424B5 1 d424b5.htm FORM 424B5 FORM 424B5

Prospectus Supplement to Prospectus dated June 17, 2005

$2,292,623,000

SLM Student Loan Trust 2005-5

Issuer

SLM Funding LLC

Depositor

Sallie Mae, Inc.

Servicer and Administrator

 

Student Loan-Backed Notes

 

On June 29, 2005, the trust will issue:

 

Class


     Principal

  

Interest Rate


   Maturity

Class A-1 Notes

     $ 672,000,000    3-month LIBOR plus 0.00%    January 25, 2018

Class A-2 Notes

     $ 420,000,000    3-month LIBOR plus 0.08%    October 25, 2021

Class A-3 Notes

     $ 420,000,000    3-month LIBOR plus 0.10%    April 25, 2025

Class A-4 Notes

     $ 361,844,000    3-month LIBOR plus 0.14%    October 25, 2028

Class A-5 Notes

     $ 350,000,000    3-month LIBOR plus 0.03%*    October 25, 2040

Class B Notes

     $ 68,779,000    3-month LIBOR plus 0.25%    October 25, 2040

* Effective until the initial reset date, which will occur on January 25, 2010.

 

The trust will make payments quarterly, beginning on October 25, 2005, primarily from collections on a pool of consolidation student loans. In general, the trust will pay principal allocable to the class A notes sequentially to the class A-1 through class A-5 notes, in that order, until paid in full. The class B notes will not receive principal until the stepdown date, which is expected to be the distribution date in October 2011. The class B notes then will receive principal pro rata with the class A notes, as long as a trigger event is not in effect for the related distribution date. Interest on the class B notes will be subordinate to interest on the class A notes and principal on the class B notes will be subordinate to both principal and interest on the class A notes.

The class A-1 through A-4 notes and the class B notes are LIBOR-based notes. The class A-5 notes are reset rate notes.

We are offering the notes through the underwriters at the prices shown below, when and if issued. We have applied for a listing of the notes on the Luxembourg Stock Exchange.

 


 

 

You should consider carefully the risk factors on page S-32 of this supplement and on page 21 of the prospectus.

 

The notes are asset-backed securities issued by a trust. They are not obligations of SLM Corporation, the depositor, SLM Education Credit Finance Corporation, the administrator, the servicer or any of their affiliates.

 

The notes are not guaranteed or insured by the United States or any other government agency.

 

     Price to Public

 

Underwriting

Discount


    Proceeds to
the Depositor


 

Per Class A-1 Note

   100.0%   0.175 %   99.825 %

Per Class A-2 Note

   100.0%   0.205 %   99.795 %

Per Class A-3 Note

   100.0%   0.240 %   99.760 %

Per Class A-4 Note

   100.0%   0.260 %   99.740 %

Per Class A-5 Note

   100.0%   0.200 %   99.800 %

Per Class B Note

   100.0%   0.300 %   99.700 %

 

We expect the proceeds to the depositor from the sale of the notes to be $2,287,730,869 before deducting expenses payable by the depositor estimated to be $1,109,061.

 

Neither the SEC nor any state securities commission has approved or disapproved the securities or determined whether this supplement or the prospectus is accurate or complete. Any contrary representation is a criminal offense.

 


Joint Book-Runners

 

Citigroup

  Goldman, Sachs & Co.

Co-Managers

Barclays Capital

Merrill Lynch & Co.

Wachovia Securities

 

June 22, 2005


TABLE OF CONTENTS

Prospectus Supplement

 

    Page

Summary of Terms

  S-5

ŸIssuer

  S-5

ŸThe Notes

  S-5

ŸDates

  S-5

ŸInformation About the Notes

  S-6

ŸLIBOR-based Notes

  S-6

Reset Rate Notes

  S-7

All Notes

  S-12

Ÿ Indenture Trustee and Paying Agent

  S-15

Ÿ Luxembourg Paying Agent

  S-15

Ÿ Eligible Lender Trustee

  S-15

Ÿ Remarketing Agents

  S-15

Ÿ Administrator

  S-15

Ÿ Information About the Trust

  S-15

Formation of the Trust

  S-15

Its Assets

  S-16

Ÿ Administration of the Trust

  S-24

Distributions

  S-24

Transfer of the Assets to the Trust

  S-26

Servicing of the Assets

  S-26

Compensation of the Servicer

  S-27

Ÿ Termination of the Trust

  S-27

Optional Purchase

  S-27

Auction of Trust Assets

  S-28

Ÿ Excess Distribution Certificateholder

  S-29

Ÿ Tax Considerations

  S-29

Ÿ ERISA Considerations

  S-30

Ÿ Rating of the Securities

  S-30

Ÿ Listing Information

  S-30

Ÿ Risk Factors

  S-30

Ÿ Identification Numbers

  S-31

Risk Factors

  S-32

Ÿ Subordination of the Class B Notes and Sequential Payment of the Notes Result in a Greater Risk of Loss

  S-32

Ÿ Investors in the Class B Notes Bear Greater Risk of Loss Because the Priority of Payment of Interest and the Timing of Principal Payments on the Class B Notes May Change Due to the Variability of Cash Flows

  S-32

Ÿ The Characteristics of the Trust Student Loans May Change

  S-33

Ÿ Because the Initial Principal Balance of the Notes Exceeds the Trust Assets, You May be Adversely Affected by a High Rate of Prepayments

  S-34
    Page

Ÿ Your Notes May Have a Degree of Basis Risk, Which Could Compromise the Trust’s Ability to Pay Principal and Interest on Your Notes

  S-34

Ÿ Certain Actions Can be Taken Without Noteholder Approval

  S-34

Defined Terms

  S-35

Formation of the Trust

  S-35

Ÿ The Trust

  S-35

Ÿ Capitalization of the Trust

  S-37

Ÿ Eligible Lender Trustee

  S-37

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  S-38

Ÿ Sources of Capital and Liquidity

  S-38

Ÿ Results of Operations

  S-38

Use of Proceeds

  S-38

The Trust Student Loan Pool

  S-39

Ÿ Insurance of Trust Student Loans; Guarantors of Trust Student Loans

  S-49

Ÿ Cure Period for Trust Student Loans

  S-53

Ÿ Consolidation of Federal Benefit Billings and Receipts and Guarantor Claims with Other Trusts

  S-54

Ÿ Exceptional Performance Designation

  S-55

Description of the Notes

  S-56

Ÿ General

  S-56

Ÿ The Notes

  S-56

Ÿ The Reset Rate Notes

  S-60

Ÿ Notice of Interest Rates

  S-71

Ÿ Accounts

  S-71

Ÿ Supplemental Purchase Period

  S-72

Ÿ Consolidation Loan Add-on Period

  S-73

Ÿ Servicing Compensation

  S-74

Ÿ Distributions

  S-74

Ÿ Voting Rights and Remedies; Insolvency Events

  S-78

Ÿ Credit Enhancement

  S-78

Ÿ Administration Fee

  S-80

Ÿ Determination of Indices

  S-80

U.S. Federal Income Tax Consequences

  S-81

ERISA Considerations

  S-81

Reports to Securityholders

  S-82

Underwriting

  S-82

Listing Information

  S-85

Ratings of the Notes

  S-87

Legal Matters

  S-87

Glossary for Prospectus Supplement

  S-88

 

S-2


TABLE OF CONTENTS

Prospectus

 

     Page

Prospectus Summary

   8

Risk Factors

   21

Formation of the Trusts

   38

Use of Proceeds

   39

The Depositor, the Servicer and Administrator and the Sellers

   39

The Student Loan Pools

   42

Transfer and Servicing Agreements

   47

Servicing and Administration

   50

Trading Information

   60

Description of the Notes

   62

Description of the Certificates

   68

Additional Information Regarding the Securities

   69

Certain Legal Aspects of the Student
Loans

   110
     Page

U.S. Federal Income Tax
Consequences

   112

European Union Directive on the Taxation of Savings Income

   125

State Tax Consequences

   125

ERISA Considerations

   126

Available Information

   128

Reports to Securityholders

   129

Incorporation of Documents by Reference

   129

The Plan of Distribution

   129

Legal Matters

   132

Appendix A: Federal Family Education Loan Program

   A-1

Appendix B: Global Clearance, Settlement and Tax Documentation Procedures

   B-1

 

S-3


THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT

AND THE ACCOMPANYING PROSPECTUS

 

We provide information to you about the notes in two separate sections of this document that provide progressively more detailed information. These two sections are:

 

  ·   the accompanying prospectus, which begins after the end of this prospectus supplement and provides general information, some of which may not apply to your particular class of notes; and

 

  ·   this prospectus supplement, which describes the specific terms of the notes being offered.

 

You should read both the prospectus and the prospectus supplement to fully understand the notes.

 

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 Tables of Contents on pages S-2 and S-3 provide the pages on which you can find these captions.

 

NOTICE TO INVESTORS

 

The notes may not 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.


 

 

We have applied for a listing of the notes on the Luxembourg Stock Exchange. We cannot assure you that the application will be granted. You should consult with Deutsche Bank Luxembourg SA, the Luxembourg listing agent for the notes, to determine their status.

 

S-4


 

SUMMARY OF TERMS

 

This summary highlights selected information about the notes. It does not contain all of the information that you might find important in making your investment decision. It provides only an overview to aid your understanding and is qualified by the full description of the information contained in this prospectus supplement and the attached prospectus. You should read the full description of this information appearing elsewhere in this document and in the prospectus to understand all of the terms of the offering of the notes.

 

ISSUER

 

SLM Student Loan Trust 2005-5.

 

THE NOTES

 

The trust is offering the following classes of notes:

 

Class A Notes:

 

  ·   Floating Rate Class A-1 Student Loan-Backed Notes in the amount of $672,000,000;

 

  ·   Floating Rate Class A-2 Student Loan-Backed Notes in the amount of $420,000,000;

 

  ·   Floating Rate Class A-3 Student Loan-Backed Notes in the amount of $420,000,000;

 

  ·   Floating Rate Class A-4 Student Loan-Backed Notes in the amount of $361,844,000; and

 

  ·   Reset Rate Class A-5 Student Loan-Backed Notes in the amount of $350,000,000.

 

Class B Notes:

 

  ·   Floating Rate Class B Student Loan-Backed Notes in the amount of $68,779,000.

 

We sometimes refer to the class A-5 notes as the reset rate notes. We sometimes refer to the class A-1 notes, the class A-2 notes, the class A-3 notes, the class A-4 notes and the class A-5 notes, collectively, as the class A notes, and to the class A notes and the class B notes, collectively, as the notes.

 

DATES

 

The closing date for this offering is June 29, 2005.

 

The information about the initial trust student loans in this prospectus supplement is calculated and presented as of May 30, 2005. We refer to this date as the statistical cutoff date.

 

The cutoff date for the pool of initial trust student loans will be the closing date. We refer to this date as the initial cutoff date.

 

The trust will be entitled to receive all collections and proceeds on the initial trust student loans on or after the closing date.

 

A distribution date for each class of notes is the 25th of each January, April, July and October, beginning October 25, 2005. 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.

 

S-5


Interest and principal will be payable to holders of record as of the close of business on the record date, which is the day before the related distribution date.

 

INFORMATION ABOUT THE NOTES

 

The notes are debt obligations of the trust. The notes will receive payments primarily from collections on the initial trust student loans acquired by the trust on the closing date and any additional trust student loans acquired by the trust from time to time during the period commencing on the closing date and ending ten business days later on July 13, 2005. We refer to this period as the supplemental purchase period.

 

We refer to the pool of student loans purchased by the trust on the closing date as the initial trust student loans; we refer to any student loans purchased by the trust during the supplemental purchase period as the additional trust student loans; and we refer to the initial trust student loans and the additional trust student loans, collectively, as the trust student loans.

 

The trust may acquire additional trust student loans during the supplemental purchase period from amounts on deposit in the supplemental purchase account. The cutoff date for any additional trust student loans will be the date those loans are purchased by the trust. The trust will be entitled to receive all collections and proceeds on the additional trust student loans on and after their respective purchase dates.

 

In addition, from the closing date through December 31, 2005, which we refer to as the consolidation loan add-on period, the trust student loans may be supplemented by add-on consolidation loans. The Higher Education Act permits borrowers to add additional student loans to a consolidation loan during the 180-day period following origination of the consolidation loan. Add-on consolidation loans require additional disbursements by the trust, pursuant to which additional eligible education loans that were not originally included in a borrower’s consolidation loan are added to an existing trust student loan, thereby increasing its principal balance. Only amounts on deposit in the add-on consolidation loan account, as described below, may be used by the trust to fund the acquisition of such add-on consolidation loans.

 

LIBOR-BASED NOTES

 

The class A-1 through class A-4 notes and the class B notes are LIBOR-based notes. Interest will accrue on the outstanding principal balance of the LIBOR-based notes during three-month accrual periods and will be paid on each distribution date.

 

Each accrual period for the LIBOR-based notes begins on a distribution date and ends on the day before the next distribution date. The first accrual period for the LIBOR-based notes, however, will begin on the closing date and end on October 24, 2005, the day before the first distribution date.

 

Except for the first accrual period, each class of LIBOR-based notes will bear

 

 

S-6


interest at a rate equal to the sum of three-month LIBOR and the applicable spread listed in the table below:

 

    Class    


   Spread

Class A-1

   0.00%

Class A-2

   0.08%

Class A-3

   0.10%

Class A-4

   0.14%

Class B

   0.25%

 

LIBOR for the first accrual period will be determined by the following formula:

 

x + [ 26/32 * (y-x)]

 

where:

 

x = three-month LIBOR, and

 

y = four-month LIBOR.

 

The administrator will determine LIBOR as specified under “Additional Information Regarding the Securities—Determination of Indices—LIBOR” in the prospectus. The administrator will calculate interest on the LIBOR-based notes based on the actual number of days elapsed in each accrual period divided by 360.

 

Reset Rate Notes

 

Interest.    During their initial reset period, the class A-5 notes will be denominated in U.S. Dollars. The class A-5 notes will bear interest during their initial reset period on their outstanding principal balance at a floating rate of interest equal to three-month LIBOR plus 0.03%; provided, that for the first accrual period, LIBOR will be determined using the same formula as for the LIBOR-based notes.

 

During the initial reset period, interest generally will be paid quarterly to the reset rate noteholders on each distribution date commencing on October 25, 2005.

 

Interest will accrue on the outstanding principal balance of the class A-5 notes during the applicable accrual periods.

 

Generally an accrual period for the class A-5 notes:

 

  ·   if they bear a floating rate of interest (as will be the case during their initial reset period), will begin on a distribution date and end on the day before the next distribution date; or

 

  ·   if they bear a fixed rate of interest, will begin on the 25th day of the month of the immediately preceding distribution date and end on the 24th day of the month of the current distribution date.

 

The initial accrual period for the class A-5 notes, however, will begin on the closing date and end on October 24, 2005.

 

Until the initial reset date and during any subsequent reset period when the class A-5 notes bear interest at a floating rate, interest on such notes will be calculated based on the actual number of days elapsed in each accrual period and a 360-day year.

 

During any reset period when the class A-5 notes bear interest at a fixed rate, interest on such notes will be calculated based on twelve 30-day months and a 360-day year.

 

 

S-7


For each reset period after the initial reset period, the currency, interest rate mode, accrual period and applicable distribution dates for the class A-5 notes will be specified on the related remarketing terms determination date, and the interest rate will be specified on the related spread determination date.

 

Reset Dates.    The initial reset date for the class A-5 notes is January 25, 2010. We refer to this date, together with each later date on which the class A-5 notes may be reset with respect to the currency, interest rate mode and other factors described above, as reset dates. We refer to the periods between reset dates as reset periods.

 

Remarketing Procedures.    At least eight business days prior to each reset date for the class A-5 notes, the remarketing agents, in consultation with the administrator, will determine the proposed terms of the remarketing for that class including, among other things:

 

  ·   the applicable currency;

 

  ·   the applicable interest rate mode;

 

  ·   whether principal will be paid periodically or at the end of the related reset period;

 

  ·   the index, if applicable;

 

 

  ·   the all-hold rate, if applicable;

 

  ·   the length of the reset period for that class and the applicable distribution dates; and

 

  ·   the identity of potential swap counterparties.

 

The all-hold rate will be the interest rate applicable for the next reset period if all holders of the class A-5 notes choose not to tender their notes to the remarketing agents for remarketing. The all-hold rate will be applicable only if the class A-5 notes are denominated in U.S. Dollars in both the then-current reset period and the immediately following reset period. See “Description of the Notes—The Reset Rate Notes” in this prospectus supplement.

 

The interest rate mode for the class A-5 notes during any reset period after their initial reset period may be based on a floating rate index or may be a fixed rate. The floating rate may be based on EURIBOR, GBP-LIBOR or another non-U.S. Dollar currency based rate, LIBOR, the 91-day U.S. Treasury bill rate, a U.S. Treasury constant maturity rate, the prime rate, a commercial paper rate or the federal funds rate. Any interest rate mode other than a floating rate based on LIBOR or a commercial paper rate will require each rating agency then rating the notes to confirm its then-current rating of each class of the notes. If required during a reset period, the administrator will calculate the interest rate applicable to the class A-5 notes as specified under “Additional Information Regarding the Securities—Determination of Indices” in the prospectus.

 

Each reset date will occur on a distribution date. The related reset period will always end on the day before a distribution date and may not extend beyond the day before the maturity date of the reset rate notes.

 

 

S-8


Absent a failed remarketing, holders of the class A-5 notes that wish to sell their notes on a reset date will be able to obtain a 100% repayment of principal by tendering their class A-5 notes pursuant to the remarketing process. Tender is not mandatory if the class A-5 notes are denominated in U.S. Dollars in both the then-current reset period and the immediately following reset period. In all other situations, tender is mandatory, and the holders of the class A-5 notes will be deemed to have tendered their notes pursuant to the remarketing process. If there is a failed remarketing of the class A-5 notes, however, holders of the class A-5 notes will be required to retain their notes during the immediately following reset period, absent any separate secondary market trades, and will not be permitted to exercise any remedies as a result of the failure of the class A-5 notes to be remarketed on the related reset date.

 

Principal.    During any reset period after the initial reset period, the class A-5 notes may be structured not to receive a payment of principal until the end of that reset period, other than as described under “—Termination of the Trust” below. If the class A-5 notes are structured in this manner, generally all amounts that otherwise would have been paid to the holders of the class A-5 notes as principal on any applicable distribution date will instead be deposited into an accumulation account for that class. In that case, those funds will remain in the accumulation account until the next reset date, unless there occurs prior to that reset date an optional purchase of the remaining trust student loans by the servicer or a successful auction of the remaining trust student loans by the indenture trustee. On that reset date, the trust will pay all amounts, less any investment earnings, on deposit in the accumulation account, including amounts deposited on that reset date, either to the holders of the class A-5 notes as a distribution of principal or to the related swap counterparty if that class is then denominated in a currency other than U.S. Dollars.

 

Interest Rate Swap Agreements.    If during any reset period after the initial reset period, the class A-5 notes are structured to bear interest at a fixed rate, at the commencement of that reset period the trust will enter into one or more interest rate swap agreements with one or more eligible swap counterparties to hedge the basis risk that results from the payment of a fixed rate of interest on the class A-5 notes during that reset period. Such interest rate swap agreements will be effective until the next reset date.

 

Under any interest rate swap agreement to be entered into when the class A-5 notes bear a fixed rate of interest, the related swap counterparty will be obligated to pay the trust the fixed rate of interest for the class A-5 notes and the trust will be obligated to pay to that swap counterparty an amount based on LIBOR plus or minus a spread. See “Description of the Notes—The Reset Rate Notes—Fixed Rate Mode” in this prospectus supplement.

 

 

S-9


Each interest rate swap agreement will terminate, generally, on the first to occur of:

 

  ·   the next succeeding reset date; or

 

  ·   the distribution date on which the outstanding principal balance of that class is reduced to zero, excluding for this purpose all sums on deposit in the related accumulation account.

 

If the remarketing agents, in consultation with the administrator, determine that it would be in the best interest of the trust based on then-current market conditions, during any reset period when the class A-5 notes will bear a floating rate of interest, or if otherwise required to satisfy the rating agency condition, the trust will also enter into one or more interest rate swap agreements with eligible swap counterparties to hedge against some or all of the basis risk for the class A-5 notes.

 

Currency Swap Agreements.    If, on any reset date, the class A-5 notes are reset to a currency other than U.S. Dollars, the trust will enter into one or more currency swap agreements to be effective until the next reset date. See “Description of the Notes—The Reset Rate Notes—Foreign Exchange Mode” in this prospectus supplement.

 

The trust may not enter into any swap agreements with respect to the class A-5 notes unless each rating agency then rating the notes confirms its then-current ratings of each class of notes then outstanding and certain additional criteria are satisfied. For a description of these criteria, see “Description of the Notes—The Reset Rate Notes—Foreign Exchange Mode,” “—Floating Rate Mode” and “—Fixed Rate Mode” in this prospectus supplement.

 

Spread Determination Date.    The spread or the applicable fixed rate will be determined by the remarketing agents three business days prior to the related reset date as the lowest spread or fixed rate, not less than the all-hold rate, if applicable, that would permit all of the class A-5 notes tendered for remarketing to be purchased by investors at a price equal to 100% of the outstanding principal balance of the class A-5 notes.

 

Failed Remarketing.    There will be a failed remarketing if:

 

  ·   the remarketing agents cannot determine the applicable required reset terms at least eight business days prior to the related reset date;

 

  ·   the remarketing agents cannot establish the required spread or fixed rate at least three business days prior to the related reset date;

 

  ·   either sufficient committed purchasers cannot be obtained for all of the tendered class A-5 notes at the spread or fixed rate set by the remarketing agents, or committed purchasers default on their purchase obligations and the remarketing agents choose not to

 

 

S-10


 

purchase the related class A-5 notes themselves;

 

  ·   one or more interest rate and/or currency swap agreements satisfying all required criteria cannot be obtained, if applicable;

 

  ·   certain other conditions specified in the remarketing agreement are not satisfied; or

 

  ·   any rating agency then rating the notes has not confirmed or upgraded its then-current rating of any class of notes, if confirmation is required.

 

See “Description of the Notes—The Reset Rate Notes—Tender of Reset Rate Notes; Remarketing Procedures” in this prospectus supplement.

 

In the event a failed remarketing is declared with respect to the class A-5 notes at a time when those notes are then denominated in U.S. Dollars:

 

  ·   all holders of that class will retain their class A-5 notes, including in all deemed mandatory tender situations;

 

  ·   the related interest rate will be reset to a failed remarketing rate of three-month LIBOR plus 0.75%; and

 

  ·   the related reset period will be three months.

 

In the event a failed remarketing is declared with respect to the class A-5 notes at a time when those notes are then denominated in a currency other than U.S. Dollars:

 

  ·   all holders of that class will retain their notes;

 

  ·   that class will remain denominated in the then-current currency;

 

  ·   each related currency swap counterparty will be entitled to receive quarterly payments from the trust at an increased LIBOR- based rate, determined at the time the swap agreement was entered into for that reset period, referred to in this prospectus supplement as the extension rate;

 

  ·   the trust will be entitled to receive from each related currency swap counterparty, for payment to the related noteholders, quarterly floating rate payments at the specified failed remarketing rate; and

 

  ·   the related reset period will be three months.

 

Call Option.    SLM Corporation will have the option to purchase the class A-5 notes in their entirety as of the related reset date. SLM Corporation has the right to assign this option to certain of its subsidiaries. If this right is exercised, the interest rate for the class A-5 notes will be:

 

  ·   if that class had no related swap agreement in effect during the previous reset period, the interest rate applicable for the most recent reset period during which the failed remarketing rate was not in effect; or

 

  ·   if that class had one or more related swap agreements in effect during the previous reset period,

 

 

S-11


 

a three-month LIBOR-based rate equal to the weighted average of the floating rates of interest that the trust was required to pay to the related swap counterparties hedging the currency and/or the basis risk for that class during the preceding reset period.

 

This rate will continue to apply for each reset period while the call holder retains the class A-5 notes. In either case, the next reset date will occur on the next distribution date. See “Description of the Notes—The Reset Rate Notes—Call Option” in this prospectus supplement.

 

The administrator will notify the Luxembourg Stock Exchange of any exercise of the call option and a notice will also be published in a leading newspaper having general circulation in Luxembourg, which is expected to be d’Wort.

 

All Notes

 

Interest Payments.    Interest accrued on the outstanding principal balance of the notes during each accrual period will be payable on the applicable distribution date.

 

Principal Payments.    Principal will be payable or allocable on each distribution date in an amount generally equal to:

 

  ·   the principal distribution amount for that distribution date, plus

 

  ·   any shortfall in the payment of principal as of the preceding distribution date.

 

Any amounts remaining on deposit in the supplemental purchase account at the end of the supplemental purchase period will be transferred to the collection account on the next business day and included as part of the available funds for the initial distribution date. Any amounts remaining on deposit in the add-on consolidation loan account at the end of the consolidation loan add-on period will be transferred to the collection account on the next business day and will be included as available funds on the immediately following distribution date.

 

Priority of Principal Payments.    We will apply or allocate principal sequentially on each quarterly distribution date as follows:

 

  ·   first, the class A noteholders’ principal distribution amount, sequentially to the class A-1 through class A-4 notes, in that order, until their respective principal balances are reduced to zero;

 

  ·   second, any remaining class A noteholders’ principal distribution amount, to the class A-5 notes until their principal balance is reduced to zero; provided, that either (a) if the class A-5 notes are then denominated in a currency other than U.S. Dollars, those payments will be made to the related currency swap counterparty or (b) if the class A-5 notes are then structured not to receive a payment of principal until the end of the related reset

 

 

S-12


 

period, those payments will be allocated to the related accumulation account; and

 

  ·   third, the class B noteholders’ principal distribution amount, to the class B notes, until their principal balances are reduced to zero.

 

For purposes of priority second above, if the class A-5 notes are then structured not to receive a payment of principal until the end of the related reset period, the principal payments will be allocated to the accumulation account until amounts on deposit in that account, less any investment earnings, are sufficient to reduce the outstanding principal balance of that class or its U.S. Dollar equivalent, as applicable, to zero.

 

Amounts received by the trust in a non-U.S. Dollar currency from a swap counterparty with respect to principal will be paid or allocated to the class A-5 noteholders from the related currency account described under “Information about the Trust—Its Assets—Currency Accounts” below on the related distribution date.

 

Principal will not be paid to the class A-5 notes on any distribution date if that class is then structured not to receive a payment of principal until the end of the related reset period, unless that distribution date is also a reset date. Instead, principal will be allocated to that class of notes and set aside in the accumulation account.

 

Amounts on deposit in the accumulation account, exclusive of investment earnings, will generally be distributed to the reset rate noteholders or the related swap counterparty, as applicable, only on the related reset date.

 

Until the stepdown date, the class B notes will not be entitled to any payments of principal. On each distribution date on and after the stepdown date, provided that no trigger event is in effect, the class B notes will be entitled to their pro rata share of principal, subject to the existence of sufficient available funds.

 

The stepdown date will be the earlier of:

 

  ·   the distribution date in October 2011, or

 

  ·   the first date on which no class A notes remain outstanding.

 

The class A noteholders’ principal distribution amount is equal to the principal distribution amount times the class A percentage, which is equal to 100% minus the class B percentage. The class B noteholders’ principal distribution amount is equal to the principal distribution amount times the class B percentage.

 

The class B percentage is zero prior to the stepdown date and on any other distribution date if a trigger event is in effect. On each other distribution date, it is the percentage obtained by dividing:

 

  ·   the aggregate principal balance of the class B notes, by

 

  ·   the aggregate principal balance, or U.S. Dollar equivalent, of all

 

 

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outstanding notes less all amounts on deposit, exclusive of any investment earnings, in any accumulation account, in each case determined immediately prior to that distribution date.

 

A trigger event will be in effect on any distribution date if the outstanding principal balance of the notes, less any amounts on deposit in any accumulation account, exclusive of any investment earnings and after giving effect to distributions to be made on that distribution date, would exceed the adjusted pool balance for that distribution date.

 

See “Description of the Notes— Distributions” in this prospectus supplement for a more detailed description of principal payments.

 

Maturity Dates.    Each class of notes will mature no later than the date set forth in the table below for that class:

 

    Class    


   Maturity

Class A-1

   January 25, 2018

Class A-2

   October 25, 2021

Class A-3

   April 25, 2025

Class A-4

   October 25, 2028

Class A-5

   October 25, 2040

Class B

   October 25, 2040

 

The actual maturity of any class of notes could occur earlier if, for example,

 

  ·   there are prepayments on the trust student loans;

 

  ·   the servicer exercises its option to purchase all remaining trust student loans, which will not occur until the first distribution date on which the pool balance is 10% or less of the initial pool balance; or

 

  ·   the indenture trustee auctions all remaining trust student loans, which absent an event of default under the indenture, will not occur until the first distribution date on which the pool balance is 10% or less of the initial pool balance.

 

The initial pool balance is equal to the sum of: (i) the pool balance as of the closing date and (ii) all amounts deposited into the supplemental purchase account and the add-on consolidation loan account on the closing date.

 

Subordination of the Class B Notes.    Payments of interest on the class B notes will be subordinate to the payments of interest on the class A notes and to certain trust swap payments due to any swap counterparty. In general, payments of principal on the class B notes will be subordinate to the payment of both interest and principal on the class A notes, trust swap payments due to any swap counterparty and any deposits required to be made into any supplemental interest account or any investment reserve account. See “Description of the Notes—The Notes— The Class B Notes—Subordination of the Class B Notes” in this prospectus supplement.

 

Denominations.    All classes of notes will be available for purchase in

 

 

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minimum denominations of $100,000 and additional increments of $1,000. All of the notes will be available only in book-entry form through The Depository Trust Company, Clearstream, Luxembourg and the Euroclear System. 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.

