424B5 1 d424b5.htm 424B5 424B5
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Prospectus Supplement to Base Prospectus dated October 16, 2007

 

$1,533,663,000

 

SLM Student Loan Trust 2008-1

Issuing Entity

 

SLM Funding LLC

Depositor

 

Sallie Mae, Inc.

Sponsor, Servicer and Administrator

 

Student Loan-Backed Notes

 

On January 17, 2008, the trust will issue:

 

Class


   Principal

   Interest Rate

   Maturity

Floating Rate Class A-1 Notes

   $ 371,000,000    3-month LIBOR plus 0.25%    July 25, 2013

Floating Rate Class A-2 Notes

   $ 517,000,000    3-month LIBOR plus 0.35%    October 25, 2016

Floating Rate Class A-3 Notes

   $ 190,000,000    3-month LIBOR plus 0.50%    October 25, 2017

Floating Rate Class A-4 Notes

   $ 409,653,000    3-month LIBOR plus 0.65%    January 25, 2022

Floating Rate Class B Notes

   $ 46,010,000    3-month LIBOR plus 1.15%    January 25, 2029

 

The trust will make payments primarily from collections on a pool of FFELP student loans. Interest and principal on the notes will be payable quarterly on the 25th day of each January, April, July and October, beginning in April 2008. In general, the trust will pay principal, sequentially, to the class A-1 through class A-4 notes, in that order, until each such class is paid in full, and then to the class B notes until paid in full. 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. Credit enhancement for the notes consists of excess interest on the trust student loans, subordination of the class B notes to the class A notes, and the reserve account. In addition, the trust will deposit funds, on the closing date, into the capitalized interest account. These funds will be available only for a limited period of time. The interest rates on the notes are determined by reference to LIBOR. A description of how LIBOR is determined appears under “Additional Information Regarding the Notes—Determination of Indices—LIBOR” in the base prospectus.

 

We are offering the notes through the underwriters at the prices shown below when and if issued. Application has been made for the notes to be listed on the Official List of the Luxembourg Stock Exchange and to be traded on the Luxembourg Stock Exchange’s Euro MTF Market.

 

We are not offering the notes in any state or other jurisdiction where the offer is prohibited.

 

All of the class B notes will be retained by the depositor or its affiliate. This prospectus supplement also covers the resale of the class B notes from time to time by the depositor or its affiliate.

 


 

     Price to Public

   

Underwriting

Discount


  

Proceeds to

the Depositor


 

Per Floating Rate Class A-1 Note

   100.0 %   0.125%    99.875 %

Per Floating Rate Class A-2 Note

   100.0 %   0.150%    99.850 %

Per Floating Rate Class A-3 Note

   100.0 %   0.170%    99.830 %

Per Floating Rate Class A-4 Note

   100.0 %   0.180%    99.820 %

Per Floating Rate Class B Note*

   100.0 %   0.250%    99.750 %

* For the amount of Class B Notes retained by the depositor or its affiliate, the underwriting discount will be 0.10% and proceeds to the depositor will be 99.90% with no selling concession or reallowance.

 

We expect the proceeds to the depositor in respect of the notes to be $1,531,317,365 before deducting expenses payable by the depositor estimated to be $1,373,053 and certain deposits to be made by the trust.

 

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

 


 

You should consider carefully the risk factors on page S-19 of this prospectus supplement and on page 20 of the base prospectus.

 

The notes are asset-backed securities issued by and are obligations of the issuing entity, which is a trust. They are not obligations of or interests in the sponsor, administrator, servicer, depositor, any seller or any of their affiliates.

 

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

 


 

Joint Book-Runners

 

Barclays Capital

  Citi   Deutsche Bank Securities

 


 

Co-Managers

 

Credit Suisse

  Lehman Brothers  

RBS Greenwich Capital

 

UBS Investment

Bank

 


 

January 10, 2008


Table of Contents

TABLE OF CONTENTS

Prospectus Supplement

 

     Page

Summary of Terms

   S-1

•         Issuing Entity

   S-1

•         Depositor

   S-1

•         Sponsor, Servicer and Administrator

   S-1

•         Indenture Trustee

   S-1

•         Eligible Lender Trustee

   S-1

•         Delaware Trustee

   S-1

•         The Notes

   S-1

•         Dates

   S-2

•         Information About the Trust Student Loans

   S-2

•         Information About the Notes

   S-3

•         Indenture Trustee and Paying Agent

   S-5

•         Luxembourg Paying Agent

   S-5

•         Administrator

   S-5

•         Information About the Trust

   S-5

•         Administration of the Trust

   S-11

•         Termination of the Trust

   S-14

•         Excess Distribution Certificateholder

   S-16

•         Tax Considerations

   S-16

•         ERISA Considerations

   S-16

•         Ratings of the Notes

   S-17

•         Listing Information

   S-17

•         Risk Factors

   S-18

•         Identification Numbers

   S-18

Risk Factors

   S-19

•         The Notes Are Not Suitable Investments For All Investors

   S-19

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

   S-19

•         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 Cashflows

   S-20

•         Certain Credit And Liquidity Enhancement Features Are Limited And If They Are Depleted, There May Be Shortfalls In Distributions To Noteholders

   S-20

•         The Characteristics Of The Trust Student Loans May Change

   S-21

•         Because The Initial Principal Balance Of The Notes Exceeds The Balance Of Certain Of The Trust Assets, You May Be Adversely Affected By A High Rate Of Prepayments

   S-22

•         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-22

•         Certain Actions Can Be Taken Without Noteholder Approval

   S-23

•         The Bankruptcy Of The Servicer Could Delay The Appointment Of A Successor Servicer Or Reduce Payments On Your Notes

   S-23

 

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•         The Trust May Be Affected By Delayed Payments From Borrowers Called To Active Military Service

   S-23

•         Retention Of The Class B Notes By The Depositor Or Its Affiliate May Reduce The Liquidity Of The Class B Notes

   S-24
Defined Terms    S-25
Formation of the Trust    S-25

•         The Trust

   S-25

•         Capitalization of the Trust

   S-26

•         Eligible Lender Trustee

   S-27

•         Delaware Trustee

   S-28

•         Indenture Trustee

   S-29
Use of Proceeds    S-29
The Trust Student Loan Pool    S-30

•         General

   S-30

•         Eligible Trust Student Loans

   S-30

•         Additional Sellers

   S-31

•         Certain Expenses

   S-31

•         Characteristics of the Initial Trust Student Loans

   S-31

•         Insurance of Trust Student Loans; Guarantors of Trust Student Loans

   S-32

•         Cure Period for Trust Student Loans

   S-33

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

   S-34

•         Third-Party Originators of FFELP Loans

   S-35
Recent Developments    S-35
Description of the Notes    S-39

•         General

   S-39

•         The Notes

   S-39

•         Supplemental Purchase Period

   S-43

•         Servicing Compensation

   S-43

•         Distributions

   S-44

•         Distributions Following an Event of Default and Acceleration of the Maturity of the Notes

   S-46

•         Voting Rights and Remedies; Insolvency Events

   S-47

•         Credit Enhancement

   S-47

•         Potential Future Interest Rate Cap Agreement

   S-49

•         Administration Fee

   S-49

•         Determination of Indices

   S-49

•         Notice of Interest Rates

   S-50

•         Accounts

   S-50

•         Trust Fees

   S-50

•         Optional Purchase

   S-51

•         Auction of Trust Assets

   S-51
Static Pools    S-52
Prepayments, Extensions, Weighted Average Lives and Expected Maturities of the Notes    S-53
U.S. Federal Income Tax Consequences    S-54
ERISA Considerations    S-54
Accounting Considerations    S-56
Reports to Noteholders    S-56
Notice To Canadian Residents    S-57

•         Resale Restrictions

   S-57

•         Representations of Purchasers

   S-57

•         Rights of Action – Ontario Purchasers Only

   S-58

•         Enforcement of Legal Rights

   S-58

•         Taxation and Eligibility for Investment

   S-59
Notice to Investors    S-59
Underwriting    S-60
Listing Information    S-61
Ratings of the Notes    S-63
Legal Matters    S-63
Glossary for Prospectus Supplement    S-65
Annex A: Characteristics of the Initial Trust Student Loan Pool    A-1

 

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Exhibit I: Prepayments, Extensions, Weighted Average Lives and Expected Maturities of the Notes    I-1

 

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TABLE OF CONTENTS

Base Prospectus

 

     Page

Prospectus Summary

   7

Risk Factors

   20

Formation of the Issuing Entities

   41

Use of Proceeds

   43

The Depositor

   43

The Sponsor, Servicer and Administrator

   45

The Sellers

   47

The Student Loan Pools

   48

Sallie Mae’s Student Loan Financing Business

   51

Transfer and Servicing Agreements

   58

Servicing and Administration

   62

Trading Information

   75

Description of the Notes

   76

Additional Information Regarding the Notes

   83

Certain Legal Aspects of the Student Loans

   128

U.S. Federal Income Tax Consequences

   130

European Union Directive on the Taxation of Savings Income

   142

State Tax Consequences

   143

ERISA Considerations

   143

Available Information

   146

Reports to Noteholders

   146

Incorporation of Documents by Reference

   147

The Plan of Distribution

   147

Legal Matters

   150

Appendix A: Federal Family Education Loan Program

   A-1

Appendix B: Undergraduate and Graduate Loan Programs

   B-1

Appendix C: Law Loan Programs

   C-1

Appendix D: MBA Loan Programs

   D-1

Appendix E: Medical Loan Programs

   E-1

Appendix F: Direct-to-Consumer Loan Programs

   F-1

Appendix G: Private Consolidation Loan Program

   G-1

Appendix H: Global Clearance, Settlement and Tax Documentation Procedures

   H-1

 

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THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT

AND THE PROSPECTUS ATTACHED HERETO

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.

We have not authorized anyone to provide you with different information.

We sometimes refer to the accompanying prospectus as the base prospectus or the prospectus. You should read both the base prospectus and this prospectus supplement to understand the notes.

For your convenience, we include cross-references in this prospectus supplement and in the base prospectus to captions in these materials where you can find related information.

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.

 


Application has been made for the notes to be listed on the Official List of the Luxembourg Stock Exchange and to be traded on the Luxembourg Stock Exchange’s Euro MTF Market. We cannot assure you that the application will be granted. You should consult with Deutsche Bank Luxembourg S.A., the Luxembourg listing agent for the notes, to determine their status. This prospectus supplement and the base prospectus may be used only for the purposes for which they have been published.

 

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FORWARD-LOOKING STATEMENTS

Certain statements contained in or incorporated by reference in this prospectus supplement and the accompanying base prospectus consist of forward-looking statements relating to future economic performance or projections and other financial items. These statements can be identified by the use of forward-looking words such as “may,” “will,” “should,” “expects,” “believes,” “anticipates,” “estimates,” or other comparable words. Forward-looking statements are subject to a variety of risks and uncertainties that could cause actual results to differ from the projected results. Those risks and uncertainties include, among others, general economic and business conditions, regulatory initiatives and compliance with governmental regulations, customer preferences and various other matters, many of which are beyond our control. Because we cannot predict the future, what actually happens may be very different from what is contained in our forward-looking statements.

 

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SUMMARY OF PARTIES

TO THE TRANSACTION*

LOGO

 

* This chart provides only a simplified overview of the relations between the key parties to the transaction. Refer to this prospectus supplement for a further description.

 

** Each of these entities is a direct or indirect wholly-owned subsidiary of SLM Corporation.

 

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PAYMENT FLOWS

AND DELIVERIES

LOGO

 

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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 base prospectus. You should read the full description of this information appearing elsewhere in this document and in the base prospectus to understand all of the terms of the offering of the notes.

ISSUING ENTITY

SLM Student Loan Trust 2008-1, which is a Delaware statutory trust. It was formed on December 21, 2007, under a trust agreement dated as of December 21, 2007. Its principal address is in care of The Bank of New York Trust Company, N.A., 10161 Centurion Parkway, Jacksonville, Florida 32256. We sometimes refer to the issuing entity as the trust.

DEPOSITOR

SLM Funding LLC, which is a Delaware limited liability company. Its principal address is 12061 Bluemont Way, V3419, Reston, Virginia 20190.

SPONSOR, SERVICER AND ADMINISTRATOR

Sallie Mae, Inc., which is a Delaware corporation. Its principal address is 12061 Bluemont Way, Reston, Virginia 20190.

Sallie Mae, Inc. is an affiliate of the depositor and each seller.

INDENTURE TRUSTEE

Deutsche Bank Trust Company Americas, which is a New York banking corporation. Its principal trust address is 60 Wall Street, New York, New York 10005.

ELIGIBLE LENDER TRUSTEE

The Bank of New York Trust Company, N.A., which is a national banking association. It is the eligible lender trustee under the trust agreement, and will hold legal title to the assets of the trust. It maintains an address at 10161 Centurion Parkway, Jacksonville, Florida 32256.

DELAWARE TRUSTEE

The Bank of New York (Delaware), which is a Delaware banking corporation. The Delaware trustee will act in the capacities required under the Delaware Statutory Trust Act and under the trust agreement. Its principal Delaware address is 100 White Clay Center, Route 273, Newark, Delaware 19711.

THE NOTES

The trust is offering the following classes of notes, which are debt obligations of the trust:

Class A Notes:

 

   

Floating Rate Class A-1 Student Loan-Backed Notes in the amount of $371,000,000;

 

   

Floating Rate Class A-2 Student Loan-Backed Notes in the amount of $517,000,000;

 

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Floating Rate Class A-3 Student Loan-Backed Notes in the amount of $190,000,000; and

 

   

Floating Rate Class A-4 Student Loan-Backed Notes in the amount of $409,653,000.

Class B Notes:

 

   

Floating Rate Class B Student Loan-Backed Notes in the amount of $46,010,000.

We sometimes refer to:

 

   

the class A-1 notes through class A-4 notes as the class A notes; and

 

   

the class A notes and class B notes as the notes.

DATES

The closing date for this offering is January 17, 2008.

The information about the initial trust student loans in this prospectus supplement is calculated and presented as of December 26, 2007. 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 sometimes 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 quarterly distribution date for the notes is the 25th day of each January, April, July and October, beginning in April 2008. If any January 25, April 25, July 25 or October 25 is not a business day, the quarterly distribution date will be the next business day.

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 quarterly distribution date.

A monthly allocation date will be the 25th calendar day of each month or the next succeeding business day if such 25th day is not a business day.

The supplemental purchase period for purchasing additional trust student loans with funds on deposit in the supplemental purchase account begins on the closing date and ends on February 1, 2008.

INFORMATION ABOUT THE TRUST STUDENT LOANS

The notes will receive payments primarily from collections on (1) the initial trust student loans acquired by the trust on the closing date and (2) any additional trust student loans acquired by the trust from time to time during 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

 

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account. The cutoff dates for these additional trust student loans will be the dates those loans are purchased by the trust (which we refer to as “subsequent cutoff dates”). The trust will be entitled to receive all collections and proceeds on these additional trust student loans on and after their respective subsequent cutoff dates.

INFORMATION ABOUT THE NOTES

Interest Payments. Interest will accrue generally on the outstanding principal balance of each class of notes during three-month accrual periods and will be paid on each quarterly distribution date.

Generally, each accrual period for the notes begins on a quarterly distribution date and ends on the day before the next quarterly distribution date. The first accrual period for the notes, however, will begin on the closing date and end on April 24, 2008, the day before the first quarterly distribution date.

Each class of notes will bear interest at a rate equal to the sum of three-month LIBOR (except for the first accrual period) and the applicable spread listed in the table below:

 

Class

   Spread

Class A-1

   plus 0.25%

Class A-2

   plus 0.35%

Class A-3

   plus 0.50%

Class A-4

   plus 0.65%

Class B

   plus 1.15%

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

x + [8 / 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 Notes—Determination of Indices—LIBOR” in the base prospectus. The administrator will calculate interest on the notes based on the actual number of days elapsed in each accrual period divided by 360.

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

 

   

the principal distribution amount for that quarterly distribution date, plus

 

   

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

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

 

   

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

 

   

second, the class B noteholders’ principal distribution amount to the class B notes, until their principal balance is reduced to zero.

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

 

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description of principal payments. See also “Description of the Notes—Distributions Following an Event of Default and Acceleration of the Maturity of the Notes” in this prospectus supplement for a description of the cashflows on each quarterly distribution date following the occurrence of an event of default and an acceleration of the maturity of the notes.

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

 

Class

   Maturity Date

Class A-1

   July 25, 2013

Class A-2

   October 25, 2016

Class A-3

   October 25, 2017

Class A-4

   January 25, 2022

Class B

   January 25, 2029

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 quarterly 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 quarterly 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) the amount deposited into the supplemental purchase account on the closing date.

Prepayments, Extensions, Weighted Average Lives and Expected Maturities of the Notes. The projected weighted average life, expected maturity date and percentages of remaining principal balance of each class of notes under various assumed prepayment scenarios may be found in Exhibit I, “Prepayments, Extensions, Weighted Average Lives and Expected Maturities of the Notes,” attached hereto.

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. 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. 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 the notes will be available for purchase in minimum denominations of $100,000 and additional increments of $1,000. 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.

Potential Future Interest Rate Cap Agreement. At any time after the closing date, at the direction of the

 

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administrator, the trust may enter into one or more interest rate cap agreements (collectively, the “potential future interest rate cap agreement”) with one or more eligible cap counterparties (collectively, the “potential future cap counterparty”) to hedge some or all of the interest rate risk of the notes. Any payment due by the trust to a potential future cap counterparty would be payable only out of funds available for distribution under clause (i) of “Description of the Notes—Distributions—Quarterly Distributions from the Collection Account” in this prospectus supplement. Any payments received from a potential future cap counterparty would be included in available funds. It is not anticipated that the trust would be required to make any payments to any potential future cap counterparty under any potential future interest rate cap agreement other than an upfront payment and, in some circumstances, a termination payment. See “Description of the Notes—Potential Future Interest Rate Cap Agreement” in this prospectus supplement.

INDENTURE TRUSTEE AND PAYING AGENT

The trust will issue the notes under an indenture to be dated as of the closing date. 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 and 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 for the notes that are listed on the Official List of the Luxembourg Stock Exchange and traded on the Luxembourg Stock Exchange’s Euro MTF Market. Initially, Deutsche Bank Luxembourg S.A. will act as the Luxembourg paying agent.

ADMINISTRATOR

Sallie Mae, Inc. will act as the administrator of the trust under an administration agreement to be 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 base prospectus.

INFORMATION ABOUT THE TRUST

Formation of the Trust

The trust is a Delaware statutory trust.

The only activities of the trust are acquiring, owning and managing the trust student loans and the other assets of the trust, issuing and making payments on the notes, entering into a potential future interest rate cap agreement, if any, 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 more of VG

 

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Funding, LLC, SLM ECFC, Mustang Funding I, LLC and Mustang Funding II, LLC 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, to Mustang Funding I, LLC as Mustang Funding I and to Mustang Funding II, LLC as Mustang Funding II. We also sometimes refer to SLM ECFC, VG Funding, Mustang Funding I and Mustang Funding II 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 more 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.

The Bank of New York Trust Company, N.A., 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; a supplemental purchase account; a capitalized interest account; and a floor income rebate account; and

 

   

its rights under any potential future interest rate cap agreement.

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 and any additional trust student loans) are education loans to students and parents of students made under the Federal Family Education Loan Program, known as the FFELP. Approximately 89.7% of the trust student loans by principal balance are Stafford loans, and approximately 10.4% are SLS or PLUS loans. None of the trust student loans are consolidation loans. See “Appendix A—Federal Family Education Loan Program” for a description of each type of FFELP loan in the base prospectus.

 

   

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

The depositor will acquire the initial trust student loans from the sellers on the closing date.

As of the statistical cutoff date, the initial trust student loans had a pool

 

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balance of approximately $1,499,913,060.

As of the statistical cutoff date, the weighted average annual borrower interest rate of the initial trust student loans was approximately 7.05% and their weighted average remaining term to scheduled maturity was approximately 127 months.

Any special allowance payments on the initial trust student loans are based on the three-month financial commercial paper rate as to approximately 92.23% of the initial trust student loans by principal balance and the 91-day Treasury bill rate as to approximately 7.77% of the initial trust student loans by principal balance. For more details concerning the initial trust student loans, see “Annex A—Characteristics of the Initial Trust Student Loan Pool” attached to this prospectus supplement.

Approximately 74.3% of the initial trust student loans by principal balance are 97% guaranteed, approximately 24.9% of the initial trust student loans by principal balance are 98% guaranteed and approximately 0.8% of the initial trust student loans by principal balance are 100% guaranteed, in each case, with respect to principal and interest by one of the guaranty agencies described in Annex A to this prospectus supplement and reinsured by the Department of Education under the Higher Education Act. For a discussion of legislative initiatives that may affect your notes, see “Recent Developments” in this prospectus supplement.

 

   

Significant Guarantors. The guaranty agencies described in Annex A to this prospectus supplement guarantee all of the initial trust student loans. United Student Aid Funds, Inc., guarantees approximately 67.3% of the initial trust student loans by principal balance and California Student Aid Commission guarantees approximately 10.8% of the initial trust student loans by principal balance. No other guarantor guarantees more than 10% of the initial trust student loans. See “The Trust Student Loan Pool—Insurance of Trust Student Loans; Guarantors of Trust Student Loans” in this prospectus supplement. The initial trust student loans are also reinsured by the United States Department of Education.

 

   

Additional Trust Student Loans. From time to time during the supplemental purchase period, the depositor may acquire additional trust student loans from 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 such 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.

 

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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. See “The Trust Student Loan Pool—Eligible Trust Student Loans” in this prospectus supplement.

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

 

   

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 $4,070,000 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. See “Servicing and Administration—Accounts” in the base prospectus for a more complete description of eligible investments.

The administrator will deposit collections on the trust student loans, interest subsidy payments, special allowance payments and certain other funds into the collection account, all as described in this prospectus supplement and the base 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 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. Funds on deposit in the supplemental purchase account will be used to purchase additional trust student loans from time to time during the supplemental purchase period.

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 business day immediately following the end of that period and will be included as a part of available funds on the initial quarterly distribution date. Amounts on deposit in the

 

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supplemental purchase account will not be replenished.

 

   

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 $3,749,783.

Funds in the reserve account may be replenished on each quarterly 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 quarterly 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 quarterly 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 quarterly distribution date will be equal to the greater of:

 

   

0.25% of the pool balance as of the close of business on the last day of the related collection period; and

 

   

$1,499,914.

