<PAGE>
As filed with the Securities and Exchange Commission on October 27, 1999
Registration No. 333-85963
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
Education Loans Incorporated
(Exact name of registrant as specified in its charter)
Delaware 91-1819974
(State or other jurisdiction of (I.R.S Employer Identification No.)
incorporation or organization)
105 First Avenue Southwest
Aberdeen, South Dakota 57401
(605) 622-4400
(Address, including zip code, and telephone number,
including area code, of registrants' principal executive offices)
A. Norgrin Sanderson
105 First Avenue Southwest
Aberdeen, South Dakota 57401
(605) 622-4400
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
COPIES TO:
Michael E. Reeslund, Esq. David M. Reicher, Esq.
Dorsey & Whitney LLP Foley & Lardner
Pillsbury Center South Firstar Center
220 South Sixth Street 777 East Wisconsin Avenue
Minneapolis, Minnesota Milwaukee, Wisconsin 53202-5367
(612) 340-2960 (414) 297-5763
----------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Subject to Completion, Dated __________, 1999
Prospectus Supplement
$_________ Student Loan Asset-Backed Notes, Series 1999-[X]
EDUCATION LOANS INCORPORATED
- --------------------------------------------------------------------------------
Consider carefully the risk factors beginning on page 4 in the prospectus and
page S-4 of this prospectus supplement
The notes will represent obligations of EdLinc only and will not represent
interests in or obligations of the servicer, the transferor or any of their
affiliates. The notes are not a deposit and are not insured or guaranteed by any
person. Except as noted in this document and the accompanying prospectus, the
underlying accounts and student loans are not insured or guaranteed by any
governmental agency.
This prospectus supplement may be used to offer and sell the notes only if
accompanied by the prospectus.
- --------------------------------------------------------------------------------
EdLinc will issue: Senior Notes Subordinate Notes Total
Principal Amount $________ $________ $________
Interest Rate One-month One-month
LIBOR plus [ ]%, LIBOR plus [ ]%,
subject to a cap subject to a cap
of [18%] and of [18%] and
the net loan rate the net loan rate
Interest Paid monthly monthly
First Interest
Payment Date [_______] [_______]
Stated Maturity
Date ________ ________
Price to Public ________% ________% $________
Underwriting
Discount ________% ________% $________
Proceeds to Issuer ________% ________% $________
- ----------
The subordinate notes are subordinated to the senior notes.
Neither the SEC nor any state securities commission has approved these
notes or determined that this prospectus supplement or the prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
Salomon Smith Barney
_____________, 1999
<PAGE>
Important Notice About The Information in
Your Prospectus Supplement and Prospectus
EdLinc provides information to you about the notes in two separate
documents that progressively provide more detail:
o the accompanying prospectus, which provides general
information, some of which may not apply to your notes; and
o this prospectus supplement, which describes the specific terms
of your notes.
The terms of your series of notes disclosed in this prospectus
supplement may vary from, but will not contradict, the disclosure in the
accompanying prospectus. If these variances occur, you should rely on the
information in this prospectus supplement.
This prospectus supplement includes cross-references to captions in
this prospectus supplement or the accompanying prospectus where you can find
further related discussions. These cross-references are to sections contained in
this prospectus supplement unless you are told otherwise. The following table of
contents and the table of contents included in the accompanying prospectus
provide the pages on which these captions are located.
[EdLinc will not list the notes on any trading exchange.]
[EdLinc has filed preliminary information with the SEC regarding the
notes and the assets making up the trust estate to be used to pay the notes. The
information contained in this document supersedes all of that preliminary
information, which was prepared by the underwriter for prospective investors.]
-----------------------
Until ________, all dealers that effect transactions in the notes of
this series, whether or not participating in this offering, may be required to
deliver a prospectus and prospectus supplement. This requirement is in addition
to the dealers' obligation to deliver a prospectus and prospectus supplement
when acting as underwriters for their unsold allotments or subscriptions.
S-2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY OF TERMS............................................................S-4
RISK FACTORS................................................................S-9
USE OF PROCEEDS.............................................................S-9
THE FINANCED STUDENT LOANS..................................................S-10
Incentive Programs.....................................................S-16
MATURITY AND PREPAYMENT CONSIDERATIONS......................................S-17
Maturity and Prepayment
Assumptions........................................................S-17
Weighted Average Life of
the Series 1999-[X] Notes..........................................S-18
SERVICING...................................................................S-20
General................................................................S-20
[Name of Sub-Servicer].................................................S-20
THE GUARANTEE AGENCIES......................................................S-20
General................................................................S-20
[Name of Guarantee Agency].............................................S-20
DESCRIPTION OF THE SERIES 1999-[X]
NOTES..................................................................S-21
Generally..............................................................S-21
Interest Rate on the Series
1999-[X] Notes.....................................................S-21
Carry-Over Amounts on the Series
1999-[X] Notes.....................................................S-22
Interest Limited to the Extent
Permissible by Law.................................................S-24
Prepayment and Redemption
of Series 1999-[X] Notes...........................................S-24
SOURCE OF PAYMENT AND
SECURITY FOR THE SERIES
1999-[X] NOTES.........................................................S-25
Subordination of the Subordinate
Series 1999-[X] Notes..............................................S-25
[Prior Notes and Series 1999-[X]
Notes.............................................................S-26]
[Summary of Indenture Assets,
Liabilities and Fund Balances
and Statement of Revenue,
Expense and Changes in Fund
Balances of the Indenture.........................................S-26]
THE TRUSTEE.................................................................S-27
[RELATIONSHIPS AMONG
FINANCING PARTICIPANTS...............................................S-28]
UNDERWRITING................................................................S-28
LEGAL MATTERS...............................................................S-29
RATING......................................................................S-29
</TABLE>
S-3
<PAGE>
SUMMARY OF TERMS
This summary highlights selected information from this document and does not
contain all of the information you need to make your investment decision. To
understand all of the terms of this offering, read this entire document and the
accompanying prospectus.
EDLINC
Education Loans Incorporated, a Delaware corporation and wholly-owned subsidiary
of Student Loan Finance Corporation, will issue the notes and acquire student
loans with the proceeds. EdLinc's principal place of business is located at 105
First Avenue Southwest, Suite 200, Aberdeen, South Dakota 57401, and its phone
number is (605) 622-4400.
THE TRANSFEROR
GOAL Funding, Inc., a Delaware corporation and wholly-owned subsidiary of
Student Loan Finance Corporation, will transfer to EdLinc on the closing date
most of the student loans to be financed with proceeds of the notes of this
series. GOAL Funding, Inc., in its capacity as transferor of the initial
financed student loans, will be referred to in this prospectus supplement as the
transferor.
STUDENT LOAN FINANCE
CORPORATION
Student Loan Finance Corporation, a South Dakota corporation:
o has acquired alternative student loans from unaffiliated
lenders and transferred them to the transferor, which loans
will be transferred to EdLinc on the closing date;
o will acquire alternative student loans from unaffiliated
lenders and transfer them directly to EdLinc during the
270-day period after the closing date; and
o will be the servicer and the administrator.
THE SERVICER
Student Loan Finance Corporation will be the servicer of the student loans
acquired by EdLinc from proceeds of the notes. It may, however, employ one or
more other institutions to service the loans on its behalf on a day-to-day
basis. Student Loan Finance Corporation, in its capacity as servicer of the
financed student loans, together with any successor in such capacity, will be
referred to in this prospectus supplement as the servicer.
THE ADMINISTRATOR
Student Loan Finance Corporation will perform various administrative activities
and obligations for EdLinc in connection with acquiring student loans and
meeting reporting and other requirements under the indenture.
THE TRUSTEE
U.S. Bank National Association will be the trustee under the indenture. U.S.
Bank National Association, in its capacity as
S-4
<PAGE>
trustee under the indenture, together with any successor in such capacity, will
be referred to in this prospectus supplement as the trustee.
TRUST ESTATE ASSETS
The student loans that secure your notes will consist of:
o a portfolio of loans to be transferred by the transferor to
EdLinc on the closing date, which had an aggregate principal
balance as of _________ of approximately $___________;
o loans to be acquired during the 270-day period after the
closing date, which will have an aggregate principal balance
when acquired of approximately $____________;
[o loans acquired with proceeds of previous series of notes,
which had an aggregate principal balance as of ________ of
approximately $_____________ ;] and
o loans to be acquired with proceeds of any subsequent series of
notes and other available moneys under the indenture.
Student Loan Finance Corporation, the transferor or EdLinc have acquired or will
acquire these loans from unaffiliated lenders. Any loans not acquired by EdLinc
directly from unaffiliated lenders will be transferred to EdLinc by the
transferor or Student Loan Finance Corporation.
The moneys in the funds and accounts under the indenture will also secure your
notes.
[FFELP LOANS
____% of the initial student loans are FFELP loans. Third party agencies
guarantee the payment of both principal and interest on FFELP loans. The extent
of the guarantee ranges from 98% to 100%. See "The Financed Student Loans" and
"The Guarantee Agencies" in this prospectus supplement and "Description of the
FFELP Program" and "Description of the Guarantee Agencies" in the prospectus.]
[ALTERNATIVE LOANS
____% of the initial student loans are alternative loans. No third party
guarantees payment of the alternative loans. See "The Financed Student Loans" in
this prospectus supplement and "Description of the Alternative Loan Programs" in
the prospectus.]
THE TRUSTEE
U.S. Bank National Association will be the trustee under the indenture, as well
as the eligible lender trustee for purposes of holding legal title to all FFELP
loans.
CLOSING DATE
Issuance of the notes is scheduled for ___________, 1999.
THE DAY OF THE MONTH
SCHEDULED PAYMENTS ARE MADE
All payments due in a given month will be paid on the 1st day of that month. If
the 1st is not a business day, payments will be made on the business day
following the 1st.
S-5
<PAGE>
INTEREST
Senior Notes
Interest is paid monthly on the senior notes of this series. The initial
interest rate on the senior notes of this series is fixed at ___% per year.
Beginning __________, _____, the interest rate on the senior notes of this
series will be adjusted monthly to equal the lesser of:
o one-month LIBOR plus ___% per year; or
o [18%] per year.
The adjusted monthly interest rate on the senior notes of this series for each
period will be capped, however, at the net loan rate for that period.
Subordinate Notes
Interest is paid monthly on the subordinate notes of this series. The initial
interest rate on the subordinate notes of this series is fixed at %___ per year.
Beginning ___________, ______, the interest rate on the subordinate notes of
this series will be adjusted monthly to equal the lesser of:
o one-month LIBOR plus ___% per year; or
o [18%] per year.
The adjusted monthly interest rate on the subordinate notes of this series for
each period also will be capped at the net loan rate for that period.
The Net Loan Rate
The net loan rate for notes of this series equals the weighted average interest
rate of the student loans financed with proceeds of these notes minus the
administrative cost and note fee rate.
The administrative cost and note fee rate initially is ___% per year, though it
may be increased from time to time with approval from the rating agencies.
You may obtain the applicable interest rates by telephoning (___) ___ - ____.
PRINCIPAL
Stated Maturity Dates
The stated maturity date of the senior notes of this series is ____________,
________.
The stated maturity date of the subordinate notes of this series is
_____________, _________.
Prepayment of Principal
Principal prepayments on the notes of this series will generally equal the
reduction in the principal balance of the student loans financed with the
proceeds of these notes. Principal prepayments could also occur if EdLinc is
unable to use all of the proceeds of the notes deposited in the acquisition fund
to acquire student loans. Prepayments will generally be made pro rata on each
note until the principal balance of all notes of this series has been reduced to
zero.
Special Redemption
All of the notes of this series may, at the option of EdLinc, be redeemed prior
to
S-6
<PAGE>
stated maturity after the principal balance of the student loans acquired with
the proceeds of these notes is less than 10% of the principal balance at the
time the loans were acquired.
See "Description of the Series 1999-[X] Notes--Prepayment and Redemption of
Series 1999-[X] Notes" in this prospectus supplement and "Maturity and
Prepayment Considerations" in the prospectus and this prospectus supplement.
PRIORITY OF PAYMENTS
On each interest payment date, available funds will be applied generally in the
following priority:
o first, to pay interest on the senior notes of this series and
any other series at the time outstanding and on any other
senior obligations under the indenture;
o second, to pay principal due on the senior notes of this
series and any other series at the time outstanding and on any
other senior obligations under the indenture;
o third, to the acquisition fund, the amount necessary to repay
any prior transfers therefrom to pay interest or principal on
the notes;
o fourth, to pay interest on the subordinate notes of this
series and any other series at the time outstanding and on any
other subordinate obligations under the indenture;
o fifth, to pay principal due on the subordinate notes of this
series and any other series at the time outstanding and on any
other subordinate obligations under the indenture;
o sixth, to the administration fund, the amount necessary to pay
administrative and servicing fees and expenses;
o seventh, to the reserve fund, the amount necessary to reach
its required balance;
o eighth, to make sinking fund installments to redeem
subordinate term notes;
o ninth, to make prepayments of principal on, or to provide for
the special redemption of, notes;
o tenth, to the alternative loan guarantee fund, the amount
necessary to reach its required balance; and
o eleventh, to the surplus fund.
See "Source of Payment and Security for the Notes--Priorities" and "Description
of the Indenture--Funds and Accounts" in the prospectus.
RESERVE FUND
$_____ of the proceeds of the notes of this series will be deposited into a
reserve fund for the notes. This initial deposit will be supplemented monthly,
if necessary, and otherwise upon the issuance of any new series of notes.
S-7
<PAGE>
PARITY OBLIGATIONS
The notes of this series will be issued under the indenture. Additional notes
and other obligations [have been and] may be issued under the indenture which
have the same right to payment from the trust estate as the senior notes of this
series or the subordinate notes of this series.
FEDERAL INCOME TAX CONSEQUENCES
In Dorsey & Whitney LLP's opinion, your notes will be characterized as debt
obligations for federal income tax purposes. Interest paid or accrued on the
notes will be taxable to you.
By accepting your note, you agree to treat your note as a debt instrument for
income tax purposes.
Original Issue Discount
We do [not] expect that your notes will be issued with original issue discount.
The final determination, however, depends on the actual sales price of the notes
to a substantial portion of investors.
See "Federal Income Tax Consequences" in the prospectus.
ERISA CONSIDERATIONS
We expect that the notes will be treated as debt obligations without significant
equity features for purposes of applicable ERISA regulations of the Department
of Labor. See "ERISA Considerations" in the prospectus.
REGISTRATION, CLEARING AND SETTLEMENT
You will hold your interest in the notes through DTC in the United States or
Cedel Bank, societe anonyme or the Euroclear System in Europe. You will not be
entitled to receive definitive certificates representing your interests in the
notes, except in limited circumstances. See "Description of the Notes-- Book
Entry Registration" in the prospectus.
MINIMUM DENOMINATIONS
The notes of this series will be offered in denominations of $100,000 and
integral multiples thereof.
RATING
Senior Notes
Fitch Moody's
----- -------
AAA Aaa
Subordinate Notes
Fitch Moody's
----- -------
A A2
See "Risk Factors--Credit Ratings Address Limited Scope of Investor Concerns" in
the prospectus.
S-8
<PAGE>
RISK FACTORS
In addition to the Risk Factors in the prospectus, you should note the
following:
[The Principal Balance of Notes is The aggregate principal balance of
Greater than the Principal Balance of the notes [(including notes of each
the Collateral prior series currently
outstanding)] exceeds the sum of:
o the aggregate principal balance of
and accrued interest on the initial
student loans as of ___________,
________,
o the remainder of the acquisition
fund deposit after acquisition of
the initial student loans,
[o the aggregate principal balance of
and accrued interest on the student
loans financed with proceeds of
prior series of notes as of
___________, _________,] and
o the reserve fund balance,
by approximately $_______.
Payment of principal and interest
on the notes is dependent upon
collections on the student loans,
particularly interest collections.
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, EdLinc may have
insufficient funds to repay the
notes.]
USE OF PROCEEDS
The net proceeds from the sale of the notes of this series, which are
referred to in this prospectus supplement as the Series 1999-[X] Notes, will be
used as follows:
o $_________ will be used to acquire initial financed student
loans from the transferor on __________________ the closing
date;
o $_________ will be deposited in the Acquisition Fund and used
to acquire subsequent financed student loans during a 270-day
pre-funding period following the closing date; and
S-9
<PAGE>
o $_________ will be used to make the required Reserve Fund
deposit.
The transferor is expected to use the proceeds of its sale of the
initial financed student loans to repay indebtedness incurred in the acquisition
of such loans or for general corporate purposes.
THE FINANCED STUDENT LOANS
The financed student loans to be acquired with proceeds of the Series
1999-[X] Notes include the initial financed student loans in the approximate
principal amount of $____________, which will be purchased from the transferor
on the closing date pursuant to the Transfer Agreement, dated as of
____________, and consist of FFELP Loans in the approximate principal amount of
$____________ and Alternative Loans in the approximate principal amount of
$_________, and subsequent financed student loans in the approximate principal
amount of $___________, which will be purchased during the pre-funding period
from [the transferor,] SLFC or lenders pursuant to student loan purchase
agreements. The discussion of financed student loans in the remainder of this
section, unless otherwise specified, refers to the initial financed student
loans and the subsequent financed student loans only.
Each financed student loan will (1) have been originated in the United
States or its territories or possessions under and in accordance with the FFEL
Program or an Alternative Loan Program to or on behalf of a student who has
graduated or is expected to graduate from an institution of higher education
qualifying under the FFEL Program or such Alternative Loan Program, as
applicable, and (2) contain terms in accordance with those required by the FFEL
Program and the Guarantee Agreements, as to FFELP Loans, or the related
Alternative Loan Program, as to Alternative Loans, and other applicable
requirements. As of ___________, no more than 20% by principal balance of the
initial financed student loans [and all other financed student loans under the
indenture as of such date,] were delinquent for 30 days or more. For this
purpose, delinquency refers to the number of days that a payment is past due.
Each financed FFELP Loan is required to be guaranteed as to principal
and interest by a guarantee agency and reinsured by the Department of Education
to the extent provided under the Higher Education Act and eligible for Special
Allowance Payments and, with respect to each financed FFELP Loan that is a
Stafford Loan, Interest Subsidy Payments paid by the Department of Education.
See "Description of the FFEL Program" in the prospectus.
The subsequent financed student loans will consist of FFELP Loans and
Alternative Loans. [Describe restrictions on types or characteristics of
subsequent financed student loans.]
Except as described above, there will be no required characteristics of
the subsequent financed student loans. Therefore, following the acquisition of
subsequent financed student loans, the aggregate characteristics of the entire
pool of student loans financed with proceeds of the Series 1999-[X] Notes
[together with those student loans previously financed under the indenture],
including the composition of the financed student loans and of the borrowers
thereof,
S-10
<PAGE>
the distribution by interest rate and the distribution by principal balance
described in the following tables, will vary from those of the initial financed
student loans [and previously financed student loans] as described in this
prospectus supplement. Furthermore, the issuance of additional series of notes
and the acquisition of financed student loans with the proceeds, as well as the
acquisition of financed student loans from moneys in the Surplus Account, will
cause the aggregate characteristics of the pool of student loans financed with
proceeds of all notes to vary still further from those of the initial financed
student loans [and previously financed student loans] as described in this
prospectus supplement.
Each of the financed FFELP Loans provides for the amortization of the
outstanding principal balance of such financed FFELP Loan over a series of
periodic payments. Each periodic payment consists of an installment of interest
which is calculated on the basis of the outstanding principal balance of such
financed FFELP Loan multiplied by the applicable interest rate and further
multiplied by the period elapsed, as a fraction of a calendar year, since the
preceding payment of interest was made. As payments are received in respect of
such financed FFELP Loan, the amount received is applied first to outstanding
late fees, if collected, then to interest accrued to the date of payment and the
balance is applied to reduce the unpaid principal balance. Accordingly, if a
borrower pays a regular installment before its scheduled due date, the portion
of the payment allocable to interest for the period since the preceding payment
was made will be less than it would have been had the payment been made as
scheduled, and the portion of the payment applied to reduce the unpaid principal
balance will be correspondingly greater. Conversely, if a borrower pays a
monthly installment after its scheduled due date, the portion of the payment
allocable to interest for the period since the preceding payment was made will
be greater than it would have been had the payment been made as scheduled, and
the portion of the payment applied to reduce the unpaid principal balance will
be correspondingly less. In either case, subject to any applicable deferment
periods or forbearance periods, the borrower pays installments until the final
scheduled payment date, at which time the amount of the final installment is
increased or decreased as necessary to repay the then outstanding principal
balance of such financed FFELP Loan.
[Describe characteristics of Alternative Loans.]
The following tables describe some additional characteristics of the
initial financed student loans [and previously financed student loans] as of
_________.
Composition of the Initial [and Previously] Financed Student Loans as
of ____________
Aggregate Outstanding Principal Balance................................. $
Number of Borrowers.....................................................
Average Outstanding Principal Balance Per Borrower......................
Number of Loans (Promissory Notes)......................................
Average Outstanding Principal Balance Per Loan..........................
Repayment Status Loans:
Weighted Average Remaining Term (months)........................
S-11
<PAGE>
Weighted Average Payments Received (months)....................
Weighted Average Interest Rate..........................................
Distribution of the Initial [and Previously] Financed Student Loans by
Loan Type as of _______________
<TABLE>
<CAPTION>
Percent of Loans
Outstanding by Outstanding
Loan Type Number of Loans Principal Balance Principal Balance
- ------------------------------------ ------------------ ------------------- -------------------
<S> <C> <C> <C>
Stafford-Subsidized ................
Stafford-Unsubsidized ..............
PLUS ...............................
SLS ................................
Consolidation ......................
Alternative ........................
Total .........................
</TABLE>
Distribution of the Initial [and Previously] Financed Student Loans by
Borrower Interest Rate as of _____________
<TABLE>
<CAPTION>
Percent of Loans
Outstanding by Outstanding
Interest Rate (1) Number of Loans Principal Balance Principal Balance
- ------------------------------------ ------------------ ------------------- -------------------
<S> <C> <C> <C>
Less than 7.50% ....................
7.50% to 7.99% .....................
8.00% to 8.49% .....................
8.50% to 8.99% .....................
9.00% to 9.49% .....................
9.50% or greater ...................
Total .........................
</TABLE>
- ---------------------------
(1) Determined using the interest rates applicable to the initial [and
previously] financed student loans as of _____________. However, because some of
the initial [and previously] financed student loans bear interest at variable
rates per year, the existing interest rates are not indicative of future
interest rates on the financed student loans. See "Description of the FFEL
Program" in the prospectus.
S-12
<PAGE>
Distribution of the Initial [and Previously] Financed Student Loans by
Range of Outstanding Principal Balances as of ________________
<TABLE>
<CAPTION>
Percent of Loans
Outstanding by Outstanding
Principal Balance Number of Lonas Principal Balance Principal Balance
- ------------------------------------ ------------------ ------------------- -------------------
<S> <C> <C> <C>
Less than $1,000 ...................
$1,000-$1,999 ......................
$2,000-$2,999 ......................
$3,000-$3,999 ......................
$4,000-$4,999 ......................
$5,000-$5,999 ......................
$6,000-$6,999 ......................
$7,000-$7,999 ......................
$8,000-$8,999 ......................
$9,000-$9,999 ......................
$10,000-$10,999 ....................
$11,000-$11,999 ....................
$12,000-$12,999 ....................
$13,000-$13,999 ....................
$14,000-$14,999 ....................
$15,000 or greater .................
Total ........................
</TABLE>
Distribution of the Initial [and Previously] Financed Student Loans by
Borrower Payment Status as of ______________
<TABLE>
<CAPTION>
Percent of Loans
Outstanding by Outstanding
Borrower Payment Status Number of Loans Principal Balance Principal Balance
- ------------------------------------ ------------------ ------------------- -------------------
<S> <C> <C> <C>
In School ..........................
Grace ..............................
Repayment ..........................
Deferment ..........................
Forbearance ........................
Claims .............................
Total ........................
</TABLE>
S-13
<PAGE>
Distribution of the Repayment Status Initial [and Previously] Financed
Student Loans by Remaining Term to Scheduled Maturity as of ______________
<TABLE>
<CAPTION>
Percent of Loans
Remaining Months Outstanding by Outstanding
Until Scheduled Maturity Number of Loans Principal Balance Principal Balance
- ------------------------------------ ------------------ ------------------- -------------------
<S> <C> <C> <C>
1 to 12
13 to 24
25 to 36
37 to 48
49 to 60
61 to 72
73 to 84
85 to 96
97 to 108
109 to 120
121 to 180
181 to 240
241 to 300
Over 300
Total .........................
</TABLE>
S-14
<PAGE>
Distribution of the Initial [and Previously] Financed Student Loans by
Borrower's Address as of ________________
<TABLE>
<CAPTION>
Percent of Loans
Outstanding by Outstanding
State of Borrower's(1) Number of Loans Principal Balance Principal Balance
- ------------------------------------ ------------------ ------------------- -------------------
<S> <C> <C> <C>
....................................
....................................
....................................
....................................
....................................
Others (2) .........................
Total .......................
</TABLE>
- ---------------------------
(1) Based on the current permanent billing addresses of the borrowers of the
initial [and previously] financed student loans shown on the servicer's records.
(2) Consists of locations that include [__] other states, U.S. territories,
possessions and commonwealths, foreign countries, overseas military
establishments, and unknown locations, none of the aggregate principal balance
of the financed student loans relating to which exceeds ___% of the aggregate
principal balance of all initial [and previously] financed student loans.
To the extent that states with a large concentration of financed
student loans experience adverse economic or other conditions to a greater
degree than other areas of the country, the ability of such borrowers to repay
their financed student loans may be impacted to a larger extent than if such
borrowers were dispersed more geographically.
Distribution of the Initial [and Previously] Financed FFELP Loans by
Guarantee Status as of ____________
<TABLE>
<CAPTION>
Percent of Loans
Outstanding by Outstanding
Guarantee Level Number of Loans Principal Balance Principal Balance
- ------------------------------------ ------------------ ------------------- -------------------
<S> <C> <C> <C>
FFELP Loan Guaranteed 100% .........
FFELP Loan Guaranteed 98% ..........
FFELP Loan Non-Guaranteed ..........
Total ........................
</TABLE>
s-15
<PAGE>
Distribution of the Initial [and Previously] Financed FFELP Loans by
Guarantee Agency as of ___________
<TABLE>
<CAPTION>
Percent of Loans
Outstanding by Outstanding
Guarantee Agency Number of Loans Principal Balance Principal Balance
- ------------------------------------ ------------------ ------------------- -------------------
<S> <C> <C> <C>
Other Guarantors ...................
Total ........................
</TABLE>
Distribution of the Initial [and Previously] Financed Student Loans by
School Types as of ________________
<TABLE>
<CAPTION>
Percent of Loan
Outstanding by Outstanding
School Type Number of Loans Principal Balance Principal Balance
- ------------------------------------ ------------------ ------------------- -------------------
<S> <C> <C> <C>
Under 4 Year .......................
4 and 5 Year .......................
Proprietary ........................
Consolidation ......................
Other/Unknown ......................
Total ........................
</TABLE>
Incentive Programs
EdLinc currently reduces the interest rate on financed student loans by
.25% per annum for borrowers that arrange to have their loan payments
automatically withdrawn from a bank account.
[Description of any other incentive programs.]
S-16
<PAGE>
MATURITY AND PREPAYMENT CONSIDERATIONS
Maturity and Prepayment Assumptions
The rate of prepayment of principal of the Series 1999-[X] Notes and
the yield on the Series 1999-[X] Notes will be affected by:
(1) prepayments of the student loans financed with proceeds of
the Series 1999-[X] Notes that may occur as described below,
(2) principal payment requirements of any additional series of
notes, and
(3) the ability of EdLinc to expend all of the Series 1999-[X]
Note proceeds on the purchase of student loans.
All of the student loans financed with proceeds of the Series 1999-[X] Notes are
prepayable in whole or in part by the borrowers at any time without penalty,
including, in the case of financed FFELP Loans, by means of Consolidation Loans,
and may be prepaid as a result of a borrower default, death, disability or
bankruptcy, school closures and other events specified in the Higher Education
Act or the Alternative Loan Program, as applicable, and subsequent liquidation
or collection of guarantee payments, as to FFELP Loans, or transfers from the
Alternative Loan Guarantee Fund, as to Alternative Loans, with respect thereto.
The rate of such prepayments cannot be predicted and may be influenced by a
variety of economic, social and other factors, including those described below.
In general, the rate of prepayments may tend to increase to the extent that
alternative financing becomes available at prevailing interest rates which fall
significantly below the interest rates applicable to the financed student loans.
However, because many of the student loans financed with proceeds of the Series
1999-[X] Notes bear interest at a rate that either actually or effectively is
floating, it is impossible to determine whether changes in prevailing interest
rates will be similar to or vary from changes in the interest rates on the
financed student loans. To the extent borrowers of financed FFELP Loans elect to
borrow Consolidation Loans, such financed student loans will be prepaid. See
"Description of the FFEL Program--Loan Terms--Consolidation Loans" in the
prospectus. In addition, the lenders are obligated to repurchase any financed
student loan pursuant to the related student loan purchase agreement as a result
of a breach of any of their respective representations and warranties with
respect to such financed student loan, which breach is not cured within the
applicable cure period. See "Description of Financing of Eligible Loans--Student
Loan Purchase Agreements" in the prospectus. See, also, "Description of the
Notes--Prepayment and Redemption of the Series 1999-[X] Notes--Call for
Redemption of Series 1999-[X] Notes Upon Reduction of Portfolio Balance" for a
description of the conditions under which EdLinc may, at its option, redeem all
of the Outstanding Series 1999-[X] Notes.
Scheduled payments on, and maturities of, the financed student loans
may be extended, including pursuant to grace periods, deferment periods and,
under some circumstances, forbearance periods. The rate of prepayment of
principal of the Series 1999-[X] Notes and the
S-17
<PAGE>
yield on the Series 1999-[X] Notes may also be affected by the rate of defaults
resulting in losses on financed student loans, by the severity of those losses
and by the timing of those losses, which also may affect the ability of the
guarantee agencies to make guarantee payments on financed FFELP Loans and the
sufficiency of the Alternative Loan Guarantee Fund to cover losses on financed
Alternative Loans.
The rate of prepayment on the student loans financed with proceeds of
the Series 1999-[X] Notes cannot be predicted, and any reinvestment risks
resulting from a faster or slower incidence of prepayment of financed student
loans will be borne entirely by the Series 1999-[X] Noteholders. Such
reinvestment risks may include the risk that interest rates and the relevant
spreads above particular interest rate bases are lower at the time Series
1999-[X] Noteholders receive prepayments than such interest rates and such
spreads would otherwise have been had such prepayments not been made or had such
prepayments been made at a different time.
In addition, the principal payment requirements of any additional
series of notes could affect the rate of prepayment of principal of the Series
1999-[X] Notes and the yield on the Series 1999-[X] Notes. The notes of each
class and series have the same right to payment of principal and interest as the
notes of the same class of all other series. It is anticipated that the timing
of payment of principal of each series of notes will depend, at least in part,
on the timing of receipt of principal of the student loans financed with the
proceeds of such series. However, it is possible that, due to losses,
delinquencies or slower than anticipated prepayments on the financed student
loans relating to another series of notes, amounts available from such financed
student loans may not be sufficient to make required payments of principal on
such series. If this were to happen, payments of principal on the student loans
financed with the proceeds of the Series 1999-[X] Notes could be used to make
such required payments, thus reducing, at least temporarily, the amounts
available to make prepayments on the Series 1999-[X] Notes.
Finally, $________ of the proceeds of the Series 1999-[X] Notes will be
deposited in the Acquisition Fund and used to purchase student loans from
lenders and SLFC during the pre-funding period. EdLinc expects to be able to so
use all of these proceeds. However, any portion of the proceeds not so expended
as of _______________, together with a portion of the Series 1999-[X] Note
proceeds deposited in the Reserve Fund, will be used to prepay Series 1999-[X]
Notes on the first regularly scheduled interest payment date thereafter. See
"Description of the Series 1999-[X] Notes--Prepayment and Redemption of Series
1999-[X] Notes--Prepayment from Unused Proceeds."
Weighted Average Life of the Series 1999-[X] Notes
The following information is given solely to illustrate the effect of
prepayments on the student loans financed with the proceeds of the Series
1999-[X] Notes on the weighted average life of the Series 1999-[X] Notes under
the assumptions stated below and is not a prediction of the prepayment rate that
might actually be experienced by the financed student loans.
S-18
<PAGE>
Weighted average life refers to the average amount of time from the
date of issuance of a security until each dollar of principal of such security
will be repaid to the investor. The weighted average life of the Series 1999-[X]
Notes will be primarily a function of the rate at which payments are made on the
student loans financed with the proceeds of the Series 1999-[X] Notes. Payments
on such financed student loans may be in the form of scheduled amortization of
principal or prepayments, including guarantee payments and payments from the
Alternative Loan Guarantee Fund.
The Constant Prepayment Rate prepayment model represents an assumed
constant rate of prepayment of student loans financed with the proceeds of the
Series 1999-[X] Notes outstanding as of the beginning of each month expressed as
a per year percentage. There can be no assurance that such financed student
loans will experience prepayments at a constant prepayment rate or otherwise in
the manner assumed by the prepayment model.
The weighted average lives in the following table were determined
assuming that:
(a) scheduled payments of principal on the financed student
loans are received in a timely manner and prepayments are made at the
percentages of the prepayment model set forth in the table;
(b) the initial principal balance of the financed student
loans is $____ and such financed student loans have the characteristics
described under "The Financed Student Loans;" and
(c) payments are made on the Series 1999-[X] Notes on the 1st
day of each month commencing _____________.
No representation is made that these assumptions will be correct, including the
assumption that the financed student loans held in the Trust Estate will not
experience delinquencies or unanticipated losses.
In making an investment decision with respect to the Series 1999-[X]
Notes, investors should consider a variety of possible prepayment scenarios,
including the limited scenarios described in the table below.
Weighted Average Life of the Series 1999-[X] Notes at the Respective
CPRs Set Forth Below:
<TABLE>
<CAPTION>
Weighted Average Life (years)
0% CPR 3% CPR 5% CPR 7% CPR 9% CPR 15% CPR
---------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Senior Series 1999-[X] Notes .......
Subordinate Series 1999-[X] Notes ..
</TABLE>
S-19
<PAGE>
SERVICING
General
SLFC will, under the SLFC servicing agreement, act as servicer on the
financed student loans. The servicer may enter into sub-servicing agreements
with one or more sub-servicers providing for the sub-servicers to perform some
or all of the obligations of the servicer in servicing the financed student
loans. Under a sub-servicing agreement, each sub-servicer will agree to service,
and perform all other related tasks with respect to, the financed student loans
in compliance with applicable standards and procedures. See "Description of the
SLFC Servicing Agreement" in the prospectus.
[Name of Sub-Servicer]
[Description of Sub-Servicer to be inserted]
THE GUARANTEE AGENCIES
General
Of the initial financed FFELP Loans, [for each guarantee agency
covering less than 10%] approximately [__]% by principal balance are guaranteed
by [_____], a non-profit corporation ("[________]"), organized in [ ] and
guaranteeing student loans since [ ], and as of [ ] had an approximate aggregate
principal amount of loans guaranteed of $[ ], approximately [___]% by principal
balance are guaranteed by [________], an agency of [________] ("[______]"),
organized in [ ] and guaranteeing student loans since [ ], and as of [ ] had an
approximate aggregate principal amount of loans guaranteed of $[ ], and the
remaining [___]% by principal balance are guaranteed by one of the following
guarantee agencies: [_____________] and [___________]. See "Description of the
Guarantee Agencies" in the prospectus for more detailed information concerning
the characteristics of the guarantee agencies.
Information relating to the guarantee agencies set forth in this
prospectus supplement, which is particularly within each guarantee agency's
knowledge, has been requested of and has been provided by the respective
guarantee agencies. Such information and information included in the reports
referred to herein has not been verified or independently confirmed by EdLinc,
the transferor, the servicer or the underwriter, and comprises all information
in respect of each such guarantee agency that EdLinc obtained after a reasonable
request and inquiry. No guarantee agency is affiliated with EdLinc, the
transferor, the servicer or any underwriter.
[Name of Guarantee Agency]
[Description of Guarantee Agency to be inserted]
S-20
<PAGE>
DESCRIPTION OF THE SERIES 1999-[X] NOTES
The Series 1999-[X] Notes will be issued pursuant to an indenture of
_________ trust, dated as of , as amended and supplemented by a [____]
supplemental indenture of trust, dated as of ________, between EdLinc and the
trustee. This indenture of trust, as supplemented and amended, including by the
[___] supplemental indenture, is referred to in this prospectus supplement as
the indenture. Any references to notes in this prospectus supplement without any
designation as to series will be to those issued under the indenture in general.
Generally
The Series 1999-[X] Notes will be dated as of the date of their initial
issuance and, subject to call for redemption and prepayment pursuant to the
provisions referred to below, will mature as follows:
Stated Maturity
---------------
Senior Series 1999-[X] Notes
Subordinate Series 1999-[X] Notes
The Series 1999-[X] Notes will bear interest, payable on the first
business day of each month, commencing ________, at rates determined as
described below under "Interest Rate on the Series 1999-[X] Notes." The Series
1999-[X] Notes will be issued in fully registered form, without coupons, and
when issued will be registered in the name of Cede & Co., as nominee of DTC, New
York, New York. DTC will act as securities depository for the Series 1999-[X]
Notes. Individual purchases of the Series 1999-[X] Notes will be made in
book-entry form only in the principal amount of $100,000 or integral multiples
thereof. Purchasers of the Series 1999-[X] Notes will not receive certificates
representing their interest in the Series 1999-[X] Notes purchased. See
"Description of the Notes--Book-Entry Registration" in the prospectus.
Interest Rate on the Series 1999-[X] Notes
During the initial interest period for the Series 1999-[X] Notes, being
the period from the date of delivery through ___________, the Senior and
Subordinate Series 1999-[X] Notes will bear interest at initial interest rates
of ___% and ___%, respectively, per year. The interest rates for the Senior and
Subordinate Series 1999-[X] Notes for each interest period after the initial
interest period will be the applicable Series 1999-[X] Note LIBOR-Based Rate
based upon one-month LIBOR plus the appropriate spread, determined and subject
to limitations as hereinafter described.
Interest on the Series 1999-[X] Notes shall be computed on the basis of
actual days elapsed and accrue daily, on the basis of a 360-day year, and shall
be payable on each regularly scheduled interest payment date, which shall be the
first business day of each calendar month, commencing _________, prior to
maturity. The interest payable on each interest payment date for the Series
1999-[X] Notes shall be that interest which has accrued through the last day of
the
S-21
<PAGE>
last complete interest period immediately preceding the interest payment
date or, in the case of the maturity, the last day preceding the date of
maturity. Each interest period, other than the initial interest period, will
commence on and include the first business day of a calendar month and terminate
on and include the last day preceding the next interest rate adjustment date.
Each interest rate adjustment date shall be the interest payment date for the
preceding interest period. Each Series 1999-[X] Note interest rate shall be
effective as of and on the interest rate adjustment date of the applicable
interest period and be in effect after that through the end of the interest
period.
