Rep. Paul Kanjorski (D-PA), Chairman of the House Financial Services Capital Markets, Insurance, and Government Sponsored Enterprises Subcommittee, believes the Department of Education hasn't gone far enough to fix problems in the auction rate securities market for student loan originators. On Sept. 18 Kanjorski will hold a hearing to focus on how regulators can solve these financing issues.
"We have waited patiently for the private sector and financial regulators to solve these problems," said Kanjorski in a press statement released last week. "I am very disappointed at the failure of the Administration to implement H.R. 5715 effectively, and I remain just as concerned about the ability of our federal regulators and the financial industry to fix the broader problems of the auction rate securities marketplace."
Kanjorski said the hearing will focus on recent efforts by the Bush Administration to provide lenders with liquidity through the Ensuring Continued Access to Student Loans Act (ECASLA). ECASLA allows the Department to provide liquidity to student loan providers in two ways. Under the "Loan Purchase Commitment Program" the Department will purchase loans directly from lenders for a price that would total the value of the loan, the origination fees paid by the lender to the Department, plus a $75-per loan flat fee to cover origination and servicing costs. Under the "Loan Participation Purchase Program," also outlined in the Federal Register, the Department will lend money to loan providers, which would allow lenders to continue making loans by using their own loan portfolios as collateral.
But some argue - including Kanjorski - that the Department's plan only helps lenders who already have enough capital to make loans this coming academic year and does little for lenders that have already dropped out of the program. Although ECASLA gives the Department authority to purchase student loans made as early as the 2003-2004 academic year, the Department has said that it will only purchase loans made on or after May 1, 2008. Lenders that cannot raise enough capital to originate loans this year are therefore unable to take advantage of the Department's liquidity plans.
"Congress enacted a law in May to help student loan originators affected by the credit crunch, but the Administration has not yet used its full authority to help non-profit lenders like PHEAA," said Kanjorski. "The school year is beginning. We can wait no longer. The Administration must take swift action to implement this law effectively,"
Several nonprofits and state agencies that have left the FFEL program have not been able to return, even with the Department's liquidity plans, and more are leaving. That point was punctuated last week when Brazos, the nation's largest not-for-profit provider of federally guaranteed student loans, and the Massachusetts Educational Financing Authority (MEFA), announced that they could no longer participate in FFELP.
"I am very disappointed at the failure of the Administration to implement H.R. 5715 effectively, and I remain just as concerned about the ability of our federal regulators and the financial industry to fix the broader problems of the auction rate securities marketplace," said Kanjorski.
But not all legislators share Kanjorski's point of view. In an open letter to Massachusetts' students and families last week, Senator Edward Kennedy (D-MA) sought to reassure families that ECASLA is working, by pointing to stronger lender-of-last resort provisions and schools' ability to move into the Direct Loan program.
"Over 40 Massachusetts colleges and universities already successfully participate in the Direct Loan Program, and others have signed up in recent months," Kennedy wrote. "The Department of Education has been working to make this transition as easy as possible."
Kennedy also urged students and parents to remain in contact with their financial aid administrators to ensure they are receiving as much federal student aid as possible. "Throughout this process, your financial aid advisor will be an important resource about the funding options available to you and I encourage you to keep in close contact with them," Kennedy wrote.
By Justin Draeger
NASFAA Associate Director for Communications
Posted 08/04/08 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.
