Brazos Student Finance Corp. wants to be the first student loan lender to ask institutional investors to voluntarily tender, at a discount, illiquid auction-rate securities (ARS) in exchange for new floating-rate notes, about a year after a much larger and more complex offer failed.

The Waco, Tex.-based student loan lender announced late last week that it is working with Morgan Stanley and Merrill Lynch on an exchange involving about $500 million of senior and subordinate ARS that remain outstanding from 2004.

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