Industry Update: Lender of Last Resort Contingency Plans and Market Liquidity

As you know, there’s been an influx of articles and discussions about the need to reestablish the Lender of Last Resort (LLR) procedures to ensure continued access to student loans through the Federal Family Education Loan (FFEL) program. The potential need for such a program could be amplified as some lenders are choosing to at least temporarily suspend student loan lending due to the combination of cuts from last year’s College Cost Reduction & Access Act (CCRAA) and current credit market challenges. Rest assured that the FFEL community is hard at work on a variety of fronts to advocate for solutions to both issues.

Earlier this month, Mary Mowdy, OGSLP Executive Director, attended a meeting with Education Secretary Margaret Spellings, senior members of her staff and guarantor representatives. As a result of that meeting, work to develop standardized LLR procedures and agreements is ongoing between the Department of Education (DE) and a National Council of Higher Education Loan Programs (NCHELP) task force comprised of guarantor operational, leadership and legal experts. The work being done by the joint task force has been very intensive and fast paced, including daily two-hour conference calls this week with the goal of having DE-approved policy and procedures published by early summer. OGSLP and other guarantors are utilizing information from these conference calls to anticipate the preparations that will be needed to adopt LLR procedures. Here in Oklahoma, we’re also working with our lender of last resort, the Oklahoma Student Loan Authority, as we finalize plans for the LLR process.

Of course, we’re hopeful that LLR plans will never be needed. One of the most important ways to circumvent student access issues is to support legislative initiatives that include structural components designed to infuse capital into the student loan marketplace, improving liquidity. Our work within the FFEL community to resolve these credit market issues continues. Mary Mowdy will represent NCHELP in her role as Board Chair at an April 29 meeting with Secretary Spellings and trade association representatives to discuss liquidity concerns and possible solutions. We look forward to the outcomes of this meeting and will keep our customers updated on both of these important, interrelated issues.

We urge you to support current pending legislation that will provide liquidity back into the marketplace by contacting your congressional delegation members and expressing support for the FFELP liquidity measures included in any and all of four bills: HR 5715 (Ensuring Continued Access to Student Loans Act), which has passed the House; S 2815 (Strengthening Student Aid for All Act), which has similar provisions as HR 5715; and HR 5723 (Emergency Student Loan Market Liquidity Act) and its companion, Senate bill S. 2847. Although none of these efforts alone will solve the current liquidity problems, combined, they will help a great deal.