**VOLUNTARY FLEXIBLE AGREEMENT**

**BETWEEN**

**THE UNITED STATES DEPARTMENT OF EDUCATION**

**AND**

# COLORADO STUDENT LOAN PROGRAM

This Voluntary Flexible Agreement (VFA) is between the United States
Department of Education (Department) and the Colorado Student Loan
Program (CSLP) and dated as of MM/DD/YY.

WHEREAS, CSLP is a guaranty agency participating in the Federal Family
Education Loan (FFEL) Program administered and regulated by the
Department under Title IV, Part B of the Higher Education Act of 1965,
as amended (HEA), 20 U.S.C. §1071, [et]{.underline} [seq]{.underline}.;
and

WHEREAS, CSLP and the Department are currently parties to certain
agreements governing CSLP's participation as a guaranty agency in the
FFEL Program, including the Agreement for Federal Reinsurance of Loans
Pursuant to §428(c) of the Higher Education Act of 1965, dated January
18, 1980 (Existing Agreements) and which the parties wish to amend, in
whole or in part, as required to implement this VFA; and

WHEREAS, §428A of the HEA provides that the Department may enter into a
VFA with a guaranty agency; and

WHEREAS, the Department and CSLP desire to enter into a VFA amending the
terms of the Existing Agreements; and

WHEREAS, CSLP has agreed to modify its financial model and undertake
certain efforts in connection with FFEL loans it holds or guarantees to
test new ways of doing business in the FFEL Program; and

WHEREAS, the Department has agreed to provide certain waivers of
statutory and regulatory requirements to permit this testing as
authorized by §428A of the HEA;

NOW THEREFORE, for good and valuable consideration, the parties agree as
follows:

1.  **Existing Agreements**. All terms and conditions of the Existing
    Agreements remain in full force and effect except as provided in
    this VFA.

2.  **Compensation.** As a means of testing performance-based funding
    for guaranty agencies in fulfilling their duties in the FFEL
    Program, CSLP and the Department agree that CSLP shall receive funds
    from the Department according to the following rules. The Department
    will monitor the performance measures associated with these fees on
    a monthly basis for cost neutrality purposes. If the costs of the
    VFA exceed the savings to the Secretary, as evaluated using the
    standard guaranty agency funding model and current volume levels,
    the Department will exercise its termination option unless CSLP
    agrees to accept a fee change that brings the agreement back into
    cost neutrality.

    a.  **Loan Processing and Issuance Fee (LPIF)** -- The Department
        shall pay CSLP on a monthly basis a LPIF of .65 percent of the
        total principal amount of loans guaranteed through September 30,
        2003 and .40 percent of the total principal amount of loans
        guaranteed October 1, 2003 or later. To ensure the timely
        availability of an auditable amount of guaranteed loans
        disbursed, for purposes of this calculation, the parties agree
        to use the loan information reported by CSLP. This information
        will be reconciled by the Department on a quarterly basis using
        the National Student Loan Data System (NSLDS). The quarterly
        invoice will be adjusted to reflect any changes. In no case can
        the LPIF amount paid on a monthly basis exceed the quarterly
        NSLDS amount.

    b.  **Account Maintenance Fee (AMF)** -- The Department shall pay
        CSLP on a monthly basis an AMF of 0.10 percent of the original
        principal outstanding balance of CSLP insured loans outstanding
        as of the end of the previous month. At the end of each federal
        fiscal year, the Department will reconcile the monthly payments
        made to CSLP with the annual AMF NSLDS file and adjust the final
        invoice to reflect any changes. If the final invoice amount
        exceeds the AMF cap, the Department shall authorize CSLP to
        transfer from the Escrow Federal Fund any remaining balance.

    c.  **Delinquency Prevention Fee (DPF)** -- The Department shall pay
        CSLP a fee for delinquency prevention on a monthly basis. The
        fee will increase based on the successful reduction of CSLP's
        delinquency rate as a percentage of loans in repayment and will
        be calculated by dividing the dollar amount of annualized
        Default Aversion Assistance Requests (DAAR) by the dollar amount
        of loans in Repayment at the end of the month.

