ED Prepared to Become Student Lender of Last Resort

The U.S. Department of Education is notifying state agencies that it will be ready to process emergency student loans by June 1, according to a report in The Wall Street Journal today.

The Journal reports that the government letter is an initial step in the DOE becoming a “lender of last resort” for student loans. The authority to provide these emergency loans was authorized by the legislation, HR 5715, Ensuring Continued Access to Student Loans Act of 2008, which the U.S. House passed last week and is expected to be signed into law by President Bush (“House Passes Student Loan Bill to Ease Credit Limits,” May 2).

By authorizing the emergency loans, the DOE takes some of the pressure off the student credit market, which has been hit hard recently by the end of several private lending programs, (“Student Loans Drying Up, Dodd Warns,” April 16), as well as the reduction of lenders in the federal loan program.

Though the lender of last resort program has been discussed before, a DOE spokesperson told insideARM in an earlier interview it has never been tried or tested before. The DOE didn’t return phone calls today to insideARM.