A collection period is the three-month period ending on the last day of March, June, September and December, in each case for the quarterly distribution date in the following month. However, the first collection period will be the period from the closing date through March 31, 2008.

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.

The reserve account will be available on each quarterly distribution date and each monthly allocation date to cover any shortfalls in payments of primary servicing and administration fees, the class A noteholders’ interest distribution amount and the class B noteholders’ interest distribution amount.

In addition, the reserve account will be available:

 

   

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

 

   

on the maturity date for the class B notes and upon termination of the trust, to cover shortfalls in payments of the class B noteholders’ principal and accrued interest to the class B notes and any carryover servicing fees.

 

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If the market value of the reserve account on any quarterly distribution date is sufficient to pay the remaining principal balance, interest accrued on the notes and any carryover servicing fees, amounts on deposit in that account will be so applied on that quarterly distribution date or monthly allocation date.

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. See “Description of the Notes—Credit Enhancement—Reserve Account” in this prospectus supplement.

 

   

Capitalized Interest Account. The administrator will establish and maintain a 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 $30,000,000.

Funds in the capitalized interest account will be available to cover shortfalls in payments of primary servicing and administration fees, the class A noteholders’ interest distribution amount and the class B noteholders’ interest distribution amount, in that order, 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 funds remaining on deposit in the capitalized interest account on the April 2009 quarterly distribution date will be transferred to the collection account and included as part of available funds on that quarterly distribution date.

The capitalized interest account further enhances the likelihood of timely interest payments to noteholders through the April 2009 quarterly distribution date.

 

   

Floor Income Rebate Account. The administrator will establish and maintain a floor income rebate account as an asset of the trust in the name of the indenture trustee. On or before each monthly allocation date, the administrator will instruct the indenture trustee to transfer from the collection account to the floor income rebate account the monthly accrual of interest paid by borrowers on trust student loans originated on or after April 1, 2006 that exceeds the special allowance support levels applicable to such trust student loans, which we refer to in this prospectus supplement as “floor income.” These deposited amounts will be used to offset the amount of floor income, if any, that is expected to be netted by the Department of Education against the interest subsidy payments and/or special allowance payments otherwise due to the trust for that collection period. At the end of the next succeeding collection period all sums deposited into the floor income rebate account during the previous collection period will be withdrawn on the related quarterly distribution date and become part of available funds on such date.

 

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ADMINISTRATION OF THE TRUST

Distributions

Sallie Mae, Inc., as administrator, will instruct the indenture trustee to withdraw funds on deposit in the collection account, floor income rebate account and, to the extent required, the reserve account and the capitalized interest account on each monthly allocation date and/or quarterly distribution date, as applicable. Available funds will be applied on each applicable quarterly distribution date generally as shown in the chart on the following page of this prospectus supplement.

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 initial 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 base prospectus.

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 guaranty agencies and the Department of Education. See “Servicing and Administration—Servicing Procedures” and “—Administration Agreement” in the base prospectus. Under some circumstances, the servicer may transfer its obligations as servicer.

See “Servicing and Administration— Matters Regarding the Servicer” in the base 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.

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 will equal the sum of the monthly servicing fees for the trust student loans owned by the trust during that month. The monthly servicing fee for a trust student loan will be calculated on a unit basis and will equal (i) $1.50 per month per borrower for trust student loans that are in in-school status, (ii) $2.75 per month per borrower for trust student loans that are in grace status and (iii) $3.25 per month per borrower for all other trust student loans. A trust student loan’s current payment status will be determined as of the last day of each month. In the event a borrower has more than one trust student loan and those loans are in different payment statuses, the monthly servicing fee will be paid at the higher unit rate. In no event, however, will the primary servicing fee for any month exceed 1/12 of 0.90% of the outstanding principal balance of the trust student loans, calculated as of the closing date or the

 

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first day of the preceding calendar month, as the case may be.

The primary servicing fee will be payable in arrears out of available funds and amounts on deposit in the collection account, the capitalized interest account and the reserve account on each monthly allocation date or quarterly distribution date, as applicable, beginning in February 2008. Primary servicing fees due and payable to the servicer will include amounts from any prior monthly allocation dates or quarterly distribution dates, as applicable, that remain unpaid.

The carryover servicing fee will be payable to the servicer on each quarterly 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 monthly allocation dates or quarterly distribution dates, as applicable; 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 base prospectus.

Optional Purchase

The servicer may purchase or arrange for the purchase of all remaining trust student loans on any quarterly distribution date on or after the first quarterly 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. 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 quarterly distribution date; and

 

   

reduce the outstanding principal amount of each class of notes then outstanding on the related quarterly distribution date to zero.

 

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

In addition to the optional purchase right described above, the servicer also will have an option, but not the obligation, to purchase any trust student loan on any date; provided that the servicer may not purchase trust student loans if the aggregate, cumulative principal balance thereof (at the time of purchase) exceeds 2% of the initial pool balance. The purchase price for any trust student loans purchased by the servicer using this option will be equal to the outstanding principal amount of such trust student loans plus accrued and unpaid interest through the date of purchase.

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 quarterly distribution date. An auction will be consummated only if the servicer has first waived its optional right to purchase all of the remaining trust student loans as described above. The servicer will waive its option to purchase all of 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 a financial advisor, including an underwriter of the notes 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 base prospectus.

The net proceeds of any auction sale will be used to retire any outstanding notes on the related quarterly 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

 

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similar to those described above, including the servicer’s waiver of its option to purchase all of the 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 quarterly 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 of note principal.

See “The Student Loan Pools—Termination” in the base 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. The depositor intends to transfer the excess distribution certificate to SLM ECFC. At any time thereafter, SLM ECFC may transfer ownership of the excess distribution certificate to another affiliate of SLM Corporation and/or it may be sold to an unaffiliated third party.

Distributions on the Excess Distribution Certificate. The excess distribution certificate will not bear interest and will not have a principal balance. In general, distributions on the excess distribution certificate will be made only after all of the notes have received all amounts due on a quarterly distribution date. See “—Principal Distributions” above and “Description of the Notes—Distributions” in this prospectus supplement.

TAX CONSIDERATIONS

Subject to important considerations described in the base 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 characterized as an association or a publicly traded partnership 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 and 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 base prospectus.

ERISA CONSIDERATIONS

Subject to important considerations and conditions described in this prospectus supplement and the base prospectus, the notes may, in general, be purchased

 

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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 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 base prospectus for additional information concerning the application of ERISA.

RATINGS OF THE NOTES

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.

A rating addresses only the likelihood of the timely payment of stated interest and the payment of principal at final maturity, and does not address the timing or likelihood of principal distributions prior to final maturity. See “Ratings of the Notes” in this prospectus supplement.

LISTING INFORMATION

Application has been made for the notes to be listed on the Official List of the Luxembourg Stock Exchange and to be traded on the Luxembourg Stock Exchange’s Euro MTF Market. We cannot assure you that the application will be granted. You should consult with Deutsche Bank Luxembourg S.A., 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 and/or on the Luxembourg Stock Exchange’s website at: http://www.bourse.lu.

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

 

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RISK FACTORS

Some of the factors you should consider before making an investment in the notes are described in this prospectus supplement and in the base 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: 784439 AA9

 

   

Class A-2 Notes: 784439 AB7

 

   

Class A-3 Notes: 784439 AC5

 

   

Class A-4 Notes: 784439 AD3

 

   

Class B Notes: 784439 AE1

International Securities Identification Numbers (ISIN)

 

   

Class A-1 Notes: US784439AA99

 

   

Class A-2 Notes: US784439AB72

 

   

Class A-3 Notes: US784439AC55

 

   

Class A-4 Notes: US784439AD39

 

   

Class B Notes: US784439AE12

European Common Codes

 

   

Class A-1 Notes: 033999232

 

   

Class A-2 Notes: 033999534

 

   

Class A-3 Notes: 034001359

 

   

Class A-4 Notes: 034001596

 

   

Class B Notes: 034002053

 

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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 base prospectus describes additional risk factors that you should also consider beginning on page 20 of the base prospectus. These risk factors could affect your investment in or return on the notes.

 

The Notes Are Not Suitable Investments For All Investors    The notes are complex investments that should be considered only by investors who, either alone or with their financial, tax and legal advisors, have the expertise to analyze the prepayment, reinvestment, default and market risk, and tax consequences of an investment, as well as the interaction of these factors.
Subordination Of The Class B Notes And Sequential Payment Of The Notes Result In A Greater Risk Of Loss    Holders of class B notes 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 quarterly 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.

 

 

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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 Cashflows   

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 quarterly distribution date, the outstanding principal balance of the trust student loans, including accrued interest thereon that is expected to be capitalized, and amounts then on deposit in the capitalized interest account (after any distributions of interest from that 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, interest on the class B notes will be subordinated to the payment of principal on the class A notes on that quarterly distribution date.

 

  

Principal on the class B notes will not begin to be paid until the principal on the class A notes is 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.

 

Certain Credit And Liquidity Enhancement Features Are Limited And If They Are Depleted, There May Be Shortfalls In Distributions To Noteholders    Certain credit and liquidity enhancement features, including the reserve account and the capitalized interest account, are limited in amount. In addition, the capitalized interest account will not be replenished, is available for a limited duration and will not be extended. In certain circumstances, if there is a shortfall in available funds, such amounts may be depleted. This depletion could result in shortfalls and delays in distributions to noteholders.

 

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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. The only requirement limiting the purchase of additional trust student loans by the trust is that each such trust student loan must satisfy the eligibility criteria described under “The Trust Student Loan Pool” in this prospectus supplement at the time of its sale to the trust.

 

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Because The Initial Principal Balance Of The Notes Exceeds The Balance Of Certain Of The Trust Assets, You May Be Adversely Affected By A High Rate Of Prepayments   

The pool balance as of the statistical cutoff date is approximately 99.75% of the aggregate principal balance of the notes minus the initial balance of the capitalized interest account. Noteholders must rely primarily on interest payments on the trust student loans and other trust assets, in excess of servicing and administration fees 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 consolidating their student loans (as tends to occur more frequently in low interest rate environments), from borrower defaults 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. Therefore, there is a risk that shortfalls might occur because, among other things, while the effective interest rates of the trust student loans adjust on the basis of specified indices, the interest rates of the notes adjust on the basis of a different index. If a shortfall were to occur, the trust’s ability to pay your principal and/or interest on the notes could be compromised. See “Annex A—Characteristics of the Trust Student Loan Pool—Composition of the Trust Student Loans as of the Statistical Cutoff Date,” which specifies the percentages of trust student loans that adjust based on the three-month commercial paper rate or the 91-day Treasury bill rate, as applicable.

 

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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.

 

The Bankruptcy Of The Servicer Could Delay The Appointment Of A Successor Servicer Or Reduce Payments On Your Notes   

In the event of default by the servicer resulting solely from certain events of insolvency or the bankruptcy of the servicer, a court, conservator, receiver or liquidator may have the power to prevent either the indenture trustee or the noteholders from appointing a successor servicer or prevent the servicer from appointing a sub-servicer, as the case may be, and delays in the collection of payments on the trust student loans may occur. Any delay in the collection of payments on the trust student loans may delay or reduce payments to noteholders.

 

The Trust May Be Affected By Delayed Payments From Borrowers Called To Active Military Service   

The Higher Education Act, the Servicemembers Civil Relief Act and similar state and local laws provide payment relief to borrowers who enter active military service and to borrowers in reserve status who are called to active duty after the origination of their trust student loans. Recent and ongoing military operations by the United States have increased the number of citizens who are in active military service, including persons in reserve status who have been called or may be called to active duty.

 

  

The Servicemembers Civil Relief Act also limits the ability of a lender in the FFELP to take legal action against a borrower during the borrower’s period of active duty and, in some cases, during an additional three-month period thereafter.

 

   We do not know how many trust student loans have been or may be affected by the application of these laws. As a result, there may be unanticipated delays in payment and losses on the trust student loans.

 

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Retention Of The Class B Notes By The Depositor Or Its Affiliate May Reduce The Liquidity Of The Class B Notes.    Although all of the class B notes will initially be retained by the depositor or its affiliate, all or a portion of the class B notes could be subsequently sold in the secondary market from time-to-time. Accordingly, if a portion of the retained class B notes is sold, the market for the class B notes may be less liquid than would otherwise be the case. Furthermore, if additional portions of the retained class B notes are sold in the secondary market, demand and market price for the class B notes already in the market could be adversely affected.

 

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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

SLM Student Loan Trust 2008-1 is a statutory trust newly formed in accordance with Delaware law on December 21, 2007, under a trust agreement dated as of December 21, 2007. The short-form trust agreement will be amended on the closing date pursuant to an amended and restated trust agreement to be dated the closing date among the depositor, the eligible lender trustee, the Delaware 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 any potential future interest rate cap agreement at the direction of the administrator from time to time and making the payments, including any upfront payments, required thereunder; 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 any amounts to be deposited by the trust into the reserve account, the capitalized interest account, the supplemental purchase account and the collection account. The depositor will use the net proceeds from the sale of the notes to pay to the trust the amounts to be deposited by the trust into the reserve account, the capitalized interest account, the supplemental purchase account and the collection account. 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 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 any

 

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of the sellers during the supplemental purchase period only to the extent there are sufficient funds on deposit in the supplemental purchase account.

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 interest rate cap agreement entered into from time to time and the related documents;

 

   

its rights under the transfer and servicing agreements, including the right to require the applicable seller, 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 sections “Transfer and Servicing Agreements,” “Servicing and Administration” and “The Notes” in the base prospectus contain descriptions of the material provisions of the transaction documents.

The notes will be secured by the property of the trust. The Trust Accounts will be established and maintained in the name of the indenture trustee for the benefit of the 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.

The trust’s principal offices are in Jacksonville, Florida, in care of The Bank of New York Trust Company, N.A., 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:

 

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Floating Rate Class A-1 Student Loan-Backed Notes

   $ 371,000,000

Floating Rate Class A-2 Student Loan-Backed Notes

     517,000,000

Floating Rate Class A-3 Student Loan-Backed Notes

     190,000,000

Floating Rate Class A-4 Student Loan-Backed Notes

     409,653,000

Floating Rate Class B Student Loan-Backed Notes

     46,010,000

Equity

     100
      

Total

   $ 1,533,663,100

Eligible Lender Trustee

The eligible lender trustee is The Bank of New York Trust Company, N.A. (“BNYTC”), a national banking association organized under the laws of the United States. It maintains a trust address at 10161 Centurion Parkway, Jacksonville, Florida, 32256. BNYTC has been, and currently is, serving as eligible lender trustee for numerous securitization transactions and programs involving pools of student loan receivables. BNYTC is one of the largest corporate trust providers of trust services in securitization transactions.

BNYTC has provided the information in the prior paragraph. Other than the prior paragraph, BNYTC has not participated in the preparation of, and is not responsible for, any other information contained in this prospectus supplement or the base prospectus.

The eligible lender trustee will acquire on behalf of the trust legal title to all the initial trust student loans purchased on the closing date and any additional trust student loans acquired during the supplemental purchase period. The eligible lender trustee, on behalf of the trust, has entered into separate guarantee agreements with the guaranty 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 base prospectus.

The eligible lender trustee will act on behalf of the excess distribution certificateholder and represent and exercise the rights and interests of the excess distribution certificateholder under the trust agreement. Except as specifically delegated to the administrator in the administration agreement, the eligible lender trustee will also execute and deliver all agreements required to be entered into on behalf of the trust.

The liability of the eligible lender trustee in connection with the issuance and sale of the notes will consist solely of the express obligations specified in the trust agreement and sale agreement. The eligible lender trustee will not be personally liable for any actions or omissions that were not the result of its own bad faith, willful misconduct or negligence. The eligible lender trustee will be entitled to be indemnified by the administrator for any loss, liability or expense (including reasonable attorneys’ fees and expenses) incurred by it in connection with the performance of its duties under the indenture and the other transaction documents. See “Description of the Notes” in this

 

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prospectus supplement and “Transfer and Servicing Agreements” in the base prospectus. Affiliates of the depositor maintain banking relations with the eligible lender trustee.

The eligible lender trustee may resign at any time. The administrator may also remove the eligible lender trustee if it becomes insolvent or ceases to be eligible to continue as eligible lender trustee. In the event of such a resignation or removal, the administrator will appoint a successor. The resignation or removal of the eligible lender trustee and the appointment of a successor will become effective only when a successor accepts its appointment. To the extent expenses incurred in connection with the replacement of the eligible lender trustee are not paid by the successor trustee, the depositor will be responsible for the payment of such expenses.

Delaware Trustee

The Bank of New York (Delaware), will be the Delaware trustee under the trust agreement. The Delaware trustee will act in the capacities required for a Delaware trust under the Delaware Statutory Trust Act. The Bank of New York (Delaware) is a Delaware banking corporation with its principal place of business located at 100 White Clay Center, Route 273, Newark, Delaware 19711. The Bank of New York (Delaware) has and is currently serving as Delaware trustee for numerous securitization transactions and programs involving pools of student loan receivables.

The Bank of New York (Delaware) has provided the information in the prior paragraph for purposes of complying with Regulation AB. Other than the prior paragraph, The Bank of New York (Delaware) has not participated in the preparation of, and is not responsible for, any other information contained in this prospectus supplement or the base prospectus.

The liability of the Delaware trustee in connection with the issuance and sale of the notes will consist solely of the express obligations specified in the trust agreement. The Delaware trustee will not be personally liable for any actions or omissions that were not the result of its own bad faith, willful misconduct or negligence. The Delaware trustee will be entitled to be indemnified by the administrator (at the direction of the depositor) for any loss, liability or expense (including reasonable attorneys’ fees and expenses) incurred by it in connection with the performance of its duties under the trust agreement. See “Description of the Notes” in this prospectus supplement and “Transfer and Servicing Agreements” in the base prospectus. The depositor and its affiliates maintain banking relations with the Delaware trustee and/or its affiliates.

The Delaware trustee may resign at any time. The administrator may also remove the Delaware trustee if it becomes insolvent or ceases to be eligible to continue as Delaware trustee. In the event of such a resignation or removal, the administrator will appoint a successor. The resignation or removal of the Delaware trustee and the appointment of a successor will become effective only when a successor accepts its appointment. To the extent expenses incurred in connection with the replacement of the Delaware trustee are not paid by the successor trustee, the depositor will be responsible for the payment of such expenses.

 

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Indenture Trustee

The trust will issue the notes under an indenture to be dated as of the closing date. 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 and will act as paying agent for the notes. Deutsche Bank Trust Company Americas, a banking association organized under the laws of the State of New York, is the indenture trustee. Its address is 60 Wall Street, 26th floor, New York, New York 10005. Deutsche Bank Trust Company Americas has acted as trustee on numerous asset-backed securities transactions involving pools of student loans, including as of December 31, 2007, approximately 56 previous asset-backed securities transactions involving federally-insured student loans that were sponsored by Sallie Mae.

Affiliates of the depositor maintain customary banking relations on arms-length terms with the indenture trustee.

The indenture trustee will act on behalf of the noteholders and represent their interests in the exercise of their rights under the indenture.

To the extent expenses incurred in connection with the replacement of an indenture trustee are not paid by the indenture trustee that is being replaced, the depositor will be responsible for the payment of such expenses.

The indenture trustee will not be personally liable for any actions or omissions that were not the result of its own bad faith, willful misconduct or negligence. The indenture trustee will be entitled to be indemnified by the administrator (at the direction of the trust) for any loss, liability or expense (including reasonable attorneys’ fees) incurred by it in connection with the performance of its duties under the indenture and the other transaction documents. Upon the occurrence of an event of default, and in the event the administrator fails to reimburse the indenture trustee, the indenture trustee will be entitled to receive all such amounts owed from cashflow on the trust student loans prior to any amounts being distributed to the noteholders.

USE OF PROCEEDS

The trust will purchase the initial trust student loans from the depositor under the initial sale agreement in exchange for the issuance of the notes and the issuance of the excess distribution certificate to the depositor.

The depositor will use the net proceeds from the sale of the notes to the underwriters to pay to the trust the initial deposits to the collection account, the capitalized interest account, the supplemental purchase account and the reserve account.

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

 

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Expenses incurred to establish the trust and issue the notes (other than fees that are due to the underwriters) are payable by the depositor. Expenses to be paid by the depositor are estimated to be $1,373,053.

THE TRUST STUDENT LOAN POOL

General

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.

Eligible Trust Student Loans

The initial trust student loans were selected from the portfolio of student loans owned by one or more of SLM ECFC, VG Funding, Mustang Funding I, Mustang Funding II (each, a “seller”) or 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 FFELP loan that is guaranteed as to at least (1) 100% with respect to trust student loans with an initial date of disbursement prior to October 1, 1993, (2) 98% with respect to trust student loans with an initial date of disbursement prior to July 1, 2006 and on or after October 1, 1993 or (3) 97% with respect to trust student loans with an initial date of disbursement on or after July 1, 2006, of its principal and interest by a guaranty agency under a guarantee agreement and the guaranty agency is, in turn, reinsured by the Department of Education in accordance with the FFELP;

 

   

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

 

   

had its first disbursement prior to October 1, 2007;

 

   

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, if any, based on the three-month commercial paper rate or the 91-day Treasury bill rate.

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).

 

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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 a seller or one of their affiliates, and such student loans will be owned by a seller, and will be student loans that are eligible to be sold to the trust. Concurrently with the acquisition of any eligible student loans from a seller, 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.

Additional Sellers

Mustang Funding I, LLC. Mustang Funding I, LLC is a Delaware limited liability company whose sole member is SLM Education Credit Finance Corporation. We sometimes refer to Mustang Funding I, LLC as Mustang Funding I. Mustang Funding I was formed on April 19, 2007. Mustang Funding I is a limited purpose, bankruptcy remote entity formed to purchase education loans, whether originated under the FFELP or other private credit student loan programs, for re-sale in various securitization transactions. Sallie Mae, Inc. services all loans owned by Mustang Funding I. The Bank of New York Trust Company, N.A. acts as interim eligible lender trustee on behalf of Mustang Funding I.

Mustang Funding II, LLC. Mustang Funding II, LLC is a Delaware limited liability company whose sole member is SLM Education Credit Finance Corporation. We sometimes refer to Mustang Funding II, LLC as Mustang Funding II. Mustang Funding II was formed on April 19, 2007. Mustang Funding II is a limited purpose, bankruptcy remote entity formed to purchase education loans, whether originated under the FFELP or other private credit student loan programs, for re-sale in various securitization transactions. Sallie Mae, Inc. services all loans owned by Mustang Funding II. The Bank of New York Trust Company, N.A. acts as interim eligible lender trustee on behalf of Mustang Funding II.

