Education Department to Pay Lenders Full Value for Student Loans
The U.S. Department of Education has released details of how much it will pay private lenders in the Federal Family Education Loan Program who sell their loans to the government instead of to capital-market investors, according to an article in The Wall Street Journal ("Bush Will Use Treasury Funds to Bolster Student Loan Market," May 20, 2008).
Under the new authority granted to the Education Department by the Ensuring Continued Access to Student Loans Act" (H.R. 5715), the government can buy loans from private FFELP lenders until Sept. 30, 2009.
In return, these lenders will receive the full principal value of the loan along with accrued interest, a rebate of any loan origination fees paid to the government, and a $75 payment, WSJ writer Robert Tomsho reports.
In an effort to reassure lenders who typically have relied more heavily on the securities markets for their lending capital, the government also plans to invest in newly created trusts that hold federal student loans made by private lenders.
"In effect, the government will reimburse such lenders for the full cost of such loans in return for payments from the trust equal to commercial paper interest rates, currently about 2.6 percent, plus an additional 50 basis points," Tomsho writes.
However, financial details of the plan could change if the federal Office of Management and Budget determines the loan-purchasing plan does not meet the act’s requirement that such measures be cost-neutral.
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