Exhibit 10.8
SERVICING AGREEMENT
This SERVICING AGREEMENT (this "Agreement") is entered into as of May __,
2002, by and among Grad Partners, Inc., a Delaware corporation (the "Servicer"),
Education Funding Capital Trust-I, a Delaware business trust (the "Issuer") and
Fifth Third Bank as Eligible Lender Trustee on behalf of the Issuer (the
"Eligible Lender Trustee").
WITNESSETH:
WHEREAS, the Issuer wishes to retain the Servicer to service the Financed
Student Loans and the Servicer wishes to undertake the obligation to service or
cause to be serviced the Financed Student Loans under the terms hereinafter set
forth; and
WHEREAS, pursuant to this Agreement the Servicer will agree to provide, or
cause there to be provided, loan servicing services for the Financed Student
Loans;
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein, the Issuer and the Servicer agree as follows:
Section 1. Definitions.
Capitalized terms which are not otherwise defined in this Agreement shall
have the meanings ascribed thereto in Appendix A to that certain Indenture of
Trust dated as of May __, 2002 among the Issuer, Fifth Third Bank, as Indenture
Trustee, and Fifth Third Bank, as trust eligible lender trustee (the
"Indenture").
Section 2. Servicing Requirement and Engagement of Servicer.
The Issuer hereby authorizes and appoints the Servicer to act as its agent
for the limited purpose of servicing the Financed Student Loans. The
authorization granted by this Agreement includes, but is not limited to,
correspondence and communication with any Guaranty Agency or the U.S. Department
of Education (the "Department") regarding the Financed Student Loans, the
assignment of claims to any guarantor or insurer of the Financed Student Loans,
communication with borrowers and any other communication, correspondence,
signature or other act required to service the Financed Student Loans in
accordance with requirements of the Act or regulations promulgated by any
Guaranty Agency.
The Issuer hereby authorizes the Servicer to enter into subservicing
contracts with an entity acting as a subservicer pursuant to such contracts,
such entity is herein referred to as a "Subservicer", to provide the services
required of the Servicer hereunder and to meet any obligations of the Issuer
hereunder, so long as such contracts are permitted by the Indenture. In the
event Servicer commences servicing of any Financed Student Loans that were
previously serviced by a Subservicer, the Servicer shall give prompt written
notice of such event to each Rating Agency.
Section 3. Servicer Compensation.
a. Subject to Section 4.07 of the Indenture, as compensation for its
services hereunder, the Servicer shall receive a fee (the "Servicing
Fee") equal to 0.10% of the average monthly outstanding principal
balance of the Financed Student Loans. The Servicer shall also receive
administrative fees, expenses and similar charges payable to
Subservicers in respect of their services under the Subservicing
Agreements.
b. The Servicer shall submit an invoice monthly to the Issuer for the
Servicing Fee and the fees and expenses payable to Subservicers, and
the Issuer shall remit payment therefor as shown on that invoice, but
only to the extent of moneys available for payment therefor in the
Operating Fund.
c. Payment is due within thirty (30) days after receipt of the billing
package. The billing package shall consist of an invoice and
supporting documentation.
d. The Servicer acknowledges that the Issuer shall be entitled to receive
all payments of principal, interest and late charges received with
respect to the Financed Student Loans and that the Servicer shall have
no right to retain such amounts as payment of any fees due to the
Servicer from the Issuer under the terms of this Agreement. The Issuer
hereby authorizes the Servicer to assess, collect and retain any
charges which the Issuer is permitted by law or regulation to assess
with respect to not sufficient funds ("NSF") processing or other
collection costs.
Section 4. Financed Student Loan Servicing.
Servicer covenants and agrees to service each Financed Student Loan in
compliance with all requirements of the Act, each Guaranty Agreement and all
other laws and regulations applicable to its activities hereunder and in
accordance with the terms and conditions of this Agreement, and to perform all
services and duties customary to the servicing of Student Loans including all
collection practices. Without limiting the foregoing, in fulfillment of its
obligations hereunder, Servicer shall do the following.
a. Maintain a complete and separately identified record for the Financed
Student Loans of each borrower, inclusive of all documentation and
correspondence related to the Financed Student Loans.
b. Take such actions as are required under the Act with respect to
delinquencies.
c. Perform the actions necessary to maintain the Guarantee and/or
Insurance on each Financed Student Loan originated under the Act at
all times.
d. Handle all required borrower contact functions and meet all servicing
"due diligence" requirements, as that term is used under the Act and
implementing regulations. Such functions include, for example, skip
tracing, contacting delinquent borrowers, handling borrower requests
for extensions or deferments, and preparing and processing claims,
including death, disability, default, closed school, false
certification and bankruptcy claims.
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e. Prepare and maintain accounting records with respect to the Financed
Student Loans; process refunds and other adjustments; process address
changes and maintain address records.
f. Collect all payments with respect to Financed Student Loans and
deliver all such payments to the Indenture Trustee, including without
limitation guarantee payments, with respect to the Financed Student
Loans. Servicer shall remit collected funds by automated clearing
house within three (3) business days of receipt to the Indenture
Trustee. Servicer shall prepare a "Lender's Request for Payment of
Interest and Special Allowance" to be used in billing the Department
for interest and the special allowance for all eligible loans on a
quarterly basis. Servicer agrees to submit the billing to the
Department within 30 days following the last day of each quarter
(March 31, June 30, September 30, December 31). In the event that
Servicer does not submit the billing to the Department within 30
calendar days following the last day of each quarter, and such failure
is not attributable to action or inaction by the Issuer or the
Department, the Issuer shall be entitled to payment by Servicer of
penalty interest. Such penalty interest shall be calculated on the
actual amount of interest subsidies and special allowance payments
that the Issuer is entitled to receive from the Department on the
Student Loans covered by the billing report and for the time period
between such 30th day through the date that said billing report is
filed with the Department by Servicer using the LIBOR rate, as quoted
in the Wall Street Journal, for the period closest in term to the
actual number of days covered by penalty period.
