NASFAA President Dr. Phil Day: Disruptions In Federal Student Loans Unlikely

TO: NASFAA Members

FROM: Dr. Phil Day, President and CEO

DATE: March 11, 2008

RE: Availability of Federal Student Loans

Alarming reports in the media about disruptions in the credit markets that are affecting student loans have many families worried that they won't be able to get student loans in the fall. I want to assure you that the likelihood of disruptions in federal student loans remains low. The U.S. Department of Education has signaled that if market conditions worsen, the federal government will likely take appropriate actions.

To date NASFAA is not aware of any student being denied a federal student loan due to market conditions.

Some news reports fail to distinguish between federal and private student loans. As you know, the vast majority of student borrowers use federal student loans. A far smaller group of students rely on private student loans. Like other consumer loans affected by the subprime mortgage meltdown, private student loans will be costlier for some families at some institutions this academic year. But low-cost federal student loans are still available. Even in instances where student loan providers have suspended their loan programs, other loan providers have stepped in to fill any vacancies.

If conditions worsen to the point where the availability of federal student loans are threatened, the following alternatives are in place.

Congress or the U.S. Department of Education would likely take special steps to ensure access to federal loans. Congress and the U.S. Department of Education will not tolerate a federal student loan access problem. The political consequences, the intense media criticism, and the anger from students and parents denied federal loans would be too much of an embarrassment.
The Department may reinstate the "Lender of Last Resort" provision, where federally-designated guaranty agencies will line up lenders to continue making loans to students or will be given funds directly from the government to disburse to students.
A school that has a problem accessing federal student loans through the Federal Family Education Loan Program (FFELP) can join the federal government's Direct Student Loan program (DL), where the government lends the money directly to students without using any lender.

This Friday, the House Education Committee will be convening a full committee hearing on ensuring the availability of federal student loans. NASFAA will be attending the committee hearing and will remain actively engaged in the issues facing student loan availability. We are in direct contact with the Department and legislators on these issues and will continue to inform you of any changes as the situation continues to develop.

To ensure a smooth financial transition into college this upcoming academic year for prospective and returning students, NASFAA is advising students and families to apply for financial aid early and to exhaust federal, state, and institutional aid before turning to private loans. We are also recommending that they work closely with their school's financial aid office to complete the financial aid process - including applying for federal student loans. And, we are telling families to direct any questions or doubts about the availability of student loans or other forms of financial aid to their student aid office.

Thank you for your continued dedication to students and parents during these turbulent economic times.

Posted 03/11/08 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.