##### 



SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.
 For
the Quarter Ended June 30, 2005
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from __________ to ____________
 Commission
file number: 000-50846
 Collegiate Funding Services, Inc.
  Delaware
(State or other Jurisdiction of
Incorporation or Organization)
    
    04-3649118
(I.R.S. Employer
Identification Number)
 
 þ o
 þ o




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##### 



Table of Contents
 PagePART I.  FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements
    
    
    3Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    19Cautionary Notice Regarding Forward-looking Statements
    
    
    38Item 3. Quantitative and Qualitative Disclosure about Market Risk
    
    
    38Item 4. Controls and Procedures
    
    
    39PART II. Other Information
    
    
    40Item 1. Legal Proceedings
    
    
    40Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    40Item 3. Defaults Upon Senior Securities
    
    
    40Item 4. Submission of Matters to a Vote of Security Holders
    
    
    40Item 5. Other Information
    
    
    40Item 6. Exhibits
    
    
    40Signature
    
    
    41Exhibit Index
 2




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##### 



PART I.  FINANCIAL INFORMATION
 Item 1. Financial Statements
 COLLEGIATE FUNDING SERVICES, INC.
 CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
 June 30,
    
    December 31,2005
    
    2004(unaudited)AssetsCash and cash equivalents
    
    $
    14,242
    
    
    $
    12,925Restricted cash
    
    
    128,087
    
    
    
    80,128Accounts receivable, net
    
    
    9,560
    
    
    
    10,353Student loans, net of allowance of $6,900 and $4,961, respectively
    
    
    5,412,749
    
    
    
    4,659,842Accrued interest receivable
    
    
    61,710
    
    
    
    42,844Income taxes receivable
    
    
    1,525
    
    
    
    6,588Property and equipment, net
    
    
    14,223
    
    
    
    14,622Goodwill
    
    
    192,260
    
    
    
    188,729Deferred financing costs, net
    
    
    19,644
    
    
    
    15,560Other assets
    
    
    12,152
    
    
    
    11,200Total assets
    
    $
    5,866,152
    
    
    $
    5,042,791Liabilities and stockholders equityLiabilitiesAsset-backed notes and lines of credit
    
    $
    5,586,741
    
    
    $
    4,782,670Other debt obligations, net
    
    
    14,589
    
    
    
    14,486Capital lease obligations
    
    
    1,507
    
    
    
    1,749Accounts payable
    
    
    2,756
    
    
    
    2,315Accrued interest payable
    
    
    5,220
    
    
    
    5,116Other accrued liabilities
    
    
    26,992
    
    
    
    26,074Deferred income taxes, net
    
    
    21,067
    
    
    
    18,669Total liabilities
    
    
    5,658,872
    
    
    
    4,851,079Stockholders equityCommon stock  par value $0.001, 120,000,000 shares authorized,
32,152,123 and 30,764,848 shares issued and outstanding as of
June 30, 2005 and December 31, 2004, respectively
    
    
    32
    
    
    
    30Additional paid-in capital
    
    
    158,939
    
    
    
    157,823Retained earnings
    
    
    48,309
    
    
    
    33,859Total stockholders equity
    
    
    207,280
    
    
    
    191,712Total liabilities and stockholders equity
    
    $
    5,866,152
    
    
    $
    5,042,791
  3




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##### 



COLLEGIATE FUNDING SERVICES, INC.
 CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
 (unaudited)
 For the three months
    
    For the six monthsended June 30,
    
    ended June 30,2005
    
    2004
    
    2005
    
    2004Net revenueInterest income
    
    $
    63,808
    
    
    $
    31,194
    
    
    $
    117,882
    
    
    $
    58,058Interest expense
    
    
    46,743
    
    
    
    15,518
    
    
    
    83,857
    
    
    
    28,596Net interest income
    
    
    17,065
    
    
    
    15,676
    
    
    
    34,025
    
    
    
    29,462Provision for (reversal of) loan losses
    
    
    2,205
    
    
    
    (1,467
    )
    
    
    2,788
    
    
    
    (540
    )Net interest income after provision for (reversal
of) loan losses
    
    
    14,860
    
    
    
    17,143
    
    
    
    31,237
    
    
    
    30,002Fee income
    
    
    38,747
    
    
    
    20,976
    
    
    
    69,373
    
    
    
    42,749Net revenue
    
    
    53,607
    
    
    
    38,119
    
    
    
    100,610
    
    
    
    72,751ExpensesSalaries and related benefits
    
    
    17,269
    
    
    
    16,172
    
    
    
    33,280
    
    
    
    30,153Other selling, general and administrative expenses:Marketing and mailing costs
    
    
    14,126
    
    
    
    10,887
    
    
    
    24,686
    
    
    
    17,312Communications and data processing
    
    
    2,115
    
    
    
    1,799
    
    
    
    4,046
    
    
    
    3,507Management and consulting fees
    
    
    360
    
    
    
    799
    
    
    
    960
    
    
    
    1,737Professional fees
    
    
    2,155
    
    
    
    1,374
    
    
    
    3,828
    
    
    
    2,429Depreciation and amortization
    
    
    1,916
    
    
    
    1,347
    
    
    
    3,745
    
    
    
    2,597Other general and administrative
    
    
    4,296
    
    
    
    2,645
    
    
    
    7,035
    
    
    
    5,054Total other selling, general and administrative
expenses
    
    
    24,968
    
    
    
    18,851
    
    
    
    44,300
    
    
    
    32,636Swap interest (income) expense
    
    
    (290
    )
    
    
    2,023
    
    
    
    (1,411
    )
    
    
    3,605Derivative and investment mark-to-market expense
(income)
    
    
    819
    
    
    
    (5,888
    )
    
    
    513
    
    
    
    (6,114
    )Total expenses
    
    
    42,766
    
    
    
    31,158
    
    
    
    76,682
    
    
    
    60,280Income before income tax provision and accretion
of dividends on preferred stock
    
    
    10,841
    
    
    
    6,961
    
    
    
    23,928
    
    
    
    12,471Income tax provision
    
    
    4,260
    
    
    
    2,705
    
    
    
    9,478
    
    
    
    4,909Income before accretion of dividends
    
    
    6,581
    
    
    
    4,256
    
    
    
    14,450
    
    
    
    7,562Accretion of dividends on preferred stock
    
    
    
    
    
    
    2,192
    
    
    
    
    
    
    
    4,308Net income
    
    $
    6,581
    
    
    $
    2,064
    
    
    $
    14,450
    
    
    $
    3,254Earnings per common share, basic
    
    $
    0.21
    
    
    $
    0.10
    
    
    $
    0.47
    
    
    $
    0.15Earnings per common share, diluted
    
    $
    0.20
    
    
    $
    0.09
    
    
    $
    0.45
    
    
    $
    0.14Weighted average common shares outstanding, basic
    
    
    31,346,523
    
    
    
    21,071,523
    
    
    
    30,998,054
    
    
    
    21,071,523Weighted average common shares outstanding, diluted
    
    
    32,413,322
    
    
    
    22,925,616
    
    
    
    32,413,187
    
    
    
    22,924,733
  4




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##### 



COLLEGIATE FUNDING SERVICES, INC.
 CONSOLIDATED STATEMENT OF EQUITY
(dollars in thousands)
 (unaudited)
 Additionalpaid-in
    
    RetainedCommon stock
    
    capital
    
    earnings
    
    TotalBalance, December 31, 2004
    
    $
    30
    
    
    $
    157,823
    
    
    $
    33,859
    
    
    $
    191,712Exercise of warrants
    
    
    2
    
    
    
    (2
    )
    
    
    
    
    
    
    Deferred compensation
    
    
    
    
    
    
    1,118
    
    
    
    
    
    
    
    1,118Net income  January 1, 2005 through June 30, 2005
    
    
    
    
    
    
    
    
    
    
    14,450
    
    
    
    14,450Balance, June 30, 2005
    
    $
    32
    
    
    $
    158,939
    
    
    $
    48,309
    
    
    $
    207,280
  5




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##### 



COLLEGIATE FUNDING SERVICES, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (dollars in thousands)
 (unaudited)
 Six months endedJune 30,2005
    
    2004Cash flows from operating activitiesNet income
    
    $
    14,450
    
    
    $
    3,254Adjustments to reconcile net income to net cash provided by operating activities:Accretion of dividends on preferred stock
    
    
    
    
    
    
    4,308Depreciation and amortization
    
    
    3,745
    
    
    
    2,597Loss on disposal of property and equipment
    
    
    163
    
    
    
    70Reversal of loss on early lease termination
    
    
    (119
    )
    
    
    Deferred income tax provision
    
    
    2,398
    
    
    
    4,881Amortization of deferred costs
    
    
    5,483
    
    
    
    2,475Provision for (reversal of) loan losses
    
    
    2,788
    
    
    
