You should read the following discussion and analysis of our financial condition and results of operations together with our "Selected Financial Data" included in Item 6 of this annual report and "Financial Statements and Supplementary Data" included in Item 8 of this annual report. In addition to historical information, this discussion of financial condition and results of operations contains certain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those expressed or implied by the forward-looking statements due to applications of our critical accounting policies and factors including, but not limited to, those set forth under the caption "Risk Factors" included in Item 1A of this annual report.

Executive Summary

Overview

We are a specialty finance company focused on education loan programs for K-12, undergraduate and graduate students in the United States, as well as tuition planning, tuition billing, refund management and payment technology services. Since 2009 we have focused on providing fee-based services which includes our four principal revenue lines: partnered lending, banking services, capital market transactions and fee-for-service. Our products and services help students and families meet their educational financial needs either through our Monogram platform or through our tuition payment planning services.

Our business model has changed significantly since fiscal 2009 as a result of capital markets disruptions. However, we are focused on continuing to grow and maximize our Monogram platform, grow and diversify our fee-based revenues, manage risk and retention and capture opportunities within the capital markets.

Our financial results are affected by changes in economic and market conditions, competitive conditions within the education loan industry and changes in legislation, regulation and/or accounting principles. While the economic climate has been improving in recent quarters, we are uncertain as to the degree of market acceptance that our Monogram platform will achieve and we continue to believe that managing risk and growth is critical to our overall success. We have taken the following measures since fiscal 2009 to adjust our business model, including:

• During fiscal 2009, we designed our Monogram platform, including the development and validation of our proprietary origination risk score model, product pricing, an enhanced application interface and additional disbursement and reporting capabilities. We completed this development during fiscal 2010.

• In the first quarter of fiscal 2011, we disbursed the first loans based on our Monogram platform.

• In December 2010, we completed our acquisition of the assets, liabilities and operations of TMS from KeyBank National Association.

• In the third quarter of fiscal 2011, we completed our previously-announced review of strategic alternatives for Union Federal. After an analysis of a broad range of alternatives by a special committee of independent directors and FMD's financial and legal advisors, we decided to retain our ownership of Union Federal. We believe our acquisition of TMS, along with our ability to implement our own education loan programs (subject to regulatory constraints) based on our Monogram platform creates potential synergies with Union Federal.

• On June 30, 2011, Union Federal launched the Union Federal Private Student Loan Program, a Monogram-based national higher education loan program, and The prepGATE Loan Program, a Monogram-based national K-12 education loan program, and began accepting applications under these programs as of July 1, 2011.

• On June 30, 2011, TMS sold a portfolio of contracts with 377 low cost, predominately faith-based K-12 schools to Nelnet Business Solutions, Inc. (d/b/a FACTS Management Company) for a purchase price of $6.1 million.

• On November 14, 2011, we received $13.0 million in cash upon the sale to a third party of our interests in the structuring advisory agreements relating to the Trusts and the related asset services agreement. As a result of this sale, we deconsolidated the assets and liabilities of the NCSLT Trusts as of November 14, 2011. The assets and liabilities that were deconsolidated were included in discontinued assets and liabilities, respectively, in our June 30, 2011 consolidated balance sheet. The non-cash gain of $1.24 billion recognized at deconsolidation was reported within discontinued operations in our consolidated statement of operations. See Note 3, "Discontinued Operations," in the notes to our consolidated financial statements included in Item 8 of this annual report for additional information.

• On November 14, 2011, we entered into an amendment to our loan program agreement with SunTrust Bank to, among other things, expand and extend our relationship with SunTrust Bank to 2015, thereby substantially increasing the volume capacity for Monogram-based education loan originations under the SunTrust Bank loan program.

