PHEAA Temporarily Suspends its Student Lending Activity
Harrisburg, PA (February 27, 2008) - As a result of recent failed securities auctions in the troubled bond market, the Pennsylvania Higher Education Assistance Agency (PHEAA) announced that it will temporarily suspend its activities as a Federal Family Education Loan Program (FFELP) lender, beginning March 7, 2008.
PHEAA is just one of 400+ lenders participating in the agency’s low-cost KeystoneBEST student loan Program. This announcement means that PHEAA will no longer issue loans from its own funds, but will continue to provide the federal guarantee, origination and servicing for FFELP loans; essentially providing the systems and processes for loan delivery and repayment.
PHEAA will also continue to serve the Commonwealth’s students and schools with other student aid programs and services, as well as helping with the transition to other lenders who are prepared to pick up the additional loan volume.
In recent weeks, student aid providers throughout the nation have been forced to suspend or curtail their lending activity due to failed auctions and persistent turmoil in the capital markets. “We are working closely with our higher education and lending partners to ensure that there will be no interruption in access to low-cost loans for Pennsylvania students”, said Representative William F. Adolph, Chairman of the PHEAA Board of Directors. “From a student perspective, there should be no disruption or difficulty resulting from PHEAA’s decision.”
PHEAA will continue to strengthen its business lines and focus on its public service mission, which includes administering the Pennsylvania State Grant Program and other state-funded student aid programs. “We may be facing difficult challenges, but we remain steadfast in serving the needs of Pennsylvania students,” added Representative Adolph.
“These types of failed auctions were unimaginable before the sub-prime mortgage meltdown,” explained James Preston, Interim PHEAA President and CEO. “Wide-spread lack of confidence in the capital market has spilled over into other asset classes, driving up our cost of borrowing and denying us the capital needed to fund new student loans.” PHEAA expects to resume issuing student loans if the capital markets stabilize to the point of making new loans financially feasible.
PHEAA participates in the $50 billion FFELP, upon which 80 percent of today’s college students depend on for low-cost loans to help them afford a postsecondary education. About 500,000 Pennsylvania students currently attend postsecondary school in Pennsylvania with the assistance of a low-cost FFELP loan. PHEAA’s business earnings which are derived from its FFELP participation have provided Pennsylvania with about $1 billion in public service funding over the last ten years, including grants, scholarships, and low-cost student loans.
PHEAA held an emergency Student Lending Summit last week, gathering together state and federal government, education, and financial leaders, to discuss the looming crisis in funding for student loans. Following the summit, a unified statement was sent to the U.S. Secretary of the Treasury, the U.S. Secretary of Education, the Chairman of the Federal Reserve Board, and the President of the Federal Home Loan Bank of Pittsburgh urging them to use all available means and authorities to provide short- and long-term financial assistance to assure the availability of student loans to Pennsylvania’s students and families.