Student Loan Blog : Kentucky Higher Education Assistance Authority

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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Kentucky Student Loan Provider Is Out of Money

Student Loan Girl — Wed, 13 Aug 2008 21:08:00 GMT

The Kentucky Higher Education Assistance Authority, the state agency that provides college loans to students attending colleges and universities in Kentucky, will “effectively run out of money” Friday while it waits to receive a $50 million loan from the federal government on August 21, reports the Lexington Herald-Leader (“Student Loan Agency to Run Out of Money,” Aug. 13, 2008).

The one-week funding shortage may temporarily inconvenience KHEAA’s student loan borrowers, some of whom will not likely receive their student loans before classes begin as early as August 18 at some schools.

KHEAA, also known as The Student Loan People, has been in communication with the financial aid offices of affected universities, asking them to be patient until the $50 million “bridge loan” from the government arrives. With the loan, the KHEAA will issue $35 million in financial aid to 16,000 students, says James Ackinson, KHEAA’s executive vice president.

“The issue will not delay or prevent any of our students from beginning classes,” says Shelley Park, director of financial aid at Eastern Kentucky University, which begins classes August 25. Students who rely on their student loans to buy textbooks will get school-issued vouchers to cover the cost until they receive their KHEAA-issued student loans and can repay the school.

By Friday, when the KHEAA will temporarily run out of money, the state loan agency will have issued $40 million in loans to 18,000 students since July 1.

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Nursing, Teaching, Law Enforcement, Professions Losing Student Loan Incentives

Student Loan Girl — Fri, 13 Jun 2008 17:30:00 GMT

College graduates preparing to enter critical fields like nursing and teaching may no longer be able to take advantage of programs that previously offered them a break on their student loans.

In at least six states this year, state-affiliated lenders have dropped or scaled back programs that repay or forgive a portion of a borrower’s federal student loans when that student-borrower works in a critical-needs field, according to an article in USA Today (“Credit Crisis Weakens Relief for States’ Student-Loan Programs,” June 11, 2008).

Lenders are also eliminating loan programs that reduce student-loan interest rates for students who major in specific subjects.

These state loan agencies blame a $21-billion cut in government subsidies to lenders who participate in the federal student loan program and the ensuing fallout from the subprime mortgage crisis for making cuts to these incentive programs necessary.

More programs “are certainly at risk should the credit crisis continue,” says Krista Cole of the Education Finance Council, which represents student loan providers in 31 states.

Next month, Mike Reiber of the Pennsylvania Higher Education Assistance Agency, says the agency will stop funding programs for nurses, teachers, child care workers, and members of the military because the “money has literally dried up.”

Student Loan Benefits Being Reduced, Eliminated Nationwide

Other state student loan providers are already reducing or are trimming their borrower benefits for students in critical-needs fields:

The Missouri Higher Education Loan Authority will stop offering reduced student-loan interest rates for teachers, social workers, nurses, law enforcement personnel, firefighters, and National Guard members, beginning July 1.

The Iowa Student Loan Liquidity Corp. plans to cut student loan benefits for new teacher applicants this year.

The Michigan Higher Education Student Loan Authority eliminated a no-interest student loan plan in May for undergraduates majoring in engineering.

The New Hampshire Higher Education Loan Corp. suspended a benefit program in February that forgives some student loans for teachers.

The Kentucky Higher Education Assistance Authority suspended loan forgiveness programs for teachers, nurses, and lawyers in January and plans to reduce loan benefits for current borrowers.

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With Government’s Help, Lenders Returning to Federal Student Loan Market

Student Loan Girl — Thu, 05 Jun 2008 21:08:00 GMT

A number of lenders who abandoned the federal student loan market in recent months may be returning, in light of a new law designed to keep struggling lenders afloat, according to a Dow Jones Newswires article.

Many of the 102 companies that scaled back or withdrew from the Federal Family Education Loan Program, in which federal student loans are funded by private lenders, are expected to at least consider returning to the program for the 2008–09 academic year, writes Dow Jones reporter Melissa Korn (“Student Lenders Tiptoe Back to Market With Government Bailout,” June 4, 2008).

Brett Lief, president of the National Council of Higher Education Loan Programs, said every one of the lenders in his organization "changed their policies" during the credit crunch earlier this year — reducing or suspending their participation in the FFEL program. The 60 FFELP lenders that are members of the NCHELP reported that the changes were necessary because federal student loans were no longer profitable.

But after Congress passed the Ensuring Continued Access to Student Loans Act (HR 5715), which gives the U.S. Department of Education the authority to buy student loans from lenders who have been unable to sell them, those lenders are “all reviewing their policies again,” Lief said.

Before the passage of the act, Sallie Mae, one of the nation’s largest originators of federal student loans, was considering whether to remain in the FFEL program, and Nelnet, NorthStar Education Finance, Inc., and the Kentucky Higher Education Assistance Authority had left the FFEL program.

Under the new legislation, all four of these lenders have reaffirmed they will continue to issue new federal student loans. However, some lenders still question whether the government changes will ultimately be profitable despite the Education Department’s infusion of liquidity, while other lending banks, like Citibank, JPMorgan Chase, PNC, and SunTrust, remain unmoved.

These banks no longer offer student loans to certain colleges — schools that they have determined tend toward higher default rates, fewer borrowers, and smaller loan amounts that make business less profitable.

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