 

INDENTURE TRUSTEE AND PAYING AGENT

 

The trust will issue the notes under an indenture to be dated as of June 1, 2005. Under the indenture, Deutsche Bank Trust Company Americas will act as indenture trustee for the benefit of and to protect the interests of the noteholders. It also will act as paying agent for the notes.

 

LUXEMBOURG PAYING AGENT

 

As long as the rules of the Luxembourg Stock Exchange require a Luxembourg paying agent, the depositor will cause one to be appointed. Initially, Deutsche Bank Luxembourg SA will act as the Luxembourg paying agent with respect to any of the notes listed on the Luxembourg Stock Exchange.

 

ELIGIBLE LENDER TRUSTEE

 

Chase Bank USA, National Association will be the initial eligible lender trustee under the trust agreement. It will hold legal title to the assets of the trust.

 

REMARKETING AGENTS

 

The remarketing agents will be entitled to a fee on each reset date in connection with a successful remarketing of either class of reset rate notes from amounts on deposit in the remarketing fee account. The trust will also be obligated to reimburse the remarketing agents, on a subordinated basis, for certain out-of-pocket expenses incurred in connection with each reset date.

 

ADMINISTRATOR

 

Sallie Mae, Inc. will act as the administrator of the trust under an administration agreement dated as of the closing date. Sallie Mae, Inc. is a Delaware corporation and a wholly-owned subsidiary of SLM Corporation. Subject to certain conditions, Sallie Mae, Inc. may transfer its obligations as administrator to an affiliate. See “Servicing and Administration— Administration Agreement” in the prospectus.

 

INFORMATION ABOUT THE TRUST

 

Formation of the Trust

 

The trust is a Delaware statutory trust created under a trust agreement dated as of June 9, 2005.

 

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 notes, entering into

 

 

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any required swap agreements and other related activities. See “Formation of the Trust—The Trust” in this prospectus supplement.

 

The depositor is SLM Funding LLC. It is a Delaware limited liability company whose sole member is SLM Education Credit Finance Corporation. We sometimes refer to SLM Education Credit Finance Corporation as SLM ECFC.

 

The depositor will acquire the initial trust student loans from one or both of VG Funding, LLC and SLM ECFC under separate purchase agreements and will subsequently sell them to the trust on the closing date under the sale agreement. We sometimes refer to VG Funding, LLC as VG Funding. We also sometimes refer to SLM ECFC and/or VG Funding as a seller or the sellers, as applicable. The sale agreement and purchase agreements will each be dated as of the closing date.

 

The depositor will acquire any additional trust student loans from one or both of the sellers under additional purchase agreements and will sell them to the trust from time to time during the supplemental purchase period, provided there are sufficient funds on deposit in the supplemental purchase account.

 

Chase Bank USA, National Association, as interim eligible lender trustee, will hold legal title to the student loans for the depositor under an interim trust agreement.

 

Its Assets

 

The assets of the trust will include:

 

  ·   the trust student loans;

 

  ·   collections and other payments on the trust student loans;

 

  ·   funds it will hold from time to time in its trust accounts, including a collection account; a reserve account; an add-on consolidation loan account; a supplemental purchase account; a capitalized interest account; a remarketing fee account; any accumulation account; any supplemental interest account; any investment reserve account; any investment premium purchase account; and, if either class of reset rate notes is denominated in a currency other than U.S. Dollars, a related currency account; and

 

  ·   its rights under any swap agreement entered into from time to time.

 

The rest of this section describes the trust student loans and trust accounts more fully.

 

  ·   Trust Student Loans.    The trust student loans (including the initial trust student loans, any additional trust student loans and any add-on consolidation loans) are education loans to students and parents of students made under the Federal Family Education Loan Program, known as the FFELP. All of the trust student loans are consolidation loans.

 

 

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Consolidation loans are used to combine a borrower’s obligations under various federally authorized student loan programs into a single loan.

 

Initial Trust Student Loans.    The initial trust student loans have been selected from the student loans owned by SLM ECFC or VG Funding, or have been acquired by the related seller from one or more of their affiliates, based on the criteria established by the depositor, as described in this prospectus supplement and the prospectus.

 

Guarantee agencies described in this document guarantee all of the initial trust student loans. They are also reinsured by the United States Department of Education.

 

As of the statistical cutoff date, the initial trust student loans had a pool balance of approximately $2,225,495,949.

 

As of the statistical cutoff date, the weighted average annual borrower interest rate of the initial trust student loans was approximately 3.98% and their weighted average remaining term to scheduled maturity was approximately 269 months.

 

Any special allowance payments on the initial trust student loans are based on the three-month financial commercial paper rate as to approximately 99.6% of the initial trust student loans by principal balance and the 91-day treasury bill rate as to approximately 0.4% of the initial trust student loans by principal balance.

 

Additional Trust Student Loans. From time to time during the supplemental purchase period, the depositor will acquire additional trust student loans from one or both of the sellers to the extent that the trust has sufficient funds on deposit in the supplemental purchase account for the purchase of such additional trust student loans.

 

Each applicable seller will have the right from time to time under the related purchase agreement to sell additional trust student loans to the depositor during the supplemental purchase period. All additional trust student loans purchased by the depositor are required under the sale agreement to be immediately sold to the trust, provided there are sufficient funds on deposit in the supplemental purchase account.

 

All additional trust student loans will also be guaranteed by guarantee agencies and reinsured by the United States Department of Education.

 

Add-on Consolidation Loans. From time to time through December 31, 2005, the trust may fund add-on consolidation loans to the extent that the trust has sufficient funds on deposit in the add-on consolidation loan account.

 

 

 

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The principal balance of each add-on consolidation loan will serve to increase the principal balance of the related trust student loan by that amount.

 

  ·   Collection Account.    The administrator will establish and maintain the collection 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 of the sale of the notes into the collection account on the closing date. The deposit will be in cash or eligible investments equal to approximately $7,230,000, plus the excess, if any, of the pool balance as of the statistical cutoff date over the pool balance as of the closing date to the extent such excess amount is not deposited into the supplemental purchase account.

 

The administrator will deposit collections on the trust student loans, interest subsidy payments and special allowance payments into the collection account, as described in this prospectus supplement and the prospectus.

 

  ·   Supplemental Purchase Account.    On the closing date, the administrator will establish and maintain the supplemental purchase account as an asset of the trust in the name of the indenture trustee. The trust will make a deposit from the net proceeds of the sale of the notes into the supplemental purchase account on the closing date. The deposit will be in cash or eligible investments in an amount equal to the excess, if any, of the pool balance as of the statistical cutoff date over the pool balance as of the closing date, but not to exceed 5% of the pool balance as of the statistical cutoff date. The amount on deposit in the supplemental purchase account will be reduced by the amount used from that account to purchase additional trust student loans from time to time during the supplemental purchase period.

 

All additional trust student loans will be sold to the trust at a price equal to 100% of the outstanding principal balance of each additional trust student loan, plus accrued interest to be capitalized.

 

All additional trust student loans purchased by the trust will be required to satisfy certain eligibility criteria as described under “The Trust Student Loan Pool” in this prospectus supplement. We sometimes refer to additional student loans which satisfy the required eligibility criteria as eligible student loans in this prospectus supplement.

 

Any amounts remaining on deposit in the supplemental purchase account at the end of the supplemental purchase period will be transferred to the collection account on the next business day and included as part of available funds on the initial distribution date.

 

 

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  ·   Add-on Consolidation Loan Account.    On the closing date, the administrator will establish and maintain the add-on consolidation loan account as an asset of the trust in the name of the indenture trustee. The trust will make a deposit in cash or eligible investments from the net proceeds of the sale of the notes equal to $10,000,000 into the add-on consolidation loan account on the closing date. The amount on deposit in the add-on consolidation loan account will be reduced by the amount used from that account to fund add-on consolidation loans from time to time during the consolidation loan add-on period.

 

All add-on consolidation loans will be added to the trust at a price equal to 100% of the outstanding principal balance of each add-on consolidation loan, plus accrued and unpaid interest, if any.

 

Any amounts remaining on deposit in the add-on consolidation loan account at the end of the consolidation loan add- on period will be transferred to the collection account on the next business day and included as part of available funds on the next distribution date.

 

  ·   Reserve Account.    The administrator will establish and maintain a 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 notes into the reserve account on the closing date. The deposit will be in cash or eligible investments equal to $5,588,740.

 

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 Notes—Distributions” in this prospectus supplement.

 

Amounts remaining in the reserve account on any distribution date in excess of the specified reserve account balance, after payments described below, will be deposited into the collection account for distribution on that distribution date.

 

The specified reserve account balance is the amount required to be maintained in the reserve account. The specified reserve account balance for any distribution date will be equal to the greater of:

 

  ·   0.25% of the sum of the pool balance and the amount, if any, on deposit in the add-on consolidation loan account (excluding any amounts in such account that will become available funds on the next distribution date), each as of the end of the related collection period; and

 

  ·   $3,353,244.

 

 

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A collection period is the three-month period ending on the last day of March, June, September or December, in each case for the distribution date in the following month. However, the first collection period will be the period from the closing date through September 30, 2005.

 

The specified reserve account balance will be subject to adjustment as described in this prospectus supplement. In no event will it exceed the outstanding balance of the notes, less all amounts then on deposit, exclusive of any investment earnings, in any accumulation account.

 

The reserve account will be available on each distribution date to cover any shortfalls in payments of the primary servicing fee, the administration fee, the remarketing fees, if any, the class A noteholders’ interest distribution amount, the class B noteholders’ interest distribution amount, payments owed to any swap counterparty with respect to interest, and certain swap termination payments.

 

In addition, the reserve account will be available:

 

  ·   on the maturity date for each class of class A notes, to cover shortfalls in payments of the class A noteholders’ principal and accrued interest; and

 

  ·   on the class B maturity date and upon termination of the trust, to pay the class B noteholders the unpaid principal balance on the class B notes and accrued interest, any carryover servicing fee, any remaining swap termination payments and remarketing fees and expenses.

 

The reserve account enhances the likelihood of payment to noteholders. In certain circumstances, however, the reserve account could be depleted. This depletion could result in shortfalls in distributions to noteholders.

 

If the market value of the reserve account, together with amounts on deposit in any supplemental interest account on any distribution date, is sufficient to pay the remaining principal—for this purpose, as reduced by all amounts, other than investment earnings, on deposit in any accumulation account—interest accrued on the notes and any carryover servicing fee, amounts on deposit in those accounts will be so applied on that distribution date. See “Description of the Notes—Credit Enhancement— Reserve Account” in this prospectus supplement.

 

  ·   Capitalized Interest Account.    The administrator will establish and maintain a

 

 

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capitalized interest 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 of the sale of the notes into the capitalized interest account on the closing date. The deposit will be in cash or eligible investments equal to $46,000,000.

 

On and prior to the October 2006 distribution date, funds in the capitalized interest account will be available to cover shortfalls in payments of interest due to the class A noteholders and payments due to any swap counterparty, other than any termination payments, pursuant to any swap agreement then in effect and, after that, shortfalls in payments of interest to class B noteholders after application of funds available in the collection account at the end of the related collection period but before application of the reserve account.

 

Funds in the capitalized interest account will not be replenished.

 

All remaining funds on deposit in the capitalized interest account on the October 2006 distribution date will be transferred to the collection account and included in available funds on that distribution date.

 

The capitalized interest account further enhances the likelihood of timely interest payments to noteholders through the October 2006 distribution date. Because it will not be replenished, in certain circumstances, the capitalized interest account could be depleted. This depletion could result in shortfalls in interest distributions to noteholders.

 

  ·   Remarketing Fee Account.    The administrator will establish and maintain a remarketing fee account as an asset of the trust in the name of the indenture trustee, for the benefit of the remarketing agents and the class A noteholders. Beginning on the distribution date that is one year prior to a reset date for the class A-5 notes, and through that reset date, the trust will be required to deposit into the remarketing fee account, available funds up to the related quarterly required amount on each related distribution date, until the balance on deposit in the remarketing fee account reaches the targeted level for the related reset date, prior to the payment of interest on the notes.

 

Investment earnings on deposit in the remarketing fee account will be withdrawn on each distribution date, deposited into the collection account and included in available funds for that distribution date. In addition, if on any distribution date, a class A note interest shortfall would exist, or if on the maturity date for any class of class A notes available funds would not be sufficient to reduce the principal balance of that class

 

 

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to zero, the amount of that class A note interest shortfall or principal deficiency, as applicable, to the extent sums are on deposit in the remarketing fee account, may be withdrawn from that account and used for payment of interest or principal on the class A notes. See “Description of the Notes—The Reset Rate Notes— Tender of Reset Rate Notes; Remarketing Procedures” in this prospectus supplement.

 

  ·   Accumulation Account.     The administrator will establish and maintain in the name of the indenture trustee an accumulation account for the benefit of the class A-5 notes whenever that class is structured not to receive a payment of principal until the end of the related reset period. With respect to each related reset period, on each distribution date, the indenture trustee will deposit any payments of principal allocated to that class, in U.S. Dollars, into the accumulation account. All sums on deposit in the accumulation account, including any amounts deposited into that accumulation account on the related distribution date, but less any investment earnings, will be paid either:

 

  ·   if the class A-5 notes are then denominated in U.S. Dollars, on the next related reset date to the the class A-5 noteholders, after all other required distributions have been made on that reset date; or

 

  ·   if the class A-5 notes are then denominated in a currency other than U.S. Dollars, on or about the next related reset date to the related currency swap counterparty or counterparties, which will in turn pay the applicable currency equivalent of those amounts to the trust, for payment to the class A-5 noteholders on the second business day following that reset date, after all other required distributions have been made on that reset date.

 

Amounts, exclusive of investment earnings, on deposit in an accumulation account may be used only to pay principal on the class A-5 notes or to the related currency swap counterparty or counterparties and for no other purpose. Investment earnings on deposit in the accumulation account will be withdrawn on each distribution date, deposited into the collection account and included in available funds for that distribution date.

 

Amounts on deposit in the accumulation account may be invested in eligible investments that can be purchased at a price equal to par, at a discount, or at a premium. Eligible investments may be purchased at a premium over par only if there are sufficient amounts on deposit in the investment premium

 

 

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purchase account described below to pay the amount of the purchase price in excess of par.

 

  ·   Investment Premium Purchase Account.    If required on a reset date, the administrator will establish and maintain in the name of the indenture trustee an investment premium purchase account. On each distribution date when funds are deposited into the accumulation account, the indenture trustee will be required to deposit, subject to sufficient available funds, an amount generally equal to 1.0% of the amount deposited into the accumulation account into the investment premium purchase account, together with any carryover amounts from previous distribution dates if there were insufficient available funds on any previous distribution date to make the required deposits in full.

 

Amounts on deposit in the investment premium purchase account may be used from time to time to pay amounts in excess of par on eligible investments purchased with funds on deposit in the accumulation account. Amounts not used to pay those premium purchase amounts will become available funds on future distribution dates pursuant to a formula set forth in the administration agreement.

 

  ·   Investment Reserve Account.    If required on a reset date, the
 

administrator will establish and maintain in the name of the indenture trustee an investment reserve account. On any distribution date and to the extent of available funds, if the ratings of any eligible investments in the accumulation account have been downgraded by one or more rating agencies, the indenture trustee will deposit into the investment reserve account an amount, if any, to be set by each applicable rating agency in satisfaction of the rating agency condition, that amount not to exceed the amount of the unrealized loss on the related eligible investments. On each distribution date, all amounts on deposit in the investment reserve account either will be withdrawn from that investment reserve account and deposited into the accumulation account in an amount required to offset any realized losses on eligible investments related to the accumulation account, or will be deposited into the collection account to be used as available funds on that distribution date.

 

  ·   Supplemental Interest Account.    If required on a reset date, the administrator will establish and maintain in the name of the indenture trustee a supplemental interest account related to the accumulation account.

 

On each distribution date when amounts are deposited into or are

 

 

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on deposit in the accumulation account, the indenture trustee, subject to sufficient available funds, will deposit into the supplemental interest account an amount sufficient to pay either to the class A-5 noteholders or to each related swap counterparty, as applicable, the floating rate payments due to the class A-5 noteholders or the swap counterparty, as applicable, through the next related distribution date at the related LIBOR-based floating rate on all amounts on deposit in the accumulation account, after giving effect to an assumed rate of investment earnings on that account.

 

All amounts on deposit in the supplemental interest account will be withdrawn on or before each distribution date, deposited into the collection account and included in available funds for that distribution date.

 

  ·   Currency Accounts.    If the class A-5 notes are denominated in a currency other than U.S. Dollars during any reset period, then the administrator will establish and maintain a currency account for that currency in the name of the indenture trustee, for the benefit of the holders of the class A-5 notes. Any payments received from a swap counterparty in a currency other than U.S. Dollars will be deposited into that currency account as described in this prospectus supplement.

 

ADMINISTRATION OF THE TRUST

 

Distributions

 

Sallie Mae, Inc., as administrator, will instruct the indenture trustee to withdraw funds on deposit in the collection account and the other accounts, as described above. These funds will be applied on or before each applicable distribution date generally as shown in the chart on the following page. Funds on deposit in the collection account and, to the extent required, the reserve account will be applied monthly to the payment of the primary servicing fee.

 

See “Description of the Notes— Distributions” in this prospectus supplement for a more detailed description of distributions.

 

 

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LOGO

 

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Transfer of the Assets to the Trust

 

Under a sale agreement, the depositor will sell the trust student loans to the trust. Additional trust student loans, if any, will be sold by the depositor to the trust under additional sale agreements, each of which will be executed pursuant to the terms of the original sale agreement. The eligible lender trustee will hold legal title to the trust student loans on behalf of the trust.

 

If the depositor breaches a representation under the initial sale agreement regarding an initial trust student loan or an additional sale agreement regarding an additional trust student loan, generally the depositor will have to cure the breach, repurchase or replace that trust student loan or reimburse the trust for losses resulting from the breach.

 

Each seller will have similar obligations under the purchase agreements. See “Transfer and Servicing Agreements—Purchase of Student Loans by the Depositor; Representations and Warranties of the Sellers” in the prospectus.

 

Amounts withdrawn from the add-on consolidation loan account will be remitted by the servicer or the indenture trustee, as applicable, to the applicable lender in repayment of the related student loan, the amount of which will be added to the existing trust student loan.

 

Servicing of the Assets

 

Under a servicing agreement, Sallie Mae, Inc., 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 of Education. See “Servicing and Administration—Servicing Procedures” and “—Administration Agreement” in the prospectus. Under some circumstances, the servicer may transfer its obligations as servicer. See “Servicing and Administration— 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 Trust Student Loans; Guarantors of Trust Student Loans” in this prospectus supplement.

 

For the period October 19, 2004 through October 18, 2005, the servicer has been awarded the “exceptional performance” designation by the United States Department of Education. So long as the servicer’s exceptional performance designation remains in effect, federally reinsured student loans serviced by the servicer, including the trust student loans, will be eligible to receive 100% reimbursement in any default claim properly submitted for payment. See “The Trust Student Loan Pool—Exceptional Performance Designation” in this prospectus supplement.

 

 

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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  1/12th of an amount not to exceed 0.50% of the outstanding principal amount of the trust student loans.

 

The primary servicing fee will be payable in arrears out of available funds and amounts on deposit in the reserve account on the 25th of each month, or if the 25th day is not a business day, then on the next business day, beginning in July 2005. The fee paid in each month is calculated based upon the outstanding principal amount of the trust student loans as of the first day of the preceding calendar month. Fees will include amounts from any 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 specified increases in the costs incurred by the servicer;

 

  ·   the amount of specified conversion, transfer and removal fees;

 

  ·   any amounts described in the first two bullets that remain unpaid from prior distribution dates; and

 

  ·   interest on any unpaid amounts.

 

See “Description of the Notes—Servicing Compensation” in this prospectus supplement.

 

TERMINATION OF THE TRUST

 

The trust 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.

 

See “The Student Loan Pools—Termination” in the prospectus.

 

Optional Purchase

 

The servicer may purchase or arrange for the purchase of all remaining trust student loans on any distribution date on or after the first distribution date on which the pool balance is 10% or less of the initial pool balance.

 

The exercise of this purchase option will result in the early retirement of the remaining notes, including an early distribution of all amounts then on deposit in any accumulation account. The purchase price will equal the amount required to prepay in full, including all accrued and unpaid interest, the remaining trust student loans as of the end of the preceding collection period, but not less than a prescribed minimum purchase amount.

 

This prescribed minimum purchase amount is the amount that would be sufficient to:

 

  ·   pay to noteholders the interest payable on the related distribution date; and

 

 

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  ·   reduce the outstanding principal amount of each class of notes then outstanding on the related distribution date to zero, taking into account all amounts then on deposit in any accumulation account.

 

See “The Student Loan Pools—Termination” in the prospectus.

 

For these purposes, if either class of reset rate notes:

 

  ·   is then structured not to receive a payment of principal until the end of the related reset period, the outstanding principal balance of that class of reset rate notes will be deemed to have been reduced by any amounts on deposit, exclusive of any investment earnings, in the related accumulation account; and/or

 

  ·   is then denominated in a non-U.S. Dollar currency, the U.S. Dollar equivalent of the then-outstanding principal balance of that class of reset rate notes will be determined based upon the exchange rate provided for in the related currency swap agreement or agreements.

 

Auction of Trust Assets

 

The indenture trustee will offer for sale all remaining trust student loans at the end of the first collection period when the pool balance is 10% or less of the initial pool balance.

 

The trust auction date will be the third business day before the related distribution date. An auction will be consummated only if the servicer has first waived its optional purchase right as described above. The servicer 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 depositor and its affiliates, including SLM ECFC and the servicer, and unrelated third parties may offer bids to purchase the trust student loans. The depositor or any affiliate may not submit a bid representing greater than fair market value of the trust student loans.

 

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 higher of:

 

  ·   the minimum purchase amount described under “—Optional Purchase” above (plus any amounts owed to the servicer as carryover servicing fees); or

 

  ·   the fair market value of the trust student loans as of the end of the related collection period.

 

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 depositor will be required to, consult with

 

 

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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. See “The Student Loan Pools—Termination” in the prospectus.

 

The net proceeds of any auction sale, plus all amounts, less any investment earnings, then on deposit in any accumulation account, will be used to retire any outstanding notes on the related distribution date.

 

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 servicer’s waiver of its option to purchase remaining trust student loans. 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.

 

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 withdrawals, except withdrawals payable to the depositor, exceeds the specified reserve account balance, the administrator will direct the indenture trustee to distribute the amount of the excess as accelerated payments or allocations of note principal.

 

See “The Student Loan Pools— Termination” in the prospectus.

 

EXCESS DISTRIBUTION CERTIFICATEHOLDER

 

Under the trust agreement, the trust will also issue an excess distribution certificate to the depositor. This excess distribution certificate will represent the ownership of the residual interest in the trust. Under the purchase agreement between the depositor and SLM ECFC, the depositor will transfer the excess distribution certificate to SLM ECFC as part of the consideration for the sale of the trust student loans being sold to the depositor by SLM ECFC under the related purchase agreement.

 

TAX CONSIDERATIONS

 

Subject to important considerations described in the prospectus:

 

  ·   In the opinion of federal tax counsel for the trust, the notes will be characterized as debt for federal income tax purposes.

 

  ·   In the opinion of federal tax counsel for the trust, the trust will not be taxable as a corporation for federal income tax purposes.

 

  ·   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 who are not otherwise subject to Delaware taxation on income will not become subject to Delaware tax as a result of their ownership of notes.

 

See “U.S. Federal Income Tax Consequences” in this prospectus supplement and in the prospectus.

 

 

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ERISA CONSIDERATIONS

 

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 an employee benefit plan or other retirement arrangement, including an insurance company general account, only if:

 

  ·   an exemption from the prohibited transaction provisions of Section 406 of the Employee Retirement Income Security Act of 1974, as amended, and Section 4975 of the Internal Revenue Code of 1986, as amended, applies, so that the purchase and holding of the notes will not result in a non-exempt prohibited transaction; and

 

  ·   the purchase will not cause a non-exempt violation of any substantially similar federal, state, local or foreign laws.

 

Each fiduciary who purchases a note will be deemed to represent that such an exemption exists and applies to it and that no non-exempt violations of any substantially similar laws will occur.

 

See “ERISA Considerations” in this prospectus supplement and the prospectus for additional information concerning the application of ERISA.

 

RATING OF THE SECURITIES

 

The notes are required to be rated as follows:

 

  ·   Class A notes: Highest rating category from at least two of Fitch Ratings, Moody’s Investors Service, Inc., and Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc.

 

  ·   Class B notes: One of the two highest rating categories from at least two of Fitch, Moody’s and S&P.

 

See “Ratings of the Notes” in this prospectus supplement.

 

LISTING INFORMATION

 

We have applied for a listing of the notes on the Luxembourg Stock Exchange. We cannot assure you that the application will be granted. You should consult with Deutsche Bank Luxembourg SA, the Luxembourg listing agent for the notes, to determine their status. You can contact the listing agent at 2 Boulevard Konrad Adenauer L-1115, Luxembourg. So long as any class of notes is listed on the Luxembourg Stock Exchange, and its rules so require, notices relating to that class of notes, including if such class is delisted, will be published in a leading newspaper having general circulation in Luxembourg, which is expected to be d’Wort.

 

The notes have been accepted for clearance and settlement through Clearstream, Luxembourg and Euroclear.

 

RISK FACTORS

 

Some of the factors you should consider before making an investment in the

 

 

S-30


notes are described in this prospectus supplement and in the prospectus under “Risk Factors.”

 

IDENTIFICATION NUMBERS

 

The notes will have the following CUSIP Numbers, ISIN and European Common Codes:

 

CUSIP Numbers

 

·   Class A-1 notes: 78442G PM 2

 

·   Class A-2 notes: 78442G PN 0

 

·   Class A-3 notes: 78442G PP 5

 

·   Class A-4 notes: 78442G PQ 3

 

·   Class A-5 notes: 78442G PR 1

 

·   Class B notes: 78442G PS 9

 

International Securities Identification Numbers (ISIN)

 

·   Class A-1 notes: US78442GPM23

 

·   Class A-2 notes: US78442GPN06

 

·   Class A-3 notes: US78442GPP53

 

·   Class A-4 notes: US78442GPQ37

 

·   Class A-5 notes: US78442GPR10

 

·   Class B notes: US78442GPS92

 

European Common Codes

 

·   Class A-1 notes: 022343408

 

·   Class A-2 notes: 022343483

 

·   Class A-3 notes: 022343548

 

·   Class A-4 notes: 022343602

 

·   Class A-5 notes: 022343688

 

·   Class B notes: 022343769

 

 

S-31


RISK FACTORS

 

You should carefully consider the following factors in order to understand the structure and characteristics of the notes and the potential merits and risks of an investment in the notes. Potential investors must review and be familiar with the following risk factors in deciding whether to purchase any note. The prospectus describes additional risk factors that you should also consider beginning on page 21 of the prospectus. These risk factors could affect your investment in or return on the notes.

 

Subordination Of The
Class B Notes And
Sequential Payment Of
The Notes Result In A
Greater Risk Of Loss
 

Class B noteholders and, to a lesser extent, holders of class A notes with higher numerical designations, bear a greater risk of loss than do holders of class A notes with lower numerical designations because:

 

·       distributions of interest on the class B notes will be subordinate to the payment of interest on the class A notes, and distributions of principal of the class B notes will be subordinate to the payment of both interest and principal on the class A notes;

   

·       no principal will be paid to the class B noteholders until all principal due to the class A noteholders on each distribution date has been paid in full; and

   

·       no principal will be paid to any class A noteholders until each class of the class A notes having a lower numerical designation has been paid in full.

Investors In The Class B
Notes Bear Greater Risk
Of Loss Because The
Priority Of Payment Of
Interest And The Timing Of Principal Payments On
The Class B Notes May Change Due To The
Variability Of Cash Flows
  Interest on the class B notes generally will be paid prior to principal on the class A notes. However, if after giving effect to all required distributions of principal and interest on the notes on any distribution date, the outstanding principal balance of the trust student loans, plus accrued but unpaid interest thereon, and amounts then on deposit in the capitalized interest account (after any distributions of interest from that account), in the add-on consolidation loan account and in the reserve account in excess of the specified reserve account balance, would be less than the outstanding principal balance of the class A notes, less amounts, other than investment earnings, then on deposit in any accumulation account, interest on the class B notes will be subordinated to the payment of principal on the class A notes on that distribution date.

 

S-32


    Principal on the class B notes will not begin to be paid until the stepdown date. However, the class B notes will not receive any payments of principal on or after the stepdown date if a trigger event is in effect on any distribution date until the class A notes have been paid in full.
    Thus, investors in the class B notes will bear a greater risk of loss than the holders of class A notes. Investors in the class B notes will also bear the risk of any adverse changes in the anticipated yield and weighted average life of their notes resulting from any variability in payments of principal and/or interest on the class B notes.
The Characteristics Of The Trust Student Loans May Change   The statistical information in this prospectus supplement reflects only the characteristics of the initial trust student loans as of the statistical cutoff date. The initial trust student loans actually sold to the trust on the closing date will have characteristics that differ somewhat from the characteristics of the initial trust student loans as of the statistical cutoff date, due to payments received on and other changes in these loans that occur during the period from the statistical cutoff date to the closing date. We do not expect the characteristics of the initial trust student loans actually sold to the trust on the closing date to differ materially from the characteristics of the initial trust student loans as of the statistical cutoff date.
    However, in making your investment decision, you should assume that the actual characteristics of the trust student loans will vary somewhat from the characteristics of the initial trust student loans presented in this prospectus supplement as of the statistical cutoff date.
    Further, certain characteristics of the final pool of trust student loans may vary from the characteristics of the initial pool of trust student loans described in this prospectus supplement due to the acquisition of additional trust student loans during the supplemental purchase period and the addition of add-on consolidation loans during the consolidation loan add-on period.