• On March 2, 2012, FMD sold to a third party all of its outstanding capital stock in its subsidiary FMDS for $13.7 million in cash, resulting in a gain of $12.6 million. FMDS serves as the trust administrator of securitization trusts that we previously facilitated. The operations of FMDS were reported in discontinued operations in our consolidated financial statements. See Note 3, "Discontinued Operations," in the notes to our consolidated financial statements included in Item 8 of this annual report for additional information.

• On March 30, 2012, the new third party owner of FMDS terminated the agreement, to be effective September 30, 2012, with FMER for the special servicing of the NCT Trusts. As a result of the termination of the agreement, we deconsolidated the assets and liabilities of the GATE Trusts as of March 31, 2012. The results of the operations of the GATE Trusts were reported in discontinued operations in our consolidated financial statements. See Note 3, "Discontinued Operations," in the notes to our consolidated financial statements included in Item 8 of this annual report for additional information.

• On April 13, 2012, FMER provided its notice of resignation as special servicer of the Trusts. The resignation became effective June 21, 2012. With this resignation, and the previous transactions noted above, we determined that the previous deconsolidations of the NCSLT Trusts and the GATE Trusts as

• On June 1, 2012, we launched the Texas Extra Credit Education Loan Program with HESC. Based on our Monogram platform, the Texas Extra Credit Education Loan Program is a new private education loan program designed specifically for students attending an approved college or university in Texas as well as for Texas residents attending approved colleges or universities anywhere in the United States. Under the loan program agreement, we will perform a range of services in support of this loan program, including loan processing, portfolio management and program administration services.

• During fiscal 2012, we announced our commitment to reduce operating expenses through a $13.6 million reduction of selected expenses. Of this $13.6 million, approximately $7.0 million will be a reduction in compensation and benefits. We reduced our head count by 10% during the six months ended June 30, 2012, which reduced our overall compensation and benefits costs by approximately $6.0 million on an annualized basis. We anticipate that we will be able to realize these projected cost savings during fiscal 2013.

• On August 2, 2012, we announced a new private education loan consolidation program with SunTrust Bank based on the Monogram platform, the SunTrust Bank Private Student Loan Consolidation Program. This program will provide borrowers the opportunity to refinance their existing education loans into one new loan with a single payment and potentially reduce their current monthly payment and interest rate. Approved borrowers will be offered the choice of a fixed or variable interest rate, as well as multiple repayment terms.

Loan Origination

During the first quarter of fiscal 2011, we began performing services for two lender clients related to school-certified education loan programs funded by these lender clients based on our Monogram platform. On June 30, 2011, we began performing services for Union Federal related to school-certified education loan programs based on our Monogram platform, including a K-12 loan program. In June 2012, we launched a Monogram-based loan program with a new lender client and in August 2012, we launched a Monogram-based loan consolidation program with an existing client. Our Monogram platform provides us with an opportunity to originate, administer, manage and finance education loans, and our four lender clients' Monogram-based loan programs are a significant step in our return to the education lending marketplace.

Historically, we have processed the greatest loan application volume during the summer and early fall months, as students and their families seek to borrow money in order to pay tuition costs for the fall semester or the entire academic year. The period of July 2011 through September 2011 was the first full peak origination season for Monogram-based loan offerings and marked our return, after a three-year absence, to meaningful origination volumes.

The following table represents our loan origination metrics with respect to our Monogram-based programs for fiscal 2012 and 2011:

                                                    Fiscal 2012                                                       Fiscal 2011
                             Partnered Lending          Union Federal           Total           Partnered Lending          Union Federal          Total
                                                                               (dollars in thousands)
Applications                $           288,464        $       578,401        $ 866,865        $            96,374        $             -        $ 96,374
Credit Approved
Applications                             96,657                119,094          215,751                     27,982                      -          27,982
Booked Loans                             26,021                 37,627           63,648                      6,234                      -           6,234
Disbursed Loans                          23,399                 34,301           57,700                      5,268                      -           5,268

