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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549



FORM 10-Q



(MARK ONE)ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For The Quarterly Period Ended March 31, 2010ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                to


Commission File Number 001-31825



The First Marblehead Corporation(Exact Name of Registrant as Specified in Its Charter)



Delaware(State or Other Jurisdiction of
Incorporation or Organization)

04-3295311(I.R.S. Employer
Identification No.)The Prudential Tower
800 Boylston Street, 34th Floor
Boston, Massachusetts(Address of Principal Executive Offices)

02199-8157(Zip Code)


Registrant's
telephone number, including area code:(800) 895-4283



Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes o    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer ý

Non-accelerated filer o (Do not check if a smaller
reporting company)

Smaller reporting company o


Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o    No ý

As of May 7, 2010, the registrant had 100,116,764 shares of Common Stock, $0.01 par value per share, outstanding.



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THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES        Table of Contents



Part I. Financial InformationItem 1



Financial StatementsCondensed Consolidated Balance Sheets as of March 31, 2010 and June 30, 2009

1Condensed Consolidated Statements of Operations for the three and nine months ended March 31, 2010 and
2009

2Condensed Consolidated Statements of Changes in Stockholders' Equity for the nine months ended March 31,
 2010 and 2009

3Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2010 and
2009

4Notes to Unaudited Condensed Consolidated Financial Statements

5Item 2



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

35Item 3



Quantitative and Qualitative Disclosures About Market
Risk

64Item 4



Controls and Procedures

65Part II. Other InformationItem 1A



Risk Factors

67Item 2



Unregistered Sales of Equity Securities and Use of
Proceeds

89Item 6



Exhibits

89SIGNATURES

90EXHIBIT INDEX

91


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Table of Contents

Part I. Financial Information



Item 1Financial Statements



THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES        CONDENSED CONSOLIDATED BALANCE SHEETS        (unaudited)        (dollars and shares in thousands,
except per share amounts)

March 31,
2010

June 30,
2009ASSETSCash and cash equivalents

$
372,263

$
158,770Federal funds sold


2,003


14,326Short-term investments, at cost


50,000


Investments held for sale


5,753


8,450Education loans held for sale


98,758


350,960Service receivables:Additional structural advisory fees


33,902


55,130Asset servicing fees


6,125


2,385Residuals


12,146


9,960Total service receivables


52,173


67,475Property and equipment, net


10,466


19,929Intangible assets, net


1,364


1,931Other prepaid expenses


3,052


3,571Loans held to maturity, net


9,312


9,515Income taxes receivable


3,823


166,410Net deferred tax asset


53,143


13,124Other assets


5,467


6,869Total assets

$
667,577

$
821,330LIABILITIES AND STOCKHOLDERS' EQUITYLiabilities:Deposits

$
127,355

$
154,462Education loan warehouse facility


227,894


230,137Accounts payable and accrued expenses


31,467


21,512Other liabilities


6,889


9,754Total liabilities


393,605


415,865Commitments and contingenciesStockholders' equity:Preferred stock, par value $0.01 per share; 20,000 shares authorized at March 31, 2010 and June 30, 2009; 133 shares issued and outstanding at
March 31, 2010 and June 30, 2009


1


1Common stock, par value $0.01 per share; 250,000 shares authorized at March 31, 2010 and June 30, 2009; 106,891 and 106,768 shares issued at
March 31, 2010 and June 30, 2009, respectively; 99,248 and 99,125 shares outstanding at March 31, 2010 and June 30, 2009, respectively


1,069


1,068Additional paid-in capital


435,161


431,461Retained earnings


21,739


156,913Treasury stock, 7,643 shares held at March 31, 2010 and June 30, 2009, at cost


(184,246
)

(184,246
)Accumulated other comprehensive income


248


268Total stockholders' equity


273,972


405,465Total liabilities and stockholders' equity

$
667,577

$
821,330


See accompanying notes to unaudited condensed consolidated financial statements.

1

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THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS        (unaudited)        (dollars and shares in
thousands, except per share amounts)

Three months ended
March 31,

Nine months ended
March 31,2010

2009

2010

2009Service revenues:Additional structural advisory feestrust updates

$
(21,440
)
$
(4,063
)
$
(20,799
)
$
(51,466
)Asset servicing fees:Fee income


2,133





6,012


Fee updates


(2,635
)




(2,272
)

Total asset servicing fees


(502
)




3,740


Residualstrust updates


(91
)

(136,366
)

2,186


(285,604
)Administrative and other fees


4,561


4,015


15,090


15,046Total service revenues


(17,472
)

(136,414
)

217


(322,024
)Net interest income


656


5,798


6,597


20,409Total revenues


(16,816
)

(130,616
)

6,814


(301,615
)Non-interest expenses:Compensation and benefits


8,594


8,782


24,937


34,334General and administrative expenses


15,238


18,606


45,732


62,593Losses on education loans held for sale


4,180


47,584


138,794


98,114Total non-interest expenses


28,012


74,972


209,463


195,041Loss before income taxes


(44,828
)

(205,588
)

(202,649
)

(496,656
)Income tax benefit


(15,439
)

(64,934
)

(67,475
)

(169,718
)Net loss

$
(29,389
)
$
(140,654
)
$
(135,174
)
$
(326,938
)Net loss per share:Basic

$
(0.30
)
$
(1.42
)
$
(1.36
)
$
(3.30
)Diluted


(0.30
)

(1.42
)

(1.36
)

(3.30
)Weighted average shares outstanding:Basic


99,248


99,121


99,232


99,067Diluted


99,248


99,121


99,232


99,067


See
accompanying notes to unaudited condensed consolidated financial statements.

2

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THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES        CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY        (unaudited)    
(dollars and shares in thousands)

Non-voting
convertible
preferred stock
issued

Common stockAccumulated
other
comprehensive
income,
net of taxIssued

In treasuryAdditional
paid-in
capital

Retained
earnings

Total
stockholders'
equityShares

Amount

Shares

Amount

Shares

AmountBalance at June 30, 2008




$



106,456

$
1,065


(7,570
)
$
(183,993
)
$
300,498

$
519,933

$
109

$
637,612Comprehensive loss:Net loss























(326,938
)




(326,938
)Accumulated other comprehensive income, net


























139


139Total comprehensive loss























(326,938
)

139


(326,799
)Issuance of preferred stock


133


1














125,857








125,858Net stock issuance from vesting of restricted stock units








308


3


(73
)

(253
)

(3
)







(253
)Stock-based compensation




















5,817








5,817Tax expense from stock-based compensation




















(2,234
)







(2,234
)Balance at March 31, 2009


133

$
1


106,764

$
1,068


(7,643
)
$
(184,246
)
$
429,935

$
192,995

$
248

$
440,001Balance at June 30, 2009


133

$
1


106,768

$
1,068


(7,643
)
$
(184,246
)
$
431,461

$
156,913

$
268

$
405,465Comprehensive lossNet loss























(135,174
)




(135,174
)Accumulated other comprehensive income, net


























(20
)

(20
)Total comprehensive loss























(135,174
)

(20
)

(135,194
)Stock issuance from vesting of restricted stock units








123


1








(1
)







Stock-based compensation




















4,531








4,531Tax expense from stock-based compensation




















(830
)







(830
)Balance at March 31, 2010


133

$
1


106,891

$
1,069


(7,643
)
$
(184,246
)
$
435,161

$
21,739

$
248

$
273,972


See accompanying notes to unaudited condensed consolidated financial statements.

3

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THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS        (unaudited)        (dollars in thousands)

Nine months ended
March 31,2010

2009Cash flows from operating activities:Net loss

$
(135,174
)
$
(326,938
)Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Depreciation and amortization


10,648


13,949Deferred income tax benefit


(40,019
)

(7,457
)Stock-based compensation


4,531


5,817Losses on education loans held for sale


138,794


98,114Proceeds from the sale of education loans


121,585


Loss on disposal of property and equipment


102


1,401Additional structural advisory fee distributions


429


1,530Goodwill impairment





1,701Change in assets/liabilities:Education loans held for sale


(8,962
)

(17,935
)Additional structural advisory fees


20,799


51,466Asset servicing fees


(3,740
)

Residuals


(2,186
)

285,604Other prepaid expenses


519


8,690Income taxes receivable


162,587


(169,960
)Other assets


1,402


1,919Accounts payable and accrued expenses and other liabilities


9,712


(25,190
)Net cash provided by (used in) operating activities


281,027


(77,289
)Cash flows from investing activities:Net change in federal funds sold


12,323


55,126Purchases of short-term investments


(50,000
)

Proceeds from maturities of investments held for sale


2,677


28,781Purchases of investments held for sale





(33,600
)Purchases of intangible assets





(750
)Purchases of property and equipment


(720
)

(935
)Net change in loans held to maturity


988


845Net cash (used in) provided by investing activities


(34,732
)

49,467Cash flows from financing activities:Decrease in deposits


(27,107
)

(112,017
)(Payments for) proceeds from education loan warehouse facility


(2,243
)

3,151Increase in other short-term borrowings





55,000Payments for capital lease obligations


(2,622
)

(2,758
)Tax expense from stock-based compensation


(830
)

(2,234
)Issuance of non-voting convertible preferred stock, net





125,858Repurchase of common stock





(253
)Net cash (used in) provided by financing activities


(32,802
)

66,747Net increase in cash and cash equivalents


213,493


38,925Cash and cash equivalents, beginning of period


158,770


70,280Cash and cash equivalents, end of period

$
372,263

$
109,205Supplemental disclosures of cash flow information:Interest paid

$
6,387

$
13,285Income taxes paid


109


41,207Reclassification of education loans from held for sale to held to maturity


785





See accompanying notes to unaudited condensed consolidated financial statements.

4

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THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES        NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS        (dollars and shares in thousands, except
per share amounts)

(1) Nature of Business and Summary of Significant Accounting Policies

Nature of Business

Unless otherwise indicated or unless the context of the discussion requires otherwise, all references in these notes to unaudited
condensed consolidated financial statements to "we", "us", "our" or similar references mean The First Marblehead Corporation (FMC) and its subsidiaries on a consolidated basis. These unaudited
financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended June 30, 2009 included in our annual report on
Form 10-K filed with the Securities and Exchange Commission on September 3, 2009.

We
offer outsourcing services to national and regional financial institutions and educational institutions for designing and implementing private education loan programs. In addition, we
provide administrative and other services to securitization trusts that we have facilitated, asset servicing to the third-party owner of certain of those securitization trusts (NCSLT Trusts) and
portfolio management services to a limited number of clients. Our subsidiary, Union Federal Savings Bank (Union Federal), is a federally chartered thrift that offers residential and commercial
mortgage loans, and retail savings, money market and time deposit products. As a result of our ownership of Union Federal, we are a savings and loan holding company subject to regulation, supervision
and examination by the U.S. Office of Thrift Supervision (OTS). Substantially all of our financial results have been derived from these activities, which are considered to be in a single industry
segment for financial reporting purposes. During the second quarter of fiscal 2010, we announced that we had begun exploring strategic alternatives for Union Federal, including a potential sale.

Prior
to fiscal 2009, we structured and facilitated the securitization of private education loans generated by our clients through a series of bankruptcy remote, special purpose
statutory trusts. Through the securitization process, the trusts obtained education loans from the originating lenders or their assignees, which relinquished to the trust their ownership interest in
the loans. The debt instruments issued by the trusts to finance the purchase of these private education loans are obligations of the trusts, not obligations of us or the originating lenders or their
assignees. For our past securitization services, we are entitled to receive additional structural advisory fees from the trusts over time. We are also entitled to receive administrative and other fees
associated with these trusts as well as asset servicing fees and residuals associated with certain trusts. In addition, during fiscal 2009, we began to receive service fees for stand-alone services
for loan origination, default prevention and collections services.

Servicing Concentration

As of March 31, 2010, there were seven loan servicers providing services to trusts that we have facilitated, including
processing deferment and forbearance requests, sending out account statements and accrual notices, responding to borrower inquiries, and collecting and crediting payments received from borrowers. As
of March 31, 2010, Pennsylvania Higher Education Assistance Agency (PHEAA) serviced a significant majority of the loans for which we facilitated origination. PHEAA also operates under the name
American Education Services.

5

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THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars and shares in thousands, except per share amounts)

(1) Nature of Business and Summary of Significant Accounting Policies (Continued)

Business Trends, Uncertainties and Outlook

During fiscal 2009, we implemented a plan to adjust our business model and address some of the uncertainties facing us as a result of
dislocations in the capital markets and the private education lending industry. We made major changes in senior management, significantly reduced our operating expenses and the risk on our balance
sheet through the sale of private education loans and the trust certificate (Trust Certificate) of our subsidiary NC Residuals Owners Trust, formerly known as GATE Holdings, Inc., a statutory
trust that owned certain certificates of beneficial ownership interest of the NCSLT Trusts. The NCSLT Trusts held substantially all of the private education loans previously securitized by us and
guaranteed by The Education Resources Institute, Inc. (TERI), a not-for-profit organization. The sale of the Trust Certificate, coupled with operating losses for fiscal
2009, generated a refund in October 2009 from the Internal Revenue Service (IRS) for income taxes previously paid of $176,636 and is expected to eliminate certain future tax liabilities, which would
have had a material negative effect on our financial condition and liquidity. See Note 12, "Income Taxes," for additional information.

In
addition, during the second quarter of fiscal 2010, Union Federal sold approximately 88% of its portfolio of private education loans held for sale, which excluded loans held by Union
Federal's subsidiary at that time, UFSB Private Loan SPV, LLC (UFSB-SPV), for gross proceeds of $121,585. As a result of the sale, Union Federal achieved the loan concentration
reduction imposed by the OTS in July 2009, and FMC was refunded a deposit in the amount of $30,000 that FMC had been required to maintain at Union Federal until such reduction had been achieved.
During the third quarter of fiscal 2010, we announced that the OTS had terminated its enforcement actions against us and Union Federal. See Note 14, "Union Federal Regulatory
MattersSupervisory Agreement and Order to Cease and Desist," for additional details. In April 2010, we restructured the terms of the debt owed by UFSB-SPV under its education
loan warehouse facility. See Note 15, "Subsequent EventsRestructuring of Education Loan Warehouse Facility," for additional details. We believe that the restructuring will prove
attractive to potential purchasers as we consider our strategic alternatives with respect to Union Federal.

Historically,
asset-backed securitizations had been our sole source of permanent financing for clients' private education loan programs. Conditions of the debt capital markets generally,
and the asset-backed securities (ABS) market specifically, rapidly deteriorated during the second quarter of fiscal 2008, and the ability to finance private education loans through securitization
continued to be significantly constrained through May 10, 2010. Our business has been and continues to be materially adversely impacted by these market dynamics, as we did not complete a
securitization transaction during fiscal 2009 or through the first nine months of fiscal 2010. Further, we expect the structure and pricing terms in future financing transactions, if any, to be less
favorable than in the past.

In
addition, credit performance of consumer-related loans generally, as well as the private education loans held by us and the various securitization trusts we have facilitated, have
been adversely affected by general economic conditions in the United States, including increasing unemployment rates. Our education loan portfolios and those held by the NCSLT Trusts have experienced
higher levels of defaults than we originally projected. As a result, we have significantly adjusted our projected performance assumptions associated with the NCSLT Trusts during fiscal 2009 and
through the first nine months of fiscal 2010, including significant increases in our assumed default rates. Credit rating

6

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THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars and shares in thousands, except per share amounts)

(1) Nature of Business and Summary of Significant Accounting Policies (Continued)

agencies
have taken negative rating actions with respect to certain securitizations that we previously facilitated, including ratings downgrades announced by Standard & Poor's on
March 31, 2010 with respect to ABS issued by 20 NCSLT Trusts and on May 5, 2010 with respect to ABS issued by one NCSLT Trust. The interest rate, economic and credit environments may
continue to have a material negative effect on the estimated fair value of our service receivables associated with the various securitization trusts that we have facilitated, as well as the private
education loan portfolios held by us.

Our
lender clients previously had the opportunity to mitigate their credit risk through a loan repayment guaranty by TERI. TERI guaranteed the education loans held by the NCSLT Trusts,
and we historically received reimbursement from TERI for outsourced loan processing services we performed on TERI's behalf. In April 2008, TERI filed a voluntary petition for relief (TERI
Reorganization) under Chapter 11 of the United States Bankruptcy Code (Bankruptcy Code). The TERI Reorganization has had, and will continue to have, a material negative effect on the NCSLT
Trusts' ability to realize guaranty obligations of TERI, and our ability to realize fully the cost reimbursement obligations of TERI. See Note 6, "Commitments and ContingenciesTERI
ReorganizationChallenge to Security Interests," for more information on the TERI Reorganization and its impact on our operations. On April 28, 2010, the United States Bankruptcy
Court for the District of Massachusetts (Bankruptcy Court) held a hearing to consider confirmation of the fourth amended and restated plan of reorganization (Plan of Reorganization) jointly proposed
by TERI and its official committee of unsecured creditors (Creditors Committee). The Bankruptcy Court made findings that the Plan of Reorganization meets the requirements for confirmation under the
Bankruptcy Code, although an order confirming the Plan of Reorganization had not been entered by the Bankruptcy Court as of May 7, 2010. Following entry of such an order, the Plan of
Reorganization would become effective following satisfaction of the conditions specified in the Plan of Reorganization. See Note 15, "Subsequent EventsStatus of TERI Plan of
Reorganization," for more information.

Since
the beginning of fiscal 2009, we have significantly refined our product offerings and added fee-for-service offerings, such as portfolio management and
asset servicing. In August 2009, we completed the design of our new Monogram product offering, which has been designed to provide prospective lenders with flexible product features intended to meet
their desired risk control and return objectives, while also providing borrowers with some ability to configure the terms of their private education loans. In April 2010, we entered into our first
agreement with a lender based on our Monogram product offering. The agreement specifies a number of conditions to effectiveness that must be satisfied or waived. If these conditions are not satisfied
or waived prior to September 1, 2010, the agreement may be terminated by us or the lender. See Note 15, "Subsequent EventsSunTrust Loan Program Agreement," for additional
details. The Monogram product incorporates refinements to our origination process, including an enhanced application
interface, an expanded credit decisioning model and additional disbursement and reporting capabilities. We designed this product to reduce our dependence on the securitization market in order to
generate revenue, as well as our dependence on third-party credit enhancements. Pursuant to our Monogram product offering, we may invest specified amounts of capital as a credit enhancement feature of
various lenders' loan programs based on our Monogram product offering.

Our
near term financial performance and future growth depend, in large part, on our ability to successfully market our new Monogram product and transition to more fee-based
revenues while

7

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THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars and shares in thousands, except per share amounts)

(1) Nature of Business and Summary of Significant Accounting Policies (Continued)

growing
our client base. We are uncertain as to the degree of acceptance the new product offering will have, particularly in the current economic environment where many lenders continue to
re-evaluate their education lending business models.

Summary of Significant Accounting Policies

Our accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (GAAP) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete
consolidated financial statements. In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair statement of the results for the interim
periods have been included. The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities
and the reported disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We base our
estimates and judgments on historical experience, economic conditions and various other factors. Actual results may differ from these estimates under varying assumptions or conditions. On an ongoing
basis, we evaluate our estimates and judgments, particularly as they relate to accounting policies that we believe are most important to the portrayal of our financial condition and results of
operations. Material estimates that are particularly susceptible to change relate to the recognition of service revenues and the valuation of our service receivables and our portfolios of private
education loans held for sale. Interim results are not necessarily indicative of results to be expected for the entire fiscal year.

(a) Cash and Cash Equivalents; Short-term Investments

All highly liquid debt instruments with original maturities of three months or less on the date of purchase, and all funds invested in
money market funds, are considered cash equivalents. Cash and cash equivalents are carried at cost, which approximates fair value.

Investments
with original maturities greater than three months and remaining maturities of less than one year are classified as short-term investments and are carried at
cost, which approximates fair value.

(b) Education Loans Held for Sale

Education loans held for sale and the related interest receivable are carried at the lower of cost or fair value. Fair value is
evaluated on a quarterly basis. When available, the fair value is based on quoted market values. In the absence of readily determined market values, fair value is estimated by management based on the
present value of expected future cash flows from the education loans held for sale. These estimates are based on historical and third-party data and our industry experience with assumptions for, among
other things, default rates, recovery rates on defaulted loans, prepayment rates and the corresponding weighted-average cost of capital commensurate with the risks involved. If readily determined
market values became available, or if actual performance were to vary appreciably from management's estimates, the fair value of the education loans would need to be further adjusted, which could
result in material differences from the recorded carrying amounts. We record changes in the

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THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars and shares in thousands, except per share amounts)

(1) Nature of Business and Summary of Significant Accounting Policies (Continued)

carrying
value of education loans held for sale and the related interest receivable, as well as the charge-off of interest income on loans greater than 90 days past due, in the
statement of operations.

(c) Fair Value of Financial Instruments

The Accounting Standards Codification (ASC) 820-10,Fair Value Measurements and
Disclosures, of the Financial Accounting Standards Board (FASB) permits, but
does not require, entities to measure many financial instruments and certain other items not specifically identified in other topics of the ASC, such as available-for-sale
investments, at fair value. We have not elected to measure additional assets and liabilities at fair value.

Fair
value is defined as the price that would be received in the sale of an asset, or paid to transfer a liability, in an orderly transaction between market participants at the
measurement date. A three-level valuation hierarchy is used to qualify fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement
date:

Level 1.Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 1 assets and liabilities include debt and equity securities and derivative financial instruments actively traded on exchanges, as well as U.S. Treasury securities and U.S. Government and
agency mortgage-backed securities that are actively traded in highly liquid over-the-counter markets.

Level 2.Model inputs are observable inputs, other than Level 1 prices, such as quoted prices for similar assets and
liabilities in
active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs that are observable or can be corroborated, either directly or indirectly, for
substantially the full term of the financial instrument. Level 2 assets and liabilities include debt instruments that are traded less frequently than exchange traded securities and derivative
instruments, for which the model inputs are observable in the market or can be corroborated by market observable data. Examples in this category are less frequently traded mortgage-backed securities,
corporate debt securities and derivative contracts.

Level 3.Inputs to the valuation methodology are unobservable but significant to the fair value measurement. Examples in this
category include
interests in loans held for sale, certain securitized financial assets or certain private equity investments.

Fair
value is applied to eligible assets based on quoted market prices, where available. For financial instruments for which quotes from recent exchange transactions are not available,
fair value is based on discounted cash flow analysis and comparisons to similar instruments. Discounted cash flow analysis is dependent upon estimated future cash flows and the level of interest
rates.

The
methods used for current fair value calculations of Level 2 and Level 3 assets and liabilities may not be indicative of net realizable value or reflective of future
fair values. If readily determined market values became available, or if actual performance were to vary appreciably from assumptions used, assumptions may need to be adjusted, which could result in
material differences from the recorded carrying amounts. We believe our methods of determining fair value are appropriate and consistent with other market participants. However, the use of different
methodologies or application of

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Table of Contents

THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars and shares in thousands, except per share amounts)

(1) Nature of Business and Summary of Significant Accounting Policies (Continued)

different
assumptions to value certain financial instruments could result in a different estimate of fair value.

(d) Revenue Recognition

Additional Structural Advisory Fees.Additional structural advisory fees were earned for structuring and facilitating the
securitization of the
private education loans held by various securitization trusts, principally the NCSLT Trusts. We are entitled to receive these fees over time, based on the payment priorities established in the trusts'
indentures. We generally become entitled to receive these additional fees, plus interest, once the parity ratio of trust assets to trust liabilities reaches a stipulated level, which ranges from
103.0% to 105.5%, or after all noteholders have been paid in full. The indentures relating to certain of the securitization trusts specify circumstances (Trigger Events) upon the occurrence of which
payments that would otherwise be due with respect to additional structural advisory fees and residuals would instead be directed to the holders of the notes issued by the trusts until the condition
causing the Trigger Event ceases to exist or all notes and related interest are paid in full.

Additional
structural advisory fee receivables are carried at fair value. In the absence of readily determined market values, we update our estimates of the fair value of additional
structural advisory fee receivables on a quarterly basis, based on the present value of expected future cash flows. Our estimates reflect assumptions for discount rates commensurate with the risks
involved and trust performance assumptions, including estimated operational expenses, the expected annual rate and timing of education loan defaults and recoveries, macro-economic conditions, the
annual rate and timing of education loan prepayments, the trend of contractual and market interest rates over the life of the loan pools, including the forward London Interbank Offered Rate (LIBOR),
the cost of funding outstanding auction rate notes, the existence of Trigger Events, and TERI's obligation and ability to pay default claims and its use of recoveries to replenish the segregated
reserve accounts pledged to the NCSLT Trusts to secure its guaranty obligations (Pledged Accounts). See Note 6, "Commitments and ContingenciesTERI
ReorganizationChallenge to Security Interests," for
more information regarding TERI's obligation to pay default claims. These assumptions are based on historical and third-party data, and our industry experience.

If
readily determined market values became available or if actual performance were to vary appreciably from assumptions used, assumptions may need to be adjusted, which could result in
material differences from the recorded carrying amounts. Changes to the fair value of these receivables are recorded in the statement of operations as additional structural advisory
feestrust updates.

Residuals.Residuals associated with any securitization trusts that we facilitated are typically junior in priority to the rights of
the holders of
the ABS issued in the securitizations and any additional structural advisory fees. As a result, residual interests are comparable to equity securities and, as such, are carried at fair value on the
balance sheet. For those trusts in which we retain a residual interest, fair value is estimated by management using the same assumptions used for additional structural advisory fee receivables, with
the exception of the discount rate, which is higher, commensurate with the risks involved. Changes in the fair value during the period are included in the statement of operations as
residualstrust updates.

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THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars and shares in thousands, except per share amounts)

(1) Nature of Business and Summary of Significant Accounting Policies (Continued)

Asset Servicing Fees.In connection with the sale of the Trust Certificate, we entered into an asset services agreement (Asset Services
Agreement)
with the third-party purchaser of the Trust Certificate in April 2009. Pursuant to the terms of the Asset Services Agreement, we are entitled to asset servicing fees from the third-party purchaser for
services provided to support its ownership of residual interests in the NCSLT Trusts. The services we provide include analysis and valuation optimization and services related to funding strategy,
among others. As compensation for our services, we are entitled to a monthly asset servicing fee based on the aggregate outstanding principal balance of the loans owned by the NCLST Trusts. Our
receipt of fees, however, is contingent upon distributions available to the third-party purchaser of the Trust Certificate. Under no circumstance will we receive cash for our asset servicing fees
until residual cash flows are distributed from the NCSLT Trusts.

If
the third-party purchaser terminates the Asset Services Agreement without cause prior to 2019, it is required to pay a termination fee in addition to the receivables recorded as of
the date of termination. The amount of the termination fee varies based on the year of termination, however, in all cases, the termination fee exceeds the receivables balance currently recorded. After
December 31, 2019, we would not be entitled to a termination fee. In addition, if the third-party purchaser sells the Trust Certificate, the Asset Services Agreement is required to be
transferred to the new owner. As such, we believe that
receipt of our fees will come from either the residual distributions themselves or, in the case of termination, from the termination fee and, therefore, it is appropriate to record such receivable and
recognize the related revenues.

In
determining the appropriate accounting for our asset servicing fees, we relied on the revenue recognition guidance in ASC 605-10-25-1, Revenue RecognitionRevenue and Gains, which provides that
revenue is recognizable when goods or services have been exchanged for cash or
claims to cash, and an entity has substantially accomplished what it must do to be entitled to the benefits represented by the revenues. In addition, we considered the criteria enumerated in Staff
Accounting Bulletin No. 104,Revenue Recognition, in our determination of revenue recognition:



The
amount of revenue recognized as fee income is equal to the estimated net present value of the receivable generated from services performed during the period. We discount the value of
the asset servicing fees using a discount rate commensurate with similar receivables. In accordance with ASC 835-30-05,InterestImputation
of Interest, we have presumed that a portion of the asset servicing fees received will represent interest compensation until cash distributions are actually received. Changes
in the net present value of asset servicing fee receivables are recognized as fee updates in the statement of operations.