 

S-33


Because The Initial
Principal Balance Of The
Notes Exceeds The Trust Assets, You May Be
Adversely Affected By A
High Rate Of Prepayments
  The pool balance as of the statistical cutoff date plus the initial balances of the capitalized interest account and the add-on consolidation loan account is approximately 99.5% of the aggregate principal balance of the notes. Noteholders must rely primarily on interest payments on the trust student loans and other trust assets, in excess of servicing and administration fees, amounts, if any, necessary to fund the remarketing fee account to its targeted level and interest payable on the notes, to reduce the aggregate principal balance of the notes to the pool balance. The noteholders, especially class B noteholders, could be adversely affected by a high rate of prepayments, which would reduce the amount of interest available for this purpose. Prepayments may result from borrowers further consolidating or re-consolidating their student loans (within the FFELP or into the Federal Direct Lending Program), from borrowers defaulting and from voluntary full or partial prepayments, among other things. In addition, the principal balance of the trust student loans on which interest will be collected will be less than the principal balance of the notes for some period.
Your Notes May Have A Degree Of Basis Risk, Which Could Compromise The Trust’s Ability To Pay Principal And Interest On Your Notes   There is a degree of basis risk associated with the notes. Basis risk is the risk that shortfalls might occur because, among other things, the effective interest rates of the trust student loans adjust on the basis of specified indices and those of the notes adjust on the basis of different indices or do not adjust at all. If a shortfall were to occur, the trust’s ability to pay your principal and/or interest on the notes could be compromised.
Certain Actions Can Be Taken Without Noteholder Approval   The transaction documents provide that certain actions may be taken based upon receipt by the indenture trustee of a confirmation from each of the rating agencies that the then-current ratings assigned by the rating agencies then rating the notes will not be impaired by those actions. To the extent those actions are taken after issuance of the notes, investors in the notes will be dependent on the evaluation by the rating agencies of those actions and the impact of those actions on credit quality.

 

S-34


DEFINED TERMS

 

In later sections, we use a few terms that we define in the Glossary at the end of this prospectus supplement. These terms appear in bold face on their first use and in initial capital letters in all cases.

 

FORMATION OF THE TRUST

 

The Trust

 

The SLM Student Loan Trust 2005-5 is a statutory trust newly formed under Delaware law and under a short-form trust agreement dated as of June 9, 2005 between the depositor and the eligible lender trustee. The short-form trust agreement will be amended on the closing date pursuant to an amended and restated trust agreement dated June 29, 2005 among the depositor, the eligible lender trustee and the indenture trustee. We refer to the short-form trust agreement and the amended and restated trust agreement together as the “trust agreement.”

 

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 notes;

 

  ·   making payments on them;

 

  ·   entering into swap agreements from time to time with respect to the class A-5 notes and making the required payments set forth therein; and

 

  ·   engaging in other activities that are necessary, suitable or convenient to accomplish, or are incidental to, the foregoing.

 

The trust was initially capitalized with nominal equity of $100, excluding amounts to be deposited by the trust into the reserve account, the capitalized interest account, the supplemental purchase account, the add-on consolidation loan account and the collection account on the closing date. The proceeds from the sale of the notes will be used by the eligible lender trustee to make the initial deposits into the reserve account, the capitalized interest account, the supplemental purchase account, the add-on consolidation loan account and the collection account, and to purchase, on behalf of the trust, the initial trust student loans. The trust will purchase the initial trust student loans from the depositor under a sale agreement to be dated as of the closing date, among the depositor, the trust and the eligible lender trustee. The trust will purchase any additional trust student loans under one or more additional sale agreements to be entered into with the depositor pursuant to the terms of the initial

 

S-35


sale agreement. On the closing date, the depositor will use the net proceeds it receives from the sale of the initial trust student loans to the trust to pay the sellers the respective purchase prices for the initial trust student loans acquired from them under the purchase agreements. Additional trust student loans may be purchased by the depositor from either seller during the supplemental purchase period only to the extent there are sufficient funds on deposit in the supplemental purchase account.

 

With respect to add-on consolidation loans, the servicer, or the indenture trustee at the direction of the servicer, as applicable, will transfer from the add-on consolidation loan account (but only to the extent of available funds on deposit therein) an amount equal to the principal balance of each add-on consolidation loan plus accrued and unpaid interest, if any, thereon to the applicable lender in repayment of the related student loan, and the principal balance of the related trust student loan will be increased by the same amount.

 

The property of the trust will consist of:

 

  ·   the pool of trust student loans, legal title to which is held by the eligible lender trustee on behalf of the trust;

 

  ·   all funds collected on trust student loans, including any special allowance payments and interest subsidy payments, on or after the applicable cutoff date;

 

  ·   all moneys and investments from time to time on deposit in the trust accounts;

 

  ·   its rights under any and all swap agreements entered into from time to time with respect to the class A-5 notes and the related documents;

 

  ·   its rights under the transfer and servicing agreements, including the right to require VG Funding, SLM ECFC, the depositor or the servicer to repurchase trust student loans from it or to substitute student loans under certain conditions; and

 

  ·   its rights under the guarantee agreements with guarantors.

 

The notes will be secured by the property of the trust. The collection account, the reserve account, the capitalized interest account, the supplemental purchase account, the add-on consolidation loan account, any accumulation account, any supplemental interest account, any investment premium purchase account, any investment reserve account and any currency account will be established and maintained in the name of the indenture trustee for the benefit of the noteholders. The remarketing fee account will be established and maintained in the name of the indenture trustee for the benefit of the remarketing agents and the class A noteholders. 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 and other related documents.

 

S-36


The trust’s principal offices are in Newark, Delaware, in care of Chase Bank USA, National Association, 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 closing date, as if the issuance and sale of the securities had taken place on that date:

 

Floating Rate Class A-1 Student Loan-Backed Notes

   $ 672,000,000

Floating Rate Class A-2 Student Loan-Backed Notes

     420,000,000

Floating Rate Class A-3 Student Loan-Backed Notes

     420,000,000

Floating Rate Class A-4 Student Loan-Backed Notes

     361,844,000

Reset Rate Class A-5 Student Loan-Backed Notes

     350,000,000

Floating Rate Class B Student Loan-Backed Notes

     68,779,000

Equity

     100
    

Total

   $ 2,292,623,100
    

 

Eligible Lender Trustee

 

Chase Bank USA, National Association is the eligible lender trustee for the trust under the trust agreement. Chase Bank USA, National Association is a national banking association whose principal offices are located at Christiana Center/OPS4, 500 Stanton Christiana Road, Newark, Delaware 19713. The eligible lender trustee will acquire on behalf of the trust legal title to all the initial trust student loans acquired on the closing date and any additional trust student loans purchased during the supplemental purchase period. 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 Higher Education Act and the guarantee agreements. Failure of the trust student loans to be owned by an eligible lender would result in the loss of guarantor and Department of Education payments on the trust student loans. See “Appendix A—Federal Family Education Loan Program—Eligible Lenders, Students and Educational Institutions” in the prospectus.

 

The eligible lender trustee’s liability in connection with the issuance and sale of the notes is limited solely to the express obligations of the eligible lender trustee in the trust agreement and the sale agreement. See “Description of the Notes” in this prospectus supplement and “Transfer and Servicing Agreements” in the prospectus. Affiliates of the depositor maintain banking relations with the eligible lender trustee.

 

S-37


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 notes. See “Formation of the Trust—Capitalization of the Trust” in this prospectus supplement.

 

The trust’s primary sources of liquidity will be collections on the trust student loans, as supplemented by:

 

  ·   through the October 2006 distribution date, amounts on deposit in the capitalized interest account;

 

  ·   any payments from the counterparties with respect to each currency swap agreement and/or interest rate swap agreement entered into from time to time by the trust for the class A-5 notes; and

 

  ·   amounts on deposit in the collection account, the reserve account, the remarketing fee account, any accumulation account, any supplemental interest account, any investment premium purchase account, any investment reserve account and any currency accounts.

 

Results of Operations

 

The trust is 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 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 and interest and principal on the notes. The principal operating expenses of the trust are expected to be, but are not limited to, servicing, administration and remarketing fees.

 

USE OF PROCEEDS

 

The trust will use the net proceeds of $2,287,730,869 from the sale of the notes to make the initial deposits to the reserve account, the capitalized interest account, the supplemental purchase account, the add-on consolidation loan account and the collection account and to purchase the initial trust student loans from the depositor on the closing date under the initial sale agreement.

 

The depositor will then use the proceeds paid to the depositor by the trust to pay to the sellers the respective purchase prices due to those sellers for the initial trust student loans purchased by the depositor.

 

Expenses incurred to establish the trust and issue the notes (other than fees that are due to the underwriters) are payable by the depositor.

 

S-38


THE TRUST STUDENT LOAN POOL

 

The eligible lender trustee, on behalf of the trust, will purchase the pool of initial trust student loans from the depositor on the closing date, and the trust will be entitled to collections on and proceeds of the initial trust student loans on and after that date. Unless otherwise specified, all information with respect to the initial trust student loans is presented herein as of May 30, 2005, which is the statistical cutoff date.

 

The eligible lender trustee, on behalf of the trust, will purchase from time to time during the supplemental purchase period from the depositor any additional trust student loans as of the date specified in the related additional purchase agreement.

 

The depositor will purchase the initial trust student loans from one or both of SLM ECFC and VG Funding under the applicable initial purchase agreement and all additional trust student loans under a related additional purchase agreement, entered into pursuant to the terms of the related initial purchase agreement. Each additional purchase agreement will incorporate by reference representations and warranties concerning the eligible student loans to be sold under the related additional purchase agreement. SLM ECFC and VG Funding have acquired or have received as a capital contribution the initial trust student loans that they are selling to the depositor in the ordinary course of their respective businesses. The depositor anticipates that SLM ECFC or VG Funding will acquire or receive as a capital contribution, as applicable, any eligible student loans sold to the depositor for sale to the trust as additional trust student loans in the ordinary course of business.

 

The initial trust student loans were selected from the portfolio of student loans owned by SLM ECFC, VG Funding or one of their affiliates by employing several criteria, including requirements that each trust student loan as of the statistical cutoff date (and with respect to each additional trust student loan, as of its related subsequent cutoff date, to be specified at the time of its sale to the trust):

 

  ·   is a consolidation loan that is guaranteed as to principal and interest by a guarantee agency under a guarantee agreement and the guarantee agency is, in turn, reinsured by the Department of Education in accordance with FFELP;

 

  ·   contains terms in accordance with those required by FFELP, the guarantee agreements and other applicable requirements;

 

  ·   is fully disbursed;

 

  ·   is not more than 210 days past due;

 

  ·   does not have a borrower who is noted in the related records of the servicer as being currently involved in a bankruptcy proceeding; and

 

  ·   has special allowance payments based on the three-month commercial paper rate or the 91-day Treasury bill rate.

 

S-39


Each additional trust student loan will be selected from portfolios of student loans owned by one of the sellers or an affiliate by employing the criteria listed above (as of the related subsequent cutoff date) together with such other criteria as may be specified at the time of its sale to the trust.

 

No trust student loan as of the applicable cutoff date was or will be subject to any prior obligation to sell that loan to a third party.

 

The depositor expects that any additional trust student loans, acquired by the trust following the closing date and prior to the end of the supplemental purchase period, will have been sold to the depositor by SLM ECFC or VG Funding, and such student loans will be owned by SLM ECFC or VG Funding or one of their affiliates, and will be student loans that are eligible to be sold to the trust. Concurrently with the acquisition of any eligible student loans from SLM ECFC or VG Funding, the depositor will sell those loans directly to the trust. During the supplemental purchase period, the purchase of eligible student loans by the depositor and in turn by the trust will be funded by means of a transfer of amounts on deposit in the supplemental purchase account as described in this prospectus supplement.

 

The addition of any add-on consolidation loans will not be a sale of a new loan to the trust; rather, such addition will merely serve to increase the principal balance of the existing trust student loan and, in the event of a breach of any representation or warranty, the applicable seller will be required to repurchase the entire trust student loan, including the portion attributable to the add-on consolidation loan.

 

Following the transfer of additional trust student loans to the eligible lender trustee, on behalf of the trust, and the addition of any add-on consolidation loans, the aggregate characteristics of the entire pool of trust student loans may vary from those described below.

 

The following tables provide a description of specified characteristics of the initial trust student loans as of the statistical cutoff date. The aggregate outstanding principal balance of the initial trust student loans in each of the following tables includes the principal balance due from borrowers, plus accrued interest to be capitalized of $1,645,353 as of the statistical cutoff date.

 

The distribution by weighted average interest rate applicable to the initial trust student loans on any date following the statistical 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 initial trust student loans and in rates of principal reduction. Moreover, the information below about the weighted average remaining term to maturity of the initial trust student loans as of the statistical cutoff date may vary significantly from the actual term to maturity of any of the initial trust student loans as a result of prepayments or the granting of deferral and forbearance periods.

 

S-40


The following tables also contain information concerning the total number of loans and the total number of borrowers in the portfolio of initial trust student loans. For ease of administration, the servicer separates a consolidation loan on its system into two separate loan segments if that consolidation loan has both subsidized and unsubsidized segments. The following tables reflect those loan segments within the number of loans. In addition, approximately 12 borrowers have more than one initial trust student loan.

 

Percentages and dollar amounts in any table may not total 100% or the initial trust student loan balance, as applicable, due to rounding.

 

COMPOSITION OF THE INITIAL TRUST STUDENT LOANS AS OF THE STATISTICAL CUTOFF DATE

 

Aggregate Outstanding Principal Balance

   $ 2,225,495,949

Aggregate Outstanding Principal Balance—Treasury Bill

   $ 9,212,466

Aggregate Outstanding Principal Balance—Commercial Paper

   $ 2,216,283,482

Number of Borrowers

     82,253

Average Outstanding Principal Balance Per Borrower

   $ 27,057

Number of Loans

     133,092

Average Outstanding Principal Balance Per Loan—Treasury Bill

   $ 22,469

Average Outstanding Principal Balance Per Loan—Commercial Paper

   $ 16,704

Weighted Average Remaining Term to Scheduled Maturity

     269 months

Weighted Average Annual Borrower Interest Rate

     3.98%

 

We determined the weighted average remaining term to maturity shown in the table from the statistical cutoff date to the stated maturity date of the applicable initial 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—SLM Corporation’s Student Loan Financing Business” in the prospectus.

 

The weighted average annual borrower interest rate shown in the table is exclusive of special allowance payments. The weighted average spread, including special allowance payments, to the 91-day Treasury bill rate was 3.12% as of the statistical cutoff date.

 

The weighted average spread, including special allowance payments, to the three-month commercial paper rate was 2.64% as of the statistical cutoff date. See “Federal Family Education Loan Program—Special Allowance Payments” in Appendix A to the prospectus.

 

S-41


For these purposes, the three-month commercial paper rate is the average of the bond equivalent rates of the three-month commercial paper (financial) rates in effect for each of the days in a calendar quarter as reported by the Federal Reserve in Publication H.15 (or its successor) for that calendar quarter. The 91-day Treasury bill rate is 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, as reported by the U.S. Department of the Treasury.

 

DISTRIBUTION OF THE INITIAL TRUST STUDENT LOANS BY BORROWER INTEREST RATES AS OF THE STATISTICAL

CUTOFF DATE

 

Interest Rate


  

Number of

Loans


  

Aggregate

Outstanding

Principal Balance


  

Percent of

Pool by
Outstanding

Principal Balance


 

Less than or equal to 3.00%

   18,056    $ 274,094,050    12.3 %

3.01% to 3.50%

   45,445      561,609,971    25.2  

3.51% to 4.00%

   24,101      383,392,263    17.2  

4.01% to 4.50%

   35,184      734,940,509    33.0  

4.51% to 5.00%

   3,572      95,796,844    4.3  

5.01% to 5.50%

   1,496      41,989,943    1.9  

5.51% to 6.00%

   1,162      34,055,953    1.5  

6.01% to 6.50%

   988      27,236,930    1.2  

6.51% to 7.00%

   851      19,991,595    0.9  

7.01% to 7.50%

   645      14,354,624    0.6  

7.51% to 8.00%

   855      18,473,757    0.8  

8.01% to 8.50%

   559      14,945,875    0.7  

Equal to or greater than 8.51%

   178      4,613,633    0.2  
    
  

  

Total

   133,092    $ 2,225,495,949    100.0 %
    
  

  

 

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DISTRIBUTION OF THE INITIAL TRUST STUDENT LOANS BY OUTSTANDING PRINCIPAL BALANCE PER BORROWER AS OF THE STATISTICAL CUTOFF DATE

 

Range of Outstanding

Principal Balance


   Number of
Borrowers


   Aggregate
Outstanding
Principal Balance


  

Percent of Pool

by Outstanding
Principal Balance


 

Less than $5,000.00

   89    $ 273,156    *  

$5,000.00 — $9,999.99

   11,072      96,072,893    4.3 %

$10,000.00 — $14,999.99

   18,733      233,178,088    10.5  

$15,000.00 — $19,999.99

   14,223      246,651,684    11.1  

$20,000.00 — $24,999.99

   9,552      213,035,666    9.6  

$25,000.00 — $29,999.99

   6,135      167,813,021    7.5  

$30,000.00 — $34,999.99

   4,602      149,293,085    6.7  

$35,000.00 — $39,999.99

   3,612      135,025,727    6.1  

$40,000.00 — $44,999.99

   2,606      110,566,635    5.0  

$45,000.00 — $49,999.99

   2,134      101,274,870    4.6  

$50,000.00 — $54,999.99

   1,722      90,177,107    4.1  

$55,000.00 — $59,999.99

   1,340      76,895,198    3.5  

$60,000.00 — $64,999.99

   1,047      65,364,107    2.9  

$65,000.00 — $69,999.99

   801      54,014,191    2.4  

$70,000.00 — $74,999.99

   712      51,550,041    2.3  

$75,000.00 — $79,999.99

   518      40,112,424    1.8  

$80,000.00 — $84,999.99

   428      35,278,984    1.6  

$85,000.00 — $89,999.99

   361      31,565,744    1.4  

$90,000.00 — $94,999.99

   317      29,300,295    1.3  

$95,000.00 — $99,999.99

   280      27,307,291    1.2  

$100,000.00 and above

   1,969      270,745,742    12.2  
    
  

  

Total

   82,253    $ 2,225,495,949    100.0 %
    
  

  


* Represents a percentage greater than 0% but less than 0.05%.

 

S-43


DISTRIBUTION OF THE INITIAL TRUST STUDENT LOANS

BY REMAINING TERM TO SCHEDULED MATURITY

AS OF THE STATISTICAL CUTOFF DATE

 

Number of Months

Remaining to Scheduled Maturity


   Number of
Loans


   Aggregate
Outstanding
Principal Balance


   Percent of Pool
by Outstanding
Principal Balance


 

4 to 12

   2    $ 8,023    *  

13 to 24

   17      85,779    *  

25 to 36

   42      409,329    *  

37 to 48

   93      927,661    *  

49 to 60

   155      1,502,285    0.1 %

61 to 72

   133      1,284,659    0.1  

73 to 84

   133      1,576,720    0.1  

85 to 96

   112      1,282,876    0.1  

97 to 108

   161      1,824,743    0.1  

109 to 120

   477      7,453,037    0.3  

121 to 132

   86      1,292,590    0.1  

133 to 144

   14,264      81,370,723    3.7  

145 to 156

   554      3,429,535    0.2  

157 to 168

   216      1,867,054    0.1  

169 to 180

   46,628      422,841,617    19.0  

181 to 192

   2,097      18,082,365    0.8  

193 to 204

   419      3,823,248    0.2  

205 to 216

   197      1,768,485    0.1  

217 to 228

   272      2,930,356    0.1  

229 to 240

   35,546      568,876,043    25.6  

241 to 252

   2,561      36,755,264    1.7  

253 to 264

   304      4,118,394    0.2  

265 to 276

   130      1,936,772    0.1  

277 to 288

   168      2,337,408    0.1  

289 to 300

   14,152      377,544,623    17.0  

301 to 312

   1,692      39,959,325    1.8  

313 to 324

   138      3,300,738    0.1  

325 to 336

   69      1,704,911    0.1  

337 to 348

   94      2,364,893    0.1  

349 to 360

   9,753      507,060,271    22.8  

361 and greater

   2,427      125,776,223    5.7  
    
  

  

Total

   133,092    $ 2,225,495,949    100.0 %
    
  

  


* Represents a percentage greater than 0% but less than 0.05%.

 

We have determined the numbers of months remaining to scheduled maturity shown in the table from the statistical cutoff date to the stated maturity date of the applicable initial 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—SLM Corporation’s Student Loan Financing Business” in the prospectus.

 

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DISTRIBUTION OF THE INITIAL TRUST STUDENT LOANS

BY CURRENT BORROWER PAYMENT STATUS

AS OF THE STATISTICAL CUTOFF DATE

 

Current Borrower Payment Status


   Number of
Loans


   Aggregate
Outstanding
Principal Balance


   Percent of Pool
by Outstanding
Principal Balance


 

Deferral

   5,799    $ 114,061,532    5.1 %

Forbearance

   4,870      117,422,174    5.3  

Repayment

                  

First year in repayment

   122,231      1,990,961,589    89.5  

Second year in repayment

   118      1,699,183    0.1  

Third year in repayment

   25      423,948    *  

More than 3 years in repayment

   49      927,522    *  
    
  

  

Total

   133,092    $ 2,225,495,949    100.0 %
    
  

  


* Represents a percentage greater than 0% but less than 0.05%.

 

Current borrower payment status refers to the status of the borrower of each initial trust student loan as of the statistical cutoff date. The borrower:

 

  ·   may have temporarily ceased repaying the loan through a deferral or a forbearance period; or

 

  ·   may be currently required to repay the loan—repayment.

 

See Appendix A to the prospectus and The Student Loan Pools—SLM Corporation’s Student Loan Financing Business in the prospectus.

 

The weighted average number of months in repayment for all initial trust student loans currently in repayment is approximately 0.8, calculated as the term to maturity at the commencement of repayment less the number of months remaining to scheduled maturity as of the statistical cutoff date.

 

SCHEDULED WEIGHTED AVERAGE REMAINING MONTHS IN

STATUS OF THE INITIAL TRUST STUDENT LOANS BY CURRENT

BORROWER PAYMENT STATUS AS OF THE STATISTICAL

CUTOFF DATE

 

    

Scheduled Remaining

Months in Status


Current Borrower Payment Status


   Deferral

   Forbearance

   Repayment

Deferral

   14.1       296.7

Forbearance

      8.1    311.5

Repayment

         263.9

 

We have determined the scheduled months in status shown in the table 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—SLM Corporation’s Student Loan Financing Business” in the prospectus.

 

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GEOGRAPHIC DISTRIBUTION OF THE INITIAL TRUST STUDENT LOANS AS OF THE STATISTICAL CUTOFF DATE

 

State


   Number
of Loans


   Aggregate
Outstanding
Principal Balance


   Percent of Pool
by Outstanding
Principal Balance


 

Alabama

   1,084    $ 18,616,886    0.8 %

Alaska

   153      2,207,633    0.1  

Arizona

   2,294      34,436,555    1.5  

Arkansas

   760      12,465,163    0.6  

California

   11,971      211,457,274    9.5  

Colorado

   2,104      31,183,887    1.4  

Connecticut

   2,502      47,814,962    2.1  

Delaware

   331      6,227,020    0.3  

District of Columbia

   626      11,633,482    0.5  

Florida

   8,213      128,677,003    5.8  

Georgia

   3,508      65,298,975    2.9  

Hawaii

   733      11,264,953    0.5  

Idaho

   440      6,311,919    0.3  

Illinois

   6,310      101,790,880    4.6  

Indiana

   5,492      81,356,960    3.7  

Iowa

   538      8,338,756    0.4  

Kansas

   3,012      41,213,597    1.9  

Kentucky

   1,280      18,125,372    0.8  

Louisiana

   4,488      69,938,941    3.1  

Maine

   309      6,276,966    0.3  

Maryland

   3,557      68,299,572    3.1  

Massachusetts

   4,828      89,221,066    4.0  

Michigan

   2,892      50,398,646    2.3  

Minnesota

   1,633      25,984,013    1.2  

Mississippi

   1,264      18,987,578    0.9  

Missouri

   2,978      47,514,695    2.1  

Montana

   206      2,802,070    0.1  

Nebraska

   251      4,031,872    0.2  

Nevada

   720      11,537,655    0.5  

New Hampshire

   668      12,195,687    0.5  

New Jersey

   4,682      89,989,636    4.0  

New Mexico

   338      5,605,574    0.3  

New York

   11,379      203,202,865    9.1  

North Carolina

   2,095      34,203,104    1.5  

North Dakota

   83      1,318,610    0.1  

Ohio

   4,814      78,699,164    3.5  

Oklahoma

   2,628      37,606,885    1.7  

Oregon

   1,494      23,009,779    1.0  

Pennsylvania

   5,453      97,773,646    4.4  

Rhode Island

   278      6,283,051    0.3  

South Carolina

   1,034      18,032,958    0.8  

South Dakota

   114      1,871,482    0.1  

Tennessee

   2,217      35,481,757    1.6  

Texas

   10,605      172,308,685    7.7  

Utah

   307      5,396,444    0.2  

Vermont

   145      2,599,532    0.1  

Virginia

   4,098      66,863,953    3.0  

Washington

   3,360      52,819,254    2.4  

West Virginia

   683      9,595,814    0.4  

Wisconsin

   1,159      19,622,995    0.9  

Wyoming

   140      1,863,383    0.1  

Other

   841      15,737,339    0.7  
    
  

  

Total

   133,092    $ 2,225,495,949    100.0 %
    
  

  

 

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We have based the geographic distribution shown in the table on the billing addresses of the borrowers of the initial trust student loans shown on the servicer’s records as of the statistical cutoff date.

 

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 addition, if a borrower pays a monthly installment after its scheduled due date, the borrower may owe a fee on that late payment. If a late fee is applied, that payment will be applied first to the applicable late fee, second to interest and third to principal. As a result, the portion of the payment applied to reduce the unpaid principal balance may be less than it would have been had the payment been made as scheduled.

 

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 that trust student loan.

 

Each of the sellers makes available, through the servicer, to borrowers of student loans it holds, payment terms that may result in the lengthening of the remaining term of the student loans. For example, not all of the loans owned by the sellers 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. Each of the sellers also offers, through the servicer, 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—SLM Corporation’s Student Loan Financing Business” in the prospectus.

 

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The following table provides certain information about initial trust student loans subject to the repayment terms described in the preceding paragraphs.

 

DISTRIBUTION OF THE INITIAL TRUST STUDENT LOANS BY

LOAN TYPE AS OF THE STATISTICAL CUTOFF DATE

 

Loan Type


   Number of
Loans


   Aggregate
Outstanding
Principal Balance


   Percent of Pool
by Outstanding
Principal Balance


 

Subsidized

   59,292    $ 840,593,536    37.8 %

Unsubsidized

   73,800      1,384,902,413    62.2  
    
  

  

Total

   133,092    $ 2,225,495,949    100.0 %
    
  

  

 

DISTRIBUTION OF THE INITIAL TRUST STUDENT LOANS BY

REPAYMENT TERMS AS OF THE STATISTICAL CUTOFF DATE

 

Loan Repayment Terms


   Number of
Loans


   Aggregate
Outstanding
Principal Balance


   Percent of Pool
by Outstanding
Principal Balance


 

Level Payment

   104,013    $ 1,635,514,862    73.5 %

Graduated Repayment(1)

   27,961      563,299,184    25.3  

Income-Sensitive

   1,118      26,681,903    1.2  
    
  

  

Total

   133,092    $ 2,225,495,949    100.0 %
    
  

  


(1) Graduated repayment loans include loans with interest-only periods.

 

The servicer, at the request of the sellers or the depositor 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 who are not entitled to these repayment terms as of the statistical cutoff date. If repayment terms are offered to and accepted by borrowers, the weighted average life of the securities could be lengthened.

 

S-48


The following table provides information about the initial trust student loans regarding date of disbursement.

 

DISTRIBUTION OF THE INITIAL TRUST STUDENT LOANS BY

DATE OF DISBURSEMENT AS OF

THE STATISTICAL CUTOFF DATE

 

Disbursement Date


   Number of
Loans


   Aggregate
Outstanding
Principal Balance


   Percent of Pool
by Outstanding
Principal Balance


 

Pre-October 1, 1993

   79    $ 1,627,026    0.1 %

October 1, 1993 and after

   133,013      2,223,868,922    99.9  
    
  

  

Total

   133,092    $ 2,225,495,949    100.0 %
    
  

  

 

In general, student loans disbursed prior to October 1, 1993 are 100% guaranteed by the applicable guarantor, and reinsured against default by the Department of Education. Student loans disbursed on or after October 1, 1993 are 98% guaranteed by the applicable guarantor, and reinsured against default by the Department of Education. However, so long as the servicer’s “exceptional performance” designation remains in effect, all federally insured student loans serviced by the servicer, including the trust student loans acquired by the trust, will be eligible to receive 100% reimbursement on any default claim properly submitted for payment. See “Appendix A—Federal Family Education Loan Program—Guarantee Agencies under the FFELP” in the prospectus.

 

Insurance of Trust Student Loans; Guarantors of Trust Student Loans

 

General.    Each trust student loan is required to be guaranteed as to at least 98% of the principal and interest by one of the guarantee agencies and reinsured by the Department of Education under the Higher Education Act and must be eligible for special allowance payments and, in the case of some trust student loans, interest subsidy payments by the Department of Education.

