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TERI is a nonprofit guarantor of loans. They charge a fee and the fee paid by the lender guarantees the repayment of principal and acccrued interest of uncollectable loans. This has to make lenders feel comfortable with the process of generating loans to students. FMD has an agreement with TERI to provide updates on the data base and they do own the data base they bought(cheap I might add) But I don't think they have much else to do with TERI's business except utilize their service and have dibs on the loans they securitize that TERI backs. I could be wrong. From the 10K:

One of the key components of our private label programs is the opportunity for our clients to mitigate their credit risk through a loan repayment guarantee by TERI. TERI guarantees repayment of the student borrowers" loan principal, together with capitalized and/or accrued interest on defaulted loans. If the lender disposes of the loan in a securitization, this guarantee remains in place and serves to enhance the terms on which asset backed securities are offered to investors.

Strategic Relationship with The Education Resources Institute

TERI is the nation"s oldest and largest guarantor of private student loans. As a not-for-profit corporation, TERI"s main operating purpose is to provide students with access to educational opportunities through educational finance and counseling services. To help accomplish this, TERI offers guarantee products for student loan programs pursuant to which TERI agrees to reimburse lenders for all unpaid principal and interest on their defaulted
student loans, in exchange for a fee based on the loan type and risk profile of the borrower.

Because TERI is a not-for-profit corporation, defaults on TERI-guaranteed student loans have been held to be non-dischargeable in bankruptcy proceedings. Since its inception in 1985, TERI has guaranteed approximately $7.1 billion of private education loans for students at more than 6,000 schools nationally and internationally.

The TERI connection is important to First Marblehead and is probably one of the things that made them valuable to investors.

If our agreements with TERI terminate for any reason, or if TERI fails to comply with its obligations, our business would be adversely affected and the value of our intangible assets could be impaired for the following reasons:

** we may not be able to offer our clients guarantee services from another guarantor and, accordingly, our access to loans and our opportunities to structure securitization transactions may diminish significantly;

**In its role as guarantor in the private education lending market, TERI agrees to reimburse lenders for unpaid principal and interest on defaulted loans. TERI is the exclusive provider of borrower default guarantees for our clients" private student loans. As of June 30, 2004, TERI had a Baa3 counterparty rating from Moody"s Investors Service, which is the lowest
investment grade rating, and an insurer financial strength rating of A+ from Fitch Ratings. If these ratings are lowered, our clients may not wish to enter into guarantee arrangements with TERI. In addition, we may receive lower structural advisory fees because the costs of obtaining financial guarantee insurance for the asset backed securitizations that we structure could increase. In such case, our business would be adversely affected.

** TERI is a not-for-profit organization and, as a result, borrowers have been deemed unable to discharge in bankruptcy proceedings loans that TERI guarantees. If TERI loses its not-for-profit status, and TERI-guaranteed student loans become dischargeable in bankruptcy, recovery rates on these loans could decline. In such event, our business could be adversely affected for the following reasons:

**our residuals in the securitization trusts could decline because of increased default rates and collection costs; and

** the securitization transactions that we structure could be on less favorable terms because investors and financial guarantee insurers could become more concerned with default and recovery rates.

**Assuming that TERI retains its not-for-profit status, TERI"s position as the leading provider of private education loan guarantees could be adversely affected if the U.S. federal bankruptcy laws are amended to make student loans generally non-dischargeable in bankruptcy, as provided in legislation currently before the U.S. Congress. If such an amendment were enacted:

** lenders who would currently seek a guarantee from a not-for-profit entity such as TERI in order for their private student loans to become non-dischargeable in bankruptcy may cease to do so; and

** TERI would cease to have this competitive advantage over potential for-profit providers of the services that TERI provides.

As a result of these impacts on TERI, lenders might be less inclined to utilize the TERI-guaranteed private label loan programs, which could, in turn, harm our business and results of operations.

It is apparent that TERI provides a very valuable service to FMD. The lenders need the guarantee that bad loans will be paid by somebody. The collection process goes forward through a collection agency. When it is uncollectable, TERI pays. The fees TERI collects for the service keeps them in busines but not at a profit.
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