How the Credit Markets Affect FFEL Program Borrowers

How did we get here?

Several legislative and loan industry factors are contributing to the current student lending situation. As credit tightened due to the situation with sub prime mortgages and foreclosures, some student loan lenders were unable to find investors for their portfolios, which left them unable to generate money to make new loans. In addition, the College Cost Reduction and Access Act, signed into law last fall, cut subsidies to lenders, which has made these loans less profitable, thus forcing lenders to evaluate their participation in the program. As a result, some lenders, especially those that have relied on student loans as their main source of revenue, have suspended or changed their level of participation in the program.

Will my students be able to receive a FFEL program loan through HESC for the 2008-09 academic year?

FFEL program loans will continue to be available. Most students and parents will be able to borrow without difficulty. Some participating lenders have suspended lending to certain sectors of institutions due to lower loan volume or higher than average default rates. While access to Federal loans will still be available for students attending affected institutions, it may be necessary for some borrowers to choose a new lender.

HESC still maintains a list of approximately 50 lenders. Some lenders have assessed the FFEL program as an investment in customer relationships for other banking services, and they will remain in the FFEL program for the long term. Click here to view the current list of participating lenders.

Where will the money come from to make loans?

Student loan funding will continue to come from lenders that participate in the FFEL program, and from the Federal government. HESC will continue to guarantee FFEL program loans.

How should my borrowers choose a lender now? Who is participating?

On May 1, HESC put a process in place for schools using the HESC guarantor flow. HESC took action to assist borrowers signing an e-MPN on our Web site; borrowers will be asked to choose from a drop down box listing only lenders participating in the FFEL program at that particular school.

Will HESC notify my borrowers if they need to find a new lender? If so, how?

HESC is using its e-mail database to ease the administrative burden on schools and explain the situation to borrowers who were affected by a lender’s decision to suspend origination of FFEL program loans. We have sent e-mail notices to borrowers who need to complete a new e-MPN with a new lender, which has helped to reduce inquiries to the Financial Aid office.

What legislative action has been taken and how will it help?

On May 7, 2008, President Bush signed into law the Ensuring Continued Access to Student Loans Act of 2008. This new law provides lenders much need liquidity through creation of a secondary market, granting substantial relief to participating lenders which should increase loan availability, stabilize the market, and restore confidence in FFELP. Lenders that access this secondary market will be required to use those funds to continue participation in FFELP. Further, the legislation authorized increases in unsubsidized Stafford loan annual and aggregate limits. The full text of this legislation is available on govtrack.us.

What actions have been taken by HESC with regard to legislation? How will I be informed?

Our goal is to keep you as informed as we possibly can. HESC has a full time staff member in Washington, and receives updates daily. The most current information is placed on HESC’s Web site on our Student Loan Access resource page. Information and links will also be e-mailed to you directly.

Will the current credit market challenges ease up? Will lenders that have stopped making loans return to the program?

While we are not informed of each lender’s individual status or intentions, we do know that some lenders have simply suspended making new FFEL program loans at this time. HESC has received confirmation that several lenders will be resuming their participation in the program. If conditions continue to be favorable to lenders and money is freed up to allow them to lend, it could serve to restore more lenders to the program.

Will HESC limit the products and services it will offer to my college and my students because of the current credit situation?

HESC’s school partners will continue to receive the same high quality products and services for your school and your borrowers. In fact, HESC will continue its diligence in responding to the current market challenges, and expand and develop needed services to guide you.

What should I do to ensure my borrowers have access to private alternative loans? Who is participating?

HESC is developing a product called the HESC Student Loan Marketplace. This alternative loan comparison Web site will be linked to your school, and participating lenders will list their loan products on the site giving your borrowers the ability to compare, select and apply for alternative loans. HESC expects to unveil the site prior to the 2008-09 academic year.

Can my borrowers still use the HESC e-MPN and PLUS credit check process?

These processes will continue to be available for all borrowers and schools using HESC as a guarantor.

What is the Lender of Last resort program?

Although it is unlikely this program will be necessary, HESC has been working with the U.S Department of Education to set up Lender of Last Resort (LLR) program in New York State. Under this program, in the event that an eligible school is unable to find a lender willing to lend to their students, HESC will secure funding through a lender, and the loan will be approved and disbursed through HESC.

How can I contact HESC if I have questions?

HESC has established a specific e-mail address for prompt response to your questions. The address is webmail@hesc.org. Please continue to check HESC.org for the most current information.