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Arkansas to consider $80 million loan to help student loan agency Thursday, Apr 24, 2008 By Jason Wiest Arkansas News Bureau LITTLE ROCK - State officials today will consider and likely approve an $80 million loan to the Arkansas Student Loan Authority, which is struggling to secure financing to lend college students because of a national credit crisis. On Wednesday, Gov. Mike Beebe called an emergency meeting of the state Board of Finance, the investment arm of the state treasurer's office, after discussions with ASLA. "It's something we whole-heartedly support," Beebe spokesman Matt DeCample said. The agency asked for the money after having difficulty closing a $250 million bond deal that is still pending, ASLA Executive Director Tony Williams said. "We still anticipate having the ability to close a bond deal," Williams said. "However, the $80 million line of credit that we hope to receive from the state will take some pressure off in completing that bond deal immediately." The agency is completely funded by bonds, which have been hard for student financial aid agencies nationwide to sell because of fear in the bond markets caused by the subprime mortgage crisis, even though the fear is largely unjustified, experts say. ASLA participates in the Federal Family Education Loan program, a cornerstone of the financial aid system. Loans in that program are 97 percent backed by the federal government. Congress is taking measures to provide relief for lenders, but the loan from the state is a temporary fix that will provide a good safety net for the agency, Williams said. "The best case scenario is if the student loan authority does not find it necessary to draw on this line of credit," he said. The money for the loan, which would provide the agency with $50 million in the fall semester and the remainder in the spring, would come from funds the state treasury would normally invest in banks, according to Richard Weiss, the state's chief fiscal officer. That money is part of $300 million the state normally invests quarterly in banks statewide, which use the money for capitalization purposes, Weiss said. "In the last couple of years, the banks haven't had enough loan volume and loan demand on their end to make this a huge issue for the banking community," said Weiss, director of the state Department of Finance and Administration. Terms of the deal have not been negotiated, but both parties say they are considering a 12- to 18-month repayment schedule. "We will require exactly the same rate we do on the banks that we place the money in otherwise," Weiss said. Some states' student financial aid agencies have decided not to loan money in the coming academic year. The Kentucky Higher Education Student Loan Corp. decided last Friday not to make loans to first-time borrowers. Even if ASLA were not able to make loans or participate in the secondary market, buying loans from other lenders, college students in Arkansas still would have adequate access to student loans, said Ronnie Nichoalds, the executive director of the Student Loan Guarantee Foundation of Arkansas said last week. Many other lenders that participate in the FFEL program have indicated they will continue to make student loans in the coming academic year, Nichoalds said. Financial aid officials with the University of Arkansas system also said they were not concerned students would not be able to obtain loans. Williams said last week he was confident that other lenders would pick up the slack if his agency were unable to make or purchase loans. "We believe that this line of credit will provide some comfort for both students receiving loans on the front end and lenders who need liquidity on the back end," he said Wednesday. |
