NAICU Washington Update

Liquidity for Student Loans Extended

January 16, 2009

The Department of Education has yet again taken steps to provide capital for federal student loans. Acting under authority of legislation passed last spring and extended last October, the department plans to purchase additional loans. Both the initial Ensuring Continued Access to Student Loans Act and its extension were influenced by NAICU's first two surveys on the economy (see separate story).

Under the initial ECASLA's Purchase Program and Participation Program, the department purchased, or purchased a participation interest, in loans disbursed for the 2008-09 academic year. The extension gave the department authority to do the same through 2009-10. In December, fearing that lenders lacked the liquidity to made second loan disbursements, the department expanded ECASLA purchases to include loans made for 2007-08. This short-term expansion to purchase older loans will continue through the end of February, when the department hopes to have another mechanism in place facilitating student loan purchases by the private sector.

Under ECASLA, the department has worked with Wall Street to set up "Asset-Backed Commercial Paper (ADCP) Conduits" for buying FFELP loans. Under the program, private investors would purchase commercial paper issued on the FFELP loan assets, with the department guaranteeing to buy the loans if private investors don't purchase the commercial paper. Loans included in the program must have first disbursements between October 2003 and June 2010. The department hopes the program will be operational by February.

On another front, the Federal Reserve has develop a Term Asset-Backed Securities Loan Facility (TALF) to provide additional liquidity for student loans. TALF can provide some help for lenders of private student loans, since FFELP loans are covered by the Department of Education.

All of these efforts are separate from the $700 billion in "bail-out" money under the Department of Treasury's Troubled Assets Relief Program (TARP), widely discussed in the media.

For additional information on the Department of Education's program go to the department's Web site.

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