New Jersey Higher Education Student Assistance Authority (Series 2016-1)

Presale: New Jersey Higher Education Student Assistance Authority (Series 2016-1) Primary Credit Analyst: Lyuda Ryabkova, New York (1) 212-438-2897; lyuda.ryabkova@spglobal.com Table Of Contents $190.0 Million Student Loan Revenue Bonds Series 2016-1 Rationale Transaction Overview Transaction Structure Payment Structure Pool Analysis Credit Analysis S&P Global Ratings' Expected Cumulative Default Rates: 9.5%-10.5% Cash Flow Modeling Assumptions Stressed Cash Flow Results Break-Even Default Cash Flow Results Sensitivity Cash Flow Analysis Issuer And Program Overview Servicing And Collection Overview WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 3, 2016 1

Table Of Contents (cont.) Related Criteria And Research WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 3, 2016 2

Presale: New Jersey Higher Education Student Assistance Authority (Series 2016-1) $190.0 Million Student Loan Revenue Bonds Series 2016-1 This presale report is based on information as of May 3, 2016. The ratings shown are preliminary. This report does not constitute a recommendation to buy, hold, or sell securities. Subsequent information may result in the assignment of final ratings that differ from the preliminary ratings. Preliminary Ratings As Of May 3, 2016 Series Preliminary rating(i) Interest rate Preliminary amount (mil. $)(ii) 2016-1A AA (sf) Fixed 180.0 2016-1B A (sf) Fixed 10.0 (i)the ratings on the bonds are preliminary and subject to change at any time. (ii)series 2016-1A and 2016-1B are expected to be issued as bonds with serial maturities on Dec. 1 of each year. The issuance amounts will be determined on the pricing date. Profile Expected closing date June 1, 2016. Collateral Originator, issuer, and servicer Trustee Bank account provider Underwriter Private student loans made under the New Jersey Higher Education Student Assistance Authority's NJCLASS loan program that includes a pilot loan refinance loan program. New Jersey Higher Education Student Assistance Authority. Wells Fargo Bank N.A. Wells Fargo Bank N.A. Bank of America Merrill Lynch. NJCLASS--New Jersey College Loan to Assist State Students. Rationale The preliminary ratings assigned to New Jersey Higher Education Student Assistance Authority's (HESAA's) student loan revenue bonds series 2016-1A and 2016-1B (collectively, the series 2016-1 bonds) reflect our view of: The availability of approximately 17.3%-17.8% and 12.8%-13.4% credit support for senior and subordinate bonds, respectively, (based on 'AA' and 'A' stressed break-even cash flow scenarios), including excess spread, which we believe is commensurate with the assigned preliminary 'AA (sf)' and 'A (sf)' ratings; The trust estate's expected initial 'AA' and 'A' parity percentages at closing of at least 114.7% and 107.0%, respectively. The parity percentage is defined as the ratio of accrued assets over accrued liabilities. Accrued assets consist of loan principal and accrued and unpaid interest, amounts on deposit in all funds (except for the rebate and excess yield funds), and accrued and unpaid interest on the investment securities. The accrued liabilities consist of the bond principal and unpaid interest and accrued but unpaid program expenses; The parity percentage of 108.0% required to release excess trust estate assets, which is also subject to a minimum WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 3, 2016 3

