**EXHIBIT 99.1**
**Risks Factors Related to Our Industry and Our Company**
**Changes in federal laws and regulations relating to education loans, particularly legislationaffecting federally guaranteed consolidation loans, could materially adversely affect our resultsof operations.**
     The Higher Education Act of 1965 must be reauthorized by Congress every five years and theFFEL Program is periodically amended. The United States Congress is currently consideringreauthorization of the Act, which is scheduled to expire September 30, 2005. Changes in the HigherEducation Act made in the two most recent reauthorizations have resulted in reductions in educationloan yields paid to lenders, increased fees paid by lenders and a decreased level of federalguarantee. Federally guaranteed consolidation loans made up 90.6% of our loan originations for theyear ended December 31, 2004, and 91.2% of our loan originations for the quarter ended March 31,2005, and efforts underway to pass legislation that affects federal consolidation loans would havea significant impact on us. Among the key changes that may be considered in the reauthorizationdebate that could have a negative effect on our business is eliminating fixed-rate consolidationloans and requiring that all consolidation loans be made at a variable rate. If consolidationloans are required to be made at a variable rate rather than a fixed rate, as virtually allconsolidation loans are currently made, it could reduce the amount of income we can earn on theloans we originate in the future and reduce the demand for consolidation loans. A bill recentlyintroduced by the Chair of the House Committee on Education and the Workforce contains thisprovision. This legislative change, if enacted, could materially reduce our loan originations andearnings.
     In addition, legislation has been introduced proposing a number of initiatives aimed atsupporting the William D. Ford Federal Direct Loan Program, which we refer to as the FDL Program orFDLP. Under the FDL Program, the U.S. Department of Education, or Department of Education, makesloans directly to student borrowers through the educational institutions they attend. Iflegislation promoting the FDL Program to the detriment of the FFEL Program were to be enacted, itcould materially reduce our loan originations and earnings.
     Further amendments, the nature of which we cannot currently anticipate, could also affect ourbusiness and our results of operations. Moreover, there can be no assurance that the provisions ofthe Higher Education Act will be reauthorized in September 2005. Although Congress hasconsistently extended the effective date of the Higher Education Act, it may elect not toreauthorize the Department of Education’s ability to provide interest subsidies and federalguarantees for student loans. Such a failure to reauthorize would reduce the number of federallyguaranteed student loans available for us to originate in the future and could materially reduceour results of operations.
     **Changes in the interpretations of the Higher Education Act issued by the U.S. Department ofEducation could negatively impact our loan originations.**
     The U.S. Department of Education oversees and implements the Higher Education Act andperiodically issues regulations and interpretations of that Act. Changes in such regulations andinterpretations could negatively impact our business.
     Currently, if only one lender holds all of a student’s FFELP loans, then another lender cannotconsolidate the loans away from the current holder unless the current holder refuses, or does notoffer, to consolidate the loans for the borrower. This regulation is referred to as the singleholder rule. Historically, we did not believe the single holder rule limited the ability of aborrower to consolidate FFELP loans held by a single lender with FDLP loans. However, the U.S.Department of Education issued a letter on April 29, 2004, that limited the ability of borrowershaving FFELP loans that are held by a single lender and FDLP loans to obtain a FFELP consolidationloan with any lender other than the lender holding all of the borrower’s FFELP loans. This newruling was scheduled to go into effect in September 2004. However, on August 26, 2004, the U.S.Department of Education issued a letter stating the new ruling would not go into effect untilSeptember 2005. We believe that the delayed effective date may be further extended by theDepartment if Congress has not completed HEA reauthorization by September 2005; however, there canbe no assurance of this.
     In addition, we marketed and offered FFELP consolidation loans to borrowers seeking torefinance only their FDLP consolidation loans. However, in June 2004, the U.S. Department ofEducation’s servicers for the FDL Program informed us and, we believe, other FFELP loan originatorsthat FFELP loans which refinance only FDLP consolidation loans would no longer be permitted. OnAugust 26, 2004, the U.S. Department of Education issued a letter indicating this type ofconsolidation would be permitted unless reauthorization of the Higher Education Act were to changeit.
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     These rulings adversely affected loan originations in 2004 and the first quarter of 2005 andcould adversely affect the volume of loan originations in the future.