Administrative and Other Fees.Administrative fees are received from the securitization trusts for services performed in administering
them,
including their daily management, coordination of loan

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THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars and shares in thousands, except per share amounts)

(1) Nature of Business and Summary of Significant Accounting Policies (Continued)

servicers
and reporting information to the parties related to the securitizations. The fees are based upon a percentage of the outstanding principal balance of the loan pools of each of the trusts.
The fees vary with each separate securitization and are recognized in service revenue when earned, as administrative services are provided.

During
the fourth quarter of fiscal 2009, we began receiving fees from certain securitization trusts under a special servicing agreement. These fees are paid by the securitization trusts
for the performance by us of default prevention services and management of private education loan collections. Such fees are based, in part, upon the reimbursement of expenses, and are recognized as
the expenses are incurred.

Other
fees are earned on a stand-alone fee-for-service basis and are considered earned in the period in which the service was provided, or in the case of loan
originations, at the time the funds are disbursed or as the applications are processed, in accordance with contractual terms.

Net Interest Income.Interest income and expense is recognized using the effective interest method.

(e) Income Taxes

In determining a quarterly provision for income taxes, the estimated annual effective tax rate is based on expected annual income,
statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. The estimated annual effective tax rate also includes our best estimate of the
ultimate outcome of tax audits.

The
asset and liability method of accounting is utilized for recognition of income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized in
connection with the tax effects of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carry
backs and carry forwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of
a change in tax rates on deferred tax assets and liabilities is recognized as tax expense (benefit) in the period that includes the enactment date. A deferred tax asset valuation allowance is
established if it is considered more likely than not that all or a portion of the deferred tax assets will not be realized.

(f) Net Loss Per Share

Basic net loss per share is computed by dividing net loss by the basic weighted-average number of shares of common stock outstanding
for the periods presented. To the extent income available to stockholders is a loss, all common stock equivalents are assumed to be anti-dilutive, and are excluded from diluted weighted
average shares outstanding. Diluted net income per share would be computed by dividing net income by basic weighted-average shares and common stock equivalent shares outstanding during the period, if
common stock equivalent shares are dilutive. Common stock equivalent shares outstanding have been determined in accordance with the treasury stock method. Common stock equivalents consist of shares
issuable upon the exercise of outstanding stock options, conversion of preferred stock to common stock and the vesting of restricted stock units.

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THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars and shares in thousands, except per share amounts)

(1) Nature of Business and Summary of Significant Accounting Policies (Continued)

(g) Consolidation

Our consolidated financial statements include the accounts of FMC and its subsidiaries, after eliminating inter-company accounts and
transactions. We have not consolidated the financial results of the securitization trusts purchasing loans that we have facilitated.

At
March 31, 2010 and 2009, each of the securitization trusts created after January 31, 2003, has met the criteria to be a qualified special-purpose entity (QSPE) as
defined by ASC 860-40,Transfers and Servicing-Transfers to Qualifying Special Purpose Entities(ASC 860-40). Accordingly, we
did not consolidate these existing securitization trusts in our financial statements. In addition, the securitization trusts created prior to January 31, 2003 in which we hold a variable
interest that could result in our being considered the primary beneficiary of such trusts have been amended in order for them to be considered QSPEs.

Effective
beginning with our financial statements for the quarter ending September 30, 2010, we will adopt Accounting Standards Update (ASU) 2009-16, Transfers and Servicing (Topic 860)Accounting for Transfers of Financial
Assets(ASU 2009-16), and ASU 2009-17, Consolidations (Topic 810)Improvements to Financial Reporting by Enterprises Involved With Variable Interest Entities(ASU
2009-17). Prior to their codification, ASU 2009-16 was referred to as Financial Accounting Standard 166,Accounting for Transfers of Financial Assets,
an Amendment of FASB Statement 140, and ASU 2009-17 was referred to as Financial Accounting Standard 167,Amendments to FASB Interpretation
No. 46(R).

ASU
2009-16 removes the concept of a QSPE from ASC 860-40 and removes the exemption from consolidation for QSPEs from ASC 810-10, Consolidation(ASC 810-10). ASU 2009-17 updates ASC 810-10 to require that
certain types of enterprises perform
analyses to determine if they are the primary beneficiary of a variable interest entity. A primary beneficiary of a variable interest entity is the enterprise that has both of the following
characteristics:



In
addition, ASU 2009-17 requires us to continuously reassess whether consolidation of variable interest entities is appropriate upon the occurrence of reconsideration
events, as opposed to the one-time assessment allowed under previous guidance.

As
of May 10, 2010, we expect to consolidate certain of these securitization trusts. The final impact is expected to be material to the balance sheet and statement of operations,
but the amounts are still uncertain. We do not own the residuals of the NCSLT Trusts and the deficits of these trusts, if consolidated, are expected to be allocated to non-controlling
interests.

Assets
and liabilities of the entities to be consolidated as a result of our analysis will be measured at the same amounts that such assets and liabilities would have been measured if
they had been consolidated at the time we became the primary beneficiary. All intercompany transactions will be

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THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars and shares in thousands, except per share amounts)

(1) Nature of Business and Summary of Significant Accounting Policies (Continued)

eliminated.
Profits and losses of the consolidated variable interest entities will be allocated to non-controlling interests based on voting interests, before the effect of intercompany
elimination entries. ASU 2009-17 may be applied retrospectively through a cumulative-effect adjustment to the opening balance of retained earnings in the year of adoption or the opening
balance of retained earnings for the first year presented. We expect to present a cumulative-effect adjustment to the opening balance of retained earnings in the year of adoption.

We
are evaluating the impact that the adoption of these statements will have on our consolidated financial condition and results of operations, particularly as they relate to the
securitization trusts holding loans we previously facilitated. At March 31, 2010, the aggregate outstanding liabilities of the NCSLT Trusts were approximately $12,200,000 and total assets were
approximately $10,800,000. The principal underlying assets in the NCSLT Trusts were TERI-guaranteed private education loans. The aggregate outstanding assets and liabilities of other
trusts for which we own residual interests were each less than $1,000,000.

(h) New Accounting Pronouncements

ASU 2009-16 and ASU 2009-17, as described in "Consolidation" above, are the only new accounting pronouncements
issued, but not yet effective, that we expect will have a material impact to our financial statements when adopted. No recently effective accounting pronouncements have had a material impact on our
financial statements.

(2) Cash and Cash Equivalents

The following table summarizes our cash and cash equivalents:

March 31,
2010

June 30,
2009Cash equivalents (money market funds)

$
250,446

$
142,723Interest-bearing deposits with the Federal Reserve Bank


101,865


Interest-bearing deposits with other banks


16,889


11,550Non-interest-bearing deposits with banks


3,063


4,497Total cash and cash equivalents

$
372,263

$
158,770


Included
in cash equivalents is an investment in a money market fund for which the investment advisor is the institutional money management firm, Milestone Capital Management, LLC
(MCM), a wholly-owned subsidiary of Milestone Group Partners. MCM receives fees for services it performs from the money market fund. Members of the immediate family of one of FMC's directors owned
approximately 65% of Milestone Group Partners as of March 31, 2010, making MCM a related party. At March 31, 2010 and June 30, 2009, approximately $49,988 and $59,983 of our
holdings in money market funds, respectively, were invested in funds managed by MCM.

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THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars and shares in thousands, except per share amounts)

(3) Education Loans Held for Sale

The following table reflects the carrying value of private education loans held for sale:

March 31,
2010

June 30,
2009Principal and interest

$
272,573

$
526,542Fair value adjustment


(173,815
)

(175,582
)Net carrying value

$
98,758

$
350,960Principal and interest:Delinquent or in default (>90 days past due)

$
51,732

$
32,441Pledged as collateral under education loan warehouse facility


265,715


261,923


We
recorded losses on education loans held for sale in the statement of operations of $4,180 and $47,584 for the three months ended March 31, 2010 and 2009, respectively, and
$138,794 and $98,114 for the nine months ended March 31, 2010 and 2009, respectively.

At
March 31, 2010, education loans held for sale primarily consisted of a private education loan portfolio held by UFSB-SPV. UFSB-SPV has pledged the
private education loans as collateral to the indenture trustee, for the benefit of the conduit lender, pursuant to the indenture relating to the education loan warehouse facility. Loans used to secure
the facility are subject to call provisions by the third-party lender; therefore, we do not have the ability to hold those loans to maturity, and they are classified as held for sale. The facility was
structured so that the conduit lender's recourse to us is limited to the private education loans pledged as collateral. In April 2010, we restructured certain of the terms of this facility. See
Note 15, "Subsequent EventsRestructuring of Education Loan Warehouse Facility," for additional information.

At
June 30, 2009, education loans held for sale included private education loan portfolios held by Union Federal and UFSB-SPV. In October 2009, following receipt of
approval from the OTS, Union Federal completed a private sale of all private education loans that it directly held and that were less than 31 days delinquent. These loans had an aggregate
outstanding principal and accrued interest balance of approximately $233,832 and represented 88% of the private education loans directly held by Union Federal. The sale resulted in proceeds of
$121,585 to Union Federal. The carrying value of the loans on the sale date was equal to the sale price, therefore, no gain or loss on sale was recorded in the second quarter of fiscal 2010. Following
the sale, the purchaser bears the risk of future performance of the loans, including risk of future default, except as otherwise set forth in the loan purchase and sale agreement. This sale did not
include loans held by UFSB-SPV.

In
November 2009, following receipt of approval from the OTS, Union Federal sold the remainder of its portfolio of private education loans held for sale, excluding loans held by
UFSB-SPV, to a newly formed statutory trust owned by a subsidiary of FMC. We retained an independent third party to assess the fair value of the portfolio, which served as the basis for
the sale price for the transaction. Union Federal received proceeds of $3,871 from the sale. At the transfer date, we determined that we had the ability and the intent to hold these loans to maturity
and classified them as held to maturity at December 31, 2009.

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THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars and shares in thousands, except per share amounts)

(3) Education Loans Held for Sale (Continued)

During
the third quarter of fiscal 2010, we entered into negotiations to restructure UFSB-SPV's education loan warehouse facility. On April 16, 2010, in connection
with the restructuring of the facility, we contributed loans with a fair value of $3,084 from our held-to-maturity portfolio to UFSB-SPV. Once held by
UFSB-SPV, these loans serve as collateral for the debt outstanding under the facility, and we no longer have the ability to hold the loans to maturity. Accordingly, during the third
quarter of fiscal 2010, the loans contributed to UFSB-SPV were reclassified as held for sale.

Held-to-maturity
loans are carried on the balance sheet at amortized cost less an allowance for loan losses, while held-for-sale loans are
carried on the balance sheet at the lower of cost or fair value. See Note 5, "Loans Held to Maturity," for additional information, and Note 15, "Subsequent
EventsRestructuring of Education Loan Warehouse Facility," for additional information about the restructuring.

(4) Service Receivables and Related Revenues

Additional structural advisory fees, asset servicing fees and residual receivables represent the estimated fair value of service receivables expected to be collected over the life of the
various separate securitization trusts that have purchased private education loans facilitated by us.

The
following table summarizes changes in the estimated fair value of our additional structural advisory fee receivables:

Three months ended
March 31,

Nine months ended
March 31,2010

2009

2010

2009Fair value at beginning of period

$
55,724

$
64,935

$
55,130

$
113,842Cash received from trust distributions


(382
)

(26
)

(429
)

(1,530
)Trust updates:Passage of timefair value accretion


1,686


1,985


5,015


7,415Increase in timing and average default rate


(39,144
)

(2,634
)

(42,616
)

(8,798
)Increase in discount rate assumption


(14,727
)

(2,925
)

(11,029
)

(23,114
)Decrease in average prepayment rate


25,338


769


25,338


3,127Increase (decrease) in forward LIBOR curve


175


2,590


1,738


(16,941
)Increase in auction rate notes spread











(13,087
)Other factors, net


5,232
(1)

(3,848
)

755


(68
)Net change from trust updates


(21,440
)

(4,063
)

(20,799
)

(51,466
)Fair value at end of period

$
33,902

$
60,846

$
33,902

$
60,846


(1)Reflects
the reversal of an adverse performance reserve of $4,692 recorded in the first quarter of fiscal 2010, as further discussed under "Default and
Recovery Rates."


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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars and shares in thousands, except per share amounts)

(4) Service Receivables and Related Revenues (Continued)




The
following table summarizes the changes in the estimated fair value of our residual receivables:

Three months ended March 31,

Nine months ended March 31,2010

2009

2010

2009Fair value at beginning of period

$
12,237

$
144,017

$
9,960

$
293,255Trust updates:Passage of timefair value accretion


487


355


1,346


20,107Increase in timing and average default rate


(353
)




(353
)

(50,108
)Decrease (increase) in discount rate assumption








1,176


(83,634
)Increase (decrease) in forward LIBOR curve


49


14


183


(22,099
)Increase in auction rate notes spread











(31,779
)Decrease in average prepayment rate











11,336Decrease to reflect disposition





(134,481
)




(134,481
)Other factors, net


(274
)

(2,254
)

(166
)

5,054Net change from trust updates


(91
)

(136,366
)

2,186


(285,604
)Fair value at end of period

$
12,146

$
7,651

$
12,146

$
7,651


Performance Assumption Overview.During the third quarter of fiscal 2010, we completed initial enhancements to the financial models
that we use to
estimate the fair value of our service receivables. The enhancements provide for the inclusion of certain prospective macro-economic factors in our performance assumptions for those private education
loans securitized in the NCSLT Trusts. As a result of the enhancements, we are able to provide performance information on a segmented basis rather
than merely on a weighted-average basis. As our risk models continue to evolve, we anticipate additional future enhancements.

Risk Segments.Using our proprietary risk score modeling developed for our new Monogram product, loans in the NCSLT Trusts were
retroactively scored
using origination data as well as additional credit bureau data made available following origination. We then divided loans into three risk segments, with loans in Segment 1 expected to perform better
than loans in Segment 2, and loans in Segment 2 expected to perform better than loans in Segment 3. The table below identifies

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars and shares in thousands, except per share amounts)

(4) Service Receivables and Related Revenues (Continued)

performance
assumptions for each segment, as well as the percentage of the NCSLT Trust portfolios in each segment.

March 31, 2010Segment 1

Segment 2

Segment 3NCSLT PortfolioDistribution by original loan amount


25.5
%

27.0
%

47.5
%Distribution by total outstanding loan amount(1):Not in repayment(2)


5.0


7.7


19.3In repayment


17.7


19.3


31.0Gross default rate(3)


10.7


19.7


48.3Recovery rate(3)


40.0


40.0


40.0Net default rate(3)


6.4


11.8


29.0Prepayment rate(3)


6.7
(4)

4.8
(4)

3.1
(4)


(1)Outstanding
aggregate principal and capitalized interest balance as of March 31, 2010.(2)Loans
"not in repayment" include loans in deferment or forbearance status as of March 31, 2010.(3)Using
projected defaults, net defaults and recoveries over the lives of the trusts as a percentage of original outstanding aggregate principal and accrued
interest balance.(4)Amount
presented is the weighted average conditional prepayment rate (CPR) over the next ten years. The CPR is an estimate of the likelihood that a loan
will be prepaid during a period given that it has not previously defaulted or been repaid in full.


Default and Recovery Rates.During the first quarter of fiscal 2010, we reduced the carrying value of additional structural advisory fee
receivables
by $4,692 for potential deviations in the performance of securitized loans and did not adjust this reserve during the second quarter of fiscal 2010. The higher projected default rate assumptions
derived using our enhanced modeling eliminated the need for this reserve, which lessened the negative impact of the higher default rates. Additional structural advisory fee receivables decreased on a
net basis by $34,452 during the third quarter of fiscal 2010 and by $42,616 for the first nine months of fiscal 2010.

As
a result of the change in our default assumptions, the projected timing of our receipt of asset servicing fees has been delayed by almost two years from our previous cash flow
projections. We reduced asset servicing fee receivables by $2,635 during the third quarter of fiscal 2010, resulting in a net decrease of $2,272 for the first nine months of fiscal 2010. The decrease
is attributable to the change in timing of our cash receipts. Our residual interests were less affected by the change in default rates, in light of our sale of the Trust Certificate. Residual
receivables decreased by $353 during the third quarter and first nine months of fiscal 2010 as a result of the increase in the projected default rates.

During
fiscal 2009, the net default rate was increased to reflect higher default rates experienced in the trusts. The higher net default rate resulted in decreases in the estimated fair
value of our additional

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THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars and shares in thousands, except per share amounts)

(4) Service Receivables and Related Revenues (Continued)

structural
advisory fee receivables of $2,634 and $8,798 during the third quarter and first nine months of fiscal 2009, respectively.

Due
to the sale of the Trust Certificate at March 31, 2009, no decrease in residual receivables was allocated to changes in default rates for the third quarter of fiscal 2009
because the residuals of the NCSLT Trusts were reduced to zero in that quarter as a result of the sale. During the first and second quarters of fiscal 2009, residual recei vables decreased by $50,108
due to increases in the default rates.

We
did not adjust our assumptions regarding recovery rates during the fiscal 2010 or fiscal 2009 periods.

Prepayment Rates.In general, prepayment rates have been in decline since March 2008. Over the past year, in response to a historically
low
prepayment rate, the interest rate environment and limited availability of consumer credit, we adjusted our prepayment assumption by extending the period during which decreased prepayments were
expected to persist. Our financial model enhancements now allow prepayment assumptions to be segmented and incorporate certain prospective macro-economic factors. As a result of our enhanced model,
prepayments are expected to be lower and slower than previously projected and we increased the value of our structural advisory fee receivables by $25,338 during the third quarter and for the first
nine months of fiscal 2010.

During
the third quarter of fiscal 2009, we decreased our assumed prepayment rate by 11 basis points, which resulted in an increase to additional structural advisory fee receivables of
$769, for a total increase in the first nine months of fiscal 2009 of $3,127.

Discount RateAdditional Structural Advisory Fees.Until the third quarter of fiscal 2010, the discount rate that we used to
estimate the
fair value of our additional structural advisory fees was based on the 10-year U.S. Treasury Bond rate plus a risk premium. In determining the risk premium, we considered factors such as
yields on B-rated instruments, the level of available cash flows from residual interests that support the additional structural advisory fees, as well as the weighted-average life of the
additional structural advisory fee receivables.

For
the quarter ended March 31, 2010, we utilized a discount rate of 14% in determining the fair value of the additional structural advisory fee receivables. The change from an
index-based discount rate to a rate of 14% reflects our financial model enhancements and resulting adjustments to our cash flow assumptions that had the effect of lengthening the weighted-average life
of the additional structural advisory fee receivables. As a result, the amount of residual interest cash flows available to support the cash flows available for additional structural advisory fees was
significantly reduced. In addition, the projected timing of receipt of additional structural advisory fees was delayed. The combination of these factors led us to determine that additional structural
advisory fee receivables are more analogous to longer-term financial instruments than 10-year debt instruments and, therefore, a higher discount rate is appropriate. The 14%
discount rate used for the additional structural advisory fees reflects market data made available to us on spreads on federally guaranteed loans and private education loans, as well as rates used in
the much broader ABS market and is 200 basis points less than the 16% used for residual receivables, reflecting the seniority of the additional structural advisory fees in the cash waterfall of the
securitization trusts.

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THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars and shares in thousands, except per share amounts)

(4) Service Receivables and Related Revenues (Continued)

The
increase in the discount rate resulted in a $14,727 decrease in the value of additional structural advisory fee receivables for the third quarter, for a net decrease of $11,029 for
the first nine months of fiscal 2010.

During
the third quarter of fiscal 2009, we used a spread of 1,000 basis points over the 10-year U.S. Treasury Bond rate, resulting in a discount rate of 12.7%. The spread
was flat from the prior quarter, but up 425 basis points for the first nine months of fiscal 2009. During the third quarter of fiscal 2009, the 10-year U.S. Treasury Bond rate increased by
45 basis points, and we recorded a decrease of $2,925 in additional structural advisory fees for the period. For the nine months ended March 31, 2009, the 425 basis point increase in the spread
net of the 131 basis point decrease in the 10-year U.S. Treasury Bond rate resulted in a net decrease of $23,114 in the value of additional structural advisory fee receivables.

Discount RateAsset Servicing Fees and Residuals.In determining an appropriate discount rate for purposes of estimating the fair
value
of our asset servicing fee and residual receivables, we consider a number of factors, including market data made available to us on spreads on federally guaranteed loans and private education loans,
as well as rates used in the much broader ABS market. We also evaluated yield curves for corporate subordinated debt with maturities similar to the weighted-average life of our residuals.

We
maintained a discount rate of 16% during the third quarter of fiscal 2010, flat from the prior quarter but a decrease of 100 basis points, from 17%, at the prior year-end.
As a result, there was no change in the residual receivables during the third quarter and an increase in residual receivables of $1,176 during the first nine months of fiscal 2010 due to changes in
the discount rate.

During
fiscal 2009, no decrease in residual receivables was allocated to changes in discount rates for the third quarter as a result of the sale of the Trust Certificate on
March 31, 2009. The increases in the discount rate for the first six months of fiscal 2009 resulted in decreases in the estimated fair value of our residual receivables of $83,634 prior to the
sale.

Forward LIBOR Curve.Fluctuations in interest rates, specifically the LIBOR rate which is the underlying rate for most of the trusts'
assets and
liabilities, can have a significant impact on the cash flows generated by each trust. The forward LIBOR curve is a market observable input obtained from an independent third party. Changes in the
forward LIBOR curve can have a significant impact on the principal balances of the education loans (especially early in a loan's life when interest is capitalizing
while in deferment), which affects the overall net interest margin the trust can generate, and can impact our additional structural advisory fee receivables as accrued but unpaid fees bear interest at
LIBOR plus 150 basis points. In addition, certain trusts have issued a tranche of ABS that bears a fixed interest rate. A decrease in the forward LIBOR curve may result in a reduced spread on the
fixed interest-rate tranche, which, in turn, decreases the estimated fair value of our service receivables.

For
the quarter ended March 31, 2010, the forward LIBOR curve shifted slightly upward in the first five years, and then slightly downward in the longer-term. Overall,
the net result was an increase to the value of the additional structural advisory fee receivables of $175 and an increase to the value of residual receivables of $49.

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THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars and shares in thousands, except per share amounts)

(4) Service Receivables and Related Revenues (Continued)

During
the third quarter of fiscal 2009, there was an upward shift in the forward LIBOR curve which resulted in increases to our additional structural advisory fee and residual
receivables of $2,590 and $14, respectively, for the third quarter; however, over the first nine months of fiscal 2009, the forward LIBOR curve shifted downward from the prior year end, and we
recorded net decreases of $16,941 and $22,099, for additional structural advisory fee and residual receivables, respectively.

Auction Rate Note Interest Rates.Prior to fiscal 2009, we facilitated five trusts that issued auction rate notes to finance, in whole
or in part,
the purchase of private education loans. Interest rates for the auction rate notes are determined from time to time at auction; however, during fiscal 2009 and fiscal 2010, failed auctions occurred or
persisted with respect to auction rate notes issued by each of the five trusts. In the second quarter of fiscal 2009, the ratings assigned to the auction rate notes of these trusts were downgraded due
to failed auctions, deterioration in trust performance and the downgrade of the insurance financial strength rating assigned to the credit enhancement provider for certain auction rate notes. As a
result, the auction rate notes bear interest at a maximum spread over one-month LIBOR as specified in the indentures, based on the ratings then assigned to the notes. Increases in the
interest expense of the trusts reduced the estimated fair value of our additional structural advisory fees and residual receivables and delayed the timing of receipt of additional structural advisory
fees. As a result, during the second quarter of fiscal 2009, we decreased the estimated fair value of our additional structural advisory fees by $13,087 and our residual receivables by $31,779. We did
not make any further adjustments during the third quarter of fiscal 2009. During fiscal 2010, we have assumed that the notes would continue to bear interest at the contractual maximum spread.

Decrease to Reflect Disposition.Effective March 31, 2009, we entered into a purchase agreement with VCG Owners Trust and VCG
Securities, LLC, pursuant to which we transferred our sole ownership of the Trust Certificate. As a result of the sale of the Trust Certificate, we are no longer entitled to receive residual
cash flows from the NCSLT Trusts. The decrease to reflect disposition reflects the carrying value of all residual interests of the NCSLT Trusts included in the sale.

TERI's Obligation to Pay Claims.During the third quarter of fiscal 2010, we updated our assumptions regarding TERI's obligation to pay
claims based
on the Plan of Reorganization presented for creditor approval in April 2010. The updated assumptions did not have a material impact on our additional structural advisory fee or asset servicing fee
receivables.

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THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars and shares in thousands, except per share amounts)

(5) Loans Held to Maturity

We hold portfolios of education loans and mortgage loans to maturity. The following table provides information on the carrying values and credit quality of these portfolios:

March 31,
2010

June 30,
2009Education loans held to maturity:Principal and interest

$
26,055

$
Net carrying value


661


Mortgage loans held to maturity:Principal and interest

$
9,038

$
10,085Net carrying value


8,651


9,515Principal and interest of held-to-maturity loans delinquent or in default (>90 days past due):Education loans

$
24,264

$
Mortgage loans


1,101


1,418


(6) Commitments and Contingencies

(a) Agreements with Lender Clients

Under the terms of loan purchase agreements entered into with lender clients prior to fiscal 2010, we generally had an obligation to
use our best efforts to facilitate the purchase of the client's TERI-guaranteed private education loans during a specified loan purchase period. The length of the loan purchase period
varied by client and generally ranged from 195 days to 555 days following final loan disbursement. Under the terms of certain of our loan purchase agreements, if we failed to facilitate
a purchase in breach of our obligations, our liability would be limited to liquidated damages of one percent of the total principal amount of the loans as to which the loan purchase period had
expired. Those loan purchase agreements that limited our liability to liquidated damages generally provided that our obligation to close a securitization was subject to the condition that no "market
disruption event" had occurred. Under certain of these loan purchase agreements, the TERI Reorganization constituted a "market disruption event," suspending our contractual obligation to close a
securitization. Any liquidated damages would have been due at expiration of the relevant loan purchase period, which would not have occurred for a period of time after the market disruption event
ceased. On April 28, 2010, the Bankruptcy Court held a hearing to consider confirmation of the Plan of Reorganization and made findings that the Plan of Reorganization meets the requirements
for confirmation under the Bankruptcy Code. As of May 7, 2010, however, the Bankruptcy Court had not entered an order confirming the Plan of Reorganization. Following entry of such an order and
upon effectiveness of the Plan of Reorganization, TERI will reject its remaining guaranty agreements. The rejection of TERI's guaranty agreements would terminate our purchase obligations under our
outstanding loan purchase agreements. No amounts were accrued in the financial statements with respect to potential liabilities under these loan purchase agreements.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars and shares in thousands, except per share amounts)

(6) Commitments and Contingencies (Continued)

(b) TERI ReorganizationChallenge to Security Interests

TERI is a private, not-for-profit Massachusetts organization as described under section 501(c)(3) of the
Internal Revenue Code. In its role as guarantor in the private education lending market, TERI agreed to reimburse lenders or securitization trusts for unpaid principal and interest on defaulted loans.
Historically, TERI was the exclusive third-party provider of borrower default guarantees for our clients' private education loans. On April 7, 2008, TERI filed a voluntary petition for
reorganization under Chapter 11 of the Bankruptcy Code.

