EXHIBIT 99.3
FORM OF
SERVICING AGREEMENT
BETWEEN
PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY
AND
PHEAA STUDENT LOAN TRUST I
This Servicing Agreement, dated as of _________, 2003, is made by and
between the Pennsylvania Higher Education Assistance Agency, a public
corporation and governmental instrumentality organized under the laws of the
Commonwealth of Pennsylvania (the "Servicer") and PHEAA Student Loan Trust I
(the "Issuer").
RECITALS:
The Issuer acquires and holds student loans which are guaranteed under
a guarantee program established pursuant to the requirements of the Higher
Education Act of 1965, as amended (the "Financed Student Loans"); and
The Issuer finances the acquisition of such Financed Student Loans
through the issuance of student-loan asset-backed notes, which may be issued in
multiple classes and series (the "Notes"). The Notes are being issued pursuant
to the provisions of the Indenture (as defined below) and one or more
supplemental indentures; and
The Servicer, in its capacity as a servicer, has developed a
computerized loan servicing system and is capable of providing services related
to the origination, acquisition and servicing of the Financed Student Loans. The
Servicer has also developed a procedure for electronic student loan transactions
("Electronic Student Loan Transactions"), pursuant to which master promissory
notes and subsequent disbursements may be signed, acknowledged and authenticated
electronically.
Payment of principal of and interest on the Notes is expected to be
derived from, among other things, principal and interest payments received by
the Servicer on the Financed Student Loans.
The Issuer wishes to utilize the expertise of the Servicer to service
the Financed Student Loans its acquires, and the Servicer wishes to undertake
the obligation to service or cause to be serviced all such Financed Student
Loans in accordance with the requirements of the Higher Education Act of 1965,
as amended, regulations promulgated thereunder by the U.S. Department of
Education and requirements issued by any applicable guarantor (collectively, the
"Higher Education Act") and under the terms hereinafter set forth.
In consideration of the premises and the mutual covenants contained
herein, and the fees to be paid by the Issuer to the Servicer, the Issuer and
the Servicer, intending to be legally bound, agree as follows:
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1. DEFINITIONS AND REPRESENTATIONS
1.1 Definitions. In this Agreement, unless the context clearly
requires otherwise, all words and terms shall have the meaning given them
herein, or if not defined herein, shall have the meaning given them in Appendix
A to that certain Indenture of Trust dated as of ________, 2003 (the
"Indenture") between the Issuer and Manufacturers and Traders Trust Company, a
New York corporation, as indenture trustee, and as eligible lender trustee:
(a) "Act" means the Higher Education Act of 1965, as amended.
(b) "Agreement" means this Servicing Agreement by and between the
Issuer and the Servicer as the same may be modified, amended or supplemented
from time to time.
(c) "Electronic Signature Process" means the process by which
students selecting the electronic signature option enter into an Financed
Student Loan with the Servicer, or any other lender utilizing an electronic
signature process complying with all applicable state and federal law.
(d) "Financed Student Loans" means those educational loans which
the Issuer is authorized to make or acquire under the Indenture, which are
guaranteed under a guarantee program established pursuant to the Act.
(e) "Servicer" means the Pennsylvania Higher Education Assistance
Agency.
(f) "Term" means the term of this Agreement as set forth in
Section 1.2 hereof.
1.2 Term and Scope.
(a) The Term of this Agreement shall commence on the date first
above written and shall continue for so long as any portion of the Financed
Student Loans shall be held by the Servicer or the Trustee, unless earlier
terminated as provided in Section 3.1 hereof.
(b) The Issuer hereby authorizes and appoints the Servicer to act
as its agent for the limited purpose of servicing the Financed Student Loans.
The Servicer agrees to perform its servicing obligations in compliance with all
requirements of the Act and all other applicable laws and regulations, and in
accordance with the terms and conditions of this Agreement and the Guarantee
Agreements.
The authorization granted by this Agreement includes, but is not
limited to, correspondence and communication with any Guarantor or the U.S.
Department of Education regarding the Financed Student Loans, the assignment of
claims to any guarantor or insurer, 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 Guarantor.
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The Issuer hereby authorizes the Servicer to enter into subservicing
contracts with an entity acting as a subservicer (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.