g. Retain summary records of contacts, follow-ups and collections
efforts, and records of written correspondence relating to the
Financed Student Loans of each borrower sufficient to ensure claim
payment.
h. Process adjustments including NSF checks, status changes,
forbearances, deferments and Financed Student Loans paid in full.
i. Complete all forms and reports required by the U.S. Department of
Education or any Guaranty Agency.
j. Perform all of the Eligible Lender Trustee's and Issuer's obligations
as holder of Student Loans as required by the Act and all regulations
issued by the U.S. Department of Education or by the guarantor to
implement the Act. Servicer shall have full power to sign and act on
the Issuer's and the Eligible Lender Trustee's behalf as the Issuer's
agent in all transactions with borrowers serviced hereunder. Each of
Issuer and the Eligible Lender Trustee do hereby authorize,
constitute, and appoint Servicer on its behalf and as its attorney in
fact, to endorse those promissory notes for which a claim has been
filed with a guarantor. Servicer will carry out its responsibilities
hereunder in a diligent and lawful manner.
k. At all times identify the Issuer and the Eligible Lender Trustee as
the owners of the Financed Student Loans and identify the Indenture
Trustee as a party which maintains a security interest in the Financed
Student Loans.
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l. Capture and retain a copy of each promissory note and each disclosure
statement on its image system and shall store a backup image copy in a
remote facility. Servicer shall hold the original Student Loan
documents, including the original promissory note, a copy of the
Student Loan application and the disclosure statement for safekeeping.
m. Provide reports to the Issuer and Indenture Trustee of all monetary
transactions as well as periodic summary and account information as
required in the "Issuer Service Manual" including such items as:
(1) Detailed periodic reports to support all cash transactions
processed;
(2) Monthly portfolio summary reports and supporting data listings;
(3) A monthly listing of delinquent accounts; and
(4) A quarterly report of xxxxxxxx to the Department for interest and
special allowances.
n. Ensure the timely payment of taxes, accounting fees, outside auditor
fees, data processing costs and other costs incurred in servicing the
Financed Student Loans.
o. Obtain and maintain or cause each Subservicer to obtain and maintain
in force a fidelity bond in an amount of at least $1,000,000 upon all
personnel of the Servicer or Subservicer, as applicable, insuring
against any loss or damage which the Issuer, the Servicer or
Subservicer, as applicable, might suffer as a consequence of any
fraudulent or dishonest act of such personnel.
p. Obtain and maintain or cause to be obtained and maintained in force
errors and omissions insurance coverage in an amount equal to at least
$2,000,000 for all its customers.
q. Respond to all borrower inquiries in a prompt, courteous and thorough
manner.
r. Establish and maintain a method for charging and collecting late
payment fees in accordance with provisions of the Act and all other
applicable laws and regulations.
r. Act as custodian and bailee with respect to all original documents and
hold them subject to the lien of the Indenture in favor of the
Indenture Trustee and pursuant to a bailment in a form satisfactory to
Servicer, the Issuer and the Eligible Lender Trustee.
s. If any Financed Student Loan has lost its guarantee and/or insurance
due to the actions of any prior issuer, servicer or holder of the
Financed Student Loan, at the written request of the Issuer, use its
best efforts to reinstate such guarantee or insurance; provided,
however, that Servicer makes no representation that such reinstatement
will occur. Such services shall be provided at the cost agreed upon by
the Issuer and Servicer.
t. If requested by the Issuer, remit monthly rebate fees to the
Department with respect to the Financed Student Loans. Upon receipt of
satisfactory documentation, the Issuer shall cause
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the Indenture to promptly wire transfer to Servicer or its designee,
from amounts held under the Indenture, the amount of funds required to
pay such fees. Servicer shall provide, or cause to be provided to the
Issuer, on a monthly basis, information needed to determine the
monthly rebate fees.
u. Accrue and capitalize interest on those Student Loans not eligible for
interest subsidy.
v. Verify the current status of all borrowers not less often than
annually through direct contact with each borrower to ensure correct
account information. Servicer shall also seek to verify the borrower's
status by direct or indirect contact with educational institutions.
w. When a Student Loan becomes due for repayment, prepare a payment
schedule and disclosure statement and mail it to the borrower for
signature(s). Prior to the first payment due date, repayment coupons
will be prepared and sent to the borrowers.
x. Post to the borrower's account all payments of principal, interest and
other charges.
y. Automatically credit the Issuer's account whenever a borrower overpays
an account by less than $5.00, and the Issuer, at its discretion, can
reimburse the borrower. When the overpayment is more than $5.00,
Servicer shall remit the overpayment directly to the borrower. When a
borrower's balance owing is less than $50.00, Servicer may, at its
discretion, write-off the balance.
z. Prepare and submit all papers and documents necessary to strictly
follow reimbursement procedures specified in the Common Manual:
Unified Student Loan Policy, as amended from time to time, upon
default of borrower and further agrees to promptly remit proceeds to
Issuer upon receipt from the Guaranty Agency.
aa. Provide immediate notice to the Issuer of any proceeding or action
filed, asserted or threatened against Servicer that, if decided
unfavorably to Servicer, would adversely impact Servicer's status as
an eligible "third-party servicer".