As
a result of the automatic stay under the Bankruptcy Code, TERI ceased purchasing defaulted loans, including defaulted loans from the NCSLT Trusts, in April 2008. Beginning in July
2008, TERI resumed paying its obligations under the guaranty agreements with respect to defaulted loans from the NCLST Trusts, but only using cash in the Pledged Account established for the benefit of
the specific trust that owned the defaulted loan. Funds in the Pledged Accounts of certain trusts have been exhausted, or are expected to be exhausted in the near term, at which point such trust will
have a general unsecured claim against TERI.

In
June 2008, the Bankruptcy Court granted parties rights to challenge the NCSLT Trusts' security interests in the collateral other than funds in the Pledged Accounts. In January 2009,
the Creditors Committee filed an adversary complaint in the Bankruptcy Court against the owner trustee and indenture trustee of 17 NCSLT Trusts, and against our subsidiary First Marblehead Data
Services, Inc. (FMDS) as administrator of such trusts. The complaint generally alleged that the security interests granted by TERI to the NCSLT Trusts, excluding the security interests in the
Pledged Accounts, were unperfected or may otherwise be avoided under the Bankruptcy Code. In particular, the complaint alleged that the NCSLT Trusts did not have enforceable rights to future
recoveries on defaulted loans owned by TERI with an aggregate principal and accrued interest balance of more than $591,000 as of March 31, 2010, or in amounts owed or transferred by TERI to
Pledged Accounts after the filing of TERI's petition for reorganization totaling more than $43,000 as of March 31, 2010. In February 2009, pending resolution of the issues raised in the
Creditors Committee's complaint, the NCSLT Trusts generally suspended the transfer of defaulted loans to TERI and generally suspended requests for default claim payments from amounts in the Pledged
Accounts.

The
Plan of Reorganization includes a proposed settlement of the adversary complaint, as well as other provisions that would affect the claims of the NCSLT Trusts. As of the voting
deadline for the Plan of Reorganization, all of the NCSLT Trusts voted or were deemed to vote in favor of the Plan of
Reorganization, thereby electing to accept settlement of the adversary proceeding and their respective claims. As of May 7, 2010, however, the Bankruptcy Court had not entered an order
confirming the Plan of Reorganization, the terms of which are summarized in Note 15, "Subsequent EventsStatus of TERI Plan of Reorganization."

(c) Performance Guaranty

In connection with the sale by Union Federal of an education loan portfolio in October 2009, FMC delivered a performance guaranty
(Performance Guaranty) pursuant to which FMC guarantees the performance by Union Federal of its obligations and agreements under the loan purchase and sale agreement relating to the transaction. The
Performance Guaranty provides that FMC will be released

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars and shares in thousands, except per share amounts)

(6) Commitments and Contingencies (Continued)

from
its obligations, without any action of the purchaser, upon (1) any merger or consolidation of Union Federal into another entity as a result of which a majority of the capital stock of
Union Federal is converted into or exchanged for the right to receive cash, securities or other property or (2) a sale of all or substantially all of the assets of Union Federal, in either case
after which transaction Union Federal is no longer a subsidiary of FMC.

(d) Assumption of Potential Contingent Liabilities of Union Federal

On April 16, 2010, FMC and certain of its subsidiaries entered into agreements relating to the restructuring of the education
loan warehouse facility (Facility) of UFSB-SPV. In connection with the restructuring, the conduit lender released any and all potential claims against Union Federal and
UFSB-SPV pursuant to the indenture relating to the Facility based upon events arising prior to April 16, 2010, to the extent such claims would exceed $20,000 in the aggregate
(Liability Cap). Neither Union Federal nor UFSB-SPV would have any liability until the conduit lender's aggregate losses exceeded $3,500 (Deductible), at which point Union Federal and
UFSB-SPV would only be liable for amounts above the Deductible up to the Liability Cap. Neither the Liability Cap nor the Deductible would apply, however, in cases of fraud, willful
misconduct, gross negligence or third-party claims by or on behalf of borrowers against the conduit lender based on loan origination errors. In addition, the release is not deemed a waiver of rights
previously reserved but not exercised by the conduit lender, except as specifically released pursuant to a settlement agreement.

FMC
assumed any remaining contingent liability of Union Federal and its affiliates, other than UFSB-SPV, under the Facility arising prior to April 16, 2010, subject to
the Liability Cap discussed above. In addition, FMC assumed any contingent liability of Union Federal under the Facility arising prior to April 16, 2010 based on fraud, willful misconduct,
gross negligence, third-party claims by or on behalf of borrowers against the conduit lender based on loan origination errors or rights not otherwise released by the conduit lender. We are not aware
of any contingencies existing at the balance sheet date that are both probable and estimable for which we would record a reserve.

(7) Stockholders' Equity

Series B Non-Voting Convertible Preferred Stock

In December 2007, FMC entered into an investment agreement (Investment Agreement) with GS Parthenon A, L.P. and GS Parthenon
B, L.P., affiliates of GS Capital Partners. Pursuant to the Investment Agreement, we agreed to sell, after receipt of applicable regulatory approvals and determinations and satisfaction of
other closing conditions, shares of newly-created Series B Non-Voting Convertible Preferred Stock, $0.01 par value per share (Series B Preferred Stock). In August 2008, FMC
issued 133 shares of newly designated Series B Preferred Stock at a purchase price of $1,000 per share. The Series B Preferred Stock is convertible, at the option of the holders,
into 8,847 shares of common stock, at a conversion price of $15.00 per share. Dividends would be paid on the Series B Preferred Stock when, as and if, and in the same amounts (on an
as-converted basis), declared on common stock. Upon liquidation, dissolution or winding up of FMC, holders of Series B Preferred Stock would have the right to receive an amount
equal to $0.01 per share of Series B Preferred Stock, plus the amount of any declared but unpaid dividends thereon. After payment of this amount, holders

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THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars and shares in thousands, except per share amounts)

(7) Stockholders' Equity (Continued)

of
the Series B Preferred Stock would be entitled to participate (on an as-converted basis) with common stock in the distribution of remaining assets.

(8) Fair Value of Financial Instruments

A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following is a
description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Cash
equivalents consist of money market funds with available quoted market prices on active markets that we classify as Level 1 of the valuation hierarchy.

Investments
held for sale are mortgage-backed agency securities that are marked to market using pricing from an independent third party and are classified as Level 2 in the
hierarchy.

Market
prices are not available for education loans held for sale, additional structural advisory fee receivables, asset servicing fee receivables or residual receivables. See
Note 4, "Service Receivables and Related Revenues," for a description of significant observable and unobservable inputs used to develop the estimated fair values of service revenue receivables.
These assets are classified within Level 3 of the valuation hierarchy.

The
following table presents financial instruments carried at fair value as of March 31, 2010 and June 30, 2009, by consolidated balance sheet caption, in accordance with
the valuation hierarchy described above on a recurring and nonrecurring basis:

March 31, 2010

June 30, 2009Level 1

Level 2

Level 3

Total
carrying
value

Level 1

Level 2

Level 3

Total
carrying
valueAssets:Recurring:Cash equivalents

$
250,446

$


$


$
250,446

$
142,723

$


$


$
142,723Investments held for sale(1)





5,753





5,753





8,450





8,450Additional structural advisory fees








33,902


33,902








55,130


55,130Asset servicing fees








6,125


6,125








2,385


2,385Residuals








12,146


12,146








9,960


9,960Non-recurring:Education loans held for sale








98,758


98,758








350,960


350,960Total assets:

$
250,446

$
5,753

$
150,931

$
407,130

$
142,723

$
8,450

$
418,435

$
569,608


(1)Investments
 held for sale consist of U.S. federal agency mortgage-backed securities.


The following tables present activity related to our financial assets categorized as Level 3 of the valuation hierarchy, valued on a
recurring basis, for the three and nine months ended March 31, 2010 and 2009. All losses recorded during the periods presented relate to assets still held at the balance sheet date, with the
exception of residuals sold on March 31, 2009 that had a carrying value of

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars and shares in thousands, except per share amounts)

(8) Fair Value of Financial Instruments (Continued)

$134,481
on the sale date. No cash was received from this sale. There have been no transfers in or out of Level 3 of the hierarchy, nor between Levels 1 and 2, for the periods presented.

Three months ended March 31,2010

2009Fair Value,
January 1,
2010

Realized and
Unrealized
Gains,
Recorded in
Service
Revenues

Settlements

Fair Value,
March 31,
2010

Fair Value,
January 1,
2009

Realized and
Unrealized
Gains,
Recorded in
Service
Revenues

Settlements

Fair Value,
March 31,
2009Assets:Additional structural advisory fees

$
55,724

$
(21,440
)
$
(382
)
$
33,902

$
64,935

$
(4,063
)
$
(26
)
$
60,846Asset servicing fees


6,627


(502
)




6,125











Residuals


12,237


(91
)




12,146


144,017


(136,366
)




7,651Total assets:

$
74,588

$
(22,033
)
$
(382
)
$
52,173

$
208,952

$
(140,429
)
$
(26
)
$
68,497




Nine months ended March 31,2010

2009Fair Value,
July 1,
2009

Realized and
Unrealized
Gains and
Losses,
Recorded in
Service
Revenues

Settlements

Fair Value at
March 31,
2010

Fair Value,
July 1,
2008

Realized and
Unrealized
Gains and
Losses,
Recorded in
Service
Revenues

Settlements

Fair Value,
March 31,
2009Assets:Additional structural advisory fees

$
55,130

$
(20,799
)
$
(429
)
$
33,902

$
113,842

$
(51,466
)
$
(1,530
)
$
60,846Asset servicing fees


2,385


3,740





6,125











Residuals


9,960


2,186





12,146


293,255


(285,604
)




7,651Total assets:

$
67,475

$
(14,873
)
$
(429
)
$
52,173

$
407,097

$
(337,070
)
$
(1,530
)
$
68,497


Fair value estimates for financial instruments not carried at fair value in our consolidated balance sheet are generally subjective in nature, and
are made as of a specific point in time based on the characteristics of the financial instruments and relevant market information. We have elected not to apply the fair value provisions available
under ASC 820-10,Fair Value Measurements and Disclosures(ASC 820-10), to these assets and liabilities. Disclosure of fair
value estimates is not required for certain items, such as premises and equipment, intangible assets and income tax assets and liabilities.

The
short duration of many of our assets and liabilities result in a significant number of financial instruments for which fair value equals or closely approximates the value reported in
our consolidated balance sheet. We believe that the carrying values of short-term investments, federal funds sold and deposits approximate fair value due to their short duration. The fair
values of education and mortgage loans held to maturity are not materially different from their carrying values.

UFSB-SPV's
liability under the education loan warehouse facility of $227,894 at March 31, 2010, is recorded in our balance sheet at the value of outstanding principal
and interest. We have elected not to

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars and shares in thousands, except per share amounts)

(8) Fair Value of Financial Instruments (Continued)

apply
the fair value provisions available under ASC 820-10 to this liability. We believe that the fair value of the education loan warehouse facility is limited to the fair value of
eligible assets used as collateral, in light of the structure of the facility. The estimated fair value of such assets was $100,031 at March 31, 2010.

(9) Net Interest Income

The following table reflects the components of net interest income:

Three months ended
March 31,

Nine months ended
March 31,2010

2009

2010

2009Interest incomeCash and cash equivalents

$
148

$
92

$
437

$
739Federal funds sold


1


4


4


465Short-term investments


73





123


Investments held for sale


74


247


268


1,388Education loans held for sale


3,778


8,541


16,754


30,378Loans held to maturity


308


139


732


424Total interest income


4,382


9,023


18,318


33,394Interest expenseTime and savings account deposits


313


601


1,169


3,364Money market account deposits


123


338


550


1,166Warehouse line of credit


3,110


2,046


9,501


7,783Other short-term borrowings





65





103Other interest-bearing liabilities


180


175


501


569Total interest expense


3,726


3,225


11,721


12,985Net interest income

$
656

$
5,798

$
6,597

$
20,409


(10) Stock-Based Compensation

2008 Meyers' Option Plan

The Board of Directors elected Daniel Meyers as President and Chief Executive Officer and as a member of the Board of Directors,
effective September 1, 2008. In connection with the election, the Board of Directors and a subcommittee of the Compensation Committee of the Board of Directors approved the grant in August 2008
(Grant Date) of stock options to Mr. Meyers to purchase (a) 2,000 shares of common stock, at an exercise price of $6.00 per share, 25% of which vested and became exercisable in August
2009, with the remainder to vest and become exercisable in three equal installments on each of the second, third and fourth anniversaries of the Grant Date ($6.00 Stock Options); (b) 2,000
shares of common stock, at an exercise price of $12.00 per share, that vested and became exercisable in full on November 30, 2008; and (c) 2,000 shares of common stock, at an exercise
price of $16.00 per share, that vested and became exercisable in full on November 30, 2008. Any unvested stock options will vest and become exercisable in full (a) if the closing sale
price of the

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars and shares in thousands, except per share amounts)

(10) Stock-Based Compensation (Continued)

common
stock is at least 150% of the exercise price of the applicable option for a period of five consecutive trading days (assuming the trading on each day is not less than 90% of the average daily
trading volume for the prior three months prior to such five day period), (b) in the event of Mr. Meyers's death or disability, as defined in his employment agreement, or (c) in
the event that Mr. Meyers' employment is terminated by us without Cause, as defined in his employment agreement, or by Mr. Meyers with Good Reason, as defined in his employment
agreement. In addition, subject to certain conditions set forth in his employment agreement, the $6.00 Stock Options may be exercised beginning 90 days after the Grant Date prior to vesting,
provided that the unvested shares issued will be held in escrow by us and will be subject to a repurchase option by us. Each of the stock options will expire ten years from the Grant Date. The stock
options were not granted under any of our existing stockholder-approved incentive plans.

(11) General and Administrative Expenses

The following table reflects components of general and administrative expenses:

Three months ended
March 31,

Nine months ended
March 31,2010

2009

2010

2009General and administrative expenses:Depreciation and amortization

$
3,355

$
4,214

$
10,648

$
13,949Third-party services


5,445


9,055


15,279


23,386Occupancy and equipment


4,919


3,590


14,606


12,160Other


1,519


1,747


5,199


13,098Total

$
15,238

$
18,606

$
45,732

$
62,593


(12) Income Taxes

Income tax benefit for the third quarter of fiscal 2010 was $15,439, for a total benefit of $67,475 for the first nine months of fiscal 2010. The income tax benefit for fiscal 2009 was
$64,934 for the third quarter and $169,718 for the first nine months. The lower overall benefit in fiscal 2010 is a result of lower pre-tax losses during fiscal 2010 and a lower effective
tax rate. During the first nine months of fiscal 2010, our effective tax rate, or the income tax benefit as a percentage of pre-tax loss, decreased to 33.3% from an effective tax rate of
34.2% for the first nine months of fiscal 2009. The decrease in our effective tax rate was primarily due to certain permanent differences and expense accruals related to unrecognized tax benefits.

In
November 2009, the Worker, Homeownership and Business Assistance Act of 2009 (WHBAA) was signed into law. As part of the WHBAA, we will be allowed to carry back the taxable losses
from either fiscal 2009 or 2010 for five years, instead of two years. We have not yet determined which year would be more advantageous to carry back, and as such, have not yet determined whether or
not to file an amended fiscal 2009 tax return. We have estimated that taxable income in previous years will be sufficient to cover the taxable losses of both fiscal 2009 and 2010 regardless of which
fiscal year is carried back. As a result of the WHBAA and pre-existing net operating loss carryback rules, we have recorded an income tax receivable of $27,977 at March 31, 2010.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars and shares in thousands, except per share amounts)

(12) Income Taxes (Continued)

We
have determined that a valuation allowance is not necessary for certain deferred tax assets, as it is more likely than not that these assets will be realized through future reversals
of existing temporary differences or available tax planning strategies. We will continue to review the recognition of deferred tax assets on a regular basis.

Net
unrecognized tax benefits were $20,108 at March 31, 2010. At March 31, 2010, we had approximately $3,328 accrued for interest and no amount accrued for the payment of
penalties.

As
a result of the sale of the Trust Certificate effective March 31, 2009, as well as our operating losses for fiscal 2009, we recorded income tax receivables during fiscal 2009
for federal and state income taxes paid on prior taxable income. In the first nine months of fiscal 2010, we received a total of $189,323 in federal and state income tax refunds related to our income
tax receivables.

During
April 2010, the IRS commenced an audit of our tax returns for fiscal years 2007, 2008 and 2009. We do not know what the outcome of the audit will be at this time. As of the date
of this quarterly report, no adjustments have been proposed.

(13) Net Loss per Share

The following table sets forth the computation of basic and diluted net loss per share of common stock:

Three months ended
March 31,

Nine months ended
March 31,2010

2009

2010

2009Net loss

$
(29,389
)
$
(140,654
)
$
(135,174
)
$
(326,938
)Net loss per share:Basic

$
(0.30
)
$
(1.42
)
$
(1.36
)
$
(3.30
)Diluted


(0.30
)

(1.42
)

(1.36
)

(3.30
)Weighted average shares used in computing net loss per common share:Basic


99,248


99,121


99,232


99,067Diluted


99,248


99,121


99,232


99,067Anti-dilutive common stock equivalents


8,887


8,884


8,880


7,383


As
a result of the net loss reported, common stock equivalents are anti-dilutive, and are, therefore, excluded from diluted weighted-average shares outstanding. Common stock
equivalents include restricted stock units, Series B Preferred Stock and stock options. For the majority of stock options outstanding, the conversion or exercise price exceeds fair market value
at the report date.

(14) Union Federal Regulatory Matters

(a) Regulatory Capital Requirements

Union Federal is subject to various regulatory capital requirements administered by certain federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by the regulators that, if undertaken, could have a direct

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THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars and shares in thousands, except per share amounts)

(14) Union Federal Regulatory Matters (Continued)

material
effect on our financial condition. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Union Federal must meet specific capital guidelines that
involve quantitative measures of Union Federal's assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and
classification are also subject to qualitative judgments by the regulators about components, risk weighting and other factors.

Quantitative
measures established by regulation to ensure capital adequacy require Union Federal to maintain minimum amounts and ratios of total capital and Tier 1 capital (as
defined in the regulations) to risk-weighted assets (as defined in the regulations).

Regulatory GuidelinesMinimum

Well
Capitalized

March 31,
2010

June 30,
2009Risk-based capital ratios:Tier 1 capital


4
%

6
%

117.73
%

37.86
%Total capital


8


10


118.02


37.91Tier 1 (core) capital ratio


4


5


24.67


34.51


Union
Federal's equity capital was $44,781 at March 31, 2010, down from $84,286 at June 30, 2009, primarily as a result of the dispositions of Union Federal's education
loans held for sale.

As
of March 31, 2010 and June 30, 2009, Union Federal was well capitalized under the regulatory framework for prompt corrective action.

The
OTS regulates all capital distributions by Union Federal directly or indirectly to us, including dividend payments. Union Federal is required to file a notice with the OTS at
least 30 days before the proposed declaration of a dividend or approval of a proposed capital distribution by Union Federal's board of directors. Union Federal must file an application to
receive the approval of the OTS for a proposed capital distribution when, among other circumstances, the total amount of all capital distributions (including the proposed capital distribution) for the
applicable calendar year exceeds net income for that year to date plus the retained net income for the preceding two years.

A
notice or application to make a capital distribution by Union Federal may be disapproved or denied by the OTS if it determines that, after making the capital distribution, Union
Federal would fail to meet minimum required capital levels or if the capital distribution raises safety or soundness concerns or is otherwise restricted by statute, regulation or agreement between
Union Federal and the OTS or the Federal Deposit Insurance Corporation (FDIC), or a condition imposed by an OTS agreement. Under the Federal Deposit Insurance Act (FDIA), an FDIC-insured
depository institution such as Union Federal is prohibited from making capital distributions, including the payment of dividends, if, after making such distribution, the institution would become
"undercapitalized" (as such term is used in the FDIA).

(b) Supervisory Agreement and Order to Cease and Desist

In July 2009, FMC entered into a supervisory agreement (Supervisory Agreement) with the OTS and Union Federal entered into a
stipulation consenting to the issuance by the OTS of an order to

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THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars and shares in thousands, except per share amounts)

(14) Union Federal Regulatory Matters (Continued)

cease
and desist (Order). The OTS terminated the Order and the Supervisory Agreement, each in its entirety, on March 5, 2010 and March 10, 2010, respectively.

In
connection with the termination of the Supervisory Agreement, our Board of Directors adopted resolutions requiring us to support the implementation by Union Federal of its business
plan, so long as Union Federal is owned or controlled by us, and to notify the OTS in advance of any distributions to our stockholders in excess of $1,000 per fiscal quarter and any incurrence or
guarantee of debt in excess of $5,000. Following termination of the Supervisory Agreement and the Order, respectively, we remain subject to extensive regulation, supervision and examination by the OTS
as a savings and loan holding company, and Union Federal remains subject to extensive regulation, supervision and examination by the OTS and the FDIC.

(15) Subsequent Events

(a) Restructuring of Education Loan Warehouse Facility

On April 16, 2010, we entered into agreements relating to the restructuring of the education loan warehouse facility of
UFSB-SPV. As a result of the restructuring:



(b) SunTrust Loan Program Agreement

On April 20, 2010, FMC and FMER entered into a loan program agreement (Program Agreement) with SunTrust Bank. The Program
Agreement relates to a school-certified private education loan program (SunTrust Program) to be funded by SunTrust Bank upon the satisfaction of conditions set forth in the Program Agreement, as
further described below.

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THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars and shares in thousands, except per share amounts)

(15) Subsequent Events (Continued)

Services and Fees.Upon effectiveness of the Program Agreement, FMC and FMER will perform loan processing services, program support and
portfolio
management services, program administration
services and production support services pursuant to the Program Agreement. FMC will also manage the servicing of SunTrust Program loans by PHEAA. FMC and FMER will generally provide services on a
fee-for-service basis, although FMC will also be entitled to a portion of the yield generated by the portfolio of SunTrust Program loans in connection with certain
administration services and for providing the credit enhancement described below.

Credit Enhancement.FMC will provide credit enhancement in connection with the SunTrust Program by funding an account (Participation
Account), up to
a specified dollar limit (Participation Cap), to serve as a first-loss reserve for defaulted SunTrust Program loans. The SunTrust Program loans will not be guaranteed by a third-party
guarantor. FMC will provide an initial deposit into the Participation Account prior to the commencement of its loan processing services, and supplementary deposits into such account on a quarterly
basis during the term of the Program Agreement based on disbursed SunTrust Program loan volume and adjustments to default projections for SunTrust Program loans. FMC will not be required to provide
any credit enhancement in excess of the Participation Cap.

SunTrust
Bank will withdraw on a monthly basis from the Participation Account, to the extent of available funds, the outstanding principal and accrued interest balance of each SunTrust
Program loan that becomes more than 180 days past due (Charged Off Loan). SunTrust Bank will then assign the Charged Off Loan to FMC (or its affiliate designee) for collection activity. After
the payment to SunTrust Bank with respect to any Charged Off Loan, and after SunTrust Bank's assignment of such loan to FMC (or its affiliate designee), recoveries on all assigned Charged Off Loans
will be deposited into the Participation Account.

FMC
will be entitled to withdraw amounts from the Participation Account on a monthly basis beginning 48 months after the Effective Date (as defined below), to the extent that
funds in the Participation Account as of the end of any month exceed a percentage specified in the Program Agreement of loan volume outstanding to SunTrust Bank as of the end of such month.

Term and Termination.The services to be provided by FMC and FMER will begin on the Effective Date (as defined below) and continue
through the
earlier of two years from the Effective Date or the date on which the Participation Cap is reached, unless earlier terminated for cause. Notwithstanding any expiration or termination of the Program
Agreement, the program administration services and the program support services will generally be provided for the life of the SunTrust Program loan portfolio.

Effective Date.The effectiveness of the Program Agreement is conditioned upon, among other things, the following (Effectiveness
Conditions):



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THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars and shares in thousands, except per share amounts)

(15) Subsequent Events (Continued)



Upon
the satisfaction or waiver of every Effectiveness Condition, the parties will establish the effective date (Effective Date) of the Program Agreement in a writing signed by all
parties. Until the Effective Date, no party will have any of the rights or obligations set forth in the Program Agreement, with specified exceptions relating to, among other things, confidentiality.
If the Effectiveness Conditions are not satisfied or waived prior to September 1, 2010, the Program Agreement may be automatically terminated by any party on such date.

(c) Restricted Stock Unit Grants

In April 2010, we granted an aggregate of 4,331 restricted stock units (RSUs) to our employees, including our executive officers. Each
RSU represents a contingent right to receive one share of our common stock upon vesting. Shares in respect of vested RSUs will be issued as soon as practicable after each vesting date.

(d) Status of TERI Plan of Reorganization

On April 28, 2010, following approval of the Plan of Reorganization by creditors of TERI in accordance with the Bankruptcy Code,
the Bankruptcy Court held a hearing to consider confirmation of the Plan of Reorganization. The Bankruptcy Court made findings that the Plan of Reorganization meets the requirements for confirmation
under the Bankruptcy Code, although an order confirming the Plan of Reorganization had not been entered by the Bankruptcy Court as of May 7, 2010. Following entry of such an order and upon
satisfaction of the remaining conditions specified in the Plan of Reorganization, the Plan of Reorganization would become effective.

The
Plan of Reorganization generally provides for the following:



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THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars and shares in thousands, except per share amounts)

(15) Subsequent Events (Continued)



The
Plan of Reorganization provides for the following in the case of the NCSLT Trusts, each of which voted or was deemed to vote in favor of the Plan of
Reorganization:



Each
of FMC and FMER abstained from voting on the Plan of Reorganization. FMC and FMER expect any objections to their respective unsecured claims against TERI to be resolved through
litigation in the Bankruptcy Court unless a negotiated settlement is reached with the liquidating trust. In October 2008, we filed proofs of claim in the aggregate contingent amount of $87,000,
including a general unsecured claim of $16,000 with regard to processing fees from TERI that were due but unpaid as of the Petition Date and claims for damages stemming from TERI's rejection of
contracts with us.

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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations
together with our unaudited condensed consolidated financial statements and accompanying notes included in this quarterly report.

We use the terms "First Marblehead," "we," "us" and "our" in this quarterly report to refer to the business of The First Marblehead Corporation, or "FMC," and its
subsidiaries on a consolidated basis.

Factors That May Affect Future Results

In addition to historical information, this quarterly report includes forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and Section 27A of the Securities Act of 1933, as amended. For this purpose, any statements contained
herein regarding our strategy, future operations and products, financial performance, future funding transactions, projected costs, future market position, prospects, plans and outlook of management,
other than statements of historical facts, are forward-looking statements. The words "anticipates," "believes," "estimates," "expects," "intends," "may," "observe," "plans," "projects," "will,"
"would," and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We cannot guaranty that we actually
will achieve the plans, intentions or expectations expressed or implied in our forward-looking statements, which involve risks, assumptions and uncertainties. There are a number of important factors
that could cause actual results, levels of activity, performance or events to differ materially from those expressed or implied in the forward-looking statements we make. These important factors
include our "critical accounting estimates" set forth under "Executive SummaryApplication of Critical Accounting Policies and Estimates" and factors including, but not
limited to, those set forth under the caption "Risk Factors" in Part II, Item 1A of this quarterly report. Although we may elect to update forward-looking statements in the future, we
specifically disclaim any obligation to do so, even if our estimates change, and readers should not rely on those forward-looking statements as representing our views as of any date subsequent to
May 10, 2010.