Certain Expenses

Expenses incurred in connection with the acquisition of the trust student loans and the establishment of the trust (including the expenses of accountants, underwriters and rating agencies) are paid by Sallie Mae, Inc. and/or the depositor. Such expenses are not paid from proceeds of the sale of the notes.

Characteristics of the Initial Trust Student Loans

The tables contained in Annex A to this prospectus supplement 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 tables in Annex A includes the principal balance due from

 

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borrowers plus accrued interest to be capitalized of $27,001,728 as of the statistical cutoff date.

Unless otherwise specified, all information with respect to the initial trust student loans presented in this prospectus supplement or in Annex A is as of December 26, 2007, which is the statistical cutoff date.

Following the sale of additional trust student loans during the supplemental purchase period to the eligible lender trustee, on behalf of the trust, the aggregate characteristics of the final pool of trust student loans may vary from those shown in Annex A for the initial pool of trust student loans. If the aggregate characteristics of the final pool of trust student loans are materially different from those shown in Annex A, updated information will be provided in the first quarterly servicing report provided by the administrator for the period in which the supplemental purchase period ends.

Insurance of Trust Student Loans; Guarantors of Trust Student Loans

In general, disbursed student loans are guaranteed by the applicable guarantor, and reinsured against default by the Department of Education. The percentage of the guarantee is based upon the date of disbursement of the student loans as follows:

 

Disbursement Date

   Percentage
Guaranteed
 

Prior to October 1, 1993

   100 %

On or after October 1, 1993 but before July 1, 2006

   98 %

On or after July 1, 2006

   97 %

The eligible lender trustee has entered into a separate guarantee agreement with each of the guaranty agencies listed on page A-12 in Annex A to this prospectus supplement, under which each of the guarantors has agreed to guarantee certain of the trust student loans.

Under the Higher Education Amendments of 1992, if the Department of Education has determined that a guaranty 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 guaranty 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 guaranty agency or, if that determination were 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—Guaranty Agencies under the FFELP” in the base prospectus.

 

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The table on page A-12 of Annex A to this prospectus supplement provides information with respect to the applicable percentage by outstanding principal balance of the initial trust student loans guaranteed by each guarantor.

Some historical information about each guaranty agency that guarantees trust student loans comprising at least 10% of the Initial Pool Balance is also provided beginning on page A-13 in Annex A to this prospectus supplement. For purposes of the tables in Annex A, we refer to these guaranty agencies as the Significant Guarantors.

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 base prospectus.

Each guaranty 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 guaranty agency’s rules and other applicable requirements;

 

   

the timely payment to the guaranty agency of the guarantee fee payable on the trust student loan; and

 

   

the timely submission to the guaranty 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 guaranty 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

 

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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 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 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 base 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 on a loan-by-loan basis 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 guaranty 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 guaranty agencies resulting from the eligible lender

 

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trustee’s activities in the FFELP. As a result, if the Department of Education or a guaranty agency were to determine that the eligible lender trustee owes a liability to the Department of Education or a guaranty agency on any student loan included in a trust using the shared lender identification number, the Department of Education or that guaranty agency would be likely to collect that liability by offset against amounts due the eligible lender trustee under the shared lender identification number, including amounts owed in connection with the trust.

In addition, other trusts using the shared lender identification number may in a given quarter incur consolidation origination fees, consolidation loan rebate fees or floor income rebates 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 guaranty agency arising from the trust student loans held by the eligible lender trustee on the trust’s behalf.

Third-Party Originators of FFELP Loans

With respect to FFELP loans, the identity of the actual originator of any particular student loan is not material, as the requisite underwriting criteria, if any, are in each case prescribed by provisions of the Higher Education Act or the rules and regulations promulgated thereunder.

RECENT DEVELOPMENTS

Recently Enacted Legislation and Regulations. On September 27, 2007, the President of the United States signed the “College Cost Reduction and Access Act of 2007” into law, which, by amending the Higher Education Act of 1965, eliminates certain government subsidies to education lenders. Under the College Cost Reduction and Access Act of 2007, fixed interest rates on subsidized Stafford loans to undergraduates will decline from the current 6.8% to 6.0% for loans disbursed beginning July 1, 2008, to 5.6% for loans disbursed beginning July 1, 2009, to 4.5% for loans disbursed beginning July 1, 2010, and to 3.4% for loans disbursed between July 1, 2011 and June 30, 2012. Absent any other legislative changes, the rates would revert to 6.8% for loans disbursed on or after July 1, 2012. The legislation also includes provisions that: (1) reduce the Federal Family Education Loan Program lender insurance percentage to 95% of the unpaid balance of such FFELP loans disbursed on or after October 1, 2012, (2) reduce special allowance payments made to FFELP lenders and (3) eliminate the “exceptional performance” status for lenders, servicers and guaranty agencies as of October 1, 2007.

 

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The enactment of the College Cost Reduction and Access Act of 2007 could have an adverse impact on Sallie Mae, Inc.’s results of operations, which could adversely affect its ability to service the trust student loans, act as administrator for the issuing entity or otherwise comply with its obligations under the transaction documents. In addition, it could have an adverse impact on the financial condition of the guaranty agencies. The termination of the lender’s and the servicer’s exceptional performer status and the reduction in the lender insurance rate effectively reduce the guaranteed percentage of almost all of the trust student loans from what the lender insurance rate would have been if the College Cost Reduction and Access Act of 2007 had not been enacted.

On November 1, 2007, the Secretary of Education released final regulations applicable to the FFELP which will go into effect on July 1, 2008. Among other things, the regulations incorporate, with some modifications, current, interpretive and clarifying guidance on prohibited inducements and activities provided by lenders and guaranty agencies. In addition, the regulations also specify the requirements that a school must meet if it chooses to provide a preferred lender list, including that the preferred lender list contain at least three lenders that are not affiliated with each other.

Proposed Legislation. On February 1, 2007, the “Student Loan Sunshine Act” (S. 486) was introduced in the Senate. On May 9, 2007, the House of Representatives passed its own version of the Student Loan Sunshine Act. Both bills provide for substantially enhanced disclosures to borrowers. The bills also provide for disclosures regarding the relationships, if any, between lenders and the borrower’s educational institution as well as limiting gifts, services or other things of value made by a lender which has a relationship with educational institutions.

On July 24, 2007, the U.S. Senate passed the “Higher Education Amendments of 2007” (S.1642) which regulates certain services provided to institutions of higher education by guarantors and lenders and also includes new disclosure requirements for lenders. In addition, schools are prohibited from designating preferred lender lists and are required to include any lender that requests inclusion on its standard list of lenders.

If any of the aforementioned legislative proposals are enacted substantially as proposed, they could have an adverse impact on Sallie Mae, Inc.’s results of operations, which could adversely affect its ability to service the trust student loans, act as administrator for the issuing entity or otherwise comply with its obligations under the transaction documents. In addition, these proposals if enacted could have an adverse impact on the financial condition of the guaranty agencies.

Inquiries into the Student Loan Industry by Congress and State Attorneys General. In 2007, the Chairmen of the U.S. Senate Committee on Health, Education, Labor and Pensions and the U.S. House Committee on Education and Labor commenced investigations of the student loan industry. Sallie Mae, Inc. is responding to requests for certain information and documents in connection with these investigations. Additionally, the offices of various state attorneys general have

 

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announced that they are also conducting investigations into student lending practices and certain of these offices have submitted formal information requests to Sallie Mae, Inc. Sallie Mae, Inc. is cooperating with such investigations.

On April 11, 2007, Sallie Mae, Inc. announced that it had voluntarily adopted certain nationwide best business practices. In addition, Sallie Mae, Inc. has agreed to make a $2 million voluntary contribution to a national fund for the purpose of educating high school seniors and their parents on the subject of financing higher education.

Merger. On April 15, 2007, SLM Corporation, Mustang Holding Company Inc. (“Parent”) and Mustang Merger Sub, Inc. (“Merger Subsidiary”) entered into an Agreement and Plan of Merger (the “Merger Agreement”). Parent is owned 50.2% by J.C. Flowers II L.P., 24.9% by Bank of America, N.A. and 24.9% by JPMorgan Chase Bank, N.A. (collectively, the “Investors”).

The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the merger, Merger Subsidiary will merge with and into SLM Corporation (the “Merger”), with SLM Corporation continuing as the surviving corporation and a wholly-owned subsidiary of Parent. As of the effective time of the Merger, each issued and outstanding share of common stock of SLM Corporation will be cancelled and converted into the right to receive $60.00 in cash, without interest. Parent has provided SLM Corporation with executed equity and debt financing commitments, the proceeds of which will provide for the payment of the aggregate cash consideration contemplated by the Merger Agreement. The financing commitments are subject to customary closing conditions.

The Merger Agreement contains certain termination rights for both SLM Corporation and Parent. The Merger Agreement provides that, upon termination under specified circumstances, SLM Corporation would be required to pay Parent a termination fee of $900 million. The Merger Agreement further provides that, upon termination under specified circumstances, Parent would be required to pay SLM Corporation a termination fee of $900 million. The termination fee payable by Parent is severally guaranteed by the Investors in separate limited guarantees.

Consummation of the Merger is subject to several conditions, including the adoption of the Merger Agreement by SLM Corporation’s stockholders, the absence of legal prohibitions and the receipt of requisite regulatory approvals.

On June 19, 2007, SLM Corporation announced the end of the waiting period required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, in connection with the proposed Merger.

On July 11, 2007, SLM Corporation announced that, in connection with the Merger Agreement, Parent has informed SLM Corporation that it believes the current legislative proposals pending before the U.S. House of Representatives and the U.S. Senate “could result in a failure of the conditions to the closing of the merger to be

 

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satisfied.” SLM Corporation also announced that it strongly disagreed with this assertion, intended to proceed towards the closing of the Merger as rapidly as possible and will take all steps to protect shareholders’ interests.

On July 18, 2007, SLM Corporation filed its definitive proxy statement with the SEC.

On August 15, 2007, SLM Corporation’s stockholders approved and adopted the Merger Agreement at a special meeting of the stockholders.

On September 26, 2007, the Investors stated that they believed that the conditions to closing under the Merger Agreement, if the closing were to occur on that day, would not be satisfied as a result of changes in the legislative and economic environment. On October 2, 2007, the Investors again stated that they believed that, if the conditions to the closing of the Merger were required to be measured on that day, the conditions to the Investors’ obligation to close would not be satisfied, stated that a “Material Adverse Effect” (as defined in the Merger Agreement) has occurred and made a proposal to acquire SLM Corporation upon different terms. This proposal expired on October 9, 2007.

On October 8, 2007, SLM Corporation filed a lawsuit in Delaware Chancery Court (the “Court”) against Parent, Merger Subsidiary and the Investors. The lawsuit seeks a declaration that the Investors have breached the Merger Agreement, that no Material Adverse Effect has occurred and that SLM Corporation may terminate the Merger Agreement and collect the $900 million termination fee.

On October 15, 2007, Parent, Merger Subsidiary and the Investors filed a counterclaim against SLM Corporation seeking a declaration that a Material Adverse Effect had occurred.

On October 24, 2007, pursuant to the Court’s directions at the scheduling conference on October 23, 2007, the Parent and Merger Subsidiary waived SLM Corporation’s obligations to comply with, among other things, the covenants that govern the conduct of SLM Corporation’s business.

On December 12, 2007, SLM Corporation announced an update of the Merger with the Investors. SLM Corporation disclosed that, in a series of discussions intended to resolve the dispute between the parties which occurred over the course of the eight weeks prior to December 12, 2007 between SLM Corporation and senior representatives of the Investors, SLM Corporation offered to consider an alternative transaction with the Investors, and to give them the opportunity to update their due diligence and submit a new proposal to acquire SLM Corporation with no pre-conditions. The Investors responded that they did not wish to pursue this opportunity.

Equity Offerings. On December 31, 2007, SLM Corporation completed its concurrent public offerings of $2.0 billion of its common stock and $1.0 billion of its mandatory convertible preferred stock. The company intends to apply approximately $2.0 billion of the net proceeds from the offerings to physically settle its outstanding

 

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equity forward purchase contract, pursuant to which it will effect the repurchase of 44,039,890 shares of common stock deliverable to SLM Corporation under that contract. The dilutive impact of the two offerings will be partially offset by the physical settlement of the outstanding equity forward purchase contract. Any proceeds remaining after such settlement will be used for general corporate purposes.

Board of Directors and Management Changes. On January 7, 2008, SLM Corporation announced that its Board of Directors has appointed Anthony P. Terracciano as Chairman of the Board. Albert L. Lord has been appointed Vice Chairman of the Board and will continue in his capacity as Chief Executive Officer. In addition, the Board of Directors also announced the appointment of John F. Remondi as Vice Chairman and Chief Financial Officer.

Downgrade of Corporate Ratings. On June 1, 2007, S&P announced a readjustment of the counterparty credit rating for SLM Corporation from A/A-1 to BBB+/A-2. On July 2, 2007, Fitch announced a readjustment of the long-term issuer debt rating for SLM Corporation from A+ to BBB. On August 14, 2007, Moody’s announced a reduction of the senior unsecured debt credit rating for SLM Corporation from A2 to Baa1. Presently, both S&P and Moody’s have announced that these ratings are on watch for possible downgrade.

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 to which this prospectus supplement relates. The following summary describes some terms of the notes, the indenture and the trust agreement. The base prospectus describes other terms of the notes. See “Description of the Notes” and “Additional Information Regarding the Notes” in the base 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 accrual period and will be payable to the class A noteholders on each quarterly distribution date. Interest accrued as of any quarterly distribution date but not paid on that quarterly distribution date will be due on the next quarterly 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 applicable quarterly 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

 

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supplement. If these sources are insufficient to pay the Class A Noteholders’ Interest Distribution Amount for that quarterly 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.

Interest will be payable on each class of class A notes on each quarterly distribution date. Each class of class A notes will bear interest at a rate equal to the sum of three-month LIBOR (except for the first accrual period) and the applicable spread listed in the table below:

 

Class of Notes

   Spread  

Class A-1

   plus 0.25 %

Class A-2

   plus 0.35 %

Class A-3

   plus 0.50 %

Class A-4

   plus 0.65 %

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

x + [8 / 32 * (y-x)]

where:

x = three-month LIBOR, and

y = four-month LIBOR.

The administrator will determine LIBOR for each accrual period on the second business day before the beginning of that accrual period, as described under “Additional Information Regarding the Notes—Determination of Indices” in the base prospectus. The first accrual period for the notes will consist of 99 days.

Distributions of Principal. Principal payments will be made to the class A noteholders on each quarterly distribution date in an amount generally equal to the Principal Distribution Amount for that quarterly distribution date, until the principal balance of each class of the class A notes is reduced to zero.

Principal payments on the class A notes 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 quarterly distribution date, the shortfall will be added to the principal payable to the class A noteholders with respect to principal on subsequent quarterly 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.

 

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

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 will be made pro rata, without preference or priority.

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 base prospectus.

The Class B Notes

Distributions of Interest. Interest will accrue on the outstanding 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 quarterly distribution date. Interest accrued as of any quarterly distribution date but not paid on that quarterly distribution date will be due on the next quarterly 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 quarterly 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.

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 1.15%.

The administrator will determine LIBOR for the class B notes for all accrual periods in the same manner as for the class A notes as described above.

Distributions of Principal. Principal payments will be made to the class B noteholders on each quarterly distribution date after the class A notes have been paid in full, in an amount generally equal to the Class B Noteholders’ Principal Distribution Amount for that quarterly distribution date. Principal payments will generally be funded from Available Funds and the other sources of funds 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 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.

 

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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 outstanding principal and accrued interest of the class B 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 base prospectus.

Subordination of the Class B Notes. On any quarterly distribution date, distributions of interest on the class B notes will be subordinated to the payment of interest on the class A notes and principal payments on the class B notes will be subordinated to the payment of both interest and principal on the class A notes. Consequently, on any quarterly distribution date, Available Funds, amounts on deposit in the reserve account remaining after payment of the primary servicing fee and the administration fee and, through the April 2009 quarterly 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 quarterly distribution date until the class A notes have received the Class A Noteholders’ Principal Distribution Amount for that quarterly distribution date.

Notwithstanding the foregoing, if:

(1) on any quarterly distribution date following distributions under clauses (a) through (e) under “—Distributions—Quarterly Distributions from the Collection Account” to be made on that quarterly distribution date, without giving effect to any payments from the capitalized interest account to the class B noteholders, the outstanding principal balance of the class A notes, would be in excess of:

 

   

the outstanding principal balance of the trust student loans, plus

 

   

any accrued interest on the trust student loans as of the last day of the related collection period that is expected to be capitalized, plus

 

   

the balance of the capitalized interest account on the quarterly distribution date following those distributions made with respect to clauses (a) through (d) under “—Distributions—Quarterly Distributions from the Collection Account” below, plus

 

   

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

 

   

the Specified Reserve Account Balance for that quarterly distribution date, or

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

 

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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 quarterly distribution date and each applicable subsequent quarterly distribution date to the payment of the Class A Noteholders’ Distribution Amount before any amounts are applied to the payment of the Class B Noteholders’ Distribution Amount.

Supplemental Purchase Period

During the supplemental purchase period, which is the period beginning on the closing date and ending on February 1, 2008, 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 one of the sellers, 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 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. The eligible lender trustee will have no obligation to determine whether a loan is an eligible student loan.

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 the eligibility criteria as described 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 at the end of the supplemental purchase period will be transferred to the collection account on the business day immediately following the end of that period and included as part of Available Funds for the initial quarterly 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 for any month will equal the sum of the monthly servicing fees for the trust student loans owned by the trust during that month. The monthly servicing fee for a trust student loan will be calculated

 

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on a unit basis and will equal (i) $1.50 per month per borrower for trust student loans that are in in-school status, (ii) $2.75 per month per borrower for trust student loans that are in grace status and (iii) $3.25 per month per borrower for all other trust student loans. A trust student loan’s current payment status will be determined as of the last day of each month. In the event a borrower has more than one trust student loan and those loans are in different payment statuses, the monthly servicing fee will be paid at the higher unit rate. In no event, however, will the primary servicing fee for any month exceed 1/12 of 0.90% of the outstanding principal balance of the trust student loans, calculated as of the closing date or the first day of the preceding calendar month, as the case may be.

The primary servicing fee will be payable in arrears out of Available Funds and amounts on deposit in the collection account, the capitalized interest account and the reserve account on each monthly allocation date or quarterly distribution date, as applicable, beginning in February 2008. Primary servicing fees due and payable to the servicer will include amounts from any prior monthly allocation dates or quarterly distribution dates, as applicable, that remain unpaid.

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 monthly allocation dates or quarterly distribution dates, as applicable; and

 

   

interest on any unpaid amounts.

The carryover servicing fee will be payable to the servicer on each quarterly distribution date out of Available Funds after payment on that quarterly distribution date of clauses (a) through (g) under “—Distributions—Quarterly Distributions from the Collection Account” in this prospectus supplement. The carryover servicing fee will be subject to increase as agreed to by the administrator, the indenture 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 $4,070,000 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 quarterly 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

 

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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.

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. The eligible lender trustee will deposit all interest subsidy payments and all special allowance payments on the trust student loans received by it for each collection period into the collection account within two business days of receipt. See “Servicing and Administration—Payments on Student Loans” in the base prospectus.

Monthly Distributions from the Collection Account. On each monthly allocation date that is not a quarterly 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 allocation date from amounts on deposit in the collection account.

Quarterly Distributions from the Collection Account. On or before each quarterly 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 Available Funds for that quarterly distribution date, together with amounts transferred from the capitalized interest account through the April 2009 quarterly distribution date (with respect to clauses (a), (b), (c) and (d) below for that quarterly distribution date), and amounts transferred from the reserve account with respect to that quarterly distribution date:

(a) to the servicer, the primary servicing fee due on that quarterly distribution date;

(b) to the administrator, the administration fee due on that quarterly distribution date and all prior unpaid administration fees;

(c) to the class A noteholders, the Class A Noteholders’ Interest Distribution Amount, pro rata, based on the amounts payable as Class A Noteholders’ Interest Distribution Amount;

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

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

(f) the Class B Noteholders’ Principal Distribution Amount to the class B noteholders, until the principal balance of such class is paid in full;

 

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

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

(i) to the related potential future cap counterparty under any potential future interest rate cap agreement, the amount of any payment due under such potential future interest rate cap agreement; and

(j) to the excess distribution certificateholder, any remaining amounts after application of the preceding clauses.

Notwithstanding the foregoing, in the event the trust student loans are not sold on the trust auction date, on each subsequent quarterly 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.

Distributions Following an Event of Default and Acceleration of the Maturity of the Notes

After any of the following:

 

   

an event of default under the indenture relating to the payment of principal on any class at its maturity date or to the payment of interest on the controlling class of notes which has resulted in an acceleration of the notes,

 

   

an event of default under the indenture relating to an insolvency event or a bankruptcy with respect to the trust which has resulted in an acceleration of the notes, or

 

   

a liquidation of the trust assets following any event of default under the indenture,

the priority of the payment of the notes changes. In particular, payments on the notes on each quarterly distribution date following the acceleration of the notes as provided above will be made in the following order of priority:

FIRST: pro rata, to the indenture trustee, for annual fees and any other amounts due and owing under the indenture, and to the eligible lender trustee and Delaware trustee, for annual fees and any other amounts due and owing under the trust agreement (but, in each case, only to the extent not paid by the administrator or the depositor);

SECOND: to the servicer, the primary servicing fee due on that quarterly distribution date;

THIRD: to the administrator, the administration fee due on that quarterly distribution date and all prior unpaid administration fees;

 

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FOURTH: to the class A noteholders, the Class A Noteholders’ Interest Distribution Amount, pro rata, based on the amounts payable as Class A Noteholders’ Interest Distribution Amount;

FIFTH: pro rata, based on the aggregate principal balance of the class A notes, to the class A noteholders, an amount sufficient to reduce the respective principal balances of the class A notes to zero;

SIXTH: to the class B noteholders, the Class B Noteholders’ Interest Distribution Amount;

SEVENTH: to the class B noteholders, an amount sufficient to reduce the principal balance of the class B notes to zero;

EIGHTH: to the servicer, the aggregate unpaid amount of the carryover servicing fee, if any;

NINTH: to the related potential future cap counterparty under any potential future interest rate cap agreement, the amount of any payment due under such potential future interest rate cap agreement; and

TENTH: to the excess distribution certificateholder, any remaining amounts after application of the preceding clauses.

