1. 1 August 6, 2012 2012 STUDENT LOAN LEGAL MEETING Scott D. Samlin Partner T +1 212 398 5819 scott.samlin@snrdenton.com snrdenton.com Curtis Stefanak Counsel T +1 212 768 6748 curtis.stefanak@snrdenton.com snrdenton.com

2. 2 Proposed Risk Retention Rules Risk retention rules are found in Title IX of Dodd-Frank, titled Investor Protection and Securities Reform Act of 2010 –Regulations relating to risk retention for asset-backed securities are to be promulgated by the SEC, the OCC, the FDIC, the Federal Reserve and, for residential mortgages, HUD and the Federal Housing Finance Agency –Expansive definition of asset-backed security, which includes securities backed by managed pools, but excludes synthetics and securities issued by a finance company to its parent if no securities are held by a third party Dodd-Frank generally requires the regulations to provide for credit risk retention of 5% of any asset underlying an asset-backed security, or less than 5% if the assets transferred meet underwriting standards to be prescribed by regulation Risk retention requirements may be allocated between the securitizer and the originator

3. 3 Volcker Rule Section 619 of the Dodd-Frank Act is commonly knows as the Volcker Rule The Volcker Rule prohibits banking entities from engaging in proprietary trading for the entitys own account The joint regulators issued a notice of proposed rule making (MPR) on November 7, 2011 totaling nearly 300 pages The MPR would also prohibit banking entities from loaning, sponsoring or having specified relationships with hedge funds or private equity funds A significant internal compliance program was mandated Comments were originally due by January 13, 2012 A final rule may be available in September, 2012

4. 4 Proposed Volcker Rule - Background Rule initially proposed on October 11, 2011 jointly by the Board of Governors of the Federal Reserve System (Fed), Office of Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC) and Securities and Exchange Commission (SEC) would implement Section 13 of the Bank Holding Company Act of 1956 (BHC) as added by Section 619 of the Dodd Frank Act (the Volcker Rule) Restrictions on Proprietary Trading and Certain Interests in, and Relationships with, Hedge Funds and Private Equity Funds. The release was approximately 560 pages. The comment period was initially scheduled to end January 13, 2012. Was extended to February 13, 2012. Approximately 17,000 comment letters received. The Rule was not ready for adoption in June, as initially proposed, but may be ready by September 2012.

5. 5 Proposed Volcker Rule - Background This presentation relates primarily to the effect of the proposed rule on bank sponsorship of Student Loan Funds and the downstream effect on Student Loan Fund investors if the rule were adopted as proposed without the changes recommended by the sponsor/investor community. The proposed rule represents a threat to the continued viability of the Student Loan Fund as an asset class The proposed rule has created several principal areas of interest to bank sponsors of Student Loan Funds and the investors in those funds: –To what extent investment in and ownership of Student Loan Funds by banking entities will continue –To what extent sponsorship of Student Loan Funds by banking entities may continue –Which transactions between bank sponsors of Student Loan Funds and such funds may be prohibited as a result of the proposed rule –What effect reduced bank sponsorship may have on the prospects for nonbank Student Loan investors and the secondary market for Student Loan Fund interests

6. 6 Investment in and Sponsorship of Student Loan Funds by Banking Entities The Volcker proposal states that banking entities (banks, their holding companies, affiliates or subsidiaries, and nonbank financial companies supervised by the Fed) are prohibited from sponsoring or acquiring or retaining interests in or engaging in proprietary trading with hedge funds or private equity funds (funds exempt from the definition of investment company under the 40 Act pursuant to Sections 3(c)(1) and 3(c)(7) thereof). The Commissions have advised that collective investment vehicles that rely on exemptions other than 3(c)(1) and 3(c)(7) will not be private funds subject to the Volcker rule. Student Loan Funds may be obligated to rely on Sections 3(c)(1) and 3(c)(7) if elements of the securitization process prevent the issuer from relying on the alternative exemption provided in Rule 3a-7 for issuers of asset-backed securities.

7. 7 Investment in and Sponsorship of Student Loan Funds by Banking Entities If Student Loan Funds were subject to the restrictions on ownership and sponsorship applicable to hedge funds and private equity funds, it is likely that: –Banks would be required to divest themselves of ownership interests in Student Loan Funds (covered funds may not constitute more than 3% of a banks Tier I capital) –Banks would be unlikely to engage in guarantee and other transactions with funds they sponsor. The loss of these guarantees would certainly reduce the attractiveness of these investments to other banks and commercial investors. –Safe to say that such a reading would have a serious deleterious effect on the Student Loan Fund market.

8. 8 Transactions Between Student Loan Funds and Banking Entities Proposed rule generally prohibits banking entities from engaging in any transaction with a hedge fund or private equity fund if the transaction would be a covered transaction as defined in Section 23A of the Federal Reserve Act Covered transactions include : Providing guarantees to Student Loan Funds Making loans to or extend credit to Student Loan Funds Purchasing assets from Student Loan Funds Accepting securities from Student Loan Funds as collateral security

9. 9 A Way Out? Student Loan Funds should be exempt from the proposed Volcker rules restrictions on sponsorship, ownership and transactions with private funds –Several ways to achieve this: Clarify that Student Loan Funds are public welfare investments (relates only to ownership and sponsorship) or Provide a new, explicit exemption from the provisions of the proposed rule Create explicit exemption for transactions between banking entities and the Student Loan Funds in which they invest or otherwise sponsor

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