of $2,000,000 in accrued assets. No releases are permitted on or after Dec. 1, 2025. The loan eligibility criteria that HESAA will use to originate new loans under its New Jersey College Loan to Assist State Students (NJCLASS) program during the origination and recycling periods ending Oct. 1, 2017. This year the NJCLASS program will also include a pilot refinance loan program for students and parents wishing to refinance their outstanding federal loans and NJCLASS loans. The existing loan pool's strong credit characteristics, which mostly consists of loans to undergraduate students cosigned by obligors with a weighted-average credit score of 741 as of the date of the loan application; The timely interest and principal payments made under stressed cash flow modeling scenarios that we believe are consistent with preliminary 'AA (sf)' and 'A (sf)' ratings; The undergraduate and graduate loans' origination fees of 2%, which are capitalized into the loan balance and thus provide added overcollateralization to the bonds; The loans' fixed interest rates, which should provide positive excess spread, given the expected interest rates on the bonds and the transaction fees; and The transaction's payment and legal structures. Transaction Overview HESAA will issue the series 2016-1 bonds according to the fifth supplemental indenture to the 2012 indenture. HESAA previously issued the respective $259.3 million, $200.0 million, $220.0 million, and $180.0 million series 2012-1, 2013-1, 2014-1, and 2015-1 bonds according to the first, second, third, and fourth supplemental indentures to the 2012 indenture. The series 2016-1 bonds will consist of the $180.0 million senior bonds and $10.0 million subordinate bonds, increasing the total senior bonds outstanding under the 2012 indenture to $894.4 million and total subordinate bonds outstanding to $64.0 million. As with the previous series' bond proceeds, HESAA will use the series 2016-1 bond proceeds to originate NJCLASS loans for the upcoming school year during origination and recycling periods that end Oct. 1, 2017, and will pledge those loans to secure all bonds issued under the 2012 indenture. NJCLASS loans are not guaranteed or insured. All of the loans will be underwritten according to HESAA's loan program guidelines, which are specified in the 2012 indenture and supplements. HESAA expects new loan borrowers to have similar characteristics to the current outstanding loan borrowers in the fixed-rate NJCLASS loan program, with minimum FICO scores of 670 and a minimum annual income of $40,000. The new loans will consist of six loan types: immediate repayment loans (Option 1); interest-only loans (Option 2); deferred loans (Option 3); Consolidation loans; Graduate loans; and Refinance loans (see the Pool Analysis and Credit Analysis sections below). The series 2016-1 bonds will have a capitalized interest account funded with $12.0 million at closing, increasing the 2012 indenture's aggregate capitalized interest fund to $22.9 million. The series 2012-1 through 2016-1 capitalized interest accounts comprise the 2012 indenture's aggregate capitalized interest fund. The series 2016-1 capitalized interest account will be available to cover interest shortfalls on the series 2016-1 bonds and program expenses on any interest payment date through Dec. 1, 2018. Similarly to the four previous series, the series 2016-1 capitalized interest account balance is subject to a step-down release schedule: it may decrease to $4.0 million on Dec. 1, 2017 and to zero on Dec. 1, 2018. Any amounts released from the capitalized interest account on those step-down dates will transfer to the revenue fund as available funds. The series 2016-1 bonds are further secured by the series 2016-1 reserve account, which will be funded at closing with WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 3, 2016 4

$3.8 million, raising the 2012 indenture's aggregate reserve fund to $19.2 million, or 2.0% of its outstanding bonds. The series 2012-1 through 2016-1 reserve accounts comprise the 2012 indenture's aggregate reserve fund. Each of the five series reserve accounts is subject to a required minimum amount of $1.0 million (a total of $5 million for five series). The amounts in the series 2016-1 reserve account will be available to pay the series 2016-1 bonds' principal at maturity and interest if the available funds held in the 2016-1 revenue account are insufficient. If the parity percentage is at least 108.0%, the trustee may release excess revenues to HESAA on any interest payment date prior to Dec. 1, 2025, when all excess revenues must be used to pay down the remaining bonds. This turbo feature later in the transaction is expected to build overcollateralization and safeguard against back-ended losses. Transaction Structure HESAA, a New Jersey state agency, was established in 1999 to succeed the New Jersey Higher Education Assistance Authority to provide further access to post-secondary education by loans, grants, scholarships, and other means. The series 2016-1 bonds are HESAA's limited obligations and are secured by and payable solely from the trust estate pledged under the 2012 indenture. S&P Global Ratings will review all of the documentation that the transaction's parties have submitted to assess the transaction's consistency with its criteria. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 3, 2016 5

