Yesterday, the US Department of Education announced that it will use up to $6.5 billion to purchase certain Federal Family Education Loan (FFEL) Program student loans. This move is intended to help provide liquidity and to ensure that student loans are available to students and families.
As part of the Department of Education’s overarching plan to ensure access to student loan money, the Department announced two weeks ago that it would provide liquidity support to one or more Asset-Based Commercial Paper conduits. These conduits would purchase FFEL Program loans in order to enhance market stability, and the Department would then “serve as a potential buyer of last resort or backstop” for the conduit.
According to the Department’s Fact Sheet, this loan purchase plan is intended to be a short-term program that will help to provide additional stability until February 28, 2009, or until the conduits are operational, whichever happens first. Although Congress has authorized the Department to purchase federal loans made between 2003 and 2009, the loan purchase plan described by the Department yesterday is much narrower and applies only to certain 2007-2008 academic year FFEL Program loans. Under this plan, the Department will purchase loans at 97% of the principal and outstanding interest due for the loans. The Department intends to buy up to $500 million in loans each week between December and the end of February.