The interest rates to be borne by the Series 1999-[X] Notes during each
interest period after the initial interest period shall be determined on the
related interest rate determination date, which will be the __ Business Day
preceding such interest period, and shall be equal to the lesser of (1) the sum
of one-month LIBOR plus (a) for the Senior Series 1999-[X] Notes, a spread of
___% per year (which sum is herein referred to as the "Senior Series 1999-[X]
Note LIBOR-Based Rate"), or (b) for the Subordinate Series 1999-[X] Notes, a
spread of ___% per year (which sum is herein referred to as the "Subordinate
Series 1999-[X] Note LIBOR-Based Rate"), and (2) the Net Loan Rate determined
for that interest period. The trustee shall determine such interest rates on
each interest rate determination date and shall give EdLinc written notice
thereof prior to 2:00 p.m., New York City time, on such interest rate
determination date. The Net Loan Rate with respect to each interest period shall
be determined by or on behalf of EdLinc and written notice thereof given to the
trustee together with the monthly servicing report for the second preceding
calendar month. For purposes of determining the Net Loan Rate with respect to
the Series 1999-[X] Notes, the Administrative Cost and Note Fee Rate will
initially be ___% per year, though it may be increased from time to time with
approval from each Rating Agency. See "Carry-Over Amounts on the Series 1999-[X]
Notes" below.
If the trustee no longer determines, or fails to determine, when
required, the Senior or Subordinate Series 1999-[X] Note LIBOR-Based Rate with
respect to an interest rate determination date, or if, for any reason, such
manner of determination shall be held to be invalid or unenforceable, the Senior
or Subordinate Series 1999-[X] Note LIBOR-Based Rate, as the case may be, for
the related interest period shall be the Net Loan Rate as determined with
respect to such interest period. If EdLinc shall fail or refuse to determine
such Net Loan Rate, the Net Loan Rate for such interest period shall be the most
recently determined Net Loan Rate.
Carry-Over Amounts on the Series 1999-[X] Notes
If the Senior or Subordinate Series 1999-[X] Note LIBOR-Based Rate
determined with respect to a given interest period is greater than the Net Loan
Rate, then the Senior or Subordinate Series 1999-[X] Note interest rate for such
interest period will be the Net Loan Rate. If the Senior or Subordinate Series
1999-[X] Note interest rate for any interest period is the Net Loan Rate, the
trustee shall determine the Carry-Over Amount, if any, with respect to the
Senior or Subordinate Series 1999-[X] Notes, as applicable, for such interest
period. Each such Carry-Over Amount shall bear interest calculated at a rate
equal to the applicable Series 1999-[X] Note LIBOR-Based Rate (as determined by
the trustee) from the interest payment date for the interest
S-22
<PAGE>
period with respect to which such Carry-Over Amount was calculated, until paid.
Any payment in respect of Carry-Over Amount shall be applied, first, to any
accrued interest payable thereon and, thereafter, in reduction of such
Carry-Over Amount. For purposes of the indenture and the Series 1999-[X] Notes,
any reference to principal or interest in the indenture shall not include,
within the meaning of these words, Carry-Over Amount or any interest accrued on
any Carry-Over Amount. On the interest payment date for an interest period with
respect to which such Carry-Over Amount has been calculated by the trustee, the
trustee shall give written notice to each holder of the Carry-Over Amount
applicable to such holder's Series 1999-[X] Note.
The Carry-Over Amount, and interest accrued on the Carry-Over Amount,
for the Series 1999-[X] Notes shall be paid by the trustee on outstanding Series
1999-[X] Notes on the first occurring interest payment date for a subsequent
interest period if and to the extent that (a) the Eligible Carry-Over Make-Up
Amount with respect to such interest period is greater than zero, and (b) moneys
in the Surplus Account are available on such interest payment date for transfer
to the Interest Account for such purpose after taking into account all other
amounts payable from the Surplus Fund in accordance with the applicable
provisions of the indenture on such interest payment date. Any Carry-Over
Amount, and any interest accrued, with respect to any Series 1999-[X] Note which
is unpaid as of an interest payment date, which Series 1999-[X] Note is to be
called for redemption or deemed no longer outstanding under the [__]
supplemental indenture on such interest payment date, shall be paid to the
holder on such interest payment date to the extent that moneys are available in
accordance with the provisions of the preceding clauses (a) and (b); provided,
however, that any Carry-Over Amount, and any interest accrued, which is not so
paid on such interest payment date shall be canceled with respect to such Series
1999-[X] Note on such interest payment date and shall not be paid on any
succeeding interest payment date. To the extent that any portion of the
Carry-Over Amount, and any interest accrued, remains unpaid after payment of a
portion, such unpaid portion shall be paid in whole or in part until fully paid
by the trustee on the next occurring interest payment date or Dates, as
necessary, for a subsequent interest period or Periods, if and to the extent
that the conditions in the first sentence of this paragraph are satisfied. On
any interest payment date on which the trustee pays less than all of the
Carry-Over Amount, and any interest accrued, with respect to a Series 1999-[X]
Note, the trustee shall give written notice to the holder of that Series
1999-[X] Note of the Carry-Over Amount remaining unpaid on that Series 1999-[X]
Note.
The interest payment date on which any Carry-Over Amount, or any
interest accrued, for the Series 1999-[X] Notes shall be paid shall be
determined by the trustee in accordance with the provisions of the immediately
preceding paragraph, and the trustee shall make payment of the Carry-Over
Amount, and any interest accrued, in the same manner as, and from the same
Account from which, it pays interest on the Series 1999-[X] Notes on an interest
payment date.
Any unpaid Carry-Over Amount, including any accrued and unpaid interest
thereon, on a Series 1999-[X] Note not payable on any redemption date with
respect to such Series 1999-[X] Note will be forfeited upon the redemption or at
maturity of such Series 1999-[X] Note, or on such earlier interest payment date,
if any, on which such Series 1999-[X] Note ceases to be
S-23
<PAGE>
outstanding under the [__] supplemental indenture. Fitch's rating on the Series
1999-[X] Notes will not apply to any Carry-Over Amount that may accrue on the
Series 1999-[X] Notes.
Interest Limited to the Extent Permissible by Law
In no event shall the cumulative amount of interest paid or payable on
any Series 1999-[X] Note exceed the amount permitted by applicable law. If the
applicable law is ever judicially interpreted so as to render any amount
received by the holder or any former holder of a Series 1999-[X] Note in excess
of that permitted by applicable law, then, notwithstanding any provision of the
Series 1999-[X] Notes or related documents to the contrary, all excess amounts
theretofore paid or received on that Series 1999-[X] Note shall be credited on
the principal balance thereof, or, if the Series 1999-[X] Note has been paid or
would thereby be paid in full, refunded by the recipient, and the provisions of
the Series 1999-[X] Note and related documents shall automatically and
immediately be deemed reformed and the amounts collectible after that shall be
reduced.
Prepayment and Redemption of Series 1999-[X] Notes
Prepayment
Special Prepayment. Principal of the Series 1999-[X] Notes shall be
prepaid on any interest payment date from moneys credited to the Retirement
Account as hereinafter described. EdLinc is required to direct the trustee to
transfer to the Retirement Account from the Special Redemption and Prepayment
Account any moneys therein, up to an amount equal to the Special Prepayment
Amount, which EdLinc has not determined are reasonably expected to be required
to be transferred to the Note Fund or the Reserve Fund prior to the next
succeeding regularly scheduled interest payment date, provided no deficiencies
exist at the time of such transfer in the Note Fund, the Rebate Fund, the
Reserve Fund or the Alternative Loan Guarantee Fund. Such prepayments of
principal of Series 1999-[X] Notes shall, subject to the Senior Asset
Requirement, be allocated between the Senior Series 1999-[X] Notes and the
Subordinate Series 1999-[X] Notes pro rata. Within a given class of Series
1999-[X] Notes, the principal amount of such class to be prepaid shall be
allocated pro rata to the reduction of the principal amount of all notes of such
class.
The Special Prepayment Amount is an amount, as of the last day of any
month, equal to the excess, if any, of (1) the sum of (a) all payments received
as of such last day with respect to principal of initial financed student loans
and subsequent financed student loans, plus (b) the amount of any balances from
the Acquisition Fund and the Reserve Fund used to prepay Series 1999-[X] Notes
as described under "Prepayment from Unused Proceeds" below, less (c) the
aggregate amount of interest on initial financed student loans and subsequent
financed student loans which has been capitalized after the financing thereof,
less (d) the principal component of the repurchase price of initial financed
student loans and subsequent financed student loans which have been repurchased
from a guarantee agency upon rehabilitation of such Eligible Loans pursuant to
the Higher Education Act, over (2) the sum of (a) the aggregate of the amounts
S-24
<PAGE>
previously applied to the reduction of the principal amount of all Series
1999-[X] Notes, plus (b) the aggregate principal amount of Series 1999-[X] Notes
to be prepaid on the next regularly scheduled interest payment date from
Balances then on hand in the Retirement Account. Payments described in clause
(1)(a) of the preceding sentence include, without limitation, any prepayments by
borrowers from the proceeds of a Consolidation Loan made or purchased by the
trustee on behalf of EdLinc or from any other sources, but exclude, for this
purpose, proceeds of the sale or other disposition of financed student loans to
any Person other than a guarantee agency, with respect to guarantee payments, or
a lender, with respect to the repurchase of financed student loans by such
lender pursuant to its repurchase obligation under a student loan purchase
agreement.
In general, this prepayment provision is intended to require EdLinc to
prepay Series 1999-[X] Notes in amounts related to the amount of principal
payments received with respect to student loans financed with proceeds of the
Series 1999-[X] Notes in the Acquisition Fund. See "Maturity and Prepayment
Considerations--Weighted Average Life of the Series 1999-[X] Notes." Because of
the uncertainties relating to the timing of receipt of principal of student
loans expected to be financed with proceeds of the Series 1999-[X] Notes, the
actual level of prepayments resulting therefrom cannot be definitively stated.
Prepayment from Unused Proceeds. EdLinc expects approximately $______
of the Series 1999-[X] Note proceeds deposited in the Acquisition Fund to be
used to acquire Eligible Loans on or before ___________. If such proceeds are
not so expended, they will be used, together with an allocable portion of the
Series 1999-[X] Note proceeds deposited in the Reserve Fund, to prepay Series
1999-[X] Notes on the next regularly scheduled interest payment date. Any such
amounts will be applied to the prepayment of Senior Series 1999-[X] Notes and
Subordinate Series 1999-[X] Notes ratably based upon their respective principal
balances.
Call for Redemption of Series 1999-[X] Notes Upon Reduction of
Portfolio Balance
The Series 1999-[X] Notes may, at EdLinc's option but subject to
compliance with the conditions in the indenture relating to the Senior Asset
Requirement, be called for redemption in whole but not in part, at a Redemption
Price of 100% of principal amount, plus accrued interest thereon to the
Redemption Date, on any date when the remaining aggregate outstanding principal
balance of student loans financed with the proceeds of the 1999-[X] Notes is
less than 10% of the aggregate principal balance of initial financed student
loans and subsequent financed student loans.
SOURCE OF PAYMENT AND SECURITY FOR THE SERIES 1999-[X] NOTES
Subordination of the Subordinate Series 1999-[X] Notes
The rights of the holders of the Subordinate Series 1999-[X] Notes to
receive principal and interest payments will be subordinated to such rights of
the holders of the Senior Series 1999-[X] Notes, any other series of Senior
Notes and any Other Senior Obligations to the extent
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<PAGE>
described herein. This subordination is intended to enhance the likelihood of
regular receipt of the interest and principal by the holders of the Senior
Series 1999-[X] Notes, any other series of Senior Notes and any Other Senior
Obligations. See "Source of Payment and Security for the Notes--Priorities" and
"Description of the Indenture--Funds and Accounts" in the prospectus.
[Prior Notes and Series 1999-[X] Notes
The Series 1999-[X] Notes are being issued on a parity with all
previously issued and outstanding series of notes and Other Obligations under
the indenture. Thus, the Senior Series 1999-[X] Notes will have the same right
to payment of principal and interest from the Trust Estate as [describe prior
series of Senior Notes and any Other Senior Obligations currently outstanding].
Likewise, the Subordinate Series 1999-[X] Notes will have the same right to
payment of principal and interest from the Trust Estate as [describe prior
series of Subordinate Notes and any Other Subordinate Obligations currently
outstanding].]
Summary of Indenture Assets, Liabilities and Fund Balances and Statement of
Revenue, Expense and Changes in Fund Balances of the Indenture
The following is a summary of the funds and accounts under the
indenture as of ___________, and statement of revenue, expense and changes in
fund balances of funds and accounts under the indenture for the ______ months
ended _________ and the years ended ________.
SUMMARY OF ASSETS, LIABILITIES AND
FUND BALANCES OF INDENTURE
(000's)
ASSETS
Investments...............................
Student Loans Receivable, Net.............
Accrued Interest Receivable
U.S. Secretary of Education
Interest Subsidy.................
Special Allowance................
Investments
Student Loan Borrowers...............
Other Assets .............................
Total Assets
LIABILITIES AND FUND BALANCES
Accounts Payable and
Accrued Expenses.....................
Accrued Interest Payable..................
Notes Payable ............................
Total Liabilities
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<PAGE>
STATEMENT OF REVENUE, EXPENSE AND
CHANGES IN FUND BALANCES OF THE INDENTURE
(000's)
Revenue:
Interest Income on Investments........
Interest on Student Loans.............
Special Allowance on
Student Loans......................
Total Revenue..............
Expense:
Note Interest.........................
Auction Agent/Broker Fees.............
Note Fees
Uncollectible Accounts Expense........
Consolidation and Origination
Fees .............................
Servicing and Administration
Fees...............................
Total Expense..............
Excess of Revenue over Expense............
Fund Balances, Beginning of
Period................................
Fund Balances, End of Period..............
THE TRUSTEE
U.S. Bank National Association, a national banking association
organized under the laws of the United States, is the trustee under the
indenture. The office of the trustee for purposes of administering the Trust
Estate and its other obligations under the indenture is located at U.S. Bank
National Association, 141 North Main Avenue, Suite 300, Sioux Falls, South
Dakota 57104-6429, Attention: Corporate Trust Services.
The Higher Education Act provides that only eligible lenders, defined
to include banks and other entities, may hold title to student loans made under
the FFEL Program. Because EdLinc does not qualify as an eligible lender, the
trustee will hold title to all financed FFELP Loans on behalf of EdLinc. The
trustee will agree under the indenture to maintain its status as an eligible
lender under the Higher Education Act. In addition, the trustee on behalf of
EdLinc will enter into a Guarantee Agreement with each of the guarantee agencies
with respect to each financed FFELP Loan. Failure of the financed FFELP Loans to
be owned by an eligible lender would result in the loss of guarantee payments,
Interest Subsidy Payments and Special Allowance
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Payments with respect thereto. See "Description of the FFEL Program" and "Risk
Factors--Offset by Guarantee Agencies or the Department of Education Could
Reduce the Amount of Available Funds" in the prospectus.
SLFC and its affiliates, EdLinc and the transferor, maintain other
banking relationships with U.S. Bank National Association and its affiliates
from time to time. See "Certain Relationships Among Financing Participants."
[RELATIONSHIPS AMONG FINANCING PARTICIPANTS]
As described under "EdLinc," "The Transferor" and "The Servicer" in the
prospectus, EdLinc and the transferor are wholly-owned subsidiaries of SLFC.
Except for its obligation to repurchase student loans under a student loan
purchase agreement upon a breach of a representation or warranty with respect
thereto or its obligations under the SLFC servicing agreement, SLFC will have no
obligations with respect to the notes or the indenture. EdLinc and the
transferor will have no full-time employees, but will initially contract with
SLFC to perform EdLinc's obligations under the indenture.
The boards of directors of EdLinc, the transferor and SLFC presently
include the same three persons.
The trustee is also the trustee for EdLinc's outstanding student loan
asset-backed note issues. The trustee and its affiliates have in the past
entered into student loan purchase agreements with EdLinc, SLFC and the
transferor, including student loan purchase agreements pursuant to which the
transferor acquired, as of _________, approximately $____________ million
outstanding principal amount of Eligible Loans which will be financed under the
indenture. EdLinc expects that the trustee will enter into student loan purchase
agreements providing for the sale of a substantial amount of additional Eligible
Loans. SLFC also has obtained financial services from the trustee and related
entities.
Foley & Lardner, counsel to the underwriter, has from time to time
represented, and is currently representing, SLFC in connection with various
matters. In addition, Foley & Lardner has from time to time represented EAC in
connection with various matters.
[For a discussion of relationships between the underwriter or
affiliates of the underwriter and EdLinc or SLFC, see "Underwriting."]]
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting
Agreement dated _____________, between EdLinc and Salomon Smith Barney Inc., as
the underwriter, EdLinc has agreed to sell to the underwriter, and the
underwriter has agreed to purchase from EdLinc, the Series 1999-[X] Notes.
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In the underwriting agreement, the underwriter has agreed, subject to
the terms and conditions set forth therein, to purchase all of the Series
1999-[X] Notes offered hereby, if any Series 1999-[X] Notes are purchased.
EdLinc has been advised by the underwriter that the underwriter proposes
initially to offer the Series 1999-[X] Notes to the public at the public
offering price with respect to each class set forth on the cover page of this
prospectus supplement. After the initial public offering, the public offering
price may be changed.
The underwriting agreement provides that SLFC will indemnify the
underwriter against, among other things, liabilities under applicable securities
laws, or contribute to payments the underwriter may be required to make in
respect thereof.
The underwriter may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specific maximum. Syndicate covering
transactions involve purchases of the Series 1999-[X] Notes in the open market
after the distribution has been completed in order to cover syndicate short
positions. Penalty bids permit the underwriter to reclaim a selling concession
from a syndicate member when the Series 1999-[X] Notes originally sold by such
syndicate member are purchased in a syndicate covering transaction to cover
syndicate short positions. Such stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the Series 1999-[X] Notes
to be higher than it would otherwise be in the absence of such transactions.
EdLinc estimates that its expenses in connection with the issuance and
offering of the Series 1999-[X] Notes will be approximately $____________. This
information concerning EdLinc's fees and expenses is an approximation and is
subject to future contingencies.
LEGAL MATTERS
Certain legal matters relating to EdLinc, the transferor, the servicer
and the administrator and federal income tax matters will be passed upon by
Dorsey & Whitney LLP. Certain legal matters will be passed upon for the
underwriter by Foley & Lardner. [Foley & Lardner has performed legal services
for the servicer and the administrator and it is expected that they will
continue to perform such services in the future.]
RATING
It is a condition to the issuance and sale of the Senior Series
1999-[X] Notes that they be rated "AAA" by [Fitch IBCA, Inc.] and "Aaa" by
[Moody's Investors Service, Inc.]. It is a condition to the issuance of the
Subordinate Series 1999-[X] Notes that they be rated at least "A" by [Fitch] and
at least "A2" by [Moody's]. 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 agency. The ratings of the Series 1999-[X] Notes address
the likelihood of the ultimate
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payment of principal of and interest on the Series 1999-[X] Notes pursuant to
their terms. The rating agencies do not evaluate, and the ratings on the Series
1999-[X] Notes do not address, the likelihood of prepayments on the Series
1999-[X] Notes or the likelihood of payment of any Carry-Over Amounts.
S-30
<PAGE>
Prospectus
EDUCATION LOANS INCORPORATED
Student Loan Asset-Backed Notes
- --------------------------------------------------------------------------------
Consider carefully the risk factors beginning on page 4 in this prospectus.
The notes will represent obligations of EdLinc only and will not represent
interests in or obligations of the servicer, the transferor or any of their
affiliates. The notes are not a deposit and are not insured or guaranteed by any
person. Except as noted in this document and the accompanying prospectus
supplement, the underlying accounts and student loans are not insured or
guaranteed by any governmental agency.
This prospectus may be used to offer and sell any series of notes only if
accompanied by the prospectus supplement for that series.
- --------------------------------------------------------------------------------
EdLinc:
-------
o may issue periodically student loan asset-backed notes in one or more
series with one or more classes, all of which will be part of a single
issue of notes.
The Notes:
----------
o will be secured by the student loans and other assets of EdLinc that
are acquired with the proceeds of the notes;
o will be rated in one of the four highest rating categories by at least
one nationally recognized rating organization;
o may have one or more forms of credit enhancement; and
o will be issued as part of a designated series, but each series of
notes will be a part of the same issue of notes.
The Noteholders:
----------------
o will receive interest and principal payments from collections on the
assets securing the notes; and
o will have the same right to be paid from the assets securing the notes
as all other noteholders of the same class, including noteholders of
other series, except in those cases where a form of credit enhancement
has been provided only for the notes of a particular series.
Neither the SEC nor any state securities commission has approved these
notes or determined that this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
___________________, 1999
<PAGE>
Important Notice About Information Presented In This
Prospectus And The Accompanying Prospectus Supplement
You should rely only on the information provided in this prospectus and the
accompanying prospectus supplement, including the information incorporated by
reference. EdLinc has not authorized anyone to provide you with different
information. The notes are not offered in any state where the offer is not
permitted.
EdLinc has included cross-references in this prospectus to captions in this
prospectus or the accompanying prospectus supplement where you can find further
related discussions. These cross-references are to sections contained in this
prospectus unless you are told otherwise. The following table of contents and
the table of contents included in the accompanying prospectus supplement provide
the pages on which the captions are located.
2
<PAGE>
TABLE OF CONTENTS
Page
----
RISK FACTORS..................................... 4
USE OF PROCEEDS.................................. 14
EDLINC........................................... 14
THE TRANSFEROR................................... 14
THE SERVICER..................................... 15
MATURITY AND PREPAYMENT
CONSIDERATIONS................................ 15
DESCRIPTION OF FINANCING
OF ELIGIBLE LOANS............................. 17
Description of Eligible Loans to be Financed..... 17
Transfer Agreements........................... 18
Student Loan Purchase Agreements.............. 18
Servicing and "Due Diligence"................. 19
DESCRIPTION OF THE FFEL PROGRAM.................. 20
General....................................... 20
Loan Terms.................................... 21
Contracts with Guarantee Agencies............. 34
Federal Special Allowance Payments............ 38
Federal Student Loan Insurance Fund........... 40
Direct Loans.................................. 40
DESCRIPTION OF THE
GUARANTEE AGENCIES............................ 40
General....................................... 40
Department of Education Oversight............. 42
Federal Agreements............................ 43
Effect of Annual Claims Rate.................. 44
1998 Reauthorization Amendments............... 44
DESCRIPTION OF THE ALTERNATIVE
LOAN PROGRAMS................................. 48
DESCRIPTION OF THE NOTES......................... 49
General....................................... 49
General Terms of Notes........................ 50
Issuance of Notes............................. 50
Comparative Security of Noteholders
and Other Beneficiaries.................... 51
Call for Redemption, Prepayment or Purchase
of Notes; Senior Asset Requirement......... 52
Interest...................................... 52
Principal..................................... 54
Determination of LIBOR........................ 54
Auction Procedures............................ 54
Book-Entry Registration....................... 57
Definitive Notes.............................. 61
Denomination and Payment...................... 62
SOURCE OF PAYMENT AND SECURITY
FOR THE NOTES................................. 62
General....................................... 62
Additional Indenture Obligations.............. 63
Priorities.................................... 64
DESCRIPTION OF THE SLFC
SERVICING AGREEMENT........................... 65
General....................................... 65
Acquisition Process........................... 65
Origination Process........................... 66
Servicing..................................... 66
Right of Inspection and Audits................ 67
Administration and Management................. 67
Servicing Fees................................ 67
Sub-Servicers................................. 68
Term and Termination.......................... 68
Year 2000 Information Systems Procedures...... 69
DESCRIPTION OF THE INDENTURE..................... 70
General....................................... 70
Funds and Accounts............................ 70
Pledge; Encumbrances.......................... 85
Covenants..................................... 86
No Petition................................... 89
Investments................................... 89
Reports to Noteholders........................ 91
Events of Default............................. 91
Remedies...................................... 92
Application of Proceeds....................... 95
Trustee....................................... 97
Supplemental Indentures....................... 98
Discharge of Notes and Indenture.............. 100
Notices to Noteholders........................ 100
Rights of Other Beneficiaries................. 100
UNITED STATES FEDERAL INCOME
TAX CONSEQUENCES.............................. 100
Characterization of the Trust Estate.......... 102
Characterization of the Notes as Indebtedness. 103
United States Federal Income Tax
Consequences to United States Holders...... 106
United States Federal Income Tax
Consequences to Non-United States
Holders.................................... 106
Information Reporting and Back-up
Withholding................................ 107
STATE TAX CONSIDERATIONS......................... 108
ERISA CONSIDERATIONS............................. 109
AVAILABLE INFORMATION............................ 110
REPORTS TO NOTEHOLDERS........................... 110
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE........................ 111
PLAN OF DISTRIBUTION............................. 111
FINANCIAL INFORMATION............................ 112
RATING........................................... 112
GLOSSARY OF PRINCIPAL
DEFINITIONS................................... I-1
3
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase the notes.
A secondary market for the The underwriters may assist in resales of
notes may not develop, the notes but they are not required to do
which means you may have so. A secondary market for the notes may
trouble selling them when not develop. If a secondary market does
you want. develop, it might not continue or it might
not be sufficiently liquid to allow you
to resell any of your notes.
EdLinc will have limited EdLinc will have no assets or sources of
assets to pay principal and funds to pay principal or interest on the
interest, which could result notes other than the student loans acquired
in delays in payment or with proceeds of the notes and the other
losses on your notes. assets making up the trust estate. The notes
are obligations solely of EdLinc, and will
not be insured or guaranteed by the
transferor, the servicer, the guarantee
agencies, the trustee or any of their
affiliates, or by the Department of
Education. Noteholders must rely for
repayment upon proceeds realized from the
student loans, credit enhancement, if any,
and other assets in the trust estate. See
"Source of Payment and Security for the
Notes."
Failure by loan holders or The Higher Education Act requires loan
servicers to comply with holders and servicers to follow specified
student loan origination and procedures to ensure that the FFELP loans
servicing procedures could are properly originated and serviced.
cause delays in payment or Failure to follow these procedures may
losses on your notes. result in:
. Loss of Reinsurance Payments, Interest
Subsidies and Special Allowance Payments.
The Department of Education's refusal to
make reinsurance payments to the guarantee
agencies or to make interest subsidy
payments and special allowance payments to
the trustee with respect to the FFELP
loans; and
. Loss of Guarantee Payments. The guarantee
agencies' inability or refusal to make
guarantee payments with respect to FFELP
loans.
Loss of any of these payments may adversely
affect EdLinc's ability to pay principal and
interest on the notes. See "Description of
Financing of Eligible Loans--Servicing and
'Due Diligence'" and "Description of the FFEL
Program."
4
<PAGE>
Year 2000 problems with If computer programs and information systems
the servicer's or third used by the servicer or third parties upon
parties' computers could which the servicer depends for its
delay payments on your programming and financial operations or with
notes. which it conducts business, including,
without limitation, guarantee agencies, the
Department of Education, the trustee, the
securities depository and utilities
providing services to the servicer or such
parties, are not year 2000 compliant, the
servicer's and such parties' ability to
provide services required in connection with
the servicer's administration of its student
loan program and the payment of the
principal of and interest on your notes in a
timely manner may be adversely affected. See
"Description of the SLFC Servicing
Agreement--Year 2000 Information Systems
Procedures."
Subordinated classes of If a class of notes is subordinated,
notes face a higher risk of interest and principal payments on a
delayed payments and payment date on such class generally will be
losses. made only after each senior class has
received its interest and principal
entitlement on that payment date.
Consequently, a subordinated class will bear
losses on the student loans prior to such
losses being borne by the more senior
classes. In addition, subordinated
noteholders may be limited in the legal
remedies that are available to them until the
more senior noteholders are paid in full. See
"Source of Payment and Security for the
Notes--Priorities."
Additional notes may be EdLinc may, from time to time, issue
issued without your consent, additional notes or incur other obligations
which could affect the secured by the trust estate without the
make-up of the outstanding consent or approval of any existing
notes. noteholders. These notes or other obligations
may be senior or subordinate to, or on a
parity with,existing classes of notes in
right of payment.
If there is a problem with a The transfer of the student loans from the
loan that arose prior to its transferor to the trustee on behalf of
acquisition by the trustee, EdLinc is without recourse against the
the trust estate may incur transferor. Neither EdLinc nor the trustee
losses on that loan unless will have any right to resell the student
the lender or SLFC loans to the transferor or otherwise to make
repurchases it because of a recourse to or collect from the transferor
breach of a representation or if the student loans should fail to meet the
warranty. requirements of an eligible loan for any
reason or if the transfer should fail to
provide the trustee with good title to
the student loans.
The lenders and SLFC, however, will have made
representations and warranties in the related
student loan purchase agreements in
connection with their sales of student loans
to the transferor or the trustee on behalf of
EdLinc. If those representations and
warranties are breached as to a given student
loan, the applicable
5
<PAGE>
lender or SLFC will be obligated to
repurchase the student loan. However, neither
EdLinc nor the transferor examines the
documents relating to FFELP loans to the
extent necessary to determine whether the
selling lenders have met all of the
conditions necessary for such loans to
qualify for guarantee payments from the
applicable guarantee agency. Furthermore, the
lender or SLFC may not have the financial
resources to repurchase any student loan.
Finally, these representations and warranties
will not cover any problem arising after the
sale of the student loan to the transferor or
the trustee on behalf of EdLinc that was not
caused by a breach of the representations and
warranties (such as a failure to service the
student loan properly).
The failure of a lender or SLFC to repurchase
a student loan is a breach of the related
student loan purchase agreement, enforceable
by the trustee, but is not an event of
default, and would not permit the exercise of
remedies, under the indenture.
See "Description of Financing of Eligible
Loans--Student Loan Purchase Agreements."
Offset by guarantee The trustee will use a Department of
agencies or the Education lender identification number that
Department of Education is also being used for other student loans
could reduce the amounts held by the trustee on behalf of EdLinc and
available for payment of the transferor under other indentures, and
your notes. which may also be used similarly for SLFC or
other entities established by SLFC. The
billings submitted to the Department of
Education will be consolidated with the
billings for payments for student loans under
all of these indentures, and payments on the
billings will be made by the Department of
Education or the guarantee agency to the
trustee in lump sum form. These payments will
be allocated by the trustee among the various
indentures using the same lender
identification number.
If the Department of Education or a guarantee
agency determines that the trustee owes a
liability to the Department of Education or
the guarantee agency on any FFELP loan for
which the trustee is legal titleholder, the
Department of Education or the guarantee
agency might seek to collect that liability
by offsetting against payments due the
trustee under the indenture for the notes.
This offsetting or shortfall of payments due
to the trustee could adversely affect the
amount of available funds for any collection
6
<PAGE>
period and EdLinc's ability to pay interest
and principal on the notes.
Although the indenture contains provisions
for cross-indemnification with respect to
such payments and offsets, there can be no
assurance that the amount of funds available
with respect to such right of indemnification
may be adequate to compensate the indenture
and noteholders for any previous reduction in
the available funds for a collection period.
See "Description of the FFEL Program" and
"Description of the Guarantee Agencies."
The financial health of the The FFELP loans are not secured by any
guarantee agencies could collateral of the borrower. Payments of
decline, which could affect principal and interest are guaranteed by
the timing and amounts guarantee agencies to the extent described
available for payment of herein and in the related prospectus
your notes. supplement. Excessive borrower defaults could
impair a guarantee agency's ability to meet
its guarantee obligations. In addition,
recently enacted legislation is expected to
reduce the guarantee agencies' reserves under
the FFEL program. The financial health of a
guarantee agency could affect the timing and
amount of available funds for any collection
period and EdLinc's ability to pay principal
of and interest on your notes. Although a
holder of FFELP loans could submit claims for
payment directly to the Department of
Education pursuant to section 432(o) of the
Higher Education Act if the Department
determines that a guarantee agency is unable
to meet its insurance obligations, there is
no assurance that the Department of Education
would make such a determination or that it
would pay claims in a timely manner. The
trustee may receive claim payments on FFELP
loans directly from the Department of
Education under Section 432(o) if such a
determination is made. See "Description of
the FFEL Program" and "Description of the
Guarantee Agencies."
7
<PAGE>
The FFEL program could The Higher Education Act and other relevant
change, which could federal or state laws may be amended or
adversely affect the loans modified in the future. In particular, the
and the timing of and level of guarantee payments may be adjusted
amounts available for from time to time. EdLinc cannot predict
payment of your notes. whether any changes will be adopted or, if
so, what impact such changes may have on
EdLinc or your notes.
Increased competition The lenders that sell student loans to
from FFEL program EdLinc and the transferor face competition
participants and the Federal from other lenders and secondary markets
Direct Student Loan that could decrease the volume of eligible
Program could adversely loans that could be acquired by EdLinc and
affect the availability of the transferor. Additionally, the Higher
loans, the cost of servicing, Education Act provides for a Federal Direct
the value of loans and Student Loan Program. This program could
prepayment expectations. result in reductions in the volume of loans
made under the FFEL program. Reduced volume
in EdLinc's program in particular and in the
FFEL Program in general may cause the
servicer 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
FFELP loans. 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.
The Department of Education has implemented a
direct consolidation loan program, which may
reduce the volume of loans made under the
FFEL program and, together with consolidation
loans made by lenders in the FFEL program, is
expected to result in prepayments of student
loans.
See "Description of the FFEL Program."
Prepayment of your notes The proceeds of each series of notes may
with unspent proceeds include an amount to be deposited in the
may create reinvestment acquisition fund and used to acquire student
risks. loans over a period of time after the closing
date. If the amount of student loans acquired
by the trustee on behalf of EdLinc during
such period is less than the full amount so
funded, EdLinc will prepay principal on notes
of that series equal to the difference plus
any other related unspent proceeds. See
"Description of Financing of Eligible Loans"
and "Description of the Indenture--Funds and
Accounts-- Acquisition Fund."
8
<PAGE>
Reinvestment risk and Student loans may be prepaid by borrowers at
prepayments may reduce any time without penalty. The rate of
your yield. and other factors, such as interest rates, the
availability of other financing and the
general job market. In addition, under some
circumstances, lenders or SLFC may be
obligated to repurchase student loans from
EdLinc pursuant to the student loan purchase
agreements as a result of breaches of their
representations and warranties. See
"Description of Financing of Eligible Loans--
Transfer Agreements" and " --Student Loan
Purchase Agreements."
To the extent borrowers elect to borrow money
through consolidation loans, the noteholders
will receive as a prepayment of principal the
aggregate principal amount of the loan.
If loan prepayments result in your note being
prepaid prior to its expected maturity, you
may not be able to reinvest your funds at the
same yield as the yield on the note. In
addition, your yield may be reduced if you
purchased your note at a premium and the
principal is paid faster than you expected, or
if you purchased your note at a discount and
the principal is paid slower than you
expected. EdLinc cannot predict the prepayment
rate of any notes, and reinvestment risks or
reductions in yield resulting from a faster or
slower prepayment speed will be borne entirely
by you and the other holders.
The maturity of your Scheduled payments on the student loans and
investment is uncertain. the maturities of the student loans may be
extended without your consent, which may
lengthen the weighted average life of your
investment.Prepayments of principal on the
student loans may shorten the life of your
investment. See "Maturity and Prepayment
Considerations."
The interest rates on The interest rate for any class of LIBOR
the notes are subject to rate notes will be based generally on the
limitations, which could level of LIBOR. The interest rate for any
reduce your yield. class of auction rate notes will be based
generally on the outcome of an auction of
notes. The interest rate for other classes of
notes may be based on the index, formula or
other method described in the related
prospectus supplement. The student loans,
however, generally bear interest at the T-Bill
rate (except for some alternative loans which
bear interest at the prime rate or another
specified variable rate) plus a stated margin.
9
<PAGE>
The foregoing interest rates on the notes of
a series generally will be limited by the
net loan rate for that series, which will
equal the weighted average effective
interest rate of the student loans financed
by that series, less specified
administrative costs for that series. For an
interest payment date on which the net loan
rate applies, the difference between the
amount of interest at the rate described
above and the amount of interest at the net
loan rate will be paid on succeeding
interest payment dates to the extent of
available funds and may never be paid.
See "Description of the Notes--Interest."
The interest rates on our Unspent proceeds of the notes and moneys in
investments may be the funds and accounts under the indenture
insufficient to cover interest will be invested at fluctuating interest
on your notes. rates. Although EdLinc will try to minimize
this risk by entering into investment
agreements, there can be no assurance that
the interest rates at which these proceeds
and moneys are invested will equal or exceed
the interest rates on the notes.
The principal amount of The principal amount of notes issued by
the notes may exceed the EdLinc may exceed the principal amount of
principal amount of the student loans and other assets in the trust
assets in the trust estate, estate held by the trustee under the
which could result in losses indenture. If an event of default occurs and
on your notes if there was a the assets in the trust estate are
liquidation. 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. EdLinc cannot
predict the rate or timing of accelerated
payments of principal or when the aggregate
principal amount of the notes may be reduced
to the aggregate principal amount of the
student loans.
If the trustee is forced to Generally, during an event of default, the
sell loans after an event of trustee is authorized with noteholder
default, there could be consent to sell the related student loans.
losses on your notes. However, the 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. In either event, the noteholders
may suffer a loss.
10
<PAGE>
Insolvency of the transferor EdLinc has taken steps in structuring these
or SLFC could cause delays transactions that are intended to ensure
in payment or losses on your that the voluntary or involuntary
notes. application for relief by the transferor or
SLFC under the United States Bankruptcy Code
or other insolvency laws will not result in
consolidation of the assets and liabilities
of EdLinc with those of the transferor
and/or SLFC. However, there can be no
assurance that the activities of EdLinc
would not result in a court concluding that
the assets and liabilities of EdLinc should
be consolidated with those of the transferor
or SLFC in a proceeding under any insolvency
law. If a court were to reach this
conclusion or if a filing were made under
any insolvency law by or against EdLinc, or
if an attempt were made to litigate any of
the foregoing issues, then delays in
payments on the notes could occur or
reductions in the amounts of such payments
could result.
The transferor and SLFC will transfer
student loans to the trustee on behalf of
EdLinc in accordance with the applicable
transfer agreement or student loan purchase
agreement. The transferor and SLFC each
intends that this transfer constitute a
sale, rather than a pledge to secure
indebtedness. If, however, the transferor or
SLFC were to become subject to any
insolvency law and a creditor or trustee-in-
bankruptcy of the transferor or SLFC were to
take the position that the sale of the
student loans by the transferor or SLFC to
EdLinc, as appropriate, should instead be
treated as a pledge of the student loans to
secure a borrowing from EdLinc, delays in
payments on the notes from collections on
student loans could occur or reductions in
the amounts of these payments could result.
Bankruptcy of EdLinc EdLinc is a limited purpose finance
could result in accelerated subsidiary of SLFC. If EdLinc becomes
prepayment on your notes. bankrupt, the United States Bankruptcy Code
could materially limit or prevent the
enforcement of EdLinc's obligations,
including its obligations under the notes.
EdLinc's trustee in bankruptcy or EdLinc
itself as debtor-in-possession may seek to
accelerate payment on the notes and
liquidate the assets held under the
indenture. If principal on the notes is
declared due and payable, you may lose the
right to future payments and face
reinvestment risks mentioned above.
Other parties may have or If any transfer of the student loans is
may obtain a superior deemed to be a secured financing, other
in loans. persons may have an interest in the loans
prior to the trustee.
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The servicer will have custody of the
promissory notes related to the FFELP loans,
except where the loan has been made under a
master promissory note retained by the
lender. The student loans may not be
physically segregated in the servicer's or
other custodian's offices. If any interest
in the student loans were assigned to
another party, that person could acquire an
interest in the student loans superior to
the interest of the trustee.
