Explaining the ECASLA Loan Purchase Programs
Jan. 14, 2009
Students across the country rely on federal loans to make postsecondary education affordable. An estimated $72 billion in federal student loans - Stafford, Grad PLUS and Parent PLUS loans - were made in 2008, the bulk of which were provided through the Federal Family Education Loan (FFEL) program.
When financial markets began to break down last year, Congress confronted the possibility that private lenders issuing FFEL loans might not be able to meet student demand. In response, Congress passed legislation granting the U.S. Department of Education temporary authority to purchase FFEL loans. Today, the New America Foundation's Education Policy Program released an issue brief describing the purchase programs put in place. [The issue brief was updated June 1, 2009 and is available here.]
The new loan purchase authority granted under the Ensuring Continued Access to Student Loans Act (ECASLA) ensures that FFEL lenders have access to adequate and affordable capital and can convert their loan assets into cash to fund new loans. ECASLA gives the Department of Education considerable discretion in designing and implementing loan purchase programs.
Using this discretion, the Department designed and implemented four separate loan purchase arrangements: a put option; a short-term purchase program; a financing arrangement; and an asset-backed commercial paper support program. Each option involves different loan purchase arrangements, targets loans from different years, and uses a different method to create more liquidity in the loan market.
Unfortunately, few outside the Department of Education and the student loan industry understand the details behind each of the plans. They are complicated and were enacted quickly with little public discussion. The issue brief, "Student Loan Purchase Programs Under the Ensuring Continued Student Loan Availability Act of 2008," by Research Director, Jason Delisle, aims to clarify each of the purchase programs and the role they are designed to play in improving access to student loans. Click here to read a version of the brief updated June 1, 2009.