Payment Structure The series 2016-1 bonds will have fixed interest rates and serial maturities with interest payable semiannually on each June 1 and Dec. 1. The 2016-1 bonds are subject to various redemption provisions, including optional redemption, mandatory redemption resulting from non-origination, special optional redemption from excess revenues (excluding 2017-2026 maturities), and special mandatory redemption from excess revenues (excluding 2017-2026 maturities). The series 2016-1 bonds maturing before Dec. 1, 2026, are not subject to optional redemption before their maturities while the series 2016-1 bonds maturing on or after Dec. 1, 2026, are subject to optional redemption before their respective maturities. Payments on the series 2016-1 and other 2012 indenture bonds will be made semiannually in the priority shown in table 1, based on the 2012 indenture and supplemental indentures. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 3, 2016 6

Table 1 Payment Waterfall Priority Payment 1 Payment to the rebate fund or excess yield fund as required. 2 Bond fees. 3 Program expenses. 4 Interest due and maturing principal on the senior bonds 5 Interest due on the subordinate bonds 6 Replenishment of the debt service reserve fund to meet the reserve fund requirement. 7 Sinking fund payments on the senior bonds.(i) 8 Only after all senior bonds have been repaid in full, principal on the maturing subordinate bonds and sinking fund payments on the subordinate bonds. (i) 9 Transfers to the student loan fund, if necessary. 10 After setting aside 50% of the principal payment coming due in six months, redemption of the senior and subordinate bonds required or permitted to be redeemed under the supplemental indentures. 11 To purchase loans from other trust estates. 12 Before Dec. 1, 2025, release to HESAA if the parity percentage is 108.0% and the accrued assets include not less than $2,000,000 of cash, HESAA--Higher Education Student Assistance Authority. (i)the 2012 indenture does not have any sinking fund bonds outstanding. If the parity percentage falls to less than 80%, then interest on the 2012 indenture's subordinate bonds will be suspended. If the parity percentage subsequently rises to more than 80%, then interest on the subordinate bonds will resume. Suspended interest due to the subordinate bonds will accrue and may be paid as carry-over interest after item 11 of table 1 and before releases to the authority. The interest suspension feature provides additional support for the 2012 indenture's senior bonds. No interest suspension occurs in our 'A' stress scenarios. Pool Analysis The existing 2012 indenture collateral consists of $668.8 million of NJCLASS loans originated by HESAA with the series 2012-1, 2013-1, 2014-1, and 2015-1 bond issuance proceeds (see table 2 for the 2012 indenture pool's characteristics as of Feb. 29, 2016). The series 2016-1 bond proceeds will be used partly to originate additional NJCLASS loans. Table 2 HESAA 2012 Indenture Collateral Characteristics (As Of Feb. 29, 2016) Aggregate principal balance ($) 668,808,795 Aggregate accrued interest ($) 4,077,303 Aggregate outstanding balance ($) 672,886,098 No. of borrowers 26,632 Average outstanding principal balance per borrower ($) 25,113 No. of loans 41,775 Average outstanding principal balance per loan ($) 16,010 Weighted average remaining term (months) 183 Weighted average term since origination (months) 22 Weighted average annual interest rate (%) 6.98 WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 3, 2016 7

