Proposed Bailout for Massachusetts Student Loan Authority Uncertain
A third attempt to generate liquidity for the Massachusetts Educational Financing Authority may be too little too late for some 40,000 Massachusetts college students, reports The Boston Globe (“Student Loan Authority May Not Get State Aid,” Aug. 14, 2008).
In late July, MEFA announced that it wouldn’t have enough money to fund any new private student loans this fall after it was unable to launch a bond offering in time.
With proposals from both the state’s governor and treasurer fizzling out, the student loan agency is attempting to raise about $400 million in funds from large investors through a new bond offering on the public market — a deal that, if completed, wouldn’t be finalized until September.
But bonds issued by student loan lenders are having a hard time finding buyers, as investors remain cautious in the wake of the collapse of the subprime mortgage market and the ongoing resulting credit crunch. According to The Boston Globe, the issue of $350 million in student loan revenue bonds just completed on August 7 by the Higher Education Student Assistance Authority of New Jersey was the first successful student loan bond issue since May.
Several Solutions, Few Viable Options
Soon after MEFA announced that it was suspending its private loan program, Gov. Deval Patrick asked that the Massachusetts state pension fund purchase $50 million of the planned upcoming MEFA bond offering, but the request has been rejected by State Treasurer Timothy Cahill. The pension fund’s executive director has said this direct purchase of MEFA bonds would violate the fund’s investment policies.
Cahill has suggested an alternative solution, in which the state would back the MEFA bond offering, using taxpayer funds as collateral. But this initiative would require approval by the state legislature, which isn’t scheduled to meet until October.
Of the ideas lobbied so far as possible ways to help MEFA regain its financial ability to offer student loans, the proposal with the most potential, put forth by some of the state’s colleges and universities, may not go into effect until next year.
This plan would reinstate a participation fund, phased out several years ago, in which schools set aside up to 6 percent of the loan amounts their students take out through MEFA. These stockpiled funds serve as a type of insurance for bondholders and may provide a draw for otherwise reluctant potential investors.
Though most Massachusetts students have already begun pursuing other financing options, Cyndi Roy, the governor’s deputy press secretary, says that the administration is continuing to work with the state’s loan authority.
“Governor Patrick put a serious, viable proposal on the table,” said Roy, “and he remains actively engaged with MEFA on that and any other solutions that will help 40,000 Massachusetts families send their children to college this year.”