<PAGE>
Filed Pursuant to Rule 424(b)(2)
Registration Number 333-44465
- --------------------------------------------------------------------------------
You should consider carefully the risk factors beginning on page S-14 of this
Prospectus Supplement and on Page 13 of the Prospectus.
The Certificates represent interests in, and the Notes represent obligations
of, the Trust only. They are not interests in or obligations of SLM Holding
Corporation, the Seller, Student Loan Marketing Association, the Servicer or
any of their affiliates.
Neither the Certificates nor the Notes are guaranteed or insured by the United
States of America or any governmental agency.
This Prospectus Supplement may be used to offer and sell the Notes or
Certificates only if accompanied by the Prospectus.
- --------------------------------------------------------------------------------
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+Information contained in this document is subject to completion or amendment. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion Dated August 2, 1999
Prospectus Supplement to Prospectus dated June 5, 1998
$
SLM Student Loan Trust 1999-2
Issuer
SLM Funding Corporation
Seller
Sallie Mae Servicing Corporation
Servicer
Floating Rate Student Loan-Backed Securities
On August , 1999, the Trust will issue:
<TABLE>
<CAPTION>
Class A-1 Notes Class A-2 Notes Class A-3 Notes
----------------------- ----------------------- -----------------------
Class A-1T Class A-1L Class A-2T Class A-2L Class A-3T Class A-3L Certificates
<S> <C> <C> <C> <C> <C> <C>
Principal $ $ $ $ $ $
Interest Rate 91-day 3-month 91-day 3-month 91-day 3-month 3-month
T-Bill LIBOR T-Bill LIBOR T-Bill LIBOR LIBOR
plus 0. % plus 0. % plus 0. % plus 0. % plus 0. % plus 0. % plus 0. %
Maturity , 20 , 20 , 20 , 20
</TABLE>
Payments will be made quarterly beginning October 25, 1999,
primarily from collections on a pool of student loans.
The Trust will pay principal first pro rata to the Class A-1
Notes until paid in full, second pro rata to the Class A-2 Notes
until paid in full and third pro rata to the Class A-3 Notes
until paid in full. The Trust will pay principal on the
Certificates after all classes of Notes have been paid in full.
We are offering the Notes and Certificates through the
underwriters at the prices shown below, when and if issued. The
securities will not be listed on any exchange.
-----------------------------------------------------------------
<TABLE>
<CAPTION>
Proceeds
Price to Underwriting to the
Public Discount Seller
-------- ------------ --------
<S> <C> <C> <C>
Per Class A-1T Note % % %
Per Class A-1L Note % % %
Per Class A-2T Note % % %
Per Class A-2L Note % % %
Per Class A-3T Note % % %
Per Class A-3L Note % % %
Per Certificate % % %
Total
</TABLE>
Neither the SEC nor any state securities commission has approved
or disapproved the Notes or Certificates or determined whether
this Prospectus Supplement or the Prospectus is accurate or
complete. Any representation to the contrary is a criminal
offense.
Salomon Smith Barney
Goldman, Sachs & Co.
J.P. Morgan & Co.
Merrill Lynch & Co.
August , 1999
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary of Terms.......................................................... S-4
. Issuer................................................................. S-4
. Information about the Securities ....................................... S-4
. The Notes............................................................... S-4
. The Certificates........................................................ S-6
. Indenture Trustee....................................................... S-7
. Eligible Lender Trustee................................................. S-7
. Administrator........................................................... S-7
. Information about the Trust............................................. S-7
Formation of the Trust................................................... S-7
Its Assets............................................................... S-8
. Administration of the Trust............................................. S-8
Servicing of the Assets.................................................. S-10
Compensation of the Servicer............................................. S-10
. Termination of the Trust................................................ S-11
Optional Purchase........................................................ S-11
Auction of Trust Assets.................................................. S-11
. Tax Considerations...................................................... S-12
. ERISA Considerations.................................................... S-12
. Capital Treatment of the Notes.......................................... S-12
. Rating of the Securities................................................ S-13
. Risk Factors............................................................ S-13
. CUSIP Numbers........................................................... S-13
Risk Factors.............................................................. S-14
. The Class A-3 Notes, the Class A-2 Notes and the Certificates Bear
Subordination Risks..................................................... S-14
. Change in Federal Direct Consolidation Loan Rate May Encourage
Prepayments............................................................. S-14
. Initial Principal of Securities Exceeds Trust Assets.................... S-14
. Your Securities are Subject to Basis Risk............................... S-15
.Year 2000 Issues Could Adversely Affect the Trust's Liquidity, the Timing
of Payments and the Trading Market...................................... S-15
Formation of the Trust.................................................... S-17
. The Trust............................................................... S-17
. Capitalization of the Trust............................................. S-17
. Eligible Lender Trustee................................................. S-18
Reports to Securityholders................................................ S-18
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... S-18
. Sources of Capital and Liquidity........................................ S-18
. Results of Operations................................................... S-18
Use of Proceeds........................................................... S-19
The Trust Student Loan Pool............................................... S-19
.Insurance of Student Loans; Guarantors of Student Loans.................. S-28
. Cure Period for Trust Student Loans..................................... S-32
.Consolidation of Federal Benefit Billings and Receipts and Guarantor
Claims with Other Trusts................................................ S-33
Description of the Securities............................................. S-35
. General................................................................. S-35
. The Notes............................................................... S-35
. The Certificates........................................................ S-37
. Determination of T-Bill Rates........................................... S-38
. Determination of LIBOR.................................................. S-39
. Accounts................................................................ S-40
. Servicing Compensation.................................................. S-40
. Distributions........................................................... S-41
. Credit Enhancement...................................................... S-45
. Administration Fee...................................................... S-46
ERISA Considerations...................................................... S-47
Underwriting.............................................................. S-49
Ratings of the Securities................................................. S-51
Legal Matters............................................................. S-51
Index of Defined Terms for Prospectus Supplement.......................... S-52
</TABLE>
Prospectus
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information.................................................... 2
Incorporation of Certain Documents by Reference.......................... 2
Prospectus Supplement.................................................... 2
Reports to Securityholders............................................... 2
Summary Information...................................................... 3
. Issuer................................................................. 3
. Seller................................................................. 3
. Servicer............................................................... 3
. Eligible Lender Trustee................................................ 3
. Indenture Trustee...................................................... 3
. Administrator.......................................................... 3
. The Notes.............................................................. 3
. The Certificates....................................................... 4
. Assets of the Trust.................................................... 5
. Collection Account..................................................... 6
. Pre-Funding Account.................................................... 6
.Credit and Cash Flow or other Enhancement or Derivative Arrangements.... 7
. Reserve Account........................................................ 7
. Purchase Agreements.................................................... 8
. Sale Agreements........................................................ 8
. Servicing Agreements................................................... 8
. Administration Agreement............................................... 8
. Representations and Warranties of the Seller........................... 9
. Representations and Warranties of Sallie Mae........................... 9
. Covenants of the Servicer.............................................. 10
. Servicing Fee.......................................................... 10
. Administration Fee..................................................... 11
. Optional Purchase; Auction............................................. 11
. Termination............................................................ 11
. Tax Considerations..................................................... 11
. ERISA Considerations................................................... 12
. Ratings................................................................ 12
Risk Factors............................................................. 13
Sallie Mae............................................................... 21
The Student Loan Pools................................................... 22
The Seller............................................................... 25
Formation of the Trusts.................................................. 26
Transfer and Servicing Agreements........................................ 29
Servicing; Administration................................................ 32
Trading Information...................................................... 40
Description of the Notes................................................. 42
Description of the Certificates.......................................... 47
Certain Information Regarding the Securities............................. 48
Certain Legal Aspects of the Student Loans............................... 53
Certain Federal Income Tax Consequences.................................. 55
Certain State Tax Consequences........................................... 64
ERISA Considerations..................................................... 64
Use of Proceeds.......................................................... 65
Plan of Distribution..................................................... 65
Legal Matters............................................................ 66
Appendix A: The Federal Family Education Loan Program.................... A-1
Appendix B: Global Clearance, Settlement and Tax Documentation
Procedures.............................................................. B-1
Appendix C: Index of Principal Terms..................................... C-1
</TABLE>
S-2
<PAGE>
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS
We provide information to you about the Notes and the Certificates in two
separate sections of this document that provide progressively more detailed
information. These two sections are: (a) the accompanying Prospectus, which
begins after page S-54 and which provides general information, some of which
may not apply to your particular class of Notes or Certificates, and (b) this
Prospectus Supplement, which describes the specific terms of the Notes and
Certificates being offered.
If the terms of the Notes or Certificates vary between this Prospectus
Supplement and the Prospectus, you should rely on the information in this
Prospectus Supplement.
For your convenience, we include cross-references in this Prospectus
Supplement and in the Prospectus to captions in these materials where you can
find related information. The Table of Contents on page S-2 provides the pages
on which these captions can be found.
We also include a listing of the pages where we define capitalized terms
used in this Prospectus Supplement and in the Prospectus. You can find these
listings under the caption "Index of Defined Terms for Prospectus Supplement"
beginning on page S-52 in this document and under the caption "Index of
Principal Terms" beginning on page C-1 in the Prospectus.
----------------
Neither the Notes nor the Certificates may be offered or sold to persons in
the United Kingdom in a transaction that results in an offer to the public
within the meaning of the securities laws of the United Kingdom.
----------------
REPORTS TO SECURITYHOLDERS
Except in very limited circumstances, you will not receive quarterly and
annual reports concerning the Trust and the student loans directly from the
Trust. Instead, you will receive them through Cede & Co., as nominee of The
Depository Trust Company and registered holder of the Notes and Certificates.
See "Certain Information Regarding the Securities--Book-Entry Registration" in
the Prospectus.
The Trust will also file periodic reports containing similar information
with the SEC.
S-3
<PAGE>
SUMMARY OF TERMS
This summary highlights selected information about the Notes and the
Certificates. It does not contain all of the information that you might find
important in making your investment decision. It provides only an overview of
certain information to aid your understanding. You should read the full
description of this information appearing elsewhere in this document and in the
Prospectus.
ISSUER
SLM Student Loan Trust 1999-2.
INFORMATION ABOUT THE SECURITIES
The Trust is offering the following classes of Securities:
. Floating Rate Class A-1T Student Loan-Backed Notes in the amount of
$ ;
. Floating Rate Class A-1L Student Loan-Backed Notes in the amount of
$ ;
. Floating Rate Class A-2T Student Loan-Backed Notes in the amount of
$ ;
. Floating Rate Class A-2L Student Loan-Backed Notes in the amount of
$ ;
. Floating Rate Class A-3T Student Loan-Backed Notes in the amount of $ ;
. Floating Rate Class A-3L Student Loan-Backed Notes in the amount of $ ;
and
. Floating Rate Student Loan-Backed Certificates in the amount of $ .
The Securities will receive payments primarily from collections on a pool of
Trust Student Loans.
THE NOTES
The Notes are debt obligations of the Trust.
Interest will accrue on the principal balance of the Notes at capped Note Rates
during three-month Accrual Periods and will be paid on quarterly Distribution
Dates.
An Accrual Period begins on a Distribution Date and ends on the day before the
next Distribution Date. The first Accrual Period, however, will begin on August
, 1999, the Closing Date, and end on October 24, 1999, the day before the
first Distribution Date.
A Distribution Date is the 25th of each January, April, July and October,
beginning October 25, 1999. If any January 25, April 25, July 25 or October 25
is not a business day, the Distribution Date will be the next business day.
Interest will be payable to holders of record as of the close of business on
each Record Date.
A Record Date is the day before the related Distribution Date.
. Interest Rates. The Notes will bear interest at the annual rates listed
below:
. The Class A-1T Rate will be the daily weighted average of the 91-day
Treasury bill rates for each day within the applicable Accrual Period
plus 0. %;
. The Class A-1L Rate will be Three-month LIBOR as determined on the
second business day before the beginning of the applicable Accrual
Period plus 0. %;
. The Class A-2T Rate will be the daily weighted average of the 91-day
Treasury bill rates for each day within the applicable Accrual Period
plus 0. %;
. The Class A-2L Rate will be Three-month LIBOR as determined on the
second business day before the beginning of the applicable Accrual
Period plus 0. %;
. The Class A-3T Rate will be the daily weighted average of the 91-day
Treasury bill rates for each day within
S-4
<PAGE>
the applicable Accrual Period plus 0. %; and
. The Class A-3L Rate will be Three-month LIBOR as determined on the
second business day before the beginning of the applicable Accrual
Period plus 0. %.
In most cases, the Class A-1T, Class A-2T and Class A-3T Rates will adjust
weekly on the calendar day following each auction of 91-day Treasury bills.
See "Description of the Securities--Determination of T-Bill Rates."
The Note Rates will be capped at the Student Loan Rate, which in general will
equal the expected weighted average interest rate of the Trust Student Loans
less servicing and administration fees. See "Description of the Securities--
The Notes--Distributions of Interest."
For the Class A-1T, Class A-2T and Class A-3T Notes, we calculate interest
based on the actual number of days elapsed in each Accrual Period divided by
365 (or 366 for a leap year).
For the Class A-1L, Class A-2L and Class A-3L Notes, we calculate interest
based on the actual number of days elapsed in each Accrual Period divided by
360.
. Interest Payments. Interest accrued on the outstanding principal amount of
the Notes during each Accrual Period will be payable on the related
Distribution Date.
If any Note Rate for any period is based on the Student Loan Rate, this will
create a Note Interest Carryover that will be payable on later Distribution
Dates if funds are available.
The "Note Interest Carryover" is the additional amount of interest on the
Notes that would have accrued if the Note Rate had not been capped at the
Student Loan Rate. Note Interest Carryover will continue to be payable even if
the principal amount of the applicable class of Notes has been paid in full.
. Principal Payments. Principal of the Notes will be payable on each
Distribution Date in an amount generally equal to (a) the Principal
Distribution Amount for that Distribution Date plus (b) any shortfall in
the payment of Note principal as of the preceding Distribution Date.
The Principal Distribution Amount is:
. for the initial Distribution Date, the excess of the outstanding
Securities balance over the Adjusted Pool Balance for that Distribution
Date; and
. for each later Distribution Date, the excess of the Adjusted Pool
Balance for the preceding Distribution Date over the Adjusted Pool
Balance for the current Distribution Date.
"Adjusted Pool Balance" for any Distribution Date means:
(a) if the Pool Balance of the student loans at the end of the related
Collection Period exceeds 40% of the initial Pool Balance, the sum of the Pool
Balance plus the required reserve account balance for that Distribution Date,
or
(b) if the Pool Balance at the end of the related Collection Period is 40%
or less of the initial Pool Balance, that Pool Balance. See "Description of
the Securities--Distributions."
"Collection Period" means a calendar quarter or, for the first Collection
Period, the period from May 24, 1999 (the "Cutoff Date") through September 30,
1999.
The "Pool Balance" for any date means the aggregate principal balance of the
Trust Student Loans on that date, including accrued interest that is expected
to be capitalized, as reduced by:
. all payments received by the Trust through that date from borrowers, the
Guarantee Agencies and the Department;
. all amounts received by the Trust through that date from purchases of
S-5
<PAGE>
the Trust Student Loans by the Seller or the Servicer;
. all Liquidation Proceeds and Realized Losses on the Trust Student Loans
liquidated through that date;
. the amount of any adjustments to balances of the Trust Student Loans
that the Servicer makes under the Servicing Agreement through that date;
and
. the amount by which Guarantor reimbursements of principal on defaulted
Trust Student Loans through that date are reduced from 100% to 98% (or
other applicable percentage), as required by the risk sharing provisions
of the Higher Education Act.
Note principal will be applied sequentially on each Distribution Date:
. first, pro rata to the Class A-1T and Class A-1L Notes until their
principal
balance is reduced to zero;
. second, pro rata to the Class A-2T and Class A-2L Notes until their
principal balance is reduced to zero; and
. third, pro rata to the Class A-3T and Class A-3L Notes until their
principal balance is reduced to zero.
. Maturity Dates.
. The Class A-1 Notes will mature no later than ;
. the Class A-2 Notes will mature no later than ; and
. the Class A-3 Notes will mature no later than .
The actual maturity of the Class A-1 Notes, the Class A-2 Notes and the
Class A-3 Notes could occur sooner. This may happen if, for example,
. there are prepayments on the Trust Student Loans;
. the Seller exercises its option to purchase any remaining Trust Student
Loans; or
. the Indenture Trustee auctions the remaining Trust Student Loans. See
"Trading Information--Weighted Average Life of the Securities" in the
Prospectus.
. Denominations. The Notes will be available for purchase in denominations of
$1,000 and additional increments of $1,000. They will be available only in
DTC book-entry form, which means that you will not receive a certificate
representing your Notes except in very limited circumstances.
. Security for the Notes. The Notes will be secured by the assets of the
Trust, primarily the Trust Student Loans.
THE CERTIFICATES
The Trust will issue the Certificates under the Trust Agreement. The
Certificates represent ownership interests in the Trust. The initial
Certificate Balance will equal $ .
. Return on the Certificates. The Certificates will bear interest at an annual
rate equal to:
Three-month LIBOR determined on the second business day before the
beginning of the applicable Accrual Period plus 0. %.
We calculate return on the Certificates based on the actual number of days
elapsed in each Accrual Period divided by 360.
The Certificate Rate, like the Note Rates, will be capped at the Student Loan
Rate.
. Payments of Accrued Return
On each Distribution Date, holders of record of Certificates as of the
Record
S-6
<PAGE>
Date will be paid return at the Certificate Rate on the Certificate
Balance.
If the Certificate Rate for any Distribution Date is based on the Student
Loan Rate, this will create a Certificate Return Carryover, which will be
payable on later Distribution Dates if funds are available.
The "Certificate Return Carryover" is the additional amount of return on
the Certificates that would have accrued if the Certificate Rate had not
been capped at the Student Loan Rate. This amount will be payable out of
the Collection Account only after all other required distributions to
Securityholders have been made.
. Distribution of the Certificate Balance. Distributions on the Certificate
Balance will be made only after the Notes have been paid in full, in an
amount generally equal to (a) the remaining Principal Distribution Amount
plus (b) any shortfall in the payment of the Certificate Balance as of the
preceding Distribution Date. See "Description of the Securities--
Distributions."
. Final Distribution Date. Distribution of any remaining Certificate Balance
will be made no later than . However, final distribution of the
Certificate Balance could occur earlier as a result of the same factors
that may cause an early maturity of the Notes.
. Subordination of the Certificates. Distributions of return on the
Certificates will be subordinated to the payment of interest on the Notes,
other than any Note Interest Carryover. Distributions of the Certificate
Balance will be subordinated to the payment of both interest on the Notes,
other than any Note Interest Carryover, and principal of the Notes. See
"Description of the Securities--The Certificates--Subordination of the
Certificates."
. Denominations. Certificates will be available for purchase in denominations
of $100,000 and additional increments of $1,000. They will be available in
DTC book-entry form only.
INDENTURE TRUSTEE
The Trust will issue the Notes under an Indenture.
Under the Indenture, Bankers Trust Company will act as Indenture Trustee for
the benefit of and to protect the interests of the Noteholders.
ELIGIBLE LENDER TRUSTEE
The Trust will issue the Certificates under a Trust Agreement. Chase Manhattan
Bank Delaware will be the initial Eligible Lender Trustee under the Trust
Agreement. It will hold legal title to the assets of the Trust for
Certificateholders.
ADMINISTRATOR
The Student Loan Marketing Association, known as Sallie Mae, will act as the
Administrator of the Trust under an Administration Agreement. Sallie Mae is a
government-sponsored enterprise and currently owns the Trust Student Loans.
Under certain circumstances, Sallie Mae may transfer its obligations as
administrator. See "Servicing; Administration--Administration Agreement" in
the Prospectus.
INFORMATION ABOUT THE TRUST
Formation of the Trust
The Trust will be a Delaware Business Trust.
The only activities of the Trust are acquiring, owning and managing the Trust
Student Loans and the other assets of the Trust, issuing and making payments
on the Securities and other related activities. See "Formation of the Trust--
The Trust."
SLM Funding Corporation, as Seller, after acquiring the student loans from
Sallie Mae under a Purchase Agreement, will sell them to the Trust on the
Closing Date under a Sale
S-7
<PAGE>
Agreement. The Seller is a wholly-owned subsidiary of Sallie Mae. Because the
Seller is not eligible under the federal higher education laws to hold legal
title to the student loans, Chase Manhattan Bank Delaware, as Interim Eligible
Lender Trustee, will hold legal title to the student loans for the Seller under
an interim trust arrangement.
Its Assets
The assets of the Trust will include:
. the Trust Student Loans;
. collections and other payments on the Trust Student Loans; and
. funds it will hold in its trust accounts, including the Collection Account
and the Reserve Account.
The rest of this section describes the Trust Student Loans and trust accounts
more fully.
. Trust Student Loans. The Trust Student Loans are education loans to students
and parents of students made under the Federal Family Education Loan Program
("FFELP"). Some of the Trust Student Loans are Consolidation Loans, which
are used to combine the borrower's obligations under various federally
authorized student loan programs into a single loan.
The Trust Student Loans had an initial Pool Balance of approximately
$1,000,591,463 as of the Cutoff Date.
As of the Cutoff Date, the weighted average annual interest rate of the Trust
Student Loans was approximately 8.01% and their weighted average remaining term
to scheduled maturity was approximately 118 months.
Sallie Mae originally acquired the Trust Student Loans in the ordinary course
of its student loan financing business. Guarantee Agencies described in this
document guarantee all of the Trust Student Loans. They are reinsured by the
United States Department of Education (the "Department"). The Trust Student
Loans have been selected from the student loans owned by Sallie Mae based on
the criteria established by the Seller, as described in this Prospectus
Supplement and the Prospectus.
. Collection Account. The Administrator will deposit collections on the Trust
Student Loans, Interest Subsidy Payments and Special Allowance Payments into
the Collection Account.
. Reserve Account. The Administrator will establish and maintain the Reserve
Account as an asset of the Trust in the name of the Indenture Trustee. The
Trust will make an initial deposit from the net proceeds from the sale of
the Securities into the Reserve Account on the Closing Date. The deposit
will be in cash or Eligible Investments equal to $ (the "Reserve Account
Initial Deposit"). Funds in the Reserve Account may be replenished on each
Distribution Date by additional funds available after all prior required
distributions have been made. See "Description of the Securities--
Distributions."
The Reserve Account enhances the likelihood of payment to Noteholders and
Certificateholders. In certain circumstances, however, the Reserve Account
could be depleted. This depletion could result in shortfalls in
distributions to Noteholders or Certificateholders.
ADMINISTRATION OF THE TRUST
Under the Administration Agreement, Sallie Mae, as Administrator, will instruct
the Indenture Trustee to withdraw funds on deposit in the Collection Account.
These funds will be applied monthly to the payment of the Primary Servicing Fee
and on each Distribution Date generally as shown in the following chart.
S-8
<PAGE>
-----------------------------
COLLECTION
ACCOUNT
-----------------------------
-----------------------------
First SERVICER
(Primary Servicing Fee)
-----------------------------
-----------------------------
Second ADMINISTRATOR
(Administration Fees)
-----------------------------
-----------------------------
Third NOTEHOLDERS
(Noteholders' Interest
Distribution Amount)
-----------------------------
-----------------------------
Fourth CERTIFICATEHOLDERS
(Certificateholders'
Return Distribution Amount)
-----------------------------
Fifth -----------------------------
(first pro rata to the Class A-1 NOTEHOLDERS
Noteholders, second pro rata (Noteholders' Principal
to the Class A-2 Noteholders Distribution Amount)
and third pro rata to the -----------------------------
Class A-3 Noteholders)
-----------------------------
Sixth CERTIFICATEHOLDERS
(after the Notes (Certificate Balance
are paid in full) Distribution Amount)
-----------------------------
-----------------------------
Seventh RESERVE ACCOUNT
(Amount, if any, necessary
to reinstate the Reserve
Account balance to the
Specified Reserve
Account Balance)
-----------------------------
-----------------------------
Eighth SERVICER
(Carryover Servicing Fee,
if any)
-----------------------------
-----------------------------
Ninth NOTEHOLDERS
(Note interest Carryover,
if any)
-----------------------------
-----------------------------
Tenth CERTIFICATEHOLDERS
(Certificate Return
Carryover, if any)
-----------------------------
-----------------------------
Eleventh RESERVE ACCOUNT
(any remaining amounts)
-----------------------------
Amounts remaining in the Reserve Account on any Distribution Date in excess of
the Specified Reserve Account Balance will, after the payments described below,
be released to the Seller.
The "Specified Reserve Account Balance" is an amount, generally subject to a
floor of $ , required to be maintained in the Reserve Account. More
specifically, the Specified Reserve Account Balance for any Distribution Date
will be equal to the greater of (a) % of the Pool Balance at the end of the
related Collection Period and (b) $ . It will be subject to adjustment as
described in this document. In no event will it exceed the outstanding balance
of the Securities.
The following chart depicts the distribution of amounts in the Reserve Account
on any Distribution Date, after the required distributions for that
Distribution Date have been made, in excess of the Specified Reserve Account
Balance.
RESERVE ACCOUNT
------------------
Excess $
------------------
------------------
1st SPECIFIED RESERVE
ACCOUNT BALANCE
------------------
------------------
NOTEHOLDERS
(Note Principal
Shortfall)
------------------
------------------
2nd CERTIFICATEHOLDERS
(Certificate
Balance
Shortfall)
------------------
------------------
3rd SERVICER
(Carryover
Servicing Fee)
------------------
------------------
4th NOTEHOLDERS
(Note Interest
Carryover)
------------------
------------------
5th CERTIFICATEHOLDERS
(Certificate
Return Carryover)
------------------
------------------
Last SELLER
------------------
S-9
<PAGE>
The Reserve Account will be available to cover any shortfalls in payments of
the Primary Servicing Fee, the Administration Fee, the Noteholders' Interest
Distribution Amount and the Certificateholders' Return Distribution Amount. In
addition, the Reserve Account will be available:
(a) on the Class A-1 Maturity Date, the Class A-2 Maturity Date and the Class
A-3 Maturity Date, to cover shortfalls in payments of the Noteholders'
principal and accrued interest, and
(b) on the Final Distribution Date upon termination of the Trust, to pay the
Certificate Balance and accrued return and any Carryover Servicing Fee,
Note Interest Carryover or Certificate Return Carryover.
If the market value of the Reserve Account on any Distribution Date is
sufficient to pay the remaining principal and interest accrued on the Notes,
the remaining Certificate Balance, any accrued return on the Certificates, and
any Carryover Servicing Fee, Note Interest Carryover and Certificate Return
Carryover, amounts on deposit in the Reserve Account will be so applied on that
Distribution Date.
See "Description of the Securities--Credit Enhancement--Reserve Account."
Transfer of the Assets to the Trust. Under the Sale Agreement, the Seller will
sell the Trust Student Loans to the Trust, with the Eligible Lender Trustee
holding legal title to the Trust Student Loans.
If the Seller breaches a representation under the Sale Agreement regarding a
Trust Student Loan, generally it will have to cure the breach, repurchase or
replace that Trust Student Loan or reimburse the Trust for losses resulting
from the breach.
Servicing of the Assets
Under the Servicing Agreement, Sallie Mae Servicing Corporation, as Servicer,
will be responsible for servicing, maintaining custody of and making
collections on the Trust Student Loans. It will also bill and collect payments
from the Guarantee Agencies and the Department. The Servicer, an affiliate of
Sallie Mae, manages and operates Sallie Mae's loan servicing functions. See
"Servicing Agreements" and "Servicing; Administration" in the Prospectus. Under
certain circumstances, the Servicer may transfer its obligations as Servicer.
See "Servicing; Administration--Certain Matters Regarding the Servicer" in the
Prospectus.
If the Servicer breaches a covenant under the Servicing Agreement regarding a
Trust Student Loan, generally it will have to cure the breach, purchase that
Trust Student Loan or reimburse the Trust for losses resulting from the breach.
See "The Trust Student Loan Pool--Insurance of Student Loans."
Compensation of the Servicer
The Servicer will receive two separate fees: a Primary Servicing Fee and a
Carryover Servicing Fee.
The "Primary Servicing Fee" for any month is equal to
. in the case of Trust Student Loans that are not Consolidation Loans, 1/12th
of 0. % of their outstanding principal amount, plus
. in the case of Consolidation Loans, 1/12th of 0. % of their outstanding
principal amount.
The Primary Servicing Fee will be payable out of Available Funds and amounts on
deposit in the Reserve Account on the 25th of each month (or the next business
day), beginning September 27, 1999 (a "Monthly Servicing Payment Date"). Fees
are calculated as of the last day of the preceding calendar month. Fees will
include amounts from prior Monthly Servicing Payment Dates that remain unpaid.
The Carryover Servicing Fee will be payable to the Servicer on each
Distribution Date out of Available Funds.
The "Carryover Servicing Fee" is the sum of
. the amount of certain increases in the costs incurred by the Servicer;
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<PAGE>
. the amount of certain conversion, transfer and removal fees;
. any amounts described in the first two bullets that remain unpaid from prior
Distribution Dates; and
. interest on such unpaid amounts as described in the Servicing Agreement.
See "Description of the Securities--Servicing Compensation."
TERMINATION OF THE TRUST
The obligations of the Servicer, the Seller, the Administrator, the Eligible
Lender Trustee and the Indenture Trustee will terminate upon:
. the maturity or other liquidation of the last Trust Student Loan and the
disposition of any amount received upon its liquidation; and
. the payment of all amounts required to be paid to the Noteholders and the
Certificateholders.
See "Formation of the Trusts--Termination" in the Prospectus.
Optional Purchase
The Seller may purchase or arrange for the purchase of all remaining Trust
Student Loans on any Distribution Date when the Pool Balance is 10% or less of
the initial Pool Balance as of the Cutoff Date. The Seller's exercise of this
purchase option will result in the early retirement of the Notes and the
Certificates. The purchase price will equal the amount required to prepay in
full (including all accrued interest) the remaining Trust Student Loans as of
the end of the preceding Collection Period, but not less than the Minimum
Purchase Amount plus any Note Interest Carryover and Certificate Return
Carryover.
"Minimum Purchase Amount" means an amount that would be sufficient to
. reduce the outstanding principal amount of each class of Notes then
outstanding on the related Distribution Date to zero;
. pay to Noteholders the interest payable on the related Distribution Date;
. reduce the Certificate Balance to zero; and
. pay to Certificateholders the return payable on the related Distribution
Date.
Auction of Trust Assets
The Indenture Trustee will offer for sale all remaining Trust Student Loans at
the end of the Collection Period when the Pool Balance is 10% or less of the
initial Pool Balance. The "Trust Auction Date" will be the 3rd business day
before the related Distribution Date. An auction will occur only if the Seller
has first waived its optional purchase right described above. The Seller will
waive its option to purchase the remaining Trust Student Loans if it fails to
notify the Eligible Lender Trustee and the Indenture Trustee, in writing, that
it intends to exercise its purchase option before the Indenture Trustee accepts
a bid to purchase the Trust Student Loans. The Seller and its affiliates,
including Sallie Mae and the Servicer, and unrelated third parties may offer
bids to purchase the Trust Student Loans on the Trust Auction Date.
If at least two bids are received, the Indenture Trustee will solicit and re-
solicit new bids from all participating bidders until only one bid remains or
the remaining bidders decline to resubmit bids. The Indenture Trustee will
accept the highest of the remaining bids if it equals or exceeds the Minimum
Purchase Amount or the fair market value of the Trust Student Loans as of the
end of the related Collection Period, whichever is higher. If at least two bids
are not received or the highest bid after the re-solicitation process does not
equal or exceed that amount, the Indenture Trustee will not complete the sale.
The Indenture Trustee may, and at the direction of the Seller will be required
to, consult with a financial advisor, including an Underwriter of the
Securities or the Administrator, to determine if the fair market value of the
Trust Student Loans has been offered.
The net proceeds of any auction sale will be used to retire any outstanding
Notes and Certificates on the related Distribution Date.
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<PAGE>
If the sale is not completed, the Indenture Trustee may, but will not be under
any obligation to, solicit bids for sale of the Trust Student Loans after
future Collection Periods upon terms similar to those described above,
including the Seller's waiver of its option to purchase remaining Trust Student
Loans.
If the Trust Student Loans are not sold as described above, on each subsequent
Distribution Date, if the amount on deposit in the Reserve Account (after
giving effect to all Reserve Account withdrawals, except withdrawals payable to
the Seller) exceeds the Specified Reserve Account Balance, the Administrator
will direct the Indenture Trustee to distribute the amount of such excess as
accelerated payments of Note principal and Certificate Balance. The Indenture
Trustee may or may not succeed in soliciting acceptable bids for the Trust
Student Loans either on the Trust Auction Date or subsequently.
TAX CONSIDERATIONS
Subject to important considerations described in this Prospectus Supplement and
the Prospectus:
. Federal tax counsel and Delaware tax counsel for the Trust are of the
opinion that the Notes will be characterized as debt for federal and
Delaware state income tax purposes.
. Federal tax counsel is also of the opinion that, for federal income tax
purposes, the Trust will not be taxable as a corporation. By accepting a
Certificate, a Certificateholder will be deemed to agree to treat the Trust
as a partnership in which it is a partner.
. In the opinion of Delaware tax counsel for the Trust, the same
characterizations would apply for Delaware state income tax purposes as for
federal income tax purposes. Noteholders and Certificateholders that are not
otherwise subject to Delaware taxation on income will not become subject to
Delaware tax as a result of their ownership of Notes or Certificates.
See "Certain Federal Income Tax Consequences" and "Certain State Tax
Consequences" in the Prospectus for additional information concerning the
application of federal tax laws.
ERISA CONSIDERATIONS
. The Notes. Subject to important considerations and conditions described in
this Prospectus Supplement and the Prospectus, the Notes may, in general, be
purchased by or on behalf of a Plan (including an insurance company general
account) that is subject to Title I of ERISA or Section 4975 of the Internal
Revenue Code only if an exemption from the prohibited transaction rules
applies so that the purchase and holding of the Notes by or on behalf of the
Plan will not result in a non-exempt prohibited transaction. Each fiduciary
who purchases any Note will be deemed to represent that such an exemption
exists and applies to it.
. The Certificates. The Certificates may not be acquired by, on behalf of, or
using the assets of any Plan (including an insurance company general
account) of the type described above. Each purchaser of Certificates will be
deemed to represent that it is not such a Plan, is not purchasing the
Certificates on behalf of a Plan, and is not using the assets of a Plan to
purchase any of the Certificates. Further, each purchaser of Certificates
will be deemed to agree that if its Certificates are subsequently deemed to
be Plan assets, that purchaser will dispose of them.
See "ERISA Considerations" in this Prospectus Supplement and the Prospectus for
additional information concerning the application of ERISA.
CAPITAL TREATMENT OF THE NOTES
The Board of Governors of the Federal Reserve System, the Office of the
Comptroller of the
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<PAGE>
Currency, the Federal Deposit Insurance Corporation and the Office of Thrift
Supervision have each advised us in a letter addressed to the Seller that the
Notes are eligible for 20% risk-based capital treatment. The banking regulators
further advised us generally that if any Trust Student Loan has been disbursed
on or after October 1, 1993, consistent with the Higher Education Act's two
percent lender risk sharing provisions, only 98% of each Note would be eligible
for the 20% risk category. Most of the Trust Student Loans were disbursed on or
after October 1, 1993 and, accordingly, only 98% of each Note is eligible for
the 20% risk category. The letters from the banking regulators did not address
the Certificates' eligibility for the 20% risk category.
RATING OF THE SECURITIES
The Securities are required to be rated by at least two nationally recognized
rating agencies identified in the Indenture as follows:
Notes: Highest rating category
Certificates: One of the three highest rating
categories
See "Ratings of the Securities" in this Prospectus Supplement for additional
information.
RISK FACTORS
Certain factors you should consider before making an investment in the
Certificates are described in this Prospectus Supplement and in the Prospectus
under "Risk Factors."
CUSIP NUMBERS
. Class A-1T Notes:
. Class A-1L Notes:
. Class A-2T Notes:
. Class A-2L Notes:
. Class A-3T Notes:
. Class A-3L Notes:l
. Certificates:
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<PAGE>
RISK FACTORS
You should carefully consider the following factors in deciding whether to
purchase any Note or Certificate. The Prospectus describes additional risk
factors that you should also consider beginning on page 13. These risk factors
could affect your investment in or return on the Notes and the Certificates.
The items listed below and in the Prospectus may not include all risks of your
investment.
The Class A-3 Notes, the Certificateholders, to a lesser extent the Class A-
Class A-2 Notes and the 3 Noteholders and to a still lesser extent, the
Certificates Bear Class A-2 Noteholders, bear a greater risk of loss
Subordination Risks than do Class A-1 Noteholders:
. No principal will be paid to Class A-3
Noteholders until the Class A-1 Noteholders and
the Class A-2 Noteholders have been paid in
full;
. No principal will be paid to Class A-2
Noteholders until the Class A-1 Noteholders have
been paid in full; and
. No distribution of Certificate Balance will be
made to Certificateholders until the Class A-1
Noteholders, Class A-2 Noteholders and Class A-3
Noteholders have been paid in full.
Change in Federal Direct On October 7, 1998, the President signed into law
Consolidation Loan Rate the Higher Education Amendments of 1998,
May Encourage legislation that reauthorizes federal higher
Prepayments education loan programs for a six-year period (the
"Reauthorization Legislation"). The Reauthorization
Legislation maintained reduced borrower interest
rates for Federal Direct Consolidation Loans whose
applications were received by January 31, 1999.
Borrower interest rates were maintained at 7.46
percent (6.86 percent during in-school and grace
periods), adjusted annually based on a formula
equal to the 91-day Treasury bill rate plus 2.3
percent (1.7 percent during in-school and grace
periods).
The availability of the reduced borrower interest
rates on these Federal Direct Consolidation Loans
may increase the likelihood that a Trust Student
Loan will be prepaid. We do not know the volume of
Trust Student Loans that may be prepaid because of
this factor. We believe, however, that most of the
applications received by the Department by the
January 31, 1999 deadline have been processed and,
accordingly, that the volume of Trust Student Loans
that may be prepaid because of the reduced borrower
interest rates on Federal Direct Consolidation
Loans will not be material.
Principal of Securities The Initial Pool Balance plus the initial deposit
Exceeds Trust Assets to the Collection Account is approximately % of
the aggregate principal amount of the Securities.
Securityholders must rely primarily on interest
payments on the Trust Student Loans and other Trust
assets, in excess of Servicing Fees, Administration
Fees and interest payable on the Securities, to
reduce the aggregate principal amount of the
Securities to the Pool Balance. The
Securityholders, especially Certificateholders,
could be adversely affected by a high rate of
prepayments, which would reduce the amount of
interest available for this purpose. The amount of
available interest also could be reduced as
described in the next paragraph.
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<PAGE>
Your Securities are You may not receive interest at the full Note or
Subject to Basis Risk Certificate Rate as a result of the Student Loan
Rate cap. Although you may subsequently receive any
interest not paid as a result of the Student Loan
Rate cap, these carryover amounts will be payable
to you only on a subordinated basis. The Student
Loan Rate cap may be triggered for any of the
following reasons:
. The Trust Student Loans generally bear interest
based on the 91-day Treasury bill rate, after
giving effect to payments from the Department.
The Class A-1L, Class A-2L and Class A-3L Note
Rates and the Certificate Rate generally are
based on Three-month LIBOR, adjusted quarterly;
and the Class A-1T, Class A-2T and Class A-3T
Note Rates are based on a daily weighted average
of the 91-day Treasury bill rates. As a result,
the interest rates on the Securities may not
adjust in tandem with the Student Loan Rate.
This may cause interest carryovers and also may
reduce the amount of excess interest available
for the payment of principal on the Securities.
. The principal balance of the Trust Student Loans
will initially be less than the aggregate
principal amount of the Securities.
Consequently, the principal balance of the Trust
Student Loans on which interest will be
collected will be less than the principal amount
of the Securities for some period.
. The Student Loan Rate cap will be reduced below
the actual interest rate of the Trust Student
Loans as a result of the Trust's obligation to
pay rebate fees on Consolidation Loans to the
Department and servicing and administrative
fees.
If any Note Rate or the Certificate Rate is limited
by the Student Loan Rate cap, the market value and
liquidity of your Securities may decline.
Year 2000 Issues Could The "Year 2000 issue" refers to a wide variety of
Adversely Affect the computer problems that may arise from the inability
Trust's Liquidity, the of computer programs to properly process date-
Timing of Payments and sensitive information relating to the Year 2000,
the Trading Market the years after 2000 and, to a lesser extent, 1999.
By the end of 1998, the Administrator and the
Servicer achieved Year 2000 readiness for all
internal applications. During 1999 they intend to
complete Year 2000 readiness testing with their
external business partners and develop Year 2000
contingency plans. The failure by the
Administrator, the Servicer or any of their
significant business partners to resolve a material
Year 2000 issue, however, could interrupt normal
business activities or operations such as making
timely payments on the Securities or servicing the
Trust Student Loans.
The Servicer, on behalf of the Trust, will submit
claims to various Guarantee Agencies for payment on
defaulted Trust Student Loans and in other
circumstances. If any Guarantee Agency that
guarantees a significant portion of the Trust
Student Loans is
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<PAGE>
unable to timely process guarantee payments because
of its failure to remediate its Year 2000 issues,
the Trust's liquidity could be adversely affected,
possibly to a material extent. This also could
happen if the Department is unable to timely
process interest subsidy or special allowance
payments because of Year 2000 issues.
Finally, Year 2000 issues could cause DTC's
computer applications and systems, as they relate
to book-entry deliveries, processing payments and
settlement of trades, to malfunction. This could
result in a temporary illiquidity in the trading of
the Securities. Although DTC has advised Sallie Mae
that its has developed and is implementing a
technical assessment and remediation plan (which
includes a testing phase) to deal with Year 2000
issues, there can be no assurance that DTC will be
successful in its remediation efforts.
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<PAGE>
FORMATION OF THE TRUST
The Trust
The SLM Student Loan Trust 1999-2 (the "Trust") will be a trust newly
formed under the laws of the State of Delaware under the Trust Agreement to be
dated as of August 1, 1999 (as amended and supplemented from time to time, the
"Trust Agreement"), between the Seller and the Eligible Lender Trustee. After
its formation, the Trust will not engage in any activity other than:
. acquiring, holding and managing the Trust Student Loans and the other
assets of the Trust and related proceeds;
. issuing the Certificates and the Notes;
. making payments on them; and
. engaging in other activities that are necessary, suitable or convenient
to accomplish, or are incidental to, the foregoing.
The Trust will be initially capitalized with equity of $ , excluding
amounts deposited in the Reserve Account by the Trust on the Closing Date,
representing the Certificate Balance. The equity of the Trust, together with
the proceeds from the sale of the Notes, will be used by the Eligible Lender
Trustee to make the Reserve Account Initial Deposit in the Reserve Account and
to purchase on behalf of the Trust the Trust Student Loans. It will purchase
the Trust Student Loans from the Seller under the Sale Agreement to be dated as
of the Closing Date (as amended and supplemented from time to time, the "Sale
Agreement"), among the Seller, the Trust and the Eligible Lender Trustee. The
Seller will use the net proceeds it receives from the sale of the Trust Student
Loans to pay to Sallie Mae the purchase price of the Trust Student Loans
acquired from Sallie Mae pursuant to the Purchase Agreement dated as of the
Closing Date (as amended and supplemented from time to time, the "Purchase
Agreement") between the Seller and Sallie Mae.
Upon the consummation of such transactions, the property of the Trust will
consist of (a) the pool of Trust Student Loans, legal title to which is held by
the Eligible Lender Trustee on behalf of the Trust, (b) all funds collected on
Trust Student Loans on or after the Cutoff Date and (c) all moneys and
investments on deposit in the Collection Account and the Reserve Account. The
Notes will be secured by the property of the Trust. The Collection Account and
the Reserve Account will be maintained in the name of the Indenture Trustee for
the benefit of the Noteholders and the Certificateholders. To facilitate
servicing and to minimize administrative burden and expense, the Servicer will
act as custodian of the promissory notes representing the Trust Student Loans.
The Trust's principal offices are in Wilmington, Delaware, in care of Chase
Manhattan Bank Delaware, as Eligible Lender Trustee, at its address shown
below.
Capitalization of the Trust
The following table illustrates the capitalization of the Trust as of the
Cutoff Date, as if the issuance and sale of the Securities offered hereby had
taken place on such date:
<TABLE>
<S> <C>
Floating Rate Class A-1T Student Loan-Backed Notes................... $
Floating Rate Class A-1L Student Loan-Backed Notes................... $
Floating Rate Class A-2T Student Loan-Backed Notes................... $
Floating Rate Class A-2L Student Loan-Backed Notes................... $
Floating Rate Class A-3T Student Loan-Backed Notes................... $
Floating Rate Class A-3L Student Loan-Backed Notes................... $
Floating Rate Student Loan-Backed Certificates....................... $
Total............................................................... $
</TABLE>
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<PAGE>
Eligible Lender Trustee
Chase Manhattan Bank Delaware is the Eligible Lender Trustee for the Trust
under the Trust Agreement. Chase Manhattan Bank Delaware is a Delaware banking
corporation whose principal offices are located at 1201 Market Street,
Wilmington, Delaware 19801. The Eligible Lender Trustee will acquire on behalf
of the Trust legal title to all the Trust Student Loans acquired from time to
time under the Sale Agreement. The Eligible Lender Trustee on behalf of the
Trust has entered into a separate Guarantee Agreement with each of the
Guarantee Agencies described in this Prospectus Supplement with respect to the
Trust Student Loans. The Eligible Lender Trustee qualifies as an eligible
lender and the holder of the Trust Student Loans for all purposes under the Act
and the Guarantee Agreements. Failure of the Trust Student Loans to be owned by
an eligible lender would result in the loss of Program Payments with respect to
such Trust Student Loans. See "Appendix A--The Federal Family Education Loan
Program--Eligible Lenders, Borrowers and Institutions" in the Prospectus.
The Eligible Lender Trustee's liability in connection with the issuance and
sale of the Notes and the Certificates is limited solely to the express
obligations of the Eligible Lender Trustee in the Trust Agreement and the Sale
Agreement. See "Description of the Securities" herein and "Transfer and
Servicing Agreements" in the Prospectus. Sallie Mae maintains certain banking
relations with the Eligible Lender Trustee.
REPORTS TO SECURITYHOLDERS
Periodic and annual reports concerning the Trust are required to be
delivered to Securityholders. See "Certain Information Regarding the
Securities--Reports to Securityholders" in the Prospectus.
Unless Definitive Notes or Definitive Certificates are issued, the reports
containing information concerning the Student Loans will be sent on behalf of
the Trust only to Cede & Co. ("Cede"), as nominee of The Depository Trust
Company ("DTC") and registered holder of the Notes and the Certificates. See
"Certain Information Regarding the Securities--Book-Entry Registration" in the
Prospectus.
The Trust will file with the Securities and Exchange Commission (the
"Commission") periodic reports required under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and regulations of the
Commission.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sources of Capital and Liquidity
The Trust's primary sources of capital will be the net proceeds from the
sale of the Securities. See "Formation of the Trust--Capitalization of the
Trust."
The Trust's primary sources of liquidity will be collections on the Trust
Student Loans and amounts on deposit in the Reserve Account.
Results of Operations
The Trust will be newly formed and, accordingly, has no results of
operations as of the date of this Prospectus Supplement. Because the Trust does
not have any operating history, we have not included in this Prospectus
Supplement any historical or pro forma ratio of earnings to fixed charges. The
earnings on the Trust Student Loans and other assets owned by the Trust and the
interest costs
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of the Notes will determine the Trust's results of operations in the future.
The income generated from the Trust's assets will pay operating costs and
expenses of the Trust, interest and principal on the Notes and distributions to
the holders of the Certificates. The principal operating expenses of the Trust
are expected to be, but are not limited to, the Primary Servicing Fee, the
Administration Fee and any Carryover Servicing Fee.
USE OF PROCEEDS
The Trust will use the net proceeds from the sale of the Notes and the
Certificates to make the Reserve Account Initial Deposit to the Reserve
Account, to make an initial deposit of $ to the Collection Account
and to purchase the Trust Student Loans from the Seller on the Closing Date
under the Sale Agreement. The Seller will use such proceeds paid to it by the
Trust to pay to Sallie Mae the purchase price for the Trust Student Loans
purchased by the Seller from Sallie Mae under the Purchase Agreement.
THE TRUST STUDENT LOAN POOL
The Eligible Lender Trustee on behalf of the Trust will purchase the pool
of Trust Student Loans from the Seller as of the Cutoff Date.
The Seller will purchase the Trust Student Loans from Sallie Mae under the
Purchase Agreement.
The Trust Student Loans were selected from Sallie Mae's portfolio of
Student Loans by employing several criteria, including requirements that each
Trust Student Loan as of the Cutoff Date:
. is guaranteed as to principal and interest by a Guarantee Agency
pursuant to a Guarantee Agreement and the Guarantee Agency is, in turn,
reinsured by the Department in accordance with the FFELP;
. contains terms in accordance with those required by the FFELP, the
Guarantee Agreements and other applicable requirements;
. is not more than 120 days past due; and
. does not have a borrower who is noted in the related records of the
Servicer as being currently involved in a bankruptcy proceeding.
No Trust Student Loan as of the Cutoff Date consists of a Student Loan that
was subject to the Seller's or Sallie Mae's prior obligation to sell such loan
to a third party.
The distribution by weighted average interest rate applicable to the Trust
Student Loans on any date following the Cutoff Date may vary significantly from
that in the following tables as a result of variations in the effective rates
of interest applicable to the Trust Student Loans. Moreover, the information
below about the remaining term to maturity of the Trust Student Loans as of the
Cutoff Date may vary significantly from the actual term to maturity of any of
the Trust Student Loans as a result of prepayments or of the granting of
deferral and forbearance periods.
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<PAGE>
The following tables provide a description of certain additional
characteristics of the Trust Student Loans as of the Cutoff Date:
COMPOSITION OF THE TRUST STUDENT LOANS
AS OF THE CUTOFF DATE
<TABLE>
<S> <C>
Aggregate Outstanding Principal Balance(1)...................... $1,000,591,463
Number of Borrowers............................................. 111,039
Average Outstanding Principal Balance Per Borrower.............. $ 9,011
Number of Loans................................................. 259,888
Average Outstanding Principal Balance Per Loan.................. $ 3,850
Weighted Average Remaining Term to Maturity(2).................. 118 months
Weighted Average Annual Borrower Interest Rate(3)............... 8.01%
</TABLE>
- --------
(1) Includes principal balance due from obligors, plus accrued interest of
$20,137,259 as of the Cutoff Date to be capitalized upon commencement of
repayment.
(2) Determined from the Cutoff Date to the stated maturity date of the
applicable Trust Student Loan without giving effect to any deferral or
forbearance periods that may be granted in the future. See Appendix A to
the Prospectus and "The Student Loan Pools--Sallie Mae's Student Loan
Financing Business" in the Prospectus.