Section 5. Due Diligence.
The Servicer covenants and agrees that in discharging its obligations
hereunder it shall:
a. Exercise due diligence in the servicing and collection of all Financed
Student Loans as the term "due diligence" is used in the Act and
further defined in the regulations of the applicable Guaranty Agency.
b. Exercise reasonable care and diligence in the administration and
collection of all Financed Student Loans utilizing collection
practices in accordance with applicable federal and state collection
practices, laws and regulations promulgated thereunder.
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c. Administer, collect and service the Financed Student Loans in a
competent, diligent and orderly fashion, and, with respect to Financed
Student Loans originated under the Act, in accordance with the
requirements of the Act.
Section 6. Right of Inspection; Audit.
The Issuer, the Indenture Trustee, the Eligible Lender Trustee or any
governmental agency having jurisdiction over any of the same, or their
designated representatives, may at any time upon reasonable prior notice and
during normal business hours examine and audit at the sole expense of the
Issuer, the records which the Servicer or Subservicer maintain on the Financed
Student Loan being serviced, provided, however, that such activities shall not
unreasonably disrupt the Servicer's normal business operation.
Section 7. Compliance Report.
The Servicer agrees that it shall permit, not more than once per year, the
Issuer, the Indenture Trustee or its designee to conduct or have conducted a
procedural audit regarding the Servicer's or Subservicer's compliance with the
requirements of the Act or the terms of this Agreement. Such audits shall be at
the expense of the Issuer.
Section 8. Representations, Warranties, and Covenants of Servicer.
The Servicer makes the following representations, warranties and covenants
to the Issuer on the date of this Agreement. The Servicer shall be deemed to
have repeated the representations and warranties in clauses (a), (b), (f), (g),
(h), (i) and (l) on each date on which a new Series of Notes is issued under the
Indenture.
a. The Servicer (i) is duly incorporated, validly existing, and in good
standing under the laws of the jurisdiction in which it is
incorporated; (ii) is duly qualified to transact business and is in
good standing as a foreign corporation in each jurisdiction where the
nature and extent of its business and properties require due
qualification and good standing; (iii) possesses all requisite
authority, permits and power to conduct its business as contemplated
by this Agreement including, without limitation, eligibility as a
third-party servicer under the Act; and (iv) is in compliance with all
applicable laws and regulations.
b. The execution and delivery by the Servicer of this Agreement and the
performance of its obligations hereunder (i) are within its corporate
power, (ii) have been duly authorized by all necessary corporate
action, (iii) require no action by or filing with any governmental
agency, except for any action or filing that has been taken or made on
or before the date of this Agreement; and (iv) do not violate any
provision of its certificate of incorporation or bylaws.
c. The Servicer will satisfy all of its obligations set forth in this
Agreement, maintain in effect all qualifications required in order to
service the Financed Student Loans and comply in all material respects
with all requirements of law if a failure to comply would have a
materially adverse effect on its ability to service the Financed
Student Loans.
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d. The Servicer will not permit any rescission or cancellation of a
Financed Student Loan except as ordered by a court or other government
authority or as consented to by the Eligible Lender Trustee and the
Indenture Trustee, except that it may write off any delinquent
Financed Student Loan if the remaining balance of the borrower's
account is less than $50.
e. The Servicer will not reschedule, revise, defer or otherwise
compromise payments due on any Financed Student Loan except during any
applicable interest only, deferral or forbearance periods or otherwise
in accordance with all applicable standards and requirements for
servicing of the Financed Student Loans.
f. All Servicer financial statements delivered to the Issuer were
prepared according to U.S. generally accepted accounting principles
("GAAP") consistently applied and present fairly, in all material
respects, the financial condition, results of operations and cash
flows of the Servicer as of, and for the portion of the fiscal year
ending on their date or dates (subject, in the case of financial
statements other than annual ones, only to normal year-end
adjustments).
g. No event which could cause a material adverse effect on the Servicer's
financial condition has occurred, and if such event shall occur, the
Servicer shall promptly give the Issuer notice thereof.
h. The Servicer is not subject to, or aware of the threat of, any
litigation that is reasonably likely to be determined adversely to it
and that, if so adversely determined, would have a material adverse
effect on its financial condition or its ability to meet its
obligations under this Agreement and no outstanding or unpaid
judgments against the Servicer exist, and if such event shall occur,
the Servicer shall promptly give the Issuer notice thereof.
i. The Servicer has no knowledge of any basis upon which to believe that
each Financed Student Loan (i) is not in compliance in all material
respects with all laws and rules and regulations with respect to any
Guarantee thereof, and (ii) does not conform to the applicable
requirements of eligibility for such Guarantee.
j. The Servicer further agrees to maintain its servicing system so that
it will continue to provide all services required under this Agreement
to the extent such services are not provided by one or more eligible
third-party subservicers under the Act with adequate systems to
perform such services.
k. Until all Financed Student Loans serviced hereunder have been repaid
in full, or paid as a claim by a Guaranty Agency, or transferred to
another servicer, the Servicer agrees as follows:
(i) The Servicer shall cause to be furnished to the Issuer its
financial statements as the Issuer may reasonably request,
including quarterly unaudited financial statements within thirty
(30) days after the conclusion of each fiscal quarter, and annual
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financial statements within ninety (90) days after the end of
each fiscal year audited by nationally recognized independent
certified public accountants and such other information with
respect to its business affairs, assets, and liabilities as the
Issuer may reasonably request.
(ii) The Servicer shall maintain books, records and accounts
necessary to prepare financial statements according to GAAP and
maintain adequate internal financial controls.