    (540
    )Provision for doubtful accounts
    
    
    104
    
    
    
    Changes in:Accrued interest receivable
    
    
    (18,866
    )
    
    
    (8,445
    )Accounts receivable and other assets
    
    
    364
    
    
    
    (4,740
    )Income taxes receivable
    
    
    5,063
    
    
    
    Accounts payable
    
    
    441
    
    
    
    (153
    )Accrued interest payable
    
    
    104
    
    
    
    1,457Other accrued liabilities
    
    
    1,032
    
    
    
    (4,741
    )Net cash provided by operating activities
    
    
    17,150
    
    
    
    423Cash flows from investing activitiesOriginations and purchases of student loans
    
    
    (1,002,995
    )
    
    
    (977,838
    )Net proceeds from student loan principal payments
    
    
    244,382
    
    
    
    97,688Acquisitions, net of cash acquired
    
    
    (4,679
    )
    
    
    (34,957
    )Net proceeds from disposals of property and equipment
    
    
    6
    
    
    
    Purchases of property and equipment
    
    
    (2,989
    )
    
    
    (2,648
    )Net cash used in investing activities
    
    
    (766,275
    )
    
    
    (917,755
    )Cash flows from financing activitiesProceeds from asset-backed notes and lines of credit
    
    
    2,316,500
    
    
    
    1,905,200Payments on asset-backed notes and lines of credit
    
    
    (1,512,429
    )
    
    
    (979,094
    )Proceeds from other debt obligations
    
    
    
    
    
    
    34,000Payments on other debt obligations
    
    
    
    
    
    
    (5,750
    )Payments on capital lease obligations
    
    
    (242
    )
    
    
    (205
    )Payment of financing costs
    
    
    (5,428
    )
    
    
    (4,926
    )Proceeds from notes receivable
    
    
    
    
    
    
    181Change in restricted cash
    
    
    (47,959
    )
    
    
    (38,731
    )Net cash provided by financing activities
    
    
    750,442
    
    
    
    910,675Net increase (decrease) in cash and cash equivalents
    
    
    1,317
    
    
    
    (6,657
    )Cash and cash equivalents:Beginning
    
    
    12,925
    
    
    
    14,436Ending
    
    $
    14,242
    
    
    $
    7,779Supplemental disclosures:Cash payments for interest
    
    $
    77,994
    
    
    $
    23,423Cash payments for income taxes, net
    
    $
    6,394
    
    
    $
    28
  6




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##### 



COLLEGIATE FUNDING SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -UNAUDITED
(dollars in thousands, except per share data)
 1. Nature of the Business
      Cash and cash equivalents
    
    $
    705Accounts receivable
    
    
    1,034Property and equipment
    
    
    83Contractual relationships
    
    
    2,900Trademarks, copyrights, and domain names
    
    
    1,700Deferred income tax asset
    
    
    2,768Other assets
    
    
    1,198Total assets acquired
    
    
    10,388Accounts payable and other liabilities
    
    
    (2,523
    )Net assets acquired
    
    $
    7,865Allocation of the purchase price:Net assets acquired
    
    $
    7,865Goodwill
    
    
    28,025Total purchase price
    
    $
    35,890
 7




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##### 



COLLEGIATE FUNDING SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (Continued)
 2. Initial Public Offering
  3. Summary of Significant Accounting Policies
 Unaudited Interim Financial Statements
   Stock split
  Estimates and assumptions
  8




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##### 



COLLEGIATE FUNDING SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (Continued)
 Other accounting policies
  4. Earnings Per Share
 Earnings Per Share
  Three months ended
    
    Six months endedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004(unaudited)Net income
    
    $
    6,581
    
    
    $
    2,064
    
    
    $
    14,450
    
    
    $
    3,254Weighted average common shares calculation:Weighted average common shares outstanding,
basic
    
    
    31,346,523
    
    
    
    21,071,523
    
    
    
    30,998,054
    
    
    
    21,071,523Treasury stock effect of warrants and options
    
    
    1,066,799
    
    
    
    1,854,093
    
    
    
    1,415,133
    
    
    
    1,853,210Weighted average common shares
outstanding, diluted
    
    
    32,413,322
    
    
    
    22,925,616
    
    
    
    32,413,187
    
    
    
    22,924,733Earnings per common share:Earnings per common share, basic
    
    $
    0.21
    
    
    $
    0.10
    
    
    $
    0.47
    
    
    $
    0.15Earnings per common share, diluted
    
    $
    0.20
    
    
    $
    0.09
    
    
    $
    0.45
    
    
    $
    0.14
  9




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##### 



COLLEGIATE FUNDING SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (Continued)
 5. Student Loans
         10




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##### 



COLLEGIATE FUNDING SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (Continued)
 6. Allowance for Loan Losses
      Six months ended
    
    Six months endedJune 30, 2005
    
    June 30, 2004Beginning balance
    
    $
    4,961
    
    
    $
    4,136Provision/(reversal)
    
    
    2,788
    
    
    
    (540
    )Charge-offs
    
    
    (849
    )
    
    
    (123
    )Ending balance
    
    $
    6,900
    
    
    $
    3,473
   11




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##### 



COLLEGIATE FUNDING SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (Continued)
 7. Debt
 Asset-backed notes and lines of credit
  June 30, 2005
    
    December 31, 2004Principal
    
    
    
    
    
    Principaloutstanding
    
    Interest rate
    
    outstanding
    
    Interest rate
    
    Type
    
    Maturity date2005A SeriesClass A-1
    
    $
    295,059
    
    
    
    3.50
    %
    
    $
    
    
    
    
    
    %
    
    LIBOR
    
    September 2014Class A-2
    
    
    422,000
    
    
    
    3.57
    
    
    
    
    
    
    
    
    
    
    LIBOR
    
    December 2021Class A-3
    
    
    310,000
    
    
    
    3.61
    
    
    
    
    
    
    
    
    
    
    LIBOR
    
    March 2027Class A-4
    
    
    282,000
    
    
    
    3.68
    
    
    
    
    
    
    
    
    
    
    LIBOR
    
    March 2035Class B
    
    
    56,000
    
    
    
    3.78
    
    
    
    
    
    
    
    
    
    
    LIBOR
    
    December 20372004A SeriesClass A-1
    
    
    124,278
    
    
    
    3.53
    
    
    
    192,298
    
    
    
    2.60
    
    
    LIBOR
    
    December 2013Class A-2
    
    
    350,000
    
    
    
    3.65
    
    
    
    350,000
    
    
    
    2.72
    
    
    LIBOR
    
    June 2021Class A-3
    
    
    207,000
    
    
    
    3.69
    
    
    
    207,000
    
    
    
    2.76
    
    
    LIBOR
    
    September 2026Class A-4
    
    
    140,000
    
    
    
    3.82
    
    
    
    140,000
    
    
    
    2.89
    
    
    LIBOR
    
    September 2030Class A-5  6
    
    
    111,700
    
    
    
    3.28-3.34
    
    
    
    111,700
    
    
    
    2.35-2.37
    
    
    Auction
    
    December 2043Class B
    
    
    55,700
    
    
    
    3.40
    
    
    
    55,700
    
    
    
    2.50
    
    
    Auction
    
    December 20432003B SeriesClass A-1
    
    
    139,954
    
    
    
    3.58
    
    
    
    177,936
    
    
    
    2.65
    
    
    LIBOR
    
    September 2013Class A-2
    
    
    250,000
    
    
    
    3.74
    
    
    
    250,000
    
    
    
    2.81
    
    
    LIBOR
    
    March 2021Class A-3  7
    
    
    485,000
    
    
    
    3.15-3.30
    
    
    
    485,000
    
    
    
    2.33-2.45
    
    
    Auction
    
    December 2043Class B-1-2
    
    
    52,000
    
    
    
    3.40-3.45
    
    
    
    52,000
    
    
    
    2.45-2.50
    
    
    Auction
    
    December 20432003A SeriesClass A-1
    
    
    
    
    
    
    
    
    
    
    5,261
    
    
    
    2.61
    
    
    LIBOR
    
    March 2012Class A-2
    
    
    291,700
    
    
    
    3.78
    
    
    
    319,025
    
    
    
    2.85
    
    
    LIBOR
    
    September 2020Class A-3  6
    
    
    352,400
    
    
    
    3.18-3.34
    
    
    
    352,400
    
    
    
    2.33-2.50
    
    
    Auction
    
    March 2042Class B
    
    
    42,350
    
    
    
    3.19
    
    
    
    42,350
    
    
    
    2.58
    
    
    Auction
    
    March 20422002 SeriesClass A-8  15
    
    
    442,650
    
    
    
    3.18-3.40
    
    
    
    461,100
    
    
    
    2.28-2.50
    
    
    Auction
    
    July 2042Class B
    
    
    30,000
    
    
    
    3.25
    
    
    
    30,000
    
    
    
