In a closed-door meeting yesterday afternoon officials from the Department of Education met with leaders of the lending community to discuss ways to infuse additional liquidity into the student loan market. Media sources are reporting that attendees came to some short-term agreements with the promise of talks for a longer-term solution beginning next week.
One of the short-term solutions from the meeting would allow the federal government to purchase federal loans made after May 1 from lenders using a fee structure that would include not only the face value of the loan, but also accrued interest, rebates of fees paid by lenders, and a $75-per-loan flat fee to cover other origination and servicing costs. This proposal is reportedly contingent on being shown as cost neutral to the federal treasury, Inside Higher Ed reports.
Another short-term solution includes a Treasury Department financed fund that would pay lenders for making loans at 50 basis points over the costs of standard commercial paper, according to Inside Higher Ed. Last year the College Cost Reduction and Access Act cut lender subsidies by 55 basis points for for-profit lenders and 40 basis points for nonprofit lenders and this move is seen as a way to lure lenders back into federal student loan participation.
Secretary of Education Margaret Spellings said there is no cap on how much the government might invest under the plan, which goes into effect immediately, according to The Wall Street Journal. The education department also has no estimate on how many lenders might participate or how much they will borrow.
The Department's decision to meet with these lenders comes after four of the largest student loan providers threatened to leave the program entirely, The Chronicle of Higher Education reports. Sallie Mae, Bank of America, Citibank, and Chase account for 40 percent of all federal lending.
By Justin Draeger
NASFAA Associate Director of Communications
Posted 05/21/08 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.
