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Publication Date: July 1, 2008
Page Numbers: 37422-37451
Summary: Notice of terms and conditions of purchase of loans under the Ensuring Continued Access to Student Loans Act of 2008
Posted on 07-01-2008
[Federal Register: July 1, 2008 (Volume 73, Number 127)]
[Notices]
[Page 37422-37451]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01jy08-29]
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DEPARTMENT OF EDUCATION
DEPARTMENT OF THE TREASURY
OFFICE OF MANAGEMENT AND BUDGET
Federal Family Education Loan Program (FFELP)
AGENCY: Department of Education, Department of the Treasury, Office of
Management and Budget.
ACTION: Notice of terms and conditions of purchase of loans under the
Ensuring Continued Access to Student Loans Act of 2008.
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SUMMARY: Under section 459A of the Higher Education Act of 1965, as
amended (``HEA''), as enacted within the Ensuring Continued Access to
Student Loans Act of 2008 (Pub. L. 110-227), the Department of
Education (``Department'') has the authority to purchase, or enter into
forward commitments to purchase, Federal Family Education Loan Program
(``FFELP'') loans made under sections 428 (subsidized Stafford loans),
428B (PLUS loans), or 428H (unsubsidized Stafford loans) of the HEA, on
such terms as the Secretary of Education (``Secretary''), the Secretary
of the Treasury, and the Director of the Office of Management and
Budget (collectively, ``Secretaries and Director'') jointly determine
are ``in the best interest of the United States'' and ``shall not
result in any net cost to the Federal Government (including the cost of
servicing the loans purchased).''
This notice (a) establishes the terms and conditions that will
govern the loan purchases made under section 459A of the HEA, (b)
outlines the methodology and factors that have been considered in
evaluating the price at which the Department will purchase loans made
under section 428, 428B, or 428H of the HEA, and (c) describes how the
use of those factors and methodology will ensure that the loan
purchases do not result in any net cost to the Federal Government. The
Secretaries and Director concur in the publication of this notice and
have jointly determined that the programs described in this notice are
in the best interest of the United States and shall not result in any
net cost to the Federal Government (including the cost of servicing the
loans purchased).
DATES: Effective Date: The terms and conditions governing the Loan
Purchase Commitment Program and the terms and conditions governing the
Loan Participation Purchase Program are effective July 1, 2008.
FOR FURTHER INFORMATION CONTACT: Kristie Hansen, U.S. Department of
Education, Office of Federal Student Aid, Union Center Plaza, 830 First
Street, NE., Room 113F1, Washington, DC 20202. Telephone: (202) 377-
3309 or by e-mail: Kristie.Hansen@ed.gov.
If you use a telecommunications device for the deaf (TDD), call the
Federal Relay Service (FRS), toll free, at 1-800-877-8339.
Individuals with disabilities can obtain this document in an
alternative format (e.g., Braille, large print, audiotape, or computer
diskette) on request to the contact person listed under FOR FURTHER
INFORMATION CONTACT.
SUPPLEMENTARY INFORMATION:
Introduction
The purchasing of loans is intended to encourage eligible FFELP
lenders to provide students and parents access to Stafford and PLUS
loans for the 2008-2009 academic year. To accomplish this objective,
the Department is offering lenders the opportunity to participate in a
Loan Purchase Commitment Program (``Purchase Program'') and a Loan
Participation Purchase Program (``Participation Program'')
(collectively, ``Programs'').
Under the Loan Purchase Commitment Program, the Department may
purchase eligible loans that are held by eligible lenders. To
participate in the Purchase Program, each eligible lender must enter
into a Master Loan Sale Agreement with the Department and deliver to
the Department or its agent the fully executed master promissory note
(or all electronic records evidencing the same) evidencing each
eligible loan that the eligible lender wishes to sell to the Department
and any and all other documents and computerized records relating to
such eligible loans.