Application of consumer Consumer protection laws impose requirements
protection laws to the loans upon lenders and servicers. Some state laws
may increase costs impose finance charge restrictions on some
and uncertainties about the transactions and require contract
loans. disclosures. Furthermore, to the extent
applicable, these laws can impose specific
statutory liabilities upon creditors who
fail to comply with their provisions and may
affect the enforceability of the loan. These
state laws are generally preempted by the
Higher Education Act. However, the form of
promissory notes required by the Department
of Education for FFELP loans provides that
holders of such promissory notes evidencing
some loans made to borrowers attending for-
profit schools are subject to any claims and
legal defenses that the borrower may have
against the school. Alternative loan
programs would be subject to applicable
state laws regulating loans to
consumers.
Book-entry registration Your notes may be represented by one or more
may limit your certificates registered in the name of Cede
ability to participate & Co., the nominee for DTC, and will not be
directly as a holder. registered in your name if specified in the
accompanying prospectus supplement. If so,
you will only be able to exercise the right
of noteholders indirectly through DTC and
its participating organizations. See
"Description of the Notes--Book-Entry
Registration."
Credit ratings only address a A rating agency will rate each note in one
limited scope of of its four highest rating categories. A
your concerns. rating is not a recommendation to buy or
sell notes or a comment concerning
suitability for any investor. A rating only
addresses the likelihood of the ultimate
payment of principal and stated interest and
does not address the likelihood of
prepayments on the notes or the likelihood
of the payment of carry-over amounts. A
rating may not remain in effect for the life
of the notes. See "Rating" in this
prospectus and in the accompanying
prospectus supplement.
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EdLinc may enter into swap Under the indenture, EdLinc may enter into
agreements which could swap agreements if, among other things, the
result in delays in payment rating agencies will not reduce or withdraw
or losses on your notes if the the rating on any notes. Swap agreements
counterparty fails to make carry risks relating to the credit quality of
its payments. the counterparty and the enforceability of
the swap agreement. See "Source of Payment
and Security for the Notes--Additional
Indenture Obligations."
The composition and The eligible loans EdLinc intends to acquire
characteristics of the loan with proceeds of a series of notes on the
portfolio will continually closing date, together with any student loans
change, and loans that bear a previously acquired under the indenture, will
lower rate of return or have be described in the prospectus supplement
a greater risk of loss may be relating to such notes. A portion of the
acquired. proceeds of the notes may be deposited in the
acquisition fund and used to acquire eligible
loans over a period of time after the closing
date. The characteristics of the student loan
portfolio included in the trust estate will
change from time to time as new student loans
are acquired and as a result of amendments to
the Higher Education Act, changes in terms of
alternative loan programs, sales or exchanges
of loans and scheduled amortization,
prepayments, delinquencies and defaults on
the loans. In addition, the indenture permits
EdLinc to use surplus moneys under the
indenture to acquire student loans, including
loans that do not qualify as eligible loans.
Any student loans so acquired that are not
eligible loans may bear a lower rate of
return and have a greater risk of loss from
borrower defaults.
The alternative loans have a The alternative loans to be acquired with
higher risk of loss. proceeds of the notes will not be guaranteed
by a third-party guarantor, as is the case
with FFELP loans. Therefore, the receipt by
the trustee of principal and interest on
these loans will be dependent on the ability
of the borrower to make these payments.
Moneys at any time on deposit in the
alternative loan guarantee fund will cover
the principal balance of and accrued interest
on an alternative loan once any payment on
that loan is 180 days late. However, the
trust estate will suffer losses if amounts
available in the alternative loan guarantee
fund are not sufficient to cover all
defaulted alternative loans.
___________________________
Some words and terms will be capitalized when used in this prospectus. You
can find the definitions for these words and terms in the Glossary of Principal
Definitions at the end of this prospectus.
___________________________
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USE OF PROCEEDS
EdLinc will use the net proceeds from the sale of a series of notes to
purchase financed Eligible Loans from the transferor and lenders or to originate
financed Eligible Loans and to make various deposits to the funds and accounts
under the indenture with respect to the notes. The transferor is expected to use
the proceeds of each sale of Eligible Loans to EdLinc to repay debt incurred in
the acquisition of the Eligible Loans.
EDLINC
EdLinc is a bankruptcy remote, limited purpose Delaware corporation and a
wholly owned subsidiary of SLFC.
As a bankruptcy-remote entity, EdLinc's operations will be restricted so
that (1) it does not engage in business with, or incur liabilities to, any other
entity (other than the noteholders and Other Beneficiaries, and beneficiaries
under indentures similar to the indenture) which may bring bankruptcy
proceedings against EdLinc, and (2) the risk that it will be consolidated into
the bankruptcy proceedings of any other entity is diminished. EdLinc has
covenanted in the indenture that it will not engage in any business other than
financing, originating, purchasing, owning, selling and managing student loans
in the manner contemplated by its certificate of incorporation and the indenture
and the activities incidental thereto.
EdLinc will have no substantial assets other than those pledged under the
indenture or under other comparable indentures pursuant to which EdLinc has
issued, or will issue, student loan asset-backed notes similar to the notes. Any
assets held under these other indentures would not be available to pay principal
or interest on the notes. EdLinc will have no full-time employees. Certain
responsibilities of EdLinc under the indenture will be administered by SLFC. See
"The SLFC Servicing Agreement."
EdLinc's address is 105 First Avenue Southwest, Suite 200, Aberdeen, South
Dakota 57401 and its phone number is (605) 622-4400.
THE TRANSFEROR
GOAL Funding, Inc. is a bankruptcy remote, limited purpose Delaware
corporation and a wholly owned subsidiary of SLFC. GOAL Funding, Inc., in its
capacity as transferor of the initial financed student loans with respect to a
given series of notes, will be referred to throughout this prospectus as the
transferor.
The transferor was created to provide a vehicle for the temporary financing
of Eligible Loans pending their sale to EdLinc. Thus, the transferor has entered
into a warehousing indenture and other related agreements pursuant to which it
borrows moneys to acquire Eligible Loans. These Eligible Loans are purchased
from lenders, in the case of FFELP Loans, or from SLFC, in the case of
Alternative Loans, pursuant to student loan purchase agreements.
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The transferor will have no substantial assets other than those pledged
under the warehousing indenture to secure repayment of its borrowings
thereunder. The transferor will have no full-time employees. Certain
responsibilities of the transferor will be performed by SLFC pursuant to an
arrangement comparable to that set forth in the SLFC servicing agreement.
The transferor's address is 105 First Avenue Southwest, Suite 104,
Aberdeen, South Dakota 57401 and its phone number is (605) 622-4400.
THE SERVICER
General
Student Loan Finance Corporation ("SLFC") is a South Dakota corporation
organized in 1997. SLFC, in its capacity as servicer of the financed student
loans, together with any successor in such capacity, will be referred to
throughout this prospectus as the servicer.
SLFC is in the business of purchasing, originating, holding, servicing and
collecting student loans. SLFC's employees and management had, since 1979,
operated the student loan program of Great Plains Education Foundation, Inc., a
South Dakota nonprofit corporation formerly known as Student Loan Finance
Corporation ("Great Plains"). In a reorganization completed in February, 1998,
Great Plains transferred all of its operating assets, including employees, to
SLFC, which was at the time a wholly-owned subsidiary of Great Plains. Great
Plains also transferred its liability on all of its indebtedness, together with
its rights to the student loans and other assets pledged to the repayment
thereof, to SLFC. SLFC, in turn, transferred such liability and pledged assets
to EdLinc. SLFC currently services the related student loans on behalf of
EdLinc.
As of September 30, 1999, SLFC was the servicer for student loans to
approximately 93,300 borrowers representing approximately $669 million
outstanding principal amount of student loans owned by its subsidiaries, EdLinc
and GOAL Funding. In addition, as of that date, SLFC also was the servicer for
student loans owned by other lenders representing approximately $6,000,000
outstanding principal amount. Of these amounts, approximately 5%was being
serviced by one or more sub-servicers on behalf of SLFC.
MATURITY AND PREPAYMENT CONSIDERATIONS
The rate of payment of principal of the notes and the yield on the notes
will be affected by:
(1) prepayments of the financed Eligible Loans that may occur as
described below, including repurchases by the lenders or SLFC upon a breach
of representations or warranties under the related student loan purchase
agreement,
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(2) the application of additional principal payments, if any, and (3)
the issuance of additional notes.
All the financed Eligible Loans are prepayable in whole or in part by the
borrowers at any time (including by means of Consolidation Loans as discussed
below) and may be prepaid as a result of a borrower default, death, disability
or bankruptcy, school closures and other events specified in the Higher
Education Act and subsequent liquidation or collection of guarantee payments
with respect thereto. The rate of such prepayments cannot be predicted and may
be influenced by a variety of economic, social and other factors, including
those described below. In general, the rate of prepayments may tend to increase
to the extent that alternative financing becomes available at prevailing
interest rates which fall significantly below the interest rates applicable to
the financed Eligible Loans. However, because many of the financed Eligible
Loans bear interest at a rate that either actually or effectively is floating,
it is impossible to determine whether changes in prevailing interest rates will
be similar to or vary from changes in the interest rates on the financed
Eligible Loans. Other factors affecting prepayment of loans include changes in
the borrower's employment and other economic circumstances, and refinancing
opportunities which may provide more favorable repayment terms such as those
offered under various consolidation loan programs, including the federal direct
consolidation loan programs. Because of the benefits of consolidating numerous
student loans into a single loan and, in some cases, obtaining more favorable
repayment terms, a borrower may choose to prepay financed Eligible Loans through
consolidation programs regardless of the level of interest rates. The lenders
and SLFC are obligated to repurchase any financed Eligible Loan pursuant to the
applicable student loan purchase agreement if specified representations or
warranties are breached with respect to such loan.
Scheduled payments with respect to, and maturities of, the financed
Eligible Loans may be extended, including pursuant to grace periods, deferment
periods and, under some circumstances, forbearance periods or as a result of
refinancings through Consolidation Loans to the extent such Consolidation Loans
are sold to the trustee on behalf of EdLinc. In that event, the fact that such
Consolidation Loans will likely have longer maturities than the financed
Eligible Loans they are replacing may lengthen the remaining term of the
financed Eligible Loans and the average life of the notes of one or more series.
The rate of payment of principal of the notes of a series and the yield on the
notes may also be affected by the rate of defaults resulting in losses on
financed Eligible Loans, by the severity of those losses and by the timing of
those losses.
The rate of prepayment on the financed Eligible Loans cannot be predicted,
and any reinvestment risks resulting from a faster or slower incidence of
prepayment of financed Eligible Loans will be borne entirely by the noteholders.
Such reinvestment risks may include the risk that interest rates and the
relevant spreads above particular interest rate bases are lower at the time
noteholders receive payments of principal than such interest rates and such
spreads would otherwise have been had such prepayments not been made or had such
prepayments been made at a different time.
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DESCRIPTION OF FINANCING OF ELIGIBLE LOANS
Description of Eligible Loans to be Financed
A portion of the proceeds of each series of notes will be deposited in the
Acquisition Fund and used to originate Eligible Loans or to purchase Eligible
Loans from (1) the transferor pursuant to a transfer agreement on or about the
date of issuance of the notes, or (2) lenders or SLFC pursuant to student loan
purchase agreements within 270 days thereafter. The Eligible Loans to be so
acquired will either be FFELP Loans or Alternative Loans. See "Description of
the FFEL Program" and "Description of the Alternative Loan Programs."
The financed Eligible Loans to be purchased from the transferor will be
selected from the transferor's portfolio of FFELP Loans and Alternative Loans.
All such Eligible Loans will have been previously purchased by the transferor
from a lender, in the case of FFELP Loans, or SLFC, in the case of Alternative
Loans, pursuant to a student loan purchase agreement. The transferor's rights
under each such student loan purchase agreement will be transferred to EdLinc.
The characteristics of the Eligible Loans to be purchased from the
transferor pursuant to a transfer agreement, as well as all financed Eligible
Loans at the time held under the indenture, will be described in the related
prospectus supplement.
Each prospectus supplement will set forth various information with respect
to the Eligible Loans to be purchased from the transferor pursuant to a transfer
agreement, as well as all financed Eligible Loans at the time held under the
indenture. Such information may include the composition of the financed Eligible
Loans, the distribution by loan type, the distribution by interest rates, the
distribution by outstanding principal balance, the distribution by geography,
the distribution by insurance or guarantee level, the distribution by school
type, the distribution by guarantee agency, in the case of FFELP Loans, the
distribution by remaining term to scheduled maturity and the distribution by
borrower payment status. See "The Financed Eligible Loans" in the accompanying
prospectus supplement.
Each of the FFELP Loans provides or will provide for the amortization of
the outstanding principal balance of such financed Eligible Loan over a series
of payments. Each payment consists of an installment of interest which is
calculated on the basis of the outstanding principal balance of such financed
Eligible Loan multiplied by the applicable interest rate and further multiplied
by the period elapsed, as a fraction of a calendar year, since the preceding
payment of interest was made. As payments are received in respect of such
financed Eligible Loan, the amount received is applied first to interest accrued
to the date of payment and the balance is applied to reduce the unpaid principal
balance. Accordingly, if a borrower pays a regular installment before its
scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be less than it would have been
had the payment been made as scheduled, and the portion of the payment applied
to reduce the unpaid principal balance will be correspondingly greater.
Conversely, if a borrower pays a monthly installment after its scheduled due
date, the portion of the payment allocable to interest for the
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period since the preceding payment was made will be greater than it would have
been had the payment been made as scheduled, and the portion of the payment
applied to reduce the unpaid principal balance will be correspondingly less. In
either case, subject to any applicable grace periods, deferment periods or
forbearance periods, the borrower pays an installment until the final scheduled
payment date, at which time the amount of the final installment is increased or
decreased as necessary to repay the then outstanding principal balance of such
financed Eligible Loan. The Alternative Loans may contain different amortization
provisions.
The indenture also permits the financing of student loans from moneys in
the Surplus Account under some circumstances. Such student loans are not
required to be Eligible Loans. See "Description of the Indenture--Funds and
Accounts--Surplus Fund."
Transfer Agreements
The trustee, EdLinc and the transferor will enter into a transfer agreement
in connection with the issuance of each series of notes. Pursuant to the
transfer agreement, the transferor will transfer to the trustee, on behalf of
EdLinc, Eligible Loans upon payment of the purchase price, equal to the
principal amount plus accrued interest and, in the case of FFELP Loans, Special
Allowance Payments, plus, to the extent permitted by the indenture, a premium,
from proceeds of the notes deposited in the Acquisition Fund. The transferor
will also transfer all of its rights under the transferor student loan purchase
agreements pursuant to which such Eligible Loans were acquired by the
transferor.
The transferor will make no representations or warranties as to the
Eligible Loans so transferred, and will have no obligation to repurchase any
such loans. If there is a problem with an Eligible Loan that is attributable to
a breach of a representation or warranty of the lender or SLFC under the related
transferor student loan purchase agreement, the lender or SLFC may be obligated
to repurchase such Eligible Loan. See "Description of Financing of Eligible
Loans--Student Loan Purchase Agreements."
Student Loan Purchase Agreements
EdLinc may enter into student loan purchase agreements with lenders, as to
FFELP Loans, and SLFC, as to Alternative Loans, for the purchase of Eligible
Loans to be financed with the proceeds of each series of notes. These student
loan purchase agreements are referred to as EdLinc student loan purchase
agreements in this prospectus. In addition, the transferor will enter into
student loan purchase agreements with lenders, as to FFELP Loans, and SLFC, as
to Alternative Loans, for the purchase of Eligible Loans. These student loan
purchase agreements are referred to as transferor student loan purchase
agreements in this prospectus. All Eligible Loans transferred to the trustee, on
behalf of EdLinc, pursuant to any transfer agreement will have been purchased by
the transferor pursuant to a transferor student loan purchase agreement. Upon
the transfer to the trustee, on behalf of EdLinc, by the transferor of Eligible
Loans pursuant to a transfer agreement, the transferor will also transfer its
rights under the related transferor
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student loan purchase agreements. EdLinc's right, title and interest in the
student loan purchase agreements will be pledged to the trustee.
EdLinc student loan purchase agreements will provide for the purchase by
the trustee on behalf of EdLinc, of Eligible Loans at 100% of their outstanding
unpaid principal amount, plus accrued interest thereon payable by the borrower.
EdLinc student loan purchase agreements will require the lender, in the case of
FFELP Loans, to report and offset against its Interest Subsidy and Special
Allowance Payments all authorized origination fees. Under some circumstances,
the trustee will also pay to the lender and SLFC reasonable transfer,
origination or assignment fees and a premium to the extent permitted by the
indenture. See "Description of the Indenture--Funds and Accounts--Acquisition
Fund."
Each lender and SLFC makes representations as to the validity,
enforceability and transferability of each Eligible Loan and as to the legal
authority of the lender or SLFC, as applicable, to engage in the transactions
contemplated by the respective student loan purchase agreement. In addition,
each lender, with respect to each FFELP Loan purchased under a student loan
purchase agreement, has represented or will represent that at the date of sale
by the lender, each FFELP Loan was or will be Guaranteed.
The student loan purchase agreements provide that if any representation
furnished by a lender or SLFC with respect to an Eligible Loan sold to the
transferor or the trustee proves to have been materially incorrect, or, in the
case of a FFELP Loan, if the guarantee agency refuses to honor all or part of a
guarantee claim filed with respect to thereto on account of any circumstance or
event occurring prior to the sale of such FFELP Loan to the transferor or the
trustee, or under some other circumstances specified in the student loan
purchase agreement, the lender or SLFC, as applicable, shall repurchase such
loan at a price equal to the then outstanding principal balance, plus accrued
interest and, in the case of a FFELP Loan, Special Allowance Payments, plus any
expenses incurred by the transferor or the trustee in connection therewith and
any other amounts paid to the lender or SLFC, as applicable, by the transferor
or the trustee in connection with the acquisition of such loan.
Servicing and Due Diligence
The servicer will service student loans acquired by the trustee under the
indenture. EdLinc will covenant in the indenture to cause a servicer to
administer and collect all financed Eligible Loans in a competent, diligent and
orderly fashion, and in accordance with all requirements of the Higher Education
Act, the Secretary of Education, the indenture, the federal reimbursement
contracts, the Guarantee Agreements and the Alternative Loan Programs.
The Higher Education Act requires that the transferor, the trustee, in its
capacity as eligible lender, a lender and their agents, including the servicer,
and employees exercise due diligence in the making, servicing and collection of
financed FFELP Loans and that a guarantee agency exercise due diligence in
collecting loans which it holds. The Higher Education Act defines due diligence
as requiring the holder of a student loan to utilize servicing and collection
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practices at least as extensive and forceful as those generally practiced by
financial institutions for the collection of consumer loans, and requires that
specified collection actions be taken within specified time periods with respect
to a delinquent loan or defaulted loan. The guarantee agencies have established
procedures and standards for due diligence to be exercised by each guarantee
agency and by lenders, including the trustee, which hold loans that are
guaranteed by the respective guarantee agencies. The trustee, a lender or a
guarantee agency may not relieve itself of its responsibility for meeting these
standards by delegation to any servicing agent. Accordingly, if a lender or the
servicer fails to meet such standards, the trustee's ability to realize the
benefits of guarantee payments, and, with respect to student loans eligible for
such payments, Interest Subsidy Payments and Special Allowance Payments may be
adversely affected. If a guarantee agency fails to meet such standards, that
guarantee agency's ability to realize the benefits of federal reinsurance
payments may be adversely affected.
To the extent provided in the servicing agreement, the servicer may enter
into sub-servicing agreements with one or more sub-servicers providing for the
sub-servicers to perform some or all of the obligations of the servicer with
respect to servicing the financed student loans. See "Description of the SLFC
Servicing Agreement--Sub-Servicers."
DESCRIPTION OF THE FFEL PROGRAM
General
The Higher Education Act sets forth provisions establishing the FFEL
Program, pursuant to which state agencies or private nonprofit corporations
administering student loan insurance programs are reimbursed for losses
sustained in the operation of their programs, and holders of some loans made
under such programs are paid subsidies for owning such loans.
The Higher Education Act currently authorizes some student loans to be
covered under the FFEL Program if they are contracted for and paid to the
student prior to September 30, 2004, unless a student has received a loan under
the FFEL Program prior to such date, in which case that student may receive a
student loan covered by the FFEL Program until September 30, 2008. Congress has
extended similar authorization dates in prior versions of the Higher Education
Act; however, there can be no assurance that the current authorization dates
will again be extended or that the other provisions of the Higher Education Act
will be continued in their present form.
Various amendments to the Higher Education Act have revised the FFEL
Program from time to time. These amendments include, but are not limited to, the
Higher Education Amendments of 1998, the Intermodal Surface Transportation
Efficiency Act of 1998, the Balanced Budget Act of 1997, the Higher Education
Technical Amendments Act of 1993, the Omnibus Budget Reconciliation Act of 1993,
the Higher Education Amendments of 1992, which reauthorized the FFEL Program,
the Omnibus Budget Reconciliation Act of 1990, the Omnibus Budget Reconciliation
Act of 1989, the Omnibus Budget Reconciliation Act of 1987, the Higher Education
Technical Amendments Act of 1987, the Higher Education Amendments of 1986, which
reauthorized the FFEL Program, the Consolidated Omnibus Budget Reconciliation
Act of
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1985, the Postsecondary Student Assistance Amendments of 1981 and the Education
Amendments of 1980.
There can be no assurance that relevant federal laws, including the Higher
Education Act, will not be changed in a manner that may adversely affect the
receipt of funds by the guarantee agencies or by the trustee with respect to
financed FFELP Loans.
This is only a summary of some provisions of the Higher Education Act.
Reference is made to the text of the Higher Education Act for full and complete
statements of its provisions.
Loan Terms
General
Four types of loans are currently available under the FFEL Program:
Stafford Loans, Unsubsidized Stafford Loans, Plus Loans and Consolidation Loans.
These loan types vary as to eligibility requirements, interest rates, repayment
periods, loan limits and eligibility for Interest Subsidy and Special Allowance
Payments. Some of these loan types have had other names in the past. References
herein to the various loan types include, where appropriate, predecessors to
such loan types.
The primary loan under the FFEL Program is the Stafford Loan. Students who
are not eligible for Stafford Loans based on their economic circumstances may be
able to obtain Unsubsidized Stafford Loans. Parents of students may be able to
obtain Plus Loans. Consolidation Loans are available to borrowers with existing
loans made under the FFEL Program and some other federal programs to consolidate
repayment of such existing loans. For periods of enrollment beginning prior to
July 1, 1994, SLS Loans were available to students with costs of education that
were not met by other sources and that exceeded the Stafford or Unsubsidized
Stafford Loan limits.
Eligibility
General. A student is eligible for loans made under the FFEL Program only
if he or she:
(1) has been accepted for enrollment or is enrolled in good standing
at an eligible institution of higher education, which term includes some
vocational schools,
(2) 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, which, in the case of a loan to cover the
cost of a period of enrollment beginning on or after July 1, 1987, must
either lead to a recognized educational credential or be necessary for
enrollment in a course of study that leads to such a credential,
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(3) has agreed to notify promptly the holder of the loan concerning
any change of address,
(4) if presently enrolled, is maintaining satisfactory progress in the
course of study he or she is pursuing,
(5) does not owe a refund on, and is not, except as specifically
permitted under the Higher Education Act, in default under, any loan or
grant made under the Higher Education Act,
(6) has filed with the eligible institution a statement of educational
purpose,
(7) meets citizenship requirements, and
(8) except in the case of a graduate or professional student, has
received a preliminary determination of eligibility or ineligibility for a
Pell Grant.
The educational institution generally determines and documents the amount
of need for a loan and provides the lender with a statement containing
information relating to the loan amount for which a borrower is eligible. The
specific requirements of these determinations of need and statements to lenders
vary based on the type of loan, for example, Stafford, Unsubsidized Stafford or
Plus, and the requirements applicable at the time a loan was made. The amount of
such need is generally based on the student's estimated cost of attendance, the
estimated financial assistance available to such student and, for Stafford
Loans, the expected family contribution with respect to the student, all of
which are computed in accordance with standards set forth in the Higher
Education Act.
Stafford Loans. Stafford Loans generally are made only to student borrowers
who meet financial needs tests.
Unsubsidized Stafford Loans. Unsubsidized Stafford Loans generally are made
to student borrowers without regard to financial need. Unsubsidized Stafford
Loans were not available before October 1, 1992.
Plus Loans. Plus Loans are made only to borrowers who are parents, and,
under some 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. Prior to the Higher
Education Amendments of 1986, the Higher Education Act did not distinguish
between Plus Loans and SLS Loans. Student borrowers were eligible for Plus
Loans; however, parents of graduate and professional students were ineligible.
SLS Loans. Eligible borrowers for SLS Loans were limited to (a) graduate or
professional students, (b) independent undergraduate students, and (c) under
some circumstances,
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dependent undergraduate students, if such students' parents were unable to
obtain a Plus Loan and were also unable to provide such students' expected
family contribution. Except as described in clause (c), eligibility was
determined without regard to need.
Consolidation Loans. To be eligible for a Consolidation Loan a borrower
must (a) have outstanding indebtedness on student loans made under the FFEL
Program or under any of the programs relating to the following student loans:
Federal Direct Student Loans, federally insured student loans, Perkins loans,
health professions student loans, nursing student loans or health education
assistance loans, (b) be in repayment status or in a grace period, or be a
defaulted borrower who has made arrangements to repay the defaulted loan(s)
satisfactory to the holder of the defaulted loan(s), and (c) effective October
1, 1998, not be subject to a judgment secured through litigation with respect to
some Higher Education Act loans or some wage garnishment orders. 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. Various additional
limitations on the amount and type of loans that could be consolidated applied
to loans made prior to July 1, 1994.
Interest Rates
The Higher Education Act 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 FFEL Program. The Higher Education Act allows
lesser rates of interest to be charged. Many lenders, including the transferor,
have offered repayment incentives or other programs that involve reduced
interest rates on some loans made under the FFEL Program.
Stafford Loans. For a 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 loan which was made,
insured or guaranteed under the FFEL Program (a "New Borrower"):
(a) is 7% per annum for a loan covering a period of instruction
beginning before January 1, 1981;
(b) is 9% per annum for a loan covering a period of instruction
beginning on or after January 1, 1981, but before September 13, 1983;
(c) is 8% per annum for a loan covering a period of instruction
beginning on or after September 13, 1983, but before July 1, 1988;
(d) for a loan made prior to October 1, 1992, covering a period of
instruction beginning on or after July 1, 1988, 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, and thereafter shall be adjusted annually,
and for any 12-month period commencing on a July 1 shall be
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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
(e) 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 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 FFEL Program (a "Repeat Borrower"):
(f) for a loan made prior to July 23, 1992 is the applicable interest
rate on the previous loan or, if such previous loan is not a Stafford Loan,
8% per annum; or
(g) for a loan made on or after 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:
(i) 7% per annum in the case of a Stafford Loan made to a
borrower who has a loan described in clause (a) above;
(ii) 8% per annum in the case of (A) a Stafford Loan made to a
borrower who has a loan described in clause (c) above, (B) a 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 (d) above or (C) a
Stafford Loan for which the first disbursement was made prior to
December 20, 1993 to a borrower whose previous loans do not include a
Stafford Loan or an Unsubsidized Stafford Loan;
(iii) 9% per annum in the case of (A) a Stafford Loan made to a
borrower who has a loan described in clauses (b) or (e) above or (B) a
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
Stafford Loan or an Unsubsidized Stafford Loan; and
(iv) 10% per annum in the case of a 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 (d) above.
The interest rate on all 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
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described in clause (g) above, except that such rate shall not exceed 8.25% per
annum. For any 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 such periods, the formula described in clause (g)
above is applied, except that 2.5% is substituted for 3.1%, and the rate shall
not exceed 8.25% per annum.
For Stafford Loans made on or after July 1, 1998 but before October 1,
2003, 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
preceding June 1, plus (x) 1.7% per annum prior to the time the loan enters
repayment and during any deferment periods, and (y) 2.3% per annum during
repayment, but not to exceed 8.25% per annum.
For Stafford Loans made on or after July 1, 2003, the applicable rate will
continue to be adjusted annually, but for any 12-month period commencing on a
July 1 will be equal to the bond equivalent rate of securities with a comparable
maturity (as established by the Secretary of Education), plus 1% per annum, but
not to exceed 8.25% per annum.
Unsubsidized Stafford Loans. Unsubsidized Stafford Loans are subject to the
same interest rate provisions as Stafford Loans.
Plus Loans. The applicable interest rate on a Plus Loan:
(a) made on or after January 1, 1981, but before October 1, 1981, is
9% per annum;
(b) made on or after October 1, 1981, but before November 1, 1982, is
14% per annum;
(c) made on or after November 1, 1982, but before July 1, 1987, is 12%
per annum;
(d) 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);
(e) 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);
(f) made on or after July 1, 1994, but before July 1, 1998, is the
same as that described in clause (e) above, except that such rate shall not
exceed 9% per annum; or
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(g) made on or after July 1, 1998, but before July 1, 2003, 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).
For Plus Loans made on or after July 1, 2003, the applicable rate will
continue to be adjusted annually, but for any 12-month period commencing on a
July 1 will be equal to the bond equivalent rate of securities with a comparable
maturity, as established by the Secretary of Education, plus 2.1% per annum, but
not to exceed 9% per annum.
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 so to refinance such loan) at a variable
interest rate. In such a case, proceeds of the new loan are used to discharge
the original loan.
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.
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 (a) on or after November 13, 1997
but 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, or (b) on or after October 1, 1998 but before July 1, 2003, the interest
rate shall be an annual rate equal to the weighted average of the interest rates
on the loans being consolidated, rounded upward to the nearest higher 1/8 of 1
percent, 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 the HEAL Program 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. For a discussion of
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required payments that reduce the return on Consolidation Loans, see
"--Fees--Rebate Fees on Consolidation Loans" below.
Loan Limits
Each type of loan, other than Consolidation Loans, which are limited only
by the amount of eligible loans to be consolidated, is subject to limits as to
the maximum principal amount, both with respect to a given year and in the
aggregate. All of the loans are limited to the difference between the cost of
attendance and the other aid available to the student. Stafford Loans are also
subject to limits based upon the needs analysis as described above under
"--Eligibility--Stafford Loans." Additional limits are described below.
Stafford and Unsubsidized Stafford Loans. Except as described in the next
paragraph, Stafford and Unsubsidized 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 such 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 such programs
are less than one year in length. A graduate or professional student may borrow
up to $8,500 in an academic year. The 1998 Reauthorization Amendments to the
Higher Education Act establish special loan limits for some students taking
courses that may lead to enrollment in undergraduate ($2,625 for Stafford and
$4,000 for Unsubsidized Stafford) or in graduate or professional ($5,500 for
Stafford and $5,000 for Unsubsidized Stafford) degree or certificate programs,
or necessary for professional credential or certification from a state required
for employment as an elementary or secondary school teacher ($5,500 for Stafford
and $5,000 for Unsubsidized Stafford). 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 is
authorized to increase the limits applicable to graduate and professional
students who are pursuing programs which the Secretary determines to be
exceptionally expensive.
Under the 1993 Amendments to the Higher Education Act, at the same time
that SLS Loans were eliminated, the loan limits for Unsubsidized Stafford Loans
to independent students, or dependent students whose parents cannot borrow a
Plus Loan, were increased by amounts equal to the prior SLS Loan limits (as
described below under "--SLS Loans"). Prior to the enactment of the Higher
Education Amendments of 1992, the annual and aggregate loan limits were
generally lower.
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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 to which SLS Loans were then
subject (see "--SLS Loans" below), applied with respect to each student on
behalf of whom the parent borrowed.
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 such 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 and $73,000 for graduate and
professional students. Prior to the 1992 changes, the annual and aggregate loan
limits for SLS Loans were generally lower. The 1989 changes limited the amount
of SLS Loans for students enrolled in programs of less than an academic year in
length, similar to the limits described above under "--Stafford Loans," and such
limits were continued by the 1992 Amendments.
Repayment
Except for loans to some new borrowers on or after October 7, 1998, loans
made under the FFEL Program, other than Consolidation Loans, generally must
provide for repayment of principal in periodic installments over a period of not
less than five nor more than ten years. 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 no 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. The 1998 Reauthorization
Amendments provide that, effective October 1, 1998, a lender must offer the
borrower of a Stafford Loan or an Unsubsidized Stafford Loan, not more than six
months prior to the date on which the borrower's first payment is due, the
option of repaying the loan in accordance with a standard, graduated,
income-sensitive, or extended repayment schedule established by the lender in
accordance with regulations of the Secretary of Education. The borrower may
choose from:
o a standard repayment plan, with a fixed annual repayment amount paid
over a fixed period of time, not to exceed 10 years;
o a graduated repayment plan paid over a fixed period of time, not to
exceed 10 years;
o an income-sensitive repayment plan, with income-sensitive repayment
amounts paid over a fixed period of time, not to exceed 10 years,
except that the borrower's scheduled payments shall not be less than
the amount of interest due; and
o for new borrowers on or after October 7, 1998 who accumulate (after
such date) outstanding loans under the FFEL Program totaling more than
$30,000, an extended repayment plan, with a fixed annual or graduated
repayment amount paid over an
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extended period of time, not to exceed 25 years, except that the
borrower shall repay a minimum annual amount as described in the next
paragraph.
If a borrower does not select a repayment plan, the lender shall provide the
borrower with a standard repayment plan. Once established, the borrower may
annually change the selection of a repayment plan.
The repayment period commences
o not more than twelve months after the borrower ceases to pursue at
least a half-time course of study with respect to Stafford Loans for
which the applicable rate of interest is 7% per annum,
o not more than six months after the borrower ceases to pursue at least
a half-time course of study with respect to other Stafford Loans and
Unsubsidized Stafford Loans (the six month or twelve month periods are
the grace periods) and
o on the date of final disbursement of the loan in the case of SLS, Plus
and Consolidation Loans, except that the borrower of an SLS Loan who
also has a Stafford or Unsubsidized Stafford Loan may defer repayment
of the SLS Loan to coincide with the commencement of repayment of the
Stafford or Unsubsidized Stafford Loan.
The six month grace period excludes any period not in excess of three years
during which a borrower who is a member of the Armed Forces reserves is called
or ordered to active duty for a period of more than 30 days, which period of
exclusion includes the period necessary to resume enrollment at the borrower's
next available regular enrollment period. 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, except that a
borrower and lender may agree at any time before or during the repayment period
that repayment may be at a lesser rate or the interest that accrues during the
year. 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 are entitled to accelerate, without penalty, the
repayment of all or any part of the loan.
In addition, 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.
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.
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No principal repayments need be made during 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 as follows:
(1) 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;
(2) during a period not in excess of three years while the borrower is
a volunteer under the Peace Corps Act,;
(3) during a period not in excess of three years while the borrower is
a full-time volunteer under the Domestic Volunteer Act of 1973;
(4) during a period not exceeding three years while the borrower is in
service, comparable to the service referred to in clauses (2) and (3), as a
full-time volunteer for an organization which is exempt from taxation under
Section 501(c)(3) of the Internal Revenue Code;
(5) during a period not exceeding two years while the borrower is
serving an internship, the successful completion of which is required to
receive professional recognition required to begin professional practice or
service, or a qualified internship or residency program;
(6) 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;
(7) during a period not to exceed twenty-four months while the
borrower is seeking and unable to find full-time employment;
(8) 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 FFEL
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;
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(9) during a period, not in excess of 6 months, while the borrower is
on parental leave; and
(10) 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,
o 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
o 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 as follows:
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;
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 the deferment periods described above in clauses (6) and (7), with
respect to the parent borrower, and the deferment period described in clause
(8), with respect to the parent borrower or a student on whose behalf the parent
borrowed, were available to Plus Loan borrowers, and only the deferment periods
described above in clauses (6), (7) and (8) were available to Consolidation Loan
borrowers. Prior to the 1986 changes, Plus Loan borrowers were not entitled to
deferment periods. Deferment periods extend the maximum repayment periods.
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 FFEL Program, equals or exceeds
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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 when
exceptional circumstances such as a local or national emergency or military
mobilization exist; 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. The 1998 Reauthorization Amendments authorize forbearance for up to 60
days if the lender reasonably determines that such a suspension of collection
activity is warranted following a borrower's request for deferment, forbearance,
a change in repayment plan, or a request to consolidate loans, in order to
collect or process appropriate supporting documentation related to the request,
during which period interest shall accrue but not be capitalized. In other
circumstances, forbearance is at the lender's option. Such forbearance also
extends the maximum repayment periods.
As described under "--Contracts with Guarantee Agencies--Federal Interest
Subsidy Payments" below, the Secretary of Education makes interest payments on
behalf of the borrower of some 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, added to the principal balance, not
more frequently than quarterly. Interest on Unsubsidized Stafford Loans
disbursed on or after October 7, 1998, that accrues during such periods,
however, may be capitalized only when the loan enters repayment, at the
expiration of the grace period, if the loan qualifies for grace period, the
deferment period or the forbearance period, or when the borrower defaults.
The Secretary of Education has proposed regulations which will, if
finalized in their current form, apply the new capitalization rules that apply
to Unsubsidized Stafford Loans disbursed on or after October 7, 1998, to
Stafford Loans disbursed on or after July 1, 2000, as they relate to interest
accruing during forbearance periods not covered by Interest Subsidy Payments. In
addition, such regulations will, if finalized in their current form, permit
capitalization to occur on Unsubsidized Stafford Loans (and Stafford Loans with
respect to Forbearance) disbursed on or after July 1, 2000, at the end of each
covered period rather than at the end of a series of consecutive covered
periods.
Disbursement
Loans made under the FFEL Program, except Consolidation Loans, generally
must be disbursed in two or more installments, none of which may exceed 50% of
the total principal amount of the loan.
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
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each installment payment of the proceeds of the loan to the borrower. Guarantee
fees may not currently be charged to borrowers of Consolidation Loans. However,
lenders may be charged an insurance fee to cover the costs of increased or
extended liability with respect to Consolidation Loans.
Origination Fee. An eligible lender is authorized to charge the borrower of
a Stafford, Unsubsidized Stafford or Plus Loan an origination fee in an amount
not to exceed 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 and are not retained by the lender, but must be
passed on to the Secretary of Education. Effective October 1, 1998, eligible
lenders that charge origination fees must assess the same fees to all student
borrowers, unless a borrower demonstrates greater financial need based on
income. The Balanced Budget and Deficit Control Act of 1985, as amended, known
as the Gramm-Rudman Law, requires the President to issue a sequester order for
any federal fiscal year in which the projected budget exceeds the target for
that year. For all FFEL Program loans made during the period when a
sequestration order is in effect, origination fees shall be increased by 0.50
percentage point.
Lender Loan Fee. The lender of any loan under the FFEL 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.
The Secretary of Education is authorized to collect from the lender or a
subsequent holder of the loan the maximum origination fee authorized to be
charged by the lender, regardless of whether the lender actually charges the
borrower, and the lender loan fee, either through reductions in Special
Allowance Payments and Interest Subsidy Payments or directly from the lender or
holder.
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, such Consolidation Loan; provided that, for
Consolidation Loans based on applications received during the period from
October 1, 1998 through January 31, 1999, the monthly fee shall equal .0517%
(0.62% per annum).