Table 2 HESAA 2012 Indenture Collateral Characteristics (As Of Feb. 29, 2016) (cont.) Weighted average original credit score of borrowers and cosigners 741 Loan type (%) NJCLASS fixed interest rate 84.59 NJCLASS Consolidation 11.15 NJCLASS Graduate 2.49 NJCLASS variable rate 1.78 Total 100.00 Loan current repayment option (%) Option 1 loans (full repayment) 53.07 Option 2 loans (interest-only repayment) 31.37 Option 3 loans (full deferral) 15.56 Total 100.00 Co-signer status (%) Co-signed/Co-borrowed 89.60 Not co-signed/not co-borrowed 10.40 Total 100.00 School type (%) Four-year/graduate 85.88 NJCLASS consolidation 11.15 Proprietary/trade/technical 2.46 Two-year 0.51 Total 100.00 HESAA--New Jersey Higher Education Student Assistance Authority. NJCLASS--New Jersey College Loan to Assist State Students. Credit Analysis HESAA plans to use approximately $185 million of the bond proceeds to originate new loans during the loan origination and recycling periods, ending Oct. 1, 2017. Funds not used to originate or recycle into new loans according to specific timing schedules will be used to redeem the series 2016-1 bonds. The loans will not be guaranteed or insured. The 2012 indenture and supplemental indentures permit the financing of fixed- or variable-rate student loans made to finance or refinance post-secondary education that satisfy NJCLASS' credit criteria. NJCLASS loan concentration limits for the loans that may be originated with the series 2016-1 bond proceeds include: Up to $30,000,000 fixed-rate 10-year Option 1 loans (of which up to $5,000,000 may be used to originate 15-year Option 1 or Option 2 loans). Up to $40,000,000 Option 3 loans. Up to 6,000,000 Graduate loans. Up to $25,000,000 Consolidation loans. Up to $30,000,000 Refinance loans (of which no more than $7,500,000 shall be used to originate Refinance loans with a credit score between 670 and 719). WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 3, 2016 8

No variable-rate loans are expected to be originated with the series 2016-1 proceeds. All borrowers of the loans to be originated, except for Graduate loans, must have a credit score of at least 670 and a minimum annual income of $40,000 and no more than 5% of all fixed-rate Standard loans may be made to students attending proprietary or trade schools. S&P Global Ratings' Expected Cumulative Default Rates: 9.5%-10.5% HESAA provided S&P Global Ratings with 15 years of managed portfolio performance data through December 2015 for its Option 1, 2, and 3 loans; 11 years of performance data for its Consolidation loans; and 10 years of performance data for its Graduate loans. As part of our default analysis, we reviewed the existing managed portfolio information by loan and program type, the obligor credit score distribution, the percentage of co-signed/co-borrowed loans compared with non-cosigned loans, the loan's payment status, and the geographic concentration. The existing portfolio's quality reflects HESAA's loan program originations, which are mainly for students attending schools in the northeastern U.S. and who have relatively high average borrower/co-borrower credit scores. We also compared the performance of HESAA's loan program with that of other loan programs with similar credit characteristics. Beginning with the 2012-2013 annual year loan origination period, HESAA tightened its underwriting guidelines by increasing the minimum credit score required to 670 from 630, instituting a detailed credit review process for borrowers with FICO scores between 670-699, increasing the minimum income requirement to $40,000 from $30,500, and limiting new option 3 loans to 15% of total originations. We classified the 2012 indenture loan pool into the seven loan types in table 3 below based on loan characteristics including original repayment option, loan term, and loan type. Based on these categories, we derived expected default rates for each loan type. Our expected cumulative default rates for each loan type are shown in table 3. Table 3 Base Case Default Rates Assumptions Loan type Existing loans (%) Loans to be originated (%) Option 1 10-year loans 4.8 5.2 Option 1 15-year loans 6.4 7.2 Option 2 loans 8.2 8.6 Option 3 loans 16.0 16.9 Consolidation loans 10.0 10.7 Graduate loans 22.0 22.0 Refinance loans N/A 5.5 Using conservative assumptions regarding the mix of the new loans, we expect the cumulative default rate for the 2012 indenture aggregate loan pool including new loan originations to be in the 9.5%-10.5% range. HESAA has benefited from strong historical recovery rates on defaulted loans, which, on average, have exceeded 80.0%. Our review of HESAA's recovery experience resulted in expected cumulative recovery rate of approximately 70.0%. Based on this expected recovery rate and our expected default rate described in the paragraph above, we believe the cumulative net loss rate for the 2012 indenture aggregate loan pool will be in the 2.9%-3.2% range. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 3, 2016 9