Portfolio Performance

Credit performance of consumer-related loans generally has been adversely affected by general economic conditions in the United States over the past three years. These conditions have included higher unemployment rates and deteriorating credit performance, including higher levels of education loan defaults and lower recoveries on such defaults. These conditions have had, and may continue to have, a material adverse effect on our loan portfolio performance. However, our Monogram-based education loan portfolios have yet to experience significant adverse portfolio performance as a majority of this portfolio has yet to experience more than 12-months of seasoning. Consequently, in evaluating loan portfolio performance, we review projected gross default rates, post-default recovery rates, the availability of third-party credit enhancement and the creditworthiness of various guarantors that provide any such credit enhancement. Further, we evaluate the loan portfolio performance of the securitization trusts that we previously facilitated and, accordingly, the estimated fair value of our service revenue receivables from those trusts. The service revenue receivables that remain on our consolidated balance sheet at June 30, 2012 are not significantly impacted by defaults or recoveries since the trusts possess guarantees that help partially negate the overall impact of any default activity. These securitization trusts are also cash flowing, seasoned portfolios that, for the most part, have relatively short weighted-average lives.

Capital Markets

We believe that conditions in the capital markets generally improved in fiscal 2012 compared to recent years. In particular, investors in ABS demonstrated increased interest in ABS backed by private education loans that exhibited a strong credit profile. Additionally, in fiscal 2012 investors demonstrated increasing interest in longer duration ABS in the sector. However, global capital markets experienced volatility during fiscal 2012, particularly in light of the credit turmoil in Europe. We believe that, as a result of the recent market trends, there has been a tightening in credit spreads for the private education loan securitization marketplace during fiscal 2012 and that there may be opportunities to finance private education loans in the ABS market. The structure and economics of any financing transaction may be materially different from prior transactions that we have sponsored. Such differences may include lower revenues as a result of wider credit spreads and higher initial cash requirements on our part.

Uncertainties

Our near-term financial performance and future growth depends in large part on our ability to successfully and efficiently market our Monogram platform and TMS services and originate education loans through Union Federal so that we may grow and diversify our client base and revenues. Facilitated loan volume is a key element of our financial results and business strategy, and we believe that the results from the 2011-2012 academic year demonstrate market demand for Monogram-based education loans.

We have invested in our distribution capabilities over the course of the past year, including our school channel sales force and TMS, but we face challenges in increasing loan volumes after our prolonged absence from the marketplace. For example, competitors with larger customer bases, greater name or brand recognition, or more established customer relationships than those of our clients, have an advantage in attracting loan applicants at a lower acquisition cost than us and making education loans on a recurring, or "serialized," basis. These disadvantages for us are particularly acute in the current peak season because we have only been operating Monogram-based loan programs since fiscal 2011.

Outlook

Our long-term success depends on our ability to attract additional lender clients, or otherwise obtain additional sources of interim or permanent financing. This is particularly true because of the regulatory conditions and approvals relating to the Union Federal Private Student Loan Program. To date, we have entered into education loan program agreements based on our Monogram platform with four lender clients. We are uncertain as to the degree of market acceptance that our Monogram platform will achieve, particularly in the current economic environment where lenders continue to evaluate their education lending business models. We

believe, however, that the credit quality of the loan portfolios originated in the 2011-2012 academic year will be attractive to additional potential lender clients, as well as capital markets participants. We also believe that the ability to permanently finance private education loan portfolios through the capital markets would make our products and services more attractive to lenders and would accelerate improvement in our long-term financial results.

We are uncertain of the volume of education loans to be generated by the Monogram-based loan programs of our four lender clients, one of which is our subsidiary Union Federal, or any additional lender clients, during the upcoming peak season for the 2012-2013 academic year. It is our view that returning to profitability will be dependent on a number of factors, including our loan capacity and related volumes, expense management and growth at TMS and Union Federal, and the availability of financing alternatives, including our ability to successfully re-enter the securitization market. In particular, we need to generate loan volumes substantially greater than those that we have generated to date, as well as to develop funding capacity for Monogram-based loan programs at loan volume levels greater than those of our four lender clients with lower credit enhancement levels and higher capital market advance rates than those available today. We must also continue to achieve efficiencies in attracting applicants, through loan serialization or otherwise, in order to reduce our overall cost of acquisition.

