Governor Asks Pension Board, State’s Colleges to Help Keep Massachusetts Student Loan Provider Afloat

Published 07 August 08 01:46 PM | Student Loan Girl

A week after the cash-strapped Massachusetts Educational Financing Authority announced that its 40,000 borrowers would have to find a new private student loan provider, Massachusetts Gov. Deval Patrick has asked the Massachusetts pension fund to invest $50 million in the state loan agency.

Patrick’s proposal would involve the Massachusetts pension fund buying portions of a $425 million bond sale that MEFA is planning for later this month, reports The Boston Globe (“A Late Try to Salvage Student Loans,” Aug. 7, 2008).

The governor also intends to ask Boston College, Harvard, MIT, and the University of Massachusetts, among other schools in the state, to make similar investments in MEFA bonds.

“This is an idea we’re definitely going to explore,” said Robert Connolly, a UMass spokesman. “We do see it as a potential win-win in terms of providing the university with a sound investment while helping families cope with their financial aid challenges.”

But State Treasurer Timothy Cahill, chairman of the state pension board, remained noncommittal in response to the governor’s request, saying only that the board would consider the proposal.

The emergency measure, put forward to the state pension board yesterday, is meant to generate liquidity for MEFA, which left thousands of families scrambling to find a new student loan provider just weeks before fall tuition bills are due and at a time when a number of other student loan lenders, feeling squeezed by the troubled credit markets, are tightening their credit criteria for private student loans. MEFA would use proceeds from the bond sale to finance new student loans.

Although MEFA, until last week, had still been offering fixed-rate private student loans, the agency stopped offering federal student loans in April, citing the troubled economy and fallout from the subprime mortgage crisis. The nonprofit student loan authority provided more than $500 million in college loans to Massachusetts students last year.