Cash Flow Modeling Assumptions The transaction was modeled to simulate stress scenarios that we believe are commensurate with the assigned preliminary ratings (see table 4 for the representative modeling assumptions). Table 4 Stressed Cash Flow Modeling Assumptions Preliminary rating AA (sf) A (sf) Cumulative default rate - existing loans(%) Option 1 10-year loans Option 1 15-year loans 16.4 13.2 21.9 17.7 Option 2 loans 27.3 21.8 Option 3 loans 45.8 37.8 Consolidation loans 31.9 25.9 Graduate loans 60.5 49.5 Cumulative default rate - new loans to be originated (%) Option 1 10-year loans to be originated Option 1 15-year loans to be originated Option 2 loans to be originated Option 3 loans to be originated Consolidation loans to be originated Graduate loans to be originated Refinance loans to be originated 17.4 14.0 23.7 19.2 28.3 22.7 48.1 39.6 33.9 27.7 60.5 49.5 19.5 15.3 Cumulative default timing (approximate % per year) All loans (front-loaded default curve) All loans (back-ended default curve) 20/20/20/20/20 20/20/20/20/20 15/15/15/15/10/10/10/10 15/15/15/15/10/10/10/10 Recovery rate (%) 50.0 55.0 Recovery timing (approximate % per year) Voluntary prepayments (% CPR per year) 5.6/5.6/5.6/5.6/5.6/5.6/5.6/5.6/5.6 6.9/6.9/6.9/6.9/6.9/6.9/6.9/6.9 4/5/6/7/8/9 for the loans' remaining life 3/4/5/6/7/8 for the loans' remaining life WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 3, 2016 10

Table 4 Stressed Cash Flow Modeling Assumptions (cont.) Loan types to be originated with the 2016 prefunding proceeds New loans' time to repayment New loans origination timing Recycled loans origination timing Deferral (in repayment loans) Forbearance (in repayment loans) CPR--Constant prepayment rate. Originate maximum amounts permitted by the documents for the following loan types: -Option 3 loans ($40 million); Graduate loans ($6 million); Refinance loans ($30 million); and Consolidation loans ($25 million). Then the minimum amount of Option 1 10-year loans ($25 million). Then use remaining funds to reflect historical originations of Option 1 15-year loans and Option 2 loans. 25% of loans move from school into repayment each year for four years after origination Per the origination schedule, on the last day of each period 21% of 10, 15, 20, 25, and 30-year loans defer principal payments for 6, 18, 24, 30, 36 months, respectively 12% of 10, 15, 20, 25, and 30-year loans defer principal and interest payments for 6, 18, 24, 30, 36 months, respectively Originate maximum amounts permitted by the documents for the following loan types: Option 3 loans ($40 million); Graduate loans ($6 million); Refinance loans ($30 million); and Consolidation loans ($25 million). Then the minimum amount of Option 1 10-year loans ($25 million). Then use remaining funds to reflect historical originations of Option 1 15 year loans and Option 2 loans. 25% of loans move from school into repayment each year for four years after origination Per the origination schedule, on the last day of each period 100% on the last day 100% on the last day 19% of 10, 15, 20, 25, and 30-year loans defer principal payments for 6, 18, 24, 30, 36 months, respectively 10% of 10, 15, 20, 25, and 30-year loans defer principal and interest payments for 6, 18, 24, 30, 36 months, respectively Because the 2012 indenture contains variable rate loans and some variable rate bonds, we based the interest rates for the cash flow scenarios on one-month LIBOR interest rate paths (see "U.S. Interest Rate Assumptions Revised For May 2012 And Thereafter," published April 30, 2012). Each rating scenario employs both an up, down, and forward interest rate path (see chart 2). Because only 1.8% of the total pool and only 1.8% of the 2012 indenture bonds have variable rates, we believe that interest rate risk is minimal. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 3, 2016 11