(3) Exclusive of Special Allowance Payments. The weighted average spread,
including Special Allowance Payments, to the 91-day or 52-week T-Bill rate,
as applicable, was 2.87% as of the Cutoff Date and would have been 3.10% if
all of the Trust Student Loans were in repayment as of the Cutoff Date.
DISTRIBUTION OF THE TRUST STUDENT LOANS
BY LOAN TYPE AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
Percent of
Aggregate Pool by
Outstanding Outstanding
Number of Principal Principal
Loan Type Loans Balance(1) Balance
- --------- --------- -------------- -----------
<S> <C> <C> <C>
Subsidized Stafford Loans.................. 170,542 $ 575,113,356 57.5%
Unsubsidized Stafford Loans................ 70,325 322,609,390 32.2
SLS Loans.................................. 6,101 21,676,314 2.2
PLUS Loans................................. 12,913 81,101,650 8.1
Consolidation Loans........................ 7 90,753 0.0
------- -------------- -----
Total.................................... 259,888 $1,000,591,463 100.0%
======= ============== =====
</TABLE>
- --------
(1) Includes principal balance due from obligors, plus accrued interest of
$20,137,259 as of the Cutoff Date to be capitalized upon commencement of
repayment.
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<PAGE>
DISTRIBUTION OF THE TRUST STUDENT LOANS
BY BORROWER INTEREST RATES AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
Percent of
Aggregate Pool by
Outstanding Outstanding
Number of Principal Principal
Interest Rates(1) Loans Balance(2) Balance
- ----------------- --------- -------------- -----------
<S> <C> <C> <C>
Less than 7.50%............................ 10,842 $ 36,917,660 3.7%
7.50% to 8.49%............................. 232,010 886,088,673 88.6
8.50% to 9.49%............................. 16,951 77,270,333 7.7
Greater than 9.49%......................... 85 314,797 0.0
------- -------------- -----
Total.................................... 259,888 $1,000,591,463 100.0%
======= ============== =====
</TABLE>
- --------
(1) Determined using the interest rates applicable to the Trust Student Loans
as of the Cutoff Date. However, because certain of the Trust Student Loans
bear interest at variable rates, the above information may not remain
applicable to the Trust Student Loans at any time after the Cutoff Date.
See Appendix A to the Prospectus and "The Student Loan Pools--Sallie Mae's
Student Loan Financing Business" in the Prospectus.
(2) Includes principal balance due from obligors, plus accrued interest of
$20,137,259 as of the Cutoff Date to be capitalized upon commencement of
repayment.
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<PAGE>
DISTRIBUTION OF THE TRUST STUDENT LOANS
BY OUTSTANDING PRINCIPAL BALANCE PER BORROWER AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
Percent of
Aggregate Pool by
Outstanding Outstanding
Range of Outstanding Number of Principal Principal
Principal Balance Borrowers Balance(1) Balance
- -------------------- --------- -------------- -----------
<S> <C> <C> <C>
Less than $ 1,000.......................... 4,666 $ 3,045,075 0.3%
$ 1,000 to $ 1,999.99...................... 9,158 13,692,936 1.4
$ 2,000 to $ 2,999.99...................... 16,821 42,885,972 4.3
$ 3,000 to $ 3,999.99...................... 9,367 32,720,401 3.3
$ 4,000 to $ 4,999.99...................... 7,203 32,340,923 3.2
$ 5,000 to $ 5,999.99...................... 9,324 51,067,426 5.1
$ 6,000 to $ 6,999.99...................... 8,031 51,572,292 5.1
$ 7,000 to $ 7,999.99...................... 5,436 40,518,046 4.0
$ 8,000 to $ 8,999.99...................... 4,602 38,927,136 3.9
$ 9,000 to $ 9,999.99...................... 4,022 37,856,988 3.8
$10,000 to $10,999.99...................... 3,690 38,818,627 3.9
$11,000 to $11,999.99...................... 3,692 42,224,174 4.2
$12,000 to $12,999.99...................... 2,061 25,705,828 2.6
$13,000 to $13,999.99...................... 1,927 26,046,597 2.6
$14,000 to $14,999.99...................... 2,071 29,973,974 3.0
$15,000 to $15,999.99...................... 1,841 28,475,306 2.8
$16,000 to $16,999.99...................... 1,934 31,939,176 3.2
$17,000 to $17,999.99...................... 1,657 28,784,394 2.9
$18,000 to $18,999.99...................... 1,332 24,688,371 2.5
$19,000 to $19,999.99...................... 2,187 42,695,449 4.3
$20,000 to $20,999.99...................... 970 19,843,901 2.0
$21,000 to $21,999.99...................... 809 17,394,996 1.7
$22,000 to $22,999.99...................... 754 16,962,306 1.7
$23,000 to $23,999.99...................... 524 12,289,481 1.2
$24,000 to $24,999.99...................... 442 10,821,216 1.1
$25,000 to $25,999.99...................... 416 10,587,484 1.0
$26,000 to $26,999.99...................... 399 10,564,109 1.1
$27,000 to $27,999.99...................... 356 9,785,704 1.0
$28,000 to $28,999.99...................... 331 9,427,308 0.9
$29,000 to $29,999.99...................... 311 9,176,448 0.9
$30,000 to $30,999.99...................... 295 9,000,285 0.9
$31,000 to $31,999.99...................... 283 8,911,091 0.9
$32,000 to $32,999.99...................... 243 7,898,231 0.8
$33,000 to $33,999.99...................... 231 7,737,867 0.8
$34,000 to $34,999.99...................... 206 7,103,576 0.7
$35,000 and above.......................... 3,447 169,108,369 16.9
------- -------------- -----
111,039 $1,000,591,463 100.0%
======= ============== =====
</TABLE>
- --------
(1) Includes principal balance due from obligors, plus accrued interest of
$20,137,259 as of the Cutoff Date to be capitalized upon commencement of
repayment.
S-22
<PAGE>
DISTRIBUTION OF THE TRUST STUDENT LOANS
BY SCHOOL/LOAN TYPE
<TABLE>
<CAPTION>
Percent of
Aggregate Pool by
Outstanding Outstanding
Number of Principal Principal
School/Loan Type Loans Balance(1) Balance
- ---------------- --------- -------------- -----------
<S> <C> <C> <C>
FFELP:
4-year Institutions...................... 208,700 $ 860,197,570 86.0%
2-year Institutions...................... 20,798 48,789,234 4.9
Proprietary/Vocational................... 28,536 79,956,949 8.0
Unidentified............................. 1,847 11,556,957 1.1
Consolidation Loan Program(2).............. 7 90,753 0.0
------- -------------- -----
Total.................................. 259,888 $1,000,591,463 100.0%
======= ============== =====
</TABLE>
- --------
(1) Includes principal balance due from obligors, plus accrued interest of
$20,137,259 as of the Cutoff Date to be capitalized upon commencement of
repayment.
(2) The school type for Consolidation Loans is generally not available.
DISTRIBUTION OF THE TRUST STUDENT LOANS
BY REMAINING TERM TO SCHEDULED MATURITY AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
Percent of
Aggregate Pool by
Number of Months Outstanding Outstanding
Remaining to Scheduled Number of Principal Principal
Maturity(1) Loans Balance(2) Balance
- ---------------------- --------- -------------- -----------
<S> <C> <C> <C>
0 to 12................................ 1,236 $ 732,121 0.1%
13 to 24................................ 3,485 2,811,254 0.3
25 to 36................................ 5,305 6,081,096 0.6
37 to 48................................ 6,068 8,866,849 0.9
49 to 60................................ 8,277 15,628,702 1.5
61 to 72................................ 9,678 21,680,721 2.2
73 to 84................................ 10,833 28,039,599 2.8
85 to 96................................ 13,195 44,652,313 4.5
97 to 108................................ 18,277 80,747,868 8.1
109 to 120................................ 87,510 376,803,604 37.7
121 to 132................................ 48,301 214,657,192 21.4
133 to 144................................ 24,599 105,383,212 10.5
145 and Up................................ 23,124 94,506,932 9.4
------- -------------- -----
Total................................. 259,888 $1,000,591,463 100.0%
======= ============== =====
</TABLE>
- --------
(1) Determined from the Cutoff Date to the stated maturity date of the
applicable Trust Student Loan without giving effect to any deferral or
forbearance periods that may be granted in the future. See Appendix A to
the Prospectus and "The Student Loan Pools--Sallie Mae's Student Loan
Financing Business" in the Prospectus.
(2) Includes principal balance due from obligors, plus accrued interest of
$20,137,259 as of the Cutoff Date to be capitalized upon commencement of
repayment.
S-23
<PAGE>
DISTRIBUTION OF THE TRUST STUDENT LOANS
BY CURRENT BORROWER PAYMENT STATUS AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
Percent of
Aggregate Pool by
Outstanding Outstanding
Number of Principal Principal
Current Borrower Payment Status(1) Loans Balance(2) Balance
- ---------------------------------- --------- -------------- -----------
<S> <C> <C> <C>
In-School.................................. 57,580 $ 239,858,230 24.0%
Grace...................................... 30,331 117,391,109 11.7
Deferral................................... 20,902 87,151,055 8.7
Forbearance................................ 17,115 72,737,020 7.3
Repayment(3)
First year in repayment.................. 78,338 319,475,983 31.9
Second year in repayment................. 16,937 73,659,353 7.4
Third year in repayment.................. 10,927 37,417,207 3.7
More than 3 years in repayment........... 27,758 52,901,506 5.3
------- -------------- -----
Total.................................. 259,888 $1,000,591,463 100.0%
======= ============== =====
</TABLE>
- --------
(1) Refers to the status of the borrower of each Trust Student Loan as of the
Cutoff Date. The borrower may still be attending school ("In-School"), may
be in a grace period after completing school and prior to repayment
commencing ("Grace"), may be currently required to repay the loan
("Repayment") or may have temporarily ceased repaying the loan through a
deferral ("Deferral") or a forbearance ("Forbearance") period. See Appendix
A to the Prospectus and "The Student Loan Pools--Sallie Mae's Student Loan
Financing Business" in the Prospectus.
(2) Includes principal balance due from obligors, plus accrued interest of
$20,137,259 as of the Cutoff Date to be capitalized upon commencement of
repayment.
(3) The weighted average number of months in repayment for all Trust Student
Loans currently in repayment is 14, calculated as the term to maturity at
the commencement of repayment less the number of months remaining to
scheduled maturity as of the Cutoff Date.
SCHEDULED WEIGHTED AVERAGE REMAINING MONTHS IN STATUS OF THE TRUST STUDENT
LOANS BY CURRENT BORROWER PAYMENT STATUS AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
Scheduled Months in Status(1)
----------------------------------------------
Current Borrower Payment Status In-School Grace Deferral Forbearance Repayment
- ------------------------------- --------- ----- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
In-School....................... 16.5 6.0 -- -- 118.8
Grace........................... -- 3.0 -- -- 118.0
Deferral........................ -- -- 12.9 -- 113.5
Forbearance..................... -- -- -- 3.6 115.1
Repayment....................... -- -- -- -- 103.5
</TABLE>
- --------
(1) Determined without giving effect to any deferral or forbearance periods
that may be granted in the future. See Appendix A to the Prospectus and
"The Student Loan Pools--Sallie Mae's Student Loan Financing Business" in
the Prospectus.
S-24
<PAGE>
GEOGRAPHIC DISTRIBUTION OF THE
TRUST STUDENT LOANS AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
Percent of
Aggregate Pool by
Outstanding Outstanding
Number of Principal Principal
State(1) Loans Balance(2) Balance
- -------- --------- ----------- -----------
<S> <C> <C> <C>
Alabama....................................... 998 $ 3,411,923 0.3%
Alaska........................................ 322 1,046,931 0.1
Arizona....................................... 2,888 11,027,910 1.1
Arkansas...................................... 425 1,423,230 0.1
California.................................... 18,763 85,479,670 8.6
Colorado...................................... 5,330 15,423,392 1.6
Connecticut................................... 14,200 56,742,279 5.7
Delaware...................................... 256 1,189,740 0.1
District of Columbia.......................... 949 4,626,292 0.5
Florida....................................... 19,729 65,129,242 6.5
Georgia....................................... 4,107 14,867,268 1.5
Hawaii........................................ 420 1,722,362 0.2
Idaho......................................... 355 1,177,162 0.1
Illinois...................................... 4,699 20,603,725 2.1
Indiana....................................... 882 3,044,929 0.3
Iowa.......................................... 322 1,254,322 0.1
Kansas........................................ 1,244 4,482,528 0.5
Kentucky...................................... 557 1,817,698 0.2
Louisiana..................................... 1,224 4,328,598 0.4
Maine......................................... 7,067 21,503,271 2.2
Maryland...................................... 2,680 11,974,578 1.2
Massachusetts................................. 55,919 215,366,510 21.5
Michigan...................................... 3,134 11,733,350 1.2
Minnesota..................................... 1,164 3,663,569 0.4
Mississippi................................... 1,617 5,891,165 0.6
Missouri...................................... 1,543 6,068,060 0.6
Montana....................................... 352 1,131,705 0.1
Nebraska...................................... 176 556,420 0.1
Nevada........................................ 877 3,383,030 0.3
New Hampshire................................. 4,137 16,116,636 1.6
New Jersey.................................... 4,399 20,612,438 2.1
New Mexico.................................... 465 1,740,500 0.2
New York...................................... 41,785 178,860,425 17.9
North Carolina................................ 3,735 13,385,148 1.3
North Dakota.................................. 68 247,443 0.0
Ohio.......................................... 9,950 33,306,205 3.3
Oklahoma...................................... 2,814 8,113,791 0.8
Oregon........................................ 1,762 6,928,066 0.7
Pennsylvania.................................. 3,779 19,170,572 1.9
Rhode Island.................................. 2,097 9,086,870 0.9
South Carolina................................ 1,985 6,258,320 0.6
South Dakota.................................. 32 93,560 0.0
Tennessee..................................... 1,451 5,386,259 0.5
Texas......................................... 13,726 48,788,433 4.9
Utah.......................................... 345 1,201,293 0.1
</TABLE>
S-25
<PAGE>
<TABLE>
<CAPTION>
Percent of
Aggregate Pool by
Outstanding Outstanding
Number of Principal Principal
State(1) Loans Balance(2) Balance
- -------- --------- -------------- -----------
<S> <C> <C> <C>
Vermont.................................... 1,050 $ 3,897,616 0.4%
Virginia................................... 4,882 18,212,741 1.8
Washington................................. 4,759 17,836,213 1.8
West Virginia.............................. 3,004 6,260,594 0.6
Wisconsin.................................. 730 2,423,542 0.2
Wyoming.................................... 108 388,983 0.0
Other...................................... 626 2,204,956 0.2
------- -------------- -----
Total.................................... 259,888 $1,000,591,463 100.0%
======= ============== =====
</TABLE>
- --------
(1) Based on the billing addresses of the borrowers of the Trust Student Loans
shown on the Servicer's records as of the Cutoff Date.
(2) Includes principal balance due from obligors, plus accrued interest of
$20,137,259 as of the Cutoff Date to be capitalized upon commencement of
repayment.
Each of the Trust Student Loans provides or will provide for the
amortization of its outstanding principal balance over a series of regular
payments. Except as described below, each regular payment consists of an
installment of interest which is calculated on the basis of the outstanding
principal balance of the Trust Student Loan. The amount received is applied
first to interest accrued to the date of payment and the balance of the
payment, if any, 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 Deferral Periods or Forbearance
Periods, and except as provided below, the borrower pays a regular 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 Trust Student Loan.
Sallie Mae makes available to some borrowers of Student Loans it holds
payment terms which may result in the lengthening of the remaining term of the
Student Loans. For example, not all of the loans owned by Sallie Mae provide
for level payments throughout the repayment term of the loans. Some Student
Loans provide for interest only payments to be made for a designated portion of
the term of the loans, with amortization of the principal of the loans
occurring only when payments increase in the latter stage of the term of the
loans. Other loans provide for a "graduated phase in" of the amortization of
principal with a greater portion of principal amortization being required in
the latter stages than would be the case if amortization were on a level
payment basis. Sallie Mae also offers an income-sensitive repayment plan, under
which repayments are based on the borrower's income. Under that plan, ultimate
repayment may be delayed up to five years. Borrowers under Trust Student Loans
will continue to be eligible for the graduated payment and income-sensitive
repayment plans. See "The Student Loan Pools--Sallie Mae's Student Loan
Financing Business" in the Prospectus.
The following table provides certain information about Trust Student Loans
subject to the repayment terms described in the preceding paragraphs.
S-26
<PAGE>
DISTRIBUTION OF THE TRUST
STUDENT LOANS BY REPAYMENT TERMS
<TABLE>
<CAPTION>
Percent of
Aggregate Pool by
Outstanding Outstanding
Number of Principal Principal
Loan Repayment Terms Loans Balance(1) Balance
- -------------------- --------- -------------- -----------
<S> <C> <C> <C>
Level Payment.............................. 228,794 $ 859,435,446 85.9%
Other Repayment Options(2)................. 31,094 141,156,017 14.1
------- -------------- -----
Total.................................... 259,888 $1,000,591,463 100.0%
======= ============== =====
</TABLE>
- --------
(1) Includes principal balance due from obligors, plus accrued interest of
$20,137,259 as of the Cutoff Date to be capitalized upon commencement of
repayment.
(2) Includes graduated repayment, income sensitive and interest only period
loans. Income sensitive loans represent less than 1.0% of the Outstanding
Principal Balance. Interest only period loans represent 13.7% of the
Outstanding Principal Balance.
The Servicer at the request of Sallie Mae and on behalf of the Trust may in
the future offer repayment terms similar to those described above to borrowers
of loans in the Trust which are not entitled to these repayment terms as of the
Cutoff Date. If repayment terms are offered to and accepted by borrowers, the
weighted average life of the Notes could be lengthened. See "Trading
Information--Weighted Average Life of the Securities" in the Prospectus.
The following table provides information about Trust Student Loans
regarding date of disbursement.
DISTRIBUTION OF THE TRUST
STUDENT LOANS BY DATE OF DISBURSEMENT
<TABLE>
<CAPTION>
Percent of
Aggregate Pool by
Outstanding Outstanding
Number of Principal Principal
Disbursement Date(1) Loans Balance(2) Balance(3)
- -------------------- --------- -------------- -----------
<S> <C> <C> <C>
Pre-October 1, 1993........................ 44,301 $ 107,970,260 10.8%
October 1, 1993 and thereafter............. 215,587 892,621,203 89.2
------- -------------- -----
Total.................................... 259,888 $1,000,591,463 100.0%
======= ============== =====
</TABLE>
- --------
(1) Student Loans disbursed prior to October 1, 1993 are 100% guaranteed by the
applicable Guarantor, and reinsured against default by the Department up to
100% of the Guarantee Payments. Student Loans disbursed on or after October
1, 1993 are 98% guaranteed by the applicable Guarantor, and reinsured
against default by the Department up to a maximum of 98% of the Guarantee
Payments. See "Appendix A--The Federal Family Education Loan Program--
Guarantee Agencies" and "--Federal Insurance and Reinsurance of Guarantee
Agencies" in the Prospectus.
(2) Includes principal balance due from obligors, plus accrued interest of
$20,137,259 as of the Cutoff Date to be capitalized upon commencement of
repayment.
(3) The holder of a Consolidation Loan made on or after October 1, 1993 must
pay the Department a monthly rebate fee calculated on an annual basis equal
to 1.05% of the principal plus accrued unpaid interest on any such loan. Of
the Trust Student Loans that are Consolidation Loans, 71.2% were made on or
after October 1, 1993.
S-27
<PAGE>
Insurance of Student Loans; Guarantors of Student Loans
General. Each Trust Student Loan is required to be guaranteed as to
principal and interest by one of the Guarantee Agencies described below and
reinsured by the Department under the Act and must be eligible for Special
Allowance Payments and, in the case of some Trust Student Loans, Interest
Subsidy Payments by the Department.
Guarantee Agencies for the Trust Student Loans. The Eligible Lender Trustee
has entered into a separate Guarantee Agreement with each of the Guarantee
Agencies listed below (each, a "Guarantor") pursuant to which each of the
Guarantors has agreed to serve as guarantor for certain of the Trust Student
Loans.
Under the Higher Education Amendments of 1992 (the "1992 Amendments"),
under Section 432(o) of the Act, if the Department has determined that a
Guarantee Agency is unable to meet its insurance obligations, the loan holder
may submit claims directly to the Department and the Department is required to
pay the full Guarantee Payment in accordance with guarantee claim processing
standards no more stringent than those of the Guarantee Agency. However, the
Department's obligation to pay guarantee claims directly in this fashion is
contingent upon the Department making the determination referred to above.
There can be no assurance that the Department would ever make such a
determination with respect to a Guarantee Agency or, if such a determination
was made, whether such determination or the ultimate payment of such guarantee
claims would be made in a timely manner. See "Appendix A--The Federal Family
Education Loan Program--Guarantee Agencies" and "--Federal Insurance and
Reinsurance of Guarantee Agencies" in the Prospectus.
S-28
<PAGE>
The following table provides information with respect to the portion of the
Trust Student Loans guaranteed by each Guarantor:
DISTRIBUTION OF THE TRUST STUDENT LOANS BY
GUARANTY AGENCY AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
Percent of
Aggregate Pool by
Outstanding Outstanding
Number of Principal Balance Principal
Loans of Loans Balance
Name of Guaranty Agency Guaranteed Guaranteed(1) Guaranteed
- ----------------------- ---------- ----------------- -----------
<S> <C> <C> <C>
American Student Assistance Guaran-
tor................................. 53,047 $ 200,928,641 20.1%
California Student Aid Commission.... 15,699 71,719,307 7.2
Colorado Student Loan Program........ 6,421 16,036,649 1.6
Connecticut Student Loan Foundation.. 7,506 29,609,415 3.0
Education Assistance Corporation..... 38 152,294 0.0
Educational Credit Management Corpo-
ration.............................. 2,168 6,479,544 0.6
Finance Authority of Maine........... 6,370 17,541,405 1.8
Florida Department of Education
Office of Student Financial
Assistance.......................... 11,964 34,489,192 3.4
Georgia Higher Education Assistance
Corp................................ 1,622 4,712,001 0.5
Great Lakes Higher Education Corpora-
tion................................ 13,043 45,940,841 4.6
Illinois Student Assistance Commis-
sion................................ 6,972 23,991,881 2.4
Iowa College Student Aid Commission.. 341 1,150,375 0.1
Kentucky Higher Education Assistance
Authority........................... 260 425,625 0.0
Louisiana Student Financial Assis-
tance Commission.................... 393 1,443,973 0.1
Michigan Higher Education Assistance
Authority........................... 2,048 6,634,701 0.7
Missouri Coordinating Board for
Higher Education.................... 525 1,487,985 0.1
Montana Guaranteed Student Loan Pro-
gram................................ 456 1,536,685 0.2
Nebraska Student Loan Program........ 2,016 8,957,095 0.9
New Jersey Higher Education Assis-
tance Authority..................... 1,587 6,007,360 0.6
N.Y. State Higher Education Services
Corporation......................... 22,626 87,380,288 8.7
Northwest Education Loan Associa-
tion................................ 5,511 20,566,273 2.1
Oklahoma State Regents for Higher Ed-
ucation............................. 3,746 11,165,330 1.1
Oregon State Scholarship Commission.. 1,392 5,350,018 0.5
Pennsylvania Higher Education Assis-
tance Agency........................ 3,760 12,471,560 1.2
Rhode Island Higher Education Assis-
tance Authority..................... 2,312 8,364,495 0.8
Student Loan Guarantee Foundation of
Arkansas, Inc....................... 481 1,997,933 0.2
Tennessee Student Assistance Corpora-
tion................................ 726 2,861,489 0.3
Texas Guaranteed Student Loan Corpo-
ration.............................. 15,312 53,759,191 5.4
United Student Aid Funds, Inc........ 71,382 316,849,612 31.7
Utah Higher Education Assistance Au-
thority............................. 164 580,305 0.1
------- -------------- -----
259,888 $1,000,591,463 100.0%
======= ============== =====
</TABLE>
- --------
(1) Includes principal balance due from obligors, plus accrued interest of
$20,137,259 as of the Cutoff Date to be capitalized upon commencement of
repayment.
S-29
<PAGE>
Some historical information about each of the Guarantors that guarantees
Trust Student Loans comprising greater than 5% of the Initial Pool Balance (the
"Significant Guarantors") is provided below. The information shown for each
Significant Guarantor relates to all Student Loans (including but not limited
to Trust Student Loans) guaranteed by such Significant Guarantor:
Guaranty Volume. The following table describes the approximate aggregate
principal amount of federally reinsured Student Loans (excluding Consolidation
Loans) that first became guaranteed by each Significant Guarantor and by all
Guarantee Agencies (including but not limited to those guaranteeing Trust
Student Loans) in each of the five federal fiscal years shown:*
<TABLE>
<CAPTION>
Loans Guaranteed
-------------------------------------------------------------------------------
Federal Fiscal Year
-------------------------------------------------------------------------------
1994 1995 1996 1997 1998
Name of Guaranty Agency --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
American Student
Assistance Guarantor... $ 1,099,450,095 $ 906,463,717 $ 706,921,743 $ 668,412,579 $ 656,276,328
California Student Aid
Commission............. 1,912,805,714 1,601,275,176 1,409,593,500 1,563,405,694 1,948,761,968
N.Y. State Higher
Education Services
Corporation............ 1,667,124,351 1,553,679,083 1,404,308,282 1,531,888,290 1,567,779,770
Texas Guaranteed Student
Loan Corporation....... 1,067,232,396 1,155,766,611 1,270,649,512 1,383,563,862 1,456,358,859
United Student Aid
Funds, Inc............. 4,724,841,523 5,040,721,324 5,293,074,800 6,161,344,966 6,181,128,248
All Guarantee Agencies.. $23,101,135,064 $21,055,193,594 $19,727,950,145 $21,409,775,875 $22,300,960,997
</TABLE>
- --------
* We obtained the information in the table above from the Department's
quarterly Loan Volume Updates. The Seller, Sallie Mae and the Underwriters
have not audited or independently verified this information for accuracy or
completeness.
Reserve Ratio. Each Significant Guarantor's reserve ratio is determined by
dividing its cumulative cash reserves by the original principal amount of the
outstanding loans it has agreed to guarantee. The term "cumulative cash
reserves" refers to cash reserves plus (i) sources of funds (including
insurance premiums, state appropriations, federal advances, federal reinsurance
payments, administrative cost allowances, collections on claims paid and
investment earnings) minus (ii) uses of funds (including claims paid to
lenders, operating expenses, lender fees, the Department's share of collections
on claims paid, returned advances and reinsurance fees). The "original
principal amount of outstanding loans" consists of the original principal
amount of loans guaranteed by the Significant Guarantor minus the original
principal amount of loans cancelled, claims paid, loans paid in full and loan
guarantees transferred to the Significant Guarantor from other guarantors.
S-30
<PAGE>
The following table sets forth the Significant Guarantors' reserve ratios
and the national average reserve ratio for all guarantors for the five federal
fiscal years shown for which information is available:*
<TABLE>
<CAPTION>
Reserve Ratio as of
Close of
Federal Fiscal Year
----------------------------
Guarantors 1994 1995 1996 1997 1998
- ---------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
American Student Assistance Guarantor............ 0.7% 0.8% 0.9% 0.7% 0.8%
California Student Aid Commission................ 2.1 2.3 2.5 2.5 1.8
N.Y. State Higher Education Services Corpora-
tion............................................ 1.0 1.1 1.0 0.8 1.1
Texas Guaranteed Student Loan Corporation........ 0.9 1.4 1.1 1.6 1.6
United Student Aid Funds, Inc.................... 1.2 1.5 1.5 1.5 1.4
All Guarantee Agencies........................... 1.4 1.6 1.6 1.5 **
</TABLE>
- --------
* We obtained the information in the table above from the Department's FY94-96
Federal Student Loan Programs Data Book (for fiscal years 1994 and 1995),
from the latest available Department of Education reports (for fiscal years
1996 and 1997) and from the Significant Guarantors (for fiscal year 1998).
The Seller, Sallie Mae and the Underwriters have not audited or
independently verified this information for accuracy or completeness.
** Not Available.
Recovery Rates. A Guarantor's recovery rate, which provides a measure of
the effectiveness of the collection efforts against defaulting borrowers after
the guarantee claim has been satisfied, is determined for each year by dividing
the cumulative amount recovered from borrowers by the Guarantor by the
cumulative aggregate amount of default claims paid by the Guarantor. The table
below sets forth the cumulative recovery rates for each of the Significant
Guarantors for the five federal fiscal years shown for which information is
available:*
<TABLE>
<CAPTION>
Recovery Rate
Federal Fiscal Year
----------------------------
Guarantors 1994 1995 1996 1997 1998
- ---------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
American Student Assistance Guarantor........... 39.0% 38.3% 41.3% 42.7% 49.0%
California Student Aid Commission............... 33.6 5.6. 37.6 36.4 42.0
N.Y. State Higher Education Services
Corporation.................................... 41.9 43.9 46.2 49.4 53.0
Texas Guaranteed Student Loan Corporation....... 30.4 34.3 41.4 45.4 48.9
United Student Aid Funds, Inc................... 29.3 34.9 39.2 40.9 44.3
</TABLE>
- --------
* We obtained the information in the table above from privately published
compilations of DOE data and from the Significant Guarantors (for fiscal
years 1997 and 1998). The Seller, Sallie Mae and the Underwriters have not
audited or independently verified this information for accuracy or
completeness.
S-31
<PAGE>
Claims Rate.* The following table sets forth the claims rates of each
Significant Guarantor for each of the five federal fiscal years shown:**
<TABLE>
<CAPTION>
Claims Rate
----------------------------
Federal Fiscal Year
----------------------------
Guarantors 1994 1995 1996 1997 1998
- ---------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
American Student Assistance Guarantor............ 3.0% 3.5% 3.1% 3.4% 2.8%
California Student Aid Commission................ 4.1 3.4 4.5 4.5 3.1
N.Y. State Higher Education Services Corpora-
tion............................................ 2.8 3.2 2.9 2.5 2.7
Texas Guaranteed Student Loan Corporation........ 5.2 5.0 3.9 3.3 3.2
United Student Aid Funds, Inc.................... 5.0 4.7 4.7 4.7 4.0
</TABLE>
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* The Department is required to make reinsurance payments to Guarantors with
respect to FFELP loans in default that are subject to specified reductions
when the Guarantor's claims rate for a fiscal year equals or exceeds certain
trigger percentages of the aggregate original principal amount of FFELP
loans guaranteed by such Guarantor that are in repayment on the last day of
the prior fiscal year. See Appendix A to the Prospectus.
** We obtained the information in the table above from annually published DOE
reports. The Seller, Sallie Mae and the Underwriters have not audited or
independently verified this information for accuracy or completeness.
Each of the Guarantee Agency's guarantee obligations with respect to any
Trust Student Loan is conditioned upon the satisfaction of all the conditions
in the applicable Guarantee Agreement. These conditions include, but are not
limited to, the following:
. the origination and servicing of such Trust Student Loan being performed
in accordance with the FFELP, the Act, such Guarantee Agency's rules and
other applicable requirements;
. the timely payment to the Guarantee Agency of the guarantee fee payable
on the Trust Student Loan; and
. the timely submission to the Guarantee Agency of all required pre-claim
delinquency status notifications and of the claim on the Trust Student
Loan.
Failure to comply with any of the applicable conditions, including those
listed above, may result in the refusal of the Guarantee Agency to honor its
Guarantee Agreements on the Trust Student Loan, in the denial of guarantee
coverage for certain accrued interest amounts or in the loss of certain
Interest Subsidy Payments and Special Allowance Payments.
Prospective investors should consult the DOE Data Books for further
information concerning the Guarantors.
Cure Period for Trust Student Loans
Sallie Mae, the Seller or the Servicer, as the case may be, will be
obligated to repurchase (or purchase in the case of the Servicer), or to
substitute Qualified Substitute Student Loans for, any Trust Student Loan in
the event of a material breach by such party of certain representations,
warranties or covenants concerning the Trust Student Loan, following a period
during which the breach may be cured. For purposes of Trust Student Loans the
cure period will be 120 days, except that in the case of certain
representations, warranties or covenants, the breach of which may be
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cured by the reinstatement of the Guarantor's guarantee of such Trust Student
Loan, the cure period will be 360 days, in each case following the earlier of
the date on which the breach is discovered and the date of the Servicer's
receipt of the Guarantor reject transmittal form with respect to the Trust
Student Loan. The repurchase (or purchase in the case of the Servicer) or
substitution will be made not later than the end of such 120-day period or not
later than the 60th day following the end of such 360 day cure period, as
applicable.
Notwithstanding the foregoing, if as of the last Business Day of any month
the aggregate principal amount of Trust Student Loans for which claims have
been filed with and rejected by a Guarantor as a result of a breach by the
Seller or the Servicer or for which the Servicer determines that claims cannot
be filed pursuant to the Higher Education Act as a result of such a breach
exceeds 1% of the Pool Balance, the Servicer and/or the Seller, as applicable,
will be required to purchase, within 30 days of a written request by the
Eligible Lender Trustee or the Indenture Trustee, affected Trust Student Loans
in an aggregate principal amount such that after the purchases the aggregate
principal amount of affected Trust Student Loans is less than 1% of the Pool
Balance. The Trust Student Loans to be purchased by the Servicer and/or the
Seller pursuant to the preceding sentence will be based on the date of claim
rejection, with the Trust Student Loans with the earliest these dates to be
purchased first. See "Servicing; Administration--Servicer Covenants," "Transfer
and Servicing Agreements--Sale of Student Loans to the Trust; Representations
and Warranties of the Seller" and "Transfer and Servicing Agreements--Purchase
of Student Loans by the Seller; Representations and Warranties of Sallie Mae"
in the Prospectus.
Consolidation of Federal Benefit Billings and Receipts and Guarantor Claims
with Other Trusts
Due to a Department policy limiting the granting of new lender
identification numbers, the Eligible Lender Trustee will be allowed under the
Trust Agreement to permit trusts, other than the Trust, established by the
Seller to securitize Student Loans to use the Department lender identification
number applicable to the Trust. In that event, the billings submitted to the
Department for Interest Subsidy and Special Allowance Payments on loans in the
Trust would be consolidated with the billings for the payments for Student
Loans in other trusts using the same lender identification number and payments
on the billings would be made by the Department in lump sum form. These lump
sum payments would then be allocated among the various trusts using the same
lender identification number.
In addition, the sharing of the lender identification number by the Trust
with other trusts may result in the receipt of claim payments from Guarantee
Agencies in lump sum form. In that event, these payments would be allocated
among the trusts in a manner similar to the allocation process for Interest
Subsidy and Special Allowance Payments.
The Department regards the Eligible Lender Trustee as the party primarily
responsible to the Department for any liabilities owed to the Department or
Guarantee Agencies resulting from the Eligible Lender Trustee's activities in
the FFELP. As a result, if the Department or a Guarantee Agency were to
determine that the Eligible Lender Trustee owes a liability to the Department
or such Guarantee Agency on any Student Loan included in a trust using the
shared lender identification number, the Department or such Guarantee Agency
would be likely to collect that liability by offset against amounts due the
Eligible Lender Trustee under the shared lender identification number,
including amounts owed in connection with the Trust.
In addition, other trusts using the shared lender identification number may
in a given quarter incur consolidation origination fees that exceed the
Interest Subsidy and Special Allowance Payments payable by the Department on
the loans in the other trusts, resulting in the consolidated payment from the
Department received by the Eligible Lender Trustee under the lender
identification number for that quarter equaling an amount that is less than the
amount owed by the Department on the loans in the Trust for that quarter.
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The Trust Agreement for the Trust and the trust agreements for the other
trusts established by the Seller which share the lender identification number
to be used by the Trust will require any trust (including the Trust) to
indemnify the other trusts against a shortfall or an offset by the Department
or a Guarantee Agency arising from the Student Loans held by the Eligible
Lender Trustee on the trust's behalf.
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<PAGE>
DESCRIPTION OF THE SECURITIES
General
The Notes will be issued under the Indenture and the Certificates will be
issued under the Trust Agreement, in each case substantially in the form filed
as an exhibit to the Registration Statement of which this Prospectus Supplement
is a part. The following summary describes some terms of the Notes, the
Certificates, the Indenture and the Trust Agreement. The Prospectus describes
other terms of the Notes and the Certificates. See "Description of the Notes,"
"Description of the Certificates" and "Certain Information Regarding the
Securities" in the Prospectus. The summary does not purport to be complete and
is qualified in its entirety by reference to the provisions of the Notes, the
Certificates, the Indenture and the Trust Agreement.
The Notes
Distributions of Interest. Interest will accrue on the principal balances
of the Notes at their respective Note Rates. Interest will accrue during each
Accrual Period and will be payable to the Noteholders quarterly on each
Distribution Date. Interest accrued as of any Distribution Date but not paid on
such Distribution Date will be due on the next Distribution Date together with
an amount equal to interest on this amount at the applicable rate per annum
specified above. Interest payments on the Notes for any Distribution Date will
generally be funded from Available Funds and amounts on deposit in the Reserve
Account remaining after the distribution of the Primary Servicing Fee and the
Administration Fee for that Distribution Date. See "--Distributions" and "--
Credit Enhancement." If these sources are insufficient to pay the Noteholders'
Interest Distribution Amount for such Distribution Date, the shortfall will be
allocated pro rata to the Class A-1 Noteholders, the Class A-2 Noteholders and
the Class A-3 Noteholders (based upon the total amount of interest then due on
each class of Notes).
The "Class A-1T Rate" for each Accrual Period will be equal to the lesser
of (a) the daily weighted average of the T-Bill Rates within that Accrual
Period (determined as set forth under "--Determination of T-Bill Rate") plus
0. % and (b) the Student Loan Rate for that Accrual Period. The "Class A-2T
Rate" for each Accrual Period will be equal to the lesser of (a) the daily
weighted average of the T-Bill Rates within that Accrual Period (determined as
set forth under "--Determination of T-Bill Rate") plus 0. % and (b) the Student
Loan Rate for that Accrual Period. The "Class A-3T Rate" for each Accrual
Period will be equal to the lesser of (a) the daily weighted average of the T-
Bill Rates within that Accrual Period (determined as set forth under "--
Determination of T-Bill Rate") plus 0. % and (b) the Student Loan Rate for that
Accrual Period. The weighted average calculations described above will be based
on the actual number of days in that Accrual Period.
The Class A-1T Rate, the Class A-2T Rate and the Class A-3T Rate will be
adjusted weekly on the calendar day following each auction of 91-day Treasury
Bills, except that (i) the Class A-1T Rate, the Class A-2T Rate and the Class
A-3T Rate in effect from the first day of each Accrual Period, including the
initial Accrual Period, through the day of the first 91-day Treasury Bill
auction on or after the first day of each Accrual Period will be based on the
results of the most recent 91-day Treasury Bill auction prior to such day and
(ii) the Class A-1T Rate, the Class A-2T Rate and the Class A-3T Rate will be
subject to a Lock-In Period of six business days preceding each Distribution
Date. See "--Determination of T-Bill Rates."
The "Class A-1L Rate" for each Accrual Period will be equal to the lesser
of (a) Three-Month LIBOR on the second business day before the beginning of
that Accrual Period (determined as set forth under "--Determination of LIBOR")
plus 0. % and (b) the Student Loan Rate for that Accrual Period. The "Class A-
2L Rate" for each Accrual Period will be equal to the lesser of (a) Three-Month
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LIBOR on the second business day before the beginning of that Accrual Period
(determined as set forth under "--Determination of LIBOR") plus 0. % and
(b) the Student Loan Rate for that Accrual Period. The "Class A-3L Rate" for
each Accrual Period will be equal to the lesser of (a) Three-Month LIBOR on the
second business day before the beginning of that Accrual Period (determined as
set forth under "--Determination of LIBOR") plus 0. % and (b) the Student Loan
Rate for that Accrual Period.
The "Student Loan Rate" for any Accrual Period will be equal to the product
of:
(a) the quotient obtained by dividing (i) in the case of the Class A-1T
Notes, the Class A-2T Notes and the Class A-3T Notes 365 (or 366 in the case of
a leap year) and, in the case of the Class A-1L Notes, the Class A-2L Notes,
the Class A-3L Notes and the Certificates, 360 by (ii) the actual number of
days elapsed in such Accrual Period; and
(b) the percentage equivalent of a fraction, (i) the numerator of which is
equal to Expected Interest Collections for the related Collection Period less
the Primary Servicing Fee and the Administration Fee and any prior unpaid
Administration Fees for that Collection Period and (ii) the denominator of
which is the Pool Balance as of the first day of that Collection Period.
"Expected Interest Collections" means, for any Collection Period, the sum
of:
. the amount of interest accrued, net of amounts required to be paid to
the Department or to be repaid to Guarantors or borrowers, for the Trust
Student Loans for that Collection Period (whether or not the interest is
actually paid);
. all Interest Subsidy Payments and Special Allowance Payments pursuant to
claims submitted by the Eligible Lender Trustee for that Collection
Period (whether or not actually received), net of amounts required to be
paid to the Department, for the Trust Student Loans, to the extent not
included in the first bullet; and
. investment earnings on amounts held in the Reserve Account and the
Collection Account for that Collection Period and interest on amounts to
be remitted by the Administrator to the Collection Account with respect
to that Collection Period prior to the related Distribution Date.
Any Note Interest Carryover that may exist on any Distribution Date will be
payable to the Noteholders on that Distribution Date and any succeeding
Distribution Dates solely out of the amount of Available Funds remaining in the
Collection Account on any Distribution Date after distribution of the Primary
Servicing Fee, the Administration Fee, the Noteholders' Distribution Amount,
the Certificateholders' Distribution Amount, the amount, if any, necessary to
be deposited into the Reserve Account to reinstate its balance to the Specified
Reserve Account Balance and the aggregate Carryover Servicing Fee, if any;
provided that (except on the final Distribution Date upon termination of the
Trust) no amounts on deposit in the Reserve Account (other than amounts in
excess of the Specified Reserve Account Balance) will be available to pay any
Note Interest Carryover.
Distributions of Principal. Principal payments will be made to the
Noteholders on each Distribution Date in an amount generally equal to the
Principal Distribution Amount for such Distribution Date, until the principal
balance of the Notes is reduced to zero. Principal payments on the Notes will
generally be derived from Available Funds remaining after the distribution of
the Primary Servicing Fee, the Administration Fee, the Noteholders' Interest
Distribution Amount and the Certificateholders' Return Distribution Amount. See
"--Distributions", "--Credit Enhancement" and "--The Certificates--
Subordination of the Certificates." If these sources are insufficient to pay
the Noteholders' Principal Distribution Amount for a Distribution Date, the
shortfall will be added to the principal payable to the Noteholders on
subsequent Distribution Dates. Amounts on deposit in the
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Reserve Account (other than amounts in excess of the Specified Reserve Account
Balance) will not be available to make principal payments on the Notes except
at maturity or on the final Distribution Date upon termination of the Trust.
Principal payments on the Notes will be applied on each Distribution Date,
first pro rata to the principal balances of the Class A-1T Notes and the Class
A-1L Notes until their principal balances are reduced to zero, second pro rata
to the principal balances of the Class A-2T Notes and the Class A-2L Notes
until their principal balances are reduced to zero and third pro rata to the
principal balances of the Class A-3T Notes and the Class A-3L Notes until their
principal balances are reduced to zero; provided that following the occurrence
of an Event of Default and the exercise by the Indenture Trustee of remedies
under the Indenture, principal payments on the Notes will be made pro rata,
without preference or priority. The aggregate outstanding principal amount of
the Class A-1 Notes will be due and payable in full on the Class A-1 Maturity
Date, that of the Class A-2 Notes will be due and payable in full on the Class
A-2 Maturity Date, and that of the Class A-3 Notes will be due and payable in
full on the Class A-3 Maturity Date. The actual date on which the aggregate
outstanding principal and accrued interest of the Class A-1 Notes, the Class A-
2 Notes or the Class A-3 Notes are paid may be earlier than their maturity
dates, based on a variety of factors, including those described under "Risk
Factors--Maturity and Prepayment Assumptions" and "Trading Information--
Weighted Average Life of the Securities" in the Prospectus.
The Certificates
Return on Certificates. Certificateholders will be entitled to
distributions of return on the Certificate Balance at the Certificate Rate.
Return on the Certificates will accrue during each Accrual Period, will be
calculated as provided below and will be distributable quarterly on each
Distribution Date. Return on the Certificates payable on any Distribution Date
but not distributed on that Distribution Date will be payable on the next
Distribution Date increased by an amount equal to return on the amount at the
Certificate Rate. Distributions with respect to return on the Certificates for
any Distribution Date will generally be funded from the portion of the
Available Funds and the amounts on deposit in the Reserve Account remaining
after the distribution of the Primary Servicing Fee, the Administration Fee and
the Noteholders' Interest Distribution Amount for that Distribution Date. See
"--Distributions", "--Credit Enhancement--Reserve Account" and "--The
Certificates--Subordination of the Certificates."
The "Certificate Rate" for each Accrual Period will be equal to the lesser
of (a) Three-Month LIBOR on the second business day before the beginning of
that Accrual Period (determined as set forth under "--Determination of LIBOR")
plus 0. % and (b) the Student Loan Rate for that Accrual Period.
Any Certificate Return Carryover that may exist on any Distribution Date
will be payable to the Certificateholders on that Distribution Date and any
succeeding Distribution Dates solely out of the amount of Available Funds
remaining in the Collection Account on the Distribution Date after distribution
of the Primary Servicing Fee, the Administration Fee, the Noteholders'
Distribution Amount, the Certificateholders Distribution Amount, the amount, if
any, necessary to be deposited into the Reserve Account to reinstate the
balance therein to the Specified Reserve Account Balance, the Carryover
Servicing Fee, if any, and any Note Interest Carryover; provided that (except
on the final Distribution Date upon termination of the Trust) amounts on
deposit in the Reserve Account (other than amounts in excess of the Specified
Reserve Account Balance) will not be available to pay any Certificate Return
Carryover.
Distributions in Respect of Certificate Balance. Certificateholders will be
entitled to distributions on each Distribution Date on and after which the
Notes are paid in full in an amount generally equal to the Certificate Balance
Distribution Amount for such Distribution Date. Distributions in respect of
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the Certificate Balance for such Distribution Date will generally be funded
from the portion of Available Funds and amounts on deposit in the Reserve
Account remaining after distribution of the Primary Servicing Fee, the
Administration Fee and the Certificateholders' Return Distribution Amount for
such Distribution Date. Amounts on deposit in the Reserve Account (other than
amounts in excess of the Specified Reserve Account Balance) will not be
available to make payments on the Certificate Balance except on the final
Distribution Date upon termination of the Trust. See "--Distributions" and "--
Credit Enhancement--Reserve Account."
Any remaining Certificate Balance will be distributed in full on the Final
Distribution Date. The actual date on which the final distribution on the
Certificates will be made may be earlier than the Final Distribution Date,
however, based on a variety of factors, including those described above under
"Risk Factors--Maturity and Prepayment Assumptions" and "Trading Information--
Weighted Average Life of the Securities" in the Prospectus.
Subordination of the Certificates. On any Distribution Date distributions
of return on the Certificates will be subordinated to the payment of interest
on the Notes and distributions of the Certificate Balance will be subordinated
to the payment of interest on the Notes (other than any Note Interest
Carryover) and principal of the Notes. Consequently, on any Distribution Date,
Available Funds and amounts on deposit in the Reserve Account remaining after
payment of the Primary Servicing Fee and the Administration Fee will be applied
to the payment of interest on the Notes prior to any distribution from these
sources of return on the Certificates and no distributions in respect of the
Certificate Balance will be made until the Distribution Date on or after which
the Notes have been paid in full.
Notwithstanding the foregoing, if (a) on any Distribution Date following all
distributions to be made on such Distribution Date, the outstanding principal
amount of the Notes would be in excess of (i) the outstanding principal balance
of the Trust Student Loans plus (ii) any accrued but unpaid interest on the
Trust Student Loans as of the last day of the related Collection Period plus
(iii) the balance of the Reserve Account on the Distribution Date following the
distributions minus (iv) the Specified Reserve Account Balance for that
Distribution Date, or (b) an Insolvency Event involving the Seller or an Event
of Default under the Indenture has occurred and is continuing, then amounts on
deposit in the Collection Account and the Reserve Account will be applied on
the Distribution Date to the payment of the Noteholders' Distribution Amount
before any amounts are applied to the payment of the Certificateholders'
Distribution Amount.
In addition, on any Distribution Date, Available Funds remaining after
payment of the Servicing Fee, the Administration Fee, the Noteholders'
Distribution Amount, the Certificateholders' Distribution Amount, the amount,
if any, necessary to be deposited into the Reserve Account to reinstate its
balance to the Specified Reserve Account Balance and the aggregate Carryover
Servicing Fee, if any, for the Distribution Date will be applied to the payment
of the Note Interest Carryover prior to any distribution of the Available Funds
to Certificateholders to cover the Certificate Return Carryover. Any portion of
the Certificateholders' Return Distribution Amount not received on a
Distribution Date in connection with this subordination will be treated as a
Certificate Return Shortfall to be paid on succeeding Distribution Dates.
Determination of T-Bill Rates
"T-Bill Rate" means, on any day, the weighted average per annum discount
rate (expressed on a bond equivalent basis and applied on a daily basis) for
direct obligations of the United States with a maturity of thirteen weeks ("91-
day Treasury Bills") sold at the most recent 91-day Treasury Bill auction prior
to that date, as reported by the U.S. Department of the Treasury. In the event
that the results of the auctions of 91-day Treasury Bills cease to be reported
as provided above, or that no auction is held in a particular week, then the T-
Bill Rate in effect as a result of the last such
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publication or report will remain in effect until the results of auctions of
91-day Treasury Bills are reported again or an auction is held. The T-Bill Rate
will be subject to a Lock-In Period of six business days.
"Lock-In Period" means the period of days preceding any Distribution Date
during which the Class A-1T Rate, Class A-2T Rate and Class A-3T Rate in effect
on the first day of such period will remain in effect until the end of the
Accrual Period related to such Distribution Date.
Accrued interest on the Class A-1T Notes, the Class A-2T Notes and the
Class A-3T Notes from and including the Closing Date or the preceding
Distribution Date, as applicable, to but excluding the current Distribution
Date is calculated by multiplying the principal amount of such Notes by an
"accrued interest factor." This factor is calculated by adding the interest
rates applicable to each day on which each such Note has been outstanding since
the Closing Date or the preceding Distribution Date, as applicable, and
dividing the sum by 365 (or by 366 in the case of accrued interest which is
payable on a Distribution Date in a leap year) and rounding the resulting
number to nine decimal places.