(iii) The Servicer shall maintain all licenses, permits, and
franchises necessary for its business.
l. This Agreement will, upon execution and delivery by all parties
thereto, constitute a legal and binding obligation of the Servicer,
enforceable against the Servicer according to its terms.
Upon the discovery of a breach of certain covenants that have a materially
adverse effect on the Financed Student Loans, the Servicer will be obligated to
purchase or substitute the adversely affected Financed Student Loan unless the
breach is cured within the time period prescribed in Section 10 hereof. Any
breach that relates to compliance with the requirements of the Act or the
applicable Guaranty Agency but that does not affect that Guaranty Agency's
obligation to guarantee payment of a Financed Student Loan will not be
considered to have a material adverse effect.
The purchase or substitution and reimbursement obligations of the Servicer
will constitute the sole remedy available to the Issuer for any uncured breach.
The Servicer's purchase or substitution and reimbursement obligations are
contractual obligations that the Issuer may enforce, but the breach of these
obligations will not constitute an event of default under the Indenture.
Section 9. Representations and Warranties of Issuer.
The Issuer represents and warrants to the Servicer on the date of this
Agreement:
a. The Issuer (i) is duly formed, validly existing, and in good standing
under the laws of the jurisdiction in which it is formed; (ii) is duly
qualified to transact business as a Delaware business trust; and (iii)
possesses all requisite authority, permits and power to conduct its
business as contemplated by this Agreement.
b. The execution and delivery by the Issuer of this Agreement and the
performance of its obligations hereunder (i) are within its
organizational power; (ii) have been duly authorized by all necessary
action; and (iii) require no action by or filing with any governmental
agency, except for any action or filing that has been taken or made on
or before the date of this Agreement.
c. This Agreement will, upon execution and delivery by all parties
thereto, constitute a legal and binding obligation of the Issuer,
enforceable against the Issuer according to its terms.
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d. The Issuer is not subject to, or aware of the threat of, any
litigation that is reasonably likely to be determined adversely to it
and that, if so adversely determined, would have a material adverse
effect on its financial condition relevant to this Agreement.
Section 10. Servicer Default.
Each of the following constitutes a "Servicer Default" hereunder:
a. any failure by the Servicer to deliver to the Indenture Trustee any
payment required by this Agreement, which failure continues unremedied
for three (3) business days after written notice of such failure is
received by the Servicer from the Eligible Lender Trustee, the
Indenture Trustee or the Administrator or after discovery of such
failure by an officer of the Servicer; or
b. any breach of a representation or warranty of the Servicer contained
in Section 8 of this Agreement or failure by the Servicer duly to
observe or to perform in any material respect any term, covenant or
agreement set forth in this Agreement or in any other Basic Document
to which the Servicer is a party, which breach or failure shall (i)
materially and adversely affect the rights of Noteholders or any
Counterparties and (ii) continue unremedied for a period of sixty (60)
days after the date of discovery of such failure by an officer of the
Servicer or on which written notice of such breach or failure,
requiring the same to be remedied, shall have been given (A) to the
Servicer, by the Indenture Trustee, the Eligible Lender Trustee or the
Administrator, or (B) to the Servicer, the Indenture Trustee or the
Eligible Lender Trustee by Noteholders representing not less than 25%
of the Outstanding Amount of the Notes; or
c. the Servicer shall have commenced a voluntary case or other proceeding
seeking liquidation, reorganization, or other relief with respect to
itself or its debts under any bankruptcy, insolvency, or other similar
law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian, or other similar official of
it or any substantial part of its property, or shall have made a
general assignment for the benefit of creditors, or shall have
declared a moratorium with respect to its debts or shall have failed
generally to pay its debts as they become due, or shall have taken any
action to authorize any of the foregoing; or
d. an involuntary case or other proceeding shall have been commenced
against the Servicer seeking liquidation, reorganization, or other
relief with respect to it or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking
the appointment of a trustee, receiver, liquidator, custodian, or
other similar official of it or any substantial part of its property,
provided such action or proceeding is not dismissed within 60 days; or
e. any failure by the Servicer to comply with any requirements under the
Act resulting in a loss of its eligibility as a third-party servicer.
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Section 11. Rights Upon Servicer Default.
In each and every case, so long as the Servicer Default shall not have been
remedied, either the Indenture Trustee, or the holders of Notes evidencing not
less than 25% of the Outstanding Amount of the Notes, by notice then given in
writing to the Servicer (and to the Indenture Trustee and the Issuer if given by
the Noteholders) may terminate all the rights and obligations (other than the
rights and obligations set forth in Section 19 hereof) of the Servicer under
this Agreement. Only the Indenture Trustee or the Noteholders, and not the
Issuer, will have the ability to remove the Servicer if a Servicer Default
occurs while the Notes are Outstanding.
As of the effective date of termination of the Servicer, all authority and
power of the Servicer under this Agreement, whether with respect to the Notes or
the Financed Student Loans or otherwise, shall, without further action, pass to
and be vested in the Indenture Trustee or such successor servicer as may be
appointed, and all files shall be disposed of pursuant to the procedures
prescribed by Section 14 hereof. The successor servicer will succeed to all the
responsibilities and duties of the Servicer under this Agreement and will be
entitled to similar compensation arrangements.
