Organization. The Texas Guaranteed Student Loan Corporation (TG) is a Texas public non-profit corporation organized in 1980 by the Texas legislature to operate as a guarantee agency under the Federal Family Education Loan Program (FFELP), providing a Federally reinsured guaranty of eligible Stafford, PLUS and consolidation student loans. Located at 301 Sundance Parkway, Round Rock, Texas 78681, TG is governed by ten directors appointed by the Governor of Texas in addition to the State Comptroller, and is staffed by approximately 680 employees.
Guarantee Volume. Approximate annual loan guarantee volume net of cancellations is as follows (in billions):
Loan Guarantee Volume Federal Fiscal Year Excluding
Consolidation Loans Including Consolidation Loans
2005... $3.31 $5.85 2006... $3.73 $6.04 2007... $4.28 $5.74 2008... $6.72 $7.38 2009... $9.58 $9.59
Portfolio Loans. As discussed under “Risk Factors” in the offering
memorandum, loan default rates for students attending proprietary schools typically exceed that for two-year and four-year schools. School type mix for the most current Federal fiscal year and for the total portfolio are as follows:
School Type Federal Fiscal
Year 2009 Total Portfolio as of September 30, 2009
Four-year ... 73% 78%
Two-year... 6% 7%
Proprietary ... 21% 11%
Including consolidation loans, the total portfolio as of September 30, 2009 is comprised of 54% four year, 5% two year, 10% proprietary, and 31% consolidation.
Reserves. TG’s Reserve Ratio as reported by ED is as follows:
Federal Fiscal Year Reserve Ratio 2005... 0.849%
2006... 0.735%
2007... 0.900%
2008... 0.905%
2009... 0.980%
Claims Rate. TG’s claims rate represents the percentage of Federal
reinsurance claims made by TG during a Federal fiscal year relative to TG’s portfolio of loans designated as “in repayment” at the end of the prior Federal fiscal year. TG’s historical claims rates are as follows:
Federal Fiscal Year Claims Rate 2005... 3.48%
2006... 3.06%
2007... 3.01%
2008... 3.32%
2009... 3.40%
Federal Family Education Loan Program Developments. Recent legislation provides for the sale of eligible FFELP loans to the U.S. Department of Education
removing them from the guarantor’s portfolio, the extent of which cannot be determined.
Enacted legislation discontinues FFELP loan originations after June 30, 2010.
No Liability to Noteholders. The information concerning TG in the offering memorandum has been provided for the sole purpose of describing TG’s function as guarantor of certain of the Eligible Loans. TG has no obligation or liability of any kind to the noteholders or to pay the principal of redemption premium or interest on these notes.
Miscellaneous. Liabilities created by TG are not debts of the State of Texas and TG may not secure any liability with funds or assets of the State except as otherwise provided in the final sentence of this paragraph. TG is subject to the Texas Sunset Act (Chapter 325, Government Code) and as a result of Sunset Review completed in 2004, the Texas Legislature enacted legislation to extend TG’s existence until September 1, 2017. If TG is abolished in a subsequent Sunset Review, the Comptroller of Public Accounts of the State of Texas is required under the Education Code to serve as trustee to administer the assets of TG and satisfy its outstanding obligations.
TG has not reviewed any other section of the offering memorandum and shall have no responsibility of any information contained therein.
ANNEX B
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 these 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% 2% 4% 6% 8%
Monthly Prepayment ... $0.00 $1.68 $3.40 $5.14 $6.92
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 June 1, 2010;
• the closing date will be July 9, 2010;
• the initial Pool Balance of the trust student loans as of the statistical cutoff date is $1,289,117,766.67;
• 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,
• 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 30 days for interest subsidy and special allowance payments;
• index levels for calculation of borrower and government payments are:
• a 91-day Treasury bill rate of 0.09%;
• a three-month commercial paper rate of 0.45051%; and
• a 1-year Treasury bill rate that equals the 91-day Treasury bill rate;
• distributions begin on October 25, 2010, and payments are made monthly on the 25th day of every month thereafter, whether or not the 25th is a business day;
• the interest rate for the class A notes at all times will be equal to 1.38925%;
• an administration and calculation agent fee equal to $87,500 is paid quarterly by the trust to the administrator and calculation agent, beginning in October 2010;
• the primary servicing fee for any month shall be 1/12 of 0.90% of the outstanding principal balance of the trust student loans;
• the reserve account has an initial balance equal to $3,222,794.42 and at all times a balance equal to the greater of (1) 0.25% of the Pool Balance and (2) $1,289,117.77;
• the collection account has an initial balance equal to $0;
• the capitalized interest account has an initial balance equal to
$42,000,000, on the April 2012 distribution date, all funds remaining on deposit in the capitalized interest account will be included in Available Funds on that 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 0.43925% 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 master servicer occurs on the 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 142 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.
CPR Tables
The following tables show the weighted average remaining lives, expected maturity dates and percentages of original principal of the class A notes at various percentages of CPR from the closing date until the optional redemption date.
Weighted Average Lives and Expected Maturities of the Class A Notes at Various CPR Percentages
Weighted Average Life
(years)(1) 0% CPR 2% CPR 4% CPR 6% CPR 8% CPR
Class A Notes 5.93 5.44 5.00 4.60 4.24
Expected Maturity Date
Class A Notes 10/25/2020 07/25/2020 04/25/2020 01/25/2020 10/25/2019 (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 notes by the number of years from the closing date to the related distribution date, (2) adding the results, and (3) dividing that sum by the principal amount of the notes as of the closing date.
Class A Notes
Percentages Of Original Principal Of The Notes Remaining At Certain Distribution Dates At Various CPR Percentages
Distribution
Date 0% CPR 2% CPR 4% CPR 6% CPR 8% CPR
Closing Date 100% 100% 100% 100% 100%
October 2010 99% 98% 98% 97% 96%
October 2011 96% 93% 91% 88% 85%
October 2012 87% 82% 78% 74% 70%
October 2013 78% 72% 67% 62% 57%
October 2014 68% 62% 56% 50% 45%
October 2015 58% 51% 45% 39% 34%
October 2016 47% 40% 34% 29% 24%
October 2017 35% 29% 24% 19% 15%
October 2018 23% 18% 14% 10% 7%
October 2019 10% 7% 4% 2% 0%
October 2020 0% 0% 0% 0% 0%
ANNEX C
FEDERAL FAMILY EDUCATION LOAN PROGRAM