SUBJECT TO COMPLETION, Dated April 2, 2004
PRELIMINARY PROSPECTUS SUPPLEMENT
(To prospectus dated April 2, 2004)
$1,113,400,000
STUDENT LOAN ASSET-BACKED NOTES, SERIES 2004-A
COLLEGIATE FUNDING SERVICES EDUCATION LOAN TRUST 2004-A
ISSUER
COLLEGIATE FUNDING OF DELAWARE, L.L.C. COLLEGIATE FUNDING MASTER SERVICING, L.L.C.
SPONSOR MASTER SERVICER
ORIGINAL
PRINCIPAL PRICE TO UNDERWRITING PROCEEDS TO
AMOUNT INTEREST RATE FINAL MATURITY DATE PUBLIC DISCOUNT ISSUER(1)
Class A-1 Notes $__________ 3-month LIBOR plus ___% December 30, 2013 100% ____% $__________
Class A-2 Notes $__________ 3-month LIBOR plus ___% June 28, 2021 100% ____% $__________
Class A-3 Notes $__________ 3-month LIBOR plus ___% September 28, 2026 100% ____% $__________
Class A-4 Notes $__________ 3-month LIBOR plus ___% September 30, 2030 100% ____% $__________
Class A-5 Notes $__________ Auction Rate December 28, 2043 100% ____% $__________
Class A-6 Notes $__________ Auction Rate December 28, 2043 100% ____% $__________
Class B Notes $__________ Auction Rate December 28, 2043 100% ____% $__________
TOTAL $__________ $_______ $_______ $__________
____________________
(1) Before deducting expenses estimated to be $_____________.
The notes will be secured by a pool of student loans originated under
the Federal Family Education Loan Program, a cash reserve fund and the
other money and investments pledged to the indenture trustee.
All of the Class A notes offered pursuant to this prospectus supplement
will be rated Aaa by Moody's Investors Service, Inc. and AAA by Standard &
Poor's Rating Services, a division of The McGraw-Hill Companies, Inc. The Class
B notes offered pursuant to this prospectus supplement will be rated at least A2
by Moody's Investors Service, Inc. and at least A by Standard & Poor's Rating
Services, a division of The McGraw-Hill Companies, Inc.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
YOU SHOULD CONSIDER CAREFULLY THE "RISK FACTORS" BEGINNING ON PAGE S-14 OF
THIS PROSPECTUS SUPPLEMENT AND ON PAGE 1 OF THE PROSPECTUS.
The underwriters named below are offering the notes subject to approval of
certain legal matters by their counsel. The notes will be delivered in book
entry form only on or about April 28, 2004.
CITIGROUP JPMORGAN UBS
April __, 2004
The information in this preliminary prospectus supplement is not complete and
may be changed. This preliminary prospectus supplement relates to an effective
registration statement under the Securities Act of 1933, as amended. This
preliminary prospectus supplement and the related prospectus are not an offer to
sell these securities and are not soliciting an offer to buy these securities in
any state where the offer is not permitted.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
Special Note Regarding Forward Looking Statements...........................ii
Summary of Terms...........................................................S-1
Risk Factors..............................................................S-14
Collegiate Funding Services Education Loan Trust 2004-A...................S-17
The Student Loan Operations of Collegiate Funding Services Education
Loan Trust 2004-A.......................................................S-18
Use of Proceeds...........................................................S-22
Acquisition of Student Loans..............................................S-22
Characteristics of the Student Loans......................................S-22
Information Relating to the Guarantee Agencies............................S-30
Description of the Notes..................................................S-38
Credit Enhancement........................................................S-44
LIBOR Derivative Product Agreement........................................S-45
ERISA Considerations......................................................S-49
Certain Federal Income Tax Considerations.................................S-49
Reports to Noteholders....................................................S-49
Plan of Distribution......................................................S-49
Legal Matters.............................................................S-51
PROSPECTUS
About This Prospectus......................................................i
Summary of the Offering..................................................iii
Risk Factors ..............................................................1
Special Note Regarding Forward Looking Statements.........................10
Formation of the Trusts...................................................10
Collegiate Funding Services, L.L.C........................................12
The Sponsor...............................................................13
The Administrator.........................................................13
Description of the Notes..................................................13
Security and Sources of Payment for the Notes.............................22
Book-Entry Registration...................................................25
Additional Notes..........................................................30
Summary of the Indenture Provisions.......................................31
Description of Credit Enhancement and Derivative Products.................42
Description of the Federal Family Education Loan Program..................45
Description of the Guarantee Agencies.....................................59
Federal Income Tax Consequences...........................................66
ERISA Considerations......................................................71
Plan of Distribution......................................................72
Legal Matters.............................................................73
Financial Information.....................................................73
Ratings...................................................................74
Incorporation of Documents by Reference; Where to Find More Information ..74
Glossary of Terms.........................................................75
Appendix I-Global Clearance, Settlement and Tax Documentation Procedures..79
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THE
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
Information about the notes is available in two separate documents that
progressively provide more detail. This prospectus supplement describes the
specific terms of the notes. The accompanying prospectus provides general
information, some of which may not apply to the notes. You are urged to read
both the prospectus and this prospectus supplement in full to obtain information
concerning the notes.
IF THERE IS A CONFLICT BETWEEN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN THIS PROSPECTUS
SUPPLEMENT.
Cross-references are included in this prospectus supplement and the
accompanying prospectus to captions in the materials where you can find further
discussions about related topics. The table of contents on the preceding page
provides the pages on which these captions are located.
Some of the terms used in this prospectus supplement and the accompanying
prospectus are defined under the caption "Glossary of Terms" beginning on page
75 in the accompanying prospectus.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Statements in this prospectus supplement and the prospectus, including
those concerning expectations as to the trust's ability to purchase eligible
student loans, to structure and to issue competitive securities, the trust's
ability to pay notes, and certain other information presented in this prospectus
supplement and the prospectus, constitute "forward looking statements," which
represent the sponsor's expectations and beliefs about future events. Actual
results may vary materially from such expectations. For a discussion of the
factors which could cause actual results to differ from expectations, please see
the caption entitled "Risk Factors" in this prospectus supplement and in the
prospectus.
SUMMARY OF TERMS
THE FOLLOWING SUMMARY IS A VERY GENERAL OVERVIEW OF THE TERMS OF THE NOTES
AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU NEED TO CONSIDER IN MAKING
YOUR INVESTMENT DECISION.
BEFORE DECIDING TO PURCHASE THE NOTES, YOU SHOULD CONSIDER THE MORE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND IN
THE PROSPECTUS.
THIS PROSPECTUS SUPPLEMENT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. SEE "SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS"
IN THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS.
PRINCIPAL PARTIES AND DATES
ISSUER
o Collegiate Funding Services Education Loan Trust 2004-A
SPONSOR
o Collegiate Funding of Delaware, L.L.C.
MASTER SERVICER
o Collegiate Funding Master Servicing, L.L.C.
SUBSERVICER
o CFS-SunTech Servicing LLC
ADMINISTRATOR
o Collegiate Funding Portfolio Administration, L.L.C.
ELIGIBLE LENDER TRUSTEE AND INDENTURE TRUSTEE
o U.S. Bank National Association
DELAWARE TRUSTEE
o Wilmington Trust Company
AUCTION AGENT
o The Bank of New York
BROKER-DEALERS
o UBS Financial Services Inc. for the class A-5 notes
o Citigroup Global Markets Inc. for the class A-6 notes
o J.P. Morgan Securities Inc. for the class B notes
DISTRIBUTION DATES
LIBOR RATE NOTES. Distributions will be made on the LIBOR rate notes on the 28th
day of each March, June, September and December. We sometimes refer to these
distribution dates as "quarterly distribution dates." If any quarterly
distribution date is not a business day, the quarterly distribution date will be
the next business day. The initial quarterly distribution date will be September
28, 2004.
AUCTION RATE NOTES. Distributions will be made to each class of auction rate
notes on the business day following the end of each auction period for that
class of auction rate notes. However, if an auction period for a class of
auction rate notes exceeds 90 days, distributions also will be made to that
class of notes on the quarterly distribution dates described above. We sometimes
refer to a distribution date for a class of auction rate notes as an "auction
rate distribution date." The initial auction period for each class of auction
rate notes will begin on the closing date and end on the initial auction date
for that class of auction rate notes.
COLLECTION PERIODS
The collection periods will be the three full calendar months preceding each
quarterly distribution date. However, the initial collection period will be the
period beginning on the closing date and ending on August 31, 2004.
INTEREST ACCRUAL PERIODS
LIBOR RATE notes. The initial interest accrual period for the LIBOR rate notes
begins on the closing date and ends on September 27, 2004. For all other
quarterly distribution dates, the interest accrual period will begin on the
prior quarterly distribution date and end on the day before such quarterly
distribution date.
AUCTION RATE NOTES. The interest accrual period for each class of auction rate
notes is the period from the previous auction rate distribution date through the
auction date preceding the auction rate distribution date for that class. The
first interest accrual period, however, will begin on the closing date and end
on the initial auction date. We sometimes refer to an interest accrual period
for a class of auction rate notes as an "auction period."
STATISTICAL CALCULATION DATE
The information presented in this prospectus supplement relating to the student
loans the trust will acquire on the closing date is as of March 24, 2004, which
we refer to as the statistical calculation date. The sponsor believes that the
information set forth in this prospectus supplement with respect to those
student loans as of the statistical calculation date is representative of the
characteristics of the student loans as they will exist on the closing date,
although certain characteristics of the student loans may vary.
CUT-OFF DATE
The cut-off date for the initial pool of student loans the trust will acquire is
the closing date.
CLOSING DATE
The closing date for this offering is expected to be on or about April 28, 2004.
DESCRIPTION OF THE NOTES
GENERAL
Collegiate Funding Services Education Loan Trust 2004-A is offering the
following student loan asset-backed notes:
o class A-1 notes in the aggregate principal amount of $__________;
o class A-2 notes in the aggregate principal amount of $__________;
o class A-3 notes in the aggregate principal amount of $__________;
o class A-4 notes in the aggregate principal amount of $__________;
o class A-5 notes in the aggregate principal amount of $__________;
o class A-6 notes in the aggregate principal amount of $__________; and
o class B notes in the aggregate principal amount of $__________.
The notes will be issued pursuant to an indenture of trust. The class A notes
will be senior notes and the class B notes will be subordinate notes. The class
A-1 notes, class A-2 notes, class A-3 notes and class A-4 notes bear interest
based on three-month LIBOR, and we sometimes refer to them as "LIBOR rate
notes." The class A-5 notes, class A-6 notes and class B notes will bear
interest based on an auction rate, and we sometimes refer to them as "auction
rate notes." The LIBOR rate notes will be available for purchase in minimum
denominations of $50,000 and multiples of $1,000 in excess. The auction rate
notes will be available for purchase in multiples of $50,000.
Interest and principal on the notes will be payable to the record owners of
the notes as of the close of business on the record date, which is the business
day immediately preceding the related distribution date.
INTEREST RATES AND PAYMENTS
LIBOR RATE NOTES. The LIBOR rate notes will bear interest at the following
annual rates:
o the class A-1 notes will bear interest at an annual rate equal to
three-month LIBOR, except for the initial interest accrual period, plus
___%;
o the class A-2 notes will bear interest at an annual rate equal to
three-month LIBOR, except for the initial interest accrual period, plus
___%;
o the class A-3 notes will bear interest at an annual rate equal to
three-month LIBOR, except for the initial interest accrual period, plus
___%;
o the class A-4 notes will bear interest at an annual rate equal to
three-month LIBOR, except for the initial interest accrual period, plus
___%.
The indenture trustee will determine the rate of interest on the LIBOR rate
notes on the second business day prior to the start of the applicable interest
accrual period. Interest on the LIBOR rate notes will be calculated on the basis
of the actual number of days elapsed during the interest accrual period divided
by 360.
For the initial interest accrual period, the LIBOR rate notes will bear interest
at an annual rate equal to five-month LIBOR, plus the applicable margin.
Interest accrued on the outstanding principal balance of the LIBOR rate notes
during each interest accrual period will be paid on the related quarterly
distribution date.
AUCTION RATE NOTES. The interest rate on the auction rate notes is determined at
auction. However, the interest rates on the auction rate notes for the initial
interest accrual period will be determined by the underwriters prior to the
closing date. The initial auction date and the initial rate adjustment date for
each class of auction rate notes are set forth below:
Initial Rate
Initial Auction Adjustment
CLASS DATES DATES
A-5 ___________ _________
A-6 ___________ _________
B ___________ _________
For each auction period, the interest rate for each class of the auction rate
notes will be the least of:
o the rate determined pursuant to the auction procedures described under
"Description of the Notes--Auction rate notes" in the prospectus;
o the maximum rate, which is equal to the least of:
o the LIBOR rate for a comparable period plus a margin ranging from 1.5%
(if the auction rate notes are rated AAA/Aaa) to 3.5% (if the auction
rate notes are rated below A-/A3);
o 16%; and
o the maximum rate permitted by law; and
o the adjusted student loan rate, which is based upon the lesser of a
commercial paper rate plus 0.70% per annum or the actual return on the
student loans in the trust minus administrative expenses and losses
realized on the student loans during the preceding collection period.
We sometimes refer to the interest rate for the auction rate notes as the
"auction rate."
Interest will be calculated on the auction rate notes on the basis of the actual
number of days elapsed in the related auction period divided by 360.
After the initial auction period, the period between auctions for the auction
rate notes will generally be 28 days, subject to adjustment if the auction
period would begin or end on a non-business day. The length of the auction
period, the auction date or the nature of the interest rate for any class of
auction rate notes may change as described under "Description of the
Notes--Auction rate notes" in the prospectus.
If, on the first day of any auction period, a payment default on the auction
rate notes has occurred and is continuing, the rate for the interest accrual
period will be the non-payment rate, which is one-month LIBOR plus 1.50%.
If in any auction all the auction rate notes subject to the auction are subject
to hold orders, the interest rate for the accrual period will equal the all-hold
rate, which is the LIBOR rate for a period comparable to the auction period less
0.20%.
Interest accrued on the outstanding principal balance of a class of auction rate
notes during the preceding auction period will be paid on the related auction
rate distribution date.
PRINCIPAL PAYMENTS
Principal payments will be made on the notes in an amount equal to the lesser
of:
o the principal distribution amount, which includes any shortfall in the
payment of the principal distribution amount on the preceding distribution
dates; and
o funds available to pay principal as described below in "Description of the
Notes--Flow of Funds."
Principal will be paid on the notes on the dates and in the order and priority
described below under "--Flow of Funds."
FINAL MATURITY
o The class A-1 notes will be paid in full by the December 30, 2013 quarterly
distribution date;
o the class A-2 notes will be paid in full by the June 28, 2021 quarterly
distribution date;
o the class A-3 notes will be paid in full by the September 28, 2026
quarterly distribution date;
o the class A-4 notes will be paid in full by the September 30, 2030
quarterly distribution date;
o the class A-5 notes will be paid in full by the December 28, 2043 quarterly
distribution date;
o the class A-6 notes will be paid in full by the December 28, 2043 quarterly
distribution date; and
o the class B notes will be paid in full by the December 28, 2043 quarterly
distribution date.
DESCRIPTION OF THE TRUST
GENERAL
Collegiate Funding Services Education Loan Trust 2004-A is a Delaware statutory
trust whose operations are limited to acquiring, holding and managing student
loans originated under the Federal Family Education Loan Program ("FFELP") and
other assets of the trust, issuing and making payments on the notes and any
other incidental or related activities.
The trust will use the proceeds from the sale of the notes to purchase student
loans, to make deposits to the Reserve Fund, the Add-on Consolidation Loan Fund
and the Capitalized Interest Account and to pay costs of issuing the notes.
The only sources of funds for payment of all of the notes issued under the
indenture are the student loans and investments pledged to the indenture
trustee, the payments the trust receives on those student loans and investments
and any payments the trust receives under the LIBOR derivative product
agreement.
THE TRUST'S ASSETS
The assets of the trust will include:
o the FFELP student loans acquired with the proceeds of the sale of the
notes;
o collections and other payments received on account of the student loans;
o money and investments held in funds and accounts created under the
indenture, including the Acquisition Fund, the Add-on Consolidation Loan
Fund, the Collection Fund, the Capitalized Interest Account and the Reserve
Fund; and
o its rights under the LIBOR derivative product agreement.
THE ACQUISITION FUND
Approximately $1,056,643,385 of the proceeds from the sale of the notes will be
deposited into the Acquisition Fund on the closing date, of which approximately
$___________ will be used on the closing date by the trust, acting through the
eligible lender trustee, to purchase student loans and to pay costs of issuance.
The balance of the funds deposited into the Acquisition Fund will be used by the
trust, acting through the eligible lender trustee, to purchase student loans
during an acquisition period beginning on the closing date and ending no later
than June 30, 2004. Any amounts remaining in the Acquisition Fund following the
acquisition period will be transferred to the Collection Fund and used to pay
principal on the notes.
THE ADD-ON CONSOLIDATION LOAN FUND
Approximately $40,000,000 of the proceeds from the sale of the notes will be
deposited into the Add-on Consolidation Loan Fund on the closing date. Amounts
on deposit in the Add-on Consolidation Loan Fund will be used by the trust to
acquire student loans that are being added to the federal consolidation loans
the trust acquires on the closing date or during the acquisition period. The
Higher Education Act permits borrowers to add additional student loans to a
consolidation loan during the 180-day period following the origination of the
consolidation loan. Any moneys remaining in the Add-on Consolidation Loan Fund
on the December 2004 quarterly distribution date will be transferred to the
Collection Fund and used to pay principal on the notes.
THE COLLECTION FUND
The indenture trustee will deposit into the Collection Fund all revenues derived
from student loans and money or assets on deposit in the trust and any payments
received from the counterparty to the LIBOR derivative product agreement. Money
on deposit in the Collection Fund will be used to pay:
o amounts owing to the U.S. Department of Education and guarantee agencies,
o the trust's operating expenses, which include servicing fees, trustees'
fees, auction agent fees, broker dealer fees and administration fees, and
o interest and principal on the notes, including amounts payable to the
counterparty on the LIBOR derivative product agreement.
THE RESERVE FUND
The trust will make a deposit to the Reserve Fund from the proceeds of the sale
of the notes in the amount of $8,006,610. The Reserve Fund is subject to a
minimum balance equal to the greater of:
o 0.75% of the pool balance, which includes accrued interest that is expected
to be capitalized, as of the close of business on the last day of the
related collection period; or
o $1,067,548.
On each distribution date or monthly payment date, to the extent that money in
the Collection Fund, after giving effect to transfers from the Capitalized
Interest Account, is not sufficient to pay amounts owed to the U.S. Department
of Education or guarantee agencies, servicing fees, trustees' fees, auction
agent fees, broker dealer fees, administration fees, the interest then due on
the notes, and amounts due the counterparty under the LIBOR derivative product
agreement (except for certain termination payments) the amount of the deficiency
will be paid directly from the Reserve Fund. To the extent the amount in the
Reserve Fund falls below the Reserve Fund minimum balance, the Reserve Fund will
be replenished on each distribution date from funds available in the Collection
Fund as described below under "Description of the Notes - Flow of Funds." Funds
on deposit in the Reserve Fund in excess of the Reserve Fund minimum balance
will be transferred to the Collection Fund.
CAPITALIZED INTEREST ACCOUNT
Approximately $5,000,000 of the proceeds from the sale of the notes will be
deposited into the Capitalized Interest Account on the closing date. Amounts on
deposit in the Capitalized Interest Account will be used to pay interest on the
notes and operating expenses prior to amounts being withdrawn from the Reserve
Fund. However, any moneys remaining in the Capitalized Interest Account on the
quarterly distribution date in March 2005 in excess of $2,000,000 will be
transferred to the Collection Fund. Also, any moneys remaining in the
Capitalized Interest Account on the quarterly distribution date in September
2005 will be transferred to the Collection Fund.
CHARACTERISTICS OF THE STUDENT LOAN PORTFOLIO
The student loans the trust will acquire with the proceeds of the sale of the
notes are consolidation loans originated under the Federal Family Education Loan
Program. The information in this prospectus supplement relating to the student
loans the trust will acquire on the closing date is presented as of the
statistical calculation date, which is March 24, 2004. As of that date, the
student loans had an aggregate outstanding principal balance of $723,068,369,
plus accrued interest of $188,521 to be capitalized on commencement of
repayment. In addition, the weighted average annual interest rate of the student
loans was approximately 4.37% and their weighted average remaining term to
scheduled maturity was approximately 272 months. The student loans that the
trust will acquire on the closing date with the proceeds of the notes are
described more fully below under "Characteristics of the Student Loans" in this
prospectus supplement.
FLOW OF FUNDS
Each month, amounts will be withdrawn from the Collection Fund and applied to
pay:
o amounts owed to the U.S. Department of Education with respect to student
loans owned by the trust;
o servicing fees owed to the master servicer; and
o amounts due the counterparty under the LIBOR derivative product agreement
(other than for certain termination payments).
On each quarterly distribution date or auction rate distribution date, as
applicable, prior to an event of default, money in the Collection Fund will be
used to make the following deposits and distributions, to the extent such
amounts are due and payable on that date and funds are available, in the
following order:
o to the U.S. Department of Education, amounts owed with respect to student
loans owned by the trust;
o to the master servicer, the indenture trustee, the auction agent, the
broker dealers and the Delaware trustee, pro rata, the servicing fees, the
trustees' fees and the auction agent fees and broker dealer fees;
o to the payment of the administration fees and any prior unpaid
administration fees;
o to the class A noteholders and the counterparty, pro rata, to pay interest
due on the class A notes and amounts due to the counterparty (which in the
case of termination payments will be limited to priority termination
payments);
o to the class B noteholders, to pay interest due on the class B notes;
o to the class A-1 noteholders, to pay the principal distribution amount
until the outstanding balance on the class A-1 notes is reduced to zero;
o to the class A-2 noteholders, to pay the principal distribution amount
until the outstanding balance on the class A-2 notes is reduced to zero;
o to the class A-3 noteholders, to pay the principal distribution amount
until the outstanding balance on the class A-3 notes is reduced to zero;
o to the class A-4 noteholders, to pay the principal distribution amount
until the outstanding balance on the class A-4 notes is reduced to zero;
o to the class A-5 noteholders, in lots of $50,000, to pay the principal
distribution amount until the outstanding balance on the class A-5 notes is
reduced to zero;
o to the class A-6 noteholders, in lots of $50,000, to pay the principal
distribution amount until the outstanding balance on the class A-6 notes is
reduced to zero;
o to the class B noteholders, in lots of $50,000, to pay the principal
distribution amount until the outstanding balance on the class B notes is
reduced to zero;
o to the Reserve Fund, the amount, if any, necessary to restore the Reserve
Fund to the Reserve Fund minimum balance;
o to the class A-5 and class A-6 noteholders, pro rata, any unpaid carry-over
amounts;
o to the class B noteholders, any unpaid carry-over amounts;
o to the counterparty, any unreimbursed termination payments due under the
terms of the LIBOR derivative product agreement;
o to the master servicer, any unpaid carry-over servicing fee;
o if the student loans are not sold pursuant to the optional purchase or
mandatory auction, to pay as accelerated payment of principal to the
holders of the notes and in the order and priority described above, until
they have been paid in full; and
o on a quarterly distribution date, to the sponsor, any remaining amounts,
less the portion, if any, of the principal distribution amount allocated
but not paid to a class of auction rate notes on that quarterly
distribution date.
However, on each quarterly distribution date all deposits and distributions made
following the fifth item above will be made only with money in the Collection
Fund that exceeds the accrued interest amount.
For each quarterly distribution date, the "accrued interest amount" will equal
the amount of interest that will be owing on each class of auction rate notes on
the first auction rate distribution date for each class following the quarterly
distribution date, other than any class as to which that quarterly distribution
date is an auction rate distribution date.
The principal distribution amount will be determined and allocated to classes of
notes only on quarterly distribution dates.
If a class of LIBOR rate notes is allocated some or all of the principal
distribution amount on a quarterly distribution date, that class also will be
paid that amount on that quarterly distribution date.
If a class of auction rate notes is allocated some or all of the principal
distribution amount on a quarterly distribution date, that class will be paid
that amount on that quarterly distribution date only if it is an auction rate
distribution date for that class. Principal allocated but not paid to a class of
auction rate notes on a quarterly distribution date will be paid to that class
on its next auction rate distribution date.
With the consent of the rating agencies we may distribute principal on the class
B notes before the outstanding balance of each class A note is reduced to zero
with amounts otherwise payable to the sponsor.
Further, after the outstanding balance of each class of LIBOR rate notes is
reduced to zero, we may redeem some or all of the remaining auction rate notes
at our option as follows:
o from available funds in the trust as described in the prospectus under
"Description of the Notes--Optional Redemption;"
o as described in the prospectus under "Description of the
Notes--Extraordinary Optional Redemption;" and
o with proceeds received by the trust from selling student loans.
The term "Principal Distribution Amount" means, for each quarterly distribution
date, the amount by which the aggregate outstanding principal amount of all the
notes immediately prior to that quarterly distribution date exceeds the quotient
obtained by dividing the Adjusted Pool Balance, as of the last day of the
related collection period, by 100.75%.
For the September 2004 quarterly distribution date, the "Principal Distribution
Amount" also will include any amounts transferred from the Acquisition Fund to
the Collection Fund during the initial collection period. For the December 2004
quarterly distribution date, the "Principal Distribution Amount" also will
include any amounts transferred from the Add-on Consolidation Loan Fund to the
Collection Fund during the preceding collection period.
For this purpose, "Adjusted Pool Balance" means, for any quarterly distribution
date, the sum of that Pool Balance and the required minimum balance of the
Reserve Fund for that distribution date.
"Pool Balance" for any date means the aggregate principal balance of the trust's
student loans on that date, including accrued interest that is expected to be
capitalized, plus amounts on deposit in the Acquisition Fund and the Add-on
Consolidation Loan Fund, as reduced by the principal portion of:
o all payments received by the trust through that date from borrowers, the
guarantee agencies and the Department of Education;
o all amounts received by the trust through that date from purchases of
student loans;
o all liquidation proceeds and realized losses on the student loans through
that date;
o the amount of any adjustment to balances of the student loans that a
subservicer makes under its subservicing agreement through that date; and
o the amount by which the guarantee agency reimbursements of principal on
defaulted student loans through that date are reduced from 100% to 98%, or
other applicable percentage, as required by the risk sharing provisions of
the Higher Education Act.
"Priority termination payment" means all termination payments due under the
LIBOR derivative product agreement resulting from:
o a monthly payment default by the trust under the derivative product
agreement;
o certain insolvency events relating to the trust; and
o the indenture trustee taking any action under the indenture to liquidate
all of the trust's assets following an event of default and an acceleration
of the notes.
See "Description of the Notes - Flow of Funds" in this prospectus supplement.
SERVICING
Under a master servicing agreement., Collegiate Funding Master Servicing, L.L.C.
will act as master servicer with respect to the student loans. Collegiate
Funding Master Servicing, L.L.C. will be paid a monthly servicing fee equal to
$3.55 per borrower for the first twelve months of repayment and thereafter,
$3.35 per borrower. In addition, Collegiate Funding Master Servicing, L.L.C.
will be entitled to receive from available funds a carry-over servicing fee as
described below in "Description of the Notes - Flow of Funds." The carry-over
servicing fee is the sum of:
o the amount of specified increases in the costs Collegiate Funding Master
Servicing, L.L.C. incurs,
o the amount of specified conversion, transfer and removal fees;
o any carry-over servicing fees described above that remain unpaid from prior
distribution dates; and
o interest on unpaid amounts as set forth in the master servicing agreement.
Collegiate Funding Master Servicing, L.L.C. has entered into a subservicing
agreement pursuant to which CFS-SunTech Servicing LLC, an indirect wholly-owned
subsidiary of Collegiate Funding Services, L.L.C., has agreed to assume
responsibility for servicing, maintaining custody of and making collections on
the trust's student loans. Under the terms of the subservicing agreement,
CFS-SunTech Servicing LLC may be required to purchase student loans from the
trust if it fails to comply with the terms and provisions of the subservicing
agreement. See "The Student Loan Operations of Collegiate Funding Services
Education Loan Trust 2004-A" in this prospectus supplement.
OPTIONAL PURCHASE
The sponsor may, but is not required to, repurchase all remaining student loans
in the trust on the earlier of the March 2022 quarterly distribution date, or
when the Pool Balance is 10% or less of the initial Pool Balance. If this
purchase option is exercised, the student loans would be sold to the sponsor as
of the last business day of the preceding collection period and the proceeds
will be used on the corresponding quarterly distribution date to repay any
outstanding notes, which will result in early retirement of the remaining notes.
The purchase price will equal the amount required to prepay in full, including
all accrued interest, the remaining student loans held by the trust, but not
less than a prescribed minimum purchase price. The prescribed minimum purchase
price is the amount that would be sufficient to:
o reduce the outstanding principal amount of each class of notes then
outstanding on the related quarterly distribution date to zero;
o pay to the noteholders the interest payable on the related quarterly
distribution date;
o pay any amount owing to the counterparty under the LIBOR derivative product
agreement;
o in the case of the auction rate notes, pay any carry-over amounts and
interest on carry-over amounts; and
o pay any unpaid carry-over servicing fee.
MANDATORY AUCTION
If any LIBOR rate notes are outstanding and the sponsor does not notify the
indenture trustee of its intention to exercise its right to repurchase the
remaining student loans in the trust as of the March 2022 quarterly distribution
date as described above, all of the remaining student loans in the trust will be
offered for sale by the indenture trustee before the next succeeding
distribution date. Collegiate Funding Master Servicing, L.L.C. and its
affiliates and unrelated third parties may offer to purchase the trust's student
loans in the auction.
If at least two bids are received, the indenture trustee will solicit and
resolicit new bids from all participating bidders until only one bid remains or
the remaining bidders decline to resubmit bids. The indenture trustee will
accept the highest of the remaining bids if it equals or exceeds both the
minimum purchase price described above and the fair market value of the student
loans remaining in the trust at the end of the related collection period. The
net proceeds of any auction sale will be used to retire any outstanding notes on
the next quarterly distribution date.
If the highest bid after the solicitation process does not equal or exceed both
the minimum purchase price described above and the fair market value of the
student loans remaining in the trust estate, the indenture trustee will not
complete the sale. If the sale is not completed, the indenture trustee may, but
will not be obligated to, solicit bids for the sale of the trust's student loans
at the end of future collection periods using procedures similar to those
described above. The indenture trustee will be obligated to make such
solicitations if requested to do so by the administrator.
If the trust's student loans are not sold as described above, on each subsequent
quarterly distribution date, all amounts on deposit in the Collection Fund after
giving effect to all withdrawals, except withdrawals payable to the sponsor,
will be distributed as accelerated payments of principal on the notes, in the
order and priority described above, until they have been paid in full. The
indenture trustee may or may not succeed in soliciting acceptable bids for the
trust's student loans either on the auction date or subsequently.
LIBOR DERIVATIVE PRODUCT AGREEMENT
On or prior to the closing date, the trust will enter into a LIBOR derivative
product agreement with _______________. We sometimes refer to this agreement as
the "LIBOR derivative product agreement" and we refer to ______________ as the
"counterparty" to the LIBOR derivative product agreement. The following is a
brief description of the LIBOR derivative product agreement. With the consent of
the rating agencies, the trust may enter into additional derivative products.
For a more detailed description, see "LIBOR Derivative Product Agreement" in
this prospectus supplement and "Description of Credit Enhancement and Derivative
Products" in the prospectus.
Under the terms of the LIBOR derivative product agreement, the counterparty will
pay the trust monthly an amount (the "floating amount") equal to the product of:
o a one-month LIBOR rate for the relevant monthly period;
o the notional amount for that period; and
o the quotient of the actual number of days in that period divided by 360.
In exchange for the floating amounts due from the counterparty, and subject to
the payment netting provisions of the LIBOR derivative product agreement, the
trust will pay the counterparty monthly an amount ("fixed amount") equal to the
product of:
o ___% per annum;
o the notional amount for that period; and
o the quotient of the actual number of days in that period divided by 360.
The fixed amounts and floating amounts will be netted, so that only the net
difference between those amounts will be paid.
The notional amount for the LIBOR derivative product agreement will equal
$_____________.
The LIBOR derivative product agreement will terminate on April 28, 2005 or, if
earlier, the date on which the agreement terminates in accordance with its terms
due to an early termination event.
BOOK-ENTRY REGISTRATION
The notes will be delivered in book-entry form through the Same Day Settlement
System of The Depository Trust Company.
FEDERAL INCOME TAX CONSEQUENCES
Stroock & Stroock & Lavan LLP will deliver an opinion that for federal income
tax purposes the notes will be treated as debt. You will be required to include
in your income, the interest on the notes as paid or accrued, in accordance with
your accounting methods and the provisions of the Internal Revenue Code. See
"Federal Income Tax Consequences" in the prospectus.
ERISA CONSIDERATIONS
If the notes are treated as indebtedness without substantial equity features,
the notes are eligible for purchase by or on behalf of employee benefit plans,
retirement arrangements, individual retirement accounts and Keogh Plans, subject
to the considerations discussed under "ERISA Considerations" in this prospectus
supplement.
RATING OF THE NOTES
The class A notes offered pursuant to this prospectus supplement will be rated
by at least two nationally recognized statistical rating agencies in their
highest rating category. The class B notes offered pursuant to this prospectus
supplement will be rated in one of the three highest rating categories of at
least two nationally recognized statistical rating agencies.
CUSIP NUMBERS
o Class A-1 Notes:
o Class A-2 Notes:
o Class A-3 Notes:
o Class A-4 Notes:
o Class A-5 Notes:
o Class A-6 Notes:
o Class B Notes:
INTERNATIONAL SECURITIES IDENTIFICATION
NUMBERS (ISIN)
o Class A-1 Notes:
o Class A-2 Notes:
o Class A-3 Notes:
o Class A-4 Notes:
o Class A-5 Notes:
o Class A-6 Notes:
o Class B Notes:
RISK FACTORS
The discussion under the heading "Risk Factors" in the prospectus describes
the risks associated with your investment in the notes. In addition, you should
consider the following factors:
THE TRUST'S ASSETS MAY NOT BE SUFFICIENT TO PAY ITS NOTES
On the date of issuance of the notes, the aggregate principal balance of
the student loans the trust owns and the other assets pledged as collateral for
the notes will be less than the aggregate principal balance of the notes issued
under the indenture.
As a result, if an event of default should occur under the indenture and
the trust was required to redeem all of its notes, the trust's liabilities may
exceed its assets. If this were to occur, the trust would be unable to repay in
full all of the holders of the notes.
A HIGH RATE OF PREPAYMENTS MAY ADVERSELY AFFECT THE TRUST'S ABILITY TO REPAY ITS
NOTES
On the closing date, the Pool Balance, and the amounts deposited in the
Reserve Fund and the Capitalized Interest Account are expected to be
approximately ___% of the aggregate initial principal amount of the notes. This
calculation does not include accrued interest that will not be capitalized,
which is also an asset of the trust. Noteholders must rely primarily on interest
and special allowance payments on the trust's student loans and earnings and
payments on other assets to reduce the aggregate principal amount of the notes
to the Pool Balance. The noteholders, especially class B noteholders, could be
adversely affected by a high rate of prepayments, which would reduce the amount
of interest and special allowance payments available for this purpose.
THE CLASS B NOTES ARE SUBORDINATED TO THE CLASS A NOTES
Payments of interest and principal on the class B notes are subordinated in
priority of payment to payments of interest and principal on the class A notes.
Accordingly, holders of class B notes will bear a greater risk of loss than
holders of the class A notes in the event of a shortfall in available funds or
amounts in the Reserve Fund due to losses or for any other reason. If the actual
rate and amount of losses on the student loans exceeds your expectations, and if
amounts in the Reserve Fund are insufficient to cover the resulting shortfalls,
the yield to maturity on class B notes may be lower than you anticipate and you
could suffer a loss. Class B notes are also subordinate to the class A notes as
to the direction of remedies upon an event of default under the indenture.
THE NOTES MAY HAVE A DEGREE OF BASIS RISK WHICH COULD AFFECT THE TRUST'S ABILITY
TO PAY PRINCIPAL AND INTEREST ON THE NOTES.
There is a degree of basis risk associated with the notes, especially the
LIBOR rate notes. Basis risk is the risk that shortfalls might occur because the
interest rates of the student loans and those of the notes adjust on the basis
of different indexes. If a shortfall were to occur, the trust's ability to pay
principal and/or interest on the notes could be adversely affected.
THE INTEREST RATES ON THE AUCTION RATE NOTES ARE SUBJECT TO LIMITATIONS, WHICH
COULD REDUCE YOUR YIELD
The interest rates on the auction rate notes may be limited by the maximum
rate (which will be based on the least of the LIBOR rate for a comparable period
plus a margin, 16% per annum and the highest interest rate permitted by law),
or, in certain circumstances, the lesser of a commercial paper rate plus 0.70%
per annum or the adjusted student loan rate (which is based on the actual return
on the trust's student loans, less specified administrative costs and losses
realized on the student loans during the preceding collection period). If, for
any auction period, the maximum rate is less than the auction rate determined in
accordance with the auction procedures, interest will be paid on the auction
rate notes at the maximum rate even though there may be sufficient available
funds to pay interest at the auction rate.
For an auction period on which the adjusted student loan rate applies, the
difference between the amount of interest at the auction rate determined
pursuant to the auction procedures for the auction rate notes and the amount of
interest at the adjusted student loan rate will become a carry-over amount, and
will be paid on succeeding auction rate distribution dates only to the extent
that there are funds available for that purpose and other conditions are met. It
is possible that such carry-over amount may never be paid. Any carry-over amount
not paid at the time of redemption or maturity of an auction rate note will be
extinguished. For an auction period on which the interest rate is limited by any
other component of the maximum rate, the difference between the amount of
interest at the auction rate and the amount of interest at that maximum rate
will not become a carry-over amount and will not be paid in the future.
YOUR SECURITIES MAY HAVE GREATER BASIS RISK AND THE TRUST'S ABILITY TO PAY
PRINCIPAL AND INTEREST ON YOUR NOTES MAY BE COMPROMISED IF THE COUNTERPARTY
DEFAULTS UNDER THE LIBOR DERIVATIVE PRODUCT AGREEMENT.
The trust will enter into a LIBOR derivative product agreement that is
intended to mitigate the basis risk associated with the LIBOR rate notes. If a
payment is due to the trust under the LIBOR derivative product agreement, a
default by the counterparty may reduce the amount of funds available to the
trust and thus the trust's ability to pay your principal and interest on the
notes. Moreover, the trust's ability to pay principal and interest on the notes
also may be adversely affected if the shortfall exceeds the counterparty's
obligation under the LIBOR derivative product agreement. Additionally, the LIBOR
rate notes will accrue interest based upon three-month LIBOR, while the payments
due under the LIBOR derivative product agreement is based on one-month LIBOR.
In addition, an early termination of the LIBOR derivative product agreement
may occur in a number of circumstances, including in the event that either:
o the counterparty fails to make a required payment within three business
days of the date that payment was due; or
o the counterparty fails, within 30 business days of the date on which the
credit ratings of the counterparty falls below the required ratings
specified in the agreement, to:
o procure a collateral arrangement providing for the collateralization
of the counterparty's obligations under the LIBOR derivative product
agreement that is acceptable to the parties and the applicable rating
agencies;
o procure a replacement LIBOR derivative product agreement with a
replacement counterparty who assumes the counterparty's position under
the original LIBOR derivative product agreement on substantially the
same terms or with such amendments to the agreement as may be approved
by the parties and each of the rating agencies; or
o procure confirmation from the applicable rating agencies that no such
collateral arrangement or replacement LIBOR derivative product
agreement will be required.
If an early termination occurs, the trust may no longer have the benefit of
the LIBOR derivative product agreement. You cannot be certain that the trust
will be able to enter into a substitute LIBOR derivative product agreement.
THE UNITED STATES MILITARY BUILD-UP MAY RESULT IN DELAYED PAYMENTS FROM
BORROWERS CALLED TO ACTIVE MILITARY SERVICE.
The recent build-up of the United States military has increased the number
of citizens who are in active military service. The Servicemembers Civil Relief
Act, as amended, or the Relief Act, was signed into law by the President on
December 19, 2003 and updates and replaces the Soldiers' and Sailors' Civil
Relief Act of 1940. The Relief Act limits the ability of a lender under the
Federal Family Education Loan Program to take legal action against a borrower
during the borrower's period of active duty and, in some cases, during an
additional three month period thereafter. In addition, the United States
Department of Education has issued guidelines that would extend the in-school
status, in-school deferment status, grace period status or forbearance status of
certain borrowers ordered to active duty.
We do not know how many student loans have been or may be affected by the
application of the Relief Act and the United States Department of Education's
guidelines. Payments on student loans acquired by the trust may be delayed as a
result of these requirements, which may reduce the funds available to the trust
to pay principal and interest on the notes.
