NCHELP Spring Conference June 8, 2010 Is There Life After FFELP? Mark Weadick Managing Director Student Loan Capital Strategies LLC

Student Loan Sector: Significant Dislocation 2 Both Legislation and Credit Crisis have had major impact College Opportunity & Affordability Act passed in 2007 –Significantly reduced economics of all FFELP originations –Consolidation loans became uneconomic ABS market access and economics impacted since August 2007 Health Care Bill eliminates FFELP lending July 1, 2010 Industry concentration has increased due to exit of many players Private loan originations have fallen by approximately 50%

Student Loans are Major Component of Student Aid ________________________________________________ Source: CollegeBoard. Figures include both undergraduate and graduate student aid. +7% 4-Year CAGR +10% (7%) +4% +3% +5% (1%) Sources of Student Aid ($ in billions) 3

Federal Government will Lend $90B Annually ________________________________________________ Source: CollegeBoard. Figures include both undergraduate and graduate student aid. ($ in billions) Sources of Student Loans 4

Relative Stock Price Performance Price Performance of Student Lenders (52.8%) (82.8%) (76.3%) (87.7%) 11/7/06: Congressional elections 4/15/07: Flowers / SLM announcement 11/15/07: College Opportunity & Affordability Act passed 1/25/08: Formal termination of JC Flowers / SLM 8/6/09: $1.4bn STU TALF securitization ________________________________________________ Source: FactSet, Capital IQ and press releases. Market data as of April 12, /7/08: The Education Resources Institute (TERI) bankruptcy filing 5/7/09: $2.6bn SLM TALF securitization 1/29/10: STU announces restructuring of Citi Omnibus Credit Facility 3/22/10: Reconciliation passes which eliminates FFELP 5

Valuation Perspectives Price / Tangible Book Value Forward P/E (NTM) (1) 0.44x 1.63x 2.37x 0.91x ________________________________________________ Source: Capital IQ. Consensus estimates per Reuters. Market data as of April 12, (1)FMD earnings estimates no longer tracked by research analysts after August No research analyst coverage or earnings estimates available for STU. 7.9x 8.4x Valuations have fallen dramatically due to reduced government subsidies and concerns about funding access and cost 6

ABS Markets Have Shrunk Dramatically Source: Thomson Reuters Bloomberg, SIFMA. (1) Primarily includes commercial finance loans, CLOs, equipment leases, aircraft leases, manufactured housing, and timeshare loans. ($ in billions) (1) Student Loan ABSTotal ABS Market (ex-TALF) 7

FFELP ABS Spreads » FFELP ABS spreads have tightened dramatically since the credit crunch though still elevated » Recent European turmoil has caused some widening of spreads » A new tax-exempt LFRN market brings attractive financing costs and financing for long duration assets 8

Federal Student Loan Market Size Source: US Department of Education, Federal Budget Request 2011, as of 9/30/09 9 Outstanding Federal Student Loans: Total $653 B Top 10 Holders of FFELP Loans

Who holds Student Loan Collateral? Loan Programs: $750 BFunding Source: $750 B Dollars in Billions, SLCS estimates as of September 30,

Federal Loan Market Takeaways? Pace of Industry consolidation will quicken – Several businesses and portfolios are for sale – High levels of “stuck” collateral on BSs and in “busted” financings – How many states/nonprofits will liquidate or wind down? Federal Loan servicing – 5 primary federal servicers; ACS, Great Lakes, Nelnet, PHEAA and SLM – Reconciliation: nonprofit’s may service up to 100,000 DL accounts – Overall service levels expected to decline – While legacy FFELP systems be supported? Keys to future FFELP/DL success – Access to capital, e.g. deposit funding – Scale & Integrated business model 11

Student Enrollment Trends Projected Total Enrollment For-profit education has grown rapidly over the past 10 years and is expected to outpace traditional not-for profit growth – for-profit enrollment estimated to reach over 2 million by fall of 2013 Full-Time vs. Part-Time Private: Not-For-Profit vs. For-ProfitOver-25 vs. Under-25 (Students in millions) Source: College Board, US Department of Education and Wall Street Research. CAGR: 0.9% Part-Time CAGR: 1.27% Full-Time CAGR: 1.74% Under-25 CAGR: 1.23% Over-25 CAGR: 1.61% Not-For-Profit CAGR: 1.29% For-Profit CAGR: 9.14% CAGR: 2.3% 12

Tuition Pricing Trends For-profit tuition increases have been significant and have tracked broader education trends In-StateOut-of-State Private: Not-for-ProfitPrivate: for-Profit CAGR: 6.5% CAGR: 5.0% CAGR: 6.1% CAGR: 6.0%CAGR: 4.4% CAGR: 5.5% CAGR: 6.4% CAGR: 5.9% Source: US Department of Education and Wall Street Research. CAGR: 5.2% CAGR: 6.0% 13

The Need for Private Loans Remains High Average Cost of Private Not-for-Profit 4-Year Average Cost of Private For-Profit 4-Year Average Cost of Public 4-Year FreshmanSophomoreJuniorSeniorAnnual Maximum ________________________________________________ Source: CollegeBoard and Wall Street research. Funding Undergraduate Stafford Loan LimitsPell Grants Tuition and Fees school year school year Growth: 15% CAGR: 3% Growth: 20% CAGR: 4% 14

Post-secondary Education Funding Sources Over 50% of post-secondary education is funded through grants and loans Average American Family Parent Contributions from Borrowed Sources (16%)Student Contributions from Borrowed Sources (23%) Source: Sallie Mae and Gallup. 15

Private Loan Market Overview DynamicsSize of Market (1) Key Players Today » Only a handful of institutions are originating loans » Non-TALF ABS market is very challenged: Long-tail nature of assets Unsecured Limited performance data Poor performance history » Lack of competition is facilitating lender friendly terms Higher FICO scores Co-borrowers required LIBOR+8 to10 pricing More ABS friendly terms likely over time » Loans are currently non-dischargeable in bankruptcy, there is an active political debate on this topic » Schools will remain the primary distribution channel due to certification issues and asset quality concerns Loan Originations ($ in billions) ________________________________________________ (1)Source: CollegeBoard. CAGR (through ’07-’08): 24.5% Credit Unions 16

Recent Private Loan Securitizations Private Loans Municipal Private Loans 17

Private Student Loan Market Takeaways $10B+ demand for private loans, with good growth potential Primary distribution channel will be school “certified” Lender “brand” will be increasingly important to borrowers Securitization markets for private loans will remain challenged – Long loan terms very difficult to finance – Subordinate tranches very challenged – Small market size and uneven performance data – Paradoxically, municipal markets are open for state/nonprofit issuers As such, private market likely to become more concentrated – Market size will not support multiple players – Lender “brand” and deposit funding are key attributes 18