**Significantly decreased demand for consolidation loans would materially reduce our revenue.**
     A combination of increased consumer awareness, rising education debt volume and historicallylow interest rates available to borrowers in the last three years has increased the number ofborrowers seeking to consolidate their variable-rate education loans into one loan. For the yearended December 31, 2004 and the quarter ended March 31, 2005, 90.6% and 91.2%, respectively, of ourloan originations were consolidation loans. One of the advantages of consolidation loans is thatborrowers are able to fix the interest rate on their variable rate student loans at the thenexisting rate. If rates rise, students may have less incentive to consolidate their loans at afixed rate. Demand for consolidation loans could also decrease in the future as a result of adecrease in the pool of potential borrowers eligible to consolidate their loans. The CongressionalBudget Office projects that FFELP consolidation loan volume will decrease from $35.9 billion infederal fiscal year 2004 to an estimated $31.2 billion in federal fiscal year 2005 and to $22.3billion in federal fiscal year 2006. A significant portion of the borrowers eligible toconsolidate their loans have loans held by one lender and, as a result of the single holder rulediscussed in the prior risk factor, those loans are not available for consolidation by other lendersunless the original lender does not offer or refuses to consolidate those loans. Demand forconsolidation loans could also decrease as a result of regulatory changes or if any of thelegislative proposals described above are enacted. A significant decrease in demand forconsolidation loans would have a material adverse effect upon our revenue, particularly our fees onloan sales.
**We must comply with governmental regulations relating to our FFELP loans and guaranty agency rulesand our business and results of operations could be materially adversely affected if we fail tomeet these requirements.**
     Our principal business is comprised of originating, holding and servicing education loans madeand guaranteed pursuant to the FFEL Program. Most significant aspects of our lines of business aregoverned by the Higher Education Act. We must also meet various requirements of the guarantyagencies, which are private not-for-profit organizations or state agencies that have entered intofederal reinsurance contracts with the Department of Education, in order to maintain the federalguarantee on our FFELP loans. These requirements establish origination and servicing requirementsand procedural guidelines and specify school and borrower eligibility criteria. The federalguarantee of FFELP loans is conditioned on compliance with origination, servicing and collectionstandards set by the Department of Education and guaranty agencies. FFELP loans that are notoriginated, disbursed or serviced in accordance with Department of Education regulations risk lossof their guarantee, in full or in part.
     Our failure to comply with the regulatory requirements described above may arise from:
 •  breaches of our internal control system, such as a failure to adjust manual or automatedservicing functions following a change in regulatory requirements;  •  unintentional employee errors, such as inputting erroneous data or failure to adhere toestablished company processes;  •  technological defects, such as a malfunction in or destruction of our computer systems;  •  fraud by third parties who refer loan applications to us or from whom we acquireoriginated loan applications; or  •  fraud by our employees or other persons in activities such as origination or borrowerpayment processing.
     If we fail to comply with any of the above requirements, we could incur penalties or lose thefederal guarantee on some or all of our FFELP loans. In addition, even if we comply with the aboverequirements, a failure to comply by third parties with whom we conduct business may beattributable to us and result in us incurring penalties or losing the federal guarantee on some orall of our FFELP loans. If we experience a high rate of servicing deficiencies, we could incurcosts associated with remedial servicing, and, if we are unsuccessful in curing such deficiencies,the eventual losses on the loans that are not cured could be material. Failure to comply withthese laws and regulations could result in our liability to borrowers and potential class actionsuits.
     An additional consequence of servicing deficiencies would be loss of our Exceptional PerformerStatus. In October 2004, a systems error resulted in a technical violation of the due diligencerequirements of the Higher Education Act. The error was corrected immediately, self-reported tothe Department of Education and appropriate controls were put in place. The Department ofEducation is currently reviewing the matter.
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**Changes in federal expenditures to support higher education financing could materially adverselyaffect our business**
     Congress is currently developing a federal budget for fiscal 2006. Due to the size of thecurrent federal budget deficit, indications are that almost all federal programs will beimpacted—including federal student loans. As part of the upcoming federal budget reconciliationprocess, proposals have been suggested which would, among other things, increase lender-paid loanorigination fees, reduce the insurance on student loans, eliminate floor income, extend therepayment period for Stafford loans, and change the interest rate on new consolidation loans fromfixed to variable. It is unclear how these proposals will ultimately evolve through theCongressional budget, authorizing, and appropriations processes. These budget proposals, ifenacted, could materially reduce our loan originations and earnings.
**We have only recently begun retaining a significant portion of the loans we originate in ourportfolio and servicing loans, and we cannot predict whether we will suffer losses as a result ofthe performance of our assets and operations over the long term.**
     We were formed in June 1998. Prior to 2002, we did not retain in our portfolio a significantamount of the loans we originated. We retained approximately 50%, 50% and 21% of the FFELP loanswe originated in the years of 2004, 2003 and 2002, respectively. Although we believe that theretained loans are valuable assets, due to their long duration and high quality (due to the federalguarantee), we cannot assure you that over the long term our earnings from retaining loans in ourportfolio will exceed the value of the income we would have received from selling those loans. Theloans retained in our portfolio may be repaid prior to maturity which would reduce the amount ofinterest we earn and expose us to reinvestment risk. Moreover, the loans retained in our portfoliocould perform poorly in the future and our allowance for loan losses could be insufficient, whichcould materially reduce our earnings and impair our ability to access the asset-backedsecuritization market in the future on favorable terms. Further, wehave only retained FFELP loans and the addition of non-FFELP loans would introduce additional and different prepayment, credit and liquidity risks.