Under the Loan Participation Purchase Program, the Department may
purchase participation interests in eligible loans that are held by an
eligible lender acting as a sponsor under a Master Participation
Agreement. To participate in the Participation Program, each sponsor
must enter into a Master Participation Agreement with the
[[Page 37423]]
Department and a third-party custodian acceptable to the Department and
must have provided appropriate notice to the Department of the intent
to participate in the Loan Purchase Commitment Program.\1\
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\1\ Lenders that qualify as ``eligible not-for-profit holders''
for a higher special allowance rate may sell participation interests
in their loans under this program without loss of eligibility for
that rate. An entity qualifies for that rate only if the entity is
the ``sole beneficial owner of such loan.'' 20 U.S.C. 1085(p)(2)(C).
Courts treat a participation interest in a loan as a beneficial
ownership of a loan. The Department becomes a beneficial owner of a
loan in which it purchases a participation interest, and the lender
then holds a junior beneficial ownership interest. In light of other
statutory provisions and the congressional intent they evidence, the
Department interprets the HEA to disqualify an otherwise-eligible
not-for-profit holder only if a for-profit entity acquires
beneficial ownership of a loan. See 20 U.S.C. 1085(p)(2)(B), (E),
(3).
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Terms and Conditions
Pursuant to section 459A of the HEA, the Secretaries and Director
establish the terms and conditions that will govern the Loan Purchase
Commitment Program (``Loan Purchase Commitment Program Terms and
Conditions,'' attached as Appendix B to this notice) and the terms and
conditions that will govern the Loan Participation Purchase Program
(``Loan Participation Purchase Program Terms and Conditions,'' attached
as Appendix C to this notice). The Loan Purchase Commitment Program
Terms and Conditions and the Loan Participation Purchase Program Terms
and Conditions are collectively referred to as the ``Terms and
Conditions.'' (The Notice of Intent to Participate, referenced in the
Terms and Conditions, is attached as Appendix D to this notice.)
Outline of Methodology and Factors in Determining Prices
In accordance with Public Law 110-227, the goal in structuring the
Purchase Program and the Participation Program described in this notice
is to maximize student loan availability while ensuring loan purchases
result in no net costs to the Federal Government. These programs will
offer temporary liquidity to FFELP lenders at prices that will
encourage their continued participation in the FFELP. This notice
responds, in particular, to the requirement in section 459A of the HEA
for an outline of the methodology and factors considered in evaluating
the price at which loans may be purchased, and describes how the use of
such methodology and consideration of such factors will ensure that no
net cost to the Federal Government results from the loan purchases
under these programs.
Servicing and Financing Costs. In determining the prices described
in this notice, the Secretary and the Secretary of the Treasury
analyzed the costs incurred in making FFELP loans by large and small
lenders, for-profit and not-for-profit lenders, and national and
regional lenders based on publicly available data and consultations
with a number of lenders and financial market analysts. This analysis
examined lender returns in the context of loan servicing and financing
expenses associated with obtaining funding to pay program costs and
finance actual loan disbursements.
The rate of lender returns on FFELP loans in the in-school
and grace periods are effectively set by section 438 of the HEA at the
commercial paper (CP) rate plus 1.19 percent or CP plus 119 basis
points for for-profit lenders (a basis point equals one one-hundredth
of a percent). 20 U.S.C. 1087-1(b)(2)(I)(ii) and (b)(2)(I)(vi)(I)(bb).
For eligible not-for-profit holders, the HEA provides a return of CP
plus 134 basis points. 20 U.S.C. 1087-1(b)(2)(I)(ii) and
(b)(2)(I)(vi)(II)(bb). (These return levels reflect the net of borrower
interest payments and Federal interest subsidies.) Returns are
different for PLUS loans, which make up a relatively small portion of
overall FFELP volume. These PLUS return levels were reflected in the
cost neutrality calculations but, for simplicity, are not detailed in
this notice.