1.3 Representations, Warranties and Covenants of the Servicer. The
Servicer makes the following representations and warranties to the Issuer on the
date of this Agreement, and, with respect to those representations and
warranties in clauses (i), (ii), (iii), (iv),(v), (vii), (viii) and (ix), on
each date on which a new series of Notes is issued under the Indenture:
(i) The Servicer is a public corporation and government
instrumentality duly organized, validly existing and in good standing under the
laws of the Commonwealth of Pennsylvania, is duly authorized and qualified to
transact any and all business contemplated by this Agreement and possesses all
requisite authority, power, licenses, permits and franchises to conduct its
business and to execute, deliver and comply with its obligations under the terms
of this Agreement, the execution, delivery and performance of which have been
duly authorized by all necessary action on the part of the Servicer.
(ii) The execution and delivery of this Agreement by the
Servicer and the performance and compliance with the terms hereof by the
Servicer will not violate or conflict with (i) the instruments creating the
Servicer or governing its operations or (ii) any laws in any respect which could
have any material adverse effect whatsoever upon the validity, performance or
enforceability of any of the terms of this Agreement applicable to the Servicer,
and will not constitute a default under, or result in the breach of, any
contract, agreement or other instrument to which the Servicer is a party or
which may be applicable to the Servicer or any of its assets.
(iii) This Agreement, and all documents and instruments
contemplated hereby which are executed and delivered by the Servicer, will
constitute valid, legal and binding obligations of the Servicer, enforceable in
accordance with their respective terms except as the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization or other laws or equitable
principles affecting creditors' rights generally.
(iv) The Servicer is not subject to, or aware of the threat
of, any litigation that is pending or, to the best of the Servicer's knowledge,
threatened against the Servicer which would prohibit its entering into this
Agreement or consummating the transactions contemplated herein, or 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.
(v) The Servicer is not a party to or bound by any agreement
or instrument or subject to any charter or other restriction or any judgment,
order, writ, injunction, decree, law or regulation which now or in the future
may substantially and adversely affect the ability of the Servicer to perform
its obligations under this Agreement or which requires the consent of any third
person to the execution of this Agreement or the consummation of the
transactions contemplated herein.
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(vi) The Commonwealth of Pennsylvania has created the Board
of Claims, pursuant to the provisions of the Act of May 20, 1937, P.L. 728, as
amended by the Act of October 5, 1978, Act Xx. 000, 00 X.X. 0000-0 et seq., for
the adjustment of claims arising from contracts entered into by the
Commonwealth. Claims against the Servicer respecting any matter pertaining to
this Agreement or any part thereof are subject to the statutory jurisdiction of
the Board of Claims.
(vii) The Servicer is entitled to the insurance benefits
provided under the Risk Management Program of the Commonwealth of Pennsylvania
which includes property and casualty and employee misuse of funds coverage.
(viii) All Servicer financial statements delivered to the
Issuer were prepared according to the U.S. generally accepted accounting
principles ("GAAP") applicable to it, 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).
(ix) No event that could cause a material adverse effect on
the Servicer's financial condition has occurred, and if such event does occur,
the Servicer shall promptly give the Issuer notice thereof.
(x) The Servicer's examination process did not disclose or
create any basis upon which to believe that each Financed Student Loan for which
a certificate has been delivered under the Custody Agreement, except as
indicated in such certificate, (i) is not in compliance in all material respects
with all laws and rules and regulations with respect to the guaranty thereof,
and (ii) does not conform to the applicable requirements of eligibility for
guaranty.
1.4 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 organized, 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 statutory 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;
(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 trust.
(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.
(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.
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1.5 Survival of Representations and Warranties. Each representation
and warranty made in this Agreement by the Servicer and the Issuer shall survive
the execution and delivery of this Agreement and the subsequent transfer of each
Financed Student Loan.
2. SERVICING OF FINANCED STUDENT LOANS
2.1 Duties of the Servicer in the Capacity of Servicer. The Servicer
covenants and agrees to service or cause to be serviced, each Financed Student
Loan in compliance with all requirements of the Act, the Guarantee Agreements
and all other applicable laws and regulations. The Servicer agrees to perform
all services and duties customary to the servicing of Student Loans, including
all collection practices and to do so in the same manner as the Servicer has
serviced Student Loans for parties other than the Issuer. Without limiting the
foregoing, in fulfillment of its obligations hereunder, the Servicer shall (or
its Subservicer shall):
(a) Maintain a complete and separate file for the Financed
Student Loans of each borrower, which file shall include all documentation and
correspondence related to the Financed Student Loans.