Changes in any of the following factors could materially affect our financial results:

• Demand for education financing, which may be affected by changes in limitations established by the federal government on the amount of federal loans that a student can receive, the terms and eligibility criteria for loans and grants under federal or state government programs and legislation recently passed or currently under consideration;

• The extent to which our services and products, including our Monogram platform and TMS offerings, gain market share and remain competitive at pricing favorable to us;

• The amount of education loan volume disbursed under our lender clients' Monogram-based loan programs;

• An adverse outcome relating to the federal income tax treatment of our sale of the Trust Certificate in fiscal 2009 or our asset services agreement with the purchaser of the Trust Certificate, including any challenge related to federal tax refunds previously received in the amount of $176.6 million as a result of the audit currently being conducted by the IRS;

• Regulatory requirements applicable to Union Federal, TMS and us, including conditions and approvals relating to the Union Federal Private Student Loan Program, which limit Union Federal's ability to fund education loans;

• Conditions in the education loan financing market, including the costs or availability of financing, rating agency assumptions or actions, and market receptivity to private education loan asset-backed securitizations;

• The underlying loan performance of the Monogram-based loan program, including the net default rates, unemployment rates, and the timing and amounts of excess credit enhancements that may be material to us;

• The resolution of any appeal of the ATB Order in the cases pertaining to our Massachusetts state income tax returns;

• Application of critical accounting policies and estimates, which impact the carrying value of assets and liabilities, as well as our determinations to consolidate or deconsolidate a VIE;

• Application of the Dodd-Frank Act, enacted in July 2010, through the supervisory authority of the CFPB, which has the authority to regulate consumer financial products such as education loans, and to take enforcement actions against institutions marketing and selling consumer financial products under its supervision, such as Union Federal, and institutions that act as service providers to originators of education loans, such as our subsidiary FMER;

• Departures or long-term unavailability of key personnel.

Results of Operations-Fiscal Years ended June 30, 2012, June 30, 2011 and June 30, 2010

The financial results of operations include FMD and its subsidiaries for the fiscal years then ended. These results are reported through our continuing operations. Previously consolidated NCSLT Trusts and GATE Trusts and the results of our subsidiary FMDS are included in discontinued operations as discussed below for each of the fiscal years then ended.

Discontinued Operations

Consistent with our goal of refining our business model and focusing on our Monogram platform and tuition billing and payment services, we disposed of certain components of our business in fiscal 2012. In particular, we sold our variable interests in the Trusts, we sold our subsidiary FMDS, and we resigned as the special servicer of the Trusts, including the NCSLT Trusts. In addition, the new third-party owner of FMDS terminated the agreement, to be effective September 30, 2012, with our subsidiary FMER for the special servicing of the NCT Trusts, including the GATE Trusts.

Upon our adoption of ASU 2009-16 and ASU 2009-17, effective July 1, 2010, we consolidated 11 NCSLT Trusts and three GATE Trusts, which comprised our Securitization Trust segment.

On November 14, 2011, we sold to a third party all of our interests in the structuring advisory agreements relating to the Trusts and the related asset services agreement for $13.0 million in cash. Our variable interests in the Trusts included our right to receive the additional structural advisory fees and the asset servicing fees under those respective agreements. As a result of this sale, we no longer held a variable interest in the NCSLT Trusts and were, therefore, no longer the primary beneficiary of the NCSLT Trusts. We deconsolidated $6.61 billion of assets and $7.85 billion of liabilities from our consolidated balance sheet and recognized a $1.24 billion million non-cash gain in our statement of operations during the second quarter of fiscal 2012, representing the accumulated deficit in NCSLT trusts.