     In addition, we only began servicing loans in April 2003, following our acquisition ofSunTech. Although SunTech has been in business for more than 15 years and has serviced asignificant portion of the loans we have originated since our formation in 1998, we have operatedas a vertically integrated company offering loan servicing for only two years. If SunTech does notperform at the level of its historical performance, our business and results of operations could bematerially adversely affected.
**Our quarterly results of operations have varied significantly in the past and we expect they willcontinue to do so, which may cause our stock price to fluctuate.**
     Our quarterly results of operations have varied significantly in the past and are expected tocontinue to do so in the future. Over the past three fiscal years, our quarterly income (loss)before income tax provision (benefit) and accretion of dividends on preferred stock has ranged froma low of a $13.5 million loss in the second quarter of 2003 to a high of $29.4 million of income inthe fourth quarter of 2004. In addition, over this period, our quarterly originations as apercentage of total annual originations have ranged from a low of 9.4% to a high of 36.4%. Themarket price of our common stock may decline significantly if our future quarterly results ofoperations fall below the expectations of securities or industry analysts or investors.
     Our quarterly results of operations in any period will be particularly affected by the amountand timing of our loan sales. Because we target a percentage of our loan originations to beretained on an annual, rather than quarterly basis, our quarterly results of operations willfluctuate. A number of additional factors, some of which are outside of our control, will alsocause our quarterly results to fluctuate, including:
 •  an increase in loan consolidation in November and December, as a result of theexpiration of the six-month grace period;  •  the effects of the July 1 reset in borrower interest rates. We give borrowers whocomplete loan applications during the second quarter the option to fund their loans priorto July 1, when the old rate is effective, or after July 1, when the new rate is effective.Accordingly, if any year’s borrower rate increases from the prior year’s borrower rate, ahigher percentage of completed applications will be originated in the second quarter;conversely, if any year’s borrower rate decreases over the prior year’s borrower rate, theorigination of a significant portion of the loan applications completed in the secondquarter will be shifted to the third quarter.
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 •  seasonal patterns affecting private in-school loans, primarily an increase in privatein-school loan originations in the third and fourth quarter as students obtain loans to paytuition, and a decrease in private in-school loan activity in the second quarter;  •  seasonal patterns affecting marketing expenses, as we generally market most heavily inthe second and third quarters of the year in an effort to inform recent college graduatesof their consolidation options and offer private in-school loans to students payingtuition;  •  the impact of general economic conditions;  •  changes in interest rates; and  •  the introduction of new product offerings.
     We forecast the volume and timing of our loan originations for our operational and financialplanning on the basis of many factors and subjective judgments. Therefore, failure to generateoriginations according to our expectations in a particular quarter could materially decrease ournet income for that quarter and the next, at a minimum.
**“Do not call” registries may limit our ability to market our products and services.**
     Our direct marketing operations are subject to various federal and state “do not call” listrequirements and may become subject to additional state “do not call” list requirements. TheFederal Trade Commission maintains a centralized national “do not call” registry, through whichconsumers may have their phone numbers added to the national “do not call” registry.
     Generally, we are prohibited from calling anyone on that registry unless we have an existingrelationship with that person. We also are required to pay a fee to access the registry on aquarterly basis. Fines of up to $11,000 per violation and other possible penalties can be imposedfor violations of the regulations. This rule may restrict our ability to market effectively ourproducts and services to new customers. Furthermore, compliance with this rule may provedifficult, and we may incur penalties for improperly conducting our marketing activities. Inaddition, failure to comply with the terms of this rule could have a negative impact on ourreputation.
     Forty-three states have “do not call” rules. Twenty-seven states use and/or enforce thenational “do not call” registry and sixteen states maintain their own “do not call” registry. Thestates have varying penalties and fines for noncompliance. Compliance and coordination with thesestate lists and with federal lists may prove difficult and we may incur additional penalties forfailure to comply with any of these lists, which could also have a negative impact on our business.
**We derive a significant portion of our fee income under a small number of forward purchaseagreements, and if we are not able to retain these agreements, or if our counterparties under theseagreements reduce their willingness to acquire originated loans from us, our net revenue would bereduced and our results of operations would suffer.**
     We enter into forward purchase agreements with financial institutions who agree to purchaseand require that we sell to them, a portion of the FFELP consolidation loan applications weoriginate. We also enter into forward purchase agreements with financial institutions who agree topurchase all of the private consolidation applications we originate. Under these agreements, whichare typically one- to three-year agreements, we generate loan applications that are then forwardedto partnering financial institutions over pre-determined periods of time and for agreed upon fees.Two of our forward purchase agreements accounted for approximately 73.2% and 81.5% of our feeincome and 50.4% and 53.1 % of our net revenue in fiscal 2004 and the first three months of 2005,respectively. Revenue under our largest forward purchase agreement represented 61.6% and 72.8% ofour fee income and 42.4% and 47.4% of our net revenue for fiscal 2004 and the first three months of2005, respectively. We may not be able to retain or renew our key forward purchase agreements orour counterparties may decrease the level of originated loans they are willing to acquire from us.If a large forward purchase contract were cancelled or not renewed and not replaced, our fee incomewould significantly decline, and the loss of, or a significant reduction of, purchases by one ormore of our significant forward purchase agreement counterparties could materially adversely affectour business, operating results and financial condition. We can provide no assurance that we willbe able to renew these agreements or that suitable replacements can be found at acceptable rates oron acceptable terms.