 

No insurance premium is charged to a borrower or a lender in connection with a consolidation loan. However, FFELP lenders must pay a monthly rebate fee to the Department of Education at an annualized rate of 1.05% on principal of and interest on consolidation loans disbursed on or after October 1, 1993, or at an annualized rate of 0.62% on consolidation loans for which consolidation loan applications were received between October 1, 1998 and January 31, 1999. The trust will pay this consolidation loan rebate prior to calculating Available Funds.

 

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, under which each of the guarantors has agreed to serve as guarantor for specified initial trust student loans.

 

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Under the Higher Education Amendments of 1992, if the Department of Education has determined that a guarantee agency is unable to meet its insurance obligations, a loan holder may submit claims directly to the Department of Education and the Department of Education 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 of Education’s obligation to pay guarantee claims directly in this fashion is contingent upon the Department of Education making the determination referred to above. We cannot assure you that the Department of Education would ever make that determination with respect to a guarantee agency or, if that determination was made, whether that determination or the ultimate payment of guarantee claims would be made in a timely manner. See “Appendix A—Federal Family Education Loan Program—Guarantee Agencies under the FFELP” in the prospectus.

 

The following table provides information with respect to the portion of the initial trust student loans guaranteed by each guarantor:

 

DISTRIBUTION OF THE INITIAL TRUST STUDENT LOANS BY GUARANTEE AGENCY AS OF THE STATISTICAL CUTOFF DATE*

 

Name of Guarantee Agency


   Number of
Loans
Guaranteed


  

Aggregate
Outstanding
Principal Balance

of Loans
Guaranteed


   Percent of
Pool by
Outstanding
Principal
Balance
Guaranteed


 

American Student Assistance

   6,114    $ 108,643,628    4.9 %

California Student Aid Commission

   3      41,402    * *

Connecticut Student Loan Foundation

   1,782      26,509,134    1.2  

Educational Credit Management Corp of Virginia

   3,029      40,137,267    1.8  

Florida Bureau of Student Financial Assistance

   3,177      41,751,987    1.9  

Great Lakes Higher Education Corporation

   6      99,276    * *

Illinois Student Assistance Commission

   4,664      74,886,740    3.4  

Iowa College Student Aid Commission

   211      2,204,198    0.1  

Kentucky Higher Education Assistance Authority

   665      8,686,022    0.4  

Louisiana Office of Student Financial Assistance

   2,180      29,259,410    1.3  

Michigan Guaranty Agency

   1,563      23,480,154    1.1  

New Jersey Office of Student Assistance

   3,511      52,116,111    2.3  

New York State Higher Education Services Corporation

   16,805      281,966,209    12.7  

Northwest Education Loan Association

   1,856      27,929,176    1.3  

Oklahoma Guaranteed Student Loan Program

   2,611      36,157,641    1.6  

Oregon State Scholarship Commission

   2      28,925    * *

Pennsylvania Higher Education Assistance Agency

   14,140      230,438,249    10.4  

Student Loan Guarantee Foundation of Arkansas, Inc

   438      6,713,501    0.3  

Tennessee Student Assistance Corporation

   724      11,695,454    0.5  

Texas Guaranteed Student Loan Corporation

   14,176      222,686,310    10.0  

United Student Aid Funds, Inc

   55,435      1,000,065,155    44.9  
    
  

  

Total

   133,092    $ 2,225,495,949    100.0 %
    
  

  


* Additional trust student loans may be guaranteed by a guarantee agency not shown above.
** Represents a percentage greater than 0% but less than 0.05%.

 

S-50


Some historical information about each of the guarantee agencies that guarantees trust student loans comprising at least 10% of the Initial Pool Balance is provided below. For purposes of the following tables we refer to these guarantee agencies as Significant Guarantors. The information shown for each Significant Guarantor relates to all student loans, including but not limited to initial trust student loans, guaranteed by that Significant Guarantor.

 

We obtained the information in these tables from various sources, including Department of Education publications and data or from the Significant Guarantors themselves. None of the depositor, SLM ECFC, VG Funding or the underwriters has audited or independently verified this information for accuracy or completeness.

 

Guarantee 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 last five federal fiscal years:

 

    Loans Guaranteed

    Federal Fiscal Year

Name of Guarantee Agency


  2000

  2001

  2002

  2003

  2004

New York State Higher Education Services Corporation*

  $ 1,746,969,000   $ 1,831,323,000   $ 1,973,525,000   $ 2,196,256,000   $ 2,545,791,000

Pennsylvania Higher Education Assistance Authority

    2,075,885,946     2,252,381,120     2,529,963,214     2,813,000,000     3,130,515,732

Texas Guaranteed Student Loan Corporation

    1,709,271,995     1,853,779,164     2,134,901,000     2,693,000,000     3,250,204,000

United Student Aid Funds, Inc

    6,840,000,000     7,379,000,000     8,162,000,000     9,571,000,000     9,868,679,000

All Guarantee Agencies

  $ 25,656,043,912   $ 28,355,601,253   $ 32,749,370,030   $ 38,864,942,462   $ 45,181,509,737

* Information for NYSHESC is reported for the New York state fiscal year.

 

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. For this purpose:

 

  ·   Cumulative cash reserves are cash reserves plus (1) sources of funds, including insurance premiums, state appropriations, federal advances, federal reinsurance payments, administrative cost allowances, collections on claims paid and investment earnings, minus (2) uses of funds, including claims paid to lenders, operating expenses, lender fees, the Department of Education’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.

 

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The following table shows each Significant Guarantor’s reserve ratios for the last five federal fiscal years as well as the average reserve ratio for all guarantors for the same periods:

 

     Reserve Ratio as of Close of Federal

 
     Fiscal Year

 

Guarantor


   2000

    2001

    2002

    2003

    2004

 

New York State Higher Education Services Corporation*

   1.4 %   0.9 %   0.4 %   0.3 %   N/A  

Pennsylvania Higher Education Assistance Authority

   1.3     1.1     0.5     0.4     N/A  

Texas Guaranteed Student Loan Corporation

   1.2     N/A **   N/A **   N/A **   N/A **

United Student Aid Funds, Inc

   1.0     0.7     0.6     0.4     0.4 %

All Guarantee Agencies

   1.0     0.8 ***   0.6 ***   0.7 ***   N/A  

* Information for NYSHESC is reported for the New York state fiscal year.
** Texas Guaranteed Student Loan Corporation does not report a reserve ratio pursuant to the terms of its voluntary flexible agreement with the Department of Education.
***Excludes data from guarantors that do not report a reserve ratio pursuant to the terms of their voluntary flexible agreements with the Department of Education.

 

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 shows the cumulative recovery rates for each Significant Guarantor for the last five federal fiscal years:

 

     Recovery Rate

 
     Federal Fiscal Year

 

Guarantor


   2000

    2001

    2002

    2003

    2004

 

New York State Higher Education Services Corporation*

   62.9 %   65.0 %   65.6 %   65.8 %   N/A **

Pennsylvania Higher Education Assistance Authority

   66.1     70.7     73.6     76.6     N/A  

Texas Guaranteed Student Loan Corporation

   65.8     70.1     73.5     78.0     N/A  

United Student Aid Funds, Inc

   64.2     73.3     82.4     86.7     N/A  

* Information for NYSHESC is reported for the New York state fiscal year.
** NYSHESC no longer reports a recovery rate.

 

Claims Rate.    The following table shows the claims rates of each Significant Guarantor for the last five federal fiscal years:

 

     Claims Rate

 
     Federal Fiscal Year

 

Guarantor


   2000

    2001

    2002

    2003

    2004

 

New York State Higher Education Services Corporation*

   1.5 %   1.6 %   1.5 %   1.7 %   1.5 %

Pennsylvania Higher Education Assistance Authority

   1.1     1.7     1.7     1.5     1.1  

Texas Guaranteed Student Loan Corporation

   2.0     2.8     3.2     2.5     2.4  

United Student Aid Funds, Inc

   2.0     2.5     2.0     1.4     1.1  

* Information for NYSHESC is reported for the New York state fiscal year.

 

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The Department of Education is required to make reinsurance payments to guarantors with respect to FFELP loans in default. This requirement is 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 that guarantor that are in repayment on the last day of the prior fiscal year. See “Appendix A—Federal Family Education Loan Program” to the prospectus.

 

Each 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 the trust student loan being performed in accordance with the FFELP, the Higher Education Act, the 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 agreement 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 may consult the Department of Education Data Books for further information concerning the guarantors.

 

Cure Period for Trust Student Loans

 

The sellers, the depositor or the servicer, as applicable, will be obligated to purchase, or to substitute qualified substitute student loans for, any trust student loan in the event of a material breach 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 210 days. However, in the case of breaches that may be cured by the reinstatement of the guarantor’s guarantee of the trust student loan, the cure period will be 360 days. In each case the cure period begins on 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 purchase or substitution will be made not later than the end of the 210-day cure period or not later than the 60th day following the end of the 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

 

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with and rejected by a guarantor as a result of a breach by the depositor or the servicer or for which the servicer determines that claims cannot be filed pursuant to the Higher Education Act as a result of that breach exceeds 1% of the Pool Balance, then the servicer or the depositor, 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 so 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 or the depositor pursuant to the preceding sentence will be based on the date of claim rejection, with the trust student loans with the earliest of these dates to be purchased first. See “Servicing and Administration—Servicer Covenants” and “Transfer and Servicing Agreements—Sale of Student Loans to the Trust; Representations and Warranties of the Depositor” and “—Purchase of Student Loans by the Depositor; Representations and Warranties of the Sellers” in the prospectus.

 

Consolidation of Federal Benefit Billings and Receipts and Guarantor Claims with Other Trusts

 

Due to a Department of Education policy limiting the granting of new lender identification numbers, the eligible lender trustee will be allowed under the trust agreement to permit other trusts established by the depositor to securitize student loans to use the Department of Education lender identification number applicable to the trust. In that event, the billings submitted to the Department of Education 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 of Education 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 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 of Education regards the eligible lender trustee as the party primarily responsible to the Department of Education for any liabilities owed to the Department of Education or guarantee agencies resulting from the eligible lender trustee’s activities in the FFELP. As a result, if the Department of Education or a guarantee agency were to determine that the eligible lender trustee owes a liability to the Department of Education or a guarantee agency on any student loan included in a trust using the shared lender identification number, the Department of Education or that 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.

 

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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 of Education on the loans in the other trusts, resulting in the consolidated payment from the Department of Education 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 of Education on the loans in the trust for that quarter.

 

The servicing agreement for the trust and the servicing agreements for the other trusts established by the depositor that share the lender identification number to be used by the trust will require any trust to indemnify the other trusts against a shortfall or an offset by the Department of Education or a guarantee agency arising from the student loans held by the eligible lender trustee on the trust’s behalf.

 

Exceptional Performance Designation

 

For the period October 19, 2004 through October 18, 2005, Sallie Mae, Inc., the servicer, has been awarded the “exceptional performance” designation by the United States Department of Education. So long as the servicer’s exceptional performance designation remains in effect, all federally reinsured student loans serviced by the servicer, including the trust student loans to be acquired with the proceeds of the notes, will be eligible to receive 100% reimbursement on any default claim properly submitted for payment. The Secretary of Education may revoke the servicer’s exceptional performance designation if, among other things, subsequent audits of the servicer’s servicing operations reflect a failure to meet certain due diligence standards, the required audits are not provided to the Secretary or the Secretary determines that an overall level of regulatory compliance has not been maintained. There can be no assurance that the servicer will maintain its exceptional performance designation in the future. Failure by the servicer to maintain its exceptional performance designation in the future is not a default under the servicing agreement between the trust and the servicer.

 

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DESCRIPTION OF THE NOTES

 

General

 

The notes will be issued under an indenture 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 indenture and the trust agreement. The prospectus describes other terms of the notes. See “Description of the Notes” and “Additional Information Regarding the Securities” in the prospectus. The following summary does not cover every detail and is subject to the provisions of the notes, the indenture and the trust agreement.

 

The Notes

 

The Class A Notes.

 

Distributions of Interest.    Interest will accrue on the outstanding principal balances of the class A notes at their respective interest rates. Interest will accrue during each applicable accrual period and will be payable to the class A noteholders on each applicable distribution date. Interest accrued as of any distribution date but not paid on that distribution date will be due on the next distribution date together with an amount equal to interest on the unpaid amount at the applicable rate per annum specified in the definition of Class A Note Interest Shortfall in the Glossary. Interest payments on the class A notes for any distribution date will generally be funded from Available Funds and the other sources of funds for payment described in this prospectus supplement (subject to all prior required distributions). See “—Distributions” and “—Credit Enhancement” in this prospectus supplement. If these sources are insufficient to pay the Class A Noteholders’ Interest Distribution Amount for that distribution date, the shortfall will be allocated pro rata to the class A noteholders, based upon the total amount of interest then due on each class of class A notes.

 

Except for the first accrual period, the interest rate for each class of LIBOR-based notes for each accrual period will be equal to the sum of three-month LIBOR and the following applicable spread:

 

Class of Notes


   Spread

 

Class A-1

   0.00 %

Class A-2

   0.08 %

Class A-3

   0.10 %

Class A-4

   0.14 %

 

Except for the first accrual period, the interest rate for the class A-5 notes for each accrual period that ends before the initial reset date will be a floating rate equal to the sum of three-month LIBOR and 0.03%.

 

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The interest rate for the class A-5 notes will be reset on each applicable reset date. See “—The Reset Rate Notes” below.

 

LIBOR for the first accrual period for all classes of notes will be determined by the following formula:

 

x + [26/32 * (y-x)]

where:

x = three-month LIBOR, and

y = four-month LIBOR.

 

The administrator will determine LIBOR for the specified maturity and each accrual period on the second business day before the beginning of that accrual period, as described under “Additional Information Regarding the Securities—Determination of Indices—LIBOR” in the prospectus.

 

Distributions of Principal.    Principal payments will be made or allocated to the class A noteholders and each applicable swap counterparty on each distribution date in an amount generally equal to the Principal Distribution Amount times the Class A Percentage for that distribution date, until the principal balance of each class of the class A notes is reduced to zero (taking into account, if applicable, funds on deposit (less any investment earnings) in any accumulation account that, if distributed, would reduce the outstanding principal amount of each class of reset rate notes to zero). Principal payments on the class A notes and to each applicable swap counterparty will generally be funded from Available Funds and the other sources of funds for payment described in this prospectus supplement (subject to all prior required distributions). See “—Distributions,” “—Credit Enhancement” and “—The Class B Notes—Subordination of the Class B Notes” in this prospectus supplement. If these sources are insufficient to pay the Class A Noteholders’ Principal Distribution Amount for a distribution date, the shortfall will be added to the principal payable to the class A noteholders and each applicable swap counterparty with respect to principal on subsequent distribution dates. Amounts on deposit in the reserve account, other than amounts in excess of the Specified Reserve Account Balance, will not be available to make principal payments on the class A notes except at maturity of the applicable class of notes or on the final distribution upon termination of the trust.

 

Principal payments generally will be applied on each distribution date in the priorities set forth under “—Distributions” below.

 

However, notwithstanding any other provision to the contrary, following the occurrence of an event of default and the exercise by the indenture trustee of remedies under the indenture, principal payments on the class A notes and to the applicable swap counterparties will be made pro rata, without preference or priority, except that amounts on deposit in any accumulation account will be applied only to the payment of principal of the related class of reset rate notes.

 

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The aggregate outstanding principal balance of each class of class A notes will be due and payable in full on its maturity date. The actual date on which the aggregate outstanding principal and accrued interest of a class of class A notes is paid may be earlier than its maturity date, based on a variety of factors as described in “You Will Bear Prepayment and Extension Risk Due To Actions Taken By Individual Borrowers And Other Variables Beyond Our Control” under “Risk Factors” in the prospectus.

 

In addition, on the next business day after the end of the supplemental purchase period, all amounts remaining on deposit in the supplemental purchase account will be transferred to the collection account and included as part of Available Funds on the initial distribution date. Any amounts remaining on deposit in the add-on consolidation loan account at the end of the consolidation loan add-on period will be transferred to the collection account on the next business day and included as part of Available Funds on the next distribution date.

 

The Class B Notes.

 

Distributions of Interest.    Interest will accrue on the principal balance of the class B notes at the class B interest rate. Interest will accrue during each accrual period and will be payable quarterly to the class B noteholders on each distribution date. Interest accrued as of any distribution date but not paid on that distribution date will be due on the next distribution date, together with an amount equal to interest on the unpaid amount at the class B interest rate. Interest payments on the class B notes for any distribution date will generally be funded from Available Funds and other sources of funds available for payment described in this prospectus supplement (subject to all prior required distributions). See —Distributions,” “—Credit Enhancement—Reserve Account” and —The Class B Notes—Subordination of the Class B Notes in this prospectus supplement.

 

Except for the first accrual period, the interest rate for the class B notes with respect to each accrual period will be equal to the sum of three-month LIBOR and 0.25%. The administrator will determine LIBOR for the class B notes for each accrual period in the same manner as for the LIBOR-based class A notes.

 

Distributions of Principal.    Principal payments will be made to the class B noteholders on each distribution date on and after the Stepdown Date, provided that a Trigger Event has not occurred and is continuing, in an amount generally equal to the Class B Noteholders’ Principal Distribution Amount for that distribution date. Principal payable on any distribution date will generally be funded from the portion of Available Funds and the other sources of funds for payment described in this prospectus supplement (subject to all prior required distributions). Amounts on deposit in the reserve account, other than amounts in excess of the Specified Reserve Account Balance, will not be available to make principal payments on the

 

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class B notes except at their maturity and on the final distribution upon termination of the trust. See “—Distributions” and “—Credit Enhancement—Reserve Account” in this prospectus supplement.

 

The outstanding principal balance of the class B notes will be due and payable in full on the class B maturity date. The actual date on which the final distribution on the class B notes will be made may be earlier than the class B maturity date, however, based on a variety of factors.

 

Subordination of the Class B Notes.    On any distribution date, distributions of interest on the class B notes will be subordinated to the payment of interest on the class A notes and amounts, if any, due to a swap counterparty for trust swap payments, and principal payments on the class B notes will be subordinated to the payment of both interest and principal on the class A notes, amounts, if any, due to a swap counterparty for trust swap payments and any required deposits into any supplemental interest account and any investment reserve account. Consequently, on any distribution date, Available Funds, amounts on deposit in the reserve account remaining after payment of the primary servicing fee and the administration fee, required deposits to the remarketing fee account and, through the October 2006 distribution date, amounts on deposit in the capitalized interest account will be applied to the payment of interest on the class A notes prior to any payment of interest on the class B notes, and no payments of the principal balance on the class B notes will be made on that distribution date until the class A notes have received the applicable Class A Noteholders’ Principal Distribution Amount. In addition, even after the class A notes have been paid in full (or sufficient amounts are on deposit in any accumulation account to pay the outstanding principal amount in full of the related class of reset rate notes), the Class B Noteholders’ Principal Distribution Amount will be subordinated to the payment of any required deposits into any supplemental interest account and any investment reserve account.

 

Notwithstanding the foregoing, if

 

(1) on any distribution date following distributions under clauses (a) through (f) under “—Distributions—Distributions from the Collection Account” below to be made on that distribution date, the outstanding principal balance of the class A notes, less amounts, other than investment earnings, on deposit in any accumulation account, would be in excess of:

 

  ·   the outstanding principal balance of the trust student loans plus

 

  ·   any accrued but unpaid interest on the trust student loans as of the last day of the related collection period plus

 

  ·   the balance of the capitalized interest account on the distribution date following those distributions made with respect to clauses (d)(1), (d)(2) and (e) under “—Distributions—Distributions from the Collection Account” below plus

 

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  ·   the balance of the add-on consolidation loan account on such distribution date plus

 

  ·   the balance of the reserve account on the distribution date following those distributions made under clauses (a) through (f) under “—Distributions—Distributions from the Collection Account” below minus

 

  ·   the Specified Reserve Account Balance and any Supplemental Interest Account Deposit Amount for that distribution date, or

 

(2) an event of default under the indenture affecting the class A notes has occurred and is continuing,

 

then, until the conditions described in (1) or (2) above no longer exist, the amounts on deposit in the collection account and the reserve account will be applied on that distribution date to the payment of the Class A Noteholders’ Distribution Amount and any Supplemental Interest Account Deposit Amount before any amounts are applied to the payment of the Class B Noteholders’ Distribution Amount.

 

The Reset Rate Notes

 

General.    The applicable currency and interest rate for the class A-5 notes will be reset from time to time in a currency and at an interest rate determined using the procedures described below. During their initial reset period, the class A-5 notes will be denominated in U.S. Dollars and will bear a floating rate of interest as described above.

 

Interest.    Interest on the class A-5 notes, during any reset period when that class bears interest at a floating rate based on LIBOR, EURIBOR, GBP-LIBOR or another index, will be computed as described under “Additional Information Regarding the Securities—Determination of Indices” in the prospectus. Interest on the class A-5 notes during each reset period when that class bears a fixed rate of interest will accrue daily and will be computed based on:

 

  ·   if that class is denominated in U.S. Dollars, a 360-day year consisting of twelve 30-day months; or

 

  ·   if that class is denominated in a currency other than U.S. Dollars, generally, the Actual/Actual (ISMA) accrual method as described in “—Determination of Indices” below or another day-count convention as will be set forth on the related Remarketing Terms Determination Date.

 

Interest on the class A-5 notes during any reset period when that class bears a floating rate of interest based on three-month LIBOR will accrue daily and will be computed based on the actual number of days elapsed and a 360-day year.

 

An accrual period during any reset period when the class A-5 notes bear interest at a floating rate, including both U.S. Dollar and non-U.S. Dollar denominated notes,

 

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will begin on a distribution date and end on the day before the next related distribution date. An accrual period during any reset period when the class A-5 notes are denominated in U.S. Dollars and bear a fixed rate of interest will begin on the 25th day of the month of the immediately preceding distribution date and end on the 24th day of the month of the then-current distribution date. The initial accrual period for the class A-5 notes will begin on the closing date and end on October 24, 2005. An accrual period during any reset period when the class A-5 notes are denominated in a currency other than U.S. Dollars and bear a fixed rate of interest will begin on the 25th day of the month of the immediately preceding distribution date and end on the 24th day of the month of the then-current distribution date. Accrual periods and the distribution dates for payments of interest for that class may be monthly, quarterly, semi-annual or annual, as specified on the related Remarketing Terms Determination Date as described under “Additional Information Regarding the Securities—The Reset Rate Securities—Reset Periods” in the prospectus. Interest and principal will be payable or allocated, as applicable, on each applicable distribution date.

 

However, during any reset period when the class A-5 notes are denominated in a currency other than U.S. Dollars, if a distribution date for that class coincides with a reset date, payments will be paid to the class A-5 noteholders on the second business day following that distribution date (which we sometimes refer to as the “special reset payment date” in this prospectus supplement), together with additional interest on the applicable principal balance at the related interest rate. For any reset period following a reset date upon which a Failed Remarketing has occurred, up to and including the reset date resulting in a successful remarketing or an exercise of the call option for the class A-5 notes (as described below), payments of interest and principal to the class A-5 noteholders will be made on the special reset payment date without the payment of any additional interest.

 

Principal.    In general, payments of principal will be made or allocated to the class A-5 notes on each distribution date as described above. If, on any distribution date, principal would be payable to the class A-5 notes during any reset period when they are then structured not to receive a payment of principal until the end of the related reset period (as will be the case, generally, but not exclusively, whenever that class bears a fixed rate of interest), principal generally will be allocated to the class A-5 notes and deposited into the accumulation account until the next reset date, when such amounts will be distributed to the class A-5 noteholders or to the related swap counterparty as applicable, on or about that reset date. See Additional Information Regarding The Securities—The Reset Rate Securities—Principal in the prospectus.

 

Reset Periods.    The initial reset date for the class A-5 notes will be January 25, 2010. We refer to this date, together with each date thereafter on which the class A-5 notes may be reset with respect to the currency and/or interest rate mode, as a “reset date” and each period between the reset dates for such class as a “reset

 

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period”. All reset dates will occur on a distribution date, and each reset period will end on the day before a distribution date. However, no reset period may end after the day before the maturity date for the reset rate notes.

 

The applicable currency, interest rate and the frequency of principal payments on the class A-5 notes will be reset as of each reset date as determined by:

 

  ·   the remarketing agents, in consultation with the administrator, with respect to the length of the reset period, the applicable currency (U.S. Dollars, Euros, Pounds Sterling or another currency), whether the interest rate is fixed or floating and, if floating, the applicable interest rate index, the day-count convention, the applicable interest rate determination dates, the interval between interest rate change dates during each accrual period, whether that class will be structured to amortize periodically or to receive a payment of principal only at the end of the reset period, and the related All-Hold Rate (if applicable); and

 

  ·   the remarketing agents with respect to the determination of the applicable fixed rate of interest or Spread to the chosen interest rate index, as applicable.

 

In the event that the class A-5 notes are reset to pay (or continue to pay) in a currency other than U.S. Dollars (including during their initial reset period), that class is said to be in foreign exchange mode. In that case, the administrator will be responsible for arranging, on behalf of the trust, the required currency swaps to hedge, in whole or in part, against the currency exchange risks that result from the required payment to the applicable reset rate noteholders in a currency other than U.S. Dollars and, together with the remarketing agents, for selecting one or more Eligible Swap Counterparties. See “Additional Information Regarding the Securities—The Reset Rate Securities— Foreign Exchange Mode” in the prospectus.

 

In the event that the class A-5 notes are reset to bear (or continue to bear) a fixed rate of interest, the administrator will be responsible for arranging, on behalf of the trust, the required interest rate swaps to hedge the basis risk that results from the payment of a fixed rate of interest on that class and, together with the remarketing agents, for selecting one or more Eligible Swap Counterparties. See “Additional Information Regarding the Securities—The Reset Rate Securities—Fixed Rate Mode” in the prospectus. In the event that the class A-5 notes are reset to bear (or continue to bear) a floating rate of interest, the Spread will be determined in the manner described below for each reset period. See also “Additional Information Regarding the Securities—The Reset Rate Securities—Spread Determination Date” in the prospectus.

 

Each reset period will be no less than three months and will always end on the day before a distribution date. Each distribution date when the class A-5 noteholders will receive interest and/or principal payments will be determined by the remarketing agents, in consultation with the administrator, on the applicable Remarketing Terms Determination Date in connection with the establishment of each reset period.

 

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Absent a Failed Remarketing, class A-5 noteholders that wish to be repaid on a related reset date will be able to obtain a 100% repayment of principal by tendering their class A-5 notes pursuant to the remarketing process; provided, that tender is deemed mandatory when the class A-5 notes are denominated in a currency other than U.S. Dollars during either the then-current or the immediately following reset period, as more fully discussed under “Additional Information Regarding the Securities—The Reset Rate Securities—Tender of Reset Rate Notes; Remarketing Procedures” in the prospectus. If there is a Failed Remarketing of the class A-5 notes, however, the class A-5 noteholders will not be permitted to exercise any remedies as a result of the failure of their class A-5 notes to be remarketed on the related reset date, as described under “Additional Information Regarding the Securities—The Reset Rate Securities—Failed Remarketing” in the prospectus.

 

Interest on the class A-5 notes during each reset period after the initial reset period will accrue and be payable either:

 

  ·   at a floating interest rate, in which case the class A-5 notes are said to be in floating rate mode, or

 

  ·   at a fixed interest rate, in which case the class A-5 notes are said to be in fixed rate mode,

 

in each case as determined by the remarketing agents, in consultation with the administrator and in accordance with the remarketing agreement and the applicable remarketing agency agreement.

 

Remarketing Terms Determination Date.    On the Remarketing Terms Determination Date, unless notice of the exercise of the call option described below has already been given, the remarketing agents will notify the class A-5 noteholders whether tender is deemed mandatory or optional. Additionally, in consultation with the administrator, the remarketing agents will establish the following terms for the class A-5 notes by the Remarketing Terms Determination Date, which terms will be applicable during the upcoming reset period:

 

  ·   the weighted average life of the class A-5 notes under several assumed prepayment scenarios;

 

  ·   the name and contact information of the remarketing agents;

 

  ·   the next reset date and reset period;

 

  ·   the applicable minimum denomination and additional increments;

 

  ·   the interest rate mode (i.e., fixed rate or floating rate);

 

  ·   the applicable currency;

 

  ·   if in foreign exchange mode, the identities of the Eligible Swap Counterparties from which bids will be solicited;

 

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  ·   if in foreign exchange mode, the applicable distribution dates on which interest and principal will be paid to the applicable reset rate noteholders, if other than quarterly;

 

  ·   whether the class A-5 notes will be structured to amortize periodically or to receive a payment of principal only at the end of the related reset period (as will be the case, generally, but not exclusively, whenever that class bears a fixed rate of interest);

 

  ·   if in floating rate mode, the applicable interest rate index;

 

  ·   if in floating rate mode, the interval between interest rate change dates;

 

  ·   if in floating rate mode, the applicable interest rate determination date;

 

  ·   if in fixed rate mode, the applicable fixed rate pricing benchmark;

 

  ·   if in fixed rate mode, the identities of the Eligible Swap Counterparties from which bids will be solicited;

 

  ·   if in floating rate mode, whether there will be a related swap agreement and if so the identities of the Eligible Swap Counterparties from which bids will be solicited;

 

  ·   the applicable interest rate day-count basis; and

 

  ·   the related All-Hold Rate, if applicable.

 

Any interest rate mode other than a floating rate based on LIBOR or a commercial paper rate will require that the Rating Agency Condition be satisfied.

 

The remarketing agents will communicate this information by written notice, through DTC, Euroclear and Clearstream, Luxembourg, as applicable, to the class A-5 noteholders, the indenture trustee and the rating agencies on the related Remarketing Terms Determination Date.