The Higher Education Relief Opportunities for Students Act of 2003 (HEROES
Act of 2003) authorizes the Secretary of Education, during the period ending
September 30, 2005, to waive or modify any statutory or regulatory provisions
applicable to student financial aid programs under Title IV of the Higher
Education Act as the Secretary deems necessary to ensure that student loan
borrowers who: are serving on active military duty during a war or other
military operation or national emergency, are serving on National Guard duty
during a war or other military operation or national emergency, reside or are
employed in an area that is declared by any federal, state or local official to
be a disaster area in connection with a national emergency, or suffered direct
economic hardship as a direct result of war or other military operation or
national emergency, as determined by the Secretary, to ensure that such
recipients of student financial assistance are not placed in a worse financial
position in relation to that assistance, to ensure that administrative
requirements in relation to that assistance are minimized, to ensure that
calculations used to determine need for such assistance accurately reflect the
financial condition of such individuals, to provide for amended calculations of
overpayment, and to ensure that institutions of higher education, eligible
lenders, guaranty agencies and other entities participating in such student
financial aid programs that are located in, or whose operations are directly
affected by, areas that are declared to be disaster areas by any federal, state
or local official in connection with a national emergency may be temporarily
relieved from requirements that are rendered infeasible or unreasonable. The
Secretary was given this same authority under Public Law 107-122, signed by the
President on January 15, 2001 but the Secretary has yet to use this authority to
provide specific relief to servicepersons with loan obligations who are called
to active duty.
The number and aggregate principal balance of student loans that may be
affected by the application of the HEROES Act of 2003 is not known at this time.
Accordingly, payments received by the trust on student loans made to a borrower
who qualifies for such relief may be subject to certain limitations. If a
substantial number of borrowers of the student loans become eligible for the
relief provided under the HEROES Act of 2003, there could be an adverse effect
on the total collections on the student loans and the ability of the trust to
pay interest on the notes if there are insufficient funds in the Reserve Fund.
PROPOSED CHANGES TO THE HIGHER EDUCATION ACT MAY RESULT IN INCREASED PREPAYMENTS
ON THE STUDENT LOANS.
Bills have recently been introduced in the U.S. House of Representatives
that, if enacted into law, would permit borrowers under most consolidation loans
to refinance their student loans at lower interest rates. Any legislation that
permits borrowers to refinance existing consolidation loans at lower interest
rates could significantly increase the rate of prepayments on the trust's
student loans. A faster rate of prepayments would decrease the amount of excess
interest available to redeem offered notes. In addition, if the legislation
described above or any similar legislation is enacted into law, the length of
time that the offered notes are outstanding and their weighted average lives may
be shortened significantly.
COLLEGIATE FUNDING SERVICES EDUCATION LOAN TRUST 2004-A
GENERAL
Collegiate Funding Services Education Loan Trust 2004-A is a Delaware
statutory trust formed by the sponsor pursuant to a Trust Agreement, dated as of
April 1, 2004, by and between Collegiate Funding of Delaware, L.L.C., as
sponsor, and Wilmington Trust Company, as the Delaware Trustee, for the
transactions described in this prospectus supplement. The assets of the trust
will include student loans acquired with the proceeds of the notes sold pursuant
to this prospectus supplement, investments that we pledge to the indenture
trustee and the payments received on those student loans and investments and the
LIBOR derivative product agreement. The trust was created for the purpose of
facilitating the financing of student loans and other financial assets, and to
engage in activity in connection therewith. The trust will not engage in any
activity other than:
o acquiring, holding and managing the student loans and the other assets
of the trust, and the proceeds therefrom;
o issuing the notes; and
o engaging in other activities related to the activities listed above.
Collegiate Funding of Delaware, L.L.C. will hold all of the equity
interests in the trust. The mailing address for Collegiate Funding of Delaware,
L.L.C., is 100 Riverside Parkway, Suite 125, Fredericksburg, Virginia 22406 and
its telephone number is (540) 374-1600.
ELIGIBLE LENDER TRUSTEE
U.S. Bank National Association is the eligible lender trustee for the trust
under a trust agreement. U.S. Bank National Association is a national banking
association with offices located at 425 Walnut Street, Box CN-WN06CT,
Cincinnati, Ohio 45202, Attention: Corporate Trust Services. The eligible lender
trustee will acquire legal title on behalf of the trust to all the student loans
acquired under loan purchase agreements. The eligible lender trustee on behalf
of the trust has entered into a separate guarantee agreement with each of the
guarantee agencies described in this prospectus supplement with respect to the
trust's student loans. The eligible lender trustee qualifies as an eligible
lender and the holder of the trust's student loans for all purposes under the
Higher Education Act and the guarantee agreements. If the trust's student loans
were not owned by an eligible lender, the trust's rights to receive guarantee
agency and Department of Education payments on its student loans would be lost.
THE STUDENT LOAN OPERATIONS OF COLLEGIATE FUNDING SERVICES
EDUCATION LOAN TRUST 2004-A
LOAN PURCHASE AGREEMENTS
The eligible lender trustee will hold legal title on behalf of the trust to
student loans originated under the Federal Family Education Loan Program from
"eligible lenders" under the Higher Education Act and acquired by the trust
pursuant to the terms of a loan purchase agreement with the sponsor and
Collegiate Funding Services, L.L.C. The sponsor will sell to the trust the
student loans to be acquired by the trust on the closing date. These student
loans will have been acquired by the sponsor from Collegiate Funding Services
Resources I, LLC. The sponsor will originate all student loans that will be
acquired by the trust during the acquisition period and will sell those student
loans to the trust. The loan purchase agreement will identify the portfolio of
student loans to be purchased and will specify the purchase price to be paid for
those student loans. The sponsor will be obligated under the loan purchase
agreement to deliver each student loan note and related documentation to the
master servicer or subservicer as custodial agent for the indenture trustee, and
to deliver the instruments of transfer for the student loans as necessary for a
valid transfer of the student loans.
The sponsor and Collegiate Funding Services, L.L.C. will make
representations, warranties and covenants with respect to the student loans sold
pursuant to the loan purchase agreement, including the following:
o each student loan has been duly executed and delivered and constitutes
the legal, valid and binding obligation of the maker and the endorser,
if any, thereof, enforceable in accordance with its terms;
o the sponsor is the sole owner and holder of each student loan and has
full right and authority to sell and assign the same free and clear of
all liens, pledges or encumbrances;
o each student loan to be sold under the loan purchase agreement is
either insured or guaranteed;
o the sponsor and any independent servicer have each exercised and shall
continue until the scheduled sale date to exercise due diligence and
reasonable care in making, administering, servicing and collecting the
student loans; and
o the sponsor, or the lender that originated a student loan, has
reported the amount of origination fees, if any, authorized to be
collected with respect to the student loan pursuant to Section 438(c)
of the Higher Education Act to the Secretary of the Department of
Education for the period in which the fee was authorized to be
collected; and the sponsor or originating lender has made any refund
of an origination fee collected in connection with any student loan
which may be required pursuant to the Higher Education Act.
At the trust's or the indenture trustee's request, the sponsor and
Collegiate Funding Services L.L.C. will be obligated to repurchase any student
loan the trust purchases from the seller if:
o any representation or warranty made or furnished by the sponsor in or
pursuant to the loan purchase agreement proves to have been materially
incorrect as to the student loan;
o the Secretary of the Department of Education or a guarantee agency, as
the case may be, refuses to honor all or part of a claim filed with
respect to a student loan, including any claim for interest subsidy,
special allowance payments, insurance, reinsurance or guarantee
payments on account of any circumstance or event that occurred prior
to the sale of the student loan to the trust; or
o on account of any wrongful or negligent act or omission of the sponsor
or its servicing agent that occurred prior to the sale of a student
loan to the trust, or a defense that makes the student loan
unenforceable is asserted by a maker or endorser, if any, of the
student loan with respect to his or her obligation to pay all or any
part of the student loan.
Upon the occurrence of any of the conditions set forth above and upon the
trust's or the indenture trustee's request, the sponsor and Collegiate Funding
Services, L.L.C. will be required to pay to the indenture trustee an amount
equal to the then-outstanding principal balance of the student loan, plus the
percentage of premium paid in connection with the purchase of the student loan
and interest and special allowance payments accrued and unpaid with respect to
the student loan, plus any attorneys' fees, legal expenses, court costs,
servicing fees or other expenses incurred by the trust and the indenture trustee
in connection with the student loan and arising out of the reasons for the
repurchase.
SERVICING OF STUDENT LOANS
The trust is required under the Higher Education Act, the rules and
regulations of the guarantee agencies and the indenture to use due diligence in
the servicing and collection of student loans and to use collection practices no
less extensive and forceful than those generally in use among financial
institutions with respect to other consumer debt.
THE SERVICING AGREEMENTS
The trust has entered into a master servicing agreement with Collegiate
Funding Master Servicing, L.L.C. This agreement is for an initial term of three
years and extends automatically for successive one year periods, unless either
party gives 90 days written notice prior to the end of the initial term or any
extension of the term. The agreement also may be terminated if either party
commits a material breach that remains unremedied after a 90 day cure period.
Collegiate Funding Master Servicing, L.L.C. has entered into a subservicing
agreement with CFS-SunTech Servicing LLC, under which CFS-SunTech Servicing LLC,
an indirect-wholly-owned subsidiary of Collegiate Funding Services, L.L.C.,
assumes all of the duties of the master servicer under the master servicing
agreement for the term of the master servicing agreement.
Collegiate Funding Master Servicing, L.L.C. may enter into agreements with
other subservicers upon receipt of a written confirmation from each of the
rating agencies that such subservicing agreements will not result in a downgrade
of (or other adverse action with respect to) the notes.
Pursuant to each subservicing agreement, the subservicer will generally
agree to provide all customary post-origination student loan servicing
activities with respect to the student loans for which it is acting as
subservicer. Such services generally include maintaining custody of copies of
promissory notes and related documentation, billing for and processing payments
from borrowers, undertaking certain required collection activities with respect
to delinquent loans, submitting guarantee claims with respect to defaulted
loans, establishing and maintaining records with respect to its servicing
activities, and providing certain reports of its activities and the student loan
portfolios serviced by them. The subservicer will agree to service the student
loans in compliance with the Higher Education Act, the guidelines of the
applicable guarantee agency, and all applicable federal and state laws and
regulations.
The master servicer will pay the subservicer a monthly fee for the
servicing of student loans according to schedules set forth in the subservicing
agreement. The fees are subject to periodic increases. The subservicing
agreement will provide that the subservicer will indemnify the master servicer
for losses arising out of the subservicer's willful misconduct or negligence
with regard to the performance of its services or the breach of its obligations
under the subservicing agreement, other than incidental, special or
consequential damages. The subservicing agreement also will provide that if any
student loan is denied its guarantee by a guarantee agency or the loss of
federal interest, special allowance payments and/or insurance benefits, the
subservicer will be required to take actions to make the trust whole with
respect to such student loan; provided, however, that the subservicer will not
be liable for any error or omission which occurred prior to the date the
subservicer assumed responsibility for servicing the student loan.
The CFS-SunTech Servicing LLC subservicing agreement will be for an initial
term of three years and will automatically be extended for one additional year
each year thereafter, unless either party gives 90 days written notice prior to
the end of the initial term or any extension of the term.
Each subservicer will have the right to request an increase in its fees and
expenses during the term of the subservicing agreement by giving notice to the
master servicer. If the master servicer objects to any such increase within the
time period set forth in the subservicing agreement, the proposed increase will
not be effective and the subservicer may terminate the subservicing agreement.
However, no termination of the subservicing agreement will be effective
unless and until the master servicer enters into another agreement similar to
the subservicing agreement with another subservicer and receives a written
confirmation from each of the rating agencies that such subservicing agreement
will not result in a downgrade of (or other adverse action with respect to) the
ratings of the notes.
THE MASTER SERVICER
Collegiate Funding Master Servicing, L.L.C., a Virginia limited liability
company that is wholly owned by Collegiate Funding Services, L.L.C., will act as
master servicer pursuant to the master servicing agreement. The master servicer
will service the student loans in accordance with the specifications of the
Higher Education Act, and as set forth in the master servicing agreement.
DESCRIPTION OF CFS-SUNTECH SERVICING LLC
CFS-SunTech Servicing LLC is a Delaware limited liability company and a
wholly owned subsidiary of CFS Servicing, L.L.C., which is a wholly owned
subsidiary of Collegiate Funding Services, L.L.C. ("CFS"). CFS-SunTech
previously conducted its business as a separate company under the name SunTech,
Inc. On April 15, 2003, CFS acquired the servicing business of SunTech, Inc.
SunTech, Inc. began servicing education loans in 1990. Prior to that time, the
operation was part of the Mississippi secondary market and had serviced loans
since 1984. CFS-SunTech provides loan origination and loan servicing for lenders
and secondary markets. CFS-SunTech's operations are located in Ridgeland, MS
where as of December 31, 2003 it had approximately 222 employees and serviced a
portfolio of approximately 365,000 accounts with outstanding balances of
approximately $8.9 billion in both FFELP and private education loans.
USE OF PROCEEDS
We estimate that the proceeds from the sale of the notes, net of the
underwriting discount, will be applied as follows:
Deposit to Acquisition Fund $1,056,643,385
Deposit to Reserve Fund $ 8,006,610
Deposit to the Add-on Consolidation
Loan Fund $ 40,000,000
Deposit to Capitalized Interest Account $ 5,000,000
Total ------------------
$1,109,649,995
Approximately $___________ of the proceeds deposited to the Acquisition
Fund will be used to pay the costs of issuing the notes.
ACQUISITION OF STUDENT LOANS
The trust, acting through the eligible lender trustee, expects to use
approximately $____________of the amount deposited in the Acquisition Fund to
purchase student loans on the closing date from Collegiate Funding of Delaware,
L.L.C. and its eligible lender trustee, and to pay costs of issuing the notes.
The balance of the funds deposited into the Acquisition Fund are expected to be
used by the trust to purchase student loans originated by Collegiate Funding of
Delaware, L.L.C. during an acquisition period beginning on the closing date and
ending no later than June 30, 2004. Amounts on deposit in the Add-on
Consolidation Loan Fund will be used until December 28, 2004 by the trust to
acquire student loans that are being added to the federal consolidation loans
the trust has already acquired. The Higher Education Act permits borrowers to
add additional student loans to a consolidation loan during the 180-day period
following the origination of the consolidation loan.
Collegiate Funding of Delaware, L.L.C., acting through an eligible lender
trustee, will acquire the student loans that it is selling to the trust on the
closing date from Collegiate Funding Services Resources I, LLC, a Delaware
limited liability company affiliated with Collegiate Funding of Delaware, L.L.C.
The sponsor will originate all student loans that will be acquired by the trust
during the acquisition period and will sell those student loans to the trust.
CHARACTERISTICS OF THE STUDENT LOANS
(AS OF THE STATISTICAL CALCULATION DATE)
As of March 24, 2004, the statistical calculation date, the characteristics
of the initial pool of student loans that are expected to be purchased on the
closing date with the net proceeds of the notes offered by this prospectus
supplement were as described below. All student loans to be purchased by the
trust on the closing date and during the acquisition period will consist of
FFELP consolidation loans. The consolidation loans expected to be purchased on
the closing date and during the acquisition period were, or will be, all
disbursed after October 1, 1993 and are, or will be, 98% guaranteed by a
guarantee agency and reinsured by the Department of Education up to a maximum of
98% of the guarantee payments. Since the date for purchase of the student loans
to be acquired with the net proceeds of the notes is other than the statistical
calculation date, the characteristics of those student loans will vary from the
information presented below. As of the statistical calculation date, the student
loans had an aggregate outstanding principal balance of approximately
$723,068,369, plus accrued interest of approximately $188,521 to be capitalized
on commencement of repayment. The percentages set forth in the tables below may
not always add to 100% and the balances may not always add to $723,068,369 due
to rounding.
COMPOSITION OF THE STUDENT LOAN PORTFOLIO
(AS OF THE STATISTICAL CALCULATION DATE)
Aggregate Outstanding Principal Balance: $723,068,369
Number of Borrowers: 24,606
Average Outstanding Principal Balance Per Borrower: $29,386
Number of Loans: 41,982
Average Outstanding Principal Balance Per Loan: $17,223
Weighted Average Borrower Interest Rate: 4.37%
Weighted Average Remaining Term (Months): 272
DISTRIBUTION OF THE STUDENT LOANS BY SUBSIDY STATUS
(AS OF THE STATISTICAL CALCULATION DATE)
PERCENT OF LOANS BY
SUBSIDY STATUS NUMBER OF LOANS OUTSTANDING PRINCIPAL BALANCE OUTSTANDING BALANCE
Non-Subsidized 20,992 $368,671,071 50.99%
Subsidized 20,990 354,397,298 49.01
Total ------------- ------------------------ ------------------
41,982 $723,068,369 100.00%
DISTRIBUTION OF THE STUDENT LOANS BY BORROWER INTEREST RATE
(AS OF THE STATISTICAL CALCULATION DATE)
PERCENT OF LOANS BY
SUBSIDY STATIS NUMBER OF LOANS OUTSTANDING PRINCIPAL BALANCE OUTSTANDING BALANCE
2.50% - 2.99% 5,234 $85,211,855 11.78%
3.00% - 3.49% 6,316 117,871,895 16.30
3.50% - 3.99% 12,901 197,883,163 27.37
4.00% - 4.49% 8,089 129,222,997 17.87
4.50% - 4.99% 1,543 32,692,276 4.52
5.00% - 5.49% 1,107 21,851,569 3.02
5.50% - 5.99% 1,036 24,891,617 3.44
6.00% - 6.49% 1,023 22,403,539 3.10
6.50% - 6.99% 1,238 21,665,589 3.00
7.00% - 7.49% 835 16,967,133 2.35
7.50% - 7.99% 975 18,357,856 2.54
8.00% and greater 1,685 34,048,880 4.71
----------- --------------------- ----------------------
Total - 41,982 $723,068,369 100.00%
__________________________________
*Each student loan bears interest at a per annum rate equal to the greater
of the 90-day CP Index plus 2.64% and its stated interest rate.
DISTRIBUTION OF THE STUDENT LOANS BY SAP INTEREST RATE INDEX
(AS OF THE STATISTICAL CALCULATION DATE)
PERCENT OF LOANS BY
SAP INTEREST RATE INDEX NUMBER OF LOANS OUTSTANDING PRINCIPAL BALANCE OUTSTANDING BALANCE
91-day T-Bill Index 0 $ 0 0.00%
90-day CP Index 41,982 723,068,369 100.00
Total ----------- ----------------------- -----------------------
41,982 $723,068,369 100.00%
DISTRIBUTION OF THE STUDENT LOANS BY NUMBER OF DAYS DELINQUENT
(AS OF THE STATISTICAL CALCULATION DATE)
PERCENT OF LOANS BY
DAYS DELINQUENT NUMBER OF LOANS OUTSTANDING PRINCIPAL BALANCE OUTSTANDING BALANCE
0-30 40,081 $691,808,356 95.68%
31-60 1,505 25,064,723 3.47
61-90 375 5,811,709 0.80
90+ 21 383,581 0.05
Total -------------- --------------------- -------------------
41,982 $723,068,369 100.00%
DISTRIBUTION OF THE STUDENT LOANS BY RANGE OF PRINCIPAL BALANCE
(AS OF THE STATISTICAL CALCULATION DATE)
PERCENT OF LOANS BY
PRINCIPAL BALANCE NUMBER OF LOANS OUTSTANDING PRINCIPAL BALANCE OUTSTANDING BALANCE
Less than $10,000.00 1,035 $ 8,481,558 1.17%
$10,000.00 - $14,999.99 6,620 82,538,253 11.41
$15,000.00 - $19,999.99 5,036 87,292,809 12.07
$20,000.00 - $24,999.99 2,840 63,360,541 8.76
$25,000.00 - $29,999.99 1,749 47,774,230 6.61
$30,000.00 - $34,999.99 1,379 44,621,145 6.17
$35,000.00 - $39,999.99 1,046 39,064,169 5.40
$40,000.00 - $44,999.99 813 34,410,862 4.76
$45,000.00 - $49,999.99 655 31,013,948 4.29
$50,000.00 - $54,999.99 567 29,710,720 4.11
$55,000.00 - $59,999.99 395 22,726,269 3.14
$60,000.00 - $64,999.99 367 22,883,018 3.16
$65,000.00 - $69,999.99 324 21,826,837 3.02
$70,000.00 - $74,999.99 246 17,801,504 2.46
$75,000.00 - $79,999.99 227 17,596,421 2.43
$80,000.00 - $84,999.99 192 15,830,489 2.19
$85,000.00 - $89,999.99 146 12,754,180 1.76
$90,000.00 - $94,999.99 137 12,639,790 1.75
$95,000.00 - $99,999.99 107 10,414,643 1.44
$100,000.00 and greater 725 100,326,985 13.88
Total --------------- -------------------- -------------------
24,606 $723,068,369 100.00%
DISTRIBUTION OF THE STUDENT LOANS BY
NUMBER OF MONTHS REMAINING IN REPAYMENT
(AS OF THE STATISTICAL CALCULATION DATE)
Number of PERCENT OF LOANS BY
MONTHS REMAINING* NUMBER OF LOANS OUTSTANDING PRINCIPAL BALANCE OUTSTANDING BALANCE
48 to 59 124 $ 999,860 0.14%
60 to 71 144 1,399,621 0.19
72 to 83 109 1,043,031 0.14
84 to 95 126 1,383,293 0.19
96 to 107 84 1,093,266 0.15
108 to 119 705 7,485,456 1.04
120 to 131 559 5,983,472 0.83
132 to 143 406 2,510,939 0.35
144 to 155 394 2,700,095 0.37
156 to 167 30 311,887 0.04
168 to 179 7,278 65,836,428 9.11
180 to 191 9,507 87,063,134 12.04
192 to 203 123 1,082,939 0.15
204 to 215 45 509,446 0.07
216 to 227 55 676,471 0.09
228 to 239 5,019 74,197,772 10.26
240 to 251 7,341 111,593,334 15.43
252 to 263 75 1,205,208 0.17
264 to 275 47 717,608 0.10
276 to 287 46 914,287 0.13
288 to 299 1,718 42,287,866 5.85
300 to 311 3,100 77,378,564 10.70
312 to 323 69 1,736,490 0.24
324 to 335 17 396,643 0.05
336 to 347 37 1,394,960 0.19
348 to 359 1,505 70,217,766 9.71
360 and greater 3,319 160,948,529 22.26
Total ------------- --------------------- ------------------------
41,982 $723,068,369 100.00%
_____________________________________
* Does not give affect to any deferral or forbearance periods that may be
granted in the future.
DISTRIBUTION OF THE STUDENT LOANS BY REPAYMENT TERMS
(AS OF THE STATISTICAL CALCULATION DATE)
PERCENT OF LOANS BY
LOAN REPAYMENT TERMS NUMBER OF LOANS OUTSTANDING PRINCIPAL BALANCE OUTSTANDING BALANCE
Graduated Repayment* 22,261 $397,464,935 54.97%
Level Repayment 19,721 325,603,434 45.03
Total -------------- ------------------------- --------------------
41,982 $723,068,369 100.00%
_____________________________________
* Graduated repayment loans include loans with interest-only periods.
DISTRIBUTION OF THE STUDENT LOANS BY BORROWER PAYMENT STATUS
(AS OF THE STATISTICAL CALCULATION DATE)
PERCENT OF LOANS BY
BORROWER PAYMENT STATUS NUMBER OF LOANS OUTSTANDING PRINCIPAL BALANCE OUTSTANDING BALANCE
Repayment 40,078 $675,230,966 93.38%
Deferment 1,263 30,109,924 4.16
Forbearance 641 17,727,480 2.45
Total --------------- --------------------- ---------------------
41,982 $723,068,369 100.00%
DISTRIBUTION OF THE STUDENT LOANS BY GEOGRAPHIC LOCATION
(AS OF THE STATISTICAL CALCULATION DATE)
The following chart shows the geographic distribution of the student loans
based on the permanent billing addresses of the borrowers as shown on the
subservicer's records:
PERCENT OF LOANS BY
LOCATION NUMBER OF LOANS OUTSTANDING PRINCIPAL BALANCE OUTSTANDING BALANCE
Alabama 790 $ 13,175,776 1.82%
Alaska 80 1,411,774 0.20
Arizona 822 14,108,037 1.95
Arkansas 250 4,352,866 0.60
California 4,317 79,710,740 11.02
Colorado 825 15,729,386 2.18
Connecticut 458 9,583,853 1.33
Delaware 102 1,590,110 0.22
Florida 2,078 37,046,690 5.12
Georgia 1,598 27,700,976 3.83
Hawaii 140 2,851,690 0.39
Idaho 342 5,105,354 0.71
Illinois 1,943 32,774,598 4.53
Indiana 626 10,118,209 1.40
Iowa 586 7,732,835 1.07
Kansas 349 5,634,508 0.78
Kentucky 433 6,720,413 0.93
Louisiana 463 8,700,860 1.20
Maine 212 3,048,549 0.42
Maryland 941 16,989,387 2.35
Massachusetts 1,062 17,982,809 2.49
Michigan 1,803 28,908,666 4.00
Minnesota 931 14,390,240 1.99
Missouri 888 14,784,071 2.04
Montana 150 2,102,368 0.29
Nebraska 293 4,357,046 0.60
Nevada 263 4,572,309 0.63
New Hampshire 188 3,431,930 0.47
New Jersey 1,204 21,050,780 2.91
New Mexico 239 4,579,453 0.63
New York 3,077 54,212,294 7.50
North Carolina 1,488 23,387,493 3.23
North Dakota 30 369,848 0.05
Ohio 2,471 39,037,318 5.40
Oklahoma 319 5,279,831 0.73
Oregon 863 13,898,787 1.92
Pennsylvania 1,725 33,184,772 4.59
Rhode Island 168 3,009,695 0.42
South Carolina 541 9,940,670 1.37
South Dakota 101 1,812,041 0.25
Tennessee 495 9,196,197 1.27
Texas 2,053 37,737,594 5.22
Utah 121 2,646,418 0.37
Vermont 71 994,021 0.14
Virginia 1,236 20,991,727 2.90
Washington 1,163 19,289,316 2.67
Washington D.C. 227 4,352,324 0.60
West Virginia 347 5,279,456 0.73
Wisconsin 983 15,479,320 2.14
Wyoming 45 871,105 0.12
Other 82 1,851,857 0.26
Total -------------- ----------------------- -------------------------
41,982 $723,068,369 100.00%
DISTRIBUTION OF THE STUDENT LOANS BY GUARANTEE AGENCY
(AS OF THE STATISTICAL CALCULATION DATE)
OUTSTANDING PRINCIPAL PERCENT OF LOANS BY
GUARANTOR NUMBER OF LOANS BALANCE OUTSTANDING BALANCE
American Student Assistance Guarantor 26,243 $465,924,201 64.44%
Texas Guaranteed Student Loan Corporation 13,152 209,892,824 29.03
Great Lakes Higher Education Guaranty
Corporation 2,584 47,126,253 6.52
California Student Aid Commission 3 125,092 0.02
Total -------------- -------------------- ------------------
41,982 $723,068,369 100.00%
INFORMATION RELATING TO THE GUARANTEE AGENCIES
The payment of principal and interest on all of the trust's student loans
will be guaranteed by designated guarantee agencies and will be reinsured by the
United States Department of Education. The guarantee provided by each guarantee
agency is an obligation solely of that guarantee agency and is not supported by
the full faith and credit of the federal or any state government. However, the
Higher Education Act provides that if the Secretary of Education determines that
a guarantee agency is unable to meet its insurance obligations, the Secretary
shall assume responsibility for all functions of the guarantee agency under its
loan insurance program. For further information on the Secretary of Education's
authority in the event a guarantee agency is unable to meet its insurance
obligations see "Description of the Guarantee Agencies" in the prospectus.
PRESENTED BELOW IS INFORMATION WITH RESPECT TO ASA, GLHEGC AND TG (EACH AS
DEFINED BELOW). EXCEPT AS OTHERWISE INDICATED, THIS INFORMATION HAS BEEN
OBTAINED FROM ASA, GLHEGC AND TG, RESPECTIVELY. NEITHER THE TRUST NOR THE
UNDERWRITERS HAVE INDEPENDENTLY VERIFIED THIS INFORMATION.
AMERICAN STUDENT ASSISTANCE
The Massachusetts Higher Education Assistance Corporation d/b/a American
Student Assistance ("ASA"), a Massachusetts not-for-profit corporation organized
in 1956, headquartered in Boston, Massachusetts, will guarantee a portion of the
student loans. ASA is one of the oldest and largest guaranty agencies in the
United States, and is the designated guarantor for the Commonwealth of
Massachusetts and the District of Columbia. Since 1956, ASA has been a leading
provider of higher education financing products and services to students,
parents, schools and lenders across the country, guaranteeing more than $13
billion in loans. Originally created by the General Court of the Commonwealth of
Massachusetts as the Massachusetts Higher Education Assistance Corporation, ASA
currently acts on behalf of the U.S. Department of Education to ensure that the
public policy purposes and regulatory requirements of the FFEL Program are met.
ASA employed 460 individuals as of January 1, 2004 as its principal offices
located at 330 Stuart Street, Boston, MA 02116.
GUARANTY VOLUME. The following table sets forth the principal balance of
FFELP Loans (excluding Consolidation Loans) guaranteed by ASA in each of the
last seven ASA fiscal years:
NET FFELP LOANS
FISCAL YEAR GUARANTEED BY ASA
(ENDING JUNE 30) (DOLLARS IN MILLIONS)
1997 $639
1998 645
1999 656
2000 683
2001 680
2002 779
2003 914
Under the Higher Education Act, ASA and the U.S. Secretary of Education as
of January 1, 2001 entered into a voluntary flexible agreement ("VFA"). Under
the VFA, ASA returned its reserve funds that would otherwise have made up its
Federal Reserve Fund through an escrow account in the name of the Department of
Education. In the event a loan defaults, ASA receives funding from the
Department of Education to act as a disbursing agent. The guarantee is,
therefore, no longer limited by the funds on deposit in a federal reserve fund.
Because ASA holds no federal reserve fund, the concept of a Reserve Ratio is
irrelevant. The VFA establishes a "fee for service" model under which ASA is
rewarded through the payment of a portfolio maintenance fee or maintaining a
healthy portfolio of loans in good standing. The agency is doubly incented to
keep the loans in good standing and to work with borrowers to prevent default
because the portfolio maintenance fee increases as ASA's trigger default rate
improves over the national trigger default rate. ASA's efforts to prevent
default are a part of its "Wellness" program of outreach to borrowers from the
inception of the loan to educate them on their responsibilities and assist them
in making repayment.
RECOVERY RATES. A Guarantee Agency's recovery rate, which provides a
measure of the effectiveness of the collection efforts against defaulting
borrowers after the guarantee claim has been satisfied, is determined by
dividing the aggregate amount recovered from borrowers by the aggregate amount
of default claims paid by the Guarantee Agency. The table below sets forth the
recovery rates for ASA as taken from the Department of Education Guarantee
Agency Activity Report form 1130:
FEDERAL FISCAL YEAR RECOVERY RATE
1997 42.7%
1998 49.0
1999 56.4
2000 77.7
2001 61.1
2002 63.8
2003 67.8
CLAIMS RATE. ASA's claims rate represents the percentage of loans in
repayment at the beginning of a federal fiscal year which default during the
ensuing federal fiscal year. For the federal years 1997-2001, ASA's claims rate
listed below have not exceeded 5%, and as a result, all claims of ASA have been
fully reimbursed at the maximum allowable level by the Department of Education.
See "Description of the Federal Family Education Loan Program" in the prospectus
for more detailed information concerning the FFELP program. Nevertheless, there
can be no assurance the Guarantee Agencies will continue to receive full
reimbursement for such claims. The following table sets forth the claims rate of
ASA for the last seven federal fiscal years:
FEDERAL FISCAL YEAR CLAIMS RATE
1997 3.5%
1998 2.8
1999 1.6
2000 1.0
2001 1.3
2002 1.2
2003 0.92
NET LOAN DEFAULT CLAIMS. The following table sets forth the dollar value of
Default Claims paid net of repurchases and refunds for the last seven years.
FEDERAL FISCAL YEAR DEFAULT CLAIMS
(DOLLARS IN MILLIONS)
1997 $140
1998 122
1999 82
2000 53
2001 64
2002 72
2003 80
DEFAULT RECOVERIES. The following table sets forth the amount of recoveries
returned to the U.S. Department of Education for the last seven years.
FEDERAL FISCAL YEAR DEFAULT CLAIMS
(DOLLARS IN MILLIONS)
1997 $68
1998 73
1999 76
2000 92
2001 82
2002 86
2003 79
GREAT LAKES HIGHER EDUCATION GUARANTY CORPORATION
Great Lakes Higher Education Guaranty Corporation ("GLHEGC") is a Wisconsin
nonstock, nonprofit corporation the sole member of which is Great Lakes Higher
Education Corporation ("GLHEC"). GLHEGC's predecessor organization, GLHEC, was
organized as a Wisconsin nonstock, nonprofit corporation and began guaranteeing
student loans under the Higher Education Act in 1967. GLHEGC is the designated
guarantee agency under the Higher Education Act for Wisconsin, Minnesota, Ohio,
Puerto Rico and the Virgin Islands. On January 1, 2002, GLHEC (and GLHEGC
directly and through its support services agreement with GLHEC), transferred the
majority of their student loan program guaranty support operations and personnel
to Great Lakes Educational Loan Services, Inc. ("GLELSI") a wholly owned
subsidiary of GLHEC. GLHEGC continues as the "guaranty agency" as defined in
Section 435(j) of the Higher Education Act and continues its default aversion,
claim purchase and compliance, collection support and federal reporting
responsibilities as well as custody and responsibility for all revenues,
expenses and assets related to that status. GLHEGC (through its support services
agreement with GLHEC) also performs oversight of all student loan program
guaranty support operations transferred to GLELSI and supportive of GLHEGC's
"guaranty agency" responsibilities. The primary operations center for GLHEC and
its affiliates (including GLHEGC and GLELSI) is in Madison, Wisconsin, which
includes the data processing center and operational staff offices for both
guaranty and servicing functions. GLHEC and affiliates also maintain regional
offices in Columbus, Ohio and St. Paul, Minnesota and customer support staff
located nationally. GLHEGC will provide a copy of GLHEC's most recent
consolidated financial statements on receipt of a written request directed to
2401 International Lane, Madison, Wisconsin 53704, Attention: Chief Financial
Officer.
GLHEGC has entered into a voluntary flexible agreement with the U.S.
Department of Education pursuant to the 1998 Reauthorization Amendments. Under
GLHEGC's agreement, which commenced October 1, 2000 and is currently effective
through September 30, 2004, GLHEGC's revenues are tied directly to default
aversion performance. Certain sources of GLHEGC's Operating Fund revenues are
replaced by a single fee-for-service funding source tied directly to the
percentage of delinquent loans that do not default during the measurement
period. In lieu of statutory collection retention amounts, the U.S. Department
of Education reimburses GLHEGC only for its actual post-default collection
related expenses. This agreement also calls for GLHEGC to escrow the liquid
assets of GLHEGC's Federal Fund for the benefit of the U.S. Department of
Education. GLHEGC may also engage in negotiations with lenders to define whether
the lender or GLHEGC will complete each of the due diligence requirements.
Finally, this agreement allows GLHEGC to pilot a new approach to the claims
review process, under which GLHEGC develops and implements with willing lenders
and servicers a post-claim random sampling process that replaces the current
claim-by-claim process. The GLHEGC agreement is automatically renewed for
one-year effective periods, unless terminated 90 days prior to the end of an
effective period (a pending amendment would make the agreement subject to
termination by either party on ninety (90) days notice).
The information in the following tables has been provided to the trust from
reports provided by or to the U.S. Department of Education and has not been
verified by the trust, GLHEGC or the initial purchasers. No representation is
made by the trust, GLHEGC or the initial purchasers as to the accuracy or
completeness of this information. Prospective investors may consult the United
States Department of Education Data Books and Web site
HTTP://WWW.ED.GOV/FINAID/PROF/RESOURCES/DATA/OPELOANVOL.HTML for further
information concerning GLHEGC or any other guarantee agency.
GUARANTEE VOLUME. GLHEGC's guaranty volume for each of the last five
federal fiscal years, including Stafford, Unsubsidized Stafford, SLS, PLUS and
Consolidation loan volume was as follows:
FEDERAL FISCAL YEAR GUARANTY VOLUME (MILLIONS)
1999 1,736.0
2000 2,141.9
2001 2,246.7
2002 4,473.1
2003 8,721.3
RESERVE RATIO. Following are GLHEGC's reserve fund levels as calculated in
accordance with 34 CFR 682.410(a)(10) for the last five federal fiscal years:
CUMULATIVE CASH RESERVES TOTAL LOANS OUTSTANDING* FEDERAL GUARANTY RESERVE
FEDERAL FISCAL YEAR (MILLIONS) (MILLIONS) FUND LEVEL
1999 $124.5 4,885 2.55%
2000 116.5 5,495 2.12
2001 116.4 5,494 2.12
2002 138.0 7,408 1.86
2003 158.0 12,618 1.25
_______________
* In accordance with Section 428(c)(9) of the Higher Education Act, does not
include loans transferred from the former Higher Education Assistance
Foundation, NorthStar Guarantee Inc., Ohio Student Aid Commission or Puerto Rico
Higher Education Assistance Corporation. (Beginning in FFY 1999, under the
Higher Education Act, the federal guaranty reserve fund balance is based on net
assets with a reserve requirement of .25% as compared to .50% for prior years.)
CLAIMS RATE. For the past five federal fiscal years, GLHEGC's claims rate
has not exceeded 5%, and, as a result, the highest allowance reinsurance has
been paid on all GLHEGC's claims. The actual claims rates are as follows:
FISCAL YEAR CLAIMS RATE
1999 1.28%
2000 1.17
2001 1.46
2002 1.06
2003 1.27
TEXAS GUARANTEED STUDENT LOAN CORPORATION
ORGANIZATION. The Texas Guaranteed Student Loan Corporation (TG) is a Texas
public non-profit corporation organized in 1980 by the Texas legislature to
operate as a guarantee agency in what is now known as the Federal Family
Education Loan Program (FFELP), providing a Federally reinsured guaranty of
eligible Stafford, PLUS and consolidation student loans. Located at 301 Sundance
Parkway, Round Rock, Texas 78681, TG is governed by nine directors appointed by
the Governor of Texas in addition to the State Comptroller, and is staffed by
more than 550 employees.
GUARANTEE VOLUME. Approximate annual loan guarantee volume is as follows
(in billions):
LOAN GUARANTEE VOLUME
EXCLUDING INCLUDING
CONSOLIDATION CONSOLIDATION
FEDERAL FISCAL YEAR LOANS LOANS
2001 $1.68 $2.04
2002 1.97 2.67
2003 2.47 3.66
PORTFOLIO LOANS. Loan default rates for students attending proprietary
schools typically exceed that for two-year and four-year schools. School type
mix for the most current Federal fiscal year and for the total portfolio are as
follows:
FEDERAL TOTAL PORTFOLIO
FISCAL YEAR AS OF
SCHOOL TYPE 2003 SEPTEMBER 30, 2003
Four year 85% 85%
Two year 7 7
Proprietary 8 8
Including consolidation loans, the Federal fiscal year 2003 portfolio is
comprised of 57% four year, 5% two year, 5% proprietary, and 33% consolidation.
RESERVES. Prior to implementation of Voluntary Flexible Agreement ("VFA")
provisions on March 31, 2001, TG maintained net assets as reserves in operating
the FFEL program at or exceeding Federally established requirements for FFELP
guarantors. Such reserves were considered United States property and accordingly
were subject to recall by the Federal government. Beginning in Federal fiscal
year 1999, pursuant to the 1998 Higher Education Act Reauthorization
("Reauthorization"), TG's Federal Fund was TG's Federal Reserve. TG's reserve
ratio for recent Federal fiscal years ended September 30 is presented below.
Under provisions of the VFA, effective March 31, 2001, TG escrowed all
Federal Reserve assets in a joint TG/US Department of Education ("ED") account,
and received 100% reinsurance from ED on all FFELP guarantee claims paid
subsequent to that date. The VFA provides for reinstatement of TG's Federal
Reserve upon termination of the VFA.
Federal Federal Reserve Excluding Including
Fiscal Year NET ASSETS CONSOLIDATION LOANS CONSOLIDATION LOANS
Ended Cash Accrual Loans RESERVE RATIO Loans RESERVE RATIO
SEPTEMBER 30, BASIS (2) BASIS (3) OUTSTANDING (4)CASH BASIS ACCRUAL BASIS OUTSTANDING (4) CASH BASIS ACCRUAL BASIS
(in millions) (in billions) (in billions)
1999 $ 131.42(5) $147.23(5) $ 8.28 1.58% 1.78% $ 10.45 1.26% 1.41%
2000 137.39(5) 149.98(5) 8.86 1.55 1.69 11.45 1.20 1.31
2001 N/A(1) N/A(1)
2002 N/A(1) N/A(1)
2003 N/A(1) N/A(1)
(1) Under provisions of the VFA, effective March 31, 2001, TG escrowed all
Federal Reserve assets in a joint TG/US Department of Education (ED)
account, and received 100% reinsurance from ED on all FFELP guarantee
claims paid subsequent to that date. The VFA provides for reinstatement of
TG's Federal Reserve upon termination of the VFA.
(2) The statutory cash basis reserve consists of cash, cash equivalents, and
marketable securities.
(3) The accrual basis reserve includes the cash basis reserve as well as
transaction settlements in process between TG and the U. S. Department of
Education (ED) for claims reinsurance, administrative expense allowance,
and collection activities, and reflects return of reserves in the period
such assets are deposited in the specified restricted account. This measure
of reserve eliminates the impact of inconsistent ED settlement timing for
fiscal year-end transactions.
