IOWA STUDENT LOAN LIQUIDITY CORPORATION · We have audited the accompanying statements of net assets of Iowa Student Loan Liquidity Corporation (the Corporation) as of June 30, 2011

IOWA STUDENT LOAN LIQUIDITY CORPORATION

Financial Statements

June 30, 2011 and 2010

(With Independent Auditors’ Reports Thereon)


Table of Contents

Page(s)

Independent Auditors’ Report 1

Management’s Discussion and Analysis 3 – 9

Financial Statements:

Statements of Net Assets 10

Statements of Revenues, Expenses, and Changes in Net Assets 11

Statements of Cash Flows 12

Notes to Financial Statements 13 – 47

Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 48 – 49

Independent Auditors’ Report

The Board of Directors

Iowa Student Loan Liquidity Corporation

Des Moines, Iowa:

We have audited the accompanying statements of net assets of Iowa Student Loan Liquidity Corporation

(the Corporation) as of June 30, 2011 and 2010, and the related statements of revenue, expenses, and

changes in net assets and cash flows for the years then ended. These financial statements are the

responsibility of the Corporation’s management. Our responsibility is to express an opinion on these

financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of

America and the standards applicable to financial audits contained in Government Auditing Standards,

issued by the Comptroller General of the United States. Those standards require that we plan and perform

the audit to obtain reasonable assurance about whether the financial statements are free of material

misstatement. An audit includes consideration of internal control over financial reporting as a basis for

designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing

an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly,

we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the

amounts and disclosures in the financial statements, assessing the accounting principles used and

significant estimates made by management, as well as evaluating the overall financial statement

presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the

financial position of Iowa Student Loan Liquidity Corporation as of June 30, 2011 and 2010, and the

changes in its net assets and its cash flows for the years then ended, in conformity with U.S. generally

accepted accounting principles.

In accordance with Government Auditing Standards, we have also issued a report dated October 25, 2011

on our consideration of the Corporation’s internal control over financial reporting and on our tests of its

compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters.

The purpose of that report is to describe the scope of our testing of internal control over financial reporting

and compliance and the results of that testing, and not to provide an opinion on the internal control over

financial reporting or on compliance. That report is an integral part of an audit performed in accordance

with Government Auditing Standards and should be considered in assessing the results of our audit.

KPMG LLP 2500 Ruan Center 666 Grand Avenue Des Moines, IA 50309

KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative (“KPMG International”), a Swiss entity.

2

The management’s discussion and analysis on pages 3 through 9 is not a required part of the basic financial

statements but is supplementary information required by U.S. generally accepted accounting principles.

We have applied certain limited procedures, which consisted principally of inquiries of management

regarding the methods of measurement and presentation of the management discussion and analysis

information. However, we did not audit the information and express no opinion on it.

Des Moines, Iowa

October 25, 2011


Management’s Discussion and Analysis

June 30, 2011 and 2010

3 (Continued)

This section of the Iowa Student Loan Liquidity Corporation’s (the Corporation) annual financial statements

presents management’s discussion and analysis of the financial position and results of operations for the fiscal

years ended June 30, 2011 (FY11) and 2010 (FY10). This information is being presented to provide additional

information regarding the activities of the Corporation, pursuant to the requirements of Governmental

Accounting Standards Board Statement No. 34, Basic Financial Statements – and Management’s Discussion and

Analysis – for State and Local Governments; Statement No. 37, Basic Financial Statements – and Management’s

Discussion and Analysis – for State and Local Governments: Omnibus; and Statement No. 38, Certain Financial

Statement Note Disclosures. This discussion and analysis should be read in conjunction with the independent

auditors’ report of KPMG LLP, the financial statements, and the accompanying notes.

Financial Highlights

The Corporation purchased or originated over $29 million in student loans under both its own and serviced

portfolios.

Retired or redeemed over $344 million in bonds and notes payable resulting in a net gain of $11 million.

Sold over $149 million in student loans to the U.S. Department of Education through the Ensuring

Continued Access to Student Loan Act (ECASLA) programs.

Overview of the Financial Statements

The financial statements consist of management’s discussion and analysis (this section) and the basic financial

statements. The basic financial statements include statements of net assets; statements of revenues, expenses, and

changes in net assets; statements of cash flows; and notes to financial statements section. Each of the basic

financial statements describes information for the following major funds:

General Fund

Student Loan Purchase Program Fund

While the various funds of the Corporation are grouped together for convenience, the combined assets are

available only in accordance with the applicable bond resolutions, federal and Iowa laws, and other outstanding

agreements.

The statements of net assets present information on all of the Corporation’s assets and liabilities with the

difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a

useful indicator of whether the financial position of the Corporation is improving or deteriorating.

The statements of revenues, expenses, and changes in net assets present information showing how the

Corporation’s net assets changed during FY11 and FY10.

The statements of cash flows report the cash receipts, cash payments, and net changes in cash resulting from

operations, capital and noncapital financing activities, and investing activities.



June 30, 2011 and 2010

4 (Continued)

Condensed Financial Information

The following tables present condensed financial information for FY11, FY10, and FY09 for the Corporation as

a whole. The financial information includes net assets and revenues, expenses, and changes in net assets.

Net Assets

June 30, 2011, 2010, and 2009

(In millions of dollars)

2011 2010 2009

Assets:

Cash $ 7.4 8.9 6.7

Investments 366.6 271.2 314.3

Student loans receivable, net 2,959.1 3,384.4 3,624.2

Accrued interest receivable 31.0 46.4 56.6

Other receivables 6.6 5.3 6.4

Prepaid and deferred expenses 21.2 26.8 32.5

Capital assets, net 5.8 5.3 5.8

Total assets $ 3,397.7 3,748.3 4,046.5

Liabilities:

Accounts payable and accrued expenses $ 6.0 6.9 7.2

Deferred origination fees 21.0 25.4 30.2

Accrued interest payable 1.7 1.9 1.9

Arbitrage rebate liability 23.5 18.6 8.4

Notes payable 554.2 798.0 210.1

Bonds payable 2,515.4 2,633.8 3,576.0

Total liabilities 3,121.8 3,484.6 3,833.8

Net assets:

Invested in capital assets 5.8 5.3 5.8

Restricted, student loan purchase program 151.5 135.7 91.5

Unrestricted, board designated 118.6 122.7 115.4

Total net assets 275.9 263.7 212.7

Total liabilities and net assets $ 3,397.7 3,748.3 4,046.5



June 30, 2011 and 2010

5 (Continued)

Revenues, Expenses, and Changes in Net Assets

Years ended June 30, 2011, 2010, and 2009

(In millions of dollars)

2011 2010 2009

Operating revenues:Investment income $ 0.1 0.6 1.8 Net decrease in fair market value of

investments — — (22.7) Student loan interest income 97.9 106.9 174.0 Other student loan revenue 7.3 7.6 5.4 Other income 3.9 4.6 4.6 Gain on extinguishment of debt 10.8 56.7 —

Total operating revenues 120.0 176.4 163.1

Operating expenses (income):Interest on bonds and notes payable 43.1 43.7 69.3 Amortization of gain on refunding of bonds (24.3) (20.3) — Debt-related expenses 3.5 6.3 3.4 General and administrative 58.7 62.8 62.5 Provision for loan losses 26.8 32.9 32.8

Total operating expenses 107.8 125.4 168.0

Operating income (loss) 12.2 51.0 (4.9)

Net assets at beginning of year 263.7 212.7 217.6

Net assets at end of year $ 275.9 263.7 212.7

Financial Analysis – 2011

Total Assets – Total assets ended in FY11 at $3.4 billion, a decrease of 9.35% ($350.5 million) as compared to

the FY10 amount of $3.7 billion. Cash and investments increased 33.53% ($93.9 million) compared to FY10.

Most of this increase is due to the accumulation of student loan principal and interest receipts in excess of the use

of cash for operating expenses, debt services, and loan funding. This increase was partially offset from the use of

cash towards the early redemption of outstanding debt.

Total net student loans receivable decreased 12.57% ($425.4 million) as compared to FY10. The Corporation

purchased or originated $18.6 million in student loans under its own portfolio during FY11, a decrease of

88.92% ($149.2 million) from FY10.

Total Liabilities – Total liabilities decreased 10.41% ($362.7 million) as compared to FY10. This change is

predominantly due to a decrease in overall debt outstanding through early redemption and maturities. The

Corporation redeemed debt totaling $65.3 million and bond and note maturities totaled $278.8 million.

U.S. Department of Education notes totaling $152.2 million were paid off. Deferred unamortized gain on

refunding of bonds decreased 27.91% ($24.3 million) due to amortization. Deferred revenue (related to private



June 30, 2011 and 2010

6 (Continued)

loans) decreased 17.18% ($4.4 million) compared to FY10 primarily due to fee amortization. Unamortized

prepaid cost of issuance expenses decreased 11.34% ($1.5 million).

Net Assets – Net assets of the Corporation increased 4.63% ($12.2 million) during FY11 to $275.9 million from

an ending FY10 balance of $263.7 million. Positive net interest margins, improved debt related costs, lower

operating expenses, and realized gains on early redemptions of debt all contributed.

Total Operating Revenues – The Corporation earned $109.2 million in total operating revenues during FY11, a

decrease of 8.73% ($10.5 million) from FY10, excluding gain on extinguishment of debt of $10.8 million.

Investment interest income was down compared to FY10 due to continued stress in the capital markets and a

related decline in investment yields. Student loan interest income decreased 8.43% ($9.0 million) compared to

FY10. The Corporation’s owned student loan portfolio fell by 11.38% ($394.1 million) in FY11. The single

largest transaction having the biggest impact was an ECASLA Participation PUT to the Department of

Education. Less APO Liability was recorded against student loan interest income in FY 11 compared to FY 10.

Total Operating Expenses – The Corporation’s total operating expenses for FY11 decreased 13.99%

($17.6 million) from FY10. Total interest expense on bonds and notes during FY11 decreased 1.35%

($0.6 million) from FY10. The Corporation’s overall outstanding debt decreased by 10.25% ($344.2 million)

when compared to FY10. The FY11 amortization of the gain of refunding of bonds recorded in FY11 was

$24.3 million. The provision for loan losses (related primarily to private loans) decreased in FY11 by 18.74%

($6.1 million) when compared to FY10. This decrease is mainly due to a more seasoned repayment portfolio and

holding overall delinquencies at historical levels.

Total Operating Income – The Corporation’s change in net assets decreased during FY11 by $38.8 million

below FY10.



June 30, 2011 and 2010

7 (Continued)

Major Financing and Long-Term Debt Activity

The following list details the major financing activity of the Corporation during FY11:

Date Amount Type of activity

Various $ 4,016,732 Net borrowing under the U.S. Department of Education’sFFELP loan participation program.

7/26/2010 5,468,587 Principal payment on notes outstanding.7/28/2010 2,800,000 Early redemption of principal on bonds outstanding.7/29/2010 24,575,000 Early redemption of principal on bonds outstanding.8/25/2010 4,598,367 Principal payment on notes outstanding.9/27/2010 12,236,390 Principal payment on bonds outstanding.9/27/2010 6,469,601 Principal payment on notes outstanding.9/30/2010 850,000 Early redemption of principal on bonds outstanding.

10/15/2010 152,204,198 Principal payment on participation interests outstandingunder U.S. Department of Education’s FFELP loanparticipation program.

10/18/2010 550,000 Early redemption of principal on bonds outstanding.10/25/2010 6,266,265 Principal payment on notes outstanding.10/29/2010 28,300,000 Early redemption of principal on bonds outstanding.11/26/2010 5,628,943 Principal payment on notes outstanding.12/1/2010 5,000,000 Principal payment on bonds outstanding.

12/21/2010 3,000,000 Early redemption of principal on bonds outstanding.12/27/2010 11,595,494 Principal payment on bonds outstanding.12/27/2010 5,453,527 Principal payment on notes outstanding.1/25/2011 4,857,117 Principal payment on notes outstanding.2/25/2011 5,852,145 Principal payment on notes outstanding.3/22/2011 2,550,000 Early redemption of principal on bonds outstanding.3/25/2011 12,073,097 Principal payment on bonds outstanding.3/25/2011 7,679,891 Principal payment on notes outstanding.4/5/2011 2,700,000 Early redemption of principal on bonds outstanding.