    2.58
    
    
    Auction
    
    July 20422001 SeriesClass A-1  7
    
    
    411,050
    
    
    
    3.20-3.38
    
    
    
    430,500
    
    
    
    2.35-2.52
    
    
    Auction
    
    December 2041Class B
    
    
    31,600
    
    
    
    3.45
    
    
    
    31,600
    
    
    
    2.53
    
    
    Auction
    
    December 2041Warehouse Facility
    
    
    704,300
    
    
    
    3.47
    
    
    
    1,088,800
    
    
    
    2.55
    
    
    
    
    July 2006Total
    
    $
    5,586,741
    
    
    
    
    
    
    $
    4,782,670
 12




---



##### 



COLLEGIATE FUNDING SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (Continued)
 Other debt
  June 30, 2005
    
    December 31, 2004Principal
    
    Interest
    
    Principal
    
    Interestoutstanding
    
    rate
    
    outstanding
    
    rate
    
    Maturity dateFixed-rate note
    
    $
    14,589
    
    
    
    4.47
    %
    
    $
    14,486
    
    
    
    4.47
    %
    
    June 2007Revolving line of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    October 2005Total
    
    $
    14,589
    
    
    
    
    
    
    $
    14,486
  8. Derivative Financial Instruments
   June 30, 2005
    
    December 31, 2004Notional
    
    Maturity
    
    Pay
    
    Receivefloating
    
    
    
    
    
    ReceivefloatingDerivative type
    
    amount
    
    date
    
    fixed rate
    
    rate (LIBOR)
    
    Fair value
    
    rate (LIBOR)
    
    Fair valueSwap
    
    $
    250,000
    
    
    
    01/26/2005
    
    
    
    
    %
    
    
    
    %
    
    $
    
    
    
    
    2.42
    %
    
    $
    96Cap (Sold)
    
    
    250,000
    
    
    
    01/26/2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.23
    
    
    
    (82
    )Swap
    
    
    550,000
    
    
    
    04/28/2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.42
    
    
    
    1,945Swap
    
    
    450,000
    
    
    
    01/25/2006
    
    
    
    3.23
    
    
    
    3.31
    
    
    
    1,269
    
    
    
    
    
    
    
    Total, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,269
    
    
    
    
    
    
    $
    1,959
 9. Major Business Customers and Sources of Revenue
  Three months ended
    
    Six months endedJune 30,
    
    June 30,Customer
    
    2005
    
    2004
    
    2005
    
    2004First
    
    $
    31,267
    
    
    $
    9,819
    
    
    $
    53,548
    
    
    $
    21,508Second
    
    
    2,865
    
    
    
    1,833
    
    
    
    5,544
    
    
    
    3,332
 13




---



##### 



COLLEGIATE FUNDING SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (Continued)
  10. Stock Incentive Plan
       14




---



##### 



COLLEGIATE FUNDING SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (Continued)
 11. Segment Data
   Loan
    
    Loanorigination
    
    servicing
    
    Eliminations
    
    ConsolidatedNet revenueInterest income
    
    $
    63,568
    
    
    $
    240
    
    
    $
    
    
    
    $
    63,808Interest expense
    
    
    46,743
    
    
    
    
    
    
    
    
    
    
    
    46,743Net interest income
    
    
    16,825
    
    
    
    240
    
    
    
    
    
    
    
    17,065Provision for loan losses
    
    
    2,205
    
    
    
    
    
    
    
    
    
    
    
    2,205Net interest income after provision for loan losses
    
    
    14,620
    
    
    
    240
    
    
    
    
    
    
    
    14,860Fee income
    
    
    35,492
    
    
    
    5,164
    
    
    
    (1,909
    )
    
    
    38,747Net revenue
    
    
    50,112
    
    
    
    5,404
    
    
    
    (1,909
    )
    
    
    53,607ExpensesSalaries and related benefits
    
    
    14,741
    
    
    
    2,528
    
    
    
    
    
    
    
    17,269Other selling, general and administrative expenses:Marketing and mailing costs
    
    
    14,125
    
    
    
    1
    
    
    
    
    
    
    
    14,126Communications and data processing
    
    
    1,570
    
    
    
    545
    
    
    
    
    
    
    
    2,115Management and consulting fees
    
    
    312
    
    
    
    48
    
    
    
    
    
    
    
    360Professional fees
    
    
    2,005
    
    
    
    150
    
    
    
    
    
    
    
    2,155Depreciation and amortization
    
    
    1,456
    
    
    
    460
    
    
    
    
    
    
    
    1,916Other general and administrative
    
    
    4,175
    
    
    
    2,030
    
    
    
    (1,909
    )
    
    
    4,296Total other selling, general and administrative expenses
    
    
    23,643
    
    
    
    3,234
    
    
    
    (1,909
    )
    
    
    24,968Swap interest (income)
    
    
    (290
    )
    
    
    
    
    
    
    
    
    
    
    (290
    )Derivative mark-to-market expense
    
    
    819
    
    
    
    
    
    
    
    
    
    
    
    819Total expenses
    
    
    38,913
    
    
    
    5,762
    
    
    
    (1,909
    )
    
    
    42,766Income (loss) before income taxes and accretion of
dividends on preferred stock
    
    $
    11,199
    
    
    $
    (358
    )
    
    $
    
    
    
    $
    10,841Total assets  June 30, 2005
    
    $
    5,849,373
    
    
    $
    16,779
    
    
    $
    
    
    
    $
    5,866,152Total assets  December 31, 2004
    
    $
    5,025,992
    
    
    $
    16,799
    
    
    $
    
    
    
    $
    5,042,791
  15




---



##### 



COLLEGIATE FUNDING SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (Continued)
  Loan
    
    Loanorigination
    
    servicing
    
    Eliminations
    
    ConsolidatedNet revenueInterest income
    
    $
    31,108
    
    
    $
    86
    
    
    $
    
    
    
    $
    31,194Interest expense
    
    
    15,518
    
    
    
    
    
    
    
    
    
    
    
    15,518Net interest income
    
    
    15,590
    
    
    
    86
    
    
    
    
    
    
    
    15,676Reversal of loan losses
    
    
    (1,467
    )
    
    
    
    
    
    
    
    
    
    
    (1,467
    )Net interest income after reversal of loan losses
    
    
    17,057
    
    
    
    86
    
    
    
    
    
    
    
    17,143Fee income
    
    
    17,796
    
    
    
    4,506
    
    
    
    (1,326
    )
    
    
    20,976Net revenue
    
    
    34,853
    
    
    
    4,592
    
    
    
    (1,326
    )
    
    
    38,119ExpensesSalaries and related benefits
    
    
    13,740
    
    
    
    2,432
    
    
    
    
    
    
    
    16,172Other selling, general and administrative expenses:Marketing and mailing costs
    
    
    10,887
    
    
    
    
    
    
    
    
    
    
    
    10,887Communications and data processing
    
    
    1,379
    
    
    
    420
    
    
    
    
    
    
    
    1,799Management and consulting fees
    
    
    497
    
    
    
    302
    
    
    
    
    
    
    
    799Professional fees
    
    
    1,286
    
    
    
    88
    
    
    
    
    
    
    
    1,374Depreciation and amortization
    
    
    867
    
    
    
    480
    
    
    
    
    
    
    
    1,347Other general and administrative
    
    
    3,537
    
    
    
    434
    
    
    
    (1,326
    )
    
    
    2,645Total other selling, general and administrative expenses
    
    
    18,453
    
    
    
    1,724
    
    
    
    (1,326
    )
    
    
    18,851Swap interest expense
    
    
    2,023
    
    
    
    
    
    
    
    
    
    
    
    2,023Derivative mark-to-market (income)
    
    
    (5,888
    )
    
    
    
    
    
    
    
    
    
    
    (5,888
    )Total expenses
    
    
    28,328
    
    
    
    4,156
    
    
    
    (1,326
    )
    
    
    31,158Income before income taxes and accretion of dividends
on preferred stock
    
    $
    6,525
    
    
    $
    436
    
    
    $
    
    
    
    $
    6,961
  16




---



##### 



COLLEGIATE FUNDING SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (Continued)
  Loan
    
    Loanorigination
    
    servicing
    
    Eliminations
    
    ConsolidatedNet revenueInterest income
    
    $
    117,435
    
    
    $
    447
    
    
    $
    
    
    
    $
    117,882Interest expense
    
    
    83,857
    
    
    
    
    
    
    
    
    
    
    
    83,857Net interest income
    
    
    33,578
    
    
    
    447
    
    
    
    
    
    
    
    34,025Provision for loan losses
    
    
    2,788
    
    
    
    
    
    
    
    
    
    
    
    2,788Net interest income after provision for loan losses
    
    
    30,790
    
    
    
    447
    
    
    
    
    
    
    
    31,237Fee income
    
    
    62,910
    
    
    
