November 10, 2008

Dear Colleague:

On October 7, 2008, the President signed Public Law 110-350,  which extends for one year the authorities contained in the Ensuring Continued  Access to Student Loans Act (ECASLA).  By  signing this law, the President reinforced the Administration's strong  commitment to providing students and families with every opportunity to obtain  federally guaranteed loans to help pay college expenses.

As many know, the U.S. Department of Education (the  Department), in collaboration with the U.S. Department of the Treasury and the  Office of Management and Budget, has implemented two programs – the Purchase of  Participation Interests (PPI) Program and the Loan Purchase (“Put”)  Program.  Both programs are working  exceedingly well.  To date, the  Department has purchased $8.7 billion in participation interests and has  purchased approximately $62 million in loans through the Put Program.

However,  additional action is needed to help ensure students have continued access to  federal student loans.  The  continued tightening of the credit markets has created conditions making it  difficult for lenders to secure needed private capital.  These conditions have generated concern among  students and families, schools, and lenders about the availability of federal  guaranteed loans for the 2009-10 academic year.   Schools are also in the process of securing commitments from lenders for  the next school year.

For these reasons, I am announcing several additional  actions the Department is taking to ensure that students and families will have  access to loans in the 2009-10 academic school year.  Our goals in taking these actions are to:

- Ensure       availability of federal student loans for the 2009-10 school year;
- Uphold       the public/private partnership in the federal student loan program;
- Protect       taxpayer interests by adding no net costs to the Federal Government; and
- Provide       the liquidity and support needed to stabilize the student loan       marketplace.

Therefore, the Department will replicate the successful PPI  and Put Programs for the 2009-10 academic year.   The current PPI and Put Programs for the 2008-09 school year will  terminate as provided for in the Master Agreements between Federal Family  Education Loan (FFEL) Program lenders and the Department.  In addition, I am announcing a new program  designed to provide longer-term stability in the federal student loan  marketplace through the development of a private market financing vehicle.

Replication of PPI  and Put Programs for 2009-10 Loans

The Department will publish in the *Federal Register* the terms and conditions on which the Department  will purchase FFEL Program loans (the Put Program) and participation interests  in loans (the PPI Program) originated for the 2009-10 academic year.  We anticipate that the terms and conditions  for these programs will closely mirror those for the current year’s programs,  though the pricing and terms of these programs may need to be refined in order  to ensure that they result in no net cost to the Federal Government.

In the Put Program, lenders will have the option to finalize  the sale of a loan or loans to the Department as late as September 30,  2010.  Thus, a lender that completes the  disbursement of a loan for the 2009-10 academic year can hold and service that  loan until September 30, 2010.  This  option continues to provide an opportunity for lenders to finance and keep  loans in the event that capital markets improve, and is designed to protect  against losses on new loans for an additional year.

Also, the Department will replicate the PPI Program.  These participation interests will be held by  the Department until September 30, 2010.   As in the current program, 2009-10 academic year loans originated by  FFEL Program lenders will be put into short-term participation facilities.  No later than the expiration of the program  on September 30, 2010, the lender may refinance the loans in the private  financial market and redeem the Department’s participation interest, or it may  sell the loans to the Department under the Put Program.

The Conduit – A  Private Market Financing Vehicle

Credit markets remain stagnant, and the effects are felt  most acutely in those markets with unsecured consumer debt such as student  loans.  We estimate that approximately  $130 billion of eligible academic year 2003 to academic year 2007 student loans  remain on bank balance sheets and tied to auction rate securitizations.  Capital markets have been unable to generate  sufficient funds at prices that will ensure student loans are made for the  2009-10 academic year.

In order to address this situation, the Department intends  to provide liquidity support to one or more conforming Asset-Backed Commercial  Paper (ABCP) conduit(s) to purchase FFEL Program loans.  These ABCP conduits will purchase FFEL Program  loans, providing longer-term stability to the guaranteed student loan  marketplace.  The Department intends to  make all fully disbursed, non-consolidation FFEL loans awarded between October  1, 2003, and July 1, 2009, eligible for this program.  An eligible lender trustee creates a pool  called a conduit, to which other lenders transfer ownership of their student  loans.  This conduit issues commercial  paper to sell, backed by the loans in the pool.   After private investors purchase the commercial paper, student lenders  would be paid out of the amounts received from these investors.  The Department will provide liquidity to the  facility by entering into forward purchase commitments with these eligible lender  trustees, whereby the Department promises to purchase, at a date in the future,  eligible student loans at a prearranged price if the commercial paper that has  been issued by the conduit cannot be reissued or “rolled” at maturity and the  conduit does not have sufficient cash to repay commercial paper investors.

The Department continues to refine the pricing and the terms  of these programs to ensure that they will meet the legal obligation of no net  cost to the Federal Government.  The *Federal Register* Notice for these  programs will include the final prices, terms, and conditions, as well as the  Administration’s methodology for determining cost neutrality.

The Department has also taken the steps necessary to ensure  the Lender-of-Last-Resort Program is ready should it be needed.  Further, in recent months, the Department has  expanded its capacity in the Direct Loan Program.  These measures, along with the new ECASLA  programs, will ensure that students and families are able to obtain FFEL  Program loans for the 2009-10 academic year and beyond.

| | Sincerely,        
| | ------------------
| | /s/               
| | Margaret Spellings

|Last Modified: 06/10/2009
|-------------------------