The following table sets forth the accrued interest factors that would have
been applicable to any Class A-1T Note, Class A-2T Note or Class A-3T Note
bearing interest at the indicated rates, assuming a 365-day year:
<TABLE>
<CAPTION>
Assumed
Interest Accrued
Rate on Interest
Days the Receivable
Settlement Date Outstanding Notes Factor
- --------------- ----------- -------- -----------
<S> <C> <C> <C>
1st.......................................... 0 5.50000% 0.000000000
2nd.......................................... 1 5.50000 0.000150685
3rd.......................................... 2 5.50000 0.000301370
4th.......................................... 3 5.50000 0.000452055
5th*......................................... 4 5.65000 0.000606849
6th.......................................... 5 5.65000 0.000761644
7th.......................................... 6 5.65000 0.000916438
8th.......................................... 7 5.65000 0.001071233
9th.......................................... 8 5.65000 0.001226027
10th......................................... 9 5.65000 0.001380822
</TABLE>
- --------
* First interest rate adjustment (91-day Treasury bills are generally auctioned
weekly).
The numbers in this table are examples given for information purposes only
and are in no way a prediction of interest rates on any Notes.
Determination of LIBOR
"Three-Month LIBOR" means, with respect to any Accrual Period, the London
interbank offered rate for deposits in U.S. dollars having a maturity of three
months commencing on the first day of the Accrual Period (the "Index Maturity")
which appears on Telerate Page 3750 as of 11:00 a.m. London time, on the
related LIBOR Determination Date. If this rate does not appear on Telerate Page
3750, 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 that LIBOR Determination Date, to prime banks in the
London interbank market by the Reference Banks. The Administrator will request
the principal London office of each Reference Bank to provide a quotation of
its rate. If the Reference Banks provide at least two quotations, the rate for
that day will be the arithmetic mean of the quotations. If
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<PAGE>
the Reference Banks provide fewer than two quotations, the rate for that day
will be the arithmetic mean of the rates quoted by major banks in New York
City, selected by the Administrator, at approximately 11:00 a.m. New York time,
on that LIBOR Determination Date, for loans in U.S. dollars to leading European
banks having the Index Maturity and in a principal amount of not less than U.S.
$1,000,000. If the banks selected as described above are not providing
quotations, Three-Month LIBOR in effect for the applicable Accrual Period will
be Three-Month LIBOR in effect for the previous Accrual Period.
"LIBOR Determination Date" means, for each Accrual Period, the second
business day before the beginning of that Accrual Period.
"Telerate Page 3750" means the display page so designated on the Dow Jones
Telerate Service (or such other page as may replace that page on that service
for the purpose of displaying comparable rates or prices).
"Reference Banks" means four major banks in the London interbank market
selected by the Administrator.
For purposes of calculating Three-Month LIBOR, a business day is any day on
which banks in New York City and the City of London are open for the
transaction of international business. Interest due for any Accrual Period will
be determined based on the actual number of days elapsed in such Accrual Period
over a 360-day year.
Information concerning the current 91-day Treasury Bill Rate, the accrued
interest factor and Three-Month LIBOR will be available on our website at
http://investors.salliemae.com or by telephoning the Administrator at (800)
321-7179 between the hours of 9 a.m. and 4 p.m. Eastern time on any day on
which the Reston, VA office of the Administrator is open for business and will
also be available through Dow Jones Telerate Service or Bloomberg L.P.
Accounts
The Administrator will establish and maintain in the name of the Indenture
Trustee the Collection Account and the Reserve Account, on behalf of the
Noteholders and the Certificateholders.
Funds in the Collection Account and the Reserve Account (collectively, the
"Trust Accounts") will be invested as provided in the Trust Indenture in
Eligible Investments. "Eligible Investments" are generally limited to
investments acceptable to the Rating Agencies as being consistent with the
rating of the Notes. Subject to some conditions, Eligible Investments may
include securities or other obligations issued by Sallie Mae, the Seller or
their affiliates or trusts originated by the Seller or its affiliates. Eligible
Investments are limited to obligations or securities that mature not later than
the business day immediately preceding the next Distribution Date or the next
Monthly Servicing Payment Date (to the extent of the Primary Servicing Fee).
Servicing Compensation
The Servicer will be entitled to receive the Servicing Fee in an amount
equal to the Primary Servicing Fee and the Carryover Servicing Fee as
compensation for performing the functions as servicer for the Trust described
above. The Primary Servicing Fee will be payable on each Monthly Servicing
Payment Date and will be paid solely out of Available Funds and amounts on
deposit in the Reserve Account on such date. The Carryover Servicing Fee will
be payable to the Servicer on each Distribution Date out of Available Funds
after payment on such Distribution Date of the Primary Servicing Fee, the
Administrative Fee, the Noteholders' Distribution Amount, the
Certificateholders' Distribution Amount, and the amount, if any, necessary to
be deposited in the Reserve Account to
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reinstate its balance to the Specified Reserve Account Balance. The Carryover
Servicing Fee will be subject to increase agreed to by the Administrator, the
Eligible Lender Trustee and the Servicer to the extent that a demonstrable and
significant increase occurs in the costs incurred by the Servicer in providing
the services to be provided under the Servicing Agreement, whether due to
changes in applicable governmental regulations, guarantor program requirements
or regulations, or postal rates.
Distributions
Deposits to Collection Account. On or about the third business day prior
to each Distribution Date (the "Determination Date"), the Servicer and the
Administrator will provide the Indenture Trustee with certain information as to
the preceding Collection Period, including the amount of Available Funds
received from the Trust Student Loans and the aggregate Purchase Amount of the
Trust Student Loans to be repurchased by the Seller or to be purchased by the
Servicer.
Except as provided in the next paragraph, the Servicer will deposit all
payments on Student Loans (from whatever source) and all proceeds of Student
Loans collected by it during each Collection Period into the Collection Account
within two business days of receipt. Except as provided in the next paragraph,
the Eligible Lender Trustee will deposit all Interest Subsidy Payments and all
Special Allowance Payments on the Student Loans received by it for each
Collection Period into the Collection Account within two business days of
receipt.
For so long as (a) the senior unsecured obligations of the Administrator
(or any affiliate of the Administrator which guarantees the obligations of the
Administrator under the Administration Agreement) have been assigned a long-
term rating of not less than "AA-" (or equivalent rating) or a short-term
rating of not less than "A-1" (or equivalent rating) by each of the Rating
Agencies or the remitting by the Servicer and the Eligible Lender Trustee of
the amounts referred to above to the Administrator will not result in a
downgrading or withdrawal of any of the then current ratings of any of the
Securities by any of the Rating Agencies, and (b) no Administrator Default has
occurred and is continuing, the Servicer and the Eligible Lender Trustee will
remit the amounts referred to above that would otherwise be deposited by it
into the Collection Account to the Administrator within two business days of
receipt, and the Administrator will remit such amounts to the Collection
Account on or before the business day preceding each Monthly Servicing Payment
Date (to the extent of the Primary Servicing Fee payable on such date) and on
or before the business day preceding each Distribution Date (to the extent of
the remainder of such amounts), together with interest on such amounts
calculated from the first day of the month following receipt by the
Administrator through the last day of the related Collection Period at the
federal funds rate for each day during such period less 0.20%. See "Servicing;
Administration--Payments on Student Loans" in the Prospectus.
The term "Available Funds" means, as to a Distribution Date or any related
Monthly Servicing Payment Date, the sum of the following amounts for the
related Collection Period (or, in the case of a Monthly Servicing Payment Date,
the applicable portion of these amounts):
. all collections received by the Servicer on the Trust Student Loans
(including any Guarantee Payments received on the Trust Student Loans
but net of (a) any collections in respect of principal on the Trust
Student Loans applied by the Trust to repurchase guaranteed loans from
the Guarantors under the Guarantee Agreements and (b) amounts required
by the Higher Education Act to be paid to the Department or to be repaid
to borrowers (whether or not in the form of a principal reduction of the
applicable Trust Student Loan), on the Trust Student Loans for that
Collection Period);
. any Interest Subsidy Payments and Special Allowance Payments received by
the Servicer or the Eligible Lender Trustee during that Collection
Period for the Trust Student Loans;
. all proceeds of the liquidation of defaulted Trust Student Loans
("Liquidated Student Loans"), which became Liquidated Student Loans
during that Collection Period in
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<PAGE>
accordance with the Servicer's customary servicing procedures, net of
expenses incurred by the Servicer related to their liquidation and any
amounts required by law to be remitted to the borrower on the Liquidated
Student Loans ("Liquidation Proceeds"), and all recoveries on Liquidated
Student Loans which were written off in prior Collection Periods or
during that Collection Period;
. the aggregate Purchase Amounts received during that Collection Period
for those Trust Student Loans repurchased by the Seller or purchased by
the Servicer ("Purchased Student Loans");
. the aggregate amounts, if any, received from the Seller or the Servicer,
as the case may be, as reimbursement of non-guaranteed interest amounts,
or lost Interest Subsidy Payments and Special Allowance Payments, on the
Trust Student Loans pursuant to the Sale Agreement or the Servicing
Agreement, respectively;
. amounts received by the Trust pursuant to the Servicing Agreement during
that Collection Period as to yield or principal adjustments; and
. investment earnings for that Distribution Date and any interest remitted
by the Administrator to the Collection Account prior to such
Distribution Date or Monthly Servicing Payment Date as described in the
preceding paragraph; provided that if on any Distribution Date there
would not be sufficient funds, after application of Available Funds (as
defined above) and amounts available from the Reserve Account, to pay
any of the items specified in clauses (b) through (i) under "--
Distributions--Distributions from Collection Account," then Available
Funds for that Distribution Date will include, in addition to the
Available Funds (as defined above), amounts on deposit in the Collection
Account (or amounts held by the Administrator, or which the
Administrator reasonably estimates to be held by the Administrator, for
deposit into the Collection Account) on the Determination Date which
would have constituted Available Funds for the Distribution Date
succeeding that Distribution Date, up to the amount necessary to pay
such items, and the Available Funds for the succeeding Distribution Date
will be adjusted accordingly.
Distributions from Collection Account. On each Monthly Servicing Payment
Date that is not a Distribution Date, the Administrator will instruct the
Indenture Trustee to pay to the Servicer the Primary Servicing Fee due for the
period from and including the preceding Monthly Servicing Payment Date from
amounts on deposit in the Collection Account. On each Distribution Date, the
Administrator will instruct the Indenture Trustee to make the following
deposits and distributions, in the amounts and in the order of priority shown
below, except as otherwise provided under "Description of the Securities--The
Certificates--Subordination of the Certificates" and "--The Notes--
Distributions of Principal", to the extent of the Available Funds for that
Distribution Date:
(a) to the Servicer, the Primary Servicing Fee due on that Distribution
Date;
(b) to the Administrator, the Administration Fee due on that
Distribution Date and all prior unpaid Administration Fees;
(c) to the Noteholders, the Noteholders' Interest Distribution Amount,
pro rata, based on the amounts payable on the Notes as Noteholders'
Interest Distribution Amount;
(d) to the Eligible Lender Trustee on behalf of the Certificateholders,
the Certificateholders' Return Distribution Amount, for distribution by the
Eligible Lender Trustee pursuant to the Trust Agreement, pro rata, based on
the amounts payable as Certificateholders' Return Distribution Amount;
(e) to the Class A-1 Noteholders, the Noteholders' Principal
Distribution Amount, pro rata;
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<PAGE>
(f) on each Distribution Date on and after which the Class A-1 Notes
have been paid in full, to the Class A-2 Noteholders, the Noteholders'
Principal Distribution Amount, pro rata;
(g) on each Distribution Date on and after which the Class A-1 Notes
and the Class A-2 Notes have been paid in full, to the Class A-3
Noteholders, the Noteholders' Principal Distribution Amount, pro rata;
(h) on each Distribution Date on and after which the Notes have been
paid in full, to the Eligible Lender Trustee on behalf of the
Certificateholders, the Certificate Balance Distribution Amount, for
distribution by the Eligible Lender Trustee pursuant to the Trust
Agreement, pro rata;
(i) to the Reserve Account, the amount, if any, necessary to reinstate
the balance of the Reserve Account to the Specified Reserve Account
Balance;
(j) to the Servicer, the aggregate unpaid amount of the Carryover
Servicing Fee, if any;
(k) to the Noteholders, the aggregate unpaid amount of the Note
Interest Carryover, if any, pro rata, based on the amounts due and payable
on the Notes as Note Interest Carryover;
(l) to the Eligible Lender Trustee on behalf of the Certificateholders,
the aggregate unpaid amount of the Certificate Return Carryover, if any,
for distribution by the Eligible Lender Trustee pursuant to the Trust
Agreement, pro rata, based on the amounts payable as Certificate Return
Carryover; and
(m) to the Reserve Account, any remaining amounts after application of
clauses (a) through (l).
Notwithstanding the foregoing, in the event the Trust Student Loans are
not sold on the Trust Auction Date, on each subsequent Distribution Date on
which the Pool Balance is equal to 10% or less of the Initial Pool Balance, if
the amount on deposit in the Reserve Account on that Distribution Date (after
giving effect to all withdrawals from the Reserve Account on such Distribution
Date, except withdrawals payable to the Seller) is in excess of the Specified
Reserve Account Balance for that Distribution Date, the Administrator will
direct the Indenture Trustee to distribute the amount of this excess as
accelerated payments of principal on the Notes and distributions on the
Certificate Balance.
For these purposes, the following terms have the following meanings:
"Certificate Balance" equals $ on the Closing Date and, after the
Closing Date, equals the initial Certificate Balance, reduced by all previous
distributions on the Certificate Balance.
"Certificate Balance Distribution Amount" means, on each Distribution
Date, the excess of (i) the sum of (a) the Principal Distribution Amount for
that Distribution Date, (b) the Note Principal Shortfall as of the close of
the preceding Distribution Date and (c) the Certificate Balance Shortfall as
of the close of the preceding Distribution Date over (ii) the Note Principal
Distribution Amount for that Distribution Date; provided that the Certificate
Balance Distribution Amount will in no event exceed the Certificate Balance.
In addition, on the Final Distribution Date, the Certificate Balance to be
distributed to the Certificateholders will include the amount required to
reduce the outstanding Certificate Balance to zero.
"Certificate Balance Shortfall" means, as of the close of any Distribution
Date, the excess of (a) the Certificate Balance Distribution Amount on that
Distribution Date over (b) the amount of distributions made on the Certificate
Balance on that Distribution Date.
"Certificateholders' Distribution Amount" means, for any Distribution
Date, the Certificateholders' Return Distribution Amount for that Distribution
Date plus the Certificate Balance Distribution Amount for that Distribution
Date.
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<PAGE>
"Certificateholders' Return Distribution Amount" means, for any
Distribution Date, the sum of (a) return on the Certificates accrued at the
Certificate Rate for the related Accrual Period on the outstanding Certificate
Balance on the immediately preceding Distribution Date, after giving effect to
all distributions to Certificateholders on the Certificate Balance on the
preceding Distribution Date (or, in the case of the first Distribution Date, on
the Closing Date) and (b) the Certificate Return Shortfall for Distribution
Date; provided that the Certificateholders' Return Distribution Amount will not
include any Certificate Return Carryover.
"Certificate Return Carryover" means for any Distribution Date on which the
Certificate Rate is based on the Student Loan Rate, the excess of (a) the
amount of return on the Certificates that would have accrued during the related
Accrual Period at the Certificate Rate without regard to the Student Loan Rate
over (b) the amount of return on the Certificates actually accrued during the
related Accrual Period based on the Student Loan Rate, together with the unpaid
portion of any excess from prior Distribution Dates and any return accrued
thereon calculated at the Certificate Rate without regard to the Student Loan
Rate.
"Certificate Return Shortfall" means, for any Distribution Date, the excess
of (a) the Certificateholders' Return Distribution Amount on the preceding
Distribution Date over (b) the return on the Certificates actually distributed
to the Certificateholders on the preceding Distribution Date, plus return on
the amount of such excess, to the extent permitted by law, at the Certificate
Rate from the preceding Distribution Date to the current Distribution Date.
"Noteholders' Distribution Amount" means, for any Distribution Date, the
sum of the Noteholders" Interest Distribution Amount and the Noteholders'
Principal Distribution Amount for that Distribution Date.
"Noteholders' Interest Distribution Amount" means, for any Distribution
Date, the sum of (i) the amount of interest accrued at the respective Note
Rates for the related Accrual Period on the aggregate outstanding principal
balances of all classes of Notes on the immediately preceding Distribution Date
after giving effect to all principal distributions to holders of Notes on date
(or, in the case of the first Distribution Date, on the Closing Date) and (ii)
the Note Interest Shortfall for that Distribution Date; provided that the
Noteholders' Interest Distribution Amount will not include any Note Interest
Carryover.
"Noteholders' Principal Distribution Amount" means, for any Distribution
Date, the Principal Distribution Amount for that Distribution Date plus the
Note Principal Shortfall as of the close of the preceding Distribution Date;
provided that the Noteholders' Principal Distribution Amount will not exceed
the outstanding principal balance of the Notes. In addition, (a) on the Class
A-1 Maturity Date, the principal required to be distributed to Class A-1
Noteholders will include the amount required to reduce the outstanding
principal balance of the Class A-1 Notes to zero, (b) on the Class A-2 Maturity
Date, the principal required to be distributed to the Class A-2 Noteholders
will include the amount required to reduce the outstanding principal balance of
the Class A-2 Notes to zero and (c) on the Class A-3 Maturity Date, the
principal required to be distributed to the Class A-3 Noteholders will include
the amount required to reduce the outstanding principal balance of the Class A-
3 Notes to zero.
"Note Interest Carryover" means, for any Distribution Date on which the
Note Rate for any class is based on the Student Loan Rate, the excess of (a)
the amount of interest on that class of Notes that would have accrued during
the related Accrual Period had interest been calculated without regard to the
Student Loan Rate over (b) the amount of interest on that class of Notes
actually accrued in respect of such Accrual Period based on the Student Loan
Rate, together with the unpaid portion of any such excess from prior
Distribution Dates and interest accrued at the applicable Note Rate without
regard to the Student Loan Rate.
S-44
<PAGE>
"Note Interest Shortfall" means, for any Distribution Date, the excess of
(a) the Noteholders' Interest Distribution Amount on the preceding Distribution
Date over (b) the amount of interest actually distributed to the Noteholders on
such preceding Distribution Date, plus interest on the amount of the excess
interest due to the Noteholders, to the extent permitted by law, at the
weighted average interest rate borne by all classes of Notes from such
preceding Distribution Date to the current Distribution Date.
"Note Principal Shortfall" means, as of the close of any Distribution Date,
the excess of (a) the Noteholders' Principal Distribution Amount on such
Distribution Date over (b) the amount of principal actually distributed to the
Noteholders on that Distribution Date.
"Principal Distribution Amount" means (a) as to the initial Distribution
Date, the amount by which the sum of the outstanding principal amount of the
Notes and the Certificate Balance exceeds the Adjusted Pool Balance for that
Distribution Date and (b) as to each subsequent Distribution Date, the amount
by which the Adjusted Pool Balance for the preceding Distribution Date exceeds
the Adjusted Pool Balance for that Distribution Date. For this purpose,
"Adjusted Pool Balance" means, for any Distribution Date, (a) if the Pool
Balance as of the last day of the related Collection Period is greater than 40%
of the Initial Pool Balance, the sum of such Pool Balance and the Specified
Reserve Account Balance for that Distribution Date, or (b) if the Pool Balance
as of the last day of the related Collection Period is less than or equal to
40% of the Initial Pool Balance, that Pool Balance. The "Initial Pool Balance"
means the Pool Balance as of the Cutoff Date.
"Realized Loss" means the excess of the principal balance (including any
interest that had been or had been expected to be capitalized) of any
Liquidated Student Loan over Liquidation Proceeds for a Student Loan to the
extent allocable to principal (including any interest that had been or had been
expected to be capitalized).
Credit Enhancement
Reserve Account. Pursuant to the Sale Agreement, the Reserve Account will
be created with an initial deposit by the Trust on the Closing Date of cash or
Eligible Investments in an amount equal to the Reserve Account Initial Deposit.
The Reserve Account will be augmented on each Distribution Date, by deposit
therein of (a) the amount, if any, necessary to reinstate the balance of the
Reserve Account to the Specified Reserve Account Balance from the amount of
Available Funds remaining after payment of the Primary Servicing Fee, the
Administration Fee, the Noteholders' Distribution Amount and the
Certificateholders' Distribution Amount, all for that Distribution Date, and
(b) any remaining Available Funds after application of clause (a) above and
after payment of any Carryover Servicing Fee, any Note Interest Carryover and
any Certificate Return Carryover, as of that Distribution Date. See "--
Distributions".
As described below, subject to certain limitations, amounts on deposit in
the Reserve Account will be released to the Seller to the extent that the
amount on deposit in the Reserve Account exceeds the Specified Reserve Account
Balance. If the market value of securities and cash in the Reserve Account on
any Distribution Date is sufficient to pay the remaining principal amount of
and interest accrued on the Notes, to reduce the Certificate Balance to zero
and to pay any accrued return and to pay any Carryover Servicing Fee, Note
Interest Carryover or Certificate Return Carryover, these assets will be so
applied on such Distribution Date.
"Specified Reserve Account Balance" for any Distribution Date means the
greater of (a) % of the Pool Balance as of the close of business on the last
day of the related Collection Period and (b) $ , provided that in no event
will such balance exceed the sum of the outstanding principal amount of the
Notes and the Certificate Balance.
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<PAGE>
If the amount on deposit in the Reserve Account on any Distribution Date
(after giving effect to all deposits or withdrawals from the Reserve Account on
that Distribution Date) is greater than the Specified Reserve Account Balance
for that Distribution Date, subject to certain limitations, the Administrator
will instruct the Indenture Trustee to distribute the amount of the excess,
after payment of any Note Principal Shortfall, Certificate Balance Shortfall,
Carryover Servicing Fee, Note Interest Carryover and Certificate Return
Carryover, to the Seller. Upon any distribution to the Seller of amounts from
the Reserve Account, neither the Noteholders nor the Certificateholders will
have any rights in, or claims to, such amounts.
Except as described in the preceding paragraph, amounts held from time to
time in the Reserve Account will continue to be held for the benefit of the
Trust. Funds will be withdrawn from cash in the Reserve Account on any
Distribution Date (or, in the case of the payment of any Primary Servicing Fee,
on any Monthly Servicing Payment Date) to the extent that the amount of
Available Funds on such Distribution Date (or such Monthly Servicing Payment
Date) is insufficient to pay any of the items specified in clauses (a) through
(d) under "--Distributions--Distributions from Collection Account." These funds
also will be withdrawn at maturity of the Notes or on the final Distribution
Date upon termination of the Trust to the extent that the amount of Available
Funds at that time is insufficient to pay any of the items specified in clauses
(e) through (h) and, in the case of the final Distribution Date upon
termination of the Trust, clauses (j) through (l) under "--Distributions--
Distributions from Collection Account." Such funds will be paid from the
Reserve Account to the persons and in the order of priority specified for
distributions out of the Collection Account in such clauses (a) through (d),
clauses (e) through (h) and clauses (j) through (l), as applicable.
The Reserve Account is intended to enhance the likelihood of timely
distributions of interest to the Noteholders and return to the
Certificateholders and to decrease the likelihood that the Noteholders or the
Certificateholders will experience losses. In certain circumstances, however,
the Reserve Account could be reduced to zero. Moreover, except on the final
Distribution Date upon termination of the Trust, amounts on deposit in the
Reserve Account (other than amounts in excess of the Specified Reserve Account
Balance) will not be available to cover any aggregate Carryover Servicing Fees,
Note Interest Carryover or Certificate Return Carryover. Amounts on deposit in
the Reserve Account will be available to pay principal on the Notes and accrued
interest at the maturity of the Notes, and to pay the Certificate Balance and
accrued return, the Carryover Servicing Fee, Note Interest Carryover and
Certificate Return Carryover on the final Distribution Date upon termination of
the Trust.
Subordination of the Certificates. On any Distribution Date distributions
of return on the Certificates will be subordinated to the payment of interest
on the Notes and distributions in respect of the Certificate Balance will be
subordinated to the payment of interest on the Notes (other than any Note
Interest Carryover) and principal of the Notes. See "Description of the
Securities--The Certificates--Subordination of the Certificates".
Administration Fee
As compensation for the performance of the Administrator's obligations
under the Administration Agreement and the Sale Agreement and as reimbursement
for its related expenses, the Administrator will be entitled to an
administration fee in an amount equal to $20,000 per Collection Period payable
in arrears on each Distribution Date (the "Administration Fee").
S-46
<PAGE>
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"),
impose certain restrictions on
(a) employee benefit plans (as defined in Section 3(3) of ERISA),
(b) plans described in section 4975(e)(1) of the Code, including individual
retirement accounts or Keogh plans,
(c) any entities whose underlying assets include plan assets by reason of a
plan's investment in these entities (each of (a), (b) and (c), a "Plan") and
(d) persons who have certain specified relationships to these Plans
("Parties in Interest" under ERISA and "Disqualified Persons" under the Code).
Moreover, based on the reasoning of the United States Supreme Court in John
Hancock Life Ins. Co. v. Harris Trust and Sav. Bank, 114 S. Ct. 517 (1993), an
insurance company's general account may be deemed to include assets of the
Plans investing in the general account (e.g., through the purchase of an
annuity contract), and the insurance company might be treated as a Party in
Interest as to a Plan by virtue of that investment. ERISA also imposes various
duties on persons who are fiduciaries of Plans subject to ERISA and prohibits
certain transactions between a Plan and its Parties in Interest or Disqualified
Persons.
The Seller, the Servicer, the Eligible Lender Trustee, the Indenture
Trustee and the Administrator may be the sponsor of or investment advisor for
one or more Plans. Because these parties may receive certain benefits from the
sale of the Notes, the purchase of the Notes using Plan assets over which any
of them has investment authority might be deemed to be a violation of the
prohibited transaction rules of ERISA and the Code for which no exemption may
be available. Accordingly, the Notes may not be purchased using the assets of
any Plan if the Seller, the Servicer, the Eligible Lender Trustee, the
Indenture Trustee or the Administrator has investment authority over those
assets.
In addition, any Certificateholder, because of its activities or the
activities of its affiliates, may be deemed to be a Party in Interest or
Disqualified Person as to some Plans, including Plans sponsored by the
Certificateholder. If the Notes are acquired by a Plan for which a
Certificateholder is a Party in Interest or Disqualified Person, this
transaction could be deemed to be a direct or indirect violation of the
prohibited transaction rules of ERISA and the Code unless such transaction were
subject to one or more statutory or administrative exemptions. These include
Prohibited Transaction Class Exemption ("PTCE") 90-1, which exempts certain
transactions involving insurance company pooled separate accounts; PTCE 95-60,
which exempts certain transactions involving insurance company general
accounts; PTCE 91-38, which exempts certain transactions involving bank
collective investment funds; PTCE 84-14, which exempts certain transactions
effected on behalf of a Plan by a "qualified professional asset manager"; and
PTCE 96-23, which exempts certain transactions effected on behalf of a Plan by
certain "in-house" asset managers. However, even if the conditions specified in
these exemptions are met, the scope of relief provided by these exemptions may
not necessarily cover all acts that might be construed as prohibited
transactions.
Accordingly, before making an investment in the Notes, a Plan investor must
determine whether, and each fiduciary causing the Notes to be purchased by, on
behalf of or using the assets of a Plan that is subject to the prohibited
transaction rules of Title I of ERISA or Section 4975 of the Code will be
deemed to have represented that, an exemption from the prohibited transaction
rules applies, so that the use of the Plan's assets to purchase the Notes does
not and will not constitute a
S-47
<PAGE>
non-exempt prohibited transaction in violation of Section 406 of ERISA or
Section 4975 of the Code, which could be subject to a civil penalty assessed
pursuant to Section 502 of ERISA or a tax imposed under Section 4975 of the
Code.
In addition, under a regulation issued by the Department of Labor (the
"Plan Asset Regulation"), if a Plan makes an "equity" investment in a
corporation, partnership, trust or certain other entities, the underlying
assets and properties of such entity will be deemed for purposes of ERISA to be
assets of the investing Plan unless exceptions in the regulation apply. The
Plan Asset Regulation defines an "equity interest" as any interest in an entity
other than an instrument that is treated as indebtedness under applicable local
law and which has no substantial equity features. If the Notes are treated as
debt for purposes of the Plan Asset Regulation, the Student Loans and the other
assets of the Trust should not be deemed to be assets of an investing Plan. If,
however, the Notes were treated as "equity" for purposes of the Plan Asset
Regulation, a Plan purchasing the Notes could be treated as holding the Student
Loans and the other assets of the Trust. Although there can be no assurances in
this regard, it appears that the Notes, which are denominated as debt, should
be treated as debt and not as "equity interests" for purposes of the Plan Asset
Regulation.
Because the Certificates represent equity investments in the Trust, the
Certificates may not be purchased with assets of any Plan or any entity
(including, as applicable, an insurance company general account) that is
subject to Title I of ERISA or Section 4975 of the Code whose underlying assets
might be deemed to include Plan assets by reason of the Plan's investment in
that entity. Accordingly, each purchaser of Certificates will be deemed to have
represented that it is neither such a Plan, purchasing the Certificates on
behalf of such a Plan, nor using the assets of such a Plan to purchase any of
the Certificates, and to have agreed that if its Certificates are subsequently
deemed to be Plan assets, it will dispose of them.
The Small Business Job Protection Act of 1996 added Section 401(c) of ERISA
relating to the status of the assets of insurance company general accounts
under ERISA and Section 4975 of the Code. Under Section 401(c), the Department
of Labor was required to issue final regulations (the "General Account
Regulations") not later than December 31, 1997 with respect to insurance
policies issued on or before December 31, 1998 that are supported by an
insurer's general account. The General Account Regulations are to provide
guidance on which assets held by the insurer constitute "plan assets" for
purposes of the fiduciary responsibility provisions of ERISA and Section 4975
of the Code. Section 401(c) also provides that, except in the case of avoidance
of the General Account Regulations and actions brought by the Secretary of
Labor relating to certain breaches of fiduciary duties that also constitute
breaches of state or federal criminal law, until the date that is 18 months
after the General Account Regulations become final, no liability under the
fiduciary responsibility and prohibited transaction provisions of ERISA and
Section 4975 may result on the basis of a claim that the assets of the general
account of an insurance company constitute the plan assets of any such plan.
The Department of Labor issued proposed regulations under Section 401(c) on
December 22, 1997, but the required final regulations have not yet been issued.
Further, the proposed regulations under Section 401(c) take a broad approach to
what might constitute "avoidance" of the General Account Regulations, and that
the General Account Regulations are inapplicable to policies issued after
December 31, 1998. The plan asset status of insurance company separate accounts
is unaffected by Section 401(c) of ERISA, and separate account assets continue
to be treated as the Plan assets of any Plan invested in a separate account.
Before making an investment in the Notes, prospective Plan investors should
consult with their legal advisors concerning the impact of ERISA and the Code
and the potential consequences of the investment in their specific
circumstances. Moreover, each Plan fiduciary should take into account, among
other considerations,
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<PAGE>
. whether the fiduciary has the authority to make the investment;
. whether the investment constitutes a direct or indirect transaction with
a Party in Interest;
. the diversification by type of asset of the Plan's portfolio;
. the Plan's funding objectives;
. the tax effects of the investment; and
. whether under the general fiduciary standards of investment procedure
and diversification an investment in the Notes is appropriate for the
Plan, taking into account the overall investment policy of the Plan and
the composition of the Plan's investment portfolio.
UNDERWRITING
The Notes and the Certificates are offered severally by the Underwriters,
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part. It is expected that the Notes and Certificates
will be ready for delivery in book-entry form only through the facilities of
The Depository Trust Company in New York, New York on or about August , 1999
against payment in immediately available funds and, in the case of the Notes,
also Cedel Bank, societe anonyme, and the Euroclear System.
Subject to the terms and conditions in the Underwriting Agreements for the
Notes and the Certificates (the "Underwriting Agreements"), the Seller has
agreed to cause the Trust to sell to each of the Underwriters named below (the
"Underwriters"), and each of the Underwriters has severally agreed to purchase,
the principal amounts of the Notes and the Certificates set forth opposite its
name:
<TABLE>
<CAPTION>
Principal Principal Principal Principal Principal Principal
Amount of Amount of Amount of Amount of Amount of Amount of Principal
Class A-1T Class A-1L Class A-2T Class A-2L Class A-3T Class A-3L Amount of
Underwriter Notes Notes Notes Notes Notes Notes Certificates
- ----------- ---------- ---------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Salomon Smith Barney
Inc.................... $ $ $ $ $ $ $
Goldman, Sachs
& Co...................
J.P. Morgan Securities
Inc....................
Merrill Lynch, Pierce,
Fenner & Smith
Incorporated...........
-------- -------- -------- -------- -------- -------- --------
Total................. $ $ $ $ $ $ $
======== ======== ======== ======== ======== ======== ========
</TABLE>
S-49
<PAGE>
The Underwriters have agreed, subject to the terms and conditions of the
Underwriting Agreements, to purchase all of the Notes and Certificates offered
hereby if any of the Notes or Certificates are purchased. The Underwriters have
advised the Seller that they propose initially to offer the Securities to the
public at the prices listed below, and to certain dealers at these prices less
concessions not in excess of the concessions listed below. The Underwriters may
allow and such dealers may reallow concessions to other dealers not in excess
of the reallowances listed below. After the initial public offering, these
prices and concessions may be changed.
<TABLE>
<CAPTION>
Initial Public Underwriting Proceeds To The
Offering Price(1) Discount Seller(1)(2) Concession Reallowance
----------------- ------------ --------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Per Class A-1T Note..... % % % % %
Per Class A-1L Note..... % % % % %
Per Class A-2T Note..... % % % % %
Per Class A-2L Note..... % % % % %
Per Class A-3T Note..... % % % % %
Per Class A-3L Note..... % % % % %
Per Certificate......... % % % % %
Total................... $ $ $
</TABLE>
- --------
(1) Plus accrued interest, if any, or return, if any, from August , 1999.
(2) Before deducting estimated expenses of $ payable by the Seller.
The Seller and Sallie Mae have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended.
The Notes and Certificates are new issues of securities with no established
trading market. The Seller has been advised by the Underwriters that the
Underwriters intend to make a market in the Notes and Certificates but are not
obligated to do so and may discontinue market making at any time without
notice. No assurance can be given as to the liquidity of the trading market for
the Notes and Certificates.
In the ordinary course of their business, the Underwriters and certain of
their affiliates have in the past, and may in the future, engage in commercial
and investment banking activities with Sallie Mae and its affiliates.
The Trust may, from time to time, invest the funds in the Trust Accounts in
Eligible Investments acquired from the Underwriters.
The closing of the sale of the Certificates is conditioned on the closing
of the sale of the Notes and the closing of the sale of the Notes is
conditioned on the closing of the sale of the Certificates.
During and after the offering, the Underwriters may engage in transactions,
including open market purchases and sales, to stabilize the prices of the Notes
and Certificates.
The lead Underwriter, for example, may over-allot the Notes and
Certificates for the account of the underwriting syndicate to create a
syndicate short position by accepting orders for more Notes and Certificates
than are to be sold.
In addition, the Underwriters may impose a penalty bid on the broker-
dealers who sell the Notes and Certificates. This means that if an Underwriter
purchases Notes or Certificates in the open market to reduce a broker-dealer's
short position or to stabilize the prices of the Notes or Certificates, it may
reclaim the selling concession from the broker-dealer who sold those Notes or
Certificates as part of the offering.
In general, over-allotment transactions and open market purchases of the
Notes and Certificates for the purpose of stabilization or to reduce a short
position could cause the price of a Note or Certificate to be higher than it
might be in the absence of such transactions.
S-50
<PAGE>
Each Underwriter has represented and agreed that (a) it has not offered or
sold and will not offer or sell any Notes or Certificates to persons in the
United Kingdom prior to the expiration of the period of six months from the
issue date of the Notes and the Certificates except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995; (b) it has complied and will comply with
all applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Notes and the Certificates in, from or
otherwise involving the United Kingdom; and (c) it has only issued or passed on
and will only issue or pass on in the United Kingdom any document received by
it in connection with the issuance of the Notes and the Certificates to a
person who is of a kind described in article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to
whom such document may otherwise lawfully be issued or passed on.
No action has been or will be taken by the Seller or the Underwriters that
would permit a public offering of the Notes and the Certificates in any country
or jurisdiction other than in the United States, where action for that purpose
is required. Accordingly, the Notes and the Certificates may not be offered or
sold, directly or indirectly, and neither the Prospectus, this Prospectus
Supplement nor any circular, prospectus, form of application, advertisement or
other material may be distributed in or from or published in any country or
jurisdiction, except under circumstances that will result in compliance with
any applicable laws and regulations. Persons into whose hands this Prospectus
Supplement comes are required by the Seller and the Underwriters to comply with
all applicable laws and regulations in each country or jurisdiction in which
they purchase, sell or deliver Notes or Certificates or have in their
possession or distribute such Prospectus Supplement, in all cases at their own
expense.
The Seller has not authorized any offer of Notes or Certificates to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995 (the "Regulations"). The Notes and Certificates may
not lawfully be offered or sold to persons in the United Kingdom except in
circumstances which do not result in an offer to the public in the United
Kingdom within the meaning of the Regulations or otherwise in compliance with
all applicable provisions of the Regulations and the Financial Services Act
1986.
RATINGS OF THE SECURITIES
It is a condition to the issuance and sale of the Notes that they be rated
in the highest investment rating category by at least two nationally recognized
rating agencies identified in the Indenture (the "Rating Agencies"). It is a
condition to the issuance and sale of the Certificates that they be rated in
one of the three highest investment rating categories by the Rating Agencies.
The ratings of the Notes do not address the likelihood of the payment of any
Note Interest Carryover and the ratings of the Certificates do not address the
likelihood of the payment of any Certificate Return Carryover. A 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.
LEGAL MATTERS
Marianne M. Keler, Esq., General Counsel of Sallie Mae, as counsel to
Sallie Mae, the Servicer and the Seller, and Cadwalader, Wickersham & Taft,
Washington, D.C., as special counsel to Sallie Mae, the Servicer and the
Seller, will give opinions on specified legal matters for the Trust, the
Seller, the Servicer and the Administrator. Shearman & Sterling, Washington,
D.C. will give an opinion on specified federal income tax matters for the
Trust. Richards, Layton & Finger, P.A., as Delaware tax counsel for the Trust,
will give an opinion on specified Delaware state income tax matters for the
Trust. Cadwalader, Wickersham & Taft, Washington, D.C., and Shearman &
Sterling, Washington, D.C. will give opinions on specified legal matters for
the Underwriters.
S-51
<PAGE>
INDEX OF DEFINED TERMS
FOR PROSPECTUS SUPPLEMENT
This is a list of the defined terms used in this Prospectus Supplement and
the pages where you can find their definitions.
<TABLE>
<CAPTION>
Page
---------
<S> <C>
1992 Amendments....................................................... S-28
91-day Treasury Bills................................................. S-38
Accrual Period........................................................ S-4
Adjusted Pool Balance................................................. S-5
Administration Agreement.............................................. S-7
Administration Fee.................................................... S-46
Administrator......................................................... S-7
Available Funds....................................................... S-41
Carryover Servicing Fee............................................... S-10
Cede.................................................................. S-18
Certificate Balance................................................... S-43
Certificate Balance Distribution Amount............................... S-43
Certificate Balance Shortfall......................................... S-43
Certificate Rate...................................................... S-37
Certificate Return Carryover.......................................... S-7, S-44
Certificate Return Shortfall.......................................... S-44
Certificateholders' Distribution Amount............................... S-43
Certificateholders' Return Distribution Amount........................ S-44
Certificates.......................................................... S-1
Class A-1 Maturity Date............................................... S-6
Class A-1L Rate....................................................... S-35
Class A-1T Rate....................................................... S-35
Class A-2 Maturity Date............................................... S-6
Class A-2L Rate....................................................... S-35
Class A-2T Rate....................................................... S-35
Class A-3 Maturity Date............................................... S-6
Class A-3L Rate....................................................... S-36
Class A-3T Rate....................................................... S-36
Closing Date.......................................................... S-4
Code.................................................................. S-47
Collection Period..................................................... S-5
Commission............................................................ S-18
Consolidation Loans................................................... S-8
Cutoff Date........................................................... S-5
Deferral.............................................................. S-24
Department............................................................ S-8
Determination Date.................................................... S-41
Disqualified Persons.................................................. S-47
Distribution Date..................................................... S-4
DTC................................................................... S-18
Eligible Investments.................................................. S-40
Eligible Lender Trustee............................................... S-7
ERISA................................................................. S-47
Exchange Act.......................................................... S-18
Expected Interest Collections......................................... S-36
</TABLE>
S-52
<PAGE>
<TABLE>
<CAPTION>
Page
----------
<S> <C>
FFELP................................................................ S-8
Final Distribution Date.............................................. S-7
Forbearance.......................................................... S-24
General Account Regulations.......................................... S-48
Grace................................................................ S-24
Guarantor............................................................ S-28
In-School............................................................ S-24
Indenture............................................................ S-7
Indenture Trustee.................................................... S-7
Index Maturity....................................................... S-39
Initial Pool Balance................................................. S-45
LIBOR Determination Date............................................. S-40
Liquidated Student Loans............................................. S-41
Liquidation Proceeds................................................. S-42
Lock-In Period....................................................... S-39
Minimum Purchase Amount.............................................. S-11
Monthly Servicing Payment Date....................................... S-10
Note Interest Carryover.............................................. S-44
Note Interest Shortfall.............................................. S-45
Note Principal Shortfall............................................. S-45
Note Rates........................................................... S-5
Noteholders' Distribution Amount..................................... S-44
Noteholders' Interest Distribution Amount............................ S-44
Noteholders' Principal Distribution Amount........................... S-44
Notes................................................................ S-1
Parties in Interest.................................................. S-47
Plan................................................................. S-47
Plan Asset Regulation................................................ S-48
Pool Balance......................................................... S-5
Primary Servicing Fee................................................ S-10
Principal Distribution Amount........................................ S-45
PTCE................................................................. S-47
Purchase Agreement................................................... S-17
Purchased Student Loans.............................................. S-42
Rating Agencies...................................................... S-51
Realized Loss........................................................ S-45
Reauthorization Legislation ......................................... S-14
Record Date.......................................................... S-4
Reference Banks...................................................... S-40
Regulations.......................................................... S-51
Repayment............................................................ S-24
Reserve Account...................................................... S-8
Reserve Account Initial Deposit...................................... S-8
Sale Agreement....................................................... S-17
Sallie Mae........................................................... S-7
Securities........................................................... S-4
Seller............................................................... S-7
Servicer............................................................. S-10
Significant Guarantors............................................... S-30
Specified Reserve Account Balance.................................... S-9, S-45
Student Loan Rate.................................................... S-36
</TABLE>
S-53
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
T-Bill Rate................................................................ S-38
Telerate Page 3750......................................................... S-40
Three-Month LIBOR.......................................................... S-39
Trust...................................................................... S-17
Trust Accounts............................................................. S-40
Trust Agreement............................................................ S-17
Trust Auction Date......................................................... S-11
Underwriters............................................................... S-49
Underwriting Agreements.................................................... S-49
</TABLE>
S-54
<PAGE>
PROSPECTUS
The SLM Student Loan Trusts
Student Loan-Backed Notes
Student Loan-Backed Certificates
----------------
SLM Funding Corporation,
Seller
Sallie Mae Servicing Corporation,
Servicer
----------------
The Student Loan-Backed Notes (the "Notes") and the Student Loan-Backed
Certificates (the "Certificates" and, together with the Notes, the
"Securities") described herein may be sold from time to time in one or more
series, in amounts, at prices and on terms to be determined at the time of
sale and to be set forth in a supplement to this Prospectus (a "Prospectus
Supplement"). Each series of Securities, which will include one or more
classes of Notes and one or more classes of Certificates, will be issued by a
trust to be formed with respect to such series (each, a "Trust"). Each Trust
will be formed pursuant to a Trust Agreement to be entered into between SLM
Funding Corporation, as seller (the "Seller"), and the Eligible Lender Trustee
specified in the related Prospectus Supplement (each, an "Eligible Lender
Trustee"). The Seller is a wholly-owned subsidiary of the Student Loan
Marketing Association ("Sallie Mae"). The Notes of each series will be issued
and secured pursuant to an Indenture between the Trust and the Indenture
Trustee specified in the related Prospectus Supplement (each, an "Indenture
Trustee") and will represent indebtedness of the related Trust. The
Certificates of a series will represent fractional undivided beneficial
interests in the related Trust. The property of each Trust will include
education loans to students and/or parents of students (the "Student Loans"),
certain monies due or received thereunder on and after the applicable Cutoff
Date set forth in the related Prospectus Supplement and certain other
property, all as described herein and in the related Prospectus Supplement.
Sallie Mae Servicing Corporation, an affiliate of Sallie Mae, will be the
servicer (the "Servicer") for each Trust.
Each class of Securities of any series will represent the right to receive a
specified amount of payments of principal and interest received in respect of
the related Trust Student Loans, at the rates, on the dates and in the manner
described herein and in the related Prospectus Supplement. The right of each
class of Securities to receive payments may be senior or subordinate to the
rights of one or more of the other classes of such series and may be
subordinate to certain expenses of the related Trust. Distributions on
Certificates of a series may be subordinated in priority to payments due on
the related Notes to the extent described herein and in the related Prospectus
Supplement. A series may include one or more classes of (i) Notes which differ
as to the timing and priority of payment, interest rate or amount of
distributions in respect of principal or interest or both, and (ii)
Certificates which differ as to the timing and priority of distributions in
respect of the Certificate Balance of or return on the Certificates or both.
The rate of payment in respect of principal of the Notes and distributions in
respect of the Certificate Balance of any class will depend on the priority of
payment of such class, the rate and timing of payments (including, but not
limited to, prepayments, guarantee payments, liquidations and repurchases) on,
and the occurrence of any deferments or forbearances with respect to, the
related Trust Student Loans.
THE NOTES OF A GIVEN SERIES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES
OF SUCH SERIES REPRESENT UNDIVIDED BENEFICIAL INTERESTS IN, THE RELATED TRUST
ONLY AND DO NOT REPRESENT OBLIGATIONS OF OR INTERESTS IN, AND ARE NOT
GUARANTEED OR INSURED BY, THE STUDENT LOAN MARKETING ASSOCIATION, SLM FUNDING
CORPORATION, SALLIE MAE SERVICING CORPORATION, OR ANY AFFILIATE THEREOF OR BY
THE UNITED STATES OF AMERICA OR ANY GOVERNMENTAL AGENCY. PROSPECTIVE INVESTORS
SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK FACTORS" ON PAGE 13 HEREIN
AND IN THE RELATED PROSPECTUS SUPPLEMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Retain this Prospectus for future reference. This Prospectus may not be used
to consummate sales of Securities offered hereby unless accompanied by a
Prospectus Supplement.
----------------
The date of this Prospectus is June 5, 1998
<PAGE>
AVAILABLE INFORMATION
The Seller, as originator of each Trust, has filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement (together with
all amendments and exhibits thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Securities offered hereby. This Prospectus, 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 Commission at 450 Fifth Street, N.W., Washington, D.C.
20549; and at the Commission's regional offices at Seven World Trade Center,
Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of the Registration
Statement may be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In
addition, the Registration Statement may be accessed electronically at the
Commission's site on the world wide web located at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Seller, as originator of any Trust, pursuant to
Section 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934, as
amended, subsequent to the date of this Prospectus and prior to the
termination of the offering of the Securities shall be deemed to be
incorporated by reference in this Prospectus. Any statement contained herein
or in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus
to the extent that a statement contained herein or in any subsequently filed
document which also is to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
The Seller will provide without charge to each person, including any
beneficial owner of Securities, to whom a copy of this Prospectus is
delivered, on the written or oral request of any such person, a copy of any or
all of the documents incorporated herein or in any related Prospectus
Supplement by reference, except the exhibits to such documents (unless such
exhibits are specifically incorporated by reference in such documents).
Requests for such copies should be directed to SLM Funding Corporation, in
care of Corporate and Investor Relations, Student Loan Marketing Association,
11600 Sallie Mae Drive, Reston, Virginia 20193 (Telephone: (703) 810-3000).
PROSPECTUS SUPPLEMENT
The information contained in this Prospectus generally describes the terms
applicable to the Notes and the Certificates to be issued from time to time by
the Trusts. The Prospectus Supplement relating to each series of Notes and
Certificates will contain additional information with respect to such Notes
and Certificates together with a description of any terms of such Notes or
Certificates that are in addition to those described herein.
REPORTS TO SECURITYHOLDERS
Periodic and annual reports concerning the Trusts are required to be
forwarded to the holders of Securities (the "Securityholders"). See "Certain
Information Regarding the Securities--Reports to Securityholders."
2
<PAGE>
SUMMARY INFORMATION
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to the Securities of any series contained in the
related Prospectus Supplement to be prepared and delivered in connection with
the offering of such Securities. Certain capitalized terms used in this
Prospectus are defined elsewhere herein on the pages indicated in the "Index of
Principal Terms."
Issuer.................. With respect to each series of Securities, the
trust to be formed pursuant to a Trust Agreement
(as amended and supplemented from time to time,
each a "Trust Agreement") between the Seller and
the Eligible Lender Trustee for such Trust (the
"Trust" or the "Issuer"). See "Formation of the
Trusts."
Seller.................. SLM Funding Corporation (the "Seller"), a wholly-
owned subsidiary of Student Loan Marketing
Association ("Sallie Mae"). See "The Seller."
Because the Seller is not an institution eligible
to hold legal title to the Student Loans, an
eligible lender trustee for the Seller specified in
the related Prospectus Supplement (the "Interim
Trustee") will hold legal title to the Student
Loans on behalf of the Seller pursuant to a Trust
Agreement between the Interim Trustee and the
Seller (as amended and supplemented from time to
time, each, an "Interim Trust Agreement").
References to the "Seller" herein mean the Interim
Trustee for all purposes, where the context so
requires, involving the holding or transferring of
legal title to the Student Loans owned by the
related Trust (the "Trust Student Loans").
Servicer................ Sallie Mae Servicing Corporation, a wholly-owned
subsidiary of SLM Holding Corporation and an
affiliate of Sallie Mae that manages and operates
Sallie Mae's loan servicing functions (the
"Servicer"). Under certain circumstances described
herein, the Servicer may transfer its obligations
as Servicer. See "Servicing; Administration--
Certain Matters Regarding the Servicer."
Eligible Lender
Trustee................. With respect to each series of Securities, the
Eligible Lender Trustee specified in the related
Prospectus Supplement (each, an "Eligible Lender
Trustee"). See "Formation of the Trusts--Eligible
Lender Trustee."
Indenture Trustee....... With respect to each series of Securities, the
Indenture Trustee specified in the related
Prospectus Supplement (each, an "Indenture
Trustee"). See "Description of the Notes--The
Indenture--The Indenture Trustee."
