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Plans to Ensure Access to Federal Loans Set

July 7, 2008

The Department of Education has worked with the Department of Treasury and the Office of Management and Budget to design a public/private partnership to ensure that federal loans continue to be available to students despite the credit crunch.

In a June 18 Dear Colleague letter, ED detailed the steps it has taken to implement the Ensuring Continued Access to Student Loan Act of 2008. One of the major steps has been to set up two programs that provide for the purchase of Federal Family Education Loans (FFEL) from private lenders by ED. These programs are intended as a way to provide lenders with necessary capital to allow them to continue to make new FFEL loans to students. Only loans made for the 2008-09 award year will be eligible, and lender would have to commit to continue lending activities under the FFEL program.

• Under the Loan Purchase Commitment Program, ED will commit to purchasing eligible loans at a price equal to the sum of (1) the loan’s outstanding principal balance, (2) accrued interest, (3) the 1 percent loan origination fee paid to ED, and (4) $75. The $75 dollars is estimated to cover the lender’s origination, servicing, and deconversion costs.
• Under the Loan Participation Purchase Program, ED will purchase participation interests in eligible loans. It will hold them no later than September 30, 2009. The lender may redeem the participation interest at a price that provides ED a yield equal to the commercial paper rate plus 50 basis points.

Both programs are structured to be cost-neutral to the federal government. A July 1 Federal Register notice provided details of the programs including the calculations used to arrive at the pricing scheme. 

NACUBO Contact:   Anne C. Gross, vice president, regulatory affairs, 202.861.2544.