(4) The Federal Reserve ratio is computed based upon the original principal
balance of loans outstanding. This differs from the TG specific Guarantee
Reserve ratio referred to in various lender participation agreements which
is calculated using the estimated current principal outstanding on loans
guaranteed.
(5) Net Assets are reduced by required deposits to the Balanced Budget Act of
1997 reserve return restricted account, totaling $11.33 million at
September 30, 2000.
The Balanced Budget Act of 1997 required the return of $1 billion in Federal
reserves from the FFELP guarantee agencies, of which TG's portion, $28.88
million, was remitted to the U.S. Treasury in September 2002. Reauthorization
requires an additional $250 million return of reserves of which TG's portion is
$12.75 million. The first installment of $4.33 million was remitted to the U.S.
Treasury in September 2002, with the remainder payable in two installments
scheduled for fiscal years 2006, and 2007 from escrowed reserves.
CLAIMS RATE. TG's claims rate represents the percentage of Federal
reinsurance claims made by TG during a Federal fiscal year relative to TG's
portfolio of loans designated as "in repayment" at the end of the prior Federal
fiscal year. TG's historical claims rates are as follows:
FEDERAL CLAIMS
FISCAL YEAR RATE
1999 2.40%
2000 2.00
2001 2.75
2002 3.24
2003 2.53
VOLUNTARY FLEXIBLE AGREEMENT. TG entered into a VFA with ED, effective
October 1, 2000. TG's VFA increases the focus upon borrower delinquency and
default prevention, and includes: the escrow of all Federal Reserves coupled
with 100% ED reinsurance of default claims; continuance of loan processing and
issuance fees and account maintenance fees revenues as provided under the Act
(the LPIF rate is scheduled to decrease from 0.65% to 0.40% for loans guaranteed
after September 30, 2003) ; a new Delinquency Prevention Fee with an .05% annual
base rate of TG's Loans in Repayment portfolio, with performance rate increases
based upon reductions in annual Default Aversion Assistance Requests; an
increased base default aversion fee rate to 1.25% with performance rate
increases based upon cure performance; and a reduction in borrower payment
collections to 19.5% with performance rate increases for all collection types
based upon collection performance. The VFA provides for reinstatement of TG's
Federal Reserve upon termination of the VFA.
NO LIABILITY TO OWNERS. The information concerning TG in this prospectus
supplement has been provided for the sole purpose of describing TG's function as
guarantor of certain of the student loans. TG has no obligation or liability of
any kind to the holders of the notes or to pay the principal or interest on the
notes.
MISCELLANEOUS. Liabilities created by TG are not debts of the State of
Texas and TG may not secure any liability with funds or assets of the State
except as otherwise provided in the final sentence of this paragraph. TG is
subject to the Texas Sunset Act (Chapter 325, Government Code) and, unless
continued in existence as provided by such act, TG will be abolished on
September 1, 2005. If TG is abolished, the Comptroller of Public Accounts of the
State of Texas is required under the Education Code to serve as trustee to
administer the assets of TG and satisfy its outstanding obligations.
TG has not reviewed any other section of this prospectus supplement or the
attached prospectus and shall have no responsibility of any information
contained therein.
DESCRIPTION OF THE NOTES
GENERAL
The notes will be issued pursuant to the terms of an Indenture of Trust
dated as of April 1, 2004, between the trust and U.S. Bank National Association,
as indenture trustee and eligible lender trustee. The following summary
describes some of the terms of the indenture and the notes. However, it is not
complete and is qualified in its entirety by the actual provisions of the
indenture and the notes.
INTEREST PAYMENTS
Interest will accrue on the notes at their respective interest rates during
each interest accrual period and, in the case of the LIBOR rate notes, will be
payable to the noteholders on each quarterly distribution date, commencing
September 28, 2004. Subsequent distribution dates for the LIBOR rate notes will
be on the 28th of each March, June, September and December, or if any such day
is not a business day, the next business day. Interest on the auction rate notes
will be payable to the noteholders on the business day following the end of each
auction period. Interest accrued but not paid on any distribution date will be
due on the next distribution date together with an amount equal to interest on
the unpaid amount at the applicable rate per annum described below. Any such
shortfall will be allocated pro rata to the noteholders, based on the total
amount of interest due on each class of notes.
The interest rate on the class A-1 notes for each interest accrual period
will be equal to three-month LIBOR, except for the initial interest accrual
period, as determined on the second business day prior to such interest accrual
period, plus ____%. The interest rate on the class A- 2 notes for each interest
accrual period will be equal to three-month LIBOR, except for the initial
interest accrual period, as determined on the second business day prior to such
interest accrual period, plus ____%. The interest rate on the class A-3 notes
for each interest accrual period will be equal to three-month LIBOR, except for
the initial interest accrual period, as determined on the second business day
prior to such interest accrual period, plus ____%. The interest rate on the
class A-4 notes for each interest accrual period will be equal to three-month
LIBOR, except for the initial interest accrual period, as determined on the
second business day prior to such interest accrual period, plus ____%.
For the initial interest accrual period, the LIBOR rate notes will bear
interest at an annual rate equal to five-month LIBOR, plus the applicable
margin.
CALCULATION OF LIBOR
For each interest accrual period, LIBOR will be determined by the indenture
trustee by reference to the London interbank offered rate for deposits in U.S.
dollars having a maturity of three months which appears on Telerate Page 3750 as
of 11:00 a.m., London time, on the related LIBOR determination date. The LIBOR
determination date will be the second business day before the beginning of each
interest accrual period. If this rate does not appear on Telerate Page 3750, the
rate for that day will be determined on the basis of the rates at which deposits
in U.S. dollars, having the relevant maturity and in a principal amount of not
less than U.S. $1,000,000, are offered at approximately 11:00 a.m., London time,
on that LIBOR determination date, to prime banks in the London interbank market
by four major banks selected by the indenture trustee. The indenture trustee
will request the principal London office of each bank to provide a quotation of
its rate. If the banks provide at least two quotations, the rate for that day
will be the arithmetic mean of the quotations. If the banks provide fewer than
two quotations, the rate for that day will be the arithmetic mean of the rates
quoted by major banks in New York City, selected by the administrator, at
approximately 11:00 a.m., New York time, on that LIBOR determination date, for
loans in U.S. Dollars to leading European banks having the relevant maturity and
in a principal amount of not less than U.S. $1,000,000. If the banks selected as
described above are not providing quotations, LIBOR in effect for the applicable
interest accrual period will be LIBOR in effect for the previous accrual period.
CALCULATION OF THE AUCTION RATE
For each auction period, the auction rate for each of the class A-5, class
A-6 and class B notes will be the least of the maximum rate, the adjusted
student loan rate, and the rate determined on the related auction date pursuant
to the auction procedures described under "Description of the Notes--Auction
rate notes" in the prospectus. However, the interest rates on the auction rate
notes for the initial interest accrual period will be determined by the
underwriters prior to the closing date.
PRINCIPAL DISTRIBUTIONS
Principal payments will be made to the noteholders in an amount generally
equal to the lesser of:
o the principal distribution amount for that distribution date, which
includes any shortfall in the payment of the principal distribution amount
on the preceding distribution date; and
o funds available for the payment of principal as described below under
"-Flow of Funds."
There may not be sufficient funds available to pay the full principal
distribution amount on each quarterly distribution date. Amounts on deposit in
the Reserve Fund, other than amounts in excess of the Reserve Fund minimum
balance that are transferred to the Collection Fund, will not be available to
make principal payments on the notes except upon their final maturity.
Principal will be paid on the notes on the dates and in the order and
priority described below under "-Flow of Funds."
The aggregate outstanding principal balance of the class A-1 notes will be
due and payable in full by the December 30, 2013 quarterly distribution date,
the aggregate outstanding principal balance of the class A-2 notes will be due
and payable in full by the June 28, 2021 quarterly distribution date, the
aggregate outstanding principal balance of the class A-3 notes will be due and
payable in full by the September 28, 2026 quarterly distribution date, the
aggregate outstanding principal balance of the class A-4 notes will be due and
payable in full by the September 30, 2030 quarterly distribution date, the
aggregate outstanding principal balance of the class A-5 notes will be due and
payable in full by the December 28, 2043 quarterly distribution date and the
aggregate outstanding principal balance of the class A-6 notes will be due and
payable in full by the December 28, 2043 quarterly distribution date. The
aggregate outstanding principal balance of the class B notes will be due and
payable in full by the December 28, 2043 quarterly distribution date. The actual
date on which the final distribution on a class of notes will be made may be
earlier than the maturity dates set forth above as a result of a variety of
factors.
The term "Principal Distribution Amount" means, for each quarterly
distribution date, the amount by which the aggregate outstanding principal
amount of all the notes immediately prior to that quarterly distribution date
exceeds the quotient obtained by dividing the Adjusted Pool Balance, as of the
last day of the related collection period, by 100.75%.
For the September 2004 quarterly distribution date, the "Principal
Distribution Amount" also will include any amounts transferred from the
Acquisition Fund to the Collection Fund during the initial collection period.
For the December 2004 quarterly distribution date, the "Principal Distribution
Amount" also will include any amounts transferred from the Add-on Consolidation
Loan Fund to the Collection Fund during the preceding collection period.
For this purpose, "Adjusted Pool Balance" means, for any quarterly
distribution date, the sum of that Pool Balance and the required minimum balance
of the Reserve Fund for that distribution date.
"Pool Balance" for any date means the aggregate principal balance of the
student loans held by the trust on that date, including accrued interest that is
expected to be capitalized, plus amounts on deposit in the Acquisition Fund and
the Add-on Consolidation Loan Fund, as reduced by the principal portion of:
o all payments received by the trust through that date from borrowers, the
guarantee agencies and the Department of Education;
o all amounts received by the trust through that date from purchases of
student loans;
o all liquidation proceeds and realized losses on the student loans through
that date;
o the amount of any adjustment to balances of the student loans that a
subservicer makes under its subservicing agreement through that date; and
o the amount by which guarantor reimbursements of principal on defaulted
student loans through that date are reduced from 100% to 98%, or other
applicable percentage, as required by the risk sharing provisions of the
Higher Education Act.
FLOW OF FUNDS
Prior to each distribution date or auction rate distribution date, the
administrator will provide the indenture trustee with certain information,
including the amount of funds received on account of the trust's student loans
and available in the Collection Fund. Each month, the administrator will
instruct the indenture trustee to withdraw amounts from the Collection Fund to
pay:
o amounts owed to the U.S. Department of Education with respect to student
loans owned by the trust;
o any servicing fees due to the master servicer for the prior month; and
o amounts due the counterparty under the LIBOR derivative product agreement
(other than for termination payments).
On each quarterly distribution date or auction rate distribution date, as
applicable, prior to an event of default under the indenture, the administrator
will instruct the indenture trustee to make the following deposits and
distributions, to the extent such amounts are due and payable on that date and
funds are available, in the following order:
o to the U.S. Department of Education amounts owed with respect to student
loans owned by the trust;
o to the master servicer, the indenture trustee, the auction agent, the
broker dealers and the Delaware trustee, pro rata, the servicing fees, the
trustees' fees and the auction agent fees and broker dealer fees;
o to the payment of the administration fees and any prior unpaid
administration fees;
o to the class A noteholders and the counterparty, pro rata, to pay interest
due on the class A notes and amounts due to the counterparty (which in the
case of termination payments will be limited to priority termination
payments);
o to the class B noteholders to pay interest due on the class B notes;
o to the class A-1 noteholders, to pay the principal distribution amount
until the outstanding balance on the class A-1 notes is reduced to zero;
o to the class A-2 noteholders, to pay the principal distribution amount
until the outstanding balance on the class A-2 notes is reduced to zero;
o to the class A-3 noteholders, to pay the principal distribution amount
until the outstanding balance on the class A-3 notes is reduced to zero;
o to the class A-4 noteholders, to pay the principal distribution amount
until the outstanding balance on the class A-4 notes is reduced to zero;
o to the class A-5 noteholders, in lots of $50,000, to pay the principal
distribution amount until the outstanding balance on the class A-5 notes is
reduced to zero;
o to the class A-6 noteholders, in lots of $50,000, to pay the principal
distribution amount until the outstanding balance on the class A-6 notes is
reduced to zero;
o to the class B noteholders, in lots of $50,000, to pay the principal
distribution amount until the outstanding balance on the class B notes is
reduced to zero;
o to the Reserve Fund, the amount, if any, necessary to restore the Reserve
Fund to the Reserve Fund minimum balance;
o to the class A-5 and class A-6 noteholders, pro rata, any unpaid carry-over
amounts;
o to the class B noteholders, any unpaid carry-over amounts;
o to the counterparty, any unreimbursed termination payments due under the
terms of the LIBOR derivative product agreement;
o to the master servicer, any unpaid carry-over servicing fee;
o if the student loans are not sold pursuant to the optional purchase or
mandatory auction, to pay as accelerated payment of principal to the
holders of the notes and in the order and priority described above, until
they have been paid in full; and
o on a quarterly distribution date, to the sponsor, any remaining amounts,
less the portion, if any, of the principal distribution amount allocated
but not paid to a class of auction rate notes on that quarterly
distribution date.
However, on each quarterly distribution date all deposits and distributions
made following the fifth item above will be made only with money in the
Collection Fund that exceeds the accrued interest amount.
For each quarterly distribution date, the "accrued interest amount" will
equal the amount of interest that will be owing on each class of auction rate
notes on the first auction rate distribution date for each class following the
quarterly distribution date, other than any class as to which that quarterly
distribution date is an auction rate distribution date.
The principal distribution amount will be determined and allocated to
classes of notes only on quarterly distribution dates.
If a class of LIBOR rate notes is allocated some or all of the principal
distribution amount on a quarterly distribution date, that class also will be
paid that amount on that quarterly distribution date.
If a class of auction rate notes is allocated some or all of the principal
distribution amount on a quarterly distribution date, that class will be paid
that amount on that quarterly distribution date only if it is an auction rate
distribution date for that class. Principal allocated but not paid to a class of
auction rate notes on a quarterly distribution date will be paid to that class
on its next auction rate distribution date.
With the consent of the rating agencies, we may distribute principal on the
class B notes before the outstanding balance of each class A note is reduced to
zero with amounts otherwise payable to the sponsor.
Further, after the outstanding balance of each class of LIBOR rate notes is
reduced to zero, we may redeem some or all of the remaining auction rate notes
at our option as follows:
o from available funds in the trust as described in the prospectus under
"Description of the Notes - Optional Redemption;"
o as described in the prospectus under "Description of the Notes -
Extraordinary Optional Redemption;" and
o with proceeds received by the trust from selling student loans.
We will not redeem auction rate notes with student loan sale proceeds
unless we receive prior consent of the rating agencies. Also, we will not sell
any student loans for a price less than the principal balance of the student
loans as of the sale date, plus any unamortized premium and borrower accrued
interest.
If an event of default occurs under the indenture, payments will not be
made in the order described above. Instead, payments will be made as described
in the prospectus under "Summary of the Indenture Provisions - Remedies on
Default."
CREDIT ENHANCEMENT
SUBORDINATED NOTES
The class B notes are subordinate notes. The rights of the class B
noteholders to receive payments of interest are subordinated to the rights of
the class A noteholders to receive payments of interest. Similarly, the rights
of the class B noteholders to receive payments of principal are subordinated to
the rights of the class A noteholders to receive payments of principal. This
subordination is intended to enhance the likelihood of regular receipt by the
class A noteholders of the full amount of the payments of interest and principal
due them and to protect the class A noteholders against losses. See "Description
of Credit Enhancement - Subordinate Notes" in the prospectus.
RESERVE FUND
A deposit will be made to the Reserve Fund on the closing date in an amount
equal to $8,006,610. On each distribution date, after giving effect to transfers
from the Capitalized Interest Account, to the extent that money in the
Collection Fund is not sufficient to pay amounts owed to the U.S. Department of
Education or guarantee agencies, or certain of the trust's operating expenses,
including servicing fees, trustees' fees, administration fees and the interest
then due on the notes, the amount of the deficiency will be paid directly from
the Reserve Fund. Money withdrawn from the Reserve Fund will be restored through
transfers from the Collection Fund as available.
The Reserve Fund is subject to a minimum balance equal to the greater of:
o 0.75% of the pool balance, which includes accrued interest that is expected
to be capitalized, as of the close of business on the last day of the
related collection period; or
o $1,067,548, which amount may be satisfied with cash or permitted
securities.
Funds on deposit in the Reserve Fund in excess of the Reserve Fund minimum
balance will be transferred to the Collection Fund.
The Reserve Fund is intended to enhance the likelihood of timely
distributions of interest to the noteholders and to decrease the likelihood that
the noteholders will experience losses. In some circumstances, however, the
Reserve Fund could be reduced to zero. Except on the final maturity date of a
class of notes, amounts on deposit in the Reserve Fund, other than amounts in
excess of the Reserve Fund minimum balance that are transferred to the
Collection Fund, will not be available to cover any principal payment
shortfalls. On the final maturity date of a class of notes, amounts on deposit
in the Reserve Fund will be available to pay principal on the notes and accrued
interest.
CAPITALIZED INTEREST ACCOUNT
Approximately $5,000,000 of the proceeds from the sale of the notes will be
deposited into the Capitalized Interest Account. Amounts on deposit in the
Capitalized Interest Account will be used to pay interest on the notes and
operating expenses prior to amounts being withdrawn from the Reserve Fund.
However, any moneys remaining in the Capitalized Interest Account on the
quarterly distribution date in March 2005 in excess of $2,000,000 will be
transferred to the Collection Fund. Also, any moneys remaining in the
Capitalized Interest Account on the quarterly distribution date in September
2005 will be transferred to the Collection Fund.
LIBOR DERIVATIVE PRODUCT AGREEMENT
GENERAL
On or prior to the closing date, the trust will enter into a LIBOR
derivative product agreement with _________________. We sometimes refer to the
agreement as the "LIBOR derivative product agreement" and we refer to
_____________________ as the "counterparty" to the LIBOR derivative product
agreement. The following is a description of the LIBOR derivative product
agreement and the counterparty. With the consent of the rating agencies, the
trust may enter additional derivative products.
LIBOR DERIVATIVE PRODUCT AGREEMENT
On the closing date, the trust will enter into the LIBOR derivative product
agreement with the counterparty. The agreement will be documented under a 1992
ISDA Master Agreement (Multicurrency-Cross Border) modified to reflect the terms
of the notes, the indenture and the trust agreement. The LIBOR derivative
product agreement will terminate on April 28, 2005 or, if earlier, the date on
which the applicable agreement terminates in accordance with its terms due to an
early termination.
Under the terms of the LIBOR derivative product agreement, the counterparty
will pay to the trust monthly an amount (the "floating amount") equal to the
product of:
o the Swap Rate for each monthly calculation period;
o the Swap Notional Amount for the relevant period; and
o the quotient of the actual number of days in that period divided by
360.
The "Swap Rate" will be equal to one-month LIBOR for each monthly
calculation period, as determined by the counterparty.
o The "Swap Notional Amount" for the LIBOR derivative product agreement
will equal $__________.
In exchange for the floating amounts due from the counterparty, and subject
to the payment netting provisions of the LIBOR derivative product agreement, the
trust will pay to the counterparty monthly an amount (the "fixed amount") equal
to the product of:
o __% per annum;
o the Swap Notional Amount for that calculation period; and
o the quotient of the actual number of days in that period divided by
360.
The LIBOR derivative product agreement will provide that payment of any
fixed amount and floating amount will be netted, so that only the net difference
between those amounts will be paid. Any such net difference payable by the
counterparty is referred to as the "net trust swap receipt", and any such net
difference payable by the trust is referred to as the "net trust swap payment".
Net trust swap receipts, if any, will be distributed as part of the available
funds on each appropriate distribution date, and net trust swap payments, if
any, will be paid to the counterparty monthly.
MODIFICATIONS AND AMENDMENT OF THE LIBOR DERIVATIVE PRODUCT AGREEMENT
No amendment, modification or waiver to the LIBOR derivative product
agreement may be entered into or will be effective unless written confirmation
is received from the rating agencies then rating the notes that such amendment,
modification or waiver will not cause a reduction, suspension or withdrawal of
the then-current ratings of the notes.
DEFAULT UNDER THE LIBOR DERIVATIVE PRODUCT AGREEMENT
Events of default under the LIBOR derivative product agreement are limited
to:
o the failure of the trust or the counterparty to pay any amount when
due under the LIBOR derivative product agreement after giving effect
to the applicable grace period;
o the occurrence of certain events of insolvency or bankruptcy of the
counterparty or more limited events of insolvency or bankruptcy of the
trust;
o the standard "Cross-Default" event of default, as described in Section
5(a)(vi) of the 1992 ISDA Master Agreement, will apply to the
counterparty, but not to the trust; and
o the standard "Merger Without Assumption" event of default, as
described in Section 5(a)(viii) of the 1992 ISDA Master Agreement,
will apply to the counterparty and the trust.
The following other standard events of default under the 1992 ISDA Master
Agreement: "Breach of Agreement", "Credit Support Default", "Misrepresentation",
and "Default under Specified Transaction", as described in Sections 5(a)(ii),
5(a)(iii), 5(a)(iv), and 5(a)(v) of the 1992 ISDA Master Agreement will not
apply to the counterparty or the trust.
TERMINATION EVENTS UNDER THE LIBOR DERIVATIVE PRODUCT AGREEMENT
Termination events under the LIBOR derivative product agreement include the
following standard events under the 1992 ISDA Master Agreement: "Illegality,"
which generally relates to changes in law causing it to become unlawful for
either party to perform its obligations under the LIBOR derivative product
agreement; "Tax Event," which generally relates to either party to the LIBOR
derivative product agreement receiving a payment under the LIBOR derivative
product agreement from which an amount has been deducted or withheld for or on
account of taxes; "Tax Event Upon Merger"; "Credit Event Upon Merger"; and the
additional termination events described below.
ADDITIONAL TERMINATION EVENTS UNDER THE LIBOR DERIVATIVE PRODUCT AGREEMENT
The LIBOR derivative product agreement will include additional termination
events relating to withdrawal or downgrade of the counterparty's credit rating.
These additional termination events will occur if:
o in a case where the counterparty has only a long-term senior unsecured
debt rating by Moody's Investor Service, Inc. ("Moody's"), the Moody's
long-term rating of a counterparty is "Aa3" and on watch for downgrade
or is downgraded below "Aa3" (but not lower than "A1"), and the
counterparty has not, within 30 business days of the date on which the
relevant rating was put on watch, withdrawn or downgraded, procured a
collateral arrangement, a replacement transaction or a confirmation
from Moody's that no such collateral arrangement or replacement
transaction is required;
o in a case where the counterparty has both long-term and short-term
ratings by Moody's, the Moody's long-term rating of a counterparty is
"A1" and on watch for downgrade or is withdrawn or downgraded below
"A1", or the Moody's short-term rating of the counterparty is "P-1"
and on watch for downgrade or is withdrawn or downgraded below "P-1",
and the counterparty has not, within 30 business days of the date on
which the relevant rating was put on watch, withdrawn or downgraded,
procured a collateral arrangement, a replacement transaction or a
confirmation from Moody's that no such collateral arrangement or
replacement transaction is required; or
o the long-term or short-term senior unsecured debt ratings of the
counterparty by Standard & Poor's Rating Services, a division of The
McGraw-Hill Companies, Inc. ("S&P") cease to be at least "A" and
"A-1", and the counterparty has not, within 30 business days of the
date on which the relevant rating was withdrawn or downgraded,
procured a collateral arrangement, a replacement transaction or a
confirmation from S&P that no such collateral arrangement or
replacement transaction is required.
For purposes of these additional termination events:
o A collateral arrangement means a credit support arrangement for the
LIBOR derivative product agreement having terms acceptable to the
parties and the applicable rating agencies.
o A replacement transaction means a transaction with a replacement
counterparty who assumes the counterparty's position under the LIBOR
derivative product agreement on substantially the same terms or with
such other amendments to the terms of the LIBOR derivative product
agreement as may be approved by the parties and each of the rating
agencies.
The LIBOR derivative product agreement also will include an additional
termination event that will permit the counterparty to terminate the agreement
following action by the indenture trustee under the indenture to liquidate all
of the assets of the trust following an acceleration of the principal of the
notes following an event of default under the indenture.
EARLY TERMINATION OF THE LIBOR DERIVATIVE PRODUCT AGREEMENT
Upon the occurrence of any default under the LIBOR derivative product
agreement or a termination event, the non-defaulting party or the non-affected
party, as the case may be, will have the right to designate an early termination
date upon the occurrence of that default or termination event.
Upon any early termination of the LIBOR derivative product agreement,
either the trust or the counterparty may be liable to make a termination payment
to the other, regardless of which party has caused that termination. The amount
of that termination payment will be based on the value of the transaction under
the LIBOR derivative product agreement computed in accordance with the
procedures in, and limited by the terms of, the LIBOR derivative product
agreement. If the trust is required to make a termination payment following a
default resulting from a default by the trust in making any net trust swap
payment owed by the trust, the occurrence of certain insolvency events relating
to the trust or the indenture trustee taking any action under the indenture to
liquidate all of the assets of the trust following an acceleration of the
principal of the notes following an event of default under the indenture, the
payment will be payable in the same order of priority as any amount payable to
the counterparty. However, in the event that a termination payment is owed to
the counterparty for any other reason, the termination payment will be
subordinate to the right of the noteholders to receive full payment of principal
of and interest on the notes, to the replenishment of the Reserve Fund to the
minimum required balance and to the payment of unpaid carry-over amounts to the
holders of the class A auction rate notes.
COUNTERPARTY
[Describe counterparty]
The information in the preceding paragraphs has been provided by
__________________ and is not guaranteed as to accuracy or completeness, and is
not to be construed as representations by the sponsor or the underwriters.
Except for the foregoing paragraphs, ________________ has not been involved in
the preparation of, and does not accept responsibility for, this prospectus
supplement or the prospectus.
ERISA CONSIDERATIONS
The notes may be acquired by, or on behalf of, employee benefit plans or
other retirement arrangements which are subject to Title I of ERISA and/or
Section 4975 of the Code, (each a "Plan") provided the proposed transfer and/or
holding of a note will not result in a prohibited transaction under Section 406
of ERISA or Section 4975 of the Code or such prohibited transaction will be
covered under an individual or class prohibited transaction exemption including,
but not limited to, PTCE 84-14 (regarding plan asset transactions determined by
independent qualified professional asset managers); PTCE 91-38 (regarding
certain transactions involving bank collective investment funds); PTCE 90-1
(regarding certain transactions involving insurance company pooled separate
accounts), PTCE 95-60 (regarding certain transactions involving insurance
company general accounts), and PTE 96-23 (regarding plan asset transactions
determined by in-house asset managers) ("Investor-Based Exemption"). An
acquisition of a note by an investor shall be deemed a representation that such
investor is either not a Plan or that if it is a Plan that no prohibited
transaction will result from the acquisition and/or holding of the note which
will not be covered by an Investor-Based Exemption or some other applicable
exemption. See the discussion of additional considerations regarding the
acquisition and/or holding of the notes by Plans and other retirement
arrangements not subject to ERISA under "ERISA Considerations" in the
prospectus.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
On the closing date, Stroock & Stroock & Lavan LLP, New York, New York will
render, with respect to the notes, its opinion to the effect that the notes will
be treated as debt, rather than as an interest in the student loans, and that
the trust will not be characterized as an association or publicly traded
partnership taxable as a corporation each for federal income tax purposes. Such
opinion is not binding on the Internal Revenue Service and there is no assurance
that such characterization would prevail if challenged. See "Federal Income Tax
Consequences" in the prospectus.
REPORTS TO NOTEHOLDERS
Periodic reports concerning Collegiate Funding Services Education Loan
Trust 2004-A will be delivered to noteholders. So long as Cede & Co., as nominee
of The Depository Trust Company is registered holder of the notes, you will
receive reports through DTC participants. See "Book-Entry Registration" in the
prospectus.
The trust will file with the SEC periodic reports required under the
Securities Exchange Act of 1934 and SEC rules.
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the underwriting agreement
dated as of April __, 2004, among the sponsor, Collegiate Funding Services,
L.L.C. and each of the underwriters named below, the sponsor has agreed to cause
the trust to sell to each of the underwriters, and each of the underwriters has
severally agreed to purchase from the trust, on a firm commitment basis, the
principal amount of the notes set forth opposite its name.
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 CLASS A-5 CLASS A-6 CLASS B
UNDERWRITER NOTES NOTES NOTES NOTES NOTES NOTES NOTES
----------- --------- --------- --------- --------- ---------- --------- -------
Citigroup Global $ $ $ $ $ $ $
Markets Inc.
J.P. Morgan Securities $ $ $ $ $ $ $
Inc.
UBS Financial Services $ $ $ $ $ $ $
Inc.
UBS Securities LLC $ $ $ $ $ $ $
Total $ $ $ $ $ $ $
- - - - - - -
The underwriters have agreed to purchase all of the notes listed above if
any of the notes are purchased. The underwriters have advised that they propose
to offer the notes to the public initially at the respective offering prices set
forth below and on the cover page of this prospectus supplement, and to certain
dealers at these prices less concessions not in excess of the concessions listed
below. The underwriters may allow and such dealers may reallow concessions to
other dealers not in excess of the reallowances listed below. After the initial
public offering, these prices and concessions may change.
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT THE ISSUER CONCESSION REALLOWANCE
-------------- ----------- ------------ ----------- ------------
Per class A-1 note ____% ____% $ ________ ____% ____%
Per class A-2 note ____% ____% ________ ____% ____%
Per class A-3 note ____% ____% ________ ____% ____%
Per class A-4 note ____% ____% ________ ____% ____%
Per class A-5 note ____% ____% ________ ____% ____%
Per class A-6 note ____% ____% ________ ____% ____%
Per class B note ____% ____% ________ ____% ____%
Total $________
_____________________
(1) Before deducting expenses expected to be approximately $_________.
Purchases of a security for the purpose of stabilization or to reduce a
short position could cause the price of the security to be higher than it might
be in the absence of those purchases.
In addition, the underwriters may impose a penalty bid on the
broker-dealers who sell the notes. This means that if an underwriter purchases
notes in the open market to reduce a broker-dealer's short position or to
stabilize the prices of the notes, it may reclaim the selling concession from
the broker-dealer who sold those notes as part of the offering.
In general, over-allotment transactions and open market purchases of the
notes for the purpose of stabilization or to reduce a short position could cause
the price of a note to be higher than it might be in the absence of such
transactions.
Neither the trust nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the prices of the notes. In addition, neither the
trust nor any of the underwriters make any representation that the underwriters
will engage in these transactions or that these transactions, once commenced,
will not be discontinued without notice.
The underwriters have advised that they presently intend to make a market
in the notes; however, they are not obligated to do so. In addition, any
market-making may be discontinued at any time, and an active public market for
the notes may not develop.
From time to time, the underwriters or their affiliates may perform
investment banking and advisory services for, and may provide general financing
and banking services to, the trust's affiliates.
The underwriting agreement provides that Collegiate Funding of Delaware,
L.L.C. and Collegiate Funding Services, L.L.C. will indemnify the underwriters
against certain civil liabilities, including liabilities under the Securities
Act of 1933, and the trust has agreed to reimburse the underwriters for the fees
and expenses of their counsel.
UBS Financial Services Inc. will initially be the sole broker-dealer with
respect to the class A-5 notes. Citibank Global Markets Inc. will initially be
the sole broker-dealer with respect to the class A-6 notes. J.P. Morgan
Securities Inc. will initially be the sole broker-dealer with respect to the
class B notes.
LEGAL MATTERS
Certain legal matters, including certain income tax matters, will be passed
upon for Collegiate Funding Services Education Loan Trust 2004-A by Stroock &
Stroock & Lavan LLP, New York, New York. Certain legal matters will be passed
upon for the underwriters by Kutak Rock LLP.
PROSPECTUS
COLLEGIATE FUNDING SERVICES EDUCATION LOAN TRUSTS
ISSUER
COLLEGIATE FUNDING OF DELAWARE, COLLEGIATE FUNDING MASTER
L.L.C. SERVICING, L.L.C.
SPONSOR MASTER SERVICER
COLLEGIATE FUNDING PORTFOLIO
ADMINISTRATION, L.L.C.,
ADMINISTRATOR
STUDENT LOAN ASSET-BACKED NOTES
Collegiate Funding of Delaware, L.L.C., will periodically establish trusts that
will issue notes in one or more series. The specific terms of the notes included
in each series will be described in a supplement to this prospectus.
Proceeds from the sale of the notes will be used to acquire portfolios of
student loans originated by eligible lenders under the Federal Family Education
Loan Program. Those student loans will be pledged to secure repayment of the
notes. The notes will represent obligations of the issuing trust only and are
not guaranteed by any other person. The notes will be limited obligations of the
trusts payable solely from the student loans each trust acquires and the other
assets of each trust.
You should read this prospectus and any prospectus supplement carefully before
you invest. This prospectus may be used to offer and sell the notes only if it
is accompanied by a prospectus supplement.
Offers of the notes may be made by different methods, including offerings
through underwriters, as more fully described under "Plan of Distribution" below
and in the related prospectus supplement. Unless otherwise indicated for a
series of the notes, the notes will not be listed on a national securities
exchange.
The date of this prospectus is April 21, 2004.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement filed with the
Securities and Exchange Commission. Notes may be sold in one or more offerings
pursuant to the registration statement.
Collegiate Funding of Delaware, L.L.C. will establish one or more trusts in
connection with the issuance of notes. Each trust will issue one or more series
of notes, the repayment of which are secured by student loans the trust will
acquire with the proceeds from the sale of the notes. This prospectus provides
you with a general description of the notes the trusts may offer. Each time
notes are sold, we will provide a prospectus supplement relating to the series
of notes being offered that will include:
o a description of the aggregate principal amount, authorized
denominations and interest rate or rates, or the manner of determining
the interest rate or rates, of each class of the notes to be sold
o information concerning the student loans that will be purchased with
the proceeds of the notes
o information with respect to any notes the trust may have previously
issued that are secured by a common pool of assets that secure payment
of the notes described in the prospectus supplement
o information concerning the guarantee agencies providing guarantees for
the student loans that will be acquired with note proceeds
o information concerning the companies that will be engaged to service
the student loans that will be acquired with note proceeds
o information with respect to any credit or cash flow enhancements
designed to reduce the risk to investors caused by shortfalls in
payments on the related student loans
o any updates or changes to the information presented in this
prospectus.
You should rely only on the information contained in or incorporated by
reference into this prospectus and any prospectus supplement. No person is
authorized to provide you with different information. Notes will not be offered
for sale in any state where the offer is not permitted. You should not assume
that the information in this prospectus or any prospectus supplement is accurate
as of any date other than the date appearing on the front cover of those
documents.
---------------------------------------------------------------
TABLE OF CONTENTS TO PROSPECTUS
---------------------------------------------------------------
About This Prospectus.........................................................i
Summary of the Offering......................................................ii
Risk Factors..................................................................1
Special Note Regarding Forward Looking Statements............................10
Formation of the Trusts......................................................10
Collegiate Funding Services, L.L.C...........................................12
The Sponsor..................................................................13
The Administrator............................................................13
Description of the Notes.....................................................13
Security and Sources of Payment for the Notes................................22
Book-Entry Registration......................................................25
Additional Notes.............................................................30
Summary of the Indenture Provisions..........................................31
Description of Credit Enhancement and Derivative Products....................42
Description of the Federal Family Education Loan Program.....................45
Description of the Guarantee Agencies........................................59
Federal Income Tax Consequences..............................................66
Erisa Considerations.........................................................71
Plan of Distribution.........................................................72
Legal Matters................................................................73
Financial Information........................................................73
Ratings......................................................................74
Incorporation of Documents by Reference; Where to Find More
Information..................................................................74
Glossary of Terms............................................................75
Appendix I - Global, Clearance, Settlement and Tax Documentation
Procedures...................................................................79
SUMMARY OF THE OFFERING
The following summary highlights selected information from this prospectus
but does not contain all of the information you should consider before making an
investment decision. Before deciding to purchase any notes, you should read the
more detailed information appearing in this prospectus and in the related
prospectus supplement.
OVERVIEW
Collegiate Funding of Delaware, L.L.C. will from time to time establish separate
trusts that will sell notes in one or more series and in one or more classes,
and will purchase a pool or pools of student loans with the proceeds received
from these sales. Each trust will be formed pursuant to a trust agreement and
will pledge the student loans it purchases with the proceeds from the sale of
its notes as collateral for repayment of the notes. The priority of payments
among the various series and classes of notes each trust sells will be described
in the related prospectus supplement. These payments will come principally from
amounts received on the student loans held by the related trust.
PARTIES
ISSUER: A Delaware statutory trust to be formed under a trust agreement between
the sponsor and the Delaware trustee.
SPONSOR: Collegiate Funding of Delaware, L.L.C. You may contact Collegiate
Funding of Delaware, L.L.C. at 100 Riverside Parkway, Suite 125, Fredericksburg,
Virginia 22406, or by phone at (540) 374-1600.
MASTER SERVICER: Collegiate Funding Master Servicing, L.L.C. will act as master
servicer of each trust's student loans. Collegiate Funding Master Servicing,
L.L.C. will engage the parties specified in each prospectus supplement to act as
subservicers for the student loans each trust acquires. Other entities may also
act as a servicer or subservicer of the student loans if approved by the rating
agencies rating the notes.
ADMINISTRATOR: Collegiate Funding Portfolio Administration, L.L.C. will provide
certain administrative services for each trust.
ELIGIBLE LENDER TRUSTEE AND INDENTURE TRUSTEE: The prospectus supplement for
each series of notes will identify the eligible lender trustee for each trust's
student loans and the indenture trustee under an indenture governing a trust's
issuance of notes.
DELAWARE TRUSTEE: The prospectus supplement for each series of notes will
identify the Delaware trustee for each trust.
INTEREST RATES
The prospectus supplement will describe the interest that will be paid on the
notes. The interest rate may be fixed for the full term of the notes, or the
interest rate may be subject to periodic adjustment as described below.
AUCTION RATE NOTES. A trust may issue classes of notes that bear interest at a
rate determined by auction. The initial interest rate for these auction rate
notes, or the method for determining the initial interest rate, will be
described in the related prospectus supplement. The interest rates for the
auction rate notes will be reset at the end of each interest period pursuant to
the auction procedures.
The auction procedures are summarized and an example of an auction is included
under "Description of the Notes - Auction rate notes."
INDEX RATE NOTES. A trust may issue classes of notes that bear interest at a
rate determined by reference to LIBOR, by reference to United States Treasury
Securities, by reference to a commercial paper index or by reference to another
index described in a prospectus supplement. These notes will bear interest at an
initial rate described in the prospectus supplement. Thereafter, the interest
rate for LIBOR rate notes will be determined periodically by reference to the
designated LIBOR rate, the interest rate for treasury rate notes will be
determined periodically by reference to the rate of interest paid on designated
U.S. Treasury securities, the interest rate for commercial paper notes will be
determined by reference to the designated commercial paper index and the
interest rate for other index rate notes will be determined periodically by
reference to the index described in a prospectus supplement. See "Description of
the Notes - LIBOR rate notes" and "- Treasury rate notes" in this prospectus.
ACCRUAL NOTES. A trust may issue one or more classes of accrual notes. Accrual
notes will not be entitled to receive payments of interest during the designated
accrual period. Instead, interest accrued on the accrual notes will be
capitalized and added to their principal balance. The rate of interest to be
accrued and the accrual period will be specified in the related prospectus
supplement. See "Description of the Notes - Accrual notes" in this prospectus.
ORIGINAL ISSUE DISCOUNT NOTES. A trust may issue classes of notes at a discount
from the principal amount payable at maturity that pay no interest or interest
at a rate that is below market rates at the time of issuance. The interest paid
on these original issue discount notes, if any, and the yield to maturity of the
original issue discount notes, will be described in the related prospectus
supplement. See "Description of the Notes - Original issue discount notes" in
this prospectus.
PAYMENTS ON THE NOTES
The indenture trustee will make payments of principal and interest due on the
notes on behalf of each trust solely from the assets held by the trust. The
assets of the trust will consist of a pool of student loans, payments made on
the student loans and funds in accounts held by the indenture trustee under the
indenture. Interest and principal on the notes will be paid on the dates
specified in the related prospectus supplement. The principal balance of the
notes of each series will be payable in full on the stated maturity date, unless
earlier redeemed or repaid as described in this prospectus or in the related
prospectus supplement. Principal payments received on student loans will be used
to make principal payments on the notes.
OPTIONAL PURCHASE
If provided in the applicable prospectus supplement, we may, at our option,
purchase, or arrange for the purchase of, all remaining student loans owned by a
trust on any distribution date when their pool balance is 10% or less of the
initial pool balance. The sponsor's exercise of this purchase option will result
in the early retirement of the notes issued by that trust. See "Description of
the Notes - Sale of student loans held in trust estate" in this prospectus.
MANDATORY AUCTION
If provided in the applicable prospectus supplement, the indenture trustee will
offer for sale all of the student loans remaining in a trust at the end of a
collection period when their pool balance has been reduced to 10% or less of the
initial pool balance. An auction will occur only if we do not exercise our right
to repurchase all of the student loans remaining in a trust. The auction of the
student loans remaining in a trust will result in the early retirement of the
notes issued by that trust. See "Description of the Notes - Sale of student
loans held in trust estate" in this prospectus.