Administrator........... Sallie Mae, as administrator (in such capacity, the
"Administrator"). Under certain circumstances
described herein, Sallie Mae may transfer its
obligations as Administrator. See "Sallie Mae" and
"Servicing; Administration--Administration
Agreement."
The Notes............... Each series of Securities will include one or more
classes of Notes, which will be issued pursuant to
an Indenture between the Trust and the related
Indenture Trustee (each, as amended and
supplemented
3
<PAGE>
from time to time, an "Indenture"). Such class or
classes of Notes may be offered publicly or
privately, in each case as specified in the related
Prospectus Supplement.
The Notes will be available for purchase in
denominations of $1,000 and integral multiples
thereof and will be available in book-entry form
only, or as provided in the related Prospectus
Supplement. The holders of Notes (the
"Noteholders") in book-entry form will be able to
receive Definitive Notes only in the limited
circumstances described herein or in the related
Prospectus Supplement. See "Certain Information
Regarding the Securities--Book-Entry Registration"
and "--Definitive Securities."
Each class of Notes will have a stated principal
amount and will bear interest at a specified rate
or rates (with respect to each class of Notes, the
"Note Rate"), or as set forth in the related
Prospectus Supplement. Each class of Notes may have
a different Note Rate, which may be a fixed, a
variable, an adjustable or an auction-determined
Note Rate, or any combination of the foregoing. The
related Prospectus Supplement will specify the Note
Rate for each class of Notes, or the method for
determining the Note Rate. See "Description of the
Notes--Principal and Interest on the Notes."
With respect to a series that includes two or more
classes of Notes, (i) each class may differ as to
the timing and priority of payments, seniority,
Note Rate or amount of payments of principal or
interest, or (ii) payments of principal or interest
as to any such class or classes may or may not be
made upon the occurrence of specified events.
If the Seller exercises its option to purchase, or
arrange for the purchase of, the Trust Student
Loans, or if such Trust Student Loans are sold on
or after the related Trust Auction Date, in the
manner and on the respective terms and conditions
described under "Formation of the Trusts--
Termination," the outstanding Notes will be
redeemed as set forth in the related Prospectus
Supplement.
The Certificates........ Each series of Securities will include one or more
classes of Certificates which will be issued
pursuant to the related Trust Agreement. Such class
or classes of Certificates may be offered publicly
or privately as specified in the related Prospectus
Supplement.
Certificates will be available for purchase in a
minimum denomination of $100,000 and in integral
multiples of $1,000 in excess thereof and will be
available in book-entry form only, or as set forth
in the related Prospectus Supplement. The holders
of Certificates (the "Certificateholders") in book-
entry form will be able to receive Definitive
Certificates only in the limited circumstances
described herein or in the related Prospectus
Supplement. See "Certain Information Regarding the
Securities--Book-Entry Registration" and "--
Definitive Securities."
4
<PAGE>
Each class of Certificates will have a stated
Certificate Balance specified in the related
Prospectus Supplement (the "Certificate Balance")
and will yield a return on such Certificate Balance
at a specified rate (with respect to each class of
Certificates, the "Certificate Rate"), or as set
forth in the related Prospectus Supplement. Each
class of Certificates may have a different
Certificate Rate, which may be a fixed, a variable,
an adjustable or an auction-determined Certificate
Rate, or any combination of the foregoing. The
related Prospectus Supplement will specify the
Certificate Rate for each class of Certificates or
the method for determining the Certificate Rate.
With respect to a series that includes two or more
classes of Certificates, (i) each class may differ
as to timing and priority of distributions,
seniority, allocations of losses, Certificate Rate
or distributions in respect of the Certificate
Balance, or (ii) distributions of amounts in
reduction of the Certificate Balance as to any such
class or classes may or may not be made upon the
occurrence of specified events. See "Description of
the Certificates--Distributions in Respect of the
Certificate Balance of the Certificates."
To the extent specified in the related Prospectus
Supplement, distributions in respect of the
Certificates may be subordinated in priority of
payment to payments of principal and interest on
the Notes.
If the Seller exercises its option to purchase, or
arrange for the purchase of, the Trust Student
Loans, or if such Trust Student Loans are sold on
or after the related Trust Auction Date, in the
manner and on the respective terms and conditions
described under "Formation of the Trusts--
Termination," Certificateholders will receive a
distribution in respect of the Certificate Balance
as specified in the related Prospectus Supplement.
Assets of the Trust..... The assets of each Trust will include a pool of
Student Loans consisting of (i) education loans to
students and/or parents of students ("Student
Loans") made under the Federal Family Education
Loan Program ("FFELP") and/or (ii) if so specified
in a Prospectus Supplement, other Student Loans not
made under the FFELP ("Non-FFELP Loans"). Unless
otherwise specified herein or in the related
Prospectus Supplement, "Student Loans" refers to
Student Loans made under the FFELP (the "FFELP
Loans"). Such assets, in either case, will include
rights to receive payments made with respect to
such Student Loans and the proceeds thereof. On or
prior to the Closing Date specified in the related
Prospectus Supplement with respect to a Trust (a
"Closing Date"), the Seller will sell Student Loans
having an aggregate principal balance specified in
the related Prospectus Supplement as of the date
specified therein (a "Cutoff Date"), to the
Eligible Lender Trustee on behalf of the Trust
pursuant to a Sale Agreement (as amended and
supplemented from time to time, a "Sale
Agreement"), among the Seller, the related Trust
and the related Eligible Lender Trustee. The
Student Loans will be purchased by the Seller from
Sallie Mae
5
<PAGE>
pursuant to a Purchase Agreement (as amended and
supplemented from time to time, a "Purchase
Agreement") between the Seller and Sallie Mae
providing for such purchase on or before the
Closing Date with respect to a Trust. The property
of each Trust will also include amounts on deposit
in certain trust accounts, including the related
Collection Account, any Reserve Account, any Pre-
Funding Account and any other account identified in
the applicable Prospectus Supplement. See
"Formation of the Trusts--The Trusts."
The Student Loans sold to the Trust will be
selected from Student Loans owned by Sallie Mae
based on criteria specified in the applicable
Purchase Agreement and described herein and in the
related Prospectus Supplement.
Each Student Loan sold to any Trust, subject to
compliance with specific origination and servicing
procedures prescribed by federal and guarantee
agency regulations, will be 100% guaranteed (or 98%
with respect to Student Loans disbursed on and
after October 1, 1993) as to the payment of
principal and interest by either a state or private
non-profit guarantee agency (each, a "Guarantee
Agency"), or as provided in the related Prospectus
Supplement. Each Guarantee Agency will be reinsured
by the Department of Education (the "Department")
for 80% to 100% of claims paid by such Guarantee
Agency ("Guarantee Payments") for a given federal
fiscal year for loans disbursed prior to October 1,
1993 and for 78% to 98% of claims paid for loans
disbursed on or after October 1, 1993, depending on
its claims experience. The percentage of the claims
paid by a Guarantee Agency which is reinsured may
be changed in the future by legislation. See
"Appendix A--The Federal Family Education Loan
Program--Guarantee Agencies" and "--Federal
Insurance and Reinsurance of Guarantee Agencies."
A Trust may also include among its assets
agreements with counterparties providing for
interest rate swaps, caps and other similar
financial contracts with the terms and subject to
the conditions specified in the related Prospectus
Supplement.
Collection Account...... With respect to each Trust, the Administrator will
establish and maintain one or more accounts, in the
name of the Indenture Trustee on behalf of the
related Noteholders and Certificateholders, into
which all payments made on or with respect to the
related Trust Student Loans will be deposited (the
"Collection Account"). The Collection Account will
initially be established with the applicable
Indenture Trustee. The uses to which the funds in
the Collection Account can be applied and the
conditions to the application of such funds will be
set forth in the Prospectus Supplement.
Pre-Funding Account..... To the extent described in the related Prospectus
Supplement, a portion of the net proceeds of sale
of the Notes and Certificates may, during the
period set forth in such Prospectus Supplement (the
"Funding Period"), be deposited in an account (the
"Pre-Funding Account")
6
<PAGE>
which will be maintained in the name of the
relevant Indenture Trustee and will be an asset of
the applicable Trust. The amount (the "Pre-Funding
Amount") to be deposited in the Pre-Funding
Account, the uses to which the funds in the Pre-
Funding Account may be applied and the conditions
to the application of such funds will be set forth
in the Prospectus Supplement. Any Pre-Funding
Amount remaining at the end of the Funding Period
will be distributed to Securityholders as a payment
of principal of Notes and/or as a distribution in
respect of Certificate Balance. See "Transfer and
Servicing Agreements--Additional Fundings."
Credit and Cash Flow or
other Enhancement or
Derivative
Arrangements........... If and to the extent specified in the related
Prospectus Supplement, credit or cash flow
enhancement with respect to a Trust or any class or
classes of Securities may include any one or more
of the following: subordination of one or more
other classes of Securities, a Reserve Account, a
cash collateral account, overcollateralization,
letters of credit, credit or liquidity facilities,
surety bonds, guaranteed investment contracts,
swaps (including without limitation interest rate
and currency swaps), exchange agreements, interest
rate protection agreements, repurchase obligations,
put and/or call options, yield protection
agreements, other agreements with respect to third
party payments or such other support, cash deposit,
derivative or other arrangements as may be
described in the related Prospectus Supplement or
any combination of the foregoing. Any form of
credit or cash flow enhancement may have certain
limitations and exclusions from coverage
thereunder, which will be described in the related
Prospectus Supplement. See "Certain Information
Regarding the Securities--Credit and Cash Flow or
other Enhancement or Derivative Arrangements."
Reserve Account......... An account in the name of the related Indenture
Trustee (the "Reserve Account") will be established
and maintained by the Administrator and will be an
asset of the applicable Trust. The Reserve Account
will initially be established with the applicable
Indenture Trustee. To the extent specified in the
related Prospectus Supplement, (i) the Seller will
make an initial deposit into the Reserve Account on
the Closing Date having a value equal to the amount
specified in the Prospectus Supplement (the
"Reserve Account Initial Deposit") and (ii) the
Reserve Account Initial Deposit will be
supplemented up to any maximum amount specified in
the related Prospectus Supplement (the "Specified
Reserve Account Balance") on each Distribution Date
by the deposit into the Reserve Account of any
remaining Available Funds (as defined in the
related Prospectus Supplement) for such
Distribution Date after giving effect to
distributions on such Distribution Date. See
"Description of the Securities--Credit Enhancement"
in the related Prospectus Supplement.
Amounts in the Reserve Account will be available to
cover shortfalls in amounts due to the holders of
those classes of Securities specified in
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the related Prospectus Supplement in the manner and
under the circumstances specified therein. The
related Prospectus Supplement will also specify to
whom and the manner and circumstances under which
amounts on deposit in the Reserve Account (after
giving effect to all other required distributions
to be made by the applicable Trust) in excess of
the Specified Reserve Account Balance will be
distributed.
Purchase Agreements..... With respect to each Trust, the Seller will acquire
the related Trust Student Loans from Sallie Mae
pursuant to a Purchase Agreement. The rights and
benefits of the Seller under the Purchase Agreement
will be assigned by the Seller to the related
Eligible Lender Trustee on behalf of the Trust and
will be assigned by the Trust to the Indenture
Trustee as collateral for the Notes of the related
series. See "Transfer and Servicing Agreements."
Sale Agreements......... With respect to each Trust, the Seller will sell
the related Trust Student Loans to such Trust
pursuant to a Sale Agreement, with the related
Eligible Lender Trustee holding legal title
thereto. The rights and benefits of such Trust and
Eligible Lender Trustee under the Sale Agreement
will be assigned to the Indenture Trustee as
collateral for the Notes of the related series. See
"Transfer and Servicing Agreements."
Servicing Agreements.... The Servicer will enter into a Servicing Agreement
(a "Servicing Agreement") with respect to the
Student Loans in each Trust with such Trust, the
related Eligible Lender Trustee, the Administrator
and the related Indenture Trustee. See "Servicing;
Administration."
The Servicer will agree with each Trust to be
responsible for servicing and managing and
maintaining the custody of, and making collections
on, the Student Loans and preparing and filing with
the Department and the applicable Guarantee Agency
all appropriate claim forms and other documents and
filings on behalf of the Eligible Lender Trustee in
order to claim the Interest Subsidy Payments,
Special Allowance Payments and Guarantee Payments
(such terms collectively referred to herein as
"Program Payments") in respect of the Student Loans
entitled thereto. The Servicer will be entitled to
a fee specified in the related Prospectus
Supplement (the "Servicing Fee").
Administration Sallie Mae, as Administrator, has entered into a
Agreement.............. Master Administration Agreement, dated as of May 1,
1997 (the "Master Administration Agreement") with
the Seller and will enter into a Supplement thereto
with each Trust, the related Eligible Lender
Trustee, the Seller, the Servicer and the related
Indenture Trustee pursuant to which Sallie Mae will
agree to undertake certain administrative duties
with respect to each Trust (each, an
"Administration Agreement Supplement" and, together
with the Master Administration Agreement, the
"Administration Agreement"). Sallie Mae will be
entitled to a fee for acting as Administrator
specified in the related Prospectus Supplement (the
"Administration Fee"). See "Servicing;
Administration--Administration Agreement."
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Representations and
Warranties of the
Seller................. The Seller will be obligated under the related Sale
Agreement to repurchase from the related Trust, or
substitute Qualified Substitute Student Loans for,
any Student Loan if the interest of the Trust is
materially adversely affected by a breach of
certain representations or warranties made by the
Seller with respect to such Student Loan, if the
breach has not been cured within the cure period
specified in the applicable Prospectus Supplement.
"Qualified Substitute Student Loans" means Student
Loans that comply, as of the date of substitution,
with all of the representations and warranties made
by the Seller in the related Sale Agreement and are
substantially similar on an aggregate basis to the
Student Loans for which they are being substituted
with respect to the following characteristics: (1)
principal balance, (2) status (i.e., in-school,
grace, deferment, forbearance or repayment), (3)
program type (i.e., Unsubsidized Stafford,
Subsidized Stafford, PLUS, SLS, Consolidation or
non-FFELP), (4) school type, (5) total return, and
(6) remaining term to maturity. Such purchase or
substitution will be made as of the first day
following the end of such cure period that is the
last day of a Collection Period or as set forth in
the related Prospectus Supplement. In addition,
unless otherwise specified in the related
Prospectus Supplement, the Seller will be obligated
to reimburse the related Trust for (i) the
shortfall, if any, between the Purchase Amount of
any Qualified Substitute Student Loans and the
Purchase Amount of the Trust Student Loan for which
the Qualified Substitute Student Loans are being
substituted, and (ii) any accrued interest amounts
not guaranteed by (or required to be refunded to) a
Guarantee Agency and/or any Interest Subsidy
Payments or Special Allowance Payments not paid by
(or required to be refunded to) the Department with
respect to a Trust Student Loan as a result of a
breach of the Seller's representations and
warranties with respect to such Trust Student Loan.
See "Transfer and Servicing Agreements--Sale of
Student Loans to the Trust; Representations and
Warranties of the Seller."
Representations and
Warranties of Sallie
Mae.................... Pursuant to each Purchase Agreement, Sallie Mae
will make certain representations and warranties to
the Seller with respect to the Student Loans sold
by Sallie Mae to the Seller pursuant to such
Purchase Agreement. Such representations and
warranties will generally be to the same effect as
the representations and warranties made by the
Seller to the related Trust with respect to the
Student Loans sold by the Seller to such Trust
pursuant to the Sale Agreement. Sallie Mae will be
obligated under the related Purchase Agreement to
repurchase from the Seller, or substitute Qualified
Substitute Student Loans for, any Student Loan if
the Seller is obligated to repurchase (or
substitute) such Student Loan from the related
Trust as described above. In addition, unless
otherwise specified in the related Prospectus
Supplement, Sallie Mae will be obligated to
reimburse the Seller for (i) the shortfall, if any,
between the Purchase Amount of any Qualified
Substitute Student Loans and the Purchase Amount of
the Trust Student Loan for which
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the Qualified Substitute Student Loans are being
substituted, and (ii) any accrued interest amounts
not guaranteed by (or required to be refunded to) a
Guarantee Agency and/or any Interest Subsidy
Payments or Special Allowance Payments not paid by
(or required to be refunded to) the Department with
respect to a Trust Student Loan as a result of a
breach of Sallie Mae's representations and
warranties with respect to such Trust Student Loan.
See "Transfer and Servicing Agreements--Purchase of
Student Loans by the Seller; Representations and
Warranties of Sallie Mae."
Covenants of the
Servicer................ The Servicer will be obligated under the related
Servicing Agreement to purchase from the related
Trust, or substitute Qualified Substitute Student
Loans for, any Student Loan, if the interest of the
Trust is materially adversely affected by a breach
of any covenant of the Servicer (including the
covenant to service all Student Loans in accordance
with the Act, the rules of the applicable Guarantee
Agency and all other applicable laws) made by the
Servicer with respect to such Student Loan (it
being understood that any such breach that relates
to compliance with the requirements of the Higher
Education Act or the applicable Guarantee Agency
but that does not affect such Guarantee Agency's
obligation to guarantee payment of a Trust Student
Loan will not be considered to have a material
adverse effect), if such breach has not been cured
within the cure period specified in the applicable
Prospectus Supplement, such purchase or
substitution to be made as of the first day
following the end of such cure period that is the
last day of a Collection Period, or as set forth in
the related Prospectus Supplement. In addition,
unless otherwise specified in the related
Prospectus Supplement, the Servicer will be
obligated to reimburse such Trust for (i) the
shortfall, if any, between the Purchase Amount of
any Qualified Substitute Student Loans and the
Purchase Amount of the Trust Student Loan for which
the Qualified Substitute Student Loans are being
substituted, and (ii) any accrued interest amounts
not guaranteed by (or required to be refunded to) a
Guarantee Agency and/or any Interest Subsidy
Payments or Special Allowance Payments not paid by
(or required to be refunded to) the Department with
respect to a Trust Student Loan as a result of a
breach of the Servicer's covenants with respect to
such Trust Student Loan. See "Servicing;
Administration--Servicer Covenants."
Servicing Fee........... The Servicer will receive a fee (the "Servicing
Fee") equal to a specified amount, as set forth in
the related Prospectus Supplement, together with
any other fees, expenses and similar charges
specified in the related Prospectus Supplement,
payable monthly on the dates specified in the
related Prospectus Supplement (each, a "Monthly
Servicing Payment Date"). The Servicing Fee and any
portion of the Servicing Fee that remains unpaid
from prior distribution dates will be paid prior to
any payment in respect of the related Securities
(other than any portion of the Servicing Fee that
is expressly subordinated to such payments as set
forth in the related Prospectus Supplement), to the
extent specified in the related Prospectus
Supplement. See "Servicing;
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Administration--Servicing Compensation" herein and
"Description of the Securities--Servicing
Compensation" in the related Prospectus Supplement.
Administration Fee...... The Administrator will receive an Administration
Fee equal to a specified amount, as set forth in
the related Prospectus Supplement, together with
any other administrative fees and similar charges
specified in the related Prospectus Supplement. The
Administration Fee will be paid prior to any
payment in respect of the related Securities, as
specified in the applicable Prospectus Supplement.
See "Servicing; Administration--Administration
Agreement" herein.
Optional Purchase;
Auction................. At its option, the Seller may purchase or arrange
for the purchase of all remaining Trust Student
Loans from the related Eligible Lender Trustee, and
thereby effect early retirement of the related
Notes and Certificates, as of the end of any
Collection Period immediately preceding a
Distribution Date, if the then outstanding Pool
Balance of the Trust is 10% or less of the Initial
Pool Balance of such Trust, unless otherwise
specified in the Prospectus Supplement. See
"Formation of the Trusts--Termination" herein.
As provided in the related Prospectus Supplement,
any Trust Student Loans remaining in a Trust as of
the end of the Collection Period immediately
preceding the Trust Auction Date specified in the
related Prospectus Supplement may be offered for
sale by the Indenture Trustee by auction in
accordance with the procedure described herein. See
"Formation of the Trusts--Termination" herein.
Termination............. With respect to each Trust, the obligations of the
Servicer, the Seller, the Administrator, the
related Eligible Lender Trustee and the related
Indenture Trustee will terminate upon certain
conditions set forth herein. See "Formation of the
Trusts--Termination" herein.
Tax Considerations...... As more specifically set forth herein, upon the
issuance of each series of Securities, Shearman &
Sterling (or such other firm as shall be identified
in the applicable Prospectus Supplement), as
federal tax counsel to the applicable Trust
("Federal Tax Counsel"), will deliver an opinion to
the effect that, for federal income tax purposes:
(i) the Notes of such series will be characterized
as debt and (ii) the Trust will not be
characterized as an association (or a publicly
traded partnership) taxable as a corporation; and
the firm identified in the applicable Prospectus
Supplement as Delaware tax counsel to such Trust
("Delaware Tax Counsel") will deliver an opinion to
the effect that the same characterizations would
apply for Delaware income tax purposes as for
federal income tax purposes, and that Noteholders
and Certificateholders that are not otherwise
subject to Delaware taxation on income will not
become subject to Delaware tax as a result of their
ownership of Notes or Certificates, or as set forth
in the related Prospectus Supplement.
Each Noteholder, by the acceptance of a Note of a
given series, will agree to treat such Note as
indebtedness, and each Certificateholder, by
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the acceptance of a Certificate of a given series
and assuming that any such Certificates are sold to
persons other than the Seller, will agree to treat
the related Trust as a partnership in which such
Certificateholder is a partner for federal income
tax purposes, or as set forth in the related
Prospectus Supplement.
Due to the method of allocation of Trust income to
the Certificateholders, cash basis holders may, in
effect, be required to report income from the
Certificates on an accrual basis. In addition,
because tax allocations and tax reporting will be
done on a uniform basis, but Certificateholders may
be purchasing Certificates at different times and
at different prices, Certificateholders may be
required to report on their tax returns taxable
income that is greater or less than the amount
reported to them by the Trust.
See "Certain Federal Income Tax Consequences" and
"Certain State Tax Consequences" for additional
information.
ERISA Considerations.... A fiduciary of any employee benefit plan or other
retirement arrangement subject to the Employee
Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Internal Revenue
Code of 1986, as amended (the "Code"), should
carefully review with its legal advisors whether
the purchase or holding of any class of Securities
could give rise to a transaction prohibited or not
otherwise permissible under ERISA or Section 4975
of the Code. See "ERISA Considerations" herein and
in the related Prospectus Supplement.
Ratings................. The rating or ratings applicable to the Notes and
the Certificates of each series offered hereby and
by the related Prospectus Supplement will each be
in one of the four highest rating categories, and
as set forth in the related Prospectus Supplement.
A securities rating should be evaluated
independently of similar ratings on different types
of securities. A securities rating does not address
the effects that the rate of prepayments on Student
Loans may have on the yield to investors in the
Notes and the Certificates. See "Risk Factors"
herein.
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RISK FACTORS
The payment of, and the timing of the payment of, the principal of and
interest on the Notes and distributions in respect of the Certificate Balance
of and return on the Certificates are subject to certain risks. Particular
attention should be given to the factors described below which, among others,
could materially and adversely affect the payment of, and the timing of the
payment of, the Notes and the Certificates, and which could also materially
and adversely affect the market price of the Notes and the Certificates to an
extent that cannot be determined. The items listed below do not include all
risks to which such payment is subject.
Failure to Comply with Student Loan Origination and Servicing
Procedures. The Higher Education Act of 1965, as amended (such act, together
with all rules and regulations promulgated thereunder by the Department and/or
the Guarantee Agencies, the "Higher Education Act" or the "Act"), including
the implementing regulations thereunder, requires lenders and their assignees
making and servicing Student Loans and Guarantee Agencies guaranteeing Student
Loans to follow specified procedures, including due diligence procedures, to
ensure that the student loans are properly made and disbursed to, and repaid
on a timely basis by or on behalf of, borrowers. Certain of those procedures,
which are specifically set forth in the Act, are summarized herein. See "The
Student Loan Pools--The Student Loan Financing Business", "Appendix A--The
Federal Family Education Loan Program" and "Servicing; Administration--
Servicing Procedures." Generally, those procedures require that a
determination of whether an applicant is an eligible borrower under the 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
the loan proceeds be disbursed in a specified manner by the lender. After the
loan is made, the lender must establish repayment terms with the borrower,
properly administer deferrals and forbearance and credit the borrower for
payments made thereon. If a borrower becomes delinquent in repaying a loan, a
lender must perform certain collection procedures (primarily telephone calls
and demand letters) which vary depending upon the length of time a loan is
delinquent.
The Servicer has agreed pursuant to the related Servicing Agreement to
perform servicing and collection procedures on behalf of each Trust. However,
failure to follow these procedures or failure of the original lender or any
subsequent holder of any Trust Student Loan (including Sallie Mae or the
related Eligible Lender Trustee) to follow procedures relating to the
origination and servicing of such Trust Student Loans may result in the
Department's refusal to make reinsurance payments to the applicable Guarantee
Agency or refusal of the Department and/or the applicable Guarantee Agency to
make Program Payments with respect to such Trust Student Loans. If a Student
Loan becomes ineligible for reinsurance by the Department due to a failure by
the Servicer or any prior holder of such Trust Student Loan to follow the
required procedures for the origination and servicing of such Trust Student
Loan, the Guarantee Agency's obligation to make Guarantee Payments with
respect to such Student Loan may be adversely affected. Loss of any Program
Payments could adversely affect the amount of Available Funds for any
Collection Period and the Trust's ability to pay principal and interest on the
related Notes and distributions in respect of the Certificate Balance of and
return on the Certificates.
Under certain circumstances, each Trust has the right, pursuant to the
related Sale Agreement and the related Servicing Agreement, to cause the
Seller to repurchase or substitute, or the Servicer to purchase or substitute,
any Trust Student Loan, if a breach of the representations, warranties or
covenants of the Seller or the Servicer, as the case may be, with respect to
such Trust Student Loan has a material adverse effect on the interest of such
Trust therein and such breach is not cured within any applicable cure period.
In addition, under certain circumstances each Trust has the right, pursuant to
the related Sale Agreement and the related Servicing Agreement, to cause the
Seller or the Servicer, as the case may be, to reimburse such Trust for any
accrued and unpaid Program Payments with respect to a Student Loan as a result
of a breach of the Seller's representations and warranties or the Servicer's
covenants, as the case may be, with respect to such Student Loan. See
"Transfer and Servicing Agreements--Representations and Warranties" and
"Servicing; Administration--Representations and Warranties" and "--Servicer
Covenants." There can be no assurance, however, that the Seller or the
Servicer will have the financial resources to do so. The failure of the Seller
or the Servicer to so repurchase or purchase or substitute a Student Loan or
to so reimburse the Trust would constitute a breach of the related Sale
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Agreement or Servicing Agreement, enforceable by the related Eligible Lender
Trustee on behalf of such Trust or by the related Indenture Trustee on behalf
of the Noteholders of the related series, but would not constitute an Event of
Default under each Indenture or permit the exercise of remedies thereunder.
Effective July 1, 1995, the Department adopted FFELP regulations which,
among other things, establish (i) requirements governing contracts between
holders of Student Loans and third-party servicers, (ii) standards of
administrative and financial responsibility for third-party servicers that
administer any aspect of a guarantee agency's or lender's participation in the
FFELP, and (iii) sanctions and liabilities for third-party servicers.
Under these regulations, a third-party servicer (such as the Servicer) is
jointly and severally liable with its client lenders for liabilities to the
Department arising from the servicer's violation of applicable requirements.
In addition, if the servicer fails to meet standards of financial
responsibility or administrative capability included in the new regulations,
or violates other FFELP requirements, the regulations authorize the Department
to fine the servicer and/or limit, suspend or terminate the servicer's
eligibility to contract to service FFELP Loans. The effect of such a
limitation or termination on the servicer's eligibility to service loans
already on its system, or to accept new loans for servicing under existing
contracts, is unclear. If the Servicer were fined or held liable by the
Department for liabilities arising out of its FFELP activities for the Trust
or other client lenders, or its eligibility were limited, suspended or
terminated, its ability to properly service the Trust Student Loans and to
satisfy its obligation to purchase loans with respect to which it had breached
its representations, warranties or covenants under the related Servicing
Agreement could be adversely affected. However, in the event of a termination
of eligibility, each Servicing Agreement will provide for the removal of the
Servicer and the appointment of a substitute servicer. The Servicer will also
agree in each Servicing Agreement to hold the related Trust harmless for
liabilities of the related Trust to the Department arising from any violation
by the Servicer of applicable requirements.
Variability of Actual Cash Flows; Inability of Related Indenture Trustee to
Liquidate Student Loans. Amounts received with respect to the Student Loans
for a particular Collection Period may vary greatly in both timing and amount
from the payments actually due on the Student Loans as of such Collection
Period for a variety of economic, social and other factors, including both
individual factors, such as additional periods of deferral or forbearance
prior to or after a borrower's commencement of repayment, and general factors,
such as a general economic downturn which could increase the amount of
defaulted Student Loans. Failures by borrowers to pay timely the principal and
interest on the Student Loans will affect the amount of Available Funds on a
Distribution Date, which may reduce the distributions made to the
Securityholders on such Distribution Date. Moreover, failures by borrowers of
student loans generally to pay timely the principal and interest due on such
student loans could obligate the respective Guarantee Agency to make payments
thereon, which could adversely affect the solvency of the Guarantee Agency and
its ability to meet its guarantee obligations (including with respect to the
Trust Student Loans) in a timely manner. The inability of any Guarantee Agency
to meet its guarantee obligations in a timely manner could reduce the
distributions made to the Securityholders on a Distribution Date. The effect
of such factors, including the effect on a Guarantee Agency's ability to meet
its guarantee obligations with respect to the Trust Student Loans in a timely
manner or a Trust's ability to make distributions with respect to the
Securities, is impossible to predict. See "--Financial Status of Guarantee
Agencies."
If an Event of Default occurs under the related Indenture, subject to
certain conditions, the related Indenture Trustee is authorized, without the
consent of the Certificateholders of the related series, to sell the Trust
Student Loans. There can be no assurance, however, that the related Indenture
Trustee will be able to find a purchaser for the Trust Student Loans in a
timely manner or that the market value of such Student Loans will be equal to
the outstanding principal of and accrued interest on the Notes and the
Certificate Balance of and accrued return on the Certificates.
The Omnibus Reconciliation Act of 1993 (the "1993 Act") made certain changes
to the FFELP and also provided for the implementation of a direct student loan
program ("DSLP") pursuant to which the Department makes loans directly to
students and parents, which program by statute is scheduled to replace at
least 60% of
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the FFELP by the 1998-1999 academic year. These changes may adversely affect
the secondary market for Student Loans and may thus adversely affect the
Indenture Trustee's ability to sell the Trust Student Loans upon the
occurrence of an Event of Default. If the proceeds of any such sale, together
with amounts then available in any Reserve Account or other account held by a
Trust or pursuant to any other credit enhancement specified as being available
therefor in the related Prospectus Supplement, do not exceed the aggregate
outstanding principal amount of Notes and accrued interest thereon, the
Noteholders of the related series will suffer a loss. In such circumstances,
the Certificateholders, to the extent the Certificates of such series are
subordinated to the Notes of such series, will also suffer a loss.
Furthermore, even if the proceeds of any such sale were sufficient to pay the
aggregate outstanding principal amount of the Notes and accrued interest
thereon, there can be no assurance that the Certificates, to the extent the
Certificates of such Series are subordinated to the Notes of such Series,
would not suffer a loss.
Financial Status of Guarantee Agencies. The Act requires all Student Loans
to be unsecured. As a result, the only sources of security for payment of the
Student Loans are the Guarantee Agreements between the related Eligible Lender
Trustee and the Guarantee Agencies. Student Loans acquired by a Trust will be
subject to Guarantee Agreements with a number of separate Guarantee Agencies.
The Guarantee Agreements will be several, not joint, obligations of the
Guarantee Agencies and no Guarantee Agency will be obligated to guarantee or
otherwise make payment in respect of Trust Student Loans guaranteed by another
Guarantee Agency. A deterioration in the financial status of the Guarantee
Agencies and their ability to honor guarantee claims with respect to the Trust
Student Loans could result in a failure of such Guarantee Agencies to make
Guarantee Payments to the related Eligible Lender Trustee in a timely manner.
One of the primary causes of a possible deterioration in a Guarantee Agency's
financial status would be an increase in the amount and percentage of
defaulting Student Loans guaranteed by a Guarantee Agency. Another factor
affecting the Guarantee Agencies' financial status is the 1993 reduction of
the Guarantee Agencies' one-time insurance fees charged to students from up to
3% to up to 1% of the principal amount guaranteed on a student loan. In
addition, as of October 1, 1993, the Act reduced the level of debt collections
on defaulted student loans the Guarantee Agencies may retain from 30% to 27%.
Moreover, to the extent that reimbursement claims submitted by a Guarantee
Agency for any fiscal year exceed certain specified levels, the Department's
obligation to reimburse the Guarantee Agency for losses will be reduced on a
sliding scale from 100% or 98%, as applicable, to a minimum of 80% or 78%, as
applicable. There can be no assurance that any Guarantee Agency will have the
financial resources to make all Guarantee Payments in a timely manner to a
given Trust in respect of the related Trust Student Loans.
Pursuant to the Higher Education Amendments of 1992 (the "1992 Amendments"),
under Section 432(o) of the Act, if the Department has determined that a
Guarantee Agency is unable to meet its insurance obligations, the loan holder
may submit claims directly to the Department and the Department is required to
pay the full Guarantee Payment due with respect thereto in accordance with
guarantee claim processing standards no more stringent than those of the
Guarantee Agency. However, the Department's obligation to pay guarantee claims
directly in this fashion is contingent upon the Department making the
determination referred to above. There can be no assurance that the Department
would make such a determination with respect to a Guarantee Agency or, if such
a determination was made, whether such determination or the ultimate payment
of such guarantee claims would be made in a timely manner. See "Appendix A--
The Federal Family Education Loan Program--Guarantee Agencies" and "--Federal
Insurance and Reinsurance of Guarantee Agencies."
Change in Law. There can be no assurance that the Higher Education Act or
other relevant federal or state laws and rules and regulations and the
programs implemented thereunder will not be amended or modified in the future
in a manner that will adversely impact the programs described in this
Prospectus and the guaranteed student loans made thereunder, including the
Student Loans, or the Guarantee Agencies. In addition, existing legislation
and future measures to reduce the federal budget deficit or for other purposes
may adversely affect the amount and nature of federal financial assistance
available with respect to these programs. In recent years, federal budget
legislation has provided for the recovery of certain funds held by Guarantee
Agencies in order to achieve reductions in federal spending. There can be no
assurance that future federal budget legislation or administrative actions
will not adversely affect expenditures by the Department or the financial
condition of the Guarantee Agencies.
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The 1993 Act implemented a number of changes to the FFELP, including
imposing certain fees on lenders or holders of guaranteed student loans,
reducing the interest payable to holders of Consolidation Loans and reducing
the Department's financial assistance to Guarantee Agencies, including
reducing the percentage of claims the Department will reimburse to the
Guarantee Agencies and reducing the premiums and default collections that
Guarantee Agencies are entitled to receive and/or retain. The implementation
of the DSLP will cause reductions in the volume of FFELP Loans that might have
otherwise been originated but for the DSLP. As these reductions continue, the
Servicer may experience increased costs due to reduced economies of scale to
the extent the volume of new loans serviced by the Servicer is reduced and may
experience other adverse business consequences. Such volume decreases and cost
increases could affect the ability of Sallie Mae, the Seller or the Servicer
to satisfy their respective obligations to purchase Student Loans in the event
of certain breaches of representations and warranties in the Purchase
Agreements or of covenants in the Servicing Agreements. See "Transfer and
Servicing Agreements--Purchase of Student Loans by the Seller; Representations
and Warranties of Sallie Mae" and "Servicing--Servicer Covenants." Such volume
reductions and other changes effected by the 1993 Act may have a material
adverse effect on the revenues received by the Guarantee Agencies that are
available to pay claims on defaulted Student Loans in a timely manner.
Subordination; Limited Assets. To the extent specified in the related
Prospectus Supplement, distributions in respect of the Certificate Balance of
and return on the Certificates of a series may be subordinated in priority of
payment to interest and principal due on the Notes of such series and some
classes of Notes may be subordinated to others. Moreover, each Trust will not
have, nor is it permitted or expected to have, any significant assets or
sources of funds other than the related Trust Student Loans and, to the extent
provided in the related Prospectus Supplement, a Reserve Account and any other
credit or cash flow enhancement. The Notes of any series will represent
obligations solely of, and the Certificates of such series will represent
beneficial interests solely in, the related Trust and neither the Notes nor
the Certificates of such series will be obligations of or interests in, or
insured or guaranteed by Sallie Mae, the Seller, the Servicer, the applicable
Eligible Lender Trustee, the applicable Indenture Trustee or any other person
or entity. Consequently, holders of the Securities of any series must rely for
repayment upon payments on the related Trust Student Loans and, if and to the
extent available, amounts on deposit in the Reserve Account (if any) and any
other credit or cash flow enhancement, all as specified in the related
Prospectus Supplement.
Maturity and Prepayment Assumptions. All the Student Loans are prepayable at
any time without penalty. For this purpose the term "prepayments" includes
prepayments in full or in part (including pursuant to Consolidation Loans) and
liquidations due to default (including receipt of Guarantee Payments). The
rate of prepayments on the Student Loans may be influenced by a variety of
economic, social and other factors affecting borrowers, including interest
rates and the availability of alternative financing. In addition, under
certain circumstances, the Seller or the Servicer will be obligated to
purchase or substitute Student Loans from the Trust pursuant to the related
Sale Agreement or Servicing Agreement, as the case may be, as a result of
breaches of their respective representations, warranties or covenants. See
"Transfer and Servicing Agreements--Sale of Student Loans to the Trust"; "--
Representations and Warranties of the Seller" and "Servicing; Administration--
Servicer Covenants." Moreover, to the extent borrowers elect to refinance
Trust Student Loans under Consolidation Loans through Sallie Mae or another
FFELP lender or through the Department under the Federal Direct Consolidation
Loan Program at any time, Noteholders and Certificateholders will, to the
extent described in the related Prospectus Supplement, collectively receive as
a prepayment of principal on the Notes and the Certificate Balance of the
Certificates the aggregate principal amount of such Trust Student Loans. There
can be no assurance that borrowers with Trust Student Loans will not seek to
obtain Consolidation Loans through Sallie Mae or another FFELP lender or
Federal Direct Consolidation Loans through the Department with respect to such
Trust Student Loans. Sallie Mae may solicit borrowers of Trust Student Loans
to elect to refinance such Trust Student Loans with Consolidation Loans from
Sallie Mae. See "Appendix A--The Federal Family Education Loan Program." In
addition, the Federal Direct Consolidation Loan Program is expected to provide
borrowers with the opportunity to consolidate outstanding student loans at
interest rates that may be below, and upon income-contingent repayment terms
that some borrowers may find preferable to, those that would be available
under the terms of the borrowers' existing Student Loans or under the federal
Consolidation Loan
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program. The availability of such lower-rate, income-contingent loans may
increase the likelihood that a Trust Student Loan will be prepaid from the
proceeds of a Federal Direct Consolidation Loan. The volume of existing loans
that may be prepaid in this fashion is not determinable at this time.
If and to the extent provided in the related Prospectus Supplement, a Trust
may elect to offer Consolidation Loans to borrowers with Trust Student Loans.
The making of Consolidation Loans by a Trust could increase the average life
of the related Notes and Certificates and reduce the effective yield on
Student Loans included in the Trust.
As discussed under "Servicing; Administration--Accounts," a portion of the
funds on deposit in the Reserve Account may, if so provided in the related
Prospectus Supplement, be invested in Eligible Investments which mature
subsequent to the next succeeding Distribution Date. Accordingly, the amount
of cash in the Reserve Account at any time may be less than the balance of the
Reserve Account. If the amount required to be withdrawn from the Reserve
Account to cover shortfalls in the amount of funds needed on a Distribution
Date to make required payments to Securityholders exceeds the amount of cash
in the Reserve Account, a temporary shortfall in the amounts distributed to
the Noteholders or the Certificateholders could result. This could, in turn,
increase the average life of the Notes and the Certificates.
Scheduled payments with respect to, and maturities of, the Student Loans may
be extended, including pursuant to Grace Periods, Deferment Periods and, under
certain circumstances, Forbearance Periods, which may lengthen the remaining
term of the Student Loans and the average life of the Notes and the
Certificates. See "Appendix A--The Federal Family Education Loan Program." In
addition, Sallie Mae makes available to certain borrowers with Student Loans
held by it certain payment terms which may result in the lengthening of the
remaining term of the Student Loans. For example, not all of the loans owned
by Sallie Mae provide for level payments throughout the repayment term of the
loan. Pursuant to Sallie Mae's graduated payment program, certain Student
Loans provide for interest payments only to be made for a designated portion
of the term of the loan, with amortization of the principal of such loan only
occurring when payments increase in the latter stage of the term of the loan.
Other loans provide for a "graduated phase in" of the amortization of
principal with a greater portion of principal amortization being required in
the latter stages than would be the case if amortization were on a level
payment basis. Sallie Mae also offers an income-sensitive repayment plan,
pursuant to which repayments are based on the borrower's income. Under that
plan, ultimate repayment may be delayed up to five years. Student Loans having
such payment terms will be included in the Trusts to the extent described in
the related Prospectus Supplement. Borrowers with Trust Student Loans will
continue to be eligible for such graduated payment and income-sensitive
repayment plans. See "The Student Loan Pools--Sallie Mae's Student Loan
Financing Business."
Any reinvestment risks resulting from a faster or slower incidence of
prepayment of Student Loans will be borne entirely by the Noteholders and the
Certificateholders. See also "Formation of the Trusts--Insolvency Event"
regarding the sale of the Student Loans if an Insolvency Event occurs with
respect to the Seller and "Formation of the Trusts--Termination" regarding the
Servicer's option to purchase the Student Loans.
At its option, the Seller may purchase or arrange for the purchase of all
remaining Trust Student Loans and other assets of a Trust from the related
Eligible Lender Trustee, and thereby effect early retirement of the related
Notes and Certificates, as of the end of any Collection Period immediately
preceding a Distribution Date, if the then outstanding Pool Balance of the
Trust is 10% or less of the Initial Pool Balance of such Trust. In addition,
unless otherwise provided for in the related Prospectus Supplement, any Trust
Student Loans remaining in a Trust as of the end of the Collection Period
immediately preceding the Trust Auction Date specified in the related
Prospectus Supplement will be offered for sale by the Indenture Trustee by
auction in accordance with the procedure described therein. See "Formation of
the Trusts--Termination" herein. Either such event would result in the early
retirement of the Securities then outstanding and reduce their average lives.
Securityholders should consider, in the case of Notes or Certificates, as
the case may be, purchased at a discount, the risk that a slower than
anticipated rate of principal payments on the Student Loans could result in
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an actual yield that is less than the anticipated yield and, in the case of
Notes or Certificates, as the case may be, purchased at a premium, the risk
that a faster than anticipated rate of principal payments on the Student Loans
could result in an actual yield that is less than the anticipated yield. See
"Trading Information--Weighted Average Life of the Securities."
Incentive Programs. Certain incentive programs currently or hereafter made
available by Sallie Mae to borrowers may also be made available by the
Servicer to borrowers with Trust Student Loans. Any such incentive program
that effectively reduces borrower payments or principal balances on Trust
Student Loans and is not required by the Act will be applicable to the Trust
Student Loans only if and to the extent that the Servicer receives payment
from Sallie Mae in an amount sufficient to offset such effective yield
reductions. To the extent that the Servicer makes such benefits available to
borrowers with Trust Student Loans, the effect of such benefits may be faster
amortization of principal of the affected Trust Student Loans. See "The
Student Loan Pools--Sallie Mae's Student Loan Financing Business--Incentive
Programs."
Risk of Commingling. With respect to each Trust, except as provided below,
the Servicer will deposit all payments on the related Trust Student Loans
(from whatever source) and all proceeds of such Trust Student Loans collected
during each Collection Period into the Collection Account of such Trust within
two business days of receipt thereof. However, for so long as (i) the senior
unsecured obligations of the Administrator have been assigned a long-term
rating of not less than "AA-" (or equivalent rating) or a short-term rating of
not less than "A-1" (or equivalent rating) by each of the Rating Agencies (as
defined in the related Prospectus Supplement, the "Rating Agencies") or the
remitting by the Servicer of all amounts received with respect to the Trust
Student Loans to the Administrator will not result in a downgrading or
withdrawal of any of the then current ratings of any of the related Securities
by any of the Rating Agencies, (ii) no Administrator Default has occurred and
is continuing and (iii) any other condition to making such deposits less
frequently than daily as may be described in the related Prospectus Supplement
is satisfied, the Servicer will remit all such amounts within two business
days of receipt thereof to the Administrator, and the Administrator will remit
all such amounts received from the Servicer to the Collection Account on or
before the business day preceding each Monthly Servicing Payment Date (to the
extent of the Servicing Fee then due) and each Distribution Date, as
applicable. The Administrator will also deposit the amount received as the
Purchase Amount of Student Loans purchased by the Seller or the Servicer into
the applicable Collection Account on or before the business day preceding each
Distribution Date. Pending deposit into such Collection Account, collections
may be invested by the Administrator at its own risk and for its own benefit
and will not be segregated from funds of the Administrator, or as described in
the Prospectus Supplement. If the Administrator were unable to remit such
funds, the applicable Securityholders might incur a loss. To the extent set
forth in the related Prospectus Supplement, the Administrator may, in order to
satisfy the requirements described above, obtain a letter of credit or other
security for the benefit of the related Trust to secure timely remittances of
collections on the related Trust Student Loans and payment of the aggregate
Purchase Amount with respect to Student Loans purchased by the Seller or the
Servicer. As used herein, "business day" means any day other than a Saturday,
a Sunday or a day on which banking institutions or trust companies in The City
of New York are authorized or obligated by law, regulation or executive order
to remain closed.
Servicer Default. In the event a Servicer Default occurs, the Indenture
Trustee or the Noteholders with respect to a given series of Securities, as
described under "Servicing; Administration--Rights upon Servicer Default," may
remove the Servicer without the consent of the Eligible Lender Trustee or any
of the Certificateholders with respect to such series, or as set forth in the
related Prospectus Supplement. Moreover, only the Indenture Trustee or the
Noteholders with respect to such series, and not the Eligible Lender Trustee
or the Certificateholders, have the ability to remove the Servicer if a
Servicer Default occurs. In the event of the removal of the Servicer and the
appointment of a successor servicer, no assurance can be given as to (i) the
cost of the transfer of servicing to such successor, (ii) the ability of such
successor to perform the obligations and duties of the Servicer under the
Servicing Agreement or (iii) servicing fees charged by such successor. In
addition, the Noteholders with respect to such series have the ability, with
certain specified exceptions, to waive defaults by the Servicer, including
defaults that could materially adversely affect the Certificateholders with
respect to such series. See "Servicing; Administration--Waiver of Past
Defaults."
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Certain Legal Aspects. The Seller has taken steps in structuring the
transactions contemplated hereby that are intended to ensure that the
voluntary or involuntary application for relief by Sallie Mae under the United
States Bankruptcy Code or other insolvency laws ("Insolvency Laws") will not
result in consolidation of the assets and liabilities of the Seller with those
of Sallie Mae. These steps include the creation of the Seller as a separate,
limited-purpose subsidiary of Sallie Mae pursuant to a certificate of
incorporation containing certain limitations (including restrictions on the
nature of the Seller's business and a restriction on the Seller's ability to
commence a voluntary case or proceeding under any Insolvency Law without the
prior unanimous affirmative vote of all of its directors, including at least
one director who must be independent of the Seller and its affiliates).
However, there can be no assurance that the activities of the Seller would not
result in a court concluding that the assets and liabilities of the Seller
should be consolidated with those of Sallie Mae in a proceeding under any
Insolvency Law. If a court were to reach such a conclusion or a filing were
made under any Insolvency Law by or against the Seller, or if an attempt were
made to litigate any of the foregoing issues, then delays in distributions on
the Securities could occur or reductions in the amounts of such distributions
could result. See "The Seller."
It is intended by Sallie Mae and the Seller that the transfer of the Student
Loans by Sallie Mae to the Seller constitute a true sale of the Student Loans
to the Seller. If the transfer constitutes such a true sale, the Student Loans
and the proceeds thereof would not be property of Sallie Mae should it become
the subject of any Insolvency Law subsequent to the transfer of the Student
Loans to the Seller.
Sallie Mae will warrant to the Seller in the related Purchase Agreement that
the sale of the Student Loans by Sallie Mae to the Seller is a valid sale of
the Student Loans by Sallie Mae to the Seller. Notwithstanding the foregoing,
if Sallie Mae were to become subject to an Insolvency Law and a creditor or
trustee-in-bankruptcy of Sallie Mae or Sallie Mae itself were to take the
position that the sale of Student Loans by Sallie Mae to the Seller should
instead be treated as a pledge of such Student Loans to secure a borrowing of
Sallie Mae, delays in payments of collections of Student Loans to the related
Securityholders could occur or (should the court rule in favor of Sallie Mae
or such trustee or creditor) reductions in the amounts of such payments could
result. If the transfer of Student Loans by Sallie Mae to the Seller is
treated as a pledge instead of a sale, a tax or government lien on the
property of Sallie Mae arising before the transfer of such Student Loans to
the Seller may have priority over such Trust's interest in such Student Loans.
If an Insolvency Event occurs with respect to the Seller, the Trust Student
Loans will be liquidated and each Trust will be terminated 90 days after the
date of such Insolvency Event or as otherwise specified in the related
Prospectus Supplement. The proceeds from any such sale, disposition or
liquidation of Trust Student Loans will be treated as collections on the Trust
Student Loans and deposited in the Collection Account of each such Trust. If
the proceeds from the liquidation of the Trust Student Loans and any amounts
on deposit in the Reserve Account (if any) with respect to any Trust and any
amounts available from any credit enhancement, if any, are not sufficient to
pay the Notes and/or Certificates of the related series in full, the
distributions of principal to Noteholders and/or Certificate Balance to
Certificateholders will be reduced and Noteholders and/or Certificateholders
will incur a loss. See "Servicing; Administration--Insolvency Event."
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon lenders and servicers involved in
consumer finance. Also, unless preempted by Federal law, some state laws
impose finance charge ceilings and other restrictions on certain consumer
transactions and require contract disclosures in addition to those required
under federal law. These requirements impose specific statutory liability that
could affect an assignee's ability to enforce consumer finance contracts such
as the Student Loans. In addition, the remedies available to the related
Indenture Trustee or the Noteholders of the related series upon an Event of
Default under the Indenture may not be readily available or may be limited by
applicable state and federal laws.
