Student Loan Firm’s Bailout Set at $100 Million

A taxpayer bailout of a troubled student loan guarantor would not cost more than $100 million, a senior Education Department official said Friday.

Ted Sanders, undersecretary of education, said the department hoped to resolve the problems of the Higher Education Assistance Foundation, or HEAF, without taxpayer money.

But “$100 million would be the outside number,” he told the Senate Banking Committee.

HEAF, a private, nonprofit agency based in Overland Park, Kan., is the guarantor of $8.8 billion in student loans, or more than 17% of the $51 billion in student loans outstanding nationally. It is the largest of 47 guaranty agencies, which are either state-run agencies or private nonprofit groups.

It had said earlier that a high loan default rate, particularly on loans to trade school students, threatened to push it into insolvency and sought help from the federal government.

Bankers warn that commercial lenders would flee the student loan market if HEAF defaulted and lenders were forced to take losses on the guaranteed loans.

However, Sanders reassured nervous students and parents that loans would be available this fall and said the Education Department intended to “act decisively to arrange for the orderly management of the HEAF portfolio.”

“Despite alarmist reports in the media, this situation will not affect the ability of students to obtain loans, of lenders to make those loans, or of guarantors to insure those loans,” he said.

The program last year loaned more than $12 billion to 4 million students, according to the General Accounting Office, Congress’ auditing agency.

Meanwhile, Sallie Mae, the government-sponsored student loan company, said Friday it is talking with the Education Department about rescuing HEAF.

Sallie Mae, the Student Loan Marketing Assn., is a federally chartered but shareholder-owned secondary market company. Through several mechanisms, it finances about 40% of all student loans, dominating the industry.