4/25/2011 7,079,024 Principal payment on notes outstanding.5/25/2011 7,500,551 Principal payment on notes outstanding.6/27/2011 12,912,940 Principal payment on bonds outstanding.6/27/2011 5,922,522 Principal payment on notes outstanding.

Financial Analysis – 2010

Total Assets – Total assets ended in FY10 at $3.7 billion, a decrease of 7.37% ($298.2 million) as compared to

the FY09 amount of $4.0 billion. Cash and investments decreased 12.70% ($40.8 million) compared to FY09.

Throughout the year, the Corporation experienced an accumulation of cash student loan principal and interest

receipts and loan servicing revenue in excess of normal expenditures for operating expenses, debt service, and

loan funding. An offset to this increase was the use of cash towards the early redemption of outstanding debt.

Total net student loans receivable decreased 6.62% ($239.9 million) as compared to FY09. The Corporation

purchased or originated $167.8 million in student loans under its own portfolio during FY10, a decrease of

8.31% ($15.2 million) under FY09.



June 30, 2011 and 2010

8 (Continued)

Total Liabilities – Total liabilities decreased 9.11% ($349.2 million) as compared to FY09. This change is

predominantly due to a decrease in overall debt outstanding through early redemption and maturities. The

Corporation redeemed debt totaling $1.1 billion resulting in a deferred gain on refunding of $87.2 million. Bond

and note maturities totaled $195.2 million. U.S. Department of Education notes totaling $137.6 million were paid

off. The Corporation utilized additional ECASLA facilities (Conduit and Participation) that added new debt

totaling a net $709.9 million. Additional bonds were issued during FY10 totaling $230.2 million. Deferred

revenue (related to private loans) decreased 15.89% ($4.8 million) compared to FY09 primarily due to fee

amortization. Unamortized prepaid cost of issuance expenses decreased 15.02% ($2.4 million).

Net Assets – Net assets of the Corporation increased 23.98% ($51.0 million) during FY10 to $263.7 million

from an ending FY09 balance of $212.7 million. Positive net interest margins and improved debt related costs

contributed positively to net assets FY10. The Corporation realized gains on early redemptions of debt.

Total Operating Revenues – The Corporation earned $119.7 million in total operating revenues during FY10, a

decrease of 26.65% ($43.5 million) from FY09 excluding gain on extinguishment of debt of $56.7 million.

Investment interest income was down compared to FY09 due to continued stress in the capital markets and a

related decline in investment yields. Student loan interest income decreased 38.56% ($67.1 million) compared to

FY09 due to an overall decline in student loan interest rates experienced during FY10. In addition, the

Corporation’s owned student loan portfolio fell by 5.52% ($202.4 million) in FY10. Student loan interest income

decreased during FY10 due to the impact of additional APO liability expense. Additional fee revenue from the

Department of Education Participation Put transaction was realized in FY10.

Total Operating Expenses – The Corporation’s total operating expenses for FY10 decreased 25.41%

($42.6 million) from FY09. Total interest expense on bonds and notes during FY10 decreased 36.96%

($25.6 million) from FY09. A more favorable interest rate environment has contributed to the positive outcome.

In addition, the Corporation’s overall outstanding debt decreased by 11.71% ($445.3 million) when compared to

FY09. The FY10 amortization of the gain of refunding of bonds recorded in FY10 was $20.3 million.

Debt-related expenses increased 82.90% ($2.9 million) in FY10. This is the result of expense credits recorded in

FY09 that were not repeated in FY10.

Total Operating Income – The Corporation’s change in net assets increased during FY10 by $55.9 million

above FY09.



June 30, 2011 and 2010

9

Major Financing and Long-Term Debt Activity

The following list details the major financing activity of the Corporation during FY10:

Date Amount Type of activity

Various $ 152,155,516 Net borrowing under the U.S. Department of Education’sFFELP loan participation program.

Various 561,755,505 Net borrowing under the U.S. Department of Education’sConduit Program

8/5/2009 17,000,000 Early redemption of principal on bonds outstanding.9/1/2009 577,000,000 Early redemption of principal on bonds outstanding.9/8/2009 50,000,000 Early redemption of principal on bonds outstanding.

9/25/2009 12,584,999 Principal payment on bonds outstanding.9/30/2009 75,890,000 Principal payment on notes outstanding.

10/14/2009 137,571,960 Principal payment on participation interests outstandingunder U.S. Department of Education’s FFELP loanparticipation program.

11/18/2009 230,170,000 New issue – tax-exempt student loan revenue bonds12/18/2009 189,925,000 Early redemption of principal on bonds outstanding.12/28/2009 13,680,295 Principal payment on bonds outstanding.2/1/2010 138,650,000 Early redemption of principal on bonds outstanding.

3/25/2010 13,686,467 Principal payment on bonds outstanding.3/31/2010 1,500,000 New issue – promissory note used to fund private loans. Payment

of principal and interest backed by school guarantee.4/30/2010 114,350,000 Early redemption of principal on bonds outstanding.5/21/2010 3,600,000 Early redemption of principal on bonds outstanding.6/1/2010 31,100,000 Principal payment on bonds outstanding.

6/25/2010 15,640,390 Principal payment on bonds outstanding.


Statements of Net Assets

June 30, 2011 and 2010

Assets 2011 2010

Current assets: Cash (note 2) $ 7,428,437 8,946,958 Assets held by trustee (substantially restricted) (note 3):

Investments (note 2) 354,676,281 253,851,295 Student loans receivable, net (note 3) 144,524,150 206,669,436 Student loans held-for-sale — 147,964,747 Accrued interest receivable 9,292,387 13,777,365

Other receivables 6,634,013 5,279,745 Prepaid and deferred expenses 6,178,419 7,314,466

Total current assets 528,733,687 643,804,012

Noncurrent assets:Assets held by trustee (substantially restricted) (note 3):

Investments (note 2) 11,967,531 17,336,187 Student loans receivable, net (note 3) 2,814,530,930 3,029,787,499 Accrued interest receivable 21,746,260 32,608,420

Prepaid and deferred expenses 14,924,121 19,412,960 Capital assets, net of accumulated depreciation and amortization 5,837,245 5,336,473

Total noncurrent assets 2,869,006,087 3,104,481,539 Total assets $ 3,397,739,774 3,748,285,551

Liabilities and Net Assets

Current liabilities:Other accounts payable and accrued expenses $ 6,001,001 6,926,443 Deferred origination fees 3,785,474 4,047,214 Accrued interest payable 1,671,175 1,912,790 Notes payable, net (note 4) 83,599,346 172,228,659 Bonds payable, net (note 4) 52,827,506 78,240,950

Total current liabilities 147,884,502 263,356,056

Noncurrent liabilities:Deferred origination fees 17,221,860 21,318,499 Arbitrage rebate liability (note 6) 23,547,900 18,562,600 Notes payable, net (note 4) 470,573,343 625,719,849 Bonds payable, net (note 4) 2,462,570,274 2,555,588,123

Total noncurrent liabilities 2,973,913,377 3,221,189,071

Total liabilities 3,121,797,879 3,484,545,127

Commitments and contingencies (notes 5, 6, and 7)

Net assets (note 9):Invested in capital assets 5,837,245 5,336,473 Restricted, student loan purchase program 151,466,137 135,720,996 Unrestricted, board designated 118,638,513 122,682,955

Total net assets 275,941,895 263,740,424 Total liabilities and net assets $ 3,397,739,774 3,748,285,551

See accompanying notes to financial statements.

10


Statements of Revenues, Expenses, and Changes in Net Assets

Years ended June 30, 2011 and 2010

2011 2010

Operating revenues:Investment income $ 90,317 561,360 Student loan interest income 97,892,092 106,907,959 Other student loan revenue 7,308,861 7,578,796 Other income 3,925,219 4,619,383 Gain on extinguishment of debt 10,787,673 56,745,262

Total operating revenues 120,004,162 176,412,760

Operating expenses (income):Interest on bonds and notes payable 43,091,762 43,681,281 Amortization of gain on refunding of bonds (24,339,453) (20,282,878) Debt-related expenses 3,495,273 6,260,643 General and administrative 58,780,414 62,725,696 Provision for loan losses (note 3) 26,774,695 32,949,992

Total operating expenses 107,802,691 125,334,734

Operating income 12,201,471 51,078,026

Net assets, beginning of year 263,740,424 212,662,398 Net assets, end of year $ 275,941,895 263,740,424


11


Statements of Cash Flows

Years ended June 30, 2011 and 2010

2011 2010

Cash flows from operating activities: Principal receipts on student loans $ 307,149,884 291,126,660 Interest receipts on student loans 71,182,174 70,640,948 Purchases of student loans (18,596,162) (167,785,716)Cash receipts (refunds) for fees, net (37,416) 46,171 Payments to employees (15,494,937) (14,588,762)Payments to vendors (30,230,129) (36,601,523)Other 7,307,180 10,661,957

Net cash provided by operating activities 321,280,594 153,499,735

Cash flows from capital and related financing activities:Acquisition of capital assets (2,776,161) (1,799,894)Proceeds from issuance of bonds — 230,170,000 Repayment of bonds (108,071,921) (1,009,178,896)Interest paid on bonds (43,490,179) (41,611,225)Proceeds from issuance of notes 5,197,536 767,308,180 Repayment of notes (75,855,181) (130,104,075)Payments for debt service costs (2,584,980) (3,527,179)Payments for bond issuance costs 164,360 (4,026,239)

Net cash used in capital and related financing activities (227,416,526) (192,769,328)

Cash flows from investing activities:Interest received on investments 73,741 98,716 Arbitrage payments — (1,599,010)Maturities of investments 5,368,656 5,353,563

Net cash provided by investing activities 5,442,397 3,853,269

Net increase (decrease) in cash and cash equivalents 99,306,465 (35,416,324)

Cash and cash equivalents, beginning of year 262,798,253 298,214,577 Cash and cash equivalents, end of year $ 362,104,718 262,798,253

Reconciliation of operating income to cash provided by operating activities:Operating income $ 12,201,471 51,078,026 Adjustments to reconcile operating income to net cash provided by

operating activities:Depreciation and amortization on capital assets 2,238,438 2,140,613 Amortization of prepaid origination fees 5,062,155 5,406,014 Interest income from investments (90,317) (561,360)Amortization of gain on refunding of bonds (24,339,453) (20,282,878)Gain on extinguishment of debt (10,787,673) (56,745,262)Interest expense on bonds and notes payable 43,091,762 43,681,281 Debt-related expenses 3,495,273 6,260,643 Decrease in student loans receivable 276,211,177 104,485,566 Decrease in student loan interest receivable 15,341,714 10,205,034 (Increase) decrease in other receivables (1,354,270) 1,009,267 Disposal of capital assets 1,367 182,600 Increase in employee – and vendor-related prepaid and deferred expense 510,278 60,790 Decrease in other accounts payable and accrued expenses (950,251) (801,955)Decrease in deferred origination fees (4,358,377) (4,886,024)Increase in arbitrage rebate liability 5,007,300 12,267,380

Net cash provided by operating activities $ 321,280,594 153,499,735

Supplemental disclosure of non-cash activity:Decrease in student loans receivable due to ECASLA put 149,155,422 135,410,920 Decrease in notes payable due to ECASLA put 149,155,422 135,410,920


12


Notes to Financial Statements

June 30, 2011 and 2010

13 (Continued)

(1) Organization and Summary of Significant Accounting Policies

(a) Reporting Entity

The Iowa Student Loan Liquidity Corporation (the Corporation) was incorporated in 1979 as a

private nonprofit corporation for the purpose of providing funds for the acquisition of student loan

notes incurred under the United States Higher Education Act of 1965, as amended, and to provide

procedures for servicing such notes.

ISL Service Corp. (SC), a wholly owned subsidiary of the Corporation, was incorporated in 2001 to

provide services not related to the Corporation’s nonprofit purpose. SC has developed systems and

procedures for loan origination and disbursement related processes including supporting the

functions of electronic data transmissions management, Web reporting, loan information delivery,

and centralized loan disbursement services. SC also provides on-going portfolio servicing for

student loan portfolios not owned by the Corporation.

The Corporation’s board of directors is appointed by the Governor of the State of Iowa. The State of

Iowa’s accountability does not extend beyond the appointment of the board of directors, and

therefore, the Corporation is not a component unit of the State of Iowa. Pursuant to Section 7C.4A(3)

of the Code of Iowa, the Corporation has the ability to directly issue debt that pays interest, which is

exempt from federal taxation.

