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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q/A

(Amendment No. 1 to)





(MARK ONE)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For The Quarterly Period Ended September 30, 2010

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from             to

Commission File Number 001-31825





The First Marblehead Corporation

(Exact Name of Registrant as Specified in Its Charter)







|                                                                           |  |                                     
|-------------------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                                   |  | 04-3295311                          
|(State or other jurisdiction of
incorporation or organization)             |  | (I.R.S. Employer Identification No.)
|                                                                           | 
|The Prudential Tower 800 Boylston Street, 34th Floor Boston,
Massachusetts |  | 02199-8157                          
|(Address of principal executive offices)                                   |  | (Zip Code)                          

(800) 895-4283

(Registrants telephone number, including area code)





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  x    No   ̈

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   ̈    No   ̈

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 |  |  ̈                                                |  | Accelerated filer         |  | x
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

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

As of November 8, 2010, the registrant had 100,832,576 shares of Common Stock, $0.01 par value per share, outstanding.









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EXPLANATORY NOTE

The First Marblehead Corporation (the Corporation) is filing this Amendment No. 1 (Q1 Amendment) to its Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 2010, which was originally filed with the Securities and Exchange Commission (SEC) on November 9, 2010 (the Original Q1), to restate its consolidated financial statements as of September 30, 2010
and for the three months ended September 30, 2010. Please see Note 3, Restatement of Unaudited Consolidated Financial Statements and Corrections of Immaterial Errors in Prior Fiscal Years, in the notes to the
Corporations unaudited consolidated financial statements included in Item 1 of Part I of this Q1 Amendment for additional information relating to the restatements of its consolidated financial statements.

On May 10, 2011, the Corporation announced that its board of directors (the Board of Directors), in consultation with management, the
audit committee of the Board of Directors (the Audit Committee) and KPMG LLP, the Corporations independent registered public accounting firm, concluded that certain unaudited financial statements included in the Original Q1, as
well certain unaudited financial statements included in the Corporations Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2010, which was originally filed with the SEC on February 9, 2011 (the Original
Q2), should no longer be relied upon.

Non-Controlling Interest Accounting

Effective July 1, 2010, the Corporation adopted Accounting Standards Update (ASU) 2009-16, Transfers and Servicing (Topic
860)Accounting for Transfers of Financial Assets (ASU 2009-16), and ASU 2009-17, Consolidation (Topic 810)Improvements to Financial Reporting by Enterprises Involved With Variable Interest Entities (ASU
2009-17). As a result, the Corporation consolidated 14 securitization trusts that were previously accounted for off-balance sheet.

The
Corporation does not own any of the residual interests in 11 of the consolidated trusts (the NCSLT Trusts). In addition, the NCSLT Trusts have been structured to provide recourse only to the assets of that particular securitization trust
and not to the assets of the Corporation, its subsidiaries or any other securitization trust. Under Accounting Standards Codification 810, Consolidation, the Corporation is nonetheless required to consolidate the NCSLT Trusts as a result of
its additional structural advisory fee receivables from the NCSLT Trusts and its services provided to the NCSLT Trusts related to default prevention and collections management.

In the Original Q1 and the Original Q2, the Corporation, in consultation with KPMG LLP, presented the equity interests in the NCSLT Trusts, which are owned by an unrelated third party, as
non-controlling interests in the Corporations consolidated balance sheets, as a separate component of stockholders equity. In addition, in its consolidated statements of operations, the Corporation allocated the net losses
generated by the NCSLT Trusts to non-controlling interests. The net losses of the NCSLT Trusts did not, therefore, directly impact the net loss, loss per share or equity available to the Corporations stockholders.

On May 9, 2011, KPMG LLP reported to the Board of Directors and the Audit Committee that the Corporations allocations to non-controlling
interests were not consistent with U.S. generally accepted accounting principles (GAAP). Instead, under GAAP the NCSLT Trusts asset performance, including losses, should be allocated to the Corporation until the trusts are
deconsolidated or trust liabilities are extinguished.

As a result, the Corporation has restated the unaudited financial statements contained
in the Original Q1 and the Original Q2, to eliminate the allocation of losses generated by the NCSLT Trusts to non-controlling interests in the Corporations restated consolidated statements of operations. The Corporations restated
financial results included in this Q1 Amendment include the losses generated by the NCSLT Trusts in the Corporations net loss and net loss per share for the three months ended September 30, 2010. Although accounting standards require that the
net losses or income of the NCSLT Trusts be included in the Corporations statements of operations, the Corporations rights to receive income generated by the NCSLT Trusts are limited to the collection of fees for services provided. The
Corporations restated consolidated balance sheet as of September 30, 2010 reflects in accumulated deficit, rather than as a separate component of stockholders equity, the deficit generated by the NCSLT Trusts, although the
Corporation has no obligation to fund such deficit. The Corporation is making these same types of changes to the restated financial statements included in Amendment No. 1 to its Original Q2 (the Q2 Amendment), which the Corporation
is filing concurrently with this Q1 Amendment.

The Corporations segment reporting depicts Loan Operations and Securitization
Trusts as two distinct segments. The NCSLT Trusts are included in the Securitization Trusts segment. As a result, the NCSLT Trusts are not reflected in the net income or loss, net income or loss per share or retained earnings or accumulated deficit
reported for the Loan Operations segment.



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Deferred Tax Assets

The restated unaudited financial statements included in this Q1 Amendment and in the Q2 Amendment include an aggregate of approximately $5.4 million in non-cash adjustments to the Corporations net
deferred tax asset. The Corporation recognized certain deferred income tax benefits in the first and second quarters of fiscal 2011 for which a valuation allowance should have been applied. The deferred income tax benefits related primarily to
federal income tax benefits for net operating loss carryforwards.

In addition, the Corporation has increased the valuation allowances
established in periods prior to July 1, 2010 in connection with certain deferred tax assets by approximately $27 million in fiscal 2009 and $25 million in fiscal 2010. The Corporation has assessed the materiality of these errors and concluded,
based on qualitative and quantitative considerations, that they are not material to the prior period financial statements taken as a whole. The affected deferred tax assets relate primarily to federal income tax benefits created by an uncertain
state income tax position and unrealized losses included in the Corporations financial statements for decreases in the estimated fair value of education loans held for sale by its indirect subsidiary UFSB Private Loan SPV, LLC
(UFSB-SPV), which was deconsolidated upon the adoption of ASU 2009-16 and ASU 2009-17 on July 1, 2010. The adjusted valuation allowance of $37 million pertaining to UFSB-SPV for prior periods was credited to retained earnings as of
July 1, 2010, the effective date of the deconsolidation of UFSB-SPV. The overall net effect to retained earnings as a result of these changes was a reduction of approximately $16 million.

Impact on Historical Financial Results

The Corporation reported the following in the Original Q1 and the Original Q2:



|                                                              |  |                                                  |            |   |                   |   |            |  
|------------------------------------------------------------- |  | ------------------------------------------------ | ---------- | - | ----------------- | - | ---------- | -
|                                                              |  | As of                                            |           
|                                                              |  | September 30, 2010                               |            |   | December 31, 2010 |  
|                                                              |  | (dollars in thousands)                           |           
|Net deferred tax asset                                        |  | $                                                | 4,969      |   |                   | $ | 5,929      |  
|Retained earnings                                             |  |                                                  | 62,985     |   |                   |   | 61,535     |  
|Non-controlling interests                                     |  |                                                  | (1,029,637 | ) |                   |   | (1,059,871 | )
|Total deficit                                                 |  |                                                  | (707,727   | ) |                   |   | (738,245   | )
|                                                              | 
|                                                              |  | Three Months Ended                               |           
|                                                              |  | September 30, 2010                               |            |   | December 31, 2010 |  
|                                                              |  | (dollars in thousands, except per share amounts) |           
|Income tax benefit (expense)                                  |  | $                                                | 2,585      |   |                   | $ | 796        |  
|Net loss                                                      |  |                                                  | (61,301    | ) |                   |   | (31,684    | )
|Net loss attributable to non-controlling interests            |  |                                                  | 50,680     |   |                   |   | 30,234     |  
|Net loss attributable to First Marblehead stockholders        |  |                                                  | (10,621    | ) |                   |   | (1,450     | )
|Net loss per share available to First Marblehead stockholders |  |                                                  | (0.11      | ) |                   |   | (0.01      | )

As a result of the restatements described
above, the Corporation is reporting the following in this Q1 Amendment and in the Q2 Amendment:



|                             |  |                                                  |          |   |                   |   |            |  
|---------------------------- |  | ------------------------------------------------ | -------- | - | ----------------- | - | ---------- | -
|                             |  | As of                                            |         
|                             |  | September 30, 2010                               |          |   | December 31, 2010 |  
|                             |  | (dollars in thousands)                           |         
|Net deferred tax liability   |  | $                                                | 1,875    |   |                   | $ | 2,060      |  
|Accumulated deficit          |  |                                                  | (986,262 | ) |                   |   | (1,019,699 | )
|Total stockholders deficit  |  |                                                  | (727,337 | ) |                   |   | (759,608   | )
|                             | 
|                             |  | Three Months Ended                               |         
|                             |  | September 30, 2010                               |          |   | December 31, 2010 |  
|                             |  | (dollars in thousands, except per share amounts) |         
|Income tax benefit (expense) |  | $                                                | (1,082   | ) |                   | $ | (957       | )
|Net loss                     |  |                                                  | (64,968  | ) |                   |   | (33,437    | )
|Net loss per share           |  |                                                  | (0.64    | ) |                   |   | (0.33      | )

This Q1 Amendment includes additional
adjustments to the Corporations balance sheets as of September 30, 2010 and June 30, 2010, and statements of operations, changes in stockholders equity and cash flows for the three-month periods ended September 30, 2010 and 2009, to
give effect to elimination of allocations to non-controlling interests and corrections of errors related to our accounting for deferred tax assets. The Q2 Amendment reflects the same types of changes as of December 31, 2010 and for the three and six
month periods ended December 31, 2010 and 2009.



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The Board of Directors, the Audit Committee and management have each discussed with KPMG LLP the matters
disclosed in this Q1 Amendment.

The Corporation has amended disclosures presented in the Original Q1 as required to reflect the matters
described above. This Q1 Amendment continues to speak, however, as of the date of the filing of the Original Q1. It does not reflect events occurring after the filing of the Original Q1 on November 9, 2010 or modify or update those disclosures
affected by subsequent events or discoveries. Accordingly, this Q1 Amendment should be read in conjunction with the Corporations filings that it has made with the SEC subsequent to the filing of the Original Q1, which include its Current
Reports on Form 8-K.

This Q1 Amendment amended only the following items presented in the Original Q1:



| |  |  | Part IItem 1Financial Statements
| | - |  | ----------------------------------



| |  |  | Part IItem 2Managements Discussion and Analysis of Financial Condition and Results of Operations
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | Part IItem 4Controls and Procedures
| | - |  | -------------------------------------



| |  |  | Part IIItem 1ARisk Factors
| | - |  | ----------------------------



| |  |  | Part IIItem 6Exhibits
| | - |  | -----------------------

The other items of the Original Q1 have not been amended and, accordingly, have not been included in this Q1 Amendment.

The Corporation has included Item 1A. Risk Factors because, as a result of the restatements described above, the Corporation made changes to the risk factor entitled We were required to
consolidate certain securitization trusts in our financial results as of July 1, 2010, which has resulted in significant changes to the presentation of our financial statements and may result in increased volatility in our reported financial
condition and results of operations.

In addition, in accordance with applicable SEC rules, this Q1 Amendment includes updated
certifications from the Corporations chief executive officer and chief financial officer as Exhibits 31.3, 31.4, 32.3 and 32.4.



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THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

Table of Contents



|                              |  |   |    |                                                                                                                             |  |  |    | 
|----------------------------- |  | - | -- | --------------------------------------------------------------------------------------------------------------------------- |  |  | -- | 
|Part I. Financial Information |  |   |    |                                                                                                                            
|Item 1                        |  |  |    | Financial Statements                                                                                                        |  |  | 1  | 
|                              |  |   |    | Condensed Consolidated Balance Sheets as of September 30, 2010 and June 30, 2010                                            |  |  | 1  | 
|                              |  |   |    | Condensed Consolidated Statements of Operations for the three months ended September 30, 2010 and 2009                      |  |  | 2  | 
|                              |  |   |    | Condensed Consolidated Statements of Changes in Stockholders Equity for the three months ended September 30, 2010 and 2009 |  |  | 3  | 
|                              |  |   |    | Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2010 and 2009                      |  |  | 4  | 
|                              |  |   |    | Notes to Unaudited Condensed Consolidated Financial Statements                                                              |  |  | 5  | 
|Item 2                        |  |  |    | Managements Discussion and Analysis of Financial Condition and Results of Operations                                       |  |  | 32 | 
|Item 4                        |  |  |    | Controls and Procedures                                                                                                     |  |  | 57 | 
|Part II. Other Information    |  |   |    |                                                                                                                            
|Item 1A                       |  |  |    | Risk Factors                                                                                                                |  |  | 60 | 
|Item 6                        |  |  |    | Exhibits                                                                                                                    |  |  | 79 | 
|SIGNATURES                    |  |   | 80 |                                                                                                                            
|EXHIBIT INDEX                 |  |   | 81 |                                                                                                                            



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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)



|                                                                                                                                                                                                 |  |                   |           |   |              |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------- | --------- | - | ------------ | - | -------- | -
|                                                                                                                                                                                                 |  | September 30,2010 |           |   | June 30,2010 |  
|                                                                                                                                                                                                 |  | (As restated)     |           |   |              |  
|ASSETS                                                                                                                                                                                           |  |                   |           |   |              |   |          |  
|Cash and cash equivalents                                                                                                                                                                        |  | $                 | 276,639   |   |              | $ | 329,047  |  
|Short-term investments and federal funds sold, at cost                                                                                                                                           |  |                   | 52,000    |   |              |   | 52,000   |  
|Restricted cash and guaranteed investment contracts, at cost                                                                                                                                     |  |                   | 151,227   |   |              |   | 1,026    |  
|Investments available for sale, at fair value                                                                                                                                                    |  |                   | 4,287     |   |              |   | 4,471    |  
|Education loans held for sale, at lower of cost or fair value                                                                                                                                    |  |                   |          |   |              |   | 105,082  |  
|Education loans held to maturity, net of allowance of $530,636 and $24,804                                                                                                                       |  |                   | 7,443,873 |   |              |   | 391      |  
|Mortgage loans held to maturity, net of allowance of $425 and $367                                                                                                                               |  |                   | 8,317     |   |              |   | 8,118    |  
|Receivable from TERI for pledged accounts                                                                                                                                                        |  |                   | 136,446   |   |              |   |         |  
|Interest receivable                                                                                                                                                                              |  |                   | 101,487   |   |              |   | 2,457    |  
|Deposits for participation interest accounts, at fair value                                                                                                                                      |  |                   | 8,482     |   |              |   |         |  
|Service revenue receivables, at fair value                                                                                                                                                       |  |                   | 14,730    |   |              |   | 53,279   |  
|Income taxes receivable                                                                                                                                                                          |  |                   | 6,486     |   |              |   | 7,665    |  
|Other assets                                                                                                                                                                                     |  |                   | 46,426    |   |              |   | 18,024   |  
|                                                                                                                                                                                                 |  |                   |           |   |              |   |          |  
|Total assets                                                                                                                                                                                     |  | $                 | 8,250,400 |   |              | $ | 581,560  |  
|                                                                                                                                                                                                 |  |                   |           |   |              |   |          |  
|                                                                                                                                                                                                 |  |                  
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)                                                                                                                                                   |  |                   |           |   |              |   |          |  
|Liabilities:                                                                                                                                                                                     |  |                   |           |   |              |   |          |  
|Deposits                                                                                                                                                                                         |  | $                 | 79,461    |   |              | $ | 108,732  |  
|Accounts payable, accrued expenses and other liabilities                                                                                                                                         |  |                   | 48,120    |   |              |   | 36,764   |  
|Net deferred tax liability                                                                                                                                                                       |  |                   | 1,875     |   |              |   | 753      |  
|Education loan warehouse facility                                                                                                                                                                |  |                   |          |   |              |   | 218,059  |  
|Long-term borrowings                                                                                                                                                                             |  |                   | 8,848,281 |   |              |   |         |  
|                                                                                                                                                                                                 |  |                   |           |   |              |   |          |  
|Total liabilities                                                                                                                                                                                |  |                   | 8,977,737 |   |              |   | 364,308  |  
|Commitments and contingencies                                                                                                                                                                    |  |                   |           |   |              |   |          |  
|Stockholders equity (deficit):                                                                                                                                                                  |  |                   |           |   |              |   |          |  
|Preferred stock, par value $0.01 per share; 20,000 shares authorized; 133 shares issued and outstanding                                                                                          |  |                   | 1         |   |              |   | 1        |  
|Common stock, par value $0.01 per share; 250,000 shares authorized; 109,085 and 108,975 shares issued; 100,833 and 100,736 shares
outstanding                                                    |  |                   | 1,091     |   |              |   | 1,090    |  
|Additional paid-in capital                                                                                                                                                                       |  |                   | 443,845   |   |              |   | 443,290  |  
|Accumulated deficit                                                                                                                                                                              |  |                   | (986,262  | ) |              |   | (41,174  | )
|Treasury stock, 8,252 and 8,239 shares held, at cost                                                                                                                                             |  |                   | (186,249  | ) |              |   | (186,218 | )
|Accumulated other comprehensive income                                                                                                                                                           |  |                   | 237       |   |              |   | 263      |  
|                                                                                                                                                                                                 |  |                   |           |   |              |   |          |  
|Total stockholders equity (deficit)                                                                                                                                                             |  |                   | (727,337  | ) |              |   | 217,252  |  
|                                                                                                                                                                                                 |  |                   |           |   |              |   |          |  
|Total liabilities and stockholders equity (deficit)                                                                                                                                             |  | $                 | 8,250,400 |   |              | $ | 581,560  |  
|                                                                                                                                                                                                 |  |                   |           |   |              |   |          |  
|Supplemental InformationAssets and liabilities of consolidated variable interest entities (VIEs) included in the
consolidated balance sheet above, after elimination of inter-company balances. |  |                   |           |   |              |   |          |  
|Assets available to settle obligations of consolidated VIEs:                                                                                                                                     |  |                   |           |   |              |   |          |  
|Restricted cash and guaranteed investment contracts, at cost                                                                                                                                     |  | $                 | 151,227   |   |              | $ |         |  
|Education loans held to maturity, net of allowance of $529,049                                                                                                                                   |  |                   | 7,443,574 |   |              |   |         |  
|Receivable from TERI for pledged accounts                                                                                                                                                        |  |                   | 136,446   |   |              |   |         |  
|Interest receivable                                                                                                                                                                              |  |                   | 101,382   |   |              |   |         |  
|Other assets                                                                                                                                                                                     |  |                   | 31,735    |   |              |   |         |  
|                                                                                                                                                                                                 |  |                   |           |   |              |   |          |  
|Total assets                                                                                                                                                                                     |  | $                 | 7,864,364 |   |              | $ |         |  
|                                                                                                                                                                                                 |  |                   |           |   |              |   |          |  
|Liabilities to third parties of consolidated VIEs, for which creditors do not have recourse to the general credit of First
Marblehead:                                                           |  |                   |           |   |              |   |          |  
|Accounts payable, accrued expenses and other liabilities                                                                                                                                         |  | $                 | 22,734    |   |              | $ |         |  
|Long-term borrowings                                                                                                                                                                             |  |                   | 8,848,281 |   |              |   |         |  
|                                                                                                                                                                                                 |  |                   |           |   |              |   |          |  
|Total liabilities                                                                                                                                                                                |  | $                 | 8,871,015 |   |              | $ |         |  
|                                                                                                                                                                                                 |  |                   |           |   |              |   |          |  

See accompanying notes to unaudited condensed consolidated financial statements.



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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
endedSeptember 30, |         
|                                                                |  | 2010                            |          |   | 2009 |  
|                                                                |  | (As restated)                   |          |   |      |  
|Revenues:                                                       |  |                                 |          |   |      |   |          |  
|Net interest income:                                            |  |                                 |          |   |      |   |          |  
|Interest income                                                 |  | $                               | 87,941   |   |      | $ | 8,482    |  
|Interest expense                                                |  |                                 | (18,426  | ) |      |   | (4,042   | )
|                                                                |  |                                 |          |   |      |   |          |  
|Net interest income                                             |  |                                 | 69,515   |   |      |   | 4,440    |  
|Provision for loan losses                                       |  |                                 | (107,123 | ) |      |   | 50       |  
|                                                                |  |                                 |          |   |      |   |          |  
|Net interest income (loss) after provision for loan losses      |  |                                 | (37,608  | ) |      |   | 4,490    |  
|Non-interest revenues:                                          |  |                                 |          |   |      |   |          |  
|Asset servicing fees:                                           |  |                                 |          |   |      |   |          |  
|Fee income                                                      |  |                                 | 978      |   |      |   | 2,102    |  
|Fee updates                                                     |  |                                 | 91       |   |      |   | 160      |  
|                                                                |  |                                 |          |   |      |   |          |  
|Total asset servicing fees                                      |  |                                 | 1,069    |   |      |   | 2,262    |  
|Additional structural advisory fees and residualstrust updates |  |                                 | (632     | ) |      |   | 1,187    |  
|Administrative and other fees                                   |  |                                 | 2,253    |   |      |   | 5,597    |  
|                                                                |  |                                 |          |   |      |   |          |  
|Total non-interest revenues                                     |  |                                 | 2,690    |   |      |   | 9,046    |  
|                                                                |  |                                 |          |   |      |   |          |  
|Total revenues                                                  |  |                                 | (34,918  | ) |      |   | 13,536   |  
|Non-interest expenses:                                          |  |                                 |          |   |      |   |          |  
|Compensation and benefits                                       |  |                                 | 7,871    |   |      |   | 8,137    |  
|General and administrative expenses                             |  |                                 | 21,097   |   |      |   | 18,189   |  
|Losses on education loans held for sale                         |  |                                 |         |   |      |   | 123,926  |  
|                                                                |  |                                 |          |   |      |   |          |  
|Total non-interest expenses                                     |  |                                 | 28,968   |   |      |   | 150,252  |  
|                                                                |  |                                 |          |   |      |   |          |  
|Loss before income taxes                                        |  |                                 | (63,886  | ) |      |   | (136,716 | )
|Income taxes                                                    |  |                                 | 1,082    |   |      |   | (5,391   | )
|                                                                |  |                                 |          |   |      |   |          |  
|Net loss                                                        |  | $                               | (64,968  | ) |      | $ | (131,325 | )
|                                                                |  |                                 |          |   |      |   |          |  
|Net loss per share:                                             |  |                                 |          |   |      |   |          |  
|Basic                                                           |  | $                               | (0.64    | ) |      | $ | (1.32    | )
|Diluted                                                         |  |                                 | (0.64    | ) |      |   | (1.32    | )
|Weighted average shares outstanding:                            |  |                                 |          |   |      |   |          |  
|Basic                                                           |  |                                 | 100,762  |   |      |   | 99,156   |  
|Diluted                                                         |  |                                 | 100,762  |   |      |   | 99,156   |  

See accompanying notes
to unaudited condensed consolidated financial statements.



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THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

(unaudited)

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



|                                                                  |                                            |  |     |        |              |   |             |                           |  |        |                                      |  |        |                                     |       |        |                                    |  |        |   |  |   |          |   |  |   |         |   |  |   |          |   |  |   |     |   |  |   |          |  
|----------------------------------------------------------------- | ------------------------------------------ |  | --- | ------ | ------------ | - | ----------- | ------------------------- |  | ------ | ------------------------------------ |  | ------ | ----------------------------------- | ----- | ------ | ---------------------------------- |  | ------ | - |  | - | -------- | - |  | - | ------- | - |  | - | -------- | - |  | - | --- | - |  | - | -------- | -
|                                                                  |                                            |  |     |        | Common stock |   |             | Additionalpaid-in
capital |  |        | Retainedearnings(accumulateddeficit) |  |        | Accumulatedothercomprehensiveincome |       |        | Totalstockholders
equity(deficit) | 
|                                                                  | Non-votingconvertiblepreferred stockissued |  |     | Issued |              |   | In treasury |                           |  |        |                                      | 
|                                                                  | Shares                                     |  |     | Amount |              |   | Shares      |                           |  | Amount |                                      |  | Shares |                                     |       | Amount |                                    |  |        |   | 
|Balance at June 30, 2009                                          |                                            |  | 133 |        |              | $ | 1           |                           |  |        | 106,768                              |  |        | $                                   | 1,068 |        |                                    |  | (7,643 | ) |  | $ | (184,246 | ) |  | $ | 431,461 |   |  | $ | 129,727  |   |  | $ | 268 |   |  | $ | 378,279  |  
|Comprehensive loss:                                               |                                            |  |     |        |              |   |             |                           |  |        |                                      |  |        |                                     |       |        |                                    |  |        |   |  |   |          |   |  |   |         |   |  |   |          |   |  |   |     |   |  |   |          |  
|Net loss                                                          |                                            |  |    |        |              |   |            |                           |  |        |                                     |  |        |                                     |      |        |                                    |  |       |   |  |   |         |   |  |   |        |   |  |   | (131,325 | ) |  |   |    |   |  |   | (131,325 | )
|Accumulated other comprehensive income                            |                                            |  |    |        |              |   |            |                           |  |        |                                     |  |        |                                     |      |        |                                    |  |       |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   | 105 |   |  |   | 105      |  
|                                                                  |                                            |  |     |        |              |   |             |                           |  |        |                                      |  |        |                                     |       |        |                                    |  |        |   |  |   |          |   |  |   |         |   |  |   |          |   |  |   |     |   |  |   |          |  
|Total comprehensive loss                                          |                                            |  |    |        |              |   |            |                           |  |        |                                     |  |        |                                     |      |        |                                    |  |       |   |  |   |         |   |  |   |        |   |  |   | (131,325 | ) |  |   | 105 |   |  |   | (131,220 | )
|Stock issuance from vesting of stock units                        |                                            |  |    |        |              |   |            |                           |  |        | 122                                  |  |        |                                     | 1     |        |                                    |  |       |   |  |   |         |   |  |   | (1      | ) |  |   |         |   |  |   |    |   |  |   |         |  
|Stock-based compensation                                          |                                            |  |    |        |              |   |            |                           |  |        |                                     |  |        |                                     |      |        |                                    |  |       |   |  |   |         |   |  |   | 1,540   |   |  |   |         |   |  |   |    |   |  |   | 1,540    |  
|Tax expense from stock-based compensation                         |                                            |  |    |        |              |   |            |                           |  |        |                                     |  |        |                                     |      |        |                                    |  |       |   |  |   |         |   |  |   | (904    | ) |  |   |         |   |  |   |    |   |  |   | (904     | )
|                                                                  |                                            |  |     |        |              |   |             |                           |  |        |                                      |  |        |                                     |       |        |                                    |  |        |   |  |   |          |   |  |   |         |   |  |   |          |   |  |   |     |   |  |   |          |  
|Balance at September 30, 2009                                     |                                            |  | 133 |        |              | $ | 1           |                           |  |        | 106,890                              |  |        | $                                   | 1,069 |        |                                    |  | (7,643 | ) |  | $ | (184,246 | ) |  | $ | 432,096 |   |  | $ | (1,598   | ) |  | $ | 373 |   |  | $ | 247,695  |  
|                                                                  |                                            |  |     |        |              |   |             |                           |  |        |                                      |  |        |                                     |       |        |                                    |  |        |   |  |   |          |   |  |   |         |   |  |   |          |   |  |   |     |   |  |   |          |  
|                                                                  |                                            |  |     |        |              |   |             |                           |  |       
|As restated:                                                      |                                            |  |     |        |              |   |             |                           |  |        |                                      |  |        |                                     |       |        |                                    |  |        |   |  |   |          |   |  |   |         |   |  |   |          |   |  |   |     |   |  |   |          |  
|Balance at June 30, 2010                                          |                                            |  | 133 |        |              | $ | 1           |                           |  |        | 108,975                              |  |        | $                                   | 1,090 |        |                                    |  | (8,239 | ) |  | $ | (186,218 | ) |  | $ | 443,290 |   |  | $ | (41,174  | ) |  | $ | 263 |   |  | $ | 217,252  |  
|Cumulative effect of a change in accounting principle, net of tax |                                            |  |    |        |              |   |            |                           |  |        |                                     |  |        |                                     |      |        |                                    |  |       |   |  |   |         |   |  |   |        |   |  |   | (880,120 | ) |  |   |    |   |  |   | (880,120 | )
|Comprehensive loss:                                               |                                            |  |     |        |              |   |             |                           |  |        |                                      |  |        |                                     |       |        |                                    |  |        |   |  |   |          |   |  |   |         |   |  |   |          |   |  |   |     |   |  |   |          |  
|Net loss                                                          |                                            |  |    |        |              |   |            |                           |  |        |                                     |  |        |                                     |      |        |                                    |  |       |   |  |   |         |   |  |   |        |   |  |   | (64,968  | ) |  |   |    |   |  |   | (64,968  | )
|Accumulated other comprehensive loss                              |                                            |  |    |        |              |   |            |                           |  |        |                                     |  |        |                                     |      |        |                                    |  |       |   |  |   |         |   |  |   |        |   |  |   |         |   |  |   | (26 | ) |  |   | (26      | )
|                                                                  |                                            |  |     |        |              |   |             |                           |  |        |                                      |  |        |                                     |       |        |                                    |  |        |   |  |   |          |   |  |   |         |   |  |   |          |   |  |   |     |   |  |   |          |  
|Total comprehensive loss                                          |                                            |  |    |        |              |   |            |                           |  |        |                                     |  |        |                                     |      |        |                                    |  |       |   |  |   |         |   |  |   |        |   |  |   | (64,968  | ) |  |   | (26 | ) |  |   | (64,994  | )
|Net stock issuance from vesting of stock units                    |                                            |  |    |        |              |   |            |                           |  |        | 110                                  |  |        |                                     | 1     |        |                                    |  | (13    | ) |  |   | (31      | ) |  |   | (1      | ) |  |   |         |   |  |   |    |   |  |   | (31      | )
|Stock-based compensation                                          |                                            |  |    |        |              |   |            |                           |  |        |                                     |  |        |                                     |      |        |                                    |  |       |   |  |   |         |   |  |   | 1,051   |   |  |   |         |   |  |   |    |   |  |   | 1,051    |  
|Tax expense from stock-based compensation                         |                                            |  |    |        |              |   |            |                           |  |        |                                     |  |        |                                     |      |        |                                    |  |       |   |  |   |         |   |  |   | (495    | ) |  |   |         |   |  |   |    |   |  |   | (495     | )
|                                                                  |                                            |  |     |        |              |   |             |                           |  |        |                                      |  |        |                                     |       |        |                                    |  |        |   |  |   |          |   |  |   |         |   |  |   |          |   |  |   |     |   |  |   |          |  
|Balance at September 30, 2010                                     |                                            |  | 133 |        |              | $ | 1           |                           |  |        | 109,085                              |  |        | $                                   | 1,091 |        |                                    |  | (8,252 | ) |  | $ | (186,249 | ) |  | $ | 443,845 |   |  | $ | (986,262 | ) |  | $ | 237 |   |  | $ | (727,337 | )
|                                                                  |                                            |  |     |        |              |   |             |                           |  |        |                                      |  |        |                                     |       |        |                                    |  |        |   |  |   |          |   |  |   |         |   |  |   |          |   |  |   |     |   |  |   |          |  

See accompanying notes to unaudited condensed consolidated financial statements.



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THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)



|                                                                                          |  |                                 |          |   |      |   |          |  
|----------------------------------------------------------------------------------------- |  | ------------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                          |  | Three months
endedSeptember 30, |         
|                                                                                          |  | 2010                            |          |   | 2009 |  
|                                                                                          |  | (As restated)                   |          |   |      |  
|Cash flows from operating activities:                                                     |  |                                 |          |   |      |   |          |  
|Net loss                                                                                  |  | $                               | (64,968  | ) |      | $ | (131,325 | )
|Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |  |                                 |          |   |      |   |          |  
|Provision for loan losses                                                                 |  |                                 | 107,123  |   |      |   | (50      | )
|Amortization of long-term borrowings, net of issuance costs                               |  |                                 | (23,370  | ) |      |   |         |  
|Net amortization of loan acquisition costs and origination fees                           |  |                                 | 8,152    |   |      |   |         |  
|Depreciation and amortization expense                                                     |  |                                 | 2,527    |   |      |   | 3,693    |  
|Deferred income tax expense (benefit)                                                     |  |                                 | 398      |   |      |   | 676      |  
|Stock-based compensation                                                                  |  |                                 | 1,051    |   |      |   | 1,540    |  
|Losses on education loans held for sale                                                   |  |                                 |         |   |      |   | 123,926  |  
|Service revenue receivable distributions                                                  |  |                                 | 294      |   |      |   | 24       |  
|Change in assets/liabilities:                                                             |  |                                 |          |   |      |   |          |  
|Asset servicing fees                                                                      |  |                                 | (1,069   | ) |      |   | (2,262   | )
|Additional structural advisory fees and residualstrust updates                           |  |                                 | 632      |   |      |   | (1,187   | )
|Deposits for participation interest accounts                                              |  |                                 | (8,482   | ) |      |   |         |  
|Interest receivable                                                                       |  |                                 | (34,772  | ) |      |   | 61       |  
|Income taxes                                                                              |  |                                 | 1,179    |   |      |   | 7,326    |  
|Education loans held for sale                                                             |  |                                 |         |   |      |   | (3,373   | )
|Other assets                                                                              |  |                                 | 2,014    |   |      |   | 879      |  
|Accounts payable, accrued expenses and other liabilities                                  |  |                                 | (1,440   | ) |      |   | 5,930    |  
|                                                                                          |  |                                 |          |   |      |   |          |  
|Net cash (used in) provided by operating activities                                       |  |                                 | (10,731  | ) |      |   | 5,858    |  
|Cash flows from investing activities:                                                     |  |                                 |          |   |      |   |          |  
|Net decrease in federal funds sold                                                        |  |                                 |         |   |      |   | 3,546    |  
|Principal receipts on education loans held to maturity                                    |  |                                 | 78,378   |   |      |   |         |  
|Net decrease in restricted cash and guaranteed investment contracts                       |  |                                 | 25,285   |   |      |   |         |  
|Principal prepayments from investments available for sale                                 |  |                                 | 158      |   |      |   | 503      |  
|Net change in mortgage loans held to maturity                                             |  |                                 | (258     | ) |      |   | 1,017    |  
|Purchases of property and equipment                                                       |  |                                 | (173     | ) |      |   | (330     | )
|                                                                                          |  |                                 |          |   |      |   |          |  
|Net cash provided by investing activities                                                 |  |                                 | 103,390  |   |      |   | 4,736    |  
|Cash flows from financing activities:                                                     |  |                                 |          |   |      |   |          |  
|Net decrease in deposits                                                                  |  |                                 | (29,271  | ) |      |   | 1,910    |  
|Payments on capital lease obligations                                                     |  |                                 | (658     | ) |      |   | (854     | )
|Payments on long-term borrowings                                                          |  |                                 | (114,612 | ) |      |   |         |  
|Payments on education loan warehouse facility                                             |  |                                 |         |   |      |   | (663     | )
|Tax expense from stock-based compensation                                                 |  |                                 | (495     | ) |      |   | (904     | )
|Repurchase of common stock                                                                |  |                                 | (31      | ) |      |   |         |  
|                                                                                          |  |                                 |          |   |      |   |          |  
|Net cash used in financing activities                                                     |  |                                 | (145,067 | ) |      |   | (511     | )
|                                                                                          |  |                                 |          |   |      |   |          |  
|Net (decrease) increase in cash and cash equivalents                                      |  |                                 | (52,408  | ) |      |   | 10,083   |  
|Cash and cash equivalents, beginning of period                                            |  |                                 | 329,047  |   |      |   | 158,770  |  
|                                                                                          |  |                                 |          |   |      |   |          |  
|Cash and cash equivalents, end of period                                                  |  | $                               | 276,639  |   |      | $ | 168,853  |  
|                                                                                          |  |                                 |          |   |      |   |          |  
|Supplemental disclosures of cash flow information:                                        |  |                                 |          |   |      |   |          |  
|Interest paid                                                                             |  | $                               | 41,773   |   |      | $ | 2,319    |  
|Income taxes paid                                                                         |  |                                 |         |   |      |   | 109      |  
|Supplemental disclosure of non-cash investing and financing activities:                   |  |                                 |          |   |      |   |          |  
|Interest receivable capitalized to loan principal                                         |  | $                               | 36,258   |   |      | $ |         |  

See accompanying notes
to unaudited condensed consolidated financial statements.



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THE FIRST MARBLEHEAD CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Nature of Business

Nature of Business

Unless otherwise indicated or unless the context of the discussion requires otherwise, all references in these notes to we, us,
our or similar references mean The First Marblehead Corporation and its subsidiaries and consolidated variable interest entities (VIEs) on a consolidated basis. All references in these notes to First Marblehead or
FMD mean The First Marblehead Corporation on a stand-alone basis.

The presentation of our financial results for the fiscal
quarter ended September 30, 2010 significantly differs from prior periods due to the adoption of Accounting Standards Update (ASU) 2009-16, Transfers and Servicing (Topic 860)Accounting for Transfers of Financial Assets (ASU
2009-16), and ASU 2009-17, Consolidation (Topic 810)Improvements to Financial Reporting by Enterprises Involved With Variable Interest Entities (ASU 2009-17), as described in more detail in Note 2, Summary of Significant
Accounting PoliciesConsolidation and Note 4, Change in Accounting Principle. As a result of our adoption of ASU 2009-16 and ASU 2009-17 effective as of July 1, 2010, we have consolidated 14 VIEs. These VIEs are
securitization trusts that we facilitated and previously accounted for off-balance sheet. In addition, we have deconsolidated our indirect subsidiary UFSB Private Loan SPV, LLC (UFSB-SPV). As a result, beginning with this quarterly report, we
will report two lines of business for segment reporting purposes. Our determination of the activities that constitute a segment is based on the manner in which our chief operating decision makers measure profits or losses, assess performance and
allocate resources.

The results of FMD and its subsidiaries that we historically reported in our consolidated results prior to July 1,
2010, with the exception of the deconsolidation of UFSB-SPV, are referred to as Loan Operations throughout these notes. The financial results of our Loan Operations segment have generally been derived from our services relating to
private education loans (education loans), as further described below.

