FFEL Program Financing

NCHELP Program Operations Update

May 26, 2009

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Discussion Topics FFELP’s Commitment Legislation Overview

PUT Program Participation Program Conduit Program

Talking Points and Q&As

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FFELP’s Commitment FFELP providers are committed to providing

students, families, and schools uninterrupted student loan services during these challenging economic times.

The FFELP community is committed to working diligently with the U.S. Department of Education to make the programs as easy and smooth as possible for you and your student and parent borrowers.

FFELP providers are rapidly utilizing the new legislative tools (Participation program, PUT program, and Asset-backed Commercial Paper conduit) in order to provide continued financing to our shared customers: students and their families.

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FFELP’s Commitment Utilization of the legislative tools provides

a short-term solution to create liquidity for lenders in the current financial markets. It is the FFELP community’s intent to cease using the programs as soon as the financial markets stabilize.

FFELP community will continue to communicate specifics of this initiative as they become available.

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Legislation Overview

Situation Lack of liquidity in financial markets impacting

ability of FFEL Program lenders and secondary markets to find cost effective financing.

Goals Ensure that eligible students and parents

continue to receive FFEL Program loans. Support the FFEL Program as a successful

private/public partnership. Protect taxpayer interests - no additional cost

to the government

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Legislation Overview

Solution ECASLA signed by President on May 7, 2008

Covers the 2008/09 academic year Extension signed by President on October 8,

2008 Covers the 2009/10 academic year

Does not authorize the Department to make advances or to otherwise “lend” money to FFEL lenders.

Resource link http://federalstudentaid.ed.gov/ffelp

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Legislation Overview

Response Three Funding Programs –

Loan Purchase Commitment Program (PUT) Expansion of PUT program to include 2007/08

loans announced November 21, 2008 as stop-gap solution before conduit is up and running

Loan Participation Purchase Program Conduit Program announced November 10,

2008

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Eligible Loans Stafford (subsidized and unsubsidized),

PLUS and Grad PLUS program Excludes LLR loans from Participation and

PUT programs Excludes consolidation loans Excludes loans 210 days or more delinquent

Borrower benefit limitations in some cases

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Eligible Time Periods Four Independent Time Periods

Academic Year 2008/09 Loan period includes or begins on or after July 1, 2008 First disbursement on or after May 1, 2008 and no later

than July 1, 2009 Will be fully disbursed no later than September 30, 2009 Must be redeemed or Put to ED by September 30, 2009

Academic Year 2009/10 Loan period includes or begins on or after July 1, 2009 First disbursement on or after May 1, 2009 and no later

than July 1, 2010 Will be fully disbursed no later than September 30, 2010 Must be redeemed or Put to ED by September 30

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Eligible Time Periods (con.) Academic Year 2007/08 included in Short-Term PUT

Loan period includes or begins on or after July 1, 2007 First disbursement on or after May 1, 2007 and no later than

July 1, 2008 Must be Put to ED by February 28, 2009 (

http://www.nchelp.org/initiatives/ECASLA/Pages%20from%20db1120.pdf)

Conduit Only: “Loans made between October 1, 2003 and July 1, 2009

First disbursement on or after October 1, 2003 and no later than July 1, 2009

Fully disbursed by September 30, 2009 Conveyed to conduit by June 30, 2010 Loans may be PUT to Department by conduit through

September 30, 2014

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Programs Comparison

Loan Purchase (PUT) Provides liquidity after

fully disbursed Lender funds and holds

the loan until sold (PUT) Guarantor holds

guarantee until sold (PUT)

FFELP loans sold to the Dept.

All FFEL lenders eligible, regardless of size

Holder, servicer and guaranty moved to Dept. when PUT

Loan Participation Provides liquidity as

disbursements are made Lender, servicer and

guarantor intact Lender funds first

disbursement, requests Dept. to participate in loan

Dept. provides funds to lender for immediate liquidity

Loans must be bought back or PUT by Sept. 30 of applicable year

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PUT Program How it Works

9-day freeze on loan adjustments before PUT date Optional: Lender notifies schools and/or

guarantor at least 9-days before PUT PUT loans sent to the original guarantor and

NSLDS within 30-days after PUT date by Department Servicer Sent as a loan transfer file with LID 899577 or 898577

for Short-Term PUT; Servicer 700577; and Guarantor 577

Guarantor transfers the guarantee to the Department

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PUT Program Procedures Department’s Servicer processes the sale on

the required loan purchase date Ownership of loans transfers to the

Department as of purchase date Department’s Servicer assumes servicing of all

loans included in sale Department’s Servicer notifies borrower,

guarantor and NSLDS Payment is deposited in lender’s account Lender forwards any post sale adjustments to

