any instrument or document which is substantially in the same form as an applicable attachment hereto or recital herein will be deemed to be satisfactory as to form.
 
 12 

 

SECTION 15. WAIVERS AND AMENDMENTS
The obligations of any party to any Transfer Agreement and any document or instrument delivered in accordance therewith (each, a “ Transfer Document ”) may be waived, only by a written instrument signed by a duly authorized officer of the party against whom enforcement of any such waiver is sought with the prior written consent of the Manager and the Department. The waiver by the Purchaser and the Department of any representation, warranty, covenant or agreement required to be made or performed under any Transfer Document by any party thereto or of any other provision contained in any Transfer Document shall not be deemed to be a waiver of any breach of any other representation, warranty, covenant, agreement or provision contained therein or in any other Transfer Document, nor shall any waiver or any custom or practice which may evolve between the parties to any Transfer Document in the administration of the terms thereof be construed to lessen the right of the Purchaser or the Department to insist upon the performance by the Seller in strict accordance with said terms.
Any Transfer Document may be amended by a writing executed and delivered by each of the parties thereto with the prior written consent of the Manager; provided that (i) no amendment to this Agreement shall be effective without the prior written consent of the Department; provided that, with not less than ten (10) Business Days’ prior written notice to the Department, the parties hereto may enter into any such amendment, subject to the provisions in this Section 15 , that does not have an adverse effect on the Department and (ii) no amendment to this Agreement shall be effective unless each Rating Agency shall have been provided with at least ten (10) days prior notice and S&P shall not have notified the Manager or the SPV Administrator that such amendment would result in a reduction, qualification or withdrawal of the then-current rating of the Funding Note. Notwithstanding the foregoing, if the Conduit Administrator provides the parties hereto with notice of any proposed amendment to this Agreement that has been approved by the Conduit Advisory Committee and the Seller Parties shall Transfer, and the Purchaser Parties shall accept, any Student Loans Transferred hereunder subsequent to receiving such notice, the Seller Parties and Purchaser Parties shall be deemed to have consented to such amendment. For purposes of the preceding sentence, notice shall be sufficient if delivered in accordance with Section 13 or if such amendment shall be posted to a website maintained by the Department.
SECTION 16. NON-PETITION COVENANTS
(a) Notwithstanding any prior termination of this Agreement, the Seller, the Seller ELT and the Purchaser ELT shall not, prior to the date which is one year and one day after repayment in full of the Funding Note, acquiesce, petition or otherwise invoke or cause the Purchaser, or authorize or join with any other person, to invoke the process of any court or government authority for the purpose of commencing or sustaining a case against the Purchaser under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Purchaser or any substantial part of its property, or ordering the winding up or liquidation of the affairs of the Purchaser; provided , however , nothing herein shall be deemed to prohibit the Seller, the Seller ELT or the Purchaser ELT from filing a claim or otherwise participating in any such action or proceeding.
(b) Notwithstanding any prior termination of this Agreement, the Seller ELT, the Purchaser and the Purchaser ELT shall not, prior to the date which is one year and one day after repayment in full of the Funding Note, acquiesce, petition or otherwise invoke or cause the Seller, or authorize or join with any other person, to invoke the process of any court or government authority for the purpose of commencing or sustaining a case against the Seller under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Seller or any substantial part of its property, or ordering the winding up or liquidation of the affairs of the Seller; provided, however, nothing herein shall be deemed to prohibit the Seller ELT, the Purchaser or the Purchaser ELT from filing a claim or otherwise participating in any such action or proceeding.
 
 13 

 

SECTION 17. GOVERNING LAW
THIS AGREEMENT, EACH OTHER TRANSFER AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY FEDERAL LAW OF THE UNITED STATES. IF THERE SHALL BE NO FEDERAL LAW OF THE UNITED STATES APPLICABLE TO A MATTER ARISING UNDER THIS AGREEMENT OR ANY OTHER TRANSFER AGREEMENT OR THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER OR THEREUNDER, THE LAWS OF THE STATE OF NEW YORK SHALL BE DEEMED TO BE REFLECTIVE OF FEDERAL LAW OF THE UNITED STATES INSOFAR AS TO DO SO WOULD NOT FRUSTRATE THE PURPOSES OF ANY PROVISION OF THIS AGREEMENT OR ANY OTHER TRANSFER AGREEMENT.
SECTION 18. SUCCESSORS AND ASSIGNS
None of the parties hereto shall assign any rights or delegate any duties hereunder without the prior written consent of each other party hereto, and any assignment made without such consent shall be void and constitute a default hereunder.
SECTION 19. INTENDED THIRD PARTY BENEFICIARIES
Each of the parties hereto acknowledges and agrees that the Conduit Lender, the Department and the other Affected Parties are express third party beneficiaries hereof entitled to enforce all of the obligations of the Seller with respect to payment of Repurchase Amounts, Repurchase Event Fees and Expenses and indemnities owed by the Seller and to enforce the terms hereof as if they were parties hereto.
SECTION 20. TAX TREATMENT
The Purchaser and the Seller each agree to treat for United States federal, state, and local income and franchise tax purposes, (1) the Funding Note as indebtedness, and (2) the Department Put Agreement and all amounts paid or accrued thereon (to the extent that it relates to the Student Loans) as consisting of an agreement solely by and between the Department and the Funding Note Issuer and shall take no position inconsistent with this treatment, unless otherwise required by law.
SECTION 21. SUBMISSION TO JURISDICTION
(a) EACH OF THE PARTIES HERETO HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER TRANSFER AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING IN THIS SECTION 21 SHALL AFFECT THE RIGHT OF ANY PARTY HERETO TO BRING ANY ACTION OR PROCEEDING AGAINST ANY OTHER PARTY HERETO OR ANY OF ITS PROPERTY IN THE COURTS OF OTHER JURISDICTIONS.
(b) EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG ANY OF THEM ARISING OUT OF, CONNECTED WITH, RELATING TO OR INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER TRANSFER AGREEMENT.
 
 14 

 

(c) The Purchaser hereby appoints Corporation Service Company located at 80 State Street, Albany, NY 12207-2543 as the authorized agent upon whom process may be served in any action arising out of or based upon this Agreement, any other Transfer Agreement or the transactions contemplated hereby or thereby that may be instituted in the United States District Court for the Southern District of New York and of any New York State court sitting in the Borough of Manhattan by any Affected Party or any successor or assignee of any of them.
[Signatures Follow]
 
 15 

 

IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be duly executed by their respective officers hereunto duly authorized, as of the date first written above.
 	 	 	 	 	
 	NATIONAL EDUCATION LOAN NETWORK, INC. ,
as Seller
 	 	
 	By:  	/s/ Michael S. Dunlap  	 	
 	 	Name:  	Michael S. Dunlap 	 	
 	 	Title:  	President 	 	
 	
 	UNION BANK AND TRUST COMPANY ,
not in its individual capacity but solely as Seller ELT
 	 	
 	By:  	/s/ Tom Sullivan  	 	
 	 	Name:  	Tom Sullivan 	 	
 	 	Title:  	Vice President 	 	
 	
 	NELNET SUPERCONDUIT FUNDING, LLC ,
as Purchaser
 	 	
 	By:  	/s/ Hannah Smitterberg  	 	
 	 	Name:  	Hannah Smitterberg 	 	
 	 	Title:  	Assistant Vice President 	 	
 	
 	ZIONS FIRST NATIONAL BANK ,
not in its individual capacity but solely as Purchaser ELT
 	 	
 	By:  	/s/ David W. Bata  	 	
 	 	Name:  	David W. Bata 	 	
 	 	Title:  	Vice President and Trust Officer 	 	
 
 S-1 

 

ATTACHMENT A
FORM OF
BILL OF SALE NUMBER [__]

Dated as of [TRANSFER DATE]
This Bill of Sale (this “ Bill of Sale ”) is made and entered into as of [TRANSFER DATE] , by and among NATIONAL EDUCATION LOAN NETWORK, INC. (the “ Seller ”), UNION BANK AND TRUST COMPANY, not in its individual capacity but solely as the eligible lender trustee for the benefit of the Seller (in such capacity, the “ Seller ELT ” and together with the Seller, the “ Seller Parties ”), NELNET SUPERCONDUIT FUNDING, LLC (the “ Purchaser ”), and ZIONS FIRST NATIONAL BANK, not in its individual capacity but solely as the eligible lender trustee for the benefit of the Purchaser (in such capacity, the “ Purchaser ELT ”).
W I T N E S S E T H :
WHEREAS, the parties hereto entered into a Student Loan Purchase Agreement dated as of May 13, 2009 (as amended, amended and restated, supplemented or otherwise modified, the “ Student Loan Purchase Agreement ”); and
WHEREAS, subject to the terms and conditions of the Student Loan Purchase Agreement, the Seller Parties desire to transfer to the Purchaser Parties the Student Loans identified on Annex I attached hereto and all Related Security with respect thereto (but excluding any right to make subsequent loans to a Borrower under any Promissory Note included in the Collateral Security Interest or any disbursement under a Promissory Note included in the Collateral Security Interest to the extent not constituting a Loan described in this Bill of Sale) (collectively, the “ Loan Portfolio ”) and the Purchaser Parties desire to accept such transfer;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, the parties hereto hereby agree as follows:

1.	 	Definitions . Each capitalized term used but not defined herein has the meaning ascribed thereto in the Student Loan Purchase Agreement.	

2.	 	Transfer . Subject to the terms and conditions of the Student Loan Purchase Agreement and in consideration for payment by the Purchaser to the Seller of the Purchase Price (as set forth below), the Seller Parties hereby grant, sell, assign, transfer, convey and, to the extent applicable, contribute to the Purchaser Parties, and the Purchaser Parties hereby accept, the entire right, title and interest of the Seller Parties in the Loan Portfolio (collectively, the “ Transfer ”).	

3.	 	Purchase Price . The purchase price for the Loan Portfolio is $[ ] (the “ Purchase Price ”). Each of the parties hereto agrees that the Purchase Price represents fair consideration and reasonably equivalent value for the Loan Portfolio and is equal to the fair market value of such Loan Portfolio based on current market conditions as of the date hereof. In payment of the Purchase Price, the Purchaser has caused $[ ] of immediately available funds to be wire transferred to the Seller’s Account (as defined below). The Seller and the Purchaser hereby agree that in accordance with Section 4(c) of the Student Loan Purchase Agreement, the remaining portion of the Purchase Price shall be deemed to be a capital contribution by the Seller to the Purchaser in respect of the Seller’s 100% membership interest in the Purchaser.	