The VIEs consolidated upon our adoption of ASU 2009-16 and
ASU 2009-17 consist of 14 securitization trusts that purchased portfolios of education loans facilitated by us during our fiscal years 2003 through 2007, although not all securitization trusts facilitated by us during that period have been
consolidated. See Note 2, Summary of Significant Accounting PoliciesConsolidation, for a discussion of the basis on which certain securitization trusts are consolidated. The securitization trusts financed purchases of
education loans by issuing debt to third-party investors. The education loans purchased by certain of these securitization trusts (Trusts) were initially subject to a repayment guaranty by The Education Resources Institute, Inc. (TERI), while the
education loans purchased by other securitization trusts (NCT Trusts) were, with limited exceptions, not TERI-guaranteed. Of the 14 consolidated securitization trusts, 11 are Trusts and three are NCT Trusts. We refer to the consolidated Trusts as
the NCSLT Trusts, and the consolidated NCT Trusts as the GATE Trusts, throughout this quarterly report. We present the financial results of the 14 consolidated securitization trusts as a single segment, referred to as Securitization
Trusts throughout these notes and for segment reporting purposes. The administration of such trusts, including investor reporting and default prevention and collection management services, is provided by our Loan Operations segment.

For the three months ended September 30, 2010, the revenues and expenses included in Eliminations for segment reporting
purposes relate to revenues recorded by our Loan Operations segment, and expenses recorded by our Securitization Trusts segment, relating to services provided to the 14 consolidated securitization trusts, including life-of-trust fees related to
initial securitization structuring and on-going fees for trust administration and default prevention and management, as well as elimination of the residual interest ownership held by our Loan Operations segment in the GATE Trusts.

For the three months ended September 30, 2009, the financial results of UFSB-SPV, which was deconsolidated on July 1, 2010 with the adoption of
ASU 2009-16 and ASU 2009-17, as well as related adjustments to deferred tax assets and inter-company eliminations that were recorded due to consolidating UFSB-SPV in prior periods, have been separately presented in Deconsolidation and
Eliminations for segment reporting purposes to allow for comparability between periods.

Loan Operations

Under our Loan Operations segment, we offer outsourcing services to national and regional financial and educational institutions for designing and
implementing education loan programs. These school-certified loan programs are designed to be marketed through educational institutions or to prospective student borrowers and their families directly and to generate portfolios intended to be held by
the originating lender or financed in the capital markets. We offer a fully integrated suite of services through our Monogram platform,



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as well as certain services on a stand-alone, fee-for-service basis. In addition, we provide administrative and other services to securitization trusts that we facilitated, portfolio management
services and asset servicing to the third-party owner of the trust certificate (Trust Certificate) of NC Residuals Owners Trust, which we sold in fiscal 2009 and which held our residual interests in the Trusts.

Historically, the driver of our results of operations and financial condition for our Loan Operations segment was the volume of 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 education loan programs, and substantially all of our income
was derived from securitizations. Securitization refers to the technique of pooling education loans and selling them to a special purpose, bankruptcy remote entity, typically a trust, which issues notes backed by those loans to 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 education loans that they did not intend to hold. For our past securitization services, we are entitled to
receive additional structural advisory fees and residuals cash flows from certain securitization trusts over time.

Our bank 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). During the second quarter of fiscal 2010, we announced that we had begun exploring strategic alternatives for Union Federal.
As of November 9, 2010, we were actively considering those alternatives, including a potential sale.

Securitization Trusts

The financial results of our Securitization Trusts segment relate only to the 14 securitization trusts consolidated as a result of a
change in accounting principle effective July 1, 2010. As a result, financial results for our Securitization Trusts segment are only presented as of the effective date of adoption, prospectively.

These 14 consolidated securitization trusts are managed in accordance with their applicable indentures, as amended, and their tangible assets are limited
to cash, allowable investments, and education loans, as well as the related principal and interest income receivables and recoverables on defaults. Their liabilities are limited to the debt issued to finance the education loans and payables accrued
in the normal course of their operations, all of which have been structured to be non-recourse to the general credit of First Marblehead.

The
majority of our consolidated securitization trusts are NCSLT Trusts, for which we have no ownership interest. Although the cumulative deficit of these trusts is reflected in our consolidated accumulated deficit, the financial performance of such
trusts will ultimately inure to the third-party owners of the residual interests, and any deficit generated by a consolidated trust will reverse out of our accumulated deficit or retained earnings, and be recorded as a non-cash gain, when the
trusts liabilities are extinguished or the trust is deconsolidated by us. As such, the financial performance of the NCSLT Trusts does not directly impact the long-term equity available to our stockholders, but the financial performance of all
of the Trusts, both on- and off-balance sheet, impacts the ability of our Loan Operations segment to recover service revenue receivables due from these trusts and the third-party owner of the Trust Certificate. The remaining three consolidated
securitization trusts are the GATE Trusts, for which we own 100% of the residual interests. To the extent that the GATE Trusts have residual cash flows, profits will ultimately be realized by our stockholders when those residual payments are made;
however, if cash flows of these trusts were insufficient to pay off the long-term borrowings and other legal obligations of the trusts, our stockholders would not be responsible for those losses.

The NCSLT Trusts hold education loans that were subject to a loan repayment guaranty by TERI. In addition, one of our consolidated GATE Trusts holds a
limited number of TERI-guaranteed loans. 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 a material adverse
effect on the ability of the NCSLT Trusts to realize guaranty obligations of TERI. Under the Modified Fourth Amended Joint Plan of Reorganization of The Education Resources Institute, Inc. and the Official Committee of Unsecured Creditors
(Creditors Committee) as of August 26, 2010 (Modified Plan of Reorganization), which was confirmed on October 29, 2010, TERI will reject the guaranty agreements and settle claims with these securitization trusts upon the effectiveness of
the Modified Plan of Reorganization. TERIs rejection of its obligations under the guaranty agreements, combined with higher levels of defaults than initially projected, has had, and will likely continue to have, a material adverse impact on
the financial condition of our Securitization Trusts segment.

Business Trends, Uncertainties and Outlook

The following discussion of business trends, uncertainties and outlook is focused on our Loan Operations segment. We have no ownership interest in the
NCSLT Trusts as a result of our sale of the Trust Certificate to a third party in fiscal 2009. Although we are required under U.S. generally accepted accounting principles (GAAP) to



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reflect the net deficit of the consolidated securitization trusts in our accumulated deficit, and the revenues and expenses of these trusts in our statements of operations and earnings or loss
per share, the financial performance of the NCSLT Trusts will ultimately inure to the third-party owners of the residual interests. Our accumulated deficit (as restated) as of September 30, 2010 included a deficit of $1.03 billion related to the
NCSLT Trusts. Any accumulated deficit generated by a consolidated trust will reverse out of our accumulated deficit or retained earnings, and be recorded as a non-cash gain, when the trusts liabilities are extinguished or the trust is
deconsolidated by us. With respect to the NCSLT Trusts, the economic exposure for our stockholders is limited to the value of our service revenue receivables from these trusts, which constitute our variable interests, recorded by our Loan Operations
segment. At September 30, 2010, our Loan Operations segment had service revenue receivables of $38.6 million due from the on- and off-balance sheet Trusts and the third-party owner of the Trust Certificate. With respect to the GATE Trusts, we
own 100% of the residual interests. As such, any cumulative profits generated by the trusts would ultimately be realized by our stockholders in the form of residual cash flow payments.

We have not accessed the securitization market since September 2007 as a result of market disruptions that began in the second quarter of fiscal 2008, continued through fiscal 2009 and fiscal 2010 and, to
a lesser extent, persisted as of November 9, 2010. General economic conditions in the United States have deteriorated and have not fully recovered over this time period. Our business has been and continues to be materially adversely impacted by
these conditions. In addition, credit performance of consumer-related loans generally, as well as education loan portfolios included in our consolidated balance sheet and those held by other VIEs not consolidated by us, have been adversely affected
by general economic conditions in the United States, including increased unemployment rates and higher levels of education loan defaults. While there have been some recent improvements, the interest rate and economic and credit environments may
continue to have a material negative effect on loan portfolio performance and the estimated value of our service revenue receivables.

Prior
to the TERI Reorganization, we received reimbursement from TERI for outsourced loan processing services we performed on TERIs behalf. As a result of capital market disruptions and the TERI Reorganization, many clients elected to terminate some
or all of their agreements with us, which resulted in a significant reduction in our facilitated loan volumes since fiscal 2009 compared to prior fiscal years. The TERI Reorganization, together with capital markets dislocations, has had, and will
likely continue to have, a material adverse effect on the holders of education loans guaranteed or formerly guaranteed by TERI.

As of
July 16, 2010, we began to perform services under our loan program agreement with SunTrust Bank, and as of September 20, 2010, we began to perform services under our loan program agreement with Kinecta Federal Credit Union. The loan
program agreements each relate to school-certified education loan programs to be funded by these clients based on our Monogram platform. Under the terms of the credit enhancement provision in the loan program agreements, we may facilitate up to an
aggregate of $275.0 million in education loans over the life of the two loan programs. We believe that our Monogram platform will provide us with an opportunity, through our Loan Operations segment, to originate, administer and manage education
loans and that the two loan program agreements we have entered into are a significant step in our return to the education lending marketplace. We also believe that conditions in the capital markets generally continued to improve during the first
quarter of fiscal 2011, potentially creating additional flexibility with regard to the future financing of education loans. We continue to believe, as of November 9, 2010, however, that the structure and economics of any financing transaction
will be less favorable than our past securitizations, with the potential for lower revenues and additional cash requirements on our part. We will continue to seek opportunities for innovative and efficient portfolio funding transactions.

The near term financial performance and future growth of our Loan Operations segment depends in large part on our ability to successfully market our
Monogram platform and transition to more fee-based revenues while growing and diversifying our client base. We are seeking additional lender clients, although we are uncertain as to the degree of market acceptance our Monogram platform will have,
particularly in the current economic environment where many lenders continue to evaluate their education lending business models.

We have
summarized below certain recent developments affecting our business since the beginning of fiscal 2011:



| |  |  | On October 1, 2010, we received a refund from tax authorities of $45.1 million. The tax refund included $21.2 million that was
attributable to Union Federal, which we distributed to Union Federal pursuant to our tax sharing agreement. On October 22, 2010, the OTS approved a cash dividend from Union Federal to First Marblehead of up to $29.0 million. The approved
amount of the dividend includes the $21.2 million that we distributed to Union Federal pursuant to our tax sharing agreement. As of November 9, 2010, Union Federal had not paid such dividend.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On October 18, 2010, the United States Bankruptcy Court for the District of Massachusetts (Bankruptcy Court) granted a stipulation (Stipulation)
among TERI, the Creditors Committee, FMD and its subsidiaries First Marblehead Education Resources, Inc. (FMER) and First Marblehead Data Services, Inc. (FMDS), settling certain claims between TERI and FMD, FMER and FMDS. See Note 18,
Subsequent EventsTERI Stipulation, for additional information regarding the Stipulation.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | On October 29, 2010, the Bankruptcy Court entered an order confirming the Modified Plan of Reorganization. See Note 18, Subsequent
EventsTERI Modified Plan of Reorganization, for additional information regarding the Modified Plan of Reorganization.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On November 3, 2010, we amended the operating lease relating to our Medford, Massachusetts location to, among other things, reduce the rented
space by approximately 60,000 square feet by March 31, 2011 and extend the term of the lease to March 31, 2017. The effective date of this amendment was July 1, 2010.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(2) Summary of Significant Accounting Policies

Our accompanying unaudited condensed consolidated financial statements have been prepared in accordance with 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 those related to changes in accounting principles and normal recurring accruals) considered necessary for a
fair statement of the results for the interim periods have been included.

Use of Estimates

The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates, judgments and assumptions that affect
the reported amounts of assets and liabilities and the 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 our historical experience, economic conditions 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. 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 allowance for loan losses, recognition of interest income on delinquent and defaulted loans and recognition of asset servicing fees and trust updates to our service revenue receivables. Interim results are not
necessarily indicative of results to be expected for the entire fiscal year.

(a) Consolidation

Our consolidated financial statements include the accounts of FMD, its subsidiaries and certain VIEs, as applicable, after eliminating inter-company
accounts and transactions. Prior to July 1, 2010, we did not consolidate the financial results of any securitization trusts purchasing education loans that we facilitated because each of the securitization trusts created after January 31,
2003 met the criteria to be a qualified special purpose entity (QSPE) as defined by Accounting Standards Codification (ASC) 860-40, Transfers and ServicingTransfers to Qualifying Special Purpose Entities (ASC 860-40). Prior to
July 1, 2010, a QSPE was exempt from consolidation. In addition, the securitization trusts created prior to January 31, 2003 in which we held a variable interest that could have resulted in our being considered the primary beneficiary of
such trusts were amended in order for those trusts to be considered QSPEs and, as such, were exempt from consolidation.

Effective
July 1, 2010, we adopted ASU 2009-16 and ASU 2009-17.

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



| |  |  | the power to direct the activities of a VIE that most significantly impact that VIEs economic performance; and
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | the obligation to absorb losses of the VIE that could potentially be significant to that VIE or the right to receive benefits from the VIE that could
potentially be significant to that VIE.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, ASU 2009-17 requires us to continuously reassess whether consolidation
of VIEs is appropriate, as opposed to the trigger-based assessment allowed under previous guidance. As a result, we may be required to consolidate or deconsolidate VIEs, which may lead to volatility in our financial results and make comparisons of
results between time periods challenging.



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Upon adoption, we consolidated 14 securitization trusts that we previously facilitated because we determined
that our services related to default prevention and management, for which we can only be removed for cause, combined with the variability that we absorb as part of our fee structure, made us the primary beneficiary of those trusts. In addition, we
deconsolidated UFSB-SPV because we determined that the power to direct activities that most significantly impact UFSB-SPVs economic performance does not reside with us. Assets and liabilities of the consolidated VIEs were measured as if they
had been consolidated at the time we became the primary beneficiary. All inter-company transactions were eliminated. ASU 2009-17 was applied through a cumulative-effect adjustment to the opening balance of retained earnings at the effective date.
See Note 4, Change in Accounting Principle, for more information on the impact of our adoption of ASU 2009-16 and ASU 2009-17.

We continue to monitor our involvement with 18 VIEs for which we perform services related to default prevention and portfolio management. As of November 9, 2010, we had determined that we are not the
primary beneficiary due to the sole, unilateral rights of other parties to terminate us in our role as service provider or due to a lack of obligation on our part to absorb benefits or losses of the VIE that would be significant to that VIE.
Significant changes to the pertinent rights of other parties or significant changes to the ranges of possible trust performance outcomes used in our assessment of the variability of cash flows due to us could cause us to change our determination of
whether or not a VIE should be consolidated in future periods. In particular, the commencement by Ambac Financial Group, Inc. (Ambac) of a voluntary case under Chapter 11 of the Bankruptcy Code on November 8, 2010 could cause us to change
our determination not to consolidate certain VIEs for which an affiliate of Ambac provides credit enhancement.

(b) Reclassifications

Certain reclassifications have been made to the balances as of June 30, 2010 and for the three months ended September 30,
2009, to be consistent with the classifications adopted in fiscal 2011.

(c) Cash Equivalents

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

(d) Investments

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

Investments in marketable debt securities
are classified as available for sale, trading or held to maturity. Available-for-sale investments are carried at fair value with net unrealized gains and losses recorded in other comprehensive income, a component of stockholders equity.
Trading securities are securities held in anticipation of short-term market movements, and are carried at fair value with net unrealized gains and losses recorded in the statement of operations. Investments are classified as held to maturity when we
have both the ability and intent to hold the securities until maturity. Held-to-maturity investments are carried at amortized cost.

(e)
Loans

Loans are classified as held to maturity when we have both the ability and intent to hold the loans for the foreseeable future.
All education loans held by the securitization trusts that we consolidated effective July 1, 2010 are classified as held to maturity, as well as education loans held by a non-bank subsidiary of FMD and substantially all mortgage loans held by
Union Federal. Loans held to maturity are carried at amortized cost, less an allowance for loan losses, described more fully below. Amortized cost includes principal outstanding plus net unamortized loan acquisition costs and origination fees, the
amortization of which is recognized as an adjustment of the related loan yield using the effective interest method.

Education loans held for
sale at June 30, 2010 consisted solely of the loans held by UFSB-SPV, which was deconsolidated as a result of our adoption of ASU 2009-16 and ASU 2009-17 on July 1, 2010. These loans were classified as held for sale because they serve as
collateral to a third-party conduit lender, and such lender has the right to call the loans at any time. Loans held for sale were carried at the lower of cost or fair value. In the absence of a readily determined market value, fair value was
estimated by management based on the net present value of expected future cash flows of the loans. Expected future cash flows were based on macroeconomic indicators and our historical experience with assumptions for, among other things, default
rates, recovery rates on defaulted loans and prepayment rates. Net present value was calculated using a discount rate commensurate with the risks involved. We recorded changes in the carrying value of education loans held for sale and the related
interest receivable in the statement of operations.



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(f) Allowance for Loan Losses, the Related Provision for Loan Losses and Charge-Offs

Allowances for loan losses are maintained at an amount believed to be sufficient to absorb credit losses inherent in our portfolios of
loans held to maturity at the balance sheet date, based on a one-year loss confirmation period. Allowances for loan losses are adjusted through charges to the provision for loan losses in the statement of operations. Inherent credit losses include
losses for loans in default that have not been charged-off or foreclosed, and loans that have a high probability of default, less any amounts expected to be recoverable from borrowers, third parties or, for mortgage loans, sale of the collateral, as
applicable.

An education loan is considered to be in default when it is approximately 180 days past due as to either principal or
interest, based on the timing of cash receipts from the borrower. We use projected cash flows to determine the allowance reserve deemed necessary for education loans probable of default at the balance sheet date. Such default estimates are based on
a loss confirmation period of one year, which we believe to be the approximate amount of time that it would take a loss inherent in the education loan portfolios at the balance sheet date to ultimately default and be charged-off. The estimates used
in the calculation of the allowance for education loan losses are subject to a number of assumptions, including default, recovery and prepayment rates, including the effects of basic forbearance and alternative payment plans available to borrowers.
These assumptions are based on the status of education loans at the balance sheet date, as well as macroeconomic indicators and our historical experience. If actual future loan performance were to differ significantly from the assumptions used, the
impact on the allowance for loan losses and the related provision for loan losses for education loans recorded in the statement of operations could be material.

Education loans are charged-off at the end of the reporting period in which they become approximately 270 days past due. Charge-offs are recorded as both a decrease in the outstanding principal and a
decrease in the allowance for loan losses. Cash recoveries on education loans charged-off are recorded as an increase to the allowance for loan losses.

We maintain an allowance for mortgage loans held to maturity on a specific-identification basis when the loan becomes 30 days past due or the borrower is making modified payments. The allowance is
set at an amount believed to be adequate so that the net carrying value of the mortgage loan is not in excess of the net realizable value of the collateral. In addition, a general allowance is established for mortgage loans with certain
characteristics attributable to the collateral. Mortgage loans for which we have foreclosed on the property and the related allowance are reclassified to other real estate owned, a component of other assets, and are carried at estimated net
realizable value.

(g) Deposits for Participation Interest Accounts

Deposits for participation interest accounts (participation accounts) are accounted for similar to trading account assets and are carried at fair value in the balance sheet. Fair value is estimated based
on the net present value of cash flows into and out of the account, based on the education loans originated at the balance sheet date. Changes in estimated fair value, excluding cash funded by us or distributed out of the participation accounts to
us, if any, are recorded in non-interest revenues as part of Administrative and other fees. See Note 7, Deposits for Participation Interest Accounts, for additional information on participation accounts.

(h) Service Revenue Receivables

Service revenue receivables are carried at fair value in the balance sheet, and consist of our asset servicing fee, additional structural advisory fee and
residual receivables. Additional structural advisory fee and residual receivables due from securitization trusts that we consolidate are eliminated in consolidation.

As required under GAAP, we recognized the fair value of additional structural advisory fee and residual receivables as revenues at the time the securitization trust purchased the education loans, as they
were deemed to be earned at the time of the securitization but before we actually received payment. These amounts were deemed earned because evidence of an arrangement existed, we provided the services, the fee was fixed and determinable based upon
a discounted cash flow analysis and there were 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 from the Trusts
available to the third-party owner of the Trust Certificate.

Due to the long-term, contingent nature of the timing of cash receipts, our
service revenue receivables are carried at fair value on the balance sheet.



| |  |  | The receipt of asset servicing fees due from the third-party owner of the Trust Certificate is contingent on residual interest distributions from the
Trusts.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Additional structural advisory fees are paid to us over time, based on the payment priorities established in the applicable indentures for each of the
securitization trusts. We generally become entitled to receive these additional fees, plus interest, if applicable, once the parity ratio of securitization trust assets to securitization trust liabilities reaches a stipulated level, which ranges
from 103.0% to 105.5% for the Trusts, 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 would instead be directed to the holders of the notes issued by the securitization trusts until the condition causing the Trigger Event ceases to exist or all notes and related interest are
paid in full.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Residuals associated with any securitization trusts that we facilitated are typically junior in priority to the rights of the holders of the
asset-backed securities (ABS) issued in the securitizations and any additional structural advisory fees. For certain of the securitization trusts, upon a Trigger Event, payments that would otherwise be due with respect to residuals would instead be
directed to the holders of the notes issued by the securitization trusts until the condition causing the Trigger Event ceases to exist or all notes and related interest are paid in full.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In the absence of readily determined market values, we update our estimates of the fair value of service revenue receivables on a quarterly basis, based
on the present value of expected future cash flows. Such estimates include assumptions for discount, default, recovery, prepayment and forward interest rates, among others. 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.

(i) Fair Value of Financial Instruments

ASC 820, Fair Value Measurements and
Disclosures (ASC 820), 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 did
not elect to measure other 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. 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 whose 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 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 comparison 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 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 different assumptions to value certain financial instruments could result in a different estimate of fair
value.



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(j) Revenue Recognition

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

Interest income on education and mortgage loans held to maturity is recognized as earned, adjusted for the amortization of loan acquisition costs and origination fees, based on the expected yield of the
loan over its life, after giving effect to expected prepayments, as applicable. The estimate of expected prepayments on education loans reflects voluntary prepayments and is based on our historical experience and macroeconomic indicators. When
changes to assumptions occur, amortization is adjusted on a cumulative basis to reflect the change since acquisition of the education loan.

Education loans held to maturity are placed on non-accrual status when they become 120 days past due as to either principal or interest, or earlier
when full collection of principal or interest is not considered probable. When we place an education loan on non-accrual status, the accrual of interest is discontinued and previously recorded but unpaid interest is reversed and charged against
interest revenue. For education loans on non-accrual status but not yet charged-off, interest revenue is recognized on a cash basis. If a borrower makes payments sufficient to become current on principal and interest prior to ever being charged-off,
or cures the education loan, the loan is taken off of non-accrual status and recognition of interest revenue is continued. Once a loan has been charged-off, all payments made by the borrower are applied to outstanding principal and
income is only recorded on a cash basis when all principal has been recovered.

Mortgage loans are placed on non-accrual status when they
become 90 days past due as to either principal or interest. Once a loan has been placed on non-accrual status, recognition of interest is not resumed until the borrower has become current as to both principal and interest for a consecutive
period of 12 months.

Interest expense on long-term borrowings is adjusted for the amortization of debt issuance costs and underwriting
fees and amortization of the proceeds from interest-only strips using an effective yield over the life of the related borrowings.

Asset
Servicing Fees. We earn asset servicing fees as the services are performed. We record asset servicing fee income at fair value, based on the estimated present value of the fees earned during the reporting period, and we record changes in the
estimated fair value of fees earned in prior periods as asset servicing fee updates.

Asset servicing fees are based on outstanding assets of
the Trusts and our receipt of such fees is contingent on the performance of the Trusts, eleven of which we consolidated as of July 1, 2010. The fees, however, are due from the third-party owner of the Trust Certificate for services performed on
its behalf, and as such, we do not eliminate these fees in consolidation.

Additional Structural Advisory Fees and ResidualsTrust
Updates. Changes to the fair value of additional structural advisory fee and residual receivables are recorded in revenue in the statement of operations. To the extent such fees are due from VIEs that we consolidate, they have been eliminated in
consolidation, but continue to be recognized by our separate reporting segments as revenue or expense, as applicable. Changes in assumptions used to estimate fair value are recorded in the statement of operations in the periods in which the changes
are made.

Administrative and Other Fees. Trust administration fees, which are based on the volume of education loans outstanding in
securitization trusts facilitated by us, are recognized in the period in which the services are rendered as compensation for administration, including the daily management of the trusts, coordination of loan servicers and reporting information to
the parties related to the trusts. Master servicing and special servicing fees due from certain trusts represent compensation to us for managing the performance of default prevention services and education loan collections. Such fees are based, in
part, upon the volume of assets under management, and in part, upon the reimbursement of expenses. Such fees are recognized as the services are performed, or as the reimbursable expense is incurred, as applicable. In addition, we provide other
services on a stand-alone, fee-for-service basis that may be based on the volume of education loans disbursed, number of applications processed or other contractual terms. Our recognition of such fees is based on these contractual terms. To the
extent that trust administration, default prevention and default management services have been provided by our Loan Operations segment to our Securitization Trusts segment, such Loan Operations revenue and the expenses incurred by our Securitization
Trusts segment have been eliminated in consolidation but continue to be recognized by each reporting segment on a stand-alone basis.

Beginning in the first quarter of fiscal 2011, we began to receive fees related to our Monogram platform offering. Revenue associated with our Monogram
platform is subject to the accounting guidance found in ASU 2009-13, Revenue Recognition-Multiple-Deliverable Revenue Arrangements (ASU 2009-13), which is effective prospectively for contracts entered into or materially modified in
fiscal years beginning on or after June 15, 2010. ASU 2009-13 prohibits separate recognition for each element of a contract unless certain criteria are met. We have applied the guidance in ASU 2009-13 to our recognition of revenues related to
our Monogram platform.



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(k) Income Taxes

In determining a provision for income taxes, the estimated annual effective tax rate is based on expected annual income, statutory tax rates, our ability to utilize net operating loss carry forwards 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 deferred 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.

(l) Net Loss Per Share

Basic net income or loss per share is computed by dividing net income or loss by the basic weighted average number of shares of common stock outstanding
for the periods presented. Diluted net income or loss per share is computed by dividing net income or loss by basic weighted average shares and, if dilutive, common stock equivalent shares outstanding during the period. To the extent net income is a
loss, all common stock equivalents are assumed to be anti-dilutive, and are excluded from diluted weighted average shares outstanding. Common stock equivalent shares outstanding are determined in accordance with the treasury stock method.

(m) New Accounting Pronouncements

ASU 2009-16 and ASU 2009-17, as described in Consolidation above, are the only recently effective accounting pronouncements to have a material impact on our financial statements. ASU
2010-18, Receivables-Effect of a Loan Modification When the Loan Is Part of a Pool That Is Accounted for as a Single Asset, is applicable only to loans acquired with a deterioration in credit quality, and did not have an impact on our
financial results. ASU 2010-20, Receivables-Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (ASU 2010-20), is effective for interim or annual periods ending on or after December 15, 2010.
ASU 2010-20 clarifies the disclosure requirements applicable to the credit quality of loans, troubled debt restructurings and the allowance for loan losses on a segmented basis. No other recently issued, but not yet effective, accounting
pronouncements are expected to have a material impact on our financial statements.

(3) Restatement of Unaudited Consolidated
Financial Statements and Corrections of Immaterial Errors in Prior Fiscal Years

(a) Restatement of Unaudited Consolidated Financial
Statements

On May 10, 2011, we announced that our board of directors, in consultation with management, our audit committee and
KPMG LLP, our independent registered public accounting firm, concluded that certain unaudited financial statements included in our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2010, which was originally filed
with the Securities and Exchange Commission (SEC) on November 9, 2010 (Original Q1), as well certain unaudited financial statements included in our Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2010, which was
originally filed with the SEC on February 9, 2011 (Original Q2), should no longer be relied upon.

Effective July 1, 2010, we
adopted ASU 2009-16 and ASU 2009-17. As a result, we consolidated 14 securitization trusts that were previously accounted for off-balance sheet.

We do not own any of the residual interests in the 11 consolidated NCSLT Trusts. In addition, the NCSLT Trusts have been structured to provide recourse only to the assets of that particular securitization
trust and not to the assets of FMD, its subsidiaries or any other securitization trust. Under ASC 810, we are required to consolidate these 11 NCSLT Trusts as a result of our additional structural advisory fee receivables from the NCSLT Trusts and
the services we provided to the NCSLT Trusts related to default prevention and collections management.

In the Original Q1 and the Original
Q2, we, in consultation with KPMG LLP, presented the equity interests in the NCSLT Trusts, which are owned by an unrelated third party, as non-controlling interests in our consolidated balance sheets, as a separate component of
stockholders equity. In addition, in our consolidated statements of operations, we allocated the net losses generated by the NCSLT Trusts to non-controlling interests. The net losses of the NCSLT Trusts did not, therefore, directly impact the
net loss, loss per share or equity available to First Marblehead stockholders.

On May 9, 2011, KPMG LLP reported to our board of
directors and our audit committee that our allocations to non-controlling interests were not consistent with GAAP. Instead, under GAAP the NCSLT Trusts asset performance, including losses, should be allocated to FMD until the trusts are
deconsolidated or trust liabilities are extinguished.



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As a result, we have restated our unaudited financial statements contained in the Original Q1 and the
Original Q2 to eliminate the allocation of losses generated by the NCSLT Trusts to non-controlling interests in our restated statements of operations. Our restated financial results include the losses generated by the NCSLT Trusts in our net loss
and net loss per share for three months ended September 30, 2010, and our accumulated deficit as of September 30, 2010. Although accounting standards require that the net losses or income of the NCSLT Trusts be included in our statements of
operations, our rights to receive income generated by the NCSLT Trusts are limited to the collection of fees for services provided. Our restated consolidated balance sheet as of September 30, 2010 reflects in accumulated deficit, rather than as
a separate component of stockholders equity, the deficit generated by the NCSLT Trusts, although we have no obligation to fund such deficit. In addition, we recorded valuation allowances for certain deferred tax assets not scheduled to reverse
against existing deferred tax liabilities at September 30, 2010.

The following table presents the impact of the restatement for the three
months ended September 30, 2010:



|                                                       |  |                                                  |         |   |             |   |         |             |  |   |         |  
|------------------------------------------------------ |  | ------------------------------------------------ | ------- | - | ----------- | - | ------- | ----------- |  | - | ------- | -
|                                                       |  | Three months ended September 30, 2010            |        
|                                                       |  | Reported                                         |         |   | Adjustments |   |         | As Restated | 
|                                                       |  | (dollars in thousands, except per share amounts) |        
|Income tax expense (benefit)                           |  | $                                                | (2,585  | ) |             | $ | 3,667   |             |  | $ | 1,082   |  
|Net loss attributable to non-controlling interests     |  |                                                  | 50,680  |   |             |   | (50,680 | )           |  |   |        |  
|Net loss attributable to First Marblehead stockholders |  |                                                  | (10,621 | ) |             |   | (54,347 | )           |  |   | (64,968 | )
|Net loss per share                                     |  |                                                  | (0.11   | ) |             |   | (0.53   | )           |  |   | (0.64   | )

The following changes were made to our
consolidated balance sheet at September 30, 2010 and July 1, 2010:



|                                        |  |                        |            |   |              |   |            |             |  |   |          |   |  |             |          |   |             |   |          |   |  |   |          |  
|--------------------------------------- |  | ---------------------- | ---------- | - | ------------ | - | ---------- | ----------- |  | - | -------- | - |  | ----------- | -------- | - | ----------- | - | -------- | - |  | - | -------- | -
|                                        |  | September 30, 2010     |            |   | July 1, 2010 |  
|                                        |  | Reported               |            |   | Adjustments  |   |            | As Restated |  |   | Reported |   |  | Adjustments |          |   | As Restated |  
|                                        |  | (dollars in thousands) |           
|Income taxes receivable                 |  | $                      | 19,252     |   |              | $ | (12,766    | )           |  | $ | 6,486    |   |  | $           | 17,560   |   |             | $ | (9,895   | ) |  | $ | 7,665    |  
|Net deferred tax asset                  |  |                        | 4,969      |   |              |   | (4,969     | )           |  |   |         |   |  |             | 4,571    |   |             |   | (4,571   | ) |  |   |         |  
|Income taxes payable                    |  |                        |           |   |              |   |           |             |  |   |         |   |  |             |         |   |             |   |         |   |  |   |         |  
|Net deferred tax liability              |  |                        |           |   |              |   | 1,875      |             |  |   | 1,875    |   |  |             |         |   |             |   | 1,477    |   |  |   | 1,477    |  
|Retained earnings (accumulated deficit) |  |                        | 62,985     |   |              |   | (1,049,247 | )           |  |   | (986,262 | ) |  |             | 73,606   |   |             |   | (994,900 | ) |  |   | (921,294 | )
|Non-controlling interest                |  |                        | (1,029,637 | ) |              |   | 1,029,637  |             |  |   |         |   |  |             | (978,957 | ) |             |   | 978,957  |   |  |   |         |  

(b) Corrections of Immaterial
Errors in Prior Fiscal Years

We, in conjunction with KPMG LLP, identified certain errors in the levels of reserves recorded for
deferred tax assets in fiscal 2010 and fiscal 2009. We have assessed the materiality of these errors and concluded, based on qualitative and quantitative considerations, that they are not material to the prior period financial statements taken
as a whole. The correction of these amounts is reflected in the statements of operations included in this quarterly report and will continue to be reflected in our future reports that we file pursuant to the Securities Exchange Act of 1934, as
amended. The impact of the correction on previously reported consolidated statements of operations is provided below.



|                                     |  |                                                  |         |   |                   |   |          |                |  |   |         |   |  |          |         |   |         |   |         |   |  |   |         |  
|------------------------------------ |  | ------------------------------------------------ | ------- | - | ----------------- | - | -------- | -------------- |  | - | ------- | - |  | -------- | ------- | - | ------- | - | ------- | - |  | - | ------- | -
|                                     |  | Three months ended                               |        
|                                     |  | September 30, 2009                               |         |   | December 31, 2009 |   |          | March 31, 2010 | 
|                                     |  | Reported                                         |         |   | Revised           |   |          | Reported       |  |   | Revised |   |  | Reported |         |   | Revised |  
|                                     |  | (dollars in thousands, except per share amounts) |        
|Income tax benefit                   |  | $                                                | (42,650 | ) |                   | $ | (5,391   | )              |  | $ | (9,386  | ) |  | $        | (17,631 | ) |         | $ | (15,439 | ) |  | $ | (4,345  | )
|Net loss                             |  |                                                  | (94,066 | ) |                   |   | (131,325 | )              |  |   | (11,719 | ) |  |          | (3,474  | ) |         |   | (29,389 | ) |  |   | (40,483 | )
|Basic and diluted net loss per share |  |                                                  | (0.95   | ) |                   |   | (1.32    | )              |  |   | (0.12   | ) |  |          | (0.04   | ) |         |   | (0.30   | ) |  |   | (0.41   | )



|                                     |  |                                                  |          |   |               |   |          |          |  |   |          |   |  |   |          |  
|------------------------------------ |  | ------------------------------------------------ | -------- | - | ------------- | - | -------- | -------- |  | - | -------- | - |  | - | -------- | -
|                                     |  | Fiscal years ended                               |         
|                                     |  | June 30, 2009                                    |          |   | June 30, 2010 |  
|                                     |  | Reported                                         |          |   | Revised       |   |          | Reported |  |   | Revised  |  
|                                     |  | (dollars in thousands, except per share amounts) |         
|Income tax benefit                   |  | $                                                | (187,819 | ) |               | $ | (160,634 | )        |  | $ | (70,320  | ) |  | $ | (44,942  | )
|Net loss                             |  |                                                  | (363,020 | ) |               |   | (390,205 | )        |  |   | (145,524 | ) |  |   | (170,902 | )
|Basic and diluted net loss per share |  |                                                  | (3.66    | ) |               |   | (3.94    | )        |  |   | (1.46    | ) |  |   | (1.72    | )

As a result of the corrections noted
above, our balance sheets at June 30, 2009 and June 30, 2010 reflect the following adjustments:



|                                        |  |                        |         |  |               |   |         |          |  |   |         |  |  |   |         |  
|--------------------------------------- |  | ---------------------- | ------- |  | ------------- | - | ------- | -------- |  | - | ------- |  |  | - | ------- | -
|                                        |  | June 30, 2009          |         |  | June 30, 2010 |  
|                                        |  | Reported               |         |  | Revised       |   |         | Reported |  |   | Revised | 
|                                        |  | (dollars in thousands) |        
|Net deferred tax asset                  |  | $                      | 13,124  |  |               | $ |        |          |  | $ | 41,915  |  |  | $ |        |  
|Income taxes receivable                 |  |                        | 166,410 |  |               |   | 154,474 |          |  |   | 17,560  |  |  |   | 7,665   |  
|Deferred tax liability                  |  |                        |        |  |               |   | 2,126   |          |  |   |        |  |  |   | 753     |  
|Retained earnings (accumulated deficit) |  |                        | 156,913 |  |               |   | 129,727 |          |  |   | 11,389  |  |  |   | (41,174 | )



14



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(4) Change in Accounting Principle

Effective July 1, 2010, we adopted ASU 2009-16 and ASU 2009-17. As a result, on July 1, 2010, we consolidated 14 securitization trusts facilitated by us, and deconsolidated UFSB-SPV. The ASUs
were adopted prospectively, and we recorded a cumulative-effect adjustment to the opening balance of retained earnings at the effective date. The following adjustments were made to our balance sheet at the effective date:



|                                                               |  |                        |           |   |                                                    |   |          |                        |  |   |           |  
|-------------------------------------------------------------- |  | ---------------------- | --------- | - | -------------------------------------------------- | - | -------- | ---------------------- |  | - | --------- | -
|                                                               |  | July 1, 2010           |          
|                                                               |  | NewlyconsolidatedVIEs  |           |   | DeconsolidatedVIE,eliminationsand otheradjustments |   |          | Net impactuponadoption | 
|                                                               |  | (dollars in thousands) |          
|                                                               |  |                        |           |   | (As restated)                                      |   |          | (As restated)          | 
|                                                               |  |                        |          
|Assets:                                                        |  |                        |           |   |                                                    |   |          |                        |  |   |           |  
|Restricted cash and guaranteed investment contracts, at cost   |  | $                      | 176,512   |   |                                                    | $ | (1,026   | )                      |  | $ | 175,486   |  
|Education loans held for sale, at fair value                   |  |                        |          |   |                                                    |   | (105,082 | )                      |  |   | (105,082  | )
|Education loans held to maturity, net of allowance of $517,804 |  |                        | 7,601,237 |   |                                                    |   | (419     | )                      |  |   | 7,600,818 |  
|Receivable from TERI for pledged accounts                      |  |                        | 136,446   |   |                                                    |   |         |                        |  |   | 136,446   |  
|Interest receivable                                            |  |                        | 102,868   |   |                                                    |   | (2,352   | )                      |  |   | 100,516   |  
|Service revenue receivables, at fair value                     |  |                        |          |   |                                                    |   | (38,692  | )                      |  |   | (38,692   | )
|Other assets                                                   |  |                        | 36,254    |   |                                                    |   | (2,561   | )                      |  |   | 33,693    |  
|                                                               |  |                        |           |   |                                                    |   |          |                        |  |   |           |  
|Total assets                                                   |  | $                      | 8,053,317 |   |                                                    | $ | (150,132 | )                      |  | $ | 7,903,185 |  
|                                                               |  |                        |           |   |                                                    |   |          |                        |  |   |           |  
|Liabilities:                                                   |  |                        |           |   |                                                    |   |          |                        |  |   |           |  
|Education loan warehouse facility                              |  | $                      |          |   |                                                    | $ | (218,059 | )                      |  | $ | (218,059  | )
|Accounts payable, accrued expenses and other liabilities       |  |                        | 56,407    |   |                                                    |   | (42,953  | )                      |  |   | 13,454    |  
|Net deferred tax liability                                     |  |                        |          |   |                                                    |   | 724      |                        |  |   | 724       |  
|Long-term borrowings                                           |  |                        | 8,987,186 |   |                                                    |   |         |                        |  |   | 8,987,186 |  
|                                                               |  |                        |           |   |                                                    |   |          |                        |  |   |           |  
|Total liabilities                                              |  |                        | 9,043,593 |   |                                                    |   | (260,288 | )                      |  |   | 8,783,305 |  
|Stockholders equity (deficit)                                 |  |                        | (990,276  | ) |                                                    |   | 110,156  |                        |  |   | (880,120  | )
|                                                               |  |                        |           |   |                                                    |   |          |                        |  |   |           |  
|Total liabilities and stockholders equity (deficit)           |  | $                      | 8,053,317 |   |                                                    | $ | (150,132 | )                      |  | $ | 7,903,185 |  
|                                                               |  |                        |           |   |                                                    |   |          |                        |  |   |           |  

Our non-interest revenues no longer reflect the additional structural advisory feestrust updates and administrative
and other fees due from the 14 newly consolidated securitization trusts, but continue to reflect such fees due from other off-balance sheet VIEs. We no longer recognize gains or losses related to the residual interest receivables due from the three
consolidated GATE Trusts, but we continue to recognize revaluation gains and losses on residual receivables due from other off-balance sheet VIEs.