REDEMPTION PROVISIONS
MANDATORY REDEMPTION. If so provided in the related prospectus supplement, if
the proceeds from the sale of a series of notes are not used to purchase student
loans within the period of time specified in a prospectus supplement, those
remaining proceeds will be used to redeem notes. If so provided in the related
prospectus supplement, the principal payments received on the student loans and,
until the principal balance of the student loans reaches a specified minimum
percentage of the principal balance of the outstanding notes, interest received
on the student loans, after deducting all required payments, will be used to
redeem the notes.
OPTIONAL REDEMPTION. If so provided in the related prospectus supplement, notes
may be redeemed from interest payments received on student loans that are not
needed to pay interest on the notes and the trust's expenses. In addition, if so
provided in the related prospectus supplement, a trust may sell the student
loans it acquires with the proceeds of the notes it issues for not less than
their principal balance plus any unamortized premium and accrued interest and
use the proceeds to redeem its outstanding notes.
EXTRAORDINARY OPTIONAL REDEMPTION. If so provided in the related prospectus
supplement, notes may be redeemed in our sole discretion if we determine that
the rate of return on student loans has materially decreased or that the costs
of administering a trust have placed unreasonable burdens upon that trust's
ability to perform its obligations under the applicable indenture.
PARTIAL REDEMPTION. If less than all of the notes of any series are to be
redeemed, we will determine the classes of notes that will be redeemed.
Generally, Class A notes will be redeemed before Class B notes. An indenture may
provide for the issuance of Class C notes, and if so, Class B notes will be
redeemed before Class C notes. However, we may have the option of redeeming some
or all of the Class B notes before all of the Class A notes are redeemed, and
may redeem some or all of the Class C notes before the Class A notes and Class B
notes are redeemed, if the applicable trust's ratio of assets to liabilities
exceeds levels specified in the prospectus supplement. See "Description of the
Notes - Notice and partial redemption of notes" in this prospectus.
STUDENT LOAN ASSETS
The student loans that comprise the assets of each trust will be held by the
eligible lender trustee on behalf of the trust. The student loans will have been
originated under the Federal Family Education Loan Program to pay costs incurred
by students enrolled in qualified, accredited institutions of higher education.
The characteristics of the portfolio of student loans to be acquired by a trust
with the proceeds of the notes of any series, and the characteristics of any
existing portfolio held by the indenture trustee for the trust, will be
described in the related prospectus supplement.
STUDENT LOAN GUARANTEES
The payment of principal and interest on all of the student loans that comprise
the assets of a trust will be guaranteed by designated guarantee agencies and
will be reinsured by the United States Department of Education pursuant to the
Higher Education Act. This guarantee, however, is contingent upon compliance
with a variety of regulations concerning origination and servicing of the loans.
Failure to follow these regulations may result in the guarantee claim for a loan
being denied.
Student loans originated prior to October 1, 1993 are fully guaranteed as to
principal and accrued interest. Student loans originated after October 1, 1993
are guaranteed as to 98% of principal and accrued interest.
The Higher Education Act provides that if the Secretary of Education determines
that a guarantee agency is unable to meet its obligations to holders of loans,
such as the indenture trustee, then the holders may submit guarantee claims
directly to the Department of Education. The Department of Education is required
to pay the guarantee agency's full insurance obligation to the holders until the
obligations are transferred to a new guarantee agency capable of meeting the
obligations, or until a qualified successor guarantee agency assumes the
obligations. Delays in receiving reimbursement could occur if a guarantee agency
fails to meet its obligations.
SUBORDINATED NOTES
The rights of the owners of Class B notes to receive payments of principal and
interest will be subordinated to the rights of the owners of Class A notes
issued by that trust to receive payments of principal and interest. The rights
of the owners of any Class C notes issued by a trust to receive payments of
principal and interest will be subordinated to the rights of the owners of Class
B notes and Class A notes issued by that trust to receive payments of principal
and interest. This subordination is intended to enhance the likelihood that the
owners of more senior notes will regularly receive the full amount of payments
of principal and interest due them and to protect the owners against losses.
FUNDS
The indenture governing the issuance of notes by a trust will create the
following funds, unless otherwise described in the related prospectus
supplement. Funds held by the indenture trustee for one trust will not be
available to pay the notes or expenses of another trust.
ACQUISITION FUND. Most of the proceeds from the issuance of a series of notes
will be deposited into an Acquisition Fund. These funds will be used to acquire
the student loans identified in the related prospectus supplement, and to pay
certain costs related to the issuance of the notes.
If so provided in the prospectus supplement, a specified percentage of the
proceeds will be deposited in a prefunding account in the Acquisition Fund.
During the prefunding period, we will use funds in the prefunding account to
purchase additional portfolios of student loans, to purchase serial loans, to
originate consolidation loans and to add other loans to existing consolidation
loans held by a trust, all to the extent provided in the related prospectus
supplement. The prefunding period will begin on the date the notes are issued
and end on the earlier of a date specified in the prospectus supplement or upon
our determination that we are unable to acquire additional student loans.
Funds in the Acquisition Fund that are not used by a trust to acquire student
loans will be used to make payments on the notes or to redeem notes issued by
that trust as described in the related prospectus supplement.
COLLECTION FUND. Funds received with respect to student loans will be deposited
into a Collection Fund under an indenture. We also will deposit into the
Collection Fund payments we receive under any credit enhancement facilities or
swap agreements. Generally, funds on deposit in the Collection Fund will be used
to pay the fees and expenses of the trust and principal and interest on the
notes issued by that trust. An indenture may provide for the establishment of a
capitalized interest account in the Collection Fund, if so provided in the
related prospectus supplement. Amounts in the Collection Fund will be
transferred to the Reserve Fund to the extent necessary to restore the Reserve
Fund to its required minimum balance, and any remaining amounts will be used in
accordance with the terms of the indenture and as described in the related
prospectus supplement.
RESERVE FUND. In connection with the issuance of each series of notes, a deposit
may be made to a Reserve Fund in an amount specified in the related prospectus
supplement. The Reserve Fund will be maintained at a balance specified in the
related prospectus supplement from extra amounts in the Collection Fund. Moneys
in the Reserve Fund will be used to pay the trust's operating expenses and
interest on the notes if funds in the Collection Fund are insufficient to make
those payments. A reserve fund insurance policy may be provided in lieu of a
deposit of moneys to a Reserve Fund if so provided in a prospectus supplement.
CREDIT ENHANCEMENT AND DERIVATIVE PRODUCTS
Credit enhancement for a series of notes may be established in the form of:
o insurance policies or surety bonds;
o subordination of certain classes or subclasses of notes;
o one or more reserve funds;
o letters of credit; or
o other arrangements acceptable to each rating agency rating the notes
to provide for coverage of risks of defaults or losses.
If so provided in a prospectus supplement, a trust may enter into derivative
products consisting of interest rate swaps, rate caps and rate ceilings to help
minimize the risk to noteholders of adverse changes in interest rates, and other
yield supplement agreements or similar yield maintenance arrangements. If notes
are being sold in a foreign country, a trust also may enter into currency swaps,
currency forwards and currency options to help minimize the risk to foreign
noteholders of adverse changes in the exchange rate between the U.S. dollar and
one or more foreign currencies. If a trust issues notes denominated in one
currency which are backed by assets denominated in one or more other currencies,
it may enter into currency swaps, currency forwards and currency options to help
minimize the risk to noteholders of adverse changes in the relevant exchange
rates.
Any credit enhancement or derivative product for a series of notes will be
described in the related prospectus supplement. See "Description of Credit
Enhancement and Derivative Products" in this prospectus.
REPORTS TO NOTEHOLDERS
Periodic reports concerning the notes and the security for the notes will be
provided to the noteholders. Those reports will not be reviewed by a certified
public accounting firm. If notes are issued in book-entry form and registered in
the name of Cede & Co., the nominee of The Depository Trust Company, then all
reports will be provided to those entities which in turn will provide the
reports to their eligible participants. Beneficial owners of notes will receive
reports forwarded to them by those participants. See "Book-Entry Registration"
in this prospectus.
RISK FACTORS
You should consider the following factors regarding your purchase of the
notes.
THE NOTES ARE NOT SUITABLE INVESTMENTS FOR ALL INVESTORS
The notes are not a suitable investment if you require a regular or
predictable schedule of payments or payment on any specific date. The notes are
complex investments that should be considered only by investors who, either
alone or with their financial, tax and legal advisors, have the expertise to
analyze the prepayment, reinvestment, default and market risk, the tax
consequences of an investment and the interaction of these factors.
YOUR NOTES ARE PAYABLE SOLELY FROM THE TRUST ESTATE AND YOU WILL HAVE NO OTHER
RECOURSE AGAINST US
Interest and principal on your notes will be paid solely from the funds and
assets held in the trust estate created under the indenture. No insurance or
guarantee of the notes will be provided by any government agency or
instrumentality, by any affiliate of a trust, by any insurance company or by any
other person or entity, except to the extent that credit enhancement is provided
for a series or class of notes as described in the related prospectus
supplement. Therefore, your receipt of payments on the notes will depend solely
o on the amount and timing of payments and collections on the student
loans held in the trust estate and interest paid or earnings on the
funds held in the accounts established pursuant to the related
indenture;
o amounts on deposit in the Reserve Fund and other funds held in the
related trust estate; and
o any form of credit enhancement described in the related prospectus
supplement.
You will have no additional recourse against any other party if those sources of
funds for repayment of the notes are insufficient.
FAILURE TO COMPLY WITH LOAN ORIGINATION AND SERVICING PROCEDURES FOR STUDENT
LOANS MAY RESULT IN LOSS OF GUARANTEE AND OTHER BENEFITS
The Higher Education Act and its implementing regulations require holders
of student loans and guarantee agencies guaranteeing student loans to follow
specified procedures in making and collecting student loans.
Failure to follow the specified procedures, as a result of computer
software errors or otherwise, may result in:
o the Department of Education's refusal to make insurance payments to
the applicable guarantor or to make interest subsidy payments and
special allowance payments on the student loans of a trust; or
o the guarantors' inability or refusal to make guarantee payments on the
student loans of a trust.
Each loan purchase agreement requires the seller to repurchase its loans if
the representations and warranties made by the seller prove not to be true or if
a claim for a loan is denied because of events occurring before the sale.
However, a seller may not be financially able to repurchase loans if called upon
to do so.
If the Department of Education or a guaranty agency refused to pay a claim,
that refusal would reduce the revenues of the trust and impair its ability to
pay principal and interest on your notes.
IF THE SERVICER OR ANY SUBSERVICER FAILS TO COMPLY WITH THE DEPARTMENT OF
EDUCATION'S THIRD-PARTY SERVICER REGULATIONS, PAYMENTS ON YOUR NOTES COULD BE
ADVERSELY AFFECTED
The Department of Education regulates each servicer of federal student
loans. Under these regulations, a third-party servicer, including the servicer
or any subservicer, is jointly and severally liable with its client lenders for
liabilities to the Department of Education arising from its violation of
applicable requirements. In addition, if the servicer or any subservicer fails
to meet standards of financial responsibility or administrative capability
included in the regulations, or violates other requirements, the Department of
Education may fine the servicer or any subservicer and/or limit, suspend, or
terminate the servicer's or subservicer's eligibility to contract to service
federal student loans. If a servicer or any subservicer were so fined or held
liable, or its eligibility were limited, suspended, or terminated, its ability
to properly service the student loans and to satisfy its obligation to purchase
student loans with respect to which it has breached its representations,
warranties or covenants could be adversely affected. In addition, if the
Department of Education terminates a servicer's or any subservicer's
eligibility, a servicing transfer will take place and there may be delays in
collections and temporary disruptions in servicing. Any servicing transfer may
temporarily adversely affect payments to you.
BANKRUPTCY OR INSOLVENCY OF COLLEGIATE FUNDING OF DELAWARE, L.L.C. OR THE
BANKRUPTCY OR INSOLVENCY OF THE SELLERS OF STUDENT LOANS COULD RESULT IN PAYMENT
DELAYS OR REDUCTIONS
Collegiate Funding of Delaware, L.L.C. will be the sponsor of each trust
and will sell to each trust all of the loans acquired by the trust with the
proceeds of the notes. If Collegiate Funding of Delaware, L.L.C. seeks relief
under the bankruptcy or related laws, a bankruptcy court could attempt to
consolidate each trust's assets into the bankruptcy estate of Collegiate Funding
of Delaware, L.L.C. If that occurs, you can expect delays in receiving payments
on your notes and even a reduction in payments on your notes.
We have taken steps to structure each loan purchase by the sponsor from a
seller as a "true sale" under law. A true sale helps to establish that the loans
would not continue to be the property of the seller if the seller becomes
bankrupt or insolvent. If a court disagrees with this position, we could
experience delays in receiving payments on its student loans and you could then
expect a delay in receiving payments on your notes or even a reduction in
payments on your notes. A court could also subject the student loans to a
superior tax or government lien arising before the sale of the student loans to
a trust.
If student loans are purchased from a bank and the bank becomes insolvent,
it would become subject to receivership by the Federal Deposit Insurance
Corporation. In that case, the FDIC could treat the transfer of the student
loans as a secured loan rather than as a sale. If that were to happen, we would
have only a security interest in the student loans and could experience delays
in receiving payments with respect to those loans. In addition, the FDIC may
seek a release of the loans to itself, as receiver, which would accelerate and
prepay the "loan."
BANKRUPTCY OR INSOLVENCY OF COLLEGIATE FUNDING MASTER SERVICING, L.L.C. OR ANY
SUBSERVICER COULD RESULT IN PAYMENT DELAYS TO YOU
Collegiate Funding Master Servicing, L.L.C. will act as the master servicer
with respect to the student loans acquired by each trust and may engage one or
more other entities to act as subservicer with respect to such student loans. In
the event of a default by the master servicer or any subservicer resulting from
events of insolvency or bankruptcy, a court, conservator, receiver or liquidator
may have the power to prevent the indenture trustee or the noteholders from
appointing a successor servicer and delays in collections in respect of the
student loans may occur. Any delay in the collections of student loans may delay
payments to you.
YOU MAY INCUR LOSSES OR DELAYS IN PAYMENT ON YOUR NOTES IF BORROWERS DEFAULT
ON THEIR STUDENT LOANS
For a variety of economic, social and other reasons, all the payments that
are actually due on student loans may not be made. Borrowers' failures to make
timely payments of the principal and interest due on the loans will affect the
revenues of the trust estate for a trust, which may reduce the amounts available
to pay principal and interest due on the notes.
In general, a guarantee agency reinsured by the Department of Education
will guarantee 98% of each student loan. As a result, if a borrower of a student
loan defaults, the trust will experience a loss of approximately 2% of the
outstanding principal and accrued interest on each of the defaulted loans. The
trust does not have any right to pursue the borrower for the remaining 2%
unguaranteed portion. If any credit enhancement described in the related
prospectus supplement is not sufficient, you may suffer a delay in payment or a
loss on your investment.
THE RATE OF PAYMENTS ON STUDENT LOANS MAY AFFECT THE MATURITY AND YIELD
OF YOUR NOTES
Student loans may be prepaid at any time without penalty. If a trust
receives prepayments on its student loans, those amounts will be used to make
principal payments on notes as described in the related prospectus supplement,
which could shorten the average life of each class of its notes. Factors
affecting prepayment of loans include general economic conditions, prevailing
interest rates and changes in the borrower's job, including transfers and
unemployment. Refinancing opportunities which may provide more favorable
repayment terms, including those offered under consolidation loan programs like
the federal direct consolidation loan program, also affect prepayment rates.
There is insufficient information available to be able to estimate the rate of
prepayment with respect to the student loans in any trust estate.
Scheduled payments with respect to, and the maturities of, student loans
may be extended as authorized by the Higher Education Act. Also, periods of
forbearance or refinancings through consolidation loans having longer maturities
may lengthen the remaining term of the loans and the average life of each class
of notes. You will bear entirely any reinvestment risks resulting from a faster
or slower incidence of prepayment of loans.
The rate of principal payments to you on the notes and the yield to
maturity of the notes will be directly related to the rate of payments of
principal on the student loans each trust acquires. Changes in the rate of
prepayments may significantly affect your actual yield to maturity, even if the
average rate of principal prepayments is consistent with your expectations. In
general, the earlier a prepayment of principal of a loan, the greater the effect
on your yield to maturity. The effect on your yield as a result of principal
payments occurring at a rate higher or lower than the rate anticipated by you
during the period immediately following the issuance of the notes will not be
offset by a subsequent like reduction, or increase, in the rate of principal
payments.
THE CHARACTERISTICS OF THE PORTFOLIO OF STUDENT LOANS HELD IN THE TRUST ESTATE
MAY CHANGE
If so provided in a prospectus supplement, a trust may issue several series
of notes and use the proceeds to add additional student loans to the trust
estate. The prospectus supplement for a series of notes will describe the
characteristics of our student loan portfolio at that time. However, the actual
characteristics of the loans in our portfolio will change from time to time due
to factors such as repayment of the loans in the normal course of business,
purchase of additional loans during a prefunding period, amendments to the
Higher Education Act, sales or exchanges of student loans, or the occurrence of
delinquencies or defaults on the student loans. A portfolio of student loans
acquired previously by us is not necessarily indicative of future performance of
student loans held by a trust.
A trust's cash flow, and its ability to make payments due on your notes
will be reduced to the extent interest is not currently payable on our student
loans. The borrowers on most student loans are not required to make payments
during the period in which they are in school and for certain authorized periods
after graduation as described in the Higher Education Act. The Department of
Education will make all interest payments while payments are deferred under the
Higher Education Act on certain of the student loans. For all other student
loans, interest generally will be capitalized and added to the principal balance
of the loans. The trust estate will consist of student loans for which payments
are deferred as well as student loans for which the borrower is currently
required to make payments of principal and interest. The proportions of the
loans in our portfolio for which payments are deferred and currently in
repayment will vary during the period that the notes are outstanding.
STUDENT LOANS ARE UNSECURED AND THE ABILITY OF THE GUARANTEE AGENCIES TO HONOR
THEIR GUARANTEES MAY BECOME IMPAIRED
The Higher Education Act requires that all student loans be unsecured. As a
result, the only security for payment of the student loans held in each trust
estate are the guarantees provided by the guarantee agencies.
A deterioration in the financial status of a guarantee agency and its
ability to honor guarantee claims on defaulted student loans could delay or
impair the guarantee agency's ability to make claims payments to the indenture
trustee. The financial condition of a guarantee agency can be adversely affected
if it submits a large number of reimbursement claims to the Department of
Education, which results in a reduction of the amount of reimbursement that the
Department of Education is obligated to pay the guarantee agency. The Department
of Education may also require a guarantee agency to return its reserve funds to
the Department of Education upon a finding that the reserves are unnecessary for
the guarantee agency to pay its program expenses or to serve the best interests
of the federal student loan program. The inability of any guarantee agency to
meet its guarantee obligations could reduce the amount of principal and interest
paid to you as the owner of the notes or delay those payments past their due
date.
If the Department of Education has determined that a guarantee agency is
unable to meet its guarantee obligations, the loan holder may submit claims
directly to the Department of Education and the Department of Education is
required to pay the full guaranty claim amount due with respect thereto. See
"Description of the Guarantee Agencies" in this prospectus. However, the
Department of Education's obligation to pay guarantee claims directly in this
fashion is contingent upon the Department of Education's making the
determination that a guarantee agency is unable to meet its guarantee
obligations. The Department of Education may not ever make this determination
with respect to a guarantee agency and, even if the Department of Education does
make this determination, payment of the guarantee claims may not be made in a
timely manner.
PAYMENT OFFSETS BY GUARANTEE AGENCIES OR THE DEPARTMENT OF EDUCATION COULD
PREVENT THE TRUST FROM PAYING YOU THE FULL AMOUNT OF THE PRINCIPAL AND INTEREST
DUE ON YOUR NOTES
The eligible lender trustee may use the same Department of Education lender
identification number for student loans in a trust as it uses for other student
loans it holds on behalf of other trusts established by the sponsor. If so, the
billings submitted to the Department of Education and the claims submitted to
guarantee agencies will be consolidated with the billings and claims for
payments for student loans under other trusts using the same lender
identification number. Payments on those billings by the Department of Education
as well as claim payments by the applicable guarantee agencies will be made to
the eligible lender trustee, or to the servicer on behalf of the eligible lender
trustee, in lump sum form. Those payments must be allocated by the eligible
lender trustee among the various trusts that reference the same lender
identification number.
If the Department of Education or a guarantee agency determines that the
eligible lender trustee owes it a liability on any student loan held in any
trust (whether or not a part of the trust estate relating to your notes) the
Department or the applicable guarantee agency may seek to collect that liability
by offsetting it against payments due to the eligible lender trustee in respect
of the student loans pledged to secure your notes. Any offsetting or shortfall
of payments due to the eligible lender trustee could adversely affect the amount
of funds available to the trust and thus the trust's ability to pay you
principal and interest on your notes.
IF A TRUST CANNOT PURCHASE STUDENT LOANS, IT WILL PAY PRINCIPAL ON OR
REDEEM NOTES
We will use the proceeds of the notes sold by a trust to acquire student
loans. If the student loan purchases are not completed, or if a trust is not
able to use note proceeds to purchase student loans that meet its requirements,
the trust will use those amounts to pay principal on or to redeem your notes as
provided in the related prospectus supplement.
A SECONDARY MARKET FOR YOUR NOTES MAY NOT DEVELOP, AND THIS COULD DIMINISH
THEIR VALUE
Each series of notes will be a new issue without an established trading
market. We do not intend to list any series of notes on any national exchange.
As a result, we cannot assure you that a secondary market for the notes will
develop, and therefore it may be difficult for you to resell your notes at the
time and at a price you desire. If a secondary market does not develop, the
spread between the bid price and the asked price for the notes may widen,
thereby reducing the net proceeds to you from the sale of your notes.
CONGRESSIONAL ACTIONS MAY AFFECT A TRUST'S STUDENT LOAN PORTFOLIO
The Department of Education's authority to provide interest subsidies and
federal insurance for loans originated under the Higher Education Act terminates
on a date specified in the Higher Education Act. The Higher Education Act
Amendments of 1998 extended the authorization for the Federal Family Education
Loan Program to loans made on or before September 30, 2004. While Congress has
consistently extended the effective date of the Higher Education Act and the
Federal Family Education Loan Program, it may elect not to reauthorize the
Department's ability to provide interest subsidies and federal insurance for
loans. While this failure to reauthorize would not affect the student loans a
trust then owned, it would reduce the number of loans available for purchase in
the future.
Funds for payment of interest subsidies and other payments under the
Federal Family Education Loan Program are subject to annual budgetary
appropriation by Congress. Federal budget legislation has in the past contained
provisions that restricted payments made under the Federal Family Education Loan
Program to achieve reductions in federal spending. Future federal budget
legislation may adversely affect expenditures by the Department of Education,
and the financial condition of the guarantee agencies.
Congressional amendments to the Higher Education Act or other relevant
federal laws, and rules and regulations promulgated by the Secretary of
Education, may adversely impact holders of student loans. For example, changes
might be made to the rate of interest paid on student loans, to the level of
insurance provided by guarantee agencies or to the servicing requirements for
student loans. See "Description of the Federal Family Education Loan Program"
and "Description of the Guarantee Agencies" in this prospectus.
COMPETITION CREATED BY THE FEDERAL DIRECT STUDENT LOAN PROGRAM COULD ADVERSELY
AFFECT THE AVAILABILITY OF STUDENT LOANS, THE COST OF SERVICING, THE VALUE OF
STUDENT LOANS AND PREPAYMENT EXPECTATIONS
In 1992, Congress created the Federal Direct Student Loan Program. Under
this program, the Department of Education makes student loans directly to
student borrowers through the educational institutions they attend. This program
could result in reductions in the volume of student loans made under the Federal
Family Education Loan Program and available to us for purchase. This reduced
volume may cause a servicer or subservicer to experience increased costs due to
reduced economies of scale. These cost increases could reduce the ability of the
servicer to satisfy its obligations to service the student loans. This could
also reduce revenues received by the guarantee agencies available to pay claims
on defaulted student loans. The Department of Education has implemented a direct
consolidation loan program, which may further reduce the volume of student loans
available for purchase and may increase the rate of repayment of student loans.
We refer you to "Description of the Federal Family Education Loan Program" in
this prospectus.
THE CLASS B AND CLASS C NOTES ARE SUBORDINATED TO THE CLASS A NOTES
A trust may issue one or more series of notes, in one or more classes.
Payments of interest and principal on Class B notes are subordinated in priority
of payment to payments of interest and principal due on Class A notes. An
indenture may also provide for the issuance of Class C notes which will be
subordinated in priority of payment to payments of interest and principal due on
Class B notes. Class B notes and Class C notes are subordinated to Class A
notes, and Class C notes are also subordinate to Class B notes, as to the
direction of remedies upon an event of default. Consequently, holders of Class B
notes and Class C notes may bear a greater risk of losses or delays in payment
than holders of Class A Notes. As a result, the Class C notes and Class B notes
will be very sensitive to losses on the student loans and the timing of those
losses. If you are a holder of a Class B note or a Class C note, if the actual
rate and amount of losses on the student loans exceeds your expectations and any
available credit enhancement is insufficient to cover the resulting shortfalls,
the yield to maturity on your notes may be lower than you anticipate, and you
could suffer a loss.
Failure to pay interest due on any Class B notes or Class C notes issued
under an indenture will not constitute an event of default so long as any Class
A notes issued under that indenture are outstanding. Similarly, failure to pay
interest due on any Class C notes issued under an indenture will not constitute
an event of default so long as any Class B notes issued under that indenture are
outstanding.
A TRUST MAY ISSUE ADDITIONAL NOTES SECURED BY THE TRUST ESTATE
A trust may issue additional series of notes, in one or more classes if so
provided in the related prospectus supplement. The proceeds from the sale of
such additional notes will be used to acquire additional student loans, and the
additional student loans together with the existing student loans will secure
all series of notes issued by the same trust. Those additional notes may be
issued without the consent or approval of the owners of any notes then
outstanding and may be on a parity with or subordinate to any Class A notes and
senior to, on a parity with or subordinate to Class B or Class C notes issued by
the trust. However, before issuing additional notes, a trust must receive
written evidence from each rating agency then rating any outstanding notes of
that trust that the rating or ratings will not be reduced or withdrawn as a
result of the issuance of the proposed additional notes. See "Additional Notes"
in this prospectus.
DIFFERENT RATES OF CHANGE IN INTEREST RATE INDEXES MAY AFFECT A TRUST'S
CASH FLOW
The interest rates on your notes may fluctuate from one interest period to
another in response to changes in LIBOR rates, Treasury security rates,
commercial paper rates or other rate indexes, or as a result of the auction
procedures described in this prospectus, as specified in the related prospectus
supplement. The student loans that will be purchased with the proceeds from the
sale of notes bear interest at fixed or floating rates, which are generally
based upon the bond equivalent yield of the 91 day Treasury Bill rate or upon a
three month commercial paper rate, in each case plus a stated margin. See
"Description of the Federal Family Education Loan Program" in this prospectus.
If there is a decline in the rates payable on student loans a trust acquires,
the amount of funds representing interest deposited into the Collection Fund may
be reduced. If the interest rates payable on notes issued by a trust do not
decline in a similar manner and time, the trust may not have sufficient funds to
pay interest on its notes when it becomes due. Even if there is a similar
reduction in the rates applicable to the notes, there may not necessarily be a
reduction in the other amounts required to be paid out of the trust estate, such
as administrative expenses, causing interest payments to be deferred to future
periods. Sufficient funds may not be available in future periods to make up for
any shortfalls in the current payments of interest on the notes or expenses of
the trust estate.
THE NOTES MAY BE ISSUED ONLY IN BOOK-ENTRY FORM
Usually, each class of notes of any series will be initially represented by
one or more certificates registered in the name of Cede & Co., the nominee for
The Depository Trust Company, and will not be registered in your name or the
name of your nominee. If we elect to issue definitive notes registered in the
name of the holder in connection with the sale of a class or series of notes,
that election will be contained in the related prospectus supplement. Unless and
until definitive securities are issued, holders of the notes will not be
recognized by the indenture trustee as registered owners as that term is used in
the indenture. Until definitive securities are issued, holders of the notes will
only be able to exercise the rights of registered owners indirectly through The
Depository Trust Company and its participating organizations. See "Book-Entry
Registration" in this prospectus.
THE RATINGS OF THE NOTES ARE NOT A RECOMMENDATION TO PURCHASE AND MAY CHANGE
It is a condition to issuance of the notes that they be rated as indicated
in the related prospectus supplement. Ratings are based primarily on the
creditworthiness of the underlying student loans, the level of subordination,
the amount of credit enhancement and the legal structure of the transaction. The
ratings are not a recommendation to you to purchase, hold or sell any class of
notes inasmuch as the ratings do not comment as to the market price or
suitability for you as an investor. An additional rating agency may rate the
notes, and that rating may not be equivalent to the initial rating described in
the related prospectus supplement. Ratings may be lowered or withdrawn by any
rating agency if in the rating agency's judgment circumstances so warrant. A
lowered rating is likely to decrease the price a subsequent purchaser will be
willing to pay you for your notes.
BORROWERS OF STUDENT LOANS ARE SUBJECT TO A VARIETY OF FACTORS THAT MAY
ADVERSELY AFFECT THEIR REPAYMENT ABILITY
Collections on the student loans during a monthly collection period may
vary greatly in both timing and amount from the payments actually due on the
student loans for that monthly collection period for a variety of economic,
social and other factors.
Failures by borrowers to pay timely the principal and interest on their
student loans or an increase in deferments or forbearances could affect the
timing and amount of available funds for any monthly collection period and the
ability to pay principal and interest on your notes. In addition, originators of
student loans may, from time to time, offer incentive programs to borrowers.
Generally, under these programs, the interest rate on a borrower's student loan
is reduced if the borrower timely pays a specified number of consecutive student
loan payments. The effect of these factors, including the effect on the timing
and amount of available funds for any monthly collection period and the ability
to pay principal and interest on your notes is impossible to predict.
THE PRINCIPAL AMOUNT OF THE NOTES OUTSTANDING MAY EXCEED THE PRINCIPAL AMOUNT OF
THE ASSETS IN THE TRUST ESTATE, WHICH COULD RESULT IN LOSSES ON YOUR NOTES IF
THERE WAS A LIQUIDATION
We expect to acquire student loans from amounts in the acquisition fund at
premiums exceeding the principal amount of such student loans. Therefore, the
principal amount of notes outstanding at any time may exceed the principal
amount of student loans and other assets in the trust estate held by the
indenture trustee under the indenture. If an event of default occurs and the
assets in the trust estate are liquidated, the student loans would have to be
sold at a premium for the subordinated noteholders and possibly the senior
noteholders to avoid a loss. We cannot predict the rate or timing of accelerated
payments of principal or the occurrence of an event of default or when the
aggregate principal amount of the notes may be reduced to the aggregate
principal amount of the student loans.
Payment of principal and interest on the notes is dependent upon
collections on the student loans. If the yield on the financed student loans
does not generally exceed the interest rate on the notes and expenses relating
to the servicing of the financed student loans and administration of the
indenture, the trust may have insufficient funds to repay the notes.
IF THE INDENTURE TRUSTEE IS FORCED TO SELL LOANS AFTER AN EVENT OF DEFAULT,
THERE COULD BE LOSSES ON YOUR NOTES
Generally, during an event of default, the indenture trustee is authorized
with certain noteholder consent to sell the student loans. However, the
indenture trustee may not find a purchaser for the student loans. Also, the
market value of the student loans plus other assets in the trust estate might
not equal the principal amount of notes plus accrued interest. The competition
currently existing in the secondary market for loans made under the FFEL program
also could be reduced, resulting in fewer potential buyers of the FFELP loans
and lower prices available in the secondary market for those loans. There may be
even fewer potential buyers for those loans, and therefore lower prices
available in the secondary market. You may suffer a loss if the indenture
trustee is unable to find purchasers willing to pay sufficient prices for the
student loans.
LESS THAN ALL OF THE HOLDERS CAN APPROVE AMENDMENTS TO THE INDENTURE OR WAIVE
DEFAULTS UNDER THE INDENTURE
Under the indenture, holders of specified percentages of the aggregate
principal amount of the notes may amend or supplement provisions of the
indenture and the notes and waive events of defaults and compliance provisions
without the consent of the other holders. You have no recourse if the holders
vote and you disagree with the vote on these matters. The holders may vote in a
manner which impairs the ability to pay principal and interest on your notes.
Also, so long as senior notes are outstanding, the holders of subordinate notes
will not have the right to approve certain amendments, or exercise certain
rights under the indenture.
RATING AGENCIES CAN PERMIT CERTAIN ACTIONS TO BE TAKEN WITHOUT YOUR APPROVAL
The indenture provides that the trust and the indenture trustee may
undertake various actions based upon receipt by the indenture trustee of
confirmation from the rating agencies that the outstanding ratings assigned by
such rating agencies to the notes are not thereby impaired. Such actions
include, but are not limited to, amendments to the indenture, the issuance of
additional notes and the execution by the trust of interest rate exchange
agreements. To the extent such actions are taken after issuance of your notes,
you will be relying on the evaluation by the rating agencies of such actions and
their impact on credit quality.
THE TRUST MAY ENTER INTO SWAP AGREEMENTS WHICH COULD RESULT IN DELAYS IN PAYMENT
OR LOSSES ON YOUR NOTES IF THE COUNTERPARTY FAILS TO MAKE ITS PAYMENTS
Under the indenture, the trust may enter into interest rate swap agreements
if certain requirements are met, including the requirement that the rating
agencies will not reduce or withdraw the ratings on any notes. Interest rate
swap agreements carry risks relating to the credit quality of the counterparty
and the enforceability of the swap agreement.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Statements in this prospectus and the prospectus supplement, including
those concerning expectations as to our ability to purchase eligible student
loans, to structure and to issue competitive securities, and certain of the
information presented in this prospectus and the prospectus supplement,
constitute forward looking statements, which represent the expectations and
beliefs of Collegiate Funding of Delaware, L.L.C. about future events. Actual
results may vary materially from expectations. For a discussion of the factors
which could cause actual results to differ from expectations, please see the
caption entitled "Risk Factors" in this prospectus and in the prospectus
supplement.
FORMATION OF THE TRUSTS
THE TRUSTS
Each trust will be established as a Delaware statutory trust pursuant to a
trust agreement by and between Collegiate Funding of Delaware, L.L.C., as
sponsor and a Delaware trustee. Each trust will issue notes in one or more
series, and in one or more classes. The trust agreement will limit the
operations of a trust to the following activities:
o acquire, hold, manage and sell student loans, other assets of the
trust and any proceeds therefrom;
o issue notes;
o enter into derivative products and credit enhancement facilities;
o make payments of principal and interest on the notes; and
o engage in any incidental or related activities.
Each trust will have only nominal initial capital.
The notes will be issued pursuant to an indenture of trust and any
supplemental indenture of trust described in the related prospectus supplement
that each trust will enter into with the indenture trustee. The notes will
represent indebtedness of the issuing trust only, secured by the assets of that
trust.
The eligible lender trustee will acquire legal title to the student loans
on behalf of each trust and will enter into a guarantee agreement with each of
the guarantee agencies for the student loans. The eligible lender trustee will
use the proceeds from the sale of notes to purchase student loans on behalf of
the related trust.
Following the acquisition of student loans, the assets of a trust will
include:
o student loans purchased with the proceeds from the issuance of the
notes, legal title to which will be held by the eligible lender
trustee;
o revenues, consisting of all principal and interest payments, proceeds,
charges and other income the indenture trustee receives on account of
any student loan, including interest benefit payments and any special
allowance payments with respect to any student loan, and investment
income from all funds created under the indenture, and any proceeds
from the sale or other disposition of the student loans;
o all moneys and investments held in the funds created under the
indenture;
o rights under any loan purchase agreement and servicing agreement,
including the right to require any seller or servicer to repurchase
student loans or to substitute student loans under certain
circumstances; and
o any other property described in the related prospectus supplement,
including any credit enhancement for the notes and rights to receive
payments under derivative product agreements.
COLLEGIATE FUNDING SERVICES, L.L.C.
BACKGROUND
Collegiate Funding Services, L.L.C. ("CFS" or the "Company") is a privately
held Virginia limited liability company created in June 1998, which markets
student loans on a nationwide basis. In May 2002, Lightyear Capital, LLC, a
private investment firm based in New York City with $2 billion in assets under
management, acquired CFS. Lightyear Capital invests private equity capital in
leveraged buyout, recapitalization and growth opportunities, primarily in the
financial services area.
CFS currently markets FFELP and private consolidation loans, which CFS
brands as "Real World Federal Consolidation Loans" ("RWCL") and as "Real World
Private Consolidation Loans" ("RWPCL"). The products are designed to make
student loan repayment more convenient and affordable by combining a borrower's
existing eligible federal and private student loans into a single new federal or
private loan, as the case may be. The programs feature flexible repayment term
options which extend the maturity on the borrower's original loans and which
allow a borrower to customize a monthly repayment plan that meets his or her
financial needs. In addition, CFS also markets federally guaranteed Stafford
loans and PLUS loans. Stafford loans enable qualifying students to borrow funds
to pay their education expenses. PLUS loans enable parents with good credit
histories to borrow to pay the education expenses of each child who is a
dependent undergraduate student enrolled at least halftime.
CFS currently originates loans as an agent of other entities, which act as
the lenders. The lenders pay CFS a fee per application to act as their marketing
agent.
The Company attributes much of its success to having uniquely positioned
itself as a direct-to-consumer marketing company. CFS markets consolidation
loans to customers nationwide through telesales, direct mailings, print and
internet advertising, and its website (www.CFSloans.com), as well as its
school-based web portal, Collegexit.com. The Company's programs are also
introduced to customers through partner relationships with other entities, such
as the financial aid and business offices of colleges and universities.
OPERATIONS
CFS operates two offices, consisting of the Company's corporate
headquarters in Fredericksburg, Virginia, and an additional telesales office in
Pinellas Park, Florida. Between these two offices, CFS has over 1,000 full and
part-time employees. The Company has approximately 100 employees dedicated to
loan processing in Virginia and approximately 700 employees assigned to direct
sales in CFS' two office locations.
MARKETING
CFS utilizes a creative direct mail campaign strategy that proactively
contacts potential borrowers for consolidation and PLUS loans.
CFS, acting through its sales representatives, has established a national
marketing effort directly with colleges and universities. These institutions
introduce CFS' loan products to graduating students as an alternative for the
repayment of their student loans.
THE SPONSOR
Collegiate Funding of Delaware, L.L.C. (the "Sponsor"), a Delaware limited
liability company that is owned by Collegiate Funding Services, L.L.C. and one
of its subsidiaries, will be the Sponsor under each trust agreement and will own
all the equity interests in each trust upon the date of issuance of each series
of notes. The Sponsor has been structured as a bankruptcy-remote, special
purpose entity. Its limited liability company agreement contains certain
limitations, including restrictions on the nature of the Sponsor's business and
a restriction on the Sponsor's ability to commence a voluntary case or
proceeding under any insolvency law without the prior unanimous affirmative vote
of all its managers, including its independent managers.
THE ADMINISTRATOR
Collegiate Funding Portfolio Administration, L.L.C. (the "Administrator"),
a Virginia limited liability company that is wholly owned by Collegiate Funding
Services, L.L.C., serves as Administrator pursuant to an administration
agreement. The Administrator will provide certain administrative services to the
trust, the indenture trustee, the eligible lender trustee and the Delaware
trustee, including, among other things, (i) administering accounting and
financial reporting activities of the trust, (ii) preparing operating budgets,
statistical reports and cash flow projections to the extent required by the
indenture and (iii) providing the notices and performing other administrative
obligations required by the indenture and the trust agreement.
DESCRIPTION OF THE NOTES
The following description of the notes is only a summary of their principal
terms. It is not complete. You should refer to the provisions of the indenture
for a complete description of the terms of the notes. Definitions of some of the
terms used in this description can be found in the Glossary of Terms appearing
at page 75 of this prospectus.
Classes of notes will have a stated principal amount and will bear interest
at a specified rate or may be entitled to principal distributions with
disproportionately low, nominal or no interest distributions, interest
distributions with disproportionately low, nominal or no principal
distributions; distributions based on a combination of components or
distributions limited to collections from a designated portion of assets in the
related trust fund.
FIXED RATE NOTES
The fixed rate notes will have a stated maturity set forth in the
applicable prospectus supplement. The notes will bear interest from the date and
at the rate per annum specified in the applicable prospectus supplement. The
dates on which the holders of fixed rate notes will receive payments of
principal and interest will be specified in the applicable prospectus
supplement.
AUCTION RATE NOTES
The auction rate notes will have a stated maturity set forth in the
applicable prospectus supplement and will bear interest at the rate per annum
specified in the prospectus supplement through the first auction date. The
interest period for auction rate notes will initially consist of a number of
days set forth in the applicable prospectus supplement. The interest rate for
the auction rate notes will be reset on interest rate adjustment dates specified
in the applicable prospectus supplement at the interest rate determined pursuant
to the auction procedures described below, but the rate will not exceed the
maximum auction rate per annum set forth in the applicable prospectus
supplement. Interest on the auction rate notes will accrue daily and will be
computed for the actual number of days elapsed on the basis of a year consisting
of 360 days or 365 days as specified in the prospectus supplement. Interest on
the auction rate notes will be payable on the first business day following the
expiration of each interest period for the notes, and principal on the auction
rate notes will also be payable as specified in the applicable prospectus
supplement.