Lenders reported that loan servicing costs generally
average between 30 basis points and 60 basis points per dollar loaned,
with larger, more efficient lenders typically averaging closer to 30
basis points and small or not-for-profit lenders averaging closer to 60
basis points. Lenders pay the Department a 1 percent fee on each loan
they make. 20 U.S.C. 1087-1(d)(2)(B). In addition, lenders must repay
excess interest payments as required by section 438 of the HEA. 20
U.S.C. 1087-1(b)(2)(v). Because the student borrowers of most loans
subject to the Purchase Program and the Participation Program will be
in school and not making payments on their loans during the 2008-2009
academic year, lenders may need to obtain funding to make these
statutorily-required payments to the Department. Financing costs (i.e.,
interest expenses incurred to obtain capital from deposits or from
private capital markets) typically total 15 basis points for every
dollar loaned.
Subtracting estimated servicing and financing costs from
the lender return levels established in the HEA leaves lenders with
estimated pre-tax returns of CP plus 44-74 basis points for for-profit
lenders and CP plus 59-89 basis points for lenders that are eligible
not-for-profit holders. Lenders finance loan disbursements from these
returns. If lenders sell participation interests in their loans under
the Participation Program, they are charged CP plus 50 basis points,
leaving a net pre-tax return of -6 basis points to 24 basis points for
for-profit lenders. If lenders can obtain private financing at a lower
interest rate, their net pre-tax return would be higher.
Based on this background information, the Secretaries and Director
determined that setting the price paid by lenders on a participation
interest in a loan at the principal of that loan and the commercial
paper rate plus 50 basis points would offer most lenders sufficient
opportunity to continue their participation in the FFELP. Setting a
higher price risks limiting participation to only the largest lenders,
while offering a lower price would be overly generous, especially for
those same large lenders.
Origination and Deconversion Costs. In addition to servicing and
financing costs, lenders incur administrative costs to originate loans
and remove or ``deconvert'' loans from their servicing systems. In
determining the proper price to reimburse lenders for these costs, the
Department and the Department of the Treasury analyzed information from
lenders and servicers.
The Department and the Department of the Treasury consulted with
lenders, who provided them with their estimated origination and
deconversion costs. Larger, more efficient lenders indicated that their
origination costs ranged between $20-$30 per loan while these costs for
smaller lenders were $75 per loan. Lenders indicated that their
estimated deconversion costs (i.e. the costs resulting from the process
of taking a loan from one lender's servicing system and transferring it
to another servicing system) ranged from $20-$50 per loan.
To ensure the Participation Program is open to more than just the
largest lenders, the Secretaries and Director used these estimates to
establish a flat $75 fee paid on each loan sold to the Department to
cover all servicing, origination, and deconversion costs. This assumes
the lower end of the origination cost range and the higher end of the
deconversion costs range.
Pricing structures on many private servicing contracts tend to have
costs that differ greatly for different services, with high origination
costs and relatively low deconversion costs, or at times, the converse.
Notwithstanding these differences, the Secretaries and Director are
reasonably certain that the $75 fee accounts for these variations
while ensuring adequate participation in the Participation Program.
Analysis of Cost Neutrality
The cost-neutrality analysis used credit subsidy cost estimation
procedures established under the Federal Credit Reform Act of 1990
(Pub. L. 101-508) and OMB Circular A-11. These procedures entail
performing various analyses, projecting cash flows to and from the
Government, and discounting those cash flows to the point of
disbursement; the analysis also used the Credit Subsidy Calculator
(``OMB calculator''), developed by the Office of Management and Budget
to estimate credit subsidy costs for all Federal credit programs, as
the discounting tool.\2\ The results of the analysis were subsidy rates
that reflect the Federal costs associated with a loan; these costs are
expressed as a percentage of the credit extended by the loan. For
example, a subsidy rate of 10.0 percent indicates a Federal cost of $10
on a $100 loan.