The total deficit from the NCSLT Trusts, for which we have no ownership interest, was $979.0 million as of July 1, 2010. Any deficit generated by a consolidated trust, including an NCSLT Trust, will
reverse out of our accumulated deficit or retained earnings, and be recorded as a non-cash gain, when the trusts liabilities are extinguished or the trust is deconsolidated by us. The assets of each securitization trust can only be used to
settle the obligations of that particular trust and are not available to other securitization trusts, FMD or its other subsidiaries, or their respective creditors. The trusts have been structured to provide creditors or beneficial interest holders
of a securitization trust recourse only to the assets of that particular securitization trust, and not to the assets of FMD, its subsidiaries or other VIEs.

The statement of operations for the three months ended September 30, 2009 and the balance sheet as of June 30, 2010 have not been retrospectively adjusted to reflect the updates to ASC 810
and ASC 860-40; however, prior period amounts may have been reclassified to conform to the presentation adopted in fiscal 2011. We recognize assets, liabilities, income and expense related to the newly consolidated VIEs in the same line items
used by FMD and its consolidated subsidiaries prior to the effective date of ASU 2009-16 and ASU 2009-17. Current period results and balances will not be comparable to prior period amounts, particularly with regard to assets, liabilities and equity
components included in the table above, as well as the following in the statement of operations:



| |  |  | Net interest income;
| | - |  | --------------------



15



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##### Table of Contents

| |  |  | Provision for loan losses;
| | - |  | --------------------------



| |  |  | Additional structural advisory fees and residualstrusts updates;
| | - |  | -----------------------------------------------------------------



| |  |  | Administrative and other fees;
| | - |  | ------------------------------



| |  |  | General and administrative expenses;
| | - |  | ------------------------------------



| |  |  | Losses on education loans held for sale; and
| | - |  | --------------------------------------------



| |  |  | Net loss and net loss per share.
| | - |  | --------------------------------

(5) Cash and Cash Equivalents; Short-term Investments and Federal Funds Sold

The following
table summarizes our cash and cash equivalents:



|                                                        |  |                        |         |  |              |   |         | 
|------------------------------------------------------- |  | ---------------------- | ------- |  | ------------ | - | ------- | 
|                                                        |  | September 30,2010      |         |  | June 30,2010 |  
|                                                        |  | (dollars in thousands) |        
|Cash equivalents (money market funds)                   |  | $                      | 195,304 |  |              | $ | 216,050 | 
|Interest-bearing deposits with the Federal Reserve Bank |  |                        | 63,630  |  |              |   | 92,545  | 
|Interest-bearing deposits with other banks              |  |                        | 14,268  |  |              |   | 15,285  | 
|Non-interest-bearing deposits with banks                |  |                        | 3,437   |  |              |   | 5,167   | 
|                                                        |  |                        |         |  |              |   |         | 
|Total cash and cash equivalents                         |  | $                      | 276,639 |  |              | $ | 329,047 | 
|                                                        |  |                        |         |  |              |   |         | 

Cash and cash equivalents of Union Federal of $85.1 million and $115.1 million at September 30, 2010 and
June 30, 2010, respectively, are not available for dividends without prior approval from the OTS.

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 a member of our Board of Directors owned 65% of Milestone Group Partners as of September 30, 2010, making MCM a related party. At September 30, 2010 and June 30,
2010, $30.0 million of our holdings in money market funds were invested in funds managed by MCM.

Short-term investments and federal
funds sold at September 30, 2010 and June 30, 2010 included $2.0 million of federal funds sold through our bank subsidiary, Union Federal.

(6) Education Loans Held to Maturity

(a) Gross Loans Outstanding

At September 30, 2010, education loans held to maturity were primarily loans held by our 14 consolidated securitization trusts. Through the
securitization process, a series of special purpose statutory trusts purchased education loans from the originating lenders or their assignees, which relinquished to the trusts their ownership interest in the education loans. The debt instruments
issued by the securitization trusts to finance the purchase of these education loans are collateralized by the purchased loan portfolios. In addition, to a much lesser extent, education loans held to maturity include loans originated by Union
Federal that we were unable to securitize or sell to a third party. Such loans are unencumbered.

The majority of securitized loans are
education loans guaranteed by TERI. As a result of the TERI Reorganization, the securitization trusts included in our Securitization Trusts segment have experienced a material negative effect on their ability to realize guaranty obligations of TERI.
At September 30, 2010, we assumed that the trusts receipts from TERI would be limited to the amount available in the pledged accounts held by TERI, which we have recorded as a separate receivable on the balance sheet. We expect to adjust
our assumptions at December 31, 2010 to reflect the terms of the Modified Plan of Reorganization. See Note 11, Commitments and ContingenciesTERI Reorganization, and Note 18, Subsequent Events, for
additional information.



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##### Table of Contents

The remaining securitized loans are held by GATE Trusts that benefit from credit enhancement arrangements
with the borrowers educational institutions or with a lender that has provided a guaranty on behalf of certain educational institutions, up to specified limits.

The following table summarizes the composition of the net carrying value of our education loans held to maturity:



|                                                                              |  |                        |           |   |               |   |         |  
|----------------------------------------------------------------------------- |  | ---------------------- | --------- | - | ------------- | - | ------- | -
|                                                                              |  | September 30, 2010     |           |   | June 30, 2010 |  
|                                                                              |  | (dollars in thousands) |          
|Education loans held to maturity:                                             |  |                        |           |   |               |   |         |  
|Gross loan principal outstanding                                              |  | $                      | 7,682,819 |   |               | $ | 25,195  |  
|Net unamortized acquisition costs and origination fees                        |  |                        | 291,690   |   |               |   |        |  
|                                                                              |  |                        |           |   |               |   |         |  
|Gross loans outstanding                                                       |  |                        | 7,974,509 |   |               |   | 25,195  |  
|Allowance for loan losses                                                     |  |                        | (530,636  | ) |               |   | (24,804 | )
|                                                                              |  |                        |           |   |               |   |         |  
|Education loans held to maturity, net of allowance                            |  | $                      | 7,443,873 |   |               | $ | 391     |  
|                                                                              |  |                        |           |   |               |   |         |  
|Principal outstanding of loans serving as collateral for long-term borrowings |  | $                      | 7,680,933 |   |               | $ |        |  

(b) Allowance for Loan Losses
and the Related Provision for Loan Losses

The following activity was recorded in the allowance for loan losses:



|                                                                        |  |                                       |          |  
|----------------------------------------------------------------------- |  | ------------------------------------- | -------- | -
|                                                                        |  | Three months 
endedSeptember 30, 2010 |         
|                                                                        |  | (dollars in thousands)                |         
|Balance, beginning of period                                            |  | $                                     | 24,804   |  
|Cumulative effect of a change in accounting principle                   |  |                                       | 517,804  |  
|                                                                        |  |                                       |          |  
|Balance, beginning of period after cumulative effect                    |  |                                       | 542,608  |  
|Provision for loan losses                                               |  |                                       | 107,064  |  
|Reserves reclassified from interest receivable for capitalized interest |  |                                       | 4,810    |  
|Charge-offs                                                             |  |                                       | (129,651 | )
|Recoveries from borrowers                                               |  |                                       | 5,805    |  
|                                                                        |  |                                       |          |  
|Balance, end of period                                                  |  | $                                     | 530,636  |  
|                                                                        |  |                                       |          |  

(c) Credit Quality of Loans

In School/Deferment. Under the terms of the majority of the education loans, borrowers are eligible to defer principal and interest payments while carrying a specified credit hour course load and
may be eligible to defer payments for an additional six months after graduation during a grace period. Either quarterly or at the end of the deferment period, depending on the terms of the loan agreement, any accrued but unpaid interest is
capitalized and added to principal outstanding. With respect to our consolidated securitization trusts as of November 9, 2010, the number of borrowers in deferment status will decline in the future because we do not expect to add new loans to
the portfolios of the consolidated securitization trusts.

Forbearance. Under the terms of the education loans, borrowers may apply for
forbearance, which is a temporary reprieve from making full contractual payments due to financial hardship. Forbearance can take many forms, at the option of the creditor. The most common forms of forbearance include the following:



| |  |  | Basic forbearanceCessation of all contractual payments for a maximum allowable forbearance period of one year, granted in three-month
increments.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Alternative payment plansUnder alternative payment plans, a borrower can make a reduced payment for a limited period of time. The amount
of the payment varies under different programs available and may be set at a fixed dollar amount, a percentage of contractual required payments or interest-only payments. Generally, approval for alternative payment plans is granted for a maximum of
six to 24 months, depending on the program.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Under both basic forbearance and alternative payment plans, the education
loan continues to accrue interest. When forbearance ceases, unpaid interest is capitalized and added to principal outstanding, and the borrowers required payments are recalculated at a higher amount to pay off the loan, plus the additional
accrued and capitalized interest, at the original stated interest rate by the original maturity date. There is no forgiveness of principal or interest, reduction in the interest rate or extension of the maturity date.



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##### Table of Contents

Forbearance programs result in a delay in the timing of payments received from borrowers, but at the same
time, assuming the collection of forborne amounts, provide for an increase in the gross volume of cash receipts over the term of the education loan due to the additional accrued interest capitalized while in forbearance. Forbearance programs may
have the effect of delaying default emergence, and alternative payment plans may reduce the utilization of basic forbearance.

In
repayment. The repayment status of borrowers, including borrowers making payments pursuant to alternative payment plans, is determined by contractual due dates.

The following table provides information on the status of education loans outstanding:



|                                                                                   |  |                        |           |  |                          |  |       |  
|---------------------------------------------------------------------------------- |  | ---------------------- | --------- |  | ------------------------ |  | ----- | -
|                                                                                   |  | September 30, 2010     |           |  | As a percentage of total | 
|                                                                                   |  | (dollars in thousands) |           |  |                          | 
|Principal of loans outstanding:                                                    |  |                        |           |  |                          |  |       |  
|In basic forbearance                                                               |  | $                      | 348,774   |  |                          |  | 4.5   | %
|In school/deferment                                                                |  |                        | 1,494,923 |  |                          |  | 19.5  |  
|In repayment, including alternative payment plans(1), classified as:               |  |                        |           |  |                          |  |       |  
|Current  £30 days past due                                                        |  |                        | 5,263,153 |  |                          |  | 68.5  |  
|Current  >30 days past due, but £120 days past
due                                |  |                        | 390,406   |  |                          |  | 5.1   |  
|Delinquent >120 days past due, but £180 days past
due                             |  |                        | 84,590    |  |                          |  | 1.1   |  
|In default  >180 days past due, but not charged-off                               |  |                        | 100,973   |  |                          |  | 1.3   |  
|                                                                                   |  |                        |           |  |                          |  |       |  
|Total gross loan principal outstanding                                             |  | $                      | 7,682,819 |  |                          |  | 100.0 | %
|                                                                                   |  |                        |           |  |                          |  |       |  
|Non-accrual loan principal (>120 days past due, but not in default or charged-off) |  | $                      | 185,563   |  |                          |  | 2.4   | %
|Past due loan principal (>90 days but <120 days past due still accruing interest)  |  |                        | 80,742    |  |                          |  | 1.1   |  



|(1) | At September 30, 2010, borrowers in repayment with loan principal outstanding of approximately $1.61 billion were making reduced payments under alternative
payment plans.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(7) Deposits for Participation Interest Accounts

During the first quarter of fiscal 2011, we began to perform services under Monogram loan program agreements with two clients. In connection with these two initial loan programs based on our Monogram
platform, we have agreed to provide credit enhancement by funding deposits in participation accounts for each lender. Subject to contractual maximums specified in the applicable loan program agreements, we make quarterly deposits into participation
accounts based on a percentage of projected credit losses for the expected volume and credit tiering of education loans to be originated over the term of the agreement. Our funding is adjusted during the origination period for changes to expected
loan volumes and credit tiering based on actual experience. At the end of each origination period, the final funding is determined, and we have no further funding requirements under that applicable loan program agreement. Separate participation
accounts are applicable to each loan program agreement and are not co-mingled between clients. During the first quarter of fiscal 2011, our initial funding of participation accounts was $8.5 million. We may agree to invest specified amounts of
capital as a credit enhancement feature in connection with future loan programs, although the amount and structure offered to a particular lender would be negotiated in light of the anticipated size of the lenders program, the underwriting
guidelines of the program and the terms of our business relationship with the lender.

Participation accounts serve as first-loss reserves to
the originating lenders for defaulted Monogram program loans. As defaults occur, our lender clients withdraw the outstanding balance of defaulted principal and interest from the participation account applicable to their programs. As amounts are
recovered from borrowers, those amounts are deposited back into the participation accounts. Legal ownership of the defaulted education loan may be transferred to us or continue to be owned by the client, depending on the terms of the loan program
agreements. Defaulted education loans transferred to us are immediately charged-off and the recoveries are deposited back to the participation accounts regardless of our ownership of the loan.

The cash balances in participation accounts earn interest at market rates applicable to commercial interest-bearing deposit accounts. In addition,
participation account administration fees are deposited directly by our lender clients to the participation accounts. These fees represent compensation to us for providing the credit enhancement. However, interest and fees deposited to the
participation accounts are not recognized separately as revenue in the statement of operations.



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##### Table of Contents

To the extent that the credit enhancement balance in participation accounts is in excess of contractually
required amounts, as a result of declining loan balances or default experience lower than our participation account funding, we are eligible to receive distributions from the participation accounts, including a monthly participation account
administration fee.

Participation accounts are carried at fair value in the balance sheet. Fair value is equal to the amount of cash on
deposit in the account plus unrealized gains or losses. The cash value of the interest-bearing deposit reflects the realized costs of the credit enhancement offset by interest and fees earned. Due to the lack of availability of market prices for
financial instruments of this type, we estimate unrealized gains and losses related to the participation accounts based on the net present value of expected future cash flows into and out of the account related to education loans originated as of
the balance sheet date, using a discount rate commensurate with the risks and durations involved. Changes in estimated fair value of participation accounts, excluding cash funding by us or distributions from the participation accounts to us, if any,
are recorded in non-interest revenues as part of Administrative and other fees.

(8) Service Revenue Receivables and Related
Income

Our service revenue receivables are recorded at fair value in our balance sheet. Asset servicing fee receivables represent the
estimated fair value of service revenues earned as of the balance sheet date from the third-party owner of the Trust Certificate. Additional structural advisory 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 education loans facilitated by us, with no further service obligations on our part.

(a) Asset Servicing Fee Receivables and Related Fees

In March 2009, we entered into
an asset services agreement with the third-party owner of the Trust Certificate. 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 education loans owned by the Trusts, limited to the total cash flows expected to be generated by residuals. Our fees are due from the third-party
owner of the Trust Certificate; however, receipt of our fees is contingent upon distributions from the Trusts available to the owner of the Trust Certificate. Under no circumstance will we receive cash for our asset servicing fees until residual
cash flows are distributed from the Trusts. Our asset servicing fee receivables were $6.8 million and $5.8 million at September 30 and June 30, 2010, respectively, recorded at fair value in the balance sheet based on the net
present value of future cash flows. See Education Loan Performance Assumption Overview below for a description of the significant observable and unobservable inputs used to develop estimates of fair value.

During the first quarters of fiscal 2011 and 2010, we recorded $978 thousand and $2.1 million as fee income, respectively, which represents the
estimated net present value of fees to be received for services specifically provided during those reporting periods. The lower fees in the first quarter of fiscal 2011 reflect changes in our estimate of the timing and volume of residual cash flows
to be paid to the third-party owner of the Trust Certificate. In addition, for such periods, we recognized fee updates of $91 thousand and $160 thousand, respectively, which reflected accretion for the passage of time on fees earned in
prior periods.

(b) Additional Structural Advisory Fee and Residual Receivables and Related Trust Updates

The following table summarizes the details of trust updates to additional structural advisory fee and residual receivables:



|                                    |  |                                  |        |   |      |   |       | 
|----------------------------------- |  | -------------------------------- | ------ | - | ---- | - | ----- | 
|                                    |  | Three months ended September 30, |       
|                                    |  | 2010                             |        |   | 2009 |  
|                                    |  | (dollars in thousands)           |       
|                                    |  |                                 
|Trust updates:                      |  |                                  |        |   |      |   |       | 
|Additional structural advisory fees |  | $                                | 725    |   |      | $ | 363   | 
|Residuals                           |  |                                  | (1,357 | ) |      |   | 824   | 
|                                    |  |                                  |        |   |      |   |       | 
|Total trust updates                 |  | $                                | (632   | ) |      | $ | 1,187 | 
|                                    |  |                                  |        |   |      |   |       | 

Additional Structural Advisory Fees. At June 30, 2010, additional structural advisory fee receivables were
primarily due from the securitization trusts that we consolidated effective July 1, 2010 upon adoption of ASU 2009-16 and ASU 2009-17. As such, these receivables, as well as the payables recorded by the trusts from which they are due, have been
eliminated upon consolidation and are not reflected in our consolidated balance sheet at September 30, 2010. In addition, the changes in estimated fair value of these receivables due from consolidated securitization trusts recorded in revenues,
as well as the changes in the liabilities recorded in expense by the consolidated securitization trusts, are also eliminated and do not appear in the consolidated statement of operations. The remaining receivables included in the consolidated
balance sheet and trust updates in the consolidated statement of operations are due from other off-balance sheet VIEs.



19



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



|                                                        |  |                                 |         |   |      |   |        |  
|------------------------------------------------------- |  | ------------------------------- | ------- | - | ---- | - | ------ | -
|                                                        |  | Three months
endedSeptember 30, |        
|                                                        |  | 2010                            |         |   | 2009 |  
|                                                        |  | (dollars in thousands)          |        
|Fair value, beginning of period                         |  | $                               | 34,676  |   |      | $ | 55,130 |  
|Cumulative effect of a change in accounting principle   |  |                                 | (33,473 | ) |      |   |       |  
|                                                        |  |                                 |         |   |      |   |        |  
|Fair value, beginning of period after cumulative effect |  |                                 | 1,203   |   |      |   | 55,130 |  
|Cash received from trust distributions                  |  |                                 | (294    | ) |      |   | (24    | )
|Trust updates:                                          |  |                                 |         |   |      |   |        |  
|Passage of timefair value accretion                    |  |                                 | 43      |   |      |   | 1,746  |  
|Other factors, net                                      |  |                                 | 682     |   |      |   | (1,383 | )
|                                                        |  |                                 |         |   |      |   |        |  
|Total trust updates                                     |  |                                 | 725     |   |      |   | 363    |  
|                                                        |  |                                 |         |   |      |   |        |  
|Fair value, end of period                               |  | $                               | 1,634   |   |      | $ | 55,469 |  
|                                                        |  |                                 |         |   |      |   |        |  

Residuals. At June 30, 2010, $5.2 million of our residual receivables were due from securitization trusts
that we consolidated effective July 1, 2010 upon adoption of ASU 2009-16 and ASU 2009-17. At September 30, 2010, residual receivables and the related trust updates related to consolidated securitization trusts have been eliminated and are
no longer reflected in our consolidated balance sheet or consolidated statement of operations. The residual receivables eliminated related to the three consolidated GATE Trusts. We continue to reflect residual receivables due from other off-balance
sheet VIEs of $6.2 million at September 30, 2010. We recorded trust update losses of $1.4 million during the first quarter of fiscal 2011, primarily related to overall performance of off-balance sheet VIEs, partially offset by a
decrease in the discount rate and accretion for the passage of time.

See Education Loan Performance Assumption Overview
below for a description of the significant observable and unobservable inputs used in to develop the estimated fair values of our additional structural advisory fee and residual receivables.

(c) Education Loan Performance Assumption Overview

Default, Recovery and
Prepayment Rate Assumptions

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 provided for the inclusion of certain prospective macroeconomic factors in our default and prepayment assumptions for those education loans securitized in the Trusts.

Risk Segments. The majority of our additional structural advisory fee receivables are due from the Trusts, and all of our asset
servicing fees are due from the third-party owner of the Trust Certificate, and are dependent upon the performance of all Trusts. During the third quarter of fiscal 2010, we retroactively scored loans held by the Trusts using our proprietary risk
score modeling, origination data and additional credit bureau data made available following origination. We then divided education 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 Trust portfolios in each segment, including the NCSLT Trusts and those Trusts that
have not been consolidated.



|                                                  |  |                    |      |   |               |  |      |           |  |  |           |   |  |           |      |   |           |  |      |   |  |  |      |  
|------------------------------------------------- |  | ------------------ | ---- | - | ------------- |  | ---- | --------- |  |  | --------- | - |  | --------- | ---- | - | --------- |  | ---- | - |  |  | ---- | -
|                                                  |  | September 30, 2010 |      |   | June 30, 2010 | 
|Trust Portfolio                                   |  | Segment 1          |      |   | Segment 2     |  |      | Segment 3 |  |  | Segment 1 |   |  | Segment 2 |      |   | Segment 3 | 
|Distribution by original loan amount              |  |                    | 25.5 | % |               |  | 27.0 | %         |  |  | 47.5      | % |  |           | 25.5 | % |           |  | 27.0 | % |  |  | 47.5 | %
|Distribution by total outstanding loan amount(1): |  |                    |      |   |               |  |      |           |  |  |           |   |  |           |      |   |           |  |      |   |  |  |      |  
|Not in repayment(2)                               |  |                    | 4.1  |   |               |  | 6.5  |           |  |  | 16.2      |   |  |           | 4.3  |   |           |  | 6.7  |   |  |  | 16.9 |  
|In repayment                                      |  |                    | 18.7 |   |               |  | 20.8 |           |  |  | 33.7      |   |  |           | 18.5 |   |           |  | 20.5 |   |  |  | 33.1 |  
|                                                  |  |                    |      |   |               |  |      |           |  |  |           |   |  |           |      |   |           |  |      |   |  |  |      |  
|Total by segment                                  |  |                    | 22.8 |   |               |  | 27.3 |           |  |  | 49.9      |   |  |           | 22.8 |   |           |  | 27.2 |   |  |  | 50.0 |  
|Gross default rate(3)                             |  |                    | 9.5  |   |               |  | 19.5 |           |  |  | 49.0      |   |  |           | 9.7  |   |           |  | 19.6 |   |  |  | 48.8 |  
|Recovery rate(4)                                  |  |                    | 40.0 |   |               |  | 40.0 |           |  |  | 40.0      |   |  |           | 40.0 |   |           |  | 40.0 |   |  |  | 40.0 |  
|Net default rate(5)                               |  |                    | 5.7  |   |               |  | 11.7 |           |  |  | 29.4      |   |  |           | 5.8  |   |           |  | 11.8 |   |  |  | 29.3 |  
|Prepayment rate(6)                                |  |                    | 7.0  |   |               |  | 5.0  |           |  |  | 3.1       |   |  |           | 6.9  |   |           |  | 4.9  |   |  |  | 3.1  |  



|(1) | Outstanding aggregate principal and capitalized interest balance as of September 30, 2010 or June 30, 2010.
|--- | -----------------------------------------------------------------------------------------------------------



20



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##### Table of Contents

|(2) | Loans not in repayment include loans in deferment or basic forbearance status as of September 30, 2010.
|--- | ---------------------------------------------------------------------------------------------------------

|(3) | Historical and projected defaults over the lives of the trusts as a percentage of original outstanding aggregate principal.
|--- | ---------------------------------------------------------------------------------------------------------------------------

|(4) | Historical and projected recoveries, net of historical and projected collections costs, as a percentage of historical and projected cumulative gross defaults.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Historical and projected defaults over the lives of the trusts less historical and projected recoveries, net of collection costs, as a percentage of original
outstanding aggregate principal.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Amount presented is the weighted average conditional prepayment rate (CPR) over the lives of the trusts. 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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The table below identifies our
overall assumptions as of September 30, 2009, and the change in those assumptions during the first quarter of fiscal 2010.



|                   |  |                                      |      |   |                                                                    |  |     |  
|------------------ |  | ------------------------------------ | ---- | - | ------------------------------------------------------------------ |  | --- | -
|                   |  | Assumptions as 
ofSeptember 30, 2009 |      |   | Change in assumptionsfor 
the three months endedSeptember 30, 2009 | 
|Gross default rate |  |                                      | 20.1 | % |                                                                    |  | 1.1 | %
|Recovery rate      |  |                                      | 40.0 |   |                                                                    |  |    |  
|Net default rate   |  |                                      | 12.1 |   |                                                                    |  | 0.7 |  
|Prepayment rate    |  |                                      | 8.0  |   |                                                                    |  |    |  

Default and Recovery Rates.
During the third quarter of fiscal 2010, we enhanced our methodology for developing default assumptions to incorporate certain prospective macroeconomic factors. During the fourth quarter of fiscal 2010 and first quarter of fiscal 2011, we have kept
our assumed default rates constant based on this refined methodology, as we continue to believe that our default rate assumptions are appropriate. In addition, we have not made any changes to our recovery rates, and, as a result, we did not record
any changes in the estimated fair values of asset servicing fee, additional structural advisory fee or residual receivables during the first quarter of fiscal 2011 related to changes in default or recovery rate assumptions.

During the first quarter of fiscal 2010, we increased the projected gross default rate by 1.1% with no change to the recovery rate, reflecting actual
default experience in excess of projections as of September 30, 2009. The increase in the default rate resulted in a decrease in the estimated fair value of additional structural advisory fee receivables, but had no material impact on the
estimated fair values of asset servicing fee or residual receivables.

Prepayment Rates. During the three months ended
September 30, 2010 and 2009, we made no changes to the assumptions for prepayment rates and accordingly, no changes to the estimated fair values of service revenue receivables related to prepayment rate assumptions during those periods.
However, the prepayment rate assumptions used at September 30, 2010 were lower than those used at September 30, 2009 as a result of the prevailing interest rate environment and economic conditions, such as unemployment rates, at each
balance sheet date.

Discount Rate Assumptions

The following table identifies our discount rate assumptions and changes in the assumptions:



|                                               |  |                    |              |   |                                                  |  |            |                   |  |  |                                                  |   |  |  |      |   
|---------------------------------------------- |  | ------------------ | ------------ | - | ------------------------------------------------ |  | ---------- | ----------------- |  |  | ------------------------------------------------ | - |  |  | ---- | --
|                                               |  | Assumptions as of  |              |   | Change in assumptions 
forthe three months ended |  |            | Assumptions as of |  |  | Change in assumptions 
forthe three months ended |  
|                                               |  | September 30, 2010 |              |   | September 30, 2009                               | 
|                                               |  |                    |              |  
|Asset servicing fee receivables                |  |                    | 16.0         | % |                                                  |  |           | %                 |  |  | 16.0                                             | % |  |  | (1.0 | )%
|Additional structural advisory fee receivables |  |                    | 10.0 or 14.0 |   |                                                  |  | (4.0) or 0 |                   |  |  | 11.3                                             |   |  |  | (1.2 | ) 
|Residual receivables                           |  |                    | 10.0         |   |                                                  |  | (6.0       | )                 |  |  | 16.0                                             |   |  |  | (1.0 | ) 

Discount RateAsset Servicing
Fees. In determining an appropriate discount rate, we consider a number of factors, including market data made available to us on spreads on federally guaranteed loans and education loans, rates used in the much broader ABS market, and yield
curves for corporate subordinated debt with maturities similar to the weighted-average life of our residuals. At September 30, 2010 and 2009, we used a discount rate of 16.0% for purposes of estimating the fair value of asset servicing fees,
which are contingent upon residual distributions to the third-party owner of the Trust Certificate.



21



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Discount RateAdditional Structural Advisory Fees. At September 30, 2010, we used a
discount rate of 14.0% to measure estimated fair value of additional structural advisory fees due from the Trusts, both consolidated and not consolidated. This rate is unchanged from the prior period. The 14.0% discount rate used for additional
structural advisory fees reflects market data made available to us on ABS market spreads on federally guaranteed education loans and private education loans, as well as rates used in the much broader ABS market and is 2.0% less than the 16.0% used
for asset servicing fee receivables, reflecting the seniority of our additional structural advisory fees in our cash flow waterfall of the securitization trusts. For other off-balance sheet VIEs for which we have additional structural advisory fees
due, we reduced the discount rate to 10.0% reflecting performance characteristics and our most recent estimates of the shorter weighted-average lives of those fees. This change did not have a material impact to our receivables.

At September 30, 2009, we used a discount rate of 11.3%, down 1.2% from the prior period due to the tightening in credit spreads during that
quarter. Prior to the methodology enhancements put in place in the third quarter of fiscal 2010, our projections indicated a shorter life for our additional structural advisory fees, and our discount rate was based on the 10-year U.S. Treasury Bond
rate plus a risk premium (8.0% at September 30, 2009). In determining the risk premium, we considered factors such as yields on B-rated instruments and the level of available cash flows from residual interests that support the additional
structural advisory fees.

Discount RateResiduals. In determining an appropriate discount rate, we consider a number of factors,
including market data made available to us on ABS market spreads on federally guaranteed education loans and private education loans, rates used in the much broader ABS market, and yield curves for corporate subordinated debt with maturities similar
to the weighted-average life of our residuals. At September 30, 2010, the only remaining residuals on our consolidated balance sheet are due from trusts dating from 2000 to 2004. Due to the seasoning of the trusts, applicable credit
enhancements and the characteristics of the collateral held by these trusts, the weighted-average lives of fees due from these trusts are much shorter than that of our asset servicing fees, and as such, we have reduced the discount rate for these
trusts to 10.0%. This change did not have a material impact to our receivables.

At September 30, 2009, we used a discount rate of 16.0%
for purposes of estimating the fair value of residuals receivables, which, as of that date, included residuals due from the three GATE Trusts that are now eliminated in consolidation. This discount rate decreased 1.0% from the prior quarter due to
the tightening of credit spreads in the debt capital markets during that period, and resulted in an increase in the estimated fair value of residuals during the three months ended September 30, 2009.

Other Assumptions

Forward
LIBOR Curve. Fluctuations in interest rates, specifically the London Interbank Offered Rate (LIBOR), which is the underlying rate for most of the securitization trusts assets and liabilities, can have a significant impact on the cash flows
generated by each securitization 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 on loans in deferment), which affects the overall net interest margin the securitization trust can generate, and can impact our additional structural advisory fee receivables as
the majority of accrued but unpaid fees bear interest at LIBOR plus 1.5%. In addition, certain securitization 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.

During the three months
ended September 30, 2010, the forward LIBOR curve moved down approximately 35 to 50 basis points across the curve, resulting in a decrease in the estimated fair value of our additional structural advisory fee receivables, but not materially
impacting the residuals that remain on our balance sheet. During the three months ended September 30, 2009, there was contraction in the forward LIBOR curve of approximately 20 to 50 basis points, resulting in a decrease in the estimated fair
value of our additional structural advisory fee receivables, but with no material impact to asset servicing fee or residual receivables.

Auction Rate Note Interest Rates. As a result of failed auctions and deterioration in the credit ratings of securitization trusts that issued
auction rate notes, the auction rate notes currently bear interest at a maximum spread over one-month LIBOR as specified in the applicable indentures. During fiscal 2010 and the first quarter of fiscal 2011, we have assumed that the notes would
continue to bear interest at the contractual maximum spread.

(9) Long-term Borrowings

Through the securitization process, the 14 consolidated securitization trusts issued debt instruments to finance the purchase of education loans obtained
from originating lenders or their assignees. The debt securities issued are obligations of the trusts. Holders of these debt securities generally have recourse only to the assets of the particular trust that issued the debt, and not to any other
securitization trusts, FMD, its other subsidiaries, or the originating lenders or their assignees.



22



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##### Table of Contents

The following table provides additional information on long-term borrowings:



|                                                                                                 |  |                        |           |  |                                                                            |  |               |                       |  |  |           | 
|------------------------------------------------------------------------------------------------ |  | ---------------------- | --------- |  | -------------------------------------------------------------------------- |  | ------------- | --------------------- |  |  | --------- | 
|                                                                                                 |  | September 30, 2010     |          
|                                                                                                 |  | Carrying value         |           |  | Range of spreads over index or range offixed interest rates
(annual basis) |  |               | Distributionfrequency | 
|                                                                                                 |  | (dollars in thousands) |          
|Principal outstanding on variable-rate ABS, indexed to one-month LIBOR(1)unless otherwise noted: |  |                        |           |  |                                                                            |  |               |                       |  |  |           | 
|Senior notes and certificates                                                                    |  | $                      | 6,909,190 |  |                                                                            |  | +0.03 to 0.48 | %                     |  |  | Monthly   | 
|Senior notes indexed to three-month LIBOR(1)                                                     |  |                        | 250,000   |  |                                                                            |  | +0.48         |                       |  |  | Quarterly | 
|Subordinated notes                                                                               |  |                        | 1,450,121 |  |                                                                            |  | +0.32 to 1.35 |                       |  |  | Monthly   | 
|Senior and subordinated auction rate notes                                                       |  |                        | 133,550   |  |                                                                            |  | +3.50         | (2)                   |  |  | Quarterly | 
|Unamortized proceeds of senior fixed-rate interest-only securities(3)                            |  |                        | 105,420   |  |                                                                            |  | 4.80 to 9.75  |                       |  |  | Monthly   | 
|                                                                                                 |  |                        |           |  |                                                                            |  |               |                       |  |  |           | 
|Total long-term debt                                                                             |  | $                      | 8,848,281 |  |                                                                            |  |               |                       |  |  |           | 
|                                                                                                 |  |                        |           |  |                                                                            |  |               |                       |  |  |           | 



|(1) | The averages of one-month LIBOR and three month LIBOR for the three months ended September 30, 2010 were 0.31% and 0.43%, respectively.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------

|(2) | Failed auctions occurred and have persisted with respect to a consolidated securitization trust that issued auction rate notes. When failed auctions occur, the notes
bear interest at a spread over one-month LIBOR as specified in the applicable indentures, based on the ratings assigned to the notes by independent rating agencies. Deterioration in securitization trust performance has resulted in downgrades to the
ratings assigned to these notes, and as a result, these notes bear interest at the maximum allowable spread over one-month LIBOR.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Interest-only securities have a combined notional value of $1.84 billion at September 30, 2010 and have varying maturity dates from April 2011 to
October 2014.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

Interest payments and principal paydowns on the debt are made from collections on the purchased loans, on a
monthly or quarterly basis, as indicated in the table above. Within any given securitization trust, there may exist multiple classes of notes, certificates or interest-only securities. Typically, notes within a given class are sequentially ordered
based upon their original scheduled maturities. Interest payments and principal paydowns are made each distribution period based on cash available to the trust in accordance with the subordination priorities established in the trust indentures.
Payments on interest-only strips are made based on notional values and have scheduled maturity dates. Principal payments are not based on scheduled maturity dates. Each securitization trust is a standalone, bankruptcy remote entity, meaning that
collateral performance, cash flow, credit enhancement and subordination for a given trust is independent from any other trust.