 

If the class A-5 notes are denominated in U.S. Dollars during the then-current reset period and will continue to be denominated in U.S. Dollars during the immediately following reset period, on the Remarketing Terms Determination Date, the remarketing agents, in consultation with the administrator, will establish the related All-Hold Rate. In this event, on or before the Notice Date, the class A-5 noteholders will have the option to deliver a Hold Notice, in the absence of which their class A-5 notes will be deemed to have been tendered. See “—Tender of Reset Rate Notes; Remarketing Procedures” below. If the class A-5 notes either are in foreign exchange mode during the then-current reset period or will be reset into foreign exchange mode on the immediately following reset date, the class A-5 noteholders will be deemed to have tendered their class A-5 notes on the related reset date (including on each initial reset date), regardless of any desire by those class A-5 noteholders to retain their ownership, and no All-Hold Rate will be applicable.

 

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If applicable, the All-Hold Rate will be the minimum rate of interest that will be effective for the upcoming reset period. In the event some but not all of the applicable class A-5 noteholders elect to hold their class A-5 notes for the next reset period and the rate of interest using the Spread or fixed rate of interest established on the Spread Determination Date is higher than the All-Hold Rate, all class A-5 noteholders who delivered a Hold Notice agreeing to be subject to the All-Hold Rate will be entitled to the higher rate of interest for the upcoming reset period. If 100% of the class A-5 noteholders elect to hold their class A-5 notes for the next reset period, the related reset rate will be the All-Hold Rate.

 

If the remarketing agents, in consultation with the administrator, are unable to determine the terms set forth above that are required to be established on the applicable Remarketing Terms Determination Date, then, unless the holder of the call option chooses to exercise its call option, a Failed Remarketing will be declared on the related Spread Determination Date as described under “Additional Information Regarding The Securities—The Reset Rate Securities—Spread Determination Date” and “—Failed Remarketing” in the prospectus.

 

Call Option.    The class A-5 notes will be subject, as of each reset date, to a call option, held by SLM Corporation or one of its subsidiaries, for 100% of that class exercisable at a price equal to 100% of the principal balance of that class, less all amounts distributed to the class A-5 noteholders as a payment of principal, plus any accrued and unpaid interest not paid by the trust on the applicable reset date. The call option may be exercised by SLM Corporation or one of its subsidiaries at any time prior to the determination of the related Spread or fixed rate or the declaration of a Failed Remarketing on the related Spread Determination Date. Once notice is given, the holder of the call option may not rescind its exercise of the call option. If the call option is exercised with respect to the class A-5 notes, the interest rate on the class A-5 notes will be the Call Rate and the applicable currency will be U.S. Dollars. In that event, a reset period of three months will be established, at the end of which the holder of the call option may either remarket the class A-5 notes pursuant to the remarketing procedures set forth below or retain the class A-5 notes for one or more successive three-month reset periods at the existing Call Rate. See “Additional Information Regarding The Securities—The Reset Rate Securities—Call Option” in the prospectus.

 

Spread Determination Date.    On each Spread Determination Date, the remarketing agents will set the applicable Spread above or below the applicable index (if the class A-5 notes will be in floating rate mode during the next reset period) or applicable fixed rate of interest (if the class A-5 notes will be in fixed rate mode during the next reset period), in either case, at a rate that, in the reasonable opinion of the remarketing agents, will enable all of the tendered class A-5 notes to be remarketed by the remarketing agents at 100% of the principal balance of the class A-5 notes. Also, if applicable, the administrator and the remarketing agents will select from the bids received from the Eligible Swap Counterparty or Counterparties, with which the

 

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trust will enter into one or more swap agreements to hedge basis and/or currency risks for the next related reset period. Furthermore, if the class A-5 notes are to be reset to foreign exchange mode, the currency exchange rate, the Extension Rate due to the related currency swap counterparty and the Failed Remarketing Rate for the applicable reset period will be determined pursuant to the terms of the related currency swap agreement. If required for the immediately following reset period, on or before the related Spread Determination Date the administrator will arrange for new or additional securities identification codes to be obtained. See “Additional Information Regarding The Securities—The Reset Rate Securities—Spread Determination Date” in the prospectus.

 

Timeline.    The following chart shows a timeline of the remarketing process:

 

LOGO

 

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Foreign Exchange Mode.    If the class A-5 notes are to be reset in foreign exchange mode on the related reset date, the administrator, on behalf of the trust, will enter into one or more currency swap agreements with Eligible Swap Counterparties:

 

  ·   to facilitate the trust’s ability to pay principal and interest in the applicable currency;

 

  ·   to pay additional interest at the applicable interest rate and in the applicable currency on the class A-5 notes from and including the related reset date to, but excluding the second business day following the related reset date; and

 

  ·   to facilitate the exchange of all secondary market trade proceeds from a successful remarketing (or proceeds from the exercise of the call option) on the applicable reset date to the applicable currency.

 

See “Additional Information Regarding The Securities—The Reset Rate Securities—Foreign Exchange Mode” in the prospectus.

 

Any applicable currency swap agreement may also terminate as a result of the optional purchase of the trust student loans by the servicer or an auction of the trust student loans by the indenture trustee. No currency swap agreement will terminate solely due to the declaration of a Failed Remarketing.

 

The terms of all currency swap agreements must satisfy the Rating Agency Condition. The inability to obtain any required currency swap agreement, either as a result of the failure to satisfy the Rating Agency Condition or otherwise, will, in the absence of an exercise of the call option, result in the declaration of a Failed Remarketing on the related reset date; provided that, if the remarketing agents, in consultation with the administrator, on or before the Remarketing Terms Determination Date, determine that it is unlikely that currency swap agreements satisfying the above criteria will be obtainable on the related reset date, the class A-5 notes must be reset to U.S. Dollars on the related reset date. No new currency swap agreements will be entered into by the trust for the applicable reset period following an exercise of the call option.

 

If the class A-5 notes are either currently in foreign exchange mode or to be reset into foreign exchange mode, those notes will be deemed tendered mandatorily by the holders thereof on the related reset date. Affected class A-5 noteholders desiring to retain some or all of their class A-5 notes will be required to repurchase their class A-5 notes through the remarketing agents. Those class A-5 noteholders may not be allocated their desired amount of class A-5 notes as part of the remarketing process. Holders of class A-5 notes denominated in a currency other than U.S. Dollars will receive all principal and interest payments due from the trust as well as payment of any outstanding principal amount payable as a result of the remarketing process on or about the second business day following the reset date as a result of the required delay in payment through Euroclear and Clearstream, Luxembourg.

 

Floating Rate Mode.    If the class A-5 notes are to be reset in U.S. Dollars and to bear a floating rate of interest, then, during the corresponding reset period, they will bear

 

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interest at a per annum rate equal to the applicable interest rate index, plus or minus the applicable Spread, as determined on the relevant Spread Determination Date.

 

In addition, if the remarketing agents, in consultation with the administrator, determine that it would be in the best interest of the trust based on then-current market conditions during any reset period when the class A-5 notes bear a floating rate of interest, or if otherwise required to satisfy the Rating Agency Condition, the trust will enter into one or more interest rate swap agreements with Eligible Swap Counterparties for the next reset period to hedge some or all of the basis risk. In exchange for providing payments to the trust at the applicable interest rate index plus the related Spread, each swap counterparty will be entitled to receive on each distribution date a payment from the trust equal to three-month LIBOR plus or minus a spread, which must satisfy the Rating Agency Condition. In the selection of the related swap counterparties and the establishment of the applicable spread to three-month LIBOR, the remarketing agents, in consultation with the administrator, generally will use the procedures set forth under “—Foreign Exchange Mode” above and “Additional Information Regarding The Securities—The Reset Rate Securities—Foreign Exchange Mode” in the prospectus.

 

Fixed Rate Mode.    If the class A-5 notes are to be reset in U.S. Dollars and to bear a fixed rate of interest, then the applicable fixed rate of interest for the corresponding reset period will be determined on the Spread Determination Date by adding:

 

  ·   the applicable spread as determined by the remarketing agents on the Spread Determination Date; and

 

  ·   the yield to maturity on the Spread Determination Date of the applicable fixed rate pricing benchmark, selected by the remarketing agents, as having an expected weighted average life based on a scheduled maturity at the next reset date, which would be used in accordance with customary financial practice in pricing new issues of asset-backed securities of comparable average life, provided, that the remarketing agents shall establish that fixed rate equal to the rate that, in the reasonable opinion of the remarketing agents, will enable all of the tendered reset rate notes to be remarketed by the remarketing agents at 100% of their outstanding principal balance. However, that fixed rate of interest will in no event be lower than the related All-Hold Rate, if applicable.

 

Interest on the class A-5 notes during any reset period when they bear a fixed rate of interest and are denominated in U.S. Dollars generally will be computed on the basis of a 360-day year of twelve 30-day months. Interest on the class A-5 notes during any reset period when they bear a fixed rate of interest and are denominated in a currency other than U.S. Dollars generally will be calculated based on the Actual/Actual (ISMA) accrual method as described under “Additional Information Regarding The Securities—Determination of Indices” in the prospectus, or another day-count

 

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convention as may be established on the related Remarketing Terms Determination Date. This interest will be payable on each distribution date at the applicable fixed rate of interest, as determined on the Spread Determination Date, during the relevant reset period.

 

In addition, if the class A-5 notes are to be remarketed to bear interest at a fixed rate, the trust will enter into one or more interest rate swap agreements with Eligible Swap Counterparties on the related reset date, as applicable, to facilitate the trust’s ability to pay interest at a fixed rate, and any such interest rate swap will be made as part of any required currency swap agreement as described in “Additional Information Regarding The Securities—The Reset Rate Securities—Foreign Exchange Mode” in the prospectus. Each of these interest rate swap agreements will terminate, generally, on the earliest to occur of:

 

  ·   the next succeeding reset date, if the class A-5 notes are then denominated in U.S. Dollars, or the next succeeding reset date resulting in a successful remarketing, if the class A-5 notes are then in foreign exchange mode;

 

  ·   the related reset date for which the related call option is exercised;

 

  ·   the distribution date on which the outstanding principal balance of the class A-5 notes is reduced to zero (including as the result of the optional purchase of the remaining trust student loans by the servicer or an auction of the trust student loans by the indenture trustee); or

 

  ·   the maturity date of the class A-5 notes.

 

See “Additional Information Regarding The Securities—The Reset Rate Securities—Fixed Rate Mode” in the prospectus.

 

Allocation of Principal to Accumulation Account.    If, on any distribution date, principal would be payable to the class A-5 notes during any reset period when they are then structured not to receive a payment of principal until the end of the related reset period (as will be the case during the initial reset period and, generally, but not exclusively, whenever that class bears a fixed rate of interest), principal generally will be allocated to the class A-5 notes and deposited into the accumulation account. Those principal amounts will remain in the accumulation account until the next reset date for the class A-5 notes, unless there occurs, prior to that reset date, an optional termination of the trust, an optional purchase of the remaining trust student loans by the servicer or a successful auction of the remaining trust student loans by the indenture trustee. On that reset date, all amounts (less any investment earnings) then on deposit in the accumulation account, including any allocation of principal made on that distribution date, will be distributed to the class A-5 noteholders, as of the related record date, in reduction of principal (or if in foreign exchange mode, on or about that reset date to the related swap counterparty, in exchange for the equivalent amount of the applicable non-U.S. Dollar currency to be paid to the class A-5 noteholders on or about that reset date).

 

 

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However, in the event that on any distribution date the amount (less any investment earnings) on deposit in the related accumulation account would equal the outstanding principal balance (or if in foreign exchange mode, the U.S. Dollar equivalent thereof) of the class A-5 notes, then no additional amounts will be deposited into the related accumulation account, and all amounts therein, less any investment earnings, will be distributed on the next related reset date to the class A-5 noteholders (or if in foreign exchange mode, on or about that reset date to the related currency swap counterparty, in exchange for the equivalent amount of the applicable non-U.S. Dollar currency to be paid to the class A-5 noteholders on or about that reset date). On that reset date the outstanding principal balance of the class A-5 notes will be reduced to zero. Amounts (less any investment earnings) on deposit in the related accumulation account may be used only to pay principal on the class A-5 notes (or to make payments to the related currency swap counterparty, but solely in exchange for the equivalent amount of the applicable non-U.S. Dollar currency at the conversion rate set forth in the related currency swap agreement) and for no other purpose. All investment earnings on deposit in the related accumulation account will be withdrawn on each distribution date and deposited into the collection account.

 

The indenture trustee, subject to sufficient available funds therefor, will deposit into the related supplemental interest account the related Supplemental Interest Account Deposit Amount as described under “—Distributions” below.

 

Tender of Reset Rate Notes; Remarketing Procedures.    On the closing date, the trust, the administrator and the remarketing agents will enter into a remarketing agreement for the remarketing of each class of reset rate notes by the remarketing agents. Pursuant to the remarketing agreement, Citigroup Global Markets Inc. and Goldman, Sachs & Co. have each agreed to act as remarketing agents. The administrator, in its sole discretion, may change the remarketing agents or designate a lead remarketing agent for the class A-5 notes for any reset period at any time on or before the related Remarketing Terms Determination Date. In addition, the administrator will appoint one or more additional remarketing agents, if necessary, for a reset date when the class A-5 notes will be remarketed in a currency other than U.S. Dollars. Furthermore, a remarketing agent may resign at any time provided that no resignation may become effective on a date that is later than 15 business days prior to a Remarketing Terms Determination Date.

 

On each Remarketing Terms Determination Date, the trust, the administrator and the remarketing agents will enter into a remarketing agency agreement that will set forth certain terms of the remarketing, and on the related Spread Determination Date (unless a Failed Remarketing is declared, 100% of the class A-5 noteholders have delivered a Hold Notice, or an exercise of the call option has occurred), that remarketing agency agreement will be supplemented to include all other required terms of the related remarketing. See “Additional Information Regarding The Securities—The Reset Rate Securities—Tender of Reset Rate Notes; Remarketing

 

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Procedures” in the prospectus for a description of the remarketing procedures applicable to reset rate notes.

 

Each of the remarketing agents will be entitled to receive a fee from amounts on deposit in the remarketing fee account in connection with their services rendered for each reset date. The remarketing agents also will be entitled to reimbursement from the trust, on a subordinated basis, or from the administrator, if there are insufficient available funds on the related distribution date, for certain expenses associated with each remarketing. The fees associated with each successful remarketing and certain out-of-pocket expenses with respect to each reset date will be payable generally from amounts on deposit from time to time in the remarketing fee account. On each distribution date that is one year or less prior to a reset date, Available Funds will be deposited into the remarketing fee account, prior to the payment of interest on any class of notes, in an amount up to the Quarterly Funding Amount. If the amount on deposit in the remarketing fee account, after the payment of any remarketing fees therefrom, exceeds the Reset Period Target Amount, the excess will be withdrawn on the distribution date immediately following the related reset date, deposited into the collection account and included in Available Funds for that distribution date. In addition, all investments on deposit in the remarketing fee account will be withdrawn on the next distribution date, deposited into the collection account and included in Available Funds for that distribution date. Also, if on any distribution date a Class A Note Interest Shortfall would exist, or if on the maturity date for any class of class A notes, Available Funds would not be sufficient to reduce the principal balance of that class to zero, the amount of the Class A Note Interest Shortfall or principal deficiency, as applicable, to the extent sums are on deposit in the remarketing fee account, may be withdrawn from that account and used for payment of interest or principal on the class A notes.

 

Notice of Interest Rates

 

Information concerning the past and current LIBOR, any other applicable index, and the interest rates applicable to the notes, will be available on the administrator’s website at http://www2.salliemae.com/investors/debtasset/ slmsltrusts/issuedetails/2005-5.htm or by telephoning the administrator at (800) 321-7179 between the hours of 9 a.m. and 4 p.m. Eastern time on any business day and will also be available through Moneyline Telerate Service or Bloomberg L.P. If any class of notes is listed on the Luxembourg Stock Exchange, the administrator will also notify the Luxembourg paying agent, and will cause the Luxembourg Stock Exchange to be notified, of the current interest rate for each class of notes listed on the exchange prior to the first day of each accrual period.

 

Accounts

 

The administrator will establish and maintain the collection account for the benefit of the noteholders, in the name of the indenture trustee, into which all payments on

 

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the trust student loans will be deposited. The administrator will also establish the following accounts in the name of the indenture trustee:

 

  ·   the reserve account, the capitalized interest account, the add-on consolidation loan account, the supplemental purchase account, any accumulation account, any supplemental interest account, any investment premium purchase account and any investment reserve account, for the benefit of the noteholders;

 

  ·   the remarketing fee account for the benefit of the remarketing agents and the class A noteholders; and

 

  ·   any currency account for the benefit of the applicable reset rate noteholders.

 

The indenture trustee will invest funds in the collection account, the supplemental purchase account, the add-on consolidation loan account, the reserve account, any investment premium purchase account, any investment reserve account, any accumulation account, any supplemental interest account, the remarketing fee account and the capitalized interest account in eligible investments as provided in the indenture. Eligible investments are generally limited to investments acceptable to the rating agencies as being consistent with the ratings of the notes. Subject to some conditions, eligible investments may include debt instruments or other obligations (including asset-backed securities) issued by the depositor or its affiliates, other trusts originated by the depositor or its affiliates or third parties and repurchase obligations of those persons with respect to federally guaranteed student loans that are serviced by the servicer or an affiliate thereof. Eligible investments are limited to obligations or debt instruments that are expected to mature not later than the business day immediately preceding the next applicable distribution date, or, with respect to the collection account only, the next monthly servicing fee payment date, to the extent of the primary servicing fee; provided, however, that with respect to funds on deposit in any accumulation account, related eligible investments may mature no later than the business day immediately preceding the next reset date for the applicable class of reset rate notes.

 

The administrator will direct the related swap counterparties to pay all amounts denominated in a currency other than U.S. Dollars payable under any currency swap agreement into the applicable currency account.

 

Supplemental Purchase Period

 

During the supplemental purchase period, which is the period beginning on the closing date and ending ten business days later on July 13, 2005, the eligible lender trustee, on behalf of the trust, will be permitted to purchase additional trust student loans, to the extent that: (1) they are eligible student loans, (2) they are purchased by the depositor from SLM ECFC or VG Funding, and (3) there are sufficient amounts on deposit in the supplemental purchase account. The supplemental purchase account will be created with an initial deposit by the trust on the closing date of cash or eligible investments. The initial deposit will equal the excess, if any, of the Pool Balance as of the statistical

 

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cutoff date over the Pool Balance as of the closing date, but not to exceed 5% of the Pool Balance as of the statistical cutoff date. This account will not be replenished.

 

Subject to the availability of eligible student loans, the applicable seller will have the right to sell to the depositor additional trust student loans, and subject to the availability of funds in the supplemental purchase account, the depositor will purchase such additional trust student loans, to be sold to the trust, at a price equal to 100% of the sum of (i) the outstanding principal balance of each additional trust student loan and (ii) all accrued interest to be capitalized.

 

As a condition to any sale, all of the additional trust student loans will be required to satisfy certain eligibility criteria as described above under “The Trust Student Loan Pool” in this prospectus supplement.

 

The eligible lender trustee, on behalf of the trust, will purchase from the depositor and the depositor will purchase and sell to the eligible lender trustee, on behalf of the trust, all additional trust student loans purchased from the applicable seller immediately following the purchase of such loans.

 

Any amounts remaining on deposit in the supplemental purchase account as of the end of the supplemental purchase period will be transferred to the collection account on the next business day and included as part of Available Funds on the initial distribution date.

 

Consolidation Loan Add-on Period

 

The Higher Education Act permits borrowers to add additional eligible education loans to an existing consolidation loan up to 180 days after the origination of such consolidation loan. If the borrower of a trust student loan wanted to include an additional student loan in that borrower’s existing consolidation loan and if the trust could not fund such additional student loan, the related trust student loan would have to be removed from the trust and treated as having been prepaid in full. To mitigate this effect, during the consolidation loan add-on period, which is the period from the closing date through December 31, 2005, the trust will be permitted to acquire add-on consolidation loans, which would increase the outstanding principal balance of an existing trust student loan, but only to the extent of funds on deposit in the add-on consolidation loan account.

 

On the closing date, the depositor will fund the add-on consolidation loan account with proceeds from the sale of the notes in an amount equal to $10,000,000. No additional deposits will be made into the add-on consolidation loan account. Amounts may be withdrawn from time to time during the consolidation loan add-on period to acquire add-on consolidation loans and for no other purposes. Add-on consolidation loans will be added to the trust at a price equal to their outstanding principal balance plus accrued and unpaid interest, if any, thereon, and following such acquisition, the

 

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outstanding principal balance of the related trust student loan will be increased by an identical amount. To the extent any funds remain on deposit in the add-on consolidation loan account at the end of the consolidation loan add-on period, all such amounts will be transferred to the collection account on the next business day and included as part of Available Funds on the next distribution date.

 

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. 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 that date. The carryover servicing fee will be payable to the servicer on each distribution date out of Available Funds after payment on that distribution date of clauses (a) through (k) under “—Distributions—Distributions from the Collection Account”  in this prospectus supplement. 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 into the Collection Account.    On the closing date, the trust will make an initial deposit into the collection account of cash or eligible investments equal to approximately $7,230,000 plus the excess, if any, of the Pool Balance as of the statistical cutoff date over the Pool Balance as of the closing date, to the extent such excess amount is not deposited into the supplemental purchase account.

 

On or before the business day immediately prior to each distribution 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 purchased from the trust by the sellers, the depositor or the servicer.

 

Except as provided in the next paragraph, the servicer will deposit all payments on the trust student loans and all proceeds of the trust 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.

 

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However, for so long as 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 those amounts to the collection account on or before the business day preceding each monthly servicing payment date, together with interest calculated from the first day of the month following receipt by the administrator to but excluding the day on which the administrator remits such amounts to the collection account at a rate no less than the federal funds rate for each day during that period less 0.20%. See “Servicing and Administration— Payments on Student Loans” in the prospectus.

 

Distributions from the 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 or before 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 “—The Notes—The Class B Notes—Subordination of the Class B Notes” and “—The Notes—The Class A Notes—Distributions of Principal”  in this prospectus supplement, to the extent of the Available Funds for that distribution date, amounts transferred from the capitalized interest account through the October 2006 distribution date (with respect to clauses (d)(1), (d)(2) and (e) below for that distribution date) and amounts transferred from the reserve account with respect to 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 remarketing fee account, any Quarterly Funding Amount for that distribution date;

 

(d) pro rata, based on amounts due and owing:

 

(1) to the class A noteholders (other than the class A-5 noteholders if a swap agreement with respect to interest payments to be made to those noteholders is then in effect), the Class A Noteholders’ Interest Distribution Amount, pro rata, based on the amounts payable as Class A Noteholders’ Interest Distribution Amount;

 

(2) if a swap agreement is then in effect for the class A-5 notes with respect to interest payments to be made to those noteholders, to each applicable swap counterparty, the amount of interest at the related floating rate of interest due to each applicable swap counterparty under the related swap agreement; and

 

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(3) if applicable, to each interest rate swap counterparty, the amount of any swap termination payment due to that swap counterparty under the related swap agreement due solely to a swap termination event resulting from a payment default by the trust or the insolvency of the trust;

 

(e) to the class B noteholders, the Class B Noteholders’ Interest Distribution Amount;

 

(f) (1) sequentially, to the class A-1, class A-2, class A-3, and class A-4 noteholders, in that order, until each of those classes is paid in full, the Class A Noteholders’ Principal Distribution Amount; and

 

(2) any remaining Class A Noteholders’ Principal Distribution Amount, to the class A-5 noteholders, until the principal balance of the class A-5 notes is paid in full; provided, however, that

 

(A) if the class A-5 notes are then denominated in U.S. Dollars and are then structured not to receive a payment of principal until the end of the related reset period, principal payments will be allocated to the related accumulation account until amounts on deposit therein are sufficient to reduce the principal balance of that class to zero,

 

(B) if the class A-5 notes are then denominated in a currency other than U.S. Dollars, principal payments either will be made to the related currency swap counterparty or will be allocated to the related accumulation account (if that class is then structured not to receive a payment of principal until the end of the related reset period) until the U.S. Dollar equivalent of the principal balance of the class A-5 notes has been distributed to the related currency swap counterparty or allocated to the related accumulation account, and

 

(C) for purposes of this clause (f) (2), the outstanding principal balance of the class A-5 notes or its U.S. Dollar equivalent, as applicable, will be deemed to have been reduced by any amounts (less any investment earnings) on deposit in any related accumulation account;

 

(g) to any supplemental interest account, the Supplemental Interest Account Deposit Amount, if any, for that distribution date;

 

(h) to any investment reserve account, the amount, if any, required to fund that account to the applicable Investment Reserve Account Required Amount;

 

(i) on each distribution date on and after the Stepdown Date, and provided that no Trigger Event is in effect on such distribution date, to the class B noteholders until paid in full, the Class B Noteholders’ Principal Distribution Amount;

 

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(j) to the reserve account, the amount, if any, necessary to reinstate the balance of the reserve account to the Specified Reserve Account Balance;

 

(k) to any investment premium purchase account, the Investment Premium Purchase Account Deposit Amount, if any, together with any carryover shortfalls not deposited on previous distribution dates;

 

(l) to the servicer, the aggregate unpaid amount of the carryover servicing fee, if any;

 

(m) if applicable, to any swap counterparty or counterparties, pro rata, the amount of any swap termination payments due to the swap counterparty or counterparties, as the case may be, not payable in clause (d)(3) above;

 

(n) if applicable, to the remarketing agents, any remarketing fees due and owing by the trust to the extent not paid from amounts on deposit in the remarketing fee account;

 

(o) if applicable, sequentially, first to the remarketing agents for certain expenses incurred in connection with the remarketing of a class of reset rate notes on that distribution date, and second to the administrator for advances made on behalf of the trust for the payment of remarketing expenses on that or prior distribution dates; and

 

(p) to the excess distribution certificateholder (initially, the depositor or an affiliate thereof), any remaining amounts after application of the preceding clauses.

 

Amounts that would be paid to each swap counterparty pursuant to clauses (d), (f) or (m) above with respect to the class A-5 notes may be paid by the trust to the related swap counterparty on or prior to the applicable distribution date.

 

In the event that a swap termination payment is owed by the trust to any swap counterparty and a replacement swap agreement is procured by the trust under which the replacement swap counterparty makes a payment to the trust, the trust will pay that amount directly to the original swap counterparty to the extent that a payment is owed by the trust to that counterparty. If after making that payment, the original swap counterparty is still owed a payment, then the remaining amount will be paid as set forth in clause (m) above.

 

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, the administrator will direct the indenture trustee to distribute as accelerated payments of principal on the notes all amounts that otherwise would be paid to the excess distribution certificateholder.

 

For a discussion of the ramifications of a termination of a swap agreement meant to hedge currency risk, see “—Distributions with respect to the Reset Rate Notes in Foreign Exchange Mode” below.

 

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Distributions with respect to the Reset Rate Notes in Foreign Exchange Mode.     On each applicable distribution date, a paying agent, acting at the direction of the administrator, will distribute all amounts on deposit in the applicable currency account to the class A-5 notes if then in foreign exchange mode. If a currency swap agreement terminates, amounts that would have otherwise been paid to the related swap counterparty under that currency swap agreement will be used to make payments to the class A-5 notes, in an amount in the applicable non-U.S. Dollar currency, equal to the payment that the related swap counterparty would have made. If this occurs, the trust will exchange U.S. Dollars for the applicable non-U.S. Dollar currency in order to make distributions to the class A-5 notes. If the then-current exchange rate of U.S. Dollars for the applicable non-U.S. Dollar currency is less favorable than under the applicable currency swap agreement or if the then-current spread to LIBOR for another applicable index or a fixed rate is less favorable than under the applicable currency swap agreement, the trust will use more U.S. Dollars to pay the class A-5 noteholders than it would have paid to the related swap counterparty. As a result, amounts paid pursuant to clauses (d)(1) and (f) above, as applicable, under “—Distributions from the Collection Account” above could be higher if a currency swap agreement terminates.

 

Voting Rights and Remedies; Insolvency Events

 

Noteholders will have the voting rights and remedies described in the prospectus. The notes will all vote and exercise remedies together as if they were a single class other than with respect to exercising the right to liquidate collateral, in which case the class A notes and class B notes have different rights. See “Description of the Notes—The Indenture—Events of Default; Rights Upon Event of Default” in the prospectus.

 

Credit Enhancement

 

Reserve Account.    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 $5,588,740. The reserve account may be replenished on each distribution date, by deposit into it of 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 for that distribution date under clauses (a) through (i) under “—Distributions—Distributions from the Collection Account” above.

 

If the market value of securities and cash in the reserve account together with amounts on deposit in any supplemental interest account on any distribution date is sufficient to pay the remaining principal balance of and interest accrued on the notes and any carryover servicing fee, these assets will be so applied on that distribution date.

 

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

 

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distribution date, subject to certain limitations, the administrator will instruct the indenture trustee to deposit the amount of the excess into the collection account for distribution on that distribution date.

 

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 and the amount on deposit in the capitalized interest account on that distribution date or monthly servicing payment date is insufficient to pay any of the items specified in clauses (a) through (c), (d)(1), (d)(2) and (e) under “—Distributions—Distributions from the Collection Account” above. These funds also will be withdrawn at maturity of a class of notes or on the final distribution 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 (f) and (i) and, in the case of the final distribution upon termination of the trust, clauses (l) through (o) under “—Distributions—Distributions from the Collection Account” above. These 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 clauses (a) through (c), (d)(1), (d)(2) and (e), clauses (f) and (i), and clauses (l) through (o), as applicable.