4.	 	Seller’s Account . The Purchaser has caused the cash portion of the Purchase Price to be wire transferred to the following account (the “ Seller’s Account ”):	
[INSERT SELLER’S ACCOUNT INFORMATION]
 
 A-1 

 

5.	 	Intent . The parties hereto intend that the Transfer be, and be construed as, a true sale and, if applicable, contribution of the Loan Portfolio from the Seller Parties to the Purchaser Parties. However, in the event that notwithstanding the intention of the parties hereto, the Transfer is deemed to be a transfer for security, then the Seller Parties hereby grant to the Purchaser Parties a continuing security interest in the Loan Portfolio to secure a loan in an amount equal to the Purchase Price and each of the Seller and the Purchaser hereby represents and warrants, as to itself, that each remittance by the Purchaser to the Seller of the Purchase Price (other than any portion of the Purchase Price deemed to be a capital contribution) will have been (i) the incurrence of a debt incurred in the ordinary course of business or financial affairs of the Purchaser and the Seller and (ii) made in the ordinary course of business or financial affairs of the Purchaser and the Seller.	

6.	 	Guarantor Notification . Each of the Seller Parties authorizes the Purchaser ELT to use a copy of this Bill of Sale, including the Loan Transmittal Summary Form attached hereto (in lieu of Department Form OE 1074), as official notification to the applicable Guarantors of assignment to the Purchaser ELT of the Loan Portfolio.	

7.	 	Governing Law . THIS BILL OF SALE AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY FEDERAL LAW OF THE UNITED STATES. IF THERE SHALL BE NO FEDERAL LAW OF THE UNITED STATES APPLICABLE TO A MATTER ARISING UNDER THIS BILL OF SALE OR THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER, THE LAWS OF THE STATE OF NEW YORK SHALL BE DEEMED TO BE REFLECTIVE OF FEDERAL LAW OF THE UNITED STATES INSOFAR AS TO DO SO WOULD NOT FRUSTRATE THE PURPOSES OF ANY PROVISION OF THIS AGREEMENT OR ANY OTHER TRANSFER AGREEMENT.	

8.	 	Submission to Jurisdiction . EACH OF THE PARTIES HERETO HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS BILL OF SALE OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING IN THIS SECTION 8 SHALL AFFECT THE RIGHT OF ANY PARTY HERETO TO BRING ANY ACTION OR PROCEEDING AGAINST ANY OTHER PARTY HERETO OR ANY OF ITS PROPERTY IN THE COURTS OF OTHER JURISDICTIONS. EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG ANY OF THEM ARISING OUT OF, CONNECTED WITH, RELATING TO OR INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM IN CONNECTION WITH THIS BILL OF SALE. THE PURCHASER HEREBY APPOINTS CORPORATION SERVICE COMPANY LOCATED AT 80 STATE STREET, ALBANY, NY 12207-2543 AS THE AUTHORIZED AGENT UPON WHOM PROCESS MAY BE SERVED IN ANY ACTION ARISING OUT OF OR BASED UPON THIS BILL OF SALE OR THE TRANSACTIONS CONTEMPLATED HEREBY THAT MAY BE INSTITUTED IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN BY THE PURCHASER, THE PURCHASER ELT OR ANY SUCCESSOR TO OR ASSIGNEE OF EITHER OF THEM.	
 
 A-2 

 

9.	 	Student Loan Purchase Agreement . This Bill of Sale is one of the Bills of Sale referred to in the Student Loan Purchase Agreement. The terms and provisions of the Student Loan Purchase Agreement form a part of, and are incorporated by this reference into, this Bill of Sale. This Bill of Sale sets forth the terms and conditions of Transfer solely with respect to the Loan Portfolio. This Bill of Sale shall have no effect upon any other transfer of Student Loans consummated or contemplated prior to or after the date hereof, and all other terms, conditions and agreements contained in the Student Loan Purchase Agreement shall remain in full force and effect. Prior or subsequent purchases and sales of Student Loans shall each be governed by a separate Bill of Sale.	

10.	 	Amendment . This Bill of Sale may be amended by a writing executed and delivered by each of the parties thereto with the prior written consent of the Manager; provided that (i) no amendment to this Agreement shall be effective without the prior written consent of the Department; provided further that, with not less than ten (10) Business Days’ prior written notice to the Department, the parties hereto may enter into any such amendment, subject to the provisions in this Section 10 , that does not have an adverse effect on the Department and (ii) no amendment to this Agreement shall be effective unless each Rating Agency shall have been provided with at least ten (10) days prior notice and S&P shall not have notified the Manager or the SPV Administrator that such amendment would result in a reduction, qualification or withdrawal of the then-current rating of the Funding Note.	

11.	 	Third-Party Beneficiary . Each of the parties hereto acknowledges and agrees that the Conduit Lender, the Department and the other Affected Parties are express third party beneficiaries hereof entitled to enforce all of the obligations of the Seller with respect to payment of Repurchase Amounts, Repurchase Event Fees and Expenses and Seller Indemnified Amounts owed by the Seller and to enforce the terms hereof as if they were parties hereto. Further, all the rights of the Purchaser hereunder with respect to any Student Loans included in the Loan Portfolio for which the Department Put Option is exercised shall be assigned to the Department and after the Department Put Date with respect to a Student Loan, the Department shall have all repurchase and other rights against the Seller upon the occurrence of any of the conditions set forth in the Department Put Agreement with respect to such Student Loan.	

12.	 	Limitation of Liability . Notwithstanding anything contained herein to the contrary, this Agreement has been, and each Blanket Endorsement will be, signed by Union Bank and Trust Company, not in its individual capacity but solely in its capacity as the Seller ELT, and Zions First National Bank, not in its individual capacity but solely in its capacity as the Purchaser ELT, as the case may be, and in no event shall Union Bank and Trust Company, in its individual capacity, or Zions First National Bank, in its individual capacity, have any liability for the representations, warranties, covenants, agreements or other obligations of the Seller or the Purchaser under any Transfer Agreement or in any of the certificates, notices or agreements delivered pursuant hereto, as to all of which recourse shall be had solely to the assets of the Seller or the Purchaser, as the case may be.	
[Signatures Follow]
 
 A-3 

 

IN WITNESS WHEREOF , the parties hereto have caused this Bill of Sale Number [_____] to be duly executed by their respective officers hereunto duly authorized, as of the date first written above.
 	 	 	 	 	
 	NATIONAL EDUCATION LOAN NETWORK, INC. , as Seller
 	 	
 	By:  	 	 	
 	 	Name: 	 	 	
 	 	Title: 	 	 	
[Signatures Continue on the Following Page]
 
 A-4 

 

 	 	 	 	 	
 	UNION BANK AND TRUST COMPANY ,
not in its individual capacity but solely as Seller ELT
 	 	
 	By:  	 	 	
 	 	Name: 	 	 	
 	 	Title: 	 	 	
[Signatures Continue on the Following Page]
 
 A-5 

 

 	 	 	 	 	
 	NELNET SUPERCONDUIT FUNDING, LLC,
as Purchaser
 	 	
 	By:  	 	 	
 	 	Name: 	 	 	
 	 	Title: 	 	 	
[Signatures Continue on the Following Page]
 
 A-6 

 

 	 	 	 	 	
 	ZIONS FIRST NATIONAL BANK ,
not in its individual capacity but solely as Purchaser ELT
 	 	
 	By:  	 	 	
 	 	Name: 	 	 	
 	 	Title: 	 	 	
 
 A-7 

 

Annex I
LOAN TRANSMITTAL SUMMARY FORM
Loan Transmittal File Pipe delimited file
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	1	 	 	SSN	 	 	9(009)	 	Yes	
 	2	 	 	LastName	 	 	X(035)	 	Yes	
 	3	 	 	FirstName	 	 	X(020)	 	Yes	
 	4	 	 	LoanNumber 1	 	 	X(019)	 	Yes	
 	5	 	 	Principal Balance	 	 	9(012).99	 	Yes	
 	6	 	 	LoanType	 	 	 	 	 	 	 	 	
 	7	 	 	Promissory Note Date	 	 	—	 	 	 	 	
 	8	 	 	First Disbursement Date	 	 	—	 	 	 	 	
 	9	 	 	Final Disbursement Date	 	 	—	 	 	 	 	
 	10	 	 	Loan Period Begin Date	 	 	—	 	 	 	 	
 	11	 	 	Loan Period End Date	 	 	—	 	 	 	 	
 	12	 	 	Loan Status Code	 	 	 	 	 	 	 	 	
 	13	 	 	Seller or Eligible Direct Issuer LID	 	 	 	 	 	 	 	 	
 	14	 	 	Original Lender LID	 	 	 	 	 	 	 	 	
 	15	 	 	Guarantor	 	 	9(003)	 	Yes	
 	16	 	 	Servicer	 	 	X(008)	 	Yes	
 	17	 	 	School Type	 	 	X(009)	 	Four Year, Two Year, Proprietary/Vocational, Other; See table below.	
Notice information for Servicers:
[NAME]
[ADDRESS]
[ATTENTION]
[TELEPHONE]
[FAX]
[E-MAIL]
[REPEAT AS NECESSARY]

 	 	 	
1	 	Loan Number shall be a unique identifying number for each Student Loan. Such number must also be included in the information given to the accountants and the Conduit Administrator for any sample pool of Student Loans in connection with any Agreed Upon Procedures Letter.	
 
 A-8 

 

ATTACHMENT B
FORM OF
BLANKET ENDORSEMENT
(Bill of Sale Number [__])
[TRANSFER DATE]
Reference is made to that certain Bill of Sale, dated as of [TRANSFER DATE] , by and among NATIONAL EDUCATION LOAN NETWORK, INC., as the seller (the “ Seller ”), UNION BANK AND TRUST COMPANY, not in its individual capacity, but solely in its capacity as the eligible lender trustee for the benefit of the Seller (in such capacity, the “ Seller ELT ” and together with the Seller, the “ Seller Parties ”), NELNET SUPERCONDUIT FUNDING, LLC, as the purchaser (the “ Purchaser ”), and ZIONS FIRST NATIONAL BANK, not in its individual capacity, but solely in its capacity as the eligible lender trustee for the benefit of the Purchaser (in such capacity, the “ Purchaser ELT ”) (the “ Bill of Sale ”). Each capitalized term used but not defined herein has the meaning ascribed thereto in the Bill of Sale.
The Seller, by execution of this instrument, hereby endorses the attached promissory note which evidences one of the Student Loans included in the Loan Portfolio (each such promissory note, a “ Promissory Note ”). This endorsement is in blank, unrestricted form and without recourse except as provided in Section 6 of the Student Loan Purchase Agreement.
This endorsement may be effected by attaching either this instrument or a facsimile hereof to each or any of the Promissory Notes.
Notwithstanding the foregoing, the Seller ELT, on behalf of the Seller agrees to individually endorse each Promissory Note required to be so endorsed by the Purchaser or the Guarantor of such Promissory Note, at the sole cost and expense of the Purchaser, in such form as is provided by the Purchaser and is reasonably acceptable to the Seller ELT and the Department.
Notwithstanding anything contained herein to the contrary, this Agreement has been signed by Union Bank and Trust Company, not in its individual capacity but solely in its capacity as the Seller ELT, and Zions First National Bank, not in its individual capacity but solely in its capacity as the Purchaser ELT, as the case may be, and in no event shall Union Bank and Trust Company, in its individual capacity, or Zions First National Bank, in its individual capacity, have any liability for the representations, warranties, covenants, agreements or other obligations of the Seller or the Purchaser under any Transfer Agreement or in any of the certificates, notices or agreements delivered pursuant hereto, as to all of which recourse shall be had solely to the assets of the Seller or the Purchaser, as the case may be.
THE SALE OF THE LOANS SHALL BE SUBJECT TO THE TERMS, CONDITIONS AND COVENANTS SET FORTH IN THE BILL OF SALE, INCLUDING THIS BLANKET ENDORSEMENT. BY EXECUTION HEREOF, EACH OF THE SELLER PARTIES ACKNOWLEDGES THAT SUCH PARTY HAS READ, UNDERSTANDS AND AGREES TO BE BOUND BY ALL TERMS, CONDITIONS AND COVENANTS OF THE BILL OF SALE.
 