(10) Fair
Value of Financial Instruments

(a) Financial Instruments Recorded at Fair Value in the Balance Sheet

For financial instruments recorded at fair value in the balance sheet, that 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 financial instruments recorded at fair value in the balance sheet:



| |  |  | Cash equivalents include 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 federal agency mortgage-backed securities that are marked to market using pricing from an independent third party and are
classified as Level 2 in the hierarchy.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Participation account deposits and service revenue receivables do not have available market prices. As such, fair value is estimated using the net
present value of expected future cash flows. At September 30, 2010, the fair value of deposits for participation accounts was not materially different from the cash balance of the underlying interest-bearing deposit. See Note 8,
Service Revenue Receivables and Related Income, for a description of
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



23



---

##### Table of Contents

| | significant observable and unobservable inputs used to develop the estimated fair values of service revenue receivables. At June 30, 2010, market prices were not available for education
loans held for sale and fair value was estimated using the net present value of expected future cash flows. These assets are classified within Level 3 of the valuation hierarchy.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table presents financial instruments carried at fair value in the consolidated balance sheet, in accordance with the valuation hierarchy
described above, on a recurring and nonrecurring basis:



|                                             |  |                        |         |  |               |   |       |         |  |   |                    |  |  |         |         |  |         |   |         |         |  |   |                    |  |  |   |         |  |  |   |         | 
|-------------------------------------------- |  | ---------------------- | ------- |  | ------------- | - | ----- | ------- |  | - | ------------------ |  |  | ------- | ------- |  | ------- | - | ------- | ------- |  | - | ------------------ |  |  | - | ------- |  |  | - | ------- | 
|                                             |  | September 30, 2010     |         |  | June 30, 2010 |  
|                                             |  | Level 1                |         |  | Level 2       |   |       | Level 3 |  |   | Totalcarryingvalue |  |  | Level 1 |         |  | Level 2 |   |         | Level 3 |  |   | Totalcarryingvalue | 
|                                             |  | (dollars in thousands) |        
|Assets:                                      |  |                        |         |  |               |   |       |         |  |   |                    |  |  |         |         |  |         |   |         |         |  |   |                    |  |  |   |         |  |  |   |         | 
|Recurring:                                   |  |                        |         |  |               |   |       |         |  |   |                    |  |  |         |         |  |         |   |         |         |  |   |                    |  |  |   |         |  |  |   |         | 
|Cash equivalents                             |  | $                      | 195,304 |  |               | $ |      |         |  | $ |                   |  |  | $       | 195,304 |  |         | $ | 216,050 |         |  | $ |                   |  |  | $ |        |  |  | $ | 216,050 | 
|Investments available for sale               |  |                        |        |  |               |   | 4,287 |         |  |   |                   |  |  |         | 4,287   |  |         |   |        |         |  |   | 4,471              |  |  |   |        |  |  |   | 4,471   | 
|Deposits for participation interest accounts |  |                        |        |  |               |   |      |         |  |   | 8,482              |  |  |         | 8,482   |  |         |   |        |         |  |   |                   |  |  |   |        |  |  |   |        | 
|Service revenue receivables                  |  |                        |        |  |               |   |      |         |  |   | 14,730             |  |  |         | 14,730  |  |         |   |        |         |  |   |                   |  |  |   | 53,279  |  |  |   | 53,279  | 
|Non-recurring:                               |  |                        |         |  |               |   |       |         |  |   |                    |  |  |         |         |  |         |   |         |         |  |   |                    |  |  |   |         |  |  |   |         | 
|Education loans held for sale(1)             |  |                        |        |  |               |   |      |         |  |   |                   |  |  |         |        |  |         |   |        |         |  |   |                   |  |  |   | 105,082 |  |  |   | 105,082 | 
|                                             |  |                        |         |  |               |   |       |         |  |   |                    |  |  |         |         |  |         |   |         |         |  |   |                    |  |  |   |         |  |  |   |         | 
|Total assets:                                |  | $                      | 195,304 |  |               | $ | 4,287 |         |  | $ | 23,212             |  |  | $       | 222,803 |  |         | $ | 216,050 |         |  | $ | 4,471              |  |  | $ | 158,361 |  |  | $ | 378,882 | 
|                                             |  |                        |         |  |               |   |       |         |  |   |                    |  |  |         |         |  |         |   |         |         |  |   |                    |  |  |   |         |  |  |   |         | 



|(1) | Education loans held for sale were held by UFSB-SPV, which was deconsolidated on July 1, 2010 in connection with the adoption of ASU 2009-16 and ASU 2009-17.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table presents activity related to our financial assets categorized as Level 3 of the valuation hierarchy,
valued on a recurring basis, for the three months ended September 30, 2010 and 2009. All realized and unrealized gains and losses recorded during the periods presented relate to assets still held at the balance sheet date. 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 September 30, |       
|                                             |  | 2010                             |        |  | 2009                         |  
|                                             |  | Fairvalue,July 1,2010            |        |  | Change inaccountingprinciple |   |         | Realized 
andunrealizedgains(losses),recorded innon-interestrevenues |  |   | Fundingandsettlements |  |  | Fair
value,September 30,2010 |       |   | Fairvalue,July 1,2009 |   |        | Realized 
andunrealizedgains(losses),recorded innon-interestrevenues |  |   | Settlements |  |  | Fair
value,September 30,2009 |      
|                                             |  | (dollars in thousands)           |       
|Assets:                                      |  |                                  |        |  |                              |   |         |                                                                      |  |   |                       |  |  |                              |       |   |                       |   |        |                                                                      |  |   |             |  |  |                              |       |  |  |   |     |   |  |   |        | 
|Deposits for participation interest accounts |  | $                                |       |  |                              | $ |        |                                                                      |  | $ | 5                     |  |  | $                            | 8,477 |   |                       | $ | 8,482  |                                                                      |  | $ |            |  |  | $                            |      |  |  | $ |    |   |  | $ |       | 
|Service revenue receivables                  |  |                                  | 53,279 |  |                              |   | (38,692 | )                                                                    |  |   | 437                   |  |  |                              | (294  | ) |                       |   | 14,730 |                                                                      |  |   | 67,475      |  |  |                              | 3,449 |  |  |   | (24 | ) |  |   | 70,900 | 
|                                             |  |                                  |        |  |                              |   |         |                                                                      |  |   |                       |  |  |                              |       |   |                       |   |        |                                                                      |  |   |             |  |  |                              |       |  |  |   |     |   |  |   |        | 
|Total assets:                                |  | $                                | 53,279 |  |                              | $ | (38,692 | )                                                                    |  | $ | 442                   |  |  | $                            | 8,183 |   |                       | $ | 23,212 |                                                                      |  | $ | 67,475      |  |  | $                            | 3,449 |  |  | $ | (24 | ) |  | $ | 70,900 | 
|                                             |  |                                  |        |  |                              |   |         |                                                                      |  |   |                       |  |  |                              |       |   |                       |   |        |                                                                      |  |   |             |  |  |                              |       |  |  |   |     |   |  |   |        | 

(b) Fair Values of Other Financial Instruments

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 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 restricted cash and guaranteed investment contracts, receivable from TERI for pledged accounts and deposits approximate fair value due to their short duration, and that the fair value of mortgage loans held to maturity is not
materially different from its carrying value.

The estimated fair values of education loans held to maturity and long-term borrowings
presented in the table below were based on the net present value of cash flows, using the same observable and unobservable performance assumptions that we used to estimate the fair value of our service revenue receivables, applying discount rates
commensurate with the duration, yield and credit ratings of the assets or liabilities, as applicable. The fair value of UFSB-SPVs liability under the education loan warehouse facility was estimated based upon the fair values of eligible assets
used as collateral.



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The following table discloses the carrying values and estimated fair values of certain financial instruments
not recorded at fair value in the balance sheet:



|                                                                   |  |                        |           |  |               |   |           |                |  |   |            |  |  |   |         | 
|------------------------------------------------------------------ |  | ---------------------- | --------- |  | ------------- | - | --------- | -------------- |  | - | ---------- |  |  | - | ------- | 
|                                                                   |  | September 30, 2010     |           |  | June 30, 2010 |  
|                                                                   |  | Carrying value         |           |  | Fair value    |   |           | Carrying value |  |   | Fair value | 
|                                                                   |  | (dollars in thousands) |          
|                                                                   |  |                        |           | 
|Education loans held to maturity, net of allowance for loan losses |  | $                      | 7,443,873 |  |               | $ | 5,309,965 |                |  | $ | 391        |  |  | $ | 391     | 
|Education loan warehouse facility                                  |  |                        |          |  |               |   |          |                |  |   | 218,059    |  |  |   | 108,447 | 
|Long-term borrowings                                               |  |                        | 8,848,281 |  |               |   | 6,017,948 |                |  |   |           |  |  |   |        | 

(11) Commitments and Contingencies

(a) TERI Reorganization

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 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 education loans. On April 7,
2008, TERI filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code.

In April 2010, the Bankruptcy Court
held a hearing to consider confirmation of the fourth amended and restated plan of reorganization (Plan of Reorganization). The Plan of Reorganization included a proposed settlement of an adversary complaint filed by the Creditors Committee
challenging certain security interests granted by TERI to the Trusts, as well as other provisions that would affect the claims of the Trusts. Each of the Trusts voted, or were deemed to have voted, in favor of the Plan of Reorganization in April
2010, thereby electing to accept settlement of the adversary proceeding and their respective claims. The Bankruptcy Court subsequently made findings at the confirmation hearing that the Plan of Reorganization met the requirements for confirmation
under the Bankruptcy Code. Following such hearing, however, TERI and the Creditors Committee filed a motion to modify the Plan of Reorganization. In July 2010, the Bankruptcy Court denied the motion and also vacated the earlier findings that the
Plan of Reorganization met the requirements for confirmation.

In August 2010, TERI and the Creditors Committee filed the Modified Plan of
Reorganization and a motion seeking approval of revised disclosure materials and procedures by which creditors who previously voted on the Plan of Reorganization would have the opportunity to change their vote with respect to the Modified Plan of
Reorganization. Each of the Trusts voted, or were deemed to have voted, in favor of the Modified Plan of Reorganization in September 2010, thereby electing to accept settlement of the adversary proceeding and their respective claims. On
October 29, 2010, the Bankruptcy Court entered an order confirming the Modified Plan of Reorganization, which will become effective on a date to be determined by the Creditors Committee provided that the conditions for effectiveness set forth
in the Modified Plan of Reorganization have been met.

In October 2008, we filed proofs of claim against TERI alleging damages and other
claims in the aggregate contingent amount of $87.0 million. On October 8, 2010, FMD, FMER and FMDS entered into the Stipulation, settling certain claims against TERI. The receivables from TERI recorded on our balance sheet at
September 30, 2010 were limited to the aggregate balances in pledged accounts available to the securitization trusts under the Modified Plan of Reorganization. We did not record at September 30, 2010 any additional receivables in respect
of our claims settled by the Stipulation. Any amounts recovered from TERI or liabilities released pursuant to the Stipulation will be recorded as a gain in the period in which they are realized.

See Note 18, Subsequent Events, for additional information regarding the Stipulation and Modified Plan of Reorganization.

(b) Performance Guaranty

In
connection with the sale by Union Federal of an education loan portfolio in October 2009, FMD delivered a performance guaranty (Performance Guaranty) pursuant to which FMD 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 FMD will be released 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 FMD. 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,
nor can we estimate a range of possible losses at this time.



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(c) Assumption of Potential Contingent Liabilities of Union Federal

In April 2010, FMD 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 third-party 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 $20.0 million in the aggregate (Liability Cap). Neither Union Federal nor UFSB-SPV would have any liability until the conduit lenders aggregate losses exceeded
$3.5 million (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.

FMD 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, FMD 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, nor can we estimate a range of possible losses at this time.

(d) 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 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 education 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 October 29, 2010, the Bankruptcy Court entered an order
confirming the Modified Plan of Reorganization pursuant to which TERI will reject its guaranty agreements. See Note 18, Subsequent EventsTERI Modified Plan of Reorganization, for additional information regarding the Modified
Plan of Reorganization. The rejection of TERIs guaranty agreements will generally terminate our purchase obligations under our loan purchase agreements. No amounts were accrued in the financial statements with respect to potential liabilities
under these loan purchase agreements as of September 30, 2010.

(12) Segment Reporting

Operating results by segment were as follows:



|                                                                |  |                                                             |         |   |                      |   |          |              |  |   |               |   |  |                |          |   |                                  |   |         |       |  |   |         |   |  |   |          |  
|--------------------------------------------------------------- |  | ----------------------------------------------------------- | ------- | - | -------------------- | - | -------- | ------------ |  | - | ------------- | - |  | -------------- | -------- | - | -------------------------------- | - | ------- | ----- |  | - | ------- | - |  | - | -------- | -
|                                                                |  | Three months ended September 30,                            |        
|                                                                |  | 2010                                                        |         |   | 2009                 |  
|                                                                |  | LoanOperations                                              |         |   | SecuritizationTrusts |   |          | Eliminations |  |   | Total         |   |  | LoanOperations |          |   | Deconsolidationand 
Eliminations |   |         | Total | 
|                                                                |  | (dollars and shares in thousands, except per share amounts) |        
|                                                                |  |                                                             |         |   | (As restated)        |   |          |              |  |   | (As restated) |   |  |                |          |   |                                  |   |         |       | 
|Revenues:                                                       |  |                                                             |         |   |                      |   |          |              |  |   |               |   |  |                |          |   |                                  |   |         |       |  |   |         |   |  |   |          |  
|Net interest income:                                            |  |                                                             |         |   |                      |   |          |              |  |   |               |   |  |                |          |   |                                  |   |         |       |  |   |         |   |  |   |          |  
|Interest income                                                 |  | $                                                           | 480     |   |                      | $ | 87,451   |              |  | $ | 10            |   |  | $              | 87,941   |   |                                  | $ | 4,454   |       |  | $ | 4,028   |   |  | $ | 8,482    |  
|Interest expense                                                |  |                                                             | (383    | ) |                      |   | (18,043  | )            |  |   |              |   |  |                | (18,426  | ) |                                  |   | (841    | )     |  |   | (3,201  | ) |  |   | (4,042   | )
|                                                                |  |                                                             |         |   |                      |   |          |              |  |   |               |   |  |                |          |   |                                  |   |         |       |  |   |         |   |  |   |          |  
|Net interest income                                             |  |                                                             | 97      |   |                      |   | 69,408   |              |  |   | 10            |   |  |                | 69,515   |   |                                  |   | 3,613   |       |  |   | 827     |   |  |   | 4,440    |  
|Provision for loan losses                                       |  |                                                             | (59     | ) |                      |   | (107,064 | )            |  |   |              |   |  |                | (107,123 | ) |                                  |   | 50      |       |  |   |        |   |  |   | 50       |  
|                                                                |  |                                                             |         |   |                      |   |          |              |  |   |               |   |  |                |          |   |                                  |   |         |       |  |   |         |   |  |   |          |  
|Net interest income (loss) after provision for loan losses      |  |                                                             | 38      |   |                      |   | (37,656  | )            |  |   | 10            |   |  |                | (37,608  | ) |                                  |   | 3,663   |       |  |   | 827     |   |  |   | 4,490    |  
|Non-interest revenues:                                          |  |                                                             |         |   |                      |   |          |              |  |   |               |   |  |                |          |   |                                  |   |         |       |  |   |         |   |  |   |          |  
|Asset servicing fees:                                           |  |                                                             |         |   |                      |   |          |              |  |   |               |   |  |                |          |   |                                  |   |         |       |  |   |         |   |  |   |          |  
|Fee income                                                      |  |                                                             | 978     |   |                      |   |         |              |  |   |              |   |  |                | 978      |   |                                  |   | 2,102   |       |  |   |        |   |  |   | 2,102    |  
|Fee updates                                                     |  |                                                             | 91      |   |                      |   |         |              |  |   |              |   |  |                | 91       |   |                                  |   | 160     |       |  |   |        |   |  |   | 160      |  
|                                                                |  |                                                             |         |   |                      |   |          |              |  |   |               |   |  |                |          |   |                                  |   |         |       |  |   |         |   |  |   |          |  
|Total asset servicing fees                                      |  |                                                             | 1,069   |   |                      |   |         |              |  |   |              |   |  |                | 1,069    |   |                                  |   | 2,262   |       |  |   |        |   |  |   | 2,262    |  
|Additional structural advisory fees and residualstrust updates |  |                                                             | (710    | ) |                      |   |         |              |  |   | 78            |   |  |                | (632     | ) |                                  |   | 1,187   |       |  |   |        |   |  |   | 1,187    |  
|Administrative and other fees                                   |  |                                                             | 4,647   |   |                      |   | 293      |              |  |   | (2,687        | ) |  |                | 2,253    |   |                                  |   | 5,768   |       |  |   | (171    | ) |  |   | 5,597    |  
|                                                                |  |                                                             |         |   |                      |   |          |              |  |   |               |   |  |                |          |   |                                  |   |         |       |  |   |         |   |  |   |          |  
|Total non-interest revenues                                     |  |                                                             | 5,006   |   |                      |   | 293      |              |  |   | (2,609        | ) |  |                | 2,690    |   |                                  |   | 9,217   |       |  |   | (171    | ) |  |   | 9,046    |  
|                                                                |  |                                                             |         |   |                      |   |          |              |  |   |               |   |  |                |          |   |                                  |   |         |       |  |   |         |   |  |   |          |  
|Total revenues                                                  |  |                                                             | 5,044   |   |                      |   | (37,363  | )            |  |   | (2,599        | ) |  |                | (34,918  | ) |                                  |   | 12,880  |       |  |   | 656     |   |  |   | 13,536   |  
|Non-interest expenses:                                          |  |                                                             |         |   |                      |   |          |              |  |   |               |   |  |                |          |   |                                  |   |         |       |  |   |         |   |  |   |          |  
|Compensation and benefits                                       |  |                                                             | 7,871   |   |                      |   |         |              |  |   |              |   |  |                | 7,871    |   |                                  |   | 8,137   |       |  |   |        |   |  |   | 8,137    |  
|General and administrative expenses                             |  |                                                             | 12,160  |   |                      |   | 11,770   |              |  |   | (2,833        | ) |  |                | 21,097   |   |                                  |   | 17,654  |       |  |   | 535     |   |  |   | 18,189   |  
|Losses on education loans held for sale                         |  |                                                             |        |   |                      |   |         |              |  |   |              |   |  |                |         |   |                                  |   | 60,403  |       |  |   | 63,523  |   |  |   | 123,926  |  
|                                                                |  |                                                             |         |   |                      |   |          |              |  |   |               |   |  |                |          |   |                                  |   |         |       |  |   |         |   |  |   |          |  
|Total non-interest expenses                                     |  |                                                             | 20,031  |   |                      |   | 11,770   |              |  |   | (2,833        | ) |  |                | 28,968   |   |                                  |   | 86,194  |       |  |   | 64,058  |   |  |   | 150,252  |  
|                                                                |  |                                                             |         |   |                      |   |          |              |  |   |               |   |  |                |          |   |                                  |   |         |       |  |   |         |   |  |   |          |  
|Income (loss) before income taxes                               |  |                                                             | (14,987 | ) |                      |   | (49,133  | )            |  |   | 234           |   |  |                | (63,886  | ) |                                  |   | (73,314 | )     |  |   | (63,402 | ) |  |   | (136,716 | )
|Income taxes                                                    |  |                                                             | 1,082   |   |                      |   |         |              |  |   |              |   |  |                | 1,082    |   |                                  |   | (6,939  | )     |  |   | 1,548   |   |  |   | (5,391   | )
|                                                                |  |                                                             |         |   |                      |   |          |              |  |   |               |   |  |                |          |   |                                  |   |         |       |  |   |         |   |  |   |          |  
|Net income (loss)                                               |  | $                                                           | (16,069 | ) |                      | $ | (49,133  | )            |  | $ | 234           |   |  | $              | (64,968  | ) |                                  | $ | (66,375 | )     |  | $ | (64,950 | ) |  | $ | (131,325 | )
|                                                                |  |                                                             |         |   |                      |   |          |              |  |   |               |   |  |                |          |   |                                  |   |         |       |  |   |         |   |  |   |          |  
|Net income (loss) per basic and diluted share                   |  | $                                                           | (0.16   | ) |                      | $ | (0.49    | )            |  | $ | 0.01          |   |  | $              | (0.64    | ) |                                  | $ | (0.67   | )     |  | $ | (0.65   | ) |  | $ | (1.32    | )
|Basic and diluted weighted-average shares outstanding           |  |                                                             |         |   |                      |   |          |              |  |   |               |   |  |                | 100,762  |   |                                  |   |         |       |  |   |         |   |  |   | 99,156   |  



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|                                     |  |                        |         |  |                      |   |            |              |  |   |               |   |  |   |           |  
|------------------------------------ |  | ---------------------- | ------- |  | -------------------- | - | ---------- | ------------ |  | - | ------------- | - |  | - | --------- | -
|                                     |  | September 30, 2010     |        
|                                     |  | LoanOperations         |         |  | SecuritizationTrusts |   |            | Eliminations |  |   | Total         |  
|                                     |  | (dollars in thousands) |        
|                                     |  |                        |         |  | (As restated)        |   |            |              |  |   | (As restated) |  
|Total assets                         |  | $                      | 425,597 |  |                      | $ | 7,866,173  |              |  | $ | (41,371       | ) |  | $ | 8,250,399 |  
|Total liabilities                    |  |                        | 108,122 |  |                      |   | 8,905,581  |              |  |   | (35,967       | ) |  |   | 8,977,736 |  
|Total stockholders equity (deficit) |  |                        | 317,475 |  |                      |   | (1,039,408 | )            |  |   | (5,404        | ) |  |   | (727,337  | )

Our Loan Operations segment includes all
of our services to owners of education loans for program design, program support, loan origination, portfolio management, trust administration and asset servicing, including services provided to our Securitization Trusts segment. In addition, the
operations of our bank subsidiary, Union Federal, are included in Loan Operations. The financial results of our Securitization Trusts segment relate only to the 14 consolidated securitization trusts that resulted from a change in accounting
principle effective July 1, 2010, prospectively. The net deficit of entities included in our Securitization Trusts segment does not represent economic exposure to our stockholders. The trusts have been structured to provide creditors or
beneficial interest holders of a securitization trust recourse only to the assets of that particular securitization trust, and not to the assets of FMD, its operating subsidiaries or any other securitization trust. Any deficit generated by a
consolidated trust will reverse out of our accumulated deficit or retained earnings, and be recorded as a non-cash gain, when the trusts liabilities are extinguished or the trust is deconsolidated by us. The amounts presented in
Eliminations for the three months ended September 30, 2010 relate to income recognized by our Loan Operations segment and expenses recognized by our Securitizations Trusts segment for services provided by Loan Operations, as well as
the elimination of the residual interests held by Loan Operations in the GATE Trusts. The amounts presented in Deconsolidation and Eliminations for the three months ended September 30, 2009 relate to the operating results of
UFSB-SPV, deconsolidated effective July 1, 2010, and the related tax adjustments and inter-company eliminations recorded as a result of consolidating UFSB-SPV in prior periods. Such amounts are presented separately from Loan Operations to allow
for comparability between periods. See Note 1, Nature of Business, for a more detailed description of our reporting segments.

(13) Net Interest Income

The following
table reflects the components of net interest income:



|                                                    |  |                                  |        |  |      |   |       | 
|--------------------------------------------------- |  | -------------------------------- | ------ |  | ---- | - | ----- | 
|                                                    |  | Three months ended September 30, |       
|                                                    |  | 2010                             |        |  | 2009 |  
|                                                    |  | (dollars in thousands)           |       
|Interest income:                                    |  |                                  |        |  |      |   |       | 
|Cash and cash equivalents                           |  | $                                | 182    |  |      | $ | 122   | 
|Short-term investments and federal funds sold       |  |                                  | 77     |  |      |   | 2     | 
|Restricted cash and guaranteed investment contracts |  |                                  | 94     |  |      |   |      | 
|Investments available for sale                      |  |                                  | 51     |  |      |   | 104   | 
|Education loans held for sale                       |  |                                  |       |  |      |   | 8,125 | 
|Education loans held to maturity                    |  |                                  | 87,441 |  |      |   |      | 
|Mortgage loans held to maturity                     |  |                                  | 96     |  |      |   | 129   | 
|                                                    |  |                                  |        |  |      |   |       | 
|Total interest income                               |  |                                  | 87,941 |  |      |   | 8,482 | 
|Interest expense:                                   |  |                                  |        |  |      |   |       | 
|Time and savings account deposits                   |  |                                  | 186    |  |      |   | 471   | 
|Money market account deposits                       |  |                                  | 39     |  |      |   | 228   | 
|Education loan warehouse facility                   |  |                                  |       |  |      |   | 3,200 | 
|Other interest-bearing liabilities                  |  |                                  | 158    |  |      |   | 143   | 
|Long-term borrowings                                |  |                                  | 18,043 |  |      |   |      | 
|                                                    |  |                                  |        |  |      |   |       | 
|Total interest expense                              |  |                                  | 18,426 |  |      |   | 4,042 | 
|                                                    |  |                                  |        |  |      |   |       | 
|Net interest income                                 |  | $                                | 69,515 |  |      | $ | 4,440 | 
|                                                    |  |                                  |        |  |      |   |       | 



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(14) General and Administrative Expenses

The following table reflects components of general and administrative expenses:



|                                                |  |                                  |        |  |      |   |        | 
|----------------------------------------------- |  | -------------------------------- | ------ |  | ---- | - | ------ | 
|                                                |  | Three months ended September 30, |       
|                                                |  | 2010                             |        |  | 2009 |  
|                                                |  | (dollars in thousands)           |       
|                                                |  |                                 
|General and administrative expenses:            |  |                                  |        |  |      |   |        | 
|Third-party services                            |  | $                                | 5,336  |  |      | $ | 6,090  | 
|Depreciation and amortization                   |  |                                  | 2,527  |  |      |   | 3,693  | 
|Occupancy and equipment                         |  |                                  | 2,453  |  |      |   | 6,336  | 
|Servicer fees                                   |  |                                  | 6,071  |  |      |   | 338    | 
|Trust collection costs and other trust expenses |  |                                  | 3,026  |  |      |   |       | 
|Other                                           |  |                                  | 1,684  |  |      |   | 1,732  | 
|                                                |  |                                  |        |  |      |   |        | 
|Total                                           |  | $                                | 21,097 |  |      | $ | 18,189 | 
|                                                |  |                                  |        |  |      |   |        | 

(15) Income Taxes

Income tax expense for the first quarter of fiscal 2011 was $1.1 million. The income tax benefit was $5.4 million for the first quarter of fiscal 2010. Beginning in fiscal 2011, we no longer have any
carrybacks to offset taxable income in prior periods. As a result, we recorded a net operating loss carryforward asset as of September 30, 2010, for which we recorded a full valuation allowance. The net effect is that we had no tax expense or
benefit from our operating loss for three months ended September 30, 2010, and we recorded expense accruals related to unrecognized tax benefits. Our net deferred tax liability increased during the three months ended September 30, 2010 by $0.4
million, and we, therefore, incurred deferred state tax expense. For the first quarter of fiscal 2010, we recorded an income tax benefit for a limited amount of losses, as these losses could be carried back to offset taxable income in earlier
periods.

Under current law, we do not have remaining taxes paid within available net operating loss carryback periods, and it is more likely
than not that our deferred tax assets will not be realized through future reversals of existing temporary differences or available tax planning strategies. Accordingly, we have determined that a valuation allowance is necessary for all of our
deferred tax assets not scheduled to reverse against existing deferred tax liabilities as of September 30, 2010. We will continue to review the recognition of deferred tax assets on a quarterly basis.

Net unrecognized tax benefits were $30.9 million at September 30, 2010 and June 30, 2010. At September 30, 2010, we had
$6.4 million accrued for interest and no amounts accrued for the payment of penalties. At June 30, 2010, we had $5.8 million accrued for interest and no amounts accrued for the payment of penalties.

In November 2009, the Worker, Homeownership and Business Assistance Act of 2009 (WHBAA) was signed into law. Under the WHBAA, we were permitted to
carry back the taxable losses from either fiscal 2009 or 2010 for five years instead of two years. We filed our fiscal 2010 tax return and elected to carry that taxable loss back for five years. As a result of the WHBAA and pre-existing net
operating loss carryback rules, we recorded an income tax receivable at September 30, 2010 of $45.1 million, which was received on October 1, 2010. The tax refund included $21.2 million that was attributable to Union Federal,
which we distributed to Union Federal pursuant to our tax sharing agreement. On October 22, 2010, the OTS approved a cash dividend to be declared and paid by Union Federal to FMD of up to $29.0 million. As of November 9, 2010, Union
Federal had not paid such dividend.

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 an income tax receivable for federal income taxes paid on prior taxable income. In fiscal 2010, we received a total of $189.3 million in federal and state income tax refunds related to our income tax
receivables.

During April 2010, the Internal Revenue Service (IRS) commenced an audit of our tax returns for fiscal years 2007, 2008 and
2009. In connection with the October 1, 2010 tax refund, the IRS has expanded its audit to include fiscal year 2010. We cannot predict the timing or outcome of the audit at this time. As of the date of this quarterly report, no adjustments had
been proposed by the IRS.



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(16) 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 September 30,                            |        
|                                       |  | 2010                                                        |         |   | 2009          |  
|                                       |  | (dollars and shares in thousands, except per share amounts) |        
|                                       |  | (As restated)                                               |         |   | (As restated) |  
|Net loss                               |  | $                                                           | (64,968 | ) |               | $ | (131,325 | )
|Net loss per common share:             |  |                                                             |         |   |               |   |          |  
|Basic                                  |  | $                                                           | (0.64   | ) |               | $ | (1.32    | )
|Diluted                                |  |                                                             | (0.64   | ) |               |   | (1.32    | )
|Weighted-average shares outstanding:   |  |                                                             |         |   |               |   |          |  
|Basic                                  |  |                                                             | 100,762 |   |               |   | 99,156   |  
|Diluted                                |  |                                                             | 100,762 |   |               |   | 99,156   |  
|Anti-dilutive common stock equivalents |  |                                                             | 8,910   |   |               |   | 7,717    |  

As a result of the net losses for the
periods presented, common stock equivalents are considered anti-dilutive, and, therefore, are excluded from diluted weighted-average shares outstanding. Common stock equivalents include restricted stock units, Series B Non-Voting Convertible
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.

(17) Union Federal Regulatory Matters

(a) Regulatory Capital Requirements

Union Federal is subject to various regulatory capital requirements administered by the 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 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. Union Federals equity capital was $42.6 million at
September 30, 2010.

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 Guidelines |     |   |                 |  |      |                    | 
|                           |  | Minimum               |     |   | Wellcapitalized |  |      | September 
30,2010 |  |  | June 
30,2010 |  
|Risk-based capital ratios: |  |                       |     |   |                 |  |      |                    |  |  |               |   |  |  |       |  
|Tier 1 capital             |  |                       | 4.0 | % |                 |  | 6.0  | %                  |  |  | 125.9         | % |  |  | 124.8 | %
|Total capital              |  |                       | 8.0 |   |                 |  | 10.0 |                    |  |  | 126.5         |   |  |  | 125.5 |  
|Tier 1 leverage ratio      |  |                       | 4.0 |   |                 |  | 5.0  |                    |  |  | 34.2          |   |  |  | 27.9  |  

As of September 30, 2010 and
June 30, 2010, 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).



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On October 22, 2010, the OTS approved a cash dividend from Union Federal to First Marblehead of up to
$29.0 million. The approved amount of the dividend includes the $21.2 million that we distributed to Union Federal pursuant to our tax sharing agreement. As of November 9, 2010, Union Federal had not paid such dividend.

(b) Supervisory Agreement and Order to Cease and Desist

In July 2009, FMD entered into a supervisory agreement (Supervisory Agreement) with the OTS and Union Federal entered into an order to cease and desist (Order) with the OTS, each of which were terminated
by the OTS in its entirety in March 2010.

In connection with the termination of the Supervisory Agreement, our Board of Directors adopted
resolutions requiring FMD to support the implementation by Union Federal of its business plan, so long as Union Federal is owned or controlled by FMD, and to notify the OTS in advance of any distributions to our stockholders 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, respectively, FMD remains 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.

(18) Subsequent Events

(a) TERI Stipulation

In October 2008, FMD and FMER asserted claims against TERIs bankruptcy estate in the aggregate amount of $87.0 million, including damages
related to the rejection by TERI of its contracts with FMD and FMER. In addition, FMDS asserted claims, unliquidated in amount, seeking indemnification and reimbursement for fees incurred as administrator of securitization trusts holding
TERI-guaranteed private education loans.

On October 8, 2010, FMD, FMER and FMDS (FM Stipulation Parties) entered into the Stipulation
with TERI and the Creditors Committee. The Bankruptcy Court entered an order approving the Stipulation on October 18, 2010. Except as otherwise noted below, the Stipulation resolved all claims and controversies among the FM Stipulation Parties
and TERI. The Stipulation provided, among other things:



| |  |  | FMD and FMER have allowed unsecured, non-priority claims against TERIs bankruptcy estate in the aggregate amount of approximately
$28.1 million;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Excluding the FM Stipulation Parties obligations under the Stipulation, TERI provided a general release in favor of the FM Stipulation Parties
and their affiliates relating to all claims arising prior to October 18, 2010, subject to a carve-out for a dispute relating to certain obligations and restrictions that FMD and FMER allege continue to apply to TERIs use of certain loan
data (Dispute);
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Excluding TERIs obligations under the Stipulation and the FM Stipulation Parties allowed claims against TERIs bankruptcy estate, the
FM Stipulation Parties provided a general release in favor of TERI and its affiliates relating to all claims arising prior to October 18, 2010, subject to a carve-out for the Dispute;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | TERI and its successors acknowledged that each of FMD and FMER performed in full all of its respective duties and discharged in full all of its
respective obligations arising prior to October 7, 2010 under the transition services agreement dated as of May 30, 2008 among TERI, FMD and FMER; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The allowed claims of FMD and FMER were deemed to vote in favor of the Modified Plan of Reorganization.
| | - |  | -------------------------------------------------------------------------------------------------------

The receivables from TERI recorded on our balance sheet at September 30, 2010 were limited to the aggregated balances in pledged accounts available
to the securitization trusts under the Modified Plan Reorganization. We did not record at September 30, 2010 any additional receivables in respect of our claims settled by the Stipulation. We have recorded notes payable to TERI and other
liabilities on our consolidated balance sheet as of September 30, 2010. Pursuant to the terms of the Stipulation, remaining amounts due to TERI were released, and during the second quarter of fiscal 2011, we expect to record a gain on the
reversal of these liabilities.

(b) TERI Modified Plan of Reorganization

On October 29, 2010, the Bankruptcy Court entered an order confirming the Modified Plan of Reorganization. The Modified Plan of Reorganization
provides, among other things, that general unsecured creditors of TERI, including us, will receive a pro rata share of



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cash and future recoveries or other proceeds in respect of a portfolio of defaulted education loans to be held by a liquidating trust. General unsecured creditors are expected to receive a small
portion of their respective allowed claims shortly following the effective date of the Modified Plan of Reorganization, based on the amount of cash to be transferred from TERI to the liquidating trust pursuant to the Modified Plan of Reorganization.
Additional distributions to general unsecured creditors are expected to occur from time to time, based on the level of recoveries or other proceeds in respect of the loan portfolio to be held by the liquidating trust. Recoveries on defaulted
education loans may be collected over many years, and amounts ultimately received by general unsecured creditors may depend in part on the experience and skill of the party or parties managing collections with respect to such loans.

The Modified Plan of Reorganization will become effective on a date established by the Creditors Committee, provided that all conditions precedent to
effectiveness set forth in the Modified Plan of Reorganization have been met. As of November 9, 2010, the Modified Plan of Reorganization had not yet been declared effective.

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



| |  |  | Each NCSLT Trusts claims, and the adversary proceeding relating to such trusts security interests, will be settled;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | The claims estimation methodology developed by the Creditors Committee forms the basis for estimating the NCSLT Trusts contingent guaranty claims
based on future loan defaults. In most cases, those claims will exceed the available collateral, and the excess will be treated as unsecured claims against TERIs estate in amounts specified in the Modified Plan of Reorganization;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Each NCSLT Trust will receive all, or a portion of, any remaining balance in its respective pledged account;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | Certain defaulted loans purchased by TERI prior to April 7, 2008 (Petition Date) will be transferred to the indenture trustee for the benefit of
the noteholders of the respective NCSLT Trust;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Defaulted loans purchased by TERI after the Petition Date will be transferred to the liquidating trust as assets available for distribution among
unsecured creditors;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Recoveries on defaulted loans, which have been deposited into escrow since July 2008, will be transferred back to the respective NCSLT Trust to the
extent that they relate to defaulted loans purchased by TERI prior to the Petition Date;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | TERI will release its claim against the NCSLT Trusts for payment of subsequent guaranty fees; and
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | The litigation commenced by the Creditors Committee will be dismissed with prejudice against the indenture trustee, the NCSLT Trusts, and the
administrator, FMDS.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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 Item 1 of Part I of this quarterly report and in conjunction with the audited financial statements included in our Form 10-K, or Annual Report, filed with the
Securities and Exchange Commission, or SEC, on September 2, 2010.

We use the terms we, us and
our in this quarterly report to refer to the business of The First Marblehead Corporation and its subsidiaries and consolidated variable interest entities, or VIEs, on a consolidated basis. We use the term First Marblehead or
FMD in this quarterly report to refer to the business of The First Marblehead Corporation on a stand-alone 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, timing, 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 Item 1A of Part II 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 November 9, 2010.

Restatement of Unaudited Financial Statements

On May 10, 2011, we announced that our board of directors, in consultation with management, our audit committee and KPMG LLP, our independent registered public accounting firm, concluded that certain
unaudited financial statements included in our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2010, which was originally filed with the SEC on November 9, 2010 and which we refer to as the Original Q1, as well
certain unaudited financial statements included in our Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2010, which was originally filed with the SEC on February 9, 2011 and which we refer to as the Original Q2,
should no longer be relied upon.

Effective July 1, 2010, we adopted Accounting Standards Update, or ASU, 2009-16, Transfers and
Servicing (Topic 860)Accounting for Transfers of Financial Assets, or ASU 2009-16, and ASU 2009-17, Consolidation (Topic 810)Improvements to Financial Reporting by Enterprises Involved With Variable Interest Entities, or ASU
2009-17. As a result, we consolidated 14 securitization trusts that were previously accounted for off-balance sheet.

We do not own any of the
residual interests in 11 of the consolidated trusts, which we refer to as the NCSLT Trusts. In addition, the NCSLT Trusts have been structured to provide recourse only to the assets of that particular securitization trust and not to the assets of
FMD, its subsidiaries or any other securitization trust. Under Accounting Standards Codification, or ASC, 810, Consolidation, or ASC 810, we are nonetheless required to consolidate the NCSLT Trusts as a result of our additional structural
advisory fee receivables from the NCSLT Trusts and the services we provided to the NCSLT Trusts related to default prevention and collections management.

In the Original Q1 and the Original Q2, we, in consultation with KPMG LLP, presented the equity interests in the NCSLT Trusts, which are owned by an unrelated third party, as non-controlling
interests in our consolidated balance sheets, as a separate component of stockholders equity. In addition, in our consolidated statements of operations, we allocated the net losses generated by the NCSLT Trusts to non-controlling
interests. The net losses of the NCSLT Trusts did not, therefore, directly impact the net loss, loss per share or equity available to First Marblehead stockholders.

On May 9, 2011, KPMG LLP reported to our board of directors and our audit committee that our allocations to non-controlling interests were not consistent with U.S. generally accepted accounting
principles, or GAAP. Instead, under GAAP the NCSLT Trusts asset performance, including losses, should be allocated to FMD until the trusts are deconsolidated or trust liabilities are extinguished.