Loan Guarantees
Under the FFEL Program, guarantee agencies are required to guarantee the
payment of not less than 98% of the principal amount of loans made on or after
October 1, 1993 and not less than 100% of the principal amount of loans made
prior to October 1, 1993 and covered by their respective guarantee programs. For
a description of the requirements for loans to be covered by such guarantees,
see "Description of the Guarantee Agencies." Under some circumstances,
guarantees may be assumed by the Secretary of Education or another guarantee
agency. See "--Contracts with Guarantee Agencies" below.
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Contracts with Guarantee Agencies
Under the FFEL Program, the Secretary of Education is authorized to enter
into guaranty and interest subsidy agreements with guarantee agencies. The FFEL
Program provides for reimbursements to guarantee agencies for default claims
paid by guarantee agencies, support payments to guarantee agencies for
administrative and other expenses, advances for a guarantee agency's reserve
funds, and Interest Subsidy Payments and Special Allowance Payments to the
holders of qualifying student loans made pursuant to the FFEL Program.
The 1998 Reauthorization Amendments significantly modify requirements
regarding guarantee agencies' reserves and sources of revenues and authorized
the Secretary of Education to enter into agreements with guarantee agencies
which modify or waive many of the requirements of the FFEL Program covered under
existing agreements and otherwise required by the Higher Education Act. See
"Description of the Guarantee Agencies--1998 Reauthorization Amendments."
The Secretary of Education has oversight powers over guarantee agencies.
Guarantee agencies are required to maintain their Federal Funds, as defined
below, at a current minimum reserve level of at least 0.25 percent of the total
amount of all outstanding loans guaranteed by such Agency, excluding some loans
transferred to the guarantee agency from an insolvent guarantee agency pursuant
to a plan of the Secretary of Education. If a guarantee agency falls below the
required level in two consecutive years, its claims rate exceeds 5% in any year,
or the Secretary of Education determines that the Agency's administrative or
financial condition jeopardizes its ability to meet its obligations, the
Secretary of Education can require the guarantee agency to submit and implement
a plan by which it will correct such problem(s). If a guarantee agency fails to
timely submit an acceptable plan or fails to improve its condition, or if the
Secretary of Education determines that the guarantee agency is in danger of
financial collapse, the Secretary of Education may terminate the guarantee
agency's reimbursement contract. The Secretary of Education also may terminate
such reimbursement contracts if the Secretary of Education determines that such
action is necessary to protect the federal fiscal interest or to ensure
continued availability of student loans.
The Secretary of Education is authorized to assume the guarantee
obligations of a guarantee agency. The Higher Education Act now provides that,
if the Secretary terminates a guarantee agency's agreements under the FFEL
Program, the Secretary shall assume responsibility for all functions of the
guarantee agency under its program. To that end, the Secretary is authorized to,
among other options, transfer the guarantees to another guarantee agency or
assume the guarantees. It also provides that in the event the Secretary has
determined that a guarantee agency is unable to meet its guarantee obligations,
holders of loans guaranteed by such guarantee agency may submit claims directly
to the Secretary for payment, unless the Secretary has provided for the
assumption of such guarantees by another guarantee agency.
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Federal Reimbursement
A guarantee 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. See "Description of the Guarantee Agencies--Federal
Agreements." Under the Higher Education Act and the federal reimbursement
contracts, as described under "Description of the Guarantee Agencies--Federal
Agreements", the Secretary of Education currently agrees to reimburse a
guarantee agency for the amounts expended by the guarantee agency in the
discharge of its guarantee obligation (i.e., the unpaid principal balance of and
accrued interest on loans guaranteed by the guarantee agency, which loans are
referred to as guaranteed loans) as a result of the default of the borrower. The
Secretary of Education currently agrees to reimburse the guarantee agency for up
to 100% of the amounts so expended with respect to loans made prior to October
1, 1993; 98% of the amount expended with respect to guaranteed loans made on or
after October 1, 1993 but before October 1, 1998; and 95% of the amount expended
with respect to guaranteed loans made on or after October 1, 1998. Depending on
the claims rate experience of a guarantee agency, such 100%, 98% or 95%
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 some circumstances,
as a result of school closures, or if a school fails to make a refund of loan
proceeds which the school owed to a student's lender, 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 for computing the percentage of federal reimbursement under the
federal reimbursement contracts is not accumulated over a period of years but is
measured by the amount of federal reimbursement payments in any one federal
fiscal year as a percentage of the original principal amount of loans under the
FFEL Program guaranteed by the guarantee agency and in repayment at the end of
the preceding fiscal year. Under the formula, federal reimbursement payments to
a guarantee agency in any one fiscal year not exceeding 5% of the original
principal amount of loans in repayment at the end of the preceding fiscal year
are to be paid by the Secretary of Education at 100% for loans made before
October 1, 1993; 98% for loans made on or after October 1, 1993 but before
October 1, 1998; and 95% for loans made on or after October 1, 1998. Beginning
at any time during any fiscal year that federal reimbursement payments exceed
5%, and until such time as they may exceed 9%, of the original principal amount
of loans in repayment at the end of the preceding fiscal year, then
reimbursement payments on claims submitted during that period are to be paid at
90% for loans made before October 1, 1993; 88% for loans made on or after
October 1, 1993 but before October 1, 1998; and 85% for loans made on or after
October 1, 1998. Beginning at any time during any fiscal year that federal
reimbursement payments exceed 9% of the original principal amount of loans in
repayment at the end of the preceding fiscal year, then such payments for the
balance of that fiscal year will be paid at 80% for loans made before October 1,
1993; 78% for loans made on or after October 1,
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1993 but before October 1, 1998; and 75% for loans made on or after October 1,
1998. The original principal amount of loans in repayment for purposes of
computing reimbursement payments to a guarantee agency means the original
principal amount of all loans guaranteed by such guarantee agency less: (1)
guarantee payments on such loans, (2) the original principal amount of such
loans that have been fully repaid, and (3) the original principal amount of such
loans for which the first principal installment payment has not become due or
such first installment need not be paid because of a deferment period.
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 (1) a percentage amount equal to the complement of
the reimbursement percentage in effect at the time the loan was reimbursed, and
(2) an amount equal to 24%, or 23% beginning on October 1, 2003, and 18 1/2% in
the case of a payment from the proceeds of a Consolidation Loan, of such
payments for some 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, which addendum provides for the guarantee agency to refer to the
Secretary of Education some defaulted guaranteed loans. Such loans are then
reported to the Internal Revenue Service 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 Section 428F of 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.
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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 Section
428(b) of the Higher Education Act.
Under the Higher Education Act, a guaranteed loan, for which the first day
of delinquency is on or after October 7, 1998, must be delinquent for 270 days
if it is repayable in monthly installments or 330 days if it is payable in less
frequent installments before a lender may obtain payment on a guarantee from the
guarantee agency. These time periods are 180 days and 240 days, respectively,
for loans for which the first day of delinquency is before October 7, 1998. 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 that completed loan applications be
processed, a determination of whether an applicant is an eligible borrower
attending an eligible institution under the Higher Education Act be made, the
borrower's responsibilities under the loan be explained to him or her, the
promissory note evidencing the loan be executed by the borrower and 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
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.
Federal Interest Subsidy Payments
Interest Subsidy Payments are interest payments paid with respect to an
eligible loan during the period prior to the time that the loan enters repayment
and during grace and deferment periods. The Secretary of Education and the
guarantee agencies entered into the interest subsidy agreements as described in
"Description of the Guarantee Agencies--Federal Agreements," where the Secretary
of Education agrees to pay Interest Subsidy Payments to the holders of eligible
guaranteed loans for the benefit of students meeting applicable requirements,
subject to the holders' compliance with all requirements of the Higher Education
Act. Only 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 are Stafford Loans,
except that Consolidation Loans for which the application is received by an
eligible lender on or after
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November 13, 1997, are eligible for Interest Subsidy Payments on that portion of
the Consolidation Loan that repays 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, including the borrower eligibility, loan amount, disbursement, interest
rate, repayment period and guarantee fee provisions described herein and the
other requirements set forth in Section 428(b) of 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.
Federal Advances
Pursuant to agreements entered into between the guarantee agencies and the
Secretary of Education under Sections 422 and 422(c) of the Higher Education
Act, the Secretary of Education was authorized to advance moneys from time to
time to the guarantee agencies for the purpose of establishing and strengthening
the guarantee agencies' reserves. Section 422(c) currently authorizes the
Secretary of Education to make advances to guarantee agencies in various
circumstances, on terms and conditions satisfactory to the Secretary, including
if the Secretary is seeking to terminate the guarantee agency's reimbursement
contract or assume the guarantee agency's functions, to assist the guarantee
agency in meeting its immediate cash needs or to ensure the uninterrupted
payment of claims.
Federal Special Allowance Payments
The Higher Education Act provides for the payment by the Secretary of
Education of additional subsidies, called Special Allowance Payments, to holders
of qualifying student loans. The amount of the Special Allowance Payments, which
are made on a quarterly basis, is computed by reference to the average of the
bond equivalent rates of the 91-day Treasury bills auctioned during the
preceding quarter. The quarterly rate for Special Allowance Payments for student
loans made on or after October 1, 1981 is computed by subtracting the applicable
interest rate on such loans from the T-Bill Rate, adding a percent specified by
the Higher Education Act (the "Applicable SAP Percent") to the resulting
percent, and dividing the resulting percent by four. The Applicable SAP Percent
varies based on the type of loan and when the loan was made, often determined by
when the first disbursement was made. In general, the Applicable SAP Percent:
o for loans made before November 16, 1986, is 3.5%;
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o for loans made on or after November 16, 1986, or loans to cover the
costs of instruction for periods of enrollment beginning on or after
November 16, 1986, but made before October 1, 1992, is 3.25%;
o for loans made on or after October 1, 1992, is 3.1% (except as noted
below);
o for Stafford and Unsubsidized Stafford Loans made on or after July 1,
1995 but before July 1, 1998, is 2.5% prior to the time such loans
enter repayment and during any deferment periods; or
o for Stafford and Unsubsidized Stafford Loans made on or after July 1,
1998 and before July 1, 2003, is 2.2% prior to the time such loans
enter repayment and during any deferment periods, and 2.8% while such
loans are in repayment.
For loans other than Consolidation Loans made on or after July 1, 2003, the
special allowance formula is to be revised similarly to the manner in which the
applicable interest rate formula is revised, as described above under "--Loan
Terms--Interest Rates--Stafford Loans."
For Plus and SLS Loans which bear interest at rates adjusted annually,
Special Allowance Payments are made only in years during which the interest rate
ceiling on such loans operates to reduce the rate that would otherwise apply
based upon the applicable formula. See "--Loan Terms--Interest Rates--Plus
Loans" and "--SLS Loans" above. Special Allowance Payments are paid with respect
to Plus Loans made on or after July 1, 1994 but before July 1, 1998 only if the
rate that would otherwise apply exceeds 10% per annum, notwithstanding that the
interest rate ceiling on such loans is 9% per annum. For Consolidation Loans for
which the application is received on or after October 1, 1998 but before July 1,
2003, Special Allowance Payments are only made for quarters during which the
T-Bill Rate plus 3.1% exceeds the applicable interest rate on such loans. The
portion, if any, of a Consolidation Loan that repaid a loan made under the HEAL
Program is ineligible for Special Allowance Payments.
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, 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, as described above under "--Loan Terms--Fees--Origination Fee." In
addition, the amount of the lender loan fee described above under "--Loan
Terms--Fees--Lender Loan Fees" is collected by offset to Special Allowance
Payments and Interest Subsidy Payments.
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Federal Student Loan Insurance Fund
The Higher Education Act authorizes the establishment of a Student Loan
Insurance Fund by the Federal government for making the federal insurance and
the federal reimbursement payments on defaulted student loans to guarantee
agencies. If moneys in the fund are insufficient to make the federal payments on
defaults of such loans, the Secretary of Education is authorized, to the extent
provided in advance by appropriation acts, to issue to the Secretary of the
Treasury obligations containing terms and conditions prescribed by the Secretary
of Education and approved by the Secretary of the Treasury, bearing interest at
a rate determined by the Secretary of the Treasury. The Secretary of the
Treasury is authorized and directed by the Higher Education Act to purchase such
obligations.
Direct Loans
The 1993 Amendments authorized a program of direct loans (the "Federal
Direct Student Loan Program") to be originated by schools with funds provided by
the Secretary of Education. Under the Federal Direct Student 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 1993
amendments established volume goals for the Federal Direct Student Loan Program
during academic years 1994 through 1999. The 1998 Reauthorization Amendments
repealed these goals.
The loan terms are generally the same under the Federal Direct Student Loan
Program as under the FFEL Program. At the discretion of the Secretary of
Education, students attending schools that participate in the Federal Direct
Student Loan Program, and their parents, may still be eligible for participation
in the FFEL 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 Federal Direct Student Loan
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 FFEL Program loans, how
many students will seek loans under the Federal Direct Student Loan Program
instead of the FFEL Program. In addition, it is impossible to predict whether
future legislation will eliminate, limit or expand the Federal Direct Student
Loan Program or the FFEL Program.
DESCRIPTION OF THE GUARANTEE AGENCIES
General
The financed Eligible Loans for a series of notes may be guaranteed by any
one or more guarantee agencies identified in the related prospectus supplement.
The following discussion relates to guarantee agencies under the FFEL Program.
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A guarantee agency guarantees loans made to students or parents of students
by lending institutions such as banks, credit unions, savings and loan
associations, some schools, pension funds and insurance companies. A guarantee
agency generally purchases defaulted student loans which it has guaranteed from
its cash and reserves constituting its guarantee fund. A lender may submit a
default claim to the guarantee agency after the student loan has been delinquent
for at least 270 days, unless the first day of delinquency occurred prior to
October 7, 1998, in which case it may be submitted after 180 days of
delinquency. The default claim package must include all information and
documentation required under the FFEL Program regulations and the guarantee
agency's policies and procedures. Under the guarantee agencies' current
procedures, assuming that the default claim package complies with the guarantee
agency's loan procedures manual or regulations, the guarantee agency pays the
lender for a default claim within 90 days of the lender's filing the claim with
the guarantee agency, which generally is expected to be 390 days following the
date a loan becomes delinquent. The guarantee agency will pay the lender
interest accrued on the loan for up to 450 days after delinquency. The guarantee
agency must file a reimbursement claim with the Department of Education within
45 days after the guarantee agency has paid the lender for the default claim.
In general, a guarantee agency's guarantee fund has been funded principally
by administrative cost allowances paid by the Secretary of Education, guarantee
fees paid by lenders, the cost of which may be passed on to borrowers,
investment income on moneys in the guarantee 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.
The Secretary of Education is required to demand payment on September 1,
2002 of a total of one billion dollars from all the guarantee agencies
participating in the FFEL Program. The amounts to be demanded of each guarantee
agency shall be determined in accordance with formulas included in the Higher
Education Act. Each guarantee agency will be required to deposit funds in a
restricted account in installments, beginning in the federal fiscal year ending
September 30, 1998, to provide for such payment. The Secretary of Education has
made the determinations, and advised the guarantee agencies, of the amounts
required to be so transferred by the guarantee agencies. The 1998
Reauthorization Amendments include significant changes affecting the financial
structure of guarantee agencies in the FFEL Program and their sources of
revenue. These changes will affect the guarantee agencies and their guarantee
funds. See "--1998 Reauthorization Amendments" below.
Additionally, the adequacy of a guarantee agency's guarantee 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 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. There
can be no assurance that relevant federal laws, including the Higher Education
Act, will not be further changed in a manner that may adversely affect the
ability of a guarantee agency to meet its guarantee
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obligations. For a more complete description of provisions of the Higher
Education Act that relate to payments described in this paragraph or affect the
funding of a guarantee fund, see "Description of the FFEL Program."
Information relating to the particular guarantee agencies guaranteeing the
financed Eligible Loans will be set forth in the prospectus supplement. Such
information will be provided by the respective guarantee agencies, and neither
such information nor information included in the reports referred to therein has
been verified by, or is guaranteed as to accuracy or completeness by, EdLinc,
the transferor or the underwriters. No representation is made by EdLinc, the
transferor or the underwriters as to the accuracy or adequacy of such
information or the absence of material adverse changes in such information
subsequent to the dates thereof.
Department of Education Oversight
The Higher Education Act gives the Secretary of Education various oversight
powers over guarantee agencies. These include requiring a guarantee agency to
maintain its guarantee fund at a 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 guarantee fund, except to the
extent applicable to the "Operating Fund" described below under "--1998
Reauthorization Amendments," shall be considered to be the property of the
United States to be used in the operation of the FFEL Program or the Federal
Direct Student Loan Program, and, under some circumstances, the Secretary of
Education may demand payment of amounts in the guarantee fund.
Pursuant to Section 432(o) of 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
may submit claims directly to the Department of Education and the Department of
Education is required to pay the full guarantee payment due in accordance with
guarantee claim processing standards no more stringent than those applied by the
guarantee agency. The Department of Education's obligation to pay guarantee
claims directly in this fashion, however, is contingent upon the Department of
Education making the determination referred to above. There can be no assurance
that the Department of Education would ever make such a determination with
respect to a guarantee agency or, if such a determination were made, that such
determination or the ultimate payment of such guarantee claims would be made in
a timely manner. See "Description of the FFEL Program."
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 guarantee fund to the Secretary of Education.
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Federal Agreements
Each guarantee agency and the Secretary of Education have entered into
federal reimbursement contracts pursuant to Section 428(c) of the Higher
Education Act, which include, for older guarantee agencies, a supplemental
contract pursuant to former Section 428A of the Higher Education Act, which
provide for the guarantee agency to receive reimbursement of a portion 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 portion of reimbursement received by the Board of
Regents ranges from 80% to 100% for loans made prior to October 1, 1993; 78% to
98% for loans made on or after October 1, 1993 but before October 1, 1998; and
75% to 95% for loans made on or after October 1, 1998. See "--Effect of Annual
Claims Rate" below. The federal reimbursement contracts provide for termination
under some circumstances and also provide for actions short of termination by
the Secretary of Education to protect the federal interest. See "Description of
the FFEL Program--Contracts with Guarantee Agencies--Federal Reimbursement."
In addition to guarantee benefits, qualified Stafford Loans, and some
Consolidation Loans, acquired under the FFEL Program benefit from federal
subsidies. Each guarantee agency and the Secretary of Education have entered
into an interest subsidy agreement under Section 428(b) of 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 some students while the student is in school, during a six to twelve
month grace period after the student leaves school, and during some deferment
periods, subject to the holders' compliance with all requirements of the Higher
Education Act. See "Description of the FFEL Program--Contracts with Guarantee
Agencies--Federal Interest Subsidy Payments" for a more detailed description of
the Interest Subsidy Payments.
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 since 1986
o abrogated rights of guarantee agencies under contracts with the
Secretary of Education relating to the repayment of advances from the
Secretary of Education,
o authorized the Secretary of Education to withhold reimbursement
payments otherwise due to some 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, and
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o expanded the Secretary of Education's authority to terminate such
contracts and to seize guarantee agencies' reserves.
There can be no assurance that future legislation will not further adversely
affect the rights of the guarantee agencies, or holders of loans guaranteed by a
guarantee agency under such contracts.
Effect of Annual Claims Rate
A guarantee agency's ability to meet its obligation to pay default claims
on financed Eligible Loans will depend on the adequacy of its guarantee fund,
which will be affected by the default experience of all lenders under the
guarantee agency's guarantee program. A high default experience among lenders
participating in a guarantee agency's guarantee program may cause the guarantee
agency's Claims Rate, as defined below, for its guarantee program to exceed the
5% and 9% levels described below, and result in the Secretary of Education
reimbursing the guarantee agency at lower percentages of default claims payments
made by the guarantee agency.
In general, guarantee agencies are currently entitled to receive
reimbursement payments under the federal reimbursement contracts in amounts that
vary depending on the Claims Rate experience of the guarantee agency. The Claims
Rate is computed by dividing total default claims since the previous September
30 by the total original principal amount of the guarantee agency's guaranteed
loans in repayment on such September 30. On October 1 of each year the Claims
Rate begins at zero, regardless of the experience in preceding years. For loans
made prior to October 1, 1993, if the Claims Rate remains equal to or below 5%
within a given federal fiscal year, for example October 1 through September 30,
the Secretary of Education is currently obligated to provide 100% reimbursement;
if and when the Claims Rate exceeds 5% and until such time, if any, as it
exceeds 9% during the fiscal year, the reimbursement rate is at 90%; if and when
the Claims Rate exceeds 9% during the fiscal year, the reimbursement rate for
the remainder of the fiscal year is at 80%. For loans made prior to October 1,
1993, each guarantee agency is currently entitled to at least 80% reimbursement
from the Secretary of Education on default claims that it purchases, regardless
of its Claims Rate. The reimbursement percentages for loans made on or after
October 1, 1993, but before October 1, 1998, are reduced from 100%, 90% and 80%
to 98%, 88% and 78%, respectively. The reimbursement percentages for loans made
on or after October 1, 1998 are further reduced to 95%, 85% and 75%,
respectively. See "Description of the FFEL Program--Federal Reimbursement."
1998 Reauthorization Amendments
General
The 1998 Reauthorization Amendments, enacted October 7, 1998, made various
changes to the Higher Education Act affecting guarantee agencies in the FFEL
Program, including the following:
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o each guarantee agency had to establish a federal student loan reserve
fund (the "Federal Fund") and an agency operating fund (the "Operating
Fund") prior to December 7, 1998, each of which must be funded,
invested and used as prescribed by the 1998 Reauthorization
Amendments;
o each guarantee agency's sources of revenue have been modified;
o additional reserves of guarantee agencies have been recalled; and
o the Secretary of Education and a guarantee agency may enter into
voluntary flexible agreements in lieu of existing agreements.
The following briefly summarizes these changes.
The Federal Fund and the Operating Fund
Each guarantee agency was required to deposit prior to December 7, 1998,
all funds, securities and other liquid assets contained in its reserve fund into
the Federal Fund that it established, which shall be an account selected by the
guarantee agency with the approval of the Secretary of Education. The Federal
Fund, and any nonliquid asset, such as a building or equipment, developed or
purchased by the guarantee agency in whole or in part with federal reserve funds
of the guarantee agency, shall be considered to be property of the United
States, prorated based on the percentage of such asset developed or purchased
with federal reserve funds, which must be used in the operation of the FFEL
Program to pay lender guarantee claims, to pay Default Aversion Fees, as defined
below, into the guarantee agency's Operating Fund, and to the extent permitted,
to make transition payments into the Operating Fund and for other uses permitted
by the Secretary of Education's regulations. The Secretary of Education may
direct a guarantee agency, or its officers and directors, to cease any activity
involving expenditures, use or transfer of the Federal Fund that the Secretary
of Education determines is a misapplication, misuse or improper expenditure of
the Federal Fund or the Secretary of Education's share of such asset. A
guarantee agency is required to maintain in the Federal Fund a current minimum
reserve level of at least 0.25 percent of the total amount of all outstanding
loans guaranteed by such Agency, excluding some loans transferred to the
guarantee agency from an insolvent guarantee agency pursuant to a plan of the
Secretary of Education.
After the Federal Fund is established, the guarantee agency is required to
deposit into the Federal Fund all reinsurance payments received from the
Secretary of Education; from amounts collected from defaulted borrowers, a
percentage amount equal to the complement of the reinsurance percentage in
effect when the guarantee payment was made; all insurance premiums collected
from borrowers; all amounts received from the Secretary of Education as payment
for supplemental preclaims assistance activity performed prior to October 7,
1998; 70 percent of administrative cost allowances received from the Secretary
of Education after October 7, 1998 for loans guaranteed prior to that date; and
other receipts specified in regulations of the Secretary
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of Education. Funds transferred to the Federal Fund are required to be invested
in low-risk securities and all earnings from the Federal Fund shall be the sole
property of the United States.
Each guarantee agency also was required to establish its Operating Fund
prior to December 7, 1998. The 1998 Reauthorization Amendments include various
transition rules allowing a guarantee agency to transfer transition amounts from
its Federal Fund to its Operating Fund from time to time during the first three
years following the establishment of the Operating Fund for use in the
performance of the guarantee agency's duties under the FFEL Program. In
determining the amounts that it may transfer, the guarantee agency must ensure
that sufficient funds remain in the Federal Fund to pay lender claims within the
required time periods and to meet reserve recall requirements. In general, the
transition rules require repayment to the Federal Fund of transition amounts
transferred therefrom to the Operating Fund.
The Operating Fund shall be considered to be the property of the guarantee
agency, except for transition amounts transferred from the Federal Fund. The
Secretary of Education may not regulate the uses or expenditure of moneys in the
Operating Fund, but may require necessary reports and audits, except during any
period in which transition funds are owed to the Federal Fund. During such
period, moreover, moneys in the Operating Fund may only be used for expenses
related to the FFEL Program.
Funds deposited into the Operating Fund shall be invested at the discretion
of the guarantee agency in accordance with prudent investor standards, except
that transition amounts transferred to the Operating Fund from the Federal Fund
must be invested in the same manner as amounts in the Federal Fund. After
establishing the Operating Fund, the guarantee agency shall deposit into the
Operating Fund: Loan Processing and Issuance Fees and Account Maintenance Fees,
as those terms are defined below, paid by the Secretary of Education; Default
Aversion Fees; 30 percent of administrative cost allowances received from the
Secretary of Education after October 7, 1998 for loans guaranteed prior to that
date; 24 percent, decreasing to 23 percent on and after October 1, 2003, of
amounts collected on defaulted loans, excluding such collected amounts required
to be transferred to the Federal Fund; and other receipts specified in
regulations of the Secretary of Education.
In general, funds in the Operating Fund shall be used by the guarantee
agency for application processing, loan disbursement, enrollment and repayment
status management, default aversion activities, default collection activities,
school and lender training, financial aid awareness and related outreach
activities, compliance monitoring, and other student financial aid related
activities, as selected by the guarantee agency. The guarantee agency may
transfer funds from the Operating Fund to the Federal Fund, however, such
transfers are irrevocable and transferred funds would become the property of the
United States.
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Modifications in Sources of Revenue
The 1998 Reauthorization Amendments made the following modifications with
respect to principal sources of guarantee agency revenues:
o reduced reinsurance payment percentages for loans made on and after
October 1, 1998 as described above under "--Effect of Annual Claims
Rate;"
o the percentage of the amount of collections on defaulted loans that
may be retained by the guarantee agency is reduced from 27 percent to
24 percent, with a further reduction to 23 percent on and after
October 1, 2003;
o establishes a loan processing and issuance fee (the "Loan Processing
and Issuance Fee"), payable by the Secretary of Education on a
quarterly basis, equal to: (i) for loans originated during fiscal
years beginning on or after October 1, 1998 and before October 1,
2003, 0.65 percent of the total principal amount of loans on which
insurance was issued under the FFEL Program during such fiscal year by
the guarantee agency, and (ii) for loans originated during fiscal
years beginning on or after October 1, 2003, 0.40 percent of the total
principal amount of loans on which insurance was issued under the FFEL
Program during such fiscal year by the guarantee agency;
o eliminates the discretionary administrative cost allowances or
expenses which had been paid at 0.85 percent of such amount;
o establishes a default aversion fee (the "Default Aversion Fee")
relating to default aversion activities required to be undertaken by
the guarantee agency, payable on a monthly basis from the Federal Fund
to the Operating Fund, in an amount equal to 1 percent of the total
unpaid principal and accrued interest on a loan for which a default
claim has not been paid as a result of the loan being brought into
current repayment status on or before the 300th day after the loan
becomes 60 days delinquent; and
o establishes an account maintenance fee (the "Account Maintenance
Fee"), payable by the Secretary of Education on a quarterly basis
(unless nationwide caps are met, in which case the fee shall be
transferred from the Federal Fund to the Operating Fund), equal to (i)
for fiscal years 1999 and 2000, 0.12 percent of the original principal
amount of outstanding loans on which insurance was issued under the
FFEL Program, and (ii) for fiscal years 2001, 2002 and 2003, 0.10
percent of the original principal amount of outstanding loans on which
insurance was issued under the FFEL Program.
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Additional Recalls of Reserves
The 1998 Reauthorization Amendments direct the Secretary of Education to
demand payment from all the guarantee agencies participating in the FFEL Program
of amounts held in their Federal Funds in fiscal years 2002 aggregating $85
million; 2006 aggregating $82.5 million; and 2007 aggregating $82.5 million. The
amounts demanded of each guarantee agency are determined in accordance with
formulas included in Section 422(i) of the Higher Education Act. If a guarantee
agency charges the maximum permitted 1 percent insurance premium, however, the
recall may not result in the depletion of such guarantee agency's reserve funds
below an amount equal to the amount of lender claim payments paid during the 90
days prior to the date of return.
Voluntary Flexible Agreements
The 1998 Reauthorization Amendments authorize the Secretary of Education to
enter into agreements with guarantee agencies which modify or waive many of the
requirements of the FFEL Program covered under existing agreements and otherwise
required by the Higher Education Act, including the sources and uses of revenues
and funds of guarantee agencies. In July 1999, the Secretary of Education
commenced a process to select up to six guarantee agencies to enter into
voluntary flexible agreements by December 1, 1999. The 1998 Reauthorization
Amendments authorize the Secretary of Education to enter into voluntary flexible
agreements with up to six guarantee agencies during federal fiscal years 1999,
2000 and 2001, and with any Guaranty Agency or consortium thereof beginning in
federal fiscal year 2002.
DESCRIPTION OF THE ALTERNATIVE LOAN PROGRAMS
To the extent described in the prospectus supplement for a series, the
proceeds of such series may be used to purchase financed Alternative Loans
issued under one or more Alternative Loan Programs. The Alternative Loan
Programs will be specifically identified in the prospectus supplement with
respect to such series. The prospectus supplement may specify a maximum
percentage of financed Alternative Loans that may comprise part of the financed
Eligible Loans securing the notes. This summary identifies characteristics
common to most Alternative Loan Programs but is qualified by the specific
disclosure set forth in the related prospectus supplement.
Alternative Loans made under most Alternative Loan Programs are based on
the credit of the borrower or his or her parents or co-borrowers. In general,
applicants are required to have a minimum annual income and are evaluated as to
creditworthiness. In determining whether a student or co-borrower is
creditworthy, a credit bureau report is obtained for each applicant, including
the student. The various Alternative Loan Programs have different standards as
to what constitutes a satisfactory credit history.
Eligible post-secondary borrowers of an Alternative Loan often are required
to be engaged in a course of study at a qualifying educational institution,
which may include two-year
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colleges, four-year colleges and for-profit schools. Certain Alternative Loan
Programs are specifically designed for graduate or professional students, or for
students attending elementary or secondary private schools. The institutions
generally must be located in the United States or Canada. Often, the borrower,
or a co-applicant, must be a citizen or resident of the United States. Some
Alternative Loans may be a consolidation of existing Alternative Loans.
The amount that may be borrowed under an Alternative Loan Program varies
based upon the Alternative Loan Program. Typically, borrowers must borrow at
least a minimum amount with respect to any academic year, and may not borrow
more than a maximum amount per academic year, or a maximum amount under the
Alternative Loan Program. However, the amount of the Alternative Loan plus other
financial aid received by a student, normally may not exceed the cost of
education, as determined by the school.
A loan origination fee typically is deducted from the Alternative Loan
proceeds. All or a portion of this fee is paid to the originator of the
Alternative Loan and set aside as a reserve against possible default.
The interest rate on an Alternative Loan varies based upon the Alternative
Loan Program and can either be fixed or variable. Floating rates may be based
upon the prime rate or the T-Bill Rate, or some other objective standard.
Interest typically accrues at a rate equal to the index plus a margin, sometimes
subject to a maximum rate per annum, with the interest rate being adjusted
periodically.
Alternative Loan Programs usually permit a borrower to defer the repayment
of principal and, in some cases, interest, while the student is in school, often
up to a maximum number of years. In such event, principal repayments, including
deferred interest, typically begin within six months after the student has left
school. In some cases, repayment of an Alternative Loan may be required to
commence within 45 to 90 days following the borrowing. Most Alternative Loan
Programs permit prepayment of the Alternative Loan at any time without penalty.
Borrowers typically may schedule repayment over a 10- to 30-year period, subject
to a minimum monthly payment obligation.
Alternative Loan Programs typically provide for an origination fee, usually
4% to 6% of the amount of the loan, to be paid at the time of origination of the
loan.
DESCRIPTION OF THE NOTES
General
The notes will be issued in separate series pursuant to the terms of an
indenture of trust, as supplemented by a supplemental indenture relating to each
series, which will be entered into between EdLinc and the trustee. This
indenture of trust, as supplemented and amended, is referred to in this
prospectus as the indenture. Any references
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in this prospectus to notes generally, unless otherwise specified, are to all
notes issued under the Indenture. Any references in this prospectus to notes of
a particular class, unless otherwise specified, are to all notes of that class.
Even though notes will be issued in different series, they will all be part of
the same issue, secured by and payable from a common pool of assets comprising
the Trust Estate under the indenture, subject to certain priorities and
exceptions as described in this prospectus. Thus, all notes of a given class
will have the same right to be paid from the assets securing the notes as all
other noteholders of the same class, including noteholders of other series,
except in those cases where a form of credit enhancement has been provided only
for the notes of a particular series. The following summary describes the
material terms of the notes. The summary does not purport to be complete and is
qualified in its entirety by reference to the provisions of the notes, the
indenture and the applicable supplemental indenture, which provisions are
incorporated by reference herein.
General Terms of Notes
Each series of notes will be created by and issued pursuant to a
supplemental indenture, which will designate the notes of that series as Senior
Notes, Subordinate Notes or Class C Notes.
The stated maturities and sinking fund payment dates of all notes will
occur on a June 1 or a December 1, unless otherwise specified in the related
supplemental indenture with respect to any series of variable rate notes, which
are notes bearing interest at a rate which varies from time to time in
accordance with a prescribed formula or method of determination. All EdLinc swap
payments and other payments to be made by EdLinc to credit facility providers
will be payable on a regularly scheduled interest payment date.
Except as may be otherwise provided in a supplemental indenture, in any
case where the principal of, premium, if any, or interest on the notes or
amounts due to any Other Beneficiary is due on a day other than a business day,
then payment thereof may be made on the next succeeding business day with the
same force and effect as if made on the date due and no interest will accrue for
the intervening period.
In the event a default occurs in the payment of any interest on any note,
interest will be payable thereon to the extent permitted by law on the overdue
installment of interest, at the interest rate borne by the note in respect of
which such interest is overdue.
The notes, including the principal, premium, if any, and interest and any
Carry-Over Amounts, and accrued interest, with respect thereto, and Other
Indenture Obligations are limited obligations of EdLinc, payable solely from the
revenues and assets of EdLinc pledged for that purpose under the indenture.
Issuance of Notes
Notes will be issued under the indenture only for the purposes of (a)
providing funds for the purchase or origination of Eligible Loans, (b) refunding
at or before their stated maturity any
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or all outstanding notes, and (c) paying Administrative Costs, Note Fees, costs
of issuance and capitalized interest on the notes being issued and making
deposits to the Reserve Fund.
At any time, one or more series of notes may be issued upon compliance with
conditions specified in the indenture (including the requirement that each
Rating Agency shall have confirmed that no outstanding ratings on any of the
Outstanding Unenhanced Senior or Subordinate Notes will be reduced or withdrawn
as a result of such issuance) and any additional conditions specified in a
supplemental indenture.
It is expected that each class of the notes of a series will initially be
represented by one or more notes registered in the name of the nominee of DTC
acting as a securities depository. Notes generally will be available for
purchase in denominations of $100,000 and integral multiples thereof, for
variable rate notes, or $5,000 and integral multiples thereof, for fixed rate
notes, as the case may be, in book-entry form. EdLinc has been informed by DTC
that DTC's nominee will be Cede & Co. Accordingly, Cede & Co. is expected to be
the holder of record of the notes. Unless and until definitive notes are issued
under the limited circumstances described herein or in the accompanying
prospectus supplement, no noteholder will be entitled to receive a physical
certificate representing his note. All references herein to actions by
noteholders refer to actions taken by DTC upon instructions from its
participating organizations (the "Participants") and all references herein to
distributions, notices, reports and statements to noteholders refer to
distributions, notices, reports and statements to DTC or Cede & Co., as the
registered holder of the notes, for distribution to noteholders in accordance
with DTC's procedures with respect thereto. See "--Book-Entry Registration" and
"--Definitive Notes" below.
Comparative Security of Noteholders and Other Beneficiaries
The Senior Notes are equally and ratably secured under the indenture with
any Other Senior Obligations. The Senior Obligations have payment and other
priorities over the Subordinate Notes, the Other Subordinate Obligations and the
Class C Notes. The Subordinate Notes are equally and ratably secured under the
indenture with any Other Subordinate Obligations. The Subordinate Obligations
have payment and other priorities over the Class C Notes. See "Source of Payment
and Security for the Notes--Priorities." The Senior Notes and the Subordinate
Notes are each payable from the Note Fund and are secured by the Reserve Fund.
The Class C Notes are payable solely from the Surplus Fund.
EdLinc may at any time issue a series of notes, either as Senior Notes,
Subordinate Notes or Class C Notes or any combination thereof. In connection
with any such Senior Notes or Subordinate Notes, EdLinc may enter into a swap
agreement or credit enhancement facility as it deems in its best interest, and
the swap counterparty or the credit facility provider may become a Senior
Beneficiary or a Subordinate Beneficiary, as herein described. See "Source of
Payment and Security for the Notes--Additional Indenture Obligations."
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Call for Redemption, Prepayment or Purchase of Notes; Senior Asset Requirement
No call for redemption, other than mandatory sinking fund redemption of
Senior Notes, prepayment of principal or purchase, other than on a Purchase Date
or mandatory tender date, of notes by the trustee will be effective under the
indenture unless, prior to the trustee giving notice of call for redemption,
determining that such prepayment will be made or soliciting such purchase,
EdLinc furnishes the trustee a certificate to the effect that:
o if Senior Notes are to be called for redemption, prepaid or purchased,
either (A) after giving effect thereto, the Senior Asset Requirement
will be met, or (B) (i) prior thereto, the Senior Asset Requirement is
not being met, (ii) no Subordinate Notes or Class C Notes will be
called for redemption, prepaid or purchased, and (iii) after giving
effect thereto, the Senior Percentage will be greater than it would
have been without such call for redemption, prepayment or purchase;
o if Subordinate Notes are to be called for redemption, prepaid or
purchased, after giving effect thereto, the Senior Asset Requirement
will be met; and
o if Class C Notes are to be called for redemption, prepaid or
purchased, after giving effect thereto, the Senior Asset Requirement
will be met and there shall be no deficiency then existing in the Note
Fund or the Reserve Fund.
In general, compliance with the foregoing conditions is determined as of
the date of selection of notes to be called for redemption or as of the date on
which moneys are transferred to the Retirement Account to make any prepayment
and any failure to satisfy such conditions as of the redemption date or
prepayment date, as applicable, will not affect such determination; provided
that, if notes have been defeased and are to be called for redemption,
compliance with such conditions will be determined on the date of defeasance
instead of as of the date of selection. See "--Discharge of Notes and Indenture"
below.
Any election to call notes for redemption or to prepay notes may also be
conditioned upon such additional requirements as may be set forth in the
supplemental indenture authorizing the issuance of such notes.