Voting Rights and Remedies; Insolvency Events

Noteholders will have the voting rights and remedies described in the base 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 base 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 $3,749,783. The reserve account may be replenished on each quarterly 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 quarterly distribution date under clauses (a) through (f) under “—Distributions—Quarterly Distributions from the Collection Account” above.

If the market value of securities and cash in the reserve account on any quarterly 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 quarterly distribution date.

 

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If the amount on deposit in the reserve account on any quarterly distribution date after giving effect to all deposits or withdrawals from the reserve account on that quarterly distribution date is greater than the Specified Reserve Account Balance for that quarterly 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 quarterly 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 quarterly distribution date or, in the case of the payment of any primary servicing fee, on any monthly allocation date, to the extent that the amount of Available Funds and the amount on deposit in the capitalized interest account on that quarterly distribution date or monthly allocation date is insufficient to pay any of the items specified in clauses (a), (b), (c) and (d) under “—Distributions—Quarterly 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 (e) and (f) and, in the case of the final distribution upon termination of the trust, clauses (h), (i) and (j) under “—Distributions—Quarterly Distributions from the Collection Account” above.

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 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 $30,000,000. 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 quarterly distribution date through the April 2009 quarterly distribution date, the amount of Available Funds is insufficient to pay any of the items specified in clauses (a), (b), (c) and (d) under “—Distributions—Quarterly Distributions from the Collection Account” above, amounts on deposit in the capitalized interest account on that quarterly 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 —Quarterly Distributions from the Collection Account” above.

 

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All funds remaining on deposit in the capitalized interest account on the April 2009 quarterly distribution date will be transferred to the collection account and included in Available Funds on that quarterly distribution date.

The capitalized interest account is intended to enhance the likelihood of timely distributions of interest to the noteholders through the April 2009 quarterly distribution date.

Subordination of the Class B Notes. On any quarterly 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 the class A notes. The subordination of the class B notes provides credit enhancement to the class A notes. See “—The Notes—The Class B Notes—Subordination of the Class B Notes” above.

Potential Future Interest Rate Cap Agreement

At any time after the closing date, at the direction of the administrator, the trust may enter into one or more interest rate cap agreements (collectively, the “potential future interest rate cap agreement”) with one or more Eligible Cap Counterparties (collectively, the “potential future cap counterparty”) to hedge some or all of the interest rate risk of the notes. Any potential future interest rate cap agreement would contain customary and usual terms for such derivative agreements. Any payment due by the trust to a potential future cap counterparty after the closing date would be payable only out of funds payable under clause (i) of “—Distributions—Quarterly Distributions from the Collection Account” in this prospectus supplement. Any payments received from a potential future cap counterparty would be included in Available Funds. The trust will enter into a potential future interest rate cap agreement after the closing date only upon receipt of a written confirmation from each rating agency then rating the notes that such potential future interest rate cap agreement will not result in the downgrading of its then current rating of any class of notes. It is not anticipated that the trust would be required to make any payments to any potential future cap counterparty under any potential future interest rate cap agreement other than an upfront payment and, in some circumstances, a termination payment.

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 $20,000 per collection period payable proportionately in arrears on each quarterly distribution date.

Determination of Indices

For a discussion of the determination of LIBOR, day count basis, interest rate determination dates and interest rate change dates applicable to the notes, see “Additional Information Regarding the Notes—Determination of Indices” in the base prospectus.

 

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Notice of Interest Rates

Information concerning the past and current LIBOR and the interest rates applicable to the notes, will be available on the administrator’s website at: http://www.salliemae.com/about/investors/debtasset/slmsltrusts/issuedetails/2008-1.htm or by telephoning the administrator at 1-800-321-7179 between the hours of 9 a.m. and 4 p.m. Eastern time on any business day and will also be available through Reuters Page LIBOR01 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 in the name of the indenture trustee the collection account, the capitalized interest account, the floor income rebate account, the supplemental purchase account and the reserve account for the benefit of the noteholders.

Funds in each Trust Account will be invested as provided in the indenture in eligible investments. See “Servicing and Administration—Accounts—Eligible Investments” in the base prospectus.

Trust Fees

The table below sets forth the fees payable by or on behalf of the trust.

 

Party

  

Amount

Servicer

   The primary servicing fee for any month will equal the sum of the monthly servicing fees for the trust student loans owned by the trust during that month. The monthly servicing fee for a trust student loan will be calculated on a unit basis and will equal (i) $1.50 per month per borrower for trust student loans that are in in-school status, (ii) $2.75 per month per borrower for trust student loans that are in grace status and (iii) $3.25 per month per borrower for all other trust student loans. In the event a borrower has more than one trust student loan and those loans are in different payment statuses, the monthly servicing fee will be paid at the higher unit rate. In no event, however, will the primary servicing fee for any month exceed 1/12 of
0.90% of the outstanding principal balance of the trust student loans. In addition, the servicer is entitled to the amount of any carryover servicing fee.

Indenture Trustee(2)

   $5,000 per annum, payable in advance.

Eligible Lender Trustee(3)

   $5,000 per annum, payable in advance.

 

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Party

  

Amount

Administrator(1)

   $20,000 per quarter, payable in arrears.

 

(1) To be paid before any amounts are distributed to the noteholders.

 

(2) To be paid by the depositor pursuant to a separate agreement with the indenture trustee, and may be paid by the trust if there is an event of default on the notes, and such amount has not previously been paid.

 

(3) To be paid by the depositor pursuant to a separate agreement with the eligible lender trustee, and may be paid by the trust if there is an event of default on the notes, and such amount has not previously been paid.

Optional Purchase

The servicer may purchase or arrange for the purchase of all remaining trust student loans on any quarterly distribution date on or after the first quarterly distribution date when 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. The purchase price will equal the amount required to prepay in full, including all accrued interest, the remaining trust student loans as of the end of the preceding collection period, but not less than 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 quarterly distribution date; and

 

   

reduce the outstanding principal amount of each class of notes then outstanding on the related quarterly distribution date to zero.

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

In addition to the optional purchase right described above, the servicer also will have an option, but not the obligation, to purchase any trust student loan on any date; provided that the servicer may not purchase trust student loans if the aggregate, cumulative principal balance thereof (at the time of purchase) exceeds 2% of the Initial Pool Balance. The purchase price for any trust student loans purchased by the servicer using this option will be equal to the outstanding principal amount of such trust student loans plus accrued and unpaid interest through the date of purchase.

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 quarterly distribution date. An auction will be consummated only if the servicer has first waived its optional right to purchase all of the remaining trust student loans. The servicer will waive its option to purchase all of 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

 

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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 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 base prospectus.

The net proceeds of any auction sale will be used to retire any outstanding notes on the related quarterly 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 all of the 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 quarterly 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 of note principal.

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

STATIC POOLS

Information concerning the static pool data of previous FFELP loan securitizations of the sponsor will can be found by clicking on the link for this transaction, labeled “2008-1,”on the sponsor’s website at http://www.salliemae.com/about/investors/StaticPoolindex.htm. This webpage presents the

 

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static pool data of the sponsor’s previous securitizations involving similar assets in the form of published charts. The information presented with respect to pools that were established prior to January 1, 2006 is not to be deemed a part of this prospectus supplement, the base prospectus or the related registration statement. We caution you that this pool of trust student loans may not perform in a similar manner to student loans in other trusts.

PREPAYMENTS, EXTENSIONS, WEIGHTED AVERAGE LIVES AND EXPECTED MATURITIES OF THE NOTES

The rate of payment of principal of the notes and the yield on the notes will be affected by prepayments on the trust student loans that may occur as described below. Therefore, payments on the notes could occur significantly earlier than expected. Consequently, the actual maturities on the notes could be significantly earlier, average lives of the notes could be significantly shorter, and periodic balances could be significantly lower, than expected. Each trust student loan is prepayable in whole or in part, without penalty, by the borrowers at any time, or as a result of a borrower’s default, death, disability or bankruptcy and subsequent liquidation or collection of guarantee payments with respect thereto. The rate of such prepayments cannot be predicted and may be influenced by a variety of economic, social, competitive and other factors, including as described below. In general, the rate of prepayments may tend to increase to the extent that alternative financing becomes available on more favorable terms or at interest rates significantly below the interest rates applicable to the trust student loans. Prepayments could increase as a result of certain borrower benefit programs, among other factors. In addition, the depositor is obligated to repurchase any trust student loan (or substitute an eligible student loan) as a result of a breach of any of its representations and warranties relating to trust student loans contained in the sale agreement, and the servicer is obligated to purchase any trust student loan pursuant to the servicing agreement as a result of a breach of certain covenants with respect to such trust student loan, in each case where such breach materially adversely affects the interests of the trust in that trust student loan and is not cured within the applicable cure period. See “Transfer and Servicing Agreements—Purchase of Student Loans by the Depositor; Representations and Warranties of the Sellers” and “Servicing and Administration—Servicer Covenants” in the base prospectus. See also “Summary—Termination of the Trust” in this prospectus supplement regarding the servicer’s option to purchase the trust student loans when the Pool Balance is less than or equal to 10% of the Initial Pool Balance, and the auction of the trust student loans if the servicer does not exercise such option.

On the other hand, the rate of principal payments and the yield on the notes will be affected by scheduled payments with respect to, and maturities and average lives of, the trust student loans. These may be lengthened as a result of, among other things, grace periods, deferral periods, forbearance periods, or repayment term or monthly payment amount modifications agreed to by the servicer. Therefore, payments on the notes could occur significantly later than expected. Consequently, actual maturities and weighted average lives of the notes could be significantly longer than expected and periodic balances could be significantly higher than expected. The rate of payment of

 

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principal of the notes and the yield on the notes may also be affected by the rate of defaults resulting in losses on defaulted trust student loans which have been liquidated, by the severity of those losses and by the timing of those losses, which may affect the ability of the guarantors to make timely guarantee payments with respect thereto. In addition, the maturity of certain of the trust student loans could extend beyond the latest legal maturity date for the notes.

The rate of prepayments on the trust student loans cannot be predicted due to a variety of factors, some of which are described above, and any reinvestment risks resulting from a faster or slower incidence of prepayment of trust student loans will be borne entirely by the noteholders. Such reinvestment risks may include the risk that interest rates and the relevant spreads above particular interest rate indices are lower at the time noteholders receive payments from the trust than such interest rates and such spreads would otherwise have been if such prepayments had not been made or had such prepayments been made at a different time.

Exhibit I, “Prepayments, Extensions, Weighted Average Lives and Expected Maturities of the Notes,” attached to this prospectus supplement, shows, for each class of notes, the weighted average lives, expected maturities and percentages of the original principal amount remaining at certain quarterly distribution dates based on various assumptions.

U.S. FEDERAL INCOME TAX CONSEQUENCES

For a discussion of U.S. federal income tax consequences to holders of the notes, you should refer to the section entitled “U.S. Federal Income Tax Consequences” in the base prospectus.

Furthermore, it is anticipated that all of the class B notes will be retained by the depositor or its affiliate and from time to time resold by such depositor or its affiliate. Upon the date of resale, the retained class B notes will be deemed reissued as new notes for U.S. federal income tax purposes. To the extent that the purchase price paid on resale is greater than the principal amount of the note, the difference will be treated as bond premium. To the extent that the purchase price paid on resale is less than the principal amount of the note, and the difference is more than a statutorily defined de minimis amount, the difference will be treated as original issue discount. For a discussion of the treatment of bond premium and original issue discount (including the exception for de minimis amounts), you should refer to the subsections entitled “Original Issue Discount” and “Amortizable Bond Premium” of the section entitled “U.S. Federal Income Tax Consequences—Tax Consequences to Holders of Notes in General” in the base 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

 

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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, 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 base 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 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.

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 statutory exemption or a class or other applicable exemption from the prohibited transaction rules as described in the base 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, Plan fiduciaries are strongly encouraged to consult with their legal advisors concerning the impact of ERISA

 

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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 fiduciary standards of investment prudence and diversification an investment in the notes is appropriate for the Plan, also taking into account the overall investment policy of the Plan and the composition of the Plan’s investment portfolio.

ACCOUNTING CONSIDERATIONS

Various factors may influence the accounting treatment applicable to an investor’s acquisition and holding of asset-backed securities. Accounting standards, and the application and interpretation of such standards, are subject to change from time to time. Before making an investment in the notes, potential investors are strongly encouraged to consult their own accountants for advice as to the appropriate accounting treatment for their class of notes.

REPORTS TO NOTEHOLDERS

Quarterly and annual reports concerning the trust will be delivered to noteholders. See “Reports to Securityholders” in the base prospectus. These reports also will be available at the office of the Luxembourg paying agent or Luxembourg listing agent for so long as any class of notes is listed on the Luxembourg Stock Exchange. The first of these quarterly distribution reports is expected to be available not later than May 10, 2008. See “Reports to Securityholders” in the base 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 Notes—Book-Entry Registration” in the base prospectus.

The administrator will not send reports directly to the beneficial holders of the notes. However, these reports may be viewed at the sponsor’s website: http://www.salliemae.com/about/investors/debtasset/slmsltrusts/issuedetails/2008-1.htm. The reports will not be audited nor will they constitute financial statements prepared in accordance with generally accepted accounting principles.

The trust will cause the administrator to file with the SEC all periodic reports required under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The reports concerning the trust will be delivered to the holders of the notes upon

 

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request, in compliance with applicable securities laws. These reports include (but are not limited to):

 

   

Reports on Form 8-K (Current Report), following the issuance of the series of notes of the trust, including as Exhibits to the Form 8-K the transaction documents;

 

   

Reports on Form 8-K (Current Report), following the occurrence of events specified in Form 8-K requiring disclosure, which are required to be filed within the time-frame specified in Form 8-K related to the type of event;

 

   

Reports on Form 10-D (Asset-Backed Issuer Distribution Report), containing the distribution and pool performance information required on Form 10-D, which are required to be filed 15 days following each quarterly distribution date; and

 

   

Report on Form 10-K (Annual Report), containing the items specified in Form 10-K with respect to a fiscal year and the items required pursuant to Items 1122 and 1123 of Regulation AB under the Exchange Act.

The trust has been assigned a separate Central Index Key by the SEC. Reports filed with respect to the trust with the SEC after the date hereof will be available under the trust’s Central Index Key, which is a serial company number assigned to the file number of the depositor. The trust’s separate Central Index Key is 0001422201.

NOTICE TO CANADIAN RESIDENTS

Resale Restrictions

The distribution of the notes in Canada is being made only on a private placement basis exempt from the requirement that we prepare and file a prospectus with the securities regulatory authorities in each province where trades of notes are made. Any resale of the notes in Canada must be made under applicable securities laws which will vary depending on the relevant jurisdiction, and which may require resales to be made under available statutory exemptions or under a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the notes.

Representations of Purchasers

By purchasing notes in Canada and accepting a purchase confirmation a purchaser is representing to us and the dealer from whom the purchase confirmation is received that:

 

   

the purchaser is entitled under applicable provincial securities laws to purchase the notes without the benefit of a prospectus qualified under those securities laws,

 

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where required by law, that the purchaser is purchasing as principal and not as agent,

 

   

the purchaser has reviewed the text above under “—Resale Restrictions”, and

 

   

the purchaser acknowledges and consents to the provision of specified information concerning its purchase of the notes to the regulatory authority that by law is entitled to collect the information.

Further details concerning the legal authority for this information is available on request.

Rights of Action – Ontario Purchasers Only

Under Ontario securities legislation, certain purchasers who purchase a note offered by this prospectus supplement and base prospectus during the period of distribution will have a statutory right of action for damages, or while still the owner of the notes, for rescission against us if this prospectus supplement and base prospectus contain a misrepresentation without regard to whether the purchaser relied on the misrepresentation. The right of action for damages is exercisable not later than the earlier of 180 days from the date the purchaser first had knowledge of the facts giving rise to the cause of action and three years from the date on which payment is made for the notes. The right of action for rescission is exercisable not later than 180 days from the date on which payment is made for the notes. If a purchaser elects to exercise the right of action for rescission, the purchaser will have no right of action for damages against us. In no case will the amount recoverable in any action exceed the price at which the notes were offered to the purchaser and if the purchaser is shown to have purchased the securities with knowledge of the misrepresentation, we will have no liability. In the case of an action for damages, we will not be liable for all or any portion of the damages that are proven to not represent the depreciation in value of the note as a result of the misrepresentation relied upon. These rights are in addition to, and without derogation from, any other rights or remedies available at law to an Ontario purchaser. The foregoing is a summary of the rights available to an Ontario purchaser. Ontario purchasers should refer to the complete text of the relevant statutory provisions.

Enforcement of Legal Rights

All of our directors and officers as well as any experts named herein may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon us or those persons. All or a substantial portion of our assets and the assets of those persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against us or those persons in Canada or to enforce a judgment obtained in Canadian courts against us or those persons outside of Canada.

 

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Taxation and Eligibility for Investment

Canadian purchasers of notes should consult their own legal and tax advisors with respect to the tax consequences of an investment in the notes in their particular circumstances and about the eligibility of the notes for investment by the purchaser under relevant Canadian legislation.

NOTICE TO INVESTORS

Each underwriter has represented and agreed that:

 

   

(i) it is a person whose ordinary activities involve it in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of its business and (ii) it has not offered or sold and will not offer or sell the notes other than to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or as agent) for the purposes of their businesses or who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the purposes of their businesses where the issue of the notes would otherwise constitute a contravention of Section 19 of the Financial Services and Markets Act 2000 (the “FSMA”);

 

   

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 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 this prospectus supplement and the base prospectus, nor any term sheet, circular, prospectus (including any free-writing prospectus or supplement thereto), 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 all or any part of such documents come 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 such documents, in all cases at their own expense.

 

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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 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 Euroclear, as applicable, on or about January 17, 2008 against payment in immediately available funds.

Subject to the terms and conditions in the underwriting agreement dated January 7, 2008 and the pricing agreement to be dated the date hereof, the depositor has agreed to cause the trust to issue to the depositor, the depositor has agreed to sell to each of the underwriters named below, and each of the underwriters has severally agreed to purchase, the principal amounts of notes shown opposite its name:

 

Underwriter

  

Class A-1

Notes

  

Class A-2

Notes

  

Class A-3

Notes

Barclays Capital Inc*

   $ 74,200,000    $ 103,400,000    $ 38,000,000

Citigroup Global Markets Inc.

   $ 74,200,000    $ 103,400,000    $ 38,000,000

Deutsche Bank Securities Inc.

   $ 74,200,000    $ 103,400,000    $ 38,000,000

Credit Suisse Securities (USA) LLC

   $ 37,100,000    $ 51,700,000    $ 19,000,000

Greenwich Capital Markets, Inc*

   $ 37,100,000    $ 51,700,000    $ 19,000,000

Lehman Brothers Inc*

   $ 37,100,000    $ 51,700,000    $ 19,000,000

UBS Securities LLC

   $ 37,100,000    $ 51,700,000    $ 19,000,000
                    

Total

   $ 371,000,000    $ 517,000,000    $ 190,000,000

 

Underwriter

  

Class A-4

Notes

  

Class B

Notes

Barclays Capital Inc*

   $ 81,931,000    $ 9,202,000

Citigroup Global Markets Inc*

   $ 81,931,000    $ 9,202,000

Deutsche Bank Securities Inc.

   $ 81,931,000    $ 9,202,000

Credit Suisse Securities (USA) LLC

   $ 40,965,000    $ 4,601,000

Greenwich Capital Markets, Inc*

   $ 40,965,000    $ 4,601,000

Lehman Brothers Inc.

   $ 40,965,000    $ 4,601,000

UBS Securities LLC

   $ 40,965,000    $ 4,601,000
             

Total

   $ 409,653,000    $ 46,010,000

Except as set forth below, 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.

 

     Initial Public
Offering Price
    Underwriting
Discount
    Proceeds to The
Depositor
    Concession     Reallowance  

Per Class A-1 Note

     100.0 %     0.125 %     99.875 %   0.075 %   0.0375 %

Per Class A-2 Note

     100.0 %     0.150 %     99.850 %   0.090 %   0.0450 %

Per Class A-3 Note

     100.0 %     0.170 %     99.830 %   0.102 %   0.0510 %

Per Class A-4 Note

     100.0 %     0.180 %     99.820 %   0.108 %   0.0540 %

Per Class B Note*

     100.0 %     0.250 %     99.750 %   0.150 %   0.0750 %

Total

   $ 1,533,663,000     $ 2,345,635     $ 1,531,317,365      

 

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* For the amount of Class B Notes retained by the depositor or its affiliate, the underwriting discount will be 0.10% and proceeds to the depositor will be 99.90% with no selling concession or reallowance.

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 in respect of the notes of $1,373,053 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 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.

One or more of the underwriters or their affiliates may retain a material percentage of any class of notes for its own account. The retained notes may be resold by such underwriter or such affiliate at any time in one or more negotiated transactions at varying prices to be determined at the time of sale.

The depositor or its affiliate will retain all of the class B notes for its own account. Some or all of the retained notes may be resold by the depositor or its affiliate at any time in one or more negotiated transactions at varying prices to be determined at the time of sale. See “Risk Factors—Retention of the Class B Notes by the Depositor or its Affiliate May Reduce the Liquidity of the Class B Notes” in this prospectus supplement.

LISTING INFORMATION

Application has been made for the notes to be listed on the Official List of the Luxembourg Stock Exchange and to be traded on the Luxembourg Stock Exchange’s Euro MTF Market. We cannot assure you that this application will be granted. You should consult with Deutsche Bank Luxembourg S.A., the Luxembourg listing agent for

 

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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. Copies of the indenture, the trust agreement, the forms of the notes, the administration agreement, the servicing agreement and the purchase and sale agreements will be available at the offices of the Luxembourg paying agent or the Luxembourg listing agent. Once the notes have been listed on the Official List of the Luxembourg Stock Exchange, trading may be effected on the Luxembourg Stock Exchange. So long as any class of notes is listed on the Luxembourg Stock Exchange’s Euro MTF Market, 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) and/or on the Luxembourg Stock Exchange’s website at http://www.bourse.lu. 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.

As long as the rules of the Luxembourg Stock Exchange require a Luxembourg paying agent, the depositor will cause one to be appointed for the notes for so long as they are listed on the Official List of the Luxembourg Stock Exchange and traded on the Luxembourg Stock Exchange’s Euro MTF Market. Initially, Deutsche Bank Luxembourg S.A. will act as the Luxembourg paying agent with respect to the notes.