    10,305
    
    
    
    (3,842
    )
    
    
    69,373Net revenue
    
    
    93,700
    
    
    
    10,752
    
    
    
    (3,842
    )
    
    
    100,610ExpensesSalaries and related benefits
    
    
    28,151
    
    
    
    5,129
    
    
    
    
    
    
    
    33,280Other selling, general and administrative expenses:Marketing and mailing costs
    
    
    24,684
    
    
    
    2
    
    
    
    
    
    
    
    24,686Communications and data processing
    
    
    2,886
    
    
    
    1,160
    
    
    
    
    
    
    
    4,046Management and consulting fees
    
    
    625
    
    
    
    335
    
    
    
    
    
    
    
    960Professional fees
    
    
    3,467
    
    
    
    361
    
    
    
    
    
    
    
    3,828Depreciation and amortization
    
    
    2,833
    
    
    
    912
    
    
    
    
    
    
    
    3,745Other general and administrative
    
    
    8,378
    
    
    
    2,499
    
    
    
    (3,842
    )
    
    
    7,035Total other selling, general and administrative expenses
    
    
    42,873
    
    
    
    5,269
    
    
    
    (3,842
    )
    
    
    44,300Swap interest (income)
    
    
    (1,411
    )
    
    
    
    
    
    
    
    
    
    
    (1,411
    )Derivative mark-to-market expense
    
    
    513
    
    
    
    
    
    
    
    
    
    
    
    513Total expenses
    
    
    70,126
    
    
    
    10,398
    
    
    
    (3,842
    )
    
    
    76,682Income before income taxes and accretion of dividends
on preferred stock
    
    $
    23,574
    
    
    $
    354
    
    
    $
    
    
    
    $
    23,928Total assets  June 30, 2005
    
    $
    5,849,373
    
    
    $
    16,779
    
    
    $
    
    
    
    $
    5,866,152Total assets  December 31, 2004
    
    $
    5,025,992
    
    
    $
    16,799
    
    
    $
    
    
    
    $
    5,042,791
  17




---



##### 



COLLEGIATE FUNDING SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (Continued)
  Loan
    
    Loanorigination
    
    servicing
    
    Eliminations
    
    ConsolidatedNet revenueInterest income
    
    $
    57,806
    
    
    $
    252
    
    
    $
    
    
    
    $
    58,058Interest expense
    
    
    28,596
    
    
    
    
    
    
    
    
    
    
    
    28,596Net interest income
    
    
    29,210
    
    
    
    252
    
    
    
    
    
    
    
    29,462Reversal of loan losses
    
    
    (540
    )
    
    
    
    
    
    
    
    
    
    
    (540
    )Net interest income after reversal of loan losses
    
    
    29,750
    
    
    
    252
    
    
    
    
    
    
    
    30,002Fee income
    
    
    36,369
    
    
    
    9,103
    
    
    
    (2,723
    )
    
    
    42,749Net revenue
    
    
    66,119
    
    
    
    9,355
    
    
    
    (2,723
    )
    
    
    72,751ExpensesSalaries and related benefits
    
    
    25,398
    
    
    
    4,755
    
    
    
    
    
    
    
    30,153Other selling, general and administrative expenses:Marketing and mailing costs
    
    
    17,312
    
    
    
    
    
    
    
    
    
    
    
    17,312Communications and data processing
    
    
    2,635
    
    
    
    872
    
    
    
    
    
    
    
    3,507Management and consulting fees
    
    
    1,060
    
    
    
    677
    
    
    
    
    
    
    
    1,737Professional fees
    
    
    2,252
    
    
    
    177
    
    
    
    
    
    
    
    2,429Depreciation and amortization
    
    
    1,639
    
    
    
    958
    
    
    
    
    
    
    
    2,597Other general and administrative
    
    
    6,909
    
    
    
    868
    
    
    
    (2,723
    )
    
    
    5,054Total other selling, general and administrative expenses
    
    
    31,807
    
    
    
    3,552
    
    
    
    (2,723
    )
    
    
    32,636Swap interest expense
    
    
    3,605
    
    
    
    
    
    
    
    
    
    
    
    3,605Derivative mark-to-market (income)
    
    
    (6,114
    )
    
    
    
    
    
    
    
    
    
    
    (6114
    )Total expenses
    
    
    54,696
    
    
    
    8,307
    
    
    
    (2,723
    )
    
    
    60,280Income before income taxes and accretion of dividends
on preferred stock
    
    $
    11,423
    
    
    $
    1,048
    
    
    $
    
    
    
    $
    12,471
  12. Subsequent Event
   18




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 The following discussion and analysis of our results of operations and financial condition for
the three and six months ended June 30, 2005 and 2004, should be read in conjunction with our
unaudited consolidated financial statements and the notes to those statements, included in this
report. Our discussion contains forward-looking statements based upon current expectations that
involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual
results and the timing of events could differ materially from those anticipated in these
forward-looking statements as a result of a number of factors. Our results of operations, our
financial condition and the price of our common stock may be affected by many factors, some of
which are outside of our control. For a discussion of these factors, see Exhibit 99.1 to this
report, which is incorporated herein by reference.
 Overview
     19




---



##### 



Loan Originations and Portfolio
 Three months ended June 30,
    
    Six months ended June 30,2005
    
    2004
    
    2005
    
    2004Dollars
    
    %
    
    Dollars
    
    %
    
    Dollars
    
    %
    
    Dollars
    
    %(dollars in millions)FFELP consolidation, PLUS, Stafford loans:Sold (1)
    
    $
    538.0
    
    
    
    57.1
    %
    
    $
    321.5
    
    
    
    49.5
    %
    
    $
    938.3
    
    
    
    49.7
    %
    
    $
    701.9
    
    
    
    43.0
    %Retained
    
    
    404.8
    
    
    
    42.9
    
    
    
    328.5
    
    
    
    50.5
    
    
    
    949.9
    
    
    
    50.3
    
    
    
    930.1
    
    
    
    57.0Total FFELP loans originated(2)
    
    
    942.8
    
    
    
    100.0
    %
    
    
    650.0
    
    
    
    100.0
    %
    
    
    1,888.2
    
    
    
    100.0
    %
    
    
    1,632.0
    
    
    
    100.0
    %Private loans:Sold (3) (4) (5)
    
    
    82.9
    
    
    
    98.3
    %
    
    
    53.7
    
    
    
    100.0
    %
    
    
    164.9
    
    
    
    99.2
    %
    
    
    99.7
    
    
    
    100.0
    %Retained
    
    
    1.4
    
    
    
    1.7
    
    
    
    
    
    
    
    
    
    
    
    1.4
    
    
    
    0.8
    
    
    
    
    
    
    
    Total private loans originated (5)
    
    
    84.3
    
    
    
    100.0
    %
    
    
    53.7
    
    
    
    100.0
    %
    
    
    166.3
    
    
    
    100.0
    %
    
    
    99.7
    
    
    
    100.0
    %Total loans originated
    
    $
    1,027.1
    
    
    
    
    
    
    $
    703.7
    
    
    
    
    
    
    $
    2,054.5
    
    
    
    
    
    
    $
    1,731.7Portfolio of loans (all FFELP):(6)Monthly average for period
    
    $
    5,199.1
    
    
    
    
    
    
    $
    3,578.7
    
    
    
    
    
    
    $
    4,991.7
    
    
    
    
    
    
    $
    3,337.4Period end
    
    $
    5,350.8
    
    
    
    
    
    
    $
    3,703.0
    
    
    
    
    
    
    $
    5,350.8
    
    
    
    
    
    
    $
    3,703.0
 
 (1) Reflects the principal balance of loans for which we sold the originated
applications.(2) Includes FFELP consolidation loans of $937.6 million for the three months ended June
30, 2005, $649.6 million for the three months ended June 30, 2004, $1.8 billion for the six
months ended June 30, 2005 and $1.6 billion for the six months ended June 30, 2004.(3) Reflects the principal balance of loans for which we provided origination services
to third-party lenders.(4) Includes Health Education Assistance consolidation loans of $0.2 million for the
three months ended June 30, 2004, and $0.7 million for the six months ended June 30, 2004.
There have been no Health Education Assistance consolidation loan originations in 2005.(5) Includes private in-school loan originations of $69.7 million for the three months
ended June 30, 2005, $37.3 million for the three months ended June 30, 2004, $135.6 million
for the six months ended June 30, 2005 and $66.3 million for the six months ended June 30,
2004.(6) As of June 30, 2005, substantially all the loans in our portfolio were FFELP
consolidation loans. We began retaining private loans in our portfolio during the second
quarter of 2005. Amounts reflect principal balance of loans without adjustments for deferred
loan costs which, as of June 30, 2005, totaled $68.9 million and, as of June 30, 2004, totaled
$36.0 million. Amounts also do not reflect the allowance for loan losses of $6.9 million as of
June 30, 2005, and $3.5 million as of June 30, 2004.   20