DETERMINATION OF NOTE INTEREST RATE. The procedures that will be used in
determining the interest rates on the auction rate notes are summarized in the
following paragraphs.
The interest rate on each class of auction rate notes will be determined
periodically on interest rate determination dates specified in the applicable
prospectus supplement by means of a "Dutch Auction." In this Dutch Auction,
investors and potential investors submit orders through an eligible
broker-dealer as to the principal amount of auction rate notes they wish to buy,
hold or sell at various interest rates. The broker-dealers submit their clients'
orders to the auction agent. The auction agent processes all orders submitted by
all eligible broker-dealers and determines the interest rate for the upcoming
interest period. The broker-dealers are notified by the auction agent of the
interest rate for the upcoming interest period and are provided with settlement
instructions relating to purchases and sales of auction rate notes. Auction rate
notes will be purchased and sold between investors and potential investors at a
price equal to their then-outstanding principal balance plus any accrued
interest.
In the auction, the following types of orders may be submitted:
o "bid/hold orders" - specify the minimum interest rate that a current
investor is willing to accept in order to continue to hold auction
rate notes for the upcoming interest period;
o "sell orders" - an order by a current investor to sell a specified
principal amount of auction rate notes, regardless of the upcoming
interest rate; and
o "potential bid orders" - specify the minimum interest rate that a
potential investor, or a current investor wishing to purchase
additional auction rate notes, is willing to accept in order to buy a
specified principal amount of auction rate notes.
If an existing investor does not submit orders with respect to all its
auction rate notes, the investor will be deemed to have submitted a hold order
at the new interest rate for that portion of the auction rate notes for which no
order was received.
The following example helps illustrate how the auction procedures are used
in determining the interest rate on the auction rate notes.
(a) Assumptions:
1. Denominations (Units) = $50,000
2. Interest period = 28 days
3. Principal amount outstanding = $50 Million (1000 Units)
(b) Summary of all orders received for the auction
BID/HOLD ORDERS SELL ORDERS POTENTIAL BID ORDERS
20 Units at 2.90% 100 Units Sell 40 Units at 2.95%
60 Units at 3.02% 100 Units Sell 60 Units at 3.00%
120 Units at 3.05% 200 Units Sell 100 Units at 3.05%
--------------
200 Units at 3.10% 400 Units 100 Units at 3.10%
200 Units at 3.12% 100 Units at 3.11%
-----------------
600 Units 100 Units at 3.14%
200 Units at 3.15%
-----------------
700 Units
The total units under bid/hold orders and sell orders always equal the
issue size (in this case 1000 units).
(c) Auction agent organizes orders in ascending order
ORDER NUMBER CUMULATIVE TOTAL NUMBER OF CUMULATIVE
NUMBER OF UNITS (UNITS) PERCENT ORDER NUMBER UNITS TOTAL (UNITS) PERCENT
1. 20(W) 20 2.90% 7. 200(W) 600 3.10%
2. 40(W) 60 2.95% 8. 100(W) 700 3.10%
3. 60(W) 120 3.00% 9. 100(W) 800 3.11%
4. 60(W) 180 3.02% 10. 200(W) 1000 3.12%
5. 100(W) 280 3.05% 11. 100(L) 3.14%
6. 120(W) 400 3.05% 12. 200(L) 3.15%
(W) Winning Order (L) Losing Order
Order #10 is the order that clears the market of all available units. All
winning orders are awarded the winning rate (in this case, 3.12%) as the
interest rate for the next interest period, at the end of which another auction
will be held. Multiple orders at the winning rate are allocated units on a pro
rata basis. Regardless of the results of the auction, the interest rate will not
exceed the maximum rate specified in the applicable prospectus supplement.
The example assumes that a successful auction has occurred, that is, that
all sell orders and all bid/hold orders below the new interest rate were
fulfilled. However, there may be insufficient potential bid orders to purchase
all the auction rate notes offered for sale. In these circumstances, the
interest rate for the upcoming interest period will equal the maximum rate.
Also, if all the auction rate notes are subject to hold orders (i.e., each
holder of auction rate notes wishes to continue holding its auction rate notes,
regardless of the interest rate), the interest rate for the upcoming interest
period will equal the all hold rate specified in the related prospectus
supplement.
If a payment default has occurred, the rate will be the non-payment rate
specified in the related prospectus supplement.
MAXIMUM RATE AND INTEREST CARRY-OVERS. If the auction rate for a class of
auction rate notes is greater than the maximum rate described in the indenture,
then the interest rate applicable to those auction rate notes will be the
maximum rate. The maximum rate will be described in a prospectus supplement, and
generally will be the least of the LIBOR rate for a comparable period plus a
margin, 16% per annum, the highest rate permitted by law and the adjusted
student loan rate, which generally will be based upon the lesser of the interest
rate on financial commercial paper for a comparable period plus a margin, or the
actual return on the student loans held by the trust, less certain expenses and
losses realized on the student loans.
If the interest rate for a class of auction rate notes is set at the net
loan rate, interest will be carried over for that class of auction rate notes in
an amount equal to the difference between the least of the auction rate and the
other interest rates included in the maximum rate calculation and the net loan
rate. The carry-over amount will bear interest calculated at the one-month LIBOR
rate, until paid. The carry-over amount, and interest accrued thereon, for a
class of auction rate notes will be paid by the indenture trustee on the date of
defeasance of the auction rate notes or an interest payment date if there are
sufficient moneys in the Collection Fund to pay all interest due on the notes on
that interest payment date, and in the case of subordinate notes, payment of the
interest carry-over on more senior notes. Any carry-over amount, and any
interest accrued on the carry-over amount, due on any auction rate note which is
to be redeemed will be paid to the registered owner on the redemption date to
the extent that moneys are available. Any carry-over amount, and any interest
accrued on that carry-over amount, which is not yet due and payable on a date on
which an auction rate note is to be redeemed will be canceled and will not be
paid.
The interest to be paid on auction rate notes will not exceed the maximum
rate described in the related prospectus supplement.
CHANGES IN AUCTION PERIOD. As specified in the related prospectus
supplement, we may, from time to time, change the length of the auction period
for a class of auction rate notes in order to conform with then current market
practice with respect to similar securities or to accommodate economic and
financial factors that may affect or be relevant to the length of the auction
period and the interest rate borne by the auction rate notes. Any adjusted
auction period will be at least 7 days but not more than 366 days. The auction
period adjustment will take effect only if the auction agent receives orders
sufficient to complete the auction for the new auction period.
CHANGES IN THE AUCTION DATE. The applicable broker-dealer, with our written
consent, may specify a different auction date for a class of auction rate notes
in order to conform with then current market practice with respect to similar
securities or to accommodate economic and financial factors that may affect or
be relevant to the day of the week constituting an auction date for the auction
rate notes.
LIBOR RATE NOTES
The LIBOR rate notes will be dated their date of issuance and will have a
stated maturity set forth in the applicable prospectus supplement. Interest on
the LIBOR rate notes will be paid in arrears on each distribution date. The
distribution date for the LIBOR rate notes will be the business day specified in
the prospectus supplement following the end of the interest accrual period for
the notes specified in the prospectus supplement. The amount of interest payable
to registered owners of LIBOR rate notes for any interest accrual period will be
calculated on the basis of a 360-day year for the number of days actually
elapsed. The interest rate will be the LIBOR rate for the interest accrual
period for the notes plus the margin specified in the related prospectus
supplement. Principal on the LIBOR rate notes will be payable as specified in
the applicable prospectus supplement.
The interest rate payable on the LIBOR rate notes may be subject to
limitations described in the related prospectus supplement.
If so provided in the related prospectus supplement, a trust may enter into
a LIBOR note derivative product agreement. Under the terms of the agreement, the
counterparty will pay to the trust the excess, if any, of the LIBOR rate for the
notes over the adjusted student loan rate as provided by the terms of the
agreement. The indenture trustee will use those funds to make interest payments
on the notes at the LIBOR rate. If such payments are made by the counterparty,
the counterparty will become entitled to reimbursement from money remaining in
the Collection Fund on any distribution date after payment of interest and
principal due on the notes and, if necessary, replenishment of the Reserve Fund
to the required minimum balance.
TREASURY RATE NOTES
The treasury rate notes will be dated their date of issuance and will have
a stated maturity set forth in the applicable prospectus supplement. Interest on
the treasury rate notes will be paid in arrears on each interest payment date.
An interest payment date for the treasury rate notes will be the business day
specified in the applicable prospectus supplement following the end of the
interest period for the notes specified in the prospectus supplement. Principal
will be payable on the treasury rate notes as specified in the applicable
prospectus supplement.
The amount of interest payable on the treasury rate notes will generally be
adjusted weekly on the calendar day following each auction of 91-day Treasury
Bills which are direct obligations of the United States with a maturity of 13
weeks. The rate will be calculated to be the sum of the bond equivalent yield
for auctions of 91-day Treasury Bills on a rate determination date for an
interest period, plus a spread described in the related prospectus supplement.
Interest on the treasury rate notes will be computed for the actual number of
days elapsed on the basis of a year consisting of 365 or 366 days, as
applicable.
If so provided in the related prospectus supplement, the interest rate
payable on the treasury rate notes for any interest period may be subject to a
limitation based on an "adjusted student loan rate." The adjusted student loan
rate is the percentage equivalent of a fraction:
o The numerator of which is equal to the sum of the expected interest
collections on the applicable trust's student loans and reciprocal
payments that such trust receives on a derivative product, if any,
less the sum of the servicing fee, the administration fee, and
reciprocal payments such trust makes on any derivative product, if
any, with respect to an interest period; and
o The denominator of which is the aggregate principal amount of the
notes as of the last day of the interest period.
COMMERCIAL PAPER RATE NOTES
The commercial paper rate notes will be dated their date of issuance and
will have a stated maturity set forth in the applicable prospectus supplement.
Interest on the commercial paper rate notes will be paid in arrears on each
interest payment date. An interest payment date for the commercial paper rate
notes will be the business day specified in the applicable prospectus supplement
following the end of the interest period for the notes specified in the
prospectus supplement. Principal will be payable on the commercial paper rate
notes as specified in the applicable prospectus supplement.
The amount of interest payable on the commercial paper rate notes will be
adjusted as specified in the applicable prospectus supplement. The interest rate
will be the commercial paper rate plus a spread, in each case as specified in
the related prospectus supplement. The interest rate payable on the commercial
paper rate notes for any interest period may be subject to limitations as
specified in a prospectus supplement.
ACCRUAL NOTES
Accrual notes will be entitled to payments of accrued interest commencing
only on the interest payment date, or under the circumstances specified in the
related prospectus supplement. Prior to the time interest is payable on any
class of accrual notes, the amount of accrued interest will be added to the note
principal balance thereof on each interest payment date. The principal balance
of the accrual notes will begin to be paid from available funds received with
respect to the student loans after the date that accrued interest is no longer
being added to the principal balance of the notes. Accrued interest for each
interest payment date will be equal to interest at the applicable interest rate
accrued for a specified period (generally the period between interest payment
dates) on the outstanding note principal balance thereof immediately prior to
such interest payment date.
ORIGINAL ISSUE DISCOUNT NOTES
Original issue discount notes will have a stated maturity set forth in the
applicable prospectus supplement. The notes will be issued at a discount from
the principal amount payable at maturity. The notes may have a "zero coupon" and
currently pay no interest, or may pay interest at a rate that is below market
rates at the time of issuance. For original issue discount notes, all or some
portion of the interest due will accrue during the life of the note and be paid
only at maturity or upon earlier redemption. Upon redemption or optional
purchase, the amount payable on an original issue discount note will be
determined as described under the heading "Description of the Notes - Redemption
or Purchase Price." Each holder of an original issue discount note will be
required to include in current income a ratable portion of the original issue
discount, even though the holder may not receive any payment of interest during
the period. See "Federal Income Tax Consequences - Taxation of Interest Income
of Registered Owners."
OUTSTANDING PRINCIPAL BALANCE OF THE NOTES
If the prospectus supplement for a series of notes provides for payments of
principal prior to maturity, the remaining outstanding balance of the notes,
after giving effect to distributions of principal, will be determined through
use of a note pool factor. The pool factor for each class of notes will be a
seven-digit decimal computed by the Administrator before each distribution date.
Each pool factor will initially be 1.0000000. Thereafter, it will decline to
reflect reductions in the outstanding balance of the notes. Your portion of the
aggregate outstanding balance of a class of notes will be the product of:
o the original denomination of your note; and
o the applicable pool factor.
Noteholders will receive reports periodically concerning various matters,
including the payments the trust has received on its student loans, the pool
balance, the applicable pool factor and various other items of information. See
"Summary of the Indenture Provisions--Further Covenants" in this prospectus.
PAYMENTS OF THE NOTES
The principal of the notes due at maturity or redemption in whole will be
payable at the principal office of the indenture trustee upon presentation and
surrender of the notes. Payment of principal on any notes, payments in
connection with a partial redemption and all interest payments will be made to
the registered owner by check or draft mailed on the interest payment date by
the indenture trustee to the registered owner at his address as it last appears
on the registration books kept by the indenture trustee at the close of business
on the record date for such interest payment date. Payment of principal and
interest to a securities depository or its nominee, and to any other registered
owner owning at least $1,000,000 principal amount of the notes upon written
request delivered to the indenture trustee, will be paid by wire transfer within
the United States to the bank account number filed no later than the record date
or special record date with the indenture trustee. All payments on the notes
will be made in United States dollars.
MANDATORY REDEMPTION
If so provided in the related prospectus supplement, the notes of a series
may be subject to mandatory redemption on the interest payment date following
the end of the prefunding period described in the related prospectus supplement
in an amount equal to the proceeds held in the Acquisition Fund from the sale of
notes that have not been used to purchase student loans. Mandatory redemptions
will be made solely from moneys available for redemption in the Acquisition
Fund. If so provided in the related prospectus supplement, the principal
payments received on the student loans and, until the principal balance of the
student loans reaches a specified minimum percentage of the principal balance of
the outstanding notes, interest received on the student loans, after deducting
all required payments, will be used to redeem the notes.
See "Notice and partial redemption of notes" below for a discussion of the
order in which notes of any trust will be redeemed.
OPTIONAL REDEMPTION
If so provided in the related prospectus supplement, the notes of a series
may be subject to redemption, from funds received by the indenture trustee
constituting interest on student loans remaining in the Collection Fund after
all other prior required payments have been made. In addition, the notes may be
optionally redeemed in whole or in part, on or after the date set forth in the
prospectus supplement. Any limitations on optional redemptions of the notes of
any trust will be described in the prospectus supplement related to that trust.
See "Notice and partial redemption of notes" below for a discussion of the order
in which notes will be redeemed.
EXTRAORDINARY OPTIONAL REDEMPTION
If so provided in the related prospectus supplement, the notes are also
subject to extraordinary optional redemption, at our sole discretion, from any
unallocated and available moneys remaining in the applicable trust estate, on
any interest payment date, if we reasonably determine that the rate of return on
student loans has materially decreased or that the costs of administering the
trust estate have placed unreasonable burdens upon the trust's ability to
perform its obligations under the applicable indenture. An extraordinary
optional redemption of the notes may be made in whole or in part. See "Notice
and partial redemption of notes" below for a discussion of the order in which
the notes of a trust will be redeemed. Generally, the extraordinary optional
redemption provision will be exercised only if changes are made to the Higher
Education Act or changes occur in the financial markets or student loan markets
that we deem to be materially adverse to the trust estate. In determining
whether to exercise the extraordinary optional redemption provision, we will
consider all of the facts and circumstances that exist at the time, including
any changes to the Higher Education Act which would be materially adverse to the
trust estate such that the noteholders, of any or all series, in our reasonable
determination, would suffer a loss or material delay in the receipt of principal
or interest payments when due.
REDEMPTION OR PURCHASE PRICE
Upon redemption, the price to be paid to the holder of a note, other than
an original issue discount note, will be an amount equal to the aggregate
current principal balance plus accrued interest. If a note is an original issue
discount note, the amount payable upon redemption or optional purchase will be
the amortized face amount on the redemption or purchase date. The amortized face
value of an original issue discount note will be equal to the issue price plus
that portion of the difference between the issue price and the principal amount
of the note that has accrued at the yield to maturity described in the
prospectus supplement by the redemption or purchase date. The amortized face
value of an original issue discount note will never be greater than its
principal amount.
NOTICE AND PARTIAL REDEMPTION OF NOTES
The indenture trustee will provide notice of any redemption or purchase by
mailing a copy of the redemption or purchase notice to the registered owner of
any note being redeemed or purchased, and to the auction agent with respect to
the auction rate notes designated for redemption or purchase, not less than 15
days prior to the redemption or purchase date.
If less than all of the notes of any trust are to be redeemed or purchased,
we will determine which notes will be redeemed or purchased. Generally, all of
the Class A notes will be redeemed prior to redemption of any Class B notes. If
an indenture provides for the issuance of Class C notes, generally all of the
Class B notes will be redeemed before any of the Class C notes are redeemed.
However, a trust may redeem Class B notes while Class A notes remain outstanding
if after the redemption of the Class B notes, the aggregate market value of the
trust's assets will equal the percentage of all Class A notes then outstanding
under the indenture that is specified in the related prospectus supplement.
Similarly, a trust may redeem any Class C notes while Class A notes and Class B
notes remain outstanding if after the redemption of the Class C notes, the
aggregate market value of the trust's assets will equal the percentage of all
Class A notes and Class B notes then outstanding under the indenture that is
specified in the related prospectus supplement.
SALE OF STUDENT LOANS HELD IN TRUST ESTATE
Student loans may be sold or otherwise disposed of by the indenture trustee
free from the lien of the indenture in connection with loan consolidation,
serialization or transfer to a guarantee agency for payment. Student loans also
may be sold by the indenture trustee to Collegiate Funding Services, L.L.C. or
other seller if that party is required to repurchase the student loan pursuant
to a student loan purchase agreement. Also, with the approval of the rating
agencies rating our notes, any student loan may be sold by the indenture trustee
for a price no less than the principal balance of the student loan as of the
sale date, plus any unamortized premium and borrower accrued interest.
If so provided in the related prospectus supplement, the sponsor, at its
option, may repurchase or arrange for the purchase of all student loans
remaining in a trust as of the end of any collection period if the outstanding
pool balance is 10% or less of the initial pool balance or at such other times
as may be described in the related prospectus supplement. The purchase price for
the loans will not be less than the minimum purchase amount specified in the
related prospectus supplement. These amounts will be used to retire the related
notes.
In addition, if the sponsor does not exercise its option described above
and if so provided in the related prospectus supplement, the indenture trustee
will conduct an auction of any student loans remaining in a trust at the end of
the collection period preceding the trust auction date specified in the related
prospectus supplement. Collegiate Funding Services, L.L.C., its affiliates and
unrelated third parties may make bids to purchase these student loans.
SECURITY AND SOURCES OF PAYMENT FOR THE NOTES
GENERAL
The notes are limited obligations of the issuing trust, secured by and
payable solely from that trust's assets as set forth in a related indenture of
trust. The following assets will serve as security for the notes:
o revenues, consisting of all principal and interest payments, proceeds,
charges and other income received by the indenture trustee or the
trust on account of any student loan, including interest benefit
payments and any special allowance payments with respect to any
student loan, and investment income from all funds created under the
indenture and any proceeds from the sale or other disposition of the
student loans;
o payments from counterparties under any derivative products described
in a prospectus supplement;
o all moneys and investments held in the funds created under the
indenture; and
o student loans purchased with money from the Acquisition Fund or
otherwise acquired or originated and pledged or credited to the
Acquisition Fund.
In addition, a trust's assets may include rights that provide credit
enhancement (for example, the right to draw under any letter of credit or note
insurance) or cash flow enhancement as described in this prospectus and in the
related prospectus supplement.
The assets of one trust will not be available to pay the debts and
obligations of another trust.
FLOW OF FUNDS
The following funds will be created by the indenture trustee under the
indenture for the benefit of the registered owners and the counterparties:
o Collection Fund
o Acquisition Fund
o Reserve Fund
ACQUISITION FUND; PURCHASE OF STUDENT LOANS
We will deposit most of the proceeds from the sale of any notes by a trust
into the Acquisition Fund created under its indenture. As described in the
related prospectus supplement, money on deposit in the Acquisition Fund may be
used to pay costs of issuance of the notes, to make payments of principal on the
notes, to redeem notes, and to acquire student loans. Student loans acquired
with funds deposited in the Acquisition Fund that are pledged to the trust
estate of a trust will be held by the indenture trustee or its agent or bailee
and accounted for as a part of the Acquisition Fund. If money held in the
Acquisition Fund cannot be used to purchase student loans, then the trust will
transfer such moneys to the Collection Fund or use those funds to redeem notes
as described in the related prospectus supplement. See "Description of the Notes
- - Mandatory redemption."
The eligible lender trustee will be the legal owner of the student loans
transferred to the trust estate and will have a security interest in the student
loans for and on behalf of the registered owners. The student loans will be held
in the name of the eligible lender trustee for the account of each trust, for
the benefit of the registered owners.
If so provided in a prospectus supplement, during an acquisition period
specified in the prospectus supplement, also known as a prefunding period, a
trust will use a specified percentage of the proceeds in the Acquisition Fund
for the following purposes:
o to purchase portfolios of student loans during a time period specified
in the related prospectus supplement.
o to originate federal consolidation loans, each made for the purpose of
consolidating one or more federal student loans at least one of which
is already held by the trust and add-on loans to existing
consolidation loans held by the trust.
o to purchase serial loans from sellers. For a student loan to qualify
as a serial loan it must have been made to a borrower under a student
loan held by the trust on the date of issuance, or acquired during a
prefunding period, of the notes and must meet other criteria described
in the indenture.
The additional student loans may be purchased by the trust or may be originated
by the trust, if and to the extent specified in the related prospectus
supplement. The related prospectus supplement will also specify a prefunding
period during which loans may be originated or purchased. After the amount on
deposit in the Acquisition Fund has been reduced to zero, the trust may continue
to acquire serial loans or add-on loans if so provided in the related prospectus
supplement from collections received on the student loans or in exchange for
student loans then owned by the trust. If the amount initially deposited into
the Acquisition Fund for a series of notes has not been reduced to zero by the
end of the related prefunding period, the amounts remaining on deposit in the
Acquisition Fund will be used to make principal payments on notes or to redeem
notes as described in the related prospectus supplement.
COLLECTION FUND
The indenture trustee will deposit into the Collection Fund all revenues
derived from student loans, from money or assets on deposit in the Acquisition
Fund or Reserve Fund, from payments on derivative products and any other amounts
as each trust may direct.
On each distribution date and derivative payment date, money in the
Collection Fund will be used and transferred to other funds or persons in the
order described in the related prospectus supplement.
RESERVE FUND
The indenture for each trust will establish a Reserve Fund. In connection
with the sale of notes, the indenture trustee will make a deposit to the Reserve
Fund of a trust in the amount specified in each indenture. On each distribution
date, to the extent money in the Collection Fund is not sufficient to make
payment of the trust's expenses and interest then due on the notes of that
trust, the amount of the deficiency shall be paid directly from the Reserve
Fund. Unless otherwise stated in a prospectus supplement, money in the Reserve
Fund may be used to pay principal on the notes only on the date of their
maturity or in connection with defeasance of the indenture.
If the Reserve Fund is used as described above, the indenture trustee will
restore the Reserve Fund to the level specified in a prospectus supplement by
transfers from the Collection Fund of the related trust. If the full amount
required to restore the Reserve Fund to the required level is not available in
the Collection Fund on the next distribution date, the indenture trustee shall
continue to transfer funds from the Collection Fund as they become available
until the deficiency in the Reserve Fund has been eliminated. On any day that
the amount in the Reserve Fund exceeds the minimum level specified in a
prospectus supplement, the indenture trustee will transfer the excess in
accordance with the terms of the indenture and as described in the related
prospectus supplement.
If so provided in a prospectus supplement, the Reserve Fund requirement may
be satisfied by the deposit of a Reserve Fund insurance policy to be provided by
the credit provider described in the prospectus supplement. The Reserve Fund
insurance policy shall be drawn upon by the indenture trustee as necessary to
make up on a distribution date any deficiency in the amounts to pay note
principal or interest.
TRANSFERS FREE OF THE LIEN OF THE INDENTURE
If so provided in a prospectus supplement and an indenture, amounts in the
Collection Fund established under an indenture may be released from the
indenture and transferred in accordance with the Administrator's instructions if
the balance in the Reserve Fund exceeds the required minimum Reserve Fund
balance.
STATEMENTS TO INDENTURE TRUSTEE AND TRUST
The Administrator will prepare and provide periodic statements to the
indenture trustee that will include:
o the amount of principal distributions on the notes;
o the amount of interest distributions for each class of notes and the
applicable interest rates;
o the pool balance at the end of the collection period;
o the outstanding principal amount for each class of the notes;
o the amount of principal and interest collected on the student loans;
o the ratio of the trust's assets to the outstanding amount of class A
notes and all of the notes;
o during each acquisition period, the principal amount of student loans
acquired;
o the servicing fees, trustees' fees and administrative fees for the
collection period;
o the interest rates, if available, for the next interest accrual period
for each class;
o the amount of any aggregate realized losses for the collection period;
o the amount of any shortfall in the payment of the principal
distribution amount for each class, and any changes in these amounts
from the preceding statement;
o the balance of student loans held by a trust that are delinquent in
each delinquency period as of the end of collection period; and
o the balance of any reserve account, after giving effect to changes in
the balance on that distribution date.
INVESTMENT OF FUNDS HELD BY INDENTURE TRUSTEE
The indenture trustee will invest amounts credited to any fund established
under the indenture in investment securities described in the indenture pursuant
to orders received from us. In the absence of an order, and to the extent
practicable, the indenture trustee will invest amounts held under an indenture
in direct obligations of, or in obligations fully guaranteed by, the United
States.
The indenture trustee is not responsible or liable for any losses on
investments made by it or for keeping all funds held by it fully invested at all
times. Its only responsibility is to comply with investment instructions in a
non-negligent manner.
BOOK-ENTRY REGISTRATION
Investors acquiring beneficial ownership interests in the notes issued in
book-entry form will hold their notes through The Depository Trust Company in
the United States, or Clearstream, Luxembourg or Euroclear (in Europe) if they
are participants of these systems, or indirectly through organizations which are
participants in these systems. The book-entry notes will be issued in one or
more instruments which equal the aggregate principal balance of the series of
notes and will initially be registered in the name of Cede & Co., the nominee of
The Depository Trust Company. Clearstream, Luxembourg and Euroclear will hold
omnibus positions on behalf of their participants through customers' securities
accounts in Clearstream, Luxembourg's and Euroclear's name on the books of its
respective depositary which in turn will hold positions in customers' securities
accounts in such depositary's name on the books of The Depository Trust Company.
Citibank N.A. will act as depositary for Clearstream, Luxembourg and The Chase
Manhattan Bank will act as depositary for Euroclear. Except as described below,
no person acquiring a book-entry note will be entitled to receive a physical
certificate representing the notes. Unless and until Definitive Certificates are
issued, it is anticipated that the only holder of the notes will be Cede & Co.,
as nominee of The Depository Trust Company.
The Depository Trust Company is a New York-chartered limited-purpose trust
company that performs services for its participants, some of which, and/or their
representatives, own The Depository Trust Company. In accordance with its normal
procedures, The Depository Trust Company is expected to record the positions
held by each of its participants in notes issued in book-entry form, whether
held for its own account or as nominee for another person. In general,
beneficial ownership of book-entry notes will be subject to the rules,
regulations and procedures governing The Depository Trust Company and its
participants as in effect from time to time.
Purchases of the notes under The Depository Trust Company system must be
made by or through direct participants, which are to receive a credit for the
notes on The Depository Trust Company's records. The ownership interest of each
actual purchaser of each series of notes, or beneficial owner, is in turn to be
recorded on the direct and indirect participants' records. Beneficial owners
shall not receive written confirmation from The Depository Trust Company of
their purchase, but beneficial owners are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the direct or indirect participant through
which the beneficial owner entered into the transaction. Transfers of ownership
interests in the notes are to be accomplished by entries made on the books of
participants acting on behalf of beneficial owners. Beneficial owners shall not
receive certificates representing their ownership interests in the notes, except
in the event that use of the book-entry system for the series of any notes is
discontinued.
To facilitate subsequent transfers, all notes deposited by participants
with The Depository Trust Company are registered in the name of The Depository
Trust Company's partnership nominee, Cede & Co. The deposit of such notes with
The Depository Trust Company and their registration in the name of Cede & Co.
effect no change in beneficial ownership. The Depository Trust Company has no
knowledge of the actual beneficial owners of notes. The Depository Trust
Company's records reflect only the identity of the direct participants to whose
accounts such notes are credited, which may or may not be the beneficial owners.
The participants remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by The Depository Trust
Company to direct participants, by direct participants to indirect participants,
and by direct participants and indirect participants to beneficial owners are
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of a class
of the notes of any series are being redeemed, The Depository Trust Company's
practice is to determine by lot the amount of the interest of each Direct
Participant in such class to be redeemed.
Neither The Depository Trust Company nor Cede & Co. will consent or vote
with respect to the notes of any series. Under its usual procedures, The
Depository Trust Company mails an omnibus proxy to the applicable Collegiate
Funding Services Education Loan Trust, or the indenture trustee, as appropriate,
as soon as possible after the record date. The omnibus proxy assigns Cede &
Co.'s consenting or voting rights to those direct participants to whose accounts
the notes are credited on the record date.
Principal and interest payments on the notes are to be made to The
Depository Trust Company. The Depository Trust Company's practice is to credit
direct participant's accounts on the due date in accordance with their
respective holdings shown on The Depository Trust Company's records unless The
Depository Trust Company has reason to believe that it will not receive payment
on the due date. Payments by participants to beneficial owners are governed by
standing instructions and customary practices, as is the case with securities
held for the accounts of customers in bearer form or registered in "street
name," and shall be the responsibility of the participant and not of The
Depository Trust Company, the indenture trustee or the trust, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of principal and interest to The Depository Trust Company is the
responsibility of the applicable trust, or the indenture trustee. Disbursement
of such payments to direct participants shall be the responsibility of The
Depository Trust Company, and disbursement of such payments to the beneficial
owners shall be the responsibility of direct and indirect participants.
Depository Trust Company may discontinue providing its services as
securities depository with respect to the notes of any series at any time by
giving reasonable notice to the trust or the indenture trustee. In the event
that a successor securities depository is not obtained, note certificates are
required to be printed and delivered.
Clearstream Banking, societe anonyme, Luxembourg, formerly Cedelbank
("Clearstream, Luxembourg"), has advised that it is incorporated under the laws
of the Grand Duchy of Luxembourg as a professional depository. Clearstream,
Luxembourg holds securities for its participating organizations. Clearstream,
Luxembourg facilitates the clearance and settlement of securities transactions
between Clearstream, Luxembourg participants through electronic book-entry
changes in accounts of Clearstream, Luxembourg participants, thereby eliminating
the need for physical movement of certificates. Clearstream, Luxembourg provides
to its Clearstream, Luxembourg participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. Clearstream, Luxembourg
interfaces with domestic markets in several countries. As a professional
depository, Clearstream, Luxembourg is subject to regulation by the Luxembourg
Commission for the Supervision of the Financial Sector (the "CSSF").
Clearstream, Luxembourg participants are recognized financial institutions
around the world, including underwriters, securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations. Indirect
access to Clearstream, Luxembourg is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Clearstream, Luxembourg participant, either directly or
indirectly.
Euroclear has advised that it was created in 1968 to hold securities for
participants of Euroclear and to clear and settle transactions between Euroclear
participants through simultaneous electronic book-entry delivery against
payment, eliminating the need for physical movement of certificates and any risk
from lack of simultaneous transfers of securities and cash. Euroclear provides
various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries. Euroclear is operated by
Euroclear Bank S.A./NV (the "Euroclear operator"), under contract with Euroclear
Clearance Systems S.C., a Belgian cooperative corporation. All operations are
conducted by the Euroclear operator, and all Euroclear securities clearance
accounts and Euroclear cash accounts are accounts with the Euroclear operator,
not the Cooperative. The Cooperative establishes policy for Euroclear on behalf
of Euroclear participants. Euroclear participants include banks, central banks,
securities brokers and dealers and other professional financial intermediaries.
Indirect access to Euroclear is also available to other firms that clear through
or maintain a custodial relationship with a Euroclear participant, either
directly or indirectly.
The Euroclear operator has advised that it is licensed by the Belgian
Banking and Finance Commission to carry out banking activities on a global
basis. As a Belgian Bank, it is regulated by the Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law.
The Terms and Conditions govern transfers of securities and cash within the
Euroclear, withdrawals of securities and cash from the Euroclear, and receipts
of payments with respect to securities in Euroclear. All securities in Euroclear
are held on a fungible basis without attribution of specific certificates to
specific securities clearance accounts. The Euroclear operator acts under the
Terms and Conditions only on behalf of Euroclear participants and has no record
of or relationship with persons holding through Euroclear participants.
Distributions with respect to notes held through Clearstream, Luxembourg or
Euroclear will be credited to the cash accounts of Clearstream, Luxembourg
participants or Euroclear participants in accordance with the relevant system's
rules and procedures, to the extent received by its depositary. Those
distributions will be subject to tax reporting in accordance with relevant
United States tax laws and regulations. Clearstream, Luxembourg or the Euroclear
operator, as the case may be, will take any other action permitted to be taken
by a noteholder under the indenture on behalf of a Clearstream, Luxembourg
participant or Euroclear participant only in accordance with the relevant rules
and procedures and subject to the relevant Depositary's ability to effect such
actions on its behalf through The Depository Trust Company.
Noteholders may hold their notes in the United States through The
Depository Trust Company or in Europe through Clearstream, Luxembourg or
Euroclear if they are participants of such systems, or indirectly through
organizations which are participants in such systems.
The notes will initially be registered in the name of Cede & Co., the
nominee of The Depository Trust Company. Clearstream, Luxembourg and Euroclear
will hold omnibus positions on behalf of their participants through customers'
securities accounts in Clearstream, Luxembourg's and Euroclear's names on the
books of their respective depositaries which in turn will hold such positions in
customers' securities accounts in the depositaries' names on the books of The
Depository Trust Company. Citibank, N.A. will act as depositary for Clearstream,
Luxembourg and The Chase Manhattan Bank of New York will act as depositary for
Euroclear.
Transfers between participants will occur in accordance with The Depository
Trust Company Rules. Transfers between Clearstream, Luxembourg participants and
Euroclear participants will occur in accordance with their respective rules and
operating procedures.
Because of time-zone differences, credits of securities received in
Clearstream, Luxembourg or Euroclear as a result of a transaction with a
participant will be made during subsequent securities settlement processing and
dated the business day following The Depository Trust Company settlement date.
Such credits or any transactions in such securities settled during such
processing will be reported to the relevant Euroclear or Clearstream, Luxembourg
participants on such business day. Cash received in Clearstream, Luxembourg or
Euroclear as a result of sales of securities by or through a Clearstream,
Luxembourg participant or Euroclear participant to a participant will be
received with value on The Depository Trust Company settlement date but will be
available in the relevant Clearstream, Luxembourg or Euroclear cash account only
as of the business day following settlement in The Depository Trust Company.
Cross-market transfers between persons holding directly or indirectly
through The Depository Trust Company, on the one hand, and directly or
indirectly through Clearstream, Luxembourg participants or Euroclear
participants, on the other, will be effected in The Depository Trust Company in
accordance with The Depository Trust Company Rules on behalf of the relevant
European international clearing system by its depositary; however, such
cross-market transactions will require delivery of instructions to the relevant
European international clearing system by the counterparty in such system in
accordance with its rules and procedures and within its established deadlines
(European time). The relevant European international clearing system will, if
the transaction meets its settlement requirements, deliver instructions to its
depositary to take action to effect final settlement on its behalf by delivering
or receiving securities in The Depository Trust Company, and making or receiving
payment in accordance with normal procedures for same-day funds settlement
applicable to The Depository Trust Company. Clearstream, Luxembourg participants
and Euroclear participants may not deliver instructions to the depositaries.
Depository Trust Company has advised that it will take any action permitted
to be taken by a noteholder under the indenture only at the direction of one or
more participants to whose accounts with The Depository Trust Company the notes
are credited. Clearstream, Luxembourg or Euroclear will take any action
permitted to be taken by a noteholder under the indenture on behalf of a
participant only in accordance with their relevant rules and procedures and
subject to the ability of the relevant depositary to effect these actions on its
behalf through DTC.
Although The Depository Trust Company, Clearstream, Luxembourg and
Euroclear have agreed to the foregoing procedures in order to facilitate
transfers of interests in the notes among participants of The Depository Trust
Company, Clearstream, Luxembourg and Euroclear, they are under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time.
Neither the trusts, the sellers, the servicer, the sub-servicers, the
indenture trustee nor the underwriters will have any responsibility or
obligation to any The Depository Trust Company participants, Clearstream,
Luxembourg participants or Euroclear participants or the persons for whom they
act as nominees with respect to
o the accuracy of any records maintained by The Depository Trust
Company, Clearstream, Luxembourg or Euroclear or any participant,
o the payment by The Depository Trust Company, Clearstream, Luxembourg
or Euroclear or any participant of any amount due to any beneficial
owner in respect of the principal amount or interest on the notes,
o the delivery by any The Depository Trust Company participant,
participant or Euroclear participant of any notice to any beneficial
owner which is required or permitted under the terms of the indenture
to be given to noteholders or
o any other action taken by The Depository Trust Company.
A trust may discontinue use of the system of book entry transfers through
The Depository Trust Company or a successor securities depository in certain
circumstances following an event of default under the applicable indenture or a
default by the master servicer or the administrator under the applicable master
servicing or administration agreement. In that event, note certificates are to
be printed and delivered.
ADDITIONAL NOTES
If so described in the related prospectus supplement, a trust may, upon
complying with the provisions of the related indenture, issue from time to time
additional notes secured by the assets of the trust on a parity with or
subordinate to either Class A notes or Class B notes, or Class C notes if any,
then outstanding. In addition, a trust may enter into any derivative product it
deems necessary or desirable with respect to any or all of the notes issued by
that trust. We may take those actions without the approval of the holders of any
outstanding notes.
A trust will not issue additional notes unless the following conditions
have been satisfied:
o The trust has entered into a supplemental indenture with the indenture
trustee providing the terms and forms of the additional notes.
o The indenture trustee has received a rating confirmation from each
rating agency which has assigned a rating to any outstanding notes of
the trust that such rating will not be reduced or withdrawn as a
result of the issuance of the proposed additional notes.
o The indenture trustee has received an opinion of counsel to the effect
that all of the foregoing conditions to the issuance of the proposed
additional notes have been satisfied.
The indenture trustee will be authorized under the indenture to establish
any additional funds or accounts which it deems necessary or convenient in
connection with the issuance and delivery of any additional notes.
SUMMARY OF THE INDENTURE PROVISIONS
Each trust will issue notes pursuant to an indenture of trust. The
following is a summary of some of the provisions expected to be contained in
each indenture. This summary is not comprehensive and reference should be made
to the indenture for a full and complete statement of its provisions.
PARITY AND PRIORITY OF LIEN
The provisions of each trust's indenture are generally for the equal
benefit, protection and security of the registered owners of all of the notes
issued by that trust. However, the Class A notes have priority over the Class B
notes with respect to payments of principal and interest, and the Class B notes
have priority over the Class C notes, if any, with respect to payments of
principal and interest.
The revenues and other money, student loans and other assets each trust
pledges under its indenture will be free and clear of any pledge, lien, charge
or encumbrance, other than that created by the indenture. Except as otherwise
provided in the indenture, a trust:
o will not create or voluntarily permit to be created any debt, lien or
charge on the student loans which would be on a parity with,
subordinate to, or prior to the lien of the indenture;
o will not take any action or fail to take any action that would result
in the lien of the indenture or the priority of that lien for the
obligations thereby secured being lost or impaired; and
o will pay or cause to be paid, or will make adequate provisions for the
satisfaction and discharge, of all lawful claims and demands which if
unpaid might by law be given precedence to or any equality with the
indenture as a lien or charge upon the student loans.
REPRESENTATIONS AND WARRANTIES
Each trust will represent and warrant in its indenture that:
o it is duly authorized under the Delaware Statutory Trust Act to create
and issue the notes and to execute and deliver the indenture and any
derivative product, and to make the pledge to the payment of notes and
any company derivative payments under the indenture,
o all necessary trust action for the creation and issuance of the notes
and the execution and delivery of the indenture and any derivative
product has been duly and effectively taken,
o the notes in the hands of the registered owners of the notes and any
derivative product are and will be valid and enforceable special
limited obligations of the trust secured by and payable solely from
the trust estate.
FURTHER COVENANTS
Each trust will file financing statements and continuation statements in
any jurisdiction necessary to perfect and maintain the security interest it
grants under its indenture.
Upon written request of the indenture trustee, a trust will permit the
indenture trustee or its agents, accountants and attorneys, to examine and
inspect the property, books of account, records, reports and other data relating
to the student loans, and will furnish the indenture trustee such other
information as it may reasonably request. The indenture trustee shall be under
no duty to make any examination unless requested in writing to do so by the
registered owners of 66% of the principal amount of the notes, and unless those
registered owners have offered the indenture trustee security and indemnity
satisfactory to it against any costs, expenses and liabilities which might be
incurred in making any examination.