The Servicer shall cooperate with the successor servicer, the Indenture
Trustee and the Issuer in effecting the termination of the responsibilities and
rights of the Servicer under this Agreement, including the transfer to the
successor servicer for administration by it of all cash amounts that shall at
the time be held by the Servicer for deposit, or shall thereafter be received by
it with respect to a Financed Student Loan. All reasonable costs and expenses
(including attorneys' fees) incurred in connection with transferring the
Financed Student Loan files to the successor servicer and amending this
Agreement and any other Basic Documents to reflect such succession of servicer
pursuant to this Section 11 shall be paid by the Servicer (other than the
Indenture Trustee acting as the servicer under this Section 11) upon
presentation of reasonable documentation of such costs and expenses. Upon
receipt of notice of the occurrence of a Servicer Default, the Issuer shall give
notice thereof to the Rating Agencies.
If the Indenture Trustee is unwilling or unable to act, it may appoint, or
petition a court for the appointment of, a successor whose regular business
includes the servicing of Student Loans; provided, however, the Indenture
Trustee shall continue to act as Servicer until a successor has been so
appointed. If, however, a bankruptcy trustee or similar official has been
appointed for the Servicer, and no Servicer Default other than that appointment
has occurred, the trustee may have the power to prevent the Indenture Trustee or
the Noteholders from effecting the transfer.
Section 12. Waiver of Past Servicer Defaults.
The Noteholders evidencing a majority of the Outstanding Amount of the
Notes, in the case of any Servicer Default which does not adversely affect the
Indenture Trustee or the Noteholders, may, on behalf of all Noteholders, waive
in writing any default by the Servicer in the performance of its obligations
hereunder and any consequences thereof, except a default in making any required
deposits to or payments from any of the Trust Accounts (or giving instructions
regarding the same) in accordance with this Agreement. Upon any such waiver of a
past default, such default shall cease to exist, and any Servicer Default
arising therefrom shall be deemed to have been remedied for every purpose of
this Agreement. No such waiver shall extend to any subsequent or other default
or impair any right consequent thereto.
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The Issuer may designate another servicer with respect to its student
loans. Any servicer, other than Grad Partners, Inc., may be appointed, provided
that a Rating Confirmation has been received with respect thereto.
Section 13. Termination.
This Agreement will terminate upon the occurrence of the earlier of (i) the
termination of the Indenture; (ii) early termination pursuant to Section 11
hereof; and (iii) payment in full of all of the Financed Student Loans being
serviced hereunder.
The Servicer may not resign from its obligations and duties as Servicer
hereunder, except upon determination that the Servicer's performance of its
duties is no longer permissible under applicable law. No resignation will become
effective until the Indenture Trustee or a successor servicer has assumed the
Servicer's servicing obligations and duties under this Agreement.
In the event of termination of this Agreement, the Issuer shall remain
liable for all fees due and payable hereunder. Termination shall be made without
prejudice to any other rights or remedies either party may have at law or in
equity. The obligations of the Servicer under Section 4 hereof, and the
representations and warranties in Section 8 shall survive any termination of
this Agreement and shall remain in effect for all Financed Student Loans while
such Financed Student Loans are serviced by the Servicer. The rights and
obligations of the Servicer contained in Section 19 hereof shall survive
termination of this Agreement. In the event that servicing on any Financed
Student Loan is transferred to a successor servicer, such successor servicer
shall be required by the Issuer to engage in reasonable good faith efforts to
obtain payment on any claim initially rejected by a guarantor for payment
including, without limitation, involving the Servicer in such effort, where the
reason for claim denial relates to the period during which the Servicer serviced
such Financed Student Loan hereunder. However, if the cause for claim denial is
reasonably attributable to the Servicer actions or inactions, the Servicer shall
be responsible therefore. Servicer acknowledges that Issuer will assign this
Agreement to the Indenture Trustee on behalf of the Noteholders and that the
Indenture Trustee will be entitled to enforce this Agreement against Servicer.
Section 14. Disposition of Files on Termination.
Upon termination of this Agreement, all files (physical and electronic)
held by the Servicer with respect to Financed Student Loans shall be promptly
transferred to the Issuer or its designee in such form as the Issuer reasonably
requests. The Issuer shall be responsible for payment of reasonable expenses
related to the transfer of the records unless the Issuer is removing the
Financed Student Loans because of a breach by the Servicer. In such instance,
the Servicer shall bear the cost of deconverting and transferring the Financed
Student Loan documentation.
Section 15. Independent Contractor.
The Servicer is an independent contractor and is not, and shall not hold
itself out to be, the agent of the Issuer except for the limited specific
purposes set forth in this Agreement.
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Section 16. Correspondence; Disclosure.
The parties hereto acknowledge and agree that the Servicer will handle all
communication with borrowers necessary to provide its services hereunder. Data
regarding Financed Student Loans shall be disclosed only to the Issuer, the
Indenture Trustee, the Administrator or the respective borrower, unless
otherwise required by law or certain financing covenants.
Section 17. Cooperation.
Each party covenants and agrees to cooperate fully with the other to
facilitate the transactions contemplated by this Agreement.
Section 18. Amendments.
This Agreement may be amended, supplemented or modified only by written
instrument duly executed by the Issuer and the Servicer with the consent of the
Indenture Trustee. So long as any Notes remain Outstanding under the Indenture,
a Rating Confirmation must be obtained with respect to any such amendment,
supplement or modification.