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\2\ The OMB calculator takes projected future cash flows from
the Department's student loan cost estimation model and produces
discounted subsidy rates reflecting the net present value of all
future Federal costs associated with loans made in a given fiscal
year. Values are calculated using a ``basket of zeros'' methodology
under which each cash flow is discounted using the interest rate of
a zero-coupon Treasury bond with the same maturity as that cash
flow. To ensure comparability across various Federal credit
programs, this methodology is incorporated into the calculator and
used government-wide to develop estimates of the Federal costs of
credit programs.
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The metric to determine cost neutrality was that costs under the
new Programs should not exceed costs expected under the FFELP had the
loan purchase authority in section 459A of the HEA not been enacted.
Thus all costs were compared to estimates in the 2009 President's
Budget for the FFELP, after adjustments were made for enacted
legislation (other than the loan purchase authority provided by Pub. L.
110-227), including administrative costs.
Student loan cost estimates were developed to assess the Federal
cost incurred for loans financed for students in five categories:
Students attending proprietary schools, students attending two-year
schools, freshmen/sophomores at four-year schools, juniors/seniors at
four-year schools, and students in graduate programs. Risk categories
have separate assumptions based on historical patterns--for example,
the likelihood of default or the likelihood of statutory deferments or
discharge benefits--of borrowers in each category. The analysis also
considered risk factors that are particular to the new programs, such
as the likelihood that lenders involved in loan participation
agreements file for bankruptcy protection.
This discussion outlines the analysis of the new Purchase Program
and Participation Program with respect to the following critical
aspects affecting the Federal cost:
[cir] Administrative costs;
[cir] Borrower behavior;
[cir] Lender behavior; and
[cir] Various risk factors.
Administrative Costs. Under the Federal Credit Reform Act, Federal
administrative costs are not included in credit subsidy cost
calculations. However, to capture the full cost of the Purchase Program
and Participation Program, section 459A of the HEA requires the
determination of cost neutrality to include total costs, including
Federal administrative costs that are subject to appropriation, and
thus administrative costs were estimated and included in the cost-
neutrality analysis. Administrative cash flows primarily involve
servicing costs associated with loans purchased by the Department.
These costs extend for up to 40 years, because servicing must continue
until the last loan is paid in full. Administrative costs also include
start-up costs to enhance the Department's systems to accommodate the
purchase of participation interests and any put FFELP loans. Other
start-up costs include legal and technical advisory contracts and
changes to Department accounting, reporting, and program compliance
systems and processes.
For the new programs, the Secretaries and Director estimated that
start-up costs would be $15.7 million and servicing costs would vary,
according to the amount of volume in the program. Estimates for start-
up costs were derived from conversations with the Department's existing
service contract providers, while servicing cost estimates were derived
from costs currently incurred with the Department's Federal Direct Loan
servicing contract.
Borrower Behavior. Given the base FFELP serves as the foundation of
the new programs, and the characteristics of the base program are
unchanged, there is no reason to believe that the Purchase Program and
Participation Program outlined in this notice will affect borrower
behavior. Thus, this cost analysis uses the same borrower behavior
assumptions as were used in preparing the 2009 President's Budget to
gauge the effect on program costs of borrower-based activities such as
loan repayment, use of statutory benefits such as deferments and loan
discharges, and default rates and timing. These assumptions are based
on a wide range of data sources, including the National Student Loan
Data System, the Department's operational and financial systems, and a
group of surveys conducted by the National Center for Education
Statistics such as the 2004 National Postsecondary Student Aid Survey,
the 1994 National Education Longitudinal Study, and the 1996 Beginning
Postsecondary Student Survey.
Lender Behavior. A key factor in assessing whether the Purchase
Program and Participation Program would operate in a cost-neutral
manner was lender behavior: Specifically, how many lenders would
participate in each program and how many loans would they eventually
choose to sell to the Department. The Secretaries and Director
considered alternative scenarios of market conditions and lender
behavior to determine whether each program could be considered cost-
neutral.