---



##### 



Loan origination.
 Loan servicing.
      21




---



##### 



Quarterly Fluctuations
  
    
    an increase in loan consolidation in November and December, as a result of
the expiration of the six-month grace period for borrowers who graduated in May and June;
    
    the effects of the July 1 reset in borrower interest rates. We give
borrowers who complete loan applications during the second quarter the option to fund
their loans prior to 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, a higher 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, the origination of a significant portion of the
loan applications completed in the second quarter will be shifted to the third quarter.
    
    seasonal patterns affecting private in-school loans, primarily an increase
in private in-school loan originations in the third and fourth quarter as students
obtain loans to pay tuition, and a decrease in private in-school loan activity in the
second quarter;
    
    seasonal patterns affecting marketing expenses, as we generally market most
heavily in the second and third quarters of the year in an effort to inform recent
college graduates of their consolidation options and offer private in-school loans to
students paying tuition;
    
    the impact of general economic conditions;
    
    changes in interest rates; and
    
    the introduction of new product offerings.
 Components of Net Revenue
  22




---



##### 



Net Interest Income
  Interest income.
   Interest expense.
   23




---



##### 



Net portfolio margin and net interest income.
 Provision for loan losses.
   Fee Income
 Fees on loan application sales.
  24




---



##### 



Fees for servicing.
   Advertising income.
 Expenses
  Debt extinguishment expenses.
 Derivatives.
 Critical Accounting Policies
  25




---



##### 



Recent Accounting Pronouncements
 Share-based payment
 Share-Based Payment Accounting for Stock-Based Compensation
 Accounting Changes and Error Corrections
 Accounting Changes and Error Corrections Accounting
Changes Reporting Accounting Changes in Interim Financial Statements
 Results of Operations
 Three months ended June 30, 2005, compared with three months ended June 30, 2004
 Net revenue.
 Net interest income
 Interest income.
 26




---



##### 



Interest expense.
 Provision for (reversal of) loan losses.
 Net portfolio margin and net interest income after (reversal of) provision for loan losses.
 Fee income.
  Three months ended
    
    IncreaseJune 30,
    
    (Decrease)2005
    
    2004
    
    Dollars
    
    Percent(dollars in millions)Fee Income:Fees on loan application sales
    
    $
    34.3
    
    
    $
    17.2
    
    
    $
    17.1
    
    
    
    99.4
    %Fees for servicing
    
    
    3.3
    
    
    
    3.2
    
    
    
    0.1
    
    
    
    3.1Advertising income
    
    
    1.2
    
    
    
    0.6
    
    
    
    0.6
    
    
    
    100.0Total
    
    $
    38.8
    
    
    $
    21.0
    
    
    $
    17.8
    
    
    
    84.8
    %
 Fees on loan application sales.
 Fees for servicing.
 27




---



##### 



Advertising income.
 Expenses.
    Derivatives.
 Income tax provision.
 Net income.
 Six months ended June 30, 2005, compared with six months ended June 30, 2004
 Net revenue.
 Net interest income.
 Interest income.
 28




---



##### 



Interest expense.
 Provision for (reversal of) loan losses.
 Net portfolio margin and net interest income after provision for (reversal of) loan losses.
 Fee income.
  Six months ended
    
    IncreaseJune 30,
    
    (Decrease)2005
    
    2004
    
    Dollars
    
    Percent(dollars in millions)Fee Income:Fees on loan application sales
    
    $
    60.3
    
    
    $
    35.8
    
    
    $
    24.5
    
    
    
    68.4
    %Fees for servicing
    
    
    6.5
    
    
    
    6.4
    
    
    
    0.1
    
    
    
    0.1Advertising income
    
    
    2.6
    
    
    
    0.6
    
    
    
    2.0
    
    
    
    333.3Total
    
    $
    69.4
    
    
    $
    42.8
    
    
    $
    26.6
    
    
    
    62.1
    %
 Fees on loan application sales.
 Fees for servicing.
 29




---



##### 



Advertising income.
 Expenses.
    Derivatives.
 Income tax provision (benefit).
 Net income.
 Financial Condition
 At June 30, 2005, compared with December 31, 2004
    30




---



##### 



Liquidity and Capital Resources
     31




---



##### 



As of June 30, 2005Principal
    
    
    
    
    
    Interestamount
    
    Percent of total
    
    rate range
    
    Final maturity(2)(dollars in millions)Warehouse facility
    
    $
    704.3
    
    
    
    12.6
    %
    
    
    3.47
    %
    
    
    07/18/06
    (3)Asset-backed notes: (1)Notes based on LIBOR
    
    
    2,868.0
    
    
    
    51.2
    
    
    
    3.50% - 3.82
    %
    
    
    03/01/12 - 12/28/37Notes based on auction rates
    
    
    2,014.4
    
    
    
    35.9
    
    
    
    3.15% - 3.45
    %
    
    
    12/01/41 - 12/28/43Total asset-backed notes and warehouse facility
    
    
    5,586.7
    
    
    
    99.7Revolving line of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10/07/05Fixed-rate notes
    
    
    14.6
    (4)
    
    
    0.3
    
    
    
    4.47
    %
    
    
    06/30/07Fixed-rate capital leases
    
    
    1.5
    
    
    
    
    
    
    
    6.00% - 7.82
    %
    
    
    05/10/10Total
    
    $
    5,602.8
    
    
    
    100.0
    %
 As of December 31, 2004Principal
    
    Percent
    
    Interestamount
    
    of total
    
    rate range
    
    Final maturity(2)(dollars in millions)Warehouse facility
    
    $
    1,088.8
    
    
    
    22.7
    %
    
    
    2.55
    %
    
    
    07/18/06
    (3)Asset-backed notes: (1)Notes based on LIBOR
    
    
    1,641.5
    
    
    
    34.2
    
    
    
    2.60% - 2.85
    %
    
    
    03/01/12 - 09/30/30Notes based on auction rates
    
    
    2,052.4
    
    
    
    42.8
    
    
    
    2.28% - 2.58
    %
    
    
    12/01/41 - 12/28/43Total asset-backed notes and warehouse facility
    
    
    4,782.7
    
    
    
    99.7Revolving line of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    07/06/05Fixed-rate notes
    
    
    14.5
    (4)
    
    
    0.3
    
    
    
    4.47
    %
    
    
    06/30/07Fixed-rate capital leases
    
    
    1.7
    
    
    
    
    
    
    
    6.00% - 7.82
    %
    
    
    05/10/10Total
    
    $
    4,798.9
    
    
    
    100.0
    %
 
 (1) Issued in securitization transactions.(2) The final maturity date is the stated legal maturity of the applicable class of
notes. However, the principal of the notes is paid based on the receipt of principal payments
under the applicable pools of loans and we expect to pay the principal prior to the final
maturity date.(3) The warehouse facility, which was scheduled to expire in July 2005, was extended for
an additional year.(4) Balances are net of unamortized discount of $0.4 million as of June 30, 2005, and
$0.5 million as of December 31, 2004. 32




---



##### 



Total
    
    < 1 year
    
    1 - 3 years
    
    3 - 5 years
    
    > 5 years(dollars in millions)Warehouse facility(1)
    
    $
    704.3
    
    
    $
    
    
    
    $
    704.3
    
    
    $
    
    
    
    $
    Asset-backed notes(2)
    
    
    4,882.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,882.4Other indebtedness(3)
    
    
    14.6
    
    
    
    
    
    
    
    14.6
    
    
    
    
    
    
    
    Capital lease obligations
    
    
    1.5
    
    
    
    0.5
    
    
    
    0.9
    
    
    
    0.1
    
    
    
    Operating lease obligations
    
    
    8.2
    
    
    
    1.9
    
    
    
    2.5
    
    
    
    2.4
    
    
    
    1.4Total
    
    $
    5,611.0
    
    
    $
    2.4
    
    
    $
    722.3
    
    
    $
    2.5
    
    
    $
    4,883.8
 
 (1) The warehouse facility, which was scheduled to expire in July 2005, was extended for
an additional year.(2) Principal on our asset-backed notes will be paid based on receipt of principal
payments under the applicable pools of loans, and we expect to pay the principal prior to
final maturity date of the notes.(3) Fixed-rate note outstanding of $14.6 million, net of unamortized discount.  Off-Balance-Sheet Arrangements
  Loan Portfolio
  As of June 30,
    
    As of December 31,2005
    
    2004(dollars in millions)Percent
    
    
    
    
    
    PercentPrincipal(1)
    
    of total
    
    Principal(1)
    
    of totalFFELP loans:Consolidation
    
    $
    5,335.7
    
    
    
    99.8
    %
    
    $
    4,601.5
    
    
    
    99.8
    %PLUS
    
    
    6.8
    
    
    