Chart 2 Stressed Cash Flow Results We stressed the cumulative default rates at approximately 31% and 25%, which are consistent with the preliminary 'AA (sf)' and 'A (sf)' ratings, respectively. We also assumed stressed recovery rates of 50% and 55%, along with a nine-year and eight-year recovery lag for the preliminary 'AA (sf)' and 'A (sf)' ratings, respectively. In these cash flow scenarios, the stressed net loss rates for the preliminary 'AA (sf)' and 'A (sf)' ratings were approximately 15% and 11%, respectively. In addition, we stressed voluntary prepayments, deferment and forbearance periods, and the timing of defaults. Under these stressed cash flow scenarios, the series 2016-1 bonds paid interest due on every interest payment date and bond principal by the bond maturity dates. In addition, we ran two sets of liquidity scenarios with zero voluntary prepayment rates to ensure that all of the bonds were retired by their maturity dates. The first set of the liquidity scenarios assumed a zero default rate in the three interest rate environments. The second set of liquidity scenarios assumed the base-case default rate and a front-loaded default curve in the three interest rate environments. We left all other 'AA' assumptions unchanged. Under these WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 3, 2016 12

liquidity cash flow scenarios, the series 2016-1 bonds received interest payments due on every interest payment date and bond principal by the bond maturity dates. Break-Even Default Cash Flow Results In addition to stressed cash flows, we ran break-even cash flows using the assumptions in table 4 that maximized cumulative default rates under two default timing scenarios in the three interest rate environments. Using the 'AA' assumptions, the transaction was able to absorb cumulative defaults of approximately 34.7%-35.7% and net losses of approximately 17.3%-17.8%, depending on the default timing assumptions and interest rate environment. Using the 'A' assumptions, the transaction was able to absorb cumulative defaults of approximately 28.4%-29.7% and net losses of 12.8%-13.4%, depending on the default timing assumptions. Under all these scenarios, the series 2016-1 bonds received interest payments due on every interest payment date and bond principal by the bond maturity dates. Sensitivity Cash Flow Analysis In addition to 'AA' and 'A' stressed and break-even cash flows, we ran cash flow scenarios to assess the stability of the assigned preliminary ratings under moderate stress conditions (defined as 'BBB' stress scenarios). We believe that in a moderate stress scenario, the voluntary prepayments would be slower and recovery rates higher, than those in a 'AA' or 'A' stress (see table 5). Table 5 Sensitivity Cash Flow Modeling Assumptions Cumulative default rate - Existing Loans(%) Option 1 10-year loans 10.8 Option 1 15-year loans 14.5 Option 2 loans 18.5 Option 3 loans 31.6 Consolidation loans 22.4 Graduate loans 38.5 Cumulative default rate - New loans to be originated (%) Option 1 10-year loans to be originated 11.6 Option 1 15-year loans to be originated 16.1 Option 2 loans to be originated 19.2 Option 3 loans to be originated 32.8 Consolidation loans to be originated 24.1 Graduate loans to be originated 38.5 Refinance loans to be originated 12.4 Loan types to be originated with the 2016 prefunding proceeds Originate maximum amounts permitted by the documents for the following loan types: Option 3 loans ($40 million); Graduate loans ($6 million); Refinance loans ($30 million); and consolidation loans ($25 million). Then the minimum amount of Option 1 10-year loans ($25 million). Then use remaining funds to reflect historical originations of Option 1 15-year loans and Option 2 loans. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 3, 2016 13

Table 5 Sensitivity Cash Flow Modeling Assumptions (cont.) Cumulative default timing (approximate % per year) All loans (front-loaded default curve) 20/20/20/20/20 All loans (back-ended default curve) 15/15/15/15/10/10/10/10 Recovery rate (%) 60.0 Recovery timing (approximate % per year) 7.5/7.5/7.5/7.5/7.5/7.5/7.5/7.5 Voluntary prepayments (% CPR per year) New loans' time to repayment New loans origination timing Recycled loans origination timing Deferral (in repayment loans) 2/3/4/5/6/7 for the loans' remaining life 25% of loans move from school into repayment each year for four years after origination Per the origination schedule, on the last day of each period 100% on the last day 16% of 10, 15, 20, 25, and 30-year loans defer principal payments for 6, 18, 24, 30, 36 months, respectively Forbearance (in repayment loans) 8% of 10, 15, 20, 25, and 30-year loans defer principal and interest payments for 6, 18, 24, 30, 36 months, respectively CPR--Constant prepayment rate. In a moderate stress scenario, the senior credit enhancement coverage for the remaining net losses builds over time (see chart 3). The subordinate credit enhancement coverage for the remaining net losses remains constant in the first year and then begins to build over time (see chart 4). WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 3, 2016 14