In one scenario, the Secretaries and Director assumed that market
conditions would not improve and that FFELP lenders would put or sell
participation interests to the Department in 100 percent of all FFELP
loans made for the 2008-09 academic year. At the end of the
participation period, FFELP lenders would also put 50 percent of those
loans to the Department. The Secretaries and Director assumed that the
loan volume would be $65 billion and that the total portfolio would be
similar to the expected 2008-2009 school year of student loans under
the FFELP before enactment of the loan purchase authority in Public Law
110-227.\3\ Further, the loans purchased at the end of the
participation period would be representative of the total loan volume.
Under this scenario, we determined that costs for both the Purchase
Program and the Participation Program were less expensive to the
Government than for the baseline subsidy costs for FFELP loans costs
for the FFELP baseline in this period. (Please see Table 2, located in
Appendix A, for a summary of the analysis for this scenario, which also
includes the risk factors discussed in this notice.)
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\3\ This loan volume assumption is the full FFELP non-
consolidation estimate for the 2008-2009 academic year (as presented
in the 2009 President's Budget) and is adjusted to include increases
to unsubsidized Stafford Loan limits provided for in Pub. L. 110-
227.
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The Secretaries and Director also considered other scenarios. In
those scenarios, the Secretaries and Director sorted the expected FFELP
volume under the Purchase Program and Participation Program into three
[[Page 37425]]
categories: Loans made by lenders and sold to the Department; loans
made by lenders on which the lenders first sold participation interests
to the Department and then, on September 30, 2009, sold the loans
themselves to the Department; and loans made by lenders on which
participation interests were sold to the Department but then redeemed
by the lender, for a cash payment, eliminating the Department's
participation interest. In general, the Secretaries and Director
derived volume allocations under particular scenarios by making
assumptions about near-term market conditions, likely lender behavior
based on type of lending institution and operational capability, and
projecting lender demand for any particular option under those
conditions.
One of these scenarios, considered to be one of the most costly to
the Government, would be that market conditions improve significantly
over the next year, and that lenders sell a greater proportion of
higher cost loans to the Government (in a process often termed
``cherry-picking''). A Congressional Budget Office analysis, and other
analyses, of the FFELP portfolio have found that certain loans are more
profitable for FFELP lenders than others. In particular, borrowers with
small balances provide relatively little margin income relative to the
fixed costs lenders face to service those loans. Some borrowers,
including those that attended schools with higher than average default
rates, are more likely to become delinquent and, consequently, present
higher expected default costs, and greater losses of margin income due
to default.
The Terms and Conditions seek to reduce the impact of these risk
factors. For example, program guidelines requiring lenders to sell all
2008-09 Stafford loans held for a specific borrower, combined with the
administrative complexity and expense of identifying and deconverting
only less profitable loans, make it less likely that lenders will
choose to sell only poorly-performing loans to the Department.
Nevertheless, if financial markets improve to the point where
lenders can finance most loans privately, they might still sell those
least profitable loans to the Department. In this situation, borrowers
with very low balances will present relatively high servicing costs to
the Department per dollar of outstanding balance.
Under the scenario described in the preceding paragraph, the
analysis estimates 4 percent of FFELP volume ($65 billion in the 2008-
2009 academic year) will be loans made by lenders and sold to the
Department; 32 percent of volume ($21 billion) would be loans for which
participation interests, and then the loans themselves, would be sold
to the Department; and 32 percent ($21 billion) would be loans for
which participation interests were sold, but then redeemed.\4\ Cost
estimates assuming these volume allocations and risk adjustments for
this scenario still compared favorably with the costs for the base
FFELP. (Please see Table 3, located in Appendix A, for a summary of the
analysis for this scenario and the risk factors discussed in the
following sections.)
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\4\ The loan volume assumption in this scenario was developed
through conversations with a variety of lending institutions.
Depository lending institutions indicated that they would use their
own capital to originate new student loans rather than take
advantage of the participation agreement structure. Non-depository
institutions indicated they would use participation agreements. For
the top 100 lenders in FY 2007, which together accounted for over 80
percent of FFELP non-consolidation volume, 33 percent of volume was
originated by depository institutions and 67 percent by non-
depository institutions. (Figures for non-depository institutions
include loans made by depository institutions acting as eligible
lender trustees.)
