Student Loan Rescue Plan to Move into Next Phase in February
January 30, 2009
The student loan rescue plan that will allow the Department of Education to buy up student loans issued since 2003 will begin operating in February. The plan will set up a bank to act as a "conduit" for purchasing older student loan assets and will also allow the Treasury to become the buyer of last resort for assets the conduit bank is unable to refinance. The Treasury will buy up student loans through this program for the first 90 days, after which the Department of Education will take over. The Bank of New York Mellon is currently the only authorized conduit, though more could be added later.
This plan will hopefully allow banks that have had to leave the FFEL program to find the capital to reenter it through selling some of their older student loans to the conduit bank. While students borrowing Stafford Loans through the FFELP had few problems finding loans in 2008, this program should help the student loan marketplace continue to stabilize and should help prevent potential problems down the road.
Another $200 billion program announced by the Treasury in November is also set to begin operations in February. This one targets consumer credit in general, but also includes private student loans. Between these two programs and the proposals contained in the economic stimulus package currently working its way through Congress, students entering college in 2009 may have an easier time finding financial aid.