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 be published in a leading newspaper having general circulation in Luxembourg (which is expected to be d’Wort) and/or on the Luxembourg Stock Exchange’s website at http://www.bourse.lu. We will maintain a Luxembourg paying and transfer agent as long as required by the rules of the Luxembourg Stock Exchange.

The notes have been accepted for clearing 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 and may be obtained free of charge. The first of these quarterly distribution reports is expected to be available not later than May 10, 2008.

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 such circumstances the administrator may decide to seek an alternative

 

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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 base prospectus is true and accurate in all material respects. In relation to the depositor, the trust, SLM ECFC, VG Funding, Mustang Funding I, Mustang Funding II or the notes, the depositor accepts full responsibility for the accuracy of the information contained in this prospectus supplement and the base 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 base prospectus, when taken as a whole.

The depositor confirms that there has been no material adverse change in the assets of the trust since December 26, 2007, 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 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.

A rating addresses only the likelihood of the timely payment of stated interest and the payment of principal at final maturity, and does not address the timing or likelihood of principal distributions prior to final maturity.

LEGAL MATTERS

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

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,

 

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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 quarterly 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, then the Adjusted Pool Balance shall be the sum of the Pool Balance, Capitalized Interest and the Specified Reserve Account Balance for that quarterly 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, then the Adjusted Pool Balance shall be the sum of the Pool Balance and Capitalized Interest.

Available Funds” means, as to each quarterly distribution date or monthly allocation date, as applicable, the sum of the following amounts received with respect to the related collection period or, in the case of a monthly allocation 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,

 

  (2) all 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 floor income rebate fees, and

 

  (3) amounts deposited into the floor income rebate account during the related collection period;

 

   

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

 

   

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

 

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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 repurchased 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 quarterly distribution date or monthly allocation date;

 

   

investment earnings for that quarterly distribution date earned on amounts on deposit in each Trust Account;

 

   

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

 

   

amounts on deposit in the floor income rebate account that were deposited into such account during the collection period preceding that collection period;

 

   

all amounts received by the trust from any potential future cap counterparty, or otherwise under any potential future interest rate cap agreement, for deposit into the collection account for that quarterly distribution date;

 

   

on the initial quarterly 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; and

 

   

on the April 2009 quarterly distribution date, all funds then on deposit in the capitalized interest account that are transferred into the collection account on that quarterly distribution date;

provided that if on any quarterly 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), (b), (c) and (d) under “Description of the Notes—Distributions—Quarterly Distributions from the Collection Account” in this prospectus supplement (but excluding clause (d), and including clause (e), if 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

 

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Available Funds for that quarterly distribution date will include, in addition to 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 quarterly distribution date succeeding that quarterly distribution date, up to the amount necessary to pay those items, and Available Funds for the succeeding quarterly distribution date will be adjusted accordingly.

Capitalized Interest” means for any quarterly distribution date through and including the April 2009 quarterly 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 prospectus supplement are in effect, the amount on deposit in the capitalized interest account on the quarterly distribution date following those distributions with respect to clauses (a), (b), (c) and (d) under “Description of the Notes—Distributions—Quarterly 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 quarterly distribution date following those distributions with respect to clauses (a), (b) and (c) under “Description of the Notes—Distributions—Quarterly 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 quarterly distribution date, the sum for all of the class A notes of the excess of:

 

   

the amount of interest that was payable on the preceding quarterly distribution date to each class of class A notes, over

 

   

the amount of interest actually distributed with respect to each such class on that preceding quarterly distribution date,

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

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

 

   

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

 

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the amount of principal actually distributed with respect to the class A notes on that quarterly distribution date.

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

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

 

   

the amount of interest accrued at the respective class A note interest rates for the related accrual period on the aggregate outstanding balance of the class A notes on the applicable immediately preceding quarterly distribution date (or in the case of the initial quarterly distribution date, the closing date) after giving effect to all principal distributions to class A noteholders on preceding quarterly distribution dates; and

 

   

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

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

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.

 

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

 

   

the amount of interest that was payable on the preceding quarterly distribution date to the class B notes, over

 

   

the amount of interest actually distributed with respect to the class B notes on that preceding quarterly distribution date,

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

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

 

   

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

 

   

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

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

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

 

   

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

 

   

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

 

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Class B Noteholders’ Principal Distribution Amount” means, for any quarterly distribution date, the excess of:

 

  (1) the sum of:

 

  (a) the Principal Distribution Amount for that quarterly distribution date,

 

  (b) the Class A Note Principal Shortfall as of the close of business on the preceding quarterly distribution date, and

 

  (c) the Class B Note Principal Shortfall as of the close of business on the preceding quarterly distribution date, over

 

  (2) the Class A Noteholders’ Principal Distribution Amount for that quarterly 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.

Clearstream, Luxembourg” means Clearstream Banking, sociéte anonyme, or any successor thereto.

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

Eligible Cap Counterparty” means an entity engaged in the business of entering into derivative instrument contracts that meets the then published criteria of the rating agencies for a cap counterparty to be eligible to provide interest rate caps to transactions similar to this transaction, or that otherwise satisfies the Rating Agency Condition.

Euroclear” means the Euroclear System in Europe, or any successor thereto.

FFELP” means the Federal Family Education Loan Program.

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

Initial Pool Balance” means the sum of the Pool Balance of the initial trust student loans as of the closing date and the amount deposited into the supplemental purchase account on the closing date.

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

 

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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 guaranty 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 such other applicable percentages as are required by the risk sharing provisions of the Higher Education Act.

Principal Distribution Amount” means:

 

   

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

 

   

as to each subsequent quarterly distribution date, the amount by which the Adjusted Pool Balance for the preceding quarterly distribution date exceeds the Adjusted Pool Balance for that quarterly distribution date.

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.

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

Significant Guarantor” means each guaranty agency that guarantees trust student loans comprising at least 10% of the Initial Pool Balance of the initial trust student loans as of the statistical cutoff date.

 

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

 

  (a) 0.25% of the Pool Balance as of the close of business on the last day of the related collection period; and

 

  (b) $1,499,914;

provided that in no event will that balance exceed the sum of the aggregate outstanding principal balance of the notes.

Trust Accounts” means, collectively, the collection account, the reserve account, the capitalized interest account, the supplemental purchase account and the floor income rebate account.

 

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ANNEX A

 

CHARACTERISTICS OF

THE INITIAL TRUST STUDENT LOAN POOL

 

The initial trust student loans were selected from the portfolio of student loans owned by SLM ECFC, VG Funding, Mustang Funding I, Mustang Funding II 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 FFELP loan that is guaranteed as to at least (1) 100% with respect to trust student loans with an initial date of disbursement prior to October 1, 1993; (2) 98% with respect to trust student loans with an initial date of disbursement prior to July 1, 2006 and on or after October 1, 1993 or (3) 97% with respect to trust student loans with an initial date of disbursement on or after July 1, 2006, of its principal and interest by a guaranty agency under a guarantee agreement and the guaranty agency is, in turn, reinsured by the Department of Education in accordance with the FFELP;

 

  ·  

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

 

  ·  

had its first disbursement prior to October 1, 2007;

 

  ·  

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, if any, based on the three-month commercial paper rate or the 91-day Treasury bill rate.

 

Unless otherwise specified, all information with respect to the initial trust student loans is presented herein as of December 26, 2007, which is the statistical cutoff date.

 

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 $27,001,728 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 the information shown 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

 

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student loans as a result of prepayments or the granting of deferment and forbearance periods.

 

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.

 

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

   $ 1,499,913,060  

Aggregate Outstanding Principal Balance—Treasury Bill

   $ 116,502,342  

Percentage of Aggregate Outstanding Principal Balance—Treasury Bill

     7.77 %

Aggregate Outstanding Principal Balance—Commercial Paper

   $ 1,383,410,718  

Percentage of Aggregate Outstanding Principal Balance—Commercial Paper

     92.23 %

Number of Borrowers

     215,215  

Average Outstanding Principal Balance Per Borrower

   $ 6,969  

Number of Loans

     423,822  

Average Outstanding Principal Balance Per Loan—T-Bill

   $ 3,416  

Average Outstanding Principal Balance Per Loan—Commercial Paper

   $ 3,550  

Weighted Average Remaining Term to Scheduled Maturity

     127 months  

Weighted Average Annual Borrower Interest Rate

     7.05 %

 

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 deferment or forbearance periods that may be granted in the future. See Appendix A to the base prospectus.

 

The weighted average annual borrower interest rate shown in the table is exclusive of special allowance payments. The weighted average spread for special allowance payments to the 91-day Treasury bill rate was 2.99% as of the statistical cutoff date.

 

For these purposes, 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.

 

The weighted average spread for special allowance payments to the three-month commercial paper rate was 1.91% as of the statistical cutoff date. See “Federal Family Education Loan Program—Special Allowance Payments” in Appendix A to the base prospectus.

 

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.

 

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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


 

5.51% to 6.00%

   1    $ 1,806    *  

6.51% to 7.00%

   339,307      1,124,894,179    75.0 %

7.01% to 7.50%

   44,131      148,393,232    9.9  

7.51% to 8.00%

   965      2,264,470    0.2  

8.01% to 8.50%

   39,278      223,990,691    14.9  

Equal to or greater than 8.51%

   140      368,682    *  
    
  

  

Total

   423,822    $ 1,499,913,060    100.0 %
    
  

  


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

 

We determined the interest rates shown in the table above using the interest rates applicable to the initial trust student loans as of the statistical cutoff date. Because most of the initial trust student loans bear interest at variable rates of interest that reset annually effective as of July 1 of each year, and because, as a general matter, loans with different interest rates are likely to be repaid at different rates, this information will not remain applicable to the initial trust student loans in the future. See Appendix A to the base prospectus.

 

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

   99,096    $ 262,147,679    17.5 %

$5,000.00—$9,999.99

   76,970      545,005,804    36.3  

$10,000.00—$14,999.99

   19,126      225,451,000    15.0  

$15,000.00—$19,999.99

   11,708      209,203,200    13.9  

$20,000.00—$24,999.99

   3,340      73,242,932    4.9  

$25,000.00—$29,999.99

   1,711      46,650,436    3.1  

$30,000.00—$34,999.99

   1,069      34,583,471    2.3  

$35,000.00—$39,999.99

   1,001      37,807,072    2.5  

$40,000.00—$44,999.99

   430      18,090,294    1.2  

$45,000.00—$49,999.99

   238      11,289,456    0.8  

$50,000.00—$54,999.99

   148      7,764,467    0.5  

$55,000.00—$59,999.99

   98      5,601,585    0.4  

$60,000.00—$64,999.99

   76      4,711,458    0.3  

$65,000.00—$69,999.99

   49      3,317,422    0.2  

$70,000.00—$74,999.99

   27      1,935,587    0.1  

$75,000.00—$79,999.99

   31      2,422,088    0.2  

$80,000.00—$84,999.99

   12      979,804    0.1  

$85,000.00—$89,999.99

   14      1,221,261    0.1  

$90,000.00—$94,999.99

   15      1,380,139    0.1  

$95,000.00—$99,999.99

   9      881,592    0.1  

$100,000.00 and above

   47      6,226,315    0.4  
    
  

  

Total

   215,215    $ 1,499,913,060    100.0 %
    
  

  

 

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DISTRIBUTION OF THE INITIAL TRUST STUDENT LOANS BY

SCHOOL TYPE AS OF

THE STATISTICAL CUTOFF DATE

 

School Type


  

Number

of Loans


  

Aggregate

Outstanding

Principal Balance


  

Percent of Pool

by Outstanding

Principal Balance


 

4-year Institutions

   284,222    $ 1,117,307,794    74.5 %

2-year Institutions

   91,798      246,345,342    16.4  

Proprietary/Vocational

   47,801      136,259,312    9.1  

Unidentified

   1      613    *  
    
  

  

Total

   423,822    $ 1,499,913,060    100.0 %
    
  

  


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

 

DISTRIBUTION OF THE INITIAL TRUST STUDENT LOANS BY

DELINQUENCY STATUS AS OF

THE STATISTICAL CUTOFF DATE

 

Number of Days Delinquent


  

Number

of Loans


  

Aggregate

Outstanding

Principal Balance


  

Percent of Pool

by Outstanding

Principal Balance


 

0 to 30

   406,667    $ 1,436,779,418    95.8 %

31 to 60

   7,085      26,153,840    1.7  

61 to 90

   3,427      12,702,187    0.8  

91 to 120

   2,099      7,955,826    0.5  

121 to 150

   1,915      6,794,126    0.5  

151 to 180

   1,519      5,573,752    0.4  

181 to 210

   1,110      3,953,911    0.3  
    
  

  

Total

   423,822    $ 1,499,913,060    100.0 %
    
  

  

 

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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


 

0 to 3

   184    $ 35,896    *  

4 to 12

   1,741      702,413    *  

13 to 24

   3,448      2,409,405    0.2 %

25 to 36

   4,491      4,618,988    0.3  

37 to 48

   4,149      5,486,473    0.4  

49 to 60

   6,075      8,868,052    0.6  

61 to 72

   5,513      10,781,892    0.7  

73 to 84

   5,615      14,633,601    1.0  

85 to 96

   9,516      26,693,109    1.8  

97 to 108

   23,008      93,363,411    6.2  

109 to 120

   52,922      262,989,017    17.5  

121 to 132

   190,667      623,680,113    41.6  

133 to 144

   68,694      262,022,480    17.5  

145 to 156

   28,370      108,881,961    7.3  

157 to 168

   12,710      46,767,313    3.1  

169 to 180

   4,882      20,599,434    1.4  

181 to 192

   1,636      6,283,605    0.4  

193 to 204

   201      1,095,897    0.1  
    
  

  

Total

   423,822    $ 1,499,913,060    100.0 %
    
  

  


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

 

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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


 

In-School

   188,506    $ 692,217,450    46.2 %

Grace

   121,345      353,650,517    23.6  

Deferment

   10,453      45,989,414    3.1  

Forbearance

   7,927      38,088,334    2.5  

Repayment

                  

First year in repayment

   62,949      267,376,010    17.8  

Second year in repayment

   19,864      71,788,458    4.8  

Third year in repayment

   5,592      16,800,653    1.1  

More than 3 years in repayment

   7,186      14,002,224    0.9  
    
  

  

Total

   423,822    $ 1,499,913,060    100.0 %
    
  

  

 

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 still be attending school—in-school;

 

  ·  

may be in a grace period after completing school and prior to repayment commencing—grace;

 

  ·  

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

 

  ·  

may be currently required to repay the loan—repayment.

 

See Appendix A to the base prospectus.

 

The weighted average number of months in repayment for all initial trust student loans currently in repayment is approximately 9.3, 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.

 

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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


   In-School

   Grace

   Deferment

   Forbearance

   Repayment

In-School

   14.3    6.0          120.0

Grace

      3.3          119.0

Deferment

         16.0       110.8

Forbearance

            4.6    109.8

Repayment

               106.2

 

We have determined the scheduled weighted average remaining months in status shown in the previous table without giving effect to any deferment or forbearance periods that may be granted in the future. See Appendix A to the base 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

   8,389    $ 29,440,368    2.0 %

Alaska

   423      1,455,928    0.1  

Arizona

   12,800      44,341,125    3.0  

Arkansas

   2,701      9,278,940    0.6  

California

   36,137      144,716,123    9.6  

Colorado

   5,342      18,594,717    1.2  

Connecticut

   6,944      27,965,140    1.9  

Delaware

   5,861      23,185,496    1.5  

District of Columbia

   2,028      8,321,288    0.6  

Florida

   41,076      140,624,159    9.4  

Georgia

   17,728      71,056,688    4.7  

Hawaii

   1,927      7,439,281    0.5  

Idaho

   1,113      3,833,166    0.3  

Illinois

   23,612      81,458,866    5.4  

Indiana

   13,871      39,251,418    2.6  

Iowa

   949      3,756,377    0.3  

Kansas

   7,716      25,462,051    1.7  

Kentucky

   2,455      7,335,035    0.5  

Louisiana

   7,720      23,371,949    1.6  

Maine

   1,052      4,046,735    0.3  

Maryland

   16,627      64,306,351    4.3  

Massachusetts

   8,823      36,063,674    2.4  

Michigan

   11,235      34,041,650    2.3  

Minnesota

   3,573      11,014,978    0.7  

Mississippi

   5,077      17,394,869    1.2  

Missouri

   13,228      44,146,320    2.9  

Montana

   487      2,155,732    0.1  

Nebraska

   887      3,219,849    0.2  

Nevada

   3,463      11,608,413    0.8  

New Hampshire

   1,364      5,674,666    0.4  

New Jersey

   13,306      47,215,888    3.1  

New Mexico

   1,142      4,363,348    0.3  

New York

   18,461      68,027,588    4.5  

North Carolina

   11,332      43,409,737    2.9  

North Dakota

   112      504,409    *  

Ohio

   15,203      46,205,915    3.1  

Oklahoma

   5,040      16,806,751    1.1  

Oregon

   3,296      11,123,756    0.7  

Pennsylvania

   17,123      56,198,312    3.7  

Rhode Island

   1,947      5,925,444    0.4  

South Carolina

   6,697      25,983,622    1.7  

South Dakota

   245      909,991    0.1  

Tennessee

   10,473      34,342,993    2.3  

Texas

   24,710      84,661,041    5.6  

Utah

   1,044      3,727,626    0.2  

Vermont

   282      1,259,359    0.1  

Virginia

   16,825      59,525,866    4.0  

Washington

   5,875      22,503,566    1.5  

West Virginia

   1,402      4,592,632    0.3  

Wisconsin

   2,556      8,755,180    0.6  

Wyoming

   463      1,546,983    0.1  

Other

   1,680      7,761,699    0.5  
    
  

  

Total

   423,822    $ 1,499,913,060    100.0 %
    
  

  


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

 

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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 deferment 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 “Sallie Mae’s Student Loan Financing Business” in the base prospectus.

 

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The following tables provide 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 Stafford Loans

   220,655    $ 639,815,569    42.7 %

Unsubsidized Stafford Loans

   184,646      704,477,110    47.0  

SLS Loans

   540      2,425,201    0.2  

PLUS Loans

   17,981      153,195,180    10.2  
    
  

  

Total

   423,822    $ 1,499,913,060    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 Repayment

   418,470    $ 1,474,262,032    98.3 %

Other Repayment Options(1)

   5,352      25,651,028    1.7  
    
  

  

Total

   423,822    $ 1,499,913,060    100.0 %
    
  

  


(1) Includes, among others, graduated repayment, income sensitive and interest-only period loans.

 

With respect to interest-only loans, as of the statistical cut-off date, there are 356 loans with an aggregate outstanding principal balance of $1,995,192 currently in an interest-only period. These interest-only loans represent approximately 0.1% of the aggregate outstanding principal balance of the initial trust student loans. Interest-only periods range up to 48 months in overall length.

 

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 such repayment terms are offered to and accepted by borrowers, the weighted average life of the securities could be lengthened.

 

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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


 

September 30, 1993 and earlier

   4,525    $ 12,610,591    0.8 %

October 1, 1993 through June 30, 2006

   101,819      373,386,353    24.9  

July 1, 2006 and later

   317,478      1,113,916,115    74.3  
    
  

  

Total

   423,822    $ 1,499,913,060    100.0 %
    
  

  

 

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Guaranty Agencies for the Trust Student Loans.    The eligible lender trustee has entered into a separate guarantee agreement with each of the guaranty agencies listed below, under which each of the guarantors has agreed to serve as guarantor for specified initial trust student loans.

 

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

GUARANTY AGENCY AS OF THE STATISTICAL CUTOFF DATE*

 

Name of Guaranty Agency


 

Number

of Loans


 

Aggregate

Outstanding

Principal Balance


 

Percent of Pool

by Outstanding

Principal Balance


 

American Student Assistance

  7,425   $ 32,972,211   2.2 %

Arizona Educational Loan Program

  17     13,627   **  

California Student Aid Commission

  53,133     162,210,209   10.8  

Colorado Student Loan Program

  34     99,722   **  

Connecticut Student Loan Foundation

  2,795     10,594,298   0.7  

Educational Credit Management Corporation

  18,494     63,875,248   4.3  

Finance Authority of Maine

  398     1,351,768   0.1  

Florida Bureau of Student Financial Assistance

  2,077     5,623,957   0.4  

Georgia Higher Education Assistance Corp.

  558     1,669,755   0.1  

Great Lakes Higher Education Corporation

  1,783     5,872,856   0.4  

Illinois Student Assistance Commission

  11,160     40,655,036   2.7  

Iowa College Student Aid Commission

  51     206,975   **  

Kentucky Higher Education Assistance Authority

  4,610     16,064,966   1.1  

Louisiana Office of Student Financial Assistance

  1,391     4,424,849   0.3  

Maryland Higher Education Loan Corp.

  7     3,355   **  

Michigan Guaranty Agency

  6,680     17,326,052   1.2  

Mississippi Guaranteed Student Loan Agency

  6     9,617   **  

Missouri Student Loan Program

  279     948,396   0.1  

Nebraska Student Loan Program

  4,221     17,774,560   1.2  

New Jersey Office of Student Assistance

  3,255     9,307,183   0.6  

New York State Higher Education Services Corporation

  6,588     23,678,692   1.6  

Northwest Education Loan Association

  4,935     18,112,568   1.2  

Oklahoma Guaranteed Student Loan Program

  3,309     11,837,894   0.8  

Pennsylvania Higher Education Assistance Agency

  1,117     4,560,466   0.3  

Rhode Island Higher Education Assistance Authority

  831     3,184,645   0.2  

South Dakota Education Assistance Corporation

  66     230,024   **  

State Student Assistance Commission/Indiana

  1     437   **  

Student Loan Guarantee Foundation of Arkansas, Inc.

  1,120     3,552,101   0.2  

Texas Guaranteed Student Loan Corporation

  10,979     34,559,636   2.3  

United Student Aid Funds, Inc.

  276,502     1,009,191,956   67.3  
   
 

 

Total

  423,822   $ 1,499,913,060   100.0 %
   
 

 


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

 

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SIGNIFICANT GUARANTOR

INFORMATION

 

The information shown for the Significant Guarantors relates to all student loans, including but not limited to initial trust student loans, guaranteed by the Significant Guarantors.

 

We obtained the following information from various sources, including from the Significant Guarantors and/or from the Department of Education. None of the depositor, the sellers or the underwriters has audited or independently verified this information for accuracy or completeness.