Interest
Interest will accrue on the principal balance of each class of notes of a
series at a specified rate per annum. Interest is expected to accrue initially
from and including the closing date on which the related series was issued, or
some other specified date, through and including the date set forth in the
related prospectus supplement. Thereafter, except as otherwise set forth in the
related prospectus supplement, interest will accrue for interest periods, which,
with respect to a series and class of notes, is the period of time in which
interest may accrue, consisting of (1) with respect to notes that bear interest
based upon LIBOR, which are referred to in this prospectus as LIBOR rate notes,
generally a one-month or three-month period beginning and
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ending on the dates set forth in the related prospectus supplement, (2) with
respect to notes that bear interest at an auction rate, which are referred to in
this prospectus as auction rate notes, as set forth in the related prospectus
supplement, (3) with respect to fixed rate notes, which are notes that bear
interest at a fixed rate, the six-month periods ending on May 31 and November
30, or (4) with respect to notes accruing interest based on some other method,
the period set forth in the related prospectus supplement. Interest on each
class of notes of each series will be payable on the interest payment dates
described in the applicable prospectus supplement.
If on any interest rate determination date, an auction for a class of
auction rate notes of a series is not held for any reason, then the interest
rate for such class of notes will be the Net Loan Rate or such other rate as may
be described in a prospectus supplement. The interest rate on each class of
notes bearing interest based upon a method other than LIBOR or an auction rate
will be described in the related prospectus supplement.
With respect to auction rate notes, EdLinc may, from time to time, change
the length of one or more auction periods, which are the interest periods
applicable to auction rate notes, to conform with then current market practice
or accommodate other economic or financial factors that may affect or be
relevant to the length of the auction period or any class interest rate. An
auction period adjustment will not cause an auction period to be less than 7
days nor more than one year and will not be allowed unless conditions specified
in the auction procedures described in the related prospectus supplement are
satisfied. If an auction period adjustment is made, the intervals between
interest payment dates will be adjusted accordingly.
Payment of Interest. Payments of interest will be made on each interest
payment date, as specified in the accompanying prospectus supplement. Interest
payments on the notes will be made from amounts available therefor in the
Interest Account, including amounts transferred from other funds and accounts
under the indenture.
Carry-Over Amounts. If set forth in a prospectus supplement, with respect
to any class of notes of a series for any interest period the LIBOR rate plus
the applicable margin or the auction rate, as the case may be, exceeds the Net
Loan Rate, the applicable interest rate for such class for such interest period
will be the Net Loan Rate, and the excess of the amount of interest on such
class that would have accrued at a rate equal to the LIBOR rate plus any
applicable margin or the auction rate, as appropriate, over the amount of
interest on such class actually accrued at the Net Loan Rate will accrue as the
Carry-Over Amount with respect to such class of notes. Such determination of the
Carry-Over Amount will be made separately for each class of each series of
notes. The Carry-Over Amount on any class of notes will bear interest at a rate
equal to the rate set forth in the related prospectus supplement, from the
interest payment date for the interest period for which the Carry-Over Amount
was calculated until paid.
Carry-Over Amounts will be paid as described under "Description of the
Indenture--Funds and Accounts--Interest Account."
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Principal
All payments of principal of notes of a series will be made in amounts
determined as set forth in the related prospectus supplement and will be paid at
the times and will be allocated among the classes of notes of such series in the
order and amounts, all as specified in the related prospectus supplement.
Determination of LIBOR
Pursuant to the indenture, for each interest period after the initial
interest period, the trustee will determine the applicable LIBOR rate for
purposes of calculating the interest rate on the LIBOR rate notes for each given
interest period on a specified interest rate determination date preceding the
commencement of each interest period.
LIBOR means the rate of interest per annum equal to the London interbank
offered rate for deposits in U.S. dollars having the applicable maturity, i.e.,
one month or three months, commencing on the related interest rate determination
date (the "Index Maturity") which appears on Telerate Page 5 as of 11:00 a.m.,
London time, on such interest rate determination date. If such rate does not
appear on Telerate Page 5, the rate for that day will be determined by reference
to the Reuters Screen LIBOR Page. If such rate does not appear on Telerate Page
5 or the Reuters Screen LIBOR Page, the rate for that day will be determined on
the basis of the rates at which deposits in U.S. dollars, having the Index
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 such interest rate determination
date to prime banks in the London interbank market by four reference banks
selected by the trustee or an agent of the trustee. The trustee or a specified
agent will request the principal London office of each of such LIBOR rates to
provide a quotation of its rate. If at least two such quotations are provided,
LIBOR for that day will be the arithmetic mean, rounded upwards, if necessary,
to the nearest .01%, of the quotations. If fewer than two quotations are
provided, LIBOR for that day will be the arithmetic mean, rounded upwards, if
necessary, to the nearest .01%, of the rates quoted by three major banks in New
York City, selected by the trustee or a specified agent, as applicable, at
approximately 11:00 a.m., New York City time, on such interest rate
determination date for loans in U.S. dollars to leading European banks having
the Index Maturity and in a principal amount equal to an amount of not less than
U.S. $1,000,000; provided, however, that if the banks selected as aforesaid are
not quoting as mentioned in this sentence, LIBOR in effect for the applicable
interest period will be LIBOR in effect for the previous interest period.
Auction Procedures
A series of notes may contain one or more classes of auction rate notes.
The following discussion summarizes procedures that will be used in determining
the interest rates on the auction rate notes. If any auction rate notes are
included in a series, the prospectus supplement will contain a more detailed
description of these procedures. Prospective investors in the auction
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rate notes should read carefully the following summary, along with the more
detailed description in the prospectus supplement.
The interest rate on each class of auction rate notes will be determined
periodically, generally, for periods ranging from 7 days to one year, 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 such investors wish to buy, hold or sell at various interest
rates. The broker/dealers submit their clients' orders to the auction agent, who
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.
In the auction procedures, the following types of orders may be submitted:
o Bid/Hold Orders - the minimum interest rate that a current investor is
willing to accept in order to continue to HOLD some or all of its
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 - 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 of the applicable class, 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.
In connection with each auction, auction rate notes will be purchased and
sold between investors and potential investors at a price equal to their then
outstanding principal balance, i.e., par, plus any accrued interest. The
following example helps illustrate how the above-described procedures are used
in determining the interest rate on the auction rate notes.
(a) Assumptions:
1. Denominations (Units) = $100,000
2. Interest Period = 28 Days
3. Principal Amount Outstanding = $50 Million (500 Units)
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(b) Summary of All Orders Received For The Auction
BID/HOLD ORDERS SELL ORDERS POTENTIAL BID ORDERS
10 Units at 2.90% 50 Units Sell 20 Units at 2.95%
30 Units at 3.02% 50 Units Sell 30 Units at 3.00%
60 Units at 3.05% 100 Units Sell 50 Units at 3.05%
100 Units at 3.10% 50 Units at 3.10%
100 Units at 3.12% 50 Units at 3.11%
50 Units at 3.14%
100 Units at 3.15%
Total units under existing Bid/Hold Orders and Sell Orders must always
equal issue size (in this case 500 Units).
(c) Auction Agent Organizes Orders In Ascending Order
<TABLE>
<CAPTION>
Number Cumulative Order Number Cumulative
Order Number of Units Total (Units) % Number of Units Total (Units) %
<S> <C> <C> <C> <C> <C> <C> <C>
1 10(W) 10 2.90% 7 100(W) 300 3.10%
2 20(W) 30 2.95% 8 50(W) 350 3.10%
3 30(W) 60 3.00% 9 50(W) 400 3.11%
4 30(W) 90 3.02% 10 100(W) 500 3.12%
5 60(W) 150 3.05% 11 50(L) 3.14%
6 50(W) 200 3.05% 12 100(L) 3.15%
</TABLE>
- ------------------------
(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. Multiple orders at the winning rate
are allocated units on a pro rata basis. Notwithstanding the foregoing, in no
event will the interest rate exceed the lesser of the Net Loan Rate or the
maximum auction rate specified in the related prospectus supplement (the
"Maximum Auction Rate").
The above example assumes that a successful auction has occurred, i.e., all
Sell Orders and all Bid/Hold Orders below the new interest rate were fulfilled.
In some circumstances, there may be insufficient Potential Bid Orders to
purchase all the auction rate notes offered for sale. In such circumstances, the
interest rate for the upcoming interest period will equal the lesser of the Net
Loan Rate and the Maximum Auction 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
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notes, regardless of the interest rate, the interest rate for the upcoming
interest period will equal the lesser of the Net Loan Rate and the rate at which
all investors are willing to hold the notes.
Book-Entry Registration
The description which follows of the procedures and record keeping with
respect to beneficial ownership interests in a series of notes, payment of
principal of and interest on the notes to DTC Participants, Cedel Bank
Participants and Euroclear Participants or to purchasers of the notes,
confirmation and transfer of beneficial ownership interests in the notes, and
other securities-related transactions by and between DTC, Cedel Bank, Euroclear,
DTC Participants, Cedel Bank Participants, Euroclear Participants and Beneficial
Owners, is based solely on information furnished by DTC, Cedel Bank and
Euroclear and has not been independently verified by EdLinc or the underwriters.
If specified in the accompanying prospectus supplement, noteholders may
hold their certificates through DTC, in the United States, or Cedel Bank or
Euroclear, in Europe, if they are participants of such systems, or indirectly
through organizations that are participants in such systems.
DTC will hold the global notes. Cedel Bank and Euroclear will hold omnibus
positions on behalf of the Cedel Bank Participants and the Euroclear
Participants, respectively, through customers securities accounts in Cedel
Bank's and Euroclear's names on the books of their respective depositories
(collectively, the "Depositories") which in turn will hold such positions in
customers' securities accounts in the Depositories' names on the books of DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a banking organization within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a clearing corporation within the meaning
of the New York Uniform Commercial Code, and a clearing agency registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC holds
securities for its Participants and facilitates the clearance and settlement
among DTC Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic book-entry changes in DTC
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. DTC Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and other organizations.
Indirect access to the DTC system is also available to others such as securities
brokers and dealers, banks, and trust companies that clear through or maintain a
custodial relationship with a DTC Participant, either directly or indirectly
("Indirect Participants"). The rules applicable to DTC and its DTC Participants
are on file with the SEC.
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between Cedel Bank Participants and Euroclear Participants will occur
in the ordinary way in accordance with their applicable rules and operating
procedures.
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Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel Bank
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its depository; 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 based on European time. The
relevant European international clearing system will, if the transaction meets
its settlement requirements, deliver instructions to its depository to take
action to effect final settlement on its behalf by delivering or receiving
securities in DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. Cedel Bank
Participants and Euroclear Participants may not deliver instructions directly to
the Depositories.
Because of time-zone differences, credits of securities in Cedel Bank or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant Cedel
Bank Participant or Euroclear Participant on such business day. Cash received in
Cedel Bank or Euroclear as a result of sales of securities by or through a Cedel
Bank Participant or a Euroclear Participant to a DTC Participant will be
received with value on the DTC settlement date but will be available in the
relevant Cedel Bank or Euroclear cash account only as of the business day
following settlement in DTC. Day traders that use Cedel Bank or Euroclear and
that purchase the globally offered notes from DTC Participants for delivery to
Cedel Bank Participants or Euroclear Participants should note that these trades
may fail on the sale side unless affirmative actions are taken. Participants
should consult with their clearing system to confirm that adequate steps have
been taken to assure settlement.
Purchases of notes under the DTC system must be made by or through DTC
Participants, which will receive a credit for the notes on DTC's records. The
ownership interest of each actual owner of a note (a "Beneficial Owner") is in
turn to be recorded on the DTC Participants' and Indirect Participants' records.
Beneficial Owners will not receive written confirmation from DTC 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 DTC Participant 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 DTC
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not
receive certificates representing their ownership interest in notes, except when
use of the book-entry system for the notes is discontinued.
To facilitate subsequent transfers, all notes deposited by DTC Participants
with DTC are registered in the name of DTC's nominee, Cede & Co. The deposit of
notes with DTC and their registration in the name of Cede & Co. effects no
change in beneficial ownership. DTC has no knowledge of the actual Beneficial
Owners of the notes; DTC's records reflect only the identity of the DTC
Participants to whose accounts such notes are credited, which may or may not be
the
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Beneficial Owners. The DTC Participants will remain responsible for keeping
account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to DTC Participants,
by DTC Participants to Indirect Participants, and by DTC Participants and
Indirect Participants to Beneficial Owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the notes.
Under its usual procedures, DTC mails an omnibus proxy to the issuer as soon as
possible after the record date, which assigns Cede's consenting or voting rights
to those DTC Participants to whose accounts the notes are credited on the record
date, identified in an attached listing.
Principal and interest payments on the notes will be made to DTC. DTC's
practice is to credit DTC Participants' accounts on the applicable interest or
principal payment date in accordance with their respective holdings shown on
DTC's records unless DTC has reason to believe that it will not receive payment
on such interest or principal payment date. Payments by DTC Participants to
Beneficial Owners will be 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 will be the responsibility of
such DTC Participant and not of DTC, the trustee or EdLinc, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of principal and interest to DTC is the responsibility of the trustee,
disbursement of such payments to DTC Participants will be the responsibility of
DTC, and disbursement of such payments to Beneficial Owners will be the
responsibility of DTC Participants and Indirect Participants.
DTC may discontinue providing its services as securities depository with
respect to the notes at any time by giving reasonable notice to EdLinc or the
trustee. Under such circumstances, if a successor securities depository is not
obtained, definitive notes are required to be printed and delivered. EdLinc may
decide to discontinue use of the system of book-entry transfers through DTC, or
a successor securities depository. In that event, definitive notes will be
delivered to noteholders. See " --Definitive Notes" below.
Cedel Bank is a limited liability company (a societe anonyme) organized
under Luxembourg law that operates as a professional depository. Cedel Bank
holds securities for its participating organizations ("Cedel Bank Participants")
and facilitates the clearance and settlement of securities transactions between
Cedel Bank Participants through electronic book-entry changes in accounts of
Cedel Bank Participants, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in Cedel Bank in any of 40 currencies,
including United States dollars. Cedel Bank provides to its Cedel Bank
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel Bank interfaces with domestic markets in several
countries. As a professional depository, Cedel Bank is subject to regulation by
the Luxembourg Monetary Institute. Cedel Bank Participants are recognized
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financial institutions around the world, including underwriters, securities
brokers and dealers, banks, trust companies, clearing corporations and other
organizations and may include the underwriters of any series of notes. Indirect
access to Cedel Bank is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Cedel Bank Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System ("Euroclear Participants") and to clear and
settle transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating the need for
physical movement of certificates and any risk from lack of simultaneous
transfers of securities and cash. Transactions may now be settled in any of 39
currencies, including United States dollars. The Euroclear System includes
various other services, including securities lending and borrowing and
interfaces with domestic markets in 25 countries generally similar to the
arrangements for cross-market transfers with DTC described above. The Euroclear
System is operated by Morgan Guaranty Trust Company of New York, Brussels,
Belgium office (the "Euroclear Operator" or "Euroclear"), under contract with
Euroclear Clearance System, Societe Cooperative, a Belgian cooperative
corporation (the "Cooperative"). 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 Board establishes policy for the Euroclear System. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include the
underwriters of any series of notes. Indirect access to the Euroclear System is
also available to other firms that maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as 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 (collectively, the "Terms
and Conditions"). The Terms and Conditions govern transfers of securities and
cash within the Euroclear System, withdrawal of securities and cash from the
Euroclear System, and receipts of payments with respect to securities in the
Euroclear System. All securities in the Euroclear System are held on a fundable
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.
The Euroclear Operator has advised as follows: Under Belgian law, investors
that are credited with securities on the records of the Euroclear Operator have
a co-property right in the fungible pool of interests in securities on deposit
with the Euroclear Operator in an amount equal to the amount of interests in
securities credited to their accounts. In the event of the insolvency of
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the Euroclear Operator, Euroclear Participants would have a right under Belgian
law to the return of the amount and type of interests in securities credited to
their accounts with the Euroclear Operator. If the Euroclear Operator did not
have a sufficient amount of interests in securities on deposit of a particular
type to cover the claims of all Euroclear Participants credited with such
interests in securities on the Euroclear Operator's records, all Euroclear
Participants having an amount of interests in securities of such type credited
to their accounts with the Euroclear Operator would have the right under Belgian
law to the return of their pro-rata share of the amount of interests in
securities actually on deposit. Under Belgian law, the Euroclear Operator is
required to pass on the benefits of ownership in any interests in securities on
deposit with it (such as dividends, voting rights and other entitlements) to any
person credited with such interests in securities on its records.
Distributions with respect to notes held through Cedel Bank or Euroclear
will be credited to the cash accounts of Cedel Bank Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by its depository. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
See "Federal Income Tax Consequences." Cedel Bank or the Euroclear Operator, as
the case may be, will take any other action permitted to be taken by a
noteholder under the Agreement on behalf of a Cedel Bank Participant or
Euroclear Participant only in accordance with its relevant rules and procedures
and subject to its depository's ability to effect such actions on its behalf
through DTC.
Although DTC, Cedel Bank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of notes among participants of DTC,
Cedel Bank and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
Definitive Notes
If set forth in the accompanying prospectus supplement, notes of any series
will be issued in fully registered, certificated form to Beneficial Owners or
their nominees rather than to DTC or its nominee, if (1) the notes of such
series are not eligible for the services of DTC, (2) DTC determines to
discontinue providing its services with respect to the notes of such series or
(3) EdLinc determines that a system of book-entry transfers for the notes of
such series, or the continuation thereof, through DTC is not in the best
interest of the Beneficial Owners or EdLinc. In that event, EdLinc may either
identify another qualified securities depository or direct or cause note
certificates for such series to be delivered to Beneficial Owners thereof or
their nominees and, if certificates are delivered to the Beneficial Owners, the
Beneficial Owners or their nominees, upon authentication of the notes of such
series in authorized denominations and registration thereof in the Beneficial
Owners' or nominees' names, will become the holders of such notes for all
purposes. In that connection, the trustee is to mail an appropriate notice to
the securities depository for notification to DTC Participants and Beneficial
Owners of the substitute securities depository or the issuance of note
certificates to Beneficial Owners or their nominees, as applicable.
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Distribution of principal of and interest on the notes will be made by the
trustee directly to noteholders of definitive notes in accordance with the
procedures set forth herein and in the indenture.
Definitive notes will be transferable and exchangeable at the offices of
the registrar for the notes, which will initially be the trustee. No service
charges will be imposed for any registration of transfer or exchange, but the
registrar may require payment of a sum sufficient to cover any tax or other
governmental charge imposed in connection therewith.
Denomination and Payment
The notes of each series will be issued in the denominations specified in
the related prospectus supplement.
The principal of and premium, if any, on the notes, together with interest
payable on the notes at the maturity thereof if the date of such maturity is not
a regularly scheduled interest payment date, will be payable in lawful money of
the United States of America upon, except as otherwise provided in the indenture
with respect to a securities depository, presentation and surrender of such
notes at the principal office of the trustee, as paying agent with respect to
the notes, or a duly appointed successor paying agent. Interest on each series
of notes will be payable on each regularly scheduled interest payment date with
respect to such series, except as otherwise provided in the indenture with
respect to a securities depository, by check or draft drawn upon the paying
agent and mailed to the person who is the registered holder thereof as of the
regular record date for such interest payment date, or, if provided in the
related prospectus supplement, by electronic transfer in immediately available
funds to an account designated by such holder. Any interest not so timely paid
or duly provided for, which is referred to as defaulted interest, will cease to
be payable to the person who is the registered holder thereof at the close of
business on the regular record date and will be payable to the person who is the
registered holder thereof at the close of business on a special record date
established by the trustee for the payment of any such defaulted interest. Such
special record date will be fixed by the trustee whenever moneys become
available for payment of the defaulted interest. All payments of principal of
and interest on the notes will be made in lawful money of the United States of
America.
SOURCE OF PAYMENT AND SECURITY FOR THE NOTES
General
The notes will be limited obligations of EdLinc payable solely from the
Trust Estate created under the indenture, consisting of revenues and funds and
accounts pledged under the indenture. The pledged revenues include:
o payments of interest and principal made by obligors of financed
student loans;
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o guarantee payments made by the guarantee agencies to or for the
account of the trustee as the holder of defaulted financed FFELP
Loans;
o Interest Subsidy Payments and Special Allowance Payments made by the
Department of Education to or for the account of the trustee as the
holder of financed FFELP Loans, excluding any Special Allowance
Payments and Interest Subsidy Payments accrued prior to the date of
financing the related FFELP Loan;
o income from investment of moneys in the pledged funds and accounts;
o payments from a swap counterparty under a swap agreement;
o proceeds of any sale or assignment by EdLinc of any financed student
loans; and
o available note proceeds. In addition, the pledged revenues with
respect to one or more series of notes may include payments made by a
credit facility provider pursuant to a credit enhancement facility.
The principal of, premium, if any, and interest on the notes will be
secured by a pledge of and a security interest in all rights, title, interest
and privileges of EdLinc (1) with respect to financed student loans, in, to and
under any servicing agreement, the student loan purchase agreements, the
Guarantee Agreements and the federal reimbursement contracts; (2) in, to and
under all financed student loans, including the evidences of indebtedness and
related documentation, any swap agreement and, subject to the limitations
therein or in the indenture limiting the benefits thereunder to the notes of one
or more series, any credit enhancement facility; and (3) in and to the proceeds
from the sale of the notes, until expended for the purpose for which issued, and
the pledged revenues, moneys, evidences of indebtedness and securities in the
pledged funds and accounts. The security interest in revenues, moneys, evidences
of indebtedness and, unless registered in the name of the trustee, securities
payable into the various funds and accounts does not constitute a perfected
security interest until received by the trustee. Certain pledged revenues are
subject to withdrawal from the pledged funds and accounts, to prior applications
to pay costs of issuance, administrative expenses and Note Fees, and to other
applications as described under "Summary of the Indenture--Funds and Accounts."
Additional Indenture Obligations
The indenture provides that, upon the satisfaction of specified conditions,
EdLinc may issue one or more series of notes thereunder. Notes may be issued as
Senior Notes on a parity basis with any previously issued Senior Notes; as
Subordinate Notes on a parity basis with any previously issued Subordinate
Notes; or as Class C Notes on a subordinate basis to the Senior Notes and the
Subordinate Notes. In addition, EdLinc may enter into swap agreements and may
obtain credit enhancement facilities from one or more credit facility providers.
EdLinc's obligations under the swap agreements, and its obligations to pay the
premiums or fees of credit facility providers and, if applicable, to reimburse
payments made under credit enhancement
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facilities, may be parity obligations with the Senior Notes (such Other Senior
Obligations, together with the Senior Notes, being referred to as "Senior
Obligations") or parity obligations with the Subordinate Notes (such Other
Subordinate Obligations, together with the Subordinate Notes, being referred to
as "Subordinate Obligations"). The Senior Obligations, the Subordinate
Obligations and any Class C Notes are referred to as "Indenture Obligations."
See "Description of the Notes--Issuance of Notes" and "Description of the
Indenture--Covenants--Credit Enhancement Facilities and Swap Agreements."
Under the indenture, EdLinc may not execute a swap agreement unless the
swap counterparty's obligations are rated by each Rating Agency not lower than
in its third highest specific rating category. No swap agreement shall be a
Senior Obligation unless, as of the date EdLinc enters into such swap agreement,
the Senior Asset Requirement will be met and the trustee shall have received
written confirmation from each Rating Agency that the execution and delivery of
the swap agreement will not cause the reduction or withdrawal of any rating or
ratings then applicable to any Outstanding notes.
No limitations are imposed by the indenture on the ability of EdLinc to
obtain credit enhancement facilities or to enter into agreements with respect
thereto, or as to the identity or creditworthiness of any credit facility
provider. Any credit enhancement facility may be obtained for the sole benefit
of the series of notes designated therein, in which event payments under such
credit enhancement facility would not be available for the payment of principal
of, premium, if any, or interest on any other series of notes. However, any
payments required to be made to any credit facility provider would be parity
obligations with the other Senior Obligations or Subordinate Obligations, as the
case may be, payable from any revenues available to pay such Indenture
Obligations.
The indenture also permits EdLinc to issue Class C Notes from time to time
upon satisfaction of the conditions specified therein. See "Description of the
Notes--Issuance of Notes."
Priorities
The Senior Notes, and any other Senior Obligations, are entitled to payment
and other priorities over the Subordinate Notes, and any other Subordinate
Obligations. Current payments of interest and principal due on the Subordinate
Notes on an interest payment date or principal payment date will be made, on a
parity basis with any other Subordinate Obligations, only to the extent there
are sufficient moneys available for such payment, after making all such payments
due on such date with respect to Senior Obligations. So long as any Senior
Obligations remain Outstanding under the indenture, the failure to make interest
or principal payments with respect to Subordinate Notes will not constitute an
event of default under the indenture. In the event of an acceleration of the
notes, the principal of and accrued interest on the Subordinate Notes will be
paid, on a parity basis with any other Subordinate Obligations, only to the
extent there are moneys available under the indenture after payment of the
principal of, and accrued interest on, all Senior Notes and the satisfaction of
all other Senior Obligations. In addition, holders of
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Senior Notes and Beneficiaries of other Senior Obligations are entitled to
direct actions to be taken by the trustee prior to and upon the occurrence of an
event of default under the indenture, including election of remedies. See
"Description of the Indenture--Remedies."
Senior Obligations and Subordinate Obligations are entitled to payment and
other priorities over any Class C Notes. Principal of and interest on the Class
C Notes are not payable from moneys in the Note Fund or the Reserve Fund, but
are payable solely from amounts available therefor in the Surplus Fund. See
"Description of the Indenture--Funds and Accounts--Surplus Fund."
DESCRIPTION OF THE SLFC SERVICING AGREEMENT
General
EdLinc and the trustee, prior to the issuance of any series of notes, will
have entered into a servicing and administration agreement with SLFC, as
servicer and administrator. This servicing and administration agreement is
referred to in this prospectus as the SLFC servicing agreement. The following is
a summary of the material terms of the SLFC servicing agreement. The summary
does not purport to be complete and is qualified in its entirety by reference to
the provisions of the SLFC servicing agreement. The SLFC servicing agreement
will be in substantially the form filed as part of the registration statement of
which this prospectus is a part.
Pursuant to the SLFC servicing agreement, SLFC agrees to provide services
to EdLinc and the trustee in connection with the acquisition of student loans to
be financed, and to service the financed student loans, all in accordance with
the SLFC servicing agreement. SLFC may perform all or part of its acquisition
and servicing activities through a subcontractor. See "--Sub-Servicers" below.
SLFC is required to perform or cause its subcontractor to perform all services
under the SLFC servicing agreement in compliance with the Higher Education Act,
each Alternative Loan Program, applicable requirements of each guarantee agency
and all other applicable federal, state and local laws and regulations. SLFC
also agrees to perform various duties of EdLinc under the indenture.
Acquisition Process
SLFC agrees to provide to the trustee all certificates and directions
required to be delivered by EdLinc to the trustee under the indenture in
connection with the financing of Eligible Loans and student loans thereunder.
SLFC also agrees to work with the transferor and lenders to obtain from them
loan documentation and information relating to each student loan to be financed
and to establish and maintain all records delivered to SLFC with respect to each
financed student loan, and complete records of SLFC's servicing of the financed
student loan from the date SLFC's servicing commences. However, SLFC will not
conduct a complete file and note examination of each student loan to be
financed.
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Origination Process
Unless and until otherwise directed in writing by EdLinc, SLFC agrees to
provide to the trustee all certificates and directions required to be delivered
by EdLinc to the trustee under the indenture in connection with the financing
through origination of Eligible Loans and student loans thereunder. SLFC also
agrees to provide disbursement and origination services in connection with the
origination and disbursement of Eligible Loans under the indenture.
Servicing
SLFC agrees to perform all servicing obligations relating to the financed
student loans required of EdLinc or the trustee, or which EdLinc or the trustee
is required to cause the servicer to perform. The SLFC servicing agreement
specifies various activities and obligations to be performed by SLFC in
servicing the financed student loans. These activities and obligations include,
without limitation, file maintenance; maintaining Guarantee coverage on financed
FFELP Loans; handling borrower requests for forbearance and deferments;
exercising due diligence, within the meaning of the Higher Education Act, the
guarantee program regulations and applicable Alternative Loan Programs, in the
servicing, administration and collection of all financed student loans;
collecting payments of principal and interest, Special Allowance Payments, and
guarantee payments with respect to financed student loans and causing all such
Interest Subsidy Payments and Special Allowance Payments to be forwarded by the
Secretary of Education directly to the trustee for immediate deposit into the
appropriate fund or account under the indenture and depositing all other such
payments immediately upon receipt into a lock-box account, which will be part of
the Revenue Fund, to be established by the trustee in the name of and for the
account of the trustee; representing the interests of EdLinc and the trustee in
handling discrepancies or disputes, if any, with the Secretary of Education;
preparing and maintaining all appropriate accounting records with respect to all
transactions related to each financed student loan; for defaulted financed FFELP
Loans, taking steps necessary to file and prove a claim for loss with the
Secretary of Education or the guarantee agency, as the case may be and as
required, and assuming responsibility for all necessary communications and
contacts with the Secretary of Education or the guarantee agency, as the case
may be and as required, to recover on such defaulted financed FFELP Loans within
the time required by the Higher Education Act and the requirements of the
guarantee agency; if a claim is denied by the Secretary of Education or the
guarantee agency, as the case may be, under circumstances resulting in a lender
being required by a student loan purchase agreement to repurchase a financed
FFELP Loan, taking such action as shall be necessary to allow EdLinc or the
trustee to cause such lender to repurchase such financed FFELP Loan; preparing
and filing various reports with the Secretary of Education, the guarantee
agency, EdLinc and the trustee; identifying on the servicing system the notes as
the source of financing for each such financed student loan; and maintaining
duplicates or copies of some file documents.
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Right of Inspection and Audits
The SLFC servicing agreement provides that, subject to any restrictions of
applicable law, EdLinc, the trustee, the guarantee agency, the Secretary of
Education or any governmental agency having jurisdiction over EdLinc or the
trustee, and, in each case, those entities' representatives, will have the
right, at any time and from time to time, during normal business hours, and upon
reasonable notice to SLFC, to examine and audit any and all of the SLFC's
records or accounts pertaining to any financed student loan. EdLinc and the
trustee also may require SLFC to furnish such documents as they from time to
time deem necessary to determine that SLFC has complied with the provisions of
the SLFC servicing agreement, the student loan purchase agreements and the
indenture.
SLFC also agrees to have prepared and submitted to the Secretary of
Education and the guarantee agencies any third-party servicer compliance audits
and audited financial statements required under the Higher Education Act and the
guarantee program regulations relating to SLFC and its servicing of financed
FFELP Loans, and any lender compliance audits required under the Higher
Education Act, the guarantee program regulations and applicable Alternative Loan
Programs relating to the trustee, as the holder of the financed student loans,
and the financed student loans. SLFC agrees to provide to EdLinc and the trustee
these and various other specified reports and audits.
Administration and Management
SLFC agrees to perform various administrative activities and obligations on
behalf of EdLinc under the SLFC servicing agreement. These include providing all
necessary personnel, facilities, equipment, forms and supplies for operating
EdLinc's student loan acquisition program in accordance with the indenture;
disseminating information on EdLinc's program to lenders and to student
financial aid officers and to other persons as necessary; controlling and
accounting for the receipt and expenditure of EdLinc's funds in accordance with
the resolutions of EdLinc's board of directors and the indenture and maintaining
accurate and complete records on all aspects of the program; reviewing all
statements and reports to EdLinc required of the trustee, the servicer and the
lender in accordance with the provisions of the indenture, the SLFC servicing
agreement and the student loan purchase agreements; preparing and submitting to
the trustee the monthly servicing reports required to be delivered to the
noteholders pursuant to the indenture; and determining and notifying the trustee
and auction agent of the Net Loan Rate. SLFC also agrees to prepare for filing,
and provide such other assistance as is required by EdLinc to file, any other
reports required to be filed by EdLinc under the indenture or under any
applicable law, including without limitation, the Higher Education Act and any
federal and state securities laws.
Servicing Fees
The SLFC servicing agreement provides that SLFC will be paid for the
performance of its functions under the SLFC servicing agreement, from funds
available for such purpose under the indenture, a monthly fee in an amount each
month equal to .104167% of the outstanding
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principal balance of all financed student loans as of the last day of the
immediately preceding month. Such fee is required to be paid to SLFC on a
monthly basis within fifteen (15) days of receipt by the trustee of a written
monthly billing statement from SLFC. If SLFC believes that it is necessary to
increase the monthly fee payable under the SLFC servicing agreement, it will
provide a written request to EdLinc and the trustee of its need for an increase
in such fee, together with all information required under the indenture for the
trustee to approve an increase in the fees payable thereunder. SLFC acknowledges
in the SLFC servicing agreement that such fee will not be increased unless the
conditions for increasing such fees under the indenture have been satisfied.
SLFC also acknowledges in the SLFC servicing agreement that EdLinc and the
trustee contemplate paying all servicing fees payable under the SLFC servicing
agreement solely from funds available for such purpose in the Administration
Fund created under the indenture, which funds are primarily dependent upon
collection by SLFC and receipt by the trustee of payments with respect to the
financed student loans. SLFC agrees to continue to be bound by the terms and
provisions of the SLFC servicing agreement relating to financed student loans in
all respects, and to perform for a period of 120 days its obligations
thereunder, regardless of the receipt or non-receipt on a timely basis by it of
any payments in respect of servicing fees.
Sub-Servicers
Under the SLFC servicing agreement, SLFC may enter into sub-servicing
agreements with one or more sub-servicers providing for the sub-servicers to
perform some or all of the obligations of SLFC with respect to servicing the
financed student loans. Pursuant to a sub-servicing agreement, each sub-servicer
will agree to service, and perform all other related tasks with respect to, the
financed student loans in compliance with applicable standards and procedures.
SLFC will be responsible for the performance of its obligations under the SLFC
servicing agreement, whether such obligations are performed by SLFC or by a
sub-servicer, and SLFC will be responsible for any fees and payments required by
the sub-servicer. The prospectus supplement for each series of notes will
identify each sub-servicer sub-servicing 10% or more by principal balance of the
financed student loans.
Term and Termination
The term of the SLFC servicing agreement continues for so long as any of
the notes remain Outstanding, unless the SLFC servicing agreement is terminated
in accordance with its terms. The SLFC servicing agreement may be terminated
upon the occurrence of specified events, including the insolvency of SLFC and
the failure by SLFC to perform its obligations thereunder.
SLFC agrees to promptly notify the trustee and EdLinc of any occurrence or
condition which constitutes, or which with the passage of time or the giving of
notice or both would constitute, an event permitting the termination of the SLFC
servicing agreement. SLFC also
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agrees to continue performing its obligations under the servicing agreement
until a successor servicer has been appointed.
Year 2000 Information Systems Procedures
SLFC utilizes a variety of computer programs and information systems in its
daily operations, including its accounting system, its imaging system, and its
student loan servicing system. Computer programs and information systems are
also utilized by the trustee, each guarantee agency, the Department of Education
and other third parties upon which SLFC depends for its programmatic and
financial operations or with which it conducts business. Most existing computer
programs and information systems utilized by SLFC and such other third parties
accept only two digits in date code fields to identify a year in the date fields
used for, among other things, calculation and report generation features.
SLFC has completed its assessment of the computer related activities that
are involved in its programmatic and financial operations, including its
accounting, loan purchase, loan origination and loan servicing programs and the
items required for administration of its programs. The computer programs and
information systems, which SLFC utilizes in performing its administrative
activities, are generally widely used, commercially available hardware and
software or specific programs supplied by vendors. The vendors of these systems
have informed SLFC that their systems are either year 2000 compliant or have
informed SLFC of the necessary upgrades in releases of their software that are
necessary to achieve year 2000 compliance. SLFC has completed upgrades for all
releases of those software packages where upgrade is necessary to obtain year
2000 compliance. Failure of the providers of these software packages to be year
2000 compliant would not materially affect SLFC's ability to effectively perform
its administrative functions.
SLFC has surveyed its own student loan servicing software to determine if
its systems will be year 2000 compliant before January 1, 2000. SLFC's software
has been upgraded to be year 2000 compliant, and has been tested. Based on the
testing, minor revisions have been completed. Follow-up is now being completed.
Also, such software is now being tested for interface, data exchanges and
end-to-end year 2000 compliance. Such testing is expected to be completed by
November 15, 1999.
SLFC has been monitoring the year 2000 efforts of its major providers of
guarantees in connection with its student loan financings, in particular,
Education Assistance Corporation, the Pennsylvania Higher Education Assistance
Agency and the Department of Education. Failure of any of these entities to
achieve year 2000 compliance could severely impact their ability to provide
timely payments to SLFC. Education Assistance Corporation and the Pennsylvania
Higher Education Assistance Agency have advised SLFC that they have completed
their inventory of current hardware and software products and major software
systems, and are in the process of replacing and upgrading hardware and software
products which are not presently year 2000 compliant. According to announcements
by the Department of Education, it completed its systems conversion effort with
the last system being implemented on March 8, 1999, ahead of
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the Office of Management and Budget March 31, 1999 deadline. One hundred percent
of the Department's 175 systems are either retired (28) or are year 2000
compliant and fully implemented (147).
SLFC is in the process of surveying its other business partners, such as
investment bankers, the trustee, guarantee agencies and lenders with which it
does business, to determine their level of year 2000 compliance. The results of
these surveys are expected to be known by November 1, 1999.
SLFC has not independently verified the assurances provided from the
entities with which it conducts business or the vendors that provide software
and can itself give no assurances that such entities have accurately assessed
their level of compliance and will not subsequently discover areas of
non-compliance that will have a material adverse impact on SLFC's operations.
SLFC is presently completing development of its testing and contingency plans
for those systems where year 2000 compliance is essential. These testing and
contingency plan developments are expected to be completed by November 15, 1999.
It is SLFC's intent to complete all year 2000 testing by November 15, 1999. SLFC
expects to incur no material costs in connection with its year 2000 efforts.
DESCRIPTION OF THE INDENTURE
General
EdLinc and the trustee will enter into the indenture, under which each
series of notes will be issued. The following is a summary of the material terms
of the indenture. The summary does not purport to be complete and is qualified
in its entirety by reference to the provisions of the indenture. The indenture
will be in substantially the form filed as part of the registration statement of
which this prospectus is a part.
The indenture establishes the general provisions of notes issued by EdLinc
thereunder and sets forth various covenants and agreements of EdLinc relating
thereto, default and remedy provisions, responsibilities and duties of the
trustee and establishes the various funds into which EdLinc's revenues related
to the notes are deposited and transferred for various purposes.
Funds and Accounts
Acquisition Fund
The indenture establishes an Acquisition Fund. With respect to each series
of notes, the trustee will, upon delivery to the initial purchasers thereof and
from the proceeds thereof, credit to the Acquisition Fund the amount, if any,
specified in the supplemental indenture providing for the issuance of such
series of notes. The trustee will also deposit in the Acquisition Fund: (1) any
funds to be transferred thereto from the Surplus Fund, and (2) any other amounts
specified in a supplemental indenture.
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Balances in the Acquisition Fund will be used only for (a) the purchase or
origination of Eligible Loans, (b) the redemption of notes which are called for
redemption or the purchase of notes as provided in a supplemental indenture, (c)
the payment of debt service on the Senior Notes and Other Senior Obligations, or
(d) the payment of the purchase price of any Senior Notes required to be
purchased on a Purchase Date or a mandatory tender date. The trustee will make,
or authorize any deposit agent to make, payments to the transferor, lenders or
SLFC from the Acquisition Fund for the purchase of Eligible Loans, such payments
to be made at a purchase price not in excess of 100% of the remaining unpaid
principal amount of such Eligible Loan, plus accrued noncapitalized borrower
interest thereon, if any, to the date of purchase, reasonable transfer,
origination or assignment fees, if applicable, and a premium not to exceed the
limitations set forth in the applicable supplemental indenture. The trustee will
also make, or authorize the deposit agent to make, payments from the Acquisition
Fund for the origination of Eligible Loans.
