Federal Updates

A note about the lender of last resort

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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