(b) Investigate Financed Student Loans that became delinquent and
establish and maintain systems for sending out statements, payment coupons and
charging and collecting late payment fees in accordance with provisions of the
Act and all other applicable laws and regulations.
(c) Perform the actions necessary to maintain the guarantee
and/or insurance on each Financed Student Loan at all times.
(d) Exercise "due diligence" as that term is defined in the Act
and in Section 5 hereof.
(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 the Financed Student
Loans and deliver all such payments to the Indenture Trustee for deposit into
the Revenue Fund established under the Indenture, including without limitation
guarantee payments, Interest Subsidy Payments and Special Allowance Payments
with respect to the Financed Student Loans. The Servicer shall remit collected
funds by automated clearing house within three (3) business days of receipt to
the Indenture Trustee. The Servicer shall also prepare reports and submit the
same to the Indenture Trustee and the Issuer or its designee within fifteen (15)
business days after the end of each quarter as required to assure payment by the
Secretary of Education of Interest Subsidy and Special Allowance Payments.
(g) Retain summary records of contacts, follow-ups and collection
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.
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(i) Prepare and transmit to the Issuer or its designee reports,
including but not limited to ED Form 799, required by the U. S. Department of
Education or any Guarantor regulations.
(j) In the case of defaulted Financed Student Loans, promptly
take the actions necessary to file and prove a claim for loss with the Guarantor
as required, and assume responsibility for communication and contact with the
Guarantor to accomplish recovery on such defaulted Financed Student Loans and
take all other actions required under the Act with respect to delinquent student
loans.
(k) At all times identify the Issuer and the Issuer's 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 Loan.
(l) Maintain a duplicate or copy of the file (which may be in the
form of computer tape, microfilm or other electronic image) for each Borrower at
an off-site location.
(m) Maintain the original file in fireproof cabinets or in other
fireproof storage.
(n) (i) Prepare and furnish servicer reports to the Issuer and
the Indenture Trustee Servicer Reports with respect to the Financed Student
Loans in the form attached hereto as Exhibit A on or before the ______ day of
each month; and (ii) prepare and furnish to the Issuer, the Administrator and
the Indenture Trustee by September 15 of each year, commencing September 15,
2004, reports with respect to the Financed Student Loans in the form attached
hereto as Exhibit B.
(o) Ensure the timely payment of taxes, accounting fees, outside
auditor fees, data processing costs and other costs incurred in servicing the
Financed Student Loans.
(p) The Servicer agrees that during the term of this Agreement it
shall notify the Indenture Trustee if for any reason it shall fail to remain
entitled to the insurance benefits provided under the Risk Management Program of
the Commonwealth of Pennsylvania which includes property and casualty and
employee misuse of funds coverage, and in such event, to the extent permitted by
applicable laws or regulation in the Commonwealth of Pennsylvania, it shall
obtain other insurance policies and coverage.
(q) Handle all required borrower contact functions and
immediately respond to any communication received which is in the nature of a
complaint. Promptly answer all inquiries from borrowers, the Indenture Trustee,
the Administrator, or the Issuer pertaining to the Financed Student Loans,
disbursements, refunds or school status. Such inquiries may, if necessary, be
referred to the educational institution the student attended or is attending.
The Servicer shall have no responsibility with respect to any dispute between
the student and the educational institution regarding tuition, fees or refunds.
(r) The Servicer may, in its discretion, establish and maintain a
method for charging and collecting late payment fees, provided such method is in
accordance with provisions of the Act and all other applicable laws and
regulations.
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(s) 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 the related Custody Agreement. The Servicer
agrees to enter into any reasonable custodian, bailment or similar agreement
reasonably required by the Issuer with respect to perfecting and protecting the
security interests of any secured party.
(t) If any Financed Student Loan has lost its guarantee and/or
insurance due to the actions of any prior originator, servicer or holder of the
Financed Student Loan, the Servicer will, at the written request of the Issuer,
the Administrator, or the Indenture Trustee, use its best efforts to reinstate
such guarantee or insurance; provided, however, that the Servicer makes no
representation that such reinstatement will occur. Such services shall be
provided at the cost agreed upon by the Issuer and the Servicer as defined in
Exhibit C under cure services.