 

The reserve account is intended to enhance the likelihood of timely distributions of interest to the noteholders and to decrease the likelihood that the noteholders will experience losses. In some circumstances, however, the reserve account could be reduced to zero. Except on the final distribution 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 carryover servicing fees. 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 carryover servicing fee and carry-over amounts on the final distribution upon termination of the trust.

 

Capitalized Interest Account.    The capitalized interest 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 $46,000,000. The initial deposit will not be replenished.

 

Amounts held from time to time in the capitalized interest account will be held for the benefit of the class A noteholders and the class B noteholders, as applicable. If on any distribution date through the October 2006 distribution date, the amount of Available Funds is insufficient to pay or allocate any of the items specified in clauses (d)(1), (d)(2) and (e) under “—Distributions—Distributions from the Collection Account” above, amounts on deposit in the capitalized interest account on that distribution date will be withdrawn by the indenture trustee to cover such shortfalls, to the extent of funds on deposit therein, and will be allocated in the same order of priority shown under “—Distributions— Distributions from the Collection Account” above.

 

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The capitalized interest account is intended to enhance the likelihood of timely distributions of interest to the noteholders through the October 2006 distribution date.

 

All remaining funds on deposit in the capitalized interest account on the October 2006 distribution date will be transferred to the collection account and included in Available Funds on that distribution date.

 

Subordination of the Class B Notes.    On any distribution date, distributions of interest on the class B notes will be subordinated to the payment of interest on the class A notes and distributions of principal on the class B notes will be subordinated to the payment of both interest and principal on all of the class A notes. See “—The Notes—The Class B Notes—Subordination of the Class B Notes” above.

 

Administration Fee

 

As compensation for the performance of the administrator’s obligations under the administration agreement and as reimbursement for its related expenses, the administrator will be entitled to an administration fee in an amount equal to $25,000 per collection period payable in arrears on each distribution date.

 

In addition, to the extent that the trust does not have sufficient available funds therefor on the related reset date, the administrator will advance the amount of certain unpaid expenses (other than remarketing fees) associated with a remarketing, including, without limitation, the fees of the rating agencies in connection with any required satisfaction of the Rating Agency Condition. On subsequent distribution dates, the administrator will be entitled to reimbursement from the trust for those remarketing related expenses, from available funds on a subordinated basis, as set forth under “Distributions—Distributions from the Collection Account” above.

 

Determination of Indices

 

For a discussion of the day count basis, interest rate determination dates, interest rate change dates and possible interest rate indices applicable for a class of notes, see “Additional Information Regarding the Securities—Determination of Indices” in the prospectus.

 

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U.S. FEDERAL INCOME TAX CONSEQUENCES

 

For a discussion of United States federal income tax consequences to holders of the notes, you should refer to the section entitled “U.S. Federal Income Tax Consequences” in the prospectus. Certain United States federal income tax consequences to holders of the class A-5 notes are described under “U.S. Federal Income Tax Consequences—Special Tax Consequences to Holders of Reset Rate Securities” in the prospectus.

 

ERISA CONSIDERATIONS

 

The Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and Section 4975 of the Code impose certain restrictions on employee benefit plans or other retirement arrangements (including individual retirement accounts and Keogh plans) and any entities whose underlying assets include plan assets by reason of a plan’s investment in these plans or arrangements (including certain insurance company general accounts) (collectively, “Plans”).

 

ERISA also imposes various duties on persons who are fiduciaries of Plans subject to ERISA and prohibits certain transactions between a Plan and its so-called Parties in Interest under ERISA or Disqualified Persons under the Code (“Parties in Interest”). Particularly, the depositor, the servicer, the eligible lender trustee, the indenture trustee, the administrator, any underwriter, any swap counterparty or any of their respective affiliates may be the fiduciary for one or more Plans. Because these parties may receive certain benefits from the sales of the notes, the purchase of the notes using Plan assets over which any of them has investment authority should not be made if it could be deemed a violation of the prohibited transaction rules of ERISA and the Code for which no exemption is available.

 

Although there can be no certainty in this regard, the notes, which are denominated as debt, should be treated as debt and not as “equity interests” for purposes of the Plan Asset Regulations, as further described in the prospectus. However, acquisition of the notes could still cause prohibited transactions under Section 406 of ERISA and Section 4975 of the Code if a note is acquired or held by a Plan with respect to which any of the trust, the depositor, any underwriter, the eligible lender trustee, the indenture trustee, the administrator, the servicer, any swap counterparty or any of their respective affiliates is a Party in Interest.

 

Some employee benefit plans, such as governmental plans described in Section 3(32) of ERISA, certain church plans described in Section 3(33) of ERISA and foreign plans, are not subject to the prohibited transaction provisions of ERISA and Section 4975 of the Code. However, these plans may be subject to the provisions of other applicable federal, state, local or foreign law similar to the provisions of ERISA and Section 4975 of the Code (“Similar Law”). Moreover, if a plan is not subject to ERISA requirements but is qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code, the prohibited transaction rules in Section 503 of the Code will apply.

 

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Before making an investment in the notes, a Plan or other employee benefit 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 or other employee benefit plan, will be deemed to have represented that:

 

  ·   the Plan’s purchase and holding of the notes will not constitute or otherwise result in a non-exempt prohibited transaction in violation of Section 406 of ERISA or Section 4975 of the Code which is not covered by a class or other applicable exemption from the prohibited transaction rules as described in the prospectus; and

 

  ·   the purchase and holding of the notes by any employee benefit plan subject to a Similar Law will not cause a non-exempt violation of that Similar Law.

 

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, in addition to determining whether the investment constitutes a direct or indirect prohibited transaction with a Party in Interest and whether exemptive relief is available to cover that transaction, each Plan fiduciary should take into account, among other considerations:

 

  ·   whether the fiduciary has the authority to make the investment;

 

  ·   the diversification by type of asset of the Plan’s portfolio;

 

  ·   the Plan’s funding objective; 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.

 

REPORTS TO SECURITYHOLDERS

 

Quarterly and annual reports concerning the trust will be delivered to noteholders. See “Reports to Securityholders” in the prospectus. These reports will be available at the office of the Luxembourg paying agent or Luxembourg listing agent. The first of these quarterly distribution reports is expected to be available on or about November 9, 2005. See “Reports to Securityholders” in the prospectus.

 

Except in very limited circumstances, you will not receive these reports directly from the trust. Instead, you will receive them through Cede & Co., as nominee of DTC and registered holder of the notes. See “Additional Information Regarding the Securities—Book-Entry Registration” in the prospectus.

 

UNDERWRITING

 

The notes listed below are offered severally by the underwriters, subject to receipt and acceptance by them and subject to their right to reject any order in whole

 

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or in part. It is expected that the notes will be ready for delivery in book-entry form only through the facilities of DTC, Clearstream, Luxembourg and the Euroclear System, on or about June 29, 2005 against payment in immediately available funds.

 

Subject to the terms and conditions in the underwriting agreement dated June 22, 2005, the depositor has agreed to cause the trust to sell to each of the underwriters named below, and each of the underwriters has severally agreed to purchase, the principal amounts of the notes shown opposite its name:

 

Underwriter


  

Class A-1

Notes


  

Class A-2

Notes


  

Class A-3

Notes


Citigroup Global Markets Inc.

   $ 134,400,000    $ 84,000,000    $ 84,000,000

Goldman, Sachs & Co.

     134,400,000      84,000,000      84,000,000

Barclays Capital Inc.

     134,400,000      84,000,000      84,000,000

Merrill Lynch, Pierce, Fenner & Smith

Incorporated

     134,400,000      84,000,000      84,000,000

Wachovia Capital Markets, LLC

     134,400,000      84,000,000      84,000,000
    

  

  

Total

   $ 672,000,000    $ 420,000,000    $ 420,000,000
    

  

  

 

Underwriter


  

Class A-4

Notes


  

Class A-5

Notes


  

Class B

Notes


Citigroup Global Markets Inc.

   $ 72,369,000    $ 0    $ 13,756,000

Goldman, Sachs & Co.

     72,369,000      350,000,000      13,756,000

Barclays Capital Inc.

     72,369,000      0      13,756,000

Merrill Lynch, Pierce, Fenner & Smith

Incorporated

     72,369,000      0      13,755,000

Wachovia Capital Markets, LLC

     72,368,000      0      13,756,000
    

  

  

Total

   $ 361,844,000    $ 350,000,000    $ 68,779,000
    

  

  

 

The underwriters have agreed, subject to the terms and conditions of the underwriting agreement, to purchase all of the notes listed above if any of the notes are purchased. The underwriters have advised the depositor that they propose initially to offer the notes 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 the 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. Goldman, Sachs & Co. may sell all of the class A-5 notes to a securitization vehicle whose securities are underwritten or placed by it.

 

    

Initial Public

Offering Price


  

Underwriting

Discount


  

Proceeds to

The Depositor


   Concession

   Reallowance

Per Class A-1 Note

     100.0%      0.175%      99.825%    0.105%    0.0525%

Per Class A-2 Note

     100.0         0.205         99.795       0.123       0.0615   

Per Class A-3 Note

     100.0         0.240         99.760       0.144       0.0720   

Per Class A-4 Note

     100.0         0.260         99.740       0.156       0.0780   

Per Class A-5 Note

     100.0         0.200         99.800       0.120       0.0600   

Per Class B Note

     100.0         0.300         99.700       0.180       0.0900   

Total

   $ 2,292,623,000    $ 4,892,131    $ 2,287,730,869          

 

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The prices and proceeds shown in the table do not include any accrued interest. The actual prices and proceeds will include interest, if any, from the closing date. The proceeds shown are before deducting estimated expenses of $1,109,061 payable by the depositor.

 

The depositor and SLM ECFC have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended.

 

The notes 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 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.

 

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 the sellers, the depositor and their respective affiliates.

 

The trust may, from time to time, invest the funds in the trust accounts in eligible investments acquired from the underwriters.

 

During and after the offering, the underwriters may engage in transactions, including open market purchases and sales, to stabilize the prices of the notes.

 

The underwriters, for example, may over-allot the notes for the account of the underwriting syndicate to create a syndicate short position by accepting orders for more notes than are to be sold.

 

In addition, the underwriters may impose a penalty bid on the broker-dealers who sell the notes. This means that if an underwriter purchases notes in the open market to reduce a broker-dealer’s short position or to stabilize the prices of the notes, it may reclaim the selling concession from the broker-dealers who sold those notes as part of the offering.

 

In general, over-allotment transactions and open market purchases of the notes for the purpose of stabilization or to reduce a short position could cause the price of a note to be higher than it might be in the absence of those transactions.

 

Each underwriter has represented and agreed that:

 

  ·   it has not offered or sold and will not offer or sell any notes to persons in the United Kingdom prior to the expiration of the period of six months from the issue date of the notes 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, as amended (the “POS Regs”);

 

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  ·   it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity, within the meaning of section 21 of the Financial Services and Markets Act 2000 (the “FSMA”), received by it in connection with the issue or sale of any notes in circumstances in which section 21(1) of the FSMA does not apply to the issuer; and

 

  ·   it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the notes in, from or otherwise involving the United Kingdom.

 

No action has been or will be taken by the depositor or the underwriters that would permit a public offering of the notes in any country or jurisdiction other than in the United States, where action for that purpose is required. Accordingly, the notes 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 depositor 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 have in their possession or distribute the prospectus supplement, in all cases at their own expense.

 

The depositor has not authorized any offer of notes to the public in the United Kingdom within the meaning of the POS Regs and the FSMA. The notes 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 these regulations or otherwise in compliance with all applicable provisions of these regulations and the FSMA.

 

LISTING INFORMATION

 

We have applied for a listing of the notes on the Luxembourg Stock Exchange. We cannot assure you that this application will be granted. You should consult with Deutsche Bank Luxembourg SA, the Luxembourg listing agent for the notes, at 2 Boulevard Konrad Adenauer, L-1115 Luxembourg, phone number (352) 421.22.639, to determine whether the notes are listed on the Luxembourg Stock Exchange. In connection with the listing application, the certificate of formation and limited liability company operating agreement of the depositor, as well as legal notice relating to the issuance of the notes together with copies of the indenture, the trust agreement, the forms of the notes, the administration agreement, the servicing agreement and other basic documents will be deposited with the Trade and Companies Register (Registre de Commerce et des Sociétés) in Luxembourg, where copies of those documents may be obtained upon request. Copies of the indenture, the trust agreement, the

 

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forms of the notes, the administration agreement, the servicing agreement and other basic documents will be available at the offices of the Luxembourg paying agent or the Luxembourg listing agent. Once the notes have been listed, trading may be effected on the Luxembourg Stock Exchange. So long as any class of notes is listed on the Luxembourg Stock Exchange, and its rules so require, notices relating to that class of notes, including if such class is delisted, will also be published in a leading newspaper having general circulation in Luxembourg (which is expected to be d’Wort). The Luxembourg Stock Exchange will also be advised if any class of notes is delisted.

 

The notes, the indenture and the administration agreement are governed by the laws of the State of New York. The trust agreement is governed by the laws of the State of Delaware.

 

If the notes are listed on the Luxembourg Stock Exchange and definitive notes are issued and the rules of the Luxembourg Stock Exchange require a Luxembourg paying and transfer agent, a Luxembourg paying and transfer agent will be appointed and notices will also published in a leading newspaper having general circulation in Luxembourg (which is expected to be d’Wort). We will maintain a Luxembourg paying and transfer agent as long as required by the Luxembourg Stock Exchange.

 

The notes have been accepted for clearance and settlement through Clearstream, Luxembourg and Euroclear.

 

As long as the notes are listed on the Luxembourg Stock Exchange, quarterly distribution reports and annual servicing and administration reports concerning the trust and its activities will be available at the office of the Luxembourg paying agent or the Luxembourg listing agent. The first of these quarterly distribution reports is expected to be available not later than November 9, 2005.

 

The European Union Transparency Obligations Directive is currently being finalized and may be implemented in a manner that is unduly burdensome for the trust. In particular, the trust may be required to publish financial statements in the European Union prepared in accordance with, or reconciled to, international financial reporting standards. In those circumstances the administrator may decide to seek an alternative listing for the notes on a stock exchange of international standing outside the European Union as the administrator may select after consultation with the underwriters.

 

As of the date of this prospectus supplement, none of the trust, the eligible lender trustee nor the indenture trustee is involved in any litigation or arbitration proceeding relating to the issuance of the notes. The depositor is not aware of any proceedings relating to the issuance of the notes, whether pending or threatened.

 

The depositor has taken all reasonable care to confirm that the information contained in this prospectus supplement and the attached prospectus is true and

 

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accurate in all material respects. In relation to the depositor, the trust, SLM ECFC or the notes, the depositor accepts full responsibility for the accuracy of the information contained in this prospectus supplement and the attached prospectus. Having made all reasonable inquiries, the depositor confirms that, to the best of its knowledge, there have not been omitted material facts the omission of which would make misleading any statements of fact or opinion contained in this prospectus supplement or the attached prospectus, when taken as a whole.

 

The depositor confirms that there has been no material adverse change in the assets of the trust since May 30, 2005, which is the statistical cutoff date, and the date of the information with respect to the assets of the trust set forth in this prospectus supplement.

 

RATINGS OF THE NOTES

 

It is a condition to the issuance and sale of the offered class A notes that they be rated in the highest investment rating category by at least two of Fitch, Moody’s and S&P. It is a condition to the issuance and sale of the class B notes that they be rated in one of the two highest investment rating categories by at least two of those rating agencies. 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

 

Robert S. Lavet, Esq., General Counsel of SLM Corporation, or any Deputy General Counsel or Associate General Counsel of Sallie Mae, Inc., acting as counsel to SLM ECFC, VG Funding, the servicer, the administrator and the depositor, and McKee Nelson LLP, New York, New York, as special counsel to SLM ECFC, VG Funding, the trust, the servicer, the administrator and the depositor, will give opinions on specified legal matters for SLM ECFC, VG Funding, the trust, the depositor, the servicer and the administrator.

 

Shearman & Sterling LLP will give opinions on specified federal income tax matters for the trust. Richards, Layton & Finger, P.A., as Delaware counsel for the trust, will give opinions on specified legal matters for the trust, including specified Delaware state income tax matters.

 

Cadwalader, Wickersham & Taft LLP and Shearman & Sterling LLP also will give opinions on specified legal matters for the underwriters.

 

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GLOSSARY

FOR PROSPECTUS SUPPLEMENT

 

Adjusted Pool Balance” means, for any distribution date,

 

  ·   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 that Pool Balance, Capitalized Interest, the amount, if any, on deposit in the add-on consolidation loan account (excluding amounts in such account that will become Available Funds on the next distribution date) and the Specified Reserve Account Balance for that distribution date, or

 

  ·   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, the sum of that Pool Balance and Capitalized Interest.

 

All-Hold Rate” means, if the class A-5 notes are denominated in U.S. Dollars during the then-current reset period and the immediately following reset period, the applicable index plus or minus the related Spread (if that class is in floating rate mode) or the applicable fixed rate, which may be expressed as the fixed rate pricing benchmark plus or minus a spread (if that class is in fixed rate mode), that the remarketing agents, in consultation with the administrator, determine will be effective, unless the call option is exercised, in the event that 100% of the holders of the class A-5 notes choose to hold their class A-5 notes for the upcoming reset period. The All-Hold Rate shall be a rate that the remarketing agents, in consultation with the administrator, and in their good faith determination, believe would result in the remarketing of the entire class of class A-5 notes at a price equal to 100% of the outstanding principal balance thereof.

 

Available Funds” means, as to a distribution date or any related monthly servicing payment date, the sum of the following amounts received with respect to the related collection period or, in the case of a monthly servicing payment date, the applicable portion of these amounts:

 

  ·   all collections on the trust student loans, including any guarantee payments received on the trust student loans, but net of:

 

  (1) 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

 

  (2) amounts required by the Higher Education Act to be paid to the Department of Education 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, including consolidation loan rebate fees;

 

  ·   any interest subsidy payments and special allowance payments with respect to the trust student loans during that collection period;

 

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  ·   all proceeds of the liquidation of defaulted trust student loans which were liquidated during that collection period in 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, 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 depositor or purchased by the servicer or for trust student loans sold to another eligible lender pursuant to the servicing agreement;

 

  ·   the aggregate purchase amounts received during that collection period for those trust student loans purchased by the sellers;

 

  ·   the aggregate amounts, if any, received from the sellers, the depositor 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;

 

  ·   amounts received by the trust pursuant to the servicing agreement during that collection period as to yield or principal adjustments;

 

  ·   any interest remitted by the administrator to the collection account prior to that distribution date or monthly servicing date;

 

  ·   investment earnings for that distribution date earned on amounts on deposit in each trust account (other than any accumulation account and any currency account);

 

  ·   investment earnings actually received by the trust for that distribution date earned on amounts on deposit in any accumulation account;

 

  ·   amounts transferred from the remarketing fee account in excess of the Reset Period Target Amount for that distribution date;

 

  ·   amounts transferred from any investment premium purchase account in excess of the amount required to be on deposit therein pursuant to the formula set forth in the administration agreement;

 

  ·   all amounts on deposit in any investment reserve account not transferred to the accumulation account to offset realized losses on eligible investments as of that distribution date;

 

  ·   all amounts on deposit in any supplemental interest account;

 

  ·   all amounts received by the trust from any swap counterparty for deposit into the collection account, but only to the extent paid in U.S. Dollars, for that distribution date;

 

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  ·   on the initial distribution date, the collection account initial deposit and any amounts transferred into the collection account from the supplemental purchase account following the end of the supplemental purchase period;

 

  ·   on the related distribution date, any amounts transferred from the add-on consolidation loan account following the end of the consolidation loan add-on period;

 

  ·   amounts transferred from the reserve account in excess of the Specified Reserve Account Balance as of that distribution date; and

 

  ·   on the October 2006 distribution date, all funds then on deposit in the capitalized interest account that are transferred into the collection account on that distribution date;

 

provided that if on any distribution date there would not be sufficient funds, after application of Available Funds, as defined above, and application of amounts available from the capitalized interest account and the reserve account, to pay any of the items specified in clauses (a) through (e) under “Description of the Notes—Distributions—Distributions from the Collection Account” in this prospectus supplement (but excluding clause (e), and including clauses (f) and (g), in the event that a condition exists as described in either (1) or (2) under “Description of the Notes—The Notes—The Class B Notes—Subordination of the Class B Notes” in this prospectus supplement), 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 which would have constituted Available Funds for the distribution date succeeding that distribution date, up to the amount necessary to pay those items, and the Available Funds for the succeeding distribution date will be adjusted accordingly.

 

Call Rate” means, if the call option has been exercised with respect to the class A-5 notes, the rate of interest that is either:

 

  ·   if that class did not have at least one related swap agreement in effect during the previous reset period, the floating rate applicable for the most recent reset period during which the Failed Remarketing Rate was not in effect; or

 

  ·   if that class had one or more related swap agreements in effect during the previous reset period, the weighted average of the floating rates of interest that were due to the related swap counterparties from the trust during the previous reset period.

 

The Call Rate will continue to apply for each reset period while the call holder retains the class A-5 notes.

 

Capitalized Interest” means for any distribution date through and including the October 2006 distribution date:

 

  ·  

if neither of conditions (1) and (2) described under “Description of the Notes—The Notes—The Class B Notes—Subordination of the Class B Notes” in this

 

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prospectus supplement are in effect, the amount on deposit in the capitalized interest account on the distribution date following those distributions with respect to clauses (d)(1), (d)(2) and (e) under “Description of the Notes—Distributions—Distributions from the Collection Account” in this prospectus supplement, or

 

  ·   if either of conditions (1) or (2) described under “Description of the Notes— The Notes—The Class B Notes—Subordination of the Class B Notes” above is in effect, the excess, if any, of (x) the amount on deposit in the capitalized interest account on the distribution date following those distributions with respect to clauses (d)(1) and (d)(2) under “Description of the Notes— Distributions—Distributions from the Collection Account” in this prospectus supplement over (y) the Class B Noteholders’ Interest Distribution Amount.

 

Class A Note Interest Shortfall” means, for any distribution date, the excess of:

 

  ·   the Class A Noteholders’ Interest Distribution Amount on the preceding distribution date, over

 

  ·   the amount of interest actually distributed to the class A noteholders on that preceding distribution date,

 

plus interest on the amount of that excess, to the extent permitted by law, at the interest rate applicable for each related class of notes from that preceding distribution date to the current distribution date.

 

Class A Note Principal Shortfall” means, as of the close of any distribution date, the excess of:

 

  ·   the Class A Noteholders’ Principal Distribution Amount on that distribution date, over

 

  ·   the amount of principal actually distributed or allocated to the class A noteholders or deposited into any accumulation account on that distribution date.

 

Class A Noteholders’ Distribution Amount” means, for any distribution date, the sum of the Class A Noteholders’ Interest Distribution Amount and the Class A Noteholders’ Principal Distribution Amount for that distribution date.

 

Class A Noteholders’ Interest Distribution Amount” means, for any distribution date, the sum of:

 

  ·   the amount of interest accrued at the class A note interest rates for the related accrual period on the aggregate outstanding principal balances of all classes of class A notes on the immediately preceding distribution date (or in the case of the first distribution date, the closing date) after giving effect to all principal distributions to class A noteholders on that preceding distribution date; and

 

  ·   the Class A Note Interest Shortfall for that distribution date.

 

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Class A Noteholders’ Principal Distribution Amount” means, for any distribution date, the Principal Distribution Amount times the Class A Percentage for that distribution date, plus any Class A Note Principal Shortfall as of the close of business on the preceding distribution date; provided that the Class A Noteholders’ Principal Distribution Amount will not exceed the outstanding principal balance of the class A notes, less all amounts, other than investment earnings, on deposit in any related accumulation account.

 

In addition, on the maturity date for any class of class A notes, the principal required to be distributed to the related noteholders will include the amount required to reduce the outstanding balance of that class to zero.

 

Class A Percentage” means 100% minus the Class B Percentage.

 

Class B Note Interest Shortfall” means, for any distribution date, the excess of:

 

  ·   the Class B Noteholders’ Interest Distribution Amount on the preceding distribution date, over

 

  ·   the amount of interest actually distributed to the class B noteholders on that preceding distribution date,

 

plus interest on the amount of that excess, to the extent permitted by law, at the class B note interest rate from that preceding distribution date to the current distribution date.

 

Class B Note Principal Shortfall” means, as of the close of any distribution date, the excess of:

 

  ·   the Class B Noteholders’ Principal Distribution Amount on that distribution date, over

 

  ·   the amount of principal actually distributed to the class B noteholders on that distribution date.

 

Class B Noteholders’ Distribution Amount” means, for any distribution date, the sum of the Class B Noteholders’ Interest Distribution Amount and the Class B Noteholders’ Principal Distribution Amount for that distribution date.

 

Class B Noteholders’ Interest Distribution Amount” means, for any distribution date, the sum of:

 

  ·   the amount of interest accrued at the class B note rate for the related accrual period on the outstanding principal balance of the class B notes on the immediately preceding distribution date (or in the case of the first distribution date, the closing date), after giving effect to all principal distributions to class B noteholders on that preceding distribution date, and

 

  ·   the Class B Note Interest Shortfall for that distribution date.

 

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Class B Noteholders’ Principal Distribution Amount” means, for any distribution date, the Principal Distribution Amount times the Class B Percentage for that distribution date, plus any Class B Note Principal Shortfall as of the close of business on the preceding distribution date; provided that the Class B Noteholders’ Principal Distribution Amount will not exceed the principal balance of the class B notes.

 

In addition, on the class B maturity date, the principal required to be distributed to the class B noteholders will include the amount required to reduce the outstanding principal balance of the class B notes to zero.

 

Class B Percentage” with respect to any distribution date, means:

 

  ·   prior to the Stepdown Date or with respect to any distribution date on which a Trigger Event is in effect, zero; and

 

  ·   on and after the Stepdown Date and provided that no Trigger Event is in effect, a fraction expressed as a percentage, the numerator of which is the aggregate principal balance of the class B notes immediately prior to that distribution date and the denominator of which is the aggregate principal balance of all outstanding notes, less all amounts (other than investment earnings) on deposit in any accumulation account, immediately prior to that distribution date.

 

DTC” means The Depository Trust Company, or any successor thereto.

 

Eligible Swap Counterparty” means an entity, which may be an affiliate of a remarketing agent, engaged in the business of entering into derivative instrument contracts that satisfies the Rating Agency Condition.

 

Extension Rate” means, for each quarterly distribution date following a Failed Remarketing with respect to the class A-5 notes if they are then in foreign exchange mode, the rate of interest payable to the related currency swap counterparty, generally not to exceed three-month LIBOR plus 0.75%, unless the remarketing agents, in consultation with the administrator, determine that market conditions or some other benefit to the trust requires a higher rate; provided that in each case the Rating Agency Condition is satisfied.

 

Failed Remarketing” means, on any reset date for the class A-5 notes, the situation where:

 

  ·   the remarketing agents, in consultation with the administrator, cannot establish one or more of the terms required to be set on the Remarketing Terms Determination Date,

 

  ·   the remarketing agents are unable to establish the related Spread or fixed rate on the Spread Determination Date,

 

  ·  

the remarketing agents are unable to remarket some or all of the tendered notes at the Spread or fixed rate established on the Spread Determination

 

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Date, or committed purchasers default on their purchase obligations, and the remarketing agents, in their sole discretion, elect not to purchase those class A-5 notes themselves,

 

  ·   the remarketing agents, in consultation with the administrator, are unable to obtain one or more swap agreements meeting the required criteria, if applicable,

 

  ·   certain conditions specified in the remarketing agreement are not satisfied, or

 

  ·   any applicable Rating Agency Condition has not been satisfied.

 

Failed Remarketing Rate” means, for any reset period when the class A-5 notes are then denominated in U.S. Dollars, three-month LIBOR plus 0.75%; and when the class A-5 notes are in foreign exchange mode during a reset period, as will be determined on the related Spread Determination Date pursuant to the terms of the related currency swap agreement.

 

Fitch” means Fitch Inc., also known as Fitch Ratings, or any successor rating agency.

 

Hold Notice” means a written statement (or an oral statement confirmed in writing, which may be by e-mail) from a holder of class A-5 notes denominated in U.S. Dollars during the then-current and immediately following reset periods, delivered to a remarketing agent that the holder desires to hold its class A-5 notes for the upcoming reset period and affirmatively agrees to receive a rate of interest of not less than the applicable All-Hold Rate during that reset period.

 

Initial Pool Balance” means the sum of the Pool Balance of the initial trust student loans as of the closing date and all amounts deposited into the supplemental purchase account and the add-on consolidation loan account on the closing date.

 

Investment Premium Purchase Account Deposit Amount” means, with respect to each distribution date when funds are deposited into an accumulation account, an amount generally equal to 1.0% of the amount deposited into that accumulation account.

 

Investment Reserve Account Required Amount” means, with respect to each distribution date, immediately following the date when the ratings of any eligible investment in an accumulation account have been downgraded by one or more rating agencies, an amount (to the extent funds are available), to be set by each applicable rating agency in satisfaction of the Rating Agency Condition (that amount not to exceed the amount of the unrealized loss on the related eligible investments).

 

Moody’s” means Moody’s Investors Service, Inc., or any successor rating agency.

 

Notice Date” means, for the class A-5 notes, 12:00 p.m. (noon), New York City time, on the sixth business day prior to the reset date for that class.

 

S-94


Pool Balance” means, for any date, the aggregate principal balance of the trust student loans on that date, including accrued interest that is expected to be capitalized, as such balance has been reduced through such date by:

 

  ·   all payments received by the trust through that date from borrowers, the guarantee agencies and the Department of Education;

 

  ·   all amounts received by the trust through that date from repurchases of the trust student loans by any of the sellers, the depositor 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.