Executive Summary

Overview

We offer outsourcing services to national and regional financial institutions and educational institutions for designing and
implementing private education loan programs. These private education loan programs are designed to be marketed to prospective student borrowers and their families directly or through educational
institutions and to generate portfolios intended to be held by the originating lender or financed in the capital markets. In addition, we provide administrative and other services to securitization
trusts that we have facilitated, asset servicing to the third-party owner of certain securitization trusts and portfolio management services to a limited number of clients.

We
offer prospective clients the opportunity to outsource key components of their private education loan programs to us by providing a fully integrated suite of services, including our
new Monogram product offering. Our new product offering is designed to generate loan portfolios that originating lenders can choose to hold on their balance sheets indefinitely or for some limited
period of time. In addition, we offer the following services on a stand-alone, fee-for-service basis:



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Our
subsidiary, Union Federal Savings Bank, or Union Federal, is a federally chartered thrift that offers residential and commercial mortgage loans, and retail savings, money market and
time deposit products. Prior to 2009, Union Federal also offered private education loans directly to consumers; however, as of May 10, 2010, we do not expect Union Federal to offer private
education loans during fiscal 2010. During the second quarter of fiscal 2010, we announced that we had begun exploring strategic alternatives for Union Federal, including a potential sale.

Substantially
all of our financial results have been derived from these activities, which are considered to be in a single industry segment for financial reporting purposes.

Our
new Monogram product offering encompasses some or all of our service offerings and enables a lender to customize its loan program to meet its risk control and return objectives.
Specifically, the lender can customize the range of loan terms offered to its qualified applicants, such as borrower repayment options, loan limits and borrower pricing. The Monogram product is based
on our proprietary origination risk score model, which uses borrower and cosigner attributes, as well as distribution channel variables, to assign a specific level of credit risk to the application at
the time of initial credit decisioning. A score is assigned to each application and governs the loan terms offered to applicants who pass the credit review. For example, higher risk applicants may not
be eligible to defer principal and interest while in school. Our on-line application also provides a qualified applicant with some ability to configure loan terms, showing the financial
effects of the choices using a real-time repayment calculator. The product can be structured to offer lenders either a "make and hold" or "make and sell" loan program. In "make and hold"
loan programs, lenders finance the loans on their balance sheet and generally intend to continue to hold the loans through the scheduled repayment, prepayment or default. In "make and sell" loan
programs, lenders intend to hold the loans on their balance sheet for some limited period of time before disposing of the loans in a capital markets transaction. We believe that the loans generated
through the Monogram product will generally have shorter repayment periods, and an increased percentage of borrowers making payments while in school, compared to loan products we previously
facilitated, as well as a high cosigner participation rate. The success of the new product, which had not been fully deployed to any client as of May 10, 2010, will be a key driver of our
future financial results and will be critical to growing and diversifying our revenues and client base.

Historically,
the driver of our results of operations and financial condition has been the volume of private education loans for which we provided outsourcing services from loan
origination through securitization. In addition, asset-backed securitizations were our sole source of permanent financing for our clients' private education loan programs, and substantially all of our
income was derived from such securitizations. Securitization refers to the technique of pooling loans and selling them to a special purpose, bankruptcy remote entity, typically a trust, which issues
bonds backed by those loans to

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investors.
In the past, we offered our clients a fully integrated suite of outsourcing services, but we did not charge separate fees for many of those services. Although we provided those various
services without charging a separate fee, or at "cost" in the case of loan processing services, we generally entered into agreements with the lender clients giving us the exclusive right to securitize
the private
education loans that they did not intend to hold. For our past securitization services, we are entitled to receive from the trusts additional structural advisory fees over time and, in the case of
certain trusts, residual cash flows.

We
have been unable to access the securitization market since September 2007 as a result of market disruptions that began in the second quarter of fiscal 2008 and, to a lesser extent,
persisted as of May 10, 2010. In addition, our lender clients previously had the opportunity to mitigate their credit risk through a loan repayment guaranty by The Education Resources
Institute, Inc., or TERI, and we historically received reimbursement from TERI for outsourced loan processing services we performed on TERI's behalf. In April 2008, TERI filed a voluntary
petition for relief under Chapter 11 of the United States Bankruptcy Code, or Bankruptcy Code. We refer in this quarterly report to TERI's bankruptcy proceedings as the TERI Reorganization. The
TERI Reorganization, together with capital markets dislocations, has had, and will likely continue to have, a material negative effect on the securitization trusts' ability to realize guaranty
obligations of TERI and our ability to realize fully the cost reimbursement obligations of TERI.

As
a result, we took several measures in fiscal 2009 to adjust our business model. We have changed our fee structure with respect to our services and developed additional services that
are designed to provide us with fee-based income as our services are provided. Our new Monogram product offering has also been designed to reduce our dependence on the securitization
market in order to generate revenue, as well as our dependence on third-party credit enhancement. We expect to earn fees for our origination and marketing services, as well as a share of the portfolio
income over the life of the loans for our role as administrator and provider of a credit enhancement feature. The credit enhancement feature may require us to put amounts of capital, capped pursuant
to the applicable agreement, at risk to cover potential default losses in the resulting loan portfolio. In addition, in August 2008, we received $132.7 million in gross proceeds from an equity
financing, and we greatly reduced our annual cash expenditure requirements through reductions in headcount, consolidation of office space and other cost saving initiatives that began in fiscal 2008.
Finally, as of March 31, 2009, we sold the trust certificate of NC Residuals Owners Trust, which represented our residual interests in trusts holding substantially all of the
TERI-guaranteed private education loans that we previously securitized. We refer to this trust certificate in this quarterly report as the Trust Certificate, and to these trusts as the
NCSLT Trusts. We remain focused on preserving capital and maximizing liquidity in these challenging market conditions.

Recent Developments

We have summarized below certain recent developments affecting our business since the beginning of the third quarter of fiscal
2010:



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Business Trends and Uncertainties

Beginning in late 2007 and continuing through the date of this quarterly report, general economic conditions in the United States have
deteriorated and not fully recovered. Our business has been and continues to be materially adversely impacted by these conditions, and our inability to access the securitization markets as a result of
market disruptions continued during the first nine months of fiscal

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2010.
In addition, credit performance of consumer-related loans generally, and our education loan portfolios and those held by the various securitization trusts we have facilitated, continued to be
adversely affected by general economic conditions, including high unemployment rates. The interest rate, economic and credit environments may continue to have a material negative effect on the
estimated value of our service receivables and education loans held for sale, which at March 31, 2010, primarily consisted of a portfolio of private education loans held by UFSB-SPV
that is pledged to a third-party conduit lender pursuant to an education loan warehouse facility.

Our
education loan portfolios and those of the NCSLT Trusts have experienced higher levels of defaults than we originally projected. As a result, we have significantly adjusted our
projected
performance assumptions associated with the NCSLT Trusts during fiscal 2009 and through the first nine months of fiscal 2010, including significant increases in our assumed default rates. These
adjustments have resulted in net reductions in the fair value of our additional structural advisory fees, asset servicing fees and residual receivables. Credit rating agencies have taken negative
ratings actions with respect to certain securitizations that we previously facilitated. In March 2010, Standard & Poor's downgraded the ratings assigned to 120 classes of ABS issued by 20 NCSLT
Trusts, citing higher than expected levels of delinquencies and defaults, declines in parity levels, and reductions in available credit support for the transactions. In May 2010, Standard &
Poor's also downgraded the rating assigned to one class of ABS issued by one NCSLT Trust, citing an interest trigger event on the class notes that resulted in an interest shortfall to such class
notes.

During
the first nine months of fiscal 2010, prepayment rates, however, remained at a rate that is extremely low by historical standards.

During
the first nine months of fiscal 2010, we recorded an unrealized loss of $138.8 million in connection with fair value adjustments to our education loans held for sale. We
recorded aggregate losses during fiscal 2009 of $138.2 million in connection with similar fair value adjustments. We may record a realized or unrealized loss in the future in connection with
UFSB-SPV's portfolio of private education loans held for sale.

Changes
in any of the following factors could materially affect our financial results:



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We
believe that our loan program agreement with SunTrust Bank will provide us with an opportunity to structure, process and originate private education loans. We believe that the program
agreement is a significant step in our return to the private education lending marketplace, and we hope to satisfy all conditions to the effectiveness of the program in advance of the
September 1, 2010 date by which conditions are required to be met under the agreement.

We
also believe that conditions in capital markets generally continued to improve during the third quarter of fiscal 2010, potentially creating additional flexibility with regard to the
financing of private education loans. We continue to believe, as of May 10, 2010, however, that the structure and economics of any financing transaction will be less favorable than our past
securitizations. In particular, we expect lower revenues and additional cash requirements on our part.

During
the second quarter of fiscal 2010, we announced that we had begun examining strategic alternatives for Union Federal, including a potential sale. We believe that the termination
of the Order and the Supervisory Agreement during the third quarter of fiscal 2010 and the elimination of Union Federal's ongoing duties and potential contingent liabilities related to
UFSB-SPV's education loan warehouse facility will prove attractive to potential purchasers as we consider our strategic alternatives with respect to Union Federal.

Application of Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with GAAP. The preparation of these financial statements
requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities at the report date and the reported amounts of income and expenses during the
reporting periods. We base our estimates, assumptions and judgments on historical experience and on various other factors that we believe are reasonable under the circumstances. Actual results may
differ from these estimates under varying assumptions or conditions.

Our
significant accounting policies are more fully described in Note 2, "Summary of Significant Accounting Policies," in the notes to our audited consolidated financial statements
for the fiscal year ended June 30, 2009, which are included under Item 8 of our annual report on Form 10-K filed with the Securities and Exchange Commission, or SEC,
on September 3, 2009, and in Note 1, "Nature of Business and Summary of Significant Accounting Policies," in the notes to our unaudited condensed consolidated financial statements
included in Part I, Item 1 of this quarterly report. On an ongoing basis, we evaluate our estimates and judgments, particularly as they relate to accounting policies that we believe are
most important to the portrayal of our financial condition and results of operations, such as those involving recognition of service revenues and the valuation of our service receivables and

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portfolio
of private education loans held for sale. We regard an accounting estimate or assumption underlying our financial statements to be a "critical accounting estimate"
where:



We
have discussed our accounting policies with the Audit Committee of our Board of Directors, and we believe that our estimates relating to the recognition and valuation of our
securitization-related revenues and receivables and asset servicing revenue and receivables, as described below, fit the definition of critical accounting estimates. We also consider our policy with
respect to the determination of whether or not to consolidate the financial results of the securitization trusts that we facilitate and the valuation of our portfolios of private education loans held
for sale to be critical accounting policies.



We have historically structured and facilitated securitization transactions for our clients through a series of bankruptcy remote,
special purpose statutory trusts. Through the securitization process, the trusts obtained private education loans from the originating lenders or their assignees, which relinquished to the trust their
ownership interest in the loans. The debt instruments that the trusts issued to finance the purchase of these private education loans are obligations of the trusts, rather than our obligations or
those of originating lenders or their assignees. We have received several types of fees in connection with our past securitization services:



As
required under GAAP, we recognize the fair value of additional structural advisory fees and residuals as revenue at the time the securitization trust purchases the private education
loans, as they are deemed to be earned at the time of the securitization but before we actually receive payment. These amounts are deemed earned because evidence of an arrangement exists, we have
provided the services, the fee is fixed and determinable based upon a discounted cash flow analysis, and there are no future contingencies or obligations due on our part. We earn asset servicing fees
as the services are performed; however, the receipt of the fees is contingent on distributions available to the owners of the

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residual
interests of the trusts subject to these services. Under GAAP, we are required to estimate the fair value of the additional structural advisory fees, asset servicing fees and residual
receivables as if they are investments in securities classified as trading, similar to retained interests in securitizations. In subsequent periods, we re-evaluate the estimated fair value
of these receivables and recognize the change in fair value as servicing revenue in the period in which the change in estimate occurs.

Because
there are no quoted market prices for our additional structural advisory fees, asset servicing fees or residual receivables, we use discounted cash flow modeling techniques and
the following key assumptions to estimate their values:



We
base our estimates on our proprietary historical data, publicly available third-party data and our industry experience, adjusting for specific product and borrower characteristics
such as loan type and borrower creditworthiness. We also monitor trends in loan performance over time and make adjustments we believe are necessary to value properly our receivables balances at each
balance sheet date.

At
March 31, 2010 and 2009, the aggregate outstanding principal balance of the debt issued by the NCSLT Trusts was $12.2 billion and $13.0 billion, respectively. The
principal underlying assets in the NCSLT Trusts were TERI-guaranteed private education loans, of which approximately 26.6% were in deferment, 5.4% were in forbearance and 68.0% were in
repayment status as of March 31, 2010. Approximately 89.5% of the loans in repayment status as of March 31, 2010 were current, 4.7% were between 31 and 90 days past due, 2.6% were
between 91 and 180 days past due, and 3.2% were greater than 180 days past due. As of March 31, 2010, the cumulative gross default rate with regard to loans in, and loans that
have previously been in, repayment status in the NCSLT Trusts was 14.3%. We have posted to our website, and filed as exhibit 99.1 to this quarterly report, static pool data as of
March 31, 2010, including original pool characteristics and borrower payment status, delinquency, cumulative loss and prepayment data as of March 31, 2010 for certain securitization
trusts that we have facilitated. We have also posted to our website, and filed as exhibit 99.2 to this quarterly report, a supplemental presentation of certain historical trust performance
data, including parity ratios by trust, net recovery rates by year of default, six-month rolling prepayment rates and payment status by trust.

Because
our fair value estimates rely on quantitative and qualitative factors, including historical data and macroeconomic indicators to predict prepayment and default rates,
management's ability to determine which factors should be more heavily weighted in our estimates, and our ability to accurately incorporate those factors into our loan performance assumptions, are
subjective and can have a material effect on our valuations.

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Default, Recovery and Prepayment Rates.Default, recovery and prepayment rates are defined as follows:



Prior
to the third quarter of fiscal 2010, our assumptions for default, recovery and prepayment rates relied primarily on historical data, updated in the short-term for
differences between projected results and actual results. During fiscal 2010, we engaged an independent consulting firm to assist us in assessing our modeling methodologies. As a result of this
assessment, which concluded during the third quarter of fiscal 2010, we refined our models to include a prospective methodology that also applies macroeconomic factors in projecting future loan
performance. Historical data was used to validate the enhanced methodology. We began applying the refinements to our methodology during the third quarter of fiscal 2010 to estimate default and
prepayment rates for use in our discounted cash flow models.

Discount Rates.We apply discount rates to each of our financial instruments that we believe are commensurate with the tenure and risks
involved. In
determining an appropriate discount rate for valuing our asset servicing fees and residual receivables, we consider a number of factors, including market data made available to us on spreads on
federally guaranteed loans and private education loans, as well as rates used in the much broader ABS market. We also evaluate yield curves for corporate subordinated debt with maturities similar to
the weighted-average life of our residual interests.

Until
the third quarter of fiscal 2010, the discount rate that we used to estimate the fair value of our additional structural advisory fees was based on the 10-year U.S.
Treasury Bond rate plus a risk premium. In determining the risk premium, we considered factors such as yields on B-rated instruments, the level of available cash flows from residual
interests that support the additional structural advisory fees, as well as the weighted-average life of the additional structural advisory fee receivables. For the quarter ended March 31, 2010,
changes to cash flow assumptions had the effect of lengthening the weighted-average life of the additional structural advisory fee receivables, significantly reducing the amount of residual interest
cash flows available to support the cash flows available for additional structural advisory fees and delaying the timing of receipt of additional structural advisory fees. The combination of all these
factors led us to the determination that additional structural advisory fee receivables are more analogous to longer term financial instruments than 10-year debt instruments and a higher
discount rate is appropriate. The 14% discount rate used for additional structural advisory fees reflects market data made available to us on spreads on federally guaranteed loans and private
education loans, as well as rates used in the much broader ABS market and is 200 basis points less than the 16% used for residual receivables, reflecting the seniority of the additional structural
advisory fees in the cash waterfall of the securitization trusts.

Auction Rate Note Interest Rates.Five of the NCSLT Trusts issued auction rate notes to finance, in whole or in part, the purchase of
private
education loans. Failed auctions occurred and have persisted with respect to these five trusts. The failed auctions, deterioration in trust performance and the downgrade in the insurance financial
strength ratings assigned to the credit enhancement provider for certain auction rate notes, have resulted in the auction rate notes bearing interest at a maximum spread over one-month
LIBOR as specified in the indentures, based on the ratings assigned to the

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notes.
We assume that all auction rate notes will continue to bear interest at their current maximum spreads until their expected maturity dates.

Forward LIBOR Curve.The forward LIBOR curve is a market observable input obtained from an independent third party. LIBOR is the
underlying rate for
most of the trusts' assets and liabilities, and fluctuations in LIBOR can have a significant effect on the cash flows generated by each trust. Changes in the forward LIBOR curve affect the principal
balances of education loans held by the trusts, particularly as interest is capitalized during loan deferment, which affects the net interest margin that the trust generates. In addition, certain
trusts have issued a tranche of ABS that bears a fixed interest-rate. A decrease in the forward LIBOR curve may result in a reduced spread on the fixed-interest tranche, which in turn
decreases the estimated fair value of our service receivables. Significant changes to the forward LIBOR curve can also affect the estimated fair value of our additional structural advisory fees, which
bear interest at the rate of LIBOR plus a spread to the extent such fees are accrued but unpaid by the trusts.

TERI's Obligation to Pay Claims.Prior to the third quarter of 2008, we assumed that TERI would pay default claims on a timely basis.
The indentures
relating to certain of the securitization trusts specify circumstances, which we refer to as Trigger Events, upon the occurrence of which payments that would otherwise be due in respect of additional
structural advisory fees and residuals instead be directed to the holders of the notes issued by the trusts until the conditions causing the Trigger Event cease to exist or all notes and related
interest are paid in full. As a result of the TERI Reorganization, cumulative gross defaults of education loans held by the NCSLT Trusts are projected to exceed a specified level per the indentures
that would constitute a Trigger Event. Although the overall expected cash flows generated by the NCSLT Trusts improved as a result of the higher priority of repayment of the notes, the expected timing
of cash payments to us with respect to additional structural advisory fees and residuals was delayed, reducing their estimated fair value. In addition, as a result of the TERI Reorganization, we
adjusted our assumptions during the third quarter of fiscal 2008 to assume that amounts available to pay an NCSLT Trust's default claims will be limited to amounts available from the NCSLT Trust's
Pledged Account, and that future recoveries on defaulted loans would replenish such Pledged Account. During the third quarter of fiscal 2010, we further updated our assumptions to reflect the terms of
the Plan of Reorganization, as follows:



These
assumptions did not have a material impact on our additional structural advisory fee or asset servicing fee receivables. See Note 6, "Commitments and
ContingenciesTERI ReorganizationChallenge to Security Interests," in the notes to our unaudited condensed consolidated financial statements included in Part I,
Item 1 of this quarterly report for additional details.

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Education loans held for sale by UFSB-SPV have been pledged pursuant to an education loan warehouse facility provided by a
third-party lender. The loans are subject to call provisions by the third-party lender, and, therefore, we do not have the ability to hold the loans to maturity. Education loans held for sale are
carried at the lower of cost or fair value. The fair value of education loans held for sale is evaluated on a quarterly basis.

When
available, the fair value is based on quoted market values. In the absence of readily determined market values, fair value is estimated by management based on the present value of
expected future cash flows from the education loans held for sale. These estimates are based on historical and third-party data and our industry experience with the assumptions for, among other
things, default rates, recovery rates on defaulted loans, prepayment rates and the corresponding weighted-average cost of capital commensurate with the risks involved. If readily determined market
values became available, or if actual performance were to vary appreciably from management's estimates, the fair value of the loans would need to be further adjusted, which could result in material
differences from the recorded carrying amounts. Changes in the carrying value of education loans held for sale are recorded as a separate component of non-interest expense.

In
October 2009, Union Federal sold the current portion of its portfolio of private education loans held for sale, excluding loans held by UFSB-SPV, to an unaffiliated
third-party. In November 2009, Union Federal sold the remainder of its portfolio of private education loans held for sale to a newly formed statutory trust owned by a subsidiary of FMC. These loans
were reclassified as held to maturity upon sale. During the third quarter of fiscal 2010, a portion of the loans were reclassified back to held for sale as a result of our contribution of the loans to
UFSB-SPV as part of the restructuring of UFSB-SPV's education loan warehouse facility. See Note 3, "Education Loans Held for Sale," in the notes to our unaudited
condensed consolidated financial statements included under Part I, Item 1 of this quarterly report for additional information about loans held for sale, and Note 15, "Subsequent
EventsRestructuring of Education Loan Warehouse Facility," in the notes to our unaudited condensed consolidated financial statements included under Part I, Item 1 of this
quarterly report for additional details about the restructuring.



Increases in our estimates of defaults, prepayments and discount rates, as well as decreases in default recovery rates and the
multi-year forward estimates of LIBOR, would have a negative effect on the value of our additional structural advisory fees, as well as our asset servicing fee receivables and our
education loans held for sale. Private education loan prepayments include either full or partial payments by a borrower in advance of the maturity schedule specified in the credit agreement. If
amounts in the Pledged Accounts were unavailable to pay the
NCSLT Trusts' default claims or if recoveries on defaulted loans were not available in whole or in part to replenish such Pledged Accounts, as a result of a Plan of Reorganization or otherwise, or if
net defaults increase beyond the level of expected third-party reimbursement assumptions, then these changes will have an additional negative effect on the value of these assets.

The
following table shows our loan performance and discount rate assumptions and additional structural advisory fee balances at March 31, 2010 and estimated changes that would
result from changes in our assumptions. The effect on the fair value of the structural advisory fees is based on variations of 10% or 20%, except for the forward LIBOR rates, which are based on
variations of 1% and 2% from the forward LIBOR rates at March 31, 2010.

The
sensitivities presented below are hypothetical and should be used with caution. The effect of each change in assumption must be calculated independently, holding all other
assumptions constant. Because the key assumptions may not in fact be independent, the net effect of simultaneous adverse

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changes
in key assumptions may differ materially from the sum of the individual effects calculated below.

Percentage change in
assumptions

Management
assumptions and
receivables
balance at
March 31, 2010

Percentage change in
assumptionsStructural advisory fees

Down 20%

Down 10%

Up 10%

Up 20%(dollars in thousands)Default rate:Management assumptions(1):Segment 1


9.6
%

10.1
%

10.7
%

11.2
%

11.8
%Segment 2


17.8


18.8


19.7


20.6


21.5Segment 3


44.6


46.5


48.3


50.1


51.8Total structural advisory fees

$
37,863

$
36,067

$
33,902

$
26,029

$
18,329Change in receivables balance


11.7
%

6.4
%




(23.2
)%

(45.9
)%Default recovery rate:Management assumption:Segment 1


32.0
%

36.0
%

40.0
%

44.0
%

48.0
%Segment 2


32.0


36.0


40.0


44.0


48.0Segment 3


32.0


36.0


40.0


44.0


48.0Total structural advisory fees

$
23,692

$
30,997

$
33,902

$
35,737

$
36,868Change in receivables balance


(30.1
)%

(8.6
)%




5.4
%

8.8
%Annual prepayment rate:Management assumption:Segment 1


5.2
%

5.9
%

6.7
%

7.2
%

7.9
%Segment 2


3.8


4.2


4.8


5.2


5.7Segment 3


2.4


2.7


3.1


3.4


3.7Total structural advisory fees

$
35,215

$
34,644

$
33,902

$
32,840

$
31,159Change in receivables balance


3.9
%

2.2
%




(3.1
)%

(8.1
)%Discount rate:Management assumption


11.2
%

12.6
%

14.0
%

15.4
%

16.8
%Total structural advisory fees

$
53,023

$
42,355

$
33,902

$
27,195

$
21,864Change in receivables balance


56.4
%

24.9
%




(19.8
)%

(35.5
)%




Change in assumption



Change in assumptionDown 200
basis points

Down 100
basis points

Receivables
balance

Up 100
basis points

Up 200
basis points(dollars in thousands)Forward LIBOR rates:Total structural advisory fees

$
27,914

$
30,845

$
33,902

$
32,317

$
24,149Change in receivables balance


(17.7
)%

(9.0
)%




(4.7
)%

(28.8
)%


(1)The
percentage change in assumptions applies to future conditional default rates in the portfolio after taking into account actual defaults occurring in the
portfolio through March 31, 2010. As a result, application of the nominal 10% or 20% variation results in a change in the management assumption that is less than 10% or 20% of the default rate.




Our consolidated financial statements include the accounts of FMC and its subsidiaries, after eliminating inter-company accounts and
transactions. We have not consolidated the financial results of the securitization trusts purchasing loans that we have facilitated.

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At
March 31, 2010 and 2009, each of the securitization trusts created after January 31, 2003 has met the criteria to be a qualified special-purpose entity, or QSPE, as
defined by Accounting Standards Codification, or ASC, 860-40,Transfers and ServicingTransfers to Qualifying Special Purpose
Entities, which we refer to as ASC 860-40. Accordingly, we did not consolidate these existing securitization trusts in our financial statements. In addition, the
securitization trusts created prior to January 31, 2003 in which we hold a variable interest that could result in us being considered the primary beneficiary of such trust, have been amended in
order for them to be considered QSPEs.

Effective
beginning with our financial statements for the quarter ending September 30, 2010, we will adopt Accounting Standards Update, or ASU, 2009-16, Transfers and Servicing (Topic 860)Accounting for Transfers of Financial
Assets, which we refer to as ASU 2009-16, and ASU
2009-17,Consolidations (Topic 810)Improvements to Financial Reporting by Enterprises Involved With Variable Interest
Entities, which we refer to as ASU 2009-17. Prior to their codification, ASU 2009-16 was referred to as Financial Accounting Standard 166, Accounting for Transfers of Financial Assets, an Amendment of
FASB Statement 140, and ASU 2009-17 was referred to as Financial Accounting
Standard 167,Amendments to FASB Interpretation No. 46(R).

ASU
2009-16 removes the concept of a QSPE from ASC 860-40 and removes the exemption from consolidation for QSPEs from ASC 810-10, Consolidation, which we refer to as ASC 810-10. ASU 2009-17 updates ASC
810-10 to require that certain types of
enterprises perform analyses to determine if they are the primary beneficiary of a variable interest entity. A primary beneficiary of a variable interest entity is the enterprise that has both of the
following characteristics:



In
addition, ASU 2009-17 requires us to continuously reassess whether consolidation of variable interest entities is appropriate upon the occurrence of reconsideration
events, as opposed to the one-time assessment allowed under previous guidance.

As
of May 10, 2010, we expect to consolidate certain of these securitization trusts. The final impact is expected to be material to the balance sheet and statement of operations,
but the amounts are still uncertain. We do not own the residuals of the NCSLT Trusts and the deficits of these trusts, if consolidated, are expected to be allocated to non-controlling
interests.

Assets
and liabilities of the entities to be consolidated as a result of our analysis will be measured at the same amounts that such assets and liabilities would have been measured if
they had been consolidated at the time we became the primary beneficiary. All intercompany transactions will be eliminated. Profits and losses of the consolidated variable interest entities will be
allocated to non-controlling interests based on voting interests, before the effect of intercompany elimination entries. ASU 2009-17 may be applied retrospectively through a
cumulative-effect adjustment to the opening balance of retained earnings in the year of adoption or the opening balance of retained earnings for the first year presented. We expect to present a
cumulative-effect adjustment to the opening balance of retained earnings in the year of adoption.

We
are evaluating the impact that the adoption of these statements will have on our consolidated financial condition and results of operations, particularly as they relate to the
securitization trusts holding loans we previously facilitated. At March 31, 2010, the aggregate outstanding liabilities of the NCSLT Trusts were approximately $12.2 billion and total
assets were $10.8 billion. The principal underlying assets in the NCSLT Trusts were TERI-guaranteed private education loans. The aggregate

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outstanding
assets and liabilities of other trusts, for which we own residual interests, were each less than $1.0 billion.