Chart 3 WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 3, 2016 15

Chart 4 Under moderate stress scenarios, depending on the interest rate scenario, the senior and subordinate notes would initially cover approximately 3.1x and 2.3x the remaining net losses, respectively. After one year, these coverage multiples are 3.2x and 2.3x and after three years they increase to 3.5x and 2.4x, respectively. Based on the cash flow scenarios above, we would expect our ratings on the senior bonds to remain within one rating category of our preliminary 'AA (sf)' ratings in the first year and our rating on the subordinate bonds to remain within two rating categories of our preliminary 'A (sf)' rating in the first year. Both of these expectations are consistent with our credit stability criteria (see "Methodology: Credit Stability Criteria," published May 3, 2010). Issuer And Program Overview HESAA is a New Jersey agency that was established in 1999 to succeed the New Jersey Higher Education Assistance Authority and provide further access to post-secondary education through loans, grants, scholarships, and other means. HESAA developed the NJCLASS loan program in response to this legislative authorization and has been originating student loans under the program since 1991. In 2005 and 2006, HESAA initiated its NJCLASS loan Consolidation WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 3, 2016 16

program and its NJCLASS Graduate fixed-rate loan program, respectively. In 2010, HESAA initiated a 10-year repayment option for the fixed-rate loan program. In 2012, HESAA tightened its underwriting guidelines for its NJCLASS loans. HESAA raised the minimum FICO score to 670, required a detailed underwriting review of loans to obligors with 670-699 FICO scores, and required a minimum $40,000 annual income. The borrower must meet both the income and credit requirements or have a cosigner that does. Option 3 (deferred principal and interest while in school) loans were limited to 25% of new originations. These guidelines remain in effect for the 2016-1 issuance. In 2014, HESAA also initiated a variable interest rate loan program with only a 10-year repayment option available. On or about June 1, 2016, HESAA plans to offer a pilot loan refinance program that will allow eligible student and parent borrowers to refinance their outstanding federal or NJCLASS loans with a single fixed rate loan. As of Feb. 29, 2016, HESAA had originated approximately 288,440 NJCLASS loans having an aggregate principal amount of $3,645,545,508. The authority is functioning as the lender and servicer of all of the NJCLASS loans. Servicing And Collection Overview HESAA will service the loans and be paid a servicing fee as a program expense. As of Feb. 29, 2016, the Authority was servicing approximately 67,750 active borrowers under the NJCLASS Loan Program. To further its servicing efforts and raise its borrowers' awareness, HESAA notifies Option 2 and 3 loan obligors 60 days before beginning full repayment. Obligors are also assigned to customer care specialists for further assistance. Borrowers receive a repayment notification 45 days before their first payment due date, and monthly bill statements are generated 20 days before the payment due date. HESAA provides borrowers with several payment options, such as automated clearing house payments, Western Union "Quick Collect" payments, and credit card payments (via Web or phone). Since 2010, HESAA regularly contacts option 3 borrowers to advise them about making payments while in school to offset the amount of capitalized interest that accrues on the loan. In September 2011, HESAA began offering NJCLASS borrowers the option to make payments through its website. If HESAA doesn't receive payments on time, it begins calling the borrower and cosigner(s) after the first 10 days of delinquency and then at various intervals thereafter throughout delinquency. It then begins sending repeated written notices to the borrower and cosigner beginning after the first 21 days of delinquency, then at specified intervals thereafter through the 180th day of delinquency for loans payable in monthly installments and the 240th day of delinquency for loans payable in installments less frequent than monthly. HESAA uses a variety of tools and techniques to enhance its servicing and collection efforts, including an automatic telephone system, weekend and evening collections, and Web-based tools for locating debtors. New Jersey state law authorizes HESAA to garnish administrative wages for any delinquent or defaulted NJCLASS loan borrower or cosigner, and HESAA may initiate this process when an account becomes 90-days delinquent. When a NJCLASS loan payable in either monthly installments reaches 180 days of delinquency or installments less frequent than monthly reaches 240 days of delinquency, HESAA declares the loan to be in default. HESAA can collect WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 3, 2016 17