    0.1
    
    
    
    6.3
    
    
    
    0.1Stafford
    
    
    6.8
    
    
    
    0.1
    
    
    
    5.1
    
    
    
    0.1Private
    
    
    1.5
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    5,350.8
    
    
    
    100.0
    %
    
    $
    4,612.9
    
    
    
    100.0
    %
 
 (1) Amounts reflect principal balance of loans without adjustments for deferred loan
costs which, as of June 30, 2005, totaled $68.9 million and as of December 31, 2004, totaled $51.9
million. Amounts also exclude the allowance for loan losses of $6.9 million as of June 30, 2005,
and $5.0 million as of December 31, 2004. 33




---



##### 



As of June 30,
    
    As of December 31,2005
    
    2004Percent
    
    Percent of
    
    
    
    

    
    Percent of
    
    Percent ofof loan
    
    loans in
    
    
    
    
    
    total loan
    
    Loans inPrincipal(1)
    
    portfolio
    
    repayment
    
    Principal(1)
    
    portfolio
    
    repayment(dollars in millions)Loans in school/grace/deferment(2)
    
    $
    624.5
    
    
    
    11.7
    %
    
    
    
    
    
    $
    536.7
    
    
    
    11.6
    %Loans in forbearance(3)
    
    
    394.2
    
    
    
    7.4
    
    
    
    
    
    
    
    335.8
    
    
    
    7.2Loans in repayment status:Current
    
    
    3,932.3
    
    
    
    73.5
    
    
    
    90.8
    %
    
    
    3,457.0
    
    
    
    75.0
    
    
    
    92.4
    %Delinquent 31-60 days(4)
    
    
    168.1
    
    
    
    3.1
    
    
    
    3.9
    
    
    
    110.5
    
    
    
    2.4
    
    
    
    3.0Delinquent 61-90 days(4)
    
    
    59.6
    
    
    
    1.1
    
    
    
    1.4
    
    
    
    40.4
    
    
    
    0.9
    
    
    
    1.1Delinquent over 90 days(4) (5)
    
    
    172.1
    
    
    
    3.2
    
    
    
    3.9
    
    
    
    132.5
    
    
    
    2.9
    
    
    
    3.5Total loans in repayment
    
    
    4,332.1
    
    
    
    80.9
    
    
    
    100.0
    %
    
    
    3,740.4
    
    
    
    81.2
    
    
    
    100.0
    %Total loan portfolio
    
    $
    5,350.8
    
    
    
    100.0
    %
    
    
    
    
    
    $
    4,612.9
    
    
    
    100.0
    %
 
 (1) Amounts reflect principal balance of loans without adjustments for deferred loan
costs, which, as of June 30, 2005, totaled $68.9 and as of December 31, 2004, totaled $51.9
million. Amounts also do not reflect the allowance for loan losses of $6.9 million as of June

30, 2005, and $5.0 million as of December 31, 2004.(2) Loans for borrowers who still may be attending school or engaging in other permitted
educational activities and are not yet required to make payments on the loans, e.g., residency
periods for medical students or a grace period for bar exam preparation.(3) Loans for borrowers who have temporarily ceased making full payments as a result of
hardship or other factors, according to a schedule approved by the servicer consistent with
the established loan program servicing procedures and policies.(4) The period of delinquency is based on the number of days scheduled payments are
contractually past due and relates to loans in repayment status, that is, receivables not
charged off, and not in school, grace, deferment or forbearance.(5) Includes loans of $13.1 million as of June 30, 2005, and $13.6 million as of
December 31, 2004, in claim status, which are loans that are more than 270 days past due,
which have gone into default and which have been submitted to the guaranty agency for FFELP
loans to process the claim for payment.  As of June 30, 2005
    
    As of December 31, 2004Current
    
    
    
    
    
    Currentprincipal
    
    Weighted
    
    principal
    
    Weightedbalance
    
    average
    
    balance
    
    averageoutstanding (1)
    
    maturity
    
    outstanding (1)
    
    maturity(in millions)
    
    (yrs)
    
    (in millions)
    
    (yrs)Interest rate range2.500%-2.999%
    
    $
    508.1
    
    
    
    21.6
    
    
    $
    553.0
    
    
    
    22.83.000%-3.499%
    
    
    860.8
    
    
    
    23.4
    
    
    
    751.6
    
    
    
    23.23.500%-3.999%
    
    
    1,316.2
    
    
    
    21.8
    
    
    
    1,019.8
    
    
    
    22.04.000%-4.499%
    
    
    1,018.3
    
    
    
    21.2
    
    
    
    854.5
    
    
    
    21.24.500%-4.999%
    
    
    456.5
    
    
    
    22.3
    
    
    
    400.7
    
    
    
    22.45.000%-5.499%
    
    
    204.6
    
    
    
    22.3
    
    
    
    180.8
    
    
    
    22.95.500%-5.999%
    
    
    204.7
    
    
    
    22.9
    
    
    
    189.4
    
    
    
    22.76.000%-6.499%
    
    
    241.4
    
    
    
    21.1
    
    
    
    209.1
    
    
    
    21.66.500%-6.999%
    
    
    203.6
    
    
    
    21.2
    
    
    
    176.6
    
    
    
    21.27.000%-7.499%
    
    
    93.2
    
    
    
    22.6
    
    
    
    81.9
    
    
    
    22.97.500%-7.999%
    
    
    95.4
    
    
    
    22.4
    
    
    
    77.4
    
    
    
    22.78.000%-8.499%
    
    
    148.0
    
    
    
    22.2
    
    
    
    118.1
    
    
    
    22.3$
    5,350.8
    
    
    
    22.0
    
    
    $
    4,612.9
    
    
    
    22.2
 
 (1) Amounts reflect principal balance of loans without adjustments for deferred loan
costs, which, as of June 30, 2005, totaled $68.9 million and as of December 31, 2004, totaled
$51.9 million. Amounts also do not reflect the allowance for loan losses of $6.9 million as of
June 30, 2005, and $5.0 million as of December 31, 2004. 34




---



##### 



Net Portfolio Margin Analysis
  Three months ended June 30,
    
    Six months ended June 30,2005
    
    2004
    
    2005
    
    2004Dollars
    
    %
    
    Dollars
    
    %
    
    Dollars
    
    %
    
    Dollars
    
    %(dollars in thousands)Student loan and restricted cash yield
    
    $
    78,875
    
    
    
    5.81
    %
    
    $
    41,591
    
    
    
    4.40
    %
    
    $
    146,855
    
    
    
    5.66
    %
    
    $
    77,422
    
    
    
    4.42
    %Department of Education rebate(1)
    
    
    (13,827
    )
    
    
    (1.02
    )
    
    
    (9,581
    )
    
    
    (1.01
    )
    
    
    (26,731
    )
    
    
    (1.03
    )
    
    
    (18,068
    )
    
    
    (1.03
    )Amortization(2)
    
    
    (1,586
    )
    
    
    (0.11
    )
    
    
    (936
    )
    
    
    (0.10
    )
    
    
    (2,918
    )
    
    
    (0.11
    )
    
    
    (1,601
    )
    
    
    (0.09
    )Net student loan and restricted cash yield
    
    
    63,462
    
    
    
    4.68
    
    
    
    31,074
    
    
    
    3.29
    
    
    
    117,206
    
    
    
    4.52
    
    
    
    57,753
    
    
    
    3.30Asset-backed notes and lines of credit
    
    
    (46,279
    )
    
    
    (3.41
    )
    
    
    (14,546
    )
    
    
    (1.54
    )
    
    
    (82,928
    )
    
    
    (3.20
    )
    
    
    (26,952
    )
    
    
    (1.54
    )Net portfolio margin
    
    
    17,183
    
    
    
    1.27
    %
    
    
    16,528
    
    
    
    1.75
    %
    
    
    34,278
    
    
    
    1.32
    %
    
    
    30,801
    
    
    
    1.76
    %Floor income
    
    
    (759
    )
    
    
    (0.06
    )
    
    
    (6,358
    )
    
    
    (0.67
    )
    
    
    (2,835
    )
    
    
    (0.11
    )
    
    
    (12,895
    )
    
    
    (0.74
    )Net portfolio margin net of floor income
    
    $
    16,424
    
    
    
    1.21
    %
    
    $
    10,170
    
    
    
    1.08
    %
    
    $
    31,443
    
    
    
    1.21
    %
    
    $
    17,906
    
    
    
    1.02
    %Reconciliation to net interest income:Net portfolio margin net of floor income
    
    $
    16,424
    
    
    
    
    
    
    $
    10,170
    
    
    
    
    
    
    $
    31,443
    
    
    
    
    
    
    $
    17,906Plus: interest income on cash and cash
equivalents
    
    
    346
    
    
    
    
    
    
    
    120
    
    
    
    
    
    
    
    676
    
    
    
    
    