Book-Entry Registration. Except as otherwise provided in the related
Prospectus Supplement, each class of the Notes and the Certificates of a given
series will be initially represented by one or more certificates registered in
the name of Cede & Co. ("Cede"), or any other nominee for DTC set forth in the
related Prospectus
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Supplement (Cede, or such other nominee, "DTC's Nominee"), and will not be
registered in the names of the holders of the Securities of such series or
their nominees. Because of this, unless and until Definitive Securities for
such series originally issued in book entry form are issued, holders of such
Securities will not be recognized by the applicable Indenture Trustee or
Eligible Lender Trustee as "Noteholders," "Certificateholders" or
"Securityholders," as the case may be (as such terms are used herein or in the
related Indenture and Trust Agreement, as the case may be). Hence, unless and
until Definitive Securities are issued, holders of such Securities will be
able to exercise the rights of Securityholders only indirectly through DTC or,
if applicable, Cedel or Euroclear and their respective participating
organizations. See "Certain Information Regarding the Securities--Book-Entry
Registration" and "--Definitive Securities."
Limited Liquidity. There can be no assurance that a secondary market for the
Notes or the Certificates will develop or, if it does develop, that it will
provide a Noteholder or a Certificateholder with liquidity of investment or
will continue for the life of the Notes or the Certificates. The related
Prospectus Supplement will indicate whether any of the underwriters identified
therein intends to make a secondary market in the Notes or the Certificates
offered thereby. No underwriter will be obligated to make any such secondary
market.
Rating. The related Prospectus Supplement will specify any condition that
the Notes and Certificates offered thereby be rated by one or more Rating
Agencies. A security rating is not a recommendation to buy, sell or hold
securities and may be revised or withdrawn at any time by the assigning Rating
Agency. A security rating of the Notes or Certificates does not address the
likelihood of prepayment of the Student Loans.
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SALLIE MAE
Sallie Mae was chartered by an Act of Congress in 1972 as a for-profit,
stockholder-owned corporation to provide a national secondary market for
federally sponsored student loans and as a source of credit to participants in
the post-secondary education lending sector. Sallie Mae also engages in other
credit, service and investment operations related to higher education finance.
The corporation's structure and the scope of its business activities are set
forth in Section 439, Part B, Title IV of the Act. These provisions of the
Act, including Sallie Mae's charter, are subject to legislative change from
time to time. See "The Student Loan Pools--Sallie Mae's Student Loan Financing
Business."
On September 30, 1996, the Student Loan Marketing Association Reorganization
Act of 1996 (the "Privatization Act") was enacted. The Privatization Act
authorized the creation of a state-chartered holding company (the "Holding
Company") that can pursue new business opportunities beyond the limited scope
of Sallie Mae's restrictive federal charter. The Holding Company would become
the parent of Sallie Mae pursuant to a reorganization (the "Reorganization").
On July 31, 1997, at a Special Meeting of Shareholders convened pursuant to
a combined proxy Statement/Prospectus filed with the Securities and Exchange
Commission, Sallie Mae shareholders voted to approve the Reorganization, which
was consummated on August 7, 1997. Pursuant to the Reorganization, Sallie Mae
has transferred or will transfer certain assets, including stock in Sallie Mae
Servicing Corporation, to the Holding Company. As required by the
Privatization Act, all Sallie Mae employees have been transferred to the
Holding Company or one of its subsidiaries that is not a government sponsored
enterprise ("GSE"). During the wind-down period, it is expected that Sallie
Mae operations, including its obligations as Administrator for the Trusts,
will be managed by Sallie Mae's non-GSE affiliates.
The terms of the Notes and the Certificates may exceed the projected date of
the termination of Sallie Mae's federal charter and its GSE status. Prior to
the termination of Sallie Mae's federal charter, Sallie Mae's obligations
under the Transfer and Servicing Agreements, including its obligation to
repurchase non-qualifying loans from the Seller under the Purchase Agreement
and its obligations under the Administration Agreement, will be transferred to
an affiliate of Sallie Mae. See "Transfer and Servicing Agreements--Purchase
of Student Loans by the Seller; Representations and Warranties of Sallie Mae"
and "Servicing; Administration--Administration Agreement."
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THE STUDENT LOAN POOLS
General
The Student Loans to be sold by the Seller to an Eligible Lender Trustee on
behalf of a Trust pursuant to the related Sale Agreement will be purchased by
the Seller from Sallie Mae pursuant to the related Purchase Agreement out of
the portfolio of Student Loans held by Sallie Mae. The Student Loans will be
required to meet several criteria, including that, each Student Loan (i) is
guaranteed as to principal and interest by a Guarantee Agency (and that
Guarantee Agency is in turn reinsured by the Department in accordance with the
terms of the FFELP), (ii) was originated in accordance with the FFELP, (iii)
contains terms in accordance with those required by the FFELP, the applicable
Guarantee Agreements and other applicable requirements, (iv) provides that
periodic payments must be made in order to fully amortize the amount financed
over its term to maturity (exclusive of any deferral or forbearance periods)
and (v) satisfies the other criteria, if any, set forth in the related
Prospectus Supplement.
Legal title to the Student Loans that comprise assets of each Trust will be
held by the related Eligible Lender Trustee, as trustee on behalf of such
Trust. The Eligible Lender Trustee will also enter into, on behalf of such
Trust, Guarantee Agreements with the Guarantee Agencies specified in the
applicable Prospectus Supplement pursuant to which each of the Student Loans
will be guaranteed by one of such Guarantee Agencies. See "Formation of the
Trusts--Eligible Lender Trustee."
Information with respect to each pool of Student Loans for a given Trust
will be set forth in the related Prospectus Supplement, including, to the
extent appropriate, the distribution by loan type, school type, loan payment
status, interest rate basis, remaining term to maturity and states of
origination and the portion of such Student Loans guaranteed by the specified
Guarantee Agencies.
Sallie Mae's Student Loan Financing Business
As described below, Sallie Mae is principally engaged in the purchase of
student loans insured under federally sponsored programs ("insured loans") and
the making of secured loans ("warehousing advances") to providers of education
credit. These federally sponsored programs were significantly changed by the
Higher Education Amendments of 1992 (the "1992 Act"), which became law on July
23, 1992, and by the Omnibus Budget Reconciliation Act of 1993 (the "1993
Act"), which became law on August 10, 1993. See "Appendix A--The Federal
Family Education Loan Program."
Loan Purchases. Sallie Mae purchases Stafford Loans, SLS Loans and PLUS
Loans originated under the FFELP, all of which are insured by Guarantee
Agencies and reinsured by the Department. Sallie Mae also originates
Consolidation Loans and loans as a lender of last resort. These various
federal loan programs are more fully described in Appendix A. Sallie Mae also
purchases Non-FFELP Loans, such as loans originated under the Health Education
Assistance Program ("HEAL"), which are insured directly by the United States
Department of Health and Human Services, and loans which are privately insured
by entities other than Guarantee Agencies and not reinsured by the Federal
government. Unless otherwise specified in the related Prospectus Supplement,
"Student Loans" refers to FFELP Loans.
Sallie Mae purchases insured loans from commercial banks, savings and loan
associations, mutual savings banks, credit unions, certain pension funds and
insurance companies, educational institutions, and state and private nonprofit
loan originating and secondary market agencies.
Traditionally, Sallie Mae has purchased most loans just prior to their
conversion to repayment phase after borrowers graduate or otherwise leave
school. However, Sallie Mae also buys "in-school" loans and those in
repayment. Sallie Mae or one of its servicing agents generally assumes
responsibility for the servicing of loans after purchase.
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In addition to buying loans on an immediate basis, Sallie Mae enters into
commitment contracts to purchase loans over a specified period of time. Most
lenders using the secondary market for student loans hold loans while
borrowers are in school and sell loans shortly before their conversion to
repayment status, when servicing costs and risks increase significantly.
Sallie Mae offers these lenders commitment contracts, under which lenders have
the right or, in some cases, the obligation, to sell Sallie Mae a specified
principal amount of loans, at a price based on certain loan characteristics,
over a specified term, usually two to three years. These commitment contracts
generally entail no fee to the lender.
In conjunction with commitment contracts, Sallie Mae frequently provides the
selling institution with operational support in the form of an automated loan
administration system (PortSS (Registered)), for the lender to use prior to
loan sale or in the form of loan origination, and interim servicing provided
through one of Sallie Mae's loan servicing centers (ExportSS (Registered)).
Both PortSS and ExportSS provide Sallie Mae and the lender with the assurance
that the loans will be administered by Sallie Mae's computerized servicing
systems. During 1997, most of Sallie Mae's loan purchases were effected
pursuant to purchase commitments, and more than half of that volume came from
users of PortSS and ExportSS.
Servicing. Prior to the purchase by Sallie Mae of loans from a lender, the
Servicer or a third party servicing agent surveys appropriate loan documents
for compliance with Department and Guarantee Agency requirements. Once
acquired, loans are serviced through the Servicer or through third-party
servicers under contractual agreements with Sallie Mae. Sallie Mae's Loan
Servicing Centers ("LSCs") service the great majority of student loans owned
by Sallie Mae. The LSCs are located in Florida, Kansas, Pennsylvania and
Texas. Sallie Mae employs third-party servicers to service the remainder of
its student loans. A very small minority are serviced by lenders who, for a
fee, retained the servicing of loans sold to Sallie Mae.
The Department and the various Guarantee Agencies prescribe rules and
regulations which govern the servicing of federally insured loans. These rules
and regulations include specific procedures for contacting delinquent
borrowers, locating borrowers who can no longer be contacted at their
documented address or telephone number, and filing claims for reimbursement on
loans in default. Payments under a Guarantee Agency's loan guarantee require
strict adherence to these stated due diligence and collection procedures.
Regulations require that collection efforts commence within ten days of any
delinquency and continue for the period of delinquency until the loan is
deemed to be in default status. During the delinquency period, the holder of
the loan must diligently attempt to contact the borrower, in writing and by
telephone, at specified intervals. A loan under the FFELP generally is not
considered to be in default until it is 180 days delinquent.
A Guarantee Agency may reject any claim for payment under a Guarantee
Agreement if the specified due diligence and collection procedures under such
Guarantee Agreement have not been strictly followed and documented or if the
claim is not timely filed. Minor errors in due diligence may result in the
imposition of interest penalties, rather than a complete loss of the
guarantee. In instances in which a claim for payment under a Guarantee
Agreement is denied due to servicing or claim-filing errors, the guaranteed
status of the affected Student Loans may be reinstated by following specified
procedures ("curing the defect"). Interest penalties are commonly incurred on
loans that are cured. As of June, 1998, Sallie Mae's recent experience has
been that approximately 90 percent of all rejected claims are cured within two
years, either internally or through collection agencies.
Sallie Mae's internal procedures support compliance with Department and
Guarantee Agency regulations and reporting requirements and provide high
quality service to borrowers. Sallie Mae has developed a computerized loan
servicing system, CLASS, which monitors all student loans serviced by the
LSCs. The CLASS system identifies loans which require due diligence or other
servicing procedures and disseminates the necessary loan information to
initiate the servicing or collection process. The CLASS system enables Sallie
Mae to service a high volume of loans in a manner consistent with industry
requirements. Sallie Mae also requires its
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third-party servicers to maintain operating procedures which comply with
applicable Department and Guarantee Agency regulations and reporting
requirements and periodically reviews certain operations for such compliance.
Consolidation/Repayment Programs. Consolidation and repayment programs made
available by Sallie Mae to Student Loan borrowers will continue to be made
available to borrowers with Student Loans owned by the Trusts. Currently,
Sallie Mae has elected not to participate in the Consolidation Loan Program.
However, if Sallie Mae elects to participate in the Consolidation Loan Program
in the future, the Transfer and Servicing Agreements (as defined herein) may
permit Sallie Mae to purchase Student Loans from the Trust to effect
consolidations at the request of borrowers. See "Appendix A--The Federal
Family Education Loan Program--The Consolidation Loan Program." In addition,
Sallie Mae offers certain borrowers with Student Loans held by it loan
repayment terms which do not provide for level payments over the repayment
term of the loan.
For example, pursuant to Sallie Mae's graduated repayment program, certain
Student Loans provide for an "interest only" period. During such period, the
borrower is required to make payment of accrued interest only; no payment of
the principal of the loan is required during such period. At the conclusion of
the "interest only" period, such loan is required to be amortized through
level payments over the remaining term of the loan.
In other cases, Sallie Mae offers certain borrowers a "graduated phased in"
amortization of the principal of the loans. For such loans, a greater portion
of the principal amortization of the loan is required in the later stages of
the loan than would be the case if amortization were on a level payment basis.
Sallie Mae also offers an income-sensitive repayment plan, pursuant to which
repayments are based on the borrower's income. Under the plan, ultimate
repayment may be delayed up to five years.
It cannot be predicted with certainty to what extent borrowers will decide
to participate in the programs described above.
Incentive Programs. Sallie Mae has offered, and intends to continue to
offer, incentive programs to certain Student Loan borrowers. Three such
programs are currently made available by Sallie Mae and may apply to Student
Loans owned by the Trusts. Under the Great RewardsSM program, which is made
available for all Student Loans which enter repayment after July 1993, if a
borrower makes 48 consecutive scheduled payments in a timely fashion, the
effective interest rate charged to the borrower will be permanently reduced by
2% per annum thereafter. Pursuant to the Great ReturnsSM program, a borrower
who makes 24 consecutive scheduled payments in a timely fashion will be
entitled to a reduction in principal of the borrower's Student Loan equal to
any amount over $250 that was paid as part of the borrower's origination fee
(to the extent such fee does not exceed 3% of the principal amount of the
loan). Pursuant to the Direct Repay plan, borrowers who make student loan
payments electronically through automatic monthly deductions from a savings,
checking or NOW account receive a 0.25% effective interest rate reduction as
long as they continue in the Direct Repay plan. It cannot be predicted with
certainty the extent to which borrowers will decide to participate in these
programs.
These incentive programs currently or hereafter made available by Sallie Mae
to borrowers may also be made available by the Servicer to borrowers with
Trust Student Loans. Any such incentive program that effectively reduces
borrower payments or principal balances on Trust Student Loans and is not
required by the Act will be applicable to the Trust Student Loans only if and
to the extent that the Servicer receives payment from Sallie Mae in an amount
sufficient to offset such effective yield reductions.
Delinquencies, Defaults, Claims and Net Losses
Certain information pertaining to delinquencies, defaults, guarantee claims
and net losses with respect to Student Loans is available in the Department's
Loan Programs Data Books (each a "DOE Data Book"). There can be no assurance
that the delinquency, default, claim and net loss experience on any pool of
Student Loans with respect to a given Trust will be comparable to any such
information.
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THE SELLER
The Seller, a wholly-owned subsidiary of Sallie Mae, was incorporated in the
State of Delaware on July 25, 1995. The Seller was organized for limited
purposes, which include purchasing student loans from Sallie Mae and
transferring such student loans to third parties and any activities incidental
to and necessary or convenient for the accomplishment of such purposes. The
principal executive offices of the Seller are located at 777 Twin Creek Drive,
Killeen, Texas 76543. The telephone number of such offices is (817) 554-4500.
The Seller has taken steps in structuring the transactions contemplated
hereby that are intended to prevent any voluntary or involuntary application
for relief by Sallie Mae under any Insolvency Law from resulting in
consolidation of the assets and liabilities of the Seller with those of Sallie
Mae. These steps include the creation of the Seller as a separate, limited-
purpose subsidiary pursuant to a certificate of incorporation containing
certain limitations (including restrictions on the nature of the Seller's
business and a restriction on the Seller's ability to commence a voluntary
case or proceeding under any Insolvency Law without the unanimous affirmative
vote of all of its directors). However, there can be no assurance that the
activities of the Seller would not result in a court concluding that the
assets and the liabilities of the Seller should be consolidated with those of
Sallie Mae in a proceeding under any Insolvency Law.
The Seller has received the advice of its counsel to the effect that,
subject to certain facts, assumptions and qualifications, it would not be a
proper exercise by a court of its equitable discretion to disregard the
separate corporate existence of the Seller and to require the consolidation of
the assets and liabilities of the Seller with the assets and liabilities of
Sallie Mae in the event of the application of any Insolvency Laws to Sallie
Mae. Among other things, it is assumed by counsel that the Seller will follow
certain procedures in the conduct of its affairs, including maintaining
records and books of accounts separate from those of Sallie Mae, refraining
from commingling its assets with those of Sallie Mae and refraining from
holding itself out as having agreed to pay, or being liable for, the debts of
Sallie Mae. The Seller intends to follow and has represented to such counsel
that it will follow these and other procedures related to maintaining its
separate corporate identity. However, there can be no assurance that a court
would not conclude that the assets and liabilities of the Seller should be
consolidated with those of Sallie Mae. If a court were to reach such a
conclusion, or a filing were made under any Insolvency Law by or against the
Seller, or if an attempt were made to litigate any of the foregoing issues,
delays in distributions on the Notes and the Certificates could occur or
reductions in the amounts of such distributions could result.
It is intended by Sallie Mae and the Seller that the transfer of the Student
Loans by Sallie Mae to the Seller under the Purchase Agreements constitute a
"true sale" of the Student Loans to the Seller. If the transfer constitutes
such a "true sale," the Student Loans and the proceeds thereof would not be
property of Sallie Mae should Sallie Mae become subject to any Insolvency Law
subsequent to the transfer of the Student Loans to the Seller.
It will be a condition to the issuance of Securities by a Trust that the
Seller receives the advice of counsel to the effect that, subject to certain
facts, assumptions and qualifications, in the event Sallie Mae were to become
the subject of a proceeding under any Insolvency Law subsequent to the
transfer of Student Loans to the Seller pursuant to the related Purchase
Agreement, the transfer of the Student Loans by Sallie Mae to the Seller
pursuant to such Purchase Agreement would be characterized as a "true sale" of
the Student Loans by Sallie Mae to the Seller and the Student Loans and the
proceeds thereof would not be property of Sallie Mae under such Insolvency
Law.
The Seller will also represent and warrant to each Trust in the related Sale
Agreement that the sale of the applicable Student Loans by the Seller to the
Eligible Lender Trustee on behalf of such Trust is a valid sale of such
Student Loans. In addition, the Seller, the Eligible Lender Trustee and such
Trust will treat the conveyance by the Seller of the applicable Student Loans
as a sale of such Student Loans by the Seller to the Eligible Lender Trustee
on behalf of such Trust and the Seller and Sallie Mae will take all actions
that are required such that the Eligible Lender Trustee will be treated as the
legal owner of such Student Loans. Notwithstanding the foregoing,
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if the Seller were to become a debtor in a bankruptcy case and a creditor or
trustee in bankruptcy of such debtor or such debtor itself were to take the
position that the sale of Student Loans by the Seller to a Trust should
instead be treated as a pledge of such Student Loans to secure a borrowing of
such debtor, then delays in payments of collections of such Student Loans
could occur or (should the court rule in favor of any such trustee, debtor or
creditor) reductions in the amount of such payments could result. If the
transfer of Student Loans by the Seller to the Eligible Lender Trustee on
behalf of a Trust is treated as a pledge instead of a sale, a tax or
government lien on the property of the Seller arising before the transfer of
Student Loans to the Eligible Lender Trustee on behalf of such Trust may have
priority over such Eligible Lender Trustee's interest in such Student Loans.
If the conveyance by the Seller of the Student Loans is treated as a sale, the
Student Loans would not be a part of the Seller's bankruptcy estate and would
not be available to the Seller's creditors.
FORMATION OF THE TRUSTS
The Trusts
With respect to each series of Securities, the Seller will establish a
separate Trust pursuant to the related Trust Agreement for the transactions
described herein and in the related Prospectus Supplement. The property of
each Trust will consist of (a) a pool of Student Loans, legal title to which
will be held by the related Eligible Lender Trustee on behalf of each Trust,
(b) all funds collected or to be collected in respect thereof (including any
Program Payments with respect thereto) on or after the applicable Cutoff Date,
(c) all moneys and investments on deposit in the Collection Account, any
Reserve Account, any Pre-Funding Account and any other trust accounts, (d)
certain rights under the related Transfer and Servicing Agreements, including
the right of the Seller to cause Sallie Mae or the Servicer to repurchase from
it or substitute Student Loans in certain events, (e) any credit or cash flow
enhancement that may be obtained for the benefit of holders of one or more
classes of the related Securities, and (f) certain rights under the Guarantee
Agreements with Guarantee Agencies. To the extent provided in the applicable
Prospectus Supplement, the Notes will be collateralized by the property of the
related Trust. To facilitate servicing and to minimize administrative burden
and expense, the Servicer will retain possession of the promissory notes
representing the Student Loans and the other documents related thereto as
custodian for each Trust and the related Eligible Lender Trustee.
The principal offices of each Trust and the related Eligible Lender Trustee
will be specified in the applicable Prospectus Supplement.
Eligible Lender Trustee
The Eligible Lender Trustee for each Trust will be specified in the related
Prospectus Supplement. The Eligible Lender Trustee on behalf of the related
Trust will acquire legal title to all the related Trust Student Loans acquired
by the Trust pursuant to the related Sale Agreement and will enter into a
Guarantee Agreement with each of the Guarantee Agencies with respect to such
Student Loans. Each Eligible Lender Trustee will qualify as an eligible lender
and the owner and holder of the related Trust Student Loans for all purposes
under the Act and the Guarantee Agreements. Failure of the Student Loans to be
owned by an eligible lender would result in the loss of any Guarantee Payments
from any Guarantee Agency and any federal assistance with respect to such
Student Loans. See "Appendix A--The Federal Family Education Loan Program--
Eligible Lenders, Borrowers and Institutions" and "--Federal Insurance and
Reinsurance of Guarantee Agencies." An Eligible Lender Trustee's liability in
connection with the issuance and sale of the Notes and the Certificates is
limited solely to the express obligations of the Eligible Lender Trustee set
forth in the related Trust Agreement, Sale Agreement and Servicing Agreement.
An Eligible Lender Trustee may resign at any time, in which event the
Administrator, or its successor, will be obligated to appoint a successor
trustee. The Administrator of a Trust may also remove the Eligible Lender
Trustee if the Eligible Lender Trustee ceases to be or is likely to cease to
be eligible to continue as Eligible Lender Trustee under the related Trust
Agreement or if the Eligible Lender Trustee becomes insolvent. In such
circumstances, the Administrator will be obligated to appoint a successor
trustee. Any resignation or removal of an Eligible Lender Trustee and
appointment of a successor trustee will not become effective until acceptance
of the appointment by the successor trustee.
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Insolvency Event
If an Insolvency Event occurs with respect to the Seller, the Trust Student
Loans will be liquidated and each Trust will be terminated 90 days after the
date of such Insolvency Event, or as otherwise specified in the related
Prospectus Supplement. Promptly after the occurrence of an Insolvency Event
with respect to the Seller, notice thereof is required to be given such
Noteholders and Certificateholders, provided that any failure to give such
required notice will not prevent or delay termination of such Trust. Upon
termination of such Trust, the related Eligible Lender Trustee will direct the
related Indenture Trustee promptly to sell the assets of the Trust (other than
the Trust Accounts) in a commercially reasonable manner and on commercially
reasonable terms. The proceeds from any such sale, disposition or liquidation
of the Student Loans will be treated as collections thereon and deposited in
the related Collection Account. If the proceeds from the liquidation of the
Student Loans and any amounts on deposit in the Reserve Account (if any) and
any other credit or cash flow enhancement specified in the related Prospectus
Supplement as being available therefor are not sufficient to pay the Notes and
the Certificates of a related series in full, the amount of principal returned
to such Noteholders and/or Certificate Balance to such Certificateholders will
be reduced and some or all of such Noteholders and such Certificateholders
will incur a loss.
Each Trust Agreement will provide that the related Eligible Lender Trustee
does not have the power to commence a voluntary proceeding in bankruptcy
relating to such Trust without the unanimous prior approval of all
Certificateholders (excluding the Seller) of the related series and the
delivery to such Eligible Lender Trustee by all Certificateholders (excluding
the Seller) of a certificate certifying that such Certificateholder reasonably
believes that the related Trust is insolvent.
Payment of Notes
Upon the payment in full of all outstanding Notes of a given series and the
satisfaction and discharge of the related Indenture, the Eligible Lender
Trustee will succeed to all the rights of the Indenture Trustee, and the
Certificateholders of such series will succeed to all the rights of the
Noteholders of such series, under the related Sale Agreement, or as otherwise
provided therein.
Seller Liability
Under each Trust Agreement, the Seller will agree to act as the general
partner of the related Trust and to be liable directly to an injured party for
the entire amount of any losses, claims, damages or liabilities (other than in
respect of amounts payable by the Trust on the related Notes or Certificates)
arising out of or based on the arrangement created by such Trust Agreement as
though such arrangement created a partnership under the Delaware Revised
Uniform Limited Partnership Act in which the Seller was a general partner.
Termination
With respect to each Trust, the obligations of the Servicer, the Seller, the
Administrator, the related Eligible Lender Trustee and the related Indenture
Trustee pursuant to the related Transfer and Servicing Agreements (as defined
below) will terminate upon (i) the maturity or other liquidation of the last
related Trust Student Loan and the disposition of any amount received upon
liquidation of any such remaining Trust Student Loan and (ii) the payment to
the Noteholders and the Certificateholders of the related series of all
amounts required to be paid to them pursuant to such Transfer and Servicing
Agreements.
The Seller will be permitted at its option to repurchase from, or arrange
for the purchase from, the related Eligible Lender Trustee, as of the end of
any Collection Period immediately preceding a Distribution Date, if the then
outstanding Pool Balance is 10% or less of the Initial Pool Balance (as
defined in the related Prospectus Supplement), all remaining related Trust
Student Loans at a price equal to the aggregate Purchase Amounts thereof (but
not less than the minimum purchase amount specified in the related Prospectus
Supplement) as of the end of such Collection Period, which amounts will be
used to retire the related Notes and Certificates concurrently therewith, as
set forth in the related Prospectus Supplement. Upon termination of a Trust,
any
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remaining assets of such Trust, after giving effect to any final distributions
to Noteholders and Certificateholders of the related series, will be
transferred to the related Reserve Account and any assets credited to the
related Reserve Account will be transferred to the Seller.
If so provided in the related Prospectus Supplement, any Trust Student Loans
remaining in the Trust as of the end of the Collection Period immediately
preceding the Trust Auction Date specified in the related Prospectus
Supplement will be offered for sale by the Indenture Trustee in accordance
with the auction procedures set forth in the related Prospectus Supplement.
Sallie Mae, its affiliates, the Seller, the Servicer and unrelated third
parties may offer bids to purchase such Trust Student Loans on such Trust
Auction Date, provided that the Seller or any of its affiliates may offer bids
only if the Pool Balance as of the Trust Auction Date is equal to 10% or less
of the Initial Pool Balance.
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TRANSFER AND SERVICING AGREEMENTS
General
The following is a summary of certain terms of each Sale Agreement, pursuant
to which the related Eligible Lender Trustee on behalf of a Trust will
purchase Student Loans from the Seller, and each Purchase Agreement pursuant
to which the Seller will acquire the Student Loans from Sallie Mae. Forms of
each Sale Agreement and Purchase Agreement have been filed as exhibits to the
Registration Statement of which this Prospectus is a part. However, the
summary does not purport to be complete and is qualified in its entirety by
reference to all of the provisions of the Sale Agreements and the Purchase
Agreements. The Purchase Agreements, the Sale Agreements, the Servicing
Agreements and the Administration Agreements are collectively referred to as
the "Transfer and Servicing Agreements."
Purchase of Student Loans by the Seller; Representations and Warranties of
Sallie Mae
On the Closing Date specified with respect to any given Trust in the related
Prospectus Supplement, Sallie Mae will sell and assign to the Seller, without
recourse, its entire interest in the related Trust Student Loans and all
collections received and to be received with respect thereto for the period on
and after the Cutoff Date pursuant to a Purchase Agreement. Each Student Loan
will be identified in schedules appearing as an exhibit to such Purchase
Agreement.
In each Purchase Agreement, Sallie Mae will make certain representations and
warranties with respect to the Student Loans to the Seller, including, among
other things, that (i) each Student Loan, on the date on which transferred to
the Seller, is free and clear of all security interests, liens, charges and
encumbrances and no offsets, defenses or counterclaims have been asserted or
threatened, (ii) the information provided with respect to the Student Loans is
true and correct as of the Cutoff Date, (iii) each Student Loan, at the time
it was acquired by Sallie Mae, complied and, at the Closing Date, complies in
all material respects with applicable federal and state laws and applicable
restrictions imposed by the FFELP or under any Guarantee Agreement and (iv)
each Student Loan, on the date on which transferred to the Seller, is
guaranteed by the applicable Guarantee Agency.
Following the discovery by or notice to Sallie Mae of a breach of any such
representation or warranty Sallie Mae made with respect to any Student Loan in
the Purchase Agreement that has a materially adverse effect on the interest of
the Seller in such Student Loan, unless such breach is cured within the
applicable cure period specified in the related Prospectus Supplement, Sallie
Mae will repurchase such Student Loan from the Seller at a price equal to the
amount required to prepay in full such purchased Student Loan under the terms
thereof including all accrued interest thereon with respect thereto (the
"Purchase Amount"), or as provided in the related Prospectus Supplement, and
the related Trust's interest in any such purchased Trust Student Loan will be
assigned to Sallie Mae or its designee. As to any such Trust Student Loan
required to be purchased by Sallie Mae as provided above, rather than
repurchase such Trust Student Loan, Sallie Mae may, in its sole discretion,
substitute Qualified Substitute Student Loans for such Trust Student Loan. In
addition, unless otherwise specified in the related Prospectus Supplement,
Sallie Mae will be obligated to (a) reimburse the Seller for the shortfall, if
any, between the Purchase Amount of any Qualified Substitute Student Loans and
the Purchase Amount of the Trust Student Loan for which such Qualified
Substitute Student Loans are being substituted as a result of a breach of
Sallie Mae's representations and warranties with respect to such Trust Student
Loan and (b) reimburse the Seller for any accrued interest amounts not
guaranteed by (or required to be refunded to) a Guarantee Agency and/or any
Interest Subsidy Payments or Special Allowance Payments not paid by (or
required to be refunded to) the Department with respect to a Trust Student
Loan as a result of a breach of any such representation or warranty of Sallie
Mae. The repurchase (or substitution) and reimbursement obligations of Sallie
Mae will constitute the sole remedy available to the Seller for any such
uncured breach, provided that the information with respect to the Trust
Student Loans listed on the applicable bill of sale may be adjusted in the
ordinary course of business subsequent to the date of such bill of sale and to
the extent that the aggregate principal balance of such Trust Student Loans is
less than the aggregate principal balance stated on such bill of sale, Sallie
Mae will remit such amount to the Eligible Lender Trustee on behalf of the
Seller. Sallie Mae's repurchase (or
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substitution) and reimbursement obligations are contractual obligations
pursuant to a Purchase Agreement that may be enforced against Sallie Mae, but
the breach of such obligations will not constitute an Event of Default under
the Indenture.
Sale of Student Loans to the Trust; Representations and Warranties of the
Seller
On the Closing Date specified with respect to any given Trust in the related
Prospectus Supplement, the Seller will sell and assign to the related Eligible
Lender Trustee on behalf of such Trust, without recourse, its entire interest
in the Student Loans acquired by the Seller from Sallie Mae pursuant to the
Purchase Agreement and all collections received and to be received with
respect thereto for the period on and after the Cutoff Date pursuant to the
Sale Agreement. Each Student Loan will be identified in schedules appearing as
an exhibit to such Sale Agreement. Each Eligible Lender Trustee will,
concurrently with such sale and assignment, execute, authenticate and deliver
the related Certificates and Notes. The net proceeds received from the sale of
the related Notes and Certificates will be applied to the purchase of the
Student Loans from the Seller.
In each Sale Agreement, the Seller will make certain representations and
warranties with respect to the Student Loans to the related Trust for the
benefit of the Certificateholders and the Noteholders of a given series,
including, among other things, that (i) each Student Loan, on the date on
which transferred to such Trust, is free and clear of all security interests,
liens, charges and encumbrances and no offsets, defenses or counterclaims have
been asserted or threatened, (ii) the information provided with respect to the
Student Loans is true and correct as of the Cutoff Date, (iii) each Student
Loan, at the time it was acquired, complied and, at the Closing Date, complies
in all material respects with applicable federal and state laws (including,
without limitation, the Act, consumer credit, truth in lending, equal credit
opportunity and disclosure laws) and applicable restrictions imposed by the
FFELP or under any Guarantee Agreement and (iv) each Student Loan on the date
on which transferred to the Seller, is guaranteed by the applicable Guarantee
Agency.
Following the discovery by or notice to the Seller of a breach of any such
representation or warranty of the Seller made with respect to any Student Loan
in the Sale Agreement or the Purchase Agreement that has a materially adverse
effect on the interest of the related Trust in such Student Loan, the Seller
will, unless such breach is cured within the applicable cure period specified
in the related Prospectus Supplement, repurchase such Student Loan from the
related Eligible Lender Trustee, as of the first day following the end of the
applicable cure period that is the last day of a Collection Period, at a price
equal to the Purchase Amount, or as set forth in the related Prospectus
Supplement, and the related Trust's interest in any such purchased Trust
Student Loan will be assigned to the Seller or its designee. As to any such
Trust Student Loan required to be purchased by the Seller as provided above,
rather than repurchase such Trust Student Loan, the Seller may, in its sole
discretion, substitute Qualified Substitute Student Loans for such Trust
Student Loan. In addition, unless otherwise specified in the related
Prospectus Supplement, the Seller will be obligated to (a) reimburse the
related Trust for the shortfall, if any, between the Purchase Amount of any
Qualified Substitute Student Loans and the Purchase Amount of the Trust
Student Loan for which such Qualified Substitute Student Loans are being
substituted as a result of a breach of the Seller's representations and
warranties with respect to such Trust Student Loan and (b) reimburse the
related Trust for any accrued interest amounts not guaranteed by (or required
to be refunded to) a Guarantee Agency and/or any Interest Subsidy Payments or
Special Allowance Payments not paid by (or required to be refunded to) the
Department with respect to a Trust Student Loan as a result of a breach of any
such representation or warranty of the Seller. The repurchase (or
substitution) and reimbursement obligations of the Seller will constitute the
sole remedy available to or on behalf of a Trust, the related
Certificateholders and the related Noteholders for any such uncured breach,
provided that the information with respect to the Trust Student Loans listed
on the applicable bill of sale may be adjusted in the ordinary course of
business subsequent to the date of such bill of sale and to the extent that
the aggregate principal balance of such Trust Student Loans is less than the
aggregate principal balance stated on such bill of sale, the Seller will, or
will cause Sallie Mae under the Purchase Agreement to, remit such amount to
the Eligible Lender Trustee. The Seller's repurchase (or substitution) and
reimbursement obligations are contractual obligations pursuant to a Sale
Agreement that may be enforced against the Seller, but the breach of which
will not constitute an Event of Default under the Indenture.
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Custodian of Promissory Notes
To assure uniform quality in servicing and to reduce administrative costs,
the Servicer will be appointed custodian of the promissory notes representing
the Student Loans and any other related documents by the related Eligible
Lender Trustee on behalf of each Trust. The Seller's and the Servicer's
records will reflect the sale and assignment by Sallie Mae of the Student
Loans to the Seller and the subsequent sale and assignment by the Seller of
the Student Loans to the related Eligible Lender Trustee on behalf of the
related Trust.
Additional Fundings
The related Prospectus Supplement will indicate whether a Pre-Funding
Account will be established with respect to a Trust. The Prospectus Supplement
will also indicate (i) the amount to be deposited in the Pre-Funding Account
on the related Closing Date, (ii) the length of the related Funding Period and
(iii) the uses to which the funds in the Pre-Funding Account can be applied
and the conditions to the application of such funds for such purposes. If the
Pre-Funding Amount has not been reduced to zero by the end of the Funding
Period, the Noteholders and/or Certificateholders will receive any amounts
remaining in the Pre-Funding Account as a payment of principal.
Amendments to Transfer and Servicing Agreements
Each of the Transfer and Servicing Agreements may be amended by the parties
thereto, without the consent of the related Noteholders or Certificateholders,
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of such Transfer and Servicing Agreements or
of modifying in any manner the rights of such Noteholders or
Certificateholders; provided that such action will not, in the opinion of
counsel satisfactory to the related Indenture Trustee and Eligible Lender
Trustee, materially and adversely affect the interest of any such Noteholder
or Certificateholder, or as set forth in the related Prospectus Supplement.
Each of the Transfer and Servicing Agreements may also be amended by the
Seller, the Administrator, the Servicer, the related Eligible Lender Trustee
and the related Indenture Trustee, as applicable, with the consent of the
Noteholders of the related series evidencing at least a majority in principal
amount of such series and the holders of Certificates (including any
Certificates owned by the Seller) of the related series evidencing at least a
majority of the Certificate Balance of such series for the purpose of adding
any provisions to or changing in any manner or eliminating any of the
provisions of such Transfer and Servicing Agreements or of modifying in any
manner the rights of such Noteholders or Certificateholders; provided that no
such amendment may reduce the aforesaid percentage of such Notes or
Certificates which are required to consent to any such amendment, without the
consent of the holders of all such outstanding Notes and Certificates, or as
set forth in the related Prospectus Supplement.
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SERVICING; ADMINISTRATION
General
The following is a summary of certain terms of each Servicing Agreement
pursuant to which the Servicer will service the Student Loans and each
Administration Agreement pursuant to which the Administrator will undertake
certain administrative duties with respect to a Trust and the Student Loans.
Forms of the Servicing Agreement and the Administration Agreement have been
filed as exhibits to the Registration Statement of which this Prospectus is a
part. However, the summary does not purport to be complete and is qualified in
its entirety by reference to all provisions of the Servicing Agreements and
the Administration Agreements.
Accounts
With respect to each Trust, the Administrator will establish and maintain or
cause to be established or maintained, initially with the applicable Indenture
Trustee, one or more accounts, in the name of the Indenture Trustee on behalf
of the related Noteholders and Certificateholders, into which all payments
made on or with respect to the related Trust Student Loans will be deposited
(collectively, the "Collection Account"). Any other accounts to be established
with respect to a Trust, including any Pre-Funding Account and any Reserve
Account, will be described in the related Prospectus Supplement.
For any series of Securities, funds in the Collection Account, any Pre-
Funding Account, any Reserve Account and any other accounts identified as such
in the related Prospectus Supplement (collectively, the "Trust Accounts") will
be invested as provided in the applicable Trust Indenture in Eligible
Investments in accordance with instructions received by the applicable
Indenture Trustee from the Administrator.
"Eligible Investments" are generally limited to investments which would not
result in the downgrading or withdrawal of any rating of any of the Securities
by any Rating Agency. Eligible Investments will be required to mature on such
dates or in such manner as are set forth in the related Prospectus Supplement.
A portion of such Eligible Investments may be permitted to mature subsequent
to the next succeeding Distribution Date if so provided in the related
Prospectus Supplement. In such case such Eligible Investments would not be
sold to meet any shortfall in amounts required to be withdrawn from the
Reserve Account on such Distribution Date. Accordingly, the amount of cash in
the Reserve Account at any time may be less than the balance of the Reserve
Account. If the amount required to be withdrawn from any Reserve Account to
cover shortfalls in collections on the related Trust Student Loans (as
provided in the related Prospectus Supplement) exceeds the amount of cash in
the Reserve Account, a temporary shortfall in the amounts distributed to the
related Noteholders or Certificateholders could result, which could, in turn,
increase the average life of the Notes or the Certificates of such series.
Investment earnings on funds deposited in the Trust Accounts, net of losses
and investment expenses (collectively, "Investment Earnings"), will be
deposited in the Collection Account on each Distribution Date and will be
treated as collections of interest on the related Trust Student Loans, or as
set forth in the related Prospectus Supplement.
The Trust Accounts will be maintained as Eligible Deposit Accounts.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate
trust department of a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), having corporate trust
powers and acting as trustee for funds deposited in such account, so long as
any of the securities of such depository institution have a credit rating from
each Rating Agency in one of its generic rating categories which signifies
investment grade. "Eligible Institution" means a depository institution
organized under the laws of the United States of America or any one of the
states thereof or the District of Columbia (or any domestic branch of a
foreign bank), (i) which has either (A) a long-term unsecured debt rating
acceptable to the Rating Agencies or (B) a short-term unsecured debt rating or
certificate of deposit rating acceptable to the Rating Agencies and (ii) whose
deposits are insured by the Federal Deposit Insurance Corporation.
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Servicing Procedures
Pursuant to each Servicing Agreement, the Servicer will agree to service,
and perform all other related tasks with respect to, all the Student Loans
acquired from time to time on behalf of each Trust. The Servicer is required
pursuant to the related Servicing Agreement to perform all services and duties
customary to the servicing of Student Loans (including all collection
practices), and to do so with the same standard of care as the Servicer uses
to service student loans owned by Sallie Mae and in compliance with all
standards and procedures provided for in the Act, the Guarantee Agreements and
all other applicable federal and state laws.
Without limiting the foregoing, the duties of the Servicer with respect to
each Trust under the related Servicing Agreement include, but are not limited
to, the following: collecting and depositing into the Collection Account all
payments with respect to the Student Loans, including claiming and obtaining
any Program Payments with respect thereto, responding to inquiries from
borrowers on the Student Loans, attempting to collect delinquent payments and
sending out statements and payment coupons to borrowers. In addition, the
Servicer will keep ongoing records with respect to such Student Loans and
collections thereon and will furnish periodic statements to the Indenture
Trustee, the Eligible Lender Trustee and the Securityholders with respect to
such information, in accordance with the Servicer's customary practices and as
otherwise required in the related Servicing Agreement.
Payments on Student Loans
With respect to each Trust, except as provided below, the Servicer will
deposit all payments on Student Loans (from whatever source) and all proceeds
of Student Loans collected by it during each collection period specified in
the related Prospectus Supplement (each, a "Collection Period") into the
related Collection Account within two business days of receipt thereof.
However, for so long as (i) the senior unsecured obligations of the
Administrator (or any affiliate of the Administrator which guarantees the
obligations of the Administrator under the Administration Agreement) have been
assigned a long-term rating of not less than "AA-" (or equivalent rating) or a
short-term rating of not less than "A-1" (or equivalent rating) by each of the
Rating Agencies or the remitting by the Servicer of the amounts referred to in
the preceding paragraph to the Administrator will not result in a downgrading
or withdrawal of any of the then current ratings of any of the related
Securities by any of the Rating Agencies, (ii) no Administrator Default has
occurred and is continuing and (iii) each other condition to making deposits
less frequently than daily as may be set forth in the related Prospectus
Supplement is satisfied, the Servicer will remit such amounts to the
Administrator within two business days of receipt thereof, and the
Administrator will not be required to deposit the amounts referred to in the
preceding paragraph into the Collection Account until on or before the
business day preceding each Monthly Servicing Payment Date (to the extent of
the Servicing Fee then due) and each Distribution Date, as applicable. To the
extent provided in the related Prospectus Supplement, pending deposit into the
Collection Account, collections may be invested by the Administrator at its
own risk and for its own benefit, and will not be segregated from funds of the
Administrator. If the Administrator were unable to remit such collections,
Securityholders might incur a loss. To the extent set forth in the related
Prospectus Supplement, the Administrator may, in order to satisfy the
requirements described above, obtain a letter of credit or other security for
the benefit of the related Trust to secure timely remittances of collections
on the related Trust Student Loans and payment of the aggregate Purchase
Amount with respect to Student Loans repurchased by the Seller or purchased by
the Servicer. The Seller and the Servicer will pay the aggregate Purchase
Amount of Student Loans repurchased by the Seller or purchased by the Servicer
to the Administrator and the Administrator will deposit such amounts into the
Collection Account on or before the business day preceding each Distribution
Date.
Servicer Covenants
With respect to each Trust, in the related Servicing Agreement, the Servicer
will covenant that: (a) it will duly satisfy all obligations on its part to be
fulfilled under or in connection with the Student Loans, maintain in
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effect all qualifications required in order to service the Student Loans and
comply in all material respects with all requirements of law in connection
with servicing the Student Loans, the failure to comply with which would have
a materially adverse effect on the interest of the related Trust; (b) it will
not permit any rescission or cancellation of a Student Loan except as ordered
by a court of competent jurisdiction or other government authority or as
otherwise consented to by the related Eligible Lender Trustee and the related
Indenture Trustee, provided that the Servicer may write off any delinquent
Trust Student Loan if the remaining balance of the borrower's account is less
than $50; (c) it will do nothing to impair the rights of the related
Certificateholders and the related Noteholders in the Student Loans; and (d)
it will not reschedule, revise, defer or otherwise compromise with respect to
payments due on any Student Loan except pursuant to any applicable interest
only, deferral or forbearance periods or otherwise in accordance with all
applicable standards, guidelines and requirements with respect to the
servicing of the Trust Student Loans.
Under the terms of each Servicing Agreement, if the Servicer discovers, or
receives written notice, that any covenant of the Servicer set forth above has
not been complied with in all material respects and noncompliance has not been
cured within the applicable cure period specified in the related Prospectus
Supplement and has a materially adverse effect on the interest of the related
Trust (it being understood that any such noncompliance that relates to
compliance with the requirements of the Higher Education Act or the applicable
Guarantee Agency but that does not affect such Guarantee Agency's obligation
to guarantee payment of a Trust Student Loan will not be considered to have a
material adverse effect), the Servicer will purchase such Trust Student Loan
as of the first day following the end of such cure period that is the last day
of a Collection Period, or as set forth in the related Prospectus Supplement,
at a price equal to the unpaid principal amount of such Trust Student Loan
plus any accrued interest calculated using the applicable percentage that
would have been insured pursuant to Section 428(b)(1)(G) of the Higher
Education Act (currently either 98% or 100%) plus any Interest Subsidy
Payments or Special Allowance Payments not paid by (or required to be refunded
to) the Department with respect to a Trust Student Loan as a result of a
breach of any such covenant of the Servicer, or as set forth in the related
Prospectus Supplement, and the related Trust's interest in any such purchased
Trust Student Loan will be assigned to the Servicer or its designee. As to any
such Trust Student Loan required to be purchased by the Servicer as provided
above, rather than purchase such Trust Student Loan, the Servicer may, in its
sole discretion, substitute Qualified Substitute Student Loans for such Trust
Student Loan. In addition, unless otherwise specified in the related
Prospectus Supplement, the Servicer will be obligated to (a) reimburse the
related Trust for the shortfall, if any, between the Purchase Amount of any
Qualified Substitute Student Loans and the Purchase Amount of the Trust
Student Loan for which such Qualified Substitute Student Loans are being
substituted as a result of a breach of any covenant of the Servicer with
respect to such Trust Student Loan and (b) reimburse the related Trust for any
accrued interest amounts not guaranteed by (or required to be refunded to) a
Guarantee Agency and/or any Interest Subsidy Payments or Special Allowance
Payments not paid by (or required to be refunded to) the Department with
respect to a Trust Student Loan as a result of a breach of any such covenant
of the Servicer.
Servicing Compensation
With respect to any Trust, the Servicer will be entitled to receive the
Servicing Fee for each Collection Period in an amount equal to the specified
amount as set forth in the related Prospectus Supplement, together with any
other administrative fees, expenses and similar charges specified in the
related Prospectus Supplement. As set forth in the related Prospectus
Supplement, the Servicing Fee may be comprised of a specified percentage per
annum of the Pool Balance (as defined in the related Prospectus Supplement) or
a unit amount based on the number of accounts (including certain activity or
event related fees) the Trust as of the time set forth in the related
Prospectus Supplement or a combination thereof or any other formulation, plus
certain specified amounts payable to the Servicer for certain tasks performed
by the Servicer in a Collection Period. The Servicing Fee for any Collection
Period may be subject to a maximum monthly amount specified in the related
Prospectus Supplement. The Servicing Fee (together with any portion of the
Servicing Fee that remains unpaid from prior Distribution Dates), will be paid
prior to any payment in respect of the related Securities, to the extent
specified in the applicable Prospectus Supplement.
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The Servicing Fee will compensate the Servicer for performing the functions
of a third party servicer of student loans, including collecting and posting
all payments, responding to inquiries of borrowers on the Student Loans,
investigating delinquencies, pursuing, filing and collecting any Program
Payments, accounting for collections and furnishing monthly and annual
statements to the Applicable Trustees with respect to distributions. The
Servicing Fee also will reimburse the Servicer for certain taxes, accounting
fees, outside auditor fees, data processing costs and other costs incurred in
connection with administering the Student Loans.
Net Deposits
As an administrative convenience, unless the Servicer is required to remit
collections daily to the Collection Account (see "--Payments on Student Loans"
above), the Administrator will be permitted to make the deposit to the
Collection Account of collections and aggregate Purchase Amounts for any Trust
for or with respect to the related Collection Period net of payments of
Servicing Fees and Administration Fees for such Trust with respect to such
Collection Period to the extent described in the Prospectus Supplement. With
respect to any such Collection Period, the Administrator may cause to be made
a single, net transfer of such amounts to the Collection Account on the
business day preceding the related Distribution Date. The Administrator,
however, will account to the Indenture Trustee, the Eligible Lender Trustee,
the Noteholders and the Certificateholders with respect to such Trust as if
all deposits, distributions and transfers were made individually.
Evidence as to Compliance
Each Administration Agreement will provide that a firm of independent public
accountants will furnish to the related Trust and Indenture Trustee annually a
report (based on the examination of certain documents and records and on such
accounting and auditing procedures considered appropriate under the
circumstances) attesting to the assertion of the Servicer's management about
compliance by the Servicer during the preceding twelve months (or, in the case
of the first such certificate, the period from the applicable Closing Date)
with the terms of such Administration Agreement and the related Servicing
Agreement, including all statutory provisions incorporated therein.
Each Administration Agreement will also provide for delivery to the related
Trust and Indenture Trustee, concurrently with the delivery of each report of
compliance referred to above, of a certificate signed by an officer of the
Servicer stating that, to his knowledge, the Servicer has fulfilled its
obligations under such Administration Agreement and the related Servicing
Agreement throughout the preceding twelve months (or, in the case of the first
such certificate, the period from the applicable Closing Date) or, if there
has been a material default in the fulfillment of any such obligation,
describing each such default. The Servicer has agreed to give the related
Indenture Trustee and Eligible Lender Trustee notice of certain Servicer
Defaults under such Servicing Agreement.
Copies of such reports and certificates may be obtained by Securityholders
by a request in writing addressed to the applicable Trustee.
Certain Matters Regarding the Servicer
The Servicing Agreements will provide that the Servicer is an independent
contractor and that, except for the services to be performed as set forth in
the Servicing Agreement, the Servicer does not hold itself out as an agent of
the Trusts.