on defaulted loans by filing suit, enforcing the New Jersey Set-Off Individual Liability Law (which allows HESAA to file a claim against New Jersey state income tax refunds, property tax rebates, or homestead rebates due to defaulted borrowers), or garnishing New Jersey state employees' wages. HESAA may also garnish private-sector employees' (both New Jersey and non-new Jersey based) wages before default and suspend or revoke borrowers' professional or occupational licenses. It may also collect from New Jersey state lottery prize winnings exceeding $1,000. Related Criteria And Research Related Criteria Methodology And Assumptions For Ratings Above The Sovereign--Single-Jurisdiction Structured Finance, May 29, 2015 Methodology: Criteria For Global Structured Finance Transactions Subject To A Change In Payment Priorities Or Sale Of Collateral Upon A Nonmonetary EOD, March 2, 2015 Global Framework For Cash Flow Analysis Of Structured Finance Securities, Oct. 9, 2014 Methodology And Assumptions For U.S. Private Student Loan ABS Credit Analysis, Feb. 13, 2013 Criteria Methodology Applied To Fees, Expenses, And Indemnifications, July 12, 2012 Global Investment Criteria For Temporary Investments In Transaction Accounts, May 31, 2012 U.S. Interest Rate Assumptions Revised For May 2012 And Thereafter, April 30, 2012 Understanding Standard & Poor's Rating Definitions, June 3, 2009 Standard & Poor's Revises Criteria Methodology For Servicer Risk Assessment, May 28, 2009 Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Select Issues Criteria, Oct. 1, 2006 Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Special-Purpose Entities, Oct 1, 2006 Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Securitizations By SPE Transferors And Non-Code Transferors, Oct. 1, 2006 Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Appendix III: Revised UCC Article 9 Criteria, Oct. 1, 2006 Legal Criteria For U.S. Structured Finance Transactions: Criteria Related To Asset-Backed Securities, Oct. 1, 2006 Student Loan Criteria: Rating Methodology For Student Loan Transactions, Oct. 1, 2004 Student Loan Criteria: Structural Elements In Student Loan Transactions, Oct. 1, 2004 Student Loan Criteria: Evaluating Risk In Student Loan Transactions, Oct. 1, 2004 Related Research Global Structured Finance Scenario And Sensitivity Analysis: Understanding The Effects Of Macroeconomic Factors On Credit Quality, July 2, 2014 Overview Of Legal Criteria For U.S. Structured Finance Transactions, Oct. 1, 2006 The Rating Process For Student Loan Transactions, Oct 1, 2004 Student Loan Programs, Oct. 1, 2004 In addition to the criteria specific to this type of security (listed above), the following criteria articles, which are generally applicable to all ratings, may have affected this rating action: "Post-Default Ratings Methodology: When Does Standard & Poor's Raise A Rating From 'D' Or 'SD'?," March 23, 2015; "Global Framework For Assessing Operational Risk In Structured Finance Transactions," Oct. 9, 2014; "Methodology: Timeliness of Payments: Grace Periods, Guarantees, And Use of 'D' And 'SD' Ratings," Oct. 24, 2013; "Counterparty Risk Framework Methodology And Assumptions," June 25, 2013; "Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings," Oct. 1, 2012; WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 3, 2016 18

"Methodology: Credit Stability Criteria," May 3, 2010; and "Use of CreditWatch And Outlooks," Sept. 14, 2009. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT MAY 3, 2016 19

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