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Ed. Dept. Is Buying
Student Loans

WASHINGTON, D.C.—To eliminate much of the doubt that is hanging over the student loan program, the Secretary of Education recently announced that the federal government will buy college loans for the coming school year from student lenders.
   The move comes after dozens of lenders withdrew from participation in the largest government student loan program this spring saying that they could not obtain capital at a cost that would make student lending profitable.
  “Our plan is designed to provide viability in the marketplace for lenders who step up and make loans in this difficult environment,” said Secretary of Education Margaret Spellings. “Many lenders today do not have access to funds at a cost that justifies originating new loans.”
   The plan, which is a result of bipartisan legislation passed last month, allows the government to buy federally guaranteed student loans from lenders. It is expected to stabilize the college lending market.

Posted May 28, 2008

   Spellings said the department is working to make sure it has the administrative capacity to process as much as $30 billion in loans to students under its Direct Loan Program, double the program’s loan volume in previous years.
   How much will the plan cost? Government officials are not sure. But in fiscal 2007, more than 2,000 lenders issued more than $50 billion in student loans under the federal loan program to 6.8 million borrowers.
   Spelling’s announcement capped weeks of talks with scores of lending companies that had asked Washington for more help.
   “Essentially it could give some lenders a mechanism to wait things out,” said Andrea L. Murad, senior director at Fitch Ratings in New York. The plan is probably a stop gap measure rather than a permanent fix. “It’s just giving them a way to fund the loans in the short term,” he added.

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