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As a result, we have restated our unaudited financial statements contained in the Original Q1 and the
Original Q2, to eliminate the allocation of losses generated by the NCSLT Trusts to non-controlling interests in our restated consolidated statements of operations. Our restated financial results included in this amendment to the Original Q1, which
we refer to as the Q1 Amendment, include the losses generated by the NCSLT Trusts in our net loss and net loss per share for the three months ended September 30, 2010, and our accumulated deficit as of September 30, 2010. Although accounting
standards require that the net losses or income of the NCSLT Trusts be included in our statements of operations, our rights to receive income generated by the NCSLT Trusts are limited to the collection of fees for services provided. Our restated
consolidated balance sheet as of September 30, 2010 reflects in accumulated deficit, rather than as a separate component of stockholders equity, the deficit generated by the NCSLT Trusts, although we have no obligation to fund such
deficit.

The discussion and analysis set forth in this Item 2 has been amended to reflect the restatement as described in the
Explanatory Note at the beginning of this Q1 Amendment and in Note 3, Restatement of Unaudited Consolidated Financial Statements and Corrections of Immaterial Errors in Prior Fiscal Years, included in the notes to our unaudited
consolidated financial statements included in Item 1 of Part I of this quarterly report.

Executive Summary

Overview

The presentation of our
financial results for the fiscal quarter ended September 30, 2010 significantly differs from prior periods due to the adoption of ASU 2009-16 and ASU 2009-17, as described in more detail in Note 2, Summary of Significant
Accounting PoliciesConsolidation and Note 4, Change in Accounting Principle, in the notes to our unaudited consolidated financial statements included in Item 1 of Part I of this quarterly report. As a result of
our adoption of ASU 2009-16 and ASU 2009-17 effective as of July 1, 2010, we have consolidated 14 VIEs. These VIEs are securitization trusts that we facilitated and previously accounted for off-balance sheet. In addition, we have
deconsolidated our indirect subsidiary UFSB Private Loan SPV, LLC, or UFSB-SPV. As a result, beginning with this quarterly report, we will report on two lines of business for segment reporting purposes. Our determination of the activities that
constitute a segment is based on the manner in which our chief operating decision makers measure profits or losses, assess performance and allocate resources.

The results of FMD and its subsidiaries that we historically reported in our consolidated results prior to July 1, 2010, with the exception of the deconsolidation of UFSB-SPV, are referred to as
Loan Operations throughout this quarterly report. The financial results of our Loan Operations segment have generally been derived from our services relating to private education loans, as further described below.

The VIEs consolidated upon our adoption of ASU 2009-16 and 2009-17 consist of 14 securitization trusts that purchased portfolios of private
education loans facilitated by us during our fiscal years 2003 through 2007, although not all securitization trusts facilitated by us during that period have been consolidated. See Note 2, Summary of Significant Accounting
PoliciesConsolidation, in the notes to our unaudited consolidated financial statements included in Item 1 of Part I of this quarterly report for a discussion of the basis on which certain securitization trusts are consolidated.
The securitization trusts that we have facilitated financed purchases of private education loans by issuing debt to third-party investors. The education loans purchased by the NCSLT Trusts were initially subject to a repayment guaranty by The
Education Resources Institute, Inc., or TERI, while the education loans purchased by other securitization trusts, which we refer to as the NCT Trusts, were, with limited exceptions, not TERI-guaranteed. Of the 14 consolidated securitization trusts,
11 are NCSLT Trusts and three are NCT Trusts. We refer to the consolidated NCT Trusts as the GATE Trusts. We present the financial results of the 14 consolidated securitization trusts as a single segment referred to as Securitization
Trusts throughout this quarterly report. Administration of such trusts, including investor reporting and default prevention and portfolio management services, is provided by our Loan Operations segment.

For the three months ended September 30, 2010, the revenues and expenses included in Eliminations for segment reporting purposes relate
to revenues recorded by our Loan Operations segment, and expenses recorded by our Securitization Trusts segment, relating to services provided to the 14 consolidated securitization trusts, including life-of-trust fees related to initial
securitization structuring and on-going fees for trust administration and default prevention and management, as well as elimination of the residual interest ownership held by our Loan Operations segment in the GATE Trusts.

For the three months ended September 30, 2009, the financial results of UFSB-SPV, which was deconsolidated on July 1, 2010 with the adoption of
ASU 2009-16 and ASU 2009-17, as well as related adjustments to deferred tax assets and eliminations of inter-company revenues that were recorded due to consolidating UFSB-SPV in prior periods, have been separately presented in Deconsolidation
and Eliminations for segment reporting purposes to allow for comparability between periods.

Loan Operations

Under our Loan Operations segment, we offer outsourcing services to national and regional financial and educational institutions for designing and
implementing private education loan programs. These school-certified loan programs are designed to be marketed



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through educational institutions or to prospective student borrowers and their families directly and to generate portfolios intended to be held by the originating lender or financed in the
capital markets. We offer a fully integrated suite of services through our Monogram platform, as well as certain services on a stand-alone, fee-for-service basis. In addition, we provide administrative and other services to securitization trusts
that we facilitated, portfolio management services and asset servicing to the third-party owner of the trust certificate of NC Residuals Owners Trust, which we refer to as the Trust Certificate. We sold the Trust Certificate in fiscal 2009, and NC
Residuals Owners Trust held our residual interests in securitization trusts holding education loans initially subject to a repayment guaranty by TERI, which we refer to as the Trusts, including the NCSLT Trusts.

We offer clients the opportunity to outsource key components of their private education loan programs to us by offering the following services on a
stand-alone, fee-for-service basis or as an integrated part of our Monogram platform:



| |  |  | Loan originationWe provide loan processing services to schools and lenders, from application intake through loan disbursement. We are able
to customize our services to meet the specific branding, pricing and underwriting requirements of our clients.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Portfolio managementWe manage private education loan portfolios on behalf of their owners, including securitization trusts facilitated by
us, by employing risk analytics to monitor and manage the performance of the portfolio over time. As part of this service offering, we monitor portfolio performance metrics, manage the performance of third-party vendors and interface with rating
agencies. Our infrastructure enables comprehensive analytics, based on validated data, and we are able to customize collections strategies as needed to optimize loan performance.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Trust administrationAs administrator for securitization trusts that we facilitated, we perform various administrative functions, including
preparation of financial statements and monitoring of the performance of loan servicers and third-party collection agencies. We are responsible for reconciliation of funds among the third parties and the trusts, and we also provide regular reporting
to investors in these securitization trusts as well as other related parties.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Asset servicingOur experience enables us to offer asset servicing such as residual analysis and valuation optimization services and
strategies relating to asset funding to holders of a residual interest in private education loan securitizations.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our
Monogram platform enables a lender to customize some or all of our service offerings based on its particular needs, including its risk control and return objectives. Specifically, in consultation with us, the lender can customize the range of loan
terms offered to its qualified applicants, such as borrower repayment options, repayment terms and borrower pricing. Our Monogram platform 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 and features 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 online 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. A Monogram-based loan program can be structured so that lenders hold the loans through the scheduled repayment, prepayment or default, or for some limited period of time before disposing
of the loans in a capital markets transaction. We believe that the loans generated through our Monogram platform will generally have shorter repayment periods and an increased percentage of borrowers making payments while in school, in each case
when compared to loans generated under programs that we previously facilitated, as well as high cosigner participation rates. The success of our Monogram platform will be a key driver of our future financial results and will be critical to growing
and diversifying our revenues and client base.

Development of our Monogram platform was completed in August 2009, and the first loans based
on our Monogram platform were disbursed during the first quarter of fiscal 2011. In connection with the two initial Monogram-based loan programs, we agreed to provide credit enhancement to each of our lender clients by funding deposits for
participation interests, which we refer to as participation accounts, up to dollar limits specified in the agreements, to serve as first-loss reserves for defaulted program loans. We have provided initial deposits into the participation accounts,
and we will further fund the participation accounts on a quarterly basis during the term of the loan program agreements based on the volume and credit tiering of disbursed program loans. As consideration for providing the credit enhancement, we are
entitled to receive a share of the interest generated on the loans. During the first quarter of fiscal 2011, we funded $8.5 million to participation accounts.

Historically, the driver of our results of operations and financial condition for our Loan Operations segment was 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 securitizations.
Securitization refers to the technique of pooling private education loans and selling them



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to a special purpose entity, typically a trust, which issues notes backed by those loans to 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 additional structural advisory fees and residual cash flows
from certain securitization trusts over time.

Our bank subsidiary, Union Federal Savings Bank, or Union Federal, is a federally chartered
thrift regulated by the Office of Thrift Supervision, or OTS, 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, Union Federal did not originate private education loans during fiscal 2009, fiscal 2010, or the first quarter of fiscal 2011, and as of November 9, 2010, we do not expect Union Federal to offer private education
loans during the remainder of fiscal 2011. We have begun exploring strategic alternatives for Union Federal, including a potential sale.

Securitization Trusts

The financial
results of our Securitization Trusts segment relate only to the 14 securitization trusts consolidated as a result of a change in accounting principle effective July 1, 2010. As a result, financial results for our Securitization Trusts segment
are only presented as of the effective date of adoption, prospectively.

The 14 consolidated securitization trusts are managed in accordance
with their applicable indentures, as amended, and their tangible assets are limited to cash, allowable investments and private education loans, as well as the related principal and interest income receivables and recoverables on defaults. Their
liabilities are limited to the debt issued to finance the private education loans and payables accrued in the normal course of their operations, all of which have been structured to be non-recourse to the general credit of First Marblehead.

The majority of our consolidated securitization trusts are NCSLT Trusts, for which we have no ownership interest. Although the cumulative
deficit of these trusts is reflected in our consolidated accumulated deficit, the financial performance of such trusts will ultimately inure to the third-party owners of the residual interests, and any deficit generated by a consolidated trust will
reverse out of our accumulated deficit or retained earnings, and be recorded as a non-cash gain, when the trusts liabilities are extinguished or the trust is deconsolidated by us. As such, the financial performance of the NCSLT Trusts does not
directly impact the long-term equity available to our stockholders, but the financial performance of all of the Trusts, both on- and off-balance sheet, impacts the ability of our Loan Operations segment to recover service revenue receivables due
from these trusts and the third-party owner of the Trust Certificate. The remaining three consolidated securitization trusts are the GATE Trusts, for which we own 100% of the residual interests. To the extent that the GATE Trusts have residual cash
flows, profits would ultimately be realized by our stockholders when those residual payments are made; however, if cash flows of these trusts were insufficient to pay off the long-term borrowings and other legal obligations of the trusts, our
stockholders would not be responsible for those losses.

The NCSLT Trusts hold private education loans that were subject to a loan repayment
guaranty by TERI. In addition, one of our consolidated GATE Trusts holds a limited number of TERI-guaranteed loans. 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 and to the Modified Fourth Amended Joint Plan of Reorganization of The Education Resources Institute, Inc. and the Official Committee of
Unsecured Creditors as of August 26, 2010 as the Modified Plan of Reorganization. The TERI Reorganization has had a material adverse effect on the ability of the NCSLT Trusts to realize guaranty obligations of TERI. Under the Modified Plan of
Reorganization, which was confirmed on October 29, 2010, TERI will reject its guaranty agreements and settle claims with these securitization trusts upon the effectiveness of the Modified Plan of Reorganization. TERIs rejection of its
obligations under the guaranty agreements, combined with higher levels of defaults than initially projected, has had, and will likely continue to have, a material adverse impact on the financial condition of our Securitization Trusts segment.

Business Trends and Uncertainties

The following discussion of business trends and uncertainties is focused on our Loan Operations segment. We have no ownership interest in the NCSLT Trusts as a result of our sale of the Trust Certificate
to a third-party in fiscal 2009. Although we are required under GAAP to reflect the net deficit of the consolidated securitization trusts in our accumulated deficit, and the revenues and expenses of these trusts in our statements of operations and
earnings or loss per share, the financial performance of the NCSLT Trusts will ultimately inure to the third-party owners of the residual interests. Our accumulated deficit (as restated) as of September 30, 2010 included a deficit of $1.03 billion
related to the NCSLT Trusts. Any deficit generated by a consolidated trust will reverse out of our accumulated deficit or retained earnings, and be recorded as a non-cash gain, when the trusts liabilities are extinguished or the trust is
deconsolidated by us. With respect to the NCSLT Trusts, the economic exposure for our stockholders is limited to the value of our service revenue receivables from these trusts, which constitute our variable interests, recorded by our Loan Operations
segment. At



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September 30, 2010, our Loan Operations segment had service revenue receivables of $38.6 million due from the on- and off-balance sheet Trusts and the third-party owner of the Trust
Certificate. With respect to the GATE Trusts, we own 100% of the residual interests. As such, any cumulative profits generated by the trusts will ultimately be realized by our stockholders in the form of residual cash flow payments.

We have not accessed the securitization market since September 2007 as a result of market disruptions that began in the second quarter of fiscal 2008,
continued through fiscal 2009 and fiscal 2010 and, to a lesser extent, persisted as of November 9, 2010. General economic conditions in the United States have deteriorated and have not fully recovered over this time period. Our business has
been and continues to be materially adversely impacted by these conditions.

In addition, credit performance of consumer-related loans
generally, as well as private education loan portfolios included in our consolidated balance sheet and those held by other VIEs not consolidated by us, have been adversely affected by general economic conditions in the United States, including
increased unemployment rates and higher levels of private education loan defaults. While there have been some recent improvements, the interest rate and economic and credit environments may continue to have a material negative effect on loan
portfolio performance and the estimated value of our service revenue receivables.

Prior to the TERI Reorganization, we received reimbursement
from TERI for outsourced loan processing services we performed on TERIs behalf. As a result of capital market disruptions and the TERI Reorganization, many clients elected to terminate some or all of their agreements with us, which resulted in
a significant reduction in our facilitated loan volumes beginning in fiscal 2009 as compared to prior fiscal years. The TERI Reorganization, together with capital markets dislocations, has had, and will likely continue to have, a material adverse
effect on the holders of private education loans guaranteed or formerly guaranteed by TERI.

As a result of economic conditions, we undertook
a number of measures in fiscal 2010 to adjust our business model. These measures are described in Item 7 of Part II of our Annual Report filed with the SEC on September 2, 2010, under the heading Executive SummaryBusiness
Trends and Uncertainties.

As of July 16, 2010, we began to perform services under our loan program agreement with SunTrust Bank,
and as of September 20, 2010, we began to perform services under our loan program agreement with Kinecta Federal Credit Union. The loan program agreements each relate to school-certified education loan programs to be funded by these clients
based on our Monogram platform. Under the terms of the credit enhancement provisions in the loan program agreements, we may facilitate up to an aggregate of $275.0 million in education loans over the life of the two loan programs. We believe
that our Monogram platform will provide us with an opportunity, through our Loan Operations segment, to originate, administer and manage education loans and that the two loan program agreements we have entered into are a significant step in our
return to the education lending marketplace. We also believe that conditions in the capital markets generally continued to improve during the first quarter of fiscal 2011, potentially creating additional flexibility with regard to the future
financing of education loans. We continue to believe, as of November 9, 2010, however, that the structure and economics of any financing transaction will be less favorable than our past securitizations, with the potential for lower revenues and
additional cash requirements on our part. We will continue to seek opportunities for innovative and efficient portfolio funding transactions.

The near term financial performance and future growth of our Loan Operations segment depends in large part on our ability to successfully market our
Monogram platform and transition to more fee-based revenues while growing and diversifying our client base. We are seeking additional lender clients, although we are uncertain as to the degree of market acceptance our Monogram platform will have,
particularly in the current economic environment where many lenders continue to evaluate their education lending business models.

Two
significant events occurred in October 2010 relating to the TERI Reorganization. First, on October 18, 2010, the United States Bankruptcy Court for the District of Massachusetts, which we refer to as the Bankruptcy Court, approved a
stipulation, which we refer to as the Stipulation, among FMD, First Marblehead Education Resources, Inc., First Marblehead Data Services, Inc., TERI and the official committee of unsecured creditors of TERI, which we refer to as the Creditors
Committee, generally resolving claims and controversies among the parties. In addition, on October 29, 2010, the Bankruptcy Court entered an order confirming the Modified Plan of Reorganization. The Stipulation and the Modified Plan of
Reorganization are more fully described in Note 18, Subsequent Events, in the notes to our unaudited consolidated financial statements included in Item 1 of Part I of this quarterly report.

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



| |  |  | the level of market acceptance of our Monogram platform and our fee-for-service offerings;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | demand for private education financing, which may be affected by changes in limitations established by the federal government on the amount of federal
loans that a student can receive, the terms and eligibility criteria for loans and grants under the federal governments programs and legislation recently passed or under consideration as of November 9, 2010;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | competition for providing private education financing and reluctance by lenders to participate in the private education lending market;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | conditions in the private education loan securitization market, including the costs or availability of financing, rating agency assumptions or actions,
and market receptivity to private education loan asset-backed securitizations;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | regulatory requirements applicable to Union Federal and us, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act,
enacted in July 2010, which could involve increased operational and compliance costs for us;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | general interest rate and consumer credit environments, including their effect on our assumed discount rate, default and prepayment rates, the forward
London Interbank Offered Rate, or LIBOR, curve and the securitization trusts ability to recover principal and interest from borrowers;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our critical accounting policies and estimates, which impact the carrying value of assets and liabilities, as well as our determinations to consolidate
or deconsolidate VIEs;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | challenges relating to the federal income tax treatment of the sale of the Trust Certificate or our asset services agreement, or Asset Services
Agreement, with the purchaser of the Trust Certificate, including proceedings related to tax refunds previously received; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | applicable laws and regulations, which may affect the terms upon which lenders agree to make private education loans, recovery rates on defaulted
private education loans and the cost and complexity of our loan facilitation operations.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 and the reported amounts of income and expenses during the reporting periods. We base our estimates,
assumptions and judgments on our historical experience, economic conditions 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 unaudited consolidated financial statements included in Item 1 of Part I 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. We regard an accounting estimate or assumption underlying our financial statements to be a critical accounting estimate where:



| |  |  | the nature of the estimate or assumption is material due to the level of subjectivity and judgment necessary to account for highly uncertain matters or
the susceptibility of such matters to change; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the impact of the estimates and assumptions on our financial condition or operating performance is material.
| | - |  | ------------------------------------------------------------------------------------------------------------

We have discussed our accounting policies with the Audit Committee of our Board of Directors. As a result of our adoption of accounting pronouncements in
the first quarter of fiscal 2011, we re-evaluated which policies are deemed to be critical accounting policies. As of September 30, 2010, we determined that our judgments and estimates regarding whether or not to consolidate the financial
results of VIEs fit the definition of a critical accounting policy, and our estimates relating to the allowance for loan losses, recognition of interest income on delinquent and defaulted private education loans, recognition of asset servicing fees
and trust updates to our service revenue receivables, each as described below, also fit the definition of critical accounting estimates.

Consolidation

Our consolidated
financial statements include the accounts of FMD, its subsidiaries and certain VIEs, as applicable, after eliminating inter-company accounts and transactions. Prior to July 1, 2010, we did not consolidate the financial results of any
securitization trusts



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purchasing loans that we facilitated because each of the securitization trusts created after January 31, 2003 met the criteria to be a qualified special purpose entity, or QSPE, as defined
by ASC 860-40, Transfers and ServicingTransfers to Qualifying Special Purpose Entities, or ASC 860-40. Prior to July 1, 2010, a QSPE was exempt from consolidation. In addition, the securitization trusts created prior to
January 31, 2003 in which we held a variable interest that could have resulted in our being considered the primary beneficiary of such trusts were amended in order for those trusts to be considered QSPEs and, as such, were exempt from
consolidation.

Effective July 1, 2010, we adopted ASU 2009-16 and ASU 2009-17.

ASU 2009-16 removed the concept of a QSPE from ASC 860-40 and removed the exemption from consolidation for QSPEs from ASC 810. ASU 2009-17 updated ASC 810 to require that certain types of enterprises
perform analyses to determine if they are the primary beneficiary of a VIE. A primary beneficiary of a VIE is the enterprise that has both:



| |  |  | the power to direct the activities of a VIE that most significantly impact that VIEs economic performance; and
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | the obligation to absorb losses of the VIE that could potentially be significant to that VIE or the right to receive benefits from the VIE that could
potentially be significant to that VIE.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, ASU 2009-17 requires us to continuously reassess whether consolidation
of VIEs is appropriate, as opposed to the trigger-based assessment allowed under previous guidance. As a result, we may be required to consolidate or deconsolidate VIEs, which may lead to volatility in our financial results and make comparisons of
results between time periods challenging.

Upon adoption, we consolidated 14 securitization trusts that we previously facilitated because we
determined that our services related to default prevention and management, for which we can only be removed for cause, combined with the variability that we absorb as part of our fee structure, made us the primary beneficiary of those trusts. In
addition, we deconsolidated UFSB-SPV because we determined that the power to direct activities that most significantly impact UFSB-SPVs economic performance does not reside with us. Assets and liabilities of the consolidated VIEs were measured
as if they had been consolidated at the time we became the primary beneficiary. All inter-company transactions were eliminated. ASU 2009-17 was applied through a cumulative-effect adjustment to the opening balance of retained earnings at the
effective date. See Note 4, Change in Accounting Principle, in the notes to our unaudited consolidated financial statements included in Item 1 of Part I of this quarterly report for additional information on the impact of
our adoption of ASU 2009-16 and ASU 2009-17.

We continue to monitor our involvement with 18 VIEs for which we perform services related to
default prevention and portfolio management. As of November 9, 2010, we had determined that we are not the primary beneficiary due to the sole, unilateral rights of other parties to terminate us in our role as service provider or due to a lack
of obligation on our part to absorb benefits or losses of the VIE that would be significant to that VIE. Significant changes to the pertinent rights of other parties or significant changes to the ranges of possible trust performance outcomes used in
our assessment of the variability of cash flows due to us could cause us to change our determination of whether or not a VIE should be consolidated in future periods. In particular, the commencement by Ambac Financial Group, Inc., or Ambac, of a
voluntary case under Chapter 11 of the Bankruptcy Code on November 8, 2010 could cause us to change our determination not to consolidate certain VIEs for which an affiliate of Ambac provides credit enhancement.

Our non-interest revenues no longer reflect the additional structural advisory feestrust updates and administrative and other fees due from the 14
consolidated securitization trusts, but continue to reflect such fees due from other off-balance sheet VIEs newly-consolidated. We no longer recognize gains or losses related to the residual interest receivables due from the three consolidated GATE
Trusts, but we continue to recognize revaluation gains and losses on residual receivables from other VIEs not consolidated.

We recognize
interest income associated with securitized loan receivables of the consolidated securitization trusts in the same line item as interest income from non-securitized assets, and we recognize interest expense associated with debt issued by the
consolidated securitization trusts to third-party investors on the same line item as other interest-bearing liabilities.

Education Loans
Held to Maturity and the Related Allowance for Loan Losses, Provision for Loan Losses and Charge-Offs

Allowances for loan losses are
maintained at an amount believed to be sufficient to absorb credit losses inherent in our portfolios of loans held to maturity at the balance sheet date, based on a one-year loss confirmation period. Allowances for loan losses are adjusted through
charges to the provision for loan losses in the statement of operations. Inherent credit losses include losses for loans in default that have not been charged-off and loans that have a high probability of default, less any amounts expected to be
recoverable from borrowers or third parties, as applicable.



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A private education loan is considered to be in default when it is approximately 180 days past due as
to either principal or interest, based on the timing of cash receipts from the borrower. We use projected cash flows to determine the allowance amount deemed necessary for private education loans with a high probability of default at the balance
sheet date. Such default estimates are based on a loss confirmation period of one year, which we believe to be the approximate amount of time that it would take a loss inherent in the private education loan portfolios at the balance sheet date to
ultimately default and be charged-off. The estimates used in the calculation of the allowance for private education loan losses are subject to a number of assumptions, including default, recovery and prepayment rates, as well as the effects of basic
forbearance and alternative payment plans available to borrowers. These assumptions are the same as those used for the estimated fair value of our service revenue receivables, as described more fully in Service Revenue Receivables and
the Related RevenuesPrivate Education Loan Performance and Other Assumptions. These assumptions are based on the status of private education loans at the balance sheet date, as well as macroeconomic indicators and our historical
experience. If actual future loan performance were to differ significantly from the assumptions used, the impact on the allowance for loan losses and the related provision for loan losses for private education loans recorded in the statement of
operations could be material.

Private education loans are charged-off at the end of the reporting period in which they become approximately
270 days past due. Charge-offs are recorded as both a decrease in the outstanding principal and a decrease in the allowance for loan losses. Cash recoveries on private education loans charged-off are recorded as an increase to the allowance for
loan losses.

Recognition of Interest Income on Education Loans

Interest income is recognized using the effective interest method.

Interest income on private
education loans is recognized as earned, adjusted for the amortization of loan acquisition costs and origination fees, based on the expected yield of the loan over its life, after giving effect to expected prepayments, as applicable. The estimate of
the effects of expected prepayments on private education loans reflects voluntary prepayments based on our historical experience and macroeconomic indicators. When changes to assumptions occur, amortization is adjusted on a cumulative basis to
reflect the change since acquisition of the private education loan.

Private education loans held to maturity are placed on non-accrual status
when they become 120 days past due as to either principal or interest, or earlier when full collection of principal or interest is not considered probable. When we place a private education loan on non-accrual status, the accrual of interest is
discontinued and previously recorded but unpaid interest is reversed and charged against interest revenue. For private education loans on non-accrual status but not yet charged-off, interest revenue is recognized on a cash basis. If a borrower makes
payments sufficient to become current on principal and interest prior to ever being charged-off, or cures the private education loan, the loan is taken off of non-accrual status and recognition of interest revenue is continued. Once a
loan has been charged off, all payments made by the borrower are applied to outstanding principal and income is only recorded on a cash basis when all principal has been recovered.

Service Revenue Receivables and the Related Revenues

Asset Servicing Fees. We are
entitled to receive asset servicing fees from the third-party owner of the Trust Certificate for services that we provide on an ongoing basis. We earn asset servicing fees as the services are performed; however, the receipt of the fees is contingent
on distributions from the Trusts available to the third-party owner of the Trust Certificate. We record asset servicing fee income at fair value, based on the estimated present value of the fees earned during the reporting period, and we record
changes in the estimated fair value of fees earned in prior periods as asset servicing fee updates.

Asset servicing fees are based on the
amount of outstanding private education loans held by the Trusts, and our receipt of such fees is contingent on the performance of the Trusts, eleven of which we consolidated as of July 1, 2010. The fees, however, are due from the third-party
owner of the Trust Certificate for services performed on its behalf, and as such, we do not eliminate these fees in consolidation.

Additional Structural Advisory Fees and Residuals. We have historically structured and facilitated securitization transactions for our clients
through a series of special purpose statutory trusts. In connection with its prior securitization activities, our Loan Operations segment is entitled to receive additional structural advisory fees over the lives of the trusts from the majority of
securitization trusts that we facilitated, based on the amount of private education loans outstanding in the trusts from time to time, and in addition, for certain trusts, Loan Operations is also entitled to residual interests.

The majority of our additional structural advisory fees and a significant portion of our residuals are due from consolidated securitization trusts and
are eliminated upon consolidation. We have no ownership interest in the Trusts, but the financial performance of the Trusts, both the NCSLT Trusts and off-balance sheet Trusts, impacts the ability of our Loan Operations segment to recover service
revenue receivables due from these Trusts and the third-party owner of the Trust Certificate. Accordingly, we continue to report additional structural advisory fees and residualstrust updates, prior to elimination, under Loan Operations in our
segment results.



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We recognized the fair value of additional structural advisory fee and residual receivables as revenue at
the time the securitization trust purchased the private education loans, as they were deemed to be earned at the time of the securitization. These amounts were deemed earned because evidence of an arrangement exists, we 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. On a quarterly basis, we update our estimate of the fair value of these receivables as if they are
investments in securities classified as trading. We recognize changes in fair value, less cash received, if any, as trust updates in servicing revenue in the period in which the change in estimate occurs.

Private Education Loan Performance and Other Assumptions. Because there are no quoted market prices for our service revenue receivables, we use
discounted cash flow modeling techniques and the following key assumptions to estimate fair value:



| |  |  | expected annual rate and timing of private education loan defaults, including the effects of various risk mitigation strategies;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | expected amount and timing of recoveries of defaulted private education loans;
| | - |  | ------------------------------------------------------------------------------



| |  |  | discount rate, which we use to calculate the present value of our future cash flows;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | trend of interest rates over the life of the loan pool, including the forward LIBOR curve and expected auction rates, if applicable;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | annual rate and timing of private education loan prepayments; and
| | - |  | -----------------------------------------------------------------



| |  |  | fees and expenses of the securitization trusts.
| | - |  | -----------------------------------------------

We base our estimates on certain macroeconomic indicators and our historical experience adjusted for specific product and borrower characteristics such as loan type and borrower creditworthiness. We
monitor trends in private education loan performance over time and make adjustments we believe are necessary to value properly our service revenue receivables at each balance sheet date. 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 and projections, can have a material effect on our valuations. See Note 8, Service Revenue Receivables
and Related IncomeEducation Loan Performance Assumption Overview, in the notes to our unaudited consolidated financial statements included in Item 1 of Part I of this quarterly report for information on the assumptions used in
our estimates of fair value.

Results of OperationsThree months ended September 30, 2010 and 2009

We, in conjunction with our independent registered public accounting firm, identified certain errors in the levels of reserves recorded for deferred tax
assets in fiscal 2010 and fiscal 2009. We have assessed the materiality of these errors and concluded, based on qualitative and quantitative considerations, that they are not material to the prior period financial statements taken as a
whole. The correction of these amounts is reflected in the table below and in our consolidated statements of operations (as restated) and our balance sheets (as restated) included in this quarterly report and will continue to be reflected in
our future reports that we file pursuant to the Exchange Act. See Note 3, Restatement of Unaudited Consolidated Financial Statements and Corrections of Immaterial Errors in Prior Fiscal Years, in the notes to our unaudited
consolidated financial statements (as restated) included in Item 1 of Part I of this quarterly report for the impact of the corrections on previously reported consolidated statements of operations by quarter for fiscal 2010, for the full years
fiscal 2010 and fiscal 2009 and for our consolidated balance sheets at June 30, 2010 and 2009.



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The following table summarizes our results of operations by reporting segment:



|                                                           |  |                                                             |         |   |                      |   |         |              |  |   |               |   |  |                |         |   |                                |   |         |       |  |   |         |   |  |   |          |  
|---------------------------------------------------------- |  | ----------------------------------------------------------- | ------- | - | -------------------- | - | ------- | ------------ |  | - | ------------- | - |  | -------------- | ------- | - | ------------------------------ | - | ------- | ----- |  | - | ------- | - |  | - | -------- | -
|                                                           |  | Three months ended September 30,                            |        
|                                                           |  | 2010                                                        |         |   | 2009                 |  
|                                                           |  | LoanOperations                                              |         |   | SecuritizationTrusts |   |         | Eliminations |  |   | Total         |   |  | LoanOperations |         |   | DeconsolidationandEliminations |   |         | Total | 
|                                                           |  | (dollars and shares in thousands, except per share amounts) |        
|                                                           |  |                                                             |         |   | (As restated)        |   |         |              |  |   | (As restated) |   |  |                |         |   |                                |   |         |       | 
|Revenues:                                                  |  |                                                             |         |   |                      |   |         |              |  |   |               |   |  |                |         |   |                                |   |         |       |  |   |         |   |  |   |          |  
|Net interest income (loss) after provision for loan losses |  | $                                                           | 38      |   |                      | $ | (37,656 | )            |  | $ | 10            |   |  | $              | (37,608 | ) |                                | $ | 3,663   |       |  | $ | 827     |   |  | $ | 4,490    |  
|Total non-interest revenues                                |  |                                                             | 5,006   |   |                      |   | 293     |              |  |   | (2,609        | ) |  |                | 2,690   |   |                                |   | 9,217   |       |  |   | (171    | ) |  |   | 9,046    |  
|                                                           |  |                                                             |         |   |                      |   |         |              |  |   |               |   |  |                |         |   |                                |   |         |       |  |   |         |   |  |   |          |  
|Total revenues                                             |  |                                                             | 5,044   |   |                      |   | (37,363 | )            |  |   | (2,599        | ) |  |                | (34,918 | ) |                                |   | 12,880  |       |  |   | 656     |   |  |   | 13,536   |  
|Total non-interest expenses                                |  |                                                             | 20,031  |   |                      |   | 11,770  |              |  |   | (2,833        | ) |  |                | 28,968  |   |                                |   | 86,194  |       |  |   | 64,058  |   |  |   | 150,252  |  
|                                                           |  |                                                             |         |   |                      |   |         |              |  |   |               |   |  |                |         |   |                                |   |         |       |  |   |         |   |  |   |          |  
|Income (loss) before income taxes                          |  |                                                             | (14,987 | ) |                      |   | (49,133 | )            |  |   | 234           |   |  |                | (63,886 | ) |                                |   | (73,314 | )     |  |   | (63,402 | ) |  |   | (136,716 | )
|Income tax expense (benefit)                               |  |                                                             | 1,082   |   |                      |   |        |              |  |   |              |   |  |                | 1,082   |   |                                |   | (6,939  | )     |  |   | 1,548   |   |  |   | (5,391   | )
|                                                           |  |                                                             |         |   |                      |   |         |              |  |   |               |   |  |                |         |   |                                |   |         |       |  |   |         |   |  |   |          |  
|Net income (loss)                                          |  | $                                                           | (16,069 | ) |                      | $ | (49,133 | )            |  | $ | 234           |   |  | $              | (64,968 | ) |                                | $ | (66,375 | )     |  | $ | (64,950 | ) |  | $ | (131,325 | )
|                                                           |  |                                                             |         |   |                      |   |         |              |  |   |               |   |  |                |         |   |                                |   |         |       |  |   |         |   |  |   |          |  
|Net income (loss) per basic and diluted share              |  | $                                                           | (0.16   | ) |                      | $ | (0.49   | )            |  | $ | 0.01          |   |  | $              | (0.64   | ) |                                | $ | (0.67   | )     |  | $ | (0.65   | ) |  | $ | (1.32    | )
|                                                           |  |                                                             |         |   |                      |   |         |              |  |   |               |   |  |                |         |   |                                |   |         |       |  |   |         |   |  |   |          |  
|Basic and diluted weighted-average shares outstanding      |  |                                                             |         |   |                      |   |         |              |  |   |               |   |  |                | 100,762 |   |                                |   |         |       |  |   |         |   |  |   | 99,156   |  

Net loss for the three months ended
September 30, 2010 was $65.0 million (as restated), or $0.64 per diluted share (as restated). The net loss included from the Securitization Trusts segment $50.7 million of losses, or $0.50 per diluted share, from the NCSLT Trusts, which was
offset by income of $1.6 million, or $0.01 per diluted share, from the GATE Trusts, for which we own 100% of the residuals. The net loss for the three months ended September 30, 2009 of $131.3 million reflects net losses attributable to
UFSB-SPV, which was deconsolidated on July 1, 2010, of $65.0 million.

With respect to our Loan Operations segment, total revenues for
the three months ended September 30, 2010 were down $7.8 million compared to total revenues for the three months ended September 30, 2009. The decline in net interest income after provision for loan losses reflects $4.1 million of interest
on education loans held for sale by Union Federal recorded in fiscal 2010. The majority of these loans were sold in the second quarter of fiscal 2010. This decrease was somewhat offset by lower deposit interest expense of $0.5 million in the fiscal
2011 period. The decrease in non-interest revenues of $4.2 million reflects higher losses on trust updates of residuals for off-balance sheet VIEs of $1.9 million, a decline of $1.2 million for asset servicing fees and a decrease of $1.1 million for
administrative and other fees. Non-interest expenses were down $66.2 million quarter over quarter due to $60.4 million of losses on education loans held for sale recorded by Union Federal in fiscal 2010, lower occupancy costs due to sub-lease losses
recorded in fiscal 2010, lower depreciation due to certain fixed assets being fully depreciated and lower third-party services expenses for reduced legal costs. The tax expense for the three months ended September 30, 2010 principally reflects
expense accruals related to unrecognized tax benefits and an increase in deferred state tax liabilities. The tax benefit for the three months ended September 30, 2009 reflects the recognition of losses that could be carried back to offset
taxable income in previous periods, offset by the expense accruals related to unrecognized tax benefits.

With respect to our Securitization
Trusts segment, total revenues for the first quarter of fiscal 2011 reflect net interest income of $69.4 million and a provision for loan losses of $107.1 million. Total non-interest expenses reflect general operating expenses of $11.6 million and a
loss of $146 thousand on the fair value adjustment to additional structural advisory fees due to the Loan Operations segment. The consolidated securitization trusts carry their liabilities for additional structural advisory fees at fair value in
their balance sheets. The Securitization Trusts segment gain is eliminated in consolidation, as well as the loss recorded in revenue by the Loan Operations segment.

The following sections provide more detail on the products and financial results of our reporting segments:

Loan Operations

In our Loan Operations segment, we offer outsourcing services to
national and regional financial and educational institutions for designing and implementing private education loan programs. These school-certified loan programs are designed to be marketed through educational institutions or to prospective student
borrowers and their families directly and to generate portfolios intended to



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be held by the originating lender or financed in the capital markets. We provide trust administration and default prevention and management services to the securitization trusts that we
facilitated, asset servicing to the third-party owner of the Trust Certificate, and certain other services on a stand-alone, fee-for-service basis. Starting in fiscal 2011, we began offering a fully integrated suite of services through our Monogram
platform. Prior period Loan Operations financial results do not include the financial results of UFSB-SPV, which has been presented separately in Deconsolidation and Eliminations for segment reporting purposes.

We include in Loan Operations results the operations of our bank subsidiary, Union Federal, a federally chartered thrift that offers residential and
commercial mortgage loans, and retail savings, money market and time deposit products. During the second quarter of fiscal 2010, we announced that we had begun exploring strategic alternatives for Union Federal, including a potential sale.