> The DPF shall be paid in accordance with the following schedule:
>
> **[Delinquency Rate]{.underline} [Fee]{.underline}**
>
> 17-100% .073%
>
> 16-16.99% .093%
>
> 15-15.99% .113%
>
> Less than 15% .133%

d.  **Default Aversion Fee (DAF)** -- The Department shall pay CSLP a
    DAF on a monthly basis. A minimum fee of 1.01% of the principal and
    interest on the Default Aversion Assistance Request (DAAR) shall be
    earned in the month the DAAR is received by CSLP. The fee will
    increase based on CSLP's performance in successfully curing a
    greater percentage of loans in comparison to the dollar amount of
    DAARs received for the month. Requests that are outstanding for more
    than 12 months or that come in again for Default Aversion Assistance
    can be re-billed if more than 12 months has elapsed since the
    account was cured. CSLP will calculate the cure rate by dividing the
    dollar amount of DAAR cancellations in a month by the total dollar
    amount of DAARs submitted for the month. CSLP will bill the
    Department for DAF based upon the following schedule:

> **[Cure Rate]{.underline} [Fee]{.underline}**
>
> 0-87.99% 1.01%
>
> 88-88.99% 1.03%
>
> 89-89.99% 1.05%
>
> 90-91.99% 1.07%
>
> 92% and up 1.10%

e.  **Collections Fee** -- CSLP's retention on collections (net back)
    are divided into 3 categories (regular, consolidations, and
    rehabilitations) and shall be based on a graduated scale at the rate
    in which CSLP recovers its defaulted loan portfolio. CSLP's
    retention on collection fees shall be calculated by annualizing
    monthly collections as reported on the monthly Form 2000, the sum of
    line MR-10 (Rehabilitated Loan Refund) and line MR-10-A
    (Rehabilitated Loans), plus line MR-11-A (FFEL
    Consolidation-Payoff), plus line MR-11-B (FFEL Consolidation-GA
    Retention), plus line MR-12-A (AWG-Total Collected), plus line
    MR-13-A (Default Collections-Total Collected), plus line MR-14
    (Bankruptcy Collections), plus line MR-17 (Treasury Offset), minus
    line MR-19 (Treasury Offset Reversals), plus line MR-27 (Default
    FFEL Consolidation by Direct Loan Program) minus line MR4 (TOP
    Overpayments), divided by the beginning of the year default
    portfolio calculated from prior federal fiscal year end Form 2000
    lines MR-33 through MR-40 (Delinquency by Debt). Annual performance
    for net back adjustment shall be assessed at federal fiscal year end
    based on the cumulative collected dollars from the monthly Form 2000
    sections listed above, divided by the beginning of the year default
    portfolio. The collections fee schedule is:

> **[Recovery Rate]{.underline} [Regular]{.underline}
> [Consolidations]{.underline} [Rehabilitation]{.underline}**
>
> 0-21.99% 17% 14.9% 20%
>
> 22-22.49% 19% 16.9% 22%
>
> 22.5-22.99% 21% 18.9% 24%
>
> 23-23.49% 23% 20.9% 26%
>
> 23.5-100% 25% 22.9% 28%

3.  **Access to Federal Databases**. The Department agrees to undertake
    appropriate efforts to provide CSLP inquiry access to all federal
    databases it uses to locate delinquent borrowers or collect
    defaulted student loans, if such access is permitted by privacy law
    and regulations.

4.  **Treatment of Federal Funds and Payment of Claims**.

    a.  CSLP shall process and pay claims following its customary due
        diligence. However, the Department will pay CSLP 100% of the
        claim payment amount for all claims paid during the period in
        which this VFA is effective.

    b.  The parties agree that one of the goals of this VFA is to test
        an alternative to the guaranty agency financing model currently
        used under the HEA. To achieve that goal, CSLP agrees to deposit
        all of the cash and cash equivalents included in its designated
        Federal Fund under §422A of the HEA in an escrow account
        established by the Department and CSLP (Federal Fund Escrow).
        The funds in the Federal Fund Escrow may only be used in
        accordance with the terms of this VFA.

    c.  CSLP will not be required to maintain a minimum reserve level as
        required by §428(c)(9) of the HEA. CSLP will only be required to
        deposit a guarantee fee in the Federal Fund Escrow if it
        collects a guarantee fee.

    d.  The parties acknowledge that the return of Federal Funds under
        this VFA will leave CSLP without the funds to pay default and
        other claims by lenders on FFEL Program loans. To replace the
        Federal Fund for the purpose of paying claims, the parties shall
        establish a process under which CSLP will estimate and request
        from the Department the amount of funds needed to pay claims at
        least thirty days in advance of their actual claim payment date.
        The Department shall pay the amount estimated by CSLP within 30
        days of receipt of the request. If CSLP has not received payment
        from the Department within 30 days of the Department's receipt
        of the request, CSLP may withdraw the amount of funds needed to
        pay the claims from the Federal Fund Escrow. In the event that
        CSLP withdraws funds from the Federal Fund Escrow pursuant to
        this subsection, the Department will deposit, within 30 days,
        into the Federal Fund Escrow an amount sufficient to replenish
        the funds withdrawn by CSLP. CSLP will reconcile each payment
        from the Department for purposes of funding claims payments to
        the related actual claim payment, and adjust for the difference
        on the following estimate and request from the Department.