Each year each trust will deliver to the indenture trustee a certification
of its compliance with the terms and conditions of its indenture, and in the
event of any noncompliance, a description of the nature and status thereof.
For each period described in a prospectus supplement, each trust will
provide to the indenture trustee, and the indenture trustee will forward to each
registered owner, a statement setting forth information with respect to its
notes and student loans as of the end of such period, including the following:
o the amount of principal payments made with respect to each class of
notes during the preceding period;
o the amount of interest payments made with respect to each class of
notes during the preceding period;
o the principal balance of student loans as of the close of business on
the last day of the preceding period;
o the aggregate outstanding principal amount of the notes of each class;
o the interest rate for the applicable class of notes with respect to
each distribution date;
o the number and principal amount of student loans that are delinquent
or for which claims have been filed with a guarantee agency; and
o the outstanding principal amount of the notes as of the close of
business on the last day of the preceding period.
A copy of these reports may be obtained by any noteholder by a written
request to the indenture trustee.
ENFORCEMENT OF SERVICING AGREEMENT
Each trust will diligently enforce all terms, covenants and conditions of
all servicing agreements, including the prompt payment of all amounts due to the
servicer under the servicing agreements. A trust will not permit the release of
the obligations of any servicer under any servicing agreement except in
conjunction with permitted amendments or modifications and will not waive any
default by the servicer under the servicing agreement without the written
consent of the indenture trustee. A trust will not consent or agree to or permit
any amendment or modification of any servicing agreement which will in any
manner materially adversely affect the rights or security of the registered
owners of the notes.
ADDITIONAL COVENANTS WITH RESPECT TO THE HIGHER EDUCATION ACT
We will verify that the eligible lender trustee under an indenture is an
eligible lender under the Higher Education Act, and will acquire or cause to be
acquired student loans only from an eligible lender.
Each trust is responsible, directly or through its agents, for each of the
following actions with respect to the Higher Education Act:
o Dealing with the Secretary of Education with respect to the rights,
benefits and obligations under the certificates of insurance and the
contract of insurance, and dealing with the guarantee agencies with
respect to the rights, benefits and obligations under the guarantee
agreements with respect to the student loans;
o Causing to be diligently enforced, and causing to be taken all
reasonable steps necessary or appropriate for the enforcement of all
terms, covenants and conditions of all student loans and agreements in
connection with the student loans, including the prompt payment of all
principal and interest payments and all other amounts due under the
student loans;
o Causing the student loans to be serviced by entering into a servicing
agreement with the servicer for the collection of payments made for,
and the administration of the accounts of, the student loans;
o Complying with, and causing all of its officers, trustees, employees
and agents to comply, with the provisions of the Higher Education Act
and any regulations or rulings under the Act, with respect to the
student loans;
o Causing the benefits of the guarantee agreements, the interest subsidy
payments and the special allowance payments to flow to the indenture
trustee; and
o Causing student loans that are evidenced by a master promissory note
under The Higher Education Act to be acquired in accordance with the
terms of a loan purchase agreement as described in the indenture.
CONTINUED EXISTENCE; SUCCESSOR
Each trust will preserve and keep in full force and effect its existence,
rights and franchises as a Delaware statutory trust. A trust will not sell or
otherwise dispose of all or substantially all of its assets, consolidate with or
merge into another entity, or permit one or more other entities to consolidate
with or merge with such trust. These restrictions do not apply to a transaction
where the transferee or the surviving or resulting entity irrevocably and
unconditionally assumes the obligation to perform and observe the trust's
agreements and obligations under the indenture.
EVENTS OF DEFAULT
Each indenture will define the following events as events of default:
o default in the due and punctual payment of any interest (other than
carry-over interest, if applicable) on any Class A note when the same
becomes due and payable and such default shall continue for a period
of five days;
o if no Class A notes are outstanding under the indentures, default in
the due and punctual payment of any interest (other than carry-over
interest, if applicable) on any Class B note when the same becomes due
and payable and such default shall continue for a period of five days;
o if no Class A notes and no Class B notes are outstanding under the
indenture, default in the due and punctual payment of any interest
(other than carry-over interest, if applicable) on any Class C note
when the same becomes due and payable, and such default shall continue
for a period of five days;
o default in the due and punctual payment of the principal of any note
when the same becomes due and payable on the final maturity date of
the note;
o default in the performance or observance of any other of the trust's
covenants, agreements or conditions contained in the indenture or in
the notes, and continuation of such default for a period of 90 days
after written notice thereof is given to the trust by the indenture
trustee; and
o the occurrence of an event of bankruptcy.
REMEDIES ON DEFAULT
POSSESSION OF TRUST ESTATE. Upon the happening of any event of default
relating to a trust, the indenture trustee may take possession of any portion of
the trust estate of that trust that may be in the custody of others, and all
property comprising the trust estate, and may hold, use, operate, manage and
control those assets. The indenture trustee may also, in the name of that trust
or otherwise, conduct such trust's business and collect and receive all charges,
income and revenues of the trust estate. After deducting all expenses incurred
and all other proper outlays authorized in the indenture, and all payments which
may be made as just and reasonable compensation for its own services, and for
the services of its attorneys, agents, and assistants, the indenture trustee
will apply the rest and residue of the money received by the indenture trustee
as follows or as otherwise described in a prospectus supplement (however, if the
event of default relates to a covenant default described in the fifth bullet
point under "Events of default" above, priorities FOURTH and FIFTH below will be
reversed):
o FIRST, to the trustees for fees and expenses due and owing to the
trustees;
o SECOND, to the master servicer and certain other service providers,
due and unpaid servicing fees;
o THIRD, pro rata, (i) to the derivative product counterparties relating
to Class A notes, in proportion to their respective entitlements under
the applicable derivative products without preference or priority,
except for certain termination payments, and (ii) to the Class A
noteholders for amounts due and unpaid on the Class A notes for
interest, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Class A notes for such
interest;
o FOURTH, to Class A noteholders for amounts due and unpaid on the Class
A notes for principal, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Notes for
principal;
o FIFTH, pro rata, (i) to the derivative product counterparties relating
to the Class B notes, in proportion to their respective entitlements
under the applicable derivate products without preference or priority,
except for certain termination payments, and (ii) to the Class B
noteholders for amounts due and unpaid on the Class B Notes for
interest, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Class B notes for such
interest;
o SIXTH, to the Class B noteholders for amounts due and unpaid on the
Class B Notes for principal, ratably without preference or priority of
any kind, according to the amounts due and payable on the Class B
Notes for principal;
o SEVENTH, to the Class A noteholders, all carry-over amounts then due
and unpaid, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Class A notes for such
carry-over amounts;
o EIGHTH, to the Class B noteholders, all carry-over amounts then due
and unpaid, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Class B notes for such
carry-over amounts;
o NINTH, to the derivative product counterparties relating to the Class
A notes, in proportion to the respective entitlements under the
applicable derivative products without preference or priority, for any
reimbursements that are due and unpaid;
o TENTH, to the derivative product counterparties relating to Class B
notes, in proportion to the respective entitlements under the
applicable derivative products without preference or priority, for any
reimbursements that are due and unpaid;
o ELEVENTH, to the master servicer, for any unpaid carryover servicing
fees due under a master servicing agreement; and
o TWELFTH, to the trust, for distribution in accordance with the terms
of the administrative services agreement and the Trust Agreement.
If an indenture provides for the issuance of Class C notes, interest and
principal will be paid on those notes before the payments as described in the
related prospectus supplement.
SALE OF TRUST ESTATE. Upon the happening of any event of default and if the
principal of all of the outstanding notes shall have been declared due and
payable, then the indenture trustee may sell the trust estate to the highest
bidder in accordance with the requirements of applicable law. In addition, the
indenture trustee may proceed to protect and enforce the rights of the indenture
trustee or the registered owners in the manner as counsel for the indenture
trustee may advise, whether for the specific performance of any covenant,
condition, agreement or undertaking contained in the indenture, or in aid of the
execution of any power therein granted, or for the enforcement of such other
appropriate legal or equitable remedies as may in the opinion of such counsel,
be more effectual to protect and enforce the rights aforesaid. The indenture
trustee is required to take any of these actions if requested to do so in
writing by the registered owners of at least 51% of the principal amount of the
highest priority obligations outstanding under the defaulted indenture and
certain counterparties. However, if the event of default does not relate to a
payment default or an event of bankruptcy, the indenture trustee may take these
actions only if requested to do so in writing by the registered owners of all
obligations outstanding under the defaulted indenture and all counterparties
unless the net proceeds received by the indenture trustee from selling the trust
estate are sufficient to pay all amounts owed to all the holders of obligations
outstanding under the defaulted indenture and all counterparties.
APPOINTMENT OF RECEIVER. If an event of default occurs, and all of the
outstanding obligations under an indenture have been declared due and payable,
and if any judicial proceedings are commenced to enforce any right of the
indenture trustee or of the registered owners under the indenture, then as a
matter of right, the indenture trustee shall be entitled to the appointment of a
receiver for the trust estate.
ACCELERATED MATURITY. If an event of default occurs, the indenture trustee
may declare, or upon the written direction by the registered owners of at least
51% of the principal amount of the highest priority obligations then outstanding
under the defaulted indenture shall declare, the principal of all obligations
issued under the indenture, and then outstanding, and the interest thereon,
immediately due and payable. A declaration of acceleration upon the occurrence
of a default may be rescinded upon notice to the trust by a majority of the
registered owners of the obligations then outstanding if the trust has paid or
deposited with the indenture trustee amounts sufficient to pay all principal and
interest due on the notes and any other event of default has been cured or
waived.
DIRECTION OF INDENTURE TRUSTEE. If an event of default occurs, the
registered owners of at least 51% of the principal amount of the highest
priority obligations then outstanding under the defaulted indenture shall have
the right to direct and control the indenture trustee with respect to any
proceedings for any sale of any or all of the trust estate, or for the
appointment of a receiver. The registered owners may not cause the indenture
trustee to take any proceedings which in the indenture trustee's opinion would
be unjustly prejudicial to non-assenting registered owners of obligations
outstanding under the indenture.
RIGHT TO ENFORCE IN INDENTURE TRUSTEE. No registered owner of any
obligation issued under an indenture shall have any right as a registered owner
to institute any suit, action or proceedings for the enforcement of the
provisions of the indenture or for the appointment of a receiver or for any
other remedy under the indenture. All rights of action under an indenture are
vested exclusively in the indenture trustee, unless and until the indenture
trustee fails to institute an action or suit after the registered owners of the
affected trust:
o have given to the indenture trustee written notice of a default under
the indenture, and of the continuance thereof,
o shall have made written request upon the indenture trustee and the
indenture trustee shall have been afforded reasonable opportunity to
institute an action, suit or proceeding in its own name, and
o the indenture trustee shall have been offered indemnity and security
satisfactory to it against the costs, expenses, and liabilities to be
incurred on an action, suit or proceeding in its own name.
WAIVERS OF EVENTS OF DEFAULT. The indenture trustee may in its discretion
waive any event of default under an indenture and rescind any declaration of
acceleration of the obligations due under the indenture. The indenture trustee
will waive an event of default upon the written request of the registered owners
of at least a majority of the principal amount of the highest priority
obligations then outstanding under the indenture. A waiver of any event of
default in the payment of the principal or interest due on any obligation issued
under the indenture may not be made unless prior to the waiver or rescission,
provision shall have been made for payment of all arrears of interest or all
arrears of payments of principal, and all expenses of the indenture trustee in
connection with such default. A waiver or rescission of one default will not
affect any subsequent or other default, or impair any rights or remedies
consequent to any subsequent or other default.
THE INDENTURE TRUSTEE
ACCEPTANCE OF TRUST. The indenture trustee will accept the trusts imposed
upon it by an indenture, and will perform those trusts, but only upon and
subject to the following terms and conditions:
o The indenture trustee undertakes to perform only those duties as are
specifically set forth in the indenture.
o In the absence of bad faith on its part, the indenture trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the indenture trustee and conforming to the
requirements of the indenture.
o In case an event of default has occurred and is continuing, the
indenture trustee, in exercising the rights and powers vested in it by
the indenture, will use the same degree of care and skill in their
exercise as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs.
o Before taking any action under the indenture requested by registered
owners, the indenture trustee may require that it be furnished an
indemnity bond or other indemnity and security satisfactory to it by
the registered owners for the reimbursement of all expenses to which
it may be put and to protect it against liability arising from any
action taken by the indenture trustee.
INDENTURE TRUSTEE MAY ACT THROUGH AGENTS. The indenture trustee may execute
any of the trusts or powers under an indenture and perform any duty thereunder
either itself or by or through its attorneys, agents, or employees. The
indenture trustee will not be answerable or accountable for any default, neglect
or misconduct of any such attorneys, agents or employees, if reasonable care has
been exercised in the appointment, supervision, and monitoring of the work
performed. Each trust will pay all reasonable costs incurred by the indenture
trustee and all reasonable compensation to all such persons as may reasonably be
employed in connection with that trust.
INDEMNIFICATION OF INDENTURE TRUSTEE. The indenture trustee is generally
under no obligation or duty to perform any act at the request of registered
owners or to institute or defend any suit to protect the rights of the
registered owners under an indenture unless properly indemnified and provided
with security to its satisfaction. The indenture trustee is not required to take
notice of any event under an indenture unless and until it shall have been
specifically notified in writing of the event of default by the registered
owners or a trust's authorized representative.
However, the indenture trustee may begin suit, or appear in and defend
suit, execute any of the trusts, enforce any of its rights or powers, or do
anything else in its judgment proper, without assurance of reimbursement or
indemnity. In that case the indenture trustee will be reimbursed or indemnified
by the registered owners requesting that action, if any, or by the applicable
trust in all other cases, for all fees, costs and expenses, liabilities, outlays
and counsel fees and other reasonable disbursements properly incurred. If a
trust or the registered owners, as appropriate, fail to make such reimbursement
or indemnification, the indenture trustee may reimburse itself from any money in
its possession under the provisions of the related indenture, subject only to
the prior lien of the notes for the payment of the principal and interest
thereon from the Collection Fund.
Each trust will agree to indemnify the indenture trustee for, and to hold
it harmless against, any loss, liability or expenses incurred without negligence
or bad faith on its part, arising out of or in connection with the acceptance or
administration of the trust or trusts, including the costs and expenses of
defending itself against any claim or liability in connection with the exercise
or performance of any of its powers or duties in relation to the trust estate.
Each trust will indemnify and hold harmless the indenture trustee against any
and all claims, demands, suits, actions or other proceedings and all
liabilities, costs and expenses whatsoever caused by any untrue statement or
misleading statement or alleged untrue statement or alleged misleading statement
of a material fact contained in any offering document distributed in connection
with the issuance of that trust's notes or caused by any omission or alleged
omission from such offering document of any material fact required to be stated
therein or necessary in order to make the statements made therein in the light
of the circumstances under which they were made, not misleading.
COMPENSATION OF INDENTURE TRUSTEE. Each trust will pay to the indenture
trustee compensation for all services rendered by it under the applicable
indenture, and also all of its reasonable expenses, charges, and other
disbursements. The indenture trustee may not change the amount of its annual
compensation without giving the applicable trust at least 90 days' written
notice prior to the beginning of a fiscal year.
RESIGNATION OF INDENTURE TRUSTEE. The indenture trustee may resign and be
discharged from the trust created by an indenture by giving notice in writing
specifying the date on which such resignation is to take effect. A resignation
will only take effect on the day specified in such notice if a successor
indenture trustee shall have been appointed pursuant to the provisions of the
indenture and is qualified to be the indenture trustee under the requirements of
the provisions of the indenture.
REMOVAL OF INDENTURE TRUSTEE. The indenture trustee may be removed
o at any time by the registered owners of a majority of the principal
amount of the highest priority obligations then outstanding under an
indenture,
o by the Administrator for cause or upon the sale or other disposition
of the indenture trustee or its trust functions, or
o by the Administrator without cause so long as no event of default
exists or has existed within the last 30 days.
In the event a indenture trustee is removed, removal shall not become
effective until
o a successor indenture trustee shall have been appointed, and
o the successor indenture trustee has accepted that appointment.
SUCCESSOR INDENTURE TRUSTEE. If the indenture trustee resigns, is dissolved
or otherwise is disqualified to act or is incapable of acting, or in case
control of the indenture trustee is taken over by any public officer or
officers, the Administrator may appoint a successor indenture trustee. Each
trust will cause notice of the appointment of a successor indenture trustee to
be mailed to the registered owners at the address of each registered owner
appearing on the note registration books.
Every successor indenture trustee
o will be a bank or trust company in good standing, organized and doing
business under the laws of the United States or of a state therein,
o have a reported capital and surplus of not less than $50,000,000,
o will be authorized under the law to exercise corporate trust powers,
be subject to supervision or examination by a federal or state
authority, and
o will be an eligible lender under the Higher Education Act so long as
such designation is necessary to maintain guarantees and federal
benefits under the Act with respect to the student loans originated
under the Act.
MERGER OF THE INDENTURE TRUSTEE. Any corporation into which the indenture
trustee may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the indenture trustee shall
be a party, or any corporation succeeding to all or substantially all of the
corporate trust business of the indenture trustee, shall be the successor of the
indenture trustee under an indenture, provided such corporation shall be
otherwise qualified and eligible under the indenture, without the execution or
filing of any paper of any further act on the part of any other parties thereto.
SUPPLEMENTAL INDENTURES
SUPPLEMENTAL INDENTURES NOT REQUIRING CONSENT OF REGISTERED OWNERS. A trust
can agree with the indenture trustee to enter into any indentures supplemental
to an indenture for any of the following purposes without notice to or the
consent of noteholders:
o to cure any ambiguity or formal defect or omission in the indenture;
o to grant to or confer upon the indenture trustee for the benefit of
the registered owners any additional benefits, rights, remedies,
powers or authorities;
o to subject to the indenture additional revenues, properties or
collateral;
o to modify, amend or supplement the indenture or any indenture
supplemental thereto in such manner as to permit the qualification
under the Trust Indenture Act of 1939 or any similar federal statute
or to permit the qualification of the notes for sale under the
securities laws of the United States of America or of any of the
states of the United States of America, and, if they so determine, to
add to the indenture or any indenture supplemental thereto such other
terms, conditions and provisions as may be permitted by said Trust
Indenture Act of 1939 or similar federal statute;
o to evidence the appointment of a separate or co-indenture trustee or a
co-registrar or transfer agent or the succession of a new indenture
trustee under the indenture;
o to add provisions to or to amend provisions of the indenture as may,
in the opinion of counsel, be necessary or desirable to assure
implementation of the student loan business in conformance with the
Higher Education Act;
o to make any change as shall be necessary in order to obtain and
maintain for any of the notes an investment grade rating from a
nationally recognized rating service, which changes, in the opinion of
the indenture trustee are not to the prejudice of the registered owner
of any of the obligations outstanding under the indenture;
o to make any changes necessary to comply with the Higher Education Act
and the regulations thereunder or the Internal Revenue Code and the
regulations promulgated thereunder;
o to make the terms and provisions of the indenture, including the lien
and security interest granted therein, applicable to a derivative
product;
o to create any additional funds or accounts under the indenture deemed
by the indenture trustee to be necessary or desirable; or
o to make any other change which, in the judgment of the indenture
trustee is not to the material prejudice of the registered owners of
any obligations outstanding under the indenture.
SUPPLEMENTAL INDENTURES REQUIRING CONSENT OF REGISTERED OWNERS. Any
amendment of an indenture other than those listed above must be approved by the
registered owners of not less than a majority of the principal amount of the
notes then outstanding under the indenture. Also, certain amendments of an
indenture that would have a material adverse effect on a counterparty require
the consent of that counterparty.
The changes described below may be made in a supplemental indenture only
with the consent of the registered owners of all notes then outstanding,
o an extension of the maturity date of the principal of or the interest
on any obligation, or
o a reduction in the principal amount of any obligation or the rate of
interest thereon, or
o a privilege or priority of any obligation under the indenture over any
other obligation, or
o a reduction in the aggregate principal amount of the obligations
required for consent to such supplemental indenture, or
o the creation of any lien other than a lien ratably securing all of the
obligations at any time outstanding under the indenture.
TRUSTS IRREVOCABLE
The trust created by an indenture is irrevocable until the notes and
interest thereon and all company derivative payments are fully paid or provision
is made for their payment as provided in the applicable indenture.
SATISFACTION OF INDENTURE
If the registered owners of the notes issued under an indenture are paid
all the principal of and interest due on their notes, at the times and in the
manner stipulated in an indenture, and if each counterparty on a derivative
product is paid all of derivative payments then due, then the pledge of the
trust estate will thereupon terminate and be discharged. The indenture trustee
will execute and deliver to the trust instruments to evidence the discharge and
satisfaction, and the indenture trustee will pay all money held by it under the
indenture to the party entitled to receive it under the indenture.
Notes will be considered to have been paid if money for their payment or
redemption has been set aside and is being held in trust by the indenture
trustee. Any outstanding note will be considered to have been paid if the note
is to be redeemed on any date prior to its stated maturity and notice of
redemption has been given as provided in the indenture and on said date there
shall have been deposited with the indenture trustee either money or
governmental obligations the principal of and the interest on which when due
will provide money sufficient to pay the principal of and interest to become due
on the note.
Any derivative payments will be considered to have been paid and the
applicable derivative product terminated when payment of all derivative payments
due and payable to each counterparty under derivative products have been made or
duly provided for to the satisfaction of each counterparty and the respective
derivative product has been terminated.
DESCRIPTION OF CREDIT ENHANCEMENT AND DERIVATIVE PRODUCTS
CREDIT ENHANCEMENT
Credit enhancement may be provided with respect to one or more classes of
the notes of any series of a trust. The amounts and types of credit enhancement
arrangements and the provider of the credit enhancement, if any, will be set
forth in the related prospectus supplement. Credit enhancement may be in the
form of a letter of credit, the subordination of one or more classes of notes,
the use of an insurance policy or surety bonds, the establishment of one or more
reserve funds, interest rate swaps, or any combination of the foregoing.
The presence of a Reserve Fund and other forms of credit enhancement for
the benefit of any class or series of notes is intended to enhance the
likelihood that noteholders of a class or series will receive the full amount of
principal and interest due on the notes and to decrease the likelihood that such
noteholders will experience losses. The credit enhancement will not provide
protection against all risks of loss and will not guarantee payment to such
noteholders of all amounts to which they are entitled unless a guarantee against
losses is described in the related prospectus supplement. If losses or
shortfalls occur that exceed the amount covered by the credit enhancement or
that are not covered by the credit enhancement, noteholders will bear their
allocable share of deficiencies. Moreover, if a form of credit enhancement
covers more than one series of notes, holders of notes of one series will be
subject to the risk that the credit enhancement will be exhausted by the claims
of the holders of notes of one or more other series.
SUBORDINATE NOTES. The notes each trust issues will be designated Class A
notes, Class B notes or Class C notes in the related prospectus supplement. To
the extent specified in the related prospectus supplement, the rights of the
Class B noteholders to receive distributions on any distribution date will be
subordinated to the corresponding rights of the Class A noteholders, and the
rights of the Class C noteholders to receive distributions on any distribution
date will be subordinated to the corresponding rights of the Class B noteholders
and the Class A noteholders. If so provided in the related prospectus
supplement, the subordination of a class may apply only in the event of, or may
be limited to, specific types of losses or shortfalls. The related prospectus
supplement will set forth information concerning the amount of subordination
provided by a class or classes of notes in a series, the circumstances under
which such subordination will be available and the manner in which the amount of
subordination will be made available.
LETTER OF CREDIT. If so specified in the prospectus supplement with respect
to a series, deficiencies in amounts otherwise payable on the notes or certain
classes of the notes will be covered by one or more letters of credit. The bank
or financial institution issuing the letter of credit will be identified in a
prospectus supplement. Under a letter of credit, the issuer will be obligated to
honor draws in an aggregate fixed dollar amount generally equal to a percentage
specified in the related prospectus supplement of the principal balance of the
student loans on a specified date or of the initial aggregate principal balance
of one or more classes of notes. If so specified in the related prospectus
supplement, the letter of credit may permit draws only in the event of certain
types of losses and shortfalls. The amount available under the letter of credit
will, in all cases, be reduced to the extent of the unreimbursed payments under
the letter of credit and may otherwise be reduced as described in the related
prospectus supplement. The obligations of the issuer of the letter of credit
will expire at the earlier of the date specified in the related prospectus
supplement or the termination of the trust estate.
NOTE INSURANCE AND SURETY BONDS. If so specified in the prospectus
supplement with respect to a series of the notes, deficiencies in amounts
otherwise payable on the notes or certain classes of the notes will be covered
by insurance policies or surety bonds provided by one or more insurance
companies or sureties. The insurance policies or surety bonds may cover timely
distributions of interest and full distributions of principal on the basis of a
schedule of principal distributions set forth in or determined in the manner
specified in the related prospectus supplement.
RESERVE FUND. In addition to the Reserve Fund for each trust described in
this prospectus under "Security and Sources of Payment for the Notes-Reserve
Fund," one or more reserve funds may be established with respect to a series of
the notes. Cash, eligible investments, a demand note or a combination thereof,
in the amounts so specified in the related prospectus supplement, may be
deposited in such reserve fund. The reserve fund for a series may also be funded
over time by depositing in the reserve fund a specified amount of the
distributions received on the related receivables as specified in the related
prospectus supplement.
Amounts on deposit in any reserve fund for a trust, together with the
reinvestment income on those amounts, will be applied by the indenture trustee
for the purposes, in the manner and to the extent specified in the related
prospectus supplement. A reserve fund may be provided to increase the likelihood
of timely payments of principal of and interest on the notes, if required as a
condition to the rating of the notes of that series. If so specified in the
related prospectus supplement, a reserve fund may be established to provide
limited protection, in an amount satisfactory to each rating agency rating the
notes, against certain types of losses not covered by insurance policies or
other credit support. Following each interest payment date, amounts in a reserve
fund in excess of any specified reserve fund requirement may be released from
the reserve fund under the conditions specified in the related prospectus
supplement and will not be available for further application by the indenture
trustee.
Additional information concerning any reserve fund is to be set forth in
the related prospectus supplement, including the initial balance of the reserve
fund, the reserve fund balance to be maintained, the purposes for which funds in
the reserve fund may be applied to make distributions to noteholders and use of
investment earnings from the reserve fund, if any.
DERIVATIVE PRODUCTS; DERIVATIVE PAYMENTS
If so provided in a prospectus supplement, a trust may enter into
derivative products consisting of rate swaps, rate caps and rate ceilings to
help minimize the risk to noteholders of adverse changes in interest rates, and
other yield supplement agreements or similar yield maintenance arrangements. If
notes are being sold in a foreign country, a trust also may enter into currency
swaps, currency forwards and currency options to help minimize the risk to
foreign noteholders of adverse changes in the exchange rate between the U.S.
dollar and one or more foreign currencies. If a trust issues notes denominated
in one currency which are backed by assets denominated in one or more other
currencies, it may enter into currency swaps, currency forwards and currency
options to help minimize the risk to noteholders of adverse changes in the
relevant exchange rates.
A derivative product constituting an interest rate swap is an agreement
between two parties to exchange a stream of payments on an agreed upon actual or
hypothetical "notional" principal amount. No principal amount is exchanged
between the parties to an interest rate swap. Typically, one party agrees to
make payments based on a fixed interest rate and an actual or notional principal
amount, while the other party agrees to make payments based on a floating
interest rate and the same actual or notional principal amount. The floating
rate is based on one or more reference interest rates, including the London
Interbank Offered Rate, or LIBOR, a specified bank's prime rate or U. S Treasury
Bill rates. Interest rate swaps also permit two parties to exchange a floating
rate obligation based on one reference interest rate - such as LIBOR - for a
floating rate obligation based on another referenced interest rate - such as
U.S. Treasury Bill rates. Generally, the parties to an interest rate swap net
out their payment obligations so that on any given payment date only one party
is making a payment.
Derivative products constituting interest rate caps, yield supplement
agreements and yield maintenance arrangements typically involve a trust making
an initial payment to a party, which party agrees to make future payments to the
trust if interest rates exceed a specified amount or other events occur that are
specified in a prospectus supplement. A trust also may sell an interest rate cap
to a party from which the trust has simultaneously purchased an interest rate
cap. The interest rate cap sold by the trust will require the trust to make
payments to the other party if interest rates exceed a specified amount that is
higher than the amount specified in the rate cap purchased by the trust. Since
the payment obligations under the two caps would be netted, the effect of the
caps is to limit the other party's exposure to the interest rate differential
between the amounts specified in the caps. Interest rate ceilings may be entered
into in connection with an interest rate swap, and would result in one party to
the swap limiting the maximum interest rate it would be required to pay, either
over the life of the swap or for a specified period of time. In exchange for
limiting its exposure, the relevant party may be required to make an initial
cash payment to the other party.
Currency swaps are similar to interest rate swaps, but the payments owed by
the parties are referenced to the exchange rate between designated currencies
rather than interest rates. In a currency forward contract, the trust typically
would agree to deliver a specified amount of one currency to a party on a future
date in exchange for delivery by such party of a specified amount of a second
currency. In a typical currency option, if the exchange rate between two
designated currencies reaches a specified level by a certain date, the trust
will have the right, but not the obligation, to require the other party to
deliver a specified quantity of one of the designated currencies on such date in
exchange for a specified quantity of the other designated currency. The trust
would make an initial payment to the other party for this right.
A trust's obligation to make payments under a derivative product may be
secured by a pledge of and lien on the trust estate. A trust will not enter into
a derivative product after the closing date unless the indenture trustee has
received a confirmation from each rating agency providing a rating for the
trust's notes that the derivative product will not adversely affect the rating
on any of the notes.
DESCRIPTION OF THE FEDERAL FAMILY EDUCATION LOAN PROGRAM
THE FEDERAL FAMILY EDUCATION LOAN PROGRAM
The Higher Education Act provides for a program of direct federal insurance
for student loans as well as reinsurance of student loans guaranteed or insured
by state agencies or private non-profit corporations.
The Higher Education Act currently authorizes certain student loans to be
covered under the Federal Family Education Loan Program. The 1998 Amendments to
the Higher Education Act extended the authorization for the Federal Family
Education Loan Program through September 30, 2004. Congress has extended similar
authorization dates in prior versions of the Higher Education Act. However, the
current authorization dates may not again be extended and the other provisions
of the Higher Education Act may not be continued in their present form.
Generally, a student is eligible for loans made under the Federal Family
Education Loan Program only if he or she:
o has been accepted for enrollment or is enrolled in good standing at an
eligible institution of higher education;
o is carrying or planning to carry at least one-half the normal
full-time workload for the course of study the student is pursuing as
determined by the institution;
o has agreed to promptly notify the holder of the loan of any address
change; and
o meets the applicable "needs" requirements.
Eligible institutions include higher educational institutions and
vocational schools that comply with specific federal regulations. Each loan is
to be evidenced by an unsecured note.
The Higher Education Act also establishes maximum interest rates for each
of the various types of loans. These rates vary not only among loan types, but
also within loan types depending upon when the loan was made or when the
borrower first obtained a loan under the Federal Family Education Loan Program.
The Higher Education Act allows lesser rates of interest to be charged.
TYPES OF LOANS
Four types of loans are currently available under the Federal Family
Education Loan Program:
o Subsidized Stafford Loans,
o Unsubsidized Stafford Loans,
o PLUS Loans, and
o Consolidation Loans.
These loan types vary as to eligibility requirements, interest rates, repayment
periods, loan limits and eligibility for interest subsidies and special
allowance payments. Some of these loan types have had other names in the past.
References to these various loan types include, where appropriate, their
predecessors.
The primary loan under the Federal Family Education Loan Program is the
Subsidized Federal Stafford Loan (the "Subsidized Stafford Loan"). Students who
are not eligible for Subsidized Stafford Loans based on their economic
circumstances may be able to obtain Unsubsidized Federal Stafford Loans. Parents
of students may be able to obtain Federal PLUS Loans. Consolidation Loans are
available to borrowers with existing loans made under the Federal Family
Education Loan Program and other federal programs to consolidate repayment of
the borrower's existing loans. Prior to July 1, 1994, the Federal Family
Education Loan Program also offered Federal Supplemental Loans for Students
("Federal SLS Loans") to graduate and professional students and independent
undergraduate students and, under certain circumstances, dependent undergraduate
students, to supplement their Subsidized Stafford Loans.
SUBSIDIZED FEDERAL STAFFORD LOANS
GENERAL. Subsidized Stafford Loans are eligible for reinsurance under the
Higher Education Act if the eligible student to whom the loan is made has been
accepted or is enrolled in good standing at an eligible institution of higher
education or vocational school and is carrying at least one-half the normal
full-time workload at that institution. Subsidized Stafford Loans have limits as
to the maximum amount which may be borrowed for an academic year and in the
aggregate for both undergraduate and graduate/professional study. Both aggregate
limitations exclude loans made under the Federal SLS and Federal PLUS Programs.
The Secretary of Education has discretion to raise these limits to accommodate
students undertaking specialized training requiring exceptionally high costs of
education.
Subsidized Stafford Loans are generally made only to student borrowers who
meet the needs tests provided in the Higher Education Act. Provisions addressing
the implementation of needs analysis and the relationship between unmet need for
financing and the availability of Subsidized Federal Stafford Loan Program
funding have been the subject of frequent and extensive amendment in recent
years. Further amendment to such provisions may materially affect the
availability of Subsidized Stafford Loan funding to borrowers or the
availability of Subsidized Stafford Loans for secondary market acquisition.
Subsidized Stafford Loans are eligible for both interest subsidy payments
and special allowance payments as described below under "--Interest subsidy
payments" and "--Special allowance payments."
INTEREST RATES FOR SUBSIDIZED FEDERAL STAFFORD LOANS. For a Subsidized
Stafford Loan made prior to July 1, 1994, the applicable interest rate for a
borrower who, on the date the promissory note was signed, did not have an
outstanding balance on a previous Federal Family Education Loan Program loan:
(1) is 7% per annum for a loan covering a period of instruction
beginning before January 1,1981;
(2) is 9% per annum for a loan covering a period of instruction
beginning on or before January 1, 1981, but before September 13, 1983;
(3) is 8% per annum for a loan covering a period of instruction
beginning on or after September 13, 1983, but before July 1, 1988;
(4) is 8% per annum for the period from the disbursement of the loan
to the date which is four years after the loan enters repayment, for a loan
made prior to October 1, 1992, covering a period of instruction beginning
on or after July 1, 1988, and thereafter shall be adjusted annually, and
for any 12-month period commencing on a July 1 shall be equal to the bond
equivalent rate of 91-day U.S. Treasury bills auctioned at the final
auction prior to the preceding June 1, plus 3.25% per annum (but not to
exceed 10% per annum); or
(5) for a loan made on or after October 1, 1992 shall be adjusted
annually, and for any 12-month period commencing on a July 1 shall be equal
to the bond equivalent rate of 91-day U.S. Treasury bills auctioned at the
final auction prior to the preceding June 1, plus 3.1% per annum (but not
to exceed 9% per annum).
For a Subsidized Stafford Loan made prior to July 1, 1994, the applicable
interest rate for a borrower who, on the date the promissory note evidencing the
loan was signed, had an outstanding balance on a previous loan made insured or
guaranteed under the Federal Family Education Loan Program:
(6) for a loan made prior to July 23, 1992 is the applicable interest
rate on the previous loan or, if the previous loan is not a Subsidized
Stafford Loan 8% per annum or
(7) for a loan made on or before July 23, 1992 shall be adjusted
annually, and for any twelve month period commencing on a July 1 shall be
equal to the bond equivalent rate of 91-day U.S. Treasury bills auctioned
at the final auction prior to the preceding June 1, plus 3.1% per annum but
not to exceed:
o 7% per annum in the case of a Subsidized Stafford Loan made to a
borrower who has a loan described in clause (1) above;
o 8% per annum in the case of
o a Subsidized Stafford Loan made to a borrower who has a loan
described in clause (3) above,
o a Subsidized Stafford Loan which has not been in repayment for
four years and which was made to a borrower who has a loan
described in clause (4) above,
o a Subsidized Stafford Loan for which the first disbursement was
made prior to December 20, 1993 to a borrower whose previous
loans do not include a Subsidized Stafford Loan or an
Unsubsidized Stafford Loan;
o 9% per annum in the case of a Subsidized Stafford Loan made to a
borrower who has a loan described in clauses (2) or (5) above or a
Subsidized Stafford Loan for which the first disbursement was made on
or after December 20, 1993 to a borrower whose previous loans do not
include a Subsidized Stafford Loan or an Unsubsidized Stafford Loan;
and
o 10% per annum in the case of a Subsidized Stafford Loan which has been
in repayment for four years or more and which was made to a borrower
who has a loan described in clause (4) above.
The interest rate on all Subsidized Stafford Loans made on or after July 1,
1994 but prior to July 1, 1998, regardless of whether the borrower is a new
borrower or a repeat borrower, is the rate described in clause (7) above, except
that the interest rate shall not exceed 8.25% per annum. For any Subsidized
Stafford Loan made on or after July 1, 1995, the interest rate is further
reduced prior to the time the loan enters repayment and during any deferment
periods. During deferment periods, the formula described in clause (7) above is
applied, except that 2.5% is substituted for 3.1%, and the rate shall not exceed
8.25% per annum.
For Subsidized Stafford Loans made on or after July 1, 1998 but before July
1, 2006, the applicable interest rate shall be adjusted annually, and for any
twelve month period commencing on a July 1 shall be equal to the bond equivalent
rate of 91-day U.S. Treasury bills auctioned at the final auction prior to the
proceeding June 1, plus 1.7% per annum prior to the time the loan enters
repayment and during any deferment periods, and 2.3% per annum during repayment,
but not to exceed 8.25% per annum.
For loans the first disbursement of which is made on or after July 1, 2006,
the applicable interest rate will be 6.8%. There can be no assurance that the
interest rate provisions for these loans will not be further amended.
UNSUBSIDIZED FEDERAL STAFFORD LOANS
GENERAL. The Unsubsidized Federal Stafford Loan Program was created by
Congress in 1992 for students who do not qualify for Subsidized Stafford Loans
due to parental and/or student income and assets in excess of permitted amounts.
These students are entitled to borrow the difference between the Subsidized
Stafford Loan maximum and their Subsidized Stafford eligibility through the
Unsubsidized Stafford Loan Program. The general requirements for Unsubsidized
Federal Stafford Loans ("Unsubsidized Stafford Loans") are essentially the same
as those for Subsidized Stafford Loans. The interest rate, the annual loan
limits and the special allowance payment provisions of the Unsubsidized Stafford
Loans are the same as the Subsidized Stafford Loans. However, the terms of the
Unsubsidized Stafford Loans differ materially from Subsidized Stafford Loans in
that the federal government will not make interest subsidy payments and the loan
limitations are determined without respect to the expected family contribution.
The borrower will be required to either pay interest from the time the loan is
disbursed or capitalize the interest until repayment begins. Unsubsidized
Stafford Loans were not available before October 1, 1992. A student meeting the
general eligibility requirements for a loan under the Federal Family Education
Loan Program is eligible for an Unsubsidized Stafford Loan without regard to
need. Unsubsidized Stafford Loans are eligible for special allowance payments,
as described below under "--Special allowance payments."
INTEREST RATES FOR UNSUBSIDIZED FEDERAL STAFFORD LOANS. Unsubsidized
Stafford Loans are subject to the same interest rate provisions as Subsidized
Stafford Loans.
FEDERAL PLUS LOANS
GENERAL. PLUS Loans are made only to borrowers who are parents and, under
certain circumstances, spouses of remarried parents, of dependent undergraduate
students. For PLUS Loans made on or after July 1, 1993, the parent borrower must
not have an adverse credit history as determined pursuant to criteria
established by the Department of Education. The basic provisions applicable to
PLUS Loans are similar to those of Subsidized Stafford Loans with respect to the
involvement of guarantee agencies and the Secretary of Education in providing
federal reinsurance on the loans. However, PLUS Loans differ significantly from
Subsidized Stafford Loans, particularly because federal interest subsidy
payments are not available under the PLUS Loan program and special allowance
payments are more restricted.
INTEREST RATES FOR FEDERAL PLUS LOANS. The applicable interest rate depends
upon the date of issuance of the loan and the period of enrollment for which the
loan is to apply. The applicable interest rate on a PLUS Loan:
o made on or after January 1, 1981, but before October 1, 1981, is 9%
per annum;
o made on or after October 1, 1981, but before November 1, 1982, is 14%
per annum;
o made on or after November 1, 1982, but before July 1, 1987, is 12% per
annum;
o made on or after July 1, 1987, but before October 1, 1992 shall be
adjusted annually, and for any 12-month period beginning on July 1
shall be equal to the bond equivalent rate of 52-week U.S. Treasury
bills auctioned at the final auction prior to the preceding June 1,
plus 3.25% per annum (but not to exceed 12% per annum);
o made on or after October 1, 1992, but before July 1, 1994, shall be
adjusted annually, and for any 12-month period beginning on July 1
shall be equal to the bond equivalent rate of 52-week U.S. Treasury
bills auctioned at the final auction prior to the preceding June 1,
plus 3.1% per annum (but not to exceed 10% per annum).
o made on or after July 1, 1994, but before July 1, 1998, is the same as
that for a loan made on or after October 1, 1992, but before July 1,
1994, except that such rate shall not exceed 9% per annum; or
o made on or after July 1, 1998, but before July 1, 2006, shall be
adjusted annually, and for any 12-month period beginning on July 1
shall be equal to the bond equivalent rate of 91-day U.S. Treasury
bills auctioned at the final auction prior to the preceding June 1,
plus 3.1% per annum (but not to exceed 9% per annum).
o the first disbursement of which is made on or after July 1, 2006, will
be 7.9%.
