On Wednesday of this week the Department of Education asked student loan guarantors to update their lender-of-last resort (LLR) provisions within the next 30 days should events in the financial markets require LLR implementation. The March 26 letter sent by Larry Warder, the Department’s acting chief operating officer, asks guarantors to update their policies and procedures to ensure they are in compliance with LLR provisions as stipulated in the HEA. Regulations require guaranty agencies’ LLR programs to serve all eligible students at any eligible school in the state in which the agency serves as the designated guarantor.

LLR provisions in the HEA require guaranty agencies - or lenders that have agreements with guaranty agencies - to serve as lenders of last resort for any eligible borrowers who are unable to obtain a FFEL loan from no more than two eligible lender. Warder asked guarantors to provide the Department with updated rules and operating procedures before April 25.

Among other things, the Department is seeking:

• A description of how guarantors will inform schools of the availability of LLR loans in the state(s) in which they operate;

• A description of a guarantor’s customer service provisions to address borrower inquiries for a LLR loan;

• A time line for issuing a LLR loan after receiving a borrower application, which cannot be more than 60 days and preferably sooner; and

• Criteria that a guarantor will use to determine whether a student has been denied a loan from no more than two eligible lenders.

In addition the Department is requiring each guarantor to provide:

• How it would determine the need for LLR loans in its state, including statements from each lender explaining why they are no longer willing to make conventional FFEL loans;

• How it will examine a lender’s financial and administrative capability to serve as a lender of last resort; and

• An estimate of its own total loan volume capacity and administrative capability in instances where the guarantor will make LLR loans directly to borrowers.

The letter did not discuss how guarantors would be funded if they are required to make loans directly to borrowers. "Should the need arise additional information and guidance will be issued by the Department," wrote Warder.

NASFAA President and CEO Dr. Phil Day recently asked Secretary Spellings to make preparations for LLR implementation now to ensure continued availability of federal loans in the event of any shortages in the future. Day urged the Secretary to allow institutions to certify loan access problems institution-wide for all borrowers, which would remove the burden currently placed on borrowers who must prove that they've been unable to obtain a loan.

Warder’s letter leaves it up to the guarantors to specify "provisions describing what criteria will be used in determining whether a student has been denied a loan from no more than two eligible lenders..." Whether that means guarantors will be able to certify that all borrowers attending certain institutions will qualify for LLR loans is still unclear.

NASFAA is in contact with the Department trying to ensure that LLR loans will be available to students in a seamless manner should they become necessary.

Other Media Coverage

• Credit Turmoil Raises Student-Loan Worries (The Wall Street Journal)

• Education Department Issues Lender-of-Last-Resort Guidelines as More Banks Quit Federal Program (The Chronicle of Higher Education)

List of State Designated Guarantors

The following list gives the designated guarantor from each state as outlined in the Fiscal Year 2005 Cohort Default Rate Guide for Guaranty Agencies and Lenders. Schools with LLR questions may wish to contact NASFAA or their state's designated guaranty agency.

Alabama, AL
Kentucky Higher Education Assistance Authority

Alaska, AK
United Student Aid Funds, Inc.

Arkansas, AR
Student Loan Guarantee Foundation of Arkansas

California, CA
California Student Aid Commission/Edfund

Colorado, CO
College Access Network

Connecticut, CT
Connecticut Student Loan Foundation

Delaware, DE
Pennsylvania Higher Education Assistance Agency

District of Columbia, DC
American Student Assistance

Florida, FL
State of Florida, Department of Education Office of Student Financial Assistance

Georgia, GA
Georgia Higher Education Assistance Corporation

Hawaii, HI
United Student Aid Funds, Inc.

Idaho, ID
Student Loan Fund of Idaho, Inc.

Illinois, IL
Illinois Student Assistance Commission

Indiana, IN
United Student Aid Funds, Inc.

Iowa, IA
Iowa College Student Aid Commission

Kansas, KS
United Student Aid Funds, Inc.

Kentucky, KY
Kentucky Higher Education Assistance Authority

Louisiana, LA
Louisiana Office of Student Financial Assistance

Maine, ME
Finance Authority of Maine

Maryland, MD
United Student Aid Funds, Inc.

Massachusetts, MA
American Student Assistance

Michigan, MI
Michigan Higher Education Assistance Authority

Minnesota, MN
Great Lakes Higher Education Corporation

Mississippi, MS
United Student Aid Funds, Inc.

Missouri, MO
Coordinating Board for Higher Education

Montana, MT
Montana Guaranteed Student Loan Program

Nebraska, NE
Nebraska Student Loan Program

Nevada, NV
United Student Aid Funds, Inc.

New Hampshire, NH
New Hampshire Higher Education Assistance Foundation

New Jersey, NJ
New Jersey Higher Education Assistance Authority

New Mexico, NM
New Mexico Student Loan Guarantee Corporation

New York, NY
New York State Higher Education Services Corporation

North Carolina, NC
North Carolina State Education Assistance Authority

North Dakota, ND
Student Loans of North Dakota North Dakota Guaranteed Student Loan Program

Ohio, OH
Great Lakes Higher Education Corporation

Oklahoma, OK
Oklahoma State Regents for Higher Education Guaranteed Student Loan Program

Oregon, OR
Educational Credit Management Corporation

Pennsylvania, PA
Pennsylvania Higher Education Assistance Agency

Puerto Rico, PR
Great Lakes Higher Education Corporation

Rhode Island, RI
Rhode Island Higher Education Assistance Authority

South Carolina, SC
South Carolina State Education Assistance Authority

South Dakota, SD
Education Assistance Corporation

Tennessee, TN
Tennessee Student Assistance Corporation

Texas, TX
Texas Guaranteed Student Loan Corporation

Utah, UT
Utah Higher Education Assistance Authority

Vermont, VT
Vermont Student Assistance Corporation

Virgin Islands, VI
Great Lakes Higher Education Corporation

Virginia, VA
SEE Educational Credit Management Corporation

Washington, WA
Northwest Education Loan Association

West Virginia, WV
SEE Pennsylvania

Wisconsin, WI
Great Lakes Higher Education Corporation

Wyoming, WY
SEE United Student Aid Funds, Inc.

By Justin Draeger
NASFAA Assistant Director for Communications

Posted 03/28/08 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.