VSAC seeks to weather credit crisis, federal loan-reform initiative Credit crisis aside, Vermont agency offers loans

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VSAC seeks to weather credit crisis, federal loan-reform initiative
Credit crisis aside, Vermont agency offers loans

BY TIM JOHNSON • FREE PRESS STAFF WRITER • JULY 23, 2009


Customary federal and private student loans will be fully available this fall, the Vermont Student Assistance Corp. announced Wednesday.

For loan-seeking, college-bound Vermonters and out-of-staters attending school here, it will be "business as usual" in the new academic year, said Don Vickers, VSAC's president and CEO.



What's not "business as usual" is VSAC's way of raising the capital necessary to offer those loans, in the short run. Then there's the volatile political climate in Washington that could lead to an overhaul of the student-loan industry and VSAC's role in it, in the long run.

First, the comforting news, which will allay some concerns of the 1,000 callers who are contacting VSAC's customer service center daily, as the Aug. 1 deadline approaches for the first semester's tuition payments: VSAC will be able to offer roughly $450 million worth of loans this fall -- a mix of federally guaranteed loans that tend to cost borrowers less (about 60,000 loans totaling about $410 million) and private loans (about 3,500 loans totaling about $40 million).

The capital comes from a combination of receipts on VSAC's outstanding loans and lines of private bank credit that are pooled nationally and repackaged as bonds guaranteed by the federal government -- an arrangement set up through the U.S. Department of Education known as the "conduit" program. The federal government set up the conduit program in the face of tightening credit markets that raised nationwide concerns about the availability of money for student loans.

Vickers said the program is less costly for VSAC than issuing variable rate bonds -- the capital-raising method used last year after the previous method of choice -- auction-rate bonds -- collapsed with the market for those bonds in the credit crisis that began in the fall of 2007.

The credit crisis and economic downturn have hit VSAC in several ways, Vickers said. The collapse of the market for VSAC's $1.7 billion in auction-rate bonds (which VSAC is considering buying back at a discount), plus higher interest rates, have cost the agency about $22 million over the past 18 months, Vickers said, or about 1 percent of its net assets. VSAC, a public nonprofit organization, has reduced its annual operating budget by $5 million, to $36 million; cut 43 positions, down to a staff of about 350; and froze executive salaries. The agency uses its annual state appropriation (about $20 million) exclusively for student grants, and funds its operations from the proceeds of the loan program.