 B-1 

 

IN WITNESS WHEREOF , the parties hereto have caused this Blanket Endorsement to be duly executed by their respective officers hereunto duly authorized, as of the date first written above.
 	 	 	 	 	 	 	 	 	 	 	 	 	
SELLER	 	PURCHASER	 	
NATIONAL EDUCATION LOAN NETWORK, INC.	 	NELNET SUPERCONDUIT FUNDING, LLC	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
By:	 	 	 	 	 	By:	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	
 	 	(Signature of Authorized Officer)	 	 	 	(Signature of Authorized Officer)	 	
 	 	Name:	 	 	 	 	 	Name:	 	 	 	
 	 	Title:	 	 	 	 	 	Title:	 	 	 	
 		
Date of Sale: 	 	 	Date of Purchase: 	 	 	

SELLER ELT	 	PURCHASER ELT	 	 	
UNION BANK AND TRUST COMPANY, not in its individual capacity but solely as Seller ELT	 	ZIONS FIRST NATIONAL BANK, not in its individual capacity but solely as Purchaser ELT	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Lender Code: 	 	 	Lender Code: 	 	 	 	

By: 	 	 	 	 	 	By: 	 	 	 	 	 	 	
 	 	 	 	 	 	 	
 	(Signature of Authorized Officer)	 	 	(Signature of Authorized Officer)	 	 	
 	Name: 	 	 	 	 	Name: 	 	 	 	
 	Title: 	 	 	 	 	Title: 	 	 	 	
 		
 Date of Sale:	 	 	Date of Purchase: 	 	 	 	
 
 B-2 

 

ATTACHMENT C-1
SELLER AND SELLER ELT REPRESENTATIONS AND WARRANTIES
GENERAL
(i) Each of the Seller and the Seller ELT (1) is duly organized, validly existing and in good standing under the laws of the State of its formation or of the United States, as applicable, (2) has all licenses necessary to carry out its business as now being conducted or is otherwise exempt under applicable law from such licensing or qualification or is otherwise not required under applicable law to effect such licensing or qualification and no demand for such licensing or qualification has been made upon it by any such state, and (3) in any event is in compliance with the laws of any such state to the extent necessary to ensure the enforceability of each Loan. No licenses or approvals obtained by it have been suspended or revoked by any court, administrative agency, arbitrator or governmental body and no proceedings are pending which might result in such suspension or revocation.
(ii) The Seller ELT is an “eligible lender” as such term is defined in Section 435(d) of the Higher Education Act and has a lender identification number issued by the Department with respect to the Loans and has in effect a Guarantee Agreement with a Guarantor with respect to each of the Loans.
(iii) With respect to each state or jurisdiction therein in which the Seller or, in the event that the Seller is a special purpose entity with respect to a securitization or other financing facility, its administrator, as applicable, undertakes origination activities, Seller or such administrator, as applicable, is in full compliance with such state’s or jurisdiction’s (as applicable) laws, rules, regulations, orders, settlement agreements and other standards and procedures, including those promulgated by agencies or officers thereof, applicable to it and pertaining to the conduct of participants in the student loan industry to the extent the Seller has assented to such voluntary code of conduct (including, without limitation, any applicable “code of conduct” for participants in the student loan industry that specifically and legally applies to the Seller or its administrator, as applicable, and the Seller ELT, to the extent that non-compliance with such a code of conduct would adversely affect the Department’s rights or interest with respect to the Putable Loans that the Department purchases).
(iv) The Seller or, in the event that the Seller is a special purpose entity with respect to a securitization or other financing facility, its administrator, as applicable, has administered, operated and maintained its federal family education loan program in such manner as to ensure that such program and the Loans will benefit, in all material respects, from the FFELP, the Guarantee Agreements related thereto and the federal program of reimbursement for FFELP student loans pursuant to the Higher Education Act.
(v) The Seller has not, with respect to any Loan Transferred under a Bill of Sale executed pursuant to this Agreement, agreed to release any Guarantor from any of its contractual obligations as a guarantor of such Loan or agreed otherwise to alter, amend or renegotiate any material term or condition under which such Loan is Guaranteed, except as required by law or rules and regulations issued pursuant to law, without the express prior written consent of the Department.
(vi) Each of the Seller and the Seller ELT (1) has all requisite power and authority to hold each Loan, to sell each Loan, to pledge each Loan and to execute, deliver and perform, and to enter into and consummate, all transactions contemplated by this Agreement and each other Transfer Agreement, (2) has duly authorized the execution, delivery and performance of this Agreement and each other Transfer Agreement and (3) has duly executed and delivered this Agreement and each Transfer Agreement. This Agreement and each other Transfer Agreement, assuming due authorization, execution and delivery by the other parties thereto, constitutes the legal, valid and binding obligation of the Seller and the Seller ELT, enforceable against it in accordance with its terms except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of rights of creditors generally, and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or law); provided, however, that if the Seller is not an Eligible Lender, the power and authority to hold, sell and pledge each Loan described in clause (1) shall refer, with respect to the holder of the beneficial interests of such Loans, to the beneficial interest of the Seller, and with respect to the Seller ELT, to its interest as the legal title holder of the Loan.
 
 C-1-1 

 

(vii) The execution and delivery of this Agreement and each other Transfer Agreement by each of the Seller and the Seller ELT and the performance of and compliance with the terms of this Agreement and each other Transfer Agreement will not violate its formation documents or constitute a default under or result in a breach or acceleration of, any material contract, agreement or other instrument to which it is a party or which may be applicable to it or its assets.
(viii) Neither the Seller nor the Seller ELT is in violation of, and the execution and delivery of this Agreement and each other Transfer Agreement by it and its performance and compliance with the terms of this Agreement and each other Transfer Agreement will not constitute a violation with respect to, any order or decree of any court or any order or regulation of any federal, state, municipal or governmental agency having jurisdiction over it or its assets, which violation might have consequences that would materially and adversely affect the condition (financial or otherwise) or its operations or its assets or might have consequences that would materially and adversely affect the performance of its obligations and duties thereunder.
(ix) The Seller does not believe, nor does it have any reason or cause to believe, that it cannot perform each and every covenant contained in this Agreement and each other Transfer Agreement.
(x) There are no actions or proceedings against, or investigations of, the Seller before any court, administrative agency or other tribunal (A) that might prohibit its entering into this Agreement or any other Transfer Agreement, (B) that seeks to prevent the sale or pledge of Student Loans or the consummation of the transactions contemplated by this Agreement or any other Transfer Agreement or (C) that might prohibit or materially and adversely affect the performance by the Seller of its obligations under, or the validity or enforceability of, this Agreement or any other Transfer Agreement.
(xi) No consent, approval, authorization or order of any court or governmental agency or body is required for the execution, delivery and performance by the Seller or the Seller ELT of, or compliance by it with, this Agreement or any other Transfer Agreement or the consummation of the transactions contemplated by this Agreement or any other Transfer Agreement, except for such consents, approvals, authorizations or orders, if any, that have been obtained prior to the related Transfer Date.
(xii) The transfer of the Loans shall be treated as a sale on the books and records of the Seller and the Seller ELT, and, to the extent consistent with the facts and the circumstances of the transaction and applicable tax and accounting standards, the Seller and the Seller ELT will treat the disposition of the Loans pursuant to this Agreement for tax and accounting purposes as a sale. Each of the Seller and the Seller ELT shall maintain a complete set of books and records for each Loan which shall be clearly marked to reflect the ownership of each Loan by the Purchaser Parties.
(xiii) The consideration received by the Seller upon each Transfer of the Loans constitutes fair consideration and reasonably equivalent value for such Loans.
(xiv) The Seller is solvent and will not be rendered insolvent by the consummation of the transactions contemplated hereby. The Seller is not transferring any Loan with any intent to hinder, delay or defraud any of its creditors.
 
 C-1-2 

 

(xv) The Seller or, in the event that the Seller is a special purpose entity with respect to a securitization or other financing facility, its administrator, as applicable, has an internal quality control program that verifies, on a regular basis, the existence and accuracy of its legal documents, credit documents and underwriting decisions, including all such documents and decisions that would affect the validity of the representations and warranties required under this Agreement. The program shall include evaluating and monitoring the overall quality of the loan production and servicing of the loans of such Seller or administrator, as applicable. The program is to ensure that the Loans are originated and serviced in accordance with applicable law; guard against dishonest, fraudulent, or negligent acts; and guard against errors and omissions by officers, employees, or other authorized persons.
(xvi) The Seller will not adversely select Loans for sale or pledge under this Agreement; provided the Loan Sale Allocation Criteria shall be deemed not to be adverse.
 