(u) If requested by the Issuer, remit monthly rebate fees to the
U.S. Department of Education with respect to the Financed Student Loans. Upon
receipt of satisfactory documentation, the Issuer shall promptly wire transfer
to the Servicer or its designee, from amounts held under the Indenture, the
amount of funds required to pay such fees. The Servicer shall provide, or cause
to be provided to the Issuer, on a monthly basis, information needed to
determine the monthly rebate fees.
2.2 Reporting Requirements of Servicer. The Servicer shall provide
promptly to the Issuer and the Indenture Trustee such information and reports as
the either party may from time to time reasonably request, either in paper form,
stored on a CD-Rom, or via other electronic form.
(a) Within ___ (__) business days after the close of each month,
the Servicer shall deliver to the Indenture Trustee a statement indicating the
portion of the payments so deposited which represents (i) principal payments
with respect to Financed Student Loans, (ii) interest payments with respect to
Financed Student Loans, (iii) late charges with respect to Financed Student
Loans and (iv) insurance payments with respect to Financed Student Loans
(including a statement as to which portion of such payments represents principal
and which portion represents interest).
(b) The Servicer shall prepare and maintain all appropriate
accounting records with respect to all transactions related to each Financed
Student Loan, including, but not limited to, accounting for all payments of
principal, interest, loan origination fees, late fees and insurance payments for
each Financed Student Loan.
(c) So long as Notes are outstanding, the Servicer shall prepare
and furnish to the Indenture Trustee, within ___ (__) business days after the
close of each month, the following with respect to activity concerning each
Financed Student Loan during the preceding month:
(i) a breakdown as to the principal and interest paid on the
Financed Student Loans during the preceding month;
(ii) the principal balance of Financed Student Loans as of
the close of business on the last day of the preceding month;
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(iii) the pool balance of Financed Student Loans as of the
close of business on the last day of the preceding month;
(iv) the number and principal amount of Financed Student
Loans that are delinquent or for which claims have been filed with a guarantee
agency; and
(v) a summary report showing status (i.e., in school,
repayment, deferment) and the unpaid principal balance of each Financed Student
Loan as of the last day of such preceding month;
(vi) a report of Financed Student Loans paid in full during
such preceding month; and
(vii) a report specifying the number of and the aggregate
unpaid principal amount of claims made during such preceding month on defaulted
Financed Student Loans, the number and aggregate unpaid principal amount of
Financed Student Loans being serviced by the Servicer as of the last day of such
preceding month and the aggregate unpaid principal amount of defaulted Financed
Student Loans as of the last day of such preceding month.
(d) The Servicer shall maintain a duplicate or copy of the file
or record (which may be on microfilm, CD-Rom or in any other computer-readable
form) pertaining to each Financed Student Loan maintained as security under the
Indenture, at a location separate and apart from that at which the original of
such file is maintained.
2.3 Compliance Report. The Servicer agrees that it shall permit, not
more than once per year, the Issuer, the Indenture Trustee or either of their
designees 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.[ The
Servicer agrees to cause a certified public accounting firm to perform a review
of the Servicer's compliance with the terms of this Agreement in compliance with
the Uniform Single Attestation Program for Mortgage Bankers within 60 days after
the end of each fiscal year of the Issuer and to provide a copy of such firm's
report to the Indenture Trustee, the Administrator and the Issuer within 75 days
after the end of each fiscal year of the Issuer. The Servicer shall also execute
and deliver to the Administrator a certificate in the form of Exhibit D attached
hereto within 75 days after the end of each fiscal year of the Issuer.
Notwithstanding the foregoing, in the event that the content of the reports
required to be filed by the Issuer under Section 15(d) of the Exchange Act is
changed or the substance of the certification required to be filed with such
reports under Section 302 of the Sarbanes Oxley Act of 2002 is changed, the
Servicer agrees to deliver such reports and to execute and deliver such
certificates as are reasonably requested by the Issuer in order to comply with
such requirements and to do so on a timely basis.]
2.4 Servicing Fees.
(a) Subject to the terms of the Indenture, the Issuer shall pay
to the Servicer an annual fee, payable monthly, equal to (a) the end-of-month
Principal Balance of Financed Student Loans serviced by the Servicer during such
month, multiplied by (i) ________, divided by (ii) twelve, or (b) such other
amount as may be otherwise set forth in the related Supplemental Indenture with
respect to the Financed Student Loans collateralizing all of the Notes or any
individual series of Notes, as applicable.