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**Our inability to maintain relationships with our eligible lender or with lenders that originate ourprivate loans could have a material adverse effect on our ability to sustain or increase ourbusiness.**
     When we originate FFELP loans on our own behalf or when we acquire FFELP loans from others, weengage The Bank of New York as our “eligible lender,” as defined in the Higher Education Act, toact as our trustee to hold title to all such originated and acquired FFELP loans. This eligiblelender trustee holds the legal title to our FFELP loans, and we hold 100% of the beneficialinterests in those loans. If we are unable to renew our contract with The Bank of New York, or ifthe contract is terminated, we would have to find another institution to serve as our eligiblelender. We can provide no assurance that we will be able to renew this contract or that areplacement eligible lender can be found at acceptable rates or on acceptable terms.
     Moreover, we have relationships with several lenders for whom we market and facilitate theorigination of private in-school loans. The number of financial institutions willing to originateand finance these private in-school loans will be a significant factor in the growth of thismarket. As the market is less mature than that for federally guaranteed loans, there are, atpresent, fewer institutions originating and acquiring these loans. Accordingly, we can provide noassurance that we will be able to renew these contracts or that suitable replacements could befound or that we will find additional lenders willing to finance the volume of private loans thatwe may seek to market or originate and therefore we could find it necessary to finance some or all of these loans ourselves.
     Any failure to maintain or replace contractual relationships with these financial institutionsor lenders could seriously impair our ability to originate loans and generate revenue fromoriginated loans, and to sustain or increase our business.
**If we are unable to increase our private education loan originations and expand our channels ofdistribution as we plan, our business may not grow.**
     Our strategy includes increasing the amount of private loans we originate or whose originationwe facilitate, as well as expanding our channels of distribution. We have more limited experiencein these products and channels than in our business of marketing and originating FFELPconsolidation loans through our DTC channel. In connection with these strategies, we have investedand will continue to invest resources in market research and technology and have hired and trainedand will continue to hire and train additional personnel, when necessary. If these strategies arenot successful, our earnings may be adversely affected.
**We may not be able to successfully make acquisitions or increase our profits from theseacquisitions.**
     We intend to pursue continued growth through acquisitions in the education finance industry.Such an acquisition strategy includes certain risks. For example:
 •  we may be unable to identify acquisition candidates, negotiate definitive agreements onacceptable terms or, as necessary, secure additional financing;  •  we may encounter unforeseen expenses, difficulties, complications or delays inconnection with the integration of acquired entities;  •  we may fail to achieve acquisition synergies;  •  our acquisition strategy, including the focus on the integration of operations ofacquired entities, may divert management’s attention from the day-to-day operation of ourbusinesses;  •  acquired loan or servicing portfolios may have unforeseen problems; or  •  key personnel at acquired companies may leave employment.
     In addition, we may compete for certain acquisition targets with companies having greaterfinancial resources than ours. We cannot assure you that we will be able to successfully makefuture acquisitions or what effects those acquisitions may have on our financial condition andresults of operations. Inherent in any future acquisition is the risk of transitioning companycultures and facilities. The failure to efficiently and effectively achieve such transitions couldhave a material adverse effect on our financial condition and results of operations, particularlyduring the period immediately following any acquisitions.
     We anticipate that we would finance potential acquisitions through cash provided by operatingactivities and/or borrowings, which would reduce our cash available for other purposes and our debtcapacity, as well as our debt service requirements. We cannot assure you, however, that we wouldbe able to obtain needed financing in the event acquisition opportunities are identified. We mayalso consider financing acquisitions by issuing additional shares of common stock to raise capitalor as consideration, which would dilute your ownership.
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**Our inability to maintain our relationships with third parties for whom we service loans couldreduce our net income.**
     Our inability to maintain strong relationships with servicing customers could result in lossof loan servicing volume generated by some of our loan servicing customers. We cannot assure youthat these relationships will continue. As of December 31, 2004 and March 31, 2005, approximately58.8% and 66.0%, respectively, of the loans we serviced were owned by third parties. Of these, amajority are governed by agreements with terms of three years or less. To the extent that ourthird-party servicing clients reduce the volume of education loans that we service on their behalf,our income would be reduced, and, to the extent the related costs could not be reducedcorrespondingly, our net income could be reduced. We might lose third-party servicing volume for avariety of reasons, including if our third-party servicing clients begin or increase internalservicing activities, shift volume to another service provider, exit the FFEL Program completely orif we fail to comply with applicable laws and regulations. The loss of such loan servicing volumecould result in an adverse effect on our business.