Balances in the Acquisition Fund, other than any portion of such balances
consisting of student loans, will be (1) transferred to the Note Fund on the
last business day preceding any interest payment date, principal payment date or
redemption date to the extent required to pay the debt service due on the Senior
Notes and any Other Senior Obligations, as described under "--Note Fund" below,
and (2) after such transfer, if any, to be made pursuant to the preceding clause
(1) has been taken into account, transferred to the Principal Account on any
Purchase Date or mandatory tender date with respect to Senior Notes, to the
extent described under "--Note Fund" below. If any amounts have been transferred
to the Note Fund pursuant to this paragraph, the trustee will, to the extent
necessary to cure the deficiency in the Acquisition Fund as a result of such
transfer, transfer to the Acquisition Fund amounts from the Revenue Fund as
described below under "--Revenue Fund."
Pending application of moneys in the Acquisition Fund for one or more
authorized purposes, such moneys will be invested in investment securities, as
described under "--Investments" below, and any income from said investments will
be deposited in the Revenue Fund.
Revenue Fund
The indenture establishes a Revenue Fund, which is comprised of two
accounts: the Repayment Account and the Income Account. The trustee and any
deposit agent will credit to the Revenue Fund:
(1) all amounts received as interest and principal payments with
respect to financed student loans, including all guarantee payments,
Interest Subsidy Payments and Special Allowance Payments with respect to
financed FFELP Loans,
(2) unless otherwise provided in a supplemental indenture, proceeds of
the resale to a lender or SLFC of any financed student loans pursuant to
such lender's or SLFC's repurchase obligation under the applicable student
loan purchase agreement,
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(3) all amounts received as income from investment securities in the
Acquisition Fund, the Reserve Fund, the Administration Fund, the Surplus
Fund and the Note Fund, and
(4) all amounts to be transferred to the Revenue Fund from the
Alternative Loan Guarantee Fund.
The trustee will deposit and credit all such amounts received as payments of
principal of financed student loans to the Repayment Account, and all other such
amounts to the Income Account.
Pending transfers from the Revenue Fund, the moneys therein will be
invested in investment securities as described under "--Investments" below, and
any income from said investments will be retained therein.
Repayment Account. On each Monthly Payment Date and on any other date on
which the balance in the Note Fund is not sufficient to pay all amounts payable
therefrom on such date, the trustee will transfer the moneys received since the
preceding Monthly Payment Date in the Repayment Account as follows:
o first, to the appropriate party, amounts in respect of moneys
previously received from the Secretary of Education or a guarantee
agency on financed FFELP Loans for which the Secretary of Education or
such guarantee agency has reimbursed itself through withholding
payments on other FFELP Loans not financed under the indenture;
o second, to the Interest Account, to the extent necessary to increase
the balance thereof to the amount required for the payment of interest
on Senior Notes or Other Senior Obligations payable therefrom;
o third, to the Principal Account, to the extent necessary to increase
the balance thereof to the amount required for the redemption of
Senior Notes or payment of principal or the purchase price of Senior
Notes or the payment of Other Senior Obligations payable therefrom;
o fourth, to the Retirement Account, to the extent and in the manner
provided in the indenture with respect to the redemption of Senior
Notes from the Retirement Account or the payment of Other Senior
Obligations payable therefrom;
o fifth, to the Acquisition Fund, to the extent described above under
"--Acquisition Fund;"
o sixth, to the Interest Account, to the extent necessary to increase
the balance thereof to the amount required for the payment of interest
on Subordinate Notes or Other Subordinate Obligations payable
therefrom;
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o seventh, to the Principal Account, to the extent necessary to increase
the balance thereof to the amount required for the payment of
principal at stated maturity or the purchase price of Subordinate
Notes or the payment of Other Subordinate Obligations payable
therefrom;
o eighth, to the Retirement Account, to the extent and in the manner
provided in the indenture with respect to the redemption of
Subordinate Notes from the Retirement Account or payment of Other
Subordinate Obligations payable therefrom;
o ninth, to the Reserve Fund, to the extent necessary to increase the
balance thereof to the Reserve Fund Requirement;
o tenth, to the Principal Account, to the extent necessary to increase
the balance thereof to the amount required to meet the sinking fund
installment with respect to the redemption of Subordinate Notes on the
next sinking fund payment date therefor;
o eleventh, to the Special Redemption and Prepayment Account, to the
extent necessary to increase the balance thereof to the Special
Redemption and Prepayment Account Requirement with respect to each
series of notes;
o twelfth, to the Alternative Loan Guarantee Fund, the lesser of (1) the
amount necessary to increase the balance thereof to the Alternative
Loan Guarantee Fund Requirement, and (2) the aggregate amount received
by the Servicer and deposited in the Revenue Fund with respect to
Financed Alternative Student Loans for which a transfer has been made
from the Alternative Loan Guarantee Fund, less the aggregate amount
transferred to the Alternative Loan Guarantee Fund from the Revenue
Fund on previous Monthly Payment Dates; and
o thirteenth, any remainder to the Surplus Account.
Income Account. On each Monthly Payment Date and on any other date on which
the balance in the Note Fund is not sufficient to pay all amounts payable
therefrom on such date, the trustee will, after transferring all amounts
received in the Repayment Account pursuant to the preceding paragraph, transfer
the moneys received since the preceding Monthly Payment Date in the Income
Account, (1) to the extent amounts in the Repayment Account were not sufficient
therefor, make any periodic rebate fee payments required to be made to the
Secretary of Education in connection with financed FFELP Loans, and (2) transfer
the remainder of such moneys as follows:
o first, to the appropriate party, amounts in respect of moneys
previously received from the Secretary of Education or a guarantee
agency on financed FFELP Loans for which the Secretary of Education or
such guarantee agency has reimbursed itself through withholding
payments on other FFELP Loans not financed under the indenture;
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o second, to the Interest Account, to the extent necessary to increase
the balance thereof to the amount required for the payment of interest
on Senior Notes or Other Senior Obligations payable therefrom;
o third, to the Principal Account, to the extent necessary to increase
the balance thereof to the amount required for the redemption of
Senior Notes or payment of principal or the purchase price of Senior
Notes or the payment of Other Senior Obligations payable therefrom;
o fourth, to the Retirement Account, to the extent and in the manner
provided in the indenture with respect to the redemption of Senior
Notes from the Retirement Account or payment of Other Senior
Obligations payable therefrom;
o fifth, to the Acquisition Fund, to the extent described above under
"--Acquisition Fund;"
o sixth, to the Interest Account, to the extent necessary to increase
the balance thereof to the amount required for the payment of interest
on Subordinate Notes or Other Subordinate Obligations payable
therefrom;
o seventh, to the Principal Account, to the extent necessary to increase
the balance thereof to the amount required for the payment of
principal at stated maturity or the purchase price of Subordinate
Notes or the payment of Other Subordinate Obligations payable
therefrom;
o eighth, to the Retirement Account, to the extent and in the manner
provided in the indenture with respect to the redemption of
Subordinate Notes from the Retirement Account or payment of Other
Subordinate Obligations payable therefrom;
o ninth, to the Administration Fund, to extent necessary to increase the
balance thereof to such amounts as an authorized officer of EdLinc
shall direct for costs and expenses;
o tenth, to the Reserve Fund, to the extent necessary to increase the
balance thereof to the Reserve Fund Requirement;
o eleventh, to the Principal Account, to the extent necessary to
increase the balance thereof to the amount required to meet the
sinking fund installment with respect to the redemption of Subordinate
Notes on the next sinking fund payment date therefor;
o twelfth, to the Special Redemption and Prepayment Account, to the
extent necessary to increase the balance thereof to the Special
Redemption and Prepayment Account Requirement with respect to each
series of notes;
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o thirteenth, to the Alternative Loan Guarantee Fund, the lesser of (1)
the amount necessary to increase the balance thereof to the
Alternative Loan Guarantee Fund Requirement, and (2) the aggregate
amount received by the Servicer and deposited in the Revenue Fund with
respect to Financed Alternative Student Loans for which a transfer has
been made from the Alternative Loan Guarantee Fund, less the aggregate
amount transferred to the Alternative Loan Guarantee Fund from the
Revenue Fund on previous Monthly Payment Dates; and
o fourteenth, any remainder to the Surplus Account.
Note Fund
The indenture establishes a Note Fund, which is comprised of three
accounts: the Interest Account, the Principal Account and the Retirement
Account. The Note Fund will be used only for the payment when due of principal
of, premium, if any, and interest on the Senior Notes and the Subordinate Notes,
the purchase price of Senior Notes and Subordinate Notes to be purchased on a
Purchase Date or mandatory tender date in accordance with the indenture, Other
Indenture Obligations and Carry-Over Amounts (including any accrued interest
thereon). The principal of and interest on the Class C Notes are payable from
the Surplus Fund.
Interest Account. The trustee will deposit in the Interest Account (1) that
portion of the proceeds from the sale of financed student loans representing
accrued interest and Special Allowance Payments, (2) that portion of the
proceeds from the sale of EdLinc's bonds, notes or other evidences of
indebtedness, if any, to be used to pay interest on the Senior Notes or the
Subordinate Notes, (3) all counterparty swap payments, (4) all payments under
any credit enhancement facilities to be used to pay interest on the notes and
(5) all amounts required to be transferred thereto from the funds and accounts
specified in the last sentence of the following paragraph. The moneys in the
Interest Account will be invested in investment securities as described under
"--Investments" below, and any income from such investments will be deposited in
the Revenue Fund.
To provide for the payment of interest on Senior Notes or Subordinate Notes
on each regularly scheduled interest payment date and all EdLinc swap payments
and fees to a credit facility provider payable on such interest payment date,
the trustee will make deposits to the Interest Account on each Monthly Payment
Date. If, on any interest payment date, including a redemption date or a date
that notes are to be purchased that is not a regularly scheduled interest
payment date, moneys in the Interest Account are insufficient to pay the accrued
interest due on the Senior Notes and Subordinate Notes and all EdLinc swap
payments and fees to a credit facility provider payable on such interest payment
date or constituting a portion of the purchase price of notes to be so
purchased, the trustee will deposit immediately to the Interest Account an
amount equal to such deficiency. Each deposit required by this paragraph will be
made by transfer from the following funds and accounts, in the following order
of priority: the Revenue Fund, the Surplus Fund, other than that portion of the
balance consisting of Eligible Loans, the Reserve Fund, the Administration Fund,
the Surplus Fund, including any portion of the balance
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consisting of Eligible Loans, the Retirement Account, the Principal Account and,
as to Senior Notes and Other Senior Obligations only, the Acquisition Fund,
other than that portion of the balance consisting of student loans; provided
that such transfers in respect of Subordinate Notes or Other Subordinate
Obligations will be so made from the Principal Account or the Retirement Account
only if, and to the extent, any amounts to be so transferred are in excess of
the requirements of such accounts with respect to Senior Obligations payable
therefrom.
If, as of any regularly scheduled interest payment date, any Carry-Over
Amount, including any accrued interest, is due and payable with respect to a
series of notes, as provided in the related supplemental indenture, the trustee
will transfer to the Interest Account, to the extent amounts are available
therefor in the Surplus Account, after taking into account all other amounts
payable from the Surplus Fund on such interest payment date, an amount equal to
such Carry-Over Amount, including any accrued interest, so due and payable.
Apart from transfers to the Principal Account as described under
"--Principal Account" below, balances in the Interest Account will be applied in
the following order of priority:
o first, to the payment of interest on all Senior Notes, EdLinc swap
payments under senior swap agreements and fees payable to senior
credit facility providers due on an interest payment date, and if such
money is less than such interest and Other Senior Obligations on such
interest payment date, such money will be applied, pro rata, among
such indebtedness based upon such amounts then owing to Senior
Beneficiaries and to be paid from the Interest Account;
o second, to the payment of interest on all Subordinate Notes, EdLinc
swap payments under subordinate swap agreements and fees payable to
subordinate credit facility providers due on an interest payment date,
and if such money is less than such interest and Other Subordinate
Obligations on such interest payment date, such money will be applied,
pro rata, among such indebtedness based upon such amounts then owing
to Subordinate Beneficiaries and to be paid from the Interest Account;
o third, to the payment of all Carry-Over Amounts, including any accrued
interest, due and payable on all series of Senior Notes, and if such
money is less than such Carry-Over Amounts, including any accrued
interest, on an interest payment date, such money will be applied, pro
rata, among such Carry-Over Amounts, including any accrued interest,
based upon such amounts then otherwise due and payable to Senior
Noteholders and to be paid from the Interest Account; and
o fourth, to the payment of all Carry-Over Amounts, including any
accrued interest, due and payable on all series of Subordinate Notes,
and if such money is less than such Carry-Over Amounts, including any
accrued interest, on an interest payment date, such money will be
applied, pro rata, among such Carry-Over Amounts, including any
accrued interest, based upon such amounts then otherwise due and
payable to Subordinate Noteholders and to be paid from the Interest
Account.
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Other Indenture Obligations payable from the Interest Account will include
reimbursement to any credit facility provider for interest paid on Senior Notes
or Subordinate Notes from amounts derived from the related credit enhancement
facility, which reimbursement will have the same priority of payment from the
Interest Account as the interest so paid.
Principal Account. The trustee will deposit to the Principal Account: (1)
that portion of the proceeds from the sale of financed student loans
representing principal thereof, (2) that portion of the proceeds from the sale
of EdLinc's bonds, notes or other evidences of indebtedness, if any, to be used
to pay principal of the Senior Notes and the Subordinate Notes, (3) all payments
under any credit enhancement facilities to be used to pay principal of Senior
Notes or Subordinate Notes or the purchase price of Senior Notes or Subordinate
Notes to be purchased on a Purchase Date or mandatory tender date, and (4) all
amounts required to be transferred thereto from the following funds, in the
following order of priority: (a) in the case of payment of principal of notes at
stated maturity, redemption of Senior Notes called for redemption on a sinking
fund payment date or the purchase of notes on a Purchase Date or mandatory
tender date, the Revenue Fund, the Surplus Fund, other than that portion of the
balance consisting of Eligible Loans, the Reserve Fund, the Administration Fund
and the Surplus Fund, including any portion of the balance consisting of
Eligible Loans, and (b) in the case of redemption of Subordinate Notes called
for redemption on a sinking fund payment date, the Revenue Fund and the Surplus
Fund, other than that portion of the balance consisting of Eligible Loans;
provided, however, that if principal is payable on Senior Notes at the stated
maturity thereof or upon a sinking fund payment date therefor, or the purchase
price is payable on Senior Notes on a Purchase Date or mandatory tender date,
and money credited to the Principal Account, after the foregoing transfers, is
insufficient to pay such principal or purchase price, funds will be transferred,
to the extent necessary, to the Principal Account for this purpose, (1) from the
Interest Account, but only to the extent that the balance in the Interest
Account exceeds any then accrued payments of interest on the Senior Notes,
EdLinc swap payments under senior swap agreements and fees owing to senior
credit facility providers and (2) thereafter from the Acquisition Fund, other
than that portion of the balance thereof consisting of student loans.
To provide for the payment of principal due on the stated maturity of
Senior or Subordinate Notes or on a sinking fund payment date for Senior or
Subordinate Notes, the trustee will make deposits to the Principal Account on
each Monthly Payment Date from amounts available therefor in the Revenue Fund
and the other funds referred to above. To the extent there are not available
moneys to make any monthly payment with respect to the cumulative sinking fund
redemption of Subordinate Notes, subsequent monthly payments will be increased
to make up any such deficiency, and to the extent that on any sinking fund
payment date the aggregate of such payments actually made as of the
next-to-the-last Monthly Payment Date prior to such sinking fund payment date is
less than the amount of the sinking fund installment due on such sinking fund
payment date, the amount of such deficiency will be added to the amount of the
sinking fund installment due on the next sinking fund payment date, and the
increased amount thereupon will be deemed to be the amount due for such next
sinking fund installment. However, the requirement for payments of cumulative
sinking fund installments on Subordinate Notes will not be construed to create
an event of default under the indenture in the event of any such
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deficiency, other than in amounts due with respect to the stated maturity of
Subordinate Notes, unless a sinking fund installment of such Subordinate Notes
shall not only be due and not applied to the redemption of Subordinate Notes,
but also that all contingencies upon the obligation so to apply it as of such
time in fact have been satisfied.
If EdLinc is required to furnish moneys to a depositary to purchase notes
on a Purchase Date or mandatory tender date, the trustee will, subject to the
applicable provisions of the related supplemental indenture, immediately deposit
to the Principal Account moneys sufficient to pay the purchase price thereof.
Balances in the Principal Account will be applied in the following order of
priority:
o first, to the Interest Account to the extent required (see "--Interest
Account" above) for the payment of interest on Senior Notes and Other
Senior Obligations payable therefrom;
o second, to the payment of Senior Notes at their stated maturity or on
their sinking fund payment date and Other Senior Obligations payable
therefrom;
o third, to the payment of the purchase price of Senior Notes on a
Purchase Date or mandatory tender date;
o fourth, to the Interest Account to the extent required (see
"--Interest Account" above) for the payment of interest on Subordinate
Notes and Other Subordinate Obligations payable therefrom;
o fifth, to the payment of Subordinate Notes at their stated maturity
and Other Subordinate Obligations payable therefrom;
o sixth, to the payment of the purchase price of Subordinate Notes on a
Purchase Date or mandatory tender date; and
o seventh, to the payment of Subordinate Notes on a sinking fund payment
date.
Other Indenture Obligations payable from the Principal Account will include
reimbursement to any credit facility provider for principal or the purchase
price paid on Senior Notes or Subordinate Notes from amounts derived from the
related credit enhancement facility, which reimbursement will have the same
priority of payment from the Principal Account as the principal so paid.
Subject to compliance with the provisions of the indenture described under
"Description of the Notes--Call for Redemption, Prepayment or Purchase of Notes;
Senior Asset Requirement," balances in the Principal Account may also be applied
to the purchase of Senior Notes or Subordinate Notes at a purchase price not to
exceed the principal amount thereof plus
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accrued interest, as determined by EdLinc at such time, provided the trustee
will have first certified that no deficiencies exist at such time in the Note
Fund. Any such purchase will be limited to those Senior Notes or Subordinate
Notes whose stated maturity or sinking fund payment date is the next succeeding
principal payment date.
The moneys in the Principal Account will be invested in investment
securities as described under "--Investments" below, and any income from such
investments will be deposited in the Revenue Fund.
Retirement Account. The trustee will deposit to the Retirement Account (1)
any amounts transferred to the Retirement Account from the Reserve Fund and the
Surplus Fund, (2) that portion of the proceeds from the sale of EdLinc's bonds,
notes or other evidences of indebtedness, if any, to be used to pay the
principal or redemption price of Senior Notes or Subordinate Notes on a date
other than the stated maturity thereof or a sinking fund payment date therefor,
and (3) all payments under any credit enhancement facilities to be used to pay
the redemption price of notes payable from the Retirement Account. All Senior
Notes or Subordinate Notes which are to be retired, or the principal of which is
to be prepaid, other than with moneys in the Principal Account will be retired
or prepaid with moneys deposited to the Retirement Account.
Balances in the Retirement Account will be transferred to the Interest
Account to the extent required (see "--Interest Account" above) for the payment
of interest on notes and Other Indenture Obligations payable therefrom.
Other Indenture Obligations payable from the Retirement Account will
include reimbursement to any credit facility provider for the redemption price
paid on Senior Notes or Subordinate Notes from amounts derived from the related
credit enhancement facility, which reimbursement will have the same priority of
payment from the Retirement Account as the redemption price so paid.
Subject to compliance with the provisions of the indenture described under
"Description of the Notes--Call for Redemption, Prepayment or Purchase of Notes;
Senior Asset Requirement," balances in the Retirement Account, other than any
portion thereof to be applied to the mandatory prepayment of principal of any
notes, may also be applied to the purchase of Senior Notes or Subordinate Notes
at a purchase price not to exceed the principal amount thereof plus accrued
interest plus any then applicable redemption premium, as determined by EdLinc at
such time; provided the trustee shall have first certified that no deficiencies
exist at such time in the Note Fund.
The moneys in the Retirement Account will be invested in investment
securities as described under "--Investments" below, and any income from such
investment will be deposited in the Revenue Fund.
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Administration Fund
With respect to each series of notes, the trustee will, upon delivery
thereof and from the proceeds thereof, credit to the Administration Fund
established under the indenture the amount, if any, specified in the
supplemental indenture providing for the issuance of such series of notes. The
trustee will also credit to the Administration Fund all amounts transferred
thereto from the Revenue Fund and the Surplus Account. Amounts in the
Administration Fund will be used to pay costs of issuance, administrative
expenses and Note Fees or to reimburse another fund, account or other source of
EdLinc for the previous payment of costs of issuance, administrative expenses or
Note Fees. Balances in the Administration Fund will also be applied to remedy
deficiencies in the Note Fund after transfers thereto from the Revenue Fund, the
Surplus Fund, other than that portion of the balance thereof consisting of
Eligible Loans, and the Reserve Fund.
The trustee will transfer and credit to the Administration Fund moneys
available under the indenture for transfer thereto from the sources set forth in
the following paragraph and in such amounts and at such times as an authorized
officer of EdLinc shall direct; provided such officer shall certify that the
amounts are required and have been or will be expended within the next 90 days
for a purpose for which the Administration Fund may be used and applied.
Deposits to the Administration Fund will be made from the following sources
in the following order of priority:
o the Income Account after transfers therefrom to the Interest Account,
the Principal Account, other than with respect to the payment of
sinking fund installments for Subordinate Notes, and the Retirement
Account; and
o the Surplus Account after transfers therefrom to the Interest Account,
the Principal Account, other than with respect to the payment of
sinking fund installments for Subordinate Notes and the Retirement
Account, provided that any such deposit from the Surplus Account will
only be made to the extent that portion of the balance thereof not
consisting of Eligible Loans is sufficient therefor.
Pending transfers from the Administration Fund, the moneys therein will be
invested in investment securities, as described under "--Investments" below, and
any income from such investments will be deposited in the Revenue Fund.
Reserve Fund
The Reserve Fund is established under the indenture only for the security
of the Senior Beneficiaries and the Subordinate Beneficiaries, and not for the
holders of the Class C Notes. Immediately upon the delivery of any series of
Senior Notes or Subordinate Notes, and from the proceeds thereof or, at the
option of EdLinc, from any amounts to be transferred thereto from the Surplus
Fund and from any other available moneys of EdLinc not otherwise credited to or
payable into any Fund or Account under the indenture or otherwise subject to the
pledge and
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security interest created by the indenture, the trustee will credit to the
Reserve Fund the amount, if any, specified in the supplemental indenture
providing for the issuance of that series of notes, such that, upon issuance of
such notes, the balance in the Reserve Fund shall not be less than the Reserve
Fund Requirement.
If on any Monthly Payment Date the balance in the Reserve Fund is less than
the Reserve Fund Requirement, the trustee will transfer and credit thereto an
amount equal to the deficiency from moneys available therefor in the following
funds and accounts in the following order of priority: the Repayment Account,
the Income Account and the Surplus Fund; provided that any such transfer from
the Surplus Fund will only be made to the extent that portion of the balance
thereof not consisting of Eligible Loans is sufficient therefor.
The balance in the Reserve Fund will be used and applied solely for the
payment when due of principal and interest on the Senior Notes and the
Subordinate Notes and any Other Indenture Obligations and the purchase price of
Senior Notes and Subordinate Notes on a Purchase Date or mandatory tender date,
and the other purposes specified in the indenture (see "--Note Fund" above), and
will be so used and applied by transfer by the trustee to the Note Fund, (a) at
any time and to the extent that the balance therein and the balances available
for deposit to the credit thereof from the Revenue Fund and the Surplus Fund,
other than that portion of the balance consisting of Eligible Loans, are
insufficient to meet the requirements specified in the indenture for deposit to
the Note Fund at such time, provided, however, that such amounts will be
applied, first, to the payment of interest on the Senior Notes and Other Senior
Obligations payable from the Interest Account, second, to the payment of
principal and the purchase price of Senior Notes and Other Senior Obligations
payable from the Principal Account, third, to the payment of interest on the
Subordinate Notes and Other Subordinate Obligations payable from the Interest
Account, and, fourth, to the payment of principal and the purchase price of
Subordinate Notes and Other Subordinate Obligations payable from the Principal
Account, and (b) at any time when a portion of the balance therein is required
to be transferred to the Retirement Account to pay a portion of the redemption
price of Senior Notes or Subordinate Notes called for redemption as provided in
a supplemental indenture relating thereto. If on any Monthly Payment Date the
balance in the Reserve Fund exceeds the Reserve Fund Requirement, such excess
will, upon order of an authorized officer of EdLinc, be transferred to the
Principal Account, to the extent necessary to make the deposits required to be
made to the Principal Account on such Monthly Payment Date, whether or not other
moneys are available to make such deposits.
Pending transfers from the Reserve Fund, the moneys therein will be
invested in investment securities as described under "--Investments" below and
any income from such investments will be deposited in the Revenue Fund.
Surplus Fund
The indenture establishes a Surplus Fund, which is comprised of two
accounts: the Special Redemption and Prepayment Account and the Surplus Account.
The trustee will deposit
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to the Surplus Fund balances in the Revenue Fund not required for deposit to any
other Fund or Account. Deposits to the Surplus Fund from the Revenue Fund will
be credited to the Special Redemption and Prepayment Account to the extent the
balance thereof is less than the Special Redemption and Prepayment Account
Requirement for each series of notes, and otherwise to the Surplus Account.
Balances in the Surplus Fund will be applied to the following purposes in
the following order of priority:
o first, to remedy deficiencies in the Interest Account, after transfers
thereto from the Revenue Fund, for the payment of interest on Senior
Notes or Other Senior Obligations payable therefrom;
o second, to remedy deficiencies in the Principal Account, after
transfers thereto from the Revenue Fund, for the redemption of Senior
Notes or the payment of principal or the purchase price of Senior
Notes or the payment of Other Senior Obligations payable therefrom;
o third, to remedy deficiencies in the Retirement Account, after
transfers thereto from the Revenue Fund, for the redemption of Senior
Notes or the payment of Other Senior Obligations payable therefrom;
o fourth, to remedy deficiencies in the Interest Account, after
transfers thereto from the Revenue Fund, for the payment of interest
on Subordinate Notes or Other Subordinate Obligations payable
therefrom;
o fifth, to remedy deficiencies in the Principal Account, after
transfers thereto from the Revenue Fund, for the payment of the
principal at stated maturity or the purchase price of Subordinate
Notes or the payment of Other Subordinate Obligations payable
therefrom;
o sixth, to remedy deficiencies in the Retirement Account, after
transfers thereto from the Revenue Fund, for the redemption of
Subordinate Notes or the payment of Other Subordinate Obligations
payable therefrom;
o seventh, to make deposits, but only from the Surplus Account, to the
Administration Fund, after transfers thereto from the Revenue Fund, to
the extent required pursuant to an order of an authorized officer of
EdLinc for costs and expenses;
o eighth, to remedy deficiencies in the Reserve Fund, to the extent that
the balance is less than the Reserve Fund Requirement after transfers
thereto from the Revenue Fund;
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o ninth, to remedy deficiencies in the Principal Account, after
transfers thereto from the Revenue Fund, to meet the sinking fund
installment with respect to the redemption of Subordinate Notes on a
sinking fund payment date;
o tenth, to make transfers to the Retirement Account to redeem Senior
Notes or Subordinate Notes which are called for redemption or to
prepay Senior or Subordinate Notes as provided in a supplemental
indenture relating thereto, provided that any such transfers will be
made only from balances in the Special Redemption and Prepayment
Account; and
o eleventh, to make deposits, but only from the Surplus Account, to the
Interest Account for the payment of Carry-Over Amounts, and accrued
interest thereon.
Notwithstanding the foregoing, Balances in the Surplus Fund consisting of
Eligible Loans will not be required to be applied (1) pursuant to priorities
first through sixth above until after any transfers from the Reserve Fund have
been taken into account, and (2) in any event pursuant to priorities seventh
through eleventh above. If the Surplus Fund is to be used to make such
transfers, transfers will be made, first, from any cash or investment securities
included in the Surplus Account or the Special Redemption and Prepayment
Account, in that order, and, second, from the proceeds of any sale of student
loans included in the Surplus Account.
Balances in the Special Redemption and Prepayment Account may also be
transferred to the Acquisition Fund for the purchase or origination of Eligible
Loans as provided in the indenture and as further authorized or limited in a
supplemental indenture.
Subject to compliance with the provisions of the indenture described under
"Description of the Notes--Call for Redemption, Prepayment or Purchase of Notes;
Senior Asset Requirement" and satisfaction of other conditions set forth in the
indenture, balances in the Special Redemption and Prepayment Account, other than
any portion to be applied to the mandatory prepayment of principal of any notes,
may also be transferred to the Note Fund for the purchase of notes.
Balances in the Surplus Account may, subject to satisfaction of conditions
set forth in the indenture, including the requirement that, after taking into
account any such payments, the Senior Asset Requirement will be met, also be
applied, as determined by EdLinc from time to time, to the payment of principal
of or interest on Class C Notes when due or upon the call for redemption thereof
at the option of EdLinc.
Subject to compliance with the provisions of the indenture described under
"Description of the Notes--Call for Redemption, Prepayment or Purchase of Notes;
Senior Asset Requirement," balances in the Surplus Account may also be applied
to any one or more of the following purposes at any time as determined by
EdLinc, provided the trustee will have first certified that no deficiencies
exist at such time in the Note Fund, the Reserve Fund or the Special Redemption
and Prepayment Account:
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(1) transfer to the Retirement Account for the redemption of Senior
Notes or Subordinate Notes called for redemption;
(2) transfer to the Principal Account or the Retirement Account for
the purchase of Senior Notes or Subordinate Notes; or
(3) upon satisfaction of conditions set forth in the indenture, (a)
the acquisition of student loans meeting the requirements of clauses (A)
(1) and (2) or (B) of the definition of "Eligible Loan"; (b) to reimburse
another fund, account or other source of EdLinc for the previous payment of
costs of issuance; and (c) for such other purposes as EdLinc shall
determine; provided, however, that balances in the Surplus Account will not
be applied to any of the purposes specified in the preceding clause (3)(b)
or (c) or to the purchase of student loans that are not Eligible Loans
unless, after taking into account any such application and excluding, for
these purposes only, from the calculation of the value of the Trust Estate,
any financed student loans which are not Eligible Loans and any moneys
reasonably expected to be needed to be used to pay costs of issuance, Note
Fees or administrative expenses, (i) the Senior Percentage will not be less
than 112%, or such lower percentage which, if Unenhanced Senior Notes are
Outstanding, will not result in the lowering or withdrawal of the
outstanding rating assigned by any Rating Agency to any of the Unenhanced
Senior Notes Outstanding, or, if no Unenhanced Senior Notes are Outstanding
but Other Senior Obligations are Outstanding, is acceptable to the Other
Senior Beneficiaries, and (ii) the Subordinate Percentage will not be less
than 102%, or such lower percentage which, if Unenhanced Subordinate Notes
are Outstanding, will not result in the lowering or withdrawal of the
outstanding rating assigned by any Rating Agency to any of the Unenhanced
Subordinate Notes Outstanding, or, if no Unenhanced Subordinate Notes are
Outstanding but Other Subordinate Obligations are Outstanding, is
acceptable to the Other Subordinate Beneficiaries; and provided, further,
that balances in the Surplus Account may be applied to the purchase of
Eligible Loans as specified in the preceding clause (3)(a) without
satisfying any other condition of this clause (3), to the extent provided
in a supplemental indenture.
The trustee will use its best efforts to sell student loans included in the
balance of the Surplus Account at the best price available to the extent
necessary to make any transfer or payment therefrom described above. In
addition, EdLinc may, at any time, sell to any purchaser (A) one or more
Eligible Loans financed with moneys in the Surplus Account at a price not less
than 100% of the principal balance thereof plus accrued noncapitalized interest
thereon payable by the borrower, or (B) one or more student loans financed with
moneys in the Surplus Account that are not Eligible Loans at a price not less
than the lesser of 100% of the principal balance thereof or the percentage of
the principal balance thereof paid to finance such student loan plus, in either
case, accrued noncapitalized interest thereon payable by the borrower. Student
loans from time to time held in the Surplus Account may also be purchased at any
time with the proceeds of EdLinc's bonds, notes or other evidences of
indebtedness, at a purchase price equal to 100% of the principal balance of the
student loans so purchased plus accrued noncapitalized interest thereon payable
by the borrower. Any money received by EdLinc in connection with a
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sale of financed student loans pursuant to this paragraph will be deposited to
the Surplus Account.
Pending transfers from the Surplus Fund, the moneys therein will be
invested in investment securities as described under "--Investments" below, and
any income from such investments will be deposited in the Revenue Fund.
Alternative Loan Guarantee Fund
The indenture establishes an Alternative Loan Guarantee Fund. The trustee
will, upon the purchase of each Alternative Loan from the transferor or SLFC,
deposit to the Alternative Loan Guarantee Fund the amount received in respect of
an origination fee relating to such Alternative Loan. The trustee will also
deposit to the Alternative Loan Guarantee Fund any amounts transferred thereto
from the Revenue Fund.
To the extent, as of the end of any calendar month, any payment on a
financed Alternative Loan has not been received within 180 days after the due
date therefor, such financed Alternative Loan will be deemed a Liquidated
Alternative Loan. The trustee will, on each Monthly Payment Date, transfer from
the Alternative Loan Guarantee Fund to the Revenue Fund an amount equal to the
unpaid principal balance of and accrued interest on each financed Alternative
Loan that became a Liquidated Alternative Loan during the preceding calendar
month.
If on any monthly payment date the balance in the Alternative Loan
Guarantee Fund exceeds the Alternative Loan Guarantee Fund Requirement, the
trustee shall transfer to the Revenue Fund an amount equal to such excess.
Pending transfers from the Alternative Loan Guarantee Fund, the moneys
therein will be invested in investment securities as described under
"--Investments" below, and any income from such investments will be retained
therein.
Pledge; Encumbrances
The notes and all Other Indenture Obligations are special, limited
obligations of EdLinc specifically secured by the pledge of the proceeds of the
sale of notes, until expended for the purpose for which the notes were issued,
the financed student loans and the revenues, moneys and securities in the
Acquisition Fund, the Note Fund, the Revenue Fund, the Administration Fund, the
Reserve Fund, the Alternative Loan Guarantee Fund and the Surplus Fund, in the
manner and subject to the prior applications provided in the indenture. Financed
student loans purchased with the proceeds of EdLinc's bonds, notes or
obligations or sold to another purchaser, or resold to a lender or SLFC pursuant
to its repurchase obligation under a student loan purchase agreement, or sold or
exchanged for Eligible Loans in accordance with the provisions of the indenture,
are, contemporaneously with receipt by the trustee of the purchase price, no
longer pledged to nor serve as security for the payment of the principal of,
premium, if any, or interest
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on, or any Carry-Over Amounts, or accrued interest, with respect to the notes or
any Other Indenture Obligations.
EdLinc agrees that it will not create, or permit the creation of, any
pledge, lien, charge or encumbrance upon the financed student loans or the
revenues and other assets pledged under the indenture, except only as to a lien
subordinate to the lien of the indenture created by any other indenture
authorizing the issuance of bonds, notes or other evidences of indebtedness of
EdLinc, the proceeds of which have been or will be used to refund or otherwise
retire all or a portion of the Outstanding notes or as otherwise provided in or
permitted by the indenture. EdLinc agrees that it will not issue any bonds or
other evidences of indebtedness, other than the notes as permitted by the
indenture and other than swap agreements and credit enhancement facilities
relating to notes as permitted by the indenture, secured by a pledge of the
revenues and other assets pledged under the indenture, creating a lien or charge
equal or superior to the lien of the indenture; provided that nothing in the
indenture is intended to prevent EdLinc from issuing obligations secured by
revenues and assets of EdLinc other than the revenues and other assets pledged
in the indenture.
Covenants
Certain covenants with the holders of the notes and Other Beneficiaries
contained in the indenture are summarized as follows:
Trustee to Hold Financed Student Loans. EdLinc will cause all financed
student loans to be endorsed and otherwise conveyed to the trustee on behalf of
EdLinc in accordance with the provisions of the applicable student loan purchase
agreement or, in the case of any origination of financed student loans, will
cause such student loans to be originated in the name of the trustee. The
trustee will be the legal owner of all financed FFELP Loans for all purposes of
the Higher Education Act and each guarantee program. The trustee will so hold
such financed student loans in its capacity as trustee pursuant to the indenture
and, in such capacity, will be acting on behalf of EdLinc, as the beneficial
owner of such student loans, as well as the holders of the notes and all Other
Beneficiaries, as their interests may appear.
Enforcement and Amendment of Guarantee Agreements. So long as any notes or
Other Indenture Obligations are Outstanding and financed FFELP Loans are
Guaranteed by a guarantee agency, EdLinc agrees that it (1) will, from and after
the date on which the trustee on its behalf shall have entered into the
Guarantee Agreement, cause the trustee to maintain the same and diligently
enforce the trustee's rights under the Guarantee Agreement, (2) will cause the
trustee to enter into such other similar or supplemental agreements as shall be
required to maintain benefits for all financed FFELP Loans covered thereby, and
(3) will not consent to or permit any rescission of or consent to any amendment
to or otherwise take any action under or in connection with the same which in
any manner will materially adversely affect the rights of the noteholders or
Other Beneficiaries under the indenture.
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Acquisition, Collection and Assignment of Student Loans. EdLinc agrees that
it will, except as provided with regard to the Surplus Fund (see "--Funds and
Accounts--Surplus Fund" above), cause the trustee to purchase or originate only
Eligible Loans with moneys in any of the funds and, subject to any adjustments
referred to in the following paragraph, will diligently cause to be collected
all principal and interest payments on all the financed student loans and other
sums to which EdLinc is entitled pursuant to any student loan purchase
agreement, and all grants, subsidies, donations, insurance payments, Special
Allowance Payments and all defaulted payments Guaranteed by any guarantee agency
which relate to such financed student loans. EdLinc will also make, or cause to
be made by lenders or servicers, every effort to perfect EdLinc's, the trustee's
or such lender's or servicer's claims for payment from the Secretary of
Education or a guarantee agency, as soon as possible, of all payments related to
financed FFELP Loans. EdLinc will cause the trustee to assign such financed
FFELP Loans for payment of guarantee or insurance benefits within the time
required under applicable law and regulations. EdLinc will cause all United
States and state statutes, rules and regulations which apply to financed student
loans to be complied with.
Enforcement of Financed Student Loans. EdLinc agrees that it will cause to
be diligently enforced, and cause to be taken all steps, actions and proceedings
reasonably necessary for the enforcement of, all terms, covenants and conditions
of all financed student loans and agreements in connection therewith, including
the prompt payment of all principal and interest payments (as such payments may
be adjusted to take into account (1) any discount EdLinc may cause to be made
available to borrowers who make payments on financed student loans through
automatic withdrawals, and (2) any reduction in the interest payable on financed
student loans provided for in any special program under which such loans were
originated) and all other amounts due EdLinc or the trustee thereunder. Nothing
in the provisions of the indenture described in this paragraph, however, shall
be construed to prevent EdLinc from settling a default or curing a delinquency
on any financed student loan on such terms as shall be required by law. In
addition, EdLinc may cause the trustee to amend the terms of a financed student
loan to provide for a different rate of interest thereon to the extent required
by law or, if such financed student loan is a Plus or SLS Loan, to effect a
reissuance of such Plus or SLS Loan at a variable rate.