Results of Operations

Three and nine months ended March 31, 2010 and 2009

Summary

The following table summarizes our results of operations:

Three months ended
March 31,

Change
between
periods

Nine months ended
March 31,

Change
between
periods2010

2009

2010-2009

2010

2009

2010-2009(in thousands, except per share data)Service revenues

$
(17,472
)
$
(136,414
)
$
118,942

$
217

$
(322,024
)
$
322,241Net interest income


656


5,798


(5,142
)

6,597


20,409


(13,812
)Total revenues


(16,816
)

(130,616
)

113,800


6,814


(301,615
)

308,429Non-interest expenses


28,012


74,972


(46,960
)

209,463


195,041


14,422Loss before income taxes


(44,828
)

(205,588
)

160,760


(202,649
)

(496,656
)

294,007Income tax benefit


(15,439
)

(64,934
)

49,495


(67,475
)

(169,718
)

102,243Net loss

$
(29,389
)
$
(140,654
)
$
111,265

$
(135,174
)
$
(326,938
)
$
191,764Net loss per share, diluted

$
(0.30
)
$
(1.42
)
$
1.12

$
(1.36
)
$
(3.30
)
$
1.94Diluted weighted average shares outstanding


99,248


99,121


127


99,232


99,067


165


We
reported a net loss of $29.4 million, or $0.30 per share, on a fully diluted basis, for the third quarter of fiscal 2010, compared with a net loss of $140.7 million, or
$1.42 per share, for the third quarter of fiscal 2009. The improvement in earnings in fiscal 2010 reflects lower reductions of service receivables and lower non-interest expenses. Total
revenues for the third quarter of fiscal 2010 increased by $113.8 million from the third quarter of fiscal 2009. In fiscal 2009, we reduced the carrying value of residual interests in the NCSLT
Trusts by $134.5 million as a result of the sale of the Trust Certificate. We did not facilitate any new securitization transactions in the first nine months of fiscal 2010 or 2009. Total
non-interest expense decreased $47.0 million over the same period, reflecting lower expenses across most categories of expense.

Our
net loss for the first nine months of fiscal 2010 was $135.2 million, or $1.36 per share on a fully diluted basis, compared with a net loss of $326.9 million, or $3.30
per share, for the first nine months of fiscal 2009. The improvement in earnings for the nine month period is attributable to lower reductions of service receivables and lower compensation and
benefits and general and administrative expenses, partially offset by higher losses on education loans held for sale, most of which was recorded in the first quarter of fiscal 2010.

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Service Revenues

The following table summarizes the changes in our service revenues:

Three months ended
March 31,

Change
between
periods

Nine months ended
March 31,

Change
between
periods2010

2009

2010-2009

2010

2009

2010-2009(in thousands)Additional structural advisory feestrust updates

$
(21,440
)
$
(4,063
)
$
(17,377
)
$
(20,799
)
$
(51,466
)
$
30,667Asset servicing fees:Fee income


2,133





2,133


6,012





6,012Fee updates


(2,635
)




(2,635
)

(2,272
)




(2,272
)Total asset servicing fees


(502
)




(502
)

3,740





3,740Residualstrust updates


(91
)

(136,366
)

136,275


2,186


(285,604
)

287,790Administrative and other fees


4,561


4,015


546


15,090


15,046


44Total service revenues

$
(17,472
)
$
(136,414
)
$
118,942

$
217

$
(322,024
)
$
322,241


Additional
structural advisory fees, asset servicing fees and residual receivables represent the estimated fair value of service receivables expected to be collected over the life of the
various separate securitization trusts that have purchased private education loans facilitated by us.



We are entitled to receive additional structural advisory fees over time, based on payment priorities established in the trusts'
indentures, with no further requirement for service on our part. In general, this fee accumulates monthly in each trust from the date of a securitization at a rate of 15 to 30 basis points per year
plus accrued interest on earned but unpaid fee income. We generally become entitled to receive this additional portion, plus interest, once the ratio of trust assets to trust liabilities in the
particular trust, which we refer to as the Parity Ratio, reaches a stipulated level, which ranges from 103.0% to 105.5%. The level applicable to a particular trust is determined at the time of
securitization. Actual Parity Ratios at March 31, 2010 ranged from 88.55% to 96.04%. Please refer to exhibit 99.2 to this quarterly report for additional information on actual trust
Parity Ratios as of March 31, 2010. The stipulated Parity Ratio levels may be raised if certain trust characteristics change.

We
record the net present value of the future cash flows due to us from the trusts, or estimated fair value, of these fees as additional structural advisory fee receivables on the
balance sheet. Additional structural advisory fees recognized in the income statement represent the change in fair value during the period in the structural advisory fee receivable, less cash
received, if any. To estimate the amount and timing of the cash flows of these fees, we apply a discount rate commensurate with the risk involved to the estimated amount and timing of cash flows of
each trust, taking into consideration the estimated operational expenses for the separate securitization trusts and trust performance assumptions, including the expected annual rate and timing of loan
defaults, TERI's ability and obligation to pay default claims for the NCSLT Trusts, expected recoveries on defaulted loans, the annual rate and timing of education loan prepayments, the trend of
contractual and market interest rates over the life of the loan pool, the cost of funding outstanding auction rate notes, and the existence of Trigger Events. These assumptions are based on historical
and third-party data and our industry experience.

On
a quarterly basis, we update our estimate of the fair value of our additional structural advisory fee receivable. We expect, as of March 31, 2010, to begin to receive these
fees approximately five to 22 years after the date of a particular securitization transaction. However, for many of the NCSLT

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Trusts,
the bankruptcy filing of their loans' primary guarantor, TERI, or cumulative gross default rates have resulted in Trigger Events. These events may significantly delay the receipt of fees. We
estimate the trend of interest rates over the life of the loan pool using an implied forward LIBOR curve, and an assumed spread between LIBOR and auction rates, to estimate trust cash flows.

Prior
to the third quarter of fiscal 2010, our assumptions for default, recovery and prepayment rates relied primarily on historical data, updated in the short-term for
current differences between projected results and actual results. During the third quarter of fiscal 2010, we refined our models to include a prospective methodology that also applies macroeconomic
factors in projecting
future loan performance. Historical results are used to validate the appropriateness of the relationship between macroeconomic indicators and actual results. In the third quarter of fiscal 2010, we
used our refined methodology to determine estimated default and prepayment rates for use in our discounted cash flow models. The combination of higher net default rates and a higher discount rate,
offset somewhat by lower prepayment rates, resulted in a net loss recorded in revenues as additional structural advisory feestrust updates of $21.4 million for the third quarter of
fiscal 2010, for a net loss of $20.8 million in revenues for the first nine months of fiscal 2010.

During
the first nine months of fiscal 2009, we experienced a significant tightening of the forward LIBOR curve, increased costs related to interest on auction rate notes, higher default
rates and increases in the discount rate. These factors resulted in losses recorded as trust updates in revenue during the third quarter of $4.1 million, for a total loss of
$51.5 million for the first nine months of fiscal 2009. See "Service Revenues Receivables Assumptions" that follows for a discussion of each assumption.

The
following table summarizes changes in the estimated fair value of our additional structural advisory fee receivables:

Three months ended
March 31,

Nine months ended
March 31,2010

2009

2010

2009(in thousands)Fair value at beginning of period

$
55,724

$
64,935

$
55,130

$
113,842Cash received from trust distributions


(382
)

(26
)

(429
)

(1,530
)Trust updates:Passage of timefair value accretion


1,686


1,985


5,015


7,415Increase in timing and average default rate


(39,144
)

(2,634
)

(42,616
)

(8,798
)Increase in discount rate assumption


(14,727
)

(2,925
)

(11,029
)

(23,114
)Decrease in average prepayment rate


25,338


769


25,338


3,127Increase (decrease) in forward LIBOR curve


175


2,590


1,738


(16,941
)Increase in auction rate notes spread











(13,087
)Other factors, net


5,232
(1)

(3,848
)

755


(68
)Net change from trust updates


(21,440
)

(4,063
)

(20,799
)

(51,466
)Fair value at end of period

$
33,902

$
60,846

$
33,902

$
60,846


(1)Reflects
the reversal of a reserve of approximately $4.7 million recorded in the first quarter of fiscal 2010, as further discussed under "Default
and Recovery Rates."




Historically, as we facilitated the securitizations of loan pools, we were entitled to receive a portion of the residual cash flows, if
any, generated by the various securitization trusts that purchased the loans. We recorded the estimated fair value of these residual cash flows on our balance sheet as

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residual
receivables. Residual fees recognized in our statement of operations represent the change during the period in the estimated fair value of residual receivables. The estimated fair value is
based on the net present value of the future cash flows due to us from the trusts related to our residual interest ownerships.

NC
Residuals Owners Trust, a statutory trust, directly or indirectly owned certain certificates of beneficial ownership interests of the NCSLT Trusts. As a result of our sale of the
Trust Certificate of NC Residuals Owners Trust, we are no longer entitled to the residual cash flows of the NCSLT Trusts, although we continue to be entitled to receive residuals from other trusts.
The purchaser of the Trust Certificate agreed to bear all future federal and state tax liabilities associated with the NCSLT Trust residuals.

Trust
updates for residual interests in fiscal 2010 relate only to the trusts that were not part of the sale of the Trust Certificate. Changes in assumptions did not have a material
impact on these residual interests for the three months ended March 31, 2010. For the nine months ended March 31, 2010, trust update revenue of $2.2 million primarily reflected
accretion for the passage of time and a decrease in the discount rate.

As
a result of the sale of the Trust Certificate in the third quarter of fiscal 2009, we recorded a loss of $134.5 million for the reduction to our carrying value of the NCSLT
residual interests. Prior to our sale of the Trust Certificate, we recorded losses to reflect tightening of the forward LIBOR curve, higher interest payable on auction rate notes, higher assumed
default rates and an increase in the assumed discount rate, somewhat offset by accretion and lower prepayment rates, for a total loss of $285.6 million in the first nine months of fiscal 2009.

See
"Service Revenues Receivables Assumptions" that follows for a discussion of each assumption.

The
following table summarizes the changes in the estimated fair value of our residual receivables:

Three months ended
March 31,

Nine months ended
March 31,2010

2009

2010

2009(in thousands)Fair value at beginning of period

$
12,237

$
144,017

$
9,960

$
293,255Trust updates:Passage of timefair value accretion


487


355


1,346


20,107Increase in timing and average default rate


(353
)




(353
)

(50,108
)Decrease (increase) in discount rate assumption








1,176


(83,634
)Increase (decrease) in forward LIBOR curve


49


14


183


(22,099
)Increase in auction rate notes spread











(31,779
)Decrease in average prepayment rate











11,336Decrease to reflect disposition





(134,481
)




(134,481
)Other factors, net


(274
)

(2,254
)

(166
)

5,054Net change from trust updates


(91
)

(136,366
)

2,186


(285,604
)Fair value at end of period

$
12,146

$
7,651

$
12,146

$
7,651


We
entered into the Asset Services Agreement in April 2009, pursuant to which we have agreed to provide certain services to the purchaser of the Trust Certificate to support its
ownership of the NCSLT Trust residuals, including analysis and valuation optimization services and services relating to funding strategy. As compensation for our services, we are entitled to an asset
servicing fee, calculated as a percentage of the aggregate outstanding principal balance of loans outstanding in the NCSLT Trusts. Although this fee is earned monthly, we will not receive any asset
servicing fees until the purchaser of

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the
Trust Certificate has begun to receive residual cash flows. Due to changes in default assumptions related to the NCSLT Trusts, the weighted average life of our asset servicing fees has increased,
and the overall expected cash flows have decreased. As a result, we recorded a loss from fee updates of $2.6 million during the third quarter of fiscal 2010, for a net loss from fee updates of
$2.3 million for the first nine months of fiscal 2010. Fee income earned was $2.1 million for the third quarter and $6.0 million for the first nine months of fiscal 2010.



Administrative and other fees increased slightly to $4.6 million and $15.1 million for the third quarter and first nine
months of fiscal 2010, respectively, up from $4.0 million and $15.0 million for the comparable periods in fiscal 2009. Administrative and other fees include trust administration fees
generated from the daily management and information gathering and reporting services for parties related to securitization trusts, stand-alone fee-based loan origination, processing fees
and loan portfolio default prevention services.

Service Revenues Receivables Assumptions

Performance Assumption Overview.During the third quarter of fiscal 2010, we completed initial enhancements to the financial models
that we use to
estimate the fair value of our service receivables. The enhancements provide for the inclusion of certain prospective macro-economic factors in our performance assumptions for those private education
loans securitized in the NCSLT Trusts. As a result of the enhancements, which were validated by a third party, we are able to provide performance information on a segmented basis rather than solely on
a weighted-average basis. As our risk models continue to evolve, we anticipate additional future enhancements.

Risk Segments.Using our proprietary risk score modeling developed for our new Monogram product, loans in the NCSLT Trusts were
retroactively scored
using origination data as well as additional credit bureau data made available following origination. We then divided loans into three risk segments, with loans in Segment 1 expected to perform better
than loans in Segment 2 and loans in Segment 2 expected to perform better than loans in Segment 3. The table below identifies performance assumptions for each segment, as well as the percentage of the
NCSLT Trust portfolios in each segment.

March 31, 2010NCSLT Portfolio

Segment 1

Segment 2

Segment 3Distribution by original loan amount


25.5
%

27.0
%

47.5
%Distribution by total outstanding loan amount(1):Not in repayment(2)


5.0


7.7


19.3In repayment


17.7


19.3


31.0Gross default rate(3)


10.7


19.7


48.3Recovery rate(3)


40.0


40.0


40.0Net default rate(3)


6.4


11.8


29.0Prepayment rate(3)


6.7
(4)

4.8
(4)

3.1
(4)


(1)Outstanding
aggregate principal and capitalized interest balance as of March 31, 2010.(2)Loans
"not in repayment" include loans in deferment or forbearance status as of March 31, 2010.(3)Using
projected defaults, net defaults and recoveries over the lives of the trusts as a percentage of original outstanding aggregate principal and accrued
interest balance.


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(4)Amount
presented is the weighted average conditional prepayment rate, or CPR, over the next ten years. The CPR is an estimate of the likelihood that a loan
will be prepaid during a period given that it has not previously defaulted or been repaid in full.




During the first quarter of fiscal 2010, we reduced the carrying value of additional structural advisory fee receivables by
$4.7 million for potential deviations in the performance of securitized loans and did not adjust this reserve during the second quarter of fiscal 2010. The higher projected default rate
assumptions derived using our enhanced modeling eliminated the need for this reserve, which lessened the negative impact of the higher default rates. Additional structural advisory fee receivables
decreased on a net basis by $34.5 million during the third quarter of fiscal 2010 and by $42.6 million for the first nine months of fiscal 2010.

As
a result of the change in our default assumptions, the projected timing of our receipt of asset servicing fees has been delayed by almost two years from our previous cash flow
projections. We reduced asset servicing fee receivables by $2.6 million during the third quarter of fiscal 2010, resulting in a net decrease of $2.3 million for the first nine months of
fiscal 2010. The decrease is attributable to the change in timing of our cash receipts, and is not related to collectability of asset servicing fees accrued to date. Our residual interests were less
affected by the change in default rates, in light of our sale of the Trust Certificate. Residual receivables decreased by $0.4 million during the third quarter and first nine months of fiscal
2010 as a result of the increase in the projected default rates.

During
fiscal 2009, the net default rate was increased to reflect higher default rates experienced in the trusts. The higher net default rate resulted in decreases in the estimated fair
value of our additional structural advisory fee receivables of $2.6 million and $8.8 million during the third quarter and first nine months of fiscal 2009, respectively.

Due
to the sale of the Trust Certificate at March 31, 2009, no decrease in residual receivables was allocated to changes in default rates for the third quarter of fiscal 2009
because the residuals of the NCSLT Trusts were reduced to zero in that quarter as a result of the sale. During the first and second quarters of fiscal 2009, residual receivables decreased by
$50.1 million due to increases in the default rates.

We
did not adjust our assumptions regarding recovery rates during the fiscal 2010 or fiscal 2009 periods.

Prepayment Rates.In general, prepayment rates have been in decline since March 2008. Over the past year, in response to a historically
low
prepayment rate, the interest rate environment and limited availability of consumer credit, we adjusted our prepayment assumption by extending the period during which decreased prepayments were
expected to persist. Our financial model enhancements now allow prepayment assumptions to be segmented, incorporating certain prospective macro-economic factors. As a result of our enhanced model,
prepayments are expected to be lower and slower than previously projected, providing for an increase in the value of our structural advisory fee receivables by $25.3 million during the third
quarter and for the first nine months of fiscal 2010.

During
the third quarter of fiscal 2009, we decreased our assumed prepayment rate by 11 basis points, which resulted in an increase to additional structural advisory fee receivables of
$0.8 million, for a total increase in the first nine months of fiscal 2009 of $3.1 million.

Discount RateAdditional Structural Advisory Fees.Until the third quarter of fiscal 2010, the discount rate that we used to
estimate the
fair value of our additional structural advisory fees was based on the 10-year U.S. Treasury Bond rate plus a risk premium. In determining the risk premium, we considered factors such as
yields on B-rated instruments, the level of available cash flows from

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residual
interests that support the additional structural advisory fees, as well as the weighted-average life of the additional structural advisory fee receivables.

For
the quarter ended March 31, 2010, we utilized a discount rate of 14% in determining the fair value of the additional structural advisory fee receivables. The change from an
index-based discount rate to a rate of 14% reflects our financial model enhancements and resulting adjustments to our cash flow assumptions that had the effect of lengthening the weighted-average life
of the additional structural advisory fee receivables. As a result, the amount of residual interest cash flows available to support the cash flows available for additional structural advisory fees was
significantly reduced. In addition, the projected timing of receipt of additional structural advisory fees was delayed. The combination of these factors led us to determine that additional structural
advisory fee receivables are more analogous to longer-term financial instruments than 10-year debt instruments and, therefore, a higher discount rate is appropriate. The 14%
discount rate used for the additional structural advisory fees reflects market data made available to us on spreads on federally guaranteed loans and private education loans, as well as rates used in
much broader ABS market and is 200 basis points less than the 16% used for residual receivables, reflecting the seniority of the additional structural advisory fees in the cash waterfall of the
securitization trusts.

The
increase in the discount rate resulted in a $14.7 million decrease in the value of additional structural advisory fee receivables for the third quarter, for a net decrease of
$11.0 million for the first nine months of fiscal 2010.

During
the third quarter of fiscal 2009, we used a spread of 1,000 basis points over the 10-year U.S. Treasury Bond rate, resulting in a discount rate of 12.7%. The spread
was flat from the prior quarter, but up 425 basis points for the first nine months of fiscal 2009. During the third quarter of fiscal 2009, the 10-year U.S. Treasury Bond rate increased by
45 basis points, and we recorded a decrease of $2.9 million in additional structural advisory fees for the period. For the nine months ended March 31, 2009, the 425 basis point increase
in the spread net of the 131 basis point decrease in the 10-year U.S. Treasury Bond rate resulted in a net decrease of $23.1 million in the value of additional structural advisory
fee receivables.

Discount RateAsset Servicing Fees and Residuals.In determining an appropriate discount rate for purposes of estimating the fair
value
of our asset servicing fee and residual receivables, we consider a number of factors, including market data made available to us on spreads on federally guaranteed loans and private education loans,
as well as rates used in the much broader ABS market. We also evaluated yield curves for corporate subordinated debt with maturities similar to the weighted-average life of our residuals.

We
maintained a discount rate of 16% during the third quarter of fiscal 2010, flat from the prior quarter but a decrease of 100 basis points, from 17%, at the prior year-end.
As a result, there was no change in the residual receivables during the third quarter and an increase in residual receivables of $1.2 million during the first nine months of fiscal 2010 due to
changes in the discount rate.

During
fiscal 2009, no decrease in residual receivables was allocated to changes in discount rates for the third quarter as a result of the sale of the Trust Certificate on
March 31, 2009. The increases in the discount rate for the first six months of fiscal 2009 resulted in decreases in the estimated fair value of our residual receivables of $83.6 million
prior to the sale.

Forward LIBOR Curve.Fluctuations in interest rates, specifically the LIBOR rate which is the underlying rate for most of the trusts'
assets and
liabilities, can have a significant impact on the cash flows generated by each trust. The forward LIBOR curve is a market observable input obtained from an independent third party. Changes in the
forward LIBOR curve can have a significant impact on the principal balances of the education loans (especially early in a loan's life when interest is capitalizing while in deferment), which affects
the overall net interest margin the trust can generate, and can

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impact
our additional structural advisory fee receivables as accrued but unpaid fees bear interest at LIBOR plus 150 basis points. In addition, certain trusts have issued a tranche of ABS that bears a
fixed
interest rate. A decrease in the forward LIBOR curve may result in a reduced spread on the fixed interest-rate tranche, which, in turn, decreases the estimated fair value of our service
receivables.

For
the quarter ended March 31, 2010, the forward LIBOR curve shifted slightly upward in the first five years, and then slightly downward in the longer-term. Overall,
the net result was not material to the fair value of the additional structural advisory fee or residual receivables.

During
the third quarter of fiscal 2009, there was an upward shift in the forward LIBOR curve which resulted in increases to our additional structural advisory fees of
$2.6 million for the third quarter; however, over the first nine months of fiscal 2009, the forward LIBOR curve shifted downward from the prior year end, and we recorded net decreases of
$16.9 million and $22.1 million, for additional structural advisory fees and residuals, respectively.

Auction Rate Note Interest Rates.Prior to fiscal 2009, we facilitated five trusts that issued auction rate notes to finance, in whole
or in part,
the purchase of private education loans. Interest rates for the auction rate notes are determined from time to time at auction; however, during fiscal 2009 and fiscal 2010, failed auctions occurred or
persisted with respect to auction rate notes issued by each of the five trusts. In the second quarter of fiscal 2009, the ratings assigned to the auction rate notes of these trusts were downgraded due
to failed auctions, deterioration in trust performance and the downgrade of the insurance financial strength rating assigned to the credit enhancement provider for certain auction rate notes. As a
result, the auction rate notes bear interest at a maximum spread over one-month LIBOR as specified in the indentures, based on the ratings then assigned to the notes. Increases in the
interest expense of the trusts reduced the estimated fair value of our additional structural advisory fees and residual receivables and delayed the timing of receipt of additional structural advisory
fees. As a result, during the second quarter of fiscal 2009, we decreased the estimated fair value of our additional structural advisory fees by $13.1 million and our residual receivables by
$31.8 million. We did not make any further adjustments during the third quarter of fiscal 2009. During fiscal 2010, we have assumed that the notes would continue to bear interest at the
contractual maximum spread.

Decrease to Reflect Disposition.Effective March 31, 2009, we entered into a purchase agreement with VCG Owners Trust and VCG
Securities, LLC, pursuant to which we transferred our sole ownership of the Trust Certificate. As a result of the sale of the Trust Certificate, we are no longer entitled to receive residual
cash flows from the NCSLT Trusts. The decrease to reflect the disposition reflects the carrying value of all residual interests of the NCSLT Trusts included in the sale.

TERI's Obligation to Pay Claims.During the third quarter of fiscal 2010, we updated our assumptions
regarding TERI's obligation to pay claims based on the Plan of Reorganization presented for creditor approval in April 2010. The updated assumptions did not have a material impact on our additional
structural advisory fee or asset servicing fee receivables.

Net Interest Income

Net interest income decreased to $0.7 million in the third quarter of fiscal 2010, down from $5.8 million in the third
quarter of fiscal 2009. For the first nine months of fiscal 2010, net interest income was $6.6 million, down from $20.4 million for the comparable period in fiscal 2009.

Interest
income for the third quarter of fiscal 2010 was $4.4 million, compared with $9.0 million a year earlier. This decrease is almost entirely attributable to the sale
of Union Federal's education loan portfolio in the second quarter of fiscal 2010. The proceeds from the sale were reinvested in lower yielding cash equivalents. Interest expense for the third quarter
of fiscal 2010 was $3.7 million, compared with $3.2 million a year earlier. The increase was primarily attributable to higher interest rates on the education loan warehouse facility
triggered by the events of termination that occurred in fiscal 2009. The rate increase occurred in the fourth quarter of fiscal 2009.

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For the first nine months of fiscal 2010, interest income was $18.3 million, compared with $33.4 million a year earlier. The decrease is
attributable to a lower yield and lower volume of education loans held for sale. Lower yield is attributable to changes in the average LIBOR rates over the period and the lower volume is due to the
sale of Union Federal's portfolio. Interest expense for the first nine months of fiscal 2010 was $11.7 million, compared to $13.0 million a year earlier. Lower expenses on time and
savings deposits were largely offset by higher interest expense on the education loan warehouse facility.

See
the discussion under "Financial Condition, Liquidity and Capital Resources" for more information on the impact that the potential sale of Union Federal would have on net interest
income.

The
following tables reflect the rates earned on interest-earning assets and paid on interest-bearing liabilities:

Consolidated average balance sheet, interest and rates  (Taxable-equivalent rates(1))

Three months ended March 31,2010

2009Average
Daily
Balance

Interest

Rate

Average
Daily
Balance

Interest

Rate(in thousands, except rates)AssetsCash and cash equivalents

$
381,105

$
148


0.16
%
$
107,681

$
92


0.35
%Federal funds sold


2,384


1


0.07


25,565


4


0.06Short-term investments


50,000


73


0.60








Investments held for sale


5,923


74


5.07


78,096


247


1.86Education loans held for sale


262,031


3,778


5.85


511,486


8,541


6.77Loans held to maturity


33,354


308


3.75


10,911


139


5.16Total interest-earning assets


734,797


4,382


2.42


733,739


9,023


5.16Cash and cash equivalents


3,075








1,863Mark-to-market reserves


(168,043
)







(69,798
)Other assets


122,265








344,525Total assets

$
692,094







$
1,010,329LiabilitiesTime and savings accounts

$
94,679


313


1.34
%
$
84,876


601


2.87
%Money market accounts


42,979


123


1.16


46,651


338


2.93Education loan warehouse facility


228,293


3,110


5.53


246,089


2,046


3.37Other short-term borrowings











52,944


65


0.50Other interest-bearing liabilities


12,916


180


5.64


11,152


175


6.41Total interest-bearing liabilities


378,867


3,726


3.99


441,712


3,225


2.96Non-interest-bearing deposits


217








1,821All other liabilities


21,480








24,720Total liabilities


400,564








468,253Stockholders' equity


291,530








542,076Total liabilities and stockholders' equity

$
692,094







$
1,010,329Interest-bearing assets

$
734,797







$
733,739Net interest income




$
656







$
5,798Net interest margin








0.36
%







3.20
%


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Nine months ended March 31,2010

2009Average
Daily
Balance

Interest

Rate

Average
Daily
Balance

Interest

Rate(in thousands, except rates)AssetsCash and cash equivalents

$
311,524

$
437


0.19
%
$
113,057

$
739


0.88
%Federal funds sold


7,859


4


0.06


52,770


465


1.17Short-term investments


27,190


123


0.60








Investments held for sale


6,999


268


5.10


80,258


1,388


3.34Education loans held for sale


368,366


16,754


6.06


507,933


30,378


7.97Loans held to maturity


22,503


732


4.33


10,816


424


5.22Total interest-earning assets


744,441


18,318


3.28


764,834


33,394


6.03Cash and cash equivalents


3,365








1,123Mark-to-market reserves


(184,594
)







(38,710
)Other assets


175,865








401,982Total assets

$
739,077







$
1,129,229LiabilitiesTime and savings accounts

$
98,954


1,169


1.57
%
$
142,138


3,364


3.15
%Money market accounts


47,449


550


1.54


43,611


1,166


3.56Education loan warehouse facility


229,060


9,501


5.53


244,954


7,783


4.23Other short-term borrowings











23,084


103


0.60Other interest-bearing liabilities


12,368


501


5.39


12,593


569


6.02Total interest-bearing liabilities


387,831


11,721


4.03


466,380


12,985


3.71Non-interest-bearing deposits


1,077








4,001All other liabilities


20,837








39,462Total liabilities


409,745








509,843Stockholders' equity


329,332








619,386Total liabilities and stockholders' equity

$
739,077







$
1,129,229Interest-bearing assets

$
744,441







$
764,834Net interest income




$
6,597







$
20,409Net interest margin








1.18
%







3.55
%


(1)Taxable-equivalent
rate is a method of presentation in which the tax savings achieved by investing in tax-exempt securities are included in
interest revenue for purposes of calculating the yield. This method facilitates the comparison of the performance of tax-exempt and taxable securities. The adjustment is computed using a
federal income tax rate of 35%.