     In January 2005, we were notified by one of our largest third-party servicing customers thatit would not be renewing a portion of its agreement relating to our servicing of federalconsolidation loans on its behalf. Approximately 19% of the loans we serviced for third parties asof December 31, 2004 are subject to this cancellation.
**If loan applications for federally guaranteed loans that we sell are subsequently found to beineligible for the federal guarantee, we may be required to purchase such loans and reimburse theDepartment of Education for certain fees.**
     Pursuant to the terms of our forward purchase agreements, FFELP loans that we originate mustcomply with all applicable laws and regulations and must be eligible for federal guarantee. Aportion of the loan applications that we originate and sell are generated by third-party marketingentities with whom we have marketing contracts. If any of the loan applications that we sell underour forward purchase agreements, whether marketed by us or by a third-party marketer, are deemedineligible for federal guarantee by a guaranty agency, we may be obligated to purchase those loans.We would also be required to reimburse the Department of Education for fees associated with thoseloans. Prior to 2001, a portion of the loan applications we originated were generated by referralsfrom collection agencies, including approximately $3.9 million in principal amount of loansgenerated by referrals from the Valley Acceptance Corporation. Individuals associated with ValleyAcceptance have been charged with improper processing of loans, including loan applications whichwe originated and sold to third parties. To date, 46 claims relating to these loans have beenreturned to the guarantor by the Department of Education . The lender has asked us to purchasethese loans. Since none of these loans have been classified as uninsured, our agreement does notrequire us to repurchase these loans. We are currently addressing the issue with the guarantor,lender and the Department of Education. If any of these or other loan applications which weoriginated are found to be uninsured, including loans referred to us by other third-partymarketers, we may be required to purchase additional loans in the future and reimburse theDepartment of Education for the associated fees, if any, which could have an adverse effect on ourresults of operations.
**We could experience cash flow problems if a guaranty agency defaults on its guarantee obligation.**
     A deterioration in the financial status of guaranty agencies, which are private not-for-profitorganizations or state agencies, or in their ability to honor guarantee claims on defaulted studentloans could result in a failure of these guaranty agencies to make their guarantee payments in atimely manner, if at all. If the Department of Education has determined that a guaranty agency isunable to meet its guarantee obligations, we may submit claims directly to the Department ofEducation, and the Department of Education would be required to pay the full guarantee claim. Insuch event, payment of the guarantee claims may not be made in a timely manner, which couldadversely affect our liquidity.
**Fluctuations in interest rates may materially and adversely affect our net income.**
     Because we expect to generate a significant portion of our earnings from the difference, orspread, between the yield we receive on our portfolio of loans and the cost of financing theseloans, changes in interest rates could have a material effect on our results of operations.Substantially all the loans in our portfolio are FFELP consolidation loans which bear interest at afixed rate. However, the yield we receive is the higher of the fixed rate
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or a variable rate determined under the FFEL Program. For consolidation loans in our portfolio,the FFELP-determined variable rate is 2.64% over the 91-day financial commercial paper rate.Substantially all interest costs on our debt obligations are determined based upon LIBOR,commercial paper or the result of auctions. Using the portfolio as of December 31, 2004 and March31, 2005, and assuming normal portfolio payment patterns for the following 12-month period, anincrease in interest rates of 200 basis points would decrease our net interest income for thatperiod by approximately $12.6 million and $8.0 million, respectively and an increase in interestrates of 100 basis points would decrease our net interest income for that period by approximately$8.2 million and $6.7 million, respectively, while a corresponding decrease in these interest ratesof 100 basis points would increase our net interest income for that period by approximately $14.3million and $6.3 million, respectively. Changes in interest rates, the composition of our loanportfolio and derivative instruments will impact the effect of interest rates on our earnings, andwe cannot predict any such impact with any level of certainty. See “Management’s Discussion andAnalysis of Financial Condition and Results of Operations – Interest Rate Risk”.
**The effect of our borrower benefit programs may adversely affect our net interest income.**
     Our borrower benefit programs, which reduce the interest rates borrowers pay on their loans,could significantly reduce our net interest income. We offer borrower benefits as incentives toattract new borrowers and to improve our borrowers’ payment behavior. One incentive programreduces a borrower’s interest rate by 0.25% per annum for so long as the borrower makes monthlypayments through automatic deductions from his or her checking or savings account. Approximately30% of our borrowers currently participate in this program. In addition, we offer borrowers anon-time incentive program that reduces their interest rates by 1.00% per annum after they have madetheir initial 36 payments on time and for so long as they continue to make subsequent payments ontime. Although the on-time program has not been in place for sufficient time to have had anymaterial impact on our net interest income (i.e.: only 1.7% of our borrowers qualified for thisincentive program as of March 31, 2005), our borrower benefits will in the future reduce the yieldon our loan portfolio and reduce our net interest income. In addition, competition may cause us tomodify or add other borrower benefit programs.