The following are the results of operations for our Loan Operations segment, excluding the results of UFSB-SPV for prior periods:



|                                                    |  |                                 |         |   |                        |   |         |            |  |   |         |  
|--------------------------------------------------- |  | ------------------------------- | ------- | - | ---------------------- | - | ------- | ---------- |  | - | ------- | -
|                                                    |  | Three months
endedSeptember 30, |         |   | Change between periods |  
|                                                    |  | 2010                            |         |   | 2009                   |   |         | 2010 -2009 | 
|                                                    |  | (dollars in thousands)          |        
|Revenues:                                           |  |                                 |         |   |                        |   |         |            |  |   |         |  
|Net interest income:                                |  |                                 |         |   |                        |   |         |            |  |   |         |  
|Interest income                                     |  | $                               | 480     |   |                        | $ | 4,454   |            |  | $ | (3,974  | )
|Interest expense                                    |  |                                 | (383    | ) |                        |   | (841    | )          |  |   | 458     |  
|                                                    |  |                                 |         |   |                        |   |         |            |  |   |         |  
|Net interest income                                 |  |                                 | 97      |   |                        |   | 3,613   |            |  |   | (3,516  | )
|Provision for loan losses                           |  |                                 | (59     | ) |                        |   | 50      |            |  |   | (109    | )
|                                                    |  |                                 |         |   |                        |   |         |            |  |   |         |  
|Net interest income after provision for loan losses |  |                                 | 38      |   |                        |   | 3,663   |            |  |   | (3,625  | )
|Non-interest revenues:                              |  |                                 |         |   |                        |   |         |            |  |   |         |  
|Asset servicing fees:                               |  |                                 |         |   |                        |   |         |            |  |   |         |  
|Fee income                                          |  |                                 | 978     |   |                        |   | 2,102   |            |  |   | (1,124  | )
|Fee updates                                         |  |                                 | 91      |   |                        |   | 160     |            |  |   | (69     | )
|                                                    |  |                                 |         |   |                        |   |         |            |  |   |         |  
|Total asset servicing fees                          |  |                                 | 1,069   |   |                        |   | 2,262   |            |  |   | (1,193  | )
|Trust updates:                                      |  |                                 |         |   |                        |   |         |            |  |   |         |  
|Additional structural advisory fees                 |  |                                 | 871     |   |                        |   | 363     |            |  |   | 508     |  
|Residuals                                           |  |                                 | (1,581  | ) |                        |   | 824     |            |  |   | (2,405  | )
|                                                    |  |                                 |         |   |                        |   |         |            |  |   |         |  
|Total trust updates                                 |  |                                 | (710    | ) |                        |   | 1,187   |            |  |   | (1,897  | )
|Administrative and other fees                       |  |                                 | 4,647   |   |                        |   | 5,768   |            |  |   | (1,121  | )
|                                                    |  |                                 |         |   |                        |   |         |            |  |   |         |  
|Total non-interest revenues                         |  |                                 | 5,006   |   |                        |   | 9,217   |            |  |   | (4,211  | )
|                                                    |  |                                 |         |   |                        |   |         |            |  |   |         |  
|Total revenues                                      |  |                                 | 5,044   |   |                        |   | 12,880  |            |  |   | (7,836  | )
|Non-interest expenses:                              |  |                                 |         |   |                        |   |         |            |  |   |         |  
|Compensation and benefits                           |  |                                 | 7,871   |   |                        |   | 8,137   |            |  |   | (266    | )
|General and administrative expenses                 |  |                                 | 12,160  |   |                        |   | 17,654  |            |  |   | (5,494  | )
|Losses on education loans held for sale             |  |                                 |        |   |                        |   | 60,403  |            |  |   | (60,403 | )
|                                                    |  |                                 |         |   |                        |   |         |            |  |   |         |  
|Total non-interest expenses                         |  |                                 | 20,031  |   |                        |   | 86,194  |            |  |   | (66,163 | )
|                                                    |  |                                 |         |   |                        |   |         |            |  |   |         |  
|Loss before income taxes                            |  |                                 | (14,987 | ) |                        |   | (73,314 | )          |  |   | 58,327  |  
|Income tax benefit                                  |  |                                 | 1,082   |   |                        |   | (6,939  | )          |  |   | 8,021   |  
|                                                    |  |                                 |         |   |                        |   |         |            |  |   |         |  
|Net loss                                            |  | $                               | (16,069 | ) |                        | $ | (66,375 | )          |  | $ | 50,306  |  
|                                                    |  |                                 |         |   |                        |   |         |            |  |   |         |  

Net Interest Income

For the three months ended September 30, 2010, net interest income for Loan Operations declined to $38 thousand from $3.7 million for the same period a year earlier. The decline is
primarily related to the sale of approximately 88% of the private education loans held for sale by Union Federal that was completed during the second quarter of fiscal 2010. Loans held for sale generated $4.1 million of interest income in the
three months ended September 30, 2009. To a lesser extent, we experienced a decline in interest expense, primarily on deposits, attributable to both lower rates and lower deposit volumes. See Financial ConditionConsolidated
Average Balance Sheet for additional details on our consolidated average balance sheet and rates earned and paid.

Non-Interest
Revenues

Non-interest revenues for Loan Operations include asset servicing fees due from the third-party owner of the Trust Certificate,
stand-alone fee-for-service revenues for loan origination, program support and other services due from unrelated third parties, and starting in fiscal 2011, fees related to our Monogram platform, which was deployed to two clients during the first
quarter of fiscal



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2011. In addition, non-interest revenues for Loan Operations include trust updates for additional structural advisory fee and residual receivables, as well as administration and other fees for
services provided to securitization trusts that we facilitated, including but not limited to those trusts that we consolidated effective July 1, 2010, prior to inter-company eliminations.

Non-Interest RevenuesAsset Servicing Fees

In March 2009, we entered into the Asset Services Agreement with the third-party owner of the Trust Certificate. Pursuant to the Asset Services Agreement, we provide ongoing services, including analysis
and valuation optimization and services relating to funding strategy, to support their ownership of certain residual interests of the Trusts. As compensation for our services, we are entitled to a monthly asset servicing fee, based on the aggregate
outstanding principal balance of the private education loans owned by the Trusts. Although this fee is earned monthly, our right to receive the fee is contingent on distributions made to the holder of the Trust Certificate. Our asset servicing fee
receivables were $6.8 million and $5.8 million at September 30 and June 30, 2010, respectively, recorded at fair value in the balance sheet based on the estimated net present value of future cash flows. See Note 8,
Service Revenue Receivables and Related IncomeEducation Loan Performance Assumption Overview in the notes to our unaudited consolidated financial statements included in Item 1 of Part I of this quarterly report for a
description of the significant observable and unobservable inputs used to develop our fair value estimates.

During the first quarters of
fiscal 2011 and 2010, we recorded $978 thousand and $2.1 million as fee income, respectively, which represents the estimated net present value of fees to be received for services specifically provided during those periods. The lower fees
in the first quarter of fiscal 2011 reflect changes in our estimate of the timing and volume of residual cash flows to be paid to the third-party owner of the Trust Certificate. In addition, for such periods, we recognized fee updates of
$91 thousand and $160 thousand, respectively, which reflected accretion for the passage of time on fees earned in prior periods.

Non-Interest RevenuesAdditional Structural Advisory Fee and Residual Trust Updates

Additional structural advisory fee and residual receivables are recorded at fair value in the balance sheet. Such residual receivables represent the estimated fair value of receivables expected to be
collected over the life of the various separate securitization trusts that have purchased private education loans facilitated by us, with no further service obligations on our part. Absent readily obtained market values, fair value is estimated as
the net present value of fees to be received, based on estimated cash flows of the securitization trusts from which the receivables are due, which include but are not limited to the NCSLT Trusts.

We recognize changes in estimated fair value, less cash received, as trust updates in non-interest revenue. A significant portion of additional
structural advisory fee and residual receivables recognized by Loan Operations are due from securitization trusts consolidated effective July 1, 2010 upon adoption of ASU 2009-16 and ASU 2009-17, and are eliminated in consolidation but continue
to be recognized by Loan Operations for segment reporting purposes. The following table summarizes the details of trust updates to additional structural advisory fee and residual receivables:



|                                     |  |                                 |        |   |      |   |       | 
|------------------------------------ |  | ------------------------------- | ------ | - | ---- | - | ----- | 
|                                     |  | Three months
endedSeptember 30, |       
|                                     |  | 2010                            |        |   | 2009 |  
|                                     |  | (dollars in thousands)          |       
|Trust updates:                       |  |                                 |        |   |      |   |       | 
|Additional structural advisory fees: |  |                                 |        |   |      |   |       | 
|Due from off-balance sheet VIEs      |  | $                               | 725    |   |      | $ | 363   | 
|Due from Securitization Trusts       |  |                                 | 146    |   |      |   |      | 
|Residuals:                           |  |                                 |        |   |      |   |       | 
|Due from off-balance sheet VIEs      |  |                                 | (1,357 | ) |      |   | 824   | 
|Due from Securitization Trusts       |  |                                 | (224   | ) |      |   |      | 
|                                     |  |                                 |        |   |      |   |       | 
|Total trust updates                  |  | $                               | (710   | ) |      | $ | 1,187 | 
|                                     |  |                                 |        |   |      |   |       | 



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The increase in fair value of additional structural advisory fee receivables is primarily related to the
decrease in the discount rate for certain trusts and accretion for the passage of time. The following table summarizes changes in the estimated fair value of our additional structural advisory fee receivables recognized by Loan Operations:



|                                                                          |  |                                   |        |   |      |   |        |  
|------------------------------------------------------------------------- |  | --------------------------------- | ------ | - | ---- | - | ------ | -
|                                                                          |  | Three months 
ended,September 30, |       
|                                                                          |  | 2010                              |        |   | 2009 |  
|                                                                          |  | (dollars in thousands)            |       
|Fair value, beginning of period:                                          |  |                                   |        |   |      |   |        |  
|Due from Securitization Trusts                                            |  | $                                 | 33,473 |   |      | $ | 55,130 |  
|Due from off-balance sheet VIEs                                           |  |                                   | 1,203  |   |      |   |       |  
|                                                                          |  |                                   |        |   |      |   |        |  
|Total additional structural advisory fee receivables, beginning of period |  |                                   | 34,676 |   |      |   | 55,130 |  
|Cash received from trust distributions of off-balance sheet VIEs          |  |                                   | (294   | ) |      |   | (24    | )
|Trust updatesoff-balance sheet VIEs                                      |  |                                   | 725    |   |      |   | 363    |  
|Trust updatesSecuritization Trusts                                       |  |                                   | 146    |   |      |   |       |  
|                                                                          |  |                                   |        |   |      |   |        |  
|Fair value, end of period:                                                |  |                                   |        |   |      |   |        |  
|Due from Securitization Trusts                                            |  |                                   | 33,619 |   |      |   | 55,469 |  
|Due from off-balance sheet VIEs                                           |  |                                   | 1,634  |   |      |   |       |  
|                                                                          |  |                                   |        |   |      |   |        |  
|Total additional structural advisory fee receivables, end of period       |  | $                                 | 35,253 |   |      | $ | 55,469 |  
|                                                                          |  |                                   |        |   |      |   |        |  

At September 30, 2010, Loan Operations residual receivables were $11.2 million, of which $5.0 million was due
from our Securitization Trusts segment and $6.2 million was due from off-balance sheet VIEs. We did not receive any cash distributions from residual interests in the three months ended September 30, 2010 or 2009. Trust update losses of
$1.6 million related to residual receivables reflected $2.9 million of losses due to the general performance of off-balance sheet VIEs, offset by accretion of $516 thousand and $774 thousand for the lower discount rate used for
off-balance sheet VIEs for which the performance characteristics and shorter estimated weighted-average lives of the trusts indicated a lower discount rate was appropriate.

See Note 8, Service Revenue Receivables and Related IncomeEducation Loan Performance Assumption Overview in the notes to our unaudited consolidated financial statements included in
Item 1 of Part I of this quarterly report for a description of the significant observable and unobservable inputs used to develop our estimates of the fair value of additional structural advisory fee and residual receivables.

Non-Interest RevenuesAdministrative and Other Fees

Administrative and other fees primarily relate to fees for trust administration and default prevention and management services provided to the securitization trusts facilitated by us, including
$2.7 million of fees from our Securitization Trusts segment, and loan origination fees for services provided to unrelated third parties. In addition, fees for loan origination, program support and portfolio management related to Monogram-based
loan programs are included in our Loan Operations segment revenues. During the first quarter of fiscal 2011, fees of $4.7 million represented a decrease of $1.1 million from the same period a year earlier due to a decline in origination
services not related to our Monogram platform.

Non-Interest Expenses

Total non-interest expenses for Loan Operations decreased to $20.0 million for the three months ended September 30, 2010, down from $86.2 million for the same period in fiscal 2010. The
decrease is primarily related to losses on private education loans held for sale of $60.4 million recorded in the first quarter of fiscal 2010, as well as reductions in compensation and benefits and general and administrative expenses. The
following table reflects non-interest expenses:



|                                                                   |  |                                 |        |  |                        |   |        |                   |  |   |         |  
|------------------------------------------------------------------ |  | ------------------------------- | ------ |  | ---------------------- | - | ------ | ----------------- |  | - | ------- | -
|                                                                   |  | Three months endedSeptember 30, |        |  | Change between periods |  
|                                                                   |  | 2010                            |        |  | 2009                   |   |        | From 2010 to 2009 | 
|                                                                   |  | (dollars in thousands)          |       
|Compensation and benefits                                          |  | $                               | 7,871  |  |                        | $ | 8,137  |                   |  | $ | (266    | )
|General and administrative expenses:                               |  |                                 |        |  |                        |   |        |                   |  |   |         |  
|Third-party services                                               |  |                                 | 5,336  |  |                        |   | 6,059  |                   |  |   | (723    | )
|Depreciation and amortization                                      |  |                                 | 2,527  |  |                        |   | 3,693  |                   |  |   | (1,166  | )
|Occupancy and equipment                                            |  |                                 | 2,453  |  |                        |   | 6,336  |                   |  |   | (3,883  | )
|Other                                                              |  |                                 | 1,844  |  |                        |   | 1,566  |                   |  |   | 278     |  
|                                                                   |  |                                 |        |  |                        |   |        |                   |  |   |         |  
|Totalgeneral and administrative expenses                          |  |                                 | 12,160 |  |                        |   | 17,654 |                   |  |   | (5,494  | )
|Losses on education loans held for sale                            |  |                                 |       |  |                        |   | 60,403 |                   |  |   | (60,403 | )
|                                                                   |  |                                 |        |  |                        |   |        |                   |  |   |         |  
|Total non-interest expenses                                        |  | $                               | 20,031 |  |                        | $ | 86,194 |                   |  | $ | (66,163 | )
|                                                                   |  |                                 |        |  |                        |   |        |                   |  |   |         |  
|Total number of full and part-time employees at fiscal quarter-end |  |                                 | 226    |  |                        |   | 228    |                   |  |   | (2      | )

Compensation and Benefits Expenses.
Compensation and benefits expense decreased to $7.9 million for the three months ended September 30, 2010 from $8.1 million in during the same period in the prior year. The decrease primarily relates to lower stock compensation costs.
Headcount was relatively unchanged period over period.



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General and Administrative Expenses. During the three months ended September 30, 2010, third
party services declined by $723 thousand to $5.3 million, primarily due to reduced legal expenses. Depreciation and amortization expenses decreased by $1.2 million due to certain fixed assets being fully depreciated. Occupancy and
equipment expenses decreased by $3.9 million, primarily related to losses related to sub-leases recorded in the prior year.

Losses on
Education Loans Held for Sale. We did not hold any private education loans held for sale during the first quarter of fiscal 2011. During the first quarter of fiscal 2010, we recorded losses on private education loans held for sale of
$60.4 million for our Loan Operations segment. These private education loans, held by Union Federal, were classified as held for sale because we were actively seeking a buyer for such loans as a result of a supervisory agreement, or Supervisory
Agreement, between FMD and the OTS. During the second quarter of fiscal 2010, we received a bid from an unrelated third party on a portion of the private education loans of Union Federal, which represented approximately 88% of Union Federals
total portfolio. That bid served as the basis for the fair value reported at September 30, 2009. During the second quarter of fiscal 2010, sale of this portion of the portfolio to the unrelated third party was completed, and Union
Federals remaining loans were sold to a non-bank subsidiary of FMD and reclassified as held to maturity.

Income Taxes

Our effective income tax rate is calculated on a consolidated basis. For segment reporting, we record all income tax benefit or expense in
our Loan Operations segment because the securitization trusts are considered pass-through entities for tax purposes and, accordingly, the net income or loss of the trusts is included in the tax returns of the trust owners rather than the trusts
entities.

Income tax expense for the first quarter of fiscal 2011 was $1.1 million. The income tax benefit was $6.9 million for the first
quarter of fiscal 2010. Beginning in fiscal 2011, we no longer have any carrybacks to offset taxable income in prior periods. As a result, we recorded a net operating loss carryforward asset as of September 30, 2010, for which we recorded a full
valuation allowance. The net effect is that we had no tax expense or benefit from our operating loss for the three months ended September 30, 2010, and we recorded expense accruals related to unrecognized tax benefits. Our net deferred tax liability
increased during the three months ended September 30, 2010 by $0.4 million, and we, therefore, incurred deferred tax expense. For the first quarter of fiscal 2010, we recorded an income tax benefit for a limited amount of losses, as these
losses could be carried back to offset taxable income in earlier periods.

Under current law, we do not have remaining taxes paid within
available net operating loss carryback periods, and it is more likely than not that our deferred tax assets will not be realized through future reversals of existing temporary differences or available tax planning strategies. Accordingly, we have
determined that a valuation allowance is necessary for all of our deferred tax assets not scheduled to reverse against existing deferred tax liabilities as of September 30, 2010. We will continue to review the recognition of deferred state tax
assets on a quarterly basis.

Net unrecognized tax benefits were $30.9 million at September 30, 2010 and June 30, 2010. At
September 30, 2010, we had $6.4 million accrued for interest and no amounts accrued for the payment of penalties. At June 30, 2010, we had $5.8 million accrued for interest and no amounts accrued for the payment of penalties.

In November 2009, the Worker, Homeownership and Business Assistance Act of 2009, or WHBAA, was signed into law. Under the WHBAA, we were
permitted to carry back the taxable losses from either fiscal 2009 or 2010 for five years instead of two years. We filed our fiscal 2010 tax return and elected to carry that taxable loss back for five years. As a result of the WHBAA and pre-existing
net operating loss carryback rules, we recorded an income tax receivable at September 30, 2010 of $45.1 million, which was received on October 1, 2010. The tax refund included $21.2 million that was attributable to Union Federal,
which we distributed to Union Federal pursuant to our tax sharing agreement. On October 22, 2010, the OTS approved a cash dividend to be declared and paid by Union Federal to FMD of up to $29.0 million. As of November 9, 2010, Union
Federal had not paid such dividend.

As a result of the sale of the Trust Certificate, which was effective March 31, 2009, as well as our
operating losses incurred in fiscal 2009, we recorded an income tax receivable for federal income taxes paid on taxable income in prior taxable years. In fiscal 2010, we received a total of $189.3 million in federal and state income tax refunds
related to our income tax receivables. In April 2010, the IRS commenced an audit of our tax returns for taxable years 2007, 2008 and 2009. Such audits are consistent with the practice of the Joint Committee of Taxation, which requires the IRS
to audit a taxpayer who claims and receives a tax refund of a specified magnitude. In connection with this audit, the IRS is reviewing, among other things, the tax treatment of the sale of the Trust Certificate, including the related income tax
refund previously received by us. The IRS has also expanded its audit to include our fiscal 2010 tax return in light of the $45.1 million tax refund that we received in October 2010. We cannot predict the timing or outcome of the IRS audit. As
of the date of this quarterly report, the IRS has not proposed any adjustments in connection with its audit.



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##### Table of Contents

Securitization Trusts

Our Securitization Trusts segment includes the 14 securitization trusts that we consolidated upon adoption of ASU 2009-16 and ASU 2009-17. Interest income is generated on the private education loan
portfolios held by the securitization trusts included in our Securitization Trusts segment, and interest expense relates to the debt issued by these trusts to finance the purchase of the private education loans. General and administrative expenses
include amounts paid to Loan Operations for additional structural advisory fees, trust administration and default prevention and management, as well as collection costs and trust expenses paid to unrelated third parties.



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##### Table of Contents

The following table reflects the financial results of our Securitization Trusts segment:



|                                                  |  |                                      |          |  
|------------------------------------------------- |  | ------------------------------------ | -------- | -
|                                                  |  | Three months endedSeptember 30, 2010 |         
|                                                  |  | (dollars in thousands)               |         
|Revenues:                                         |  |                                      |          |  
|Net interest income:                              |  |                                      |          |  
|Interest income                                   |  | $                                    | 87,451   |  
|Interest expense                                  |  |                                      | (18,043  | )
|                                                  |  |                                      |          |  
|Net interest income                               |  |                                      | 69,408   |  
|Provision for loan losses                         |  |                                      | (107,064 | )
|                                                  |  |                                      |          |  
|Net interest loss after provision for loan losses |  |                                      | (37,656  | )
|Administrative and other fees                     |  |                                      | 293      |  
|                                                  |  |                                      |          |  
|Total revenues                                    |  |                                      | (37,363  | )
|Total general and administrative expenses         |  |                                      | 11,770   |  
|                                                  |  |                                      |          |  
|Net loss                                          |  | $                                    | (49,133  | )
|                                                  |  |                                      |          |  

Net Interest Income

For the three months ended September 30, 2010, net interest income for our Securitization Trusts segment was $69.4 million. Net interest income from the securitization trusts included in our
Securitization Trusts segment is generated by private education loans held to maturity, and to a lesser extent interest earned on cash and guaranteed investment contracts. Interest income on private education loans held to maturity is primarily
generated by variable rate loans, indexed to one-month LIBOR, adjusted for the amortization of loan acquisition costs and origination fees, using the effective interest method. Interest expense relates to the interest paid on long-term borrowings
used to finance the purchase of the private education loans, which are primarily variable rate notes indexed to one-month LIBOR, and to a lesser extent, interest-only strips that bear a fixed interest rate based on contractual notional values over
the period they are outstanding, adjusted for the amortization of capitalized debt issuance and underwriting costs and the proceeds from interest-only strips, using the effective interest method. See Financial ConditionContractual
Obligations below and Note 9, Long-term Borrowings, in the notes to our unaudited interim consolidated financial statements included in Item 1 of Part I of this quarterly report for additional information on the
rates paid on long-term borrowings.

See Financial ConditionConsolidated Average Balance Sheet below for additional
details on our consolidated average balance sheet and rates earned and paid. Consolidated restricted cash and guaranteed investment contracts and long-term borrowings relate only to our Securitization Trusts segment, and consolidated private
education loans held to maturity are almost entirely related to our Securitization Trusts segment.

Provision for Loan Losses

We recorded a provision for loan losses of $107.1 million related to our Securitization Trusts segment for the three months ended
September 30, 2010, including $106.7 million attributable to the NCSLT Trusts. The allowance for loan losses is adjusted for credit losses through a charge to a provision for loans losses. See Financial ConditionLoans
for a discussion on the allowance for loan losses and the credit quality of the related loans. The consolidated provision for loan losses is almost entirely related to assets held by our Securitization Trusts segment.

General and Administrative Expenses

The
general and administrative expenses of the securitization trusts included in our Securitization Trusts segment include servicer fees, loan collection costs and other trust related expenses payable to third parties. In addition, these trusts have
additional structural advisory fees, trust administration fees and fees for default prevention and management that are payable to subsidiaries of FMD, which are eliminated upon consolidation. The table below summarizes the expenses of the
consolidated securitization trusts:



|                                                                                         |  |                                      |        | 
|---------------------------------------------------------------------------------------- |  | ------------------------------------ | ------ | 
|                                                                                         |  | Three months endedSeptember 30, 2010 |       
|                                                                                         |  | (dollars in thousands)               |       
|Additional structural advisory feestrust updates (due to Loan Operations)               |  | $                                    | 146    | 
|Trust administration and default prevention and management fees (due to Loan Operations) |  |                                      | 2,687  | 
|Servicer fees                                                                            |  |                                      | 5,911  | 
|Trust collection costs and other trust expenses                                          |  |                                      | 3,026  | 
|                                                                                         |  |                                      |        | 
|Total                                                                                    |  | $                                    | 11,770 | 
|                                                                                         |  |                                      |        | 

The consolidated securitization trusts carry liabilities for additional structural advisory fees due to our Loan Operations
segment at fair value in the balance sheet. General and administrative expenses for the third quarter of fiscal 2011 reflect a loss of $146 thousand due to the increase in the fair value of the liability for additional structural advisory fees
payable. This loss is eliminated in



47



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##### Table of Contents

consolidation, as well as the gain recorded in revenue by the Loan Operations segment. See Note 8, Service Revenue Receivables and Related IncomeEducation Loan Performance
Assumption Overview, in the notes to our unaudited consolidated financial statements included in Item 1 of Part I of this quarterly report for a discussion of the determination of additional structural advisory feestrust
updates.

Trust administration fees are based on the volume of private education loans outstanding. Our Securitization Trust segment
recognizes default prevention and management expenses based, in part, on the actual expenses incurred by our subsidiary, First Marblehead Education Resources, Inc., or FMER, in its capacity as special servicer, and based in part on the volume
of private education loans outstanding. FMERs reimbursement for expenses as special servicer are capped at monthly and aggregate amounts, and results of FMER are included in our Loan Operations segment. Servicer fees are based on the volume of
private education loans outstanding. Trust collection costs vary with the collection activities pursued on defaulted loans. Other securitization trust expenses are generally fixed indenture costs.

Eliminations

For the three
months ended September 30, 2010, the revenues and expenses included in Eliminations are primarily related to revenues recorded by our Loan Operations segment and expenses recorded by our Securitization Trust segment, relating to
services provided to the 14 consolidated securitization trusts, including life-of-trust fees related to initial securitization structuring and ongoing fees for trust administration and default prevention and management, as discussed in the
reporting segment operating results. In addition, Eliminations included the elimination of residual interests held by Loan Operations in the three consolidated GATE Trusts.

Deconsolidation and Eliminations

For the three months ended September 30,
2009, Deconsolidation and Eliminations primarily related to the operations of UFSB-SPV, which was deconsolidated on July 1, 2010 with the adoption of ASU 2009-16 and ASU 2009-17, and the related adjustments to deferred tax assets
and inter- company eliminations that were recorded as a result of consolidating UFSB-SPV in prior periods to allow for comparability between periods.

Inflation

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

Financial Condition

Consolidated Average Balance Sheet

The following table reflects the consolidated
average balance sheet, net interest income, rates earned and paid on interest-earning assets and interest- bearing liabilities:



|                                                                      |  |                                  |           |   |          |   |        |      |  |  |                 |   |  |          |          |   |      |   |       |  |  |  |      |  
|--------------------------------------------------------------------- |  | -------------------------------- | --------- | - | -------- | - | ------ | ---- |  |  | --------------- | - |  | -------- | -------- | - | ---- | - | ----- |  |  |  | ---- | -
|                                                                      |  | Three months ended September 30, |          
|                                                                      |  | 2010                             |           |   | 2009     |  
|                                                                      |  | Average balance                  |           |   | Interest |   |        | Rate |  |  | Average balance |   |  | Interest |          |   | Rate |  
|                                                                      |  | (dollars in thousands)           |          
|Assets:                                                               |  |                                  |           |   |          |   |        |      |  |  |                 |   |  |          |          |   |      |   |       |  |  |  |      |  
|Interest-bearing cash and cash equivalents                            |  | $                                | 297,762   |   |          | $ | 182    |      |  |  | 0.24            | % |  | $        | 160,711  |   |      | $ | 122   |  |  |  | 0.30 | %
|Short-term investments and federal funds sold                         |  |                                  | 51,982    |   |          |   | 77     |      |  |  | 0.59            |   |  |          | 9,323    |   |      |   | 2     |  |  |  | 0.07 |  
|Interest-bearing restricted cash and guaranteed investment contracts  |  |                                  | 164,583   |   |          |   | 94     |      |  |  | 0.23            |   |  |          |         |   |      |   |      |  |  |  |     |  
|Investments available for sale                                        |  |                                  | 4,104     |   |          |   | 51     |      |  |  | 4.83            |   |  |          | 8,063    |   |      |   | 104   |  |  |  | 5.13 |  
|Education loans held for sale                                         |  |                                  |          |   |          |   |       |      |  |  |                |   |  |          | 525,147  |   |      |   | 8,125 |  |  |  | 6.14 |  
|Education loans held to maturity                                      |  |                                  | 7,751,174 |   |          |   | 87,441 |      |  |  | 4.48            |   |  |          |         |   |      |   |      |  |  |  |     |  
|Mortgage loans held to maturity                                       |  |                                  | 8,238     |   |          |   | 96     |      |  |  | 4.62            |   |  |          | 9,763    |   |      |   | 129   |  |  |  | 5.24 |  
|                                                                      |  |                                  |           |   |          |   |        |      |  |  |                 |   |  |          |          |   |      |   |       |  |  |  |      |  
|Total interest-earning assets                                         |  |                                  | 8,277,843 |   |          |   | 87,941 |      |  |  | 4.21            |   |  |          | 713,007  |   |      |   | 8,482 |  |  |  | 4.72 |  
|Non-interest-bearing cash                                             |  |                                  | 4,768     |   |          |   |        |      |  |  |                 |   |  |          | 1,157    |   |      |   |       |  |  |  |      |  
|Allowance for loan losses and lower of cost or fair value adjustments |  |                                  | (525,505  | ) |          |   |        |      |  |  |                 |   |  |          | (206,588 | ) |      |   |       |  |  |  |      |  
|Other assets                                                          |  |                                  | 612,313   |   |          |   |        |      |  |  |                 |   |  |          | 253,788  |   |      |   |       |  |  |  |      |  
|                                                                      |  |                                  |           |   |          |   |        |      |  |  |                 |   |  |          |          |   |      |   |       |  |  |  |      |  
|Total assets                                                          |  | $                                | 8,369,419 |   |          |   |        |      |  |  |                 |   |  | $        | 761,364  |   |      |   |       |  |  |  |      |  
|                                                                      |  |                                  |           |   |          |   |        |      |  |  |                 |   |  |          |          |   |      |   |       |  |  |  |      |  
|Liabilities:                                                          |  |                                  |           |   |          |   |        |      |  |  |                 |   |  |          |          |   |      |   |       |  |  |  |      |  
|Time and savings account deposits                                     |  | $                                | 64,499    |   |          | $ | 186    |      |  |  | 1.14            | % |  | $        | 102,331  |   |      | $ | 471   |  |  |  | 1.83 | %
|Money market account deposits                                         |  |                                  | 29,385    |   |          |   | 39     |      |  |  | 0.53            |   |  |          | 49,448   |   |      |   | 228   |  |  |  | 1.83 |  
|Education loan warehouse facility                                     |  |                                  |          |   |          |   |       |      |  |  |                |   |  |          | 229,795  |   |      |   | 3,200 |  |  |  | 5.53 |  
|Other interest-bearing liabilities                                    |  |                                  | 10,911    |   |          |   | 158    |      |  |  | 5.78            |   |  |          | 11,608   |   |      |   | 143   |  |  |  | 4.87 |  
|Long-term borrowings                                                  |  |                                  | 8,918,701 |   |          |   | 18,043 |      |  |  | 0.79            |   |  |          |         |   |      |   |      |  |  |  |     |  
|                                                                      |  |                                  |           |   |          |   |        |      |  |  |                 |   |  |          |          |   |      |   |       |  |  |  |      |  
|Total interest-bearing liabilities                                    |  |                                  | 9,023,496 |   |          |   | 18,426 |      |  |  | 0.80            |   |  |          | 393,182  |   |      |   | 4,042 |  |  |  | 4.08 |  
|Non-interest-bearing deposits                                         |  |                                  | 29        |   |          |   |        |      |  |  |                 |   |  |          | 2,043    |   |      |   |       |  |  |  |      |  
|All other liabilities                                                 |  |                                  | 40,194    |   |          |   |        |      |  |  |                 |   |  |          | 23,197   |   |      |   |       |  |  |  |      |  
|                                                                      |  |                                  |           |   |          |   |        |      |  |  |                 |   |  |          |          |   |      |   |       |  |  |  |      |  
|Total liabilities                                                     |  |                                  | 9,063,719 |   |          |   |        |      |  |  |                 |   |  |          | 418,422  |   |      |   |       |  |  |  |      |  
|Stockholders equity                                                  |  |                                  | (694,300  | ) |          |   |        |      |  |  |                 |   |  |          | 342,942  |   |      |   |       |  |  |  |      |  
|Total liabilities and stockholders equity                            |  |                                  | 8,369,419 |   |          |   |        |      |  |  |                 |   |  |          | 761,364  |   |      |   |       |  |  |  |      |  
|                                                                      |  |                                  |           |   |          |   |        |      |  |  |                 |   |  |          |          |   |      |   |       |  |  |  |      |  
|Total interest-earning assets                                         |  | $                                | 8,277,843 |   |          |   |        |      |  |  |                 |   |  | $        | 713,007  |   |      |   |       |  |  |  |      |  
|                                                                      |  |                                  |           |   |          |   |        |      |  |  |                 |   |  |          |          |   |      |   |       |  |  |  |      |  
|Net interest income                                                   |  |                                  |           |   |          | $ | 69,515 |      |  |  |                 |   |  |          |          |   |      | $ | 4,440 |  |  |  |      |  
|                                                                      |  |                                  |           |   |          |   |        |      |  |  |                 |   |  |          |          |   |      |   |       |  |  |  |      |  
|Net interest margin                                                   |  |                                  |           |   |          |   |        |      |  |  | 3.42            | % |  |          |          |   |      |   |       |  |  |  | 2.47 | %



48



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Changes in net interest income between the periods presented in the table above, particularly as they relate
to restricted cash and guaranteed investment contracts, education loans held for sale, education loans held to maturity, education loan warehouse facility and long-term borrowings, are almost entirely related to changes in VIEs included in or
excluded from consolidation as a result of our adoption of ASU 2009-16 and ASU 2009-17. An analysis of changes in interest income and expense due to changes in rates and volumes is not meaningful as a result.

Cash, Cash Equivalents and Investments

We had combined cash, cash equivalents, federal funds sold, short-term investments and investments available for sale of $332.9 million and $385.5 million, at September 30, 2010 and
June 30, 2010, respectively. Of this total, FMD and its non-bank subsidiaries, held interest-bearing and non-interest-bearing deposits, money market funds and certificates of deposit of $241.5 million with highly rated financial
institutions. Union Federal held a total of $91.4 million in interest-bearing and non-interest-bearing deposits and money market funds with highly rated financial institutions, federal funds sold and investments in federal agency
mortgage-backed securities. Assets of Union Federal are subject to restrictions on dividends without prior approval from the OTS.

Restricted Cash and Guaranteed Investment Contracts

At September 30, 2010, restricted cash and guaranteed investment contracts in our balance sheet included cash and investments held by consolidated securitization trusts of $151.2 million. The
use of cash and investments held by securitization trusts is restricted to making payments for trust expenses, interest payments and principal paydowns on the debt of the particular trust holding the cash and guaranteed investment contracts, and is
not available to any other securitization trust, FMD or any other subsidiary of FMD. The investment of cash held by each trust is subject to the investment guidelines per the applicable indenture. Allowable investments include but are not limited to
obligations of the United States of America, guaranteed investment contracts issued by highly rated institutions, which do not have stated maturities, and money market funds. Changes in the balances of these funds are classified as investing
activities in the consolidated statement of cash flows.

Loans

At September 30, 2010, all private education loans and substantially all mortgage loans are classified as held to maturity. At June 30, 2010, our consolidated financial statements included a
portfolio of private education loans held for sale by UFSB-SPV, which was deconsolidated effective July 1, 2010 in connection with a change in accounting principle.

The net carrying value of loans consisted of the following, as of the dates indicated:



|                                       |  |                        |           |  |               |   |         | 
|-------------------------------------- |  | ---------------------- | --------- |  | ------------- | - | ------- | 
|                                       |  | September 30, 2010     |           |  | June 30, 2010 |  
|                                       |  | (dollars in thousands) |          
|Education loans held to maturity       |  | $                      | 7,443,873 |  |               | $ | 391     | 
|Mortgage loans held to maturity        |  |                        | 8,317     |  |               |   | 8,118   | 
|Education loans held for saleUFSB-SPV |  |                        |          |  |               |   | 105,082 | 



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Education Loans Held to Maturity

Almost all private education loans held to maturity at September 30, 2010 are held by the 14 securitizations trusts that we consolidated effective July 1, 2010. Through the securitization
process, these special purpose statutory trusts purchased private education loans from the originating lenders or their assignees, which relinquished to the trusts their ownership interest in the loans. The debt instruments issued by the
securitization trusts to finance the purchase of these private education loans are collateralized by the purchased loan portfolios. At September 30, 2010, the majority of the loans held by our Securitization Trusts segment were TERI-guaranteed
private education loans held by the NCSLT Trusts. As a result of the TERI Reorganization, our Securitization Trusts segment has experienced a material negative effect on its ability to realize guaranty obligations of TERI. Certain securitization
trusts we facilitated hold loans that were never guaranteed by TERI but benefit from other credit enhancement. Defaults of loans in these trusts may be covered by the borrowers educational institutions, up to specified limits, or if covered,
may be sold to a non-related bank at cost.

Private education loans held to maturity at June 30, 2010, consisted of TERI-guaranteed loans
originated by Union Federal that we were unable to securitize. These loans were originally classified as held for sale because we were actively seeking a buyer or an opportunity to securitize them. During the second quarter of fiscal 2010, these
loans were sold by Union Federal to one of our non-bank subsidiaries and were reclassified as held to maturity upon sale. These loans are not subject to collateral restrictions or otherwise encumbered.

The following table summarizes the composition of the net carrying value of our private education loans held to maturity:



|                                                                              |  |                        |           |   |               |   |         |  
|----------------------------------------------------------------------------- |  | ---------------------- | --------- | - | ------------- | - | ------- | -
|                                                                              |  | September 30, 2010     |           |   | June 30, 2010 |  
|                                                                              |  | (dollars in thousands) |          
|Education loans held to maturity:                                             |  |                        |           |   |               |   |         |  
|Principal outstanding                                                         |  | $                      | 7,682,819 |   |               | $ | 25,195  |  
|Unamortized loan acquisition costs and origination fees                       |  |                        | 291,690   |   |               |   |        |  
|                                                                              |  |                        |           |   |               |   |         |  
|Gross loans outstanding                                                       |  |                        | 7,974,509 |   |               |   | 25,195  |  
|Allowance for loan losses                                                     |  |                        | (530,636  | ) |               |   | (24,804 | )
|                                                                              |  |                        |           |   |               |   |         |  
|Education loans held to maturity, net of allowance                            |  | $                      | 7,443,873 |   |               | $ | 391     |  
|                                                                              |  |                        |           |   |               |   |         |  
|Principal outstanding of loans serving as collateral for long-term borrowings |  | $                      | 7,680,933 |   |               | $ |        |  

We maintain an allowance for private
education loan losses at an amount believed to be sufficient to absorb credit losses inherent in the private education loan portfolio at the balance sheet date, based on a one-year loss confirmation period. The allowance for loan losses is adjusted
through a charge to the provision for loan losses in the statement of operations. Inherent credit losses include losses for loans in default that have not been charged-off, and loans that have a high probability of default, less any amounts expected
to be recoverable from third-party credit enhancements. A private education loan is considered to be in default when it is approximately 180 days past due as to either principal or interest, based on the timing of cash receipts from the
borrower. We use projected cash flows to determine the allowance amount deemed necessary for private education loans with a high probability of default at the balance sheet date. Such default estimates are based on a loss confirmation period of one
year, which we believe to be the approximate amount of time that it would take a loss inherent in the private education loan portfolios at the balance sheet date to ultimately default and be charged-off. The estimates used in the calculation of the
allowance for private education loan losses are subject to a number of assumptions, including default, recovery and prepayment rates, as well as the effects of basic forbearance and alternative payment plans available to borrowers. These assumptions
are based on the status of private education loans at the balance sheet date, as well as macroeconomic indicators and our historical experience. If actual future loan performance were to differ significantly from the assumptions used, the impact on
the allowance for loan losses and the related provision for loan losses recorded in the statement of operations could be material.