Non-interest Expenses

Total non-interest expenses were $28.0 million for the third quarter of fiscal 2010, compared with
$75.0 million for the comparable period in fiscal 2009. Non-interest expenses for the first nine months

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of
fiscal 2010 were $209.5 million, up from $195.0 million for the first nine months of fiscal 2009. The following table reflects non-interest expenses:

Three months ended
March 31,

Change
between
periods

Nine months ended
March 31,

Change
between
periods2010

2009

2010-2009

2010

2009

2010-2009(in thousands, except employee data)Compensation and benefits

$
8,594

$
8,782

$
(188
)
$
24,937

$
34,334

$
(9,397
)General and administrative expenses:Depreciation and amortization


3,355


4,214


(859
)

10,648


13,949


(3,301
)Third-party services


5,445


9,055


(3,610
)

15,279


23,386


(8,107
)Occupancy and equipment


4,919


3,590


1,329


14,606


12,160


2,446Other


1,519


1,747


(228
)

5,199


13,098


(7,899
)Subtotalgeneral and administrative expenses


15,238


18,606


(3,368
)

45,732


62,593


(16,861
)Losses on education loans held for sale


4,180


47,584


(43,404
)

138,794


98,114


40,680Total non-interest expenses

$
28,012

$
74,972

$
(46,960
)
$
209,463

$
195,041

$
14,422Total number of employees at fiscal quarter-end


225


232


(7
)


Compensation and Benefits Expenses.Compensation and benefits expense decreased to $8.6 million for the third quarter of fiscal
2010, compared
with $8.8 million for the third quarter of fiscal 2009, primarily attributable to lower benefits costs. Compensation and benefits expense decreased to $24.9 million for the first nine
months of fiscal 2010, compared with $34.3 million for the first nine months of fiscal 2009. The decreases between periods were primarily the result of decreases in severance accruals and
salaries and benefits of employees prior to the reduction in force that occurred in the second quarter of fiscal 2009. We reduced headcount by seven employees between March 31, 2009 and 2010.

General and Administrative Expenses.General and administrative expenses decreased to $15.2 million during the third quarter of
fiscal 2010,
compared with $18.6 million during the third quarter of fiscal 2009, reflecting lower depreciation due to the retirement of certain fixed assets and lower third-party service costs, including
lower legal, consulting and default prevention expenses. For the first nine months of fiscal 2010, general and administrative expenses were $45.7 million, a decrease of $16.9 million
from $62.6 million a year earlier. The decrease reflects lower depreciation expense due to the retirement of fixed assets, lower third-party service costs for reduced use of outside counsel,
recoupment of $1.0 million during the second quarter of fiscal 2010 in legal fees related to litigation, lower consulting expenses, lower other expenses related to the termination of a
marketing coordination contract with a client, and lower goodwill write-downs.

Losses on Education Loans Held for Sale.We recorded fair value adjustments on education loans held for sale of $4.2 million
during the third
quarter, for a total of $138.8 million for the first nine months of fiscal 2010. During fiscal 2009, we recorded fair value adjustments of $47.6 million in the third quarter for a total
of $98.1 million for the first nine months.

During
the first quarter of fiscal 2010, we received a bid from an unaffiliated third party for the "current" education loans held for sale by our bank subsidiary, Union Federal. We
recorded unrealized losses during the first quarter on all education loans held for sale based on that bid. In October 2009, Union Federal completed the sale of 88% of its portfolio of private
education loans directly held by it for sale, excluding loans held by UFSB-SPV, to the third party for proceeds of $121.5 million.

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In
November 2009, Union Federal sold the remainder of its portfolio of private education loans to a newly formed statutory trust owned by a subsidiary of FMC. We classified the loans
held by this trust as held to maturity. We continue to classify the portfolio held by UFSB-SPV as held for sale.

Losses
recorded for estimates of the fair value of education loans held for sale in fiscal 2009 reflected adjustments to our cash flow model, including higher assumptions for default
rates, discount rates and the cost of funds, and lower recovery rates, based on then-current economic conditions.

Income Tax Benefit

Our income tax benefit for the third quarter of fiscal 2010 was $15.4 million, for a total benefit of $67.5 million for
the first nine months of fiscal 2010. The income tax benefit for fiscal 2009 was $64.9 million for the third quarter and $169.7 million for the first nine months. The lower overall
benefit in fiscal 2010 is a result of lower pre-tax losses during fiscal 2010 and a lower effective tax rate. During the first nine months of fiscal 2010, our effective tax rate, or the
income tax benefit as a percentage of pre-tax loss, decreased to 33.3% from an effective tax rate of 34.2% for the first nine months of fiscal 2009. The decrease in our effective tax rate
was primarily due to certain permanent differences and expense accruals related to unrecognized tax benefits.

In
November 2009, the Worker, Homeownership and Business Assistance Act of 2009, or WHBAA, was signed into law. As part of the WHBAA, we will be allowed to carry back the taxable losses
from either fiscal 2009 or fiscal 2010 for five years, instead of two years. We have not yet determined which year would be more advantageous to carry back, and as such, have not yet determined
whether or not to file an amended fiscal 2009 tax return. We have estimated that taxable income in previous years will be sufficient to cover the taxable losses of both fiscal 2009 and fiscal 2010
regardless of which fiscal year is carried back. As a result of the WHBAA and pre-existing net operating loss carryback rules, we recorded a $28.0 million income tax receivable at
March 31, 2010.

We
have determined that a valuation allowance is not necessary for certain deferred tax assets, as it is more likely than not that these assets will be realized through future reversals
of existing temporary differences or available tax planning strategies. We will continue to review the recognition of deferred tax assets on a regular basis.

Net
unrecognized tax benefits were $20.1 million at March 31, 2010. At March 31, 2010, we had approximately $3.3 million accrued for interest and no amount
accrued for the payment of penalties.

As
a result of the sale of the Trust Certificate effective March 31, 2009, as well as our operating losses for fiscal 2009, we recorded income tax receivables during fiscal 2009
and 2010 for federal and state income taxes paid on prior taxable income. In the first nine months of fiscal 2010, we received a total of $189.3 million in federal and state income tax refunds
related to our income tax receivables.

Financial Condition, Liquidity and Capital Resources

We expect to fund our short-term liquidity requirements primarily through cash and cash equivalents and revenues from
operations, and we expect to fund our long-term liquidity requirements through revenues from operations and issuances of common stock, promissory notes or other securities. We expect to
assess our financing alternatives periodically and access the capital markets opportunistically. If our existing resources are insufficient to satisfy our liquidity requirements, or if we were to
enter into a strategic arrangement with another company, we may need to sell additional equity or debt securities. Any sale of additional equity or convertible debt securities may result in additional
dilution to our stockholders, and we cannot be certain that additional public or private financing will be available in amounts or on terms acceptable to us, if at all. If we are unable to obtain this
additional financing, we may be required to further delay, reduce the scope of, or eliminate one or more aspects of our operational activities, which could harm our business.

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Our
actual liquidity and capital funding requirements may depend on a number of factors, including:



Liquidity
is required for capital expenditures, working capital, business development expenses, costs associated with alternative financing transactions, general corporate expenses, and
maintaining the regulatory capital of our bank subsidiary, Union Federal.

We
had combined cash, cash equivalents, federal funds sold, short-term investments and investments held for sale of $430.0 million and $181.5 million, at
March 31, 2010 and June 30, 2009, respectively. Of the $430.0 million at March 31, 2010, approximately $289.9 million was held by FMC and approximately
$140.1 million was held by Union Federal. In the first nine months of fiscal 2010, we received a total of $189.3 million in federal and state tax refunds for income taxes previously paid
by us on prior taxable income, and Union Federal received $121.5 million from the sale of a portion of its private education loan portfolio to an unaffiliated third party. Net cash provided by
operating activities was $281.0 million for the first nine months of fiscal 2010, reflecting the receipt of the tax refunds and proceeds from the sale of the loans. Net cash used in operating
activities was $77.3 million in the first nine months of fiscal 2009, reflecting the funding of operations and payment of taxes.

The
OTS regulates all capital distributions by Union Federal directly or indirectly to us, including dividend payments. Union Federal is required to file a notice with the OTS at
least 30 days before the proposed declaration of a dividend or approval of a proposed capital distribution by Union Federal's board of directors. Union Federal must file an application to
receive the approval of the OTS for a proposed capital distribution when, among other circumstances, the total amount of all capital distributions (including the proposed capital distribution) for the
applicable calendar year exceeds net income for that year to date plus the retained net income for the preceding two years.

A
notice or application to make a capital distribution by Union Federal may be disapproved or denied by the OTS if it determines that, after making the capital distribution, Union
Federal would fail to meet minimum required capital levels or if the capital distribution raises safety or soundness concerns or is otherwise restricted by statute, regulation or agreement between
Union Federal and the OTS or the Federal Deposit Insurance Corporation, or FDIC, or a condition imposed by an OTS agreement. Under the Federal Deposit Insurance Act, or FDIA, an
FDIC-insured depository institution such as Union Federal is prohibited from making capital distributions, including the payment of dividends, if, after making such distribution, the
institution would become "undercapitalized" (as such term is used in the FDIA).

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Net interest income for the first nine months of fiscal 2010, on a consolidated basis, was $6.6 million, of which $4.1 million was attributable to
operations of Union Federal. During the second quarter of fiscal 2010, Union Federal sold its entire portfolio of private education loans held for sale, excluding the loans held by
UFSB-SPV, Union Federal's subsidiary at that time. Subsequent to the loss of this source of net interest revenue, Union Federal is experiencing monthly operating losses of approximately
$0.4 million. In connection with our previously announced exploration of strategic alternatives for Union Federal, including a potential sale, we have adopted a conservative investment
strategy, maintaining Union Federal's investable assets in cash and cash equivalents. We believe this investment strategy will prove attractive to a potential bidder. Due to the net losses Union
Federal is currently generating, we believe a sale of Union Federal would have a positive impact on our consolidated earnings as well as providing enhanced liquidity to us through an additional cash
infusion from the sale proceeds. Furthermore, we do not believe a sale of Union Federal would result in a material change to our on-going operations because we do not expect Union Federal
to offer private education loans during fiscal 2010 or to otherwise serve as a funding source.

The
Monogram product integrates all of our service offerings, including program design, marketing support, loan origination and portfolio management. The Monogram product offering can be
structured to generate loan portfolios to be held by originating lenders or financed in the capital markets. We expect to receive fees from lenders for our origination and marketing-related services
and to retain a portion of the interest spread from the loans we facilitate offset by any contribution by us to fund loan portfolio reserves. In April 2010, we entered into an agreement with a lender
to implement a Monogram lending program on its behalf. The effectiveness of the agreement is conditioned upon a number of conditions. If these conditions are not satisfied or waived prior to
September 1, 2010, the agreement may be terminated by us or the lender. See Note 15, "Subsequent
EventsSunTrust Loan Program Agreement," in the notes to our unaudited condensed consolidated financial statements included under Part I, Item 1 of this quarterly report for
additional details. We are currently in discussions with additional potential lenders regarding the Monogram product offering. While we believe that we may be successful in completing negotiations
with respect to the sale of the Monogram product to additional potential lenders, we are uncertain as to how much loan volume may be originated by these lenders in fiscal 2011.

We
anticipate continuing to receive administrative and other fees related to our daily management and information gathering and reporting services for parties related to securitization
trusts as well as fees on a stand-alone basis for loan processing and loan portfolio default prevention services. We believe that these administrative and other fees, as well as management of our
expenses, coupled with our significant cash, cash equivalents and investments, which includes significant tax refunds received in the first nine months of fiscal 2010, will be adequate to fund our
operations in the short-term as we seek to rebuild our client base and generate fee revenues through the Monogram product over the short-term and long-term.

In
considering our short-term and long-term plans to increase cash inflows, we have taken into account the cash flows related to asset servicing fees recorded
with respect to services provided to the third-party purchaser of the Trust Certificate and, based on the education loan performance assumptions as of March 31, 2010.

Cash
used in investing activities of $34.7 million for the first nine months of fiscal 2010 was primarily due to $50.0 million of cash invested in short-term
investments, partially offset by a net reduction in federal funds sold. Cash provided by investing activities of $49.5 million in the first nine months of fiscal 2009 was primarily due to a net
reduction in federal funds sold.

Cash
used in financing activities in the first nine months of fiscal 2010 of $32.8 million reflected decreases in the volume of deposits and payments under capital leases and
borrowings under the education loan warehouse facility. Cash provided by financing activities for the first nine months of

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fiscal
2009 of $66.7 million reflected the net issuance proceeds of series B non-voting convertible preferred stock of $125.9 million and proceeds from
short-term borrowings, partially offset by decreases in deposits.

Cash
payments related to the education loan warehouse facility are limited to cash received on the education loans held for sale used as collateral. Refer to the section entitled
"Contractual Obligations" that follows for a more detailed discussion of required payments under the facility.

The
following table summarizes our time deposits greater than $100,000 by maturity at March 31, 2010:

(in thousands)Within three months

$
23,090Three to six months


5,351Six months to one year


3,451Over one year


298$
32,190


The
maturities of these deposits are not directly indicative of future timing of cash needed for financing activities because they do not take into account the clients that may reinvest
their funds into new time deposits or into other types of deposit accounts.

Despite
the uncertainties discussed above, we believe, based on our operating plan, that we have sufficient liquidity to fund our operations through the next twelve months.

Support of Subsidiary Bank

Union Federal is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements would initiate certain mandatory and possibly additional discretionary actions by the regulators that, if undertaken, could have a direct material effect on our liquidity.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Union Federal must meet specific capital
guidelines that involve quantitative measures of Union Federal's assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital
amounts and classification, however, are also subject to qualitative judgments by the regulators about components, risk weighting and other factors.

Union
Federal's equity capital was $44.8 million at March 31, 2010, down from $84.3 million at June 30, 2009, due to dispositions of education loans held for
sale during the nine month period. Quantitative measures established by regulation to ensure capital adequacy require Union Federal to maintain minimum amounts and ratios of total capital and
Tier 1 capital to risk-weighted assets (each as defined in the regulations). See Note 14, "Union Federal Regulatory MattersRegulatory Capital Requirements," in
the notes to our unaudited condensed consolidated financial statements included under Part I, Item 1 of this quarterly report for Union Federal quantitative measures. As of
March 31, 2010 and June 30, 2009, Union Federal was well capitalized under the regulatory framework for prompt corrective action.

In
July 2009, FMC entered into the Supervisory Agreement and Union Federal consented to the Order, pursuant to which FMC and Union Federal agreed to comply with certain requirements
imposed by the OTS. During fiscal 2010, FMC and Union Federal complied in all material respects with the conditions set forth in the Supervisory Agreement and the Order, respectively. In March 2010,
the OTS terminated the Supervisory Agreement and the Order, each in its entirety. See Note 14, "Union Federal Regulatory MattersSupervisory Agreement and Order to Cease and
Desist," in the notes to our unaudited condensed consolidated financial statements included under Part I, Item 1 of this quarterly report for additional details on the Supervisory
Agreement and Order.

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In
connection with the termination of the Supervisory Agreement, our Board of Directors adopted resolutions requiring us to support the implementation by Union Federal of its business
plan, so long as Union Federal is owned or controlled by us, and to notify the OTS in advance of any distributions to our shareholders in excess of $1.0 million per fiscal quarter and any
incurrence or guarantee of debt in excess of $5.0 million. Following termination of the Supervisory Agreement and the Order, we remain subject to extensive regulation, supervision and
examination by the OTS as a savings and loan holding company and Union Federal remains subject to extensive regulation, supervision and examination by the OTS and the FDIC.

Union
Federal's regulatory capital ratios were as follows as of the dates below:

Regulatory GuidelinesMinimum

Well
Capitalized

March 31,
2010

June 30,
2009Risk-based capital ratios:Tier 1 capital


4
%

6
%

117.73
%

37.86
%Total capital


8


10


118.02


37.91Tier 1 (core) capital ratio


4


5


24.67


34.51


Contractual Obligations

As of March 31, 2010, our contractual obligations had not changed materially from those described under the caption
"Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsFinancial Condition, Liquidity and Capital ResourcesContractual
Obligations" in our annual report on Form 10-K filed with the SEC for the fiscal year ended June 30, 2009.

In
July 2007, Union Federal's then subsidiary, UFSB-SPV, entered into a $300.0 million education loan warehouse facility with a third-party conduit lender. The
facility served as a source of interim financing for private education loan programs initially funded by Union Federal. UFSB-SPV used advances under the facility to fund purchases of
private education loans from Union Federal, which we refer to as the financed loans. To secure its repayment obligations, UFSB-SPV granted a security interest to the conduit lender in
certain collateral, including private education loans that had previously been originated but not securitized by Union Federal. Neither FMC nor Union Federal is a borrower or co-borrower
under the facility, and the facility was structured to generally limit the conduit lender's recourse to the assets of UFSB-SPV, which consist almost exclusively of the financed loans.

At
March 31, 2010, $227.9 million was outstanding under the facility. As of March 31, 2010, outstanding notes under the facility accrue interest at the prime rate
plus 2.0%. Principal and interest on each outstanding advance are paid on a monthly settlement date pursuant to the indenture, in accordance with the payment priorities set forth in the indenture.
Principal and interest are paid out of amounts collected on the financed loans during the preceding month and deposited in a collection account pursuant to the indenture.

The
TERI Reorganization, and subsequent TERI ratings downgrades, resulted in events of termination under the indenture relating to the facility. As a result, the facility termination
date was declared, UFSB-SPV is no longer eligible for further borrowings under the facility and the conduit lender may elect, by written notice to UFSB-SPV, to accelerate
repayment of notes outstanding under the facility. Subsequently, additional events of termination have occurred under the indenture, including with respect to one- and three-month default
ratios on the financed loans.

In
the event that the conduit lender were to elect to accelerate repayment of the notes, the principal amount would immediately be due and payable, together with all accrued and unpaid
interest. The conduit lender would also have the right to foreclose on the collateral at any time. As of the date hereof, the conduit lender has elected not to exercise such rights but may do so at a
later time in its

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discretion.
If the conduit lender does not exercise its rights to accelerate such payment, all outstanding notes under the facility will become due on July 14, 2010. In the event that
UFSB-SPV is unable to pay the outstanding notes in full when due, we expect the conduit lender to continue to require repayment of the outstanding notes from collections on the financed
loans, until the outstanding notes are paid in full, if possible.

In
April 2010, the education loan warehouse facility was restructured. See Note 15, "Subsequent EventsRestructuring of Education Loan Warehouse Facility," in the
notes to our unaudited condensed consolidated financial statements included under Part I, Item 1 of this quarterly report for additional information.

Off-Balance Sheet Arrangements

We offer outsourcing services in connection with private education loan programs, from program design through securitization of the
loans. We have structured and facilitated the securitization of private education loans for our clients through a series of bankruptcy remote, special purpose trusts.

The
principal uses of these trusts have been to generate sources of liquidity for our clients' and Union Federal's assets sold into such trusts and make available more funds to students
and colleges. See "Executive SummaryApplication of Critical Accounting Policies and EstimatesConsolidation" for a discussion of our determination to not
consolidate these securitization trusts and the impact that newly issued but not yet effective accounting pronouncements will have on our determination to consolidate these trusts.

Inflation

Inflation was not a material factor in either revenue or operating expenses during the periods presented.

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

In the ordinary course of business, we are subject to interest-rate risk and credit risk. Interest-rate risk
applies to all of our interest-bearing assets and liabilities as well as service receivables. Credit risk is primarily related to education loans, service receivables, mortgage loans, cash equivalents
and investments.

Interest-Rate Risk

The interest-rate characteristics of our interest-bearing assets are driven by the nature, volume and duration of our
interest-bearing liabilities. Generally, our interest-bearing liabilities are either variable-rate instruments or are of a short duration and are subject to frequent repricing at maturity.

Less
than 6% of our customer deposits at Union Federal have fixed interest rates in excess of twelve months. Approximately 71% of the deposits have maturities of six months or less.
Deposit pricing is subject to weekly examination by a committee of senior managers from Union Federal and our Finance and Risk and Compliance Departments. The committee considers competitors' pricing,
inflows and outflows of deposit balances, and Union Federal's funding requirements to make pricing decisions on the desired volume of deposits in each given duration and product type.

As
of March 31, 2010, outstanding borrowings under the education loan warehouse facility carry interest at prime plus 2% and reprice daily.

The
frequent repricing of our liabilities drives our investment decisions. All of our private education loans, and approximately 62% of our mortgage loans, have variable interest rates.
Excess

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cash
is primarily invested in money market funds, federal funds sold, time deposits with original maturities of less than one year, and U.S. federal agency mortgage-backed securities.

The
matching of the interest-rate characteristics and duration of assets and liabilities mitigates interest-rate risk with respect to net interest revenue.
However, we are still subject to interest-rate risk because as interest rates decline, the spreads between our assets and liabilities may narrow and net interest income may decline.

The
fair value of private education loans held for sale and our service receivables will fluctuate due to variances in prepayments and discount rates, as well as the
multi-year forward estimates of the LIBOR index rate, which is the reference rate for the loan assets and assumed borrowings assumptions used in our cash flow model. We frequently monitor
these assumptions and their effect on the estimated fair value of these assets. We believe that we have adequately addressed interest-rate risks in our cash flow models.

Credit Risk

We manage cash, cash equivalents and investment assets conservatively. The primary objective of our investment policy is the
preservation of capital. Therefore, cash, cash equivalents, short-term investments and investments held for sale are placed with the Federal Reserve, or invested in federal funds sold,
money market funds, deposits at highly rated institutions and government agency mortgage-backed securities.

Union
Federal offers conventional conforming and non-conforming fixed- and variable-rate first and second residential mortgage loans, as well as commercial real
estate loans. We base our loan underwriting criteria primarily on credit score, consumer credit file information, and collateral characteristics. All mortgage loans are underwritten such that they are
saleable to institutional investors. Union Federal does not offer high loan-to-value second mortgages, option adjustable rate mortgages, or sub-prime mortgage
products.

Private
education loans are not currently offered by Union Federal, and, as of April 16, 2010, Union Federal no longer has a portfolio of private education loans. Therefore, we
will not be adding newly originated loans to a portfolio at Union Federal. We use default prevention and early awareness procedures to mitigate credit risk on our held to maturity portfolio.

Our
assumptions regarding defaults and recoveries of securitized loans and TERI's obligation to pay claims on defaulted loans affect the expected timing of cash payments to us in respect
of additional structural advisory fees, asset servicing fees and residual cash flows, and our estimates of their fair value. We believe that we have adequately addressed credit risks in our cash flow
models.

Item 4.    Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (our principal executive officer and
principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2010. The term "disclosure controls and procedures," as defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or
submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions
regarding required disclosure. Management recognizes that any controls and procedures, no matter how well

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designed
and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2010, our Chief Executive Officer and Chief Financial Officer concluded that,
as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

No
change in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, occurred during the fiscal
quarter ended March 31, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Part II. Other Information

Item 1A.    Risk Factors

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below
in addition to the other information included in this quarterly report. If any of the following risks actually occurs, our business, financial condition or results of operations would likely suffer.
In that case, the trading price of our common stock could fall. Although we have grouped risk factors by category, the categories are not mutually exclusive. Risks described under one category may
also apply to another category, and you should carefully read the entire risk factors section, not just any one category of risk factors.

We
have updated certain of the following risk factors to reflect financial and operational information for the most recently completed fiscal quarter, including developments in the TERI
Reorganization. In addition, we added a risk factor entitled "A recent Supreme Court decision and recent legislative proposals could affect the non-dischargeability of private education
loans in bankruptcy," and we have made material changes to the following risk factors as compared to the version disclosed in our quarterly report on Form 10-Q for the fiscal
quarter ended December 31, 2009:



We
deleted the following risk factors, which appeared in our quarterly report on Form 10-Q for the fiscal quarter ended December 31,
2009:



In
addition, we have made material changes to the following risk factors as compared to the version disclosed in our annual report on Form 10-K for the fiscal year
ended June 30, 2009:



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Finally,
we have deleted the following risk factors from those disclosed in our annual report on Form 10-K for the fiscal year ended June 30,
2009:



Risks Related to Our Industry, Business and Operations

Challenges exist in implementing revisions to our business model.

During fiscal 2009, we took several measures to adjust our business in response to economic conditions. Most significantly, we refined
our product offerings. In August 2009, we completed the development of our new Monogram product offering, which encompasses some or all of our service offerings, including program design and portfolio
management, and incorporates refinements to our origination process.

We
have limited experience with the new product offering, which is based on a new, proprietary origination risk score model and does not contemplate a third-party guaranty. We are
uncertain of the extent to which the market will accept the new product offering, particularly in the current economic environment where there has been reluctance by many lenders to focus on their
education lending
business. As of May 10, 2010, we have signed only one loan program agreement and have not fully deployed the product to any client. Successful sales of the Monogram product will be critical to
growing and diversifying our revenues and client base in the future.

Commercial
banks have historically served as the initial funding sources for loans we facilitate and have been our principal clients. In the absence of securitizations, we have not been
able to provide these banks with the means of liquidity necessary to support long term funding of private education loans, and commercial banks are facing liquidity and credit challenges from other
sources, in particular mortgage, auto loan and credit card lending losses. In addition, the synergies that previously existed between federal education loan marketing and private education loan
marketing have been reduced by legislation that will eliminate the Federal Family Education Loan Program, or FFELP. As a result, many lenders have re-evaluated their business strategies
related to education lending. In light of general economic conditions, capital markets disruptions and the declining credit performance of consumer-related loans, the private education loan business
may generally be less attractive to commercial banks than in the past.

In
this environment, it is uncertain whether certain commercial banks will continue funding private education loans. Some of our former clients have exited the private education loan
market completely. To the extent that commercial banks exit the private education loan market, the number of our prospective clients diminishes. One of our primary challenges is to convince national
and regional lenders that they can address the market opportunity in a manner that meets their desired risk control and return objectives. A related challenge is to finance successfully loans
generated through our Monogram product offering through capital market transactions.

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The outsourcing services market for education lending is competitive, and if we are not able to compete effectively, our results of operations may be adversely affected.

We offer our clients and prospective clients, national and regional financial institutions and educational institutions, services in
structuring and supporting their private education loan programs. The outsourcing services market in which we operate remains competitive with a number of active participants, some of which have
greater financial, technical or other competitive resources, larger customer bases, greater name recognition and more established relationships with their clients than we have. As a result, our
competitors or potential competitors may be better able than we are to overcome capital markets dislocations, adapt more quickly to new or emerging technologies and changes in customer preferences,
compete for skilled professionals, build upon efficiencies based on a larger volume of loan transactions, fund internal growth and compete for market share generally.