Pursuant to the action of the Legislature of the State of Iowa, the Corporation is also empowered to

finance and originate alternative education loans in addition to those permitted under the United

States Higher Education Act of 1965.

The Corporation has no taxing authority. Bonds and notes issued do not constitute a debt, liability of,

obligation of, or a pledge of the faith and credit of the State of Iowa or any agency or political

subdivision thereof. There are no other organizations or agencies whose financial statements should

be combined and presented with those of the Corporation.

(b) Basis of Presentation

The accompanying financial statements of the Corporation have been prepared in conformity with

U.S. generally accepted accounting principles (GAAP).

(c) Basis of Accounting and Accounting Estimates

The accounting and financial reporting treatment applied is the economic resources measurement

focus and the accrual basis of accounting. Under this method, revenues are reported when earned and

expenses are reported at the time liabilities are incurred, regardless of when the related cash flows

take place. The Corporation has elected to apply all applicable Governmental Accounting Standards

Board (GASB) pronouncements, as well as Financial Accounting Standards Board (FASB)

pronouncements, including those issued on or before November 30, 1989, unless those

pronouncements conflict or contradict GASB pronouncements. In preparing the accompanying

financial statements, management is required to make estimates and assumptions that affect the

reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date



June 30, 2011 and 2010

14 (Continued)

of the financial statements and the reported amounts of revenues and expenses during the reporting

period. Actual results could differ from those estimates.

(d) Cash Equivalents

For purposes of the statements of cash flows, all highly liquid investments with maturity of

three months or less when purchased are considered to be cash equivalents. This includes United

States government and agency obligations, corporate notes and bonds, and various money market

funds.

(e) Investments

The Corporation carries its investments at fair value based on available market prices. Changes in

fair value are recorded in the statements of revenues, expenses, and changes in net assets. Interest on

investments is accrued and credited to interest income.

(f) Student Loans Receivable

Student loans consist of federally insured student loans and alternative (nonfederally insured) student

loans. If the Corporation has the ability and intent to hold loans for the foreseeable future, such loans

are held for investment and carried at amortized cost. Amortized cost includes the unamortized

premiums and capitalized origination costs and fees, all of which are amortized to interest income.

Loans which are held-for-investment also have an allowance for loan loss as needed. Any loans the

Corporation has the ability and intent to sell are classified as held for sale and are carried at the lower

of cost or fair value. Loans which are held-for-sale do not have the associated premium and

origination costs and fees amortized into interest income.

In 2010, the Corporation elected to sell FFELP loans financed under the Department of Education’s

Participation Program. In August 2008, the Department implemented the Purchase Program and the

Participation Program pursuant to the Ensuring Continued Access to Student Loans Act of 2008

(ECASLA). Under the Participation Program, the Department provided interim short-term liquidity

to FFELP lenders by purchasing participation interests in pools of FFELP loans. Loans funded under

the Participation Program for the 2009-2010 academic year were required to be either refinanced by

the lender or sold to the Department pursuant to the Purchase Program prior to September 30, 2010.

As of June 30, 2010, the Corporation had approximately $147,964,747 of FFELP loans funded using

the Participation Program. Because the Corporation maintained control of the loans, they remained

on the balance sheet at June 30, 2010, and the Corporation recognized a liability equal to the amount

of cash received for the participating interest. These loans were sold to the Department under its

Purchase Program in October 2010. The loans were sold at par plus accrued interest, and accordingly

no gain or loss was recognized on sale.

(g) Allowance for Losses on Loans and Uncollected Interest

The allowance for loan losses represents management’s estimate of probable losses on student loans.

This evaluation process is subject to numerous estimates and judgments. The Corporation evaluates

the adequacy of the allowance for loan losses on its federally insured loan portfolio separately from

its nonfederally insured loan portfolio.



June 30, 2011 and 2010

15 (Continued)

The allowance for the federally insured loan portfolio is based on periodic evaluations of the

Corporation’s loan portfolios considering past experience, trends in student loan claims rejected for

payment by guarantors, changes to federal student loan programs, current economic conditions, and

other relevant factors. The federal government currently guarantees 97% of the principal of and the

interest on federally insured student loans disbursed on and after July 1, 2006 (and 98% for those

loans disbursed prior to July 1, 2006), which limits the Company’s loss exposure on the outstanding

balance of the Corporation’s federally insured portfolio. Student loans disbursed prior to October 1,

1993 are fully insured.

In determining the adequacy of the allowance for loan losses on the alternative loans, the

Corporation considers several factors including: loans in repayment versus those in a nonpaying

status, delinquency status, type of program, and trends in defaults in the portfolio based on

Corporation and industry data. The Corporation places an alternative loan on nonaccrual status when

the terms of a loan are restructured, and the Corporation does not resume accrual of interest. Cash

receipts on nonaccrual loans are first applied to any accrued and unpaid interest before being applied

to principal. Student loans are charged off in the event of a borrower’s death, permanent disability, or

amounts representing the unguaranteed portion of FFEL loans. At June 30, 2011 and 2010, loans

totaling $39,376,237 and $42,022,592 were greater than 90 days past due and accruing interest. The

Corporation assesses accrued and unpaid student loan interest for collectability, and reverses student

loan interest income in the period in which it is determined that collection is doubtful.

The evaluation of the allowance for loan losses is inherently subjective, as it requires material

estimates that may be subject to significant changes. The provision for loan losses reflects the

activity for the applicable period and provides an allowance at a level that the Corporation’s

management believes is adequate to cover probable losses inherent in the loan portfolio.

(h) Revenue Recognition

Loan interest is paid by the Department or the borrower, depending on the status of the loan at the

time of the accrual. In addition, the Department makes quarterly interest subsidy payments on certain

qualified FFELP loans until the student is required under the provisions of the Higher Education Act

to begin repayment.

The Department provides a special allowance to lenders participating in the FFEL Program. The

special allowance is accrued based upon the fiscal quarter average rate of 13-week Treasury Bill

auctions (for loans originated prior to January 1, 2000) or the fiscal quarter average rate of daily H15

financial commercial paper rates (for loans originated on and after January 1, 2000) relative to the

yield of the student loan.

The Corporation recognizes student loan income as earned, net of amortization of loan premiums and

deferred origination costs. Loan income is recognized based upon the expected yield of the loan after

giving effect to borrower utilization of incentives such as timely payments (borrower benefits) and

other yield adjustments. Loan premiums, deferred origination costs, and borrower benefits are

amortized over the estimated life of the loan.



June 30, 2011 and 2010

16 (Continued)

(i) Loan Origination Costs

Loan origination costs and premiums paid are deferred if material, and the net cost or premium is

recognized as an adjustment to interest income over life of the loans, using the effective-interest

method.

(j) Prepaid Origination Fees

The U.S. Department of Education requires all lenders to withhold from the loan proceeds a federal

loan origination fee on the principal amount of the loan. As a borrower benefit, the Corporation pays

these fees on behalf of the student borrower. This fee is capitalized and amortized over the estimated

life of the loan. Unamortized loan origination fees are included with prepaid and deferred expenses

within the statements of net assets. If these fees had been directly expensed in the period paid, the

Corporation’s net assets would have been reduced by an equal amount. A summary of loan

origination fee activity for the years ended June 30, 2011 and 2010 is as follows:

2011 2010

Accumulated fees paid $ 54,726,898 54,733,846 Less accumulated amortization (37,630,444) (32,568,316)

Unamortized balance, end of year $ 17,096,454 22,165,530

Amortization expense for the years ended June 30, 2011 and 2010 was approximately $5,062,128

and $5,406,014, respectively.

(k) Capital Assets

Furniture, equipment, and leasehold improvements are stated at cost. Depreciation on furniture and

equipment is calculated on the straight-line method over the estimated useful lives of three to

ten years. Leasehold improvements are amortized on the straight-line method over the shorter of the

lease term or estimated useful life of the asset.

Capital assets had the following activity during the years ended June 30, 2011 and 2010:

June 30, June 30,

2010 Additions Retirements 2011

Furniture, equipment, and

leasehold improvements $ 23,249,917 2,741,316 473,710 25,517,523

Less accumulated

depreciation 17,913,444 2,239,177 472,343 19,680,278

Furniture, equipment,

and leasehold

improvements,net $ 5,336,473 502,139 1,367 5,837,245



June 30, 2011 and 2010

17 (Continued)

June 30, June 30,

2009 Additions Retirements 2010

Furniture, equipment, and

leasehold improvements $ 21,770,856 1,827,271 348,210 23,249,917

Less accumulated

depreciation 15,938,440 2,140,613 165,609 17,913,444

Furniture, equipment,

and leasehold

improvements,

net $ 5,832,416 (313,342) 182,601 5,336,473

(l) Deferred Revenue

Origination fees are received by the Corporation at the time of origination of loans under the Iowa

Partnership Loan Program. These fees are amortized over the life of the loan using the

sum-of-the-years-digits method, which approximates the interest method.

(m) Debt Refunding and Extinguishment

During the year ended June 30, 2011, the Corporation extinguished bonds outstanding with a par

amount $65.3 million for cash proceeds of $54.3 million. This resulted in a gain of $10.8 million

recognized as a gain on extinguishment of debt in the statement of revenues, expenses, and changes

in net assets. During the year ended June 30, 2011, $24.3 million was amortized and recognized in

the statement of revenues, expenses, and changes in net assets from a previous year’s deferred gain.

(n) Bond and Note Issuance Costs and Discounts/Premiums

Bond and note issuance costs, discounts, and premiums are deferred and amortized using the

bonds-outstanding method. Deferred issuance costs, discounts, and premiums at June 30, 2011 and

2010 were $10,873,238 and $11,961,565, respectively, and are reflected in bonds payable on the

statements of net assets.

(o) Derivative Products

On July 1, 2009, the Corporation adopted the provisions of GASB 53, Accounting and Financial

Reporting for Derivative Instruments, which addresses the recognition, measurement, and disclosure

of information regarding derivative instruments.

The Corporation has entered into an interest rate swap agreement to hedge the variable interest rate

on certain debt. The Corporation is receiving payments based on the three-month LIBOR rate which

matches the rate paid on the debt. The Corporation is making payments to the counterparty based on

the 91-day Treasury bill rate which matches the rate received from the collateral securitizing the

debt. This agreement has a current notional amount of $39,100,000 that amortizes to zero on the final

termination date of December 25, 2021. The value of the interest rate swap is recorded in the

statement of net assets, with any related changes in value recorded in the statement of changes in net

assets. As of June 30, 2011 and 2010, the value of the swap was estimated to be $(639,900) and



June 30, 2011 and 2010

18 (Continued)

$(367,900), respectively, and is reflected in other accounts payable and accrued expenses. The fair

value adjustment on this swap during the years ended June 30, 2011 and 2010 is $272,000 and

$376,075, respectively. The Corporation has recognized the fair value adjustment in interest on

bonds and notes payable on the statements of revenues, expenses, and changes in net assets and has

not evaluated for hedge effectiveness. At which time the valuation of the swap becomes material, a

test of effectiveness will be performed.

The fair values of the interest rate swaps were estimated using the zero-coupon method. This method

calculates the future net settlement payments required by the swap, assuming that the current forward

rates implied by the yield curve correctly anticipate future spot interest rates. These payments are

then discounted using the spot rates implied by the current yield curve for hypothetical zero-coupon

bonds due on the date of each future net settlement on the swaps.

Credit risk – The Corporation is not exposed to credit risk on its interest rate swap because it is in a

negative fair value or liability position. However, if interest rates change and the fair value become

positive, the Corporation would have exposure to credit risk in the amount of the derivative’s

positive fair value.

Termination risk – Upon the occurrence of any default or termination event the swap agreement

terminates and a termination payment may be required to be made by either the Corporation or the

counterparty to the other party. The termination payment is based on market quotations and loss

amounts netted against any unpaid amounts. All or a portion of the swap agreement may be

terminated by the Corporation on any quarterly distribution date on or after December 25, 2013 and

neither party will be required to make a termination payment.

Interest Rate and Basis risk – The Corporation has limited exposure to interest rate and basis risk on

the interest rate swap because the variable interest rate payments received by the Corporation are

based on the same index as those paid on the debt and cash flows received from the collateral

securitizing the debt are based on the same rate as payments made to the counterparty.