Each Servicing Agreement will provide that, except as provided below, the
Servicer may not resign from its obligations and duties as Servicer
thereunder, except upon determination that the performance of such duties by
the Servicer is no longer permissible under applicable law. No such
resignation will become effective until the related Indenture Trustee or a
successor servicer has assumed the servicing obligations and duties of the
Servicer under the Servicing Agreement. Notwithstanding the foregoing, the
Servicer will be permitted to resign as Servicer in connection with any sale
or transfer of substantially all of its student loan servicing operations
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relating to the Student Loans owned by the Trusts provided that (i) the
successor to the Servicer with respect to such operations expressly assumes in
writing all of the obligations of the Servicer under the Servicing Agreements,
(ii) such sale or transfer and such assumption comply with the requirements of
the Servicing Agreement and (iii) the Rating Agencies confirm that such
resignation and assumption will not result in a downgrading or a withdrawal of
the ratings then applicable to the Notes and Certificates of the Trusts
outstanding at the time.
The Trust Student Loans will be serviced by Sallie Mae Servicing
Corporation, a wholly-owned subsidiary of Sallie Mae. The Servicer may
delegate or subcontract its obligations and duties as Servicer under a
Servicing Agreement to any person provided that no such delegation or
subcontracting may relieve the Servicer of liability under such Servicing
Agreement.
Each Servicing Agreement will further provide that neither the Servicer nor
any of its directors, officers, employees or agents will be under any
liability to the related Trust or the related Noteholders or
Certificateholders for taking any action or for refraining from taking any
action pursuant to the related Servicing Agreement, or for errors in judgment;
provided that the Servicer will not be protected against its obligation to
purchase Student Loans from a Trust as required in the related Servicing
Agreement, to pay to the Trust the amount of any Program Payment which a
Guarantee Agency or the Servicer refuses to pay (or requires the Trust to
refund) as a result of the Servicer's actions, or against any liability that
would otherwise be imposed by reason of willful misfeasance, bad faith or
negligence in the performance of the Servicer's duties thereunder or by reason
of reckless disregard of its obligations and duties thereunder. In addition,
each Servicing Agreement will provide that the Servicer is under no obligation
to appear in, prosecute or defend any legal action where it is not named as a
party.
Under the circumstances specified in each Servicing Agreement, any entity
into which the Servicer may be merged or consolidated, or any entity resulting
from any merger or consolidation to which the Servicer is a party, or any
entity succeeding to the business of the Servicer, which corporation or other
entity in each of the foregoing cases assumes the obligations of the Servicer,
will be the successor of the Servicer under such Servicing Agreement.
Consistent with the Privatization Act, it is contemplated that, in the event
Sallie Mae is privatized, it will be converted into a wholly-owned subsidiary
of a newly-formed holding company and the stock of any previously created
subsidiaries of Sallie Mae, such as the Servicer, would be transferred to the
holding company.
Servicer Default
"Servicer Default" under each Servicing Agreement will consist of (i) any
failure by the Servicer to deposit in any of the Trust Accounts any required
payment, which failure continues unremedied for five business days after
written notice from such Indenture Trustee or the related Eligible Lender
Trustee is received by the Servicer; (ii) any failure by the Servicer duly to
observe or perform in any material respect any other term, covenant or
agreement in such Servicing Agreement which failure materially and adversely
affects the rights of Noteholders or Certificateholders of the related series
and which continues unremedied for 60 days after the giving of written notice
of such failure (1) to the Servicer by the related Indenture Trustee, Eligible
Lender Trustee or the Administrator or (2) to the Servicer and to the related
Indenture Trustee and Eligible Lender Trustee by holders of Notes or
Certificates of the related series, as applicable, evidencing not less than
25% in principal amount of such outstanding Notes or 25% of the Certificate
Balance of such outstanding Certificates (including any Certificates owned by
the Seller); (iii) the occurrence of an Insolvency Event with respect to the
Servicer; and (iv) any failure by the Servicer to comply with any requirements
under the Higher Education Act resulting in a loss of its eligibility as a
third-party servicer. "Insolvency Event" means, with respect to any Person,
certain events of bankruptcy, insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings with respect to such Person and
certain actions by such Person indicating its insolvency, reorganization
pursuant to bankruptcy proceedings or inability to pay its obligations, or as
set forth in the related Prospectus Supplement.
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A Servicer Default described in clause (ii) of the preceding paragraph shall
not include any failure of the Servicer to service a Student Loan in
accordance with the Act so long as the Servicer is in compliance with its
obligations set forth in the Servicing Agreement to purchase any adversely
affected Student Loan for the Purchase Amount and in compliance with its
obligation set forth in the Servicing Agreement to pay to the applicable Trust
the amount of any Program Payments which a Guarantee Agency or the Secretary
refuses to pay (or requires the applicable Trust to refund) as a result of the
Servicer's actions.
Rights Upon Servicer Default
As long as a Servicer Default under a Servicing Agreement remains
unremedied, the related Indenture Trustee or Noteholders of the related series
evidencing not less than 25% in stated amount of such then outstanding Notes
may terminate all the rights and obligations of the Servicer under such
Servicing Agreement, whereupon a successor servicer appointed by the related
Indenture Trustee or such Indenture Trustee itself will succeed to all the
responsibilities, duties and liabilities of the Servicer under such Servicing
Agreement and will be entitled to similar compensation arrangements. Such
compensation may not be greater than the servicing compensation to the
Servicer under such Servicing Agreement, unless such compensation arrangements
will not result in a downgrading or withdrawal of the then ratings of such
Notes and Certificates by any Rating Agency, or as set forth in the related
Prospectus Supplement. If, however, a bankruptcy trustee or similar official
has been appointed for the Servicer, and no Servicer Default other than such
appointment has occurred, such trustee or official may have the power to
prevent such Indenture Trustee or such Noteholders from effecting such a
transfer. In the event that such Indenture Trustee is unwilling or unable to
so act, it may appoint, or petition a court of competent jurisdiction for the
appointment of, a successor whose regular business includes the servicing of
student loans. In the event a Servicer Default occurs and is continuing, such
Indenture Trustee or such Noteholders, as described above, may remove the
Servicer, without the consent of the related Eligible Lender Trustee or any of
the Certificateholders of the related series. Moreover, only the Indenture
Trustee or the Noteholders, and not the Eligible Lender Trustee or the
Certificateholders, will have the ability to remove the Servicer if a Servicer
Default occurs and is continuing.
Waiver of Past Defaults
With respect to each Trust, the Noteholders evidencing at least a majority
in principal amount of the then outstanding Notes (or the holders of
Certificates evidencing not less than a majority of the outstanding
Certificate Balance, in the case of any Servicer Default which does not
adversely affect the Indenture Trustee or the Noteholders) of the related
series may, on behalf of all such Noteholders and Certificateholders, waive
any default by the Servicer in the performance of its obligations under the
related Servicing Agreement and its consequences, except a default in making
any required deposits to or payments from any of the Trust Accounts in
accordance with such Servicing Agreement, or as set forth in the related
Prospectus Supplement. Therefore, such Noteholders have the ability, except as
noted above, to waive defaults by the Servicer which could materially
adversely affect such Certificateholders. No such waiver will impair such
Noteholders' or Certificateholders' rights with respect to subsequent
defaults.
Administration Agreement
Sallie Mae, in its capacity as Administrator, has entered into the Master
Administration Agreement and, with respect to each Trust, will enter into an
Administration Agreement Supplement with each Trust, the Seller, the Servicer
and the related Eligible Lender Trustee and Indenture Trustee pursuant to
which the Administrator will agree, to the extent provided therein, to provide
the notices and to perform other administrative obligations required by the
related Indenture, Trust Agreement and Sale Agreement. Such services shall
include undertakings (i) to direct the Indenture Trustee to make the required
distributions from the Trust Accounts on each Monthly Servicing Payment Date
and each Distribution Date, (ii) to prepare (based on periodic data received
from the Servicer) and provide quarterly and annual statements to the Eligible
Lender Trustee and the Indenture Trustee with respect to distributions to
Noteholders and Certificateholders and any related federal income tax
reporting information and (iii) to provide the notices and to perform other
administrative obligations required by the
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Indenture, the Trust Agreement and the Sale Agreement, or as provided in a
Prospectus Supplement. As compensation for the performance of the
Administrator's obligations under the applicable Administration Agreement and
as reimbursement for its expenses related thereto, the Administrator will be
entitled to the Administration Fee as specified in the related Prospectus
Supplement. Each Administration Agreement will provide that, except as set
forth below, Sallie Mae may not resign from its obligations and duties as
Administrator thereunder, except upon determination that Sallie Mae's
performance of such duties is no longer permissible under applicable law. No
such resignation will become effective until a successor administrator has
assumed Sallie Mae's obligations and duties under the Administration
Agreement.
Each Administration Agreement will further provide that Sallie Mae may
assign its obligations and duties as Administrator thereunder to an affiliate
provided that the Rating Agencies confirm that such assignment will not result
in a downgrading or a withdrawal of the ratings then applicable to the Notes
and the Certificates of the Trusts outstanding at such time. See "Sallie Mae."
Administrator Default
"Administrator Default" under the Administration Agreement will consist of
(i) (A) in the event that daily deposits into the Collection Account are not
required, any failure by the Administrator to deliver to the relevant
Indenture Trustee for deposit in any of the Trust Accounts any required
payment on or before the business day prior to any Monthly Servicing Payment
Date or Distribution Date, as applicable, or (B) any failure by the
Administrator to direct the relevant Indenture Trustee to make any required
distributions from any of the Trust Accounts on any Monthly Servicing Payment
Date or any Distribution Date, which failure in case of either clause (A) or
(B) continues unremedied for five business days after written notice from such
Indenture Trustee or the Eligible Lender Trustee is received by the
Administrator or after discovery by the Administrator; (ii) any failure by the
Administrator duly to observe or perform in any material respect any other
term, covenant or agreement in an Administration Agreement or related
agreements which failure materially and adversely affects the rights of
Noteholders or Certificateholders and which continues unremedied for 60 days
after the giving of written notice of such failure (1) to the Administrator by
the Indenture Trustee or the Eligible Lender Trustee or (2) to the
Administrator, the Indenture Trustee and the Eligible Lender Trustee by
holders of Notes or Certificates, as applicable, evidencing not less than 25%
in principal amount of the outstanding Notes or 25% of the Certificate Balance
(including any Certificates owned by the Seller); and (iii) certain events of
bankruptcy, insolvency readjustment or debt, marshalling of assets and
liabilities, or similar proceedings with respect to the Administrator and
certain actions by the Administrator indicating its insolvency or inability to
pay its obligations.
Rights Upon Administrator Default
As long as an Administrator Default under an Administration Agreement
remains unremedied, the relevant Indenture Trustee or Noteholders evidencing
not less than 25% in principal amount of then outstanding Notes under the
relevant Indenture may terminate all the rights and obligations of the
Administrator under the relevant Administration Agreement whereupon a
successor administrator appointed by the Indenture Trustee or the Indenture
Trustee will succeed to all the responsibilities, duties and liabilities of
the Administrator under such Administration Agreement and (except in the case
of the Indenture Trustee) will be entitled to similar compensation
arrangements, or as set forth in the related Prospectus Supplement. If,
however, a bankruptcy trustee or similar official has been appointed for the
Administrator, and no Administrator Default other than such appointment has
occurred, such trustee or official may have the power to prevent the Indenture
Trustee or the Noteholders from effecting such a transfer. In the event that
the relevant Indenture Trustee is unwilling or unable to so act, it may
appoint, or petition a court of competent jurisdiction for the appointment of,
a successor whose regular business includes the servicing or administration of
student loans. The relevant Indenture Trustee may make such arrangements for
compensation to be paid, which in no event may be greater than the
compensation to the Administrator under such Administration Agreement unless
such compensation arrangements will not result in a downgrading of the Notes
and the Certificates by any Rating Agency. In the event an Administrator
Default occurs and is continuing, the relevant Indenture Trustee or the
relevant Noteholders, as described above, may remove the Administrator without
the consent of the relevant Eligible Lender Trustee or any of the related
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Certificateholders. Moreover, only the relevant Indenture Trustee or the
relevant Noteholders, and not the related Eligible Lender Trustee or the
related Certificateholders, has the ability to remove the Administrator, if an
Administrator Default occurs and is continuing.
Statements to Indenture Trustee and Trust
Prior to each Distribution Date with respect to each series of Securities,
the Administrator will prepare and provide to the related Indenture Trustee
and the related Eligible Lender Trustee as of the close of business on the
last day of the preceding Collection Period a statement, which will include,
among other things, the following information (and any other information so
specified in the related Administration Agreement) with respect to such
Distribution Date or the preceding Collection Period as to the Notes and the
Certificates of such series, to the extent applicable:
(i) the amount of distributions in respect of the principal of each class
of the Notes and in respect of the Certificate Balance of the Certificates;
(ii) the amount of distributions allocable to interest on each class of
the Notes and return on each class of the Certificates, together with the
rates applicable thereto;
(iii) the Pool Balance as of the close of business on the last day of the
preceding Collection Period;
(iv) the outstanding principal amount and the Note Pool Factor for each
class of the Notes and the Certificate Balance and the Certificate Pool
Factor for each class of the Certificates as of such Distribution Date,
each after giving effect to payments allocated to principal of each class
of Notes and distributions in respect of the Certificate Balance reported
under clause (i) above;
(v) the amount of the Servicing Fee and the Administration Fee paid to
the Servicer and the Administrator, respectively, with respect to such
Collection Period;
(vi) the Note Rate, if available, for the next period for any class of
Notes and the Certificate Rate for any class of Certificates of such series
with variable or adjustable rates;
(vii) the amount of the aggregate realized losses, if any, for such
Collection Period;
(viii) the amount of any Note Interest Shortfall, Note Principal
Shortfall, Certificate Return Shortfall and Certificate Balance Shortfall
(each as defined in the related Prospectus Supplement), if any, in each
case as applicable to each class of Securities, and the change in such
amounts from the preceding statement;
(ix) the amount of any Carryover Servicing Fee paid to the Servicer with
respect to such Collection Period;
(x) the amount of any Note Interest Carryover and Certificate Return
Carryover (each as defined in the related Prospectus Supplement), if any,
in each case as applicable to each class of Securities, and the change in
such amounts from the preceding statement;
(xi) the aggregate Purchase Amounts for Trust Student Loans, if any, that
were repurchased by the Seller or purchased by the Servicer from the Trust
in such Collection Period;
(xii) the balance of Trust Student Loans that are delinquent in each
delinquency period as of the end of such Collection Period; and
(xiii) the balance of the Reserve Account (if any) on such Distribution
Date, after giving effect to changes therein on such Distribution Date.
Each amount set forth pursuant to subclauses (i), (ii), (v), (viii), (ix)
and (x) with respect to the Notes or the Certificates of any series will be
expressed as a dollar amount per $1,000 of the initial principal balance of
such Notes or the initial Certificate Balance of such Certificates, as
applicable.
Evidence as to Compliance
Each Administration Agreement will provide that a firm of independent public
accountants will furnish to the related Trust and Indenture Trustee annually a
report (based on the examination of certain documents and
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records and on such accounting and auditing procedures considered appropriate
under the circumstances) attesting to the assertion of the Administrator's
management about compliance by the Administrator during the preceding twelve
months (or, in the case of the first such certificate, the period from the
applicable Closing Date) with the terms of such Administration Agreement,
including all statutory provisions incorporated therein.
Each Administration Agreement will also provide for delivery to the related
Trust and Indenture Trustee, concurrently with the delivery of each report of
compliance referred to above, of a certificate signed by an officer of the
Administrator stating that, to his knowledge, the Administrator has fulfilled
its obligations under such Administration Agreement throughout the preceding
twelve months (or, in the case of the first such certificate, the period from
the applicable Closing Date) or, if there has been a material default in the
fulfillment of any such obligation, describing each such default. The
Administrator has agreed to give the related Indenture Trustee and Eligible
Lender Trustee notice of certain Administrator Defaults under such
Administration Agreement.
Copies of such reports and certificates may be obtained by Securityholders
by a request in writing addressed to the applicable Trustee.
TRADING INFORMATION
Weighted Average Life of the Securities
The weighted average life of the Notes and the Certificates of any series
will generally be influenced by the rate at which the principal balances of
the related Trust Student Loans are paid, which payment may be in the form of
scheduled amortization or prepayments. For this purpose, the term
"prepayments" includes prepayments in full or in part (including pursuant to
Consolidation Loans and Federal Direct Consolidation Loans), as a result of
refinancings, or borrower default, death, disability or bankruptcy and
subsequent liquidation or collection of Guarantee Payments with respect
thereto and as a result of Student Loans being repurchased by the Seller or
the Servicer as required or as permitted by the Sale Agreements or the
Servicing Agreements. All of the Student Loans are prepayable at any time
without penalty to the borrower. The rate of prepayment of Student Loans is
influenced by a variety of economic, social and other factors, including as
described below and in the applicable Prospectus Supplement. 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 Student Loans.
Borrowers may refinance their Student Loans under the FFELP or DSLP through
Consolidation Loans offered by FFELP lenders or Federal Direct Consolidation
Loans offered by the Department. In addition, the Servicing Agreements may
specifically provide that Sallie Mae may solicit borrowers of Trust Student
Loans to elect to refinance such Trust Student Loans with Consolidation Loans.
Although it is impossible to predict the rate of prepayment as a result of
Consolidation Loans, the terms prescribed by the Act for Consolidation Loans
may be attractive for certain borrowers. If requested by a borrower with a
Trust Student Loan, the Servicer will, under certain circumstances, on behalf
of the related Trust, sell the borrower's Student Loan to another lender which
will continue to hold the remaining Student Loans of such borrower in order to
permit unified billing of the borrower's account. In addition, under certain
circumstances, the Seller will be obligated to repurchase Student Loans from a
given Trust pursuant to the related Sale Agreement as a result of breaches of
representations and warranties and the Servicer will be obligated to purchase
Student Loans from such Trust pursuant to the related Servicing Agreement as a
result of breaches by the Servicer of certain covenants. See "Transfer and
Servicing Agreements--Sale of Student Loans to the Trust; Representations and
Warranties of the Seller" and "Servicing; Administration--Servicer Covenants."
See also "Formation of the Trusts--Termination" regarding the Servicer's
option to purchase the Student Loans from a given Trust and "--Insolvency
Event" regarding the sale of the Student Loans if an Insolvency Event with
respect to the Seller occurs.
On the other hand, scheduled payments with respect to, and maturities of,
the Student Loans may be extended, including pursuant to applicable grace,
deferral and forbearance periods. In addition, certain of the terms of payment
offered to Student Loan borrowers by Sallie Mae may have the effect of
extending the rate of payment of principal of the Notes and distributions in
respect of the Certificate Balance of the Certificates. As
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discussed under "The Student Loan Pools--Sallie Mae's Student Loan Financing
Business," Sallie Mae offers certain borrowers loan payment terms which
provide for an "interest only" period in which case no required payments of
the principal of the loan are required or "graduated phased in" amortization
of the principal of the loan in which case a greater portion of the principal
amortization of the loan is required in the later stages of the loan than
would be the case if amortization were on a level payment basis. Sallie Mae
also offers an income-sensitive repayment plan, pursuant to which repayments
are based on the borrower's income. Under the plan, ultimate repayment may be
delayed up to five years. To the extent that borrowers with Trust Student
Loans are offered and elect such payment terms, payment of the principal of
the related Notes and the Certificate Balance of the Certificates could be
affected. If and to the extent provided in the related Prospectus Supplement,
a Trust may elect to offer Consolidation Loans to borrowers with Trust Student
Loans and other Student Loans. The making of Consolidation Loans by a Trust
could increase the average life of the related Notes and Certificates and
reduce the effective yield on Student Loans included in the Trust.
The Servicing Agreements will provide that, subject to compliance with
certain conditions, the Servicer will offer, at the request of Sallie Mae,
certain incentive payment programs or repayment term programs currently or
hereafter made available by Sallie Mae, to borrowers with Trust Student Loans.
To the extent that such benefits are made available to borrowers with Trust
Student Loans, the effect of such benefits may be faster amortization of
principal of the affected Trust Student Loans. See "The Student Loan Pools--
Sallie Mae's Student Loan Financing Business--Incentive Programs."
The rate of payment of principal of and interest on the Notes and
distributions in respect of the Certificate Balance of and return on the
Certificates may also be affected by the rate of defaults on Trust Student
Loans, or on Student Loans generally, which may affect the ability of the
Guarantee Agencies to make Guarantee Payments with respect to Trust Student
Loans in a timely manner.
In light of the above considerations, there can be no assurance as to the
amount of principal payments to be made on the Notes or distributions in
respect of the Certificate Balance of Certificates of a given series on each
Distribution Date, since such amount will depend, in part, on the amount of
principal collected on the related pool of Student Loans during the applicable
Collection Period. Any reinvestment risks resulting from a faster or slower
incidence of prepayment of Student Loans will be borne entirely by the
Noteholders and the Certificateholders of a given series. The related
Prospectus Supplement may set forth certain additional information with
respect to the maturity and prepayment considerations applicable to the
particular pool of Student Loans and the related series of Securities.
Pool Factors and Trading Information
Each of the "Note Pool Factor" for each class of Notes and the "Certificate
Pool Factor" for each class of Certificates (each, a "Pool Factor") will be a
seven-digit decimal which the Administrator will compute prior to each
Distribution Date indicating the remaining outstanding principal balance of
such class of Notes or the remaining Certificate Balance for such class of
Certificates, respectively, as of that Distribution Date (after giving effect
to distributions to be made on such Distribution Date), as a fraction of the
initial outstanding principal balance of such class of the Notes or the
initial Certificate Balance, for such class of Certificates, respectively.
Each Pool Factor will be 1.0000000 as of the Closing Date, or as specified in
the applicable Prospectus Supplement, and thereafter will decline to reflect
reductions in the outstanding principal balance of the applicable class of
Notes or reductions of the Certificate Balance of the applicable class of
Certificates, as applicable. A Securityholder's portion of the aggregate
outstanding principal balance of the related class of Notes or of the
aggregate outstanding Certificate Balance for the related class of
Certificates, as applicable, will be the product of (i) the original
denomination of that Securityholder's Note or Certificate and (ii) the
applicable Pool Factor.
With respect to each Trust, the Securityholders will receive reports on or
about each Distribution Date concerning the Payments received on the related
Trust Student Loans, the Pool Balance (as such is defined in the related
Prospectus Supplement, the "Pool Balance"), the applicable Pool Factor and
various other items of information, or as set forth in the related Prospectus
Supplement. Securityholders of record during any calendar year will be
furnished information for tax reporting purposes not later than the latest
date permitted by law. See "Certain Information Regarding the Securities--
Reports to Securityholders."
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DESCRIPTION OF THE NOTES
General
With respect to each Trust, one or more classes of Notes of a given series
will be issued pursuant to the terms of an Indenture, a form of which has been
filed as an exhibit to the Registration Statement of which this Prospectus is
a part. The following summary describes certain terms of the Notes and the
Indenture.
Each class of Notes will each initially be represented by one or more Notes,
in each case registered in the name of the nominee of DTC (together with any
successor depository selected by the Servicer, the "Depository") except as set
forth below, or as set forth in the related Prospectus Supplement. The Notes
will be available for purchase in denominations of $1,000 and integral
multiples thereof in book-entry form only, or as set forth in the related
Prospectus Supplement. The Seller has been informed by DTC that DTC's nominee
will be Cede, unless another nominee is specified in the related Prospectus
Supplement. Accordingly, such nominee is expected to be the holder of record
of the Notes of each class in book entry form. Unless and until Definitive
Notes are issued under the limited circumstances described herein or in the
related Prospectus Supplement, no Noteholder of Notes in book-entry form will
be entitled to receive a physical certificate representing a Note. All
references herein and in the related Prospectus Supplement to actions by
Noteholders of Notes in book-entry form 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 of Notes in book-entry form refer to distributions, notices,
reports and statements to DTC or its nominee, as the registered holder of the
Notes, as the case may be, for distribution to Noteholders in accordance with
DTC's procedures with respect thereto. See "Certain Information Regarding the
Securities--Book-Entry Registration" and "--Definitive Securities."
Principal and Interest on the Notes
The timing and priority of payment, seniority, allocations of losses, Note
Rate and amount of or method of determining payments of principal and interest
on each class of Notes of a given series will be described in the related
Prospectus Supplement. The right of holders of any class of Notes to receive
payments of principal and interest may be senior or subordinate to the rights
of holders of any other class or classes of Notes of such series, as described
in the related Prospectus Supplement. Payments of interest on the Notes of
such series will be made prior to payments of principal thereon, or as set
forth in the related Prospectus Supplement. Each class of Notes may have a
different Note Rate, which may be a fixed, a variable, an adjustable or an
auction-determined Note Rate or any combination of the foregoing. The related
Prospectus Supplement will specify the Note Rate for each class of Notes of a
given series or the method for determining such Note Rate. See also "Certain
Information Regarding the Securities--Fixed Rate Securities" and "--Floating
Rate Securities." One or more classes of Notes of a series may be redeemable
in whole or in part under the circumstances specified in the related
Prospectus Supplement, including as a result of the Servicer's exercising its
option to purchase the related Trust Student Loans.
Under certain circumstances, the amount available for such payments could be
less than the amount of interest payable on the Notes on any of the dates
specified for payments in the related Prospectus Supplement (each, a
"Distribution Date"), in which case each class of Noteholders will receive its
ratable share (based upon the aggregate amount of interest due to such class
of Noteholders) of the aggregate amount available to be distributed in respect
of interest on the Notes of such series. See "Certain Information Regarding
the Securities--Distributions" and "--Credit and Cash Flow Enhancement."
In the case of a series of Notes which includes two or more classes of
Notes, the sequential order and priority of payment in respect of principal
and interest, and any schedule or formula or other provisions applicable to
the determination thereof, of each such class will be set forth in the related
Prospectus Supplement. Payments in respect of principal and interest of any
class of Notes will be made on a pro rata basis among all the Noteholders of
such class.
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The Indenture
General. Notes of any Trust will be issued under and secured by an Indenture
entered into by such Trust, the related Eligible Lender Trustee and the
related Indenture Trustee. The following is a summary of certain terms of each
Indenture, a form of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. However, the summary does not
purport to be complete and is qualified in its entirety by reference to all
provisions of the Indenture.
Modification of Indenture. With respect to each Trust, with the consent of
the holders of a majority of the outstanding Notes of the related series, the
Indenture Trustee and the Eligible Lender Trustee may execute a supplemental
indenture to add provisions to, or change in any manner or eliminate any
provisions of, the Indenture with respect to the Notes, or to modify (except
as provided below) in any manner the rights of the related Noteholders.
Without the consent of the holder of each such outstanding Note affected
thereby, no supplemental indenture will (i) change the due date of any
installment of principal of or interest on any such Note or reduce the
principal amount thereof, the interest rate specified thereon or the
redemption price with respect thereto or change the provisions of the related
Indenture relating to the application of collections on, or the proceeds of
the sale of, the Trust Student Loans to payment of principal of or interest on
the Notes or change any place of payment where or the coin or currency in
which any such Note or any interest thereon is payable, (ii) impair the right
to institute suit for the enforcement of certain provisions of the related
Indenture regarding payment, (iii) reduce the percentage of the aggregate
amount of the outstanding Notes of such series, the consent of the holders of
which is required for any such supplemental indenture or the consent of the
holders of which is required for any waiver of compliance with certain
provisions of the related Indenture or of certain defaults thereunder and
their consequences as provided for in such Indenture, (iv) modify or alter the
provisions of the related Indenture regarding the voting of Notes held by the
applicable Trust, the Seller or an affiliate of either of them, (v) reduce the
percentage of the aggregate outstanding amount of such Notes, the consent of
the holders of which is required to direct the related Eligible Lender Trustee
on behalf of the applicable Trust to sell or liquidate the Student Loans if
the proceeds of such sale would be insufficient to pay the principal amount
and accrued but unpaid interest on the outstanding Notes of such series, (vi)
modify the provisions of the related Indenture which specify the applicable
percentages of aggregate principal amount of Notes necessary to take specified
actions except to increase any such percentage or to specify additional such
provisions, (vii) modify any of the provisions of the related Indenture in
such manner as to affect the calculation of the amount of any payment of
interest or principal due on any Note on any Distribution Date or to affect
the rights of the Noteholders to the benefit of any provisions for the
mandatory redemption of the Notes contained therein, or (viii) permit the
creation of any lien ranking prior to or on a parity with the lien of the
related Indenture with respect to any of the collateral for the Notes of such
series or, except as otherwise permitted or contemplated in such Indenture,
terminate the lien of such Indenture on any such collateral or deprive the
holder of any Note of the security afforded by the lien of such Indenture, or
as set forth in the related Prospectus Supplement with respect to a series of
Notes.
The applicable Trust and the related Indenture Trustee may also enter into
supplemental indentures, without obtaining the consent of Noteholders of such
series, for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of the related Indenture or of modifying
in any manner the rights of Noteholders of such series so long as such action
will not, in the opinion of counsel satisfactory to the applicable Indenture
Trustee, adversely affect in any material respect the interest of any
Noteholder of such series.
Events of Default; Rights Upon Event of Default. With respect to the Notes
of a given series, an "Event of Default" under the related Indenture will
consist of the following: (i) a default for five business days or more in the
payment of any interest on any such Note after the same becomes due and
payable; (ii) a default in the payment of the principal of any such Note when
the same becomes due and payable at maturity; (iii) a default in the
observance or performance of any covenant or agreement of the applicable Trust
made in the related Indenture, or any representation or warranty made by the
applicable Trust in the related Indenture or in any
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certificate delivered pursuant thereto or in connection therewith having been
incorrect in a material respect when made, such default or breach having a
material adverse effect on the holders of the Notes and such default or breach
not having been cured within thirty days after notice thereof is given to such
Trust by the applicable Indenture Trustee or to such Trust and the applicable
Indenture Trustee by the holders of at least 25% in principal amount of the
Notes of such series then outstanding or (iv) certain events of bankruptcy,
insolvency, receivership or liquidation of such Trust, or as set forth in the
related Prospectus Supplement. However, the amount of principal required to be
distributed to Noteholders of such series under the related Indenture on any
Distribution Date will generally be limited to amounts available after payment
of all prior obligations of such Trust. Therefore, the failure to pay
principal on a class of Notes generally will not result in the occurrence of
any Event of Default until the final scheduled Distribution Date for such
class of Notes, or as set forth in the related Prospectus Supplement.
If an Event of Default should occur and be continuing with respect to the
Notes of any series, the related Indenture Trustee or holders of a majority in
principal amount of such Notes then outstanding may declare the principal of
such Notes to be immediately due and payable. Such declaration may, under
certain circumstances, be rescinded by the holders of a majority in principal
amount of such Notes then outstanding, or as set forth in the related
Prospectus Supplement.
If the Notes of any series have been declared to be due and payable
following an Event of Default with respect thereto, the related Indenture
Trustee may, in its discretion, (i) exercise remedies as a secured party with
respect to the property, including the Trust Student Loans, subject to the
lien of the Indenture (the "Indenture Trust Estate"), (ii) sell the Indenture
Trust Estate and/or (iii) elect to have the related Eligible Lender Trustee
maintain ownership of the Trust Student Loans and continue to apply
collections with respect to the Trust Student Loans as if there had been no
declaration of acceleration. However, the related Indenture Trustee is
prohibited from selling the Indenture Trust Estate following an Event of
Default, other than a default in the payment of any principal or a default for
five days or more in the payment of any interest on any Note with respect to
any series, unless (i) the holders of all such outstanding Notes consent to
such sale, (ii) the proceeds of such sale are sufficient to pay in full the
principal of and the accrued interest on such outstanding Notes at the date of
such sale or (iii) the related Indenture Trustee determines that the
collections on the Indenture Trust Estate would not be sufficient on an
ongoing basis to make all payments on such Notes as such payments would have
become due if such obligations had not been declared due and payable, and the
related Indenture Trustee obtains the consent of the holders of 66 2/3% of the
aggregate principal amount of such Notes then outstanding, or as set forth in
the related Prospectus Supplement. Such a sale also would require the consent
of the holders of a majority in Certificate Balance unless the proceeds of
such a sale would be sufficient to discharge in full all amounts then due and
unpaid on the Certificates.
Subject to the provisions of the applicable Indenture relating to the duties
of the related Indenture Trustee, if an Event of Default should occur and be
continuing with respect to a series of Notes, the related Indenture Trustee
will be under no obligation to exercise any of the rights or powers under the
applicable Indenture at the request or direction of any of the holders of such
Notes, if such Indenture Trustee reasonably believes it will not be adequately
indemnified against the costs, expenses and liabilities which might be
incurred by it in complying with such request. Subject to such provisions for
indemnification and certain limitations contained in the related Indenture,
the holders of a majority in principal amount of the outstanding Notes of a
given series will have the right to direct the time, method and place of
conducting any proceeding or any remedy available to such Indenture Trustee
and the holders of a majority in principal amount of such Notes then
outstanding may, in certain cases, waive any default with respect thereto,
except a default in the payment of principal or interest or a default in
respect of a covenant or provision of the applicable Indenture that cannot be
modified without the waiver or consent of all the holders of such outstanding
Notes.
No holder of Notes of any series will have the right to institute any
proceeding with respect to the related Indenture, unless (i) such holder
previously has given to the applicable Indenture Trustee written notice of a
continuing Event of Default, (ii) the holders of not less than 25% in
principal amount of such outstanding Notes
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have requested in writing that such Indenture Trustee institute such
proceeding in its own name as Indenture Trustee, (iii) such holder or holders
have offered such Indenture Trustee reasonable indemnity, (iv) such Indenture
Trustee has for 60 days after receipt of notice failed to institute such
proceeding and (v) no direction inconsistent with such written request has
been given to such Indenture Trustee during such 60-day period by the holders
of a majority in principal amount of such outstanding Notes, or as set forth
in the related Prospectus Supplement.
In addition, each Indenture Trustee and the related Noteholders will
covenant that they will not at any time institute against the applicable Trust
any bankruptcy, reorganization or other proceeding under any federal or state
bankruptcy or similar law.
With respect to any Trust, none of the related Indenture Trustee, Sallie
Mae, the Seller, the Administrator, the Servicer or the Eligible Lender
Trustee in its individual capacity, nor any holder of a Certificate
representing an ownership interest in the applicable Trust, nor any of their
respective owners, beneficiaries, agents, officers, directors, employees,
successors or assigns will, in the absence of an express agreement to the
contrary, be liable for the payment of the principal of or interest on the
Notes or for the agreements of the Trust contained in the Indenture.
Certain Covenants. Each Indenture will provide that the related Trust may
not consolidate with or merge into any other entity, unless (i) the entity
formed by or surviving such consolidation or merger is organized under the
laws of the United States, any state or the District of Columbia, (ii) such
entity expressly assumes such Trust's obligation to make due and punctual
payments upon the Notes of the related series and the performance or
observance of every agreement and covenant of such Trust under the related
Indenture, (iii) no default will have occurred and be continuing immediately
after such merger or consolidation, (iv) such Trust has been advised that the
rating of the Notes and the Certificates of the related series would not be
reduced or withdrawn by the Rating Agencies as a result of such merger or
consolidation and (v) such Trust has received an opinion of Federal Tax
Counsel and counsel with respect to certain Delaware state tax matters to the
effect that such consolidation or merger would have no material adverse
federal or Delaware state tax consequence to such Trust or to any
Certificateholder or Noteholder of the related series.
Each Trust will not, among other things, (i) except as expressly permitted
by the applicable Indenture, the applicable Transfer and Servicing Agreements
or certain related documents (collectively, the "Related Documents"), sell,
transfer, exchange or otherwise dispose of any of the assets of such Trust,
(ii) claim any credit on or make any deduction from the principal and interest
payable in respect of the Notes of the related series (other than amounts
withheld under the Code or applicable state law) or assert any claim against
any present or former holder of such Notes because of the payment of taxes
levied or assessed upon such Trust, (iii) except as contemplated by the
Related Documents, dissolve or liquidate in whole or in part, (iv) permit the
validity or effectiveness of the applicable Indenture to be impaired or permit
any person to be released from any covenants or obligations with respect to
such Notes under the applicable Indenture except as may be expressly permitted
thereby or (v) permit any lien, charge, excise, claim, security interest,
mortgage or other encumbrance to be created on or extend to or otherwise arise
upon or burden the assets of the Trust or any part thereof, or any interest
therein or the proceeds thereof, except as expressly permitted by the Related
Documents.
No Trust may engage in any activity other than as specified under the
section of the related Prospectus Supplement entitled "Formation of the
Trust--The Trust." No Trust will incur, assume or guarantee any indebtedness
other than indebtedness incurred pursuant to the Notes of a related series and
the applicable Indenture or otherwise in accordance with the Related
Documents.
Annual Compliance Statement. Each Trust will be required to file annually
with the related Indenture Trustee a written statement as to the fulfillment
of its obligations under the related Indenture.
Indenture Trustee's Annual Report. Each Indenture Trustee will be required
to mail each year to all related Noteholders a brief report relating to, among
other things, any changes to its eligibility and qualification to
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continue as such Indenture Trustee under the applicable Indenture, any amounts
advanced by it under the Indenture, the amount, interest rate and maturity
date of certain indebtedness owing by such Trust to the applicable Indenture
Trustee in its individual capacity, the property and funds physically held by
the applicable Indenture Trustee as such and any action taken by it that
materially affects the related Notes and that has not been previously
reported.
Satisfaction and Discharge of Indenture. An Indenture will be discharged
with respect to the collateral securing the related Notes upon the delivery to
the related Indenture Trustee for cancellation of all such Notes or, with
certain limitations, upon deposit with such Indenture Trustee of funds
sufficient for the payment in full of all such Notes.
The Indenture Trustee. The Indenture Trustee for a series of Notes will be
specified in the related Prospectus Supplement. The Indenture Trustee for any
series may resign at any time, in which event the Eligible Lender Trustee will
be obligated to appoint a successor Indenture Trustee for such series. The
Eligible Lender Trustee may also remove any such Indenture Trustee that ceases
to be eligible to continue as such under the related Indenture or if such
Indenture Trustee becomes insolvent. In such circumstances, the Eligible
Lender Trustee will be obligated to appoint a successor trustee for the
applicable series of Notes. Any resignation or removal of the Indenture
Trustee for any series of Notes does not become effective until appointment of
and acceptance of the appointment by a successor trustee for such series.
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DESCRIPTION OF THE CERTIFICATES
General
With respect to each Trust, one or more classes of Certificates of a given
series will be issued pursuant to the terms of a Trust Agreement, a form of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. Such class or classes of Certificates may be offered
publicly or privately, in each case as specified in the related Prospectus
Supplement. The following summary describes certain terms of the Certificates
and the Trust Agreement. The summary does not purport to be complete and is
qualified in its entirety by reference to all the provisions of the
Certificates and the Trust Agreement. See "Formation of the Trusts."
The Certificates will be available for purchase in minimum denominations of
$100,000 and integral multiples of $1,000 in excess thereof in book-entry form
only, or as set forth in the related Prospectus Supplement. The Seller has
been informed by DTC that DTC's nominee will be Cede, unless another nominee
is specified in the related Prospectus Supplement. Accordingly, such nominee
is expected to be the holder of record of the Certificates of any series in
book-entry form. Unless and until Definitive Certificates are issued under the
limited circumstances described herein or in the related Prospectus
Supplement, no Certificateholder of Certificates in book-entry form will be
entitled to receive a physical certificate representing a Certificate. All
references herein and in the related Prospectus Supplement to actions by
Certificateholders of Certificates in book-entry form refer to actions taken
by DTC upon instructions from the Participants and all references herein and
in the related Prospectus Supplement to distributions, notices, reports and
statements to Certificateholders of Certificates in book-entry form refer to
distributions, notices, reports and statement to DTC or its nominee, as the
registered holder of the Certificates, as the case may be, for distribution to
Certificateholders in accordance with DTC's procedures with respect thereto.
See "Certain Information Regarding the Securities--Book-Entry Registration"
and "--Definitive Securities." Certificates of a given series owned by the
Seller or its affiliates will be entitled to equal and proportionate benefits
under the applicable Trust Agreement, except that such Certificates will be
deemed not to be outstanding for the purpose of disapproving the termination
of the related Trust upon the occurrence of an Insolvency Event with respect
to the Seller as described under "Formation of the Trusts--Insolvency Event",
or as set forth in the related Prospectus Supplement.
Distributions in Respect of the Certificate Balance of the Certificates
The timing and priority of distributions, seniority, allocations of losses,
Certificate Rate and amount of or method of determining distributions in
respect of the Certificate Balance of each class of Certificates of a given
series will be described in the related Prospectus Supplement. Distributions
of return on such Certificates will be made on each Distribution Date and will
be made prior to distributions in respect of the Certificate Balance of such
Certificates. Each class of Certificates may have a different Certificate
Rate, which may be a fixed, a variable, an adjustable or an auction-determined
Certificate Rate or any combination of the foregoing. The related Prospectus
Supplement will specify the Certificate Rate for each class of Certificates of
a given series or the method for determining such Certificate Rate. See also
"Certain Information Regarding the Securities--Fixed Rate Securities" and "--
Floating Rate Securities." Unless otherwise provided in the related Prospectus
Supplement, distributions in respect of the Certificates of a given series may
be subordinate to payments in respect of the Notes of such series as more
fully described in the related Prospectus Supplement. Distributions in
reduction of the Certificate Balance of any class of Certificates will be made
on a pro rata basis among all the Certificateholders of such class.
In the case of a series of Certificates which includes two or more classes
of Certificates, the timing, sequential order, priority of payment or amount
of distributions in reduction of the Certificate Balance, and any schedule or
formula or other provisions applicable to the determination thereof, of each
such class shall be as set forth in the related Prospectus Supplement.
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CERTAIN INFORMATION REGARDING THE SECURITIES
Fixed Rate Securities
Each class of Securities may bear interest or yield a return at a fixed rate
per annum ("Fixed Rate Securities") or at a variable or adjustable rate per
annum ("Floating Rate Securities"), as more fully described below and in the
applicable Prospectus Supplement. Each class of Fixed Rate Securities will
bear interest or yield a return at the applicable per annum Note Rate or
Certificate Rate, as the case may be, specified in the applicable Prospectus
Supplement. See "Description of the Notes--Principal and Interest on the
Notes" and "Description of the Certificates--Distributions in Respect of the
Certificate Balance of the Certificates."
Floating Rate Securities
Each class of Floating Rate Securities will bear interest or yield a return
for each applicable "Reset Period" or "Accrual Period" (as such terms are
defined in the related Prospectus Supplement with respect to a class of
Floating Rate Securities) at a rate per annum determined by reference to a
rate basis (the "Base Rate"), plus or minus the Spread, if any, or multiplied
by the Spread Multiplier, if any, in each case as specified in the related
Prospectus Supplement. The "Spread" is the number of basis points (one basis
point equals one one-hundredth of a percentage point) that may be specified in
the applicable Prospectus Supplement as being applicable to such class, and
the "Spread Multiplier" is the percentage that may be specified in the
applicable Prospectus Supplement as being applicable to such class.
The applicable Prospectus Supplement will designate a Base Rate for a given
Floating Rate Security based on London Interbank Offered Rates, commercial
paper rates, Federal funds rates, U.S. Government treasury securities rates,
negotiable certificates of deposit rates or another rate or rates as set forth
in such Prospectus Supplement.
As specified in the applicable Prospectus Supplement, Floating Rate
Securities of a given class may also have either or both of the following (in
each case expressed as a rate per annum): (i) a maximum limitation, or
ceiling, on the Note Rate or the Certificate Rate during any Reset Period or
Accrual Period and (ii) a minimum limitation, or floor, on the Note Rate or
the Certificate Rate during any Reset Period or Accrual Period. In addition to
any maximum Note Rate or Certificate Rate that may be applicable to any class
of Floating Rate Securities, the Note Rate or Certificate Rate applicable to
any class of Floating Rate Securities will in no event be higher than the
maximum rate permitted by applicable law, as the same may be modified by
United States law of general application.
Each Trust with respect to which a class of Floating Rate Securities will be
issued, will appoint, and enter into agreements with, a calculation agent,
which will be the Administrator unless otherwise specified in the related
Prospectus Supplement (the "Calculation Agent"), to calculate Note Rates and
Certificate Rates on each such class of Floating Rate Securities issued with
respect thereto. All determinations of the Note Rate and the Certificate Rate
by the Calculation Agent will, in the absence of manifest error, be conclusive
for all purposes and binding on the holders of Floating Rate Securities of a
given class. All percentages resulting from any calculation of the Note Rate
or the Certificate Rate on a Floating Rate Security will be rounded, if
necessary, to the nearest 1/100,000 of 1% (.0000001), with five one-millionths
of a percentage point rounded upward, or as set forth in the related
Prospectus Supplement.
Distributions
With respect to each series of Securities, beginning on the Distribution
Date specified in the related Prospectus Supplement, distributions of
principal and interest on each class of Notes and amounts in respect of the
Certificate Balance of and return on each class of Certificates of such
Securities entitled thereto will be made by the applicable Trustee to the
Noteholders and the Certificateholders, as applicable, of such series. The
timing, calculation, allocation, order, source, priorities of and requirements
for all payments to each class of Noteholders and all distributions to each
class of Certificateholders of such series will be set forth in the related
Prospectus Supplement.
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With respect to each Trust, on each Distribution Date, collections on or
with respect to the related Trust Student Loans will be distributed from the
Collection Account to Noteholders and Certificateholders to the extent
provided in the related Prospectus Supplement. Credit and cash flow
enhancement, such as a Reserve Account, will be available to cover any
shortfalls in the amount available for distribution on such date to the extent
specified in the related Prospectus Supplement. As more fully described in the
related Prospectus Supplement, distributions in respect of the principal
amount of Notes and in respect of the Certificate Balance of Certificates of a
class of a given series will be subordinate to distributions in respect of
interest or return on such class, and distributions in respect of the
Certificates of such series will, to the extent provided in the related
Prospectus Supplement, be subordinate to payments in respect of the Notes of
such series. With respect to a series that includes two or more classes of
Certificates, each class may differ as to timing and priority of distributions
in respect of the Certificate Balance thereof and return thereon.
Credit and Cash Flow or other Enhancement or Derivative Arrangements
General. The amounts and types of credit or cash flow enhancement
arrangements and the provider thereof, if applicable, with respect to each
class of Securities of a given series, if any, will be set forth in the
related Prospectus Supplement. If and to the extent provided in the related
Prospectus Supplement, credit or cash flow enhancement may be in the form of
subordination of one or more classes of Securities, Reserve Accounts,
overcollateralization, letters of credit, cash collateral accounts, financial
insurance, commitment agreements, credit or liquidity facilities, surety
bonds, guaranteed investment contracts, swaps (including without limitation
interest rate and currency swaps), exchange agreements, interest rate
protection agreements, repurchase obligations, put and/or call options, yield
protection agreements, other agreements with respect to third party payments
or such other support, cash deposit, derivative or other arrangements as may
be described in the related Prospectus Supplement or any combination of the
foregoing. If specified in the applicable Prospectus Supplement, credit or
cash flow enhancement for a class of Securities may cover one or more other
classes of Securities of the same series, and credit or cash flow enhancement
for a series of Securities may cover one or more other series of Securities.
The presence of a Reserve Account and other forms of credit or liquidity
enhancement for the benefit of any class or series of Securities is intended
to enhance the likelihood of receipt by the Securityholders of such class or
series of the full amount of distributions due thereon when due and to
decrease the likelihood that such Securityholders will experience losses. The
credit enhancement for a class or series of Securities will not provide
protection against all risks of loss and will not guarantee repayment of all
distributions thereon, or as set forth in the related Prospectus Supplement.
If losses occur which exceed the amount covered by any credit enhancement or
which are not covered by any credit enhancement, Securityholders of any class
or series will bear their allocable share of deficiencies, as described in the
related Prospectus Supplement. In addition, if a form of credit enhancement
covers more than one series of Securities, Securityholders of any such series
will be subject to the risk that such credit enhancement will be exhausted by
the claims of Securityholders of other series.
Reserve Account. If so provided in the related Prospectus Supplement,
pursuant to the related Sale Agreement, the Administrator will establish a
Reserve Account for a series or class of Securities, as specified in the
related Prospectus Supplement which will be maintained in the name of the
applicable Indenture Trustee. The Reserve Account will be funded by an initial
deposit by the Trust on the Closing Date in the amount set forth in the
related Prospectus Supplement. As further described in the related Prospectus
Supplement, the amount on deposit in the Reserve Account may be increased on
each Distribution Date thereafter up to the Specified Reserve Account Balance
(as defined in the related Prospectus Supplement) by the deposit therein of
the amount of any collections on the related Trust Student Loans remaining on
each such Distribution Date after the payment of all other required payments
and distributions on such date. The related Prospectus Supplement will
describe the circumstances and manner in which distributions may be made out
of the Reserve Account, either to holders of the Securities covered thereby or
to the Seller.
Book-Entry Registration
Securityholders of Securities in book-entry form may hold their Securities
through DTC (in the United States) or, if so provided in the related
Prospectus Supplement, Cedel or Euroclear (in Europe) if they are participants
of such systems, or indirectly through organizations which are participants in
such systems.
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Cede & Co., as nominee for DTC, will hold one or more global Notes and
Certificates. Cedel and Euroclear will hold omnibus positions on behalf of
their participants through customers' securities accounts in Cedel's and
Euroclear's names on the books of their respective Depositaries which in turn
will hold such positions in customers' securities accounts in the
Depositaries' names on the books of DTC. Select entities (referred to as
common depositaries) will, if applicable, act as depositary for Cedel and
Euroclear (in such capacities, the "Depositaries"). Transfers between DTC
participants will occur in the ordinary way in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
the ordinary way in accordance with their applicable rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel 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 Depositary; 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 (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary 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 Participants and
Euroclear Participants may not deliver instructions directly to the
Depositaries.
Because of time-zone differences, credits of securities received in Cedel or
Euroclear as a result of a transaction with a DTC participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Cedel participant on such business day. Cash received in Cedel or
Euroclear as a result of sales of securities by or through a Cedel 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 or
Euroclear cash account only as of the business day following settlement in
DTC. For additional information regarding clearance and settlement procedures
for the Securities, see Appendix B hereto and for information with respect to
tax documentation procedures relating to the Securities, see Appendix B hereto
and "Certain Federal Income Tax Consequences--Foreign Holders."
DTC is a limited purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York UCC and a "clearing agency" registered
pursuant to Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the clearance and settlement
of securities transactions between Participants through electronic book-
entries, thereby eliminating the need for physical movement of certificates.
Participants include securities brokers and dealers, banks, trust companies
and clearing corporations. Indirect access to the DTC system also is available
to others such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a Participant, either
directly or indirectly ("Indirect Participants").
Securityholders that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Securities may do so only through Participants and Indirect
Participants, or as set forth in the related Prospectus Supplement. In
addition, Securityholders will receive all distributions from the related
Indenture Trustee or the related Eligible Lender Trustee, as applicable (the
"Applicable Trustee"), through Participants and Indirect Participants. Under a
book-entry format, Securityholders may experience some delay in their receipt
of payments, since such payments will be forwarded by the Applicable Trustee
to DTC's Nominee. DTC will forward such payments to its Participants, which
thereafter will forward them to Indirect Participants or Securityholders.