 

Principal Distribution Amount” means:

 

  ·   as to the initial distribution date, the amount by which the aggregate outstanding principal balance of the notes exceeds the Adjusted Pool Balance for that distribution date, and

 

  ·   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.

 

Quarterly Funding Amount” means, for the class A-5 notes, for any distribution date that is (1) more than one year before the next related reset date, zero; and (2) one year or less before the next related reset date, an amount to be deposited in the remarketing fee account so that the amount therein in respect of that class equals the Quarterly Required Amount for that class; provided, however, that if on any distribution date that is not a reset date, the amount on deposit in the remarketing fee account in respect of that class is greater than the Quarterly Required Amount for that class, the excess will be transferred to the collection account and included in Available Funds for that distribution date.

 

Quarterly Required Amount” means, for the class A-5 notes, (1) on any related reset date, the Reset Period Target Amount for that class or (2) on a distribution date that is one year or less before the next related reset date (x) the Reset Period Target Amount for that class multiplied by (y) 5 minus the number of distribution dates remaining until the next reset date for that class (excluding the current distribution date and including the next reset date), divided by (z) 5.

 

S-95


Rating Agency Condition” means the written confirmation or reaffirmation, as the case may be, from each rating agency then rating the notes that any intended action will not result in the downgrading of its then-current rating of any class of notes.

 

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.

 

Remarketing Terms Determination Date” means, for the class A-5 notes, not later than 3:00 p.m., New York City time, on the eighth business day prior to the applicable reset date.

 

Reset Period Target Amount” means, for the class A-5 notes, for any distribution date that is (1) more than one year before the next related reset date, zero, and (2) one year or less before the next related reset date, the highest remarketing fee payable to the remarketing agents for the class A-5 notes (not to exceed 0.35% of the maximum principal balance of the class A-5 notes that could be remarketed) on the next related reset date as determined by the administrator based on the assumed weighted average life of the class A-5 notes and the maximum remarketing fee set forth on a schedule attached to the remarketing agreement, as that schedule may be amended from time to time.

 

“S&P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., or any successor rating agency.

 

“Significant Guarantor” means any guarantee agency that guarantees trust student loans comprising at least 10% of the initial Pool Balance.

 

“Specified Reserve Account Balance” means, for any distribution date, the greater of:

 

  (a) 0.25% of the sum of the Pool Balance and the amount, if any, on deposit in the add-on consolidation loan account (excluding amounts in such account that will become Available Funds on the next distribution date), each as of the close of business on the last day of the related collection period; and

 

  (b) $3,353,244;

 

provided that in no event will that balance exceed the aggregate outstanding principal balance of the notes. For these purposes, as to a class of reset rate notes that is not then structured to receive a payment of principal until the end of the related reset period, the outstanding principal balance of that class (or its U.S. Dollar equivalent, if applicable) will be reduced by any amounts (less any investment earnings) on deposit in the related accumulation account.

 

“Spread” means the percentage determined by the remarketing agents with respect to the class A-5 notes if they are to bear a floating rate of interest, in excess of or

 

S-96


below the applicable interest rate index that will be applicable to that class during any reset period after the initial reset period so as to result in a rate that, in the reasonable opinion of the remarketing agents, will enable all of the tendered notes of that class to be remarketed by the remarketing agents at 100% of the principal balance thereof, as described under “Description of the Notes—The Reset Rate Notes—Tender of Reset Rate Notes; Remarketing Procedures” in this prospectus supplement.

 

“Spread Determination Date” means 3:00 p.m., New York City time, on the third business day prior to the related reset date.

 

“Stepdown Date” means the earlier to occur of (1) the October 2011 distribution date or (2) the first date on which no class A notes remain outstanding. For this purpose, the outstanding principal balance of the reset rate notes will be deemed reduced by any amounts (other than investment earnings) on deposit in any accumulation account.

 

“Supplemental Interest Account Deposit Amount” means, with respect to any distribution date during a reset period when the class A-5 notes are then structured not to receive a payment of principal until the end of the related reset period the lesser of:

 

  ·   the product of:

 

  (1) the difference between (a) the weighted average of the LIBOR- based rates (as determined on the LIBOR Determination Date immediately preceding that distribution date) that will be payable by the trust to any related swap counterparties on the next distribution date, or the LIBOR-based rate (as determined on the LIBOR Determination Date immediately preceding that distribution date) that will be payable by the trust to the related noteholders on the next distribution date, as applicable, and (b) an assumed rate of investment earnings that satisfies the Rating Agency Condition,

 

  (2) the amount on deposit in the related accumulation account immediately after that distribution date, and

 

  (3) the actual number of days from that distribution date to the next reset date for that class, divided by 360; and

 

  ·   an amount that satisfies the Rating Agency Condition.

 

“Trigger Event” means, on any distribution date while any of the class A notes are outstanding, that the outstanding principal balance of the notes, less any amounts on deposit in any accumulation account (other than investment earnings), after giving effect to distributions to be made on that distribution date, would exceed the Adjusted Pool Balance as of the end of the related collection period.

 

S-97


PRINCIPAL OFFICES

 

DEPOSITOR

SLM FUNDING LLC

12061 Bluemont Way

V3419

Reston, Virginia 20190

 

SERVICER AND ADMINISTRATOR

SALLIE MAE, INC.

12061 Bluemont Way

Reston, Virginia 20190

 

SLM STUDENT LOAN TRUST 2005-5

 

CHASE BANK USA,

NATIONAL ASSOCIATION

as Eligible Lender Trustee

Christiana Center/OPS4

500 Stanton Christiana Road

Newark, Delaware 19713

 

DEUTSCHE BANK TRUST

COMPANY AMERICAS

as Indenture Trustee

60 Wall Street, 26(th) Floor,

Mailstop NYC60-2606

New York, New York 10005

 

PAYING AGENT

 

DEUTSCHE BANK TRUST COMPANY AMERICAS

as Paying Agent

60 Wall Street, 26(th) Floor,

Mailstop NYC60-2606

New York, New York 10005

 

LUXEMBOURG PAYING AGENT AND LUXEMBOURG LISTING AGENT

 

DEUTSCHE BANK LUXEMBOURG SA

2 Boulevard Konrad Adenauer

L-1115 Luxembourg

 

LEGAL ADVISORS TO THE DEPOSITOR, THE TRUST, THE SERVICER AND THE ADMINISTRATOR

 

MCKEE NELSON LLP

One Battery Park Plaza,

34th Floor

New York, New York 10004

 

RICHARDS, LAYTON & FINGER, P.A.

920 King Street

Wilmington, Delaware 19801

 

SHEARMAN & STERLING LLP

801 Pennsylvania Avenue, N.W.

Washington, D.C. 20004-2604

 

LEGAL ADVISORS TO THE UNDERWRITERS

 

CADWALADER, WICKERSHAM & TAFT LLP

1201 F Street, N.W.

Suite 1100

Washington, D.C. 20004

 

SHEARMAN & STERLING LLP

801 Pennsylvania Avenue, N.W.

Washington, D.C. 20004-2604

 

INDEPENDENT PUBLIC ACCOUNTANTS

 

PRICEWATERHOUSECOOPERS LLC

1751 Pinnacle Drive

McLean, Virginia 22102-3811


PROSPECTUS

 

The SLM Student Loan Trusts

 

Student Loan-Backed Notes

 

Student Loan-Backed Certificates

 


 

SLM Funding LLC

Depositor

 

Sallie Mae, Inc.

Servicer and Administrator


The Depositor

 

SLM Funding LLC, a Delaware limited liability company, is the depositor. SLM Education Credit Finance Corporation is the sole member of SLM Funding LLC.

 

The Securities

 

The depositor intends to form trusts to issue student loan-backed securities. These securities may be in the form of notes or certificates. Each issue will have its own series designation. We will sell the securities from time to time in amounts, at prices and on terms determined at the time of offering and sale.

 

Each series may include:

 

  · one or more classes of certificates that represent ownership interests in the assets of the trust for that issue; and

 

  · one or more classes of notes secured by the assets of that trust.

 

A class of certificates or notes may:

 

  · be senior or subordinate to other classes; and

 

  · receive payments from one or more forms of credit or cash flow enhancements designed to reduce the risk to investors caused by shortfalls in payments on the related student loans.

 

Each class of certificates or notes has the right to receive payments of principal and interest at the rates, on the dates and in the manner described in the applicable supplement to this prospectus.

 

Trust Assets

 

The assets of each trust will include:

 

  · education loans to students or parents of students; and

 

  · other moneys, investments and property.

 

A supplement to this prospectus will describe the specific amounts, prices and terms of the notes and certificates of each series. The supplement will also give details of the specific student loans, credit enhancement, and other assets of the trust.

 

Neither the SEC nor any state securities commission has approved or disapproved the securities or determined whether this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

 

June 17, 2005

 

You should consider carefully the risk factors described in this prospectus beginning on page 21 and in the prospectus supplement that accompanies this prospectus.

 

Each issue of securities represents obligations of, or interests in, the applicable trust only. They do not represent interests in or obligations of SLM Corporation, SLM Education Credit Finance Corporation, any other seller, the depositor, the administrator, the servicer or any of their affiliates.

 

The securities are not guaranteed or insured by the United States of America or any governmental agency.

 

This prospectus may be used to offer and sell any series of securities only if accompanied by the prospectus supplement for that series.


IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS

PROSPECTUS AND THE RELATED PROSPECTUS SUPPLEMENT

 

We provide information to you about the securities in two separate documents that progressively provide more detail:

 

  · this prospectus, which provides general information, some of which may not apply to your series of securities; and

 

  · the related prospectus supplement that describes the specific terms of your series of securities, including:

 

  · the timing of interest and principal payments;

 

  · financial and other information about the student loans and the other assets owned by the trust;

 

  · information about credit enhancement;

 

  · the ratings; and

 

  · the method of selling the securities.

 

You should rely only on the information contained or incorporated in this prospectus and the prospectus supplement. We have not authorized anyone to provide you with different information. We are not offering the securities in any state or other jurisdiction where the offer is prohibited.

 

We have made cross-references to captions in this prospectus and the accompanying prospectus supplement under which you can find further related discussions. The following table of contents and the table of contents in the related prospectus supplement indicate where these captions are located.

 

2


TABLE OF CONTENTS

 

     Page

Prospectus Summary

   8

Ÿ Principal Parties

   8

Ÿ The Notes

   9

Ÿ The Certificates

   10

Ÿ Assets of the Trust

   11

Ÿ Collection Account

   13

Ÿ Pre-Funding Account

   13

Ÿ Reserve Account

   13

Ÿ Capitalized Interest Account

   13

Ÿ Other Accounts

   14

Ÿ Credit and Cash Flow or other Enhancement or Derivative Arrangements

   14

Ÿ Purchase Agreements

   15

Ÿ Sale Agreements

   15

Ÿ Servicing Agreements

   15

Ÿ Servicing Fee

   15

Ÿ Administration Agreement

   16

Ÿ Administration Fee

   16

Ÿ Representations and Warranties of
the Depositor

   16

Ÿ Representations and Warranties of
the Sellers under the Purchase Agreements

   17

Ÿ Covenants of the Servicer

   18

Ÿ Optional Purchase

   18

Ÿ Auction of Trust Assets

   19

Ÿ Tax Considerations

   19

Ÿ ERISA Considerations

   20

Ÿ Ratings

   20

Risk Factors

   21

Ÿ Because The Securities May Not Provide Regular Or Predictable Payments, You May Not Receive The Return On Investment That You Expected

   21

Ÿ If A Secondary Market For Your Securities Does Not Develop, The Value Of Your Securities May Diminish

   21

Ÿ The Trust Will Have Limited Assets From Which To Make Payments On The Securities, Which May Result In Losses

   21
     Page

Ÿ You May Incur Losses Or Delays In Payments On Your Securities If Borrowers Default On The Student Loans

   22

Ÿ If A Guarantor Of The Student Loans Experiences Financial Deterioration Or Failure, You May Suffer Delays In Payment Or Losses On Your Securities

   22

Ÿ The Department Of Education’s Failure To Make Reinsurance Payments May Negatively Affect The Timely Payment Of Principal And Interest On Your Securities

   23

Ÿ You Will Bear Prepayment And Extension Risk Due To Actions Taken By Individual Borrowers And Other Variables Beyond Our Control

   23

Ÿ You May Be Unable To Reinvest Principal Payments At The Yield You Earn On The Securities

   24

Ÿ A Failure To Comply With Student Loan Origination And Servicing Procedures Could Jeopardize Guarantor, Interest Subsidy And Special Allowance Payments On The Student Loans, Which May Result In Delays In Payment Or Losses On Your Securities

   24

Ÿ The Inability Of The Depositor Or The Servicer To Meet Its Repurchase Obligation May Result In Losses On Your Securities

   24

Ÿ The Note holders’ Right To Waive Defaults May Adversely Affect Certificate holders

   25

Ÿ Subordination Of The Certificates Or Some Classes Of Notes Results In A Greater Risk Of Losses Or Delays In Payment On Those Securities

   25

 

3


     Page

Ÿ The Securities May Be Repaid Early Due To An Auction Sale Or The Exercise Of The Purchase Option. If This Happens, Your Yield May Be Affected And You Will Bear Reinvestment Risk

   25

Ÿ The Principal Of The Student Loans May Amortize Faster Because Of Incentive Programs

   25

Ÿ Payment Offsets By Guarantors Or The Department Of Education Could Prevent The Trust From Paying You The Full Amount Of The Principal And Interest Due On Your Securities

   26

Ÿ A Servicer Default May Result In Additional Costs, Increased Servicing Fees By A Substitute Servicer Or A Diminution In Servicing Performance, Any Of Which May Have An Adverse Effect On Your Securities

   26

Ÿ The Bankruptcy Of The Depositor, Or Any Seller Could Delay Or Reduce Payments On Your Securities

   27

Ÿ The Indenture Trustee May Have Difficulty Liquidating Student Loans After An Event Of Default

   28

Ÿ The Federal Direct Student Loan Program Could Result In Reduced Revenues For The Servicer And The Guarantors

   28

Ÿ Changes In Law May Adversely Affect Student Loans, The Guarantors, The Depositor Or The Sellers And, Accordingly, Adversely Affect Your Securities

   29

Ÿ The Use Of Master Promissory Notes May Compromise The Indenture Trustee’s Security Interest In The Student Loans

   29

Ÿ Withdrawal Or Downgrade Of Initial Ratings May Decrease The Prices Of Your Securities

   30
     Page

Ÿ In The Event Of An Early Termination Of A Swap Agreement Due To Certain Swap Termination Events, A Trust May Be Required To Make A Large Termination Payment To Any Related Swap Counter party

   30

Ÿ Your Securities Will Have Greater Risk If An Interest Rate Swap Agreement Terminates

   31

Ÿ Your Securities Will Have Greater Risk If A Currency Swap Agreement Terminates

   31

Risks Related To Auction Rate Securities

   33

Ÿ The Interest Rates On Any Auction Rate Securities Are Subject To Limitations, Which Could Reduce Your Yield

   33

Risks Related To Reset Rate Securities

   33

Ÿ If A Currency Swap Agreement Terminates, Additional Interest Will Not Be Paid

   33

Ÿ Even If You Do Not Receive Timely Notices, You Will Be Deemed To Have Tendered Your Reset Rate Securities

   34

Ÿ If Investments In An Accumulation Account Do Not Perform As Anticipated, Your Securities May Be Downgraded Or You May Suffer A Loss

   35

Ÿ In The Event That Sums Are Deposited Into A Supplemental Interest Account Or An Investment Reserve Account, Principal Payments To Subordinated Security holders May Be Delayed, Or Subordinated Security holders May Suffer A Loss

   35

Ÿ If The Holder Of The Call Option Exercises The Call Option, You May Not Be Able To Reinvest In A Comparable Security

   36

 

4


     Page

Ÿ If A Failed Remarketing Is Declared, You Will Be Required To Rely On A Sale Through The Secondary Market If You Wish To Sell Your Reset Rate Securities

   36

Ÿ If A Failed Remarketing Is Declared, The Failed Remarketing Rate You Will Receive May Be Less Than The Then-Prevailing Market Rate Of Interest

   36

Formation of the Trusts

   38

Ÿ The Trusts

   38

Ÿ Eligible Lender Trustee

   39

Use of Proceeds

   39

The Depositor, the Servicer and Administrator and the Sellers

   39

Ÿ The Depositor

   39

Ÿ The Servicer and Administrator

   40

Ÿ The Sellers

   41

The Student Loan Pools

   42

Ÿ SLM Corporation’s Student Loan Financing Business

   42

Servicing

   43

Consolidation/Repayment     Programs

   44

Incentive Programs

   45

Ÿ Delinquencies, Defaults, Claims and Net Losses

   45

Ÿ Payment of Notes

   46

Ÿ Termination

   46

Transfer and Servicing Agreements

   47

Ÿ General

   47

Ÿ Purchase of Student Loans by the Depositor; Representations and Warranties of the Sellers

   47

Ÿ Sale of Student Loans to the Trust; Representations and Warranties of the Depositor

   48

Ÿ Custodian of Promissory Notes

   49

Ÿ Additional Fundings

   49

Ÿ Amendments to Transfer and Servicing Agreements

   49

Servicing and Administration

   50

Ÿ General

   50

Ÿ Accounts

   50

Ÿ Servicing Procedures

   50

Ÿ Payments on Student Loans

   51
     Page

Ÿ Servicer Covenants

   51

Ÿ Servicing Compensation

   53

Ÿ Net Deposits

   53

Ÿ Evidence as to Compliance

   54

Ÿ Matters Regarding the Servicer

   54

Ÿ Servicer Default

   55

Ÿ Rights Upon Servicer Default

   56

Ÿ Waiver of Past Defaults

   56

Ÿ Administration Agreement

   56

Ÿ Administrator Default

   57

Ÿ Rights Upon Administrator Default

   57

Ÿ Statements to Indenture Trustee and Trust

   58

Ÿ Evidence as to Compliance

   59

Trading Information

   60

•   Pool Factors

   61

Description of the Notes

   62

Ÿ General

   62

Ÿ Principal and Interest on the Notes

   62

Ÿ The Indenture

   63

General

   63

Modification of Indenture

   63

Events of Default; Rights Upon     Event of Default

   64

Certain Covenants

   66

Indenture Trustee’s Annual     Report

   67

Satisfaction and Discharge of     Indenture

   67

The Indenture Trustee

   67

Description of the Certificates

   68

Ÿ General

   68

Ÿ Distributions on the Certificate Balance

   68

Additional Information Regarding the Securities

   69

Ÿ Fixed Rate Securities

   69

Ÿ Floating Rate Securities

   69

Ÿ Auction-Rate Securities

   70

Determination of Note Interest     Rates

   70

Maximum Auction Rate And     Interest Carry-Over

   71

Changes in Auction Period

   72

Changes in the Auction Date

   72

 

5


     Page

Ÿ The Reset Rate Securities

    

General

   73

Interest

   73

Principal

   73

Reset Periods

   74

Remarketing Terms Determination     Date

   75

Call Option

   77

Spread Determination Date

   78

Failed Remarketing

   79

Foreign Exchange Mode

   81

Floating Rate Mode

   84

Fixed Rate Mode

   85

Tender of Reset Rate Notes;     Remarketing Procedures

   87

Ÿ Determination of Indices

   90

Day-Count Basis; Interest Rate     Change Dates; Interest Rate     Determination Dates

   90

LIBOR

   91

GBP-LIBOR

   92

EURIBOR

   93

Commercial Paper Rate

   93

CMT Rate

   94

Federal Funds Rate

   96

91-Day Treasury Bill Rate

   96

Prime Rate

   97

Other Indices

   97

Ÿ Distributions

   97

Ÿ Credit and Cash Flow or other Enhancement or Derivative Arrangements

   98

General

   98

Reserve Account

   99

Ÿ Insolvency Events

   99

Ÿ Book-Entry Registration

   99

Ÿ Reset Rate Securities

   103

Form and Denomination

   103

Identification Numbers

   104

Ÿ Euro Securities

   106

Ÿ Definitive Securities

   107

Ÿ List of Security holders

   108

Ÿ Reports to Security holders

   109

Certain Legal Aspects of the Student Loans

   110
     Page

Ÿ Transfer of Student Loans

   110

Ÿ Consumer Protection Laws

   111

Ÿ Loan Origination and Servicing Procedures Applicable to Student Loans

   111

Ÿ Student Loans Generally Not Subject to Discharge in Bankruptcy

   112

U.S. Federal Income Tax Consequences

   112

Ÿ Tax Characterization of the Trust

   113

Ÿ Tax Consequences to Holders of Securities in General

   113

Treatment of the Securities as     Indebtedness

   113

Stated Interest

   113

Original Issue Discount

   113

Market Discount

   115

Amortizable Bond Premium

   115

Election to Treat all Interest as     OID

   116

Sale or Other Disposition

   116

Waivers and Amendments

   116

Tax Consequences to Foreign Investors

   116

Information Reporting and Backup     Withholding

   117

Ÿ Special Tax Consequences to Holders of Non-U.S. Dollar Denominated Securities

   118

Ÿ Special Tax Consequences to Holders of Auction Rate Securities

   121

Ÿ Special Tax Consequences to Holders of Reset Rate Securities

   122

In General

   122

Tax Accounting for Holders of the     Reset Rate Securities

   123

Possible Alternative Treatment of     the Reset Rate Securities

   123

European Union Directive on the Taxation of Savings Income

   125

State Tax Consequences

   125

ERISA Considerations

   126

Ÿ The Notes

   127

Ÿ The Certificates

   128

 

6


     Page

Available Information

   128

Reports To Security holders

   129

Incorporation Of Documents By Reference

   129

The Plan Of Distribution

   129

Legal Matters

   132
     Page

Appendix A: Federal Family Education Loan Program

   A-1

Appendix B: Global Clearance, Settlement and Tax Documentation Procedures

   B-1

 

7


PROSPECTUS SUMMARY

 

This summary highlights selected information concerning the securities. It does not contain all of the information that you might find important in making your investment decision. You should read the full description of this information appearing elsewhere in this document and in the prospectus supplement for your particular securities.

 

Principal Parties

 

Issuer

A Delaware statutory trust to be formed for each series of securities under a trust agreement between the depositor and an eligible lender trustee.

 

Depositor

The depositor is SLM Funding LLC. SLM Education Credit Finance Corporation is the sole member of the depositor. We sometimes refer to the SLM Education Credit Finance Corporation as SLM ECFC. An interim eligible lender trustee specified in the prospectus supplement for your securities will hold legal title to the student loans on our behalf. References to the “depositor” also include the interim trustee where the context involves the holding or transferring of legal title to the student loans.

 

Eligible Lender Trustee

For each series of securities, the related prospectus supplement will specify the eligible lender trustee for the related trust. See “Formation of the Trusts—Eligible Lender Trustee” in this prospectus.

 

Servicer

The servicer is Sallie Mae, Inc. or another servicer specified in the prospectus supplement for your securities. We sometimes refer to Sallie Mae, Inc as SMI. SMI manages and operates the loan servicing functions for SLM Corporation and its affiliates and various unrelated parties. Until December 31, 2003, the servicer was Sallie Mae Servicing L.P. Effective as of December 31, 2003, Sallie Mae Servicing L.P. merged with and into SMI.

 

Under the circumstances described in this prospectus, the servicer may transfer its obligations to other entities. It may also contract with various other services or sub-servicers. The related prospectus supplement will describe any sub-servicers. See “Servicing and Administration—Certain Matters Regarding the Servicer” in this prospectus.

 

8


Indenture Trustee

For each series of securities, the related prospectus supplement will specify the indenture trustee for the notes. See “Description of the Notes—The Indenture—The Indenture Trustee” in this prospectus.

 

Administrator

SMI will act as administrator of each trust. Under the circumstances described in this prospectus, it may transfer its obligations as administrator. See “Servicing and Administration—Administration Agreement.”

 

The Notes

Each series of securities will include one or more classes of student loan-backed notes. The notes will be issued under an indenture between the trust and the related indenture trustee. We may offer each class of notes publicly or privately, as specified in the related prospectus supplement.

 

The notes will be available for purchase in minimum denominations and additional amounts in excess thereof provided in the related prospectus supplement. The depositor may denominate the notes in U.S. Dollars or a non-U.S. currency as specified in the related prospectus supplement. They will be available initially in book-entry form only. Investors who hold the notes in book-entry form will be able to receive definitive notes only in the limited circumstances described in this prospectus or in the related prospectus supplement. See “Additional 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. Classes of notes may also have different interest rates. The interest rate may be:

 

  ·   fixed,

 

  ·   variable,

 

  ·   adjustable,

 

  ·   auction-determined,

 

  ·   reset rate, or

 

  ·   any combination of these rates.

 

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The related prospectus supplement will specify:

 

  ·   the principal amount of each class of notes; and

 

  ·   the interest rate for each class of notes or the method for determining the interest rate.

 

See “Description of the Notes—Principal and Interest on the Notes.”

 

If a series includes two or more classes of notes:

 

  ·   the timing and priority of payments, seniority, interest rates and/or the method of determining interest rates or amount of payments of principal or interest may differ for each class; or

 

  ·   payments of principal or interest on a class may or may not be made, depending on whether specified events occur.

 

The related prospectus supplement will provide this information.

 

The Certificates

Each series of securities may also include one or more classes of certificates. The certificates will be issued under the trust agreement for that series. We may offer each class of certificates publicly or privately, as specified in the related prospectus supplement.

 

If issued, certificates will be available for purchase in a minimum denomination of $100,000 and additional increments of $1,000, or the equivalent in a non-U.S. currency. They will be available initially in book-entry form only. Investors who hold the certificates in book-entry form will be able to receive definitive certificates only in the limited circumstances described in this prospectus or in the related prospectus supplement. See “Additional Information Regarding the Securities—Book-Entry Registration” and “—Definitive Securities.”

 

Each class of certificates will have a stated certificate balance. The certificates will yield a return on that balance at a specified certificate rate. The rate of return may be:

 

  ·   fixed,

 

  ·   variable,

 

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  ·   adjustable,

 

  ·   auction rate,

 

  ·   reset rate, or

 

  ·   any combination of these rates.

 

The related prospectus supplement will specify:

 

  ·   the certificate balance for each class of certificates; and

 

  ·   the rate of return for each class of certificates or the method for determining the rate of return.

 

If a series includes two or more classes of certificates:

 

  ·   the timing and priority of distributions, seniority, allocations of losses, certificate rates and/or the method of determining interest rates or distributions on the certificate balance may differ for each class; and

 

  ·   distributions on a class may or may not be made, depending on whether specified events occur.

 

The related prospectus supplement will provide this information. See “Description of the Certificates—Distributions on the Certificate Balance.”

 

Distributions on the certificates may be subordinated in priority of payment to payments of principal and interest on the notes. If this is the case, the related prospectus supplement will provide this information.

 

Assets of the Trust

The assets of each trust will include a pool of student loans. They may be:

 

  ·   education loans to students or parents of students made under the Federal Family Education Loan Program, known as the FFELP; or

 

  ·   if so specified in the prospectus supplement, other education loans not made under the FFELP.

 

Unless we say otherwise in this prospectus or in a prospectus supplement, “student loans” refer to loans made under the FFELP. Student loans owned by a specific trust are called “trust student loans”.

 

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The assets of the trust will include rights to receive payments made on these student loans and any proceeds related to them.

 

We will purchase the student loans from SLM ECFC or another affiliate of SLM Corporation under a purchase agreement. If a seller of the student loans is not described in this prospectus, the prospectus supplement for your securities will describe that seller. The student loans will be selected based on criteria listed in that purchase agreement. We will sell the student loans to the trust under a sale agreement. The related prospectus supplement will specify the aggregate principal balance of the loans sold as of a cutoff date. It will specify that cutoff date. The property of each trust also will include amounts on deposit in specific trust accounts, including a collection account, any reserve account, any pre-funding account, any capitalized interest account and any other account identified in the applicable prospectus supplement and the right to receive payments under any swap agreements entered into by the trust from time to time. See “Formation of the Trusts—The Trusts.”

 

Each student loan sold to a trust will be 98% guaranteed—or 100% for student loans disbursed before October 1, 1993—as to the payment of principal and interest by a state guaranty agency or a private non-profit guarantor. These guarantees are contingent upon compliance with specific origination and servicing procedures as prescribed by various federal and guarantor regulations. Each guarantor is reinsured by the Department of Education for between 75% and 100% of claims paid by that guarantor for a given federal fiscal year. The reinsured amount depends on a guarantor’s claims experience and the year in which the loans subject to the claims were disbursed. The percentage of the claims paid by a guarantor that are reinsured could change in the future by legislation. See “Appendix A—Federal Family Education Loan Program—Guarantee Agencies under the FFELP.”

 

A trust may also have among its assets various agreements with counter parties providing for interest rate swaps, currency swaps, interest rate caps and similar financial

 

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contracts. These agreements will be described in the related prospectus supplement.

 

Collection Account

For each trust, the administrator will establish and maintain one or more accounts to hold all payments made on the trust student loans. We refer to each of these accounts collectively as the collection account. The collection account will be in the name of the indenture trustee on behalf of the holders of the notes and the certificates. The prospectus supplement will describe the permitted uses of funds in the collection account and the conditions for their application.

 

Pre-Funding Account

A prospectus supplement may indicate that a portion of the net proceeds of the sale of the securities may be kept in a pre-funding account for a period of time and used to purchase additional student loans. If a pre-funding account is established, it will be in the name of the indenture trustee and will be an asset of the trust. The prospectus supplement will describe the permitted uses of any funds in the pre-funding account and the conditions to their application.

 

Reserve Account

The administrator will establish an account for each series called the reserve account. This account will be in the name of the indenture trustee and will be an asset of the trust. On the closing date, we will make a deposit into the reserve account, as specified in the prospectus supplement. The initial deposit into the reserve account may also be supplemented from time to time by additional deposits. The prospectus supplement will describe the amount of these additional deposits.