5.  **Additional Activities**. To refocus resources on the new
    performance-based financial model, the Department and CSLP agree to
    the following:

    a.  CSLP is allowed to submit all documents in an electronic format
        for the assignment of loans to the Department. If needed for
        legal action by the Department such as but not limited to
        litigation, administrative wage garnishment, or federal tax
        offset, CSLP agrees to supply the original, non-electronic
        documentation or promissory note(s).

    b.  As a pilot, CSLP is permitted to rehabilitate a defaulted loan
        after the borrower makes qualifying payments for nine
        consecutive months. CSLP agrees to track the success of these
        borrowers for one year to ensure continued success.

    c.  The Department and CSLP agree to implement an electronic data
        exchange between the parties for the monthly Form 2000 billing.

6.  **Performance Monitoring**. The Department and CSLP will work
    together to monitor performance of the activities detailed in this
    VFA to ensure that the objectives of this VFA are met. To determine
    the success of CSLP's VFA, the following performance indicators will
    be used:

    a.  A decrease in delinquencies as a percent of loans in repayment.
        By the 5th business day of the month, CSLP will provide the
        Department with a system generated Default Aversion Assistance
        Request (DAAR) Report that lists the dollar amount of DAARs
        received the previous month by lender and as a total for CSLP.

    b.  An increase in the cancellation of default aversion assistance
        requests (DAAR) from lenders as a percentage of new lender
        requests. By the 5th business day of the month, CSLP will
        provide the Department with a system generated Default Aversion
        Assistance Request (DAAR) Report that lists the dollar amount of
        DAARs received and DAARs cancelled for the previous month and
        year to date, by lender and the total cure rate for CSLP for all
        lenders

    c.  An incremental decrease in default claim reimbursement using the
        standard guarantor reimbursement model as the measuring tool and
        in comparison of default claims as a percentage of loans in
        repayment.

    d.  An increase in the percentage of defaulted loans that are cured
        through Rehabilitation and make it through three, six, nine, and
        twelve months of consecutive non-delinquent payments post
        rehabilitation.

    e.  CSLP will track and report, on a quarterly basis, the savings in
        resources and staff reallocation to work on the functions
        described in the VFA. The assumption of this performance factor
        is staff and resources previously used to perform the manual
        subrogation function can be used on VFA functions. Performance
        is dependent upon implementation of the electronic process
        described in Section 5(a) of this agreement and the elimination
        of the manual subrogation process.

7.  **Waivers.** Under the authority of §428A of the HEA, the Department
    hereby waives the provisions of the HEA and the regulations listed
    below:

    a.  The Department waives §422A(c) and (d) of the HEA and 34 C.F.R.
        §682.410(a) (1) and (2), which govern the use of the guaranty
        agency's Federal Fund. These provisions are being waived since
        CSLP is depositing the Federal Fund into an escrow account.

    b.  The Department waives §422B(c) and (d) of the HEA and 34 C.F.R.
        §§682.419(b) and (c) and 682.423 to the extent they govern the
        payments made to guaranty agencies and to the extent that they
        are inconsistent with the payments provided under this VFA.

    c.  The Department waives §428(c) (9) of the HEA and 34 C.F.R.
        §682.419(e), which require a guaranty agency to maintain a
        minimum reserve ratio in the Federal Fund.

    d.  The Department waives 34 C.F.R. §682.406 to the extent it
        requires a guaranty agency to meet certain timing requirements
        to file for reinsurance. The procedures provided under Section 4
        of this VFA shall apply.

    e.  The Department waives §428(l) of the HEA and 34 C.F.R.
        §682.404(k) which establish rules governing the payment of the
        default aversion fee to the extent those provisions are
        inconsistent with Section 2(d) of this VFA.

    f.  The Department waives §428(c)(1) of the HEA and 34 C.F.R.
        §682.404(a) and (b) to the extent those provisions provide for
        the Department to reimburse CSLP for claims paid to lenders at
        less than 100% as provided in Section 4(a) of this VFA.

    g.  The Department waives the provision in 34 C.F.R. §682.404(k)(1)
        that prohibits a guaranty agency from restricting a lender's
        choice of the date on which the lender submits a default
        aversion assistance if CSLP determines that by submitting the
        request earlier reduces the chances of default.

