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Student loan authority to receive $80 million loan from state Friday, Apr 25, 2008 By Jason Wiest Arkansas News Bureau LITTLE ROCK - State fiscal officers agreed Thursday to stand in for skittish investors and loan the Arkansas Student Loan Authority $80 million, enabling it to continue lending to college students while similar institutions nationwide have suspended the practice. At an emergency meeting called by Gov. Mike Beebe, members of the state Board of Finance unanimously approved the line of credit for the authority, which normally originates and purchases student loans using proceeds from bond sales. The agency had hoped to close a $250 million to $275 million bond deal by March, but thus far the authority has been unable to sell bonds to investors now leery in the wake of the national credit crisis that began in the subprime mortgage business, experts say. "There has not been a state-based student loan organization close a bond deal this year," ASLA Executive Director Tony Williams told board members Thursday. "They usually close on a weekly basis." The drought in the bond market has caused many of ASLA's peers nationwide to wither. Earlier this week, the state-based student loan organization in Michigan announced it would temporarily suspend its participation in the Federal Family Education Loan Program, the same in which ASLA participates. Students borrowed $519 million through that organization last year. Michigan's organization joins organizations in Massachusetts, Minnesota, Pennsylvania and Texas that also have announced they will not make federally backed student loans next year. Kentucky announced earlier this week that it will not make loans to new borrowers. Experts say that, at this point, college students nationwide will still have access to student loans. Some private banks participate in the FFEL program and are less affected by the credit crisis because they can use different funding sources for student loans. Private loans through private lenders are also still available, although their terms may not be as favorable to students. Congress is also taking steps to ensure student access to loans, including potentially giving the U.S. Department of Education express legal authority to advance funds from the U.S. Treasury to guaranty agencies to act as lenders of last resort and also allow the agency to purchase existing loans from private lenders to give them the capital to make new loans. In Arkansas, the loan from the state is a "proactive measure" that will head off any potential problem that may occur, Williams said. "This is a safety net for students to show that there is funding in the market and it's an encouragement to banks to continue offering student loans because it shows that we can provide them liquidity," by purchasing loans from them, Williams said. Williams said he hopes investors return within six to nine months, and that the authority will not have to draw the entire $80 million from the state, $50 million of which will be doled out in June, and the remainder at the beginning of 2009. "If action by Congress provides some relief and if the bond market stabilizes on its own, then I don't see us drawing the entire amount," Williams said. Terms of the loan won't be finalized until next month but the repayment period likely will be between 12 and 18 months, with a rate equal to a varying federally-set rate that the state requires of the funds normally. The $80 million is part of $300 million that the state normally invests quarterly in certificates of deposit offered by banks statewide. Those investments are made to encourage economic development, said Richard Weiss, director of the state Department of Finance and Administration. But banks have less of a need for that capital under the current credit market conditions and the state of the national economy, state Bank Commissioner Candace Franks said. "A lot of investors have pulled back and they're not investing in real estate like they were and they're not investing in new homes or new construction like they were, so they're not asking for as many bank loans," Franks said. "They're also not investing in the bond market right now, so it all certainly is connected." |