 C-1-3 

 

ATTACHMENT C-2
SELLER AND SELLER ELT REPRESENTATIONS AND WARRANTIES
LOANS
(i) The Seller with respect to beneficial ownership and the Seller ELT with respect to record ownership, each has good and marketable title to, and are the sole owners of, such Loan, free and clear of any security interest or lien (other than an interest or lien that will be released simultaneously with the Transfer of such Loan hereunder pursuant to a Security Release Certification), charges, claims, offsets, defenses, counterclaims or encumbrances of any nature (including, without limitation, any circumstances that could impair transfer of title to the Loans free and clear of the claim of any party) and no right of rescission, offsets, defenses or counterclaims have been asserted or threatened with respect to such Loan. The Transfer of such Loan constitutes the absolute transfer of all right, title and interests of the Seller with respect to beneficial ownership, and the Seller ELT, with respect to record ownership in such Loan to the Purchaser Parties free and clear of any lien or Adverse Claim.
(ii) Such Loan is an Eligible Loan and the description of and information regarding such Loan set forth in the Bill of Sale, Loan Transmittal Summary Form and any loan schedule prepared or delivered in connection with the transfer thereof is true, complete and correct as of the date of the applicable loan schedule.
(iii) The Seller (with respect to beneficial ownership) and the Seller ELT (with respect to record ownership) is authorized to Transfer and, to the extent required hereunder, reacquire such Loan; and the Transfer of such Loan is or, in the case of a reacquisition by the Seller (with respect to beneficial ownership) and the Seller ELT (with respect to record ownership), will be made pursuant to and consistent with the laws and regulations under which each of the Seller and the Seller ELT operates, and will not violate any decree, judgment or order of any court or agency, or conflict with or result in a breach of any of the terms, conditions or provisions of any agreement or instrument to which it is a party or by which it or its property is bound, or constitute a default (or an event which could constitute a default with the passage of time or notice or both) thereunder.
(iv) Such Loan is in full force and effect in accordance with its terms and is the legal, valid and binding obligations of the respective Borrower thereunder subject to no defenses.
(v) Such Loan has been duly made and serviced in accordance with the provisions of the FFELP established under the Higher Education Act, and has been duly guaranteed by a Guarantor; the Guarantee Agreement is in full force and effect, and all premiums due and payable to such Guarantor as of the related Transfer Date shall have been paid in full.
(vi) Such Loan provides or, when the payment schedule with respect thereto is determined, will provide for payments on a periodic basis that fully amortize the Principal Balance thereof by its maturity, as such maturity may be modified in accordance with any applicable deferral or forbearance periods granted in accordance with applicable laws, including, those of the Higher Education Act or any applicable Guarantee Agreement, as applicable.
(vii) Any payments on such Loan received by the Purchaser that have been allocated to the reduction of principal and interest on such Loan have been allocated on a simple interest basis.
(viii) Such Loan has been duly made and serviced in accordance with all applicable federal, state and local laws.
 
 C-2-1 

 

(ix) Due diligence and reasonable care have been exercised in the making, administering, servicing and collecting on such Loan and, all disclosures of information required to be made pursuant to the Higher Education Act prior to the related Transfer Date have been made.
(x) The related Borrower is an eligible borrower under the terms of Section 428, 428B or 428H of the Higher Education Act, as applicable.
(xi) All borrower origination and loan fees required by Section 438 of the Higher Education Act have been paid to the Secretary or appropriately reserved by the Seller or Seller ELT for payment to the Secretary.
(xii) Such Loan is denominated and payable only in United States dollars.
(xiii) The transfer and assignment herein contemplated constitute a valid Transfer of such Loan from the Seller with respect to beneficial ownership, and the Seller ELT, with respect to record ownership to the Purchaser Parties, and the beneficial interest in and title to such Loan shall not be part of the Seller’s or the Seller ELT’s estate in the event of its bankruptcy or the appointment of a receiver with respect to the Seller or Seller ELT.
(xiv) With respect to the related Promissory Note, there is only one originally executed Promissory Note evidencing such Loan, and such original Promissory Note (or a true and correct copy thereof) has been delivered to the designee of the Purchaser. If a true and exact copy of an original electronic Promissory Note has been delivered to the Purchaser or its designee, the Seller of such Loan (or its designee) has possession of such electronic Promissory Note. The related Promissory Note that constitutes or evidences such Loan does not have any marks or notations indicating that it has been further pledged, assigned or otherwise conveyed to any Person other than the Purchaser, the Purchaser ELT or their designee (other than an interest or lien that will be released simultaneously with the purchase of the Loans under this Agreement).
(xv) To the extent such Loan is evidenced by an electronic Promissory Note, the Seller has complied (and has caused any originator or servicer of such Loan to comply) with all regulations and other requirements adopted by the applicable Guarantor or the Department relating to the validity and enforceability of such Promissory Note.
(xvi) Neither the Seller nor the Seller ELT has pledged, assigned, sold, granted a security interest in, or otherwise conveyed such Loan (other than an interest or lien released simultaneously with the Transfer of such Loan hereunder pursuant to a Security Release Certification). Neither Seller Party has authorized the filing of or is aware of any financing statements against it that include a description of collateral covering any Loan hereunder (whether or not any additional collateral is covered by such financing statements) or any other security interest that has not been terminated with respect to the applicable Loans, or that will not be terminated with respect to the applicable Loans upon Transfer to the Purchaser Parties. Neither Seller Party is aware of any judgment or tax lien filings against it.
(xvii) The related Borrower of such Loan as of the related Transfer Date is not noted in any loan file prepared in connection therewith, including the related Loan Transmittal Summary Form, as being currently involved in a bankruptcy proceeding.
(xviii) Such Loan satisfies all of the terms and conditions of the Transaction Documents.
(xix) The Seller with respect to beneficial ownership, and the Seller ELT, with respect to record ownership had title to and ownership of, the Loan on or after the date on which the Seller’s Notice of Intent to Participate was received and acknowledged by the Department, and before July 1, 2010.
(xx) Such Loan was not delinquent for 210 days or more or at such time subject to a claim filed with the applicable Guarantor.
(xxi) Such Loan has not been previously pledged to secure the Funding Note.
 
 C-2-2 

 

(xxii) Such Loan is an Eligible Loan.
(xxiii) Either (i) such Loan is not subject to any Excluded Borrower Benefits or (ii) with respect to any Loan subject to Excluded Borrower Benefits, the amount required to be deposited into the Excluded Borrower Benefit Account has been deposited.
 
 C-2-3 

 

ATTACHMENT C-3
SELLER REPRESENTATIONS AND WARRANTIES
ADDITIONAL
(i) The Seller is not required to register as an “investment company” and is not controlled by an entity that is required to register as an “investment company” under the Investment Company Act.
(ii) (1) No Reportable Event has occurred during the six year period prior to the date on which this representation is made or deemed made with respect to any Benefit Plan; (2) no steps have been taken by any Person to terminate any Benefit Plan subject to Title IV of ERISA; (3) no contribution failure or other event has occurred with respect to any Benefit Plan which is sufficient to give rise to a lien on the assets of the Seller or any ERISA Affiliate in favor of the PBGC, during such six-year period; (4) each Benefit Plan has been administered in all material respects in compliance with its terms and the applicable provisions of ERISA, the Code and all other applicable laws and regulations; (5) neither the Seller nor any ERISA Affiliate maintains or contributes to any employee welfare benefit plan within the meaning of Section 3(1) of ERISA which provides benefits to employees after termination of employment and which is unfunded by a material amount, except as specifically required by the continuation requirements of Part 6 of Title I of ERISA; (6) the present value of all accrued benefits under each Benefit Plan subject to Title IV of ERISA (based on those assumptions used to fund such Benefit Plans) did not, as of the last valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Benefit Plan allocable to such accrued benefits; (7) neither the Seller nor any ERISA Affiliate has had a complete or partial withdrawal from any Multiemployer Plan and neither the Seller nor any ERISA Affiliate would become subject to any liability under ERISA if the Seller or any such ERISA Affiliate were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made and (8) no such Multiemployer Plan is insolvent within the meaning of Section 4245 of ERISA or in reorganization within the meaning of Section 4241 of ERISA; provided that this subsection (ii) shall not apply to events which could not reasonably be expected to have a Material Adverse Effect on the Seller.
(iii) The Seller has caused the filing of all such UCC financing statements in the proper filing offices of all such jurisdictions as may be necessary under all applicable law in order to perfect the Collateral Security Interest as a first-priority continuing security interest in each Loan Transferred hereunder and all such UCC financing statements contain a statement to the following effect: “A transfer of or grant of a security interest in any collateral described in this financing statement will violate the rights of the secured party.”
(iv) Together with each other Transfer Agreement, this Agreement creates a valid and continuing security interest (as defined in the applicable UCC) in all Loans Transferred hereunder in favor of the Purchaser Parties, which security interest is prior to all other Adverse Claims, and is enforceable as such as against creditors of, and purchasers from, the Seller Parties.
(v) All information supplied by, or on behalf of, the Seller in writing to either Purchaser Party and the Department in connection with this Agreement, the related Bill of Sale or any other Transaction Document is true, accurate and complete in all material respects as of the date thereof stated or certified. No information, exhibit or report furnished by the Seller to any Purchaser Party or the Department in connection with this Agreement, the related Bill of Sale or any other Transaction Document contains any material misstatement. The financial information regarding the Seller heretofore delivered to the Purchaser Parties and the Department correctly and fairly presents the financial condition of the Seller as of the date hereof.
 
 C-3-1 

 

ATTACHMENT C-4
PURCHASER AND PURCHASER ELT REPRESENTATIONS AND WARRANTIES
(i) Each of the Purchaser and Purchaser ELT (1) is duly organized, validly existing and in good standing under the laws of the State of its formation or of the United States, as applicable, (2) has all licenses necessary to carry out its business as now being conducted or is otherwise exempt under applicable law from such licensing or qualification or is otherwise not required under applicable law to effect such licensing or qualification and no demand for such licensing or qualification has been made upon it by any such state, and (3) in any event is in compliance with the laws of any such state to the extent necessary to ensure the enforceability of each Loan. No licenses or approvals obtained by it have been suspended or revoked by any court, administrative agency, arbitrator or governmental body and no proceedings are pending which might result in such suspension or revocation.
(ii) The Purchaser ELT is an “eligible lender” as such term is defined in Section 435(d) of the Higher Education Act, has a lender identification number issued by the Department with respect to the Loans (which lender identification number is not shared with any other Person and is not associated with any student loans other than Student Loans pledged to the Conduit Lender) and the Seller ELT has in effect a Guarantee Agreement with a Guarantor with respect to each of the Loans.
(iii) Each of the Purchaser and Purchaser ELT (1) has duly authorized the execution, delivery and performance of this Agreement and each other Transfer Agreement and (2) has duly executed and delivered this Agreement and each Transfer Agreement. This Agreement and each other Transfer Agreement, assuming due authorization, execution and delivery by the other parties thereto, constitutes the legal, valid and binding obligation of the Purchaser and the Purchaser ELT, enforceable against each it in accordance with its terms except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of rights of creditors generally, and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or law).
(iv) The execution and delivery of this Agreement and each other Transfer Agreement by the Purchaser and the Purchaser ELT and the performance of and compliance with the terms of this Agreement and each other Transfer Agreement will not violate its formation documents or constitute a default under or result in a breach or acceleration of, any material contract, agreement or other instrument to which it is a party or which may be applicable to it or its assets.
(v) Neither the Purchaser nor the Purchaser ELT is in violation of, and the execution and delivery of this Agreement and each other Transfer Agreement by it and its performance and compliance with the terms of this Agreement and each other Transfer Agreement will not constitute a violation with respect to, any order or decree of any court or any order or regulation of any federal, state, municipal or governmental agency having jurisdiction over it or its assets, which violation might have consequences that would materially and adversely affect the condition (financial or otherwise) or its operations or its assets or might have consequences that would materially and adversely affect the performance of its obligations and duties thereunder.
(vi) No consent, approval, authorization or order of any court or governmental agency or body is required for the execution, delivery and performance by the Purchaser or Purchaser ELT of, or compliance by it with, this Agreement or any other Transfer Agreement or the consummation of the transactions contemplated by this Agreement or any other Transfer Agreement, except, with respect to any other Transfer Agreement, for such consents, approvals, authorizations or orders, if any, that have been obtained prior to the related Transfer Date.
 