Section 19. Indemnification and Liability
a. Neither the Servicer nor any of its directors, officers, employees or
agents will be under any liability to the Issuer or the Noteholders
for taking any action or for refraining from taking any action
pursuant to this Servicing Agreement, or for errors in judgment;
provided, however, that neither the Servicer nor any person will be
protected against any liability that would otherwise be imposed by
reason of willful misfeasance, bad faith or negligence in the
performance of the Servicer's duties hereunder or by reason of
reckless disregard of its obligations and duties hereunder.
b. The Servicer is under no obligation to appear in, prosecute, or defend
any legal action that is not incidental to its servicing
responsibilities under this Agreement and that, in its opinion, may
cause it to incur any expense or liability. The Servicer may undertake
any reasonable action that it deems necessary or desirable in respect
of this Agreement and the interests of the Noteholders.
c. If the Servicer is required to appear in, or is made a defendant in
any legal action or proceeding commenced by any party other than the
Issuer with respect to any matter arising hereunder, the Issuer shall
indemnify and hold the Servicer harmless from all loss, liability, or
expense (including reasonable attorney's fees) except for any loss,
liability or expense arising out of or relating to the Servicer's
willful misconduct or negligence with regard to the performance of
services hereunder or breach of its obligations hereunder. Subject to
the limitations set forth in paragraph 19(b) hereof, the Servicer
shall indemnify and hold the Issuer harmless from all loss, liability
and expense (including reasonable attorney's fees) arising out of or
relating to the Servicer's willful misconduct or negligence with
regard to performance of services hereunder or breach of its
obligations hereunder, provided that in no event shall the Servicer be
responsible or liable for any incidental,
12
special or consequential damages with respect to any matter whatsoever
arising out of this Agreement.
d. If a Financed Student Loan is denied the Guarantee by the Guaranty
Agency or the loss of federal interest, special allowance, and/or
insurance benefits, the Servicer shall have the right to take any
action not prohibited by law or regulation to reduce its losses, if
any, hereunder, including but not limited to curing, at its own
expense, any due diligence or other servicing violation. If any lost
Guarantee is not reinstated within twelve (12) months of the date the
Servicer learns of the loss of the Guarantee on a Financed Student
Loan, the Servicer shall take actions which make the Issuer whole with
respect to the Financed Student Loan while maintaining the eligibility
for future reinstatement of the Guarantee; provided, however, the
Servicer may delay taking such actions by giving written notice to the
Issuer not less often than each ninety (90) days that the Servicer has
reason to believe that the Guarantee will be reinstated within time
frames permitted by regulations. If the Servicer gives notice of such
delay, the Servicer agrees to pay any accrued interest on the Financed
Student Loans that may be uninsured. The Issuer agrees to use its best
efforts to cause the repurchase, at par plus insured interest and
benefits thereon, of any Financed Student Loan which is cured and is
reinsured subsequent to its sale by the Issuer pursuant to actions
taken by the Servicer to make the Issuer whole and if the sale was to
an Eligible Lender to the extent the Issuer has, or can make
available, fund therefor.
e. The Servicer shall have no responsibility for any error or omission
(including due diligence violations) which occurred prior to the date
the Servicer assumed responsibility for servicing the Financed Student
Loan, nor shall the Servicer be responsible for losses, damages or
expenses arising from any change in law or regulation which
retroactively imposes additional requirements for documentation or
servicing actions, provided that the Servicer has made best efforts to
comply with retroactive additional requirements.
Section 20. Merger or Consolidation of, or Assumption of the Obligations of,
Servicer
Any entity into which the Servicer may be merged or consolidated, or any
entity which may result from any merger or consolidation to which the Servicer
shall be a party or any entity succeeding to the business of the Servicer, shall
be the successor to the Servicer without the execution or filing of any document
or any further act by any of the parties to this Agreement; provided, however,
that the Servicer hereby covenants that it will not consummate any of the
foregoing transactions except upon satisfaction of the following: (i) the
surviving servicer, if other than Grad Partners, Inc., executes an agreement of
assumption to perform every obligation of the Servicer under this Agreement,
(ii) immediately after giving effect to such transaction, no representation or
warranty made hereunder shall have been breached and no Servicer Default shall
have occurred and be continuing, and (iii) such consolidation, merger or
succession and such agreement of assumption comply with all the conditions
precedent, if any, provided for in this Agreement.
13
Section 21. Confidentiality
The contents of this Agreement, together with all supporting documents,
exhibits, schedules, and any amendments thereto, which form the basis of the
business relationship between the Issuer and the Servicer, insofar as the same
relate to the fees charged by the Servicer, shall be held in strict confidence
by both parties and shall not be disclosed or otherwise discussed with any third
party (unless required by law or regulation), except outside counsel or
independent accountants, or in connection with the offer and sale of securities
issued or to be issued under the Indenture, without the prior written consent of
the other party.
Section 22. Nonpetition Covenant of Servicer
The Servicer agrees not to, for any reason, institute proceedings for the
Issuer to be adjudicated as bankrupt or insolvent, or consent to the institution
of bankruptcy or insolvency proceedings against the Issuer, or file a petition
seeking or consenting to reorganization or relief under any applicable federal
or state law relating to bankruptcy, or consent to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Issuer or a substantial part of its property.
Section 23. Sale or Transfer of Loans; Limitations
The Issuer agrees that if any Financed Student Loans are sold under
conditions that result in the Financed Student Loans being transferred to
another servicer, whether immediately or at some future date, the Issuer will
pay or cause to be paid, at the time such Financed Student Loans are
transferred, the deconversion fees charged by such servicer.
