November 20, 2008

Dear Colleague:

On  November 10, 2008, I issued a Dear Colleague Letter announcing the Department’s  steps to implement Public Law 110-350, which extends for one year the loan  purchase authority contained in the Ensuring Continued Access to Student Loans  Act (ECASLA).  In that letter, I  indicated that additional action may be necessary to ensure that students and  families have continued access to Federal Family Education Loan Program (FFELP)  loans.  The purpose of this letter is to  announce a short-term loan purchase program to address potential risks to  scheduled subsequent disbursements for the 2008-2009 school year.

Specifically,  I am announcing that the Department of Education will use its loan purchase  program to purchase certain 2007-2008 academic year FFELP loans.  This short-term use of our purchase authority  is designed to minimize disruption in student lending prior to the Asset-Backed  Commercial Paper conduit announced in my Dear Colleague letter (November 10,  2008) becoming operational.  This  short-term program will end when the conduit begins operating or on February  28, 2009, whichever comes first.  The  Department will purchase up to $500 million in loans each week, during the use  of this authority, up to an aggregate total of $6.5 billion during the time  period.

**Eligible Loans**

Under  this program, the Department will buy fully disbursed FFELP Subsidized  Stafford, Unsubsidized Stafford, and PLUS loans originated for academic year  2007-2008.  The loans must have been  first disbursed on or after May 1, 2007, for the loan period beginning on or  including July 1, 2007, and must have been made to pay the costs of attendance  at a postsecondary institution during the 2007-2008 academic year.  If a lender offers to sell a borrower’s loan  to the Department, it must include all eligible 2007-2008 loans it holds for  that borrower.  FFELP consolidation loans  are not eligible to be purchased by the Department under ECASLA.  Loans on which a default claim or other claim  for payment has been filed with the guarantor are not eligible for  purchase.  Further, the Department will  not purchase loans that are more than 210 days delinquent at the time of  sale.  Finally, at the time of purchase  by the Department, a loan must be free and clear of any encumbrance, lien, or  security interest or any other prior commitment.

**Borrower  Benefits**

Under  this authority, the Department will purchase loans with certain borrower  benefits; however, the Department will only purchase loans with benefits that  can be implemented by Federal Student Aid’s current servicing processes.  A complete description of approved benefits  will be included in a forthcoming *Federal  Register* notice announcing this program.   Consistent with the law’s cost requirements, the Department will not  purchase loans where a cash rebate or item/product was promised to the  borrower.

**Pricing**

The  Department will purchase loans at 97 percent of the principal and unpaid  interest owed by the borrower, coincident with the standard guaranty rate for  these loans.  Upon purchase, the loans  become Federal assets and will be serviced by the Department’s servicer as a  FFELP loan.  Additional terms and  conditions will be included in the above-referenced *Federal* *Register* announcement.  As a condition of  participation in this purchase program, a lender must continue to originate new  loans and participate in the FFEL Program.

**Loan Volumes**

As  noted, the Department will purchase up to $500 million in eligible loans each  week beginning in early December.  The  Department will specify a day and time period for lenders to offer loans for  purchase.  The Department will sum the  total of the offers for each week.  If  the total of the original offers is equal to or less than the weekly $500  million purchase amount, the Department will purchase the loans as offered by  each lender.  If the loans offered for  sale by lenders exceed $500 million, the Department will determine the amount  that each lender will be eligible to receive from the weekly total, not to  exceed the amount offered for sale by that particular lender.  This will be done through an allocation  process that will be outlined in the *Federal  Register.*  This process is intended  to ensure a fair and equitable distribution of purchases based on actual FFELP  activity by each lender.

**Terms and  Conditions**

The  announcement of the program and the agreements to participate, which include  terms and conditions, will be published in a *Federal Register*notice and  on the Department’s Web site.  The  official announcement, however, is the one published in the *Federal Register*.  While we believe the price and the types of  eligible loans will not change, some other terms may need to be adjusted to  ensure cost neutrality.

As  was noted, I am taking these steps out of concern for ensuring that second and  other subsequent disbursements are made for the remainder of the 2008-2009  academic year.  This action, combined  with the Department’s current successful purchase programs and
announced  conduit/replication purchase programs, will continue to enable students and  families to access loans to pursue higher education.

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

|Last Modified: 06/10/2009
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