Repayment extended for student loan funds
Posted on Friday, December 12, 2008
The state Board of Finance on Thursday gave the Arkansas Student Loan Authority 10 more months to pay back what the authority borrows from a line of credit of up to $80 million.
In May, the board granted the line of credit to make sure Arkansas students could obtain college loans through the authority.
That came after the national market collapse scrubbed the authority's plan to issue $250 million to $270 million in bonds this year to fund the program for 18 months.
On Thursday, the authority asked the board to move the repayment deadline from Dec. 1, 2009, to Sept. 30, 2010, because of what authority director Tony Williams described as "the continued dysfunction in the capital markets.
"This year we funded loans for students attending every college in the state, so [the line of credit] was used effectively," he told the board.
So far, the authority has tapped the line for $41 million, said Autumn Sanson, chief investment officer for the state treasurer.
As of Nov. 30, the authority had used $39.7 million of it to make 14,651 loans to students at 44 Arkansas schools and 21 outof-state schools, the authority said.
The federal Ensuring Continued Access to Student Loans Act assures liquidity for federal student loans through Sept. 30, 2010, and assures the authority's ability to liquidate the loans and repay the line of credit, the authority told the board.
The authority will be paid 101 percent of the outstanding principal balance for loans sold to the federal government, the authority said.
The student loans financed by the line of credit are insured at a rate of 97 percent by the federal government as protection from losses, the authority said.
"There is no such thing as a risk-free deal, but I think this is about as close as we can get due to the federal legislation that is in place to guarantee liquidity for us," Williams said.
The repayment deadline extension allows the authority to continue serving funding needs of students for 2009-10, the authority said.
The board also granted the authority's request to permit it to "recycle" funds drawn on the line of credit.
Using the federal bailout legislation, the authority may sell student loans originally funded with proceeds from the line of credit and use the receipts to acquire or fund additional student loans, the authority said.
The original line of credit allowed the authority to use the funds only once, with a requirement that any sale proceeds be used to repay the line of credit.
The money loaned by the finance board to the authority comes from state funds the board would otherwise invest in six-month certificates of deposit in Arkansas banks.
In May, the board set the initial interest rate on the money at 2.03 percent. A state official said it would set a rate every six months. The resolution approved Thursday by the board states that the interest rate now is 1.56 percent.
Afterward, Williams said he's not "seeing many positive signs" that a bond deal could be closed soon.
"It's all based on the capital markets and when they recover," he said. "We would love it to be in the next six months, but there are actually no guarantees."
No state student-loan organization has completed a bond deal this year for new loans, Williams said.
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