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(b) The Issuer shall pay the Servicer, out of funds under the
Indenture, for such other services rendered by the Servicer at the request of
the Issuer which are not the customary functions contemplated to be performed by
the Servicer pursuant to this Agreement in such amount as agreed to by the
Servicer and the Issuer. Prior to complying with such a request, the Servicer
shall notify the Issuer and the Indenture Trustee if it has determined that such
request warrants payment of such fees.
(c) The Servicer may increase the fees, charges and expenses from
those set forth in Exhibit C hereto by giving at least ___________ (___) days
notice thereof to the Indenture Trustee, the Administrator and the Issuer,
provided that a Rating Confirmation has been received with respect thereto.
(d) The Servicer shall submit on a monthly basis an invoice
prepared in accordance with the terms of this Agreement to the Issuer, the
Administrator and the Indenture Trustee, and the Issuer shall cause the
Indenture Trustee to remit payment from fund held in the Revenue Fund
established under the Indenture for services performed as shown on that invoice.
(e) Payment is due to the Servicer within ____ (__) days after
receipt of the billing package. The billing package shall consist of an invoice
and supporting documentation.
(f) The Servicer acknowledges that the Issuer shall be entitled
to receive all payments of principal and interest 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 from Borrower payments any amounts that the Issuer is
permitted by law or regulation to assess with respect to late charges,
non-sufficient fund ("NSF") processing or other collection costs as additional
servicing compensation.
(g) If other costs beyond the control of the Servicer shall
increase, including, without limitation, postal rates, or the imposition of any
tax or assessment not currently being charged against the fees of the Servicer,
then the Servicer shall provide the Issuer with ____ (__) days prior written
notice (and including supporting documentation) of such proposed increased costs
and expenses. If the Issuer accepts such increased costs and expenses, the
increased costs and expenses will go into effect at the end of such _______ (__)
day period. If the Issuer objects to such fee increase and the Servicer fails to
agree to reduce or eliminate the increase in a manner satisfactory to the
Issuer, then an early termination will occur and the servicing of the Financed
Student Loans will be transferred to such successor servicer as the Issuer shall
designate at the Servicer's sole cost within ____________ (___) days of receipt
of said notice. No such early termination shall occur unless and until the
Issuer shall have entered into another agreement similar to this Agreement with
a successor servicer and a Rating Confirmation has been received with respect
thereto.
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(h) If the Servicer's costs and expenses are increased due to
changes in the manner of servicing the Financed Student Loans as a result of
changes in the Higher Education Act or the interpretation thereof or due to
changes in Guarantor requirements, then ________ (__) days after delivery of
written notice to the Issuer the Servicer may increase servicing fees payable
hereunder to reasonably reflect such costs and expenses. However, no such
increase shall take effect until the Servicer provides supporting documentation
to the Issuer that justifies such increase. In the event the parties do not
agree on the interpretation of the changes to the Higher Education Act, then
either party may terminate this Agreement upon _______ (__) days written notice
to the other party; provided, however, that this Agreement shall not be so
terminated by the Issuer unless and until the Issuer shall have entered into
another agreement similar to this with a successor servicer and a Rating
Confirmation has been received with respect thereto.
(i) If the Issuer believes the cost for services under this
Agreement is lowered by changes in regulations, law or processing, the Issuer
will submit a proposed fee schedule to the Servicer. If the Servicer does not
reject the schedule, the fees will go into effect _______ (__) days thereafter.
The Indenture Trustee shall pay to the Servicer, in its capacity as Servicer,
servicing fees in the following amounts and in the following manner: [ ______ ].
(j) The Servicer acknowledges that so long as the Notes are
outstanding, the Indenture Trustee contemplates paying all servicing fees
payable in this Section 2.4, from funds available for such purpose in the
Revenue Fund created under the Indenture, subject, however, to the priority of
other parties established and provided under the Indenture. To the extent that
there are funds in the Revenue Fund or if moneys are otherwise available
therefor, the Indenture Trustee will pay the Servicer 's fees in the manner
provided in the Indenture. The Indenture Trustee's liability under this
Agreement shall be limited to only that which is provided for under the
Indenture, and such liability shall at no time be deemed a general obligation of
the Indenture Trustee. The foregoing notwithstanding, the Servicer covenants and
agrees to be bound by the terms and provisions of this Agreement in all
respects, and to perform its obligations hereunder, regardless of the receipt or
nonreceipt by it of any payments in respect of servicing fees, subject to its
rights under Section 3.1 hereof to terminate this Agreement for nonpayment of
fees.