Rollover risk – The Corporation is hedging the interest rate basis risk because the interest rate

received on the collateralized assets is mismatched with the interest rate paid on the debt. The

Corporation is not exposed to rollover risk, because the maturity date of the swap agreement closely

matches the amortization period of the collateralized assets.

(p) Income Taxes

The Corporation is a tax-exempt organization as described in Section 501(c)(3) of the Internal

Revenue Code, and accordingly, no provision for income taxes has been made in the accompanying

financial statements. As such, the Corporation is subject to federal and state income taxes only on

any net unrelated business income under the provisions of Section 511 of the Internal Revenue Code.

(q) Fair Value of Financial Instruments

On July 1, 2008, the Corporation adopted the provisions of Statement of Financial Accounting

Standards (SFAS) No. 157, Fair Value Measurements, included in ASC Topic 820, which defines



June 30, 2011 and 2010

19 (Continued)

fair value, establishes a framework for measuring fair value, and expands the disclosures about fair

value measurement.

The Corporation holds certain assets that are required to be measured at fair value on a recurring

basis. These include the Corporation’s investment in state and municipal obligations included in

marketable securities owned. The fair values of these assets are determined based on inputs that are

readily available in public markets or can be derived from information available in publicly quoted

markets. The Corporation is required to group its assets and liabilities at fair value in three levels,

based on the markets in which the assets and liabilities are traded and the reliability of the

assumptions used to determine fair value. These levels are:

Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.

Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted

prices for identical or similar instruments in markets that are not active, and model-based valuation

techniques for which all significant assumptions are observable in the market.

Level 3 – Valuation is generated from model-based techniques that use significant assumptions not

observable in the market. These unobservable assumptions reflect our own estimates of assumptions

that market participants would use in pricing the asset or liability. Valuation techniques include use

of option pricing models, discounted cash flow models and similar techniques.

The Corporation’s investments in money market mutual funds are valued using quoted market prices

for identical instruments traded in active markets, and are therefore Level 1 in the ASC Topic 820

(Statement 157), Fair Value, hierarchy. Corporate notes and bonds are valued using quoted prices for

identical instruments in markets that are not active, and are therefore Level 2. The Company’s

interest rate swap, included in other accounts payable and accrued expenses, is valued using widely

accepted valuation techniques based on observable market-based inputs, is therefore in Level 2.

The Corporation had no nonfinancial assets or liabilities that were recognized or disclosed in the

financial statements on a nonrecurring basis.

The methods and assumptions used by the Corporation to estimate the fair value of its financial

instruments not recorded in the financial statements at fair value are set forth below:

Student Loans Receivable – The fair value was estimated by modeling loan cash flows using existing

loan terms and assumptions to determine loan yields, average term, and present value. The discount

rate is estimated using currently offered investment yields of similar remaining maturities.

Student Loans Held-for Sale – The carrying amount for student loans held-for-sale approximates fair

value, based on the agreement to sell to the U.S. Department of Education.

Accrued Interest Receivable – The carrying amount for accrued interest receivable approximates its

fair value.



June 30, 2011 and 2010

20 (Continued)

Bonds Payable – The fair value of bonds payable is calculated by discounting scheduled cash flows

through maturity using estimated market discount rates. The discount rate is estimated using the rates

currently offered for debt of similar remaining maturities.

Notes Payable – The carrying amount for notes payable approximates fair value due to variable

interest rates.

Accounts Payable and Accrued Expenses – The carrying amount for accounts payable and accrued

expenses approximates its fair value.

Arbitrage Rebate Liability – The carrying amount for arbitrage rebate liability approximates its fair

value.

Deferred Revenue – The carrying amount for deferred revenue approximates its fair value.

Accrued Interest Payable – The carrying amount for accrued interest payable approximates its fair

value.

Limitations – Fair value estimates are made at a specific point in time, based on relevant market

information and information about the financial instrument. Because no market exists for a

significant portion of the Corporation’s financial instruments, fair value estimates are based on

judgments regarding future expected loss experience, current economic conditions, risk

characteristics of various financial instruments, and other factors. These estimates are subjective in

nature and involve uncertainties and matters of significant judgment and, therefore, cannot be

determined with precision. Changes in assumptions could significantly affect the estimates.

(r) Reclassifications

Certain 2010 amounts in the statement of cash flows have been reclassified to conform with the

current year presentation.

(2) Deposits and Investments

(a) Cash Deposits and Cash Equivalents

At June 30, 2011 and 2010, the Corporation’s cash deposits of $7,428,437 and $8,946,958,

respectively, were covered by federal depository insurance or collateralized trust accounts. Cash

equivalents of $354,676,281 and $253,851,295, respectively, were included in investments in the

statement of net assets.



June 30, 2011 and 2010

21 (Continued)

(b) Investments

The following table displays the types of investments, amounts, and the average maturity of the

investment:

2011 2010

Average Average

Face amount Fair value maturity Face amount Fair value maturity

Corporate notes and bonds $ 58,254,431 11,967,531 4-43 years $ 63,623,087 17,336,187 4-43 years

Money market mutual funds

investing in United States

government and agency

obligations 354,676,282 354,676,281 Less than 1 year 253,851,295 253,851,295 Less than 1 year

$ 412,930,713 366,643,812 $ 317,474,382 271,187,482

(c) Investment Policy

Investment portfolio management is the responsibility of the Corporation’s management and staff.

The Corporation’s board of directors has established a general investment policy and specific bond

indentures direct investment policy for assets restricted under those bond indentures.

Qualified investments under the general investment policy include investments in U.S. Treasury,

agency, and instrumentality obligations; interest-bearing time or demand deposits, certificates of

deposits, and repurchase agreements and reverse repurchase agreements with any financial

institution provided that such funds are fully insured by an agency of the federal government or

collateralized at 100% with securities unconditionally and fully guaranteed by the U.S. government

or collateralized with 102% of nongovernmental securities in this policy. Commercial paper rated, at

the time of purchase, at least ―P1‖ by Moody’s, ―A1‖ by S & P, and ―F-1+‖ by Fitch. Money market

funds and corporate notes rated, at the time of purchase, at least in the top two tiers of one of the

nationally recognized rating agencies. Investment agreements or guarantee investment contracts,

secured by collateral securities that may be entered into with any bank, bank holding company,

corporation, or any other financial institution whose outstanding: (i) commercial paper is rated, at the

time of purchase, at least the same as commercial paper above for agreements 12 months or less,

(ii) unsecured long-term debt is rated, at time of purchase, in the top two rating categories of one of

the nationally recognized rating agencies, and commercial paper rated the same as above for

agreements greater than 12 months, or (iii) in each case, by an insurance company whose claims

paying ability is rated as provided in (ii) above.

All investment purchase orders must be authorized by a Corporate Officer, the Board Chairman, or

the Board Vice Chairman.

Concentration Limits

With the exception of treasury and agency securities, no more than 5% of the overall investment

portfolio, or 5% of the investment portfolio of any trust estate, may be invested in one asset category.



June 30, 2011 and 2010

22 (Continued)

With the exception of treasury and agency securities, no more than 2% of the overall investment

portfolio, or 2% of the investment portfolio of any trust estate, may be invested in securities issued

by or sponsored by the same entity. In no event will more than $10 million in securities owned or

sponsored by a common entity be owned by the Corporation, with the exception of treasury and

agency securities.

Special Considerations

Commercial Paper: The Corporation may only invest in commercial paper that is fully guaranteed by

a line of credit or a combination of bond insurance and a liquidity provider, all such entities being

rated in the top two ratings categories.

Money Market Funds: The Corporation may only invest in money market funds that: 1. limit their

investments to those which otherwise conform to this policy, and 2. which include special safeguards

to collateralize or insure all cash held by the fund.

Qualified investments under various bond indentures includes any of the following obligations,

which at the time of investment are legal investments under the laws of the State of Iowa for the

money proposed to be invested therein:

(a) Cash held in a trust account or if not held in a trust account insured at all times by the Federal

Deposit Insurance Corporation or otherwise collateralized with obligations described in

paragraph (b) below

(b) Direct obligations of (including obligations issued or held in book entry form on the books of)

the Department of the Treasury of the United States of America

(c) Obligations of any of the following federal agencies, which obligations represent the full faith

and credit of the United States of America:

Export-Import Bank

Farm Credit System Financial Assistance Corporation

Farmers Home Administration

General Services Administration

U.S. Maritime Administration

Small Business Administration

Government National Mortgage Association (GNMA)

U.S. Department of Housing & Urban Development (PHA’s)

Federal Housing Administration

(d) Senior debt obligations rated ―AAA‖ by S&P and ―Aaa‖ by Moody’s issued by the Federal

National Mortgage Association or the Federal Home Loan Mortgage Corporation, or senior



June 30, 2011 and 2010

23 (Continued)

debt obligations of other government sponsored agencies approved by the Bond Insurer with

notice to S&P

(e) U.S. dollar denominated deposit accounts, federal funds, and banker’s acceptances with

domestic commercial banks that have a rating on their short-term certificates of deposit on the

date of purchase of ―A-1‖ or ―A-1+‖ by S&P and ―P-1‖ by Moody’s and maturing no more

than 360 days after the date of purchase. (Ratings on holding companies are not considered as

the rating of the bank)

(f) Commercial paper that is rated at the time of purchase in the single highest classification,

―A-1+‖ by S&P and ―P-1‖ by Moody’s and which matures not more than 270 days after the

date of purchase

(g) Investments in a money market fund rated ―AAAm‖ or ―AAAm-G‖ or better by S&P

(h) Pre-refunded Municipal Obligations defined as follows: Any bonds or other obligations of any

state of the United States of America or of any agency, instrumentality, or local governmental

unit of any such state that are not callable at the option of the obligor prior to maturity or as to

which irrevocable instructions have been given by the obligor to call on the date specified in

the notice; and

(A) which are rated, based on an irrevocable escrow account or fund (the escrow), in the

highest rating category of S&P and Moody’s or any successors thereto; and

(B) (i) which are fully secured as to principal and interest and redemption premium, if any,

by an escrow consisting only of cash or obligations described in paragraph (b) above,

which escrow may be applied only to the payment of such principal of and interest and

redemption premium, if any, on such bonds or other obligations on the maturity date or

dates thereof or the specified redemption date or dates pursuant to such irrevocable

instructions, as appropriate, and (ii) which escrow is sufficient, as verified by a

nationally recognized independent certified public accountant, to pay principal of and

interest and redemption premium, if any, on the bonds or other obligations described in

this paragraph on the maturity date or dates specified in the irrevocable instructions

referred to above, as appropriate

(i) Guaranteed investment contracts or surety bonds providing for the investment of funds in an

account or insuring a minimum rate of return on investments of such funds, which contract or

surety bond shall: (i) be an obligation of or guaranteed by an insurance company or other

corporation or financial institution whose debt obligations or insurance financial strength or

claims paying ability are rated ―AAA‖ by S&P, ―Aaa‖ by Moody’s, and ―AAA‖ by Fitch

(j) A repurchase agreement that satisfies the following criteria: (i) must be between the trustee

and a dealer, bank, securities firm, insurance company, or other financial institution described

as: (A) primary dealers on the Federal Reserve reporting dealer list, which (x) have a

long-term rating of ―AA-― or better by S&P, ―Aa2‖ or better by Moody’s and ―A‖ or better by

Fitch or (y) have a long-term rating of ―AA-― or better by S&P, ―A‖ or better by Fitch and

―Aa3‖ or better by Moody’s and a short-term rating of ―P-1‖ by Moody’s, or (B) banks,



June 30, 2011 and 2010

24 (Continued)

insurance companies, or other financial institutions, which (x) have a long-term rating of

―AA-― or better by S&P, ―Aa2‖ or better by Moody’s and ―A‖ or better by Fitch or (y) have a

long-term rating of ―AA-― or better by S&P, ―A‖ or better by Fitch and ―Aa3‖ or better by

Moody’s and a short-term rating of ―P-1‖ by Moody’s; (ii) the written repurchase agreement

must include the following: Securities that are acceptable for the transfer are: (A) direct

U.S. government, or (B) federal agencies backed by the full faith and credit of the

U.S. government (and Fannie Mae & Freddie Mac); and (iii) the collateral must be delivered to

the trustee or third-party custodian acting as agent for the trustee by appropriate book entries

and confirmation statements must have been delivered before or simultaneous with payment

(perfection by possession of certificated securities)

Corporate notes and bonds were in compliance with the policy above as of the purchase date of those

investments. Concentration restrictions were not in place at the time of purchase of the current

outstanding corporate notes and bonds.