Department’s Servicer13

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PUT Program - Assisting Schools Plan of Action to Assist School:

Communication of loan changes to DL servicer on PUT loans Lender and/or guarantor will communication those loans

that are PUT (specifics provided by lender and/or guarantor)

Lender and/or guarantor will work with the school to ensure that during the 9-day freeze that certain loan changes do not occur (specifics provided by lender and/or guarantor) Re-certification of PUT loan to reinstate guaranty and/or

increase loan amount Lender and/or guarantor will work with the school to

provide resources/tools to address borrower questions about PUT loans

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PUT Program - Communications to Schools Options:

NCHELP Trading Partner Notification of ECASLA PUT File Published November 21, 2008 Sent by lender at least 9-days before PUT date Used to notify guarantors, originators and others of loans

that may be PUT CommonLine Response File

Published November 25, 2008 Sent by lender at least 9-days before PUT date Used to notify schools of loans that may be PUT

Lender, servicer and guarantor may have specific communication tools

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PUT Program - Assisting Borrowers Develop Plan of Action to Assist Borrowers:

Split servicing: In School Assist school to communicate to borrower PUT loans and

provide general information and direction on split servicing loans

Set up a communication system with ED servicer to ensure all loans are updated correctly

Split servicing: In Repayment Facilitate communication between the borrower and ED

servicer Work to assist borrower in addressing all FFELP loans, even

PUT loans Extend Default Prevention and Financial Literacy programs to

PUT serviced loans Encourage the use of industry products to locate all loans

(NSLDS. Meteor, etc.)

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Participation Program Terminology: Sponsor – Originating lender Custodian – Lender managing the participation requests

to the Department and “holding” the loan disbursements

Facility – The “place” where the Department’s participation interests are held Holder, servicer and guarantee retained by the Sponsor and

original guarantor Redeem – The Sponsor buys back from the Department,

its participation in the loan that is held in the facility PUT – The loan asset is transferred to the Department if

the Sponsor does not redeem it from the facility Holder is now the Department, servicer is the Department’s

Servicer

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Participation Program How it works: Sponsor enters into an agreement with an

eligible custodian Custodian receives a LID from the

Department Sponsor originates loan and makes first

disbursement Sponsor notifies custodian to request the

disbursement amount Sponsor transfers the first disbursement to

the facility19

Participation Program How it works (cont.): Sponsor continues to make subsequent

disbursements and participates each until fully disbursed

Sponsor transfers LID to custodian once fully disbursed

NSLDS reflects new custodian LID Sponsor, servicer and guarantor remain

intact, as normal Sponsor redeems or PUTs loan by Sept. 30

of the applicable year

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Participation Program - School and Borrower Impact

School Impacts: Lender, servicer and guarantor remain the same LID transfer to the custodian after full

disbursement is for federal reporting purposes and does not impact servicing

If lender redeems the loan, LID will transfer from custodian back to sponsor

If lender PUTs the loan, all PUT impacts apply

Borrower Impacts: None unless loan is PUT

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Conduit Program –

What We Know: Announced in a letter from the

Secretary of Education on November 10, 2008

Created to provide longer-term stability to FFELP

Conduit will be private sector based

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Conduit Program –

What We Know (cont.): Department of Education will be the

“safety net” (purchaser of last resort if needed)

Guarantee stays with the original guarantor and servicing remains with the holder/servicer while in the conduit

Guarantor and servicer changes only if/when the Department of Education purchases the loans

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Conduit Program –

Eligible Loans: Loans eligible for the conduit include

Stafford and PLUS loans First disbursement on or after October 1,

2003 and no later than July 1, 2009 Fully disbursed by September 30, 2009 Conveyed to conduit by June 30, 2010 Loans may be PUT to Department by

conduit through September 30, 201424

Conduit Program –

How it Works: Third party administrator creates a conduit

to which other lenders transfer ownership of their loans

Conduit issues funding notes to sell, backed by the loans in the conduit

Private investors purchase the funding notes

Lenders would pledge loans to the conduit and the conduit pays the lenders from amounts received from investors

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Conduit Program –

How it Works (cont.): Federal Financing Bank provides liquidity

to investors; reimbursed by the Department of Education

Department of Education promises to purchase the loans if the commercial paper that has been issued by the conduit cannot be reissued and the conduit doesn’t have sufficient cash to repay the investors

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Program General Overview and Q&As Key Messages and Questions and

Answers posted on NCHELP web site at http://www.nchelp.org/pages/page.cfm?id=136

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Questions? http://federalstudentaid.ed.gov/ffelp

http://www.nchelp.org/

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