Private
education loans are charged-off at the end of the reporting period in which they become approximately 270 days past due. Charge-offs are recorded as both a decrease in outstanding principal and a decrease in the allowance for loan losses. Cash
recoveries on loans charged-off are recorded as an increase to the allowance for loan losses.



50



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The following is a roll forward of the net carrying value of private education loans held to maturity during
the first quarter of fiscal 2011:



|                                                                                                  |  |                        |           |   |                           |   |          |                    |  |   |           |  
|------------------------------------------------------------------------------------------------- |  | ---------------------- | --------- | - | ------------------------- | - | -------- | ------------------ |  | - | --------- | -
|                                                                                                  |  | Gross
loansoutstanding |           |   | Allowance for 
loanlosses |   |          | Net carrying value | 
|                                                                                                  |  | (dollars in thousands) |          
|Balance, beginning of period                                                                      |  | $                      | 25,195    |   |                           | $ | (24,804  | )                  |  | $ | 391       |  
|Cumulative effect of a change in accounting principle (consolidation of 14 securitization trusts) |  |                        | 8,118,622 |   |                           |   | (517,804 | )                  |  |   | 7,600,818 |  
|                                                                                                  |  |                        |           |   |                           |   |          |                    |  |   |           |  
|Balance, beginning of period after cumulative effect                                              |  |                        | 8,143,817 |   |                           |   | (542,608 | )                  |  |   | 7,601,209 |  
|Receipts of principal from borrowers                                                              |  |                        | (78,378   | ) |                           |   |         |                    |  |   | (78,378   | )
|Interest capitalized on loans in deferment and forbearance                                        |  |                        | 36,258    |   |                           |   |         |                    |  |   | 36,258    |  
|Amortization of loan acquisition costs and origination fees                                       |  |                        | (8,152    | ) |                           |   |         |                    |  |   | (8,152    | )
|Interest capitalized on defaulted loans                                                           |  |                        | 4,810     |   |                           |   | (4,810   | )                  |  |   |          |  
|Provision for loan losses                                                                         |  |                        |          |   |                           |   | (107,064 | )                  |  |   | (107,064  | )
|Net charge-offs:                                                                                  |  |                        |           |   |                           |   |          |                    |  |   |           |  
|Charge-offs                                                                                       |  |                        | (129,651  | ) |                           |   | 129,651  |                    |  |   |          |  
|Recoveries on defaulted loans                                                                     |  |                        | 5,805     |   |                           |   | (5,805   | )                  |  |   |          |  
|                                                                                                  |  |                        |           |   |                           |   |          |                    |  |   |           |  
|Net charge-offs                                                                                   |  |                        | (123,846  | ) |                           |   | (123,846 | )                  |  |   |          |  
|                                                                                                  |  |                        |           |   |                           |   |          |                    |  |   |           |  
|Balance, end of period                                                                            |  | $                      | 7,974,509 |   |                           | $ | (530,636 | )                  |  | $ | 7,443,873 |  
|                                                                                                  |  |                        |           |   |                           |   |          |                    |  |   |           |  

The following terms are used to describe the borrowers payment status:

In School/Deferment. Under the terms of the majority of the private education loans, borrowers are eligible to defer principal and interest
payments while carrying a specified credit hour course load and may be eligible to defer payments for an additional six months after graduation during a grace period. Either quarterly or at the end of the deferment period, depending on the terms of
the loan agreement, any accrued but unpaid interest is capitalized and added to principal outstanding. With respect to our consolidated securitization trusts as of November 9, 2010, the number of borrowers in deferment status will decline in
the future because we do not expect to add new loans to the portfolios of the consolidated securitization trusts.

Forbearance. Under
the terms of the private education loans, borrowers may apply for forbearance, which is a temporary reprieve from making full contractual payments due to financial hardship. Forbearance can take many forms, at the option of the creditor. The most
common forms of forbearance include the following:



| |  |  | Basic forbearanceCessation of all contractual payments for a maximum allowable forbearance period of one year, granted in three-month
increments.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Alternative payment plansUnder alternative payment plans, a borrower can make a reduced payment for a limited period of time. The amount
of the payment varies under different programs available and may be set at a fixed dollar amount, a percentage of contractual required payments or interest-only payments. Generally, approval for alternative payment plans is granted for a maximum of
six to 24 months, depending on the program.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Under both basic forbearance and alternative payment plans, the private
education loan continues to accrue interest. When forbearance ceases, unpaid interest is capitalized and added to principal outstanding, and the borrowers required payments are recalculated at a higher amount to pay off the loan, plus the
additional accrued and capitalized interest, at the original stated interest rate by the original maturity date. There is no forgiveness of principal or interest, reduction in the interest rate or extension of the maturity date.

Forbearance programs result in a delay in the timing of payments received from borrowers, but at the same time, assuming the collection of the forborne
amounts, provide for an increase in the gross volume of cash receipts over the term of the loan due to the additional accrued interest capitalized while in forbearance. Forbearance programs may have the effect of delaying default emergence, and
alternative payment plans may reduce the utilization of basic forbearance.

In repayment. The repayment status of borrowers, including
borrowers making payments pursuant to alternative payment plans, is determined by contractual due dates.



The following table provides information on the status of private education loans outstanding:



|                                                                     |  |                        |           |  |                          |  |       |  
|-------------------------------------------------------------------- |  | ---------------------- | --------- |  | ------------------------ |  | ----- | -
|                                                                     |  | September 30, 2010     |           |  | As a percentage of total | 
|                                                                     |  | (dollars in thousands) |           |  |                          | 
|Principal of loans outstanding:                                      |  |                        |           |  |                          |  |       |  
|In basic forbearance                                                 |  | $                      | 348,774   |  |                          |  | 4.5   | %
|In school/deferment                                                  |  |                        | 1,494,923 |  |                          |  | 19.5  |  
|In repayment, including alternative payment plans(1), classified as: |  |                        |           |  |                          |  |       |  
|Current  £30 days past due                                          |  |                        | 5,263,153 |  |                          |  | 68.5  |  
|Current  >30 days past due, but £120 days past due                  |  |                        | 390,406   |  |                          |  | 5.1   |  
|Delinquent  >120 days past due, but £180 days past
due              |  |                        | 84,590    |  |                          |  | 1.1   |  
|In default  >180 days past due, but not charged-off                 |  |                        | 100,973   |  |                          |  | 1.3   |  
|                                                                     |  |                        |           |  |                          |  |       |  
|Total gross loan principal outstanding                               |  | $                      | 7,682,819 |  |                          |  | 100.0 | %
|                                                                     |  |                        |           |  |                          |  |       |  



|(1) | At September 30, 2010, borrowers in repayment with loan principal outstanding of approximately $1.61 billion were making reduced payments under alternative
payment plans.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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The following table provides additional information about private education loans held to maturity at the
balance sheet date:



|                                                                                                  |  |                        |           |  
|------------------------------------------------------------------------------------------------- |  | ---------------------- | --------- | -
|                                                                                                  |  | September 30, 2010     |          
|                                                                                                  |  | (dollars in thousands) |          
|Average gross loan principal outstanding(1)                                                       |  | $                      | 7,751,174 |  
|Average loan principal in repayment, including alternative payment
plans(1)                       |  |                        | 5,843,449 |  
|Non-accrual loan principal (>120 days past due, but not in default or charged-off)                |  |                        | 185,563   |  
|Past due loan principal (>90 days but <120 days past due still accruing interest)                 |  |                        | 80,742    |  
|Ratios:                                                                                           |  |                        |           |  
|End of period allowance as a percentage of loan principal outstanding                             |  |                        | 6.9       | %
|Non-accrual and past due loan principal as a percentage of average loan principal in repayment(1) |  |                        | 4.6       |  
|Net charge-offs as a percentage of average loan principal outstanding(1)(2)(3)                    |  |                        | 5.2       |  
|Net charge-offs as a percentage of average loan principal in repayment(1)(2)(3)                   |  |                        | 6.8       |  



|(1) | Averages are for the three months ended September 30, 2010.
|--- | -----------------------------------------------------------

|(2) | Ratios are for the three months ended September 30, 2010 on an annualized basis.
|--- | --------------------------------------------------------------------------------

|(3) | Ratios exclude net charge-offs of $23.2 million recorded in fiscal 2011 that relate to charge-offs that would have been recorded in fiscal 2010 if we had adopted
our charge-off policy in that fiscal year.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Education Loans Held for Sale

Private education loans held for sale at June 30, 2010 consisted of the private education loans held by UFSB-SPV, which was deconsolidated as a
result of our adoption of ASU 2009-16 and ASU 2009-17 on July 1, 2010. These loans were classified as held for sale because they are pledged as collateral to the indenture trustee, for the benefit of the third-party conduit lender under the
private education loan warehouse facility, and are subject to call provisions by the administrator of the indenture; therefore, we did not have the ability to hold these loans to maturity. The facility has been structured to limit the conduit
lenders recourse to the assets pledged as collateral, which consists almost exclusively of the private education loans.

Private
education loans held for sale are carried at the lower of cost or fair value. In the absence of a readily determined market value, fair value was estimated by management based on the present value of expected future cash flows. These estimates were
based on macroeconomic indicators and our historical experience with assumptions for, among other things, default rates, recovery rates on defaulted loans, prepayment rates and a discount rate commensurate with the risks involved. We recorded
changes in the carrying value of loans held for sale and the related interest receivable in the statement of operations.

Mortgage Loans
Held to Maturity

Through our bank subsidiary, Union Federal, we hold a portfolio of mortgage loans to maturity. We maintain an allowance
for mortgage loans held to maturity on a specific-identification basis when the loan becomes 30 days past due or the borrower is making modified payments. The allowance is set at an amount believed to be adequate so that the net carrying value
of the loan less the allowance is not in excess of the net realizable value of the collateral. In addition, a general allowance is established for mortgage loans with certain characteristics attributable to the collateral. Mortgage loans for which
we have foreclosed on the property and the related allowance are reclassified to other real estate owned, a component of other assets, and are carried at estimated net realizable value. We do not have any mortgage loans greater than 90 days
past due that are accruing interest.



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Contractual Obligations

Our consolidated contractual obligations include deposits of Union Federal, commitments under operating and capital leases, notes due to TERI and, effective with the adoption of ASU 2009-16 and ASU
2009-17 on July 1, 2010, the long-term borrowings of the 14 consolidated securitization trusts. Contractual obligations no longer include the education loan warehouse facility of UFSB-SPV, which was deconsolidated upon adoption of the new
accounting guidance.

Deposits

Union Federal has liabilities for retail time, money market and savings deposits accounts. The following table summarizes Union Federals time
deposits greater than $100 thousand by maturity at September 30, 2010:



|                       |  |                        |        | 
|---------------------- |  | ---------------------- | ------ | 
|                       |  | (dollars in thousands) |       
|Within three months    |  | $                      | 7,572  | 
|Three to six months    |  |                        | 3,390  | 
|Six months to one year |  |                        | 3,945  | 
|Over one year          |  |                        | 158    | 
|                       |  |                        |        | 
|                       |  | $                      | 15,065 | 
|                       |  |                        |        | 

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

Education Loan Warehouse Facility

The education loan warehouse facility is an obligation
of UFSB-SPV, a VIE which was reflected in our consolidated financial statements for fiscal 2010, but was deconsolidated effective July 1, 2010 upon adoption of ASU 2009-16 and ASU 2009-17. The education loan warehouse facility represents
borrowings from a third-party conduit lender. Such borrowings were used to finance the purchase of private education loans originated by Union Federal. Neither FMD nor Union Federal was a borrower or co-borrower under the facility. The facility has
been structured to limit the conduit lenders recourse to the assets of UFSB-SPV, which consist almost exclusively of the purchased private education loans.

Other Liabilities

Notes due to TERI. We entered into two ten-year 6.0% fixed notes
payable agreements with TERI in June 2001 to fund the acquisition of TERIs loan processing operations and loan database. As a result of the TERI Reorganization, we have not made any scheduled payments on the notes outstanding since April 2008.
The outstanding principal balances of the notes payable at September 30, 2010 and June 30, 2010 were $3.1 million. Under the terms of the Stipulation the amounts outstanding under the notes, as well as other liabilities, have been
fully released by TERI. We expect to record a resulting gain in the second quarter of fiscal 2011.

Borrowings Under Lines of Credit.
At September 30, 2010, through Union Federal we had $5.8 million available for borrowing under an unused line of credit with the Federal Home Loan Bank of Boston. There were no borrowings outstanding under this line of credit at
September 30, 2010 or June 30, 2010.

Long-term Operating and Capital Leases. We have future cash obligations under long-term
capital leases for office equipment expiring in fiscal 2011, and under operating leases for office space and office equipment expiring at various dates in fiscal 2011 through 2017. On November 3, 2010, we amended the operating lease relating to
our Medford, Massachusetts location to, among other things, reduce the rented space by approximately 60,000 square feet by March 31, 2011. The effective date of this amendment was July 1, 2010.

Long-term Borrowings

Through the
securitization process, the 14 consolidated securitization trusts issued debt instruments to finance the purchase of private education loans obtained from originating lenders or their assignees. The debt securities issued are obligations of the
trusts. Holders of these debt securities generally have recourse only to the assets of the particular trust that issued the debt, and not to any other securitization trusts, FMD or its other operating subsidiaries, or the originating lenders or
their assignees.



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The following table provides additional information on long-term borrowings:



|                                                                                                  |  |                        |           |  |                                                                            |  |               |                       |  |  |           | 
|------------------------------------------------------------------------------------------------- |  | ---------------------- | --------- |  | -------------------------------------------------------------------------- |  | ------------- | --------------------- |  |  | --------- | 
|                                                                                                  |  | September 30, 2010     |          
|                                                                                                  |  | Carrying value         |           |  | Range of spreads over index or range offixed interest rates (annual basis) |  |               | Distributionfrequency | 
|                                                                                                  |  | (dollars in thousands) |          
|Principal outstanding on variable-rate ABS indexed to one-month LIBOR(1), unless otherwise noted: |  |                        |           |  |                                                                            |  |               |                       |  |  |           | 
|Senior notes and certificates                                                                     |  | $                      | 6,909,190 |  |                                                                            |  | +0.03 to 0.48 | %                     |  |  | Monthly   | 
|Senior notes indexed to three-month LIBOR(1)                                                      |  |                        | 250,000   |  |                                                                            |  | +0.48         |                       |  |  | Quarterly | 
|Subordinated notes                                                                                |  |                        | 1,450,121 |  |                                                                            |  | +0.32 to 1.35 |                       |  |  | Monthly   | 
|Senior and subordinated auction rate notes                                                        |  |                        | 133,550   |  |                                                                            |  | +3.50         | (2)                   |  |  | Quarterly | 
|Unamortized proceeds of senior fixed-rate interest-only securities(3)                             |  |                        | 105,420   |  |                                                                            |  | 4.80 to 9.75  |                       |  |  | Monthly   | 
|                                                                                                  |  |                        |           |  |                                                                            |  |               |                       |  |  |           | 
|Total long-term debt                                                                              |  | $                      | 8,848,281 |  |                                                                            |  |               |                       |  |  |           | 
|                                                                                                  |  |                        |           |  |                                                                            |  |               |                       |  |  |           | 



|(1) | The averages of one-month LIBOR and three month LIBOR for the three months ended September 30, 2010 were 0.31% and 0.43%, respectively.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------

|(2) | Failed auctions occurred and have persisted with respect to a consolidated securitization trust that issued auction rate notes. When failed auctions occur, the notes
bear interest at a spread over one-month LIBOR as specified in the applicable indentures, based on the ratings assigned to the notes by independent rating agencies. Deterioration in securitization trust performance has resulted in downgrades to the
ratings assigned to these notes, and as a result, these notes bear interest at the maximum allowable spread over one-month LIBOR.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Interest-only securities have a combined notional value of $1.84 billion at September 30, 2010 and have varying maturity dates from April 2011 to October 2014.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

Interest payments and principal paydowns on the debt are made from collections on the purchased loans, on a monthly or
quarterly basis, as indicated in the table above. Within any given securitization trust, there may exist multiple classes of notes, certificates or interest-only securities. Typically, notes within a given class are sequentially ordered based upon
their original scheduled maturities. Interest payments and principal paydowns are made each distribution period based on cash available to the trust in accordance with the subordination priorities established in the trust indentures. Payments on
interest-only strips are made based on notional values and have scheduled maturity dates. Principal payments are not based on scheduled maturity dates. Each securitization trust is a standalone, bankruptcy remote entity, meaning that collateral
performance, cash flow, credit enhancement and subordination for a given trust is independent from any other trust.

Total
Stockholders Equity

Effective July 1, 2010, upon adoption of ASU 2009-16 and ASU 2009-17, we recorded a decrease to opening
retained earnings of $880.1 million (as restated) as the cumulative effect of a change in accounting principle. This amount represented the net deficit attributable to the 14 newly consolidated securitization trusts, including $979.0 million
for the NCSLT Trusts, as well as the reversal of residual interests recognized in prior periods for entities consolidated, partially offset by the reversal of certain related deferred tax asset valuation allowances and the net deficit of the
deconsolidated UFSB-SPV. Total stockholders equity at September 30, 2010 (as restated) includes in retained earnings the deficit of the NCSLT Trusts of $1.03 billion, which will never be realized by our stockholders because we have no
ownership interest in these trusts.

Off-Balance Sheet Arrangements

We offer outsourcing services in connection with private education loan programs, from program design through securitization of the private education 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 the securitization trusts we facilitated 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 as of June 30, 2010 and the impact new accounting standards had
on our determination to consolidate certain of these trusts and deconsolidate UFSB-SPV effective July 1, 2010.



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Liquidity and Capital Resources

Sources and Uses of Cash

The following is a discussion of sources and uses of cash
on a GAAP basis as presented in our consolidated statements of cash flows included in our unaudited consolidated financial statements included in Item 1 of Part I of this quarterly report. We also use a non-GAAP financial metric, net
operating cash usage when evaluating our cash and liquidity position, discussed in detail under Net Operating Cash Usage below.

Net cash used by operating activities for the three months ended September 30, 2010 was $10.7 million, compared with cash provided by operating activities of $5.9 million for the three
months ended September 30, 2009. During the first quarter of fiscal 2011, we began processing loans based on our Monogram platform, and as part of these loan programs, we funded $8.5 million to participation accounts, reflected as cash
used in operating activities. Cash provided from operating activities for the three months ended September 30, 2009 reflected the receipt of a state tax refund and the timing of payments on accounts payable.

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. We also expect to receive fees related to loan origination and portfolio management services to other clients, and fees related to Monogram-based loan programs. We believe that these fees, as well as
management of our expenses, coupled with our significant cash, cash equivalents and investments will be adequate to fund our operations in the short term as we seek to expand our client base over the short and long term. While we believe that we may
be successful in completing negotiations with respect to the sale of our Monogram platform to additional lenders, we are uncertain as to how much additional loan volume may be originated by these lenders in fiscal 2011.

Cash provided by investing activities of $103.4 million for the three months ended September 30, 2010 was primarily due to a net
$25.3 million decrease in restricted cash and guaranteed investment contracts, and receipt from borrowers of $78.4 million in private education loan principal by the consolidated securitization trusts. Cash provided by investing activities
of $4.7 million for the first quarter of fiscal 2010 was primarily due to the net reduction in federal funds sold, available-for-sale investments and mortgage loans held to maturity offset by a decrease in restricted cash.

Cash used in financing activities was $145.1 million during the first quarter of fiscal 2011, primarily reflecting the principal paydowns on
long-term borrowings by securitization trusts of $114.6 million. In addition, deposit volumes decreased $29.3 million, particularly in time and online money market accounts, as a result of a planned reduction in deposit liabilities at
Union Federal as we better align deposit rates to the yields available on Union Federals assets. We do not anticipate that this change in funding strategy will impact our ability to evaluate and pursue strategic alternatives for Union Federal.
Cash used in financing activities in the first quarter of fiscal 2010 reflected payments under capital leases and for borrowings under the private education loan warehouse facility partially offset by increases in the volume of deposits.

At September 30, 2010, we had $5.8 million available for borrowing under an unused line of credit with the Federal Home Loan Bank of Boston.

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).

On October 22, 2010, the OTS approved a cash dividend from Union Federal to First Marblehead of up to
$29.0 million. The approved amount of the dividend includes the $21.2 million that we distributed to Union Federal pursuant to our tax sharing agreement. As of November 9, 2010, Union Federal had not paid such dividend.



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Sources and Uses of Liquidity

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.

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



| |  |  | expenses necessary to fund our operations, including the operations of Union Federal;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | the extent to which our services and products, including Monogram-based loan programs, gain market share and remain competitive at pricing favorable to
us;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the extent to which we contribute cash to clients or credit facility providers in connection with our Monogram platform;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | the regulatory capital requirements applicable to Union Federal (see Support of Subsidiary Bank below for additional information);
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the amount and timing of receipt of additional structural advisory fees, asset servicing fees and residuals;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | the results of the audit conducted by the IRS of our tax returns for fiscal years 2007, 2008, 2009 and 2010, which could result in adjustments to tax
refunds previously received in connection with the sale of the Trust Certificate;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the timing, size, structure and terms of any securitization or other funding transactions that we structure, as well as the composition of the loan
pool being securitized; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the timing, size, structure and terms of acquisitions, if any.
| | - |  | --------------------------------------------------------------

Liquidity is required for capital expenditures, working capital, business development expenses, costs associated with alternative financing transactions, general corporate expenses, credit enhancement
provided in connection with Monogram-based loan programs and maintaining the regulatory capital of our bank subsidiary, Union Federal. In order to preserve capital and maximize liquidity in challenging market conditions, we have taken certain broad
measures to reduce the risk related to private education loans and residual receivables on our balance sheet, to change our fee structure and to add new products and reduce our overhead expenses. See Item 7 of Part II of our Annual Report
on Form 10-K filed with the SEC on September 2, 2010, under the heading Executive SummaryBusiness Trends and Uncertainties, for an expanded description of actions taken by us since fiscal 2009 in response to the economic
challenges facing us. In addition, our Board of Directors has eliminated regular quarterly cash dividends and repurchases of our common stock for the foreseeable future.

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 $42.6 million at September 30, 2010, down slightly from $43.4 million
at June 30, 2010, due to net losses for the first quarter of fiscal 2011. 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). As of September 30, 2010 and June 30, 2010, Union Federal was well capitalized under the regulatory framework for prompt corrective action.



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In July 2009, FMD entered into the Supervisory Agreement and Union Federal consented to an order to cease
and desist with respect to Union Federal, or Order, pursuant to which FMD and Union Federal, respectively, agreed to comply with certain requirements imposed by the OTS. During fiscal 2010, FMD 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.

In connection with the termination of the Supervisory Agreement, our Board of Directors adopted resolutions requiring FMD to support the implementation by Union Federal of its business plan, so long as
Union Federal is owned or controlled by FMD, and to notify the OTS in advance of any distributions to our stockholders 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, respectively, FMD remains 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 Guidelines |     |   |                 |  |      |                    | 
|                            |  | Minimum               |     |   | WellCapitalized |  |      | September 30, 2010 |  |  | June 30, 2010 |  
|                            |  |                       |     |  
|Risk-based capital ratios:  |  |                       |     |   |                 |  |      |                    |  |  |               |   |  |  |       |  
|Tier 1 capital              |  |                       | 4.0 | % |                 |  | 6.0  | %                  |  |  | 125.9         | % |  |  | 124.8 | %
|Total capital               |  |                       | 8.0 |   |                 |  | 10.0 |                    |  |  | 126.5         |   |  |  | 125.5 |  
|Tier 1 (core) capital ratio |  |                       | 4.0 |   |                 |  | 5.0  |                    |  |  | 34.2          |   |  |  | 27.9  |  

In October 2010, the OTS approved a
dividend from Union Federal to First Marblehead of up to $29.0 million. On a pro forma basis, if Union Federal were to have paid the full amount of the dividend during the first quarter of fiscal 2011, Union Federals Tier 1
and Total risk-based capital ratios would have been 38.7% and 39.4%, respectively, and its Tier 1 (core) capital ratio would have been 13.7%.

Net Operating Cash Usage

In addition to providing financial measurements based on
GAAP, we present below an additional financial metric that we refer to as net operating cash usage and that was not prepared in accordance with GAAP. We define net operating cash usage to approximate cash requirements to fund
operations. Net operating cash usage is not directly comparable to our consolidated statement of cash flows prepared in accordance with GAAP. Legislative and regulatory guidance discourage the use of and emphasis on non-GAAP financial metrics and
require companies to explain why a non-GAAP financial metric is relevant to management and investors.

Management and our board of directors
use this non-GAAP financial metric, in addition to GAAP financial measures, as a basis for measuring and forecasting our core operating performance and comparing such performance to that of prior periods. The non-GAAP financial measure is also used
by us in our financial and operational decision-making.

We believe that the inclusion of this non-GAAP financial metric helps investors to
gain a better understanding of our quarterly and annual results, including our non-interest expense and quarter-end liquidity position, particularly in light of dislocations in the private education loan industry and the capital markets that have
affected us. In addition, our presentation of this non-GAAP financial measure is consistent with how we expect that analysts may calculate their estimates of our financial results in their research reports and with how investors, analysts and
financial news media may evaluate financial results.

There are limitations associated with reliance on any non-GAAP financial measure because
it is specific to our operations and financial performance, which makes comparisons with other companies financial results more challenging. Nevertheless, by providing both GAAP and non-GAAP financial measures, we believe that investors are
able to compare our GAAP results to those of other companies, while also gaining a better understanding of our operating performance, consistent with managements evaluation.

Net operating cash usage should be considered in addition to, and not as a substitute for or superior to, financial information prepared in accordance with GAAP. Net operating cash usage
relates solely to our Loan Operations segment, and excludes the effects of income taxes, acquisitions, participation account funding and changes in other assets and other liabilities that are solely related to short-term timing of cash payments or
receipts.

In accordance with the requirements of Regulation G promulgated by the SEC, the table below presents the most directly comparable
GAAP financial measure, loss before income taxes, for the three months ended September 30, 2010 and 2009, and reconciles the GAAP measure to the comparable non-GAAP financial metric:





|                                                                                 |  |                                 |         |   |      |   |          |  
|-------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ---- | - | -------- | -
|                                                                                 |  | Three months endedSeptember 30, |        
|                                                                                 |  | 2010                            |         |   | 2009 |  
|                                                                                 |  | (dollars in thousands)          |        
|Loss before income taxes                                                         |  | $                               | (63,886 | ) |      | $ | (136,716 | )
|(Income) loss and related eliminations attributable to:                          |  |                                 |         |   |      |   |          |  
|NCSLT Trusts                                                                     |  |                                 | 50,670  |   |      |   |         |  
|GATE Trusts                                                                      |  |                                 | (1,771  | ) |      |   |         |  
|UFSB-SPV                                                                         |  |                                 |        |   |      |   | 63,402   |  
|                                                                                 |  |                                 |         |   |      |   |          |  
|Net loss before income taxes  Loan Operations                                   |  |                                 | (14,987 | ) |      |   | (73,314  | )
|Adjustments for non-cash revenues and expenses:                                  |  |                                 |         |   |      |   |          |  
|Trust update (gains) losses  additional structural advisory fees and residuals: |  |                                 |         |   |      |   |          |  
|Securitization Trusts segment                                                    |  |                                 | 78      |   |      |   |         |  
|Off-balance sheet VIEs                                                           |  |                                 | 632     |   |      |   | (1,187   | )
|Asset servicing fees                                                             |  |                                 | (1,069  | ) |      |   | (2,262   | )
|Depreciation and amortization                                                    |  |                                 | 2,527   |   |      |   | 3,693    |  
|Stock-based compensation expense                                                 |  |                                 | 1,051   |   |      |   | 1,540    |  
|Losses on education loans held for sale of Union Federal                         |  |                                 |        |   |      |   | 60,403   |  
|Cash receipts from education loans, net of interest income accruals              |  |                                 | 89      |   |      |   | (1,834   | )
|Cash receipts from trust distributions                                           |  |                                 | 294     |   |      |   | 24       |  
|Other                                                                            |  |                                 | (1,040  | ) |      |   | (368     | )
|                                                                                 |  |                                 |         |   |      |   |          |  
|Non-GAAP net operating cash usage                                                |  | $                               | (12,425 | ) |      | $ | (13,305  | )
|                                                                                 |  |                                 |         |   |      |   |          |  

Operating cash used for the first quarter of fiscal 2011 decreased $0.9 million from the first quarter in fiscal 2010. The
decrease was primarily due to lower third-party services expenses and higher cash receipts from trust distributions in fiscal 2011.



|Item 4. | Controls and Procedures.
|------- | ------------------------

Evaluation
of Disclosure 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 September 30, 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 the company in the reports that it files or submits 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.

Based on the evaluation of our disclosure controls and procedures as of September 30, 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. In reaching this conclusion, they considered the impact of the significant deficiency in internal control over financial
reporting discussed below, and determined that this significant deficiency did not indicate a material failure in our processes for recording, processing, summarizing and reporting information in our periodic SEC filings.

Inherent Limitations on Internal Control

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues have been detected. These inherent limitations include the realities



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that judgments in decision making can be faulty and that breakdowns can occur because of simple errors. Additionally, controls can be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

A material weakness (as defined in Rule 12b-2 under the Exchange Act) in internal control over financial reporting is a deficiency, or combination of
deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a companys annual or interim financial statements will not be prevented or detected on a timely basis. A
significant deficiency (as defined in Rule 12b-2 under the Exchange Act) is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit
attention by those responsible for oversight of a companys financial reporting.

Internal Control Relating to Evaluation of Deferred
Tax Assets

Management has identified a significant deficiency in internal control over financial reporting relative to the evaluation of
the realizability of certain of our deferred tax assets.

The process of evaluating the realizability of deferred tax assets is a subjective
one. It involves, among other things, scheduling the expected reversals of existing temporary differences that give rise to deferred tax assets and liabilities. In connection with our quarterly review of the realizability of deferred tax assets, we
identified a deficiency in our controls. Specifically, the review of our deferred tax asset analysis was not operating at a level of precision sufficient to provide reasonable assurance that all existing deferred tax assets would be considered in
evaluating the realizability of deferred tax assets.

We determined that it was necessary to increase our deferred tax asset valuation
allowances by approximately $5.4 million for certain deferred tax benefits recognized in the first and second quarters of fiscal 2011 related primarily to federal tax net operating loss carryforwards. In addition, we increased the deferred tax asset
valuation allowances established in periods prior to July 1, 2010 by approximately $27 million for fiscal 2009 and $25 million for fiscal 2010. The affected deferred tax assets related to federal income tax benefits created by an uncertain state
income tax position and unrealized losses included in our financial statements for decreases in the estimated fair value of education loans held for sale by UFSB-SPV, which was deconsolidated upon the adoption of ASU 2009-16 and ASU 2009-17 on July
1, 2010. The adjusted valuation allowance of $37 million pertaining to UFSB-SPV for prior periods has been credited to retained earnings as of July 1, 2010, the effective date of the deconsolidation of UFSB-SPV. The overall net effect to retained
earnings as a result of these changes was a reduction of approximately $16 million.

Management has discussed these matters, and its
conclusion, with the audit committee of our board of directors and KPMG LLP, our independent registered public accounting firm.

Internal
Control Related to Adoption of ASU 2009-16 and ASU 2009-17

We have restated the unaudited financial statements contained in our quarterly
reports for the quarters ended September 30, 2010 and December 31, 2010. The restatements were necessary because our financial statement presentation following the adoption of ASU 2009-16 and ASU 2009-17 on July 1, 2010 was inconsistent with GAAP.
Specifically, under GAAP, the NCSLT Trusts asset performance, including losses, should have been allocated to FMDs stockholders until such time as the trusts are deconsolidated or the trust liabilities are extinguished, rather than being
allocated to non-controlling interests.

Management has evaluated whether this error indicates a deficiency in internal control
over financial reporting. Management has consistently recognized that, as a result of certain factors, including our sale of the Trust Certificate to a third party in prior periods, the determination of the financial statement presentation of the
consolidation of the NCSLT Trusts is very complex and involves interpretation and application of new and highly technical accounting standards.

In connection with the implementation of these new accounting standards during the six-month period leading up to the adoption as of July 1, 2010, we
developed and executed a comprehensive adoption plan, which included: training key members of our accounting function; reviewing the requirements of the pronouncements and their application to various VIEs; adopting and implementing new accounting
policies and procedures; reviewing legal agreements relating to the VIEs; preparing cash flow variability analyses; considering the financial statement presentation required by the pronouncements; communicating the progress of the implementation
effort to senior management and the audit committee of the board of directors; and consulting with KPMG LLP.

While ASU 2009-16 and ASU
2009-17 do not specifically address the allocation of losses to non-controlling interests, in April 2010 we reached a judgment that it was appropriate in our circumstances to present the equity interests in the NCSLT Trusts as non-controlling
interests



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in our balance sheets, as a separate component of stockholders equity, and to allocate the net losses generated by the NCSLT Trusts to non-controlling interests in our statements of
operations. The net losses of the NCSLT Trusts did not, therefore, directly impact the net loss, loss per share or equity available to First Marbleheads stockholders.

On May 9, 2011, KPMG LLP reported to our board of directors and audit committee that our allocations to non-controlling interests were not consistent with GAAP. As a result, we restated the unaudited
financial statements contained in the Original Q1 and the Original Q2, to eliminate the allocation of losses generated by the NCSLT Trusts to non-controlling interests in our consolidated statements of operations. Our restated financial results
included the losses generated by the NCSLT Trusts in our net losses and net losses per share for the three and six months ended September 30, 2010 and December 31, 2010, respectively, and our consolidated deficit as of September 30, 2010 and
December 31, 2010. Our restated consolidated balance sheets as of September 30, 2010 and December 31,2010 now reflect in accumulated deficit, rather than as a separate component of stockholders equity, the deficit generated by the NCSLT
Trusts, although we have no obligation to fund such deficit.

Management has evaluated whether this matter resulted from a deficiency in
internal control over financial reporting and has concluded that it did not. The primary factors considered in making this determination were that the accounting for this matter is highly complex and involves interpretation and application of new
and highly technical accounting standards, and that the Company developed and executed a comprehensive implementation plan (including developing an adequate level of knowledge in the subject matter, communicating with the audit committee of the
board of directors and consulting with subject matter experts as appropriate). In managements view, First Marblehead took reasonable steps to implement the new accounting standards and the fact that our initial judgment regarding the
appropriate presentation of the consolidation of the NCSLT Trusts was subsequently determined not to be consistent with the new standard does not indicate that our controls surrounding the accounting for the NCSLT Trusts were deficient.

Management has discussed these matters, and its conclusion, with the audit committee of our board of directors and KPMG LLP, our independent registered
public accounting firm.

Changes to Internal Control and Remediation Plan for the Significant Deficiency

We have implemented remediation efforts to address the significant deficiency in our control over financial reporting as of September 30, 2010 with
regard to deferred tax assets. We are in the process of strengthening and enhancing the reviews of our determination of the deferred tax asset valuation allowance. We have also appointed a new Chief Accounting Officer, who will have responsibility
for, among other things, internal control over income tax accounting.

Other than as described above, there have not been any other changes in
our internal control over financial reporting during the three months ended September 30, 2010, which materially affected, or are 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 could be adversely affected, which, in turn, could have a negative impact on the price of our common stock. 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 the following risk factors to reflect financial and operational information for the most recently completed fiscal quarter, including developments in the TERI Reorganization:



| |  |  | 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 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.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The TERI Reorganization could adversely affect our cash flows from the securitization trusts.
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | Our potential recovery from TERIs bankruptcy estate on our general unsecured claim is uncertain.
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | The price of our common stock may be volatile.
| | - |  | ----------------------------------------------

In addition, we added a risk factor entitled We may acquire other businesses, and we may have difficulty integrating these businesses or generating an acceptable return from acquisitions, and
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, 2010:



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



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



| |  |  | 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.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We were required to consolidate certain securitization trusts in our financial results as of July 1, 2010, which has resulted in significant
changes to the presentation of our financial statements and may result in increased volatility in our reported financial condition and results of operations.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Risks Related to Our Industry, Business and Operations

Challenges exist in
implementing revisions to our business model.

Since the beginning of fiscal 2009, we have taken several measures to adjust our
business in response to economic conditions. Most significantly, we refined our service offerings and added fee-for-service offerings such as portfolio management and asset servicing. In August 2009, we completed the development of our Monogram
platform, which incorporates refinements to our origination process, including an enhanced application interface, an expanded credit decisioning model and additional reporting capabilities.

We have limited experience with our Monogram platform, 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 our Monogram platform, particularly in the current economic environment where there has been reluctance by many lenders to focus on education lending opportunities. As of November 9, 2010, we have signed only two
loan program agreements and fully deployed the product to only two clients. Successful sales of our services, including our Monogram platform, will be critical to growing and diversifying our revenues and client base in the future.



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Our Monogram platform may include capital commitments on our part for credit enhancement. We have provided
capital commitments in connection with our two initial Monogram-based loan programs. Should additional lenders require credit enhancement from us as a condition to entering into a loan program agreement, our growth may be constrained by the level of
capital available to us.

Commercial banks have historically served as the initial funding sources for private education loans we facilitate
and have been our principal clients. Since the first quarter of fiscal 2008, we have not facilitated take-out securitization transactions to support the 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
eliminated by legislation that eliminated 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.

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 platform through capital market transactions. We cannot assure you that we will be successful in either the short-term or the long-term in meeting these challenges.

We have provided credit enhancement in connection with two loan programs and may enter into similar arrangements in connection with future loan
programs based on our Monogram platform. As a result, we have capital at risk in connection with lenders loan programs. We may lose the capital we have provided as credit enhancement, and our financial results could be adversely affected.

