In January, the Federal Education Budget Project published an issue brief on the student loan purchase programs put in place under the Ensuring Continued Access to Student Loans Act of 2008 (ECASLA). Given the new developments and new information released by the Obama Administration, it's a good time to catch up on the ECASLA programs.
When financial markets began to break down last year, Congress confronted the possibility that private lenders issuing federally-backed student loans (the Federal Family Education Loan Program, FFEL) might not be able to meet student demand. In response, Congress passed legislation (ECASLA) granting the U.S. Department of Education temporary authority to purchase FFEL loans. The new loan purchase authority helps ensure 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 purchase arrangements and targets loans from different years. The ECASLA issue brief, which will be updated in the coming weeks, includes an explanation of each program. [A version of the issue brief updated June 1, 2009, is available here.]
Since January, new information has been made available about the ECASLA programs. In March, the Obama Administration reported the volume of loans each private lender made under each program. The reports show that eleven lenders exercised put options on FFEL loans issued during the 2008-09 academic year, selling $701 million in loans back to the Department of Education. Two lenders, Edamerica and Wachovia Education Finance, accounted for about 90 percent of that volume. Subsequently, the Office of Management and Budget (OMB) released estimates in May 2009 showing that $4.8 billion in 2008-09 loans ultimately will be put to the Department (about 8 percent of expected 2008-09 FFEL issuance).