(d) Custodial Credit Risk

Custodial credit risk is the risk that in the event of a depository institution failure, the Corporation’s

deposits may not be returned.

(e) Credit Risk

Credit risk is the risk that an issuer or counterparty will not fulfill its obligation to the Corporation.

The Corporation minimizes credit risk by limiting securities to those authorized in the investment

policy; diversifying the investment portfolio to limit the impact of potential losses from any one type

of security or issuer; and prequalifying the financial institutions, brokers, dealers, and advisers with

which the Corporation does business.

(f) Concentration Risk

Concentration of risk is the risk of loss that may be attributed to the magnitude of an investment in a

single type of security.

The table below addresses credit risk and concentration risk for the Corporation’s corporate notes

and bonds at June 30, 2011 and 2010:

June 30, 2011 June 30, 2010

S&P Percentage Percentage

Provider rating* Total of total Total of total

Raven Funding Limited

(formerly Rhinbridge, PLC) A-1+ $ 7,691,045 64% $ 12,852,347 74%

Harbour Limited

(formerly Mainsail II, LTD) A-1+ 4,276,486 36% 4,483,840 26%

Total $ 11,967,531 100% $ 17,336,187 100%

* S&P rating at the time of purchase



June 30, 2011 and 2010

25 (Continued)

(g) Interest Rate Risk

Interest rate risk is the risk that changes in interest rates may adversely affect the fair value of the

portfolio. It is the intent and practice of the Corporation’s management to hold investments to

maturity, which mitigates interest rate risk.

(h) Foreign Currency Risk

Foreign currency risk is the risk that changes in exchange rates will adversely impact the fair value

of an investment. The Corporation has no positions in foreign currency or any foreign currency

denominated investments.

(i) Market Risk

Due to the level of risk with certain investment securities, it is at least reasonably possible that

changes in the value of investment securities will occur in the near term and that such changes could

materially affect the value of the securities. Recent market conditions have resulted in an unusually

high degree of volatility and increased the risks with investments held by the Corporation which

could impact the value of investments after the date of these financial statements.

(3) Student Loans Receivable

Student loans receivable include eligible student loans acquired by the Corporation that are guaranteed as

to principal and interest by any guarantor with which the Corporation has an agreement and whose

guarantee is entitled to federal reimbursement. The loans are reinsured by the United States Secretary of

Education and are 97% insured as to principal and interest for loans disbursed on or after July 1, 2006 and

98% for those loans disbursed before July 1, 2006 under Federal Family Education Loan Program. Such

guarantees require lenders, servicers, and guarantors to comply with the provisions of the Higher

Education Act of 1965 and the applicable regulations thereunder.

In addition, the Higher Education Act of 1965, as amended, provides for interest subsidy and special

allowance payments by the Secretary of Education. The interest subsidy is a payment of interest for those

loans not in repayment status. The special allowance payment, which continues throughout the loan life,

provides additional income to holders of student loans or requires a payment to the federal government.

This allowance is calculated on the unpaid principal balance of student loans, based on an annual rate equal

to the average rate of 91-day U.S. Treasury Bills or 3-month Commercial Paper Rates for that quarter

increased by various add-on rates, depending on loan origination date. If the special allowance rate is

above the loan interest rate then a payment is made to the lender from the federal government on the

difference. If the special allowance rate is below the loan interest rate then the difference is paid to the

federal government by the lender. The Corporation holds loans under the Health Education Assistance

Loans Program. The HEAL loans are 100% insured as to principal and interest by the Secretary of

Education of the United States Department of Health and Human Services. The receipt of federal

reimbursement payments are subject to compliance with the insurance contracts and the requirements of

the Federal Public Services Act. Under the HEAL program, borrowers are eligible to pay interest at a

quarterly reset variable rate based upon the 91-day Treasury bill plus a spread of up to 3%.



June 30, 2011 and 2010

26 (Continued)

The Corporation also holds loans under the Iowa Partnership Loan Program, which are not subject to the

aforementioned federal guarantees. Loans in this program are privately insured through an origination fee

charged to the borrower.

As of June 30, 2011 and 2010, the Corporation serviced loans for others in the amounts of approximately

$350,298,420 and $532,964,724, respectively.

The Corporation offers on-time repayment incentives to borrowers through a reduction in interest upon

meeting program criteria. The reduction in interest is recognized using the effective-interest method over

the life of the loan for an estimated percent of loans, which will meet the repayment criteria. The estimate

is based on historical repayment data.

A summary of the Corporation’s student loans receivable by loan program at June 30, 2011 and 2010 is as

follows:

2011 2010

Federal family education loan program $ 1,852,135,582 2,196,323,182 Health education assistance loan program 7,104,911 8,906,859 Iowa partnership loan program 1,209,408,458 1,257,535,236

3,068,648,951 3,462,765,277

Allowance for repayment incentive benefits (740) (740) Allowance for loan losses (132,003,186) (107,065,500) Unamortized origination costs 22,410,055 28,722,645

$ 2,959,055,080 3,384,421,682

The weighted average yield on student loans receivable at June 30, 2011 and 2010 was 3.40% and 3.35%,

respectively.

A summary of changes in the allowance for loan losses for the years ended June 30, 2011 and 2010 is as

follows:

2011 2010

Beginning allowance $ 107,065,500 75,656,054

Provision for doubtful accounts 26,774,695 32,949,992

Charge-offs (1,837,009) (1,540,546)

$ 132,003,186 107,065,500

(4) Bonds and Notes Payable

The bonds and notes payable are limited obligations of the Corporation, payable primarily from the

principal and interest payments on student loans purchased. The bonds and notes are collateralized by and

payable only from the student loans, revenues, and recoveries of principal and all amounts held in any



June 30, 2011 and 2010

27 (Continued)

account established under the bond indenture or note documents. In addition, accounts are restricted in

accordance with the provisions of the applicable bond indenture or note documents.

A summary of bonds and notes payable at June 30, 2011 and 2010 is as follows:

2011 2010

Bonds payable:$11,000,000 student loan revenue bonds, 1993

Subordinate Series C, August 15, 1993. The bondsare term bonds due December 10, 2011 at aninterest rate of 6.13% $ 8,550,000 8,550,000

Less unamortized bond discount (978) (3,325)

The 1993 Subordinate Series C student loan revenuebonds are subject to early redemption at the optionof the Corporation at 102% and subsequently at pricesdeclining to par.

8,549,022 8,546,675

$24,000,000 student loan revenue bonds, 1995 Series B,February 16, 1995. The bonds are term bonds dueDecember 1, 2025. 23,900,000 23,900,000

The 1995 Series A and B bonds were issued as Auction RateCertificates. Interest rates are established each successive35-day period. Interest accrues and is payable semiannuallyand is based on maturity date. The bonds may be convertedto a fixed rate. The auction rates ranged from 0.49% to0.84% during 2011 and was 0.49% on June 30, 2011. Theauction rates ranged from 0.58% to 0.89% during 2010 andwas 0.70% on June 30, 2010. The bonds are subject to earlyredemption at par value at the option of the Corporation.Payment of their regularly scheduled debt service isguaranteed by a municipal bond insurance policy issued byAmbac Assurance Corporation. During 2010 a portion ofthe bonds were redeemed early.

23,900,000 23,900,000



June 30, 2011 and 2010

28 (Continued)

2011 2010

$25,000,000 student loan revenue bonds, 1995 Series C(taxable), March 14, 1995. The bonds are termbonds due December 1, 2025. $ 25,000,000 25,000,000

$22,850,000 student loan revenue bonds, 1995 Series D(taxable), March 14, 1995. The bonds are termbonds due December 1, 2025. 22,850,000 22,850,000

The 1995 Series C and D bonds were issued as Auction RateCertificates. Interest rates are established each successive35-day period. Interest accrues and is payable at the end ofthis period. The auction rates ranged from 0.00% to 6.13%during 2011 and was 0.00% and 0.00%, respectively, onJune 30, 2011. The auction rates ranged from 0.00% to7.24% during 2010 and was 0.00% and 0.00%, respectively,on June 30, 2010. The bonds are subject to early redemptionat par value at the option of the Corporation. Payment of theirregularly scheduled debt service is guaranteed by AmbacAssurance Corporation.

47,850,000 47,850,000

$54,000,000 student loan revenue bonds, 1996 Series E(taxable), January 23, 1996. The bonds are termbonds due December 1, 2031. 38,900,000 38,900,000

The 1996 Series E bonds were issued as Auction RateCertificates. Interest rates are established each successive35-day period. Interest accrues and is payable at the end ofthis period. The auction rate ranged from 0.00% to 6.48%during 2011 and was 0.00% on June 30, 2011. The auctionrate ranged from 0.00% to 9.55% during 2010 and was 0.00%on June 30, 2010. The bonds are subject to early redemptionat par value at the option of the Corporation. Payment of theirregularly scheduled debt service is guaranteed by AmbacAssurance Corporation. During 2010 a portion of the bondswere redeemed early.

38,900,000 38,900,000



June 30, 2011 and 2010

29 (Continued)

2011 2010

$19,500,000 student loan refunding revenue bonds,1996 Series H, February 21, 1996. The bonds are term bondsdue December 1, 2031. The bonds were issued as AuctionRate Certificates. Interest rates are established eachsuccessive 35-day period. Interest accrues, is payablesemiannually, and is based on maturity date. The bonds maybe converted to a fixed rate. The auction rate ranged from0.58% to 0.81% during 2011, and was 0.58% on June 30, 2011.The auction rate ranged from 0.58% to 0.84% during 2010,and was 0.80% on June 30, 2010. $ 18,500,000 19,000,000

The 1996 Series H bonds are subject to early redemption atpar value at the option of the Corporation. Payment of theirregularly scheduled debt service is guaranteed by a municipalbond insurance policy issued by Ambac Assurance Corporation.During 2011 a portion of the bonds were redeemed early.

18,500,000 19,000,000

$24,000,000 student loan revenue bonds, 1997Subordinated Series D, October 2, 1997, dueDecember 1, 2027. 9,950,000 9,950,000

The 1997 Series D bonds were issued as Auction RateCertificates. Interest rates are established each successive35-day period. Interest accrues, is payable semiannually, andis based on maturity date. The bonds may be converted to afixed rate by the Corporation. The auction rate ranged from0.49% to 0.84% during 2011 and was 0.49% on June 30, 2011.The auction rate ranged from 0.58% to 0.89% during 2010 andwas 0.70% on June 30, 2010. The 1997 Series bonds aresubject to early redemption at par value at the option of theCorporation. During 2010 a portion of the bonds wereredeemed early.

9,950,000 9,950,000

$24,000,000 student loan revenue bonds, 1998 Series K,November 17, 1998.

The bonds are term bonds due December 1, 2033 and wereissued as Auction Rate Certificates. Interest rates areestablished each successive 35-day period. Interest accrues,is payable semiannually, and is based on maturity date.The bonds may be converted to a fixed rate by the Corporation.The auction rate ranged from 0.44% to 0.79% during 2011and was 0.44% on June 30, 2011. The auction rate rangedfrom 0.61% to 0.92% during 2010 and was 0.72% onJune 30, 2010. 23,450,000 23,450,000



June 30, 2011 and 2010

30 (Continued)

2011 2010$42,350,000 student loan revenue bonds, 1998 Series L

(taxable), November 17, 1998.

The bonds are term bonds due December 1, 2033. The bondswere issued as Auction Rate Certificates. Interest rates areestablished each successive 28-day period. Interest accrues,is payable semiannually, and is based on maturity date. Thebonds may be converted to a fixed rate by the Corporation.The auction rate ranged from 0.00% to 15.97% during 2011and was 0.00% on June 30, 2011. The auction rate rangedfrom 0.00% to 16.05% during 2010 and was 0.00% onJune 30, 2010. $ 41,950,000 41,950,000

The bonds are subject to early redemption at par value at thepoint of the Corporation. Payment of their regularly scheduleddebt service is guaranteed by Ambac Assurance Corporation.During 2010 a portion of the bonds were redeemed early.

