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Talking points about the Loan crisis

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Talking Points – Student Loan Financing 

The student loan funding situation is dire and it is real.

  • PHEAA directly uses its own capital to lend to students and buy loans from banks (this is known as being a secondary market).
  • PHEAA has already experienced “failed auctions” of its securities, dramatically raising its cost of funds.
    • In short, a “failed auction” means that there were not investors willing to purchase PHEAA’s securities.
  • In response, PHEAA has temporarily suspended participation as a lender.  PHEAA will continue to guarantee and service loans for the 400+ lenders in the state of PA.
  • While banks may be able to “fill in the gaps” in the short-term, the long-term availability of student loans is jeopardized without swift, decisive federal action.
  • This situation is national in scope and not limited to Pennsylvania.

 Members of Congress should, immediately:

  • Call or write Secretary of Treasury Henry Paulson, Secretary of Education Margaret Spellings, Federal Reserve Chairman Ben Bernanke, and President of the Pittsburgh Federal Home Loan Bank Board John Price.
    • Request that they step in NOW to provide needed financing for student loan providers.
    • Ask them to use all available means to inject needed capital into the student loan marketplace and restore investor confidence.
    • This is not a bailout. This is a way to solve a crisis of confidence. These are good loans and support an important federal program.

Remind your Members of Congress that 97% of the schools in Pennsylvania depend on the Federal Family Education Loan Program (FFELP).

  • If action is not taken today, the future of the FFEL Program could be in jeopardy.
    • Banks have depended upon the secondary market and/or the bond market for decades to raise new capital that they use to make new loans. 
    • If this part of the FFEL Program is not functioning, the banks will eventually “fill up” with student loans and stop making new student loans.
  • Once investors desert the FFEL Program, we may never be able to attract them back.
  • For schools only, if applicable: Provide Members of Congress with information on the proportion of your students that depend on student loans and PHEAA.
    • Advise them that, as a not-for-profit, the revenue that PHEAA generates from its FFEL guaranty and servicing activities pays for a host of loan fee savings and grant programs for students.
  • Advise them that private (non-federal) loans may be affected as well.
    • The costs of these loans are already increasing interest rates and fees on these loans.
    • Access to private loans could be limited as credit criteria are made more stringent and borrowers are unable to qualify unless their parents will co-sign the loans and can, themselves, pass a credit check.

 Emphasize to Members of Congress that this issue is in need of immediate attention and that:

  • Students and families are making decisions today on what schools to attend this fall.
  • If there is any uncertainty regarding the availability of student loans, some students could opt not to pursue higher education and miss out on their opportunity, or settle for a school that is not their first choice.
  • Schools, students, and families need to be certain today that the loan funds their students depend upon to pay college costs will be there when they need them this fall.
  • Pennsylvania’s economic future depends on an educated workforce – we cannot afford any missteps.

 

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