Based
on the range of services that we offer, we believe that SLM Corporation, also known as Sallie Mae, is our principal competitor. Our business could be adversely affected if Sallie
Mae's program to market private education loans continues to grow, or if Sallie Mae or Nelnet, Inc., which currently provides fee-based services for non-federally
guaranteed loans, seeks to market more aggressively to third parties the full range of services that we offer. Other private education loan originators include JPMorgan Chase Bank, N.A., Wells
Fargo & Company, Discover Financial Services, and Student Loan Corporation, an 80% owned subsidiary of Citibank, N.A.

We
may face competition from loan originators, including our clients or former clients, if they choose to develop an internal capability to provide any of the services that we currently
offer. For example, a loan originator that has, or decides to develop, a portfolio management or capital markets function may not choose to engage us for our services. Historically, lenders in the
education loan market have focused their lending activities on federal loans because of the relative size of the federal loan market and because the federal government guarantees repayment of these
loans, thereby significantly limiting the lenders' credit risk. The demand for our services could decline if lenders exit educational lending altogether or place additional emphasis on the private
education loan market and offer the services we provide in response to recent legislative initiatives involving the elimination of the FFELP.

We
cannot assure you that we will be able to compete successfully with new or existing competitors. If we are not able to compete effectively, our results of operations may be adversely
affected.

The growth of our business could be adversely affected by changes in government education loan programs or expansions in the population of students eligible for loans under
government education loan programs.

We focus our business exclusively on the market for private education loans, and substantially all of our business is concentrated in
products for post-secondary education. The availability and terms of loans that the government originates or guarantees affects the demand for private education loans because students and
their families often rely on private education loans to bridge a gap between available funds, including family savings, grants and federal and state loans, and the costs of post-secondary
education. The federal government currently places both annual and aggregate limitations on the amount of federal loans that any student can receive and determines the criteria for student
eligibility. These guidelines are generally adjusted in connection with funding authorizations from the United States Congress for programs under the Higher Education Act. Recent federal legislation
expands federal grant and loan assistance, which could weaken the demand for private education loans. In addition, legislation eliminating FFELP could result in increased competition in the market for
private education loans. Increased competition could adversely affect the volume of private education loans and securitization transactions that we facilitate and impede the growth of our business.

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In
May 2008, the "Ensuring Continued Access to Student Loans Act of 2008" was signed into law and contains provisions which might adversely impact the demand for private education loans
and outsourcing services provided by us, availability and flow of funds for private education loans, and our liquidity position. Among other things, the Act:



In
August 2008, the Higher Education Opportunity Act was signed into law, which adds:



Access to alternative means of financing the costs of education may reduce demand for private education loans.

The demand for private education loans could weaken if student borrowers use other vehicles to bridge the gap between available funds
and the costs of post-secondary education. These vehicles include, among others:



If
demand for private education loans weakens, we could experience reduced demand for our services, which could have a material adverse effect on our results of operations.

Continuation of the current economic conditions could adversely affect the private education loan industry.

As a result of capital market dislocations that began during the second quarter of fiscal 2008, as well as the TERI Reorganization, we
have been unable to complete a securitization transaction since September 2007. In addition, rising unemployment rates and the unsteady financial sector have adversely affected many consumers and
borrowers throughout the country. Current borrowers may experience more trouble in repaying credit obligations, which could increase loan delinquencies and defaults and negatively affect the value of
our service receivables. In addition, some consumers may find that higher education is an unnecessary investment during turbulent economic times and defer enrollment in educational institutions until
the economy improves, thus decreasing education loan application and funding volumes. Finally, many lending institutions have been reluctant to lend and have significantly tightened their underwriting
standards, and several clients and potential clients have exited the private education loan business and may or may not seek our services as the economy

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improves.
If the adverse economic environment continues, our financial condition may deteriorate for any one of the foregoing reasons.

If our clients do not actively or successfully market and fund private education loans, our business will be adversely affected.

We have in the past relied on, and will continue to rely in part, on our clients to market and fund private education loans to student
borrowers. If our clients do not devote sufficient time and resources to their marketing efforts or are not successful in these efforts, then we may not reach the full potential of our capacity for
facilitated loan volume and our business will be adversely affected.

In
addition, if loans were marketed by our clients in a manner that is unfair or deceptive, or if the marketing, origination or servicing violated any applicable law, state unfair and
deceptive practices acts could impose liability on a securitization trust holding the loan or create defenses to the enforceability of the loan. Investigations by the New York Attorney General, the
Attorneys General of other states, the United States Congress or others could have a negative impact on lenders' desire to market private education loans. The Higher Education Opportunity Act of 2008
creates significant additional restrictions on the marketing of private education loans.

If we fail to manage effectively our cost reductions, our business could be disrupted and our financial results could be adversely affected.

During fiscal 2008 and fiscal 2009, we reduced headcount by over 800 employees, including departures of our former Chief Executive
Officer, Chief Financial Officer, Chief Administrative Officer, Chief Information Officer and Chief Marketing Officer. Our cost reduction initiatives have placed and will continue to place a strain on
our management, systems and resources at a critical point in our business and industry. We must continue to develop alternatives to the loan guaranty and origination services that TERI has
historically provided to our clients, and we must refine our business development capabilities, our systems and processes and our access to financing sources. We must retain, train, supervise and
manage our remaining employees during this period of change in our business.

Based
on facilitated loan volumes, we may outsource some borrower services functions in an effort to reduce costs, take advantage of technologies and effectively manage the seasonality
associated with education loan volume. We rely on our vendors to provide high levels of service and support. Our reliance on these external vendors subjects us to risks associated with inadequate or
untimely service and could result in fewer loans than we would experience if we performed the service functions in-house.

We
cannot assure you that we will be able to:



We
are dependent upon the retention and motivation of certain key employees and the loss of any such employees could adversely affect our business. In addition, our future performance
will also depend upon our ability to attract skilled, new employees. If we are unable to manage our cost reductions, or if we lose key employees or are unable to attract new employees, our operations
and our financial results could be adversely affected.

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If competitors acquire or develop a private education loan database or advanced loan information processing systems, our business could be adversely affected.

We own a proprietary database of historical information on private education loan performance that we use to help us develop our
proprietary origination risk score model, determine the terms of portfolio funding transactions and establish the changes in fair value of the additional structural advisory fees, asset servicing fees
and residual receivables that we recognize as revenue. We also have developed a proprietary loan information processing system to enhance our application processing and loan origination capabilities.
Our private education loan database and loan information processing system provide us with a competitive advantage in offering our services. Third parties, including TERI, could create or acquire
databases and systems such as ours. For example, as lenders and other organizations in the private education loan market originate or service loans, they compile over time information for their own
private education loan performance database. Our competitors and potential competitors may have originated or serviced a greater volume of private education loans than we have over the past two fiscal
years, which may have provided them with comparatively greater borrower or loan data or insights, particularly during the most recent economic cycle. If a third party creates or acquires a private
education loan database or develops a loan information processing system, our competitive positioning, ability to attract new clients and business could be adversely affected. In addition, if TERI
were to breach restrictions on use of its historical loan database, the competitive advantage of our loan database could diminish. As a result of the termination of our agreements with TERI in the
context of the TERI Reorganization, we have lost access to continuing updates to the database of TERI-guaranteed loan performance data with regard to TERI-guaranteed loans that
are neither held by securitization trusts facilitated by us nor Union Federal.

If we are unable to protect the confidentiality of our proprietary database and information systems and processes, the value of our services and technology will be adversely
affected.

We rely on trade secret laws and restrictions on disclosure to protect our proprietary database and information systems and processes.
We have sought to limit TERI's rights to disclose its historical loan database in the context of the TERI Reorganization, and we have entered into confidentiality agreements with third parties and
with some of our employees to maintain the confidentiality of our trade secrets and proprietary information. These methods may neither effectively prevent disclosure of our confidential information
nor provide meaningful protection for our confidential information if there is unauthorized use or disclosure.

We
own no material patents. Accordingly, our technology, including our loan information processing systems, is not covered by patents that would preclude or inhibit competitors from
entering our market. Monitoring unauthorized use of the systems and processes that we have developed is difficult, and we cannot be certain that the steps that we have taken will prevent unauthorized
use of our technology. Furthermore, others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our proprietary information. If we are
unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and services will be adversely affected.

The loan origination process is becoming increasingly dependent upon technological advancement, and we could lose clients and market share if we are not able to keep pace
with rapid changes in technology.

Our future success depends, in part, on our ability to process loan applications in an automated, error-free manner. The
volume of loan originations that we are able to process is based, in large part, on the systems and processes we have implemented and developed. The loan origination process is becoming increasingly
dependent upon technological advancement such as the ability to process loans over the Internet, accept electronic signatures and provide initial decisions instantly. Our future success also depends,
in part, on our ability to develop and implement technology solutions that anticipate and

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keep
pace with continuing changes in technology, industry standards and client preferences. We may not be successful in anticipating or responding to these developments on a timely basis. In addition,
we expect to continue to reduce our investment in technology during fiscal 2011 compared to past fiscal years. If competitors introduce products, services, systems and processes that are better than
ours or that gain greater market acceptance, those that we offer or use may become obsolete or noncompetitive. In addition, if we fail to execute our clients' origination requirements or properly
administer the clients' credit agreement templates or required disclosures, we could be subject to
breach of contract claims and related damages. Any one of these circumstances could have a material adverse effect on our business reputation and ability to obtain and retain clients.

We
may be required to expend significant funds to develop or acquire new technologies. If we cannot offer new technologies as quickly as our competitors, we could lose clients and market
share. We also could lose market share if our competitors develop more cost effective technologies than those we offer or develop.

Our business could be adversely affected if PHEAA fails to provide adequate or timely services or if our relationship with PHEAA terminates.

As of March 31, 2010, the Pennsylvania Higher Education Assistance Agency, or PHEAA, serviced a substantial majority of
education loans held by the securitization trusts that we administer. This arrangement allows us to avoid the overhead investment in servicing operations but requires us to rely on PHEAA to adequately
service the trusts' education loans, including collecting payments, responding to borrower inquiries and communicating with borrowers whose loans have become delinquent. We periodically review the
costs associated with establishing servicing operations to service loans. During the second quarter of fiscal 2010, we announced that we had entered into negotiations for the acquisition of a loan
servicer. We were subsequently unable to agree to terms, and negotiations with respect to the contemplated acquisition had been discontinued as of the third quarter of fiscal 2010. We continue to
believe, however, that ownership of a loan servicer would complement our overall strategy and reduce our reliance on an external service provider for loan servicing, which subjects us to risks
associated with inadequate or untimely services, including notice of developments in prepayments, delinquencies and defaults. A substantial increase in these rates could adversely affect our ability
to access profitably the securitization markets for our clients' loans and the value of our additional structural advisory fees, asset servicing fees and residual receivables. If our relationship with
PHEAA terminates, we would either need to expand or develop a relationship with another loan servicer, which could be time consuming and costly. In such event, our business could be adversely
affected.

An interruption in or breach of our information systems, or those of third parties on which we rely, may result in lost business.

We rely heavily upon communications and information systems to conduct our business. Our systems and operations are potentially
vulnerable to damage or interruption from network failure, hardware failure, software failure, power or telecommunications failures, computer viruses and worms, penetration of our network by hackers
or other unauthorized users and natural disasters. Any failure, interruption or breach in security of our information systems or the third-party information systems on which we rely could cause
underwriting or other delays and could result in fewer loan applications being received, slower processing of applications and reduced efficiency in loan processing or servicing. A failure,
interruption or breach in security could also result in an obligation to notify clients in a number of states that require such notification, with possible civil liability resulting
from such failure, interruption or breach. Although we maintain and periodically test a business continuity and disaster recovery plan, the majority of our infrastructure and employees are located in
the Boston metropolitan area. An interruption in services for any reason could adversely affect our ability to activate our contingency plan if we are unable to communicate among locations or
employees.

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We cannot assure you that failures, interruptions or breaches will not occur, or if they do occur that we or the third parties on whom we rely will adequately
address them. The precautionary measures that we have implemented to avoid systems outages and to minimize the effects of any data or communication systems interruptions may not be adequate, and we
may not have anticipated or addressed all of the potential events that could threaten or undermine our information systems. The occurrence of any failure, interruption or breach could significantly
impair the reputation of our brand, diminish the attractiveness of our services and harm our business.

If we experience a data security breach and confidential customer information is disclosed, we may be subject to penalties imposed by regulators, civil actions for damages
and negative publicity, which could affect our customer relationships and have a material adverse effect on our business. In addition, current state and federal legislative proposals, if enacted, may
impose additional requirements on us to safeguard confidential customer information, which may result in increased compliance costs.

Data security breaches suffered by well-known companies and institutions have attracted a substantial amount of media
attention, prompting state and federal legislation, legislative proposals and regulatory rule-making to address data privacy and security. Consequently, we may be subject to rapidly
changing and increasingly extensive requirements intended to protect the applicant and borrower information that we process in connection with loans. Implementation of systems and procedures to
address these requirements has increased our compliance costs, and these costs may increase further as new requirements emerge. If we were to experience a
data security breach, or if we or the securitization trusts that we administer otherwise improperly disclose confidential customer or consumer information, such breach or other disclosure could
generate negative publicity about us and could adversely affect our relationships with our clients, including the lenders and educational institutions with which we do business. This could have a
material adverse effect on our business. In addition, such pending legislative proposals and regulations, if adopted, likely would result in substantial penalties for unauthorized disclosure of
confidential consumer information. Failure to comply with those requirements could result in regulatory sanctions imposed on our client lenders and loss of business for us.

Risks Related to Our Financial Reporting and Liquidity

If the estimates we make, or the assumptions on which we rely, in preparing our financial statements prove inaccurate, our actual results may vary materially from those
reflected in our financial statements.

As compensation for our past securitization activities, we received structural advisory fees and a portion of the residual interests in
the trusts. We received up-front structural advisory fees when the securitization trusts purchased the loans, and we continue to be entitled to receive additional structural advisory fees
over time, based on the amount of loans outstanding in the trust over the life of the trust. We sold our residual interests in the NCSLT Trusts, but continue to have residual interests in other
trusts. As required under GAAP, we recognized the estimated fair value of up-front and additional structural advisory fees and residual receivables as revenue when the securitization
trusts purchased the loans because receipt of our fees is not contingent on any further service requirement by us. Quarterly, we update our estimate of the fair value of our receivables, and changes
to the fair value, less cash distributions, if any, are recorded as revenue (trust updates) in the period in which the change is made. We are entitled to asset servicing fees for additional services
that we are contractually obligated to perform relating to the residual interests in the NCSLT Trusts. We recognize the net present value of asset servicing fees as our services are performed. The
receipt of the fees is contingent, however, on distributions available to the owners of the NCSLT Trusts residuals. Quarterly, we update our assumptions with respect to the amount and timing of
receipt of these fees, and record the changes in our estimates as revenue (fee updates) in the period in which the change is made.

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We
have no further financial obligation with respect to our additional structural advisory fees or residuals in the securitizations we have facilitated. However, our fees are subordinate
to securities issued to investors in such securitizations, and the trusts may fail to generate any cash flow for us if the securitized assets do not generate enough cash flow to pay debt holders in
full or only generate enough cash flow to pay the debt holders. Our projected cash flows from service receivables from certain securitization trusts are expected to be eliminated entirely, and our
projected cash flows from other securitization trusts could be delayed, impaired or eliminated, if default rates increase beyond our assumptions at March 31, 2010. As of March 31, 2010,
we expected to receive additional structural advisory fees and residuals beginning five to 22 years after the date of a particular securitization transaction, consistent with our expectations
at June 30, 2009.

Because
there are no quoted market prices for our service revenue receivables, we use discounted cash flow modeling techniques and certain assumptions to estimate fair value. Our key
assumptions to estimate fair value include: discount rates; the annual rate and timing of education loan prepayments; the trend of interest rates over the life of the loan pool, including the forward
LIBOR curve; the expected annual rate and timing of loan defaults, and TERI's obligation to pay default claims; expected amount and timing of recoveries of defaulted loans; the source and amount of
guaranty payments made on defaulted loans; and the fees and expenses of the securitization trusts. Because our estimates rely on quantitative and qualitative factors, including historical data and
macroeconomic indicators to predict prepayment and default rates, management's ability to determine which factors should be more heavily weighted in our estimates, and to accurately incorporate those
factors into our loan performance assumptions, are subjective and can have a material effect on valuations.

We
adjusted our key accounting assumptions throughout fiscal 2009 and in the first nine months of fiscal 2010:



In
general, our adjustments during fiscal 2009 were necessary because the securitization trusts and our portfolio of private education loans held for sale had performed below our range
of expectations, including with regard to delinquencies and defaults. Other contributing factors included higher assumed discount rates, the uncertainty about TERI's obligation to pay claims as a
result of the TERI Reorganization, and the estimated cost of funding auction rate notes issued by several securitization trusts which we now project to be higher than previous estimates. In fiscal
2010, we have continued to experience high delinquencies and defaults, and significant fair value adjustments to the value of our

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service
receivables and loan portfolios. We have benefited in fiscal 2010, however, from lower prepayment rates and an upward shift in the forward LIBOR curve. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for a discussion of changes in assumptions for the first nine months of fiscal 2010 and 2009 under the caption "Results of Operations" and
"Executive SummaryApplication of Critical Accounting Policies and Estimates" for a sensitivity analysis of the additional structural advisory fees to variations in our assumptions and
estimates.

If
the actual performance of the education loan portfolio held for sale by UFSB-SPV or the portfolios held by some or all of the securitization trusts were to vary
appreciably from the adjusted assumptions we use, we may need to adjust our key assumptions further. Such an adjustment could materially affect our earnings in the period in which our assumptions
change, and the additional structural advisory fees and residuals that we receive from the trusts, and the asset servicing fees that we receive from the owner of the Trust Certificate, could be
significantly less than that reflected in our current financial statements. In particular, economic, regulatory, competitive and other factors affecting default and recovery rates on loan portfolios
could cause or contribute to differences between actual performance of the portfolios and our key assumptions. With regard to TERI, for purposes of estimating the fair value of our service
receivables, we assumed at March 31, 2010, that the application of collateral will occur in accordance with the terms of the proposed Plan of Reorganization. Finally, dislocations in the
capital markets have generally resulted in increases in investors' yield requirements for ABS. If such conditions degrade, we may need to further adjust our key assumptions.

Education
loans held for sale by UFSB-SPV are carried at the lower of cost or fair value. The fair value of education loans held for sale is evaluated on a periodic basis. In
the absence of readily determined market values, the fair value is estimated by management based on the present value of expected future cash flow from the education loans held for sale. Under GAAP,
we are required to reduce the carrying value of these private education loans held for sale if their fair value decreases below our cost. In such an event, we are required to adjust the carrying value
of our private education loans held for sale, which would result in an increase in our non-interest expenses. We may be required to make additional valuation adjustments in the future.

Our liquidity could be adversely affected if the sale of the Trust Certificate does not result in the tax consequences that we expect.

Effective March 31, 2009, we completed the sale of the Trust Certificate, representing our ownership interest in NC Residuals
Owners Trust, in a transaction intended to improve our financial condition and liquidity. The sale of the Trust Certificate generated a cash refund for income taxes previously paid, as we had been
required to pay income taxes on the projected residual cash flows from the NCSLT Trusts in excess of what we actually received. In addition, the transaction is expected to eliminate future tax
obligations relating to these residuals. Based on performance assumptions at the date of sale, we estimated that we would have been required to pay approximately $430 million in additional
taxes over the remaining life of these residuals, with approximately $370 million to be paid prior to the residuals generating sufficient annual cash flows to offset the tax payments. The U.S.
federal and state income tax consequences of the sale of the Trust Certificate are complex and uncertain. The IRS has begun an audit of our tax returns for fiscal years 2007, 2008 and 2009. The IRS or
a state taxing authority could challenge our tax positions in connection with the transactions, notwithstanding our receipt of any tax refund. If such a challenge were successful, in whole or in part,
we may not keep all or a portion of the refund for taxes previously paid, or we may not eliminate our tax obligations relating to the residuals. In either case, our near-term financial
condition and liquidity would be materially adversely affected. In addition, any investigation, audit or suit relating to the sale, including any such proceeding brought by the IRS, could result in
substantial costs.

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We have guaranteed the performance of Union Federal's obligations under a loan purchase and sale agreement and assumed potential contingent liabilities of Union Federal
under an indenture.

In connection with Union Federal's sale of private education loans in October 2009, we delivered a performance guarantee to the
purchaser of the loan portfolio. If Union Federal were to default in the performance of any of its obligations or agreements under the loan
purchase and sale agreement, including its indemnification or loan repurchase obligations, we would be required to perform such obligation or agreement. As a result, we may incur substantial costs
pursuant to the performance guarantee if Union Federal is unable to perform its obligations under the loan purchase and sale agreement.

On
April 16, 2010, we entered into agreements relating to the restructuring of the education loan warehouse facility of UFSB-SPV. In connection with the restructuring,
the conduit lender released any and all potential claims against Union Federal and UFSB-SPV pursuant to the indenture relating to the warehouse facility based upon events arising prior to
April 16, 2010, to the extent such claims would exceed $20.0 million in the aggregate. Neither Union Federal nor UFSB-SPV would have any liability until the conduit lender's
aggregate losses exceeded $3.5 million, at which point Union Federal and UFSB-SPV would only be liable for amounts above such amount up to the $20.0 million liability cap.
Neither the liability cap nor the $3.5 million deductible would apply, however, in cases of fraud, willful misconduct, gross negligence or third-party claims by or on behalf of borrowers
against the conduit lender based on loan origination errors. In addition, the release is not deemed a waiver of rights previously reserved but not exercised by the conduit lender, except as
specifically released pursuant to a settlement agreement.

We
assumed any remaining contingent liability of Union Federal and its affiliates, other than UFSB-SPV, under the warehouse facility arising prior to April 16, 2010,
subject to the liability cap discussed above. In addition, we assumed any contingent liability of Union Federal under the facility arising prior to April 16, 2010 based on fraud, willful
misconduct, gross negligence, third-party claims by or on behalf of borrowers against the conduit lender based on loan origination errors or rights not otherwise released by the conduit lender. As a
result, we may incur substantial costs in the event of a claim for damages related to the warehouse facility, which could have a material adverse affect on our liquidity or financial condition.

Changes in interest rates could affect the value of our additional structural advisory fees, asset servicing fees and residual receivables, as well as demand for private
education loans and our services.

Private education loans typically carry floating interest rates tied to prevailing short-term interest rates. Higher
interest rates would increase the cost of the loan to the borrower, which in turn, could cause an increase in default rates for outstanding education loans. In addition, higher interest rates, or the
perception that interest rates could increase in the future, could cause an increase in prepayments, including full or partial prepayments. If the prepayment or default rates increase for the
education loans held by us or the securitization trusts that we have previously facilitated, we may experience a decline in the value of our additional structural advisory fees, asset servicing fees
and residual receivables, which could cause a decline in the price of our common stock and could cause future portfolio funding transactions to be less profitable for us. In addition, an increase in
interest rates could reduce borrowing for education generally, which, in turn, could cause the overall demand for our services to decline.

LIBOR
is the underlying rate for most of the trusts' assets and liabilities and changes in LIBOR can have a significant effect on the cash flows generated by each trust. Changes in the
forward LIBOR curve affect the principal balances of education loans held by the trusts, particularly as interest is capitalized during loan deferment, which affects the net interest margin that the
trust generates. In addition, certain trusts have issued a tranche of ABS that bears a fixed interest rate. A decrease in the forward LIBOR curve may result in a reduced spread on the fixed
interest-rate tranche, which in turn

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could
decrease the estimated fair value of our service receivables. Significant changes to the forward LIBOR curve can also affect the estimated fair value of our additional structural advisory fees,
which bear interest at the rate of LIBOR plus a spread to the extent such fees are accrued but unpaid by the trusts.

If sufficient funds to finance our business, including Union Federal, are not available to us when needed or on acceptable terms, then we may be required to delay, scale
back or alter our strategy.

We may require additional funds for our products, our operating expenses, the pursuit of regulatory approvals, acquisition
opportunities and the expansion of our capabilities. Historically, we have satisfied our funding needs primarily through private education loan asset-backed securitizations. The securitization market
has not been available to us and may not be available to us when needed in the future, and, if available, the terms may not be acceptable to us. We have also satisfied our funding needs through equity
financings. We cannot be certain that additional public or private financing would be available in amounts or on terms acceptable to us, if at all. Although we believe that our capital resources as of
March 31, 2010, which include proceeds of tax refunds under audit as of May 10, 2010, are sufficient to satisfy our operating needs for the succeeding twelve months, we cannot assure you
that they will be sufficient to provide amounts that we may determine to be necessary or appropriate to contribute to prospective clients related to new programs. Insufficient funds could require us
to delay, scale back or eliminate certain of our products and further scale back our expenses. In addition, our short-term financing needs are subject to regulatory capital requirements
related to Union Federal. See Note 14, "Union Federal Regulatory MattersRegulatory Capital Requirements," in the notes to our unaudited condensed consolidated financial statements
included under Part I, Item 1 of this quarterly report for additional details.

Risks Related to Asset-Backed Securitizations and Other Portfolio Funding Sources

We have historically derived a significant portion of our revenue and substantially all of our income from structuring securitization transactions; our financial results and
future growth may continue to be adversely affected if we are unable to structure securitizations or alternative financings.

In the past, we did not charge separate fees for many of our services, but generally entered into agreements with clients giving us the
exclusive right to securitize the private education loans that they did not intend to hold. As a result, we have historically derived a significant portion of our revenue and substantially all of our
income from structuring securitization transactions. We have not completed a securitization since the first quarter of fiscal 2008, contributing to our net losses for each subsequent quarter.

Although
our new Monogram product offering has been designed to reduce our dependence on the securitization market in order to generate revenue, as well as our dependence on third-party
credit enhancement, we have limited experience with the new product offering and have not fully deployed it to any clients as of May 10, 2010. In addition, our future financial results and
growth may continue to be affected by our ability to structure securitizations or alternative financing transactions involving private education loans. If we are able to facilitate securitizations in
the future, we expect the structure and economics of the transactions to be substantially different than our past transactions. We expect lower revenues and additional cash requirements on our part.

We
will need to gain market acceptance of our Monogram product, new fee structure and additional services in order to improve our cash flow and reduce our dependence on third-party
credit enhancement and the securitization markets. If we continue to be unable to access the ABS market, our revenues may continue to be adversely impacted, and we may continue to generate net losses,
which would further erode our liquidity position.

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A number of factors, some of which are beyond our control, have adversely affected and may continue to adversely affect our portfolio funding activities and thereby
adversely affect our results of operations.

The success of our business may depend on our ability to structure securitizations or other funding transactions for our clients' loan
portfolios. Several factors have had, and may continue to have, a material adverse effect on both our ability to structure funding
transactions and the revenue we may generate for providing our structural advisory and other services, including the following:



We
have actually experienced, or are at particular risk of experiencing in the near term, the first six factors listed above.

Capital markets dislocations, and the timing, size and structure of any future capital markets transactions, will greatly affect our quarterly financial results.

Continuing dislocations in the capital markets, reductions of our service receivables and the private education loans held by us and
the size, structure or economic terms of our future capital markets transactions, if any, could increase the variability of our operating results on a quarterly basis. We are uncertain whether the fee
structure that we have historically used will be used in any future capital markets transaction. We expect the structure and pricing terms in future transactions, if any, to be less favorable than in
the past. In addition, the SEC has proposed new rules governing ABS issuance that,

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due
to the requirements for risk retention, may affect the desirability of issuing ABS as a funding strategy. In addition, financial modernization legislation under consideration as of May 10,
2010 includes risk retention requirements that, as proposed, would affect all ABS, including education loan ABS, and would grant to federal banking regulators substantial discretion in crafting risk
retention requirements. Such regulatory and legislative proposals, if enacted, could affect the terms of future securitization transactions, if any, that we facilitate.