65,400,000 65,400,000

$45,200,000 student loan revenue bonds, 1999Series M (taxable), September 15, 1999 43,150,000 43,150,000

$45,200,000 student loan revenue bonds, 1999 Series N(taxable), September 15, 1999. 45,150,000 45,200,000

The 1999 Series M and N bonds are term bonds due onDecember 1, 2029 and were issued as Auction RateCertificates. Interest rates are established each successive28-day period. Interest accrues, is payable semiannually, andis based on maturity date. The bonds may be converted to afixed rate by the Corporation. The auction rate ranged from0.00% to 15.87% during 2011 and was 0.00% and 0.00%,respectively, on June 30, 2011. The auction rate ranged from0.00% to 15.94% during 2010 and was 0.00% and 0.00%,respectively, on June 30, 2010. The bonds are subject to earlyredemption at par value at the option of the Corporation.Payment of their regularly scheduled debt service isguaranteed by Ambac Assurance Corporation. During 2011and 2010 a portion of the bonds were redeemed early.

88,300,000 88,350,000



June 30, 2011 and 2010

31 (Continued)

2011 2010

$24,600,000 student loan revenue bonds, 1999 Series O,September 15, 1999. $ 23,950,000 23,950,000

The 1999 Series O bonds are term bonds due December 1,2029 and were issued as Auction Rate Certificates. Interestrates are established each successive 35-day period. Interestaccrues, is payable semiannually, and is based on maturitydate. The bonds may be converted to a fixed rate by theCorporation. The auction rate ranged from 0.54% to 0.81%during 2011 and was 0.54% on June 30, 2011. The auctionrate ranged from 0.56% to 0.84% during 2010 and was 0.80%on June 30, 2010. The bonds are subject to early redemptionat par value of the Corporation. Payment of their regularlyscheduled debt service is guaranteed by Ambac AssuranceCorporation. During 2011 and 2010 a portion of the bondswere redeemed early.

23,950,000 23,950,000

$24,000,000 student loan revenue bonds, 2000 Series F,February 24, 2000. 2,800,000 2,800,000

The 2000 Series F bonds are term bonds due December 1,2030 and were issued as Auction Rate Certificates. Interestrates are established each successive 35-day period. Interestaccrues, is payable semiannually, and is based on maturitydate. The bonds may be converted to a fixed rate by theCorporation. The auction rate ranged from 0.51% to 0.79%during 2011 and was 0.51% on June 30,2011. The auctionrate ranged from 0.57% to 0.84% during 2010 and was 0.79%on June 30, 2010. The 2000 bonds are subject to earlyredemption at par value at the option of the Corporation.During 2010 a portion of the bonds were redeemed early.

2,800,000 2,800,000

$47,500,000 student loan revenue bonds, 2000 Series G(taxable), February 24, 2000 26,450,000 26,450,000

The 2000 Series G bonds are term bonds due December 1,2030 and were issued as Auction Rate Certificates. Interestrates are established each successive 28-day period. Interestaccrues, is payable semiannually, and is based on maturity date.The bonds may be converted to a fixed rate by theCorporation. The auction rate ranged from 0.00% to 15.67%during 2011 and was 0.00% on June 30,2011. The auction rateranged from 0.00% to 15.71% during 2010 and was 0.00%on June 30, 2010. The bonds are subjected to early redemptionat par value at the option of the Corporation. During 2010 aportion of the bonds were redeemed early.

26,450,000 26,450,000



June 30, 2011 and 2010

32 (Continued)

2011 2010

$30,000,000 student loan revenue bonds, 2001 Series R,May 17, 2001. $ 29,700,000 29,700,000

The 2001 Series bonds are term bonds due December 1, 2035and were issued as Auction Rate Certificates. Interest ratesare established each successive 35-day period. Interestaccrues, is payable semiannually, and is based on maturitydate. The bonds may be converted to a fixed rate by theCorporation. The auction rate ranged from 0.49% to 0.84%during 2011 and was 0.49% on June 30, 2011. The auctionrate ranged from 0.58% to 0.89% during 2010 and was 0.70%on June 30, 2010. The bonds are subject to early redemptionat par value at the option of the Corporation. Payment oftheir regularly scheduled debt service is guaranteed by AmbacAssurance Corporation. During 2010 a portion of the bondswere redeemed early.

29,700,000 29,700,000

$43,650,000 student loan revenue bonds,2001 Series S-I (taxable), May 17, 2001 43,350,000 43,350,000

$43,650,000 student loan revenue bonds,2001 Series S-II (taxable), May 17, 2001 42,950,000 43,650,000

$43,650,000 student loan revenue bonds,2001 Series S-III (taxable), May 17, 2001 42,400,000 43,550,000

The 2001 Series S bonds are term bonds due December 1,2035 and were issued as Auction Rate Certificates. Interestrates are established each successive 28-day period. Interestaccrues, is payable semiannually and is based on maturity date.The bonds may be converted to a fixed rate by theCorporation. The auction rate ranged from 0.00% to 15.88%during 2011 and was 0.00%, 0.00%, and 0.00% on June 30,2011. The auction rate ranged from 0.00% to 15.71%%during 2010 and was 0.00%, 0.00%, and 0.00% on June 30,2010. The bonds are subject to early redemption at par valueat the option of the Corporation. Payment of their regularlyscheduled debt service is guaranteed by Ambac AssuranceCorporation. During 2011 and 2010 a portion of the bondswere redeemed early.

128,700,000 130,550,000



June 30, 2011 and 2010

33 (Continued)

2011 2010

$36,000,000 student loan revenue bonds, 2002 Series U,April 17, 2002. Term bonds due December 1, 2037 $ 36,000,000 36,000,000

The 2002 Series U bonds are term bonds due December 1,2037 and were issued as Auction Rate Certificates. Interestrates are established each successive 35-day period. Interestaccrues, is payable semiannually, and is based on maturitydate. The bonds may be converted to a fixed rate by theCorporation. The auction rate ranged from 0.49% to 0.84%during 2011 and was 0.49% on June 30,2011. The auctionrate ranged from 0.54% to 0.91% during 2010 and was 0.75%on June 30, 2010. The bonds are subject to early redemptionat par value at the option of the Corporation. Payment of theirregularly scheduled debt service is guaranteed by AmbacAssurance Corporation.

36,000,000 36,000,000

$66,100,000 student loan revenue bonds, 2002Series V-I (taxable), April 17, 2002 62,050,000 66,100,000

$75,000,000 student loan revenue bonds, 2002Series V-II (taxable), April 17, 2002 70,350,000 74,900,000

$75,000,000 student loan revenue bonds, 2002Series V-III (taxable), April 17, 2002 71,050,000 71,050,000

$75,000,000 student loan revenue bonds, 2002Series V-IV (taxable), April 17, 2002 65,500,000 70,700,000

The 2002 Series V bonds are term bonds due December 1,2037 and were issued as Auction Rate Certificates. Interestrates are established each successive 28-day period. Interestaccrues, is payable semiannually and is based on maturity date.The bonds may be converted to a fixed rate by theCorporation. The auction rate ranged from 0.00% to 15.88%during 2011 and was 0.00%, 0.00%, 0.00%, and 0.00% onJune 30, 2011. The auction rate ranged from 0.00% to 15.94%during 2010 and was 0.00%, 0.00%, 0.00%, and 0.00% onJune 30, 2010. The bonds are subject to early redemption atpar value at the option of the Corporation. Payment of theirregularly scheduled debt services guaranteed by AmbacAssurance Corporation. During 2011 and 2010 a portion ofthe bonds were redeemed early.

268,950,000 282,750,000



June 30, 2011 and 2010

34 (Continued)

2011 2010

$36,550,000 student loan revenue bonds, 2003Series W, March 27, 2003. $ 36,550,000 36,550,000

The 2003 Series W bonds are term bonds due December 1,2037 and were issued as Auction Rate Certificates. Interestrates are established each successive 35-day period. Interestaccrues, is payable semiannually, and is based on maturitydate. The bonds may be converted to a fixed rate by theCorporation. The auction rate ranged from 0.47% to 0.84%during 2011 and was 0.47% on June 30, 2011. The auctionrate ranged from 0.56% to 0.92% during 2010 and was 0.70on June 30, 2010. The bonds are subject to early redemptionat par value at the option of the Corporation. Payment of theirregularly scheduled debt service is guaranteed by AmbacAssurance Corporation.

36,550,000 36,550,000

$77,350,000 student loan revenue bonds, 2003Series Y-I (taxable) 24,650,000 35,350,000

$80,000,000 student loan revenue bonds, 2003Series Y-II (taxable) 75,550,000 75,550,000

$80,000,000 student loan revenue bonds, 2003Series Y-III (taxable) 79,900,000 79,900,000

$80,000,000 student loan revenue bonds, 2003Series Y-IV (taxable) 80,000,000 80,000,000

$80,000,000 student loan revenue bonds, 2003Series Y-V (taxable) 78,300,000 78,300,000

$80,000,000 student loan revenue bonds, 2003Series Y-VI (taxable) 77,450,000 78,350,000

The 2003 Series Y bonds are term bonds due December 1,2038 and were issued as Auction Rate Certificates. Interestrates are established each successive 28-day period. Interestaccrues, is payable semiannually, and is based on maturitydate. The bonds may be converted to a fixed rate by theCorporation. The auction rate ranged from 0.00% to 1.85%during 2011 and was 1.69%, 1.69%,1.69%, 1.69%, 1.69%,and 1.69% on June 30, 2011. The auction rate ranged from0.00% to 1.85% during 2010 and was 1.85%, 1.85%, 1.85%,1.85%, 1.85%, and 1.85% on June 30, 2010. The bonds aresubject to early redemption at par value at the option of theCorporation. Payment of their regularly scheduled debtservice is guaranteed by Ambac Assurance Corporation.During 2011 and 2010 a portion of the bonds wereredeemed early.

415,850,000 427,450,000



June 30, 2011 and 2010

35 (Continued)

2011 2010

$72,350,000 student loan revenue bonds, 2004Series B-I (taxable) $ 70,200,000 70,200,000

$85,000,000 student loan revenue bonds, 2004Series B-II (taxable) 74,800,000 74,800,000

$85,000,000 student loan revenue bonds, 2004Series B-III (taxable) 80,200,000 82,950,000

$85,000,000 student loan revenue bonds, 2004Series B-IV (taxable) 39,800,000 39,850,000

$85,000,000 student loan revenue bonds, 2004Series B-V (taxable) 22,200,000 22,200,000

$85,000,000 student loan revenue bonds, 2004Series B-VI (taxable) 12,000,000 12,450,000

$85,000,000 student loan revenue bonds, 2004Series B-VII (taxable) 4,550,000 7,100,000

The 2004 Series B bonds are term bonds due December 1,2043 and were issued as Auction Rate Certificates. Interestrates are established each successive 28-day period. Interestaccrues, is payable semiannually, and is based on maturitydate. The bonds may be converted to a fixed rate by theCorporation. The auction rate ranged from 0.00% to 1.85%during 2011 and was 1.69%, 1.69%, 1.69%,1.69%, 1.69%,1.69%, and 1.69% on June 30, 2011. The auction rateranged from 0.00% to 1.85% during 2010 and was 1.85%,1.85%, 1.85%, 1.85%, 1.85%,1.85%, and 1.85% on June 30,2010. The bonds are subject to early redemption at par valueat the option of the Corporation. Payment of their regularlyscheduled debt service is guaranteed by Ambac AssuranceCorporation. During 2011 and 2010 a portion of the bondswere redeemed early.

303,750,000 309,550,000

$262,000,000 student loan asset-backed notes, 2005Senior Class A-2 (taxable), final maturitydate March 25, 2022 138,491,365 187,309,286

$168,000,000 student loan asset-backed notes, 2005Senior Class A-3 (taxable), final maturitydate September 25, 2037 168,000,000 168,000,000



June 30, 2011 and 2010

36 (Continued)

2011 2010

$35,000,000 student loan asset-backed notes, 2005Subordinate Class B (taxable), final maturitydate September 25, 2037 $ 35,000,000 35,000,000

The 2005 Class A-2, A-3, and B notes were issued to bearinterest at an annual rate equal to three-month LIBOR plus0.10%, 0.17%, and 0.35%, respectively. Interest rate resetswill occur on the 25th day of each March, June, September,and December. Interest rates ranged from 0.35% to 0.89%during 2011 and was 0.35%, 0.42%, and 0.60% on June 30,2011. Interest rates ranged from 0.35% to 0.96% during 2010and was 0.64%, 0.71%, and 0.89% on June 30, 2010.