For any 12-month period beginning on July 1, 2001 or any succeeding year,
the weekly average 1-year constant maturity Treasury yield, as published by the
Board of Governors of the Federal Reserve System, for the last calendar week
before such June 26, will be substituted for the 52-week Treasury bill as the
index for interest rate calculations.
FEDERAL SLS LOANS
GENERAL. SLS Loans were limited to graduate or professional students,
independent undergraduate students, and dependent undergraduate students, if the
students' parents were unable to obtain a PLUS Loan and were also unable to
provide the students' expected family contribution. Except for dependent
undergraduate students, eligibility for SLS Loans was determined without regard
to need. SLS Loans are similar to Subsidized Stafford Loans with respect to the
involvement of guarantee agencies and the Secretary of Education in providing
federal reinsurance on the loans. However, SLS Loans differ significantly from
Subsidized Stafford Loans, particularly because federal interest subsidy
payments are not available under the SLS Loan program and special allowance
payments are more restricted.
INTEREST RATES FOR FEDERAL SLS LOANS. The applicable interest rates on SLS
Loans made prior to October 1, 1992 are identical to the applicable interest
rates on PLUS Loans made at the same time. For SLS Loans made on or after
October 1, 1992, the applicable interest rate is the same as the applicable
interest rate on PLUS Loans, except that the ceiling is 11% per annum instead of
10% per annum.
FEDERAL CONSOLIDATION LOANS
GENERAL. The Higher Education Act authorizes a program under which certain
borrowers may consolidate their various student loans into a single loan insured
and reinsured on a basis similar to Subsidized Stafford Loans. Federal
Consolidation Loans may be obtained in an amount sufficient to pay outstanding
principal, unpaid interest and late charges on federally insured or reinsured
student loans incurred under the Federal Family Education Loan Program,
excluding Federal PLUS Loans made to "parent borrowers", selected by the
borrower, as well as loans made pursuant to the Perkins (formally "National
Direct Student Loan") and Health Professional Student Loan Programs. To be
eligible for a Consolidation Loan, a borrower must:
o have outstanding indebtedness on student loans made under the Federal
Family Education Loan Program and/or certain other federal student
loan programs, and
o be in repayment status or in a grace period, or
o be a defaulted borrower who has made arrangements to repay any
defaulted loan satisfactory to the holder of the defaulted loan.
If requested by the borrower, an eligible lender may consolidate SLS or
PLUS Loans of the same borrower held by the lender under a single repayment
schedule. The repayment period for each included loan shall be based on the
commencement of repayment of the most recent loan. The consolidated loan shall
bear interest at a rate equal to the weighted average of the rates of the
included loans. Such a consolidation shall not be treated as the making of a new
loan. In addition, at the request of the borrower, a lender may refinance an
existing fixed rate SLS or PLUS Loan, including an SLS or PLUS Loan held by a
different lender who has refused to refinance the loan, at a variable interest
rate. In this case, proceeds of the new loan are used to discharge the original
loan.
A married couple who agree to be jointly liable on a Consolidation Loan,
for which the application is received on or after January 1, 1993, may be
treated as an individual for purposes of obtaining a Consolidation Loan. For
Consolidation Loans disbursed prior to July 1, 1994 the borrower was required to
have outstanding student loan indebtedness of at least $7,500. Prior to the
adoption of the Higher Education Technical Amendments Act of 1993, PLUS Loans
could not be included in the Consolidation Loan. For Consolidation Loans for
which the applications were received prior to January 1, 1993, the minimum
student loan indebtedness was $5,000 and the borrower could not be delinquent
more than 90 days in the payment of such indebtedness. For applications received
on or after January 1, 1993, borrowers may add additional loans to a Federal
Consolidation Loan during the 180-day period following the origination of the
Federal Consolidation Loan.
INTEREST RATES FOR FEDERAL CONSOLIDATION LOANS. A Consolidation Loan made
prior to July 1, 1994 bears interest at a rate equal to the weighted average of
the interest rates on the loans retired, rounded to the nearest whole percent,
but not less than 9% per annum. Except as described in the next sentence, a
Consolidation Loan made on or after July 1, 1994 bears interest at a rate equal
to the weighted average of the interest rates on the loans retired, rounded
upward to the nearest whole percent, but with no minimum rate. For a
Consolidation Loan for which the application is received by an eligible lender
on or after November 13, 1997 and before October 1, 1998, the interest rate
shall be adjusted annually, and for any twelve-month period commencing on a July
1 shall be equal to the bond equivalent rate of 91-day U.S. Treasury bills
auctioned at the final auction prior to the preceding June 1, plus 3.1% per
annum, but not to exceed 8.25% per annum. Notwithstanding these general interest
rates, the portion, if any, of a Consolidation Loan that repaid a loan made
under title VII, Sections 700-721 of the Public Health Services Act, as amended,
has a different variable interest rate. Such portion is adjusted on July 1 of
each year, but is the sum of the average of the T-Bill Rates auctioned for the
quarter ending on the preceding June 30, plus 3.0%, without any cap on the
interest rate. Consolidation Loans made on or after October 1, 1998 and before
July 1, 2006 will bear interest at a per annum rate equal to the lesser of 8.25%
or the weighted average of the interest rates on the loans being consolidated,
rounded to the nearest higher 1/8th of 1%. Consolidation Loans for which the
application is received on or after July 1, 2006, will bear interest also at a
rate per annum equal to the lesser of 8.25% or the weighted average of the
interest rates on the loans being consolidated, rounded to the nearest higher
1/8th of 1%. For a discussion of required payments that reduce the return on
Consolidation Loans, see "Fees - Rebate Fees on Consolidation Loans" in this
prospectus.
MAXIMUM LOAN AMOUNTS
Each type of loan is subject to limits on the maximum principal amount,
both with respect to a given year and in the aggregate. Consolidation Loans are
limited only by the amount of eligible loans to be consolidated. All of the
loans are limited to the difference between the cost of attendance and the other
aid available to the student. Subsidized Stafford Loans are also subject to
limits based upon needs analysis. Additional limits are described below.
LOAN LIMITS FOR STAFFORD AND UNSUBSIDIZED STAFFORD LOANS. Subsidized
Stafford and Unsubsidized Stafford Loans ("Stafford Loans") are generally
treated as one loan type for loan limit purposes. A student who has not
successfully completed the first year of a program of undergraduate education
may borrow up to $2,625 in an academic year. A student who has successfully
completed the first year, but who has not successfully completed the second year
may borrow up to $3,500 per academic year. An undergraduate student who has
successfully completed the first and second year, but who has not successfully
completed the remainder of a program of undergraduate education, may borrow up
to $5,500 per academic year. For students enrolled in programs of less than an
academic year in length, the limits are generally reduced in proportion to the
amount by which the programs are less than one year in length. A graduate or
professional student may borrow up to $8,500 in an academic year. The maximum
aggregate amount of Stafford and Unsubsidized Stafford Loans, including that
portion of a Consolidation Loan used to repay such loans, which an undergraduate
student may have outstanding is $23,000. The maximum aggregate amount for a
graduate and professional student, including loans for undergraduate education,
is $65,500. The Secretary of Education is authorized to increase the limits
applicable to graduate and professional students who are pursuing programs which
the Secretary of Education determines to be exceptionally expensive.
Prior to the enactment of the Higher Education Amendments of 1992, an
undergraduate student who had not successfully completed the first and second
year of a program of undergraduate education could borrow Stafford Loans in
amounts up to $2,625 in an academic year. An undergraduate student who had
successfully completed the first and second year, but who had not successfully
completed the remainder of a program of undergraduate education could borrow up
to $4,000 per academic year. The maximum for graduate and professional students
was $7,500 per academic year. The maximum aggregate amount of Stafford Loans
which a borrower could have outstanding, including that portion of a
Consolidation Loan used to repay such loans, was $17,250. The maximum aggregate
amount for a graduate or professional student, including loans for undergraduate
education, was $54,750. Prior to the 1986 changes, the annual limits were
generally lower.
LOAN LIMITS FOR PLUS LOANS. For PLUS Loans made on or after July 1, 1993,
the amounts of PLUS Loans are limited only by the student's unmet need. Prior to
that time PLUS Loans were subject to limits similar to those of SLS Loans
applied with respect to each student on behalf of whom the parent borrowed.
LOAN LIMITS FOR SLS LOANS. A student who had not successfully completed the
first and second year of a program of undergraduate education could borrow an
SLS Loan in an amount of up to $4,000. A student who had successfully completed
the first and second year, but who had not successfully completed the remainder
of a program of undergraduate education could borrow up to $5,000 per year.
Graduate and professional students could borrow up to $10,000 per year. SLS
Loans were subject to an aggregate maximum of $23,000 ($73,000 for graduate and
professional students). Prior to the 1992 changes, SLS Loans were available in
amounts of $4,000 per academic year, up to a $20,000 aggregate maximum. Prior to
the 1986 changes, a graduate or professional student could borrow $3,000 of SLS
Loans per academic year, up to a $15,000 maximum, and an independent
undergraduate student could borrow $2,500 of SLS Loans per academic year minus
the amount of all other Federal Family Education Loan Program loans to such
student for such academic year, up to the maximum amount of all Federal Family
Education Loan Program loans to that student of $12,500. In 1989, the amount of
SLS Loans for students enrolled in programs of less than an academic year in
length were limited in a manner similar to the limits described above under
"Subsidized Federal Stafford Loans".
DISBURSEMENT REQUIREMENTS
The Higher Education Act now requires that virtually all Stafford Loans and
PLUS Loans be disbursed by eligible lenders in at least two separate
installments. The proceeds of a loan made to any undergraduate first-year
student borrowing for the first time under the program must be delivered to the
student no earlier than thirty days after the enrollment period begins.
REPAYMENT
REPAYMENT PERIODS. Loans made under the Federal Family Education Loan
Program, other than Consolidation Loans, must provide for repayment of principal
in periodic installments over a period of not less than five nor more than ten
years. After the 1998 Amendments, lenders are required to offer extended
repayment schedules to new borrowers who accumulate outstanding loans of more
than $30,000, in which case the repayment period may extend up to 25 years
subject to certain minimum repayment amounts. A Consolidation Loan must be
repaid during a period agreed to by the borrower and lender, subject to maximum
repayment periods which vary depending upon the principal amount of the
borrower's outstanding student loans, but may not be longer than 30 years. For
Consolidation Loans for which the application was received prior to January 1,
1993, the repayment period could not exceed 25 years. Repayment of principal on
a Stafford Loan does not commence while a student remains a qualified student,
but generally begins upon expiration of the applicable grace period. Grace
periods may be waived by borrowers. For Stafford Loans for which the applicable
rate of interest is 7% per annum, the repayment period commences not more than
twelve months after the borrower ceases to pursue at least a half-time course of
study. For other Subsidized Stafford Loans and Unsubsidized Stafford Loans, the
repayment period commences not more than six months after the borrower ceases to
pursue at least a half-time course of study. The six month or twelve month
periods are the "grace periods".
In the case of SLS, PLUS and Consolidated Loans, the repayment period
commences on the date of final disbursement of the loan, except that the
borrower of an SLS Loan who also has a Stafford Loan may defer repayment of the
SLS Loan to coincide with the commencement of repayment of the Subsidized
Stafford or Unsubsidized Stafford Loan. During periods in which repayment of
principal is required, payments of principal and interest must in general be
made at a rate of not less than the greater of $600 per year or the interest
that accrues during the year, except that a borrower and lender may agree to a
lesser rate at any time before or during the repayment period. A borrower may
agree, with concurrence of the lender, to repay the loan in less than five years
with the right subsequently to extend his minimum repayment period to five
years. Borrowers may accelerate, without penalty, the repayment of all or any
part of the loan.
INCOME SENSITIVE REPAYMENT SCHEDULES. Since 1992, lenders of Consolidation
Loans have been required to establish graduated or income-sensitive repayment
schedules and lenders of Stafford and SLS Loans have been required to offer
borrowers the option of repaying in accordance with graduated or
income-sensitive repayment schedules. The trust may implement graduated
repayment schedules and income-sensitive repayment schedules. Use of
income-sensitive repayment schedules may extend the ten-year maximum term for up
to five years. In addition, if the repayment schedule on a loan that has been
converted to a variable interest rate does not provide for adjustments to the
amount of the monthly installment payments, the ten-year maximum term may be
extended for up to three years.
DEFERMENT PERIODS. No principal repayments need be made during certain
periods of deferment prescribed by the Higher Education Act. For loans to a
borrower who first obtained a loan which was disbursed before July 1, 1993,
deferments are available:
o during a period not exceeding three years while the borrower is a
member of the Armed Forces, an officer in the Commissioned Corps of
the Public Health Service or, with respect to a borrower who first
obtained a student loan disbursed on or after July 1, 1987, or a
student loan to cover the cost of instruction for a period of
enrollment beginning on or after July 1, 1987, an active duty member
of the National Oceanic and Atmospheric Administration Corps;
o during a period not in excess of three years while the borrower is a
volunteer under the Peace Corps Act;
o during a period not in excess of three years while the borrower is a
full-time volunteer under the Domestic Volunteer Act of 1973;
o during a period not exceeding three years while the borrower is in
service, comparable to the service described above as a full-time
volunteer for an organization which is exempt from taxation under
Section 501(c)(3) of the Code;
o during a period not exceeding two years while the borrower is serving
an internship necessary to receive professional recognition required
to begin professional practice or service, or a qualified internship
or residency program;
o during a period not exceeding three years while the borrower is
temporarily totally disabled, as established by sworn affidavit of a
qualified physician, or while the borrower is unable to secure
employment by reason of the care required by a dependent who is so
disabled;
o during a period not to exceed twenty-four months while the borrower is
seeking and unable to find full-time employment;
o during any period that the borrower is pursuing a full-time course of
study at an eligible institution (or, with respect to a borrower who
first obtained a student loan disbursed on or after July 1, 1987, or a
student loan to cover the cost of instruction for a period of
enrollment beginning on or after July 1, 1987, is pursuing at least a
half-time course of study for which the borrower has obtained a loan
under the Federal Family Education Loan Program), or is pursuing a
course of study pursuant to a graduate fellowship program or a
rehabilitation training program for disabled individuals approved by
the Secretary of Education;
o during a period, not in excess of 6 months, while the borrower is on
parental leave; and
o only with respect to a borrower who first obtained a student loan
disbursed on or after July 1, 1987, or a student loan to cover the
cost of instruction for a period of enrollment beginning on or after
July 1, 1987, during a period not in excess of three years while the
borrower is a full-time teacher in a public or nonprofit private
elementary or secondary school in a "teacher shortage area" (as
prescribed by the Secretary of Education), and during a period not in
excess of 12 months for mothers, with preschool age children, who are
entering or re-entering the work force and who are compensated at a
rate not exceeding $1 per hour in excess of the federal minimum wage.
For loans to a borrower who first obtains a loan on or after July 1, 1993,
deferments are available:
o during any period that the borrower is pursuing at least a half-time
course of study at an eligible institution or a course of study
pursuant to a graduate fellowship program or rehabilitation training
program approved by the Secretary of Education;
o during a period not exceeding three years while the borrower is
seeking and unable to find full-time employment; and
o during a period not in excess of three years for any reason which the
lender determines, in accordance with regulations under the Higher
Education Act, has caused or will cause the borrower economic
hardship. Economic hardship includes working full time and earning an
amount not in excess of the greater of the minimum wage or the poverty
line for a family of two. Additional categories of economic hardship
are based on the relationship between a borrower's educational debt
burden and his or her income.
Prior to the 1992 changes, only certain of the deferment periods described
above were available to PLUS Loan borrowers, and only certain deferment periods
were available to Consolidation Loan borrowers. Prior to the 1986 changes, PLUS
Loan borrowers were not entitled to certain deferment periods. Deferment periods
extend the ten-year maximum term.
FORBEARANCE PERIOD. The Higher Education Act also provides for periods of
forbearance during which the borrower, in case of temporary financial hardship,
may defer any payments. A borrower is entitled to forbearance for a period not
to exceed three years while the borrower's debt burden under Title IV of the
Higher Education Act (which includes the Federal Family Education Loan Program)
equals or exceeds 20% of the borrower's gross income, and also is entitled to
forbearance while he or she is serving in a qualifying medical or dental
internship program or in a "national service position" under the National and
Community Service Trust Act of 1993. In addition, mandatory administrative
forbearances are provided in exceptional circumstances such as a local or
national emergency or military mobilization, or when the geographical area in
which the borrower or endorser resides has been designated a disaster area by
the President of the United States or Mexico, the Prime Minister of Canada, or
by the governor of a state. In other circumstances, forbearance is at the
lender's option. Forbearance also extends the ten year maximum term.
INTEREST PAYMENTS DURING GRACE, DEFERMENT AND FORBEARANCE PERIODS. The
Secretary of Education makes interest payments on behalf of the borrower of
certain eligible loans while the borrower is in school and during grace and
deferment periods. Interest that accrues during forbearance periods and, if the
loan is not eligible for interest subsidy payments, while the borrower is in
school and during the grace and deferment periods, may be paid monthly or
quarterly or capitalized not more frequently than quarterly.
FEES
GUARANTEE FEE. A guarantee agency is authorized to charge a premium, or
guarantee fee, of up to 1% of the principal amount of the loan, which must be
deducted proportionately from each installment payment of the proceeds of the
loan to the borrower.
ORIGINATION FEE. An eligible lender is authorized to charge the borrower of
a Subsidized Stafford Loan and an Unsubsidized Stafford Loan an origination fee
in an amount not to exceed 3% of the principal amount of the loan, and is
required to charge the borrower of a PLUS Loan an origination fee in the amount
of 3% of the principal amount of the loan. These fees must be deducted
proportionately from each installment payment of the loan proceeds prior to
payment to the borrower. These fees are not retained by the lender, but must be
passed on to the Secretary of Education.
LENDER ORIGINATION FEE. The lender of any loan under the Federal Family
Education Loan Program made on or after October 1, 1993 is required to pay to
the Secretary of Education a fee equal to 0.5% of the principal amount of such
loan.
REBATE FEE ON CONSOLIDATION LOANS. The holder of any Consolidation Loan
made on or after October 1, 1993 is required to pay to the Secretary of
Education a monthly fee equal to .0875% (1.05% per annum) of the principal
amount of, and accrued interest on the Consolidation Loan. For loans made
pursuant to applications received on or after October 1, 1998, and on or before
January 31, 1999 the fee on consolidation loans of 1.05% is reduced to .62%.
INTEREST SUBSIDY PAYMENTS
Interest subsidy payments are interest payments paid with respect to an
eligible loan before the time that the loan enters repayment and during grace
and deferment periods. The Secretary of Education and the guarantee agencies
enter into interest subsidy agreements whereby the Secretary of Education agrees
to pay interest subsidy payments to the holders of eligible guaranteed loans for
the benefit of students meeting certain requirements, subject to the holders'
compliance with all requirements of the Higher Education Act. Only Subsidized
Stafford Loans and Consolidation Loans for which the application was received on
or after January 1, 1993, are eligible for interest subsidy payments.
Consolidation Loans made after August 10, 1993 are eligible for interest subsidy
payments only if all loans consolidated thereby are Subsidized Stafford Loans,
except that Consolidation Loans for which the application is received by an
eligible lender on or after November 13, 1997 and before October 1, 1998, are
eligible for interest subsidy payments on that portion of the Consolidation Loan
that repays Subsidized Stafford Loans or similar subsidized loans made under the
direct loan program. In addition, to be eligible for interest subsidy payments,
guaranteed loans must be made by an eligible lender under the applicable
guarantee agency's guarantee program, and must meet requirements prescribed by
the rules and regulations promulgated under the Higher Education Act.
The Secretary of Education makes interest subsidy payments quarterly on
behalf of the borrower to the holder of a guaranteed loan in a total amount
equal to the interest which accrues on the unpaid principal amount prior to the
commencement of the repayment period of the loan or during any deferment period.
A borrower may elect to forego interest subsidy payments, in which case the
borrower is required to make interest payments.
SPECIAL ALLOWANCE PAYMENTS
The Higher Education Act provides for special allowance payments to be made
by the Secretary of Education to eligible lenders. The rates for special
allowance payments are based on formulas that differ according to the type of
loan, the date the loan was originally made or insured and the type of funds
used to finance the loan (taxable or tax-exempt).
Special Allowance Payments are generally payable, with respect to
variable rate loans to which a maximum borrower interest rate applies, only when
the maximum borrower interest rate is in effect. The Secretary of Education
offsets interest subsidy payments and Special Allowance Payments by the amount
of origination fees and lender origination fees described above under "-Fees,"
whether or not the lender collects these amounts.
FEDERAL SUBSIDIZED AND UNSUBSIDIZED STAFFORD LOANS. The effective formulas
for special allowance payment rates for Subsidized Stafford and Unsubsidized
Stafford Loans are summarized in the following chart. The T-Bill Rate mentioned
in the chart refers to the average of the bond equivalent yield of the 91-day
Treasury bills auctioned during the preceding quarter.
DATE OF LOANS ANNUALIZED SAP RATE
------------- -------------------
On or after October 1, 1981 T-Bill Rate less Applicable Interest Rate + 3.5%
On or after November 16, 1986 T-Bill Rate less Applicable Interest Rate + 3.25%
On or after October 1, 1992 T-Bill Rate less Applicable Interest Rate + 3.1%
On or after July 1, 1995 T-Bill Rate less Applicable Interest Rate + 3.1%(1)
On or after July 1, 1998 T-Bill Rate less Applicable Interest Rate + 2.8%(2)
On or after January 1, 2000 and before 3 Month Commercial Paper Rate less Applicable
July 1, 2003 Interest Rate + 2.34%(3)
___________________________________
(1) Substitute 2.5% in this formula while such loans are in the in-school
or grace period.
(2) Substitute 2.2% in this formula while such loans are in the in-school
or grace period.
(3) Substitute 1.74% in this formula while such loans are in the in-school
or grace period.
The effective formulas for special allowance payment rates for Subsidized
Stafford Loans and Unsubsidized Stafford Loans differ depending on whether loans
to borrowers were acquired or originated with the proceeds of tax-exempt
obligations. There are minimum special allowance payment rates for Subsidized
Stafford Loans and Unsubsidized Stafford Loans acquired with proceeds of
tax-exempt obligations, which rates effectively ensure an overall minimum return
of 9.5% on such loans. However, loans acquired with the proceeds of tax-exempt
obligations originally issued after September 30, 1993 are not assured of a
minimum special allowance payment.
PLUS AND CONSOLIDATION LOANS. The formula for Special Allowance Payment
rates for PLUS and Consolidation Loans are as follows:
DATE OF LOANS ANNUALIZED SAP RATE
------------- -------------------
On or after October 1, 1992 T-Bill Rate less Applicable Interest Rate +3.1%
On or after January 1, 2000 3 Month Commercial Paper Rate less Applicable
Interest Rate +2.64%
The Higher Education Act provides that if special allowance payments or
interest subsidy payments have not been made within 30 days after the Secretary
of Education receives an accurate, timely and complete request therefor, the
special allowance payable to such holder shall be increased by an amount equal
to the daily interest accruing on the special allowance and interest subsidy
payments due the holder.
Special allowance payments and interest subsidy payments are reduced by the
amount which the lender is authorized or required to charge as an origination
fee. In addition, the amount of the lender origination fee is collected by
offset to special allowance payments and interest subsidy payments.
DESCRIPTION OF THE GUARANTEE AGENCIES
The student loans each trust acquires will be guaranteed by any one or more
guarantee agencies identified in the related prospectus supplement. The
following discussion relates to guarantee agencies under the Federal Family
Education Loan Program.
A guarantee agency guarantees loans made to students or parents of students
by lending institutions such as banks, credit unions, savings and loan
associations, certain schools, pension funds and insurance companies. A
guarantee agency generally purchases defaulted student loans which it has
guaranteed with its reserve fund. A lender may submit a default claim to the
guarantee agency after the student loan has been delinquent for at least 270
days. The default claim package must include all information and documentation
required under the Federal Family Education Loan Program regulations and the
guarantee agency's policies and procedures.
In general, a guarantee agency's reserve fund has been funded principally
by administrative cost allowances paid by the Secretary of Education, guarantee
fees paid by lenders, investment income on moneys in the reserve fund, and a
portion of the moneys collected from borrowers on guaranteed loans that have
been reimbursed by the Secretary of Education to cover the guarantee agency's
administrative expenses.
Various changes to the Higher Education Act have adversely affected the
receipt of revenues by the guarantee agencies and their ability to maintain
their reserve funds at previous levels, and may adversely affect their ability
to meet their guarantee obligations. These changes include:
o the reduction in reinsurance payments from the Secretary of Education
because of reduced reimbursement percentages;
o the reduction in maximum permitted guarantee fees from 3% to 1% for
loans made on or after July 1, 1994;
o the replacement of the administrative cost allowance with a student
loan processing and issuance fee equal to 65 basis points (40 basis
points for loans made on or after October 1, 1993) paid at the time a
loan is guaranteed, and an account maintenance fee of 12 basis points
(10 basis points for fiscal years 2001-2003) paid annually on
outstanding guaranteed student loans;
o the reduction in supplemental preclaims assistance payments from the
Secretary of Education; and
o the reduction in retention by a guarantee agency of collections on
defaulted loans from 27% to 24% (23% beginning on October 1, 2003).
Additionally, the adequacy of a guarantee agency's reserve fund to meet its
guarantee obligations with respect to existing student loans depends, in
significant part, on its ability to collect revenues generated by new loan
guarantees. The Federal Direct Student Loan Program discussed below may
adversely affect the volume of new loan guarantees. Future legislation may make
additional changes to the Higher Education Act that would significantly affect
the revenues received by guarantee agencies and the structure of the guarantee
agency program.
The Higher Education Act gives the Secretary of Education various oversight
powers over guarantee agencies. These include requiring a guarantee agency to
maintain its reserve fund at a certain required level and taking various actions
relating to a guarantee agency if its administrative and financial condition
jeopardizes its ability to meet its obligations. These actions include, among
others, providing advances to the guarantee agency, terminating the guarantee
agency's federal reimbursement contracts, assuming responsibility for all
functions of the guarantee agency, and transferring the guarantee agency's
guarantees to another guarantee agency or assuming such guarantees. The Higher
Education Act provides that a guarantee agency's reserve fund shall be
considered to be the property of the United States to be used in the operation
of the Federal Family Education Loan Program or the Federal Direct Student Loan
Program, and, under certain circumstances, the Secretary of Education may demand
payment of amounts in the reserve fund.
The 1998 Amendments mandate the recall of guarantee agency reserve funds by
the Secretary of Education amounting to $82.5 million in fiscal year 2006 and
$82.5 million in fiscal year 2007. However, certain minimum reserve levels are
protected from recall, and under the 1998 Amendments, guarantee agency reserve
funds were restructured to provide guarantee agencies with additional
flexibility in choosing how to spend certain funds they receive. The new recall
of reserves for guarantee agencies increases the risk that resources available
to guarantee agencies to meet their guarantee obligation will be significantly
reduced. Relevant federal laws, including the Higher Education Act, may be
further changed in a manner that may adversely affect the ability of a guarantee
agency to meet its guarantee obligations.
Student loans originated prior to October 1, 1993 are fully guaranteed as
to principal and accrued interest. Student loans originated after October 1,
1993 are guaranteed as to 98% of principal and accrued interest.
Under the Higher Education Act, if the Department of Education has
determined that a guarantee agency is unable to meet its insurance obligations,
the holders of loans guaranteed by such guarantee agency must submit claims
directly to the Department of Education, and the Department of Education is
required to pay the full guarantee payment due with respect thereto in
accordance with guarantee claims processing standards no more stringent than
those applied by the guarantee agency.
There are no assurances as to the Secretary of Education's actions if a
guarantee agency encounters administrative or financial difficulties or that the
Secretary of Education will not demand that a guarantee agency transfer
additional portions or all of its reserve fund to the Secretary of Education.
Information relating to the particular guarantee agencies guaranteeing our
student loans will be set forth in the prospectus supplement.
FEDERAL AGREEMENTS
GENERAL. A guaranty agency's right to receive federal reimbursements for
various guarantee claims paid by such guarantee agency is governed by the Higher
Education Act and various contracts entered into between guarantee agencies and
the Secretary of Education. Each guarantee agency and the Secretary of Education
have entered into federal reimbursement contracts pursuant to the Higher
Education Act, which provide for the guarantee agency to receive reimbursement
of a percentage of insurance payments that the guarantee agency makes to
eligible lenders with respect to loans guaranteed by the guarantee agency prior
to the termination of the federal reimbursement contracts or the expiration of
the authority of the Higher Education Act. The federal reimbursement contracts
provide for termination under certain circumstances and also provide for certain
actions short of termination by the Secretary of Education to protect the
federal interest.
In addition to guarantee benefits, qualified student loans acquired under
the Federal Family Education Loan Program benefit from certain federal
subsidies. Each guarantee agency and the Secretary of Education have entered
into an Interest Subsidy Agreement under the Higher Education Act which entitles
the holders of eligible loans guaranteed by the guarantee agency to receive
interest subsidy payments from the Secretary of Education on behalf of certain
students while the student is in school, during a six to twelve month grace
period after the student leaves school, and during certain deferment periods,
subject to the holders' compliance with all requirements of the Higher Education
Act.
United States Courts of Appeals have held that the federal government,
through subsequent legislation, has the right unilaterally to amend the
contracts between the Secretary of Education and the guarantee agencies
described herein. Amendments to the Higher Education Act in 1986, 1987, 1992,
1993, and 1998, respectively
o abrogated certain rights of guarantee agencies under contracts with
the Secretary of Education relating to the repayment of certain
advances from the Secretary of Education,
o authorized the Secretary of Education to withhold reimbursement
payments otherwise due to certain guarantee agencies until specified
amounts of such guarantee agencies' reserves had been eliminated,
o added new reserve level requirements for guarantee agencies and
authorized the Secretary of Education to terminate the Federal
Reimbursement Contracts under circumstances that did not previously
warrant such termination,
o expanded the Secretary of Education's authority to terminate such
contracts and to seize guarantee agencies' reserves and
o mandated the additional recall of guarantee agency reserve funds.
FEDERAL INSURANCE AND REIMBURSEMENT OF GUARANTEE AGENCIES
EFFECT OF ANNUAL CLAIMS RATE. With respect to loans made prior to October
1, 1993, the Secretary of Education currently agrees to reimburse the guarantee
agency for up to 100% of the amounts paid on claims made by lenders, as
discussed in the formula described below, so long as the eligible lender has
properly serviced such loan. The amount of reimbursement is lower for loans
originated after October 1, 1993, as described below. Depending on the claims
rate experience of a guarantee agency, such reimbursement may be reduced as
discussed in the formula described below. The Secretary of Education also agrees
to repay 100% of the unpaid principal plus applicable accrued interest expended
by a guarantee agency in discharging its guarantee obligation as a result of the
bankruptcy, death, or total and permanent disability of a borrower, or in the
case of a PLUS Loan, the death of the student on behalf of whom the loan was
borrowed, or in certain circumstances, as a result of school closures, which
reimbursements are not to be included in the calculations of the guarantee
agency's claims rate experience for the purpose of federal reimbursement under
the Federal Reimbursement Contracts.
The formula used for loans initially disbursed prior to October 1, 1993 is
summarized below:
CLAIMS RATE FEDERAL PAYMENT
- ----------- ---------------
0% up to 5% 100%
5% up to 9% 100% of claims up to 5%; 90% of claims 5% and over
9% and over 100% of claims up to 5%; 90% of claims 5% and over,
up to 9%; 80% of claims 9% and over
The claims experience is not accumulated from year to year, but is
determined solely on the basis of claims in any one federal fiscal year compared
with the original principal amount of loans in repayment at the beginning of
that year.
The 1993 Amendments reduce the reimbursement amounts described above,
effective for loans initially disbursed on or after October 1, 1993 as follows:
100% reimbursement is reduced to 98%, 90% reimbursement is reduced to 88%, and
80% reimbursement is reduced to 78%, subject to certain limited exceptions. The
1998 Amendments further reduce the federal reimbursement amounts from 98% to
95%, 88% to 85%, and 78% to 75% respectively, for student loans first disbursed
on or after October 1, 1998.
The reduced reinsurance for federal guaranty agencies increases the risk
that resources available to guarantee agencies to meet their guarantee
obligation will be significantly reduced.
REIMBURSEMENT. The original principal amount of loans guaranteed by a
guarantee agency which are in repayment for purposes of computing reimbursement
payments to a guarantee agency means the original principal amount of all loans
guaranteed by a guarantee agency less:
o the original principal amount of such loans that have been fully
repaid, and
o the original amount of such loans for which the first principal
installment payment has not become due.
Guarantee agencies with default rates below 5% are required to pay the Secretary
of Education annual fees equivalent to 0.51% of new loans guaranteed, while all
other such agencies must pay a 0.5% fee. The Secretary of Education may withhold
reimbursement payments if a guarantee agency makes a material misrepresentation
or fails to comply with the terms of its agreements with the Secretary of
Education or applicable federal law.
Under the guarantee agreements, if a payment on a Federal Family Education
Loan guaranteed by a guarantee agency is received after reimbursement by the
Secretary of Education, the guarantee agency is entitled to receive an equitable
share of the payment.
Any originator of any student loan guaranteed by a guarantee agency is
required to discount from the proceeds of the loan at the time of disbursement,
and pay to the guarantee agency, an insurance premium which may not exceed that
permitted under the Higher Education Act.
Under present practice, after the Secretary of Education reimburses a
guarantee agency for a default claim paid on a guaranteed loan, the guarantee
agency continues to seek repayment from the borrower. The guarantee agency
returns to the Secretary of Education payments that it receives from a borrower
after deducting and retaining: a percentage amount equal to the complement of
the reimbursement percentage in effect at the time the loan was reimbursed, and
an amount equal to 24% of such payments for certain administrative costs. The
Secretary of Education may, however, require the assignment to the Secretary of
defaulted guaranteed loans, in which event no further collections activity need
be undertaken by the guarantee agency, and no amount of any recoveries shall be
paid to the guarantee agency.
A guarantee agency may enter into an addendum to its Interest Subsidy
Agreement that allows the guarantee agency to refer to the Secretary of
Education certain defaulted guaranteed loans. Such loans are then reported to
the IRS to "offset" any tax refunds which may be due any defaulted borrower. To
the extent that the guarantee agency has originally received less than 100%
reimbursement from the Secretary of Education with respect to such a referred
loan, the guarantee agency will not recover any amounts subsequently collected
by the federal government which are attributable to that portion of the
defaulted loan for which the guarantee agency has not been reimbursed.
REHABILITATION OF DEFAULTED LOANS. Under the Higher Education Act, the
Secretary of Education is authorized to enter into an agreement with a guarantee
agency pursuant to which the guarantee agency shall sell defaulted loans that
are eligible for rehabilitation to an eligible lender. The guarantee agency
shall repay the Secretary of Education an amount equal to 81.5% of the then
current principal balance of such loan, multiplied by the reimbursement
percentage in effect at the time the loan was reimbursed. The amount of such
repayment shall be deducted from the amount of federal reimbursement payments
for the fiscal year in which such repayment occurs, for purposes of determining
the reimbursement rate for that fiscal year.
For a loan to be eligible for rehabilitation, the guarantee agency must
have received consecutive payments for 12 months of amounts owed on such loan.
Upon rehabilitation, a loan is eligible for all the benefits under the Higher
Education Act for which it would have been eligible had no default occurred
(except that a borrower's loan may only be rehabilitated once).
ELIGIBILITY FOR FEDERAL REIMBURSEMENT. To be eligible for federal
reimbursement payments, guaranteed loans must be made by an eligible lender
under the applicable guarantee agency's guarantee program, which must meet
requirements prescribed by the rules and regulations promulgated under the
Higher Education Act, including the borrower eligibility, loan amount,
disbursement, interest rate, repayment period and guarantee fee provisions
described herein and the other requirements set forth in the Higher Education
Act.
Prior to the 1998 Amendments, a Federal Family Education Loan was
considered to be in default for purposes of the Higher Education Act when the
borrower failed to make an installment payment when due, or to comply with the
other terms of the loan, and if the failure persists for 180 days in the case of
a loan repayable in monthly installments or for 240 days in the case of a loan
repayable in less frequent installments. Under the 1998 Amendments, the
delinquency period required for a student loan to be declared in default is
increased from 180 days to 270 days for loans payable in monthly installments on
which the first day of delinquency occurs on or after the date of enactment of
the 1998 Amendments and from 240 days to 330 days for a loan payable less
frequently than monthly on which the delinquency occurs after the date of
enactment of the 1998 Amendments.
The guarantee agency must pay the lender for the defaulted loan prior to
submitting a claim to the Secretary of Education for reimbursement. The
guarantee agency must submit a reimbursement claim to the Secretary of Education
within 45 days after it has paid the lender's default claim. As a prerequisite
to entitlement to payment on the guarantee by the guarantee agency, and in turn
payment of reimbursement by the Secretary of Education, the lender must have
exercised reasonable care and diligence in making, servicing and collecting the
guaranteed loan. Generally, these procedures require:
o that completed loan applications be processed;
o a determination of whether an applicant is an eligible borrower
attending an eligible institution under the Higher Education Act be
made;
o the borrower's responsibilities under the loan be explained to him or
her;
o the promissory note evidencing the loan be executed by the borrower;
and
o that the loan proceeds be disbursed by the lender in a specified
manner.
After the loan is made, the lender must establish repayment terms with the
borrower, properly administer deferments and forbearances and credit the
borrower for payments made. If a borrower becomes delinquent in repaying a loan,
a lender must perform certain collection procedures, primarily telephone calls,
demand letters, skiptracing procedures and requesting assistance from the
applicable guarantee agency, that vary depending upon the length of time a loan
is delinquent.
DIRECT LOANS
The 1993 Amendments authorized a program of "direct loans," to be
originated by schools with funds provided by the Secretary of Education. Under
the direct loan program, the Secretary of Education is directed to enter into
agreements with schools, or origination agents in lieu of schools, to disburse
loans with funds provided by the Secretary. Participation in the program by
schools is voluntary. The goals set forth in the 1993 Amendments call for the
direct loan program to constitute 5% of the total volume of loans made under the
Federal Family Education Loan Program and the direct loan program for academic
year 1994-1995, 40% for academic year 1995-1996, 50% for academic years
1996-1997 and 1997-1998 and 60% for academic year 1998-1999. No provision is
made for the size of the direct loan program thereafter. Based upon information
released by the General Accounting Office, participation by schools in the
direct loan program has not been sufficient to meet the goals for the 1995-1996
or 1996-1997 academic years. The 1998 Amendments removed references to the
"phase-in" of the Direct Loan Program, including restrictions on annual limits
for Direct Loan Program volume and the Secretary's authority to select
additional institutions to achieve balanced school representation.
The loan terms are generally the same under the direct loan program as
under the Federal Family Education Loan Program, though more flexible repayment
provisions are available under the direct loan program. At the discretion of the
Secretary of Education, students attending schools that participate in the
direct loan program (and their parents) may still be eligible for participation
in the Federal Family Education Loan Program, though no borrower could obtain
loans under both programs for the same period of enrollment.
It is difficult to predict the impact of the direct lending program. There
is no way to accurately predict the number of schools that will participate in
future years, or, if the Secretary authorizes students attending participating
schools to continue to be eligible for Federal Family Education Loan Program
loans, how many students will seek loans under the direct loan program instead
of the Federal Family Education Loan Program. In addition, it is impossible to
predict whether future legislation will eliminate, limit or expand the direct
loan program or the Federal Family Education Loan Program.
OTHER GUARANTEE AGENCIES
Although the student loans that comprise the assets of each trust will
generally be guaranteed by the guarantee agencies described in the related
prospectus supplement, each trust may acquire student loans which are guaranteed
by other guarantee agencies with the approval of the rating agencies.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of all material federal income tax consequences
of the purchase, ownership and disposition of notes for the investors described
below and is based on the advice of Stroock & Stroock & Lavan LLP, as tax
counsel to Collegiate Funding of Delaware, L.L.C. This summary is based upon
laws, regulations, rulings and decisions currently in effect, all of which are
subject to change. The discussion does not deal with all federal tax
consequences applicable to all categories of investors, some of which may be
subject to special rules, including but not limited to, foreign investors,
except as otherwise indicated. In addition, this summary is generally limited to
investors who will hold the notes as "capital assets" (generally, property held
for investment) within the meaning of Section 1221 of the Internal Revenue Code
of 1986, as amended (the "Code"). INVESTORS SHOULD CONSULT THEIR OWN TAX
ADVISORS TO DETERMINE THE FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF
THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES OF ANY SERIES. Prospective
investors should note that no rulings have been or will be sought from the
Internal Revenue Service (the "Service") with respect to any of the federal
income tax consequences discussed below, and no assurance can be given that the
Service will not take contrary positions.
