Student Loan Providers Get More Help From the Government
In a move intended to avoid a shortfall in student loans next year,
Congress has expanded the government program to buy federally
guaranteed student loans from private lenders.
Under the updated loan-purchase plan, the Education Department can
now buy lenders’ student loans with origination dates between Oct.
1, 2003, and July 1, 2009, The New York Times reports (“U.S. Buying
More Loans to Students,” Nov. 8, 2008). The original buyback
parameters only allowed lenders to purchase loans made for the
current academic year and for the 2009–10 academic year.
Federal officials say that as much as $60 billion in student loans
may be eligible for purchase under the new expansion.
“We were able to provide stable, reliable funding for students this
school year,” said Education Secretary Margaret Spellings. Now the
government is taking action to avoid problems in student loans for
next year, she said.
Expanded Program May Solve Liquidity Problem
Many lenders were initially unable to participate in the student
loan buyback program because the original version of the program
only allowed lenders to sell loans on the secondary market that were
generated prior to 2008.
The economic conditions during the current academic year have made
it difficult for lenders to secure the financing needed to make new
student loans that would be eligible for sale through the buyback
program. Unable to sell their loans, lenders were then forced to
carry their loans on their books.
“They have these government-guaranteed loans and nobody wants to
fund them,” said Sameer Gokhale, a financial analyst for Keefe,
Bruyette & Woods in New York. “The government is agreeing to buy
more of the loans to give more liquidity.”
The Education Department hopes that the new initiative will provide
lenders with the required funds to generate new federal and private
loans next year, as lenders may be more likely to participate in the
program once they can free up billions of dollars in loans under the
new requirements of the buyback program.
“We need to do everything we can to prevent students from becoming
the next victims of the financial crisis,” said Sen. Edward Kennedy,
chairman of the Senate Education Committee. “Next year, we need to
take a closer look at these programs to insulate them from
fluctuations in the market so students’ ability to access loans is
not threatened.”