341,491,365 390,309,286

$39,450,000 student loan revenue bonds, 2006Subordinate Series B, June 2, 2006 39,450,000 39,450,000

The 2006 Series B bonds are term bonds due December 1,2040 and were issued as Auction Rate Certificates. Interestrates are established each successive 35-day period. Interestaccrues, is payable semiannually, and is based on maturitydate. The bonds may be converted to a fixed rate by theCorporation. The auction rate ranged from 0.44% to 0.78%during 2011 and was 0.44 on June 30, 2011. The auction rateranged from 0.63% to 0.93% during 2010 and was 0.75% onJune 30, 2010. The bonds are subject to early redemption atpar at the option of the Corporation. During 2010 a portionof the bonds were redeemed early.

39,450,000 39,450,000

$110,900,000 student loan revenue bonds, 2006Senior Series A-II (taxable), June 2, 2006 45,425,000 48,900,000

$110,875,000 student loan revenue bonds, 2006Senior Series A-III (taxable), June 2, 2006 375,000 3,450,000

$110,875,000 student loan revenue bonds, 2006Senior Series A-IV (taxable), June 2, 2006 75,975,000 79,250,000

$110,875,000 student loan revenue bonds, 2006Senior Series A-V (taxable), June 2, 2006 99,325,000 104,425,000



June 30, 2011 and 2010

37 (Continued)

2011 2010

$110,875,000 student loan revenue bonds,2006 Senior Series A-VI (taxable), June 2, 2006 $ 105,875,000 106,600,000

The 2006 Series A-II through A-VI bonds are term bondsdue December 1, 2040 and were issued as Auction RateCertificates. Interest rates are established each successive28-day period. Interest accrues, is payable semiannually,and is based on maturity date. The bonds may be convertedto a fixed rate by the Corporation. The auction rate rangedfrom 0.00% to 1.85% during 2011 and was 1.69%, 1.69%,1.69%,1.69%, and 1.69% on June 30, 2011. The auctionrate ranged from 0.00% to 1.85% during 2010 and was1.85%,1.85%, 1.85%, 1.85%, and 1.85% on June 30, 2010.The bonds are subject to early redemption at par at theoption of the Corporation. During 2011 and 2010 a portionof the bonds were redeemed early.

326,975,000 342,625,000

$100,025,000 student loan revenue bonds, 2007Series E-I (taxable) 4,450,000 5,850,000

$104,500,000 student loan revenue bonds, 2007Series E-II (taxable) 11,675,000 11,700,000

$104,500,000 student loan revenue bonds, 2007Series E-III (taxable) 2,250,000 16,900,000

The 2007 Series E bonds are term bonds due December 1,2041 and were issued as Auction Rate Certificates.Interest rates are established each successive 28-dayperiod. Interest accrues and is payable semiannually. Thebonds may be converted to a fixed rate by the Corporation.The auction rate ranged from 0.00% to 1.85% during 2011and was 1.69%, 1.69%, and 1.69% on June 30, 2011.The auction rate ranged from 0.00% to 1.85% during 2010and was 1.85%, 1.85%, and 1.85% on June 30,2010. Thebonds are subject to early redemption at par value at theoption of the Corporation. Payment of their regularlyscheduled debt service is guaranteed by Ambac AssuranceCorporation. During 2011 and 2010 a portion of the bondswere redeemed early.

18,375,000 34,450,000



June 30, 2011 and 2010

38 (Continued)

2011 2010

$166,085,000 student loan revenue bonds,Series 2009-1, November 18, 2009 $ 161,085,000 166,085,000

Add unamortized bond premium 100,746 454,613 $23,255,000 student loan revenue bonds,

Series 2009-2, November 18, 2009 23,255,000 23,255,000 Less unamortized bond discount (98,337) (105,158)

$40,830,000 student loan revenue bonds,Series 2009-3, November 18, 2009 40,830,000 40,830,000

Add unamortized bond premium 969,167 1,051,532

The Series 2009 bonds are term bonds due December 1,2010 through December 1, 2031. Interest rates on thebonds range from 2.50% to 5.80%, based on maturity.Interest accrues and is payable semiannually. Bondsmaturing after December 1, 2020 are subject to earlyredemption at par value at the option of the Corporation. Inaddition, certain bonds issued at a premium that areoptionally redeemed may have an additional redemptionprice based on unamortized and outstanding premiums.

226,141,576 231,570,987

Total bonds payable 2,526,481,963 2,646,051,948

Less unamortized issuance costs (11,084,183) (12,222,875)

Total bonds payable, net $ 2,515,397,780 2,633,829,073

Notes payable:$2,500,000 promissory note $ 364,182 364,066

On October 10, 2008 the Corporation entered into a promissorynote in an amount not to exceed $2,500,000. Under theagreement advances were made to fund certain privatestudent loans fully disbursed during the period fromOctober 10, 2008 through August 30, 2009. The promissorynote matures on March 31, 2026 and is a limited obligation of theCorporation payable solely from payments made on thecollateralized student loans or from payments made pursuant to aschool guaranty agreement. The interest rate on outstandingadvances is adjusted quarterly and is equal to New York Primepublished on the last business day of the previous calendar quarterplus 0.50%. The interest rate ranged from 3.75% to 3.75% andwas 3.75% at June 30, 2011. The interest rate ranged from3.75% to 3.75% and was 3.75% at June 30, 2010.

364,182 364,066



June 30, 2011 and 2010

39 (Continued)

2011 2010

$400,000 promissory note $ 43,346 43,346

On January 6, 2009 the Corporation entered into a promissorynote in an amount not to exceed $400,000. Under the agreementadvances were made to fund certain private student loans fullydisbursed during the period from January 6, 2009 throughAugust 30, 2009. The promissory note matures on March 31,2030 and is a limited obligation of the Corporation payable solelyfrom payments made on the collateralized student loans or frompayments made pursuant to a school guaranty agreement. Theinterest rate on outstanding advances is adjusted quarterly andis equal to New York Prime published on the tenth calendar dayprior to end of the preceding calendar quarter plus 0.75%.The minimum interest rate is 4.00%. The interest rate rangedfrom 4.00% to 4.00% and was 4.00% at June 30, 2011. Theinterest rate ranged from 4.00% to 4.00% and was 4.00% atJune 30, 2010.

43,346 43,346

$400,000 promissory note 129,893 129,893

On January 29, 2009 the Corporation entered into a promissorynote in an amount not to exceed $400,000. Under theagreement advances were made to fund certain private studentloans fully disbursed during the period from January 29, 2009through August 30, 2009. The promissory note matures onMarch 31, 2026 and is a limited obligation of the Corporationpayable solely from payments made on the collateralized studentloans or from payments made pursuant to a school guarantyagreement. The interest rate on outstanding advances is adjustedquarterly and is equal to New York Prime published on the tenthcalendar day prior to end of the preceding calendar quarter plus0.75%. The minimum interest rate is 4.00%. The interest rateranged from 4.00% to 4.00% and was 4.00% at June 30, 2011.The interest rates ranged from 4.00% to 4.00% and was 4.00%at June 30, 2010.

129,893 129,893



June 30, 2011 and 2010

40 (Continued)

2011 2010

$2,000,000 promissory note $ 981,747 981,664

On June 18, 2009 the Corporation entered into a promissory notein an amount not to exceed $2,000,000. Under the agreementadvances were made to fund certain private student loans fullydisbursed during the period from June 30, 2009 throughAugust 30, 2010. The promissory note matures on May 31, 2026and is a limited obligation of the Corporation payable solely frompayments made on the collateralized student loans or frompayments made pursuant to a school guaranty agreement. Theinterest rate on outstanding advances is adjusted quarterly and isequal to New York Prime published on the tenth calendar dayprior to end of the preceding calendar quarter plus 1.75%. Theminimum interest rate is 5.00%. The interest rate ranged from5.00% to 5.00% and was 5.00% at June 30, 2011. The interestrate ranged from 5.00% to 5.00% and was 5.00% at June 30,2010.

981,747 981,664

$200,000 promissory note 99,674 92,401

On July 31, 2009 the Corporation entered into a promissory notein an amount not to exceed $200,000. Under the agreementadvances were made to fund certain private student loans fullydisbursed during the period from July 31, 2009 through August 30,2010. The promissory note matures on March 31, 2030 and is alimited obligation of the Corporation payable solely frompayments made on the collateralized student loans or frompayments made pursuant to a school guaranty agreement. Theinterest rate on outstanding advances is adjusted quarterly and isequal to New York Prime published on the tenth calendar dayprior to end of the preceding calendar quarter plus 1.75%. Theminimum interest rate is 5.00%. The interest rate ranged from5.00% to 5.00% and was 5.00% at June 30, 2011. The interestrate ranged from 5.00% to 5.00% and was 5.00% at June 30,2010.

99,674 92,401



June 30, 2011 and 2010

41 (Continued)

2011 2010

$300,000 promissory note $ 294,154 294,154

On September 1, 2009 the Corporation entered into a promissorynote in an amount not to exceed $300,000. Under the agreementadvances were made to fund certain private student loans fullydisbursed during the period from September 1, 2009 throughAugust 30, 2010. The promissory note matures on March 31,2027 and is a limited obligation of the Corporation payable solelyfrom payments made on the collateralized student loans or frompayments made pursuant to a school guaranty agreement. Theinterest rate on outstanding advances is adjusted quarterly and isequal to New York Prime published on the tenth calendar dayprior to end of the preceding calendar quarter plus 1.75%. Theminimum interest rate is 5.00%. The interest rate ranged from5.00% to 5.00% and was 5.00% at June 30, 2011. The interestrate ranged from 5.00% to 5.00% and was 5.00% at June 30,2010.

294,154 294,154

$3,000,000 taxable line of credit agreement. — 19,991

The Corporation entered into a line of credit agreement onSeptember 19, 2009 which terminated on September 19,2010.Under the terms of the agreement the Corporation may requestdaily advances in minimum increments of $10,000. Theaggregate principal outstanding cannot exceed $3,000,000. Theinterest rate on the advances is a floating rate equal to the3-Month Libor Adjustable Rate Index published by the FederalHome Loan Bank of Des Moines on each Tuesday of eachweek plus 3.50%. Interest is paid monthly. The interest rateranged from 3.79% to 3.98% and was 0.00% at June 30, 2011.The interest rate ranged from 3.75% to 4.04% and was 4.04%at June 30, 2010.

— 19,991



June 30, 2011 and 2010

42 (Continued)

2011 2010

United States Department of Education Participation Notes. $ — 148,187,466

The Corporation entered into short-term funding agreementsthrough the United States Department of Education’s (ED) LoanParticipation Program as prescribed under ECASLA. Under theterms of the Participation Program, ED provides short-termliquidity by purchasing participation interests in pools of eligibleFFELP loans. The interest rate (participant yield rate) ispublished each calendar quarter and is based on commercialpaper rates plus 0.50% and is paid monthly on the outstandingparticipation interests. The participant yield ranged from 0.80%to 0.91% during 2011 and was 0.00% at June 30, 2011. Theparticipant yield ranged from 0.71% to 0.91% during 2010 andwas 0.71% at June 30, 2010.

— 148,187,466

United States Department of Education’s Conduit Program 488,978,965 561,755,505

Pursuant to ECASLA, on January 15, 2009, ED publishedsummary terms under which it will purchase eligible FFELPStafford and PLUS loans from a conduit vehicle established toprovide funding for eligible student lenders (the ED ConduitProgram). Loans eligible for the Ed Conduit Program must befirst disbursed on or after October 1, 2003, but not later thanJuly 1, 2009, and fully disbursed before September 30, 2009, andmeet certain other requirements including with respect toborrower benefits. The ED Conduit was launched on May 11,2009. Funding for the ED Conduit Program is provided by thecapital markets at a cost based on market rates, with theCorporation being advanced 97% of the student loan faceamount. The Ed Conduit Program has a term of five years andwill expire on January 19, 2014. The student loan Short-TermNotes (SLST Notes), issued by the ED Conduit, are supportedby a combination of i) Funding Notes backed by FFELP studentloans, ii) the Liquidity Agreement with the Federal FinancingBank (FFB) and iii) the Put Agreement provided by ED. If theConduit does not have sufficient funds to pay all SLST Notesthen those SLST Notes will be repaid with funds from the FFB.The FFB will hold notes for a short period of time and if at theend of that time the SLST Notes still cannot be paid off, theunderlying FFELP loans that serve as collateral to the EDConduit will be sold to ED through the Put Agreement at a priceof 97% of the face amount of the loans.