In structuring and facilitating securitizations of our clients' loans, administering securitization trusts or as holders of rights to receive residual cash flows in
non-NCSLT Trusts, we may incur liabilities to investors in the asset-backed securities those trusts issue.

We have facilitated and structured a number of different special purpose trusts that have been used in securitizations to finance
private education loans that our clients originated, including trusts that have issued auction rate notes. Under applicable state and federal securities laws, if investors incur losses as a result of
purchasing ABS that those trusts have issued, we could be deemed responsible and could be liable to those investors for damages. If we failed to cause the trusts or other transaction parties to
disclose adequately all material information regarding an investment in the ABS or if the trust made statements that were misleading in any material respect in information delivered to investors, it
is possible that we could be held responsible for that information or omission. Recent investigations by state attorneys general, and private litigation, have focused on auction rate securities,
including the marketing and trading of such securities. It is possible that we could become involved in such matters in the future. In addition, under various agreements entered into with underwriters
or financial guaranty insurers of those ABS, as well as certain lenders, we are contractually bound to indemnify those persons if investors are successful in seeking to recover losses from those
parties and the trusts are found to have made materially misleading statements or to have omitted material information.

If
we are liable for losses investors incur in any of the securitizations that we facilitate or structure and any insurance that we may have does not cover this liability or proves to be
insufficient, our results of operations or financial position could be materially adversely affected.

Risks Related to the TERI Reorganization

The Creditors Committee has challenged the enforceability of certain of the trusts' security interests, which may result in additional delay and expense, as well as a
significant reduction in collateral available to the trusts.

As a result of the automatic stay under the Bankruptcy Code, TERI ceased purchasing defaulted loans, including defaulted loans from the
NCSLT Trusts, in April 2008. In June 2008, the Bankruptcy Court entered an order approving a motion by TERI to honor its guaranty agreement obligations using cash in Pledged Accounts established for
the benefit of certain
securitization trusts. Beginning in July 2008, TERI resumed paying its obligations under the guaranty agreements with respect to defaulted loans from the trusts, but only using cash in the Pledged
Account established for the benefit of the specific trusts that owned the defaulted loan. As of May 10, 2010, TERI was not permitted to satisfy its guaranty obligations using funds from TERI's
general reserves. Funds in the Pledged Accounts of certain trusts have been exhausted, or are expected to be exhausted in the near term, at which point such trust will have a general unsecured claim
against TERI.

The
Bankruptcy Court's June 2008 order granted parties rights to challenge the trusts' security interests in the collateral other than the Pledged Accounts. In January 2009, the
Creditors Committee filed an adversary complaint in the Bankruptcy Court against the owner trustee and indenture trustee of 17 securitization trusts, and against our subsidiary First Marblehead Data
Services, Inc., as administrator of such trusts. The complaint generally alleges that the security interests granted by TERI to the trusts, excluding the security interests in the Pledged
Accounts, are unperfected or may

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otherwise
be avoided under the Bankruptcy Code. In particular, the complaint alleges that the trusts do not have enforceable rights to future recoveries on defaulted loans owned by TERI with an
aggregate principal and accrued interest balance of more than $591 million as of March 31, 2010, or in amounts owed or transferred by TERI to Pledged Accounts after the filing of TERI's
petition for reorganization totaling more than $43 million as of March 31, 2010. In February 2009, pending resolution of the issues raised in the Creditors Committee's complaint, the
trusts generally suspended the transfer of defaulted loans to TERI and generally suspended requests for default claim payments from amounts in the Pledged Accounts.

TERI
and the Creditors Committee filed a joint plan of reorganization that included a proposed settlement of the adversary complaint, as well as other provisions that would affect the
claims of the NCSLT Trusts.

If
the joint plan of reorganization is not consummated and if the Creditors Committee or any other party is successful in challenging the trusts' security interests, the amount of
pledged collateral available exclusively to a particular securitization trust to satisfy TERI's guaranty obligations to that trust would decrease materially. As a result, the trust's unsecured claims
against TERI would increase proportionately. For example, recoveries from defaulted education loans transferred to TERI, which have historically been used to replenish a particular trust's Pledged
Account, would instead become an asset of TERI's bankruptcy estate and other holders of claims. The settlement of the adversary complaint, in the context of the Plan of Reorganization or otherwise,
could also result in a material decrease in the amount of pledged collateral available exclusively to a particular securitization trust. A successful challenge to the security interests could decrease
materially the value of our additional structural advisory fees or our asset servicing fees by decreasing the pledged collateral available exclusively to the NCSLT Trusts.

As
of April 23, 2010, all of the NCSLT Trusts voted or were deemed to vote in favor of the Plan of Reorganization, thereby electing to accept the settlement of their respective
claims provided in the plan. On April 28, 2010, the Bankruptcy Court held a hearing to consider confirmation of the Plan of Reorganization and made findings that such a plan meets the
requirements for confirmation under the Bankruptcy Code. As of May 7, 2010, however, the order confirming the Plan of Reorganization had not yet been entered. Following entry of such an order, the
Plan of Reorganization would become effective when the conditions to the effective date under the plan have occurred. Upon the effective date of the Plan of Reorganization, the litigation regarding
the security interests of the trusts will be settled in accordance with the plan and dismissed with prejudice.

The TERI Reorganization will adversely affect our ability to facilitate the securitization of TERI-guaranteed loans, and could adversely affect our cash flows
from the securitization trusts.

In its role as guarantor, TERI agreed to reimburse lenders for unpaid principal and interest on defaulted loans. TERI had historically
been the exclusive provider of borrower default guarantees for our clients' private education loans. Under the terms of our past purchase agreements with lender clients, we generally have an
obligation to use our best efforts to facilitate the purchase of a client's TERI-guaranteed loans during a specified loan purchase period. The TERI Reorganization has adversely affected, and will
likely continue to adversely affect, our ability to facilitate the securitization of TERI-guaranteed loans. As a result of the TERI Reorganization, no value can be ascribed to the TERI
guaranty beyond a trust's Pledged Account. As a result, in structuring future securitizations of loans guaranteed or formerly guaranteed by TERI, if any, we would likely be required to reduce or
eliminate our up-front structural advisory fee in order to increase the level of reserves available to the trust. In addition, it is likely that we would need to obtain additional credit
enhancement for any future securitizations of such loans, the cost of which would also result in lower revenues.

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In general, the termination of the TERI guaranty in the TERI Reorganization would terminate our purchase obligations under the purchase agreements. We may be
subject to claims, however, that we breached our contractual obligations under our past purchase agreements, which could adversely affect our business reputation. In addition, our financial results
would be adversely affected if we were required to defend or pay damages in connection with any such claim.

If
the Plan of Reorganization is not consummated, to the extent that Pledged Accounts available to a particular NCSLT Trust are exhausted and loan defaults continued to occur, that NCSLT
Trust would have a claim as an unsecured creditor of TERI in the context of the TERI Reorganization. It is expected that TERI's general reserves will be insufficient to satisfy fully the claims of
unsecured creditors, and therefore loan defaults would have a further adverse effect on the amount or timing of cash flows that would otherwise be expected to be generated by the NCSLT Trust, which
would adversely affect the value of our service receivables, including our asset servicing fees.

Risks Relating to Regulatory Matters

We may become subject to new regulations which could increase our costs of compliance and alter our business practices.

Turbulence in the financial services industry beginning in the second quarter of fiscal 2008 has resulted in increased consumer and
governmental scrutiny. In response, regulators have increased diligence and enforcement efforts and new laws and regulations are under consideration in Congress. In particular, the Obama
Administration has proposed, and Congress is actively considering, legislation that would create a Consumer Financial Protection Agency and significantly weaken federal preemption of state regulations
currently enjoyed by federal savings and loans and their operating subsidiaries, such as Union Federal and its operating subsidiary, FM Loan Origination Services, LLC, or FMLOS. As proposed and
passed by the House of Representatives, the Consumer Financial Protection Agency would have broad powers to regulate consumer financial services products, including education loans and would have
rulemaking authority for numerous federal laws including the Truth in Lending Act and Equal Credit Opportunity Act. The Agency is expected to also be vested with authority to examine certain banks and
state licensed non-bank entities, including loan brokers and companies that provide certain outsourced consumer and education loan processing and origination services. In addition,
regulators and enforcement officials are taking increasingly expansive positions with respect to whether certain products or product terms may run afoul of state and federal unfair or deceptive acts
and practices laws. These and other regulatory changes could result in, among other things, increased compliance costs, more limited lending markets and alterations to our business practices, any of
which could have a material adverse effect on our business operations and financial results.

We are subject to regulation as a savings and loan holding company, and Union Federal Savings Bank is regulated extensively.

As a result of our acquisition of Union Federal in November 2006, we became subject to regulation as a savings and loan holding company
and our business is limited to activities that are financial or real-estate related. The OTS has certain types of enforcement authority over us, including the ability in certain
circumstances to review and approve changes in management and compensation arrangements, issue additional cease-and-desist orders, force divestiture of Union Federal and impose
civil and monetary penalties for violations of federal banking laws and regulations or for unsafe or unsound banking practices. Any such actions could adversely affect our reputation, liquidity or
ability to execute our business plan.

In
addition, Union Federal is subject to extensive regulation, supervision and examination by the OTS and the FDIC. Such regulation covers all banking business, including activities and
investments, lending practices, safeguarding deposits, capitalization, risk management policies and procedures,

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relationships
with affiliated companies, efforts to combat money laundering, recordkeeping and conduct and qualifications of personnel. In particular, the failure to meet minimum capital requirements
could initiate certain mandatory and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material adverse effect on our operations and financial
statements. We have in the past been required to make capital infusions to Union Federal to support a private education loan portfolio held by Union Federal at the time of the requirement, and
regulatory authorities could require additional capital infusions or take other corrective measures in the future.

There
is a risk that we could incur additional costs in complying with regulations applicable to savings and loan holding companies and savings banks, or significant penalties if we fail
to comply. Our ability to comply with all applicable laws and rules depends largely on our establishment and maintenance of a system to ensure such compliance, as well as our ability to attract and
retain qualified compliance personnel. Further reductions in staffing levels could make it difficult to retain experienced personnel to maintain adequate internal controls related to regulatory
matters. If severe failures in internal controls occur, regulatory authorities could impose sanctions on Union Federal or us. We could in the future be subject to additional supervisory orders to
cease and desist, civil monetary penalties or other actions due to claimed noncompliance, which could have an adverse effect on our business, financial condition and operating results.

We may become subject to state registration or licensing requirements. If we determine that we are subject to the registration or licensing requirements of any jurisdiction,
our compliance costs could increase significantly and other adverse consequences may result.

Many states have statutes and regulations that require the licensure of small loan lenders, loan brokers, credit services organizations
and loan arrangers. Some of these statutes are drafted or interpreted to cover a broad scope of activities. Although we believe that our prior consultations with regulatory counsel and, in some cases
state regulators, have identified all material licensing, registration and other regulatory requirements that could be applicable to us based on current laws and the manner in which we currently
conduct business, we may be subject to additional state licensing, registration and other regulatory requirements in the future. In particular, certain state licenses or registrations may be required
if we divest Union Federal, if we change our operations, if regulators reconsider their prior guidance or if federal or state laws or regulations are changed. Legislation is being considered by
Congress to create the Consumer Financial Protection Agency that, as passed by the House of Representatives, includes a provision repealing federal preemption available to operating subsidiaries of
federal savings associations, such as FMLOS, and limiting the scope of preemption available to federal savings associations and national banks. Even if we are not physically present in a state, its
regulators may take the position that registration or licensing is required because we provide services to borrowers located in the state by mail, telephone, the Internet or other remote means.

All
of our operations relating to education loan processing are located in Massachusetts. In 2001, we received determination letters from the Massachusetts Division of Banks confirming
that the loan origination outsourcing services provided under contract to TERI by our subsidiary First Marblehead Education Resources, Inc., or FMER, were not subject to licensing under the
Massachusetts Small Loan Act because FMER did not conduct a lending business with consumers in its own name and its processing centers were not generally open to the public. In May 2008, following the
TERI Reorganization, we received an additional determination letter from the Massachusetts Division of Banks confirming that FMER's business of back office loan application processing, loan
origination and loan underwriting functions on behalf of lenders was exempt from licensing under the Massachusetts Small Loan Act. The Massachusetts Small Loan Act requires any person that is engaged,
for compensation, in the business of making small loans, or in aiding or assisting the borrower or the lender in procuring or making such loans, to obtain a license. Under the statute, the business of
making small loans includes the making of loans of $6,000 or less with interest rates and expenses of

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more
than 12% per year. The loans that we have facilitated include amounts as small as $1,000, and a portion of those loans have combined interest rates and fees exceeding 12%. We have historically
provided outsourced private education loan origination services on a fee-for-service basis through FMER and Union Federal's subsidiary FMLOS, although we were not providing
services through FMLOS as of May 10, 2010.

Absent
a change in federal law, either by judicial interpretation or legislation, including as discussed above, to the extent that our services are conducted through Union Federal or
FMLOS, we believe it is less likely that state regulatory requirements affecting loan brokers, small lenders, credit services organizations or loan arrangers will be asserted. However, we are
examining strategic alternatives for Union Federal, including a potential sale and, as noted above, Congress is actively considering legislation that could weaken preemption for federal savings
associations and eliminate it for operating subsidiaries of federal savings associations, such as Union Federal and FMLOS. We will continue to review state registration and licensing requirements, and
we intend to pursue registration or licensing in applicable jurisdictions where we are not currently registered or licensed if we elect to operate through an entity that does not enjoy federal
preemption. We filed license applications in four states during the third quarter of fiscal 2010, but we cannot assure you that we will be successful in obtaining state licenses or registrations. If
we are unsuccessful, we may be required to restructure our activities in a manner that will not subject us to such licensing or registration requirements, although we cannot assure you that such a
restructuring will not have a material adverse effect on our business.

Compliance
with state licensing requirements could involve additional costs, which could have a material adverse effect on our business. Our failure to comply with these laws could lead
to, among other things:



We may be exposed to liability for failures of third parties with which we do business to comply with the registration, licensing and other requirements that apply to them.

Third parties with which we do, or have done, business, including federal and state chartered financial institutions,
non-bank loan marketers, as well as TERI, are subject to registration, licensing and extensive governmental regulations, including the Truth in Lending Act and other consumer protection
laws and regulations. For example, some of the third-party marketers with which we have done or may do business may be subject to state registration or licensing requirements and laws and regulations,
including those relating to small loans, loan brokers, credit services organizations and loan arrangers. As a result of the activities that we conduct or may conduct for our clients, it may be
asserted that we have some responsibility for compliance by third parties with which we do business with the laws and regulations applicable to them, whether on contractual or other grounds. If it is
determined that we have failed to comply with our obligations with respect to these third parties, we could be subject to civil or criminal liability. Even if we bear no legal liability for the
actions of these third parties, the imposition of licensing and registration requirements on them, or any sanctions against them for conducting business without a license or registration, may reduce
the volume of loans we process from them in the future.

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Failure to comply with consumer protection laws could subject us to civil and criminal penalties or litigation, including class actions, and have a material adverse effect
on our business.

The federal government and state governments regulate extensively the financial institutions and other entities that originate loans in
the private education loan market. These regulations include bankruptcy, tax, usury, disclosure, credit reporting, identity theft, privacy, fraud and abuse and other laws to protect borrowers. Changes
in consumer protection laws or related regulations, or in the prevailing interpretations thereof, may expose us to litigation, result in greater compliance costs, adversely affect the collection of
balances due on the loan assets held by securitization trusts or otherwise adversely affect our business. We could incur substantial additional expense complying with these requirements and may be
required to create new processes and information systems. Moreover, changes in the consumer protection laws and related regulations, or in the prevailing interpretations thereof, could invalidate or
call into question the legality of certain of our services and business practices.

The
risk of noncompliance with regulatory requirements by our lender clients and their marketing partners has been highlighted by recent state and federal investigations into education
loan marketing practices, particularly the payment of marketing fees directly to schools in exchange for loan referrals. None of our contracts with lenders or marketers involves the payment of fees to
schools for loan volume. State and federal regulatory authorities have sought information from some of our former
clients and us regarding the loan programs we coordinated, and it is possible that some marketing or underwriting practices associated with the programs we coordinated and assets we securitized will
be challenged as a result of such investigations. In August 2007, we announced that, as part of the New York Attorney General's ongoing investigation of several lending, educational, and nonprofit
institutions, we had received a subpoena for information regarding our role in the education loan industry. During fiscal 2008, we worked with the New York Attorney General's office regarding the
investigation.

The
regulatory actions described above have also prompted state and federal legislation that will affect our operations. In August 2009, the Federal Reserve Board issued regulations to
implement provisions of the Higher Education Opportunity Act of 2008. The regulations revised the number, timing, and content of disclosures required for private education loans by the Truth in
Lending Act and the Federal Reserve Board's implementing regulation for the Truth in Lending Act, Regulation Z. Under the regulations, private education loan creditors are required to provide
disclosures about loan terms and features on or with the loan application and are also required to disclose information about federal education loan programs that may offer less costly alternatives to
private education loans. Additional disclosures must be provided when the loan is approved and after loan acceptance but prior to loan disbursement. Compliance with the new regulations became
mandatory as of February 14, 2010. In addition, in December 2009, the Federal Reserve Board and the Federal Trade Commission announced final rules to implement the risk-based
pricing provisions of the Fair and Accurate Credit Transactions Act of 2003. The final rules will generally require that lenders provide disclosures to certain consumers if credit is offered to them
on less favorable terms than those offered by the lender to other consumers. Compliance with the disclosure requirements is mandatory as of January 1, 2011.

Violations
of the laws or regulations governing our operations, or the operations of our clients, could result in the imposition of civil or criminal penalties, the cancellation of our
contracts to provide services or our exclusion from participating in education loan programs. These penalties or exclusions, were they to occur, would negatively impair our ability to operate our
business. In addition, the loan assets held by securitization trusts that we have structured could be adversely impacted by violation of tax or consumer protection laws. In such event, the value of
our residual interests or asset servicing fees could also be adversely impacted. In some cases, such violations may render the loan assets unenforceable.

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A recent Supreme Court decision, and recent legislative proposals, could affect the non-dischargeability of private education loans in bankruptcy.

On March 23, 2010, the United States Supreme Court decided inUnited Student Aid Funds, Inc. v.
Espinosathat a bankruptcy confirmation order was not void notwithstanding that the bankruptcy court lacked authority to confirm the debtor's plan absent a finding of undue
hardship. The decision could require us, in performing collections management for the securitization trusts and other clients, to review certain bankruptcy filings that we do not currently review.
Such additional review could increase our costs and the complexity of our operations.

In
April 2010, legislation was introduced in both the U.S. Senate and the U.S. House of Representatives that would generally end the bankruptcy exemption from dischargeability for all
private student loans. If enacted as drafted, both bills would apply retroactively to loans already made, and would not require the borrower to make any payments before seeking discharge in
bankruptcy. Under current law, private education loans can be discharged in bankruptcy only upon a court finding of "undue hardship" if the borrower were required to continue to make loan payments. If
enacted, these bills could adversely affect the performance of the securitization trusts and the key assumptions, including our recovery assumptions, that we have used to estimate the fair value of
our additional structural advisory fees. In addition, these bills, if enacted, may restrict the availability of capital to fund private education loans and may increase loan pricing to borrowers to
compensate for the additional risk of bankruptcy discharge, which could adversely affect the competitiveness of the Monogram product and our ability to engage lenders to fund Monogram loans.

In
addition, in July 2009, legislation was introduced in the U.S. Senate that would allow private education loan borrowers to "swap" their private loan debt for federal unsubsidized
Stafford or graduate/professional PLUS debt to the extent that previous Stafford or PLUS loans, as applicable, to such borrowers had not exceeded the aggregate limits established by federal law for
such loans. Private education loans made between July 1, 1994 and July 1, 2010 would be eligible for such a swap. Borrowers could not be more than 90 days delinquent on their
private loans in order to qualify. In April 2010, similar debt-swap legislation was introduced in the U.S. House of Representatives. If either bill is enacted, borrowers with loans in the
securitization trusts could exchange their private student loans for federal Stafford, PLUS, and/or Direct Consolidation loans. Accordingly, the bill could adversely affect the performance of the
securitization trusts and the key assumptions that we have used to estimate the fair value of our additional structural advisory fees.

Recent litigation has sought to re-characterize certain loan marketers and other originators as lenders; if litigation on similar theories were successful
against us or any third-party marketer we have worked with in the past, the loans that we facilitate would be subject to individual state consumer protection laws.

All of the lenders with which we work are federally-insured banks and credit unions and, therefore, in most cases, are able to charge
the interest rates, fees and other charges available to the most favored lender in their home state. In addition, certain of our lender clients are chartered by the federal government and enjoy
preemption from enforcement of state consumer protection laws. In providing our private education loan services to our clients, we do not act as a lender, guarantor or loan servicer, and the terms of
the loans that we facilitate are regulated in accordance with the laws and regulations applicable to the lenders.

The
association between marketers of high-interest "payday" loans, tax-return anticipation loans, subprime credit cards, and online payment services and banks has
come under recent scrutiny. Recent litigation asserts that loan marketers use lenders with a bank charter that authorizes the lender to charge the most favored interest rate available in the lender's
home state in order to evade usury and interest rate caps, and other consumer protection laws imposed by the states where they do business. Such litigation has sought, successfully in some instances,
to re-characterize the loan marketer as the

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lender
for purposes of state consumer protection law restrictions. Similar civil actions have been brought in the context of gift cards. Moreover, federal banking regulators and the Federal Trade
Commission have undertaken enforcement actions challenging the activities of certain loan marketers and their bank partners, particularly in the context of subprime credit cards. We believe that our
activities, and the activities of third parties whose marketing on behalf of lenders has been coordinated by us, are distinguishable from the activities involved in these cases.

Additional
state consumer protection laws would be applicable to the loans we facilitate if we, or any third-party loan marketer engaged by us or a bank whose loans we facilitate, were
re-characterized as a lender, and the loans (or the provisions governing interest rates, fees and other charges) could be unenforceable unless we or a third-party loan marketer had the
requisite licenses or other authority to make such loans. In addition, we could be subject to claims by consumers, as well as enforcement actions by regulators. Even if we were not required to cease
doing business with residents of certain states or to change our business practices to comply with applicable laws and regulations, we could be required to register or obtain licenses or regulatory
approvals that could impose a substantial cost to us. To date, there have been no actions taken or threatened against us on the theory that we have engaged in unauthorized lending. However, such
actions could have a material adverse effect on our business.

Risks Relating to Ownership of Our Common Stock

The price of our common stock may be volatile.

The trading price of our common stock may fluctuate substantially, depending on many factors, some of which are beyond our control and
may not be related to our operating performance. These fluctuations could cause you to lose part or all of your investment in
your shares of our common stock. Those factors that could cause fluctuations include, but are not limited to, the following:



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In
the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been brought against that company. We have in the
past been the target of securities litigation. Any future litigation could result in substantial costs and divert management's attention and resources from our business.

Insiders have substantial control over us and could limit your ability to influence the outcome of key transactions, including a change of control.

Our directors and executive officers, and entities affiliated with them, owned approximately 22% of the outstanding shares of our
common stock as of March 31, 2010, excluding shares issuable upon vesting of restricted stock units, shares issuable upon exercise of outstanding stock options and shares of preferred stock
held by affiliates of GS Capital Partners, or GSCP, convertible into 8,846,733 additional shares of our common stock. Affiliates of GSCP have agreed not to convert shares of preferred stock if, after
giving effect to any such conversion, they and their affiliates would own more than 9.9% of our outstanding shares of common stock. Approximately 5,000,000 additional shares of common stock could be
issued to affiliates of GSCP upon conversion of shares of preferred stock before they and their affiliates would own more than 9.9% of our outstanding shares of common stock. These stockholders, if
acting together, could substantially influence matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other extraordinary transactions. They
may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. The concentration of ownership may have the effect of delaying,
preventing or deterring a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might
ultimately affect the market price of our common stock.

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Some provisions in our restated certificate of incorporation and amended and restated by-laws may deter third-parties from acquiring us.

Our restated certificate of incorporation and amended and restated by-laws contain provisions that may make the acquisition
of our company more difficult without the approval of our Board of Directors, including the following:



These
anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy
contests and make it more difficult for you and other stockholders to elect directors of your choosing or cause us to take other corporate actions you desire.

Section 203 of the Delaware General Corporation Law may delay, defer or prevent a change in control that our stockholders might consider to be in their best
interests.

We are subject to Section 203 of the Delaware General Corporation Law which, subject to certain exceptions, prohibits "business
combinations" between a Delaware corporation and an "interested stockholder," which is generally defined as a stockholder who becomes a beneficial owner of 15% or more of a Delaware corporation's
voting stock, for a three-year period following the date that such stockholder became an interested stockholder. Section 203 could have the effect of delaying, deferring or
preventing a change in control that our stockholders might consider to be in their best interests.

Item 2Unregistered Sales of Equity Securities and Use of Proceeds

(c)   Issuer Purchases of Equity Securities

In April 2007, our Board of Directors authorized the repurchase of up to an aggregate of 10,000,000 shares of our common stock. The 10,000,000 shares authorized
for repurchase included approximately 3,393,300 shares that remained available for repurchase under a previously authorized repurchase program. As of March 31, 2010, we had repurchased an
aggregate of 1,169,100 shares under this program at an average price paid per share, excluding commissions, of $36.17.

We
did not repurchase any shares of common stock during the nine months ended March 31, 2010. Future repurchases pursuant to this program may require regulatory approval.

Item 6Exhibits

See the Exhibit Index on the page immediately preceding the exhibits for a list of exhibits filed as part of this quarterly report
which Exhibit Index is incorporated herein by this reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.

THE FIRST MARBLEHEAD CORPORATIONDate: May 10, 2010

By:

/s/ KENNETH KLIPPER Kenneth Klipper Managing Director, Chief Financial Officer,
Treasurer and Chief Accounting Officer
(Duly Authorized Officer, Principal Financial
Officer and Principal Accounting Officer)


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EXHIBIT INDEX

Exhibit
Number

Description10.1(1)

Order, effective March 5, 2010, Terminating Order to Cease and Desist10.2(2)

Indenture dated July 18, 2007 among UFSB Private Loan SPV, LLC, CIESCO, LLC, Citicorp North America, Inc., U.S. Bank National Association and Union Federal Savings Bank, as amended by Amendment
No. 1 to Indenture, Limited Waiver and Acknowledgement dated April 15, 2009 among UFSB Private Loan SPV, LLC, CIESCO, LLC, Citicorp North America, Inc., U.S. Bank National Association and Union Federal Savings Bank, as
amended by Amendment No. 2 to Indenture dated April 16, 2010, by and among UFSB Private Loan SPV, LLC, CIESCO, LLC, Citicorp North America, Inc., U.S. Bank National Association, the registrant and Union Federal Savings
Bank10.3(2)

Settlement Agreement and Release, dated April 16, 2010, by and among UFSB Private Loan SPV, LLC, CIESCO, LLC, Citicorp North America, Inc., U.S. Bank National Association, the registrant, The
National Collegiate Funding II, LLC, The National Collegiate Student Loan Trust 2009-1 and Union Federal Savings Bank31.1

Chief Executive OfficerCertification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2

Chief Financial OfficerCertification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1

Chief Executive OfficerCertification pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
200232.2

Chief Financial OfficerCertification pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
200299.1(3)

Trust static pool data as of March 31, 201099.2(3)

Supplemental presentation


(1)Incorporated
by reference to exhibits to the registrant's current report on Form 8-K filed with the SEC on March 10, 2010(2)Incorporated
by reference to exhibits to the registrant's current report on Form 8-K filed with the SEC on April 20, 2010(3)Incorporated
by reference to exhibits to the registrant's current report on Form 8-K filed with the SEC on April 23, 2010


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