 C-4-1 

 

ATTACHMENT D-1
SELLER COVENANTS
(i) The Seller shall comply with all applicable laws, rules, regulations and orders, except to the extent that failure to so comply would not have a Material Adverse Effect.
(ii) The Seller shall preserve and maintain its existence as an organization, and its rights, franchises and privileges in the jurisdiction of its formation, and qualify and remain qualified in good standing as a foreign organization in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualification could have a Material Adverse Effect.
(iii) The Seller shall not change its legal name, any other name under which it does business, its principal place of business, its chief executive office, the location where it keeps any Records in its possession or under its control, its type of organization or its jurisdiction of formation without:

 	(A)	 	giving prior written notice to the Purchaser, the Department and the Conduit Administrator; and	

 	(B)	 	taking, at its own expense, all actions reasonably requested by either Purchaser Party, the Department or the Conduit Administrator in order to perfect, maintain and protect the interest of the Purchaser Parties in the Loans and the Related Security with respect thereto, including, without limitation, the Collateral Security Interest.	
(iv) The Seller shall permit the Purchaser, the Conduit Administrator and the Department, and their respective agents, upon reasonable notice and from time to time during regular business hours, upon reasonable notice: (a) to examine and make copies of and take abstracts from all books, records and documents (including computer tapes and disks) relating to the Loans and (b) to visit the offices and properties of the Seller for the purpose of examining such materials described in clause (a) above, and to discuss matters relating to the Loans or the Seller’s performance hereunder with any of the officers, directors, employees or independent public accountants of the Seller having knowledge of such matters; provided that prior to the occurrence of the Sale Termination Date, the Purchaser and the Conduit Administrator shall make not more than one such inspection per calendar year; it being understood that the Department shall not be subject to the limitation contained in the immediately preceding proviso. Any reasonable expenses related to such inspections shall be reimbursable directly by the Purchaser. In addition, from time to time during the year, the Conduit Administrator may, at its own expense, conduct any other inspections as it may deem necessary or appropriate, provided such inspections occur upon reasonable notice and during regular business hours.
(v) Seller shall take all actions necessary to ensure that:

 	(A)	 	Except as expressly set forth in the Transaction Documents, the Purchaser’s operating expenses are not paid by the Seller;	

 	(B)	 	The books and records of the Seller are maintained separately from those of the Purchaser;	

 	(C)	 	Except as expressly set forth in the Transaction Documents, the funds of the Seller are not commingled with those of the Purchaser;	

 	(D)	 	The Seller strictly observes corporate formalities in its dealing with the Purchaser;	

 	(E)	 	The Seller maintains an arm’s length relationship with the Purchaser and the Seller is compensated at market rates for any services it renders or otherwise furnishes to the Purchaser; and	

 	(F)	 	Except as expressly set forth in the Transaction Documents, the Seller is not, and does not hold itself out to be, responsible for the debts of the Purchaser or the decisions or actions in respect of the daily business and affairs of the Purchaser.	
 
 D-1-1 

 

(vi) The Seller shall take, at its own expense, any and all actions reasonably requested by either Purchaser Party, the Department or the Conduit Administrator in order to perfect, maintain and protect the interest of the Purchaser Parties and the Department in the Loans and the Related Security with respect thereto, including, without limitation, the Collateral Security Interest or to enable either Purchaser Party to exercise its rights and remedies hereunder with respect to any of the Loans and the Related Security with respect thereto, including, without limitation:

 	(A)	 	executing, authorizing and filing financing or continuation statements, or amendments thereof, in form and substance reasonably satisfactory to the Purchaser Parties, the Department and the Conduit Administrator;	

 	(B)	 	delivering to the Conduit Administrator, the Department or applicable Subcustodian, in each case as bailee for the Conduit Lender and in accordance with the applicable Transfer Agreements, all manually executed Promissory Notes duly endorsed and accompanied by duly executed instruments of transfer or assignment and all electronic records evidencing electronically executed Promissory Notes; and	

 	(C)	 	marking conspicuously each Record in its possession or under its control with a legend, in form and substance reasonably satisfactory to the Purchaser, the Department and the Conduit Administrator, indicating that the related Loan has been sold to the Purchaser and such Record is subject to a security interest in favor of the Purchaser.	
(vii) In the event of (A) any merger or consolidation of the Seller into another Person, (B) any merger or consolidation to which the Seller shall be a party resulting in the creation of another Person, (C) any Person succeeding to the properties and assets of the Seller substantially as a whole or (D) an event or series of events by which any Person acquires the right to vote more than 50% of the common stock or other voting interest of the Seller, the Seller shall cause such Person to execute an agreement which states expressly that such Person assumes every obligation of the Seller hereunder and under each other Transaction Document to which the Seller is party, in form satisfactory to the Purchaser and the Conduit Administrator.
(viii) The Seller shall deliver to the Purchaser, the Department and the Conduit Administrator:

 	(A)	 	promptly and in any event within 45 days after the filing or receiving thereof, copies of all reports, documentation and notices with respect to (A) any “Reportable Event,” relating to a Benefit Plan (B) the institution of proceedings or the taking of any other action regarding the termination of, withdrawal from, reorganization within the meaning of Section 4241 of ERISA or insolvency within the meaning of Section 4245 of ERISA, any Benefit Plan subject to Title IV of ERISA which the Seller or any of its ERISA Affiliates files under ERISA with the Internal Revenue Service, the PBGC or the U.S. Department of Labor or which the Seller or any of its ERISA Affiliates receives from the PBGC, (C) a failure to make any required contribution to a Benefit Plan, (D) the creation of any lien against the assets of the Seller or an ERISA Affiliate in favor of the PBGC or a Benefit Plan under ERISA or (E) the taking of any action with respect to a Benefit Plan which could result in the requirement that the Seller or any ERISA Affiliate furnish a bond or other security to the PBGC or such Benefit Plan;	

 	(B)	 	immediately upon becoming aware (i) of any failure of the Seller to comply with the terms and conditions of this Agreement, or (ii) that any representation, warranty or statement made by the Seller pursuant to this Agreement was false or incorrect in any material respect when made or deemed made, a written statement of the chief financial officer or chief accounting officer of the Seller setting forth details of such event and the action that the Seller proposes to take with respect thereto;	
 
 D-1-2 

 

 	(C)	 	promptly (but in any event within five (5) Business Days) after the Seller’s actual knowledge or receipt of notice thereof, written notice of:	

 	(1)	 	the submission of any claim or the initiation or threat of, or any material adverse development in, any legal process, litigation, administrative or judicial investigation, or rule making or disciplinary proceeding by or against the Seller that could have a Material Adverse Effect;	

 	(2)	 	the receipt of notice (A) that the Seller is being placed under regulatory supervision, (B) that any license, permit, charter, registration or approval necessary for the conduct of the Seller’s business is to be, or may be, suspended or revoked, or (C) ordering the Seller to cease and desist from any practice, procedure or policy employed by the Seller in the conduct of its business, and such cessation could have a Material Adverse Effect;	

 	(3)	 	the commencement of any proceedings by or against the Seller under any applicable bankruptcy, reorganization, liquidation, rehabilitation, insolvency or other similar law now or hereafter in effect or of any proceeding in which a receiver, liquidator, conservator, trustee or similar official shall have been, or may be, appointed or requested for the Seller or any of its assets; or	

 	(4)	 	changes in any law, rule or regulation or the promulgation of any proceeding or any proposed or final rule that could have a Material Adverse Effect; or	

 	(D)	 	to the extent such are available without undue hardship or expense, promptly after receipt of written request therefor, such other information, documents, records or reports respecting the Loans or the condition or operations (financial or otherwise) of the Seller as the Purchaser, the Department or the Conduit Administrator may reasonably request in order to protect the interests of the Purchaser Parties and the Department hereunder.	
(ix) The Seller shall from and after the Closing Date, (i) cause the Seller ELT to maintain the applicable Guarantee Agreements and diligently enforce the Seller ELT’s rights thereunder; (ii) cause the Seller ELT to enter into such other similar or supplemental agreements as shall be required to maintain benefits for all Loans covered thereby; and (iii) not voluntarily consent to or permit any rescission of or consent to any amendment to or otherwise take any action under or in connection with any such Guarantee Agreement or any similar or supplemental agreement in any manner which would materially and adversely affect the ability of the Funding Note Issuer to perform its obligations under the Funding Note Purchase Agreement or cause a Material Adverse Effect with respect to the Funding Note Issuer without the prior written consent of the Conduit Administrator and the Manager, except as shall be required by applicable laws or regulations.
 
 D-1-3 

 

ATTACHMENT D-2
SELLER ELT COVENANTS
The Seller ELT shall not change its legal name, any other name under which it does business or the state where it is located for purposes of Section 9-307 of the New York UCC without:

 	(A)	 	giving prior written notice to the Purchaser, the Department and the Conduit Administrator; and	

 	(B)	 	cooperating, at the sole cost and expense of the Seller, with all actions reasonably requested by either Purchaser Party, the Department or the Conduit Administrator in order to perfect, maintain and protect the interest of the Purchaser Parties in the Loans and the Related Security with respect thereto, including, without limitation, the Collateral Security Interest.	
 
 D-2-1 

 

ATTACHMENT D-3
PURCHASER COVENANTS
The Purchaser shall not change its legal name, any other name under which it does business or the state where it is located for purposes of Section 9-307 of the New York UCC without:

 	(A)	 	giving prior written notice to the Department and the Conduit Administrator; and	

 	(B)	 	taking, at the sole cost and expense of the Purchaser, all actions reasonably requested by the Department or the Conduit Administrator in order to perfect, maintain and protect the interest of the Purchaser in the Loans and the Related Security with respect thereto, including, without limitation, the Collateral Security Interest.	
 
 D-3-1 

 

ATTACHMENT D-4
PURCHASER ELT COVENANTS
(i) The Purchaser ELT shall not change its legal name, any other name under which it does business or the state where it is located for purposes of Section 9-307 of the New York UCC without:

 	(A)	 	giving prior written notice to the Purchaser, the Department and the Conduit Administrator; and	

 	(B)	 	cooperating, at the sole cost and expense of the Purchaser, with all actions reasonably requested by the Purchaser, the Department or the Conduit Administrator in order to perfect, maintain and protect the interest of the Purchaser in the Loans and the Related Security with respect thereto, including, without limitation, the Collateral Security Interest.	
(ii) The Purchaser ELT shall hold title to all Loans for the benefit of the Purchaser and not for its own account.
 
