Kentucky Set to Buy $50 Million Bond So Students Can Get College Loans

Student Loan Girl — Mon, 18 Aug 2008 22:57:00 GMT

To ensure that Kentucky students get the money they need to pay for school, Kentucky Gov. Steve Beshear has authorized the state to buy a $50 million bond from the state’s student loan agency just before fall classes get underway, reports the Lexington Herald-Leader (“State Using $50 Million Bond to Solve Student Loan Crisis,” Aug. 16, 2008).

Affected by the ongoing credit crunch, the Kentucky Higher Education Student Loan Corp., also known as the Student Loan People, ran out of money last week, but with the “bridge loan,” will be able to begin issuing $35 million in loans to about 16,000 students by Thursday.

Although the recently passed Ensuring Continued Access to Student Loans Act (H.R. 5715) was designed to give the U.S. Department of Education the authority to buy student loans from cash-strapped lenders, the Education Department requires that lenders first obtain short-term “bridge” financing to initially fund new loans. After lenders secure the preliminary financing, the Education Department will buy these college loans, giving lenders the liquidity they need to continue making new loans.

Kentucky is thought to be the first state in the nation to purchase a private placement bond to meet the state’s student-loan needs. Massachusetts has unsuccessfully looked to its public pension funds for relief, while other states have simply shut down their student loan operations, according to an article in the Kentucky Post (“Gov. Orders State Purchase $50M Bond to Ensure Student Loans,” Aug. 15, 2008).

The Student Loan People’s bond sale must be approved by the State Property and Building Commission, an executive branch panel that meets today, and the General Assembly’s Capital Projects and Bond Committee, which will meet Tuesday.

If the bond sale is authorized, the nonprofit state loan agency will have a loan term of 445 days that would be payable on Nov. 15, 2009. The agency will be charged a variable interest rate, currently set at 3.32 percent, which means the agency would pay $1.9 million in interest to the state, on top of the $50 million principal.

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Education Department to Pay Lenders Full Value for Student Loans

Student Loan Girl — Wed, 21 May 2008 22:56:00 GMT

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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Student Loan Blog : H.R. 5715

Kentucky Set to Buy $50 Million Bond So Students Can Get College Loans

Education Department to Pay Lenders Full Value for Student Loans