Deferred gain on refunding of notes payable 62,876,921 87,216,374

551,855,886 648,971,879



June 30, 2011 and 2010

43 (Continued)

2011 2010

$1,500,000 promissory note $ 1,163,460 —

On March 31, 2010 the Corporation entered into a promissorynote in an amount not to exceed $1,500,000. Under theagreement advances may be made to fund certain private studentloans fully disbursed during the period from September 1,2010 through August 30, 2011. The promissory note matureson March 31, 2027 and is a limited obligation of the Corporationpayable solely from payments made on the collateralized studentloans or from payments made pursuant to a school guarantyagreement. The interest rate on outstanding advances is adjustedquarterly and is equal to New York Prime published on the tenthcalendar day prior to end of the preceding calendar quarter plus0.50%. The minimum interest rate is 5.00%. The interest rateranged from 5.00% to 5.00% during 2011 and was 5.00% atJune 30, 2011.

1,163,460 —

Total notes payable 554,932,342 799,084,860

Less unamortized issuance costs (759,653) (1,136,352)

Total notes payable, net $ 554,172,689 797,948,508

The following summarizes the activity in the principal balances of bonds and notes payable for the

Corporation for the years ended June 30, 2011 and 2010:

Due within

June 30, 2010 Additions Reductions June 30, 2011 one year

Student loan revenue bonds $ 2,644,654,286 - 119,142,921 2,525,511,365 53,207,900

Notes Payable 711,868,487 5,197,537 225,010,603 492,055,421 59,739,764

$ 3,356,522,773 5,197,537 344,153,524 3,017,566,786 112,947,664

Due within

June 30, 2009 Additions Reductions June 30, 2010 one year

Student loan revenue bonds $ 3,591,701,437 230,170,000 1,177,217,151 2,644,654,286 78,782,004

Notes payable 210,075,302 767,308,180 265,514,995 711,868,487 148,207,457

$ 3,801,776,739 997,478,180 1,442,732,146 3,356,522,773 226,989,461



June 30, 2011 and 2010

44 (Continued)

A summary of the scheduled principal and interest payments as of June 30, 2011 is as follows:

Bond Unamortized Total Estimated Totalmaturities and Note discount and carrying interest principal and

redemption maturities issue costs amount payments interest

Year ending June 30,2012 $ 53,207,900 59,739,674 23,479,278 136,426,852 41,238,000 177,664,852 2013 41,393,337 52,441,142 23,702,185 117,536,664 40,288,300 157,824,964 2014 43,609,372 46,034,288 13,818,870 103,462,530 39,179,100 142,641,630 2015 39,586,709 330,763,862 (398,945) 369,951,626 36,535,000 406,486,626 2016 38,795,701 - (421,261) 38,374,440 35,275,700 73,650,140 2017-2021 134,203,503 - (2,432,859) 131,770,644 165,957,800 297,728,444 2022-2026 199,408,460 - (2,195,977) 197,212,483 149,661,300 346,873,783 2027-2031 214,486,416 3,076,456 (1,640,862) 215,922,010 121,651,300 337,573,310 2032-2036 300,992,158 - (1,230,869) 299,761,289 103,671,200 403,432,489 2037-2041 1,137,702,808 - (583,831) 1,137,118,977 60,784,400 1,197,903,377 2042-2046 322,125,000 - (92,046) 322,032,954 9,800,600 331,833,554

$ 2,525,511,364 492,055,422 52,003,683 3,069,570,469 804,042,700 3,873,613,169

(5) Retirement Plan

The Corporation sponsors a defined contribution retirement plan, the Iowa Student Loan Liquidity Corporation 401(k) Retirement Plan, covering all employees who are 18 years of age or older and meet length-of-service requirements. Corporation contributions are made at the sole discretion of the Corporation’s board of directors, and are allocated to active participants by the ratio of their compensation to total compensation of all active participants. The Corporation’s contribution for the years ended June 30, 2011 and 2010 was $1,490,100 and $1,537,790, respectively.

(6) Arbitrage Rebate Liability

As provided for in Section 148(f)(2) of the Internal Revenue Code of 1986, as amended, the Corporation is required to pay to the United States of America certain amounts related to the Corporation’s tax-exempt bond issues. The amount required to be paid essentially represents the excess yield on student loans and investments over the interest cost of the tax-exempt borrowings. Yield reduction payments are due every tenth year during the life of each bond issue, every five years thereafter, and when the bonds are retired. Rebate payments are due every five years and when the bonds are retired.

The Corporation currently offers forgivable loan programs for students obtaining certain nursing and teaching degrees. Forgiveness is contingent upon the student locating in specified areas within Iowa and meeting length of service requirements. Loans forgiven under these programs could factor into future arbitrage rebate liability and potential payments.

The year-end estimated liability is calculated by the Corporation. Subsequent to year-end annual calculations are performed by a third party with the results reconciled and incorporated into the following year-end estimates.. The amount that will eventually be paid, if any, could be subject to different interpretations of this law in the future. The Corporation has accrued $23,547,900 and $18,562,600 as of June 30, 2011 and 2010, respectively. The factors used in determining this estimate are sensitive to change in the future and the change in estimate may be material to the financial statements. The amount charged to income totaled $4,985,300 and $11,782,784 for the years ended June 30, 2011 and 2010, respectively.



June 30, 2011 and 2010

45 (Continued)

(7) Leases

The Corporation is obligated under a noncancelable operating lease for office space and equipment in the

normal course of business. Future minimum lease payments under the noncancelable operating lease as of

June 30, 2011 are approximately as follows:

2012 $ 2,190,315 2013 2,000,966 2014 1,334,402 2015 31,438 2016 —

Total minimum leasepayments $ 5,557,121

Rent expense for the years ended June 30, 2011 and 2010 totaled $2,129,848 and $2,186,092, respectively.

(8) Fair Value of Financial Instruments

Following are disclosures of the estimated fair value of the Corporation’s financial instruments at June 30,

2011 and 2010:

June 30, 2011 June 30, 2010

Carrying Carrying

amount Fair value amount Fair value

Assets:

Investments $ 366,643,812 366,643,812 271,187,482 271,187,482

Student loans receivable 2,959,055,080 3,170,868,373 3,236,456,935 3,336,858,253

Student loans held-for-sale — — 147,964,747 147,964,747

Accrued interest receivable 31,038,647 31,038,647 46,385,785 46,385,785

Liabilities:

Bonds and notes payable $ 3,069,570,469 2,696,841,684 3,344,561,207 2,952,090,465

Accrued interest payable 1,671,175 1,671,175 1,912,790 1,912,790

Accounts payable and

accrued expenses 6,001,001 6,001,001 6,926,443 6,926,443

Arbitrage rebate liability 23,547,900 23,547,900 18,562,600 18,562,600

Deferred revenue 21,007,334 21,007,334 25,365,713 25,365,713

(9) General – Designated Net Assets

The board of directors has designated general net assets for items such as future bond issuances, student

borrower benefits, and contingent capacity for alternative loans.



June 30, 2011 and 2010

46 (Continued)

(10) Risk Management

The Corporation is exposed to various risks related to torts, theft, damage to and destruction of assets,

errors and omissions, injuries to employees, employee health benefits, and natural disasters. These risks are

covered by the purchase of commercial insurance. Settled claims from these risks have not exceeded

commercial insurance coverage in any of the past three fiscal years.

(11) Related Party Transactions

The Iowa College Access Network (ICAN) was previously operated as a division of the Corporation and

during 2010 was spun-off into a separate unrelated organization. The Corporation’s President and CEO is a

member of ICAN’s board of directors. During the year ICAN’s operations were supported through

contributions from the Corporation.

The Corporation and ICAN have entered into a contractual administrative services agreement whereas the

Corporation will provide ICAN support services, including but not limited to accounting and financial

reporting, payroll processing, human resources, facilities management, information technology, creative

support for promotional and informative materials, corporate communications, and public relations. The

Corporation will charge a fee for these services based on actual cost plus an overhead factor. During the

year the value of these services was contributed to ICAN as an in kind donation.

The Corporation shared certain activities with ICAN related to network and telephone usage. Costs for

these shared activities were accumulated and allocated to each entity using a common allocation base.

ICAN’s portion of these allocated costs was contributed as an in kind donation.

Certain lease obligations for building space used by ICAN remains under a noncancelable lease obligation

between the vendor and the Corporation. ICAN continues to use this space and pays the monthly

obligations directly to the vendor. During the year these amounts were supported through the overall

contribution by the Corporation.

Contributions from the Corporation to ICAN during 2011 and 2010 were as follows:

2011 2010

In Kind Donation of property and equipment $ — 168,551 In Kind Donation of inventory — 57,172 In Kind Donation of services 42,220 42,220 In Kind Donation of shared activities 31,099 26,544 Other contributions 1,376,681 1,442,728

Total $ 1,450,000 1,737,215



June 30, 2011 and 2010

47

Future minimum payments under the noncancelable building lease obligation as of June 30, 2011 are approximately as follows:

2012 $ 94,176 2013 75,450 2014 75,450 2015 31,438

Total minimum leasepayments $ 276,514

(12) Subsequent Events

The Corporation has reviewed subsequent events through October 25, 2011, the date the financial statements were available to be issued and concluded there were no events or transactions during the period that would require recognition or disclosure in the financial statement other than those reflected below.

48

Report on Internal Control over

Financial Reporting and on Compliance and Other Matters

Based on an Audit of Financial Statements Performed in

Accordance with Government Auditing Standards

The Board of Directors

Iowa Student Loan Liquidity Corporation:

We have audited the financial statements of Iowa Student Loan Liquidity Corporation as of and for the

year ended June 30, 2011, and have issued our report thereon dated October 25, 2011. We conducted our

audit in accordance with auditing standards generally accepted in the United States of America and the

standards applicable to financial audits contained in Government Auditing Standards, issued by the

Comptroller General of the United States.

Internal Control over Financial Reporting

In planning and performing our audit, we considered Iowa Student Loan Liquidity Corporation’s internal

control over financial reporting as a basis for designing our auditing procedures for the purpose of

expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the

effectiveness of Iowa Student Loan Liquidity Corporation’s internal control over financial reporting.

Accordingly, we do not express an opinion on the effectiveness of Iowa Student Loan Liquidity

Corporation’s internal control over financial reporting.

A deficiency in internal control over financial reporting exists when the design or operation of a control

does not allow management or employees, in the normal course of performing their assigned functions, to

prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or

combination of deficiencies, in internal control over financial reporting, such that there is a reasonable

possibility that a material misstatement of the entity’s financial statements will not be prevented, or

detected and corrected, on a timely basis.

Our consideration of internal control over financial reporting was for the limited purpose described in the

first paragraph of this section and was not designed to identify all deficiencies in internal control over

financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not

identify any deficiencies in internal control over financial reporting that we consider to be material

weaknesses, as defined above. However, we identified a deficiency in internal control over financial

reporting that we consider to be a signficiant deficiency and that is described in the accompanying schedule

of findings and responses (2011-1). A significant deficiency is a deficiency, or combination of deficiencies,

in internal control over financial reporting that is less severe than a material weakness, yet important

enough to merit attention by those charged with governance.

Compliance and Other Matters

As part of obtaining reasonable assurance about whether Iowa Student Loan Liquidity Corporation’s

financial statements are free of material misstatement, we performed tests of its compliance with certain

provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a

KPMG LLP 2500 Ruan Center 666 Grand Avenue Des Moines, IA 50309

KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative (“KPMG International”), a Swiss entity.

49

direct and material effect on the determination of financial statement amounts. However, providing an

opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not

express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters

that are required to be reported under Government Auditing Standards.

Iowa Student Loan Liquidity Corporation’s response to the finding identified in our audit is described in

the accompanying schedule of findings and responses. We did not audit Iowa Student Loan Liqudity

Corporation’s response and, accordingly, we express no opinion on it.

This report is intended solely for the information and use of management, the Board of Directors, others

within Iowa Student Loan Liquidity Corporation, and federal awarding agencies and is not intended to be

and should not be used by anyone other than these specified parties.

Des Moines, Iowa

October 25, 2011

Documents

IOWA STUDENT LOAN LIQUIDITY CORPORATION · We have audited the accompanying statements of net assets of Iowa Student Loan Liquidity Corporation (the Corporation) as of June 30, 2011