**Our derivative instruments may not be successful in managing our interest rate risk and failure ofcounterparties to perform under certain derivative instruments could harm our business.**
     When we utilize derivative instruments, we utilize them to manage our interest ratesensitivity. Although we do not use derivative instruments for speculative purposes, ourderivative instruments do not meet the criteria set forth in Statement of Financial AccountingStandards, or SFAS, No. 133, Accounting for Derivatives Instruments and Hedging Activities, whichallow offset of the changes in the fair value of the derivative instrument against the effects ofthe changes in the hedged item in the statement of income. Therefore, we only mark-to-market thederivative instruments with changes reflected in the income statement. The derivative instrumentswe use are typically in the form of interest rate swaps and interest rate caps, which have aduration of between twelve and twenty-four months. Our interest rate hedging strategy is designedto address fluctuations in the short term, rather than the long term. Developing an effectivestrategy for dealing with movements in interest rates is complex, and no strategy can completelyinsulate us from risks associated with such fluctuations. In addition, the counterparty to aderivative instrument could default on its obligation, thereby exposing us to credit risk.Further, we may have to repay certain costs, such as transaction fees or brokerage costs, if aderivative instrument is terminated by us. As a result, we cannot assure you that our economichedging activities will not have an adverse impact on our results of operations or financialcondition.
**If we fail to renew our warehouse facility and revolving line of credit, our liquidity and resultsof operations could be adversely affected.**
     Our primary funding needs are those required to finance our loan portfolio and satisfy ourcash requirements for acquisitions, operating expenses and technological development. We rely upona conduit warehouse facility to support our funding needs on a short-term basis. The term of thefacility is one year, and it is renewable at the option of the lender and may be terminated at anytime for cause. Currently, the aggregate short-term availability under our warehouse facility is$1.0 billion. There can be no assurance that we will be able to maintain such conduit facility,increase the availability under such facility or find alternative funding, if necessary. Ourrevolving line of credit may be terminated at any time upon the occurrence of an event of default.Unavailability of warehouse or revolving financing sources may subject us to the risk that we maybe unable to meet our financial commitments to borrowers and creditors when due, unless we findalternative funding mechanisms. If the availability under our warehouse facility were to decreaseor terminate, our ability to retain loans could be reduced, which could adversely affect ourresults of operation on a short- and/or long-term basis.
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**If we are unable to access the asset-backed securitization market, which we rely on forsubstantially all our long-term funding of loan originations, our liquidity and results ofoperations could be adversely affected.**
     We rely upon asset-backed securitizations as our most significant source of long-term fundingfor our loan portfolio. We have issued $5.4 billion in asset-backed notes since 2001. Our accessto the asset-backed securitization market is subject to conditions in the asset-backedsecuritization market over which we have no control. If the loans in our securitizations performpoorly, our ability to access the asset-backed securitization market may be impaired or the termsof future securitization may be more costly. If our access to the asset-backed securitizationmarket were to decrease, we would have to find other methods to finance our loan originations on along-term basis or be required to sell a larger portion of our originated loan applications, eitherof which , if available, may be less favorable than the asset-backed securitization market has beenhistorically. In such event, our liquidity and results of operations could be adversely affectedon a short- and/or long-term basis.
**Our right to receive cash in excess of the principal balance of the loans funded from oursecuritizations is limited by their terms and performance.**
     As part of our securitization transactions since 2002, we borrowed funds in excess of theprincipal balance of the loans included in the applicable securitization transactions. A portionof these additional funds was used to repay other indebtedness and to fund our operations. We arealso entitled to receive excess spread from securitizations in the future, generally after theprincipal balance of the loans and restricted cash held in the securitizations equals theoutstanding indebtedness. We currently expect to receive excess spread from our November 2001,February 2003, November 2003, April 2004 and February 2005 issuances in April 2006, July 2005, May2007, March 2007 and June 2008, respectively. However, our rights to cash flows from securitizedloans are subordinate to noteholder interests, and these loans may fail to generate any cash flowsbeyond what is due to pay noteholders. Moreover, the cash generated from these loans may berestricted by these securitization vehicles for certain periods. Accordingly, adverse developmentsin the performance of our current and future securitizations could adversely affect our liquidityand cash flows.
