Lenders received added guidance about the terms and conditions under which the Department of Education will purchase loans under the Ensuring Continued Access to Student Loan Act (ECASLA) during a Department of Education Webinar yesterday. The Webinar occurred the same day that ED officially posted these terms and conditions in the Federal Register.
ECASLA gives the Secretary of Education authority to offer temporary liquidity to FFELP lenders at prices that will encourage their continued participation in FFELP and maximize student loan availability. By purchasing these loans, ED will lenders to provide lenders with additional liquidity to continue making FFELP loans in the current marketplace.
ED developed the terms and conditions to ensure students had access to federal student loans, respect the public-private partnership of FFELP, and ensure there was no net cost to the federal government, according to Department of Education Undersecretary Sara Martinez-Tucker.
Martinez-Tucker, thanked a subset of lenders who helped "kick the tires" of the terms and conditions set forth by the Department to make sure they will work for the community.
"Secretary Spellings made a commitment to students and families that they would have funds for the 2008-09 academic year," said Martinez-Tucker. She added that President Bush is paying close attention to the issues facing students a discussion of the issue at citing an April meeting he had with Department officials on the topic prior to his weekly radio address.
The Department believes that the existence of these terms and conditions, even prior to their official publication in the Federal Register, has already loosened the capital markets enough to allow lenders to continue making loans. As of yesterday, no one has invoked lender of last resort provisions, which were strengthened under ECASLA, according to officials from the Department.
Loan Purchase Commitment Program
Under the "Loan Purchase Commitment Program," outlined in the Federal Register, 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.
A loan must be fully disbursed before a lender can sell it to the Department. The Department will require lenders to provide a 45 day notice of intent to sell before the Department will provide any funds for those loans. Lenders must sell both subsidized and unsubsidized portions of a loan. Lenders must also submit a notice of intent to participate with the Department; if they do so by July 16, they will be able to sell loans made on or after May 1, 2008.
Any loans with borrower benefits attached - except those already approved by the Department - cannot be sold to the Department. If a loan had borrower benefits attached, but those benefits were subsequently canceled by the lender, that loan remains ineligible for purchase by the Department.
The Department expects to take over servicing of loans that it buys, but Department officials reserve the right to change their minds, according to Dennis Cariello, from ED Office of the General Counsel
Loan Participation Purchase Program
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. Student loan providers would have until September 2009 to either pay off the Department's loan and retain the student loan asset or allow the Department to take possession of the loan asset entirely. If lenders sell participation interests in their loans under the Participation Program, they are charged commercial paper (CP) plus 50 basis points. Lenders must commit at least $50 million to participate in the program, although smaller lenders may aggregate with each other to meet that minimum requirement.
Lenders who want to sell participatory interests in loans can do so after the first disbursement. A lender that sells a participatory interest in a loan becomes the loan's "sponsor" and is required to continue servicing the loan. The Department will choose a custodian, which is an eligible national or state-chartered bank that is not affiliated with the sponsor, to take control over the loan.
The PowerPoint slide presentation that accompanied the Webinar is available online.
By Justin Draeger
NASFAA Associate Director for Communications
Posted 07/02/08 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.
