February 20, 2008
Congress asks Depts of Education and Treasury to address credit crunch and FFELP program
21 Members of Congress wrote an open letter to the Departments of Education and Treasury addressing their concerns about how many private lenders are abandoning the FFELP program (source of 80% of federal financial aid) because they simply can’t make it profitable any longer. Here’s an excerpt:
Dear Secretary Paulson and Secretary Spellings:
We write to express our strong concern over a growing problem in the capital markets that could threaten the availability of student loans under the Federal Family Education Loan Program (FFELP) . We urge you to work without delay within your organizations and with appropriate federal financial institutions and overseers to address this problem before it significantly decreases access to higher education opportunities for students and their families.
Specifically, many lenders participating in the FFELP engage in securitizations as a strategy to help the financing of student loans. As a result of the ongoing credit crunch, however, many of these lenders are now facing severe liquidity problems in this marketplace. In fact, there have been several reports of lenders leaving the [FFELP] Program as a result of the thin margin on these loans. Most recently, College Loan Corporation, once of the largest FFELP lenders, announced that it will end its participation in the FFELP.
Although student loan securitizations are safe, high-quality investments, financing education loans through the asset-backed securities market has become uneconimcal in the current environment. At the same time, the ongoing credit crunch has caused the asset backed securities market to contract significantly. In the past several days, many student loan lenders have seen auctions for their securities fail, shaking the confidence of investors who value liquidity. Once started, this pattern of failed auctions could continue to affect the entire $80 billion student loan auction rate securities market.
Lenders in the [FFELP] Program have provided the private capital that has enabled tens of millions of Americans to obtain an affordable college education. As unrest in out credit markets affects Americans in so many other ways, it is imperative that the FFELP remain strong and the cost of education finance remain as low as possible.
You can read the whole letter on Congressman Kanjorski’s website: