Ed Money Watch

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).

Yesterday U.S. Secretary of Education Arne Duncan testified before the House Education and Labor Committee on President Obama's fiscal year 2010 Education budget request. While little new information arose during the secretary's prepared testimony, a few interesting tidbits came up during the committee members' questions.

Throughout his testimony, Secretary Duncan reiterated the role that he thinks the Department of Education (ED) should play in improving public education. Specifically, he said that ED should be there to encourage states to "do the right thing" by students, not force them into compliance with certain requirements. Similarly, he stressed the importance of innovation at the state and local levels, rather than at the federal level. He believes that the best ideas come from schools and practitioners, not the federal government. Instead, the federal government should help incent states to allow for innovation and new ideas at the local level.

News reports suggest that some schools and school districts have started receiving at least the beginning of the $44 billion in stimulus funding made available on April 1^st. This money flows through three programs in particular - No Child Left Behind Title I Part A, Individuals with Disabilities Education Act (IDEA) Part B, and the State Fiscal Stabilization Fund (SFSF). While all 50 states and the District of Columbia have received at least 50 percent of their Title I and IDEA allocations, only the 13 states whose SFSF applications have been approved have received any of that available money. Below we discuss how some school districts have decided to use the funds.

UPDATE: Updates on State Fiscal Stabilization Applications can be viewed here.