 D-4-1 

 

ATTACHMENT E
NOTICE ADDRESSES
If to the Seller:
National Education Loan Network, Inc.
121 South 13th Street
Suite 201
Lincoln NE 68508
Attention: Carol Aversman
Fax: (402) 458-2399
Email: carol.aversman@nelnet.com
If to the Seller ELT:
Union Bank and Trust Company
6801 South 27th Street
Lincoln, NE 68506
Attention: Jon Gross
Fax: (402) 323-1105
Email: jon.gross@ubt.com
If to the Purchaser:
Nelnet Superconduit Funding, LLC
c/o National Education Loan Network, Inc.
121 South 13th Street
Suite 201
Lincoln NE 68508
Attention: Carol Aversman
Fax: (402) 458-2399
Email: carol.aversman@nelnet.com
with a copy to:
National Education Loan Network, Inc.
121 South 13th Street
Suite 201
Lincoln NE 68508
Attention: Carol Aversman
Fax: (402) 458-2399
Email: carol.aversman@nelnet.com
 
 E-1 

 

If to the Purchaser ELT:
Zions First National Bank
1001 17th Street, Suite 1050
Denver, CO 80202
Fax: (720) 947-7480
Email: casey.gunning@zionsbank.com
If to the Conduit Administrator:
The Bank of New York Mellon
101 Barclay Street, 4E
New York, NY 10286
Attention: Andrew J Taylor
Fax: (212) 815-2020
e-mail: BMOStraightA@bnymellon.com
If to the Department:
By U.S. Postal Service mail:
United States Department of Education
400 Maryland Avenue, SW
UCP, Room 111G3
Washington, DC 20202-5402
Attention: FFELP Agreement Process Team
e-mail: FFEL.agreementprocess@ed.gov
By courier or express mail:
United States Department of Education
830 First Street, N.E.
Room 111G3
Washington, DC 20202-5402
Attention: FFELP Agreement Process Team
e-mail: FFEL.agreementprocess@ed.gov
If to the Rating Agencies:
Standard & Poor’s Ratings Services
55 Water Street, 35th floor
New York, NY 10041
Attention: Dev Vithani
e-mail: servicer_reports@sandp.com
Fitch, Inc.
One State Street Plaza
New York, New York 10004
Attention: Asset-Backed Securities
Fax: (212) 514-9879
e-mail: notifications.abs@fitchratings.com
If to a Servicer:
The address set forth in the Bill of Sale with respect to the applicable Loan.
 
 E-2 

 

ATTACHMENT F
FORM OF SUBORDINATED CREDIT AGREEMENT
THIS SUBORDINATED CREDIT AGREEMENT (this “ Agreement ”) is made as of May 13, 2009, between NATIONAL EDUCATION LOAN NETWORK, INC., a Nevada corporation (the “ Lender ”), and NELNET SUPERCONDUIT FUNDING, LLC, a Delaware limited liability company (the “ Company ”).
PRELIMINARY STATEMENTS
WHEREAS, the Company will initially issue a variable funding note (the “ Funding Note ”) pursuant to the Funding Note Purchase Agreement, dated as of May 13, 2009, among Straight-A Funding, LLC, as conduit lender (the “ Conduit Lender ”), the Company, Zions First National Bank, as eligible lender trustee, Nelnet, Inc., as sponsor, The Bank of New York Mellon, as conduit administrator, securities intermediary and conduit lender eligible lender trustee, BMO Capital Markets Corp., as manager, and National Education Loan Network, Inc., as master servicer, and National Education Loan Network, Inc., as SPV administrator (as amended, restated, supplemented or otherwise modified, the “ Funding Note Purchase Agreement ”);
WHEREAS, from time to time, the Company will purchase certain Eligible Loans from the Seller pursuant to the terms of the Student Loan Purchase Agreement;
WHEREAS, the Company desires to borrow from the Lender in connection with any purchase of Eligible Loans, the amount of the difference, if any, between the purchase price of the Eligible Loans purchased pursuant to the Student Loan Purchase Agreement on such date (being their fair market value based on current market conditions at the time of transfer) and the amount of funds the Company otherwise has available to pay such purchase price; and
WHEREAS, the Lender may be willing to make subordinated loans to Company to fund such amounts on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, the parties hereto agree as follows:
ARTICLE I
Section 1.01. Defined Terms . Except as otherwise specified herein or as the context may otherwise require, capitalized terms used but not otherwise defined herein are defined in Appendix A to the Funding Note Purchase Agreement. The principles of construction and rules of interpretation set forth in Appendix A to the Funding Note Purchase Agreement shall apply, mutatis mutandis, to this Agreement, with each reference to “this Agreement” in such Section being a reference to this Agreement. The following terms have the following meanings:
“ Event of Default ” means any event of default specified in Section 5.01 .
“LIBOR Rate ” means, the daily weighted average of the rate per annum for each day during the period equal to the rate determined by the Lender be the offered rate that appears on the page of the Reuters Screen that displays an average British Bankers Association Interest Settlement Rate (such page currently being LIBOR01) for deposits in United States dollars (for delivery on the first day of such period) with a one-month period, determined as of approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of such period.
“ Loan ” means each loan of funds made to the Company by the Lender pursuant to Section 2.01 .
 
 F-1 

 

“ Maturity Date ” means the earlier to occur of (i) the date designated as such in writing by the Company and the Lender from time to time and (ii) the date this Agreement is terminated by the Lender pursuant to Section 5.02 ; provided , that in no event shall the Maturity Date occur prior to the date that is one year and one day after the Final Maturity Date under the Funding Note Purchase Agreement and the payment in full of the Obligations thereunder.
“ Scheduled Expiration Date ” means the date that is 364 days after the date hereof, which shall be automatically renewed for an additional term of 364 days unless either the Company or the Lender sends written notice to the other party not less than 30 days prior to the next applicable Scheduled Expiration Date of such party’s desire not to extend the Scheduled Expiration Date for an additional term.
“ Spread ” means 0.50%.
ARTICLE II
Section 2.01. Loans to Company . Subject to the terms and conditions of this Agreement and in reliance on the representations and warranties set forth herein, the Lender, in its sole discretion, may make Loans to the Company, from time to time from the date of this Agreement to but excluding the Scheduled Expiration Date, in an aggregate principal amount outstanding at any one time not to exceed One Hundred Million Dollars ($100,000,000); provided that no Loan shall be made at any time if, after giving effect to such Loan, the aggregate principal amount outstanding, together with interest owing thereon, shall exceed the excess of the aggregate Collateral Value of all Financed Student Loans, over the aggregate amount of all Obligations. The determination of the Lender to make a Loan will also be subject to the conditions that (and the Company shall not request a Loan unless) (i) no event has occurred and is continuing, or would occur by the borrowing of the Loan, which constitutes an Event of Default or which, upon the giving of notice, the lapse of time, or both, would constitute an Event of Default and (ii) the representations and warranties contained in Section 3.01 are true and correct on and as of the date of each such Loan and will continue to be true and correct after such Loan is made. The Loans shall be evidenced by a subordinated note in the form attached as Exhibit A.
Section 2.02. Company’s Obligations . The Company hereby promises to pay in full the unpaid principal amount of the Loans on the Maturity Date and any and all accrued and unpaid interest on the Loans as more fully set forth in Section 2.04 below. The obligation of the Company to pay the principal of and interest on the Loans shall be absolute and unconditional, shall be binding and, to the fullest extent permitted by law, enforceable in all circumstances whatsoever and shall not be subject to setoff, recoupment or counterclaim; provided, however, that the Company shall only be obligated to pay principal of and interest on the Loans from distributions of Available Funds (if any) pursuant to and in accordance with the priority of payments set forth in Section 1.05(c) of the Funding Note Purchase Agreement and, after termination of the Funding Note Purchase Agreement, from funds of the Company. The Lender, as agent for the Company, shall maintain on its books and records a register on which it will record each Loan made, each repayment of any Loan and interest thereon, each transfer of any Loan, and each owner of any Loan. Any such recordation by the Lender shall be presumptively correct, absent manifest error. Failure to make any such recordation, or any error in such recordation, shall not affect the Company’s obligations hereunder. The register shall be available for inspection by the Company at any reasonable time and from time to time upon reasonable prior notice.
Section 2.03. Requests for Loans . The Company will give the Lender notice of a request for a Loan at least one (1) Business Day prior to the day on which the Company wishes to receive the Loan. Subject to the terms and conditions of this Agreement, the Lender will make the requested Loan on the Business Day specified in the notice in immediately available funds in accordance with the Company’s payment instructions.
 
 F-2 

 

Section 2.04. Interest . (a) Interest will accrue on the average daily balance of the unpaid principal amount of the Loans, for each day from the date such Loans are made until they become due or are paid in full, at a rate per annum equal to the sum of the LIBOR Rate then in effect plus the Spread. Should any principal of, or accrued interest on, a Loan not be paid when due, such amount will bear interest from its due date until paid in full, at a rate per annum equal to the LIBOR Rate then in effect plus 1.00%). In no event will the rate of interest hereunder exceed the maximum rate allowed by law. A certificate of the Lender as to determination of the LIBOR Rate, the Spread, the calculation of the interest rate therefrom and the calculation of any interest due and payable will be, absent manifest error, conclusive and binding on the Company.
(b) Interest shall be payable on each Settlement Date during the term of this Agreement; provided , that if such day is not a Business Day, the payment date for such period shall be the Business Day immediately following such day (but only to the extent that the Company has funds for such purpose in accordance with Section 2.02 hereof) and on the Maturity Date. Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months. Such computations shall be made including the first day but excluding the last day occurring in the period for which such interest or other amounts are payable.
Section 2.05. Repayment and Prepayment of the Loans . The outstanding principal amount of all Loans and all accrued and unpaid interest thereon will be due and payable in full on the Maturity Date. The Company may prepay any outstanding Loan, in whole or in part, at any time without penalty. Any amounts prepaid may be reborrowed. All payments of principal of and interest on the Loans will be made in lawful money of the United States, in immediately available funds, to the agent of the Lender (as may be designated in writing by the Lender from time to time). If any such payment falls due on a day which is not a Business Day, such payment will be due on the next following Business Day. Payments received by the Lender will be applied: first , to accrued and unpaid interest on the Loans, and second , to the principal of the Loans.
ARTICLE III
Section 3.01. Representations and Warranties . To induce the Lender to extend this Agreement and to make Loans in its sole discretion hereunder, the Company represents and warrants as follows:
(a) It is a limited liability company duly organized, validly existing and in good standing solely under the laws of the State of Delaware and is duly qualified to do business, and is in good standing, in every jurisdiction in which the nature of its business requires it to be so qualified;
(b) It has full power and authority to enter into the transactions provided for in this Agreement and has been duly authorized to do so by all necessary and appropriate action and when executed and delivered by it, this Agreement will constitute the legal, valid and binding obligations of the Company enforceable in accordance with their terms;
(c) There does not exist any default or violation by it of or under any of the terms, conditions or obligations of: (i) its organizational documents; (ii) any material agreement or other instrument to which it is a party or by which it is bound; or (iii) any law, regulation, ruling, order, injunction, decree, condition or other requirement applicable to or imposed upon it by any law or by any governmental authority, court or agency; and
(d) At the time of (and immediately after) each Loan is made hereunder, (i) the Company’s total assets exceed its total liabilities, (ii) the Company’s cash on hand is sufficient to satisfy all of its current obligations (other than any amounts due under this Agreement and the obligation to pay the outstanding Funding Note), (iii) the Company is adequately capitalized at a commercially reasonable level, (iv) the Company has determined that its financial capacity to meet its financing commitment under this Agreement is adequate and (v) the principal amount outstanding under this Agreement, together with the interest owning thereon, does not exceed the excess of the aggregate Collateral Value of all Financed Student Loans, over the aggregate amount of all Obligations.
 