    
    
    305Less: interest expense on other debt
obligations, net
    
    
    (437
    )
    
    
    
    
    
    
    (931
    )
    
    
    
    
    
    
    (873
    )
    
    
    
    
    
    
    (1,570
    )Less: interest expense on capital lease
obligations
    
    
    (27
    )
    
    
    
    
    
    
    (41
    )
    
    
    
    
    
    
    (56
    )
    
    
    
    
    
    
    (74
    )Plus: floor income
    
    
    759
    
    
    
    
    
    
    
    6,358
    
    
    
    
    
    
    
    2,835
    
    
    
    
    
    
    
    12,895Net interest income
    
    $
    17,065
    
    
    
    
    
    
    $
    15,676
    
    
    
    
    
    
    $
    34,025
    
    
    
    
    
    
    $
    29,462Average balance of student loans and
restricted cash
    
    $
    5,442,801
    

    
    
    
    
    
    $
    3,802,536
    
    

    
    
    
    

    $
    5,226,201
    
    
    
    
    
    
    $
    3,522,548
 
 (1) Reflects the 1.05 percent per annum rebate fee that is paid monthly on FFELP
consolidation loans divided by the average balance of student loans and restricted cash.(2) Represents the amortization of capitalized origination costs and purchase accounting
adjustments, including the 0.50 percent fee payable to the Department of Education on the
origination of FFELP loans. 35




---



##### 



Net Interest Margin Analysis
  Three months ended June 30,2005
    
    2004Average
    
    
    
    
    
    
    
    
    
    AverageInterest
    
    rate
    
    
    
    
    
    Interest
    
    rateAverage
    
    income/
    
    earned/
    
    Average
    
    income/
    
    earned/balance
    
    expense
    
    paid
    
    balance
    
    expense
    
    paid(dollars in thousands)Interest-earning assets:Cash and cash equivalents
    
    $
    18,218
    
    
    $
    346
    
    
    
    7.62
    %
    
    $
    11,994
    
    
    $
    120
    
    
    
    4.02
    %Restricted cash
    
    
    178,645
    
    
    
    1,455
    
    
    
    3.27
    
    
    
    189,097
    
    
    
    348
    
    
    
    0.74Student loans
    
    
    5,264,156
    
    
    
    77,420
    
    
    
    5.90
    
    
    
    3,613,439
    
    
    
    41,243
    
    
    
    4.59Department of Education rebate(1)
    
    
    
    
    
    
    (13,827
    )
    
    
    (1.05
    )
    
    
    
    
    
    
    (9,581
    )
    
    
    (1.07
    )Amortization(2)
    
    
    
    
    
    
    (1,586
    )
    
    
    (0.12
    )
    
    
    
    
    
    
    (936
    )
    
    
    (0.10
    )Student loans after Department of Education
rebate and amortization
    
    
    5,264,156
    
    
    
    62,007
    
    
    
    4.73
    
    
    
    3,613,439
    
    
    
    30,726
    
    
    
    3.42Total interest-earning assets
    
    $
    5,461,019
    
    
    $
    63,808
    
    
    
    4.69
    %
    
    $
    3,814,530
    
    
    $
    31,194
    
    
    
    3.29
    %Interest-bearing liabilities:Asset-backed notes and lines of credit
    
    $
    5,471,068
    
    
    $
    46,279
    
    
    
    3.39
    %
    
    $
    3,845,178
    
    
    $
    14,546
    
    
    
    1.52
    %Other debt obligations, net
    
    
    14,564
    
    
    
    437
    
    
    
    12.04
    
    
    
    60,858
    
    
    
    931
    
    
    
    6.15Capital lease obligations
    
    
    1,568
    
    
    
    27
    
    
    
    6.91
    
    
    
    1,752
    
    
    
    41
    
    
    
    9.41Total interest-bearing liabilities
    
    $
    5,487,200
    
    
    $
    46,743
    
    
    
    3.42
    
    
    $
    3,907,788
    
    
    $
    15,518
    
    
    
    1.60Net interest income and net interest margin.
    
    
    
    
    
    $
    17,065
    
    
    
    1.26
    %(3)
    
    
    
    
    
    $
    15,676
    
    
    
    1.65
    %(3)
 
 (1) Reflects the 1.05 percent per annum rebate fee that is paid monthly on FFELP
consolidation loans divided by the average balance of student loans.(2) Represents the amortization of capitalized origination costs and purchase accounting
adjustments, including the 0.50 percent fee payable to the Department of Education on the
origination of FFELP loans.(3) Net interest margin is net interest income divided by the average total
interest-earning assets. Six months ended June 30,2005
    
    2004Average
    
    
    
    
    
    
    
    
    
    AverageInterest
    
    rate
    
    
    
    
    
    Interest
    
    rateAverage
    
    income/
    
    earned/
    
    Average
    
    income/
    
    earned/balance
    
    expense
    
    paid
    
    balance
    
    expense
    
    paid(dollars in thousands)Interest-earning assets:Cash and cash equivalents
    
    $
    18,848
    
    
    $
    676
    
    
    
    7.23
    %
    
    $
    13,158
    
    
    $
    305
    
    
    
    4.65
    %Restricted cash
    
    
    159,452
    
    
    
    2,360
    
    
    
    2.98
    
    
    
    149,358
    
    
    
    574
    
    
    
    0.77Student loans
    
    
    5,066,749
    
    
    
    144,495
    
    
    
    5.75
    
    
    
    3,373,190
    
    
    
    76,848
    
    
    
    4.57Department of Education rebate(1)
    
    
    
    
    
    
    (26,731
    )
    
    
    (1.06
    )
    
    
    
    
    
    
    (18,068
    )
    
    
    (1.07
    )Amortization(2)
    
    
    
    
    
    
    (2,918
    )
    
    
    (0.12
    )
    
    
    
    
    
    
    (1,601
    )
    
    
    (0.10
    )Student loans after Department of Education
rebate and amortization
    
    
    5,066,749
    
    
    
    114,846
    
    
    
    4.57
    
    
    
    3,373,190
    
    
    
    57,179
    
    
    
    3.40Total interest-earning assets
    
    $
    5,245,049
    
    
    $
    117,882
    
    
    
    4.53
    %
    
    $
    3,535,706
    
    
    $
    58,058
    
    
    
    3.29
    %Interest-bearing liabilities:Asset-backed notes and lines of credit
    
    $
    5,255,826
    
    
    $
    82,928
    
    
    
    3.18
    %
    
    $
    3,562,787
    
    
    $
    26,952
    
    
    
    1.52
    %Other debt obligations, net
    
    
    14,538
    
    
    
    873
    
    
    
    12.11
    
    
    
    52,147
    
    
    
    1,570
    
    
    
    6.04Capital lease obligations
    
    
    1,629
    
    
    
    56
    
    
    
    6.93
    
    
    
    1,809
    
    
    
    74
    
    
    
    8.20Total interest-bearing liabilities
    
    $
    5,271,993
    
    
    $
    83,857
    
    
    
    3.21
    
    
    $
    3,616,743
    
    
    $
    28,596
    
    
    
    1.59Net interest income and net interest margin.
    
    
    
    
    
    $
    34,025
    
    
    
    1.31
    %(3)
    
    
    
    
    
    $
    29,462
    
    
    
    1.67
    %(3)
 
 (1) Reflects the 1.05 percent per annum rebate fee that is paid monthly on FFELP
consolidation loans divided by the average balance of student loans.(2) Represents the amortization of capitalized origination costs and purchase accounting
adjustments, including the 0.50 percent fee payable to the Department of Education on the
origination of FFELP loans.(3) Net interest margin is net interest income divided by the average total
interest-earning assets. 36




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##### 



Interest Rate Risk
     
    
    match-funding of loan assets with associated secured borrowings and
    
    utilizing interest rate swaps and other derivative instruments, described
below, to minimize the adverse effect of interest rate fluctuations in the near term.
  June 30, 2005
    
    December 31, 2004Receive
    
    
    
    
    
    ReceiveDerivative
    
    Notional
    
    Maturity
    
    Pay
    
    floating rate
    
    
    
    
    
    floating rate
    
    Fairtype
    
    amount
    
    Date
    
    fixed rate
    
    (LIBOR)
    
    Fair value(3)
    
    (LIBOR)
    
    value(3)Swap(1)
    
    $
    250,000
    
    
    
    01/26/2005
    
    
    
    
    %
    
    
    
    %
    
    $
    
    
    
    
    2.42
    %
    
    $
    96Cap (Sold) (2)
    
    
    250,000
    
    
    
    01/26/2005
    
    
    
    ----
    (2)
    
    
    
    
    
    
    
    
    
    
    2.23
    
    
    
    (82
    )Swap(1)
    
    
    550,000
    
    
    
    04/28/2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.42
    
    
    
    1,945Swap(1)
    
