WASHINGTON UPDATE May 13, 2008 Conwey Casillas Managing Director, Public Affairs

1 HISTORY November 7, 2006 – Congressional Election Day Democratic Majority in both the House ( ) and Senate (51-49). November 16, Senator Kennedy announces plans to introduce Student Loan Sunshine Act, H.R December 23, 2006 – Attorney General Andrew Cuomo requests information from lenders concerning schools’ use of preferred lender lists and marketing practices. January 4, 2007 – 110th Congress convenes. January 17, 2007 – The House passes College Student Relief Act of 2007, H.R. 5 (Vote: ). January 22, 2007 – The Student Debt Relief Act, S. 359, is introduced by Senator Kennedy. February 1, Senate Sunshine Act, H.R. 890, introduced. March 15, 2007 – Cuomo releases preliminary data based on information provided by lenders. Sends letters to 400 schools. April 2, 2007 – Cuomo’s Code of Conduct announced, SLATE Act. May 9, House approves Student Loan Sunshine Act, H.R (Vote: 414-3)

2 HISTORY May 17, 2007 – Congress approves Budget with Budget Reconciliation instruction to cut $750 million. May 30, New York State Slate Act, the New York Governor codifies Cuomo’s Code of Conduct by signing onto the SLATE Act, effective November 25, June 13, House Education and Labor Committee approves HEA reconciliation bill, the College Cost Reduction Act, H.R (Vote: 30-16) June 20, 2007 – Senate Health, Education, Labor and Pension Committee approves their Reconciliation Bill, Higher Education Access Act, S (Vote: 17-3) July 11, House passes its Reconciliation bill, the College Cost Reduction Act of 2007, H.R (Vote: ) July 20, Senate passes its Reconciliation bill, Higher Education Access Act of 2007, S (Vote 78-18) July 24, Senate passes its HEA Reauthorization Bill, Higher Education Access Amendments of 2007, S (Vote: 95-0)

3 HISTORY August 1, Senate Banking Committee approves the Private Student Loan Transparency and Improvement Act of (Vote: voice vote) September 7, The House and Senate pass final reconciliation bill, the College Cost Reduction and Access Act, H.R (Senate Vote: ; House Vote: 79-12) November 15, House Education and Labor Committee passes its HEA Reathorization Bill, the College Opportunity and Affordability Act, H.R (Vote: 45-0) February 7, House passes its HEA Reathorization Bill, the College Opportunity and Affordability Act, H.R (Vote: ) March 24, 2008 – President signs S. 2733, the Higher Education Extension Act of 2008, temporarily extending programs through April 30, April 17, 2008 – House passes the Ensuring Continued Access to Students Loans Act of 2008, H.R (Vote: ). April 30, Senate approves H.R with amendments by Unanimous Consent. May 1, House agrees to the Senate amendments, passes H.R (Vote: ). May 7, Congress passes S to temporarily extend Higher Education Act programs through May 31, 2008.

4 H.R The College Cost Reduction and Access Act of 2007 Legacy…(?) Pell Grants Loan Program Cost Differential – FFELP vs. DL FFELP Cuts Too Severe Limited Competition/Consumer Choice –Reduced Benefits (Not Limited to Discounts) Income-Based Repayment PLUS Auction (unworkable)

5 S & H.R The Higher Education Amendments of 2007 (S. 1642) The College Opportunity and Affordability Act (H.R. 4137) Legacy…(?) Private Loan Certification –FAA Role Strengthened Cohort Default Rates –Focus on more meaningful indicator of default Maintenance of Effort (MOE) –Focus on college costs Bipartisanship –Restore regular reauthorization process

6 HEARINGS March 14 - House Education and Labor Committee “Ensuring the Availability of Federal Student Loans” –LLR, DL March 17 – Senate Health, Education, Labor & Pensions “Ensuring Access to College in a Turbulent Economy” (MA) –LLR, DL

7 HEARINGS April 15 – Senate Banking, Housing & Urban Affairs “Impact of Turmoil in the Credit Markets on the Availability of Student Loans” Sallie Mae testimony: –Federal Financing Bank (FFB) Life of the loan participation interests in pools of newly originated loans from FFELP lenders Borrowing cost set at proposed level of CP + 40 –Term Securities Lending Facility of the Federal Reserve Bank Allow “primary dealers” to use student loan ABS as collateral to borrower –Federal Home Loan Bank Take student loans as collateral for advances Invest surplus funds in student loan asset backed securities

8 SOLUTIONS Federal Financing Bank: The least disruptive, most cost-effective, and quickest proposal to implement would be for the Department of Treasury’s Federal Financing Bank, or FFB, to provide liquidity for federally guaranteed loans. The FFB is already authorized by statute to purchase and sell any obligation which is issued, sold or guaranteed by a Federal agency. The FFB would purchase, for the “life of the loan,” participation interests in pools of newly originated guaranteed loans from FFELP lenders. Borrowing costs would be set at a rate low enough for lenders to have an incentive to access this credit in today’s inhospitable environment, but high enough that lenders will be eager to return to the markets when conditions improve. (Commercial Paper + 40) To ensure the least amount of disruption to the borrower and to relieve the FFB of any responsibility to service the loans, lenders would continue to manage and service the loans under the same strict requirements that governs FFELP. Servicing and guaranty agency agreements would remain with the lender. Day-to-day administration of the loans would be the responsibility of the eligible lender, not FFB. Administration says authority needed.

