Over the weekend, Secretary of Education Margaret Spellings announced a new form of funding that will provide longer-term financing for FFELP loans. While the passage and extension of the Ensuring Continued Access to Student Loans Act (ECASLA) has shored up the federal student loan market through the 2009-10 academic year, it has been criticized for not going far enough to help all FFELP lenders, especially nonprofits.
Under ECASLA, the Department either purchases loans directly from lenders or lends them money by using their own loan portfolios as collateral. In both cases FFELP lenders are able to use the Department's funds to continue making federal loans to students.
To date, the Department's plan has supported nearly 50 percent - or $8.7 billion - of the FFELP loans disbursed so far this year, according to the press release.
But since the Department's current liquidity plan only allows lenders to use loans disbursed after May 1, 2008 as collateral, some have argued that it does nothing to help lenders that lack the initial start-up capital needed to disburse any loans at all. (ECASLA authorizes ED to buy back loans made from 2003 to 2010, but the Department has not made full use of that authority through it's current liquidity plan.)
While details of the Secretary's new plan have not been released, Saturday's press release states that the additional funding plan is intended to provide liquidity for all fully-disbursed non-consolidation FFELP loans awarded between October 1, 2003 and July 1, 2009. This would mean that several nonprofits and other lenders that didn't have enough up-front funds to participate in ECASLA could re-enter the market using loans disbursed in previous academic years.
The expanded liquidity plan has already received some positive nods from Capitol Hill.
"We need to do everything we can to prevent students from becoming the next victims of the financial crisis," said Senator Edward M. Kennedy - chairman of the Senate Education Committee - in a New York Times article. "Next year, we need to take a closer look at these programs to insulate them from fluctuations in the market so students' ability to access loans is not threatened."
The new plan will provide support for one ore more conforming asset-backed commercial paper (ABCP) conduits, according to the press release. ABCPs are generally defined as short-term investment vehicles issued by a financial institution that are backed by physical assets, including loan receivables.
While the Secretary hasn't released any specific details on this additional liquidity measure, the press release alludes to the fact that the Department could allow private entities to securitize FFELP loans and sell them to investors, with the fully backing of the federal government. The Department would commit to purchase those loans from the conduit at a prearranged price, which could bring investors back to the table and provide FFELP lenders with the funding they need to make loans. Investors began fleeing the asset-backed securities market in 2007, which led to lender shortfalls earlier this year.
Despite the lack of specific details, the Secretary has committed to implement this new funding at no net cost to taxpayers.
"The Administration is working diligently on these programs so that students and their families can be assured that Federal funds will continue to be available to help pay for higher education and ensure that our students will be better prepared to pursue their dreams in today's competitive global economy," the press release stated.
Additional Media Coverage
By Justin Draeger
NASFAA Vice President of Development
Posted 11/10/08 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.