On March 2, 2012, FMD sold to a third party all of its outstanding capital stock in FMDS for $13.7 million in cash. FMDS served as the trust administrator of the NCT Trusts. On March 30, 2012, the new third party owner of FMDS terminated the agreement, to be effective September 30, 2012, with our subsidiary FMER for the special servicing of the NCT Trusts. With the termination of this agreement, we no longer had the power to direct the activities that most significantly impact the performance of the GATE Trusts and, therefore, we were no longer the primary beneficiary of these trusts. As such, we deconsolidated the GATE Trusts effective March 31, 2012. We deconsolidated $258.4 million of assets and $260.1 million of liabilities from our consolidated balance sheet and recognized a $1.7 million non-cash gain in our statement of operations during the third quarter of fiscal 2012, representing the accumulated deficit in the GATE Trusts. In addition to the non-cash gain of $1.7 million, we also recorded an additional gain of $9.2 million representing the fair value of the residual interests related to these trusts that were previously eliminated through consolidation, resulting in a total non-cash gain of $10.9 million for the deconsolidation event.

On April 13, 2012, FMER provided its notice of resignation as special servicer of the Trusts. The resignation became effective June 21, 2012. Pursuant to the terms of the resignation, FMER will assist the new special servicer of the Trusts for a transition period that will terminate as of November 30, 2012.

During the fourth quarter of fiscal 2012, we determined that we no longer had any significant continuing involvement in the operations relating to the NCSLT Trusts and the GATE Trusts once FMER ceased to provide special servicing to these trusts. Further, we concluded that this would occur within an appropriate assessment period for both the NCSLT Trust and the GATE Trusts. As such, we reported the operations and activities relating to the NCSLT Trusts, the GATE Trusts and FMDS within discontinued operations for all periods presented. The non-cash gains representing the accumulated deficit recognized upon deconsolidations of the

NCSLT Trusts and the GATE Trusts, as discussed above and previously reported in our Securitization Trusts segment, are now included in discontinued operations. Further, the gain recognized as the result of the sale of FMDS, as well as the revenues and expenses of FMDS, were recorded in discontinued operations. Assets and liabilities related to these operations have been reclassified to assets from discontinued operations and liabilities from discontinued operations, respectively.

Changes to Income Tax Allocations

Our net loss from continuing operations and discontinued operations, net of tax, reported in this annual report are different from what we reported in our earnings release issued August 14, 2012 due to changes in the allocation of income taxes between continuing operations and discontinued operations. Net income and total earnings per share remain unchanged. The impact on earnings per fully diluted share was a reduction in the loss from continuing operations from $(0.35) per fully diluted share to $(0.30) per fully diluted share for the fiscal year ended June 30, 2012. Income from discontinued operations, on a fully diluted share basis, was reduced from $10.33 per fully diluted share to $10.28 per fully diluted share for the fiscal year ended June 30, 2012. Total earnings per share, on a fully diluted basis, remained the same at $9.96 for the fiscal year ended June 30, 2012. The net loss per share for the three month period ended June 30, 2012 of $(0.14) remained unchanged.

Overall Results-Continuing Operations

The following table summarizes the results of our consolidated operations:

                                       Fiscal years ended June 30,                  Change between periods
                                  2012             2011            2010         2012 - 2011        2011 - 2010
                                                            (dollars in thousands)
Revenues:
Net interest income:
Interest income                $     3,290      $    1,777      $   23,029      $      1,513      $     (21,252 )
Interest expense                      (915 )        (1,037 )       (13,158 )             122             12,121

Net interest income                  2,375             740           9,871             1,635             (9,131 )
Provision for loan losses              615            (281 )          (121 )             896               (160 )

Net interest income (loss)
after provision for loan
losses                               2,990             459           9,750             2,531             (9,291 )
Non-interest revenues:
Tuition payment processing
fees                                26,544          12,904               -            13,640             12,904
Fair value changes to
. . .