Through The Ensuring Continued Access to Student Loans Act of 2008 (H.R. 5715; PDF, 60KB) and its recent extension (H.R. 6889; PDF 36KB), Congress granted the U.S. Secretary of Education the authority to grant eligible FFELP lenders direct, unlimited access to funding from the United States Treasury. Thanks to the bipartisan efforts of Congress — in particular the leadership of House Education Committee Chairman George Miller and Senate HELP Committee Chairman Edward Kennedy — and the effective work by the U.S. Departments of Education and Treasury, FFELP lenders now have access to a suite of solutions that protects the program from volatility in the credit markets.
Announced through a joint statement the Departments of Education and Treasury will continue to offer for the 2009–10 academic year the successful funding solutions that have helped fund $42 billion in FFELP loans this year, representing a significant increase during the same period last year.
“We recognize that the current economic situation has created real financial challenges for students and their families, who are increasingly concerned about how they can secure loans to help cover college costs. I want to reassure students and their families that Federal student aid — both grants and loans — remains available to eligible students.”
—Secretary of Education Margaret Spellings
“I’m glad that the department is continuing to use the authority granted by Congress to provide students and families with access to the federal student loans they are counting on to help pay for college, while protecting American taxpayer. I look forward to learning more details about the department’s additional proposal to further safeguard federal student aid from the turbulence in our economy.”
—Rep. George Miller (D-CA), chairman of the House Education and Labor Committee
In an effort to provide further long-term funding, Spellings and Paulson also announced that the government intends to provide direct liquidity support to one or more new private-sector funded Asset-Backed Commercial Paper (ABCP) facilities to provide longer-term financing for FFELP loans. This new longer-term solution builds on the authority granted to the Secretary of Education by Congress to enter into forward purchase agreements to help raise private sector capital amidst difficult credit market conditions. This new solution — at no cost to taxpayers — strengthens the government’s longstanding promise to stand behind student loan assets. In effect, the government is promising private-sector investors that it will stand behind federal student loans not only in the event a loan defaults but also in the event that private credit markets experience difficultly raising sufficient capital to fund increasing loan demand.
Mark Kantrowitz of finaid.org agrees:
“This solution is attractive to the federal government because it does not increase the national debt, as the conduits are funded with private capital. In all likelihood the forward purchase agreements will never be exercised.”
Furthermore, this suite of solutions will allow Sallie Mae and other lenders to meet the growing demand for FFELP loans, it should provide multiple options for lenders to finance new loans in a manner that maintains the responsibility for loan servicing.
Commitment to the FFELP
The government’s continued support and actions to strengthen the Federal Family Education Loan Program (FFELP) reaffirm its longstanding commitment to a strong, competitive public-private partnership as a leading source of uninterrupted loan funds for students and parents. Schools can be confident that the service and stability accustomed to in FFELP is assured and the needs of current and future students will be met.
Sallie Mae recently outlined the strength and stability of the FFELP in a letter to college presidents.
Despite recent credit market volatility, the FFELP program remains the federal government’s largest source of financial aid, serving the needs of more than 4,000 higher education institutions nationwide. Competition drives Sallie Mae and other lenders to continually make significant investments that support college access and affordability. FFELP is the only student loan program that ensures consumer choice, provides free customized default prevention and financial literacy programs and responds to the evolving customer service needs of students and schools.
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