    
    450,000
    
    
    

    01/25/2006
    
    
    
    3.23
    
    
    
    3.31
    
    
    
    1,269
    
    
    
    
    
    
    
    Total, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,269
    
    
    
    
    
    
    $
    1,959
 
 (1) Under the interest rate swaps, we agree to pay a fixed rate in exchange for a
floating rate. The interest rate swap effectively converts a portion of our variable-rate debt
to a fixed rate for a period of time, thereby fixing the relative spread between a portion of
our loan assets equal to the size of the swap notional amount.(2) The payments on the cap were to be made only when the 91-day commercial paper rate
exceeded 2.09 percent. Payments of $74 were made in the first quarter 2005 and payments of $54
were made for the year 2004.(3) Reflects the value to the company of the interest rate swaps and the cap assuming
the applicable swap or cap was terminated as of June 30, 2005, or December 31, 2004.  Forward interest rate sensitivity.
 37




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##### 



Twelve months beginning July 1, 2005Decrease
    
    Increase
    
    Increase
    
    Increaseof
    
    of
    
    of
    
    of100 basis
    
    100 basis
    
    200 basis
    
    300 basispoints
    
    points
    
    points
    
    points(dollars in millions)Estimated increase (decrease) in net interest income
    
    $
    9.8
    
    
    $
    (5.8
    )
    
    $
    (8.9
    )
    
    $
    (10.3
    )Estimated (increase) decrease in swap interest expense(1)
    
    
    (2.6
    )
    
    
    2.6
    
    
    
    5.2
    
    
    
    7.7Estimated (increase) in derivative mark-to-market expense(1)(2)
    
    
    (1.3
    )
    
    
    (1.3
    )
    
    
    (1.3
    )
    
    
    (1.3
    )Increase (decrease) in income before income tax provision
    
    $
    5.9
    
    
    $
    (4.5
    )
    
    $
    (5.0
    )
    
    $
    (3.9
    )
 
 (1) Our derivative instrument in effect as of June 30, 2005, matures on January 25,
2006.(2) Represents the aggregate mark-to-market liability as of June 30, 2005, based on the
maturity of the derivative in place at that time. Cautionary Notice Regarding Forward-looking Statements
   Item 3. Quantitative and Qualitative Disclosure about Market Risk
  38




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##### 



Item 4. Controls and Procedures
   39




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##### 



PART II. OTHER INFORMATION
 Item 1. Legal Proceedings
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Item 3. Defaults Upon Senior Securities
  Item 4. Submission of Matters to a Vote of Security Holders
   Class I directors
    
    FOR
    
    WITHHELDRichard J. Sterne
    
    
    21,503,369
    
    
    
    3,127,679Anthanassios Nassos Michas
    
    
    23,513,597
    
    
    
    1,117,451
 
 FOR
    
    WITHHELD
    
    ABSTAIN24,626,848
    
    
    4,100
    
    
    
    100
 Item 5. Other Information
  Item 6. Exhibits
  40




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##### 



Signature
  COLLEGIATE FUNDING SERVICES, INC.(Registrant)Date: August 05, 2005
    
    By:
    
    /s/ Kevin A. LandgraverName:
    
    Kevin A. LandgraverTitle:
    
    Chief Financial Officer and Executive Vice President(on behalf of the Registrant and as Principal Financial Officer)
 41




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##### 



EXHIBIT INDEX
 Exhibit No.
    
    Description of Exhibit2.1
    
    Agreement relating to Acquisition of Youth Media & Marketing
Networks, dated as of April 21, 2004, among Collegiate Funding
Services, LLC, Affinity Acquisition Corp., Members Connect Inc.
and the companys stockholders (incorporated by reference to
Exhibit 2.1 to the registration statement on Form S-1 (Reg. No.
333-114466))3.1
    
    Amended and Restated Certificate of Incorporation of Collegiate
Funding Services, Inc. (incorporated by reference to Exhibit 3.1
to the registration statement on Form S-1 (Reg. No. 333-114466))3.2
    
    Amended and Restated By-Laws of Collegiate Funding Services,
Inc. (incorporated by reference to Exhibit 3.2 to the
registration statement on Form S-1 (Reg. No. 333-114466))4.1P
    
    Stockholders Agreement, dated May 17, 2002, by and among CFSL
Holdings Corp., CFSL Acquisition Corp. and the investors listed
on Schedule A thereto (incorporated by reference to Exhibit 4.1
to the registration statement on Form S-1 (Reg. No. 333-114466))4.2
    
    Form of Certificate of Common Stock (incorporated by reference
to Exhibit 4.2 to the registration statement on Form S-1 (Reg.
No. 333-114466))4.3
    
    Indenture of Trust from Collegiate Funding Services Education
Loan Trust I and U.S. Bank National Association, as Eligible
Lender Trustee to U.S. Bank National Association, as Indenture
Trustee, dated as of November 1, 2001, together with First
Supplemental Indenture of Trust, dated November 1, 2001 and
Second Supplemental Indenture of Trust, dated July 1, 2002
(incorporated by reference to Exhibit 4.3 to the registration
statement on Form S-1 (Reg. No. 333-114466))4.4
    
    Indenture of Trust between Collegiate Funding Services Education
Loan Trust 2003-A and U.S. Bank National Association, as
Eligible Lender Trustee and as Trustee, dated as of February 1,
2003 (incorporated by reference to Exhibit 4.4 to the
registration statement on Form S-1 (Reg. No. 333-114466))4.5
    
    Indenture of Trust between Collegiate Funding Services Education
Loan Trust 2003-B and U.S. Bank National Association, as
Eligible Lender Trustee and as Trustee, dated as of November 1,
2003 (incorporated by reference to Exhibit 4.5 to the
registration statement on Form S-1 (Reg. No. 333-114466))4.6
    
    Indenture of Trust between Collegiate Funding Services Education
Loan Trust 2004-A and U.S. Bank National Association, as
Eligible Lender Trustee and as Trustee, dated as of April 1,
2004 (incorporated by reference to Exhibit 4.6 to the
registration statement on Form S-1 (Reg. No. 333-114466))4.6.1
    
    Indenture of Trust between Collegiate Funding Services Education
Loan Trust 2005-A and The Bank of New York, as Eligible Lender
Trustee and as Trustee, dated as of February 1, 2005
(incorporated by reference to Exhibit 4.1 to the current report
on Form 8-K of Collegiate Funding Services Education Loan Trust
2005-A (File No., 333-112232-02))10.23
    
    Amendment No. 1 to Employment Agreement by and between
Collegiate Funding Services, Inc. and J. Barry Morrow
(incorporated by reference to Exhibit 10.23 to the quarterly
report on Form 10-K of Collegiate Funding Services, Inc. (File
No. 000-50846))10.24
    
    Form of Amendment No. l to Employment Agreement for Executive
Vice Presidents Morrow (incorporated by reference to Exhibit
10.24to the quarterly report on Form 10-K of Collegiate Funding
Services, Inc. (File No. 000-50846))10.25
    
    Amendment No. 1 to Employment Agreement by and between
Collegiate Funding Services, Inc. and John Reeves (incorporated
by reference to Exhibit 10.25 to the quarterly report on Form
10-K of Collegiate Funding Services, Inc. (File No. 000-50846))10.26
    
    Form of Stock Option Award Agreement for Chief Executive and
Executive Vice Presidents (incorporated by reference to Exhibit
10.26 to the current report on Form 8-K of Collegiate Funding
Services, Inc. (File No. 000-50846))10.27
    
    Form of Restricted Stock Award Agreement for Chief Executive and
Executive Vice Presidents (incorporated by reference to Exhibit
10.27 to the current report on Form 8-K of Collegiate Funding
Services, Inc. (File No. 000-50846))
 42




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##### 



Exhibit No.
    

    Description of Exhibit10.28
    
    Amendment No. 3 dated as of June 30, 2005, to the Credit
Agreement among Collegiate Funding Services, LLC, Collegiate
Funding Services, Inc. the Subsidiary Guarantors party thereto,
the Lenders party thereto and JPMorgan Chase Bank, N.A., as
Administrative Agent (incorporated by reference to Exhibit 10.28
to the current report on Form 8-K of Collegiate Funding
Services, Inc. (File No. 000-50846))31.1*
    
    Rule 13a-14(a)/15d-14(a) Certification by Chief Executive Officer31.2*
    
    Rule 13a-14(a)/15d-14(a) Certification by Chief Financial Officer32.1**
    
    Section 1350 Certification by Chief Executive Officer32.2**
    
    Section 1350 Certification by Chief Financial Officer99.1*
    
    Risk Factors relating to the Registrant99.2**
    
    Supplemental information available on the Registrants website
 
 P
    
    CFSL Holdings Corp. has subsequently changed its name to Collegiate Funding Services, Inc.*
    
    Filed herewith**
    
    Furnished herewith 43