U.S. Department of Education Actions Ensure Continued Access to Federal Student Loans for America's Students and Families

/Home/Federal Government Programs : Student Aid

Actions Ensure Continued Access to Federal Student Loans for America's Students and Families

(Media-Newswire.com) - The U.S. Department of Education is proud to announce that it has finalized the agreements that will govern the anticipated Asset-Backed Commercial Paper ( ABCP ) Conduit, as well as for the Loan Purchase and Participation Programs for 2009-2010 Loans. In so doing, the Department has completed the steps necessary to enter into its first agreement with an ABCP Conduit, as well as continue the successful Loan Purchase and Participation Programs which will help to ensure continued access to Federal student loans for students and their families.

As announced in the Federal Register on January 15, 2009, the Department of Education will provide "backstop" or buyer-of-last-resort support to one or more ABCP Conduits that will purchase Federal Family Education Loan Program ( FFELP ) Stafford and PLUS loans made between 2003-2009. Lenders will be able to sell FFELP loans to the Conduit and in turn receive liquidity for new student lending.

"I understand that especially in tough economic times, students and families are anxious about the increasing costs of college," said U.S. Secretary of Education Margaret Spellings. "I want to reassure them that we have taken aggressive actions to ensure that students have ongoing access to Federal student loans for 2009-2010 and beyond."

"The Conduit Program that we and the Department of Education are supporting will provide strong support for the student loan market and help to unclog lender balance sheets," said U.S. Secretary of the Treasury Henry Paulson. "These actions support the Administration's policy to ensure that federally guaranteed student loans are available to every qualified student. This program deploys our authorities, at no net cost to the taxpayer, to relieve the challenges stressed capital markets pose to the ability of lenders to originate new guaranteed student loans."

Under the terms of the agreement, the Department will enter into a forward purchase commitment to purchase FFELP Stafford and PLUS loans where lenders made the first disbursements on or after October 1, 2003 ( but no later than June 30, 2009 ) and which the Conduit has purchased. Eligible loans must have been fully disbursed by no later than September 30, 2009, and the Department is committed to purchasing loans from the Conduit to support the issuance of Asset Backed Commercial Paper by the Conduit.

The Conduit is expected to sell loans to the Department only in the event that the Conduit has failed to re-finance maturing commercial paper from other sources. While the funds that lenders receive from the Conduit are generated from private markets, as a condition of participation lenders must agree to use 100 percent of the net proceeds of funds received from the Conduit to originate and disburse new FFELP loans.

When the conduit becomes fully operational in early-mid February, the purchase of loans under the existing short-term loan purchase program ( 2007-2008 loans ) will end. To date, the short-term loan purchase program has resulted in the Department's acquisition of $965 million in FFELP loans from the 2007-2008 academic year.

Additionally, the 2009-2010 Loan Purchase and Participation Programs will continue to ensure that for the 2009-2010 academic year, that loans are available and that every Federal dollar spent will be used for the creation of a new loan to a student that year.