Yesterday the Department released guidance and instructions for schools and guarantors that may need to use lender of last resort (LLR) provisions if market conditions continue to worsen. The guidance helps ensure "that these LLR loans are provided only as a true last resort," according to the Department. Under LLR provisions in the HEA, when a student or parent cannot find a lender, the guaranty agency is charged with either finding a lender or funding a FFELP loan directly to the borrower. Guaranty agencies may request additional funds from the Department if they do not have enough cash to make loans directly to students.

Need For LLR and Steps for Institution-Wide Eligibility

Generally the determination of whether an LLR is needed is made on a student-by-student basis, but the Department will develop a process for institutional-wide eligibility. Qualifying schools will be able to provide all students at their institution with an LLR loan after a certain number or percentage of its students are unable to obtain a conventional FFELP loan.

School Requirements: A school would need to provide the following information, working with their state-designated guarantors, to qualify for institutional LLR eligibility:

• The number and percentage of the institution’s FFEL loan applicants who are expected to be unable to obtain a conventional FFEL loan.

  H.R. 5715 requires institutions to meet a "minimum threshold" of students who are unable to obtain a conventional FFELP loan before qualifying for institution-wide LLR participation. The Department says it will finalize the criteria and procedures associated with institutional eligibility in the near future.

• The names of the lenders that provided FFEL loans in the past but that have indicated they will no longer provide conventional FFEL loans along, with the projected number of students who will be impacted by each lender’s decision to discontinue conventional FFEL lending

• The names of other FFEL lenders that the institution or guarantor contacted to request FFEL loan access for those affected students for the 2008-09 academic year

Guarantor Requirements:

State-designated guarantors are statutorily required to provide LLR loans for students attending institutions in their respective states. They may also provide LLR loans for residents of their respective states attending schools in other states. A full list of each state’s designated guarantor is provided below. After receiving a request for an LLR loan, a guarantor must:

1. Try to find lenders who will make conventional FFELP loans

2. If none can be found, try to find lenders who will make LLR loans

3. If none can be found, make LLR loans using its own available unrestricted net assets

4. If it lacks the financial capacity to meet LLR demand, request federal advances from the Department

Preferred Lender Lists

Schools that attempt to help a student find a conventional lender after the student had previously been turned down for a loan will not be held in violation of the preferred lender list requirements that will go into effect July 1.

Terms and Conditions of LLR Loans

Borrowers’ rights and responsibilities, as well as loan holder obligations, remain the same on LLR loans as they would be for conventional FFELP loans. Guarantors or lenders making LLR loans will receive the same subsidies prescribed for conventional FFELP loans, except that the loans will be guaranteed at 100 percent of their value.

LLR loans made by guarantors with advances provided by the Department will remain FFELP loans, but they will be assigned, held, and serviced by the Department of Education. LLR loans made with federal advances also cannot be sold, securitized, or pledged to satisfy other debts.

For tracking purposes, NSLDS will produce an LLR flag for LLR loans.

Impact of H.R. 5715

The Ensuring Continued Access to Student Loans Act of 2008 (H.R. 5715) may change some of the provisions outlined in the Department’s letter. If the president signs the bill into law, the Department will provide additional guidance to reflect any changes resulting from that legislation.

State-Designated Guarantors A full list of each state’s designated guarantor is provided below. Schools with LLR questions may 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.

Additional Media Coverage

• U.S. moving ahead on urgent student loan programs (Reuters)
• Education Department Details Plan for Emergency Lending (The Chronicle of Higher Education)
• 'Last Resort' Program For Student Loans Is Set (The Wall Street Journal)

By Justin Draeger
NASFAA Associate Director of Communications

Posted 05/06/08 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.