**Higher rates of prepayments of student loans could reduce our profits.**
     Pursuant to the Higher Education Act, borrowers may prepay loans made under the FFEL Programat any time. Prepayments may result from consolidating student loans, which has historicallytended to occur more frequently in low interest rate environments, from borrower defaults, whichwill result in the receipt of a guarantee payment and from voluntary full or partial prepayments,among other things. The rate of voluntary prepayments of student loans may be influenced by avariety of economic, social and other factors affecting borrowers, including interest rates, theavailability of alternative financing and legislative changes. Any legislation that permitsborrowers to refinance existing consolidation loans at possibly lower interest rates couldsignificantly increase the rate of prepayments on our student loans. In certain circumstances,borrowers may be eligible to consolidate a FFELP consolidation loan, such as obtaining subsequentStafford or PLUS loans and consolidating them with previous FFELP consolidations. Such higher loanprepayments reduce the amount of cash generated in our securitizations, which, as described above,would adversely affect the amount of excess cash we receive from securitizations. In addition,loan prepayments generally result in a reduction in aggregate net interest income over the life ofthe loan.
**If auctions for our auction-rate asset-backed notes are not successful, our cost of funding willincrease and future securitizations may become more costly.**
     The interest rates on certain of our asset-backed securities are set and periodically resetvia a “dutch auction” utilizing remarketing agents for varying intervals ranging from seven to 91days. Of our $5.3 billion of asset-backed notes and lines of credit outstanding at March 31, 2005,38.3% bear interest at rates based on auction rates. If there are insufficient potential bidorders in the auctions to purchase all of the notes offered for sale or being repriced, we could besubject to interest costs substantially above the anticipated and historical rates paid on thesetypes of securities. A failed auction or remarketing could also reduce the investor base of ourfuture securitizations and other financing and debt instruments.
**Future losses due to defaults on loans held by us present credit risk, which could adversely affectour earnings.**
     As of December 31, 2004, 100% of our loan portfolio was comprised of FFELP loans. These loanstypically benefit from a federal guarantee of 98% of their principal balance and accrued interest.We bear full risk of losses experienced with respect to the 2% non-guaranteed portion of the loans.In May 2004, the
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Department of Education awarded us Exceptional Performance status. As a result, the FFELP loans inour portfolio benefit from a federal guarantee of 100% of the unpaid principal and accrued interestfor the twelve month period ending May 31, 2005, however there can be no assurance that thisdesignation will be extended beyond that date.
     The performance of the FFELP loans in our portfolio is affected by the economy and otherfactors outside of our control, and a prolonged economic downturn may have an adverse effect on thecredit performance of these loans. While we provide allowances estimated to cover losses that maybe experienced in our loans that are federally guaranteed under the FFEL Program, there can be noassurance that such allowances will be sufficient to cover actual losses in the future,particularly since we do not have a long history of holding theseloans. If we retain private loans, we face the same risks of defaultwithout a federal guarantee and would be required to provide for aloan loss reserve. Increases in losses inexcess of our allowance could adversely affect our results of operations in the future.
**Access to alternative means of financing the costs of education may reduce demand for governmentguaranteed and private education loans.**
     The demand for government guaranteed and private education loans could weaken if borrowers useother sources of funds to finance their post-secondary education. These sources include, amongothers:
 •  home equity loans or lines of credit, under which families borrow money based on thevalue of their real estate;  •  Federal Direct Loan Program loans, if the Department of Education or schools increasethe education loans available through the FDL Program;  •  pre-paid tuition plans, which allow students to pay tuition at today’s rates to covertuition costs in the future;  •  529 plans, which are state-sponsored investment plans that allow a family to save fundsfor education expenses; and  •  education IRAs, now known as Coverdell Education Savings Accounts, under which a holdercan make annual contributions for education savings.
     If demand for government guaranteed or private education loans weakens, we would experiencereduced demand for our products and services.
**Competition from other originators, lenders and servicers and competition created by the FederalDirect Loan Program may materially adversely impact our business.**
     We face significant competition from SLM Corporation, the parent company of Sallie Mae. SLMCorporation originated $18 billion of education loans through its preferred channel in 2004,services nearly half of all outstanding FFELP loans and is the largest holder of education loans,with a managed portfolio of more than $107 billion as of December 31, 2004. We also face intensecompetition from other education-related entities, such as Nelnet, CIT (formerly Education LendingGroup) and College Loan Corporation. As we seek to further expand our business, we will facenumerous other competitors, many of which will be well established in the markets we seek topenetrate. Some of our current and potential competitors are much larger than we are, have bettername recognition than we do and have greater financial and other resources than we do. Several ofthese competitors have large market capitalizations or cash reserves and are better positioned toacquire companies or portfolios in order to gain market share than we are. Consequently, suchcompetitors may have more flexibility to address the risks inherent in the education financebusiness. Finally, some of our competitors are tax-exempt organizations that do not pay federal orstate income taxes. As a result of their tax-exempt status, these organizations may have access toa lower cost of funding their education loans than we do. These factors could give our competitorssignificant advantages.
     In 1992, Congress created the William D. Ford Federal Direct Loan Program, which we refer toas the FDL Program or the FDLP. Under the FDL Program, the Department of Education makes loansdirectly to student borrowers through the educational institutions they attend. FDL loans areavailable to students only if the institution they attend participates in the FDL Program. Thevolume of student loans made under the FFEL Program and available for us to originate may bereduced to the extent loans are made to students under the FDL Program.