 

The prospectus supplement for each trust will describe how amounts in the reserve account will be available to cover shortfalls in payments due on the securities. It will also describe how amounts on deposit in the reserve account in excess of the required reserve account balance will be distributed.

 

Capitalized Interest Account

A prospectus supplement may indicate that the administrator will establish and maintain a capitalized interest account as an asset of the trust in the name of the indenture trustee. If established, the related trust will

 

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make an initial deposit from the net proceeds of the sale of the notes into the capitalized interest account as specified in the related prospectus supplement which will be in cash or eligible investments.

 

Funds in the capitalized interest account will be available to cover shortfalls in payments of interest due to senior security holders and payments due to each swap counter party (other than any termination payments) pursuant to any swap agreement then in effect and, after that, shortfalls in payments of interest to subordinate security holders after application of funds available in the collection account at the end of the related collection period but before application of the reserve account.

 

Other Accounts

The prospectus supplement for each trust will also describe any other accounts established for such series. These may include, for any series that contains reset rate securities, one or more accumulation accounts, supplemental interest accounts, investment reserve accounts, investment premium purchase accounts and currency accounts.

 

Credit and Cash Flow or
other Enhancement or
Derivative Arrangements

Credit or cash flow enhancement for any series of securities may include one or more of the following:

    

  ·   subordination of one or more classes of securities;

 

  ·   a reserve account;

 

  ·   a capitalized interest account;

 

  ·   over collateralization;

 

  ·   letters of credit, credit or liquidity facilities;

 

  ·   surety bonds;

 

  ·   guaranteed investment contracts;

 

  ·   interest rate, currency or other swaps, exchange agreements, interest rate protection agreements, repurchase obligations, put or call options and other yield protection agreements;

 

  ·   agreements providing for third party payments; or

 

  ·   other support, deposit or derivative arrangements.

 

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If any credit or cash flow enhancement applies to a trust or any of the securities issued by that trust, the related prospectus supplement will describe the specific enhancement as well as the conditions for their application. A credit or cash flow enhancement may have limitations and exclusions from coverage. If applicable, the related prospectus supplement will describe these limitations or exclusions. See “Additional Information Regarding the Securities—Credit and Cash Flow or other Enhancement or Derivative Arrangements” in this prospectus.

 

Purchase Agreements

For each trust, the depositor will acquire the related student loans under one or more purchase agreements. We will assign our rights under the purchase agreements to the eligible lender trustee on behalf of the trust. The trust will further assign these rights to the indenture trustee as collateral for the notes. See “Transfer and Servicing Agreements” in this prospectus.

 

Sale Agreements

The depositor will sell the trust student loans to the trust under a sale agreement. The eligible lender trustee will hold legal title to the trust student loans. The trust will assign its rights under the sale agreement to the indenture trustee as collateral for the notes. See “Transfer and Servicing Agreements” in this prospectus.

 

Servicing Agreements

The servicer will enter into one or more servicing agreements covering the student loans held by each trust. Under the servicing agreement, the servicer will be responsible for servicing, managing, maintaining custody of, and making collections on the trust student loans. In addition, it will file with the Department of Education and the guarantors all appropriate claims to collect interest subsidy payments, special allowance payments and guarantee payments owed on the trust student loans. See “Servicing and Administration” in this prospectus.

 

Servicing Fee

The servicer will receive a servicing fee specified in the related prospectus supplement. It will also receive reimbursement for expenses and charges, as specified in that prospectus supplement. These amounts will be payable monthly.

 

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The servicing fee and any portion of the servicing fee that remains unpaid from prior dates will be payable before any payments are made on the related securities unless any portion of the servicing fee is expressly subordinated to payments on the securities, as specified in the related prospectus supplement.

 

See “Servicing and Administration—Servicing Compensation” in this prospectus.

 

Administration Agreement

Sallie Mae, Inc., in its capacity as administrator, will enter into an administration agreement with each trust, the eligible lender trustee, the servicer and the indenture trustee. Under this agreement, Sallie Mae, Inc. will undertake specific administrative duties for each trust. See “Servicing and Administration—Administration Agreement” in this prospectus.

 

Administration Fee

The administrator will receive an administration fee specified in the related prospectus supplement. It may also receive reimbursement for expenses and charges, as specified in the related prospectus supplement. These amounts will be payable before any payments are made on the related securities, as specified in the related prospectus supplement. See “Servicing and Administration—Administration Agreement” in this prospectus.

 

Representations and Warranties of the Depositor

Under the sale agreement for each trust, the depositor, as the seller of the loans to the trust, will make specific representations and warranties to the trust concerning the student loans. The depositor will have an obligation to repurchase any trust student loan if the trust is materially and adversely affected by a breach of its representations or warranties, unless we can cure the breach within the period specified in the applicable prospectus supplement. Alternatively, it may substitute qualified substitute student loans rather than repurchasing the affected loans. Qualified substitute student loans are student loans that comply, on the date of substitution, with all of the representations and warranties made by the depositor in the sale agreement. Qualified substitute student loans must also be substantially similar on an aggregate basis to the loans they are being substituted for with regard to the following characteristics:

 

  ·   principal balance;

 

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  ·   status—in-school, grace, deferment, forbearance or repayment;

 

  ·   program type—Unsubsidized Stafford, Subsidized Stafford, PLUS, SLS, Consolidation or non-Federal Family Education Loan Program loans;

 

  ·   school type;

 

  ·   total return; and

 

  ·   remaining term to maturity.

 

Any required repurchase or substitution will occur on the date the next collection period ends after the applicable cure period has expired.

 

In addition, the depositor will have an obligation to reimburse the trust for:

 

  ·   any shortfall between the balance of the qualified substitute student loans and the balance of the loans being replaced, and

 

  ·   any accrued interest not guaranteed by, or that is required to be refunded to, a guarantor and any program payments lost as a result of a breach of our representations and warranties.

 

See “Transfer and Servicing Agreements—Sale of Student Loans to the Trust; Representations and Warranties of the Depositor.”

 

Representations and
Warranties of the Sellers
under the Purchase
Agreements

In each purchase agreement, the related seller of the student loans will make representations and warranties to the depositor concerning the student loans covered by that purchase agreement. These representations and warranties will be similar to the representations and warranties made by the depositor under the related sale agreement. The related seller will have repurchase, substitution and reimbursement obligations under each purchase agreement that match those of the depositor under the sale agreement.

 

See “Transfer and Servicing Agreements—Purchase of Student Loans by the Depositor; Representations and Warranties of the Sellers.”

 

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Covenants of the Servicer

The servicer will agree to service the trust student loans in compliance with the servicing agreement and the Higher Education Act, if applicable. It will have an obligation to purchase from a trust, or substitute qualified substitute student loans for, any trust student loan if the trust is materially and adversely affected by a breach of any covenant of the servicer concerning that student loan. Any breach that relates to compliance with the Higher Education Act or the requirements of a guarantor, but that does not affect that guarantor’s obligation to guarantee payment of a trust student loan, will not be considered to have a material adverse effect.

 

If the servicer does not cure a breach within the period specified in the applicable prospectus supplement, the purchase or substitution will be made on the next collection period end date after the applicable cure period has expired, or as described in the related prospectus supplement.

 

In addition, the servicer has an obligation to reimburse the trust for:

 

  ·   any shortfall between the balance of the qualified substitute student loans and the balance of the loans being replaced, and

 

  ·   any accrued interest not guaranteed by, or that is required to be refunded to, a guarantor and any program payments lost as a result of a breach of the servicer’s covenants.

 

See “Servicing and Administration—Servicer Covenants.”

 

Optional Purchase

Subject to any limitations described in the applicable prospectus supplement, the servicer or another entity specified in the prospectus supplement may, at its option, purchase, or arrange for the purchase of, all remaining student loans owned by a trust on any distribution date when their pool balance is 10% or less of the initial pool balance together with the aggregate initial principal balances of all trust student loans acquired during any applicable pre-funding period plus accrued interest to be capitalized as of the applicable cutoff dates, or such lesser percentage as set forth in the related prospectus

 

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supplement. The exercise of this purchase option will result in the early retirement of the securities issued by that trust. See “The Student Loan Pools—Termination” in this prospectus.

 

Auction of Trust Assets

Subject to any limitations described in the applicable prospectus supplement, the indenture trustee will offer for sale all remaining trust student loans at the end of the collection period when their pool balance reduces to 10% or less of the initial pool balance together with the aggregate initial principal balances of all trust student loans acquired during any applicable pre-funding period plus accrued interest to be capitalized as of the applicable cutoff dates, or such lesser percentage as set forth in the related prospectus supplement. An auction will occur only if the entity with the optional purchase right has first waived its optional purchase right. The auction of the remaining trust student loans will result in the early retirement of the securities issued by that trust. See “The Student Loan Pools—Termination” in this prospectus and “Summary of Terms—Auction of Trust Assets” in the related prospectus supplement.

 

Tax Considerations

On the closing date for a series, Shearman & Sterling LLP or a law firm identified in the applicable prospectus supplement, as federal tax counsel to the applicable trust, will deliver an opinion that, for U.S. federal income tax purposes:

 

  ·   the notes of that series will be characterized as debt; and

 

  ·   the trust will not be characterized as an association or a publicly traded partnership taxable as a corporation.

 

In addition, a law firm identified in the applicable prospectus supplement as Delaware tax counsel will deliver an opinion that:

 

  ·   the same characterizations would apply for Delaware state income tax purposes as for U.S. federal income tax purposes; and

 

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  ·   holders of the securities that are not otherwise subject to Delaware taxation on income will not become subject to Delaware state tax as a result of their ownership of the securities.

 

By acquiring a note, you will agree to treat that note as indebtedness. By acquiring a certificate, you will agree to treat the related trust either as a partnership in which you are a partner for federal income tax purposes or as otherwise described in the related prospectus supplement.

 

See “U.S. Federal Income Tax Consequences” and “State Tax Consequences.”

 

ERISA Considerations

A fiduciary of any employee benefit plan or other retirement arrangement subject to Title I of ERISA or Section 4975 of the Internal Revenue Code, should carefully review with its legal advisors whether the plan’s purchase or holding of any class of securities could give rise to a transaction prohibited or otherwise impermissible under ERISA or the Internal Revenue Code. See “ERISA Considerations” in this prospectus and in the related prospectus supplement.

 

Ratings

All of the securities will be rated in one of the four highest rating categories. The prospectus supplement for each trust will specify the ratings for the securities being issued.

 

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RISK FACTORS

 

You should carefully consider the following risk factors in deciding whether to purchase any securities. You should also consider the additional risk factors described in each prospectus supplement. All of these risk factors could affect your investment in or return on the securities.

 

Because The Securities May Not Provide Regular Or Predictable Payments, You May Not Receive The Return On Investment That You Expected

The securities may not provide a regular or predictable schedule of payments or payment on any specific date. Accordingly, you may not receive the return on investment that you expected.

 

If A Secondary Market For Your Securities Does Not Develop, The Value Of Your Securities May Diminish

The securities will be a new issue without an established trading market. While we intend to list the securities on a European exchange if specified in the related prospectus supplement, we do not intend to list the securities on any exchange in the United States. We cannot assure you that listing on a European exchange will be accepted nor, in any event, that a secondary market for the securities will develop. If a secondary market does not develop, the spread between the bid price and the asked price for your securities may widen, thereby reducing the net proceeds to you from the sale of your securities.

 

The Trust Will Have Limited Assets From Which To Make Payments On The Securities, Which May Result In Losses

The trust will not have, nor will it be permitted to have, significant assets or sources of funds other than the trust student loans, the guarantee agreements, and, if so provided in the related prospectus supplement, a reserve account, any other accounts established in the trust’s name, any derivative contracts and other credit or cash flow enhancements.

 

 

Consequently, you must rely upon payments on the trust student loans from the borrowers and guarantors, and, if available, amounts on deposit in the trust accounts, amounts received from derivative counter parties and any other credit or cash flow enhancements to repay your securities. If these sources of funds are insufficient to repay your securities, you may experience a loss on your investment.

 

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You May Incur Losses Or Delays In Payments On Your Securities If Borrowers Default On The Student Loans

The majority of the student loans that are owned by the trust will be only 98% guaranteed. If a borrower defaults on a student loan that is only 98% guaranteed, the related trust will experience a loss of approximately 2% of the outstanding principal and accrued interest on that student loan. If defaults occur on the trust student loans and the credit enhancement described in the related prospectus supplement is insufficient, you may suffer a delay in payment or losses on your securities.

 

If A Guarantor Of The Student Loans Experiences Financial Deterioration Or Failure, You May Suffer Delays In Payment Or Losses On Your Securities

All of the student loans will be unsecured. As a result, the only security for payment of a student loan is the guarantee provided by the applicable guarantor. Student loans acquired by each trust will be subject to guarantee agreements with a number of individual guarantors. A deterioration in the financial status of a guarantor and its ability to honor guarantee claims could result in a failure of that guarantor to make its guarantee payments to the eligible lender trustee in a timely manner. A guarantor’s financial condition could be adversely affected by a number of factors, including:

 

  · the continued voluntary waiver by the guarantor of the guarantee fee payable by a borrower upon disbursement of a student loan;

 

  · the amount of claims made against that guarantor as a result of borrower defaults;

 

  · the amount of claims reimbursed to that guarantor from the Department of Education, which range from 75% to 100% of the 98% guaranteed portion of the loan depending on the date the loan was made and the performance of the guarantor; and

 

  · changes in legislation that may reduce expenditures from the Department of Education that support federal guarantors or that may require guarantors to pay more of their reserves to the Department of Education.

 

If the financial condition of a guarantor deteriorates, it may fail to make guarantee payments in a timely manner. In that event, you may suffer delays in payment or losses on your securities.

 

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The Department Of Education’s Failure To Make Reinsurance Payments May Negatively Affect The Timely Payment Of Principal And Interest On Your Securities

If a guarantor is unable to meet its guarantee obligations, the trust may submit claims directly to the Department of Education for payment. The Department of Education’s obligation to pay guarantee claims directly is dependent upon it determining that the guarantor is unable to meet its obligations. If the Department of Education delays in making this determination, you may suffer a delay in the payment of principal and interest on your securities. In addition, if the Department of Education determines that the guarantor is able to meet its obligations, the Department of Education will not make guarantee payments to the trust. The Department of Education may or may not make the necessary determination or, if it does, it may or may not make this determination or the ultimate payment of the guarantee claims in a timely manner. This could result in delays or losses on your investment.

 

You Will Bear Prepayment And Extension Risk Due To Actions Taken By Individual Borrowers And Other Variables Beyond Our Control

A borrower may prepay a student loan in whole or in part, at any time. The rate of prepayments on the student loans may be influenced by a variety of economic, social, competitive and other factors, including changes in interest rates, the availability of alternative financings and the general economy. The likelihood of prepayments is higher as a result of various loan consolidation programs. In addition, a trust may receive unscheduled payments due to defaults and to purchases by the servicer or the depositor. Because a pool will include thousands of student loans, it is impossible to predict the amount and timing of payments that will be received and paid to security holders in any period. Consequently, the length of time that your securities are outstanding and accruing interest may be shorter than you expect.

 

 

On the other hand, the trust student loans may be extended as a result of grace periods, deferment periods and, under some circumstances, forbearance periods. This may lengthen the remaining term of the student loans and delay principal payments to you. In addition, the amount available for distribution to you will be reduced if borrowers fail to pay timely the principal and interest due on the trust student loans. Consequently, the length of time that your securities are outstanding and accruing interest may be longer than you expect.

 

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Any optional purchase right, any provision for the auction of the student loans, and, if applicable, the possibility that any pre-funded amount may not be fully used to purchase additional student loans create additional uncertainty regarding the timing of payments to security holders.

 

 

The effect of these factors is impossible to predict. To the extent they create reinvestment risk, you will bear that risk.

 

You May Be Unable To Reinvest Principal Payments At The Yield You Earn On The Securities

Asset-backed securities usually produce increased principal payments to investors when market interest rates fall below the interest rates on the collateral—student loans in this case—and decreased principal payments when market interest rates rise above the interest rates on the collateral. As a result, you are likely to receive more money to reinvest at a time when other investments generally are producing lower yields than the yield on the securities. Similarly, you are likely to receive less money to reinvest when other investments generally are producing higher yields than the yield on the securities.

 

A Failure To Comply With Student Loan Origination And Servicing Procedures Could Jeopardize Guarantor, Interest Subsidy And Special Allowance Payments On The Student Loans, Which May Result In Delays In Payment Or Losses On Your Securities

The Higher Education Act requires lenders making and servicing student loans and the guarantors guaranteeing those loans to follow specified procedures, including due diligence procedures, to ensure that the student loans are properly made, disbursed and serviced.

    

Failure to follow these procedures may result in:

    

·       the Department of Education’s refusal to make reinsurance payments to the applicable guarantor or to make interest subsidy payments and special allowance payments on the trust student loans; or

 

  · the guarantors’ inability or refusal to make guarantee payments on the trust student loans.

 

 

Loss of any program payments could adversely affect the amount of available funds and the trust’s ability to pay principal and interest on your securities

 

The Inability Of The Depositor Or The Servicer To Meet Its Repurchase Obligation May Result In Losses On Your Securities

Under some circumstances, the trust has the right to require the depositor or the servicer to purchase or substitute for a trust student loan. This right arises generally if a breach of the representations, warranties or covenants of the depositor or the servicer, as applicable,

 

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has a material adverse effect on the trust, if the breach is not cured within the applicable cure period. We cannot guarantee you, however, that the depositor or the servicer will have the financial resources to make a purchase or substitution. In this case, you will bear any resulting loss.

 

The Noteholders’ Right To Waive Defaults May Adversely Affect Certificate holders

The note holders have the ability, with specified exceptions, to waive defaults by the servicer or the administrator, including defaults that could materially and adversely affect the certificate holders.

 

Subordination Of The Certificates Or Some Classes Of Notes Results In A Greater Risk Of Losses Or Delays In Payment On Those Securities

Payments on the certificates may be subordinated to payments due on the notes of that series. In addition, some classes of notes may be subordinate to other classes. Consequently, holders of the certificates and the holders of some classes of notes may bear a greater risk of losses or delays in payment. The prospectus supplement will describe the nature and the extent of any subordination.

 

The Securities May Be Repaid Early Due To An Auction Sale Or The Exercise Of The Purchase Option. If This Happens, Your Yield May Be Affected And You Will Bear Reinvestment Risk

The securities may be repaid before you expect them to be if:

    

·       the indenture trustee successfully conducts an auction sale or

·       the servicer or other applicable entity exercises its option to purchase all the trust student loans.

 

 

Either event would result in the early retirement of the securities outstanding on that date. If this happens, your yield on the securities may be affected. You will bear the risk that you cannot reinvest the money you receive in comparable securities at as high a yield.

 

The Principal Of The Student Loans May Amortize Faster Because Of Incentive Programs

Various incentive programs may be made available to borrowers by the sellers of the student loans. The servicer may also make these incentive programs available to borrowers with trust student loans. Any incentive program that effectively reduces borrower payments or principal balances on trust student loans and is not required by the Higher Education Act will be applicable to the trust student loans only if the servicer receives payment in an amount sufficient to offset the effective yield reductions. If these benefits are made available to borrowers with trust student loans, the principal of the affected trust student loans may amortize faster than anticipated.

 

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Payment Offsets By Guarantors Or The Department Of Education Could Prevent The Trust From Paying You The Full Amount Of The Principal And Interest Due On Your Securities

The eligible lender trustee will use the same Department of Education lender identification number for student loans in a trust as it uses for other student loans it holds on behalf of other trusts established by the depositor. If so, the billings submitted to the Department of Education and the claims submitted to the guarantors will be consolidated with the billings and claims for payments for trust student loans under other trusts using the same lender identification number. Payments on those billings by the Department of Education as well as claim payments by the applicable guarantors will be made to the eligible lender trustee, or to the servicer on behalf of the eligible lender trustee, in a lump sum. Those payments must be allocated by the administrator among the various trusts that reference the same lender identification number.

 

 

If the Department of Education or a guarantor determines that the eligible lender trustee owes it a liability on any trust student loan, including loans it holds on behalf of the trust for your securities or other trusts, the Department or the applicable guarantor may seek to collect that liability by offsetting it against payments due to the eligible lender trustee under the terms of the trust. Any offsetting or shortfall of payments due to the eligible lender trustee could adversely affect the amount of available funds for any collection period and thus the trust’s ability to pay you principal and interest on the securities.

 

 

The servicing agreement for your securities and other servicing agreements of the depositor will contain provisions for cross-indemnification concerning those payments and offsets. Even with cross-indemnification provisions, however, the amount of funds available to the trust from indemnification would not necessarily be adequate to compensate the trust and investors in the securities for any previous reduction in the available funds.

 

A Servicer Default May Result In Additional Costs, Increased Servicing Fees By A Substitute Servicer Or A Diminution In Servicing Performance, Any Of Which May Have An Adverse Effect On Your Securities

If a servicer default occurs, the indenture trustee or the note holders in a given series of securities may remove the servicer without the consent of the eligible lender trustee or any of the certificate holders of that series. Only the indenture trustee or the note holders, and not the eligible lender trustee or the certificate holders, have the ability to remove the servicer if a servicer default occurs. In the

 

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event of the removal of the servicer and the appointment of a successor servicer, we cannot predict:

 

  · the cost of the transfer of servicing to the successor,

 

  · the ability of the successor to perform the obligations and duties of the servicer under the servicing agreement, or

 

  · the servicing fees charged by the successor.

 

 

In addition, the note holders have the ability, with some exceptions, to waive defaults by the servicer, including defaults that could materially and adversely affect the certificate holders.

 

The Bankruptcy Of The Depositor Or Any Other Seller Could Delay Or Reduce Payments On Your Securities

We have taken steps to assure that the voluntary or involuntary application for relief by SLM ECFC, which is the sole member of the depositor, or any other applicable seller under the United States Bankruptcy Code or other insolvency laws will not result in consolidation of the assets and liabilities of the depositor with those of SLM ECFC and the other sellers. However, we cannot guarantee that our activities will not result in a court concluding that our assets and liabilities should be consolidated with those of SLM ECFC or any other seller in a proceeding under any insolvency law. If a court were to reach this conclusion or a filing were made under any insolvency law by or against us, or if an attempt were made to litigate this issue, then delays in distributions on the securities or reductions in these amounts could result.

 

 

SLM ECFC, the other sellers of the student loans and the depositor intend that each transfer of student loans to the depositor will constitute a true sale. If such transfer constitutes a true sale, the student loans and their proceeds would no longer be considered property of SLM ECFC or the other sellers should any such seller become subject to an insolvency law.

 

 

If SLM ECFC or any other seller were to become subject to an insolvency law, and a creditor, a trustee-in-bankruptcy or the seller itself were to take the position that the sale of student loans from the related seller to the depositor should instead be treated as a pledge of the student loans to secure a borrowing of that seller, delays in payments on the securities could occur. In addition, if

 

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the court ruled in favor of this position, reductions in the amount of payments on the securities could result.

 

 

If the transfer of student loans by SLM ECFC or any other seller to the depositor is treated as a pledge instead of a sale, a tax or government lien on the property of the SLM ECFC or the applicable seller that arises before the transfer of those student loans to the depositor may have priority over that trust’s interest in the student loans.

 

The Indenture Trustee May Have Difficulty Liquidating Student Loans After An Event Of Default

Generally if an event of default occurs under an indenture, the indenture trustee may sell the trust student loans, without the consent of the certificate holders. However, the indenture trustee may not be able to find a purchaser for the trust student loans in a timely manner or the market value of those loans may not be high enough to make security holders whole, especially certificate holders.

 

The Federal Direct Student Loan Program Could Result In Reduced Revenues For The Servicer And The Guarantors

The federal direct student loan program, established under the Higher Education Act, may result in reductions in the volume of loans made under the Federal Family Education Loan Program. If so, the servicer may experience increased costs due to reduced economies of scale. These cost increases could reduce the ability of the servicer to satisfy its obligations to service the trust student loans. This increased competition from the federal direct student loan program could also reduce revenues of the guarantors that would otherwise be available to pay claims on defaulted student loans. The level of demand currently existing in the secondary market for loans made under the Federal Family Education Loan Program could be reduced, resulting in fewer potential buyers of the student loans and lower prices available in the secondary market for those loans. The Department of Education’s direct consolidation loan program may reduce the volume of loans outstanding under the Federal Family Education Loan Program and result in prepayments of student loans held by the trust.

 

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Changes In Law May Adversely Affect Student Loans, The Guarantors, The Depositor Or The Sellers Of The Student Loans And, Accordingly, Adversely Affect Your Securities

The Higher Education Act or other relevant federal or state laws, rules and regulations may be amended or modified in the future in a manner, including as part of any reauthorization of the Higher Education Act, that could adversely affect the federal student loan programs as well as the student loans made under these programs and the financial condition of the guarantors. Among other things, the level of guarantee payments may be adjusted from time to time. Future changes could affect the ability of the sellers of the student loans, the depositor or the servicer to satisfy their obligations to purchase or substitute student loans. Future changes could also have a material adverse effect on the revenues received by the guarantors that are available to pay claims on defaulted student loans in a timely manner. We cannot predict whether any changes will be adopted or, if adopted, what impact those changes would have on any trust or the securities that it issues.

 

The Use Of Master Promissory Notes May Compromise The Indenture Trustee’s Security Interest In The Student Loans

For loans disbursed on or after July 1, 1999, a master promissory note may evidence any student loan made to a borrower under the Federal Family Education Loan Program. If a master promissory note is used, a borrower executes only one promissory note with each lender. Subsequent student loans from that lender are evidenced by a confirmation sent to the student. Therefore, if a lender originates multiple student loans to the same student, all the student loans are evidenced by a single promissory note.

 

 

Under the Higher Education Act, each student loan made under a master promissory note may be sold independently of any other student loan made under that same master promissory note. Each student loan is separately enforceable on the basis of an original or copy of the master promissory note. Also, a security interest in these student loans may be perfected either through the secured party taking possession of the original or a copy of the master promissory note, or the filing of a financing statement. Prior to the master promissory note, each student loan made under the Federal Family Education Loan Program was evidenced by a separate note. Assignment of the original note was required to effect a transfer and possession of a copy did not perfect a security interest in the loan.

 

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It is possible that student loans transferred to the trust may be originated under a master promissory note. If the servicer were to deliver a copy of the master promissory note, in exchange for value, to a third party that did not have knowledge of the indenture trustee’s lien, that third party may also claim an interest in the student loan. It is possible that the third party’s interest could be prior to or on a parity with the interest of the indenture trustee.

 

Withdrawal Or Downgrade Of Initial Ratings May Decrease The Prices Of Your Securities

The prospectus supplement for your securities will specify the required ratings for the securities. A security rating is not a recommendation to buy, sell or hold securities. Similar ratings on different types of securities do not necessarily mean the same thing. You should analyze the significance of each rating independently from any other rating. A rating agency may revise or withdraw its rating at any time if it believes circumstances have changed. A subsequent downward change in rating is likely to decrease the price a subsequent purchaser will be willing to pay for your securities.

 

In The Event Of An Early Termination Of A Swap Agreement Due To Certain Swap Termination Events, A Trust May Be Required To Make A Large Termination Payment To Any Related Swap Counter party

To the extent described in the related prospectus supplement, when a class of securities bears interest at a fixed rate, a trust may enter into one or more interest rate swap agreements to hedge basis risk. If at any time a class of securities is denominated in a currency other than U.S. Dollars, the trust will be required to enter into one or more currency swap agreements with eligible swap counter parties to hedge against currency risk.

 

 

A swap agreement generally may not be terminated except upon the occurrence of enumerated termination events set forth in the applicable swap agreement which will be described in the related prospectus supplement. Depending on the reason for the termination, however, a swap termination payment may be due from either the trust or the related swap counterparty.

 

 

If a termination event under any of these swap agreements occurs and the trust owes the related swap counter party a large termination payment that is required to be paid pro rata with interest due to the related securities, the trust may not have sufficient available funds on that or future distribution dates to make required payments of interest or principal, and the holders of all classes of securities may suffer a loss.

 

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Your Securities Will Have Greater Risk If An Interest Rate Swap Agreement Terminates

If on any distribution date a payment is due to the trust under an interest rate swap agreement, but the related swap counter party defaults and the administrator is unable to arrange for a replacement swap agreement, holders of such securities will remain entitled to the established rate of interest and principal, even though the related swap agreement has terminated. If this occurs, amounts available to make payments on the related securities will be reduced to the extent the interest rates on those securities exceed the rates which the trust would have been required to pay to the swap counter party under the terminated interest rate swap agreement. In this event, the trust may not have sufficient available funds on that or future distribution dates to make required payments of interest or principal to all classes of securities and you may suffer a loss.

 

Your Securities Will Have Greater Risk If A Currency Swap Agreement Terminates

To the extent described in the related prospectus supplement, when a class of securities is to be denominated in a currency other than U.S. Dollars, the trust will enter into one or more currency swap agreements with eligible swap counter parties to hedge against currency exchange and basis risks. The currency swap agreements will be intended to convert:

 

  · principal and interest payments on the related class of securities from U.S. Dollars to the applicable currency; and

 

  · the interest rate on the related class of securities from a LIBOR-based rate to a fixed or floating rate payable in the applicable currency.

 

Among other events, a currency swap agreement may terminate in the event that either:

 

  · the trust or the related swap counter party defaults in making a required payment within three business days of the date that payment was due; or

 

  · within 30 calendar days of the date on which the credit ratings of such swap counter party fall below the required ratings, the related swap counter party fails to:

 

  · obtain a replacement cross-currency swap agreement with terms substantially the same as the initial currency swap agreement;

 

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  · obtain a rating affirmation on the securities; or