 

UNITED STUDENT AID FUNDS, INC.

 

United Student Aid Funds, Inc. (“USA Funds”) was organized as a private, nonprofit corporation under the General Corporation Law of the State of Delaware in 1960. In accordance with its Certificate of Incorporation, USA Funds: (i) maintains facilities for the provision of guarantee services with respect to approved education loans made to or for the benefit of eligible students who are enrolled at or plan to attend approved educational institutions; (ii) guarantees education loans made pursuant to certain loan programs under the Higher Education Act of 1965, as amended (“the Act”), as well as loans made under certain private loan programs; and (iii) serves as the designated guarantor for education-loan programs under the Act in Arizona, Hawaii and certain Pacific Islands, Indiana, Kansas, Maryland, Mississippi, Nevada, and Wyoming.

 

USA Funds contracts with Sallie Mae, Inc., a wholly owned subsidiary of SLM Corporation. USA Funds also contracts with Student Assistance Corporation, a wholly owned subsidiary of SLM Corporation. SLM Corporation and its subsidiaries are not sponsored by nor are they agencies of the United States of America.

 

Effective December 13, 2004, USA Funds became the sole member of the Northwest Education Loan Association, a guarantor serving the states of Washington, Idaho and the Northwest.

 

For the purpose of providing loan guarantees under the Act, USA Funds has entered into various agreements (collectively, the “Federal Reinsurance Agreements”) with the U.S. Secretary of Education (the “Secretary”). Pursuant to the Federal Reinsurance Agreements, USA Funds serves as a “guaranty agency” as defined in Section 435(j) of the Act. The Act allows the Secretary, after giving the guaranty agency notice and the opportunity for a hearing, to terminate the Federal Reinsurance Agreements if the Secretary determines that the administrative or financial condition of the guaranty agency jeopardizes the agency’s continued ability to perform its responsibilities under its guaranty agreement, it is necessary to protect the federal financial interest, or to ensure the continued availability of loans to student or parent borrowers.

 

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Reinsurance is paid to USA Funds by the Secretary in accordance with a formula based on the annual default rate of loans guaranteed by USA Funds under the Act and the disbursement date of loans. The rate of reinsurance ranges from 100 percent to 75 percent of USA Funds’ losses on default-claim payments made to lenders. The Higher Education Amendments of 1998 (the “1998 Reauthorization Law”) reduced the reinsurance coverage for loans in default made on or after Oct. 1, 1998, to a range from 95 percent to 75 percent based upon the annual default claims rate of the guaranty agency. Reinsurance on non-default claims remains at 100 percent.

 

The 1998 Reauthorization Law requires guaranty agencies to establish two separate funds, a federal reserve fund (property of the United States) and an agency operating fund (property of the guaranty agency). The federal reserve fund is to be used to pay lender claims and to pay a default-aversion fee to the agency operating fund. The agency operating fund is to be used by the guaranty agency to pay its operating expenses.

 

The 1998 Reauthorization Law requires guaranty agencies to return to the Secretary $250 million in federal reserve funds from fiscal years 2002 to 2007. Each guaranty agency’s share is based on a formula prescribed in the 1998 Reauthorization Law. USA Funds is in compliance with the provisions of the reserve fund requirements of the Act. USA Funds remitted $17.8 million to the Secretary in September 2002, $17.3 million by September 1, 2006, and $17.3 million by September 1, 2007.

 

Effective for all Stafford and PLUS loans that USA Funds guarantees on or after April 1, 2005, USA Funds waived the guarantee fee of up to 1 percent of the principal amount of new loans that federal law permitted a guarantor to assess. During 2006, the U.S. Congress passed the Higher Education Reconciliation Act (HERA) which required all guarantors to collect and deposit into the federal reserve fund a federal default fee of 1% of the principal amount of all Stafford and PLUS loans guaranteed on or after July 1, 2006. USA Funds paid the federal default fee to the federal reserve fund from the operating fund on behalf of the borrower for all PLUS loans made by a lender that paid the federal default fee on behalf of its Stafford borrowers for loans guaranteed by USA Funds from July 1, 2006, through June 30, 2007, and for all PLUS loans guaranteed by USA Funds on or after July 1, 2007, for graduate- and professional-student-borrowers.

 

As of September 30, 2007, USA Funds held assets on behalf of the federal reserve fund of approximately $316 million and net assets of approximately $247 million. Through September 30, 2007, the outstanding, unpaid, aggregate amount of principal and interest on loans that had been directly guaranteed by USA Funds under the Federal Family Education Loan Program was approximately $87 billion. As of September 30, 2007, USA Funds had operating fund assets totaling approximately $845 million including the $316 million held on behalf of the federal reserve fund.

 

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The reserve ratios published by the U.S. Department of Education are based on cumulative assets less liabilities of the federal reserve fund divided by the original principal amount of the outstanding loans guaranteed. Following this formula, the reserve ratio for the federal reserve fund administered by USA Funds for the last five fiscal years was as follows:

 

     Reserve Ratio

 
     Federal Fiscal Year

 

Guarantor


   2003

    2004

    2005

    2006

    2007

 

United Student Aid Funds, Inc.

   0.67 %   0.56 %   0.45 %   0.26 %   0.28 %

 

USA Funds’ “guarantee volume” is the approximate aggregate principal amount of federally reinsured education loans (including subsidized and unsubsidized Stafford and PLUS loans but excluding consolidation loans) guaranteed by USA Funds. For the last five fiscal years, the “guarantee volume” was as follows:

 

Guarantor


  Loans Guaranteed

  Federal Fiscal Year

  ($ in millions)

  2003

  2004

  2005

  2006

  2007

United Student Aid Funds, Inc.

  $ 9,587   $ 9,907   $ 10,724   $ 12,586   $ 15,581

 

USA Funds’ “recovery rate,” which provides a measure of the effectiveness of the collection efforts against defaulted borrowers after the guarantee claim has been satisfied, is determined by dividing the amount recovered from borrowers by USA Funds during the fiscal year by the aggregate amount of default claims paid by USA Funds outstanding at the end of the prior fiscal year. For the last five fiscal years, the “recovery rate” was as follows:

 

     Recovery Rate

     Federal Fiscal Year

Guarantor


   2003

    2004

  2005

  2006

  2007

United Student Aid Funds, Inc.

   30.14 %   35.47%   35.05%   38.03%   40.30%

 

USA Funds’ “claims rate” represents the percentage of federal reinsurance claims paid by the Secretary during any fiscal year relative to USA Funds’ existing portfolio of loans in repayment at the end of the prior fiscal year. For the last five fiscal years, the “claims rate” was as follows:

 

     Claims Rate

 
     Federal Fiscal Year

 

Guarantor


   2003

    2004

    2005

    2006

    2007

 

United Student Aid Funds, Inc.

   1.37 %   1.13 %   1.41 %   1.21 %   2.13 %

 

USA Funds is headquartered in Fishers, Indiana. USA Funds will provide a copy of its most recent annual report upon receipt of a written request directed to its headquarters at P.O. Box 6028, Indianapolis, Indiana 46206-6028, Attention: Director, Corporate Communications.

 

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CALIFORNIA STUDENT AID COMMISSION

 

The California Student Aid Commission (“CSAC”) is the designated state student loan guaranty agency for the State of California (“State”), responsible for the State’s participation in the FFELP pursuant to California Education Code Section 69760 et seq., and Section 428(c) of the Higher Education Act. CSAC’s role as a guaranty agency is to provide a source of credit to assist students in meeting post-secondary education costs while attending eligible institutions of their choice.

 

As authorized under California law, CSAC has established an auxiliary organization in the form of a nonprofit public benefit corporation to provide operational and administrative services related to CSAC’s participation in the FFELP. The auxiliary organization, EDFUND, operates CSAC’s federal student loan guaranty program pursuant to an operating agreement with CSAC. CSAC, as the designated state guaranty agency, continues its oversight of all revenues, expenses, and assets related to its status.

 

CSAC began guaranteeing student loans on April 1, 1979, and as of September 30, 2007, had cumulative principal guarantees outstanding of approximately $29.7 billion.

 

As part of the FFELP, and pursuant to the 1998 Reauthorization Amendments to the Higher Education Act, the State established the Federal Student Loan Reserve Fund, referred to as CSAC’s Federal Fund, and the Student Loan Operating Fund, referred to as CSAC’s Operating Fund. CSAC’s liability pursuant to the FFELP, including for any loan guarantees, is limited solely to the amounts contained in these two funds, and the State has no obligation to replenish these funds if exhausted.

 

As of September 30, 2007, CSAC’s Federal Fund and Operating Fund balances were as follows: CSAC’s Federal Fund had total assets of $126,538,170, total liabilities of $50,117,449 and total fund equity of $76,420,721; and CSAC’s Operating Fund had total assets of $67,901,237, total liabilities of $36,379,875 and total fund equity of $31,521,362.

 

The 1998 Reauthorization Amendments require guaranty agencies to return to the Department of Education $250 million in reserve funds from fiscal years 2002 to 2007, with each agency’s share being based on a formula prescribed in the 1998 Reauthorization Amendments. The Department of Education advised CSAC that its share of this recall is $24,871,909. The first installment payment of $8,456,449 was paid on August 26, 2002. The second installment of $8,207,730 was paid on August 31, 2006 and the final installment of $8,207,730 was paid on August 31, 2007. These payments are disclosed on the financial statements, and have been recognized as liabilities.

 

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Guaranty Volume.    CSAC guaranteed the following amounts for the last five (5) fiscal years ending September 30:

 

     Fiscal Year

     ($ in millions)

     2003

   2004

   2005

   2006

   2007

FFELP Loan Volume

   $ 4,421    $ 5,712    $ 6,577    $ 6,878    $ 6,765

 

The information in the following tables has been provided by CSAC from reports provided by or to the U.S. Department of Education. CSAC has not verified, and makes no representation as to the accuracy or completeness of, the information compiled by the Department of Education or as to any calculations other than as required by federal regulation.

 

Reserve Ratio.    Calculated pursuant to 34 C.F.R. 682.419, CSAC’s reserve ratio (determined by dividing its fund balance by the total amount of loans outstanding) for the last five (5) fiscal years ending September 30 was as follows:

 

     Fiscal Year

 
     2003

    2004

    2005

    2006

    2007

 

Reserve Ratio

   0.25 %   0.25 %   0.25 %   0.25 %   0.26 %

 

Recovery Rate.    Calculated pursuant to 34 C.F.R. 682.409, CSAC’s recovery rate for each of the last five (5) fiscal years ending September 30 was as follows:

 

     Fiscal Year

 
     2003

    2004

    2005

    2006

    2007

 

Recovery Rate

   27.23 %   27.03 %   31.12 %   21.73 %   19.85 %

 

Claims Rate.    Calculated pursuant to 34 C.F.R. 682.404, CSAC’s claims rate for each of the last five (5) fiscal years ending September 30 was as follows:

 

     Fiscal Year

 
     2003

    2004

    2005

    2006

    2007

 

Claims Rate

   2.07 %   2.14 %   2.81 %   3.01 %   3.31 %

 

CSAC is located in Rancho Cordova, California. CSAC’s contact information is 10811 International Drive, Rancho Cordova, CA 95670. CSAC’s web address is www.csac.ca.gov. EDFUND is located in Rancho Cordova, California. EDFUND’s contact information is 3300 Zinfandel Drive, Rancho Cordova, CA 95670. EDFUND’s web address is www.edfund.org.

 

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EXHIBIT I

 

PREPAYMENTS, EXTENSIONS, WEIGHTED AVERAGE LIVES AND EXPECTED

MATURITIES OF THE NOTES

 

Prepayments on pools of student loans can be measured or calculated based on a variety of prepayment models. The model used to calculate prepayments is the constant prepayment rate (or “CPR”) model.

 

The CPR model is based on prepayments assumed to occur at a constant percentage rate. CPR is stated as an annualized rate and is calculated as the percentage of the loan amount outstanding at the beginning of a period (including accrued interest to be capitalized), after applying scheduled payments, that are paid during that period. The CPR model assumes that student loans will prepay in each month according to the following formula:

 

Monthly Prepayments = Balance After Scheduled Payments x (1-(1-CPR)^ 1/12)

 

Accordingly, monthly prepayments assuming a $1,000 balance after scheduled payments would be as follows for the percentages of CPR listed below:

 

CPR


    

0%

   

6%

   

12%

   

18%

   

24%

Monthly Prepayment


   $

0.00

  $

5.14

  $

10.60

  $

16.40

  $

22.61

 

The CPR model does not purport to describe historical prepayment experience or to predict the prepayment rate of any actual student loan pool. The student loans will not prepay at any constant CPR, nor will all of the student loans prepay at the same rate. You must make an independent decision regarding the appropriate principal prepayment scenarios to use in making any investment decision.

 

Additional Assumptions

 

For purposes of calculating the information presented in the tables below, it is assumed, among other things, that:

 

  ·  

the statistical cutoff date for the trust student loans is December 26, 2007;

 

  ·  

the closing date will be January 17, 2008;

 

  ·  

all trust student loans (as grouped within the “rep lines” described below) remain in their current status until their status end date and then move to repayment, with the exception of in-school status loans which are assumed to have a 6-month grace period before moving to repayment, and no trust student loan moves from repayment to any other status;

 

 

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  ·  

the trust student loans that are (i) non-subsidized Stafford loans not in repayment status, (ii) subsidized Stafford loans in forbearance status, or (iii) SLS or PLUS loans, have interest accrued and capitalized upon entering repayment;

 

  ·  

the trust student loans that are subsidized Stafford loans and are in in-school, grace or deferment status, have interest paid (interest subsidy payments) by the Department of Education quarterly, based on a quarterly calendar accrual period;

 

  ·  

no delinquencies or defaults occur on any of the trust student loans, no repurchases for breaches of representations, warranties or covenants occur and all borrower payments are collected in full;

 

  ·  

there are government payment delays of 60 days for interest subsidy and special allowance payments;

 

  ·  

index levels for calculation of borrower and government payments are:

 

  ·  

before December 1, 2007, a 91-day Treasury bill rate of 4.92% and on or after December 1, 2007, a 91-day Treasury bill rate of 3.31%; and

 

  ·  

a three-month commercial paper rate of 4.75%;

 

  ·  

no funds are deposited into the supplemental purchase account on the closing date;

 

  ·  

distributions begin on April 25, 2008, and payments are made quarterly on the 25th day of every January, April, July and October thereafter, whether or not the 25th is a business day;

 

  ·  

the interest rate for each class of outstanding notes at all times will be equal to:

 

  ·  

class A-1 notes: 5.12%;

 

  ·  

class A-2 notes: 5.19%;

 

  ·  

class A-3 notes: 5.34%;

 

  ·  

class A-4 notes: 5.49%; and

 

  ·  

class B notes: 5.99%;

 

  ·  

an administration fee equal to $20,000 is paid quarterly by the trust to the administrator, beginning in April 2008;

 

  ·  

the monthly servicing fee for a trust student loan will be calculated on a unit basis and will equal (i) $1.50 per month per borrower for trust student loans that are in in-school status, (ii) $2.75 per month per borrower for trust student loans that are in grace status and (iii) $3.25 per month per borrower for all other trust student loans. In no event, however, will the primary servicing fee for any month exceed 1/12 of 0.90% of the outstanding principal balance of the trust student loans;

 

 

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Table of Contents
  ·  

the reserve account has an initial balance equal to $3,749,783 and at all times a balance equal to the greater of (1) 0.25% of the Pool Balance and (2) $1,499,914;

 

  ·  

the collection account has an initial balance equal to $0;

 

  ·  

the capitalized interest account has an initial balance equal to $30,000,000, and on the April 2009 quarterly distribution date, all remaining funds on deposit in the capitalized interest account will be transferred to the collection account and included in Available Funds on that quarterly distribution date;

 

  ·  

all payments are assumed to be made at the end of the month and amounts on deposit in the collection account, reserve account and capitalized interest account, including reinvestment income earned in the previous month, net of servicing fees, are reinvested in eligible investments at the assumed reinvestment rate of 4.74% per annum through the end of the collection period, and reinvestment earnings are available for distribution from the prior collection period;

 

  ·  

prepayments on the trust student loans are applied monthly in accordance with CPR, as described above;

 

  ·  

an optional redemption by the servicer occurs on the quarterly distribution date immediately following the collection period during which the Pool Balance falls below 10% of the Initial Pool Balance; and

 

  ·  

the pool of trust student loans consists of 1,721 representative loans (“rep lines”) which have been created for modeling purposes from individual trust student loans based on combinations of similar individual student loan characteristics, which include, but are not limited to, loan status, interest rate, loan type, index, margin, rate cap and remaining term.

 

The following tables have been prepared based on the assumptions described above (including the assumptions regarding the characteristics and performance of the rep lines, which will differ from the characteristics and performance of the actual pool of trust student loans) and should be read in conjunction therewith. In addition, the diverse characteristics, remaining terms and loan ages of the trust student loans could produce slower or faster principal payments than indicated in the following tables, even if the dispersions of weighted average characteristics, remaining terms and loan ages are the same as the assumed characteristics, remaining terms and loan ages.

 

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Table of Contents

CPR Tables

 

The following tables show the weighted average remaining lives, expected maturity dates and percentages of original principal of each class of the notes at various percentages of CPR from the closing date until the optional redemption date.

 

Weighted Average Lives and Expected Maturities of the Notes

at Various CPR Percentages

 

Weighted Average Life (years)(1)


   0%

   6%

   12%

   18%

   24%

Class A-1 Notes

     2.47    1.45    1.00    0.77    0.62

Class A-2 Notes

     5.75    4.10    3.00    2.29    1.83

Class A-3 Notes

     7.90    6.37    5.00    3.96    3.19

Class A-4 Notes

     9.59    8.55    7.36    6.23    5.18

Class B Notes

   10.27    9.52    8.52    7.52    6.27

Expected Maturity Date


                        

Class A-1 Notes

   January 25, 2012    July 25, 2010    October 25, 2009    April 25, 2009    January 25, 2009

Class A-2 Notes

   April 25, 2015    October 25, 2013    April 25, 2012    July 25, 2011    October 25, 2010

Class A-3 Notes

   July 25, 2016    January 25, 2015    October 25, 2013    July 25, 2012    October 25, 2011

Class A-4 Notes

   April 25, 2018    July 25, 2017    July 25, 2016    July 25, 2015    April 25, 2014

Class B Notes

   April 25, 2018    July 25, 2017    July 25, 2016    July 25, 2015    April 25, 2014

(1) The weighted average life of the notes (assuming a 360-day year consisting of twelve 30-day months) is determined by: (1) multiplying the amount of each principal payment on the applicable class of notes by the number of years from the closing date to the related quarterly distribution date, (2) adding the results, and (3) dividing that sum by the aggregate principal amount of the applicable class of notes as of the closing date.

 

I-4


Table of Contents

Class A-1 Notes

 

Percentages Of Original Principal Of The Notes Remaining At Certain Quarterly Distribution Dates At Various CPR Percentages

 

Quarterly Distribution Date


           0%        

           6%        

           12%        

           18%        

           24%        

Closing Date

   100%    100%    100%    100%    100%

April 2008

   100       95       88       81       73   

April 2009

   79       50       21       0       0   

April 2010

   54       6       0       0       0   

April 2011

   23       0       0       0       0   

April 2012

   0       0       0       0       0   

April 2013

   0       0       0       0       0   

April 2014

   0       0       0       0       0   

April 2015

   0       0       0       0       0   

April 2016

   0       0       0       0       0   

April 2017

   0       0       0       0       0   

April 2018

   0       0       0       0       0   

 

Class A-2 Notes

 

Percentages Of Original Principal Of The Notes Remaining At Certain

Quarterly Distribution Dates At Various CPR Percentages

 

Quarterly Distribution Date


           0%        

           6%        

           12%        

           18%        

           24%        

Closing Date

   100%    100%    100%    100%    100%

April 2008

   100       100       100       100       100   

April 2009

   100       100       100       94       74   

April 2010

   100       100       73       43       17   

April 2011

   100       72       34       1       0   

April 2012

   90       40       0       0       0   

April 2013

   62       10       0       0       0   

April 2014

   31       0       0       0       0   

April 2015

   0       0       0       0       0   

April 2016

   0       0       0       0       0   

April 2017

   0       0       0       0       0   

April 2018

   0       0       0       0       0   

 

I-5


Table of Contents

Class A-3 Notes

 

Percentages Of Original Principal Of The Notes Remaining At Certain Quarterly Distribution Dates At Various CPR Percentages

 

Quarterly Distribution Date


           0%        

           6%        

           12%        

           18%        

           24%        

Closing Date

   100%    100%    100%    100%    100%

April 2008

   100       100       100       100       100   

April 2009

   100       100       100       100       100   

April 2010

   100       100       100       100       100   

April 2011

   100       100       100       100       27   

April 2012

   100       100       99       11       0   

April 2013

   100       100       18       0       0   

April 2014

   100       47       0       0       0   

April 2015

   96       0       0       0       0   

April 2016

   3       0       0       0       0   

April 2017

   0       0       0       0       0   

April 2018

   0       0       0       0       0   

 

Class A-4 Notes

 

Percentages Of Original Principal Of The Notes Remaining At Certain Quarterly Distribution Dates At Various CPR Percentages

 

Quarterly Distribution Date


           0%        

           6%        

           12%        

           18%        

           24%        

Closing Date

   100%    100%    100%    100%    100%

April 2008

   100       100       100       100       100   

April 2009

   100       100       100       100       100   

April 2010

   100       100       100       100       100   

April 2011

   100       100       100       100       100   

April 2012

   100       100       100       100       73   

April 2013

   100       100       100       71       44   

April 2014

   100       100       77       45       0   

April 2015

   100       88       50       26       0   

April 2016

   100       56       28       0       0   

April 2017

   60       29       0       0       0   

April 2018

   0       0       0       0       0   

 

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Table of Contents

Class B Notes

 

Percentages Of Original Principal Of The Notes Remaining At Certain Quarterly Distribution Dates At Various CPR Percentages

 

Quarterly Distribution Date


           0%        

           6%        

           12%        

           18%        

           24%        

Closing Date

   100%    100%    100%    100%    100%

April 2008

   100       100       100       100       100   

April 2009

   100       100       100       100       100   

April 2010

   100       100       100       100       100   

April 2011

   100       100       100       100       100   

April 2012

   100       100       100       100       100   

April 2013

   100       100       100       100       100   

April 2014

   100       100       100       100       0   

April 2015

   100       100       100       100       0   

April 2016

   100       100       100       0       0   

April 2017

   100       100       0       0       0   

April 2018

   0       0       0       0       0   

 

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PRINCIPAL OFFICES

ISSUING ENTITY

SLM STUDENT LOAN TRUST 2007-8

10161 Centurion Parkway

Jacksonville, Florida 32256

DEPOSITOR

SLM FUNDING LLC

12061 Bluemont Way

V3419

Reston, Virginia 20190

SPONSOR, SERVICER AND ADMINISTRATOR

SALLIE MAE, INC.

