Student Loans and Capital Markets Thomas M. Graf Executive Director MEFA December 5, 2008

Capital Markets >Early Warning Signs >Current Environment >Continued Volatility

Capital Markets Early Warning Signs >Unprecedented Disruption Began With Sub-Prime Mortgage Crisis >Headline risk evident >Large bank write-downs >Quality of underwriting concerns as performance shifts >Investor confidence eroding >Asset-Backed Securities Impact >Limited liquidity as financing channels begin to close >Increased funding costs for lenders and banks

Capital Markets Early Warning Signs >Bond Insurers Under Pressure >Insured assets performance was deteriorating >Increased capitalization requirements to fulfill outstanding policies >Bond investors outlook diverging from published actions >Rating Agencies Scrutinized >Insurers on watch or negative outlook – downgrades were on the horizon >Investors looking through insurance wrap to underlying ratings

Capital Markets Early Warning Signs >Education Lenders Exit the Market >Increased funding costs >Liquidity contraction by investors >Investors concerned that student loans will perform like sub- prime mortgages

Capital Markets Current Environment

Education Loan Transactions Source: Bank of America, The Student Loan Report 11/18/08

Capital Markets Current Environment Interest Rates Source: Bank of America, The Student Loan Report 11/18/08

Capital Markets Continued Volatility Significant Impact on Families >Fewer education financing options >Tightened underwriting – FICO standards raised to improve risk management >Borrower benefits eliminated from loan programs >Increased borrowing costs in capital markets >Reliance on home equity limited due to housing price corrections >Stock market losses impact households net worth

Capital Markets Continued Volatility Pressure on College Campuses >Tightened operating budgets and fiscal policies >Impact on institutional financial aid >Shrinking endowments – losses likely to impact operating budgets and financial aid >Maintain access to broadest socioeconomic demographic

Capital Markets Continued Volatility Federal Government Intervention >Continue commitment to ensure students have access to federal loans >Ensuring Continued Access to Student Loans 2008 (ECASL) >Term Asset-Backed Securities Loan Facility (TALF) >Wait and see with new administration…

Capital Markets Continued Volatility Education Lenders Focus >Continued commitment to access capital markets to raise proceeds for affordable education loans >MEFA’s response in challenging marketplace >Spring 2008 – suspend FFELP participation >Fall 2008 – successful transaction to fund private education loans