Lenders currently have $50 billion in warehouses and substantial
additional loans securitized in rollover accounts that will require
long-term refinancing. These inventory stocks may provide lenders
with an incentive to put loans. Representatives of depository
institutions indicated they may increase volume to ensure students
have access to loans, but may not want to maintain this additional
volume on their books.
In consideration of these factors, estimates assumed all 2008-
2009 FFELP non-consolidation loan volume originated by depository
institutions over the level originated for 2007-2008 and 50 percent
of 2008-2009 loans originated by non-depository institutions and
included in the Loan Participation Purchase Program will be put.
Estimates further assumed that all loans of $1,000 or less would be
put first, with the balance up to the total amount put made up of
loans of over $1,000.
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It should also be noted that, in addition to the examples discussed
herein that represent certain abnormal market and lender behavior
conditions, all other alternatives under which the Purchase Program and
Participation Program were analyzed were less expensive than base FFELP
costs.
Risk Factors. Analyzing whether the Purchase Program and
Participation Program would operate in a cost-neutral manner requires
that projected costs account for the presence of various risks and cost
factors that must be assumed since the programs will not operate
entirely like the base FFELP, nor without operational risk. In addition
to cherry-picking, the Secretaries' and Director's estimates included
adjustments for four other factors: that lenders involved in loan
participation agreements file for bankruptcy protection (``bankruptcy
remoteness''); that lenders redeem their participation agreements
early, reducing Federal earnings from the participation interests
acquired (``interest adjustments''); that unforeseen problems undermine
the Department's ability to effectively oversee and administer the
Purchase Program and Participation Program (``operational risk''); and
that some of the loans purchased by the Department would be those where
the Department would otherwise reject a claim under the FFELP program
(``claim rejects'').
The Terms and Conditions for each program seek to reduce the impact
of these risk factors. None of these factors is likely to lead to
significant additional Federal costs. For example, the requirement that
lenders sell participation interests that total at least $50 million
will limit involvement to large financial institutions that, in
general, are financially stable and not likely to proceed to
bankruptcy. Additionally, upon filing for bankruptcy, the yield owed by
the lender to the Department increases from principal of that loan and
the commercial paper rate plus 50 basis points, to principal of that
loan and the commercial paper rate plus 300 basis points.
However, to ensure estimates reflect a conservative assessment of
possible Federal costs, the Secretaries and Director added cost
adjustments to incorporate each risk factor in all of the scenarios
noted in the preceding paragraphs. The adjustments were based on an
assessment of private-sector behavior and program data as follows:
Bankruptcy remoteness. The Government might face legal
risks if a lender declares bankruptcy while holding rights to loans
under the participation agreement. The Secretaries and Director believe
that the structure to be utilized under the Participation Program
offers sufficient bankruptcy protection, in that legal title of these
participated loans will be placed in a custodial facility, and that the
participation agreement vests the Government with a valid security
interest under the Uniform Commercial Code. Nonetheless, a bankruptcy
court might tie up control of the loans until the claims of other
creditors are settled. This risk is more present if markets remain
distressed during the next one to two years as the likelihood of
bankruptcy is higher; however, the risk never goes to zero entirely.
For the scenario in Table 2 below (where the market conditions do not
improve), the analysis assumes an increase in cost of 15 basis points.
For the scenario in Table 3, where market conditions do improve, the
analysis assumes an increase in cost of 5 basis points. Assumptions are based on an
estimated one-year default rate of lenders and potential recoveries on
default.