9 SOLUTIONS Federal Home Loan Banks: The Emergency Student Loan Market Liquidity Act, H.R and S. 2847, would support the student loan financing markets by authorizing the Federal Home Loan Bank (FHLB) system to take federal student loans as collateral for advances, which in turn would be used by lenders to make new loans. The legislation would also authorize Federal Home Loan Banks to invest their surplus funds in student loan asset backed securities. Federal Reserve: The Federal Reserve should allow primary dealers and issuers to use student loan ABS as collateral to borrow from the Federal Reserve’s newly created Term Security Lending Facility. This step would all be helpful in creating additional liquidity. Second, the Federal Reserve has emergency authority under Section 13 of the Federal Reserve Act (12 USC 343) to provide immediate assistance to non-bank lenders that could provide immediate liquidity to the student loan market.

10 H.R The Ensuring Continued Access to Student Loans Act of /8/ Introduced in House 4/14/2008 – Approved by Committee on Education & Labor. 4/17/ Passed/agreed to in House: /30/ Passed Senate with amendments by Unanimous Consent. 5/1/ House suspends the rules and agrees to the Senate amendments: /1/ Cleared for White House. 5/6/ Presented to President. 5/7/ Signed by President.

11 H.R For loans disbursed on or after July 1, 2008, increases annual unsubsidized Stafford loan limits for undergraduates by $2,000. Aggregate limits are increased, respectively – –Dependent undergraduates -- $31,000 (up from $23,00) –Independent undergraduates – $57,500 (up from $46,000) For PLUS Loans, creates a 6 month grace period with capitalization of interest, based upon beneficiary student's enrollment status; For PLUS loans made between July 1, 2008 and before July 1, 2009, the Department can waive credit requirements if 180 or fewer days delinquent on mortgage or medical bill payments; Clarifies Department authority to advance federal funds to guaranty agencies under Lender of Last Resort. LLR could be invoked at request of a school and under guidance of the Department; Gives the Secretary the temporary authority to purchase Stafford and PLUS loans made on or after October 1, 2003 at no cost to taxpayers. Authority to purchase loans expires on July 1, 2009.

12 H.R “It is a sense of Congress that, at a time when our economy is fragile and higher education and retraining opportunities are more important than ever— (1) the Federal financial institutions, such as the Federal Financing Bank and Federal Reserve, and federally chartered private entities such as the Federal Home Loan Banks and others, should consider, in consultation with the Secretary of Treasury and the Secretary of Education, using available authorities in a timely manner, if needed, to assist in ensuring that students and families can access Federal student loans for academic year , and if needed in the subsequent academic year, in a manner that results in no increased costs to taxpayers; and (2) any action taken as a result of such consideration should in no way limit or delay the Secretary of Education's authority to operate the lender-of-last-resort provisions of section 428(j) of the Higher Education Act of 1965 (as amended by this Act), nor the authority to purchase Federal Family Education Loan Program loans, as authorized by section 459A of such Act (as added by this Act).”

13 H.R / S The Emergency Student Loan Market Liquidity Act (Introduced by Rep. Paul Kanjorski and Sen. John Kerry) The bill permits each Federal Home Loan Bank to: Invest surplus funds in student loan-related securities Accept student loans and student loan-related securities as collateral Provide secured advances to originate student loans or finance student loan-related securities. (The bill stipulates that the emergency authorities provided are for a period beginning on February 1, 2008 and extending to the second- year anniversary of the date of enactment. Notwithstanding the expiration of the effective period, Federal Home Loan Banks may continue to hold outstanding investments in student loans and student loan-related securities until maturity. A similar exception is provided for existing collateral used to make advances to members before the termination date.)

14 H.R The Student Loan Access Act of 2008 (Introduced by Rep. Paul Kanjorski) Provides the Secretary of Treasury explicit authority to use the Federal Financing Bank (FFB) to providing funding for student loans.

15 BERNANKE “Congress may well wish to revisit the question of whether setting a fixed spread over the commercial paper rate is the best approach. You may decide that a more market-sensitive-approach — flexible enough to provide a wider spread during times of market stress and a narrower one during normal times — could provide a more robust structure.” “It is crucial to note, however, that the difficulties afflicting the market for student loans reflect a broader range of causes than just the liquidity problems currently facing the economy.”

16 CALL TO ACTION Letter/ to Secretary Spellings –Two Senators –Representative Messages –No time to wait. Peak processing season is already upon us. –Federal program should be supported by federal funds (immediate liquidity for lenders). –Award Letters have been sent. –Students are applying for loans early. –LLR and DL are backstops, not solutions. –DL transition cannot be accomplished without disruption.

17 FUTURE May 9, 2008 GEN FP Subject: School Use of a Preferred Lender List in the FFEL Program “Since publication of the regulations, several schools and lenders have asked whether all the lenders on a school’s preferred lender list must be unaffiliated, or whether only three lenders on a school’s list must be unaffiliated. The Department has reviewed this issue and has determined that the regulations only require that at least three lenders on a school’s preferred lender list must be unaffiliated with each other regardless of the number of lenders on that list. While not a requirement, we believe that it would be helpful to consumers for a school to identify, as part of its preferred lender list disclosures, any affiliations among the lenders on the institution’s preferred lender list.”

18 FUTURE Influence Administration’s implementation of new authority to address liquidity crisis. –Must be immediate –Must provide direct liquidity –Must be economically viable Complete HEA –May 31, 2008 –Memorial Day recess (May 24 – June 1)