2.5 Servicer Covenants. The Servicer hereby covenants and agrees that
during the term of this Agreement:
(a) The Servicer will satisfy all of its obligations with respect
to the Financed Student Loans, 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 material
adverse effect on the interest of the Issuer or the Indenture Trustee.
(b) Except for delinquent loans with a remaining balance of less
than $50, 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.
(c) The Servicer will do nothing to impair the rights of the
Noteholders.
(d) 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 forebearance periods or otherwise in
accordance with all applicable standards and requirements for the servicing of
the Financed Student Loans.
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2.6 Confidential and Proprietary Information. During the term of this
Agreement and thereafter, each party and its respective agents and employees
will maintain the confidentiality of all flow charts, operations manuals,
servicing costs and information disclosed pursuant to, and contained in, this
Agreement or entrusted to it by the other party, except where disclosure is
required pursuant to the Indenture or by applicable law. In the event of
termination of this Agreement, each party will return to the other party such
confidential materials in its possession belonging to the other party, and will
not use or disclose any such confidential materials and/or information without
the prior written consent of the other party.
2.7 Servicer Default.
Each of the following constitute a "Servicer Default" hereunder:
(a) any failure by the Servicer to deliver to the Indenture
Trustee for deposit in any of the Trust Accounts any payment required by the
Basic Documents, 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 1.3 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, which breach or
failure shall (i) materially and adversely affect the rights of Noteholders or
any Derivative Product 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 the date 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 and the Eligible Lender Trustee by
Noteholders representing not less than 25% of the aggregate principal balance of
the Notes Outstanding; or
(c) an Event of Insolvency occurs with respect to the Servicer;
or
(d) any failure by the Servicer to comply with any requirements
under the Higher Education Act resulting in a loss of its eligibility as a
third-party servicer.
Servicer Default does not include any failure of the Servicer to
service a Financed Student Loan in accordance with the Higher Education Act, so
long as the Servicer is in compliance with its obligations under this Agreement
and as long as the Servicer has paid the amount of any payments lost as a result
of the Servicer's actions to the Indenture Trustee for the benefit of the
Noteholders.
2.8 Rights Upon Servicer Default.
In each and every case, so long as the Servicer Default has not been
remedied, either the Indenture Trustee, or the holders of Notes evidencing not
less than 25% of the aggregate principal balance of the Notes Outstanding, by
notice then given in writing to the Servicer (and to the Indenture Trustee and
the Eligible Lender Trustee if given by the Noteholders) may terminate all the
rights and obligations (other than the rights and obligations set forth in
Sections 3.1 and 3.2 hereof) of the Servicer under this Agreement. Only the
Indenture Trustee or the Noteholders, and not the Eligible Lender Trustee, will
have the ability to remove the Servicer if a Servicer Default occurs while the
Notes are Outstanding.
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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 transferred and processed as provided in
Section 3.2 hereof. The successor servicer will succeed to all the
responsibilities, duties and liabilities of the Servicer under this Agreement
and will be entitled to similar compensation arrangements. Notwithstanding the
provisions of this Agreement, in the event the Indenture Trustee is unable to
engage a successor servicer for the Financed Student Loans for the fees that are
payable to the Servicer under this Agreement, then the Indenture Trustee, with
the consent of the Administrator (which consent shall not be unreasonably
withheld or delayed), may increase the fees payable to such successor servicer
under this Agreement provided that a Rating Confirmation has been received with
respect thereto.
The Servicer shall cooperate with the successor servicer, the
Indenture Trustee and the Eligible Lender Trustee 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 pursuant to this
Agreement, 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 2.8 shall be paid
by the Servicer (other than in connection with the Indenture Trustee acting as
the servicer under this Section 2.8) 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. 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.
2.9 Waiver of Past Servicer Defaults.
The Noteholders evidencing a majority of the aggregate principal
balance of the Notes Outstanding, 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 (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 The Pennsylvania Higher Education Assistance
Agency, may be appointed, provided that a Rating Confirmation has been received
with respect thereto.
3. TERMINATION
3.1 Termination. This Agreement will terminate upon the occurrence of
the earlier of (i) the termination of the Indenture; (ii) early termination
pursuant to Sections 2.4(g) or (h) or Section 2.8 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 in accordance with Section 2.4(h), or 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 Sections 2.1 and 2.2 hereof, and
the representations and warranties in Section 1.3 and 1.4 shall survive any
termination of this Agreement and shall remain in effect for all Financed
Student Loans with respect to the time during which the Financed Student Loans
were serviced by the Servicer. The rights and obligations of the Servicer
contained in Section 3.2 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's 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.