 F-3 

 

ARTICLE IV
Section 4.01 Compliance with Laws . The Company shall comply with all applicable laws, rules and regulations in all material respects.
Section 4.02 Keeping of Records and Books of Account . The Company shall maintain and keep proper books and records and account which enable the Company to prepare and issue financial statements in accordance with generally accepted accounting principles and as otherwise may be required by any applicable law, rule or regulation and in which full, true and correct entries shall be made of all of its dealings and business and financial affairs. The Company shall permit the Lender to examine and make excerpts from such books and records at such times and as often as the Lender may reasonably request. The Company shall permit, upon the request of the Lender, an audit to be conducted of the Company’s financial statements and books and records. Any such audit shall be at the Company’s expense and shall be conducted by independent accountants selected by the Lender.
Section 4.03 No Distributions . The Company will not make any cash or in-kind distributions to its equity holders unless both before and after each such distribution the representations and warranties contained in Section 3.01 above would be true and correct.
ARTICLE V
Section 5.01 Events of Default . Each of the following shall constitute an Event of Default (“Event of Default”):
(a) the Company fails to pay, within five (5) Business Days after it is due and payable, any principal of or interest on any of the Loans; provided , that for purposes of this Section 5.01(a) , no principal or interest shall be considered due and payable on a date that is prior to the Maturity Date; or
(b) the Company fails to perform or observe any other term or condition of any of this Agreement applicable to it and such event or circumstance, if capable of being cured, is not cured within 30 days after written notice thereof is given by the Lender to the Company; or
(c) an Event of Bankruptcy occurs with respect to the Company.
Section 5.02 Remedies . Upon the occurrence of an Event of Default, the Lender may do any one or more of the following (without presentment, protest or notice of protest, all of which are expressly waived by the Company): (i) terminate this Agreement and declare the principal of and interest on the Loans and all other sums owing by the Company to the Lender under this Agreement forthwith due and payable, whereupon this Agreement will terminate and the principal of, and interest on, the Loans and all such other sums will become forthwith due and payable; and (ii) subject to Section 5.03 , exercise all rights granted pursuant to this Agreement, in such order and in such manner as the Lender may, in its sole and exclusive judgment, determine.
Section 5.03 Subordination . Notwithstanding anything contained in this Agreement to the contrary, to the extent that the Lender is deemed to have any interest in any assets of the Company, the Lender agrees that all amounts outstanding hereunder and its interest in those assets are subordinate in all respects to claims or rights of the Conduit Lender and the Department under the Funding Note issued pursuant to the Funding Note Purchase Agreement; and provided further, that notwithstanding any rights or remedies available to the Lender under this Agreement, applicable law or otherwise, prior to the time that all secured indebtedness or other secured obligations owned by the Company, including the obligations of the Company under the Funding Note Purchase Agreement, shall have been repaid in full, (i) the Lender shall not, directly or indirectly, seek to accelerate or enforce (judicially or non-judicially) its rights hereunder or assert any claims or interests therein (including, without limitation, by setoff or notification of account debtors) and (ii) in the event that the Lender shall receive any payment or other distribution of any kind or character from the Company constituting collateral that is pledged to a Conduit Lender other than funds transferred to the Lender, that are expressly permitted to be released to the Lender pursuant to Section 4.05 of the Funding Note Purchase Agreement, such payment or other distribution shall be received in trust for such Conduit Lender and shall be turned over to such Conduit Lender forthwith by the Lender. The Lender agrees that this Agreement constitutes a subordination agreement for purposes of Section 510(a) of the United States Bankruptcy Code, as amended from time to time (11 U.S.C. §§ 101 et seq .).
 
 F-4 

 

ARTICLE VI
Section 6.01 Amendments and Waivers . Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and, in the case of an amendment, is signed by all the parties hereto and, in the case of a waiver, is signed by the party granting the waiver and then such waiver shall be effective only in the specific instance and for the specific purpose for which given; provided that (a) no amendment to this Agreement shall be effective without the prior written consent of the Department; provided that, with not less than ten (10) Business Days’ prior written notice to the Department, the parties hereto may enter into any such amendment, subject to the provisions in this Section 6.01 , that does not have an adverse effect on the Department and (b) no amendment to this Agreement shall be effective unless each Rating Agency shall have been provided with at least ten (10) days notice and S&P shall not have notified the Manager or the SPV Administrator that such amendment would result in a reduction, qualification or withdrawal of the then-current rating of the Funding Note. To the extent the consent of the Lender is required under this Agreement, the determination as to whether to grant or withhold such consent shall be made by the Lender in its sole discretion without any implied duty toward any other Person, except as otherwise expressly provided herein or therein.
Section 6.02 Notices . All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including communication by facsimile copy or other electronic means) and mailed, delivered by nationally recognized overnight courier service, transmitted or delivered by hand, as to each party hereto, at its address set forth on the signature pages hereto or at such other address as shall be designated by such party in a written notice to the other parties hereto. Each such notice, request or other communication shall be effective (i) if given by facsimile, when such facsimile is transmitted to the specified facsimile number and an appropriate confirmation is received, (ii) if given by mail, five days after being deposited in the United States mails, first class postage prepaid, (iii) if given by recognized courier guaranteeing overnight delivery, the Business Day following such day after such communication is delivered to such courier or (iv) if given by any other means, when delivered at the address specified in this Section 6.02 .
Section 6.03. No Waivers; Remedies . No failure or delay by any party hereto in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.
Section 6.04 Successors and Assigns . The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, except that no party may assign or otherwise transfer any of its rights or obligations under this Agreement without the prior written consent of each other party, except as otherwise permitted by this Agreement, and any such purported assignment without such consent shall be void. The Lender may not transfer interest in the Loans to persons other than affiliates of the Lender that are U.S. Persons, as defined in Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended.
Section 6.05 Governing Law . THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF (OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW).
 
 F-5 

 

Section 6.06 Severability . Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Agreement.
Section 6.07. Submission to Jurisdiction . EACH OF THE PARTIES HERETO HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING IN THIS SECTION 6.07 SHALL AFFECT THE RIGHT OF ANY PARTY HERETO TO BRING ANY ACTION OR PROCEEDING AGAINST ANY OTHER PARTY HERETO OR ANY OF THEIR PROPERTY IN THE COURTS OF OTHER JURISDICTIONS.
Section 6.08. Waiver of Jury Trial . EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG ANY OF THEM ARISING OUT OF, CONNECTED WITH, RELATING TO OR INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT.
Section 6.09. Appointment of Service Agent . The Company hereby appoints Corporation Service Company located at 80 State Street, Albany, NY 12207-2543, as the authorized agent upon whom process may be served in any action arising out of or based upon this Agreement or the transactions contemplated hereby that may be instituted in the United States District Court for the Southern District of New York and of any New York State court sitting in the Borough of Manhattan by the Lender or any successor or assignee of any of them.
Section 6.10. Bankruptcy Non-Petition and Limited Recourse . Notwithstanding any other provision of this Agreement, the Lender covenants and agrees that it shall not, prior to the date which is one year and one day (or, if longer, any applicable preference period plus one day) after payment in full of all “Obligations” (as defined in the Funding Note Purchase Agreement), institute against, or join any other Person in instituting against, the Company, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding, or any similar proceeding under any federal or state bankruptcy or similar law; provided that nothing in this provision shall preclude or be deemed to stop any other party hereto from taking any action prior to the expiration of the aforementioned one year and one day period in (i) any case or proceeding voluntarily filed or commenced by the Company or (ii) any involuntary insolvency proceeding filed or commenced against the Company by a Person other than any other party hereto. The obligations of the Company under this Agreement are unsecured obligations. The Lender acknowledges that the Company has no assets other than the Pledged Collateral and all amounts owed hereunder are limited recourse obligations payable solely from Available Funds generated by the Pledged Collateral and available for payment of such obligations under Section 1.05(c) of the Funding Note Purchase Agreement. In addition, no recourse shall be had for any amounts payable or any other obligations arising under this Agreement against any officer, member, director, employee, partner or security holder of the Company or any of its successors or assigns. The provisions of this Section 6.10 shall survive the termination of this Agreement.
 
 F-6 

 

Section 6.11. Execution in Counterparts . This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Delivery by facsimile or electronic mail of an executed signature page of this Agreement shall be effective as delivery of an executed counterpart hereof.
Section 6.12. Integration . This Agreement, including all exhibits, schedules and appendices and other documents attached hereto or incorporated by reference herein, constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all other negotiations, understandings and representations, oral or written, with respect to the subject matter hereof.
Section 6.13. Section Titles . The section titles contained in this Agreement shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties.
Section 6.14. Survival . The provisions of this Article VI shall be continuing and shall survive termination of this Agreement.
 
 F-7 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date and year first above written.
 	 	 	 	 	