CHARACTERIZATION OF THE TRUST ESTATE
Based upon certain assumptions and certain representations of Collegiate
Funding of Delaware, L.L.C., Stroock & Stroock & Lavan LLP will render, with
respect to the notes, its opinion to the effect that the notes will be treated
as debt of the respective trust, rather than as an interest in the student
loans, and that the trust which issues the notes will not be characterized as an
association or publicly traded partnership taxable as a corporation, each for
federal income tax purposes. In addition, Stroock & Stroock & Lavan LLP has
rendered its opinion to the effect that this discussion is a summary of all
material federal income tax consequences as to the purchase, ownership and
disposition of the notes with respect to the investors described herein. Unlike
a ruling from the Service, such opinion is not binding on the courts or the
Service. Therefore, it is possible that the Service could assert that, for
purposes of the Code, the transaction contemplated by this prospectus
constitutes a sale of the student loans (or an interest therein) to the
registered owners or that the relationship which will result from this
transaction is that of a partnership, or an association taxable as a
corporation.
If, instead of treating the transaction as creating secured debt in the
form of the series issued by a trust as a separate entity, the transaction were
treated as creating a partnership among the registered owners, the servicer and
the trust which has purchased the underlying student loans, the resulting
partnership would not be subject to federal income tax. Rather, the servicer,
the trust and each registered owner would be taxed individually on their
respective distributive shares of the partnership's income, gain, loss,
deductions and credits. The amount and timing of items of income and deduction
of the registered owner could differ if the notes were held to constitute
partnership interests, rather than indebtedness.
If, alternatively, it were determined that this transaction created an
entity other than a trust which was classified as a corporation or a publicly
traded partnership taxable as a corporation and treated as having purchased the
student loans, the trust would be subject to federal income tax at corporate
income tax rates on the income it derives from the student loans, which would
reduce the amounts available for payment to the registered owners. Cash payments
to the registered owners generally would be treated as dividends for tax
purposes to the extent of such corporation's accumulated and current earnings
and profits. However, as noted above, Collegiate Funding of Delaware, L.L.C. has
been advised that the notes would be treated as debt of the respective trust for
federal income tax purposes and that each trust organized to issue notes will
not be characterized as an association or publicly traded partnership taxable as
a corporation.
CHARACTERIZATION OF THE NOTES AS INDEBTEDNESS
Each trust and the registered owners will express in its indenture their
intent that, for federal income tax purposes, the notes will be indebtedness of
such trust secured by the student loans. Each trust and the registered owners,
by accepting the notes, have agreed to treat the notes as indebtedness of such
trust for federal income tax purposes. Each trust intends to treat this
transaction as a financing reflecting the notes as its indebtedness for tax and
financial accounting purposes.
In general, the characterization of a transaction as a sale of property or
a secured loan, for federal income tax purposes, is a question of fact, the
resolution of which is based upon the economic substance of the transaction,
rather than its form or the manner in which it is characterized for state law or
other purposes. While the Service and the courts have set forth several factors
to be taken into account in determining whether the substance of a transaction
is a sale of property or a secured indebtedness, the primary factor in making
this determination is whether the transferee has assumed the risk of loss or
other economic burdens relating to the property and has obtained the benefits of
ownership thereof. Notwithstanding the foregoing, in some instances, courts have
held that a taxpayer is bound by the particular form it has chosen for a
transaction, even if the substance of the transaction does not accord with its
form.
Collegiate Funding of Delaware, L.L.C. believes that it has retained the
preponderance of the primary benefits and burdens associated with ownership of
the student loans and should, thus, be treated as the owner of the student loans
for federal income tax purposes. If, however, the Service were successfully to
assert that this transaction should be treated as a sale of the student loans,
and the trust created pursuant to the indenture, the owner of the student loans
for federal income tax purposes, under certain circumstances the Service could
assert that such trust may be deemed to be engaged in a business and, therefore,
characterized as a publicly traded partnership taxable as a corporation.
TAXATION OF INTEREST INCOME OF REGISTERED OWNERS
Payments of interest with regard to the notes will be includible as
ordinary income when received or accrued by the registered owners in accordance
with their respective methods of tax accounting and applicable provisions of the
Code. In particular, Section 1272 of the Code requires the current ratable
inclusion in income of original issue discount greater than a specified de
minimis amount using a constant yield method of accounting. In general, original
issue discount is calculated, with regard to any accrual period, by applying the
instrument's yield to its adjusted issue price at the beginning of the accrual
period, reduced by any qualified stated interest allocable to the period. The
aggregate original issue discount allocable to an accrual period is allocated to
each day included in such period. The holder of a debt instrument must include
in income the sum of the daily portions of original issue discount attributable
to the number of days he owned the instrument as it accrues, without regard to
the timing of the receipt of the cash attributable to such income or to the
holder's method of accounting. The legislative history of the original issue
discount provisions indicates that the calculation and accrual of original issue
discount should be based on the prepayment assumptions used by the parties in
pricing the transaction.
Original issue discount is the stated redemption price at maturity of a
debt instrument over its issue price. The stated redemption price at maturity
includes all payments with respect to an instrument other than interest
unconditionally payable at a fixed rate or a qualified variable rate at fixed
intervals of one year or less. Collegiate Funding of Delaware, L.L.C. expects
that interest payable with respect to the Class A and Class B notes will not be
issued with original issue discount. However, there can be no assurance that the
Service would not assert that the interest payable with respect to the Class B
notes may not be qualified stated interest because such payments are not
unconditional and that the Class B notes are issued with original issue
discount.
Payments of interest received with respect to the notes may also constitute
"investment income" for purposes of certain limitations of the Code concerning
the deductibility of investment interest expense. Potential registered owners or
the beneficial owners should consult their own tax advisors concerning the
treatment of interest payments with regard to the notes.
A purchaser who buys a note of any series at a discount from its principal
amount (or its adjusted issue price if issued with original issue discount
greater than a specified de minimis amount) will be subject to the market
discount rules of the Code. In general, the market discount rules of the Code
treat principal payments and gain on disposition of a debt instrument as
ordinary income to the extent of accrued market discount. Although the accrued
market discount on debt instruments such as the notes which are subject to
prepayment based on the prepayment of other debt instruments is to be determined
under regulations yet to be issued, the legislative history of these provisions
of the Code indicate that the same prepayment assumption used to calculate
original issue discount should be utilized. Each potential investor should
consult his tax advisor concerning the application of the market discount rules
to the notes.
In the event that the notes are considered to be purchased by a holder at a
price greater than their remaining stated redemption price at maturity, they
will be considered to have been purchased at a premium. The noteholder may elect
to amortize such premium (as an offset to interest income), using a constant
yield method, over the remaining term of the notes. Special rules apply to
determine the amount of premium on a "variable rate debt instrument" and certain
other debt instruments. Prospective holders should consult their tax advisors
regarding the amortization of bond premium.
The annual statement regularly furnished to registered owners for federal
income tax purposes will include information regarding the accrual of payments
of principal and interest with respect to the notes. As noted above, Collegiate
Funding of Delaware, L.L.C. believes, based on the advice of counsel, that it
will retain ownership of the student loans for federal income tax purposes. In
the event the indenture is deemed to create a pass-through entity as the owner
of the student loans for federal income tax purposes instead of Collegiate
Funding of Delaware, L.L.C. (assuming such entity is not, as a result, taxed as
an association), the owners of the notes could be required to accrue payments of
interest more rapidly than otherwise would be required.
SALE OR EXCHANGE OF NOTES
If a holder sells a note, such person will recognize gain or loss equal to
the difference between the amount realized on such sale and the holder's basis
in such note. Ordinarily, such gain or loss will be treated as a capital gain or
loss. At the present time, in the case of individuals, the maximum capital gain
rate for assets held for more than twelve months is 15%. However, if a note was
acquired subsequent to its initial issuance at a discount, a portion of such
gain will be recharacterized as market discount and therefore ordinary income.
In the event any of the notes are issued with original issue discount, in
certain circumstances, a portion of the gain can be recharacterized as ordinary
income.
If the term of a note was materially modified, in certain circumstances, a
new debt obligation would be deemed created and exchanged for the prior
obligation in a taxable transaction. Among the modifications which may be
treated as material are those which relate to redemption provisions and, in the
case of a nonrecourse obligation, those which involve the substitution of
collateral. Each potential holder of a note should consult its own tax advisor
concerning the circumstances in which the notes would be deemed reissued and the
likely effects, if any, of such reissuance.
BACKUP WITHHOLDING
Certain purchasers may be subject to backup withholding at the rate of 28%
with respect to interest paid with respect to the notes if the purchasers, upon
issuance, fail to supply the indenture trustee or their brokers with their
taxpayer identification numbers, furnish incorrect taxpayer identification
numbers, fail to report interest, dividends or other "reportable payments" (as
defined in the Code) properly, or, under certain circumstances, fail to provide
the indenture trustee with a certified statement, under penalty of perjury, that
they are not subject to backup withholding. Information returns will be sent
annually to the Service and to each purchaser setting forth the amount of
interest paid with respect to the notes and the amount of tax withheld thereon.
STATE, LOCAL OR FOREIGN TAXATION
Collegiate Funding of Delaware, L.L.C. makes no representations regarding
the tax consequences of purchase, ownership or disposition of the notes under
the tax laws of any state, locality or foreign jurisdiction. Investors
considering an investment in the notes should consult their own tax advisors
regarding such tax consequences.
LIMITATION ON THE DEDUCTIBILITY OF CERTAIN EXPENSES
Under Section 67 of the Code, an individual may deduct certain
miscellaneous itemized deductions only to the extent that the sum of such
deductions for the taxable year exceed 2% of his or her adjusted gross income.
If contrary to expectation, the entity created under the indenture were treated
as the owner of the student loans (and not as an association taxable as a
corporation) and some or all of the noteholders were treated as equity owners of
such entity, then Collegiate Funding of Delaware, L.L.C. believes that a
substantial portion of the expenses to be generated by the trust could be
subject to the foregoing limitations. As a result, each potential registered
owner should consult his or her personal tax advisor concerning the application
of these limitations to an investment in the notes.
TAX-EXEMPT INVESTORS
In general, an entity which is exempt from federal income tax under the
provisions of Section 501 of the Code is subject to tax on its unrelated
business taxable income. An unrelated trade or business is any trade or business
which is not substantially related to the purpose which forms the basis for such
entity's exemption. However, under the provisions of Section 512 of the Code,
interest may be excluded from the calculation of unrelated business taxable
income unless the obligation which gave rise to such interest is subject to
acquisition indebtedness. If, contrary to expectations, one or more of the notes
of any Series were considered equity for tax purposes and if one or more other
notes were considered debt for tax purposes, those notes treated as equity
likely would be subject to acquisition indebtedness and likely would generate
unrelated business taxable income. However, as noted above, counsel has advised
Collegiate Funding of Delaware, L.L.C. that the notes should be characterized as
debt for federal income tax purposes. Therefore, except to the extent any
registered owner incurs acquisition indebtedness with respect to a note,
interest paid or accrued with respect to such note may be excluded by each
tax-exempt registered owner from the calculation of unrelated business taxable
income. Each potential tax-exempt registered owner is urged to consult its own
tax advisor regarding the application of these provisions.
FOREIGN INVESTORS
A holder which is not a U.S. person ("foreign holder") will not be subject
to U.S. federal income or withholding tax in respect of interest income or gain
on the notes if: (1) the foreign holder provides an appropriate statement,
signed under penalties of perjury, identifying the foreign holder as the
beneficial owner and stating, among other things, that the foreign holder is not
a U.S. person, and (2) the foreign holder is not a "10-percent shareholder" or
"related controlled foreign corporation" with respect to the trust, unless
certain exceptions apply. To the extent these conditions are not met, a 30%
withholding tax will apply to interest income on the notes, unless an income tax
treaty reduces or eliminates such tax or the interest is effectively connected
with the conduct of a trade or business within the United States by such foreign
holder. In the latter case, such foreign holder will be subject to U.S. federal
income tax with respect to all income from the notes at regular rates applicable
to U.S. taxpayers. A "U.S. person" is: (i) a citizen or resident of the United
States, (ii) a corporation (or other entity that is treated as a corporation for
U.S. federal tax purposes) that is created or organized in or under the laws of
the United States or any State thereof (including the District of Columbia),
(iii) an estate the income of which is subject to U.S. federal income taxation
regardless of its source, or (iv) a trust, if a court within the United States
is able to exercise primary supervision over its administration and one or more
United States persons have the authority to control all of its substantial
decisions.
Generally, a foreign holder will not be subject to federal income tax on
any amount which constitutes capital gain upon the sale, exchange, retirement or
their disposition of a note unless such foreign holder is an individual present
in the United States for 183 days or more in the taxable year of the sale,
exchange, retirement or other disposition and certain other conditions are met,
or unless the gain is effectively connected with the conduct of a trade or
business in the United States by such foreign holder. If the gain is effectively
connected with the conduct of a trade or business in the United States by such
foreign holder, such holder will generally be subject to U.S. federal income tax
with respect to such gain in the same manner as U.S. holders, as described
above, and a foreign holder that is a corporation could be subject to a branch
profits tax on such income as well.
ERISA CONSIDERATIONS
Section 406 of the Employee Income Retirement Security Act of 1974, as
amended ("ERISA") and/or Section 4975 of the Code prohibit pension,
profit-sharing or other employee benefit plans, as well as individual retirement
accounts and some types of Keogh plans, (each a "Plan"), from engaging in some
types of transactions with persons that are "parties in interest" under ERISA or
"disqualified persons" under the Code with respect to a Plan. A violation of
these "prohibited transaction" rules may result in an excise tax or other
penalties and liabilities under ERISA and the Code for those persons. Some
transactions involving the respective trust might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Plan that
purchased notes if assets of the trust were deemed to be assets of the Plan.
Under regulations issued by the United States Department of Labor, (the "Plan
Asset Regulations"), the assets of the trust would be treated as plan assets of
a Plan for the purposes of ERISA and the Code only if the Plan acquired an
"equity interest" in the trust and none of the exceptions contained in the Plan
Asset Regulations was applicable. An equity interest is defined under the Plan
Asset Regulations as an interest other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features. Unless the related prospectus supplement states otherwise, although
there is little guidance on the subject, Collegiate Funding of Delaware, L.L.C.
believes the notes of each trust would be treated as indebtedness without
substantial equity features for purposes of the Plan Asset Regulations. Other
exceptions, if any, from application of the Plan Asset Regulations available
with respect to any notes will be discussed in the related prospectus
supplement.
However, without regard to whether notes are treated as an equity interest
for those purposes, the acquisition or holding of notes by or on behalf of a
Plan could be considered to give rise to a prohibited transaction if Collegiate
Funding of Delaware, L.L.C., Collegiate Funding Master Servicing, L.L.C., any
other servicer, the related trust or any of their respective affiliates is or
becomes a party in interest or a disqualified person with respect to a Plan.
Some of the exemptions from the prohibited transaction rules could be applicable
to the purchase and holding of notes by a Plan depending on the type and
circumstances of the plan fiduciary making the decision to acquire the notes.
Included among these exemptions are: Prohibited Transaction Class Exemption
("PTCE"), 90-1, regarding investments by insurance company pooled separate
accounts; PTCE 91-38, regarding investments by bank collective investment funds;
PTCE 84-14, regarding transactions effected by qualified professional asset
managers; PTCE 95-60, regarding transactions by life insurance company general
accounts; and PTCE 96-23, regarding transactions affected by in-house asset
managers.
A PLAN FIDUCIARY CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT ITS LEGAL
ADVISORS REGARDING THE FIDUCIARY RESPONSIBILITY PROVISIONS OF ERISA, WHETHER THE
ASSETS OF THE RELATED TRUST WOULD BE CONSIDERED PLAN ASSETS, THE POSSIBILITY OF
EXEMPTIVE RELIEF FROM THE PROHIBITED TRANSACTION RULES AND THEIR POTENTIAL
CONSEQUENCES.
EACH PROSPECTUS SUPPLEMENT WILL CONTAIN INFORMATION CONCERNING
CONSIDERATIONS RELATING TO ERISA AND THE CODE THAT ARE APPLICABLE TO THE RELATED
NOTES. BEFORE PURCHASING NOTES IN RELIANCE ON THE ABOVE EXEMPTIONS, OR ANY OTHER
EXEMPTION, A FIDUCIARY OF A PLAN SHOULD ITSELF CONFIRM THAT REQUIREMENTS SET
FORTH IN SUCH EXEMPTION WOULD BE SATISFIED.
Governmental plans and church plans as defined in ERISA are not subject to
ERISA or Code Section 4975, although they may elect to be qualified under
Section 401(a) of the Code and exempt from taxation under Section 501(a) of the
Code and would then be subject to the prohibited transaction rules set forth in
Section 503 of the Code. In addition, governmental plans may be subject to
federal, state and local laws which are to a material extent similar to the
provisions of ERISA or a Code Section 4975 ("Similar Law"). A fiduciary of a
governmental plan should make its own determination as to the propriety of an
investment in notes under applicable fiduciary or other investment standards and
the need for the availability of any exemptive relief under any Similar Law.
PLAN OF DISTRIBUTION
The trusts may sell the notes of each series to or through underwriters by
"best efforts" underwriting or a negotiated firm commitment underwriting by the
underwriters, and also may sell the notes directly to other purchasers or
through agents. If so indicated in the prospectus supplement, a trust may sell
such notes, directly or through agents, through a competitive bidding process
described in the applicable prospectus supplement. Notes will be offered through
such various methods from time to time and offerings may be made concurrently
through more than one of these methods or an offering of a particular series of
the notes may be made through a combination of such methods.
The distribution of the notes may be effected from time to time in one or
more transactions at a fixed price or prices, which may be changed, or at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices based, among other things, upon existing
interest rates, general economic conditions and investors' judgments as to the
price of the notes.
In connection with the sale of the notes, underwriters may receive
compensation from the trust or from the purchasers of such notes for whom they
may act as agents in the form of discounts, concessions or commissions.
Underwriters may sell the notes of a trust to or through dealers and those
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters or commissions from the purchasers for whom
they may act as agents. Underwriters, dealers and agents that participate in the
distribution of the notes may be deemed to be underwriters and any discounts or
commissions received by them from a trust and any profit on the resale of the
notes by them may be deemed to be underwriting discounts and commissions under
the Securities Act. The underwriters will be identified, and any compensation
received from a trust will be described, in the applicable prospectus
supplement.
A trust may agree with the underwriters and agents who participate in the
distribution of the notes that it will indemnify them against liabilities,
including liabilities under the Securities Act, or to contribution with respect
to payments which the underwriters or agents may be required to make in respect
thereto.
If so indicated in the prospectus supplement, a trust will authorize
underwriters or other persons acting as its agent to solicit offers by certain
institutions to purchase the notes pursuant to contracts providing for payment
and delivery on a future date. Institutions with which these contracts may be
made include commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions and others, but in
all cases the trust must approve the institutions. The obligation of any
purchaser under any contract will be subject to the condition that the purchaser
of the notes shall not be prohibited by law from purchasing such notes. The
underwriters and other agents will not have responsibility in respect of the
validity or performance of these contracts.
The underwriters may, from time to time, buy and sell notes, but there can
be no assurance that an active secondary market will develop and there is no
assurance that any market, if established, will continue.
LEGAL MATTERS
Certain legal and tax matters will be passed upon by Stroock & Stroock &
Lavan LLP, as counsel to the trusts. Other counsel, if any, passing upon legal
matters for the trusts or any placement agent or underwriter will be identified
in the related prospectus supplement.
FINANCIAL INFORMATION
The notes are limited obligations payable solely from the revenues
generated from the student loans and other assets of each trust. Accordingly, it
has been determined that financial statements for each trust are not material to
any offering made hereby. Accordingly, financial statements with respect to the
trusts are not included in this prospectus, and will not be included in any
prospectus supplement.
RATINGS
It is a condition to the issuance of the notes that they be rated by at
least one nationally recognized statistical rating organization in one of its
generic rating categories which signifies investment grade (typically, in one of
the four highest rating categories). The specific ratings for class of notes
will be described in the related prospectus supplement.
A securities rating addresses the likelihood of the receipt by owners of
the notes of payments of principal and interest with respect to their notes from
assets in the trust estate. The rating takes into consideration the
characteristics of the student loans, and the structural, legal and tax aspects
associated with the rated notes.
A securities rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each securities rating should be evaluated independently of
similar ratings on different securities.
INCORPORATION OF DOCUMENTS BY REFERENCE;
WHERE TO FIND MORE INFORMATION
The trust's are subject to the reporting requirements of the Securities
Exchange Act of 1934 and to comply with those requirements, we will file
periodic reports and other information with the SEC. The SEC allows us to
incorporate by reference into this prospectus the information we file with them,
which means that we can disclose important information to you by referring you
to the reports we file with the SEC. We hereby incorporate by reference all
periodic reporting documents we file with the SEC after the date of this
prospectus and before all of the notes have been issued.
We will provide you, without charge, a copy of any of the documents
incorporated by reference upon written or oral request directed to Collegiate
Funding of Delaware, L.L.C., 100 Riverside Parkway, Suite 125, Fredericksburg,
Virginia 22406, or by phone at (540) 374-1600.
You may read and copy our registration statement and reports and other
information that we file with the SEC at the SEC's Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In
addition, the SEC maintains a website at HTTP://WWW.SEC.GOV from which our
registration statement and reports are available.
GLOSSARY OF TERMS
Some of the terms used in this prospectus are defined below. The indenture
contains the definition of other terms used in this prospectus and reference is
made to the indenture for those definitions.
"AUTHORIZED REPRESENTATIVE" shall mean, when used with reference to a
Collegiate Funding Services Education Loan Trust any officer or board member of
any affiliate organization or other entity authorized by the trust agreement to
act on such Collegiate Funding Services Education Loan Trust's behalf.
"BOOK-ENTRY FORM" or "BOOK-ENTRY SYSTEM" means a form or system under which
(a) the beneficial right to principal and interest may be transferred only
through a book entry, (b) physical securities in registered form are issued only
to a securities depository or its nominee as registered owner, with the
securities "immobilized" to the custody of the securities depository, and (c)
the book entry is the record that identifies the owners of beneficial interests
in that principal and interest.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"COLLECTION PERIOD" means, with respect to the first distribution date, the
period beginning and ending on the dates specified in a related prospectus
supplement, and for any subsequent distribution date, the three full calendar
months preceding a distribution date or such other periods as may be described
in a prospectus supplement.
"COUNTERPARTY" shall mean a third party which, at the time of entering into
a Derivative Product, has a rating satisfactory to the Rating Agencies rating
the notes, and which is obligated to make payments under a Derivative Product.
"DERIVATIVE PAYMENT DATE" shall mean, with respect to a Derivative Product,
any date specified in the Derivative Product on which a payment is due and
payable under the Derivative Product.
"DERIVATIVE PRODUCT" shall mean a written contract or agreement between a
trust and a Counterparty, which provides that the trust's obligations thereunder
will be conditioned on the absence of (i) a failure by the Counterparty to make
any payment required thereunder when due and payable, or (ii) a default
thereunder with respect to the financial status of the Counterparty, and:
(a) under which the trust is obligated (whether on a net payment basis
or otherwise), on one or more scheduled and specified Derivative Payment
Dates, to make payments to a Counterparty in exchange for the
Counterparty's obligation (whether on a net payment basis or otherwise) to
make payments to the trust, on one or more scheduled and specified
Derivative Payment Dates, in the amounts set forth in the Derivative
Product;
(b) for which the trust's obligation to make payments may be secured
by a pledge of and lien on the trust estate on an equal and ratable basis
with any class of the trust's outstanding notes and which payments may be
equal in priority with any priority classification of the trust's
outstanding notes; and
(c) under which payments are to be made directly to the indenture
trustee for deposit into the Revenue Fund.
"DISTRIBUTION DATE" shall have the meaning described in the related
prospectus supplement.
"ELIGIBLE LENDER" shall mean (i) the Eligible Lender Trustee and (ii) any
"eligible lender," as defined in the Higher Education Act, and which has
received an eligible lender designation from the Secretary with respect to loans
made under the Higher Education Act.
"EVENT OF BANKRUPTCY" shall mean (a) a Collegiate Funding Services
Education Loan Trust shall have commenced a voluntary case or other proceeding
seeking liquidation, reorganization, or other relief with respect to itself or
its debts under any bankruptcy, insolvency, or other similar law now or
hereafter in effect or seeking the appointment of a indenture trustee, receiver,
liquidator, custodian, or other similar official of it or any substantial part
of its property, or shall have made a general assignment for the benefit of
creditors, or shall have declared a moratorium with respect to its debts or
shall have failed generally to pay its debts as they become due, or shall have
taken any action to authorize any of the foregoing; or (b) an involuntary case
or other proceeding shall have been commenced against a Collegiate Funding
Services Education Loan Trust seeking liquidation, reorganization, or other
relief with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a indenture
trustee, receiver, liquidator, custodian, or other similar official of it or any
substantial part of its property provided such action or proceeding is not
dismissed within 60 days.
"FEDERAL REIMBURSEMENT CONTRACTS" shall mean the agreements between the
guarantee agency and the Secretary providing for the payment by the Secretary 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 and other student loans guaranteed or insured by the
guarantee agency and interest benefit payments and special allowance payments to
holders of qualifying student loans guaranteed or insured by the guarantee
agency.
"FITCH" shall mean Fitch, Inc., a corporation organized and existing under
the laws of the State of Delaware, its successors and assigns.
"GUARANTEE" or "GUARANTEED" shall mean, with respect to a student loan, the
insurance or guarantee by the guaranty agency pursuant to such guaranty agency's
guarantee agreement of the maximum percentage of the principal of and accrued
interest on such student loan allowed by the terms of the Higher Education Act
with respect to such student loan at the time it was originated and the coverage
of such student loan by the federal reimbursement contracts, providing, among
other things, for reimbursement to the guaranty agency for payments made by it
on defaulted student loans insured or guaranteed by the guaranty agency of at
least the minimum reimbursement allowed by the Higher Education Act with respect
to a particular student loan.
"GUARANTEE AGREEMENTS" shall mean a guaranty or lender agreement between
the eligible lender trustee and any guaranty agency, and any amendments thereto.
"GUARANTY AGENCY" or "GUARANTOR" shall mean any entity authorized to
guarantee student loans under the Higher Education Act and with which the
eligible lender trustee maintains a guarantee agreement.
"HIGHER EDUCATION ACT" shall mean the Higher Education Act of 1965, as
amended or supplemented from time to time, or any successor federal act and all
regulations, directives, bulletins, and guidelines promulgated from time to time
thereunder.
"INDENTURE" shall mean each indenture of trust among a Collegiate Funding
Services Education Loan Trust, the eligible lender trustee and the indenture
trustee identified in the applicable prospectus supplement, including all
supplements and amendments thereto.
"INSURANCE" or "INSURED" or "INSURING" means, with respect to a student
loan, the insuring by the Secretary (as evidenced by a certificate of insurance
or other document or certification issued under the provisions of the Act) under
the Higher Education Act of 100% of the principal of and accrued interest on
such student loan.
"INTEREST BENEFIT PAYMENT" shall mean an interest payment on student loans
received pursuant to the Higher Education Act and an agreement with the federal
government, or any similar payments.
"INTEREST PERIOD" OR "INTEREST ACCRUAL PERIOD" means, with respect to LIBOR
rate notes, for the first distribution date, the period beginning on the closing
date and ending on the date specified in a related prospectus supplement, and
for any subsequent distribution date, the period beginning on the prior
distribution date and ending on the day before such distribution date; with
respect to the auction rate notes, the initial period and each period commencing
on an interest rate adjustment date for such class and ending on the day before
the next interest rate adjustment date for such class or the stated maturity of
such class, as applicable; and with respect to Treasury rate notes has the
meaning described under the heading "Description of the Notes-Treasury Rate
Notes."
"MOODY'S" shall mean Moody's Investors Service, Inc. and its successors and
assigns.
"NOTES" shall mean a trust's notes or other obligations issued under an
indenture.
"PARTICIPANT" means a member of, or participant in, the depository.
"RATING AGENCY" shall mean, each of, S&P, Fitch and Moody's and their
successors and assigns or any other rating agency requested by a Collegiate
Funding Services Education Loan Trust to maintain a rating on any of the notes.
"RATING CONFIRMATION" means a letter from each rating agency then providing
a rating for any of the notes at the request of the Issuer, confirming that the
action proposed to be taken by a trust will not, in and of itself, result in a
downgrade of any of the ratings then applicable to the notes, or cause any
rating agency to suspend or withdraw or qualify the ratings then applicable to
the notes issued by that trust.
"REGISTERED OWNER" shall mean the person in whose name a note is registered
on the note registration books maintained by the indenture trustee.
"REVENUE" or "REVENUES" shall mean all amounts received by the indenture
trustee from or on account of any student loan as a recovery of the principal
amount thereof, all payments, proceeds, charges and other income received by the
indenture trustee or a Collegiate Funding Services Education Loan Trust from or
on account of any student loan (including scheduled, delinquent and advance
payments of and any insurance proceeds with respect to, interest, including
interest benefit payments, on any student loan and any special allowance payment
received by a Collegiate Funding Services Education Loan Trust with respect to
any student loan) and all interest earned or gain realized from the investment
of amounts in any fund or account and all payments received by a Collegiate
Funding Services Education Loan Trust pursuant to a derivative product.
"S&P" shall mean Standard & Poor's Ratings Group, a Division of The
McGraw-Hill Companies, Inc., its successors and assigns.
"SECRETARY" shall mean the Secretary of the United States Department of
Education or any successor to the pertinent functions thereof, under the Higher
Education Act or when the context so requires, the former Commissioner of
Education of the United States Department of Health, Education and Welfare.
"SELLER" shall mean any eligible lender from which Collegiate Funding of
Delaware, L.L.C. is purchasing or has purchased or agreed to purchase student
loans for subsequent sale to a Collegiate Funding Services Education Loan Trust.
"SERVICER" shall mean, collectively, Collegiate Funding Master Servicing,
L.L.C. and any other additional servicer, subservicer or successor servicer or
subservicer selected by a trust, including an affiliate of a trust, so long as
such trust obtains a Rating Confirmation as to each such other Servicer or
Subservicer.
"SPECIAL ALLOWANCE PAYMENTS" shall mean the special allowance payments
authorized to be made by the Secretary by Section 438 of the Higher Education
Act, or similar allowances, if any, authorized from time to time by federal law
or regulation.
"SUPPLEMENTAL INDENTURE" shall mean an agreement supplemental to the
indenture executed pursuant to the indenture.
APPENDIX I
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered notes (the
"Global Securities") will be available only in book-entry form. Investors in the
Global Securities may hold such Global Securities through any of The Depository
Trust Company, Clearstream, Luxembourg or Euroclear. The Global Securities will
be tradable as home market instruments in both the European and U.S. domestic
markets. Initial settlement and all secondary trades will settle in same-day
funds.
Secondary market trading between investors holding Global Securities
through Clearstream, Luxembourg and Euroclear will be conducted in the ordinary
way in accordance with their normal rules and operating procedures and in
accordance with conventional Eurobond practice (i.e., seven calendar day
settlement).
Secondary market trading between investors holding Global Securities
through The Depository Trust Company will be conducted according to the rules
and procedures applicable to U.S. corporate debt obligations and prior
Asset-Backed Certificates issues.
Secondary, cross-market trading between Clearstream, Luxembourg or
Euroclear and The Depository Trust Company Participants holding notes will be
effected on a delivery-against-payment basis through the respective Depositaries
of Clearstream, Luxembourg and Euroclear (in such capacity) and as The
Depository Trust Company Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by The Depository
Trust Company in the name of Cede & Co. as nominee of The Depository Trust
Company Investors' interests in the Global Securities will be represented
through financial institutions acting on their behalf of their participants
through their respective Depositaries, which in turn will hold such positions in
accounts as The Depository Trust Company Participants.
Investors electing to hold their Global Securities through The Depository
Trust Company will follow the settlement practices applicable to prior
Asset-Backed Certificates issues. Investor securities custody accounts will be
credited with their holdings against payment in same-day funds on the settlement
date.
Investors electing to hold their Global Securities through Clearstream,
Luxembourg or Euroclear accounts will follow the settlement procedures
applicable to conventional Eurobonds, except that there will be no temporary
global security and no "lock-up" or restricted period. Global Securities will be
credited to the securities custody accounts on the settlement date against
payment in same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
TRADING BETWEEN THE DEPOSITORY TRUST COMPANY PARTICIPANTS. Secondary market
trading between The Depository Trust Company Participants will be settled using
the procedures applicable to prior Student Loan Asset-Backed Securities issues
in same-day funds.
TRADING BETWEEN CLEARSTREAM, LUXEMBOURG AND/OR EUROCLEAR PARTICIPANTS.
Secondary market trading between Clearstream, Luxembourg Participants or
Euroclear Participants will be settled using the procedures applicable to
conventional eurobonds in same-day funds.
TRADING BETWEEN THE DEPOSITORY TRUST COMPANY SELLER AND CLEARSTREAM,
LUXEMBOURG OR EUROCLEAR PURCHASER. When Global Securities are to be transferred
from the account of a The Depository Trust Company Participant to the account of
a Clearstream, Luxembourg Participant or a Euroclear Participant, the purchaser
will send instructions to Clearstream, Luxembourg or Euroclear through a
Clearstream, Luxembourg Participant or Euroclear Participant at least one
business day prior to settlement. Clearstream, Luxembourg or Euroclear will
instruct the respective Depositary, as the case may be, to receive the Global
Securities against payment. Payment will include interest accrued on the Global
Securities from and including the last coupon payment date to and excluding the
settlement date, on the basis of the actual number of days in such accrual
period and a year assumed to consist of 360 days, or a 360-day year of twelve
30-day months, as applicable. For transactions settling on the 31st of the
month, payment will include interest accrued to and excluding the first day of
the following month. Payment will then be made by the respective Depositary of
The Depository Trust Company Participant's account against delivery of the
Global Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing system,
in accordance with its usual procedures, to the Clearstream, Luxembourg
Participant's or Euroclear Participant's account. The securities credit will
appear the next day (European time) and the cash debt will be back-valued to,
and the interest on the Global Securities will accrue from, the value date
(which would be the preceding day when settlement occurred in New York.) If
settlement is not completed on the intended value date (i.e., the trade fails),
the Clearstream, Luxembourg, or Euroclear cash debt will be valued instead as of
the actual settlement date.
Clearstream, Luxembourg Participants and Euroclear Participants will need
to make available to the respective clearing systems the funds necessary to
process same-day funds settlement. The most direct means of doing so is to
preposition funds for settlement, either from cash on hand or existing lines of
credit, as they would for any settlement occurring within Clearstream,
Luxembourg or Euroclear. Under this approach, they may take on credit exposure
to Clearstream, Luxembourg or Euroclear until the Global Securities are credited
to their accounts one day later.
As an alternative, if Clearstream, Luxembourg or Euroclear has extended a
line of credit to them, Clearstream, Luxembourg Participants or Euroclear
Participants can elect not to preposition funds and allow that credit line to be
drawn upon the finance settlement. Under this procedure, Clearstream, Luxembourg
Participants or Euroclear Participants purchasing Global Securities would incur
overdraft charges for one day, assuming they cleared the overdraft when the
Global Securities were credited to their accounts. However, interest on the
Global Securities would accrue from the value date. Therefore, in many cases the
investment income on the Global Securities earned during that one-day period may
substantially reduce or offset the amount of such overdraft charges, although
this result will depend on each Clearstream, Luxembourg Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, The
Depository Trust Company Participants can employ their usual procedures for
sending Global Securities to the respective European Depositary for the benefit
of Clearstream, Luxembourg Participants or Euroclear Participants. The sale
proceeds will be available to The Depository Trust Company seller on the
settlement date. Thus, to The Depository Trust Company Participants a
cross-market transaction will settle no differently than a trade between two The
Depository Trust Company Participants.
TRADING BETWEEN CLEARSTREAM, LUXEMBOURG OR EUROCLEAR SELLER AND THE
DEPOSITORY TRUST COMPANY PURCHASER. Due to time zone differences in their favor,
Clearstream, Luxembourg Participants and Euroclear Participants may employ their
customary procedures for transactions in which Global Securities are to be
transferred the respective clearing system, through the respective Depositary,
to a Depository Trust Company Participant. The seller will send instructions to
Clearstream, Luxembourg or Euroclear through a Clearstream, Luxembourg
Participant or Euroclear Participant at least one business day prior to
settlement. In these cases Clearstream, Luxembourg or Euroclear will instruct
the Depositary, as appropriate, to deliver the Global Securities to The
Depository Trust Company Participant's account against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment to and excluding the settlement date on the basis of the actual
number of days in such accrual period and a year assumed to consist of 360 days,
or a 360-day year of twelve 30-day months, as applicable. For transactions
settling on the 31st of the month, payment will include interest accrued to an
excluding the first day of the following month. The payment will then be
reflected in the account of the Clearstream, Luxembourg Participant or Euroclear
Participant the following day, and receipt of the cash proceeds in the
Clearstream, Luxembourg Participant's or Euroclear Participant's account would
be back-valued to the value date (which would be the preceding day, when
settlement occurred in New York). Should the Clearstream, Luxembourg Participant
or Euroclear Participant have a line of credit with its respective clearing
system and elect to be in debt in anticipation of receipt of the sale proceeds
in its account, the back-valuation will extinguish any overdraft incurred over
that one-day period. If settlement is not completed on the intended value date
(i.e., the trade fails), receipt of the cash proceeds in the Clearstream,
Luxembourg Participant's or Euroclear Participant's account would instead be
valued as of the actual settlement date.
Finally, day traders that use Clearstream, Luxembourg or Euroclear and that
purchase Global Securities from The Depository Trust Company Participants for
delivery to Clearstream, Luxembourg Participants or Euroclear Participants
should note that these trades would automatically fail on the sale side unless
affirmative action were taken. At least three techniques should be readily
available to eliminate this potential problem:
(a) borrowing through Clearstream, Luxembourg or Euroclear for one day
(until the purchase side of the day trade is reflected in their
Clearstream, Luxembourg or Euroclear accounts) in accordance with the
clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a Depository
Trust Company Participant no later than one day prior to settlement, which
would give the Global Securities sufficient time to be reflected in their
Clearstream, Luxembourg or Euroclear accounts in order to settle the sale
side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from The Depository Trust Company
Participant is at least one day prior to the value date for the sale to the
Clearstream, Luxembourg Participant or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
Clearstream, Luxembourg, or Euroclear (or through The Depository Trust Company
if the holder has an address outside the U.S.) will be subject to the 30% U.S.
withholding tax that generally applies to payments of interest (including
original issue discount) on registered debt issued by U.S. Persons, unless (i)
each clearing system, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business in the chain of
intermediaries between such beneficial owner and the U.S. entity required to
withhold tax complies with applicable certification requirements and (ii) such
beneficial owner takes one of the following steps to obtain an exemption or
reduced tax rate.
EXEMPTION FOR NON-U.S. PERSONS (FORM W-8BEN). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8BEN (Certificate of Foreign Status of
Beneficial Owner for United States Withholding Tax). If the information shown on
Form W-8BEN changes, a new Form W-8BEN must be filed within 30 days of such
change.
EXEMPTION FOR NON-U.S. PERSONS WITH EFFECTIVELY CONNECTED INCOME (FORM
W-8ECI). A non-U.S. Person including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form W-8ECI (Exemption from Withholding of Tax on
Income Effectively Connected with the Conduct of a Trade or Business in the
United States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY
COUNTRIES. (Form W-8BEN). Non-U.S. Persons that are Note Owners residing in a
country that has a tax treaty with the United States can obtain an exemption or
reduced tax rate (depending on the treaty terms) by filing Form W-8BEN
(including Part II thereof). If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8. Form 1001 may be filed by the Note Owners or his agent.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The Note Owner of a Global
Security files by submitting the appropriate form to the person through whom it
holds (the clearing agency, in the case of persons holding directly on the books
of the clearing agency). Form W-8BEN and Form W-8ECI are effective until the
third calendar year from the date the form is signed.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership, or other entity taxable as such,
organized in or under the laws of the United States or any state (including the
District of Columbia), (iii) an estate the income of which is includible in
gross income for United States tax purposes, regardless of its source or (iv) a
trust if a Court within the United States is able to exercise primary
supervision over its administration and one or more United States persons have
the authority to control all substantial decisions of the trust . This summary
does not deal with all aspects of U.S. Federal income tax withholding that may
be relevant to foreign holders of the Global Securities. Investors are advised
to consult their own tax advisors for specific tax advice concerning their
holding and disposing of the Global Securities as well as the application of
recently issued Treasury regulations relating to tax documentation requirements
that are generally effective with respect to payments made after December 31,
2000.
$1,113,400,000
STUDENT LOAN ASSET-BACKED NOTES, SERIES 2004-A
COLLEGIATE FUNDING SERVICES EDUCATION LOAN TRUST 2004-A
Issuer
COLLEGIATE FUNDING OF DELAWARE, L.L.C.
Sponsor
COLLEGIATE FUNDING MASTER SERVICING, L.L.C.
Master Servicer
___________
PROSPECTUS SUPPLEMENT
___________
CITIGROUP JPMORGAN UBS
___________
April __, 2004
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
WE ARE NOT OFFERING NOTES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED.
WE REPRESENT THE ACCURACY OF THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT
AND PROSPECTUS ONLY AS OF THE DATES OF THEIR RESPECTIVE COVERS.
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT ALL DEALERS
THAT EFFECT TRANSACTIONS IN THE NOTES, WHETHER OR NOT PARTICIPATING IN THIS
OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS.
THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS
SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.