Student Loan Guarantor in ‘Urgent’ Financial Crisis

The Education Department said today it is holding daily meetings in an effort to resolve a financial crisis at one of the nation’s largest guarantors of student loans.

“It’s a matter of urgency,” department spokeswoman Etta Fielek said after a morning session on problems at the Higher Education Assistance Foundation.

The nonprofit corporation, based in Overland Park, Kan., guarantees nearly $10 billion in student loans.

The foundation has notified the department that “it is facing serious financial problems,” Education Secretary Lauro F. Cavazos said in a statement late last week. He said the department is considering various options that would “ensure the availability of new loans and the continuation of guarantees and claim payments on outstanding loans.”

Fielek said HEAF has asked Congress and the department to approve a federally assisted takeover by another guarantor, the Nebraska Student Loan Program Inc.

But she said the department is apprehensive about that proposal.

“There’s a problem of scale,” Fielek said. “There’s concern on the part of the department that Nebraska would be too small an operation to consume something the magnitude of HEAF.”

There are 55 guarantors responsible for repaying banks in the event of defaults on student loans. HEAF is a national guarantor operating in many states, while Nebraska operates in only one state.

The student loan program will make a projected $13 billion in loans this year and has $51 billion in loans outstanding.

According to a report today in The Wall Street Journal, HEAF expects a cash shortfall of $50 million to $100 million in the next 12 months.