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ED's Loan Purchase Details Awaiting Publication

NAICU Washington Update


June 27, 2008


The Department of Education has made public, and has sent for publication in the Federal Register, its "Notice of terms and conditions of purchase of loans under the Ensuring Continued Access to Student Loans Act [ECASLA] of 2008." The notice explains how the price for FFELP loans was determined; shows how the requirement that the purchases do not cost the government anything are met; and sets out the terms and conditions for the loan purchase program and the loan participation purchase program. It goes into effect as soon as it is published.

The Department's authority to purchase loans as a means to inject liquidity into the Federal Family Education Loan Program (FFELP) is provided by Public Law 110-227, enacted several months ago. The authority last for only one year.

Under the purchase program, the department acts as a secondary market, and will purchase FFELP (Stafford and PLUS) loans between July 1 and September 30, 2008. Loans with first disbursement between May 1, 2008 and July 1, 2009, and to be fully disbursed by September 30, 2009, are eligible for purchase by the department. Lenders wishing to sell the student loans they have made must submit a notice of intent and enter into a master sale agreement with the department by specified dates, and also must meet a number of terms and conditions. The price of a loan consists of its principal, earned interest, the 1 percent origination fee, and $75 for administrative expenses.

The department's notice also details the requirements of the loan participation purchase program. This program involves a set of somewhat complex transactions designed to allow lenders with no initial capital to make student loans.

For more information, contact Maureen Budetti, maureen@naicu.edu


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