Except for the Seller with respect to any series of Securities, it is
anticipated that the only "Securityholder," "Certificateholder" and
"Noteholder" will be DTC's Nominee. Securityholders will not be recognized by
the Applicable Trustee as Noteholders or Certificateholders, as such terms are
used in each Indenture and each Trust Agreement, respectively, and
Securityholders will be permitted to exercise the rights of Securityholders
only indirectly through DTC and its Participants.
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Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Securities among Participants on whose behalf it acts with respect to the
Securities and to receive and transmit distributions of amounts payable on the
Securities. Participants and Indirect Participants with which Securityholders
have accounts with respect to the Securities similarly are required to make
book-entry transfers and receive and transmit such payments on behalf of their
respective Securityholders. Accordingly, although Securityholders will not
possess Securities, the Rules provide a mechanism by which Participants will
receive payments and will be able to transfer their interests.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder to pledge Securities to persons or entities that do not
participate in the DTC system, or to otherwise act with respect to such
Securities, may be limited due to the lack of a physical certificate for such
Securities.
DTC has advised the Seller that it will take any action permitted to be
taken by a Securityholder under the related Indenture or the related Trust
Agreement, as the case may be, only at the direction of one or more
Participants to whose accounts with DTC the Securities are credited. DTC may
take conflicting actions with respect to other undivided interests to the
extent that such actions are taken on behalf of Participants whose holdings
include such undivided interests.
Except as required by law, neither the Administrator nor the Applicable
Trustee will have any liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the Securities
held by DTC's Nominee, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Cedel Bank, societe anonyme ("Cedel") is incorporated under the laws of
Luxembourg as a professional depositary. Cedel holds securities for its
participating organizations ("Cedel Participants") and facilitates the
clearance and settlement of securities transactions between Cedel Participants
through electronic book-entry changes in accounts of Cedel Participants,
thereby eliminating the need for physical movement of certificates.
Transactions may be settled in Cedel in numerous currencies, including United
States dollars. Cedel provides to its Participants, among other things,
services for safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing. Cedel
interfaces with domestic markets in several countries. As a professional
depositary, Cedel is subject to regulation by the Luxembourg Monetary
Institute. Cedel Participants are recognized financial institutions around the
world, including underwriters, securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations and may
include the Underwriters. Indirect access to Cedel is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Cedel 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 be settled in numerous currencies,
including United States dollars. The Euroclear System includes various other
services, including securities lending and borrowing and interfaces with
domestic markets in several 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 S.C., 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 establishes
policy for the Euroclear System on behalf of Euroclear Participants. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and
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may include the Underwriters. Indirect access to the Euroclear system is also
available to other firms that clear through or 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, and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions
govern transfers of securities and cash within the Euroclear System,
withdrawals 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 fungible 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.
Distributions with respect to Securities held through Cedel or Euroclear
will be credited to the cash accounts of Cedel Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by its Depositary. Such distributions will be subject to
tax reporting in accordance with relevant United States tax laws and
regulations. See "Certain Federal Income Tax Consequences." The Cedel or the
Euroclear Operator, as the case may be, will take any other action permitted
to be taken by a Securityholder under the Agreement on behalf of a Cedel
Participant or Euroclear Participant only in accordance with its relevant
rules and procedures and subject to its Depositary's ability to effect such
actions on its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of Securities among participants of DTC, Cedel
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 Securities
The Notes and the Certificates of a given series originally in book-entry
form will be issued in fully registered, certificated form ("Definitive Notes"
and "Definitive Certificates", respectively, and collectively referred to
herein as "Definitive Securities") to Noteholders or Certificateholders or
their respective nominees, rather than to DTC or its nominee, only if (i) the
related Administrator advises the Applicable Trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as
depository with respect to the Securities and the Administrator is unable to
locate a successor, (ii) the Administrator, at its option, elects to terminate
the book-entry system through DTC or (iii) after the occurrence of an Event of
Default, a Servicer Default or an Administrator Default, Securityholders
representing beneficial interests aggregating a majority of the outstanding
principal amount of the Notes or the outstanding Certificate Balance of the
Certificates, as the case may be, of such series advise the Applicable Trustee
through DTC in writing that the continuation of a book-entry system through
DTC (or a successor thereto) with respect to such Notes or Certificates is no
longer in the best interest of the holders of such Securities, or as set forth
in the related Prospectus Supplement.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Applicable Trustee will be required to notify all applicable
Securityholders of a given series through Participants of the availability of
Definitive Securities. Upon surrender by DTC of the definitive securities
representing the corresponding Securities and receipt of instructions for re-
registration, the Applicable Trustee will reissue such Securities as
Definitive Securities to such Securityholders.
Distributions of amounts payable on such Definitive Securities will
thereafter be made by the Applicable Trustee in accordance with the procedures
set forth in the related Indenture or the related Trust Agreement, as
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the case may be, directly to holders of Definitive Securities in whose names
the Definitive Securities were registered at the close of business on the
applicable Record Date specified for such Securities in the related Prospectus
Supplement. Such distributions will be made by check mailed to the address of
such holder as it appears on the register maintained by the Applicable
Trustee. The final payment on any such Definitive Security, however, will be
made only upon presentation and surrender of such Definitive Security at the
office or agency specified in the notice of final distribution to applicable
Securityholders.
Definitive Securities will be transferable and exchangeable at the offices
of the Applicable Trustee or of a registrar named in a notice delivered to
holders of Definitive Securities. No service charge will be imposed for any
registration of transfer or exchange, but the Applicable Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
List of Securityholders
Three or more holders of the Notes of any series or one or more holders of
such Notes evidencing not less than 25% of the aggregate outstanding principal
balance of such Notes may, by written request to the related Indenture
Trustee, obtain access to the list of all Noteholders maintained by such
Indenture Trustee for the purpose of communicating with other Noteholders with
respect to their rights under the related Indenture or such Notes, or as set
forth in the related Prospectus Supplement. Such Indenture Trustee may elect
not to afford the requesting Noteholders access to the list of Noteholders if
it agrees to mail the desired communication or proxy, on behalf and at the
expense of the requesting Noteholders, to all Noteholders of such series.
Three or more Certificateholders of such series or one or more holders of
such Certificates evidencing not less than 25% of the Certificate Balance of
such Certificates may, by written request to the related Eligible Lender
Trustee, obtain access to the list of all Certificateholders for the purpose
of communicating with other Certificateholders with respect to their rights
under the related Trust Agreement or under such Certificates, or as set forth
in the related Prospectus Supplement.
Reports to Securityholders
With respect to each series of Securities, on each Distribution Date, the
Applicable Trustee will provide to Securityholders of record as of the related
Record Date a statement setting forth substantially the same information as is
required to be provided on the periodic report provided to the related
Indenture Trustee and the related Trust described under "Servicing;
Administration--Statements to Indenture Trustee and Trust."
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of each Trust, the Applicable
Trustee will mail to each person who at any time during such calendar year was
a Securityholder with respect to such Trust and received any payment thereon,
a statement containing certain information for the purposes of such
Securityholder's preparation of federal income tax returns. See "Certain
Federal Income Tax Consequences."
CERTAIN LEGAL ASPECTS OF THE STUDENT LOANS
Transfer of Student Loans
Sallie Mae intends that the transfer of the Student Loans by it to the
Seller, and the Seller intends that the transfer of the Student Loans by it to
the related Eligible Lender Trustee on behalf of each Trust, will constitute a
valid sale and assignment of such Student Loans. Notwithstanding the
foregoing, if the transfer of the Student Loans by Sallie Mae to the Seller
and/or the transfer of the Student Loans by the Seller to the Eligible Lender
Trustee on behalf of each Trust is deemed to be an assignment of collateral as
security, then a security interest in the Student Loans may, pursuant to the
provisions of 20 U.S.C. sec. 1087-2(d)(3), be perfected by, among other
things, the filing of notice of such security interest in the manner provided
by the applicable Uniform Commercial Code ("UCC") for perfection of security
interests in accounts. A financing statement or statements
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naming Sallie Mae as debtor will be filed under the UCC to protect the
interest of the Seller in the event that the transfer by Sallie Mae is deemed
to be an assignment of collateral as security, and a financing statement or
statements naming the Seller as debtor will be filed under the UCC to protect
the interest of the Eligible Lender Trustee in the event that the transfer by
the Seller is deemed to be an assignment of collateral as security.
If the transfer of the Student Loans is deemed to be an assignment as
security for the benefit of the Seller or a Trust, there are certain limited
circumstances in which prior or subsequent transferees of Student Loans could
have an interest in such Student Loans with priority over the related Eligible
Lender Trustee's interest. A tax or other government lien on property of
Sallie Mae or the Seller arising prior to the time a Student Loan comes into
existence may also have priority over the interest of the Seller or the
related Eligible Lender Trustee in such Student Loan. Under the related
Purchase Agreement and Sale Agreement, however, Sallie Mae or the Seller, as
applicable, will warrant that it has transferred the Student Loans to the
Seller and the related Eligible Lender Trustee on behalf of a Trust free and
clear of the lien of any third party. In addition, each of Sallie Mae and the
Seller will covenant that it will not sell, pledge, assign, transfer or grant
any lien on any Student Loan (or any interest therein) other than to the
Seller or the related Eligible Lender Trustee on behalf of a Trust,
respectively, except as provided below.
Pursuant to each Servicing Agreement, the Servicer as custodian on behalf of
the related Trust will have custody of the promissory notes evidencing the
Student Loans following the sale of the Student Loans to Seller and the
related Eligible Lender Trustee. Although the records of Sallie Mae, the
Seller and Servicer will be marked to indicate the sale and although Sallie
Mae and the Seller will cause UCC financing statements to be filed with the
appropriate authorities, the Student Loans will not be physically segregated,
stamped or otherwise marked to indicate that such Student Loans have been sold
to the Seller and to such Eligible Lender Trustee. If, through inadvertence or
otherwise, any of such Student Loans were sold to another party that (i)
purchased such Student Loans in the ordinary course of its business, (ii) took
possession of such Student Loans, and (iii) acquired the Student Loans for new
value and without actual knowledge of the related Eligible Lender Trustee's
interest, then such purchaser would acquire an interest in the Student Loans
superior to the interest of the Seller and the Eligible Lender Trustee. See
"Transfer and Servicing Agreements--Sale of Student Loans to the Trust;
Representations and Warranties of the Seller."
With respect to each Trust, in the event of a Servicer Default resulting
solely from certain events of insolvency or bankruptcy that may occur with
respect to the Servicer, a court, conservator, receiver or liquidator may have
the power to prevent either the related Indenture Trustee or Noteholders of
the related series from appointing a successor Servicer. See "Servicing--
Rights Upon Servicer Default."
Consumer Protection Laws
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon lenders and servicers involved in
consumer finance. Also, unless preempted by federal law, some state laws
impose finance charge ceilings and other restrictions on certain consumer
transactions and require contract disclosures in addition to those required
under federal law. These requirements impose specific statutory liabilities
upon lenders who fail to comply with their provisions. In certain
circumstances, the Seller or a Trust may be liable for certain violations of
consumer protection laws that apply to the Student Loans, either as assignee
from Sallie Mae or the Seller or as the party directly responsible for
obligations arising after the transfer. For a discussion of a Trust's rights
if the Student Loans were not originated or serviced in compliance in all
material respects with applicable laws, see "Transfer and Servicing
Agreements--Sale of Student Loans to the Trust; Representations and Warranties
of the Seller" and "Servicing; Administration--Servicer Covenants."
Loan Origination and Servicing Procedures Applicable to Student Loans
The Act, including the implementing regulations thereunder, imposes
specified requirements with respect to originating and servicing student loans
such as the Student Loans. Generally, those procedures require that a
determination of whether an applicant is an eligible borrower under applicable
standards (including financial
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need analysis) 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 then that the loan proceeds be disbursed in a specified
manner by the lender. After the loan is made, the lender must establish
repayment terms with the borrower, properly administer deferrals and
forbearance and credit the borrower for payments made thereon. If a borrower
becomes delinquent in repaying a loan, a lender or a servicing agent must
perform certain collection procedures (primarily telephone calls and demand
letters) which vary depending upon the length of time a loan is delinquent.
The Servicer has agreed pursuant to the related Servicing Agreement to perform
collection and servicing procedures on behalf of the related Trust. However,
failure to follow these procedures or failure of the Seller to follow
procedures relating to the origination of the Student Loans could result in
adverse consequences. Any such failure could result in the Department's
refusal to make reinsurance payments to the Guarantee Agencies or the
Department's or the Guarantee Agencies' refusal to make Program Payments to
the Eligible Lender Trustee with respect to such Student Loans. Failure of the
Guarantee Agencies to receive reinsurance payments from the Department could
adversely affect the Guarantee Agencies' ability or legal obligation to make
Guarantee Payments to the related Eligible Lender Trustee with respect to such
Student Loans.
Loss of any such Program Payments could adversely affect the amount of
Available Funds on any Distribution Date and the related Trust's ability to
pay principal and interest on the Notes of the related series and to make
distributions in respect of the Certificates of the related series. Under
certain circumstances, the related Trust has the right, pursuant to the
related Sale Agreement and the related Servicing Agreement, to cause the
Seller or the Servicer to purchase or substitute any Student Loan, if a breach
of the representations, warranties or covenants of the Seller or the Servicer,
as the case may be, with respect to such Student Loan has a material adverse
effect on the interest of the Trust therein where such breach would result in
nonpayment of Program Payments and such breach is not cured within any
applicable cure period. See "Transfer and Servicing Agreements--Sale of
Student Loans to the Trust; Representations and Warranties of the Seller" and
"Servicing--Servicer Covenants." The failure of the Seller or the Servicer to
so purchase or substitute a Student Loan would constitute a breach of the
related Sale Agreement or related Servicing Agreement, enforceable by the
related Eligible Lender Trustee on behalf of the related Trust or by the
related Indenture Trustee on behalf of the Noteholders of the related series,
but would not constitute an Event of Default under the Indenture.
Student Loans Generally Not Subject to Discharge in Bankruptcy
Student Loans are generally not dischargeable by a borrower in bankruptcy
pursuant to the U.S. Bankruptcy Code, unless (a) such Student Loan first
became due before seven years (exclusive of any applicable suspension of the
repayment period) before the date of the bankruptcy or (b) excepting such debt
from discharge will impose an undue hardship on the debtor and the debtor's
dependents.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of certain federal income tax
consequences of the purchase, ownership and disposition of the Notes and the
Certificates. The summary does not purport to deal with federal income tax
consequences applicable to all categories of holders, some of which may be
subject to special rules. For example, it does not discuss the tax treatment
of Noteholders or Certificateholders that are insurance companies, regulated
investment companies or dealers in securities. Moreover, there are no cases or
Internal Revenue Service rulings on similar transactions involving both debt
and equity interests issued by a trust with terms similar to those of the
Notes and the Certificates. As a result, the Internal Revenue Service may
disagree with all or a part of the discussion below. Prospective investors are
urged to consult their own tax advisors in determining the federal, state,
local, foreign and any other tax consequences to them of the purchase,
ownership and disposition of the Notes and the Certificates.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. Each Trust will be
provided with an opinion of Federal Tax
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Counsel regarding certain federal income tax matters discussed below. An
opinion of Federal Tax Counsel, however, is not binding on the Internal
Revenue Service or the courts. No ruling on any of the issues discussed below
will be sought from the Internal Revenue Service. For purposes of the
following summary, references to the Trust, the Notes, the Certificates and
related terms, parties and documents shall be deemed to refer, unless
otherwise specified herein, to each Trust and the Notes, Certificates and
related terms, parties and documents applicable to such Trust.
Tax Characterization of the Trust
Unless otherwise specified in the related Prospectus Supplement, with
respect to each series, Federal Tax Counsel will deliver its opinion at
closing, subject to the assumptions and qualifications therein, and based on
any representations referenced therein, that the Trust will not be classified
as an association (or publicly traded partnership) taxable as a corporation
for federal income tax purposes. The opinion will be based on the assumption
that the terms of the Trust Agreement for such series and related documents
will be complied with, on certain representations, and on counsel's
conclusions that (1) the Trust will have certain characteristics and will
affirmatively elect not to be characterized as an association taxable as a
corporation and (2) the structure of the Trust will exempt it from the rule
that certain publicly traded partnerships are taxable as corporations.
If a Trust were taxable as a corporation for federal income tax purposes,
the Trust would be subject to corporate income tax on its taxable income. A
Trust's taxable income would include all its income on the Student Loans, and
should be reduced by its interest expense on the Notes. Any such corporate
income tax would materially reduce cash available to make payments on the
Notes and distributions on the Certificates, and Certificateholders could be
liable for any such tax that is unpaid by the Trust.
Tax Consequences to Holders of the Notes
Treatment of the Notes as Indebtedness. Unless otherwise specified in the
related Prospectus Supplement, the Seller will agree, and the Noteholders of
each series will agree by their purchase of Notes of such series, to treat the
Notes as debt for federal income tax purposes. Unless otherwise specified in
the related Prospectus Supplement, Federal Tax Counsel will deliver an opinion
to the Trust at closing that the Notes of such series will be classified as
debt for federal income tax purposes. The discussion below assumes that the
Notes will be characterized as debt.
Stated Interest. Stated interest on the Notes will be taxable as ordinary
income for federal income tax purposes when received or accrued in accordance
with the method of tax accounting of the beneficial owner of a Note (a "Note
Owner").
Original Issue Discount. The discussion below assumes that all payments on
the Notes of a series are denominated in U.S. dollars, and that the interest
formula for the Notes of a series meets the requirements for "qualified stated
interest" under Treasury regulations (the "OID Regulations") relating to
original issue discount ("OID"), except as set forth below. If these
conditions are not satisfied with respect to a series of Notes, additional tax
considerations with respect to such Notes will be disclosed in the applicable
Prospectus Supplement.
A Note will be treated as issued with OID if the excess of the Note's
"stated redemption price at maturity" over its issue price equals or exceeds a
de minimis amount equal to 1/4 of 1 percent of the Note's stated redemption
price at maturity multiplied by the number of years (based on the anticipated
weighted average life of the Notes of the same series, calculated using the
prepayment assumption used in pricing the Notes (the "Prepayment Assumption")
and weighing each payment by reference to the number of full years elapsed
from the closing date prior to the anticipated date of such payment) to its
maturity. Generally, the issue price of a Note of a series should be the first
price at which a substantial amount of the Notes included in the issue of
which the Note is a part is sold to other than placement agents, underwriters,
brokers or wholesalers. The stated redemption price at maturity of a Note of a
series is generally equal to all payments on a Note other than
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payments of "qualified stated interest." Qualified stated interest payments
are interest payments on the Notes that are unconditionally payable at least
annually at a single fixed rate (or certain variable rates) applied to the
outstanding principal amount of the obligation. Assuming that interest is
qualified stated interest, the stated redemption price is generally expected
to equal the principal amount of the Note. Any de minimis OID must be included
in income as principal payments are received on the Notes in the proportion
that each such payment bears to the original principal balance of the Note.
If the Notes are treated as issued with OID, a Note Owner will be required
to include OID in income before the receipt of cash attributable to such
income using a constant yield method. The amount of OID generally includible
in income is the sum of the daily portions of OID with respect to a Note for
each day during the taxable year or portion of the taxable year in which the
Note Owner holds the Note. Special provisions apply to debt instruments on
which payments may be accelerated due to prepayments of other obligations
securing those debt instruments. Under these provisions, the computation of
OID on such debt instruments must be determined by taking into account both
the Prepayment Assumption used in pricing the debt instrument and the actual
prepayment experience. As a result of these special provisions, the amount of
OID on the Notes issued with OID that will accrue in any given accrual period
may either increase or decrease depending upon the actual prepayment rate.
Note Owners should consult their own tax advisors regarding the impact of the
OID rules in the event that Notes are issued with OID.
In the event a Note Owner purchases a Note issued with OID at an acquisition
premium (i.e., at a price in excess of its "adjusted issue price" but less
than its stated redemption price), the amount includible in income in each
taxable year as OID is reduced by that portion of the excess properly
allocable to such year. The adjusted issue price of a Note is the sum of its
issue price plus prior accruals of OID, reduced by the total payments made
with respect to such Note in all prior periods, other than "qualified stated
interest" payments. Acquisition premium is allocated on a pro rata basis to
each accrual of OID, so that the Note Owner is allowed to reduce each accrual
of OID by a constant fraction.
An initial Note Owner who owns an interest in more than one class of Notes
with respect to a series should be aware that the OID Regulations may treat
such interests as a single debt instrument for purposes of the OID provisions
of the Code.
Market Discount. The Notes, whether or not issued with original issue
discount, will be subject to the "market discount rules" of Section 1276 of
the Code. In general, these rules provide that if the Note Owner purchases the
Note at a market discount (that is, a discount from its stated redemption
price at maturity or, if the Notes were issued with OID, adjusted issue price)
that exceeds a de minimis amount specified in the Code and thereafter (a)
recognizes gain upon a disposition, or (b) receives payments that do not
constitute qualified stated interest, the lesser of (i) such gain or payment,
or (ii) the accrued market discount that has not previously been included in
income, will be taxed as ordinary interest income. Generally, market discount
accrues in the ratio of stated interest allocable to the relevant period to
the sum of the interest for such period plus the remaining interest as of the
end of such period (computed taking into account the Prepayment Assumption),
or in the case of a Note issued with OID, in the ratio of OID accrued for the
relevant period to the sum of the OID accrued for such period plus the
remaining OID as of the end of such period. A Note Owner may elect, however,
to determine accrued market discount under the constant yield method (computed
taking into account the Prepayment Assumption).
Limitations imposed by the Code which are intended to match deductions with
the taxation of income may defer deductions for interest on indebtedness
incurred or continued, or short-sale expenses incurred, to purchase or carry a
Note with accrued market discount. A Note Owner may elect to include market
discount in gross income as it accrues and, if such Note Owner makes such an
election, is exempt from this rule. Any such election will apply to all debt
instruments acquired by the taxpayer on or after the first day of the first
taxable year to which such election applies. The adjusted basis of a Note
subject to such election will be increased to reflect market discount included
in gross income, thereby reducing any gain or increasing any loss on a sale or
taxable disposition.
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Short-Term Obligations. Under the Code, special rules apply to notes that
have a maturity of one year or less from their date of original issue. Such
notes are treated as issued with "acquisition discount" which is calculated
and included in income under principles similar to those governing OID except
that "acquisition discount" is equal to the excess of all payments of
principal and interest on such Notes over their issue price. In general, an
individual or other cash basis holder of a short-term obligation is not
required to accrue acquisition discount for federal income tax purposes unless
it elects to do so. Accrual basis and certain other Note Owners, including
banks, regulated investment companies, dealers in securities and cash basis
Note Owners who so elect, are required to accrue acquisition discount on
short-term notes on either a straight line basis or under a constant yield
method (based on daily compounding), at the election of the Note Owners. In
the case of a Note Owner not required and not electing to include acquisition
discount in income currently, any gain realized on the sale or retirement of
such Note will be ordinary income to the extent of the acquisition discount
accrued on a straight line basis (unless an election is made to accrue the
acquisition discount under the constant yield method) through the date of sale
or retirement. Note Owners who are not required and do not elect to accrue
acquisition discount on short-term Notes will be required to defer deductions
for interest on borrowings allocable to short-term obligations in an amount
not exceeding the deferred income until the deferred income is realized.
Amortizable Bond Premium. In general, if a Note Owner purchases a Note at a
premium (that is, an amount in excess of the amount payable upon the maturity
thereof), such Note Owner will be considered to have purchased such Note with
"amortizable bond premium" equal to the amount of such excess. Such Note Owner
may elect to amortize such bond premium as an offset to interest income and
not as a separate deduction item as it accrues under a constant yield method
(or one of the other methods described above under "--Market Discount") over
the remaining term of the Note, using the Prepayment Assumption. Such Note
Owner's tax basis in the Note will be reduced by the amount of the amortized
bond premium. Any such election shall apply to all debt instruments (other
than instruments the interest on which is excludible from gross income) held
by the Note Owner at the beginning of the first taxable year for which the
election applies or thereafter acquired and is irrevocable without the consent
of the Internal Revenue Service. Bond premium on a Note held by a Note Owner
who does not elect to amortize the premium will decrease the gain or increase
the loss otherwise recognized on the disposition of the Note.
Election to Treat All Interest as Original Issue Discount. A Note Owner may
elect to include in gross income all interest that accrues on a Note using the
constant yield method described above under the heading "--Original Issue
Discount," with modifications described below. For purposes of this election,
interest includes stated interest, acquisition discount, OID, de minimis OID,
market discount, de minimis market discount and unstated interest, as adjusted
by any amortizable bond premium (described above under "--Amortizable Bond
Premium") or acquisition premium.
In applying the constant yield method to a Note with respect to which this
election has been made, the issue price of the Note will equal the adjusted
basis of the electing Note Owner in the Note immediately after its
acquisition, the issue date of the Note will be the date of its acquisition by
the electing Note Owner, and no payments on the Note will be treated as
payments of qualified stated interest. This election will generally apply only
to the Note with respect to which it is made and may not be revoked without
the consent of the Internal Revenue Service. Note Owners should consult their
own tax advisers as to the effect in their circumstances of making this
election.
Disposition of Notes. The adjusted tax basis of a Note Owner in a Note will
be its cost, increased by the amount of any OID, market discount and gain
previously included in income with respect to the Note, and reduced by the
amount of any payments on the Note that are not qualified stated interest and
the amount of bond premium previously amortized with respect to the Note. A
Note Owner will generally recognize gain or loss on the sale or retirement of
a Note equal to the difference between the amount realized on the sale or
retirement and the tax basis of the Note. Such gain or loss will be capital
gain or loss (except to the extent attributable to accrued but unpaid interest
or as described above under "--Market Discount," and, in the event of a
prepayment or redemption, any not yet accrued OID) and will be long-term
capital gain or loss if the Note was held for more than one year.
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Waivers and Amendments
An Indenture for a series may permit the Note Owners to waive an event of
default or rescind an acceleration of the Notes in some circumstances upon a
vote of the requisite percentage of Note Owners. Any such waiver or
rescission, or any amendment of the terms of the Notes, could be treated for
federal income tax purposes as a constructive exchange by a Note Owner of the
Notes for new notes, upon which gain or loss might be recognized.
Information Reporting and Backup Withholding
The Indenture Trustee will be required to report annually to the Internal
Revenue Service, and to each Note Owner, the amount of interest paid on the
Notes (and the amount withheld for federal income taxes, if any) for each
calendar year, except as to exempt recipients (generally, corporations, tax-
exempt organizations, qualified pension and profit-sharing trusts, individual
retirement accounts, or nonresident aliens who provide certification as to
their status). Each Note Owner (other than Note Owners who are not subject to
the reporting requirements) will be required to provide, under penalties of
perjury, a certificate containing the Note Owner's name, address, correct
federal taxpayer identification number (which includes a social security
number) and a statement that the Holder is not subject to backup withholding.
Should a non-exempt Note Owner fail to provide the required certification or
should the Internal Revenue Service notify the Indenture Trustee or the Issuer
that the Note Owner has provided an incorrect federal taxpayer identification
number or is otherwise subject to backup withholding, the Indenture Trustee
will be required to withhold (or cause to be withheld) 31% of the interest
otherwise payable to the Note Owner, and remit the withheld amounts to the
Internal Revenue Service as a credit against the Note Owner's federal income
tax liability.
Tax Consequences to Foreign Investors
The following information describes the U.S. federal income tax treatment of
investors that are not U.S. persons (each, a "Foreign Person"). The Internal
Revenue Service has recently issued regulations which set forth procedures to
be followed by a Foreign Person in establishing foreign status for certain
purposes. Such regulations generally are effective for payments made after
December 31, 2000. Prospective investors should consult their tax advisors
concerning the requirements imposed by the new regulations and their effect on
the holding of the Notes.
The term "Foreign Person" means any person other than (i) a citizen or
resident of the United States, (ii) a corporation, partnership or other entity
organized in or under the laws of the United States or any political
subdivision thereof, (iii) an estate the income of which is includible in
gross income for U.S. federal income tax purposes regardless of its source, or
(iv) a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States fiduciaries who
have the authority to control all substantial decisions of the trust.
Notwithstanding the preceding sentence, to the extent provided in Treasury
regulations, certain trusts in existence on August 20, 1996, and treated as
U.S. persons prior to such date, that elect to continue to be treated as U.S.
persons, will be U.S. persons and not Foreign Persons.
(a) Interest paid or accrued to a Foreign Person that is not effectively
connected with the conduct of a trade or business within the United States
by the Foreign Person will generally be considered "portfolio interest" and
generally will not be subject to United States federal income tax and
withholding tax, as long as the Foreign Person (i) is not actually or
constructively a "10 percent shareholder" of the Issuer or a "controlled
foreign corporation" with respect to which the Issuer is a "related person"
within the meaning of the Code, and (ii) provides an appropriate statement,
signed under penalties of perjury, certifying that the holder is a Foreign
Person and providing that Foreign Person's name and address (which
certification may be made on Form W-8BEN). If the information provided in
this statement changes, the Foreign Person must so inform the Indenture
Trustee within 30 days of such change. The statement generally must be
provided in the year a payment occurs or in either of the two preceding
years. If such interest were not portfolio interest, then it would be
subject to United States federal income and withholding tax at a rate of 30
percent unless reduced or eliminated pursuant to an applicable income tax
treaty. For payments made after December 31, 2000, in the case of Notes
held by a foreign partnership, the partnership, in addition to providing a
Form W-8IMY, must attach a Form W-8BEN received from each partner.
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(b) Any capital gain realized on the sale or other taxable disposition of
a Note by a Foreign Person will be exempt from United States federal income
and withholding tax, provided that (i) the gain is not effectively
connected with the conduct of a trade or business in the United States by
the Foreign Person, and (ii) in the case of an individual Foreign Person,
the Foreign Person is not present in the United States for 183 days or more
in the taxable year and certain other requirements are met.
(c) If the interest, gain or income on a Note held by a Foreign Person is
effectively connected with the conduct of a trade or business in the United
States by the Foreign Person, the holder (although exempt from the
withholding tax previously discussed if a duly executed Form 4224 (or,
after December 31, 2000, a Form W-8ECI) is furnished) generally will be
subject to United States federal income tax on the interest, gain or income
at regular federal income tax rates. In addition, if the Foreign Person is
a foreign corporation, it may be subject to a branch profits tax equal to
30 percent of its "effectively connected earnings and profits" within the
meaning of the Code for the taxable year, as adjusted for certain items,
unless it qualifies for a lower rate under an applicable tax treaty.
Possible Alternative Treatments of the Notes
If, contrary to the opinion of Federal Tax Counsel, the Internal Revenue
Service successfully asserted that one or more of the classes of Notes of a
series did not represent debt for federal income tax purposes, the Notes might
be treated as equity interests in the Trust of that series. If so treated, the
Trust might be taxable as a corporation with the adverse consequences
described above (and the taxable corporation would not be able to reduce its
taxable income by deductions for interest expense on Notes recharacterized as
equity). Alternatively, the Trust might be treated as a publicly traded
partnership that would not be taxable as a corporation because it would meet
certain qualifying income tests. Nonetheless, treatment of the Notes as equity
interests in such a publicly traded partnership could have adverse tax
consequences to certain holders. For example, all or a portion of the income
accrued by tax-exempt entities (including pension funds) would be "unrelated
business taxable income," income to foreign holders might be subject to U.S.
federal income tax and U.S. federal income tax return filing and withholding
requirements, and individual holders might be subject to limitations on their
ability to deduct their shares of Trust expenses including losses.
Tax Consequences to Holders of the Certificates
Treatment of a Trust as a Partnership. The Seller and the Servicer will
agree, and the Certificateholders of a series will agree by their purchase of
Certificates, unless otherwise specified in the related Supplement, to treat
the Trust of that series as a partnership for purposes of federal and state
income tax and any other tax measured in whole or in part by income, with the
assets of the partnership being the assets held by the Trust, the partners of
the partnership being the Certificateholders (including the Seller in its
capacity as recipient of distributions from the Trust) and the Notes being
debt of the partnership. The proper characterization of the arrangement
involving the Trust of a series, the Seller and the Servicer is not clear,
however, because there is no authority on transactions closely comparable to
that contemplated herein. It is possible that the Certificates could be
considered debt of the Seller or the Trust because the Certificates have
certain features characteristic of debt. The following discussion assumes that
the Certificates represent equity interests in a partnership.
Partnership Taxation. As a partnership, a Trust will not be subject to
federal income tax. Rather, each Certificateholder will be required to take
into account separately such holder's allocable share of income, gains,
losses, deductions and credits of the Trust (as described below). A Trust's
income will consist primarily of interest and finance charges earned on or
with respect to the Student Loans (including appropriate adjustments for
market discount, OID and bond premium) and any gain upon collection or
disposition of Student Loans. A Trust's deductions will consist primarily of
interest accruing with respect to the Notes, servicing and other fees and
losses or deductions upon collection or disposition of Student Loans.
The tax items of a partnership are allocable among the partners in
accordance with the Code, Treasury Department regulations and the partnership
agreement (here, the Trust Agreement and related documents). The Trust
Agreement will provide that the Certificateholders generally will be allocated
items of gross income of the
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Trust for each month equal to the sum of (i) the product of the Certificate
Rate and the Certificate Balance for such month, (ii) an amount equivalent to
return that accrues during such month on amounts previously due on the
Certificates but not yet distributed, (iii) any Trust income attributable to
discount on the Student Loans that corresponds to any excess of the
Certificate Balance over their initial issue price, (iv) prepayment premium
payable to the Certificateholders for such month and (v) any other amounts of
income payable to the Certificateholders for such month. Losses and deductions
generally will not be allocated to the Certificateholders except to the extent
the Servicer determines that the Certificateholders are reasonably expected to
bear the economic burden of such losses or deductions. If a Certificateholder
were allocated items of loss and deduction that are characterized as capital
losses (including losses recognized upon the sale, extension, revision or, in
certain circumstances, default of a Student Loan), such losses would generally
be deductible by such Certificateholder only against capital gain income
(whether from the Trust or other sources). In addition, individual
Certificateholders are generally subject to limitations on their ability to
deduct "miscellaneous itemized deductions" of the Trust, which include fees
paid to the Servicer (but do not include interest expense on the Notes).
Finally, individual Certificateholders may be subject to other limitations on
their ability to deduct losses and other deductions, including limitations
applicable to investment interest, and should consult their own tax advisors
regarding such limitations. As a consequence of the above described
limitations regarding deduction of losses and other Trust items, a
Certificateholder could be required to report taxable income that is greater
than the Certificateholder's gross income less losses and deductions.
Under the method of allocation described above, Certificateholders may be
allocated income equal to the entire Certificate Rate plus the other items
described above, even though the Trust might not have sufficient cash to make
current cash distributions of such amounts. Thus, cash basis holders will in
effect be required to report income from the Certificates on an accrual basis.
If a Certificateholder is allocated income in excess of cash distributions,
the Certificateholder's basis in the Certificates will be increased by the
amount of such excess, which will reduce any gain or increase any loss upon a
sale or other disposition of the Certificates, as described below under "--
Disposition of Certificates." It is believed that this method of allocation
will be valid under applicable Treasury Department regulations, although no
assurance can be given that the Internal Revenue Service would not require a
greater amount of income to be allocated to Certificateholders. It is also
possible that the Internal Revenue Service would require a Trust to allocate
to Certificateholders net income (instead of gross income) equal to the
foregoing amounts, which allocations would comprise items of gross income and
losses and deductions of the Trust. If a Trust were to allocate net income to
Certificateholders, a Certificateholder's taxable income could exceed the
amount of net income allocated because of limitations on the deductibility of
capital losses and "miscellaneous itemized deductions" described above.
As an alternative to the foregoing, the Internal Revenue Service might treat
Certificateholders as receiving guaranteed payments from a Trust, in which
event the payments would be treated as ordinary income but not as interest
income. The Seller is authorized to adjust the allocations described above to
reflect the economic income, gain or loss to the Certificateholders (including
the Seller) or as otherwise required by the Code.
A portion of the taxable income allocated to a Certificateholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) will be treated as income from
"debt financed property," which generally will be taxable as unrelated
business taxable income.
The Eligible Lender Trustee intends to make all tax calculations relating to
income and allocations to Certificateholders on an aggregate basis. If the
Internal Revenue Service were to require that such calculations be made
separately for each Trust Student Loan, the Trust might be required to incur
additional expense but it is believed that there would not be a material
adverse effect on Certificateholders.
Discount and Premium. It is believed that the Student Loans may have been
issued (or may be issued) with OID. In the event that such OID exceeds a de
minimis amount, a Trust of a series would have OID income. As indicated above,
a portion of such OID income may be allocated to the Certificateholders. The
Taxpayer Relief Act of 1997 (the "1997 Act") expands the application of
special provisions of the Code that require the use of a prepayment assumption
and actual prepayment experience in the computation of OID. Under the 1997
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Act, such special provisions apply, for taxable years beginning after the date
of enactment of the 1997 Act, to any pool of debt instruments the yield on
which may be affected by reason of prepayments. If the provisions contained in
the 1997 Act were to apply to the Student Loans held by a Trust, such
provisions may result in the acceleration of any OID income allocated to the
Certificateholders.
Moreover, the purchase price paid by a Trust for the Student Loans acquired
by such Trust may be greater or less than the remaining principal balance of
the Student Loan at the time of purchase. If so, the Student Loans will have
been acquired at a premium or discount, as the case may be. (As indicated
above, the Trust will make this calculation on an aggregate basis, but might
be required to recompute it on a loan by loan basis.) If the Trust acquires
the Student Loans at a market discount or premium, the Trust will elect to
include any such discount in income currently as it accrues over the life of
the Student Loans or to offset any such premium currently against interest
income on the Student Loans. As indicated above, a portion of such market
discount income or premium deduction may be allocated to Certificateholders.
Distributions to Certificateholders. Certificateholders generally will not
recognize gain or loss with respect to distributions from the Trust. A
Certificateholder will recognize gain, however, to the extent that any money
distributed exceeds the Certificateholder's adjusted basis in the Certificates
(as described below under "--Disposition of Certificates") immediately before
the distribution. A Certificateholder will recognize loss upon termination of
the Trust or termination of the Certificateholder's interest in a Trust if the
Trust only distributes money to the Certificateholder and the amount
distributed is less than the Certificateholder's adjusted basis in the
Certificates. Any gain or loss generally will be long-term capital gain or
loss if the Certificateholder's holding period of the Certificates is more
than one year.
Section 708 Termination. Under Section 708 of the Code, a Trust of a series
will be deemed to terminate for federal income tax purposes if within a 12-
month period there is a sale or exchange of 50 percent or more of the total
interest in the capital and profits of the Trust. If such a termination occurs
with respect to a Trust, such Trust will be deemed under the Code to
contribute all of its assets and liabilities to a new Trust that is a
partnership in exchange for an interest in such new Trust, and to immediately
thereafter terminate and distribute such interest in the new Trust to the
Certificateholders in proportion to their respective interests in the
terminated Trust. Such deemed termination of a Trust generally should not
result in any material adverse tax consequences to Certificateholders
(although such deemed termination may accelerate the recognition of income
from the Trust for Certificateholders whose taxable year is different than the
Trust's taxable year).
Disposition of Certificates. A Certificateholder who disposes of a
Certificate generally will recognize gain or loss in an amount equal to the
difference between the amount realized and the Certificateholder's tax basis
in the Certificates. The gain or loss generally will be capital gain or loss
and will be long-term capital gain or loss if the holding period is more than
one year. A Certificateholder's tax basis in a Certificate generally will
equal the holder's cost increased by the holder's share of Trust income
(includible in income), decreased by the holder's share of Trust losses and
deductions and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the
amount realized on a sale of a Certificate would include the holder's share
(as determined under applicable Treasury Department regulations) of the Notes
and other liabilities of the Trust. A holder acquiring Certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the
Certificates sold (rather than maintaining a separate tax basis in each
Certificate for purposes of computing gain or loss on a sale of that
Certificate).
Allocations Between Transferors and Transferees. In general, a Trust's
taxable income and losses will be determined monthly and tax items for a
particular calendar month will be apportioned among the Certificateholders in
proportion to the principal amount of Certificates owned by them as of the
close of the last day of the month. As a result, a holder purchasing
Certificates may be allocated tax items (which will affect its tax liability
and tax basis) attributable to periods before the holder acquired the
Certificates.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the Certificateholder's interest), taxable
income or
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losses of the Trust might be reallocated among the Certificateholders. The
Seller is authorized to revise the Trust's method of allocation between
transferors and transferees to conform to the method permitted by future
regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (or loss), the purchasing Certificateholder will have
a higher (or lower) basis in the Certificates than the selling
Certificateholder had. The tax basis of a Trust's assets will not be adjusted
to reflect that higher (or lower) basis unless the Trust were to file an
election under Section 754 of the Code. In order to avoid the administrative
complexities that would be involved in keeping the accounting records
necessary if a Section 754 election is made, as well as potentially onerous
information reporting requirements, the Trust will not make such election. As
a result, subsequent purchasers might be allocated a greater or lesser amount
of Trust income than would be appropriate based on their own purchase price
for Certificates.
Administrative Matters. The Eligible Lender Trustee is required to keep or
cause to be kept complete and accurate books of the Trust. Such books will be
maintained for financial reporting and tax purposes on an accrual basis and
the fiscal year of a Trust will be the calendar year. The Eligible Lender
Trustee will file a partnership information return (IRS Form 1065) with the
Internal Revenue Service for each fiscal year of the Trust and will report
each Certificateholder's allocable share of items of Trust income and expense
to Certificateholders and the Internal Revenue Service on Schedule K-1. The
Trust will provide the Schedule K-1 information to nominees that fail to
provide the Trust with the information statement described below and such
nominees will be required to forward such information to the beneficial owners
of the Certificates. Generally, Certificateholders must file tax returns that
are consistent with the information return filed by the Trust or be subject to
penalties unless the holder discloses the inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust
with a statement containing certain information about the nominee, the
beneficial owners and the Certificates so held. Such information includes (i)
the name, address and taxpayer identification number of the nominee and (ii)
as to each beneficial owner (x) the name, address and taxpayer identification
number of such person, (y) whether such person is a United States person, a
tax-exempt entity or a foreign government, international organization or
wholly-owned agency or instrumentality of either of the foregoing and (z)
certain information about Certificates that were held, bought or sold on
behalf of such person throughout the year. In addition, brokers and financial
institutions that hold Certificates through a nominee are required to furnish
directly to the Trust information about themselves and their ownership of
Certificates. A clearing agency registered under Section 17A of the Exchange
Act is not required to furnish any such information statement to the Trust.
The information referred to above for any calendar year must be furnished to
the Trust on or before the following January 31. Nominees, brokers and
financial institutions that fail to provide the Trust with the information
described above may be subject to penalties.
The Seller will be designated as the tax matters partner in the related
Trust Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the Internal Revenue Service. The Code
provides for administrative examination of a partnership as if the partnership
were a separate and distinct taxpayer. Generally, the statute of limitations
for partnership items does not expire before three years after the date on
which the partnership information return is filed. Any adverse determination
following an audit of the return of the Trust by the appropriate taxing
authorities could result in an adjustment of the returns of the
Certificateholders and, under certain circumstances, a Certificateholder may
be precluded from separately litigating a proposed adjustment to the items of
the Trust. An adjustment could also result in an audit of a
Certificateholder's returns and adjustments of items not related to the income
and losses of a Trust.
Tax Consequences to Foreign Certificateholders. No regulations, published
rulings or judicial decisions exist that discuss the characterization for U.S.
federal withholding tax purposes with respect to non-U.S. persons of a
partnership with activities substantially the same as the Trust. Accordingly,
the Trustee intends to withhold tax in the maximum amount that could be
required under different interpretations of the applicable Code provisions.
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Interest payments made (or accrued) to a Certificateholder who is a Foreign
Person may be characterized as other than "portfolio interest." As a result,
Foreign Certificateholders that do not hold their Certificates in connection
with the conduct of a trade or business within the United States will likely
be subject to withholding tax pursuant to Section 1441 or Section 1442 of the
Code at a rate of 30 percent on the gross amount allocated to such
Certificateholders, unless such rate is reduced or eliminated pursuant to an
applicable treaty. Consequently, if a holder of a Certificate is a Foreign
Person and does not provide appropriate certification that it is entitled to
reduced or eliminated withholding pursuant to an applicable treaty or that it
holds its Certificates in connection with its conduct of a trade or business
within the United States, the withholding agent will withhold from the gross
amount of income of the Trust allocated to Foreign Certificateholders at a
rate of 30% in order to protect the Trust from possible adverse consequences
of a failure to withhold. A Foreign Certificateholder would generally be
entitled to file with the Internal Revenue Service a refund claim for such
withheld taxes, taking the position that the interest was portfolio interest.
However, the Internal Revenue Service may disagree and no assurance can be
given as to the appropriate amount of tax liability. Finally, if the interest,
gain or income on a Certificate held by a Foreign Certificateholder is
effectively connected with the conduct of a trade or business in the United
States by the Foreign Certificateholder, the Foreign Certificateholder
(although exempt from withholding tax pursuant to Section 1441 or Section
1442, as previously discussed, if a duly executed Form 4224 (or, after
December 31, 2000, a Form W-8ECI) is furnished) generally will be subject to
U.S. federal income tax on the interest, gain or income at regular federal
income tax rates (including potential application of the branch profits tax in
the case of a corporation).
As a result of the foregoing, the Certificates generally should not be
purchased by Foreign Persons.
Backup Withholding. Proceeds from the sale of the Certificate will be
subject to a "backup" withholding tax of 31% if, in general, the
Certificateholder is a U.S. person and fails to comply with certain
identification procedures, unless the Certificateholder is an exempt recipient
under applicable provisions of the Code.
CERTAIN STATE TAX CONSEQUENCES
The above discussion does not otherwise address the tax treatment of the
related Trust or the Notes, the Certificates, the Noteholders or the
Certificateholders of any series under any state or local tax laws. The
activities of the Servicer in servicing and collecting the Trust Student Loans
will take place at each of the locations at which the Servicer's operations
are conducted and, therefore, different tax regimes apply to the Trust and the
Securityholders. Prospective investors are urged to consult with their own tax
advisors regarding the state and local tax treatment of the related Trust as
well as any state and local tax consequences to them of purchasing, holding
and disposing of the Notes and the Certificates of any series.
* * *
THE FEDERAL AND STATE TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A
NOTEHOLDER'S OR CERTIFICATEHOLDER'S PARTICULAR TAX SITUATION. PROSPECTIVE
PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES AND
CERTIFICATES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX
LAWS.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and Section 4975 of the Code, impose certain restrictions on (a) employee
benefit plans (as defined in Section 3(3) of ERISA), (b) plans described in
section 4975(e)(1) of the Code, including individual retirement accounts or
Keogh plans, (c) any
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entities whose underlying assets include plan assets by reason of a plan's
investment in such entities (each of (a), (b) and (c), a "Plan") and (d)
persons who have certain specified relationships to such Plans ("Parties in
Interest" under ERISA and "Disqualified Persons" under the Code). Moreover,
based on the reasoning of the United States Supreme Court in John Hancock Life
Ins. Co. v. Harris Trust and Sav. Bank, 114 S. Ct. 517 (1993), an insurance
company's general account may be deemed to include assets of the Plans
investing in the general account (e.g., through the purchase of an annuity
contract), and the insurance company might be treated as a Party in Interest
with respect to a Plan by virtue of such investment. ERISA also imposes
certain duties on persons who are fiduciaries of Plans subject to ERISA and
prohibits certain transactions between a Plan and Parties in Interest or
Disqualified Persons with respect to such Plans.
A fiduciary of any Plan should carefully review with its legal and other
advisors whether the purchase or holding of the Securities could give rise to
a transaction prohibited or otherwise impermissible under ERISA or the Code,
and should refer to "ERISA Considerations" in the related Prospectus
Supplement regarding any restrictions on the purchase and/or holding of the
Securities offered thereby.
Certain employee benefit plans, such as governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33)
of ERISA) are not subject to the prohibited transaction provisions of ERISA
and Section 4975 of the Code. Accordingly, assets of such plans may, subject
to the provisions of any other applicable federal and state law, be invested
in the Securities of any series without regard to the ERISA considerations
described herein. It should be noted, however, that any such plan that is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the
Code is subject to the prohibited transaction rules set forth in Section 503
of the Code.
USE OF PROCEEDS
The net proceeds from the sale of Securities of a given series will be
applied by the applicable Trust to purchase the related Trust Student Loans on
the Closing Date from the Seller and to make any Reserve Account Initial
Deposit into the Reserve Account and/or to make any deposit to any Pre-Funding
Account, or as set forth in the related Prospectus Supplement. The Seller will
use such net proceeds paid to it with respect to any such Trust to acquire any
credit enhancement, if so specified in the related Prospectus Supplement, and
to purchase the Student Loans from Sallie Mae pursuant to the related Purchase
Agreement.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement with
respect to the Notes of a given series and an underwriting agreement with
respect to the Certificates of such series (collectively, the "Underwriting
Agreements"), the Seller will agree to cause the related Trust to sell to the
underwriters named therein and in the related Prospectus Supplement, and each
of such underwriters will severally agree to purchase, the principal amount of
each class of Notes and the Certificate Balance of each class of Certificates
or portion thereof, as the case may be, of the related series set forth
therein and in the related Prospectus Supplement.
In each of the Underwriting Agreements with respect to any given series of
Securities, the several underwriters will agree, subject to the terms and
conditions set forth therein, to purchase all the Notes and Certificates, as
the case may be, described therein which are offered hereby and by the related
Prospectus Supplement if any of such Notes and Certificates, as the case may
be, are purchased. With respect to certain series, the Seller or an affiliate
may offer some or all of the Securities for sale directly.
Each Prospectus Supplement will either (i) set forth the price at which each
class of Notes and Certificates, as the case may be, being offered thereby
will be offered to the public and any concessions that may be offered to
certain dealers participating in the offering of such Notes and Certificates,
as the case may be, or (ii) specify that the related Notes and Certificates,
as the case may be, are to be sold by the Seller or an affiliate and/or
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resold by the underwriters in negotiated transactions at varying prices to be
determined at the time of such sale. After the initial public offering of any
such Notes and Certificates, as the case may be, such public offering prices
and such concessions may be changed.
Each Underwriting Agreement will provide that the Seller and Sallie Mae will
indemnify the underwriters against certain civil liabilities, including
liabilities under the Securities Act, or contribute to payments the several
underwriters may be required to make in respect thereof.
Each Trust may, from time to time, invest the funds in its Trust Accounts in
Eligible Investments acquired from such underwriters.
Pursuant to each of the Underwriting Agreements with respect to a given
series of Securities, the closing of the sale of any class of Securities
subject to either thereof will be conditioned on the closing of the sale of
all other such classes subject to either thereof.
The place and time of delivery for the Securities in respect of which this
Prospectus is delivered will be set forth in the related Prospectus
Supplement.