 	NELNET SUPERCONDUIT FUNDING, LLC , as the Company
 	 	
 	By:  	 	 	
 	 	Name:  	 	 	
 	 	Title:  	 	 	
 	 	 	
 	 	Address for Notices :	
 	 	 	
 	 	Nelnet Superconduit Funding, LLC
c/o National Education Loan Network, Inc.
121 South 13th Street
Suite 201
Lincoln NE 68508
Attention: Carol Aversman
Fax: (402) 458-2399
Email: carol.aversman@nelnet.com	
 	 	 	 	 	
 	NATIONAL EDUCATION LOAN NETWORK, INC. , as the Lender
 	 	
 	By:  	 	 	
 	 	Name:  	 	 	
 	 	Title:  	 	 	
 	 	 	
 	 	Address for Notices :	
 	 	 	
 	 	National Education Loan Network, Inc.
121 South 13th Street
Suite 201
Lincoln NE 68508
Attention: Carol Aversman
Fax: (402) 458-2399
Email: carol.aversman@nelnet.com	
 
 F-8 

 

FORM OF SUBORDINATED PROMISSORY NOTE
THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAW, AND MAY NOT BE DIRECTLY OR INDIRECTLY OFFERED OR SOLD OR OTHERWISE DISPOSED OF BY THE OWNER HEREOF UNLESS SUCH TRANSACTION IS EXEMPT FROM REGISTRATION UNDER THE ACT AND SUCH STATE LAWS, AND WILL NOT BE A “PROHIBITED TRANSACTION” UNDER THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”). BY ACCEPTANCE OF THIS NOTE, THE HOLDER AGREES TO BE BOUND BY ALL THE TERMS OF THE SUBORDINATED CREDIT AGREEMENT.
[                       ], 200[__]
FOR VALUE RECEIVED, the undersigned, NELNET SUPERCONDUIT FUNDING, LLC, a Delaware limited liability company (the “ Purchaser ”), promises to pay to the order of NATIONAL EDUCATION LOAN NETWORK, INC., a Nevada corporation (the “Payee”), on                       _____, 20_____  (the “Maturity Date”) the aggregate unpaid principal amount of all amounts loaned hereunder pursuant to Section 2.01 of that certain Subordinated Credit Agreement, dated as of May 13, 2009 (together with all amendments and other modifications, if any, from time to time thereafter made thereto, the “ Subordinated Credit Agreement ”), between the Purchaser and the Payee, together with any and all accrued and unpaid interest on all amounts loaned hereunder.
Interest will accrue on the average daily balance of the unpaid principal amount of all amounts loaned hereunder for each day from the date such loan amounts are made until they become due and or are paid in full, at a rate per annum equal to the sum of (i) the LIBOR Rate (as defined below) and (ii) a spread of 0.50% or such other amount designated as such in writing by the Payee to the Purchaser from time to time (the “Spread”). Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months. Such computations shall be made including the first day but excluding the last day occurring in the period for which such interest or other amounts are payable. Should any principal of, or accrued interest on, any amounts loaned hereunder not be paid when due, such amount will bear interest from its due date until paid in full, at a rate per annum equal to the sum of (i) the LIBOR Rate, (ii) the Spread and (iii) 0.50%.
Interest shall be payable on the unpaid principal balance of this note (this “ Note ”) commencing on May 25, 2009 and continuing on the 25 th day of each month, but only to the extent there is cash available, as provided below. With respect to any such 25 th day that is not a Business Day, the interest payment otherwise due on such 25 th day shall be due on the next subsequent day that is a Business Day.
For the purposes of this Note, “LIBOR Rate” means the daily weighted average of the rate per annum for each day during the period equal to the rate determined by the Lender be the offered rate that appears on the page of the Reuters Screen that displays an average British Bankers Association Interest Settlement Rate (such page currently being LIBOR01) for deposits in United States dollars (for delivery on the first day of such period) with a one-month period, determined as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such period.
Unless plainly wrong, the computer records of the holder hereof shall on any day conclusively evidence the unpaid balance of this Note and its advances and payments history posted up to that day. All loans and advances and all payments and permitted prepayments made hereon may be (but are not required to be) set forth by or on behalf of such holder on the schedule which is attached hereto or otherwise recorded in such holder’s computer or manual records; provided , that any failure to make notation of any principal advance or accrual of interest shall not cancel, limit or otherwise affect Purchaser’s obligations or any of such holder’s rights with respect to that advance or accrual. Unless otherwise defined, capitalized terms used herein have the meanings provided in or specified in accordance with the Subordinated Credit Agreement.
 
 F-9 

 

The obligation of the Purchaser to pay the principal of, and interest on, all loans and advances on this Note shall be absolute and unconditional, shall be binding and, to the fullest extent permitted by law, enforceable in all circumstances whatsoever and shall not be subject to setoff, recoupment or counterclaim; provided , however , that the Purchaser shall only be obligated to pay principal of and interest on the Loans from distributions of Available Funds (if any) pursuant to and in accordance with the priority of payments set forth in Section 1.05(c) of the Funding Note Purchase Agreement and, after termination of the Funding Note Purchase Agreement, from funds of the Purchaser.
Purchaser may prepay at any time, without penalty or fee, the principal or interest outstanding hereunder or any portion of such principal or interest. Payments of both principal and interest are to be made in lawful money of the United States of America in same day or immediately available funds.
The Payee hereby agrees, prior to the date that is 367 days after the Maturity Date, not to acquiesce, petition, or invoke the process of any court or government authority (or to encourage or cooperate with others) for the purpose of commencing or sustaining a case against the Payee under any Federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of or for the Payee or any substantial part of its property, or ordering the winding up or liquidation of the affairs of the Payee. The foregoing shall not limit the rights of the Purchaser to file any claim in, or to otherwise take any action with respect to, any insolvency proceeding instituted against the Payee by any other unaffiliated entity.
Notwithstanding anything contained herein to the contrary, to the extent that the Payee is deemed to have any interest in any assets of the Purchaser, the Payee agrees that its interest in those assets is subordinate to claims or rights of creditors of the Purchaser. The Payee agrees that this Note constitutes a subordinated note for purposes of Section 510(a) of the United States Bankruptcy Code, as amended from time to time (11 U.S.C. §§ 101 et seq .).
The Purchaser hereby represents and warrants as of each loan and advance made hereon that at the time of (and immediately after) each loan and advance made hereunder, (i) the Purchaser’s total assets exceed its total liabilities, (ii) the Purchaser’s cash on hand is sufficient to satisfy all of its current obligations (other than any amounts due under this Agreement and the obligation to pay the outstanding Funding Note), (iii) the Purchaser is adequately capitalized at a commercially reasonable level, (iv) the Purchaser has determined that its financial capacity to meet its financing commitment under this Agreement is adequate and (v) the principal amount outstanding under this Agreement, together with the interest owning thereon, does not exceed the excess of the aggregate Collateral Value of all Financed Student Loans, over the aggregate amount of all Obligations. Each loan or advance made hereunder by the Payee to the Purchaser is subject to the accuracy of the representations and warranties herein made on the part of the Purchaser.
This Note is the Subordinated Promissory Note referred to in, and evidences indebtedness incurred under, the Subordinated Credit Agreement, and the holder hereof is entitled to the benefits of the Subordinated Credit Agreement. Upon and subject to the terms and conditions of the Subordinated Credit Agreement, Purchaser may borrow, repay and reborrow against this Note under the circumstances, in the manner and for the purposes specified in the Subordinated Credit Agreement and this Note, but for no other purposes. All parties hereto, whether as makers, endorsers or otherwise, severally waive presentment for payment, demand, protest and notice of dishonor.
 
 F-10 

 

THIS NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY OTHERWISE APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS.
 	 	 	 	 	
 	NELNET SUPERCONDUIT FUNDING, LLC
 	 	
 	By:  	 	 	
 	 	Name:  	 	 	
 	 	Title:  	 	 	
 
 F-11 

 

ATTACHMENT G
FORM OF ANNUAL STATEMENT OF COMPLIANCE
NELNET SUPERCONDUIT FUNDING, LLC
[DATE]
The Bank of New York Mellon, as Conduit Administrator
101 Barclay Street, 4E
New York, NY 10286
Attention: Andrew J Taylor
Fax: (212) 815-2020
Email: BMOStraightA@bnymellon.com
The undersigned, a duly authorized officer of National Education Loan Network, Inc., as seller (in such capacity, the “ Seller ”) under the Student Loan Purchase Agreement, dated as of May 13, 2009 (as amended and supplemented, or otherwise modified and in effect from time to time, the “ Student Loan Purchase Agreement ”), by and among Seller, Union Bank and Trust Company, as Seller ELT, Nelnet Superconduit Funding, LLC, as purchaser and Zions First National Bank, as purchaser eligible lender trustee, does hereby certify that:

 	1.	 	A review of the activities of the Seller as they relate to the Transaction Documents (as defined in the Student Loan Purchase Agreement), and of the Seller’s performance under the Transaction Documents, for the period from January 1 through December 31 has been made under my supervision.	

 	2.	 	To the best of my knowledge, based on such review, Seller has fulfilled all of its obligations in all material respects under the Transaction Documents throughout the period from January 1 through December 31.	
IN WITNESS WHEREOF, the undersigned has duly executed this certificate on behalf of the Seller as of the day and year first written above.
 	 	 	 	 	
 	NATIONAL EDUCATION LOAN NETWORK, INC. , as Seller
 	 	
 	By:  	 	 	
 	 	Name:  	 	 	
 	 	Title:  	 	 	
 
 G-1 

Exhibit 31.1
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Michael S. Dunlap, certify that:

1.	 	I have reviewed this quarterly report on Form 10-Q of Nelnet, Inc. and subsidiaries (the “Company”);	

2.	 	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	

3.	 	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	

4.	 	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	

 	(a)	 	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	

 	(b)	 	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	

 	(c)	 	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	

 	(d)	 	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	

5.	 	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	

 	(a)	 	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	

 	(b)	 	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	
 	 	 	 	 	
Date: August 10, 2009 	/s/ MICHAEL S. DUNLAP  	 	
 	Michael S. Dunlap 	 	
 	Chairman and Chief Executive Officer Principal Executive Officer 	 	

Exhibit 31.2
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Terry J. Heimes, certify that:

1.	 	I have reviewed the quarterly report on Form 10-Q of Nelnet, Inc. and subsidiaries (the “Company”);	

2.	 	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	

3.	 	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	

4.	 	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	

 	(a)	 	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	

 	(b)	 	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	

 	(c)	 	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	

 	(d)	 	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	

5.	 	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	

 	(a)	 	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	

 	(b)	 	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	
 	 	 	 	 	
Date: August 10, 2009 	/s/ TERRY J. HEIMES  	 	
 	Terry J. Heimes 	 	
 	Chief Financial Officer Principal Financial Officer and Principal Accounting Officer 	 	

Exhibit 32
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Nelnet, Inc. and subsidiaries (the “Company”) on Form 10-Q for the quarter ended June 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

 	1.	 	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	

 	2.	 	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	
 	 	 	 	 	
Date: August 10, 2009 	By:  	/s/ MICHAEL S. DUNLAP  	 	
 	 	Name:  	Michael S. Dunlap 	 	
 	 	Title:  	Chairman and Chief Executive Officer 	 	
 	 	 	
 	By:  	/s/ TERRY J. HEIMES  	 	
 	 	Name:  	Terry J. Heimes 	 	
 	 	Title:  	Chief Financial Officer