A lot has happened in three days. On Monday, unnamed Sallie Mae officials were threatening to exit the FFEL program. On Tuesday, Department of Education officials presented their plan to leaders of the lending community in a closed-door meeting about how to infuse liquidity in the student loan market. Yesterday, the Department officially released some of the details of that plan in a Dear Colleague Letter outlining how they would provide liquidity to FFELP lenders. Shortly thereafter, in an open Webcast, Sallie Mae said they were staying in the program, for now.
"ED's plan is practical, workable, and quite helpful," said Sallie Mae CEO Albert Lord who confirmed that Sallie Mae will remain in the FFEL program for the 2008-2009 academic year. Lord said that the Department and Treasury "drove a difficult bargain," but in the end the economics of the plan are okay, "barely okay," he added.
Lord also reiterated Sallie Mae's commitment to lend to "all students at all schools" and to minimize school and student loan disruptions. He also made it clear that he was not speaking for all lenders, alluding to the possibility that the economics of the credit crunch might not add up for other lenders.
Some lenders have already given the Department's plan a tentative thumbs up. Yesterday, NorthStar (Total Higher Education) announced that they would resume processing federal Stafford and PLUS loans for the 2008-09 academic year beginning next Tuesday. Still others are waiting until the Department officially releases final prices, terms and conditions, and the Administration's methodologies for determining cost neutrality in an upcoming Federal Register.
"We are continuing to move in the right direction," said NASFAA President & CEO Dr. Phil Day. "I'm pleased that the lines of communication between the higher education community, lenders, and the Department remain open."
"Still more can be done," said Day. "NASFAA continues to work and support Congressional efforts that would allow the government to infuse liquidity into the marketplace through the Federal Financing Bank and the Federal Home Loan Banks. If successful, these efforts would provide the last safety net to insure an uninterrupted supply of federal loans to students and their families as they pursue their postsecondary education."
Congressman Paul Kanjorski (D-PA), Chairman of the House Financial Services Capital Markets, Insurance, and Government Sponsored Enterprises Subcommittee, praised the Department's actions, but warned that "if today's announcement fails to keep existing student loan originators in the Federal Family Education Loan Program, the Administration will need to take immediate action in order to maintain an effective student loan distribution system."
Kanjorski has introduced two other bills to address problems in the student loan marketplace. On April 8, Chairman Kanjorski introduced the Emergency Student Loan Market Liquidity Act, which would give the Federal Home Loan Banks emergency authority to provide student loan lenders with access to needed capital. On April 29, Chairman Kanjorski introduced H.R. 5914, the Student Loan Access Act, which would make it absolutely clear that the Administration can purchase federal student loans using the Federal Financing Bank in the Treasury Department.
The Department also stated in the letter that the Direct Loan Program could readily absorb up to 30 percent of total federal student loan volume, which would double their current loan volume. Education Secretary Margaret Spellings also said that these current issues underscore a greater need to update the student loan systems.
"We can also consider this a teachable moment that speaks to broader, long-term flaws in our complex and outdated financial system," said Spellings in a press statement released yesterday. "This system has been crying out for reform for years, and especially in light of the ever-increasing cost higher education, students and families are counting on us to provide it."
The letter from the Department outlined four steps they are pursuing to ensure continued and timely access to federal student loans for all eligible student and parent borrowers while respecting and supporting the current FFEL Program as a successful public/private partnership and protecting taxpayer interests. The four steps outlined by the Department include:
- Using authority granted to the Department through the recently enacted "Ensuring Continued Access to Student Loans Act" (P.L. 110-227) to purchase loans from lenders for the 2008-09 academic year and offer lenders access to short-term liquidity
- Working with the student lending community to ensure FFELP and other loan programs serve the best interests of students and taxpayers
- Enhancing the lender-of-last-resort program to ensure all students continue to have access to FFELP loans
- Doubling the capacity of the Direct Loan Program, should it be needed
Lawmakers were also pleased by the Department's recent actions and encouraged the Department to continue to explore ways under current and recently passed law to ensure that no student is denied access to a federal student loan this coming academic year.
"The proposed actions outlined by the Department reflect a thoughtful approach to implementing a key provision in our legislation to address the liquidity issues facing some lenders, at no additional cost to taxpayers," said Rep. George Miller (D-CA), chairman of the House Education Committee, in a press statement. "To date, no student has been unable to get the federal loans for which they are eligible, and we're confident that as long as the Department does its job, that will continue to be the case."
Ranking member of the House Education Committee Howard "Buck" McKeon (R-CA) also gave approval to the Department's actions, but said that more action may be needed.
"I believe we must continue to monitor the situation for students, families, and schools, and be willing to take further action should it become necessary," said McKeon. "Today's announcement was a critical first step, but it is unlikely to be the final word on our efforts to ensure student loan access."
NASFAA continues to closely monitor the student loan situation and will provide additional details of the Department's plan as they become available in the Federal Register.
If your school cannot find a lender willing to make FFELP loans to your students, contact us at Web@nasfaa.org.
Other Media Coverage
By Justin Draeger and Haley Chitty, NASFAA Associate Directors of Communications
Posted 05/22/08 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.
