Student Loans and Capital Markets Thomas M. Graf Executive Director MEFA December 5, 2008.

Student Loans and Capital Markets

Thomas M. GrafExecutive Director

MEFA

December 5, 2008

Capital Markets

> Early Warning Signs

> Current Environment

> Continued Volatility

Capital MarketsEarly Warning Signs

> Unprecedented Disruption Began With Sub-Prime Mortgage Crisis> Headline risk evident

> Large bank write-downs

> Quality of underwriting concerns as performance shifts

> Investor confidence eroding

> Asset-Backed Securities Impact> Limited liquidity as financing channels begin to close> Increased funding costs for lenders and banks


> Bond Insurers Under Pressure> Insured assets performance was deteriorating> Increased capitalization requirements to fulfill outstanding

policies> Bond investors outlook diverging from published actions

> Rating Agencies Scrutinized> Insurers on watch or negative outlook – downgrades were

on the horizon> Investors looking through insurance wrap to underlying

ratings


> Education Lenders Exit the Market> Increased funding costs> Liquidity contraction by investors> Investors concerned that student loans will perform like sub-

prime mortgages

Capital MarketsCurrent Environment

13.718.4 15.1

14.5

22.0 18.6

37.0

58.060.5

73.6

86.2

70.0

30.9

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

($ in billions)

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Student Loan Debt Issuance


Education Loan Transactions

Source: Bank of America, The Student Loan Report 11/18/08


Interest Rates

Source: Bank of America, The Student Loan Report 11/18/08

Capital MarketsContinued Volatility

Significant Impact on Families> Fewer education financing options> Tightened underwriting – FICO standards raised to improve

risk management> Borrower benefits eliminated from loan programs> Increased borrowing costs in capital markets> Reliance on home equity limited due to housing price

corrections> Stock market losses impact households net worth


Pressure on College Campuses> Tightened operating budgets and fiscal policies> Impact on institutional financial aid> Shrinking endowments – losses likely to impact operating

budgets and financial aid> Maintain access to broadest socioeconomic demographic


Federal Government Intervention> Continue commitment to ensure students have access to

federal loans> Ensuring Continued Access to Student Loans 2008 (ECASL)

> Term Asset-Backed Securities Loan Facility (TALF)

> Wait and see with new administration…


Education Lenders Focus> Continued commitment to access capital markets to raise

proceeds for affordable education loans> MEFA’s response in challenging marketplace

> Spring 2008 – suspend FFELP participation

> Fall 2008 – successful transaction to fund private education loans

Student Loans and Capital Markets Thomas M. Graf Executive Director MEFA December 5, 2008.

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