12061 Bluemont Way

Reston, Virginia 20190

 

ELIGIBLE LENDER TRUSTEE

THE BANK OF NEW YORK

TRUST COMPANY, N.A.

10161 Centurion Parkway

Jacksonville, Florida 32256

 

DELAWARE TRUSTEE

THE BANK OF NEW YORK

(DELAWARE)

100 White Clay Center

Route 273

Newark, Delaware 19711

 

INDENTURE TRUSTEE AND

PAYING AGENT

DEUTSCHE BANK TRUST

COMPANY AMERICAS

60 Wall Street, 26th Floor

Mailstop NYC60 2606

New York, New York 10005

LUXEMBOURG PAYING AGENT AND LUXEMBOURG LISTING AGENT

DEUTSCHE BANK LUXEMBOURG S.A.

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 LLP

1800 Tysons Boulevard

McLean, Virginia 22102-4261


Table of Contents

 

BASE PROSPECTUS

The SLM Student Loan Trusts

The SLM Private Credit Student Loan Trusts

Issuing Entities

Student Loan-Backed Notes

 


SLM Funding LLC

Depositor

Sallie Mae, Inc.

Sponsor, Servicer and Administrator

 


You should consider carefully the risk factors described in this prospectus beginning on page 20 and in the prospectus supplement that accompanies this prospectus.

The notes described herein represent obligations of the applicable issuing entity only. The notes are not obligations of or interests in the sponsor, administrator, servicer, depositor, any seller or any of their affiliates.

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

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

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 Notes

The depositor intends to form trusts to issue student loan-backed notes. Each issue of notes will have its own designation. We intend to sell the notes from time to time in amounts, at prices and on terms determined at the time of the offering and sale of the related series of notes. Each series will include one or more classes of notes secured by the assets of the trust for that issue.

A class of notes may:

 

   

be senior or subordinate to other classes in its series; 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 holder of a class of notes will have 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;

 

   

specified types of credit enhancement; and

 

   

other moneys, investments and property, including derivative instruments in some cases.

Each supplement to this prospectus will describe, among other things, the specific amounts, prices and terms of the notes of the related series. The supplements will also provide details of the specific student loans, credit enhancement, derivative instruments and other assets of the related trust.

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

October 16, 2007


Table of Contents

IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS

PROSPECTUS AND THE RELATED PROSPECTUS SUPPLEMENT

For each issue, we will provide information to you about the notes in two separate documents that progressively provide more detail:

 

   

this prospectus, including the Appendices hereto, which provides general information, some of which may not apply to your series of notes; and

 

   

the related prospectus supplement, including all Annexes thereto, which describes the specific terms of your series of notes, 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 notes.

In making any investment decision, you should rely only on the information contained or incorporated in this prospectus and the related prospectus supplement. We have not authorized anyone to provide you with different information. We are not offering the notes in any state or other jurisdiction where the offer is prohibited.

For certain information concerning the notes, we have provided cross-references to captions in this prospectus and the accompanying prospectus supplement. Under each of those captions, further information about the notes is provided. 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

   7

Principal Parties

   7

The Notes

   8

Assets of the Issuing Entity

   10

Collection Account

   11

Reserve Account

   11

Pre-Funding Account

   12

Capitalized Interest Account

   12

Other Accounts

   12

Pre-funding Period

   12

Revolving Period

   13

Credit and Cash Flow or other Enhancement or Derivative Arrangements

   13

Servicing Agreements

   13

Servicing Fee

   13

Administration Agreement

   14

Administration Fee

   14

Purchase Agreements

   14

Sale Agreements

   14

Representations and Warranties of the Depositor

   14

Representations and Warranties of SLM Education Credit Finance Corporation and the Other Sellers under the Purchase Agreements

   16

Covenants of the Servicer

   16

Optional Purchases

   17

Call Option and Collateral Call

   17

Auction of Trust Assets

   18

Tax Considerations

   18

ERISA Considerations

   19

Ratings

   19

Risk Factors

   20

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

   20

The Notes Are Not Suitable Investments For All Investors

   20

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

   20

The Issuing Entity Will Have Limited Assets From Which To Make Payments On The Notes, Which May Result In Losses

   20

Private Credit Student Loans May Have Greater Risk Of Default

   21

Past Charge-Off Rates On SLM Corporation’s Private Education Loans May Not Be Indicative Of Future Charge-Off Rates

   21

Interests Of Other Persons In Private Credit Student Loans Could Be Superior To An Issuing Entity’s Interest, Which May Result In Reduced Payments On Your Notes

   22

Risk Of Default By Private Guarantors

   23

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

   23

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

   23

The U.S. Department Of Education’s Failure To Make Reinsurance Payments May Negatively Affect The Timely Payment Of Principal And Interest On Your Notes

   24

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

   24

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

   25

 

3


Table of Contents
     Page

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 Notes

   26

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

   26

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

   26

The Notes 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

   27

Incentive Programs May Affect Your Notes

   27

Payment Offsets By FFELP Loan Guarantors Or The U.S. Department Of Education Could Prevent The Issuing Entity From Paying You The Full Amount Of The Principal And Interest Due On Your Notes

   28

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 Notes

   29

The Bankruptcy Of The Servicer Could Delay The Appointment Of A Successor Servicer Or Reduce Payments On Your Notes

   29

The Bankruptcy Of The Depositor, SLM ECFC Or Any Other Seller Could Delay Or Reduce Payments On Your Notes

   29

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

   30

Future Changes In Law May Adversely Affect Student Loans, The Guarantors, The Depositor, SLM ECFC, Or The Other Sellers And, Accordingly, Adversely Affect Your Notes

   31

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

   31

Withdrawal Or Downgrade Of Initial Ratings May Decrease The Prices Of Your Notes

   32

An Issuing Entity May Be Affected By Delayed Payments From Borrowers Called To Active Military Service

   32

Consumer Protection Laws May Affect Enforceability Of Student Loans

   32

Risk of Bankruptcy Discharge of Private Credit Student Loans

   33

Subordinated Noteholders May Not Be Able To Direct The Indenture Trustee Upon An Event Of Default Under The Indenture

   33

In The Event Of An Early Termination Of A Swap Agreement Due To Certain Swap Termination Events, An Issuing Entity May Be Required To Make A Large Termination Payment To Any Related Swap Counterparty

   33

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

   34

Your Notes Will Have Greater Risk If A Currency Swap Agreement Terminates

   34

If The Holder Of The Call Option Or Collateral Call Exercises Its Right, You May Not Be Able To Reinvest In A Comparable Note

   35

 

4


Table of Contents
     Page

Risks Related To Auction Rate Notes

   36

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

   36

Risks Related To Reset Rate Notes

   37

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

   37

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

   37

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

   38

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

   39

If The Holder Of The Call Option On The Reset Rate Notes Exercises The Call Option, You May Not Be Able To Reinvest In A Comparable Note

   39

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 Notes

   39

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

   40

Formation of the Issuing Entities

   41

The Issuing Entities

   41

Eligible Lender Trustee or Trustee

   42

Use Of Proceeds

   43

The Depositor

   43

The Sponsor, Servicer and Administrator

   45

The Sellers

   47

The Student Loan Pools

   48

FFELP Delinquencies, Defaults, Claims and Net Losses

   49

Static Pool Data

   49

Prepayments and Yield

   50

Payment of Notes

   50

Termination

   50

Sallie Mae’s Student Loan Financing Business

   51

Transfer and Servicing Agreements

   59

General

   59

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

   59

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

   60

Custodian of Promissory Notes

   61

Additional Fundings

   61

Amendments to Transfer and Servicing Agreements

   62

Servicing and Administration

   62

General

   62

Accounts

   62

Servicing Procedures

   65

Payments on Student Loans

   65

Servicer Covenants

   66

Servicing Compensation

   67

Evidence as to Compliance

   68

Matters Regarding the Servicer

   68

Servicer Default

   69

Rights Upon Servicer Default

   70

Waiver of Past Defaults

   71

Administration Agreement

   71

Administrator Default

   72

Rights Upon Administrator Default

   72

Statements to Indenture Trustee and Trust

   73

Evidence as to Compliance

   74

Trading Information

   75

Pool Factors

   76

Description of the Notes

   76

General

   76

 

5


Table of Contents
     Page

Principal and Interest on the Notes

   77

Call Option on the Notes

   78

Collateral Call

   78

The Indenture

   78

Additional Information Regarding the Notes

   84

Fixed Rate Notes

   84

Floating Rate Notes

   84

Auction Rate Notes

   85

The Reset Rate Notes

   88

Determination of Indices

   107

Distributions

   116

Credit Enhancement and Other Support

   116

General

   116

Subordination of Notes

   117

Reserve Accounts

   117

Capitalized Interest Accounts

   117

Cash Capitalization or Cash Collateral Accounts

   117

Supplemental Interest Accounts

   118

Investment Premium Purchase Accounts

   118

Investment Reserve Accounts

   118

Letters of Credit

   118

Liquidity Agreements

   119

Pool Insurance Policies

   119

Financial Guaranty Insurance Policies or Surety Bonds

   119

Repurchase Bonds

   119

Swap Agreements, Cap Agreements or other Financial or Derivative Instruments;

   119

Insolvency Events

   120

Book-Entry Registration

   120

Reset Rate Notes

   123

Non-U.S. Dollar Denominated Notes

   126

Definitive Notes

   128

List of Noteholders

   129

Reports to Noteholders

   129

Certain Legal Aspects of the Student Loans

   129

Transfer of Student Loans

   129

Consumer Protection Laws

   131

Loan Origination and Servicing Procedures Applicable to Student Loans

   131

Student Loans Generally Not Subject to Discharge in Bankruptcy

   132

U.S. Federal Income Tax Consequences

   132

Tax Characterization of the Trust

   133

Tax Consequences to Holders of Notes In General

   134

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

   138

Special Tax Consequences to Holders of Auction Rate Notes

   142

Special Tax Consequences to Holders of Reset Rate Notes

   142

European Union Directive On The Taxation Of Savings Income

   144

State Tax Consequences

   145

ERISA Considerations

   145

Available Information

   148

Reports to Noteholders

   148

Incorporation of Documents by Reference

   149

The Plan of Distribution

   149

Legal Matters

   151

Appendix A: Federal Family Education Loan Program

   A-1

Appendix B: Undergraduate and Graduate Loan Programs

   B-1

Appendix C: Law Loan Programs

   C-1

Appendix D: MBA Loan Programs

   D-1

Appendix E: Medical Loan Programs

   E-1

Appendix F: Direct-to-Consumer Loan Programs

   F-1

Appendix G: Private Consolidation Loan Program

   G-1

Appendix H: Global Clearance, Settlement and Tax Documentation Procedures

   H-1

 

6


Table of Contents

PROSPECTUS SUMMARY

This summary highlights selected information concerning the notes. 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 which appears elsewhere in this document and in the prospectus supplement for your particular notes.

Principal Parties

 

Issuing Entity

  Each issuing entity will be a Delaware statutory trust to be formed for each series of notes under a trust agreement between the depositor and an eligible lender trustee. We sometimes refer to an issuing entity as a “trust” in this prospectus.

Depositor

  The depositor is SLM Funding LLC, which is a Delaware limited liability company. SLM Education Credit Finance Corporation is the sole member of the depositor. An interim eligible lender trustee specified in the prospectus supplement for your notes will hold legal title to any FFELP loans on our behalf. Where the context involves the holding or transferring of legal title to FFELP loans, references herein to the depositor include the interim eligible lender trustee.

Trustee, Delaware Trustee and Eligible Lender Trustee

  For each series of notes, the related prospectus supplement will specify the trustee, the Delaware trustee and/or eligible lender trustee, as applicable, for the related issuing entity. See “Formation of the Issuing Entities—Eligible Lender Trustee or Trustee” in this prospectus.

Sponsor

  The sponsor is Sallie Mae, Inc. We sometimes refer herein to Sallie Mae, Inc. as SMI.

Servicer

  The servicer will be either SMI or another servicer specified in the prospectus supplement for your notes. SMI manages and operates the loan servicing functions for SLM Corporation and its affiliates and certain unrelated parties.
  Under the circumstances described in this prospectus, the servicer may transfer its servicing obligations to other entities. It may also contract with other servicers or sub-servicers. The related prospectus supplement will describe any sub-servicers with whom the servicer has contracted. See “Servicing and Administration—Matters Regarding the Servicer” in this prospectus.

 

7


Table of Contents

Sellers

  The sellers are SLM Education Credit Finance Corporation and/or other affiliates of the depositor as identified in the related prospectus supplement. We sometimes refer herein to SLM Education Credit Finance Corporation as SLM ECFC.

Originators

  To the extent that non-FFELP loans have been originated by one or more originators not affiliated with SMI or the depositor and constitute a material portion of the related loan pool, the identity of such originators will be disclosed, to the extent known. The requisite information concerning those originators, to the extent available, will be provided in the related prospectus supplement.

Indenture Trustee

  For each series of notes, 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

  The administrator of the issuing entity will be either Sallie Mae, Inc. or a sub-administrator specified in the prospectus supplement for your notes. Under the circumstances described in this prospectus, the administrator may transfer its obligations as administrator to an affiliate. The administrator may also contract with sub-administrators. If there is a sub-administrator, the identity of the sub-administrator will be specified in the prospectus supplement for your notes. The related prospectus supplement will describe any sub-administrators with whom the administrator has contracted. See “Summary of Terms—Administrator” in the related prospectus supplement.
The Notes   Each series of notes will include one or more classes of student loan-backed notes. The notes will be issued under an indenture between the issuing entity 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, as provided in the related prospectus supplement. The depositor may denominate the notes in U.S. Dollars or a non-U.S. Dollar currency as specified in the related prospectus supplement. The notes 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.

 

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  See “Additional Information Regarding the Notes—Book-Entry Registration” and “—Definitive Notes” in this prospectus.
  Each class of notes will have a stated principal amount and will bear interest at the rate described in the related prospectus supplement. Interest rates may vary between the classes of notes in a particular series. The interest rate may be:
 

•     fixed;

 

•     variable;

 

•     adjustable;

 

•     auction-determined;

 

•     reset rate; or

 

•     any combination of these rates.

  The related prospectus supplement will specify:
 

•     the stated 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” in this prospectus “Summary of Terms—The Notes” and “—Information About the Notes” and in the related prospectus supplement.
  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.

 

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Assets of the Issuing Entity   The assets of each issuing entity will include a pool of student loans. The loans 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.

  Student loans owned by the issuing entity are called “trust student loans.”
  The assets of each issuing entity 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 one or more purchase agreements. The prospectus supplement for your notes will describe the seller or sellers that sold the loans to us. The student loans will be selected based on criteria listed in the related purchase agreement.
  We will sell the student loans to the related issuing entity under a sale agreement. The related prospectus supplement will specify the aggregate principal balance of the loans sold to the issuing entity as of the cutoff date specified in that prospectus supplement. The property of each issuing entity will also include amounts on deposit in specific trust accounts. The accounts may include: a collection account, any reserve account, any pre-funding account, any capitalized interest account, any cash capitalization account and any other account identified in the related prospectus supplement. The property of each issuing entity may also include the right to receive payments under any swap agreements entered into by the issuing entity from time to time. See “Formation of the Issuing Entities” in this prospectus.
  Each FFELP loan sold to an issuing entity will be guaranteed as to the payment of principal and interest by a state guaranty agency or a private non-profit guarantor. The percentage of the guarantee will be set forth in the prospectus supplement for your notes. These guarantees are contingent upon compliance with specific origination and servicing procedures, as prescribed by various U.S. federal and guarantor regulations. Each guarantor is reinsured by the U.S. Department of Education for a percentage of claims paid by that guarantor for a given federal fiscal year. The reinsured

 

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  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—Guaranty Agencies under the FFELP” in this prospectus.
  Non-FFELP loans or “private credit student loans” may or may not be insured by a private guarantor or surety. If insured private credit student loans are included in the assets sold to an issuing entity, the issuing entity and the holders of the publicly offered notes related to that issuing entity may or may not have the benefit of the guarantee. If your notes have the benefit of a private guarantee or surety, the related prospectus supplement will describe such private guarantee or surety.
  An issuing entity’s assets may include various agreements with counterparties providing for interest rate swaps, currency swaps, interest rate caps and similar financial contracts. As applicable, these agreements will be described in the related prospectus supplement.
Collection Account   For each issuing entity, the administrator will establish and maintain one or more accounts to hold all payments made on the trust student loans. We refer herein 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. The collection account will be an asset of the issuing entity. The related prospectus supplement will describe the permitted uses of funds in the collection account and the conditions for their application.
Reserve Account   The administrator will establish a reserve account for each series. The reserve account will be established in the name of the indenture trustee and will be an asset of the issuing entity. On the relevant 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 be supplemented from time to time by additional deposits. The prospectus supplement will describe the conditions and amounts of these additional deposits.
  The prospectus supplement for each issuing entity will describe how amounts in the reserve account will be available to cover shortfalls in payments due on the notes. It will also describe how amounts on deposit in the reserve account in excess of the required reserve account balance will be distributed.

 

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Pre-Funding Account   The prospectus supplement for your notes will inform you if a portion of the net proceeds of the sale of the notes will be held in a pre-funding account 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 issuing entity. The prospectus supplement will describe the permitted uses of any funds in the pre-funding account, the conditions for their application and the length of time during which additional student loans may be purchased with amounts on deposit in the pre-funding account.
Capitalized Interest Account   The prospectus supplement for your notes will inform you if the administrator will establish and maintain a capitalized interest account as an asset of the issuing entity. If a capitalized interest account is established, it will be in the name of the indenture trustee. If a capitalized interest account is established, the related issuing entity will make an initial deposit from the net proceeds of the sale of the notes into that account as specified in the related prospectus supplement. This initial deposit will be in the form of either cash or eligible investments.
  Funds in the capitalized interest account will be available to cover shortfalls in payments of primary servicing, administration, auction agent and broker-dealer fees, interest due to senior noteholders and payments due to each swap counterparty (other than any termination payments) pursuant to any swap agreement then in effect. Following such payments and after application of funds available in the collection account, but before application of funds in the reserve account, any funds remaining in the capitalized interest account will be applied towards shortfalls in payments of interest to subordinate noteholders.
Other Accounts   The prospectus supplement for your notes will also describe any other accounts established for the related issuing entity. These accounts may include cash collateralization accounts, supplemental interest accounts, investment reserve accounts, investment premium purchase accounts, currency accounts, and for any series that contains reset rate notes, one or more accumulation accounts.
Pre-funding Period   The prospectus supplement for your notes will inform you if there is a pre-funding period and the length of such pre-funding period for the trust to acquire additional student loans with amounts on deposit in the pre-funding account. The length of the pre-funding period will not extend for more than

 

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  one year from the date of issuance of the related series of notes. The portion of the proceeds for the pre-funding account will not involve more than 50% of the proceeds of the offering of the related series of notes. The additional student loans will have the same general characteristics as the original trust student loans in the related pool.
Revolving Period   The prospectus supplement for your notes will inform you if there is a revolving period and the length of such revolving period for the trust to acquire additional student loans with the cash flows from the related pool of trust student loans. The length of the revolving period will not extend for more than three years from the date of issuance of the related series of notes. The prospectus supplement for your notes will describe the characteristics or selection criteria for the additional trust student loans.
Credit and Cash Flow or other Enhancement or Derivative Arrangements   Credit or cash flow enhancement for any series of notes may include one or more of the items shown under “Additional Information Regarding the Notes—Credit Enhancement and Other Support—General” in this prospectus.
  If any credit or cash flow enhancement applies to an issuing entity or any of the notes issued by that issuing entity, 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. The related prospectus supplement will describe any such limitations or exclusions. See “Additional Information Regarding the Notes—Credit Enhancement and Other Support” in this prospectus.
Servicing Agreements   The servicer will enter into one or more servicing agreements covering the trust student loans held by each issuing entity. 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 any guarantor of the trust student loans and the U.S. Department of Education all appropriate claims to collect any guarantee payments or interest subsidy payments and special allowance payments owed on the trust student loans. See “Servicing and Administration” in this prospectus.
Servicing Fee   The servicer will receive a servicing fee as 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 notes unless any portion of the servicing fee is expressly subordinated to payments on the notes, 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 issuing entity, the eligible lender trustee or trustee, as applicable, the servicer and the indenture trustee. Under this agreement, Sallie Mae, Inc. will undertake specific administrative duties for each issuing entity. See “Servicing and Administration—Administration Agreement” in this prospectus.
Administration Fee   The administrator will receive an administration fee as 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 notes, as specified in the related prospectus supplement. See “Servicing and Administration—Administration Agreement” in this prospectus.
Purchase Agreements   For each issuing entity, 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 trustee or eligible lender trustee, as applicable, on behalf of the issuing entity. The issuing entity will further assign these rights to the indenture trustee as collateral for the notes. See “Transfer and Servicing Agreements” in this prospectus.
Sale Agreements   We will sell the trust student loans to the issuing entity under a sale agreement. The trustee or eligible lender trustee, as applicable, will hold legal title to the trust student loans. The issuing entity 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.
Representations and Warranties of the Depositor   Under the sale agreement for each issuing entity, the depositor, as the seller of the loans to the issuing entity, will make specific representations and warranties to the issuing entity concerning the student loans. We will have an obligation to repurchase any trust student loan if the issuing entity is materially and adversely affected by a breach of the depositor’s representations or warranties, unless we can cure

 

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  the breach within the period specified in the applicable prospectus supplement. Alternatively, we may substitute qualified 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 us 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;

 

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

 

•   program type—Unsubsidized Stafford, Subsidized Stafford, PLUS, SLS, Consolidation or non-FFELP 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 issuing entity 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” in this prospectus.