3.2 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.
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4. MISCELLANEOUS
4.1 Amendments; Changes; Modifications. This Agreement (a) may be
amended, supplemented or modified only by written instrument duly executed by
the parties hereto; (b) shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns, and (c) except
as provided in Section 3.1 hereof, may not be terminated or assigned by any
party hereto without the prior written consent of the other party hereto. Any
succession as a result of merger or acquisition by either party shall not
require any assignment or written modification hereof, and any such successor
shall be considered as an original party hereto.
4.2 Right of Inspection. The Indenture Trustee, the Administrator and
the Owner Trustee (or any governmental agency having jurisdiction over any of
them) shall have the right, at any time and from time to time, during normal
business hours, at their own expense and upon reasonable notice to the Servicer,
to examine and review any and all of the Servicer 's records (including
electronic records in whatever form maintained) pertaining to any Financed
Student Loan.
4.3 Relationship of the Parties. The parties to this Agreement intend
that the Servicer shall render the services contemplated by this Agreement as an
independent contractor. The Servicer and its employees, agents and servants are
not to be considered agents or employees of the Indenture Trustee or the Owner
Trustee for any purpose whatsoever.
4.4 Documentation.
(a) The Servicer shall use its best efforts to obtain and shall
maintain custody of either i) the original promissory notes or, ii) in the event
that such original promissory notes cannot be located, copies of such promissory
notes certified to be a true and correct copy by the Servicer, evidencing the
Financed Student Loans. Alternatively, the Servicer shall maintain custody of
either a tape or CD-Rom containing an electronic imprint of all promissory notes
signed electronically in accordance with the Servicer 's Electronic Signature
Process. The Indenture Trustee shall deliver notes, copies or records thereof as
the Servicer reasonably advises is necessary to permit proper servicing
hereunder. Nothing in the foregoing shall require the Servicer to obtain Master
Promissory Notes relating to Financed Student Loans it has purchased from other
lenders if other lenders (i) retain or (ii) guarantee, all or any portion of the
student's payment obligation under such Master Promissory Note.
(b) The Servicer, as Servicer hereunder, shall maintain on its
origination and servicing system, referred to by the servicemark "Compass" (or
such successor system, together with attendant upgrades and updates, the
"Origination and Servicing System"), records clearly identifying each Financed
Student Loan as property of the Servicer pledged to the Indenture Trustee as
security for the Notes, including principal amount outstanding, type of loan,
name of student and indicators which identify whether the student utilized the
Servicer's Electronic Signature Process. The Servicer may combine documentation
and system records for each Master Promissory Note so long as the Servicer does
so in a manner which will ensure that each Financed Student Loan extended
pursuant to such Master Promissory Note may be separately identified and
transferred or sold. From time to time the Servicer shall, upon request of the
Indenture Trustee, submit such information and take such action as may be
reasonably required by the Indenture Trustee to assure that such Financed
Student Loans are maintained in a proper and secure condition.
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(c) Except as required by law, the Servicer shall maintain the
confidentiality of the information provided hereunder and shall not disclose or
in any way communicate such information to third parties without the express
written consent of the Indenture Trustee and the Issuer. The Servicer shall
provide a reasonably designed security system for access to original documents
and to its computer system.
4.5 Subordination of Agreement to Indenture: No Modification or
Amendment to Indenture.
(a) The duties or obligations of the Servicer, as Servicer and
the Indenture Trustee, to any party, arising under this Agreement are hereby
subordinated to the duties or obligations of the Servicer and the Indenture
Trustee established under or arising out of the Indenture.
(b) Neither this Agreement nor any provision contained herein
shall be or shall be deemed to be a modification of or an amendment to the
Indenture or to any covenant, obligation or duty of the Servicer or the
Indenture Trustee contained therein or arising therefrom.
4.6 Recordation of Agreement. Each party agrees that this Agreement,
or a memorandum of any portion or portions hereof, may be recorded in all
appropriate public offices for recording security agreements.
4.7 Limitation on Rights of Noteholders. No Noteholder shall have any
right to institute a suit with respect to this Agreement except as provided in
this Agreement and the Indenture and for the equal benefit of all Noteholders.