Servicing and Other Agreements. EdLinc may contract with other entities to
assist it in performing its duties under the indenture, and any performance of
such duties by an entity so identified to the trustee will be deemed to be
action taken by EdLinc. EdLinc is required to enter into a servicing agreement
providing for the servicing of the financed student loans and performance of its
other obligations under the indenture.
Administration and Collection of Financed Student Loans. EdLinc agrees that
all financed student loans will be administered and collected by a servicer
selected by EdLinc in a competent, diligent and orderly fashion and in
accordance with all requirements of the Higher Education Act, the Secretary of
Education, the indenture, the Contract of Insurance, the federal reimbursement
contracts, each guarantee program, each Guarantee Agreement and each Alternative
Loan Program.
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Books of Account, Annual Audit. EdLinc agrees that it will cause to be kept
and maintained proper books of account in which full, true and correct entries
will be made, in accordance with generally accepted accounting principles, of
all dealings or transactions of or in relation to the business and affairs of
EdLinc, and within 120 days after the end of each fiscal year will cause such
books of account to be audited by an independent accountant. A copy of each
audit report, annual balance sheet and income and expense statement showing in
reasonable detail the financial condition of EdLinc as at the close of each
fiscal year, and summarizing in reasonable detail the income and expenses for
such year, including the transactions relating to the funds and accounts, will
be filed promptly with the trustee and be available for inspection by any
noteholder or Other Beneficiary.
Punctual Payments. EdLinc agrees that it will duly and punctually pay, or
cause to be paid, the principal of, premium, if any, and interest on and any
Carry-Over Amount, and accrued interest, with respect to each and every note and
each Other Indenture Obligation from the revenues and other assets pledged under
the indenture on the dates and at the places, and in the manner provided, in the
notes and with respect to each Other Indenture Obligation according to the true
intent and meaning thereof, and EdLinc will faithfully do and perform and at all
times fully observe and keep any and all of its covenants, undertakings,
stipulations and provisions contained in the notes, the Other Indenture
Obligations and the indenture.
Monthly Servicing Reports. EdLinc will prepare, or cause a servicer to
prepare, a monthly servicing report for each calendar month and will furnish, or
cause to be furnished, to the trustee a copy of each such report by the 25th day
of the next calendar month, or the next succeeding business day if such 25th day
is not a business day.
Limitation on Administrative Expenses and Note Fees. EdLinc covenants and
agrees that the administrative expenses and Note Fees will not, in any fiscal
year, exceed those that are reasonable and necessary in light of all
circumstances then existing and will not, in any event, be in such amounts as
will materially adversely affect the ability of EdLinc to pay or perform, as the
case may be, any of its obligations under the indenture or the security for any
Beneficiaries.
Amendment of Student Loan Purchase Agreements. EdLinc will notify the
trustee in writing of any proposed amendments to the student loan purchase
agreements. No such amendment will become effective unless and until the trustee
consents in writing thereto, which consent will not be given unless the trustee
receives an opinion of counsel that such amendment is required by the Higher
Education Act or is not to the prejudice of the holders of the notes or Other
Beneficiaries.
Credit Enhancement Facilities and Swap Agreements. EdLinc may from time to
time enter into any credit enhancement facilities or swap agreements with
respect to any notes of any series; provided that a supplemental indenture is
entered into authorizing the execution and delivery of such agreement. See
"--Supplemental Indentures" below.
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No supplemental indenture will authorize the execution of a swap agreement
unless, as of the date EdLinc enters into such swap agreement, the swap
counterparty has outstanding obligations rated by each Rating Agency not lower
than in its third highest specific rating category, or each Rating Agency has a
comparable other rating with respect to such swap counterparty, such as a
comparable rating of claims paying ability or deposits. No such swap agreement
will be designated as a senior swap agreement unless, as of the date EdLinc
enters into such swap agreement, the Senior Asset Requirement will be met and
the trustee shall have received written confirmation from each Rating Agency
that the execution and delivery of the swap agreement will not cause the
reduction or withdrawal of any rating or ratings then applicable to any
Outstanding Unenhanced Senior or Subordinate Notes.
Any supplemental indenture authorizing the execution by EdLinc of a swap
agreement or credit enhancement facility may include provisions with respect to
the application and use of all amounts to be paid thereunder. No amounts paid
under any such credit enhancement facility will be part of the Trust Estate
except to the extent, if any, specifically provided in such supplemental
indenture and no Beneficiary will have any rights with respect to any such
amounts so paid except as may be specifically provided in such supplemental
indenture.
No Petition
The trustee, by entering into the indenture, and each noteholder, by
accepting a note, covenants and agrees that it will not at any time institute
against EdLinc, or join in any institution against EdLinc of, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any United States Federal or state bankruptcy or similar law
in connection with any obligations relating to the notes or the indenture.
Investments
Moneys from time to time on deposit in the funds and accounts may be
invested in one or more of the following investment securities:
o Government Obligations;
o interest-bearing time or demand deposits, certificates of deposit or
other similar banking arrangements with any bank, trust company,
national banking association or other depositary institution,
including the trustee or any of its affiliates, provided that, at the
time of deposit or purchase, if the investment is for a period
exceeding one year, such depository institution shall have long-term
unsecured debt rated by each Rating Agency not lower than in its
highest applicable specific rating category or if the investment is
for a period of less than one year, such depository institution shall
have short-term unsecured debt rated by each Rating Agency not lower
than its highest applicable specific rating category;
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o obligations issued or guaranteed as to principal and interest by any
of the following: (a) the Government National Mortgage Association;
(b) the Federal National Mortgage Association; or (c) the Federal Farm
Credit Banks, the Federal Intermediate Credit Banks, the Export-Import
Bank of the United States, the Federal Land Banks, the Student Loan
Marketing Association, the Federal Financing Bank, the Federal Home
Loan Banks, the Federal Home Loan Mortgage Corporation or the Farmers
Home Administration, or any agency or instrumentality of the United
States of America which will be established for the purpose of
acquiring the obligations of any of the foregoing or otherwise
providing financing therefor, provided that any such obligation
described in this clause (c) will either be rated by Fitch IBCA, Inc.
or, if not rated by Fitch IBCA, Inc., rated by Moody's, (i) if such
obligation has a term of less than one year, not lower than in its
highest applicable specific rating category, or (ii) if such
obligation has a term of one year or longer, not lower than in its
highest applicable specific rating category;
o repurchase agreements or reverse repurchase agreements with banks,
which may include the trustee or any of its affiliates, which are
members of the Federal Deposit Insurance Corporation or with
government bond dealers insured by the Securities Investor Protection
Corporation, which such agreements are secured by Government
Obligations to a level sufficient to obtain a rating by each Rating
Agency in its highest applicable specific rating category, or with
brokers or dealers whose unsecured long-term debt is rated by each
Rating Agency in its highest applicable specific rating category;
o any money market fund, including a qualified regulated investment
company described in I.R.S. Notice 87-22, rated by each Rating Agency
not lower than its highest applicable specific rating category;
o any debt instrument; provided that if such instrument has a term of
less than one year, it is rated by each Rating Agency not lower than
in its highest applicable specific rating category, and if such
instrument has a term of one year or longer, it is rated by each
Rating Agency not lower than in its highest applicable specific rating
category;
o any investment agreement which constitutes a general obligation of an
entity whose debt, unsecured securities, deposits or claims paying
ability is rated by each Rating Agency, (a) if such investment
agreement has a term of less than one year, not lower than in its
highest applicable specific rating category, or (b) if such investment
agreement has a term of one year or longer, not lower than in its
highest applicable specific rating category; and
o any other investment if the trustee shall have received written
evidence from each Rating Agency that treating such investment as an
investment security will not cause any rating then applicable to any
Outstanding Unenhanced Senior or Subordinate Notes to be lowered or
withdrawn or, if no Unenhanced Senior or Subordinate Notes
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are then Outstanding but Other Indenture Obligations are Outstanding,
is acceptable to the Other Beneficiaries entitled to such Other
Indenture Obligations.
Reports to Noteholders
The trustee, in accordance with the indenture, is required to mail a copy
of each monthly servicing report to each noteholder of record as of the most
recent record date. In addition, Beneficial Owners of the notes may receive such
reports, upon written request to the trustee together with a certification that
they are Beneficial Owners of the notes.
Events of Default
If any of the following events occur, it is an event of default under the
indenture:
(A) default in the due and punctual payment of any interest on any
Senior Note; or
(B) default in the due and punctual payment of the principal of, or
premium, if any, on, any Senior Note; or
(C) default by EdLinc in its obligation to purchase any Senior Note on
a Purchase Date or mandatory tender date therefor; or
(D) default in the due and punctual payment of any amount owed by
EdLinc to any Other Senior Beneficiary under a senior swap agreement or
senior credit enhancement facility; or
(E) if no Senior Obligations are Outstanding, default in the due and
punctual payment of any interest on any Subordinate Note; or
(F) if no Senior Obligations are Outstanding, default in the due and
punctual payment of the principal of, or premium, if any, on, any
Subordinate Note; or
(G) if no Senior Obligations are Outstanding, default by EdLinc in its
obligation to purchase any Subordinate Note on a Purchase Date or mandatory
tender date therefor; or
(H) if no Senior Obligations are Outstanding, default in the due and
punctual payment of any amount owed by EdLinc to any Other Subordinate
Beneficiary under a subordinate swap agreement or a subordinate credit
enhancement facility; or
(I) if no Senior Obligations or Subordinate Obligations are
Outstanding, default in the due and punctual payment of any interest on any
Class C Note; or
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(J) if no Senior Obligations or Subordinate Obligations are
Outstanding, default in the due and punctual payment of the principal of,
or premium, if any, on, any Class C Note; or
(K) default in the performance of any of EdLinc's obligations with
respect to the transmittal of moneys to be credited to the Revenue Fund,
the Acquisition Fund or the Note Fund under the provisions of the indenture
and such default shall have continued for a period of 30 days; or
(L) default in the performance or observance of any other of the
covenants, agreements or conditions on the part of EdLinc in the indenture
or in the notes contained, and such default shall have continued for a
period of 30 days after written notice thereof, specifying such default,
shall have been given by the trustee to EdLinc, which may give such notice
in its discretion and will give such notice at the written request of the
Acting Beneficiaries Upon Default, or by the holders of not less than 10%
in aggregate principal amount of the Outstanding notes to EdLinc and the
trustee, provided that, if the default is such that it can be corrected,
but not within such 30 days, it will not constitute an event of default if
corrective action is instituted by EdLinc within such 30 days and is
diligently pursued until the default is corrected; or
(M) events of bankruptcy or insolvency of EdLinc.
Remedies
Whenever any event of default other than that described in paragraph (L)
under "--Events of Default" above shall have occurred and be continuing, the
trustee may (and, upon the written request of the Acting Beneficiaries Upon
Default, the trustee shall), by notice in writing delivered to EdLinc, declare
the principal of and interest accrued on all notes then Outstanding due and
payable.
Whenever any event of default described in paragraph (L) under "--Events of
Default" above shall have occurred and be continuing, (1) the trustee may, by
notice in writing delivered to EdLinc, declare the principal of and interest on
all notes then Outstanding due and payable; and (2) the trustee will, upon the
written request of the Acting Beneficiaries Upon Default, by notice in writing
delivered to EdLinc, declare the principal of and interest on all notes then
Outstanding due and payable.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the trustee, the Acting Beneficiaries Upon Default, by written notice to EdLinc
and the trustee, may rescind and annul such declaration and its consequences if:
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(1) There has been paid to or deposited with the trustee by or for the
account of EdLinc, or provision satisfactory to the trustee has been made
for the payment of, a sum sufficient to pay:
(A) if Senior Notes or Other Senior Obligations are Outstanding:
(i) all overdue installments of interest on all Senior Notes; (ii) the
principal of (and premium, if any, on) any Senior Notes which have
become due other than by such declaration of acceleration, together
with interest thereon at the rate or rates borne by such Senior Notes;
(iii) to the extent that payment of such interest is lawful, interest
upon overdue installments of interest on the Senior Notes at the rate
or rates borne by such Senior Notes; (iv) all Other Senior Obligations
which have become due other than as a direct result of such
declaration of acceleration; (v) all other sums required to be paid to
satisfy EdLinc's obligations with respect to the transmittal of moneys
to be credited to the Revenue Fund, the Acquisition Fund and the
Interest Account under the provisions of the indenture; and (vi) all
sums paid or advanced by the trustee under the indenture and the
reasonable compensation, expenses, disbursements and advances of the
trustee, its agents and counsel and any paying agents, deposit agents,
remarketing agents, depositaries, auction agents and broker-dealers;
or
(B) if no Senior Obligations are Outstanding, but Subordinate
Notes or Other Subordinate Obligations are Outstanding: (i) all
overdue installments of interest on all Subordinate Notes; (ii) the
principal of (and premium, if any, on) any Subordinate Notes which
have become due other than by such declaration of acceleration,
together with interest thereon at the rate or rates borne by such
Subordinate Notes; (iii) to the extent that payment of such interest
is lawful, interest upon overdue installments of interest on the
Subordinate Notes at the rate or rates borne by such Subordinate
Notes; (iv) all Other Subordinate Obligations which have become due
other than as a direct result of such declaration of acceleration; (v)
all other sums required to be paid to satisfy EdLinc's obligations
with respect to the transmittal of moneys to be credited to the
Revenue Fund, the Acquisition Fund and the Interest Account under the
provisions of the indenture; and (vi) all sums paid or advanced by the
trustee under the indenture and the reasonable compensation, expenses,
disbursements and advances of the trustee, its agents and counsel and
any paying agents, deposit agents, remarketing agents, depositaries,
auction agents and broker-dealers; or
(C) if no Senior Obligations or Subordinate Obligations are
Outstanding: (i) all overdue installments of interest on all Class C
Notes and all overdue sinking fund installments for the retirement of
Class C Notes; (ii) the principal of, and premium, if any, on, any
Class C Notes which have become due otherwise than by such declaration
of acceleration and interest thereon at the rate or rates borne by
such Class C Notes; (iii) to the extent that payment of such interest
is lawful, interest upon overdue installments of interest on the Class
C Notes at the rate or rates borne by such Class C Notes; (iv) all
other sums required to be paid to satisfy EdLinc's obligations with
respect to the transmittal of moneys to be credited to the Revenue
Fund and the Acquisition Fund under
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the provisions of the indenture; and (v) all sums paid or advanced by
the trustee under the indenture and the reasonable compensation,
expenses, disbursements and advances of the trustee, its agents and
counsel and any paying agents, deposit agents, remarketing agents,
depositaries, auction agents and broker-dealers; and
(2) All events of default, other than the nonpayment of the principal
of and interest on notes or amounts owing to Other Beneficiaries which have
become due solely by such declaration of acceleration, have been cured or
waived as provided in the indenture.
If an event of default has occurred and is continuing, the trustee may,
subject to applicable law, pursue any available remedy by suit at law or in
equity to enforce the covenants of EdLinc in the indenture and may pursue such
appropriate judicial proceedings as the trustee shall deem most effective to
protect and enforce, or aid in the protection and enforcement of, the covenants
and agreements in the indenture. The trustee is also authorized to file proofs
of claims in any equity, receivership, insolvency, bankruptcy, liquidation,
readjustment, reorganization or other similar proceedings.
Notwithstanding any other provisions of the indenture, if an "event of
default" (as defined therein) occurs under a swap agreement or a credit
enhancement facility and, as a result, the Other Beneficiary that is a party
thereto is entitled to exercise one or more remedies thereunder, such Other
Beneficiary may exercise such remedies, including, without limitation, the
termination of such agreement, as provided therein, in its own discretion;
provided that the exercise of any such remedy does not adversely affect the
legal ability of the trustee or Acting Beneficiaries Upon Default to exercise
any remedy available under the indenture.
If an event of default has occurred and is continuing, and if it shall have
been requested so to do by the holders of not less than 25% in aggregate
principal amount of all notes then Outstanding or any Other Beneficiary and
shall have been indemnified as provided in the indenture, the trustee is obliged
to exercise such one or more of the rights and powers conferred by the indenture
as the trustee shall deem most expedient in the interests of the Beneficiaries;
provided, however, that the trustee has the right to decline to comply with any
such request if the trustee shall be advised by counsel that the action so
requested may not lawfully be taken or if the trustee receives, before
exercising such right or power, contrary instructions from the holders of not
less than a majority in aggregate principal amount of the notes then Outstanding
or from any Other Beneficiary.
The Acting Beneficiaries Upon Default have the right to direct the method
and place of conducting all proceedings to be taken in connection with the
enforcement of the terms and conditions of the indenture; provided that (a) such
direction shall not be otherwise than in accordance with the provisions of law
and of the indenture; (b) the trustee shall not determine that the action so
directed would be unjustly prejudicial to the holders of notes or Other
Beneficiaries not taking part in such direction, other than by effect of the
subordination of any of their interests thereunder; and (c) the trustee may take
any other action deemed proper by the trustee which is not inconsistent with
such direction.
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Except as may be permitted in a supplemental indenture with respect to an
Other Beneficiary, no holder of any note or Other Beneficiary will have any
right to institute any suit, action or proceeding in equity or at law for the
enforcement of the indenture or for the execution of any trust under the
indenture or for the appointment of a receiver or any other remedy under the
indenture unless (1) an event of default shall have occurred and be continuing,
(2) the holders of not less than 25% in aggregate principal amount of notes then
Outstanding or any Other Beneficiary shall have made written request to the
trustee, (3) such Beneficiary or Beneficiaries shall have offered to the trustee
indemnity, (4) the trustee shall have thereafter failed for a period of 60 days
after the receipt of the request and indemnification or refused to exercise the
powers granted in the indenture or to institute such action, suit or proceeding
in its own name and (5) no direction inconsistent with such written request
shall have been given to the trustee during such 60-day period by the holders of
not less than a majority in aggregate principal amount of the notes then
Outstanding or by any Other Beneficiary; provided, however, that,
notwithstanding the foregoing provisions of the indenture, the Acting
Beneficiaries Upon Default may institute any such suit, action or proceeding in
their own names for the benefit of the holders of all Outstanding notes and
Other Beneficiaries under the indenture.
The trustee, unless it has declared the principal of and interest on all
Outstanding notes immediately due and payable and a judgment or decree for
payment of the money due has been obtained by the trustee, must waive any event
of default and its consequences upon written request of the Acting Beneficiaries
Upon Default; provided, however, that there will not be waived (a) any event of
default arising from the acceleration of the maturity of the notes, except upon
the rescission and annulment of such declaration as described in the third
paragraph under this caption "Remedies;" (b) any event of default in the payment
when due of any amount owed to any Beneficiary (including payment of principal
of or interest on any note) except with the consent of such Beneficiary or
unless, prior to such waiver, EdLinc has paid or deposited with the trustee a
sum sufficient to pay all amounts owed to such Beneficiary; (c) any event of
default arising from the failure of EdLinc to pay unpaid expenses of the
trustee, its agents and counsel, and any authenticating agent, paying agents,
note registrars, deposit agents, remarketing agents, depositaries, auction
agents and broker-dealers as required by the indenture, unless, prior to such
waiver, EdLinc has paid or deposited with the trustee sums required to satisfy
such obligations of EdLinc under the provisions of the indenture.
Application of Proceeds
All moneys received by the trustee pursuant to any remedy will, after
payment of the cost and expenses of the proceedings resulting in the collection
of such moneys and of the expenses, liabilities and advances incurred or made by
the trustee with respect thereto, be applied as follows:
(A) Unless the principal of all the Outstanding notes shall have
become or shall have been declared due and payable, all such moneys will be
applied as follows:
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o FIRST, to the payment to the Senior Beneficiaries of all
installments of principal and interest then due on the Senior
Notes and all Other Senior Obligations, and if the amount
available will not be sufficient to pay all such amounts in full,
then to the payment ratably, in proportion to the amounts due, to
the Senior Noteholders and to each Other Senior Beneficiary,
without any discrimination or preference, and the trustee will
apply the amount so apportioned to the Senior Noteholders first
to the payment of interest and thereafter to the payment of
principal;
o SECOND, to the payment to the Subordinate Beneficiaries of all
installments of principal and interest then due on the
Subordinate Notes and all Other Subordinate Obligations, and if
the amount available will not be sufficient to pay all such
amounts in full, then to the payment ratably, in proportion to
the amounts due, without regard to due date, to the Subordinate
Noteholders and to each Other Subordinate Beneficiary, without
any discrimination or preference, and the trustee will apply the
amount so apportioned to the Subordinate Noteholders first to the
payment of interest and thereafter to the payment of principal;
and
o THIRD, to the payment of the holders of the Class C Notes of all
installments of principal and interest, other than interest on
overdue principal, then due and payable.
(B) If the principal of all Outstanding notes shall have become due or
shall have been declared due and payable and such declaration has not been
annulled and rescinded under the provisions of the indenture, all such
moneys will be applied as follows:
o FIRST, to the payment to the Senior Beneficiaries of all
principal and interest then due on the Senior Notes and all Other
Senior Obligations, without preference or priority of principal
over interest or of interest over principal, or of any
installment of interest over any other installment of interest,
or of any Senior Beneficiary over any other Senior Beneficiary,
ratably, according to the amounts due, to the persons entitled
thereto without any discrimination or preference; and
o SECOND, to the payment to the Subordinate Beneficiaries of the
principal and interest then due on the Subordinate Notes and all
Other Subordinate Obligations, without preference or priority of
principal over interest or of interest over principal, or of any
installment of interest over any other installment of interest,
or of any Subordinate Beneficiary over any other Subordinate
Beneficiary, ratably, according to the amounts due, to the person
entitled thereto without any discrimination or preference, and
o THIRD, to the payment of the principal and premium, if any, and
interest then due and unpaid upon the Class C Notes, without
preference or priority of principal over interest or of interest
over principal, or of any installment of interest over any other
installment of interest, or of any Class C Note over any other
Class C Note,
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ratably, according to the amounts due respectively for principal
and interest, and other amounts owing, to the persons entitled
thereto without any discrimination or preference.
(C) If the principal of all Outstanding notes shall have been declared
due and payable and if such declaration will thereafter have been rescinded
and annulled, then, subject to the provisions described in paragraph (B)
above, if the principal of all the Outstanding notes shall later become or
be declared due and payable, the money held by the trustee under the
indenture will be applied in accordance with the provisions described in
paragraph (A) above.
Trustee
Prior to the occurrence of an event of default under the indenture which
has not been cured, the trustee is required to perform such duties and only such
duties as are specifically set forth in the indenture. Upon the occurrence and
continuation of an event of default, the trustee will exercise the rights and
powers vested in it by indenture, and use the same degree of care and skill in
their exercise, as a prudent man would exercise or use under the circumstances
in his own affairs.
Before taking any action under the indenture, the trustee may require that
satisfactory indemnity be furnished to it for the reimbursement of all expenses
to which it may be put and to protect it against all liability by reason of any
action so taken, except liability which is adjudicated to have resulted from its
negligence or willful misconduct.
The trustee may at any time resign upon 60 days' notice to EdLinc and to
the Beneficiaries, such resignation to take effect upon the appointment of a
successor trustee. The trustee may be removed at any time by EdLinc at the
request of the holders of a majority in principal amount of notes Outstanding,
except during the existence of an event of default under the indenture. No such
removal will be effective until the appointment of a successor trustee.
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Supplemental Indentures
Supplemental Indentures Not Requiring Consent of Beneficiaries
EdLinc and the trustee may, from time to time and at any time, without the
consent of, or notice to, any of the noteholders or any Other Beneficiary, enter
into an indenture or indentures supplemental to the indenture to, among other
things:
o cure any ambiguity or formal defect or omission in the indenture or in
any supplemental indenture,;
o grant to the trustee for the benefit of the Beneficiaries any
additional rights, remedies, powers, authority or security;
o describe or identify more precisely any part of the Trust Estate or
subject additional revenues, properties or collateral to the lien and
pledge of the indenture;
o authorize the issuance of a series of notes, subject to the
requirements of the indenture (see "Description of the Notes
--Issuance of Notes");
o amend the assumptions contained in the definition of "cash flow
projection;"
o modify the indenture as required by any credit facility provider or
swap counterparty, or otherwise necessary to give effect to any credit
enhancement facility or swap agreement; provided that no such
modifications will be effective (1) if the consent of any noteholders
would be required therefor under the proviso described in the next
succeeding paragraph and such consent has not been obtained, or (2)
the trustee will determine that such modifications are to the
prejudice of any Class C Noteholder; or
o make any other change in the indenture which, in the judgment of the
trustee, is not to the prejudice of the trustee or any Beneficiary.
Supplemental Indentures Requiring Consent of Noteholders
Exclusive of supplemental indentures described in the preceding paragraph,
the trustee, upon receipt of an instrument evidencing the consent to the
below-mentioned supplemental indenture by: (1) if they are affected thereby, the
holders of not less than two-thirds of the aggregate principal amount of the
Outstanding Senior Notes not held by EdLinc or a related person, (2) if they are
affected thereby, the holders of not less than two-thirds of the aggregate
principal amount of the Outstanding Subordinate Notes not held by EdLinc or a
related person, and (3) each other person which must consent to such
supplemental indenture as provided in any then outstanding supplemental
indenture authorizing the issuance of a series of notes, will join with EdLinc
in the execution of such other supplemental indentures for the purpose of
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modifying, altering, amending, adding to or rescinding any of the terms or
provisions contained in the indenture; provided, however, that no such
supplemental indenture will permit without the consent of each Beneficiary which
would be affected thereby:
o an extension of the maturity of the principal of or the interest on
any note;
o a reduction in the principal amount, redemption price or purchase
price of any note or the rate of interest thereon;
o a privilege or priority of any Senior Obligation over any other Senior
Obligation;
o a privilege or priority of any Subordinate Obligation over any other
Subordinate Obligation;
o a privilege or priority of any Class C Note over any other Class C
Note;
o a privilege of any Senior Notes over any Subordinate Notes or Class C
Notes, or of any Subordinate Notes over any Class C Notes, other than
as theretofore provided in the indenture;
o the surrendering of a privilege or a priority granted by the indenture
if, in the judgment of the trustee, to the detriment of another
Beneficiary under the indenture;
o a reduction or an increase in the aggregate principal amount of the
notes required for consent to such supplemental indenture;
o the creation of any lien ranking prior to or on a parity with the lien
of the indenture on the Trust Estate or any part thereof, except as
expressly permitted in the indenture;
o any Beneficiary to be deprived of the lien created on the rights,
title, interest, privileges, revenues, moneys and securities pledged
under the indenture;
o the modification of any of the provisions of the indenture described
in this paragraph; or
o the modification of any provision of a supplemental indenture which
states that it may not be modified without the consent of the holders
of notes issued pursuant thereto or any notes of the same class or any
Beneficiary that has provided a credit enhancement facility or swap
agreement of such class.
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Rights of Trustee
If, in the opinion of the trustee, any supplemental indenture adversely
affects the rights, duties or immunities of the trustee under the indenture or
otherwise, the trustee may, in its discretion, decline to execute such
supplemental indenture.
Consent of Depositaries, Remarketing Agents, Auction Agents and Broker-Dealers
So long as any depositary agreement, remarketing agreement, auction agent
agreement or broker-dealer agreement is in effect, no supplemental indenture
which materially adversely affects the rights, duties or immunities of the
depositary, the remarketing agent, the auction agent or the broker-dealer will
become effective unless and until delivery to the trustee of a written consent
of the depositary, the remarketing agent, the auction agent or the
broker-dealer, as the case may be, to such supplemental indenture.
Opinion and Rating Agency Approval Required Prior to Execution of Supplemental
Indenture
No supplemental indenture will be executed unless, prior to the execution
thereof, the trustee shall have received written evidence from each Rating
Agency that execution and delivery of such supplemental indenture will not
adversely affect any rating or ratings then applicable to any of the Outstanding
notes.
Discharge of Notes and Indenture
The obligations of EdLinc under the indenture, and the liens, pledges,
charges, trusts, covenants and agreements of EdLinc therein made or provided
for, will be fully discharged and satisfied as to any note and such note will no
longer be deemed to be Outstanding thereunder
o when such note shall have been canceled, or shall have been purchased
by the trustee from moneys held by it under the indenture; or
o as to any note not canceled or so purchased, when payment of the
principal of and the applicable redemption premium, if any, on such
note, plus interest on such principal to the due date thereof, either
(a) shall have been made in accordance with the terms of the
indenture, or (b) shall have been provided for by irrevocably
depositing with the trustee exclusively for such payment, (i) moneys
sufficient to make such payment or (ii) Government Obligations
maturing as to principal and interest in such amount and at such times
as will ensure the availability of sufficient moneys to make such
payment and, if payment of all then outstanding notes is to be so
provided for, the payment of all fees and expenses of the trustee and
any other fiduciaries under the indenture.
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Notices to Noteholders
Except as is otherwise provided in the indenture, any provision in the
indenture for the mailing of notice or other instrument to holders of notes will
be fully complied with if it is mailed by first-class mail, postage prepaid, to
each holder of notes outstanding at the address appearing on the note register
maintained by the trustee. In addition, whenever notice is to be mailed under
the indenture to the holders of notes, the trustee is also, upon request, to
mail a copy of such notice to (1) any holder of at least $1,000,000 in aggregate
principal amount of the notes, or, in the event less than $1,000,000 in
aggregate principal amount of notes is outstanding, the holder of all
outstanding notes, in addition to the copy mailed to such holder's address
appearing on the note register, at such other address as such holder shall
specify in writing to the trustee, and (2) any person that is the Beneficial
Owner of a note, as evidenced to the satisfaction of the trustee, at such
address as such Beneficial Owner shall specify in writing to the trustee;
provided that any defect in or failure to mail any such notice prescribed by
this sentence will not affect the validity of any proceedings to be taken,
including, without limitation, for the redemption of notes, pursuant to such
notice.
Rights of Other Beneficiaries
All rights of any Other Beneficiary under the indenture to consent to or
direct remedies, waivers, actions and amendments thereunder will cease for so
long as such Other Beneficiary is in default of any of its obligations or
agreements under the swap agreement or the credit enhancement facility by reason
of which such person is an Other Beneficiary.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal United States federal income
tax consequences resulting from the beneficial ownership of notes by specified
persons. This summary does not consider all the possible United States federal
tax consequences of the purchase, ownership or disposition of the notes and is
not intended to reflect the individual tax position of any beneficial owner.
Moreover, except as expressly indicated, it addresses initial purchasers of a
note at its issue price, which is the first price to the public at which a
substantial amount of the notes in an issue is sold, and does not address
beneficial owners that may be subject to special tax rules, such as banks,
insurance companies, dealers in securities or currencies, purchasers that hold
notes or foreign currency as a hedge against currency risks or as part of a
straddle with other investments or as part of a synthetic security or other
integrated investment, including a conversion transaction, comprised of a note
and one or more other investments, or purchasers that have a functional currency
other than the U.S. dollar. Except to the extent discussed below under "United
States Federal Income Tax Consequences to Non-United States Holders," this
summary is not applicable to non-United States persons not subject to United
States federal income tax on their worldwide income. This summary is based upon
the United States federal tax laws and regulations currently in effect and as
currently interpreted and does not take into account possible changes in the tax
laws or the interpretations, any of which may be applied retroactively. It does
not discuss the tax laws of any state, local or
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foreign governments. It does not discuss the tax treatment of notes denominated
in hyperinflationary currencies or dual currency notes.
Persons considering the purchase of notes should consult their own tax
advisors concerning the United States federal income tax consequences to them in
light of their particular situations as well as any consequences to them under
the laws of any other taxing jurisdiction.
Characterization of the Trust Estate
In Dorsey & Whitney LLP's opinion, based upon some assumptions and
representations of EdLinc, the notes will be treated as debt of EdLinc, rather
than as an interest in the financed Eligible Loans and other assets of the Trust
Estate, for federal income tax purposes. This opinion will not be binding on the
courts or the Internal Revenue Service. It is possible that the Internal Revenue
Service could assert that, for purposes of the Internal Revenue Code, the
transaction contemplated by this prospectus constitutes a sale of the assets
comprising the Trust Estate (or an interest therein) to the noteholders or that
the relationship which will result from this transaction is that of a
partnership or of an association taxable as a corporation.
If, instead of treating the transaction as creating secured debt in the
form of the notes issued by EdLinc as a corporate entity, the Internal Revenue
Service treats the transaction as creating a partnership among the noteholders,
the servicer and EdLinc, which has purchased the underlying Trust Estate assets,
the resulting partnership would not be subject to federal income tax. Rather,
the servicer, EdLinc and each noteholder 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 noteholder may differ from the tax consequences set forth in the
following summary if the Internal Revenue Service holds that the notes
constitute partnership interests rather than indebtedness.
If, alternatively, the Internal Revenue Service determines that this
transaction created an entity other than EdLinc which was classified as a
corporation or a publicly traded partnership taxable as a corporation and which
was treated as having sold the assets comprising the Trust Estate, the Trust
Estate would be subject to federal income tax at corporate income tax rates on
the income it derives from the financed Eligible Loans and other assets.
Imposition of this corporate income tax would reduce the amounts available for
payment to the noteholders. Cash payments to the noteholders generally would be
treated as dividends for tax purposes to the extent of such corporation's
earnings and profits. A similar result would apply if the noteholders were
deemed to have acquired stock or other equity interests in EdLinc. However, as
noted above, EdLinc has been advised that the notes will be treated as debt of
EdLinc for federal income tax purposes.
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Characterization of the Notes as Indebtedness
EdLinc and the noteholders express in the indenture their intent that, for
applicable tax purposes, the notes will be indebtedness of EdLinc secured by the
Trust Estate. EdLinc and the noteholders, by accepting the notes, have agreed to
treat the notes as indebtedness of EdLinc for federal income tax purposes.
EdLinc 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 upon its form or the manner in which it is characterized. While the
Internal Revenue 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.
EdLinc believes that it has retained the preponderance of the primary
benefits and burdens associated with the financed Eligible Loans and other
assets comprising the Trust Estate and should therefore be treated as the owner
of such assets for federal income tax purposes. If, however, the Internal
Revenue Service were to successfully assert that this transaction should be
treated as a sale of the Trust Estate assets, the Internal Revenue Service could
further assert that the entity created pursuant to the indenture, as the owner
of the Trust Estate for federal income tax purposes, should be deemed engaged in
a business and, therefore, characterized as an association taxable as a
corporation.
United States Federal Income Tax Consequences to United States Holders
Payments of Interest
In general, interest on a note will be taxable to a beneficial owner which
is a United States holder of the note. For purposes of the following summary,
the term United States holder refers generally to: (1) a citizen or resident of
the United States, (2) a corporation created or organized under the laws of the
United States or any state, including the District of Columbia, or (3) a person
otherwise subject to United States federal income taxation on its worldwide
income. Interest will be taxable as ordinary income at the time it is received
or accrued, depending on the holder's method of accounting for tax purposes. If
a partnership holds notes, the tax treatment of a partner will generally depend
upon the status of the partner and upon the activities of the partnership.
Partners of partnerships holding notes should consult their tax advisors.
Although the matter is not free from doubt, it is anticipated that the
notes will be treated as providing for stated interest at qualified floating
rates, as this term is defined by applicable
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Treasury Regulations, and accordingly as having been issued without original
issue discount. EdLinc intends to report interest income in respect of the notes
in a manner consistent with this treatment. If the Internal Revenue Service were
to determine that the notes do not provide for stated interest at qualified
floating rates, the notes would be treated as having been issued with original
issue discount. In that event, the noteholder would be required to include
original issue discount in gross income as it accrues on a constant yield to
maturity basis in advance of the receipt of any cash attributable to the income,
regardless of whether the holder is a cash or accrual basis taxpayer. We
anticipate, however, that even if the notes were treated as issued with original
issue discount under these circumstances, the amount which a noteholder would be
required to include in income currently under this method would not differ
materially from the amount of interest on the note otherwise includable in
income.
Although the matter is also not free from doubt, EdLinc intends to take the
position that the Carry-Over Amounts are taxable as interest payments when
received or accrued, depending on the noteholder's method of accounting. It is
possible, however, that the Internal Revenue Service could take the position
that the Carry-Over Amounts are contingent payments and accordingly that the
notes were issued with original issue discount includable in income as it
accrues, as described above. If the holder does not ultimately collect the
accrued Carry-Over Amounts, the amount of the unpaid Carryover Amounts would
first reduce the interest (including any original issue discount) includable in
the holder's taxable income for that taxable year, and any excess would be
treated as ordinary loss to the extent of prior year interest income inclusions
on the note.
Notes Purchased at a Premium
Under the Internal Revenue Code, a United States holder that purchases a
note for an amount in excess of its stated redemption price at maturity may
elect to treat this excess as amortizable bond premium. If the holder makes this
election, the amount of interest which the United States holder must include in
income each year with respect to interest on the note will be reduced by the
amount of amortizable bond premium allocable, based on the note's yield to
maturity, to that year. If the amortizable bond premium allocable to a year
exceeds the amount of interest allocable to that year, the excess would be
allowed as a deduction for that year but only to the extent of the United States
holder's prior interest inclusions on the note. Any excess is generally carried
forward and allocable to the next year. A holder who elects to amortize bond
premium must reduce his tax basis in the note as described below under
"Purchase, Sale, Exchange and Retirement of the Notes." Any election to amortize
bond premium is applicable to all bonds, other than bonds the interest on which
is excludable from gross income, held by the United States holder at the
beginning of the first taxable year to which the election applies or thereafter
acquired by the United States holder, and may not be revoked without the consent
of the Internal Revenue Service.
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Notes Purchased at a Market Discount
A note, other than a note that matures one year or less from the date of
issuance, will be treated as acquired at a market discount (a "market discount
note") if the amount for which a United States holder purchased the note is less
than the note's issue price, unless such difference is less than a specified de
minimis amount.
In general, any partial payment of principal or any gain recognized on the
maturity or disposition of a market discount note will be treated as ordinary
income to the extent that such gain does not exceed the accrued market discount
on such note. Alternatively, a United States holder of a market discount note
may elect to include market discount in income currently over the life of the
market discount note. That election applies to all debt instruments with market
discount acquired by the electing United States holder on or after the first day
of the first taxable year to which the election applies and may not be revoked
without the consent of the Internal Revenue Service.
Market discount accrues on a straight-line basis unless the United States
holder elects to accrue such discount on a constant yield to maturity basis.
That election is applicable only to the market discount note with respect to
which it is made and is irrevocable. A United States holder of a market discount
note that does not elect to include market discount in income currently
generally will be required to defer deductions for interest on borrowings
allocable to the note in an amount not exceeding the accrued market discount on
such note until the maturity or disposition of the note.
Purchase, Sale, Exchange and Retirement of the Notes
A United States holder's tax basis in a note generally will equal its cost,
increased by any market discount and original issue discount included in the
United States holder's income with respect to the note, and reduced by the
amount of any amortizable bond premium applied to reduce interest on the note. A
United States holder generally will recognize gain or loss on the sale, exchange
or retirement of a note equal to the difference between the amount realized on
the sale or retirement and the United States holder's tax basis in the note.