 

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Representations and Warranties of SLM Education Credit Finance Corporation and the Other 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 sold through that purchase agreement. These representations and warranties will be similar to the representations and warranties we made under the related sale agreement. Under each purchase agreement, the related seller will have repurchase, substitution and reimbursement obligations that match our obligations under the sale agreement.
  See “Transfer and Servicing Agreements—Purchase of Student Loans by the Depositor; Representations and Warranties of the Sellers” in this prospectus.
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, as applicable. It will have an obligation to purchase from an issuing entity any trust student loan if the issuing entity is materially and adversely affected by a breach by the servicer of any of its covenants concerning that student loan. Alternatively, the servicer will have the right to substitute qualified student loans in those circumstances. Any breach that relates to compliance with the Higher Education Act or the relevant loan program rules, as in effect on such date of determination 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 (for example, any breach by the servicer that is cured within the applicable grace period will not be considered to have a material adverse effect).
  If the servicer does not cure a breach within the grace period specified in the related prospectus supplement, the purchase or substitution will be made on the collection period end date immediately following the expiration of the applicable cure period, or as otherwise described in the related prospectus supplement.
  In addition, the servicer will have an obligation to reimburse the issuing entity for:
 

•   any shortfall between the aggregate principal balance of the qualified substitute student loans and the aggregate principal balance of the loans being replaced; and

 

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•   any accrued interest not guaranteed by, or that is required to be refunded to, a guarantor and any relevant loan program payments lost as a result of a breach of the servicer’s covenants.

  See “Servicing and Administration—Servicer Covenants” in this prospectus.
Optional Purchases  

Subject to any limitations described in the related prospectus supplement, the servicer or another entity specified in that prospectus supplement may, at its option, purchase, or arrange for the purchase of, all remaining trust student loans owned by an issuing entity on any distribution date when the pool balance of the remaining student loans 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 supplement. The exercise of this purchase option will result in the early retirement of the notes issued by that issuing entity. See “The Student Loan Pools—Termination” in this prospectus.

 

In addition, the servicer or another entity specified in the prospectus supplement may have an option to purchase or arrange for the purchase of some of the trust student loans at any time. If the servicer or another entity has this option, the related prospectus supplement will specify the percentage limitation applicable to the option together with the other limitations thereon.

Call Option and Collateral Call   If specified in the related prospectus supplement, the servicer or one of its affiliates specified in that prospectus supplement may exercise its option to call, in full, one or more classes of notes. If a class of notes has been called, it will either remain outstanding and be entitled to all interest and principal payments on such class of notes under the related indenture, or the servicer or its specified affiliate will deposit an amount into the collection account sufficient to redeem the specified class of notes, subject to satisfaction of the rating agency condition. See “Description of the Notes—Call Option on the Notes” in this prospectus. Each class of reset rate notes will be subject to a call option as described under “Description of the Notes—The Reset Rate Notes—Call Option” in this prospectus. In addition, if specified in the related prospectus supplement and provided that the rating agency condition is satisfied, the servicer or one or more of its affiliates will have

 

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    the right to purchase certain of the trust student loans in an amount sufficient to redeem one or more
classes of notes.
  See “Description of the Notes—Collateral Call” in this prospectus.
Auction of Trust Assets   Subject to any limitations described in the related prospectus supplement, the indenture trustee will offer for sale by auction all remaining trust student loans at the end of the collection period in which their aggregate 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 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 notes issued by that issuing entity. See “The Student Loan Pools—Termination” in this prospectus and “Summary of Terms—Termination of the Trust—Auction of the Trust Assets” in the related prospectus supplement.
Tax Considerations   On the closing date for a series, Shearman & Sterling LLP or another law firm identified in the related prospectus supplement, as federal tax counsel to the applicable issuing entity, will deliver an opinion stating that, for U.S. federal income tax purposes:
 

•   the notes of that series will be characterized as debt; and

 

•   the issuing entity will not be characterized as an association or a publicly traded partnership taxable as a corporation.

  In addition, the law firm identified in the related prospectus supplement as Delaware tax counsel to the issuing entity will deliver an opinion stating that:
 

•   the tax characterizations which apply for U.S. federal income tax purposes would apply for Delaware state income tax purposes; and

 

•   holders of the notes that are not otherwise subject to Delaware state income taxation will not become subject to Delaware state tax as a result of their ownership of the notes.

 

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  By acquiring a note, you will agree to treat that note as indebtedness.
  See “U.S. Federal Income Tax Consequences” and “State Tax Consequences” in this prospectus.
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 of 1986, as amended, should carefully review with its legal advisors whether the plan’s purchase or holding of any class of notes 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 notes will be rated in at least one of the four highest rating categories by at least two nationally recognized statistical rating organizations. The prospectus supplement for each issuing entity will specify the ratings for the notes being issued.

 

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RISK FACTORS

You should carefully consider the following risk factors in deciding whether to purchase any notes. 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 notes.

 

Because The Notes May Not Provide Regular Or Predictable Payments, You May Not Receive The Return On Investment That You Expected   The notes 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.
The Notes Are Not Suitable Investments For All Investors   The notes are complex investments that should be considered only by investors who, either alone or with their financial, tax and legal advisors, have the expertise to analyze the prepayment, reinvestment, default and market risk, and tax consequences of an investment, as well as the interaction of these factors.
If A Secondary Market For Your Notes Does Not Develop, The Value Of Your Notes May Diminish   The notes will be a new issue without an established trading market. While we intend to list the notes on a European exchange if specified in the related prospectus supplement, we do not intend to list the notes on any exchange in the United States. We cannot assure you that a listing on a European exchange will be accepted nor, in any event, that a secondary market for the notes will develop. If a secondary market does not develop, the spread between the bid price and the asked price for your notes may widen, thereby reducing the net proceeds to you from the sale of your notes.
The Issuing Entity Will Have Limited Assets From Which To Make Payments On The Notes, Which May Result In Losses   An issuing entity will not have, nor will it be permitted to have, significant assets or sources of funds other than the trust student loans and the guarantee agreements. If so provided in the related prospectus supplement, the issuing entity may have a reserve account, any other accounts established in the issuing entity’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 counterparties and the other specified credit or cash flow enhancements to repay your notes. If these sources of funds are unavailable or insufficient to make payments on your notes, you may experience a loss on your investment.

 

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Private Credit Student Loans May Have Greater Risk Of Default   Private credit student loans are made to students who may have higher debt burdens than student loan borrowers as a whole. Borrowers of private credit student loans typically have already borrowed up to the maximum annual or aggregate limits under FFELP loans. As a result, borrowers of private credit student loans may be more likely than other student loan borrowers as a whole to default on their payments or have a higher rate of forbearances. Failures by borrowers to pay timely the principal and interest on their private credit student loans or an increase in deferments or forbearances could affect the timing and amount of available funds for any collection period and adversely affect an issuing entity’s ability to pay principal and interest on your notes. In addition, the private credit student loans are not secured by any collateral of the borrowers and are not insured by any FFELP guaranty agency or by any governmental agency. Consequently, if a borrower defaults on a private credit student loan, you will bear the risk of loss to the extent that the reserve account or other specified credit enhancement for your notes is insufficient or unavailable to cover such default.
Past Charge-Off Rates On SLM Corporation’s Private Education Loans May Not Be Indicative Of Future Charge-Off Rates   Sallie Mae, Inc. as the servicer, has agreed to service the trust student loans on the same terms as they service substantially similar loans owned by SLM Corporation and its affiliates. SLM Corporation and its subsidiaries have established forbearance policies for their private credit loans under which they provide to the borrower temporary relief from payment of principal or interest in exchange for a processing fee paid by the borrower, which is waived under certain circumstances. During the forbearance period, generally granted in three-month increments, interest that the borrower otherwise would have paid is typically capitalized at the end of the forbearance term. At December 31, 2006, approximately nine percent of SLM Corporation’s managed private credit loans in repayment and forbearance were in forbearance. Forbearance is used most heavily when the borrower’s loan enters repayment; however, borrowers may apply for forbearance multiple times and a significant number of private credit loan borrowers have taken advantage of this option. When a borrower ends forbearance and enters repayment, the account is considered current. Accordingly, a borrower who may have been delinquent in his payments or may not have made any recent payments on his account will be accounted for as borrower in a current repayment status

 

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  when the borrower exits the forbearance period. In addition, past charge-off rates on SLM Corporation’s private credit loans may not be indicative of future charge-off rates because of, among other things, the use of forbearance and the effect of future changes to the forbearance policies. If their forbearance policies prove over time to be less effective on cash collections than they expect or if they limit the circumstances under which forbearance may be granted under their forbearance policies, these changes could have a material adverse effect on the amount of future charge-offs and the ultimate default rate changes.
  In addition, future charge-off rates can be higher than anticipated due to a variety of factors such as downturns in the economy, regulatory or operational changes in debt management operations effectiveness, and other unforeseeable future trends. You will bear the risk of loss if actual future performance in charge-offs and delinquency is worse than estimated.
Interests Of Other Persons In Private Credit Student Loans Could Be Superior To An Issuing Entity’s Interest, Which May Result In Reduced Payments On Your Notes   Another person could acquire an interest in a private credit student loan that is superior to an issuing entity’s interest in that student loan because the promissory notes evidencing private credit student loans will not be segregated or marked as belonging to an issuing entity and will not be held by a third-party custodian on behalf of the indenture trustee. The seller will cause financing statements to be filed with the appropriate governmental authorities to perfect an issuing entity’s interest in the related private credit student loans. The servicer will also mark its books and records accordingly. However, the servicer will continue to hold the promissory notes evidencing private credit student loans. If another party purchases (or takes a security interest in) one or more private credit student loans for new value in the ordinary course of business and obtains possession of those promissory notes evidencing private credit student loans without actual knowledge of the issuing entity’s interests, the new purchaser (or secured party) will acquire an interest in those private credit student loans superior to the interest of the applicable issuing entity.
Risk Of Default By Private Guarantors   If a private guarantor defaults on its guarantee obligations, you will rely solely on payments from the related borrower for payments on the related private guaranteed loan. In these circumstances, you will bear the risk of loss resulting from the failure of any borrower of a private guaranteed

 

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  student loan to the extent this loss is not covered by the limited credit enhancement provided in the financing structure for your notes.
You May Incur Losses Or Delays In Payments On Your Notes If Borrowers Default On The Student Loans   If a borrower defaults on a trust student loan that is only 98% or 97% guaranteed, the related issuing entity will experience a loss of approximately 2% or 3%, as the case may be, 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 notes.
If A Guarantor Or Surety Of The Student Loans Experiences Financial Deterioration Or Failure, You May Suffer Delays In Payment Or Losses On Your Notes   All of the student loans will be unsecured. As a result, the only security for payment of a guaranteed student loan is the guarantee provided by the applicable guarantor or surety. Student loans acquired by each issuing entity may be subject to guarantee or surety agreements with a number of individual guarantors or insurance companies. A deterioration of a guarantor’s or surety’s financial condition and ability to honor guarantee claims could result in a failure of that guarantor or surety to make guarantee or surety payments to the eligible lender trustee in a timely manner, or at all. The financial condition of a guarantor or surety could be adversely affected by a number of factors, including the amount of claims made against that guarantor or surety as a result of borrower defaults.
 

A FFELP guarantor’s financial condition and ability to honor guarantee claims could be adversely affected by a number of other 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 U.S. Department of Education, which range from 75% to 100% of the guaranteed portion of the loan, depending on the date the loan was made and the historical performance of the guarantor; and

 

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•     changes in legislation that may reduce expenditures from the U.S. Department of Education that support federal guarantors or that may require guarantors to pay more of their reserves to the U.S. Department of Education.

  If the financial condition of a guarantor or surety deteriorates, they may fail to make guarantee payments in a timely manner, or at all. In that event, you may suffer delays in payment or losses on your notes.
The U.S. Department Of Education’s Failure To Make Reinsurance Payments May Negatively Affect The Timely Payment Of Principal And Interest On Your Notes   If a FFELP guarantor is unable to meet its guarantee obligations, the issuing entity may submit claims directly to the U.S. Department of Education for payment. The U.S. Department of Education’s obligation to pay guarantee claims directly is dependent upon its determination that the guarantor is unable to meet its guarantee obligations. If the U.S. Department of Education delays in making this determination, you may suffer a delay in the payment of principal and interest on your notes. In addition, if the U.S. Department of Education determines that the FFELP guarantor is able to meet its guarantee obligations, the U.S. Department of Education will not make guarantee payments to the issuing entity. The U.S. Department of Education may or may not make the necessary determination that the guarantor is unable to meet its guarantee obligations. If the U.S. Department of Education determines that the guarantor is unable to meet its guarantee obligations, 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. Various loan consolidation programs, including those offered by affiliates of the depositor, available to eligible borrowers may increase the likelihood of prepayments. In addition, an issuing entity may receive unscheduled payments due to defaults and purchases by the servicer or the depositor. Because a pool may include thousands of student loans, it is impossible to predict the amount and timing of payments that will be received and paid to noteholders in any period. Consequently, the length

 

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  of time that your notes 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 notes are outstanding and accruing interest may be longer than you expect.
  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 noteholders.
  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 Notes   Asset-backed notes 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 notes. Similarly, you are likely to receive less money to reinvest when other investments generally are producing higher yields than the yield on the notes.
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 Notes   The rules under which the trust student loans were originated, including the Higher Education Act or the program rules and surety agreements for private credit student loans, require lenders making and servicing student loans and the guarantors, if any, guaranteeing those loans to follow specified procedures, including due diligence procedures, to ensure that the student loans are properly made, disbursed and serviced.

 

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  Failure to follow these procedures may result in:
 

•     the U.S. 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’ or sureties’ inability or refusal to make guarantee or insurance payments on the trust student loans.

  Loss of any loan program payments could adversely affect the amount of available funds and the issuing entity’s ability to pay principal and interest on your notes.
The Inability Of The Depositor Or The Servicer To Meet Its Repurchase Obligation May Result In Losses On Your Notes   Under some circumstances, the issuing entity has the right to require the depositor or the servicer to purchase a trust student loan or provide the issuing entity with a substitute student loan. This right arises generally if a breach of the representations, warranties or covenants of the depositor or the servicer, as applicable, has a material adverse effect on the issuing entity, and 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.
Subordination Of Some Classes Of Notes Results In A Greater Risk Of Losses Or Delays In Payment On Those Notes   Some classes of notes may be subordinate to other classes of that series. Consequently, 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 extent of any subordination.
The Notes 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 notes 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 of the trust student loans.

 

Either event would result in the early retirement of the notes outstanding on that date. If this happens, your yield on the notes may be affected. You will bear the risk that you cannot reinvest the money you receive in comparable notes at an equal yield.

 

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Incentive Programs May Affect Your Notes   At the present time, the sellers of the trust student loans make available to borrowers various incentive programs. In addition, under the terms of the servicing agreement for your notes, the servicer may make new incentive programs available to borrowers with trust student loans. See “SLM Corporation’s Student Loan Financing Business—Underwriting of Private Credit Loans—Incentive Programs” in this prospectus. These current or future incentive programs may affect payments on your notes.
  For example, if one or more of the incentive programs which offer a principal balance reduction to borrowers are made available to borrowers with trust student loans and a higher than anticipated number of borrowers qualify, the principal balance of the affected trust student loans may repay faster than anticipated.
  Accordingly, your notes may experience faster than anticipated principal payments.
  Conversely, the existence of these incentive programs may discourage a borrower from prepaying an affected trust student loan. If this were to occur, the principal balance of your notes may be reduced over a longer period than would be the case if there were no such incentive program.
  Furthermore, incentive programs may reduce the amount of funds available to make payments on your notes by reducing the principal balances and yield on the trust student loans. In that case, you will bear the risk of any loss not covered by available credit enhancement.
Payment Offsets By FFELP Loan Guarantors Or The U.S. Department Of Education Could Prevent The Issuing Entity From Paying You The Full Amount Of The Principal And Interest Due On Your Notes   The eligible lender trustee may use the same U.S. Department of Education lender identification number for FFELP loans in an issuing entity as it uses for other FFELP loans it holds on behalf of other issuing entities established by us. If it does, the billings submitted by the eligible lender trustee or the servicer to the U.S. Department of Education (for items such as special allowance payments or interest subsidy payments) and the claims submitted to the guarantors will be consolidated with the billings and claims for payments for trust student loans under other issuing entities using the same lender identification number. Payments on those billings by the U.S. 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

 

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  lump sum. Those payments must be allocated by the administrator among the various issuing entities that reference the same lender identification number.
  If the U.S. 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 issuing entity for your notes or other issuing entities, the U.S. Department of Education 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 issuing entity. 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 issuing entity’s ability to pay you principal and interest on the notes.
  The servicing agreement for your notes and other servicing agreements of the depositor will contain provisions for cross-indemnification concerning those payments and offsets. Such provisions require one entity to compensate the other or accept a lesser payment to the extent the latter has been assessed for the liability of the former. Even with cross-indemnification provisions, however, the amount of funds available to the issuing entity from indemnification would not necessarily be adequate to compensate the issuing entity and investors in the notes 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 Notes  

If a servicer default occurs, the indenture trustee or the noteholders in a given series of notes may remove the servicer without the consent of the trustee or eligible lender trustee, as applicable. Only the indenture trustee or the noteholders, and not the trustee or eligible lender trustee, as applicable, have the ability to remove the servicer if a servicer default occurs. In the event of the removal of the servicer and the appointment of a successor servicer, 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.

 

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  In addition, the noteholders have the ability, with some exceptions, to waive defaults by the servicer.
  Furthermore, the indenture trustee or the noteholders may experience difficulties in appointing a successor servicer and during any transition phase it is possible that normal servicing activities could be disrupted, resulting in increased delinquencies and/or defaults on the trust student loans.
The Bankruptcy Of The Servicer Could Delay The Appointment Of A Successor Servicer Or Reduce Payments On Your Notes   In the event of default by the servicer resulting solely from certain events of insolvency or the bankruptcy of the servicer, a court, conservator, receiver or liquidator may have the power to prevent either the indenture trustee or the noteholders from appointing a successor servicer or prevent the servicer from appointing a sub-servicer, as the case may be, and delays in the collection of payments on the trust student loans may occur. Any delay in the collection of payments on the trust student loans may delay or reduce payments to noteholders.
The Bankruptcy Of The Depositor, SLM ECFC Or Any Other Seller Could Delay Or Reduce Payments On Your Notes   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 notes 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

 

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  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 notes could occur.
  In addition, if the court ruled in favor of this position, reductions in the amount of payments on the notes 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 issuing entity’s interest in the student loans.
The Indenture Trustee May Have Difficulty Liquidating Student Loans After An Event Of Default   If an event of default occurs under an indenture, the indenture trustee may sell the trust student loans, without the consent of the noteholders (but only in the event that there has been a payment default on a class of senior notes, and in all other cases, if the purchase price received from the sale of the trust student loans is sufficient to repay all related noteholders in full). 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 noteholders whole.
Future Changes In Law May Adversely Affect Student Loans, The Guarantors, The Depositor, SLM ECFC, Or The Other Sellers And, Accordingly, Adversely Affect Your Notes   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 SLM ECFC, the other sellers, 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 issuing entity or the notes that it issues.

 

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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 evidences any student loan made to a borrower under the Federal Family Education Loan Program. When 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.
  It is possible that student loans transferred to the issuing entity 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 Notes   The prospectus supplement for your notes will specify the minimum required ratings for the notes. 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. A rating agency may revise or withdraw its rating at any time if it believes circumstances have changed. A subsequent downgrade in the rating on your notes is likely to decrease the price a subsequent purchaser will be willing to pay for your notes.

 

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An Issuing Entity May Be Affected By Delayed Payments From Borrowers Called To Active Military Service   The Higher Education Act, the Servicemembers Civil Relief Act and similar state and local laws provide payment relief to borrowers who enter active military service and to borrowers in reserve status who are called to active duty after the origination of their trust student loans. Recent and ongoing military operations by the United States have increased the number of citizens who are in active military service, including persons in reserve status who have been called or may be called to active duty.
  The Servicemembers Civil Relief Act also limits the ability of a lender in the FFELP to take legal action against a borrower during the borrower’s period of active duty and, in some cases, during an additional three-month period thereafter.
  We do not know how many trust student loans have been or may be affected by the application of these laws. As a result, there may be unanticipated delays in payment and losses on the trust student loans.
Consumer Protection Laws May Affect Enforceability Of Student Loans   Numerous federal and state consumer protection laws, including various state usury laws and related regulations, impose substantial requirements upon lenders and servicers involved in consumer finance. Some states impose finance charge ceilings and other restrictions on certain consumer transactions and require contract disclosures in addition to those required under federal law. These requirements impose specific statutory liability that could affect an assignee’s ability to enforce consumer finance contracts such as the student loans. In addition, the remedies available to the indenture trustee or the noteholders upon an event of default under the indenture may not be readily available or may be limited by applicable state and federal laws.
Risk of Bankruptcy Discharge of Private Credit Student Loans   Private credit student loans made for qualified education expenses are generally not dischargeable by a borrower in bankruptcy. Private credit student loans can become dischargeable if the borrower proves that keeping the loans non-dischargeable would impose an undue hardship on the debtor and the debtor’s dependents. In addition, direct-to-consumer loans are disbursed directly to the borrowers based upon certifications and warranties contained in their promissory notes, including their certification of the cost of attendance for their education. This process does not involve school certification as an additional control and,

 

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  therefore, may be subject to some additional risk that the loans are not used for qualified education expenses. If you own any notes, you will bear any risk of loss resulting from the discharge of any borrower of a private credit student loan to the extent the amount of the default is not covered by the trust’s credit enhancement.
Subordinated Noteholders May Not Be Able To Direct The Indenture Trustee Upon An Event Of Default Under The Indenture   If specified in the related prospectus supplement, and an event of default occurs under the indenture, only the holders of the controlling class of notes, which is defined as the holders of the then outstanding class or classes of the most senior notes, will be able to waive that event of default, accelerate the maturity dates of the notes or direct any remedial action under the related indenture. In this event, the holders of any outstanding subordinated class or classes of notes will not have any rights to direct any remedial action until each more senior class of notes has been paid in full.
In The Event Of An Early Termination Of A Swap Agreement Due To Certain Swap Termination Events, An Issuing Entity May Be Required To Make A Large Termination Payment To Any Related Swap Counterparty   To the extent described in the related prospectus supplement, when a class of notes bears interest at a fixed rate, an issuing entity may enter into one or more interest rate swap agreements to hedge basis risk. If at any time a class of notes is denominated in a currency other than U.S. Dollars, the issuing entity will be required to enter into one or more currency swap agreements with eligible swap counterparties 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 issuing entity or the related swap counterparty.