Historically, the loan programs that we facilitated included a third-party guaranty, pursuant to which the guarantor agreed to
reimburse lenders for unpaid principal and interest on defaulted loans. Our Monogram platform does not include a third-party guaranty. In connection with the initial two loan programs based on our Monogram platform, we have provided credit
enhancement by funding a participation account for each lender up to a specified dollar limit, which we refer to as the participation cap, to serve as a first-loss reserve for defaulted program loans. We provided an initial deposit into the
participation accounts and agreed to provide supplementary deposits into such accounts on a quarterly basis during the term of the loan program agreements based on disbursed program loan volume and adjustments to default projections for program
loans. Although we will not be required to provide any credit enhancement in excess of the participation cap, we have or will have capital at risk in connection with lenders loan programs and the amount of such capital at risk will increase
quarterly. As of November 9, 2010, we have funded capital commitments in the amount of $8.5 million in support of existing Monogram-based loan programs. We could lose some or all of the amounts that we have deposited, or will deposit in
the future, in the participation accounts depending on the performance of the portfolio of program loans. Any such loss would erode our liquidity position and damage business prospects for our Monogram platform.

Our Monogram platform is based on proprietary scoring models and risk mitigation and pricing strategies that we have only recently developed. We have
limited experience with the actual performance of loan portfolios generated by lenders based on our Monogram platform. We must closely monitor the characteristics and performance of each lenders loan portfolio in order to suggest adjustments
to the lenders programs and tailor our default prevention and recovery strategies. We have limited experience with the infrastructure that we have built for such monitoring, which requires extensive operational and data integration among the
loan servicer, multiple default prevention and recovery agencies, and us. To the extent that our infrastructure is inadequate or we are otherwise unsuccessful in identifying portfolio performance characteristics and trends, or to the extent that
lenders are unwilling to adjust their loan programs, our risk of losing amounts deposited in the participation accounts may increase.

We may
offer additional prospective clients similar credit enhancement arrangements. We expect that the amount of any such credit enhancement offered to a particular lender would be determined based on the particular terms of the lenders loan
program, including the underwriting guidelines with respect to such program. We have limited amounts of cash available to offer to prospective clients, and there is a risk that lenders will not enter into loan program agreements with us unless we
offer credit enhancement.

We will need to facilitate substantial loan volume in order to return to profitability.

We designed our Monogram platform, in part, to reduce our dependence on the securitization market in order to generate revenue. Although we expect to
generate ongoing monthly revenue through the maturity of the program loans, we will need to facilitate substantial loan volumes in order to return to profitability. In addition, because the revenues that we expect to generate for Monogram-based loan
programs will depend in part on the size, credit mix and actual performance of our lender clients loan portfolios, it is difficult for us to forecast the level or timing of our revenues or income with respect to our Monogram platform generally
or a specific lenders Monogram-based program.



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The outsourcing services market for education lending is competitive, and if we are not able to
compete effectively, our revenue and 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 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, than we are.

Based on the range of services that
we offer, we believe that SLM Corporation, also known as Sallie Mae, is our principal competitor. Sallie Mae has announced that it intends to concentrate on growth of its private education loan volumes, particularly following the elimination of
FFELP. 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 and Discover Financial Services.

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 the elimination of 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 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 of 1965. Recent federal legislation expands federal grant and loan assistance, which could weaken the demand for private education
loans. In addition, the elimination of FFELP could result in increased competition in the market for private education loans, which could adversely affect the volume of private education loans and future capital markets transactions, if any, that we
facilitate and impede the growth of our business.

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:



| |  |  | permits a parent borrower under the federal Parent Loan for Undergraduate Students, or PLUS, loan program to defer repayment of a PLUS loan until six
months after the student ceases to carry at least one-half the normal full-time academic workload;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | extends eligibility for a PLUS loan to an applicant who, during the period beginning January 1, 2007 and ending December 31, 2008, has not
been delinquent for more than 180 days on mortgage loan payments or medical bill payments nor more than 89 days delinquent on the repayment of any other debt, in any case, during such period; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | increases the loan limits for unsubsidized Stafford loans for undergraduate students.
| | - |  | -------------------------------------------------------------------------------------

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



| |  |  | significant restrictions to the marketing of federal and private education loans; and
| | - |  | -------------------------------------------------------------------------------------



| |  |  | significant compliance burdens to private education loan lenders by adding new Truth in Lending Act, or TILA, disclosures, procedures and rescission
rights, as well as accompanying civil penalties.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 costs of post-secondary education. These vehicles include, among others:



| |  |  | home equity loans or other borrowings available to families to finance their education costs;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | pre-paid tuition plans, which allow students to pay tuition at todays rates to cover tuition costs in the future;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | 529 plans, which include both prepaid tuition plans and college savings plans that allow a family to save funds on a tax-advantaged basis;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | education IRAs, now known as Coverdell Education Savings Accounts, under which a holder can make annual contributions for education savings;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | government education loan programs, generally; and
| | - |  | --------------------------------------------------



| |  |  | direct loans from colleges and universities.
| | - |  | --------------------------------------------

If demand for private education loans weakens, we would 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, continued through fiscal 2009 and fiscal 2010 and, to a
lesser extent, persisted as of November 9, 2010, as well as the TERI Reorganization, we have not completed a securitization transaction since September 2007. In addition, high 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, defaults and forbearance, or otherwise negatively affect loan
portfolio performance and the estimated 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 or turn to less costly forms of secondary education, thus decreasing private 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 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 private education loans were or are marketed by our
clients in a manner that is unfair or deceptive, or if the marketing, origination or servicing violated or violates any applicable law, state unfair and deceptive practices acts could impose liability on the holder of 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 creates significant additional restrictions on the marketing of private education loans.



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If we fail to manage our cost reductions effectively, 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 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, and our ability to retain our employees may become more difficult as we face an increasingly competitive landscape with respect to talented employees as the
economy begins to re-emerge from the financial crisis.

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 external vendors
subjects us to risks associated with inadequate or untimely service and could result in problems with service or support that we would not experience if we performed the service functions in-house.

We cannot assure you that we will be able to:



| |  |  | expand our systems effectively;
| | - |  | -------------------------------



| |  |  | successfully develop new products or services;
| | - |  | ----------------------------------------------



| |  |  | allocate our human resources optimally;
| | - |  | ---------------------------------------



| |  |  | identify, hire and retain qualified employees or vendors; or
| | - |  | ------------------------------------------------------------



| |  |  | incorporate effectively the components of any business that we may acquire in our effort to achieve growth.
| | - |  | -----------------------------------------------------------------------------------------------------------

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.

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 database of historical information on private
education loan performance that we use to help us enhance 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 fee, asset
servicing fee 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. We believe that our private
education loan database and loan information processing system provide us with a competitive advantage in offering our services. Third parties could create or acquire databases and systems such as ours, and TERI possesses certain historical
information related to TERI-guaranteed loans. 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,
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.

On November 2, 2010, TERI filed with the Bankruptcy Court a Motion for Interpretation of Order, which we
refer to as the Motion, effectively requesting the Bankruptcy Court to rule that certain contractual restrictions on TERIs use of historical loan data, which we refer to as the Data Restrictions, have lapsed. In general, the Data Restrictions
have limited TERI to using or disclosing the loan data in connection with education loan guaranty programs offered and guaranteed by TERI. If the Bankruptcy Court grants the Motion or if TERI were to assert successfully that the Data Restrictions
terminated in the context of the TERI Reorganization or otherwise, the competitive advantage of our loan database could diminish. Furthermore, 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 held by neither the securitization trusts facilitated by us nor Union Federal.



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If we are unable to protect the confidentiality of our historical loan database and proprietary
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 historical loan database and proprietary information systems and processes. We have sought to limit TERIs rights to use or 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 use
or disclosure of our confidential or proprietary information nor provide meaningful protection for our confidential or proprietary information if there is unauthorized use or disclosure. On November 2, 2010, TERI filed the Motion effectively
requesting the Bankruptcy Court to rule that the Data Restrictions have lapsed. If the Bankruptcy Court grants TERIs Motion or if TERI were to assert successfully that the Data Restrictions terminated in the context of the TERI Reorganization
or otherwise, the competitive advantage of our loan database could diminish.

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 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. 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 our
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 September 30, 2010, the Pennsylvania Higher Education Assistance Agency, or PHEAA, serviced a substantial majority of
private education loans held by the securitization trusts that we administer and served as the sole loan servicer for loan programs based on our Monogram platform. Our arrangements with PHEAA allow us to avoid the overhead investment in servicing
operations, but require us to rely on PHEAA to adequately service the private education loans, including collecting payments, responding to borrower inquiries, effectively implementing servicing guidelines applicable to loans 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, as of the third quarter of fiscal 2010, negotiations with respect to the contemplated acquisition had terminated. We continue to believe, however, that ownership of
a loan servicer could 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, and usage rates for forbearance programs, including alternative payment plans. 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 fee, asset servicing fee and residual receivables. If our relationship with PHEAA terminates, we would either need to expand our operations or develop a relationship with
another loan servicer, which could be time consuming and costly. In such event, our business could be adversely affected.



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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
concentrated 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.

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, 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
the private education 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 were to 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.

We may acquire other businesses, and we may have difficulty integrating these businesses or generating an acceptable return from
acquisitions.

We may acquire other businesses or make strategic purchases of interests in other companies related to our business in
order to grow, add product offerings or otherwise attempt to gain a competitive advantage in new or existing markets. Such acquisitions and investments may involve the following risks:



| |  |  | our management may be distracted by these acquisitions and may be forced to divert a significant amount of time and energy into integrating and running
the acquired business;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may not achieve the desired outcomes justifying the acquisition;
| | - |  | -------------------------------------------------------------------



| |  |  | we may face difficulties integrating the acquired business operations and personnel; and
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | we may face difficulties incorporating the acquired technology into our existing product offerings.
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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 were entitled
to receive structural advisory fees and a portion of the residual interests in the securitization trusts that we facilitated. We received up-front structural advisory fees when the securitization trusts purchased the private education loans, and we
continue to be entitled to receive additional structural advisory fees over time, based on the amount of private education loans outstanding in the trust over the life of the trust. 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 private education 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 Trust Certificate. 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 from the Trusts available to the third-party owner of the Trust Certificate. 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.

We have no further financial obligation with respect to our additional
structural advisory fees or residuals in the securitization trusts we 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 revenue 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 actual performance differs from our assumptions at September 30, 2010. As of September 30, 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, 2010.

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 private education loan prepayments; the trend of interest rates over the life of the loan pool, including the forward LIBOR curve,
which is a projection of future LIBOR rates over time; the expected annual rate and timing of private education loan defaults, including the effects of various risk mitigation strategies, such as forbearance programs, and expected amount and timing
of recoveries of defaulted private education loans; the source and amount of guaranty payments made on defaulted private education loans; and the fees and expenses of the securitization trusts. Because our estimates rely on quantitative and
qualitative factors, including macroeconomic indicators and our historical experience 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.

If the actual
performance of the private education loan 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 third-party owner of the
Trusts residual interests, 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 revenue receivables, we assumed at September 30, 2010 that
the application of the pledged accounts will occur in accordance with the terms of the Modified Plan of Reorganization.

We were
required to consolidate certain securitization trusts in our financial results as of July 1, 2010, which has resulted in significant changes to the presentation of our financial statements and may result in increased volatility in our reported
financial condition and results of operations.

The presentation of our consolidated financial statements beginning with the first
quarter of fiscal 2011 differs significantly from the presentations included in prior periodic reports. Historically, each of the securitization trusts created after January 31, 2003 met the criteria to be a QSPE as defined by 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, were amended in order for them to be considered QSPEs. Effective July 1, 2010 we adopted ASU 2009-16 and ASU 2009-17, which eliminated the exemption from consolidation afforded to QSPEs and
changed the criteria for determining the party considered to be a primary beneficiary.



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Effective July 1, 2010, we consolidated 14 securitization trusts that we previously facilitated, and we
deconsolidated UFSB-SPV. As a result, on the date of adoption, we recorded a net increase in total assets and total liabilities of approximately $7.90 billion and $8.78 billion, respectively, and a net decrease in total stockholders
equity of approximately $880.1 million (as restated). We adjusted our opening retained earnings by $990.3 million (as restated) for the net deficit of the consolidated securitization, which was partially offset by an adjustment of
$110.2 million to remove the deficit of UFSB-SPV and reverse certain deferred tax asset valuation allowances. In addition, beginning with the first quarter of fiscal 2011, our results of operations no longer reflect securitization-related trust
updates or administrative fees received from the 14 consolidated securitization trusts. Instead, we recognize interest income associated with securitized assets, including private education loans, in the same line item as interest income from
non-securitized assets, as well as a provision for loan losses, and we recognize interest expense associated with debt issued by the securitization trusts to third-party investors on the same line item as other interest-bearing liabilities of FMD.
We continue to recognize trust updates from additional structural advisory fees and residual receivables, and administrative and other fees from other off-balance sheet VIEs that were not consolidated. See Managements Discussion and
Analysis of Financial Condition and Results of OperationsExecutive SummaryApplication of Critical Accounting Policies and EstimatesConsolidation, included in Item 2 of Part I of this quarterly report for additional
details regarding our adoption of ASU 2009-16 and ASU 2009-17.

ASU 2009-17 requires us to make additional judgments that are subject to
change based on new facts and circumstances, and evolving interpretations and practices. Under ASU 2009-17, the determination of whether to consolidate a VIE is based on whether the company is considered to be the primary beneficiary. Such
determination is based on both the power to direct the activities of the entity that most significantly impact the entitys economic performance, and the obligation to absorb losses or the right to receive benefits that could be significant to
the entity. The nature of these determinations, made on an entity-by-entity basis, requires a high level of subjectivity and judgment. Moreover, we are required to continuously reassess whether consolidation or deconsolidation of a VIE is
appropriate, as opposed to the trigger-based assessment allowed under previous guidance. As a result, determinations that we make from time to time will be susceptible to change. We continue to monitor our involvement with 18 unconsolidated VIEs for
which we perform services related to default prevention and portfolio management. As of November 9, 2010, we had determined that we are not the primary beneficiary due to the sole, unilateral rights of other parties to terminate us in our role
as service provider or due to a lack of obligation on our part to absorb benefits or losses of the VIE that would be significant to that VIE. Significant changes to the pertinent rights of other parties or significant changes to the ranges of
possible trust performance outcomes used in our assessment of the variability of cash flows due to us could cause us to change our determination of whether or not a VIE should be consolidated in future periods. In particular, the commencement by
Ambac of a voluntary case under Chapter 11 of the Bankruptcy Code on November 8, 2010 could cause us to change our determination not to consolidate certain VIEs for which an affiliate of Ambac provides credit enhancement. Given the size of
our VIEs, any decision to consolidate or deconsolidate VIEs could result in significant changes to our reported assets and liabilities and results of operations during the quarter in which the change occurs. Any such consolidations or
deconsolidations, were they to occur, could make comparisons of our financial performance between periods challenging to investors.

The
accounting for these matters is new and complex, particularly in light of our sale of the Trust Certificate to an unrelated third-party. We have determined that it was necessary to correct the financial statement presentation in this quarterly
report with respect to non-controlling interest accounting. We may be required to adjust our financial statement presentation in the future as a result of new accounting standards or changes to current accounting standards.

In addition, our financial results for the first quarter of fiscal 2011 reflect the adoption of new accounting policies, including policies for the
determination of an allowance for loan losses and the related provision for loan losses, the recognition of interest income on delinquent and defaulted loans and amortization of loan acquisition costs and origination fees. We have also adjusted, and
may need to further adjust, elements of our information technology infrastructure in order to support our financial reporting following adoption of ASU 2009-17. We have limited experience with our new policies and infrastructure, and we may need to
adjust them in the future based on our actual experience, new facts and circumstances, or evolving interpretations and practices.

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 our Trust Certificate 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. The U.S. federal and state income tax consequences of the sale of the Trust Certificate, however, are complex and uncertain. The IRS has begun an audit of
our tax returns for fiscal years 2007, 2008, 2009 and 2010. 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 any refund for taxes previously paid, or we may not eliminate our tax obligations relating to the residuals. In either case, our near-term and long-term financial condition and
liquidity would be materially adversely affected. In addition, any investigation, audit or suit relating to the sale of the Trust Certificate, 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. We may incur substantial costs if we have to perform or assume obligations of Union Federal, which could have a material adverse effect on our liquidity or
financial condition.

In connection with Union Federals sale of private education loans in October 2009, we delivered a
performance guaranty 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 obligations. As a result, we may incur substantial costs pursuant to the performance guaranty if Union Federal is unable to perform its obligations under the loan purchase and sale agreement.

In April 2010, we entered into agreements relating to the restructuring of the education loan warehouse facility of UFSB-SPV. In connection
with the restructuring, the third-party conduit lender released 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 exceed $20.0 million in the aggregate. Neither Union Federal nor UFSB-SPV would have any liability until the conduit lenders aggregate losses exceed $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 fee, asset servicing fee 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 delinquency and default rates for outstanding private education loans, as well as increased use of basic forbearance or alternative payment
plans. Forbearance programs may have the effect of delaying default emergence, and alternative payment plans may reduce the utilization of basic forbearance. Other factors, such as challenging economic times, including high unemployment rates, can
also lead to an increase in delinquency and default rates or such use. In addition, higher interest rates, or the perception that interest rates could increase in the future, could cause an increase in full or partial prepayments. If the prepayment
or default rates increase for the private education loans held by us or the securitization trusts that we facilitated, we may experience a decline in the value of our additional structural advisory fee, asset servicing fee 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 private 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 asset-backed securities, or 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 could decrease the estimated fair value of our service revenue receivables. Significant changes to the forward LIBOR curve can also affect the estimated
fair value of our additional structural advisory fee receivables, 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, operating expenses, credit enhancement for Monogram-based loan programs, 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,
although more accessible than during the height of the financial crisis, continues to be available only on terms that are not acceptable to us. We have also satisfied our funding needs through equity financings. We cannot be certain that additional
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available in amounts or on terms acceptable to us, if at all. Although we believe that our capital resources as of September 30, 2010, which include proceeds of tax refunds under audit as of
November 9, 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 17, Union Federal Regulatory MattersRegulatory Capital Requirements, in the notes to our unaudited consolidated financial statements included in Item 1 of
Part I of this quarterly report for additional details.

Risks Related to Asset-Backed Securitizations and Other
Funding Sources

We have historically recognized 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 recognized 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 Monogram platform offering has been designed to generate recurring revenue with less dependence on the securitization market and third-party credit enhancement, we have limited experience with it and, as of November 9, 2010, have fully
deployed it to only two lender clients. In addition, our future financial results and growth may continue to be affected by our inability to structure securitizations or alternative financing transactions involving private education loans on terms
acceptable to us. In particular, such transactions may enable us to access and recycle capital previously deployed as credit enhancement for Monogram-based loan programs. If we are able to facilitate securitizations in the near-term, we expect the
structure and economics of the transactions to be substantially different than our past transactions, including lower revenues and additional cash requirements on our part.

If we continue to be unable to access the ABS market on acceptable terms, our revenues may continue to be adversely impacted, and we may continue to generate net losses, which would further erode our
liquidity position.

Our business, financial condition, results of operations and cash flows will be adversely affected if we do not
achieve widespread market acceptance of loan programs based on our Monogram platform offering.

Since the beginning of fiscal 2009, we
have significantly refined our service offerings and added fee-for-service offerings, such as portfolio management and asset servicing. During fiscal 2010, we completed the development of our Monogram platform and entered into loan program
agreements with SunTrust Bank and Kinecta Federal Credit Union pursuant to which we expect to generate ongoing monthly revenue through the maturity of the Monogram program loans. Deployment of this platform has been limited, however, and we will
need to gain widespread market acceptance of our Monogram platform in order to improve our long-term financial condition, results of operations and cash flows.

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:



| |  |  | persistent and prolonged disruption or volatility in the capital markets generally or in the private education loan ABS sector specifically, which
could continue to restrict or delay our access to the capital markets;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our inability to structure and gain market acceptance for new products or services to meet new demands of ABS investors or credit facility providers;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | continuing degradation of the credit quality or performance of the loan portfolios of the trusts we facilitated, which could reduce or eliminate
investor demand for future securitizations that we facilitate, particularly for subordinate classes of ABS, or result in material, adverse modifications in rating agency assumptions, ratings or conclusions with respect to the securitization trusts;
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| |  |  | rating agency actions, including downgrades, of ABS that we facilitated in the past or any occurrence of an event of default with respect to such
securities, which could reduce demand for additional securitizations that we structure;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | material breach of our obligations to clients, including securitization trusts and former or current lender clients;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | the timing and size of private education loan asset-backed securitizations that other parties facilitate, or the adverse performance of, or other
problems with, such securitizations, including continued disruptions of the auction rate note market, which could impact pricing or demand for our future securitizations, if any;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | challenges to the enforceability of private education loans based on violations of federal or state consumer protection or licensing laws and related
regulations, or imposition of penalties or liabilities on assignees of private education loans for violation of such laws and regulations; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes to bankruptcy laws that change the current non-dischargeable status of education-related loans, which could materially adversely affect
recovery rates on defaulted loans.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

New or continuing dislocations in the capital
markets, reductions in the valuations of our service receivables 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 expect
the structure and pricing terms in near-term future transactions, if any, to be less favorable than in the past.

Recent legislation
will affect the terms of future securitization transactions.

The SEC has proposed new rules governing ABS issuance that, due to the
requirements for risk retention, may affect the desirability of issuing ABS as a funding strategy. In addition, the Dodd-Frank Act signed into law on July 21, 2010, grants federal banking regulators substantial discretion in developing specific
risk retention requirements for all types of consumer credit products and requires the SEC to establish new data requirements for all issuers, including standards for data format, asset-level or loan-level data, the nature and extent of the
compensation of the broker or originator, and the amount of risk retention required by loan securitizers. The Dodd-Frank Act and its implementing regulations, once adopted, will affect the terms of future securitization transactions, if any, that we
facilitate and may result in greater risk retention and less flexibility for us in structuring such transactions.

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 transaction parties.

We 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, if the trust made statements that were misleading
in any material respect in information delivered to investors or if we breach any duties as the structuring advisor or administrator of the securitization trusts, it is possible that we could be sued and ultimately held liable to noteholders or
other transaction parties. The Modified Plan of Reorganization provides exculpation for certain of our actions as administrator of the trusts in connection with the TERI Reorganization, but the exculpation may not cover all of our actions as
administrator of the trusts during the TERI Reorganization. Recent investigations by state attorneys general, as well as 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 or other transaction parties incur in any of the securitizations that we facilitated or structured 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.



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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 private education 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 the pledged accounts. 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 trust that owned the defaulted loan.

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., or FMDS, 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 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 private education loans transferred by
the trusts to TERI with an aggregate principal and accrued interest balance of more than $599.3 million as of September 30, 2010, or in amounts owed or transferred by TERI to pledged accounts after the filing of TERIs petition for
reorganization totaling more than $51.4 million as of September 30, 2010. In February 2009, pending resolution of the issues raised previously 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.

On August 26,
2010, TERI and the Creditors Committee filed the Modified Plan of Reorganization and subsequently solicited the votes of creditors. All classes of creditors, including each of the NCSLT Trusts, voted or were deemed to have voted in favor of
acceptance of the Modified Plan of Reorganization. On October 29, 2010, the Bankruptcy Court entered an order confirming the Modified Plan of Reorganization, which will become effective on a date to be determined by the Creditors Committee
provided that the conditions for effectiveness set forth in the Modified Plan of Reorganization have been met.

Under the Modified Plan of
Reorganization, the adversary complaint filed by the Creditors Committee would be dismissed with prejudice as part of the settlement of the NCSLT Trusts claims against TERIs bankruptcy estate. If the Modified Plan of Reorganization does
not become effective, or a successor plan that provides for settlement of the adversary complaint, 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 private 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 available for distribution to other holders of claims. The settlement of the adversary complaint, in the context of the Modified 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 challenge to the security interests could delay distributions to creditors, and 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.

The TERI Reorganization 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. Under the Modified Plan of Reorganization, which was confirmed on October 29, 2010, TERI will reject the guaranty agreements and settle its claims with the NCSLT
Trusts.

In general, the termination of the TERI guaranty agreements in the TERI Reorganization will 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.

Under the settlement provisions in the
Modified Plan of Reorganization, a particular NCSLT Trust may receive all or a portion of its pledged account and may have an allowed unsecured claim against TERIs estate. There can be no assurance, however, that amounts actually distributed
to such NCSLT Trust from TERIs bankruptcy estate will be sufficient to address the cashflow requirements of the



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NCSLT Trust. 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 and additional structural advisory fees.

Our
potential recovery from TERIs bankruptcy estate on our general unsecured claim is uncertain.

Notwithstanding the allowance of
our unsecured claim in the aggregate amount of approximately $28.1 million pursuant to the Stipulation, the amount of our ultimate recovery from TERIs bankruptcy estate in respect of our claims is difficult to estimate. The compensation
and other operating expenses of TERI, together with the expenses of its professional advisors and those of the Creditors Committee, during the course of the reorganization proceeding will have consumed a significant portion of TERIs
unrestricted cash. Based on filings made with the Bankruptcy Court, TERI had unrestricted cash and marketable securities of $83.1 million as of April 30, 2008, but expects only $42.3 million to remain available for transfer to the
liquidating trust under the Modified Plan of Reorganization, assuming such plan becomes effective on September 30, 2010. As a result, general unsecured creditors of TERI will receive a small portion of their claims in cash shortly following the
effectiveness of any plan of reorganization. The larger portion of their respective distributions under the plan will only be received by creditors based on the level of recoveries on defaulted loans transferred to the liquidating trust. Those
recoveries are expected to be collected over many years, and the recovery rate will depend on the experience and skill of the party or parties managing collections with respect to such loans. Under the Modified Plan of Reorganization, reorganized
TERI would manage collections with respect to the portion of such loans for which TERI is currently managing collections. As of November 9, 2010, we are managing collections on behalf of TERI with regard to the remainder of such loans. We have
only agreed to continue providing such services for up to 90 days following the effective date of the Modified Plan of Reorganization. Moreover, we can provide no assurance that the plan trustee will seek to engage us following the
effectiveness of any plan of reorganization or that we will be able to reach acceptable terms with such plan trustee regarding our continued services.

Risks Relating to Regulatory Matters

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

Regulators have increased diligence and enforcement
efforts and new laws and regulations have been passed or are under consideration in Congress as a result of turbulence in the financial services industry. On July 21, 2010, the President signed into law the Dodd-Frank Act. The Dodd-Frank Act
requires various federal agencies to adopt a broad range of new implementing rules and regulations, and the federal agencies are given significant discretion in drafting the implementing rules and regulations. Consequently, many of the details and
much of the impact of the Dodd-Frank Act may not be known for many months or years. In addition, some of the provisions of the Dodd-Frank Act would not apply to us if Union Federal is sold.

The Dodd-Frank Act also restructures the regulation of depository institutions. Under the Dodd-Frank Act, the OTS, which is currently the primary federal regulator for FMD and Union Federal, will cease to
exist on July 21, 2011 unless the Secretary of the Treasury opts to delay such date for up to an additional six months. The Office of the Comptroller of the Currency, or OCC, which is currently the primary federal regulator for national banks,
will become the primary federal regulator for federal thrifts, including Union Federal. The Federal Reserve will supervise and regulate all savings and loan holding companies that were formerly regulated by the OTS, including FMD. Although the OCC
and Federal Reserve are directed to implement existing OTS regulations, orders, resolutions, determinations and agreements for thrifts and their holding companies under the Home Owners Loan Act, the transition of supervisory functions from the
OTS to the OCC (with respect to Union Federal) and the Federal Reserve (with respect to FMD) could alter the supervisory approach for Union Federal and FMD. This could, in turn, affect the operations of FMD and Union Federal. The Dodd-Frank Act also
will impose consolidated capital requirements on savings and loan holding companies, but they are not effective for five years.

The
Dodd-Frank Act establishes the Bureau of Consumer Financial Protection, or BCFP, as an independent agency within the Federal Reserve to regulate consumer financial products, including education loans, and services offered primarily for personal,
family or household purposes, with rule-making and enforcement authority over unfair, deceptive or abusive practices. These laws may directly impact our business operations, whether or not Union Federal is sold. The potential reach of the
BCFPs broad new rulemaking powers and enforcement authority on the operations of financial institutions offering consumer financial products or services, including FMD, is currently unknown. In addition, the Dodd-Frank Act establishes a
private education loan ombudsman within the BCFP, which would, among other things, receive, review and attempt to resolve informally complaints from private education loan borrowers. Finally, the Dodd-Frank Act requires the BCFP and the Secretary of
Education, in consultation with Federal Trade Commission, or FTC, commissioners and the Attorney General, to submit a report, within two years of enactment of the Dodd-Frank Act, on a variety of information relating to the private education lending
market, including private education loan lenders.

The Dodd-Frank Act also includes several provisions that could affect our future portfolio
funding transactions, if any, including skin in the game risk retention requirements applicable to any entity that organizes and initiates an ABS transaction, new disclosure and



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reporting requirements for each tranche of ABS, including new loan-level data requirements, and new disclosure requirements relating to the representations, warranties and enforcement mechanisms
available to ABS investors. The Dodd-Frank Act may have a material impact on our operations, including through increased operating and compliance costs.

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 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, 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 material adverse effect on our operations and financial statements. We have in the past been required to
make capital infusions to Union Federal, 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.

The Dodd-Frank Act eliminates the OTS and replaces it with the OCC as the regulator of federal savings banks, such as
Union Federal, and with the Federal Reserve as the regulator of savings and loan holding companies, such as FMD. There is a risk that we could incur additional costs in complying with differing interpretations of these new regulators for savings and
loan holding companies and savings banks, or significant penalties if we fail to comply.

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. As of November 9, 2010, our subsidiary FMER has been approved for licenses in Massachusetts, New Jersey, Pennsylvania and Texas. 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. In particular, the Dodd-Frank Act weakens federal pre-emption of state regulations currently enjoyed by
federal savings associations and their operating subsidiaries, such as Union Federal and its operating subsidiary, FM Loan Origination Services, LLC, or FMLOS. 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.

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, we believe it is less
likely that state regulatory requirements affecting loan brokers,



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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, the Dodd-Frank Act weakens federal pre-emption of state regulations currently enjoyed by federal savings and loan holding companies and their operating subsidiaries, such as Union Federal and FMLOS. Specifically, the Dodd-Frank Act eliminates
for operating subsidiaries of federal banks the pre-emption of state licensing requirements. In addition, we may now be subject to state consumer protection laws in each state where we do business and those laws may be interpreted and enforced
differently in different states. 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 pre-emption. We cannot assure you that we will be successful in obtaining additional state licenses or registrations in a timely manner, or at all. If we determine that additional state
registrations or licenses are necessary, we may be required to delay or restructure our activities in a manner that will not subject us to such licensing or registration requirements.

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:



| |  |  | curtailment of our ability to continue to conduct business in the relevant jurisdiction, pending a return to compliance or processing of registration
or a license application;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | administrative enforcement actions;
| | - |  | -----------------------------------



| |  |  | class action lawsuits;
| | - |  | ----------------------



| |  |  | the assertion of legal defenses delaying or otherwise affecting the enforcement of loans; and
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | criminal as well as civil liability.
| | - |  | ------------------------------------

Any of the foregoing could have a material adverse effect on our business.

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 TILA 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.

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, constrain the marketing of private education loans, 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 state and federal
investigations into education loan marketing practices, particularly the payment of marketing fees directly to schools in exchange for loan referrals. State and federal regulatory authorities have sought information from some of our former clients
and us



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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, and we have not received any further requests for information since May 2008.

The regulatory actions described above have also prompted state and federal legislation that will affect our operations. In August 2009, the
Federal Reserve issued regulations to implement provisions of the Higher Education Opportunity Act. The regulations revised the number, timing, and content of disclosures required for private education loans by TILA and the Federal Reserves
implementing regulation for TILA, Regulation Z. Under the regulations, private education loan creditors are now 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 in February 2010. In addition, in December 2009, the Federal Reserve and the FTC 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 private education loan programs. These penalties or exclusions, were they to
occur, would negatively impair our business reputation and 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.

A recent Supreme Court decision, and recent legislative proposals, could affect the non-dischargeability of private education loans 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. The bankruptcy court must hear evidence and make a finding of undue hardship in order to discharge the debtors private education loans. In March 2010, the United States Supreme Court
upheld a bankruptcy confirmation order which discharged a debtors private education loans without a finding of undue hardship by the bankruptcy court. Specifically, the debtors proposed plan, which the bankruptcy court
ultimately approved, included a discharge of the debtors private education loans; however, the bankruptcy court never heard evidence or made a finding of undue hardship. As a result of the Supreme Courts decision, it may be
advisable for us, in performing collections management for the securitization trusts and our clients, to review certain bankruptcy filings that we do not currently review to determine if plans include a discharge of private education loans without
the necessary adversary proceeding and a finding of undue hardship. 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 education
loans. If enacted as initially proposed, both bills would apply retroactively to private education loans already made, and would not require the borrower to make any payments before seeking discharge in bankruptcy. If enacted, these bills could
adversely affect the performance of the securitization trusts and the key assumptions we used, including recovery assumptions, 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 our Monogram platform and our
ability to engage lenders to fund loans based on our Monogram platform.

In July 2009, legislation was introduced in the U.S. Senate that
would allow private education loan borrowers to swap their private education 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 education 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 education 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.



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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 private education 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, our lender clients or prospective lender clients may be chartered by the federal government and enjoy pre-emption from enforcement of
state consumer protection laws. In providing our private education loan services to our lender clients, we do not act as a lender, guarantor or loan servicer, and the terms of the private education 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, or subprime credit cards, and online payment services, on the one hand, and banks, on the other hand, 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 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 FTC 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 private education 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 private education 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. As of November 9, 2010, there have been no actions taken or threatened against us on
the theory that we have engaged in unauthorized lending; however, if such actions occurred, they 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:



| |  |  | the success of our Monogram platform or our fee-for-service offerings;
| | - |  | ----------------------------------------------------------------------



| |  |  | announcement by us, our competitors or our potential competitors of acquisitions, new products or services, significant contracts, commercial
relationships or capital markets activities;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | actual or anticipated changes in our earnings or fluctuations in our operating results or in the expectations of securities analysts, including as a
result of the timing, size or structure of any portfolio funding transactions;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | difficulties we may encounter in structuring securitizations or alternative financings, including continued disruptions in the private education loan
ABS market or demand for securities offered by trusts that we facilitate, or the loss of opportunities to structure securitization transactions;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any variance between the actual performance of the securitization trusts and the key assumptions that we have used to estimate the fair value of our
additional structural advisory fee, asset servicing fee and residual receivables and private education loans held for sale, including among others, discount, net default and prepayment rates;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | general economic conditions and trends, including unemployment rates and economic pressure on consumer asset classes such as private education loans;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | legislative initiatives affecting federal or private education loans, including initiatives relating to bankruptcy dischargeability and the federal
budget and regulations implementing the Dodd-Frank Act;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in demand for our product and service offerings or in the education finance marketplace generally;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | negative publicity about the private education loan market generally or us specifically;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | regulatory developments or sanctions directed at Union Federal or us;
| | - |  | ---------------------------------------------------------------------



| |  |  | adverse rating agency actions with respect to the securitization trusts that we facilitated;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | adoption of ASU 2009-16 and ASU 2009-17 and their effects on our reported financial condition and results of operations, including future
determinations to consolidate or deconsolidate VIEs;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | price and volume fluctuations in the overall stock market and volatility in the ABS market, from time to time;
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | significant volatility in the market price and trading volume of financial services and process outsourcing companies;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | major catastrophic events;
| | - |  | --------------------------



| |  |  | purchases or sales of large blocks of our common stock or other strategic investments involving us; or
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | departures or long-term unavailability of key personnel, including our Chief Executive Officer, who we believe has unique insights and experience at
this point of change in our business and the private education loan industry.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 September 30, 2010, excluding shares issuable upon vesting of outstanding restricted stock units, shares issuable upon exercise of
outstanding vested and unvested 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 5,135,692 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.

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:



| |  |  | only our Board of Directors, our Chairman of the Board or our President may call special meetings of our stockholders;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | our stockholders may take action only at a meeting of our stockholders and not by written consent;
| | - |  | --------------------------------------------------------------------------------------------------



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| |  |  | we have authorized undesignated preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our directors may be removed only for cause by the affirmative vote of a majority of the directors present at a meeting duly held at which a quorum is
present, or by the holders of 75% of the votes that all stockholders would be entitled to cast in the election of directors; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we impose advance notice requirements for stockholder proposals.
| | - |  | ----------------------------------------------------------------

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 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 CORPORATION
|                   |  |  | 
|Date: May 16, 2011 |  |  |  | By:                              |  | /S/    KENNETH
KLIPPER                                   
|                   |  |  |  |                                  |  | Kenneth Klipper                                          
|                   |  |  |  |                                  |  | Managing Director and Chief Financial Officer            
|                   |  |  |  |                                  |  | (Duly Authorized Officer and Principal Financial Officer)



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EXHIBIT INDEX



|              |  |                                                                                                                                                                                                         
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                             
|              | 
|10.1(1)       |  | Stipulation Resolving Claims of First Marblehead Education Resources, Inc., the Registrant, and First Marblehead Data Services, Inc. dated as of October 7,
2010                                        
|              | 
|10.2(2)       |  | Second Amendment to Lease between the Registrant and Cabot Road OwnerVEF VI, LLC dated as of November 3, 2010                                                                                          
|              | 
|31.1*         |  | 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 2002                           
|              | 
|31.2*         |  | 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 2002                           
|              | 
|31.3**        |  | 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 2002                           
|              | 
|31.4**        |  | 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 2002                           
|              | 
|32.1*         |  | 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 2002
|              | 
|32.2*         |  | 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 2002
|              | 
|32.3**        |  | 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 2002
|              | 
|32.4**        |  | 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 2002
|              | 
|99.1(3)       |  | Static pool data as of September 30, 2010                                                                                                                                                               
|              | 
|99.2(3)       |  | Supplemental presentation dated September 30, 2010                                                                                                                                                      



|(1) | Incorporated by reference to exhibit to the registrants current report on Form 8-K filed with the SEC on October 14, 2010
|--- | --------------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference to exhibit to the registrants current report on Form 8-K filed with the SEC on November 5, 2010
|--- | --------------------------------------------------------------------------------------------------------------------------

|(3) | Incorporated by reference to exhibits to the registrants current report on Form 8-K filed with the SEC on November 4, 2010
|--- | ---------------------------------------------------------------------------------------------------------------------------

|* | Filed with the registrants quarterly report on Form 10-Q for the quarter ended September 30, 2010, originally filed with the SEC on November 9, 2010.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------

|** | Filed herewith.
|-- | ---------------



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