Interest adjustments. If financial market conditions
significantly improve between now and the end of September 2009,
lenders that took advantage of the participation agreements might opt
to buy their loans out early and finance them privately through more
favorable rates. While this outcome is highly desirable from a policy
perspective, it would deprive the Department of some of the margin
income it might expect from the participation agreement under a
scenario where lenders opt to maintain their loans in the participation
agreements until the last possible moment. The cost neutrality analysis
below assumes a 20 basis point increase in the cost for interest that
the Department does not realize, based on the expected placement of
FFELP loans in the participation interest program, and the difference
between the commercial paper rate plus 50 basis points lenders must pay
the Department and the cost of Government borrowing.
Operational risk. Operational risk is in general a major
concern in all credit activities in both the public and private
sectors, and has been a major focus in recent efforts to overhaul bank
regulations. (Operational risk is limited in this analysis to that
related to funding and management of the participation or loan purchase
agreements.) In the new Purchase Program and Participation Program,
operational risk might result from imperfect controls of ineligible
lending, servicing errors, technology failures, and the risk of fraud.
While the Department has made every effort to mitigate operational
risk, the emergency nature and accelerated implementation timeframe for
these Programs make operational risk more of a concern than in
established Department programs. For the low risk scenario, the
analysis below assumes a 10 basis point increase in cost, reflecting
risks other than credit or market risk, as banks are currently required
to finance on average about eight percent of their assets with capital.
For the high scenario, we raised the factor related to operational risk
by 70 basis points to equal a total of 0.80 percent. We estimated this
worst-case scenario using survey data from bank regulators implementing
an overhaul of bank regulations. The largest United States banking
organizations will be subject to a new system of capital requirements
which includes an explicit charge for operational risk. Under that
regulation banks must develop models generating a probability
distribution of losses for operational risk, and hold capital equal to
the 99.9th percentile of that estimated probability distribution. Banks
were surveyed to measure the anticipated impact of the regulation.
Using the best available models of operational risk, the banks reported
that operational risk would account for roughly ten percent of their
required capital. As banks currently finance on average about eight
percent of their assets with capital, worst-case scenario operational
risk losses can thus be estimated at about one percent of total assets.
Also, while we do not believe that this program has, or necessarily
will, face such a level of operational risk, we developed the high
scenario to ensure that the program is cost neutral, even under extreme
and unlikely circumstances.
Claim rejects. This risk factor takes into account the
costs associated with the purchase of loans that would not typically
qualify for the federal guarantee in the FFEL program due to improper
origination or servicing. The 6 basis point increase in cost is based
on a historical rejected claim rate of 1 percent of volume, and assumes
that these loans would have higher loss rates than the average
portfolio.
Cost estimates reflecting these factors, for each of the market
condition and lender behavior scenarios discussed elsewhere in this
notice, were calculated and included, as illustrated in Tables 2 and 3.
As those analyses show, even with these risk adjustments, the estimated
costs of the loans included in the Purchase Program and Participation
Program remained lower than those for standard FFELP loans.
Conclusion. After taking into account alternative market and lender
behavior scenarios and appropriate risk factors, the Secretaries and
Director determine that the Purchase Program and Participation Program
are in the best interest of the United States and will result in no net
cost to the Federal Government (including the cost of servicing the
loans purchased).
Applicable Program Regulations: 34 CFR part 682.
Electronic Access to This Document
You may view this document, as well as all other Department of
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To use PDF you must have Adobe Acrobat Reader, which is available
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Note: The official version of this document is the document
published in the Federal Register. Free Internet access to the
official edition of the Federal Register and the Code of Federal
Regulations is available on GPO Access at: http://www.gpoaccess.gov/
nara/index.html.
(Catalog of Federal Domestic Assistance Number 84.032 Federal Family
Education Loan Program)
Program Authority: 20 U.S.C. 1087i-1.
Dated: June 25, 2008.
Margaret Spellings, Secretary of Education.
Dated: June 25, 2008.
Henry M. Paulson, Jr., Secretary of the Treasury.
Dated: June 25, 2008.
Jim Nussle, Director, Office of Management and Budget.
BILLING CODE 4000-01-P
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[FR Doc. E8-14820 Filed 6-30-08; 8:45 am]
BILLING CODE 4000-01-C
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