WASHINGTON - The Department of Education announced steps last week to add liquidity to the student loan market by buying up more loans that it backs.
The move comes as liquidity in the secondary market has dried up, making it difficult for credit unions, banks and other lenders to raise funds for loans.
In the 2009-10 academic year, the agency will purchase loans, as it has this year. The agency will also pledge to be the buyer of last resort for loans purchased by a private intermediary in an effort to foster investment in the student loan industry.
The government plans to provide liquidity support to one or more asset-backed commercial paper conduits to buy and provide long-term funding for loans made under the federally guaranteed Federal Family Education Loan Program.
Plans call for all loans made between Oct. 1, 2003 and July 2, 2009 to be eligible. Loans in the conduit will be financed with new issues of assets-backed commercial paper.
So far, the government's student loan financing program has supported more than 40% of all federal loans disbursed this year, meaning that the government has bought, directly or indirectly, about $9 billion in loans.