Except to the extent described above under "Notes Purchased at a Market
Discount," and except to the extent attributable to accrued but unpaid interest,
gain or loss recognized on the sale, exchange or retirement of a note will be
capital gain or loss and will be long-term capital gain or loss if the note was
held for more than one year. In the event that the Internal Revenue Service
takes the position that the notes were issued with original issue discount as a
result of the Carry-Over Amounts, as discussed in "Payments of Interest" above,
this gain would be recharacterized as ordinary gain and a portion of the loss
would be recharacterized as ordinary loss.
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United States Federal Income Tax Consequences to Non-United States Holders
The following is a general discussion of some United States federal income
and estate tax consequences resulting from the beneficial ownership of notes by
a non-United States holder, which refers generally to a person other than a
United States holder.
Subject to the discussions of Carry-Over Amounts and backup withholding
below, payments of principal, any premium and interest by us or any agent of
ours (acting in its capacity as agent) to any non-United States holder will not
be subject to United States federal withholding tax, provided, in the case of
interest, that (1) the non-United States holder does not actually or
constructively own 10% or more of the total combined voting power of all classes
of our stock entitled to vote, (2) the non-United States holder is not a
controlled foreign corporation for United States tax purposes that is related to
us, directly or indirectly, through stock ownership and (3) either (A) the
non-United States holder certifies to us or our agent under penalties of perjury
that it is not a United States person and provides its name and address or (B) a
securities clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business and holds
the note certifies to us or our agent under penalties of perjury that such
statement has been received from the non-United States holder by it or by
another financial institution and furnishes the payor with a copy.
It is possible that any payments of Carry-Over Amounts may be treated as
contingent interest and that the Internal Revenue Service may accordingly take
the position that such payments do not qualify for the exemption from
withholding described above.
A non-United States holder that does not qualify for exemption from
withholding as described above generally will be subject to United States
federal withholding tax at the rate of 30%, or lower applicable treaty rate,
with respect to payments of interest on the notes.
If a non-United States holder is engaged in a trade or business in the
United States and interest on the note is effectively connected with the conduct
of this trade or business, the non-United States holder, although exempt from
the withholding tax discussed above, provided that such holder timely furnishes
the required certification to claim this exemption, may be subject to United
States federal income tax on the interest in the same manner as if it were a
United States holder. In addition, if the non-United States holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30%, or lower
applicable treaty rate, of its effectively connected earnings and profits for
the taxable year, subject to adjustments. For purposes of the branch profits
tax, interest on a note will be included in the earnings and profits of the
holder if the interest is effectively connected with the conduct by the holder
of a trade or business in the United States. Such a holder must provide the
payor with a properly executed Internal Revenue Service Form 4224, or successor
form, to claim an exemption from United States Federal withholding tax.
Any capital gain or market discount realized on the sale, exchange,
retirement or other disposition of a note by a non-United States holder will not
be subject to United States federal
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income or withholding taxes if (a) the gain is not effectively connected with a
United States trade or business of the non-United States holder and (b) in the
case of an individual, the non-United States holder is not present in the United
States for 183 days or more in the taxable year of the sale, exchange,
retirement or other disposition, and other conditions are met.
Notes held by an individual who is neither a citizen nor a resident of the
United States for United States federal tax purposes at the time of the
individual's death will not be subject to United States federal estate tax,
provided that the income from the notes was not or would not have been
effectively connected with a United States trade or business of the individual
and that the individual qualified for the exemption from United States federal
withholding tax, without regard to the certification requirements, described
above.
Recently finalized Treasury Regulations, generally effective for payments
made after December 31, 2000, provide alternative procedures to be followed by a
non-United States holder in establishing eligibility for a withholding tax
reduction or exemption.
Purchasers of notes that are non-United States holders should consult their
own tax advisors with respect to the possible applicability of United States
withholding and other taxes upon income realized in respect of the notes.
Information Reporting and Back-up Withholding
For each calendar year in which the notes are outstanding, we are required
to provide the Internal Revenue Service with information, including the holder's
name, address and taxpayer identification number, either the holder's Social
Security number or its employer identification number, as the case may be, the
aggregate amount of principal and interest paid to that holder during the
calendar year and the amount of tax withheld, if any. This obligation, however,
does not apply with respect to some United States holders, including
corporations, tax-exempt organizations, qualified pension and profit sharing
trusts and individual retirement accounts.
If a United States holder subject to the reporting requirements described
above fails to supply its correct taxpayer identification number in the manner
required by applicable law or under reports its tax liability, we, our agents or
paying agents or a broker may be required to backup withhold a tax equal to 31%
of each payment of interest, principal and any premium on the notes. This backup
withholding is not an additional tax and may be credited against the United
States holder's federal income tax liability, provided that the holder furnishes
the required information to the Internal Revenue Service.
Under current Treasury regulations, backup withholding and information
reporting will not apply to payments of interest made by us or any of our agents
(in their capacity as such) to a non-United States holder of a note if the
holder has provided the required certification that it is not a United States
person as set forth in clause (3) in the first paragraph under "Non-United
States Holders" above, or has otherwise established an exemption, provided that
neither we nor
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our agent has actual knowledge that the holder is a United States person or that
the conditions of an exemption are not in fact satisfied.
Payments of the proceeds from the sale of a note to or through a foreign
office of a broker will not be subject to information reporting or backup
withholding. However, information reporting, but not backup withholding, may
apply to those payments if the broker is one of the following:
o a United States person,
o a controlled foreign corporation for United States tax purposes,
o a foreign person 50 percent or more of whose gross income from all
sources for the three-year period ending with the close of its taxable
year preceding the payment was effectively connected with a United
States trade or business or
o for payments made after December 31, 2000, a foreign partnership with
some connections to the United States.
Payment of the proceeds from a sale of a note to or through the United
States office of a broker is subject to information reporting and backup
withholding unless the holder or beneficial owner certifies as to its taxpayer
identification number or otherwise establishes an exemption from information
reporting and backup withholding.
Recently finalized Treasury regulations unify current certification
procedures and forms relating to information reporting and backup withholding
for payments made after December 31, 2000. Among other things, these regulations
provide presumptions under which a non-United States holder is subject to
information reporting and backup withholding unless we or our agent receives
certification from the holder regarding non-United States status.
The federal income tax discussion set forth above is included for general
information only and may not be applicable depending upon a holder's particular
situation. Holders should consult their tax advisors with respect to the tax
consequences to them of the purchase, ownership and disposition of the notes,
including the tax consequences under state, local, foreign and other tax laws
and the possible effects of changes in federal or other tax laws.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Federal
Income Tax Consequences," potential investors should consider the state income
tax consequences of the acquisition, ownership and disposition of the notes.
State income tax law may differ substantially from the corresponding federal
law, and this discussion does not purport to describe any aspect of the income
tax laws of any state. Therefore, potential investors should consult their own
tax advisors with respect to the various state tax consequences of an investment
in the notes.
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ERISA CONSIDERATIONS
ERISA imposes fiduciary and prohibited transaction restrictions on employee
pension and welfare benefit plans subject to ERISA ("ERISA Plans"). Section 4975
of the Internal Revenue Code imposes essentially the same prohibited transaction
restrictions on tax-qualified retirement plans described in Section 401(a) of
the Internal Revenue Code ("Qualified Retirement Plans") and on Individual
Retirement Accounts ("IRAs") described in Section 408(b) of the Internal Revenue
Code (collectively, "Tax-Favored Plans"). Certain employee benefit plans, such
as governmental plans, as defined in Section 3(32) of ERISA, and, if no election
has been made under Section 410(d) of the Internal Revenue Code, church plans
(as defined in Section 3(33) of ERISA), are not subject to ERISA requirements.
Accordingly, assets of such plans may be invested in notes of a series without
regard to the ERISA considerations described below, subject to the provisions of
applicable federal and state law. Any such plan which is a Qualified Retirement
Plan and exempt from taxation under Sections 401(a) and 501(a) of the Internal
Revenue Code, however, is subject to the prohibited transaction rules set forth
in the Internal Revenue Code.
In addition to the imposition of general fiduciary requirements, including
those of investment prudence and diversification and the requirement that a
plan's investment be made in accordance with the documents governing the plan,
Section 406 of ERISA and Section 4975 of the Internal Revenue Code prohibit a
broad range of transactions involving assets of ERISA Plans and Tax-Favored
Plans and entities whose underlying assets include plan assets by reason of
ERISA Plans or Tax-Favored Plans investing in such entities (collectively,
"Benefit Plans") and persons who have specified relationships to the Benefit
Plans ("Parties in Interest" or "Disqualified Persons"), unless a statutory or
administrative exemption is available. Certain Parties in Interest, or
Disqualified Persons, that participate in a prohibited transaction may be
subject to a penalty (or an excise tax) imposed pursuant to Section 502(i) of
ERISA, or Section 4975 of the Internal Revenue Code, unless a statutory or
administrative exemption is available.
Certain transactions involving the purchase, holding or transfer of notes
of a series might be deemed to constitute prohibited transactions under ERISA
and the Internal Revenue Code if assets of EdLinc were deemed to be assets of a
Benefit Plan. Under a regulation issued by the United States Department of Labor
(the "Plan Assets Regulation"), the assets of EdLinc would be treated as plan
assets of a Benefit Plan for the purposes of ERISA and the Internal Revenue Code
only if the Benefit Plan acquires an "equity interest" in EdLinc and none of the
exceptions contained in the Plan Assets Regulation is applicable. An equity
interest is defined under the Plan Assets Regulation as an interest in an entity
other than an instrument which is treated as indebtedness under applicable local
law and which has no substantial equity features. Although there can be no
assurances in this regard, it appears that the notes should be treated as debt
without substantial equity features for purposes of the Plan Assets Regulation.
However, without regard to whether the notes are treated as an equity interest
for such purposes, the acquisition or holding of notes by or on behalf of a
Benefit Plan could be considered to give rise to a prohibited transaction if
EdLinc or the trustee, or any of their respective affiliates, is or becomes a
party in interest or a disqualified person with respect to such Benefit Plan. In
such case, some
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exemptions from the prohibited transaction rules could be applicable depending
on the type and circumstances of the plan fiduciary making the decision to
acquire a note. Included among these exemptions are: Prohibited Transaction
Class Exemption ("PTCE") 96-23, regarding transactions effected by "in-house
asset managers;" PTCE 90-1, regarding investments by insurance company pooled
separate accounts; PTCE 95-60, regarding transactions effected by "insurance
company general account;" PTCE 91-38, regarding investments by bank collective
investment funds; and PTCE 84-14, regarding transactions effected by "qualified
professional assets managers."
Any ERISA Plan fiduciary considering whether to purchase notes of a series
on behalf of an ERISA Plan should consult with its counsel regarding the
applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Internal Revenue Code to such investment and the
availability of any of the exemptions referred to above. Persons responsible for
investing the assets of Tax-Favored Plans that are not ERISA Plans should seek
similar counsel with respect to the prohibited transaction provisions of the
Internal Revenue Code.
AVAILABLE INFORMATION
EdLinc has filed with the SEC a registration statement under the Securities
Act with respect to the notes offered hereby. This prospectus and the
accompanying prospectus supplement, which forms part of the registration
statement, does not contain all the information contained therein. For further
information, reference is made to the registration statement which may be
inspected and copied at the public reference facilities maintained by the SEC at
450 Fifth Street, N.W., Washington D.C. 20549; and at the SEC's regional offices
at Seven World Trade Center, Suite 1300, New York, New York 10048; and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and copies of all or any
part thereof may be obtained from the Public Reference Branch of the SEC, 450
Fifth Street, N.W., Washington, D.C. 20549 upon the payment of fees prescribed
by the SEC. In addition, the registration statement may be accessed
electronically through the SEC's Electronic Data Gathering, Analysis and
Retrieval system at the SEC's site on the World Wide Web located at http:/
/www.sec.gov.
REPORTS TO NOTEHOLDERS
Unless definitive notes are issued for any series of notes, monthly
unaudited reports and annual unaudited reports containing information concerning
the financed Eligible Loans will be prepared by the servicer and sent on behalf
of EdLinc only to Cede, as nominee of DTC and registered holder of the notes but
will not be sent to any Beneficial Owner of the notes. Such reports will not
constitute financial statements prepared in accordance with generally accepted
accounting principles. See "Description of the Notes--Book-Entry Registration"
and "Description of the Indenture--Reports to Noteholders." EdLinc will file
with the SEC such periodic reports as are required under the Exchange Act and
the rules and regulations of the SEC thereunder. EdLinc intends to suspend the
filing of such reports under the Exchange Act when and if the filing of such
reports is no longer statutorily required.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the EdLinc pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
prospectus and prior to the termination of the offering of any series of notes
will be deemed to be incorporated by reference into this prospectus and the
accompanying prospectus supplement and to be a part hereof. After the initial
distribution of the notes by the underwriters, this prospectus will be
distributed together with, and should be read in conjunction with, an
accompanying supplement to the prospectus. Such supplement will contain the
reports described above and generally will include the information contained in
the monthly statements furnished to noteholders. See "Description of the
Notes--Book-Entry Registration" and "Description of the Indenture--Reports to
Noteholders." Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein will be deemed to be modified or
superseded for purposes of this prospectus and the accompanying prospectus
supplement to the extent that a statement contained herein or therein or in any
subsequently filed document that also is or is deemed to be incorporated by
reference herein or therein modifies or supersedes such statement. Any such
statement so modified or superseded will not be deemed, except as so modified or
superseded, to constitute a part of this prospectus and the accompanying
prospectus supplement.
SLFC, as administrator under the SLFC Servicing and Administration
Agreement, will provide without charge to each person to whom a copy of this
prospectus and the accompanying prospectus supplement are delivered, on the
written or oral request of any such person, a copy of any or all of the
documents incorporated herein by reference, except the exhibits to such
documents, unless such exhibits are specifically incorporated by reference in
such documents. Written requests for such copies should be directed to Mr. Larry
Buckmeier, Student Loan Finance Corporation, 105 First Avenue Southwest,
Aberdeen, South Dakota 57401, or "[email protected]" on the Internet. Telephone
requests for such copies should be directed to (605) 622-4400.
PLAN OF DISTRIBUTION
The notes will be offered in one or more series and one or more classes
through one or more underwriters or underwriting syndicates. The prospectus
supplement for each series of notes will set forth the terms of the offering of
such series and of each class within such series, including the name or names of
the underwriters, the proceeds to EdLinc, and either the initial public offering
price, the discounts and commissions to the underwriters and any discounts or
concessions allowed or reallowed to some dealers, or the method by which the
price at which the underwriters will sell the notes will be determined.
The notes may be acquired by underwriters for their own account and may be
resold from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. The obligations of any underwriters will be subject to
conditions precedent, and such underwriters will be jointly and severally
obligated to purchase all of a series of notes described in the related
prospectus
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supplement, if any are purchased. If notes of a series are offered other than
through underwriters, the related prospectus supplement will contain information
regarding the nature of such offering and any agreements to be entered into
between the seller and purchasers of notes of such series.
The time of delivery for the notes of a series in respect of which this
prospectus is delivered will be set forth in the related prospectus supplement.
FINANCIAL INFORMATION
EdLinc has determined that its financial statements are not material to the
offering made hereby. EdLinc will, in each prospectus supplement, include a
description of the financed student loans and other assets at the time
comprising the Trust Estate, as well as a description of all Outstanding notes
and Other Obligations, if any.
RATING
It is a condition to the issuance and sale of each series and class of
notes that they each be rated by at least one nationally recognized statistical
rating organization in one its four highest applicable rating categories. 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
Agency. See "Rating" in the accompanying prospectus supplement.
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GLOSSARY OF PRINCIPAL DEFINITIONS
Set forth below is a glossary of the principal defined terms used in this
prospectus.
"Acting Beneficiaries Upon Default" means:
(a) at any time that any Senior Obligations are Outstanding: (i) with
respect to directing the trustee to accelerate the Outstanding notes upon
an event of default under the indenture (other than an event of default
described in paragraph (L) under "Description of the Indenture--Events of
Default"): (x) the holders of a majority in aggregate principal amount of
Senior Notes Outstanding; or (y) (unless the trustee determines that
acceleration of the Outstanding notes is not in the overall interest of the
Senior Beneficiaries) any Other Senior Beneficiary; (ii) with respect to
directing the trustee to accelerate the Outstanding notes upon an event of
default described in paragraph (L) under "Description of the
Indenture--Events of Default:" (x) the holders of all Senior Notes
Outstanding; or (y) (unless the trustee determines that acceleration of the
Outstanding notes is not in the overall interest of the Senior
Beneficiaries) all Other Senior Beneficiaries; (iii) with respect to
requesting the trustee to exercise rights and powers under the indenture,
directing the conduct of proceedings in connection with the enforcement of
the indenture and requiring the trustee to waive events of default: (x) the
holders of a majority in aggregate principal amount of the Senior Notes
Outstanding, unless the trustee shall receive conflicting requests or
directions from another Other Senior Beneficiary; or (y) any Other Senior
Beneficiary, unless the trustee determines that the requested action is not
in the overall interest of the Senior Beneficiaries or receives conflicting
requests or directions from another Other Senior Beneficiary or the holders
of a majority in aggregate principal amount of the Senior Notes
Outstanding; and (iv) with respect to all other matters under the
indenture, the holders of a majority in aggregate principal amount of
Senior Notes Outstanding or any Other Senior Beneficiary;
(b) at any time that no Senior Obligations are Outstanding but
Subordinate Obligations are Outstanding: (i) with respect to directing the
trustee to accelerate the Outstanding notes upon an event of default under
the indenture (other than an event of default described in paragraph (L)
under "Description of the Indenture--Events of Default"): (x) the holders
of a majority in aggregate principal amount of Subordinate Notes
Outstanding; or (y) (unless the trustee determines that acceleration of the
Outstanding notes is not in the overall interest of the Subordinate
Beneficiaries) any Other Subordinate Beneficiary; (ii) with respect to
directing the trustee to accelerate the Outstanding notes upon an event of
default described in paragraph (L) under "Description of the
Indenture--Events of Default:" (x) the holders of all Subordinate Notes
Outstanding; or (y) (unless the trustee determines that acceleration of the
Outstanding notes is not in the overall interest of the Subordinate
Beneficiaries) all Other Subordinate Beneficiaries; (iii) with respect to
requesting the trustee to exercise rights and powers under the indenture,
directing the conduct of proceedings in connection with the enforcement of
the indenture and requiring the trustee to waive events of default: (x) the
holders of a majority in aggregate principal amount of the Subordinate
Notes
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Outstanding, unless the trustee receives conflicting requests or directions
from another Other Subordinate Beneficiary; or (y) any Other Subordinate
Beneficiary, unless the trustee determines that the requested action is not
in the overall interest of the Subordinate Beneficiaries or receives
conflicting requests or directions from another Other Subordinate
Beneficiary or the holders of a majority in aggregate principal amount of
the Subordinate Notes Outstanding; and (iv) with respect to all other
matters under the indenture, the holders of a majority in aggregate
principal amount of Subordinate Notes Outstanding or any Other Subordinate
Beneficiary; and
(c) at any time that no Senior Obligations are Outstanding and no
Subordinate Obligations are Outstanding, the holders of a majority in
aggregate principal amount of Class C Notes Outstanding.
"Administrative Cost and Note Fee Rate" shall mean a rate per annum
specified for a series of notes relating to administrative expenses and Note
Fees to be covered by the return on student loans financed with the proceeds of
such series.
"Alternative Loan Guarantee Fund Requirement" means, at any time, an amount
equal to that specified by the Rating Agencies as a condition to the acquisition
of Alternative Loans under the Indenture.
"Alternative Loan Programs" mean one or more of the Alternative Loan
Programs that are identified in the related prospectus supplement.
"Alternative Loans" means loans that are originated under Alternative Loan
Programs.
"Beneficial Owner" means, with respect to a note held in book-entry form,
the actual purchaser of such note.
"Beneficiaries" means, collectively, all Senior Beneficiaries, all
Subordinate Beneficiaries and all holders of any outstanding Class C Notes.
"Carry-Over Amount" means, if and to the extent specifically provided for
as such in a supplemental indenture with respect any series of variable rate
notes, the amount, if any, by which (a) the interest payable on such series with
respect to a given interest period is exceeded by (b) the interest that
otherwise would have been payable with respect to such interest period but for a
limitation on the interest rate for such interest period based upon the
anticipated return on financed student loans, together with the unpaid portion
of any such excess from prior interest periods. To the extent required by a
supplemental indenture providing for any Carry-Over Amount, interest will accrue
on such Carry-Over Amount until paid. Any reference to "principal" or "interest"
in the indenture and in the related notes will not include, within the meanings
of such words, any Carry-Over Amount or any interest accrued on any Carry-Over
Amount.
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"Cedel Bank" means a professional depository incorporated under the laws of
Luxembourg which holds securities for its participating organizations and
facilitates the clearance and settlement of securities transactions between
Cedel Bank Participants through electronic book-entry.
"Cedel Bank Participants" means recognized financial institutions around
the world that utilize the services of Cedel Bank, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and other organizations and may include the underwriters of any series of notes.
"Claims Rates" means those rates determined by dividing total default
claims since the previous September 30 by the total original principal amount of
the guarantee agency's guaranteed loans in repayment on such September 30.
"Class C Notes" means any notes designated in a supplemental indenture as
Class C Notes, which are secured under the indenture on a basis subordinate to
any Senior Obligations and any Subordinate Obligations.
"Consolidation Loan" means a student loan made pursuant to Section 428C of
the Higher Education Act.
"Depositories" means DTC, Cedel Bank and Euroclear, collectively.
"DTC Participants" means the participating organizations that utilize the
services of DTC, including securities brokers and dealers, banks, trust
companies, clearing corporations and other organizations.
"EdLinc" means Education Loans Incorporated, a Delaware corporation.
"Effective Interest Rate" means, with respect to any financed student loan,
the interest rate per annum borne by such financed student loan after giving
effect to all applicable Interest Subsidy Payments, Special Allowance Payments,
rebate fees on Consolidation Loans and reductions pursuant to borrower
incentives. For this purpose, the Special Allowance Payment rate shall be
computed based upon the average of the bond equivalent rates of 91-day United
States Treasury Bills auctioned during that portion of the then current calendar
quarter which ends on the date as of which the Effective Interest Rate is
determined.
"Eligible Loan" means: (A) a FFELP Loan which: (1) has been or will be made
to a borrower for post-secondary education; (2) is Guaranteed by a guarantee
agency to the extent of not less than ninety-eight percent (98%) of the
principal thereof and all accrued interest thereon; (3) is an "eligible loan" as
defined in Section 438 of the Higher Education Act for purposes of receiving
Special Allowance Payments; and (4) bears interest at a rate per annum not less
than or in excess of the applicable rate of interest provided by the Higher
Education Act, or such lesser rates as may be approved by each Rating Agency; or
(B) any other student loan (including
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Alternative Loans) if EdLinc shall have caused to be provided to the trustee
written advice from each Rating Agency that treating such type of loan as an
Eligible Loan will not adversely affect any rating or ratings then applicable to
any of the Unenhanced Senior or Subordinate Notes or, if no Unenhanced Senior or
Subordinate Notes are then Outstanding but Other Indenture Obligations are
Outstanding, the Other Beneficiaries consent to the treatment of such type of
loan as an Eligible Loan.
"Euroclear Operator" means Morgan Guaranty Trust Company of New York,
Brussels, Belgium office.
"Euroclear Participants" means the participating organizations that utilize
the services of Euroclear, including banks, securities brokers and dealers and
other professional financial intermediaries and may include the underwriters of
any series of notes.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Federal Direct Student Loan Program" means the Federal Direct Student Loan
Program established by the Higher Education Act pursuant to which loans are made
by the Secretary of Education, and any predecessor or successor program
"Federal Fund" means the federal student loan reserve fund established by
each guarantee agency as required by the 1998 Reauthorization Amendments.
"FFEL Program" means the Federal Family Education Loan Program established
by the Higher Education Act pursuant to which loans are made to borrowers
pursuant to specified guidelines, and the repayment of such loans is guaranteed
by a guarantee agency, and any predecessor or successor program.
"FFELP Loans" means student loans made under the FFEL Program.
"Government Obligations" means direct obligations of, or obligations the
full and timely payment of the principal of and interest on which are
unconditionally guaranteed by, the United States of America.
"Guarantee Agreement" means any agreement between a guarantee agency and
the trustee providing for the insurance or guarantee by such guarantee agency,
to the extent provided in the Higher Education Act, of the principal of and
accrued interest on financed FFELP Loans acquired by the trustee from time to
time.
"Indenture Obligations" means the Senior Obligations, the Subordinate
Obligations and any Class C Notes.
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"Indirect Participants" means organizations which have indirect access to
the Securities Depository, such as securities brokers and dealers, banks, and
trust companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly.
"Interest Subsidy Payments" means interest payments on student loans
authorized to be made by the Secretary of Education by Section 428(a) of the
Higher Education Act.
"Liquidated Alternative Loan" means a financed Alternative Loan as to which
any payment has been delinquent for 180 days or more. Any financed Alternative
Loan which becomes a Liquidated Alternative Loan shall cease to be treated as a
financed student loan for purposes of valuing the Trust Estate under the
indenture.
"Monthly Payment Date" means the 12th day of each calendar month (or, if
such 12th day is not a business day, the next preceding business day); provided
that any transfers to be made from the Revenue Fund on a Monthly Payment Date
shall, as to amounts therein constituting payments in respect of financed
student loans, include only such payments as have been deposited in the Revenue
Fund as of the last day of the preceding calendar month.
"Net Loan Rate" for any interest period and series of notes, will equal (1)
the weighted average Effective Interest Rate of the financed student loans in
the Acquisition Fund acquired with proceeds of such series, determined as of the
last day of the second preceding month, less (ii) the Administrative Cost and
Note Fee Rate.
"1998 Reauthorization Amendments" means the Higher Education Amendments of
1998.
"Note Fees" means the fees, costs and expenses, excluding costs of
issuance, of the trustee and any paying agents, authenticating agent,
remarketing agents, depositaries, auction agents, broker-dealers, deposit
agents, note registrar or independent accountants incurred by EdLinc in carrying
out and administering its powers, duties and functions under (1) its articles of
incorporation, its bylaws, the student loan purchase agreements, any servicing
agreement, the Guarantee Agreements, the Higher Education Act, any Alternative
Loan Program or any requirement of the laws of the United States, as such
powers, duties and functions relate to financed student loans, (2) any swap
agreements and any credit enhancement facilities (other than any amounts payable
thereunder which constitute Other Indenture Obligations), (3) any remarketing
agreement, depositary agreement, auction agent agreement or broker-dealer
agreement and (4) the indenture.
"Operating Fund" means the agency operating fund established by each
guarantee agency as required by the 1998 Reauthorization Amendments.
"Other Beneficiary" means an Other Senior Beneficiary or an Other
Subordinate Beneficiary.
I-5
<PAGE>
"Other Indenture Obligations" means, collectively, the Other Senior
Obligations and Other Subordinate Obligations.
"Other Senior Beneficiary" means a person or entity who is a Senior
Beneficiary other than as a result of ownership of Senior Notes.
"Other Senior Obligations" means EdLinc's obligations to pay any amounts
under any senior swap agreements and any senior credit enhancement facilities.
"Other Subordinate Beneficiary" means a person or entity who is a
Subordinate Beneficiary other than as a result of ownership of Subordinate
Notes.
"Other Subordinate Obligations" means EdLinc's obligations to pay any
amounts under any subordinate swap agreements and any subordinate credit
enhancement facilities.
"Outstanding" means, with respect to a note or Other Indenture Obligation,
that such note or Other Indenture Obligation has not been paid in full or
otherwise deemed not to be outstanding under the Indenture as described under
"Description of the Indenture--Discharge of Notes and Indenture."
"Participants" means the participating organizations that utilize the
services of the Securities Depository.
"Plus Loan" means a student loan made pursuant to Section 428B of the
Higher Education Act.
"Purchase Date" means, with respect to a note required to be purchased by
or on behalf of EdLinc, at the option of the holder thereof, upon receipt of a
purchase demand, the date specified in a purchase demand as the date on which
the holder of such note is demanding purchase of such note in accordance with
the applicable provisions of the related supplemental indenture, or the next
preceding or succeeding business day if such date is not a business day.
"Rating Agency" means any rating agency that shall have an outstanding
rating on any of the notes pursuant to request by EdLinc.
"Relief Act" means the Taxpayer Relief Act of 1997, as amended.
"Reserve Fund Requirement" means, at any time, an amount equal to the
greater of (1) 2.00% of the aggregate principal amount of Senior Notes and
Subordinate Notes then Outstanding, and (2) $500,000; or, as determined upon the
issuance of any Senior Notes or any Subordinate Notes, such lesser or greater
amount as will not cause any Rating Agency to lower or withdraw any rating on
any Outstanding Unenhanced Senior or Subordinate Notes, or, if no Unenhanced
Senior or Subordinate Notes are then Outstanding but Other Indenture Obligations
I-6
<PAGE>
are Outstanding and the Reserve Fund Requirement is to be reduced, such lesser
amount as is acceptable to the Other Beneficiaries.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Asset Requirement" means that: (a) the Senior Percentage is at
least equal to 110% (or such lower percentage specified in a certificate
delivered to the trustee which, if Unenhanced Senior Notes are Outstanding,
shall not result in the lowering or withdrawal of the outstanding rating
assigned by any Rating Agency to any of the Unenhanced Senior Notes Outstanding,
or, if no Unenhanced Senior Notes are Outstanding but Other Senior Obligations
are Outstanding, is acceptable to the Other Senior Beneficiaries), and (b) the
Subordinate Percentage is at least equal to 100% (or such lower percentage
which, if Unenhanced Subordinate Notes are Outstanding, shall not result in the
lowering or withdrawal of the outstanding rating assigned by any Rating Agency
to any of the Unenhanced Subordinate Notes Outstanding, or, if no Unenhanced
Subordinate Notes are Outstanding but Other Subordinate Obligations are
Outstanding, is acceptable to the Other Subordinate Beneficiaries).
"Senior Beneficiaries" means (1) the holders of any Outstanding Senior
Notes, and (2) any senior credit facility provider and any senior swap
counterparty entitled to Other Senior Obligations then Outstanding.
"Senior Notes" means any notes designated in a supplemental indenture as
Senior Notes, which are secured under the indenture on a basis senior to any
Subordinate Obligations and any Class C Notes, and on a parity with other Senior
Obligations.
"Senior Obligations" means, collectively, the Senior Notes and the Other
Senior Obligations.
"Senior Percentage" means the percentage resulting by dividing the value of
the Trust Estate by the sum of (1) the aggregate principal amount of Outstanding
Senior Notes plus accrued interest thereon, (2) accrued EdLinc swap payments
under senior swap agreements and (3) other payments accrued and owing by EdLinc
on Other Senior Obligations.
"SLFC" means Student Loan Finance Corporation, a South Dakota corporation.
"SLS Loan" means a student loan made pursuant to former Section 428A of the
Higher Education Act.
"Special Allowance Payments" means special allowance payments authorized to
be made by the Secretary of Education by Section 438 of the Higher Education
Act, or similar allowances authorized from time to time by federal law or
regulation.
I-7
<PAGE>
"Special Redemption and Prepayment Account Requirement" means, with respect
to any series of notes, the amount described in the supplemental indenture
providing for the issuance thereof.
"Stafford Loan" means a student loan made pursuant to Section 428 of the
Higher Education Act.
"Subordinate Beneficiaries" means (1) the holders of any Outstanding
Subordinate Notes, and (2) any subordinate credit facility provider and any
subordinate swap counterparty entitled to any Other Subordinate Obligations then
Outstanding.
"Subordinate Notes" means any notes designated in a supplemental indenture
as Subordinate Notes, which are secured under the indenture on a basis
subordinate to any Senior Obligations, on a parity with other Subordinate
Obligations and on a basis senior to any Class C Notes.
"Subordinate Obligations" means, collectively, the Subordinate Notes and
the Other Subordinate Obligations.
"Subordinate Percentage" means the percentage resulting by dividing the
value of the Trust Estate by the sum of (1) the aggregate principal amount of
Outstanding Senior Notes and Subordinate Notes plus accrued interest thereon,
(2) accrued EdLinc swap payments and (3) other payments accrued and owing by
EdLinc on Other Indenture Obligations.
"Trust Estate" means (1) financed student loans and moneys due or paid
thereunder after the applicable date of acquisition; (2) funds on deposit in the
funds and accounts held under the indenture (including investment earnings
thereon); and (3) rights of EdLinc in and to some agreements, including any
servicing agreement, the student loan purchase agreements, the transfer
agreements and the Guarantee Agreements, as the same relate to financed student
loans.
"Unenhanced" means, with respect to a Senior Note or a Subordinate Note,
that the payment of the principal of and interest on such note is not secured by
a credit enhancement facility.
"Unsubsidized Stafford Loan" means a student loan made pursuant to Section
428H of the Higher Education Act.
I-8
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR ON OTHER
INFORMATION TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH DIFFERENT INFORMATION. THIS DOCUMENT DOES NOT CONSTITUTE AN
OFFER TO SELL ANY SECURITIES OTHER THAN THE NOTES NOR AN OFFER OF SUCH NOTES TO
ANY PERSON IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER WOULD BE
UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS AND PROSPECTUS SUPPLEMENT AT ANY TIME
DOES NOT IMPLY THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
SUMMARY OF TERMS.............................S-4
RISK FACTORS.................................S-9
USE OF PROCEEDS..............................S-9
THE FINANCED STUDENT LOANS..................S-10
MATURITY AND PREPAYMENT CONSIDERATIONS......S-17
SERVICING...................................S-19
THE GUARANTEE AGENCIES......................S-20
DESCRIPTION OF THE SERIES 1999-[X] NOTES....S-20
SOURCE OF PAYMENT AND SECURITY FOR THE
SERIES 1999-[X] NOTES...................S-25
THE TRUSTEE.................................S-27
[CERTAIN RELATIONSHIPS AMONG FINANCING
PARTICIPANTS...........................S-28]
UNDERWRITING................................S-28
LEGAL MATTERS...............................S-29
RATING......................................S-29
PROSPECTUS
RISK FACTORS...................................4
USE OF PROCEEDS...............................14
EDLINC........................................14
THE TRANSFEROR................................14
THE SERVICER..................................15
MATURITY AND PREPAYMENT CONSIDERATIONS.......15
DESCRIPTION OF FINANCING OF ELIGIBLE LOANS....17
DESCRIPTION OF THE FFEL PROGRAM...............20
DESCRIPTION OF THE GUARANTEE AGENCIES.........40
DESCRIPTION OF THE ALTERNATIVE LOAN PROGRAMS..47
DESCRIPTION OF THE NOTES......................49
SOURCE OF PAYMENT AND SECURITY FOR THE NOTES.62
DESCRIPTION OF THE SLFC SERVICING AGREEMENT...64
DESCRIPTION OF THE INDENTURE..................69
UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES..............................99
STATE TAX CONSIDERATIONS.....................106
ERISA CONSIDERATIONS.........................106
AVAILABLE INFORMATION........................107
REPORTS TO NOTEHOLDERS.......................108
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE................................108
PLAN OF DISTRIBUTION.........................109
FINANCIAL INFORMATION........................109
RATING.......................................109
GLOSSARY OF PRINCIPAL DEFINITIONS............I-1
<PAGE>
$________________
EDUCATION LOANS INCORPORATED
STUDENT LOAN
ASSET-BACKED NOTES
SENIOR SERIES 1999-[X]
SUBORDINATE SERIES 1999-[X]
PROSPECTUS
SALOMON SMITH BARNEY
________________
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS--
EDUCATION LOANS INCORPORATED,
A Delaware Corporation
Item 14. Other Expenses of Issuance and Distribution.
The following table shows the estimated expenses to be incurred in
connection with the issuance of the securities being registered by the
registrant:
SEC registration fee................................... $ 139,000
Blue Sky fees and expenses............................. $ 20,000
Trustees' fees and expenses............................ $ 60,000
Printing and engraving expenses........................ $ 60,000
Legal fees and expenses................................ $ 750,000
Accounting fees and expenses........................... $ 10,000
Rating agency fees..................................... $ 300,000
Total......................................... $1,339,000
----------
All of the above expenses except the SEC registration fee are estimated.
Item 15. Indemnification of Directors and Officers.
Education Loans Incorporated is incorporated under the laws of
Delaware. Section 145 of the Delaware General Corporation Law provides that
a Delaware corporation may indemnify any persons, including officers and
directors, who are, or are threatened to be made, parties to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in
the right of such corporation, by reason of the fact that such person was
an officer, director, employee or agent of such corporation, or is or was
serving at the request of such corporation as a director, employee or agent
of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another
corporation or enterprise). The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by such person in connection with such action, suit
or proceeding, provided such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best
interests and, for criminal proceedings, had no reasonable cause to believe
that his conduct was illegal. A Delaware corporation may indemnify officers
and directors in an action by or in the right of the corporation under the
same conditions, except that no indemnification is permitted without
judicial approval if the officer or director is adjudged to be liable to
the corporation. Where an officer or director is successful on the merits
or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director actually and reasonably incurred.
Article Eleven of the Bylaws of the registrant permits the registrant
to, under certain circumstances, indemnify such persons for such
liabilities in such manner under such circumstances and to such extent as
permitted by Section 145 of the Delaware General Corporation Law.
Pursuant to the form of Underwriting Agreement, a copy of which is
included as Exhibit 1.1 hereto, the Underwriters agree to indemnify, under
certain conditions, the registrant, its directors, and certain of its
officers and persons who control the registrant within the meaning of the
Securities Act of 1933 against certain liabilities.
II-1
<PAGE>
Item 16. Exhibits.
*1.1 Proposed form of Underwriting Agreement
*3.1 Certificate of Incorporation of Registrant
*3.2 Bylaws of Registrant
*4.1 Form of Indenture
*4.2 Form of Supplemental Indenture
*4.3 Form of Auction Agent Agreement
*4.4 Form of Broker-Dealer Agreement
*5.1 Opinion of Dorsey & Whitney LLP as to legality
*8.1 Opinion of Dorsey & Whitney LLP as to tax matters
*10.1 Form of Servicing Agreement
*10.2 Forms of Student Loan Purchase Agreement
*10.3 Form of Transfer Agreement
23.1 Consents of Dorsey & Whitney LLP (included in Exhibits 5.1 and 8.1)
24.1 Powers of Attorney (included on Part II, page 4)
*25.1 Statement of Eligibility of Trustee (Form T-1)
----------
* Previously filed
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against liabilities (other than the
payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as a
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
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<PAGE>
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
to such information in the registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change in the information
set forth in the registration statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8, and
the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the
registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
II-3
<PAGE>
EDUCATION LOANS INCORPORATED,
A Delaware Corporation
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 2 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized on October 27, 1999.
EDUCATION LOANS INCORPORATED
By: /s/ A. Norgrin Sanderson
-----------------------------------
A. Norgrin Sanderson
President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ A. Norgrin Sanderson President, Treasurer October 27, 1999
- ------------------------------------- and Director
A. Norgrin Sanderson (principal executive officer,
principal financial and accounting officer)
* Chairman of the Board
- -------------------------------------
V. G. Stoia
* Vice Chairman of the Board
- -------------------------------------
Manley B. Feinstein
* Director
- -------------------------------------
Peter H. Sorensen
* Director
- -------------------------------------
Dwight Jenkins
*By /s/ A. Norgrin Sanderson October 27, 1999
----------------------------------
A. Norgrin Sanderson
Attorney-in-fact
</TABLE>