Section 24. Miscellaneous.
a. Any material written communication received at any time by the Issuer
with respect to a Financed Student Loan or a borrower shall be
promptly transmitted by the Issuer to the Servicer. Such
communications include but are not limited to letters, notices of
death or disability, adjudication of bankruptcy and like documents,
and forms requesting deferment of repayment or loan cancellations.
b. This Agreement shall be governed by the laws of the State of Ohio.
c. All covenants contained herein and the benefits, rights and
obligations of the parties hereunder, shall be binding upon and inure
to the benefit of the legal representatives, successors and assigns of
the parties hereto, including but not limited to, any successor entity
acquiring or succeeding to the assets of either party.
d. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which shall be deemed to
constitute but one and the same instrument.
e. If any provisions of this Agreement shall be held, or deemed to be, or
shall in fact be inoperative or unenforceable as applied in any
particular situation, such circumstance shall not have the effect of
rendering any other provision or provisions herein contained invalid,
14
inoperative or unenforceable to any extent whatsoever. The invalidity
of any one or more phrases, sentences, clauses or paragraphs herein
contained shall have no effect on the remaining portions of this
Agreement or any part hereof.
f. All notices, requests, demands or other instruments which may or are
required to be given by either party to the other, shall be in writing
and each shall be deemed to have been properly given when delivered
personally on an officer of the party to whom such notice is to be
given, or upon receipt thereof when mailed postage prepaid by
registered or certified mail, requesting return receipt, or upon
confirmed facsimile transmission, addressed as follows:
If intended for the Issuer:
Education Funding Capital Trust-I
c/o Fifth Third Bank
MD 10AT60
00 Xxxxxxxx Xxxxxx Xxxxx
Xxxxxxxxxx, Xxxx 00000
Attention: Corporate Trust Administration
Telephone: x0.000.000.0000
Facsimile: x0.000.000.0000
with a copy to:
Wilmington Trust Company
Xxxxxx Square North
0000 Xxxxx Xxxxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxxx 00000-0000
Attention: Corporate Trust Administration
Telephone: x0.000.000.0000
Facsimile: x0.000.000.0000
If intended for the Servicer:
Grad Partners, Inc.
0 Xxxx Xxxxxx Xxxxxx
Xxxxx 000
Xxxxxxxxxx, Xxxx 00000
Attention: Xxxxx Xxxxx
If intended for the Eligible Lender Trustee:
Fifth Third Bank
MD 10AT60
00 Xxxxxxxx Xxxxxx Xxxxx
Xxxxxxxxxx, Xxxx 00000
15
Attention: Corporate Trust Administration
Telephone: x0.000.000.0000
Facsimile: x0.000.000.0000
Either party may change the address to which subsequent notices are to
be sent to it by written notice to the other given as aforesaid, but
any such notice of change, shall not be effective until the second
Business Day after it is received.
g. This Agreement may not be terminated by any party hereto except in the
manner and with the effect herein provided.
h. When the context of this Agreement so requires or implies, references
to the Issuer include any applicable trustee.
i. If either party cannot fulfill its obligations (other than the payment
of money), in part or in whole, due to a force or event outside its
control, such obligations of that party shall be suspended and such
party shall not be liable to the other party for any failure to
perform hereunder as a result.
j. The parties hereto agree to execute or cause to be executed the
Limited Power of Attorney attached hereto as Exhibit A.
k. The Servicer has and agrees to maintain a disaster recovery plan
which, in its reasonable opinion, will permit it to continue
operations without undue interruption in the event of fire, disaster,
labor disruption, or Act of God.
l. Servicer may cause any of its duties or obligations hereunder to be
performed by a Subservicer to the extent permitted by the Indenture.
m. EACH PARTY TO THIS AGREEMENT WAIVES ITS RIGHT TO A JURY TRIAL.
16
IN WITNESS WHEREOF, the parties have hereunto set their hands by their duly
authorized officers as of the day and year first above written.
EDUCATION FUNDING CAPITAL TRUST-I, By
FIFTH THIRD BANK, as Co-Owner Trustee
By: /s/ Xxxxx X. Xxxxx
-----------------------------------------
Name: Xxxxx X. Xxxxx
Title: Trust Officer
GRAD PARTNERS, INC., as Servicer
By: /s/ Xxxxx X. Xxxxx
-----------------------------------------
Name: Xxxxx X. Xxxxx
Title: Senior VP-Finance
FIFTH THIRD BANK, as Eligible Lender Trustee
By: /s/ Xxxxx X. Xxxxx
-----------------------------------------
Name: Xxxxx X. Xxxxx
Title: Trust Officer
EXHIBIT A
LIMITED POWER OF ATTORNEY
-----------------
WITNESSETH:
WHEREAS, Grad Partners, Inc., a Delaware corporation (the "Servicer"), and
Education Funding Capital Trust-I, a Delaware business trust (the "Issuer"), are
parties to the SERVICING AGREEMENT dated as of May __, 2002 (the "Servicing
Agreement"); and
WHEREAS, pursuant to the Servicing Agreement, the Servicer will perform
substantially all of the obligations and duties with regard to servicing of
certain education loans (the "Financed Student Loans") as provided therein; and
WHEREAS, in order to carry out its obligations under the Servicing
Agreement with respect to the Financed Student Loans, the Servicer requires the
power to perform certain acts, including but not limited to execution of
promissory notes, assignment of notes to guarantors and filing of responses to
bankruptcy notices, in the name of Fifth Third Bank, as trust eligible lender
trustee (the "Trust Eligible Lender Trustee") for Issuer.
NOW THEREFORE, the Servicer, Issuer and Trust Eligible Lender Trustee agree:
1. That each of the Issuer and the Trust Eligible Lender Trustee do
hereby make and appoint the Servicer as its true and lawful attorney-in-fact to
do all things necessary to carry out the Servicer's obligations under the
Servicing Agreement with respect to the Financed Student Loans, including but
not limited to the filing of proof of claim with bankruptcy courts. This
instrument shall be construed and interpreted as a limited power of attorney
(the "Limited Power of Attorney") and is not to be construed as granting any
powers to the Servicer other than those necessary to carry out its obligations
under the Servicing Agreement with respect to the Financed Student Loans.