**Failures in our information technology system could materially disrupt our business.**
     Our servicing and operating processes are highly dependent upon our information technologysystem infrastructure, and we face the risk of business disruption if failures in our informationsystems occur, which could have a material impact upon our business and operations. We dependheavily on our own computer-based data
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processing systems in servicing both our own loans and those of third-party servicing customers.Problems or errors may occur in the future in connection with the conversion of newly originatedand acquired loans to our platform. If servicing errors do occur, they may result in a loss of thefederal guarantee or interest penalties on the FFELP loans that we service or in a failure tocollect amounts due on the student loans that we service as well as the loss of our ExceptionalPerformance Status. A major physical disaster or other calamity that causes significant damage toour information systems could adversely affect our business. Additionally, loss of our informationsystems for a sustained period of time could have a negative impact on our performance andultimately on our cash flow in the event we were unable to process borrower payments.
**If we fail to comply with governmental regulations relating to our private loan business, ourbusiness and results of operations could be adversely affected.**
     We are expanding our private loan business and currently originate and facilitate theorigination of private loans for third parties. We may decide to retain private loans. The origination, collection and retention of private loans issubject to federal and state consumer protection laws and regulations, including state usury anddisclosure laws and related regulations, and the Federal Truth in Lending Act. These laws andregulations impose substantial requirements upon lenders and their agents, holders and servicers involved inconsumer finance. Failure to comply with these governmental regulations could have an adverseeffect on our business and results of operations.
**If we become subject to the licensing laws of any jurisdiction or any additional governmentregulation, our compliance costs could increase significantly.**
     In addition to being subject to certain state and federal consumer protection laws, which maychange, we are currently licensed as telemarketers in two states. We could also become subject toother licensing laws due to changes in existing federal and state regulations. As a result, wecould be required to (1) implement additional or different programs and information technologysystems, (2) meet new licensing capital and reserve requirements or (3) incur additionaladministrative, compliance and third-party service costs. Furthermore, we could become subject tolicensing laws in other states if we engage in licensable activities in the future. This includesthe risk that even if we were not physically present, a state could assert jurisdiction over ouroperations for services we provide through the mail, by phone, through the Internet or by otherremote means. Our failure to comply with such requirements could subject us to civil or criminalpenalties and could curtail our ability to continue to conduct business in that jurisdiction.Moreover, compliance with such requirements could involve additional costs. Either of theseconsequences could have a material adverse effect on our business.
     Additionally, other organizations with which we work are subject to licensing and extensivegovernmental regulations, including truth-in-lending laws and other consumer protectionregulations. From time to time we have, and we may in the future, become responsible forcompliance with these regulations under contractual arrangements with our clients. If we fail tocomply with these regulations, we could be subject to civil or criminal penalties.
**A failure to obtain trademark registrations and potential trademark infringement claims could causeus to incur additional costs and impede our marketing efforts.**
     We believe that our success depends to a degree upon our ability to develop and maintainawareness of our corporate identifiers and brand names. We have applied for a U.S. service markregistration to protect our corporate name and will continue to evaluate the registration ofadditional service marks and trademarks, as appropriate. We cannot guarantee that any of ourpending applications will be approved by the applicable governmental authorities, and we are awarethat one of our applications has initially been rejected and is now under appeal. We may besubject to claims of alleged infringement of the trademarks or other intellectual property rightsof third parties. Any such claims, whether or not meritorious, could result in litigation anddivert the efforts of our personnel. Moreover, should we be found liable for infringement, we maybe required to enter into licensing agreements (if available on acceptable terms or at all) or topay damages and to cease using certain names or identifiers. Any of the foregoing could cause usto incur additional costs and impede our marketing efforts.
**Failure to comply with restrictions on inducements under the Higher Education Act could harm ourbusiness.**
     The Higher Education Act generally prohibits a lender from providing inducements toeducational institutions or individuals in order to secure applicants for FFELP loans. However,the Department of Education
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permits de minimis gifts in connection with advertising FFELP loans. If the Department ofEducation were to change its position on these matters, this could potentially result in theDepartment of Education imposing sanctions upon us if we fail to adapt our policies to comply withthe new guidelines, and such failure could impact our business.
     We have also entered into various agreements to use marketing lists of prospective borrowersfrom sources such as associations. On occasion, we pay to acquire these lists and for completedloan applications resulting from these lists. We believe that such arrangements are permissibleand do not violate restrictions on inducements, as they fit within a regulatory exceptionrecognized by the Department of Education for generalized marketing and advertising activities.The Department of Education has provided sub regulatory guidance that such arrangements do notraise any improper inducement issues, since such arrangements fall within the generalized marketingexception. If the Department of Education were to change its position, this could hurt ourreputation and potentially result in the Department of Education imposing sanctions on us. Thesesanctions could negatively impact our business.
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