4.8 Governing Law. This Agreement shall be construed in accordance
with the laws of the Commonwealth of Pennsylvania, and the obligations, rights
and remedies of the parties hereunder shall be determined in accordance with
such laws.
4.9 Notices. All notices, certificates or other communications
hereunder shall be in writing and deemed given when delivered or five (5) days
after mailing by certified or registered mail, postage prepaid, return receipt
requested, addressed as set forth below:
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If intended for the Servicer:
Pennsylvania Higher Education Assistance Agency
0000 Xxxxx Xxxxxxx Xxxxxx, 0xx Xxxxx
Xxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxx, President &
Chief Executive Officer
or, if intended for the Issuer:
PHEAA Student Loan Trust I
c/o Wachovia Bank of Delaware, N.A.
One Xxxxxx Square
Suite 102, 000 Xxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Attention: _______________________
4.10 Severability. In the event any provision of this Agreement shall
be held invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provision hereof.
Such invalid or unenforceable provisions shall be amended, if possible, in
accordance with Section 3.1 hereof in order to accomplish the purposes of this
Agreement.
4.11 Further Assurances and Corrective Instruments. To the extent
permitted by law, the Indenture Trustee and the Servicer agree that each will,
from time to time, execute, acknowledge and deliver, or cause to be executed,
acknowledged and delivered, such supplements hereto and such further instruments
as may reasonably be required or appropriate to further express the intention of
the parties hereto or to facilitate the performance of this Agreement.
4.12 No Rights Conferred on Others. Nothing in this Agreement shall
confer any right upon any person other than the Servicer, the Issuer and the
Indenture Trustee and any of their lawful successors and assigns as provided
herein.
4.13 Limitation on Liability of Parties. Each party to this Agreement
shall be liable under this Agreement only to the extent that obligations are
imposed upon the party against whom enforcement is sought.
4.14 Limitation on Liability of Directors, Officers, Members,
Employees and Agents of a Party. No director, officer, member, employee or agent
of any party to this Agreement shall be liable to any other party or to the
Noteholders for the taking of any action or for refraining to take any action in
good faith pursuant to this Agreement.
4.15 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original; however, all such counterparts
shall together constitute one and the same instrument.
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4.16 Headings. The headings of the various sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed to
be a part of this Agreement.
4.17 Gender. Words of any gender used in this Agreement shall be held
and construed to include any other gender, and words in the singular shall be
held and construed to include the plural, unless this Agreement or the context
otherwise requires.
4.18 Forms and Report. All forms of Financed Student Loan documents
and reports required by this Agreement will be prescribed as the Indenture
Trustee shall reasonably deem appropriate, provided the Servicer is reasonably
able to provide such reports without incurring material additional expense or
such documents and reports are reasonably available to the Servicer.
4.19 Assignment to Trustee. The Issuer has, simultaneously with the
delivery of the Notes, assigned its interest in and pledged any moneys received
under this Agreement to the Indenture Trustee as security for the payment of the
principal of and interest on the Notes.
4.20 Effect of New Law. The Servicer shall be relieved from the
performance of any obligation imposed upon the Servicer by this Agreement if
performance by the Servicer is prohibited because of a change in any existing
law or the enactment of any new law, in each case effective after the date of
this Agreement, including without limitation any law pertaining to the Act and
all rules, regulations and interpretations of the Federal Deposit Insurance
Corporation, the Comptroller of the Currency, the Board of Governors of the
Federal Reserve System or any other state or federal regulatory Servicer.
4.21 Payment of Expenses. The Servicer shall pay its own expenses
incurred in connection with the preparation, execution and delivery of this
Agreement and the transactions herein contemplated, including but not limited to
the fees and expenses of legal counsel. Expenses of the Indenture Trustee shall
be paid in accordance with the applicable provisions of the Indenture.
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IN WITNESS WHEREOF, this Agreement has been executed as of the day and
year first above written.
PENNSYLVANIA HIGHER EDUCATION
ASSISTANCE AGENCY, as Servicer
BY:
------------------------------------------
Xxxxxxx X. Xxxxxx
President and Chief Executive Officer
PHEAA STUDENT LOAN TRUST I, as Issuer
BY:
------------------------------------------
Wachovia Bank of Delaware, National
Association, in its capacity as Owner
Trustee
By:
--------------------------------------
President and Chief Executive Officer
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