    h.  The Department waives §428(c)(6) of the HEA and 34 C.F.R.
        §682.404(g)(1) to the extent those provisions contain rules
        governing a guaranty agency's retention of a portion of
        collections on defaulted loans that are inconsistent with
        Section 2(e) of this VFA.

    i.  The Department waives 34 C.F.R. §682.409(c) to the extent that
        those provisions require the submission of documents in
        non-electronic form for the assignment of loans to the
        Department that are inconsistent with Section 5(a) of this VFA.

    j.  The Department waives §428F(a) of the HEA and 34 C.F.R.
        §682.405(b) to the extent the number of qualifying payments for
        rehabilitation of a defaulted loan is inconsistent with Section
        5(b) of this VFA.

> These waivers shall be in full force and effect for the entire term of
> this VFA unless specifically revoked in writing by the Department. In
> the event of a revocation, which CSLP believes would cause a material
> change to the parties' ability to carry out their obligations under
> this VFA, CSLP may terminate the VFA within 90 days of the date of the
> revocation and in accordance with Section 9.

8.  **Implementation Date**. The Department and CSLP will, within 60
    days of the date of this VFA, adjust all accounts between the
    parties to reflect an implementation of the financial terms of this
    VFA as of MM/DD/YY. The parties agree that such implementation is
    necessary to ensure an effective implementation of the terms of this
    VFA during Federal Fiscal Year 2004.

9.  **Termination and Restoration**. Except as provided in Section
    10(b), either party may terminate this VFA by providing written
    notice of the termination to the other party no less than 90
    calendar days before the effective date of termination. In the event
    that either party for any reason terminates this VFA, the full
    amount of the Escrow Account established under Section 4(b) of this
    Agreement shall revert to CSLP on the effective date of the
    termination. If the fund does not meet minimum requirements, CSLP
    will provide a management plan to ED detailing the timeframe and
    action CSLP will take to bring the federal fund balance to the
    minimum requirement. Both parties agree to execute any documents and
    take appropriate steps to effectuate the termination on the
    effective date.

10. **Additional Provisions**.

    a.  The terms of this VFA shall amend the Existing Agreements
        between the parties. If a term of this VFA conflicts with the
        terms of the Existing Agreements between the parties, the terms
        of this VFA are controlling unless prohibited by law. Upon
        expiration or termination of this VFA, the Existing Agreements
        between the Department and CSLP shall be reinstated.

    b.  This VFA is subject to and, to the extent necessary, shall be
        deemed modified by any subsequent changes to the HEA, other
        applicable laws and the Department's regulations in accordance
        with the effective date of such change. If CSLP believes that
        any change to the HEA or the Department's regulations would
        cause a material change to the parties' ability to carry out
        their obligations under this VFA, CSLP may ask the Department to
        waive the statutory or regulatory provision. The Department may
        agree to waive any such provision if permitted by law. If the
        Department decides not to grant the waiver within 60 days of the
        date of CSLP's written request for the waiver, CSLP may
        terminate this Agreement in accordance with Section 9.

    c.  CSLP may subcontract any of its obligations under this VFA.
        However, CSLP is responsible for ensuring compliance with the
        terms of this VFA and, as between CSLP and the Department, will
        be liable for the actions of its subcontractors.

    d.  Nothing set forth herein restricts either party's remedies under
        federal or state law for breach of this VFA, or in any way
        restricts any other administrative, civil or criminal action
        that could be brought by either party for violation of this VFA
        or any statute or regulation.

> Notices regarding this VFA shall be sent, certified mail, return
> receipt requested, to the Department at the following address:
>
> General Manager
>
> Financial Partners Channel
>
> Federal Student Aid
>
> U.S. Department of Education
>
> Union Center Plaza
>
> Room 54E1
>
> 830 First Street, NE
>
> Washington, D.C. 20202
>
> With a copy to:
>
> Division of Postsecondary Education
>
> Office of the General Counsel
>
> U.S. Department of Education
>
> 400 Maryland Ave., S.W., Room 6E301
>
> Washington, D.C. 20202
>
> And to CSLP at the following address:
>
> Colorado Student Loan Program
>
> Attention: Jeanne M. Adkins, Director
>
> 999 18^th^ Street, Suite 425
>
> Denver, Colorado 80202-2471

IN WITNESS WHEREOF, this VFA has been executed by authorized officials
of CSLP and of the Department.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Colorado Student Loan Program

Date

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Authorized Official

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Title

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ U.S. Department of Education

Date

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Authorized Official

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Title