LEGAL MATTERS
Certain legal matters relating to the Securities of any series will be
passed upon for the related Trust, the Seller, the Servicer and the
Administrator by Marianne M. Keler, Esq., General Counsel of Sallie Mae, and
Cadwalader, Wickersham & Taft, Washington, D.C., special counsel to Sallie Mae
and the Seller, and for the underwriters for such series by the firm
identified in the related Prospectus Supplement. Certain federal income and
other matters will be passed on for each Trust by Shearman & Sterling,
Washington, D.C. Certain Delaware state tax matters will be passed on for each
Trust by the firm identified in the related Prospectus Supplement.
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APPENDIX A
THE FEDERAL FAMILY EDUCATION LOAN PROGRAM
General
The Federal Family Education Loan Program ("FFELP") (formerly the Guaranteed
Student Loan Program (the "Guaranteed Student Loan Program")) under Title IV
of the Higher Education Act provides for loans to be made to students or
parents of dependent students enrolled in eligible institutions to finance a
portion of the costs of attending school. If a borrower defaults on a Student
Loan (as described in this Appendix), becomes totally or permanently disabled,
dies, files for bankruptcy or attends a school that closes prior to the
student earning a degree, or if the applicable educational institution falsely
certifies the borrower's eligibility for a Student Loan (collectively,
"insurance triggers"), the holder of the loan (which must be an eligible
lender) may file a claim with the applicable Guarantee Agency. Provided that
the loan has been properly originated and serviced, the Guarantee Agency pays
the holder all or a portion of the unpaid principal balance on the loans as
well as accrued interest. See "--Guarantee Agencies." Origination and
servicing requirements, as well as procedures to cure deficiencies, are
established by the Department and the Guarantee Agencies.
Under the FFELP, payment of principal and interest on the Student Loans is
guaranteed upon occurrence of an insurance trigger by the applicable Guarantee
Agency and reinsured by the Department. As described in this Appendix, the
Guarantee Agencies are generally entitled to be reimbursed by the Department
for all or a portion of Guarantee Payments they make under a program of
federal reinsurance under the Act. See "--Federal Insurance and Reinsurance of
Guarantee Agencies." In addition, the related Eligible Lender Trustee, as an
"eligible lender" and the "holder" of the Trust Student Loans under the Act on
behalf of a Trust, is entitled to receive from the Department certain interest
subsidy payments ("Interest Subsidy Payments") and special allowance payments
("Special Allowance Payments") for certain Student Loans.
Guarantee Agencies enter into reinsurance agreements with the Department
under which the Department agrees to reimburse the Guarantee Agency for all or
a portion of the amount expended by the Guarantee Agency in discharge of its
guarantee obligation for default claims if the loans have been properly
originated and serviced. Except for claims resulting from death, disability or
bankruptcy of a borrower, in which case the Department pays the Guarantee
Agency the full amount of the claim, the amount of reinsurance depends on the
default experience of the Guarantee Agency. See "--Federal Insurance and
Reinsurance of Guarantee Agencies."
Guarantee Agencies pay the claims from their "Federal Reserve Fund", which
is the property of the United States. The Federal Reserve Fund is funded by
insurance premiums Guarantee Agencies charge on Student Loans (currently up to
one percent of loan principal), reinsurance received from the Department, a
portion of funds received in connection with debt collection activities
(generally, five percent of its collections on defaulted student loans), and
investment income from reserve funds. The Department will pay claims that a
Guarantee Agency is financially unable to pay or will transfer them to a
financially sound Guarantee Agency, if the Department makes the necessary
determination that the Guarantee Agency is so financially unable to pay.
The Act authorizes several types of guaranteed student loans:
. loans to students who pass certain financial need tests ("Subsidized
Stafford Loans");
. loans to students who do not pass the Stafford need tests or who need
additional loans to supplement their Subsidized Stafford Loans
("Unsubsidized Stafford Loans");
. loans to parents of students ("PLUS Loans") who are dependents and whose
need exceeds the financing available from Unsubsidized Stafford Loans
and/or Subsidized Stafford Loans; and
. loans to consolidate the borrower's obligations under various federally
authorized student loan programs into a single loan ("Consolidation
Loans").
Before July 1, 1994 the Act also permitted loans to graduate and
professional students and independent undergraduate students and, under
certain circumstances, dependent undergraduate students who needed
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additional loans to supplement their Subsidized Stafford Loans ("Supplemental
Loans to Students" or "SLS Loans").
The FFELP is subject to statutory and regulatory revision from time to time.
The most recent revisions are contained in the Higher Education Amendments of
1992 (the "1992 Amendments"), the Omnibus Budget Reconciliation Act of 1993
(the "1993 Act"), the "Higher Education Technical Amendments of 1993" (the
"Technical Amendments") and the Higher Education Amendments of 1998 (the
"Reauthorization Legislation"). The 1993 Act contains significant changes to
the FFELP and creates a direct loan program funded directly by the U.S.
Department of Treasury (each loan under such program, a "Federal Direct
Student Loan").
The description and summaries of the Act, the FFELP, the Guarantee
Agreements and the other statutes, regulations and documents referred to in
this Prospectus do not purport to be comprehensive, and are qualified in their
entirety by reference to each such statute, regulation or document. The Act is
codified at 20 U.S.C. sec. 1071 et seq., and the regulations adopted under the
Act can be found at 34 C.F.R. Part 682. There can be no assurance that future
amendments or modifications will not materially change any of the terms or
provisions of the programs described in this Prospectus or of the statutes and
regulations implementing these programs. See "Risk Factors--Change in Law."
Legislative and Administrative Matters
The 1993 Act, effective on August 10, 1993, implemented a number of changes
to the federal guaranteed student loan programs, including imposing on lenders
or holders of guaranteed student loans certain fees, providing for two percent
lender risk sharing, reducing reimbursement payments to Guarantee Agencies,
reducing interest rates and Special Allowance Payments for some loans,
reducing the interest payable to holders of Consolidation Loans and affecting
the Department's financial assistance to Guarantee Agencies, by, for example,
reducing the percentage of claims the Department will reimburse Guarantee
Agencies and reducing more substantially the premiums and default collections
that Guarantee Agencies are entitled to receive and/or retain.
The Act was further amended by enactment of the Reauthorization Legislation,
the general provisions of which became effective October 1, 1998 and which
extended the principal provisions of the FFELP to July 1, 2003. The
Reauthorization Legislation lowered both the borrower interest rate on
Stafford loans to a formula based on the 91-day Treasury bill rate plus 2.3
percent (1.7 percent during in-school and grace periods) and the lender's rate
after special allowance payments to the 91-day Treasury bill rate plus 2.8
percent (2.2 percent during in-school and grace periods) for loans originated
on or after October 1, 1998 and before July 1, 2003. The borrower interest
rate on PLUS loans originated during this period will be equal to the 91-day
Treasury bill rate plus 3.1 percent. Special Allowance Payments are also based
on the 91-day Treasury bill rate plus 3.1 percent. These rate reductions were
first introduced on an interim basis in temporary student loan legislation
enacted into law on June 9, 1998 and effective for loans originated from July
1, 1998 through September 30, 1998.
The Reauthorization Legislation also maintained interest rates for borrowers
of Federal Direct Consolidation Loans whose applications for such loans were
received prior to February 1, 1999 at 7.46 percent, which rates are adjusted
annually based on a formula equal to the 91-day Treasury bill rate plus 2.3
percent. The borrower interest rates on Federal Direct Consolidation Loans for
borrowers whose applications are received on or after February 1, 1999 and
before July 1, 2003 will be a fixed rate equal to the lesser of the weighted
average of the interest rates of the loans consolidated, adjusted up to the
nearest one-eighth of one percent, and 8.25%. This is the same rate that the
Reauthorization Legislation sets on FFELP Consolidation Loans for borrowers
whose applications are received on or after October 1, 1998 and before July
31, 2003. The Reauthorization Legislation sets the Special Allowance Payment
rate for FFELP Consolidation Loans at the 91-day Treasury bill rate plus 3.1
percent. The annual fee paid by lenders on FFELP Consolidation Loans was
reduced under the Reauthorization Legislation from 1.05 percent to 0.62
percent of the principal plus accrued unpaid interest on any such
Consolidation Loans, applications for which are received on or after October
1, 1998 and before February 1, 1999.
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The transition from the federal guaranteed student loan programs to the
direct lending program has resulted in increasing reductions since 1993 in the
volume of FFELP Loans made under the existing programs. As these reductions
occur, the Servicer may experience increased costs due to reduced economies of
scale to the extent the volume of new loans serviced by the Servicer is
reduced. These cost increases could affect the ability of the Servicer to
satisfy its obligations to service the Student Loans or to purchase Student
Loans in the event of certain breaches of its representations and warranties
under the Servicing Agreements or of its covenants as Servicer. See "Transfer
and Servicing Agreements--Purchase of Student Loans by the Seller;
Representations and Warranties of Sallie Mae" and "Servicing; Administration--
Servicer Covenants." These volume reductions and other changes effected by the
1993 Act could also reduce revenues received by the Guarantee Agencies that
are available to pay claims on defaulted Student Loans in a timely manner and
have other adverse economic consequences to the Guarantee Agencies and their
ability to pay claims. Finally, the level of competition currently in
existence in the secondary market for loans made under the existing programs
could be reduced, resulting in fewer potential buyers of the Student Loans and
lower prices available in the secondary market for those loans, and the
liquidity provided by such market may be impaired.
Eligible Lenders, Borrowers and Institutions
Lenders eligible to make and/or hold loans under the FFELP generally include
banks, savings and loan associations, credit unions, insurance companies and,
under some conditions, schools and guarantee agencies. Sallie Mae is an
eligible lender for the purpose of making Consolidation Loans, acting as a
lender of last resort and holding FFELP Loans.
A FFELP Loan may be made only to qualified borrowers. Generally, a qualified
borrower is an individual or the parent of an individual who:
. has been accepted for enrollment or is enrolled and is maintaining
satisfactory progress at an eligible institution,
. is carrying or will carry at least one-half of the normal full-time
academic workload for the course of study the student is pursuing, as
determined by that institution,
. has agreed to notify promptly the holder of the loan of any address
change and
. meets the applicable "need" requirements for the particular loan
program.
Each loan must be evidenced by an unsecured promissory note signed by the
qualified borrower.
Eligible Institutions are post-secondary schools that meet the requirements
of the Act. They include institutions of higher education, proprietary
institutions of higher education and post-secondary vocational institutions.
Financial Need Analysis
Student Loans may generally be made in amounts, subject to certain limits
and conditions, to cover the student's estimated costs of attendance,
including tuition and fees, books, supplies, room and board, transportation
and miscellaneous personal expenses (as determined by the institution). Each
borrower must undergo a need analysis, which requires the borrower to submit a
need analysis form to a multiple data entry processor which forwards the
information to the federal central processor. The central processor evaluates
the parents' and student's financial condition under federal guidelines and
calculates the amount that the student and/or the family is expected to
contribute towards the student's cost of education (the "family
contribution"). After receiving information on the family contribution, the
institution then subtracts the family contribution from its cost of attendance
to determine the student's eligibility for grants, Subsidized Stafford Loans
and work assistance. A student may borrow an amount equal to the "Unmet Need"
through Unsubsidized Stafford Loans. The "Unmet Need" is equal to (a) the
student's estimated cost of education minus (b) the amount of grants, the
amount earned through work assistance and the amount of Subsidized Stafford
Loans for which the borrower is eligible. Parents may finance the family
contribution amount through their own resources or through PLUS Loans.
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Special Allowance Payments
The Act provides for quarterly Special Allowance Payments to be made by the
Department to holders of Student Loans to the extent necessary to ensure that
such holder receives at least a specified market interest rate of return on
such loans. The rates for Special Allowance Payments are based on formulas
that differ according to the type of loans, the date the loan was originally
made or insured and the type of funds used to finance such a loan. A Special
Allowance Payment is made for each of the 3-month periods ending March 31,
June 30, September 30, and December 31. The Special Allowance Payment equals
the average unpaid principal balance (including interest permitted to be
capitalized) of all eligible loans held by the holder during the 3-month
period multiplied by the special allowance percentage. The special allowance
percentage is computed by:
. determining the average of the bond equivalent rates of 91-day Treasury
bills auctioned for the 3-month period,
. subtracting the applicable borrower interest rate on the loan from such
average,
. adding the applicable Special Allowance Margin (as described below) to
the resultant percentage, and
. dividing the resultant percentage by four.
<TABLE>
<CAPTION>
Date Of Disbursement Special Allowance Margin
-------------------- ------------------------
<C> <S>
Prior to 10/17/86... 3.50%
10/17/86--09/30/92.. 3.25%
10/01/92--06/30/95.. 3.10%
07/01/95--06/30/98.. 2.50% (Subsidized and Unsubsidized Stafford Loans, in
school, grace or deferment) 3.10% (Subsidized and
Unsubsidized Stafford Loans, in repayment and all
other loans)
07/01/98--07/01/03.. 2.20% (Subsidized and Unsubsidized Stafford Loans, in
school and grace)
2.80% (Subsidized and Unsubsidized Stafford Loans, in
repayment)
3.10% (PLUS Loans and Consolidation Loans)
</TABLE>
Special Allowance Payments are available on variable rate PLUS Loans and SLS
Loans as described below under "PLUS and SLS Loan Programs" only to cover any
amount by which the variable rate, which is reset annually, would exceed the
applicable maximum rate.
Origination Fees
The eligible lender charges borrowers an origination fee, which in turn is
passed on to the federal government, on Subsidized and Unsubsidized Stafford
Loans and PLUS Loans equal to three percent of the principal balance of each
loan. The amount of the origination fee may be deducted from each disbursement
for a loan on a pro rata basis. No origination fee is paid on Consolidation
Loans.
Lenders must refund all origination fees attributable to a disbursement that
was returned to the lender by the school or repaid or not delivered within 120
days of the disbursement. These origination fees must be refunded by crediting
the borrower's loan balance with the applicable lender.
For loans disbursed after October 1, 1993, lenders must pay an origination
fee of 0.5% of the loan. This fee cannot be passed on to the borrower.
Stafford Loans
The Act provides for:
. federal insurance or reinsurance of Subsidized Stafford Loans made by
eligible lenders to qualified borrowers,
. Interest Subsidy Payments on certain eligible Subsidized Stafford Loans
to be paid by the Department to holders of the loans in lieu of the
borrower making interest payments, and
. Special Allowance Payments representing an additional subsidy paid by
the Department to the holders of eligible Subsidized Stafford Loans
(collectively "Federal Assistance").
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Subsidized Stafford Loans are loans under the FFELP that may be made, based
on need, only to post-secondary students accepted or enrolled in good standing
at an eligible institution who are carrying at least one-half the normal full-
time course load at such institution. The Act limits the amount a student can
borrow in any academic year and the amount he or she can have outstanding in
the aggregate. The following chart shows the current and historic loan limits.
MAXIMUM LOAN AMOUNTS
FEDERAL STAFFORD LOAN PROGRAM
<TABLE>
<CAPTION>
All Students Independent Students(1)
Base Amount Additional
Subsidized Subsidized And Unsubsidized
On Or Unsubsidized Only On Or
Subsidized After On Or After After Total
Borrower's Academic Level Pre-1/1/87 1/1/87 7/7/93(2) 7/1/94(3) Amount
- ------------------------- ---------- ---------- -------------- ----------------------- --------
<S> <C> <C> <C> <C> <C>
UNDERGRADUATE (PER YEAR)
1st year................ $ 2,500 $ 2,625 $ 2,625 $ 4,000 $ 6,625
2nd year................ $ 2,500 $ 2,625 $ 3,500 $ 4,000 $ 7,500
3rd year and above...... $ 2,500 $ 4,000 $ 5,500 $ 5,000 $ 10,500
GRADUATE (PER YEAR)..... $ 5,000 $ 7,500 $ 8,500 $ 10,000 $ 18,500
AGGREGATE LIMIT
Undergraduate........... $12,500 $17,250 $23,000 $23,000 $ 46,000
Graduate (including
undergraduate)......... $25,000 $54,750 $65,500 $73,000 $138,500
</TABLE>
- --------
(1) The loan limits are inclusive of both Federal Stafford Loans and Federal
Direct Student Loans.
(2) These amounts represent the combined maximum loan amount per year for
Subsidized and Unsubsidized Stafford Loans. Accordingly, the maximum
amount that a student may borrow under an Unsubsidized Loan is the
difference between the combined maximum loan amount and the amount the
student received in the form of a Subsidized Stafford Loan.
(3) Independent undergraduate students, graduate students or professional
students may borrow these additional amounts. In addition, dependent
undergraduate students may also receive these additional loan amounts if
the parents of such students are unable to provide the family contribution
amount and it is unlikely that the student's parents will qualify for a
Federal PLUS Loan.
The interest rate paid by the borrower on a Subsidized Stafford Loan is
dependent on the date the promissory note evidencing the loan is signed by the
borrower except that for loans made prior to October 1, 1992 to borrowers with
outstanding Subsidized Stafford Loans, the rate for new loans as the same as
that for their outstanding loans. The rate for variable rate Subsidized
Stafford Loans applicable for any 12-month period beginning on July 1 and
ending on June 30, is determined on the preceding June 1 and is equal to the
lesser of (a) the applicable Maximum Rate or (b) the sum of (i) the bond
equivalent rate of 91-day Treasury bills auctioned at the final auction held
prior to such June 1 and (ii) the applicable Interest Rate Margin.
SUBSIDIZED STAFFORD LOANS
<TABLE>
<CAPTION>
Date Of Disbursement Borrower Rate Maximum Rate Interest Rate Margin
-------------------- ------------- ------------ --------------------
<S> <C> <C> <C>
09/13/83-06/30/88....... 8% 8% N/A
07/01/88-09/30/92....... 8% for 48 months; thereafter, 8% for 48 months,
91-Day Treasury + Interest Rate Margin then 10% 3.25%
10/01/92-06/30/94....... 91-Day Treasury + Interest Rate Margin 9% 3.10%
07/01/94-06/30/95....... 91-Day Treasury + Interest Rate Margin 8.25% 3.10%
07/01/95-06/30/98....... 91-Day Treasury + Interest Rate Margin 8.25% 2.50% (in school,grace
or deferment);
3.10% (in repayment)
07/01/98-07/01/03....... 91-Day Treasury + Interest Rate Margin 8.25% 1.70% (in school or grace);
2.30% (in repayment)
</TABLE>
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The Technical Amendments provide that, for fixed rate loans made on or after
July 23, 1992 and for certain loans made to new borrowers on or after July 1,
1988, the lender must convert by January 1, 1995 the interest rate on such
loans to an annual interest rate adjusted each July 1 equal to (1) for certain
loans made between July 1, 1988 and July 23, 1992, the 91-day Treasury bill
rate at the final auction prior to the preceding June 1 plus 3.25% and (2) for
loans made on or after July 23, 1992, the 91-day Treasury bill rate at the
final auction prior to the preceding June 1 plus 3.10%, in each case capped at
the applicable interest rate for such loan existing prior to the conversion.
The variable interest rate does not apply to loans made prior to July 23, 1992
during the first 48 months of repayment.
Holders of Subsidized Stafford Loans are eligible to receive Special
Allowance Payments. The Department is responsible for paying interest on
Subsidized Stafford Loans while the borrower is a qualified student, during a
Grace Period or during certain Deferment Periods. The Department makes
quarterly Interest Subsidy Payments to the owner of Subsidized Stafford Loans
in the amount of interest accruing on the unpaid balance thereof prior to the
commencement of repayment or during any Deferment Periods. The Act provides
that the owner of an eligible Subsidized Stafford Loan shall be deemed to have
a contractual right against the United States to receive Interest Subsidy
Payments and Special Allowance Payments in accordance with its provisions.
Receipt of Interest Subsidy Payments and Special Allowance Payments is
conditioned on compliance with the requirements of the Act and continued
eligibility of such loan for federal reinsurance. Such eligibility may be
lost, however, if the loans are not held by an eligible lender, in accordance
with the requirements of the Act and the applicable guarantee agreements. See
"--Eligible Lenders, Borrowers and Institutions"; "Risk Factors--Failure to
Comply with Student Loan Origination and Servicing Procedures"; "Formation of
the Trusts--Eligible Lender Trustee" and "Servicing--Servicing Procedures."
Interest Subsidy Payments and Special Allowance Payments are generally
received within 45 days to 60 days after the end of any given calendar quarter
(provided that the applicable claim form is properly filed with the
Department), although there can be no assurance that such payments will in
fact be received from the Department within that period. See "Risk Factors--
Variability of Actual Cash Flows." The Servicer has agreed to prepare and file
with the Department all such claims forms and any other required documents or
filings on behalf of each Eligible Lender Trustee as owner of the related
Trust Student Loans on behalf of each Trust. The Servicer has also agreed to
assist each Eligible Lender Trustee in monitoring, pursuing and obtaining such
Interest Subsidy Payments and Special Allowance Payments, if any, with respect
to such Student Loans. Except under certain conditions described herein,
Interest Subsidy Payments and Special Allowance Payments will be remitted with
respect to such Student Loans within two business days of receipt thereof by
the Servicer to the related Collection Account, or as set forth in the related
Prospectus Supplement.
Repayment of principal on a Subsidized or Unsubsidized Stafford Loan
typically does not commence while a student remains a qualified student, but
generally begins upon expiration of the applicable Grace Period, as described
below. Any borrower may voluntarily prepay without premium or penalty any loan
and may waive any Grace Period or Deferment Period. In general, each loan must
be scheduled for repayment over a period of not more than ten years after the
commencement of repayment. The Act currently requires minimum annual payments
of $600 including principal and interest (or, if greater, the amount of
accrued interest for that year), unless the borrower and the lender agree to
lesser payments. As of July 1, 1995, lenders are required to offer borrowers a
choice among standard, graduated and income-sensitive repayment schedules.
These repayment options must be offered to all new borrowers who enter
repayment on or after July 1, 1995. If a borrower fails to elect a particular
repayment schedule or fails to submit the documentation necessary for the
option the borrower chooses, the standard repayment schedule will be used.
Repayment of principal on a Subsidized or Unsubsidized Stafford Loan must
generally commence following a period of six months after the borrower ceases
to pursue at least a half-time course of study (a "Grace Period"). However,
during certain other periods (each, a "Deferment Period") and subject to
certain conditions, no principal repayments need be made, including periods
when the student has returned to an eligible educational institution on a full
time (or in some cases half time) basis or is pursuing studies under an
approved graduate fellowship
A-6
<PAGE>
program, or when the student is a member of the Armed Forces or a volunteer
under the Peace Corps Act or the Domestic Volunteer Service Act of 1973, or
when the borrower is temporarily or totally disabled, or periods during which
the borrower may defer principal payments because of temporary financial
hardship. For new borrowers to whom loans are first disbursed on or after July
1, 1993, payment of principal may be deferred only while the Borrower is at
least a half-time student or is in an approved graduate fellowship program or
is enrolled in a rehabilitation program, or when the borrower is seeking but
unable to find full-time employment, or when for any reason the lender
determines that payment of principal will cause the borrower economic
hardship. In the case of unemployment or economic hardship, the deferment is
subject to a maximum deferment period of three years. The 1992 Amendments also
require forbearance of loans in certain circumstances and permit forbearance
of loans in certain other circumstances (each such period, a "Forbearance
Period").
The Unsubsidized Stafford Loan program created under the 1992 Amendments is
designed for borrowers who do not qualify for Subsidized Stafford Loans and
for independent, graduate and professional students whose Unmet Need exceeds
what they can borrow under the Subsidized Stafford Loan program. The basic
requirements for Unsubsidized Stafford Loans are essentially the same as those
for the Subsidized Stafford Loans, including with respect to provisions
governing the interest rate, the annual loan limits and the Special Allowance
Payments. The terms of the Unsubsidized Stafford Loans, however, differ in
some respects. Specifically, the federal government does not make Interest
Subsidy Payments on Unsubsidized Stafford Loans.
The borrower on an Unsubsidized Stafford Loan must either pay interest on a
periodic basis beginning 60 days after the time the loan is disbursed or
capitalize the interest that accrues until repayment begins. Effective July 1,
1994, the maximum insurance premium was set at 1%. Subject to the loan limits
set forth in the Maximum Loan Amounts table above, the student may borrow up
to the amount of such student's Unmet Need. Lenders are authorized to make
Unsubsidized Stafford Loans applicable for periods of enrollment beginning on
or after October 1, 1992.
PLUS and SLS Loan Programs
The Act also provides for the PLUS Program. The Act authorizes PLUS Loans to
be made to parents of eligible dependent students. The 1993 Act eliminated the
SLS Program after July 1, 1994.
The PLUS program permits parents of dependent students to borrow an amount
equal to each student's Unmet Need. Under the former SLS program, independent
graduate or professional students and certain dependent undergraduate students
were permitted to borrow subject to generally similar loan limitations.
The first payment of principal and interest is due within 60 days of full
disbursement of the loan except for borrowers eligible for deferment who may
defer principal and interest payments while eligible for deferment; deferred
interest is then capitalized periodically or at the end of the deferment
period under specific arrangements with the borrower. The maximum repayment
term is 10 years. PLUS and SLS loans carry no in-school interest subsidy.
The interest rate determination for a PLUS or SLS loan is dependent on when
the loan was originally made or disbursed. Some PLUS or SLS loans carry a
variable rate. The rate varies annually for 12-month periods beginning on July
1 and ending on June 30. The variable rate is determined on the preceding June
1 and is equal to the lesser of (a) the applicable Maximum Rate or (b) the sum
of (i) the bond equivalent rate of 52-week Treasury bills or 91-day Treasury
bills, as applicable, auctioned at the final auction held prior to such June
1, and (ii) the applicable Interest Rate Margin as set forth below.
A-7
<PAGE>
PLUS/SLS Loans
<TABLE>
<CAPTION>
Date Of Disbursement Borrower Rate Maximum Rate Interest Rate Margin
- -------------------- ------------- ------------ --------------------
<S> <C> <C> <C>
Prior to 10/01/81....... 9% 9% N/A
10/01/81-10/30/82....... 14% 14% N/A
11/01/82-06/30/87....... 12% 12% N/A
07/01/87-09/30/92....... 52-Week Treasury + Interest Rate Margin 12% 3.25%
10/01/92-06/30/94....... 52-Week Treasury + Interest Rate Margin PLUS 10% 3.10%
SLS 11%
06/30/94 - 06/30/98..... 52-Week Treasury + Interest Rate Margin 9% 3.10%
07/01/98-07/01/03....... 91-Day Treasury + Interest Rate Margin 9% 3.10%
(SLS repealed 07/01/94)
</TABLE>
A holder of a PLUS or SLS loan is eligible to receive Special Allowance
Payments during any such 12-month period only if, were it not for the Maximum
Rate, the borrower rate under the applicable formula would have been higher
than the Maximum Rate.
The Consolidation Loan Program
The Act authorizes a program under which certain borrowers may consolidate
their various Student Loans into Consolidation Loans which will be insured and
reinsured to the same extent as other loans made under the FFELP.
Consolidation Loans are made in an amount sufficient to pay outstanding
principal and accrued unpaid interest and late charges on all FFELP loans, as
well as loans made pursuant to various other federal student loan programs,
which were selected by the borrower for consolidation. The unpaid principal
balance of a Consolidation Loan made prior to July 1, 1994 bears interest at a
rate not less than 9 percent. The interest rate on a Consolidation Loan made
on or after July 1, 1994 and prior to June 30, 1998 is equal to the weighted
average of the interest rates on the loans selected for consolidation, rounded
upward to the nearest whole percent. Except as noted below, the holder of a
Consolidation Loan made on or after October 1, 1993 must pay the Department a
monthly rebate fee calculated on an annual basis equal to 1.05 percent of the
principal plus accrued unpaid interest on any such loan. For borrowers of
Federal Direct Consolidation Loans whose applications are received on or after
July 1, 1998 and prior to February 1, 1999 the interest rate is equal to the
91-day Treasury bill rate plus 2.3% (1.7% during in-school and grace periods).
The Borrower interest rate on Federal Direct Consolidation Loans for borrowers
whose applications are received on or after February 1, 1999 and before July
1, 2003 will be a fixed rate equal to the lesser of the weighted average of
the interest rates of the loans consolidated, adjusted up to the nearest one-
eighth of one percent, and 8.25%. This is the same rate which the
Reauthorization Legislation sets on FFELP Consolidation Loans for borrowers
whose applications are received on or after October 1, 1998 and before July
31, 2003. The Reauthorization Legislation sets the Special Allowance Payment
rate for FFELP Consolidation Loans at the 91-day Treasury bill rate plus 3.1
percent. The annual fee paid by lenders on FFELP Consolidation Loans is
reduced under the Reauthorization Legislation from 1.05 percent to 0.62
percent of the principal plus accrued unpaid interest on any such
Consolidation Loans, applications for which are received on or after October
1, 1998 and before February 1, 1999.
The repayment term under a Consolidation Loan varies depending upon the
aggregate amount of the loans being consolidated. In no case may the repayment
term exceed 30 years. A Consolidation Loan is evidenced by an unsecured
promissory note and entitles the borrower to prepay the loan, in whole or in
part, without penalty.
Guarantee Agencies
The Act authorizes Guarantee Agencies to support education financing and
credit needs of students at post-secondary schools. Under various programs
throughout the United States, Guarantee Agencies insure and sometimes service
and hold guaranteed student loans. The Guarantee Agencies are reinsured by the
federal
A-8
<PAGE>
government for 75% to 100% of claims paid, depending on their claims
experience, as described in the table below. See "--Federal Insurance and
Reinsurance of Guarantee Agencies."
Guarantee Agencies may collect a one-time insurance fee of up to 1% of the
principal amount of each loan, other than Consolidation Loans, that the agency
guarantees.
The Guarantee Agencies generally guarantee loans for students attending
institutions in their particular state or region or for residents of their
particular state or region that are attending schools in another state,
although most are permitted to guarantee loans throughout the United States.
Some Guarantee Agencies have been designated as the Guarantee Agency for more
than one state. Some Guarantee Agencies contract with other entities to
administer their guarantee agency program.
Each Student Loan to be sold to an Eligible Lender Trustee on behalf of a
Trust will be guaranteed as to principal and interest by a Guarantee Agency
pursuant to a Guarantee Agreement between such Guarantee Agency and the
applicable Eligible Lender Trustee. The applicable Prospectus Supplement for
each Trust will identify each related Guarantee Agency and the amount of
related Trust Student Loans it is guaranteeing for such Trust.
Federal Insurance and Reinsurance of Guarantee Agencies
A Student Loan is considered to be in default for purposes of the Act when
the borrower fails to make an installment payment when due, or to comply with
other terms of the loan, and if the failure persists for 180 days in the case
of a loan repayable in monthly installments or for 270 days in the case of a
loan repayable in less frequent installments.
If the loan is guaranteed by a Guarantee Agency, the eligible lender is
reimbursed by the Guaranty Agency for 100% (98% for loans first disbursed on
or after October 1, 1993) of the unpaid principal balance of the loan plus
accrued unpaid interest on any loan defaulted so long as the eligible lender
has properly originated and serviced such loan. Under certain circumstances a
loan deemed ineligible for reimbursement may be restored to eligibility.
Under the Act, the Department enters into a reinsurance agreement with each
Guarantee Agency, which provides for federal reinsurance of amounts paid to
eligible lenders by the Guarantee Agency with respect to defaulted loans.
Pursuant to such agreements, the Department agrees to reimburse a Guarantee
Agency for 100% of the amounts expended in connection with a claim resulting
from the death, bankruptcy or total and permanent disability of a borrower,
the death of a student whose parent is the borrower of a PLUS Loan or claims
by borrowers who received loans on or after January 1, 1986 and who are unable
to complete the programs in which they are enrolled due to school closure or
borrowers whose borrowing eligibility was falsely certified by the eligible
institution; such claims are not included in calculating a Guarantee Agency's
"claims experience" for federal reinsurance purposes, as set forth below. The
Department is also required to repay the unpaid balance of any loan if
collection is stayed under Chapter 13 of the Bankruptcy Code and is authorized
to acquire the loans of borrowers who are at high risk of default and who
request an alternative repayment option from the Department.
With respect to FFELP loans in default, the Department is required to pay
the applicable Guarantee Agency a certain percentage ("Reinsurance Rate") of
the amount such agency paid pursuant to default claims filed by the lender on
a reinsured loan. The level of such Reinsurance Rate is subject to specified
reductions when the total reinsurance claims paid by the Department to a
Guarantee Agency during a fiscal year equals or exceeds 5% of the aggregate
original principal amount of FFELP loans guaranteed by such agency that are in
repayment on the last day of the prior fiscal year. Accordingly, the amount of
the reinsurance payment received by the Guarantee Agency may vary. The
Reinsurance Rates are set forth in the following table.
A-9
<PAGE>
<TABLE>
<CAPTION>
Guarantee Agency's
Claims Experience(1) Applicable Reinsurance Rate(2)
- -------------------- -----------------------------------------------------------------
<S> <C>
0% up to 5%..........95% (100% for loans disbursed before Oct. 1, 1993); 98% for loans
disbursed on or after October 1, 1993 and before October 1, 1998)
5% up to 9%..........85% (90% for loans disbursed before Oct. 1, 1993); 90% for loans
disbursed on or after October 1, 1993 and before October 1, 1998)
9% and over..........75% (80% for loans disbursed before Oct. 1, 1993); 80% for loans
disbursed on or after October 1, 1993 and before October 1, 1998)
</TABLE>
- --------
(1) The claims experience is not cumulative. Rather, the claims experience for
any given Guarantee Agency is determined solely on the basis of claims for
any one federal fiscal year compared with the original principal amount of
loans in repayment at the beginning of that year.
(2) Within each fiscal year, the applicable Reinsurance Rate steps down
incrementally with respect to claims made only after the claims experience
thresholds are reached.
The 1992 Amendments addressed industry concerns regarding the Department's
commitment to providing support in the event of Guarantee Agency failures.
Pursuant to the 1992 Amendments, Guarantee Agencies are required to maintain
specified reserve fund levels. Such levels are defined as 0.5% of the total
attributable amount of all outstanding loans guaranteed by the agency for the
fiscal year of the agency that begins in 1993, 0.7% for the agency's fiscal
year beginning in 1994, 0.9% for the agency's fiscal year beginning in 1995
and 1.1% for the agency's fiscal year beginning on or after January 1, 1996.
If (a) the Guarantee Agency fails to achieve the minimum reserve level in any
two consecutive years, (b) the Guarantee Agency's federal reimbursements are
reduced to 80 percent (or 78 percent after October 1, 1993) or (c) the
Department determines the Guarantee Agency's administrative or financial
condition jeopardizes its continued ability to perform its responsibilities,
the Department must require the Guarantee Agency to submit and implement a
management plan to address the deficiencies. The Department may terminate the
Guarantee Agency's agreements with the Department if the Guarantee Agency
fails to submit the required plan, or fails to improve its administrative or
financial condition substantially, or if the Department determines the
Guarantee Agency is in danger of financial collapse. In such event, the
Department is authorized to undertake specified actions to assure the
continued payment of claims, including making advances to Guarantee Agencies
to cover immediate cash needs, transfer guarantees to another Guarantee
Agency, or transfer of guarantees to the Department itself.
The Act requires that, subject to compliance with the Act, the Secretary
must pay all amounts which may be required to be paid under the Act as a
result of certain events of death, disability, bankruptcy, school closure or
false certification by the educational institution described therein. It
further provides that Guarantee Agencies are deemed to have a contractual
right against the United States to receive reinsurance in accordance with its
provisions. In addition, the 1992 Amendments provide that if the Department
determines that a Guarantee Agency is unable to meet its insurance
obligations, holders of loans may submit insurance claims directly to the
Department until such time as the obligations are transferred to a new
Guarantee Agency capable of meeting such obligations or until a successor
Guarantee Agency assumes such obligations. There can be no assurance that the
Department would under any given circumstances assume such obligation to
assure satisfaction of a guarantee obligation by exercising its right to
terminate a reimbursement agreement with a Guarantee Agency or by making a
determination that such Guarantee Agency is unable to meet its guarantee
obligations.
In addition to the Federal Reserve Fund, which is the property of the United
States, each Guarantee Agency has an Agency Operating Fund, that it is
permitted to spend on activities related to the FFELP, including oversight of
schools and lenders, pre-claim collection assistance, maintenance of records,
dissemination of public information and issuance of new guarantees. The Agency
Operating Fund is created from fees paid by the Department.
A-10
<PAGE>
APPENDIX B
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the Securities will be available
only in book-entry form (the "Global Securities"). Investors in the Global
Securities may hold such Global Securities through The Depository Trust
Company ("DTC") or, if applicable, Cedel or Euroclear. The Global Securities
will be tradeable as home market instruments in both the European and U.S.
domestic markets. Initial settlement and all secondary trades will settle in
same-day funds.
Secondary market trading between investors holding Global Securities through
Cedel and Euroclear will be conducted in the ordinary way in accordance with
their normal rules and operating procedures and in accordance with
conventional eurobond practice.
Secondary market trading between investors holding Global Securities through
DTC will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
participants holding Securities will be effected on a delivery-against-payment
basis through the respective depositaries of Cedel and Euroclear and as
participants in DTC.
Non-U.S. holders of Global Securities will be exempt from U.S. withholding
taxes, provided that such holders meet certain requirements and deliver
appropriate U.S. tax documents to the securities clearing organizations or
their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect participants in DTC. As a result, Cedel and Euroclear will
hold positions on behalf of their participants through their respective
depositaries, which in turn will hold such positions in accounts as
participants of DTC.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to U.S. corporate debt obligations.
Investor securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to
the securities custody accounts on the settlement date against payment in
same-day funds.
Secondary Market Trading
Since the purchase determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired
value date.
Trading between DTC participants. Secondary market trading between DTC
participants will be settled using the procedures applicable to U.S. corporate
debt issues in same-day funds.
Trading between Cedel and/or Euroclear participants. Secondary market
trading between Cedel participants and/or Euroclear participants will be
settled using the procedures applicable to conventional eurobonds in same-day
funds.
B-1
<PAGE>
Trading between DTC seller and Cedel or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC participant to the
account of a Cedel participant or a Euroclear participant, the purchaser will
send instructions to Cedel or Euroclear through a participant at least one
business day prior to settlement. Cedel or Euroclear will instruct the
respective depositary to receive the Global Securities against payment.
Payment will include interest accrued on the Global Securities from and
including the last coupon payment date to and excluding the settlement date.
Payment will then be made by the respective depositary to the DTC
participant's account against delivery of the Global.
Securities. After settlement has been completed, the Global Securities will
be credited to the respective clearing system and by the clearing system, in
accordance with its usual procedures, to the Cedel participant's or Euroclear
participant's account. The Global Securities credit will appear the next day
(European time) and the cash debit will be back-valued to, and the interest on
the Global Securities will accrue from, the value date (which would be the
preceding day when settlement occurred in New York). If settlement is not
completed on the intended value date (i.e., the trade fails), the Cedel or
Euroclear cash debit will be valued instead as of the actual settlement date.
Cedel participants and Euroclear participants will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or exiting lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, participants can elect not to preposition funds and allow that credit
line to be drawn upon to finance settlement. Under this procedure, Cedel
participants or Euroclear participants purchasing Global Securities would
incur overdraft charges for one day, assuming they cleared the overdraft when
the Global Securities were credited to their accounts. However, interest on
the Global Securities would accrue from the value date. Therefore, in many
cases the investment income on the Global Securities earned during that one-
day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each participant's particular
cost of funds.
Since the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending Global Securities
to the respective depositary for the benefit of Cedel participants or
Euroclear participants. The sale proceeds will be available to the DTC seller
on the settlement date. Thus, to the DTC participant a cross-market
transaction will settle no differently than a trade between two DTC
participants.
Trading between Cedel or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, Cedel and Euroclear participants may employ
their customary procedures for transactions in which Global Securities are to
be transferred by the respective clearing system, through the respective
depositary, to a DTC participant. The seller will send instructions to Cedel
or Euroclear through a participant at least one business day prior to
settlement. In this case, Cedel or Euroclear will instruct the respective
depositary to deliver the Securities to the DTC participant's account against
payment. Payment will include interest accrued on the Global Securities from
and including the last coupon payment date to and excluding the settlement
date. The payment will then be reflected in the account of the Cedel
participant or Euroclear participant the following day, and receipt of the
cash proceeds in the Cedel or Euroclear participant's account would be back-
valued to the value date (which would be the preceding day, when settlement
occurred in New York). Should the Cedel or Euroclear participant have a line
of credit with its respective clearing system and elect to be in debit in
anticipation of receipt of the sale proceeds in its account, the back-
valuation will extinguish any overdraft charges incurred over that one-day
period. If settlement is not completed on the intended value date (i.e., the
trade fails), receipt of the cash proceeds in the Cedel or Euroclear
participant's account would instead be valued as of the actual settlement
date.
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from DTC Participants for delivery to Cedel participants or
Euroclear participants should note that these trades would automatically fail
B-2
<PAGE>
on the sale side unless affirmative action were taken. At least three
techniques should be readily available to eliminate this potential problem:
1. borrowing through Cedel or Euroclear for one day (until the purchase
side of the day trade is reflected in their Cedel or Euroclear accounts) in
accordance with the clearing system's customary procedures;
2. borrowing the Global Securities in the U.S. from a DTC participant no
later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
3. staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC participant is at least
one day prior to the value date for the sale to the Cedel participant or
Euroclear participant.
B-3
<PAGE>
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A holder of Global Securities holding securities through Cedel or Euroclear
(or through DTC if the holder has an address outside the U.S.) will be subject
to the 30% U.S. withholding tax that generally applies to payments of interest
(including original interest discount) on registered debt issued by U.S.
persons, unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or
business in the chain of intermediaries between such beneficial owner and the
U.S. entity required to withhold tax complies with applicable certification
requirements and (ii) such holder takes one of the following steps to obtain
an exemption or reduced tax rate:
Exemption for non-U.S. person. Non-U.S. persons that are beneficial owners
can obtain a complete exemption from the withholding tax by filing a signed
Form W-8BEN (Certificate of Foreign Status).
If the information shown on Form W-8BEN changes, a new Form W-8BEN must be
filed within 30 days of such change.
Exemption for non-U.S. persons with effectively connected income. A non-U.S.
person, including a non-U.S. corporation or bank with a U.S. branch, for which
the interest income is effectively connected with its conduct of a trade or
business in the United States, can obtain an exemption from the withholding
tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States) or, after December 31, 2000, a Form W-8ECI.
Exemption or reduced rate for non-U.S. persons resident in treaty countries
(Form 1001). Non-U.S. persons that are beneficial owners residing in a country
that has a tax treaty with the United States can obtain an exemption or
reduced tax rate (depending on the treaty terms) by filing Form 1001
(Ownership, Exemption or Reduced Rate Certificate) or Form W-8BEN.
Exemption for U.S. persons (Form W-9). U.S. persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
The term "U.S. Person" means (i) a citizen or resident of the United States,
(ii) a corporation, partnership or other entity organized in or under the laws
of the United States or any political subdivision thereof, (iii) an estate the
income of which is includible in gross income for U.S. federal income tax
purposes, regardless of its source, or (iv) a trust whose administration is
subject to the primary supervision of a United States court and which has one
or more United States fiduciaries who have the authority to control all
substantial decisions of the trust. Notwithstanding the preceding sentence, to
the extent provided in Treasury regulations, certain trusts in existence on
August 20, 1996, and treated as U.S. persons prior to such date, that elect to
continue to be treated as U.S. persons, will be U.S. persons and not Foreign
Persons. This summary does not deal with all aspects of U.S. federal income
tax withholding that may be relevant to foreign holders of the Global
Securities. Investors are advised to consult their own tax advisors for
specific tax advice concerning their holding and disposing of the Global
Securities.
B-4
<PAGE>
APPENDIX C
INDEX OF PRINCIPAL TERMS
Set forth below is a list of the defined terms used in this Prospectus and
the pages on which the definitions of such terms may be found herein.
<TABLE>
<CAPTION>
Page
-----------
<S> <C>
1992 Act............................................................ 22
1992 Amendments..................................................... 15, A-2
1993 Act............................................................ 14, 22, A-2
1997 Act............................................................ 61
Accrual Period...................................................... 48
Act................................................................. 13
Administration Agreement............................................ 8
Administration Agreement Supplement................................. 8
Administration Fee.................................................. 8
Administrator....................................................... 3
Administrator Default............................................... 38
Applicable Trustee.................................................. 50
Base Rate........................................................... 48
Business Day........................................................ 18
Calculation Agent................................................... 48
Cede................................................................ 19
Cedel............................................................... 51
Cedel Participants.................................................. 51
Certificate Balance................................................. 5
Certificate Pool Factor............................................. 41
Certificate Rate.................................................... 5
Certificateholders.................................................. 4
Certificates........................................................ 1
Closing Date........................................................ 5
Code................................................................ 12, 55
Collection Account.................................................. 6, 32
Collection Period................................................... 33
Commission.......................................................... 2
Cooperative......................................................... 51
Consolidation Loans................................................. A-1
Deferment Period.................................................... A-6
DTC................................................................. B-1
Cutoff Date......................................................... 5
Definitive Certificates............................................. 52
Definitive Notes.................................................... 52
Definitive Securities............................................... 52
Delaware Tax Counsel................................................ 11
Department.......................................................... 6
Depositaries........................................................ 50
Depository.......................................................... 42
Distribution Date................................................... 42
DOE Data Book....................................................... 24
DSLP................................................................ 14
DTC's Nominee....................................................... 20
Eligible Deposit Account............................................ 32
Eligible Institution................................................ 32
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
Page
------
<S> <C>
Eligible Investments..................................................... 32
Eligible Lender Trustee.................................................. 1, 3
ERISA.................................................................... 12, 64
Euroclear................................................................ 51
Euroclear Operator....................................................... 51
Euroclear Participants................................................... 51
Event of Default......................................................... 43
Federal Assistance....................................................... A-4
Federal Direct Student Loan.............................................. A-2
Federal Reserve Fund..................................................... A-1
Federal Tax Counsel...................................................... 11
FFELP.................................................................... 5, A-1
FFELP Loans.............................................................. 5
Fixed Rate Securities.................................................... 48
Floating Rate Securities................................................. 48
Forbearance Period....................................................... A-7
Foreign Person........................................................... 59
Funding Period........................................................... 6
Global Securities........................................................ B-1
Grace Period............................................................. A-6
GSE...................................................................... 21
Guarantee Agency......................................................... 6
Guarantee Payments....................................................... 6
Guaranteed Student Loan Program.......................................... A-1
HEAL..................................................................... 22
Higher Education Act..................................................... 13
Holding Company.......................................................... 21
Indenture................................................................ 4
Indenture Trust Estate................................................... 44
Indenture Trustee........................................................ 1, 3
Indirect Participants.................................................... 50
Insolvency Event......................................................... 36
Insolvency Laws.......................................................... 19
Interest Subsidy Payments................................................ A-1
Interim Trust Agreement.................................................. 3
Interim Trustee.......................................................... 3
Investment Earnings...................................................... 32
Issuer................................................................... 3
LSCs..................................................................... 23
Master Administration Agreement.......................................... 8
Monthly Servicing Payment Date........................................... 10
Non-FFELP Loans.......................................................... 5
Note Owner............................................................... 56
Note Pool Factor......................................................... 41
Note Rate................................................................ 4
Noteholders.............................................................. 4
Notes.................................................................... 1
OID...................................................................... 56
OID Regulations.......................................................... 56
Participants............................................................. 42
Plan..................................................................... 65
</TABLE>
C-2
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
PLUS Loans................................................................ A-1
Pool Balance.............................................................. 41
Pool Factor............................................................... 41
Pre-Funding Account....................................................... 6
Pre-Funding Amount........................................................ 7
Prepayment Assumption..................................................... 56
Privatization Act......................................................... 21
Program Payments.......................................................... 8
Prospectus Supplement..................................................... 1
Purchase Agreement........................................................ 6
Purchase Amount........................................................... 29
Qualified Substitute Student Loans........................................ 9
Rating Agencies........................................................... 18
Reauthorization Legislation............................................... A-2
Registration Statement.................................................... 2
Reinsurance Rate.......................................................... A-9
Related Documents......................................................... 45
Reorganization............................................................ 21
Reserve Account........................................................... 7
Reserve Account Initial Deposit........................................... 7
Reset Period.............................................................. 48
Rules..................................................................... 51
Sale Agreement............................................................ 5
Sallie Mae................................................................ 1, 3
Securities................................................................ 1
Securities Act............................................................ 2
Securityholders........................................................... 2
Seller.................................................................... 1, 3
Servicer.................................................................. 1, 3
Servicer Default.......................................................... 36
Servicing Agreement....................................................... 8
Servicing Fee............................................................. 8, 10
SLS Loans................................................................. A-2
Special Allowance Payment................................................. A-1
Specified Reserve Account Balance......................................... 7
Spread.................................................................... 48
Spread Multiplier......................................................... 48
Student Loans............................................................. 1, 5
Subsidized Stafford Loans................................................. A-1
Supplemental Loans to Students............................................ A-2
Technical Amendments...................................................... A-2
Terms and Conditions...................................................... 52
Transfer and Servicing Agreement.......................................... 29
Trust..................................................................... 1, 3
Trust Accounts............................................................ 32
Trust Agreement........................................................... 3
Trust Student Loans....................................................... 3
UCC....................................................................... 53
U.S. Person............................................................... B-4
Underwriting Agreements................................................... 65
Unmet Need................................................................ A-3
Unsubsidized Stafford Loans............................................... A-1
</TABLE>
C-3
<PAGE>
$
SLM Student Loan Trust 1999-2
$ Floating Rate Class A-1T Student Loan-Backed Notes
$ Floating Rate Class A-1L Student Loan-Backed Notes
$ Floating Rate Class A-2T Student Loan-Backed Notes
$ Floating Rate Class A-2L Student Loan-Backed Notes
$ Floating Rate Class A-3T Student Loan-Backed Notes
$ Floating Rate Class A-3L Student Loan-Backed Notes
$ Floating Rate Student Loan-Backed Certificates
SLM Funding Corporation
Seller
Sallie Mae Servicing Corporation
Servicer
-------------------
PROSPECTUS SUPPLEMENT
-------------------
Salomon Smith Barney
Goldman, Sachs & Co.
J.P. Morgan & Co.
Merrill Lynch & Co.
You should rely only on the information contained or incorporated by reference
in this Prospectus Supplement and the Prospectus. We have not authorized
anyone to provide you with different information.
We are not offering the Notes or the Certificates in any state or other
jurisdiction where the offer is prohibited.
We do not claim the information in this Prospectus Supplement and the
Prospectus is accurate as of any date other than the dates stated on their
covers.
Dealers must deliver a Prospectus Supplement and Prospectus when acting as
underwriters of the Notes or Certificates and with respect to their unsold
allotments or subscriptions. In addition, all dealers selling any Note or
Certificate must deliver a Prospectus Supplement and a Prospectus until ,
1999.
August , 1999