2. That this Limited Power of Attorney is effective as of May __, 2002,
and shall remain in force and effect until revoked in writing by the Issuer and
Trust Eligible Lender Trustee or until the Servicing Agreement is terminated.
This instrument shall supplement but not replace the powers previously granted
to the Servicer in the Servicing Agreement.
The undersigned, being duly authorized, has executed this Limited Power of
Attorney.
EDUCATION FUNDING CAPITAL
TRUST-I, by FIFTH THIRD BANK, as
Co-Owner Trustee
By: _________________________________
Name:
Title:
FIFTH THIRD BANK, as Trust Eligible
Lender Trustee
By _________________________________
Name:
Title:
The undersigned, being duly authorized, accepts the foregoing Limited Power of
Attorney for and on behalf of the Issuer and Trust Eligible Lender Trustee, as
of May __, 2002.
GRAD PARTNERS, INC., as Servicer
By: _________________________________
Name:
Title:
Amendment No. 1 to Servicing Agreement
This Amendment No. 1 to Servicing Agreement (this "Amendment"), dated
as of August 1, 2002, is among Education Lending Services, Inc. (formerly known
as Grad Partners, Inc.), a Delaware corporation (the "Servicer"), Education
Funding Capital Trust-I (the "Trust), a Delaware business trust, Fifth Third
Bank, a banking corporation organized under the laws of the State of Ohio,
acting hereunder not in its individual capacity, but solely as Indenture Trustee
(the "Indenture Trustee") under the Indenture (defined below), and Fifth Third
Bank, a banking corporation organized under the laws of the State of Ohio, not
in its individual capacity, but solely as Trust Eligible Lender Trustee on
behalf of the Trust (the "Trust Eligible Lender Trustee").
Capitalized terms used but not defined in this Amendment shall have the
meanings ascribed to such terms in the Servicing Agreement dated as of May 1,
2002 (the "Servicing Agreement") among the Servicer, the Trust and the Trust
Eligible Lender Trustee, or if not defined therein, in Appendix A to that
certain Indenture of Trust dated as of May 1, 2002 (the "Indenture") among the
Trust, the Indenture Trustee, and the Trust Eligible Lender Trustee.
WITNESSETH
Whereas, the Servicer, the Trust and the Trust Eligible Lender Trustee
are parties to the Servicing Agreement; and
Whereas, pursuant to Section 18 of the Servicing Agreement, the Trust
and the Servicer desire to amend the Servicing Agreement on the terms and
conditions set forth herein;
Whereas, for the limited purposes of agreeing to its obligations set
forth in the last sentence of Section 2 of the Servicing Agreement, which
obligations are being added by the adoption of this Amendment, the Indenture
Trustee desires to become party to the Servicing Agreement;
Now Therefore, in consideration of the foregoing, the parties hereto
agree that the foregoing recitals are incorporated herein by reference and as
follows:
Section 1. The second paragraph of Section 2 of the Servicing Agreement
is hereby amended and restated in its entirety to read as follows:
The Issuer hereby authorizes the Servicer to enter into
subservicing contracts with an entity acting as a subservicer pursuant
to such contracts, such entity is herein referred to as a
"Subservicer", to provide the services required of the Servicer
hereunder and to meet any obligations of the Issuer hereunder, so long
as such contracts are permitted by the Indenture. In the event the
Servicer or any Affiliate of the Seller or Servicer commences servicing
of any Financed Student Loans that were previously serviced by a
Subservicer, the Servicer shall (i) give prompt written notice of such
event to each Rating Agency and (ii) cause such Subservicer to deliver
to the Indenture Trustee the complete and separately identified record
for each such Financed Student Loan, inclusive of all documents
and correspondence related to each such Financed Student Loan
(collectively, the "Student Loan Files"). The Indenture Trustee agrees
to and shall act as custodian of the Student Loan Files for any
Financed Student Loans serviced or subserviced by the Servicer or by
any Affiliate of the Seller or Servicer.
Section 2. The first sentence of paragraph f. of Section 4 of the
Servicing Agreement is hereby amended and restated in its entirety to read as
follows:
Collect all payments with respect to Financed Student Loans and deliver
all such payments to the Indenture Trustee for deposit into the Revenue
Fund, including without limitation guarantee payments, with respect to
the Financed Student Loans.
Section 3. All other provisions of the Servicing Agreement are hereby
ratified, approved and confirmed.
[Remainder of this page left intentionally blank; signature page
follows.]
2
In Witness Whereof, the parties hereto have caused this Amendment to be
duly executed by their respective officers as of the day and year first above
written.
Education Funding Capital Trust-I,
by Fifth Third Bank, as Co-Owner Trustee
By: /s/ Xxxxx X. Xxxxxxx
--------------------------------------------------
Name: Xxxxx X. Xxxxxxx
Title: AVP-Sr. Trust Officer
Education Lending Services, Inc., as Servicer
By: /s/ Xxxxx X. Xxxxx
--------------------------------------------------
Name: Xxxxx X. Xxxxx
Title: Senior Vice President-Finance
Fifth Third Bank, as Trust Eligible Lender Trustee
By: /s/ Xxxxx X. Xxxxxxx
--------------------------------------------------
Name: Xxxxx X. Xxxxxxx
Title: AVP-Sr. Trust Officer
Fifth Third Bank, as Indenture Trustee
By: /s/ Xxxxx X. Xxxxxxx
--------------------------------------------------
Name: Xxxxx X. Xxxxxxx
Title: AVP-Sr. Trust Officer
