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Lender of last resort

TG completes preparations for school designations in lender-of-last-resort program
From Shoptalk Online, July 15, 2008

In accordance with ED's implementation deadline of July 1, 2008, TG has completed system enhancements to support the new lender-of-last-resort (LLR) provisions of the Ensuring Continued Access to Student Loans Act of 2008 (ECASLA).

The LLR program, as it has existed for many years, is designed to ensure that eligible student loan borrowers who are unable to locate a lender have access to FFELP funds through the LLR program administered by guarantors. With the passage of ECASLA, the LLR program was expanded to provide for the possibility of an entire school being designated as an LLR institution, if appropriate, thus qualifying all students attending the school to receive LLR loans. Federal rules require that a school request the LLR designation through the state-designated guarantor, for review and approval by ED. LLR loans may then be obtained through the designated guarantor in the state where the school is located or where the borrower resides.

TG's systems have now been updated to accommodate this new feature. Schools approved by ED for an LLR designation will be profiled as such on TG's system. The schools will be able to submit their loan certifications to TG for processing via current transmission methods; AdvanTG Web™ will not be required to obtain LLR loans through TG in such cases.

TG remains very hopeful that there will not be a need for school-wide LLR designations, given recent actions taken by Congress and ED to ensure broad access to FFELP loans during the coming academic year as the current credit market disruption is resolved. Nevertheless, these system preparations underscore TG's commitment to proactively ensure borrower access to FFELP loans in a smooth and efficient manner, in the event that LLR loans are needed to serve a school and its students.

For more help
Shoptalk Online will keep readers informed as developments occur. Schools seeking additional information about TG's LLR program can contact Cynthia Mayberry, TG's manager of the Texas region, at (800) 252-9743, ext. 4683. Lenders can contact Kevin Harris, director of lender relationships, at (800) 252-9743, ext. 2805.

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TG lays groundwork to operate lender-of-last-resort program
From Shoptalk Online, April 9, 2008

The lender-of-last-resort (LLR) program is designed to ensure that eligible student loan borrowers who are unable to locate a lender have access to Federal Family Education Loan Program (FFELP) funds. TG first implemented its LLR program in 1994, and is currently updating its procedures to reflect current electronic processes in the FFELP, and to make adjustments to address the challenges of the current environment.

On March 26, 2008, the Department of Education (ED) provided new LLR planning guidance to all FFELP guarantors (DCL FP-08-03/GEN-08-03) and requested updated plans to be submitted to ED by April 25. ED issued this guidance to guarantors to help assure continuity among the various LLR plans. TG is in the midst of complying with ED's request by building on the foundation of its previous LLR program, and making changes to update processes for today's environment in a manner that corresponds with the recent guidance from ED (see Shoptalk Online edition 448).

The LLR program provides several options for making loan funds available:

  • Guarantors locate or designate participating lenders to provide LLR loan funds.
  • ED provides federal government advances to guarantors to use as LLR loan funds.
  • Guarantors provide their own funding to use as LLR loan funds.

It is not yet clear which of these options, if any, will be exercised by TG to ensure access for students; so TG is making preparations for all three options at this time. Sue McMillin, TG President and CEO, has confidence in TG's ability to prepare for additional LLR lending in the near future, with ED's assistance at the federal level to address current environmental challenges, should the need arise.

"We're already familiar with how the participating lender approach works, because we've had direct experience with that. And we're laying the groundwork to operate LLR under the other two funding options, as needed," said Sue.

TG and other guarantors are participating in industry conversations, as well as discussions with ED, to identify and implement the necessary steps to move forward under each of these scenarios. Guarantor discussions with ED also are underway to consider certification of LLR eligibility at a school level, rather than a borrower level, if circumstances warrant.

For more help
Shoptalk Online will keep readers informed as developments occur. Schools seeking additional information about TG's LLR program can contact Cynthia Mayberry, TG's manager of the Texas Region, at (800) 252-9743, ext. 4683. Lenders can contact Kevin Harris, director of lender relationships, at (800) 252-9743, ext. 2805.

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A note about the lender of last resort
From Shoptalk Online, April 1, 2008

Industry news has recently been filled with discussion about a potential lack of lenders for FFELP loans and the possible need for lender-of-last resort (LLR) loans. LLR loans are one of the backstops available to help make sure that access to FFELP loans, and thereby higher education, is maintained.

LLR yesterday
LLR loans are nothing new. They've been around since 1994, which is when TG implemented its LLR program. At that time, cohort default rates were high, and lenders became unwilling to make FFELP loans to some borrowers. LLR loans were used again in the late 1990s and early 2000s when an impending change in the interest rate formula prompted concerns about loan access in the FFELP.

In both of these instances, the LLR program ran smoothly. Lenders, guarantors, and the ED came together and met the needs of students and their families. To our knowledge, everyone who qualified for and requested a FFELP loan received one.

To put this in perspective, in total, TG has guaranteed over 17,500 LLR loans for some $38 million, a very small amount in comparison to TG's portfolio of over $23 billion.

LLR today
Today's environment is somewhat different. The credit markets are in turmoil, and several sources of funding for FFELP loans have come under pressure. But, in essence, the issue is still access, and the solution is still the LLR program. FFELP guarantors that administered the LLR program previously remain committed to the program and to providing access to FFELP loans.

Currently, TG and other guarantors are updating procedures and processes to make sure that they continue to minimize impact to schools and borrowers. ED is developing additional contingency plans should the funding situation become serious. ED can obtain funds for guarantors to make LLR loans from the Treasury, if necessary. And everyone, including Congress, is monitoring the conditions that could contribute to serious access issues. Together, these initiatives will help ensure that early action can be taken to prevent large-scale problems.

For more help
Schools seeking additional information about TG's LLR program can contact Cynthia Mayberry, TG's manager of the Texas Region, at (800) 252-9743, ext. 4683. Lenders can contact Kevin Harris, director of lender relationships, at (800) 252-9743, ext. 2805.

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